Emeco Holdings Limited and its Controlled Entities
ABN 89 112 188 815
Annual Financial Report
30 June 2021
EMECO HOLDINGS LIMITED ANNUAL REPORT 2021
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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
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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
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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
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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
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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
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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
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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
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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 $77.1 million in FY21 in line with the reduction in
utilisation of the Rental fleet.
Operating EBITDA margins decreased to 38.3% (FY20: 47.1%) as a result of the full year contribution of lower
margin earnings with a greater services content from Pit N Portal and the Rental segment in addition to some
minor additional costs incurred in response to COVID-19. Operating EBIT decreased 14.6% attributable to
lower EBITDA however operating return on capital (ROC) remained high at 16.8% (FY20: 21.0%).
EMECO HOLDINGS LIMITED ANNUAL REPORT 2021
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Table 3: Operating cost summary (operating results)
A$ 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
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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$180.1 million of notes in
July 2021 will significantly reduce the finance cash costs of the Group going forward with a full year benefit to
be realised in FY22.
EMECO HOLDINGS LIMITED ANNUAL REPORT 2021
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CONTINUED LEVERAGE REDUCTION IN LINE WITH TARGET
Table 6: Net debt and gearing summary
A$ 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
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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
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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