More annual reports from Emeco Holdings Limited:
2023 Report162181 LINMAR 1 Front Head Office Level 3 71 Walters Drive Osborne Park WA 6017 Australia T +61 8 9420 0222 E corporate@emecogroup.com emecogroup.com 2017 ANNUAL REPORT | A N N U A L R E P O R T 2 0 1 7 Emeco Holdings Limited and its Controlled Entities 2 ABN 89 112 188 815 Annual Financial Report 30 June 2017 EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 1 1 6 2 1 8 1 I L N M A R 2 F r o n t Contents Chairmanʼs 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Review(cid:3)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:3)(cid:1011) Regional Business Overview(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:1005)(cid:1007) Financial Report(cid:3)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:1005)(cid:1011) k c a B 2 R A M N I L 1 8 1 2 6 1 EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 2 k c a B 2 R A M N I L 1 8 1 2 6 1 Chairmanʼs Report Dear Shareholder, We are pleased to present the Emeco Holdings Limited Annual Report for financial year 2016/2017 (FY17). Balance sheet restructure and a larger, younger Australian fleet In March 2017, Emeco successfully restructured its balance sheet through the refinancing of its debt, a fully underwritten capital raise, and the merger with Andyʼs Earthmovers (Asia Pacific) Pty Ltd (Andyʼs) and Orionstone Holdings Pty Ltd (Orionstone). This was a complex transaction involving multiple stakeholders from all three businesses. The successful completion of this transaction is testament to Ian Testrowʼs leadership, the Emeco teamʼs commitment and the strong support from all of our major stakeholders. The transaction addressed three key strategic initiatives for Emeco: 1. Extending the maturity of Emecoʼs debt obligations to FY22; Improving our balance sheet to create operational flexibility; 2. Increasing our fleet size while reducing its average age. 3. Following a strategic review of the international operations, an asset swap was executed in Chile which allowed the Group to exchange its underutilised fleet in Chile for 85 fleet in Australia. As a result, the location of our fleet is now aligned with domestic demand, particularly in the coking coal industry on the Australian east coast. The larger fleet provides Emeco with a stronger platform for short and long-term growth. In addition to the Chile asset swap, Emeco sold its remaining fleet in Canada through completion of a rent-to-purchase agreement. The repositioning of the Canada business and discontinuation of the Chile operations allows Emeco management to focus on improving operational performance and capturing growth in an improving Australian market. As a result of the transaction and the recent Chilean asset swap, Emeco has an additional 400 pieces of equipment and is focused on driving greater earnings and returns on its assets. The Companyʼs ongoing strategic relationship with The Red Button Group enhances Emecoʼs ability to manage its larger fleet and focus on operational excellence in asset management and maintenance, which is also facilitated by Emecoʼs EOS technology. Safety and sustainability Emeco continues to maintain its commitment to its people, the environment and the communities in which we operate. The effective induction of new employees and subcontractors following the merger with Andyʼs and Orionstone was a priority of the integration programme in order to ensure that Emeco continues to adopt safety practices of the highest standard. Continued cost reduction initiatives and business integrations have not diminished our commitment to safety or sustainability processes or procedures. Overall, we continue to improve our safety record notwithstanding the increased number of employees and operations. Our LTIFR reduced from 1.1 to zero which is an outstanding achievement for the team, while our TRIFR decreased 61% to 2.2. For more information on our sustainability performance and policies, please refer to Emecoʼs FY17 Sustainability Report available on our website. Focus on synergies and deleveraging the business In FY18, Emecoʼs key priorities are to achieve the A$15 million run-rate of operating synergies linked to the merger with Andyʼs and Orionstone, continue to enhance our customer value proposition through innovation and to reduce costs across the business. The business ended the year with net debt of A$457.1 million. As a result of the FY17 restructure, Emeco is now in a position to drive meaningful earnings and operating cash flows to further deleverage the Company to create a strong and sustainable capital structure through the mining cycle. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 3 I would like to take the opportunity to thank our shareholders and noteholders for their continued support of Emeco through challenging market conditions. The overwhelming shareholder and noteholder support of the transaction coupled with the shareholder participation in the underwriting of the rights issue were critical to Emecoʼs short and long-term success. Finally, post-completion of the transaction, on behalf of Emeco, I would like to welcome Peter Frank, Keith Skinner and Darren Yeates to the Board and extend our appreciation to John Cahill and Erica Smyth who stepped down during the year after 8 years and 5 years of service respectively on the Board. Both John and Erica made significant contributions to the successful restructuring of Emeco and we wish them all the best in their future pursuits. Peter Richards Chairman EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 4 2 1 6 2 1 8 1 L I N M A R 2 F r o n t t n o r F 2 R A M N I L 1 8 1 2 6 1 2 Managing Directorʼs Report Dear Shareholder, Over the past year, Emeco has undergone a significant transformation through the merger with two businesses in Australia and the recapitalisation of all three companiesʼ debt profiles. I am especially proud that we were able to continue to improve our safety performance, decreasing TRIFR from 5.6 at the end of FY16 to 2.2 at the end of FY17 and currently at zero LTIFR, during this period. I would like to thank the Emeco team for all of their hard work throughout the last 12 months, and thank our shareholders and noteholders for their continued support. Solid base for future Australian earnings Emeco achieved an operating EBITDA of $83.5 million (up $29.3 million on FY16 operating EBITDA of $54.2 million) and an operating net loss after tax of $90.9 million. The benefits of cost reduction initiatives implemented in FY16 were fully realised throughout FY17 and Emecoʼs focus on operational excellence underpinned earnings growth across the business. Emeco also returned to positive operating EBIT of $12.0 million, which was the first positive EBIT since FY13. In the first three quarters of FY17 (YTD Q3FY17), prior to the completion of the merger, Emeco reported revenue of $137.5 million and operating EBITDA of $54.0 million. This strong result was delivered at the same time as completing the complex restructure, which is a testament to the depth of expertise and commitment of the Emeco operational management team. After the completion of the recapitalisation and mergers on 31 March 2017, Emeco reported Q4FY17 revenue and operating EBITDA of $94.3m and $29.5m respectively. Increased Q4FY17 revenue was a result of the new scale of the business and with improving market conditions. Emecoʼs average group operating utilisation for FY17 was 53%, representing an improvement on the FY16 average of 44% which was driven by growing demand across the Australian business as sentiment improves in addition to greater customer relationships and understanding of their needs. Management has aligned its nation-wide fleet to meet this increase in demand adding 85 pieces of equipment as a result of the Chile asset swap in addition to the fleet acquired from the merger with Andyʼs and Orionstone. With an additional 400 pieces of equipment, Emeco is focused on increasing operating utilisation and driving greater returns on its assets. Emecoʼs New South Wales business continues to perform strongly ending the year with operating utilisation of 68%. In Queensland, Emeco has significantly improved it operational utilisation to 62% and is positioned well to capture new opportunities in FY18 due given its added scale. In Western Australia, Emeco has increased its operating utilisation to 54% as new projects were secured in the iron ore and coal industries and, as a result of the Andyʼs merger, Emeco now has a presence in South Australia and Victoria. Emeco has wound down its exposure in both Chile and Canada, allowing management to focus on its Australian operations. Canada is expected to provide a minimal earnings contribution moving forward. Financial discipline In FY17, cash generated from operating EBITDA was offset by the one-off costs associated with the merger and working capital deficiencies of the acquired businesses. This resulted in Emeco generating free operating cash flow of $36.9 million. Emeco also released $15.2 million from the closure of the remaining cross-currency interest rate swaps. A $20.0 million rights issue was completed during the period with the funds received being used to pay a portion of the A$35.0 million transaction costs. Emecoʼs debt structure consists of US$356m of bonds due March 2022 and the A$65m revolving credit facility expiring in March 2020 which currently has $2.7 million of bank guarantees drawn against it. At 30 June 2017 Emeco had net debt of $457.1 million and leverage ratio of 5.5x (using Operating EBITDA of three quarters of pre-merger and one quarter post-merger). Emeco is committed to optimising its cash flow and further deleveraging its balance sheet to achieve a sustainable capital structure through the mining cycle. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 5 1 6 2 1 8 1 L I N M A R 2 B a c k Emeco expects the leverage ratio to continue to decrease in FY18 with a full year contribution to EBITDA from the merged businesses, earnings growth and cash flow generation. Execution of strategic objectives The recapitalisation of Emeco and extension of its debt to FY22 was a key strategic priority for Emeco as it seeks to strengthen its balance sheet for the long-term. Emeco will continue to work towards improving operational performance to generate cash to continue to reduce its leverage. The merger transaction, together with the asset swaps, has also allowed Emeco to build on its portfolio of projects and full mining fleet to promote sustainable growth over the long-term. The integration of the Andyʼs and Orionstone businesses has been a focus of management and the business is on track to realise A$15 million in annualised operating synergies by the end of FY18. With the implementation of an additional EOS project in FY17, Emeco will continue to enhance its customer value proposition. With the help of Emecoʼs EOS technology, management is also focused on being the best in class in asset and maintenance to improve our fleet capability and our performance while ensuring a strict cost discipline. In FY18, our focus will remain on securing more full mining fleet projects and reducing costs to improve margins and earnings. Positioning for the future The significant increase in revenue in Q4FY17 demonstrates both the new scale and future potential of Emeco following the mergers with Andyʼs and Orionstone. Emecoʼs fleet has more than doubled as a result of the merger and the recent asset swap provides Emeco with the platform for significant growth, boosted by improving market sentiment. We are focused on ensuring that these additional pieces of equipment are put to work at existing and new projects, and capturing the opportunity of increasing demand in the coal and base metals industries in particular. In FY18, Emeco will undertake a strategic review of its divisions of the acquired businesses to determine how they fit with Emecoʼs strategy. We are conscious that there is still a lot of work required to extract merger synergies and ensure Emecoʼs strict cost discipline and commitment to operational excellence is applied across the integrated company to continue to reduce operating costs. Part of this also includes working with our partner, The Red Button Group, to ensure we effectively manage our capital expenditure, particularly through the significant capex synergy opportunities available as a result of doubling our fleet. The focus on Emecoʼs capital and maintenance expenditure and will also assist in maximising our earnings and deleverage this business. I would like to thank all of our employees, shareholders, noteholders and wider stakeholder groups for their continued support of Emeco. Ian Testrow Managing Director & Chief Executive Officer EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 6 1 6 2 1 8 1 L I N M A R 2 B a c k Operating and Financial Review The Emeco Group supplies safe, reliable and maintained equipment rental solutions to the mining industry. Established in 1972, the business listed on the ASX in July 2006 and is headquartered in Perth, Western Australia. Emeco generates earnings from the provision of equipment rental solutions to the mining industry. 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 assetʼs 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, 5% Bauxite, 2% Civil, 1% Other, 17% Iron Ore, 2% Gold, 19% Thermal Coal, 40% Wheel Loader, 7% Grader, 7% Dump Truck, 42% Australia, 83% Copper, 21% Coking Coal, 15% Dozer, 17% Excavator, 9% Note: Above analysis relates to 12 month period ended 30 June 2017 and includes discontinued operations. Table 1: Group financial results A$ millions Revenue EBITDA4 EBIT4 NPAT4 ROC4 % EBIT margin EBITDA margin Operating results1,3 2017 2016 233.0 83.5 12.0 (90.9) 3.3% 5.2% 35.8% 208.0 54.2 (14.2) (90.5) (2.7)% (6.8)% 26.1% Statutory results 2017 233.0 69.6 (115.2) (180.5) (32.1)% (49.4)% 29.9% 2016 206.6 47.6 (201.4) (225.4) (25.0)% (97.5)% 23.1% Note: 1. Significant items have been excluded from the statutory result to aid the comparability and usefulness of the financial information. This adjusted information (operating results) enables users to better understand the underlying financial performance of the business in the current period. 2. Operating and statutory results include 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. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 7 t n o r F 2 R A M N I L 1 8 1 2 6 1 2 Table 2: 2017 operating results to statutory results reconciliation Tangible asset impairments Goodwill impairment Redundancy and restructuring costs Long-term incentive program (8.2) (1.9) (15.2) (25.3) (77.9) - - (77.9) (2.8) (1.3) (3.4) (7.5) (6.1) (0.1) (0.2) (6.4) A$ millions Operating Australia Canada Chile Statutory Transaction costs Tax effect NPAT (10.1) - - 31.6 0.9 5.1 (90.9) (73.5) (2.4) (13.7) (10.1) 37.6 (180.5) Reconciliation of differences between operating and statutory results: 1. FY17 operating results (non-IFRS) excludes the following: (cid:882) Tangible asset impairments: Over FY17 net impairments totalling $25.3 million were recognised across the business on assets held for sale and subsequently disposed during the period. A small number of held for sale assets were reclassified to the rental fleet in Australia to source growth in New South Wales and Queensland businesses, resulting in reversal of impairments recognised in prior reporting periods. (cid:882) Goodwill impairment: Goodwill recognised during the period and allocated to the Australia CGU was impaired which (cid:882) (cid:882) (cid:882) resulted in an impairment expense of $77.9 million before tax. Redundancy and restructuring costs: One off costs related to redundancy and restructuring totalled $7.5 million before tax. Long-term incentive program: During FY17 Emeco recognised $6.4 million of non-cash expenses relating to the employee long-term incentive plan. Transaction costs: Costs incurred in relation to the mergers and recapitalisation during the period amounted to $10.1 million before tax. These costs consist of $14.5 million in acquisition expense, $5.8 million in capitalised borrowing costs written off, $10.2 million cost of equity provided to Black Diamond. Offsetting this is a gain realised on the discount on the debt for equity swap of $20.4 million. 2. Refer to our 2016 Annual Report for reconciliation of differences between FY16 operating and statutory results. 3. All reconciling items relating to FY17 operating results are discussed in further detail later in the operating and financial review. OPERATING UTILISATION TRENDING UPWARDS Group operating utilisation increased over FY17 to an average of 53% compared to 44% in FY16 and ended the year at 56%. Management is focused on increasing the operating utilisation of machines currently on rent and looking for opportunities to redeploy underutilised fleet to generate greater returns. Chart 4: 2017 Average Australia Operating Utilisation 80% 60% 40% 20% 0% Operating Utilisation 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 400 hours a month. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 8 t n o r F 2 R A M N I L 1 8 1 2 6 1 2 Group operating revenue from continuing operations increased in FY17 to $233.0 million (2016: $208.0 million). Rental revenue increased to $208.8 million (2016: $177.7 million) as a result of improvements in the Australian business and the increased scale from the acquired fleet in 4Q17. Maintenance services revenue decreased 5.6% to $22.0 million (2016: $23.3 million) primarily driven by the reduced scope of operations in Canada. Sale of parts and machines decreased in FY17 to $2.6 million, down from $5.5 million in FY16 due to rationalisation of the Australian inventory in FY16. Operating EBITDA margins increased to 35.8% (2016: 26.1%) as the business realised a full year benefit of the Project Fit initiatives implemented in FY16. The Companyʼs continued focus on operational excellence and cost reduction contributed to the achievement of a 41% operating EBITDA margin in Q3FY17. This was impacted in Q4FY17, partially by the merger transaction and in particular one-off expenses associated with the acquired fleet, acquired low margin projects and cost inefficiencies experienced through integration. EBITDA recovery improved operating return on capital (ROC) to 3.3% in FY17 (FY16: negative 2.7%). Refer to the regional business overview on page 13 for further detail on regional operating and financial performance. REDUCTION IN EXPENSES IMPROVE OPERATING EBITDA Table 3: Operating cost summary (operating results) A$ millions Revenue Operating expenses Changes in machinery and parts inventory Repairs and maintenance Employee expenses Hired in equipment and labour Net other expenses Operating EBITDA Depreciation expense Amortisation Operating EBIT 2017 2016 233.0 206.6 (9.5) (77.0) (21.3) (20.3) (21.4) 83.5 (70.6) (0.8) 12.0 (8.9) (71.0) (34.0) (21.1) (17.4) 54.2 (68.3) (0.1) (14.2) Operating EBITDA increased $29.3 million (54.1%) due to cost management within the business set throughout FY16 in addition to increased rental revenue in Q4FY17. Although revenue increased 12.7% in FY17, operating expenses decreased 1.9% which is evidence of the significant cost savings made over the course of FY16. The business is on track to realise the $15 million of annualised operating synergies from the transaction over the course of FY18. The full benefit of expected synergies will be recognised in FY19. Repairs and maintenance expense increased 8.5% to $77 million (2016: $71.0 million). Fleet acquired from Andyʼs and Orionstone required additional expenditure to bring the assets up to the high standards set by Emeco for its equipment. These costs are one off in nature, with this maintenance program expected to conclude by the end of 1H18. Employee expenses decreased 37.4% in FY17 to $21.3 million (FY16: $34.0 million) as a full years savings was realised from headcount rationalisation made throughout FY16. Other expenses increased to $21.4 million (FY16: $17.4 million) predominately due to costs associated with the outsourcing of some functions partially offsetting the decrease in employee expenses. Costs associated with hired in equipment and labour remained relatively flat year on year as Emeco used external contractors to reduce its fixed operating cost base. Refer to note 8 in the financial statements for further breakdown of net other expenses (page 78). Depreciation expense increased to $70.6 million in FY17 (FY16: $68.3 million) driven by the increased scale of fleet and hours utilised from the merger with Andyʼs and Orionstone. However, the starting asset cost base was reduced from the prior year through impairments recognised on the fleet in FY16, softening the depreciation increase. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 9 1 6 2 1 8 1 L I N M A R 2 B a c k INCREASED AUSTRALIAN FLEET Table 4: Asset impairments (statutory results) A$ millions Rental fleet Non-current assets held for sale Asset impairments Stock write down Freehold land and buildings Plant and equipment Other assets 2017 2016 339.6 26.4 7.0 0.0 18.4 0.0 264.6 30.7 11.5 4.0 159.0 5.1 The written down value (WDV) of the rental fleet increased to $339.6 million over FY17 due to the merger with Andyʼs and Orionstone adding $84.8 million and $64.1 million respectively. In June 2017 the business executed a successful asset swap with a mining contractor in Chile which resulted in the acquisition of $43.9 million of in-demand fleet for Australia in exchange for the fleet in Chile and cash consideration. This fleet swap further supports equipment needs in Australia, particularly on the east coast where utilisation in New South Wales and Queensland is currently over 90%. The remaining Canadian fleet was disposed for consideration of $13.9 million during the period. Impairment loss on plant and equipment decreased to $18.4 million in FY17, down from $159.0 million in FY16 (refer to note 22). FY16 impairment testing indicated all three cash generating units were impaired and the value of the fleet was written down by $159.0 million. FY17 impairment testing resulted in the Australian CGU being impaired. However this impairment was allocated to the goodwill recognised in the CGU and no additional tangible asset impairment was recognised. The impairment of plant and equipment in FY17 of $18.4 million relates to the assets designated as held for sale during the period (refer to note 15). Inventory was written down by $7.0 million (2016: $11.5 million), largely as a result of the disposal of the Chilean assets as part of the asset swap to Australia. We continually review our rental fleet, matching fleet mix to regional demand. Idle units identified as having low rental demand and end of life machines are transferred to non-current assets held for sale and are actively marketed through Emecoʼs global network of brokers. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 10 1 6 2 1 8 1 L I N M A R 2 B a c k TRANSACTION IMPACTS OPERATING CASH FLOW Table 5: Cash flow summary A$ millions Operating EBITDA Non-Operating EBITDA Working capital Income tax cash flows Operating free cash flow Capital expenditure Disposals Net capital expenditure Free cash flow Note: 2016 results exclude discontinued operations 1H FY17 33.6 (2.2) (11.9) 0.0 19.5 (12.0) 5.1 (6.9) 12.6 2H FY17 49.9 (11.7) (20.8) 0.0 17.4 (19.4) 25.8 6.4 23.8 2017 2016 83.5 (13.9) (32.7) 0.0 36.9 (31.4) 30.9 (0.5) 36.4 54.2 (6.6) 14.6 4.0 66.2 (38.2) 15.1 (23.1) 43.1 Operating EBITDA increased from $54.2 million in FY16 to $83.5 million in FY17 however increased one off costs and significant working capital deficiencies associated with the merger with Andyʼs and Orionstone affected the operating free cash flow for FY17. Significant expenditure was incurred in 4Q17 to bring the acquired fleet from Andyʼs and Orionstone up to Emecoʼs operating standards. These cash outflows are largely one off in nature and are expected to conclude by the end of 1H18 when Emecoʼs maintenance program on acquired assets concludes. Net capital expenditure decreased to $0.5m due to the disposal of the Chile fleet and the close out of two rent to purchase options on the Canadian fleet. The Chile fleet was swapped for assets in Australia in addition to $11.7 million cash whilst the Canadian disposals generated cash of $13.9 million during the period. Capital expenditure was focused on major component expenditure on acquired machines as significant fleet was added to the Australian business during the period via the merger with Andyʼs and Orionstone. In addition, during the year Emeco released $15.2 million related to funds received from the closure of the remaining cross-currency interest rate swaps. A $20.0 million rights issue was completed during the period with the funds received being used to pay transaction costs which amounted to $35.0 million. BALANCE SHEET RESTRUCTURE The Company successfully completed its debt restructuring and the merger with two businesses in Australia in March 2017. The transaction consisted of the following: (cid:129) acquisition of Andyʼs for consideration of shares in Emeco; (cid:129) acquisition of Orionstone for consideration of shares in Emeco; (cid:129) cancellation of Emeco 144A notes, Andyʼs long term debt obligations and Orionstone long term debt obligations in exchange for new notes, for the value of 80% of the face value of the original debt, and 20% received as shares in Emeco. The new notes mature in 2022 with an interest rate of 9.25%; (cid:129) a refinanced A$65m revolving credit facility consisting of a A$35 million cash advance and a A$30 million bank guarantee facility, replacing the A$75 million asset backed loan; implementation of hedging arrangements against the US dollar denominated new notes; (cid:129) (cid:129) 5% of the total number of shares on issue provided to Black Diamond Capital Management LLC as the major holder of Emeco new notes; and (cid:129) A$20m rights offer to existing shareholders. Goodwill of $77.9 million arose on the acquisition due to numerous factors including a 60% increase in the Companyʼs share price over the transaction period and higher than expected short term liabilities acquired. Impairment testing performed at June 2017 indicated the Australia cash generating unit was impaired and consequently the $77.9 million of goodwill recognised on the acquisition was written off. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 11 t n o r F 2 R A M N I L 1 8 1 2 6 1 2 Table 6: Net debt and gearing summary A$ millions Interest bearing liabilities (current and non-current) 2017 2016 Notes 144A notes Revolving credit facility Asset backed loan Lease liabilities Other Cash Net debt Derivative asset / (liability) Net debt (including hedging instruments) Leverage ratio Interest cover ratio Note: Above figures based on facilities drawn – bank guarantees are excluded Leverage ratio - Net debt : Operating EBITDA Interest cover ratio - Operating EBITDA : Interest expense 462.7 0.0 0.0 0.0 9.8 1.6 17.0 457.1 (4.4) 461.5 5.5 1.5 0.0 380.7 0.0 0.0 9.0 0.5 24.8 365.4 18.9 346.5 6.7 1.1 The completion of Emecoʼs balance sheet restructure resulted in net debt increasing to $457.1 million. Following the issuance of the notes, Emecoʼs debt structure consists of US$360.8 million of bonds of which US$4.9 million are held by Emeco. The net amount outstanding at 30 June 2017 on the notes was US$355.9 million. The notes mature in March 2022 and a semi-annual coupon of 9.25% is payable in January and July each year. The notes are secured and guaranteed by Emeco Holdings Limited and its operating subsidiaries. The new notes do not contain maintenance covenants. As part of the transaction, A$75 million asset backed loan was replaced by a A$65 million revolving credit facility (RCF) consisting of a A$35 million cash advance facility and a A$30 million bank guarantee facility which matures in March 2020. The facility requires the Group to maintain a collateral coverage ratio greater than 3.0x and a fixed charge coverage ratio greater than 1.2x. At 30 June 2017 the RCF was undrawn and $2.7 million of the bank guarantee facility was utilised. The cross-currency interest rate swaps associated with the 144A notes were closed out during the period generating $15.2 million in cash. New hedging arrangements were entered into to hedge the FX movement on the US$355.9 million outstanding notes. US$230 million of the semi-annual coupon has been hedged to AUD in addition to US$100 million principal hedged. Due to the appreciation in the Australian dollar between the inception of the hedge on 31 March 2017 and 30 June 2017, a net hedge liability of $4.4 million has been recognised at June 2017. Finance lease liabilities increased from $9.0 million at 30 June 2016 to $9.7 million at 30 June 2017 with Emeco acquiring a number of finance lease assets via the merger with the Andyʼs and Orionstone businesses. Emecoʼs cash balance was $17.0 million at 30 June 2017. The cash flow was impacted by the working capital deficiencies of the acquired entities, combined with expenditure incurred in 4Q17 to bring the acquired fleet from Andyʼs and Orionstone up to Emecoʼs operating standards. Refer to note 24 in the accompanying financial statements for additional information on Emecoʼs financing facilities. Emecoʼs leverage ratio has improved from 6.7x to 5.5x at 30 June 2017 (which includes one quarter of the consolidated Groupʼs Operating EBITDA post-transaction compared with the full post transaction net debt). Similar to FY16 the board declared a nil interim and final dividend for FY17 as a result of the net operating loss for the period. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 12 Regional Business Overview Chart 5: Rental revenue by region (cid:18)(cid:346)(cid:349)(cid:367)(cid:286)(cid:853)(cid:3) (cid:1005)(cid:1006)(cid:1081) (cid:18)(cid:258)(cid:374)(cid:258)(cid:282)(cid:258)(cid:853)(cid:3)(cid:1009)(cid:1081) Chart 6: Operating EBITDA contribution by region Chart 7: Fleet by region Canada, 14% Canada, 1% Chile, 12% (cid:4)(cid:437)(cid:400)(cid:410)(cid:396)(cid:258)(cid:367)(cid:349)(cid:258)(cid:853)(cid:3)(cid:1012)(cid:1007)(cid:1081) Australia, 73% Australia, 99% AUSTRALIA Table 7: Performance indicators Chart 8: Average fleet utilisation Operating results A$ millions Rental revenue Contract mining Revenue EBITDA EBIT No. workforce 2017 185.3 2016 132.2 11.9 60.9 26.1 241 - 46.0 (8.3) 165 Var 53.1 11.9 34.5 34.4 76 80% 60% 40% 20% 0% Operating Utilisation Operating utilisation Average: 2017: 53%, 2016: 50% Year-end: 2017: 54%, 2016: 52% 2 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). Notes: (cid:129) (cid:129) (cid:129) Operating utilisation defined as ratio of operating hours recognised over a month, compared to 400 hours a month. (cid:129) Australia results in table 7 represent the Australian Rental segment. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 13 1 6 2 1 8 1 L I N M A R 2 F r o n t Main markets Comprised of five operating units, Queensland, New South Wales, Western Australia & South Australia, Victoria and Contract Mining, 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 8: Operating unit average operating utilisation Operating utilisation Current 62% 68% 54% 23% n/a 2017 53% 65% 48% 17% n/a 2016 53% 59% 34% n/a n/a Queensland New South Wales Western Australia & South Australia Victoria Contract Mining FY17 performance Revenue ($ million) 2016 2017 52.8 86.0 40.2 6.3 11.9 29.4 72.3 30.4 n/a n/a The Australia business improved average operating utilisation over FY16 to 50%, which was led by increased market share in both New South Wales and Queensland. Rental revenue improved by 40% to $185.3 million with operating EBITDA margins increasing from 26.1% in FY16 to 35.8% in FY17. This is a significant improvement in the business and shows the benefits received from cost reduction initiatives implemented in FY16 and the impact of operational excellence efficiencies in FY17. Headcount in Australia increased from 165 at 30 June 2016 to 329 at 30 June 2017 as the business acquired the operations of Andyʼs and Orionstone. Significant headcount rationalisation was made prior to the merger with the increase in headcount related to the scale of the business in Australia. The New South Wales business continues to remain a strong Australian business unit with FY17 operating utilisation of 65% compared to 59% over FY16. Revenue increased 18.9% over this period to $86.0 million as the region realises growth on existing projects through the strength of its relationships with customers. Queensland continued to grow its earnings base through improved market conditions and access to increased fleet and scale through merger with Orionstone. This has increased Emecoʼs customer base whilst diversifying its commodity exposure to copper and bauxite. Revenue increased 79.6% during this period and the business now holds 194 pieces of equipment in Queensland. Western Australia has rebounded off the lows experienced in FY16 and has increased operating utilisation in 2HFY17 driven by contracts won in iron ore and coal. During FY17, the Western Region successfully extended a key contract with an EOS customer and also acquired an EOS project site in South Australia. We see greater optimism throughout the Western region and aim to capitalise on this by winning new contracts in the next period. In Q4FY17, Emeco acquired contract mining and civil businesses which provided revenue of $11.9 million and $6.3 million respectively. Given the large direct costs and overheads associated with these business units, EBITDA contribution to the Group result was marginal. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 14 k c a B 2 R A M N I L 1 8 1 2 6 1 The year ahead The Australian business becomes managementʼs core focus for FY18 ensuring that fleet acquired during FY17 is put to work and operating utilisation of fleet is maximised. We expect strong growth in the New South Wales and Queensland businesses, from market exposure to coking coal, which should drive demand and increased utilisation of fleet. The asset transfer from Chile has provided $43.9 million of assets to support demand on the east coast. The majority of assets acquired have already been placed on contract. The EOS technology is being implemented on a new site in the Western Region which should see increased operating utilisation on that site and significant positive impact to the customerʼs operations and earnings. Management sees the EOS technology being able to provide improved asset maintenance and cost savings via condition monitoring and operator usage. Three contract mining projects were acquired from the merger of which two have already ended, with the last expiring in September 2017. Management continues to assess the civil business acquired from Andyʼs given its revenue contribution compared to its cost base. Opportunities to continue to support the east coast mining and infrastructure customers will be assessed. CANADA & CHILE Table 9: Canada Results Table 10: Chile Results Operating results Operating results A$ millions Revenue EBITDA EBIT No. employees 2017 10.6 12.1 6.1 1 2016 36.6 3.5 (3.9) 64 Var (26.0) 8.6 10.0 (63) A$ millions Revenue EBITDA EBIT No. employees 2017 28.3 10.4 0.5 1 2016 39.1 14.6 (3.3) 25 Var (10.8) (4.2) 3.8 (24) Notes: (cid:129) For a reconciliation of statutory to operating results refer to table 1 on page 7, table 2 on page 8 and accompanying notes. Canada Summary Emecoʼs Canadian strategic partner, Heavy Metal Equipment Rental (HMER), exercised two rent-to-purchase options during FY17 effectively disposing of all of Emecoʼs Canadian assets during the period. Emeco continues to hold several customer contracts in Canada which are managed by HMER which will provide a services fee to Emeco over FY18. Emeco does not expect a material earnings contribution from the Canadian business in the near-term. However, Emeco will continue to partner with HMER and maintain a presence in Canada, allowing it to take advantage of potential project opportunities should they arise. Chile Summary In Chile, low operating utilisation impacted on earnings and returns. During the period, a strategic partnership was entered into with a maintenance provider that allowed Emeco to significantly reduce operating and overhead costs. Despite the management of cost, the earnings of the business did not improve over FY17 and the decision was made to reduce Emecoʼs exposure in Chile. Management took an opportunity to dispose of the fleet in Chile in exchange for 85 assets located in Australia and a A$11.7 million cash payment. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 15 k c a B 2 R A M N I L 1 8 1 2 6 1 Table 11: Five year financial summary REVENUE Revenue from rental income Revenue from sale of machines and parts Revenue from maintenance services Total PROFIT EBITDA2 EBIT2 NPAT2 Statutory Profit/(loss) for the year Basic EPS BALANCE SHEET Total assets Total liabilities Shareholdersʼ 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 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 cents $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 2017 2016 2015 2014 2013 208,286 139,545 206,718 205,368 314,068 2,648 5,470 2,788 8,145 22,080 22,956 31,925 27,582 23,413 41,894 233,014 167,970 241,431 241,095 379,375 83,504 (97,066) (90,891) 54,246 (14,219) (90,519) 43,364 (59,225) (94,813) 67,344 (10,879) (213,543) (180,463) (225,389) (127,703) (275,309) (3.7) (15.1) (15.8) (3.6) 160,251 61,314 28,499 6,004 4.8 520,679 427,692 708,755 748,362 1,126,022 552,686 421,695 487,284 424,390 514,846 (32,007) 5,997 221,471 323,972 611,176 2 474,109 377,818 423,971 343,774 415,426 14,223 70,644 (2,894) 82,072 181,303 486 (23,112) (13,013) 25,032 (129,124) (21,318) (49,311) (6,733) (71,364) (119,281) (6,609) (1,779) (22,640) 35,740 (67,102) (334) 5,561 (18,495) 85,889 (9,273) Number of ordinary shares at year end '000 2,436,860 599,675 599,675 599,675 599,675 Total dividends paid in respect to financial year $'000 Ordinary dividends per share declared Special dividends per share declared cents cents KEY RATIO'S Average fleet utilisation Average fleet operating utilisation EBIT ROC Net debt to operating EBITDA % % % x 0 0.0 0.0 87.3 52.9 3.3 5.47 0 0.0 0.0 76.5 44.0 (2.7) 6.74 0 0.0 0.0 69.0 45.7 (9.4) 10.29 0 0.0 0.0 48.0 32.9 (0.8) 4.78 15,109 2.5 0.0 67.0 44.3 7.1 2.15 Financial information as reported in the corresponding financial year and includes operations now discontinued. 1 2 Operating results. Please refer to previous annual reports for reconciliation between Statutory and Operating Results. Includes capex funded via finance lease facilities (excluded from statutory cash flow). EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 16 1 6 2 1 8 1 L I N M A R 2 F r o n t Financial Report Directorsʼ 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governance statement(cid:3)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:3)(cid:1006)(cid:1006)(cid:3) Principal activities(cid:3)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:3)(cid:1006)(cid:1006)(cid:3) Operating and financial review(cid:3)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:3)(cid:1006)(cid:1006)(cid:3) Dividends(cid:3)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:3)(cid:1006)(cid:1006)(cid:3) Significant changes in state of affairs(cid:3)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:3)(cid:1006)(cid:1006)(cid:3) Events subsequent to report date(cid:3)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:3)(cid:1006)(cid:1006)(cid:3) Likely developments(cid:3)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:3)(cid:1006)(cid:1006)(cid:3) 3 Directorsʼ interest(cid:3)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:3)(cid:1006)(cid:1007)(cid:3) Indemnification and insurance of officers and auditors(cid:3)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:3)(cid:1006)(cid:1007)(cid:3) Non-audit services(cid:3)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:3)(cid:1006)(cid:1008)(cid:3) Lead auditorʼs independence declaration(cid:3)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:3)(cid:1006)(cid:1008)(cid:3) Rounding off(cid:3)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:3)(cid:1006)(cid:1008)(cid:3) Remuneration report (audited)(cid:3)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:3)(cid:1006)(cid:1009)(cid:3) Deloitte Touche Tohmatsu independence declaration(cid:3)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:3)(cid:1008)(cid:1004)(cid:3) Financial Statements(cid:3)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:3)(cid:1008)(cid:1005)(cid:3) Consolidated Statement of Profit or Loss and Other Comprehensive Income(cid:3)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:3)(cid:1008)(cid:1005)(cid:3) Consolidated Statement of Financial Position(cid:3)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:3)(cid:1008)(cid:1007)(cid:3) Consolidated Statement of Changes in Equity(cid:3)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:3)(cid:1008)(cid:1008)(cid:3) Consolidated Statement of Cash 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EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 17 1 6 2 1 8 1 L I N M A R 3 F r o n t (cid:3) Emeco Holdings Limited and its Controlled Entities Directorsʼ Report For the year ended 30 June 2017 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 auditorʼs report for the financial year ended 30 June 2017 (FY17). Directors The directors of the Company during FY17 were: PETER RICHARDS BCom, 58 Appointment: Independent Non-Executive Director since June 2010. Chairman since January 2016. Board committee membership: Chairman of the Remuneration and Nomination Committee since 1 April 2017 and Member of the Audit and Risk Management Committee. Skills and experience: Peter has over 35 years of international business experience with global and regional companies including British Petroleum (including its mining arm Seltrust Holdings), Wesfarmers Limited, Dyno Nobel Limited and Norfolk Holdings 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 a Non-Executive Director (2009 to 2015) of Bradken Limited and a Non- Executive Director (2010 to 2015) of Sedgman Limited. Current appointments: (cid:129) (cid:129) (cid:129) Chairman of Baralaba Coal Company Limited (Administrators Appointed) (since 2014) Non-Executive Director of NSL Consolidated Limited (since 2009, Chairman 2014 to 2017) Non-Executive Director of Graincorp Limited (since 2015) IAN TESTROW BEng (Civil), MBA, 47 Appointment: Managing Director since 20 August 2015. Skills and experience: Ian was appointed Chief Executive Officer in August 2015. Prior to this, Ian was Emecoʼs Chief Operating Officer, responsible for the Australian and Chilean operations as well as Global Asset Management. Ian has also held the positions of President, New and Developing Business after establishing Emeco's Chilean business in 2012 and President, Americas where Ian managed the exit of Emeco's USA business in 2010 and Emecoʼs Canadian business commencing 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 Limited, BHP Billiton Ltd, Thiess Pty Ltd and Dyno Nobel. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 18 k c a B 3 R A M N I L 1 8 1 2 6 1 k c a B 3 R A M N I L 1 8 1 2 6 1 (cid:3) Emeco Holdings Limited and its Controlled Entities Directorsʼ Report For the year ended 30 June 2017 PETER FRANK BSEE, MBA, 69 Appointment: Non-Executive Director since April 2017 Skills and experience: Peter is a Senior Managing Director at Black Diamond. Prior to joining Black Diamond, Peter was President of GSC Group, a SEC-registered investment adviser, where he worked since 2001. From 2005 until 2008, he served as the Senior Operating Executive for GSC's private equity funds. Prior to 2001, Peter was the CEO of Ten Hoeve Bros Inc and was an investment banker at Goldman Sachs & Co. From April 2010 to May 2015, Peter was a director of Viasystems Group Inc and he is currently a director of Color Spot Nurseries Inc, IAP Worldwide Services Inc, North Metro Harness Initiative LLC and White Birch Investment LLC. Peter has also served as chairman of the board of Kolmar Labs Group Inc, Scovill Inc and Worldtex Inc. Peter graduated from the University of Michigan with a BSEE degree and earned an MBA from the Harvard Business School. KEITH SKINNER B.Comm, FCA, FAICD, 64 Appointment: Independent Non-Executive Director since April 2017 Board committee membership: Chairman of the Audit and Risk Management Committee. Member of the Remuneration and Nomination Committee. Skills and experience: Keith was one of the leading Restructuring and Insolvency practitioners in Australia, leading many corporate turnarounds. Keith was the Chief Operating Officer of Deloitte Australia for 13 years until his retirement from the firm in May 2015. Keith was also a director of Deloitte Australia (1995 to 1997) and a director of the Deloitte Global Firm (2013 to 2015), and a member of the Governance (2013 to 2015) and Risk Committees (2013 to 2015) of both. Keith has also been the Chairman of Emue Technologies Limited (2013 to 2015). Current appointments: (cid:129) (cid:129) (cid:129) (cid:129) Chairman of the Audit and Risk Committee of the Australian Digital Health Agency (since 2016) Director of the North Sydney Local Health District (since 2017) Director of the Lysicrates Foundation Limited (since 2015) Advisory Board of SRX Global Pty Limited (since 2016) DARREN YEATES B Eng., MBA, FAICD, Grad Dip Mgt, Grad Dip App. Fin , 56 Appointment: Independent Non-Executive Director since April 2017 Board committee membership: Member of the Audit and Risk Management Committee. Member of the Remuneration and Nomination Committee. Skills and experience: Darren has over 30 years' mining industry experience, most recently as CEO of Hancock Coal. He has over 22 years' experience with Rio Tinto including as Acting Managing Director and Chief Operating Officer for Coal Australia, General Manager Ports and Infrastructure for Pilbara Iron and General Manager Tarong Coal. Prior to joining Rio Tinto he worked for 6 years for BHP in coal operations and metalifferous exploration. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 19 (cid:3) Emeco Holdings Limited and its Controlled Entities Directorsʼ Report For the year ended 30 June 2017 JOHN CAHILL BBus, Grad Dip Bus, FCPA, GAICD, 61 Appointment: Independent Non-Executive Director from September 2008 until 1 April 2017. Board committee membership: Chairman of the Audit and Risk Management Committee and member of the Remuneration and Nomination Committee until 1 April 2017. 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). ERICA SMYTH MSc, FAICD, FTSE, 65 Appointment: Independent Non-Executive Director from December 2011 until 1 April 2017. Board committee membership: Chair of the Remuneration and Nomination Committee and member of the Audit and Risk Management Committee until 1 April 2017. Skills and experience: With over 40 years' experience in the mineral and petroleum industries, Erica's career highlights include her positions as Chair of Toro Energy, Manager Gas Market Development WA for BHP Petroleum and General Manager Corporate Affairs with Woodside Petroleum Limited. In 2016 she was added to the WA Womenʼs Hall of Fame and 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. Erica was elected as a Fellow of the Academy of Technological Science and Engineering in 2012. GREGORY HAWKINS BCom, FCA, 49 Appointment: Executive Director Finance from 20 August 2015 until 19 August 2016. 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. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 20 3 1 6 2 1 8 1 L I N M A R 3 F r o n t t n o r F 3 R A M N I L 1 8 1 2 6 1 3 (cid:3) Emeco Holdings Limited and its Controlled Entities Directorsʼ Report For the year ended 30 June 2017 Company secretary The company secretaries of the Company during FY17 were: PENELOPE YOUNG BBus, LLB, LLM Appointment: Company Secretary since April 2017. Penny was appointed General Counsel in July 2017 and Company Secretary to the Emeco Board in April 2017. Penny joined Emeco as Senior Legal Counsel in May 2015. Prior to joining Emeco, Penny spent the majority of her career as a corporate and commercial lawyer in private practice in Melbourne. Penny holds a Master of Laws, Bachelor of Laws and a Bachelor of Business. THAO PHAM LLB (Hons), BCom Appointment: Company Secretary from 1 July 2014 until 1 April 2017. Thao was appointed Chief Strategy Officer in May 2017. Prior to this, Thao was Emeco's Chief Legal, Risk & Business Transformation Officer since April 2016, and General Counsel and Company Secretary since July 2014. Thao joined Emeco as Legal Counsel in May 2011. Prior to joining Emeco, Thao spent several years as a corporate and commercial lawyer with an Australian law firm. Thao holds a Bachelor of Law (with honours) and a Bachelor of Commerce, majoring in Accounting and Finance. Directorsʼ meetings The number of board and committee meetings held and attended by each director in FY17 is outlined in the following table below: Table 12: Board and committee meetings held and director attendance Director Board meetings Audit & risk management committee meetings Peter Richards Ian Testrow John Cahill Peter Frank Gregory Hawkins Keith Skinner Erica Smyth Darren Yeates A 15 15 13 2 1 2 13 2 B 15 15 13 2 1 2 13 2 A 4 4 * 3 1 * 0 * 1 3 1 B 4 4 3 1 0 1 3 1 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. Remuneration & nomination committee meetings A B 2 2 * 2 0 * 0 * 0 2 0 2 2 2 0 0 0 2 0 EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 21 1 6 2 1 8 1 L I N M A R 3 B a c k (cid:3) Emeco Holdings Limited and its Controlled Entities Directorsʼ Report For the year ended 30 June 2017 Corporate governance statement The Companyʼs corporate governance statement is located on the Companyʼs website at https://www.emecogroup.com/investors-overview/corporate-governance. Principal activities The principal activity during FY17 of the Group was the provision of heavy earthmoving equipment rental solutions to mining companies and contractors and associated services. As set out in this report, the nature of the Groupʼs 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 FY17, is set out in the operating and financial review section at pages 7 to 16 and in the accompanying financial statements. Dividends No dividends were declared or paid during FY17. No dividends have been declared or paid since the end of FY17. 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 Groupʼs state of affairs that occurred during the financial year under review. Events subsequent to report date During the financial year under review there were no significant events after the balance date. Likely developments Likely developments in, and expected results of, the operations of the Group are referred to in the operating and financial review section at pages 7 to 16. This report omits information on likely developments in the 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 Group. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 22 1 6 2 1 8 1 L I N M A R 3 B a c k (cid:3) Emeco Holdings Limited and its Controlled Entities Directorsʼ Report For the year ended 30 June 2017 Directorsʼ 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 13: Directorsʼ Interests Director Peter Richards Ian Testrow Peter Frank Keith Skinner Darren Yeates Ordinary shares Options or rights 52,264 757,831 [A] - - - - 123,246,461 [B] - - - [A] This comprises ordinary shares held directly by Mr Testrow and those which he acquired under the FY15 employee share ownership plan but which are held by the trustee of the plan on his behalf. See section 5.6 [B] This comprises unvested performance shares issued under the Companyʼs long term incentive plans after shareholder approval. See section 5.3, 5.4 and 5.5. 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, Deloitte Touche Tohmatsu. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 23 t n o r F 3 R A M N I L 1 8 1 2 6 1 3 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Directorsʼ Report For the year ended 30 June 2017 Non-audit services During the year, Deloitte Touche Tohmatsu, the Groupʼs 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: (cid:129) 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. (cid:129) 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 auditorʼs 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, Deloitte Touche Tohmatsu 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 auditorʼs independence declaration A copy of the auditorʼs independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 40 and forms part of the directorsʼ 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 as referred to in ASIC Corporations (Rounding in Financial/Directorsʼ Reports) Instrument 2016/191, dated 24 March 2016. The Company is an entity to which the class order applies. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 24 t n o r F 3 R A M N I L 1 8 1 2 6 1 3 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Directorsʼ Report For the year ended 30 June 2017 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 Groupʼs remuneration objectives, practices and outcomes for key management personnel (KMP), which includes directors and executives, for the year ended 30 June 2017. Any reference to ʻexecutivesʼ in this report refers to KMP who are not non-executive directors. The following persons were directors of the Company during FY17: Non-executive directors Peter Richards Chair Peter Frank Keith Skinner (Commenced role on 1 April 2017) (Commenced role on 1 April 2017) Darren Yeates (Commenced role on 1 April 2017) John Cahill Erica Smyth (Ceased role on 1 April 2017) (Ceased role on 1 April 2017) Executive directors Ian Testrow Managing Director & Chief Executive Officer Gregory Hawkins Executive Director, Finance (ceased role on 19 August 2016) The following persons were also employed as executives of the Company during FY17: Other executives Position Thao Pham Justine Lea Chief Strategy Officer (commenced role on 17 May 2017), previously Chief Legal, Risk & Business Transformation Officer (ceased role as Company Secretary on 1 April 2017). Chief Financial Officer (commenced role 24 October 2016), previously Acting Chief Financial Officer (commenced role on 1 July 2016) EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 25 1 6 2 1 8 1 L I N M A R 3 B a c k (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Directorsʼ Report For the year ended 30 June 2017 2. Remuneration governance The board is committed to implementing KMP remuneration structures which achieve a balance between: (cid:129) (cid:129) (cid:129) rewarding executives for the achievement of the Companyʼs short and long term financial, strategic and safety goals; incentivising executives to remain with the Group; 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: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) 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 Companyʼs public materials including ASX filings and the annual report; and retirement payments. The members of the remuneration and nomination committee in FY17 until 1 April 2017 were Ms Erica Smyth (Chair), Mr John Cahill and Mr Peter Richards. The members of the remuneration and nomination committee from 1 April 2017 were Mr Peter Richards (Chair), Mr Keith Skinner and Mr Darren Yeates. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 26 1 6 2 1 8 1 L I N M A R 3 B a c k (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Directorsʼ Report For the year ended 30 June 2017 3. Executive remuneration 3.1 Remuneration policy The Group remuneration policy is substantially reflected in the objectives of the Companyʼs remuneration and nomination committee. The committeeʼs 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. Provide a significant proportion of 'at risk' remuneration to ensure that executive reward is directly linked to the creation of shareholder value. Align executive interests with those of shareholders Ensure human resources policies and practices are consistent and complementary to the strategic direction of the Company. Attract, retain and develop proven performers Prohibit the hedging of unvested equity to ensure alignment with shareholder outcomes. Provide total remuneration which is sufficient to attract and retain proven and experienced executives who are capable of: (cid:129) fulfilling their respective roles with the Group; (cid:129) achieving the Groupʼs strategic objectives; and (cid:129) maximising Group earnings and returns to shareholders. The remuneration structure for the Companyʼs executives consists of fixed and variable components. The variable component ensures that a proportion of pay varies with Company performance. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 27 t n o r F 3 R A M N I L 1 8 1 2 6 1 3 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Directorsʼ Report For the year ended 30 June 2017 3.2 Fixed remuneration Fixed remuneration comprises base salary, employer superannuation contributions and other non-cash benefits. Each executiveʼs fixed remuneration is reviewed and benchmarked annually in August. In FY17, this process did not result in any change in any Executiveʼs fixed remuneration. However, fixed remuneration of executives was reviewed as a result of expanded responsibilities on and from, and once executive remuneration restrictions ceased upon, completion the Groupʼs recapitalisation and the acquisitions of Andyʼs Earthmovers (Asia Pacific) Pty Ltd (Andyʼs) and Orionstone Holdings Pty Ltd and its subsidiaries (Orionstone) (together, Transaction). The level of remuneration is set to enable the Company to attract and retain proven performers once they are working within the business. An executiveʼs 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. 3.3 Variable remuneration Generally, executives are entitled to variable remuneration which consists of short and long term incentives. At the start of FY17 when the board set the FY17 remuneration structure for executives, the employee share trust already held a significant amount of shares for employees pursuant to existing plans. This left little headroom to offer a meaningful long-term equity-based incentive given the Companyʼs share price at that time. Further, there was uncertainty around the Companyʼs capital structure in light of the Companyʼs corporate development activities and the potential Transaction. Therefore, the executive remuneration structure for FY17 did not include a long term, equity-based retention incentive plan. Instead, the percentage of variable remuneration usually offered to executives in respect of long term incentive plans was offered as an additional short term incentive (STI). Increasing the STI component ensured executives remained incentivised to maintain a clear focus on day-to-day operations and financial performance in order to create shareholder value, notwithstanding the work required to complete the note refinancing and mergers with Andyʼs and Orionstone. The below table sets out the maximum remuneration for each executive in FY17 attributable to STIs as a percentage of total fixed remuneration (TFR) if maximum performance is achieved. Table 14: STI remuneration Executive Ian Testrow Position Managing Director & Chief Executive Officer Thao Pham Chief Strategy Officer Justine Lea Chief Financial Officer STI 200% 100% 100% LTI - - - Maximum total variable remuneration 200% 100% 100% EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 28 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Directorsʼ Report For the year ended 30 June 2017 Further, on 13 March 2017 the Company held extraordinary general meeting (EGM) for the purpose of approving a series of interrelated resolutions required in order to approve the Transaction. At that meeting, shareholders approved the establishment of the Companyʼs new management incentive plan (MIP) as part of the Transaction. In FY17 after completion of the Transaction, 303,603,596 awards were made to senior management under the MIP in recognition of their contribution to the Transaction and also their ability to drive the long term objectives of the Emeco Group and increase shareholder wealth. This offer differed from other long-term incentive offers given its connection to the Transaction and also as the awards were not determined by reference to a percentage of remuneration. Approximately 75% of the MIP awards are performance shares which are already on issue. A performance share is a fully paid ordinary share on issue, the vesting of which is subject to a performance condition being met. See section 3.3.2. 3.3.1 STI remuneration Cash STIs are usually used to reward the performance of executives over a full financial year. However, for FY17, in light of the acquisition of Andyʼs and Orionstone on 30 March 2017, STIs were assessed against Company performance in respect of key performance indicators (KPIs) over the: (cid:129) (cid:129) first three quarters of FY17 for financial KPIs as these related to FY17 budget (the fourth quarter budget became irrelevant upon completion of the Transaction); and the full financial year for non-financial KPIs. The actual amount of STI awarded is determined after the end of the financial year in light of the Companyʼs performance against the KPIs. All executive STI awards require review and approval by the remuneration and nomination committee and the board. An executiveʼs maximum achievable STI award is set as a percentage of TFR (see table 14 above for details). FY17 STI awards are made 100% in cash. Key performance indicators As noted above, due to the Transaction completing on 30 March 2017 resulting in the earnings of Andyʼs and Orionstone being included in the fourth quarter financials, the financial KPI (which was based on budget EBITDA) was assessed over the first three quarters of FY17. Along with the financial performance indicator, a safety KPI was included given the importance of safety to the Groupʼs workforce, customers and therefore the long term sustainability and success of the Group. In respect of the FY17 STI plan, the executives had identical KPIs and no personal KPIs. This was designed to focus executive efforts on the overall performance of the Company and promote collaboration and support between executives, senior managers and the Group as a whole. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 29 3 1 6 2 1 8 1 L I N M A R 3 F r o n t (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Directorsʼ Report For the year ended 30 June 2017 Table 15 below sets out the KPIs for the FY17 STI plan and the weightings attributable to each of them. In the boardʼs view, these KPIs align the reward of executives with the interests of shareholders. Table 15: FY17 STI plan KPI weightings and entitlements Weighting 80% KPI EBITDA for Q1, Q2 and Q3 Safety [A] 20% Entitlement 0% if actual EBITDA less than 90% of budget EBITDA 100% if actual EBITDA more than 110% of budget EBITDA Pro-rata payments between these levels 0% if TRIFR as at 30 June 2017 is an improvement of less than 10% or less on FY16 performance. 100% if TRIFR as at 30 June 2017 is a 25% or more improvement on FY16 performance. Pro-rata payments between these levels. Rationale Reflects the financial performance and the ability of the Company to pay STI awards. Achievement 100% 100% The board regularly reviews the Companyʼs safety performance in detail and is striving to achieve a 'zero- harm' workplace at Emeco. TRIFR measures progress towards this aspiration. [A] TRIFR = Number of recordable injuries x 1,000,000 hours Total hours worked 3.3.2 MIP remuneration Allocation of MIP awards to executives formed an important aspect of the Transaction to incentivise management to stay with the Group post-Transaction and this award aligns the interests of senior managers with the long term interests of shareholders. MIP awards are in the form of performance shares or performance rights (MIP awards). A performance share is a fully paid ordinary Emeco share on issue, the vesting of which is subject to service conditions being met. A performance right is a right to receive a fully paid ordinary Emeco share, the vesting of which is subject to service conditions being met. After completion of the Transaction, selected participants were offered performance rights under the MIP. These were offered both as a recognition of their contribution to the Transaction and as an incentive to remain with the Group in order to achieve timely integration of the Emeco, Andyʼs and Orionstone businesses, forecasted synergies and to deliver the Groupʼs long term objectives. The number of performance rights offered to executives was determined by reference to a percentage of the issued capital of the Company. The number of performance shares ultimately granted to Mr Testrow was reduced as part of the Transaction and calculated in accordance with description set out in the notice of meeting for the EGM and as approved by the shareholders at the EGM. This calculation reflected a reduction in Mr Testrowʼs entitlement of 5% of the issued capital of the Company under his executive services agreement by the corresponding number of shares that were issued to a transaction party under a top-up placement (see the EGM notice of meeting for further information). Performance shares and performance rights were offered at no cost, however, vesting is subject to the service condition described below being satisfied. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 30 k c a B 3 R A M N I L 1 8 1 2 6 1 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Directorsʼ Report For the year ended 30 June 2017 Service condition MIP awards vest at the end of a three year period to encourage senior management to remain with the Group for the three year vesting period. Retaining senior management is particularly important to the Company given integration of the Andyʼs and Orionstone businesses, the significant increase in equipment numbers and personnel as well as the long term objectives of the Group. Performance shares which vest will be transferred to the participant. In respect of performance rights which vest, corresponding shares will be transferred to the participant. MIP awards that do not vest will lapse and any associated shares on issue will continue to be held in trust for subsequent reallocation. Vesting on involuntary termination If an executiveʼs employment is terminated due to death, total and permanent disability, retrenchment or retirement, then the executiveʼs unvested MIP awards will vest, pro-rated based on the period that the executive has been employed with Emeco during the vesting period. All unvested MIP awards lapse if an executive resigns or is terminated for cause. 3.4 Prohibition of hedging securities Emecoʼs share trading policy prohibits executives, directors, officers and employees 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 Emecoʼs remuneration objectives effectively align the interests of Emecoʼs executives with the interests of the Company and its shareholders. This has been achieved by setting STI KPIs which are focussed on the overall performance of the Company and which promote collaboration and support between executives, senior managers and the Group as a whole. In respect of FY17, 100% of the executivesʼ target STI was awarded as a result of the improved financial performance of the Group. MIP awards are dependent on continued employment with the Group over, and the value of which are ultimately dependent on the share price at the end of, the vesting period. No incentives under the Companyʼs previous long term incentive plans vested in FY17. See section 5.5 for more detail. In FY17, the Company continued to focus on cash generation through reducing costs, disposing surplus fleet and managing capital expenditure and working capital in order to deleverage and strengthen its balance sheet. EBITDA is a good indicator of the Companyʼs cash generating ability. Further deleveraging was achieved through the recapitalisation and mergers with Andyʼs and Orionstone and the Companyʼs new senior secured notes and revolving credit facility have provided financial flexibility to generate cash to continue to reduce debt. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 31 k c a B 3 R A M N I L 1 8 1 2 6 1 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Directorsʼ Report For the year ended 30 June 2017 Retaining senior management during this period was integral to the Companyʼs achievements and in placing the Group in a leading market position from which to benefit from the improving market conditions and hence greater shareholder returns. Details of the KPIs for the FY17 STI and MIP plans are set out in the following table: KPI Financial Non-financial STI EBITDA Safety MIP Share price Continued employment Further details regarding Emecoʼs executive remuneration structure are set out in sections 3.2 and 3.3. In FY17, the STI awards to executives increased from FY16 due to the Companyʼs improved financial performance. However, 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 in FY16 all executives only received 25% of their target STI as the operating EBITDA target was not reached. No executive subject to the financial hurdle in FY15 received a STI payment in that year. In FY14, the STIs were awarded for safety and personal goals and the sale of idle assets KPIs being met, however, no STIs in respect of financial KPIs were awarded. STI payments to executives decreased in FY13 partially due to financial KPIs not being met. Details of the FY17 KPIs are set out above in section 3.3.1. 3 Details of the Groupʼs performance and benefits for shareholder wealth are set out in the following table: Profit/(loss) from continuing operations ($m) (156.2) (168.4) (123.1) (224.2) FY17 FY16 FY15 FY14 FY13 (0.0) Profit/(loss) from discontinuing operations ($m) (24.3) (56.9) Statutory EBITDA 69.6 47.6 (4.6) 32.8 (51.1) 6.0 27.2 148.3 Statutory profit/(loss) ($m) (180.5) (225.3) (127.7) (275.3) Total dividends declared ($m) - - - - 6.0 15.0 Statutory return on capital employed (50.2%) (61.6%) (20.7%) (30.7%) 4.2% Closing share price as at 30 June $0.11 $0.03 $0.08 $0.20 $0.28 Macroeconomic uncertainty, a downturn in the resources sector globally, difficult trading conditions in Emecoʼs markets and a resultant decline in the Companyʼs earnings saw the Companyʼs share price close at 28 cents, 20 cents, 8 cents and 3 cents on 30 June 2013, 30 June 2014, 30 June 2015 and 30 June 2016 respectively. In FY17, market conditions improved, contributing to an increase in the Companyʼs earnings. The Companyʼs share price also increased and closed at 10.5 cents on 30 June 2017. No long term securities have vested in the last five years as a result of the Companyʼs performance. The change to retention based long term incentive plans provides senior managers with a more meaningful incentive to remain with the Group over the longer term. The Company considers retaining senior managers will be a key factor in the performance of the Group. The Companyʼs innovative technological platforms, in addition to the enhanced fleet and capability as a result of the Transaction, positions the Group well to add further value for Emeco customers and increase Company earnings. The value of the MIP awards upon vesting will be wholly dependent on the Companyʼs share price, which aligns executivesʼ interests with that of shareholders. The primary means available to the Company to grow shareholder wealth, whether by way of dividend distributions or increases in the Companyʼs 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. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 32 1 6 2 1 8 1 L I N M A R 3 F r o n t (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Directorsʼ Report For the year ended 30 June 2017 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. In FY17, this process did not result in any change in non-executive director fees. An annual cap of $1,200,000 is currently prescribed in the Companyʼs 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 Companyʼs 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. 4 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. Due to the small number of Australian based non-executive directors in FY17, all Australian non-executive directors sit on more than one committee. However non-executive directors only get paid for sitting on one committee. 5. Details of remuneration 5.1 Remuneration received in relation to FY17 Details of the elements comprising the remuneration of the Groupʼs KMP in FY17 are set out in table 16 below. The table does not include the following components of remuneration because they were either not provided to KMP during FY17 or were not available to KMP by reason of their executive role: (cid:129) (cid:129) (cid:129) (cid:129) 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. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 33 1 6 2 1 8 1 L I N M A R 4 F r o n t (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Directorsʼ Report For the year ended 30 June 2017 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 16. Table 16: FY17 KMP remuneration (Company and consolidated) Short-term em ployee benefits Post-em ploym ent benefits Share based paym ents Superan- nuation benefits $ Other long term benefits $ Term ination benefits $ Long term equity incentives [2] $ Salary and fees $ Short term bonus paym ents [1] $ 151,219 68,126 20,644 22,709 68,126 22,193 353,017 - - - - - - - Non- m onetary $ - - - - - - - 14,366 6,472 1,961 2,157 6,472 2,108 33,536 - - - - - - - 801,002 51,834 3,060,000 [E] - 60,275 - 32,302 5,839 60,173 - 335,398 318,365 1,506,599 600,400 [F] 428,500 [F] 4,088,900 - - 60,275 26,775 29,086 94,002 - 22,551 82,724 Non-executive directors Peter Richards John Cahill [A] Peter Frank [B] Keith Skinner [B] Erica Smyth [A] Darren Yeates [B] TOTAL NON-EXECUTIVE DIRECTORS Executive directors Ian Testrow [C] Gregory Haw kins [D] Other executives Thao Pham Justine Lea TOTAL ALL EXECUTIVES TOTAL 1,859,616 4,088,900 60,275 127,538 82,724 % of rem uneration perform ance related - - - - - - - 81% n/a 70% 57% Total $ 165,585 74,598 22,605 24,866 74,598 24,301 386,553 - - - - - - - 969,333 (134,442) 4,983,085 (76,768) 232,462 69,905 1,137,258 1,195,035 868,407 6,969,758 1,137,258 7,356,311 - - - - - - - - - - - - - [1] [2] [A] [B] [C] [D] [E] [F] This figure includes: (i) STI awards under the FY17 plan which were finally determined on 24 August 2017 after completion of performance reviews (refer to table 17) and (ii) Transaction related bonuses and payments (see notes E and F below). This figure includes equity based incentives offered under the Companyʼs long-term equity based incentive plans in FY15, FY16 and FY17. Mr John Cahill and Ms Erica Smyth ceased as non-executive directors on 1 April 2017. Mr Peter Frank, Mr Keith Skinner and Mr Darren Yeates commenced as non-executive directors on 1 April 2017. Mr Ian Testrow received non-monetary benefits including housing in respect of his relocation arrangement back to Australia in 2014. These benefits ceased in February 2017. Mr Gregory Hawkins ceased his role as Executive Director, Finance on 19 August 2016. All unvested long term securities offered to Mr Hawkins were forfeited in accordance with their terms and expensed through the income statement. This figure includes the following one-off cash bonuses paid to Mr Ian Testrow after completion of the Transaction: (i) $650,000 in recognition of Mr Testrowʼs partial MIP sacrifice during the Transaction (see section 3.3.2 for further information); and (ii) Transaction bonus of $650,000 (in accordance with Mr Testrowʼs executive services agreement, completion of the Transaction on 31 March 2017 gave rise to an entitlement to a transactional bonus of $1,000,000. The transactional bonus was entirely dependent on the Transaction completing and therefore was either payable in full or not payable at all. Mr Testrow elected to exercise his option to share, and directed portions of, the transactional bonus to other KMPs in recognition of their significant contributions to completion of the Transaction (see note F below). This figure includes one-off transactional cash bonuses of $250,000 and $100,000 paid to Ms Thao Pham and Ms Justine Lea respectively in recognition of their significant contributions to completion of the Transaction (see note E above). k c a B 4 R A M N I L 1 8 1 2 6 1 EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 34 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Directorsʼ Report For the year ended 30 June 2017 Comparative information relating to remuneration of the Groupʼs KMP for the prior financial year is set out below: Short-term em ployee benefits Post-em ploym ent benefits Share based paym ents Non-executive directors Alec Brennan [A] John Cahill Peter Richards Erica Smyth Executive directors Ian Testrow [B] Gregory Haw kins Kenneth Lew sey [C] TOTAL ALL DIRECTORS Other executives Thao Pham Christopher Hayman [D] Kalien Selby [E] TOTAL ALL EXECUTIVES Salary and fees $ 113,495 97,853 123,388 92,589 611,000 484,121 259,747 1,782,193 290,767 69,431 53,906 414,104 STI [1] $ - - - - 130,000 - - 130,000 26,857 - - 26,857 Super- Other annuation long term benefits $ benefits $ Non- m onetary $ - - - - 10,782 9,296 11,721 8,795 97,995 - - 97,995 32,938 31,321 24,675 129,528 - - - - 31,011 - 18,435 49,446 Term ina- tion benefits $ - - - - - - 501,539 501,539 - 174,081 190,935 365,016 % of rem uneration perform ance related % - - - - 20% 16% 50% 20% -161% 9% LTIs [2] $ - - - - Total $ 124,277 107,149 135,109 101,384 219,761 94,583 783,723 1,098,067 1,091,694 610,025 1,569,684 3,739,322 89,065 (150,083) 24,983 (36,035) 437,700 93,429 288,259 819,388 866,555 1,062,032 4,558,710 - - - - - - - - - - - - - TOTAL 2,196,297 156,857 97,995 178,974 k c a B 4 R A M N I L 1 8 1 2 6 1 [1] [2] [A] [B] [C] [D] [E] STI awards under the FY16 plan were finally determined on 24 August 2016 after completion of performance reviews. This figure includes long term incentives offered under the Companyʼs previous long term incentive plan and, in respect of Ms Thao Pham, RIs offered in FY16. Mr Alec Brennan ceased his role as non-executive director on 22 April 2016. Mr Testrow received non-monetary benefits including housing in respect of his relocation arrangement back to Australia is 2014. Mr Kenneth Lewsey ceased his role as managing director and chief executive officer on 20 August 2015. All unvested long term securities granted to Mr Lewsey were forfeited in accordance with the terms of the grant and expensed through the income statement. Mr Christopher Haymanʼs remuneration has been converted to Australian dollars on the basis of an AUD/CAD exchange rate of 0.9890. Mr Hayman ceased his employment on 6 November 2015. All unvested long term securities granted to Mr Hayman were forfeited in accordance with the terms of the grant and reversed through the income statement. Ms Kalien Selby ceased her employment on 28 August 2015. All unvested long term securities granted to Ms Selby were forfeited in accordance with the terms of the grant and expensed through the income statement. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 35 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Directorsʼ Report For the year ended 30 June 2017 5.2 FY17 STI grants The terms of the FY17 STI plan are discussed at pages 28 to 30. Details of the vesting profile of the STI grants awarded to executives in respect of FY17 are set out below: Table 17: FY17 executive STI vesting information Executive [A] Ian Testrow Thao Pham Justine Lea Maximum total STI value [1] $1,760,000 $350,400 $328,500 % of STI awarded % of STI forfeited 100% 100% 100% 0% 0% 0% [A] [1] Mr Gregory Hawkins ceased employment with the Group on 19 August 2016 and did not have FY17 STI entitlements. The minimum STI value for each KMP is zero. All STI awards will be paid in cash. 5.3 MIP grants The terms of the MIP are discussed at page 30 to 31. Grants and vesting of MIP awards made to executives under the MIP in FY17 are set out in the following table: Table 18: MIP award grants and vesting to executives Executive Grant date Equity instrument Number granted Maximum value [1] Vesting date Fair value per share/right at grant date [2] Number held at year end Ian Testrow [A] 31/03/2017 Performance shares 108,674,758 $9,020,005 1/04/2020 $0.083 108,674,758 Thao Pham 31/03/2017 Performance rights 24,368,606 $2,022,594 1/04/2020 $0.083 24,368,606 Justine Lea 31/03/2017 Performance rights 8,122,868 $674,198 1/04/2020 $0.083 8,122,868 [A] [1] [2] Mr Ian Testrowʼs grant of performance shares was approved by shareholders at the EGM as part of the interrelated resolutions to approve the Transaction. As set out above, performance shares are fully paid ordinary Emeco shares already on issue, the vesting of which is subject to service conditions being met (see section 3.3.2). The minimum value of each grant is zero. The fair value of the securities was determined using the share price at market open on 31 March 2017, 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 16) is the portion of the fair value of the securities recognised in FY17. 5.4 Retention Incentives In FY16 the Company offered executives retention incentives (RI). The awards offered under the RI Plan are not conditional on Company performance but rather vest at the end of a three year period (performance period). This was to encourage senior management to remain with the Group for the performance period. Historically most of the Companyʼs long term incentive plans included a performance condition based on the relative total shareholder return (TSR) of the Company measured against a peer group over a three year vesting period. TSR performance conditions became particularly difficult to satisfy given the downturn in the mining sector and seemingly affected the value of these plans as a retention tool. Since, the Company has offered long term incentive plans with service conditions rather than TSR performance conditions. Turnover in senior management has decreased during FY16 and FY17 as a result. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 36 4 1 6 2 1 8 1 L I N M A R 4 F r o n t t n o r F 4 R A M N I L 1 8 1 2 6 1 4 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Directorsʼ Report For the year ended 30 June 2017 RI remuneration is in the form of performance shares or performance rights (RI securities). All RI securities are backed by ordinary shares on issue and, as such, RI securities which vest will not impact the issued capital of the Company. As set out in section 3.3.2, a performance share is a fully paid ordinary Emeco share, the vesting of which is subject to the performance condition being met. A performance right is a right to receive a fully paid ordinary Emeco share on issue, the vesting of which is subject to the performance condition being met. RI securities that do not vest at the end of the vesting period will lapse. Shares associated with these RI securities will be held in 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. Grants and vesting of RI securities made to executives under the Companyʼs RI Plan are set out in the following table: Table 19: RI securities grants and vesting to executives Executive [A] Grant date Equity instrument Number granted Maximum value [1] Vesting date Fair value per share/right at grant date [2] Number held at year end Ian Testrow 14/12/2016 Performance shares 13,021,703 $780,000 Sep-18 $0.030 13,021,703 Thao Pham 05/02/2016 Performance shares 3,330,756 $199,525 Sep-18 $0.030 3,330,756 [A] [1] [2] The performance share offer made to Mr Ian Testrow in FY16 was approved by shareholders at the Companyʼs 2016 annual general meeting. Mr Hawkins ceased employment with the Group on 19 August 2016 and his offer of performance shares was forfeited prior to shareholder approval for the grant being sought. Ms Justine Lea was not offered performance shares in FY16. The minimum value of each grant is zero. The fair value of the RI 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 16) is the portion of the fair value of the securities recognised in FY17. 5.5 Long Term Incentives During FY08 to FY15, the Company offered long term incentives (LTIs) to executives to reward them for Company performance over a three year period (vesting period). LTI remuneration was in the form of performance shares or performance rights (LTI securities). The performance condition for the vesting of LTI securities was based on the relative 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 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). EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 37 1 6 2 1 8 1 L I N M A R 4 B a c k (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Directorsʼ Report For the year ended 30 June 2017 LTI securities 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 Percentage of LTI securities that vest Nil Between 50% and 75% 50% plus 2% for each percentile rank over 50% 75% or higher 100% LTI securities that do not vest at the end of the vesting period will lapse. The shares associated with these LTI securities will be held in 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. Grants and vesting of LTI securities made to executives under the Companyʼs LTI plans are set out in the following table: Executive [A] Grant date Equity instrument Number granted Maximum value [1] Ian Testrow 04/12/2013 Performance rights 1,633,151 $228,641 14/12/2016 Performance shares 1,550,000 $232,500 Thao Pham 07/10/2013 Performance shares 199,456 $33,908 24/11/2014 Performance shares 640,000 $96,000 Justine Lea 07/10/2013 Performance shares 215,294 $36,600 24/11/2014 Performance shares 244,000 $36,600 % vested in FY17 - - - - - - % forfeited in FY17 Vesting date [2] 100% Sep-16 - 100% - 100% Sep-17 Sep-16 Sep-17 Sep-16 - Sep-17 Fair value per share/right at grant date [3] $0.15 $0.12 $0.18 $0.12 $0.18 $0.12 Number held at year end 0 1,550,000 0 640,000 0 244,000 [A] [1] [2] [3] The LTI securities offer made to Mr Ian Testrow in FY15 was approved by shareholders at the Companyʼs 2016 annual general meeting on 14 December 2016. Mr Hawkins ceased employment with the Group on 19 August 2016 and his offer of LTI securities was forfeited prior to shareholder approval. The minimum value of each grant is zero. For LTI securities granted in FY15 the vesting date is the twentieth trading day after the announcement of the Companyʼs annual results in 2017. 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 16) is the portion of the fair value of the securities recognised in FY17. 5.6 Emeco employee share ownership plan Emecoʼs employee share ownership plan (ESOP) was an elective plan which was open to all Australian employees between FY08 and FY15. Under the ESOP, for every five shares acquired and paid for by the employee under the ESOP (ESOP shares), 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 resigns from the Group before the expiry of the restriction period, the matching shares are forfeited. All matching shares automatically vest if an employee is made redundant before the expiry of the restriction period. The ESOP shares are held in escrow by the trustee during the restriction period. The ESOP administrator, Link Market Services, releases the ESOP shares from escrow at the earlier of the expiry of the restriction period and the termination of the employeeʼs employment with Emeco. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 38 1 6 2 1 8 1 L I N M A R 4 B a c k (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Directorsʼ Report For the year ended 30 June 2017 Emeco has not offered any shares under the ESOP since FY14. However, shares acquired in 2015 under previous ESOPs vested for participating employees that remain employed with Emeco at 31 December 2016. During FY17 ESOP shares were released from escrow, and matching shares vested, under previous ESOPs as set out below: Executive Ian Testrow Thao Pham Released ESOP shares Vested matching shares 24,886 24,886 4,973 4,973 6. Service contracts Each executive is employed pursuant to contracts which provide for an indefinite term. In respect of Mr Testrow, his employment contract is terminable by either party giving notice of the greater of: (i) 12 months; and (ii) a period expiring on 30 March 2020 (Notice Period) or on the payment to Mr Testrow of the Notice Period in lieu of notice (subject to shareholder approval where required). The employment contracts of the other executives are terminable on either party giving six monthsʼ notice or on the payment to the executive of up to six monthsʼ 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, 30th day of August 2017 EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 39 t n o r F 4 R A M N I L 1 8 1 2 6 1 4 Deloitte Touche Tohmatsu ABN 74 490 121 060 Tower 2, Brookfield Place 123 St Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6837 Australia Tel: +61 8 9365 7000 Fax: +61 8 9365 7001 www.deloitte.com.au The Board of Directors Emeco Holdings Limited 3/71 Walters Drive Perth WA 6017 3(cid:19) August 2017 Dear Board Members Emeco Holdings Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Emeco Holdings Limited. As lead audit partner for the audit of the financial statements of Emeco Holdings Limited for the financial year ended 30 June 2017, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours sincerely DELOITTE TOUCHE TOHMATSU Leanne Karamfiles Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited t n o r F 4 R A M N I L 1 8 1 2 6 1 4 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Financial Statements Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2017 Note 2017 $'000 2016 $'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 Depreciation expense Gross profit Other income Other expenses Impairment of tangible assets Amortisation expense Business acquisition and restructuring transaction expenses Finance income Finance costs Net foreign exchange gain/(loss) Loss before tax expense Tax benefit/(expense) 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 (net of tax) Changes in fair value of cash flow hedges (net of tax) Total other comprehensive income/(loss) for the year 8 8 7 8 8 21 8b 8 8 8 10 14 183,248 1,639 20,156 205,043 (8,322) (68,648) (20,689) (16,108) (60,721) 30,555 2,716 (31,362) (10,153) (826) (87,997) 14,112 (48,441) (10,079) (141,475) (14,672) (156,147) (24,316) (24,316) (180,463) 139,545 5,470 22,956 167,970 (8,502) (63,144) (30,890) (14,873) (51,282) (721) 1,227 (18,420) (130,789) (148) - 79,053 (55,132) (41,666) (166,596) (1,858) (168,454) (56,935) (56,935) (225,389) 14,397 (15,400) (1,003) (3,403) 11,821 8,418 Total comprehensive income/(loss) for the year (181,466) (216,971) 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 128. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 41 1 6 2 1 8 1 L I N M A R 4 B a c k (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Consolidated Statement of Profit or Loss and Other Comprehensive Income (continued) For the year ended 30 June 2017 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 Loss per share: Basic loss per share Diluted loss per share Loss per share from continuing operations Basic loss per share Diluted loss per share Note 35 35 2017 $'000 2016 $'000 (180,463) (180,463) (225,389) (225,389) (181,466) (181,466) (216,971) (216,971) Note 2017 cents 2016 cents 35 35 35 35 (18.66) (18.66) (16.15) (16.15) (40.42) (40.42) (30.21) (30.21) 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 128. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 42 1 6 2 1 8 1 L I N M A R 4 B a c k (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Consolidated Statement of Financial Position as at 30 June 2017 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 Property, plant and equipment Deferred tax assets Investments Total non-current assets Total assets Current Liabilities Trade and other payables Liabilities directly associated with assets classified as held for sale Derivative financial instruments Interest bearing liabilities Provisions Total current liabilities Non-current Liabilities Interest bearing liabilities Provisions Total non-current liabilities Total liabilities Net (liabilities)/assets Equity Share capital Reserves Retained losses Total equity attributable to equity holders of the Company Note 2017 $'000 2016 $'000 17 18 19 20 15 18 19 21 22 12 23 15 19 24 26 24 26 13 16,978 113,535 - 3,114 2,956 26,421 163,004 237 4,015 2,887 349,737 - 799 357,675 520,679 82,545 449 8,366 6,894 6,383 104,637 447,145 904 448,049 552,686 24,854 37,734 6,315 5,333 1,832 30,728 106,796 6,234 12,629 2,344 280,182 19,507 - 320,896 427,692 38,035 883 - 4,579 3,469 46,966 373,239 1,490 374,729 421,695 (32,007) 5,997 749,117 (537) (780,587) (32,007) 593,616 12,505 (600,124) 5,997 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 128. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 43 t n o r F 4 R A M N I L 1 8 1 2 6 1 4 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Consolidated Statement of Changes in Equity For the year ended 30 June 2017 Balance at 1 July 2015 Total com prehensive incom e 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 w ith ow ners, recorded directly Contributions by and distributions to owners Ow n shares acquired by employee share plan trust Share-based payment transactions Total contributions by and distributions to ow ners Balance at 30 June 2016 Balance at 1 July 2016 Total com prehensive incom e for the period Profit or (loss) Other comprehensive income Foreign currency translation differences Changes in fair value of cash flow hedge, net of tax Total comprehensive income/(loss) for the period Transactions w ith ow ners, recorded directly Contributions by and distributions to owners Shares issued during the period Ow n shares acquired by employee share plan trust Share-based payment transactions Total contributions by and distributions to ow ners Balance at 30 June 2017 Share based paym ent reserve $'000 Hedging reserve $'000 Foreign currency translation for ow n Accum ulated Reserve reserve $'000 shares $'000 (20,634) losses $'000 (374,735) Total equity $'000 221,471 15,247 (8,219) 16,196 - - - - - (3,257) 11,821 8,564 - (146) - (146) - - - - (225,389) (225,389) - (3,403) - (225,389) 11,821 (216,971) Share capital $'000 593,616 - - - - - - - 593,616 - 1,497 1,497 16,744 - - - 345 - - - 16,050 - - - (20,634) - - - (600,124) - 1,497 1,497 5,997 Share based paym ent reserve $'000 Hedging reserve $'000 Foreign currency translation for ow n Accum ulated Reserve reserve $'000 shares $'000 (20,634) losses $'000 (600,124) Total equity $'000 5,997 16,744 345 16,050 - - - - - - 12,581 1,816 (15,400) (2,819) - 1,816 - - - - (180,463) (180,463) - 14,397 - (180,463) (15,400) (181,466) Share capital $'000 593,616 - - - - 155,501 - - 155,501 749,117 - - 6,401 6,401 23,145 - - - - (2,474) - - - - 17,866 - (18,440) - (18,440) (39,074) - - - - (780,587) 155,501 (18,440) 6,401 143,462 (32,007) 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 128. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 44 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Consolidated Statement of Cash Flows For the year ended 30 June 2017 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 Cash receipts from derivatives sold Taxes received Net cash inflow from operating activities of discontinued operations Net cash from operating activities Cash flows from investing activities Proceeds on disposal of non-current assets Payment for property, plant and equipment Cash acquired from acquired business Acquisition costs Net cash inflow from investing activities of discontinued operations Net cash (used in) investing activities Cash flows from financing activities Proceeds from issue of shares Repurchase of issued debt Payment for debt establishment costs Payment of finance lease liabilities Net cash outflow from financing activities of discontinued operations Net cash (used in) financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of the period Effects of exchange rate fluctuations on cash held Cash and cash equivalents at the end of the financial period Note 2017 $'000 2016 $'000 157,376 (133,646) 228,558 (166,245) 14 30 36 8b 14 14 23,730 54 (38,010) 15,206 - 13,243 14,223 15,404 (31,371) 942 (14,445) 15,511 (13,959) 20,000 - (20,598) (4,558) (1,717) (6,873) (6,609) 24,854 (1,267) 16,978 62,313 702 (44,503) 48,167 3,965 - 70,644 15,103 (38,215) - - - (23,112) - (41,971) - (7,340) - (49,311) (1,779) 27,800 (1,167) 24,854 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 128. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 45 4 1 6 2 1 8 1 L I N M A R 4 F r o n t (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 1 Reporting entity Emeco Holdings Limited (the ʻCompanyʼ) is domiciled in Australia. The address of the Companyʼs 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 2017 comprise the Company and its subsidiaries (together referred to as the ʻGroupʼ). 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 (AAS) 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 30 August 2017. (b) Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for the following material items in the statement of financial position: (cid:131) derivative financial instruments are measured at fair value; (cid:131) assets held for sale at fair value less costs of disposal; and (cid:131) 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 Companyʼs functional currency. The company is a company of the kind referred to in ASIC Corporations (Rounding in Financial /Directorsʼ Reports) Instrument, dated 24 March 2016, and in accordance with that Corporations Instrument amounts in the financial report are rounded off to the nearest thousand unless otherwise stated. (d) Use of estimates and judgements The preparation of the consolidated financial statements in conformity with the AASB 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. The impact of 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: EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 46 k c a B 4 R A M N I L 1 8 1 2 6 1 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 2 Basis of preparation (continued) (d) Use of estimates and judgements (continued) Recognition of tax losses In accordance with the Companyʼs 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, capital structure 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. 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 assetʼs carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an assetʼs fair value less costs of disposal and value in use, in accordance with the Companyʼs 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). The Company applies significant judgement and assumptions in determining the recoverable amount of assets. Changes in these assumptions could impact the recoverable amount and accordingly impairment. Assets held for sale In accordance with the Companyʼs accounting policies for assets held for sale (refer note 3(i)), 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 of disposal. Fair value less costs of disposal includes estimates and judgements about the market value of these assets. Changes in these estimates and assumptions could impact on the carrying amount of these assets held for sale. The carrying amount of assets held for sale are set out note 15. Business combinations In accordance with the Companyʼs accounting policies for business combinations (refer note 3(r)), assets and liabilities acquired under business combinations are recognised at their fair value at the date of acquisition. Estimates and assumptions have been made about the collectability of trade and other receivables and fair value of inventory and items of property, plant and equipment and provisions. Refer to note 36 for further information on business combinations and note 5(h) for details on determination of fair value. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 47 k c a B 4 R A M N I L 1 8 1 2 6 1 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 2 Basis of preparation (continued) (e) Going Concern The directors note that as at 30 June 2017 the Group has positive net current assets of $58,367,000. Additional debt acquired during the period in addition to the impairment of goodwill acquired from business combinations has resulted in a net asset deficiency of $32,007,000. The Group has also made a net loss after tax of $180,463,000 during the period. Notwithstanding, the Consolidated Financial Statements for the year ended 30 June 2017 has been prepared on a going concern basis. This assumes the Company and the Group will be able to realise their assets and discharge their liabilities in the normal course of business. The directors believe this is appropriate on the basis that the notes do not mature until March 2022 and the current cash reserves along with forecasted cash flows are sufficient to cover the Companyʼs obligations including the payment of interest due on the notes in July 2017 and January and July 2018. 3 Significant accounting policies 4 The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by Group entities. (a) Basis of consolidation (i) Subsidiaries Subsidiaries are entities controlled by the Group. The 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. (ii) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses arising from intra- group transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. (b) Foreign currency (i) Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are 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. (ii) Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to the functional currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated to Australian dollars at exchange rates at the average exchange rates for the period. 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. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 48 1 6 2 1 8 1 L I N M A R 4 F r o n t (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 3 Significant accounting policies (continued) (c) Financial instruments (i) 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. 5 The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle 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, and trade and other payables. (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 unless designated as a hedging instrument. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 49 1 6 2 1 8 1 L I N M A R 5 F r o n t (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 3 Significant accounting policies (continued) (c) Financial instruments (continued) (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 hedging 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 ʻhighly effectiveʼ 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. 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 Groupʼs 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 Groupʼs 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 2017 50 k c a B 5 R A M N I L 1 8 1 2 6 1 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 3 Significant accounting policies (continued) (c) Financial instruments (continued) (v) 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) Property, plant and equipment (i) Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self- constructed assets includes the following: the cost of materials and direct labour; (cid:129) (cid:129) any other costs directly attributable to bringing the assets to a working condition for their intended use; (cid:129) 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. (cid:129) k c a B 5 R A M N I L 1 8 1 2 6 1 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 2017 51 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 3 Significant accounting policies (continued) (d) Property, plant and equipment (continued) (ii) Subsequent costs Subsequent expenditure is capitalised only when it is probable that the future economic benefits associated with the expenditure will flow to the Group. Expenditure on major overhauls and refurbishments of equipment is capitalised in property, plant and equipment as it is incurred, where that expenditure is expected to provide future economic benefits. The costs of the day-to-day servicing of property, plant and equipment and ongoing 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 and residual value 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. 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 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. (ii) Goodwill Goodwill arises on the acquisition of subsidiaries. Goodwill represents the excess of the cost of the acquisition over the Groupʼs interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree. When the excess is negative, the gain on bargain purchase is recognised immediately in profit or loss. Subsequent measurement Goodwill is measured at cost less accumulated impairment losses. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 52 5 1 6 2 1 8 1 L I N M A R 5 F r o n t t n o r F 5 R A M N I L 1 8 1 2 6 1 5 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 3 Significant accounting policies (continued) Intangible assets (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 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 from the date that they are available for use. The estimated useful lives for the current and comparative periods are as follows: (cid:129) 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 ʻcapital work in progressʼ. Upon work completion the balance is capitalised. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 53 1 6 2 1 8 1 L I N M A R 5 B a c k (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 3 Significant accounting policies (continued) Impairment (h) (i) 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: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) default or delinquency by a debtor; restructuring of an amount due to the Group on terms that the Group would not consider otherwise; indications that a debtor or issuer will enter bankruptcy; adverse changes in the payment status of borrowers or issuers; the disappearance of an active market for a security; or observable data indicating that there is measurable decrease in expected cash flows from a group 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 assetʼs carrying amount and the present value of the estimated future cash flows discounted at the assetʼs 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 assetʼs recoverable amount is estimated. 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 cash generating units (CGUs). The Groupʼs 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 2017 54 1 6 2 1 8 1 L I N M A R 5 B a c k (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 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 of disposal. Value in use is based on the estimated future cash flows, discounted to their present value using a post-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 to reduce the carrying amounts of the assets in the CGU on a pro rata basis. (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 of disposal. Any impairment loss on a disposal group is allocated to the 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 Groupʼs 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) Employee benefits (i) Defined contribution plans A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and 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 Groupʼs 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 2017 55 t n o r F 5 R A M N I L 1 8 1 2 6 1 5 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 3 Significant accounting policies (continued) (j) Employee benefits (continued) (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 with 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 Retention Incentive (RI) plan allows certain management personnel to receive shares or rights of the Company. Under the RI, rights or shares granted to each RI participant vest to the employee after three years. The 2015 long term incentive plan (LTIP), included a performance condition included a performance hurdle based on relative total shareholder return (TSR). The peer group that the Companyʼs 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. (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 2017 56 t n o r F 5 R A M N I L 1 8 1 2 6 1 5 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 3 Significant accounting policies (continued) (j) Employee benefits (continued) (v) 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 Groupʼs 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, on board approval, cash or shares of the Company upon satisfying performance conditions. This is determined at the end of each financial year based on the executiveʼs performance. The performance conditions related to KPIs include EBITDA, direct costs, overheads, capital expenditure, working capital, free cash flow, sale of idle assets, safety and personal goals. These benefits are accounted for in accordance with AAS 2 and AAS119. (k) Provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. (i) 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. (l) Revenue (i) Rental revenue Revenue from the rental of machines is recognised in profit and loss based on the number of hours the machines operate each month. Customers are billed monthly. (ii) Goods sold Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of returns and allowances, trade discounts and volume rebates. Revenue is recognised when 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 2017 57 1 6 2 1 8 1 L I N M A R 5 B a c k (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 3 Significant accounting policies (continued) (l) Revenue (continued) (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 Groupʼs 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 Groupʼs finance income and finance costs include: interest income; interest expense; dividend income; discount on repurchased debt; 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; (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) withholding tax; (cid:129) (cid:129) amortisation of borrowing costs capitalised using the effective interest method. the net gain or loss on hedging instruments that are recognised in profit or loss; and Interest income or expense is recognised using the effective interest method. Dividend income is recognised in profit or loss on the date that the Groupʼs right to receive payment is established. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 58 1 6 2 1 8 1 L I N M A R 5 B a c k (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 3 Significant accounting policies (continued) (o) Income tax Income tax expense comprises current and deferred tax. Current tax and deferred tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity or in other comprehensive income. (i) Current tax Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable or receivable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date. (ii) Deferred tax Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for: (cid:129) (cid:129) (cid:129) 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 entities acquired during the period were added to the tax consolidated group on the date of acquisition. The head entity within the tax consolidated group is Emeco Holdings Limited. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 59 t n o r F 5 R A M N I L 1 8 1 2 6 1 5 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 3 Significant accounting policies (continued) (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: (cid:129) (cid:129) (cid:129) 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. (r) Business combinations Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition related costs are generally recognised in profit or loss as incurred. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with AAS 112 Income Taxes and AAS 119 respectively. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer's previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 60 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 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 2017. Those which may be relevant to the Group are set out below. (i) AASB 16 Leases (2016) AASB16 introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognise a right of use asset representing its right-to-use the underlying leased asset and a lease liability representing its obligations to make lease payments. Management is in the process of assessing the potential impact of the changes to AASB. The Group holds commitments that would be impacted by the change to this standard however does not consider them to be material as they expire prior to the adoption date of the standard. The Group continues to assess the potential impact when reviewing new contracts that would be accounted for under this standard. (ii) AASB 15 Revenue from Contracts with Customers (2015) The new standard replaces AASB 118 which covers the revenues arising from the sale of goods and the rendering of services and AASB 111 which covers construction contracts. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer. Management is in the process of assessing the likely impact of the changes to AASB 15 and does not believe the changes to the standard will have a material impact on the financial performance and financial position of the Group. (iii) AASB 9 Financial Instruments (2014) AASB 9 will replace AASB 139: Financial Instruments: Recognition and Measurement. The key changes that may affect the Group on initial application of AASB 9 and associated amending Standards include: (cid:129) simplifying the general classifications of financial assets into those carried at amortised cost and those carried at fair value; (cid:129) permitting entities to irrevocably elect on initial recognition to present gains and losses on an (cid:129) (cid:129) (cid:129) equity instrument that is not held for trading in other comprehensive income (OCI); requiring an entity that chooses to measure a financial liability at fair value to present the portion of the change in its fair value due to changes in the entityʼs own credit risk in OCI, except when it would create an ʻaccounting mismatchʼ; introducing a new model for hedge accounting that permits greater flexibility in the ability to hedge risk, particularly with respect to non-financial items; and requiring impairment of financial assets carried at amortised cost based on an expected loss approach. Management has assessed the likely impact of AASB 9 and does not believe the changes to the standard will have a material impact on the financial performance and financial position of the Group. There is the potential for increased impairment of receivables under the standard which is yet to be assessed by Management. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 61 5 1 6 2 1 8 1 L I N M A R 5 F r o n t (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 5 Determination of fair values A number of the Groupʼs 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. (a) 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 armʼs length transaction after proper marketing wherein the parties had each acted knowledgeably. The fair value of property, plant and equipment has been determined with reference to an independent external valuation in addition to comparisons to similar assets currently on market. (b) 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 and interim reporting date. (c) 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. (d) 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 and interim 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. (e) Share based payment transactions The fair value of employee share options, management incentive plan shares, long term incentive plan and retention 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 market price at purchase date. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 62 k c a B 5 R A M N I L 1 8 1 2 6 1 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 5 Determination of fair values (continued) (f) 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. (g) Assets held for sale The fair value of assets designated as held for sale are determined with reference to an independent external valuation, market demand and costs of disposal. (h) Business combinations The fair value of consideration supplied for the acquisition of entities has been determined using the market price of the Companyʼs listed share price. The methodology has also been applied to the valuation of investments acquired though the business combination. The fair value of property, plant and equipment has been determined with reference to an independent external valuation in addition to comparisons to similar assets currently on market. The fair value of inventory acquired has been valued determined with reference to the most recent purchase of similar items from external suppliers. The collectability of trade and other receivables has been assessed and compared to subsequent receipt of payment in determining the fair value of this asset class. k c a B 5 R A M N I L 1 8 1 2 6 1 EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 63 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 6 Financial instruments Overview The Group has exposure to the following risks from their use of financial instruments: credit risk; liquidity risk; and (cid:129) (cid:129) (cid:129) market risk. This note presents information about the Groupʼs exposure to each of the above risks, the Groupʼs objectives, policies and processes for measuring and managing risk, and the Groupʼs management of capital. Risk management framework The board of directors has overall responsibility for the establishment and oversight of the Groupʼs risk management framework. The board of directors has established the audit and risk management committee (Committee), which is responsible for developing and monitoring the Groupʼs risk management policies. The Committee reports regularly to the board of directors on its activities. 5 The Groupʼs 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 Groupʼs 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 Groupʼs 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. 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 Groupʼs receivables from customers. Exposure to credit risk The carrying amount of the Groupʼs financial assets represents the maximum credit exposure. The Groupʼs maximum exposure to credit risk at the reporting date was: Trade receivables Other receivables Cash and cash equivalents Derivatives Consolidated Carrying amount 2017 2016 $'000 $'000 87,821 26,151 16,978 4,015 134,965 32,803 12,255 24,854 18,944 88,856 Note 18 18 17 19 EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 64 1 6 2 1 8 1 L I N M A R 5 F r o n t (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 6 Financial instruments (continued) Credit risk (continued) 6 Trade and other receivables The Groupʼs exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the demographics of the Groupʼs 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 and Chile, and generally operates on a ʻcash for keysʼ policy for the sale of equipment and parts. Both insured and uninsured debtors are subject to the Groupʼs credit policy. The Groupʼs credit policy requires each new customer to be analysed individually for creditworthiness before the Groupʼs standard payment and delivery terms and conditions are offered. The Groupʼs 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 Groupʼs creditworthiness and the Group is unable to secure credit insurance, future transactions with the customer will only be assessed on a case by case basis and where possible, prepayment 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 (2016: $700,000,000). The Australian and Chilean businesses held insurance for the entire financial year ended 30 June 2017. 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 2017 the Groupʼs doubtful debts provision for continuing and discontinued operations was $200,000 (2016: $1,090,000). As at 30 June 2017 the Group recognised bad debt write offs for continuing and discontinued operations for a total amount of $23,000 (2016: $4,924,000). 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 analysis of the underlying customersʼ credit ratings. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 65 1 6 2 1 8 1 L I N M A R 6 F r o n t (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 6 Financial instruments (continued) Credit risk (continued) The Groupʼs maximum exposure to credit risk for trade receivables at the reporting date by geographic region was: Australia North America South America Consolidated Consolidated Gross 2017 $'000 78,794 526 8,501 87,821 Impairment provision 2017 $'000 (200) - - (200) Gross 2016 $'000 21,070 4,095 7,638 32,803 Impairment provision 2016 $'000 (37) (938) (115) (1,090) Trade and other receivables (continued) The Groupʼs maximum exposure to credit risk for trade receivables at the reporting date by type of customer was: Insured Blue chip (including subsidiaries) Other security Uninsured Consolidated Carrying amount 2017 2016 $'000 $'000 27,529 36,595 - 23,697 87,821 15,205 15,294 - 2,304 32,803 The aging of the Groupʼs trade receivables at the reporting date was: Not past due Past due 0-30 days Past due 31-60 days Past due 61 days Consolidated Consolidated Gross 2017 $'000 Impairment 2017 $'000 Gross 2016 $'000 Impairment 2016 $'000 45,420 17,890 13,112 11,399 87,821 - - - (200) (200) 25,338 2,993 2,414 2,058 32,803 - - - (1,090) (1,090) EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 66 k c a B 6 R A M N I L 1 8 1 2 6 1 k c a B 6 R A M N I L 1 8 1 2 6 1 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 6 Financial instruments (continued) Credit risk (continued) The movement in the allowance for impairment in respect of trade receivables during the year was as follows: Balance at 1 July Bad debt written off Change in provision for doubtful debts Balance at 30 June Consolidated 2017 $'000 2016 $'000 1,090 (24) (866) 200 5,874 (4,924) 140 1,090 Derivatives The Group also held derivative liabilities in relation to cross currency interest rate swaps and forward exchange rate swaps to the total value of $4,351,000 (2016: asset $18,944,000) at 30 June 2017, 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 $16,978,000 at 30 June 2017 (2016: $24,854,000), 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 2017 the Group held $116,000 of bank guarantees (2016: $116,000) and $Nil of prepayments (2016: $Nil). Guarantees Financial guarantees are generally only provided to wholly owned subsidiaries or when entering into a premise rental agreement or performance bonds for completion of contract. Details of outstanding guarantees are provided in note 29. At 30 June 2017 $4,172,000 guarantees were outstanding (2016: $11,504,000). Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Groupʼs 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 Groupʼs 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 2017 67 (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 6 Financial instruments (continued) Liquidity risk (continued) The Group has issued secured fixed interest notes to the value of US$360,818,000 which matures on 30 March 2022. The nominal fixed interest rate is 9.25%. These notes will remain fully drawn until maturity. Of the notes on issue, the Group holds US$4,890,000 which has been netted off against the total notes outstanding. The Group has an A$65,000,000 facility that matures in March 2020 which has two sub facilities consisting of a Revolving Cash Advance Facility (RCF) of A$35,000,000 and a Bank Guarantee Facility of A$30,000,000. The bank guarantee facility attracts a fee of 2.75% on the unutilised portion of the facility and a fee of 5.5% on the outstanding balance of guarantees on issue. The nominal interest rate on the RCF is equal to the aggregate of the bank bill swap rate (BBSY) plus a margin of between 5% and 7% dependant on the calculated leverage ratio. The facility also attracts an undrawn line fee of between 2.5% and 3.5% dependant on the calculated leverage ratio on the undrawn available balance of the facility. The facilities require the Group to maintain a collateral coverage ratio greater than 3.0x and a fixed charge coverage ratio greater than 1.2x. At year end the Group had drawn $Nil of the RCF but had utilised $2,729,000 of the bank guarantee facility. The Group has a facility agreement comprising a credit card facility with a limit of A$60,000 and foreign exchange forward contracts. The facility matures in December 2016 and will be available for general corporate purposes. The facility is secured via a cash cover account. The Group has a separate bank guarantee facility of $560,000 which is fully utilised and secured via a cash cover account. The Group has finance lease facilities totalling A$9,801,000 (2016: A$9,006,000) which have various maturities up to November 2020. The Group has financed its insurance payments with A$1,584,000 remaining at year end which matures in January 2018. 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 2017 68 6 1 6 2 1 8 1 L I N M A R 6 F r o n t t n o r F 6 R A M N I L 1 8 1 2 6 1 6 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 6 Financial instruments (continued) Liquidity risk (continued) Consolidated 30 June 2017 Non-derivative financial liabilities Secured notes issue Finance lease liabilities Insurance financing Trade and other payables Liabilities directly associated with assets classified as held for sale Derivative financial asset/(liability) Cross currency interest rate swaps used for hedging asset/(liability) Carrying amount $'000 Contract- ual cash 6 mths or More than flows $'000 less $'000 6-12 mths 1-2 years 2-5 years 5 years $'000 $'000 $'000 $'000 443,284 9,801 1,584 24,491 676,734 10,458 1,584 24,491 14,267 2,426 1,584 24,491 21,401 2,609 - - 42,802 3,207 - - 598,264 2,216 - - 449 479,609 449 713,716 449 43,217 - 24,010 - 46,009 - 600,480 (4,351) (4,351) (12,275) (12,275) (8,363) (8,363) (832) (832) (2,323) (2,323) (757) (757) - - - - - - - - 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 2016 Non-derivative financial liabilities Secured notes issue Finance lease liabilities Insurance financing Trade and other payables Liabilities directly associated with assets classified as held for sale Derivative financial assets Cross currency interest rate swaps used for hedging asset/(liability) Carrying amount $'000 Contract- ual cash 6 mths or More than flows $'000 less $'000 6-12 mths 1-2 years 2-5 years 5 years $'000 $'000 $'000 $'000 368,277 9,006 535 13,658 493,504 9,692 535 13,658 18,798 2,823 535 13,658 18,798 1,551 - - 37,596 1,689 - - 418,312 3,642 - - 883 392,359 896 518,285 896 36,710 - 20,349 - 39,285 - 421,954 18,944 18,944 19,805 19,805 29 29 114 114 19,662 19,662 - - - - - - - - - - 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. cross currency interest rate swaps. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 69 1 6 2 1 8 1 L I N M A R 6 B a c k (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 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 Groupʼs 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 Groupʼs 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). 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 and USD. This provides an economic hedge without derivatives being entered into and therefore no application of hedge accounting. The Groupʼs 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 2017 the Group cancelled US$282,720,000 of notes in the 144A high yield market and were replaced with US$360,818,000 new notes of which US$4,890,000 were held by the Group. The net exposure of the notes to the Group at 30 June 2017 is US$355,927,000 of which US$230,000,000 face value of the annual coupon has been hedged and US$100,000,000 face value of the principal has been hedged to Australian Dollars. As derivatives have been entered into, hedge accounting has been applied to these instruments. At 30 June 2017, the group was unhedged US$125,928,000 face value of the annual coupon and US$255,927,000 face value of the net principal outstanding. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 70 1 6 2 1 8 1 L I N M A R 6 B a c k (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 6 Financial instruments (continued) Market risk (continued) Exposure to currency risk The Groupʼs exposure to foreign currency risk at balance date was as follows, based on notional amounts: Cash Secured notes issued (1) Gross balance sheet exposure Cross currency interest rate swap to hedge the secured notes issued 30 June 2017 30 June 2016 USD $'000 3,727 (355,927) (352,200) 100,000 100,000 CAD $'000 15 - 15 - - USD $'000 13 (218,902) (218,889) CAD $'000 72 90,551 90,623 71,500 71,500 - - Net exposure (252,200) 15 (147,389) 90,623 (1) Net USD exposure of US$355,927,000 (2016: US$282,720,000) in an AUD denominated entity. Balance is net of notes held by the Group and intercompany loans. The following significant exchange rates applied during the year: CAD USD EURO IDR CLP GBP Average rate Reporting date spot rate 2017 2016 2017 2016 1.0102 0.7554 0.7448 10,052 502.65 0.5911 0.9890 0.7316 0.6602 9,911 503.77 0.4918 0.9990 0.7692 0.6730 10,252 510.14 0.5913 0.9632 0.7426 0.6699 9,867 492.52 0.5549 EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 71 t n o r F 6 R A M N I L 1 8 1 2 6 1 6 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 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 2017 would have affected the measurement of financial instruments denominated in a 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 2016, as indicated below: 30 June 2017 USD (10 percent movement) CAD (10 percent movement) 30 June 2016 USD (10 percent movement) CAD (10 percent movement) Consolidated Strengthening Weakening Equity $'000 Profit or loss $'000 Equity $'000 Profit or loss $'000 (10,747) - 20,430 - 5,426 - (24,970) - (1,470) - 21,224 7,256 1,796 - (25,940) (5,937) Interest rate risk In accordance with the boardʼs policy the Group is required to maintain an appropriate exposure to changes in interest rates on borrowings on a fixed rate basis, taking into account assets with exposure to changes in interest rates. This is achieved by entering into cross currency interest rate swaps and the issue of fixed interest notes. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 72 t n o r F 6 R A M N I L 1 8 1 2 6 1 6 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 6 Financial instruments (continued) Market risk (continued) Profile At the end of the reporting date the interest rate profile of the Groupʼs 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 Fixed rate instruments: Interest bearing liabilities (notes) Interest bearing finance leases Insurance financing Note 17 24 24 24 Consolidated 2017 $'000 2016 $'000 16,978 24,854 4,015 20,993 18,944 43,798 (462,724) (9,801) (1,584) (474,109) (380,716) (9,006) (535) (390,257) 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. These instruments were disposed of in September 2016. 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. These instruments were disposed of in September 2016. The cross currency interest rate swaps (hedging instrument) are accounted for as cash flow 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 of the USD fixed rate interest payments on the debt principal amount of the Companyʼs outstanding debt and the foreign currency remeasurement risk arising on the principal balance every 6 months on the Companyʼs outstanding debt. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 73 1 6 2 1 8 1 L I N M A R 6 B a c k (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 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 2017 Fixed rate instruments (144A notes) Interest rate swap Cash flow sensitivity (net) 30 June 2016 Fixed rate instruments (144A notes) Interest rate swap Cash flow sensitivity (net) Profit or loss 100bp increase $'000 100bp decrease $'000 Equity 100bp increase $'000 100bp decrease $'000 - - - 23 (23) - - - - (24) 24 - - - - - - - - - - - - - EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 74 1 6 2 1 8 1 L I N M A R 6 B a c k (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 6 Financial instruments (continued) Market risk (continued) Cash flow sensitivity analysis for fixed 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 2016. Cash flow hedges 30 June 2017 Variable rate instruments Interest rate swap fixed rate foreign currency instruments Cash flow sensitivity (net) 30 June 2016 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 - - - - - 5 5 - - - - - (6) (6) - - (7,846) (7,846) - 69 69 - - 6,279 6,279 - (70) (70) Detailed below is the profit and loss impact of cash flow hedges during the year. Financial instrument Cross currency interest rate swap - Swap - Hedged item (debt) Net profit and loss impact before tax Profit or loss 2017 $'000 2016 $'000 1,349 - 1,349 1,296 - 1,296 During the year the hedging relationships were highly effective and no ineffectiveness was recognised in the profit or loss for the year. The hedge relationship is expected to be highly effective throughout the life of the hedge and is not expected to impact the profit and loss until the hedge reserve is transferred to the profit and loss at the maturity of the hedge. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 75 t n o r F 6 R A M N I L 1 8 1 2 6 1 6 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 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 Leases 144A notes 0.1% 0.1% 4.5% 9.3% 2017 - - - - 2.3% 3.5% 8.1% 9.9% 0.1% 0.1% 4.5% 9.9% 2016 - - - - 2.3% 3.5% 8.1% 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: Assets carried at fair value Interest rate swaps used for hedging 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 30 June 2017 30 June 2016 Carrying amount $'000 Fair value $'000 Carrying amount $'000 Fair value $'000 4,015 4,015 4,015 4,015 18,944 18,944 18,944 18,944 113,535 16,978 113,535 16,978 130,513 130,513 37,734 24,854 62,588 37,734 24,854 62,588 (8,366) (8,366) (8,366) (8,366) - - - - 630 (443,284) - (1,584) (9,801) (82,545) - (462,724) - (1,584) (10,458) (82,545) 1,310 (278,168) (91,420) (535) (9,006) (38,035) - (284,433) (96,283) (535) (9,692) (38,035) (536,584) (557,311) (415,853) (428,978) Note 19 18 17 19 24 24 24 24 24 23 (1) Carried at amortised cost with movements in fair value of the underlying hedge item recorded in the profit and loss statement. All fair values above have been determined with the use of level 3 inputs which are unobservable. The basis for determining fair values is disclosed in note 5. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 76 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 6 Financial instruments (continued) Market risk (continued) Fair value hierarchy The Groupʼs 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 with the exception of certain investments in shares that are categorised at Level 1. Capital management Underpinning Emecoʼs strategic framework is consistent value creation for shareholders. Central to this is the continual evaluation of the Companyʼs capital structure to ensure it is optimised to deliver value to shareholders. The boardʼs 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 Companyʼs 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 2017 $'000 2016 $'000 504 2,212 2,716 400 1,391 1,791 (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 2017 was $93,518,000 (2016: $18,049,000) which included $64,430,000 of non-cash assets sales. Included in sundry income are fees charged on overdue accounts and bad debts and fees earned on through the strategic relationship in Canada. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 77 6 1 6 2 1 8 1 L I N M A R 6 F r o n t (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 8 Loss 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 - reversal of impairment on property, plant and equipment Note 20 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 - corporate development expenses - consulting fees - employee share plan expenses - other expenses Depreciation of: - buildings - plant and equipment - owned - plant and equipment - leased - furniture fittings and fixtures - office equipment - motor vehicles - leasehold improvements - sundry plant less discontinuing operations depreciation expense EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 14 Consolidated 2017 $'000 2016 $'000 8,322 8,502 387 10,997 (1,231) 10,153 7,857 130,565 (7,634) 130,789 2,128 2,500 24 (591) 1,467 1,572 3,376 567 2,847 1,035 1,378 1,101 687 4,568 6,164 7,167 31,362 368 66,667 1,744 21 205 674 245 684 (9,887) 60,721 4,924 (5,335) 2,036 2,497 3,176 718 2,469 1,089 895 3,046 1,812 1,276 1,665 (1,850) 18,420 535 62,796 2,976 89 239 1,128 331 1,100 (17,912) 51,282 78 k c a B 6 R A M N I L 1 8 1 2 6 1 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 8 Loss before income tax expense for continuing operations (continued) Finance costs: - interest expense - witholding tax expense - amortisation of debt establishment costs using effective interest rate - write off facility costs (1) - other facility costs Net financial costs Finance income: - interest income - hedge gains (2) - discount on repurchased debt (3) Net financial income Foreign exchange (gain)/loss: Net realised foreign exchange loss Net unrealised foreign exchange (gain)/loss Net foreign exchange loss Consolidated 2017 $'000 2016 $'000 42,596 767 3,456 - 1,622 48,441 47,105 2,559 3,186 1,251 1,031 55,132 (54) (14,058) - (14,112) (414) (46,976) (31,663) (79,053) 69,024 (58,945) 10,079 1,481 40,184 41,666 (2) (1) This balance relates to the write off of capitalised borrowing costs related to the 144A notes cancelled during the period and replaced with new notes. The previous period balance relates to accelerated debt establishment costs expensed in relation to the repurchase of US$52,280,000 144A notes in December 2015. In September 2016, the Group closed out US$71,500,000 face value of cross currency interest rate swaps which generated a cash inflow of A$15,206,000 (US$11,794,000). The balance of the hedge reserve was transferred to the consolidated statement of profit or loss and other comprehensive income during the period resulting in a net gain of $14,058,000. In December 2015, the Group closed out US$138,500,000 face value of cross currency interest rate swaps which generated a cash inflow of A$48,167,000. These proceeds were used to finance the purchase of US$52,280,000 144A notes for consideration of A$41,971,000 (US$29,799,000) with a resulting gain on repurchase of A$31,663,000. (3) k c a B 6 R A M N I L 1 8 1 2 6 1 EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 79 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 8b Business acquisition and restructuring transaction expenses In March 2017, the Company completed a transaction that involved the following: (cid:129) acquisition of Andyʼs Earthmovers (Asia Pacific) Pty Ltd (Andyʼs) and Orionstone Holdings Pty Ltd (Orionstone). Refer to note 36 for further details; (cid:129) cancellation of the existing Emeco 144A notes, Andyʼs long term debt and Orionstone long term debt obligations in exchange for new notes for the value of 80% of the face value of the original debt and 20% as shares in Emeco. Refer to notes 13 and 24 for further details; refinance of its asset backed loan facility. Refer to note 24 for further details; and rights issue of $20,000,000. Refer to note 13 for further details. (cid:129) (cid:129) Together referred to as (The Transaction). The below table details the items recognised through the consolidated statement of profit or loss and other comprehensive income: 6 Business acquisition and restructuring transaction expenses - cost of shares issued to Black Diamond Capital Management LLC (1) - acquisition expenses (2) - write off facility costs (2) - impairment of goodwill (3) - discount on refinanced debt (4) Net financial costs Consolidated 2017 $'000 2016 $'000 10,253 14,445 5,778 77,880 (20,359) 87,997 - - - - - - (1) 123,526,158 shares were provided to Black Diamond Capital Management LLC in consideration for the successful completion of the transaction. The share price at 31 March 2017 has been used in determining the cost of this transaction. (2) The company incurred $35,043,000 in costs related to the transaction of which $14,445,000 has been recognised as acquisition costs and expensed through the consolidated statement of profit or loss and other comprehensive income. $20,598,000 of this expenditure related to the cancellation of the 144A notes and ABL facility and the issuance of the new notes and RCF facility and have been capitalised. The remaining balance of previously capitalised borrowing costs related to the cancelled 144A notes and ABL facility have been expensed through the consolidated statement of profit or loss and other comprehensive income amounting to $5,778,000. Refer to note 24 for further information. (3) Goodwill of $77,880,000 was recognised on the acquisition of Andyʼs and Orionstone (refer to note 36 for details of the business combination) and allocated to the Australia CGU. Impairment testing conducted at 30 June 2017 on the Australia CGU resulted in an impairment loss of $77,880,000 which was allocated against the goodwill of the Australia CGU. Refer to note 22 for further information on the impairment testing process. (4) The long term debt (excluding finance leases) refinanced via the acquisition of Andyʼs ($66,558,000) and Orionstone ($137,359,000) in addition to the Groupʼs US$282,720,000/A$365,779,000 144A the value of notes were exchanged US$360,818,000/A$469,082,000 and 966,563,209 ordinary shares in the Company which were issued at fair value resulting in a gain of $20,359,000. issued Emeco new notes for newly to EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 80 1 6 2 1 8 1 L I N M A R 6 F r o n t (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 9 Auditorʼs remuneration 7 Audit services Auditors of the Company Deloitte Touche Tohmatsu Australia: - audit and review of financial reports KPMG Australia: - audit and review of financial reports Overseas Deloitte Firms: - other assurance services Other services Auditors of the Company Deloitte Touche Tohmatsu Australia: - taxation services - independent expert services KPMG Australia: - taxation services Overseas Deloitte Firms: - taxation services - account preparation Overseas KPMG Firms: - taxation services Consolidated 2017 $ 2016 $ 540,965 333,780 - 32,000 11,000 551,965 4,903 370,683 146,160 388,890 41,215 - - 190,740 35,033 3,741 10,465 - - 573,824 205,777 448,197 1,125,789 818,880 EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 81 1 6 2 1 8 1 L I N M A R 7 F r o n t (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 10 Taxes a. Recognition in the income statement Current tax benefit/(expense): Current year Adjustments for prior years Deferred tax benefit/(expense): Reversal of temporary differences Increase in tax rate Tax benefit/(expense) Tax benefit/(expense) from continuing operations Tax benefit/(expense) from discontinued operations Total tax benefit/(expense) Consolidated 2017 $'000 2016 $'000 Note - - - (14,672) - (14,672) (14,672) (14,672) (5,150) (19,822) - 3,915 3,915 (9,841) - (9,841) (5,926) (5,926) - (5,926) 12 14 b. Current and deferred tax expense recognised directly in equity Share issue costs Cashflow hedges Foreign currency translation reserve Consolidated 2017 $'000 2016 $'000 - 1,056 119 1,175 (512) 15,864 - 15,352 k c a B 7 R A M N I L 1 8 1 2 6 1 EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 82 k c a B 7 R A M N I L 1 8 1 2 6 1 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 10 Taxes (continued) c. Numerical reconciliation between tax expense and pre-tax net profit/(loss) Prima facie tax benefit/(expense) calculated at 30% on net profit Decrease/(increase) in income tax expense due to: Effect on tax rate in foreign jurisdictions Non-deductible interest Non-deductible foreign taxes DTA from temporary differences and losses not recognised Non-deductible acquisition costs Other non-deductible expenses Goodwill impairment Non-assessable debt forgiveness gain Under/(over) provided in prior years Tax benefit/(expense) Consolidated 2017 $'000 2016 $'000 48,192 65,840 (468) (499) (232) (41,091) (7,409) (99) (23,364) 5,148 - (19,822) (6,842) (3,658) (757) (57,965) - (238) - - (2,306) (5,926) 11 Current tax assets and liabilities The current tax asset for the Group of $Nil (2016: $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 2017 83 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 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 Employee share costs 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 Employee share costs Tax losses carried forward Balance 1 July 16 $'000 (23,555) (5,192) (849) 1,546 - (5,382) 25,323 980 363 - 487 - 25,786 19,507 Assets Liabilities Net 2017 $'000 - 3,363 - - 1,971 - 1,305 - 1,418 - - 311 - 6,535 14,903 (14,903) - 2016 $'000 578 295 - - 1,546 - - 25,323 980 - 363 487 - 27,643 57,215 (72,456) (15,241) 2017 $'000 (9,097) (1,130) - (67) - - - (891) - - - - (3,718) - (14,903) 14,903 - 2016 $'000 (24,134) (4,912) (575) (849) - - (5,382) - - - - - - (1,857) (37,708) 72,456 34,748 2017 $'000 (9,097) 2,233 - (67) 1,971 - 1,305 (891) 1,418 - - 311 (3,718) 6,535 - - - 2016 $'000 (23,555) (4,617) (575) (849) 1,546 - (5,382) 25,323 980 - 363 487 - 25,786 19,507 - 19,507 Consolidated Balances Recognised Recognised in profit acquired or loss 31 March 17 $'000 $'000 Recognised in other comprehensive income $'000 Included in discontinued operations (note 14) $'000 Balance 30 June 17 $'000 - - - - - - - - - - - - - - 13,333 (80) 427 (41) - - - (34) - 575 - - (19,330) (5,150) (9,097) 2,233 (67) 1,971 - 1,305 (891) 1,418 - - 311 (3,718) 6,535 - directly in equity $'000 - - - - - 6,600 (5,425) - - - - - - 1,175 (6,050) 3,530 (19) 107 - - 1,197 - - - 375 - - (860) 7,175 3,975 374 359 - 87 (21,986) 472 (363) (575) (551) (3,718) 79 (14,672) EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 84 7 1 6 2 1 8 1 L I N M A R 7 F r o n t t n o r F 7 R A M N I L 1 8 1 2 6 1 7 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 12 Deferred tax assets and liabilities (continued) Movement in deferred tax balances Consolidated Recognised Recognised Balance 1 July 15 $'000 Balances acquired $'000 in profit or loss $'000 (65,615) (4,983) 120 1,062 459 (14,203) 20,965 857 477 188 548 74,121 13,996 - - - - - - - - - - - - 55,393 (289) (542) 443 (459) - (2,685) 89 398 387 (61) (67,665) (14,991) directly in equity $'000 - - - - - - - - (512) - - - (512) Recognised in other comprehensive income $'000 Included in discontinued operations (note 14) $'000 Balance 30 June 16 $'000 - - - - - 8,821 7,043 - - - - - 15,864 (13,333) 80 (427) 41 - - - 34 - (575) - 19,330 5,150 (23,555) (5,192) (849) 1,546 - (5,382) 25,323 980 363 - 487 25,786 19,507 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 Unrecognised deferred tax assets The following deferred tax assets have not been brought to account as assets: Tax losses Consolidated 2017 $'000 2016 $'000 132,532 53,211 Unutilised tax losses are in Australia, Chile, Canada, Indonesia, the United Kingdom, United States and Europe. $38,187,000 of these losses are related to the Australian tax jurisdiction and do not expire. The remaining losses are not expected to be utilised by the Group. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 85 1 6 2 1 8 1 L I N M A R 7 B a c k (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 13 Capital and reserves Share capital 2,436,860,480 (2016: 599,675,707 ) ordinary shares, fully paid Acquisition reserve Consolidated 2017 $'000 2016 $'000 825,004 (75,887) 749,117 669,503 (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. Movements in ordinary share capital Details Balance Balance Issue of shares for consideration of Andy's Earthmovers (Asia Pacific) Pty Ltd Issue of shares for consideration of Orionstone Holdings Pty Ltd Issue of shares in exchange for cancellation of external debt Issue of shares to Black Diamond Capital Management LLC Issue of shares for underwriting of rights issue Issue of shares for rights issue Issue of shares to Employee Share Ownership Plan Trust Less: share issue costs, net of deferred tax Date Shares Issue price $'000 1 July 2015 599,675,707 1 July 2016 599,675,707 669,503 669,503 30 March 2017 105,887,545 $ 0.083 8,789 30 March 2017 214,380,704 $ 0.083 17,794 30 March 2017 966,563,209 $ 0.083 80,225 30 March 2017 123,526,158 $ 0.083 10,253 30 March 2017 12,844,038 $ 0.083 20 April 2017 183,486,238 $ 0.109 1,066 20,000 28 April 2017 230,496,881 $ 0.080 18,440 (1,066) Balance 30 June 2017 2,436,860,480 825,004 EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 86 1 6 2 1 8 1 L I N M A R 7 B a c k (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 13 Capital and reserves (continued) 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 Companyʼs MISP due to employees not meeting the service vesting requirement will remain in the reserve. 230,496,881 treasury shares were issued to the share trust during the year and 51,541,768 treasury shares were released from the share trust in satisfaction of the incentive plans. As at 30 June 2017 the Company held 210,690,767 treasury shares (2016: 30,581,304) 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 Companyʼs securities under its employee share/option plans (refer note 3(j)(v)). Dividends (1) No dividends were paid or declared during the year (2016: $Nil) or prior to the release of this report. Franking account Dividend franking account 30% franking credits available to shareholders of Emeco Holdings Limited for subsequent financial years The Company 2017 $'000 2016 $'000 46,215 25,518 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 (2016: $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 $46,215,000 (2016: $25,518,000) franking credits. ________________________ (1) Refer to Consolidated Statement of Changes in Equity. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 87 t n o r F 7 R A M N I L 1 8 1 2 6 1 7 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 14 Discontinued operations In June 2017 the board resolved to exit the Chilean business after a strategic review of the operations. The boardʼs decision to close this business was to address the underperformance in returns being generated by this business unit. An asset swap was conducted with a third party in June 2017 allowing the Company to increase the size of its Australian fleet by 85 units and dispose of the Chilean fleet. The asset swap agreement took effect on 30 June 2017 and accordingly as at this date the Chile assets were derecognised and the acquired assets were recognised in the Australia CGU. The fair value of these assets acquired was determined with reference to an independent third party valuation. The FY16 comparative information has been restated. 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 2017 $'000 2016 $'000 27,971 347 (13,686) 86 (6,617) (8,614) (7,071) (621) (9,887) 280 (1,354) (5,150) (24,316) 38,594 557 (14,470) 7 (3,596) (45,225) (7,350) (3,105) (17,913) 292 (659) (4,067) (56,935) The loss from discontinued operation of $24,316,000 (2016: $56,935,000) 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 2017 $'000 2016 $'000 13,243 15,511 (1,717) 27,037 23,579 (7,414) (4,010) 12,155 EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 88 t n o r F 7 R A M N I L 1 8 1 2 6 1 7 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 15 Disposal groups and non-current assets held for sale During the year $98,755,000 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 $18,380,000 to their fair value less cost to sell based on market prices of similar equipment. As at 30 June 2017, the non-current assets held for sale comprised assets of $26,421,000 (2016: $30,728,000). These relate to plant and equipment in Australia and one piece of equipment in Chile. Level 2 fair value hierarchy has been used in determining the fair value with reference to an independent valuation utilising observable market valuations. 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 Liabilities directly associated with assets classified as held for sale Continuing operations Net assets classified as held for sale 2017 $'000 2016 $'000 25,834 587 26,421 30,728 - 30,728 (449) (449) (883) (883) 25,972 29,845 Liabilities directly associated with assets classified as held for sale relate to assets designated as held for sale that have outstanding finance lease repayments remaining. All remaining payments are due within six months. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 89 1 6 2 1 8 1 L I N M A R 7 B a c k (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 16 Segment reporting The Group has two (2016: three) reportable segments, as described below, which are the Groupʼs 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 Groupʼs reportable segments: Australia Canada Provides a wide range of earthmoving equipment and maintenance services to customers in Australia. Provides a wide range of maintenance services to customers who are predominately within Canada. Chile (discontinued) Provides a wide range of earthmoving equipment and maintenance services to customers in Chile. This segment was discontinued in June 2017. 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 Groupʼs managing director and board of directors. Segment earnings before interest, income tax, depreciation and amortisation 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 armʼs length basis. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 90 1 6 2 1 8 1 L I N M A R 7 B a c k (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 16 Segment reporting (continued) Information about reportable segments 2017 Australia Canada $'000 $'000 Chile (discont'd) $'000 Total $'000 Year ended 30 June 2017 Revenue from external customers Other Income Impairment of tangible assets Segm ent earnings before interest, tax, depreciation and am ortisation Impairment of goodw ill Depreciation and amortisation Segm ent result (EBIT) Corporate overheads 196,043 581 8,206 50,299 (77,880) (55,573) (83,154) 9,000 1,632 1,946 8,924 - (5,974) 2,950 27,971 347 15,231 (8,205) - (9,887) (18,092) EBIT Finance income/(expense) (net) Foreign exchange movements Net loss before tax Tax expense Net loss after tax Total Assets for reportable segm ents Unallocated assets Total Group Assets 499,614 4,038 12,854 233,014 2,560 25,383 51,018 (77,880) (71,434) (98,296) (16,861) (115,157) (35,403) (10,079) (160,639) (19,822) (180,463) 516,506 4,173 520,679 Net capital Expenditure (27,962) 10,852 15,511 (1,599) Total Liabilities for reportable segm ents Unallocated liabilities Total Group Liabilities 60,591 6,081 16,405 83,077 469,609 552,686 EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 91 t n o r F 7 R A M N I L 1 8 1 2 6 1 7 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 16 Segment reporting (continued) Information about reportable segments 2016 Australia Canada $'000 $'000 Chile (discont'd) $'000 Total $'000 Year ended 30 June 2016 Revenue from external customers Other Income Impairment of tangible assets Segm ent earnings before interest, tax, depreciation and am ortisation Depreciation and amortisation Segm ent result (EBIT) Corporate overheads EBIT Finance income/(expense) (net) Foreign exchange movements Net loss before tax Tax expense 131,746 427 36,435 (5,824) (43,875) (49,699) 36,229 394 93,999 38,589 568 48,820 206,564 1,389 179,254 (91,563) (7,406) (98,969) (34,685) (17,913) (52,598) (132,072) (69,194) (201,266) (86) (201,352) 23,554 (41,666) (219,464) (5,925) (225,389) 394,972 32,720 427,692 Net loss after tax Total Assets for reportable segm ents Unallocated assets Total Group Assets 244,321 48,097 102,554 Net capital expenditure (24,512) 8,615 (7,415) (23,312) Total Liabilities for reportable segm ents Unallocated liabilities Total Group Liabilities 32,322 6,246 5,239 43,807 377,888 421,695 EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 92 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 16 Segment reporting (continued) Major customer In the year ended 30 June 2017 the Group had four major customers that represented $104,486,000 (2016: three customers representing $83,742,000) of the Groupʼs total revenues, as indicated below: Segment Australia Canada Chile Total 17 Cash and cash equivalents Cash at bank 18 Trade and other receivables Current Trade receivables Less: Impairment of receivables VAT/GST receivable Other receivables Non-Current Other receivables 2017 $'000 68,844 9,474 26,168 104,486 2016 $'000 37,321 18,340 28,081 83,742 Consolidated 2017 $'000 2016 $'000 16,978 24,854 Consolidated 2017 $'000 2016 $'000 87,821 (200) 87,621 3,805 22,109 113,535 237 237 32,803 (1,090) 31,713 2,849 3,172 37,734 6,234 6,234 The Groupʼs 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 2017 93 7 1 6 2 1 8 1 L I N M A R 7 F r o n t (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 19 Derivatives Current Assets Cross currency interest rate swaps Non Current Assets Cross currency interest rate swaps 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 2017 $'000 2016 $'000 - - 4,015 4,015 8,366 8,366 6,315 6,315 12,629 12,629 - - Consolidated 2017 $'000 2016 $'000 2,199 222 2,421 693 3,114 596 1,732 2,328 3,005 5,333 (1) During the year ended 30 June 2017 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 $387,000 (2016: $10,072,000). EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 94 k c a B 7 R A M N I L 1 8 1 2 6 1 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 21 Intangible assets Goodwilll Less: Impairment Contract intangibles - at cost Less: Accumulated amortisation Other intangibles - at cost Less: Accumulated amortisation Consolidated 2017 $'000 77,880 (77,880) - 2016 $'000 - - - - - - 5,006 (2,119) 2,887 712 (712) - 3,636 (1,292) 2,344 Total intangible assets 2,887 2,344 Amortisation and impairment of intangible assets The amortisation charge and impairment of intangible assets are recognised in the following line item in the income statement: Amortisation expense Goodwill Impairment Total expense for the year for continuing operations Consolidated 2017 $'000 2016 $'000 826 77,880 78,706 148 - 148 Impairment testing at 30 June 2017 indicated that the goodwill assigned to the Australian CGU was impaired. The Goodwill has been impaired to nil at 30 June 2017 and an impairment expense of $77,880,000 has been recognised in the consolidated statement of profit or loss and other comprehensive income. Refer to note 36 for details of goodwill recognised during the period and note 22 for details on impairment testing. Refer to note 8b for details of the transaction. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 95 k c a B 7 R A M N I L 1 8 1 2 6 1 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 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 7 Consolidated 2017 $'000 2016 $'000 1,712 (866) 846 4,601 (3,916) 685 6,046 (3,904) 2,142 4,869 (3,935) 934 637,588 (297,975) 339,613 622,142 (357,505) 264,637 6,812 (1,251) 5,561 469 (426) 43 2,495 (2,090) 405 7,462 (5,601) 1,861 6,946 (6,223) 723 23,139 (13,941) 9,198 667 (605) 62 2,378 (2,038) 340 7,800 (6,673) 1,127 10,812 (9,070) 1,742 Total property, plant and equipment - at net book value 349,737 280,182 EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 96 1 6 2 1 8 1 L I N M A R 7 F r o n t 0 1 8 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 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 Additions from acquisition (Andy's) Depreciation Disposals Impairment Effects of movement in foreign exchange Carrying amount at the end of the year Leasehold improvements Carrying amount at the beginning of the year Additions Disposals Depreciation Impairment 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 Additions from acquisition (Orionstone) Additions from acquisition (Andy's) Net movement in capital work in progress Net movement in rental inventory (1) Depreciation Impairment loss on continuing and discontinuing operations (2) 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 Impairment Effects of movement in foreign exchange Carrying amount at the end of the year Consolidated 2017 $'000 2016 $'000 2,142 - 450 (368) (1,321) - (57) 846 934 19 (21) (245) - (2) 685 264,637 88,426 85,344 62,277 6,169 (1,531) (66,540) - (96,217) (2,952) 339,613 62 - - (21) - 2 43 6,613 199 - (535) (85) (3,982) (68) 2,142 1,362 93 - (331) (188) (2) 934 458,580 41,788 - - (3,488) (2,306) (62,796) (150,615) (21,897) 5,371 264,637 155 14 - (89) (17) (1) 62 (cid:894)(cid:1005)(cid:895) Included in this movement are purchases totalling $356,000 for the year ended 30 June 2017 (2016: $302,000). Included in this movement is an impairment charge of nil for the year ended 30 June 2017 (2016: $2,503,000). (cid:894)(cid:1006)(cid:895) Relates to impairment recognised on the Australia, Chile and Canada CGU for the year ended 30 June 2016. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 97 1 6 2 1 8 1 L I N M A R 8 F r o n t (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 22 Property, plant and equipment (continued) Reconciliations (continued) Reconciliations of the carrying amounts for each class of property, plant and equipment are set out below: Office equipment Carrying amount at the beginning of the year Additions Disposals Depreciation Impairment 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 Additions from acquisition (Orionstone) Disposals Depreciation Impairment 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 Additions from acquisition (Orionstone) Additions from acquisition (Andy's) Disposals Depreciation Impairment Effects of movement in foreign exchange Carrying amount at the end of the year Leased plant and equipment Carrying amount at the beginning of the year Additions Additions from acquisition (Orionstone) Additions from acquisition (Andy's) Disposals Depreciation Movement from/(to) assets held for sale Impairment Effects of movement in foreign exchange Carrying amount at the end of the year Consolidated 2017 $'000 2016 $'000 340 275 (5) (205) - - 405 1,127 46 1,686 (307) (674) - (17) 1,861 1,742 46 144 10 (506) (684) - (29) 723 9,198 264 - 6,345 (727) (1,871) (7,573) - (75) 5,561 408 552 (48) (239) (333) - 340 2,021 921 - (179) (1,128) (504) (4) 1,127 3,460 885 - - (41) (1,100) (1,458) (4) 1,742 9,752 8,362 - - - (2,976) (2,313) (3,627) - 9,198 Security The Groupʼs assets are subject to a fixed and floating charge under the terms of the new notes issued. Refer note 24 for further details. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 98 k c a B 8 R A M N I L 1 8 1 2 6 1 1 6 2 1 8 1 L I N M A R 8 B a c k (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 22 Property, plant and equipment (continued) Impairment tests for cash generating units The Group conducts impairment testing annually at 30 June each year and when impairment indicators exist, such as when market capitalisation is lower than the net assets of the Group. The Group has determined the recoverable amount of its cash generating units (CGU) using a value in use and fair value less costs to sell methodologies (2016: value in use). CGUʼs are classified as the operating segments of the Group. The Australia CGU was valued on a value in use methodology which is based on discounted cash flows for five years plus a terminal value. The Chile CGU was discontinued in June 2017 and consequently has been valued at Fair Value less Costs to Sell. The Canada CGU was valued on a Fair Value less Costs to Sell basis. Determining recoverable amount requires the exercise of significant judgements for both internal and external factors. Judgements for external factors, including but not limited to 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. 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 2017. 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 Australia rental CGU valuation was 9.5% (2016: 8.9%). For future cashflows of the Australia 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 Emecoʼs five year outlook taking into account all available information at this current time and are subject to change over time. A compound annual growth rate (CAGR) of 1.3% (2016: 2.2%) has been used over the five years of the forecast. Impairment testing conducted during the year ending 30 June 2017 determined that the Australia CGU was impaired by $77,880,000. The impairment was first allocated to the goodwill in the CGU of $77,880,000. No impairment was made to the tangible assets of the Australia CGU. Refer to note 8b for details of the impairment expense recognised in the consolidated statement of profit or loss and other comprehensive income. Write down to fair value of assets designated as held for sale The table below outlines the amount recognised in the consolidated statement of profit or loss and other comprehensive income for each CGU during the year ended 30 June 2017 in relation to the designation and disposal of assets designated as held for sale. CGU Australia rental Canada rental Chile rental Total Impairment recognised A$ʼ000 8,207 1,946 15,231 25,384 EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 99 t n o r F 8 R A M N I L 1 8 1 2 6 1 8 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 22 Property, plant and equipment (continued) 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 presents the amount by which the impairment recognised for each CGU increases due to a 1 percent drop in CGU average utilisation over the forecast period and a 1 percent increase in discount rates. CGU Australia rental 23 Trade and other payables Current Trade payables Trade payables Other payables and accruals Impact on impairment from 1% decline in CGU utilisation A$million Impact on impairment from 1% increase in discount rate A$million 16.8 41.1 Consolidated 2017 $'000 2016 $'000 24,491 58,054 82,545 13,658 24,377 38,035 The Groupʼs exposure to currency and liquidity risk associated with trade and other payables is disclosed in note 6. The Company has also entered into a deed of cross guarantee with certain subsidiaries as described in note 38. Under the terms of the deed, the Company has guaranteed the repayment of all current and future creditors in the event any of the entities party to the deed are wound up. Details of the consolidated financial position of the Company and subsidiaries party to the deed are set out in note 38. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 100 1 0 t n o r F 8 R A M N I L 1 8 1 2 6 1 8 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 24 Interest bearing liabilities Current Amortised cost Other financing Lease liabilities - secured Non-current Amortised cost USD notes - secured Notes issue - secured Notes issue - secured (2) Debt raising costs (2) Debt raising costs OID (1) Debt raising costs (revolving credit facility) Debt raising costs (asset backed loan) Lease liabilities - secured Consolidated 2017 $'000 2016 $'000 1,584 5,310 6,894 535 4,044 4,579 462,724 - - (19,440) - - (630) - 4,491 447,145 - 284,433 96,283 (2,121) (6,265) (2,743) - (1,310) 4,962 373,239 (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$75,000,000 asset backed loan on 31 March 2017 and was replaced with a A$65,000,000 revolving credit facility (RCF) consisting of two sub facilities of A$30,000,000 available for the issuance of bank guarantees and A$35,000,000 available as a revolving cash advance facility. The facility matures in March 2020. The bank guarantee facility attracts a fee of 2.75% on the unutilised portion of the facility and a fee of 5.5% on the outstanding balance of guarantees on issue. The nominal interest rate on the RCF is equal to the aggregate of the bank bill swap rate (BBSY) plus a margin of between 5% and 7% dependant on the calculated leverage ratio. The facility also attracts an undrawn line fee of between 2.5% and 3.5% dependant on the calculated leverage ratio on the undrawn available balance of the facility. The facilities require the Group to maintain a collateral coverage ratio greater than 3.0x and a fixed charge coverage ratio greater than 1.2x. At year end the Group had drawn $Nil of the revolving cash advance facility but had utilised $2,729,000 of the bank guarantee facility. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 101 1 0 1 6 2 1 8 1 L I N M A R 8 B a c k (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 24 Interest bearing liabilities (continued) 144A notes issue As part of the acquisition of Andyʼs and Orionstone, the Group acquired A$66,558,000 and A$137,360,000 of long term debt respectively from each of these businesses. These amounts, in addition to the US$282,720,000 outstanding on the Groupʼs 144A notes were exchanged for newly issued Emeco new notes to the value of US$360,818,000/A$469,082,000 and 966,563,209 ordinary shares in the Company. The refinancing of the long term debt was a condition of the Transaction. Of these newly issued notes, US$4,890,000/A$5,357,000 is held by the Group and has been netted off against the total debt of the group. The original 144A notes were cancelled on completion of the transaction. The notes attract a nominal interest rate of 9.25% and mature on 30 March 2022. The notes will remain fully drawn until maturity. Under the terms of the note agreement, the noteholders hold a joint fixed and floating charge with the revolving credit facility bank over the assets and undertakings of the Group. The notes are measured at amortised cost. The notes have a limitation on capital expenditure to the amount of A$77,500,000 for the 10 months ending 31 January 2018, A$87,500,000 for the 12 months ending 31 January 2019 and A$92,500,000 for the 12 months ending 21 January 2019 and for each preceding 12 month period. Any unused limit can be carried forward for the preceding 12 month period. The Group designated derivatives (cross currency interest rate swaps) as hedge instruments against this underlying debt. FY17 USD $ʼ000 USD Notes 144A notes Hedged (Asset)/Liability Net Exposure US$355,927 - - US$355,927 AUD $ʼ000 $462,724 - $4,351 $467,075 FY16 USD $ʼ000 - US$282,720 - US$282,720 AUD $ʼ000 - $380,715 ($18,944) $361,771 Working capital facilities The Group has a credit card facility with a limit of A$60,000. The facility is secured via a cash cover account. The Group has a separate bank guarantee facility of A$560,000 which is fully utilised and secured via a cash cover account. Finance leases At 30 June 2017, the Group held finance lease facilities totalling A$9,801,000 (2016: A$9,006,000) which have various maturities up to November 2020. Liabilities under the facility are secured by the assets leased. Other financial liabilities At year end the Group financed its insurance premium totalling A$1,584,000 which matures in January 2018. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 102 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 24 Interest bearing liabilities (continued) Finance lease liabilities Finance lease liabilities of the Group are payable as follows: Future minimum lease Present value of minimum minimum Future lease lease Present value of minimum lease payments Interest payments payments Interest payments 2017 $'000 2017 $'000 5,769 (459) 4,689 (198) 2017 $'000 5,310 4,491 - - - 10,458 (657) 9,801 2016 $'000 2016 $'000 2016 $'000 4,361 5,331 - 9,692 (317) (369) - (686) 4,044 4,962 - 9,006 Consolidated Less than one year Between one and five years More than five years The Group leases plant and equipment under finance leases. The Groupʼs lease liabilities are secured by the leased assets of $5,561,000 (2016: $9,198,000). In the event of default, the leased assets revert to the lessor. k c a B 8 R A M N I L 1 8 1 2 6 1 EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 103 0 1 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 25 Financing arrangements The Group has the ability to access the following lines of credit: Total facilities available: Revolving credit facility Bank guarantee facility Bank loans USD notes (1) 144A notes Finance leases Insurance financing Working capital Facilities utilised at reporting date: Revolving credit facility $35m Bank guarantee facility $30m Bank loans (2) USD notes (1) 144A notes Finance leases Insurance financing Working capital Facilities not utilised or established at reporting date: Revolving credit facility $35m Bank guarantee facility $30m Bank loans USD notes 144A notes (1) Finance leases Insurance financing Working capital 8 Consolidated 2017 $'000 2016 $'000 35,000 30,000 - 462,724 - 9,801 1,584 866 539,975 - 2,729 - 462,724 - 9,801 1,584 866 477,704 35,000 27,271 - - - - - - 62,271 - - 75,000 - 451,118 9,006 535 1,616 537,275 - - 11,504 - 451,118 9,006 535 866 473,029 - - 63,496 - - - - 750 64,246 (1) The facility of US$360,818,000/A$469,082,000 was fully drawn at 30 June 2017. The Group holds US$4,890,000/A$5,357,000 face value of bonds which have not been cancelled and are available for re-issue. The notes held by the Group have reduced the total outstanding balance attributed to the notes on issue in the consolidated statement of financial position. (2) The facility was undrawn at 30 June 2016 however had issued $11,504,000 of guarantees backed by the facility. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 104 1 6 2 1 8 1 L I N M A R 8 F r o n t (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 26 Provisions Current Employee benefits: - annual leave - long service leave Provision for restructuring 9 Non-current Employee benefits - long service leave Provision for restructuring Consolidated 2017 $'000 2016 $'000 3,381 903 2,099 6,383 494 410 904 2,214 480 775 3,469 454 1,036 1,490 Defined contribution superannuation funds The Group makes contributions to defined contribution superannuation funds. The expense recognised for the year was $2,128,000 (2016: $2,513,000). 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 RI (refer note 3(j)(v)). Prior to establishing the LTIP certain key management personnel and senior employees were issued shares in the Company under the Companyʼs 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 2017 105 1 6 2 1 8 1 L I N M A R 9 F r o n t (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 27 Share based payments (continued) Long term incentive plan Grant date / employees entitled Matured in FY17: Performance shares/rights 2014 Number of instruments Vesting conditions Contractual life of performance shares/rights 24,491,074 3 years service TSR ranking to a 3 years 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. No shares/rights vested due to TSR being less than 75%. Unvested plans: Performance shares/rights 2015 19,681,416 3 years service TSR ranking to a 3 years 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. Performance shares/rights 2016 38,612,893 3 years service TSR ranking to a 3 years 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. Retention incentive plan Grant date / employees entitled instruments Vesting conditions Number of Contractual life of performance shares/rights Performance shares/rights 2017 303,603,596 3 years service 3 years EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 106 k c a B 9 R A M N I L 1 8 1 2 6 1 k c a B 9 R A M N I L 1 8 1 2 6 1 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 27 Share based payments (continued) The movement of performance shares and performance rights on issue during the year were as follows: Outstanding at 1 July Forfeited during the period Exercised during the period Granted during the period Outstanding at 30 June Exercisable at 30 June Management incentive share plan Number of performance shares/rights 2017 49,289,980 (19,544,793) (121,843,024) 303,602,694 211,504,857 - Number of performance shares/rights 2016 34,399,732 (23,722,645) - 38,612,893 49,289,980 - Grant date / employees entitled MISP 2006 Number of instruments Vesting conditions 4,010,000 Service requirement. Partial vesting entitlement after 2 years with full vesting after 5 years. Contractual life of MISP loan 10 years MISP 2007 1,240,000 Service requirement. Partial 10 years vesting entitlement after 2 years with full vesting after 5 years. MISP 2008 560,000 Service requirement. Partial 10 years vesting entitlement after 2 years with full vesting after 5 years. 5,810,000 The number of MISPs are as follows: Outstanding at 1 July Forfeited during the period Exercised during the period Granted during the period Outstanding at 30 June Exercisable at 30 June EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 Number of MISP 2017 - - - - - - Number of MISP 2016 1,060,000 (1,060,000) - - - - 107 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 27 Share based payments (continued) Employee share ownership plan Grant date / employees entitled Matured in January 2016 ESOP 2015 Number of instruments Vesting conditions 88,469 Service requirement. Full vesting entitlement after 1 year after the end of the calendar year in which they are acquired. 88,469 Contractual life of ESOP 1 year 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 2017 49,831 - (49,831) - - - Number of ESOP 2016 71,260 (7,859) (13,570) - 49,831 - (1) The shares are not considered exercisable until the full vesting period has been satisfied. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 108 9 1 6 2 1 8 1 L I N M A R 9 F r o n t t n o r F 9 R A M N I L 1 8 1 2 6 1 9 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 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 RIʼs granted, measured using a Black Scholes pricing model (2016: RIʼs granted, measured using a Black Scholes pricing model). Expected volatility is estimated by considering the Companyʼs historical daily and monthly share price movement and an analysis of comparable companies. Volatility has not been included in the 2016 and 2017 valuation due to the incentives not containing market vesting conditions. 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: 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) Chief executive officer 2017 Chief executive officer 2016 Incentive Plans Key manage- ment personnel 2017 Key manage- ment personnel 2016 Senior employees 2017 Senior employees 2016 $0.08 $0.08 $Nil n/a $0.03 $0.03 $Nil n/a $0.08 $0.08 $Nil n/a $0.03 $0.03 $Nil n/a $0.08 $0.08 $Nil n/a $0.03 $0.03 $Nil n/a 36 months 31 months 36 months 31 months 36 months 31 months Expected dividends Risk-free interest rate (based on government bonds) n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a The fair value assumptions for 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 Groupʼs CEO and key management personnel the following applies: Dividends: (cid:129) dividends (or shadow dividends) will not be paid on unvested LTI or RI securities; (cid:129) 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: (cid:129) (cid:129) (cid:129) the proportion of vesting LTI or RI securities will be pro-rated to reflect the performance achieved; the proportion of vesting LTI or RI securities will be in accordance with the relevant TSR vesting schedule for each grant; and the board retains the discretion to vest a greater amount. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 109 1 6 2 1 8 1 L I N M A R 9 B a c k (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 27 Share based payments (continued) Employee expenses in AUD Performance shares/rights Total expense recoginsed as employee costs (1) Consolidated 2017 6,401,305 6,401,305 2016 1,707,382 1,707,382 (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. 28 Commitments (a) Operating lease commitments Future non-cancellable operating leases not provided for in the finanical statements and payable: Less than one year Between one and five years More than five years Consolidated 2017 $'000 2016 $'000 14,145 10,589 - 24,734 12,265 17,018 - 29,283 The Group leases the majority of their operating premises. The terms of the lease are negotiated in conjunction with the Groupʼs internal and external advisors and are dependent upon market forces. During the year ended 30 June 2017 an amount of $17,954,000 was recognised as an expense in profit or loss in respect of operating leases (2016: $14,789,000). (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 2017 (2016: $Nil). EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 110 1 6 2 1 8 1 L I N M A R 9 B a c k (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 29 Contingent liabilities Guarantees The Group has provided bank guarantees in the amount of $4,172,000 (2016: $11,504,000) in relation to obligations under operating leases and rental premises. Indonesia Since the Group announced it would exit its Indonesian operations, the Indonesian tax office commenced routine VAT and Corporate income tax audits. As a consequence the Indonesian tax office have issued an assessment which the Group have disputed. Under local laws an assessment does not become final until all appeal avenues have been exhausted. The process to liquidate the Indonesian entity has commenced and the Group continues to manage its on-going tax and legal obligations in Indonesia. The Group does not believe any potential exposure exists in relation to the Indonesian entity. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 111 t n o r F 9 R A M N I L 1 8 1 2 6 1 9 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 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:- Cash assets Consolidated 2017 $'000 16,978 2016 $'000 24,854 Note 17 (ii) Reconciliation of net profit to net cash provided by operating activities Net loss - continuing operations Note 2017 $'000 (156,147) 2016 $'000 (225,389) Add/(less) items classified as investing/financing activities: Net profit on sale of non-current assets Acquisition costs Add/(less) non-cash items: Amortisation Depreciation Amortisation of borrowing costs using effective interest rate Write off previous deferred borrowing costs (Gain)/loss on hedge Discount on repurchased debt Discount on refinanced debt Shares issued to BDCM Withholding tax expense Foreign exchange (gain)/loss Impairment losses on property, plant and equipment Bad debts Provision for doubtful debts/(reversal) Impairment of goodwill Other non-cash items and reclassifications Equity settled share based payments (Decrease)/increase in income taxes payable (Decrease)/increase in deferred tax asset 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 36 21 8 8 8 6 8 8 8 8 8 8 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 (504) 14,445 826 60,721 5,078 5,778 1,349 - (20,359) 10,253 767 10,079 9,766 24 (591) 77,880 (4,449) 6,164 - (13,491) 13,243 (400) - 148 69,194 4,217 1,251 1,191 (31,663) - - 2,559 42,002 168,156 4,924 (5,555) - 6,740 1,707 - (5,510) - 20,832 33,572 (44,012) 5,475 26,990 4,939 14,224 26,463 17,498 (6,445) (444) 70,644 EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 112 t n o r F 9 R A M N I L 1 8 1 2 6 1 9 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 31 Controlled entities (a) Particulars in relation to controlled entities Parent entity Emeco Holdings Limited Controlled entities Country of incorporation Ownership interest 2016 2017 % % Pacific Custodians Pty Ltd as trustee for Emeco Employee Share Ownership Plan Trust Emeco Pty Limited Emeco International Pty Limited EHL Corporate Pty Ltd Emeco Parts Pty Ltd Emeco Finance Pty Ltd Andyʼs Earthmovers (Asia Pacific) Pty Ltd Orionstone Holdings Pty Ltd Orionstone Pty Ltd Ironstone Group Pty Ltd Orion (WA) Pty Ltd RPO Australia Pty Ltd Emeco Equipment (USA) LLC Emeco Canada Ltd Emeco (UK) Limited PT Prima Traktor IndoNusa (PTI) Emeco International Europe BV Emeco Europe BV Emeco BV Emeco Holdings South America SpA Enduro SpA Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia United States Canada United Kingdom Indonesia Netherlands Netherlands Netherlands 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 - - - - - - 100 100 100 100 100 100 100 100 100 (b) Acquisition of entities in the current year The following entities were acquired in the current year: (cid:129) Andyʼs Earthmovers (Asia Pacific) Pty Ltd (cid:129) Orionstone Holdings Pty Ltd (cid:129) Orionstone Pty Ltd (cid:129) (cid:129) Orion (WA) Pty Ltd (cid:129) RPO Australia Pty Ltd Ironstone Group Pty Ltd Refer to note 36 for details on the acquisition of these entities. (c) Acquisition of entities in the prior year There was no acquisition of entities in the prior year. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 113 1 6 2 1 8 1 L I N M A R 9 B a c k (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 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 Peter Richards Chair Peter Frank Keith Skinner (Commenced role on 1 April 2017) (Commenced role on 1 April 2017) Darren Yeates (Commenced role on 1 April 2017) John Cahill Erica Smyth (Ceased role on 1 April 2017) (Ceased role on 1 April 2017) Executive directors Ian Testrow Managing Director & Chief Executive Officer Gregory Hawkins Executive Director, Finance (ceased role on 19 August 2016) Other executives Position Thao Pham Justine Lea Chief Strategy Officer (commenced role on 17 May 2017), previously Chief Legal, Risk & Business Transformation Officer (ceased role as Company Secretary on 1 April 2017). Chief Financial Officer (commenced role 24 October 2016), previously Acting Chief Financial Officer (commenced role on 1 July 2016) EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 114 1 6 2 1 8 1 L I N M A R 9 B a c k (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 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 2017 6,008,791 - 210,262 - 1,137,258 7,356,311 2016 2,451,149 - 178,974 866,555 1,062,032 4,558,710 Remuneration of key management personnel by the Group The compensation disclosed above represents an allocation of the key management personnelʼs 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 directorsʼ report on pages 25 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 directorsʼ 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 Companyʼs 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. Shares and rights over equity instruments granted as compensation under retention incentive plan The Company has an ongoing retention incentive plan in which shares have been granted to certain employees of the Company. The shares vest after three years. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 115 t n o r F 9 R A M N I L 1 8 1 2 6 1 9 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 32 Key management personnel disclosure (continued) The movement during the reporting year in the number of shares issued under the long term incentive plan, retention 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 personnelʼs equity holdings. 2017 Shares Directors & executives Ian Testrow Gregory Hawkins (1) Thao Pham Jusitine Lea (4) 2016 Shares Directors & executives Ian Testrow Gregory Hawkins (1) Thao Pham Kenneth Lewsey (2) Stuart Jenner (3) Kalien Selby (3) Held at 1 July 2016 Granted as compensation Vested during the year Forfeited/ lapsed Held at 30 June 2017 14,571,703 108,674,758 7,860,434 4,187,320 459,294 - - - - - - (7,860,434) - (199,456) - (215,294) 123,246,461 n/a 3,987,864 244,000 Held at 1 July 2015 Granted as compensation Vested during the year Forfeited/ lapsed Held at 30 June 2016 1,550,000 13,021,703 6,260,434 1,600,000 3,330,756 915,489 - 8,803,571 - - - 260,000 - - - - - (58,925) - (8,803,571) - - - (260,000) 14,571,703 7,860,434 4,187,320 n/a n/a n/a Dividends paid under the management incentive share plan are paid against the employeeʼs outstanding loan and is reflected in issued capital. (1) Mr Hawkins ceased to be a key management personnel on 19 August 2016. (2) Mr Lewsey ceased to be a key management personnel on 20 October 2015. (3) Mr Jenner and Ms Selby ceased to be a key management on 1 July 2015 and 28 August 2015 respectively. (4) Ms Lea became key management personnel 1 July 2016. n/a Not applicable as not in a position of key management at relevant reporting date. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 116 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 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. 2017 Rights Directors & executives Ian Testrow Thao Pham Jusitine Lea (2) 2016 Rights Directors & executives Ian Testrow Christopher Hayman (1) Held at 1 July 2016 Granted as compensation Vested during the Year Forfeited/ lapsed Held at 30 June 2017 1,633,151 - - - 24,368,605 8,122,868 - (1,633,151) - - - - - 24,368,605 8,122,868 Held at 1 July 2015 Granted as compensation Vested during the Year Forfeited/ lapsed Held at 30 June 2016 2,084,522 1,831,007 - - - (451,371) - (1,831,007) 1,633,151 n/a (1) Mr Hayman became a key management personnel on 8 July 2013 and ceased to be a key management personnel on 6 November 2015. (2) Ms Lea became a key management personnel on 1 July 2016. n/a Not applicable as not in a position of key management personnel at relevant reporting date. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 117 9 1 6 2 1 8 1 L I N M A R 9 F r o n t (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 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. Held at 1 July 2016 Ordinary Shares Transferred from Share Plan Purchases Sales Held at 30 June 2017 Ordinary Shares 750,817 7,014 522,238 120,000 40,000 71,049 - 757,831 n/a - - - n/a - - - - 52,264 - 12,264 n/a - - - - - - - - - - - - - - - - - - 38,014 40,224 4,000 - - 78,238 - - - 4,000 2017 Directors Ian Testrow Gregory Hawkins (1) John Cahill (2) Peter Richards Erica Smyth (2) Peter Frank (3) Keith Skinner (3) Darren Yeates (3) Other executives Thao Pham Justine Lea (4) (1) Mr Hawkins ceased to be key management personnel on 19 August 2016. (2) Mr Cahill and Ms Smyth ceased to be key management personnel on 1 April 2017. (3) Mr Frank, Mr Skinner and Mr Yeates became key management personnel on 1 April 2017. (4) Ms Lea became a key management personnel on 1 July 2016. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 118 k c a B 9 R A M N I L 1 8 1 2 6 1 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 32 Key management personnel disclosure (continued) Held at 1 July 2015 Ordinary Shares Transferred from Share Plan Purchases Sales Held at 30 June 2016 Ordinary Shares 1,581,700 750,817 522,238 120,000 40,000 71,049 1,028,690 - - - 1,581,700 - - - 750,817 - - 522,238 - - - 120,000 - - - 40,000 - - - 71,049 n/a - - - 9,332 35,103 35,103 38,014 - - - n/a - - - n/a n/a - - - - - - 38,014 2016 Directors Alec Brennan Ian Testrow Gregory Hawkins John Cahill Peter Richards Erica Smyth Kenneth Lewsey (1) Other executives Christopher Hayman (1) Stuart Jenner (1) Kalien Selby (1) Thao Pham (1) Mr Jenner, Mr Lewsey, Ms Selby and Mr Hayman ceased to be key management personnel on 1 July 2015, 20 August 2015, 28 August 2015 and 6 November 2015 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 2017 119 k c a B 9 R A M N I L 1 8 1 2 6 1 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 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 armʼs length basis. The aggregate value of transactions recognised during the year related to key management personnel and their related parties were as follows: Transaction value year ended 30 June Balance outstanding as at 30 June 9 2017 $'000 2016 $'000 2017 $'000 2016 $'000 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 n/a n/a 21 21 n/a n/a - - n/a n/a 251 251 n/a n/a 12 12 Mr Richards ceased to be a director of Sedgman Limited and Bradken Limited in November 2015. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 120 1 6 2 1 8 1 L I N M A R 9 F r o n t t n o r F 8 R A M N I L 1 8 1 2 6 1 8 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 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 an armʼs length rate. Ultimate parent entity Emeco Holdings Limited is the ultimate parent entity of the Group. 34 Subsequent events 1 0 No significant events have occurred subsequent to the year ended 30 June 2017. 35 Earnings per share Basic earnings per share The calculation of basic earnings per share at 30 June 2017 was based on the loss attributable to ordinary shareholders of $180,463,000 (2016: $225,389,000) and a weighted average number of ordinary shares outstanding less any treasury shares for the year ended 30 June 2017 of 967,114,525 (2016: 557,569,229). Profit attributed to ordinary shareholders Consolidated 2017 2016 Continuing Discontinued operations operations $'000 (156,147) $'000 (24,316) Total $'000 (180,463) ContinuingDiscontinued operations operations $'000 (168,454) $'000 (56,935) Total $'000 (225,389) Profit/(loss) for the year EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 121 1 6 2 1 8 1 L I N M A R 8 B a c k (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 35 Earnings per share (continued) Weighted average number of ordinary shares Issued ordinary shares at 1 July Effect of shares issued during the period Effect of vested employee share plans Effect of purchased treasury shares Weighted average number of ordinary shares at 30 June Consolidated 2017 '000 557,569 457,628 3,460 (51,542) 967,115 2016 '000 631,238 - - (73,669) 557,569 Diluted earnings per share The calculation of diluted earnings per share at 30 June 2017 was based on the loss attributable to ordinary shareholders of $180,463,000 (2016: $225,389,000) and a weighted average number of ordinary shares outstanding less any treasury shares during the financial year ended 30 June 2017 of 967,114,525 (2016: 557,569,229). Profit attributed to ordinary shareholders (diluted) Consolidated 2017 2016 Continuing Discontinued operations operations $'000 $'000 ContinuingDiscontinued operations operations $'000 $'000 Total $'000 Total $'000 Profit/(loss) attributed to ordinary shareholders (basic) (156,147) (24,316) (180,463) (168,454) (56,935) (225,389) Weighted average number of ordinary shares (diluted) Weighted average number of ordinary shares at 1 July Effect of shares issued during the period Effect of vested employee share plans Effect of unvested employee share plans Effect of purchased treasury shares Weighted average number of ordinary shares (diluted) at 30 June Consolidated 2017 '000 557,569 457,628 3,460 76,556 (51,542) 1,043,671 2016 '000 631,238 - - - (73,669) 557,569 Comparative information The average market value of the Companyʼs 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 2017 122 1 6 2 1 8 1 L I N M A R 8 B a c k (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 36 Business combinations Andyʼs Earthmovers (Asia Pacific) Pty Ltd On 31 March 2017, Emeco Holdings Limited acquired 100% of the shares in Andyʼs Earthmovers (Asia Pacific) Pty Ltd (Andyʼs) for total consideration transferred of $8,788,666 arising from the issue of 105,887,545 shares. The issue of Emeco shares was at the market price of $0.083. Goodwill of $4,947,000 represents the residual value of the purchase price of the company over the fair value of identified tangible and intangible assets. The trade and other receivables acquired in this transaction with a fair value of $15,439,000 had a gross contractual amount of $23,845,517. The best estimate at acquisition date of the contractual cash flows not expected to be collected is $8,407,000. Orionstone Holdings Pty Ltd On 31 March 2017, Emeco Holdings Limited acquired 100% of the shares in Orionstone Holdings Pty Ltd (Orionstone) for total consideration transferred of $17,793,598 arising from the issue of 214,380,704 shares. The issue of Emeco shares was at the market price of $0.083. Goodwill of $72,933,000 represents the residual value of the purchase price of the company over the fair value of identified tangible and intangible assets. The trade and other receivables acquired in this transaction with a fair value of $10,017,000 had gross contractual amounts of $15,349,942. The best estimate at acquisition date of the contractual cash flows not expected to be collected is $5,332,690. Goodwill Goodwill of $77,880,000 was recognised on the acquisition of Andyʼs ($4,947,000) and Orionstone ($72,933,000) and was allocated to the Australia cash generating unit (CGU). Goodwill arose in the acquisition of Andyʼs and Orionstone due to an increase in the Companyʼs share price over the period that completion of transaction was delayed in addition to an increase in short term liabilities acquired from both businesses. The Company did not intend to provide consideration for the transaction in excess of the fair value. Impairment testing indicated the Australia CGU was impaired by $77,880,000. In accordance with AASB 136, the impairment was first allocated against the goodwill recognised in the Australia CGU. The resulting impairment resulted in the goodwill acquired during the period being impaired to zero. An impairment expense of $77,880,000 was recognised in the consolidated statement of profit or loss and other comprehensive income during the period. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 123 t n o r F 8 R A M N I L 1 8 1 2 6 1 8 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 36 Business combinations (continued) The values identified in relation to the acquisition are final as at reporting date 30 June 2017. Details of the acquisition are as follows: Andy's Orionstone Earthm overs Holdings (Asia Pacific) Pty Ltd Pty Ltd $'000 $'000 Total $'000 Cash assets Trade and other receivables Inventories Prepayments Plant and equipment Tax assets/(liabilites) Investments Trade and other payables Provisions Interest bearing liabilities Net assets /(liaibilities) acquired Goodw ill Acquisition date fair value of consideration transferred Representing: Emeco Holdings Limited shares Acquisition costs expensed to profit or loss Cash used to acquire the business, net of cash aquired: Acquisition date fair value of consideration transferred Less: cash and cash equivalents Less: Emeco Holdings Limited shares Net Cash received 159 15,439 156 12 64,557 2,202 799 (9,049) (905) (69,529) 3,841 4,947 8,788 8,788 4,776 8,788 (159) (8,788) 159 783 11,740 350 54 91,699 (3,063) - (14,403) (343) (141,957) (55,140) 72,933 17,793 17,793 9,669 17,793 (783) (17,793) 783 1 0 942 27,179 506 66 156,256 (861) 799 (23,452) (1,248) (211,486) (51,299) 77,880 26,581 26,581 14,445 26,581 (942) (26,581) 942 Impact of acquisitions on the results of the Group The Group has fully integrated the acquisition of the two businesses from the acquisition date and is therefore unable to accurately quantify the additional revenue and earnings contributed to the Group by the acquired businesses. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 124 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 37 Parent entity disclosure As at and throughout the financial year ending 30 June 2017 the parent entity (the ʻCompanyʼ) 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 1 1 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 2017 $'000 2016 $'000 (63,730) - (63,730) (76,560) - (76,560) 20 322,589 322,609 20 243,168 243,188 - - - - - - 749,117 23,145 (39,074) (410,579) 322,609 593,616 17,055 (20,634) (346,849) 243,188 Parent entity guarantees in respect of debts of its subsidiaries The parent entity has entered into a deed of cross guarantee with the effect that the Company guarantees debts in respect of its subsidiaries. Further details of the deed of cross guarantee and the subsidiaries subject to the deed, are disclosed in note 38. EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 125 1 6 2 1 8 1 L I N M A R 1 0 F r o n t (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 38 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 directorsʼ reports. It is a condition of the class order that the Company and each of the subsidiaries enter into a deed of cross guarantee. The effect of the deed is that the Company guarantees to each creditor payment in full of any debt in the event of winding up of any of the subsidiaries under certain provisions of the Corporations Act 2001. If a winding up occurs under other provisions of the Act, the Company will only be liable in the event that after six months any creditor has not been paid in full. The subsidiaries have also given similar guarantees in the event that the Company is wound up. The subsidiaries subject to the deed are: (cid:131) Emeco Pty Ltd (cid:131) Emeco International Pty Limited (cid:131) Andyʼs Earthmovers (Asia Pacific) Pty Ltd (cid:131) Orionstone Holdings Pty Ltd (cid:131) Orionstone Pty Ltd (cid:131) (cid:131) Orion (WA) Pty Ltd (cid:131) RPO Australia Pty Ltd Ironstone Group Pty Ltd k c a B 0 1 R A M N I L 1 8 1 2 6 1 EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 126 k c a B 0 1 R A M N I L 1 8 1 2 6 1 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 38 Deed of cross guarantee (continued) 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 2017 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 Impairment of goodwill 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 2017 $'000 196,043 (124,126) 71,917 (77,002) 581 77,880 34,454 (62,902) (157) (31,690) 13,080 (14,671) (1,591) (1,003) (1,003) 2016 $'000 131,746 (82,768) 48,978 (63,387) 667 79,037 (54,683) (36,435) (210,196) (236,020) (20,126) (256,146) 8,418 8,418 (569,535) (571,126) (313,389) (569,535) (571,126) (1,591) (569,535) (256,146) EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 127 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2017 39 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 2017 $'000 2016 $'000 12,332 107,022 - 3,515 25,833 148,702 119,524 4,015 2,888 157,173 348,783 12,218 644,601 8,886 32,193 6,315 2,429 8,692 58,515 173,949 12,629 2,344 78,391 182,034 14,370 463,717 793,303 522,232 62,189 9,149 3,714 5,136 80,188 - 456,122 11,311 - 467,433 32,341 - 2,079 3,882 38,302 - 373,655 21,875 - 395,530 547,621 433,832 245,682 88,400 749,117 22,935 44,586 (570,956) 593,616 16,744 47,575 (569,535) Total equity attributable to equity holders of the parent 245,682 88,400 EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 128 1 1 1 6 2 1 8 1 L I N M A R 1 0 F r o n t t n o r F 0 1 R A M N I L 1 8 1 2 6 1 1 1 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Directorsʼ Declaration 1. In the opinion of the directors of Emeco Holdings Limited (the ʻCompanyʼ): (a) the consolidated financial statements and notes as set out on pages 41 - 128, and remuneration report in the directorsʼ report, set out on pages 25 to 39 are in accordance with the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the Groupʼs financial position as at 30 June 2017 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 38 will be able to meet any obligation or liabilities to which they are or may become subject to by virtue of the deed of cross guarantee between the Company and those group entities pursuant to ASIC Class Order 98/1418. The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the chief executive officer and chief financial officer for the financial year ended 30 June 2017. 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, 30th day of August 2017 Signed in accordance with a resolution of the directors: Ian Testrow Managing Director EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 129 1 6 2 1 8 1 L I N M A R 1 0 B a c k Deloitte Touche Tohmatsu ABN 74 490 121 060 Tower 2, Brookfield Place 123 St Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6837 Australia Tel: +61 8 9365 7000 Fax: +61 8 9365 7001 www.deloitte.com.au Independent Auditor’s Report to the members of Emeco Holdings Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Emeco Holdings Limited (the “Company”) and its subsidiaries (the “Group”), which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited 1 6 2 1 8 1 L I N M A R 1 0 B a c k How the scope of our audit responded to the Key Audit Matter Our procedures included, but were not limited to: (cid:120) (cid:120) (cid:120) Reading the purchase agreements to understand key terms and conditions and confirming our understanding of the transaction with management; Assessing the reliability of third party valuations including consideration of their competency and experience which were utilised by management in the determination of fair value of acquired assets; and Reviewing the opening balances of Orionstone and Andy’s working capital balances and the fair value adjustments. We also assessed the appropriateness of the disclosures in note 36 to the financial statements. Our procedures included, but were not limited to: (cid:120) Understanding the process that management (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) undertakes to develop the model; Comparing the forecasts to Board approved business plans; Assessing historical forecasting accuracy by comparing actual performance to budgets; In conjunction with our valuation specialists we: challenged the assumptions and methodologies used by management; assessed the discount rate against that of the industry; evaluated the operating utilisation forecasts against historic levels; and evaluated forecast costs against historic levels; o o o o Testing on a sample basis management’s impairment model for mathematical accuracy; Performing sensitivity analysis on forecast cash flows for changes to the operating utilisation and discount rate; and We also assessed the appropriateness of the disclosures in notes 8b and 22 to the financial statements. Key Audit Matter Acquisition Accounting On 31 March 2017 Emeco Holdings Limited merged with Orionstone Holdings Pty Ltd and Andy's Earthmovers (Asia Pacific) Pty Ltd as disclosed in note 36. Accounting for this transaction is complex, requiring management to exercise judgement to determine the fair value of acquired assets and liabilities, including separately identifiable intangible assets such as customer contracts and determining the allocation of purchase consideration to goodwill. Carrying value of non-current assets As disclosed in notes 8b and 22, an impairment of $77.9 million was recorded against the goodwill recognised from the acquisition during the year within the Australian Rental Cash Generating Unit (CGU). Management prepared a value in use model to assess the recoverable value of the CGU. The preparation of a value in use model requires management to exercise significant judgement, with key assumptions including discount rate, operating margins, and forecast operating utilisation. t n o r F 0 1 R A M N I L 1 8 1 2 6 1 1 1 Other Information The directors are responsible for the other information. The other information comprises the information included in the annual report, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors 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 gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: (cid:120) Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as intentional omissions, involve collusion, fraud may misrepresentations, or the override of internal control. forgery, (cid:120) Obtain an understanding of internal control relevant to the audit 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 Group’s internal control. (cid:120) (cid:120) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. t n o r F 0 1 R A M N I L 1 8 1 2 6 1 1 1 (cid:120) Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. (cid:120) Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 25 to 39 of the Directors’ Report for the year ended 30 June 2017. In our opinion, the Remuneration Report of Emeco Holdings Limited, for the year ended 30 June 2017, complies with section 300A of the Corporations Act 2001. Responsibilities 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 Australian Auditing Standards. DELOITTE TOUCHE TOHMATSU Leanne Karamfiles Partner Chartered Accountants Perth, 3(cid:19) August 2017 1 6 2 1 8 1 L I N M A R 1 0 B a c k (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Shareholder Information Financial calendar The annual general meeting of Emeco Holdings Limited will be held at Bendat Parent and Community Centre, 36 Dodd Street, Wembley WA on Thursday, 23 November 2017 commencing at 10.30am (Perth time). Event Annual general meeting Half year Half year profit announcement Year end *Timing of events is subject to change and board discretion. Shareholder statistics Substantial shareholders Date* 23 November 2017 31 December 2017 February 2018 30 June 2018 Details regarding substantial holders of the Companyʼs ordinary shares as at 8 August 2017, as disclosed in the substantial holding notices, are as follows: Name Shares % Issued capital Black Diamond Capital Management LLC Black Diamond CLO 2012-1 Ltd Black Diamond Credit Strategies Master Fund Ltd Black Diamond CLO 2006-1 (Cayman) Ltd BDCM Opportunity Fund IV LP BDCM Opportunity Fund III LP Brookfield Credit Opportunities Master Fund L.P; Brookfield Credit Opportunities Holdings, L.P; Brookfield Credit Opportunities Offshore Fund, L.P; BLCF Credit Funding L.P; Brookfield Private Equity Holdings L.L.C; Brookfield Asset Management Private Institutional Capital Adviser (Credit), L.L.C; Brookfield Credit Opportunities Onshore Fund, L.P; Brookfield Private Equity Group Holdings L.P; Brookfield Credit Opportunities Fund GP; Brookfield Private Equity Inc.; Brookfield Asset Management Inc.; 2518154 Ontario Limited; and PF Fund Limited Partnership 571,923,330 25.92 316,961,271 13.01 First Samuel Limited Black Crane Asia Opportunities Fund 269,141,867 168,474,369 12.20 8.38 EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 134 1 6 2 1 8 1 L I N M A R 1 0 B a c k (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Shareholder information Distribution of shareholders As at 8 August 2017, there were 4,832 holders of the Companyʼs ordinary shares. The distribution as at 8 August 2017 was as follows: Range 100,001 and Over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total Investors 445 1,439 813 1,371 764 4,832 Securities 2,378,747,168 47,467,253 6,329,982 3,969,047 347,030 2,436,860,480 % Issued Capital 97.62 1.95 0.26 0.16 0.01 100.00 The number of security investors holding less than a marketable parcel of 3,449 securities ($0.145 on 8 August 2017) is 1,689 and they hold 2,346,220 securities. 20 largest shareholders The names of the 20 largest holders of the Companyʼs ordinary shares as at 8 August 2017 are: Rank 1 Name CITICORP NOMINEES PTY LIMITED 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 BDCM OPPORTUNITY FUND IV LP J P MORGAN NOMINEES AUSTRALIA LIMITED PACIFIC CUSTODIANS PTY LIMITED BDCM OPPORTUNITY FUND III LP HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED NATIONAL NOMINEES LIMITED MACQUARIE BANK LIMITED NATIONAL NOMINEES LIMITED FGI HOLDINGS PTY LTD BROOKFIELD CREDIT OPPORTUNITIES MASTER FUND L.P. CIGNA HEALTH AND LIFE INSURANCE COMPANY LIFE INSURANCE COMPANY OF NORTH AMERICA UBS NOMINEES PTY LTD BLACK DIAMOND CLO 2012-1 LTD MR RICHARD NORMAN HARDING HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LTD BLACK DIAMOND CREDIT STRATEGIES MASTER FUND LTD CS FOURTH NOMINEES PTY LIMITED EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 Equity securities % Issued Capital 443,934,676 422,860,224 340,048,460 204,611,825 117,051,449 104,002,840 97,712,044 64,593,216 57,184,635 56,232,573 48,741,208 21,532,131 17,225,705 13,473,827 13,386,693 13,299,098 13,230,115 11,999,329 11,640,603 10,911,379 18.22 17.35 13.95 8.40 4.80 4.27 4.01 2.65 2.35 2.31 2.00 0.88 0.71 0.55 0.55 0.55 0.54 0.49 0.48 0.45 135 t n o r F 0 1 R A M N I L 1 8 1 2 6 1 1 1 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Shareholder information Voting rights of ordinary shares Voting rights of shareholders are governed by the Companyʼs constitution. The constitution provides that on a show of hands every member present in person or by proxy has one vote and on a poll every member present in person or by proxy has one vote for each fully paid ordinary share held by the member. Closing share price ($) EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 136 (cid:3) (cid:3) (cid:3) Emeco Holdings Limited and its Controlled Entities Company Directory DIRECTORS Peter Richards Ian Testrow Peter Frank Keith Skinner Darren Yeates SECRETARY Penelope Young REGISTERED OFFICE Level 3, 71 Walters Drive Osborne Park WA 6017 Phone: +61 8 9420 0222 +61 8 9420 0205 Fax: SHARE REGISTRY Link Market Services Limited Level 12 QV1 Building, 250 St Georges Terrace Perth WA 6000 Phone: 1800 689 300 www.linkmarketservices.com.au AUDITORS Deloitte Touche Tohmatsu Brookfield Place, Tower 2 123 St Georges Terrace Perth WA 6000 SECURITIES EXCHANGE LISTING Emeco Holdings Ltd ordinary shares are listed on the Australian Securities Exchange Ltd. ASX code: EHL EMECO HOLDINGS LIMITED ANNUAL REPORT 2017 137 1 1 1 6 2 1 8 1 L I N M A R 1 0 F r o n t (cid:55)(cid:43)(cid:44)(cid:54)(cid:3)(cid:51)(cid:36)(cid:42)(cid:40)(cid:3)(cid:43)(cid:36)(cid:54)(cid:3)(cid:37)(cid:40)(cid:40)(cid:49)(cid:3)(cid:47)(cid:40)(cid:41)(cid:55)(cid:3)(cid:37)(cid:47)(cid:36)(cid:49)(cid:46)(cid:3)(cid:44)(cid:49)(cid:55)(cid:40)(cid:49)(cid:55)(cid:44)(cid:50)(cid:49)(cid:36)(cid:47)(cid:47)(cid:60) k c a B 0 1 R A M N I L 1 8 1 2 6 1 (cid:55)(cid:43)(cid:44)(cid:54)(cid:3)(cid:51)(cid:36)(cid:42)(cid:40)(cid:3)(cid:43)(cid:36)(cid:54)(cid:3)(cid:37)(cid:40)(cid:40)(cid:49)(cid:3)(cid:47)(cid:40)(cid:41)(cid:55)(cid:3)(cid:37)(cid:47)(cid:36)(cid:49)(cid:46)(cid:3)(cid:44)(cid:49)(cid:55)(cid:40)(cid:49)(cid:55)(cid:44)(cid:50)(cid:49)(cid:36)(cid:47)(cid:47)(cid:60) k c a B 0 1 R A M N I L 1 8 1 2 6 1 (cid:55)(cid:43)(cid:44)(cid:54)(cid:3)(cid:51)(cid:36)(cid:42)(cid:40)(cid:3)(cid:43)(cid:36)(cid:54)(cid:3)(cid:37)(cid:40)(cid:40)(cid:49)(cid:3)(cid:47)(cid:40)(cid:41)(cid:55)(cid:3)(cid:37)(cid:47)(cid:36)(cid:49)(cid:46)(cid:3)(cid:44)(cid:49)(cid:55)(cid:40)(cid:49)(cid:55)(cid:44)(cid:50)(cid:49)(cid:36)(cid:47)(cid:47)(cid:60) 1 1 1 6 2 1 8 1 L I N M A R 1 0 F r o n t 162181 LINMAR 1 Front Head Office Level 3 71 Walters Drive Osborne Park WA 6017 Australia T +61 8 9420 0222 E corporate@emecogroup.com emecogroup.com 2017 ANNUAL REPORT | A N N U A L R E P O R T 2 0 1 7
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