Emeco Holdings Limited and its Controlled Entities
ABN 89 112 188 815
Annual Financial Report
30 June 2015
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
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Contents
Chairman’s Report ................................................................................................................... 3
Managing Director’s Report ..................................................................................................... 5
Operating and Financial Review ............................................................................................... 7
Regional Business Overview ................................................................................................... 14
Financial Report ..................................................................................................................... 20
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
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Chairman’s Report
Dear Shareholder,
Herewith please find the Emeco Holdings Limited Annual Report for financial year 2014/2015 (FY15).
Responding to challenging market conditions
The sustained low commodity price environment continued to hurt the markets in which Emeco operates.
Challenging market conditions resulted in further margin decline in FY15 compared to FY14. Operating performance
improved during second half FY15 and as a result the earnings run rate at the start of FY16 is stronger than in the prior
comparable period.
The Company has worked hard to lift its operational performance over the last 12 months despite the poor financial
performance. Our people have shown great flexibility in working closely with customers to identify solutions to their
equipment needs. Utilisation increased to an average of 73% over the second half of FY15, compared to 50% in the
prior comparable period. We are all working hard to find more cost effective ways to serve our customers, drive
margin growth and return the business to profitability. A number of significant cost‐out initiatives were implemented
during fourth quarter FY15 and are expected to have a positive impact from the outset of FY16.
The difficult market circumstances have made it imperative that we continue to explore different ways of serving our
customers to deliver more value for them and better returns for Emeco. I am pleased to advise that we have been
able to diversify earnings outside Emeco’s dry hire model while still focusing on our core capabilities. This is evident
from the recently commenced Esperanza wet hire contract in Chile and recently signed five year mine services
contract with a major oilsands producer in Canada.
Further improvements were made to our capital structure during FY15 with the successful refinancing of the
syndicated debt facility. This provides greater tenure and more flexibility for our balance sheet in current depressed
market conditions.
During the year the Company explored the potential acquisition of the truck rental business Rentco and a possible
merger with Orionstone, another dry hire mining equipment business. Each offered potential scale and earnings
diversification. Unfortunately, in each case we concluded that the outcome was unlikely to be in the best interest of
Emeco’s shareholders.
Safety and sustainability
While FY15 has been a challenging year the business worked hard to maintain its commitment to our people, the
environment and the community. The cost reduction initiatives have not diminished our commitment to safety or
sustainability processes or procedures. The Company is determined to continue to provide a safe work environment
of the highest standard, invest in our employees’ development and support the communities in which we operate.
Over FY15 we actively pursued opportunities to reduce our impact on the environment and this has included moving
toward electronic based communication methods with our investor community. As such we’ve released our FY15
sustainability report on Emeco’s website. The FY15 sustainability report has been developed using the global
reporting initiative (GRI) framework, providing comprehensive reporting for Emeco’s stakeholders.
FY15 saw continued improvement in Emeco’s diversity program through a strong focus on building lasting
relationships in the communities in which we operate and encouraging women to enter the mining industry. Across
the Group we increased female workforce representation to 16% and our Canada business continues to support the
Women Building Futures initiative aimed at increasing gender diversity in the mining industry.
Emeco’s safety and sustainability achievements over FY15 are detailed further in our sustainability report which is
accessible on our website.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
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Building a sustainable business structure
The focus over the next 12 months and beyond is on positioning Emeco to succeed notwithstanding the challenging
and competitive market conditions. The recently announced Project Fit is aimed at reducing costs in our existing
business, while our internally developed Emeco Operating System (EOS) is intended to generate fleet performance
data to improve the efficiency of Emeco’s maintenance capabilities plus provide customers with information which
they can use to operate the fleet more effectively to reduce their operating costs. While we are expecting improving
market circumstances over the next few years, our plans cannot afford to be dependent on this. Our objective is to
combine focused marketing, tight cost control and sound capital management to deleverage the business over the
medium term irrespective of market conditions. The point does need to be made that current margins in the industry
are not sustainable and generally speaking do not justify the purchase of new equipment irrespective of whether it is
for dry hire or contracting. This situation has become even clearer in Australia with the decline in value of the
Australian dollar.
Having successfully implemented a number of improvements to the Emeco business our MD & CEO Ken Lewsey has
decided to step down. Ken’s contribution has included bringing a stronger customer focus to the business which has
driven utilisation growth and the recent implementation of our Project Fit cost reduction to remain competitive in this
market. I’d like to thank Ken for his contribution to the board and Company.
Ian Testrow, our COO has assumed the MD & CEO role. He understands the business intimately and will provide
uninterrupted and dynamic leadership. In addition our CFO Greg Hawkins joins the board. Both Ian and Greg have
been very strong contributors to the Company and the board looks forward to their contribution in the year ahead.
We believe that the current trajectory for the business is reasonable given the market circumstances and we will all be
working hard over the next 12 months to build on the substantial achievements of the past six months.
Alec Brennan
Chairman
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
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Managing Director’s Report
Improved operating performance over second half FY15
The challenging market conditions our business experienced over FY14 continued into this financial year, with the fall
in oil price adding to the low commodity price environment. There were no recovery in rental rates as miners remain
focused on minimising their operating cost base.
Emeco ended FY15 with an operating EBITDA of $43.4 million and operating net loss after tax of $94.9 million. Global
utilisation ended the year at 74%. Commencing the year at 50% global utilisation, contract wins in Canada, Chile and
Queensland, combined with growth from existing customers in New South Wales, has driven the increase. The
improved operating performance resulted in second half operating EBITDA of $27.2 million, representing 70% growth
on first half FY15 operating EBITDA of $16.2 million. Having invested in stronger business development capabilities
over FY14, the resulting utilisation uplift over FY15 required one‐off costs of $14.1 million to prepare idle fleet for
rent.
In Australia a stronger focus on customers resulted in improved utilisation in Queensland and New South Wales. Our
new Queensland management team worked hard to gain market share in a highly competitive environment, resulting
in a number of contract wins lifting utilisation to 85% in fourth quarter, up from 10% at the commencement of FY15.
Customer preference to deal with Emeco in New South Wales resulted in consolidation of rental providers on our
existing sites lifting utilisation to 95% at year end. The recent cessation of our rental contract with Saracen resulted in
Western Australia utilisation falling below 40%. We are focused on identifying opportunities to return this fleet back
to work.
Operating conditions in Canada softened with oilsands producers responding to a fall in the oil price. Our Canada
rental business maintained utilisation over 80% over the winter period despite the challenging price environment.
Rental rates were renegotiated during this period of seasonally high activity. The oilsands industry has been subdued
over the recent summer months. A number of rental contract wins in coal and iron ore have maintained our
utilisation at 60% heading into FY16. Canada mine site services revenue increased by almost 70%. The completion of
our Kearl Lake maintenance facility complements our ten year maintenance services contract on that site, while our
strong relationship with oil majors resulted in an increased presence on our existing projects.
The Chile business entered FY15 securing the five year Encuentro contract in conjunction with Chile mining contractor
Fe Grande. During FY15 Fe Grande decided to exit the mining industry to focus on other group business. Following
discussions between Emeco and AMSA (Encuentro owner), a process was entered to identify a suitable mine
contractor to replace Fe Grande on site whilst retaining the equipment provided by Emeco. Commencing 1 July 2015
Emeco entered into a partnership agreement with leading global mining contractor Thiess to complete a four year
mining contract for the pre‐strip operations at Encuentro. We have seen a material operational improvement at the
Encuentro mine and expect this project to be more profitable in FY16.
Achieving our strategic objectives
We achieved a number of strategic objectives over FY15 which has driven improved operating performance and a
recent uplift in margins. Restructuring of the business over the past 12 months saw our new Queensland management
team achieve significant growth in market share, Emeco partnered with Thiess in Chile to secure a four year mining
contract with AMSA, we further diversified operations in Chile and Canada outside the dry hire model, developed the
Emeco Operating System (EOS) fleet management and mining technology platform and implemented our cost
reduction program, Project Fit. The combined benefits of these strategic achievements is expected to drive greater
profitability through FY16.
Our Canada and Chile businesses continue to demonstrate the value of geographical and commodity diversification
with recent contract wins in these regions ensuring we maintain current levels of utilisation for the foreseeable future.
Canada has recently secured a five year mine site services contract with a major oilsands producer to provide fuel and
lubricant support, while we currently have units utilised at coal and iron ore mines across Canada providing
diversification across our Canada business. Chile has recently commenced wet hire of four units to AMSA’s Esperanza
mine ensuring utilisation of over 90% for first half FY16. This wet hire contract demonstrates our ability to work
closely with customers to offer effective solutions to their resource needs.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
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We made progress differentiating ourselves from competitors with innovative technology offerings which provide
significant benefits to our customers. EOS provides Emeco customers access to leading edge technology with the
support of the Emeco operations team. EOS monitors Emeco fleet operating on customer sites, providing customers’
with real time access to fleet performance and production data to assist with managing their operations. Already
implemented on Emeco fleet operating at Alkane’s Tomingley gold mine in New South Wales, EOS has provided
Alkane management information by dig unit, haul unit and operator which the business is using to get the fleet
working more efficiently and reducing their operating costs.
Our strategic achievements over FY15 have ensured Emeco enters FY16 with a stronger base on which to improve our
profitability.
Cost reductions and identifying opportunities to grow
The mining services industry remains highly competitive and we continue to seek opportunities to expand our
product offering through partnerships with industry peers and finding innovative solutions to our customer’s needs.
Tenure of our contracts and the current project pipeline should ensure we maintain current levels of utilisation during
FY16. On top of the incremental earnings uplift generated from greater volumes, Project Fit is expected to drive cost
reductions totalling $14 million for FY16 resulting in greater free cash flow generation which is intended to be used to
deleverage the business.
The sustained downturn in the Australian mining services industry is expected to result in a period of consolidation
and rationalisation for the sector if there is no recovery over the foreseeable future. Our current increased utilisation,
cost reductions and financing flexibility and tenure, allows us to evaluate opportunities to participate in this
consolidation.
Over FY16 we’ll continue to strengthen our core business while identifying opportunities to succeed during
challenging market conditions.
Ian Testrow
Managing Director & Chief Executive Officer
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
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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 332 permanent and fixed term staff and owns 490 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 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, 12%
Canada,
31%
Other,
7%
Thermal
Coal,
18%
Oilsands,
28%
Australia,
57%
Iron Ore, 4%
Coking
Coal, 12%
Copper,
9%
Other, 8%
Wheel
Loader, 9%
Grader,
7%
Dozer,
20%
Gold, 22%
Excavator, 7%
Dump
Truck, 49%
Note: Above analysis relates to 12 month period ended 30 June 2015 and excludes discontinued operations.
Table 1: Group financial results
A$ millions
Revenue
EBITDA4
EBIT4
NPAT4
ROC4 %
EBIT margin
EBITDA margin
Operating results1
FY15
242.8
43.4
(59.2)
(94.9)
(9.4%)
(24.4%)
17.9%
FY14
241.1
67.35
(10.9)6
(21.6)
(0.8)%
(4.5%)
27.9%
Statutory results
FY14
241.1
66.15
(213.5)6
(224.2)
(34.2%)
(88.4%)
27.5%
FY15
241.4
32.8
(96.8)
(123.1)
(15.2%)
(40.1%)
13.6%
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.
3. Operating results are non‐IFRS.
4. EBITDA: Earnings before interest, tax, depreciation and amortisation; EBIT: Earnings before interest and tax; NPAT: Net profit after
tax; ROC: Return on capital.
5. FY14 reported operating EBITDA of $72.1 million and statutory EBITDA of $27.2 million have been restated for comparative purposes.
The changes relate to tangible asset impairments being reported below EBITDA (2014: $43.7 million) and foreign exchange gains and
losses being reported below EBITDA (2014: $4.8 million).
6. FY14 reported operating EBIT loss of $6.1 million and statutory EBIT loss of $208.8 million have been restated for comparative
purposes. The change relates to foreign exchange gains and losses being reported below EBIT (2014: $4.8 million).
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
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Table 2: FY15 operating results to statutory results reconciliation
Tangible asset
impairments
Redundancy
Project
revenue
write‐back
Debt
establishment
cost write‐off
(22.4)
(5.8)
(2.6)
(30.8)
(2.6)
0.0
0.0
(2.6)
0.0
0.0
(1.4)
(1.4)
(1.8)
0.0
0.0
(1.8)
A$ millions
Operating
Australia
Canada
Chile
Statutory
One‐off
corporate
development
costs
(2.6)
0.0
(0.2)
(2.8)
Tax
effect
NPAT
(94.9)
(20.6)
(4.2)
(3.4)
(123.1)
8.8
1.6
0.8
11.2
Reconciliation of differences between operating and statutory results:
FY15 operating results (non‐IFRS) excludes the following:
1.
‐
‐
Tangible asset impairments: Tangible asset impairments totalling $23.9 million were recognised across the business on assets held
for sale. Stock write downs on inventory items of $6.9 million were also recognised during the year due to change in valuation
methodology from value in use to lower of cost and net realisable value less costs of sale;
Redundancies: A number of redundancies were enacted over FY15 in response to deteriorating market conditions resulting in one‐off
costs of $2.6 million before tax;
‐ Write‐back of project revenues: During FY15 Fe Grande decided to exit the mining industry and an agreement was reached to allow
Emeco to find a suitable partner to replace them, without Fe Grande going to market. This agreement involved the recognition of a
bad debt expense for $3.8 million and a reduction in revenue of $1.4 million. Depreciation on the machines in relation to the Fe
Grande contract was also reviewed and adjusted in light of the negotiations by $3.8 million. This resulted in a net cost of $1.4 million
which allowed Emeco to successfully partner with Thiess to secure a four year contract to operate the pre‐strip operations at AMSA’s
Encuentro open pit copper mine;
‐ Debt establishment cost write‐off: Debt establishment costs of $1.8 million before tax were written off relating to a previous
financing facility;
‐ One‐off corporate development expenses: Non‐recurring costs associated with corporate development activities over FY15 totalled
$2.8 million before tax.
2.
3.
Refer to our 2014 Annual Report for reconciliation of differences between FY14 operating and statutory results.
All reconciling items relating to FY15 operating results are discussed in further detail later in the operating and financial review.
Improving volumes in a competitive market
Average utilisation for FY15 of 69% was significantly higher than the FY14 average of 48% despite continued
weakness in the Australian mining sector and strong competition in our respective markets. Commencement of a
number of projects in Australia combined with diversification in our Canada business and the ramp‐up of the
Encuentro project in Chile resulted in the sustained higher operating performance, particularly over 2H FY15.
Chart 4: FY15 average Group utilisation
Average: FY15: 69%, FY14: 48%
Year‐end: FY15: 74%3, FY14: 50%
100%
75%
50%
25%
0%
3
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1
Utilisation
Operating Utilisation
2
Note:
1. Utilisation defined as % of fleet rented to customers (measured by written down value).
2. Operating utilisation defined as ratio of operating hours recognised over a month, compared to a target average number of 400
operating hours over a month.
3. Excluding non‐current assets held for sale FY15 year‐end utilisation is 77%.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
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A change in contractual arrangements within the markets Emeco operates has resulted in take or pay arrangements
typically excluded from rental contracts, reducing the effectiveness of Emeco’s utilisation measure as a lead indicator
of revenue. To assess our operating performance it is also useful to measure operating hours of our fleet, which
management monitors internally to identify units which could generate additional earnings though being contracted
to a customer. To improve reporting to readers of our financial statements we have included operating utilisation of
our machines. This measure demonstrates that although a region may have high fleet utilisation, there may be
potential for contracted units to drive earnings growth through increased operating hours.
Group operating revenue from continuing operations remained relatively flat in FY15 at $242.8 million (2014: $241.1
million). Rental revenue was up slightly to $208.1 million (2014: $205.4 million) driven by improved utilisation, albeit
on a smaller asset base. Maintenance services revenue increased 15.6% to $31.9 million (2014: $27.6 million) with
the ramp up of the Kearl Lake facility in Canada. Consistent with prior reporting periods other income, including sale
of parts and machines, declined in FY15 to $2.8 million, down from $8.1 million in 2014.
Rental rate reductions in Canada in response to a fall in the oil price and costs associated with preparing machines to
commence on new projects (prep‐for‐rent costs) were the primary contributors to a fall in operating EBITDA margins
from 27.9% in FY14 to 17.9% in FY15. The FY15 operating EBIT margin of negative 24.4% (FY14: negative 4.5%) was
further impacted by an increase in depreciation as a result of a change in depreciation policy on idle fleet (see below
for further information).
Reduced margins resulted in operating return on capital (ROC) declining to negative 9.4% in FY15, down from
negative 0.8% in FY14.
Refer to the regional business overview on page 14 for further detail on regional operating and financial
performance.
Additional costs incurred returning idle fleet to rent
Table 3: Operating cost summary (statutory results)
A$ millions
Revenue
Operating expenses
Changes in machinery and parts inventory
Repairs and maintenance
Employee expenses
Hired in equipment and labour
Net other expenses1
EBITDA
Impairment of tangible assets
Impairment of goodwill
Depreciation expense
Amortisation
EBIT
1. Excludes net foreign exchange (gain)/loss. Incorporates other income.
2015
2014
241.4
241.1
(11.8)
(99.2)
(43.6)
(22.4)
(31.6)
32.8
(30.8)
0.0
(98.7)
(0.1)
(96.8)
(14.4)
(84.7)
(42.9)
(13.1)
(19.8)
66.1
(43.7)
(157.9)
(78.0)
(0.1)
(213.5)
Higher average utilisation, costs associated with preparing fleet for rent, one‐off restructuring costs and increased
operating leases on non‐core assets resulted in operating expenses excluding impairment of tangible assets
increasing 19.3% over FY15 to $208.6 million, up from $174.9 million in FY14.
Repairs and maintenance expense, which primarily comprises parts and maintenance labour associated with our
rental fleet, increased 17.1% to $99.2 million (2014: $84.7 million) primarily as a result of improved utilisation across
the group and costs associated with preparing machines for rent (‘prep‐for‐rent costs’). A portion of the prep‐for‐
rent costs amounting to $14.1 million is considered one off and predominantly relates to repairs and maintenance
requirements resulting from off hired units in prior reporting periods. Consistent with prior reporting periods changes
in machinery and parts inventory, which is primarily related to inventory management supporting third party fleet
working along‐side our rental units, decreased in line with sales and parts revenue.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
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Employee expenses increased slightly in FY15 to $43.6 million (FY14: $42.9 million), however included is $2.6 million
of redundancy costs (compared to $1.2 million in FY14). Excluding redundancies FY15 employee expenses were
relatively flat with FY14 as additional resources employed during FY14 to enhance business and corporate
development activities continued to drive utilisation growth.
Other expenses increased to $54.0 million (FY14: $32.9 million) primarily as a result of an increase in operating leases
entered to source non‐core assets for new contracts and one‐off costs associated with corporate development
activities. Refer to note 8 in the financial statements for further breakdown of net other expenses (page 76).
Refer below for information on tangible and intangible asset impairments.
Depreciation expense increased to $98.7 million in FY15 (FY14: $78.0 million) driven by higher utilisation and a
change in depreciation policy for idle fleet. The change in idle fleet depreciation reflected the uncertainty on
recovery in the rental market for certain asset classes. As at 30 June 2015 the majority of these asset classes have
been reclassified to assets held for sale and impaired to fair market value. There remains demand for these assets on
the second hand market and management intends to dispose of them over FY16.
Matching the rental fleet to market demand
Table 4: Asset impairments (statutory results)
A$ millions
Rental fleet
Non‐current assets held for sale
Asset impairments
Stock write down
Freehold land and buildings
Plant and equipment
Total goodwill
2015
2014
458.8
32.3
6.9
0.0
23.9
0.0
519.8
39.9
6.1
0.1
37.5
157.9
The rental fleet decreased to a written down value (WDV) of $458.8 million over FY15. The fall in WDV included the
reclassification of $43.7 million of idle assets to non‐current assets held for sale (NCAHFS) and the reclassification of
$18.0 million of tyres supporting the rental fleet to inventory. Reclassification of property, plant and equipment (PPE)
to NCAHFS and inventory combined with a write down in parts resulted in asset impairments of $30.8 million in FY15.
Stock write down on inventory increased to $6.9 million in FY15 (2014: $6.1 million) resulting from the reclassification
of tyres held in PPE to inventory combined with a write down in parts, valuing the stock in line with Emeco’s
inventory accounting policy (note 20).
Impairment loss on plant and equipment decreased to $23.9 million in FY15, down from $37.5 million in FY14. During
FY15 management reclassified $43.7 million of rental fleet to ‘non‐current assets held for sale’ with corresponding
impairments to represent the expected market value of those assets. NCAHFS as at 30 June 2015 of $32.3 million
included $8.0 million identified during FY14 and disclosed in Emeco’s FY14’s financial statements. Assets held for sale
are not marketed for rental and as such are not considered as part of our value in use impairment testing.
During FY14 Emeco recognised goodwill impairments totalling $157.9 million. Following this Emeco held nil goodwill
on the balance sheet, as such no further goodwill impairments were recognised during FY15. Other than specific
impairments noted above, Impairment testing conducted at 30 June 2015 did not identify impairments in the carrying
value of Emeco’s tangible assets (refer to note 22 for further details on our impairment testing methodology).
We continually review our rental fleet, matching fleet mix to regional demand. Idle units identified as having low
rental demand are transferred to NCAHFS. Management’s assessment considers the need to right size our fleet to
the markets in which we operate and where required, will increase asset classes to meet future demand.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
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Reduced earnings impacting free cash flow
Table 5: Cash flow summary
A$ millions
Operating cash flow
General working capital
Sales and parts inventory
Interest and borrowing costs
Income tax cash flows
Operating cash flow
Sustaining capital expenditure
Other property, plant and equipment
Disposals
Free cash flow post sustaining capital expenditure
Growth capital expenditure
Free cash flow post growth capital expenditure
Debt establishment costs
Free cash flow post shareholder returns
Net cash flow from discontinued operations
Free cash flow from continuing operations post
shareholder returns
1H FY15
13.3
(3.8)
(0.6)
(21.4)
0.0
(12.5)
(11.6)
(0.5)
15.1
(9.5)
0.0
(9.5)
0.0
(9.5)
2H FY15
19.3
11.0
0.7
(21.4)
0.0
9.6
(23.5)
(2.2)
9.7
(6.4)
0.0
(6.4)
(2.6)
(9.0)
2015
32.6
7.2
0.1
(42.8)
0.0
(2.9)
(35.1)
(2.7)
24.8
(15.9)
0.0
(15.9)
(2.6)
(18.5)
8.0
2014
57.4
36.6
6.4
(34.3)
10.2
76.3
(29.7)
(13.6)
70.8
103.8
(0.9)
102.9
(17.0)
85.9
9.8
(26.6)
76.1
Free cash flow post shareholder returns decreased in FY15 to an $18.5 million outflow, down from a net cash inflow
in FY14 of $85.9 million. The decrease resulted primarily from lower earnings and decreasing cash generation from
fleet disposals. Operating cash flow improved in 2H FY15 to $9.6 million (compared to 1H FY15 cash outflow of $12.5
million) however capital expenditure required to return idle fleet back to work resulted in a free cash outflow post
shareholder returns of negative $9.0 million.
FY15 operating cash flow dropped to a $2.9 million cash outflow in line with the fall in EBITDA, with cash generated
from operations primarily used to fund financing costs of $42.8 million. No tax cash benefit was received in FY15
compared to $10.2 million in the prior period.
As a result of higher utilisation capital expenditure was up on the prior period to $35.1 million. New project wins over
FY15 required investment in fleet to prepare machines for rent, while a small number of asset additions were
required to replace end of life units with existing customers.
The successful refinancing of Emeco’s A$50 million syndicated debt facility to an A$75 million asset backed loan in
December 2014 resulted in establishment fees totalling $2.6 million. These costs included legal, accounting and debt
advisor fees. Refer below for further information on the refinancing.
Net cash flow from the discontinued Indonesian operations totalled $8.0 million in FY15, which included $10.8 million
of asset disposals.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
11
Improving balance sheet flexibility
Table 6: Net debt and gearing summary
A$ millions
Interest bearing liabilities (current and non‐current)
2015
2014
144A bond notes
Asset backed loan
Lease liabilities
Working capital
Other
Cash
Net debt
Derivative asset / (liability)
Net debt (including hedging instruments)
Gearing ratio
Leverage ratio
Interest cover ratio
436.2
0.0
4.9
0.0
0.6
27.8
413.9
49.4
364.5
10.29
57.1%
0.79
355.8
0.0
8.8
0.0
0.5
41.8
323.3
(10.0)
333.3
4.78
43.4%
2.83
Note: Above figures based on facilities drawn – bank guarantees are excluded
Gearing ratio ‐ Net debt : Operating EBITDA
Leverage ratio ‐ Net debt : Net tangible assets
Interest cover ratio ‐ Operating EBITDA : Interest expense
The combined impact of negative free cash flow and adverse movements in the AUD:USD exchange rate against the
USD denominated bonds resulted in net debt increasing to $413.9 million at 30 June 2015. This represents a 28.0%
rise in net debt from 30 June 2014.
On 17 March 2014 Emeco successfully raised US$335 million in the 144A bond market. The 9.875% senior secured
notes are due 2019 and pay interest on 15 March and 15 September each year. The notes are secured and
guaranteed by Emeco Holdings Limited and its subsidiaries. The 144A notes do not have maintenance covenants.
Over FY15 the AUD:USD exchange rate fell from $0.94 at 1 July 2014 to $0.76 at 30 June 2015, resulting in the
underlying value of the 144A bonds increasing over the year by A$80.4 million. This increase in value was offset by a
corresponding benefit from Emeco’s cross currency interest rate swap facilities which were recognised as a A$49.4
million derivative asset 30 June 2015. The net increase in the value of the 144A bonds results from a portion of the
notes being unhedged.
As announced previously, Emeco successfully refinanced it’s A$50 million syndicated debt facility with a new A$75
million Asset Backed Loan (ABL). Operating as a borrowing base facility, the ABL provides Emeco with considerably
more flexible terms and conditions than those provided by the previous facility. The ABL has springing maintenance
covenants which engage if the facility is utilised greater than 50% (A$37.5 million), these covenants require Emeco to
have an interest cover ratio of no less than 1.25 times and leverage ratio of no more than 65%. The ABL matures in
December 2017. At 30 June 2015 the ABL was undrawn with the exception of $9.6 million of bank guarantees utilised
against the facility. The bank guarantees relate to the partnership arrangement with Thiess on the Encuentro project.
Debt establishment fees totalling $1.8 million related to the previous syndicated debt facility were written off during
FY15.
Despite the increase in net debt over FY15 the refinancing of the syndicated debt facility improves the flexibility of
our balance sheet by placing less onerous maintenance covenants on the business. With the exception of the bank
guarantees mentioned above, the ABL remains undrawn, providing balance sheet liquidity of $92.3 million at 30 June
2015 (accounts for a further $0.8 million of property related cash backed bank guarantees). Management remains
conservative with its approach to capital management and is focused on generating cash flow to deleverage the
business.
Refer to note 24 in the accompanying financial statements for additional information on Emeco’s financing facilities.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
12
Nil dividends declared in FY15
Table 7: Shareholder returns
Dividends declared during the period
Interim dividend (cents)
Final dividend (cents)
Total dividend (cents)
Dividend payout ratio
Per share statistics
Earnings per share (cents)
NTA per share ($)
Closing share price ($)
2015
2014
0.0
0.0
0.0
0.0%
(15.8)
0.37
0.08
0.0
0.0
0.0
0.0%
(3.6)
0.53
0.20
Note: Dividend payout ratio is measured as dividends paid as a percentage of operating NPAT.
Similar to FY14 the board declared a nil interim and final dividend for FY15 as a result of the net operating loss for the
period.
Strategy focus to prepare Emeco for future growth
There are a number of examples of Emeco’s strategic achievements over FY15. We improved utilisation from 50% at
the commencement of FY15 to averaging 74% in Q4 FY15, secured a mine site services contract with a major oilsands
producer in Canada which was signed in August 2015, expanded our Canada rental business into the Labrador iron ore
region, partnered with Thiess in Chile to secure a four year contract for the Encuentro project, developed the Emeco
Operating System (EOS) to focus on improving the efficiency of our customers operations and Emeco’s internal
maintenance systems and implemented our cost reduction program, Project Fit.
The benefits of our strategic achievements will result in a more profitable business which is expected to be realised
from the outset of FY16. During the year ahead our strategy will remain focused on maintaining current levels of
utilisation and assisting customers to utilise our fleet more effectively to increase operating hours. Combined with
cost reduction initiatives the improved profitability is expected to generate free cash flow which will be used to
deleverage our balance sheet.
The current market conditions are impacting heavily on the mining services industry which is evident by a number of
our peers entering financing reviews during the financial year. Given the level of financial distress across the sector,
there are likely to be opportunities for consolidation. As mentioned in the Managing Director’s report, our current
increased utilisation, improved margins from cost reductions and flexibility and tenure of financing, positions us well
to evaluate opportunities to participate in this consolidation.
Further detail on Emeco’s strategy is included in the regional business overview starting on the following page.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
13
Regional Business Overview
Chart 5: Rental revenue by region
Chart 6: EBITDA contribution by
region
Chart 7: Fleet by region
Canada,
32%
Australia,
57%
Chile,
11%
Australia,
57%
Australia,
49%
Chile, 24%
Canada,
27%
Chile, 12%
Canada,
31%
Australia
Table 8: Performance indicators
Chart 8: Average fleet utilisation
Operating results
A$ millions
Revenue
EBITDA
EBIT
Funds employed
ROFE %
No. workforce
FY15
137.0
35.0
(26.3)
312.9
(8.4)%
217
FY14
130.0
44.8
(3.5)
374.7
(0.9)%
226
Var %
5.4%
(21.9%)
651.4%
(16.5%)
100%
75%
50%
25%
0%
Average: FY15: 60%, FY14: 41%
Year‐end: FY15: 73%, FY14: 41%
Notes:
For a reconciliation of statutory to operating results refer to table 1 on page 7, table 2 on page 8 and accompanying notes.
Utilisation defined as % of fleet rented to customers (measured by written down value).
Operating utilisation defined as ratio of operating hours recognised over a month, compared to a target average number of 400 operating
hours over a month.
Australia results in table 8 represent the Australian Rental segment and does not include the Australian Sales and Parts results.
Utilisation
Operating Utilisation
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 leveraged to the production phase of the
mining cycle. Operating unit performance is summarised below:
Table 9: Operating unit average utilisation
Western Region
New South Wales
Queensland
Current
28%
95%
84%
Utilisation
FY15
53%
79%
49%
FY14
40%
60%
23%
Revenue ($ million)
FY14
FY15
53.4
57.0
45.5
58.7
31.1
21.3
FY15 rental revenue commodity mix was weighted toward metals (50%), thermal coal (24%), metallurgical coal (20%)
and iron ore (6%) (FY14: metals 30%, thermal coal 26%, metallurgical coal 19%, iron ore 14%, other 11%).
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
14
FY15 performance
Utilisation across FY15 improved compared to FY14 as a number of contracts were secured and existing customers
rented additional units, increasing average utilisation from 41% in FY14 to 60% in FY15. New South Wales and
Queensland are currently operating at 95% and 84% respectively, Western Region is operating at 28%. Nil recovery in
rental rates over the period combined with low machine operating hours over ramp‐up periods resulted in only a
marginal increase in operating revenue to $137.0 million (up from $130.0 million in FY14).
The majority of contract wins over FY15 were in Queensland and included units placed with a number of coal
operations, driving the increase in Queensland utilisation compared to the commencement of FY15. Our new
management team in Queensland engaged with customers to identify rental opportunities and gain significant
market share, despite the competitive environment. We continued to defend our presence in New South Wales by
building on our relationships with existing customers and commencing operations with a gold producer and coal mine
development. Western Region recently ceased rental services with long‐term customer Saracen following a highly
competitive tender process for a fleet at its Thunderbox operations. The contract represented approximately 20% of
Western Region utilisation.
Despite an improvement in utilisation and revenue, margins were impacted by $11.4 million of one off costs to return
machines back to work and increased use of hired in equipment to meet customers fleet requirements. A change in
depreciation policy over FY15 also negatively impacted EBIT margins (refer to page 10 for further details).
The year ahead
With FY15 year end utilisation at 73% management is focused on improving margins in FY16. Average contract
tenure has improved, which combined with our customers preference to work with Emeco is expected to maintain
utilisation in Australia over 70% for the foreseeable future.
Margin improvement will be achieved through the cost reduction initiatives implemented as part of Project Fit,
ensuring customers are utilising contracted fleet and improved preventative maintenance driven by the development
of the previously announced Emeco Operating System (EOS) fleet management and mining technology platform.
Medium term outlook
The medium term outlook for the Australian mining market remains similar to that 12 months ago despite improved
utilisation. The falling value of the Australian dollar improves the cost competitiveness of our end customers at a
global level however low commodity prices continue to impact margins. While opportunities exist to put idle
machines back to work, the competitive landscape across all markets reduces visibility on the timing of any rental rate
recovery.
Canada
Table 10: Performance indicators
Chart 9: Average fleet utilisation
Operating results
A$ millions
Revenue
EBITDA
EBIT
Funds employed
ROFE %
No. employees
FY15
76.3
19.3
(5.2)
156.8
(3.3)%
96
FY14
81.5
27.6
8.2
186.5
4.4%
96
Var %
(6.4%)
(30.1%)
(163.4%)
(15.9%)
100%
75%
50%
25%
0%
Average: FY15: 67%, FY14: 64%
Year‐end: FY15: 60%, FY14: 49%
Notes:
For a reconciliation of statutory to operating results refer to table 1 on page 7, table 2 on page 8 and accompanying notes.
Utilisation defined as % of fleet rented to customers (measured by written down value).
Operating utilisation defined as ratio of operating hours recognised over a month, compared to a target average number of 400 operating
hours over a month.
Utilisation
Operating Utilisation
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
15
Main markets
The Canada business is strategically located in the Alberta region to primarily service oil sands and bulk commodity
projects in Western Canada. The business supplies rental equipment and mine site services to oil majors, indigenous
and non‐indigenous contractors, and bulk commodity miners. Rental revenue composition in FY15 remained heavily
weighted toward oil sands (87%) with the remainder derived primarily from thermal coal.
FY15 performance
Heading into FY15 we announced our Canada strategy as diversifying earnings away from the oilsands business and
growing our mine site services business, both of which are expected to smooth the seasonality in Canada. Over FY15
we achieved success with both strategies by identifying rental opportunities in the coal and iron ore sectors and
winning a five year fuel and lubricants contract with a major oilsands producer.
Canada continued to benefit from building relationships direct with miners as demonstrated by averaging 80%
utilisation over the winter period despite the fall in the oil price. Rental revenue of $65.9 million for FY15 was 12.7%
down on FY14 ($75.2 million) primarily as a result of an average 5% rental rate reduction across the fleet and lower
operating hours as customers revised mine plans in response to the lower oil price environment. Despite the fall in
rental revenue, mine site services revenue was up 69% to $10.4 million (FY14: $6.2 million) with the completion of
our fleet maintenance facility at Kearl Lake.
The fall in rental revenue combined with the increased use of operating leases to meet non‐core asset requirements
on new project wins was the primary driver of EBITDA margin declining in FY15 to 25.2% (2014: 33.9%). The
depreciation policy adopted in FY15 further compressed EBIT margin to negative 6.9% (FY14: 10.1%).
The year ahead
Going into FY16 our Canada business is averaging close to 60% utilisation (compared to 49% PCP) which includes
approximately a third from machines operating outside the oilsands industry. As previously announced we have
improved commodity diversification with units working across three sites for a large coal company and seven units
rented on a three year contract in the Labrador iron ore region.
Our Canada mine site services business is expected to continue growing with the recently signed fuel and lubricants
contract expected to double mine services revenue in FY16.
Management will continue to review capital expenditure requirements with the use of operating leases for non‐core
assets required to secure rental and mine site services opportunities.
Medium term outlook
Embodied in the Canada oil sands industry is the seasonal nature of earth works over a year. While this limits visibility
on future activity, the installed production capacity in long life oil sands projects underpins significant base load
volumes over the medium term. Management continues to seek opportunities outside the oilsands industry to
reduce seasonality in the business.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
16
Chile
Table 11: Performance indicators
Chart 10: Average fleet utilisation
Operating results
100%
A$ millions
Revenue
EBITDA
EBIT
Funds employed
ROFE %
No. employees
FY15
29.6
6.6
(9.8)
146.5
(6.6%)
23
FY14
25.1
13.8
4.1
138.3
3.0%
16
Var %
17.9%
(52.2%)
(339.0%)
5.9%
75%
50%
25%
0%
Average: FY15: 90%. FY14: 74%
Year‐end: FY15: 91%, FY14: 81%
Notes:
For a reconciliation of statutory to operating results refer to table 1 on page 7, table 2 on page 8 and accompanying notes.
Utilisation defined as % of fleet rented to customers (measured by written down value).
Operating utilisation defined as ratio of operating hours recognised over a month, compared to a target average number of 400 operating
hours over a month.
Utilisation
Operating Utilisation
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 FY15 was 100% weighted toward the copper industry.
FY15 performance
The Chile business entered FY15 securing the previously announced five year Encuentro contract in conjunction with
Chile mining contractor Fe Grande. Commencing from July 2014 the contract was expected to generate between
US$27 million and US$32 million annually and represent over 50% utilisation of the Chile fleet.
The Encuentro project drove a 17.9% increase in revenue compared to FY14 however operational issues on site
impacted profitability and availability of the remaining Chile fleet to be utilised on other projects. Mine operations
during ramp‐up and over FY15 were below forecast with lower than expected tonnes moved on site which reduced
the operational hours of our fleet. In addition we experienced reduced availability of our 793F truck fleet due to
manufacturer issues which required fleet downtime to remediate under warranty and the use of other Emeco trucks
to back fill. The productivity issues have been addressed and there has been a material operational improvement at
the Encuentro mine. We expect this project to be more profitable in FY16 under the new contractual model.
EBITDA and EBIT margins declined to 22.3% and negative 33.1% respectively in FY15 as a result of $0.9 million in one
off prep‐for‐rent costs associated with preparing fleet for the Encuentro project and lower than forecast operating
hours against a growing fixed cost base to service the Encuentro contract. As previously mentioned EBIT margins in
FY15 were impacted by adoption of a more aggressive depreciation policy.
The year ahead
Emeco recently announced that its Chile rental business signed a partnership agreement with leading global mine
contractor Thiess. The partnership agreement relates to the four year mining contract awarded to Thiess for the pre‐
strip operations at AMSA’s Encuentro open pit copper mine, replacing Fe Grande. Emeco will continue to provide
mining and ancillary fleet support for the tenure of the contract.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
17
In addition to the Thiess partnership Chile recently placed four 793s at AMSA’s Esperanza site. This wet hire contract
demonstrates the strong relationship Emeco maintains with its customers and the flexibility in our business model to
meet our customer’s needs. Current contracts, potential contract extensions and the project pipeline in South
America is expected to maintain utilisation above 90% for H1 FY16.
Margin growth is expected in FY16 with improved productivity at Encuentro following Thiess commencement on site,
reduced prep‐for‐rent costs compared to FY15 and cost reduction initiatives driven by Project Fit.
Medium term outlook
The Chile mining industry maintains a strong cost curve position which is expected to underpin activity over the
medium term. Greater presence in Chile continues to provide Emeco new opportunities to expand its customer base,
both with contractors and mining companies. In addition the partnership with Thiess provides a platform to enter
further opportunities together in the South American region. On the basis that volumes continue to grow in the Chile
copper market, Emeco is well positioned to maintain and grow earnings in this business in the medium term.
Discontinued operations
During FY14 Emeco completed a strategic review on its Indonesian business deciding to exit the market given
expected poor earnings over the long term. The Indonesian business has been classified as a discontinued operation
for FY15 and the prior comparable period.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
18
Table 12: Five year financial summary
REVENUE
Revenue from rental income
Revenue from sale of machines and parts
Revenue from maintenance services
Total
PROFIT
EBITDA2
EBIT3
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 (operating goodwill)
Net debt to operating EBITDA
Total debt to equity
2015
2014
2013
2012
2011
206,718
205,368
314,068
440,299
386,530
2,788
31,925
8,145
27,582
23,413
41,894
66,689
58,182
62,795
53,170
241,431
241,095
379,375
565,170
502,495
32,856
(96,784)
(162,595)
66,064
(213,608)
(251,378)
(123,131)
(224,172)
(4,572)
(51,137)
(127,703)
(275,309)
148,268
32,075
7,459
12
5,992
6,004
(18,652)
(202,629)
(28,487)
(94,813)
(21,543)
28,499
(15.8)
(3.6)
4.8
260,507
124,820
100,406
69,972
(227)
69,745
(1,375)
71,120
11.3
708,755
487,284
221,471
423,971
748,362
1,126,022
1,216,116
424,390
323,972
343,774
514,846
611,176
415,426
575,729
640,387
459,484
215,379
93,206
70,247
49,974
(365)
49,609
(6,395)
56,004
8.2
981,152
378,918
602,234
297,005
(2,894)
(13,013)
82,072
25,032
181,303
230,467
214,931
(129,124)
(281,817)
(146,088)
(6,733)
(71,364)
(119,281)
118,958
(68,947)
(22,640)
35,740
(67,102)
67,608
(104)
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
cents
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
(18,495)
85,889
(9,273)
(90,958)
(17,800)
'000
$'000
cents
cents
%
%
%
x
%
599,675
599,675
599,675
631,238
631,238
‐
0.0
0.0
69.0
(9.4)
(9.6)
10.29
191.4
‐
0.0
0.0
48.0
(0.8)
(0.9)
4.78
106.1
15,109
37,874
63,124
2.5
0.0
67.0
7.1
8.5
2.15
68.0
6.0
0.0
86.0
13.2
15.7
1.47
71.8
5.0
5.0
85.0
11.3
14.0
1.38
49.3
Financial information as reported in the corresponding financial year and includes operations now discontinued.
1
2
3
Includes capex funded via finance lease facilities (excluded from statutory cash flow).
FY15 and FY14 reported exclude tangible asset impairments and foreign exchange gains and losses being reported below EBITDA.
FY15 and FY14 reported exclude foreign exchange gains and losses being reported below EBIT.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
19
Financial Report
Directors’ Report .................................................................................................................... 21
Directors ...................................................................................................................... 21
Company secretary ...................................................................................................... 23
Directors’ meetings ...................................................................................................... 24
Corporate governance statement ................................................................................. 24
Principal activities ........................................................................................................ 24
Operating and financial review .................................................................................... 24
Dividends ..................................................................................................................... 24
Significant changes in state of affairs ........................................................................... 24
Events subsequent to report date ................................................................................ 25
Likely developments .................................................................................................... 25
Directors’ interest ........................................................................................................ 25
Indemnification and insurance of officers and auditors ................................................ 26
Non‐audit services ....................................................................................................... 26
Lead auditor’s independence declaration ..................................................................... 26
Rounding off ................................................................................................................ 26
Remuneration report (audited) .................................................................................... 27
KPMG’s independence declaration ............................................................................... 40
Consolidated Statement of Profit or Loss and Other Comprehensive Income ......................... 41
Consolidated Statement of Financial Position ......................................................................... 43
Consolidated Statement of Changes in Equity ........................................................................ 44
Consolidated Statement of Cash Flows ................................................................................... 45
Notes to the Consolidated Financial Statements .................................................................... 46
Directors’ Declaration .......................................................................................................... 123
Independent Auditor’s Report .............................................................................................. 124
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
20
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2015
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) and the auditor’s report for the financial year
ended 30 June 2015 (FY15).
Directors
The directors of the Company during FY15 were:
ALEC BRENNAN AM, BSc Hons, MBA Dist, FAICD, 68
Appointment: Independent Non‐Executive Director of public company since July 2006. Chairman since November
2006.
Board committee membership: Chairman of the Remuneration and Nomination Committee. Member of the Audit
and Risk Management 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:
Independent Director of the New South Wales Environment Protection Authority (since 2012).
Fellow of Senate and Chair of Sydney University Finance and Human Resources committees (since 2006).
Deputy Chancellor of the Senate of the University (since 2014).
KENNETH LEWSEY BBus, MAICD, 52
Appointment: Managing Director since November 2013. Ceased as Managing Director on 20 August 2015.
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 2015
21
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2015
JOHN CAHILL BBus, Grad Dip Bus, FCPA, GAICD, 59
Appointment: Independent Non‐Executive Director since September 2008.
Board committee membership: Chairman of the Audit and Risk Management Committee. Member of the Remuneration
and Nomination Committee.
Skills and experience: John has over 25 years' experience working in senior treasury, finance, accounting and risk
management positions, predominantly in the energy utility sector. John is a past Chief Executive Officer of Alinta
Infrastructure Holdings and past Chief Financial Officer of Alinta Ltd. John was previously Non‐Executive Director (2007
to 2013) and President and Chairman (2011 to 2013) of CPA Australia Ltd and Non‐Executive Director (2009 to 2014)
and Deputy Chairman (2010 to 2014) of Electricity Networks Corporation, Western Australia (trading as Western Power).
John was made a life member of CPA Australia Ltd in 2013.
Current appointments:
Non‐Executive Director of Toro Energy Limited (since January 2015) and Chair of Toro Energy Limited Audit and
Risk Management Committee (since April 2015).Non‐Executive Director of Accounting Professional & Ethical
Standards Board (since February 2014).
Councillor of Edith Cowan University and Chair of the University's Resources Committee (since 2011).
PETER RICHARDS BCom, 56
Appointment: Independent Non‐Executive Director since June 2010.
Board committee membership: Member of the Audit and Risk Management Committee.
Skills and experience: Peter has over 35 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).
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
22
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2015
ERICA SMYTH MSc, FAICD, FTSE, 63
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 Chair of Toro Energy, 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).
Deputy Chair of the Australian Nuclear Science and Technology Organisation (since 2009).
Director of the Royal Flying Doctor Service Western Operations (since 2010).
Director of the Deep Exploration Technologies CRC (since 2013).
Director of the Harry Perkins Institute of Medical Research (since 2013).
The following have been appointed to the board since 30 June 2015:
IAN TESTROW BEng (Civil), MBA, 45
Appointment: Managing Director since 20 August 2015.
Skills and experience: Ian has been Emeco’s Chief Operating Officer since 2014, responsible for the Australian and
Chilean operations as well as Global Asset Management. Prior to this he was President, New and Developing Business
after establishing Emeco's Chilean business in 2012 in his role as President, Americas. Ian previously managed the exit
of Emeco's USA business in 2010 and commenced developing Emeco’s Canadian business in 2009. Ian joined Emeco in
2005, responsible for the business in Queensland and Northern Territory and, then in addition in 2007, New South
Wales. Prior to Emeco Ian worked for Wesfarmers, BHP, Thiess and Dyno Nobel.
GREGORY HAWKINS BCom, 47
Appointment: Executive Director Finance since 20 August 2015.
Skills and experience: Greg joined Emeco as Chief Financial Officer in July 2014. Before joining Emeco, Greg was Chief
Executive Officer of African Barrick Gold plc based in London where he made significant improvements to that business,
dealt with considerable challenges in the African environment and set the company on a solid platform of improvement
in performance for its long term future. Prior to this he was Chief Financial Officer at Barrick Gold Corporation's Australia
Pacific division, based in Perth. Greg is a Fellow of the Institute of Chartered Accountants.
Company secretary
The Company Secretary of the Company during FY15 was:
THAO VANDERPLANCKE LLB (Hons), BCom
Thao was appointed to the position of Company Secretary to the Emeco Board and General Counsel 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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
23
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2015
Directors’ meetings
The number of board and committee meetings held and attended by each director in FY15 is outlined in the following
table below:
Table 13: Board and committee meetings held and director attendance
Director
Board meetings
Audit & risk management
committee meetings
Remuneration &
nomination committee
meetings
Alec Brennan
Kenneth Lewsey
John Cahill
Peter Richards
Erica Smyth
A
16
16
16
16
16
B
16
16
16
16
16
A
6
B
6
6 * 6
6
6
6
6
6 * 6
A
2
B
2
2 * 2
2
2
2 * 2
2
2
A
B
*
Number of meetings attended
Number of meetings held during the time the director held office during the year
Not a member of this committee
Corporate governance statement
The Company’s corporate governance statement is located on the Company’s website at
http://www.emecogroup.com/view/investors/corporate‐governance.
Principal activities
The principal activity during FY15 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.
Operating and financial review
A review of Group operations, and the results of those operations for FY15, is set out in the operating and financial
review section at pages 7 to 13 and in the accompanying financial statements.
Dividends
No dividends were declared or paid during FY15. No dividends have been declared or paid since the end of FY15.
Significant changes in state of affairs
Other than those disclosed in the operating and financial review section or the financial statements and the notes
thereto, 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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
24
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2015
Events subsequent to report date
Subsequent to the period end, the Group refinanced its finance lease facility resulting in an extension to 15 February
2017 at a lower interest rate.
On 1 July 2015, Emeco announced that it had signed a partnership agreement with Cimic Group company, Thiess, for
pre‐strip operations at the Encuentro Oxides copper mine in Chile that was previously operated by Fe Grande.
On 20 August 2015, Mr Kenneth Lewsey ceased and Mr Ian Testrow commenced in the role of Managing Director and
Chief Executive Officer of the Company. Mr Gregory Hawkins also commenced in the role of Executive Director, Finance
on 20 August 2015.
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 7 to 13. 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 14: Directors’ Interests
Director
Alec Brennan
John Cahill
2,081,700 [A]
120,000
Gregory Hawkins
127,000
Peter Richards
40,000
Ordinary shares
Options or rights
‐
‐
‐
‐
Erica Smyth
Ian Testrow
71,049
‐
1,015,714 [A]
2,126,639
[B]
[A]
[B]
This number includes management incentive share plan shares which have been elected to be returned to the Company pursuant to terms
of the MISP. See section 5.4.
This comprises unvested performance shares issued under the Company’s long term incentive plan and unvested shares under the employee
share ownership plan. See sections 3.3.3, 5.3 and 5.5.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
25
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2015
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 management committee to ensure they do not impact the integrity and objectivity
of the auditor.
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 40 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 2015
26
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2015
Remuneration report (audited)
Remuneration report contents
This report covers the following matters:
1.
2.
3.
4.
5.
6.
Introduction
Remuneration governance
Executive remuneration
Non‐executive director remuneration
Details of remuneration
Service contracts
1.
Introduction
This report details the Group’s remuneration objectives, practices and outcomes for key management personnel (KMP),
which includes directors and senior executives, for the year ended 30 June 2015. 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 FY15:
Non‐executive directors
Alec Brennan
John Cahill
Peter Richards
Erica Smyth
Executive director
Kenneth Lewsey
Chair
Managing Director & Chief Executive Officer (ceased role on 20 August 2015)
The following persons were also employed as executives of the Company during FY15:
Other executives
as at the report date
Gregory Hawkins [A]
Christopher Hayman
Kalien Selby
Ian Testrow [B]
Thao Vanderplancke
Other executives
Kellie Benda
David Greig
Stuart Jenner
Grant Stubbs
Position
Chief Financial Officer
President North America (commenced role on 26 November 2014), previously
President Americas
Executive General Manager Strategy & Business Improvement (commenced role
on 18 February 2015)
Chief Operating Officer
Company Secretary & General Counsel
Postion
Executive General Manager Strategy & Corporate Development (ceased role on
19 December 2014)
President South America (1 October 2014 to 22 June 2015)
Executive General Manager HR, HSE & IT (ceased role on 30 June 2015)
Executive General Manager Asset Strategy & Operational Improvement (ceased
role on 1 October 2014)
[A]
[B]
Mr Gregory Hawkins commenced role of Executive Director, Finance on 20 August 2015.
Mr Ian Testrow commenced role of Managing Director & Chief Executive Officer on 20 August 2015.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
27
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2015
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 FY15 were Mr Alec Brennan (Chair), Mr John Cahill
and Ms Erica Smyth.
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:
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 resources policies and practices are consistent and
complementary to the strategic direction of the Company.
Prohibit the hedging of unvested equity to ensure alignment with shareholder
outcomes.
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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
28
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2015
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 August. No executive received an
increase in fixed remuneration in FY15 whilst as an executive.
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.
In FY15 the fixed remuneration of the chief financial officer, Mr Gregory Hawkins, was 20% lower than that of his
predecessor, Mr Stephen Gobby. The fixed remuneration of the new chief executive officer and managing director, Mr
Ian Testrow (appointed 20 August 2015), is 29% lower than that of his predecessor, Mr Ken Lewsey.
3.3
Variable remuneration
Variable remuneration is performance linked remuneration which consists of short term incentives (STIs) and long term
incentives (LTIs).
STI awards are for performance assessed over one year. See section 3.3.2 for more information.
LTI awards are for performance assessed over three years. See section 3.3.3 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 in FY15 is shown in the following table:
Table 15: Components of variable remuneration
Executive [A]
Kenneth Lewsey
Gregory Hawkins
Christopher Hayman
Stuart Jenner
Ian Testrow
Thao Vanderplancke
Position
Managing Director &
Chief Executive Officer
Chief Financial officer
President North
America
Executive General
Manager HR, HSE & IT
Chief Operating
Officer
Company Secretary &
General Counsel
Target STI
cash
component
75%
Target STI
equity
component
25%
Stretch STI
component [B]
33%
Maximum
total STI
133%
Maximum
total LTI
75%
Maximum total
variable
remuneration
208%
50%
50%
50%
50%
37%
10%
10%
10%
10%
0%
20%
20%
20%
20%
9%
80%
80%
80%
80%
46%
50%
40%
40%
50%
37%
130%
120%
120%
130%
82%
[A]
[B]
Mr Grant Stubbs and Ms Kellie Benda ceased their roles effective on 1 October 2014 and 19 December 2014 respectively and were not
offered STIs or LTIs in FY15. Mr David Greig and Ms Kalien Selby were appointed as executives on 1 October 2014 and 18 February 2015
respectively and had no FY15 STI or LTI entitlements as an executive.
The stretch STI component relates to additional awards for performance greater than FY15 budget EBITDA and OCF (see table 16). Stretch
STI components are paid in equity to all executives, except to Ms Thao Vanderplancke which is paid in cash.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
29
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2015
3.3.1
Remuneration arrangements with Ms Thao Vanderplancke
Ms Thao Vanderplancke was appointed to the role of company secretary and general counsel of the Company effective
on 1 July 2014. Upon appointment, Ms Vanderplancke was not a direct report to the chief executive officer and
managing director and, therefore, had a different variable remuneration structure to other executives.
Ms Vanderplancke’s variable remuneration structure differed to that of the other executives as follows:
Thao Vanderplancke
STI awards are in cash only
STI awards are not subject to the STI condition (see
section 3.3.2)
Other executives
STI awards are in cash and equity
STI awards are subject to the STI condition
Stretch STI awards are paid in cash
Stretch STI awards are paid in equity
Weighting for OCF and personal goals STI KPIs are nil
and 35% respectively
Dividends will be paid on all LTI securities
Weighting for OCF and personal goals STI KPIs are 15% and 20% respectively
Dividends in respect of LTI securities will be paid only in respect of vested LTI securities
at the end of the vesting period
Upon an absolute change in control of the Company,
all LTI securities will automatically vest
Upon an absolute change in control of the Company, LTI securities will vest only if the
performance condition has been met and in accordance with the vesting schedule
As Ms Vanderplancke now reports directly to the chief executive officer and managing director, her remuneration
structure has been amended to that of all other executives effective 1 July 2015.
3.3.2 STI remuneration
Cash and equity
STIs are used to reward the performance of executives over a full financial year. The actual amount of STI awarded is
determined after the end of the financial year in light of the Company and executive’s performance against agreed key
performance indicators (KPIs). All executive STI awards require review and approval by the remuneration and
nomination committee and the board.
An executive’s maximum achievable STI award is set as a percentage of TFR (refer to table 15 above for details). In
respect of FY15, executive STIs were only awarded if Group FY15 EBITDA is at least that of FY14 (STI condition).*
The financial KPIs provided for pro rata cash payments where FY15 EBITDA and OCF were between FY14 actual
performance and FY15 budget (see the EBITDA and OCF KPIs set out in table 16). Stretch STI awards for above FY15
budget performance are made in equity.*
In FY15 target STI awards are made:
for the managing director and chief executive officer, 25% in equity and 75% in cash; and
for all other executives*, in cash up to the target STI cash component, with additional awards made in equity.
Stretch STI awards, being those above the target STI awards (refer to table 15 above for details), are made in equity.*
Where an equity component is payable, the number of shares awarded is calculated by dividing the STI equity value by
the June 2015 VWAP of Emeco shares. For the managing director and chief executive officer, STI awards made in equity
are granted after shareholder approval at the annual general meeting and such shares are escrowed for two years until
the announcement of the Company’s annual results in 2017. For all other executives, the grant of the shares are
deferred and subject to the executive remaining employed by the Group the day after the announcement of Emeco’s
annual results in 2016. All STI awards made in equity are acquired on‐market and, therefore, do not have the effect of
diluting shareholdings.
As the STI condition was not met, no executive* will be awarded any STIs in respect of FY15.
______________________________
* Does not apply to Ms Thao Vanderplancke. See section 3.3.1 above.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
30
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2015
Key performance indicators
Along with financial 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.
Table 16 below sets out the KPIs for the FY15 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 16: FY15 STI plan KPI weightings and entitlements
KPI
EBITDA
Weighting
50%
Entitlement
0% if EBITDA is less than FY14 EBITDA.
100% if EBITDA is greater than FY15 budget
EBITDA.
Pro‐rata payments between these levels and on
the same basis up to a maximum of 150%.
Rationale
This profit figure quantifies the Company’s
financial performance.
Achievement [B]
Below threshold
Operating Cash
Flow (OCF)
15%*
0% if OCF is less than FY15 budget OCF based on
FY14 EBITDA and 85% of FY15 budget disposals.
100% if OCF is greater than FY15 budget OCF.
Pro‐rata payments between these levels and on
the same basis up to a maximum of 150%.
OCF was chosen to reflect the Company’s focus
on maintaining strong cash flow in order to
reduce debt and ensure that the balance sheet
remains robust.
Below threshold
Health, Safety &
Environment
(HSE)
7.5%
0% if TRIFR as at 30 June 2015 is less than 10%
lower than TRIFR as at 30 June 2014.
100% if TRIFR as at 30 June 2015 is at least 25%
lower than the TRIFR as at 30 June 2014.
Pro‐rata payments between these levels.
Notwithstanding the above, no award if there is
a serious, permanently disabling injury or a
fatality. [A]
The board regularly reviews the Company’s safety
performance in detail and is striving to achieve a
'zero‐harm' workplace at Emeco. TRIFR measures
progress towards this aspiration.
Below threshold
7.5%
Requires involvement with proactive HSE
activities.
The participation in behavioural based safety
programs encourages safety leadership and
promotes safety throughout the workplace.
Between threshold
and target
Personal Goals
20%*
Managing director’s award is assessed by the
board.
Other executives’ award is assessed by the
managing director and approved by the board.
Between threshold
and target
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 include
improving the Company's talent management,
liquidity, corporate governance, service offering
and strategic planning and implementation.
[A]
TRIFR = Number of recordable injuries x 1,000,000 hours
Total hours worked
[B]
Notwithstanding achievements, executives were not awarded any STIs* as the STI condition was not met.
3.3.3 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.
______________________________
* Does not apply to Ms Thao Vanderplancke. See section 3.3.1.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
31
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2015
Australian based executives
In FY15, performance shares were offered to Australian based executives, with the number of performance shares
offered being determined by reference to the executive’s maximum LTI entitlement and the fair value of the LTI
securities as at the commencement of the vesting period. Performance shares were offered at no cost to the executive,
however award of the shares is subject to the performance condition described below.
Executives based outside Australia
In FY15, Emeco executives who were resident outside Australia were offered performance rights instead of performance
shares due to the complexity and cost of compliance issues associated with the offer of performance shares in the
relevant foreign jurisdictions. These offers were on substantially identical terms to that of the performance shares
granted to Australian based executives.
Performance condition
The performance condition for the vesting of LTI securities under the FY15 LTI plan (and the FY14 and FY13 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 FY15 LTI grant, the peer group comprised a total of 123 companies from the S&P/ASX Small Industrials
(excluding banks, insurance companies, property trusts/companies and investment property trusts/companies and
other stapled securities). Consideration is being given to limiting the peer group only to those considered direct peers
to Emeco going forward.
At the end of the vesting period, the TSR for Emeco and each company in the peer group will be measured and ranked.
Emeco will be allocated a percentile rank representing 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:
Percentile rank
50% or lower
Between 50% and 75%
75% or higher
Percentage of LTI securities that vest
Nil
50% plus 2% for each percentile rank over 50%
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 reallocation.
Performance shares which vest are transferred to the employee. In respect of performance rights which vest,
corresponding shares are transferred to the employee.
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, 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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
32
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2015
3.4
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.
3.5
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 an executive’s 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. In respect of FY15, no executive*
was awarded any STIs and no LTIs vested.
Details of the KPIs for the FY15 STI and LTI plans are set out in the following table:
KPI
Financial
LTI
Total shareholder return
Non‐financial
Not applicable
STI
Budget EBITDA
Budget OCF
Health, safety and environment
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 mean that STI
remuneration is genuinely at risk, is highlighted by the fact that no executive will receive a STI payment in respect of
FY15.* In FY11, 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 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 ‐ no STIs in respect of financial KPIs were awarded. However, executives will not receive STI payments in respect
of FY15 as they were entirely subject to the STI condition.* Details of these KPIs are set out above in section 3.3.
Details of the Group’s performance and benefits for shareholder wealth are set out in the following table:
Profit/(loss) from continuing operations ($m)
Profit/(loss) from discontinuing operations ($m)
Statutory profit/(loss) ($m)
Total dividends declared ($m)
Statutory return on capital employed
Closing share price as at 30 June
FY15
(123.1)
(4.6)
(127.7)
‐
(20.7%)
$0.08
FY14
(224.2)
(51.1)
(275.3)
‐
(30.7%)
$0.20
FY13
(0.0)
6.0
6.0
15.0
4.2%
$0.28
FY12
70.0
(0.2)
69.7
37.9
13.0%
$0.87
FY11
50.0
(0.4)
49.6
63.1
10.3%
$1.13
In FY15, the primary focus of the Company was to strengthen its balance sheet, improve utilisation and dispose its
surplus fleet. Strategic achievements over FY15 were executed to drive the Emeco business through this current
downturn in the global market and position the business for future growth, and hence greater shareholder returns.
______________________________
* Does not apply to Ms Thao Vanderplancke. See section 3.3.1
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
33
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2015
Throughout FY11, the Company’s share price increased nearly 100% from 58 cents at opening of trading on 1 July 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 as the share price three years prior was only 40 cents. A factor which was a primary cause of the volatility in
the Company’s share price during FY12 was the uncertainty in the global macroeconomic environment. 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, 20 cents and 8 cents
on 30 June 2013, 30 June 2014 and 30 June 2015 respectively. No LTI securities vested following the Company’s
performance in FY13 or FY14. This highlights the genuinely challenging nature of the LTI KPI.
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 August. This did not take place in FY15 as the
board had already resolved in May 2014 to reduce the fixed remuneration for non‐executive directors by 20% with
effect from 1 July 2014.
An annual cap of $1,200,000 is currently prescribed in the Company’s constitution as the total aggregate remuneration
available to non‐executive directors.
The allocation of fees to non‐executive directors within this cap has been determined after consideration of a number
of factors including the time commitment of directors, the size and scale of the Company’s operations, the skill sets of
board members, the quantum of fees paid to non‐executive directors of comparable companies and participation in
board committee work.
The chair is entitled to an annual fee of $158,238. All other non‐executive directors receive an annual fee of $90,422.
An additional annual fee of $6,782 is paid to a director who is a member of a board committee. This fee is increased to
$9,042 for a director who chairs a committee. All amounts specified in this section are inclusive of superannuation
contributions.
5.
Details of remuneration
5.1
Remuneration received in relation to FY15
Details of the elements comprising the remuneration of the Group’s KMP in FY15 are set out in table 17 below. The
table does not include the following components of remuneration because they were either not provided to KMP during
FY15 or were not available to KMP by reason of their executive role:
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.
Matching shares under the Emeco employee share ownership plan (see section 5.5).
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
34
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2015
Also, payments made in respect of a period before the appointment, or after the cessation, of a person as KMP are
not included in table 17.
Table 17: FY15 KMP remuneration (Company and consolidated)
Short‐term employee benefits
Post‐employment benefits
annuation long term
Other Termina‐
tion
benefits benefits
$
$
Share based
payments
LTIP
$
% of
Value of
remuneration options as at
% of total
performance
related remuneration
%
%
Total
$
Salary
and fees
$
STI cash
bonuses [1]
$
Non‐
monetary
[2]
$
Non‐executive directors
Al ec Brenna n
John Ca hi l l
Peter Ri cha rds
Eri ca Smyth
Executive director
Kenneth Lews ey
TOTAL ALL DIRECTORS
Executives at report date
Gregory Ha wki ns
Chri s topher Ha yma n [A]
Ka l i en Sel by [B]
Ian Tes trow
Tha o Va nderpl a ncke
Other executives
Kel l i e Benda [C]
Davi d Grei g [D]
Stua rt Jenner
Grant Stubbs [E]
TOTAL ALL EXECUTIVES
160,495
97,594
89,288
89,288
809,330
1,245,995
468,356
343,118
96,375
443,524
244,615
184,849
280,222
235,974
158,203
2,455,236
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
40,800
‐
‐
‐
‐
40,800
‐
21,717
‐
81,671
‐
‐
115,561
‐
‐
218,949
Super‐
benefits
$
13,566
8,651
7,915
7,915
73,744
111,791
41,644
‐
9,155
42,135
22,800
17,561
‐
24,292
15,029
172,616
TOTAL
3,701,231
40,800
218,949
284,407
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
174,061
106,245
97,203
97,203
333,554
333,554
1,216,628
1,691,340
39,859
70,375
3,922
201,793
40,291
549,859
435,209
109,452
769,123
348,506
(11,237)
47,774
43,115
(68,945)
366,946
191,173
443,558
303,381
104,287
3,254,547
700,500
4,945,887
‐
‐
‐
‐
27%
7%
16%
4%
26%
12%
0%
11%
14%
0%
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
[1]
[2]
[A]
[B]
[C]
[D]
[E]
STIs awards under the FY15 plan were finally determined on 19 August 2015 after completion of performance reviews (refer to table 18).
Non‐monetary benefits include housing, vehicle and health benefits.
Mr Christopher Hayman’s remuneration has been converted to Australian dollars on the basis of an AUD/CAD exchange rate of 0.9606.
Ms Kalien Selby was appointed as an executive on 18 February 2015.
Ms Kellie Benda ceased her role as an executive on 19 December 2014. All unvested LTI securities granted to Ms Benda were forfeited in
accordance with the terms of the grant and reversed through the income statement.
Mr David Greig was an executive from 1 October 2014 to 22 June 2015. Mr Greig’s remuneration has been converted to Australian dollars
on the basis of an AUD/USD exchange rate of 0.8090.
Mr Grant Stubbs ceased his role as an executive on 1 October 2014. All unvested LTI securities granted to Mr Stubbs were forfeited in
accordance with the terms of the respective grants and reversed through the income statement.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
35
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2015
Comparative information relating to remuneration of the Group’s KMP for the prior financial year is set out below:
Short‐term employee benefits
Post‐employment benefits
Share based payments
annuation long term
Other Termina‐
tion
benefits benefits
$
$
LTIP
$
MISP
$
STI
$
Total
$
% of
Value of
remuneration options as at
% of total
performance
related remuneration
%
%
Salary
and fees
$
199,155
115,173
121,562
111,217
111,217
487,252
425,877
1,571,453
90,769
572,310
423,749
329,234
182,326
344,687
325,450
507,529
2,776,054
Non‐executive directors
Al ec Brenna n
Robert Bis hop
John Ca hil l
Peter Richa rds
Eri ca Smyth
Executive director
Kenneth Lews ey [A]
Kei th Gordon [B]
TOTAL ALL DIRECTORS
Executives
Kel li e Benda [C]
Stephen Gobby
Anthony Ha ll s [D]
Chris topher Ha yma n [E]
Benny Joes oep [F]
Mi cha el Ki rkpa trick
Gra nt Stubbs
Ia n Tes trow [G]
TOTAL ALL EXECUTIVES
STI cash
Non‐
bonuses [1] monetary [2]
$
$
‐
‐
‐
‐
‐
197,625
‐
197,625
‐
114,912
‐
72,458
‐
61,673
80,669
98,487
428,199
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
16,847
8,831
‐
‐
72,100
97,778
Super‐
benefits
$
18,422
6,331
11,244
10,287
10,287
19,478
25,000
101,050
8,396
25,000
25,000
‐
‐
27,442
27,348
12,908
126,093
TOTAL
4,347,507
625,824
97,778
227,143
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
205,560
205,560
170,759
(541,227)
(370,468)
‐
‐
‐
‐
88,306
‐
‐
‐
88,306
11,237
271,729
(151,315)
37,011
‐
155,098
79,249
196,464
599,473
293,866
229,005
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
217,577
121,504
132,806
121,504
121,504
‐
‐
‐
‐
‐
65,875
‐
940,989
115,210
65,875 1,771,095
46.15
(469.77)
(9.8)
110,402
‐
983,951
‐
297,434
‐
455,550
‐
279,463
‐
588,900
‐
512,716
‐
887,488
‐
‐ 4,115,903
10.18
39.29
(50.87)
24.47
‐
36.81
31.19
33.23
24.97
65,875 5,886,998
14.52
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
[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.
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 2015
36
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2015
5.2
FY15 STI grants
The terms of the FY15 STI plan are discussed at pages 30 to 31.
Details of the vesting profile of the STI grants awarded to executives in respect of FY15 are set out below:
Table 18: FY15 executive STI vesting information
[A]
[B]
Executive
Kenneth Lewsey
Gregory Hawkins
Christopher Hayman
Stuart Jenner
Ian Testrow
Thao Vanderplancke
Maximum total
STI value [1]
$1,126,250
$381,600
$251,630
$222,600
$369,675
$110,400
Maximum STI
cash value
$637,500
$240,000
$158,258
$140,000
$232,500
$110,400
Maximum STI
equity value
$488,750
$141,600
$93,372
$82,600
$137,175
$0
STI cash
awarded
$0
$0
$0
$0
$0
$40,800
STI equity
awarded
$0
$0
$0
$0
$0
$0
% of STI
awarded
0%
0%
0%
0%
0%
42.5%
% of STI
forfeited
100%
100%
100%
100%
100%
57.5%
[1]
[A]
[B]
The minimum STI value for each KMP is zero.
Mr Grant Stubbs and Ms Kellie Benda ceased as an executive on 1 October 2014 and 19 December 2014, respectively, and did not have FY15
STI entitlements. Mr David Greig and Ms Kalien Selby had no FY15 STI entitlements as executives.
Mr Christopher Hayman’s remuneration has been converted to Australian dollars on the basis of an AUD/CAD exchange rate of 0.9606.
5.3
FY15 LTI grants
The terms of the LTI plan are discussed at pages 31 to 32.
Grants and vesting of LTI securities made to executives under the Company’s LTI plans are set out in the following table:
Table 19: LTI security grants and vesting to executives
Executive [A]
Kenneth Lewsey
David Greig
Gregory Hawkins
Christopher Hayman
Stuart Jenner
Kalien Selby
Ian Testrow
Thao Vanderplancke
Grant
date
04/11/2013
24/11/2014
02/11/2011
05/10/2012
07/10/2013
24/11/2014
24/11/2014
07/10/2013
24/11/2014
05/10/2012
07/10/2013
24/11/2014
24/11/2014
18/11/2011
19/10/2012
04/12/2013
24/11/2014
18/11/2011
05/10/2012
02/11/2012
07/10/2013
24/11/2014
Equity
instrument
Shares
Shares
Rights
Rights
Rights
Rights
Shares
Rights
Rights
Shares
Shares
Shares
Shares
Rights
Rights
Rights
Shares
Shares
Shares
Shares
Shares
Shares
Number
granted
4,553,571
4,250,000
53,117
94,694
357,432
794,012
1,600,000
986,967
844,040
64,286
252,941
746,667
260,000
189,000
451,371
1,633,151
1,550,000
17,105
53,571
5,357
199,456
640,000
Maximum
value [1]
$637,500
$637,500
$40,369
$53,029
$60,763
$119,102
$240,000
$138,175
$126,606
$36,000
$43,000
$112,000
$39,000
$143,640
$207,631
$228,641
$232,500
$13,000
$30,000
$3,000
$33,908
$96,000
% vested
in FY15
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
% forfeited
in FY15
‐
‐
100%
‐
‐
‐
‐
‐
‐
100%
‐
‐
‐
100%
‐
‐
‐
100%
‐
‐
‐
‐
Vesting
date [2]
Sep‐16
Sep‐17
Sep‐14
Sep‐15
Sep‐16
Sep‐17
Sep‐17
Sep‐16
Sep‐17
Sep‐15
Sep‐16
Sep‐17
Sep‐17
Sep‐14
Sep‐15
Sep‐16
Sep‐17
Sep‐14
Sep‐15
Sep‐15
Sep‐16
Sep‐17
Fair value per
share/right at
grant date [3]
$0.15
$0.12
$0.76
$0.56
$0.18
$0.12
$0.12
$0.15
$0.12
$0.56
$0.18
$0.12
$0.12
$0.76
$0.46
$0.15
$0.12
$0.76
$0.56
$0.56
$0.18
$0.12
Number held
at year end
4,553,571
4,250,000
0
94,694
357,432
794,012
1,600,000
986,967
844,040
0
252,941
746,667
260,000
0
451,371
1,633,151
1,550,000
0
53,571
5,357
199,456
640,000
[1]
[2]
[3]
[A]
The minimum value of each grant is zero.
For LTI securities granted in FY12, FY13, FY14 and FY15 the vesting date is the twentieth trading day after the announcement of the Company’s
annual results in 2014, 2015, 2016 and 2017 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 17) is the portion of
the fair value of the LTI securities recognised in FY15.
Ms Kellie Benda and Mr Grant Stubbs ceased employment with Emeco during FY15. Ms Benda and Mr Stubbs were not offered LTI securities
in FY15. All unvested LTI securities granted to Ms Benda in FY14 and Mr Stubbs in FY13 and FY14 were forfeited in accordance with the terms
of the respective grants. Further, in FY15 a grant of 68,684 LTI securities made to Mr Stubbs in FY12 failed to vest due to the TSR percentage
not being met.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
37
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2015
5.4 Management incentive share plan
Emeco offered shares pursuant to a management incentive share plan (MISP) between 2005 and 2008. The shares
offered under this plan were not conditional on performance but rather vested over time so as to encourage participants
to remain with Group.
Under the MISP, the Company provided each MISP participant with an interest free, limited recourse loan (loan)* to
enable them to subscribe for the MISP shares. Any dividends or capital distributions which were paid on the MISP shares
were applied by the Company in reducing the amount of the loan. The shares vested over a five year period.
Subject to the approval of the board, the loan was capable of repayment at any time but, in most instances, was to be
repaid by 1 July 2015, being the tenth anniversary of the commencement date of the MISP.* Eligible participants of the
plan at 1 July 2015 were given the option to either pay the loan amount outstanding in respect of the shares or to
extinguish the loan by forfeiting their interest in the shares. All KMP participants as at the report date (see detail below)
have elected to forfeit their MISP shares.
As detailed below, there were no share based payments to any KMP under the MISP during FY15:
Executive
Alec Brennan
Ian Testrow
Number of
shares issued
500,000
300,000
Issue price of
shares
$0.61
$1.16
Grant date
18/08/2005
12/06/2006
Amount of loan
outstanding as at
30 June 2015
$142,500
$249,000
Highest amount of
indebtedness during
FY15
$142,500
$249,000
Fair value recognised
as remuneration
during FY15
$0.00
$0.00
5.5
Emeco employee share ownership plan
Emeco’s employee share ownership plan (ESOP) is an elective plan which was open to all Australian employees in FY15.
Australian based employees were able to salary sacrifice a minimum of $500 and a maximum of $5,000 of pre‐tax salary
or wage to acquire Emeco ordinary shares on market in accordance with the terms of the ESOP.
For every five shares acquired by the employee under the ESOP, Emeco acquired one matching share on market 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.
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.
___________________________
* Excluding participants that were shareholders at the time of the loan.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
38
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Directors’ Report
For the year ended 30 June 2015
During FY15 four 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:
Executive
Stuart Jenner
Kalien Selby [A]
Ian Testrow
Thao Vanderplancke
Shares purchased
Matching shares granted
35,103
35,103
35,103
35,103
7,014
7,014
7,014
7,014
[A]
6.
Ms Kalien Selby purchased the shares as a participant of the ESOP in FY15 both prior to and after commencing as an executive.
Service contracts
Each executive is employed pursuant to contracts which provide for an indefinite term and which are terminable on
either party giving six months’ notice or on the payment to the executive of up to six 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.
Ian Testrow
Managing Director
Dated at Perth, 26 day of August 2015
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
39
ABCD
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 2015 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
26 August 2015
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 2015
Note
2015
$'000
2014
$'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 (1)
Impairment of tangible assets
Impairment of goodwill
Depreciation expense
Amortisation expense
Finance income
Finance costs
Net foreign exchange gain/(loss) (1)
Loss before tax expense
Tax benefit
Loss from continuing operations
Discontinued operations
Loss from discontinued operations (net of tax)
Loss from discontinued operations
Loss 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 income/(loss) for the year
8
7
8
8
8
8
8
8
8
8
10
14
206,718
2,788
31,925
241,431
(11,780)
(99,216)
(43,608)
(22,411)
64,416
512
(32,072)
(30,836)
‐
(98,720)
(84)
2,781
(52,260)
(16,332)
(162,595)
39,464
(123,131)
(4,572)
(4,572)
(127,703)
205,368
8,145
27,582
241,095
(14,443)
(84,727)
(42,931)
(13,142)
85,852
1,084
(20,873)
(43,656)
(157,887)
(77,996)
(132)
6,081
(48,632)
4,781
(251,378)
27,206
(224,172)
(51,137)
(51,137)
(275,309)
28,871
(4,306)
24,565
(5,308)
(4,853)
(10,161)
Total comprehensive income/(loss) for the year
(103,138)
(285,470)
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 46 to 122.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
41
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Consolidated Statement of Profit or Loss and Other Comprehensive Income (continued)
For the year ended 30 June 2015
Loss attributable to:
Owners of the Company
Loss for the year
Total comprehensive loss attributable to:
Owners of the Company
Total comprehensive loss for the year
Earnings per share:
Basic earnings per share
Diluted earning per share
Earnings per share from continuing operations
Basic earnings per share
Diluted earnings per share
2015
$'000
2014
$'000
35
35
(127,703)
(127,703)
(275,309)
(275,309)
(103,138)
(103,138)
(285,470)
(285,470)
Note
2015
Cents
2014
Cents
35
35
35
35
(22.90)
(22.90)
(22.08)
(22.08)
(48.94)
(48.94)
(48.94)
(48.94)
(1) Comparatives have been reclassified. Refer to note 8.
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 46 to 122.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
42
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Consolidated Statement of Financial Position
as at 30 June 2015
Note
2015
$'000
2014
$'000
Current Assets
Cash assets
Trade and other receivables
Derivative financial instruments
Inventories
Prepayments
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
Deferred tax assets
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
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
17
18
19
20
15
18
19
21
22
12
23
19
24
26
19
24
12
26
13
27,800
60,272
12,761
20,931
2,134
32,328
156,226
5,375
38,282
1,641
482,351
24,880
552,529
708,755
45,363
‐
5,484
3,652
54,499
1,663
418,487
10,884
1,751
432,785
487,284
221,471
41,830
78,154
5
8,161
3,066
39,922
171,138
772
2,749
175
573,528
‐
577,224
748,362
53,095
2,546
4,316
2,694
62,651
10,187
339,458
11,025
1,069
361,739
424,390
323,972
593,616
2,590
(374,735)
221,471
593,616
(22,612)
(247,032)
323,972
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 46 to 122.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
43
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Consolidated Statement of Changes in Equity
For the year ended 30 June 2015
Share
based
payment
reserve
$'000
Foreign
currency
translation
reserve
$'000
Hedging
reserve
$'000
Share
capital
$'000
Reserve
for own Accumulated
shares
$'000
losses
$'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 for the period
Profit or (loss)
Other comprehensive income
Foreign currency translation differences
Effective portion of changes in fair value of cash
flow hedge, net of tax
Total comprehensive income/(loss) for the period
Transactions with owners, recorded directly in
Contributions by and distributions to owners
Own shares acquired by employee share plan trust
Share‐based payment transactions
Total contributions by and distributions to owners
Balance at 30 June 2014
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
(124)
(5,184)
(4,853)
(4,977)
‐
(5,184)
‐
‐
‐
‐
(275,309)
(275,309)
‐
(5,308)
‐
(275,309)
(4,853)
(285,470)
‐
‐
‐
593,616
‐
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
Share
based
payment
reserve
$'000
Foreign
currency
translation
reserve
$'000
Hedging
reserve
$'000
Share
capital
$'000
Reserve
for own Accumulated
shares
$'000
losses
$'000
Total
equity
$'000
Balance at 1 July 2014
593,616
14,598
(7,321)
(9,267)
(20,622)
(247,032)
323,972
Total comprehensive income for the period
Profit or (loss)
Other comprehensive income
Foreign currency translation differences
Effective portion of changes in fair value of cash
flow hedge, net of tax
Total comprehensive income/(loss) for the period
Transactions with owners, recorded directly in
Contributions by and distributions to owners
Own shares acquired by employee share plan trust
Share‐based payment transactions
Total contributions by and distributions to owners
Balance at 30 June 2015
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
3,408
25,463
(4,306)
(898)
‐
25,463
‐
‐
‐
‐
(127,703)
(127,703)
‐
28,871
‐
(127,703)
(4,306)
(103,138)
‐
‐
‐
593,616
‐
649
649
15,247
‐
‐
‐
(8,219)
‐
‐
‐
16,196
(12)
‐
(12)
(20,634)
‐
‐
‐
(374,735)
(12)
649
637
221,471
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 46 to 122.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
44
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Consolidated Statement of Cash Flows
For the year ended 30 June 2015
30 June
2015
$'000
30 June
2014
$'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 received/(paid)
Net cash inflow (outflow) from operating activities of discontinued operations
Net cash from/(used in) operating activities
30
Cash flows from investing activities
Proceeds on disposal of non‐current assets
Payment for property, plant and equipment
Net cash inflow from investing activities of discontinued operations
Net cash from/(used in) investing activities
Cash flows from financing activities
Proceeds from syndicated debt borrowings
Net proceeds from asset backed loan
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
Net cash outflow from financing activities of discontinued operations
Net cash from/(used in) financing activities
Net increase/(decrease) in cash
Cash at beginning of the period
Effects of exchange rate fluctuations on cash held
Cash at the end of the financial period
237,151
245,567
(194,510)
(144,105)
42,641
101,462
240
5,761
(42,974)
(37,583)
‐
(2,801)
(2,894)
10,227
2,205
82,072
14,005
(37,824)
10,806
(13,013)
30,265
(44,186)
38,953
25,032
‐
‐
‐
‐
‐
‐
(12)
(2,576)
(4,145)
‐
(6,733)
(22,640)
41,830
8,610
27,800
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
The consolidated statement of cash flows is to be read in conjunction with the notes to the financial statements set out
on pages 46 to 122.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
45
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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 2015 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 financial 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 26 August 2015.
(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:
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.
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 2015
46
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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 2015
47
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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.
Certain comparative amounts in the consolidated statement of profit or loss and other comprehensive income have
been reclassified to conform with the current year’s 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 translated 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 2015
48
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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 2015
49
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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 2015
50
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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 2015
51
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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 reassessments 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 on a units of production method 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. All plant and equipment is depreciated to a
minimum of 100 machine hours per month (2014: depreciation on equipment that is idle for more than three
months is depreciated to a minimum of 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)
Research and Development
Expenditure on research activities is recognised in profit and loss as incurred. Development expenditure is
capitalised only if the expenditure can be measured reliably, the product or process is technically and
commercially feasible, future economic benefits are probable and the Group intends to and has sufficient
resources to complete development and to use or sell the asset. Otherwise, it is recognised in profit and loss
as incurred. Subsequent to initial recognition, development expenditure is measured at costs less
accumulated amortisation and any accumulated impairment losses.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
52
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
3 Significant accounting policies (continued)
Intangible assets and goodwill (continued)
(e)
(iii) 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.
(iv) 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:
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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
53
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
3 Significant accounting policies (continued)
(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.
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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
54
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
3 Significant accounting policies (continued)
Impairment (continued)
(h)
(ii) Non‐financial assets (continued)
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.
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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
55
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
3 Significant accounting policies (continued)
Employee benefits (continued)
(j)
(iv) Short term benefits
Short term employee benefit obligations are measured on an undiscounted basis and are expensed as the
related service is provided. A liability is recognised for the amount expected to be paid under short term cash
bonus or profit sharing plans if the Group has a present legal or constructive obligation to pay this amount
as a result of past service provided by the employee and the obligation can be estimated reliably.
(v)
Share based payment transactions
(a)
A management incentive share plan (MISP) allows certain consolidated entity employees to acquire
shares of the Company. Employees have been granted a limited recourse 10 year interest free loan in
which to acquire the shares. The loan has not been recognised as the Company only has recourse to
the value of the shares. The arrangement is accounted for as an in‐substance option over ordinary
shares. The grant date fair value of the shares granted to employees is recognised as an employee
expense with a corresponding increase in equity, over the period during which the employees become
unconditionally entitled to the shares. The fair value of the MISP granted is measured using a Black
Scholes pricing model, taking into account the terms and conditions upon which the in‐substance
options were granted. The amount recognised as an expense is adjusted to reflect the actual number
of shares that vest except where forfeiture is only due to shares prices not achieving the threshold for
vesting.
(b)
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 three 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 123 Companies (this number
may change as a result of takeovers, mergers etc) and includes 16 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.
(c)
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 2015
56
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
3 Significant accounting policies (continued)
(j)
(v)
(k)
(i)
(l)
(i)
(ii)
Employee benefits (continued)
Share based payment transactions (continued)
(d)
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.
(e)
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.
Restructure provision
A provision for restructuring is recognised when the Group has approved a detailed and formal
restructuring plan, and the restructuring either has commenced or has been announced publicly. Future
operating costs are not provided for.
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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
57
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
3 Significant accounting policies (continued)
Revenue (continued)
(l)
(iii) Maintenance services
Revenue from services rendered is recognised in profit or loss in proportion to the stage of completion of
the transaction at the reporting date.
(m) 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 foreign currency gain or loss on financial assets and liabilities;
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.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
58
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
3 Significant accounting policies (continued)
(o)
Income tax (continued)
(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.
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; or
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 resale.
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 2015
59
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
4 New standards and interpretations not yet adopted
Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet
mandatory, have not been early adopted by the Group for the annual reporting period ended 30 June 2015. The
Group has not yet assessed the impact of these new or amended Accounting Standards and Interpretations.
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 2015
60
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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 2015
61
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
6 Financial instruments
Overview
The Group has exposure to the following risks from their use of financial instruments:
credit risk;
liquidity risk; and
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 management 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
2015
$'000
2014
$'000
54,147
17,374
27,800
51,043
150,364
49,298
34,819
41,830
2,754
128,701
Note
18
18
17
19
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
62
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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 $700,000,000 (2014:
$750,000,000). The Australian and Chilean businesses held insurance for the entire financial year ended 30 June
2015. 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 2015 the Group’s doubtful debts provision for continuing and discontinued operations was $5,874,000
(2014: $5,191,000). As at 30 June 2015 the Group recognised bad debt write offs for continuing and discontinued
operations for a total amount of $4,089,000 (2014: $14,116,000) of which $3,749,000 related to one customer in
Chile, $151,000 related to one customer in Indonesia and $189,000 related to Canada.
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’s maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:
Consolidated
Consolidated
Gross
2015
$'000
Impairment
provision
2015
$'000
Gross
2014
$'000
Impairment
provision
2014
$'000
25,002
8,233
9,762
11,150
54,147
‐
(5,376)
(172)
(326)
(5,874)
18,455
8,017
18,300
4,526
49,298
(486)
(4,385)
(320)
‐
(5,191)
Australia
Asia
North America
South America
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
63
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
6
Financial instruments (continued)
Credit risk (continued)
Trade and other receivables (continued)
The Group’s maximum exposure to credit risk for trade receivables at the reporting date by type of customer was:
Insured
Blue chip (including subsidiaries)
Other security
Uninsured
The aging of the Group’s trade receivables at the reporting date was:
Consolidated
Carrying amount
2015
$'000
2014
$'000
21,292
12,987
9,884
9,984
54,147
20,737
16,680
314
11,567
49,298
Not past due
Past due 0‐30 days
Past due 31‐60 days
Past due 61 days
Consolidated
Consolidated
Gross
2015
$'000
Impairment
2015
$'000
Gross
2014
$'000
Impairment
2014
$'000
38,565
2,292
3,329
9,961
54,147
‐
‐
‐
(5,874)
(5,874)
11,845
15,406
4,036
18,011
49,298
(280)
(206)
‐
(4,705)
(5,191)
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
2015
$'000
2014
$'000
5,191
(4,089)
4,772
5,874
16,770
(3,064)
(8,515)
5,191
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
64
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
6 Financial instruments (continued)
Credit risk (continued)
Derivatives
The Group also held derivative assets in relation to cross currency interest rate swaps and forward exchange rate
swaps to the total value of $51,043,000 (2014: $2,754,000) at 30 June 2015, 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‐.
Cash
The Group held cash and cash equivalents of $27,800,000 at 30 June 2015 (2014: $41,830,000), 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‐.
Collateral
Collateral is held for customers that are assessed to be a higher risk. At 30 June 2015 the Group held $9,884,000
of bank guarantees (2014: $Nil) and $Nil of prepayments (2014: $Nil).
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 2015 $10,491,000
guarantees were outstanding (2014: $866,013).
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 2015
65
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
6 Financial instruments (continued)
Liquidity risk (continued)
On 17 March 2014, the Group extinguished its 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 15 March 2019. The nominal interest rate is 9.875%. These notes will remain fully drawn until maturity.
During the period, the Group extinguished its A$50,000,000 revolving credit facility (multicurrency) comprising of
Tranche A1: 3 year A$40,000,000 trance and Tranche A2: 3 year A$10,000,000 tranche. Associated debt raising
costs were expensed on the loan extinguishment. At the time of the extinguishment, the facility remained undrawn.
On 31 December 2014, the revolving credit facility was replaced with an A$75,000,000 asset backed loan. The
facility matures in December 2017 and will be available for general corporate purposes. When utilised, the nominal
interest rate is equal to the aggregate of the margin of 1.75% per annum and bank bill swap rate (BBSY). The asset
backed loan has no maintenance covenants unless the facility is more than 50% utilised, at which stage it requires
Emeco to have an interest cover ratio of 1.25 times and gearing of less than 65%. At 30 June 2015 the loan was
undrawn but had utilised A$9,626,000 in bank guarantees.
In December 2014, the Group entered into a facility agreement comprising a credit card facility with a limit of
A$750,000 and bank guarantee where the aggregate face value shall not exceed A$866,013. The facility matures in
December 2015 and will be available for general corporate purposes. The facility is secured via a cash cover account.
The bank guarantee is subject to a fee of 3% per annum on the face value of the bank guarantee. At 30 June 2015
the facility was utilised at A$866,013.
The Group has finance lease facilities totalling A$4,915,000 (2014: A$8,770,000) which matures on 15 August 2015.
Subsequent to the year end, the Group refinanced this facility extending the maturity until 15 February 2017.
The Group has financed its insurance payments with A$569,000 remaining at year end which matures in October
2015.
The following are the contractual maturities of financial liabilities, including estimated interest payments and
excluding the impact of netting agreements.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
66
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
6 Financial instruments (continued)
Liquidity risk (continued)
Consolidated
30 June 2015
Non‐derivative financial
liabilities
Secured notes issue
Finance lease liabilities
Insurance financing
Trade and other payables
Derivative financial
liabilities
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
418,487
4,915
569
15,805
439,776
608,494
4,972
569
15,805
629,840
21,537
4,972
569
15,805
42,883
21,537
‐
‐
‐
21,537
43,074
‐
‐
‐
43,074
522,346
‐
‐
‐
522,346
49,380
43,127
329
409
607
41,781
‐
‐
49,380
‐
‐
43,127
‐
‐
329
‐
‐
409
‐
‐
607
‐
‐
41,781
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.
Consolidated
30 June 2014
Non‐derivative financial
liabilities
Secured notes issue
Finance lease liabilities
Insurance financing
Trade and other payables
Derivative financial
liabilities
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
353,306
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
‐
‐
‐
‐
‐
‐
‐
‐
‐
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 2015
67
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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).
When possible, 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. If available, the Group uses forward exchange contracts to hedge this currency risk. Most of the
forward exchange contracts have maturities of less than six months.
In respect of other monetary assets and liabilities held in currencies other than the AUD, the Group aims to keep
the net exposure to an acceptable level by matching foreign denominated financial assets with matching financial
liabilities and vice versa.
Interest on borrowings from the debt facility is generally denominated in currencies that match the cash flows
generated by the underlying operations of the Group, primarily AUD, 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 has been applied to these instruments. When
possible, the Group aims to offset the remainder of the USD foreign exchange exposure through the use of financial
assets denominated in the same currency providing an economic hedge without derivatives being entered into.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
68
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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 2015
30 June 2014
USD
$'000
CAD
$'000
USD
$'000
CAD
$'000
Cash
Secured notes issued (1)
Gross balance sheet exposure
802
(287,342)
(286,540)
2,893
(17,916)
(15,023)
4,597
(271,969)
(267,372)
5,146
‐
5,146
Cross currency interest rate swap to hedge the
secured notes issued
Forward exchange contracts (2)
210,000
‐
210,000
‐
‐
‐
210,000
4,000
214,000
‐
‐
‐
Net exposure
(76,540)
(15,023)
(53,372)
5,146
(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:
Average rate
Reporting date spot rate
2015
2014
2015
2014
0.9606
0.8131
0.6878
10,426
95.56
485.16
0.5309
0.9819
0.9187
0.6776
10,496
97.45
488.28
0.5699
0.9517
0.7680
0.6866
10,228
93.92
489.33
0.4885
1.0043
0.9415
0.6901
11,302
95.50
519.39
0.5527
CAD
USD
EURO
IDR
YEN
CLP
GBP
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
69
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
6 Financial instruments (continued)
Market risk (continued)
Sensitivity analysis
A weakening of the Australian dollar, as indicated below, against the following currencies at 30 June 2015 would
have affected the measurement of
foreign currency and
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 2014, as indicated below:
instruments denominated
financial
in a
30 June 2015
USD (10 percent movement)
CAD (10 percent movement)
30 June 2014
USD (10 percent movement)
CAD (10 percent movement)
Consolidated
Strengthening
Equity
$'000
Profit or loss
$'000
Weakening
Equity
$'000
Profit or loss
$'000
(2,261)
(2,272)
14,032
1,732
2,763
2,777
(17,150)
(2,117)
(1,591)
(2,552)
6,510
(78)
1,944
3,119
(7,949)
480
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 two 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 2015
70
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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
Effective interest rate swaps to hedge interest rate risk
Australian dollars 144A
Canadian dollars 144A
Fixed rate instruments:
Interest bearing liabilities (notes)
Interest bearing finance leases
Insurance financing
Consolidated
2015
$'000
2014
$'000
Note
17
27,800
41,830
32,062
17,318
77,180
(436,198)
(4,915)
(569)
(441,682)
(7,282)
(2,702)
31,846
(358,144)
(8,770)
(461)
(367,375)
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 2015
71
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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 2015
Fixed rate instruments (144A notes)
Interest rate swap
Cash flow sensitivity (net)
30 June 2014
Fixed rate instruments (144A notes)
Interest rate swap
Cash flow sensitivity (net)
Profit or loss
Equity
100bp
increase
$'000
100bp
decrease
$'000
100bp
increase
$'000
100bp
decrease
$'000
7,734
(7,734)
‐
(8,170)
8,170
‐
6,989
(6,989)
‐
(8,143)
8,143
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
72
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
6 Financial instruments (continued)
Market risk (continued)
Detailed below is the profit and loss impact of fair value hedges during the year.
Financial instrument
Fixed to floating
‐ Swap
Cross currency interest rate swap
‐ Swap
‐ Hedged item (debt)
Net profit and loss impact before tax
Profit or loss
2015
$'000
2014
$'000
‐
5,536
(781)
(1,762)
2,749
(2,327)
(2,543)
5,958
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 2014.
Cash flow hedges
30 June 2015
Variable rate instruments
Interest rate swap
Cash flow sensitivity (net)
30 June 2014
Variable rate instruments
Interest rate swap
Cash flow sensitivity (net)
Profit or loss
100bp
increase
$'000
100bp
decrease
$'000
Equity
100bp
increase
$'000
100bp
decrease
$'000
118
‐
118
‐
68
68
(118)
‐
(118)
(68)
‐
(68)
‐
‐
63
63
90
90
‐
(119)
(119)
‐
2
2
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
73
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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
2015
2014
0.1%
0.1%
‐
7.2%
9.9%
‐
‐
‐
‐
‐
2.8%
2.8%
‐
7.2%
9.9%
0.2%
0.2%
4.6%
7.2%
9.9%
‐
‐
‐
‐
‐
2.8%
2.9%
5.3%
7.2%
9.9%
Fair values versus carrying amounts
The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet,
are as follows:
30 June
2015
Carrying
amount
Note
$'000
Fair
value
$'000
30 June
2014
Carrying
amount
$'000
Fair
value
$'000
Assets carried at fair value
Interest rate swaps used for hedging
19
51,043
51,043
Forward exchange contracts used for hedging
‐
‐
51,043
51,043
‐
5
5
‐
5
5
Assets carried at amortised cost
Receivables
Cash and cash equivalents
Liabilities carried at fair value
Interest rate swaps 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
18
17
19
24
24
24
24
24
23
60,272
27,800
88,072
60,272
27,800
88,072
78,154
41,830
78,154
41,830
119,984
119,984
(1,663)
(1,663)
(1,663)
(1,663)
(9,984)
(9,984)
(9,984)
(9,984)
1,598
‐
‐
‐
(211,390)
(217,318)
(169,183)
(177,270)
(208,695)
(218,880)
(165,360)
(178,547)
(569)
(569)
(461)
(461)
(4,915)
(4,972)
(8,770)
(9,334)
(45,363)
(45,363)
(53,095)
(53,095)
(469,334)
(487,102)
(396,869)
(418,707)
(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 2015
74
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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
2015
$'000
2014
$'000
320
192
512
731
353
1,084
(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 2015 was
$14,005,000 (2014: $30,265,000).
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 2015
75
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
8
Profit before income tax expense for continuing operations
Loss 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:
‐ inventory
‐ property, plant and equipment held for sale
Employee expenses:
‐ superannuation
Other expenses:
‐ bad debts
‐ doubtful debts/(reversal)
‐ insurance
‐ motor vehicles
‐ rental expense
‐ safety expenses
‐ travel and subsistence expense
‐ telecommunications
‐ workshop consumables, tooling and labour
‐ Restructuring
‐ other expenses (1)
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
2015
$'000
2014
$'000
11,780
14,443
6,896
23,940
30,836
6,148
37,508
43,656
2,983
2,849
3,938
(328)
3,157
3,664
4,506
1,296
6,621
1,647
1,562
1,948
4,061
32,072
656
92,966
1,657
172
337
1,228
397
1,307
3,064
(2,467)
2,916
3,356
4,152
1,238
3,746
1,796
1,665
‐
1,407
20,873
592
73,156
525
221
430
1,428
521
1,123
21
21
98,720
77,996
84
132
‐
84
98,804
157,886
158,018
236,014
(1) Comparatives have been restated to exclude net foreign exchange (gain)/losses.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
76
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
8
Profit before income tax expense for continuing operations (continued)
Finance costs:
‐ interest expense
‐ makewhole payment (1)
‐ witholding tax expense
‐ amortisation of debt establishment costs using effective interest rate
‐ write off previous facility costs
‐ other facility costs
Net financial costs
Finance income:
‐ interest income
‐ hedge gains
Net financial income
Foreign exchange (gain)/loss:
Net realised foreign exchange (gain)/loss (2)
Net unrealised foreign exchange (gain)/loss (2)
Net foreign exchange (gain)/loss
(1) Make whole payment related to the repayment of the USPP notes.
(2) Comparatives have been restated to include net foreign exchange (gain)/losses.
Consolidated
2015
$'000
2014
$'000
43,877
‐
2,189
3,914
1,814
466
24,206
16,063
1,960
1,918
2,993
1,492
52,260
48,632
(238)
(2,543)
(2,781)
(334)
16,666
16,332
(123)
(5,958)
(6,081)
(210)
(4,571)
(4,781)
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
77
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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
2015
$
2014
$
482,070
‐
149,622
4,804
636,496
382,782
320,000
173,118
36,872
912,772
529,917
337,641
74,792
604,709
279,639
617,280
1,241,205
1,530,052
(1) Other assurance services primarily relate to the issue of secured fixed noted in the 144A high yield bond
market in FY14.
(2) Taxation and other services primarily relate to corporate development activities.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
78
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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
Increase in tax rate
Tax expense/(benefit)
Tax expense/(benefit) 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
2015
$'000
2014
$'000
Note
12
14
(62,248)
4
(62,244)
25,727
(2,947)
22,780
(39,464)
(39,464)
(315)
(39,779)
(67,325)
35
(67,290)
36,383
‐
36,383
(30,907)
(27,206)
(3,701)
(30,907)
Consolidated
2015
$'000
2014
$'000
(395)
(395)
(723)
(723)
Consolidated
2015
Tax
Consolidated
2014
Tax
Before
tax
$'000
(expense) Net of
benefit
$'000
tax
$'000
Before
tax
$'000
(expense) Net of
benefit
$'000
tax
$'000
Foreign currency translation differences for
foreign operations
Cash flow hedges
28,871
(6,151)
22,720
‐
1,845
1,845
28,871
(4,306)
24,565
(5,308)
(6,932)
(12,240)
‐
2,079
2,079
(5,308)
(4,853)
(10,161)
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
79
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
10 Taxes (continued)
c. Numerical reconciliation between tax expense and pre‐tax net profit/(loss)
Prima facie tax expense/(benefit) 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
Increase in tax rate
Blackhole expense addback
Goodwill impairment
Tangible asset impairment
Sundry
Derecognition of previously recognised tax losses
Under/(over) provided in prior years
Tax benefit
Consolidated
2015
$'000
2014
$'000
(48,780)
(75,414)
1,373
(4,725)
150
(2,947)
587
‐
169
314
9,666
4
(39,464)
1,494
‐
‐
47,366
166
170
‐
36
(30,907)
11 Current tax assets and liabilities
The current tax asset for the Group of $Nil (2014: $Nil) represents income taxes recoverable in respect of prior
periods and that arise from payment of taxes in excess of the amount due to the relevant tax authority.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
80
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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
Receivables
Accrued revenue
Inventories
Payables
Derivatives ‐ hedge payable
Derivatives ‐ hedge receivable
Interest bearing loans and borrowings
Employee benefits
Unearned revenue
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
Property, plant and equipment
Receivables
Inventories
Payables
Derivatives ‐ hedge payable
Derivatives ‐ hedge receivable
Interest bearing loans and borrowings
Employee benefits
Equity ‐ capital raising costs
Unearned revenue
Provisions
Tax losses carried forward
Assets
2015
$'000
2014
$'000
Liabilities
2015
$'000
2014
$'000
Net
2015
$'000
2014
$'000
(49)
(121)
‐
(578)
(1,063)
(459)
‐
(21,166)
(857)
(188)
(477)
(548)
(74,580)
(100,085)
75,205
(24,880)
(52)
(2,353)
‐
(1)
(1,918)
(3,085)
‐
(417)
(1,028)
‐
(20)
‐
(49,325)
(58,199)
‐
(58,199)
65,665
5,092
12
458
‐
‐
14,203
201
‐
‐
‐
‐
459
86,088
(75,205)
10,884
61,843
47
24
621
2,043
1
7
3,615
1,023
‐
‐
‐
‐
69,224
‐
69,224
65,615
4,971
12
(120)
(1,062)
(459)
14,203
(20,965)
(857)
(188)
(477)
(548)
(74,121)
(13,996)
‐
(13,996)
61,790
(2,306)
24
620
125
(3,083)
7
3,198
(5)
‐
(20)
‐
(49,325)
11,025
‐
11,025
Consolidated
Balance
1 July 14
$'000
Recognised
in profit
or loss
$'000
Recognised
directly
in equity
$'000
Recognised
in other
comprehensive
income
$'000
Balance
30 June 15
$'000
61,790
(2,282)
620
125
(3,083)
7
3,198
(5)
(20)
‐
‐
(49,325)
11,025
3,825
7,265
(740)
(1,187)
2,624
16,041
(24,163)
(852)
(62)
(188)
(548)
(24,796)
(22,780)
‐
‐
‐
‐
‐
‐
‐
‐
(395)
‐
‐
‐
(395)
‐
‐
‐
‐
‐
(1,845)
‐
‐
‐
‐
‐
‐
(1,845)
65,615
4,983
(120)
(1,062)
(459)
14,203
(20,965)
(857)
(477)
(188)
(548)
(74,121)
(13,996)
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
81
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
12 Deferred tax assets and liabilities (continued)
Movement in deferred tax balances
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
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)
61,790
‐
(2,282)
620
125
(3,083)
7
3,198
(5)
(20)
‐
(49,325)
11,025
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
Unrecognised deferred tax assets
The following deferred tax assets have not been
brought to account as assets:
Tax losses
Consolidated
2015
$'000
2014
$'000
35,511
21,109
Unutilised tax losses are in Chile, Indonesia, the United Kingdom, United States and Europe.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
82
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
13 Capital and reserves
Share capital
599,675,707 (2014: 599,675,707 ) ordinary shares, fully paid
Acquisition reserve
Consolidated
2015
$'000
2014
$'000
669,503
(75,887)
593,616
669,503
(75,887)
593,616
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 (1)
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. During the year, 637,365 treasury shares were purchased on
market at an average price of $0.14. As at 30 June 2015 the Company held 30,581,304 treasury shares (2014:
27,773,441) in satisfaction of the employee share plans.
Foreign Currency Translation Reserve (1)
The translation reserve comprises all foreign currency differences arising from the translation of the financial
statements of foreign operations.
Hedging reserve (1)
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 (1)
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)).
Dividends (1)
No dividends were paid or declared during the year (2014: $Nil) or prior to the release of this report.
________________________
(1) Refer to Consolidated Statement of Changes in Equity.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
83
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
13 Capital and reserves (continued)
Franking account
The Company
2015
$'000
2014
$'000
Dividend franking account
30% franking credits available to shareholders of
Emeco Holdings Limited for subsequent financial years
18,861
18,861
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 (2014: $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 (2014: $18,861,000) franking credits.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
84
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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 on sale of assets
Impairment of tangible assets
‐ Inventories
‐ Property, plant and equipment
Other expenses
Employee expenses
Depreciation
Finance income
Finance costs
Income tax (expense)/benefit
Loss for the year
2015
$'000
2014
$'000
921
‐
(93)
374
(61)
(603)
(4,822)
(401)
‐
‐
(202)
315
(4,572)
4,284
1
(2,794)
213
(1,580)
(41,052)
(5,032)
(2,389)
(5,524)
3
(968)
3,701
(51,137)
The loss from discontinued operation of $4,572,000 (2014: loss $51,137,000) 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
2015
$'000
2014
$'000
(2,801)
10,806
‐
8,005
2,205
38,953
(31,290)
9,868
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
85
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
15 Disposal groups and non‐current assets held for sale
During the year $26,451,000 of non‐current assets were transferred from property, plant and equipment into non‐
current assets held for sale. Assets previously classified as held for sale were further impaired by $5,923,000 to
their fair value less cost to sell based on market prices of similar equipment.
As at 30 June 2015, the non‐current assets held for sale comprised assets of $32,328,000 (2014: $39,922,000).
These relate to plant and equipment from Indonesia (included in note 14), Canada, Chile 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
2015
$'000
2014
$'000
31,783
545
‐
32,328
31,564
8,354
4
39,922
16 Segment reporting
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 2015
86
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
16 Segment reporting (continued)
Information about reportable segments 2015
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 inventory
Reportable segment assets
Capital expenditure
Reportable segment liabilities
Australia
$'000
Indonesia
(discont'd)
$'000
Canada
Chile
Other
Total
$'000
$'000
$'000
$'000
136,950
2,949
(61,674)
921
8,456
‐
76,276
873
(24,494)
28,205
‐
(12,552)
(66,019)
(4,685)
(23,175)
(22,826)
(486)
‐
(159)
317
(19,377)
(603)
(4,045)
(518)
(3,092)
355,642
(29,389)
(30,959)
(61)
4,118
‐
(473)
(1,768)
164,942
(4,978)
(22,064)
(2,036)
156,253
(3,457)
(9,737)
‐
‐
‐
‐
‐
‐
‐
‐
‐
(80)
242,352
12,278
(98,720)
(116,705)
(328)
(24,543)
(6,957)
680,955
(37,824)
(63,313)
Information about reportable segments 2014
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 inventory
Impairment of intangible assets
Reportable segment assets
Capital expenditure
Reportable segment liabilities
Australia
$'000
Indonesia
(discont'd)
$'000
Canada
Chile
Other
Total
$'000
$'000
$'000
$'000
134,539
6,739
(48,870)
4,284
11,332
(5,524)
81,451
15,009
(19,460)
25,105
‐
(9,666)
‐
238
‐
245,379
33,318
(83,520)
(44,818)
(53,873)
(1,420)
3,117
(641)
(97,635)
(486)
(4,385)
(320)
‐
‐
(5,191)
(34,445)
(4,948)
(151,744)
338,197
(24,936)
(39,274)
(41,052)
(1,580)
‐
34,836
(1,589)
(13,141)
(2,051)
(1,200)
(6,143)
190,071
(13,601)
(19,130)
(1,012)
‐
‐
143,040
(5,649)
(8,683)
‐
‐
‐
388
‐
(388)
(78,560)
(7,728)
(157,887)
706,532
(45,775)
(80,616)
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
87
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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 before income tax from continuing operations
Assets
Total assets for reportable segments
Unallocated assets
Consolidated total assets
Liabilities
Total liabilities for reportable segments
Unallocated liabilities
Consolidated total liabilities
Other material items 2015
Capital expenditure
Depreciation
Other material items 2014
Capital expenditure
Depreciation
2015
$'000
2014
$'000
254,630
(12,278)
(921)
241,431
278,697
(33,318)
(4,284)
241,095
(116,705)
4,685
(97,635)
53,873
(1,096)
(49,479)
(162,595)
(165,065)
(42,551)
(251,378)
680,955
27,800
708,755
706,532
41,830
748,362
63,313
423,971
487,284
80,616
343,774
424,390
Reportable
segment
totals
$'000
Discontinued
operations
$'000
Consolidated
Total
$'000
(37,824)
(98,720)
‐
‐
(37,824)
(98,720)
(44,186)
(77,996)
(1,589)
(5,524)
(45,775)
(83,520)
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
88
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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 2015 the Group had three major customers that represented $76,484,000 (2014: two
customers representing $57,263,000) of the Group’s total revenues, as indicated below:
Segment
Australia
Canada
Chile
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
2015
$'000
2014
$'000
18,808
36,298
21,378
76,484
26,059
31,204
‐
57,263
Consolidated
2015
$'000
2014
$'000
27,800
41,830
Consolidated
2015
$'000
2014
$'000
54,147
(5,874)
48,273
5,845
6,154
60,272
5,375
5,375
49,298
(5,191)
44,107
23,415
10,632
78,154
772
772
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 2015
89
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
19
Derivatives
Current Assets
Forward exchange contract
Cross currency interest rate swaps
Non Current Assets
Cross currency interest rate swaps
Current Liabilities
Cross currency interest rate swaps
Non Current Liabilities
Cross currency interest rate swaps
20
Inventories
Work in progress ‐ at cost
Consumables, spare parts ‐ at cost
Total at cost
Equipment and parts ‐ at NRV (1)
Total inventory
Consolidated
2015
$'000
2014
$'000
‐
12,761
12,761
38,282
38,282
‐
‐
‐
5
5
2,749
2,749
(2,546)
(2,546)
(1,663)
(1,663)
(10,187)
(10,187)
Consolidated
2015
$'000
2014
$'000
7,090
2,807
9,897
11,034
20,931
5,758
1,177
6,935
1,226
8,161
(1) Included in this balance are amounts of $18,049,000 that have been reclassified from property, plant and
equipment during FY15. During the year ended 30 June 2015 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 $6,957,000 (2014: $7,728,000).
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
90
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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
2015
$'000
2014
$'000
‐
‐
‐
‐
712
(712)
‐
2,785
(1,144)
1,641
157,800
(157,887)
87
‐
712
(712)
‐
1,329
(1,154)
175
Total intangible assets
1,641
175
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
2015
$'000
2014
$'000
84
‐
84
132
157,887
158,019
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
91
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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.
Impairment loss (2014)
In the year ended 30 June 2014, specifically the interim period ended 31 December 2013, impairment testing
indicated the Australian and Canadian Rental CGU’s were impaired. The Group recognised a total goodwill
impairment charge of $157,887,000 (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.
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.
The Group has determined the recoverable amount of its cash generating units (CGU) using a value in use
methodology 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. 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 valuations range
between 7.6% and 12.0%. For future cashflows of each CGU, revenue growth to the remainder of FY15 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%. The
negative CAGR of 14.6% in FY14 related to the Indonesian CGU due to the segment being designated as a
discontinued operation.
Refer to note 22 for information on the impairment testing methodology adopted by the Company at 30 June
2015.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
92
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
22 Property, plant and equipment
Freehold land and buildings ‐ at cost
Less: Accumulated depreciation
Leasehold improvements ‐ at cost
Less: Accumulated depreciation
Plant and equipment ‐ at cost
Less : Accumulated depreciation
Leased plant and equipment ‐ at capitalised cost
Less : Accumulated depreciation
Furniture, fixtures and fittings ‐ at cost
Less : Accumulated depreciation
Office equipment ‐ at cost
Less : Accumulated depreciation
Motor vehicles ‐ at cost
Less : Accumulated depreciation
Sundry plant ‐ at cost
Less : Accumulated depreciation
Consolidated
2015
$'000
2014
$'000
10,029
(3,416)
6,613
4,966
(3,604)
1,362
8,750
(2,678)
6,072
5,162
(3,270)
1,892
928,761
1,012,773
(470,181)
(466,558)
458,580
546,215
21,228
(11,476)
9,752
883
(728)
155
2,546
(2,138)
408
8,451
(6,430)
2,021
11,458
(7,998)
3,460
21,228
(9,819)
11,409
1,132
(695)
437
2,330
(1,793)
537
8,556
(5,416)
3,140
11,035
(7,209)
3,826
Total property, plant and equipment ‐ at net book value
482,351
573,528
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
93
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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
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
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
Net movement in rental inventory (1)
Disposals
Depreciation
Impairment loss on continuing and discontinuing operations
Movement from/(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
Movement from/(to) assets held for sale
Effects of movement in foreign exchange
Carrying amount at the end of the year
Consolidated
2015
$'000
2014
$'000
6,072
1,685
(656)
(803)
315
‐
6,613
1,892
79
(234)
(397)
22
1,362
546,215
28,992
5,257
(21,007)
(6,210)
(92,966)
(24,543)
(12,926)
35,768
458,580
437
6
(136)
(172)
‐
20
155
9,585
315
(701)
‐
(315)
(2,812)
6,072
2,202
219
‐
(521)
(8)
1,892
786,162
30,186
(390)
(11,254)
(62,365)
(78,243)
(78,561)
(36,430)
(2,890)
546,215
688
17
(26)
(228)
(7)
(7)
437
(1) Tyres rental inventory of $18,049,000 was reclassified as Inventory during the year ended 30 June 2015.
Included in this movement are purchases totalling $748,000 for the year ended 30 June 2014 ($12,761,000).
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
94
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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
Movement from/(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
Movement from/(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
Movement from/(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
2015
$'000
2014
$'000
537
205
(12)
(337)
‐
15
408
3,140
98
(18)
(1,228)
‐
29
2,021
3,826
754
(21)
(1,307)
‐
208
3,460
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
11,409
(1,657)
9,752
11,934
(525)
11,409
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 2015
95
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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 (2014: 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. 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 2015. 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 CGUs valuations range between 6.5% and 8.8% (2014: 6.9% and 10.6%). 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 4.1%
and 11.2% (2014: negative 2.4% and 12.3%).
30 June 2015 impairment testing resulted in the estimated recoverable amount of a CGU exceeding its carrying
amount and zero impairment being recognised.
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
Australia rental
Canada rental
Chile rental
Change required for carrying amount
to equal the recoverable amount
(in percent)
Discount rate %
5.4
4.0
2.6
Utilisation %
(26)
(14)
(7)
The methodology used for FY15 impairment testing is consistent with prior periods. The business understands
that market dynamics outside our control can impact the input assumptions to impairment testing. As such
impairment testing sensitivities conducted included a broad range of scenarios impacting discount rates and
revenue growth assumptions. These scenarios considered our capital structure, alternative approaches to
discount rates input assumptions and downside views on forecasted outlook. No CGU impairment was indicated
under sensitivity testing performed.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
96
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
23
Trade and other payables
Current
Trade payables
Trade payables
Other payables and accruals
Consolidated
2015
$'000
2014
$'000
15,805
29,558
45,363
9,731
43,364
53,095
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 2015
97
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
24
Interest bearing liabilities
Current
Amortised cost
Other financing
Lease liabilities ‐ secured
Non‐current
Amortised cost
OID (1)
Notes issue ‐ secured
Notes issue ‐ secured (2)
Lease liabilities ‐ secured
Debt raising costs (asset backed loan)
Debt raising costs (2)
Debt raising costs
Consolidated
2015
$'000
2014
$'000
569
4,915
5,484
461
3,855
4,316
(4,214)
(5,043)
217,318
218,880
‐
(1,598)
(5,971)
(5,928)
177,270
178,547
4,915
‐
(8,144)
(8,086)
418,487
339,458
(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 extinguished its 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 related to
the senior secured syndicated loan facility were expensed on loan extinguishment.
During the year, the Group extinguished its A$50,000,000 revolving credit facility (multicurrency) comprising of
Tranche A1: 3 year A$40,000,000 and Tranche A2: 3 year A$10,000,000. Associated debt raising costs were
expensed on the loan extinguishment. At the time of the extinguishment, the facility remained undrawn.
On 31 December 2014, the revolving credit facility was cancelled and a A$75,000,000 asset backed loan was
established. The facility matures in December 2017 and is available for general corporate purposes. When
utilised, the nominal interest rate is equal to the aggregate of the margin of 1.75% per annum and bank bill swap
rate (BBSY). The asset backed loan has no maintenance covenants unless the facility is more than 50% utilised,
at which stage it requires Emeco to have an interest cover ratio of 1.25 times and gearing of less than 65%. At
year end, the Group had drawn $Nil of the available facility but had utilised $9,626,000 in bank guarantees.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
98
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
24
Interest bearing liabilities (continued)
144A notes issue
Under the terms of the note agreement, the noteholders hold a joint fixed and floating charge with the asset
backed loan 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 15 March
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.
FY15
FY14
Funds drawn in
functional currency
$’000
Funds drawn
translated to AUD
$’000
Funds drawn in
functional currency
$’000
Funds drawn
translated to AUD
$’000
USD
US$335,000
$436,198
US$335,000
$355,815
Working capital facility
In December 2014, the Group entered into a facility agreement comprising a credit card facility with a limit of
A$750,000 and bank guarantee where the aggregate face value shall not exceed A$866,013. The facility matures
in December 2015 and will be available for general corporate purposes. The facility is secured via a cash cover
account. The bank guarantee is subject to a fee of 3% per annum on the face value of the bank guarantee. At 30
June 2015 the facility was utilised at A$866,013.
Finance leases
At 30 June 2015, the Group held finance lease facilities totalling A$4,915,000 (2014: A$8,770,000) maturing on
15 August 2015. Assets leased under the facility are secured by the assets leased. Subsequent to year end, the
Group refinanced this facility extending the maturity to 15 February 2017 at a lower interest rate.
Other financial liabilities
At year end the Group financed its insurance premium totalling A$569,000.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
99
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
24
Interest bearing liabilities (continued)
Finance lease liabilities
Finance lease liabilities of the Group are payable as follows:
Future
minimum
lease
payments
Interest
Present
value of
Future
minimum
minimum
lease
payments
lease
payments
Interest
Present
value of
minimum
lease
payments
Consolidated
2015
$'000
2015
$'000
2015
$'000
2014
$'000
2014
$'000
2014
$'000
Less than one year
4,972 (57)
4,915
Between one and five years
‐
‐
‐
More than five years
‐
‐
‐
4,972
(57)
4,915
4,362
4,972
‐
9,334
(507)
(57)
‐
3,855
4,915
‐
(564)
8,770
The Group leases plant and equipment under finance leases. The Group’s lease liabilities are secured by the
leased assets of $9,752,000 (2014: $8,211,000). In the event of default, the leased assets revert to the lessor.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
100
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
25
Financing arrangements
The Group has the ability to access the following lines of credit:
Total facilities available:
Bank loans
144A notes
Finance leases
Insurance financing
Working capital
Facilities utilised at reporting date:
Bank loans (1)
144A notes
Finance leases
Insurance financing
Working capital
Facilities not utilised or established at reporting date:
Bank loans
144A notes
Finance leases
Insurance financing
Working capital
Consolidated
2015
$'000
2014
$'000
75,000
436,198
4,915
569
1,616
50,000
355,818
8,770
461
‐
518,298
415,049
9,626
‐
436,198
355,818
4,915
569
866
8,770
461
‐
452,174
365,049
65,374
50,000
‐
‐
‐
750
66,124
‐
‐
‐
‐
50,000
(1) The facility was undrawn at 30 June 2015 however had issued $9,626,000 of guarantees backed by the
facility.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
101
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
26 Provisions
Current
Employee benefits:
‐ annual leave
‐ long service leave
‐ other
Provision for restructuring
Non‐current
Employee benefits ‐ long service leave
Provision for restructuring
Consolidated
2015
$'000
2014
$'000
2,469
2,220
557
3
623
439
35
‐
3,652
2,694
634
1,117
1,751
1,069
‐
1,069
Defined contribution superannuation funds
The Group makes contributions to defined contribution superannuation funds. The expense recognised for the
year was $2,983,000 (2014: $2,849,000).
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 2015
102
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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
Matured in FY15:
Performance shares/rights 2012
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%.
4,246,661 3 years service TSR ranking to a basket of
3 years
direct and indirect peers of 123 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 2015
103
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
27 Share based payments (continued)
Long term incentive plan (continued)
Grant date / employees entitled
Unvested plans:
Number of
instruments
Vesting conditions
Performance shares/rights 2013
6,881,251
Performance shares/rights 2014
24,491,074
Performance shares/rights 2015
19,681,416
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.
3 years service TSR ranking to a basket of
direct and indirect peers of 123 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
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
104
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
27 Share based payments (continued)
The movement of performance shares and performance rights on issue during the year were as follows:
Number of
Number of
performance performance
shares/rights shares/rights
2014
2015
Outstanding at 1 July
Forfeited during the period
Exercised during the period
Granted during the period
Outstanding at 30 June
Exercisable at 30 June
26,483,441
(11,765,125)
‐
19,681,416
34,399,732
16,897,192
(11,659,726)
(3,245,099)
24,491,074
26,483,441
‐
‐
Management incentive share plan
Grant date / employees entitled
instruments Vesting conditions
Number of
MISP 2006
4,010,000
MISP 2007
1,240,000
Service requirement. Partial vesting
entitlement after 2 years with full
vesting after 5 years.
Service requirement. Partial vesting
entitlement after 2 years with full
vesting after 5 years.
MISP 2008
560,000
Service requirement. Partial vesting
entitlement after 2 years with full
vesting after 5 years.
5,810,000
Contractual life
of MISP
10 years
10 years
10 years
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
2015
Number of
MISP
2014
1,290,000
(230,000)
‐
‐
1,060,000
1,600,000
(310,000)
‐
‐
1,290,000
1,060,000
1,290,000
(1) The full service and vesting requirements have been satisfied under the MISP.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
105
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
27 Share based payments (continued)
Employee share ownership plan
Grant date / employees entitled
instruments Vesting conditions
Number of
Contractual life
of ESOP
Matured in January 2014
ESOP 2013
Matured in January 2015
ESOP 2014
75,388
82,899
ESOP 2015
88,469
Service requirement. Full vesting
entitlement after 1 year after the
end of the calendar year in which
they are acquired.
Service requirement. Full vesting
entitlement after 1 year after the
end of the calendar year in which
they are acquired.
Service requirement. Full vesting
entitlement after 1 year after the
end of the calendar year in which
they are acquired.
1 year
1 year
1 year
246,756
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)
Number of
ESOP
2015
Number of
ESOP
2014
93,482
(7,859)
102,859
88,496
276,978
‐
89,686
(16,713)
(62,390)
82,899
93,482
‐
(1) The shares are not considered exercisable until the full vesting period has been satisfied.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
106
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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
2015
Chief
executive
officer
2014
LTIP
Key
manage‐
ment
personnel
2015
Key
manage‐
ment
personnel
2014
Senior
employees
2015
Senior
employees
2014
ESOP
2015
ESOP
2014
$0.12
$0.19
$Nil
$0.15
$0.24
$Nil
$0.12
$0.19
$Nil
$0.15
$0.24
$Nil
$0.12
$0.19
$Nil
$0.18
$0.24
$Nil
$0.08 ‐ $0.22
$0.08 ‐ $0.22
$Nil
$0.20 ‐ $0.34
$0.20 ‐ $0.34
$Nil
40% ‐ 65%
45% ‐ 65%
40% ‐ 65%
45% ‐ 65%
40% ‐ 65%
45% ‐ 65%
3 years
0%
3 years
8.0%
3 years
0%
3 years
8.0%
3 years
0%
3 years
8.0%
2.52%
3.0%
2.52%
3.0%
2.52%
3.0%
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.
For the Group’s key management personnel 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
ESOP
Total expense recoginsed as employee costs (1)
Consolidated
2015
2014
1,390,172 1,694,346
19,261
12,094
1,402,266
1,713,607
(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. Should an employee be made redundant,
the remaining share based payment expense for the vesting period will be accelerated and recognised in the
period the employee was made redundant.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
107
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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
2015
$'000
2014
$'000
12,985
19,515
1,117
33,617
9,500
6,986
180
16,666
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 2015 an amount of $11,546,000 (continuing and discontinuing operations)
was recognised as an expense in profit or loss in respect of operating leases (2014: $4,152,000).
(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 2015 (2014: $Nil).
29 Contingent liabilities
Guarantees
The Group has guaranteed the repayments of $10,491,000 (2014: $866,013) in relation to performance guarantees
and rental premises.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
108
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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
2015
$'000
2014
$'000
Cash assets
17
27,800
41,830
(ii) Reconciliation of net profit to net cash provided by operating activities
Consolidated
Note
2015
$'000
2014
$'000
Net loss ‐ continuing operations
(123,131)
(224,172)
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 and equipment
Impairment of goodwill
Write down on inventory
Bad debts
Provision for doubtful debts/(reversal)
Other non‐cash items and reclassifications
Equity settled share based payments
(Decrease)/increase in income taxes payable
(Decrease)/increase in deferred tax liabilty
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
8
8
21
8
8
8
(Increase)/decrease in trade and other receivables
(Increase)/decrease in inventories
Increase/(decrease) in payables
Increase/(decrease) in provisions
Net cash from/(used in) operating activities
(320)
(731)
84
98,720
3,914
1,814
(2,543)
5,428
334
16,666
23,940
‐
6,896
3,938
(328)
(5,619)
1,402
‐
(25,022)
(2,801)
132
77,996
1,918
2,993
(5,958)
1,960
210
(4,571)
37,508
157,887
6,148
3,064
(2,467)
‐
1,822
(15,138)
(17,971)
2,205
3,372
22,835
12,596
(12,770)
(7,732)
1,640
(2,894)
21,379
6,597
32,130
(869)
82,072
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
109
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
31 Controlled entities
(a) Particulars in relation to controlled entities
Country
of
incorporation
Ownership interest
2015
%
2014
%
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 International Pty Limited
EHL Corporate Pty Ltd (formerly Emeco Sales
Pty Ltd)
Emeco Parts Pty Ltd
EHL Malvern 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
Emeco Holdings South America SpA
Enduro SpA
(i)
(ii)
(iii)
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(v)
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
United Kingdom
United States
Indonesia
Netherlands
Netherlands
Netherlands
Canada
Chile
Chile
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
100
100
‐
‐
Notes
During the year ended 30 June 2015;
(i)
(ii) Emeco Sales Pty Ltd changed its name to EHL Corporate Pty Ltd on and ownership was transferred from
Emeco International Pty Ltd was transferred from Emeco Pty Ltd to Emeco Holdings Limited.
Emeco International Pty Ltd to Emeco Holdings Limited.
(iii) Emeco Parts was transferred from Emeco International Pty Ltd to Emeco Holdings Limited.
(iv) EHL Malvern Pty Ltd was incorporated and remains a dormant entity.
(v) Ownership of Enduro SpA was transferred from Emeco Holdings Limited to Emeco Holdings South America
SpA.
(vi) Emeco Holdings South America SpA was incorporated and is the parent of Enduro SpA.
(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 2015
110
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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
John Cahill
Peter Richards
Erica Smyth
Executive director
Kenneth Lewsey
Other executives ‐
as at reporting date
Gregory Hawkins [A]
Chair
Managing Director & Chief Executive Officer (ceased role on 20 August 2015)
Position
Chief Financial Officer (commenced role on 1 July 2014)
Christopher Hayman
President North America (commenced role on 26 November 2014), previously
President Americas (ceased role on 26 November 2014)
Kalien Selby
Executive General Manager Strategy & Business Improvement (commenced role
on 18 February 2015)
Ian Testrow [B]
Chief Operating Officer
Thao Vanderplancke
Company Secretary & General Counsel (commenced role on 1 July 2014)
Other executives ‐
ceased prior to reporting date
Position
Kellie Benda
David Greig
Executive General Manager Strategy & Corporate Development (ceased role on
19 December 2014)
President ‐ South America (commenced role 24 November 2014 and ceased role
on 22 June 2015)
Stuart Jenner
Executive General Manager HR, HSE & IT (ceased role on 30 June 2015)
Grant Stubbs
Executive General Manager Asset Strategy & Operational Improvement (ceased
role on 1 October 2014)
[A] Mr Gregory Hawkins commenced role of Executive Director, Finance on 20 August 2015.
[B] Mr Ian Testrow commenced role of Managing Director & Chief Executive Officer on 20 August 2015.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
111
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
32 Key management personnel disclosure (continued)
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
2015
2014
3,960,980
5,071,109
‐
284,407
‐
700,500
4,945,887
‐
227,143
293,866
294,880
5,886,998
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 27 to 39.
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 three 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 2015
112
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
32 Key management personnel disclosure (continued)
The movement during the reporting year in the number of shares issued 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.
2015 Shares
Directors & executives
Kenneth Lewsey
Kellie Benda (1)
Stephen Gobby (2)
David Greig (3)
Gregory Hawkins (4)
Stuart Jenner (5)
Michael Kirkpatrick (2)
Kalien Selby (5)
Grant Stubbs (6)
Ian Testrow
Thao Vanderplancke (4)
2014 Shares
Directors & executives
Kenneth Lewsey (1)
Kellie Benda (1)
Stephen Gobby (2)
Keith Gordon (7)
Anthony Halls (7)
Michael Kirkpatrick (2)
Grant Stubbs (6)
Ian Testrow
Held at
1 July 2014
Granted as
compensation
Vested
during
the year
Forfeited/
lapsed
Held at
30 June
2015
4,553,571
749,143
4,250,000
‐
‐
‐ (749,143)
‐
2,997,645
‐
‐ (2,997,645)
n/a
‐
‐
‐
n/a 1,600,000
‐
‐
n/a
‐
‐ (317,227)
1,579,152
‐
‐ (1,579,152)
n/a
n/a
‐
‐
‐
1,196,351
‐ 1,550,000
640,000
n/a
‐ (1,196,351)
‐
‐ (17,105)
‐
8,803,571
n/a
n/a
n/a
1,600,000
‐
n/a
260,000
n/a
1,550,000
915,489
Held at
1 July 2013
Granted as
compensation
Held at
Ves ted
Ves ted and
exercis ab le
Vested
during
the year
Forfeited/
lapsed
Held at
30 June
2014
n/a 4,553,571
‐
‐
n/a
749,143
‐
‐
1,274,431 2,142,857
‐ (419,643)
3,590,149
‐
‐
‐
811,990 1,160,187
‐ (1,975,177)
758,101 1,071,051
231,914 1,034,080
‐
‐
‐ (250,000)
‐ (69,643)
‐
‐
4,553,571
749,143
2,997,645
n/a
n/a
1,579,152
1,196,351
‐
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. Ms Benda ceased to be a key management personnel on 19 December 2014.
(2) Mr Gobby and Mr Kirkpatrick ceased to be a key management personnel on 1 July 2014.
(3) Mr Greig become a key management personnel on 1 October 2014 and ceased to be a key management
personnel on 22 June 2015.
(4) Mr Hawkins and Ms Vanderplancke became key management personnel on 1 July 2014.
(5) Mr Jenner and Ms Selby became key management personnel on 1 July 2014 and 18 February 2015
respectively.
(6) 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. Mr Stubbs ceased to
be a key management personnel on 1 October 2014.
(7) Mr Gordon and Mr Halls ceased to be key management personnel on 4 November 2013 and 17 February 2014
respectively.
n/a Not applicable as not in a position of key management at relevant reporting date.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
113
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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.
2015 Rights
Directors & executives
Stephen Gobby (1)
David Greig (3)
Christopher Hayman (2)
Michael Kirkpatrick (1)
Ian Testrow
2014 Rights
Directors & executives
Stephen Gobby (1)
Keith Gordon
Anthony Halls
Christopher Hayman (2)
Benny Joesoep
Michael Kirkpatrick (1)
Ian Testrow
Held at
1 July 2014
Granted as
compensation
Vested
during
the Year
Forfeited/
lapsed
Held at
30 June
2015
‐
‐
‐
‐
n/a
794,012
‐
‐
n/a
n/a
986,967
844,040
‐
‐
1,831,007
‐
‐
‐
‐
n/a
2,273,522
‐
‐ (189,000)
2,084,522
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
(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 Greig became a key management personnel on 1 October 2014 and ceased to be a key management
personnel on 22 June 2015.
n/a Not applicable as not in a position of key management personnel at relevant reporting date.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
114
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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 transactions disclosed occurred whilst they were
deemed to be a key management person. 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.
2015
Directors
Alec Brennan (1)
Kenneth Lewsey (2)
John Cahill
Peter Richards
Erica Smyth
Other executives
Kellie Benda (3)
David Greig (4)
Gregory Hawkins (5)
Christopher Hayman
Stuart Jenner (6)
Kalien Selby (6)
Grant Stubbs (7)
Ian Testrow (1)
Thao Vanderplancke (5)
Held at
1 July 2014
ordinary
shares
Transferred
from
share
plan
Purchases
Sales
Held at
30 June 2015
ordinary
shares
1,581,700
‐
‐
‐ 1,581,700
315,000
‐ 713,690
‐ 1,028,690
120,000
‐
‐
‐ 120,000
40,000
‐
‐
‐ 40,000
71,049
‐
‐
‐ 71,049
‐
‐
‐
‐
n/a
‐
‐
‐
n/a
n/a
127,000
9,332
‐
395,238
‐
‐
‐ 35,103
‐ 522,238
‐ 9,332
‐ 35,103
n/a
‐ 18,412
‐ 35,103
42,339
‐
‐
‐
n/a
715,714
‐ 35,103
‐ 750,817
‐ 2,911
35,103
‐ 38,014
(1) Mr Brennan’s and Mr Testrow’s holdings are exclusive of 500,000 and 300,000 shares respectively held as
part of the Management Incentive Share Plan. Subsequent to 30 June 2015, both Mr Brennan and Mr Testrow
have elected to return these shares to the Company in accordance with the terms of the MISP.
(2) Mr Lewsey was awarded 313,690 shares under the terms of Emeco’s short term incentive scheme in FY14
(and approved at the Company’s 2014 AGM) which are held in escrow for a period of two years until the
announcement of Emeco’s annual results in 2016.
(3) Ms Benda ceased to be key management personnel on 19 December 2014.
(4) Mr Greig became a key management personnel on 24 November 2014 and ceased to be a key management
personnel on 22 June 2015.
(5) Mr Hawkins and Ms Vanderplancke became key management personnel on 1 July 2014.
(6) Mr Jenner and Ms Selby became key management personnel on 1 July 2014 and 18 February 2015
respectively.
(7) Mr Stubbs ceased to be a key management personnel on 1 October 2014.
n/a Not applicable as not in a position of key management personnel at relevant reporting date.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
115
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
32 Key management personnel disclosure (continued)
2014
Directors
Alec Brennan
Kenneth Lewsey (3)
Robert Bishop (1)
John Cahill
Keith Gordon (2)
Peter Richards
Erica Smyth
Other executives
Kellie Benda (3)
Stephen Gobby (1)
Anthony Halls (2)
Michael Kirkpatrick (1)
Grant Stubbs
Ian Testrow
Held at
1 July 2013
ordinary
shares
Transferred
from
share
plan
Purchases
Sales
Held at
30 June 2014
ordinary
shares
1,581,700
‐
‐
‐ 1,581,700
n/a
‐ 315,000
‐ 315,000
566,600
‐ 222,400
‐
n/a
120,000
‐
‐
‐ 120,000
1,125,000
‐
‐
‐
n/a
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
592,541
‐ 123,173
‐ 715,714
(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.
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 2015
116
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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.
The terms and conditions or the transactions with management persons and their related parties were no more
favourable than those available, or which might be reasonably expected to be available, on similar transaction 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:
Revenue
Key management person and
their related parties
Mr P Richards
‐Sedgman Limited
Total
Expense
Key management person and
their related parties
Mr P Richards
‐Bradken Limited
Total
Transaction
Rental of heavy earthmoving
equipment
Transaction
Purchase of heavy earthmoving
equipment parts
Transaction value year
ended 30 June
Balance outstanding as
at 30 June
2015
$'000
2014
$'000
2015
$'000
2014
$'000
31
31
157
157
‐
‐
‐
‐
1
1
29
29
‐
‐
‐
‐
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
117
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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 the cost of the groups external borrowings.
Ultimate parent entity
Emeco Holdings Limited is the ultimate parent entity of the Group.
34 Subsequent events
Subsequent to the period end, the Group refinanced its finance lease facility resulting in an extension to 15
February 2017 at a lower interest rate.
On 1 July 2015, Emeco announced that it had signed a partnership agreement with Cimic Group company, Thiess,
for pre‐strip operations at the Encuentro Oxides copper mine in Chile that was previously operated by Fe Grande.
On 20 August 2015, Mr Kenneth Lewsey ceased his role as Managing Director and Chief Executive Officer of the
Company and Mr Ian Testrow commenced as the Managing Director and Chief Executive Officer. Mr Gregory
Hawkins commenced in the role of Executive Director Finance on 20 August 2015.
35 Earnings per share
Basic earnings per share
The calculation of basic earnings per share at 30 June 2015 was based on the loss attributable to ordinary
shareholders of $127,703,000 (2014: $275,309,000) and a weighted average number of ordinary shares
outstanding less any treasury shares for the year ended 30 June 2015 of 557,569,229 (2014: 562,504,730).
Profit attributed to ordinary shareholders
Consolidated
2015
2014
Continuing Discontinued
operations operations
$'000
$'000
Total
$'000
Continuing Discontinued
operations operations
$'000
$'000
Total
$'000
Profit/(loss) for the year
(123,131)
(4,572)
(127,703)
(224,172)
(51,137)
(275,309)
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
118
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
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
2015
'000
2014
'000
631,238
(73,669)
557,569
631,238
(68,733)
562,505
Diluted earnings per share
The calculation of diluted earnings per share at 30 June 2015 was based on the loss attributable to ordinary
shareholders of $127,703,000 (2014: $275,309,000) and a weighted average number of ordinary shares outstanding
less any treasury shares during the financial year ended 30 June 2015 of 558,629,229 (2014: 565,151,687).
Profit attributed to ordinary shareholders (diluted)
Consolidated
2015
2014
Continuing Discontinued
operations operations
$'000
$'000
Total
$'000
Continuing Discontinued
operations operations
$'000
$'000
Total
$'000
Profit/(loss) attributed to ordinary
shareholders (basic)
(123,131)
(4,572)
(127,703)
(224,172)
(51,137)
(275,309)
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
2015
'000
2014
'000
631,238
1,060
(73,669)
558,629
631,238
2,647
(68,733)
565,152
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 2015
119
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
36 Parent entity disclosure
As at and throughout the financial year ending 30 June 2015 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
2015
$'000
2014
$'000
(613)
‐
(613)
(148,311)
‐
(148,311)
20
398,232
398,252
‐
(38,685)
(38,685)
22
394,377
394,399
‐
‐
‐
593,616
16,649
(21,003)
(270,289)
318,973
593,616
14,598
(20,622)
(269,358)
318,234
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 2015
120
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
37 Deed of cross guarantee
Pursuant to ASIC Class Order 98/1418 (as amended) dated 13 August 1998, Emeco International Pty Ltd is relieved
from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports, and
directors’ reports.
It is a condition of the class order that the Company and each of the subsidiaries enter into a deed of cross
guarantee. The effect of the deed is that the Company guarantees to each creditor payment in full of any debt in
the event of winding up of any of the subsidiaries under certain provisions of the Corporations Act 2001. If a winding
up occurs under other provisions of the Act, the Company will only be liable in the event that after six months any
creditor has not been paid in full. The subsidiaries have also given similar guarantees in the event that the Company
is wound up.
The subsidiaries subject to the deed are:
Emeco Pty Ltd
Emeco International Pty Limited
A consolidated statement of comprehensive income and consolidated statement of financial position, comprising
the Company and controlled entities which are a party to the deed, after eliminating all transactions between
parties to the deed of cross guarantee, for the year ended 30 June 2015 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
Retained earnings at end of year
Attributable to:
Equity holders of the Company
Profit/(loss) for the period
Consolidated
2015
$'000
2014
$'000
136,966
(98,825)
38,141
(102,780)
2,590
18,774
(51,048)
(22,553)
‐
(116,876)
34,932
(81,944)
134,538
(87,182)
47,356
(64,809)
3,609
14,271
(42,372)
(39,525)
(151,310)
(232,780)
26,498
(206,282)
25,846
25,846
(4,977)
(4,977)
(257,290)
(313,389)
(46,031)
(257,290)
(313,389)
(81,944)
(257,290)
(206,282)
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
121
EMECO HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES
Notes to the Consolidated Financial Statements
For the year ended 30 June 2015
37 Deed of cross guarantee (continued)
Statement of financial position
Current assets
Cash assets
Trade and other receivables
Derivatives
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
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
2015
$'000
2014
$'000
12,891
29,433
12,761
6,560
22,771
84,416
195,737
38,282
1,641
288,333
222,245
53,011
799,249
17,195
21,099
5
3,507
31,242
73,048
176,528
‐
146
249,143
281,702
27,121
734,640
883,665
807,688
29,227
1,294
4,915
3,119
38,555
1,663
480,572
27,527
1,762
511,524
25,167
2,546
3,855
1,791
33,359
10,186
341,397
22,493
1,385
375,461
550,079
408,820
333,586
398,868
593,616
15,247
38,112
(313,389)
593,616
14,598
47,944
(257,290)
Total equity attributable to equity holders of the parent
333,586
398,868
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
122
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 41 to 122, and remuneration
report in the directors’ report, set out on pages 27 to 39 are 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 2015 and of its
performance for the financial year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations 2001;
(b)
there are reasonable grounds to believe that the Company will be able to pay its debts as and when
they become due and payable.
There are reasonable grounds to believe that the Company and the group entities identified in note 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 2015.
The directors draw attention to note 2(a) to the consolidated financial statements, which includes a statement
of compliance with international financial reporting standards.
2.
3.
4.
Dated at Perth, 26 day of August 2015
Signed in accordance with a resolution of the directors:
Ian Testrow
Managing Director
EMECO HOLDINGS LIMITED ANNUAL REPORT 2015
123
ABCD
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 2015, 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 1 to 37 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.
ABCD
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 2015 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 2015. 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
2015, complies with Section 300A of the Corporations Act 2001.
KPMG
Graham Hogg
Partner
Perth
26 August 2015