20 August 2012
Company Announcements Office
Australian Securities Exchange Limited
Level 4
20 Bridge Street
SYDNEY NSW 2000
Emeco Holdings Limited (ASX:EHL) – Results for announcement to the market
Results for the year ended 30 June 2012
Attached for immediate release to the market are the following documents:
the Emeco Holdings Limited Appendix 4E – preliminary final report for the financial year ended 30 June
2012; and
Emeco Holdings Limited’s annual financial report, auditor’s report and directors’ report.
Yours faithfully
Michael Kirkpatrick
Company Secretary
Emeco Holdings Limited | ACN 112 188 815
location Level 3, 71 Walters Drive, Osborne Park WA 6017, Australia | postal address PO Box 1341, Osborne Park DC WA 6916, Australia
phone +61 (0) 8 9420 0222 | fax +61 (0) 8 9420 0205 | email corporate@emecogroup.com | web www.emecogroup.com
APPENDIX 4E
Preliminary Final report
Period Ended 30 June 2012
Name of entity
Emeco Holdings Limited
ABN or equivalent company reference
A.C.N. 112 188 815
Results for announcement to the market
Reporting Period: Year ended 30 June 2012 (Previous corresponding period: year ended 30 June 2011)
Revenues from ordinary activities
Profit from ordinary activities after tax attributable
to members of Emeco Group
%
2012
2011
Change
$A million
$A million
9.7%
40.5%
565.7
69.7
515.5
49.6
Dividends
Date the dividend is payable
Record date to determine entitlements to the dividend
28 September 2012
3 September 2012
Amount per security
Final Dividend: Current year
Previous year
3.5 cents
3.0 cents
3.5 cents
3.0 cents
Amount per security
Franked amount per security
Interim Dividend:
Current year
Ordinary – 2.5 cents
Ordinary – 2.5 cents
Amount per security
Franked amount per security
Previous year
Ordinary – 2.0 cents
Special – 5.0 cents
Ordinary – 2.0 cents
Special – 5.0 cents
Total Dividend: Current year
Ordinary – 6.0 cents
Ordinary – 6.0 cents
Amount per security
Franked amount per security
Previous year
Ordinary – 5.0 cents
Special – 5.0 cents
Ordinary – 5.0 cents
Special – 5.0 cents
APPENDIX 4E
Preliminary Final report
Period Ended 30 June 2012
Ratios and Other Measures
NTA backing
Current Period
Previous
corresponding
Period
Net tangible asset backing per ordinary security
$0.74
$0.68
Details of loss of control of entities having material effect
No control over any entities was lost during the period that had a material effect.
Accounts
This report is based on accounts that have been audited.
Commentary on Results
For commentary on the results of the Emeco Group, refer to the accompanying media release, audited
financial report and directors’ report.
Emeco Holdings Limited and its Controlled Entities
ABN 89 112 188 815
Annual Financial Report
30 June 2012
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
1
Contents
Chairman’s Report ................................................................................................................ 3
Managing Director’s Report ................................................................................................... 5
Chief Financial Officer’s Review ............................................................................................. 7
Review of Operations ............................................................................................................ 9
Sustainability Report ............................................................................................................12
Financial Report ...................................................................................................................22
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
2
Chairman’s Report
(cid:1) Organic growth initiatives
underpin another year of
improved financial
performance
(cid:1)
Investing in safety, the
community, and our people
is key to building a
sustainable business
(cid:1) Business well positioned to
withstand volatility and
pursue value creating
opportunities that may arise
Dear Shareholder,
We are pleased to present the Emeco Holdings Limited Annual Report for financial year 2011/2012 (FY12).
OUR STRATEGIC FOCUS ON SUSTAINABLE GROWTH
Having completed the restructuring phase of our strategy in FY11, this last year has been focused on pursuing
“sustainable growth” strategies from a strong foundation. We made targeted investments in large mining equipment
in our Australian and Canadian businesses and positioned the Indonesian business for fleet investment in FY13. The
low cost high growth copper-producing region of Chile was identified as a market that is expected to provide another
low risk opportunity to achieve value-creating growth for shareholders.
To underpin our growth strategy we have continued to lengthen our debt maturity which the completion of the
US$140 million debt issuance in the US Private Placement Market provides.
DELIVERING IMPROVED RETURNS TO SHAREHOLDERS
Central to the Board’s decision-making process is a firm focus on delivering quality returns to shareholders.
The restructuring and growth work has delivered another year of improved financial performance at Emeco with
operating NPAT growing 27% and Return on Capital (ROC) increasing from 11.3% to 13.2% over FY12.
The Board amended the dividend policy in February 2012, increasing the payout ratio to 40–60% of annual operating
NPAT, franked to the fullest extent possible. The Company delivered 20% growth in ordinary dividends in FY12,
declaring 6.0 cents per share fully franked.
While we are continuing to pursue growth in FY13, our strong financial position has enabled us to announce an on-
market share buyback program at a time when current share market volatility presents a value opportunity for the
Company and its shareholders.
OUR PEOPLE AND SUSTAINABILITY
Critical to the success of any leading business is the ability to attract and retain high calibre people. Empower, Emeco's
people strategy, launched two years ago, is central to this objective. Empower has focused on developing a positive
culture and delivering important initiatives around training and leadership development in FY12, which collectively
contribute to a sustainable business.
We have this year published our second Sustainability Report (page 12) which highlights the significant progress
Emeco has made in areas such as diversity, the community and our people.
While we are focusing on diversity (page 17) at all levels of the organisation, it was pleasing to welcome Emeco’s first
female director onto the Board in FY12. In her short time with the Company, Erica Smyth (page 25) has been a
significant contributor with both her deep experience in the mining industry and as a non-executive director.
We devoted greater resources towards engaging with our local communities in FY12. This included the establishment
of a global approach to community participation (page 18) and a new national partnership with Lifeline Australia
(Lifeline). Lifeline (page 20) provides crisis support, suicide prevention and mental health support services across
Australia. People living and working in regional and remote locations are considered a high risk group for mental
health issues and suicide, making this partnership particularly relevant for all Emeco stakeholders, their families and
friends.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
3
SAFETY REMAINS A KEY PRIORITY
The safety (page 14) 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 to 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.
BUSINESS WELL POSITIONED FOR THE FUTURE
Despite a year of strong activity across the global mining industry, current macroeconomic factors are contributing to
an emerging cautionary tone in parts of the industry. Furthermore, the industry has continued to be challenged by an
evolving regulatory environment and a rising cost structure. While these factors could moderate activity in the short
term, we expect continued growth in production activity and volumes over the medium term, which bodes well for
Emeco.
Despite the current uncertainty, the business is well positioned strategically and financially to withstand future
volatility and we will remain alert to value creating opportunities that may emerge over time. In the year ahead we
will be focused on maintaining strong business performance, retaining a disciplined approach to managing our balance
sheet and maximising returns for shareholders.
Alec Brennan
Chairman
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
4
Managing Director’s Report
(cid:1) Executed strategy delivering
significantly improved
shareholder returns
(cid:1)
Strengthened the business
during FY12 for a sustainable
and successful future
(cid:1) Attractive growth prospects
through Chile expansion
OUR COMMITMENT TO SHAREHOLDERS
The objective of our business strategy since 2010 has been clear: To deliver acceptable and sustainable returns to our
shareholders. During FY12, Emeco’s 40th year of operation, we continued to strive to deliver on this fundamental
objective.
I am pleased to report that the strategies we have been pursuing over recent years are translating into a stronger
return on capital. Over the past 12 months our operating return on capital increased from 11.3% at 30 June 2011 to
13.2% at 30 June 2012. The Company also delivered strong earnings growth with Operating NPAT increasing 27.0%
from $56.0 million in FY11 to $71.1 million in FY12.
These improvements are the result of a very clear focus on aligning ourselves to the production phase of the mining
cycle and repositioning and investing in our fleet which is now clearly targeted at high utilisation mine production
activities. Our investment of $165 million in growth capital during FY12 was deployed into contracts and began
generating accretive returns immediately. We also divested underperforming assets which were no longer core to
our fleet strategy. This has resulted in a high quality fleet aligned to the needs of our target customers.
Our commitment now is to maintain and further improve these returns into the future.
SOLID FOUNDATION FOR FUTURE SUCCESS
Mine production activity continued to increase in all of our markets over FY12 which translated into strong demand
for our equipment and maintenance services. Despite a slow start in the first quarter in our Canadian and Indonesian
businesses, utilisation improved over the remainder of the year to complement the strong performance of our
Australian business (page 9).
Globally, we remained focused on our customer and commodity mix during the period, targeting customers which
align with our strategic objectives and deliver broad commodity exposure in each region. In Canada (page 9), our
increased exposure to the oil companies, indigenous contractors and coal miners is providing increased visibility on
demand. We secured a number of new customers in Indonesia (page 10) based on our quality maintenance offering
which has also improved our credit risk exposure. In Australia, we continued to support our blue-chip mining
customers with large mining fleets while working with smaller miners to provide whole-of-mine fleets complemented
by onsite maintenance services.
The strategy to increase the weighting of large mining equipment in our global fleet continues to add value. Average
contract durations have increased and we have been able to work with our customers on other contractual terms
such as minimum monthly hours to provide more visibility of future equipment utilisation. These larger assets are
utilised in the core production phase of mining operations which will provide more stable customer demand across
mining cycles.
Our geographic step-out into Chile (page 11), announced in February 2012, is directly aligned to our strategy and
bodes well for the future success of Emeco. This region represents a high quality organic growth opportunity for
Emeco and the opportunity to further diversify into a low cost copper producing region. Emeco committed an initial
$50 million investment into this market with a view to increase this further over the next 12 months subject to the
success of the initial investment.
Opportunities for further growth through geographic expansion or an acquisition will continue to be considered in the
year ahead, as always, with a firm focus on our business strategy and the creation of shareholder value.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
5
KEEPING OUR PEOPLE SAFE AND ENGAGED AT WORK
Safety remains a top priority for the Board and Executive Leadership Team. During the year we introduced a
behavioural based safety approach and continued to improve Emeco’s safety management systems (page 14).
Pleasingly, we saw a further reduction in the Lost Time Injury Frequency Rate (LTIFR) to 2.2 per million man hours for
the twelve months to 30 June 2012 (30 June 2011: 2.4).
During the year, as part of Empower (our strategy for Emeco people), we progressed a number of improvement
projects centred around leadership development, training, career planning and performance management. I firmly
believe that investment in our people is key to Emeco’s future success and we continue to see the benefit of our
investment in people through the results of our employee culture surveys (page 16).
I would like to thank each and every one of our employees for maintaining their focus on safety, for their tireless
efforts in once again delivering improved results aligned with our business strategy and for their contribution towards
ensuring a safe and compliant workplace for all Emeco people and those we work with.
A CHALLENGING BUT EXCITING YEAR AHEAD
Against a backdrop of ongoing global uncertainty we continue work with our customers to understand their plans and
to monitor industry lead indicators to anticipate future rental demand. In light of recent broader economic trends
including declining commodity prices, we expect our customers to continue to focus on managing operating costs,
however we also anticipate commodity production volumes will continue to grow in the coming years. This is a vital
indicator for Emeco as our business is primarily leveraged to the volume of earth moved and less directly to
commodity price fluctuations. While we are working in a challenging market, we are energised by the opportunities
to further improve our performance and build on our very strong customer relationships.
Our focus on optimising the fleet and developing sustainable relationships with quality customers is critical to
maintaining our market leading position and the future success of Emeco. In addition, we remain committed to
providing safe working environments, developing our people (page 16) and being an active and positive contributor
to the communities (page 18) in which we operate.
In the coming year we will continue to focus on maintaining high levels of utilisation and monitoring the market for
growth opportunities that are consistent with our business strategy and our commitment to delivering shareholder
value. The Company has progressed significantly since the launch of our strategy in 2010 and I believe it is stronger
than ever. I am confident that in FY13 we will continue to improve and to move the business further ahead.
Keith Gordon
Managing Director & Chief Executive Officer
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
6
Chief Financial Officer’s Review
(cid:1)
Significant growth in ROC and
NPAT delivering value to
shareholders
(cid:1) Cashflow generation provides
(cid:1)
flexibility across mining activity
cycles
Strong balance sheet and
comfortable gearing enables
investment for growth and
capital management
PUSHING RETURNS AND EARNINGS HIGHER
Pleasingly our continued focus on delivering value to shareholders is translating into solid results. Operating Net
Profit after Tax (NPAT) increased by 27.0% in FY12 and operating return on capital (ROC) improved to 13.2% for the
twelve months to 30 June 2012, up from 11.3% in the previous year. This strong growth in earnings and returns has
derived from the quality investments in large mining fleet in 1H12 and improvements in our offshore businesses.
Group operating revenue grew 12.5% to $565.2 million in FY12 as strong customer demand for equipment translated
into high utilisation of the rental fleet and increased requests for Emeco’s maintenance expertise resulting in
improved revenue from maintenance services. The fixed cost leverage gained through these revenue increases
contributed to higher operating EBIT and EBITDA margins year on year. Margins were also enhanced through direct
cost efficiencies and some price increases.
Table 1: Group Financial Results
Revenue
EBITDA
EBIT
NPAT
ROC %
Operating Results
Statutory Results
FY12
565.2
261.7
126.0
71.1
13.2%
FY11
502.5
223.3
101.2
56.0
11.3%
Var %
12.5%
17.2%
24.5%
27.0%
16.7%
FY12
565.7
260.4
124.6
69.7
13.0%
FY11
515.5
217.3
92.3
49.6
10.3%
Var %
9.7%
19.8%
35.0%
40.6%
26.6%
Reconciliation of differences between Operating and Statutory Results:
•
Significant items and discontinued operations have been excluded from the statutory result to aid the comparability and usefulness of the
financial information. This adjusted information (Operating Results) enables users to better understand the underlying financial performance
of the business in the current period.
FY12 Operating Results (non-IFRS) excludes an expense of $1.2m, impacting EBITDA, EBIT and NPAT in the Australian business segment, which
relates to unpaid employee superannuation from FY07 to FY11 arising from a payroll system error identified during an internal payroll
systems review which has now been rectified. Also excluded from the FY12 Operating NPAT is the loss from discontinued operations of $0.2
million (page 103).
FY11 Operating Results (non-IFRS) excludes the significant impairment of one debtor in Indonesia which impacted EBIT and EBITDA by $7.9
million and NPAT $6.0 million. Also excluded from the FY11 Operating NPAT is the loss from discontinued operations of $0.4million (page
103).
•
•
CASHFLOW GENERATION A KEY ASSET
Emeco’s capacity to generate strong operating cashflows remains a key feature of its financial flexibility. Operating
cashflow was up 7.2% to $230.5 million in FY12 through strong EBITDA performance. Operating cash flow less net
sustaining capex was $114.1 million. After paying dividends of $34.7 million to shareholders in FY12, the remaining
available cashflow was reinvested to further grow our fleet which is expected to deliver further growth in operating
cashflows in FY13.
The combination of strong underlying operating cashflows and the highly discretionary nature of future capital
investment, provides Emeco with significant flexibility to expand or contract its balance sheet and gearing relatively
quickly in light of prevailing market conditions. This cashflow flexibility is a key asset for the business.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
7
BALANCE SHEET GOES FROM STRENGTH TO STRENGTH
We have continued to execute our funding strategy with the successful completion of a US$140 million US Private
Placement debt issue in May 2012 comprising a 7 and 10 year tranche. This transaction has diversified our funding
sources and extends our average maturity to 4.1 years, providing greater certainty around our future access to
capital.
While net debt levels increased in FY12 by $94.9 million to $386.4 million at 30 June 2012 due to the sizeable
investment program, we maintain significant headroom of $169.9 million under the current available facilities of
$629.4 million. Gearing is below our target range at 1.47x Net Debt:EBITDA, which gives the Company capacity to
simultaneously undertake investment growth and capital management initiatives as appropriate.
VALUE CREATION THROUGH EFFECTIVE CAPITAL MANAGEMENT
The combination of earnings growth, strong operating cash flows, and a sound balance sheet have resulted in Emeco
declaring a total dividend of 6.0 cents per share, fully franked, in respect to the 2011/12 financial year. This
represents an attractive dividend yield and is in line with our focus on consistent value creation for shareholders. The
Board revised its stated dividend policy during the year to “distribute to shareholders between 40% to 60% of annual
NPAT and to frank dividends to the fullest extent possible”. The Board considered a number of factors before revising
the policy and felt that it could increase the payout ratio while continuing to pursue value creating growth
opportunities.
In addition to the ordinary dividend, the Company has initiated an on-market buyback program as it believes this
represents a value creating opportunity for its shareholders. This capital management initiative will be pursued
together with the $140 million growth capital investment already committed in FY13. The Company’s strong balance
sheet position and comfortable gearing levels highlight its capacity to take advantage of value creating opportunities
as they arise.
Looking ahead we will remain disciplined on investing and managing the balance sheet, and continue to seek revenue
enhancing and cost reduction initiatives. This will further optimise our financial position and enable us to extract
maximum value and drive shareholder returns into the future.
Stephen Gobby
Chief Financial Officer
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
8
Review of Operations
AUSTRALIA
Table 2: Performance Indicators
Chart 1: Fleet Utilisation
Operating Results
FY12
383.3
215.7
115.6
508.1
22.7%
580.0
3.1
FY11
327.2
185.3
98.3
413.0
23.8%
576.0
3.9
Var %
17.1%
16.4%
17.6%
23.0%
-4.4%
0.7%
-19.6%
Revenue
EBITDA
EBIT
Funds Employed
ROFE %
No. workforce
LTIFR
Notes:
•
•
•
For a reconciliation of statutory to operating results refer to Table 1 on page 7 and accompanying notes
Utilisation defined as % of fleet rented to customers (measured by written down value)
Australia results in Table 2 represent the Australian Rental segment and do not include the Australian Sales and Parts segment
Main markets
Operating out of Western Australia, Queensland and New South Wales, the Australian rental business is well
diversified across bulk commodities and metals. The business services high quality customers, primarily blue-chip
miners and large contractors, leveraged to the production phase of the mining cycle.
FY12 Achievements
The Australian business successfully executed its growth strategy with the investment of $93 million in large mining
equipment in FY12. Improved fleet utilisation and investment in new fleet delivered a 17.6% increase in EBIT on FY11.
ROFE was temporarily impacted in the first half given the significant new fleet acquired, however, these assets
were successfully deployed into new contracts with quality customers for mine production activity.
FY13 Focus
In FY13 we will focus on targeting customers requiring fleets of equipment on long term, fully maintained contracts.
In addition, we will continue to further optimise the rental fleet mix to help maintain high utilisation levels.
CANADA
Table 3: Performance Indicators
Chart 2: Fleet Utilisation
Operating Results
FY12
67.2
35.9
16.2
161.5
10.0%
93.0
5.6
FY11
64.9
32.6
14.0
123.9
11.3%
71.0
–
Var %
3.5%
10.1%
15.4%
30.4%
-11.5%
31.0%
100.0%
Revenue
EBITDA
EBIT
Funds Employed
ROFE %
No. Employees
LTIFR
Notes:
•
•
For a reconciliation of statutory to operating results refer to Table 1 on page 7 and accompanying notes
Utilisation defined as % of fleet rented to customers (measured by written down value)
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
9
Main Markets
The Canadian business is strategically located in the Alberta region to service oil sands and coal projects in Western
Canada.
FY12 Achievements
Emeco Canada further reconfigured its fleet in FY12 towards larger mining equipment as a result of demand from
large oil sands customers. The Canadian team signed a master services agreement with a major oil sands miner, the
first of its kind in the region. As a result, the business has greater visibility of customer requirements and fleet
utilisation is expected to be higher over the long term.
FY13 Focus
In FY13 we will maintain our focus on further growing the direct supply of equipment rental and maintenance services
to oil sands companies to improve utilisation performance. We will also continue to develop strong business
relationships with indigenous contractors in the region and diversify commodity exposure by targeting customers
producing alternative commodities.
INDONESIA
Table 4: Performance Indicators
Chart 3: Fleet Utilisation
Revenue
EBITDA
EBIT
Funds Employed
ROFE %
No. Employees
LTIFR
Operating Results
FY12
49.9
25.2
10.0
77.5
12.8%
356.0
–
FY11
44.6
21.0
5.3
81.5
6.5%
293.0
–
Var %
12.0%
19.9%
87.8%
-4.9%
97.5%
21.5%
0.0%
Notes:
•
•
For a reconciliation of statutory to operating results refer to Table 1 on page 7 and accompanying notes
Utilisation defined as % of fleet rented to customers (measured by written down value)
Main Markets
The Indonesian business is positioned in an optimal location to service miners and contractors in the Kalimantan
region and in particular, Indonesia’s low-cost thermal coal and gold mines.
FY12 Achievements
Indonesia’s customer mix improved with a number of new contracts signed in late FY12. This has delivered better
fleet utilisation, improved contract terms and reduced credit risk profile. A large fleet of equipment came to end of
contract in late FY11, however, this fleet was successfully redeployed during the first half of the year.
FY13 Focus
In early FY13 we will finalise the deployment of the $40 million growth capex plan and maximise utilisation through
additional contracts with new customers. We will also continue to build on Emeco’s maintenance expertise with a
focus on securing additional fully maintained rental contracts.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
10
CHILE
Main Markets
Leveraged to the growing copper mining region of Antofagasta, Emeco will service large international and domestic
blue-chip miners and contractors in Chile.
FY12 Achievements
Following the decision to enter Chile in February 2012, a fleet of 10 new Caterpillar 240 tonne trucks were sourced, 5
of which will be delivered in Q1 of FY13 with the balance due to be delivered in Q3. Other critical activities carried out
during the period included the recruitment of key personnel and agreeing maintenance contracts.
FY13 Focus
In FY13 our primary objective is to successfully execute contracts for the initial truck fleet and to further develop new
customer relationships. The team will be focused on building brand awareness and relationships in the region
throughout FY13.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
11
Sustainability Report
(cid:1)
LTIFR improved
by 9% in FY12
(cid:1) 95% of
(cid:1)
Australian and
Canadian
employees
participated in
FY12 annual
performance
reviews
Significant
improvement in
employee
satisfaction in
FY12
(cid:1) Global community
engagement and
Australian
Aboriginal &
Torres Strait
Islander
engagement
strategies
implemented
(cid:1) Greenhouse
gas emissions
reduced by
13% on
previous
reporting
period
DELIVERING ON OUR VISION
Our global vision is “to contribute to a sustainable and productive mining industry and to provide a great workplace
for our people and teams”.
In FY11 we produced our inaugural Sustainability Report. We established internal processes to support annual public
reporting on our sustainability performance and to ensure we deliver on the commitments made to our stakeholders
from a sustainability perspective. Our stakeholders include employees, customers, shareholders, suppliers and
community members.
In FY12, we worked to build on the foundations established in FY11 and to improve the ways in which we captured
and reported sustainability data to ensure we more efficiently deliver on our people, community and environmental
targets in future years.
MANAGING SUSTAINABILITY
To ensure sustainable business practices at Emeco, our vision, values, business and people (page 14) strategies are
integrated as part of our business planning and employee performance management processes. We proactively
manage our financial and non-financial business risks and collaborate with our stakeholders to ensure we operate in a
sustainable manner at all times. We report our sustainability performance to Emeco’s Executive Leadership Team and
Board of Directors regularly throughout each year.
This approach ensures that sustainability is integrated as part of our everyday operations and that we deliver on our
vision and long term business goals.
Table 5: FY12 Sustainability Risks and Opportunities
Our People
Our Community
Our Environment
Sustainability
Risks &
Opportunities
Safety
Employee Development
Diversity
Community Participation
Environmental Management
Carbon and Energy
CONSISTENT REPORTING APPROACH
We have applied the Global Reporting Initiative (GRI) G3 Framework and the principles of materiality and
completeness to determine the information that should be included in this FY12 Sustainability Report.
This Sustainability Report is self-declared as a C level report in accordance with the GRI G3 Guidelines.
Information regarding environmental, workplace and community activities at Emeco during FY12 is presented in this
Sustainability Report. We have also set targets (page 13) for the year ahead and remain committed to providing
current, meaningful and relevant performance information to our broader stakeholders in addition to shareholders.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
12
SUSTAINABILITY PERFORMANCE HIGHLIGHTS AND TARGETS
In FY12, Emeco delivered on the commitments made in FY11 and has further improved the sustainability of our global
operations.
Table 6: Sustainability Performance Highlights and Targets
Performance
Areas
People
Safety
(page 14)
Performance
Against FY12
Targets
(cid:2)
FY12 Performance
Highlights
FY13 Performance
Targets
(cid:3) Reduced LTIFR by 9%
(cid:3) Trial of contractor
management system
commenced in
Queensland
(cid:3) Progress towards zero harm
through a further reduction in
LTIFR
Implement contractor safety
management system
(cid:3)
Employee
Development
(page 16)
(cid:2)
Diversity
(page 17)
(cid:2)
(cid:3) Global intranet launched
to improve collaboration
and information sharing
(cid:3) 60% improvement on FY11
employee culture survey
response rate
(cid:3) Significantly improved
employee satisfaction
levels
(cid:3) Performance
management, training and
development programs
implemented
(cid:3) Developed measureable
diversity objectives
(cid:3) Developed Diversity
Action Plan
(cid:3) Submitted first Equal
Opportunity for Women in
the Workplace Agency
(EOWA) Report
(cid:3) Undertake third global employee
(cid:3)
culture survey
Implement consistent on-
boarding process for new
employees across Australian
business
(cid:3) Establish integrated process to
record employee training and to
report on training key
performance indicators
(cid:3) Finalise development of a global
gender diversity measurement
framework
Implement initiatives from the
Diversity Action Plan:
-
(cid:3)
-
Review recruitment and
selection processes
Review flexible work
arrangements options
- Deliver diversity training
and build employee
awareness
(cid:3) Undertake analysis of gender-
based results from the annual
employee culture survey
Community
Community
Participation
(page 18)
(cid:2)
(cid:3) National partnership established
in each country of operation
(cid:3) Community engagement
representatives appointed in
Indonesia and Canada
(cid:3) Review and assess feedback from
community partnership and
sponsorship activities
(cid:3) Global community
engagement and
Australian Aboriginal &
Torres Strait Islander
engagement strategies
approved by Board and
implemented
(cid:3) Eight regional community
engagement
representatives appointed
across Australian business
(cid:3) National partnership with
Lifeline Australia
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
13
Table 6: Sustainability Performance Highlights and Targets (continued)
Performance
Areas
Environment Environmental
Management
(page 20)
Performance
Against FY12
Targets
-
Carbon and
Energy
(page 21)
(cid:2)
FY12 Performance
Highlights
FY13 Performance
Targets
(cid:3) No reportable
(cid:3) No reportable environmental
environmental incidents
(cid:3)
incidents
Implement consistent approach
to collecting waste and water-
related data
(cid:3) Review and improve waste water
management practices
(cid:3) Provide Australian customers
with daily fuel usage reports by
the end of 2012
(cid:3) Reduced greenhouse gas
emissions by 13% from
FY10
Improved carbon and
energy data collection
processes
(cid:3)
(cid:3) Begun trial of GPS fuel
usage tracking with a
number of Australian
customers
PEOPLE
Safety
Emeco is committed to maintaining a safe and healthy working environment for its employees, contractors and
customers.
We have an Occupational Health & Safety Policy which is publically disclosed on our website (www.emecogroup.com).
This Policy is supported by the Emeco Safety Health Environmental Management System (ESHEMS) and monthly
reporting to the Executive Leadership Team and the Board.
Independent Safety Audit
Between July and September 2011 an independent safety audit of Emeco’s Australian operations was conducted. This
audit highlighted a number of opportunities to improve the way we approach and manage safety at Emeco in
Australia. Subsequently, a Safety Improvement Plan was implemented for the region in February 2012.
The current high priority focus areas of the Safety Improvement Plan for the Australian business include:
• Hazard identification and risk management
•
•
•
•
•
• Review and modify ESHEMS
Induction and initial training
Contractor management
Incident investigation and reporting
Safety leadership (all levels of Emeco management)
Improve safety reporting and communication
In FY13 we will draw on the safety improvements made in the Australian business to identify opportunities to improve
safety management across the Indonesian, Canadian and Chilean businesses.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
14
Safety Improvement Initiatives
As at 30 June 2012, the following Safety Improvement Plan initiatives have been trialled and implemented. Work will
continue throughout FY13 to embed these changes across the Australian business:
•
•
The behaviour-based Positive Attitude Safety System (PASS) has been implemented across our Australian
operations. PASS aims to improve safety communication at all levels and to establish a clear focus on safety for
each work shift. Operational branches, workshops and sites now conduct PASS meetings prior to the
commencement of each shift and non-operational/administrative and corporate teams conduct weekly PASS
meetings.
For each tier of leadership a number of safety-related performance measures have been implemented. Both lead
and lag indicators are used to assess performance and to drive future improvements. Key performance indicators
with monthly targets will be introduced across our Australian operations in FY13.
• A contractor management system is currently being trialled by our Queensland operations. This system will be
implemented across the Australian business by the end of 2012, ensuring that contractors to Emeco comply with
necessary legislative, safety, environmental, insurance and human resource requirements.
• Monitoring, audit and review systems and procedures are currently being developed and are planned to be
•
introduced in early 2013, in line with our ESHEMS standards.
Safety training has been incorporated into Emeco’s broader training framework to ensure that safety forms part
of individual employee performance and training plans.
Improved Safety Performance
The improvement in our safety performance is reflected across a range of safety indicators.
In FY12 our Lost Time Injury Frequency Rate (LTIFR) was 2.2 showing a 9% improvement in comparison to our FY11
LTIFR of 2.4. Since 2008, Emeco’s LTIFR has improved by 80.7%.
Our group-wide Medical Treatment Injury Frequency Rate (MTIFR) and Total Reportable Injury Frequency Rate (TRIFR)
also decreased by 4.5% and 3.5% respectively during the FY12 period.
While we acknowledge further improvement in our safety performance is required across the business, we are
progressing in the right direction and are seeing real signs of behavioural change as we work towards our ultimate
goal of zero harm.
Chart 4: Emeco Group Lost Time Injury Frequency Rate FY08 to FY12
Emeco Group Lost Time Injury Frequency Rate
FY2008 - FY2012
)
R
F
I
T
L
(
e
t
a
R
y
c
n
e
u
q
e
r
F
y
r
u
n
j
i
I
e
m
T
t
s
o
L
14
12
10
8
6
4
2
0
Emeco Group LTIFR
FY2008
FY2009
FY2010
FY2011
FY2012
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
15
Empowered People
In 2011, Emeco developed and launched its people strategy “Empower” across the Company’s Australian, Indonesian
and Canadian operations. Empower is aligned to our global business strategy and our vision, mission and values.
In FY12, we focused on implementing an initial set of Empower improvement projects. These were identified as crucial
to creating a great place to work and to supporting Emeco people in achieving and succeeding throughout their
careers.
The initial Empower improvement projects focused on:
•
•
•
•
•
•
developing position descriptions for all global job families
reviewing and establishing a coordinated approach to training and development
developing and delivering a leadership development program for front-line managers and supervisors
reviewing and establishing a coordinated approach to performance management
launching a new global intranet to improve collaboration and information sharing across the business
developing and implementing a consistent induction presentation and “Welcome to Emeco” video for new
employees.
Happier People
We are committed to proactive and positive engagement with Emeco people, particularly in relation to receiving and
acting on feedback.
In August 2011 (FY12) we conducted our second employee culture survey. A sixty per cent increase in responses was
achieved in comparison to the 2010 response rate.
Results from the second employee culture survey showed that employee satisfaction had improved by 32% on the
previous year. The survey clarified that values being experienced by employees at Emeco workplaces at the time the
survey was conducted were closely aligned with our global values of Collaboration, Accountability, Integrity and
Continuous Improvement.
The FY12 employee culture survey demonstrated that Emeco employees felt that the business is moving in the right
direction from a cultural perspective. We look forward to receiving the results of the FY13 survey to once again review
our progress, identify further areas for improvement and respond to employee feedback.
Performance Management and Career Planning
As part of Empower, we implemented a new Performance Management System (PMS). The PMS promotes regular
and ongoing communication between individual employees and their managers.
Within the PMS, Personal Performance Plans (including objectives, behavioural assessments and training plans) were
developed for 95% of employees in the Australian and Canadian businesses at the beginning of FY12. In August 2012
employees and managers across the Australian and Canadian businesses met to formally discuss performance and
achievements from FY12 and to plan goals and objectives for FY13.
In FY13, the PMS will be introduced within the Indonesian and Chilean businesses beginning at the supervisor level
and above.
Training and development
The desire for additional and a more structured approach to training was raised by employees in the 2010 employee
culture survey.
In FY12, as part of the PMS, competency matrices were developed for each job family and have been used to identify
knowledge and skill gaps for individual employees. This information now feeds directly into each employee’s annual
training plan.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
16
During FY12, we established a dedicated training and development function and appointed training co-ordinators to
arrange and track all employee training across the Australian business. In FY13, our training coordinators will be
facilitating the development of a formal training management system. This new training system will aim to:
•
•
•
•
record and maintain employee training statistics
assist the execution of training and development plans
ensure that safety training is tracked and delivered, and
generate training reports to enable greater analysis and to support decision-making processes.
Indonesian Training Centre and Traineeship
Attracting and recruiting skilled tradespeople in Indonesia remains a challenge for the business.
In 2011, Emeco opened a new Training Centre alongside its Kariangau workshop with the aim of increasing
the Company’s ability to attract new employees as trainees and to provide existing employees with career
and skill development opportunities in the region.
A dedicated training team has been established to work with the trainees through the structured program.
The traineeship is a four year program comprising of technical and practical modules related to
mechanical and maintenance trades.
Ten trainees successfully applied and will take part in Emeco’s first intake for the new four year training
program.
Diversity
Our operations are geographically and culturally diverse and we are focused on developing a workforce which reflects
the diversity of the broader communities in which we operate. In Emeco workplaces, we are committed to equality
and treating each other with respect.
As at 30 June 2012, our global workforce comprised of 763 employees.
Table 7: Total number of global employees by employment type and contract at 30 June 2012
Role type
Administration Support
Managers
Trade & Non-Trade
Business Development & Sales
Non-Executive Directors
Senior Executive
Senior Managers
Business Support
Total
Full-
Time
65
50
428
19
6
7
27
58
660
Part-
Time
9
5
83
0
0
0
0
1
98
Casual
Total
4
0
0
1
0
0
0
0
5
78
55
511
20
6
7
27
59
763
At 30 June 2012, 13.5% of employees were women. Women at Emeco are primarily employed in administrative and
business support roles. Currently, there are no women on Emeco’s Executive Leadership Team. Emeco’s Board of
Directors has one woman director of the seven directors in total.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
17
Measurable Diversity Objectives
During FY11 we established a group wide Diversity Policy which is available on our website.
In FY12, in accordance with our Diversity Policy, we developed a diversity strategy containing the following
measurable objectives:
•
•
•
subject to identifying a candidate with appropriate industry, commercial and board experience, appoint a female
to the Board of Directors in FY12
establish an effective gender diversity measurement and reporting framework, and
develop a Diversity Action Plan.
Diversity Target Progress
In December 2011, our first measurable objective was achieved through the appointment of Ms Erica Smyth as an
Independent Non-Executive director to our Board.
In FY12 we also commenced public diversity reporting by submitting our first Equal Opportunity for Women in the
Workplace Agency (EOWA) Report. We are currently making changes to our data collection process and reporting
systems to enable us to analyse and report more accurately in relation to gender from July 2012.
During FY12, a Diversity Action Plan was endorsed by Emeco’s Board of Directors. Our Diversity Action Plan will be
implemented in FY13 and comprises the following initiatives:
•
•
•
review recruitment and selection processes to identify strategies to attract female candidates and to avoid any
potentially discriminatory practices
adopt flexible working arrangements and formalise a related policy and guidelines, and
raise awareness of diversity issues through a number of initiatives including the delivery of diversity coaching for
the senior leadership team.
COMMUNITY
Proactive Approach to Community Engagement
In 2011, we recognised the need to become more proactive and targeted in our approach to community engagement.
In response to this need, we developed a global Community Engagement Strategy which was endorsed by our Board
of Directors in early 2012.
Our global Community Engagement Strategy is linked to our vision (page 12). It delivers a group-wide approach to
community participation and seeks to establish strategic partnerships and local relationships which:
•
•
•
improve standards of health, wellbeing and/or education
support environmental remediation and/or sustainability practices, and / or
support sustainable Indigenous business operations
Our Community Engagement Strategy also recognises that Emeco employees, our families and friends, live and work
in the communities where we operate. Employee engagement is therefore a large part of our new approach to
community participation and influences our selection process for supporting locally-based community causes.
By the end of FY12, Emeco had appointed eight community engagement representatives at our four major sites in
Australia. The representatives were selected through a personal nomination process. In FY13 we aim to internally
appoint community engagement representatives within our Indonesian, Canadian and Chilean businesses.
Emeco’s community engagement representatives are responsible for:
reviewing sponsorship or partnership requests against Emeco’s global community engagement selection criteria
engaging colleagues and generating support (e.g. fundraising, volunteering) for local community causes, and
•
•
• managing the annual community engagement budget for their region.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
18
Engaging with Indigenous communities
As a business operating in the global mining industry, we work on Indigenous lands and in close proximity to
Indigenous communities in Australia, Indonesia, Canada and now Chile.
In late 2011, we developed an Australian-based Aboriginal and Torres Strait Islander Engagement Strategy. This
strategy was endorsed by our Board of Directors in early 2012 and outlines our commitment to developing and
providing culturally aware and welcoming workplaces. In FY12 at our Australian operations we have focused on:
•
•
•
•
building employee awareness of the cultural heritage of the regions in which we operate
improving employment pathways for Aboriginal and Torres Strait Islander people within Emeco
establishing community partnerships and sponsorships (page 19) that support Aboriginal and Torres Strait
Islander causes, and
pursuing opportunities to develop commercial partnerships with Aboriginal and Torres Strait Islander-owned
businesses.
In FY13, we will look for opportunities to engage with Indigenous communities in Indonesia, Canada and Chile in a
similar manner.
Global Approach, Local Benefits
With the implementation of our global Community Engagement Strategy and supporting processes, we will be able to
improve the ways in which we measure, report and communicate the benefits of our community investments in the
future.
In FY12 we continued to provide both financial and in-kind assistance to local community causes across our operating
locations and to support the efforts of Emeco employees who are actively involved in their local communities.
The table below shows the community causes and groups Emeco employees elected to support in FY12.
Table 8: FY12 Community Sponsorships by Region
Australia
WA
•
•
•
•
•
Save the Children Fund
Youth Focus
Kalgoorlie Golden Mile
Community House
Kmart Wishing Tree Appeal
Leukaemia Foundation -
World's Greatest Shave
NSW
• Westpac Helicopter
• RSPCA
•
Salvation Army Xmas
Appeal
3 x Local netball
Teams
•
QLD/NT
•
•
•
•
•
•
Special Children’s
Christmas Parties
Clermont Country
Picnic Day
Leukaemia
Foundation –
Everyday Hero
Cystic Fibrosis
The Mackay
Foundation
Cancer Council
Australia – Pink
Ribbon Day
Australia-
wide
Canada
Tour de Cure
•
• Movember
•
•
Parkland Immanuel Christian School renovations
Fort McMurray Hockey Association
Indonesia
• Donation of 81 books and financial assistance to improve building facilities for local
•
•
•
students and local community members at a library in Kariangau
120 trees donated to assist in reforestation of the Sultan Hasanudin Road in Karingau
Three cattle donated to the local community for the annual ’Celebration of Community‘
festival
16 cement bags and five trailers of sand to help increase security in the local community
by building a new security post
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
19
Exciting New National Partnerships
Our global Community Engagement Strategy also guides the establishment of mutually beneficial, sustainable
community partnerships.
In FY12, we established our first national partnership with Lifeline Australia (Lifeline). More information on this
partnership is provided in the case study titled ‘Emeco & Lifeline Partner to Save Lives Overnight’.
In July 2012 (FY13), we entered into a partnership with the Clontarf Foundation (Clontarf) in Australia and look
forward to developing our relationship with Clontarf over the three year initial term of this partnership.
Clontarf exists to improve the education, discipline, self-esteem, life skills and employment prospects of young
Aboriginal men and by doing so, equip them to participate in the community in a more meaningful way. The
partnership aligns with our focus on improving ‘standards of health, wellbeing and/or education’.
By 2014, we aim to have established at least one national partnership in each country of operation.
Emeco and Lifeline Partner to Save Lives Overnight
Lifeline provides crisis support services focusing on suicide prevention and access to mental health support
services.
Lifeline has been operating its 13 11 14 crisis line with a predominantly volunteer workforce for the past 49
years. Over time, it has become increasingly difficult for Lifeline to find volunteers able to work the midnight to
dawn shift, the time of night when many Australians are at their most vulnerable.
In 2011, Lifeline invested in a ‘Saving Lives Overnight’ trial which involved paying Lifeline crisis supporters to
work the midnight to 6am shift. This led to a 62% increase in the call answer rate from September 2010 and a
139% increase from the August 2011 call answer rate.
With Emeco’s support, Lifeline is now able to employ more permanent team members to answer calls, to
extend Lifeline’s overnight shift by two hours and to redeploy volunteers who previously worked these shifts
to more suitable hours, increasing Lifeline’s national call answer capability.
Emeco people are also being educated about mental health and suicide prevention and will have the
opportunity to support their local Lifeline Centres through fundraising and volunteering activities.
ENVIRONMENT
Responsible Environmental Management
Emeco’s core service offering globally is the provision of maintained rental equipment solutions to mining industry
companies.
We acknowledge that we are responsible for minimising the impact of our operations on the environment. Our Group
Environmental Policy (available at www.emecogroup.com) guides and assists the Company in communicating our
environmental performance expectations to our stakeholders (employees, contractors, customers and suppliers).
Environmental management and compliance is an important part of our business and the business of our customers.
Onsite, we continue to work together with our customers to ensure that our equipment maintenance services operate
in alignment with their onsite policies, management systems and procedures.
Across Emeco’s global operations and where we operate on a customer’s site, our approach to environmental
management focuses largely on oil use and disposal, waste disposal and water management. While we currently track
our usage and recycling efforts in relation to a number of waste products, our processes vary between sites. We plan
to develop and implement a more consistent approach to collecting waste and water-related data in FY13.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
20
Environmental incidents associated with our operations continue to be tracked and reported through the Emeco
Safety Health Environmental Management System (ESHEMS) and performance is reported to the Executive Leadership
Team and the Board on a monthly basis.
We are pleased to report that Emeco did not experience any reportable environmental incidents or significant spills
during the last financial year and we did not face any significant fines or sanctions for non-compliance with
environmental laws and regulations.
Reduced Greenhouse Gas Emissions
Emeco has been tracking the carbon footprint of its global operations since 2008. We calculate our carbon footprint
using the international best practice Greenhouse Gas Protocol and publicly report this baseline information to the
Carbon Disclosure Project (CDP). Our CDP submission is made available each year at www.cdproject.net reporting
results for the previous financial year.
Regular tracking and reporting confirms that the majority of our emissions are generated by our buildings,
infrastructure, maintenance activities and travel.
In FY11, our total GHG emissions (scopes 1 and 2) were 6447 tCO2e (chart 5 & 6). This represents a 13% decrease on
FY10 emissions. This is due to the closure of two workshops in Canada and a reduction in the number of leased light
vehicles and service vehicles we use to support our rental equipment fleet. The majority of these emissions were
generated by fuel usage in light and service vehicles and electricity use at Emeco buildings.
The combustion of fuel during the use of our rental equipment will always be a 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 the equipment is in use onsite. As such, in FY12, Emeco continued to
operate well under the corporate thresholds set out by the Act.
As our business grows we will continue to review emissions data in order to benchmark our performance and to
identify areas where we can reduce our carbon and energy impacts. We will also continue to work with our customers
on efficiency initiatives that will assist them to reduce emissions associated with operating Emeco equipment.
An example of a current initiative we are exploring for the benefit of our customers is the use of Global Positioning
System (GPS) to capture the rate at which our equipment burns fuel when in use. GPS will enable Emeco to track the
fuel burn rate and identify where any inefficiencies may be occurring. We aim to be providing customers of the
Australian business with daily fuel usage reports by the end of 2012.
Chart 5: Group 2011 emissions (scope 1 & 2) by source Chart 6: Group emissions 2010 and 2011 by tonne
Natural Gas
3%
Electricty
54%
Fleet vehicle
fuel
43%
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
7,397t
6,447t
2010
2011
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
21
Financial Report
Directors’ Report..................................................................................................................23
Directors ................................................................................................................... 23
Current Directors ..................................................................................................... 23
Company Secretary .................................................................................................. 26
Directors’ Meetings .................................................................................................. 26
Corporate Governance Statement ........................................................................... 27
Nature of operations and principal activities .......................................................... 37
Operating and financial review ................................................................................ 37
Dividends paid or to be paid .................................................................................... 37
Significant changes in state of affairs ...................................................................... 37
Significant events after balance date ....................................................................... 37
Likely developments and expected results .............................................................. 38
Directors’ interest in shares of the Company .......................................................... 38
Remuneration report (audited) ............................................................................... 39
Indemnification and insurance of directors, officers and auditors ......................... 56
Non-audit services ................................................................................................... 57
Rounding .................................................................................................................. 57
Lead Auditor’s Independence Declaration .............................................................. 58
Consolidated Statement of Comprehensive Income ..............................................................59
Consolidated Statement of Financial Position .......................................................................61
Consolidated Statement of Changes in Equity .......................................................................62
Consolidated statement of Cash Flows ..................................................................................63
Notes to the Financial Statements ........................................................................................64
Directors’ Declaration ........................................................................................................ 143
Independent Auditor’s Report ............................................................................................ 144
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
22
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
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 2012 (FY12).
Current Directors
The current Directors of the Company are:
Alec Brennan, Age 65
(BSc Hons, MBA, FAICD)
Appointment: Appointed as an Independent Non-Executive Director in August 2005. Chairman since November 2006.
Board committee membership: Chairman of the Remuneration and Nomination Committee. Member of the Audit
and Risk Committee.
Skills and experience: Alec was Chief Executive Officer of CSR from April 2003 until March 2007, prior to which he held
a range of positions with CSR and related companies, including time as Director of Strategy leading up to the
demerger of CSR and Rinker, and Director of Finance & Investments. Alec has been a public company director for
more than 20 years. Alec is also a former member of the Australian Securities and Investments Commission Advisory
Panel.
Current appointments:
• Director of the New South Wales Environmental Protection Authority (since 2012).
•
•
Chairman and Director of PPI Corporation Pty Ltd (since 2007).
Fellow of the Senate of Sydney University. Chair of the University's Finance and Human Resources committees
(since 2006).
Keith Gordon, Age 48
(BSc (Agric) Hons, MBA, MAICD)
Appointment: Appointed as Managing Director in December 2009.
Skills and experience: Keith brings senior leadership skills and experience to Emeco, gained through an extensive
career in the industrials sector. Keith joined Emeco after a decade with Wesfarmers Limited, where he held a number
of senior roles and was heavily involved in major corporate transactions. Keith has a strong record of achieving value-
creating growth through innovation and disciplined strategies.
Current appointments:
• Director of EDGE Employment Solutions (since 2009).
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
23
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
Robert Bishop, Age 67
(BSc, MSc Engineering (Birm Univ. UK), FAICD, M I E Aust)
Appointment: Appointed as an Independent Non-Executive Director in June 2009.
Board committee membership: Member of the Audit and Risk Committee.
Skills and experience: Robert has extensive international business experience having worked in the United Kingdom,
South Africa and Europe with particular focus on mergers and acquisitions, new business start-ups and international
business development in the manufacturing and mining sectors. Robert held the position of Chief Executive Officer of
the global mining and tunnelling division of DYWIDAG Systems International GmbH from 2003 to 2008 and was a
member of the Group’s Supervisory Board. He is a former Managing Director of Dorsogna Limited (1994 to 1997) and
Joyce Corporation Limited (1989 to 1994).
Current appointments:
• Director of Newcastle Regional Art Gallery and a member of its Investment Committee (since 2011).
John Cahill, Age 56
(BBus, Grad Dip Bus, FCPA, GAICD)
Appointment: Appointed as an Independent Non-Executive Director in September 2008.
Board committee membership: Chairman of the Audit and Risk Committee. Member of the Remuneration and
Nomination Committee.
Skills and experience: John has over 25 years' experience working in senior treasury, finance, accounting and risk
management positions, predominantly in the energy utility sector. John is a past Chief Executive Officer of Alinta
Infrastructure Holdings and past Chief Financial Officer of Alinta Limited.
Current appointments:
• Non-Executive Director (since 2009) and Deputy Chairman (since 2010) of Electricity Networks Corporation,
Western Australia (trading as Western Power). Chair of its Finance and Risk Committee and a member of its
People and Performance Committee.
• Non-Executive Director (since 2007) and President and Chairman (since 2011) of CPA Australia Limited.
•
Councillor of Edith Cowan University and Chair of the University's Resources Committee (since 2011).
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
24
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
Peter Johnston, Age 61
(BA, FAusIMM, FAICD)
Appointment: Appointed as an Independent Non-Executive Director in September 2006.
Board committee membership: Member of the Remuneration and Nomination Committee.
Skills and experience: Peter brings to Emeco more than 30 years' experience in the Australian resources industry.
Peter is currently Managing Director and Chief Executive officer of Minara Resources Pty Ltd, a position he has held
since December 2001. Prior to his current role, he held senior executive positions with WMC Resources Limited and
Alcoa of Australia Limited.
Chairman of the Minerals Council of Australia (since 2010).
Current appointments:
•
• Non-Executive Director Silver Lake Resources Limited (since 2007).
• Vice President of the Australian Mines and Metals Association (since 2010).
• Director of the Nickel Institute (since 1995).
•
Executive Council Member of the Chamber of Minerals and Energy WA (since 1998).
Erica Smyth, Age 60
(MSc, FAICD, FAIM)
Appointment: Appointed as an Independent Non-Executive Director in December 2011.
Skills and experience: Holding over 30 years' experience in the mineral and petroleum industries, Erica's career
highlights include her positions as Principal Geologist for BHP Minerals, Project Manager of BHP-Utah Minerals
International's Beenup Project, Manager - Gas Market Development WA for BHP Petroleum and General Manager -
Corporate Affairs with Woodside Petroleum Limited. In 2010, the Chamber of Mines & Energy Western Australia
awarded Erica a Lifetime Achievement Award for her contribution to the industry as part of the Women in Resources
Awards 2010. In 2008 Erica was awarded a Honourary Doctor of Letters from the University of Western Australia.
Chairman of Toro Energy Limited (since 2009).
Current appointments:
•
• Director of the Australian Nuclear Science and Technology Organisation (since 2009).
•
Chairman of Scitech, Western Australia's interactive science centre (since 2008).
• Director Royal Flying Doctor Service Western Operations (since 2010).
•
•
•
Chairman of ScreenWest, Western Australia's film screen industry funding body (since 2007).
Chairman of Diabetes Research Foundation of Western Australia (since 2007).
Chairman of the UWA Centenary Trust for Women (since 2008).
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
25
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
Peter Richards, Age 53
(B. Comm)
Appointment: Appointed as an Independent Non-Executive Director in June 2010.
Board committee membership: Member of the Audit and Risk Committee.
Skills and experience:
Peter has over 30 years of international business experience with global companies including British Petroleum
(including its mining arm Seltrust Holdings), Wesfarmers Limited and Dyno Nobel Limited. During his time at Dyno
Nobel, he held a number of senior positions with the North American and Asia Pacific business, before being
appointed as Chief Executive Officer of Dyno Nobel Limited in Australia (2005 to 2008).
Chairman of Kangaroo Resources Limited (since 2010).
Chairman of Minbos Resources Limited (since 2010).
Current appointments:
•
•
• Non-Executive Director of Norfolk Group Limited (since 2010).
• Non-Executive Director of Sedgman Limited (since 2010).
• Non-Executive Director of Bradken Limited (since 2009).
• Non-Executive Director of NSL Consolidated Limited (since 2009).
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 Committee are outlined in the table below:
Table 9:
Director
Board Meetings
Audit & Risk Committee
Remuneration
& Nomination Committee
A
10
10
10
10
10
10
6*
Alec Brennan
John Cahill
Keith Gordon
Peter Johnston
Peter Richards
Robert Bishop
Erica Smyth
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
*
Erica Smyth has attended all Board meetings since her appointment in December 2011.
B
5
5
5**
5**
5
5
3**
A
5
5
5**
4**
5
5
3**
B
10
10
10
10
10
10
6
A
3
3
2**
2
2**
2**
2**
B
3
3
3**
3
3**
3**
2**
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
26
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
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 ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations with
2010 Amendments, including those which came into effect on 1 January 2011.
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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
27
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
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).
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 July/August 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 FY12.
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 seven Directors, with six 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 23 to 26 of this report.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
28
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
Status of the Directors
The table below sets out details of the status of each of the current Directors as to whether they are Independent and
Non-Executive, their date of appointment and whether they are seeking election or re-election at the 2012 annual
general meeting of the Company.
Table 10: Status of the Directors
Director
Date of appointment
Independent
Non-executive
Mr Alec Brennan
Mr Keith Gordon
Mr Peter Johnston
Mr John Cahill
Mr Robert Bishop
Mr Peter Richards
Ms Erica Smyth
16-Aug-05
1-Dec-09
1-Sep-06
15-Sep-08
22-Jun-09
14-Jun-10
15-Dec-11
Yes
No
Yes
Yes
Yes
Yes
Yes
Yes
No
Yes
Yes
Yes
Yes
Yes
Seeking election or
re-election at 2012
AGM
No
No
Yes
No
Yes
No
Yes
Mr Brennan, Mr Johnston, Mr Cahill, Mr Bishop, Mr Richards and Ms Smyth 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 the independence of the
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 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.
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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
29
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
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 Johnston and Mr Bishop will seek re-election at the 2012 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, and is eligible
for re-election, at the next annual general meeting following his or her appointment. Having been appointed in
December 2011, Ms Smyth will seek election at the 2012 annual general meeting.
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.
In addition to the above criteria, the Board aims to achieve a mix of skills and diversity in its members. 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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
30
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
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 May 2012 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.
Directors’ questionnaire responses 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.
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 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 to the ASX Principles and ASX
Recommendations.
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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
31
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
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,
and with due consideration of its social, environmental and economic impacts. Further, the Company is committed to
establishing and maintaining mutually beneficial and sustainable relationships with the indigenous communities in
regions where the Company operates.
The Share Trading Policy
The principal objective of the Share Trading Policy is to raise awareness 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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
32
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
Diversity Policy
The Company established a Diversity Policy in March 2011 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 is responsible for assessing and reporting to the Board on the
Company’s progress towards achieving its measurable diversity objectives on an annual basis.
Further details regarding the Company’s progress in implementing its diversity objectives are included in the
Sustainability Report at pages 12 to 21.
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
qualifications of the Audit and Risk Committee members are set out at pages 23 to 26 of this report. 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 FY12, the Committee comprised of four
Independent Non-Executive Directors, all of whom have financial expertise.
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. KPMG has provided an independence declaration to the Board for
FY12. This independence declaration forms part of the Directors’ report and is provided on page 58 of this annual
report.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
33
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
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 Directors’ Report (on page 58 of this annual report).
Details of fees paid to the Company’s auditors for non-audit services are found in Note 9 of the Notes to the Financial
Statements in the Financial Report.
Rotation of lead external audit partner
Mr Rob 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 Independent 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 proactive 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 is
responsible 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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
34
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
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 Independent
Auditor’s Report.
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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
35
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
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 FY12, 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.
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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
36
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
Details regarding membership of the Remuneration and Nomination Committee are set out under Principle 2. During
FY12, the Committee met three times. Each Committee member attended all three meetings, except for Mr Johnston
who attended two 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
FY12 is included in the Directors’ Report on pages 39 to 56.
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 FY12, is set out on pages 9 to 11 and in the
accompanying financial statements.
Dividends paid or to be paid
In relation to FY11 the Directors declared a fully franked final dividend of 3.0 cents per share which was paid on 30
September 2011.
During FY12 the Directors declared a fully franked interim dividend of 2.5 cents per share which was paid on 29 March
2012.
Since the end of FY12, the Directors have declared a fully franked final dividend of 3.5 cents per share to be paid on 28
September 2012.
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
On 20 August 2012, the Board approved an on-market buyback up to a maximum of 5% (31,561,879) of the
Company’s shares over the next 12 months.
There were no other significant events after the balance date other than the declaration of dividend noted above.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
37
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
Likely developments and expected results
Likely developments in, and expected results of, the operations of the Emeco Group are referred to at pages 5 to 11.
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 11: Directors’ Interests
Alec Brennan
Peter Johnston
John Cahill
Robert Bishop
Peter Richards
Erica Smyth
Keith Gordon
Ordinary
shares
1,581,700
100,000
120,000
300,000
40,000
-
650,000
Options or rights
over ordinary
shares
-
-
-
-
-
-
3,017,118*
* This total comprises 925,926 unvested performance rights and 2,091,192 unvested performance shares issued under
the Company’s LTI plan as approved by shareholders.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
38
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
Remuneration report (audited)
Remuneration Report Contents
The report covers the following matters:
1.
2.
3.
4.
5.
6.
7.
Introduction
Remuneration Governance
CEO and Executive Remuneration
Non-Executive Director Remuneration
Details of Remuneration
Details of Share-Based Payments
Service Contracts
1.
Introduction
This report details the Emeco Group’s remuneration objectives, practices and outcomes for key management
personnel (KMP), which includes Directors and senior executives, for the year to 30 June 2012. Any reference to
“executives” in this report refers to KMPs who are not Non-Executive Directors.
1.1
Emeco’s KMPs
The following persons acted as Directors of the Company during or since the end of FY12:
Table 12: Emeco Directors
Non-Executive Directors
Alec Brennan
Robert Bishop
John Cahill
Peter Johnston
Peter Richards
Erica Smyth (appointed as a Non-Executive Director on 15 December 2011)
Executive Director
Keith Gordon, Managing Director & Chief Executive Officer
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
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EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
The following persons were employed as key management personnel during FY12:
Table 13: Emeco Executives
Key Management
Stephen Gobby, Chief Financial Officer
Michael Kirkpatrick, General Manager Corporate Services
Anthony Halls, General Manager Australian Rental
Michael Turner, General Manager Global Asset Management
Chris Mossman, President Director Indonesia
Ian Testrow, President Emeco Americas
David Tilbrook, Executive General Manager South East Asia
(ceased employment with Emeco on 7 October 2011)
Hamish Christie-Johnston, General Manager Emeco Sales
(ceased employment with Emeco on 26 November 2011)
1.2
Summary of changes to the remuneration structure
A comprehensive remuneration structure review was initiated by the Board following the 2011 Annual General
Meeting (AGM) at which a significant vote against the 2011 Remuneration Report was recorded.
The review included extensive stakeholder and shareholder consultation which was completed in March 2012. As a
result of this feedback a number of enhancements have been made to Emeco’s remuneration practices which will
affect the FY13 Long Term Incentive (LTI) grants and subsequent grants to Emeco executives. These changes are
noted in various sections of this report and are summarised in the following table:
Table 14: Summary of changes to executive remuneration structure
Issue
Response
Dividends paid on unvested LTI securities
Commencing with the FY13 LTI grants:
•
•
dividends (or shadow dividends) will not be paid on unvested LTI
securities; and
dividends (or shadow dividends) will accrue on unvested LTI
securities and will only be paid at the time of vesting on those LTI
securities that vest, provided all vesting conditions are met.
Automatic vesting of all LTI securities as a
result of absolute change of control
Commencing with the FY13 LTI grants:
•
•
•
the proportion of vesting LTI securities will be pro-rated to reflect
the performance achieved;
the proportion of vesting LTI securities will be in accordance with
the relevant TSR vesting schedule for each grant; and
the Board retains the discretion to vest a greater amount.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
40
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
In addition to the changes outlined above, a minor change was made to the terms of the FY10 and FY11 LTI grants
made to Mr Ian Testrow and to all other Canadian resident LTI plan participants. The terms of these LTI grants have
been amended to provide for the conversion of vested LTI Performance Rights into shares automatically at vesting.
This is in line with the terms of the FY12 LTI grants made to Canadian resident LTI plan participants. Previously, the
terms of the FY10 and FY11 grants provided that vested Performance Rights could be converted to shares at any time
within two years of vesting at the grantee’s election. The reason for the change relates to the operation of Canadian
income tax laws. This change, which came into effect on 25 June 2012, does not result in any change in the fair value
of the respective LTI grants. As at the date of alteration on 25 June 2012 the fair value of an Emeco share was as
follows: FY09 tranche - 49 cents; FY10 tranche - 56 cents and FY11 tranche - 76 cents.
2.
Remuneration governance
2.1
The role of the Board and the Remuneration and Nomination Committee
The Emeco Holdings Limited Board is committed to implementing executive remuneration structures which achieve a
balance between:
•
•
rewarding executives for the achievement of the Company’s short and long term financial, strategic and safety
goals, and
aligning the interests and expectations of executives, shareholders and other stakeholders.
The Board engages with shareholders, management and other stakeholders as required to continuously refine and
improve executive and director remuneration policies and practices. The refinements to the Company’s executive
remuneration structure outlined in section 1 above are the result of stakeholder feedback and the Board’s
engagement with stakeholders following the 2011 AGM.
The Group’s Remuneration & Nomination Committee is responsible for reviewing and suggesting recommendations to
the Board in relation to:
•
•
•
•
•
•
the general remuneration strategy of the Company;
the terms of remuneration of senior executives of the Company and the outcomes of remuneration reviews;
employee equity plans and the allocations under those plans;
recruitment, retention, performance measurement and termination policies and procedures for all key
management personnel and senior executives reporting directly to the Managing Director;
disclosure of remuneration in the Company’s public materials including ASX filings and the Annual Report; and
retirement payments.
The members of the Remuneration and Nomination Committee are Mr Brennan (Chair), Mr Cahill and Mr Johnston.
2.2
Services from Remuneration Consultants
The Chairman of the Remuneration and Nomination Committee engaged the Hay Group as a remuneration consultant
to the Board to review the amount of fixed remuneration for the President Director of Emeco’s Indonesian business.
The Hay Group provided no other services in respect of KMPs during the year.
The Hay Group was paid $5,000 for its remuneration recommendations in respect of the review of the President
Director. The Hay Group was paid $30,673.50 in total for all other services.
The engagement of the Hay Group was based on a documented set of protocols to be followed by the Hay Group,
members of the Remuneration and Nomination Committee and KMPs for the way in which remuneration
recommendations would be developed by the Hay Group and delivered to the Board.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
41
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
These arrangements were implemented to ensure the Hay Group would be able to carry out its work, including
information capture and the formation of recommendations, free from undue influence by KMPs about whom the
recommendation may relate.
The Board undertook its own enquiries and review of the processes and procedures followed by the Hay Group during
the course of its assignment and is satisfied that its remuneration recommendations were made free from undue
influence. These inquiries included arrangements under which the Hay Group was required to provide the Board with
a summary of the way in which it carried out its work, details of its interaction with KMPs in relation to the assignment
and other services.
3.
CEO and executive remuneration
3.1
Remuneration policy
The Group remuneration policy is substantially reflected in the objectives of the Board’s Remuneration and
Nomination Committee. The Committee’s objectives are summarised in the following table:
Table 15: Summary of Emeco Group remuneration objectives
Objective
Practices aligned with Objective
Remunerate fairly and appropriately
Align executive interests with those of shareholders
Attract, retain and develop proven performers
Maintain balance between the interests of shareholders
and the reward of executives in order to secure the long
term benefits of their energy and loyalty.
Benchmark remuneration structures to ensure alignment
with industry trends.
Provide a significant proportion of remuneration as “at
risk” remuneration to ensure that executive reward is
directly linked to the creation of shareholder value.
Ensure the human resources policies and practices are
consistent and complementary to the strategic direction
of the Company.
Prohibit the hedging of unvested equity to ensure
alignment with shareholder outcomes.
Provide total remuneration which is sufficient to attract
and retain proven and experienced executives who are
capable of:
fulfilling their respective roles with the Group;
achieving the Group’s strategic objectives; and
•
•
• maximising Group earnings and
returns
to
The remuneration structure for Emeco’s executives consists of fixed and variable components. The variable
component ensures that a proportion of pay varies with Company and personal performance.
shareholders.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
42
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
3.2
Fixed remuneration
Fixed remuneration comprises base salary, employer superannuation contributions, other allowances and non-cash
benefits.
The level of remuneration is set to enable Emeco to attract and retain proven performers once they are working
within the business.
Each executive’s fixed remuneration is reviewed and benchmarked annually in September. Fixed remuneration for the
Group ‘s senior executives is set by reference to the fixed remuneration of comparable positions in comparable sized
companies in the mining and mining services sectors. These sectors are considered to be appropriate as they are the
key source of talent for the Company. The Company’s policy is to set the fixed remuneration for each senior executive
positions at or near the 75th percentile of the fixed remuneration for the relevant comparable position in these
sectors.
An executive’s responsibilities, experience, qualifications, performance and geographic location are also taken into
account.
3.3
Variable remuneration
Variable remuneration is performance linked remuneration which consists of STIs and LTIs. Payment for performance
assessed over one year is an STI. See section 3.3.1 for more information.
Payment for performance over a three year period is an LTI and is assessed against the relative Total Shareholder
Return (TSR) of a peer group of companies. See section 3.3.2 for more information.
If maximum performance is achieved, the maximum proportions of remuneration attributable to each incentive
component (as a % of fixed pay) for most executives will be as shown in the following table:
Table 16: Components of variable remuneration
Executive position
Managing Director & CEO
Chief Financial Officer
General Manager Corporate Services
General Manager Australian Rental
General Manager Global Asset Management
President Director Indonesia
President Emeco Americas
Maximum STI % Maximum LTI %
of fixed pay
of fixed pay
Maximum total
performance
based pay as %
of fixed pay
100
50
40
40
40
40
40
75
50
40
40
40
40
40
175
100
80
80
80
80
80
Fixed remuneration comprises base salary, employer superannuation contributions, other allowances and non-cash benefits.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
43
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
3.3.1
STI remuneration
Short term incentives are used to reward the performance of key management personnel over a full financial year.
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). The maximum achievable STI amount payable to an executive is set
as a percentage of fixed remuneration (refer to table 16 above for details).
The STI KPIs are chosen to ensure that important non-financial metrics which are aligned with the long term
sustainability and strategic success of the Company are included along with financial performance indicators.
STI payments are made in cash after the financial year audit is completed and following review and approval by the
Remuneration and Nomination Committee and the Board.
STI key performance indicators
Financial KPIs in the FY12 STI include:
•
•
Budgeted Net Profit after Tax (NPAT)
Budgeted Return on Capital (ROC)
These two financial KPIs have been chosen because they directly link executives’ remuneration outcomes with the
quantity (NPAT) and quality (ROC) of the Company’s financial performance. In the Board’s view, these KPIs align the
reward of executives with the interests of shareholders.
The non-financial KPIs in the FY12 STI include:
•
•
•
Safety – The Board reviews the Company’s safety performance in detail at each board meeting and is striving to
achieve a “zero-harm” workplace at Emeco. Progress towards this aspiration is included in the STI KPIs for
executives. The primary metrics include Total Recordable Injury Frequency rates and the successful
implementation of a range of positive safety initiatives, including the completion of safety audits, the
enhancement of contractor management systems and the establishment of behavioural based safety
programs.
Implementation of business strategy initiatives – Each year, the Board undertakes a planning process to review
and update its business strategy. Progress of implementation of the current 5 year strategy by management is
monitored by the Board and is included in the STI to ensure that an appropriate balance is maintained between
the Company’s short term and long term objectives.
Implementation of people strategy initiatives – The Board and management are of the view that attracting and
retaining the best people is critical to Emeco’s ongoing success. Over the past two years, the Company has
undertaken a cultural transformation and is focused on creating a workplace which is attractive to new and
current employees. As set out in the Sustainability Report section (page 12) of this Annual Report, a
comprehensive continuous improvement plan has been put in place to support the Company’s people strategy
(page 14). The inclusion of these non-financial KPIs in the STI program reflects their importance to Emeco’s
performance.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
44
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
The following table sets out the KPIs for the FY12 STI plan and the weightings attributable to each of them:
Table 17: FY12 STI plan KPI weightings and entitlements
Weighting:
Conditions:
Budgeted
Group Net
Profit After Tax
(NPAT)
Budgeted
Group
Return on
Capital
(ROC)
30% 30%
Safety
(TRIFR)
[A]
Implement
Business
Strategy
Implement
People
Strategy
15%
10% 15%
Assessment of the
Managing Director’s
performance in relation to
these KPIs is made by the
Board; Executives’
entitlement is assessed by
the Managing Director.
No STI entitlement arises in
respect of the NPAT and ROC KPIs
unless at least 90% of the
respective budgeted outcomes
are achieved.
Entitlement to the safety KPI is
foregone if:
• There is a fatality or a serious,
permanently disabling injury.
• 50% entitlement to full
An entitlement to full payment
arises in relation to each of these
KPIs if 110% of the respective
budget outcomes are achieved.
payment in respect of the
safety KPI arises if there is a
20% improvement in TRIFR
during the full financial year,
with no entitlement if the
improvement is below 10%.
• 50% entitlement to full
payment is based on a range of
positive safety initiatives being
successfully implemented.
[A]
Total Recordable Injury Frequency Rate (TRIFR) is calculated as the number of recordable injuries X 1,000,000 hours/the total hours worked
in 12 months
3.3.2 LTI remuneration
Performance Shares and Performance Rights
Emeco has established an equity-based LTI plan that provides for a reward that varies with company performance
over a three year period. The LTI plan applies to Emeco’s senior managers (which includes key management
personnel).
LTI remuneration aligns the interests of Emeco’s senior managers with the long term interests of its shareholders by
providing Emeco’s senior managers with an ongoing incentive to deliver the long term objectives of the Emeco Group.
Payment is in the form of Performance Shares or Performance Rights (LTI securities). 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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
45
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
Changes From Prior Period
Grants under the FY13 plan and all future grants to executives will include the following changes arising from the
remuneration structure review:
•
•
Dividends in respect of Performance Shares and shadow dividends in respect of Performance Rights will
accumulate during the LTI vesting period and will be paid at the end of the vesting period if and only if there is
a vesting and only in respect of vested LTI securities.
If there is an absolute change in control of the Company, LTI securities on issue at the time of the change in
control will automatically vest only if TSR performance hurdles have been met as at the date of the change of
control, with the proportion of vesting LTI securities to be in accordance with the relevant TSR vesting schedule
for each grant, provided that the Board will retain a discretion to vest a greater amount.
In addition to the changes outlined above, a minor change was made to the terms of the FY10 and FY11 LTI grants
made to Mr Ian Testrow and to all other Canadian resident LTI plan participants. The terms of these LTI grants have
been amended to provide for the conversion of vested LTI Performance Rights into shares automatically at vesting.
This is in line with the terms of the FY12 LTI grants made to Canadian resident LTI plan participants. Previously, the
terms of the FY10 and FY11 grants provided that vested Performance Rights could be converted to shares at any time
within two years of vesting at the grantee’s election. The reason for the change relates to the operation of Canadian
income tax laws. This change, which came into effect on 25 June 2012, does not result in any change in the fair value
of the respective LTI grants. As at the date of alteration on 25 June 2012 the fair value of an Emeco share was as
follows: FY09 tranche - 49 cents; FY10 tranche - 56 cents and FY11 tranche - 76 cents.
LTI plan performance condition – relative Total Shareholder Return (TSR)
The performance condition for the vesting of Performance Shares and the exercise of Performance Rights under the
FY12 LTI plan (and the FY11 and FY10 plans) is a performance hurdle based on relative total shareholder return (TSR).
Emeco’s TSR at the end of a 3 year vesting period will be measured against a peer group, which at the time of the FY12
grant, comprised a total of 95 companies (this number may change as a result of takeovers, mergers etc). TSR for
Emeco and each company in the Peer Group is calculated by reference to share price movement, dividends and capital
returns.
Within the peer group of 95 companies is a group of 18 companies that are considered direct peers to Emeco. The
remaining companies are in the S&P/ASX Small Industrials index (excluding banks, insurance companies, property
trusts/companies and investment property trusts/companies and other stapled securities).
Vesting conditions for LTI securities
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:
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
46
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
Table 18: TSR vesting schedule
TSR ranking
50th percentile or below
Above 50th percentile and below 75th percentile
Percent of LTI securities subject to TSR condition that
qualify for vesting
0 percent
50 percent of the LTI securities vest plus an additional 2
percent for every one percent increase in TSR ranking
between the 50th percentile and 75th percentile
75th percentile or above
100 percent
Performance Shares that have not vested after the end of the performance period will be transferred to a nominee of
the Company and held on trust for subsequent re-allocation. Performance Rights which do not become exercisable
will lapse.
Performance Shares which have vested will be transferred into the name of the participant. For executives based
outside Australia, Performance Rights will convert into shares and will be transferred into the name of the participant.
Vesting on involuntary termination
If an executive’s employment is terminated due to death, total and permanent disability, retrenchment or compulsory
retirement then the TSR of the executive’s outstanding unvested LTI securities will be tested at the date of
termination. If the performance condition has been met then the LTI securities will vest based on the TSR
performance. All unvested LTI securities lapse if an executive resigns or is terminated for cause.
Australian based executives
In FY12, 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 executive’s LTI percentage entitlement and the
fair value of the share grant. Performance Shares were granted at no cost to the recipient and at a nil exercise price;
they vest if the performance condition described above is met.
Executives based outside Australia
Emeco participants in the FY12 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.
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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
47
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
3.4
Relationship between Remuneration and Company Performance
Emeco’s remuneration objectives 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 senior executives’ remuneration is “at risk” in the
form of Short Term Incentive (STI) and LTI components. STI entitlements are linked to the achievement of financial
measures of the Company’s profitability and return on capital, and to the achievement of non-financial measures of
operational and strategic outcomes. LTI entitlements are linked to performance relative to a comparator group of
similar companies.
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.
Details of the KPIs for the FY12 STI and LTI plans are set out in the following table:
Table 19: Financial and Non-Financial LTI and STI measures
LTI
STI
Financial
Relative total shareholder return (TSR)
performance
Budgeted Net Profit after Tax (NPAT)
Budgeted Return on Capital (ROC)
Non-financial
-
Safety performance
Implementation of business strategy
initiatives
Implementation of people strategy
initiatives
Further details regarding Emeco’s executive remuneration structure are set out in sections 3.2 and 3.3 of this
Remuneration Report.
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 all executives received a STI payment in line with the improved
performance of the Group and the successful execution of its strategy. In FY12, STI payments to senior executives
decreased from the amounts paid in FY11 principally because the FY12 financial KPI targets were not met to the same
extent as they were in FY11. Details of these KPIs are set out below in section 5.2.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
48
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
Details of the Group’s performance and benefits for shareholder wealth are set out in the following table:
Table 20: Consequences of performance on shareholder wealth
FY12
FY11
FY10
FY09
FY08
Profit/Loss from Continuing Operations ($'m)
Profit/Loss from Discontinued Operations ($'m)
Statutory Profit/Loss ($'m)
Total Dividends declared ($'m)
70.0
(0.2)
69.7
37.9
50.0
(0.4)
49.6
63.1
12.3
(61.6)
(49.3)
12.6
Return on Capital Employed (%)
13.0%
10.3%
(1.1)%
Share Price at 30 June ($)
0.87
1.13
0.58
55.0
(41.8)
13.3
25.3
6.0%
0.41
67.5
-
67.5
28.4
11.0%
1.07
The primary focus of the Company is to increase its Return on Capital (ROC) to levels acceptable to shareholders. The
increase in the Company’s statutory ROC in FY12 from 10.3% to 13.0% is a significant increase and marks the second
successive year of ROC improvements. Statutory Profit/Loss also increased during the year to its highest level in the
previous five reporting periods. The Company improved statutory Profit/Loss by 41% in FY12 to $69.7 million.
As noted above, the STI entitlements of Emeco’s senior executives in 2008, 2009 and 2010 were significantly reduced
in line with the performance of the Company. However, in FY11 and FY12 better Company performance has resulted
in better STI entitlements for Emeco’s senior executives.
The Company’s share price declined significantly in FY09 and FY10 before increasing nearly 100% from 58 cents at
close of trading on 1 July 2010 to $1.13 at close of trading on 30 June 2011. During FY12 the Company’s share price
peaked at $1.18 and ended the financial year at 87 cents. A factor which was a primary cause of the volatility in the
Company’s share price during FY12 was the uncertainty in the global macroeconomic environment.
During FY12 the Company amended its dividend policy to pay shareholders between 40% and 60% of the Company’s
profit, franked to the fullest extent possible. The Company has declared a dividend of three and a half cents per share
for the half year ended 30 June 2012, taking the total dividend in respect of FY12 to six cents per share. The previous
policy was to pay shareholders between 35% and 45% of the Company’s profit. There have been two exceptions in
the last 5 years where this has not been the case. Firstly, no dividend was paid for the half year ended 31 December
2009 in the wake of the global financial crisis and second, the Company paid a special dividend of five cents per share
for the half year ended 31 December 2010.
Furthermore, on 20 August 2012, the Board approved a share buy-back program up to a maximum of 5% of the
Company’s share capital as part of its capital management strategy.
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 ROC. 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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
49
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
4.
Non-Executive Director Remuneration
There has been no change to the basis of setting Non-Executive Director fees since the prior reporting period.
Fees for Non-Executive Directors are fixed and are not linked to the financial performance of the Company. The Board
believes this is necessary for Non-Executive Directors to maintain their independence.
An annual cap of $1,200,000 is currently prescribed in the Company’s constitution as the total aggregate
remuneration available to Non-Executive Directors.
The allocation of fees to Non-Executive Directors within this cap has been determined after consideration of a number
of factors including the time commitment of Directors, the size and scale of the Company’s operations, the skill sets of
Board members, the quantum of fees paid to Non-Executive Directors of comparable companies and participation in
Board Committee work.
The Chairman is entitled to an annual fee of $197,798, inclusive of superannuation contributions. The other Non-
Executive Directors receive an annual base fee of $113,027, inclusive of superannuation contributions. An additional
annual fee of $8,477, inclusive of superannuation, is paid to any Director who is a member of a Board Committee.
This fee is increased to $11,303 for a Director who chairs a Committee.
5.
Details of Remuneration
5.1
Remuneration received in relation to FY12
Details of the elements comprising the remuneration of the Group’s Directors and key management personnel in FY12
are set out in table 21.
The following table does not include the following components of remuneration because they are not provided to key
executives during FY12: 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 21: Directors’ and Executive officers’ remuneration FY12 (Company and Consolidated)
Short-term employee benefits
Post-employment benefits
Share based payments
STI cash
Non-
bonuses [A] monetary
$
$
Super-
annuation
benefits
$
Other
long term
benefits
$
Termina-
tion
benefits
$
LTIP
$
MISP
$
% of remuneration Value of options
as a % of total
remuneration
%
performance
related
%
Total
$
Salary
and Fees
$
197,545
111,089
120,580
110,318
110,318
54,639
Non-Executive Directors
Alec Brennan
Robert Bishop
John Cahill
Peter Johnston
Peter Richards
Erica Smyth [B]
Executive Director
Keith Gordon
TOTAL ALL DIRECTORS
-
-
-
-
-
-
-
-
-
-
-
-
-
-
17,779
9,157
10,430
9,928
9,928
4,917
25,000
87,139
25,000
29,744
24,372
24,294
-
-
11,838
12,579
127,827
884,673
1,589,162
531,140
531,140
Executives
Stephen Gobby
Michael Kirkpatrick
Anthony Halls
Michael Turner
Chris Mossman [C]
Ian Testrow [D]
David Tilbrook [E]
Hamish Christie-Johnston [F]
TOTAL ALL EXECUTIVES
458,739
330,487
360,560
428,129
349,377
332,278
131,538
139,771
2,530,879
143,641
85,573
89,885
107,437
76,084
97,386
-
-
600,006
-
-
-
-
119,204
120,852
-
-
240,056
TOTAL
4,120,041
1,131,146
240,056
214,966
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
26,182
26,182
-
-
-
-
-
-
563,540
563,540
217,934
130,896
124,556
167,719
72,187
147,901
75,285
66,322
1,002,800
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(31,669)
(31,669)
215,324
120,246
131,010
120,246
120,246
59,556
2,004,353
2,770,981
845,314
576,700
599,373
727,579
616,852
698,417
218,661
213,185
4,496,081
26,182
1,566,340
(31,669)
7,267,062
-
-
-
-
-
-
54.6
39.5
42.8
37.5
35.8
37.8
24.0
35.1
34.4
16.3
34.9
36.7
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(14.9)
(0.7)
(0.4)
50
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
Notes:
[A]
[B]
[C]
[D]
[E]
[F]
The amount awarded to each executive under the FY12 STI plan was finally determined on 20 August 2012 after completion of
performance reviews (Refer to table 23).
Ms Smyth was appointed as a Non-Executive Director on 15 December 2011.
Mr Mossman’s remuneration has been converted to Australian dollars on the basis of an AUD/USD exchange rate of 1.0319.
Mr Testrow’s remuneration has been converted to Australian dollars on the basis of an AUD/CAD exchange rate of 1.0342.
Mr Tilbrook ceased employment with Emeco on 7 October 2011.
Mr Christie-Johnston ceased employment with Emeco on 26 November 2011.
Comparative information relating to remuneration of the Group’s key executives for the prior financial year is below.
Table 22: Directors’ and Executive officers’ remuneration FY11 (Company and Consolidated)
Short-term employee benefits
Post-employment benefits
Share based payments
Salary
and Fees
$
STI cash
Non-
bonuses monetary
$
$
Super-
annuation
benefits
$
Other
long term
benefits
$
Termina-
tion
benefits
$
LTIP
$
M ISP
$
% of remuneration Value of options
as a % of total
remuneration
%
performance
related
%
TOTAL
$
191,254
112,355
122,852
106,638
106,190
-
-
-
-
-
-
-
-
-
-
17,213
4,450
11,057
9,597
9,557
860,505
1,499,794
771,847
771,847
665
665
25,000
76,874
440,095
321,059
351,998
358,863
56,108
337,348
473,363
282,616
219,972 (2 )
2,841,422
221,165
132,383
124,593
152,475
8,680
161,737
165,234
111,272
12,936
1,090,475
2,716
744
594
14,632
30,442
68,315
15,208
402
133,053
22,015
25,418
23,144
22,922
26,187
27,252
20,962
167,900
4,341,216
1,862,322
133,718
244,774
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- -
- -
- -
- -
- -
-
-
-
-
-
-
-
299,483 (1)
299,483
-
-
-
-
-
-
-
-
212,500
212,500
206,191
124,462
84,899
163,688
16,394
152,548
188,284
130,602
-
1,067,068
-
-
-
-
-
-
-
-
299
-
-
-
8,160
-
11,524
-
19,983
208,467
116,805
133,909
116,235
115,747
1,957,500
2,648,663
892,182
604,365
585,228
712,580
111,624
728,108
853,068
578,474
466,772
5,532,401
212,500
1,366,551
19,983
8,181,064
-
-
-
-
-
54.7
40.4
47.9
42.5
35.8
44.4
22.5
44.3
41.4
43.8
2.8
39.4
39.7
-
-
-
-
-
-
-
-
0.0
-
-
-
1.1
-
2.0
-
0.4
0.2
The short term incentive bonus includes payments made under the Strategy Incentive Plan and the FY11 STI Plan. The amount awarded to
each 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.
During FY11 Mr Cahill was reimbursed $8,788 in respect of under payments relating to FY10. This adjustment is included in his FY11
remuneration.
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 personnel 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.
Mr Testrow’s remuneration has been converted to Australian dollars on the basis of an AUD/CAD exchange rate of 0.9879.
Mr Gadomsky ceased employment with Emeco on 25 March 2011.
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.
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.
Non-Executive Directors
Alec Brennan
Robert Bishop
John Cahill [B]
Peter Johnston
Peter Richards
Executive Director
Keith Gordon
TOTAL ALL DIRECTORS
Executives
Stephen Gobby
M ichael Kirkpatrick
Anthony Halls
M ichael Turner
Chris M ossman [C]
Ian Testrow [D]
David Tilbrook
Ham ish Christie-Johnston
Guido Gadom sky [E]
TOTAL ALL EXECUTIVES
TOTAL
Notes:
[A]
[B]
[C]
[D]
[E]
(1)
(2)
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
51
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
5.2
FY12 STI grants
The terms of the FY12 STI Plan are discussed at pages 44 to 45.
Details of the vesting profile of the STI cash grants awarded to key executives in respect of FY12 are set out below:
Table 23: Key executive STI vesting information in respect of FY12
Minimum
possible value
of STI bonus
$
Maximum
possible value
of STI bonus
$
Amount of
STI bonus
awarded $
$
% of STI
bonus
awarded [1]
%
% of STI
bonus
forfeited [2]
%
Keith Gordon
Stephen Gobby
Michael Kirkpatrick
Anthony Halls
Michael Turner
Chris Mossman [A]
Ian Testrow [B]
David Tilbrook [C]
Hamish Christie-Johnston [D]
-
919,360
-
244,400
-
145,600
-
155,584
-
182,800
-
139,751
144,500
-
- - -
- - -
531,140
143,641
85,573
89,885
107,437
76,084
97,386
57.8
58.8
58.8
57.8
58.8
54.4
67.4
-
-
42.2
41.2
41.2
42.2
41.2
45.6
32.6
100.0
100.0
Notes:
[1]
Amounts included in remuneration for FY12 represent the amounts that vested in the year based on the achievement of KPIs. No amounts
vest in future financial years in respect of the STI scheme for FY12. All STI grants are made in cash. All grants were approved on 20 August
2012.
Amounts forfeited are due to the KPIs not being met in relation to FY12.
[2]
[A] Mr Mossman’s remuneration has been converted to Australian dollars on the basis of an AUD/USD exchange rate of 1.0319.
[B] Mr Testrow’s remuneration has been converted to Australian dollars on the basis of an AUD/CAD exchange rate of 1.0342.
[C] Mr Tilbrook ceased employment with Emeco on 7 October 2011. He was not eligible for an STI grant in FY12.
[D] Mr Christie-Johnston ceased employment with Emeco on 26 November 2011. He was not eligible for an STI grant in FY12.
6.
Details of Share-Based Payments
6.1
Equity instruments
6.1.1 LTI grants
The terms of the LTI Plan are discussed at pages 45 to 47.
Grants of Performance Shares made to key management personnel under the Company’s LTI Plan in FY11 and FY12
are set out in the following table.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
52
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
Table 24: LTI Performance Share and Performance Right grants to key executives
Grant
Date
Equity
instrument
Number
granted
Maximum
value
$
% vested
in year
% forfeited
in year
Vesting
Date (1)
Keith Gordon
Stephen Gobby
Michael Kirkpatrick
Anthony Halls
Michael Turner
Chris Mossman
Ian Testrow
David Tilbrook [A]
Hamish Christie-Johnston [B]
19-Apr-10
19-Nov-10
18-Nov-11
16-Dec-08
19-Apr-10
19-Nov-10
18-Nov-11
16-Dec-08
19-Apr-10
19-Nov-10
18-Nov-11
16-Dec-08
19-Apr-10
19-Nov-10
18-Nov-11
16-Dec-08
19-Apr-10
19-Nov-10
18-Nov-11
16-Dec-08
19-Apr-10
19-Nov-10
23-Dec-11
16-Dec-08
19-Apr-10
19-Nov-10
18-Nov-11
16-Dec-08
19-Apr-10
19-Nov-10
16-Dec-08
19-Apr-10
19-Nov-10
Rights
Shares
Shares
Shares
Rights
Shares
Shares
Shares
Rights
Shares
Shares
Shares
Rights
Shares
Shares
Shares
Rights
Shares
Shares
Shares
Rights
Rights
Rights
Shares
Rights
Rights
Rights
Shares
Rights
Shares
Shares
Rights
Shares
925,926
1,183,929
907,263
731,982
300,926
419,643
321,579
450,450
185,185
250,000
191,579
162,162
166,667
267,143
204,716
585,586
240,741
314,286
240,526
171,667
70,574
107,012
192,093
540,541
239,077
269,393
189,000
684,685
281,481
355,029
495,495
203,704
265,000
-
456,131
-
663,000
-
689,520
100.0
202,481
-
148,243
-
235,000
-
244,400
100.0
124,603
-
91,226
-
140,000
-
145,600
100.0
44,857
-
82,104
-
149,600
-
155,584
100.0
161,985
-
118,594
-
176,000
-
182,800
100.0
47,486
-
34,766
-
59,927
-
145,991
100.0
149,524
-
117,775
-
150,860
-
143,640
189,397
100.0
138,664 67.3
36.0
198,816
100.0
137,064
100,349 71.8
40.5
148,400
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
32.7
64.0
-
28.2
59.5
Sep-12
Sep-13
Sep-14
Sep-11
Sep-12
Sep-13
Sep-14
Sep-11
Sep-12
Sep-13
Sep-14
Sep-11
Sep-12
Sep-13
Sep-14
Sep-11
Sep-12
Sep-13
Sep-14
Sep-11
Sep-12
Sep-13
Sep-14
Sep-11
Sep-12
Sep-13
Sep-14
Sep-11
07-Oct-11
07-Oct-11
Sep-11
26-Nov-11
26-Nov-11
Notes:
(1)
[A]
[B]
The fair value of the LTI securities 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 (table 21) is
the portion of the fair value of the performance shares recognised in this reporting period over the vesting period.
The fair value of each share or right at the grant date is as follows 16-Dec-08 $0.28; 19-Apr-10 $0.49; 19-Nov-10 $0.56 and 23-Dec-11
$0.76.
For LTI Securities granted in FY10 the earliest vesting date is 30 September 2012. For LTI Securities granted in FY11 and FY12 the earliest
vesting date is the tenth trading day after the announcement of the Company’s annual results in FY14 and FY15 respectively.
The minimum value of each LTI tranche is zero.
Mr Tilbrook ceased employment with Emeco on 7 October 2011. The LTI Securities which vested in FY12 for Mr Tilbrook include a portion
of LTI Securities comprising 317,247 LTI Securities issued under the FY10 and FY11 LTI plans which were subject to TSR testing as at the
date of the termination of his employment and which, in accordance with the terms of grant, vested on a pro rata basis as a result of
having satisfied the TSR performance condition.
Mr Christie-Johnston ceased employment with Emeco on 26 November 2011. The LTI Securities which vested in FY12 for Mr Christie-
Johnston include a portion of LTI Securities comprising 253,627 LTI Securities issued under the FY10 and FY11 LTI plans which were subject
to TSR testing as at the date of the termination of his employment and which, in accordance with the terms of grant, vested on a pro rata
basis as a result of having satisfied the TSR performance condition.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
53
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
6.1.2 Management Incentive Share Plan (MISP)
Emeco established a Management Incentive Share Plan (MISP) in 2005. The MISP was closed in 2008 at which time the
last allocation of shares was made to a KMP. Details on the MISP are set out below.
MISP Conditions
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.
2012 MISP entitlements
The last allocation of shares to key management personnel under the MISP was made to Mr Christie-Johnston in
March 2008.
During FY12, the Company recognised share based payments to Messrs Christie-Johnston and Testrow (MISP
Participants) under the Company’s Management Incentive Share Plan (MISP) as set out below:
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
54
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
Table 25: MISP grants to key executives
Number of shares issued under the MISP
Issue price of the M ISP shares
Date of grant
Amount of Company loan in respect of M ISP shares
outstanding at reporting date
Highest amount of indebtedness during the period
Fair value recognised as remuneration during the year
Hamish
Christie-Johnston [A]
500,000
$0.74
Ian
Testrow
300,000
$1.16
14-M ar-08
12-Jun-06
-
$292,500
($31,669)
$267,000
$310,500
-
[A]
Mr Hamish Christie-Johnston terminated his employment with Emeco on 26 November 2011.
6.1.3 Emeco Employee Share Ownership Plan
Emeco’s Employee Share Ownership Plan (ESOP) is an elective plan which is open to all Australian employees. During
FY12 several senior Emeco executives participated in the ESOP including KMPs. Details of the shares purchased on
their behalf and of the matching shares allocated to them under the ESOP are set out below:
Table 26: ESOP shares purchased and acquired by key executives
Stephen Gobby
Anthony Halls
Michael Turner
Hamish Christie-Johnston [A]
Shares purchased
#
4,987
4,987
4,987
2,076
Matching Shares
Granted
#
992
992
992
-
[A]
Mr Hamish Christie-Johnston terminated his employment with Emeco on 26 November 2011.
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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
55
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2012
7.
Service contracts
Chief Executive Officer – Mr 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 months’ base salary in lieu of notice.
Chief Financial Officer - Mr 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 on a pro-rata basis.
Other Executives
Except as outlined above, each of the key executives named in table 13 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.
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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
56
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2012
Note
2012
$'000
2011
$'000
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
EBITDA (1)
Depreciation expense
Amortisation expense
EBIT (2)
Financial income
Financial costs
Profit before income tax expense
Tax expense
Profit from continuing operations
Discontinued operations
Loss from discontinued operations
(net of tax) before equity transfers
FCTR of discontinued operations disposed (3)
Loss on sale of discontinued operations (net of tax)
Loss from discontinued operations
Profit 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 other comprehensive income/(loss) for the year
7
8
8
8
8
8
8
10
14
14
14
440,299
66,689
58,182
565,170
(68,887)
(155,101)
(47,937)
(3,231)
290,014
3,900
(31,920)
(1,487)
260,507
(135,470)
(217)
124,820
361
(24,775)
100,406
(30,434)
69,972
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
(71)
(156)
-
(227)
(434)
420
(351)
(365)
69,745
49,609
3,252
156
(54)
3,354
(16,978)
420
3,259
(13,299)
Total comprehensive income for the year
73,099
36,310
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 64 to 142.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
59
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Consolidated statement of comprehensive income (continued)
For the year ended 30 June 2012
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
2012
$'000
2011
$'000
73,099
36,310
Note
2012
Cents
2011
Cents
36
36
36
11.4
11.2
11.5
11.2
5.1
7.9
8.2
7.9
(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 64 to 142.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
60
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Consolidated Statement of Financial Position
as at 30th June 2012
Current Assets
Cash assets
Trade and other receivables
Derivatives
Inventories
Prepayments
Current tax asset
Assets held for sale
Total current assets
Non-current assets
Trade and other receivables
Derivatives
Intangible assets and goodwill
Property, plant and equipment
Deferred tax assets
Total non-current assets
Total assets
Current Liabilities
Trade and other payables
Derivatives
Interest bearing liabilities
Current tax liabilities
Provisions
Total current liabilities
Non-current Liabilities
Derivatives
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
2012
$'000
2011
$'000
17
18
19
20
11
15
18
19
21
22
12
23
19
24
11
26
19
24
12
26
13
73,091
99,009
776
35,114
3,180
563
405
212,138
1,057
3,643
173,948
825,220
110
1,003,978
5,502
82,966
285
48,569
2,313
427
8,728
148,790
581
-
173,248
658,533
-
832,362
1,216,116
981,152
64,296
2,239
3,339
14,100
3,966
87,940
3,369
452,270
31,106
1,044
487,789
42,694
3,543
3,308
6,790
5,117
61,452
2,160
290,495
23,943
868
317,466
575,729
378,918
640,387
602,234
610,424
(29,456)
59,419
640,387
610,304
(32,462)
24,392
602,234
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 64 to 142.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
61
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Consolidated Statement of Changes in Equity
For the year ended 30 June 2012
Share
based
Foreign
currency
Reserve
Share
capital
$'000
payment
Hedging
translation
for own
Retained
reserve
reserve
reserve
$'000
$'000
$'000
shares
$'000
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
-
-
-
-
-
-
(1)
220
506
726
610,304
-
-
-
-
-
-
-
3,734
3,734
6,462
Share
based
49,609
49,609
-
-
-
-
(16,978)
420
3,259
3,259
-
(16,558)
-
-
-
-
-
-
-
-
49,609
-
-
-
-
-
-
-
-
(4,468)
-
-
-
(56,811)
-
(4,468)
(56,811)
(3,987)
(24,222)
(10,715)
24,392
Foreign
currency
Reserve
(16,978)
420
3,259
36,310
(4,468)
(56,591)
4,240
(56,819)
602,234
Share
capital
$'000
payment
Hedging
translation
for own
Retained
reserve
reserve
reserve
$'000
$'000
$'000
shares
$'000
earnings
$'000
Total
equity
$'000
Balance at 1 July 2011
610,304
6,462
(3,987)
(24,222)
(10,715)
24,392
602,234
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 2012
-
-
-
-
-
-
(1)
98
22
120
610,424
-
-
-
-
-
-
-
2,693
2,693
9,155
-
-
-
(54)
(54)
-
-
-
-
-
3,252
156
-
3,408
-
-
-
-
(3,042)
-
-
-
(3,042)
(34,718)
-
(34,718)
59,419
(3,041)
(34,620)
2,715
(34,946)
640,387
(4,041)
(20,814)
(13,757)
-
-
-
-
-
69,745
69,745
-
-
-
3,252
156
(54)
69,745
73,099
(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 64 to 142.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
62
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Consolidated statement of Cash Flows
For the year ended 30 June 2012
Note
2012
$'000
2011
$'000
Cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers and employees
Cash generated from operations
Interest received
Interest paid
Taxes paid
Net cash from 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
Proceeds from issue of notes (USPP US$140m)
Purchase of own shares
Payment for debt establishment costs
Payment of finance lease liabilities
Dividends paid
Net cash from/(used in) financing activities
Net increase/(decrease) in cash
Cash at 1 July
Effects of exchange rate fluctuations on cash held
Cash at 30 June
31(ii)
14
24
31(i)
544,227
(277,481)
266,746
361
(22,857)
(13,783)
230,467
35,191
(317,008)
-
(281,817)
181,302
(162,195)
144,022
(3,042)
(1,849)
(4,562)
(34,718)
118,958
67,608
5,502
(19)
73,091
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
The consolidated statement of cash flows is to be read in conjunction with the notes to the financial statements set
out on pages 64 to 142.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
63
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
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 2012 comprise the Company and its subsidiaries (together
referred to as the “Group”). The Group is a for profit entity and primarily involved in the renting, maintaining and
selling of heavy earthmoving equipment to customers in the mining industry (refer note 16).
2 Basis of preparation
(a)
(b)
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 20 August
2012.
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:
(cid:1)
(cid:1)
The methods used to measure fair values are discussed further in note 5.
derivative financial instruments are measured at fair value
financial instruments at fair value through profit or loss are measured at fair value
(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 21.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
64
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
2 Basis of preparation (continued)
(d)
Use of estimates and judgements (continued)
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 12.
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 27.
(e)
Changes in accounting policies
From 1 July 2011 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)
(i)
(ii)
(b)
(i)
Basis of consolidation
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.
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.
Foreign currency
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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
65
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
3 Significant accounting policies (continued)
(b)
(ii)
Foreign currency (continued)
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.
(c)
(i)
Financial instruments
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 from the acquisition date that are subject to an insignificant risk of changes in their fair
value, and are used by the Group in the management of its short term commitments.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
66
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
3 Significant accounting policies (continued)
(c)
(ii)
Financial instruments (continued)
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.
The Group classifies non-derivative financial liabilities into the other financial liabilities category. Such
financial liabilities are recognised initially at fair value less any directly attributable transaction costs.
Subsequent to initial recognition, these financial liabilities are measured at amortised costs using the
effective interest rate method unless the Group has applied fair value hedge accounting, in which case the
non-derivative financial liability or a portion is recognised at fair value in profit or loss.
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.
Derivatives are recognized initially at fair value; attributable transaction costs are recognized in profit or
loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value and changes
therein are accounted for as described below.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
67
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
3 Significant accounting policies (continued)
Financial instruments (continued)
(c)
(iii) Derivative financial instruments, including hedge accounting (continued)
Fair value hedges
The risk being hedged in a fair value hedge is a change in the fair value of an asset or liability or
unrecognised firm commitment that may affect the income statement. Changes in fair value might arise
through changes in interest rates or foreign exchange rates. The Group’s fair value hedges principally
consist of interest rate swaps that are used to protect against changes in the fair value of fixed-rate long-
term financial instruments due to movements in market interest rates. The application of fair value hedge
accounting results in the fair value adjustment on the hedged item attributable to the hedged risk being
recognised in the income statement at the same time the hedging instrument impacts the income
statement. If a hedging relationship is terminated, the fair value adjustment to the hedged item continues
to be recognised as part of the carrying amount of the item or group of items and is amortised to the
income statement as a part of the effective yield over the period to maturity. Where the hedged item is
derecognised from the Group’s balance sheet, the fair value adjustment is included in the income
statement as a part of the gain or loss on disposal.
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.
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.
(iv) Share capital
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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
68
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
3 Significant accounting policies (continued)
(d)
(i)
Property, plant and equipment
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 following:
•
•
the cost of materials and direct labour,
any other costs directly attributable to bringing the assets to a working condition for their intended
use,
• when the Group has an obligation to remove the assets or restore the site, and estimate of the costs of
dismantling and removing the items and restoring the site on which they are located, and
capitalised borrowing costs.
•
Cost also may include transfers from equity of any gain or loss on qualifying cash flow hedges of foreign
currency purchases of property, plant and equipment. 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.
Any gain or loss on disposal of an item of property, plant and equipment (calculated as the difference
between the net proceeds from disposal and the carrying amount of the item) is recognised in profit or
loss.
(ii)
Subsequent costs
Subsequent expenditure is capitalised only when it is probable that the future economic benefits
associated with the expenditure will flow to the Group. 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 and on-going repairs and maintenance are expensed as incurred.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
69
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
3 Significant accounting policies (continued)
Property, plant and equipment (continued)
(d)
(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)
(i)
Intangible assets and goodwill
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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
70
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
3
Significant accounting policies (continued)
Intangible assets and goodwill (continued)
(e)
(iii) Amortisation
Except for goodwill, intangible assets are amortised on a straight line basis in profit or loss over their
estimated useful lives, from the date they are available for use.
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:
(cid:1)
Software
0 – 3 years
(f)
(g)
Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if
appropriate.
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.
Inventories
Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on
the first-in first-out principle, and includes expenditure incurred in acquiring the inventories and 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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
71
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
3 Significant accounting policies (continued)
(i)
(i)
Impairment
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 there is
objective evidence of impairment as a result of one or more events that occurred after the initial
recognition of the asset, and that the loss events had an impact on the estimated future cash flows of that
asset that can be estimated reliably.
Objective evidence that financial assets are impaired includes 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 financial assets measured at amortised cost (loans and
receivables) at both a specific asset and collective level. All individually significant assets are assessed for
specific impairment. All individually significant assets are assessed for specific impairment.
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 an event occurring after the impairment loss was recognised causes the amount of
impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.
(ii) Non-financial assets
The carrying amounts of the Group’s non-financial assets, excluding inventories and deferred tax assets,
are reviewed at each reporting date to determine whether there is any indication of impairment. If any
such indication exists, then the asset’s recoverable amount is estimated. Goodwill and indefinite life
intangible assets are tested annually for impairment. An impairment loss is recognised if the carrying
amount of an asset or its related cash generating unit (CGU) exceeds its 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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
72
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
3 Significant accounting policies (continued)
Impairment (continued)
(i)
(ii) Non-financial assets (continued)
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. For other assets, 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 2012 as part of the Group’s process of annually
testing goodwill for impairment.
(j)
Assets held for sale or distribution
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 and investment property 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.
Once classified as held for sale or distribution, intangible assets and property, plant and equipment are no
longer amortised or depreciated.
(k)
(i)
Employee benefits
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.
(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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
73
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
3 Significant accounting policies (continued)
Employee benefits (continued)
(k)
(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)
(c)
increase
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
in equity, over the period during which the employees become
corresponding
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. The share option programme concluded on 4 August
2011.
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 95 Companies (this
number may change as a result of takeovers, mergers etc) and includes 18 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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
74
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
3 Significant accounting policies (continued)
(k)
(v)
Employee benefits (continued)
Share based payment transactions (continued)
(d)
In FY11 an employee share ownership plan (ESOP) was established to allow certain employees to
acquire shares in the Company via salary sacrifice up to a limit of $5,000 each year. 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.
(e)
Dividends received while satisfying the performance conditions of share issues under the MISP are
allocated against the employee outstanding loan. For all previous LTIP and ESOP plans, all LTIP and
ESOP recipients are entitled to any dividends that are declared during the vesting period. For the
Group’s Executives, commencing with the FY13 grant and all subsequent grants, dividends or
shadow dividends will not be paid on any unvested securities and dividends or shadow dividends will
accrue on unvested LTI securities and will only be paid at the time of vesting on those LTI securities
that vest, provided all vesting conditions are met.
(l)
(i)
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.
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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
75
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
3 Significant accounting policies (continued)
(n)
Leases
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.
(p)
Tax
Tax expense comprises current and deferred tax. Current tax 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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
76
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
3 Significant accounting policies (continued)
(p)
Tax (continued)
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
Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be
classified as held for sale or distribution, 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)
Segment reporting
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.
4 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 2011, 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 2016 consolidated financial
statements and could change the classification and measurement of financial assets. The Group does not
currently intend to adopt this standard early and the extent of the impact has not been determined.
5 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. When 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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
77
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
5 Determination of fair values (continued)
(ii)
(iii)
(iv)
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.
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.
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. Where
this fair value is determined for disclosure purposes or when acquired in a business combination, the
market rate of interest is that at the date of acquisition.
(v)
Forward exchange contracts and interest rate swaps
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 credit adjusted 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. Fair values reflect the credit risk of the instrument and include adjustments to take account of the
credit risk of the Group entity and counterparty when appropriate.
(vi) Other 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.
(viii) Equity and debt securities
The fair value of equity and debt securities is determined by reference to their quoted closing bid price at
the reporting date, or if unquoted determined using a valuation technique. Valuation techniques employed
include market multiples and discounted cash flow analysis using expected future cash flows and a market
related discount rate. The fair value of held to maturity investments is determined for disclosure purposes
only.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
78
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
6 Financial instruments
Overview
The Group has exposure to the following risks from their use of financial instruments:
(cid:1)
credit risk
(cid:1)
liquidity risk
(cid:1) 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.
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 the Internal Audit function. 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 recievables
Cash and cash equivalents
Derivatives
Consolidated
Carrying amount
2012
$'000
2011
$'000
91,695
9,403
73,091
4,419
178,608
87,963
7,168
5,502
285
100,918
Note
18
18
17
19
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
79
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
6 Financial instruments (continued)
Credit risk (continued)
Trade and other receivables
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 are
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 creditworthiness 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.
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 (2011: $750
million). The Australian business held insurance for the entire financial year ended 30 June 2012. The Indonesian
business established insurance on its receivables in November 2011. The Canadian business does not have credit
risk insurance.
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
2012 the Group had impairment for doubtful debts of $2.1 million (2011: $12.2 million). The decrease in the
impairment of doubtful debts was largely due to reversal upon recognition of a bad debt relating to one customer
in the Indonesian business that was provided for in FY11 amounting to $9.8 million (pre-tax).
As at 30 June 2012 the Group recognised bad debt write-offs for a total amount of $11.1 million (2011: $1.7
million) of which $10.9 million related to two customers in the Indonesian business that were fully provided for as
doubtful debts at 30 June 2011.
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 $73.1 million at 30 June 2012 (2011: $5.5 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 also held interest rate swaps and cross currency interest rate swaps of $1.8 million and $2.5 million
respectively at 30 June 2012, which represents its maximum credit exposure on these assets. The interest rate
swaps and cross currency interest rate swaps are held with bank and financial institution counter parties which
are rated greater than A-.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
80
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
6 Financial instruments (continued)
Credit risk (continued)
Trade and other receivables (continued)
The Group’s maximum exposure to credit risk for trade receivables at the reporting date by geographic region
was:
Australia
Asia
North America
Consolidated
Carrying amount
2012
$'000
2011
$'000
55,281
18,814
17,600
91,695
57,609
22,049
8,305
87,963
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
The aging of the Group’s trade receivables at the reporting date was:
Consolidated
Carrying amount
2012
$'000
2011
$'000
47,962
36,552
2
7,179
91,695
41,137
17,176
2,810
26,840
87,963
Not past due
Past due 0-30 days
Past due 31-60 days
Past due 61 days
Consolidated
Gross
2012
$'000
Impairment
2012
$'000
Consolidated
Gross
2011
$'000
2011
$'000
35,614
39,491
5,896
10,694
91,695
(22)
(155)
(101)
(1,811)
(2,089)
42,385
21,196
6,707
17,675
87,963
(444)
(46)
(565)
(11,110)
(12,165)
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
81
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
6 Financial instruments (continued)
Credit risk (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
Change in provsion for doubtful debts
Balance at 30 June
Consolidated
2012
$'000
2011
$'000
12,165
(11,083)
1,007
2,089
6,652
(1,664)
7,177
12,165
Collateral
Collateral is held for customers that are assessed to be a higher risk. At 30 June 2012 the Group held $2.8 million
of bank guarantees (2011: $2.7 million) and $0.1 million of prepayments (2011: $0.1 million).
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 2012 $122,500
guarantees were outstanding (2011: $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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
82
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
6 Financial instruments (continued)
Liquidity risk (continued)
The Group’s syndicated senior debt facility (debt 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
debt facility also comprises of one year $22.1 million (2011: $26.9 million) working capital facility. The debt facility
is a revolver. At year end the undrawn portion of the debt facilities was $169.9 million (2011: $198.9 million). The
Group recently issued secured fixed interest notes in the United States Private Placement market (USPP)
comprising US$140.0 million of which US$40.0 million matures on 22 May 2019 and US$100.0 million which
matures 22 May 2022. These notes will remain fully drawn until maturity (refer note 24). The Group also has
finance lease facilities totalling $15.7 million which matures on 15 August 2015.
The following are the contractual maturities of financial liabilities, including estimated interest payments and
excluding the impact of netting agreements.
Consolidated
30 June 2012
Non-derivative financial
liabilities
Secured bank loans
Secured notes issue
Finance lease liabilities
Trade and other payables
Derivative financial
liabilities
Interest rate swaps used
for hedging asset/(liability)
Interest rate swaps used
for hedging asset/(liability)
Cross-currency interest rate swaps
used for hedging asset/(liability)
Forward exchange
contracts used for hedging:
Outflow
Inflow
Carrying
amount
$'000
Contract-
ual cash 6 mths or
flows
$'000
less
$'000
6-12 mths 1-2 years
$'000
$'000
2-5 years
$'000
More than
5 years
$'000
(299,920)
(139,992)
(15,697)
(64,296)
(519,905)
(324,327)
(201,990)
(18,058)
(64,296)
(608,671)
(6,372)
(3,491)
(2,181)
(64,296)
(76,340)
(6,372)
(3,491)
(2,181)
-
(12,044)
(249,059)
(6,982)
(4,362)
-
(260,403)
(62,524)
(20,946)
(9,334)
(92,804)
-
(167,080)
-
-
(167,080)
(5,608)
(5,725)
(1,902)
(1,998)
(1,589)
(236)
-
1,801
1,803
2,519
10,436
303
511
327
375
612
1,340
(779)
821
3,694
5,035
106
(7)
(1,189)
(6,339)
6,241
6,416
(6,339)
6,241
(1,186)
-
-
(1,296)
-
-
(156)
-
-
4,798
-
-
4,256
It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at
significantly different amounts.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
83
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
6 Financial instruments (continued)
Liquidity risk (continued)
Consolidated
30 June 2011
Non-derivative financial
liabilities
Secured bank loans
Finance lease liabilities
Trade and other payables
Derivative financial
liabilities
Interest rate swaps used
for hedging asset/(liability)
Forward exchange
contracts used for hedging:
Outflow
Inflow
Carrying
amount
$'000
Contract-
ual cash 6 mths or
flows
$'000
less
$'000
6-12 mths 1-2 years
$'000
$'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)
-
-
-
-
-
-
-
-
The gross inflows/(outflows) disclosed in the previous table represent the contractual undiscounted cash flows
relating to derivative financial liabilities held for risk management purposes and which are usually not closed out
prior to contractual maturity. The disclosure shows net cash flow amounts for derivatives that are net cash
settled and gross cash inflow and outflow amounts for derivatives that have simultaneous gross cash settlement,
e.g. forward exchange contracts.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
84
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
6 Financial instruments (continued)
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity
prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market
risk management is to manage and control market risk exposures within acceptable parameters, while optimising
the return.
The Group enters into derivatives, and also incurs financial liabilities, in order to manage market risks. All such
transactions are carried out within the guidelines set by the Group’s hedging policy. Generally the Group seeks to
apply hedge accounting in order to manage volatility in profit or loss.
Currency risk
The Group is exposed to currency risk on 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) and Canadian Dollars (CAD). The currencies in which these transactions
primarily are denominated are AUD, USD, CAD, Euro dollars (EURO), Indonesian Rupiah (IDR), Chilean Peso (PSO)
and Japanese Yen (YEN).
The Group hedges all trade receivables and trade payables that are denominated in a currency that is not the
functional currency of the respective subsidiary exposed to the transaction, and is an amount 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 from the syndicated debt facility is denominated in currencies that match the cash flows
generated by the underlying operations of the Group, primarily AUD, but also USD and CAD. 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 currency exposure denominated on the senior debt facility is not hedged to manage the risk
of breaching its syndicated debt facility limit of $450.0 million as the Group considers there to be appropriate
headroom for any adverse movement in exchange rates (refer note 25).
In May 2012 the Group issued US$140.0 million of notes in the USPP market of which US$20.0 million and
US$30.0 million of the 7 and 10 year maturities, respectively, were swapped back to AUD through the use of cross
currency interest rate swaps. As derivatives have been entered into, hedge accounting will apply to these
instruments. The remainder of the USD foreign exchange exposure at 30 June 2012 is expected to be offset by
financial assets denominated in the same currency providing an economic hedge without derivatives being
entered into. In addition, some of the Group’s subsidiaries operate in USD which further mitigates the USD
foreign currency exposure.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
85
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
6 Financial instruments (continued)
Market risk (continued)
Exposure to currency risk
The Group’s exposure to foreign currency risk at balance date was as follows, based on notional amounts:
30 June 2012
USD
$'000
YEN
$'000
AUD
$'000
30 June 2011
USD
$'000
EUR
$'000
CAD
$'000
Cash
Senior secured debt
Secured notes issued
Gross balance sheet exposure
Cross currency interest rate
swap to hedge the secured
notes issued
Forecast purchases
Forward exchange contracts (1)
Net exposure
-
-
-
-
-
-
-
-
44,212
-
(94,336)
(50,124)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
49,155
(4,471)
4,389
-
(1,108)
1,091
-
(731)
723
-
(7,276)
7,144
-
762
(759)
(1,051)
(17)
(8)
(132)
3
(1) Forecast purchases for which the forward exchange contracts were entered into are disclosed.
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
YEN
Average rate
2011
2012
Reporting date spot rate
2012
2011
1.0342
1.0319
0.7704
9,231
81.12
0.9879
0.9872
0.7239
8,731
81.63
1.0423
1.0172
0.8084
9,545
80.34
1.0367
1.0724
0.7401
9,198
86.19
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
86
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
6 Financial instruments (continued)
Market risk (continued)
Sensitivity analysis
A strengthening of the Australian dollar, as indicated below, against the following currencies at 30 June 2012
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 2011, as indicated below:
Consolidated
Strengthening
Equity
$'000
Profit or loss
$'000
Weakening
Equity
$'000
Profit or loss
$'000
(2,398)
-
-
(90)
-
180
(557)
(45)
(136)
(294)
-
-
-
-
2,398
-
-
(557)
45
136
294
90
-
(180)
-
-
-
-
30 June 2012
USD (10 percent movement)
YEN (10 percent movement)
CAD (10 percent movement)
30 June 2011
USD (10 percent movement)
EURO (10 percent movement)
YEN (10 percent movement)
CAD (10 percent movement)
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
87
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
6 Financial instruments (continued)
Market risk (continued)
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 achieved by entering into interest rate swaps and the issue of fixed interest notes.
Profile
At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was:
Variable rate instruments:
Cash at bank
Interest bearing liabilities
Effective interest rate swaps to hedge interest rate risk
Australian dollar (USPP US$50m)
US dollar (USPP US$40m)
Australian dollars (A$80M)
Canadian dollars C$120M (2011: C$80M) (1)
United States dollars USD$15M (2011: USD$15M)
Fixed rate instruments:
Interest bearing liabilities (notes)
Interest bearing finance leases
Consolidated
2012
$'000
2011
$'000
73,091
(299,920)
5,502
(278,000)
2,519
1,801
(2,607)
(2,827)
(174)
(228,117)
(141,807)
(15,697)
(157,504)
-
-
(924)
(4,622)
(435)
(278,479)
-
(19,005)
(19,005)
Note
17
24
24
(1)
Includes C$40M forward start swaps.
The Group classifies its debt related derivatives into three categories being floating-to-fixed interest rate swaps,
fixed-to-floating interest rate swaps and cross currency interest rate swaps.
Cash flow hedges and fair value hedges
The floating-to-fixed interest rate swaps (hedging instrument) are designated as cash flow hedges through equity.
Therefore a change in interest rates at the reporting date would not affect profit or loss to the extent they are
effective hedges. The interest rate swaps are designated to hedge the exposure to variability in cash flows
attributed to market interest rate risk.
The fixed-to-floating interest rate swaps (hedging instrument) are accounted for as fair value hedges. Therefore a
change in interest rates at the reporting date affects profit or loss. The interest rate swaps are designated to
hedge the exposure to liquidity risk through the benchmark interest rate.
The cross currency interest rate swaps (hedging instrument) are accounted for as both cash flow hedges and fair
value hedges. The cross currency interest rate swaps are designated to hedge the exposure to variability in
foreign exchange rates and exposure to liquidity risk through the benchmark interest rate.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
88
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
6 Financial instruments (continued)
Market risk (continued)
Fair value sensitivity analysis for fixed rate instruments
The Group accounts for certain fixed rate financial liabilities at fair value through profit or loss, and the Group
designates 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 affect profit or loss and not equity on these
instruments.
A change of 100 basis points in interest rates at the reporting date would have increased (decreased) profit or loss
by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates,
remain constant.
Fair Value Hedges
30 June 2012
Fixed rate instruments (USPP)
Interest rate swap
Cash flow sensitivity (net)
30 June 2011
Fixed rate instruments
Interest rate swap
Cash flow sensitivity (net)
Profit or loss
100bp
increase
$'000
100bp
decrease
$'000
Equity
100bp
increase
$'000
100bp
decrease
$'000
7,996
(7,996)
-
(7,996)
7,996
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
89
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
6 Financial instruments (continued)
Market risk (continued)
Detailed below is the profit and loss impact of fair value hedges during the year.
Profit or loss
2012
($'000)
2011
($'000)
Financial Instrument
Floating to Fixed
- Swap
- Hedged Item (debt)
Fixed to Floating
- Swap
- Hedged item (debt)
Cross currency interest rate swap
- Swap
- Hedged item (debt)
Net Profit and loss impact before tax
-
-
1,801
(1,875)
2,519
(2,299)
146
-
-
-
-
-
-
-
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 2011.
Cash Flow Hedges
$'000
$'000
$'000
$'000
Profit or loss
100bp
increase
100bp
decrease
Equity
100bp
increase
100bp
decrease
30 June 2012
Variable rate instruments
Interest rate swap
Cash flow sensitivity (net)
30 June 2011
Variable rate instruments
Interest rate swap
Cash flow sensitivity (net)
(708)
-
(708)
708
-
708
(1,168)
-
(1,168)
1,168
-
1,168
-
(2,139)
(2,139)
-
(2,746)
(2,746)
-
2,139
2,139
-
2,746
2,746
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
90
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
6 Financial instruments (continued)
Market risk (continued)
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
USPP
Leases
2012
2011
0.3%
0.2%
4.6%
7.2%
-
-
-
-
5.0%
5.0%
5.3%
7.2%
0.2%
1.6%
n/a
0.3%
-
-
-
-
5.2%
7.2%
n/a
7.2%
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 2012
30 June 2011
Carrying
Amount
$'000
Fair
Value
$'000
Carrying
Amount
$'000
Fair
Value
$'000
Note
Assets carried at fair value
Interest rate swaps used for hedging
Forward exchange contracts used for hedging
Assets carried at amortised cost
Receivables
Cash and cash equivalents
Liabilities carried at fair value
Secured notes issue (USD $90m)
Interest rate swaps used for hedging
Forward exchange contracts used for hedging
Liabilities carried at amortised cost
Secured bank loans
Secured notes issue (USD $50m)
Finance lease liabilities
Trade and other payables
19
19
18
17
24
19
19
24
24
24
23
4,320
99
4,419
4,320
99
4,419
-
285
285
-
285
285
99,009
73,091
172,100
99,009
73,091
172,100
83,251
5,502
88,753
83,251
5,502
88,753
(91,485)
(5,608)
-
(97,093)
(92,652)
(5,608)
-
(98,260)
-
(5,981)
(7)
(5,988)
-
(5,981)
(7)
(5,988)
(299,920)
(48,507)
(15,697)
(69,906)
(434,030)
(301,980)
(51,473)
(18,058)
(69,906)
(441,417)
(278,000)
(274,798)
-
(19,005)
(42,694)
(339,699)
-
(22,627)
(42,694)
(340,119)
The basis for determining fair values is disclosed in note 5.
Fair value hierarchy
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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
91
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
6 Financial instruments (continued)
Market risk (continued)
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 issue of US$140.0 million notes in the USPP market diversifies the Group’s source of debt funding
and extends the Group’s debt maturity profile with the notes being tranches of 7 and 10 years.
The Board of Directors also evaluates and monitors the level of distributions to ordinary shareholders in the form
of dividends or other capital initiatives. In addition to the payment of dividends in FY12, on 20 August 2012, the
Board approved an on-market buyback up to a maximum of 5% (31,561,879) of the Company’s shares over the
next 12 months.
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 excluding the effects of hedge accounting and fair value adjustments 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 1.4 times to
1.8 times (2011: 1.2 – 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 13.0% (2011: (10.3%)). This
includes non-recurring items of $1.1 million (after tax). Had the non-recurring items not been included the Group
EBIT return on capital for the year would have been 13.2% (2011: 11.3%).
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
92
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
6 Financial instruments (continued)
Market risk (continued)
Capital management (continued)
The Group’s return on invested capital at the end of the reporting period was as follows:
Consolidated
2012
$'000
2011
$'000
EBIT (for continuing and discontinued operations)
124,566
92,348
Average invested capital
955,595
896,856
EBIT return on capital at 30 June
13.0%
10.3%
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.
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.
7 Other income
Net profit on sale of non current assets (1)
Sundry income (2)
Consolidated
2012
$'000
2011
$'000
3,503
397
3,900
2,756
4,455
7,211
(1)
(2)
Included in net profit on the sale of non-current assets is the sale of rental equipment. The gross proceeds
from the sale of this equipment is $35.0 million (2011: $47.5 million).
Included in sundry income are fees charged on overdue accounts, bad debts recovered, procurement fees on
machines sourced for 3rd parties and insurance receivables.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
93
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
8
Profit before income tax expense for continuing operations
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 (1)
- 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:
- other intangibles
Consolidated
2012
$'000
2011
$'000
Note
20
20
22
68,887
1,478
1,277
210
1,487
4,839
11,083
(10,348)
3,616
4,125
3,574
1,612
3,021
1,718
4,732
8,787
31,920
1,732
126,143
3,810
140
445
1,040
680
1,480
135,470
217
217
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
Total depreciation, amortisation and impairment of goodwill
135,687
122,173
(1) $10.9 million of the $11.1 million bad debt expense in FY12 related to two debtors in the Indonesian
business that was provided for as a doubtful debt in FY11 (refer note 6).
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
94
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
8
Profit before income tax expense for continuing operations (continued)
Financial expenses:
- interest expense
- ineffective hedge expense/(reversal)
- amortisation of debt establishment costs
- other facility costs
Financial income:
- interest revenue
Net financial expenses
Consolidated
2012
$'000
2011
$'000
21,451
3
1,180
2,141
24,775
(361)
24,414
19,105
(392)
2,066
2,461
23,240
(281)
22,959
Net foreign exchange (gain)/loss
(416)
186
9
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:
- taxation services (1)
Overseas KPMG Firms:
- taxation services
- accounting assistance
Consolidated
2012
$
2011
$
441,200
426,000
181,123
622,323
185,682
611,682
192,280
86,060
64,841
-
257,121
78,162
39,587
203,809
879,444
815,491
(1) The increase in taxation services during FY12 represents the taxation advice relating to the Group’s
decision to enter the Chile market. It is also due to the taxation advice required for expatriate employees
participating in the Group’s employee share scheme.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
95
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
10 Taxes
a. Recognition in the income statement
Consolidated
Note
2012
$'000
2011
$'000
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
Tax expense
Tax expense from continuing operations
Tax expense/(benefit) from discontinued operations
Tax expense/(benefit) from loss on sale of
discontinued operations
Total tax expense
12
14
b. Current and deferred tax expense recognised directly in equity
Share purchase costs
Capital raising costs
Tax recognised in other comprehensive income
36,784
82
36,866
(6,460)
-
-
(6,460)
30,406
30,434
(28)
-
30,406
23,087
(514)
22,573
(2,391)
(455)
-
(2,846)
19,727
20,273
(473)
(73)
19,727
Consolidated
2012
$'000
2011
$'000
641
-
641
2,054
1,380
3,434
Consolidated
2012
Tax
Consolidated
2011
Tax
Before
Tax
$'000
(expense) Net of
benefit
$'000
tax
$'000
Before
Tax
$'000
(expense) Net of
benefit
$'000
tax
$'000
Foreign currency translation differences for
foreign operations
FCTR of discontinued operations disposed (1)
Cash flow hedges
3,252
156
(102)
3,306
-
-
48
48
3,252
156
(54)
3,354
(16,978)
420
5,648
(10,910)
-
-
(2,389)
(2,389)
(16,978)
420
3,259
(13,299)
(1) FCTR – transfer of Foreign Currency Translation Reserve (FCTR) from equity reserve to profit upon foreign
operations of the Group being disposed.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
96
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
10 Taxes (continued)
(c) Numerical reconciliation between tax expense and pre tax net profit/(loss):
Prima facie tax expense calculated
at 30% on net profit
Increase/(decrease) in income tax expense due to:
Effect on tax rate in foreign jurisdictions
Current year losses for which no deferred tax asset
was recognised
Bad debt expense
Reduction in tax rate in foreign jurisdictions
Superannuation adjustment
Sundry
Under/(over) provided in prior years
Tax expense
Consolidated
2012
$'000
2011
$'000
30,122
21,129
(286)
(658)
3
294
-
366
(175)
82
30,406
(380)
-
(455)
-
605
(514)
19,727
11 Current tax assets and liabilities
The current tax asset for the Group of $563,000 (2011: $427,000) 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 $14,100,000 (2011: $6,790,000) represents the
amount of income taxes payable in respect of current and prior financial periods.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
97
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
12 Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Consolidated
Property, plant and equipment
Intangible assets
Receivables
Inventories
Payables
Derivatives - hedge payable
Derivatives - hedge receivable
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
Movement in deferred tax balances
Assets
Liabilities
Net
2012
$'000
2011
$'000
(84)
(37)
(4,124)
(4)
(6,707)
(1,683)
-
(1,391)
(1,710)
(8)
(110)
(3,272)
(19,130)
19,020
(110)
(6,892)
(17)
(4,386)
(103)
(3,871)
(1,794)
-
(19)
(1,525)
(30)
(2,871)
(2,017)
(23,525)
23,525
-
2012
$'000
40,881
-
222
1,365
-
-
1,296
6,358
4
-
-
-
50,126
(19,020)
31,106
2011
$'000
2012
$'000
2011
$'000
40,534
-
1,424
1,244
11
85
-
4,170
-
-
-
-
47,468
(23,525)
23,943
40,797
(37)
(3,902)
1,361
(6,707)
(1,683)
1,296
4,967
(1,706)
(8)
(110)
(3,272)
30,996
-
30,996
33,642
(17)
(2,962)
1,141
(3,860)
(1,709)
-
4,151
(1,525)
(30)
(2,871)
(2,017)
23,943
-
23,943
Consolidated
Balance
1 July 11
$'000
Recognised
in profit
or loss
$'000
Recognised
directly
in equity
$'000
Recognised
in other
comprehensive
income
$'000
Balance
30 June 12
$'000
Property, plant and equipment
Intangible assets
Receivables
Inventories
Payables
Derivatives - hedge payable
Derivatives - hedge receivable
Interest-bearing loans and borrowings
Employee benefits
Equity - capital raising costs
Provisions
Tax losses carried forward
33,642
(17)
(2,962)
1,141
(3,860)
(1,709)
-
4,151
(1,525)
(30)
(2,871)
(2,017)
23,943
7,155
(20)
(940)
220
(2,847)
-
1,370
816
(181)
(619)
2,761
(1,255)
6,460
-
-
-
-
-
-
-
-
-
641
-
-
641
-
-
-
-
-
26
(74)
-
-
-
-
-
(48)
40,797
(37)
(3,902)
1,361
(6,707)
(1,683)
1,296
4,967
(1,706)
(8)
(110)
(3,272)
30,996
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
98
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
12 Deferred tax assets and liabilities (continued)
Movement in deferred tax balances
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
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)
-
-
-
-
-
-
-
-
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
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
The following deferred tax assets have not been
brought to account as assets:
Tax losses
Consolidated
2012
$'000
2011
$'000
16,530
16,486
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
99
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
13 Capital and reserves
Share capital
631,237,586 (2011: 631,237,586 ) ordinary shares, fully paid
Acquisition reserve
Consolidated
2012
$'000
2011
$'000
686,311
(75,887)
610,424
686,191
(75,887)
610,304
Share options
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. The options 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.
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 will remain in the reserve. As at 30 June 2012 the Company held 17,943,211 treasury
shares (2011: 18,300,000) 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
hedges related to hedged transactions that have not yet affected profit or loss.
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)).
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
100
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
13 Capital and reserves (continued)
Dividends
(i) The following dividends were declared and paid by the Group:
2012
Final 2011 ordinary
Interim 2012 ordinary
Cents
per share
Total
amount
$'000
Franked/
unfranked
Date of
payment
3.0
2.5
18,937
15,781
34,718
Franked
Franked
30 September 2011
29 March 2012
Franked dividends declared or paid during the year were franked at the tax rate of 30%.
Subsequent to 30 June 2012
After 30 June 2012 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.
Cents
per share
Total
amount
$'000
Franked/
unfranked
Date of
payment
2012
Final 2012 ordinary
Total amount
3.5
22,093
22,093
Franked
28 September 2012
The financial effect of these dividends has not been brought to account in the financial statements for the
financial year ended 30 June 2012 and will be recognised in subsequent financial reports.
The following dividends were declared and paid by the Group in the prior year:
2011
Final 2010 ordinary
Interim 2011 ordinary
Interim 2011 special
Cents
per share
Total
amount
$'000
Franked/
unfranked
Date of
payment
2.0
2.0
5.0
12,625
12,625
31,561
56,811
Franked
Franked
Franked
30 September 2010
31 March 2011
31 March 2011
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
101
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
13 Capital and reserves (continued)
Dividends (continued)
b.
Franking account
The Company
2012
$'000
2011
$'000
Dividend franking account
30% franking credits available to shareholders of Emeco Holdings Limited
for subsequent financial years
59,733
45,625
The above available amounts are based on the balance of the dividend franking account at year-end
adjusted for:
(a)
(b)
(c)
(d)
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.
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 $9,468,000 (2011: $8,116,000). 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 $59,733,000 (2011: $45,625,000) franking credits.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
102
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
14 Discontinued operations
As at 30 June 2012 the discontinued operations consisted of the Victorian Rental business and Emeco Europe.
The Victorian Rental business has significantly decreased its assets and only holds minimal assets available for
sale.
The USA business was materially disposed of in FY11 and was presented as a discontinued operation for this prior
comparative period. During FY12, the Group reclassified the USA discontinued operations to continuing
operations, which largely comprises one employee, now serves as a part of the Global Asset team function.
Losses of discontinued operations
Revenue
Other income
Direct costs
Profit/(loss) on sale of assets
Writeback/(writedown) of stock
Impairment of fixed assets
Bad debts expense
Other expenses
Employee expenses
Restructure costs
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
Loss for the period
2012
$'000
2011
$'000
523
10
(208)
220
-
(365)
-
(24)
(113)
-
(156)
-
(113)
(142)
(255)
-
28
-
(227)
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)
Earnings per share
(0.000)
(0.001)
The loss from discontinued operation of $227,000 (2011: loss of $365,000) 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
2012
$'000
2011
$'000
(282)
7,569
(7,349)
(62)
3,633
23,840
(27,684)
(211)
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
103
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
14 Discontinued operations (continued)
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
2012
$'000
2011
$'000
-
-
-
-
-
-
-
-
-
(12,295)
(2,953)
(54)
-
-
455
(14,847)
14,423
(424)
15 Disposal groups held for sale
At 30 June 2012 the disposal groups comprised asset of $0.4 million (2011: $8.7 million) and liabilities $Nil (2011:
$Nil) being the remaining Victorian rental assets yet to be disposed.
Assets classified as held for sale
Property, plant and equipment
Trade and other receivables
2012
$'000
2011
$'000
405
-
405
8,169
559
8,728
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
104
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
16 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
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.
Australian Sales
Sells a wide range of earthmoving equipment to customers in the civil construction
and mining industries in Australia.
Australian Parts
Procures and supplies globally sourced used and reconditioned parts to external
customers and internally to the rental and sales divisions within Australia.
Indonesia
Canada
Chile
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.
Provides a wide range of earthmoving equipment and maintenance service to
customers in Chile.
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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
105
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
16 Segment reporting (continued)
Information about reportable segments 2012
Australian
Victorian
Australian
Australian
Indonesia
Canada
Rental
Rental (1)
(discont'd)
Sales
Parts
Chile
Rental
Other
Europe
Total
(discont'd)
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
383,254
3,721
(100,157)
505
-
(142)
50,152
26
(236)
14,636
7,149
49,931
67,197
1,853
-
(123)
(15,224)
(19,732)
-
-
-
-
-
-
-
-
565,675
18
12,767
(135,612)
115,552
(92)
2,371
439
9,955
16,155
(597)
(317)
(163)
143,304
(203)
708,129
(138,058)
(49,160)
(365)
405
-
-
-
-
(7)
-
-
15,947
22,001
141,978
248,119
6,278
-
-
(72,645)
(118,409)
(5,203)
(5,026)
(2,198)
(36,980)
(20,853)
(5,784)
-
169
-
(119)
-
-
-
-
(575)
1,143,026
(334,315)
(120,120)
External revenues
Inter-segment revenue
Depreciation
Reportable segment profit/(loss)
before interest and income tax
Other material non-cash items:
Impairment on property, plant and
equipment and intangible assets
Reportable segment assets
Capital expenditure
Reportable segment liabilities
Information about reportable segments 2011
Australian
Victorian
Australian
Australian
Indonesia
Canada
Chile
Other
Europe
Total
Rental
Rental (1)
(discont'd)
Sales
Parts
Rental
(discont'd)
(discont'd)
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
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
Reversal of impairment on property,
plant and equipment and intangible
assets
Reportable segment assets
Capital expenditure
Reportable segment liabilities
327,150
2,965
9,507
125
(87,015)
(2,749)
48,853
3,830
(456)
17,010
1,367
44,596
4,110
64,886
-
(125)
(15,730)
(18,589)
98,315
(1,829)
(260)
573
(2,665)
14,031
-
-
-
692,443
(126,994)
(54,572)
-
(2,025)
-
9,385
(149)
(332)
-
-
400
26,902
(173)
(4,664)
-
-
-
(10,677)
(3,331)
-
-
-
-
24,730
77,972
140,076
(219)
(19,296)
(56,637)
(3,641)
(8,399)
(13,319)
-
-
-
-
-
-
-
-
-
-
3,068
867
-
409
515,479
-
-
13,264
(124,664)
797
174
109,136
-
-
-
-
-
-
(10,677)
(5,356)
400
303
-
(178)
3,839
975,650
-
(203,468)
(10)
(85,115)
(1) Victorian Rental forms part of Australian Rental segment but has been separated out as it was discontinued
at 30 June 2010.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
106
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
16 Segment reporting (continued)
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
Other material items 2012
Capital expenditure
Depreciation
2012
$'000
2011
$'000
578,442
(12,767)
(505)
565,170
143,304
254
(18,738)
(24,414)
528,743
(13,264)
(12,984)
502,495
109,136
858
(16,788)
(22,959)
100,406
70,247
1,143,026
73,091
1,216,117
120,120
455,609
575,729
975,650
5,502
981,152
85,115
293,803
378,918
Reportable
segment Discontinued Consolidated
totals
$'000
operations
$'000
Total
$'000
(334,315)
(135,612)
-
142
(334,315)
(135,470)
Other material items 2011
Capital expenditure
Depreciation
Reversal of impairment on property, plant and
equipment and intangible assets
(203,468)
(124,664)
149
2,749
(203,319)
(121,915)
400
-
400
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
107
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
16 Segment reporting (continued)
Geographical information
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
South America
Rental division in Chile
Europe
Rental and sales division in Netherlands (Discontinued in 2010)
Geographical segments
Australia
Asia
North America
South America
Europe
(discont'd)
Consolidated
2012
$'000
2011
$'000
2012
$'000
2011
$'000
2012
$'000
2011
$'000
2012
$'000
2011
$'000
2012
$'000
2011
$'000
2012
$'000
2011
$'000
Revenue
448,547 402,520 49,931 44,596 67,197 67,954
- - - 409 565,675 515,479
Non-current (3)
Assets
669,356 649,668 114,106 58,809 215,189 123,885 5,327
- - - 1,003,978 832,362
(1) The Victorian Rental business, in the Australian geographic segment, was classified as discontinued in 2010.
This represented revenue of $505,000 (2011: $9,507,000) for the year ended 30 June 2012.
(2) North American segment consists of the Canadian and USA businesses.
(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
In the year ended 30 June 2012 the Group had no single major customer that would amount to 10% or more of
the Group’s total revenues.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
108
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
17
Cash assets
Cash at bank
18
Trade and other receivables
Current
Trade receivables
Trade receivables due from related parties
Less: Impairment of receivables
Other receivables
Non-Current
Other receivables
Consolidated
2012
$'000
2011
$'000
73,091
5,502
Consolidated
2012
$'000
2011
$'000
91,695
87,963
(2,089)
89,606
(12,165)
75,798
9,403
99,009
1,057
1,057
7,168
82,966
581
581
The Group’s exposure to credit risks, currency risks and impairment losses associated with trade and other
receivables are disclosed in note 6.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
109
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
19
Derivatives
Current Assets
Forward exchange contract
Interest rate swaps
Cross currency interest rate swaps
Non Current Assets
Interest rate swaps
Cross currency interest rate swaps
Current Liabilities
Interest rate swaps
Non Current Liabilities
Interest rate swaps
20
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
2012
$'000
2011
$'000
99
308
369
776
1,493
2,150
3,643
285
-
-
285
-
-
-
(2,239)
(2,239)
(3,543)
(3,543)
(3,369)
(3,369)
(2,160)
(2,160)
Consolidated
2012
$'000
2011
$'000
26,797
2,730
2,729
32,256
2,858
35,114
48,569
44,758
(1,277)
(1,478)
(55,458)
35,114
33,007
4,557
1,288
38,852
9,717
48,569
87,017
23,679
(841)
(1,579)
(59,707)
48,569
(1)
During the year ended 30 June 2012 the write-down of inventories to net realisable value (NRV)
recognised as an expense in the Statement of Comprehensive Income amounted to $2,755,000 (2011:
$2,420,000).
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
110
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
21
Intangible assets and goodwill
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
2012
$'000
2011
$'000
172,830
-
806
173,636
712
(712)
-
2,062
(1,750)
312
177,665
-
(4,835)
172,830
712
(712)
-
1,946
(1,528)
418
Total intangible assets
173,948
173,248
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
Consolidated
2012
$'000
2011
$'000
217
-
217
258
-
258
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
111
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
21
Intangible assets and goodwill (continued)
Impairment tests for cash generating units contained goodwill
For the purpose of impairment testing, goodwill is allocated to the Group’s geographical operating divisions.
The aggregate carrying amounts of goodwill allocated to each unit are as follows:
Australian rental
Canada rental
Asian rental
Total rental
Consolidated
2012
$'000
2011
$'000
151,745
5,637
16,255
173,637
151,745
5,667
15,418
172,830
The Group has determined the recoverable amount of its cash generating units (CGU) using a value in use
methodology (2011: 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 2012. 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 5.4% and 7.6% (2011: 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 FY13 and translate in part to year on year
revenue growth, mostly in Indonesia and Canada. The second year of the business plan will also be influenced
to the extent that 100% of the FY13 capital investment will contribute to revenue in FY14. Subsequent revenue
growth rates are assumed to be between a range of 2.0% - 3.0% per year (2011: 2.0% - 3.0%) representing
anticipated improvements in capital turnover and margins. Compound annual growth rates over the first six
years of the forecast range between 2.0% (2011: 4.4%) and 10.0% (2011: 8.7%).
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 by increasing the discount rate for each of the CGU’s by an additional
2.0% (2011: 2.0%). The sensitised testing confirmed that no impairment would be recognised under this
scenario.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
112
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
22
Property, plant and equipment
Freehold land and buildings - at cost
Less: Accumulated depreciation
Leasehold improvements at cost
Less: Accumulated depreciation
Plant and equipment - at cost
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
Consolidated
2012
$'000
2011
$'000
23,801
(3,918)
19,883
4,936
(2,398)
2,538
29,722
(3,580)
26,142
4,880
(2,021)
2,859
1,254,698
(476,671)
778,027
988,624
(396,903)
591,721
21,228
(6,127)
15,101
1,373
(614)
759
2,510
(1,433)
1,077
8,682
(4,117)
4,565
11,984
(8,714)
3,270
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
Total property, plant and equipment - at net book value
825,220
658,533
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
113
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
22
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
Effects of movement in foreign exchange
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
Net movement in 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
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
Consolidated
2012
$'000
2011
$'000
26,142
239
(1,732)
(4,844)
78
-
-
19,883
2,859
398
(40)
(680)
1
-
-
2,538
591,721
309,772
6,449
10,049
12,052
(26,050)
(126,143)
(210)
-
388
778,027
680
237
(19)
(140)
-
-
-
758
27,641
686
(1,172)
(949)
(464)
400
-
26,142
2,056
1,576
(289)
(449)
(35)
-
-
2,859
559,327
175,901
5,945
679
14,615
(34,579)
(115,425)
(5,355)
-
(9,387)
591,721
723
183
(96)
(119)
-
-
(11)
680
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
114
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
22
Property, plant and equipment (continued)
Reconciliations (continued)
Reconciliations of the carrying amounts for each class of
property, plant and equipment are set out below:
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
Consolidated
2012
$'000
2011
$'000
1,059
545
(88)
(445)
-
-
6
1,077
4,412
1,590
(397)
(1,040)
-
-
-
4,565
2,700
2,264
(250)
(1,480)
-
-
36
3,270
28,960
-
(10,049)
-
(3,810)
-
15,101
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
Security
The Group’s assets are subject to a fixed and floating charge under the terms of the syndicated debt facility.
Refer note 24 for further details.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
115
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
23
Trade and other payables
Trade payables
Trade payables
Other payables and accruals (1)
Consolidated
2012
$'000
2011
$'000
20,558
43,738
64,296
16,664
26,030
42,694
(1)
This includes $26.8 million of accruals for equipment received but not yet paid for at 30 June 2012 (2011:
$10.3 million).
The Group’s exposure to currency and liquidity risk associated with trade and other payables is disclosed in
note 6.
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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
116
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
24
Interest bearing liabilities
Current
Amortised cost
Working capital facility
Lease liabilities - secured
Non-current
Fair value
Notes issue - secured
Debt raising costs (USPP)
Amortised cost
Bank loans - secured
Notes issue - secured
Lease liabilities - secured
Debt raising costs (bank loans)
Debt raising costs (USPP)
Consolidated
2012
$'000
2011
$'000
-
3,339
3,339
-
3,308
3,308
92,652
(1,167)
-
-
301,980
49,155
12,358
(2,060)
(648)
278,000
-
15,697
(3,202)
-
452,270
290,495
Bank loans
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 shared proportionately with the noteholders of the USPP notes issue.
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. The syndicated facility allows for funds to be drawn in Australian, United States and Canadian
dollars. The nominal interest rate is based on Libor, BBSW and CAD Libor for their respective currencies, plus a
margin. The Group’s syndicated loan facility is measured at amortised cost. At year end the Group had the
following drawn:
FY12
FY11
Funds drawn in
functional currency
$’000
Funds drawn
translated to AUD
$’000
Funds drawn in
functional currency
$’000
Funds drawn
translated to AUD
$’000
AUD
CAD
USD
$80,000
C$216,000
US$15,000
$80,000
$207,234
$14,746
$139,000
C$118,000
US$27,000
$139,000
$113,823
$25,177
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
117
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
24
Interest bearing liabilities (continued)
USPP notes issue
Under the terms of the note purchase agreement, the noteholders hold a joint fixed and floating charge with
the syndicated bank group over the assets and undertakings of the Group. The US$140.0 million notes were
issued on 22 May 2012 and comprises a 7 year US$40.0 million tranche and a US$100.0 million 10 year tranche
which matures 22 May 2019 and 22 May 2022 respectively. The nominal interest rate for the 7 and 10 year
notes are 4.63% and 5.25% respectively. The US$20.0 million notes, with a maturity of 7 years, and US$30.0
million of notes, with a maturity of 10 years, are measured at amortised cost. The remaining notes are
measured at fair value through profit and loss and the Group designated derivatives (interest rate swaps and
cross currency interest rate swaps) as hedge instruments against this underlying debt.
FY12
FY11
Funds drawn in
functional currency
$’000
Funds drawn
translated to AUD
$’000
Funds drawn in
functional currency
$’000
Funds drawn
translated to AUD
$’000
USD
US$140,000
$141,807
n/a
n/a
Working capital facility
The working capital facility is secured under the syndicated facility mentioned above, and has a limit of $20.0
million (2011: $25.0 million). The Group also obtained working capital facilities for Emeco Canada Limited of
C$2.0 million (2011: C$2.0 million). The $20.0 million facility expires on 16 November 2012 and it is the
intention that it will be renegotiated for another 12 months. The C$2.0 million facility expires 11 December
2012. The working capital facility is undrawn at 30 June 2012.
Other financial liabilities
Under the terms of the syndicated loan facility the Group can enter other permitted indebtedness totalling
A$200.0 million (2011: $200.0 million). At year end the Group had established finance lease facilities totalling
$15.7 million (2011: $19.0 million) and issued notes in the USPP market totalling US$140.0 million (A$141.8
million) which are included within this permitted indebtedness limit. Assets leased under the facility are
secured by the assets leased.
Finance lease liabilities
Finance lease liabilities of the Group are payable as follows:
Consolidated
Future
minimum
lease
Present
value of
minimum
lease
payments Interest payments
2012
$'000
2012
$'000
2012
$'000
Future
minimum
lease
payments
2011
$'000
Present
value of
minimum
lease
Interest payments
2011
$'000
2011
$'000
Less than one year
Between one and five years
More than five years
4,362
13,696
-
18,058
(1,023)
(1,338)
-
(2,361)
3,339
12,358
-
15,697
4,570
18,057
-
22,627
(1,262)
(2,360)
-
(3,622)
3,308
15,697
-
19,005
The Group leases plant and equipment under finance leases. The Group’s lease liabilities are secured by the
leased assets of $15,139,000 (2011: $28,960,000). In the event of default, the leased assets revert to the
lessor.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
118
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
25
Financing arrangements
The Group has the ability to access the following lines of credit:
Total facilities available:
Bank loans
USPP Notes
Finance leases
Working capital
Facilities utilised at reporting date:
Bank loans
USPP Notes
Finance leases
Working capital
Facilities not utilised or established at reporting date:
Bank loans
USPP Notes
Finance leases
Working capital
Consolidated
2012
$'000
2011
$'000
450,000
141,807
15,697
21,919
629,423
301,980
141,807
15,697
-
459,484
148,020
-
-
21,919
169,939
450,000
-
19,005
26,929
495,934
278,000
-
19,005
-
297,005
172,000
-
-
26,929
198,929
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
119
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
26 Provisions
Current
Employee benefits:
- annual leave
- long service leave
- other
Salvage
Non-current
Employee benefits - long service leave
Consolidated
2012
$'000
2011
$'000
3,404
447
115
-
3,966
3,272
369
113
1,363
5,117
1,044
868
Salvage provision
The provision relates to the cost of salvaging equipment damaged whilst being demobilised from a customer‘s
site in Indonesia during the previous financial year (refer note 7).
Defined contribution superannuation funds
The Group makes contributions to defined contribution superannuation funds. The expense recognised for the
year was $4,879,000 (2011: $3,130,000). During this period there was a one-off expense totalling $1.2 million
(post tax) which relates to unpaid employee superannuation from prior years arising from a payroll system error
identified during an internal payroll systems review which has now been rectified.
27 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)).
No former or current Executive Directors had outstanding options in the Company at year end. The last options
were issued on 4 August 2006 and have expired on 4 August 2011 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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
120
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
27 Share-based payments (continued)
Long term incentive plan
Grant date / employees entitled
Number of
Instruments
Vesting conditions
Matured in FY11:
Performance shares/rights 2008
1,290,000
Matured in FY12:
Performance shares/rights 2009
9,819,790
Unvested plans:
Performance shares/rights 2010 (1)
4,608,076
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
Contractual life
of performance
shares/rights
5 years
5 years
3 years
Performance shares/rights 2011 (1)
5,889,200 3 years service TSR ranking to a basket of
3 years
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
Performance shares/rights 2012
4,246,661 3 years service TSR ranking to a basket of
3 years
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
(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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
121
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
27 Share-based payments (continued)
The movement of performance shares and performance rights on issue during the year were as follows:
Number of
performance
shares/rights
2012
Number of
performance
shares/rights
2011
15,794,934
(798,954)
(2,272,370)
4,246,661
16,970,271
4,955,409
13,489,267
(4,483,459)
(26,000)
6,815,126
15,794,934
493,795
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
(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
Number of
Instruments
Vesting conditions
Contractual life
of options
Option grant to Executive
Directors on 4 August 2006
6,400,000 Achievement of forecast prospectus
5 years
NPAT 2006. 10% compounding
growth in NPAT for 2 years there
after. Options vest equally over 3
years upon satisfying each hurdle.
6,400,000
The number of outstanding share options 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
Number of
options
2012
2,133,333
(2,133,333)
-
-
-
-
Number of
options
2011
2,133,333
-
-
-
2,133,333
2,133,333
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
122
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
27 Share-based payments (continued)
Management incentive share plan
Grant date / employees entitled
Number of
Instruments
Vesting conditions
Contractual life
of MISP
MISP 2006
4,010,000 Service requirement. Partial vesting
10 years
entitlement after 2 years with full
vesting after 5 years.
MISP 2007
1,240,000 Service requirement. Partial vesting
10 years
entitlement after 2 years with full
vesting after 5 years.
MISP 2008
560,000 Service requirement. Partial vesting
10 years
entitlement after 2 years with full
vesting after 5 years.
5,810,000
The number of MISPs 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)
Number of
MISP
2012
2,160,000
(375,000)
(185,000)
-
1,600,000
1,040,000
Number of
MISP
2011
3,190,000
(26,250)
(1,003,750)
-
2,160,000
1,600,000
(1) While satisfying the service requirements under the MISP, the shares are not considered exercisable until the
full vesting period has been satisfied.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
123
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
27 Share-based payments (continued)
Employee share ownership plan
Grant date / employees entitled
ESOP 2011
ESOP 2012
The number of ESOPs are as follows:
Number of
Instruments
Vesting conditions
Contractual life
of MISP
26,976 Service requirement. Full vesting
entitlement after 1 year after the
end of the calendar year in which
they are acquired.
28,898 Service requirement. Full vesting
entitlement after 1 year after the
end of the calendar year in which
they are acquired.
55,874
1 year
1 year
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)
Number of
ESOP
2012
Number of
ESOP
2011
23,752
(2,120)
(6,315)
28,898
44,215
-
-
(3,224)
-
26,976
23,752
-
(1) The shares are not considered exercisable until the full vesting period has been satisfied.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
124
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
27 Share-based payments (continued)
The fair value of services received in return for the performance shares and rights granted 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)
Maturity (expected
weighted average life)
Expected dividends
Risk-free interest rate
(based on government
bonds)
Key
management
personnel
2012
Key
management
personnel
2011
Senior
employees
2012
Senior
employees
2011
ESOP
2012
ESOP (1)
2011
$0.76
$0.98
$Nil
$0.56
$0.78
$Nil
$0.76
$0.98
$Nil
$0.56
$0.78
$Nil
$0.86 - $1.16
$0.86 - $1.16
$Nil
$0.96 - $1.20
$0.96 - $1.20
$Nil
40% - 60%
40% - 60%
40% - 60%
40% - 60%
n/a
n/a
3 years
4.8%
3 years
4.8%
3 years
4.8%
3 years
4.8%
3.8%
4.5%
3.8%
4.5%
1 year
n/a
n/a
1 year
n/a
n/a
(1) The ESOP was established in November 2010.
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.
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
Increase in
incremental value
$0.02
$0.05
$0.09
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
125
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
27 Share-based payments (continued)
For the Group’s key management personnel commencing with the FY13 grant and all subsequent grants of LTI
securities the following applies:
Dividends:
•
•
dividends (or shadow dividends) will not be paid on unvested LTI securities;
dividends (or shadow dividends) will accrue on unvested LTI securities and will only be paid at the time of
vesting on those LTI securities that vest, provided all vesting conditions are met; and
Absolute change in control:
•
•
•
the proportion of vesting LTI securities will be pro-rated to reflect the performance achieved;
the proportion of vesting LTI securities will be in accordance with the relevant TSR vesting schedule for each
grant; and
the Board retains the discretion to vest a greater amount.
Employee expenses
In AUD
Consolidated
2012
2011
Performance shares/rights
2,492,552
1,954,633
MISP
ESOP
(29,517)
25,153
8,400
25,942
Total expense recognised as employee costs (1)
2,488,188
1,988,975
(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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
126
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
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
2012
$'000
2011
$'000
3,981
5,682
2,991
12,654
2,914
5,936
4,525
13,375
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 2012 an amount of $4,091,000 was recognised as an expense in profit or
loss in respect of operating leases (2011: $5,265,000).
(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 $77,107,000 (2011: $147,637,000) payable within one year.
29 Contingent Liabilities
The Company’s Indonesian subsidiary, PT Prima Traktor IndoNusa (PTI), is defending an action brought by a
customer PT Kideco JayaAgung (Kideco). The claim relates to consequential losses which Kideco alleges arose
from a disruption of port operations associated with the demobilisation of Emeco equipment by an independent
third party. This claim is viewed as a counter-claim to Emeco’s initial debtor recovery claim against Kideco for
US$1.95 million. PTI does not admit liability in respect of Kideco’s claim and the Company considers it is without
merit. Accordingly, PTI is defending the action. Consistent with its view that Kideco’s claim lacks merit, the
Company does not expect the outcome of the action to have a material effect on the Group’s financial position.
However, if defence against the action is unsuccessful, then loss and damages could potentially amount up to
US$22.3 million, which is the amount of the counter-claim by Kideco.
Guarantees
The Group has guaranteed the repayments of $122,500 (2011: $342,500) in relation to office premises with
varying expiry dates out to 30 June 2013.
30 Contingent assets (de-recognition)
At 30 June 2011, the Company was of the view that it was entitled to a tax deduction of $17,063,000 and a
refund of $5,119,000 based on a change in legislation to the deductibility of contract intangibles. During FY12,
the legislation has been amended again, and it is now unlikely that the deduction will be available to the
Company.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
127
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
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:-
Consolidated
2012
$'000
2011
$'000
Note
Cash assets
17
73,091
5,502
(ii) Reconciliation of net profit to net cash provided by operating activities
Consolidated
2012
$'000
2011
$'000
Note
Net profit
69,745
49,609
14
8
8
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 fair value hedge
Unrealised foreign exchange (gain)/loss
Impairment losses on property, plant & equipment
Write down on inventory
Cost of sales equipment on rent
Bad debts
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
Net cash provided by operating activities before change in
assets/(liabilities) adjusted for assets and (liabilities) acquired
(Increase)/decrease in trade and other receivables
(Increase)/decrease in inventories
Increase/(decrease) in payables
Increase/(decrease) in provisions
Net cash provided by operating activities
(3,723)
-
(2,598)
424
217
135,611
1,180
3
416
785
1,277
1,478
11,083
(10,348)
156
-
342
2,488
7,310
7,053
258
124,664
2,066
(392)
80
4,955
841
1,579
-
5,833
(420)
(671)
(429)
(1,989)
1,370
2,867
225,073
188,047
(21,980)
13,456
13,784
134
230,467
2,483
34,990
(9,898)
(691)
214,931
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
128
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
32 Controlled entities
(a) Particulars in relation to controlled entities
Parent entity
Emeco Holdings Limited
Controlled entities
Country
of
Incorporation
Ownership Interest
2012
%
2011
%
Note
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
Enduro SPA
(i)
(ii)
(iii)
(iv)
(iv)
(v)
(vi)
(vii)
Australia
Australia
Australia
Australia
Australia
United Kingdom
United States
Indonesia
Netherlands
Netherlands
Netherlands
Canada
Chile
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-
Notes
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(*)
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.
Emeco Equipment (USA) LLC was incorporated in and carries on business in the United States. This was
classified as a discontinued operation in 2010 but was reclassified as a continuing operation at 30 June
2012.
PT Prima Traktor IndoNusa was incorporated in and carries on business in Indonesia.
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.
Euro Machinery BV was acquired on 4 January 2007 and carries on business in the Netherlands.
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.
Enduro SPA was incorporated on 24 February 2012 and carries on business in Chile.
Discontinued operations at 30 June 2012, 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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
129
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
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
E L Smyth (appointed 15 December 2011)
Executive Director
K D Gordon (Managing Director)
Executives
S G Gobby (Chief Financial Officer)
M A Turner (General Manager Global Asset Management)
M R Kirkpatrick (General Manager Corporate Services)
A G Halls (General Manager Australian Rental)
I M Testrow (President Emeco Americas)
C Mossman (President Director Indonesia)
H A Christie-Johnston (General Manager Australian Sales &
Parts) ceased employment 26 November 2011
D O Tilbrook (General Manager South East Asia) ceased
employment 7 October 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
2012
2011
5,491,243
6,337,256
-
214,966
26,182
1,534,671
7,267,062
-
244,774
212,500
1,386,534
8,181,064
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
130
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
33 Key management personnel disclosure (continued)
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
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 39 to 56.
individual Directors and Executives compensation and some equity
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.
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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
131
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
33 Key management personnel disclosure (continued)
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. The
disclosure table has been adjusted to transfer vested shares to the key management personnel’s equity holdings.
The prior year comparatives have been restated to reflect this change.
2012 Shares
Directors & Executives
Hamish Christie-Johnston
Stephen Gobby
David Tilbrook
Michael Turner
Ian Testrow
Michael Kirkpatrick
Anthony Halls
Christopher Mossman
Keith Gordon
2011 Shares
Directors & Executives
Hamish Christie-Johnston
Stephen Gobby
David Tilbrook
Michael Turner
Ian Testrow (1)
Michael Kirkpatrick
Anthony Halls
Christopher Mossman (2)
Guido Gadomsky
Keith Gordon
Held at
Granted as
1 July 2011 compensation
Vested
during
the year
Forfeited/
lapsed
Held at
30 June
2012
1,261,408
1,152,538
1,039,714
900,785
540,541
700,450
430,218
171,667
1,183,929
413 (727,849)
322,571 (731,982)
- (812,495)
241,518 (585,586)
- (540,541)
191,579 (450,450)
205,708 (162,162)
- (171,667)
(533,972)
-
(227,219)
-
-
-
-
-
n/a
743,127
n/a
556,717
-
441,579
473,764
-
907,263
-
- 2,091,192
Held at
Granted as
1 July 2010 compensation
Vested
during
the year
Forfeited/
lapsed
Held at
30 June
2011
-
995,495
881,982
784,685
685,586
940,541
650,450
162,162
n/a
265,913
- 1,261,408
420,556 (78,000) (72,000) 1,152,538
355,029 (52,000) (48,000) 1,039,714
900,785
315,199 (52,000) (48,000)
540,541
- (352,000) (48,000)
250,000 (176,000) (24,000)
700,450
- 430,218
268,056
171,667
n/a
- 232,710
n/a
- 1,183,929
- 1,183,929
n/a
- (232,710)
-
-
n/a
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 Mr Testrow held 300,000 MISP shares at 30 June 2011.
These shares vested during FY12.
(2) 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.
n/a Not applicable as not in a position of key management personnel at time of compilation.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
132
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
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.
2012 Rights
Directors & Executives
Hamish Christie-Johnston
Stephen Gobby
David Tilbrook
Michael Turner
Ian Testrow
Michael Kirkpatrick
Anthony Halls
Christopher Mossman
Keith Gordon
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)
Held at
Granted as
1 July 2011 compensation
Vested
during
the Year
Forfeited/
lapsed
Held at
30 June
2012
203,704
300,926
281,481
240,741
508,470
185,185
166,667
177,586
925,926
-
- (146,273) (57,431)
-
- (189,437) (92,044)
-
189,000
-
-
192,093
-
n/a
- 300,926
n/a
- 240,741
- 697,470
- 185,185
- 166,667
- 369,679
- 925,926
-
-
-
-
-
-
Held at
Granted as
1 July 2010 compensation
Vested
during
the Year
Forfeited/
lapsed
Held at
30 June
2011
203,704
300,926
281,481
240,741
239,077
185,185
166,667
n/a
-
-
-
-
269,393
-
-
n/a
- 925,926
-
-
-
-
-
-
-
-
-
- 203,704
- 300,926
- 281,481
- 240,741
- 508,470
- 185,185
- 166,667
- 177,586
- 925,926
(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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
133
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
33 Key management personnel disclosure (continued)
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:
2012
Held at
Granted as
1 July 2011 compensation Exercised
Options
Forfeited
Other
Changes
Held at
30 June
2012 (1)
Vested and
Vested exercisable
at 30 June
during
2012
the year
Directors & Executives
L C Freedman
R L C Adair
1,600,000
533,334
- - (1,600,000)
- - (533,334)
-
-
-
-
-
-
2011
Held at
Granted as
1 July 2010 compensation Exercised
Options
Forfeited
Other
Changes
Held at
30 June
2011 (1)
Vested and
Vested exercisable
at 30 June
during
2011
the year
Directors & Executives
L C Freedman
R L C Adair
1,600,000
533,334
- - - - 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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
134
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
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, are as follows. The disclosure table has been adjusted to include the
transfer of vested shares from the employee share plans to the equity holdings of the members of key
management personnel. The prior year comparatives have been restated to reflect this change.
2012
Directors
K D Gordon
A N Brennan
P B Johnston
J R Cahill
R P Bishop
P I Richards
E L Smyth
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 2011
Ordinary
Shares
Transferred
from
share
Plan
Purchases
Sales
Held at
30 June 2012
Ordinary
Shares
650,000
1,581,700
100,000
120,000
300,000
40,000
-
3,352,000
3,056,578
465,578
352,000
92,067
-
24,668
12,500
-
-
-
-
-
-
-
- - 650,000
- - 1,581,700
- - 100,000
- - 120,000
- - 300,000
- - 40,000
-
- -
n/a
812,495
n/a
585,586 4,987 (460,000)
731,982 4,987 (1,001,000)
540,541
n/a
727,849
- (450,450)
450,450
162,162 4,987 (20,000)
171,667
n/a
3,187,151
201,547
- 892,541
n/a
-
171,817
- 184,167
-
n/a
-
n/a Not applicable as not in a position of key management personnel at time of compilation.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
135
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
33 Key management personnel disclosure (continued)
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
Transferred
from
share
plan
Purchases
Sales
Held at
30 June 2011
Ordinary
Shares
650,000
1,581,700
100,000
120,000
300,000
40,000
-
-
-
-
-
-
- - 650,000
- - 1,581,700
- - 100,000
- - 120,000
- - 300,000
- - 40,000
3,300,000
5,500,000
470,000
-
337,399
63,000
35,773
n/a
52,000
52,000
78,000
352,000
-
176,000
-
-
4,578 (2,500,000)
4,578 (87,000)
- - 3,352,000
3,056,578
465,578
- 352,000
91,977
-
24,578
- - 12,500
4,578 (250,000)
- (239,000)
4,578 (15,773)
-
Loans
Other than the loan issued under the management incentive share plan no specified Director or Executive has
entered into any loan arrangements with the Group.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
136
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
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:
Transaction value
year ended
30 June
2012
$'000
2011
$'000
Balance
outstanding as
at 30 June
2012
$'000
2011
$'000
Note
Key management
person and their
related parties
Mr P Richards
- Kangaroo Resources
Limited
Total current assets
Mr M A Turner
Mr D O Tilbrook
- Ivy Street Unit Trust
Total current liabilities
Transaction
Rental of heavy
earthmoving
equipment
Rental of 510 Great
Eastern Highway
(1)
(2)
4,408
4,408
3,971
3,971
947
947
1,133
1,133
-
-
37
37
-
-
-
-
(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 revenue of A$4,408,000 (inclusive of VAT)
translated at an AUD/USD average exchange rate of 1.0319 for FY12 (2011: 0.9872). The balance outstanding
as at 30 June 2012 was A$947,238 (2011: A$1,132,832) translated at the 30 June 2012 AUD/USD rate of
1.0172 (2011: 1.0724). The Group also holds a bank guarantee and deposit of A$790,232 and A$80,314
respectively from Kangaroo Resources Limited as security against outstanding amounts. The rental contract
was negotiated on an arm’s 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 $Nil
(2011: $37,810). The price was negotiated on an arm’s 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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
137
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
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 arm’s length mark up.
Ultimate parent entity
Emeco Holdings Limited is the ultimate parent entity of the Group.
35 Subsequent events
Subsequent to 30 June 2012 the Company declared a 3.5 cent fully franked dividend payable 28 September 2012.
On 20 August 2012, the Board approved an on-market buyback up to a maximum of 5% (31,561,879) of the
Company’s shares over the next 12 months. In accordance with the ASX listing rules, the prices paid for the shares
purchased under the buy-back will be no more than 5% above the volume weighted average price of the EHL
shares over the 5 prior trading days.
36 Earnings per share
Basic earnings per share
The calculation of basic earnings per share at 30 June 2012 was based on the profit/(loss) attributable to ordinary
shareholders of $69,745,000 (2011: $49,609,000) and a weighted average number of ordinary shares outstanding
less any treasury shares for the year ended 30 June 2012 of 609,182,029 (2011: 612,938,470).
Profit attributed to ordinary shareholders
Consolidated
2012
2011
Continuing Discontinued
operations
$'000
operations
$'000
Total
$'000
Continuing Discontinued
operations operations
$'000
$'000
Total
$'000
Profit/(loss) for the period
69,972
(227)
69,745
49,974
(365)
49,609
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
138
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
36 Earnings per share (continued)
Weighted average number of ordinary shares
Issued ordinary shares at 1 July
Effect of purchased treasury shares
Weighted average number of ordinary shares at 30 June
Consolidated
2012
'000
2011
'000
631,238
(22,056)
609,182
631,238
(18,300)
612,938
Diluted earnings per share
The calculation of diluted earnings per share at 30 June 2012 was based on profit attributable to ordinary
shareholders of $69,745,000 (2011: $49,609,000) and a weighted average number of ordinary shares outstanding
less any treasury shares during the financial year ended 30 June 2012 of 624,198,215 (2011: 630,580,189).
Profit attributed to ordinary shareholders (diluted)
Consolidated
2012
2011
Continuing Discontinued
operations
$'000
operations
$'000
Total
$'000
Continuing Discontinued
operations operations
$'000
$'000
Total
$'000
Profit/(loss) attributed to ordinary
shareholders (basic)
69,972
(227)
69,745
49,974
(365)
49,609
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 purchased treasury shares
Weighted average number of ordinary shares (diluted) at 30 June
Consolidated
2012
'000
2011
'000
631,238
15,016
(22,056)
624,198
631,238
17,642
(18,300)
630,580
Comparative information
The average market value of the Company’s shares for the purpose of calculating the dilutive effect of ordinary
share was based on quoted market prices for the period during which the shares were outstanding.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
139
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
37 Parent entity disclosure
As at and throughout the financial year ending 30 June 2012 the parent entity (the “Company”) of the Group was
Emeco Holdings Limited.
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
Company
2012
$'000
2011
$'000
44,654
-
-
118,509
-
-
22 153
710,376 614,821
710,398 614,974
15,627
15,627
5,922
5,922
610,424 610,304
6,462
9,155
(13,757) (10,715)
12,840
3,001
618,662 609,052
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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
140
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
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:
(cid:1)
(cid:1)
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 2012 is set out as follows:
Statement of comprehensive income and retained earnings
Revenue
Cost of sales
Gross profit
Operating expense
Finance income
Finance costs
Profit before tax
Tax expense
Net profit after tax
Consolidated
2012
$'000
2011
$'000
455,183
(289,730)
165,453
406,762
(270,865)
135,897
(64,455)
2,522
(18,727)
(52,434)
928
(18,713)
84,793 65,678
(19,043)
58,932 46,635
(25,861)
Other comprehensive income
Total comprehensive income for the period
546
546
363
363
Retained earnings at beginning of year
Dividends recognised during the year
Retained earnings at end of year
83,165 92,978
(56,811)
83,165
(34,718)
107,925
Attributable to:
Equity holders of the Company
Profit/(Loss) for the period
107,925
83,165
58,932 46,635
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
141
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Financial Statements
For the year ended 30 June 2012
38 Deed of cross guarantee (continued)
Statement of financial position
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
Consolidated
2012
$'000
2011
$'000
69,483
60,826
32,926
405
163,640
62,335
151,622
158,388
497,687
870,032
2,703
62,950
45,242
8,728
119,623
22,686
151,728
156,861
482,647
813,922
1,033,672
933,545
36,296
3,339
15,627
3,158
-
58,420
248,106
15,970
1,478
265,554
43,088
3,107
6,013
3,514
-
55,722
178,012
13,786
861
192,659
323,974
248,381
709,698
685,164
610,424
9,155
(17,806)
107,925
610,304
6,462
(14,767)
83,165
709,698
685,164
EMECO HOLDINGS LIMITED ANNUAL REPORT 2012
142