STRENGTH THROUGH STRATEGY
2011 Annual Report
OVERVIEW
EMECO AT A GLANCE
Who we are
Emeco is a leading independent supplier of heavy
earthmoving equipment solutions to the global
mining industry with operations in Australia,
Indonesia and Canada.
Our vision
To contribute to a sustainable and productive
mining industry and to provide a great workplace
for our people and teams.
Our mission
To add value to our customers through cost
effective equipment and service solutions.
We deliver sustainable financial returns by:
• Behaving appropriately
• Building our capabilities
• Focusing on our customers
• Enhancing our service offering
Our strategic focus
Business
Our business strategy is based on the three
pillars of:
• Optimise the Core
• Sustainable Growth
• Consistent Value Creation
for Shareholders
People
Our strategy for Emeco people (Empower) is
about delivering a great place to work for
employees. We regularly review our internal
human resource systems and processes and
identify opportunities for continuous internal
improvement.
6%
2%
34%
RENTAL REVENUE
BY COMMODITY
■ THERMAL COAL
■ GOLD
■ COKING COAL
■ OIL SANDS
■ ZINC
■ IRON ORE
■ CIVIL
10%
12%
16%
19%
CUSTOMER MIX
■ MINERS
■ CONTRACTORS
34%
66%
FLEET WEIGHTING
■ LARGE MINING FLEET
■ SMALL MINING FLEET
■ CIVIL
6%
45%
49%
RENTAL REVENUE
BY COMMODITY
CUSTOMER MIX
FLEET WEIGHTING
Strength through strategy
The strategy we communicated in July 2010 has refocused
Emeco on providing large mining equipment into growing
mining markets with a commitment to deliver superior
value to shareholders
Contents
02
04
06
10
13
16
17
18
24
25
Key Achievements
Chairman’s Report
Managing Director’s Report
Chief Financial Officer’s Review
Review of Operations
Board of Directors
Executive Leadership Team
Sustainability Report
Five Year Financial Summary
Financial Report
EMECO HOLDINGS LIMITED ANNUAL REPORT 2011
YEAR IN REVIEW
KEY ACHIEVEMENTS
Highlights
FY11 Target
FY11 Achievement
Improve shareholder
returns
Improve safety
performance
ROC increased to 11.3% (FY10: 8.3%). EHL TSR
outperforming ASX 200. Total dividends of
10 cents declared, fully franked
LTIFR improved to 2.4 per million man hours
Launch new business
strategy
Strategic Framework communicated
to the market in July 2010
Implement Emeco people
strategy
“Empower” internal people strategy launched
and performing well
Complete business
restructure
Restructure complete. $56 million capital
released through exit of USA, European
and Victorian businesses and downsizing
of Sales inventory
Reconfigure fleet towards
large mining equipment
Large mining equipment was 49% of the total fleet
at 30 June 2011 (36% at 30 June 2010)
Refinance debt facilities
$450 million senior debt facilities financed
for 3 and 5 year terms
Review sustainability
performance
Inaugural sustainability report included
within 2011 Annual Report
Improve fleet utilisation
Global fleet utilisation averaged 85% in
FY11 (72% in FY10)
2
EMECO HOLDINGS LIMITED ANNUAL REPORT 2011
Financial summary
SALES REVENUE ($M)
OPERATING NPAT ($M)
617.9
67.5
502.5
443.7
405.0
57.7
56.0
41.1
2008
2009
2010
2011
2008
2009
2010
2011
INVESTED CAPITAL ($M)
EBIT ROC (%)
1126.0
1053.8
1005.4
896.9
11.1
11.3
9.4
8.3
2008
2009
2010
2011
2008
2009
2010
2011
FREE CASH FLOW PER SHARE (CPS)
DIVIDENDS (CPS)
7.2
3.9
-5.6
-2.8
10.0
4.5
4.0
2.0
2008
2009
2010
2011
2008
2009
2010
2011
EMECO HOLDINGS LIMITED ANNUAL REPORT 2011
3
3
YEAR IN REVIEW
CHAIRMAN’S REPORT
The significant capital investment program
being pursued in FY12 reflects Emeco’s
positive outlook for mining activity
• Strategy launched in
• Total shareholder
• Business well
July 2010 translating
to improved
returns and TSR
outperformance
dividends of 10 cents
declared for FY11,
fully franked
positioned to benefit
from strong activity
and growing mining
geographies
Dear Shareholder,
We are pleased to present the Emeco Holdings Limited
Annual Report for financial year 2010/2011 (FY11).
Building a platform for sustainable growth
The past twelve months has been a time of exciting change
and development for Emeco. In July 2010 we agreed that
the best value creating strategy for Emeco was to focus
our dry rental model more on serving our mining customers
in the major mining provinces of the world. The early steps
in implementing this strategy have produced very
encouraging results.
Among the notable achievements during the year were
the timely implementation of our restructuring initiatives,
the successful refinancing of our debt facilities, advancing
our people strategy and further investment in large mining
equipment. These actions have translated into improved
shareholder returns with Emeco achieving a Total Shareholder
Return (TSR) well in excess of the ASX 200 index over the past
12 months.
Despite a backdrop of ongoing volatility in global markets over
the past year, we continued to observe significant growth
in mining activity across all of our markets. Emeco’s fleet
utilisation reflected these strong activity levels resulting in
net profit after tax before significant items (operating NPAT)
improving by 36.3% to $56.0 million and return on invested
capital (ROC) increasing from 8.3% to 11.3% over the past
twelve months. Statutory NPAT for the full year was $49.6
million reflecting a small loss from discontinued operations
and a one-off debtor impairment in Indonesia.
During the year we had the opportunity to visit a number of
Emeco’s operating sites as well as meet with customers, both
domestically and internationally. Meeting our employees
and speaking directly with our customers to understand
how Emeco adds value to their operations is always deeply
informative. What we learn time and again are the benefits
of Emeco’s flexible fully maintained dry rental service. As we
continue to focus on our strategic pillars of “optimise the
core business” and “sustainable growth”, we will keep our
customers’ changing needs at the forefront of our planning to
ensure we develop long-term mutually beneficial partnerships.
Managing capital efficiently
Central to delivering acceptable returns to shareholders is
ensuring investment is directed towards quality assets, with
any excess capital being duly returned to shareholders if it
is surplus to the Company’s needs.
As part of the strategic review we identified a number of
non-core businesses and assets that have subsequently been
disposed. These activities have resulted in the release of over
$56 million, or 8.9 cents per share, in underperforming capital
over the course of FY11.
Of the total capital released, the Board resolved to return
$31.6 million to shareholders in the form of a 5.0 cents per
share fully franked special dividend. This initiative returned
surplus capital and distributed some surplus franking credits
to shareholders while maintaining the balance sheet capacity
and gearing levels to pursue growth. In addition the Directors
have declared interim and final dividends of 2.0 cents per
share and 3.0 cents per share, both fully franked.
During the year we also successfully refinanced our debt
facilities with our existing banking syndicate, achieving
certainty around funding availability over the next three
to five years to meet our growth objectives.
4
EMECO HOLDINGS LIMITED ANNUAL REPORT 2011
Safety
The safety of our employees and those we work with is a key
priority of the Board and we remain committed to continuous
improvement in this area and our ultimate objective of “zero
harm”. Emeco continues to progress towards creating a world
class safety management culture and we remain vigilant and
committed to making Emeco an even safer workplace.
Our people, community and the environment
I am pleased to report that Emeco is publishing its inaugural
sustainability report within the FY11 annual report. This
re-enforces the Company’s ongoing commitment to its
people, community and environment.
We are working to deepen our engagement with the
community and to improve our approach to measuring and
managing our environmental footprint. I’m confident we are
making the necessary progress in these areas, while delivering
long-term, satisfactory returns to our shareholders.
Our employees continue to make outstanding contributions
to the success of the Emeco business. On behalf of the Board
I would like to take this opportunity to thank everyone
for their efforts over the past twelve months and for their
ongoing commitment.
The future
In recent months we have seen the re-emergence of risks to
the global economy and financial system. We believe we are
in a good position to manage these risks and we remain alert
to the environment in which we operate.
At the same time we continue to observe robust commodity
demand from emerging market economies which is driving
strong fundamentals for the global mining industry. As a
service provider to the mining sector, Emeco retains a positive
outlook on activity levels in the near term which underpins
FLEXIBLE, FULLY MAINTAINED
EQUIPMENT SOLUTIONS
An Australian gold producer was seeking a reliable and flexible,
complete equipment solution with a short start-up lead time.
SOLUTION:
Emeco was able to provide 15 employees, a fully maintained
fleet, two remote workshops and supporting infrastructure
totalling $20 million of capital within 4 weeks of contract
award.
Emeco’s service and equipment offering has evolved with the
needs of the customer throughout the contract, increasing
to 32 employees and $40 million of capital employed.
The best value creating strategy for Emeco is to
focus on serving customers in the major mining
provinces of the world.
the significant capital investment program being pursued in
FY12 and provides opportunities for geographic expansion
into the world’s major mining regions.
The Company now has a solid base from which to grow having
completed the restructure. In the year ahead, we will continue
our focus on improving the performance of our existing
businesses while pursuing growth which delivers superior
returns for our shareholders.
ALEC BRENNAN
Chairman
100 TONNE TRUCKS
SERVICE EQUIPMENT
14H GRADERS
16H GRADERS
180 TONNE DIGGER
D10 DOZERS
100 TONNE DIGGERS
WATER CARTS
85 TONNE DIGGER
EMECO HOLDINGS LIMITED ANNUAL REPORT 2011
5
YEAR IN REVIEW
MANAGING DIRECTOR’S REPORT
Continual optimisation of the core business
and disciplined investment in global mining
markets is delivering sustainable growth
• Restructure activities
completed in FY11
with business
improvements
continuing
• Strategic focus now
on “Sustainable
Growth” of large
mining fleet in global
mining regions
• Further improvement
in safety performance
with LTIFR at 2.4 per
million man hours
The primary objective of the strategy I outlined in July 2010
was to improve returns and deliver value to shareholders. It is
timely to reflect on the progress we have made over the last
twelve months, the contributions made by our people across
the business, and the continued growth in activity in our core
markets, which together have resulted in our return on capital
improving to 11.3% in FY11 (FY10: 8.3%).
Market overview
Over the past twelve months we have witnessed continued
growth in activity across the resource sector globally, which
has translated into strong demand for Emeco’s equipment
rental and maintenance services. We achieved strong
fleet utilisation in the first half of the year, building on
the momentum we experienced at the end of FY10. While
utilisation has marginally declined in the fourth quarter due
to some specific issues in Canada and Indonesia, underlying
market fundamentals remain strong.
The Emeco Group delivered an operating NPAT of $56.0
million in FY11, representing a 36.3% increase on FY10.
Statutory NPAT for the year was $49.6 million inclusive of a
small loss from discounted operations and a one-off debtor
impairment in Indonesia.
The performance of the Australian rental business reflected
the well-documented strength of the country’s resource
sector. Emeco’s significant exposure to coal, gold and iron
ore underpinned average utilisation of 89% in FY11, up from
78% in FY10. While the wet weather events in Queensland
somewhat impacted earnings, the overall performance of
the Australian business in FY11 was encouraging and set a
benchmark for our businesses operating in other markets.
FY11 was the first year that the Canadian business had a full
mining fleet aligned to the oilsands and coal markets following
the restructuring of the fleet throughout FY10. Average
utilisation recovered from 57% in FY10 to 78% in FY11, and
return on funds employed improved from 2.8% to 11.3%
over the past year. There is more work required to lift returns
to acceptable levels, however the improved performance in
FY11 and the early success with strategies being pursued to
further develop the business provides a solid foundation to
drive performance higher over the coming years.
The performance of the Indonesian business in FY11
dampened an overall positive year for the Emeco Group.
Despite utilisation remaining flat year on year at around 76%,
Indonesia’s earnings were significantly impacted by a debtor
impairment related to our largest customer in the region.
The residual costs of removing the fleet from site further
reduced earnings in the second half. However, the outlook for
Indonesia is positive with strong underlying volume growth,
some new customers, and management in place to capitalise
on these opportunities.
Strategy
When we communicated our strategy to the market in July
2010 we identified two areas of focus which will deliver value
to shareholders. These were continual optimisation of the
core business and disciplined investment in global mining
markets to deliver sustainable growth.
Optimise the Core
The efforts and achievements of our people over the past
twelve months were largely focussed on optimising the
business. This included refocusing our operations on growing
6
EMECO HOLDINGS LIMITED ANNUAL REPORT 2011
Continued growth in activity across the resources sector globally has translated into
strong demand for Emeco’s equipment rental and maintenance services.
RELIABLE PRODUCTION
SOLUTIONS
Emeco was engaged by a thermal coal miner with an open cut
truck and shovel fleet as well as in-pit crusher and conveyor
system, to provide a service and equipment solution that would
help achieve production targets of 12 million tonnes per annum.
SOLUTION:
Emeco’s solution has evolved with the needs of the customer
over the past two years to include the dry-hire supply of
30 pieces of equipment, full equipment maintenance services
and 20 employees. Emeco also provides equipment supervisory
and planning resources to site. The customer has reviewed
production targets and is currently working towards
reaching 15mtpa.
240 TONNE TRUCKS
777 WATER CART
16M GRADERS
988H WHEEL LOADER
35 TONNE ARTICULATED TRUCK
190 TONNE TRUCKS
D11T DOZER
EMECO HOLDINGS LIMITED ANNUAL REPORT 2011
844 WHEEL DOZER
773 SERVICE TRUCK
7
YEAR IN REVIEW
MANAGING DIRECTOR’S REPORT
We firmly believe that investment in our
people is key to Emeco’s future success
mining markets, liberating underperforming capital, capturing
cost and operating efficiencies and enhancing the customer
value proposition. Across Emeco we completed a broad range
of activities including the closure or disposal of the USA,
Europe, and Victorian businesses, reconfiguring our fleet
in Canada and Australia, improving internal processes, and
developing and implementing our strategy for Emeco people.
These activities converted $56.1 million of underperforming
capital into cash in FY11 which was in part returned to
shareholders and in part reinvested in organic growth
capital. In addition, we expect our continued focus on
business improvement initiatives to deliver a range of
benefits including cost efficiencies and reduced
commercial and operating risk.
Our primary objective in the first year of our strategy
was to refocus the business strategically and financially.
I’m satisfied that we have met this objective in FY11, with
Emeco now comprising three mining Rental businesses
in Australia, Indonesia and Canada plus complimentary
Procurement, Disposal and Parts capabilities. With the
restructure activities now complete, Emeco is well
positioned to deliver acceptable shareholder returns.
Sustainable Growth
We are currently observing strong market fundamentals for
coal, iron ore and gold in Australia, coal in Indonesia and
oilsands in Canada. This dynamic represents organic growth
opportunities for Emeco, and we continue to pursue project
based opportunities that require fleets of equipment and
on-site maintenance support and expertise.
Further, a review of our fleet strategy concluded that large
mining equipment consistently delivered higher returns
across the mining cycle and as a result we have committed
$165 million to organic growth investment in large mining
equipment in FY12. These investments will be deployed
across Australia and Canada throughout the year and will
be a key contributor to earnings growth in FY12. However,
transportation and preparation of equipment new to the fleet
can take several months from the time of payment and for
ACCREDITING OUR SAFETY PERFORMANCE
In Canada, Emeco has been working with the Alberta
Government to gain a Certificate of Recognition (COR)
for health and safety performance. Emeco successfully
completed the external COR health and safety audit
process, achieving 95% compliance. We understand from
the auditor that results this high are quite rare and this is
a significant achievement.
Being awarded a COR not only recognises that Emeco’s
Canada operations meet or exceed standards set by the
regulator, it also enables a company to claim rebates on its
workers’ compensation payments which has the added
benefit of reducing future business costs.
Emeco continues to improve its safety
management systems and capabilities.
8
EMECO HOLDINGS LIMITED ANNUAL REPORT 2011
As part of Empower, Emeco’s people strategy, a number of internal improvement projects
were implemented in FY11. These initial improvement projects are centred around training
and development, career planning and performance management.
I would like to thank each and every one of our employees
for maintaining their focus on safety, for their tireless
efforts in delivering results aligned to our strategy and their
contribution towards ensuring we have a safe and compliant
workplace for Emeco people and those we work with.
Looking forward
As we look to FY12 and beyond, we are aware of the
emerging risks to global economic growth and the potential
impact on commodity volumes. Notwithstanding these
broader economic risks, the current outlook is for further
growth in earthmoving volumes given the strong commodity
fundamentals and a positive outlook for the resources sector.
As a result, I expect Emeco to benefit from this dynamic
with strong fleet utilisation and the opportunity to grow the
business through organic growth, geographic expansion or
acquisition, being mindful that growth must be sustainable
and exceed the Company’s hurdle rates on a risk adjusted
basis.
The Company has a clearly articulated focus on consistent
value creation for shareholders. With a strong presence and
committed teams in our key markets of Australia, Indonesia
and Canada, I am confident that we will make further progress
in delivering on our objectives in FY12.
KEITH GORDON
Managing Director & Chief Executive Officer
this reason we expect most of the improvement in return on
capital from these investments to be realised in FY13 when
we will realise a full year of earnings from the expanded
capital base.
In a market where equipment availability is challenging,
the value of our global procurement capability has been
demonstrated with our investment program in FY12. The
ability to source equipment from the global market provides
flexibility to grow and enables us to provide our customers
with equipment without them being constrained by long lead
times for new equipment. The completion of our business
restructure program and our balance sheet capacity allows
us to explore other avenues for growth. However, whether
it is organic growth, geographic expansion or growth by
acquisition, we remain very mindful of our focus on creating
value for shareholders.
People & safety
In addition to executing business and fleet strategies during
the year, we developed and established our strategy for
Emeco people. Based on feedback from our employees,
we launched Empower (our people strategy) and our
global vision, mission and values. Empower aims to build
a common understanding for all employees about our goals
as a business, explain how all employees can contribute
to the success of the business, and increase employee
engagement. Empower is about making Emeco a great place
to work. As part of Empower, we have launched a number
of initial improvement projects centred around training and
development, career planning and performance management.
We firmly believe that investment in our people is key to
Emeco’s future success.
Safety remains a top priority for the Board and Executive
Leadership Team. Over the course of the year we continued
to make progress in enhancing Emeco’s safety management
systems and capability. Pleasingly, we saw a reduction in the
Lost Time Injury Frequency Rate (LTIFR) to 2.4 per million man
hours for the twelve months to 30 June 2011.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2011
9
YEAR IN REVIEW
CHIEF FINANCIAL OFFICER’S REVIEW
Strong operating cash flow and capital
release has enabled investment for growth
as well as returning funds to shareholders
• Significant
• Debt refinance,
• Cash realised from
improvement in
NPAT and ROC
in FY11
facility headroom
and comfortable
gearing provides
tenor and flexibility
restructure activities
partly returned to
shareholders and
partly funding growth
Our focus during FY11 was on consolidating Emeco’s operating
and financial fitness (optimise the core) which we identified as
the first step to delivering long term acceptable returns
to shareholders.
Against a backdrop of significant growth in earnings and
operating cashflow over the past year, the Company’s financial
position was further secured by refinancing the Company’s
debt facilities, liberating underperforming capital and investing
in targeted fleet for future growth. These achievements have
ensured that Emeco is capable of sustainably growing the
business in the coming years.
Financial results
Group operating revenue was up 13.1% to $502.5 million
in FY11, due to strong demand from our mining customers.
Revenue growth in FY11 was largely attributable to a full
year of high utilisation in Australia and Canada, growth in
maintenance services, improved pricing and the deployment
of organic growth capital.
Mining customers represented 66% of Group rental revenue in
FY11 with 64% of total Group revenue from mine production
activities, reflecting Emeco’s customer profile quality and its
leverage to the mining production cycle. Revenues from the
Sales and Parts businesses were broadly flat year on year as
inventories were downsized and repositioned to align with the
mining rental fleet.
Direct operating costs increased in FY11 in line with higher
utilisation, however additional cost pressures have emerged
in some regions as the supply of labour and parts continues to
tighten. Overheads increased reflecting an investment in the
additional operating and corporate capabilities required for
delivering sustainable growth.
Operating EBIT and EBITDA margins both improved marginally
year on year benefiting from fixed cost leverage, direct cost
Table 1. Financial Results
OPERATING (PRE SIGNIFICANT ITEMS)
STATUTORY (POST SIGNIFICANT ITEMS)
A$ million
Revenue
EBITDA
EBIT
NPAT
Invested
Capital
EBIT ROC %
FY10
444.4
190.4
83.6
41.1
1005.4
8.3%
FY11
502.5
223.3
101.2
56.0
896.9
11.3%
YOY %
13.1%
17.3%
21.0%
36.3%
(10.8)%
35.7%
FY10
461.7
116.7
(11.4)
(49.3)
1005.4
(1.1)%
FY11
515.5
217.3
92.3
49.6
896.9
YOY %
11.6%
86.1%
907.8%
200.6%
(10.8)%
10.3%
1005.6%
10
EMECO HOLDINGS LIMITED ANNUAL REPORT 2011
Group operating revenue was up 13.1% to $502.5 million in
FY11, due to strong demand from our mining customers.
efficiencies and some price increases. The performance of
the Indonesian business in FY11 partially offset these positive
factors. Operating EBIT increased 21.0% in FY11 whereas
EBITDA increased by 17.3% reflecting the earnings leverage
due to the fixed component of depreciation charged on idle
equipment to ensure carrying values of our fleet are preserved
across the economic cycle.
Profit on sale of rental assets (POSA) contributed $2.8 million
to EBIT in FY11 (FY10: $2.9 million) on rental fleet disposals of
$34.6 million (FY10: $44.5 million).
The Australian dollar appreciated approximately 27% against
the US dollar over FY11 which adversely impacted the
translation of earnings from our offshore businesses. However,
we employ a natural hedging strategy on foreign currency risk
for the international businesses whereby our local earnings
and cashflows including revenues, costs, assets and debt
funding are either in US or Canadian dollars.
Despite a lower average debt level in FY11, interest costs
were flat year on year due to the refinancing of Emeco’s
debt facilities in November 2010 which resulted in higher
interest rates. Borrowing costs also included the write-off of
$0.8 million in capitalised borrowing costs at the time of the
refinancing as these costs related to the previous facility.
As a result of the above factors operating EBIT was up 21.0% to
$101.2 million in FY11, and operating NPAT before significant items
increased by 36.3% from $41.1 million to $56.0 million in FY11.
During FY11 Emeco incurred one-off significant items totalling
$6.4 million (post tax), resulting in a statutory NPAT of $49.6
million for the year. The one-off items (on a post tax basis)
include a $0.4 million loss from discontinued operations and a
$6.0 million debtor impairment in Indonesia. A summary of the
FY10 significant items can be found in the 2010 Annual Report.
Further regional analysis is provided in the Review of
Operations section.
Cash flow & balance sheet
During FY11, we further enhanced our balance sheet
capacity through releasing working capital, disposing of
underperforming assets and maintaining a disciplined approach
to capital investment. The Group generated free cash flow
before growth capital investment and dividends of $144.9
million which included working capital and inventory release
of $46.6 million, disposal proceeds of $53.9 million and $87.5
million investment in sustaining capital expenditure.
During the year we made targeted investments in high quality
fleet based on our positive view of long-term growth in earth
moving volumes. We took advantage of our balance sheet
capacity and invested $105.8 million in large mining fleets in FY11
to meet emerging demand in Australia and Canada. $60 million
of the FY11 growth capital relates to the $165 million investment
program announced in June 2011 which we expect to deliver
significant earnings growth in FY12 and higher returns in FY13.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2011
11
During FY11 Emeco’s balance sheet capacity was enhanced through the release of working capital, the
disposal of underperforming assets and by maintaining a disciplined approach to capital investment.
with an improved customer profile and the positive outlook
for the Indonesian coal market that returns will recover in the
near term.
Looking ahead, we are targeting further improvements in ROC
through disciplined allocation of incremental capital into our
core businesses, application of our pricing strategies, and cost
efficiency initiatives.
STEPHEN GOBBY
Chief Financial Officer
The Group’s net debt reduced by $8.7 million to $291.5 million
at 30 June 2011. The net change was the combination of a $26.0
million translation benefit from the appreciation of the AUD,
offset by a $17.3 million increase in underlying debt. Due to the
strong operating cash flow and liberation of underperforming
capital, we were able to invest for future growth and return
funds to shareholders while maintaining a comfortable level
of debt.
During the year Emeco’s senior debt facilities were renewed
with our existing banking syndicate in order to meet the
medium term capital requirements of the business. Credit
market improvements over the past 12 months allowed tenor
to be extended to include a mix of 3 and 5 year maturities
which further enhances our funding risk profile. At 30 June
2011 gearing is 1.38 times (Total Debt: normalised EBITDA),
which is below our target range of 1.5 – 2.0 times, with
undrawn facilities of $198.9 million providing capacity for
future investment opportunities.
Return on capital
The combination of earnings growth in Emeco’s core businesses
and liberation of underperforming capital during the year has
driven an improvement in ROC from 8.3% to 11.3% in the 12
months to 30 June 2011.
The Australian rental business continued to deliver good
returns with Return on Funds Employed (ROFE) (defined as
operating EBIT divided by invested capital less goodwill) of
23.8% in FY11. Canada’s ROFE improved markedly from 2.8% in
FY10 to 11.3% in FY11, however we expect the combination of
additional scale, improved pricing and commodity diversification
to deliver higher returns in the future. Indonesia’s returns
underperformed in FY11 at 6.5%, however, we are confident
12
EMECO HOLDINGS LIMITED ANNUAL REPORT 2011
YEAR IN REVIEW
REVIEW OF OPERATIONS
Continued strong demand for Emeco’s
equipment solutions resulted in fleet
utilisation averaging 85%
• High level of mining
activity in all core
rental geographies
• Australia and Canada
outperforming with
growth capex to drive
earnings in FY12
• Indonesian debtor
impairment impacting
FY11 but strong
fundamentals and
prospects exist
The Emeco Group
Australian Rental
The Group’s operating revenue of $502.5 million and
operating NPAT of $56.0 million were up 13.1% and 36.3%
respectively compared to the prior financial year FY10. The
improvement in earnings were attributable to higher average
rental fleet utilisation of 85% across the year (FY10: 72%) and
additional contribution from the investments in large mining
equipment made over FY10 and FY11. The Group result also
benefited from exiting under-performing businesses.
Significant one-off items excluded from operating NPAT
comprise a $6.0 million (post tax) debtor impairment
in Indonesia and a post tax loss of $0.4 million from
discontinued operations relating to residual assets and
liabilities from the USA, Europe and Victoria businesses.
Emeco’s Australian rental business is leveraged to low cost bulk
commodity and metal producers in Queensland, New South
Wales and Western Australia. During the year 39% of revenue
was derived from coal, 21% from gold, 12% from zinc and 28%
from other commodities (iron ore, copper and construction).
Mining customers represent 81% of Australian revenue, with
the balance of revenue mainly from large contractors.
Operating EBIT increased 34.9% to $98.3 million in FY11 and
ROFE improved from 19.1% to 23.8% reflecting sustained
production and expansion activity across the resource
sector in Australia. The improvement in earnings was the
combination of higher average utilisation of 89% (FY10: 78%)
and deployment of growth capital during the year.
Table 1. Australian Rental – Operating and Statutory Results
OPERATING (PRE SIGNIFICANT ITEMS)
STATUTORY (POST SIGNIFICANT ITEMS)
A$ million
Revenue
EBITDA
EBIT
Fleet WDV at
30 June
Funds
Employed1
EBIT ROFE %
FY10
250.9
141.2
72.9
351.2
382.1
19.1%
FY11
327.2
185.3
98.3
421.2
413.8
23.8%
YOY %
30.4%
31.3%
34.9%
19.9%
8.3%
24.6%
(1) Funds employed defined as average ‘invested capital less goodwill’ for the period.
FY10
270.7
128.8
55.1
388.0
425.0
13.0%
FY11
336.7
186.2
96.5
429.3
435.7
22.1%
YOY %
24.4%
44.6%
75.2%
10.7%
2.5%
70.9%
EMECO HOLDINGS LIMITED ANNUAL REPORT 2011
13
Emeco observed increased activity across the Indonesian resource
industry in FY11, resulting in strong demand for mining equipment.
Table 2. Indonesian Rental – Operating and Statutory Results
OPERATING (PRE SIGNIFICANT ITEMS)
STATUTORY (POST SIGNIFICANT ITEMS)
A$ million
Revenue
EBITDA
EBIT
Fleet WDV at
30 June
Funds
Employed
EBIT ROFE %
FY10
49.3
33.5
15.8
84.3
106.6
14.8%
FY11
44.6
21.0
5.3
53.7
80.4
6.5%
YOY %
(9.6)%
(37.3)%
(66.7)%
(36.3)%
(24.6)%
(55.8)%
FY10
49.3
33.5
15.8
84.3
106.6
14.8%
FY11
44.6
13.1
(2.7)
53.7
80.4
YOY %
(9.6)%
(61.0)%
(116.9)%
(36.3)%
(24.6)%
(3.3)%
(122.4)%
The Queensland operations delivered a significant increase in
earnings. The business enjoyed a full year of high utilisation
following a year of recovery in FY10. Wet weather impacted
production hours over a number of months in the second half
of the year and delayed the deployment of a new truck fleet
to a customer due to road closures. Underlying fundamentals
in this market remained intact with a strong recovery in the
fourth quarter of FY11 following the extended wet season.
The Western Australian business also made a major
contribution to the earnings improvement in Australia
having redeployed a large quantity of idle fleet into new
projects during the second half of FY11. Sustained demand
for equipment in gold, coal and iron ore in Western Australia
translated into a solid operating performance in FY11.
New South Wales maintained consistently high utilisation in
FY11 underpinned by high activity levels in thermal coal while
successfully managing the redeployment of two major fleets
into new contracts during the year.
The loss from the Victorian rental discontinued operation
has been excluded from the operating result.
Indonesian Rental
Emeco observed increased activity across the Indonesian
resource industry in FY11, resulting in strong demand for
mining equipment. Utilisation averaged 77% across the year
(FY10: 76%). Despite positive underlying performance, the
statutory result was impacted by a debtor impairment of
$6.0 million (post-tax) in 1H11.
Operating earnings were further affected in 2H11 as Emeco
incurred $2.7 million of fleet repair and demobilisation costs
that would ordinarily be recharged to the customer involved.
The fleet WDV decreased by 36.3% during FY11 due
to depreciation of the equipment and the $3.3 million
impairment of equipment damaged while being demobilised.
A new management team has been transitioned into the
business in FY11 with the objective of targeting higher
quality customers to improve utilisation, reduce credit
risk and improve returns.
14
EMECO HOLDINGS LIMITED ANNUAL REPORT 2011
Canadian Rental
Canada’s performance improved markedly in FY11 following
the reconfiguration of Emeco’s fleet in this market towards
large mining equipment suitable for mine production and
reclamation works in the oil sands region.
The new fleet mix and the continued ramp up in activity in
the Canadian oilsands contributed to improved utilisation
levels averaging 77.6% (FY10: 56.9%). In addition to
increasing dry-hire rental revenues, the business also
expanded maintenance services income which contributed
$1.2 million in revenue to the FY11 result.
Whilst an extended thaw period and slow start to the oilsands
summer works program impacted 4Q11 earnings the business
delivered a significant year on year improvement in operating
EBIT and ROFE.
Australian Sales & Parts
Emeco’s strategy for the Australian Sales & Parts businesses in
FY11 was focused on exiting inventory not aligned to the core
rental business target market. In line with this strategy these
businesses contributed a small operating loss as margins were
sacrificed in favour of cash release. Over FY11, $29.9 million
of underperforming capital was liberated, leaving combined
inventories of $42.7 million at 30 June 2011.
In FY11 the business enjoyed a full year of high
utilisation following a year of recovery in FY10.
Table 3. Canadian Rental – Operating and Statutory Results
OPERATING (PRE SIGNIFICANT ITEMS)
STATUTORY (POST SIGNIFICANT ITEMS)
A$ million
Revenue
EBITDA
EBIT
Fleet WDV at
30 June
Funds
Employed
EBIT ROFE %
FY10
37.8
15.4
3.1
105.5
110.0
2.8%
FY11
64.9
32.6
14.0
102.9
124.2
11.3%
YOY %
71.7%
112.5%
348.0%
(2.5)%
13.0%
296.6%
FY10
37.8
7.6
(4.7)
105.5
110.0
(4.2)%
FY11
64.9
32.6
14.0
102.9
124.2
11.3%
YOY %
71.6%
331.8%
400.6%
(2.5)%
13.0%
366.1%
Table 4. Australian Sales & Parts – Operating and Statutory Results
OPERATING (PRE SIGNIFICANT ITEMS)
STATUTORY (POST SIGNIFICANT ITEMS)
A$ million
Revenue
EBITDA
EBIT
Fleet WDV at
30 June
Funds
Employed
EBIT ROFE %
FY10
66.9
2.2
1.9
77.7
85.1
2.2%
FY11
65.9
0.9
0.3
42.7
57.2
0.5%
YOY %
(1.5)%
(59.8)%
(83.6)%
(45.0)%
(32.8)%
(75.6)%
FY10
66.9
(24.5)
(25.3)
77.7
85.1
(29.8)%
FY11
65.9
0.9
0.3
42.7
57.2
0.5%
YOY %
(1.5)%
103.6%
101.2%
(45.0)%
(32.8)%
101.8%
EMECO HOLDINGS LIMITED ANNUAL REPORT 2011
15
1
2 3
4
6
5
7 8
BOARD OF DIRECTORS
1. MICHAEL KIRKPATRICK
5. KEITH GORDON
Company Secretary & General Manager,
Corporate Services
Managing Director & Chief Executive Officer
2. STEPHEN GOBBY
Chief Financial Officer
6. JOHN CAHILL
Independent Non-Executive Director
3. ROBERT BISHOP
7. PETER JOHNSTON
Independent Non-Executive Director
Independent Non-Executive Director
4. ALEC BRENNAN
8. PETER RICHARDS
Chairman & Independent Non-Executive Director
Independent Non-Executive Director
16
EMECO HOLDINGS LIMITED ANNUAL REPORT 2011
1
2 3 4 5
6
7
EXECUTIVE LEADERSHIP TEAM
1. STEPHEN GOBBY
Chief Financial Officer
5. MICK TURNER
General Manager, Global Asset Group
2. TONY HALLS
6. IAN TESTROW
General Manager, Australian Rental
President, North America
3. HAMISH CHRISTIE-JOHNSTON
7. MICHAEL KIRKPATRICK
General Manager, Australian Sales & Parts
General Manager, Corporate Services
4. KEITH GORDON
Managing Director & Chief Executive Officer
ABSENT: CHRIS MOSSMAN
President Director, Indonesia
EMECO HOLDINGS LIMITED ANNUAL REPORT 2011
17
YEAR IN REVIEW
SUSTAINABILITY REPORT
Our vision is to contribute to a sustainable
and productive mining industry and to
provide a great workplace for our people
• Inaugural sustainability
• Focus on aligning
• Workplace, community
report benchmarks
existing performance
sustainability efforts
to business and people
strategies
and environmental
targets set for FY12
and beyond
Sustainability
At Emeco we are focused on the long term success of our
business for the benefit of all our stakeholders. Our vision
is to contribute to a sustainable and productive mining
industry and to provide a great workplace for our people.
We strive to positively contribute to the communities in
which we operate and to mitigate the environmental
impact of our operations, while delivering long-term,
satisfactory returns to our shareholders.
We believe that to be a truly sustainable business we need to
remain focused on our vision, to operate in alignment with
our company values, proactively manage our financial and
non-financial business risks, be collaborative, innovative and
efficient in all we do.
Managing sustainability
Over the past year Emeco has executed two key strategies
(for business and people) to deliver long-term, sustainable
benefits to all stakeholders.
There are three pillars of our business strategy and
they represent our long term commitment to business
sustainability. “Consistent Value Creation for Shareholders”
will ensure our financial longevity, “Optimise the Core”
focuses on operational efficiency within the boundaries of
our vision and values and “Sustainable Growth” will ensure
we target growth that is aligned to our capabilities and does
not sacrifice the quality of earnings.
Enabling our business strategy is Empower, Emeco’s people
strategy. Empower is about safe work practices and workplaces
where Emeco people are empowered to achieve and succeed.
It flows from our Company vision and through to our core
values (behaviours). Empower is discussed in more detail in
the Employee Engagement section of this Sustainability Report.
We believe that this approach is already helping to ensure that
sustainability is integrated into our everyday operations and
will help us to achieve our future goals in a sustainable manner.
Table 1. FY11 Sustainability Risks & Opportunities
SUSTAINABLE GROWTH
Our
people
• Safety
• Employee
Engagement
• Diversity
Our
community
Our
environment
• Community
Participation
• Environmental
Management
• Carbon and
Energy
Sustainability
Risks &
Opportunities
Reporting approach
During the second half of FY11, we undertook a great deal
of internal and external research to identify our material
sustainability risks and opportunities. This work was
guided by our Enterprise Risk Management Framework
and AccountAbility’s (www.accountability.org) five
part materiality test. It involved a review of our current
systems and practices, an industry wide trend analysis
and an extensive stakeholder interview process with peer
companies, customers and employees.
While we already have a number of sustainability related
policies and programs in place, this is the first year that
18
EMECO HOLDINGS LIMITED ANNUAL REPORT 2011
Emeco people are
empowered to achieve
and succeed
Emeco is committed to being a positive and active member of the communities in which it operates,
and proudly supports employees who personally contribute to localised community efforts.
we have comprehensively mapped our efforts across the
global Emeco business. This is also the first year that Emeco
will report publicly on sustainability performance and
commitments based on factors deemed important to our
business, shareholders and customers.
To ensure that our reporting can be benchmarked within
our industry we have worked to the Global Reporting
Initiative (GRI) G3 Guidelines. We have applied the GRI’s
principles of materiality and completeness to determine the
information that should be included in this Sustainability
Report and referred to the GRI to guide the reporting of
our profile disclosures, management approach and
performance indicators.
This Sustainability Report is self-declared as a C-level report
in accordance with the GRI.
Information regarding recent environmental, workplace and
community developments is presented in this Sustainability
Report, as are the targets for improvement that we have set
for the year ahead.
At Emeco, we are committed to providing meaningful and
relevant performance information to our shareholders and
broader stakeholders. As we collect more data on material
aspects of our sustainability performance we plan to continually
improve our sustainability reporting approach and disclosures.
Performance highlights and targets
Emeco was established in Western Australia in 1972 and
there have been numerous milestones and achievements
throughout the Company’s four decade history. One of our
core Company values is Continuous Improvement and as such,
we have set ourselves a number of sustainability targets for
the coming year. These are shown in Table 2 along with a
summary of our sustainability performance to date.
People
Safety
Our number one priority across Emeco is safety. We have
an established Health and Safety Policy which is publically
available in the Investor Centre area of our website
(www.emecogroup.com).
This Policy helps us to communicate performance expectations
to employees, contractors and customers. This Policy is further
supported by our company-wide Occupational Health and
Safety system and monthly performance reporting to the
executive leadership team and the Emeco Board.
Over the past few years the entire business has lifted its focus
on improving our safety performance. We are pleased to report
that this has translated into measurable reductions in our Lost
Time Injury Frequency Rate (LTIFR) and we are proud of the
commitment made by all Emeco employees towards this effort.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2011
19
Empower is about safe work practices and workplaces where
Emeco people are empowered to achieve and succeed.
We remain committed to maintaining our focus on safety and
continually finding ways to progress our safety performance.
In the past year we have implemented the following safety-
related improvements:
• Enhanced the level of detail relating to safety
performance that is regularly reported to the Emeco
executive leadership team and Board of Directors
operations and collaborate with our customers to assist them
in achieving their safety goals and objectives.
A key focus for FY12 will be the implementation of a new
Contractor Safety Management System (CSMS). We believe
this new CSMS will help ensure that Emeco’s entire workforce
is focused on improving safety performance in alignment with
our global commitment to safety and our company values.
• Beyond existing site safety plans we conducted analysis
Employee engagement
of incidents within the Australian business and
implemented state-based safety improvement plans
• Developed a Training Matrix to support the
implementation of a more coordinated and
consistent approach to supervisor and employee
safety skills training
• Broadened toolbox talk discussions to include topics
such as isolation and hazards, incidents, tagging, safe
driving and general health
At Emeco, we are committed to providing workplaces where
Emeco people are empowered to achieve and succeed.
In Australia, our workforce of employees and contractors
measures over 570 people. More than 360 people are working
across our Indonesian and Canadian operations. It is central
to Emeco’s future success that all Emeco people understand
the goals of the business (our vision and mission) and how as
individuals and teams, Emeco people can contribute to the
achievement of those goals.
Over the coming year we will continue to work with
employees to improve safe work practices across all Emeco
Following an internal culture survey in October 2010, the
executive leadership team reviewed the feedback provided
RECOGNISING GREAT SAFETY EFFORTS
For the second year in a row Emeco’s Indonesian
business (PT Prima Traktor IndoNusa) of nearly
300 people has been recognised by the Indonesian
Government during the national K3 Safety Awareness
Week programme for being a Zero Accident (Lost Time
Injury free) operation.
This is a great achievement given the challenging working
conditions our Indonesian operations are faced with on a daily
basis and we believe that this award recognises the entire
team’s commitment to delivering a safe working environment
for Emeco people and those we work with.
The entire business has lifted its focus on
improving our safety performance and this has
translated into measurable reductions in our
Lost Time Injury Frequency Rate.
20
EMECO HOLDINGS LIMITED ANNUAL REPORT 2011
Table 2. Sustainablity Performance and Targets
PERFORMANCE AREAS
FY11 PERFORMANCE
HIGHLIGHTS
FY12 PERFORMANCE TARGETS
People
Safety
• Reduced LTIFR by
approximately 30%
• Progress towards zero harm through a further
reduction in our LTIFR
Employee
Engagement
• Launch of Empower
(people strategy and
improvement projects)
•
Implement contractor safety management system
• Build a new company-wide intranet to improve
global collaboration and to help all employees
more efficiently share information
• Undertake a second company-wide culture survey
• Establish a training plan for each employee
• Continue to engage employees through
the development and implementation of
Empower communication activities and
improvement projects
Diversity
• Development of a
Diversity Policy
• Establish measureable targets and objectives
for workforce diversity
•
Identify opportunities to collaborate with
customers on diversity initiatives
Community
Community
Participation
• Continued support of local
• Establish a global approach to
community organisations and
employee volunteering
community participation
Environment
Environmental
Management
• No reportable environmental
• No reportable environmental incidents
incidents
• Work with our customers to meet their
environmental data collection needs
Carbon and
Energy
• Established a baseline carbon
footprint for the business
• Improve our carbon and energy data
collection processes
by employees and developed a strategy for Emeco people,
along with a clear vision, mission and set of values.
Empower is the overarching name we now use to refer to our
people strategy and the work we carry out as we continually
strive to be a better business. Empower also incorporates our
employee engagement activities.
Empower was introduced across our Australian and Canadian
operations in the second half of FY11 and was launched in
Indonesia in August 2011.
Over the 9 months to 30 June 2011, the following initial
improvement activities have been implemented as we work to
build a more solid foundation of human resource systems and
processes to support Emeco people:
• Employee culture survey to gain insight into engagement
levels and feedback on areas for improvement.
• Development of a strategy for Emeco people (Empower).
Initial improvement projects have included;
−
−
job descriptions for all roles
improved, consistent approach to Performance
Management reviews and planning
EMECO HOLDINGS LIMITED ANNUAL REPORT 2011
• Identify opportunities to collaborate with
our customers on equipment and fuel
efficiency projects
−
review of current Training & Development
approaches to establish a more coordinated
and accessible approach for employees.
• Establishment of a global Human Resources Steering
Committee to develop and drive human resource
system and process improvements for Emeco people
as part of Empower.
• Two CEO and Leadership Team roadshow presentations to
launch and update all employees in Australia and Canada
on Empower progress and to re-enforce the new Vision,
Mission and Values.
• Monthly strategy and Empower updates in MD News,
Keith Gordon’s regular communication to all employees.
In August 2011 we sought further formal feedback from
Emeco employees through a second culture survey. This
feedback will be reviewed in light of our overarching business
and people strategies. It will then be incorporated in to our
ongoing communication and engagement plans for Empower.
21
YEAR IN REVIEW
SUSTAINABILITY REPORT
We remain committed to maintaining our
focus on safety and continually finding ways
to progress our safety performance
Diversity
Diversity in our workforce is a key consideration for both
Emeco and our customers. During the year we developed
our Diversity Policy.
To date, we have already committed to establishing a
group-wide diversity strategy and measureable targets for
workforce diversity in FY12 and to work together with our
customers to identify and implement diversity initiatives for
the future. Our Diversity Policy is available for viewing in the
Investor Centre area of our website (www.emecogroup.com)
under Corporate Governance.
Community
Community participation
Emeco is committed to being a positive and active member
of the communities in which it operates. As a business, we
provide financial support and in-kind donations to local
community organisations each year. We are also committed
to supporting employees who personally contribute to
localised community efforts.
During FY11 we contributed to the following organisations
and community groups in Australia: Save the Children Fund,
Ora Banda Day, Movember, St Barbara’s Day and the Kmart
Wishing Tree Appeal. We also contributed to the Queensland
Premier’s Flood Relief Appeal to assist the people and
communities of Queensland following the tragic floods
experienced in January 2011.
In Canada we contributed to: United Way, Crime Stoppers,
MacDonald Island Sports and Wellness Centre, Stony
Plain Skating Club, the Canadian Institute of Mining, Fort
McMurray Curling Club and the City of Fort McMurray
Canada Day celebrations.
In Indonesia we have focused on providing local students
with practical work experience in our workshops and
office facilities. Our employees also assist with teaching
local students practical skills in schools. This approach to
community participation not only assists with building skills
in the next generation of the workforce, it also assists with
future recruitment initiatives.
During FY12, we will be working to develop a global
community participation plan that will provide a more
BUSINESS & COMMUNITY WORKING TOGETHER
In Canada we have established a collaborative business
partnership with the local indigenous First Nations run
Fort McKay Group of Companies.
Through this partnership we have committed to assist their
business with the maintenance of their entire equipment fleet.
This partnership provides the Fort McKay Group of companies
with the benefits of increased equipment availability and reliability,
cost control and in maintenance efficiency. This coordinated
approach will allow the Fort McKay Group to focus on providing
quality earthmoving services, improving their reputation and
growing their business.
Emeco’s vision is to contribute to a sustainable
and productive mining industry and its team will
continue to work with various stakeholders in
order to support that effort.
22
EMECO HOLDINGS LIMITED ANNUAL REPORT 2011
coordinated approach and greater benefits to community
groups in Australia, Indonesia and Canada. This plan will be
developed for the long term and based on feedback from
a range of localised stakeholder groups as well as Emeco
employees and customers.
Environment
Environmental management
We acknowledge that Emeco has a responsibility to minimise
its impact on the environment. We have an established
Group Environmental Policy which is publically available in
the Investor Centre area of our website (www.emecogroup.
com). This Policy helps us to communicate our performance
expectations to our employees, contractors and customers.
Environmental management and compliance is an important
consideration for our business and our customers. We
collaborate with our customers to ensure that we meet the
obligations of their onsite policies, management systems
and procedures. At this point in time, our approach to
environmental management is focused on oil use and
disposal, waste disposal and water management.
Environmental incidents associated with our operations
are tracked and reported through our online system and
performance is reported to the executive leadership team
and the Emeco Board on a monthly basis.
We are pleased to report that Emeco did not experience
any reportable environmental incidents during the last
financial year.
Carbon and energy
For the past 3 years, Emeco has captured a baseline carbon
footprint for its global operations. Our carbon footprint is
calculated in alignment with the international best practice
Greenhouse Gas Protocol. We have publically reported this
baseline information to the Carbon Disclosure Project (CDP).
The CDP is the largest database of primary corporate climate
change information in the world. Our CDP submission will be
available at www.cdproject.net.
THE GOOD OIL
Waste management practices at workshop facilities
are a key focus for Emeco. Waste oil products
collected as a result of equipment maintenance
and servicing activities forms one of our largest
waste streams.
All Emeco workshops have wash bays to collect oily water
and tanks which temporarily collect disused oil.
To mitigate the impact of this waste oil on the environment, we
engage the services of professional and experienced licensed
liquid waste contractors to collect, treat and recycle the waste
oil offsite. Effective management, collection and recycling
processes are in place at all Emeco maintenance workshops.
Emeco is developing a global community participation
plan that will provide a more coordinated approach
and greater benefits to community groups in Australia,
Indonesia and Canada.
This work has identified that most of our emissions are
associated with energy use in our buildings, fleet, air travel
and waste disposal. The combustion of fuel during the
use of our equipment was identified as a large source of
greenhouse gas emissions. However, under the Australian
Government’s National Greenhouse and Energy Reporting
(NGER) Act, responsibility for the generation and reporting
of these emissions lies with our customers as they are
considered to be in operational control of the equipment
once it is in use at their sites. Based on our measurements
Emeco is currently operating well under the corporate
thresholds set out by the Act.
While it is not our responsibility to include these emissions
in our carbon footprint, Emeco is committed to helping our
customers reduce their carbon and energy impacts. Over the
coming year we will continue to work with our customers
and explore equipment efficiency opportunities that will
assist our customers and Emeco in achieving our shared
sustainability goals.
During FY12 we will use learnings gained through the baseline
assessment process to collect robust carbon and energy data
and further analyse our own performance and processes to
identify opportunities for improvement.
As an example, Emeco’s Rutherford maintenance facility
collects and sends over 200,000L of waste oil offsite for
recycling and reprocessing each year. A licensed contractor
collects and reprocesses this waste at a local facility.
The waste oil is reprocessed into a number of different
products for local use, including power station boiler fuel
and bitumen products. Some of this waste oil is also further
refined into grade 1 base oil which is then re-sold locally
and overseas as a wide range of commercially available oil
based products.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2011
23
YEAR IN REVIEW
FIVE YEAR FINANCIAL SUMMARY
Revenue
2011
2010
2009
2008
2007
Revenue from rental income
Revenue from sale of
machines and parts
Revenue from
maintenance services
Total
Profit
EBITDA
EBIT
PBIT
NPAT from continuing
operations
Profit/Loss from discontinued
operations
Profit for the year
One-off significant items
Operating profit
Basic EPS
Balance sheet
Total Assets
Total Liabilities
Shareholders Equity
Total Debt
Cash flows
Net cash flows from operating
activities
Net cash flows from investing
activities
Net cash flows from financing
activities
Free Cash Flow after
repayment/ (drawdown)
of net debt
Free Cash Flow before
repayment/(drawdown)
of net debt 1
Dividends
Number of ordinary shares at
year end
Total Dividends paid in respect
to Financial Year
Total Dividends per share
Key Ratio’s
Average fleet utilisation
EBIT ROC
EBIT ROFE (pre goodwill)
Total Debt to EBITDA
Total debt to equity
$'000
$'000
$'000
$'000
$'000
$'000
$'000
386,530
302,355
304,380
320,478
285,875
62,795
64,328
97,212
255,481
238,590
53,170
38,276
42,131
41,898
29,937
502,495
404,959
443,723
617,857
554,402
215,379
167,685
193,594
93,206
70,247
48,510
25,785
99,988
77,380
213,453
119,223
95,678
205,953
123,653
79,959
$'000
49,974
12,300
55,025
67,529
56,094
$'000
$'000
$'000
$'000
cents
$'000
$'000
$'000
$'000
(365)
49,609
(6,395)
56,004
8.2
981,152
378,918
602,234
297,005
(61,613)
(49,313)
(90,456)
41,143
2.0
(41,756)
13,269
(44,472)
57,741
2.1
-
-
67,529
56,094
-
67,529
10.7
-
56,094
9.3
1,014,754
1,119,953
1,167,002
1,089,083
392,011
622,743
305,472
437,087
682,866
341,669
465,266
701,736
365,240
416,204
672,879
333,488
$'000
214,931
147,462
175,435
153,591
84,201
$'000
(146,088)
(107,527)
(94,199)
(165,104)
(322,137)
$'000
(68,947)
(45,377)
(88,204)
1,831
248,339
$'000
(104)
(5,442)
(6,968)
(9,682)
10,403
$'000
(17,800)
24,900
45,500
(35,083)
(245,066)
'000
631,238
631,238
631,238
631,238
631,238
$'000
cents
%
%
%
%
%
63,124
12,625
25,250
28,406
22,093
10.0
2.0
4.0
4.5
3.5
85.0
11.3
14.0
1.38
49.3
72.0
8.3
10.5
1.82
49.1
74.0
9.4
11.6
1.76
50.0
76.0
11.1
14.0
1.71
52.0
78.8
13.5
17.3
1.62
49.6
Financial information as reported in the corresponding financial year and includes operations now discontinued
1 Includes capex funded via finance lease facilities (excluded from statutory cash flow)
EMECO HOLDINGS LIMITED ANNUAL REPORT 2011
24
Financial report
Directors’ Report
Lead Auditor’s Independence Declaration
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated statement of Cash Flows
Notes to the Financial Statements
Reporting entity
Basis of preparation
Significant accounting policies
Determination of fair values
Financial risk management
26
48
49
50
51
52
53
53
53
54
63
64
71
Profit before income tax expense for continuing operations 72
73
Auditor’s remuneration
73
Income tax expense
74
75
76
77
78
79
81
82
82
82
83
84
87
87
88
88
89
92
93
93
93
94
95
96
100
100
101
102
103
105
106
108
110
111
1
2
3
4
5
6 Other income
7
8
9
10 Current tax assets and liabilities
11 Deferred tax assets and liabilities
12 Dividends
13 Discontinued operations
14 Non-current assets held for sale
15 Segment reporting
16 Cash assets
17 Trade and other receivables
18 Prepayments
19
20
21 Property, plant and equipment
22 Trade and other payables including derivatives
23
Interest bearing liabilities
24 Financing arrangements
25 Provisions
26 Share-based payments
27 Share capital and reserves
28 Commitments
29 Contingent liabilities
30 Contingent assets
31 Notes to the statement of cash flows
32 Controlled entities
33 Key management personnel disclosure
34 Other related party transactions
35 Subsequent events
36 Earnings per share
37 Parent entity disclosure
38 Deed of cross guarantee
Directors’ Declaration
Independent Auditors’ Report
Shareholder Information
Share Price History
Company Directory
Inventories
Intangible assets
25
emeco Holdings limited And its contRolled entities
dirEctors’ rEport For tHE yEar EndEd 30 JunE 2011
Directors
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) for the financial year ended
30 June 2011 (“FY11”).
Current Directors
The current Directors of the Company are:
Alec BRennAn, (Age 64), cHAiRmAn And independent non-executive diRectoR
Alec was appointed an Independent, Non-Executive Director in August 2005 and has held the position of Chairman since
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 Chairman of PPI Corporation Pty Ltd, a Fellow of the Senate of Sydney University and Chair of
its Finance Committee and its HR Committee and a member of the ASIC External Advisory Panel.
Alec is Chairman of the Remuneration and Nomination Committee and a member of the Audit and Risk Committee.
RoBeRt (“BoB”) BisHop, (Age 66), independent non-executive diRectoR
Bob was appointed as an Independent, Non-Executive Director on 22 June 2009. He holds a Master of Science Degree in
Production Engineering from the University of Birmingham, UK, and is a Member of the Institute of Engineers Australia and
a Fellow of the Australian Institute of Company Directors.
Bob is a former Managing Director of Joyce Corporation Ltd (1989 to 1994) and Dorsogna Ltd (1994 to 1997). Most recently
Bob was the Chief Executive Officer of the global mining and tunnelling division of DYWIDAG Systems International GmbH (DSI),
a position he held from 2003 to 2008. Bob has extensive international business experience having worked in the UK, South
Africa, and Europe.
Bob is a member of the Audit and Risk Committee.
JoHn cAHill, (Age 55), independent non-executive diRectoR
John was appointed as an Independent, Non-Executive Director on 15 September 2008.
John is the former Chief Executive Officer of Alinta Infrastructure Holdings and Chief Financial Officer of Alinta Ltd and has over
25 years’ experience working in the energy utility sector in treasury, finance, accounting and risk management. He is a Non-
Executive Director and Deputy Chairman of Electricity Networks Corporation which trades as Western Power and chairs its
Finance and Risk Committee and is a member of the People and Performance Committee. John is also a Non-Executive Director
of Silver Chain Nursing Association Inc and the Silver Chain Foundation. John is a Graduate Member of the Australian Institute
of Company Directors and a Fellow, Deputy President and Director of CPA Australia Ltd.
John is Chairman of the Audit and Risk Committee and a member of the Remuneration and Nomination Committee.
KeitH goRdon, (Age 47), mAnAging diRectoR And cHief executive officeR
Keith was appointed as Managing Director of Emeco Holdings Limited on 1 December 2009.
Keith has had an extensive career in the industrials sector with significant senior leadership experience. He joined Emeco
with more than 10 years’ experience with Wesfarmers Limited, where he held a number of very senior roles.
He has a strong record of achieving value creating growth through innovation and disciplined strategies. Keith holds a Bachelor
of Agricultural Science with Honours and a Master of Business Administration from the University of Western Australia.
26
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
dirEctors’ rEport For tHE yEar EndEd 30 JunE 2011
peteR JoHnston, (Age 60), independent non-executive diRectoR
Peter was appointed as an Independent, Non-Executive Director on 1 September 2006.
Peter is currently Managing Director and Chief Executive Officer of Minara Resources Limited, a position he has occupied since
December 2001. He previously held senior executive positions with WMC and Alcoa.
Peter is a graduate from the University of Western Australia. He is a Fellow of the Australian Institute of Mining and Metallurgy
and a Fellow of the Australian Institute of Company Directors. He is a past Chairman of the Nickel Institute and is Chairman of
the Minerals Council of Australia. Peter is on the Executive Council of The Chamber of Minerals and Energy WA and a Director
of the Australian Mines and Metals Association. He is a non-executive director of Silver Lake Resources Limited.
Peter is a member of the Remuneration and Nomination Committee.
peteR RicHARds, (Age 52), independent non-executive diRectoR
Peter was appointed as an Independent, Non-Executive Director on 14 June 2010.
Peter is a former Chief Executive Officer of Dyno Nobel Limited in Australia, and held this position from December 2005 until
June 2008. Prior to this, Peter had held a number of senior executive positions at Dyno Nobel North America and Dyno Nobel
Asia Pacific Limited. Peter was at Wesfarmers Limited from 1990 until 1995.
Currently, Peter is a non-executive director of Bradken Limited (ASX code: BKN), Norfolk Group Limited (ASX code: NFK),
NSL Consolidated Limited (ASX code: NSL) and Sedgman Limited (ASX code: SDM) and he is the Chairman of Kangaroo Resources
Limited (ASX code: KRL) and Minbos Resources Limited.
Peter holds a Bachelor of Commerce from the University of Western Australia, majoring in accounting and economics.
Peter is a member of the Audit and Risk Committee.
Company Secretary
Michael Kirkpatrick was appointed Company Secretary in April 2005. Michael has previously worked as legal counsel and
company secretary of a large industry superannuation fund, and as a corporate lawyer with several national law firms.
Michael holds bachelor 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 are outlined in the table below.
Board Meetings
Audit & Risk Committee
Remuneration &
Nomination Committee
Director
Alec Brennan
John Cahill
Keith Gordon
Peter Johnston
Peter Richards
Robert Bishop
A
13
13
13
13
12
13
B
13
13
13
13
13
13
A
5
5
5**
4**
5
5
B
5
5
5**
5**
5
5
A
2
2
2**
2
1**
1**
B
2
2
2**
2
2**
2**
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
EmEc o Holdings limitEd AnnuAl RepoRt 2011
27
emeco Holdings limited And its contRolled entities
dirEctors’ rEport For tHE yEar EndEd 30 JunE 2011
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 recommendations set by the
ASX Corporate Governance Council (ASX Recommendations).
This corporate governance statement reports on the Group’s current corporate governance practices and policies by reference
to the revised ASX Principles and ASX Recommendations adopted by the ASX Corporate Governance Council, including those
which took effect in their revised form from 1 January 2008, and the second edition of Amendments issued in June 2010
(2010 Amendments).
Emeco is pleased to report that it has followed each of the ASX Recommendations as set out in the Corporate Governance
Statement below.
pRinciple 1 lAy solid foundAtions foR mAnAgement And oveRsigHt
Roles and responsibilities of the Board and management
Board Charter
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, providing input into, and final approval of corporate strategy;
evaluating, approving and monitoring the strategic and financial plans and performance 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;
reviewing, ratifying and monitoring systems of risk management and internal compliance and control, codes of conduct
and legal compliance;
evaluating and monitoring annual budgets and business plans;
ensuring appropriate resources are available to senior executives;
approving all accounting policies, financial reports and external communications by the Group;
appointing, re-appointing or removing the Company’s external auditors (on recommendation from the Audit and Risk
Committee); and
•
appointing, monitoring and managing the performance and remuneration 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 and a copy of the Company’s Code of Conduct are available on the Emeco website.
Delegated Financial Authority
Under the terms of the Board Charter, the Chief Executive Officer and Managing Director is responsible to the Board for the
day-to-day management of the Group. As noted in the Board Charter, the Board has formally adopted a structured Delegated
Financial Authority (“DFA”) which outlines the specific financial authority limits delegated to the Chief Executive Officer and
Managing Director. The Board approves and monitors this delegation of financial authority.
The DFA ensures that contract commitments and expenditure is limited to:
•
•
•
contractual commitments in the ordinary course of business;
operational expenditure (those costs incurred in the day to day running of the business); and
capital expenditure (the purchase of assets for the purpose of deriving income).
28
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
dirEctors’ rEport For tHE yEar EndEd 30 JunE 2011
The DFA sets levels of permitted contract and expenditure commitment for employees across the Group. Authority limits have
been set as a risk management tool to ensure adequate controls are in place when committing the Group to a contract or
incurring costs.
Evaluating the performance of senior executives
The performance of the Managing Director is regularly 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 senior executive’s personal and professional development objectives. A review of the performance of
each senior executive was undertaken during FY11.
The Group has formal induction procedures in place to introduce new senior executives to the Group and gain an understanding
of the Group’s financial position, strategies, operations and risk management and other policies and responsibilities.
pRinciple 2 stRuctuRe tHe BoARd to Add vAlue
Skills, experience and expertise of the Directors
The Board is currently comprised of six Directors, with five Non-Executive Directors, including the Chairman, and one Executive
Director. 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.
All Directors are expected to maintain the skills required to discharge their duties to the Company. Directors are provided,
on an “as needed” basis, with papers, presentations and briefings on Group businesses and on matters which may affect the
operations of the Group.
The Directors and a brief description of their skills and experience are set out at pages 26 to 27 of this report.
Status of the Directors
The table below sets out details of the status of each of the current Directors as Independent or Non-Executive Directors, their
date of appointment and whether they are seeking election or re-election at the 2011 annual general meeting of the Company.
TABlE 2 – STATuS oF ThE DiRECToRS
Director
Mr Alec Brennan
Mr Keith Gordon
Mr Peter Johnston
Mr John Cahill
Mr Robert Bishop
Mr Peter Richards
Date of appointment
16 August 2005
1 December 2009
1 September 2006
15 September 2008
22 June 2009
14 June 2010
independent
Yes
No
Yes
Yes
Yes
Yes
Non-executive
Yes
No
Yes
Yes
Yes
Yes
Seeking election
or re-election
at 2011 AGM
Yes
No
No
Yes
No
No
Mr Brennan, Mr Johnston, Mr Cahill, Mr Bishop and Mr Richards are Independent Directors. Directors are expected to bring
independent views and judgement to the Board’s deliberations. All of them satisfy the criteria for independence set out in the
ASX Principles and ASX Recommendations. In considering whether a Director is independent, the Board has had regard to the
relationships affecting their independent status and other facts, information and circumstances that the Board considers to be
relevant.
The Board assesses the independence of new Directors upon appointment and reviews their independence, and the other
Directors annually and as appropriate. The test of whether a relationship is material is based on the nature of the relationship
and the circumstances of the Director. Materiality is considered from the perspective of the Company, the Director, and the
person or entity with which the Director has a relationship.
The Company therefore complies with ASX Recommendation 2.1.
The one Director who is not considered to be independent, due to his involvement in the management and operations of the
Group, is Mr Keith Gordon, the Chief Executive Officer and Managing Director.
The Chairman of the Board is Mr Brennan, an Independent Director, and the Company therefore complies with ASX
Recommendation 2.2.
EmEc o Holdings limitEd AnnuAl RepoRt 2011
29
emeco Holdings limited And its contRolled entities
dirEctors’ rEport For tHE yEar EndEd 30 JunE 2011
Directors’ retirement and re-election
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 three 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. Mr Brennan and Mr Cahill will seek re-election at the 2011 annual general meeting under this
provision.
Under the Company’s constitution the Directors have the power to appoint Directors to fill a vacancy or as an addition to the
Board. Any Director, except a Managing Director appointed in this way must retire from office at, and is eligible for re-election
at, the next annual general meeting following his or her appointment.
The Board has established criteria for the appointment of Non-Executive Directors of the Company. These criteria provide that
an incoming Director must:
•
•
•
•
•
•
•
•
have no actual or potential conflicts of interest at the time of appointment;
have no prior adverse history. A potential candidate’s bankruptcy, a conviction for an offence of dishonesty or any other
serious criminal conviction, ASIC or APRA disqualification etc would disqualify a person from further consideration as a
candidate;
have a deserved reputation for honesty, integrity and competence;
have extensive experience at a senior executive level in a field relevant to the Group’s operations and preferably with a
listed company;
have high level strategic, financial and commercial capability;
be available and willing to devote the time required to meetings and Company business and have a real commitment to the
Group and its success;
be able to work harmoniously with fellow Directors and Management;
have skills, experience and knowledge which complement the skills, experience and knowledge of incumbent Directors.
Candidates recommended for appointment as new Non-Executive Directors are considered by the Board as a whole. If it is
necessary to appoint a new Director to fill a vacancy on the Board or to complement the existing Board, a wide potential base of
possible candidates is considered.
Procedures for seeking information and taking independent and 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.
In addition, all Directors have unrestricted access to employees of the Group and, subject to law, access to all records of the
Company and information held by Group employees and external advisors. The Board receives regular detailed financial and
operational reports from senior management to enable it to carry out its duties.
The General Counsel is Michael Kirkpatrick. Each of the Directors has access to the General Counsel as and when required.
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 making recommendations to the Board.
Members of the Remuneration and Nomination Committee are Mr Brennan (Chair), Mr Cahill, 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 March 2011 by the Chairman with the assistance of the
Remuneration and Nomination Committee. The review was undertaken in accordance with the Charter of the Remuneration
and Nomination Committee using a comprehensive questionnaire, the scope of which covered the performance of the Board,
its Committees, the Chairman and individual Directors.
30
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
dirEctors’ rEport For tHE yEar EndEd 30 JunE 2011
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, a Share Trading Policy and in FY11, a Diversity Policy. The Code of Conduct, Share
Trading Policy and Diversity Policy apply to all Directors, Officers, Employees, Consultants and Contractors of the Company and
its subsidiaries.
The Code of Conduct
The Code of Conduct was updated in FY11 to reflect the 2010 Amendments.
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;
report any actual or potential breaches of the law, the Code of Conduct or the Company’s other policies to the Company
Secretary; and
not permit or condone the making of payments, gifts, favours, bribes, facilitation payments or kick-backs in the expectation
of preferred treatment for themselves or the Company.
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.
Directors are required to avoid conflicts of interest and immediately inform their fellow Directors should a conflict of interest
arise. Directors are also required to advise the Company of any relevant interests that may result in a conflict.
The Board has adopted the use of formal standing notices in which Directors disclose any material personal interests and the
relationship of these interests to the affairs of the Company. A Director is required to notify the Company of any new material
personal interests or if there is any change in the nature or extent of a previously disclosed interest.
Where a matter in which a Director has a material personal interest is being considered by the Board, that Director must not be
present when the matter is being considered or vote on the matter, unless all of the other Directors have passed a resolution to
enable that Director to do so or the matter comes within a category of exception under the Corporations Act 2001.
The Company will only use an employee’s personal information for the purposes for which it has been disclosed (unless it is
necessary to protect health and safety, or as required by law).
The Company’s approach to community investments (for example sponsorships and donations) is approved and managed at
a corporate level with input from the business. It seeks to conduct its operations in a sustainable manner, in consideration of
social, environmental and economic impacts.
Further, the Company is committed to maintaining mutually beneficial sustainable relationships with the indigenous
communities around which it may operate.
EmEc o Holdings limitEd AnnuAl RepoRt 2011
31
emeco Holdings limited And its contRolled entities
dirEctors’ rEport For tHE yEar EndEd 30 JunE 2011
The Share Trading Policy
The principal objective of the Share Trading Policy is 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 intended to minimise the possibility
that misunderstandings or suspicions arise from employees and officers trading in the Company’s shares, by limiting trading to
fixed periods commencing after the release of half and full year results and after the annual general meeting.
The Company has appropriate compliance standards and procedures in place to ensure the policy is properly adhered to.
Employees are advised of the opening and closing dates of each trading period after the release of half and full year results, and
after the annual general meeting. Employees are reminded of the relevant dates for these trading periods, and a copy of the
Share Trading Policy accompanies these reminder notifications.
Copies of the Code of Conduct and the Share Trading Policy are available on the Emeco website.
Diversity Policy
The Company will commence formal reporting on diversity in its Annual Report in FY12. For FY11, the Company considered
it appropriate to establish a Diversity Policy to support a corporate culture of workplace diversity, and to work towards
establishing a framework for diversity awareness and reporting. A copy of the Diversity Policy is on the Emeco website.
The Remuneration and Nomination Committee will be responsible for assessing and reporting to the Board on the Company’s
progress towards achieving its measurable diversity objectives on an annual basis.
pRinciple 4 sAfeguARd integRity of finAnciAl RepoRting
The Board has established an Audit and 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 are Mr Cahill (Chairman), Mr Bishop, Mr Brennan and Mr Richards. The Managing
Director, Chief Financial Officer, Company Secretary and any other persons considered appropriate may attend the meetings
of the Audit and Risk Committee by invitation. The Committee also meets from time to time with the external auditor in the
absence of Management.
The Audit and 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 FY11, the Committee comprised of four 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 26 to 27 of this report. During FY11, the
Committee met five times. All current members of the Committee were present for each of these meetings.
independence of the external auditor
The Company’s external auditor is KPMG. The effectiveness, performance and independence of the external auditor is reviewed
by the Audit and Risk Committee. If it becomes necessary to replace the external auditor for performance or independence
reasons, the Audit and Risk Committee will formalise a procedure and policy for the selection and appointment of a new
auditor.
independence declaration
The Corporations Act 2001 requires the external auditor to make an annual independence declaration, addressed to the Board,
declaring that the auditor has maintained its independence in accordance with the Corporations Act 2001 and the rules of the
professional accounting bodies. KMPG has provided an independence declaration to the Board for FY11. This independence
declaration forms part of the Directors’ report and is provided on page 48 of this annual report.
32
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
dirEctors’ rEport For tHE yEar EndEd 30 JunE 2011
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
these 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
APES 110 Code of Ethics for Professional Accountants, 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 Corporations Act 2001 is included in the
Director’s report (on page 48 of this annual report).
Details of fees paid to the Company’s auditors for non-audit services are found in Note 8 of the financial report.
Rotation of lead external audit partner
Mr R Gambitta is the lead audit partner for KPMG in relation to the audit of the Company. Mr Gambitta was first appointed as
the Partner responsible for Emeco Holdings Limited for the 30 June 2009 year end audit.
Attendance of external auditors at the annual general meeting
The lead audit partner of KPMG attends and is available to answer shareholder questions about the conduct of the audit and
the preparation and content of the auditor’s report at the Company’s annual general meeting.
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 Company Secretary has responsibility for overseeing and coordinating
the disclosure of information by the Company to the ASX and for administering the policy.
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. Compliance
with the policy is reviewed and monitored by the Audit and Risk Committee, and also by the Board.
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, which are a major forum for shareholders to ask questions about the performance of the
Group. In June 2011, the Company adopted a formal communications policy which describes the processes and systems
implemented by the Company to facilitate communication between the Company, its shareholders and investors. This is on the
Company’s website.
All public announcements are also posted on the Company’s website after they have been released to the ASX. The Company
also places the full text of notices of meetings and explanatory material on its website, as well as copies of its annual report and
the Chairman’s address at the annual general meeting.
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, notices of meetings and proxy forms are available online.
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.
EmEc o Holdings limitEd AnnuAl RepoRt 2011
33
emeco Holdings limited And its contRolled entities
dirEctors’ rEport For tHE yEar EndEd 30 JunE 2011
pRinciple 7 Recognise And mAnAge RisK
The Board believes that risk management is fundamental to sound management and that oversight of such matters is an
important responsibility of the Board. The Board, with assistance from the Audit and Risk Committee, is responsible for ensuring
there are adequate processes and policies in place to identify, assess and mitigate risk.
Emeco has adopted a Risk Management Policy. It has also implemented a formal Enterprise Risk Management programme,
and has adopted measures to ensure that risk management concepts and awareness are embedded into the culture of the
organisation. This programme includes the involvement of senior executives and senior operational management. The key
elements of Emeco’s Risk Management programme are:
•
•
•
•
•
•
classification of risk into strategic, operational, financial and compliance risks;
the quantification and ranking of risk consequences and likelihood;
the identification of strategic risk issues;
the identification of operational risk issues through formalised regional-based risk workshops;
the development of a Company database for communicating and updating activity and progress on risk matters and
maintaining risk registers;
the identification, enhancement and development of key internal controls to address risk issues including risk treatment
plans and assigning accountabilities for identified risks to senior Emeco employees; and
•
a comprehensive insurance programme.
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.
internal assurance and the establishment of an internal audit function
In May 2010, the Board approved the appointment of Ernst & Young as a supplier of internal audit services for a period of three
years. The Company considered there was a clear link between the internal audit function and delivering business improvement
outcomes (noting that the focus of assurance also remains central to this function).
Management will formally review the performance of the internal auditors on an annual basis and report findings to the Audit
and Risk Committee.
The overall internal assurance process is overseen by the Group’s Risk and Corporate Assurance Manager who manages the
process, and provides assurance to the Audit and Risk Committee and the Board, through the Chief Financial Officer, regarding
the effectiveness of the Emeco Group’s risk management, governance and control frameworks.
For FY11, the Board has received an assurance from the Managing Director and the Chief Financial Officer that the declaration
provided in accordance with section 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 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.
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.
34
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
dirEctors’ rEport For tHE yEar EndEd 30 JunE 2011
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;
diversity policy compliance and reporting;
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 under Principle 2. During FY11, the
Committee met two times. All members of the Committee were present for the meetings.
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 FY11 is
included in the Directors’ report on pages 36 to 46.
Nature of operations and principal activities
The principal activities during the financial year of the entities within the Group were the renting, maintaining and selling of
heavy earthmoving equipment to customers in the mining industries.
As set out in this report, the nature of the Group’s operations and principal activities, have been consistent throughout the
financial year.
Operating and financial review
A review of Group operations, and the results of those operations for FY11, is set out on pages 13 to 15 and in the
accompanying financial statements.
Dividends paid or to be paid
In relation to the 2009/2010 financial year the Directors declared a fully franked final dividend of 2.0 cents per share which was
paid on 30 September 2010.
During the 2010/2011 financial year the Directors declared a fully franked interim dividend of 2.0 cents per share and a special
fully franked dividend of 5.0 cents per share (total dividend paid of 7.0 cents per share) which was paid on 31 March 2011.
Since the end of the 2010/2011 financial year, the Directors have declared a fully franked final dividend of 3.0 cents per share to
be paid on 30 September 2011.
Significant changes in state of affairs
During the financial year under review there were no significant changes in the Group’s state of affairs other than those
disclosed in the operating and financial review section or in the financial statements and the notes thereto.
Significant events after balance date
During the financial year under review there were no significant events after the balance date other than the declaration of
dividend noted above.
EmEc o Holdings limitEd AnnuAl RepoRt 2011
35
emeco Holdings limited And its contRolled entities
dirEctors’ rEport For tHE yEar EndEd 30 JunE 2011
Likely developments and expected results
Likely developments in, and expected results of, the operations of the Emeco Group are referred to at pages 6 to 15. 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.
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 Group and other related bodies corporate, as notified by the Directors to the ASX in accordance with
section 205G(1) of the Corporations Act 2001, at the date of this report are as follows:
TABlE 3 – DiRECToRS’ iNTERESTS
Alec Brennan
Peter Johnston
John Cahill
Robert Bishop
Peter Richards
Keith Gordon
ordinary
shares
1,581,700
100,000
120,000
300,000
40,000
1,833,929
options over
ordinary shares
–
–
–
–
–
–
Remuneration report (audited)
This report summarises the Emeco Group’s remuneration practices and outcomes in respect of its key management personnel
for the 2011 financial year. Key management personnel comprise the directors of the Company and the Emeco Group’s senior
executives, including the five most highly remunerated Company and group executives.
pRinciples of RemuneRAtion
The 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, other allowances and non-cash benefits
such as the provision of motor vehicles and, in the case of executives based outside Australia, housing.
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.
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 who are appropriately qualified and experienced, and capable of:
•
•
fulfilling their respective roles within the Group;
achieving the Group’s strategic objectives; and
• maximising Group earnings and the returns to shareholders.
36
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
dirEctors’ rEport For tHE yEar EndEd 30 JunE 2011
Variable remuneration
Variable remuneration is performance linked remuneration which consists of short term incentives (“STI”) and long term
incentives (“LTI”).
STi remuneration
In FY11, the Company made grants to its key management personnel under two STI plans, a strategy incentive plan and the
FY11 short term incentive plan.
Strategy incentive Plan
Following the appointment of the Managing Director on 1 December 2009 and the commencement of a long term strategic
planning process for the Emeco Group, an incentive plan was established for Emeco’s key management personnel in respect
of the development, refinement and execution of Emeco’s long term strategy (Strategy Incentive Plan). The maximum amount
payable in cash to each participant in the Strategy Incentive Plan was, in the case of the Managing Director 15% of FY10 fixed
annual remuneration, and in the case of all other executives, 15% of FY10 base annual salary.
In October 2010, the directors reviewed progress with the development and implementation of Emeco’s strategy over the
period 1 January 2010 to 30 September 2010 and determined the entitlement of each participant to a Strategy Incentive Plan
payment as at 30 September 2010 in light of recommendations from the Managing Director and based on progress with the
implementation of a range of strategic initiatives flowing from the overall strategy. Details of the strategy incentive plan cash
payments for each key executive, which are classified as STI cash bonuses in this report, are set out below.
It is not intended to establish a separate strategy incentive plan in future financial years.
TABlE 4 – KEy EXECuTiVE STRATEgiC iNCENTiVE PlAN PAyMENTS(1)
Nature of
Strategy
incentive
Plan
compensation
Approval
date
Mr H Christie-Johnston
Mr G Gadomsky [A]
Mr S Gobby
Mr K Gordon
Mr A Halls
Mr M Kirkpatrick
Mr I Testrow [B]
Mr D Tilbrook
Mr M Turner
Notes:
(1) Mr Mossman was not eligible to participate in the Strategy Incentive Plan.
(2) Amounts reported in this table for all executives other than Mr Testrow are net of superannuation guarantee contributions payable in respect of
22 October 2010
22 October 2010
22 October 2010
22 October 2010
22 October 2010
22 October 2010
22 October 2010
22 October 2010
22 October 2010
Cash
Cash
Cash
Cash
Cash
Cash
Cash
Cash
Cash
% of bonus
awarded(3)
%
53
67
100
100
53
83
100
53
53
% of bonus
forfeited
%
47
33
0
0
47
17
0
47
47
Minimum
possible
value of
Strategy
incentive
Plan
payment
$
0
0
0
0
0
0
0
0
0
Maximum
possible
value of
Strategy
incentive
Plan
payment
$
37,844
39,138
44,725
116,972
44,451
34,404
50,161
52,294
44,725
Amount of
Strategy
incentive
Plan
payment
awarded(2)
$
20,183
12,936
44,725
116,972
24,240
28,670
50,161
27,890
23,853
strategic incentive plan payments.
(3) No amounts vest in future financial years in respect of the strategy incentive plan for FY11.
[A] Mr Gadomsky joined Emeco in May 2010 and was paid a proportion of the strategy incentive bonus based on his period of service between 1 January
2010 and the date on which bonus payments were determined.
[B] Mr Testrow’s remuneration has been converted to Australian dollars on the basis of an AUD/CAD exchange rate of 0.9879.
Fy11 STi grants
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”).
Under the FY11 STI plan, 60% of each executive’s STI entitlement, other than the President Director, Indonesia was determined
by reference to earnings performance and return on capital employed across the Emeco Group in order to align executives’
incentives with both the quality and quantity of the Company’s earnings performance. In the case of the President Director,
Indonesia, 50% of his STI entitlement was determined by reference to the earnings performance and return on funds employed
in the Indonesian business. The remaining KPIs for all executives reflected the Company’s commitment to achieving certain non-
financial goals in areas such as safety, business plan execution and fleet management.
EmEc o Holdings limitEd AnnuAl RepoRt 2011
37
emeco Holdings limited And its contRolled entities
dirEctors’ rEport For tHE yEar EndEd 30 JunE 2011
Whilst the maximum percentage STI grant to key executives varies, no executive other than the Managing Director and the
Chief Financial Officer is entitled to an STI grant which equals or exceeds 50% of the recipient’s fixed annual remuneration
earned during the financial year. The majority of key executives are entitled to a maximum STI grant of 40% of fixed annual
remuneration. The Managing Director is entitled to a maximum STI grant of 100% of his fixed annual remuneration. The Chief
Financial Officer is entitled to a maximum STI grant of 50% of his fixed annual remuneration. The President Director, Indonesia is
entitled to a maximum STI grant of 30% of his fixed annual remuneration.
Details of the vesting profile of the STI cash grants awarded to key executives in respect of FY11 are set out below:
TABlE 5 – KEy EXECuTiVE STi VESTiNg iNFoRMATioN iN RESPECT oF Fy11
Nature of STi
compensation
Approval
date
Mr H Christie-Johnston
Mr G Gadomsky [A]
Mr S Gobby
Mr K Gordon
Mr A Halls
Mr M Kirkpatrick
Mr C Mossman [B]
Mr I Testrow [C]
Mr D Tilbrook
Mr M Turner
Notes:
(1) Amounts included in remuneration for FY11 represent the amounts that vested in the year based on the achievement of KPIs. No amounts vest in
22 August 2011
22 August 2011
22 August 2011
22 August 2011
22 August 2011
22 August 2011
22 August 2011
22 August 2011
22 August 2011
22 August 2011
Cash
Cash
Cash
Cash
Cash
Cash
Cash
Cash
Cash
Cash
Amount of
STi bonus
awarded
$
91,089
0
176,440
654,875
100,353
103,713
8,680
111,576
137,344
128,622
% of STi
bonus
awarded (1)
%
61.4
0
75.1
74.1
67.1
74.1
50.0
77.1
69.1
73.1
% of STi
bonus
forfeited (2)
%
38.6
0
24.9
25.9
32.9
25.9
50.0
22.9
30.9
26.9
Minimum
possible
value of STi
bonus
$
0
0
0
0
0
0
0
0
0
0
Maximum
possible
value of STi
bonus
$
148,400
0
235,000
884,000
149,600
140,000
17,360
144,751
198,816
176,000
future financial years in respect of the STI scheme for FY11.
(2) Amounts forfeited are due to the KPIs not being met in relation to FY11.
[A] Mr Gadomsky ceased employment with Emeco on 25 March 2011.
[B] Mr Mossman was appointed President Director, Indonesia on 16 October 2010. He commenced reporting to the Company’s Managing Director
on 11 March 2011 and became a key management person on that date. His remuneration has been converted to Australian dollars on the basis of
an AUD/USD exchange rate of 1.0511 and the proportion of STI bonus disclosed is based on his period of service as a key management personnel
between 11 March 2011 and 30 June 2011.
[C] Mr Testrow’s remuneration has been converted to Australian dollars on the basis of an AUD/CAD exchange rate of 0.9879.
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).
The plan provides Emeco’s senior managers with an ongoing incentive to achieve the long term objectives of the Emeco Group.
Grants under the FY11 LTI plan were made to all key executives on the following key terms and conditions, which are
substantially identical to the terms and conditions of grants made under the FY08, FY09 and FY10 LTI plans.
Australian based executives
In FY11, unvested fully paid Emeco performance shares were granted 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 were granted at no cost to the recipient and at a nil exercise price;
they vest if the performance condition described below is met.
The performance shares were granted to individual Australian-based executives on substantially identical terms to the grant of
performance rights in FY10. Performance rights were issued to Australian based executives in FY10 (rather than performance
shares) because the Company ceased to satisfy the 75% offer participation test prescribed under Division 13A of the Income
Tax Assessment Act 1936. However, in FY11 the Company established a broad based employee share plan for its Australian
employees with the result that the Company satisfied the offer participation test prior to making offers under its FY11 LTI plan.
As a result, the Company granted performance shares to its Australian based executives under the FY11 LTI plan.
38
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
dirEctors’ rEport For tHE yEar EndEd 30 JunE 2011
Executives based outside Australia
Emeco participants in the FY11 LTI plan who were working outside Australia were issued performance rights on substantially
identical terms to the performance shares issued to Australian based executives. 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 due to the complexity and cost of the compliance issues associated
with the issue of shares in the relevant foreign jurisdictions.
Vesting conditions for lTi securities
The performance condition for both the vesting of performance shares and the exercise of performance rights under the FY11
LTI plan (and the FY09 and FY10 plans) is a performance hurdle based on relative total shareholder return (TSR). TSR was chosen
as the performance condition because it is considered to be an effective means of aligning the interests of executives with the
interests of shareholders. Emeco’s TSR at the end of a 3 year vesting period will be measured against a Peer Group consisting of
a group of 10 companies that are considered direct peers to Emeco and in addition companies in the S&P/ASX Small Industrials
index (excluding banks, insurance companies, property trusts/companies and investment property trusts/companies and other
stapled securities). The Peer Group at the time of the FY11 grant comprised 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 movement, dividends and capital returns.
At the conclusion of the vesting period, 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 50.1% of the companies of the Peer Group then no performance shares will vest and
no performance rights will be exercisable.
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 and 50% of the performance rights will be exercisable.
If Emeco’s TSR is equal to the TSR of 75% of the companies of the Peer Group then 100% of the performance shares will
vest and 100% of the performance rights will be exercisable.
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, or an extra 2% of the performance rights become exercisable, 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 transferred to a nominee of the
Company. Performance rights which do not become exercisable will lapse.
Performance shares which have vested will be transferred into the name of the participant. Performance rights which become
exercisable at the end of the three year vesting periods must be exercised within five years after the date of grant.
Change of terms of lTi grants
Following a review of market practice in relation to LTI grants, the Directors resolved on 13 August 2010 to amend the terms of
the grants of LTI securities under the FY08, FY09 and FY10 plans as follows:
•
•
Commencing with the dividend declared by the directors for the half year ended 30 June 2010, dividends in respect
of Performance Shares and shadow dividends in respect of Performance Rights would be paid to the holders of those
securities. Previously, dividends were paid into the Emeco Employee Share Ownership Plan Trust.
If there is an absolute change in control of the Company, all LTI securities on issue at the time of the change in control
will automatically vest. Previously, the board retained discretion as to whether LTI securities would vest upon a change in
control.
These terms were also incorporated into the terms of the FY11 LTI plan and will be incorporated into the terms of future LTI
plans. All other terms of existing grants remained unchanged.
As at close of trading on 13 August 2010, the market price of an Emeco share was 72.5 cents.
The difference between the fair value of the LTI securities affected by the alteration of terms of LTI grants outlined above
immediately before their alteration and after their alteration is set out in the following table.
EmEc o Holdings limitEd AnnuAl RepoRt 2011
39
emeco Holdings limited And its contRolled entities
dirEctors’ rEport For tHE yEar EndEd 30 JunE 2011
TABlE 6 – DiFFERENCE iN FAiR VAluE oF lTi SECuRiTiES BEFoRE AND AFTER ThE AlTERATioN oF TERMS
lTi securities
Performance Shares and Performance Rights issued in December 2007 (FY08 grant)
Performance Shares and Performance Rights issued in October 2008 (FY09 grant)
Performance Rights issued in April 2010 (FY10 grant)
Fair value of each
lTi security
prior to alteration
$0.87
$0.22
$0.40
Fair value of each
lTi security
after alteration
$0.89
$0.27
$0.49
For each key executive, the difference between the total fair value of the LTI securities issued to them and affected by the
alteration of terms of LTI grants outlined above immediately before their alteration and after their alteration is set out in table 7.
TABlE 7 – DiFFERENCE iN ToTAl oF ThE FAiR VAluE oF lTi SECuRiTiES FoR EACh KEy EXECuTiVE
Mr H Christie Johnston
Mr G Gadomsky
Mr S Gobby
Mr K Gordon (1)
Mr A Halls
Mr M Kirkpatrick
Mr C Mossman
Mr I Testrow
Mr D Tilbrook
Mr M Turner
(1) Mr Gordon was offered LTI securities under the FY10 LTI plan prior to the alteration of their terms. This offer was conditional on shareholder approval.
Total fair value of
lTi securities
prior to alteration
191,481
–
353,359
370,370
102,667
217,574
n/a
302,631
351,592
313,296
Total fair value of
lTi securities
after alteration
237,412
–
424,142
456,130
126,961
260,306
n/a
356,252
417,014
369,532
Subsequently, at the Company’s 2010 annual general meeting on 16 November 2010, shareholders approved the grant of LTI securities to Mr Gordon
under the FY10 LTI plan on the altered terms outlined above and he was formally granted these securities on 19 November 2010.
Prohibition of hedging lTi grants
Emeco’s share trading policy prohibits 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 Group’s key management personnel, including each Director and
each of the five named Company and Emeco Group executives who received the highest remuneration in FY11 are set out in
table 8. Table 8 does not include the following components of compensation because they were not made available to key
executives during FY11: short term cash profit-sharing bonuses, payments made to a person before the person started to
hold a position, long term incentives distributed in cash, post-employment benefits other than superannuation, and share
based payments other than shares and units and share based payments in the form of options. Table 9 provides comparative
information in relation to the remuneration of the Group’s key executives for the prior financial year.
40
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
dirEctors’ rEport For tHE yEar EndEd 30 JunE 2011
TABlE 8 – DiRECToRS’ AND EXECuTiVE oFFiCERS’ REMuNERATioN Fy11 (CoMPANy AND CoNSoliDATED)
Short-term benefits
STi cash
bonuses
[A]
$
Non-
monetary
benefits
$
Salary
& Fees
$
Post-em-
ployment
benefits
Superan-
nuation
benefits
$
Share based payments
other
long term
benefits
$
Termi-
nation
benefits
$
lTiP
$
MiSP
$
Total
$
Proportion
of remu-
neration
perfor-
mance
related
%
Value of
options as
propor-
tion of
remuner-
ation
%
Non-Executive Directors
Alec Brennan
Robert Bishop
John Cahill
Peter Johnston
Peter Richards
Executive Directors
Keith Gordon
860,505
ToTAl All DiRECToRS 1,499,794
191,254
112,355
122,852(1)
106,638
106,190
–
–
–
–
–
–
–
–
–
–
17,213
4,450
11,057
9,597
9,557
771,847
771,847
665
665
25,000
76,874
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
208,467
116,805
133,909
116,235
115,747
–
–
–
–
–
299,483(2)
299,483
– 1,957,500
– 2,648,663
54.7
40.4
–
–
–
–
–
–
–
–
–
–
2.8
594
402
43.8
47.9
2,716
12,936
20,962
15,208
84,899
27,252
11,524
22,015
23,144
132,383
111,272
282,616
440,095
124,593
221,165
351,998
321,059
206,191
212,500
130,602
466,772
892,182
578,474
219,972(3)
Executives
H Christie-Johnston
General Manager
Emeco Sales
Guido Gadomsky
General Manager
Strategy and Business
Development [B]
S Gobby
Chief Financial Officer
A Halls
General Manager
Australian Rental
M Kirkpatrick
General Manager
Corporate Services
C Mossman
President Director
Indonesia [C]
I Testrow
President [D]
Emeco North America
D Tilbrook
Executive General
Manager South East Asia
M Turner
General Manager Global
Asset Management
ToTAl All EXECuTiVES 2,841,422 1,090,475
ToTAl All
4,341,216 1,862,322
Notes:
[A] The short term incentive bonus includes payments made under the Strategy Incentive Plan and the FY11 STI Plan. The amount awarded to each
212,500 1,067,068
212,500 1,366,551
19,983 5,532,401
19,983 8,181,064
133,053
133,718
167,900
244,774
39.4
39.7
604,365
188,284
152,548
712,580
163,688
853,068
728,108
111,624
585,228
124,462
473,363
161,737
337,348
165,234
152,475
358,863
16,394
26,187
22,922
30,442
68,315
14,632
56,108
25,418
8,160
8,680
44.3
44.4
22.5
41.4
42.5
35.8
299
744
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.0
–
–
–
0.0
–
1.1
–
–
0.4
0.2
executive under the FY11 STI Plan was finally determined on 22 August 2011 after completion of performance reviews. The amount awarded to each
executive under the Strategy Incentive Plan was determined on 22 October 2010.
[B] Mr Gadomsky ceased employment with Emeco on 25 March 2011.
[C] Mr Mossman was appointed President Director, Indonesia on 16 October 2010. He commenced reporting to the Company’s Managing Director on 11
March 2011 and became a key management person on that date. His remuneration has been converted to Australian dollars on the basis of an AUD/
USD exchange rate of 1.0511 and his remuneration details are for the period 11 March 2011 to 30 June 2011.
[D] Mr Testrow’s remuneration has been converted to Australian dollars on the basis of an AUD/CAD exchange rate of 0.9879.
(1) During FY11 Mr Cahill was reimbursed $8,788 in respect of underpayments relating to FY10. This adjustment is included in his FY11 remuneration.
(2) The share based payment includes the expense of the 925,926 performance rights, approved by shareholders at the Company’s Annual General
Meeting on 16 November 2010. Although this grant was approved and disclosed in FY11, it was a grant made under the FY10 LTI plan.
(3) This figure excludes payout of accrued but untaken annual leave related to the cessation of Mr Gadomsky’s employment. The amount paid was
$13,494.40.
EmEc o Holdings limitEd AnnuAl RepoRt 2011
41
emeco Holdings limited And its contRolled entities
dirEctors’ rEport For tHE yEar EndEd 30 JunE 2011
TABlE 9 – DiRECToRS’ AND EXECuTiVE oFFiCERS’ REMuNERATioN Fy10 (CoMPANy AND CoNSoliDATED)
Short-term benefits
STi cash
bonuses
[E]
$
Non-
monetary
benefits
$
Salary
& Fees
$
Post-em-
ployment
benefits
Superan-
nuation
benefits
$
Share based payments
other
long term
benefits
$
Termi-
nation
benefits
$
lTiP
[*]
$
MiSP
[*]
$
Total
$
Proportion
of remu-
neration
perfor-
mance
related
%
Value of
options as
propor-
tion of
remuner-
ation
%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
978
489
27,649
13,751
31,185
24,750
23,413
45,158
14,583
44,815
13,484
50,000
619,142
261,032
472,532
487,604
133,493
275,000
400,125
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
537,957(1)
224,135(2)
1,740,184
– 1,918,835
16,544
9,247
10,101
9,247
358
200,374
111,999
122,338
111,999
4,347
183,830
102,752
112,237
102,752
3,989
Non-Executive Directors
Alec Brennan
Robert Bishop
John Cahill
Peter Johnston
Peter Richards [A]
Executive Directors
Keith Gordon
Managing Director [B]
Laurie Freedman
Managing Director [C]
Robin Adair
Executive Director
Corporate Strategy &
Business Development [D]
ToTAl All DiRECToRS
Executives
H Christie-Johnston
General Manager
Australian Sales & Parts
S Gobby
Chief Financial Officer
A Halls
General Manager
Eastern Australia
G Gadomsky
General Manager
Strategy & Business
Development [F]
M Kirkpatrick
General Manager
Corporate Services
C Moseley
President Emeco USA [G]
I Testrow [H]
President North America
D Tilbrook
Executive General
Manager Western Region
M Turner
General Manager Global
Asset Management
ToTAl All EXECuTiVES
ToTAl All
Notes:
[A] Mr Richards was appointed as a Director on 14 June 2010.
[B] Mr Gordon was appointed as a Director on 1 December 2009.
[C] Mr Freedman ceased as a Director on 30 November 2009 and left the Company on 4 January 2010.
[D] Mr Adair ceased as a Director on 18 November 2009 and left the Company on 30 November 2009.
[E] The short term incentive bonus is for performance during FY10. The amount awarded to each executive was finally determined on 11 August 2010
32,190 3,450,688
32,190 5,369,523
2,686,819
4,427,003
175,367
308,860
430,577
430,577
125,735
170,893
13.4
8.6
(33,088)
302,000
364,482
588,852
246,390
385,965
472,040
315,894
329,250
526,465
519,568
386,149
258,751
451,597
257,824
0.9
0.6
25,000
25,000
25,000
15,384
64,238
29,808
78,563
18,667
23,287
93,490
15,942
21,654
81,963
90,926
15,189
24,975
55,241
27,347
3,240
2,461
2,497
1,411
18.0
18.0
15.2
15.0
15.4
18.1
886
3.0
0.6
3.6
5.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
after completion of performance reviews.
[F] Mr Gadomsky was appointed to the position of General Manager Strategy and Business Development with effect from 24 May 2010.
[G] Mr Moseley’s remuneration has been converted to Australian dollars on the basis of an AUD/USD exchange rate of 0.8759. Mr Moseley left the
Company on 29 January 2010. Mr Moseley’s LTI payment was forfeited and is noted as a negative expense.
[H] Mr Testrow was appointed to the position of President North America with effect from 1 February 2010. Prior to this appointment, Mr Testrow was
the President, Emeco Canada. His remuneration has been converted to Australian dollars on the basis of an AUD/CAD exchange rate of 0.9303.
[1] This figure excludes payout of accrued but untaken annual leave and long service leave related to the cessation of Mr Freedman’s employment. The
amount paid was $652,233.
[2] This figure excludes payout of accrued but untaken annual leave and long service leave related to the cessation of Mr Adair’s employment. The
amount paid was $326,153.
[*] Included in share based payments is the reversal of amounts recognised as remuneration in prior years as a result of MISP and LTIP entitlements being
forfeited during the year. The MISP and LTIP entitlements were forfeited as a result of service vesting requirements not being achieved.
42
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
dirEctors’ rEport For tHE yEar EndEd 30 JunE 2011
equity instRuments
MiSP
During FY11, the Company recognised share based payments to Messrs Christie-Johnston, Testrow and Kirkpatrick (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 10 – MiSP gRANTS To KEy EXECuTiVES
hamish
Christie-Johnston [A]
ian
Testrow [B]
Michael
Kirkpatrick [C]
500,000
$0.74
14 March 2008
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
Notes:
[A] As at 14 March 2011, the third anniversary of the grant of MISP shares to Mr Christie-Johnston, 125,000 shares have vested.
[B] As at 12 June 2011, the fifth anniversary of the grant of MISP shares to Mr Testrow, all 300,000 shares have vested.
[C] Mr Kirkpatrick sold 150,000 vested shares on 8 December 2010. The outstanding Company loan of $70,500.00 in respect of the shares was repaid to
150,000
$0.61
18 August 2005
300,000
$1.155
12 June 2006
$310,500
$8,160
$337,500
$11,524
$73,500
$299
$283,500
$292,500
$0
Emeco on this date.
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 them 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 Group is terminated before all of their 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 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.
The MISP has been closed since 2008. The last allocation of shares to a key management person under the MISP was made to
Mr Christie-Johnston in March 2008.
EmEc o Holdings limitEd AnnuAl RepoRt 2011
43
emeco Holdings limited And its contRolled entities
dirEctors’ rEport For tHE yEar EndEd 30 JunE 2011
lTi
The terms of the LTI Plan are discussed at pages 38 to 39.
Grants of Performance Shares made to key management personnel under the Company’s LTI plan (LTI Plan) in FY10 and FY11 are
set out in table 11.
TABlE 11 – Fy10 AND Fy11 lTi PERFoRMANCE ShARE gRANTS To KEy EXECuTiVES
Mr H Christie-Johnston
Mr S Gobby
Mr K Gordon
Mr A Halls
Mr M Kirkpatrick
Mr C Mossman [B]
Mr I Testrow
Mr D Tilbrook
Mr M Turner
Number granted during
Fy10 and Fy11
FY10
FY11
FY10
FY11
FY10
FY11
FY10
FY11
FY10
FY11
FY10
FY11
FY10
FY11
FY10
FY11
FY10
FY11
–
265,000
–
419,643
–
1,183,929
–
267,143
–
250,000
–
–
–
–
–
355,029
–
314,286
grant Date
–
19 November 2010
–
19 November 2010
–
19 November 2010
–
19 November 2010
–
19 November 2010
–
–
–
–
–
19 November 2010
–
19 November 2010
Fair value per
Performance Share [*]
–
$0.56
–
$0.56
–
$0.56
–
$0.56
–
$0.56
–
–
–
–
–
$0.56
–
$0.56
Number of Performance Shares
vesting during Fy10 & Fy11 [A]
–
–
–
78,000
–
–
–
–
–
26,000
–
–
–
52,000
–
52,000
–
52,000
Notes:
[A] For Performance Shares granted in FY11 the earliest vesting date is the tenth trading day after the announcement of the Company’s annual results
in August 2013. The vesting date is also the expiry date. The Performance Shares which vested in FY 11 were issued in October 2007 under the FY08
LTI plan. Under the terms of the FY08 LTI plan, no amount was required to be paid in respect of the Performance Shares and there was therefore no
amount unpaid in respect of the shares at the time of vesting.
[B] Mr C Mossman was appointed President Director, Indonesia on 16 October 2010. He was not a key management person in FY10. He commenced
reporting to the Company’s Managing Director on 11 March 2011 and became a key management person on that date.
[*] The fair value of the performance shares was determined using a Monte Carlo share price simulation model, and is allocated to each reporting period
evenly over the period from grant date to costing date. The value disclosed in the Directors’ and Officers’ remuneration is the portion of the fair value
of the performance shares recognised in this reporting period. The fair value disclosed is post modification of terms to the LTI plan.
Grants of performance rights made to key management personnel under the Company’s LTI plan in FY10 and FY11 are set out in
table 12.
TABlE 12 – Fy10 AND Fy11 lTi PERFoRMANCE RighTS gRANTS To KEy EXECuTiVES
Mr H Christie-Johnston
Mr S Gobby
Mr K Gordon [C]
Mr A Halls
Mr M Kirkpatrick
Mr C Mossman [D]
Mr I Testrow
Mr D Tilbrook
Mr M Turner
Number granted during
Fy10 & Fy11
FY10
FY11
FY10
FY11
FY10
FY11
FY10
FY11
FY10
FY11
FY10
FY11
FY10
FY11
FY10
FY11
FY10
FY11
203,704
–
300,926
–
–
925,926
166,667
–
185,185
–
n/a
107,012
239,077
269,393
281,481
–
240,741
–
grant Date
19 April 2010
–
19 April 2010
–
–
19 November 2010
19 April 2010
–
19 April 2010
–
n/a
19 November 2010
19 April 2010
19 November 2010
19 April 2010
–
19 April 2010
–
Fair value per
Performance Right [*]
$0.49
–
$0.49
–
–
$0.49
$0.49
–
$0.49
–
n/a
$0.56
$0.49
$0.56
$0.49
–
$0.49
–
Number of Performance Rights
vesting during Fy10 [A] & Fy11 [B]
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Notes:
[A] For performance rights granted in FY10 the earliest vesting date is 30 September 2012. The vesting date is also the expiry date.
[B] For performance rights granted in FY11 the earliest vesting date is the tenth trading day after the announcement of the Company’s annual results in
2013. The vesting date is also the expiry date.
[C] Shareholders approved the grant of 925,926 Performance Rights to Mr Gordon at the Company’s Annual General Meeting on 16 November 2010.
Although this LTI grant was approved in FY11, it is a grant made under the FY10 LTI plan.
[D] Mr C Mossman was appointed President Director, Indonesia on 16 October 2010. He was not a key management person in FY10. He commenced
reporting to the Company’s Managing Director on 11 March 2011 and became a key management person on that date.
[*] The fair value of the performance rights was determined using a Monte Carlo share price simulation model, and is allocated to each reporting period
evenly over the period from grant date to vesting date. The value disclosed in the Directors’ and Officers’ remuneration is the portion of the fair value
of the performance rights recognised in this reporting period. The FY10 fair value disclosed is post modification of terms to the LTI plan.
44
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
dirEctors’ rEport For tHE yEar EndEd 30 JunE 2011
Emeco Employees Share ownership Plan
During FY11 several senior Emeco executives participated in the Emeco Employee Share Ownership Plan (“ESOP”). Details of the
shares purchased on their behalf and of the matching shares allocated to them under the ESOP are set out below:
TABlE 13 – ESoP ShARES PuRChASED AND ACquiRED By KEy EXECuTiVES
Hamish Christie-Johnston
Guido Gadomsky
Stephen Gobby
Anthony Halls
Michael Turner
Shares
purchased
4,578
2,840
4,578
4,578
4,578
Matching
shares granted
913
567
913
913
913
Key terms and conditions of the ESOP are as follows:
•
•
•
•
•
Australian based employees may salary sacrifice a minimum of $500 and a maximum of $5,000 of pre-tax salary or wage to
acquire Emeco ordinary shares in accordance with the terms of the ESOP.
For every 5 Shares acquired by the employee under the ESOP, Emeco provides one matching share at no cost to the employee.
The matching shares are subject to a vesting condition. Under the ESOP, a participating employee must remain in their
employment with Emeco for 1 year after the end of the calendar year in which the matching shares are acquired for
them (Restriction Period). If an employee leaves the Company before the expiry of the Restriction Period, they forfeit the
matching shares.
All shares acquired under the ESOP are held in a trust on behalf of ESOP participants by the trustee, Pacific Custodians Pty
Limited, which is an independent party separate from the Company.
The ESOP shares are held by the trustee during the Restriction Period. The ESOP administrator, Link Market Services,
releases the ESOP shares from the trust at the earlier of the expiry of the Restriction Period and the termination of the
employee’s employment with Emeco.
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 Keith gordon
Mr Gordon’s employment is for an indefinite duration. His employment may be terminated by the giving of 6 months’ notice on
either side. However, Emeco may terminate Mr Gordon’s employment with a lesser period of notice on payment in lieu of notice
not given.
Under Mr Gordon’s employment agreement the following terms apply if there is a change of control event in respect of Emeco
Holdings Ltd:
• Mr Gordon’s LTI awards will automatically vest.
•
For a period of two years following a change of control event in respect of Emeco Holdings Ltd, Mr Gordon will be entitled
to 12 months’ notice of termination. At the expiry of the two year period, the notice period will be reduced to 6 months.
If, within two years of a change of control event in respect of Emeco Holdings Ltd, Emeco materially and substantially
changes Mr Gordon’s duties beyond the duties ordinarily performed by a Chief Executive Officer (other than with the
Executive’s agreement) he may serve written notice on the Emeco Board describing the conduct and indicating that he
considers the conduct to be a serious breach of the Contract and that he elects to bring his employment to an end. If
Emeco has repudiated the Contract and his employment is thereby brought to an end, following service of the above notice
on the Emeco Board, Mr Gordon will be entitled to receive a payment equivalent to 12 month’s base salary in lieu of notice.
•
Mr Stephen gobby
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 6 months base salary and the full amount of his STI bonus.
EmEc o Holdings limitEd AnnuAl RepoRt 2011
45
emeco Holdings limited And its contRolled entities
dirEctors’ rEport For tHE yEar EndEd 30 JunE 2011
Mr hamish Christie-Johnston
Mr Christie-Johnston’s contract is for an indefinite term and provides that it is terminable on either party giving 3 months’
notice or on the payment to him of up to 3 months’ salary in lieu of notice.
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 $108,680
pa, inclusive of superannuation contributions. As Chairman, Mr Brennan is entitled to an annual fee of $174,486, inclusive
of superannuation contributions. An additional annual fee of $8,151 is paid to any Director who is a member of a Board
Committee; this fee is increased to $10,868 for a Director who chairs a Committee.
RemuneRAtion And tHe compAny’s peRfoRmAnce
The Directors consider that the remuneration policies of the Company effectively align the interests of Emeco’s senior
executives with the interests of the Company and its shareholders. This has been achieved by ensuring that a significant
proportion of the senior executive’s remuneration is “at risk” in the form of STI and LTI components. STI entitlements are linked
to financial measures of the Company’s profitability and return on capital, and to the achievement of strategic outcomes.
LTI entitlements are linked to measures of total shareholder return.
The KPIs used to determine STI entitlements have been devised to ensure that key management personnel are rewarded for
robust earnings performance and the achievement of key strategic objectives.
The extent to which Emeco has set financial performance KPIs which are genuinely challenging – and which entail that STI
entitlements are genuinely at risk – is highlighted by the fact that no senior executive received an STI payment in FY10.
Furthermore, only two senior executives received an STI payment in FY09 and only five of eleven senior executives received
an STI payment in FY08. In FY11, STI payments to senior executives increased as a result of a significant improvement in
earnings and return on capital and the achievement of a number of strategic objectives relating to the restructuring of Emeco’s
operations.
Based on the consolidated results set out in the Company’s financial statements for FY06 through to FY10, the Group achieved a
compound annual decline in operating EBITA of 5.9%. As a result of these declines, and as noted above, the STI entitlements of
Emeco’s senior executives in these years were significantly reduced. However, Emeco’s operating EBITA increased by 21.0% from
$83.6 million in FY10 to $101.2 million in FY11, and its operating return on capital increased from 8.3% to 11.3% over the same
period, with the result that STI entitlements for Emeco’s senior executives were increased in FY11.
The Company’s share price has declined significantly since FY07; however, it increased by nearly 100% from 57 cents at close
of trading on 1 July 2010 to $1.13 at close of trading on 30 June 2011. Furthermore, the Company has maintained its dividend
policy of paying shareholders between 35% and 45% of the Company’s profit, with two exceptions. First, no dividend was paid
for the half year ended 31 December 2009 in the wake of the global financial crisis. Second, the company paid a special dividend
of five cents per share for the half year ended 31 December 2010 and has declared a dividend of three cents per share for the
half year ended 30 June 2011, a total of ten cents per share in respect of FY11. 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 strive to
increase earnings and return on capital. In this regard, the Company will maintain remuneration policies and practices which
reward strong financial performance and align the interests of management with the interests of shareholders.
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 Group has not indemnified its auditors, KPMG.
46
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
dirEctors’ rEport For tHE yEar EndEd 30 JunE 2011
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
APES 110 Code of Ethics for Professional Accountants, 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 Corporations 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.
Keith Gordon
Managing Director
Dated at Perth, 22nd day of August 2011.
EmEc o Holdings limitEd AnnuAl RepoRt 2011
47
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 financial year ended 30 June 2011 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
R Gambitta
Partner
Perth
22 August 2011
48
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
consolidatEd statEmEnt oF comprEHEnsivE incomE
For tHE yEar EndEd 30 JunE 2011
Continuing operations
Revenue from rental income
Revenue from the sale of machines and parts
Revenue from maintenance services
Changes in machinery and parts inventory
Repairs and maintenance
Employee expenses
Hired in equipment and labour
Gross profit
Other income
Other expense
Impairment of tangible assets
Business restructuring costs
EBITDA(1)
Impairment of goodwill
Depreciation expense
Amortisation expense
EBIT(2)
Financial income
Financial costs
Profit before income tax expense
Income tax (expense)/benefit
Profit from continuing operations
Discontinued operations
Loss from discontinued operations (net of income tax)
before equity transfers
FCTR of discontinued operations disposed (3)
Loss on sale of discontinued operations (net of tax)
Loss from discontinued operations
Profit/(Loss) for the year
other comprehensive income (after tax)
Foreign currency translation differences for foreign operations
FCTR of discontinued operations disposed (3)
Effective portion of changes in fair value of cash flow hedges
Total comprehensive income/(loss) for the year
Attributed to:
Equity holders of the Company
Earnings per share:
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
Earnings per share-continuing operations
Basic earnings per share
Diluted earnings per share
Note
6
7
7
20
7
7
7
7
9
13
13
13
Note
36
36
36
2011
$’000
386,530
62,795
53,170
502,495
(69,432)
(129,240)
(40,769)
(8,916)
254,138
7,211
(42,198)
(3,772)
–
215,379
–
(121,915)
(258)
93,206
281
(23,240)
70,247
(20,273)
49,974
(434)
420
(351)
(365)
49,609
(16,978)
420
3,259
(13,299)
36,310
2011
$
0.081
0.079
0.082
0.079
2010
$’000
302,355
64,328
38,276
404,959
(72,010)
(94,208)
(34,677)
(2,857)
201,207
5,025
(23,804)
(13,793)
(950)
167,685
(20,105)
(98,775)
(295)
48,510
157
(22,882)
25,785
(13,485)
12,300
(56,242)
(5,371)
–
(61,613)
(49,313)
(5,473)
5,371
3,290
3,188
(46,125)
2010
$
(0.080)
(0.080)
0.020
0.020
(1) EBITDA – Earnings before interest expense, tax, depreciation and amortisation.
(2) EBIT – Earnings before interest expense and tax.
(3) FCTR – Transfer of Foreign Currency Translation Reserve (“FCTR”) from equity reserve to profit upon foreign operations of the Group being disposed.
The consolidated statement of comprehensive income is to be read in conjunction with the notes to and forming part of the
financial statements set out on pages 53 to 104.
EmEc o Holdings limitEd AnnuAl RepoRt 2011
49
emeco Holdings limited And its contRolled entities
consolidatEd statEmEnt oF Financial position as at 30tH JunE 2011
Current Assets
Cash assets
Trade and other receivables
Inventories
Prepayments
Current tax asset
Assets classified as held for sale
Total current assets
Non-current assets
Trade and other receivables
Intangible assets
Property, plant and equipment
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Interest bearing liabilities
Current tax liabilities
Provisions
Liabilities classified as held for sale
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
Total equity attributable to equity holders of the Company
Note
16
17
19
18
10
14
17
20
21
22
23
10
25
14
23
11
25
27
2011
$’000
5,502
83,251
48,569
2,313
427
8,728
148,790
581
173,248
658,533
832,362
2010
$’000
5,239
90,327
87,017
4,550
656
38,413
226,202
14
178,192
610,346
788,552
981,152
1,014,754
48,397
3,308
6,790
5,117
–
63,612
290,495
23,943
868
315,306
378,918
602,234
610,304
(32,462)
24,392
602,234
50,737
5,203
5,858
5,302
2,196
69,296
298,892
23,020
803
322,715
392,011
622,743
609,578
(18,429)
31,594
622,743
The consolidated statement of financial position is to be read in conjunction with the notes to and forming part of the financial
statements set out on pages 53 to 104.
50
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
consolidatEd statEmEnt oF cHangEs in Equity
For tHE yEar EndEd 30 JunE 2011
Share
based
payment
reserve
$’000
Foreign
currency
translation
reserve
$’000
Reserve
for own
shares
$’000
hedging
reserve
$’000
Share
capital
$’000
Retained
earnings
$’000
Total
equity
$’000
Balance at 1 July 2009
609,470
1,832
(10,536)
(7,562)
(3,870)
93,532
682,866
Total comprehensive income for the year
Profit or (loss)
Other comprehensive income
Foreign currency translation differences
Exchange differences of disposed
foreign operations
Effective portion of changes in fair
value of cash flow hedge, net of tax
Total comprehensive income/
(loss) for the year
Transactions with owners,
recorded directly in equity
Contributions by and distributions to owners
Own shares acquired by
employee share plan trust
Dividends to equity holders
Share-based payment transactions
Total contributions by and
distributions to owners
Balance at 30 June 2010
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(5,473)
5,371
3,290
–
3,290
(102)
–
–
–
–
–
(49,313)
(49,313)
–
–
–
(5,473)
5,371
3,290
(49,313)
(46,125)
–
68
40(1)
–
–
896
–
–
–
–
–
–
(2,377)
–
–
–
(12,625)
–
(2,377)
(12,557)
936
108
609,578
896
2,728
–
(7,246)
–
(7,664)
(2,377)
(6,247)
(12,625)
31,594
(13,998)
622,743
Share
based
payment
reserve
$’000
Foreign
currency
translation
reserve
$’000
Reserve
for own
shares
$’000
hedging
reserve
$’000
Share
capital
$’000
Retained
earnings
$’000
Total
equity
$’000
Balance at 1 July 2010
609,578
2,728
(7,246)
(7,664)
(6,247)
31,594
622,743
Total comprehensive income for the year
Profit or (loss)
Other comprehensive income
Foreign currency translation differences
Exchange differences of disposed
foreign operations
Effective portion of changes in fair
value of cash flow hedge, net of tax
Total comprehensive income/
(loss) for the year
Transactions with owners,
recorded directly in equity
Contributions by and distributions to owners
Own shares acquired by
employee share plan trust
Dividends to equity holders
Share-based payment transactions
Total contributions by and
distributions to owners
Balance at 30 June 2011
–
–
–
–
–
–
–
–
–
–
–
–
–
3,259
–
(16,978)
420
–
3,259
(16,558)
–
–
–
–
–
49,609
49,609
–
–
–
(16,978)
420
3,259
49,609
36,310
–
220
506(1)
726
610,304
–
–
3,734
3,734
6,462
–
–
–
–
–
–
(4,468)
–
–
–
(56,811)
–
(4,468)
(56,591)
4,240
–
(3,987)
–
(24,222)
(4,468)
(10,715)
(56,811)
24,392
(56,819)
602,234
(1) Payments made in satisfaction of outstanding loans on vested shares under the Company’s Management Incentive Share Plan.
The consolidated statement of changes in equity is to be read in conjunction with the notes to and forming part of the financial
statements set out on pages 53 to 104.
EmEc o Holdings limitEd AnnuAl RepoRt 2011
51
emeco Holdings limited And its contRolled entities
consolidatEd statEmEnt oF casH Flows For tHE yEar EndEd 30 JunE 2011
Cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers and employees
Cash generated from operations
Interest received
Interest paid
Income tax paid
Net cash provided by/(used in) operating activities
Cash flows from investing activities
Proceeds on disposal of non-current assets
Payment for property, plant and equipment
Disposal of discontinued operations net of cash disposed
Net cash used in investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Purchase of own shares
Payment for debt establishment costs
Payment of finance lease liabilities
Dividends paid
Net cash provided by/(used in) 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
Note
2011
$’000
2010
$’000
517,811
(270,328)
247,483
566
(19,075)
(14,043)
214,931
39,439
(199,950)
14,423
(146,088)
134,151
(130,131)
(4,468)
(4,054)
(7,578)
(56,867)
(68,947)
(104)
5,239
367
5,502
31(ii)
13
31(i)
451,403
(263,023)
188,380
162
(23,005)
(18,075)
147,462
47,523
(155,050)
–
(107,527)
119,046
(141,448)
(2,377)
–
(7,973)
(12,625)
(45,377)
(5,442)
10,422
259
5,239
The consolidated statement of cash flows is to be read in conjunction with the notes to the financial statements set out on
pages 53 to 104.
52
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
1 RepoRting entity
Emeco Holdings Limited (the “Company”) is a company domiciled in Australia. The address of the Company’s registered office
is Level 3, 71 Walters Drive, Osborne Park WA 6017. The consolidated financial statements of the Company as at and for
the year ended 30 June 2011 comprise the Company and its subsidiaries (together referred to as the “Group”). The Group is
primarily involved in the renting, maintaining and selling of heavy earthmoving equipment to customers in the mining industry
(refer note 15).
2 BAsis of pRepARAtion
(a) Statement of compliance
The consolidated statements are general purpose financial statements which have been prepared in accordance with
Australian Accounting Standards (“AASBs”) adopted by the Australian Accounting Standards Board (“AASB”) and the
Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standards
(“IFRSs”) adopted by the International Accounting Standards Board (“IASB”).
The consolidated financial statements were authorised for issue by the Board of Directors on 22nd August 2011.
(b) Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis except for the following material
item in the statement of financial position:
•
derivative financial instruments 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 the consolidated financial statements in conformity with the IFRSs 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 estimates are revised and in any future periods affected.
The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amount of
assets and liabilities within the next financial year are discussed below:
impairment of assets
The recoverable amount of each non financial asset is determined as the higher of the value-in-use and fair value less
costs to sell, in accordance with the Company’s accounting policy note 3(i)(ii). Determination of the recoverable amount
of an asset based on a discounted cash flow model, requires the use of estimates and assumptions, including; the
appropriate rate at which to discount the cash flows, the timing of the cash flow, market risk premium, interest rates,
exchange rates, growth rates, future capital requirements and future operating performance. Changes in these estimates
and assumptions impact the recoverable amount of the asset, and accordingly could result in an adjustment to the
carrying amount of that asset. The carrying amount of such assets is set out in note 20.
Recognition of tax losses
In accordance with the Company’s accounting policies for deferred taxes (refer note 3(p)), a deferred tax asset is
recognised for unused tax losses only if it is probable that future taxable profits will be available to utilise these losses.
This includes estimates and judgements about future profitability and tax rates. Changes in these estimates and
assumptions could impact on the amount and probability of unused tax losses and accordingly the recoverability of
deferred tax assets. The carrying amount of deferred tax assets are set out in note 11.
EmEc o Holdings limitEd AnnuAl RepoRt 2011
53
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
2 BAsis of pRepARAtion (continued)
(d) use of estimates and judgements (continued)
Share based payments
The share based payments are recognised in accordance with the Company’s accounting policies (refer note 3(k)(v)) where
the value of the share based payment is expensed from the grant date to vesting date. This valuation includes estimates
and judgements about volatility, risk free rates, dividend yields, total shareholder return (“TSR”) and underlying share
price. Changes in these estimates and assumptions could impact on the measurement of the share based payment as set
out in note 26.
(e) Changes in accounting policies
From 1 July 2010 the Group has not changed its accounting policies.
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. The financial statements of subsidiaries are included in the consolidated
financial statements from the date that control commences until the date that control ceases.
(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 revised. 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 transactions, 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 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 year.
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. Non-monetary items in a foreign
currency that are measured in terms of historical cost are translated using the exchange rate at the date of the transaction.
(ii) Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition,
are translated to the functional currency 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 in other comprehensive income, and presented in the foreign currency
translation reserve (“FCTR”) in equity. When a foreign operation is disposed of such that control, significant influence or
joint control is lost, the cumulative amount in the FCTR related to that foreign operation is reclassified to profit or loss as
part of the gain or loss on disposal.
54
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
3 significAnt Accounting policies (continued)
(c) Financial instruments
(i) Non-derivative financial assets
The Group initially recognises loans and receivables and deposits on the date that they are originated. All other financial
assets are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the
instrument.
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers
the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and
rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or
retained by the Group is recognised as a separate asset or liability.
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and
only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the
asset and settle the liability simultaneously.
The Group has non-derivative financial assets being: loans and receivables.
loans and receivables
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such
assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition
loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses.
Loans and receivables comprise trade and other receivables.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less.
(ii) Non-derivative financial liabilities
The Group initially recognises debt securities issued and subordinated liabilities on the date that they are originated. All
other financial liabilities (including liabilities designated at fair value through profit or loss) are recognised initially on the
trade date at which the Group becomes a party to the contractual provisions of the instrument.
The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and
only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the
asset and settle the liability simultaneously.
The Group classified non-derivative financial liabilities into the other financial liabilities category. Such financial liabilities
are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these
financial liabilities are measured at amortised costs using the effective interest rate method.
Other financial liabilities comprise loans and borrowings, bank overdrafts, and trade and other payables.
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.
(iii) Derivative financial instruments, including hedge accounting
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.
On initial designation of the derivative as the hedging instrument, the Group formally documents the relationship between
the hedging instrument and hedged item, including the risk management objectives and strategy in undertaking the hedge
transaction and the hedged risk, together with the methods that will be used to assess the effectiveness of the hedging
relationship. The Group makes an assessment, both at the inception of the hedge relationship as well as on an ongoing
basis, whether the hedging instruments are expected to be “highly effective” in offsetting the changes in the fair value or
cash flows of the respective hedged items attributable to hedged risk and whether the actual results of each hedge are
within a range of 80-125 percent. For a cash flow hedge of a forecast transaction, the transaction should be highly probable
to occur and should present an exposure to variations in cash flows that could ultimately affect reported profit or loss.
EmEc o Holdings limitEd AnnuAl RepoRt 2011
55
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
3 significAnt Accounting policies (continued)
(c) Financial instruments (continued)
(iii) Derivative financial instruments, including hedge accounting (continued)
Cash flow hedges
When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a
particular risk associated with the recognised asset or liability or a highly probable forecast transaction that could affect
profit or loss, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive
income and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative
is recognised immediately in profit or loss.
When the hedged item is a non-financial asset, the amount recognised in equity is included in the carrying amount of
the asset when the asset is recognised. In other cases the amount accumulated in equity is reclassified to profit or loss
in the same period that the hedged item affects profit or loss. If the hedging instrument no longer meets the criteria
for hedge accounting, expires or is sold, terminated or exercised, or the designation is revoked, then hedge accounting
is discontinued prospectively. If the forecast transaction is no longer expected to occur, then the balance in equity is
reclassified in profit or loss.
(iv) Share capital
other non-trading derivatives
When a derivative financial instrument is not designated in a hedge relationship that qualifies for hedge accounting,
all changes in its fair value are recognised immediately in profit or loss.
ordinary shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share
options are recognised as a deduction from equity, net of any tax effects.
Purchase 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, net of any tax effects, is recognised as a deduction from equity. Purchased
shares are classified as treasury shares and are presented in the reserve for own shares net of any tax effects. 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.
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 accumulated impairment
losses.
Cost includes expenditure that is 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 assets to a working
condition for their intended use, 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.
The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from
disposal with the carrying amount of property, plant and equipment and is recognised net within other income/other
expenses in profit or loss.
56
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
3 significAnt Accounting policies (continued)
(d) Property, plant and equipment (continued)
(ii) Subsequent costs
The cost of replacing a component 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 component 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 statement of comprehensive income. 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, fixtures and fittings, office equipment, motor vehicles
and sundry plant is calculated on a straight-line basis. Depreciation on plant and equipment is calculated and charged on
machine hours worked over their estimated useful life.
The estimated 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
(e) intangible assets
(i) goodwill
Goodwill (negative goodwill) arises on the acquisition of subsidiaries.
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.
Subsequent measurement
Goodwill is measured at cost less accumulated impairment losses.
(ii) other intangible assets
Other intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated
amortisation and accumulated impairment losses.
(iii) Amortisation
Amortisation is based on the cost of an asset less its residual value.
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:
•
Software 0-3 years
Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
EmEc o Holdings limitEd AnnuAl RepoRt 2011
57
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
3 significAnt Accounting policies (continued)
(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 in the Group’s statement of financial position.
(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, production costs and other costs incurred in
bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost
includes an appropriate share of production overheads based on normal operating capacity. Net realisable value is the
estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
Inventory is occasionally sold under a Rental Purchase Option (“RPO”). Under the RPO the purchaser is entitled to a
rebate upon exercising the option. A charge is recognised against the carrying value of inventory on RPOs to reflect the
consumption of economic benefits related to that inventory.
(h) Work in progress
Progressive capital work to inventory and fixed assets are carried in work in progress accounts within their respective
statement of financial position classifications with fixed assets being disclosed as a “capital work in progress”.
Upon work completion the balance is capitalised.
(i) impairment
(i) Non-derivative financial assets
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether
there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event
has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future
cash flows of that asset that can be estimated reliably.
Objective evidence that financial assets (including equity securities) are impaired can include default or delinquency by a
debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications
that a debtor or issuer will enter bankruptcy and economic conditions that correlate the defaults.
The Group considers evidence of impairment for receivables at both a specific asset and collective level. All individually
significant receivables are assessed for specific impairment. All individually significant receivables found not to be
specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified.
Receivables that are not individually significant are collectively assessed for impairment by grouping together receivables
with similar risk characteristics.
In assessing collective impairment, the Group uses historical trends of the probability of default, timing of recoveries and
the amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions
are such that the actual losses are likely to be greater or less than suggested by historical trends.
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 asset’s original effective
interest rate. Losses are recognised in profit or loss and reflected in an allowance account against receivables. Interest on
the impaired asset continues to be recognised. When a subsequent event (e.g. repayment by a debtor) causes the amount
of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.
58
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
3 significAnt Accounting policies (continued)
(i) impairment (continued)
(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 useful lives or that are not
yet available for use, the recoverable amount is estimated each year at the same time. An impairment loss is recognised if
the carrying amount of an asset or its related cash generating unit (“CGU”) exceeds its estimated recoverable amount.
The recoverable amount of an asset or CGU 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 is calculated
with regard to the discounted post tax cash flows or comparable transactions for similar businesses. For the purpose of
impairment testing, assets that cannot be tested individually 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 CGUs. For
the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so that the level
at which impairment is tested reflects the lowest level at which goodwill is monitored for internal reporting purposes.
Goodwill acquired in a business combination is allocated to groups of cash-generating units that are expected to benefit
from the synergies of the combination.
The Group’s corporate assets do not generate separate cash inflows and are utilised by more than one CGU. Corporate
assets are allocated to CGUs on a reasonable and consistent basis and tested for impairment as part of the testing of the
CGU to which the corporate asset is allocated.
Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to
reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs), and then to reduce the carrying amount
of the other assets in the CGU (group of CGUs) 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 2011 as part of the Group’s process of annually testing goodwill
for impairment.
(j) Non-current assets held for sale
Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily
through sale or distribution rather than through continuing use, are classified as held for sale or distribution. Immediately
before classification as held for sale or distribution, the assets, or components of a disposal group, are remeasured in
accordance with the Group’s accounting policies. Thereafter generally the assets, or disposal group, are measured at the
lower of their carrying amount and fair value less cost to sell. Any impairment loss on a disposal group first is allocated
to goodwill, and then to remaining assets and liabilities on a pro rata basis, except that no loss is allocated to inventories,
financial assets, deferred tax assets, employee benefit assets, investment property and biological assets, which continue to
be measured in accordance with the Group’s accounting policies. Impairment losses on initial classification as held for sale
or distribution and subsequent gains or losses on remeasurement are recognised in profit or loss. Gains are not recognised
in excess of any cumulative impairment loss.
Intangible assets and property, plant and equipment once classified as held for sale or distribution are not amortised or
depreciated.
(k) 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 an employee benefit expense in profit or loss in the periods during which
services are rendered by employees. Prepaid contributions are recognised as an asset to the extent that a cash refund or a
reduction in future payments is available.
EmEc o Holdings limitEd AnnuAl RepoRt 2011
59
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
3 significAnt Accounting policies (continued)
(k) Employee benefits (continued)
(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 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 and that are denominated
in the same currency in which the benefits are expected to be paid.
(iii) Termination benefits
Termination benefits are recognised as an expense when the Group is committed demonstrably, 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 as an expense if the Group has made an offer of voluntary redundancy, it is
probable that the offer will be accepted, and the number of acceptances can be estimated reliably.
(iv) Short-term benefits
Short term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is
provided. 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) A management incentive share plan (“MISP”) allows certain consolidated entity employees to acquire shares of the
Company. 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 arrangement
is accounted for as an in-substance option over ordinary shares. 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 MISP granted is measured
using a Black Scholes pricing model, taking into account the terms and conditions upon which the in-substance options
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.
(b) 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.
(c) A long term incentive plan (“LTIP”) allows certain management personnel to receive shares or rights of the Company
upon satisfying performance conditions. Under the LTIP rights or 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 97 – 98 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). The fair value of the performance rights or shares granted
under the LTIP have been measured using Monte Carlo simulation analysis and are expensed evenly over the period
from grant date to vesting date.
If the terms of the LTIP are modified, as a minimum an expense is recognised as if the terms had not been modified.
An additional expense is recognised for any modification that increases the total fair value of the share based payment
arrangement, or is otherwise beneficial to the employee, as measured at the date of modification.
(d) During the year, an employee share ownership plan (“ESOP”) was established to allow certain employees to acquire
shares in the Company via salary sacrifice. For every five shares purchased by the employee, recognised as treasury
shares, the Company provides one matching share, recognised as a share based payment. Under the ESOP, the
matching share will vest to the employee after one year after the end of calendar year in which the matching shares
are acquired. These matching shares are fair valued and are expensed evenly over the period from grant date to
vesting date. ESOP employees are entitled to dividends on the matching share when the dividends are declared.
60
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
3 significAnt Accounting policies (continued)
(k) Employee benefits (continued)
(v) Share based payment transactions (continued)
(e) Dividends received while satisfying the performance conditions of share issues under the MISP are allocated against
the employee outstanding loan. Commencing 13 August 2010, all LTIP and ESOP recipients are entitled to any
dividends that are declared during the vesting period.
(l) 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.
(i) Restructuring
A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the
restructuring either has commenced or has been announced publicly. Future operating costs are not provided for.
(m) Revenue
(i) Rental revenue
Revenue from the 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. Revenue is measured at the fair value of consideration received or
receivable.
(ii) goods sold
Revenue from the sale of goods in the course of ordinary activities 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
persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of
ownership have been transferred to the customer, recovery of the consideration is probable, the associated costs and
possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and
the amount of revenue can be measured reliably.
(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.
(n) 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.
(o) Finance income and finance costs
Finance income comprises interest income, dividend income, fair value gains on financial assets at fair value through profit
or loss, and gains on hedging instruments that are recognised in profit or loss. Interest income is recognised as it accrues
in profit or loss 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 costs comprise interest expense on borrowings, fair value losses on financial assets at fair value through profit
or loss, losses on hedging instruments that are recognised in profit or loss and impairment losses recognised on financial
assets (other than trade receivables). All borrowing costs are recognised in profit or loss.
Foreign currency gains and losses are reported on a net basis in either finance income or finance expense depending on
whether foreign currency movements are in a net gain or net loss position.
EmEc o Holdings limitEd AnnuAl RepoRt 2011
61
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
3 significAnt Accounting policies (continued)
(p) income tax
Income tax expense comprises current and deferred tax. Current and deferred tax is recognised in profit or loss except to
the extent that it relates to items recognised directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss 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 in respect of 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:
•
temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business
combination and that affects neither accounting nor taxable profit or loss
temporary differences related to investments in subsidiaries to the extent that it is probable that they will not reverse
in the foreseeable future
taxable temporary differences arising on the initial recognition of goodwill.
•
•
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 for unused tax losses, tax credits and deductible temporary differences to the extent that it
is probable that future taxable profits will be available against which they 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.
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.
(q) Discontinued operations
A discontinued operation is a component of the Group’s business that represents a separate major line of business or
geographical area of operations that has been disposed of or held for sale. Classification as a discontinued operation occurs
upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. When an operation is
classified as a discontinued operation, the comparative statement of comprehensive income is re-presented as if the
operation had been discontinued from the start of the comparative year.
(r) Earnings per share
The Group presents basic and diluted earnings per share data for its ordinary shares. Basic earnings per share 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 year adjusted for own shares held. Diluted earnings per share is determined by
adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares
outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise
management performance shares, and share options granted to employees.
(s) Segment reporting
An operating segment is a component of the Group that engages in business activities from which it may earn revenues
and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components.
All operating segments’ operating results are reviewed regularly by the Group’s Board of Directors to make decisions about
resources to be allocated to the segment and to assess its performance, and for which discrete financial information is
available.
Segment results that are reported to the Board of Directors include items directly attributable to a segment as well as
those that can be allocated on a reasonable basis. Unallocated items comprise mainly cash, interest bearing liabilities and
finance expense.
Segment capital expenditure is the total cost incurred during the year to acquire property, plant and equipment, and
intangible assets other than goodwill.
62
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
3 significAnt Accounting policies (continued)
(t) New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after
1 July 2010, and have not been applied in preparing these consolidated financial statements. None of these is expected to
have a significant effect on the consolidated financial statements of the Group, except for AASB 9 Financial Instruments,
which becomes mandatory for the Group’s 2014 consolidated financial statements and could change the classification and
measurement of financial assets. The Group does not plan to adopt this standard early and the extent of the impact has
not been determined.
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 the estimated amount
for which a property could be exchanged on the date of acquisition between a willing buyer and a willing seller in an arm’s
length transaction after proper marketing wherein the parties had each acted knowledgeably. The fair value of items of
plant, equipment, fixtures and fittings is based on the market approach and cost approaches using quoted market prices
for similar items when available and replacement cost when appropriate. Depreciated replacement cost estimates reflect
adjustments for physical deterioration as well as functional and economic obsolescence.
(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 inventories.
(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. This fair value is determined for
disclosure purposes or when acquired in a business combination.
(v) Derivatives
The fair value of forward exchange contracts is based on the discounted value of the difference between the rate the
contractual forward price and the current forward price for the residual maturity of the contract using a risk free rate.
The fair value of interest rate swaps is based on third party valuations provided by financiers. Those valuations 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. The employee share ownership plan shares are measured
at cost.
EmEc o Holdings limitEd AnnuAl RepoRt 2011
63
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
5 finAnciAl RisK mAnAgement
overview
The Group has exposure to the following risks from their use of financial instruments:
•
•
credit risk
liquidity risk
• market risk
This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and
processes for measuring and managing risk, and the Group’s management of capital. Further quantitative disclosures are
included throughout these consolidated financial statements.
Risk management framework
The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management
framework. The Board has established the Audit and Risk Committee (“Committee”), which is responsible for developing and
monitoring the Group’s risk management policies. The Committee reports regularly to the Board of Directors on its activities.
The Group’s risk management policies are established to identify and analyse the risks faced by the 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 Group’s activities. The Group, through its training, management
standards and procedures, aim to develop a disciplined and constructive control environment in which all employees
understand their roles and obligations.
The Committee oversees how management monitors compliance with the Group’s risk management policies and procedures and
reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Committee is assisted in its
oversight role by internal audit. Internal audit undertakes reviews of risk management controls and procedures at the direction of
the Committee. The results of the reviews are reported to the Committee.
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.
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:
Trade receivables
Other receivables
Cash and cash equivalents
Trade and other receivables
Consolidated
Carrying amount
Note
17
17
16
2011
$’000
87,963
7,453
5,502
100,918
2010
$’000
91,723
5,256
5,239
102,218
The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However,
management also considers the demographics of the Group’s customer base, including the default risk of the industry and
country in which customers operate, as these factors may have an influence on credit risk. The Group sets individual counter
party limits and where possible insures its rental income within Australia, Indonesia and Canada, and generally operates on a
“cash for keys” policy within its Sales business.
Both insured and uninsured debtors are subject to the Group’s credit policy. The Group’s credit policy requires each new customer
to be analysed individually 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 according to the external rating and is approved by the appropriate management level dependent
on the size of the limit. In the instance that a customer fails to meet the Group’s credit worthiness, and the Group is unable to
secure credit insurance, future transactions with the customer will only be on a prepayment basis, or appropriate security such as
a bank guarantee or letter of credit.
64
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
5 finAnciAl RisK mAnAgement (continued)
Trade and other receivables (continued)
Where commercially available the Group aims to insure the majority of rental customers that 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 $750 million (2010: $750 million).
The Group establishes an allowance for impairment that represents its 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. The specific loss component is made up of the insurance excess for insured debts that have been classified as doubtful
and uninsured customers that are classified as doubtful. As at 30 June 2011 the Group had impairment for doubtful debts of
$12.2 million. Included in this impairment is an amount of $9.8 million (pre-tax) relating to one customer in the Indonesian
business. This impairment includes dry-hire rental, repairs and maintenance and demobilisation charges not recovered.
As at 30 June 2011 the Group recognised bad debt write-offs for a total amount of $1.7 million (2010: $5.8 million) in Australia
and Canada of $1.1 million and $0.4 million respectively. Bad debts of $0.2 million are recognised in discontinued operations
in USA and Australia of $0.1 million and $0.1 million respectively. The bad debts recognised during the year relate to a
small number of customers in Australia and Canada that were unable to pay their outstanding balances due to economic
circumstances. The Group believes that the unimpaired amounts that are past due by more than 30 days are still collectible,
based on historic payment behaviour and extensive analyses of the underlying customers’ credit ratings.
The Group held cash and cash equivalents of $5.5 million at 30 June 2011 (2010: $5.2 million), which represents its maximum
credit exposure on these assets. The cash and cash equivalents are held with bank and financial institution counterparties which
are rated greater than AA-.
The Group’s maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:
Australia
Asia
North America
Europe
Africa
Consolidated
Carrying amount
2011
$’000
57,609
22,049
8,305
–
–
87,963
2010
$’000
55,404
19,251
13,414
3,252
402
91,723
The Group’s maximum exposure to credit risk for trade receivables at the reporting date by type of customer was:
Insured
Blue Chip (including subsidiaries)
Other security
Uninsured
Consolidated
Carrying amount
2011
$’000
41,137
17,176
2,810
26,840
87,963
2010
$’000
40,700
13,827
9,197
27,999
91,723
The aging of the Group’s trade receivables at the reporting date was:
Consolidated
Consolidated
Not past due
Past due 0-30 days
Past due 31-60 days
Past due 61 days
gross
2011
$’000
42,385
21,196
6,707
17,675
87,963
impairment
2011
$’000
(444)
(46)
(565)
(11,110)
(12,165)
gross
2010
$’000
44,879
24,405
3,853
18,586
91,723
impairment
2010
$’000
(1,830)
(1)
(47)
(4,774)
(6,652)
EmEc o Holdings limitEd AnnuAl RepoRt 2011
65
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
5 finAnciAl RisK mAnAgement (continued)
Trade and other receivables (continued)
The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
Balance at 1 July
Bad debt written off
Doubtful debt recognised
Reversal of doubtful debt
Balance at 30 June
Consolidated
2011
$’000
6,652
(1,664)
10,677
(3,500)
12,165
2010
$’000
8,816
(5,787)
4,348
(725)
6,652
Collateral
Collateral is held for customers that are assessed to be a higher risk. At 30 June 2011 the Group held $2.7 million of bank
guarantees and $0.1 million of prepayments.
guarantees
Financial guarantees are generally only provided to wholly-owned subsidiaries or when entering into a premise rental
agreement. Details of outstanding guarantees are provided in note 29. At 30 June 2011 $342,500 guarantees were outstanding
(2010: $342,500).
liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities
that are settled by delivering cash or another financial asset. 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 models 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.
The Group’s syndicated senior debt facility (“debt facility”) matures on 5 November 2013. The facility comprises a three
year $300.0 million tranche which matures on 5 November 2013 and a five year $150.0 million tranche which matures on 5
November 2015. The senior debt facility is a revolver and also comprises one year revolving $26.9 million (2010: $33.4 million)
working capital facility. At year end the debt facilities had not utilised $198.9 million.
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the
impact of netting agreements.
Consolidated
30 June 2011
Non-derivative financial liabilities
Secured bank loans
Finance lease liabilities
Trade and other payables (1)
Derivative financial liabilities
Interest rate swaps used for
hedging asset/(liability)
Forward exchange contracts
used for hedging:
Outflow
Inflow
(1) Excludes derivatives (shown separately)
Carrying
amount
$’000
Contractual
cash flows
$’000
6 mths
or less
$’000
6-12
mths
$’000
1-2
years
$’000
2-5
years
$’000
More than
5 years
$’000
(278,000)
(19,005)
(42,694)
(339,699)
(292,089)
(22,621)
(42,694)
(357,404)
(7,045)
(2,383)
(42,694)
(52,122)
(7,045)
(2,181)
–
(9,226)
(14,090)
(4,362)
–
(18,452)
(263,909)
(13,695)
–
(277,604)
(5,981)
(6,132)
(2,353)
(1,191)
(2,135)
(453)
285
(7)
(5,703)
(12,057)
11,780
(6,409)
(12,057)
11,780
(2,630)
–
–
(1,191)
–
–
(2,135)
–
–
(453)
–
–
–
–
–
–
–
–
It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly
different amounts.
66
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
5 finAnciAl RisK mAnAgement (continued)
liquidity risk (continued)
Consolidated
30 June 2010
Carrying
amount
$’000
Contractual
cash flows
$’000
6 mths
or less
$’000
6-12
mths
$’000
1-2
years
$’000
2-5
years
$’000
More than
5 years
$’000
Non-derivative financial liabilities
Secured bank loans
Finance lease liabilities
Trade and other payables (1)
Derivative financial liabilities
Interest rate swaps used for
hedging asset/(liability)
Forward exchange contracts
used for hedging:
Outflow
Inflow
(1) Excludes derivatives (shown separately)
Market risk
(300,009)
(5,463)
(36,684)
(342,156)
(311,198)
(5,548)
(36,684)
(353,430)
(34,556)
(2,659)
(36,577)
(73,792)
(5,536)
(2,628)
(107)
(8,271)
(271,106)
(261)
–
(271,367)
–
–
–
–
(13,187)
(13,497)
(5,395)
(2,441)
(3,521)
(2,140)
(1,033)
(18)
(14,238)
(41,728)
42,780
(12,445)
(41,728)
42,780
(4,343)
–
–
(2,441)
–
–
(3,521)
–
–
(2,140)
–
–
–
–
–
–
–
–
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 revenue, expenditure, assets 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 (“YEN”).
The Group hedges all trade receivables and trade payables that are denominated in a currency that is foreign to its functional
currency, and greater than $50,000. The Group uses forward exchange contracts to hedge this 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 without derivatives being entered into
and therefore no application of hedge accounting.
The Group’s investments in its subsidiaries and their earnings for the year are not hedged as these currency positions are
considered long term in nature.
The Group’s foreign denominated debt is not hedged to manage the risk of breaching its facility limit of $450.0 million as the
Group considers there to be appropriate headroom for any adverse movement in exchange rates (refer note 24).
EmEc o Holdings limitEd AnnuAl RepoRt 2011
67
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
5 finAnciAl RisK mAnAgement (continued)
Exposure to currency risk
The Group’s exposure to foreign currency risk at balance date was as follows, based on notional amounts:
AuD
$’000
30 June 2011
uSD
$’000
yEN
$’000
EuR
$’000
30 June 2010
uSD
$’000
AuD
$’000
Trade receivables
Trade payables (1)
Gross balance sheet exposure
Forward exchange contracts
Net exposure
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
yEN
$’000
–
(2,074)
(2,074)
517
–
517
(517)
2,074
–
–
(1) 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.
The following significant exchange rates applied during the year:
CAD
USD
EURO
IDR
Average rate
2011
2010
Reporting date spot rate
2011
2010
0.9879
0.9872
0.7239
8,731
0.9303
0.8816
0.6350
8,325
1.0367
1.0724
0.7401
9,198
0.8962
0.8538
0.6982
7,727
Sensitivity analysis – financial instruments
A strengthening of the Australian dollar, as indicated below, against the following currencies at 30 June 2011 would have increased/
(decreased) equity and profit or loss by the amounts shown below. This analysis is based on foreign currency exchange rate
variances that the Group considered to be reasonably possible at the end of the reporting period. The analysis assumes that all other
variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2010, as indicated below:
30 June 2011
USD (10 percent strengthening)
EURO (10 percent strengthening)
YEN (10 percent strengthening)
CAD (10 percent strengthening)
30 June 2010
USD (10 percent strengthening)
EURO (10 percent strengthening)
YEN (10 percent strengthening)
CAD (10 percent strengthening)
Consolidated
Equity
$’000
Profit or loss
$’000
(557)
(45)
(136)
(294)
(2,410)
(149)
(132)
(439)
–
–
–
–
(104)
–
–
–
A 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.
interest rate risk
In accordance with the Board’s policy the Group is required to maintain a range between a maximum of 70% and a minimum of
30% of its exposure to changes in interest rates on borrowings on a fixed rate basis, taking into account assets with exposure to
changes in interest rates for an average tenure of no less than 2 years into the future. This is typically achieved by entering into
interest rate swaps.
68
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
5 finAnciAl RisK mAnAgement (continued)
Profile
At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was:
Consolidated
Cash at bank
Variable interest bearing liabilities
Variable interest bearing finance leases
Total interest bearing liabilities
Effective interest rate swaps to hedge interest rate risk
Australian dollars
Canadian dollars C$80M (2010: C$80M)
United States dollars USD$15M (2010: USD$15M) (1)
The 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
Note
16
24
2011
$’000
5,502
278,000
19,005
297,005
70,000
77,168
13,987
161,155
83,987
38,584
38,584
–
–
161,155
2010
$’000
5,239
300,009
5,463
305,472
70,000
89,266
17,568
176,834
–
87,568
44,633
44,633
–
176,834
(1) At 30 June 2010 the Group had a USD$10 million and USD$15 million swap which was considered ineffective due to the forecast repayments of USD
denominated debt to below the level of the swaps and are not included above.
The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or 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 rates at the 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 2010.
Profit or loss
Equity
100bp increase
$’000
100bp decrease
$’000
100pb increase
$’000
100pb decrease
$’000
–
431
–
(431)
2,746
2,766
(2,746)
(2,766)
30 June 2011
Cash flow sensitivity (net)
30 June 2010
Cash flow sensitivity (net)
Fair values
interest rates used for determining fair value
The range of interest rates used to discount estimated cash flows, when 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
0.2%
1.6%
0.3%
2011
–
–
–
5.2%
7.2%
7.2%
1.0%
2.0%
0.0%
2010
–
–
–
6.0%
7.0%
1.0%
The Group has not identified other market price risks that it considers it is materially exposed to, other than those identified.
EmEc o Holdings limitEd AnnuAl RepoRt 2011
69
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
5 finAnciAl RisK mAnAgement (continued)
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:
30 June 2011
30 June 2010
Carrying
Amount
$’000
Fair
Value
$’000
Note
Carrying
Amount
$’000
Fair
Value
$’000
Assets carried at fair value
Forward exchange contracts used for hedging
Assets carried at amortised cost
Receivables
Cash and cash equivalents
liabilities carried at fair value
Interest rate swaps used for hedging
Forward exchange contracts used for hedging
liabilities carried at amortised cost
Secured bank loans
Finance lease liabilities
Trade and other payables (1)
17
16
23
23
22
(1) Excludes derivatives (shown separately)
The basis for determining fair values is disclosed in note 4.
Fair value hierarchy
285
285
83,251
5,502
88,753
(5,981)
(7)
(5,988)
285
285
83,251
5,502
88,753
(5,981)
(7)
(5,988)
1,033
1,033
90,327
5,239
95,566
(13,187)
(18)
(13,205)
1,033
1,033
90,327
5,239
95,566
(13,187)
(18)
(13,205)
(278,000)
(19,005)
(42,694)
(339,699)
(274,798)
(22,627)
(42,694)
(340,119)
(300,009)
(5,463)
(36,499)
(341,971)
(298,632)
(5,548)
(36,499)
(340,679)
All the Group’s financial instruments carried at fair value would be categorised at level 2 in the fair value hierarchy as their value
is based on inputs other than the quoted prices that are observable for these assets/(liabilities), either directly or indirectly.
The Group’s only financial instruments carried at fair value, by valuation method are the interest rate swaps and forward foreign
exchange contracts used for hedging, as set out in the table above.
Capital management
Underpinning Emeco’s strategic framework is consistent value creation for shareholders. Central to this is the continual
evaluation of the Company’s capital structure to ensure it is optimised to deliver value to shareholders. The Board’s policy
is to maintain diversified, long-term sources of funding to maintain investor, creditor and market confidence and to support
the future growth of the business. This policy is being achieved through optimising the mix of debt and equity to match the
Company’s requirements and through a blended maturity profile of employing a mixture of 3 year and 5 year tranches with
a syndicate of investment grade financial institutions. The Board of Directors also evaluates and monitors the level of capital
returns to ordinary shareholders in the form of dividends or other capital initiatives.
The Board seeks to maintain a balance between higher returns possible with higher levels of borrowings and the security
afforded by a sound capital position. Throughout the year the Group monitors its gearing ratio determined as total debt over
the last twelve months divided by normalised EBITDA. The gearing ratio is kept at a level of less than 3.0 times as defined by the
Company’s banking covenant. During the year the gearing ratio remained within the range of 1.2 times to 1.6 times.
The Company’s primary return metric is return on capital (“ROC”), which the Group defines as earnings before interest and tax
(“EBIT”) divided by Invested Capital defined as the average over the period of equity, plus interest bearing liabilities, less cash
and cash equivalents. The Group’s ROC for the year was 10.3% (2010: (1.1%)). This includes significant items of $4.6 million (after
tax) (2010: $95.0 million) as a result of $0.4 million loss from discontinued operations and $6.0 million debtor impairment in
Indonesia. Had the significant items not been included the Group EBIT return on capital for the year would have been 11.3%
(2010: 8.3%).
70
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
5 finAnciAl RisK mAnAgement (continued)
Capital management (continued)
The Group’s return on invested capital at the end of the reporting period was as follows:
EBIT (for continuing and discontinued operations)
Average invested capital
EBIT return on capital at 30 June
Consolidated
2011
$’000
2010
$’000
92,348
(11,432)
896,856
1,005,399
10.3%
(1.1%)
In order to satisfy potential future obligations under its employee share plans the Group purchases, via an employee share trust,
its own shares on market. The quantum of these purchases depends on the number of securities that have been issued under its
employee share plans. The purchase of shares by the employee share trust is done on a periodic basis by Emeco’s share registry
service provider acting as agent for the trustee of the employee share trust. The Group does not have a defined share buy-back plan.
There have been no changes to externally imposed capital restrictions or the Board’s approach to capital management during
the year other than referred to above.
6 otHeR income
Net profit on sale of non current assets (1)
Sundry income (2)
Consolidated
2011
$’000
2,756
4,455
7,211
2010
$’000
2,913
2,112
5,025
(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.
(2) Included in sundry income are fees charged on overdue accounts, bad debts recovered, procurement fees on machines sourced for 3rd parties and
insurance receivables. During FY11 the Indonesian business impaired $3.3 million of equipment which was damaged while being demobilised from
a customer’s site (refer note 21). The Company also recognised a provision of $1.4 million relating to the cost of salvaging the damaged equipment
(refer note 25). Included in sundry income is $4.2 million representing the insurance proceeds recoverable in relation to this incident.
EmEc o Holdings limitEd AnnuAl RepoRt 2011
71
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
7 pRofit BefoRe income tAx expense foR continuing opeRAtions
Consolidated
Note
2011
$’000
2010
$’000
Profit before income tax expense has been arrived at after charging/
(crediting) the following items:
Cost of sale of machines and parts
Cost of sales inventory on rent
Impairment of tangible assets:
– inventory
– property, plant and equipment
Employee expenses:
– superannuation
other expenses:
– bad debts
– doubtful debts/(reversal)
– insurance
– motor vehicles
– rental expense
– safety
– travel and subsistence expense
– telecommunications
– workshop consumables, tooling and labour
– other expenses
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
Impairment of goodwill
69,432
1,579
841
2,931
3,772
3,036
1,506
9,762
3,074
4,616
3,209
1,199
2,367
1,726
3,639
11,100
42,198
1,172
112,676
4,311
119
379
1,087
449
1,722
121,915
–
258
258
–
72,010
4,560
4,525
9,268
13,793
2,766
2,607
(1,423)
3,137
4,289
3,685
1,235
2,420
1,668
3,342
2,844
23,804
839
93,050
1,014
141
463
845
446
1,977
98,775
24
271
295
20,105
20
Total depreciation, amortisation and impairment of goodwill
122,173
119,175
Financial expenses:
– interest expense
– ineffective hedge expense/(reversal)
– amortisation of debt establishment costs (1)
– other facility costs
Financial income:
– interest revenue
Net financial expenses
Net foreign exchange (gain)/loss
19,105
(392)
2,066
2,461
23,240
(281)
22,959
186
18,099
1,604
1,233
1,946
22,882
(157)
22,725
(818)
(1) Includes $0.8 million expensed relating to the previous debt facility in FY11.
72
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
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 services
Auditors of the Company
KPMG Australia:
– other assurance services
– taxation services
Overseas KPMG Firms:
– taxation services
– accounting assistance
9
income tAx expense
(a) Recognition in the income statement
Consolidated
2011
$
2010
$
426,000
404,308
185,682
611,682
260,930
665,238
–
86,060
78,162
39,587
203,809
815,491
13,934
65,410
60,957
20,813
161,114
826,352
Consolidated
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
Income tax expense
Income tax expense from continuing operations
Income tax expense/(benefit) from discontinuing operations
Income tax expense/(benefit) from loss on sale of discontinued
operations
Total income tax expense
Note
11
13
13
2011
$’000
23,087
(514)
22,573
(2,391)
(455)
–
(2,846)
19,727
20,273
(473)
(73)
19,727
2010
$’000
13,691
(328)
13,363
270
(430)
–
(160)
13,203
13,485
(282)
–
13,203
EmEc o Holdings limitEd AnnuAl RepoRt 2011
73
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
9
income tAx expense (continued)
(b) Current and deferred tax expense recognised directly in equity
Share purchase costs
Capital raising costs
income tax recognised in other comprehensive income
Consolidated
2011
$’000
2,054
1,380
3,434
2010
$’000
–
1,404
1,404
Consolidated
2011
Tax (expense)
benefit
$’000
Before Tax
$’000
Net of tax
$’000
Before Tax
$’000
Consolidated
2010
Tax (expense)
benefit
$’000
Net of tax
$’000
Foreign currency translation
differences for foreign
operations
FCTR of discontinued
operations disposed (1)
Cash flow hedges
(16,978)
420
5,648
(10,910)
–
(16,978)
(5,473)
–
(5,473)
–
(2,389)
(2,389)
420
3,259
(13,299)
5,371
3,290
3,188
–
(1,150)
(1,150)
5,371
2,140
2,038
(1) FCTR – transfer of Foreign Currency Translation Reserve (FCTR) from equity reserve to profit upon foreign operations of the Group being
disposed.
(c) Numerical reconciliation between tax expense and pre tax net profit/(loss)
Consolidated
2011
$’000
2010
$’000
Prima facie income tax expense calculated at 30% on net profit
21,129
(10,833)
increase/(decrease) in income tax expense due to:
Effect on tax rate in foreign jurisdictions
Share based payments
Current year losses for which no deferred tax asset was recognised
Impairment of goodwill
Reduction in tax rate in foreign jurisdictions
Tax – investment allowance
Sundry
Under/(over) provided in prior years
Income tax expense/(benefit)
(658)
–
(380)
–
(455)
–
605
(514)
19,727
(255)
270
13,260
11,085
(430)
(191)
625
(328)
13,203
10 cuRRent tAx Assets And liABilities
The current tax asset for the Group of $427,000 (2010: $656,000) represents income taxes and withholding tax 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 $6,790,000 (2010: $5,858,000) represents the amount of income taxes payable in respect
of current and prior financial periods.
74
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
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
Consolidated
Property, plant and equipment
Intangible assets
Receivables
Inventories
Payables
Derivatives
Interest-bearing loans and borrowings
Employee benefits
Equity – capital raising costs
Provisions
Tax losses carried forward
Tax (assets)/liabilities
Set off of tax
Net tax (assets)/liabilities
2011
$’000
(6,892)
(17)
(4,386)
(103)
(3,871)
(1,794)
(19)
(1,525)
(30)
(2,871)
(2,017)
(23,525)
23,525
–
2010
$’000
(276)
–
(3,558)
(93)
(3,742)
(4,216)
–
(1,490)
(1,416)
(43)
(4,213)
(19,047)
19,047
–
2011
$’000
40,534
–
1,424
1,244
11
85
4,170
–
–
–
–
47,468
(23,525)
23,943
2010
$’000
38,204
13
23
1,661
–
–
2,166
–
–
–
–
42,067
(19,047)
23,020
Movement in temporary differences during the year
2011
$’000
33,642
(17)
(2,962)
1,141
(3,860)
(1,709)
4,151
(1,525)
(30)
(2,871)
(2,017)
23,943
–
23,943
2010
$’000
37,928
13
(3,535)
1,568
(3,742)
(4,216)
2,166
(1,490)
(1,416)
(43)
(4,213)
23,020
–
23,020
Consolidated
Balance
1 July 09
$’000
Recognised
in profit
or loss
$’000
Recognised
directly in
equity
$’000
Recognised
in other
comprehensive
income
$’000
Balance
30 June 10
$’000
Property, plant and equipment
Intangible assets
Receivables
Inventories
Payables
Derivatives
Interest-bearing loans and borrowings
Employee benefits
Equity – capital raising costs
Provisions
Tax losses carried forward
33,073
7
(2,789)
1,747
(1,405)
(4,885)
177
(1,759)
(2,820)
(23)
(697)
20,626
4,855
6
(746)
(179)
(2,337)
(481)
1,989
269
–
(20)
(3,516)
(160)
–
–
–
–
–
–
–
–
1,404
–
–
1,404
–
–
–
–
–
1,150
–
–
–
–
–
1,150
37,928
13
(3,535)
1,568
(3,742)
(4,216)
2,166
(1,490)
(1,416)
(43)
(4,213)
23,020
EmEc o Holdings limitEd AnnuAl RepoRt 2011
75
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
11 defeRRed tAx Assets And liABilities (continued)
Movement in temporary differences during the year
Consolidated
Balance
1 July 10
$’000
Recognised
in profit
or loss
$’000
Recognised
directly
in equity
$’000
Recognised
in other
comprehensive
income
$’000
Balance
30 June 11
$’000
Property, plant and equipment
Intangible assets
Receivables
Inventories
Payables
Derivatives
Interest-bearing loans and borrowings
Employee benefits
Equity – capital raising costs
Provisions
Tax losses carried forward
37,928
13
(3,535)
1,568
(3,742)
(4,216)
2,166
(1,490)
(1,416)
(43)
(4,213)
23,020
(4,286)
(30)
573
(427)
(118)
118
1,985
(35)
6
(2,828)
2,196
(2,846)
The following deferred tax assets have not been brought to account as assets:
Tax losses
–
–
–
–
–
–
–
–
1,380
–
–
1,380
–
–
–
–
–
2,389
–
–
–
–
–
2,389
33,642
(17)
(2,962)
1,141
(3,860)
(1,709)
4,151
(1,525)
(30)
(2,871)
(2,017)
23,943
Consolidated
2011
$’000
2010
$’000
16,486
19,810
12 dividends
(i) The following dividends were declared and paid by the group:
2011
Cents per share
Final 2010 ordinary
Interim 2011 ordinary
Interim 2011 special
2.0
2.0
5.0
Total amount
$’000
12,625
12,625
31,561
56,811
Franked/unfranked
Date of payment
Franked
Franked
Franked
30 September 2010
31 March 2011
31 March 2011
Franked dividends declared or paid during the year were franked at the tax rate of 30%.
Subsequent to 30 June 2011
After 30 June 2011 the following dividends were proposed by the Directors. The dividends have not been provided for.
The declaration and subsequent payment of dividends have no income tax consequences.
2011
Final 2011 ordinary
Total amount
Cents per share
3.0
Total amount
$’000
18,937
18,937
Franked/ unfranked
Date of payment
Franked
30 September 2011
The financial effect of these dividends has not been brought to account in the financial statements for the financial year
ended 30 June 2011 and will be recognised in subsequent financial reports.
The following dividends were declared and paid by the group in the prior year:
2010
Cents per share
Final 2009 ordinary
Interim 2010 ordinary
Total amount
2.0
–
Total amount
$’000
12,625
–
12,625
Franked/ unfranked
Date of payment
Franked
30 September 2009
76
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
12 dividends (continued)
(ii) Franking account
Dividend franking account
30% franking credits available to shareholders of Emeco Holdings Limited
for subsequent financial years
The Company
2011
$’000
2010
$’000
45,625
56,539
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
franking credits that the entity may be prevented from distributing in subsequent years.
(d)
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 $8,116,000 (2010: $5,411,000). In accordance with the tax consolidation legislation, the Company
as the head entity in the Australian tax-consolidated group has also assumed the benefit of $45,625,000
(2010: $56,539,000) franking credits.
13 discontinued opeRAtions
In February 2010 the Board resolved to close the Emeco Europe operations and decrease Emeco’s presence in the USA. In June
2010 it was decided by the Board to completely exit the USA having materially disposed of all of its rental and sales assets
and commenced a strategy to dispose of the Emeco USA parts business. The Board also resolved to exit the Victorian Rental
business which comprised predominantly of civil rental plant and equipment (and related contracts) within its Australian
business. These operations were discontinued at 30 June 2010 and the Victorian Rental business and the Emeco USA parts
business were sold in October 2010 and January 2011 respectively.
losses of discontinued operations
Revenue
Other income
Direct costs
Cost of sales equipment on rent
Profit/(loss) on sale of assets
Writeback/(writedown) of stock
Impairment of fixed assets
Bad debts expense
Other expenses
Employee expenses
Restructure costs
Impairment of goodwill
FCTR on discontinued operations disposed
Loss on sale of discontinued operations
EBiTDA
Depreciation
EBiT
Net finance expenses
Income tax
Income tax on sale of discontinued operations
Profit/(loss) for the period
Earnings per share
EmEc o Holdings limitEd AnnuAl RepoRt 2011
2011
$’000
12,984
529
(7,651)
–
(157)
871
(2,024)
(158)
(1,608)
(1,101)
210
–
420
(424)
1,891
(2,749)
(858)
(53)
473
73
(365)
(0.001)
2010
$’000
56,741
227
(41,173)
(484)
(3,418)
(5,942)
(9,316)
–
(8,334)
(9,394)
(7,630)
(16,846)
(5,371)
–
(50,940)
(9,002)
(59,942)
(1,953)
282
–
(61,613)
(0.100)
77
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
13 discontinued opeRAtions (continued)
The loss from discontinued operation of $365,000 (2010: loss of $61,613,000) is attributable entirely to the owners of the Company.
Cash flows from (used in) discontinued operation
Net cash used in operating activities
Net cash from investing activities
Net cash from financing activities
Net cash from (used in) discontinued operation
2011
$’000
3,633
23,840
(27,684)
(211)
2010
$’000
31,725
13,133
(46,500)
(1,642)
The Board’s decision to close these businesses was to address the underperformance in returns being generated in these
businesses and to refocus the Group’s resources to align with its core rental customer base.
Effect of disposal on the financial position of the group
Property, plant and equipment
Inventories
Trade and other receivables
Cash and cash equivalents
Deferred tax liabilities
Trade and other payables
Net assets and liabilities
Cash received for sale of discontinued operations
Gain/(loss) on disposal
14 non-cuRRent Assets Held foR sAle
2011
$’000
(12,295)
(2,953)
(54)
–
–
455
(14,847)
14,423
(424)
2010
$’000
–
–
–
–
–
–
–
–
–
At 30 June 2010 the parts division of the USA segment and the Victorian rental business of the Australian rental segment were
presented as disposal groups held for sale following commitment from the Group in late 2010 to dispose of these segments.
Efforts to sell assets of these disposal groups were undertaken with the sale of the Victorian rental business including a majority
of its assets in October 2010 and the sale of the USA parts division was completed in January 2011. At 30 June 2011 the disposal
groups comprised asset of $8.7 million and liabilities $Nil being the remaining Victorian rental assets yet to be disposed.
Assets classified as held for sale
Property, plant and equipment
Inventories
Trade and other receivables
liabilities classified as held for sale
Trade and other payables
Provisions
2011
$’000
8,169
–
559
8,728
–
–
–
2010
$’000
35,989
1,905
519
38,413
56
2,140
2,196
78
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
15 segment RepoRting
The Group has seven reportable segments, as described below, which are the Group’s strategic business units. The strategic
business units offer different products and services, and are managed separately because they require different operational
strategies. For each of the strategic business units, the Managing Director and Board of Directors review internal management
reports on a monthly basis. The following summary describes the operations in each of the Group’s reportable segments:
Australian Rental
Australian Sales
Australian Parts
Indonesia
Canada
Provides a wide range of earthmoving equipment and maintenance services to customers in
Australia. The Victorian Rental business was classified as a discontinued operation and a disposal
group held for sale in 2010.
Sells a wide range of earthmoving equipment to customers in the civil construction and mining
industries in Australia.
Procures and supplies globally sourced used and reconditioned parts to external customers and
internally to the rental and sales divisions within Australia.
Provides a wide range of earthmoving equipment and maintenance service to customers in
Indonesia.
Provides a wide range of earthmoving equipment and maintenance services to customers who are
predominately within Canada.
United States of America
(“USA”)
(Discontinued)
Provided a wide range of earthmoving equipment for rental or sale, maintenance services and
procurement and supply of used and reconditioned parts to customers both internal and external in
the USA. This segment was discontinued in 2010.
Europe
(Discontinued)
Provided a wide range of earthmoving equipment for rental or sale and maintenance service to
customers in Europe. This segment was discontinued in 2010.
Information regarding the results of each reportable segment is included below. Performance is measured based on segment
profit before interest and income tax as included in the internal management reports that are reviewed by the Group’s
Managing Director and Board of Directors. Segment profit before interest and income tax is used to measure performance as
management believes that such information is the most relevant in evaluating the results of certain segments relative to other
entities that operate within these industries. Inter-segment pricing is determined on an arm’s length basis.
information about reportable segments 2011
Australian
Rental
$’000
Victorian
Rental (1)
(discont’d)
$’000
Australian
Sales
$’000
Australian
Parts
$’000
indonesia
$’000
Canada
$’000
uSA
(discont’d)
$’000
Europe
(discont’d)
$’000
Total
$’000
327,150
2,965
(87,015)
9,507
125
(2,749)
48,853
3,830
(456)
17,010
1,367
(125)
44,596
4,110
(15,730)
64,886
–
(18,589)
3,068
867
–
409
–
–
515,479
13,264
(124,664)
98,315
(1,829)
(260)
573
(2,665)
14,031
797
174
109,136
External revenues
Inter-segment revenue
Depreciation
Reportable segment
profit/(loss) before interest
and income tax
–
–
–
–
–
(10,677)
Other material non-cash
items:
Impairment of receivables
Impairment on property,
plant and equipment and
intangible assets
Reversal of impairment
on property, plant and
equipment and intangible
–
assets
Reportable segment assets 692,443
Capital expenditure
(126,994)
Reportable segment
liabilities
(1) Victorian Rental forms part of Australian Rental segment but has been separated out as it was discontinued at 30 June 2010.
–
140,076
(56,637)
–
77,972
(19,296)
400
26,902
(173)
–
24,730
(219)
–
9,385
(149)
–
303
–
(54,572)
(13,319)
(8,399)
(4,664)
(2,025)
(3,641)
(3,331)
(332)
(178)
–
–
–
–
–
–
–
(10,677)
–
(5,356)
–
3,839
–
400
975,650
(203,468)
(10)
(85,115)
EmEc o Holdings limitEd AnnuAl RepoRt 2011
79
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
15 segment RepoRting (continued)
information about reportable segments 2010
Australian
Rental
$’000
Victorian
Rental (1)
(discont’d)
$’000
Australian
Sales
$’000
Australian
Parts
$’000
indonesia
$’000
Canada
$’000
uSA
(discont’d)
$’000
Europe
(discont’d)
$’000
Total
$’000
250,948
5,166
(68,320)
19,758
–
(5,421)
52,807
18,403
(675)
14,070
3,057
(159)
49,311
8,693
(17,694)
37,823
6,235
(12,222)
23,702
25,439
(2,900)
13,281
2,348
(681)
461,700
69,341
(108,072)
72,864
(17,784)
(20,532)
(2,182)
15,793
(4,668)
(33,004)
(9,154)
1,333
–
(58)
–
–
(1,528)
(435)
(2,327)
–
(4,348)
(274)
619,911
(96,835)
(19,802)
36,094
(2,881)
(17,268)
54,562
(930)
(3,729)
25,295
–
(309)
115,363
(16,423)
(7,793)
150,689
(28,678)
(5,643)
4,871
(602)
(717)
(55,535)
2,730 1,009,515
(146,349)
–
(42,361)
(816)
(3,729)
(1,729)
(17,884)
(13,639)
(6,269)
(1,489)
(87,916)
External revenues
Inter-segment revenue
Depreciation
Reportable segment
profit/(loss) before
interest and income tax
Other material non-cash
items:
Impairment of receivables
Impairment on property,
plant and equipment and
intangible assets
Reportable segment assets
Capital expenditure
Reportable segment
liabilities
(1) Victorian Rental forms part of Australian Rental segment but has been separated out as it was discontinued at 30 June 2010.
Reconciliation of reportable segment revenues, profit or loss, assets and liabilities and other material items
Revenues
Total revenue for reportable segments
Elimination of inter-segment revenue
Elimination of discontinued operations
Consolidated revenue from continuing operations
Profit or loss
Total EBIT for reportable segments
Elimination of discontinued operations
Unallocated amounts:
Other corporate expenses
Net interest expense
Consolidated profit before income tax from continuing operations
Assets
Total assets for reportable segments
Unallocated assets
Consolidated total assets
liabilities
Total liabilities for reportable segments
Unallocated liabilities
Consolidated total liabilities
2011
$’000
528,743
(13,264)
(12,984)
502,495
109,136
858
(16,788)
(22,959)
70,247
975,650
5,502
981,152
85,115
293,803
378,918
2010
$’000
531,041
(69,341)
(56,741)
404,959
1,333
59,942
(12,765)
(22,725)
25,785
1,009,515
5,239
1,014,754
87,916
304,095
392,011
80
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
15 segment RepoRting (continued)
Reconciliation of reportable segment revenues, profit or loss, assets and liabilities and other material items
(continued)
other material items 2011
Capital expenditure
Depreciation
Reversal of impairment on property, plant and equipment and
intangible assets
other material items 2010
Capital expenditure
Depreciation
Reversal of impairment on property, plant and equipment and
intangible assets
geographical information
Reportable
segment totals
$’000
Discontinued
operations
$’000
Consolidated
Total
$’000
(203,468)
(124,664)
400
(146,349)
(107,777)
149
2,749
–
3,483
9,002
(203,319)
(121,915)
400
(142,866)
(98,775)
(55,535)
26,162
(29,373)
The segments are managed on a global basis, but operate facilities and sales offices in Australia, Asia and North America.
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 (1)
Rental, sales and parts divisions throughout Australia
Asia
Rental division in Indonesia
North America (2)
Rental, sales and parts divisions throughout North America
Europe
Rental and sales division in Netherlands (Discontinued in 2010)
geographical segments
Australia
Asia
2011
$’000
2010
$’000
2011
$’000
2010
$’000
North America
2010
2011
$’000
$’000
Europe (discont’d)
2011
$’000
2010
$’000
Consolidated
2010
2011
$’000
$’000
Revenue
Non-current(3)
Assets
402,520 337,356
44,596
49,311
67,954
61,692
409
13,341 515,479 461,700
649,668 596,250
58,809
56,514 123,885 130,113
–
5,675 832,362 788,552
(1) The Victorian Rental business, in the Australian geographic segment, was classified as discontinued in 2010. This represented revenue of $9,507,000
(2010: $19,758,000) for the year ended 30 June 2011.
(2) North American segment consists of the Canadian and USA businesses. During the year ended 30 June 2010, the USA business was discontinued,
representing revenue and non-current assets of $3,068,000 (2010: $23,869,000) and $Nil (2010: $Nil) respectively for 2011.
(3) Assets that are considered as held for sale due to their designation as discontinued are not included in the non current assets geographical segment
totals.
Major customer
The Group has no single major customer that would amount to 10% or more of the Group’s total revenues.
16 cAsH Assets
Cash at bank
Consolidated
2011
$’000
2010
$’000
5,502
5,239
EmEc o Holdings limitEd AnnuAl RepoRt 2011
81
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
17 tRAde And otHeR ReceivABles
Current
Trade receivables
Less: Impairment of receivables
Other receivables
Non-Current
Other receivables
Consolidated
2011
$’000
87,963
(12,165)
75,798
7,453
83,251
581
581
2010
$’000
91,723
(6,652)
85,071
5,256
90,327
14
14
The Group’s exposure to credit risks, currency risks and impairment losses associated with trade and other receivables are
disclosed in note 5.
18 pRepAyments
Tyre prepayments
Other prepayments
19 inventoRies
Equipment and Parts – at cost
Work in progress – at cost
Consumables, spare parts – at cost
Total at cost
Equipment and Parts – at NRV (1)
Total inventory
Balance at 1 July
Additions
Impairment loss on inventory (1)
Cost of sales inventory on rent (1)
Disposals
Balance at 30 June
Consolidated
2011
$’000
–
2,313
2,313
2010
$’000
2,244
2,306
4,550
Consolidated
2011
$’000
33,007
4,557
1,288
38,852
9,717
48,569
87,017
23,679
(841)
(1,579)
(59,707)
48,569
2010
$’000
67,138
3,472
5,854
76,464
10,553
87,017
142,650
36,751
(5,423)
(5,044)
(81,917)
87,017
(1) During the year ended 30 June 2011 the write-down of inventories to net realisable value (“NRV”) recognised as an expense in the Statement of
Comprehensive Income amounted to $2,420,000 (2010: $10,467,000).
82
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
20 intAngiBle Assets
goodwill
Carrying amount at the beginning of the year
Impairment of goodwill
Effects of movement in foreign exchange
Contract intangibles – at cost
Less: Accumulated amortisation
Other intangibles – at cost
Less: Accumulated depreciation
Consolidated
2011
$’000
177,665
–
(4,835)
172,830
712
(712)
–
1,946
(1,528)
418
2010
$’000
215,333
(36,951)
(717)
177,665
712
(712)
–
1,820
(1,293)
527
Total intangible assets
173,248
178,192
Amortisation and impairment losses
The amortisation charge and impairment of goodwill are recognised in the following line item in the income statement:
Amortisation expense
Impairment of goodwill
Total expense for the year for continuing operations
Impairment of goodwill
Total expense for the year for discontinued operations
Consolidated
2011
$’000
258
–
258
–
–
impairment tests for cash generating units contained goodwill
For the purpose of impairment testing, goodwill is allocated to the Group’s geographical operating divisions.
The aggregate carrying amounts of goodwill allocated to each unit are as follows:
Australian rental
Canada rental
Asian rental
Total rental
Consolidated
2011
$’000
151,745
5,667
15,418
172,830
2010
$’000
295
20,105
20,400
16,846
16,846
2010
$’000
151,745
6,555
19,365
177,665
EmEc o Holdings limitEd AnnuAl RepoRt 2011
83
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
20 intAngiBle Assets (continued)
impairment tests for cash generating units contained goodwill (continued)
The Group has determined the recoverable amount of its cash generating units (“CGU”) using a value in use methodology (2010:
value in use) which is based on discounted cash flows for five years plus a terminal value. Real post tax discount rates have been
derived as a weighted cost of equity and debt. Cost of equity is calculated using country specific ten year bond rates plus an
appropriate market risk premium. The cost of debt is determined using the CGU’s functional currencies three year swap rate
plus a margin for three year tenor debt of equivalently credit rated businesses at 30 June 2011. The three year swap rates were
used as the base rate to reflect the relative illiquidity for longer tenure debt in the current market. The real post tax discount
rates for determining the rental CGU’s valuations range between 6.6% and 7.3%. For future cashflows of each CGU, the revenue
growth in the first year of the business plan includes the benefit from the Group’s committed capital investment which will be
delivered across FY12 and translate in part to year on year revenue growth, mostly in Australia and Canada. The second year
of the business plan will also be influenced to the extent that 100% of the FY12 capital investment will contribute to revenue
in FY13. Subsequent revenue growth rates are assumed to be between a range of 2.0% – 3.0% per year (2010: 1.0% – 5.0%)
representing anticipated improvements in capital turnover and margins. Compound annual growth rates over the first six years
of the forecast range between 4.4% (2010: 4.8%) and 8.7% (2010: 9.5%).
The CGU valuations are sensitive to changes in the discount rate. The Company has further tested those CGU’s that were not
impaired during the year (refer below) by increasing the discount rate for each of the CGU’s by an additional 2.0% (2010: 2.0%).
The sensitised testing confirmed that no impairment would be recognised under this scenario.
21 pRopeRty, plAnt And equipment
Consolidated
Freehold land and buildings – at cost
Less: Accumulated depreciation
Leasehold improvements at cost
Less: Accumulated depreciation
Plant and equipment – at cost
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
2011
$’000
29,722
(3,580)
26,142
4,880
(2,021)
2,859
988,624
(396,903)
591,721
36,125
(7,165)
28,960
1,178
(498)
680
3,929
(2,870)
1,059
7,930
(3,518)
4,412
10,157
(7,457)
2,700
2010
$’000
30,173
(2,532)
27,641
3,931
(1,875)
2,056
894,197
(334,870)
559,327
16,700
(3,959)
12,741
1,214
(491)
723
3,641
(2,636)
1,005
5,939
(2,909)
3,030
9,997
(6,174)
3,823
Total property, plant and equipment – at net book value
658,533
610,346
84
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
21 pRopeRty, plAnt And equipment (continued)
Reconciliations
Reconciliations of the carrying amounts for each class of property, plant and
equipment are set out below:
Freehold land and buildings
Carrying amount at the beginning of the year
Additions
Depreciation
Disposals
Foreign Exchange movement
Impairment
Reclassified to assets held for sale
Carrying amount at the end of the year
leasehold improvements
Carrying amount at the beginning of the year
Additions
Disposals
Depreciation
Effects of movement in foreign exchange
Impairment
Reclassified to assets held for sale
Carrying amount at the end of the year
Plant and equipment
Carrying amount at the beginning of the year
Additions
Capital work in progress
Transferred from leased Plant and Equipment
Net movement in rental inventory
Disposals
Depreciation
Impairment loss
Reclassified to assets held for sale
Effects of movements in foreign exchange
Carrying amount at the end of the year
Consolidated
2011
$’000
2010
$’000
27,641
686
(1,172)
(949)
(464)
400
–
26,142
2,056
1,576
(289)
(449)
(35)
–
–
2,859
559,327
181,846 (3)
–
679
14,615
(34,579)
(115,425)
(5,355) (1)
–
(9,387)
591,721
28,902
645
(1,349)
–
387
(927)
(17)
27,641
3,027
897
(178)
(487)
53
(1,111)
(145)
2,056
605,414
140,972
–
1,772
3,279
(43,327)
(99,473)
(15,033) (2)
(35,475)
1,198
559,327
Furniture, fixtures and fittings
Carrying amount at the beginning of the year
Additions
Disposals
Depreciation
Impairment
Reclassified to assets held for sale
Effects of movement in foreign exchange
Carrying amount at the end of the year
(1) During FY11 the Indonesian business impaired $3.3 million of equipment which was damaged whilst being demobilised from a customer site. This
1,278
23
(245)
(101)
(227)
(31)
26
723
723
183
(96)
(119)
–
–
(11)
680
equipment was insured and $4.2 million has been recognised in sundry income (refer note 6) representing insurance proceeds recoverable in relation
to this incident. The Company also recognised a provision of $1.4 million relating to the cost of salvaging the damaged equipment (refer note 25).
(2) The prior year impairment loss was associated with plant and equipment within the discontinued operations (refer note 13) plus some impairment of
the Canadian civil fleet within continuing operations.
(3) This includes $3.5 million transfer from sales inventory to plant and equipment.
EmEc o Holdings limitEd AnnuAl RepoRt 2011
85
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
21 pRopeRty, plAnt And equipment (continued)
Reconciliations (continued)
Reconciliations of the carrying amounts for each class of property, plant and
equipment are set out below:
Consolidated
2011
$’000
2010
$’000
office equipment
Carrying amount at the beginning of the year
Additions
Disposals
Depreciation
Impairment
Reclassified to assets held for sale
Effects of movement in foreign exchange
Carrying amount at the end of the year
Motor vehicles
Carrying amount at the beginning of the year
Additions
Disposals
Depreciation
Impairment
Reclassified to assets held for sale
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
Disposals
Depreciation
Impairment
Reclassified to assets held for sale
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
Transferred to owned plant and equipment
Disposal
Depreciation
Effects of movements in foreign exchange
Carrying amount at the end of the year
Security
1,005
510
(59)
(379)
–
–
(18)
1,059
3,030
2,659
(139)
(1,087)
–
–
(51)
4,412
3,823
1,393
(729)
(1,722)
–
–
(65)
2,700
12,741
21,229
(679)
–
(4,311)
(20)
28,960
1,058
676
(134)
(573)
(64)
(3)
45
1,005
4,030
1,496
(1,132)
(1,183)
(101)
(134)
54
3,030
6,335
1,640
(868)
(2,109)
(1,121)
(184)
130
3,823
17,925
–
(1,772)
(1,134)
(2,503)
225
12,741
The Group’s assets are subject to a fixed and floating charge under the terms of the syndicated debt facility. Refer note 23 for
further details.
86
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
22 tRAde And otHeR pAyABles including deRivAtives
Trade creditors
Other creditors and accruals
Derivatives used for hedging
Consolidated
2011
$’000
16,664
26,030
5,703
48,397
2010
$’000
8,494
28,005
14,238
50,737
The Group’s exposure to currency and liquidity risk associated with trade and other payables is disclosed in note 5.
The Company has also entered into a Deed of Cross Guarantee with certain subsidiaries as described in note 38. Under the
terms of the Deed, the Company has guaranteed the repayment of all current and future creditors in the event any of the
entities party to the Deed are wound up. Details of the consolidated financial position of the Company and subsidiaries party to
the Deed are set out in note 38.
23 inteRest BeARing liABilities
Current
Working capital facility
Lease liabilities – secured
Non-current
Bank loans – secured
Lease liabilities – secured
Debt raising costs
Bank loans
Consolidated
2011
$’000
–
3,308
3,308
278,000
15,697
(3,202)
290,495
2010
$’000
–
5,203
5,203
300,009
260
(1,377)
298,892
Under the terms of the Group’s syndicated loan facility the banks hold a fixed and floating charge over the assets and
undertakings of the Group. The $450.0 million facility was established on 5 November 2010 and comprises a three year $300.0
million tranche which matures on 5 November 2013 and a five year $150.0 million tranche which matures on 5 November 2015.
Each entity of the Group is a guarantor. The syndicated facility allows for funds to be drawn in Australian, United States and
Canadian dollars. At year end the Group had the following drawn:
Fy11
Fy10
Funds drawn in
functional currency
$’000
Funds drawn
translated to AuD
$’000
Funds drawn in
functional currency
$’000
Funds drawn
translated to AuD
$’000
$139,000
C$118,000
US$27,000
–
$139,000
$113,823
$25,177
–
$112,000
C$113,200
US$48,000
€3,825
$112,000
$126,311
$56,219
$5,478
AUD
CAD
USD
EURO
Working capital facility
The working capital facility is secured under the syndicated facility mentioned above, and has a limit of $25 million (2010: $30.0
million). The Group also obtained working capital facilities for Emeco Canada Limited of C$2.0 million (2010: C$2.0 million) and
US$Nil (2010: US$1.0 million) respectively. The $25.0 million facility expires on 16 November 2011 and it is the intention that it
will be renegotiated for another 12 months. The C$2.0 million facility expires 11 December 2011. The working capital facility is
undrawn at 30 June 2011.
other financial liabilities
Under the terms of the syndicated loan facility the Group can enter other permitted indebtedness totalling $200.0 million (2010:
$100.0 million). At year end the Group had established finance lease facilities totalling $19.0 million (2010: $5.5 million) which
are included within this permitted indebtness limit. Assets leased under the facility are secured by the assets leased.
EmEc o Holdings limitEd AnnuAl RepoRt 2011
87
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
23 inteRest BeARing liABilities (continued)
Finance lease liabilities
Finance lease liabilities of the Group are payable as follows:
Consolidated
Less than one year
Between one and five years
More than five years
Future
minimum lease
payments
2011
$’000
interest
2011
$’000
Present value
of minimum
lease payments
2011
$’000
Future
minimum lease
payments
2010
$’000
interest
2010
$’000
Present value
of minimum
lease payments
2010
$’000
4,570
18,057
–
22,627
(1,262)
(2,360)
–
(3,622)
3,308
15,697
–
19,005
5,287
261
–
5,548
(84)
(1)
–
(85)
5,203
260
–
5,463
The Group leases plant and equipment under finance leases. The Group’s lease liabilities are secured by the leased assets of
$28,960,000 (2010: $12,741,000). In the event of default, the leased assets revert to the lessor.
24 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
25 pRovisions
Current
Employee benefits:
– annual leave
– long service leave
– other
Restructuring
Salvage
Non-current
Employee benefits – long service leave
Consolidated
2011
$’000
450,000
19,005
26,929
495,934
278,000
19,005
–
297,005
172,000
–
26,929
198,929
2010
$’000
595,000
5,463
33,403
633,866
300,009
5,463
–
305,472
294,991
–
33,403
328,394
Consolidated
2011
$’000
2010
$’000
3,272
369
113
–
1,363
5,117
868
3,542
314
–
1,446
–
5,302
803
88
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
25 pRovisions (continued)
Restructuring provision
The Group recognised provisions for the restructure of Emeco Europe, Emeco USA, the Victorian Rental business and the
Australian Sales business in the prior year. During the year no additional provisions were recognised. Restructuring costs used
and reversed during the year amounted to $775,000 and $671,000 respectfully.
Salvage provision
The provision relates to the cost of salvaging equipment damaged whilst being demobilised from a customer‘s site in Indonesia
during the year (refer note 6 and 21).
Defined contribution superannuation funds
The Group makes contributions to defined contribution superannuation funds. The expense recognised for the year was
$3,130,000 (2010: $3,165,000).
26 sHARe-BAsed pAyments
During the year the Company issued performance shares and performance rights to key management personnel and senior
employees of the Group under its LTIP (refer note 3k(v)). During the prior years LTIP performance shares and rights were also
issued under similar terms and conditions and priced relative to the time of issue.
Prior to establishing the LTIP certain key management personnel and senior employees were issued shares in the Company
under the Company’s MISP (refer note 3k(v)).
Only the former Company’s Executive Directors have outstanding options in the Company at year end. The options were issued
on 4 August 2006 and have expired on 4 August 2011 subsequent to balance date and have been disclosed in note 33.
During the year the Company issued matching shares to certain employees of the Group under its ESOP (refer note 3k(v)).
Performance shares, performance rights, options and shares issued under the MISP are all equity settled.
long term incentive plan
grant date / employees entitled
Number of
instruments
Vesting conditions
Performance shares/rights 2008
1,290,000
Performance shares/rights 2009
9,819,790
Performance shares/rights 2010 (1)
4,608,076
Performance shares/rights 2011 (1)
5,889,200
3 years service TSR ranking to a basket of direct
and indirect peers of 98 listed companies.
50% entitlement for a 50.1% ranking within TSR
group. Pro rata entitlement up to 100% vesting for
a ranking of 75% better to TSR group
3 years service TSR ranking to a basket of direct
and indirect peers of 98 listed companies.
50% entitlement for a 50.1% ranking within TSR
group. Pro rata entitlement up to 100% vesting for
a ranking of 75% better to TSR group
3 years service TSR ranking to a basket of direct
and indirect peers of 98 listed companies.
50% entitlement for a 50.1% ranking within TSR
group. Pro rata entitlement up to 100% vesting for
a ranking of 75% better to TSR group
3 years service TSR ranking to a basket of direct
and indirect peers of 97 listed companies.
50% entitlement for a 50.1% ranking within TSR
group. Pro rata entitlement up to 100% vesting for
a ranking of 75% better to TSR group
Contractual life
of performance
shares/rights
5 years
5 years
5 years
5 years
Total performance shares/rights
21,607,066
(1) On 16 November 2010 shareholders approved the grant of 925,926 performance rights and 1,183,929 performance shares for nil consideration for
the 2010 and 2011 financial year respectively to the Managing Director. The 925,926 and 1,183,929 instruments have been included in the number of
instruments for the performance shares/rights 2010 and 2011 respectively above.
EmEc o Holdings limitEd AnnuAl RepoRt 2011
89
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
26 sHARe-BAsed pAyments (continued)
The movement of performance shares and performance rights on issue during the year were as follows:
Outstanding at 1 July
Forfeited during the period
Exercised during the period
Granted during the period (1)
Outstanding at 30 June
Exercisable at 30 June
Weighted average
exercise price
2011
Number of
performance
shares/rights
2011
Weighted average
exercise price
2010
Number of
performance
shares/rights
2010
$0.31
$0.36
$0.87
$0.54
$0.39
$0.74
13,489,267
(4,483,459)
(26,000)
6,815,126
15,794,934
493,795
$0.28
$0.29
–
$0.40
$0.31
–
10,809,790
(1,002,672)
–
3,682,149
13,489,267
–
(1) This includes the 925,926 performance rights granted to Keith Gordon in the 2011 financial year in relation to the performance rights for 2010.
Executive option plan
grant date / employees entitled
Option grant to Executive
Directors on 4 August 2006
Number of
instruments
6,400,000
6,400,000
Vesting conditions
Achievement of forecast prospectus NPAT 2006.
10% compounding growth in NPAT for 2 years
there after. Options vest equally over 3 years
upon satisfying each hurdle.
Contractual life
of options
5 years
The number and weighted average exercised prices of share options are as follows:
Weighted average
exercise price
2011
Number
of options
2011
Weighted average
exercise price
2010
Number
of options
2010
$1.92
–
–
–
$1.92
$1.92
2,133,333
–
–
–
2,133,333
2,133,333
$1.92
$1.92
–
–
$1.92
$1.92
4,266,666
(2,133,333)
–
–
2,133,333
2,133,333
Outstanding at 1 July
Forfeited during the period
Exercised during the period
Granted during the period
Outstanding at 30 June
Exercisable at 30 June
Management incentive share plan
grant date / employees entitled
MISP 2006
MISP 2007
MISP 2008
Number of
instruments
4,010,000
Vesting conditions
Service requirement. Partial vesting entitlement
after 2 years with full vesting after 5 years.
1,240,000
Service requirement. Partial vesting entitlement
after 2 years with full vesting after 5 years.
560,000
Service requirement. Partial vesting entitlement
after 2 years with full vesting after 5 years.
Contractual life
of MiSP
10 years
10 years
10 years
5,810,000
90
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
26 sHARe-BAsed pAyments (continued)
Management incentive share plan (continued)
The number and weighted average exercised prices of MISPs are as follows:
Outstanding at 1 July
Forfeited during the period
Exercised during the period (2)
Granted during the period
Outstanding at 30 June
Exercisable at 30 June (1)
Weighted average
exercise price
2011
$0.73
$0.61
$0.64
–
$0.77
$0.77
Number
of MiSP
2011
3,190,000
(26,250)
(1,003,750)
–
2,160,000
1,600,000
Weighted average
exercise price
2010
$0.72
$0.61
$0.61
–
$0.73
$0.61
Number
of MiSP
2010
3,370,000
(101,250)
(78,750)
–
3,190,000
500,000
(1) While satisfying the service requirements under the MISP, the shares are not considered exercisable until the full vesting period has been satisfied.
(2) The weighted average share price at date of exercise was $0.87.
Employee share ownership plan
grant date / employees entitled
ESOP 2011
Number of
instruments
26,976
26,976
Vesting conditions
Service requirement. Full vesting entitlement after
1 year after the end of the calendar year in which
they are acquired.
Contractual life
of MiSP
1 year
The number and weighted average exercised prices of ESOPs are as follows:
Outstanding at 1 July
Forfeited during the period
Exercised during the period
Granted during the period
Outstanding at 30 June
Exercisable at 30 June (1)
Weighted average
exercise price
2011
Number
of ESoP
2011
–
$1.10
–
$1.09
$1.09
–
–
(3,224)
–
26,976
23,752
–
(1) The shares are not considered exercisable until the full vesting period has been satisfied.
The fair value of services received in return for the performance shares and rights issued during the year are based on the fair
value of the LTIPs granted, measured using Monte Carlo simulation analysis. Expected volatility is estimated by considering the
Company’s historical daily and monthly share price movement and an analysis of comparable companies. Market conditions are
detailed in note 3(k)(v). The inputs used in the measurement of the fair values at grant date are as follows:
Fair value of performance shares/rights
Fair value at grant date
Share price
Exercise price
Expected volatility (weighted average volatility)
Option life (expected weighted average life)
Expected dividends
Risk-free interest rate (based on government
bonds)
Key management personnel
2011
$0.56
$0.78
$Nil
40%-60%
3 years
4.8%
2010
$0.40 (2)
$0.65
$Nil
60%
4 years
5.0%
Senior employees
2010
2011
$0.56
$0.78
$Nil
40%-60%
3 years
4.8%
$0.40 (2)
$0.65
$Nil
60%
4 years
5.0%
ESoP (1)
2011
$0.96 – $1.20
$0.96 – $1.20
$Nil
n/a
1 year
n/a
4.5%
5.1%
4.5%
5.1%
n/a
(1) The ESOP was established in November 2010.
(2) The fair value of the FY10 LTI securities post modification date is $0.49.
The fair value assumptions for unvested MISPs that continued to be expensed have not changed since the fair value was
determined at grant date in previous years.
EmEc o Holdings limitEd AnnuAl RepoRt 2011
91
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
26 sHARe-BAsed pAyments (continued)
Modification of long term incentive plan
On 13 August 2010 the Board resolved to amend the terms of all existing and future grants of LTI securities as follows:
•
•
commencing with the dividend declared by the Directors for the half year ended 30 June 2010, dividends in respect
of performance shares and shadow dividends in respect of performance rights would be paid to the holders of those
securities. Previously, dividends were paid into the Emeco Employee share plan trust; and
if there is an absolute change in control of the Company, all LTI securities on issue at the time of the change in control will
automatically vest. Previously, the Board retained a discretion as to whether LTI securities would vest upon a change of
control.
The incremental fair value granted for the LTIPs were as follows:
Share plan
LTIP FY2008
LTIP FY2009
LTIP FY2010
Employee expenses
In AUD
Performance shares/rights
Options
MISP
ESOP
Total expense recognised as employee costs (1)
increase in incremental value
$0.02
$0.05
$0.09
Consolidated
2011
1,954,633
–
8,400
25,942
1,988,975
2010
830,485
–
65,644
–
896,129
(1) Included in share based employee expenses for the year is the write back of prior year share based employee expenses as a result of the shares, rights
or options being forfeited during the year because the employee does not meet the required performance hurdles or service requirements.
27 sHARe cApitAl And ReseRves
Share capital
631,237,586 (2010: 631,237,586 ) ordinary shares, fully paid
Acquisition reserve
Share options
Consolidated
2011
$’000
686,191
(75,887)
610,304
2010
$’000
685,465
(75,887)
609,578
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 $1.2 million and were to be recognised over the vesting period of the options. At 30 June 2011
4,266,667 of the issued options had been forfeited. The remaining options have an exercise price of $1.925 and expired on 4
August 2011.
Terms and conditions
ordinary shares
The 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. Shares have no par value.
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.
92
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
27 sHARe cApitAl And ReseRves (continued)
Reserve of own shares
The reserve of own shares comprises of shares purchased on market to satisfy the vesting of shares and rights under the
LTIP. Shares that are forfeited under the Company’s MISP due to employees not meeting the service vesting requirement are
transferred to the reserve. As at 30 June 2011 the Company held 18,300,000 treasury shares (2010: 13,409,000) in satisfaction
of the employee share plans.
Foreign Currency 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(k)(v)).
28 commitments
(a) operating lease commitments
Future non-cancellable operating leases not provided for in the financial
statements and payable:
Less than one year
Between one and five years
More than five years
Consolidated
2011
$’000
2010
$’000
2,914
5,936
4,525
13,375
4,148
7,040
4,052
15,240
The Group leases the majority of their operating premises. The terms of the lease are negotiated in conjunction with the
Group’s internal and external advisors and are dependent upon market forces.
During the year ended 30 June 2011 an amount of $5,265,000 (inclusive of an onerous operating lease contract recognised
during the year) was recognised as an expense in profit or loss in respect of operating leases (2010: $8,115,000).
(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 $147,637,000 (2010: $32,130,000) payable within one year.
29 contingent liABilities
guarantees
The Group has guaranteed the repayments of $342,500 (2010: $342,500) in relation to office premises with varying expiry dates
out to 30 June 2013.
30 contingent Assets
The Company has lodged prior year income tax return amendments with the ATO due to the change in legislation regarding the
deductibility of contract intangibles. This affects income tax years 1 July 2004 to 30 June 2007. The value of the deduction is
$17,063,000 resulting in a refund of $5,119,000. The Company is of the opinion that it is entitled to the refund and recognition is
pending a legislative review by the Australian Board of Taxation.
EmEc o Holdings limitEd AnnuAl RepoRt 2011
93
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
31 notes to tHe stAtement 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:-
Cash assets
Consolidated
Note
16
2011
$’000
5,502
2010
$’000
5,239
(ii) Reconciliation of net profit to net cash provided by operating activities
Consolidated
Note
2011
$’000
2010
$’000
Net profit
49,609
(49,313)
Add/(less) items classified as investing/financing activities:
Net profit on sale of non-current assets
Loss on sale of discontinued operations
Add/(less) non-cash items:
Amortisation
Depreciation
Amortisation of borrowing costs
(Gain)/loss on ineffective hedge
Unrealised foreign exchange (gain)/loss
Impairment losses on property, plant & equipment
Write down on inventory
Impairment of goodwill
Cost of sales equipment on rent
Doubtful debt write back
Provision for doubtful debts
FCTR of discontinued operations disposed
Restructure provisions recognised/(reversed)
Other non-cash items
Equity settled share based payments
(Decrease)/increase in income taxes payable
(Decrease)/increase in deferred taxes
13
7
7
(2,598)
424
258
124,663
2,066
(392)
80
4,955
841
–
1,579
(3,500)
9,333
(420)
(671)
(428)
(1,989)
1,370
2,867
(505)
–
295
107,777
2,099
1,604
(716)
18,584
10,467
36,951
5,044
1,834
–
5,371
3,053
–
901
(7,312)
3,247
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
188,047
139,381
2,483
34,990
(9,898)
(691)
(4,993)
5,911
7,629
(466)
Net cash provided by operating activities
214,931
147,462
(iii) Non-cash investing and financing activities
During the year there were $21.2 million in acquisitions of plant and equipment by means of finance lease (2010: $Nil).
Finance lease acquisitions are not reflected in the cash flow statements.
94
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
32 contRolled entities
(a) Particulars in relation to controlled entities
Parent entity
Emeco Holdings Limited
Controlled entities
Pacific Custodians Pty Ltd as trustee for Emeco
Employee Share Ownership Plan Trust
Emeco Pty Limited
Emeco International Pty Limited
Emeco Sales Pty Ltd
Emeco Parts Pty Ltd
Emeco (UK) Limited
Emeco Equipment (USA) LLC (*)
PT Prima Traktor IndoNusa (PTI)
Emeco International Europe BV (*)
Emeco Europe BV (*)
Euro Machinery BV (*)
Emeco Canada Ltd
Note
Country of
incorporation
ownership interest
2011
%
2010
%
Australia
Australia
Australia
Australia
Australia
United Kingdom
United States
Indonesia
Netherlands
Netherlands
Netherlands
Canada
100
100
100
100
100
100
100
100
100
100
100
100
(i)
(ii)
(iii)
(iv)
(iv)
(v)
(vi)
100
100
100
100
100
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, PT Prima Traktor IndoNusa (“PTI”), Emeco International Europe BV and Emeco Canada Limited.
(ii) Emeco Equipment (USA) LLC was incorporated in and carries on business in the United States. Wildcat Tractor Company LLC was acquired by
Emeco Equipment (USA) LLC on 4 January 2008 and was dissolved on 3 November 2009.
(iii) PT Prima Traktor IndoNusa was incorporated in and carries on business in Indonesia.
(iv) 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.
(v) Euro Machinery BV was acquired on 4 January 2007 and carries on business in the Netherlands.
(vi) 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.
(*) Discontinued operations at 30 June 2011 and 30 June 2010.
(b) Acquisition of entities in the current year
There was no acquisition of entities this financial year.
(c) Acquisition of entities in the prior year
There was no acquisition of entities in the prior year.
EmEc o Holdings limitEd AnnuAl RepoRt 2011
95
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
33 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
J R Cahill
R P Bishop
P I Richards
Executive Director
K D Gordon (Managing Director)
Executives
S G Gobby (Chief Financial Officer)
D O Tilbrook (General Manager South East Asia)
H A Christie-Johnston (General Manager Australian Sales & Parts)
M A Turner (General Manager Global Asset Group)
M R Kirkpatrick (General Manager Corporate Services)
A G Halls (General Manager Australian Rental)
I M Testrow (President North America)
G Gadomsky (General Manager Strategy and Business Development)
ceased employment 25 March 2011
C Mossman (President Director Indonesia) appointed 11 March 2011
Key management personnel compensation
The key management personnel compensation is as follows:
In AUD
Short-term employee benefits
Other long term benefits
Post-employment benefits
Termination benefits
Equity compensation benefits
Consolidated
2011
2010
6,337,256
–
244,774
212,500
1,386,534
8,181,064
4,597,896
–
308,860
–
462,767
5,369,523
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 required
by Corporations Regulations 2M.3.03 and 2M.6.04 are provided in the Remuneration Report section of the Directors’ report on
pages 36 to 46.
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.
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.
96
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
33 Key mAnAgement peRsonnel disclosuRe (continued)
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 97
Companies. The shares have been accounted for as an option in accordance with AASB 2 Share Based Payments.
The movement during the reporting year in the number of shares issued under the management incentive share plan,
performance shares under the long term incentive plan and matching employee share ownership plan in the Company held,
directly, indirectly or beneficially, by each key management person, including their related parties, is as follows. These plans
have been combined for the purposes of this note as they represent direct interests over the shares. Directors or Executives
with no holdings are not included in the following tables.
granted
as
compensation Exercised
Forfeited/
lapsed
held at
30 June
2011
Vested
during
the year
Vested at
30 June
2011
2011 Shares
Directors & Executives
Hamish Christie-Johnston
Stephen Gobby
David Tilbrook
Michael Turner
Ian Testrow
Michael Kirkpatrick
Anthony Halls
Christopher Mossman (4)
Guido Gadomsky (5)
Alexander Brennan
Keith Gordon
2010 Shares
Directors & Executives
Hamish Christie-Johnston
Stephen Gobby
David Tilbrook
Michael Turner
Ian Testrow
Michael Kirkpatrick
Anthony Halls
Christopher Mossman (4)
Guido Gadomsky (5)
Alexander Brennan
held at
1 July
2010
995,495
881,982
784,685
685,586
940,541
650,450
162,162
n/a
–
500,000
–
held at
1 July
2009
995,495
881,982
784,685
685,586
940,541
650,450
162,162
n/a
n/a
500,000
–
–
–
–
–
(176,000)
–
n/a
–
–
–
–
(72,000)
(48,000)
(48,000)
(48,000)
(24,000)
–
n/a
(232,710)
–
–
1,261,408(1)
1,230,538
1,091,714
952,785
892,541(1)
700,450(2)
430,218
171,667
n/a
500,000(3)
1,183,929
–
78,000
52,000
52,000
352,000
176,000
–
–
–
–
–
–
78,000
52,000
52,000
352,000
–
–
–
–
500,000
–
265,913
420,556
355,029
315,199
–
250,000
268,056
n/a
232,710
–
1,183,929
granted
as
compensation Exercised
Forfeited/
lapsed
held at
30 June
2010
Vested
during
the year
Vested at
30 June
2010
–
–
–
–
–
–
–
n/a
n/a
–
–
–
–
–
–
–
–
n/a
n/a
–
–
–
–
–
–
–
–
n/a
n/a
–
995,495(1)
881,982
784,685
685,586
940,541(1)
650,450(2)
162,162
n/a
–
500,000(3)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
500,000
Dividends paid under the Management Incentive Share Plan are paid against the employees outstanding loan and is reflected in
issued capital.
(1) Included in this balance of equity instruments Messrs Christie-Johnston and Testrow held MISP shares at 30 June 2010 and 30 June 2011 of 500,000
and 300,000 respectively.
(2) Included in this balance of equity instruments Mr Kirkpatrick held MISP shares at 30 June 2010 and 30 June 2011 of 150,000 and nil respectively.
(3) Included in this balance of equity instruments Mr Brennan held MISP shares at 30 June 2010 and 30 June 2011 of 500,000.
(4) Mr Mossman became a key management personnel on 11 March 2011. The shares held at 30 June 2011 were granted as compensation prior to
Mr Mossman becoming a key management personnel.
(5) Mr Gadomsky become a key management personnel on 24 May 2010 and ceased to be one on 25 March 2011.
n/a Not applicable as not in a position of key management personnel at time of compilation.
EmEc o Holdings limitEd AnnuAl RepoRt 2011
97
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
33 Key mAnAgement peRsonnel disclosuRe (continued)
The movement during the reporting year in the number of performance rights issued under 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.
2011 Rights
Directors & Executives
Hamish Christie-Johnston
Stephen Gobby
David Tilbrook
Michael Turner
Ian Testrow
Michael Kirkpatrick
Anthony Halls
Christopher Mossman (1)
Keith Gordon (2)
2010 Rights
Directors & Executives
Hamish Christie-Johnston
Stephen Gobby
David Tilbrook
Michael Turner
Ian Testrow
Michael Kirkpatrick
Anthony Halls
Christopher Mossman (1)
held at
1 July
2010
203,704
300,926
281,481
240,741
239,077
185,185
166,667
n/a
–
held at
1 July
2009
–
–
–
–
–
–
–
–
granted
as
compensation Exercised
Forfeited/
lapsed
held at
30 June
2011
Vested
during
the year
Vested at
30 June
2011
–
–
–
–
–
–
–
–
–
–
–
–
–
269,393
–
–
n/a
925,926
granted
as
compensation Exercised
203,704
300,926
281,481
240,741
239,077
185,185
166,667
n/a
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Forfeited/
lapsed
–
–
–
–
–
–
–
–
203,704
300,926
281,481
240,741
508,470
185,185
166,667
177,586
925,926
held at
30 June
2010
203,704
300,926
281,481
240,741
239,077
185,185
166,667
n/a
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Vested
during
the year
Vested at
30 June
2010
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1) Mr Mossman became a key management personnel on 11 March 2011.
(2) Mr Gordon was approved 925,926 performance rights, approved by shareholders at the Company’s Annual General Meeting on 16 November 2010.
Although this grant was approved and disclosed in FY11, it was a grant made under the FY10 LTI plan.
n/a Not applicable as not in a position of key management personnel at time of compilation.
options over equity instruments granted as compensation under a share option programme
The movement during the reporting year in the number of options held, directly, indirectly or beneficially, by each former key
management person, including their related parties is as follows:
2011
Directors & Executives
L C Freedman
R L C Adair
2010
Directors & Executives
L C Freedman
R L C Adair
held at
1 July
2010
granted as
compensa-
tion
Exercised
options
Forfeited
other
Changes
held at
30 June
2011 (1)
Vested
during
the year
Vested and
exercisable
at 30 June
2011
1,600,000
533,334
–
–
–
–
–
–
–
–
1,600,000
533,334
–
–
1,600,000
533,333
held at
1 July
2009
granted as
compensa-
tion
Exercised
options
Forfeited
other
Changes
held at
30 June
2010
Vested
during
the year
Vested and
exercisable
at 30 June
2010
3,200,000
1,066,667
–
–
–
–
(1,600,000)
(533,333)
–
–
1,600,000
533,334
–
–
1,600,000
533,333
(1) The options issued to Mr Freedman and Mr Adair expired 5 years after their date of issue on 4 August 2011.
98
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
33 Key mAnAgement peRsonnel disclosuRe (continued)
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.
2011
Directors
K D Gordon
A N Brennan
P B Johnston
J R Cahill
R P Bishop
P I Richards
Executives
D O Tilbrook
M A Turner
S G Gobby
I M Testrow
H A Christie-Johnston
M R Kirkpatrick
A G Halls
C Mossman
held at
1 July 2010
ordinary Shares (1)
Purchases
Sales
held at
30 June 2011
ordinary Shares (1)
650,000
1,081,700
100,000
120,000
300,000
40,000
3,300,000
5,500,000
470,000
–
337,399
63,000
35,773
n/a
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2,500,000)
(87,000)
–
(250,000)
(63,000)
(15,773)
–
650,000
1,081,700
100,000
120,000
300,000
40,000
3,300,000
3,000,000
383,000
–
87,399
–
20,000
12,500
(1) Total does not include shares held under the Company’s share plans as these are disclosed elsewhere.
n/a Not applicable as not in a position of key management personnel at time of compilation.
2010
Directors
K D Gordon
A N Brennan
P B Johnston
J R Cahill
R P Bishop
L C Freedman
R L C Adair
P I Richards
Executives
D O Tilbrook
M A Turner
S G Gobby
I M Testrow
H A Christie-Johnston
M R Kirkpatrick
A G Halls
loans
held at
1 July 2009
ordinary Shares (1)
Purchases
Sales
held at
30 June 2010
ordinary Shares (1)
n/a
1,081,700
100,000
120,000
n/a
20,000,000
6,300,000
n/a
3,300,000
5,500,000
343,000
–
300,000
93,000
15,773
650,000
–
–
–
300,000
–
–
40,000
–
–
127,000
–
37,399
–
20,000
–
–
–
–
–
–
–
–
–
–
–
–
–
(30,000)
–
650,000
1,081,700
100,000
120,000
300,000
n/a
n/a
40,000
3,300,000
5,500,000
470,000
–
337,399
63,000
35,773
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.
EmEc o Holdings limitEd AnnuAl RepoRt 2011
99
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
33 Key mAnAgement peRsonnel disclosuRe (continued)
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.
The aggregate value of transactions recognised during the year related to key management personnel and their related parties
were as follows:
Key management person
and their related parties
Transaction
Transaction value
year ended 30 June
2010
2011
$’000
$’000
Balance outstanding
as at 30 June
2011
$’000
2010
$’000
Mr P Richards
– Kangaroo Resources Limited
Rental of heavy
earthmoving equipment (1)
3,971
–
1,133
Mr M A Turner
Mr D O Tilbrook
– Ivy Street Unit Trust
Rental of 510 Great
Eastern Highway (2)
37
249
–
–
–
(1) PT Prima Traktor IndoNusa (refer note 32) rents heavy earthmoving equipment to PT Mamahak Coal Mining, a subsidiary of Kangaroo Resources
Limited for an annual consideration of A$3,970,718 (inclusive of VAT) translated at an AUD/USD average exchange rate of 0.9872 for FY11. The balance
outstanding as at 30 June 2011 was A$1,132,832 translated at the 30 June 2011 AUD/USD rate of 1.0724. The Group also holds a bank guarantee
and deposit of A$724,422 and A$85,144 respectively from Kangaroo Resources Limited as security against outstanding amounts. The rental contract
was negotiated on an arms length basis. One of the Group’s Non-Executive Directors, Mr Peter Richards, is a Non-Executive Director of Kangaroo
Resources Limited.
(2) The Group rented its former premises at 510 Great Eastern Highway, Redcliffe in Western Australia from Demol Investments Pty Ltd as trustee of the
Ivy Street Unit Trust (“Trust”) for an annual consideration of $37,810 (2010: $248,602). The price was negotiated on an arms length basis. 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. On the 18 August 2010 the Group terminated this agreement due to the relocation of the office to 71 Walters Drive, Osborne Park in
Western Australia.
34 otHeR RelAted pARty tRAnsActions
Subsidiaries
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.
35 suBsequent events
Subsequent to 30 June 2011 the Company declared a 3.0 cent fully franked dividend payable 30 September 2011.
100
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
36 eARnings peR sHARe
Basic earnings per share
The calculation of basic earnings per share at 30 June 2011 was based on the profit/(loss) attributable to ordinary shareholders
of $49,699,000 (2010: ($49,313,000)) and a weighted average number of ordinary shares outstanding less any treasury shares
for the year ended 30 June 2011 of 612,938,470 (2010: 617,829,139).
The calculation of “basic” earnings per share at 30 June 2010 has been restated to include the effects of treasury shares.
Profit attributed to ordinary shareholders
Consolidated
Continuing
operations
$’000
2011
Discontinued
operations
$’000
Total
$’000
Continuing
operations
$’000
2010
Discontinued
operations
$’000
Total
$’000
Profit/(loss) for the period
49,974
(365)
49,609
12,300
(61,613)
(49,313)
Weighted average number of ordinary shares
Issued ordinary shares at 1 July
Effect of treasury shares purchased during the year
Weighted average number of ordinary shares at 30 June
Diluted earnings per share
Consolidated
2011
‘000
631,238
(18,300)
612,938
2010
‘000
631,238
(13,409)
617,829
The calculation of diluted earnings per share at 30 June 2011 was based on profit/(loss) attributable to ordinary shareholders
of $49,974,000 (2010: ($49,313,000)) and a weighted average number of ordinary shares outstanding less any treasury shares
during the financial year ended 30 June 2011 of 630,580,189 (2010: 630,152,701).
The calculation of “diluted” earnings per share (“EPS”) at 30 June 2010 have been restated to include the effects of treasury
shares and performance shares/rights. The restatement has an anti-dilutive effect on the Group EPS at 30 June 2010.
Profit attributed to ordinary shareholders (diluted)
Consolidated
Continuing
operations
$’000
2011
Discontinued
operations
$’000
Total
$’000
Continuing
operations
$’000
2010
Discontinued
operations
$’000
Total
$’000
Profit/(loss) attributed to
ordinary shareholders (basic)
49,974
(365)
49,609
12,300
(61,613)
(49,313)
Weighted average number of ordinary shares (diluted)
Weighted average number of ordinary shares at 30 June
Effect of the vesting of contingently issuable shares
Effect of treasury shares purchased during the year
Weighted average number of ordinary shares (diluted) at 30 June
Comparative information
Consolidated
2011
‘000
631,238
17,642
(18,300)
630,580
2010
‘000
631,238
12,324
(13,409)
630,153
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 during which the options were outstanding.
EmEc o Holdings limitEd AnnuAl RepoRt 2011
101
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
37 pARent entity disclosuRe
As at and throughout the financial year ending 30 June 2011 the parent company (the “Company”) of the Group was Emeco
Holdings Limited.
Company
Result of the parent entity
Profit/(Loss) for the period
Other comprehensive income
Total comprehensive income for the period
Financial position of parent entity at year end
Current assets
Non-current assets
Total assets
Current liabilities
Total liabilities
Total equity of the parent entity comprising of:
Share capital
Share based payment reserve
Reserve for own shares
Retained earnings
Total equity
2011
$’000
118,509
–
–
153
690,708
690,861
5,922
5,922
686,191
6,462
(10,715)
3,001
684,939
2010
$’000
(19,009)
–
–
232
653,314
653,546
1,537
1,537
685,465
2,728
(6,247)
(29,937)
652,009
Parent entity guarantees in respect of debts of its subsidiaries
The parent entity has entered into a Deed of Cross Guarantee with the effect that the Company guarantees debts in respect of
its subsidiaries.
Further details of the Deed of Cross Guarantee and the subsidiaries subject to the deed, are disclosed in Note 38.
102
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
38 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’
reports.
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 are:
•
•
Emeco Pty Ltd
Emeco International Pty Limited
A consolidated statement of comprehensive income and consolidated statement of financial position, comprising the Company
and controlled entities which are a party to the Deed, after eliminating all transactions between parties to the Deed of Cross
Guarantee, for the year ended 30 June 2011 is set out as follows:
Statement of comprehensive income and retained earnings
Consolidated
Revenue
Cost of sales
Gross profit
Operating expense
Finance income
Finance costs
Profit before tax
Income tax expense
Net loss after tax
Other comprehensive income
Total comprehensive income for the period
Retained earnings at beginning of year
Dividends recognised during the year
Retained earnings at end of year
Attributable to:
Equity holders of the Company
Profit/(Loss) for the period
2011
$’000
402,311
(270,865)
131,446
(19,109)
907
(18,713)
94,531
(19,043)
75,488
363
363
64,125
(56,811)
83,165
83,165
75,488
2010
$’000
368,967
(261,463)
107,504
(114,852)
1,099
(19,667)
(25,916)
(12,368)
(38,284)
10,534
10,534
104,500
(12,625)
64,125
64,125
(38,284)
EmEc o Holdings limitEd AnnuAl RepoRt 2011
103
emeco Holdings limited And its contRolled entities
notEs to tHE Financial statEmEnts For tHE yEar EndEd 30 JunE 2011
38 deed of cRoss guARAntee (continued)
Statement of financial position
Consolidated
Current assets
Cash assets
Trade and other receivables
Inventories
Assets held for sale
Total current assets
Non-current assets
Trade and other receivables
Intangible assets
Investments
Property, plant and equipment
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Interest bearing liabilities
Current tax liabilities
Provisions
Liabilities held for sale
Total current liabilities
Non-current liabilities
Interest bearing liabilities
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Share based payment reserve
Reserves
Retained earnings
Total equity attributable to equity holders of the parent
2011
$’000
2,703
62,950
45,242
8,728
119,623
22,686
151,728
232,748
482,647
889,809
1,009,432
43,088
3,107
6,013
3,514
–
55,722
178,012
13,786
861
192,659
248,381
761,051
686,191
6,462
(14,767)
83,165
761,051
2010
$’000
3,169
60,588
74,723
36,436
174,916
30,057
151,836
174,092
401,452
757,437
932,353
32,832
–
3,556
4,397
815
41,600
141,617
10,682
237
152,536
194,136
738,217
685,465
2,728
(14,101)
64,125
738,217
104
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
dirEctors’ dEclaration
1.
In the opinion of the Directors of Emeco Holdings Limited (the “Company”):
(a)
the consolidated financial statements and notes as set out on pages 49 to 104, and Remuneration report in the
Directors’ report, set out on pages 36 to 46 are in accordance with the Corporations Act 2001, including:
(i)
giving a true and fair view of the Group’s financial position as at 30 June 2011 and of its performance for the
financial year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001;
(b)
there are reasonable grounds to believe that the Company will be 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 entities identified in Note 38 will be able to meet
any obligation or liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee between
the Company and those group entities pursuant to ASIC Class Order 98/1418.
The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Chief
Executive Officer and Chief Financial Officer for the financial year ended 30 June 2011.
The Directors draw attention to note 2(a) to the consolidated financial statements, which includes a statement of
compliance with International Financial Reporting Standards.
2.
3.
4.
Dated at Perth, 22nd day of August 2011
Signed in accordance with a resolution of the Directors:
Keith gordon
Managing Director
EmEc o Holdings limitEd AnnuAl RepoRt 2011
105
emeco Holdings limited And its contRolled entities
indEpEndEnt auditors’ rEport
Independent auditor’s report to the members of Emeco Holdings Limited
Report on the financial report
We have audited the accompanying financial report of Emeco Holdings Limited (the company), which comprises the
consolidated statement of financial position as at 30 June 2011, and consolidated statement of comprehensive income and
consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement
of cash flows for the year ended on that date, notes 1 to 38 comprising a summary of significant accounting policies and other
explanatory information 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 of the financial report that gives a true and fair view in
accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors
determine is necessary to enable the preparation of the financial report that is free from material misstatement whether due to
fraud or error. In note 2(a), the directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation
of Financial Statements, that the financial statements of the Group comply with International Financial Reporting Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance
with Australian Auditing Standards. 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 of the financial report that gives a true and fair view 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, a true and fair 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.
independence
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.
Auditor’s opinion
In our opinion:
(a)
the financial report of the Group is in accordance with the Corporations Act 2001, including:
(i)
giving a true and fair view of the Group’s financial position as at 30 June 2011 and of its performance for the year
ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001.
(b)
the financial report also complies with International Financial Reporting Standards as disclosed in note 2(a).
106
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
indEpEndEnt auditors’ rEport
Report on the remuneration report
We have audited the Remuneration Report included in the directors’ report for the year ended 30 June 2011. 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 2011, complies with Section
300A of the Corporations Act 2001.
KPMG
R Gambitta
Partner
Perth
22 August 2011
EmEc o Holdings limitEd AnnuAl RepoRt 2011
107
emeco Holdings limited And its contRolled entities
sHarEHoldEr inFormation
Financial Calendar
The Annual General Meeting of Emeco Holdings Limited will be held at the Radisson Plaza Hotel, 27 O’Connell Street, Sydney,
New South Wales on Tuesday 15 November 2011 commencing at 12:00 noon (Sydney time).
Event
Ex dividend share trading commences
Record date for final dividend
Final dividend payable
Annual General Meeting
Half year
Half year profit announcement
Ex dividend share trading commences
Record date for interim dividend
Interim dividend payable
Year end
*Timing of events and payment of dividend is subject to change and Board discretion
Date*
30-Aug-11
5-Sep-11
30-Sep-11
15-Nov-11
31-Dec-11
Feb-12
Mar-12
Mar-12
Mar-12
30-Jun-12
Substantial Shareholders
Details regarding substantial holders of the Company’s ordinary shares as at 31 August 2011, as disclosed in the substantial
holding notices, are as follows:
Name
Franklin Resources, Inc. and its affiliates
AMP Limited
Dimensional Fund Advisors
BlackRock Investment Management (Australia) Limited
Shares
58,345,089
33,488,001
31,765,018
31,675,239
% issued Capital
9.24%
5.31%
5.03%
5.02%
Distribution of Shareholders
As at 31 August 2011, there were 6,930 holders of the Company’s oridinary shares. The distribution as at 31 August 2011 was as
follows:
Range
100,001 and Over
50,001 to 100,000
10,001 to 50,000
5,001 to 10,000
1,001 to 5,000
1 to 1,000
Total
investors
142
160
1,580
1,405
2,155
904
6,346
Securities
566,144,605
11,559,230
33,729,893
10,705,375
6,428,975
509,508
629,077,586
% issued Capital
90.00
1.84
5.36
1.70
1.02
0.08
100.00
The number of security investors holding less than a marketable parcel of 521 securities ($0.960 on 31/08/2011) is 312 and they
hold 57,853 securities.
108
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
sHarEHoldEr inFormation
20 Largest Shareholders
The names of the 20 largest holders of the Company’s ordinary shares as at 31 August 2011 are:
Rank
Name / Address
Total units
% issued Capital
J P MORGAN NOMINEES AUSTRALIA LIMITED
1
2 NATIONAL NOMINEES LIMITED
3 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
4 CITICORP NOMINEES PTY LIMITED
5
6 PACIFIC CUSTODIANS PTY LIMITED
7 COGENT NOMINEES PTY LIMITED
8 AMP LIFE LIMITED
9
JP MORGAN NOMINEES AUSTRALIA LIMITED
ELPHINSTONE HOLDINGS PTY LTD
10 CITICORP NOMINEES PTY LIMITED
11 QUEENSLAND INVESTMENT CORPORATION
12 PAN AUSTRALIAN NOMINEES PTY LIMITED
13 G HARVEY NOMINEES PTY LIMITED
14 UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD
15 DAVID TILBROOK
16 UBS NOMINEES PTY LTD
17 RBC DEXIA INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED
18 MR TREVOR THOMAS SAUVARIN
18 MR MICHAEL ANTHONY TURNER
LINDA DOROTHY SAUVARIN
18
19 COGENT NOMINEES PTY LIMITED
20 GOLDKING ENTERPRISES PTY LTD
135,021,853
130,450,661
104,312,505
42,148,871
17,550,387
16,855,718
13,061,435
9,733,543
6,860,000
6,611,083
5,605,876
4,189,300
3,661,800
3,316,242
3,300,000
3,083,535
3,008,000
3,000,000
3,000,000
3,000,000
2,822,643
2,810,900
21.46%
20.74%
16.58%
6.70%
2.79%
2.68%
2.08%
1.55%
1.09%
1.05%
0.89%
0.67%
0.58%
0.53%
0.52%
0.49%
0.48%
0.48%
0.48%
0.48%
0.45%
0.45%
Voting Rights of Ordinary Shares
Voting rights of shareholders are governed by the Company’s constitution. The Constitution provides that on a show of hands
every member present in person or by proxy has one vote and on a poll every member present in person or by proxy has one
vote for each fully paid ordinary share held by the member.
EmEc o Holdings limitEd AnnuAl RepoRt 2011
109
emeco Holdings limited And its contRolled entities
sHarE pricE History
Closing share price ($)
1.40
1.20
1.00
0.80
0.60
0.40
0.20
2008
2009
2010
2011
110
EmEc o Holdings limitEd AnnuAl RepoRt 2011
emeco Holdings limited And its contRolled entities
company dirEctory
diRectoRs
Robert Bishop
Alec Brennan
John Cahill
Peter Johnston
Keith Gordon
Peter Richards
secRetARy
Michael Kirkpatrick
RegisteRed office
Level 3, 71 Walters Drive
Osborne Park WA 6017
Phone: +61 8 9420 0222
+61 8 9420 0205
Fax:
sHARe RegistRy
Link Market Services Limited
Level 12, 680 George Street
Sydney NSW 2000
Phone: 1300 554 474
www.linkmarketservices.com.au
AuditoRs
KPMG
235 St Georges Terrace
Perth WA 6000
secuRities excHAnge listing
Emeco Holdings Ltd ordinary shares are listed
on the Australian Securities Exchange Ltd.
ASX code: EHL
EmEc o Holdings limitEd AnnuAl RepoRt 2011
111
This page has been left blank intentionally.
112
EmEc o Holdings limitEd AnnuAl RepoRt 2011
We will continue our focus on
improving the performance
of our existing businesses
while pursuing growth which
delivers superior returns
Australia
Global Head Office
Emeco
Level 3, 71 Walters Drive
Osborne Park WA 6017
Phone: +61 8 9420 0222
Email: corporate@emecogroup.com
Indonesia
Regional Head Office
Emeco
(trading as Pt Prima Traktor IndoNusa)
Hidup Baru Industrial Estate
Jl. Mulawarman
No. 21 Rt.023 Rw.007
Manggar Balikpapan - 76116
East Kalimantan, Indonesia
Phone: +62 542 770 899
Canada
Regional Head Office
Emeco
17403 - 109 Avenue
Edmonton, Alberta
T5S 1H7 Canada
Phone: +1 780 483 2942
www.emecogroup.com
www.emecogroup.com