Emeco Holdings Limited and its Controlled Entities
ABN 89 112 188 815
Annual Financial Report
30 June 2014
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
1
Contents
Chairman’s Report ................................................................................................................ 3
Managing Director’s Report ................................................................................................... 5
Chief Financial Officer’s Report .............................................................................................. 7
Operating and Financial Review............................................................................................. 9
Regional Business Overview .................................................................................................15
Sustainability Report ............................................................................................................20
Financial Report ...................................................................................................................31
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
2
Chairman’s Report
Dear Shareholder,
We are pleased to present the Emeco Holdings Limited Annual Report for financial year 2013/2014 (FY14).
STRENGTHENING THE BUSINESS
The mining industry continued to adversely impact the business during the year. Significant downturns in Australia and
Indonesia reduced earnings contributions from these regions compared to FY13. Management responded by
restructuring our Australian operations. In Indonesia, following a strategic review, a decision was made to exit the
market and this has now been successfully completed.
Contract wins in Australia and Chile over the second half of FY14 demonstrated the new Management team’s early
success in delivering improved performance to the business through an enhanced and empowered business
development focus.
Notwithstanding the challenging environment, the business was able to generate $85.9 million of cash during the year.
In addition, to provide both balance sheet stability and flexibility as we work to restructure the business a US$335 million
bond issue was completed in March to replace existing debt.
Moving into FY15 Emeco is continuing to assess opportunities for further geographical expansion, working with our
customers to deliver equipment solutions which generate greater productivity and focusing on growth opportunities
which create greater value for our shareholders.
NEW LEADERSHIP
FY14 was a year of change for the Emeco leadership team with the appointment of Ken Lewsey, as CEO and Managing
Director, and Greg Hawkins as CFO. With backgrounds in the mining industry, both Ken and Greg bring extensive
experience and an enhanced customer focus to Emeco’s Management team. Both Ken and Greg have successfully driven
earnings growth in under-performing businesses in previous roles. They are being ably supported by a new
Management team made up of key people from the original team plus some new recruits. The Board is greatly
encouraged by the excellent progress that the new team has made on a range of fronts – operationally, financially and
strategically.
I’d like to take this opportunity to again thank Keith Gordon, Stephen Gobby and Michael Kirkpatrick for their
contribution to Emeco. Longstanding Non-Executive Director Bob Bishop stepped down at the end of FY14. I would like
to sincerely thank Bob for his contribution to the Board and Company over many years.
SAFETY AND SUSTAINABILITY
The Board saw a positive shift in Emeco’s sustainability performance and reporting during the year. The development
of a centrally coordinated monthly Sustainability Report produced for the Board has provided greater consistency and
efficiency in relation to the information captured and presented.
It is pleasing to see the Company continue to improve its safety performance, particularly during challenging times when
employee numbers can reduce and people are carrying out different or new roles.
During the year the Company made good progress in relation to its diversity action plan by improving diversity reporting,
awareness and establishing more flexible work practices for employees. Specifically, Emeco now has a greater number
of women employed across its workforce including Senior Management roles. Emeco is culturally and geographically
diverse and it is essential that the Company continues to attract, retain and develop high quality people with diverse
perspectives and experiences as it looks to improve its service offerings and build market share going forward.
Emeco’s safety and sustainability achievements over FY14 are detailed further in our Sustainability Report (page20).
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
3
FUTURE AMBITIONS FOCUSED ON SHAREHOLDER RETURNS
The Board and Management team remain committed to delivering strong shareholder returns over the long-term.
Capital management remains a key focus of the business and cash flow generated over the next 12 months is likely to
be directed toward further stabilising our financial position. A key measure of Management’s performance is total
shareholder returns and as such, their goals are aligned with the Board on maximising returns for those shareholders
who continue to support Emeco during these challenging times.
The Board did not declare dividends for FY14 due to our focus on improving the Company’s balance sheet. Looking
forward the Board will assess the ability to pay dividends against earnings and the financial position of the business.
BUILDING A PLATFORM FOR THE FUTURE
Over the next 12 months we will continue to build on our successes from FY14. Recently awarded contracts have
improved utilisation from the outset of FY15. Greater earnings and divestment of underutilised assets will ensure the
business continues to deliver strong cash generation. The Board’s goal is for Emeco to maximise long-term shareholder
returns in this challenging market. With a motivated management team, improved balance sheet flexibility and earnings
diversification Emeco is positioned to succeed and grow once under-performing markets recover.
Alec Brennan
Chairman
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
4
Managing Director’s Report
GEOGRAPHIC DIVERSIFICATION REDUCING IMPACT OF DOWNTURN IN AUSTRALIA
Continued weakness in commodity prices, and austerity and efficiency drives by major miners saw a continuation of
reduced activity across most of Emeco’s operating regions. The key bulk commodities of coal and iron ore were the
most affected with the miners insourcing work traditionally performed by contractors. The major miners also delivered
real productivity gains internally and better utilised their own operating assets.
This has driven all mining services providers to revisit their own cost bases and to assess the strength of their value
proposition to the market. This led to a reset of pricing levels within the industry. Whilst this has caused considerable
pain, it does ensure that there are solid foundations going forward and that the Australian mining industry in particular
remains competitive and ready for the eventual upturn in the mining cycle.
Emeco was not immune to this resetting of value. This has led us to a disappointing Operating EBITDA of $72.1 million
and an Operating Net Loss after Tax of $21.6 million. The Australian business averaged 41% utilisation across the year.
Emeco invested heavily in rebuilding its business development capability and we did see early signs of success with a
series of contract wins achieved in the last quarter of FY14. These contracts therefore had a limited impact on the 2014
financial year, but provide a solid start to 2015. Group utilisation for Emeco averaged 48% over the year and finished at
50%, demonstrating the value of Emeco’s decision to target key offshore geographies.
Our Canadian customer base continued to grow in FY14 with the business increasing its number of customers from
eleven to thirteen. In addition, we continued to expand our external maintenance offering which generated earnings
growth in FY14. Canada’s FY14 performance was down on FY13, impacted by an abnormally early cessation of the winter
works program due to unfavourable weather conditions and an unplanned temporary plant shut-down at one of our
major customers.
Since its establishment in July 2012, the Chilean business has grown to approximately $110 million of fleet and averaged
over 80% utilisation. Earnings growth in FY14 further supports Emeco’s decision to expand into the highly prospective
Chilean copper market. Efforts by our Chile team over FY14 resulted in the business securing a 5 year contract in
conjunction with Chilean mining contractor Fe Grande, estimated to generate revenue for Emeco of between US$27
million and US$32 million annually. Mobilisation of fleet has commenced for this project with a portion of equipment
to be transferred from Australia to Chile to further grow this business.
Both Canada and Chile demonstrated the value of geographical and commodity diversification over FY14 during a period
of low activity in the Australian market. Along with our improved financial position, diversification provides a stable
platform from which to compete in under-performing markets and positions the business well for growth when these
markets recover.
IMPROVEMENTS FROM STRATEGIC INITIATIVES
Since my commencement with Emeco just over 8 months ago we have achieved many of our early objectives. These
include:
• A successful refinancing of Emeco;
• A new Executive and Senior Management team with the skills to be successful in this very different market;
•
Strengthening our business development capability across our Australian and international businesses;
•
The closure of the loss making Indonesian business;
•
Securing the Fe Grande contract in Chile for 5 years, which provides a solid base for further growth in the
region; and
Continued improvement in our safety and environmental performance.
•
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
5
I entered Emeco with a strategic and business development background and a belief that genuine customer intimacy
and engagement is the key to successful and profitable growth. We initiated Emeco’s first independent, global
customer survey to ensure that we better understand and meet our customer needs. I have recruited a new team of
like minded Executives, albeit with different skills sets to develop and execute a clear strategic direction for Emeco.
During FY14 Emeco’s first female Executive, Kellie Benda, was appointed to assist with the strategic direction and
corporate development of the Company. Our ongoing strategic review has identified several business development
initiatives which have resulted in our most recent contract wins in Australia and Chile.
Our major priority was to rebuild our market share and presence in Australia. To support this, Ian Testrow returned as
Chief Operating Officer to draw on his success with developing both our Canadian and Chilean businesses. We have
bolstered our customer and business development capabilities in Australia broadening our exposure into adjacent
geographies and markets, with fleets recently contracted into the Northen Territory and mining civils markets.
The recently announced Fe Grande project replaces fleet expected to be off-hired during 1HFY15 and potential project
extensions as well as a strong pipeline of smaller projects currently tendered support an expected high level of utilisation
through FY15 and beyond. We continue to assess opportunities in the Latin America region with Chile now providing a
platform to build on our maintenance capabilities and expand our fleet.
In August 2013 Emeco announced the downsizing of the Indonesian business following a slowdown in the Indonesian
coal market and a number of significant contract losses. Following a strategic review which considered a range of factors
including uncertainty around government policy, unfavourable conditions for the Indonesian mining industry and poor
expected earnings over the long term, Emeco announced its decision to exit Indonesia in May 2014.
The Company continues to make good headway and to improve its performance in the areas of safety. We realised a
33% improvement in the total recordable injury frequency rate (TRIFR) during the year and importantly, have seen
improvements across all safety lead indicators demonstrating a pro-active shift in safety behaviour.
I believe that the quality of our people and the continuous improvement of our safety performance remain paramount
to Emeco, particularly as we demonstrate our ability to drive value and support the aspirations of our customers.
POSITION FOR FUTURE GROWTH
Our new team has been charged with envisioning an Emeco in the markets of the future. Our detailed strategic review
has looked at how we evolve within the context of the following challenges: reducing capital intensity; creating our
value differentiator; deeper wider relationships with our customers; leveraging existing capabilities and assets;
diversifying market risk; and better managing our exposure to the mining development cycle.
Our strategic review and development process continues in 1HFY15. The detailed customer, equipment market and
industry analysis carried out in recent months, together with our successes and learnings from FY14, will see us add
greater value to our customers’ operations in the coming year and take advantage of any recovery in our operating
markets. We will also continue to seek opportunities to improve utilisation of our existing fleet and to divest under-
performing asset classes.
Cash generation remains a key element of Emeco’s business model with free cash flow over FY15 intended to further
strengthen our financial position and provide leverage to strategically grow the business in the future.
The team has done an outstanding job of stabilising the business during another challenging year and I believe we are
well prepared and positioned to build on this solid foundation for greater shareholder value in FY15.
Kenneth Lewsey
Managing Director & Chief Executive Officer
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
6
Chief Financial Officer’s Report
MANAGING THROUGH THE CYCLE
Our FY14 financial results were down on the prior year due to the full year impact of contract reductions in FY13 plus
later than expected commencement of new projects and unexpected circumstances impacting utilisation in Canada as
mentioned in the Managing Directors report. Operating revenue decreased by 36.5% in FY14 to $241.1 million, down
from $379.4 million in FY13.
Despite cost reductions achieved over FY13 and FY14, the full year impact of rental rate declines during FY13 resulted
in lower Operating EBITDA and Operating EBIT margins in FY14. Combined with reduced utilisation FY14 Operating Net
Profit after Tax reduced to a $21.6 million loss, down from a profit of $28.5 million in FY13.
The Indonesian business was exited during FY14 and reported as a discontinued operation for the 12 months ended 30
June 2014.
CAPITAL RESTRUCTURING TO SUPPORT THE LONG TERM
As the operating landscape continued to deteriorate over FY14 the business focused on mitigating financing risks and
pursuing options to improve flexibility of the capital structure.
In October 2013 the business announced the negotiation of two financial covenant amendments under the previous
A$450 million syndicated debt facility. Operating results pressured these amended covenants and Management
pursued a covenant light debt structure, resulting in a US$335 million 144A bond issue with a 5 year term. The net
proceeds from the bond issue were used to repay existing indebtedness outstanding under the USPP Notes and
syndicated debt facility.
On completion of the 144A bond issue Emeco was granted access to a A$50 million secured multi-currency revolving
credit facility. This facility provides funding for future general corporate purposes.
GENERATION OF CASH FLOW A PRIORITY
FY14 free cash flow of $85.9 million was predominantly used to reduce leverage prior to the successful bond issue.
Management’s strategy of releasing cash from idle assets led to fleet disposals totalling $70.8 million, mostly from the
Indonesian business, while lower utilisation and replacement of end of life assets with existing fleet reduced sustaining
capital expenditure to $29.7 million, down 58.7% from FY13. 30 June 2014 net debt of $323.3 million represented a
22.0% reduction on the prior year.
Moving ahead Emeco’s ability to generate cash flow remains a focus for supporting the future growth of the business.
Despite Emeco’s covenant light debt structure Management remains conservative in its approach to capital
management. With gearing (net debt:Operating EBITDA) at 4.8 times Emeco will continue to focus on the generation
of free cash flow from operations and asset divestments to drive gearing below 3.0 times. Management will also focus
on a fleet strategy of matching asset classes to regional demand. At 30 June 2014 $39.9 million of assets were classified
as held for sale, being units considered non-core to the business in the current market.
RESETTING OF ASSET VALUES FOR CURRENT MARKET
During FY14 Emeco recognised goodwill impairments totalling $157.9 million, impairment charges totalling $37.5 millon
on assets transferred to non-current assets held for sale and $6.2 million of inventory write-offs associated with the
wind-down of the Australian parts business. Management believes the resetting of these asset values is indicative of
the current environment in which the business is operating. We intend to dispose of non-current assets held for sale
over FY15 given our current level of idle fleet. Funds will be used to recycle capital by replacing highly utilised end of
life assets and to manage our financial position.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
7
THE YEAR AHEAD
Recent contract awards are expected to drive incremental earnings growth during FY15. Conversion of an improving
project pipeline will drive utilisation growth, however the competitive landscape is likely to minimise any margin
improvements over the next 12 months. The business will continue to generate cash to further strengthen our financial
position and provide the business capital to fund future growth.
Having recently joined the Emeco team I look forward to working with everyone in developing this business into the
future.
Greg Hawkins
Chief Financial Officer
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
8
Operating and Financial Review
The Emeco Group supplies safe, reliable and maintained equipment rental solutions to the global mining industry.
Established in 1972, the business listed on the ASX in July 2006 and is headquartered in Perth, Western Australia. Emeco
currently employs 388 permanent and fixed term staff and owns 432 pieces of earthmoving equipment across Australia,
Canada and Chile.
Emeco generates earnings from two primary revenue streams, dry equipment rental and maintenance services.
Operating costs principally comprise parts, labour and tooling associated with maintaining earthmoving equipment.
Capital expenditure principally comprises the original purchase of equipment and replacement of major components
over the asset’s life cycle while owned by Emeco.
Chart 1: Revenue by Region
Chart 2: Revenue by Commodity
Chart 3: Fleet Composition by
Asset Class
Chile
11%
Canada
34%
Australia
55%
Iron Ore
8%
Other
6%
Coking
Coal
10%
Copper
11%
Oil
Sands
30%
Wheel
Loader
5%
Dozer
12%
Excavator
7%
Grader
4%
Other
4%
Gold
16%
Thermal
Coal
19%
Rigid Dump
Truck
68%
Note: Above analysis relates to 12 month period to 30 June 2014 and excludes discontinued operations
Table 1: Group Financial Results
A$ millions
Revenue
EBITDA
EBIT
NPAT
ROC %
EBIT margin
EBITDA margin
Operating Results
FY14
241.1
72.1
(6.1)
(21.6)
(0.8)%
(2.5%)
29.9%
FY13
379.4
160.3
61.3
28.5
6.5%
16.2%
42.3%
Statutory Results
FY13
FY14
379.4
241.1
148.3
27.2
32.1
(208.8)
0.0
(224.2)
(3.4)%
(34.2)%
8.5%
(86.6%)
11.3%
39.1%
Note: 1. Significant items 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.
2. Operating and statutory results exclude discontinued operations.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
9
Table 2: FY14 Operating Results to Statutory Results Reconciliation
Tangible asset
impairments
Intangible asset
impairments
Redundancy
Debt
establishment
cost write-off
Tax effect
NPAT
(39.4)
(3.3)
(1.0)
(43.7)
(151.7)
(6.2)
0.0
(157.9)
(1.0)
(0.2)
0.0
(1.2)
(19.1)
0.0
0.0
(19.1)
(21.6)
(193.3)
(8.6)
(0.7)
(224.2)
17.9
1.0
0.3
19.2
A$ millions
Operating
Australia
Canada
Chile
Statutory
Reconciliation of differences between Operating and Statutory Results:
FY14 Operating Results (non-IFRS) excludes the following:
1.
-
-
Tangible asset impairments: Tangible asset impairments totalling $37.5 million were recognised across the business on assets held for
sale, impacting EBITDA, EBIT and NPAT. Inventory write-offs of $6.2 million associated with the wind-down of the Australian Parts
business were recognised, impacting EBITDA, EBIT and NPAT. Refer to note 8 for further information on tangible asset impairments;
Intangible asset impairments: Based on impairment testing conducted for the FY14 interim period ended 31 December 2013 Emeco
recognised impairment of goodwill in the Australian CGU and Canadian CGU of $151.7 million and $6.2 million respectively. Adjustment
impacts EBIT and NPAT. Refer to note 21 for further information on intangible asset impairments;
- One-off costs related to redundancies in the Australian and Canadian business segments totalling $1.2 million impacting EBITDA, EBIT
and NPAT;
- Debt establishment cost write-off: In March 2014 Emeco executed a US$335 million 144A Bond Issue using proceeds to repay existing
debt. Capitalised borrowing costs on the existing facility totalling $19.1 million were subsequently written off.
2.
All reconciling items relating to FY14 Operating Results are discussed in further detail later in the Operating and Financial Review.
WEAKNESS IN MINING ACTIVITY OVER FY14
Weakness in the Australian and Indonesian mining sectors continued to drive down operating performance with the
full year impact of significant contract losses during FY13 only partially offset by new projects commenced over FY14.
As a result average utilisation declined to 48% in FY14, down from 67% in FY13. FY14 utilisation was further impacted
by delays in the commencement of recent contract wins in Australia and Chile, plus a shortened oil sands winter works
period due to warmer weather in Canada and an unplanned plant shut-down at one of our major oil sands customers.
Chart 4: FY14 Average Group Utilisation1
Average: FY14: 48%, FY13: 67%
Year-end: FY14: 50%2, FY13: 50%
100%
80%
60%
40%
20%
0%
Note:
1. Utilisation defined as % of fleet rented to customers (measured by written down value)
2. Excluding non-current assets held for sale FY14 year-end utilisation is 56%
Group operating revenue from continuing operations reduced by 36.5% to $241.1 million, down from $379.4 million in
FY13 as a result of lower utilisation and the full year impact of market wide rental rate reductions over FY13. Rental
and Maintenance revenue was down 34.6% to $233.0 million (2013: $356.0m) due to the loss of significant contracts
in FY13 which were not replaced over FY14. The Group continued to downsize the sales and parts businesses driving
associated revenue down to $8.1 million (2013: $23.4 million).
Despite further cost reductions in FY14, reduced rental margins in Australia combined with declining utilisation across
the business resulted in Operating EBITDA margin falling to 29.9% (FY13: 42.3%). Operating EBIT decreased to negative
2.5% (FY13: 16.2%) as idle fleet depreciation increased against a corresponding reduced revenue base.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
10
Lower utilisation and compressed margins resulted in Operating return on capital (ROC) declining to negative 0.8% in
FY14, down from 6.5% in FY13.
Refer to the Regional Business Overview on page 15 for further detail on regional operating and financial performance.
FOCUS ON COST REDUCTION
Table 3: Operating Cost Summary (Statutory Results)
A$ millions
Revenue
Operating expenses
Changes in machinery and parts inventory
Repairs & maintenance
Employee expenses
Hired in equipment & labour
Impairment of tangible assets
Net other expenses
EBITDA
Impairment of goodwill
Depreciation expense
Amortisation
EBIT
2014
2013
241.1
379.4
(14.4)
(84.7)
(42.9)
(13.1)
(43.7)
(15.0)
27.2
(157.9)
(78.0)
(0.1)
(208.8)
(25.8)
(114.0)
(45.2)
(7.8)
(12.0)
(26.3)
148.3
(17.8)
(98.2)
(0.2)
32.1
Lower utilisation and cost reduction initiatives resulted in operating expenses excluding impairment of tangible assets
decreasing 22.4% over FY14 to $170.1 million, down from $219.1 million in FY13.
Changes in machinery and parts inventory, which comprises the downsized sales and parts businesses in addition to
inventory management supporting third party fleet working along-side our rental units, decreased in line with sales
and parts revenue. Repairs and maintenance expense, which primarily comprises parts and maintenance labour
associated with our rental fleet, was down 25.7% to $84.7 million (2013: $114.0 million) in line with lower Rental and
Maintenance Revenue.
Restructuring of the Group over FY14 focused on resizing lower utilised segments of the business in light of reduced
operating performance, with additional resources employed to support our enhanced business and corporate
development capabilities to drive future growth. The success of this strategy has been evident over 2HFY14 with recent
contract wins expected to result in incremental utilisation improvement in early FY15. Employee expenses reduced
year on year to $42.9 million (2013: $45.2 million). Redundancies over FY14 resulted in one-off costs totalling $1.2
million.
Other expenses increased to $71.8 million as a result of higher impairment on tangible assets resulting from idle assets
classified as assets held for sale and subsequently disposed. Excluding this item net other expenses totalled $28.1
million, down 17.6% from FY13. Refer to note 8 in the financial statements for further breakdown of net other expenses
(page 103).
Depreciation expense fell in line with utilisation to $78.0 million (2013: $98.2 million), however increased as a
percentage of rental and maintenance revenue to 33.5% (2013: 27.6%) primarily due to higher depreciation expense
associated with a larger portion of idle fleet and fixed operating depreciation expense against declining rental margins.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
11
RESETTING ASSET VALUES
Table 4: Asset Impairments (Statutory Results)
A$ millions
Impairment loss on inventory
Impairment loss on PPE
Freehold land & buildings
Plant & equipment
Impairment of goodwill
2014
2013
6.1
8.6
0.1
37.5
157.9
3.0
0.4
17.8
Total asset impairments increased in FY14 to $201.6 million, up from $29.8 million in FY13.
Impairment loss on inventory fell to $6.1 million in FY14 (2013: $8.6 million), primarily representing further write-offs
associated with the wind-down of the Australian parts business.
Impairment loss on property, plant and equipment increased to $37.5 million in FY14, up from $3.4 million in FY13.
Over the year the Group classified a portion of idle fleet to non-current assets held for sale with corresponding
impairments recognised to represent the expected market value of those assets. Assets held for sale are not marketed
for rental and as such are not considered as part of our value in use impairment testing. Non-current assets held for
sale at 30 June 2014 totalled $39.9 million.
Impairment testing conducted as at 31 December 2013 identified goodwill impairment in the Australian and Canadian
businesses totalling $151.7 million and $6.2 million respectively. Goodwill arose when Emeco was acquired by two
private equity firms in 2005. Despite the Group expecting growth in mining volumes over the long-term and associated
improvement in operating performance, Emeco’s Board adopted a conservative approach in determining the carrying
value of the Group’s goodwill. Impairment testing conducted at 30 June 2014 and 31 December 2013 did not identify
impairments in the carrying value of Emeco’s tangible assets.
CASHFLOW GENERATION SUPPORTING FINANCIAL POSITION
Table 5: Cash Flow Summary
A$ millions
Operating cash flow
Sustaining capital expenditure
Other property, plant & equipment
Disposals
Free cash flow post sustaining capital expenditure
Growth capital expenditure
Free cash flow post growth capital expenditure
Dividends
Share buy-back
Debt establishment costs
Free cash flow post shareholder returns
Net cash flow from discontinued operations
Free cash flow from continuing operations post
shareholder returns
2014
76.3
(29.7)
(13.6)
70.8
103.8
(0.9)
102.9
0.0
0.0
(17.0)
85.9
9.8
2013
173.8
(71.8)
(16.9)
49.8
134.9
(90.2)
44.7
(37.1)
(16.9)
(4.7)
(14.0)
(0.4)
76.1
(13.6)
Free cash flow post shareholder returns increased in FY14 to $85.9 million, up from a net cash outflow in FY13 of $14.0
million. The increase resulted from reduced capital expenditure against capital release from disposals.
Operating cash flow dropped 58.7% to $76.3 million in line with operating EBITDA, which was impacted by lower
utilisation and the full year impact of rental rate reductions over FY13. This figure included a tax benefit of $10.2 million.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
12
As a result of lower operating activity the Group reduced capital expenditure on the prior period to $30.6 million.
Sustaining capital expenditure was minimised to that required to maintain operating fleet while end of life assets were
replaced by idle fleet. The Company will continue this approach in FY15 however will also focus on replacing highly
utilised end of life assets with capital recycled from the disposal of assets held for sale.
The successful bond issue executed in March 2014 resulted in establishment fees totalling $17.0 million. These costs
included legal, accounting and debt advisor fees.
Net cash flow from the discontinued Indonesian operations totalled $9.8 million in FY14, representing net capital
release totalling $39.0 million offset against operating costs of $2.2 million and repayment of debt associated with the
Indonesian business totalling $31.3 million.
STABILITY OF FINANCING
Table 6: Net Debt & Gearing Summary
A$ millions
Interest Bearing Liabilities (current & non-current)
2014
2013
144A Bond notes
Senior debt facilities
USPP notes
Working capital facility
Lease liabilities
Other
Cash
Net debt
Gearing ratio
Leverage ratio
Interest cover ratio
355.8
0.0
0.0
0.0
8.8
0.5
41.8
323.3
4.78
43.4%
2.83
0.0
252.7
149.6
5.3
12.4
0.5
5.8
414.7
2.15
43.1%
7.72
Note: Gearing ratio - Net Debt : Operating EBITDA
Leverage ratio - Net Debt : Net Tangible Assets
Interest cover ratio - Operating EBITDA : Interest Expense
Free cash flow generation over FY14 resulted in net debt decreasing $89.1 million to $323.3 million at 30 June 2014.
This represents a 22.0% fall in net debt from 30 June 2013.
On 17 March 2014 Emeco refinanced its existing debt facilities with the successful issue of a US$335 million bond in
conjunction with a new A$50 million secured multi-currency revolving credit facility. Emeco announced that its wholly
owned subsidiary Emeco Pty Ltd had completed the offering of US$335 million in aggregate principal amount of 9.875%
Senior Secured Notes due 2019 in an offering to qualified institutional buyers in the United States pursuant to Rule
144A under the United States Securities Act of 1933, as amended (the ‘Securities Act’), and to certain persons outside
the United States in offshore transactions in reliance on Regulation S under the Securities Act.
The net proceeds of the Notes issue was used to repay Emeco’s existing USPP Notes and syndicated debt facilities.
Repayment of the USPP Notes incurred make-whole payments of $16.1 million. The revolving credit facility provides
funding for general corporate activities and was undrawn at 30 June 2014.
The 144A Notes pay interest on 15 March and 15 September each year, commencing on 15 September 2014. The Notes
are secured and guaranteed by Emeco Holdings Limited and its subsidiaries.
The 144A Notes do not include maintenance covenants, the credit facility requires monitoring of the following
covenants:
•
•
Liquidity ratio – Net debt : Net Tangible Assets; no greater than 65%
Interest cover ratio – Operating EBITDA : Interest Expense; no less than 2.25 times
Despite Emeco’s covenant light debt structure Management remains conservative in its approach to capital
management. Gearing at 30 June 2014 was 4.78 times, Emeco’s goal is to reduce gearing below 3.0 times by 30 June
2015 through improved earnings and reducing debt with free cash flow. Assets held for sale at 30 June 2014 are
expected to release $39.9 million over FY15 (includes assets held in discontinued operations).
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
13
Refer to note 24 in the accompanying financial statements for additional information on Emeco’s financing facilities.
NIL DIVIDENDS DECLARED IN FY14
Table 7: Shareholder Returns
Dividends declared during the period
Interim dividend (cents)
Final dividend (cents)
Total dividend (cents)
Dividend payout ratio
Value of share buy-back ($ million)
Average price of share buy-back (cents)
Per share statistics
Earnings per share (cents)
NTA per share ($)
Closing share price ($)
2014
2013
0.0
0.0
0.0
0.0%
0.0
0.0
(3.6)
0.53
0.20
2.5
0.0
2.5
42.5%
16.5
53.4
4.8
0.76
0.28
Note: Dividend payout ratio is measured as dividends paid as a percentage of Operating NPAT.
The Board declared a nil interim and final dividend for FY14 as a result of the net operating loss for the period combined
with Emeco’s focus on capital preservation and maintaining a strong financial position amid poor external market
conditions. The Board will assess the ability to pay dividends against earnings and the financial position of the business
going forward.
During FY13 the Company completed a 5% share buyback, the Company did not buy back shares during FY14.
STRATEGY FOCUS TO PREPARE EMECO FOR FUTURE GROWTH
During a challenging 12 months the business successfully implemented a number of strategic initiatives including Emeco
removing gearing risks, restoring confidence in our financial position and restructuring the business to enhance our
business development capability and focus on high demand asset classes. Emeco’s strategic efforts over the next twelve
months will be to build on progress made during FY14 to position the business for future growth. We will continue to
strengthen our customer relationships, improve our financial position and match our fleet to the markets in which we
operate.
Emeco will continue to generate cashflow from operations which the Group intends to use to further strengthen our
financial position and fund corporate initiatives. Cash release from the disposal of low utilised fleet classes will partially
be used to fund asset purchases targeted toward contract awards and replacing end of life assets in fleet classes with
high utilisation rates.
As outlined in the Managing Director’s Report, our strategic review and development process will continue into 1HFY15.
Over the past six months Ken Lewsey has enhanced the Group’s corporate development team to identify opportunities
to add greater value to our customers and take advantage of any recovery in our operating markets.
Further detail on Emeco’s strategy is included in the Regional Business Overview starting on the following page.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
14
Regional Business Overview
Chart 5: Rental Revenue by Region
Chart 6: EBITDA Contribution by
Region
Chart 7: Fleet by Region
Chile
12%
Chile
16%
Australia
51%
Canada
32%
Australia
52%
Canada
37%
AUSTRALIA
Chile
21%
Canada
29%
Australia
50%
Table 8: Performance Indicators
Chart 8: Average Fleet Utilisation
Operating Results
A$ millions
Revenue
EBITDA
EBIT
Funds Employed
ROFE %
No. workforce
LTIFR
FY14
130.0
44.8
(3.5)
374.7
(0.9%)
226
1.6
FY13
250.6
121.6
53.4
467.5
11.4%
286
6.5
Var %
(48.1%)
(63.2%)
(106.6%)
(19.9%)
(12.3%)
Average: FY14: 41%, FY13: 60%
Year-end: FY14: 41%, FY13: 41%
Notes:
•
•
•
For a reconciliation of statutory to operating results refer to Table 2 on page 10 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 results
Main markets
Comprised of three operating units, Western Region (including Western Australia, Northern Territory and South
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. Rental revenue commodity mix is weighted toward thermal coal (26%),
iron ore (14%), metallurgical coal (19%) and metals (30%).
FY14 Performance
Utilisation across FY14 stabilised compared to FY13, however significant contract losses over FY13 were only partially
replaced during FY14 resulting in average utilisation decreasing to 41%, down from 60% in FY13. Reduced utilisation
combined with nil recovery in rental rates resulted in FY14 operating revenue declining to $130.0 million, down from
$250.6 million in FY13. Despite lower financial performance in FY14 an improvement in enquiry levels resulted in several
contract wins toward the end of 2HFY14. Long lead times on customers converting enquiries led to these contracts not
contributing to FY14 earnings.
Performance of the Australian business varied across each of the business units, ranging from year end utilisation in
Queensland of 10% compared to New South Wales of 68% (Western Region year end utilisation of 46%). Our
Queensland business has been heavily impacted by the oversupply of mining equipment in this region driving intense
competition. We successfully defended our strong presence in New South Wales, growing the business over FY14 with
significant contract wins in the gold and coal markets. An increase in activity in Western Australia in 2HFY14 stabilised
utilisation and resulted in several project wins toward the end of FY14.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
15
The Year Ahead
Recent contract wins will drive incremental utilisation growth from the commencement of FY15. A strong project
pipeline is expected to drive further improvement in utilisation over FY15 however the Australian market remains
competitive. Across the business units Emeco Australia is focused on building market share in Queensland, defending
our strong position in New South Wales and converting the current project pipeline in the Western Regions.
Given current utilisation of 41% the business will continue to drive cost reduction initiatives, limit capital expenditure
to major component replacements, use idle fleet to replace assets which reach end of life and seek opportunities to
redeploy or dispose of under-utilised asset classes.
Medium Term Outlook
The medium term outlook for the Australian mining market remains similar to that 12 months ago, albeit an
improvement in the rental market through greater enquiry levels. Low bulk commodity prices combined with the high
value of the Australian dollar continue to impact the coal markets, iron ore producers continue to focus on the
owner/operator model using their own equipment, while recovery in base metals market appears to be somewhat
stifled by limited access to new capital sources.
CANADA
Table 9: Performance Indicators
Chart 9: Average Fleet Utilisation
A$ millions
Revenue
EBITDA
EBIT
Operating Results
FY14
81.5
27.6
8.2
FY13
94.2
46.5
23.4
Var %
(13.5%)
(40.6%)
(65.0%)
Funds Employed
186.5
214.0
(12.9%)
ROFE %
No. Employees
LTIFR
4.4%
96
0.0
10.9%
102
4.1
(6.5%)
Average: FY14: 64%, FY13: 75%
Year-end: FY14: 49%, FY13: 51%
Notes:
•
•
For a reconciliation of statutory to operating results refer to Table 2 on page 10 and accompanying notes
Utilisation defined as % of fleet rented to customers (measured by written down value)
Main Markets
The Canadian business is strategically located in the Alberta region to service oil sands and coal projects in Western
Canada. The business primarily supplies rental equipment and external maintenance services to oil majors, indigenous
and non-indigenous contractors, and coal miners. Rental revenue composition in FY14 remained heavily weighted
toward oil sands (86%) with the remainder derived primarily from thermal coal.
FY14 Performance
The Canadian business continued to expand its customer base in FY14 signing a third MSA with a major oil producer
and partnering with large indigenous contractors. As a result the number of customers for this business increased from
eleven to thirteen. Further growth in our external maintenance offering was also driven by an additional customer,
driving associated revenues up 106.7% to $6.2 million (2013: $3.0 million).
Despite continuing to expand our Canadian business FY14 revenue of $81.5 million was 13.5% down on FY13 due to
warmer weather resulting in the early cessation of the winter oil sands works program and an unplanned temporary
plant shut-down at one of our major oil sands customers. The unpredictable nature of these occurrences resulted in
EBITDA and EBIT margins declining in FY14 to 33.9% and 10.0% respectively (2013: 49.4% and 24.8% respectively) as
revenue decreased against a relatively stable operating cost base.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
16
The Year Ahead
Over the next 12 months our Canadian business is focused on maintaining a high level of service to our existing
customers whilst building business development capability outside the oil sands market. Whilst preserving high
utilisation over the winter period, servicing other commodity markets is likely to reduce revenue seasonality and lessen
our exposure to the oil sands industry. Growth in our external maintenance services business is reducing the capital
intensity of the Canadian business. Similar to our Australian business low utilised asset classes have been targeted for
disposal with a number of assets transferred to assets held for sale.
Medium Term Outlook
Embodied in the Canadian oil sands industry is the seasonal nature of earth works over a year. While this limits visibility
on future activity, the installed production capacity in long life oil sands projects underpins significant base load
volumes over the medium term.
CHILE
Table 10: Performance Indicators
Chart 10: Average Fleet Utilisation
Operating Results
A$ millions
Revenue
EBITDA
EBIT
Funds Employed
ROFE %
No. Employees
LTIFR
FY14
25.1
13.8
4.1
138.3
3.0%
16
0.0
Var %
44.3%
24.3%
(36.0%)
76.2%
(5.2%)
FY13
17.4
11.1
6.4
78.5
8.2%
8
0.0
Average: FY14 74%. FY13: 86%
Year-end: FY14 81%, FY13: 95%
Notes:
•
•
For a reconciliation of statutory to operating results refer to Table 2 on page 10 and accompanying notes
Utilisation defined as % of fleet rented to customers (measured by written down value)
Main Markets
Leveraged to the growing copper mining region of Antofagasta, Emeco services large international and domestic blue-
chip miners and contractors in Chile. Rental revenue in FY14 was 100% weighted toward the copper industry.
FY14 Performance
During FY14 the Group invested a further $25.0 million into the Chilean fleet increasing total fleet to approximately
$110 million at 30 June 2014, including $22.2 million of transfers from Canada and Indonesia. The larger fleet combined
with high utilisation resulted in revenue growth of 44.3% in FY14 to $25.1 million. Operating expenses increased as
further resources were invested in the regional office to build our business development and maintenance capabilities.
As a result EBITDA and EBIT margins reduced in FY14 to 55.0% and 16.3% respectively, down from 63.8% and 36.8% in
FY13.
The Year Ahead
Emeco recently announced the Chilean business secured a five year contract in conjunction with Chilean mining
contractor Fe Grande, estimated to generate revenue for Emeco between US$27 million and US$32 million annually.
Utilising up to US$60 million of the Chilean fleet and representing over 50% utilisation the project provides a base for
high utilisation in Chile for FY15 and beyond. Combined with a strong project pipeline Management expects high
utilisation in the region over the next five years. Building on this foundation the business will seek opportunities to grow
the fleet with a focus on transferring idle fleet from other regions.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
17
Medium Term Outlook
The Chilean mining industry maintains a strong cost curve position which is expected to underpin activity over the
medium term. Greater presence in Chile is providing Emeco new opportunities to expand its customer base, both with
contractors and mining companies. On the basis that volumes continue to grow in this market, Emeco is well positioned
to maintain and grow earnings in this business in the medium term.
INDONESIA
FY14 Performance
Following the cessation of its only remaining significant contract with PT Indo Muro Kencana in July 2013 the business
focused on cost minimisation and reducing the fleet via disposals and transfers. As mentioned in the Operating and
Financial review (page 12), net cash flow from the discontinued Indonesian operations totalled $9.9 million in FY14.
At 30 June 2013 the Indonesian business held rental assets totalling $108 million. Over FY14 $11.2 million of the
Indonesian fleet was transferred to other Emeco businesses, whilst $82.7 million was reclassified as assets held for
sales, with disposals of $40.3 million.
Discontinued business
Coming into FY14 Emeco announced the downsizing of the Indonesian business subsequent to the loss of a number of
significant contracts and a slowdown in Indonesian coal market activity. Following a strategic review of the Indonesian
business completed in May 2014 Emeco will exit the market given expected poor earnings from the business over the
long-term.
The Indonesian business has been classified as a discontinuing operation for FY14 and the comparative period. As such
FY14 financial results of the business have been excluded from operating and statutory results.
The exit of the Indonesian business is expected to remove approximately $3.5 million in operating costs annually.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
18
Table 11: Five Year Financial Summary
REVENUE
Revenue from rental income
Revenue from sale of machines and parts
Revenue from maintenance services
Total
PROFIT
EBITDA
EBIT
PBT
NPAT from continuing operations
Profit/Loss from discontinued operations
Profit for the year
One-off significant items
Operating profit
Basic EPS
BALANCE SHEET
Total Assets
Total Liabilities
Shareholders’ Equity
Total Debt
CASH FLOWS
Net cash flows from operating activities
Net cash flows from investing activities
Net cash flows from financing activities
Free Cash Flow after repayment/(drawdown) of net
debt
Free Cash Flow before repayment/(drawdown) of
net debt1
DIVIDENDS
Number of ordinary shares at year end
Total Dividends paid in respect to Financial Year
Ordinary dividends per share declared
Special dividends per share declared
KEY RATIO'S
Average fleet utilisation
EBIT ROC
EBIT ROFE (pre goodwill)
Net Debt to EBITDA
Total Debt to equity
2014
2013
2012
2011
2010
205,368
314,068
440,299
386,530
302,355
8,145
27,582
23,413
41,894
66,689
58,182
62,795
53,170
64,328
38,276
241,095
379,375
565,170
502,495
404,959
27,188
(208,827)
(251,378)
(224,172)
(51,137)
(275,309)
148,268
32,075
7,459
260,507
124,820
100,406
215,379
93,206
70,247
167,685
48,510
25,785
12
69,972
49,974
12,300
5,992
6,004
(227)
(365)
(61,613)
69,745
49,609
(49,313)
(202,629)
(28,487)
(1,375)
(6,395)
(90,456)
(21,543)
28,499
71,120
56,004
41,143
(3.6)
4.8
11.3
8.2
2.0
748,362
1,126,022 1,216,116
981,152 1,014,754
424,390
514,846
575,729
378,918
392,011
323,972
343,774
611,176
640,387
602,234
622,743
415,426
459,484
297,005
305,472
82,072
25,032
181,303
230,467
214,931
147,462
(129,124)
(281,817)
(146,088)
(107,527)
(71,364)
(119,281)
118,958
(68,947)
(45,377)
35,740
(67,102)
67,608
(104)
(5,442)
85,889
(9,273)
(90,958)
(17,800)
24,900
599,675
599,675
631,238
631,238
631,238
-
0.0
0.0
48.0
(0.8)
(0.9)
4.78
106.1
37,146
2.5
37,874
6.0
0.0
0.0
63,124
5.0
5.0
12,625
2.0
0.0
67.0
7.1
8.5
2.15
68.0
86.0
13.2
15.7
1.47
71.8
85.0
11.3
14.0
1.38
49.3
72.0
8.3
10.5
1.82
49.1
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
cents
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
'000
$'000
cents
cents
%
%
%
x
%
Financial information as reported in the corresponding financial year and includes operations now discontinued.
1 Includes capex funded via finance lease facilities (excluded from statutory cash flow).
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
19
Sustainability Report
(cid:1) TRIFR improved by 33% in
(cid:1) Appointment of two female
(cid:1)
FY14
executives to senior leadership
roles
Independent survey of
customer satisfaction levels
SUSTAINABILITY FOR THE FUTURE
This is Emeco’s fourth consecutive global sustainability report covering the financial year ending 30 June 2014. Despite
challenging market conditions during the last financial year we maintained our commitment to employee safety,
investment in our communities and the responsible stewardship of the physical environment in which we operate.
During the reporting period the mining industry was confronted with many adverse economic and market conditions.
As a result of these issues we were forced to make a number of difficult decisions which resulted in the announcements
that we would exit our Indonesian operations and commence a redundancy program in Australia. While difficult, we
believe these measures were essential to help us transition Emeco through a difficult time and to improve the future
sustainability of the Company.
Safety is paramount at Emeco. We had a 33% improvement in our Total Recordable Injury Frequency Rate (TRIFR) and
a 74% improvement in our Lost Time Injury Frequency Rate (LTIFR) during FY14 due to a continued focus on lead
indicators, improvement of health, safety and environment (HSE) systems and by ensuring that our employees are
provided with the HSE training relevant to their role.
In a significant step, we have made good progress to our commitment to gender diversity. We appointed the first female
executive to our leadership team and also appointed our first female general manager. We have also established a
structured mentoring program for our current and future women leaders within the Australian business. In FY15 we will
focus on expanding the diversity of our operations.
Continuing to manage our key sustainability risks remains a priority. Throughout FY14 we collected key sustainability
metrics for the monthly sustainability report produced for the Emeco Board. This has enabled the Board to track our
progress more closely, which has improved performance and accountability levels across the Company. Our annual
sustainability reporting process has also become more streamlined and consistent as we collect information on a more
regular basis.
About this report
This report has been developed using the Global Reporting Initiative (GRI) framework in accordance with the G3
guidelines. The report has been self-assessed as a C level report and covers our performance in the areas of safety,
people, community and environment for the FY14 period across our global operations. In preparing the information
disclosed in this report we have applied the GRI principles for the development of report content which help to identify
the areas of greatest importance and focus. These principles are: materiality, stakeholder inclusiveness, sustainability
context and completeness.
Report Boundary
This report covers our global operations in Australia, Indonesia, Canada and Chile. References to Emeco in this report
cover all of our operations, except where explicitly stated.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
20
Table 12: Sustainability Performance and Targets
Performance Areas
FY14 Performance Highlights
FY15 Performance Targets
People
Safety
Further reading page
23 to 24
• TRIFR improved by 33%
• iSystain system implemented in Australia to
improve safety reporting
• Improved levels of proactive HSE lead indicators
• Canada HSE new hire assessment
• Implementation of Canadian ‘Life Saving Rules’
• Global implementation of Emeco
Safety Health and Environment
Management System (ESHEMS)
standards
• Global implementation of Core Risk
Control Protocols & Standard
Operating Procedures
• Global implementation of iSystain
• Increase proactive HSE leave
indicators
• Reduce injury frequency rates
Employee
Development
Further reading page
26 to 27
• Global HR Forum established. Four meetings held
• Undertook fourth employee culture survey
• Progressed consistent on-boarding process for
new employees across Australian business
• Undertake fifth annual culture survey
• Implement consistent on-boarding
process for new employees across the
Australian business
• Developed Canadian Project Manager assessment
• Implement values-based employee
profiling tool
recognition program
• Implement profiling tool for key roles
in Australian business
• Develop and implement leadership
program for frontline leaders
Diversity
Further reading page
24 to 25
• Appointment of two female executives to senior
• Conduct global diversity awareness
leadership roles
training
• FY14 diversity initiatives implemented:
- Global gender diversity measurement
framework
• Identify and target development of
current and future potential women
leaders
- Structured mentoring program for current and
future women leaders within Australia
- Emeco Empowered Leaders profile raising
Community
Community
Participation
Further reading page
27 to 28
• Ongoing support of Women Building Futures
• Strategic review of global community
Canada
engagement approach
• Participation in Clontarf Foundation Careers Day
• Appointment of new community engagement
• Increase employee participation in
community engagement
representatives
Environment
Environmental
Management
Further reading page
28 to 30
• Improved waste and waste water management
practices
• Reduced unnecessary idling of equipment in
Canada
• Review existing Lifeline Australia and
Clontarf partnership agreements in
Australia
• Implement consistent approaches to
water conservation and recycling
across Emeco Group
• Global support of national/local
clean-ups each quarter
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
21
Our stakeholders
Our key stakeholder groups are listed below in table 13. The ways in which we engage with our stakeholders and their
main areas of interest are also presented. Where relevant, we have responded to these concerns throughout the report
as indicated by the cross-reference in the table below.
We have continued to report the same material issues which we identified in our 2013 report. With the transition to
the GRI G4 standard after the end of 2015, we expect to be able to refine our material issues further and ensure that
they continue to accurately reflect our key impacts across the business and their level of interest to our stakeholders.
Table 13: Stakeholder Engagement
STAKEHOLDER GROUP HOW WE ENGAGE
Shareholders
Customers
Employees
Investor relations team, annual financial
performance reporting, annual general meeting,
annual meetings with proxy advisory firms and
corporate governance meetings.
Face to face through tender responses, business
development and site managers.
In FY14 we undertook an independent customer
satisfaction survey.
We have improved our approach to managing
customer relationships and implemented a multi-
level relationship engagement process with our
customers.
During the period we engaged with employees
directly through face to face as well as through
Emeco’s intranet, MD newsletter, regional
newsletters, employee culture survey, inductions,
performance management process, in-house
training, community engagement activities, and
safety meetings.
Suppliers
Supply related enquiries, tender/quote responses.
Community members
Community focused sponsorship and partnership
activities
Listening to our customers
TOPICS AND CONCERNS (FY14)
• Company performance
• Value creation
• Financial and non-financial risk mitigation
• Capital management
• Corporate governance
• Safety
• Hire terms and conditions
• Equipment supply
• Equipment performance
• Workforce supply
Job security
•
• Safety
• Communication
• Training and development
• Work prioritisation
• Workplace satisfaction and desired values
• Company performance
• Supply chain opportunities and/or issues
• Social impact of operations
• Community investment and support
As a B2B organisation, we are focused on helping our customers to safely reach their performance and sustainability
goals.
Safe employees, customers and suppliers
Our customers have told us that safety is their main priority and this aligns with Emeco’s position that the safety of our
people and those we work with is paramount. Emeco is committed to maintaining a safe and healthy working
environment for our employees, suppliers and customers. To that end we continued to improve our safety systems and
processes in FY14 as well as our global safety performance (see page 24).
Customer Feedback
We undertook an independent customer satisfaction survey of customers, non-customers and industry participants in
FY14. The survey sought to better understand our customers’ needs and their level of satisfaction with our products
and services.
Approximately 40 respondents from across Latin America, Canada and Australia participated in the survey. The
information obtained will be vital as we seek to add greater value to our existing and future customers’ operations and
as we develop our business strategy for the future.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
22
PEOPLE
Health and Safety
We take the health and safety of our people very seriously. We are proud of the progress we made in FY14 in formalising
a number of systems and standard operating procedures. The Emeco Health, Safety and Environment Risk Matrix and
Risk Management framework are now consistent across the entire Group. Operating, leasing and maintaining heavy
vehicles in 24/7 environments can present a risk to our people, but it is also an opportunity to demonstrate leading
practice in safety management and behavioural-led safety. We are pleased to report an improvement in total recordable
and lost time injury frequency rates during FY14.
Improved systems
A new HSE information and incident management application, iSystain, was rolled out across Australia in FY14. iSystain
is supported by the Emeco Safety Health Environmental Management System (ESHEMS) compromising of 16 standards
which outline Emeco’s HSE requirements at the highest level. Underlying the ESHEMS Standard 10 – Risk Management
are core risk control protocols and supporting standard operating procedures.
The iSystain application also has a Vendor Management module which allows us to assess the HSE maturity of our
suppliers to ensure that they are able to operate within Emeco’s HSE requirements. We constantly seek to improve the
health and safety of not only our employees, but also our supply chain. The Vendor Management module will provide
automated management of supplier prequalification, assess compliance against Emeco’s requirements and assist in the
ongoing management of a supplier’s services.
A key focus for the coming year will be to implement iSystain across our global operations to Canada and Chile.
Monitoring and audit
The Australian business developed and conducted internal audits of EHSEMS for Western Australian and New South
Wales operational sites during the period. Mackay and other Queensland sites were not audited due to the downsizing
of our Queensland operations. The Canadian business has undertaken audits to achieve their Certificate of Registration
requirements in the province of Alberta. ESHEMS audits for Chile will commence in FY15.
Global knowledge sharing
The Global HSE Forum continued in FY14 and has resulted in greater information sharing across the Emeco Group. The
Australian business focused on HSE communication and engagement and has since seen improvements to our Positive
Attitude Safety System (PASS). We have implemented an additional level meeting in which operational leaders
(including Leading Hands and Supervisors) discuss HSE improvements and provide feedback on a daily basis. By moving
from lag indicators for safety to a more proactive HSE lead indicator focus, we believe that we are bringing HSE
leadership from the boardroom to the frontline.
During the year our Canadian business rolled out the “Emeco Canada Life Saving Rules” which are positive, proactive
guiding principles for all Canadian employees to abide by. There has also been an increased focus on delivering training
including topics such as risk tolerance levels, heavy duty mechanic training and administrative training around audits,
injury investigations and return to work strategies.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
23
Safety Performance
Table 14: FY14 Safety Performance Measures by RegionA
Region
Australia
Canada
Chile
Indonesia
Emeco Group
TRIFRB
12.8
0
0
0
12.8
LTIFRC
1.6
0
0
0
1.6
Table 15: 5 Year LTIFR Performance
LTIFR
Emeco Group
FY14
0.9
Table 16: 4 Year TRIFR Performance
TRIFR
Emeco Group
FY14
7.1
* Emeco commenced reporting TRIFR in FY11.
FY13
3.5
FY13
10.6
MTIFRE
4.8
0
0
0
4.8
FY10
3.4
DIFRD
6.4
0
0
0
6.4
FY12
1.7F
FY12
17.4
FY11
2.4
FY11*
12.4
During the period, Emeco’s global LTIFR decreased by 74% and the Group realised a 33% improvement in TRIFR. Lead
indicators such as the reporting of hazards and near misses as well as the number of inspections, audits and safe act
observations also continually improved during the year.
Focus on proactive HSE activities
We focused heavily on safety performance and proactive HSE activities during the year. Additionally, we concentrated
on a number of lead indicators which are important to help the business identify hazards, prevent injuries and encourage
continuous improvement. Each region continued to improve in relation to hazard reporting, safe act observations, risk
management tools (Take 5s, Job Safety Environmental Analysis, Safe Work Method Statements, Field Level Risk
Assessments, Last Minute Risk Assessments and Team Based Risk Assessments).
As part of our commitment to ensuring our employees are safe at work, we also encourage and empower our employees
to be safe outside of the workplace. During the year, Emeco ran four free three-hour child and baby first aid courses for
employees and their families in Australia. In FY15 we plan to continue with this initiative.
Diversity
Operating across Australia, Canada and Chile, Emeco's businesses 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.
Emeco made good progress in its commitment to increasing gender diversity in FY14. The first female executive was
appointed to our leadership team and we also appointed our first female General Manager. In FY14 Emeco increased
overall female representation in the workforce (see table 18).
Our executive leadership team participated in gender diversity workshops during FY13 and we now intend to roll this
out to the senior regional management teams in FY15. We understand the value of gender diversity and are committed
to equality and treating each other with respect.
For the first time in FY14 we piloted a structured mentoring opportunity for current and future women leaders within
Western Australia, developed in conjunction with the Australian Institute of Management Western Australia. We will
look to expand this program across our other operating regions in FY15 through AIM WA’s e-mentoring capabilities and
affiliated training organisations dependent on feedback from participants.
A First Aid Injuries are not included in the above data as they are not a Recordable Injury
B Total Recordable Injury Frequency Rate: a combination of Fatalities, Lost Time, Disabling Injury and Medical Treatment Injury. Frequency Rate (FR)
the number or injuries/illness for required indicator multiplied by million hours worked divided by total exposure hours
C Lost Time Injury Frequency Rate
D Disabling Injury Frequency Rate
E Medical Treatment Injury Frequency Rate
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
24
Emeco has begun producing and publishing a series of regular articles called ‘Empowered Leaders’. These articles
showcase Emeco people who lead by example, regardless of their level or role. The articles are communicated through
Emeco’s intranet (Emnet) and via email.
People data
In FY14 we changed the format of our reporting on gender diversity metrics so we are aligned with the Australian
Government’s Workplace Gender Equality Agency (WGEA) requirements for job classifications. Our WGEA report is
available in the sustainability section of our website: www.emecogroup.com. Please refer to pages 37 to 38 for further
information on our approach to gender diversity.
As at 30 June 2014, women represent 15.9 per cent of our workforce which is a slight increase from 14.7 per cent at 30
June 2013. Women hold 20.8 per cent of management positions and the majority of women are employed in
administrative and business support roles at Emeco.
Table 17: Employees by Region and Contract
Region
Australia
Indonesia
Canada
Chile
Total
Total number of employees (2014)
Full time
(perm)
212
Part timeG
(perm)
7
Full time
(fixed term)
3
Part time
(fixed term)
0
38
94
16
360
0
1
0
8
12
1
0
16
0
0
0
0
Casual
Total
4
0
0
0
4
226
50
96
16
388
Table 18: Group Workforce by Job Classification, Gender and Age
Job classification
Total
CEO
Key Management Personnel
Other Executives / General
Managers
Senior Managers
Other Managers
Professionals
Technicians and Trade
Community & Personal Service
Clerical & Administrative
Sales
Machinery Operators & Drivers
Labourers
Other
Graduate
Apprentice
Total
1
7
9
18
13
33
208
1
47
17
5
2
7
0
20
388
Gender
Age
Female
0
Male
1
< 30 yrs
0
31-40
0
41-50
0
51+ yrs
1
1
1
5
3
11
0
0
35
0
0
2
4
0
0
62
6
8
13
10
22
208
1
12
17
5
0
3
0
20
326
0
0
2
0
12
70
0
11
2
2
1
0
0
14
114
3
2
8
5
11
64
0
16
3
1
0
4
0
5
3
5
6
5
4
49
1
12
8
2
1
3
0
1
1
2
2
3
6
25
0
8
4
0
0
0
0
0
122
100
52
G Part-time is assessed as anything less than 38 hours week.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
25
Table 19: FY14 Turnover by Region
Region
Australia
Indonesia
Canada
Chile
Managing structural changes
Turnover Number
Turnover Rate H
Male
92
171
27
8
Female
20
19
11
0
Male
35.05%
111.91%
25.78%
48.54%
Female
7.59%
17.04%
10.55%
0.00%
Unfortunately market conditions in Australia required a program of redundancies in FY14. Affected employees,
regardless of their level or position, were provided with support and assistance to transition to alternative employment.
In Australia Emeco engages the support of a third-party Employee Assistance Program (EAP). Throughout the FY14
structural changes, Emeco management regularly communicated the EAP services available to employees and in some
circumstances family members.
In August 2013 Emeco announced the downsizing of the Indonesian business following a slowdown in Indonesian coal
mining activity and a number of significant contract losses. The Indonesian business will not be included in reports going
forward and we currently have a limited team of key staff operating at the workshop to assist with the closure of the
business.
The decision to exit Indonesia was taken very seriously, weighing up the market conditions as well as the impacts on
our employees. Throughout this process we have engaged with the relevant local organisations and authorities to
provide support for affected employees and ensure that we comply with the relevant industrial relations regulations.
Employee satisfaction
In 2013 we undertook our fourth annual culture survey with 76% of the global workforce participating. As anticipated,
given the challenging market conditions at the time the survey was conducted, employee satisfaction levels were lower
than in previous years. This was a clear reflection of the downturn in the market and concerns around job security,
particularly in Australia and Indonesia. Pleasingly, our culture survey did reveal that our core values of Accountability,
Continuous Improvement, Integrity and Collaboration continue to remain priorities for employees.
Employee Development
Emeco strives to ensure that all employees have Personal Performance Plans (PPP) which include objectives, behavioural
assessments and training plans. During the year, 80% of eligible employees (those starting employment prior to 1 April
2014) completed a PPP for the Australian business, 90% of employees for the Canadian business and 25% in Chile. We
are in the process of appointing a human resources manager in Chile, which we hope will help to increase the number
of performance plans for this region as well as further develop our in-country people systems and processes.
Developing our frontline
A pilot of the Frontline First supervisor training program commenced in February 2014 in Western Australia. The
program incorporates a number of targeted modules catering for the specific needs of Emeco's frontline leaders. This
program includes modules in safety leadership, proactive HSE tasks, maintenance operations management,
communication skills, building and managing teams, contract management and performance management.
Emeco nationally recognised training
Working with a Registered Training Organisation (RTO) in Australia, we have commenced developing in-house,
nationally recognised training and assessments in Frontline Management. On successful completion of the training,
employees will receive a Certificate IV qualification which is recognised across the industry. This training is also helping
to develop empowered Emeco leaders.
H Turnover is defined as the number of employees leaving Emeco voluntarily and involuntarily. It is based on a rolling 12 month figure
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
26
We have established a Global Human Resources Forum focused on sharing best practice across the business in relation
to our people systems, processes and practises. For example, our Canadian business has developed human resources
profiles for strategically critical roles, such as project managers. As the market becomes hyper-competitive in Australia,
the skills of our customer facing people have become mission critical to our business. A key human resources initiative
for Australia in FY15 is to develop profiles and role scorecards to ensure employees are aware of desired job outcomes,
key accountabilities and performance measures, which will assist our people in their career pathways.
Table 20: Average hours of training per year per employee by region
Region
Australia
Indonesia
Canada
Chile
Group average
COMMUNITY
FY14
20.25
10.27
15.31
22.53
17.09
Emeco strives to positively support the communities of the regions where we operate and create an environment that
allows our local workforce to understand the needs of their local communities. In addition to our national partnerships,
dedicated employees in each region have responsibility for managing their local community engagement activities
budgets. Community organisations are encouraged to apply for sponsorship from Emeco by following our community
sponsorship application process. All applicants are assessed by our Community Engagement Representatives in
accordance with our Sponsorship Guidelines and budget. In the past year, we have supported local community
organisations across all regions in which we operate.
Table 21: FY14 Community activity by region
Region
Australia
Indonesia
Canada
Chile
Partnership or Sponsorship
Lifeline Australia (National Partnership)
Clontarf (National Partnership)
Activ Foundation - City to Surf
Cancer Council WA (Relay for Life Corporate Triathlon & The Biggest Morning Tea)
Febfast - Youth Support + Advocacy service and Family Drug Support
HBF Run for a Reason (Lifeline WA)
Leukaemia Foundation
Movember Men’s Health
Royal Flying Doctor Service WA
RSPCA Million Paws Walk
WA School of Mines
YMCA Big Brothers Big Sisters
Manggar Youth Organisations
Youth Pledge Day
People Empower Council
Women Building Futures
Community engagement activities not yet commenced.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
27
Partnering for change
We also have a number of longer term, strategic partnership agreements with community organisations. In FY14 we
continued to support Women Building Futures in Canada as well as Lifeline Australia and the Clontarf Foundation in
Australia.
ENVIRONMENT
Globally, we are committed to responsible environmental practices that aim to reduce any adverse environmental
impacts and improve the economic and environmental benefits related with our business activities. In FY13, we
developed and implemented a monthly sustainability reporting tool. Over the past two years the tool has been
streamlined which has improved the consistency and efficiency of our environmental data collection and reporting
processes. We continue to inspect and monitor work areas to identify environmental risks and opportunities for
improvement.
Water and waste water management
In FY14, a number of improvements were initiated in relation to waste water management practices. Following are
some examples of the steps taken:
• At our Rutherford workshop in New South Wales we have undertaken recalibration of our water/oil separator
•
and trained employees in the use of this equipment.
The wash pad facility at our Guildford workshop in Western Australia was redesigned to ensure waste flows
correctly into the waste oil area. This improvement was made after the successful redesign of the wash pad
facility at our Mackay workshop in Queensland in FY13.
• Also at our Guildford workshop, we recently completed a ground hydrocarbon study and report on
hydrocarbon soil contamination for the workshop and yard. This identified that our hydrocarbon management
practises were effective in preventing soil and water table contamination.
• Across Australia we installed hydrocarbon traps in all drains to trap any hydrocarbon contaminated water
entering after rain events at our workshops.
These initiatives will help ensure increased water holding capacity, improved water recycling, improved safeguards to
prevent hydrocarbon contamination of waterways and increased monitoring/sampling of hydrocarbon content across
our Australian operations.
In FY14, we have worked towards improving our reporting approaches and continue to monitor water use and
management. We are working to improve water management practices across Emeco’s global operations in the future.
Across our Australian operations we have invested in vehicles which have an extra quiet (XQ) specification. We offer
these machines to our customers in an effort to reduce noise pollution in the areas where we operate. We currently
have XQ vehicles operating at customer sites in Western Australia and New South Wales.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
28
Energy efficiency initiatives
Emeco continuously looks to implement initiatives that lessen the impact of our business activities on the environment.
To improve our overall carbon footprint during FY14 we implemented a number of energy efficiency improvements in
our offices and sites, including:
•
•
•
Trialling induction lighting and installing LED lights at our goods inward/outward shed in Guildford, Western
Australia. The use of induction and LED lighting has resulted in greater energy efficiencies and utility cost
savings for Emeco as induction lighting consumes approximately 50% of what a conventional lighting system
consumes.
Introducing a new environmentally friendly cleaning agent to our parts cleaning process at our Rutherford
workshop in New South Wales.
Identifying ways to reduce the impacts of our vehicles while in use at customer sites. In New South Wales we
have installed LED lighting on all fleet vehicles to improve the overall energy efficiency of the vehicles.
Due to the nature of our operations, hazardous waste is an area of concern globally. Emeco has strict guidelines on the
safe handling and disposal of environmental waste and hydrocarbons generated by our operations. We engage
approved suppliers to handle and dispose of environmental waste and hydrocarbons. In Australia we actively recycle,
reuse and reduce the amount of thinners in our paint and blast facilities. This approach has substantially reduced waste
solvents onsite and overall waste production and disposal costs.
Incidents and spills
No significant spills were reported by any of our operations in FY14.
Energy and greenhouse gas emissions
Emeco provides safe, reliable and well maintained earthmoving equipment solutions for mining across Australia, Canada
and Chile. Due to the nature of our business our customers continue to have sole responsibility for reporting emissions
associated with the use of our equipment. Our Australian operations fall below the current emissions reporting
thresholds set by the Australian Government’s National Greenhouse and Energy Reporting legislation and Energy
Efficiency Opportunities legislation and as such, we are not required to report greenhouse gas emissions or energy usage
under either of the aforementioned legislations. Nonetheless, we track and report energy usage and greenhouse gas
emissions information each year, for the prior financial year, through our voluntary submission to the Carbon Disclosure
Project (CDP) www.cdproject.net.
Our most recent CDP submission shows that our FY13 GHG emissions (scopes 1 and 2) were 9,441 tCO2e (see table 23)
which represented an increase of 25% on FY12 emissions. The increase in emissions was primarily due to the improved
tracking of data in Chile as well as fleet fuel consumption which contributed to a 47% increase year-on-year in vehicle
carbon emissions.
In FY14, each region reported regularly on environmental data through our monthly sustainability reporting tool with
the aim to improving the accuracy of our emissions data allowing us to respond more effectively to identifying and
managing trends.
We strive for continual improvement in our environmental performance in ways that are sustainable, practical,
meaningful and cost-effective. We remain committed to identifying and monitoring the environmental impacts of
Emeco’s business activities and continue to work with our customers to mitigate these impacts, improve energy
efficiencies, manage environmental risks and reduce overall emissions associated with our service offerings.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
29
ENERGY AND GREENHOUSE GAS EMISSIONS (GHG)
Table 22: FY13 Energy Consumption by Source
Energy consumption
Electricity
Natural Gas
Fleet Fuel
Total energy consumed
Direct energy (GJ)
(Scope 1 & 2)
12,760
11,303
80,486
104,548
tCO2-e
(Scope 1 & 2)
3,331
580
5,530
9,441
Table 23: 2010-13 Group Emissions (Scope 1 & 2)
Year
2010
2011
2012
2013
tCO2-eI
7,397
6,447
7,543
9,441
Table 24: 2013 Group Energy Consumption and GHG Emissions by Region
Region
Australia
Canada
Indonesia
Chile
Total
Direct energy (GJ)
(Scope 1 & 2)
34,085
28,102
7,384
34,977
104,548
tCO2-e
(Scope 1&2)
4,557
1,815
689
2,380
9,441
I Carbon footprint is calculated using the international best practice Greenhouse Gas Protocol.
National Greenhouse Accounts (NGA) Factors July 2010 – Department of Climate Change and Energy Efficiency
National Greenhouse and Energy Reporting (Measurement) Determination 2008
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
30
Financial Report
Corporate Governance Statement ........................................................................................32
Directors’ Report..................................................................................................................43
Directors .................................................................................................................... 43
Company Secretary .................................................................................................... 46
Directors’ Meetings .................................................................................................... 46
Principal activities ...................................................................................................... 46
Operating and financial review ................................................................................... 47
Dividends ................................................................................................................... 47
Significant changes in state of affairs .......................................................................... 47
Events subsequent to report date ............................................................................... 47
Likely developments .................................................................................................. 47
Directors’ interest ...................................................................................................... 47
Indemnification and insurance of officers and auditors ............................................... 48
Non-audit services ..................................................................................................... 48
Lead auditor’s independence declaration.................................................................... 48
Rounding off .............................................................................................................. 48
Remuneration report (audited) .................................................................................. 49
KPMG’s Independence Declaration ............................................................................. 67
Consolidated Statement of Profit or Loss and Other Comprehensive Income .........................68
Consolidated Statement of Financial Position .......................................................................70
Consolidated Statement of Changes in Equity .......................................................................71
Consolidated Statement of Cash Flows .................................................................................72
Notes to the Consolidated Financial Statements ...................................................................73
Directors’ Declaration ........................................................................................................ 151
Independent Auditor’s Report ............................................................................................ 152
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
31
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Corporate Governance Statement
For the year ended 30 June 2014
This Corporate Governance Statement sets out the extent to which Emeco has followed each of the Corporate
Governance Principles and Recommendations with 2010 Amendments set by the ASX Corporate Governance Council
(ASX Principles and Recommendations) during FY14.
Principle 1
Lay solid foundations for management and oversight
Roles and responsibilities of the Board and Senior Executives
The Company’s Board Charter, which has been adopted by the Board, sets out the functions and responsibilities of the
Board, each Director and the Chair.
Under the charter, the Board is accountable to shareholders for the overall performance of the Company and
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 the dividend policy and the amount and timing of all dividends;
evaluating, approving and monitoring major capital expenditure, capital management and all major acquisitions,
divestitures and other corporate transactions, including the issue of securities;
reviewing, ratifying and monitoring systems of risk management and internal compliance and control, codes of
conduct and legal compliance;
evaluating and monitoring annual budgets and business plans;
ensuring appropriate resources are available to senior executives;
approving all accounting policies, financial reports and external communications by the Group;
appointing, re-appointing or removing the Company’s external auditors (on recommendation from the audit and
risk committee); and
appointing, monitoring and managing the performance and remuneration of Executive Directors.
The charter sets a minimum number of Board meetings and provides for the establishment of the Audit and Risk
Committee and the Remuneration and Nomination Committee. The charter also sets minimum standards of ethical
conduct of the Directors, which are further elaborated on in the Company’s Code of Conduct, and specifies the terms
on which Directors are able to obtain independent professional advice at the Company’s expense.
A copy of the Board Charter and the Company’s code of conduct is available on the Emeco website.
Under the terms of the Board Charter, the Chief Executive Officer is responsible to the Board for the day-to-day
management of the Group. The Board has formally adopted a structured delegated financial authority (DFA) which
outlines the specific financial authority limits delegated to the Chief Executive Officer. 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 incurred in the day-to-day running of the business; and
capital expenditure, being the purchase of assets for the purpose of deriving income.
The DFA also sets levels of permitted contractual and expenditure commitment delegated by the Chief Executive Officer
to 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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
32
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Corporate Governance Statement
For the year ended 30 June 2014
The Company has written agreements with each Director and Senior Executive setting out the terms of their
appointment.
Evaluating the performance of Executives
The performance of the Chief Executive Officer 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 Chief
Executive Officer in July/August each year. These performance reviews provide the Chief Executive Officer and each
Senior Executive with the opportunity not only to review the Senior 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 as at July was undertaken during FY14.
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, risks and other policies and responsibilities.
Principle 2
Structure the Board to add value
Board membership
With the retirement of Mr Bishop effective from 30 June 2014, the Board is currently comprised of five Directors. Of
these, four, including the Chair, are independent Non-Executive Directors.
Independent Directors are expected to bring independent views and judgement to the Board’s deliberations. All of the
Company’s independent Directors satisfy the criteria for independence set out in the ASX Principles and
Recommendations. In considering whether a Director is independent, the Board has had regard to the relationships
affecting his or her 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 one Director, who is not considered to be independent due to his involvement in the management and operations
of the Group, is Mr Lewsey, the Chief Executive Officer and Managing Director.
The table below sets out details of the status of each of the current Directors:
Table 25: Status of Current Directors
Director
Date of Appointment
Independent?
Non-Executive?
Alec Brennan
John Cahill
Kenneth Lewsey
Peter Richards
Erica Smyth
16/08/2005
15/09/2008
4/11/2013
14/06/2010
15/12/2011
Yes
Yes
No
Yes
Yes
Yes
Yes
No
Yes
Yes
Seeking Re-election at
2014 AGM?
Yes
Yes
No
No
No
The biographical details of the Directors are set out on pages 43 to 45.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
33
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Corporate Governance Statement
For the year ended 30 June 2014
Director skills, experience and expertise
The following table sets out the key skills and experience of the Directors and the extent to which they are represented
on the Board and its committees:
Table 26: Skills and experience
Strategy &
Sustainability
Finance
Strategic skills. Contributes to the formulation, testing and
approval of a business strategy. Alert to opportunities, risks
and trends.
Financial skills and credentials. Aware of financial risk.
Understands financial reporting requirements and financial
regulations.
Marketing & Growth Understands growth and marketing strategies or has
Corporate
Governance
Operations & Asset
Optimisation
Human Capital
External
Engagement
Industry Knowledge
Technical
Knowledge
Corporate Finance
Legal
International
Business
Information
Technology
marketing skills.
Background in corporate governance and compliance. Familiar
with corporate legislation and statutory requirements.
Understands operational improvements and extracting
maximum value from existing assets.
Experience in setting management performance goals,
overseeing and managing performance, developing executive
bench strength and succession plans.
Experience with external stakeholder groups (community,
regulators, government), including networks and ability to
exert influence.
Expertise and knowledge pertinent to the industries or
environments in which the Company operates.
Skills and expertise in products or technologies relevant to the
Company.
Experience and skills associated with mergers, acquisitions,
demergers, capital raising and debt financing.
Expertise in corporate law or legislation relevant to the
Company.
International business experience from working with
multinational companies and international expansion.
Expertise in IT strategy and system design, procurement and
implementation and understands associated risks.
Board
Audit & Risk
Committee
Remuneration
& Nomination
Committee
(Total 5
Directors)
(Total 3
Directors)
(Total 3
Directors)
5
Directors
3
Directors
3
Directors
5
Directors
3
Directors
3
Directors
5
4
5
5
Directors
Directors
Directors
Directors
3
2
3
3
Directors
Directors
Directors
Directors
3
3
3
3
Directors
Directors
Directors
Directors
4
Directors
2
Directors
3
Directors
4
3
4
1
3
2
Directors
Directors
Directors
Director
Directors
Directors
2
1
3
1
3
2
Directors
Director
Directors
Director
Directors
Directors
2
2
2
1
2
2
Directors
Directors
Directors
Director
Directors
Directors
The Directors consider that collectively they have the relevant skills, experience and expertise to fulfil their obligations
to the Company, its shareholders and other stakeholders.
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, experience and expertise are set out at pages 43 to 45 of this report.
Seeking Information and Independent 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 his or her duties in accordance with the procedure set out in the charter, a copy of
which is available on the Emeco website.
All Directors have unrestricted access to the General Counsel and Company Secretary and employees of the Group as
and when required. Subject to law, the Directors also have 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 Executives to enable it to carry out its duties.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
34
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Corporate Governance Statement
For the year ended 30 June 2014
Remuneration and Nomination Committee
The Board has established a Remuneration and Nomination Committee, whose responsibilities include the following:
• 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 the Committees and making recommendations to the Board.
The Members of the Remuneration and Nomination Committee are Mr Brennan (Chair), Mr Cahill and Ms Smyth. Each
Member’s attendance at the three meetings held by the Committee in FY14 is set out at page 46.
The charter of the Remuneration and Nomination Committee is available on the Emeco website.
Director Selection
The Board aims to achieve a mix of skills and diversity in its Members. Candidates recommended for appointment as
new 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. The Board
has established the following criteria for the appointment of Directors of the Company:
• No actual or potential conflicts of interest at the time of appointment.
• No prior adverse history, including bankruptcy, conviction for an offence of dishonesty or any other serious criminal
conviction, ASIC or APRA disqualification.
• Deserved reputation for honesty, integrity and competence.
•
Extensive experience at a senior executive level in a field relevant to the Group’s operations and preferably with a
listed company.
• High level strategic, financial and commercial capability.
• Available and willing to devote the time required to meetings and Company business and a real commitment to the
Group and its success.
• Able to work harmoniously with fellow Directors and management.
•
Skills, experience and knowledge which complement the skills, experience and knowledge of incumbent Directors.
The Company has formal induction procedures in place to introduce new Directors to the Group and gain an
understanding of the Group’s financial position, strategies, operations, risks and other policies and responsibilities.
Director 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 his or her election or three years, whichever is
the later. Further, at least one Director must retire from office at each annual general meeting, unless determined
otherwise by a resolution of the Company’s shareholders. Messrs Alec Brennan and John Cahill will seek re-election at
the 2014 annual general meeting under these provisions.
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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
35
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Corporate Governance Statement
For the year ended 30 June 2014
The Company provides shareholders with the following material information in its possession relevant to a decision on
whether or not to elect or re-elect a Director in its notice of meeting:
•
The Director’s biographical details, including relevant qualifications, skills and experience;
• Other material Directorships held by the Director;
•
The term of office currently served by the Director;
• Whether the Board considers the Director to be an independent Director; and
• Whether the Board supports the election or re-election of the Director.
Board, Committee and Director Evaluation
Generally, a review of the performance of the Board is completed annually by the chair with the assistance of the
Remuneration and Nomination Committee. The review is undertaken in accordance with the charter of the
Remuneration and Nomination Committee using a questionnaire, the scope of which covers the performance of the
Board, its Committees, the Chair and individual Directors. Directors’ questionnaire responses are collated and analysed
by the chair and then presented to, and discussed with, the Board. A performance evaluation for the Board, its
Committees, the Chair and individual Directors took place in FY14 in accordance with this process.
Principle 3
Promote ethical and responsible decision-making
The Company considers that confidence in its integrity can only be achieved if its employees and officer’s 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, share trading policy, diversity policy, gifts and entertainment policy and
whistle blower policy, which apply to all Directors, officers, employees, consultants and contractors of the Group.
The Code of Conduct
The objectives of the code of conduct are to ensure that:
•
•
•
high standards of corporate and individual behaviour are observed by all employees in the context of their
employment with the Group;
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 the Group, whether it be employees, shareholders, suppliers, clients or competitors, can
be guided by the stated values and practices of Emeco.
Under the code of conduct, employees of the 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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
36
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Corporate Governance Statement
For the year ended 30 June 2014
The Company actively promotes and encourages ethical behaviour and protection for those who report violations of
the code of conduct 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 of conduct 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. The Company 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.
A copy of the code of conduct is available on the Emeco website.
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 any
possible misunderstandings or suspicions arising 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.
A copy of the share trading policy is available on the Emeco website.
The Diversity Policy
The principal objective of the diversity policy is 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 available on
the Emeco website.
The diversity policy requires the Board to establish measureable objectives for achieving gender diversity. 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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
37
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Corporate Governance Statement
For the year ended 30 June 2014
Further details regarding:
•
•
the Company’s annual measureable objectives for achieving gender diversity set by the Board in accordance with
the diversity policy and progress towards achieving them; and
the proportion of women employees in the Group, in senior executive positions and on the Board,
are included in the Sustainability Report at pages 20 to 30.
The Company’s most recent gender equality indicators, as defined in and published under the Workplace Gender
Equality Act 2012, can be found in Emeco’s Australian Workplace Gender Equality Agency Report, which is available on
the Emeco website.
The Gifts and Entertainment Policy
The objective of the gifts and entertainment policy is to provide guidance to employees when offering or accepting gifts
in order to:
•
•
•
protect the reputation of employees and the Company against allegations of improper behaviour;
ensure that bribery and corruption laws are not breached; and
demonstrate the Company’s commitment to treating all parties impartially.
A copy of the gift policy is available on the Emeco website.
The Whistle Blower Policy
The objective of the whistle blower policy is to encourage employees to report misconduct without reprisal, dismissal
or victimisation. The policy establishes processes for managing and investigating such reports to ensure misconduct is
identified and appropriately dealt with. The policy affords the whistle blower anonymity and protection against penalty
or personal disadvantage.
A copy of the whistle blower policy is available on the Emeco website.
Principle 4
Safeguard integrity of financial reporting
Audit and Risk Committee
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 in connection with:
•
•
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.
During FY14, the Committee comprised of four independent Non-Executive Directors, all of whom have financial
expertise. Members of the Audit and Risk Committee are Mr Cahill (Chair), Mr Bishop, Mr Brennan and Mr Richards.
The qualifications of the Audit and Risk Committee Members are set out at pages 43 to 45 of this report.
The Audit and Risk Committee charter sets out the role and responsibilities of the Committee and is available on the
Emeco website.
In FY14, the Audit and Risk Committee held five meetings. Each Committee Member’s attendance at these meetings is
set out at page 46. The Managing Director and Chief Executive Officer, 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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
38
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Corporate Governance Statement
For the year ended 30 June 2014
External auditor
The Company’s external auditor is KPMG. Mr Graham Hogg is the lead audit partner for KPMG in relation to the audit
of the Company. Mr Hogg was first appointed as the lead partner responsible for Emeco for the 30 June 2014 year end
audit. 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.
The effectiveness, performance and independence of the external auditor are 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.
Section 307C of 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 FY14. This independence declaration forms part of the Directors’ report and is provided on page 48 of this
annual report.
During the year, KPMG, the Group’s auditor, has performed certain other services in addition to their statutory duties.
The Board has considered the non-audit services provided during the year by the auditor and is satisfied that the
provision of those non-audit services during the year by the auditor is compatible with, and did not compromise, the
auditor independence requirements of the Corporations Act 2001 for the following reasons:
•
•
all non-audit services were subject to the corporate governance procedures adopted by the Group and have been
reviewed by the audit and risk committee to ensure they do not impact the integrity and objectivity of the auditor;
and
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
auditor’s own work, acting in a Management or decision making capacity for the Group, acting as an advocate for
the Group or jointly sharing the risks and rewards.
Details of the amounts paid to the auditor of the Group, KPMG, and its network firms, for audit and non-audit services
provided during the year are found in Note 9 of the Notes to the Financial Statements.
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 2014
39
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Corporate Governance Statement
For the year ended 30 June 2014
Principle 6
Respect the rights of shareholders
The Company has designed and implemented an investor relations program through its adoption of a formal
communications policy which describes the processes and systems implemented by the Company to facilitate effective
two-way communication between the Company, its shareholders and investors. The communications policy is available
on the Emeco website.
The Company acknowledges the importance of effective communication with its shareholders. The Company provides
information about itself and its governance via its website. All public announcements are 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 chair’s address at the annual general
meeting.
The Company offers to shareholders a number of options to receive 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.
The Company also encourages effective shareholder participation at general meetings, which is the major forum for
shareholders to ask questions of the Directors about the performance of the Group. The Company provides its external
auditor with notice of general meetings of the Company, as required by section 249K of the Corporations Act 2001, and
ensures that its external auditor attend its annual general meetings 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
Risk management policy
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 which is available on the Emeco website.
Emeco has also implemented a formal enterprise risk management programme to ensure that risk management
concepts and awareness are embedded into the culture of the Group. This programme includes the involvement of
Senior Executives and Senior Operational Management. The key elements of Emeco’s enterprise risk management
programme are as follows:
• Classification of risk into strategic, operational, financial and compliance risks.
• Quantification and ranking of risk consequences and likelihood.
•
•
Identification of strategic risk issues.
Identification of operational risk issues through formalised regional-based risk workshops.
• Development of a Company database for communicating and updating activity and progress on risk matters and
maintaining risk registers.
•
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.
• 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. In respect of FY14, the review of the risk
management policy was deferred and, therefore, was not reviewed. This was due to the pending commencement of
the new Chief Financial Officer on 1 July 2014.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
40
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Corporate Governance Statement
For the year ended 30 June 2014
Internal assurance
In May 2010, the Board approved the appointment of Ernst & Young as a supplier of internal audit services. 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 formally reviews the
performance of the internal auditor on an annual basis and reports its findings to the audit and risk committee.
The overall internal assurance process is overseen by the Chief Financial Officer who manages the process, and reports
to the audit and risk committee and the Board on the effectiveness of the Emeco Group’s risk management, governance
and control frameworks.
In respect of FY14, 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.
Principle 8
Remunerate fairly and responsibly
The Board has established a Remuneration and Nomination Committee. The Committee is currently comprised of three
independent Non-Executive Directors. Details regarding membership of the Committee are set out under Principle 2.
Each Member’s attendance at the three meetings held by the Committee in FY14 is set out at page 46.
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 Executives 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 Executives of the Group from time to time
including the criteria for assessing performance;
diversity policy compliance and reporting;
remuneration reviews for Executive and Non-Executive Directors;
the outcomes of remuneration reviews for Executives collectively, individual Executive Directors and other Senior
Executives of the Group;
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 2014
41
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Corporate Governance Statement
For the year ended 30 June 2014
The charter of the Remuneration and Nomination Committee is available on the Emeco website.
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, or retirement benefits other than
superannuation.
A remuneration report detailing the information required by section 300A of the Corporations Act 2001 in relation to
FY14 is included in the Directors’ Report on pages 43 to 67.
The Company has an equity-based remuneration scheme (see section 3.3.2 of the remuneration report for more
information) and, through its share trading policy, prohibits participants from entering into transactions which limit the
economic risk of participating in the scheme. A summary of the share trading policy is set out on page 37.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
42
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2014
The Directors of Emeco Holdings Limited (Emeco or Company) present their report together with the financial reports
of the consolidated entity, being Emeco and its controlled entities (Group) for the financial year ended 30 June 2014
(FY14) and the auditor’s report thereon.
Directors
The Directors of the Company during FY14 were:
ALEC BRENNAN AM, BSc Hons, MBA, FAICD, 67
Appointment: Independent Non-Executive Director since 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 Finance and of Strategy for the group.
He was Chief Executive Officer of a number of group companies including Readymix Group, Bradford Insulation and
Gove Aluminium. Alec has been a public company Director for more than 20 years. Alec is a Member of the Order of
Australia for significant service to business and commerce, tertiary education administration and to the community.
Current Appointments:
•
•
Director of the New South Wales Environment Protection Authority (since 2012).
Pro-Chancellor of the Senate of Sydney University. Chair of the University's Finance and Human Resources
committees (since 2006).
KENNETH LEWSEY BBus, MAICD, 51
Appointment: Managing Director since November 2013.
Skills and experience: Prior to Emeco, Ken served as Executive Vice President - Business Development at Aurizon
Holdings Limited from 2011 to 2013. This included responsibility for business development, major projects, mergers and
acquisitions, as well as profit and loss responsibility for Aurizon's iron ore and intermodal business units. Ken was
Aurizon's Chief Executive Officer - Freight Group from 2009 to 2011 and Chief Executive Officer of Aurizon's subsidiary,
ARG, from 2007 to 2011. Ken was previously Managing Director of Cleanaway Industrial, Regional Director of Brambles
Industrial Services, and held Senior and General Management roles in the steel industry with Smorgon Steel and BHP
Steel.
Current Appointments:
• Board member of Lifeline WA (since 2014)
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
43
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2014
KEITH GORDON BSc (Agric) Hons, MBA, MAICD, 50
Appointment: Managing Director since December 2009. Resigned as Managing Director on 4 November 2013.
Skills and experience: Keith has had an extensive career in the industrials sector and joined Emeco after a decade with
Wesfarmers Limited, where he held a number of senior roles and was heavily involved in major corporate transactions.
Current Appointments:
•
Chairman of EDGE Employment Solutions (since 2012, Director since 2009).
ROBERT BISHOP BSc, MSc Eng, FAICD, MIEAust, MIET(UK), 69
Appointment: Independent Non-Executive Director since June 2009. Retired as a Director on 30 June 2014.
Board committee membership: Member of the Audit and Risk Committee.
Skills and experience: Bob 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.
Current Appointments:
•
Director of Newcastle Regional Art Gallery and a member of its Investment Committee (since 2011).
JOHN CAHILL BBus, Grad Dip Bus, FCPA, GAICD, 58
Appointment: Independent Non-Executive Director since 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 was previously Non-Executive Director (2007
to 2013) and President and Chairman (2011 to 2013) of CPA Australia Ltd.
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.
Councillor of Edith Cowan University and Chair of the University's Resources Committee (since 2011).
Non-Executive Director of Accounting Professional & Ethical Standards Board (since February 2014).
•
•
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
44
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2014
PETER RICHARDS BCom, 55
Appointment: Independent Non-Executive Director since 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 in Australia (2005 to 2008). Peter was previously Chairman of Kangaroo
Resources Limited (2010 to 2013) and Non-Executive Director (2010 to 2013), Managing Director (February 2013 to July
2013) of Norfolk Group Limited and Chairman of Minbos Resources Limited (2010 to 2014).
Current Appointments:
•
•
•
•
Chairman of Cockatoo Coal Ltd (since 2014).
Chairman of NSL Consolidated Limited (since 2014, Non-Executive Director since 2009).
Non-Executive Director of Sedgman Limited (since 2010).
Non-Executive Director of Bradken Limited (since 2009).
ERICA SMYTH MSc, FAICD, FTSE, 62
Appointment: Independent Non-Executive Director since December 2011.
Board committee membership: Member of the Remuneration and Nomination Committee.
Skills and experience: With over 30 years' experience in the mineral and petroleum industries, Erica's career highlights
include her positions as 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. 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 and in 2012 Erica was elected as a Fellow of the Academy of
Technological Science and Engineering.
Current Appointments:
•
•
•
•
•
•
Chair of Diabetes Research Foundation of Western Australia (since 2007).
Chair of Toro Energy Limited (since 2009).
Director of the Australian Nuclear Science and Technology Organisation (since 2009).
Director Royal Flying Doctor Service Western Operations (since 2010).
Director Deep Exploration Technologies CRC (since 2013).
Director Harry Perkins Institute of Medical Research (since 2013).
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
45
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2014
Company Secretary
The Company Secretary of the Company during FY14 was:
MICHAEL KIRKPATRICK BA, BEc, LLB (Hons)
Michael was appointed as Company Secretary to the Emeco Board in April 2005. Prior to joining Emeco, Michael was a
corporate lawyer with several Australian law firms and the Legal Counsel and Company Secretary of a large industry
superannuation fund. Michael is admitted to practice as a barrister and solicitor of the Supreme Court of Western
Australia. In his capacity as General Manager Corporate Services for Emeco, Michael is responsible for the Company's
in-house legal counsel, global human resources and corporate affairs functions. Michael has been a member of the Law
Society of Western Australia since 2002.
The current Company Secretary of the Company is:
THAO VANDERPLANCKE LLB (Hons), BCom
Thao was appointed to the position of Company Secretary to the Emeco Board effective 1 July 2014. Thao joined Emeco
as legal counsel in May 2011 and became senior legal counsel in October 2012. Prior to joining Emeco, Thao spent
several years as a corporate/commercial lawyer with an Australian law firm.
Directors’ Meetings
The number of Board and committee meetings held and attended by each Director in FY14 is outlined in the following
table below:
Table 27: Board and Committee Meetings Held and Director Attendance
Director
Board Meetings
Audit & Risk Committee
Meeting
Remuneration &
Nomination Committee
Meeting
A
18
20
19
7
14
20
19
B
20
20
20
7
13
20
20
A
5
5
5
B
5
5
5
2 * 2
4 * 3
5
5
5 * 5
A
B
2 * 3
3
3
3
3
1 * 1
2 * 2
3 * 3
3
3
Robert Bishop
Alec Brennan
John Cahill
Keith Gordon
Kenneth Lewsey [1]
Peter Richards
Erica Smyth
A
B
*
[1]
Number of meetings attended
Number of meetings held during the time the Director held office during the year
Not a member of this committee
Mr Kenneth Lewsey attended a Board meeting and an audit and risk committee meeting by invitation prior to his appointment as Director
Principal activities
The principal activity during FY14 of the Group was the provision of heavy earthmoving equipment rental solutions to
mining companies and contractors.
As set out in this report, the nature of the Group’s operations and principal activities, have been consistent throughout
the financial year.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
46
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2014
Operating and financial review
A review of Group operations, and the results of those operations for FY14, is set out in the operating and financial
review section at pages 9 to 14 and in the accompanying financial statements.
Dividends
No dividends were declared or paid during FY14. No dividends have been declared or paid since the end of FY14.
Significant changes in state of affairs
In the opinion of the Directors, there were no significant changes in the Group’s state of affairs that occurred during the
financial year under review, other than those disclosed in the operating and financial review section or in the financial
statements and the notes thereto.
Events subsequent to report date
On 1 July 2014, Mr Stephen Gobby resigned as Chief Financial Officer and Mr Gregory Hawkins commenced as the Chief
Financial Officer.
On 1 July 2014, Mr Michael Kirkpatrick resigned as Executive General Manager Corporate Services and Ms Thao
Vanderplancke commenced as General Counsel and Company Secretary.
Likely developments
Likely developments in, and expected results of, the operations of the Emeco Group are referred to in the operating
and financial review section at pages 9 to 14. 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
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 28: Directors’ Interests
Director
Ordinary Shares
Options or Rights
Robert Bishop
789,000
-
Alec Brennan
2,081,700
John Cahill
120,000
Keith Gordon
1,125,000
[A]
Kenneth Lewsey
315,000
Peter Richards
40,000
Erica Smyth
71,049
-
-
-
-
-
-
[B]
[A]
[B]
Mr Keith Gordon resigned as a Director on 4 November 2013. This is Mr Gordon’s interest in the Company as at his resignation date.
Mr Kenneth Lewsey has LTI entitlements, which is subject to shareholder approval at the Company’s 2014 annual general meeting. The
performance shares have not been issued as this approval has not yet been sought as at the date of this report.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
47
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2014
Indemnification and insurance of 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 current
and former officers of the Emeco Group, including Executives, against liabilities incurred by such an officer 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 auditor, KPMG.
Non-audit services
During the year, KPMG, the Group’s auditor, has performed certain other services in addition to their statutory duties.
The Board has considered the non-audit services provided during the year by the auditor and is satisfied that the
provision of those non-audit services during the year by the auditor is compatible with, and did not compromise, the
auditor independence requirements of the Corporations Act 2001 for the following reasons:
•
•
all non-audit services were subject to the corporate governance procedures adopted by the Group and have been
reviewed by the audit and risk committee to ensure they do not impact the integrity and objectivity of the auditor;
and
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
auditor’s own work, acting in a management or decision making capacity for the Group, acting as an advocate for
the Group or jointly sharing the risks and rewards.
Details of the amounts paid to the auditor of the Group, KPMG, and its network firms, for audit and non-audit services
provided during the year are found in Note 9 of the Notes to the Financial Statements.
Lead auditor’s independence declaration
A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set
out on page 67 and forms part of the Directors’ report.
Rounding off
The amounts contained in the Financial Report have been rounded to the nearest $1,000 (unless otherwise stated)
under the option available to the Company under ASIC Class Order 98/100 dated 10 July 1998. The Company is an entity
to which the Class Order applies.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
48
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2014
Remuneration report (audited)
Remuneration Report Contents
This report covers the following matters:
1.
2.
3.
4.
5.
6.
7.
Introduction
Remuneration Governance
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 2014. Any reference to “Executives” in
this report refers to KMP who are not Non-Executive Directors.
1.1
Emeco’s KMP
The following persons were Directors of the Company during FY14:
Table 29: Emeco Directors
Non-Executive Directors
Alec Brennan
Robert Bishop (ceased Directorship on 30 June 2014)
John Cahill
Peter Richards
Erica Smyth
Executive Directors
Kenneth Lewsey, Managing Director & Chief Executive Officer (commenced role on 4 November 2013)
Keith Gordon, Managing Director & Chief Executive Officer (ceased role 4 November 2013)
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
49
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2014
The following persons were also employed as Executives of the Company during FY14:
Table 30: Emeco Executives
Other Executives
Kellie Benda
Stephen Gobby
Anthony Halls
Christopher Hayman
Benny Joesoep
Executive General Manager Strategy & Corporate
Development (commenced role on 24 February 2014)
Chief Financial Officer
General Manager Australian Rental (ceased role on 17
February 2014)
President Americas (commenced role on 17 February 2014),
previously President Canada (commenced role on 8 July 2014
and ceased role on 17 February 2014)
President Director Indonesia (commenced role on 9
December 2013 and ceased role on 13 May 2014)
Michael Kirkpatrick
Executive General Manager Corporate Services
Grant Stubbs
Ian Testrow
Executive General Manager Asset Strategy & Operational
Improvement
Chief Operating Officer Australia (commenced role on 17
February 2014), previously President New & Developing
Business (ceased role on 17 February 2014)
2.
Remuneration governance
2.1
The Role of the Board and the Remuneration and Nomination Committee
The Board is committed to implementing KMP 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 KMP remuneration policies and practices.
The Remuneration and 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 KMP remuneration 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 KMP;
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 in FY14 were Mr Alec Brennan (Chair), Mr John Cahill
and Ms Erica Smyth.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
50
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2014
3.
Executive remuneration
3.1
Remuneration policy
The Group remuneration policy is substantially reflected in the objectives of the Company’s Remuneration and
Nomination Committee. The Committee’s objectives are summarised in the following table:
Table 31: Summary of Group remuneration objectives
Objective
Practices aligned with Objective
Remunerate fairly and
appropriately
Maintain balance between the interests of shareholders and the reward of
Executives in order to secure the long term benefits of Executive energy and
loyalty.
Benchmark remuneration structures to ensure alignment with industry trends.
Align Executive interests with
those of shareholders
Provide a significant proportion of “at risk” remuneration to ensure that
Executive reward is directly linked to the creation of shareholder value.
Ensure human
complementary to the strategic direction of the Company.
resources policies and practices are consistent and
Prohibit the hedging of unvested equity to ensure alignment with shareholder
outcomes.
Attract, retain and develop
proven performers
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 shareholders.
The remuneration structure for the Company’s Executives consists of fixed and variable components. The variable
component ensures that a proportion of pay varies with Company and personal performance.
3.2
Fixed remuneration
Fixed remuneration comprises base salary, employer superannuation contributions and other allowances and non-cash
benefits.
Each Executive’s fixed remuneration is reviewed and benchmarked annually in September.
The level of remuneration is set to enable the Company to attract and retain proven performers once they are working
within the business. An Executive’s responsibilities, experience, qualifications, performance and geographic location are
also taken into account.
Fixed remuneration for Executives has previously been 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 Executive positions at or near the 75th percentile of the fixed remuneration for the relevant comparable position in
these sectors.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
51
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2014
However, the fixed remuneration of the new Managing Director and Chief Executive Officer, Mr Kenneth Lewsey, is
7.5% lower than that of his predecessor, Mr Keith Gordon, and the fixed remuneration of the new Chief Financial Officer,
Mr Greg Hawkins (appointed 1 July 2014), is 20% lower than that of his predecessor, Mr Stephen Gobby.
3.3
Variable remuneration
Variable remuneration is performance linked remuneration which consists of short term incentives (STIs) and long term
incentives (LTIs).
STI entitlements are for performance assessed over one year. See section 3.3.1 for more information.
LTI entitlements are for performance over a three year period. See section 3.3.2 for more information.
If maximum performance is achieved, the maximum remuneration attributable to each incentive component as a
percentage of total fixed remuneration (TFR) for each Executive is shown in the following table:
Table 32: Components of variable remuneration
Executive [A]
(% of TFR)
(% of TFR)
(% of TFR)
(% of TFR)
(% of TFR)
Maximum STI
Cash
Component
Maximum STI
Equity
Component
Maximum
STI
Maximum
LTI
Maximum
Total Variable
Remuneration
Kenneth Lewsey, Managing Director & Chief
Executive Officer [B]
Kellie Benda, Executive General Manager Strategy
& Corporate Development [C]
Stephen Gobby, Chief Financial Officer
Anthony Halls, General Manager Australian Rental
Christopher Hayman, President Canada / President
Americas
Michael Kirkpatrick, Executive General Manager
Corporate Services
Grant Stubbs, Executive General Manager Asset
Strategy & Operational Improvement
Ian Testrow, Chief Operating Officer Australia and
President New & Developing Business
75
0
50
40
40
40
40
50
25
0
10
20
20
20
20
10
100
0
60
60
60
60
60
60
75
40
50
40
40
40
40
50
175
40
110
100
100
100
100
110
[A]
[B]
[C]
Mr Keith Gordon announced his intention to step down as Managing Director and Chief Executive Officer on 30 July 2013. Mr Gordon had
no FY14 STI or LTI entitlements. Mr Benny Joesoep was appointed as an Executive on 9 December 2013. Mr Joesoep had no FY14 STI or LTI
entitlements as an Executive.
Mr Kenneth Lewsey has an LTI entitlement of 75% of his fixed remuneration for FY14 which is subject to shareholder approval at the
Company’s 2014 annual general meeting. As this approval had not been sought as at 30 June 2014, the relevant LTI Securities have not been
issued.
Ms Kellie Benda was appointed as an Executive on 24 February 2014. Ms Benda had no FY14 STI entitlement.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
52
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2014
3.3.1
STI remuneration
Cash and Equity
STIs are used to reward the performance of Executives over a full financial year. The actual amount of STI granted is
determined at the end of the financial year in light of the Executive’s performance against agreed key performance
indicators (KPIs). An Executive’s maximum STI entitlement is set as a percentage of TFR (refer to table 32 above for
details).
For the Managing Director and Chief Executive Officer, STI entitlements are made 25% in equity and 75% in cash. Any
equity awards are subject to shareholder approval at the Company’s 2014 annual general meeting.
For all other Executives, STI entitlements are made in cash up to the maximum STI cash component of TFR. Any STI
entitlements above the maximum STI cash component are made in equity.
STI entitlements are made after the financial year audit is completed and following review and approval by the
Remuneration and Nomination Committee and the Board.
In respect of FY14, STI entitlements made in equity are based on the Company’s June 2014 VWAP. For the Managing
Director and Chief Executive Officer, STI entitlements made in equity will be issued after its approval at the Company’s
2014 annual general meeting and are escrowed for a period of two years until the announcement of the Company’s
annual results in 2016. For all other Executives, the grant of the shares is deferred to, and is subject to the Executive
remaining employed by the Group the day after the announcement of Emeco’s annual results in 2015.
Key performance indicators
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.
Table 33 below sets out the KPIs for the FY14 STI plan and the weightings attributable to each of them. In the Board’s
view, these KPIs align the reward of Executives with the interests of shareholders.
Table 33: FY14 STI plan KPI weightings and entitlements
KPI
Weighting
Entitlement
Rationale
Outcomes
EBITDA
[A]
60%[B]
[A]
25%[C]
Group
Net Profit
After Tax
(NPAT)
0% if EBITDA is less than $90 million.
25% if EBITDA is between $90 million
and $95 million.
50% if EBITDA is between $95 million
and $100 million.
75% if EBITDA is between $100 million
and $105 million.
100% if EBITDA is greater than $105
million.
Pro-rata payments between these
levels.
0% if NPAT is less than 120% of
budgeted outcomes.
25% if NPAT is equal to 120% of
budgeted outcomes.
50% if NPAT is equal to 140% of
budgeted outcomes.
75% if NPAT is equal to 160% of
budgeted outcomes.
100% if NPAT is greater than or equal
to 180% of budgeted outcomes.
Pro-rata payments between these
levels.
0%
Company’s
This profit figure quantifies
the
financial
performance and was the
guidance measure released to
the market immediately prior
to this STI KPI being set for Mr
Kenneth
who
commenced his role with the
Company part way through
the financial reporting period.
Lewsey
This profit figure quantifies
the
financial
performance.
Company’s
0%
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
53
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2014
Table 33: FY14 STI plan KPI weightings and entitlements (continued)
KPI
Weighting
Entitlement
[A]
35%[C]
Operating
Cash Flow
(OCF)
Sale of
Idle
Assets
15%
Safety
TRIFR [D]
7.5%
Positive
Initiatives
7.5%
0% if OCF is less than 85% of budgeted
outcomes.
25% if OCF is equal to 90% of budgeted
outcomes.
50% if OCF is equal to 100% of
budgeted outcomes.
75% if OCF is equal to 110% of
budgeted outcomes.
100% if OCF is greater than or equal to
120% of budgeted outcomes.
Pro-rata payments between these
levels.
0% if revenue is less than 90% of
budget
25% if revenue is equal to 90% of
budget
50% if revenue is equal to 100% of
budget
75% if revenue is equal to 110% of
budget
100% if revenue is greater than or
equal to 120% of budget
Pro rata payments between these
levels.
0% if the TRIFR as at 30 June 2014 is up
to 10% lower than the TRIFR as at 30
June 2013.
7.5% if the TRIFR as at 30 June 2014 is
20% lower than the TRIFR as at 30 June
2013.
Pro-rata payments between these
levels.
Notwithstanding the above, no
entitlement if there is a serious,
permanently disabling injury or a
fatality.
4.5% for the attendance at, and report
of, up to four operational safety
meetings.
3% for the conduct and reporting of up
to three safety act observations.
Rationale
Outcomes
0%
OFC was chosen to reflect
the Company’s focus on
maintaining
cash
flow in order to reduce debt
and ensure that the balance
sheet remains robust.
strong
12.3%
The objective of the sale of
idle assets is to liquidate
capital not used to generate
earnings and enables the
application of the proceeds
from these asset sales to
debt reduction.
7.5%
reviews
the
The Board
safety
Company’s
performance
in detail at
each Board meeting and is
striving to achieve a “zero-
harm” workplace at Emeco.
TRIFR measures progress
towards this aspiration.
2.1% - 7.5%
The
in
participation
behavioural based safety
programs encourages safety
leadership and promotes
safety
the
workplace.
throughout
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
54
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2014
Table 33: FY14 STI plan KPI weightings and entitlements (continued)
KPI
Weighting
Entitlement
Rationale
Outcomes
Personal
Goals
10%
Managing Director’s entitlement is
assessed by the Board.
Executives’ entitlement is assessed
by the Managing Director and
approved by the Board.
3.7% - 10%
The Board recognises that each
Executive contributes to the
Company’s business strategy
differently. Progress of each
Executive’s personal set goals is
monitored by the Board and
ensures that an appropriate
balance is maintained between
the Company’s short term and
long term objectives. Executive
personal goals
the
Indonesian business strategy,
global HR
and
programs, the Company’s debt
strategy and expanding the
Company’s service offering.
initiatives
include
[A]
[B]
[C]
[D]
The Board has discretion to adjust EBITDA, NPAT and OCF for abnormal items. Any such adjustment may have a positive or negative impact
on the EBITDA, NPAT and OCF outcomes used by the Board to assess STI entitlements. In FY14 there was no award in respect of the EBITDA,
NPAT and OCF components of the STI.
This KPI applies to Mr Kenneth Lewsey only.
This KPI applies to all Executives except Mr Kenneth Lewsey.
TRIFR = Number of recordable injuries x 1,000,000 hours
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 (Vesting Period). The LTI plan applies to the Company’s senior managers (which includes Executives).
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.
LTI remuneration is in the form of performance shares or performance rights (LTI Securities).
A performance share is a fully paid ordinary Emeco share, the vesting of which is subject to the performance condition
described below being met. A performance right is a right to receive a fully paid ordinary Emeco share, the vesting of
which is subject to the performance condition being met.
Australian-based Executives
In FY14, performance shares were granted to Australian-based Executives, with the number of shares granted being
determined by reference to the Executive’s maximum LTI entitlement and the fair value of the share as at the
commencement of the Vesting Period. Performance shares were granted at no cost to the Executive.
Executives based outside Australia
In FY14, Emeco Executives who were resident outside Australia were issued performance rights instead of performance
shares due to the complexity and cost of compliance issues associated with the issue of shares in the relevant foreign
jurisdictions. These grants were on substantially identical terms to that of the performance shares issued to Australian-
based Executives.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
55
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2014
Performance condition
The performance condition for the vesting of LTI Securities under the FY14 LTI plan (and the FY13 and FY12 LTI plans) is
based on the relative total shareholder return (TSR) of the Company measured against a peer group (Peer Group) over
the Vesting Period.
TSR is a performance measure that calculates the return to a shareholder taking into account share price growth,
dividend payments and capital returns.
At the time of the FY14 LTI grant, the Peer Group comprised a total of 99 companies from the S&P/ASX Small Industrials
(excluding banks, insurance companies, property trusts/companies and investment property trusts/companies and
other stapled securities) as set out in the table below. 18 companies that were considered direct peers to Emeco are
shaded.
Table 34: Peer Group of Companies
Acrux Limited
Forge Group Limited
Ainsworth Game Technology Limited
G.U.D. Holdings Limited
Amcom Telecommunications Limited
G8 Education Limited
APN News & Media Limited
Goodman Fielder Limited
ARB Corporation Limited
Ardent Leisure Group
Ausdrill Limited
Ausenco Limited
Austin Engineering Limited
GWA Group Limited
Hills Holdings Limited
iiNet Limited
IMF (Australia) Ltd
Infigen Energy
Australian Agricultural Company Limited
InvoCare Limited
Qube Holdings Limited
RCR Tomlinson Limited
REA Group Ltd
Retail Food Group Limited
Ridley Corporation Limited
SAI Global Limited
Sedgman Limited
Seven Group Holdings Limited
Seven West Media Limited
Sigma Pharmaceuticals Limited
Automotive Holdings Group Limited
IOOF Holdings Limited
Silex Systems Limited
Billabong International Limited
Boart Longyear Limited
Bradken Limited
Breville Group Limited
IRESS Limited
JB Hi-Fi Limited
Kathmandu Holdings Limited
Singapore Telecommunications Limited
Sirtex Medical Limited
Skilled Group Limited
M2 Telecommunications Group Limited
SMS Management & Technology Limited
Cabcharge Australia Limited
MACA Limited
Southern Cross Media Group Limited
Cardno Limited
Macmahon Holdings Limited
Starpharma Holdings Limited
Cash Converters International
Macquarie Atlas Roads Group
STW Communications Group Limited
Chorus Limited
Clough Limited
Codan Limited
Magellan Financial Group Limited
Super Retail Group Limited
McMillan Shakespeare Limited
Telecom Corporation of New Zealand Limited
Mermaid Marine Australia Limited
Ten Network Holdings Limited
Credit Corp Group Limited
Mesoblast Limited
CSG Limited
CSR Limited
Navitas Limited
Nextdc Limited
Decmil Group Limited
NRW Holdings Limited
Domino's Pizza Enterprises Limited
Nufarm Limited
DuluxGroup Limited
Energy World Corporation Ltd
Envestra Limited
Fairfax Media Limited
OrotonGroup Limited
Pacific Brands Limited
Perpetual Limited
Pharmaxis Ltd
The Reject Shop Limited
Thorn Group Limited
Tox Free Solutions Limited
Tpg Telecom Limited
Trade Me Group Limited
Transfield Services Limited
Transpacific Industries Group Ltd
UXC Limited
Virgin Australia Holdings Limited
Fleetwood Corporation Limited
Platinum Asset Management Limited
Webjet Limited
Fletcher Building Limited
Premier Investments Limited
Wotif.com Holdings Limited
FlexiGroup Limited
Prima Biomed Ltd
Programmed Maintenance Services Limited
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
56
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2014
At the end of the Vesting Period, the TSR for each company in the Peer Group, and Emeco, will be measured and ranked.
Emeco will be allocated a percentile rank accordingly, which represents the percentage of companies in the Peer Group
that has a lower TSR than Emeco (Percentile Rank).
LTI Securities will only vest if a certain Percentile Rank is achieved by Emeco. There is a maximum and minimum vesting
range and vesting occurs in this range on a sliding scale as set out in the following table:
Table 35: TSR vesting schedule
Percentile Rank
50% or lower
Percentage of LTI Securities that Vest
Nil
Between 50% and 75%
50% plus 2% for each Percentile Rank over 50%
75% or higher
100%
LTI Securities that do not vest at the end of the Vesting Period will lapse. The shares associated with these LTI Securities
will be transferred to a nominee of the Company and held on trust for subsequent re-allocation.
Performance shares which vest will automatically be transferred into the name of the participant. Performance rights
which vest will automatically be converted into shares on the vesting date and 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 retirement
then the TSR of the Executive’s 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 vesting schedule. The actual amount of LTI
Securities that vest will be pro-rated based on the period that the Executive has been employed with Emeco during the
Vesting Period.
All unvested LTI Securities lapse if an Executive resigns or is terminated for cause.
Prohibition of hedging LTI Securities
Emeco’s share trading policy prohibits Executives, Directors and other officers of the Company from entering into
transactions intended to hedge their exposure to Emeco securities which have been issued as part of remuneration.
3.4
Relationship between Remuneration and Company Performance
Emeco’s remuneration objectives effectively align the interests of Emeco’s Executives with the interests of the Company
and its shareholders.
This has been achieved by ensuring that a significant proportion of Executives’ remuneration is “at risk” in the form of
STI and LTI components. STI awards are linked to the achievement of financial measures of the Company’s profitability
and cash generating performance, and non-financial measures of operational and strategic outcomes. LTI awards are
linked to total shareholder return relative to a comparator group of similar companies.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
57
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2014
Details of the KPIs for the FY14 STI and LTI plans are set out in the following table:
Table 36: Financial and Non-Financial LTI and STI measures
LTI
STI
Financial
Total shareholder return
Non-financial
Not Applicable
Budgeted EBITDA
Budgeted NPAT
Budgeted OCF
Budgeted sale of idle assets
Safety
Personal goals
Further details regarding Emeco’s Executive remuneration structure are set out in sections 3.2 and 3.3.
The extent to which Emeco has set financial KPIs which are genuinely challenging, and which entail that STI entitlements
are genuinely at risk, is highlighted by the fact that no Executive received a STI payment in FY10. In FY11, all Executives
received a STI payment in line with the improved performance of the Group and the successful execution of its strategy.
STI payments to Executives in FY12 decreased from the amounts paid in FY11, with a further decrease in FY13, principally
because FY12 and FY13 financial KPIs were not met to the same extent as they were in FY11. In FY14, the STI awards
increased slightly from FY13 due to safety, personal goals and the sale of idle assets KPIs being met - EBITDA, NPAT and
OCF KPIs were not met in FY14. Details of these KPIs are set out above in section 3.3.1.
Details of the Group’s performance and benefits for shareholder wealth are set out in the following table:
Table 37: Consequences of performance on shareholder wealth
Profit/Loss from Continuing Operations ($m)
FY14
(224.2)
Profit/Loss from Discontinued Operations ($m)
(51.1)
Statutory Profit ($m)
Total Dividends Declared ($m)
Statutory Return on Capital Employed
(275.3)
0
(30.7%)
FY13
(0.0)
6.0
6.0
15.0
4.2%
FY12
70.0
(0.2)
69.7
37.9
FY11
50.0
(0.4)
49.6
63.1
FY10
12.3
(61.6)
(49.3)
12.6
13.0%
10.3%
(1.1%)
Closing Share Price as at 30 June
$0.20
$0.28
$0.87
$1.13
$0.58
In FY14, the primary focus of the Company was to strengthen its balance sheet, exit the under-performing Indonesian
business and improve utilisation through new projects and the disposal of idle fleet. Strategic achievements over FY14
were executed to drive the Emeco business through this current downturn in the Australian market and position the
business for future growth, and hence greater shareholder returns.
The Company’s share price declined significantly in FY10 before increasing nearly 100% from 58 cents at close of trading
on 30 June 2010 to $1.13 at close of trading on 30 June 2011, which resulted in a complete vesting of LTI Securities.
During FY12 the Company’s share price peaked at $1.18 and ended the financial year at 87 cents, which led to a partial
vesting of LTI Securities. 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. In FY13 and FY14, continued macroeconomic
uncertainty, a downturn in the resources sector globally, difficult trading conditions in Emeco’s markets and a resultant
decline in the Company’s earnings saw the Company’s share price close at 28 cents and 20 cents on 30 June 2013 and
30 June 2014 respectively. No LTI Securities vested following the Company’s performance in FY13. This highlights the
genuinely challenging nature of the LTI KPI.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
58
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2014
The Company’s dividend policy (which was amended in FY12) is to pay shareholders between 40% and 60% of the
Company’s profit (Net Profit After Tax), franked to the fullest extent possible. As the business achieved a net loss in
FY14 no dividends were declared or paid.
The primary means available to the Company to grow shareholder wealth, whether by way of dividend distributions or
increases in the Company’s share price, is to strive to increase earnings and return on capital. In this regard, the
Company will maintain remuneration policies and practices which reward strong financial performance and align the
interests of management with the interests of shareholders.
4.
Non-Executive Director Remuneration
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.
Non-Executive Director fees are reviewed and benchmarked annually in September. In FY14, this process did not result
in any change in Non-Executive Director fees.
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 skillsets 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. All other Non-Executive Directors receive an annual base fee of
$113,027. An additional annual fee of $8,477 is paid to a Director who is a member of a Board committee. This fee is
increased to $11,303 for a Director who chairs a committee. All amounts specified in this section are inclusive of
superannuation contributions.
In May 2014, the Board resolved to reduce the fixed remuneration for Non-Executive Directors by 20% with effect from
1 July 2014.
5.
Details of Remuneration
5.1
Remuneration received in relation to FY14
Details of the elements comprising the remuneration of the Group’s KMP in FY14 are set out in Table 38 below. The
table does not include the following components of remuneration because they were not provided to KMP during FY14:
•
•
•
•
Short term cash profit-sharing bonuses.
Long term incentives distributed in cash.
Post-employment benefits other than superannuation.
Share based payments other than shares and units and share based payments in the form of options.
Also, payments made in respect of a period before the appointment, or after the cessation, of the person as KMP are
not included in Table 38.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
59
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2014
Table 38: FY14 KMP remuneration (Company and Consolidated)
[1]
[2]
[A]
[B]
[C]
[D]
[E]
[F]
[G]
The amount awarded to each Executive under the FY14 STI plan was finally determined on 13 August 2014 and 20 August 2014 after
completion of performance reviews (refer to Table 40).
Non-monetary benefits include housing, vehicle and health benefits.
Mr Kenneth Lewsey commenced employment with Emeco on 4 November 2013. Mr Lewsey was entitled to receive LTI Securities and an STI
equity award in FY14 subject to shareholder approval at the Company’s 2014 annual general meeting. As this approval had not been sought
as at 30 June 2014, the LTI Securities and STI equity awards have not been issued but their fair value has been included in the remuneration
disclosed. Mr Lewsey’s FY14 STI bonus entitlement was not pro-rated in accordance with the terms and conditions of his employment
contract.
Mr Keith Gordon ceased employment with Emeco on 4 November 2013. Mr Gordon’s salary and fees includes accrued annual leave of
$96,466 which was paid out upon the cessation of Mr Gordon’s employment. All unvested LTI Securities granted to Mr Gordon were
forfeited in accordance with the terms of the respective grants and reversed through the income statement.
Ms Kellie Benda commenced her role as KMP on 24 February 2014.
Mr Anthony Halls ceased his role as KMP on 17 February 2014. Mr Halls’ salary and fees includes accrued annual leave of $102,521 and
long service leave of $46,614 which was paid out upon the cessation of Mr Halls’ employment. All unvested LTI Securities granted to Mr
Halls were forfeited in accordance with the terms of the respective grants and reversed through the income statement.
Mr Christopher Hayman commenced his role as KMP on 8 July 2013. Mr Hayman’s remuneration has been converted to Australian dollars
on the basis of an AUD/CAD exchange rate of 0.98229.
Mr Benny Joesoep commenced and ceased his role as KMP on 9 December 2013 and 13 May 2014 respectively. Mr Joesoep’s remuneration
has been converted to Australian dollars on the basis of an AUD/USD exchange rate of 0.905937.
Part of Mr Ian Testrow’s remuneration has been converted to Australian dollars on the basis of an AUD/CAD exchange rate of 0.964462. Mr
Testrow’s salary and fees includes accrued annual leave of $47,938 which was paid out upon the transfer of Mr Testrow’s employment from
the Canadian Emeco entity to the Australian Emeco entity.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
60
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2014
Comparative information relating to remuneration of the Group’s KMP for the prior financial year is set out below:
Table 39: FY13 KMP remuneration (Company and Consolidated)
Short-term employee benefits
Post-employment benefits
Share based
payments
Salary
STI cash
Non-
annuation
long term
tion
and Fees
bonuses [1]
monetary
benefits
benefits
benefits
LTIP
MISP
Super-
Other
Termina-
$
$
$
$
$
$
% of
remuneratio
n
performance
Value of
options
as a % of
total
Total
$
related
remuneration
%
%
Non-Executive Directors
Alec Brennan
Robert Bishop
John Cahill
Peter Johnston
Peter Richards
Erica Smyth
Executive Director
Keith Gordon
$
199,612
119,189
121,841
111,472
111,472
106,327
894,360
TOTAL ALL DIRECTORS
1,664,273
Executives
Stephen Gobby
Anthony Halls
Michael Kirkpatrick
Christopher Mossman [A]
Grant Stubbs [B]
Ian Testrow [C]
Michael Turner [D]
464,276
363,960
342,212
312,162
58,493
464,398
209,633
$
-
-
-
-
-
-
228,691
228,691
74,229
59,511
55,561
49,344
-
82,617
26,735
-
-
-
-
-
-
-
-
-
-
-
117,729
-
80,807
-
TOTAL ALL EXECUTIVES
2,215,134
347,997
198,536
17,965
2,315
10,966
10,032
10,032
9,569
25,000
85,879
25,000
25,000
21,788
-
-
-
18,867
90,655
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
509,113
509,113
180,058
113,714
106,977
(62,128)
5,330
112,667
74,635
531,253
1,040,366
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
217,577
121,504
132,807
121,504
121,504
115,896
1,657,164
2,487,956
743,563
562,185
526,538
417,107
63,823
740,489
329,870
3,383,575
-
-
-
-
-
-
44.5
29.7
34.2
30.8
30.9
(3.1)
-
26.4
30.7
26.0
5,871,531
27.5
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
TOTAL
3,879,407
576,688
198,536
176,534
[1]
[A]
[B]
[C]
[D]
The amount awarded to each Executive under the FY13 STI plan was finally determined on 21 August 2013 after completion of performance
reviews.
Mr Christopher Mossman’s remuneration has been converted to Australian dollars on the basis of an AUD/USD exchange rate of 1.0334. Mr
Mossman ceased employment with Emeco on 31 May 2013.
Mr Grant Stubbs commenced his role as KMP on 1 May 2013.
Mr Ian Testrow’s remuneration has been converted to Australian dollars on the basis of an AUD/CAD exchange rate of 1.0306.
Mr Michael Turner ceased his role as KMP on 31 December 2012.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
61
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2014
5.2
FY14 STI grants
The terms of the FY14 STI plan are discussed at pages 53 to 55.
Details of the vesting profile of the STI grants awarded to Executives in respect of FY14 are set out below:
Table 40: FY14 Executive STI Vesting Information
Executive [A]
Kenneth Lewsey [B]
Stephen Gobby
Anthony Halls [C]
Michael Kirkpatrick
Christopher Hayman [D]
Grant Stubbs
Ian Testrow
Maximum STI
Value [1]
STI Cash
Awarded [2]
STI Equity
Awarded
% of STI
Awarded
% of STI
Forfeited [3]
$
850,000
360,000
243,000
224,921
194,258
216,270
279,000
$
$
197,625
65,875
114,912
-
%
31.00
31.92
%
69.00
68.08
-
-
-
-
61,673
-
72,458
-
80,669
-
98,487
-
27.42
37.30
37.30
35.30
72.58
62.70
62.70
67.40
[1]
[2]
[3]
[A]
[B]
[C]
[D]
The minimum STI value for each KMP is zero.
These awards are in respect of FY14 and were approved on 13 August 2014 and 20 August 2014 based on the achievement of KPIs.
Amounts forfeited were due to KPIs not being met.
Mr Keith Gordon and Ms Kellie Benda had no FY14 STI entitlements. Mr Benny Joesoep had no FY14 STI entitlements as an Executive. See
notes to Table 32.
Mr Lewsey’s FY14 STI bonus entitlement was not pro-rated in accordance with the terms and conditions of his employment contract. Mr
Lewsey’s STI equity award is subject to shareholder approval at the Company’s 2014 annual general meeting.
Mr Anthony Halls ceased his role as an Executive on 17 February 2014. Mr Halls was not entitled to his FY14 STI entitlements.
Mr Christopher Hayman’s remuneration has been converted to Australian dollars on the basis of an AUD/CAD exchange rate of 0.98229.
The STI grants awarded to Executives in FY14 reflect the significant amount of work undertaken by the Executives to
achieve the Company’s objectives, particularly in respect of strategy, the debt refinance, the sale of idle assets and the
closure of the Indonesian business.
In respect of FY15, in order for the Executives to be awarded any STI payment, Emeco’s FY15 EBITDA must be at least
that achieved in FY14.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
62
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2014
6.
Details of Share-Based Payments
6.1
Equity instruments
6.1.1 FY14 LTI grants
The terms of the LTI plan are discussed at pages 55 to 57.
Grants of LTI Securities made to Executives under the Company’s LTI plan in FY11, FY12, FY13 and FY14 are set out in
the following table:
Table 41: LTI Security Grants to Executives
Executive
Kenneth Lewsey [A]
Keith Gordon [B]
Kellie Benda [C]
Stephen Gobby
Anthony Halls [D]
Christopher Hayman
Benny Joesoep [E]
Michael Kirkpatrick
Grant Stubbs
Ian Testrow
Grant
Date
Equity
Instrument
Number
Granted
Maximum
Value [1]
% Vested in
FY14
% Forfeited
in FY14
Vesting
Date [2]
Fair Value Per
Share/Right at
Grant Date [3]
Number held at
year end
04/11/2013
19/11/2010
18/11/2011
20/11/2012
04/03/2014
19/11/2010
18/11/2011
19/10/2012
04/12/2013
19/11/2010
18/11/2011
19/10/2012
04/12/2013
04/12/2013
04/12/2013
19/11/2010
18/11/2011
19/10/2012
04/12/2013
19/11/2010
23/12/2011
19/10/2012
04/12/2013
19/11/2010
18/11/2011
19/10/2012
04/12/2013
Shares
4,553,571
637,500
Shares
Shares
1,183,929
$663,000
907,263
$689,520
Shares
1,498,957
$410,714
Shares
Shares
Shares
Shares
Shares
Shares
Shares
Shares
749,143
$104,880
419,643
$235,000
321,579
$244,400
531,304
$244,400
2,142,857
267,143
$300,000
$149,600
204,716
$155,584
338,226
$155,584
Shares
1,157,143
$162,000
Rights
Rights
Shares
Shares
Shares
Shares
Shares
Shares
Shares
Shares
Rights
Rights
Rights
986,967
$138,175
282,890
250,000
$48,091
$140,000
191,579
$145,600
316,522
$145,600
1,071,051
69,643
68,684
93,214
1,029,857
269,393
$149,947
$39,000
$52,200
$52,200
$144,180
$150,860
189,000
$143,640
451,371
$207,631
Rights
1,633,151
$228,641
-
0%
0%
0%
-
0%
-
-
-
0%
0%
0%
0%
-
21.5%
0%
-
-
-
-
100%
100%
100%
-
100%
-
-
-
100%
100%
100%
100%
-
78.5%
100%
-
-
-
0%
100%
-
-
-
-
-
-
0%
100%
-
-
-
-
-
-
Sep-16
Sep-13
Sep-14
Sep-15
Sep-16
Sep-13
Sep-14
Sep-15
Sep-16
Sep-13
Sep-14
Sep-15
Sep-16
Sep-16
Sep-16
Sep-13
Sep-14
Sep-15
Sep-16
Sep-13
Sep-14
Sep-15
Sep-16
Sep-13
Sep-14
Sep-15
Sep-16
$0.15
$0.56
$0.76
$0.27
$0.15
$0.56
$0.76
$0.46
$0.15
$0.56
$0.76
$0.46
$0.15
$0.15
$0.18
$0.56
$0.76
$0.46
$0.15
$0.56
$0.76
$0.56
$0.15
$0.56
$0.76
$0.46
$0.15
0
0
0
0
749,143
0
321,579
531,304
2,142,857
0
0
0
0
986,967
60,914
0
191,579
316,522
1,071,051
0
68,684
93,214
1,029,857
0
189,000
451,371
1,633,151
[1]
[2]
[3]
[A]
[B]
[C]
[D]
[E]
The minimum value of each grant is zero.
For LTI Securities granted in FY12, FY13 and FY14 the earliest vesting date is the twentieth trading day after the announcement of the
Company’s annual results in 2014, 2015 and 2016 respectively.
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 KMP remuneration table (table 38) is the portion
of the fair value of the LTI Securities recognised in FY14.
Mr Lewsey was entitled to receive LTI Securities in FY14 subject to shareholder approval at the Company’s 2014 annual general meeting. As
this approval had not been sought as at 30 June 2014, these LTI Securities have not been issued or included in the table above.
Mr Keith Gordon ceased employment with Emeco on 4 November 2013. Accordingly, all unvested LTI Securities granted to Mr
Gordon were forfeited in accordance with the terms of the respective grants.
Ms Kellie Benda commenced her role as KMP on 24 February 2014.
Mr Anthony Halls ceased employment with Emeco on 21 March 2014. Accordingly, all unvested LTI Securities granted to Mr
Halls were forfeited in accordance with the terms of the respective grants.
Mr Benny Joesoep commenced his role as KMP on 9 December 2013, after the FY14 LTI grant date. The number of performance rights
granted to Mr Joesoep in respect of the FY14 LTI grant was $0.18 per right, which was the value of the LTI Securities issued to non-KMP. Mr
Joesoep ceased employment on 13 May 2014 due to retrenchment. Accordingly, Mr Joesoep’s FY14 LTI Securities were tested as at his
termination date and a portion of them vested.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
63
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2014
6.1.2 Management Incentive Share Plan
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 KMP.
MISP Terms and Conditions
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 five year period as set out in the following table:
Table 42: TSR Vesting Schedule
Vesting Date
% of Shares Which Vest
Total % of Vested Shares % of Unvested Shares
2 years after the issue date
3 years after the issue date
4 years after the issue date
5 years after the issue date
6.25%
18.75%
31.25%
43.75%
6.25%
25.00%
56.25%
100.00%
93.75%
75.00%
43.75%
0.00%
If a MISP participant ceases employment with the Group before all of the MISP shares vest on the fifth anniversary of
the issue date, the Company is required to buy back, cancel or transfer to a nominee of the Board all of the shares for a
purchase price which is subject to the Company setting off the Loan amount outstanding in respect of the shares. In
relation to the unvested shares, the purchase price is the Loan amount outstanding in respect of these shares. In relation
to the vested shares, the purchase price is the market value of these 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, being 1 July 2015.
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 and the inclusion
of time based vesting conditions in the terms of issue were intended to provide participants with an incentive to remain
with the Group. That is, the terms upon which the shares were issued to the participants were intended to operate as
a retention incentive arrangement rather than a performance incentive arrangement.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
64
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2014
FY14 MISP entitlements
The last allocation of shares to KMP under the Company’s MISP was made to Mr Ian Testrow in June 2006. During FY14,
the Company recognised share based payments to Mr Testrow under the MISP as set out below:
Table 43: MISP grant to Ian Testrow
MISP Grant to Ian Testrow
Number of shares issued
Issue price of shares
Grant date
Amount of Loan outstanding as at 30 June 2014
Highest amount of indebtedness during FY14
Fair value recognised as remuneration during FY14
6.1.3
Emeco Employee Share Ownership Plan
300,000
$1.16
12/06/2006
$249,000
$249,000
$0.00
Emeco’s Employee Share Ownership Plan (ESOP) is an elective plan which is open to all Australian employees. 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
employed with Emeco for one year after the end of the calendar year in which the matching shares are acquired
(Restriction Period). If an employee leaves the Company before the expiry of the Restriction Period, the matching shares
are forfeited.
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.
During FY14 two Executives participated in the ESOP. Details of the shares purchased on their behalf and the matching
shares allocated to them under the ESOP are set out below:
Table 44: ESOP shares purchased and acquired by Executives
Executive
Anthony Halls
Grant Stubbs
Shares Purchased
Matching Shares Granted
15,233
21,132
3,044
4,223
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
65
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2014
7.
Service contracts
7.1 Managing Director & Chief Executive Officer: Mr Kenneth Lewsey
Mr Lewsey’s employment is for an indefinite term. Mr Lewsey’s employment may be terminated by either party by
giving a notice period of 6 months or a period expiring on the day before the second anniversary of the commencement
of Mr Lewsey’s employment, whichever is greater (Notice Period). However, Emeco may terminate Mr Lewsey’s
employment by making a payment of his fixed remuneration for the Notice Period in lieu of notice.
7.2
Executive General Manager Strategy & Corporate Development: Ms Kellie Benda
Ms Benda’s employment agreement is for an indefinite term and provides that it is terminable on either party giving a
notice period of 12 months if the termination occurs in the first 12 months of employment, or otherwise, 6 months
(Notice Period). However, Emeco may terminate Ms Benda’s employment by making payment of her fixed remuneration
for the Notice Period in lieu of notice.
Under Ms Benda’s employment agreement Ms Benda may terminate her employment if there is a change of control
event in respect of Emeco Holdings Ltd or her duties are materially changed (Change Event), and Emeco must pay her
fixed remuneration for the following period:
(i)
(ii)
(iii)
12 months, if the Change Event occurs within 12 months of her commencement date;
9 months, if the Change Event occurs between 12 months and 24 months of her commencement date; or
6 months, if the Change Event occurs after two years of her commencement date.
7.3 Other Executives
Except as outlined above in sections 7.1 and 7.2, each Executive is 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.
Signed in accordance with a resolution of the Directors.
Kenneth Lewsey
Managing Director
Dated at Perth, 20 day of August 2014
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
66
Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001
To: the directors of Emeco Holdings Limited
I declare that, to the best of my knowledge and belief, in relation to the audit for the financial
year ended 30 June 2014 there have been:
(i)
(ii)
no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the
audit.
KPMG
Graham Hogg
Partner
Perth
20 August 2014
KPMG, an Australian partnership and a member
firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Consolidated Statement of Profit or Loss and Other Comprehensive Income
For the year ended 30 June 2014
Note
2014
$'000
2013
$'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 expenses
Impairment of tangible assets
EBITDA (1)
Impairment of goodwill
Depreciation expense
Amortisation expense
EBIT (2)
Finance income
Finance costs
(Loss)/Profit before tax expense
Tax expense
(Loss)/Profit from continuing operations
Discontinued operations
(Loss)/Profit from discontinued operations (net of tax)
(Loss)/Profit from discontinued operations
(Loss)/Profit for the year
Other comprehensive (loss)/income
Items that are or may be reclassified to profit and loss:
Foreign currency translation differences for foreign operations
Effective portion of changes in fair value of cash flow hedges
Total other comprehensive (loss)/income for the year
Total comprehensive (loss)/income for the year
8
7
8
8
8
8
8
8
8
10
14
205,368
8,145
27,582
241,095
(14,443)
(84,727)
(42,931)
(13,142)
85,852
1,084
(16,092)
(43,656)
27,188
(157,887)
(77,996)
(132)
(208,827)
6,081
(48,632)
(251,378)
27,206
(224,172)
(51,137)
(51,137)
(275,309)
314,068
23,413
41,894
379,375
(25,822)
(114,022)
(45,208)
(7,752)
186,571
2,926
(29,252)
(11,977)
148,268
(17,844)
(98,157)
(192)
32,075
1,439
(26,055)
7,459
(7,447)
12
5,992
5,992
6,004
(5,308)
(4,853)
(10,161)
16,731
1,697
18,428
(285,470)
24,432
The consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the notes
to and forming part of the financial statements set out on pages 73 to 150.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
68
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Consolidated statement of profit or loss and other comprehensive income (continued)
For the year ended 30 June 2014
(Loss)/Profit attributable to:
Owners of the Company
(Loss)/Profit for the year
Total comprehensive (loss)/income attributable to:
Owners of the Company
Total comprehensive (loss)/income for the year
Earnings per share:
Basic earnings per share
Diluted earning per share
Earnings per share-continuing operations
Basic earnings per share
Diluted earnings per share
2014
$'000
2013
$'000
(275,309)
(275,309)
6,004
6,004
(285,470)
(285,470)
24,432
24,432
Note
35
35
35
35
2014
Cents
(48.94)
(48.94)
(48.94)
(48.94)
2013
Cents
1.03
1.02
1.03
1.02
(1) EBITDA - Earnings before net finance costs, tax, depreciation and amortisation.
(2) EBIT - Earnings before net finance costs and tax.
The consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the
notes to and forming part of the financial statements set out on pages 73 to 150.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
69
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Consolidated Statement of Financial Position
as at 30 June 2014
Current Assets
Cash assets
Trade and other receivables
Derivative financial instruments
Inventories
Prepayments
Current tax asset
Assets held for sale
Total current assets
Non-current Assets
Trade and other receivables
Derivative financial instruments
Intangible assets and goodwill
Property, plant and equipment
Total non-current assets
Total assets
Current Liabilities
Trade and other payables
Derivative financial instruments
Interest bearing liabilities
Provisions
Total current liabilities
Non-current Liabilities
Other payables
Derivative financial instruments
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
2014
$'000
2013
$'000
17
18
19
20
11
15
18
19
21
22
23
19
24
26
23
19
24
12
26
13
41,830
78,154
5
8,161
3,066
-
39,922
171,138
772
2,749
175
573,528
577,224
5,754
97,073
691
14,758
2,975
13,940
7,200
142,391
856
4,489
158,076
820,210
983,631
748,362
1,126,022
53,095
2,546
4,316
2,694
62,651
-
10,187
339,458
11,025
1,069
361,739
40,562
1,281
9,308
3,388
54,539
1,284
1,502
406,118
50,159
1,244
460,307
424,390
514,846
323,972
611,176
593,616
(22,612)
(247,032)
323,972
593,616
(10,717)
28,277
611,176
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 73 to 150.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
70
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Consolidated Statement of Changes in Equity
For the year ended 30 June 2014
Share
based
payment
reserve
$'000
Foreign
currency
translation
reserve
$'000
Reserve
for own
shares
$'000
Hedging
reserve
$'000
Share
capital
$'000
Retained
earnings
$'000
Total
equity
$'000
Balance at 1 July 2012
610,424
9,155
(4,041)
(20,814)
(13,756)
59,419
640,387
Total comprehensive income/(loss) for the year
Profit /(loss)
Other comprehensive income/(loss)
Foreign currency translation differences
Effective portion of changes in fair value of cash
flow hedge, net of tax
Total comprehensive income/(loss) for the year
Transactions with owners of the Company
Contributions by and distributions to owners
Own shares acquired by employee share plan trust
Share Buy-back
Dividends to equity holders
Share-based payment transactions
Total contributions by and distributions to owners
Balance at 30 June 2013
-
-
-
-
-
(16,919)
96
15
(16,808)
593,616
Share
capital
$'000
-
-
-
-
-
-
-
2,989
2,989
12,144
-
-
1,697
1,697
-
16,731
-
16,731
-
-
-
-
6,004
6,004
-
16,731
-
6,004
1,697
24,432
-
-
-
-
-
(2,344)
-
-
-
-
-
(4,083)
(2,678)
-
-
-
(2,678)
(16,434)
-
-
(37,146)
-
(37,146)
28,277
(2,678)
(16,919)
(37,050)
3,004
(53,643)
611,176
Share
based
payment
reserve
$'000
Foreign
currency
translation
reserve
$'000
Reserve
for own
shares
$'000
Hedging
reserve
$'000
Retained
earnings
$'000
Total
equity
$'000
Balance at 1 July 2013
593,616
12,144
(2,344)
(4,083)
(16,434)
28,277
611,176
Total comprehensive income/(loss) for the year
Profit /(loss)
Other comprehensive income/(loss)
Foreign currency translation differences
Effective portion of changes in fair value of cash
flow hedge, net of tax
Total comprehensive income/(loss) for the year
Transactions with owners of the Company
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 2014
-
-
-
-
-
-
-
-
593,616
-
-
-
-
-
-
(124)
(5,184)
(4,853)
(4,977)
-
(5,184)
-
-
-
-
(275,309)
(275,309)
-
-
(275,309)
(5,308)
(4,853)
(285,470)
-
-
2,454
2,454
14,598
-
-
-
-
(7,321)
-
-
-
-
(9,267)
(4,188)
-
-
(4,188)
(20,622)
-
-
-
-
(247,032)
(4,188)
-
2,454
(1,734)
323,972
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 73 to 150.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
71
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Consolidated Statement of Cash Flows
For the year ended 30 June 2014
30 June
2014
$'000
30 June
2013
$'000
Note
Cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers and employees
Cash generated from operations
Finance income received
Finance expense paid
Taxes paid/(received)
Net cash inflow from operating activities of discontinued operations
Net cash from operating activities
30(ii)
Cash flows from investing activities
Proceeds from disposal of non-current assets
Payment for property, plant and equipment
Net cash inflow/(outflow) from investing activities of discontinued operations
Net cash from/(used) in investing activities
Cash flows from financing activities
Proceeds from syndicated debt borrowings
Proceeds from 144A Notes
Repayment of syndicated debt borrowings
Repayment of USPP Notes
Repayment of Westpac working capital
Purchase of own shares
Payment for debt establishment costs
Payment of finance lease liabilities
Dividends paid
Net cash outflow from financing activities of discontinued operations
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
30(i)
245,567
(144,105)
101,462
5,761
(37,583)
10,227
2,205
82,072
389,034
(190,623)
198,411
1,440
(23,240)
(20,935)
25,627
181,303
30,265
40,532
(44,186)
(144,452)
38,953
25,032
(25,204)
(129,124)
63,501
364,282
(282,566)
(154,457)
(5,256)
(4,188)
(17,027)
(4,363)
-
(31,290)
(71,364)
35,740
5,754
336
41,830
553,453
-
(607,169)
-
-
(19,597)
(4,709)
(3,339)
(37,146)
(774)
(119,281)
(67,102)
73,091
(235)
5,754
The consolidated statement of cash flows is to be read in conjunction with the notes to the financial statements set out
on pages 73 to 150.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
72
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
1 Reporting entity
Emeco Holdings Limited (the “Company”) is 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 2014 comprise the Company and its subsidiaries (together referred to as the
“Group”). The Group is a for profit entity and primarily involved in the provision of safe, reliable and maintained
heavy earthmoving equipment solutions to customers in the mining industry (refer note 16).
2 Basis of preparation
(a)
Statement of compliance
The consolidated statements are general purpose financial statements which have been prepared in
accordance with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards
Board (AASB) and the Corporations Act 2001. The consolidated financial statements comply with
International Financial Reporting Standards (IFRSs) adopted by the International Accounting Standards Board
(IASB).
The consolidated financial statements were authorised for issue by the Board of Directors on 20 August 2014.
(b)
Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis except for the
following material items in the statement of financial position:
(cid:1)
(cid:1)
derivative financial instruments are measured at fair value; and
financial instruments at fair value through profit or loss are measured at fair value.
The methods used to measure fair values are discussed further in note 5.
(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
Intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually
for impairment or more frequently if events or changes in circumstances indicate that they might be
impaired. Other assets that are subject to amortisation are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is
recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of an asset’s fair value less costs to sell and value in use, in accordance with
the Company’s accounting policy note 3(h)(ii). For the purposes of assessing impairment, assets are grouped
at the lowest levels for which there are separately identifiable cash flows (cash generating units).
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
73
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
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(o)), 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(j)(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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
74
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
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 except for the changes in accounting
policies as explained in note 2(e).
Certain comparative amounts in the consolidated statement of profit or loss and other comprehensive income have
been reclassified to conform with the current years presentation.
(a)
(i)
(ii)
(b)
(i)
(ii)
Basis of consolidation
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has
the rights to variable returns from its involvement with the entity and has the ability to affect those returns
through its power over the entity. The financial statements of subsidiaries are included in the consolidated
financial statements from the date on which control commences until the date on which 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.
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 and financial liabilities recognition and derecognition
The Group initially recognises loans and receivables and deposits and debt securities issued on the date
when they are originated. All other financial assets and financial liabilities are recognised initially on the
trade date.
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 in a transaction in which substantially all the
risks and rewards of ownership of the financial asset are transferred. Any interest in such transferred
financial assets that is created or retained by the Group is recognised as a separate asset or liability.
The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or
expire.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
75
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
3 Significant accounting policies (continued)
(c)
(i)
Financial instruments (continued)
Non-derivative financial assets and financial liabilities recognition and de-recognition
(continued)
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 them 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.
(ii) Non-derivative financial assets - measurement
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.
(iii) Non-derivative financial liabilities - measurement
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 cost using the effective
interest rate method unless the Group has applied fair value hedging, in which case amortised cost is
adjusted to reflect the movement in the fair value of the underlying hedge item. This adjustment is recorded
in the statement of profit and loss.
Other financial liabilities comprise loans and borrowings, debt securities issued, 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 statement of cash flows.
(iv) 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 generally recognised in profit or loss.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
76
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
3 Significant accounting policies (continued)
Financial instruments (continued)
(c)
(iv) Derivative financial instruments, including hedge accounting (continued)
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 recognised initially at fair value; attributable transaction costs are recognised 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.
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 accumulated in equity is retained in other
comprehensive income and reclassified to profit or loss in the same period or periods during which the non-
financial item affects profit or loss. 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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
77
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
3 Significant accounting policies (continued)
(c)
(v)
Financial instruments (continued)
Share capital
Ordinary shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares
net of any tax effects are recognised as a deduction from equity.
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.
Repurchase and reissue of share capital (treasury shares)
When shares recognised as equity are repurchased, the amount of the consideration paid, which includes
directly attributable costs, net of any tax effects, is recognised as a deduction from equity. Repurchased
shares are classified as treasury shares and are presented in the reserve for own shares. 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 presented in retained earnings.
(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 includes 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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
78
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
3 Significant accounting policies (continued)
(d)
(ii)
Property, plant and equipment (continued)
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.
(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. In certain specific
contracts, depreciation methodology on some items of plant and equipment are reassessed in line with their
effective lives. In these situations, depreciation is recognised in line with the pattern of economic benefits
expected to be consumed. For plant and equipment that is idle for under 3 months, no depreciation is
charged. Depreciation on plant and equipment that is idle for more than 3 months is calculated on 100
machine hours per month.
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 any accumulated impairment losses.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
79
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
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
Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if
appropriate.
(f)
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 estimated costs necessary to make the sale.
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.
(g) 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.
(h)
(i)
Impairment
Non-derivative financial assets
Financial assets not classified as at fair value through profit or loss are assessed at each reporting date to
determine whether there is objective evidence of impairment.
Objective evidence that financial assets are impaired includes:
• default or delinquency by a debtor;
•
•
•
•
• observable data indicating that there is measurable decrease in expected cash flows from a group
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;
adverse changes in the payment status of borrowers or issuers;
the disappearance of an active market for a security; or
of financial assets.
For an investment in an equity security, objective evidence of impairment includes a significant or prolonged
decline in its fair value below its cost. The Group considers a decline of 20% to be significant and a period of
nine months to be prolonged.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
80
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
3 Significant accounting policies (continued)
(h)
(i)
Impairment (continued)
Non-derivative financial assets (continued)
Financial assets measured at amortised cost
The Group considers evidence of impairment for these assets measured at both an individual asset and a
collective level. All individually significant assets are individually assessed for specific impairment. Those
found not to be impaired are then collectively assessed for any impairment that has been incurred but not
yet individually identified. Assets that are not individually significant are collectively assessed for
impairment. Collective assessment is carried out by grouping together assets with similar risk characteristics.
In assessing collective impairment, the Group uses historical information on the timing of recoveries and the
amount of loss incurred, and makes an adjustment if current economic and credit conditions are such that
the actual losses are likely to be greater or lesser than suggested by historical trends.
An impairment loss is calculated as the difference between an asset’s 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. When the Group considers that there are
no realistic prospects of recovery of the asset, the relevant amounts are written off. If the amount of the
impairment loss subsequently decreases and the decrease can be related objectively to an event occurring
after the impairment was recognised, then the previously recognised impairment loss is reversed through
profit or loss.
(ii) Non-financial assets
At each reporting date, the Group reviews the carrying amounts of its non-financial assets (other than
inventories and deferred tax assets) to determine whether there is any indication of impairment. If any such
indication exists, then the asset’s recoverable amount is estimated. Goodwill is tested annually for
impairment.
For impairment testing, assets are grouped together into the smallest group of assets that generates cash
inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs.
Goodwill arising from a business combination is allocated to CGUs or groups of CGUs 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.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to
sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-
tax discount rate that reflects current market assessments of the time value of money and the risks specific
to the asset or CGU.
An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount.
Impairment losses are recognised in profit or loss. They are allocated first to reduce the carrying amount of
any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU
on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. For other assets, 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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
81
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
3 Significant accounting policies (continued)
Impairment (continued)
(h)
(ii) Non-financial assets (continued)
Goodwill assets were fully impaired at 31 December 2013 as part of the Group’s process of testing goodwill
for impairment, when impairment triggers were present.
(i)
Assets held for sale
Non-current assets, or disposal groups comprising assets and liabilities, are classified as held-for-sale if it is
highly probable that they will be recovered primarily through sale rather than through continuing use.
Such assets, or disposal groups, are generally measured at the lower of their carrying amount and fair value
less costs to sell. Any impairment loss on a disposal group is allocated first to goodwill, and then to the
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 which continue to be measured in accordance with the
Group’s other accounting policies. Impairment losses on initial classification as held-for-sale and subsequent
gains and losses on re-measurement are recognised in profit or loss.
Once classified as held-for-sale, intangible assets and property, plant and equipment are no longer amortised
or depreciated, and any equity-accounted investee is no longer equity accounted.
(j)
(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 has 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 related 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. Re-measurements are recognised in profit or loss in the period in which they
arise.
(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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
82
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
3 Significant accounting policies (continued)
(j)
(v)
Employee benefits (continued)
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.
increase
(b) The share option programme allows certain employees to acquire shares of the Company. The grant
date fair value of options granted to employees is recognised as an employee expense with a
corresponding
in equity, over the period during which the employees become
unconditionally entitled to the options. The fair value of the options granted is measured using an
option-pricing model, taking into account the terms and conditions upon which the options were
granted. The amount recognised as an expense is adjusted to reflect the actual number of share
options that vest except where forfeiture is only due to market conditions not being met, i.e. share
prices not achieving the threshold for vesting. The share option programme concluded on 4 August
2011.
(c)
A long term incentive plan (LTIP) allows certain management personnel to receive shares or rights of
the Company upon satisfying performance conditions. Under the LTIP rights or shares granted to each
LTIP participant vest to the employee after 3 years if the prescribed performance condition is met.
The performance condition is a performance hurdle based on relative total shareholder return (TSR).
The peer group that the Company’s TSR is measured against consists of 99 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.
(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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
83
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
3 Significant accounting policies (continued)
(j)
(v)
(k)
(l)
(i)
(ii)
Employee benefits (continued)
Share based payment transactions (continued)
(e)
Dividends received while satisfying the performance conditions of share issues under the MISP are
allocated against the employee outstanding loan. 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.
(f)
A short term incentive (STI) plan allows the Executive Leadership Team to receive shares of the
Company upon satisfying performance conditions. This is determined at the end of each financial year
based on the Executive’s performance. The performance conditions related to KPIs include EBITDA,
Group Net Profit After Tax, Operating Cash Flow, Sale of Idle Assets, Safety and Personal Goals.
For the Managing Director and Chief Executive Officer, STI entitlements are made 25% in equity and
75% in cash with shares issued after their approval at the announcement of the Company’s annual
general meeting in the financial year that they relate to and are escrowed until the announcement of
the Company’s annual results two financial years after the financial year to which it relates.
For all other Executives, STI entitlements are made in cash up to the maximum STI cash component,
with the remainder made in equity. The equity component is subject to a service vesting condition of
the Executive remaining employed by the Group, and will vest the day after the announcement of
Emeco’s annual results one financial year after the financial year to which it relates.
The fair value of the performance shares granted under the STIP have been measured and are
expensed in the financial year the STIP relates to.
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.
Revenue
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. In certain specific contracts, Emeco
recognises revenue when it is legally enforceable on another basis that reflects the services performed.
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 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 2014
84
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
3 Significant accounting policies (continued)
(m) Leases
Leased assets
Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified
as finance leases. On 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.
Lease payments
Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term
of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the
term of the lease.
Minimum lease payments made under finance leases are apportioned between the finance expense and the
reduction of the outstanding liability. The finance expense is allocated to each period during the lease term
so as to produce a constant periodic rate of interest on the remaining balance of the liability.
(n)
Finance income and finance costs
The Group’s finance income and finance costs include:
•
interest income;
•
interest expense;
• dividend income;
• dividends on preference shares issued classified as financial liabilities;
•
•
the net gain or loss on the disposal of available-for-sale financial assets;
the net gain or loss on financial assets at fair value through profit or loss;
•
•
•
•
•
the fair value loss on contingent consideration classified as financial liability;
impairment losses recognised on financial assets (other than trade receivables);
the net gain or loss on hedging instruments that are recognised in profit or loss;
the reclassification of net gains previously recognised in OCI; and
amortisation of borrowing costs capitalised using the effective interest method
Interest income or expense is recognised using the effective interest method. Dividend income is recognised
in profit or loss on the date that the Group’s right to receive payment is established.
(o)
Income Tax
Income 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.
(i) Current tax
Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year
and any adjustment to tax payable or receivable in respect of previous years. It is measured using tax
rates enacted or substantively enacted at the reporting date.
(ii) Deferred tax
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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
85
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
3 Significant accounting policies (continued)
(o)
Tax (continued)
(ii) Deferred tax (continued)
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.
The measurement of deferred tax reflects the tax consequences that would follow the manner in
which the Group expects, at the end of the reporting period, to recover or settle the carrying
amount of its assets and liabilities.
Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences
when they reverse, using tax rates enacted or substantively enacted at the reporting date.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax
liabilities and assets, and they relate to income taxes levied by the same tax authority on the same
taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on
a net basis or their tax assets and liabilities will be realised simultaneously.
A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary
differences to the extent that it is probable that future taxable profits will be available against which
they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the
extent that it is no longer probable that the related tax benefit will be realised.
(iii) Tax exposures
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.
(p) Discontinued operations
A discontinued operation is a component of the Group's business, the operations and cash flows of
which can be clearly distinguished from the rest of the Group and which:
•
•
•
represents a separate major line of business or geographical area of operations;
is part of a single coordinated plan to dispose of a separate major line of business or geographical
area of operations; or
is a subsidiary acquired exclusively with a view to re-sale.
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.
(q)
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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
86
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
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 2013, and have not been applied in preparing these consolidated financial statements. Those
which may be relevant to the Group are set out below. The Group does not plan to adopt these standards
early.
(i) AASB 9 Financial Instruments (2010), AASB 9 Financial instruments (2009)
AASB 9 (2009) introduces new requirements for the classification and measurement of financial assets.
Under AASB 9 (2009), financial assets are classified and measured based on the business model in which
they are held and the characteristics of their contractual cash flows. AASB 9 (2010) introduces additions
relating to financial liabilities. The IASB currently has an active project that may result
in limited
amendments to the classification and measurement requirements of AASB 9 and add new requirements
to address the impairment of financial assets and hedge accounting.
AASB 9 (2010 and 2009) are effective for annual periods beginning on or after 1 January 2015 with early
adoption permitted. The adoption of AASB 9 (2010) is expected to have an impact on the Group's financial
assets, but no impact on the Group's financial liabilities.
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)
(ii)
(iii)
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 depreciated
replacement cost when appropriate. Depreciated replacement cost estimates reflects adjustments for
physical deterioration as well as functional and economic obsolescence.
Intangible assets
The fair value of contract intangibles 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 is determined based on its estimated selling price in the ordinary course of
business less the estimated costs of completion and sale, and a reasonable profit margin based on the effort
required to complete and sell the inventories.
(iv) Trade and other receivables
The fair value of trade and other receivables, excluding construction work in progress, are estimated as the
present value of future cash flows, discounted at the market rate of interest at the measurement date. Short-
term receivables with no stated interest rate are measured at the original invoice amount if the effect of
discounting is immaterial. Fair value is determined at initial recognition and, for disclosure purposes, at each
annual reporting date.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
87
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
5 Determination of fair values (continued)
(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
Other non-derivative financial liabilities are measured at fair value at initial recognition and for disclosure
purposes, at each annual reporting date. Fair value is calculated based on the present value of future
principal and interest cash flows, discounted at the market rate of interest at the measurement 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 2014
88
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
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 of Directors 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, aims 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 or financial
asset fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers.
Exposure to credit risk
The carrying amount of the Group’s financial assets represents the maximum credit exposure. The Group’s
maximum exposure to credit risk at the reporting date was:
Trade receivables
Other receivables
Cash and cash equivalents
Derivatives
Consolidated
Carrying amount
2014
$'000
2013
$'000
49,298
34,819
41,830
2,754
128,701
86,357
28,342
5,754
5,180
125,633
Note
18
18
17
19
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
89
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
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, Chile
and Canada, and generally operates on a “cash for keys” policy for the sale of equipment and parts.
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 $750,000,000 (2013:
$750,000,000). The Australian and Chilean businesses held insurance for the entire financial year ended 30 June
2014. The Indonesian business held credit insurance from 1 July 2013 to 30 November 2013. 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 2014 the Group’s doubtful debts provision for continuing and discontinued operations was $5,191,000
(2013: $16,770,000). The change in provision for doubtful debts was $11,579,000 during the financial year primarily
due to following:
•
•
$9,020,000 related to a customer in Indonesia where the Company received $7,900,000 from credit insurance
with the remainder written off as a bad debt; and
$2,462,000 represents the reversal of doubtful debts due to customers who became insolvent in Australia and
Canada totalling $1,675,000 and $787,000 respectively.
As at 30 June 2014 the Group recognised bad debt write-offs for continuing and discontinued operations for a total
amount of $14,116,000 (2013: $2,053,000) of which $11,052,000 related to two customers in the Indonesian
business and $1,675,000 and $787,000 related to one customer in the Australian business and the Canadian
business respectively. $602,000 related to the impairment of a USA debtor fully provided for in the previous period.
$2,537,000 was provided for as doubtful debts at 30 June 2014.
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 $41,830,000 at 30 June 2014 (2013: $5,754,000), 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-.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
90
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
6 Financial instruments (continued)
Credit risk (continued)
Trade and other receivables (continued)
The Group also held derivative assets in relation to cross currency interest rate swaps and forward exchange rate
swaps to the total value of $2,754,000 (2013: $5,180,000) at 30 June 2014, 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-.
The Group’s maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:
Consolidated
Gross
2014
$'000
Impairment
2014
$'000
Consolidated
Gross
2013
$'000
Impairment
2013
$'000
Australia
Asia
North America
South America
18,455
8,017
18,300
4,526
49,298
(486)
(4,385)
(320)
-
(5,191)
34,359
29,536
14,876
7,586
86,357
(1,675)
(13,503)
(1,592)
-
(16,770)
The Group’s maximum exposure to credit risk for trade receivables at the reporting date by type of customer was:
Insured
Blue Chip (including subsidiaries)
Other security
Uninsured
Consolidated
Carrying amount
2014
$'000
2013
$'000
20,737
16,680
314
11,567
49,298
49,103
22,628
319
14,307
86,357
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
91
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
6 Financial instruments (continued)
Credit risk (continued)
Trade and other receivables (continued)
The aging of the Group’s trade receivables at the reporting date was:
Not past due
Past due 0-30 days
Past due 31-60 days
Past due 61 days
Consolidated
Consolidated
Gross
2014
$'000
Impairment
2014
$'000
Gross
2013
$'000
Impairment
2013
$'000
11,845
15,406
4,036
18,011
49,298
(280)
(206)
-
(4,705)
(5,191)
19,311
26,625
15,213
25,208
86,357
(1,667)
-
(415)
(14,688)
(16,770)
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 provision for doubtful debts
Balance at 30 June
Consolidated
2014
$'000
2013
$'000
16,770
(3,064)
(8,515)
5,191
2,089
(2,053)
16,734
16,770
Collateral
Collateral is held for customers that are assessed to be a higher risk. At 30 June 2014 the Group held $Nil of bank
guarantees (2013: $Nil) and $Nil of prepayments (2013: $300,000).
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 2014 $866,013 guarantees
were outstanding (2013: $75,000).
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 2014
92
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
6 Financial instruments (continued)
Liquidity risk (continued)
On 17 March 2014, the Group extinguished it’s A$450,000,000 senior secured syndicated debt facility and USPP
Notes by repaying its outstanding liabilities by issuing US$335,000,000 of 144A Notes in the High Yield market.
The Group issued secured fixed interest notes in the 144A High Yield Bond market comprising US$335,000,000
which matures on 17 May 2019. The nominal interest rate is 9.875%. These notes will remain fully drawn until
maturity.
The Group established an A$50,000,000 revolving credit facility comprising of Tranche A1: 3 year A$40,000,000
tranche and Tranche A2: 3 year A$10,000,000 tranche, which matures on 17 March 2017. At year end, the undrawn
portion of the facility was A$50,000,000.
The Group has finance lease facilities totalling A$8,770,000 (2013: A$12,358,000) which matures on 15 August
2015. The Group has also financed its insurance payments with $461,000 remaining at year end which matures in
August 2014.
The following are the contractual maturities of financial liabilities, including estimated interest payments and
excluding the impact of netting agreements.
Consolidated
30 June 2014
Non-derivative financial
liabilities
Secured bank loans
Secured notes issue
Finance lease liabilities
Insurance financing
Working capital facility
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
flows
$'000
6 mths or
less
$'000
6-12 mths 1-2 years 2-5 years
$'000
$'000
$'000
-
334,544
8,770
461
-
9,731
353,506
-
531,905
9,334
461
-
9,731
551,431
-
17,582
2,181
461
-
9,731
29,955
-
17,582
2,181
-
-
-
19,763
-
35,163
4,972
-
-
-
40,135
-
461,578
-
-
-
-
461,578
-
-
-
-
-
-
-
-
-
-
-
-
(9,984)
(28,426)
(2,204)
(2,060)
(10,053)
(14,109)
-
5
(9,979)
(4,249)
4,244
(28,431)
(4,249)
4,244
(2,209)
-
-
(2,060)
-
-
(10,053)
-
-
(14,109)
More than
5 years
$'000
-
-
-
-
-
-
-
-
-
-
-
-
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 2014
93
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
6 Financial instruments (continued)
Liquidity risk (continued)
Consolidated
30 June 2013
Non-derivative financial
liabilities
Secured bank loans (1)
Secured notes issue (1)
Finance lease liabilities
Insurance financing
Working capital facility
Trade and other payables
Derivative financial
liabilities
Interest rate swaps used
for hedging asset/(liability) (1)
Interest rate swaps used
for hedging asset/(liability) (1)
Cross-currency interest rate swaps
used for hedging asset/(liability) (1)
Forward exchange contracts
used for hedging:
Outflow
Inflow
Carrying
amount
$'000
Contract-
ual cash
flows
$'000
6 mths or
less
$'000
6-12 mths 1-2 years 2-5 years
$'000
$'000
$'000
More than
5 years
$'000
(249,646) (283,689)
(5,645)
(5,645)
(11,289) (261,110)
-
(147,702) (214,075)
(13,696)
(464)
(5,256)
(41,846)
(457,272) (559,026)
(12,358)
(464)
(5,256)
(41,846)
(3,832)
(2,181)
(464)
(5,256)
(40,562)
(57,940)
(3,832)
(2,181)
-
-
-
(11,658)
(7,665)
(4,362)
-
-
-
(22,994)
(4,973)
-
-
(1,284)
(23,316) (290,361)
(175,752)
-
-
-
-
(175,752)
(1,700)
(1,844)
(1,578)
(161)
(148)
43
-
(1,063)
(1,434)
407
399
688
9
(2,937)
5,180
5,722
(422)
(262)
(854)
(5,306)
12,566
(20)
-
2,397
(9,477)
9,497
2,464
(9,477)
9,497
(1,573)
-
-
(24)
-
-
(314)
-
-
(5,254)
-
-
9,629
(1) These assets and liabilities were extinguished during FY14.
The gross inflows/(outflows) disclosed in the previous table represents 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 2014
94
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
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) and Chilean Peso
(CLP).
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.
In March 2014 the Group issued US$335,000,000 of notes in the 144A high yield market of which US$110,000,000
and US$100,000,000 were swapped into AUD and CAD respectively 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 2014 is generally offset by financial assets denominated in the same
currency providing an economic hedge without derivatives being entered into. However, due to timing delays the
Group is still in the process of hedging its US$50,000,000 exposure, which is expected to be completed in FY15. In
addition, some of the Group’s subsidiaries operate in USD which further mitigates the USD foreign currency
exposure.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
95
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
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 2014
30 June 2013
USD
$'000
CAD
$'000
USD
$'000
CAD
$'000
Cash
Senior secured debt
Secured notes issued (1)
Gross balance sheet exposure
Cross currency interest rate swap to hedge the
secured notes issued
Forecast purchases
Forward exchange contracts (2)
4,597
-
(271,969)
(267,372)
210,000
-
4,000
214,000
5,146
-
-
5,146
-
-
-
-
124
(15,000)
(43,802)
(58,678)
50,000
-
8,800
58,800
Net exposure
(53,372)
5,146
122
-
-
-
-
-
-
-
-
-
(1) Net USD exposure of US$335,000,000 in an AUD denominated entity.
(2) 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
CLP
GBP
Average rate
Reporting date spot rate
2014
2013
2014
2013
0.9819
0.9187
0.6776
10,496
97.45
488.28
0.5699
1.0306
1.0266
0.7947
9,885
89.70
491.47
0.6545
1.0043
0.9415
0.6901
11,302
95.50
519.39
0.5527
0.9701
0.9266
0.7100
9,254
91.58
467.24
0.6075
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
96
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
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 2014 would
foreign currency and
have affected the measurement of
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 2013, as indicated below:
instruments denominated
financial
in a
30 June 2014
USD (10 percent movement)
CAD (10 percent movement)
30 June 2013
USD (10 percent movement)
CAD (10 percent movement)
Consolidated
Strengthening
Equity
$'000
Profit or loss
$'000
Weakening
Equity
$'000
Profit or loss
$'000
(1,591)
(2,552)
6,510
(78)
1,944
3,119
(7,949)
480
(703)
35
(78)
-
860
(43)
96
-
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 cross currency interest rate swaps and the issue of fixed interest notes.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
97
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
6 Financial instruments (continued)
Market risk (continued)
Profile
At the end of the reporting date the interest rate profile of the Group’s interest-bearing financial instruments as
reported to the management of the Group was:
Variable rate instruments:
Cash at bank
Working capital facility
Interest bearing liabilities
Effective interest rate swaps to hedge interest rate risk
Australian dollars (2013: USPP US$50m)
United States dollars USPP (2013: USPP US$40m)
Australian dollars (2013: A$80M)
Canadian dollars (2013: C$80M)
United States dollars (2013: US$15M)
Australian dollars 144A (US$110M) (2013: Nil)
Canadian dollars 144A (US$100M) (2013: Nil)
Fixed rate instruments:
Interest bearing liabilities (notes)
Interest bearing finance leases
Insurance financing
Consolidated
2014
$'000
2013
$'000
41,830
-
-
-
-
-
-
-
(7,282)
(2,702)
31,846
(358,144)
(8,770)
(461)
(367,375)
5,754
(5,256)
(252,746)
5,180
(1,063)
(1,061)
(557)
(82)
-
-
(249,831)
(149,557)
(12,358)
(464)
(162,379)
Note
17
24
24
24
The Group classifies its debt related derivatives into the category of 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 2014
98
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
6 Financial instruments (continued)
Market risk (continued)
Fair value sensitivity analysis for fixed rate instruments
The Group accounts for a portion of its fixed rate financial liabilities at fair value through profit or loss, as 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 2014
Fixed rate instruments (144A)
Interest rate swap
Cash flow sensitivity (net)
30 June 2013
Fixed rate instruments (USPP)
Interest rate swap
Cash flow sensitivity (net)
100bp
increase
$'000
100bp
decrease
$'000
100bp
increase
$'000
100bp
decrease
$'000
6,989
(6,989)
-
(8,143)
8,143
-
8,241
(8,241)
-
(6,723)
6,723
-
-
-
-
-
-
-
-
-
-
-
-
-
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
99
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
6 Financial instruments (continued)
Market risk (continued)
Detailed below is the profit and loss impact of fair value hedges during the year.
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/(loss) impact before tax
Profit or loss
2014
$'000
2013
$'000
-
-
-
-
5,536
-
(1,063)
1,085
2,749
(2,327)
5,958
(472)
448
(2)
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 2013.
Cash Flow Hedges
30 June 2014
Variable rate instruments
Interest rate swap
Cash flow sensitivity (net)
30 June 2013
Variable rate instruments
Interest rate swap
Cash flow sensitivity (net)
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
Profit or loss
100bp
increase
$'000
100bp
decrease
$'000
Equity
100bp
increase
$'000
100bp
decrease
$'000
-
68
68
522
-
522
(68)
-
(68)
(543)
-
(543)
-
90
90
-
(1,181)
(1,181)
-
2
2
-
458
458
100
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
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 excluding margins, and were as follows:
Derivatives
Loans and borrowings
USPP
Leases
144A Notes
2014
2013
0.2%
0.2%
4.6%
7.2%
9.9%
-
-
-
-
-
2.8%
2.9%
5.3%
7.2%
9.9%
0.3%
0.2%
4.6%
7.2%
-
-
-
-
-
-
4.2%
3.6%
5.3%
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:
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
Interest rate swaps used for hedging
Forward exchange contracts used for hedging
Liabilities carried at amortised cost
Secured bank loans
Secured notes issue
Secured notes issue (1)
Insurance financing
Finance lease liabilities
Trade and other payables
30 June 2014
Fair
Value
$'000
Carrying
Amount
$'000
30 June 2013
Fair
Value
$'000
Carrying
Amount
$'000
Note
19
19
18
17
19
19
24
24
24
24
24
23
-
5
5
-
5
5
5,180
-
5,180
5,180
-
5,180
78,154
41,830
119,984
78,154
41,830
119,984
97,073
5,754
102,827
97,073
5,754
102,827
(9,984)
-
(9,984)
(9,984)
-
(9,984)
(2,763)
(20)
(2,783)
(2,763)
(20)
(2,783)
-
-
(169,183)
(178,547)
(165,360)
(461)
(8,770)
(53,095)
(396,869)
(4,915)
(461)
(9,334)
(53,095)
(246,352)
(249,646)
(53,299)
(252,746)
(53,961)
(94,403)
(464)
(12,358)
(41,846)
(452,016)
(95,596)
(464)
(14,181)
(41,846)
(458,794)
(1) Carried at amortised cost with movements in fair value of the underlying hedge item recorded in the profit
and loss statement.
The basis for determining fair values is disclosed in note 5.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
101
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
6 Financial instruments (continued)
Market risk (continued)
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.
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.
Historically, the Board maintained a balance between higher returns possible with higher levels of borrowings and
the security afforded by a sound capital position. However, given current market condition, the Board seeks to
increase levels of cash held to maintain a strong capital position.
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.
7 Other income
Net profit on sale of non current assets (1)
Sundry income (2)
Consolidated
2014
$'000
2013
$'000
731
353
1,084
1,658
1,268
2,926
(1)
(2)
Included in net profit on the sale of non-current assets is the sale of rental equipment, including those non-
current assets classified as held for sale. The gross proceeds from the sale of this equipment in 2014 was
$30,265,000 (2013: $45,565,000).
Included in sundry income are fees charged on overdue accounts, bad debts recovered and procurement fees
on machines sourced for third parties.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
102
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
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
Impairment of tangible assets held for sale:
- inventory
- property, plant and equipment
Employee expenses:
- superannuation
Other expenses:
- bad debts (1)
- doubtful debts/(reversal)
- insurance
- motor vehicles
- rental expense
- safety expenses
- travel and subsistence expense
- telecommunications
- workshop consumables, tooling and labour
- other expenses/(reversals)
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
Impairment of:
- goodwill
Total depreciation, amortisation and impairment of goodwill
Note
20
Consolidated
2014
$'000
2013
$'000
14,443
25,822
6,148
37,508
43,656
2,849
3,064
(2,467)
2,916
3,356
4,152
1,238
3,746
1,796
1,666
(3,375)
8,641
3,336
11,977
3,424
-
370
1,974
3,264
3,644
3,605
1,549
2,883
1,691
3,148
7,124
16,092
29,252
592
73,156
525
221
430
1,428
521
1,123
77,996
839
90,102
3,167
179
479
1,615
548
1,228
98,157
21
21
132
192
157,887
158,019
17,844
18,036
236,015
116,193
(1) $1,675,000 of the $3,064,000 bad debt expense in FY14 relates to a debtor in the Australian entity.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
103
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
8
Profit before income tax expense for continuing operations (continued)
Finance costs:
- interest expense
- makewhole payment (1)
- withholding tax expense
- amortisation of debt establishment costs using effective interest rate
- write off previous facility costs
- hedge losses
- other facility costs
Finance income:
- interest income
- hedge gains
Net financial expenses
Consolidated
2014
$'000
2013
$'000
24,206
16,063
1,960
1,918
2,993
-
1,492
48,632
(123)
(5,958)
42,551
21,138
-
-
762
1,910
32
2,213
26,055
(1,439)
-
24,616
Net foreign exchange (gain)/loss
(4,571)
(110)
(1) Makewhole payment related to the repayment of the USPP Notes.
9
Auditor’s remuneration
Audit services
Auditors of the Company
KPMG Australia:
- audit and review of financial reports
- other assurance services (1)
Overseas KPMG Firms:
- audit and review of financial reports
- other assurance services (1)
Other services
Auditors of the Company
KPMG Australia:
- taxation services (2)
Overseas KPMG Firms:
- taxation services
Consolidated
2014
$
2013
$
382,782
320,000
173,118
36,872
912,772
458,300
-
195,536
-
653,836
337,641
174,016
279,639
617,280
134,896
308,912
1,530,052
962,748
(1) Other assurance services includes services relating to the issue of secured fixed notes in the 144A High Yield
Bond market.
(2) The increase in taxation services during FY14 includes assistance provided for the Australian Taxation Office
risk review and the issue of secured fixed notes in the 144A high yield bond market.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
104
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
10 Taxes
a. Recognition in the income statement
Current tax expense/(benefit):
Current year
Adjustments for prior years
Deferred tax expenses/(benefit):
Origination and reversal of temporary differences
Tax expense/(benefit)
Tax expense from continuing operations
Tax expense/(benefit) from discontinued operations
Total tax expense/(benefit)
b. Current and deferred tax expense recognised directly in equity
Share purchase costs
Tax recognised in other comprehensive income
Consolidated
2014
$'000
2013
$'000
Note
(67,325)
35
(67,290)
36,383
36,383
(30,907)
(27,206)
(3,701)
(30,907)
27,302
(130)
27,172
(17,092)
(17,092)
10,080
7,447
2,633
10,080
12
14
Consolidated
2014
$'000
2013
$'000
(723)
(723)
374
374
Consolidated
2014
Tax
Before
Tax
$'000
(expense) Net of
benefit
$'000
tax
$'000
Consolidated
2013
Tax
Before (expense) Net of
benefit
$'000
Tax
$'000
tax
$'000
Foreign currency translation differences for
foreign operations
Cash flow hedges
(5,308)
(6,932)
(12,240)
-
2,079
2,079
(5,308)
(4,853)
(10,161)
16,731
3,394
20,125
-
(1,697)
(1,697)
16,731
1,697
18,428
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
105
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
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
Goodwill impairment
Tangible asset impairment
Sundry
Under/(over) provided in prior years
Tax expense
Consolidated
2014
$'000
2013
$'000
(75,414)
4,825
(4,725)
(1,205)
1,494
47,366
166
169
36
(30,907)
53
5,353
938
246
(130)
10,080
11 Current tax assets and liabilities
The current tax asset for the Group of $Nil (2013: $13,940,000) represents income taxes recoverable in respect of
prior periods and that arise from payment of taxes in excess of the amount due to the relevant tax authority.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
106
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
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
Accrued revenue
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
2014
$'000
2013
$'000
Liabilities
2014
$'000
2013
$'000
Net
2014
$'000
2013
$'000
(52)
-
(2,353)
-
(1)
(1,918)
(3,085)
-
(417)
(1,028)
(20)
-
(49,325)
(58,199)
-
(58,199)
(16)
(30)
(8,481)
-
(3)
(1,280)
(510)
-
(2,081)
(1,475)
(24)
(15)
(3,473)
(17,388)
17,388
-
61,843
-
47
24
621
2,043
1
7
3,615
1,023
-
-
-
69,224
-
69,224
59,060
-
2,781
215
571
-
-
1,695
3,054
171
-
-
-
67,547
(17,388)
50,159
61,790
-
(2,306)
24
620
125
(3,083)
7
3,198
(5)
(20)
-
(49,325)
11,025
-
11,025
59,044
(30)
(5,700)
215
568
(1,280)
(510)
1,695
973
(1,304)
(24)
(15)
(3,473)
50,159
-
50,159
Consolidated
Balance
1 July 13
$'000
Recognised
in profit
or loss
$'000
Recognised
directly
in equity
$'000
Recognised
in other
comprehensive
income
$'000
Balance
30 June 14
$'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
59,044
(30)
(5,485)
568
(1,280)
(510)
1,695
973
(1,304)
(24)
(15)
(3,473)
50,159
2,746
30
3,203
52
1,405
(2,573)
392
2,225
1,299
727
15
(45,852)
(36,331)
-
-
-
-
-
-
-
-
-
(723)
-
-
(723)
-
-
-
-
-
-
(2,080)
-
-
-
-
-
(2,080)
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
61,790
-
(2,282)
620
125
(3,083)
7
3,198
(5)
(20)
-
(49,325)
11,025
107
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
12 Deferred tax assets and liabilities (continued)
Movement in deferred tax balances
Consolidated
Balance
1 July 12
$'000
Recognised
in profit
or loss
$'000
Recognised
directly
in equity
$'000
Recognised
in other
comprehensive
income
$'000
Balance
30 June 13
$'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
40,797
(37)
(3,902)
1,361
(6,707)
(1,683)
1,296
4,967
(1,706)
(8)
(110)
(3,272)
30,996
18,247
7
(1,583)
(793)
5,427
-
(125)
(3,994)
402
(390)
95
(201)
17,092
-
-
-
-
-
-
-
-
-
374
-
-
374
-
-
-
-
-
1,173
524
-
-
-
-
-
1,697
59,044
(30)
(5,485)
568
(1,280)
(510)
1,695
973
(1,304)
(24)
(15)
(3,473)
50,159
Unrecognised deferred tax assets
The following deferred tax assets have not been
brought to account as assets:
Tax losses
Consolidated
2014
$'000
2013
$'000
21,109
18,308
Unutilised tax losses are in Indonesia, the United Kingdom, United States and Europe.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
108
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
13 Capital and reserves
Share capital
599,675,707 (2013: 599,675,707 ) ordinary shares, fully paid
Acquisition reserve
Consolidated
2014
$'000
2013
$'000
669,503
(75,887)
593,616
669,503
(75,887)
593,616
Share buy back
On 23 August 2012 the Board announced an on market share buy-back program to acquire up to 5% of shares on
issue. The share buy-back was completed on 23 November 2012 having acquired a total of 31,561,879 shares at
an average price of 53.4 cents. Shares on issue at 30 June 2014 totalled 599,675,707 (30 June 2013: 599,675,707).
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 2014 the Company held 27,773,441 treasury shares
(2013: 16,804,359) 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 hedging
instruments used in cash flow hedges pending subsequent recognition of hedged cash flows.
Share based payment reserve
The share based payment reserve comprises the expenses incurred from the issue of the Company’s Securities
under its employee share/option plans (refer note 3(j)(v)).
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
109
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
13 Capital and reserves (continued)
Dividends
(i) The following dividends were declared and paid by the Group:
2014
Final 2013 ordinary
Interim 2014 ordinary
Cents
per share
Total
amount
$'000
Franked/
unfranked
Date of
payment
Nil
Nil
-
-
-
-
-
-
-
Subsequent to 30 June 2014
The Directors have declared that no Final dividend will be paid and no amount has been paid or declared by
way of dividends since March 2013, or to the date of this report.
The following dividends were declared and paid by the Group in the prior year:
2013
Final 2012 ordinary
Interim 2013 ordinary
Cents
per share
Total
amount
$'000
Franked/
unfranked
Date of
payment
3.5
2.5
22,154
14,992
37,146
Franked
Franked
28 September 2012
27 March 2013
Franked dividends declared or paid during the year were franked at the tax rate of 30%.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
110
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
13 Capital and reserves (continued)
Dividends (continued)
(ii)
Franking account
Dividend franking account
30% franking credits available to shareholders of
Emeco Holdings Limited for subsequent financial years
The Company
2014
$'000
2013
$'000
18,861
29,391
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 $Nil (2013: $Nil). 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 $18,861,000 (2013: $29,391,000) franking credits.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
111
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
14 Discontinued operations
In May 2014 the Board resolved to exit the Indonesian business after a strategic review of the operations. The
Board’s decision to close this business was to address the underperformance in returns being generated combined
with the unfavourable conditions in the Indonesian mining industry.
Losses of discontinued operations
Revenue
Other income
Direct costs
Profit/(loss) on sale of assets
Impairment of tangible assets
- Inventories
- Property, Plant and Equipment
Other expenses
Employee expenses
EBITDA
Depreciation
EBIT
Finance income
Finance costs
Income tax (expense)/benefit
(Loss)/Profit for the year
2014
$'000
2013
$'000
4,284
1
(2,794)
213
(1,580)
(41,052)
(5,032)
(2,389)
(48,349)
(5,524)
(53,873)
3
(968)
3,701
(51,137)
60,316
84
(11,344)
342
(23)
(116)
(19,152)
(2,932)
27,175
(14,390)
12,785
9
(4,169)
(2,633)
5,992
The loss from discontinued operation of $51,137,000 (2013: profit $5,992,000) 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
2014
$'000
2013
$'000
2,205
38,953
(31,290)
9,868
25,627
(25,204)
(774)
(351)
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
112
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
15 Disposal groups and non-current assets held for sale
During the year $177,242,000 of non-current assets was transferred from property, plant and equipment and
inventory into non-current assets held for sale and subsequently impaired by $74,816,000 (2013: $3,040,000) to
their fair value less cost to sell based on market prices of similar equipment.
As at 30 June 2014, the non-current assets held for sale comprised assets of $39,922,000 (2013: $7,200,000). These
relate to land and buildings and plant and equipment from Indonesia (included in note 14), Canada and Australia.
The Group is actively marketing these assets and they are expected to be disposed of within 12 months.
Assets classified as held for sale
Property, plant and equipment - continuing operations
Property, plant and equipment - discontinuing operations
Inventories - discontinuing operations
16 Segment reporting
2014
$'000
2013
$'000
31,564
8,354
4
39,922
7,200
-
-
7,200
The Group has four 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 geographic region. 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:
Australia
Canada
Chile
Provides a wide range of earthmoving equipment and maintenance services to
customers in Australia.
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 services to
customers in Chile.
Indonesia
(Discontinued)
Provides a wide range of earthmoving equipment and maintenance services to
customers in Indonesia. This segment was discontinued in May 2014.
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 2014
113
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
16 Segment reporting (continued)
Information about reportable segments 2014
Australia
$'000
134,539
6,739
(48,870)
Indonesia
(1)
(discont'd)
$'000
Canada
Chile
Other
Total
$'000
$'000
$'000
$'000
4,284
11,332
(5,524)
81,451
15,009
(19,460)
25,105
-
(9,666)
-
238
-
(44,818)
(53,873)
(1,420)
3,117
(641)
245,379
33,318
(83,520)
(97,635)
-
(486)
(4,385)
(320)
-
-
(5,191)
(34,445)
(151,744)
338,197
(24,936)
(39,274)
(41,052)
-
34,836
(1,589)
(13,141)
(2,051)
(6,143)
190,071
(13,601)
(19,130)
(1,012)
-
143,040
(5,649)
(8,683)
-
-
388
-
(388)
(78,560)
(157,887)
706,532
(45,775)
(80,616)
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
Impairment of intangible assets
Reportable segment assets
Capital expenditure
Reportable segment liabilities
Information about reportable segments 2013
Australia
$'000
267,829
27,156
(70,317)
Indonesia
(1)
(discont'd)
$'000
Canada
Chile
Other
Total
$'000
$'000
$'000
$'000
60,316
5,102
(14,390)
94,179
17,198
(23,131)
17,367
3,182
(4,709)
-
285
-
439,691
52,923
(112,547)
45,375
(8,162)
23,340
6,281
(399)
66,435
(1,675)
(13,503)
(990)
(3,257)
(17,844)
607,637
(56,295)
(37,369)
(116)
-
(79)
-
135,011
(14,363)
(12,887)
233,661
(23,665)
(32,045)
143,477
(63,995)
(16,671)
-
-
-
(602)
(16,770)
-
-
482
-
(448)
(3,452)
(17,844)
1,120,268
(158,318)
(99,420)
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
Impairment of intangible assets
Reportable segment assets
Capital expenditure
Reportable segment liabilities
(1)
Indonesia has been separated out as if it was discontinued in 30 June 2013.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
114
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
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 (loss)/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
2014
$'000
2013
$'000
278,697
(33,318)
(4,284)
241,095
492,614
(52,923)
(60,316)
379,375
(97,635)
53,873
66,435
8,162
(165,065)
(42,551)
(251,378)
(42,522)
(24,616)
7,459
706,532
41,830
748,362
1,120,268
5,754
1,126,022
80,616
343,774
424,390
99,420
415,426
514,846
Other material items 2014
Capital expenditure
Depreciation
Other material items 2013
Capital expenditure
Depreciation
Reportable
segment
totals
$'000
Discontinued
operations
$'000
Consolidated
Total
$'000
(44,186)
(77,996)
(1,589)
(5,524)
(45,775)
(83,520)
(143,955)
(98,157)
(14,363)
(14,390)
(158,318)
(112,547)
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
115
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
16
Segment reporting (continued)
Geographical information
Operating segments are the same as the geographical segments. Refer to the segment table for the geographical
segments.
Major customer
In the year ended 30 June 2014 the Group had two major customers that represented $57,263,000 (2013: $Nil)
of the Group’s total revenues, as indicated below:
Segment
Australia
Canada
Total
17
Cash assets
Cash at bank
18
Trade and other receivables
Current
Trade receivables
Less: Impairment of receivables
VAT/GST receivable
Other receivables
Non-Current
Other receivables
2014
$'000
2013
$'000
26,059
31,204
57,263
-
-
-
Consolidated
2014
$'000
2013
$'000
41,830
5,754
Consolidated
2014
$'000
2013
$'000
49,298
(5,191)
44,107
23,415
10,632
78,154
772
772
86,357
(16,770)
69,587
21,100
6,386
97,073
856
856
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 2014
116
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
19
Derivatives
Current Assets
Forward exchange contract
Cross currency interest rate swaps
Non Current Assets
Cross currency interest rate swaps
Current Liabilities
Forward exchange contract
Cross currency interest rate swaps
Interest rate swaps
Non Current Liabilities
Cross currency interest rate swaps
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 for continuing operations (1)
Impairment loss on inventory for discontinued operations (1)
Transferred to Disposal Group Held for Sale
Disposals
Balance at 30 June
Consolidated
2014
$'000
2013
$'000
5
-
5
2,749
2,749
-
(2,546)
-
(2,546)
(10,187)
-
(10,187)
-
691
691
4,489
4,489
(20)
-
(1,261)
(1,281)
-
(1,502)
(1,502)
Consolidated
2014
$'000
2013
$'000
-
5,758
1,177
6,935
1,227
8,161
14,758
48,081
(6,148)
(1,580)
(4)
(46,946)
8,161
5
4,496
2,851
7,352
7,406
14,758
34,669
58,766
(8,641)
(23)
-
(70,013)
14,758
(1)
During the year ended 30 June 2014 the write-down of inventories to net realisable value (NRV) recognised
as an expense in the consolidated statement of profit or loss and other comprehensive income amounted
to $7,728,000 (2013: $8,664,000).
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
117
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
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
2014
$'000
2013
$'000
157,800
(157,887)
87
-
173,636
(17,844)
2,008
157,800
712
(712)
-
1,329
(1,154)
175
712
(712)
-
1,306
(1,030)
276
Total intangible assets
175
158,076
Amortisation and impairment of goodwill
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
2014
$'000
2013
$'000
132
157,887
158,019
192
17,844
18,036
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
118
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
21
Intangible assets and goodwill (continued)
Impairment tests for cash generating units containing 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
2014
$'000
2013
$'000
-
-
-
-
151,744
6,056
-
157,800
Impairment loss
For the interim period ended 31 December 2013, impairment testing indicated the Australian and Canadian Rental
CGU’s were impaired. The deterioration in the business over the FY14 interim period due to the challenging
external environment, including lower margins, increased volatility in the mining sector and the expectation that
these factors would be sustained for a period of time caused the Group to assess the recoverable amount of its
rental assets.
The Group determined the recoverable amount of its rental assets by using a discounted cash flow analysis.
Determining recoverable amount requires the exercise of significant judgements for both internal and external
factors. Judgements for external factors, including but not limited to foreign exchange, equipment hire rates and
utilisation, have been made with reference to historical data and observable market data using a combination of
consensus views. The recoverable amount estimate is particularly sensitive to hire rates and utilisation rates.
Judgements for internal factors, including but not limited to applicable discount rate and operating costs, have
been made with reference to historical data and forward looking business plans. Changes in the long term view of
both internal and external judgements may impact the estimated recoverable value.
As a result a total goodwill impairment charge of $157,887,000 was recognised for the interim period ended 31
December 2013 (Australian CGU: $151,744,000, Canadian CGU $6,143,000). The impairment charge is included in
the Consolidated Statement of Profit or Loss and Other Comprehensive Income for the financial year ended 30
June 2014 (page 70). Refer to note 2(d).
The Group has determined the recoverable amount of its cash generating units (CGU) using a value in use
methodology (June 2013: value in use) which is based on discounted cash flows for five years plus a terminal value.
Impairment testing is intended to assess the recoverable amount of both tangible and intangible assets. As such,
although the Indonesian and Chile Rental CGU’s have nil goodwill, impairment testing has been performed for
these CGUs. Nominal 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 appropriate CGU three year swap rate plus a margin for three year tenor debt of
equivalently credit rated businesses at 31 December 2013. 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 nominal post tax discount rates
for determining the rental CGU’s valuations range between 7.6% and 12.0% (2013: 9.2% and 12.8%). For future
cashflows of each CGU, revenue growth to the remainder of FY14 for each business reflects the best estimate for
the coming year taking account of macroeconomic, business model, strategic and market factors. Growth rates
for subsequent years are based on Emeco’s five year outlook taking into account all available information at this
current time and are subject to change over time. Compound annual growth rates (CAGR) over the five years of
the forecast range between negative 14.6% and negative 2.9% (2013: 0.5% and 1.0%). The negative CAGR of
14.6% relates to the Indonesian CGU which disposed $17.8 million of rental fleet assets over the half year ended
31 December 2013, reducing forecast revenue growth for this business. The CAGR range excludes the Chilean CGU
given its full first year of operation will be FY14.
Refer to note 22 for further information on the impairment testing methodology adopted by the Company at 30
June 2014.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
119
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
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
Total property, plant and equipment - at net book value
Consolidated
2014
$'000
2013
$'000
8,750
(2,678)
6,072
5,162
(3,270)
1,892
12,808
(3,223)
9,585
4,950
(2,748)
2,202
1,012,773
(466,558)
546,215
1,284,734
(498,572)
786,162
21,228
(9,819)
11,409
1,132
(695)
437
2,330
(1,793)
537
8,556
(5,416)
3,140
21,228
(9,294)
11,934
1,378
(690)
688
2,606
(1,637)
969
9,644
(5,005)
4,639
11,035
(7,209)
3,826
573,528
14,171
(10,140)
4,031
820,210
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
120
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
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 (1)
Disposals
Depreciation
Impairment loss on continuing and discontinuing operations
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
2014
$'000
2013
$'000
9,585
315
(701)
-
(315)
-
(2,812)
6,072
2,202
219
-
(521)
(8)
-
-
19,883
643
(957)
(468)
686
(3,031)
(7,171)
9,585
2,538
367
(124)
(548)
5
(7)
(29)
1,892
2,202
786,162
30,186
778,027
132,504
(390)
(13,270)
-
(11,254)
(62,365)
(78,243)
(78,561)
(36,430)
(2,890)
546,215
-
(376)
(46,679)
(103,953)
(377)
-
40,286
786,162
688
17
(26)
(228)
-
(7)
(7)
437
758
178
(41)
(187)
(37)
-
17
688
(1) Included in this movement are purchases totalling $12,761,000 for the year ended 30 June 2014 (2013:
$19,900,000).
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
121
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
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
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
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
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
Depreciation
Carrying amount at the end of the year
Consolidated
2014
$'000
2013
$'000
969
128
(5)
(482)
(67)
(6)
537
4,639
250
(234)
(1,444)
(46)
(25)
3,140
4,031
1,899
(134)
(1,377)
(555)
(38)
3,826
1,077
432
(17)
(543)
20
969
4,565
1,881
(234)
(1,649)
76
4,639
3,270
2,379
(214)
(1,543)
139
4,031
11,934
(525)
11,409
15,101
(3,167)
11,934
Security
The Group’s assets are subject to a fixed and floating charge under the terms of the 144A notes issued. Refer
note 24 for further details.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
122
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
22
Property, plant and equipment (continued)
Impairment tests for cash generating units
The Group has determined the recoverable amount of its cash generating units (CGU) using a value in use
methodology (2013: value in use) which is based on discounted cash flows for five years plus a terminal value.
Impairment testing is intended to assess the recoverable amount of both tangible and intangible assets. As such,
although the Chile Rental CGU has nil intangible assets, impairment testing has been performed for this CGU.
Nominal 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 appropriate CGU three year swap rate plus a margin for three year tenor debt of
equivalently credit rated businesses at 30 June 2014. 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 nominal post tax discount rates
for determining the rental CGU’s valuations range between 6.9% and 10.6% (2013: 9.2% and 12.8%). For future
cashflows of each CGU, the revenue growth in the first year of the business reflects the best estimate for the
coming year taking account of macroeconomic, business model, strategic and market factors. Growth rates for
subsequent years are based on Emeco’s five year outlook taking into account all available information at this
current time and are subject to change over time. Compound annual growth rates (CAGR) over the five years of
the forecast range between negative 2.4% and 12.3% (2013: negative 0.5% and 1.0%). The upper end of the
range represents forecast revenue growth in Chile underpinned by the recently announced project win which is
expected to utilise over 60% of the Chilean fleet for a 5 year period.
30 June 2014 impairment testing which resulted in the estimated recoverable amount of a CGU exceeding its
carrying amount are as follows:
Australian rental
Canada rental
Chile rental
Amount by which CGU recoverable
amount exceeds its carrying amount
(in $ millions)
103.2
115.9
14.9
Impairment testing sensitivities
The CGU valuations are sensitive to changes in the discount rate and underlying fleet utilisation assumptions for
cashflow forecasts and terminal value. The following table shows the amount by which these two assumptions
would need to change individually in order for the estimated recoverable amount of the CGU to be equal to the
carrying amount:
CGU
Australian rental
Canada rental
Chile rental
Change required for carrying amount to equal the
recoverable amount (in percent)
Discount Rate %
7.5
11.1
3.9
Utilisation %
(10.0)
(20.0)
(13.0)
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
123
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
23
Trade and other payables
Current
Trade payables
Trade payables
Other payables and accruals
Non-current
Other payables
Other payables and accruals
Consolidated
2014
$'000
2013
$'000
9,731
43,364
53,095
-
-
13,780
26,782
40,562
1,284
1,284
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 37.
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 37.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
124
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
24
Interest bearing liabilities
Current
Amortised cost
Working capital facility
Other financing
Lease liabilities - secured
Non-current
Amortised cost
OID (1)
Bank loans - secured
Notes issue - secured
Notes issue - secured (2)
Lease liabilities - secured
Debt raising costs (bank loans)
Debt raising costs
Debt raising costs
Consolidated
2014
$'000
2013
$'000
-
461
3,855
4,316
5,256
464
3,588
9,308
(5,043)
-
177,270
178,547
4,915
-
(8,144)
(8,086)
339,458
-
252,746
53,961
95,596
8,770
(3,100)
(1,193)
(662)
406,118
(1) Originating Issue discount – the discount from par value at the time the 144A Notes were issued. This is
amortised using the effective interest rate method over the life of the Notes.
(2) Carried at amortised cost with movements in fair value of the underlying hedge item recorded in the profit
and loss statement.
Bank loans
The Group’s extinguished it’s A$450,000,000 senior secured syndicated loan facility on 17 March 2014 and repaid
any outstanding liabilities with the proceeds from the 144A Notes issue. Associated debt raising costs were
expensed on loan extinguishment.
The Group established an A$50,000,000 revolving credit facility comprising of Tranche A1: 3 year A$40,000,000
tranche and Tranche A2: 3 year A$10,000,000 tranche. Tranche A2 provides the Group’s working capital facility
needs. This is a revolving multicurrency facility of AUD, USD and CAD which matures on 17 March 2017. The
nominal interest rate is based on USD Libor, BBSW and CDOR (2013: n/a) for their respective currencies plus a
margin. The Group’s revolving credit facility is secured and is measured at amortised cost. At year end, the Group
had the following drawn:
FY14
FY13
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
-
-
-
-
-
-
$151,000
C$83,000
US$15,000
$151,000
$85,558
$16,188
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
125
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
24
Interest bearing liabilities (continued)
Bank loans (continued)
Covenant Amendment
On 22 October 2013 the Group announced to the market amendments to the Group’s senior secured syndicated
loan facility. Amendments apply for the period 22 October 2013 to 30 June 2014. After 30 June 2014 the
covenants were to revert to the original levels.
Current and amended ratios were as follows:
Gearing (Gross Debt: EBITDA(1) )
Interest Cover (EBITDA: Net Interest Expense(2))
(1) Rolling 12 month trailing Operating EBITDA
(2) Rolling 12 month trailing Net Interest Expense
(3) Amended covenants apply to the USPP Notes
Original
Covenants
Amended
Covenants (3)
< 3.0 x
> 4.0 x
< 3.5 x
> 3.5 x
All other key terms of the bank debt facility, including pricing, remained unchanged and the Group retained full
access to the bank debt facility. Emeco did not incur any fees or charges from providers of the bank debt facility
in relation with this amendment.
On 17 March 2014, the Group repaid the secured syndicated debt facility and USPP Notes by issuing
US$335,000,000 of 144A Notes in the High Yield market. The covenants outlined above no longer apply.
144A notes issue
Under the terms of the note agreement, the noteholders hold a joint fixed and floating charge with the syndicated
bank group over the assets and undertakings of the Group. In March 2014, the Group issued secured fixed interest
notes in the 144A High Yield Bond market comprising US$335,000,000 which matures on 17 May 2019. The
nominal interest rate is 9.875%. These notes will remain fully drawn until maturity. Of the notes, US$166,900,000
is measured at amortised cost. The remaining notes are also measured at amortised cost and are subject to
adjustment for the impact of fair value movements on the hedged risk. The Group designated derivatives (cross
currency interest rate swaps) as hedge instruments against this underlying debt.
FY14
FY13
Funds drawn in
functional currency
$’000
Funds drawn
translated to AUD
$’000
Funds drawn in
functional currency (1)
$’000
Funds drawn
translated to AUD
$’000
USD
US$335,000
$355,815
US$140,000
$149,557
(1) US Private Placement in FY13.
Working capital facility
The Group no longer has the working capital facility that was secured under the syndicated loan facility. A working
capital facility has been incorporated as part of the revolving credit facility – Tranche A2. At 30 June 2014, the
Group had $Nil drawn (2013: $5,256,000).
Finance leases
The Group has finance lease facilities totalling A$8,770,000 (2013: A$12,358,000) which matures on 15 August
2015. Assets leased under the facility are secured by the assets leased.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
126
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
24
Interest bearing liabilities (continued)
Other financial liabilities
At year end the Group financed its insurance premium totalling $461,000.
Finance lease liabilities
Finance lease liabilities of the Group are payable as follows:
Future
minimum
lease
payments
Interest
Present
value of
minimum
lease
payments
Future
minimum
lease
payments
Interest
Present
value of
minimum
lease
payments
2014
$'000
2014
$'000
2014
$'000
2013
$'000
2013
$'000
2013
$'000
4,362
4,972
-
9,334
(507)
(57)
-
(564)
3,855
4,915
-
8,770
4,362
9,334
-
13,696
(774)
(564)
-
(1,338)
3,588
8,770
-
12,358
Consolidated
Less than one year
Between one and five years
More than five years
The Group leases plant and equipment under finance leases. The Group’s lease liabilities are secured by the
leased assets of $8,211,000 (2013: $11,934,000). In the event of default, the leased assets revert to the lessor.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
127
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
25
Financing arrangements
The Group has the ability to access the following lines of credit:
Total facilities available:
Bank loans
144A Notes
USPP Notes
Finance leases
Other financing
Working capital
Facilities utilised at reporting date:
Bank loans
144A Notes
USPP Notes
Finance leases
Insurance financing
Working capital
Facilities not utilised or established at reporting date:
Bank loans
144A Notes
USPP Notes
Finance leases
Insurance financing
Working capital
Consolidated
2014
$'000
2013
$'000
50,000
355,817
-
8,770
461
-
415,048
450,000
-
149,557
12,358
464
22,062
634,441
-
252,746
355,817
-
8,770
461
-
365,048
50,000
-
-
-
-
-
50,000
-
149,557
12,358
464
5,256
420,381
197,254
-
-
-
-
16,805
214,059
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
128
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
26 Provisions
Current
Employee benefits:
- annual leave
- long service leave
- other
Non-current
Employee benefits - long service leave
Consolidated
2014
$'000
2013
$'000
2,220
439
35
2,694
2,807
533
48
3,388
1,069
1,244
Defined contribution superannuation funds
The Group makes contributions to defined contribution superannuation funds. The expense recognised for the
year was $2,849,000 (2013: $3,424,000).
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 3(j)(v)). During the prior year’s 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 3(j)(v)).
During the year the Company issued matching shares to certain employees of the Group under its ESOP (refer note
3(j)(v)).
Performance shares, performance rights, options and shares issued under the MISP are all equity settled.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
129
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
27 Share-based payments (continued)
Long term incentive plan
Grant date / employees entitled
Matured in FY11:
Performance shares/rights 2008
Number of
Instruments
1,290,000
Matured in FY12:
Performance shares/rights 2009
9,819,790
Matured in FY13:
Performance shares/rights 2010 (1)
4,608,076
Contractual life
of performance
shares/rights
5 years
5 years
3 years
Vesting conditions
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
Matured in FY14:
Performance shares/rights 2011
5,889,200 3 years service TSR ranking to a basket of
3 years
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. No shares/rights
vested due to TSR being less than 50%.
(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 former
Managing Director. The 925,926 and 1,183,929 instruments have been included in the number of
instruments for the performance shares/right 2010 and 2011 respectively above.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
130
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
27 Share-based payments (continued)
Long term incentive plan (continued)
Grant date / employees entitled
Unvested plans:
Number of
Instruments
Vesting conditions
Performance shares/rights 2012
4,246,661
Performance shares/rights 2013
6,881,251
Performance shares/rights 2014(1)
24,491,074
3 years service TSR ranking to a basket of
direct and indirect peers of 97 listed
companies.
50% entitlement for a 50.1% ranking
within TSR group. Pro rata entitlement
up to 100% vesting for a ranking of 75%
better to TSR group
3 years service TSR ranking to a basket of
direct and indirect peers of 93 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 99 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
3 years
3 years
3 years
(1) This includes 4,553,571 of performance shares relating to the Managing Director. This is subject to the
approval of shareholders at the Company’s 2014 annual general meeting to be held in November 2014.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
131
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
27 Share-based payments (continued)
The movement of performance shares and performance rights on issue during the year were as follows:
Outstanding at 1 July
Forfeited during the period
Exercised during the period
Granted during the period
Outstanding at 30 June
Exercisable at 30 June
Management incentive share plan
Number of
performance
shares/rights
2014
16,897,192
(11,659,726)
(3,245,099)
24,491,074
26,483,441
-
Number of
performance
shares/rights
2013
16,970,271
(3,355,878)
(3,598,452)
6,881,251
16,897,192
3,364,390
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
2014
1,600,000
(310,000)
-
-
1,290,000
1,290,000
Number of
MISP
2013
1,600,000
-
-
-
1,600,000
1,600,000
(1) The full service and vesting requirements have been satisfied under the MISP.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
132
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
27 Share-based payments (continued)
Employee share ownership plan
Grant date / employees entitled
Number of
Instruments
Vesting conditions
Contractual life
of ESOP
Matured in January 2012
ESOP 2011
Matured in January 2013
ESOP 2012
Matured in January 2014
ESOP 2013
ESOP 2014
The number of ESOPs are as follows:
Outstanding at 1 July
Forfeited during the period
Exercised during the period
Granted during the period
Outstanding at 30 June
Exercisable at 30 June (1)
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.
75,388 Service requirement. Full vesting
entitlement after 1 year after the
end of the calendar year in which
they are acquired.
82,899 Service requirement. Full vesting
entitlement after 1 year after the
end of the calendar year in which
they are acquired.
214,161
1 year
1 year
1 year
1 year
Number of
ESOP
2014
Number of
ESOP
2013
89,686
(16,713)
(62,390)
82,899
93,482
-
44,215
(3,584)
(26,333)
75,388
89,686
-
(1) The shares are not considered exercisable until the full vesting period has been satisfied.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
133
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
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(j)(v). The inputs used in the measurement of the
fair values at grant date are as follows:
Chief
Executive
Officer
2014
Chief
Executive
Officer
2013
LTIP
Key
Manage-
ment
personnel
2014
Key
Manage-
ment
personnel
2013
Senior
employees
2014
Senior
employees
2013
ESOP
2014
ESOP
2013
$0.15
$0.24
$Nil
$0.27
$0.51
$Nil
$0.15
$0.24
$Nil
$0.46
$0.70
$Nil
$0.18
$0.24
$Nil
$0.56
$0.70
$Nil
$0.20 - $0.34
$0.20 - $0.34
$Nil
$0.28 - $0.86
$0.28 - $0.86
$Nil
45% - 65%
40% - 60%
45% - 65%
40% - 60%
45% - 65%
40% - 60%
3 years
8.0%
3 years
7.6%
3 years
8.0%
3 years
8.7%
3 years
8.0%
3 years
8.7%
3.0%
2.6%
3.0%
2.7%
3.0%
2.7%
n/a
1 year
n/a
n/a
n/a
1 year
n/a
n/a
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)
The fair value assumptions for unvested MISPs have no further expense to be recognised and have not changed
since the fair value was determined at grant date in previous years.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
134
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
27 Share-based payments (continued)
For the Group’s key management personnel commencing with the FY14 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
Performance shares/rights
MISP
ESOP
Total expense recognised as employee costs (1)
Consolidated
2014
2013
1,694,346
-
19,261
1,713,607
2,811,633
583
41,188
2,853,404
(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 2014
135
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
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
2014
$'000
2013
$'000
9,500
6,986
180
16,666
7,850
19,491
3,351
30,692
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 2014 an amount of $4,152,000 (continuing and discontinuing operations) was
recognised as an expense in profit or loss in respect of operating leases (2013: $5,703,000).
(b) Capital commitments
The Group has not entered into commitments for purchases of fixed assets, primarily rental fleet assets, in
the year ended 30 June 2014 (2013: $1,413,000).
29 Contingent Liabilities
Guarantees
The Group has guaranteed the repayments of $866,013 (2013: $75,000) in relation to office premises with varying
expiry dates out to 30 June 2015.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
136
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
30 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
Note
2014
$'000
2013
$'000
Cash assets
17
41,830
5,754
(ii) Reconciliation of net profit to net cash provided by operating activities
Consolidated
2014
$'000
2013
$'000
Note
Net loss - continuing operations
(224,172)
12
Add/(less) items classified as investing/financing activities:
Net profit on sale of non-current asests
Add/(less) non-cash items:
Amortisation
Depreciation
Amortisation of borrowing costs using effective interest rate
Write off previous deferred borrowing costs
(Gain)/loss on fair value hedge
Withholding tax expense
Realised foreign currency exchange (gain)/loss
Unrealised foreign exchange (gain)/loss
Impairment losses on property, plant & equipment
Impairment of goodwill
Write down on inventory
Bad debts
Provision for doubtful debts/(reversal)
Equity settled share based payments
(Decrease)/increase in income taxes payable
(Decrease)/increase in deferred taxes
Net cashflow from operating activities of discontinued operations
Net cash from operating activities before change in
assets/(liabilities) adjusted for assets and (liabilities) acquired
7
21
8
8
8
21
20
8
8
(Increase)/decrease in trade and other receivables
(Increase)/decrease in inventories
Increase/(decrease) in payables
Increase/(decrease) in provisions
Net cash from operating activities
(731)
(1,658)
132
77,996
1,918
2,993
(5,958)
1,960
210
(4,571)
37,508
192
98,157
762
1,910
32
-
406
(110)
3,336
157,887
17,844
6,148
3,064
(2,467)
1,822
8,641
370
1,974
2,849
(15,138)
(27,502)
(17,971)
2,205
19,162
25,627
22,835
152,004
21,379
6,597
32,130
2,273
20,355
7,049
(869)
(378)
82,072
181,303
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
137
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
31 Controlled entities
(a) Particulars in relation to controlled entities
Country
of
Incorporation
Ownership Interest
2014
%
2013
%
Note
Parent entity
Emeco Holdings Limited
Controlled entities
Pacific Custodians Pty Ltd as trustee for Emeco
Employee Share Ownership Plan Trust
Emeco Pty Limited
Emeco International Pty Limited
Emeco Sales Pty Ltd
Emeco Parts Pty Ltd
Emeco (UK) Limited
Emeco Equipment (USA) LLC
PT Prima Traktor IndoNusa (PTI)
Emeco International Europe BV
Emeco Europe BV
Euro Machinery BV
Emeco Canada Ltd
Enduro SPA
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
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
100
Notes
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
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. This was classified
as a discontinued operation in 2014.
Emeco International Europe BV was 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. This was
classified as a discontinued operation in 2012 but was reclassified as a continuing operation in 2013.
Emeco Europe BV was incorporated in and carries on a business in the Netherlands. This was classified
as a discontinued operation in 2012 but was reclassified as a continuing operation in 2013.
Euro Machinery BV was acquired on 4 January 2007 and carries on business in the Netherlands. This
was classified as a discontinued operation in 2012 but was reclassified as a continuing operation in 2013.
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.
(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 2014
138
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
32 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
Alec Brennan, Chairperson
Robert Bishop (resigned role on 30 June 2014)
John Cahill
Peter Richards
Erica Smyth
Executive Director
Kenneth Lewsey, Managing Director & Chief Executive Officer (commenced on 4 November 2013)
Keith Gordon, Managing Director & Chief Executive Officer (resigned role on 4 November 2013)
Other Executives
Kellie Benda, Executive General Manager, Strategy & Corporate Development (commenced role on 24
February 2014)
Stephen Gobby, Chief Financial Officer (resigned on 1 July 2014)
Anthony Halls, General Manager Australian Rental (resigned role 17 February 2014)
Christopher Hayman, President Canada (commenced role on 8 July 2013 and resigned role on 17 February
2014)/President Americas (commenced role on 17 February 2014)
Benny Joesoep, President Director Indonesia (commenced role 9 December 2013 and resigned role on 13 May
2014)
Michael Kirkpatrick, Executive General Manager Corporate Services (resigned role on 1 July 2014)
Grant Stubbs, Executive General Manager Asset Strategy & Operational Improvement
Ian Testrow, Chief Operating Officer Australia (commenced role on 17 February 2014) / President New &
Developing Business
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
2014
2013
5,071,109
4,654,631
-
227,143
293,866
294,880
5,886,998
-
176,534
-
1,040,366
5,871,531
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
139
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
32 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 individual Directors and Executives compensation and some equity instruments disclosures
as required by Corporations Regulations 2M.3.03 and 2M.6.04 are provided in the Remuneration Report section
of the Directors’ report on pages 43 to 67.
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 99 Companies. The shares have been accounted for as an option in accordance with AASB
2 Share Based Payments.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
140
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
32 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 included all vested shares to the key management personnel’s equity holdings. The prior year comparatives
have been restated to reflect this change.
2014 Shares
Directors & Executives
Kellie Benda (1)
Stephen Gobby (2)
Keith Gordon (3)
Anthony Halls (3)
Kenneth Lewsey (1)
Michael Kirkpatrick (2)
Grant Stubbs (5)
Ian Testrow
Held at
1 July 2013
Granted as
compensation
Vested
during
the year
Forfeited
n/a 749,143
-
-
1,274,431
2,142,857
- (419,643)
3,590,149
-
-
-
811,990
1,160,187
- (1,972,177)
n/a
4,553,571
-
-
758,101
1,071,051
- (250,000)
231,914
1,034,080
- (69,643)
Held at
30 June
2014
749,143
2,997,645
n/a
n/a
4,553,571
1,579,152
1,196,351
-
-
-
-
-
L C Freedman
R L C A dair
-
-
2,400,000
800,000
-
-
2,400,000
800,000
-
-
-
-
Held at
Gran ted as
30 June
Held at
Ves ted
exercis ab le
du ring
at 30 June
Ves ted and
2013 Shares
Directors & Executives
Stephen Gobby
Keith Gordon
Anthony Halls
Michael Kirkpatrick
Christopher Mossman (4)
Ian Testrow
Michael Turner (4)
Grant Stubbs (5)
Held at
1 July 2012
Granted as
compensation
Vested
during
the year
Forfeited
743,127 531,304
2,091,192
1,498,957
473,764 338,226
441,579 316,522
-
-
-
-
556,717 397,391
-
-
-
-
-
-
-
-
-
-
-
-
n/a
n/a
n/a
-
-
n/a
Held at
30 June
2013
1,274,431
3,590,149
811,990
758,101
n/a
-
n/a
231,914
Dividends paid under the management incentive share plan are paid against the employee’s outstanding loan and
is reflected in issued capital.
(1) Ms Benda and Mr Lewsey became key management personnel on 24 February 2014 and 4 November 2013
respectively.
(2) Mr Gobby and Mr Kirkpatrick ceased to be a key management personnel on 1 July 2014.
(3) Mr Gordon and Mr Halls ceased to be key management personnel on 4 November 2013 and 17 February 2014
respectively.
(4) Mr Turner and Mr Mossman ceased to be key management personnel on 31 December 2012 and 31 May
2013 respectively.
(5) Mr Stubbs became a key management personnel on 1 May 2013. The shares held at 30 June 2014 were
granted as compensation prior to Mr Stubbs becoming a key management personnel.
n/a Not applicable as not in a position of key management at relevant reporting date.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
141
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
32 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.
2014 Rights
Directors & Executives
Stephen Gobby (1)
Keith Gordon
Anthony Halls
Christopher Hayman (2)
Benny Joesoep
Michael Kirkpatrick (1)
Ian Testrow
2013 Rights
Directors & Executives
Stephen Gobby
Michael Turner (3)
Ian Testrow
Michael Kirkpatrick
Anthony Halls
Christopher Mossman (3)
Keith Gordon
Held at
1 July 2013
Granted as
compensation
Vested
during
the Year
Forfeited/
lapsed
Held at
30 June
2014
-
-
-
n/a
n/a
-
-
-
-
-
-
-
-
-
-
-
n/a
n/a
986,967
-
-
986,967
282,890 60,914 (221,976)
-
-
-
n/a
-
909,764
1,633,151
- (269,393)
2,273,522
Held at
1 July 2012
Granted as
compensation
Vested
during
the Year
Forfeited/
lapsed
Held at
30 June
2013
300,926
- (154,375) (146,551)
240,741
- (123,500) (117,241)
-
n/a
697,470
451,371 (122,647) (116,430)
909,764
185,185
- (95,000) (90,185)
166,667
- (85,500) (81,167)
369,679
323,875 (36,204) (34,370)
925,926
- (475,000) (450,926)
-
-
n/a
-
(1) Mr Gobby and Mr Kirkpatrick ceased to be key management personnel on 1 July 2014.
(2) Mr Hayman became a key management personnel on 8 July 2013.
(3) Mr Turner and Mr Mossman ceased to be key management personnel on 31 December 2012 and 31 May
2013 respectively.
n/a Not applicable as not in a position of key management personnel at relevant reporting date.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
142
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
32 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.
2014
Directors
Robert Bishop (1)
Alec Brennan
John Cahill
Keith Gordon (2)
Kenneth Lewsey (3)
Peter Richards
Erica Smyth
Other Executives
Kellie Benda (3)
Stephen Gobby (1)
Anthony Halls (2)
Michael Kirkpatrick (1)
Grant Stubbs
Held at
1 July 2013
Ordinary
Shares
Transferred
from
Share
Plan
Purchases
Sales
Held at
30 June 2014
Ordinary
Shares
566,600
- 222,400
-
n/a
1,581,700
-
-
- 1,581,700
120,000
-
-
- 120,000
1,125,000
-
-
-
n/a
n/a
- 315,000
- 315,000
40,000
-
-
- 40,000
71,049
-
-
- 71,049
n/a
-
-
-
-
366,299
1,263
-
- 367,562
267,604
1,263
15,233
-
n/a
-
-
-
-
-
19,942
1,263
21,134
- 42,339
Ian Testrow
892,541
- 123,173
- 1,015,714
(1) Mr Bishop, Mr Gobby and Mr Kirkpatrick ceased to be a key management personnel on 30 June 2014, 1 July
2014 and 1 July 2014 respectively.
(2) Mr Gordon and Mr Halls ceased to be key management personnel on 4 November 2013 and 17 February 2014
respectively.
(3) Ms Benda and Mr Lewsey became a key management personnel on 24 February 2014 and 4 November 2013
respectively.
n/a Not applicable as not in a position of key management personnel at relevant reporting date.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
143
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
32 Key management personnel disclosure (continued)
2013
Directors
Robert Bishop
Alec Brennan
John Cahill
Keith Gordon
Peter Johnston (1)
Peter Richards
Erica Smyth
Other Executives
Stephen Gobby
Anthony Halls
Michael Kirkpatrick
Christopher Mossman (1)
Grant Stubbs
Ian Testrow
M A Turner (1)
Held at
1 July 2012
Ordinary
Shares
Transferred
from
Share
Plan
Purchases
Sales
Held at
30 June 2013
Ordinary
Shares
300,000
- 266,600
- 566,600
1,581,700
-
-
- 1,581,700
120,000
-
-
- 120,000
650,000 475,000
-
- 1,125,000
100,000
-
-
-
n/a
40,000
-
-
- 40,000
-
- 71,049
- 71,049
201,547 155,778
8,974
- 366,299
171,817
86,813
8,974
- 267,604
-
-
-
-
-
184,167
36,204
-
-
n/a
n/a
n/a
1,869
- 19,942
892,541
-
-
- 892,541
3,187,151 124,903
3,816 (1,190,000)
n/a
(1) Mr Turner, Mr Mossman and Mr Johnston ceased to be key management personnel on 31 December 2012,
31 May 2013, and 30 June 2013 respectively.
n/a Not applicable as not in a position of key management personnel at relevant reporting date.
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 2014
144
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
32 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
2014
$'000
2013
$'000
Balance
outstanding as
at 30 June
2014
$'000
2013
$'000
Note
Key management
person and their
related parties
Mr Peter Richards
- Kangaroo Resources
Limited
Total current assets
Transaction
Rental of heavy
earthmoving
equipment
(1)
-
-
399
399
-
-
-
-
(1) PT Prima Traktor IndoNusa rented heavy earthmoving equipment to PT Mamahak Coal Mining, a subsidiary of
Kangaroo Resources Limited for an annual revenue of A$Nil (2013: A$399,000) (inclusive of VAT) translated at
an AUD/USD average exchange rate of Nil for FY14 (2013: 1.0378). The balance outstanding as at 30 June 2014
was A$Nil (2013: A$Nil). The rental contract was negotiated on an arm’s length basis. One of the Group’s Non-
Executive Directors, Mr Peter Richards, was a Non-Executive Director of Kangaroo Resources Limited.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
145
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
33 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.
34 Subsequent events
On 1 July 2014, Mr Stephen Gobby resigned as Chief Financial Officer and Mr Gregory Hawkins commenced as the
Chief Financial Officer.
On 1 July 2014, Mr Michael Kirkpatrick resigned as General Counsel and Company Secretary and Ms Thao
Vanderplancke commenced as General Counsel and Company Secretary.
35 Earnings per share
Basic earnings per share
The calculation of basic earnings per share at 30 June 2014 was based on the profit/(loss) attributable to ordinary
shareholders of $(275,309,000) (2013: $6,004,000) and a weighted average number of ordinary shares outstanding
less any treasury shares for the year ended 30 June 2014 of 562,504,730 (2013: 585,137,181).
Profit attributed to ordinary shareholders
Consolidated
2014
2013
Continuing Discontinued
operations operations
$'000
$'000
Total
$'000
Continuing Discontinued
operations operations
$'000
$'000
Total
$'000
Profit/(loss) for the year
(224,172)
(51,137)
(275,309)
6,004
-
6,004
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
146
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
35 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
2014
'000
2013
'000
631,238
(68,733)
562,505
631,238
(46,101)
585,137
Diluted earnings per share
The calculation of diluted earnings per share at 30 June 2014 was based on profit attributable to ordinary
shareholders of $(275,309,000) (2013: $6,004,000) and a weighted average number of ordinary shares outstanding
less any treasury shares during the financial year ended 30 June 2014 of 565,151,687 (2013: 588,094,138).
Profit attributed to ordinary shareholders (diluted)
Consolidated
2014
2013
Continuing Discontinued
operations operations
$'000
$'000
Total
$'000
Continuing Discontinued
operations operations
$'000
$'000
Total
$'000
Profit/(loss) attributed to ordinary
shareholders (basic)
(224,172)
(51,137)
(275,309)
6,004
-
6,004
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
2014
'000
2013
'000
631,238
2,647
(68,733)
565,152
631,238
2,957
(46,101)
588,094
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 2014
147
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
36 Parent entity disclosure
As at and throughout the financial year ending 30 June 2014 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
Non-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
2014
$'000
2013
$'000
(148,311)
-
-
(96,802)
-
-
22
394,377
394,399
10,595
544,519
555,114
-
-
-
-
-
-
593,616
14,598
(20,622)
(269,358)
318,234
593,616
12,144
(16,433)
(121,047)
468,280
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 37.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
148
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
37 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 2014 is set out as follows:
Statement of profit or loss and other comprehensive income and retained earnings
Revenue
Cost of sales
Gross profit
Operating expense
Other income
Finance income
Finance costs
Impairment of assets
Impairment of investment
Profit before tax
Tax expense
Net profit after tax
Other comprehensive income
Total comprehensive income for the period
Retained earnings at beginning of year
Dividends recognised during the year
Retained earnings at end of year
Attributable to:
Equity holders of the Company
Profit/(loss) for the period
Consolidated
2014
$'000
2013
$'000
134,538
(87,182)
47,356
(64,809)
3,609
14,271
(42,372)
(39,525)
(151,310)
(232,780)
26,498
(206,282)
270,757
(188,210)
82,547
(62,213)
-
5,377
(21,048)
-
(120,278)
(115,615)
(2,892)
(118,507)
(4,977)
(4,977)
1,697
1,697
(46,031)
-
(257,290)
107,925
(37,146)
(46,031)
(257,290)
(206,282)
(46,031)
(118,507)
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
149
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2014
37 Deed of cross guarantee (continued)
Statement of financial position
Current assets
Cash assets
Trade and other receivables
Derivatives
Current tax assets
Inventories
Assets Held for sale
Total current assets
Non-current assets
Trade and other receivables
Derivatives
Intangible assets
Investments
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
Issued capital
Share based payment reserve
Reserves
Retained earnings/(losses)
Consolidated
2014
$'000
2013
$'000
17,195
21,099
5
-
3,507
31,242
73,048
176,528
-
146
249,143
281,702
27,121
734,640
218
37,717
691
11,376
9,739
-
59,741
101,138
4,489
151,555
211,310
400,556
-
869,048
807,688
928,789
25,167
2,546
3,855
-
1,791
33,359
10,186
341,397
22,493
1,385
375,461
23,486
1,281
9,308
-
2,327
36,402
1,502
321,399
27,050
1,484
351,435
408,820
387,837
398,868
540,952
593,616
14,598
47,944
(257,290)
593,616
12,144
(18,777)
(46,031)
Total equity attributable to equity holders of the parent
398,868
540,952
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
150
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Declaration
1.
In the opinion of the Directors of Emeco Holdings Limited (the “Company”):
(a)
the consolidated financial statements and notes as set out on pages 68 to 150, and Remuneration
report in the Directors’ report, set out on pages 43 to 67 are in accordance with the Corporations Act
2001, including:
(i)
giving a true and fair view of the Group’s financial position as at 30 June 2014 and of its
performance for the financial year ended on that date; and
(ii)
complying with Australian Accounting Standards and the Corporations Regulations 2001;
(b)
there are reasonable grounds to believe that the Company will be able to pay its debts as and when
they become due and payable.
2.
3.
4.
There are reasonable grounds to believe that the Company and the group entities identified in Note 37 will be
able to meet any obligation or liabilities to which they are or may become subject to by virtue of the Deed of
Cross Guarantee between the Company and those group entities pursuant to ASIC Class Order 98/1418.
The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from
the Chief Executive Officer and Chief Financial Officer for the financial year ended 30 June 2014.
The Directors draw attention to note 2(a) to the consolidated financial statements, which includes a statement
of compliance with International Financial Reporting Standards.
Dated at Perth, 20 day of August 2014
Signed in accordance with a resolution of the Directors:
Kenneth Lewsey
Managing Director
EMECO HOLDINGS LIMITED ANNUAL REPORT 2014
151
Independent auditor’s report to the members of Emeco Holdings Limited
Report on the financial report
We have audited the accompanying financial report of Emeco Holdings Limited (the Company),
which comprises the consolidated statement of financial position as at 30 June 2014, and
consolidated statement of profit or loss and other comprehensive income, consolidated statement
of changes in equity and consolidated statement of cash flows for the year ended on that date,
notes comprising a summary of significant accounting policies and other explanatory
information and the directors’ declaration of the Group comprising the Company and the entities
it controlled at the year’s end or from time to time during the financial year.
Directors’ responsibility for the financial report
The directors of the Company are responsible for the preparation of the financial report that
gives a true and fair view in accordance with Australian Accounting Standards and the
Corporations Act 2001 and for such internal control as the directors determine is necessary to
enable the preparation of the financial report that is free from material misstatement whether due
to fraud or error. In note 2(a), the directors also state, in accordance with Australian Accounting
Standard AASB 101 Presentation of Financial Statements, that the financial statements of the
Group comply with International Financial Reporting Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We
conducted our audit in accordance with Australian Auditing Standards. These Auditing
Standards require that we comply with relevant ethical requirements relating to audit
engagements and plan and perform the audit to obtain reasonable assurance whether the financial
report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial report. The procedures selected depend on the auditor’s judgement,
including the assessment of the risks of material misstatement of the financial report, whether
due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation of the financial report that gives a true and fair view in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by the directors, as well as evaluating the overall presentation of the financial
report.
We performed the procedures to assess whether in all material respects the financial report
presents fairly, in accordance with the Corporations Act 2001 and Australian Accounting
Standards, a true and fair view which is consistent with our understanding of the Group’s
financial position and of its performance.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
KPMG, an Australian partnership and a member
firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
Independence
In conducting our audit, we have complied with the independence requirements of the
Corporations Act 2001.
Auditor’s opinion
In our opinion:
(a) the financial report of the Group is in accordance with the Corporations Act 2001, including:
(i)
(ii)
giving a true and fair view of the Group’s financial position as
at 30 June 2014 and of its performance for the year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations
2001.
(b) the financial report also complies with International Financial Reporting Standards as
disclosed in note 2(a).
Report on the remuneration report
We have audited the Remuneration Report included in the directors’ report for the year ended 30
June 2014. The directors of the Company are responsible for the preparation and presentation of
the remuneration report in accordance with Section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the remuneration report, based on our audit conducted
in accordance with auditing standards.
Auditor’s opinion
In our opinion, the remuneration report of Emeco Holdings Limited for the year ended 30 June
2014, complies with Section 300A of the Corporations Act 2001.
KPMG
Graham Hogg
Partner
Perth
20 August 2014