More annual reports from Emeco Holdings Limited:
2023 ReportEmeco Holdings Limited and its Controlled Entities ABN 89 112 188 815 Annual Financial Report 30 June 2021 EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 1 Contents Chairman’s Report ........................................................................................................ 3 Managing Director’s Report ......................................................................................... 5 Operating and Financial Review .................................................................................. 8 Segment Business Overview ..................................................................................... 13 Financial Report .......................................................................................................... 15 EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 2 Chairman’s Report Dear Shareholders, I am pleased to present the Emeco Holdings Limited Annual Report for the 2021 financial year (FY21). People, safety and sustainability In FY21 Emeco has continued to maintain its dedication to our workforce of over 1,100 people, the environment and the communities in which we operate. Over a full year of navigating the evolving challenges of the COVID-19 pandemic, our people continued to operate in a prudent and responsible manner, and we are proud that we had minimal impact to our business and customers, despite numerous lockdowns and state border closures, and no COVID-19 cases in our workforce. Emeco safety performance saw further improvement as we reduced the total recordable injury frequency rate to 2.1, down from 2.9 last year. We are also pleased that the lost time injury frequency rate remained at zero for the fifth year in a row. Our continued investment in our people, however, ranges far beyond safety. The Company rolled out Project Align in FY21, which focuses on attracting, retaining and developing our valuable workforce. This has involved national engagement of our people to define and establish our shared vision and values, noting there was exceptional participation from our workforce. Project Align also guided better definition of our community identity and hence we established a Community Engagement Committee, chaired by John Worsfold, our Manager of People and Culture, to engage with causes close and dear to our people. Emeco is also undertaking a detailed sustainability assessment in FY22. This will scope the critical ESG matters that are material to our business and stakeholders, and will include establishing ESG targets, including a pathway to decarbonisation. The Board looks forward to presenting our ESG assessment in FY22. For more information on our FY21 sustainability performance and policies, please refer to our Sustainability Report available on our website. Building a sustainable business Emeco continued to execute upon its strategy of creating a more sustainable and resilient business, notwithstanding the challenges of COVID-19. Falling coal prices in early FY21 provided the Company the opportunity to better balance its commodity exposure, with the decision to move fleet from the Eastern Region to the Western Region to strategically capitalise on strong demand in gold and iron ore. Combined with the recent Pit N Portal acquisition, Emeco continues to embed itself in customers projects through our expanded value proposition. This was supported by a growing list of longer-tenured projects, augmented by a better-balanced commodity mix and an increasingly diverse customer base. These strategic decisions have ensured solid operational and financial performance was achieved in challenging circumstances. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 3 Stronger balance sheet In August 2020, the Board took decisive action to ensure Emeco’s balance sheet was strong and able to withstand any further market gyrations. The rights issue and debt repayment significantly reduced our indebtedness and lowered our financing costs, and the Board thanks our supportive shareholders for their contributions. More recently, with industry conditions stabilising, we were able to fully refinance the remaining US notes with Emeco’s inaugural debt issuance in the $A bond market. This transaction materially reduced our cost of capital and further strengthened our balance sheet for the long-term success of the Company. With our healthy balance sheet and leverage below our target of 1.0x, the Board approved its capital management policy in May 2021, resolving that 25% to 40% of operating net profit after tax will be allocated to shareholder distributions twice each year. For this year, the Board is pleased to allocate $11 million of funds under its capital management policy, representing a 35% payout ratio of 2H21 operating NPAT. The capital management decision includes a 1.25 cent fully franked dividend, the Company’s first since 2013, and an on-market share buyback. Thank you In closing, I would like to again thank our investors for their continued support of Emeco. I would also like to thank management for their continued hard work and dedication in building a sustainable business and successfully refinancing our US notes this year. Finally, I would like to thank all our hardworking employees for their continued dedication in FY21. The commitment of the Emeco Team will ensure the long-term success of our business. Peter Richards Chairman EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 4 Managing Director’s Report Dear Shareholders, FY21 was a year where Emeco faced complex and evolving conditions. However, as we completed the year, the business is in an exceptionally strong position. We were able to navigate uncertainty while further progressing our strategy of being the lowest cost, highest quality provider of mining equipment, continued to widen our customer value proposition, and accelerated the diversification of our commodity mix. We also strengthened our balance sheet, reduced our cost of capital and placed the business in a sound position to achieve sustainable long-term growth. This is a testament to the commitment and hard work of our people. People, safety and sustainability Emeco’s workforce has now expanded to over 1,100 people nationwide. Pleasingly, however, our lost time injury frequency rate remained at zero for the fifth straight year. Our total recordable injury frequency rate also decreased 28% to 2.1, from 2.9 a year ago. The continued reduction in recordable injuries is a pleasing outcome as our target of a zero-harm workplace remains. Labour conditions have been tight for much of our industry in FY21, this is especially notable in Western Australian mining regions with state and international border closures limiting the talent pool. However, the impact to our operations has been minimal and we have been able to achieve our operational and financial targets. Minimising the impact of labour tightness on our business has been supported by the Company’s Project Align, which was established and rolled out in FY21. The project has been spearheaded by our new People and Culture Manager, John Worsfold, and is targeting employee engagement and focussing on long-term employee development to drive shared success. The project also shaped our organisational values, defined by the whole Emeco Team, and identified opportunities to develop a greater community presence, driven by our people and their community groups. We will have more targeted involvement in our local communities and our recently established Community Engagement Committee will steer the direction of our community involvement. Emeco places enormous value in its people, and we will continue to invest in our greatest resource. On sustainability more broadly, we have commenced a detailed sustainability assessment, which will review and establish the Company’s ESG strategy, including long-term goals and targets. I look forward to presenting our sustainability and ESG targets, with a roadmap to decarbonisation, later in FY22. Executing our strategy despite a challenging backdrop FY21 presented Emeco with some unique challenges. Commencing the financial year in the midst of the COVID-19 pandemic, high levels of uncertainty lingered in the business and global markets. The challenges continued with a decline in coal prices and certain customers reducing fleet utilisation. As the year progressed, a number of regional COVID-19 outbreaks led to lockdowns and state border restrictions, which both requires organisational dynamism for a national business and restricted the free flow of people between states and from overseas, placing pressures on labour availability and costs. However, we firmly believe Emeco was able to demonstrate its resilience as it navigated the evolving challenges. Our workforce was able to rapidly adjust and ensure its health and safety was maintained through the whole year and, with no COVID-19 cases in our workforce, our operations were uninterrupted in the new landscape of social distancing and enhanced hygiene. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 5 We experienced a decline in utilisation and earnings in our rental business, driven by the reduction in seaborne coal prices and customer cost cutting, however this stabilised in the mid-part of the year. This also presented us with an opportunity to quickly adapt and redeploy a large portion of our idle equipment into new projects in WA, which has experienced strong demand in gold and iron ore. This was both opportunistic and strategic, and has better balanced our commodity diversification, a core strategic imperative. The rebalancing of the fleet and commodity mix has ensured that earnings momentum built in the second half of the year. Pit N Portal, acquired in February 2020, saw significant growth, especially in its mining services revenue. Its largest project, at Mincor Resources’ nickel operations, aligns to our strategy of securing long tenured projects where we can embed ourselves on our customers’ projects and increasing our capital-lite services revenue. Whilst labour tightness is more pronounced in our services-based operations, we have experienced minimal impact to our operations. We see further strong growth in Pit N Portal ahead, and the team has secured additional mining services projects, commencing in 1H22. I am proud of the achievements of our team in increasing our commodity diversification and services revenue despite challenging external factors. This achievement sets Emeco up to rebound its earnings in FY22. Strong earnings and returns in FY21 I am pleased to report another year of strong profitability in FY21, with operating EBITDA of $238 million, down only 7% on FY20, notwithstanding the abovementioned challenges. We also achieved a return on capital of 17%, which remains high and well above our cost of capital. The rental business, initially affected by lower utilisation, stabilised mid-year and is building momentum to grow earnings again in FY22. I mentioned Pit N Portal’s strong growth, and it has recently won a new base metals project on the east coast, highlighting the potential of this business as it further expands in markets outside of WA-based gold mining. The Force workshops segment had another strong year as it expanded its margins, and with recently agreeing to acquire a line boring business, will increase its capability and depth for continued growth and value-add to our rental and mining services segments, a key competitive advantage. Long term capital structure and discipline FY21 also saw a significant improvement in the Company’s capital structure. Our balance sheet has strengthened significantly in the year, in no small part due to our supportive shareholders. I would like to again thank our shareholders for their support in reducing our debt levels, a transaction which has reshaped our business. The refinancing completed in July 2021 built upon this and materially lowered our cost of capital. Our ongoing interest costs will be 64% lower than in FY20, a reduction $28 million per year. We now have a simpler capital structure, more representative of the health of the business, and with leverage below 1.0x, we can consistently allocate capital, generated from our strong returns, to our shareholders. The Board announced its capital management policy in May 2021 and has now commenced allocating funds to shareholders. Following our results, $11m of funds have been allocated for capital management, representing a 35% payout ratio of 2H21 operating NPAT. The capital management decision includes a 1.25 cent fully franked dividend and an on-market share buyback. Building a strong and healthy balance sheet, and recommencing dividends for the first time since 2013, has been a key strategic objective in my time as Managing Director and CEO, and this is another milestone the Board, the Emeco Team, and myself, are all proud to realise. Our leverage target, capital management policy and strict return hurdles will guide prudent capital allocation moving forward. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 6 Outlook for FY22 The Company is expecting a strong improvement in performance in FY22, with growth in earnings expected in all operating divisions. We have a focus on redeploying idle rental equipment and see a continuing growth trajectory in our services-based operations. Our Rental business is supported by strong momentum in earnings in 4Q21, as assets moved from coal into iron ore and gold projects are now fully deployed. This is combined with new project wins and a solid tender pipeline. Growth is also expected for Pit N Portal, as its Mincor nickel project continues to ramp up to production, and newly awarded projects in gold and base metals commence in 1H22. The Force Workshops activity levels are expected to increase in line with the rental utilisation, together with a strong pipeline of retail work and the uplift from its recently agreed acquisition. I firmly believe the execution of our strategy of building a sustainable and resilient business has ensured the numerous challenges of FY21 are well behind Emeco, as we build into FY22. Thank you I would like to take this opportunity to again thank our shareholders and investors for their continued support. I also thank the growing Emeco Team and acknowledge another year of their hard work and dedication. Ian Testrow Managing Director & Chief Executive Officer EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 7 Operating and Financial Review The Emeco Group is a provider of open cut and underground mining equipment, maintenance and project support solutions and services. The Group supplies safe, reliable and maintained open cut and underground equipment rental solutions, together with onsite infrastructure, to its customers. The Group also provides repair and maintenance, and component and machine rebuild services for its customers’ equipment. The Group also supplies operator, technical and engineering solutions and services 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 open cut and underground mining equipment, maintenance and project support solutions and services to the mining industry. Operating costs principally comprise parts and labour associated with maintaining earthmoving equipment. Capital expenditure principally comprises the replacement of major components over the life cycle of Emeco’s assets and replacement assets. Table 1: Group financial results A$ millions Revenue EBITDA3,5 EBIT3,5 NPAT5 ROC5 % EBIT margin EBITDA margin Operating results1,2,3,4 2020 2021 620.5 237.7 119.1 56.8 16.8% 19.2% 38.3% 540.4 254.4 139.4 61.0 21.0% 25.8% 47.1% Reported results 2021 620.5 226.9 107.2 20.7 14.1% 17.3% 36.6% 2020 540.4 234.1 105.3 66.1 14.9% 19.5% 43.3% Note: 1. Significant items have been excluded from the reported 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. Refer to Table 2. 2. Operating results in FY20 are continuing operations only and therefore exclude the Chile discontinued operations. 3. Non IFRS measures. 4. FY20 operating results have been restated for the impact of AASB 16 to aid the comparability of current year results. FY20 operating NPAT includes a notional tax expense for comparative purposes. 5. EBITDA: Earnings before interest, tax, depreciation and amortisation. Excludes tangible asset impairment, net finance costs and net foreign exchange gain; EBIT: Earnings before interest and tax. Excludes net finance costs and net foreign exchange gain; NPAT: Net profit after tax; ROC: Return on capital (EBIT / Average capital employed). EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 8 Table 2: 2021 operating results to reported results reconciliation A$ millions Reported Tangible asset impairment Long-term incentive expense Refinancing adviser fees Loss on lease modification Finance, hedging & FX costs Tax effect of adjustments Operating EBITDA 226.9 - 6.0 2.0 2.7 - - 237.7 EBIT 107.2 1.1 6.0 2.0 2.7 - - 119.1 NPAT 20.7 1.1 6.0 2.0 2.7 39.7 (15.4) 56.8 Reconciliation of differences between operating and reported results: 1. FY21 operating results are non IFRS measures and exclude the following: Tangible asset impairments: Net impairments totalling $1.1 million were recognised across the business on assets held for sale and subsequently disposed during the period (June 2020: $13.8 million). Long-term incentive program: During FY21, Emeco recognised $6.0 million (June 2020: $14.3 million) of non-cash expenses relating to the employee incentive plan. Refinancing adviser fees: One-off costs of $2.0 million for professional adviser fees relating to refinancing transactions (June 2020: nil). Loss on lease modification: A net loss of $2.7 million (June 2020: nil) was recognised during the period to de-recognise equipment leases. Finance, hedging and FX costs: One-off costs of $39.7 million (June 2020: nil) relating to the repayment of US$142.1 million March 2022 Notes (2022 Notes) and US$180.0 million March 2024 Notes (2024 Notes), including: • • • A$9.0 million call premium related to Notes maturing March 2022 which were repaid during the period A$11.4 million call premium related to Notes maturing March 2024 which were repaid subsequent to 30 June 2021 A$5.6 million accelerated amortisation of borrowing costs related to repayment of the US$142.1 million 2022 and US$180.0 million 2024 Notes A$3.3 million refinancing fees were incurred in relation to the refinancing transaction Net A$10.3 million relating to the hedge closeout, including expenses incurred of A$20.3 million, offset by A$4.0 million realised and A$6.0 million unrealised exchange gain on repayment of the Notes • • Tax effect of adjustments: notional tax on above adjustments at 30%. 2. Refer to the 2020 Annual Report for a reconciliation of differences between FY20 operating and reported results. CONTINUED STRONG RETURNS Operating EBITDA decreased to $237.7 million (down $16.7 million or 7% on FY20) as a result of the impact on commodity demand and costs associated with the COVID-19 pandemic on the Rental segment partially offset by the full year contribution from Pit N Portal ($30.2 million in FY21 compared to $9.3 million in FY20). Group operating revenue from continuing operations increased to $620.5 million in FY21 (FY20: $540.4 million). Rental revenue decreased to $402.3 million (FY20: $425.1 million) as a result of reduced operating utilisation of the rental fleet impacted by COVID-19 impact on commodity prices, offset by increased maintenance revenue as the business increased the number of fully maintained rental project sites. Pit N Portal revenue of $141.0 million was attributable to a full year contribution in addition to new project wins. External revenue from the Workshops decreased marginally from $80.0 million in FY20 to $77.3 million in FY21. Internal Workshop revenue decreased from $83.8 million in FY20 to $77.1 million in FY21 in line with the reduction in utilisation of the Rental fleet. Operating EBITDA margins decreased to 38.3% (FY20: 47.1%) as a result of the full year contribution of lower margin earnings with a greater services content from Pit N Portal and the Rental segment in addition to some minor additional costs incurred in response to COVID-19. Operating EBIT decreased 14.6% attributable to lower EBITDA however operating return on capital (ROC) remained high at 16.8% (FY20: 21.0%). EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 9 Table 3: Operating cost summary (operating results) A$ millions Revenue Operating expenses Repairs and maintenance External maintenance services Employee expenses Cartage and fuel Net other expenses Operating EBITDA Depreciation and amortisation expense Operating EBIT 2021 620.5 (128.2) (92.1) (92.4) (15.7) (54.4) 237.7 (118.6) 119.1 2020 540.4 (94.1) (84.8) (48.6) (18.2) (40.3) 254.4 (115.0) 139.4 Note: Operating results are non IFRS and have been adjusted as per reconciliation in Table 2. Repairs and maintenance expense increased to $128.2 million (FY20: $94.1 million) driven by the full year contribution of Pit N Portal in FY21 and an increase in fully maintained project sites in the Rental segment. External maintenance services expense increased materially attributable to the full year contribution from Pit N Portal and the increase in fully maintained rental projects in the Rental segment. Cartage and fuel decreased to $15.7 million (FY20: $18.2 million) in line with the lower utilisation levels in the Rental segment. Due to the full year contribution of Pit N Portal (FY20: four months) and increased number of maintained rental sites, employee expenses increased 90.1% in FY21 to $92.4 million (FY19: $48.6 million). Total headcount has increased from approximately 900 to approximately 1,100 over FY21. Net other expenses increased to $54.4 million (FY20: $40.3 million) primarily as a result of the full year contribution from Pit N Portal. Depreciation and amortisation expense increased to $118.6 million in FY21 (FY20: $115.0 million) driven by the full year contribution form Pit N Portal partially offset by the reduction in utilisation in the Rental segment. Depreciation expense increased 3.1% compared to a 14.8% increase in revenue attributable to the significant increase in services related revenue in FY21. REINVESTMENT IN RENTAL FLEET AND EXPANSION OF PNP The written down value (WDV) of the equipment fleet including capital WIP and inventory increased by $37.6 million to $662.5 million in FY21 primarily due to the acquisition of $40.1 million in growth capital expenditure in FY21 to satisfy the expansion of Pit N Portal and contract wins in the Rental segment in hard rock. The strength of the Groups cash flow and strong balance sheet allows for a staged and consistent asset replacement program to be undertaken over the coming years which commenced in FY21. This replacement strategy is key to the continued growth and success of the business and will be funded by the free cash flow of the Group. Table 4: Equipment fleet A$ millions Equipment fleet Non-current assets held for sale 2021 662.5 2.8 2020 624.9 3.2 We continually review our fleet mix to ensure it meets long term rental demand and to maximise returns on investment. Assets which are surplus to the fleet or are approaching the end of their useful lives are transferred to non-current assets held for sale and are actively marketed through Emeco’s global network of brokers. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 10 CONTINUED STRONG FREE CASH FLOW Table 5: Free cash flow summary A$ millions Operating EBITDA Working capital Net sustaining capital expenditure4 Component inventory Finance costs Net free cash flow (pre-growth capex) Growth capex Net free cash flow 2021 237.7 6.4 (115.9) (2.3) (38.5) 87.4 (40.1) 47.3 2020 254.4 (19.8) (110.3) 1.4 (47.6) 78.1 - 78.1 Note: 1. FY20 results exclude Chile discontinued operations. 2. Free cash flow excludes any non-recurring items (FY21: Refinancing and adviser fees $2.0 million, finance and hedging costs $15.5 million) (FY20: Redundancy and restructure expense $2.0 million, non-recurring project costs $3.5 million, impairment of investments and hedge ineffectiveness ($1.6) million). 3. For comparability purposes, FY20 financing costs cash outflow has been adjusted ($1.5m) and EBITDA by $8.3m for the impact of AASB 16 Leases to the numbers presented in the FY20 annual report. 4. Capital expenditure includes assets acquired under leasing arrangements. Operating EBITDA decreased from $254.4 million in FY20 to $237.7 million in FY21 with the Rental segment impacted by lower commodity prices attributable to COVID-19 partially offset by the expansion and full year contribution of Pit N Portal. The working capital inflow in the current economic climate is particularly pleasing resulting from a continued strong focus on working capital controls within the business. No debtor recoverability issues have arisen as a result of COVID-19. Net sustaining capital expenditure increased from $110.3 million in FY20 to $115.9 million in FY21 in line with a larger fleet as a result of the acquisition of Pit N Portal, in addition to the recommencement of the fleet replacement strategy in FY21. $40.1 million of growth capex was incurred in FY21 including a package of underground equipment $14.0 million of which half was an acceleration of future planned expenditure. The remainder of the expenditure related to equipment to satisfy new base metal open cut and underground project wins during FY21. Finance costs were lower in FY21 due to the repayment of US$142.1 million in September 2020 which was financed with the proceeds of a capital raising. The refinancing of the remaining US$180.1 million of notes in July 2021 will significantly reduce the finance cash costs of the Group going forward with a full year benefit to be realised in FY22. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 11 CONTINUED LEVERAGE REDUCTION IN LINE WITH TARGET Table 6: Net debt and gearing summary A$ millions Interest bearing liabilities (current and non-current)1 Secured Notes (USD denominated) 4 Revolving credit facility5 Lease liabilities and other financing5 Total debt1 Cash Net debt1 Leverage ratio2 Interest cover ratio3 2021 2020 246.8 - 48.8 295.6 (74.7) 220.9 0.93x 7.0 441.7 97.0 62.6 601.3 (198.2) 403.1 1.58x 5.4 Note: 1. Figures based on facilities drawn. Debt in the table above is a non-IFRS measure. Excludes debt raising costs included in interest bearing liabilities in note 24. 2. Leverage ratio - Net debt / Operating EBITDA. 3. 4. US$180.0 million converted at the effective hedge rate of 0.7293 and excluding liabilities in relation to the premium payable on Interest cover ratio - Operating EBITDA / Net Interest expense. early repayment or maturity (US$8.3m / A$11.1m) as disclosed in note 24 of the financial report. 5. Refer to note 24 in the financial report. Total outstanding debt decreased by $305.7 million due to the repayment of A$97.0 million drawn under the revolving credit facility (RCF) as a liquidity safeguard during the early stages of the COVID -19 pandemic. Additionally, the Group repaid US$142.1 million of notes (A$194.8 million) during the year with the net proceeds of A$146.1 million capital raising. The A$100.0 million RCF matures in September 2021, however the Group exercised its option in July 2021 to extend the maturity of the facility to September 2023. Other than the maturity date, there were no changes to the terms of the facility. The facility was undrawn at 30 June 2021 other than A$1.6 million of the facility utilised for bank guarantees. Emeco’s cash balance decreased to $74.7 million at 30 June 2021, largely due to the A$97.0 million repayment of the RCF facility offset by the conversion of EBITDA to net operating free cash flow. Cash was also impacted by the repayment of US$142.1 million (A$194.8 million) of notes with the A$146.1 million net proceeds of a capital raising. Subsequent to 30 June 2021, the Group refinanced the outstanding US$180.1 million notes with the issuance of A$250.0 million notes. The notes mature in July 2026 and have a semi-annual coupon of 6.25% p.a. This refinancing event marks a significant turning point in the Group with a significant reduction in the annual interest expense of the group. Refer to note 24 in the accompanying financial statements for additional information on Emeco’s financing facilities. Emeco’s leverage ratio has improved from 1.58x at 30 June 2020 to 0.93x at 30 June 2021 ahead of previously disclosed timelines. The reduction in leverage was achieved though the strong free cash flow generation of the Group in addition to the reduction in gross debt via the repayment of the US notes partially funded by A$146.1m net capital raising. No dividends were declared or paid during FY21. On 17 August 2021, the board resolved to pay a final dividend for the six months ended 30 June 2021 of 1.25 cents per share. The dividend will be fully franked and will be paid on 30 September 2021. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 12 Segment Business Overview Main markets The Company’s business operations comprised of three segments: Rental, Pit N Portal and Workshops. Rental Revenue in the Rental segment was impacted by COVID-19 and the resulting impact on commodity prices which resulted in a decrease of 5.4% to $402.3 million with operating EBITDA margins decreasing from 62.6% in FY20 to 57.0% in FY21 as the segment expanded its number of fully maintained project sites and services offering at lower margins. Group operating utilisation1 decreased over FY21 averaging 59%, down from 64% in FY20, however finished FY21 with an operating utilisation rate of 60%. Operating utilisation is a measure of how hard the equipment is working. Gross utilisation averaged 87% in FY21 (FY20: 91%). Management is focussed on increasing the operating utilisation of machines currently on rent and continues to pursue opportunities to dispose of underutilised fleet to generate greater returns as part of the Groups fleet strategy. Workshops Total Workshops activity (as measured by retail and internal revenue pre-intercompany eliminations) decreased from $163.8 million in FY20 to $154.3 million in FY21. The Operating EBITDA contribution from the retail earnings increased 2% to $8.1 million (FY20: $7.9 million). All overheads are allocated to the external retail earnings. Operating EBITDA margin for the period increased to 10.5% (FY20: 9.9%). The internal portion of Workshops activity decreased marginally to 50.4% (FY20: 51.1%) attributable to the lower utilisation of the Rental fleet. Pit N Portal This segment was established via the acquisition of Pit N Portal on 28 February 2020 and provides a range of mining services solutions and associated services to customers in Australia. For the four months of ownership under Emeco in FY20, Pit N Portal earned revenue of $35.3 million and Operating EBITDA of $9.3 million at a margin of 26.3%. The segment experience significant revenue growth in FY21 with revenue of $141.0 million and EBITDA of $30.2 million at a margin of 21.4%. The margin was impacted by the start-up phase of the 5- year contract with Mincor, however returns on this project are forecast to improve over the next financial year. 1 Operating utilisation defined as average operating hours per asset as a percentage of 400 hours per month EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 13 Table 7: Five-year financial summary REVENUE Total revenue from continuing operations 20214 20204 2019 2018 2017 $'000 620,528 540,429 464,486 380,992 233,014 PROFIT Operating EBITDA2 Operating EBIT2 Operating NPAT2 Reported profit/(loss) for the year Basic EPS3 BALANCE SHEET Total assets Total liabilities Shareholders’ equity Total debt CASH FLOWS Net cash flows from operating activities Net cash flows from investing activities Net cash flows from financing activities Free cash flow after repayment/(drawdown) of net debt Free cash flow before repayment/(drawdown) of net debt1 DIVIDENDS Number of ordinary shares at year end3 Total dividends declared in respect to financial year Ordinary dividends per share declared Special dividends per share declared KEY RATIO'S Average fleet utilisation Average fleet operating utilisation Operating EBIT ROC2 Leverage ratio2 $'000 $'000 $'000 $'000 cents $'000 $'000 $'000 $'000 $'000 $'000 $'000 237,687 254,366 213,966 153,004 83,504 119,110 139,410 125,352 83,193 11,674 56,791 20,695 4.0 61,037 66,129 19.8 63,126 33,961 11.2 20,068 (90,891) 11,376 (180,463) 0.4 (3.7) 965,544 1,088,591 768,669 716,052 520,679 434,138 731,346 570,591 562,570 552,686 531,406 357,245 198,078 153,482 (32,007) 299,304 628,932 481,243 484,581 474,109 205,616 181,973 169,464 125,533 14,223 (149,558) (169,852) (251,024) (127,087) 486 (179,472) 149,825 (53,718) 156,730 (21,318) $'000 (123,414) 161,946 (135,278) 155,174 (6,609) $'000 54,859 75,308 (130,373) 162,856 (334) '000 544,055 368,551 323,212 3,178,859 2,436,860 $'000 cents cents % % % x 6,801 1.25 0.0 86.7 59.4 16.8 0.93 0 0.0 0.0 90.5 64.4 21.0 1.58 0 0.0 0.0 90.1 63.9 21.0 2.00 0 0.0 0.0 89.6 57.4 19.6 2.62 0 0.0 0.0 87.3 52.9 3.3 5.47 Financial information as reported in the corresponding financial year and includes operations now discontinued. 1 2 Operating results and therefore these are non IFRS measures. Please refer to previous annual reports for reconciliation between Includes capex funded via finance lease facilities (excluded from reported cash flow). Reported and Operating Results. 3 Weighted average number of shares restated at 30 June 2020 due to FY2021 bonus rights issue. 30 June 2019 includes the impact of a 10:1 share consolidation that occurred on 27 November 2018. FY21 and FY20 are both reported post AASB 16 Leases. 4 EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 14 Financial Report Directors’ Report ................................................................................................................ 16 Directors ..................................................................................................................... 16 Company secretary .................................................................................................... 19 Directors’ meetings .................................................................................................... 19 Corporate governance statement ............................................................................. 19 Principal activities ...................................................................................................... 19 Operating and financial review ................................................................................. 20 Dividends .................................................................................................................... 20 Significant changes in state of affairs ...................................................................... 20 Events subsequent to report date............................................................................. 20 Likely developments .................................................................................................. 20 Directors’ interest ...................................................................................................... 21 Indemnification and insurance of officers and auditors ......................................... 21 Non-audit services ..................................................................................................... 22 Lead auditor’s independence declaration ................................................................ 22 Rounding off ............................................................................................................... 22 Remuneration report (audited) .................................................................................. 23 Deloitte Touche Tohmatsu independence declaration ............................................ 39 Financial Statements ......................................................................................................... 40 Consolidated Statement of Profit or Loss and Other Comprehensive Income ...... 40 Consolidated Statement of Financial Position ......................................................... 42 Consolidated Statement of Changes in Equity ........................................................ 43 Consolidated Statement of Cash Flows ................................................................... 44 Notes to the Consolidated Financial Statements ..................................................... 45 Directors’ Declaration ...................................................................................................... 119 Independent Auditor’s Report ......................................................................................... 120 Shareholder Information ................................................................................................. 124 EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 15 Emeco Holdings Limited and its Controlled Entities Directors’ Report For the year ended 30 June 2021 The board of directors (Board) of Emeco Holdings Limited (Emeco or Company) present its report together with the financial reports of the consolidated entity, being Emeco and its controlled entities (Group) and the auditor’s report for the financial year ended 30 June 2021 (FY21). Directors The directors of the Company during FY21 were: PETER RICHARDS BCom Appointment: Independent Non-Executive Director since June 2010. Chairman since January 2016. Board committee membership: • Chairman of the Remuneration and Nomination Committee (Chairman since 12 November 2020, previously a member). Member of the Audit and Risk Management Committee. • Skills and experience: Peter has over 40 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). Current appointments: • Chairman of Elmore Limited (previously IndiOre Limited and NSL Consolidated Limited) since 2018 (Non-Executive Director 2009 to 2014; previously Chairman 2014 to 2017). Chairman of Graincorp Limited since March 2020 (Non-Executive Director since 2015). Non-Executive Chairman of Cirralto Limited since December 2017. • • IAN TESTROW BEng (Civil), MBA Appointment: Managing Director since 20 August 2015. Skills and experience: Ian was appointed Chief Executive Officer and Managing Director in August 2015. Prior to this, Ian was Emeco’s 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 Emeco’s 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 2021 16 Emeco Holdings Limited and its Controlled Entities Directors’ Report For the year ended 30 June 2021 PETER FRANK BSEE, MBA Appointment: Non-Executive Director since April 2017. Skills and experience: Peter is a Senior Managing Director at Black Diamond Capital Management. Prior to joining Black Diamond, Peter was President of GSC Group, a SEC-registered investment advisor, 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. Peter has also served as chairman of the board of Kolmar Labs Group Inc., Scovill Inc. and Worldtex Inc. and was previously a director of IAP Worldwide Services Inc., Grede Holdings LLC, Color Spot Holdings Inc. and Viasystems Group Inc.. Peter graduated from the University of Michigan with a BSEE degree and earned an MBA from the Harvard Business School. Current appointments: • • • Director of Specialty Chemicals International Limited. Director of Harvey Gulf International Marine LLC. Director of North Metro Harness Initiative LLC. KEITH SKINNER B.Comm, FCA, FAICD 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 the Chief Operating Officer of Deloitte Touche Tohmatsu for 13 years until his retirement from the firm in May 2015. Previously Keith was one of the leading Restructuring and Insolvency practitioners in Australia, leading many corporate turnarounds. Keith was on the Board of Deloitte Touche Tohmatsu (1995 to 1997) and on the Board of the Global Deloitte Organisation (2013 to 2015), and a member of the Deloitte Global Governance (2013 to 2015) and Deloitte Global Risk Committees (2013 to 2015). Keith has also been the Chairman of Emue Technologies Limited (2013 to 2015). Keith was the Independent Chairman of the Audit and Risk Committee for the Australian Digital Health Agency (2016 to 2019) and was a director of the Lysicrates Foundation Limited (2015 to 2020). Current appointments: • • Director of Invocare Limited since September 2018. Chair of the Audit and Risk Committee. Director of the North Sydney Local Health District since 2017. Chair of the Finance, Risk and Performance Committee. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 17 Emeco Holdings Limited and its Controlled Entities Directors’ Report For the year ended 30 June 2021 PETER KANE BEng (Mining) Appointment: Independent Non-Executive Director since December 2020. Board committee membership: • • Member of the Remuneration and Nomination Committee since December 2020. Member of the Audit and Risk Management Committee since December 2020. Skills and experience: Peter is a Mining Engineer with over 33 years’ experience in the mining industry throughout Australia, New Zealand and Mongolia. Peter is currently the Chief Operating Officer of the QCoal Group where he is responsible for site operations. Prior to QCoal, Peter held roles as the Chief Executive Officer at Cockatoo Coal, Group Managing Director at Guildford Coal, Chief Executive Officer at Aston Resources, and Chief Executive Officer at Boardwalk Resources, Executive General Manager Projects with Whitehaven Coal and Chief Operating Officer with Macarthur Coal. Peter also performed the role of Joint Venture Chair for multiple operations with numerous joint venture partners. Peter’s earlier career included 10 years for Leighton in various roles including General Manager of the Australian mining contractor business and 10 years with BHP, primarily in their iron ore and, later, coal divisions. Peter is a member of the Australasian Institute of Mining & Metallurgy and a graduate of the Australian Institute of Company Directors. Current appointments: • • Chief Operating Officer at QCoal Group (since 2016). Board member of Australian Coal Research Limited (since 2017). DARREN YEATES B Eng., Executive MBA, FAICD, Grad Dip Mgt, Grad Dip App. Fin Appointment: Independent Non-Executive Director (resigned as director effective 11 November 2020). Board committee membership: • Chairman of the Remuneration and Nomination Committee from 1 April 2020 until 11 November 2020. (previously member from April 2017 to March 2020). Member of the Audit and Risk Management Committee until 11 November 2020. • Skills and experience: Darren has over 35 years' mining industry experience, most recently as COO of MACH Energy Australia and 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 metalliferous exploration. Current appointments: • • Director since January 2018 of WorkPac Pty Ltd. Director of Peabody Energy, Inc since February 2020. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 18 Emeco Holdings Limited and its Controlled Entities Directors’ Report For the year ended 30 June 2021 Company secretary The company secretary of the Company during FY21 was: PENELOPE YOUNG LLB, LLM, BBus 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. Penny holds a Bachelor of Laws, Master of Laws and a Bachelor of Business. Directors’ meetings The number of board and committee meetings held and attended by each director in FY21 is outlined in the following table below: Table 8: Board and committee meetings held and director attendance Director Board meetings Audit & risk management committee meetings Peter Richards Ian Testrow Peter Frank Keith Skinner Peter Kane Darren Yeates A 12 12 12 11 5 4 B 12 12 12 12 5 6 A * * 4 4 0 4 2 1 B 4 4 4 4 2 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 * * 3 3 0 3 1 2 3 3 3 3 1 2 Corporate governance statement The Company’s corporate governance statement is located on the Company’s website at https://www.emecogroup.com/investors-overview/corporate-governance. Principal activities The principal activity of the Group during FY21 was the provision of mining equipment rental to both open- cut and underground miners and also providing complementary equipment and mining services, including market- maintenance, equipment and component rebuilds, fleet optimisation technology, and technical and engineering services. As set out in this report, the nature of the Group’s operations and principal activities have been consistent throughout the financial year. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 19 Emeco Holdings Limited and its Controlled Entities Directors’ Report For the year ended 30 June 2021 Operating and financial review A review of Group operations, and the results of those operations for FY21, is set out in the operating and financial review section at pages 8 to 14 and in the accompanying financial statements. Dividends On 17 August 2021, the board resolved to pay a final dividend for the six months ended 30 June 2021 of 1.25 cents per share, representing a total cash payment of $6,801,000. The dividend will be fully franked and will be paid on 30 September 2021. Significant changes in state of affairs Other than those disclosed in the operating and financial review section or the financial statements and the notes thereto, in the opinion of the directors, there were no significant changes in the Group’s state of affairs that occurred during the financial year under review. Events subsequent to report date On 2 July 2021, the Company successfully completed the issuance of A$250,000,000 notes in the A$ MTN market (AUD Notes). The notes have a fixed coupon of 6.25%, payable semi-annually, and have a maturity date of 10 July 2026. The funds received from this debt raising were used to repay the outstanding US$180,006,000 March 2024 notes, call premium and close out all hedging associated with these notes. AUD$269,450,000 was paid to derivative counterparties on 16 July 2021 with the hedge counterparty payment of US$197,750,000 made to noteholders on 2 August 2021 to repurchase and cancel the notes and associated premium and final coupon. The 16 July 2021 payment of AUD$269,450,000 included the principal amount at the hedged rate of $246,828,000, accrued interest of $6,084,000, a premium for early repayment of the Note of $11,223,000 and a mark-to-market payment on hedge close-out of $5,314,000. On 13 July 2021, the Group exercised its option to extend the maturity of the A$100,000,000 Revolving Credit Facility for an additional two years to September 2023. Other than the extension of the maturity date, there was no change to the terms of the facility. On 17 August 2021, the board resolved to pay a final dividend for the six months ended 30 June 2021 of 1.25 cents per share, representing a total cash payment of $6,801,000. The dividend will be fully franked and will be paid on 30 September 2021. On 18 August 2021, the Company announced its intention to undertake an on-market buyback of up to $3,800,000 of shares. The Company reserves the right to vary, suspend or terminate the buyback at any time. Other than the above, there have been no other significant events subsequent to the year ended 30 June 2021. 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 8 to 14. 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 2021 20 Emeco Holdings Limited and its Controlled Entities Directors’ Report For the year ended 30 June 2021 Directors’ interest The relevant interests of each director in securities 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 9: Directors’ interests Director Peter Richards Ian Testrow Peter Frank Keith Skinner Peter Kane Darren Yeates [C] Ordinary shares [A] Rights 11,044 11,722,107 - 22,300 10,288 - - 3,157,836 [B] - - - - [A] This comprises ordinary shares in which the Director has a relevant interest. [B] This comprises unvested rights issued under the Company’s incentive plans. [C] Ceased as a director 11 November 2020. 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 strategy officer, 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 2021 21 Emeco Holdings Limited and its Controlled Entities Directors’ Report For the year ended 30 June 2021 Non-audit services During the year, Deloitte Touche Tohmatsu, the Group’s auditor, has performed certain other services in addition to their statutory duties. This is for provision of audit and tax services as well as other specific assurance related to capital raising. No other advisory or consulting services were provided by Deloitte during the year. The Board has considered the non-audit services provided during the year by the auditor and is satisfied that the provision of those non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: • All non-audit services were subject to the corporate governance procedures adopted by the Group and have been reviewed by the audit and risk management committee to ensure they do not impact the integrity and objectivity of the auditor. • The non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Group, acting as an advocate for the Group or jointly sharing the risks and rewards. Details of the amounts paid to the auditor of the Group, 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 auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 39 and forms part of the directors’ report. Rounding off The amounts contained in the financial report have been rounded to the nearest $1,000 (unless otherwise stated) under the option available to the Company as referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, dated 24 March 2016. The Company is an entity to which the class order applies. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 22 Emeco Holdings Limited and its Controlled Entities Directors’ Report For the year ended 30 June 2021 Remuneration report (audited) Contents This Remuneration Report for the year ended 30 June 2021 outlines the remuneration arrangements of the Company and is in accordance with the requirements of the Corporations Act 2001 (Act) and its regulations. This information has been audited as required by section 308(3C) of the Act. This report covers the following matters: 1. 2. 3. 4. 5. Introduction Remuneration governance Executive remuneration arrangements 3.1. Remuneration principles and strategy 3.2. Approach to setting remuneration and details of incentive plans Relationship between executive remuneration and company performance Executive remuneration outcomes for FY21 6. Executive contracts 7. 8. 9. Non-executive director remuneration Additional disclosures relating to share-based payments Loans to key management personnel and their related parties 10. Other transaction balances with key management personnel and their related parties 1. Introduction This report details the Group’s remuneration objectives, practices and outcomes for key management personnel (KMP), who are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company, directly or indirectly, including any director (whether executive or otherwise) of the Company. Any reference to ‘executives’ in this report refers to KMP who are not non-executive directors. The following persons were directors of the Company during FY21: Non-executive directors Peter Richards Chair, Independent Non-Executive Director Peter Frank Keith Skinner Peter Kane Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director (Commenced role 7 December 2020) Darren Yeates Independent Non-Executive Director (Resigned 11 November 2020) Executive directors Ian Testrow Managing Director & Chief Executive Officer EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 23 Emeco Holdings Limited and its Controlled Entities Directors’ Report For the year ended 30 June 2021 The following persons were also employed as executives of the Company during FY21: Other executives Position Thao Pham Neil Siford [1] Chief Strategy Officer Chief Financial Officer [1] Mr Siford provided notice of his resignation in March 2021. He will remain as CFO until after the Company’s financial year end process (including the 2021 AGM) is completed. 2. Remuneration governance Remuneration and Nomination Committee The Remuneration and Nomination Committee reviews and makes recommendations to the Board on remuneration packages and policies applicable to the Managing Director, executives and non-executive directors. The Remuneration and Nomination Committee’s role also includes responsibility for general remuneration strategy, superannuation and other benefits, and employee share plans. The members of the remuneration and nomination committee in FY21 were Mr Peter Richards, Mr Keith Skinner, Mr Peter Kane and Mr Darren Yeates. Mr Yeates was Chair until close of business 11 November 2020 when he resigned as a director. Mr Richards took over as Chair on 12 November 2020. Mr Kane commenced as a member on 7 December 2020, following his appointment as a director. Further information on the Remuneration and Nomination Committee’s role and responsibilities can be found at https://www.emecogroup.com/investors-overview/corporate-governance. Use of remuneration consultants To ensure the Remuneration and Nomination Committee is fully informed when making remuneration decisions, it seeks external remuneration advice from time to time. Remuneration consultants are engaged by, and report directly to, the Committee. In selecting remuneration consultants, the Committee considers potential conflicts of interest and requires independence from the Company’s key management personnel and other executives as part of their terms of engagement. During the period, no remuneration recommendations (as defined by the Act) were provided to the Company. Prohibition of hedging securities Emeco’s share trading policy prohibits executives, directors, officers and employees of the Group from entering into transactions intended to hedge their exposure to Emeco securities which have been issued as part of remuneration. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 24 Emeco Holdings Limited and its Controlled Entities Directors’ Report For the year ended 30 June 2021 Executive remuneration arrangements 3. 3.1 Remuneration principles and strategy Emeco’s executive remuneration strategy is designed to attract, motivate and retain talented individuals and align the interests of executives and shareholders. The following diagram illustrates how the Company’s remuneration strategy aligns with its strategic direction and links remuneration outcomes to performance. Business objective Build a sustainable and resilient business through scale, customer and commodity diversification and creating value through providing the lowest cost, highest quality earthmoving equipment solutions and offering related services that improve customer project economics to an extent that Emeco is embedded in its customers’ operations Remuneration strategy linkages to business objective Remunerate fairly and appropriately Align executive interests with those of shareholders Attract, retain and develop proven performers Provide market-competitive reward of executives in order to secure the long-term benefits of executive energy and loyalty and 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. Provide total remuneration which is sufficient to attract and retain proven and experienced executives who are capable of: Ensure human resources policies and practices are consistent and complementary to the strategic direction of the Company. Prohibit the hedging of unvested equity to ensure alignment with shareholder outcomes. • fulfilling their respective roles with the Group; • achieving the Group’s strategic objectives; and • maximising Group earnings and returns to shareholders. Vehicle Purpose Link to performance To provide competitive base salary set with reference to Company size, achievements, role, market and experience. Changes to an executive’s scope of responsibilities are considered during the annual remuneration review and, along with performance, drive remuneration changes. Remuneration component Fixed Remuneration Variable short term incentive plan (STI) Comprises base salary, employer superannuation contributions and other non- cash benefits. Paid in cash. Rewards executives for their contribution to achievement of Company key performance indicators (KPIs) during the financial year. Emeco health and safety (total recordable injury frequency rate (TRIFR)), operating earnings before interest, tax, depreciation and amortisation (Operating EBITDA) and employee-specific operational targets are the key performance measures in FY21 which determine if any short-term component is payable. Targets are discussed in section 5. Vesting of awards is dependent on creation of growth avenues for the business and a more sustainable and resilient business. Further, the incentive’s value is ultimately dependent on the Company’s share price after the three-year performance period, so drives executives to maximise shareholder return. Targets are discussed in section 5. Variable long term incentive plan (LTI) Awards are made in the form of rights to ordinary Emeco shares (Rights). Rewards executives for their contribution to progressive achievement of Company KPIs over the three-year performance period. Awards of Rights dependent on achievement of the LTI KPIs. Performance Rights may convert into shares after vesting at the end of the three-year performance period (subject to any earlier vesting as set out below) directly aligning executive interests with shareholder value over the three-year period. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 25 Emeco Holdings Limited and its Controlled Entities Directors’ Report For the year ended 30 June 2021 3.2 Approach to setting remuneration and details of incentive plans In FY21, the executive remuneration framework consisted of fixed remuneration and short-term and long- term incentives as outlined below. Overall remuneration level and mix How is overall remuneration and mix determined? The Company aims to reward executives with a level and mix (proportion of fixed remuneration, short term incentives and long-term incentives) of remuneration appropriate to their position, responsibilities and performance within the Company and that which is aligned with targeted market comparators. The chart below summarises the Managing Director and other executives’ overall remuneration mix (assuming maximum award) for fixed remuneration, short term incentives and long-term incentives. The target mix is considered appropriate for Emeco based on the Company’s short term and long-term objectives. Managing Director Executives Fixed 33% Short term 27% Long term 40% Fixed 50% Short term 30% Long term 20% How much variable remuneration can executives earn? The below table sets out the maximum incentive opportunity for each executive under the FY21 STI and FY21 LTI plans, expressed as a percentage of total fixed remuneration (TFR). Table 10: Components of variable remuneration Executive Position Ian Testrow Managing Director & Chief Executive Officer Thao Pham Chief Strategy Officer Neil Siford Chief Financial Officer Maximum STI % of TFR Maximum LTI % of TFR Maximum Total % of TFR 80% 60% 60% 120% 200% 40% 40% 100% 100% How is variable remuneration delivered? The STI is assessed over a single year and the LTI is assessed progressively over three years. The chart below sets out the time periods for assessing and awarding remuneration under the FY21 STI and FY21 LTI plans: EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 26 Emeco Holdings Limited and its Controlled Entities Directors’ Report For the year ended 30 June 2021 Fixed remuneration How is fixed remuneration reviewed and approved? Fixed remuneration is reviewed periodically from benchmarked remuneration data. Any fixed remuneration changes for executives take into account changes in responsibilities and performance within the Company and are aligned with targeted market comparators. Changes to an executive’s the Board considering from recommendations from the Remuneration and Nomination Committee. fixed remuneration to approval is subject Variable remuneration - FY21 Short term incentive plan (FY21 STI) What is the purpose of the plan? What are the KPIs and how do they align with business performance? When is performance measured? How are awards determined? How is it paid? What happens if an executive leaves? The FY21 STI plan is a cash incentive that rewards executives for their contribution to achievement of certain KPIs in the current financial year. The KPIs for the FY21 STI plan are based on a balance of financial and non-financial measures which provide the platform for the long-term performance and sustainability of the Company, assessed at either a Company or individual level. See section 5 for more information on the FY21 KPIs. Achievement against the STI KPIs is measured once the Company’s full year results have been approved by the Board. Awards are determined by the Board, on recommendation of the Remuneration and Nomination Committee, after consideration of performance against the applicable KPIs. FY21 STI awards are paid in cash. The STI award is only paid to executives employed by the Group after performance is assessed against the STI KPIs. Variable remuneration - FY21 Long term incentive plan (FY21 LTI) What is the purpose of the plan? The FY21 LTI plan is an equity incentive that rewards executives for their contribution to achievement of certain KPIs over a three-year period. One-third of a participant’s maximum entitlement is tested each year against the KPI set for that year. Assessing achievement annually ensures that executives are rewarded for their performance in each year over the three-year period and, to achieve maximum award, consistent high performance in each year over the three-year period is required. Awards under the FY21 LTI plan are made in the form of Rights. What are the KPIs and how do they align with business performance ? The KPI for year 1 of the FY21 LTI was to create additional growth avenues for the business and to create a more sustainable and resilient business through the cycle, reflecting a focus on achieving the Company’s broader strategic objectives and ensuring a strong foundation for the Company’s growth. As noted in the FY20 Annual Report, the same KPI applies for year 2 of the FY20 LTI plan. Having targeted increasing the Company’s resilience through commodity diversification, expansion of service offering across the Group and the refinancing of the Group’s debt in the Australian market, the board has determined that in FY22 a quantitative KPI is suitable and will apply for each of the current LTI plans in FY22 (i.e. year 3 of the FY20 LTI plan, year 2 & 3 of the FY21 LTI plan and year 1, 2 & 3 of the FY22 LTI plan). The FY22 KPI is earnings per share growth, which further aligns management with shareholder value and recognises the evolving focus on seeing the strong foundation developed for the Company being reflected in its financial outcomes. See section 5 for more information on the FY21 KPI. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 27 Emeco Holdings Limited and its Controlled Entities Directors’ Report For the year ended 30 June 2021 When is performance measured? How are awards determined? How is it paid? What happens if an executive leaves? Achievement against the LTI KPIs are measured by the Board, with the assistance of the Remuneration and Nomination Committee, at the time of the Company’s full year results. The FY21 LTI plan spans a three-year performance period. Performance is assessed annually by the Board across the three-year period in conjunction with approval of the full year results (see “How is variable remuneration delivered” on page 26. Awards are determined by the Board, on recommendation of the Remuneration and Nomination Committee, after consideration of performance against the applicable KPIs. FY21 LTI awards are paid by issuing rights (Rights) to fully paid ordinary Emeco shares (Shares). Rights issued under the FY21 LTI plan are scheduled to vest after announcement of Emeco’s annual results in 2023. Executives have the option to convert the Rights into Shares at any time within 2 years from the vesting date, unless the executive leaves Emeco earlier (see “What happens if an executive leaves?” below). The maximum possible award of Rights under the FY21 LTI plan was calculated by reference volume-weighted average price of Emeco shares for the 20 business days following the release of Emeco’s FY20 results, being $1.02. Rights will be issued at no cost to the executive. The ultimate value of the FY21 LTI award is determined by the Emeco share price once the Rights have vested and are converted into Shares, providing further alignment with the long-term interests of shareholders. Under the FY21 LTI plan, if Emeco has terminated the executive’s employment for misconduct or other breach of employment contract, the Board may, in its absolute discretion, determine that all or part of the Rights issued to them under the FY21 LTI plan will lapse. If the executive leaves the Emeco Group for any other reason, Rights that have been tested and issued under the FY21 LTI plan will immediately vest and must be exercised into Shares within 2 weeks from vesting. The executive will have no entitlement to untested awards. What happens if there is a change in control? In the event of absolute change in control (i.e. the acquisition by a third party and its associates of more than 50% of Emeco’s shares) or an effective change of control (i.e. a third party acquiring the capacity to determine Emeco’s financial and operating policies): • rights which have been tested and issued under the FY21 LTI plan; and • awards in respect of any component of the FY21 LTI that has not been tested, will vest on the change date. What other terms apply to the Rights? Dividends are not payable, and there are no voting entitlements, on Rights issued under the LTI plan (whether vested or unvested). Rights cannot be disposed of, other than by conversion of vested Rights into Shares (which, can then be transferred or sold subject to Emeco’s share trading policy). EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 28 Emeco Holdings Limited and its Controlled Entities Directors’ Report For the year ended 30 June 2021 4. Relationship between executive remuneration and company performance Emeco’s remuneration objectives effectively align the interests of Emeco’s executives with the interests of the Company and its shareholders, by ensuring that a significant proportion of an executive’s remuneration is “at risk” and tied to the satisfaction of KPIs which relate to the Company’s performance and execution of the Company’s strategic aims. Details of those KPI’s, and the Company’s performance in respect of those measures, are set out in section 5. In FY21, the variable components of executive remuneration, comprised the STI plan and LTI plan, maintaining the balance between short-term reward and long-term value creation. The KPIs for the STI and LTI plans focus on driving and rewarding leadership performance and behaviours consistent with the Company’s strategy and objectives. The STI KPIs (detailed in section 5) focussed on safety, earnings and employee-specific operation targets. The LTI KPI focussed on strengthening the fundamentals of the business to create a more sustainable and resilient business, providing a platform for continued growth. Strong performance against each of those measures in FY21 is reflected in the partial awards of LTIs and STIs to executives. The Board also recognises that retaining senior management, and acknowledging their hard work and success in positioning the business for sustainability and resilience, is key in driving Company performance and therefore value for shareholders. Company performance Emeco’s focus on building a resilient and sustainable business that can consistently achieve a return on capital above its cost of capital has resulted in maintaining strong financial performance. This was achieved despite facing significant challenges in the FY21 year, including the COVID-19 pandemic and the flow on impacts to certain commodity markets, and trade tensions between Australia and China impacting Australian exports. Details of the Group’s performance (as measured by a range of financial and other indicators, including disclosure required by the Act) and movements in shareholder wealth are set out in the following table: Operating EBITDA ($m) [1] Operating EBIT ($m) [1] Operating NPAT ($m) [1] Net leverage Return on capital [1] Total dividends declared ($m) FY21[3] FY20[3] FY19 FY18 FY17 237.7 254.4 214.0 153.0 119.1 139.4 125.4 83.2 83.5 12.0 56.8 61.0[4] 63.1 20.1 (90.9) 0.93x 1.58x 2.00x 2.60x 5.50x 17% $6.8 21% 21% 20% - - - 3% - Closing share price as at 30 June [2] $1.05 $0.99 $2.10 $0.38 $0.11 TRIFR 2.1 2.9 4.6 1.2 2.2 [1] Non IFRS measures. Refer to Table 2 of the Operating and Financial Review for further detail regarding operating adjustments. [2] A 10 to 1 share consolidation was approved by the Company’s shareholders at the 2018 AGM and effected on 27 November 2018. The share price for FY17 and FY18 is pre-consolidation. [3] FY21 and FY20 are both reported post AASB 16 Leases. [4] FY20 Operating NPAT tax effected for comparative purposes. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 29 Emeco Holdings Limited and its Controlled Entities Directors’ Report For the year ended 30 June 2021 5. Executive remuneration outcomes for FY21 5.1 Fixed remuneration outcomes There was no change to fixed remuneration for existing key management personnel in FY21. 5.2 Variable remuneration outcomes In FY21 the executives had both common and individual KPIs in order to align the performance of each participant with the overall success of the Company. Set out below is information regarding satisfaction of the applicable KPIs for the FY21 STI and FY21 LTI plans. The Board remains mindful of the ongoing impact of the COVID-19 pandemic both in Australia and internationally. The Emeco Group has seen minimal impact to its employees, operations and financial performance and the Board remains confident that the outcomes against the LTI and STI frameworks are consistent with the Company’s performance and that it was not necessary to modify those outcomes based on any external factors. 5.2.1 FY21 STI plan Table 11 below sets out the KPIs under the FY21 STI plan and the respective weightings. In the Board’s view, these KPIs align the reward of executives with the interests of shareholders. The FY21 STI plan provided for pro-rata entitlements where achievement was between the thresholds and targets. Table 11: FY21 STI KPI weightings, payment schedule and achievement KPI Weight Payment schedule Rationale Achievement Safety 20% Operating EBITDA 60% 0% if the FY21 TRIFR[1] ≥ FY20 TRIFR. 20% if the FY21 TRIFR[1] ≤ 80% of the FY20 TRIFR. Pro-rata payments between these levels. No entitlement if there is a serious, permanently disabling injury or a fatality. 0% if actual FY21 Operating EBITDA ≤ 85% of budget FY21 Operating EBITDA. 100% if actual FY21 Operating EBITDA ≥ budget FY21 Operating EBITDA. Pro-rata payments between these levels. Exceeded target The board regularly reviews the Company’s safety performance in detail and is striving to achieve a 'zero-harm' workplace at Emeco. TRIFR measures progress towards this goal. Reflects the Company's financial performance and ability to pay STI awards. Between target and threshold Personal KPIs 20% Satisfaction of key initiatives set by the Board for each executive. Reflects key focus areas for each executive. Between threshold and target [1] TRIFR = Number of recordable injuries x 1,000,000 hours Total hours worked EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 30 Emeco Holdings Limited and its Controlled Entities Directors’ Report For the year ended 30 June 2021 5.2.2 FY21 LTI plan The FY21 LTI KPIs are set annually for each financial year during the three-year performance period. The KPI for year 1 of the FY21 LTI was 100% strategy based, assessing performance against the Company’s broader strategic objectives of creating additional growth avenues and a more sustainable and resilient business. The same KPI applied for year 2 of the FY20 LTI. In assessing performance against this KPI, the Board’s key guidelines (set in 2020) were as follows: Guideline Rationale Diversifying the Group’s commodity mix Increasing diversification decreases the volatility of earnings and cash flows and reduces the risk of exposure to isolated commodity price movements Improving average project tenure Longer contracts provide future cashflows over a longer period, increasing the stability and predictability of earnings Building out contracted pipeline Developing the contracted pipeline provides increased certainty around future cashflows and reduced volatility of earnings Providing customers with a wider suite of services Providing a broad scope of services (within our core areas of expertise) differentiates the Group from competitors, increasing the Group’s value proposition to customers and decreasing the Group’s exposure to cycles within individual business units Management has worked hard to continue to evolve the Company’s business model over the year, building on the achievements of FY20. In assessing the Company’s performance against the KPI, the Board had regard to strong performance of the business against the above guidelines, including: 1. A continued rebalancing of the Group’s commodity mix. As a result of the significant changes in commodity mix over FY21, the Group’s reliance on the coal sector has markedly decreased and the business is well positioned to capitalise on the strong gold and base metals sectors, particularly in Western Australia. The chart below sets out the change in the Group’s commodity mix from FY20 to FY21: 2. Average contract tenure increasing from approximately 28 months to approximately 30 months, building on the increase from 22 months for FY20. 3. Contracted pipeline growing from 65% of budgeted revenue to 70% of budgeted revenue. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 31 Emeco Holdings Limited and its Controlled Entities Directors’ Report For the year ended 30 June 2021 The continuing expansion of the Pit N Portal mining services division providing an enhanced service offering to complement the Groups’ existing rental and workshops business units. This expansion saw the Group awarded its first open-cut mining contract at Red 5’s Great Western operations. The Group was also awarded a number of fully maintained projects, increased deployment of its EOS technology and significantly expanded Force’s fabrication and field service services, which has resulted in the Group’s “services-related” revenue growing to make up 72% of FY21 revenue. Having regard to the above, the Board resolved that achievement against the strategy KPI be set at 95%. In making its decision, the Board was also mindful that the ongoing impact of the COVID-19 pandemic continues to present unique challenges for both the Australian and global environment. The Board continues to monitor that situation, but recognises that despite tough market conditions, the impact to Emeco’s employees, operations and financial performance remains limited. Accordingly, the Board considered it was not necessary to adjust the LTI outcome, as the strategy KPI remained an appropriate basis for assessing long term performance. 5.2.3 Incentive outcomes The following table outlines the proportion of maximum incentive opportunity that was earned (i.e awarded following testing) or forfeited (i.e not awarded following testing) in relation to the FY21 STI plan. Table 12: FY21 STI Executive Ian Testrow Thao Pham Neil Siford Maximum STI (% of TFR) STI awarded (% of Maximum STI available) STI forfeited (% of Maximum STI available) 80% 60% 60% 77% 82% 72% 23% 18% 28% As noted above, the FY21 LTI Plan is assessed progressively over a three-year period with one-third of the maximum incentive being tested each year. Accordingly, a maximum of one-third of each executive’s FY21 award was available to be earned after FY21, with 1/3 deferred to after FY22 and 1/3 deferred to after FY23. The following table outlines the proportion of maximum incentive opportunity that was earned (i.e awarded following testing), forfeited (i.e not awarded following testing) and deferred (to be tested in FY22 or FY23) in relation to the FY21 LTI Plan. Table 13: FY21 LTI outcomes Executive Maximum LTI (% of TFR) LTI tested and earned in FY21 (% of Maximum LTI available over 3 year period) LTI tested and forfeited in FY21 (% of Maximum LTI available over 3 year period) LTI to be tested across FY22 & FY23 (% of Maximum LTI available over 3 year period) Ian Testrow [1] Thao Pham Neil Siford 120% 40% 40% 31% 31% 31% 2% 2% 2% 67% 67% 67% [1] Mr Testrow’s entitlement to Rights under the FY21 LTI plan is subject to shareholder approval. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 32 Emeco Holdings Limited and its Controlled Entities Directors’ Report For the year ended 30 June 2021 The table below sets out the cumulative outcomes to date in respect of the FY21 LTI (after testing of the year 1 KPI) and the FY20 LTI (after testing of the year 1 and year 2 KPIs). The deferred components will be tested against their applicable KPIs in subsequent years. Cumulative LTI Outcomes FY21 LTI FY20 LTI 32% 2% 67% 60% 7% 33% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Earned Forfeited Deferred [1] Expressed as a percentage of maximum LTI available over 3 year period. [2] As detailed above, the year 2 KPI for the FY20 LTI plan is the same as the year 1 KPI for the FY21 LTI plan and the outcomes are therefore the same. Outcomes for the year 1 KPI for the FY20 LTI plan are detailed in the FY20 annual report and in summary were 28% tested & earned, 5% tested & forfeited and 67% deferred (each as a percentage of maximum LTI available over 3 year period). Statutory Executive KMP remuneration The following table sets out total remuneration for executive KMP in FY21 and FY20, calculated in accordance with statutory accounting requirements. Table 13 – Statutory executive KMP remuneration KMP Short term employee benefits Post-employment benefits Share based payments m r e t t r o h S s u n o b ] 1 [ s t n e m y a p & y r a l a S s e e f Executive director Ian Testrow FY21 1,017,933 623,399 FY20 1,060,684 706,943 Other executives Thao Pham FY21 468,156 240,661 FY20 490,844 256,272 Neil Siford 3 FY21 395,938 183,602 FY20 119,671 63,879 Justine Lea4 FY21 - - FY20 294,014 151,459 TOTAL KMP remuneration FY21 1,882,027 1,047,662 FY20 1,965,213 1,178,553 y r a t e n o m - n o N - - - - - - - - - - n o i t a u n n a r e p u S m r e t g n o l r e h t O s t i f e n e b 25,000 22,167 16,792 17,731 25,000 9,963 22,026 8,566 25,000 7,590 9,439 2,119 - - 20,957 5,325 75,000 39,720 69,214 33,741 n o i t a n m r e T i s t i f e n e b ] 2 [ s e v i t n e c n i m r e t g n o L y t i u q e y r o t u t a t s l a t o T n o i t a r e n u m e r n o i t a r e n u m e r e c n a m r o f r e p d e t a l e r f o % - - - - - - - - - - 3,659,157 5,347,656 8,155,793 9,957,943 586,377 1,330,157 1,237,562 2,015,270 52,636 664,766 12,632 207,740 - - 518,410 990,165 4,298,170 7,342,579 80% 89% 62% 74% 36% 37% - 67% 73% 9,924,397 13,171,118 84% [1] The FY21 figure includes cash awards under the FY21 STI as approved by the Board after review of performance against applicable key performance indicators (see table 11). [2] The FY21 figure includes Rights granted (for accounting purposes) by the Company in FY19, FY20 and FY21 however no Rights under the FY21 LTI plan were issued in FY21. [3] Mr Siford commenced as Chief Financial Officer on 18 March 2020, and therefore FY20 figures reflect the period 18 March 2020 – 30 June 2020, compared to a full year of remuneration in FY21. [4] Ms Lea ceased her role as Chief Financial Officer (and thus acting as a KMP) on 18 March 2020. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 33 Emeco Holdings Limited and its Controlled Entities Directors’ Report For the year ended 30 June 2021 6. Executive contracts Remuneration arrangements for executives are formalised in employment agreements which provide for an indefinite term. The executives’ termination provisions are as follows: Executive Resignation Termination for cause Termination payment* Managing Director notice period (by company or executive) Other executives notice period (by company or executive) 12 months’ notice No notice 6 months’ notice No notice Nil Nil * Other than salary in lieu of notice and accrued statutory leave entitlements. 7. 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 usually reviewed and benchmarked annually in August against fees paid to non-executive directors of comparable companies with similar market capitalisation and industry of the Company. The Board may consider advice from external consultants when undertaking the annual review process. The ASX listing rules specify that the non-executive directors fee pool shall be determined from time to time by a general meeting. The Company’s constitution has provided for an aggregate fee pool of $1,200,000 per year since its listing on the ASX. The Board will not seek any increase for the non-executive directors’ pool at the 2021 AGM. Structure The allocation of fees to non-executive directors within this cap has been determined after consideration of a number of factors including the time commitment of directors, the size and scale of the Company’s operations, the skill sets of board members, the quantum of fees paid to non-executive directors of comparable companies and participation in board committee work. Due to the small number of Australian based non-executive directors in FY21, all Australian non-executive directors sit on more than one committee. However, non-executive directors only get paid for sitting on one committee. The table below summarises the non-executive directors fee policy for FY21 (inclusive of superannuation): Board fees Chairman Directors Committee fees Committee Chair Committee Member FY21 $158,238 $100,000 FY21 $13,333 $10,000 Non-executive directors do not receive retirement benefits, nor do they participate in any incentive programs. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 34 Emeco Holdings Limited and its Controlled Entities Directors’ Report For the year ended 30 June 2021 The remuneration of non-executive directors for the year ended 30 June 2021 and 30 June 2020 is detailed in table 14 below. Table 14 – Statutory non-executive director remuneration Non-executive director Short-term employee benefits Post-employment benefits Long-term benefits Peter Richards Peter Frank Keith Skinner Peter Kane [1] Darren Yeates [2] TOTAL FY21 FY20 FY21 FY20 FY21 FY20 FY21 FY20 FY21 FY20 FY21 FY20 Salary and fees 153,642 155,691 Superannuation benefits 14,596 14,791 Long term equity incentives - - 91,324 91,324 103,501 105,658 56,024 - 39,012 101,452 443,503 454,125 8,676 8,676 9,833 10,086 5,322 - 3,706 9,638 42,133 43,190 - - - - - - - - - - Total 168,238 170,481 100,000 100,000 113,333 115,743 61,346 - 42,718 111,090 485,635 497,314 [1] Mr Kane commenced on 7 December 2020. [2] Mr Yeates ceased on 11 November 2020. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 35 Emeco Holdings Limited and its Controlled Entities Directors’ Report For the year ended 30 June 2021 8. Additional disclosures relating to share-based payments Grants and vesting of equity settled awards made to executives in connection with the FY21 LTI plan, and the Company’s long term incentive plans in FY19 and FY20 are set out in the following table. All grants are rights (or an entitlement to receive rights) to receive one fully paid ordinary Emeco share. The vesting of rights is subject to satisfaction of vesting conditions. Table 15 – Summary of executive KMP allocated, vested or lapsed equity Grant date [1] Number granted [2] % vested in FY21 % forfeited in FY21 Vesting date [3] [4] Fair value per share/right at grant date [5] Executive Ian Testrow [A] 2019 MIP (Year 2) 15/11/2018 (Year 3) (Year 4) 2019 EHIP 15/11/2018 15/11/2018 14/11/2019 1,000,000 1,000,000 1,000,000 - - - 13,646 100% 2020 LTI (Year 1) 12/11/2020 157,836 Thao Pham 2019 MIP 2019 EHIP 26/07/2018 09/09/2019 2020 LTI (Year 1) 14/11/2019 (Year 2) (Year 3) 14/11/2019 14/11/2019 2021 LTI (Year 1) 26/07/2021 (Year 2) (Year 3) 26/07/2021 26/07/2021 Neil Siford 2020 LTI (Year 1) 18/03/2020 (Year 2) (Year 3) 2021 LTI (Year 1) (Year 2) (Year 3) 18/03/2020 18/03/2020 26/07/2021 26/07/2021 26/07/2021 - - 553,557 23,490 100% 29,918 [B] 29,917 [B] 29,917 [B] 63,941 [B] 63,940 [B] 63,940 [B] 7,458 [B] 7,458 [B] 7,458 [B] 55,556 [B] 55,556 [B] 55,555 [B] - - - - - - - - - - - - - - - - - - - Aug-2021 Aug-2022 Aug-2023 28/07/2020 Aug-2022 30/06/2023 30/06/2021 15% Aug-2022 - - - - - Aug-2022 Aug-2022 Aug-2023 Aug-2023 Aug-2023 15% Aug-2022 - - - - - Aug-2022 Aug-2022 Aug-2023 Aug-2023 Aug-2023 $3.30 $3.30 $3.30 $2.03 $0.94 $3.60 $2.06 $1.91 $1.91 $1.91 $0.93 $0.93 $0.93 $0.82 $0.82 $0.82 $0.93 $0.93 $0.93 [A] Mr Ian Testrow’s grant of awards under the: (i) FY19 MIP were approved by shareholders on 15 November 2018; (ii) FY19 EHIP was approved by shareholders on 14 November 2019; (iii) FY20 LTI (Year 1) was approved by shareholders on 12 November 2020; and (iv) FY20 LTI (Year 2) and FY21 LTI (Year 1) are subject to shareholder approval at the 2021 annual general meeting. Mr Testrow may, subject to shareholder approval, also be granted up to 185,688 Rights in respect of each of Year 2 and Year 3 of the FY20 LTI and up to 396,863 Rights in respect of each of Year 1, Year 2 and Year 3 of the FY21 LTI. [B] This figure represents maximum entitlement under the FY20 and FY21 LTI plans across each year in the three-year performance period and does not reflect the number of Rights that may be issued in each year across the performance period after testing of the relevant KPIs. Refer to table 16 for more information regarding Rights held by the KMPs. [1] Grant date in this table relates to the grant of the long term incentive for accounting purposes only and, in respect of the FY20 and FY21 incentive plans, differs from the date Rights may be issued over the course of the life of the plan. [2] All figures are post-consolidation (where applicable). EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 36 Emeco Holdings Limited and its Controlled Entities Directors’ Report For the year ended 30 June 2021 [3] Vesting of Rights is subject to satisfaction of vesting and performance conditions and, in some circumstances, may be earlier than the date stated above (see section 3.2, ‘What happens if an executive leaves?’ in respect of the FY21 LTI plan). The minimum total value of the grants for future financial years is zero if the service condition is not satisfied. An estimate of the maximum possible total value in future financial years is the fair value at grant date multiplied by the number of equity instruments awarded. See section 5 for details of the year 1 KPI applicable to awards under the FY21 LTI. Full details of the vesting conditions for all prior year equity settled grants to executives are included in the remuneration report for the relevant year. [4] Where exact vesting dates are not noted, the vesting date will follow release of the Company’s full year results. [5] The fair value of awards granted was determined using the 30-day volume weighted average price on the grant date (under the MIP in FY19 (figure shown post-consolidation) and the EHIP in FY19), the 30-day volume weighted average price on 31 July 2019 (for the FY20 LTI) and the 20-day volume-weighted average price following release of the Company’s FY20 full year results (for the FY21 LTI). For all securities, the fair value 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 13) is the portion of the fair value of the securities recognised in the Consolidated Statement of Profit or Loss and Other Comprehensive Income for the relevant period. The fair value of all securities is not related to or indicative of the benefit (if any) that an executive may ultimately realise if the equity instruments vest. Table 16: KMP Rights Details of Rights held by KMP, including their personally related entities, for FY21 are as follows: KMP Executive Director Ian Testrow Other executives Thao Pham Neil Siford Rights [1] Holding at 1 July 2020 Rights issued in FY21 [2] Rights vested in FY21 Holding at 30 June 2021 Potential future Rights [3] Rights / performance shares Rights / performance rights Rights / performance rights Rights / performance rights 3,000,000 - - 3,000,000 - 13,646 157,836 (13,646) 157,836 1,561,965 577,047 25,431 (23,490) 578,988 251,655 - 6,340 - 6,340 181,581 [1] A ‘performance share’ is a right to one fully paid ordinary Emeco share currently on issue. A ‘performance right’ is a right to receive one fully paid ordinary Emeco share. The vesting of performance shares and performance rights is subject to satisfaction of vesting conditions. [2] Rights issued to executives in FY21 under the FY20 incentive plans. [3] Maximum remaining possible entitlement to Rights under the FY20 and FY21 LTI plans across the three year performance period. On 17 August 2021, the Board approved, on recommendation of the Remuneration and Numeration Committee, awards in respect of performance against the year 1 KPI for the FY21 LTI and the year 2 KPI for the FY20 LTI. The approved Rights are set out below. Those Rights are included within each individual’s “Potential future Rights” figure in Table 16 as they will be issued in FY22. KMP Ian Testrow (subject to shareholder approval) Year 2 FY20 LTI 176,404 Year 1 FY21 LTI 377,020 Total 553,424 Thao Pham Neil Siford 28,421 7,084 60,744 52,778 89,165 59,862 EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 37 Emeco Holdings Limited and its Controlled Entities Directors’ Report For the year ended 30 June 2021 Table 17: KMP Shareholding Details of Shares held by KMP, including their personally related entities, for FY21 are as follows: Holding at 1 July 2020 Shares received as a result of rights vesting in FY21 Shares otherwise issued in FY21 Net changes other Holding at 30 June 2021 Non-executive directors Peter Richards Keith Skinner Peter Kane Executives Ian Testrow Thao Pham 7,481 - - - - - 11,708,461 2,546,361 13,646 23,490 - - - - - 3,563 22,300 10,288 11,044 22,300 10,288 - - 11,722,107 2,569,851 9. Loans to key management personnel and their related parties There are no loans to key management personnel and their related parties. 10. Other transactions and balances with key management personnel and their related parties There are no other transactions and balances with key management personnel and their related parties. Signed in accordance with a resolution of the directors. Ian Testrow Managing Director Dated at Perth, 17th day of August 2021 EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 38 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 Level 3, 71 Walters Drive Osborne Park WA 6017 17 August 2021 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 2021, 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 David Newman Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation Member of Deloitte Asia Pacific Limited and the Deloitte organisation. 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 2021 Continuing operations Revenue Other income Repairs and maintenance Employee expenses External maintenance services Cartage and fuel Depreciation and amortisation expense Impairment of tangible assets Business acquisition expenses Other expense Finance income Finance costs Net foreign exchange gain Profit before tax expense Tax (expense)/benefit Profit from continuing operations Discontinued operations Loss from discontinued operations (net of tax) Loss from discontinued operations Profit for the year Other comprehensive (loss)/income Items that are or may be reclassified to profit and loss: Foreign currency translation differences (net of tax) Changes in fair value of cash flow hedges (net of tax) Total other comprehensive income for the year Total comprehensive income for the year Note 15 7 8 8 8 8 8 8 8 8 10 15 2021 $'000 2020 $'000 620,528 1,084 (128,230) (98,424) (92,098) (15,723) (118,576) (1,146) - (60,212) 362 (88,275) 10,302 29,592 (8,897) 20,695 540,429 3,592 (94,129) (62,859) (84,766) (18,172) (114,988) (13,750) (1,500) (48,523) 2,307 (52,821) 366 55,187 10,945 66,132 - - (3) (3) 20,695 66,129 21,267 (19,624) 1,643 (10,373) 16,251 5,877 22,338 72,007 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 45 to 118. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 40 Emeco Holdings Limited and its Controlled Entities Consolidated Statement of Profit or Loss and Other Comprehensive Income (continued) For the year ended 30 June 2021 Profit attributable to: Owners of the Company Profit for the year Total comprehensive profit attributable to: Owners of the Company Total comprehensive profit for the year Profit per share: Basic profit per share Diluted profit per share Profit per share from continuing operations Basic profit per share Diluted profit per share 2021 $'000 2020 $'000 20,695 20,695 66,129 66,129 22,338 22,338 72,007 72,007 Note 2021 Cents Restated(1) 2020 cents 35 35 35 35 4.02 3.96 4.02 3.96 19.81 19.43 19.81 19.43 (1) 2020 earnings per share has been restated to take into consideration the effect of the rights issue that occurred in September 2020, in accordance with AASB 133. Refer to note 2(b) for further details. 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 45 to 118. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 41 Emeco Holdings Limited and its Controlled Entities Consolidated Statement of Financial Position as at 30 June 2021 Current assets Cash and cash equivalents Trade and other receivables Inventories and work in progress Prepayments Assets held for sale Total current assets Non-current assets Derivative financial instruments Intangible assets Property, plant and equipment Right of use asset Deferred tax assets Investments designated at fair value through profit or loss Total non-current assets Total assets Current liabilities Trade and other payables Derivative financial instruments Interest bearing liabilities Provisions Total current liabilities Non-current liabilities Interest bearing liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Share capital Reserves Retained losses Total equity attributable to equity holders of the Company Note 2021 $'000 2020 $'000 16 17 19 14 18 20 21 22 12 23 18 24 26 24 26 13 74,725 124,695 19,202 7,227 2,794 228,643 198,169 113,788 14,767 3,279 3,192 333,195 - 10,329 669,233 32,850 24,489 - 736,901 38,918 10,252 629,170 44,132 32,555 369 755,396 965,544 1,088,591 110,012 12,389 13,399 11,872 147,672 89,236 10,884 122,986 10,629 233,735 285,811 655 286,466 497,030 581 497,611 434,138 731,346 531,406 357,245 1,171,457 7,632 (647,683) 531,406 1,024,442 1,181 (668,378) 357,245 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 45 to 118. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 42 Emeco Holdings Limited and its Controlled Entities Consolidated Statement of Changes in Equity For the year ended 30 June 2021 Share based Foreign currency Share payment Hedging translation Treasury Accumulated Total capital reserve reserve reserve shares $'000 $'000 $'000 $'000 $'000 losses $'000 equity $'000 Balance at 1 July 2019 931,199 42,882 (7,444) 14,949 (49,001) (734,507) 198,078 Total comprehensive income for the period Profit for the period Other comprehensive income - - - - - 66,129 66,129 Foreign currency translation differences Change in fair value of cash flow hedge, net of tax Total comprehensive income/(loss) for the period - - - - - - (10,039) 16,251 6,211 (334) - (334) - - - - - 66,129 (10,373) 16,251 72,007 Transactions with owners, recorded directly in equity Contributions by and distributions to owners Shares issued during the period, net of issue costs 72,872 - - - - - 72,872 Shares vested during period Shares purchased by the trust - (29,784) - - 29,784 - - 20,372 - - - (20,372) - - Share-based payment transactions - 14,289 - - - - Total contributions by and distributions to owners 93,243 (15,495) - - 9,412 - 14,289 87,161 Balance at 30 June 2020 1,024,442 27,387 (1,233) 14,615 (39,589) (668,378) 357,245 Share based Foreign currency Share payment Hedging translation Treasury Accumulated Total capital reserve reserve reserve shares $'000 $'000 $'000 $'000 $'000 losses $'000 equity $'000 Balance at 1 July 2020 1,024,442 27,387 (1,233) 14,615 (39,589) (668,378) 357,245 Total comprehensive income for the period Profit for the period Other comprehensive income Foreign currency translation differences Change in fair value of cash flow hedge / recycling of hedge reserve on cessation of hedge accounting, net of tax Total comprehensive income for the period Transactions with owners, recorded directly in equity Contributions by and distributions to owners - - - - - 20,695 20,695 - - 20,857 410 - - 21,267 - - (19,624) - - - (19,624) - - 1,233 410 - 20,695 22,338 Shares issued during the period, net of issue costs 147,015 - - - - - 147,015 Shares vested during the period Shares purchased by the trust - (2,495) - - 2,495 - - - - - - (1,200) - (1,200) Share-based payment transactions - 6,009 - - - - 6,009 Total contributions by and distributions to owners 147,015 3,514 - - 1,295 - 151,824 Balance at 30 June 2021 1,171,457 30,901 - 15,025 (38,294) (647,683) 531,406 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 45 to 118. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 43 Emeco Holdings Limited and its Controlled Entities Consolidated Statement of Cash Flows For the year ended 30 June 2021 Cash flows from operating activities Cash receipts from customers Cash paid to suppliers and employees Cash generated from operations Finance income received Finance costs paid Net cash outflow from operating activities of discontinued operations Note 2021 $'000 2020 $'000 613,109 (368,964) 244,145 362 (38,890) 538,846 (309,262) 229,584 216 (47,797) - (29) Net cash from operating activities 30 205,616 181,973 Cash flows from investing activities Proceeds on disposal of non-current assets Payment for property, plant and equipment Payment for intangible assets Proceeds on sale of investments Payment for acquired entities Acquisition and corporate development costs Net cash used in investing activities Cash flows from financing activities Net proceeds from issue of shares Proceeds from borrowings Purchase of own shares Repayment of borrowings Premium paid on US notes repurchased Payment for debt financing costs Payments for hedge derivatives closed Repayment of lease liabilities Net cash used in financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of the period Effects of exchange rate fluctuations on cash held 36 4,268 (153,554) (600) 328 9,909 (118,831) - - - - (57,421) (3,509) (149,558) (169,852) 146,100 2,465 (1,200) (291,883) (9,013) (5,793) (3,200) (16,948) (179,472) (123,414) 198,169 (31) 63,186 99,708 - (2,708) - - - (10,361) 149,825 161,946 36,189 34 Cash and cash equivalents at the end of the financial period 74,724 198,169 The consolidated statement of cash flows is to be read in conjunction with the notes to the financial statements set out on pages 45 to 118. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 44 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 1 Reporting entity Emeco Holdings Limited (the ‘Company’) is domiciled in Australia. The address of the Company’s registered office is Level 3, 71 Walters Drive, Osborne Park WA 6017. The consolidated financial statements of the Company as at and for the year ended 30 June 2021 comprises the Company and its subsidiaries (together referred to as the ‘Group’). The Group is a for profit entity and primarily involved in the provision of safe, reliable and maintained earthmoving equipment solutions and mining services solutions to its customers as well as the maintenance and remanufacturing of major components of heavy earthmoving equipment. 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 Group has adopted all of the new and revised Standards and Interpretations issued by the AASB that are relevant to its operations and effective for an accounting period that begins on or after 1 July 2020. The consolidated financial statements were authorised for issue by the board of directors on 17 August 2021. (b) Comparative financial information The presentation of certain items in the consolidated statement of profit or loss and other comprehensive income has been amended during the period to simplify the presentation and aide understanding. Where applicable, comparative amounts have been reclassified to ensure comparability. The Group has aggregated revenue activities by nature, and has combined certain expenses on the face of the consolidated statement of profit or loss and other comprehensive income which are analysed in further detail in the notes to the financial statements. Earnings per share for the comparative period has been restated to account for the effect of the rights issue undertaken by Emeco in September 2020, in accordance with AASB 133 Earnings per share. The table below shows the previously disclosed and the restated amounts. Profit per share: Basic profit per share Diluted profit per share Profit per share from continuing operations Basic profit per share Diluted profit per share (c) Basis of measurement Previously disclosed cents Restated cents 20.21 19.83 20.21 19.83 19.81 19.43 19.81 19.43 The consolidated financial statements have been prepared on the historical cost basis except for the following material items in the statement of financial position: • derivative financial instruments are measured at fair value; • assets held for sale at fair value less costs of disposal; and • The methods used to measure fair values are discussed further in note 5. financial instruments at fair value through profit or loss are measured at fair value. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 45 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 2 Basis of preparation (continued) (d) Functional and presentation currency These consolidated financial statements are presented in Australian dollars, which is the Company’s functional currency. The company is a company of the kind referred to in ASIC Corporations (Rounding in Financial /Directors’ 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. (e) 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 and for FY21 this review has considered any relevant implications of the global COVID-19 pandemic. 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: Recognition of tax losses In accordance with the Company’s accounting policies for deferred taxes (refer note 3(q)), 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. Due to the recent history of operating profits, the company brought to account all previously unrecognised Australian tax losses as a deferred tax asset in the year ended 30 June 2020 totalling $86,638,000. Operating profits have continued to be generated in the current period, with additional tax losses of $7,760,000 recognised in the current year, taking the recognised losses to $94,398,000 at 30 June 2021. The Company expects to fully utilise these losses as the Group is expected to continue to trade profitably. Impairment of assets The Group performs annual impairment testing as at 30 June for any intangible assets with indefinite useful lives. More frequent reviews are performed of both intangible and tangible assets or asset groups where there are potential indicators of impairment. The identification of impairment indicators involves management judgement. When an indicator of impairment is identified, a formal impairment assessment is performed. Impairment testing involves comparing an asset's recoverable amount to its carrying amount. Annual impairment testing was conducted at 30 June 2021, with no impairment identified. An impairment assessment was performed for the Group's key cash generating units (CGUs), being Rental, Workshops and Pit N Portal. The Group has prepared value-in-use models for the purpose of impairment testing as at 30 June 2021, using five-year discounted cash flow models. Cash flows beyond the five-year period are extrapolated using a terminal value growth rate. The accounting policies and key assumptions applied by the Group in relation to the preparation of the impairment models are the same as those applied in its Annual Financial Report for the year ended 30 June 2021. Key areas of judgement relate to the forecast utilisation rates and pricing for the fleet as well as forecasts of repairs and maintenance expenditure and other operating costs and capital expenditure. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 46 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 2 Basis of preparation (continued) (e) Use of estimates and judgements (continued) Impairment of assets (continued) In performing its detailed impairment assessment, the Group has considered: • long term commodity prices and therefore the demand for earthmoving equipment and associated services; supply chain risks and therefore the impact on the ability of the Group to deliver its products and services; and the likelihood of any continued disruption to the operations of the Group’s customers, as a result of the global COVID-19 pandemic. • • The post-tax discount rate used in the calculations is 7.2% (2020: 9.0%). The rate reflects the underlying cost of capital adjusted for market and asset specific risks. For the future cashflows of the CGU’s, 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 depend on the level of tendering activity and the Group’s conversion rate and for subsequent years were based on Emeco’s 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 2.0% was used over the five years of the forecast. The terminal value growth rate represents the long term forecast consumer price index (CPI) of 2.0% (2020: 2.0%) for all CGUs. The recoverable amounts of all of the Group's CGUs continued to exceed their carrying amounts at 30 June 2021, with no reasonably possible changes to key assumptions giving rise to an impairment. Assets held for sale In accordance with the Company’s accounting policies for assets held for sale (refer note 3(j)), 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 which is dependent on the supply of and demand for the specific categories of equipment being held for sale. 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 14. Business combinations In accordance with the Company’s accounting policies for business combinations (refer note 3(t)), 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, intangibles and fair value of inventory and items of property, plant and equipment and provisions. The acquisition of Pit N Portal was completed on 28 February 2020, where the fair value is assessed at acquisition date and does consider subsequent events related to COVID-19. The assessment of fair value is based on facts and circumstances as at the acquisition date. A provisional customer intangible asset was recognised at 30 June 2020, being the excess of consideration over the net of the fair value of the asset and liabilities at acquisition. A full assessment of this asset was conducted by management and was finalised during the year ended 30 June 2021 with no changes to the provisional values previously disclosed. Refer to note 36 for further information on business combinations and note 5(h) for details on determination of fair value. (f) Covid-19 Assistance The Company did not qualify for nor receive any financial assistance through the Federal Government funded Job Keeper package or any other Federal or State Government program. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 47 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 3 Significant accounting policies The accounting policies adopted in the preparation of the consolidated financial statements are consistent with those followed in the preparation of the Group’s annual consolidated financial statements for the year ended 30 June 2021, except for the adoption of new standards effective as of 1 July 2020. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. (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) (i) Foreign currency Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the year. (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 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. (c) AASB 16 Leases The Group as lessee The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets (such as tablets and personal computers, small items of office furniture and telephones). For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 48 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 3 Significant accounting policies (continued) (c) AASB 16 Leases (continued) The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise: • Fixed lease payments (including in-substance fixed payments), less any lease incentives receivable; Variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date; The amount expected to be payable by the lessee under residual value guarantees; The exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and Payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease. • • • • There has been no impact on lease payments as a result of COVID-19, either through deferral or reduction in lease payments. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made. The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever: • The lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate. The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used). A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification. • • The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses. Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognised and measured under AASB 137. To the extent that the costs relate to a right-of-use asset, the costs are included in the related right-of-use asset, unless those costs are incurred to produce inventories. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 49 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 3 Significant accounting policies (continued) (c) AASB 16 Leases (continued) Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of- use asset reflects that the Group expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease. The right-of-use assets are presented as a separate line in the consolidated statement of financial position. The Group applies AASB 136 to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss as described in the ‘Property, Plant and Equipment’ policy (as outlined in the financial report for the annual reporting period). Variable rents that do not depend on an index or rate are not included in the measurement the lease liability and the right-of-use asset. The related payments are recognised as an expense in the period in which the event or condition that triggers those payments occurs and are included in the line “Other expenses” in profit or loss. (d) Financial instruments AASB 9 Financial Instruments sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. (i) Classification The Group classifies its financial assets and liabilities in the following measurement categories: • Those to be measured subsequently at fair value (either through other comprehensive income, or through profit or loss), and • Those to be measured at amortised cost. The classification depends on the Group’s business model for managing financial assets and liabilities, and the contractual terms of the cash flows. Derivatives are presented as current assets or liabilities to the extent of the cashflows occurring within 12 months after the end of the reporting period. For assets and liabilities measured at fair value, gains and losses will either be recorded in profit or loss or other comprehensive income. For investments in debt instruments, this will depend on the business model in which the investment is held. For investments in equity instruments that are not held for trading, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income. The Group reclassifies debt investments when and only when its business model for managing those assets changes. (ii) Measurement At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss. Measurement of cash and cash equivalents and trade and other receivables remains at amortised cost consistent with the comparative period. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 50 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 3 Significant accounting policies (continued) (d) Financial instruments (continued) (ii) Measurement (continued) Non-derivative financial liabilities Interest bearing liabilities All loans and borrowings are initially recognised at fair value, being the amount received less attributable transaction costs. After initial recognition, interest bearing liabilities are stated at amortised cost with any difference between cost and redemption value being recognised in the statement of profit or loss over the period of the borrowings on an effective interest basis. Trade and other payables Liabilities are recognised for amounts to be paid for goods or services received. Trade payables are settled on terms aligned with the normal commercial terms in operations. Equity instruments The Group subsequently measures all equity investments at fair value. Where the Group’s management has elected to present fair value gains and losses on equity investments in other comprehensive income, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Dividends from such investments continue to be recognised in profit or loss as other income when the Group’s right to receive payments is established. Impairment losses (and reversal of impairment losses) on equity investments measured at Fair Value through Other Comprehensive Income (FVOCI) are not reported separately from other changes in fair value. Changes in the fair value of financial assets at fair value through profit or loss are recognised in other expenses in the statement of profit or loss as applicable. Derivative financial instruments Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in the cash flow hedge reserve within equity, limited to the cumulative change in fair value of the hedged item on a present value basis from the inception of the hedge. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, within other expenses. Amounts accumulated in equity are reclassified in the periods when the hedged item affects profit or loss, as follows: • The gain or loss relating to the effective portion of the interest rate swaps hedging variable rate borrowings is recognised in profit or loss within ‘finance cost’. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 51 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 3 Significant accounting policies (continued) (d) Financial instruments (continued) (iii) Measurement (continued) When a hedging instrument expires, or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative deferred gain or loss and deferred costs of hedging in equity at that time remains in equity until the forecast transaction occurs, resulting in the recognition of a non-financial asset such as inventory. When the forecast transaction is no longer expected to occur, the cumulative gain or loss and deferred costs of hedging that were reported in equity are immediately reclassified to profit or loss. Hedge ineffectiveness is recognised in profit or loss within other expenses. Accounting policies for remaining hedges and derivatives are consistent with the comparative period. (iv) Impairment The Group assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables, contract assets and lease receivables, the Group applies the simplified approach permitted by AASB 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables. (iv) 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 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. (e) 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; • any other costs directly attributable to bringing the assets to a working condition for their intended use; • when the Group has an obligation to remove the assets or restore the site, an estimate of the costs of dismantling and removing the items and restoring the site on which they are located; and capitalised borrowing costs. • EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 52 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 3 Significant accounting policies (continued) (e) Property, plant and equipment (continued) (i) Recognition and measurement (continued) 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 equipment components) of property, plant and equipment. Any gain or loss on disposal of an item of property, plant and equipment (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) is recognised in profit or loss. (ii) Subsequent costs Subsequent expenditure is capitalised only when it is probable that the future economic benefits associated with the expenditure will flow to the Group. Expenditure on major overhauls and refurbishments of equipment is capitalised in property, plant and equipment as it is incurred, where that expenditure is expected to provide future economic benefits. The costs of the day-to-day servicing of property, plant and equipment and 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. The estimated useful lives are as follows: Buildings and leasehold improvements Plant and equipment Office equipment Motor vehicles Sundry plant 15 years 3 – 15 years 3 – 10 years 5 years 7 – 10 years EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 53 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 3 Significant accounting policies (continued) Intangible assets (f) (i) 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 Group’s interest in the net fair value of the identifiable tangible and intangible assets, liabilities and contingent liabilities of the acquiree. Subsequent measurement Goodwill is measured at cost, less accumulated impairment losses. (iii) Other intangible assets Software that is acquired and internally developed by the Group and has finite useful lives are measured at cost less accumulated amortisation and any accumulated impairment losses. Intangibles that are acquired by the Group as part of a business combination and have finite useful lives are measured at fair value less accumulated amortisation and any accumulated impairment losses. (iv) Amortisation Intangible assets with a finite useful life 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: • Software • Customer contracts 0 – 4 years 0 – 3 years Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. (g) Inventories Inventories consist of equipment and parts and 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. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 54 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 3 Significant accounting policies (continued) (h) Work in progress Progressive work to inventory and fixed assets are carried in work in progress accounts within inventory and property, plant and equipment being (disclosed as a ‘capital work in progress’) respectively. Upon work completion the balance is reclassified from capital work in progress to the relevant category of asset within property, plant and equipment. Workshop work in progress represents jobs started but not completed by period end. Upon completion the job is invoiced to the customer. Impairment (i) (i) Non-derivative financial assets The expected credit loss model under AASB 9 is used to measure the fair value of financial assets not classified as at fair value through profit or loss. To assist in this process, the Group segregates trade receivables into various customer segments where they may have similar loss patterns. The loss allowance is calculated by taking the following factors into consideration: Grouping of receivables The Group has classified its receivables into three main segments of Rental, Workshops and Pit N Portal in line with the main segments and work undertaken. The debtors in each segment is then further classified as follows: • Rental – blue chip customers, insured customers, uninsured customers and cash sale customers. • Workshop – blue chip customers, insured customers, uninsured customers, cash sales and small retail customers. • Pit N Portal – blue chip customers, insured customers, uninsured customers, cash sales and small retail customers. These categories are defined as: • Blue chip customers – those that are typically defined as having a market capitalisation of greater than $750m. The classification of Blue Chip is determined under the credit risk of the Groups Insurance Policy. Insured customers – those that are trading within terms with their trade receivable exposure under the insured limit. • • Underinsured customers - those that have not been granted sufficient credit limits by the insurer to cover sales within credit terms. • Cash sales – customers that pay cash and are not on terms. • Uninsured customers – are all other customers that are not recognised in the above category. Historical loss rates and forward looking information The Group uses a combination of historical losses recognised for receivables in the above categories and takes a view on the future economic conditions that are representative of those expected to exist; this includes an assessment of the potential impacts of COVID-19 on the business. Specifically, the Group has considered the macro-economic impacts of the likelihood of any potential and significant decreases to commodity prices on its customers operations and therefore their potential capacity to repay amounts owing to the Group. For an investment in an equity security, objective evidence of impairment includes a significant or prolonged decline in its fair value below its cost. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 55 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 3 Significant accounting policies (continued) Impairment (continued) (i) (i) Non-derivative financial assets (continued) Bad debt policy An allowance for doubtful debt is made when the Group receives notification a customer is placed into administration or liquidation, or information becomes available to the Group indicating collection may be in doubt. The realisation of a bad debt subsequently comes into effect when all avenues of collection have been exhausted without success, and a commercial decision is made that it is uneconomical to pursue debt recovery. Definition of default The Group considers the following as constituting an event of default for internal credit risk management purposes as historical experience indicates that financial assets that meet either of the following criteria are generally not recoverable: • when the customer breaches their agreed credit limit; or • information obtained from external sources indicates that the debtor is unlikely to pay its creditors, including the Group, in full. Irrespective of the above analysis, the Group considers that default has occurred when a financial asset is more than 120 days past due unless the Group has reasonable and supportable information to demonstrate that alternative default criterion is more appropriate. (ii) Non-financial assets At each reporting date, the Group reviews the carrying amounts of its non-financial assets (other than inventories and deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. 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 Group’s corporate assets do not generate separate cash inflows and are utilised by more than one CGU. Corporate assets are allocated to CGUs on a reasonable and consistent basis and tested for impairment as part of the testing of the CGU to which the corporate asset is allocated. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs 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. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 56 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 3 Significant accounting policies (continued) (j) 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 for inventories, financial assets, deferred tax assets, employee benefit assets which continue to be measured in accordance with the Group’s other accounting policies. Impairment losses on initial classification as held-for-sale and subsequent gains and losses on re-measurement are recognised in profit or loss. Once classified as held-for-sale, intangible assets and property, plant and equipment are no longer amortised or depreciated, and any equity-accounted investee is no longer equity accounted. (k) Employee benefits (i) Defined contribution plans A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and has no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognised as an employee benefit expense in profit or loss in the periods during which related services are rendered by employees. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available. (ii) Other long term employee benefits The Group’s net obligation in respect of long term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value. Re-measurements are recognised in profit or loss in the period in which they arise. (iii) Termination benefits Termination benefits are recognised as an expense when the Group is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date. Termination benefits for voluntary redundancies are recognised as an expense if the Group has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. (iv) Short term benefits Short term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short term cash bonus or profit sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 57 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 3 Significant accounting policies (continued) (k) Employee benefits (continued) (v) Share based payment transactions Under the Emeco long term incentive plans (LTI) and the legacy hybrid incentive plan (EHIP) and management incentive plan (MIP), certain executives have been granted rights (Rights) to receive fully paid ordinary shares (Shares) in the Company, the award and vesting of which is subject to varying performance and or service conditions. There is no entitlement to dividends (or shadow dividends) on Rights. Under the LTI plans, Rights are issued based on the performance of the executive and the Company over a three-year period, with one-third of the maximum LTI entitlement being tested each year. Issued Rights vest at the end of the three year performance period. If Emeco terminates the executive’s employment for misconduct or other breach of the executive’s employment contract, the Board may lapse some or all of the Rights issued to the executive. Rights issued under the LTI will otherwise vest. The fair value of Rights issued are based on the share price at grant date. The grant date in respect of the LTI Plans, for all eligible employees excluding the MD, was the day the plan was approved by the Board. Any issue of awards to the MD under the LTI plans are subject to shareholder approval. The fair value of rights granted are expensed over the three-year period from grant date to vesting date based on the maximum LTI available in each year. At the completion of the annual testing, when the final number of rights are approved with respect to the specific financial year, the expense is adjusted in the year of approval to align with the actual Rights approved which may be less than the maximum Rights available for that financial year. With respect to the MD and upon approval by the shareholders the fair value of the rights will be remeasured at the date of the shareholder meeting (being grant date) at which point they will be treated consistently to the other employees. If the reward to the MD by shareholders is not approved, the previously recognised expense will be reversed. Under the EHIP, Rights granted to participants have vesting dates up to two years. The fair value of rights granted are based on a VWAP and are expensed evenly over the period from grant date to vesting date. Under the MIP, Rights granted to participants are subject to service conditions. These have various vesting dates ranging up to 5 years. The fair values of these Rights are based on VWAP and are expensed evenly over the period from grant date to vesting date. In the event of death, total and permanent disability, retrenchment or retirement of the participant, Rights granted under the MIP or EHIP may vest on an accelerated basis. Rights granted under the MIP or EHIP will lapse if the executive ceases employment for any other reason. (l) Provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. (m) 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. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 58 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 3 Significant accounting policies (continued) (n) Revenue The Group has applied AASB 15 Revenue from Contracts with Customers. Revenue is disclosed based on the type of good or service provided. This is detailed below: (i) Rental revenue Revenue from the rental of both open cut and underground equipment is recognised in profit and loss based on the number of hours the machines operate each month. The rental of each machine is considered to be a separate performance obligation with the transaction price generally set at a rate per hour. 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. Sales are recognised when control of the products has transferred, being when the products are delivered and accepted by the customer. The Group’s obligation to repair or replace faulty products under the standard warranty terms is recognised as a provision. (iii) Maintenance services Maintenance services relates to the provision of both major component and full equipment rebuilds for both internal and external customers equipment and the provision of mobile workshops and infrastructure to support both Emeco and external customers equipment fleets. Revenue from services rendered is recognised in profit or loss in proportion to the stage of completion of the transaction at the reporting date. (iv) Mining services Mining services relate to the provision of equipment, equipment operator, technology and engineering solutions and the provision and maintenance of onsite infrastructure (electrical, ventilation, pumping, lighting services and special purpose vehicles). Mining services revenue is measured when or as the control of the goods or services is transferred to a customer. If control of the goods and services transfers over time, revenue is recognised over the period of the contract by reference to progress towards complete satisfaction of that performance obligation. Otherwise, revenue is recognised at a point in time when the customer obtains control of the goods and services or the performance obligation is satisfied. Revenue recognition relating to the provision of services is determined with reference to the stage of completion of the transactions at the end of the reporting period where the outcome of the contract can be estimated reliably. Stage of completion is determined with reference to the services performed to date as a percentage of total anticipated services to be performed. (o) Contract costs Costs incurred to prepare assets for work on a specific contract (or specific anticipated contract) that can be separately identified, such as freight of earthmoving equipment to customer sites and modifying assets to meet customer specifications, are recognised as a contract cost asset and amortised to direct costs over the term of the contract. The Group accepts that an anticipated contract is a contract where it is more likely than not that the contract will be obtained. In determining the contract asset value, the following is taken into account: • costs of obtaining a contract: the incremental costs of obtaining a contract with a customer are recognised as an asset if the entity expects to recover those costs; and • costs of fulfilling a contract: costs that are required to be incurred in order to fulfil contract obligations that are not already costs accounted for under other accounting standards i.e. inventory or property, plant and equipment. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 59 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 3 Significant accounting policies (continued) (o) Contract costs (continued) Costs that relate directly to a contract (or a specific anticipated contract) include any of the following: • • • • • direct labour; direct materials; allocations of costs that relate directly to the contract or to contract activities; costs that are explicitly chargeable to the customer under the contract; and other costs that are incurred only because an entity entered into the contract. Amortisation and impairment An asset recognised is amortised to direct costs on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates. An impairment loss is recognised in direct costs in the profit or loss, to the extent that the carrying amount of the contract asset exceeds the remaining amount of consideration that the entity expects to receive in exchange for the goods or services to which the asset relates; less the costs that relate directly to providing those goods or services and that have not been recognised as expenses. (p) Finance income and finance costs The Group’s finance income and finance costs include: • interest income; • interest expense; • dividend income; • discount on repurchased debt; • • • withholding tax; • premium paid on repurchase of debt; • • amortisation of borrowing costs capitalised using the effective interest method. the net gain or loss on financial assets at fair value through profit or loss; the foreign currency gain or loss on financial assets and liabilities; the 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 Group’s right to receive payment is established. (q) Income tax Income tax expense comprises current and deferred tax. Current tax and deferred tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity or in other comprehensive income. (i) Current tax Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable or receivable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date. (ii) Deferred tax Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 60 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 3 Significant accounting policies (continued) (q) Income tax (continued) Deferred tax is not recognised for: • temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; temporary differences related to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future; 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 and increased to the extent unrecognised tax losses are now considered probable. (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 of the tax consolidated group is Emeco Holdings Limited. (r) Discontinued operations A discontinued operation is a component of the Group's business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which: • • represents a separate major line of business or geographical area of operations; is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations; or is a subsidiary acquired exclusively with a view to resale. • Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale or distribution, if earlier. When an operation is classified as a discontinued operation, the comparative statement of comprehensive income is re-presented as if the operation had been discontinued from the start of the comparative year. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 61 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 3 Significant accounting policies (continued) (s) 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. (t) 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 AASB 112 Income Taxes and AASB 119 Employee Benefits 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 2021 62 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 4 New standards and interpretations The new Australian Accounting Standards and Interpretations which are mandatory and have been adopted by the Group are set out below: (i) AASB 2018-6 Amendments to Australian Accounting Standards – Definition of a Business Amends AASB 3 Business Combinations to clarify the definition of a business, with the objective of assisting entities to determine whether a transaction should be accounted for as a business combination or as an asset acquisition. The amendments: • Clarify that to be considered a business, an acquired set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs • Remove the assessment of whether market participants are capable of replacing any missing inputs or processes and continuing to produce outputs • Add guidance and illustrative examples to help entities assess whether a substantive process has been acquired • Narrow the definitions of a business and of outputs by focusing on goods and services provided to customers and by removing the reference to an ability to reduce costs • Add an optional concentration test that permits a simplified assessment of whether an acquired set of activities and assets is not a business. (ii) AASB 2018-7 Amendments to Australian Accounting Standards – Definition of Material These amendments are intended to address concerns that the wording in the definition of ‘material’ was different in the Conceptual Framework for Financial Reporting, AASB 101 Presentation of Financial Statements and AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors. The amendments address these concerns by: • Replacing the term ‘could influence’ with ‘could reasonably be expected to influence’ • Including the concept of ‘obscuring information’ alongside the concepts of ‘omitting’ and ‘misstating’ information in the definition of material • Clarifying that the users to which the definition refers are the primary users of general purpose financial statements referred to in the Conceptual Framework • Aligning the definition of material across Standards and other publications. (iii) AASB 2019-1 Amendments to Australian Accounting Standards – References to the Conceptual Framework Makes amendments to various Australian Accounting Standards and other pronouncements to support the issue of the revised Conceptual Framework for Financial Reporting. Some Australian Accounting Standards and other pronouncements contain references to, or quotations from, the previous versions of the Conceptual Framework. This Standard updates some of these references and quotations so they refer to the Conceptual Framework issued by the AASB In June 2019, and also makes other amendments to clarify which version of the Conceptual Framework is referred to in particular documents. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 63 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 4 New standards and interpretations (continued) (iv) AASB 2019-3 Amendments to Australian Accounting Standards – Interest rate benchmark reform The amendments affect entities that apply the hedge accounting requirements of AASB 9 Financial Instruments or AASB 139 Financial Instruments: Recognition and Measurement to hedging relationships directly affected by the interest rate benchmark reform. The amendments would mandatorily apply to all hedging relationships that are directly affected by the interest rate benchmark reform and modify specific hedge accounting requirements, so that entities would apply those hedge accounting requirements assuming that the interest rate benchmark is not altered as a result of the interest rate benchmark reform. (v) AASB 2019-5 Amendments to Australian Accounting Standards – Disclosure of the Effect of New IFRS Standards Not Yet Issued in Australia Amends AASB 1054 Australian Additional Disclosures to add a requirement for entities that intend to be compliant with IFRS standards to disclose the information required by AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors (specifically paragraphs 30 and 31) for the potential effect of each IFRS pronouncement that has not yet been issued by the AASB. (vi) AASB 2020-4 Amendments to Australian Accounting Standards – Covid-19-Related Rent Concessions Amends AASB 16 Leases to: • Provide lessees with a practical expedient that relieves a lessee from assessing whether a COVID-19-related rent concession is a lease modification • Require lessees that apply the practical expedient to account for COVID-19-related rent concessions as if they were not lease modifications • Require lessees that apply the practical expedient to disclose whether the practical expedient has been applied to all eligible contracts, or, if not, information about the nature of the contracts to which the practical expedient has been applied • Require lessees to apply the practical expedient retrospectively, recognising the cumulative effect of applying the amendment as an adjustment to the opening retained earnings (or other component of equity, as appropriate) at the beginning of the annual reporting period in which the lessee first applies the amendment. None of the new accounting standards and interpretations above had an impact on the comprehensive income for the Group or the Statement of Financial Position. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 64 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 5 Determination of fair values A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. (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 arm’s 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, 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) Cross currency interest rate swaps 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 leases the market rate of interest is determined by reference to similar lease agreements. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 65 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 5 Determination of fair values (continued) (e) Share based payment transactions The fair value of the Rights awarded under the LTI plan, MIP and EHIP are measured using the volume weighted average price of Shares as at the grant date. The volume weighted average price inputs include the weighted average of the closing share price and volume traded over a specified period of time. (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 paid for the acquisition of entities has been determined using the market price of the Company’s listed share price. The methodology has also been applied to the valuation of investments acquired through 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 work in progress inventory acquired has been valued by agreement between the buyer and seller. 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. The fair value of customer contracts has been assessed using the multi-period excess earnings methodology. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 66 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 6 Financial instruments Overview The Group has exposure to the following risks from their use of financial instruments: • • • market risk. credit risk; liquidity risk; and This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital. The consolidated entity holds the following financial instruments: Carried at fair value through profit or loss using level one valuation technique (based on share prices quoted on the relevant stock exchanges) Investments in equity securities Derivatives designated under hedge accounting using level two valuation technique Derivative financial instruments (note 18) (a) The carrying value of each of these items approximates fair value Carried at amortised cost Cash and bank balances (note 16) (a) Trade and other receivables (note 17) (a) Interest bearing liabilities (note 24) Trade and other payables (note 23) (a) Risk management framework The board of directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The board of directors has established the audit and risk management committee (Committee), which is responsible for developing and monitoring the Group’s risk management policies. The Committee reports regularly to the board of directors on its activities. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training, management standards and procedures, aims to develop a disciplined and constructive controlled environment in which all employees understand their roles and obligations. The Committee oversees how management monitors compliance with the Group’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Committee is assisted in its oversight role by the internal audit function. Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument or financial asset fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 67 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 6 Financial instruments (continued) Credit risk (continued) Exposure to credit risk The carrying amount of the Group’s financial assets represents the maximum credit exposure. The Group’s maximum exposure to credit risk at the reporting date was: Trade receivables Other receivables (including VAT/GST) Cash and cash equivalents Derivatives Consolidated Carrying amount 2021 $'000 96,454 28,446 74,725 - 199,625 2020 $'000 93,516 20,808 198,169 38,918 351,411 Note 17 17 16 18 The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the demographics of the Group’s customer base, including the default risk of the industry and country in which customers operate, as these factors may have an influence on credit risk. The Group sets individual counter party limits and where possible insures its income within Australia and generally operates on a ‘cash for keys’ policy for the sale of equipment and parts. In response to the COVID-19 pandemic the Group has also increased its internal review and authorisation procedures that are applied to new clients and in the ongoing strengthening of appropriate credit limits for existing customers. Both insured and uninsured debtors are subject to the Group’s credit policy. The Group’s credit policy requires each new customer to be analysed individually for creditworthiness before the Group’s standard payment and delivery terms and conditions are offered. The Group’s review includes external ratings, when available, and in some cases bank references. Purchase limits are established for each customer according to the external rating and are approved by the appropriate management level dependent on the size of the limit. In the instance that a customer fails to meet the Group’s creditworthiness and the Group is unable to secure credit insurance, future transactions with the customer will only be 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 $750,000,000 (2020: $750,000,000). The Group held insurance for the entire financial year ended 30 June 2021. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 68 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 6 Financial instruments (continued) Credit risk (continued) The aging of the Group’s trade receivables at the reporting date was: Not past due Past due 0-30 days Past due 31-60 days Past due 61 days Consolidated Consolidated Gross 2021 $'000 Impairment 2021 $'000 Gross 2020 $'000 Impairment 2020 $'000 89,446 5,234 1,722 52 96,454 - - (153) (52) (205) 74,109 9,348 9,804 254 93,516 - - (282) (254) (536) Using the expected credit loss model (ECL), the Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. To effectively apply the ECL, the Group has categorised its trade receivables as follows: - Blue chip customers: defined as having a market capitalisation of greater than $750,000,000; - Insured customers: those that are trading within terms and their trade receivable exposure under the insured limit; - Underinsured: those that have not been granted sufficient credit limits by the insurer to cover sales within credit terms; - Uninsured customers: all other customers that are not recognised in the above category. The Group’s maximum exposure to credit risk for trade receivables at the reporting date by type of customer was: Blue chip (including subsidiaries) Insured Underinsured Uninsured Consolidated Carrying amount 2021 $'000 2020 $'000 33,064 37,812 3,569 22,009 96,454 33,982 38,222 11,701 9,612 93,516 The Group considers blue chip and insured customers and assumes no risk. The Group only assess uninsured customers, underinsured customers and customers that have breached their current credit limit in the ECL calculation. The Group uses a combination of historical losses recognised for receivables in the above classifications and takes a view on the economic conditions that are representative of those expected to exist during the life of the receivable. This is based on the historical loss rates, ageing of debtors and economic factors that include commodity prices. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 69 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 6 Financial instruments (continued) Credit risk (continued) Economic data It is anticipated that a movement in key economic data i.e. commodity prices, impacts the expected credit loss as it may drive the way our customers’ run their operations, achieve profitability and cash flows to pay their receivables. As part of this assessment, the Group has considered the potential impact of COVID-19 on commodity demand and prices. The Group determined potential scenarios primarily driven by changes in commodity prices, which have been weighted by probability to determine the expected credit loss provision. Loss history Given the significant change in operations and customer mix due to the acquisition of Orionstone and Andy’s in March 2017, Force in November 2018, Matilda in July 2018, and Pit N Portal in February 2020, the Group have determined it is not appropriate to include a rental customer history earlier than FY18. Therefore, only loss history from FY18 is used for this assessment. Going forward, management plan on using an average loss history over 3-5 years depending on what is appropriate for the business at that point in time and in line with expected future operations. Based on the factors outlined above, the Group has calculated an expected credit loss of $205,000 based on historical loss trends and economic factors (2020: $130,000). No specific customers have been identified as doubtful, and provided for by the Group (2020: $406,000). The movement in the credit loss allowance in respect of trade receivables during the year was as follows: Opening loss allowance as at 1 July Net remeasurement of loss allowance Write-offs Loss allowance as at 30 June Consolidated Impairment 2021 $'000 Impairment 2020 $'000 536 (331) - 205 516 1,029 (1,009) 536 The Group believes that the unimpaired amounts that are past due by more than 30 days are still collectible, based on industry standards, historic payment behaviour and extensive analysis of the underlying customers’ credit ratings. Credit-impaired financial assets The Group will assess if a financial asset is impaired when amounts are past due by more than 120 days. A provision for impairment will be recognised unless the Group has reasonable and supportable information that an impairment is not required to be recognised. Cash The Group held cash and cash equivalents of $74,725,000 at 30 June 2021 (2020: $198,169,000), 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 2021 the Group held $Nil of bank guarantees (2020: $Nil) and $Nil of prepayments (2020: $Nil). EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 70 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 6 Financial instruments (continued) Credit risk (continued) Guarantees Financial guarantees are generally only provided to wholly owned subsidiaries or when entering into a premise rental agreement or asset lease liability. Details of outstanding guarantees are provided in note 29. At 30 June 2021 $1,646,000 guarantees were outstanding (2020: $1,654,900). Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group monitors working capital limits and employs maintenance planning and life cycle costing models to price its rental contracts. These processes assist it in monitoring cash flow requirements and optimising cash return in its operations. Typically, the Group ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 60 days, including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. Notes At 30 June 2021, the Group has issued secured fixed interest notes to the value of US$180,007,000 which mature on 30 March 2022. The nominal fixed interest rate is 9.25%. Subsequent to 30 June 2021, these notes were repaid and cancelled with the proceeds of a new A$250,000,000 note maturing in July 2026. Refer to note 24 for further details. Revolving Credit Facility The Group has a Revolving Credit Facility (RCF) facility of $100,000,000, which matures in September 2021 with a two year option to extend (refer below for further information), which has two sub facilities consisting of a Loan Note Agreement Facility (LNA) of A$97,000,000 (30 June 2020: $97,000,000) and a Bank Guarantee Facility of A$3,000,000. The bank guarantee facility attracts a fee of up to 1.57% on the unutilised portion of the facility, and a fee of 3.5% on the outstanding balance of guarantees on issue. The nominal interest rate on the LNA is equal to the aggregate of the bank bill swap rate (BBSY) plus a margin of between 3.25% and 3.5% dependant on the portion of the facility utilised (3.25% if less than 25% drawn and 3.5% if greater than 25% drawn). The facilities require the Group to maintain a collateral coverage ratio greater than 2.0x and a fixed charge coverage ratio greater than 1.5x. At 30 June 2021, the Group had drawn $nil of the LNA and had utilised A$1,646,000 of the bank guarantee facility. On 13 July 2021, the Group exercised its option to extend the maturity of the A$100,000,000 Revolving Credit Facility for an additional two years to September 2023. Other than the extension of the maturity date, there was no change to the terms of the facility. The Group has a facility agreement comprising a credit card facility with a limit of A$150,000 and is secured via a cash cover account. The Group has lease facilities totalling A$48,300,000 (2020: A$62,559,000) which have various maturities up to July 2024. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 71 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 6 Financial instruments (continued) Liquidity risk (continued) The following are the contractual maturities of non-derivative financial liabilities and net derivative financial assets/liabilities, including estimated interest payments and excluding the impact of netting agreements. Consolidated 30 June 2021 Non-derivative financial liabilities Secured notes issue Lease liabilities Trade and other payables Derivative financial asset/(liability) Net cross currency interest rate swaps used for hedging liability Consolidated 30 June 2020 Non-derivative financial liabilities Secured notes issue Secured credit facility Lease liabilities Trade and other payables Derivative financial asset/(liability) Net cross currency interest rate swaps used for hedging asset Contract- Carrying ual cash flows amount 6 mths or less 6-12 mths 1-2 years 2-5 years More than 5 years $'000 $'000 $'000 $'000 $'000 $'000 $'000 250,508 48,300 45,805 344,613 330,202 53,709 45,805 429,716 11,416 7,498 45,805 64,719 11,416 7,463 - 22,832 12,263 - 284,539 21,964 - 18,879 35,095 306,503 - 4,521 - 4,521 12,389 12,389 12,389 12,389 12,389 12,389 - - - - - - - - Carrying amount $'000 Contract- ual cash flows $'000 6 mths or less $'000 6-12 mths $'000 1-2 years $'000 2-5 years $'000 5 years $'000 More than 461,138 97,000 62,559 46,751 667,448 563,444 97,000 69,509 46,751 776,705 21,709 - 8,078 46,751 76,538 21,709 - 20,429 - 520,026 97,000 11,765 - - - 22,333 - 42,138 628,791 22,333 - - 6,904 - 6,904 28,034 28,034 39,931 39,931 1,621 1,621 1,595 1,595 36,715 36,715 - - - - The gross inflows/(outflows) disclosed in the previous tables 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 2021 72 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 6 Financial instruments (continued) Liquidity risk (continued) Subsequent to 30 June 2021 the secured notes were repaid and the cross-currency interest rate swaps were closed out and cancelled. This transaction settled on 2 August 2021 via the proceeds of A$250,000,000 of new AUD notes issued on 2 July 2021. Refer to note 24 for further detail. The net payment to repay the Notes and the cross-currency interest rates swap was A$269,450,000 including the principal amount at the hedged rate of $246,828,000, accrued interest of $6,084,000, a premium for early repayment of the Note of $11,223,000 and a mark-to-market payment on hedge close-out of $5,314,000. The restructure triggered a discontinuation of existing hedge relationships resulting in a net hedge accounting impact to profit and loss of $1,347,000 for the year ended 30 June 2021. Accordingly, the derivatives were classified as a current liability at 30 June 2021. Other than the repayment of the US notes and close out of the associated derivatives, it is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts other than the transaction noted above. The table above has been restated below to demonstrate the contractual maturities of financial liabilities and net derivative financial assets, including estimated interest payments, after the issuance of the AUD notes, repayment of US notes and closure of hedge derivatives subsequent to the year ended 30 June 2021, to demonstrate the future cash flow profile of the Group’s financial liabilities. Consolidated 30 June 2021 Non-derivative financial liabilities Secured notes issue Lease liabilities Trade and other payables Derivative financial asset/(liability) Net cross currency interest rate swaps used for hedging liability Contract- ual cash 6 mths or flows $'000 less $'000 6-12 mths $'000 1-2 years $'000 2-5 years $'000 More than 5 years $'000 328,126 53,709 45,805 427,640 7,813 7,498 45,805 61,116 7,813 7,463 - 15,276 15,625 12,263 - 27,888 46,875 21,964 - 68,839 250,000 4,521 - 254,521 - - - - - - - - - - - - EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 73 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 6 Financial instruments (continued) Liquidity risk (continued) Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. The Group enters into derivatives, and also incurs financial liabilities, in order to manage market risks. All such transactions are carried out within the guidelines set by the Group’s hedging policy. Generally, the Group seeks to apply hedge accounting in order to manage volatility in profit or loss. Currency risk The functional currency of the Group is the Australian dollar (AUD). The Group holds borrowings in United States Dollars (USD) for which currency risk exists. In order to manage this risk, the Group has entered into cross currency interest rate swaps. Each of the USD interest and principle repayments due in the future have been hedged, the average USD/AUD rate across these future payments is 0.7293 at year end (2020: 0.7293). 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. At 30 June 2021, the Group had issued secured fixed interest notes to the value of US$180,007,000 notes on issue. The full face value of the principal and interest of the notes have been hedged to Australian dollars until maturity. At 30 June 2021, hedge accounting was discontinued for the derivatives and USD notes due to the expected repayment and cancellation of these notes in July 2021, with the proceeds of the raising of A$250,000,000 notes which settled in July 2021. Following the settlement of the USD notes and replacement with AUD notes, the Group will no longer be exposed to any material currency risk. Refer to note 24 for further details of this transaction. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 74 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 6 Financial instruments (continued) Market risk (continued) The Group is holding the following cash flow hedges: Notional amount US$’000 Notional amount AU$’000 Carrying amount AU$’000 Line item in the statement of financial position Change in fair value used for measuring ineffectiveness for the period $’000 Average fixed interest rate As at 30 June 2021 Cross currency interest rate swaps 180,007 246,828 (12,389) Derivative financial instruments 9.86% 1,233 As at 30 June 2020 Cross currency interest rate swaps 322,131 441,668 28,034 Derivative financial instruments 9.87% 6,211 The hedges expire in March 2022. Subsequent to 30 June 2021, the derivatives were closed out on repayment of the hedged liability (the US Notes). Hedge accounting has been discontinued as at 30 June 2021. Refer to note 24 for further details. The impact of hedged items on the statement of financial position is, as follows: 2021 2020 Change in fair value used for measuring ineffectiveness $’000 1,233 Hedge reserve $’000 - Change in fair value used for measuring ineffectiveness $’000 Hedge reserve $’000 6,211 (1,233) Foreign exchange The effect of the cash flow hedges in the statement of profit or loss and other comprehensive income is as follows: Total hedging gain/(loss) recognised in OCI $’000 Ineffectiveness recognised in profit or loss $’000 Line item in the statement of profit or loss Amount reclassified from OCI to profit or loss $’000 Line item in the statement of profit or loss As at 30 June 2021 Foreign exchange 1,233 - As at 30 June 2020 Foreign exchange 6,211 (2,091) - - 20,857 Net foreign exchange gain (10,039) Net foreign exchange loss EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 75 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 6 Financial instruments (continued) Market risk (continued) Exposure to currency risk The Group’s exposure to foreign currency risk at balance date was as follows, based on notional amounts: Cash Secured notes issued Gross balance sheet exposure Cross currency interest rate swap to hedge the secured notes issued Net exposure The following significant exchange rates applied during the year: USD 2021 $'000 USD 2020 $'000 11 (180,007) (179,996) 113 (322,131) (322,018) 180,007 180,007 322,131 322,131 11 113 US Dollars Average rate Reporting date spot rate 2021 0.7468 2020 0.6714 2021 2020 0.7518 0.6863 EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 76 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 6 Financial instruments (continued) Market risk (continued) Sensitivity analysis A weakening of the Australian dollar, as indicated below, against the US dollar, would have affected the measurement of financial instruments denominated in US dollars 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 2020, as indicated below: 30 June 2021 USD (10 percent movement) 30 June 2020 USD (10 percent movement) Consolidated Strengthening Weakening Equity $’000 Profit or loss $’000 Equity $’000 Profit or loss $’000 (3,642) (1) 4,451 2 (4,694) (10) 5,737 13 Interest rate risk In accordance with the board’s 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. Profile At the end of the reporting date the interest rate profile of the Group’s interest bearing financial instruments as reported to the management of the Group was: Variable rate instruments: Cash at bank Fixed rate instruments: Effective interest rate swaps to hedge interest rate risk Interest bearing liabilities (notes) Interest bearing liabilities (loan note agreement) Interest bearing finance leases Note 16 24 24 24 Consolidated 2021 $'000 2020 $'000 74,725 74,725 198,169 198,169 (12,389) (250,508) - (48,300) (311,197) 28,034 (469,373) (97,000) (62,559) (600,898) EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 77 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 6 Financial instruments (continued) Market risk (continued) Cash flow hedges 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 Company’s outstanding debt and the foreign currency remeasurement risk arising on the principal balance every six months on the Company’s outstanding debt. 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 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 2020. Cash flow hedges 30 June 2021 Cross currency interest rate swaps Cash flow sensitivity (pre-tax) 30 June 2020 Cross currency interest rate swaps Cash flow sensitivity (pre-tax) Equity Equity 100bp increase BBSW $’000 100bp decrease BBSW $’000 100bp increase Libor $’000 100bp decrease Libor $’000 7,584 7,584 8,340 8,340 (7,804) (7,804) (8,505) (8,505) (7,339) (7,339) (8,913) (8,913) 7,572 7,572 9,225 9,225 Detailed below is the profit and loss impact of cash flow hedges during the year. Financial instrument Cross currency interest rate swap - Close out of hedges - Hedge ineffectiveness (1) Net profit and loss impact before tax Profit or loss 2021 $'000 2020 $'000 20,339 - 20,339 - (2,091) (2,091) (1) Hedge accounting ceased at 30 June 2021 due to repayment of the secured notes and closure of cross-currency interest rate swaps subsequent to 30 June 2021, and all movements in the hedge reserve have been recycled through the Statement of Profit or Loss and Other Comprehensive Income. Refer to note 24 for further information. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 78 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 6 Financial instruments (continued) Market risk (continued) Fair values versus carrying amounts The fair values of financial assets and liabilities, together with the carrying amounts shown in the Statement of Financial Position, are as follows: 2021 2020 Carrying amount $’000 Note Fair value $’000 Carrying amount $’000 Fair value $’000 Assets carried at fair value Cross currency interest rate swaps 18 - - - - Assets carried at amortised cost Receivables Cash and cash equivalents 17 16 124,695 74,725 199,420 124,695 74,725 199,420 38,918 38,918 113,788 198,169 311,957 38,918 38,918 113,788 198,169 311,957 Liabilities carried at fair value Cross currency interest rate swaps 18 Liabilities carried at amortised cost Secured notes issue (1) Lease liabilities Loan note agreement Trade and other payables 24 24 24 23 (12,389) (12,389) (12,389) (12,389) (10,884) (10,884) (10,884) (10,884) (250,508) (250,508) (461,138) (469,373) (48,300) (53,709) 94 (110,012) (408,726) 94 (110,012) (62,559) (96,473) (89,237) (69,509) (97,000) (89,237) (414,229) (709,407) (725,119) (1) Carried at amortised cost with movements in fair value of the underlying hedged item is recorded in the statement of other comprehensive income. Any movements in the fair value of unhedged items are recognised in the statement of profit or loss. The basis for determining fair values is disclosed in note 5. Fair value hierarchy The Group’s financial instruments carried at fair value would be categorised at level 2 in the fair value hierarchy as their value is based on inputs other than the quoted prices that are observable for these assets/(liabilities), either directly or indirectly with the exception of certain investments in shares that are categorised at level 1. Fair value estimates of the cross currency interest rate swaps are based on relevant market information and information about the financial instruments which are subjective in nature. The fair value of these financial instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, spot rates, and forward rates. To comply with the provisions of AASB 13 Fair Value Measurement, the Group incorporates credit valuation adjustments to appropriately reflect both its own non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 79 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 6 Financial instruments (continued) Market risk (continued) Capital management Underpinning Emeco’s strategic framework is consistent value creation for shareholders. Central to this is the continual evaluation of the Company’s capital structure to ensure it is optimised to deliver value to shareholders. The board’s policy is to maintain diversified, long term sources of funding to maintain investor, creditor and market confidence and to support the future growth of the business. Historically, the board maintained a balance between higher returns possible with higher levels of borrowings and the security afforded by a sound capital position. However, given current market condition, the board seeks to increase levels of cash held to maintain a strong capital position. The Company’s primary return metric is return on capital (ROC), which the Group defines as earnings before interest and tax (EBIT) divided by invested capital defined as the average over the period of equity, plus interest bearing liabilities, less cash and cash equivalents. The Group’s ROC for the year was 14.1% (2020: 14.9%). The Group’s return on invested capital at the end of the reporting period was as follows: EBIT (continuing and discontinued operations) Average invested capital (1) Consolidated 2021 $'000 107,203 761,707 2020 $'000 105,335 705,907 EBIT return on capital at 30 June 14.1% 14.9% (1) Average invested capital is average net assets add net debt, less intangibles. 7 Other income Net profit/(loss) on sale of non current assets (1) Sundry income (2) Consolidated 2021 $'000 2020 $'000 318 766 1,084 945 2,647 3,592 (1) 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 2021 was $4,268,000 (2020: $9,909,000). (2) Included in sundry income are fees charged on overdue accounts and bad debts recovered. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 80 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 8 Profit before income tax expense for continuing operations Consolidated Note 2021 $'000 2020 $'000 Profit before income tax expense has been arrived at after charging/(crediting) the following items: Impairment of tangible assets: - - Inventory property, plant and equipment 19 Employee expenses: - - salaries, wages and superannuation employee share plan expenses Other expenses: - motor vehicles - safety, staff training and amenities - travel and subsistence expense - workshop consumables, tooling and labour - - - - - - - - - - - - bad debts doubtful debts/(reversal) insurance property and office expenses telecommunications and IT restructuring and redundancies corporate, accounting and legal corporate development expenses impairment of investments net loss on AASB 16 lease modification hired in equipment and services other expenses Depreciation of: buildings - plant and equipment – owned - plant and equipment – leased - - office equipment - motor vehicles - - leasehold improvements sundry plant Depreciation of right of use asset Total depreciation Amortisation of intangible assets: - - contract intangible software Total depreciation and amortisation 21 22 20 382 764 1,146 92,415 6,009 98,424 2,850 3,946 4,336 10,983 - (170) 3,492 7,129 3,302 - 3,464 2,013 10 2,737 11,801 4,319 60,212 169 103,128 2,510 288 949 200 963 108,207 9,230 117,437 246 892 1,138 118,576 4,915 8,835 13,750 48,570 14,289 62,859 2,914 2,905 3,948 7,787 1,009 (57) 2,442 5,544 3,054 2,054 5,481 2,009 461 - 7,108 1,864 48,523 120 102,100 3,163 134 501 192 795 107,004 7,010 114,014 77 897 974 114,988 EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 81 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 8 Profit before income tax expense for continuing operations (continued) interest expense Finance costs: - - writeoff previous facility costs(1) - - - - - Net finance costs amortisation of debt establishment costs using effective interest rate hedge loss(1) net loss on modification of US Notes' contractual terms other facility costs premium on buyback of issued debt(1) Finance income: interest income - - hedge gains Net finance income Foreign exchange (gain)/loss: Net realised foreign exchange (gain)/loss Net unrealised foreign exchange (gain)/loss Net foreign exchange (gain)/loss Business acquisition expenses - Total business acquisition expenses acquisition expenses(2) Consolidated 2021 $'000 2020 $'000 33,768 5,633 3,621 20,339 3,348 1,192 20,374 88,275 47,474 - 4,594 - - 753 - 52,821 (362) - (362) (216) (2,091) (2,307) (4,018) (6,284) (10,302) - (366) (366) - - 1,500 1,500 (1) Refer to note 24 for further details on the long-term debt refinancing transactions associated with these finance costs. (2) Business acquisition expenses for the period ended 30 June 2020 related to professional fees incurred associated with the acquisition of Pit n Portal. Refer to note 36 for further details. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 82 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 9 Auditor’s remuneration Audit services Auditors of the Company Deloitte Touche Tohmatsu Australia: audit and review of financial reports - Overseas Deloitte Firms: - other assurance services Other assurance and agreed upon procedures Auditors of the Company Deloitte Touche Tohmatsu Australia: - other assurance services Other services Auditors of the Company Deloitte Touche Tohmatsu Australia: taxation services - Overseas Deloitte Firms: taxation services - Consolidated 2021 $ 2020 $ 698,112 538,602 36,086 734,198 19,322 557,924 240,013 240,013 223,142 223,142 45,768 141,846 35,291 81,059 28,688 170,534 1,055,270 951,600 The Company has engaged with Deloitte for the provision of audit and tax services as well as other specific assurance including provision of a comfort letter and investigating accountants reports in relation to a rights issue and refinancing transactions. No other advisory or consulting services were provided by Deloitte during the year. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 83 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 10 Taxes a. Recognition in the income statement Consolidated Note 2021 $’000 2020 $’000 Deferred tax benefit Origination and reversal of temporary differences and tax losses in the current year Tax expense/(benefit) 12 8,897 8,897 (10,945) (10,945) b. Current and deferred tax expense/(benefit) recognised directly in equity Share issue costs Foreign exchange Cashflow hedges Consolidated 2021 $’000 2020 $’000 (915) (445) 529 (831) (507) - 2,662 2,155 12 c. Numerical reconciliation between tax expense and pre-tax net profit Prima facie tax expense calculated at 30% on net profit Increase/(decrease) in income tax expense due to: Australian tax losses not previously recognised Derecognition/(recoupment) of foreign tax losses Non-deductible acquisition costs Other non-deductible expenses Under/(over) provided in prior years Tax expense/(benefit) Consolidated 2021 $’000 2020 $’000 8,877 16,555 - 50 - 30 (60) 8,897 (28,579) 56 1,053 166 (196) (10,945) 11 Current tax assets and liabilities The current tax asset for the Group of $Nil (2020: $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 2021 84 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 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 Intangibles Receivables Derivative contracts Right of use contracts Other financial assets Inventories Payables Interest bearing loans and borrowings Unearned revenue Business costs Provisions Borrowing costs Employee share costs Tax losses carried forward Tax assets/(liabilities) Set off of tax Assets Liabilities Net 2021 $'000 - - - 3,717 12,807 - - 1,470 1,732 - 1,534 3,646 6 - 94,398 119,310 (94,822) 2020 $'000 - - - - 33 - - 1,257 14,387 - 1,176 3,354 31 - 86,638 106,876 (74,321) 2021 $'000 (92,626) (4) (575) - - (116) (230) - - (25) - - - (1,246) - (94,822) 94,822 2020 $'000 (62,567) (4) (491) (8,410) - (31) (105) - - (25) - - - (2,688) - (74,321) 74,321 2021 $'000 (92,626) (4) (575) 3,717 12,807 (116) (230) 1,470 1,732 (25) 1,534 3,646 6 (1,246) 94,398 24,488 - 2020 $'000 (62,567) (4) (491) (8,410) 33 (31) (105) 1.257 14,387 (25) 1,176 3,354 31 (2,688) 86,638 32,555 - Net tax assets 24,488 32,555 - - 24,488 32,555 Movement in deferred tax balances Property, plant and equipment Intangibles assets Receivables Derivative - hedge receivable Right of use contracts Other financial assets Inventories Payables Interest bearing loans and borrowings Unearned revenue Business costs Provisions Borrowing costs Employee share costs Tax losses carried forward Balance 1 July 20 $'000 (62,567) (4) (491) (8,410) 33 (31) (105) 1,257 14,387 (25) 1,176 3,354 31 (2,688) 86,638 32,555 Recognised in profit or loss $'000 (30,059) - (84) 12,656 12,774 (85) (125) (232) (12,655) - (557) 292 (25) 1,443 7,760 (8,897) Consolidated Recognised directly in equity $'000 Recognised in other comprehensive income $'000 - - - (529) - - - 445 - - 915 - - - - 831 - - - - - - - - - - - - - - - - Balance 30 Jun 21 $'000 (92,626) (4) (575) 3,717 12,807 (116) (230) 1,470 1,732 (25) 1,534 3,646 6 (1,245) 94,398 24,488 EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 85 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 12 Deferred tax assets and liabilities (continued) Movement in deferred tax balances Consolidated Balances acquired 28 Feb 20 $'000 Recognised in profit or loss $'000 Recognised directly in equity $'000 Recognised in other comprehensive income $'000 (323) - 33 - 23 - - 164 - (207) - 863 - - - 553 (18,769) 25 (122) (3,639) 10 96 (4,667) (53) 3,011 203 (520) 276 (25) (1,824) 36,943 10,945 - - - (2,662) - - - - - - 507 - - - - (2,155) - - - - - - - - - - - - - - - - Balance 30 Jun 20 $'000 (62,567) (4) (491) (8,410) 33 (31) (105) 1,257 14,387 (25) 1,176 3,354 31 (2,688) 86,638 32,555 Property, plant and equipment Intangibles assets Receivables Derivative - hedge receivable Right of use contracts Other financial assets Inventories Payables Interest bearing loans and borrowings Unearned revenue Business costs Provisions Borrowing costs Employee share costs Tax losses carried forward Balance 1 July 19 $'000 (43,475) (29) (402) (2,109) - (127) 4,562 1,146 11,376 (21) 1,189 2,215 56 (864) 49,695 23,212 Unrecognised deferred tax assets The following deferred tax assets have not been brought to account as assets: Tax losses Consolidated 2021 $’000 2020 $’000 82,340 82,289 Unutilised tax losses are in Chile, Indonesia, the United Kingdom, United States and Europe and are not expected to be utilised by the Group. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 86 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 13 Capital and reserves Share capital 544,055,134 (2020: 368,551,024) ordinary shares, fully paid Acquisition reserve Consolidated 2021 $’000 2020 $’000 1,247,344 (75,887) 1,171,457 1,100,329 (75,887) 1,024,442 Terms and conditions Ordinary shares The holders of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at shareholders' meetings. Shares have no par value. In the event of winding up of the Company, the ordinary shareholder ranks after all other creditors are fully entitled to any proceeds of liquidation. Movements in ordinary share capital Details Balance Issue of shares for rights issue – institutional entitlement (1) Issue of shares for rights issue – retail entitlement (1) Less: share issue costs, net of deferred tax Date 1 July 2020 Shares 368,551,024 Issue price ($) $'000 1,100,329 2 September 2020 131,114,790 0.85 111,448 22 September 2020 44,389,320 0.85 37,731 (2,163) 1,247,344 Balance Less: treasury shares Issued capital 30 June 2021 544,055,134 4,232,129 539,823,005 (1) On 24 August 2020, Emeco announced a fully underwritten pro-rata accelerated non-renounceable entitlement offer. New shares under the institutional offering were issued on 2 September 2020, and the retail offering on 22 September 2020, both with an issue price of $0.85. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 87 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 13 Capital and reserves (continued) Treasury shares (1) The treasury shares comprise of shares purchased on market to satisfy the vesting of shares and rights under the employee share plans. Rights that are forfeited under the Company’s employee share plans due to employees not meeting the service vesting requirement will remain in the reserve. As at 30 June 2021 the Company held 4,232,129 treasury shares (2020: 6,940,854), 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 underlying hedged debt and fair value of hedging instruments used in cash flow hedges pending subsequent recognition of hedged cash flows. Share based payment reserve (1) The share based payment reserve comprises the expenses incurred from the issue of the Company’s securities under its employee share/option plans (refer note 3(k)(v)). Dividends (1) No dividends were paid or declared during the year (2020: $Nil) or prior to the release of this report. On 17 August 2021, the board resolved to pay a final dividend for the six months ended 30 June 2021 of 1.25 cents per share and a total cash payment of $6,801,000. The dividend will be fully franked and will be paid on 30 September 2021. Franking account Dividend franking account 30% franking credits available to shareholders of Emeco Holdings Limited for subsequent financial years The Company 2021 $’000 2020 $’000 85,394 85,394 The above available amounts are based on the balance of the dividend franking account at year end adjusted for: (a) 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; franking credits that the entity may be prevented from distributing in subsequent years; and franking credits acquired through business combinations. (b) (c) (d) (e) 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 $2,914,000 (2020: $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 $85,394,000 (2020: $85,394,000) franking credits. ________________________ (1) Refer to Consolidated Statement of Changes in Equity. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 88 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 14 Disposal groups and non-current assets held for sale During the year $4,276,000 (FY20: $18,195,000) of non-current assets were transferred from property, plant and equipment into non-current assets held for sale. Assets previously classified and classified during the period as held for sale were further impaired by $764,000 to their fair value less cost to sell based on market prices of similar equipment. As at 30 June 2021, the non-current assets held for sale comprised assets of $2,794,000 (2020: $3,192,000). 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 Net assets classified as held for sale 2021 $’000 2020 $’000 2,794 2,794 3,192 3,192 Liabilities directly associated with assets classified as held for sale relate to assets designated as held for sale that have outstanding lease repayments remaining. All remaining payments are due within six months. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 89 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 15 Segment reporting The Group has three (2020: four) reportable segments, as described below, which are the Group’s strategic business units. The strategic business units offer different products and services, and are managed separately because they require different operational strategies for each geographic region. For each of the strategic business units, the managing director and board of directors review internal management reports on a monthly basis. The following summary describes the operations in each of the Group’s reportable segments: Rental Workshops Pit N Portal Provides a wide range of earthmoving equipment solutions to customers in Australia. Additional technology platforms have been developed to enable customers to improve earthmoving efficiencies of their rental machines. Provides maintenance and component rebuild services to customers in Australia. Provides a range of mining services solutions and associated services to customers in Australia. In June 2017 the board resolved to exit the Chilean business after a strategic review of the operations. The business has been wound down and will not materially contribute to the future earnings of the Group. The loss from discontinued operations of $nil (2020: loss of $3,000) is attributable entirely to the owners of the Company. Any legacy costs related to the Chilean operations in the current financial year has been included in corporate overheads, and consequently the Chilean operations have not been presented as an operating segment in the current period. Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before interest and income tax as included in the internal management reports that are reviewed by the Group’s managing director and board of directors. Segment 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 arm’s length basis. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 90 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 15 Segment reporting (continued) Information about reportable segments Period ended 30 June 2021 Segment revenue Intersegment revenue Revenue from external customers Other income Segment earnings before interest, tax, depn & amortisation Impairment of tangible assets Depreciation and amortisation Segment result (EBIT) Corporate overheads EBIT Finance income/(expense) (net) Foreign exchange movements Net profit before tax Tax benefit/(expense) Net profit after tax Total assets for reportable segments Unallocated assets Total Group assets Net capital expenditure Total liabilities for reportable segments Unallocated liabilities Total Group liabilities Continuing Rental $'000 Workshops $'000 Pit n Portal $'000 Total $'000 402,250 - 402,250 766 228,544 (1,134) (101,503) 125,907 154,344 (77,073) 77,271 (9) 8,079 (12) (2,939) 5,128 141,008 - 141,008 312 30,250 - (12,548) 17,702 690,965 33,501 153,669 113,636 70,062 2,028 31,096 33,622 36,536 697,601 (77,073) 620,528 1,069 266,872 (1,146) (116,990) 148,736 (41,533) 107,203 (87,913) 10,302 29,592 (8,897) 20,695 878,135 87,409 965,544 149,286 137,694 296,444 434,138 Continuing Rental Workshops $'000 $'000 Pit n Portal $'000 Discontinued Chile $’000 Total $'000 Period ended 30 June 2020 Segment revenue Intersegment revenue Revenue from external customers Other income Segment earnings before interest, tax, depn & amortisation Impairment of tangible assets Depreciation and amortisation Segment result (EBIT) Corporate overheads 425,122 - 425,122 3,242 264,915 (13,633) (107,295) 143,987 163,804 (83,789) 80,015 210 7,911 - (2,438) 5,473 39,752 (4,460) 35,292 28 9,260 (118) (3,770) 5,372 1,171 - 1,171 - 74 (77) - (3) EBIT Finance income/(expense) (net) Foreign exchange movements Net profit before tax Tax benefit/(expense) Net profit after tax Total assets for reportable segments Unallocated assets Total Group assets Net capital expenditure Total liabilities for reportable segments Unallocated liabilities Total Group liabilities 676,347 44,010 100,190 140 100,600 77,365 1,613 32,374 6,710 21,672 - 43 629,849 (88,249) 541,600 3,480 282,160 (13,828) (113,503) 154,830 (49,498) 105,332 (50,514) 366 55,184 10,945 66,129 820,686 267,905 1,088,591 108,922 131,454 599,893 731,346 EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 91 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 16 Cash and cash equivalents Cash at bank 17 Trade and other receivables Current Trade receivables Less: Expected credit losses VAT/GST receivable Accrued revenue Other receivables Consolidated 2021 $’000 2020 $’000 74,725 198,169 Consolidated 2021 $’000 2020 $’000 96,454 (205) 96,249 4,452 14,334 9,660 124,695 93,516 (536) 92,980 1,798 15,019 3,991 113,788 The Group’s exposure to credit risks, currency risks and impairment losses associated with trade and other receivables are disclosed in note 6. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 92 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 18 Derivatives Non-current assets Cross currency interest rate swaps Current liabilities Cross currency interest rate swaps Consolidated 2021 $’000 2020 $’000 - - 38,918 38,918 (12,389) (12,389) (10,884) (10,884) The cross currency interest rate swaps have been classified as current at 30 June 2021 due to the issuance of A$250,000,000 notes in the A$ MTN market (AUD Notes) subsequent to 30 June 21. Refer to note 34 for further detail. 19 Inventories Work in progress – at cost (1) Consumables, equipment & spare parts – at cost Total at cost Equipment and parts – at NRV Total inventory Consolidated 2021 $’000 2020 $’000 5,215 10,019 15,234 3,968 19,202 3,106 9,075 12,181 2,586 14,767 (1) During the year ended 30 June 2021 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 $382,000 (2020: $4,915,000). EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 93 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 20 Intangible assets Goodwill Contract intangible Less: Accumulated amortisation Software – at cost Less: Accumulated amortisation Consolidated 2021 $’000 2020 $’000 8,005 8,005 1,715 (1,048) 667 7,857 (6,199) 1,658 8,005 8,005 1,115 (802) 313 7,240 (5,306) 1,934 Total intangible assets 10,329 10,252 Contract intangible and goodwill On the acquisition of Pit N Portal, a provisional customer intangible was recognised. This represented the fair value of the residual value of the purchase price of the company over the fair value of the identifiable assets and liabilities acquired. Provisional values were disclosed in June 2020, however the values identified in relation to the acquisition are final as at 30 June 2021, and have been recognised in the Pit N Portal operating segment. Details of the acquisition are disclosed in note 36. The customer intangible is being amortised over the determined life of the intangible. The increase in contract intangible from the prior period relates to acquired software intangibles not related to Pit N Portal. Goodwill was recognised on the acquisition of Matilda Equipment Holdings Pty Ltd (Matilda) in FY19 and represents the residual value of the purchase price of the company over the fair value of the identifiable assets and liabilities acquired. On acquisition of Matilda an intangible asset was identified for $802,000, being the value of existing customer contracts. The goodwill is recognised in the Australian Rental operating segment. Software Software has been acquired and developed internally by the business for asset management, monitoring and planning purposes. Software is amortised over 0 to 4 years. 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 Total expense for the year for continuing operations Consolidated 2021 $’000 2020 $’000 1,138 1,138 974 974 EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 94 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 21 Property, plant and equipment Land & buildings Leasehold improvements Plant & equipment Consolidated $’000 Leased plant & equipment Office equipment Motor vehicles Sundry plant Total At-cost at 30 June 2021 2,191 5,611 1,244,795 21,836 4,448 9,783 11,961 1,300,625 Accumulated depreciation and impairment at 30 June 2021 (1,332) 859 (4,679) 932 (600,708) 644,088 (6,650) 15,186 (3,335) 1,113 (5,941) 3,841 (8,747) 3,214 (631,392) 669,233 At-cost at 30 June 2020 1,907 5,290 1,113,216 21,567 3,584 7,654 10,703 1,163,922 Accumulated depreciation and impairments at 30 June 2020 Reconciliations of the carrying amounts for each class of property, plant and equipment are set out below: Carrying amount at the beginning of the year Additions Depreciation Transfer asset class Movement from/(to) assets held for sale Movement major equipment components Movement capital WIP Carrying amount at the end of the year Reconciliations of the carrying amounts for each class of property, plant and equipment are set out below: Carrying amount at the beginning of the year Additions Additions from acquisition (Pit N Portal) Depreciation Transfer asset class Movement from/(to) assets held for sale Movement major equipment components Major equipment components acquired (Pit N Portal) Movement capital WIP Carrying amount at the end of the year (1,161) 746 (4,479) 811 (508,718) 604,498 (4,139) 17,428 (3,047) 537 (5,494) 2,160 (7,715) 2,988 (534,752) 629,169 Land & buildings Leasehold improvements Plant & equipment Consolidated 2021 $’000 Leased plant & equipment Office equipment Motor vehicles Sundry plant Total 746 283 (169) - - - - 811 321 (200) - 604,498 153,685 (103,128) 77 - - - (5,541) (664) (4,839) 17,428 269 (2,510) - - - - 537 864 (288) - - - - 2,160 2,731 (949) - 2,989 1,268 (963) (77) 629,169 159,420 (108,207) - (101) (4) (5,645) - - - - (664) (4,839) 859 932 644,088 15,186 1,113 3,841 3,214 669,233 Land & buildings Leasehold improvements Plant & equipment Consolidated 2020 $’000 Leased plant & equipment Office equipment Motor vehicles Sundry plant Total 545 322 - (121) - - - - - 497 505 - (191) - 551,275 133,905 52,846 (102,100) 5,355 22,966 2,566 - (3,163) (4,690) - - - - (17,878) (251) (4,203) 6,345 (21,049) - - - 150 520 - (133) - - - - - 979 142 1,541 (502) - - - - - 3,255 1,257 579,667 139,217 - (795) (665) 54,387 (107,004) - (62) (18,192) - - - (4,203) 6,345 (21,049) 746 811 604,498 17,428 537 2,160 2,989 629,169 EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 95 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 21 Property, plant and equipment (continued) Depreciation The Group manages depreciation at an individual componentisation of asset level. Depreciation is calculated based on a standard machine hour usage basis. Security The Group’s assets are subject to a fixed and floating charge under the terms of the new notes issued. Refer note 24 for further details. Impairment tests for cash generating units The Group conducts impairment testing annually at 30 June each year and when impairment indicators exist. At 30 June 2021, a detailed impairment testing was undertaken for both the Australian rental CGU and the Pit N Portal CGU and testing carried out for the Workshops CGU, with no impairment being identified. Refer to note 2(e) “Estimates and judgments” for detailed consideration of this matter. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 96 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 22 Right of use assets As at 30 June 2021 Opening balance 1 July 2020 Additions Termination of lease Remeasurements Total cost Accumulated depreciation Accumulated depreciation Total accumulated depreciation Consolidated $’000 Buildings Motor vehicle Equipment Total 27,855 - (347) (228) 27,280 2,866 2,198 (105) 1,314 6,273 20,421 11,587 (17,037) (1,315) 13,657 51,142 13,785 (17,489) (228) 47,210 (9,971) (9,971) (2,071) (2,071) (2,318) (2,318) (14,360) (14,360) Net carrying amount 17,309 4,202 11,339 32,850 Consolidated $’000 As at 30 June 2020 Buildings Motor vehicle Equipment Total Initial application as at 1 July 2020 Additions Termination of lease Remeasurements Total cost Accumulated depreciation Accumulated depreciation Total accumulated depreciation 34,519 3,571 (48) (10,187) 27,855 2,737 454 - (325) 2,866 - 20,080 - 341 20,421 37,256 24,104 (48) (10,171) 51,142 (4,881) (4,881) (766) (766) (1,362) (1,362) (7,010) (7,010) Net carrying amount 22,974 2,100 19,059 44,132 The Group’s right of use assets relate to property, motor vehicles and heavy earth moving equipment. The average lease term is 4.53 years (2020: 4.97 years). The corresponding lease liability analysis is presented in note 24. Amount recognised in profit and loss Depreciation expense on right-of-use assets Interest expense in lease liabilities Expense relating to short term leases Expense relating to leases of low value assets Consolidated 2021 $’000 2020 $’000 9,230 2,684 2,725 156 14,795 7,010 1,524 156 - 8,689 EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 97 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 23 Trade and other payables Current Trade payables Trade payables Interest accrual Other payables and accruals Consolidated 2021 $’000 2020 $’000 45,805 4,022 60,185 110,012 46,751 7,987 34,499 89,237 The Group’s exposure to currency and liquidity risk associated with trade and other payables is disclosed in note 6. The Company has also entered into a deed of cross guarantee with certain subsidiaries as described in note 38. Under the terms of the deed, the Company has guaranteed the repayment of all current and future creditors in the event any of the entities party to the deed are wound up. Details of the consolidated financial position of the Company and subsidiaries party to the deed are set out in note 38. 24 Interest bearing liabilities Current Amortised cost Lease liabilities Loan note agreement Other financing Non-current Amortised cost USD notes – secured Debt raising costs (1) Lease liabilities Consolidated 2021 $’000 2020 $’000 12,902 - 497 13,399 250,508 (94) 35,397 285,811 25,986 97,000 - 122,986 469,373 (8,917) 36,573 497,030 (1) Carried at amortised cost with movements in fair value of the underlying hedge item recorded in the profit and loss statement. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 98 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 24 Interest bearing liabilities (continued) Revolving Credit Facility The Group has a Revolving Credit Facility (RCF) of $100,000,000 which matures in September 2021 with a two year option to extend and has two sub facilities consisting of a Loan Note Agreement Facility (LNA) of A$97,000,000 (30 June 2020: $97,000,000) and a Bank Guarantee Facility of A$3,000,000. The bank guarantee facility attracts a fee of up to 1.57% on the unutilised portion of the facility, and a fee of 3.5% on the outstanding balance of guarantees on issue. The nominal interest rate on the LNA is equal to the aggregate of the bank bill swap rate (BBSY) plus a margin of between 3.25% and 3.5% dependant on the portion of the facility utilised (3.25% if less than 25% drawn and 3.5% if greater than 25% drawn). The facilities require the Group to maintain a collateral coverage ratio greater than 2.0x and a fixed charge coverage ratio greater than 1.5x. The collateral coverage ratio is based on an independent valuation of the rental fleet in ratio to the drawn LNA. At 30 June 2021 the LNA was undrawn and the Group had utilised A$1,646,00 of the bank guarantee facility. The LNA was drawn at 30 June 2020 due to global bank liquidity concerns at the start of COVID-19 however was repaid during the year ended 30 June 2021 as the funds were not required by the Group. On 13 July 2021, the Group exercised its option to extend the maturity of the A$100,000,000 Revolving Credit Facility for an additional two years to September 2023. Other than the extension of the maturity date, there was no change to the terms of the facility. Secured notes issue As at 30 June 2020, the Group had issued secured fixed interest notes to the value of US$322,131,000 which matured on 31 March 2022. The nominal fixed interest rate was 9.25%. Under the terms of the note agreement, the noteholders held a joint fixed and floating charge with the revolving credit facility bank over the assets and undertakings of the Group. The notes were measured at amortised cost. On 15 September 2020, US$142,124,000 of the notes were repaid to noteholders with the proceeds of a capital raising and subsequently cancelled. The early repayment incurred a call premium of 4.625% which resulted in a finance cost of A$9,013,000 which was paid to noteholders on repayment. A finance cost of $3,225,000 was recognised in relation to accelerated amortisation of borrowing costs associated with the Notes retired. US$142,124,000 of cross currency interest rate swaps used to hedge this debt were closed out on repayment of the notes. Expenses of $10,138,000 were incurred in relation to the hedge closeout, offset by a $4,017,000 realised exchange gain on repayment of the notes. Refer to note 8 for details on the costs associated with this transaction. The residual US$180,007,000 of outstanding notes were refinanced with two noteholders extending the maturity date to 31 March 2024. The nominal fixed interest rate remained unchanged with a semi-annual coupon of 9.25% payable in January and July each year. The refinanced notes could be repaid at any time prior to, or on, the March 2024 maturity. A premium of 4.625% is payable on repayment of these notes. Whilst the Group’s net leverage remains below 1.5x, the cash sweep does not apply and restrictions on shareholder distributions are relaxed. Otherwise the 2024 notes had materially the same terms as the cancelled notes. An expense of $3,348,000 was incurred on this transaction in relation to fees incurred on the refinancing. The US Notes were fully hedged to AUD until maturity and the Group has designated derivatives (cross currency interest rate swaps) as hedge instruments against this underlying debt. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 99 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 24 Interest bearing liabilities (continued) On 2 July 2021, the Company successfully completed the issuance of A$250,000,000 notes in the A$ MTN market (AUD Notes). The notes have a fixed coupon of 6.25%, payable semi-annually, and have a maturity date of 10 July 2026. The funds received from this debt raising were used to repay the outstanding US$180,007,000 March 2024 notes, call premium and to close out all hedging associated with these notes on 2 July 2021. AUD$269,450,000 was paid to derivative counterparties on 16 July 2021 with the hedge counterparty payment of US$197,750,000 made to noteholders on 2 August 2021 to repurchase and cancel the notes and associated premium and final coupon. The 16 July 2021 payment of AUD$269,450,000 included the principal amount at the hedged rate of $246,828,000, accrued interest of $6,084,000, a premium for early repayment of the Note of $11,223,000 and a mark- to-market payment on hedge close-out of $5,314,000. The AUD Notes have fewer restrictions on the Group than the 2024 USD notes however include restrictions on issuing additional debt if leverage (net debt divided by operating EBITDA) is greater than 1.75x and shareholder distributions if leverage is greater than 2.0x. The notes cannot be called before 10 July 2022 and a call premium of 3.125% is payable if redeemed prior to 10 July 2024 and 1.5625% is payable on the notes if the notes are redeemed prior to 10 July 2025. No call premium is payable after this date. There are no restrictions on capital expenditure in the AUD notes. Notwithstanding the fact that as at 30 June 2021 the Group was not obligated to issue the new AUD Note, or repurchase and cancel the outstanding US Notes, as at 30 June 2021, it was deemed highly probable that the Group’s issuance of the AUD Note would settle as expected on 2 July 2021 and the proceeds from this issuance would be used to repurchase and cancel the outstanding US Notes in August 2021. Due the estimated change in the forecast cash flows related to the US Notes, the Group has derecognised the capitalised borrowing costs associated with these notes at 30 June 2021 incurring a finance cost of $2,408,000. A call premium expense of $11,361,000 (June 2020: $nil) was recognised as a liability of the same value at 30 June 2021, given estimated contractual life of the US Notes was aligned to the expected settlement date. All amounts were paid to noteholders in August 2021 on repurchase of the outstanding notes. Hedge accounting has been discontinued at 30 June 2021 due to the expected repurchase of the US Notes and close out of associated derivatives. A $7,354,000 hedge loss expense partially offset by a $6,007,000 unrealised foreign exchange gain on the notes has been recognised in the Group’s consolidated statement of profit or loss and other comprehensive income for the year ended 30 June 2021 in relation to the derecognition of hedge accounting. Working capital facilities The Group has a credit card facility with a limit of A$150,000. The facility is secured via a cash cover account. USD notes Hedged liability/(asset) Net exposure FY21 FY20 USD $’000 180,007 - 180,007 AUD $’000 250,508 12,389 262,897 USD $’000 322,131 - 322,131 AUD $’000 469,373 (28,034) 441,339 EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 100 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 24 Interest bearing liabilities (continued) Lease liabilities At 30 June 2021, the Group held lease facilities totalling A$48,300,000 (2020: A$62,560,000) which have various maturities up to July 2024. Lease terms are negotiated on an individual basis and obtains a wide range of different terms and conditions. The lease agreements do not impose any covenants. Lease liabilities of the Group are payable as follows: Opening balance as at 1 July New leases Interest expense Principal repayments Remeasurements Termination of lease Balance at 30 June Current Non-current Consolidated 2021 $’000 2020 $’000 62,560 13,785 2,684 (17,359) (803) (12,567) 48,300 12,902 35,398 48,300 59,165 24,451 2,697 (13,535) (10,170) (48) 62,560 25,986 36,574 62,560 The Group’s lease liabilities are secured by the leased assets of $50,278,000 (2020: $35,365,000). In the event of default, the leased assets revert to the lessor. The weighted average incremental borrowing rate applied to the lease liabilities at the date of initial application was 4.32%. There has been no impact on lease payments as a result of COVID-19, either through deferral or reduction in lease payments. Reconciliation of liabilities arising from financing activities Liabilities arising from financing activities are those for which cash flows were or will be classified in the Group’s consolidated statement of cash flows. The following table details cash and non-cash movements in the Group’s liabilities arising from financing activities: USD notes Lease liabilities Loan note agreement Debt raising costs (144A notes) Debt raising costs (loan note agreement) Other financing 1 July 2020 $'000 469,373 62,560 97,000 (8,235) Financing cash flows $'000 (194,883) (17,359) (97,000) - (682) - Financial expense* $'000 Net debt acquired/(retired) $'000 11,361 2,684 - 8,235 587 - 415 - - - - 620,016 (2,003) (311,245) 35 22,903 * inclusive of amortisation expense 2,465 2,880 Realised FX $'000 (4,003) - - - - - (4,003) Unrealised FX $'000 (31,340) - - - 30 June 2021 $'000 250,508 48,300 - - - (94) - (31,340) 497 299,211 EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 101 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 24 Interest bearing liabilities (continued) Reconciliation of liabilities arising from financing activities (continued) USD notes Lease liabilities Loan note agreement Debt raising costs (144A notes) Debt raising costs (loan note agreement) Other financing 1 July 2019 $'000 459,334 21,909 - (12,350) Financing cash flows $'000 - (13,535) - - (959) (154) Financial expense* $'000 Net debt acquired/(retired)** $'000 Realised FX $'000 Unrealised FX $'000 - 2,697 - 4,115 432 - 51,489 97,000 - - - - - - - 30 June 2020 $'000 469,373 62,560 97,000 (8,235) - (682) 10,039 - - - - 467,933 (2,708) (16,397) - 7,244 * inclusive of amortisation expense ** new debt acquired for lease liabilities to adoption of AASB 16 2,708 151,196 - - - 10,039 - 620,016 25 Financing arrangements The Group has the ability to access the following lines of credit: 2021 USD notes (1) Loan note agreement (2) Bank guarantee facility (2) Lease liabilities 2020 USD notes (1) Loan note agreement (2) Bank guarantee facility (2) Lease liabilities Consolidated $’000 Facility utilised at reporting date Facility not utilised at reporting date 250,508 - 1,646 48,300 300,454 - 97,000 1,354 - 98,354 Consolidated $’000 Facility utilised at reporting date Facility not utilised at reporting date 469,373 97,000 1,655 62,559 630,587 - - 1,345 - 1,345 Available facility 250,508 97,000 3,000 48,300 398,808 Available facility 469,373 97,000 3,000 62,559 631,932 (1) The facility of US$180,007,000/A$250,508,000 was fully drawn at 30 June 2021. A liability of $11,361,000 has been recognised at 30 June 2021 attributable to the expected call premium payable on the notes. Refer to note 24 for further details. (2) The Revolving Credit Facility has a limit of $100,000,000. The Revolving Credit Facility consists of the Loan Note Agreement of A$97,000,000 and bank guarantee of $3,000,000. The Loan Note Agreement was undrawn at 30 June 2021. $1,646,000 of bank guarantees were issued at 30 June 2021. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 102 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 26 Provisions Current Employee benefits: annual leave - long service leave - Provision for restructuring Non-current Employee benefits – long service leave Consolidated 2021 $’000 2020 $’000 9,839 2,033 - 11,872 655 655 8,476 2,096 57 10,629 581 581 Balance at 1 July 2020 Arising during the year Utilised Balance at 30 June 2021 Consolidated Employee benefits 11,153 10,158 (8,784) 12,527 Provision for restructuring 57 - (57) - Total 11,210 10,158 (8,841) 12,527 Defined contribution superannuation funds The Group makes contributions to defined contribution superannuation funds. The expense recognised for the year was $12,492,000 (2020: $7,862,000). EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 103 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 27 Share based payments During the year the Company issued Rights to key management personnel and senior employees of the Group under its employee incentive plans (refer note 3(k)(v)). On 27 November 2018 the Company effected a 10:1 share consolidation. The number of shares have been converted to reflect both pre and post share consolidation. Vested plans Grant date/employee entitled MIP Rights/performance share rights 2019 EHIP Rights/performance share rights 2018 Rights/performance share rights 2019 Unvested plans Grant date/employee entitled MIP Rights/performance share rights 2019 Rights/performance share rights 2019 Rights/performance share rights 2019 LTIP Rights/performance share rights 2020 Rights/performance share rights 2020 LTIP Rights/performance share rights 2021 Number of instruments Vesting conditions Contractual life of rights/ performance share rights 608,913 3 years service 3 years 46,996 2 years service 111,449 2 years service 767,358 2 years 2 years Number of instruments Vesting conditions Contractual life of rights/ performance share rights 1,000,000 3 years service 1,332,136 4 years service 1,885,689 5 years service 900,901 2 years service 976,497 3 years service 2,528,519 3 years service 8,623,742 3 years 4 years 5 years 2 years 3 years 3 years EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 104 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 27 Share based payments (continued) The movement of Rights on issue during the year were as follows: Outstanding at 1 July Granted during the period Exercised during the period Forfeited during the period Outstanding at 30 June Number of rights/ performance share rights 2021 6,378,316 3,104,813 (767,358) (92,030) 8,623,741 Number of rights/ performance share rights 2020 26,347,281 1,422,064 (21,273,643) (117,385) 6,378,316 The fair value of Rights granted during the year are measured using a volume weighted average price of $1.02 (FY20: $1.83). Please refer to note 3(k)(v)). The following applies to Rights: - - there is no entitlement to dividends or shadow dividends on unvested rights; and in the event of absolute change in control (i.e. the acquisition by a third party and its associates >50% of Emeco shares), rights awarded will vest upon change in control. Employee expenses in AUD Performance shares/rights Total expense recognised as employee costs (1) Consolidated 2021 6,009,476 6,009,476 2020 14,288,750 14,288,750 (1) Should an employee be made redundant, the remaining share based payment expense for the vesting period will be accelerated and recognised in the period the employee was made redundant. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 105 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 28 Commitments (a) Short term and low value leases Future non-cancellable operating leases not provided for in the financial statements and payable: Less than one year Between one and five years More than five years Consolidated 2021 $’000 2020 $’000 1,720 108 - 1,828 156 250 - 406 See Note 22 for further information. Operating lease expenditure for FY21 and FY20 is disclosed in Note 24. (b) Capital commitments The Group has $2,000,000 committed for purchases of fixed assets (2020: $Nil). 29 Contingent liabilities Guarantees The Group has provided bank guarantees in the amount of $1,646,000 (2020: $1,654,900) in relation to obligations under operating leases and rental premises. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 106 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 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 2021 $’000 2020 $’000 74,725 198,169 Note 16 (ii) Reconciliation of net profit to net cash provided by operating activities Net profit from continuing operations Add/(less) items classified as investing/financing activities: Net profit on sale of non-current assets Acquisition and corporate development costs Payment for debt financing costs Premium paid on buyback of issued debt Add/(less) non-cash items: Depreciation and amortisation Amortisation of borrowing costs using effective interest rate Foreign exchange gain Hedge loss/(gain) Net loss on AASB 16 lease modification Impairment losses on tangible assets Impairment of investments Bad debts Provision for doubtful debts reversal Other non-cash items and reclassifications Equity settled share based payments Income tax expense/(benefit) Net cash flow from operating activities of discontinued operations Net cash from operating activities before change in assets/(liabilities) adjusted for assets and (liabilities) acquired Change in operating assets and liabilities, net of effects from purchase of controlled entity: Increase in trade and other receivables Increase in inventories Increase/(decrease) in payables Increase in provisions Net cash from operating activities Consolidated 2021 $’000 2020 $’000 20,695 66,132 (318) (945) - 3,509 5,793 9,013 - - Note 7 8 7 8 20 118,576 114,988 8 8 8 8 8 8 8 8 8 10 3,621 (10,302) 4,594 (366) 20,339 (2,090) 2,737 1,146 10 - - 13,750 461 1,009 (170) (57) - (1,967) 6,009 14,289 8,897 (10,945) - (29) 186,045 202,333 (10,426) (4,434) 33,114 (5,399) (8,422) (7,769) 1,316 1,230 205,616 181,973 EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 107 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 31 Controlled entities (a) Particulars in relation to controlled entities Country of incorporation Ownership interest 2021 % 2020 % Parent entity Emeco Holdings Limited Controlled entities Pacific Custodians Pty Ltd as trustee for Emeco Employee Share Ownership Plan Trust Emeco Pty Limited Emeco International Pty Limited EHL Corporate Pty Ltd Emeco Parts Pty Ltd Emeco Finance Pty Ltd Andy’s Earthmovers (Asia Pacific) Pty Ltd Orionstone Holdings Pty Ltd Orionstone Pty Ltd Ironstone Group Pty Ltd Orion (WA) Pty Ltd RPO Australia Pty Ltd Force Equipment Pty Ltd Matilda Equipment Holdings Pty Ltd Matilda Equipment Pty Ltd Pit N Portal Mining Services Pty Ltd Pit N Portal Equipment Hire Pty Ltd Emeco Equipment (USA) LLC Emeco (UK) Limited Emeco International Europe BV Emeco Europe BV Emeco BV PT Prima Traktor IndoNusa Emeco Holdings South America SpA Enduro SpA Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia United States United Kingdom Netherlands Netherlands Netherlands Indonesia Chile Chile 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 (b) Acquisition of entities in the current year There were no entities was acquired in the current year. (c) Acquisition of entities in the prior year The following entities were acquired in the prior year: • Pit N Portal Mining Services Pty Ltd • Pit N Portal Equipment Hire Pty Ltd Refer to note 36 for details on the acquisition of Pit n Portal in the prior period. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 108 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 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 Peter Kane Commenced role 7 December 2020 Darren Yeates Resigned 11 November 2020 Executive directors Ian Testrow Managing Director & Chief Executive Officer Other executives Position Thao Pham Neil Siford [1] Chief Strategy Officer Chief Financial Officer [1] Mr Siford provided notice of his resignation in March 2021. He will remain as CFO until after the Company’s financial year end process (including the 2021 AGM) is completed. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 109 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 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 Equity compensation benefits Consolidated 2021 3,373,191 39,720 117,133 4,298,170 7,828,214 2020 3,597,890 33,741 112,405 9,924,397 13,668,433 Remuneration of key management personnel by the Group The compensation disclosed above represents an allocation of the key management personnel’s compensation from the Group in relation to their services rendered to the Company. Individual directors and executives compensation disclosures Information regarding individual directors’ and executives’ compensation and some equity instruments disclosures as required by Corporations Regulations 2M.3.03 and 2M.6.04 are provided in the remuneration report section of the directors’ report on pages 23 to 38. Apart from the details disclosed in this note, no director has entered into a material contract with the Company or the Group since the end of the previous financial year and there were no material contracts involving directors’ interests existing at year end. Equity Instruments Rights over equity instruments granted as compensation under employee hybrid incentive plan (EHIP) The Company has the hybrid incentive plan that includes both short term, cash incentive and long term, equity settled incentive elements, award of which is determined by reference to the Company’s performance. This is based on both financial and non-financial measures and will vest at the end of the applicable vesting period, subject to the employee remaining employed by the Company. Rights over equity instruments granted as compensation under management incentive plan (MIP) The Company has a management incentive plan in which rights to shares have been granted to certain employees of the Company. Rights awarded under the MIP will vest at the end of the applicable vesting period, subject to the employee remaining employed by the Company. Rights that do not vest will lapse. Rights over equity instruments granted as compensation under long term incentive plan (LTI) (long term incentive plan) The Company had a retention incentive plan that rewards executives for their contribution to achievement of certain KPIs over a three-year period. KPIs are reviewed annually, but achievement is assessed over a three-year period with one-third of the maximum entitlement being tested each year. Assessing achievement annually also ensures that executives are rewarded for their performance in each year over the three-year period. By assessing outcomes in this manner, consistent high performance over each year within the three-year performance period is required in order to achieve maximum award. Awards under the LTI plan are made in the form of Rights. Other key management personnel transactions Key management persons, or their related parties, hold positions in other entities that may result in them having control or significant influence over the financial or operating policies of those entities. There were no transactions between the Group and these related entities during the period (FY20 $Nil). EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 110 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 33 Other related party transactions Subsidiaries Loans are made between wholly owned subsidiaries of the Group for corporate purposes. 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. Ultimate parent entity Emeco Holdings Limited is the ultimate parent entity of the Group. 34 Subsequent events On 2 July 2021, the Company successfully completed the issuance of A$250,000,000 notes in the A$ MTN market (AUD Notes). The notes have a fixed coupon of 6.25%, payable semi-annually in January and July, and have a maturity date of 10 July 2026. The funds received from this debt raising were used to repay the outstanding US$180,007,000 March 2024 notes, call premium and close out all hedging associated with these notes. AUD$269,450,000 was paid to derivative counterparties on 16 July 2021 with the hedge counterparty payment of US$197,750,000 made to noteholders on 2 August 2021 to repurchase and cancel the notes and associated premium and final coupon. The 16 July 2021 payment of AUD$269,450,000 included the principal amount at the hedged rate of $246,828,000, accrued interest of $6,084,000, a premium for early repayment of the Note of $11,223,000 and a mark-to-market payment on hedge close-out of $5,314,000. The AUD Notes have fewer restrictions on the Group than the 2024 USD notes with restrictions on issuing additional debt if leverage (net debt divided by operating EBITDA) is greater than 1.75x and shareholder distributions if leverage is greater than 2.0x. The notes cannot be called before 10 July 2022 and a call premium of 3.125% is payable if redeemed prior to 10 July 2024 and 1.5625% is payable on the notes if the notes are redeemed prior to 10 July 2025. No call premium is payable after this date. There are no restrictions on capital expenditure in the AUD notes. On 13 July 2021, the Group exercised its option to extend the maturity of the A$100,000,000 Revolving Credit Facility for an additional two years to September 2023. Other than the extension of the maturity date, there was no change to the terms of the facility. On 17 August 2021, the board resolved to pay a final dividend for the six months ended 30 June 2021 of 1.25 cents per share and a total cash payment of $6,801,000. The dividend will be fully franked and will be paid on 30 September 2021. On 18 August 2021, the Company announced its intention to undertake an on-market buyback of up to $3,800,000 of shares. The Company reserves the right to vary, suspend or terminate the buyback at any time. Other than the above, there have been no other significant events subsequent to the year ended 30 June 2021. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 111 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 35 Earnings per share Basic earnings per share The calculation of basic earnings per share at 30 June 2021 was based on the profit attributable to ordinary shareholders of $20,695,000 (2020: $66,129,000) and a weighted average number of ordinary shares outstanding less any treasury shares for the year ended 30 June 2021 of 514,526 (2020: 327,161). Earnings per share for the comparative period has been restated to account for the effect of the rights issue undertaken by Emeco in September 2020, in accordance with AASB 133 Earnings per share. Profit attributed to ordinary shareholders Consolidated Continuing operations $'000 2021 Discontinued operations $'000 Total $'000 Continuing operations $'000 2020 Discontinued operations $'000 Total $'000 Profit for the year 20,695 - 20,695 66,132 (3) 66,129 Issued ordinary shares at 1 July Effect of shares issued during the period Effect of vested employee share plans Weighted average number of ordinary shares at 30 June Consolidated 2021 ‘000 371,353 142,298 874 514,526 2020 ‘000 308,635 13,801 4,725 327,161 EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 112 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 35 Earnings per share (continued) Weighted average number of ordinary shares Diluted earnings per share The calculation of diluted earnings per share at 30 June 2021 was based on the profit/(loss) attributable to ordinary shareholders of $20,695,000 (2020: $66,129,000) and a weighted average number of ordinary shares outstanding less any treasury shares during the financial year ended 30 June 2021 of 523,150 (2020: 333,539). Profit attributed to ordinary shareholders (diluted) Consolidated Continuing operations $'000 2021 Discontinued operations $'000 Total $'000 Continuing operations $'000 2020 Discontinued operations $'000 Total $'000 20,695 - 20,695 66,132 (3) 66,129 Profit attributed to ordinary shareholders (basic) Weighted average number of ordinary shares (diluted) Issued ordinary shares at 1 July Effect of shares issued during the period Effect of vested employee share plans Effect of unvested employee share plans Weighted average number of ordinary shares (diluted) at 30 June Consolidated 2021 ‘000 371,353 142,298 874 8,624 523,150 2020 ‘000 308,635 13,801 4,725 6,378 333,539 EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 113 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 36 Business combination Pit N Portal Mining Services Pty Ltd and Pit N Portal Equipment Hire Pty Ltd On 28 February 2020, Emeco Holdings Limited acquired 100% of the shares in Pit N Portal Mining Services Pty Ltd and Pit N Portal Equipment Hire Pty Ltd (Pit N Portal) for total consideration of $70,802,995 settled by an upfront cash payment of $62,000,000 and Emeco shares issued to the sellers of $9,178,744, less an additional cash payment of $375,749 in relation to a working capital adjustment settled in June 2020. The values identified in relation to the acquisition are final as at reporting date 30 June 2021. A provisional customer intangible was recognised at 30 June 2020, however has since been finalised for the year ended 30 June 2021 with no changes on finalisation. Details of the acquisition are as follows: Impact of acquisitions on the results of the Group Pit N Portal Mining Services Pty Ltd Final 2020 $’000 Pit N Portal Equipment Hire Pty Ltd Final 2020 $’000 Pit N Portal Group Final 2020 $’000 Cash assets Trade debtors Inventories Accrued income Other receivables Prepayments Plant and equipment Right of use assets Deferred tax asset Other assets Trade and other payables Provisions Lease liabilities Net assets acquired Contract intangible recognised 4,107 13,056 6,343 4,105 - 493 1,259 2,425 68 94 (10,401) (2,877) (2,503) 16,169 96 2,665 - 49 697 - 53,129 - 485 30 4,204 15,721 6,343 4,154 697 493 54,387 2,425 553 124 (2,831) (13,232) - - 54,320 Acquisition date fair value of consideration transferred Representing: Cash Shares issued on acquisition Cash consideration paid in respect of working capital adjustment Total Acquisition costs expensed to profit or loss Cash used to acquire the business, net cash acquired: Acquisition date fair value of consideration transferred Share issued on acquisition Less: cash and cash equivalents Net cash paid - - (2,877) (2,503) 70,490 313 70,803 62,000 9,179 (376) 70,803 1,500 70,803 (9,179) (4,204) 57,421 EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 114 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 36 Business combination (continued) Pit N Portal Mining Services Pty Ltd and Pit N Portal Equipment Hire Pty Ltd (continued) Pit N Portal has been treated as a reportable segment of the Group with effect from the date of acquisition. The revenue and earnings contributed to the Group in the period from 28 February 2020 are set out in Note 15. 37 Parent entity disclosure As at and throughout the financial year ending 30 June 2021 the parent entity (the ‘Company’) of the Group was Emeco Holdings Limited. Results of the parent entity Profit for the period (1) Other comprehensive income Total comprehensive income/(loss) for the period Financial position of parent entity at year end Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Total equity of the parent entity comprising of: Share capital Share based payment reserve Profit reserve Reserve of own shares Retained losses Total equity Company 2021 $‘000 2020 $‘000 30,133 - 30,133 18,598 - 18,598 73 441,997 442,070 73 260,041 260,114 - - - - - - 1,171,457 30,901 30,376 (38,294) (752,370) 442,071 1,024,442 27,387 - (39,589) (752,127) 260,114 (1) This includes the impairment of intercompany investments and loans within the same tax consolidated group and jurisdiction. This is eliminated on group consolidation. 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 2021 115 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 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 directors’ reports. It is a condition of the class order that the Company and each of the subsidiaries enter into a deed of cross guarantee. The effect of the deed is that the Company guarantees to each creditor payment in full of any debt in the event of winding up of any of the subsidiaries under certain provisions of the Corporations Act 2001. If a winding up occurs under other provisions of the Act, the Company will only be liable in the event that after six months any creditor has not been paid in full. The subsidiaries have also given similar guarantees in the event that the Company is wound up. The subsidiaries subject to the deed are: ▪ Emeco Pty Ltd ▪ Emeco International Pty Limited ▪ Andy’s Earthmovers (Asia Pacific) Pty Ltd ▪ Orionstone Holdings Pty Ltd ▪ Orionstone Pty Ltd ▪ Force Equipment Pty Ltd ▪ Matilda Equipment Pty Ltd ▪ Matilda Equipment Holdings Pty Ltd ▪ Pit N Portal Mining Services Pty Ltd ▪ Pit N Portal Equipment Hire Pty Ltd EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 116 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 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 2021 is set out as follows: Statement of profit or loss and other comprehensive income and retained earnings Revenue Cost of sales Gross profit Operating expense Other income Finance income Finance costs Unrealised FX Impairment of assets Profit before tax Tax benefit Net profit after tax Other comprehensive income Total comprehensive income for the period Retained losses at beginning of year Retained losses at end of year Attributed to: Equity holders of the Company Profit for the period Consolidated 2021 $‘000 620,528 (370,575) 249,953 (142,200) 764 362 (88,275) 10,301 (1,136) 29,770 (8,897) 20,872 2020 $‘000 540,428 (313,301) 227,127 (105,887) 2,647 2,307 (52,821) 367 (13,750) 59,990 10,945 70,935 1,643 1,643 5,877 5,877 (658,170) (635,654) (734,982) (658,169) (635,654) 20,872 (658,169) 70,935 EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 117 Emeco Holdings Limited and its Controlled Entities Notes to the Consolidated Financial Statements For the year ended 30 June 2021 38 Deed of cross guarantee (continued) Statement of financial position Current assets Cash and cash equivalents Trade and other receivables Prepayments Inventories Assets held for sale Total current assets Non-current assets Trade and other receivables Derivatives Intangible assets Investments Property, plant and equipment Right of use asset 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 Interest bearing liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Issued capital Share based payment reserve Reserves Retained losses Consolidated 2021 $‘000 2020 $‘000 74,725 124,695 7,227 19,202 2,794 198,033 111,674 3,279 14,768 3,192 228,643 330,946 17,799 - 10,329 - 669,233 32,850 24,489 754,700 19,298 38,918 10,252 367 629,170 44,132 32,555 774,692 983,343 1,105,638 110,012 12,389 13,399 11,872 147,672 89,218 10,884 122,986 10,573 233,661 285,811 499,059 655 581 286,466 499,640 434,138 733,301 549,205 372,338 1,171,457 1,024,442 30,901 (17,500) 27,387 (21,322) (635,654) (658,169) Total equity attributable to equity holders of the parent 549,205 372,338 EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 118 Emeco Holdings Limited and its Controlled Entities Directors’ Declaration 1. In the opinion of the directors of Emeco Holdings Limited (the ‘Company’): (a) the consolidated financial statements and notes as set out on pages 40 to 118, and remuneration report in the directors’ report, set out on pages 23 to 38 are in accordance with the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the Group’s financial position as at 30 June 2021 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 2021. 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, 17th day of August 2021 Signed in accordance with a resolution of the directors: Ian Testrow Managing Director EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 119 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 2021, 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 2021 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 & Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (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 Asia Pacific Limited and the Deloitte organisation. Key Audit Matter Recoverability of available Australian tax losses as a deferred tax asset The Group has recognised $24.5 million of net deferred tax assets as at 30 June 2021 which includes the recognition of all available tax losses in Australia as disclosed in note 12. The recognition of deferred tax assets relating to historic tax losses involves significant judgement associated with: • • the availability of these historic losses to the Group; and the likelihood of the utilisation of such tax losses, which amongst other things requires the generation of sufficient future taxable profit by the Group to be probable. Refinancing of interest bearing liabilities subsequent to 30 June 2021 On 2 July 2021 the Group completed the issuance of $250 million of AUD secured notes, and subsequently used the funds to settle the USD secured notes which were on hand as at 30 June 2021. Refer note 24 for further information. The accounting for the refinancing includes a number of estimates and judgements, including: • • • determination of the classification of the existing USD secured notes at period end; consideration of the expected remaining life of the USD secured notes as at 30 June 2021, and consequent impact on its amortised cost; and determining the impact of refinancing on the hedge accounting related to the USD secured notes. How the scope of our audit responded to the Key Audit Matter We assessed the Group’s ability to utilise the deferred tax assets recognised as at 30 June 2021, based on the extent to which they can be utilised by future taxable profits. Our procedures included, but were not limited to: • • • • • • understanding the process that management undertakes to develop the model to forecast future taxable profits and challenging the reasonableness of the assumptions; comparing the profit forecast for FY22 to the Board approved FY22 budget; assessing historical forecasting accuracy by comparing actual performance to budgets; testing management’s budget model for mathematical accuracy; considering the likely benefit to taxable profit of the debt refinancing completed post year-end, and the related positive impact on the Group’s future profitability; in conjunction with our tax experts • • evaluating whether the unused Australian tax losses are available to the Group and whether the profit forecasts had been appropriately adjusted for the differences between accounting profits and taxable profits; and testing managements tax effect accounting calculations and assessing the amount of reversing temporary differences, including the reasonableness of the tax treatment associated with plant and equipment component expenditure. We also assessed the appropriateness of the disclosures in note 2(e) and 12 to the financial statements. Our procedures included, but were not limited to: • • • • • reviewing the terms of the USD and AUD secured note agreements and any waivers and notices; assessing the classification of the USD secured notes as at 30 June 2021, including considering whether the Group had the irrevocable right to defer settlement of the secured notes for a period of at least one year from the balance date; assessing the reasonableness of the expected timing of repayment of the USD secured notes as at 30 June 2021, considering the status of potential AUD secured note issuance at that date; assessing that the carrying value of the USD secured notes as at 30 June 2021 appropriately reflects the liability's amortised cost, taking into account amongst other things the acceleration of previously deferred borrowing costs and the call premium; and assessing the impact of the refinancing on the Group's hedge accounting associated with the USD secured notes, including ensuring that any amounts previously deferred into equity as part of hedge accounting are recognised in profit or loss on the cessation of hedge accounting. We also assessed the appropriateness of the disclosures in note 24 and 34 to the financial statements. Revenue recognition of Pit N Portal mining services contracts For the year ended 30 June 2021 Pit n Portal generated mining services revenue totalling $141.0 million as disclosed in note 15. Mining services revenue is recognised at a point in time as the services are completed. Management judgement is required in determination of contractual entitlement and assessment of the probability of customer approval of variations and acceptance of claims. Our procedures included, but were not limited to: • • • • • • • understanding management’s process for recognising revenue including variations and claims; evaluating the design and implementation of key controls management has in place in relation mining services revenue recognition; evaluating Emeco's revenue recognition policies against accounting standard requirements; reading relevant contracts to understand the key terms and conditions, and confirming our understanding with management; substantively testing on a sample basis, mining services revenue to address accuracy, occurrence and completeness of revenue; performing procedures in relation to cut-off, ensuring revenue is recorded in the correct period; and assessing variations and claims including review of correspondence with customers concerning the merits and status of those variations and claims. We also assessed the appropriateness of the disclosures in note 3(iv) and 15 to the financial statements. Other Information The directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2021, 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: • 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 fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • 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. • • • 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. 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. • 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 23 to 38 of the Directors’ Report for the year ended 30 June 2021. In our opinion, the Remuneration Report of Emeco Holdings Limited, for the year ended 30 June 2021, 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 David Newman Partner Chartered Accountants Perth, 17 August 2021 Emeco Holdings Limited and its Controlled Entities Shareholder Information Financial calendar The annual general meeting of Emeco Holdings Limited will be held on Thursday, 18 November 2021. Event Annual general meeting Half year Half year profit announcement Year end *Timing of events is subject to change and board discretion. Date* 18 November 2021 31 December 2021 February 2022 30 June 2022 Shareholder statistics Substantial shareholders Details regarding substantial holders of the Company’s ordinary shares as at 4 August 2021, as disclosed in the substantial holding notices given to the Company, are as follows: Name Shares % Issued capital Black Diamond Capital Management LLC Black Diamond Credit Strategies Master Fund Ltd BDCM Opportunity Fund IV LP BDCM Opportunity Fund III LP BDCM Strategic Capital Fund I, L.P. 160,110,568 29.429 Perennial Value Management Limited 35,448,035 6.52 Paradice Investment Management Pty Ltd 52,602,397 9.669 Distribution of shareholders As at 4 August 2021, there were 6,939 holders of the Company’s ordinary shares. The distribution as at 4 August 2021 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 140 1,131 743 2,034 2,891 6,939 Securities 496,933,348 34,746,970 5,773,890 5,416,549 1,184,377 544,055,134 % Issued capital 91.34 6.39 1.06 1.00 0.22 100.00 There were no security investors holding less than a marketable parcel of 410 securities ($1.22 on 4 August 2021). EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 124 Emeco Holdings Limited and its Controlled Entities Shareholder Information 20 largest shareholders The names of the 20 largest holders of the Company’s ordinary shares as at 4 August 2021 are: Rank Name 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 J P Morgan Nominees Australia Pty Limited Citicorp Nominees Pty Limited HSBC Custody Nominees (Australia) Limited National Nominees Limited Zero Nominees Pty Ltd Pacific Custodians Pty Limited HSBC Custody Nominees (Australia) Limited First Samuel Ltd BNP Paribas Noms Pty Ltd BNP Paribas Nominees Pty Ltd Pacific Custodians Pty Limited Steven Edwin Versteegen Mr Peter David Wilkinson & Mrs Jennifer Louise Wilkinson HSBC Custody Nominees (Australia) Limited - A/C 2 BNP Paribas Nominees Pty Ltd Six Sis Ltd BNP Paribas Nominees Pty Ltd G Harvey Nominees Pty Limited National Nominees Limited BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd Bond Street Custodians Limited Closing share price ($) Equity securities 173,595,493 86,642,831 86,335,246 28,739,711 19,110,714 17,030,276 11,458,195 9,610,055 9,383,807 8,607,417 4,225,012 2,415,459 2,315,823 1,575,305 1,544,326 1,420,614 1,149,100 1,136,139 1,073,050 985,576 % Issued capital 31.91 15.93 15.87 5.28 3.51 3.13 2.11 1.77 1.72 1.58 0.78 0.44 0.43 0.29 0.28 0.26 0.21 0.21 0.20 0.18 EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 125 $0.40$0.60$0.80$1.00$1.20$1.40Jul-20Sep-20Nov-20Jan-21Mar-21May-21Jul-21 Emeco Holdings Limited and its Controlled Entities Shareholder Information Voting rights of ordinary shares Voting rights of shareholders are governed by the Company’s constitution. The constitution provides that on a show of hands every member present in person or by proxy has one vote and on a poll every member present in person or by proxy has one vote for each fully paid ordinary share held by the member. Unquoted equity securities As at 4 August 2021, there are 1,493,989 unvested performance rights on issue to 14 participants pursuant to the Company’s employee incentive plans. On-market security purchases During FY21, Pacific Custodians Pty Limited in its capacity as trustee of the Emeco Employee Share Ownership Plans Trust purchased 1,150,000 ordinary shares on-market, at an average price per share of $1.03, to be used to satisfy upcoming entitlements of participants under the Company’s employee incentives scheme to receive ordinary fully-paid shares. Debt securities A register of the noteholders of the 6.25% A$ notes, which have a maturity date of 10 July 2026, is kept at the office of EQT Australia Pty Ltd at Level 19, 56 Pitt Street, Sydney NSW 2000. EQT Australia Pty Ltd can be contacted by telephone on (03) 8623 5000. The previously issued 9.25% March 2024 US notes, which were fully repaid on 2 August 2021, were listed on the Singapore Exchange (SGX). Securities subject to voluntary escrow As at 4 August 2021, there were no securities subject to voluntary escrow. EMECO HOLDINGS LIMITED ANNUAL REPORT 2021 126 Emeco Holdings Limited and its Controlled Entities Company Directory DIRECTORS Peter Richards Ian Testrow Peter Frank Keith Skinner Peter Kane 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 Level 7-9 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 2021 127
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