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Canadian National Railway CompanyANNUAL REPORT 2011 2 3 4 6 10 15 17 RESULTS SUMMARY PERFORMANCE HIGHLIGHTS CHAIRMAN’S REPORT MANAGING DIRECTOR'S REPORT OUR BUSINESSES BOARD AND MANAGEMENT FINANCIAL STATEMENTS We are an aSX liSted Group of SucceSSful induStrial buSineSSeS built on Solid enGineerinG capabilitieS. our buSineSSeS operate acroSS auStralia, europe, aSia and the americaS ServicinG companieS in the reSourceS, rail, tranSport, defence, maritime and poWer Generation induStrieS. our viSion: We Will be a leadinG Supplier of technical productS and SolutionS to the tranSport, reSourceS and defence marketS deliverinG Superior value and returnS. 01 Managing Director's reportEngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport reSultS Summary Key financials profit after tax including discontinued operations revenue* profit after tax* total assets net assets financial liabilities net debt Shareholders' equity Key share data earnings per share net tangible assets per share Key ratios return on shareholders’ equity* Gearing (net debt to equity) $m $m $m $m $m $m $m $m cents cents % % 5.1 199.3 6.8 273.4 184.1 53.4 39.3 184.1 0.68 10.80 3.7% 21% 2011 2010 (114.2) 167.8 (104.0) 242.3 56.4 113.2 110.5 56.4 (56.97) 1.50 (184.4%) 196% GEARING (net debt to equity) % 196% | 21% REVENUE* PROFIT AFTER TAX* NET ASSETS FINANCIAL LIABILITIES NET DEBT EARNINGS PER SHARE $m $m $m $m $m cents PROFIT AFTER TAX including discontinued operations $m 167.8 | 199.3 56.4 | 184.1 113.2 | 53.4 110.5 | 39.3 (114.2) | 5.1 (104.0) | 6.8 (56.97) | 0.68 LEGEND 2010 2011 *excludes results of discontinued operations in both years 02 enGenco limited (formerly coote induStrial ltd) 2011 annual report performance hiGhliGhtS GROUP HIGHLIGHTS OPERATIONAL HIGHLIGHTS net profit after tax of $5.1m; up from a $114.2m loss the previous year net profit after tax attributable to ordinary members of $4.9m; up from a $113.7m loss in 2010 first phase of business review and turnaround complete Strong cash position of $10.5m comfortable headroom in bank facilities Strong prospects for growth capital raising: $85.2m was raised to fund the restructuring strategy, provide stable funding and assist in providing investment capital to previously locked growth opportunities. divestment and exit of loss making operations: Sale of coote logistics and eden cryogenics llc businesses and exit from miscellaneous activities removed distracting and loss making segments and allowed a focussed effort on core businesses. all continuing businesses are now profitable. relocation of corporate headquarters: establishment of melbourne cbd corporate office to improve the efficiency of central accounting and corporate functions. bank debt facilities: funding secured for a further two years. the return to profitability folloWS an aGGreSSive reStructure of the buSineSS over the laSt year. thiS included the diveStment of a number of underperforminG buSineSSeS, an intenSive capital and eXpenSe manaGement proceSS, and the appointment of a neW manaGement team. enGenco limited (formerly coote induStrial ltd) 2011 annual report 03 03 chairman'S report the company operates in sectors of the economy which offer strong opportunities to grow its business operations over the next few years. combined with ongoing improvements in the business, we expect further revenue growth in 2012 along with material improvement in profitability. on behalf of the board of engenco limited, i have great pleasure in presenting the company’s 2011 annual report. the last year has been a period of significant change and challenge as we have gone about the task of rebuilding the fortunes of the company and converting the considerable potential that resides within the organisation into great outcomes. return to profitability and a strengthened balance sheet through greater cooperation across the business. Some initial examples include group wide oh&S and procurement initiatives which will yield positive results. Systems and process development including enterprise resource planning remains a key ingredient in managing the successful growth of the company and requires further improvement. this will be aided considerably by the completion of the rollout of Sap which was restarted in the 2011 financial year. Some of the most pleasing aspects of the past year have been the return to profitability and closing the year with a substantially strengthened balance sheet following successful capital raisings in which a significant proportion of the funds raised was used to reduce bank debt and restore the company’s gearing to a more sustainable level. the positive financial result reported in 2011 represents a strong achievement in the first year of what is a 3 – 5 year turnaround strategy. We expect ongoing and sustainable improvement over the remainder of this period. While much more needs to be done, many of the challenges ahead present some of the greatest opportunities for rewarding growth. corporate governance We have continued to develop the company’s corporate governance practices to ensure that the expectations of our shareholders and other stakeholders are positively satisfied. a key aspect of this is the strong level of engagement between the board and management. the appointment of ross dunning ac as an independent non executive director in november 2010 was a further positive development in enhancing the board’s skills set and capability. strategy While the company has entered the current financial year in far better shape than when it started the last year, we also now operate in an increasingly volatile and competitive environment in which we will need to continue to strive to improve our efficiency and competitiveness. outlooK the company operates in sectors of the economy which offer strong opportunities to grow its business operations over the next few years. combined with ongoing improvements in the business, we expect further revenue growth in 2012 along with material improvement in profitability. the company benefited from the divestment of loss making businesses and underperforming assets combined with a renewed focus on the core strengths and competitive advantages of the business. We will continue to refine the restructure of our operations into more clearly defined and compatible business streams so that we can take better advantage of opportunities as they arise and extract greater efficiencies Such growth and improvement will also come from increasing our capacity to undertake further work more efficiently and through enhancing our existing product and service offerings. the utilisation of smart technology solutions will also be a key driver in the business. the realisation of some opportunities may however be affected by the uncertainty created by the current volatile markets and the impact this may have on the business is 04 Managing Director's reportEngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport Chairman's rEPOrT a POsiTiVE FinanCiaL rEsULT Was aChiEVED something of which we are conscious. While the pipeline of planned investment in resources and infrastructure projects in Australia is considerable, the impact of the timing of some of these projects can have an amplified effect on the Company where the expected revenues are relatively large and lumpy. PeoPle An organisation can only achieve its objectives and goals through its people and while we are fortunate to be represented by a dedicated and capable team, we remain committed to continuing to develop our people and their skill base and to ensure they undertake their duties in a safe and fulfilling work environment. We are thankful that through our people’s efforts, the considerable achievements of the Company over the past year have been made possible. The loyalty demonstrated by our people is also found in many of our valued customers and suppliers to whom we extend our thanks for their past and ongoing support. Importantly, we appreciate the ongoing support of our shareholders both long standing and those who have joined the register in more recent times. Please be assured of our ongoing commitment to deliver value to your investment and reward your faith in Engenco and its people. Dale Brendon Elphinstone Chairman 05 Managing Director's reportEngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport manaGinG director'S report our strategy of refocusing the business on its core capabilities and strengths has already yielded significant results with the marked improvement in overall financial performance and the delivery of a net profit after tax of $4.9 million overview considerable progress has been made over the past year in the turnaround of the company. our strategy of refocusing the business on its core capabilities and strengths has already yielded significant results with the marked improvement in overall financial performance and the delivery of a net profit after tax of $4.9 million particularly pleasing. disposals of underperforming assets and operations have also helped create a more focused approach towards the rest of the business. the corporate headquarters were relocated from perth to melbourne to improve the efficiency of Group accounting and investor relations functions. the benefits of the relocation are already evident and will continue to accrue over the next year. the change of name to engenco limited was another positive aspect of the operational and structural changes which took place during the year. in support of our overall objectives and strategies, over the past year the company took the opportunity to among other things: 1 promote an environment in which the strategic business units are actively encouraged to take advantage of the capabilities and efficiencies that can result from being part of the broader engenco Group. While this is still in the early stages, we expect there will be considerable ongoing benefits as working relationships across business streams continue to mature and develop. 2 Simplify the structure of the business into the two key segments of power & propulsion and rail & road. 3 take a “group wide approach” towards safety which should see further improved safety performance and consistency in the standards applied. the Group oh&S platform development team will play a key role in driving this initiative. 4 Sharpen the focus on financial performance and the management of the company’s resources. 5 reinstitute the critical task of improving the company’s management information systems to a level necessary to match the company’s growth aspirations. the company ended the year on the back of significantly improved performances across the Group and has a much more robust financial base from which to develop and pursue its strategies with even greater vigour over the next year and beyond. financial performance during the past year, engenco achieved revenues of $199.3 million - an increase of $31.5 million or 18.8% over the previous year. net profit after tax attributable to ordinary members of $4.9 million represented a significant turnaround against the prior year result which was a $113.7 million loss. When the effect of discontinued operations and one off adjustments are taken into consideration, the net profit after tax would have been $6.6 million. the company undertook two major capital raisings during the year with a significant portion of the sums raised applied towards debt retirement. consequently, financial liabilities were reduced by $59.8 million from the previous year’s closing balance of $113.2 million down to $53.4 million. this resulted in the company’s gearing falling to a much more sustainable level of 21%. (previously this was 196%.) engenco ended the year with a strong cash balance and subsequent to the year end, it also finalised a new facility with its primary banker (commonwealth bank) for a two year term. notwithstanding the vastly improved liquidity, ongoing vigilance will still be required to be exercised to ensure that working capital is optimised and cash resources are deployed in the most efficient manner. 06 enGenco limited (formerly coote induStrial ltd) 2011 annual report mANAGING DIRECTOR'S REPORT operations overview drivetrain achieved an outstanding result with earnings growth more than doubling on that of the previous year coupled with a return to strong profitability. the mobile powertrain business stream benefitted from its exposure to the mining resources sector in both parts sales and mro (maintenance, repair and overall) workflow. in addition to the strong demand for hedemora diesel engine parts from defence customers, substantial progress was also made in expanding into the burgeoning natural gas industry. expansion into the maintenance and support of gas power generation sets and compression packages compliments drivetrain’s core heavy engine through life support capabilities. the hS turbo product offering continues to mature, sales and support capabilities grew during the year and the Sweden based test cell is now fully operational. establishment of sales and service presences in north and South america have begun to bear fruit with interest from the retro-fit market showing great promise. continued business integration and management system development initiatives have helped mature and rationalise management across australian and international operations. the business is now fully operational on the engenco Sap platform in all anZ and asian branches, with rollout to europe and uS sites planned in 2012. Similarly, Gemco rail went from a significant loss making position in the previous year to a return to profitability with revenue sales rising dramatically over the prior year. this much improved outcome resulted from re-focusing on core competencies and optimising the business to bring greater efficiencies and to better align with customer requirements and opportunities. this, along with eliminating poor margin activities contributed to the achievement of a base profit margin which can be built on in coming years. increased demand in wheel shop, bearing shop and other maintenance related service areas resulted in the forrestfield, Wa facility operating close to current maximum capacity. manufacture of 194 purpose built wagons for the imX project as well as multiple niche manufacturing and refurbishment orders ensured good fabrication throughput, and efficiency improvements driven by the introduction of lean manufacturing methodologies. the imX wagons will be leased to the customer for an initial five year period during which time Gemco will also undertake the ongoing maintenance under a separate maintenance arrangement. initiatives to integrate rail & road segment businesses have resulted in a merged accounting and administration function servicing Gemco, momentum, cert and Greentrains from the forrestfield site. this has rationalised the use of resources and captured associated efficiencies. enGenco limited (formerly coote induStrial ltd) 2011 annual report 07 DriVetrain achieVeD an outStanDing reSult with earningS growth more than Doubling on that of the preViouS year While revenue gains at Momentum Rail over the course of the year were very good, major improvements in the management of labour and other costs drove particularly impressive growth in the profitability of the operation. The re-establishment of core capability in Victoria, together with established relationships with key industry alliance partners contributed to the successful result. Like the rest of the ongoing business operations, CERT also produced higher profits over the prior year notwithstanding some setbacks suffered during the second half with the loss of staff in the West Australian market. The business unit is set to benefit over the next year from contract wins with leading rail infrastructure companies along with further expansion of its training capability along the eastern seaboard. Convair posted major gains in both revenues and profitability. It maintained a strong pipeline of orders during the year and this trend has continued into the current year. Capital sales growth together with management of costs, improved efficiencies and innovative manufacturing techniques all provided the ingredients of what was an impressive return for the year. Following the disposal of loss making operations including FCD Logistics, Eden Cryogenics and Claw Environmental, the remaining core business operations were, on an EBIT basis, all profitable basis for the year. Strategy & OutlOOk Continuing to build on Group capability and capacity in the right areas is expected to anchor sustainable performance and to offer further growth opportunities by levering off and further building on our deep-seated engineering expertise and established market positions. Our capabilities in niche manufacturing, capital asset maintenance and enhancement, and parts distribution strategically places Group businesses exceptionally well to capture through-life-support opportunities on installed bases of customer equipment. This is reinforced by having 08 established long-term relationships with both supply and customer partners, as well as possessing physical presences in key locations. Driving the growth opportunities offered by our sustainable strategic position will take the form of: Expanding capacity in existing sites as well as establishment of new key locations, especially to meet demand in the rail maintenance and turbocharger support sectors. Capturing market opportunities brought about by proprietary intellectual property particularly through the HS Turbo product suite. Developing the market potential of our unique skills and product offerings in the gas power and compression sector. Participating in major resource and infrastructure projects. Further investment in the development of our people both from a technical and commercial perspective will underpin our future success. The valuable contribution of our staff to what is clearly a turnaround of the Company’s fortunes is testament to their passion and dedication. Vince De Santis Managing Director Managing Director's reportEngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport ENGENCO ENDED THE yEAR WITH A STRONG CASH BALANCE enGenco limited (formerly coote induStrial ltd) 2011 annual report 0909 Managing Director's reportEngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport our buSineSSeS POWER AND PROPULSION RAIL AND ROAD 1010 enGenco limited (formerly coote induStrial ltd) 2011 annual report Managing Director's reportEngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport OUR BUSINESSES drivetrain power and propulsion gemco rail drivetrain’s services span the complete engineering product lifecycle: design, application engineering, troubleshooting, supply and service, and through-life support programmes for heavy mobile powertrain systems, large frame turbochargers, heavy diesel and gas power generation and gas compression equipment. drivetrain is organised around the following business streams: mobile powertrain turbo, power and compression Services include: maintenance, repair, and overhaul design, installation and commissioning genuine component and spare parts distribution field service technical and engineering services in remote locations drivetrain has facilities and service centres in 15 locations including australia, new Zealand, Singapore, philippines, Sweden, uSa and brazil. Gemco has been a wellknown supplier of quality products and services to the rail sector for many years. building on this solid reputation and experience, the business specialises in the manufacture of rail equipment and providing fleet management services to national rail operators. Gemco provides wagon and locomotive scheduled and ad-hoc maintenance services and manufactures custom designed and engineered new and refurbished wagons, bogie component parts and associated rail equipment. the company also supplies a broad range of rail track maintenance equipment and parts. Services include: manufacture and maintenance of freight wagons, other rollingstock and rail equipment locomotive maintenance, repair and overhaul fleet asset management custom maintenance, modification, retrofit and upgrades bogie, wagon and wheel refurbishment field service crews train inspections railbam acoustic analysis the flagship facility in forrestfield Wa is complimented by a county-wide footprint including workshops in midland Wa; altona and dynon vic; islington Sa; and rocklea Qld. enGenco limited (formerly coote induStrial ltd) 2011 annual report 11 Managing Director's reportEngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport OUR BUSINESSES momentum greentrains Greentrains provides a range of locomotives and wagons for lease to the australian rail industry, with the added benefit of a packaged maintenance solution provided by Gemco rail. convair convair designs and manufactures tankers for the transport of dry bulk products by road and rail. the business also repairs, maintains and supplies spare parts for all makes of dry bulk tankers and offers distribution, service and repair of compressors and ancillary equipment used in the support of dry bulk materials handling. convair are agents for feldbinder Spezialfahrzeugwerke Gmbh of Germany, supplementing the range of products with aluminium dry bulk tankers and stainless steel liquid tankers. With it’s plant based in melbourne, convair services customers throughout australia and in new Zealand. momentum offers a range of workforce provisioning services from providing skilled individuals to fully supervised and equipped crews to carry out rail track construction, maintenance and upgrades. momentum specialises in all types of rail welding including the welding of heavy gauge crane rail at height and the operation of flash butt welding plant. momentum can plan, implement and manage safe working solutions for rail clients, from handsignallers and lookouts to highly experienced principal protection officers. operating out of main branches in forrestfield, port hedland, thornton, Gunnedah, norwood and campbellfield – momentum has focussed strategic presence to service the rail and resource sectors. centre for excellence in rail training (cert) cert is a registered training organisation (rto) that provides responsive, flexible and innovative training, assessment and recertification services to the australian rail industry. cert delivers nationally accredited and industry based training programs on a regular basis, and provides customised courses to suit individual business needs. the business has training centres in perth, Sydney, newcastle and melbourne with the flexibility to train on-site anywhere in the country. 12 Managing Director's reportEngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport enGenco limited (formerly coote induStrial ltd) 2011 annual report enGenco limited (formerly coote induStrial ltd) 2011 annual report 13 1313 Managing Director's reportEngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport mANAGING DIRECTOR'S REPORT 14 14 enGenco limited (formerly coote induStrial ltd) 2011 annual report enGenco limited (formerly coote induStrial ltd) 2011 annual report board and manaGement a number of new board appointments were made, initially to re-form the board when dale elphinstone and vince de Santis joined. ross dunning ac joined as an independent non-executive director bringing considerable rail industry experience to the board. dale elphinstone Non-Executive Director (Chairman) mr elphinstone is the executive chairman of the elphinstone Group which he founded in 1975. mr elphinstone has considerable experience in the engineering, manufacturing and heavy machinery industries and among other things is one of the longest serving caterpillar dealer principals in australia having acquired the caterpillar dealership in victoria and tasmania in 1987. he was a director of caterpillar subsidiary, caterpillar underground mining pty ltd until december 2008 and of the formerly publicly listed Queensland Gas company limited from october 2002 to november 2008. mr elphinstone is also a director of aSX listed national hire Group limited. vince de santis managing Director (Interim) vince is the managing director of the elphinstone Group which he joined in 2000 as the Group’s legal counsel and finance & investment manager. he is a director of various elphinstone Group companies and the alternate director for mr elphinstone on the board of national hire Group limited. (he was also mr elphinstone’s alternate on the board of Queensland Gas company limited). immediately prior to joining the elphinstone Group, vince was a Senior associate in the energy resources & projects work group of national law firm corrs chambers Westgarth in melbourne. limited). ross has been awarded the companion of the order of australia and has held non-executive positions with a number of aSX listed companies including toll holdings limited, downer edi limited, Government owned corporations in Queensland and new South Wales and on unlisted public companies. ross currently serves as a director of Queensland energy resources limited, chairman of port of townsville limited and is a member of the council of St John’s college within the university of Queensland. gary Jean Interim - Company Secretary/Chief Financial Officer Joined engenco limited in may 2011. has 25 years’ experience in accounting and finance roles in the rail and resource sectors. has worked with rio tinto limited and recently as chief financial officer of mainco melbourne pty ltd, a subsidiary of aSX listed company, uGl limited. Kevin pallas Chief Operating Officer Senior management and leadership experience through 21 years in engineering, metals and manufacturing industries. consulted in the areas of financial and cost accounting systems and commercial management for a number of multinationals including philips and daimler chrysler prior to joining coote industrial in 2007. donald hector Non-Executive Director don has 17 years experience in senior executive management and ceo positions with industrial companies. he was managing director of dow corning australia pty ltd, the australian subsidiary of dow corning corporation and was managing director of asia pacific Specialty chemicals ltd, an aSX-listed chemical company. don is a non- executive chairman of Semf pty ltd, a multidisciplinary engineering consulting firm. he is also on the board of engineering Sydney at the university of Sydney and is a council member of one of Sydney’s leading independent schools. don served as non-executive chairman of engenco limited until 21 July 2010. ross dunning ac Non-Executive Director ross has extensive exposure to the rail industry having served as the commissioner for railways in Queensland, president of the australian railways association and managing director of evans deakin industries limited (the predecessor to the aSX listed company, downer edi glenn parrett Drivetrain Power and Propulsion – Chief Executive Officer more than 17 years experience delivering against total business plan responsibility, including as General manager and managing director of engineering sales and service businesses. extensive experience in application engineering, technical sales, project and business management in the power and propulsion segment. wayne manners Gemco Rail – Chief Executive Officer Gemco ceo since october 2009. previous to that was ceo fleetwood pty ltd 2006-2009. formerly General manager Wa emoleum road Service, state advisory board member Starlight children's foundation and director australasian asphalt and paving association. enGenco limited (formerly coote induStrial ltd) 2011 annual report 15 GROWTH STRATEGy expanding capacity in existing sites as well as establishment of new key locations, especially to meet demand in the rail maintenance and turbocharger support sectors. capturing market opportunities brought about by proprietary intellectual property particularly through the hs turbo product suite. developing the market potential of our unique skills and product offerings in the gas power and compression sector. participating in major resource and infrastructure projects. 16 16 enGenco limited (formerly coote induStrial ltd) 2011 annual report Managing Director's reportEngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport finanCial StatementS anD other reportS Corporate GovernanCe Statement 18 22 DireCtorS’ report 32 DireCtorS’ DeClaration 33 auDitor’S inDepenDenCe DeClaration 34 inDepenDent auDitor'S report 36 ConSoliDateD Statement of ComprehenSive inCome ConSoliDateD Statement of finanCial poSition 37 38 ConSoliDateD Statement of ChanGeS in equity 39 ConSoliDateD Statement of CaSh flowS 40 noteS to the finanCial StatementS Statement of Significant accounting PolicieS 1. 2. Revenue 3. PRofit foR the YeaR income tax exPenSe 4. 5. DiScontinueD oPeRationS 7. PaRent entitY DiScloSuReS 8. auDitoR’S RemuneRation 9. DiviDenDS 10. eaRningS PeR ShaRe 11. caSh anD caSh equivalentS 12. tRaDe anD otheR ReceivableS inventoRieS 13. 14. financial aSSetS 15. contRolleD entitieS 16. PRoPeRtY, Plant anD equiPment 17. 18. otheR aSSetS 19. tRaDe anD otheR PaYableS 20. financial liabilitieS 21. tax 22. PRoviSionS 23. iSSueD caPital 40 53 54 55 56 60 6. KeY management PeRSonnel 62 63 63 64 64 65 68 68 69 70 72 74 75 75 77 78 79 80 24. caPital anD leaSing commitmentS 81 87 90 27. ShaRe baSeD PaYmentS 90 28. net tangible aSSetS 91 91 92 97 ShareholDer information 25. oPeRating SegmentS 26. caSh flow infoRmation 29. eventS SubSequent to RePoRting Date 30. RelateD PaRtY tRanSactionS 31. financial RiSK management 32. ReSeRveS intangible aSSetS 98 100 Corporate DireCtory engenco limiteD (foRmeRlY coote inDuStRial ltD) 2011 annual RePoRt 17 Corporate GovernanCe Statement coRPoRate goveRnance Statement engenco limited (”company”) and the board are committed to achieving compliance with all the best practice recommendations released by the australian Securities exchange corporate governance council. this statement outlines the main corporate governance practices in place throughout the financial year, with specific references made to any departures from the best practice recommendations. Role of the BoaRd the role of the board is to protect and promote the interests of the company and to represent its shareholders whilst considering the interests of other stakeholders including employees, customers, suppliers, wider communities and the environment. it does this according to the principles of good corporate governance intending to fulfil the company’s responsibilities as a corporate citizen. the board operates under a board charter; which describes the processes used by the board to: }} appoint and review the performance of the managing Director/ceo; }} approve key strategic decisions including, but not limited to, acquisitions and divestments; }} approve annual revenue, operating expenditure, and capital budgets; }} approve significant changes in organisational structure; }} determine and approve the remuneration of the managing Director/ceo; }} approve the remuneration of executive management, and }} formally adopt any communication to regulators and shareholders as may be required by the company constitution, statute, or other regulation. the board may change by resolution any power reserved to itself. executive delegation other than those matters reserved by the board to itself, the board delegates to the managing Director/ceo all authority to achieve the company’s objectives consistent with this governance charter, the company constitution, statute or other regulation. the managing Director/ceo prepares a one year operational and financial plan for approval by the board. BoaRd StRuctuRe the skills, experience and expertise relevant to the position of each director who is in office at the date of the annual Report and their term of office are detailed in the Directors’ Report in this annual Report. the names of the independent directors of the company are: D hector, R Dunning when determining whether a non-executive director is independent the director must not fail any of the following materiality thresholds: }} less than 10% of company shares are held by the director or any other entity or individual directly or indirectly associated with the director; }} no sales are made to or purchases made from any entity or individual directly or indirectly associated with the directors’, and }} none of the directors’ income of an individual or entity directly or indirectly associated with the director is derived from a contract with any member of the economic entity other than income derived as a director of the entity. 18 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport Corporate GovernanCe Statement the board reviews the independence of its directors in light of the information provided to it. independent directors have the right to seek independent professional advice in the furtherance of their duties as directors at the company’s expense. written approval must be obtained from the board prior to incurring any expense on behalf of the company. MeetingS of the BoaRd the board meets on a regular pre-determined basis or more frequently as required. on the invitation of the board, members of senior management attend and make presentations at board meetings. in addition to the formal meetings the board regularly meets to consider important issues affecting the company. the number of meetings held and attended by each of the directors for the financial year ended 30 June 2011 is set out in the Directors’ Report. BoaRd MeMBeRShip appointment board members are nominated by the board and their appointment confirmed by a vote of shareholders. the board will have a minimum of one non-executive director who will be free of material relationships with the company and who would be reasonably considered by shareholders to be independent. the expectation of directors is that they will be of unquestioned integrity and honesty; will understand and behave to the highest standards of corporate governance and will be prepared to question, challenge, and criticise matters of strategy. Directors will be appointed according to the contribution they can make in meeting strategic skill requirements of the company. Remuneration of directors will be transparent and reported in its entirety to shareholders. Directors are expected to continue to develop their skills through ongoing education and training. retirement and re-election the constitution of the company requires one third of the directors, other than the managing Director, to retire from office at each annual general meeting. Directors who have been appointed by the board are required to retire from office at the next following annual general meeting and are not taken into account in determining the number of directors to retire at that annual general meeting. Directors cannot hold office for a period in excess of three years beyond the third annual general meeting following their appointment without submitting themselves for re-election. Retiring directors are eligible for re-election by shareholders. Board access to information and independent advice all directors have unrestricted access to employees of the group and, subject to the law, access to all company records and information held by group employees and external advisors. each director may obtain independent professional advice to assist the director in the proper exercise of powers and discharge of duties as a director or as a member of a board committee. in such cases, the chairman and company Secretary must be advised and a copy of the advice made available to all directors. Conflicts of interest Directors are required to notify the board of any real or perceived conflicts of interest that may occur from time to time. the board has adopted the use of formal standing notices in which they disclose any material personal interests they have and the relationship with the affairs of the company. Directors are required to provide an updated notice if they acquire any new material personal interests or if there is any change to the nature and extent of their previously disclosed interest. performance evaluation to date a formal assessment of board performance has not taken place. 19 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport Corporate GovernanCe Statement RewaRd and ReMuneRation Reward and remuneration of directors and executives will be objectively linked to obtaining the company objectives and consistent with the financial performance of the company. there will be transparency to shareholders regarding reward and remuneration of board members and senior executive management. there are currently no schemes for retirement benefits other than statutory superannuation. coMMitteeS currently the board of engenco limited has formed a separate audit committee to assist it in exercising its responsibilities. given the size and stage of development of the company the board has not formed a nomination or Remuneration committee which is a departure from aSx best Practice Recommendation 2.4 and 8.2. the audit committee monitors internal control policies and procedures designed to safeguard company assets and to maintain the integrity of financial reporting. the specific responsibilities set out in its charter include: }} in conjunction with the internal and external auditors, assure the integrity of financial statements; }} recommend to the board the appointment of and review the performance of the external auditor; }} determine the remuneration of the external auditor; }} oversee the integrity of the internal and external audit process, and }} ensure there is a process to identify the likelihood and impact of financial risk and that this process is actively managed. audit Committee the members of the audit committee at the date of this report are: D hector R Dunning Senior staff and any other persons considered appropriate, attend meetings of the audit committee by invitation. Details of the number of meetings held and attended by the members of the audit committee can be found in the Directors’ Report. the board has established a terms of Reference to guide the activities of the committee. the current composition of the audit committee does not meet aSx best Practice Recommendation 4.3 however the board believes that this is the most effective structure for the audit committee given the structure of the board itself. financial RepoRting consistent with aSx best Practice Recommendation 4.1, and in accordance with section 295a of the corporations act 2001, the company’s financial report preparation and approval process for the year ended 30 June 2011, involved both the chief executive officer and chief financial officer providing a written statement to the board that, in their opinion: }} the company’s financial report presents a true and fair view of the company’s financial condition and operating results and is in accordance with applicable accounting standards, and }} the company’s financial records for the financial year have been properly maintained in accordance with section 286 of the corporations act 2001. audit goveRnance and independence external auditors bentleys are the company’s current external auditors. the performance of the external auditor is reviewed annually by the audit committee. bentleys were appointed as the external auditor in 2006. it is currently the company’s policy that no non- audit services are provided by the external auditor to ensure independence is maintained. it is bentley’s policy to rotate audit engagement partners on listed companies at least every five years. 20 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport Corporate GovernanCe Statement independence Declaration the corporate law economic Reform Program (audit Reform and corporate Disclosure) act 2004 (“cleRP 9”) amendments to the corporations act 2001 require external auditors to make an annual independence declaration, addressed to the board, declaring that the auditors have maintained their independence in accordance with cleRP 9 amendments and the rules of the professional accounting bodies. bentleys have provided such a declaration to the audit committee for the financial year ended 30 June 2011. attendance of external auditors at annual General meetings in accordance with aSx best Practice Recommendation 6.2 and the corporations act 2001, the company requires that bentleys attend the company’s annual general meeting and are available to answer questions about the conduct of the audit and the preparation and content of the audit report. Shareholders are asked to submit written questions to the company Secretary at least 5 days prior to the annual general meeting. RiSk identification and ManageMent the company is in the process of implementing policies regarding risk identification and management which are consistent with Principle 7 of the aSx corporate governance Principles and Recommendations. ShaRe tRading policy the company’s Share trading Policy objective among other things is to minimise the risk of insider trading in the company’s securities and in furtherance of the company’s commitment to the adoption of good corporate governance principles. the policy prohibits all employees, officers and directors of the company from trading in the company’s securities if they are in possession of “inside information”. Short term or speculative dealing in the company’s securities by employees, officers and directors is also not permitted. employees, officers and directors must not trade in the company’s securities during closed periods. trading is generally permitted at other times provided there is no contravention of the insider trading laws. the policy also restricts hedging and margin loan activities for employees, officers and directors. the company’s Share trading Policy is published on the company’s intranet. continuouS diScloSuRe the company understands and respects that timely disclosure of price sensitive information is central to the efficient operation of the australian Securities exchange’s securities market. the company Secretary has responsibility for overseeing and co-ordinating the disclosure. any disclosures are discussed with the board and appropriate action is taken. coMMunicationS with ShaReholdeRS the board is committed to completely discharge its obligation to represent the interests of shareholders. the board will ensure that information is regularly communicated to shareholders, in particular, paying regard to the continuous disclosure requirements of the aSx. the board welcomes shareholder participation at the company’s annual general meeting. Shareholders are entitled to vote on significant matters impacting on the business, which include the election and remuneration of directors, changes to the constitution and receipt of the annual and interim financial statements. Shareholders are encouraged to attend and participate in the annual general meeting, to lodge questions to be responded by the board, and are able to appoint proxies. 21 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport DireCtorS' report DiRectoRS’ RePoRt Your directors present their report, together with the financial statements of the group, being the company and its controlled entities for the financial year ended 30 June 2011. pRincipal activitieS the company delivers a diverse range of engineering services and products through two business streams: Power and Propulsion; and Rail and Road. engenco businesses specialise in: }} maintenance, repair and overhaul of heavy duty engines, powertrain and propulsion systems; }} maintenance, repair and overhaul of locomotives; }} manufacture and maintenance of wagons, carriages and associated rail equipment; }} Project management, training and workforce provisioning services; }} manufacture and supply of road transport and storage tankers for dry bulk products; and }} leasing of locomotives, wagons and other rail equipment. the company services a diverse client base across the defence, resources, marine, power generation, rail, heavy industrial and infrastructure sectors. engenco employs around 700 people operating from more than twenty locations in seven countries. opeRating ReSultS, Review of opeRationS foR the yeaR and Significant changeS in State of affaiRS operating results the company recorded a net profit after tax (nPat) including non-controlling interests of $5.1 million for the year ended 30 June 2011. Key contributors to this profit are recorded in the following table. Revenue * ebitDa* ebit* nPat attributable to members (including discontinued operations and one-off adjustments) nPat attributable to members (excluding discontinued operations and one-off adjustments) net operating cash flow net assets** net debt 2011 $’000 2010 $’000 207.4 27.6 17.7 4.9 6.6 (25.6) 184.1 39.3 227.7 (86.2) (99.9) (113.7) (21.2) 40.6 56.4 110.5 * ** includes discontinued operations. net assets increased as a result of the capital raisings completed in July 2010 for $42.6 million and in march 2011 for $85.2 million. 22 engenco limiteD (foRmeRlY coote inDuStRial ltD) 2011 annual RePoRt DireCtorS' report financial position the following table summarises the key elements of the nPat result adjusting for one-offs and discontinued operations. 2011 $’000 2010 $’000 nPat attributable to members (including discontinued operations and one-off adjustments) Adjusted for the discontinued operations and one-off adjustments: net loss after tax - fcD logistics Pty ltd net loss after tax – eden cryogenics llc net loss after tax – claw environmental net loss after tax - South Spur Rail Services Pty ltd Prior year foreign income tax expense correction impairment of goodwill impairment of property, plant and equipment inventory write-down obsolete stock write-off loss on sale of Pota locomotives 4.9 0.3 1.4 - - - - - - - - nPat attributable to members (excluding discontinued operations and one-off adjustments) 6.6 Significant Changes in State of affairs (113.7) 3.2 1.2 1.1 10.2 (2.7) 44.2 11.5 12.6 5.2 6.0 (21.2) the following significant changes in the state of affairs of the group occurred during the financial year: }} two capital raisings – a non-renounceable rights issue raising $42.6 million (gross) completed in July 2010, and placements to institutional and sophisticated investors together with a non-renounceable rights issue raising $85.2 million (gross) completed in march 2011. }} the refinancing of engenco’s cba banking facilities was completed 1 august 2011 resulting in the group renewing its existing finance facilities until 31 July 2013. }} the sale of loss-making business fcD logistics Pty ltd in January 2011 and eden cryogenics llc in february 2011. }} group borrowings significantly reduced with net debt of $39.3 million as at 30 June 2011, compared with $110.5 million as at 30 June 2010. dividendS the Directors have decided not to declare a final dividend. afteR Balance date eventS a number of after balance date events have occurred since 30 June 2011. further details can be found on note 29 – events Subsequent to Reporting Date. futuRe developMentS, pRoSpectS and BuSineSS StRategieS Details of the company’s future developments, prospects and business strategies are included in the managing Director’s Report. engenco limiteD (foRmeRlY coote inDuStRial ltD) 2011 annual RePoRt 23 DireCtorS' report enviRonMental iSSueS group operations are subject to significant environmental regulation under commonwealth and international law, including noise, air emissions and the use, handling, haulage and disposal of dangerous goods and wastes. the group uses practices that minimise adverse environmental impacts and provides appropriate feedback on the group’s environmental performance to ensure compliance. the board is not aware of any significant breaches during the periods covered by this report nor does it consider the group is subject to any material environmental liabilities. national Greenhouse and energy reporting Guidelines the group’s environmental obligations are regulated under both federal and State law. engenco is subject to the conditions imposed by the registration and reporting requirements of the national greenhouse and energy Reporting act 2007, and is registered with the greenhouse and energy Data office. infoRMation on diRectoRS the following persons were the directors in office during the period 1 July 2010 to 30 June 2011 or in office as at the date of this report: Dale elphinstone non-executive Director (chairman) faicD Appointed: Age: 19 July 2010 60 Directorships held in other listed entities in the past three years: non-executive Director, queensland gas company limited, 2002-2008 non-executive Director, national hire group limited, 2008 - present Summary of current equity holdings: 450,000,000 ordinary shares mr elphinstone is the executive chairman of the elphinstone group which he founded in 1975. mr elphinstone has considerable experience in the engineering, manufacturing and heavy machinery industries and among other things is one of the longest serving caterpillar dealer principals in australia having acquired the caterpillar dealership in victoria and tasmania in 1987. he was a director of caterpillar subsidiary, caterpillar underground mining Pty ltd until December 2008 and of the formerly publicly listed queensland gas company limited from october 2002 to november 2008. mr elphinstone is also a director of aSx listed national hire group limited. vincent De Santis managing Director (interim) b.com llb (hons) Appointed: Age: 19 July 2010 42 Special Responsibilities: member of audit committee (ceased november 2010) Directorships held in other listed entities in the past three years: alternate Director, queensland gas company limited, 2002 – 2008 alternate Director, national hire group limited, 2008 - present Summary of current equity holdings: 1,200,000 ordinary shares 24 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport DireCtorS' report vince is the managing Director of the elphinstone group which he joined in 2000 as the group’s legal counsel and finance & investment manager. he is a director of various elphinstone group companies and the alternate director for mr elphinstone on the board of national hire group limited. (he was also mr elphinstone’s alternate on the board of queensland gas company limited). immediately prior to joining the elphinstone group, vince was a Senior associate in the energy Resources & Projects work group of national law firm corrs chambers westgarth in melbourne. Donald hector non-executive Director be (chem), PhD, faicD, fieaust, ficheme Appointed: Age: 2 november 2006 61 Special Responsibilities: chairman of audit committee Directorships held in other listed entities in the past three years: none Summary of current equity holdings: 236,647 ordinary shares Don has 17 years experience in senior executive management and ceo positions with industrial companies. he was managing Director of Dow corning australia Pty ltd, the australian subsidiary of Dow corning corporation and was managing Director of asia Pacific Specialty chemicals ltd, an aSx-listed chemical company. Don is a non-executive chairman of Semf Pty ltd, a multidisciplinary engineering consulting firm. he is also on the board of engineering Sydney at the university of Sydney and is a council member of one of Sydney’s leading independent schools. Don served as non- executive chairman of engenco limited until 21 July 2010. ross Dunning aC non-executive Director be (hons), b.com, fcilt, faim, fie aust, fiRSe, maicD Appointed: Age: 8 november 2010 69 Special Responsibilities: member of audit committee Directorships held in other listed entities in the past three years: nil Summary of current equity holdings: 200,000 ordinary shares Ross has extensive exposure to the rail industry having served as the commissioner for Railways in queensland, President of the australian Railways association and managing Director of evans Deakin industries limited (the predecessor to the aSx listed company, Downer eDi limited). Ross has been awarded the companion of the order of australia and has held non-executive positions with a number of aSx listed companies including toll holdings limited, Downer eDi limited, government owned corporations in queensland and new South wales and on unlisted public companies. Ross currently serves as a director of queensland energy Resources limited, chairman of Port of townsville limited and is a member of the council of St John’s college within the university of queensland. 25 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport DireCtorS' report Directors for part of the Financial Year michael Coote managing Director (resigned 22 July 2010) be (mech), maicD Appointed: Age: Special Responsibilities: 28 June 2006 47 n/a Directorships held in other listed entities in the past three years: Previously non-executive director, natural fuels ltd Summary of current equity holdings: 61,494 ordinary shares Don patterson Director and chief executive officer (resigned 22 July 2010) bbus, maicD Appointed: Age: Special Responsibilities: Directorships held in other listed entities in the past three years: Summary of current equity holdings: coMpany SecRetaRy Gary Jean interim - company Secretary/chief financial officer bbus, ca, mba Directorships held in other listed entities in the past three years: Summary of current equity holdings: 28 June 2006 52 n/a nil nil nil nil Appointed: Age: 6 may 2011 51 gary joined engenco limited in may 2011, following 25 years’ experience in accounting and finance roles in the rail and resource sectors. gary has worked with Rio tinto limited in both melbourne and indonesia with his most recent role from within the rail industry as chief financial officer of mainco melbourne Pty ltd, a subsidiary of aSx listed company, ugl limited. 26 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport DireCtorS' report Changes in Directors and executives Subsequent to year end there have been no changes in directors and executives subsequent to year end. MeetingS of diRectoRS During the financial year, 15 meetings of directors (including committees of directors) were held. attendances by each director during the year were as follows: Directors’ meetings audit committee meetings number eligible to attend number attended number eligible to attend number attended 13 13 13 7 1 1 12 13 13 7 1 1 - 1 2 1 - - - 1 2 1 - - Dale elphinstone vincent De Santis Don hector Ross Dunning michael coote Don Patterson indeMnifying officeRS the company has indemnified and paid premiums to insure each of the following directors against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity of director of the company, other than conduct involving a wilful breach of duty in relation to the company. D elphinstone, v De Santis, D hector, R Dunning optionS at the date of this report, the unissued ordinary shares of engenco under option are as follows: grant Date Date of expiry exercise Price $ no. under option 29 feb 08 29 feb 08 29 feb 12 29 aug 12 3.50 4.00 1,000,000 1,000,000 2,000,000 During the year ended 30 June 2011, no ordinary shares of engenco were issued on the exercise of options granted. no person entitled to exercise an option had or has any right by virtue of the option to participate in any share issue of any other body corporate. pRoceedingS on Behalf of coMpany no person has applied for leave of court to bring proceedings on behalf of the company or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or any part of those proceedings. the company was not a party to any such proceedings during the year. 27 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport DireCtorS' report non-audit SeRviceS there were no non-audit services provided by the company’s external auditor. auditoR’S independence declaRation the lead auditor’s independence declaration for the year ended 30 June 2011 has been received and can be found on page 33 of the Directors’ Report. Rounding of aMountS the company is an entity to which aSic class order 98/100 applies and, accordingly, amounts in the financial statements and Directors’ Report have been rounded to the nearest thousand dollars. ReMuneRation RepoRt remuneration policy this report details the nature and amount of remuneration for each director of engenco, and other key executives (including the most highly remunerated executives) who have strategic commercial impact upon engenco’s activities. the remuneration policy of engenco is intended to align director and executive objectives with shareholder and business objectives by providing a fixed remuneration component and offering specific incentives based on key performance areas affecting the consolidated group’s financial results. the board of engenco believes the approach to remunerating to be appropriate and effective in its ability to attract and retain the best executives and directors to run and manage the consolidated group. the board’s policy for determining the nature and amount of remuneration for board members and senior executives of the consolidated group is as follows: }} all executive directors and key executives receive a salary package comprised of a base salary, superannuation, and fringe benefits. in future, it is intended that packages will also include equity-based incentives. }} the board will review executive packages annually by reference to the consolidated group’s performance, executive performance and comparable information from industry sectors. }} the performance of executives is measured against criteria agreed annually with each executive and is based predominantly on the forecast growth of the consolidated group’s profits, which are aligned with shareholder value. the developing remuneration policy will be designed to attract the highest calibre of executives and reward them for performance that results in long-term growth in shareholder wealth. }} the executive directors and other key executives receive a superannuation guarantee contribution required by the government, which is currently 9%, and do not receive any other retirement benefits. Some individuals, however, have chosen to sacrifice part of their salary to increase payments towards superannuation. }} all remuneration paid to directors and executives is valued at cost to the company and expensed. Shares granted to directors and executives are valued as the difference between the market price of those shares and the amount paid by the director or executive. options are valued using the bi-nominal option valuation methodology. }} the board policy is to remunerate non-executive directors at market rates for time, commitment and responsibilities. the board determines payments to non-executive directors and reviews their remuneration annually, based on market practice, duties and accountability. the maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval by shareholders at the annual general meeting. }} to align directors’ interests with shareholder interests, the directors are encouraged to hold shares in the company. 28 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport DireCtorS' report performance Conditions linked to remuneration the remuneration structure for key management personnel is based on a number of factors, including length of service, particular experience of the individual concerned, and overall performance of the company. the contracts for service between the company and key management personnel are on a continuing basis. Some of the key businesses emphasise payment for results by providing various cash bonus reward schemes based on internal KPis of both financial and non-financial targets. the objective of the reward scheme is to both reinforce the short and long-term goals of the key business and to provide a common interest between all staff. the basis of the bonus scheme is being developed across all entities of the consolidated group; it may be displaced or complimented by an employee equity incentive plan. the employment conditions of key management personnel are formalised in contracts of employment. the employment contract does not stipulate a term of employment period but does stipulate a notice period for resignation and periods of remuneration and conditions under termination. termination payments are not payable on resignation or dismissal for serious misconduct. in the instance of serious misconduct the company can terminate employment at any time. relationship between remuneration policy and Company performances there has been no relationship between previous company performance and the previous remuneration of key management personnel. current remuneration policies are under review. the following table shows the gross revenue, profits and dividends for the last 5 years for engenco, as well as the share prices at the end of the respective financial years. Revenue (including discontinued operations) nPat attributable to members * Share price at year end Dividends paid 2007 $000 2008 $000 68,949 8,174 $1.90 2.95c 346,311 22,012 $0.75 5.00c 2009 $000 317,187 (4,541) $0.20 - 2010 $000 224,331 (113,712) $0.15 - 2011 $000 207,352 4,905 $0.09 - * including discontinued operations and one-off adjustments. 29 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport DireCtorS' report remuneration Details for year ended 30 June 2011 the board determines the proportion of fixed and variable compensation for key management personnel - refer to table below: Short-term benefits Post-employment benefits cash, Salary & commissions non- monetary benefits Profit Share and bonuses Super- annuation termination benefits eXeCutive DireCtorS vincent De Santis: app 19 July 2010 Managing Director mike coote: resigned 22 July 2010 Managing Director Don Patterson: resigned 22 July 2010 Chief Executive Officer Sub – total non eXeCutive DireCtorS Dale elphinstone: app 19 July 2010 Chairman Ross Dunning Don hector Sub – total other Key manaGement K Pallas Chief Operating Officer g Jean: app 6 may 2011 CFO / Company Secretary R Stampalia: resigned 6 may 2011 CFO /Company Secretary m Darwish: resigned 5 oct 09 CFO /Company Secretary w manners CEO – Gemco Rail g Parrett CEO – Drivetrain P Swann General Manager – Convair Sub – total total 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 $ * - 36,538 475,000 38,461 458,173 74,999 933,173 165,083 - 47,961 - 101,818 127,530 314,862 127,530 212,660 185,427 32,800 - 204,652 121,600 - 44,491 394,312 232,521 367,776 339,592 135,975 135,975 1,348,175 1,059,606 1,738,036 2,120,309 $ - - - - 19,548 25,835 19,548 25,835 - - - - - - - - - - - - 4,289 11,086 - - - - 49,015 31,338 37,141 47,615 90,445 90,039 109,993 115,874 $ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $ - - $ - - total $ * - 4,264 50,000 3,462 41,236 7,726 91,236 - - 4,912 - - - 4,912 - 17,339 16,688 2,952 - 17,864 11,909 - 2,919 29,164 20,926 33,100 30,797 13,019 21,698 113,438 104,937 126,076 196,173 367,308 - 250,074 - 617,382 - 408,110 525,000 311,545 525,244 719,655 1,050,244 - - - - - - - - - - - - - - - - - - - - 165,083 - 52,873 - 101,818 127,530 319,774 127,530 229,999 202,115 35,752 - 226,805 144,595 - 47,410 423,476 253,447 449,891 401,727 - - - - 617,382 - 186,135 205,288 1,552,058 1,254,582 2,591,487 2,432,356 there have been no amounts paid in relation to other short-term, other post-employment or long-term benefits, equity- settled or cash-settled share-based payments during the current or prior year. * for details on payments for the services of vincent De Santis refer to note 30 – Related Parties. 30 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport DiRectORS' RepORt Options and Rights Granted In the 2010 and 2011 financial years no Executive Directors, Non-Executive Directors or Key Management Personnel have any options or rights granted. This report of the directors is signed in accordance with a resolution of the Board of Directors. Vincent De Santis Managing Director Dated this 29th Day of September 2011 31 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport Directors’ Declaration Directors’ Declaration the directors of the company declare that: (a) the financial statements and notes, as set out in pages 36 to 97 are in accordance with the corporations act 2001 and: i ii iii comply with accounting standards and the corporations regulations 2001; are in accordance with international Financial reporting standards (iFrs) issued by the international accounting standards Board; and give a true and fair view of the financial position as at 30 June 2011 and of the performance for the year ended on that date; (b) the Managing Director (acting in the capacity of chief executive officer) and chief Financial officer have each declared that: i the financial records of the company for the financial year have been properly maintained in accordance with section 286 of the corporations act 2001; ii the financial statements and notes for the financial year comply with accounting standards; and iii the financial statements and notes for the financial year give a true and fair view; and (c) in the directors’ opinion, there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. this declaration is made in accordance with a resolution of the Board of Directors. Vincent De santis Managing Director Dated this 29th Day of september 2011 32 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport auDitoR’S inDePenDence DeclaRation auDitor’S inDepenDenCe DeClaration 33 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport inDepenDent auDitor'S report inDePenDent auDitoR'S RePoRt 34 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport inDepenDent auDitor'S report 35 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport ConSoliDateD Statement of ComprehenSive inCome conSoliDateD Statement of comPRehenSive income foR the YeaR enDeD 30 June 2011 Revenue other income changes in inventories of finished goods and work in progress Raw materials and consumables used employee benefits expense Depreciation and amortisation expense goodwill written off Reversal of impairment of property, plant and equipment finance costs Subcontract freight Repairs and maintenance insurances Rent and outgoings vehicle expenses fuel foreign exchange movements other expenses PRofit/(loSS) befoRe income tax income tax expense PRofit/(loSS) foR the PeRioD fRom continuing oPeRationS Profit/(loss) from discontinued operations after tax PRofit/(loSS) foR the PeRioD Profit/(loss) attributable to: members of the parent entity non-controlling interest otheR comPRehenSive income foreign exchange reserve movement other comprehensive income for the period, net of tax total comPRehenSive income foR the PeRioD total comprehensive income attributable to: members of the parent entity non-controlling interest eaRningS PeR ShaRe from continuing and discontinuing operations: basic earnings per share (cents per share) Diluted earnings per share (cents per share) from continuing operations: basic earnings per share (cents per share) Diluted earnings per share (cents per share) from discontinued operations: basic earnings per share (cents per share) 36 conSoliDateD gRouP 2011 $’000 199,295 2,240 7,238 (92,484) (59,491) (10,160) - 567 (9,458) (1,960) (1,697) (2,837) (9,659) (721) (580) (332) (9,871) 10,090 (3,340) 6,750 (1,682) 5,068 4,905 163 5,068 122 122 5,190 5,027 163 5,190 Cents 0.68 0.68 0.92 0.92 2010 $’000 188,679 3,380 (18,707) (77,607) (67,191) (13,059) (44,224) (11,491) (15,622) (1,949) (2,096) (3,254) (10,822) (1,247) (6,955) (182) (19,158) (101,505) (2,501) (104,006) (10,232) (114,238) (113,712) (526) (114,238) (875) (875) (115,113) (114,587) (526) (115,113) cents (56.97) n/a (51.80) n/a (0.24) (5.17) note 2 2 1(w) 1(w) 3 4,1(w) 5 10 10 10 10 10 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport conSoliDateD Statement of financial PoSition aS at 30 June 2011 ConSoliDateD Statement of finanCial poSition aSSetS cuRRent aSSetS cash and cash equivalents trade and other receivables inventories other current assets total cuRRent aSSetS non-cuRRent aSSetS trade and other receivables inventories financial assets Property, plant and equipment Deferred tax assets intangible assets total non-cuRRent aSSSetS total aSSetS cuRRent liabilitieS trade and other payables financial liabilities current tax liabilities Short-term provisions total cuRRent liabilitieS non-cuRRent liabilitieS financial liabilities long-term provisions Deferred tax liabilities total non-cuRRent liabilitieS total liabilitieS net aSSetS equitY issued capital Reserves non-controlling interest Retained earnings/(accumulated losses) total equitY conSoliDateD gRouP 2011 $’000 2010 $’000 note 11 12 13 18 12 13 14 16 21 17 19 20 21 22 20 22 21 14,098 46,782 51,002 3,266 115,148 512 6,909 145 94,471 6,578 49,661 158,276 2,727 44,424 44,751 2,359 94,261 2,255 5,921 157 82,459 4,915 52,295 148,002 273,424 242,263 22,231 31,895 3,361 6,121 63,608 21,478 1,927 2,298 25,703 89,311 184,113 56,381 81,070 2,860 9,947 150,258 32,113 1,950 1,553 35,616 185,874 56,389 23 275,342 152,808 3,290 2,922 (97,441) 184,113 1,876 2,759 (101,054) 56,389 37 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport ConSoliDateD Statement of ChanGeS in equity conSoliDateD Statement of changeS in equitY foR the YeaR enDeD 30 June 2011 issued capital ordinary Shares Retained earnings/ (losses) non- controlling interest foreign currency translation Reserve foreign Deferred tax Reserve option Reserves note Consolidated Group $000 $000 $000 $000 $000 $000 total $000 - - - - - - - - 2,758 2,758 2,758 - - - - 2,758 - 1,292 4,050 896 134,631 - - - - 35,175 (1,589) 3,285 (115,113) (704) 192 - 56,389 - - 192 192 - - - - 192 - - - - 56,389 56,389 127,788 (3,511) (1,743) 5,190 184,113 - - 192 184,113 balance at 1 JulY 2009 Shares issued during the year transaction costs non-controlling interest on acquisition of subsidiary total comprehensive income for the period option reserve on recognition of options issued 119,222 14,712 - - - 3,285 (199) - - - - - - (113,712) (526) (875) 704 - - 35,175 (1,589) - - - Sub-total 152,808 (98,296) 2,759 (1,074) Dividends paid or provided for transfer to foreign deferred tax reserve 9 1(w) - - - (2,758) balance at 30 June 2010 152,808 (101,054) balance at 1 JulY 2010 Shares issued during the year transaction costs cancellation of shares 12(a) total comprehensive income for the period Sub-total 152,808 (101,054) 127,788 (3,511) (1,743) - - - - 4,905 275,342 (96,149) 163 2,922 - - 2,759 2,759 - - - - - - - (1,074) (1,074) - - - 122 (952) - - 2,922 (952) Dividends paid or provided for 9 transfer to foreign deferred tax reserve - - balance at 30 June 2011 275,342 - (1,292) (97,441) 38 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport conSoliDateD Statement of caSh flowS foR the YeaR enDeD 30 June 2011 ConSoliDateD Statement of CaSh flowS conSoliDateD gRouP 2011 $’000 2010 $’000 note 219,236 309,767 (235,455) (249,079) 332 (8,621) (1,077) 324 (12,575) (7,809) 40,628 6,622 8,086 (19,413) (9,998) caSh flowS fRom oPeRating activitieS Receipts from customers Payments to suppliers and employees interest received finance costs income tax paid net caSh PRoviDeD bY (uSeD in) oPeRating activitieS 26(b) (25,585) caSh flowS fRom inveSting activitieS Proceeds from sale of property, plant and equipment Proceeds from disposal of entities Purchase of non-current assets Payment for subsidiary, net of cash acquired 26(c) 2,303 1,113 (31,875) - net caSh PRoviDeD bY (uSeD in) inveSting activitieS (28,459) (14,703) caSh flowS fRom financing activitieS Proceeds from issue of shares Proceeds from borrowings Repayment of borrowings net caSh PRoviDeD bY (uSeD in) financing activitieS net increase/ (decrease) in cash held cash at beginning of financial year caSh at enD of financial YeaR 102,117 - (25,906) 76,211 22,167 (11,623) 10,544 33,585 15,342 (64,373) (15,446) 10,479 (22,102) (11,623) 26(a) 39 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport noteS to the finanCial StatementS noteS to the financial StatementS foR the YeaR enDeD 30 June 2011 1. StateMent of Significant accounting policieS this financial report includes the consolidated financial statements and notes of engenco limited and controlled entities (‘consolidated group’ or ‘group’). Basis of preparation the financial report is a general purpose financial report that has been prepared in accordance with australian accounting Standards, australian accounting interpretations, other authoritative pronouncements of the australian accounting Standards board and the corporations act 2001. australian accounting Standards set out accounting policies that the aaSb has concluded would result in a financial report containing relevant and reliable information about transactions, events and conditions. compliance with australian accounting Standards ensures that the financial statements and notes also comply with international financial Reporting Standards. material accounting policies adopted in the preparation of this financial report are presented below and have been consistently applied unless otherwise stated. the financial report has been prepared on an accruals basis and is based on historical costs, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. (a) principles of Consolidation the consolidated financial statements incorporate the assets, liabilities and results of entities controlled by engenco limited at the end of the reporting period. a controlled entity is any entity over which engenco limited has the power to govern the financial and operating policies so as to obtain benefits from the entity’s activities. control will generally exist when the parent owns, directly or indirectly through subsidiaries, more than half of the voting power of an entity. in assessing the power to govern, the existence and effect of holdings of actual and potential voting rights are also considered. where controlled entities have entered or left the group during the year, the financial performance of those entities are included only for the period of the year that they were controlled. a list of controlled entities is contained in note 15 – controlled entities. all controlled entities have a June financial year-end. in preparing the consolidated financial statements, all inter-group balances and transactions between entities in the consolidated group have been eliminated on consolidation. accounting policies of subsidiaries have been changed where necessary to ensure consistency with those adopted by the parent entity. non-controlling interests, being the equity in a subsidiary not attributable, directly or indirectly, to a parent, are shown separately within the equity section of the consolidated Statement of financial Position and Statement of comprehensive income. the non-controlling interests in the net assets comprise their interests at the date of the original business combination and their share in equity since that date. Business Combinations business combinations occur where an acquirer obtains control over one or more businesses and results in the consolidation of its assets and liabilities. a business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. the acquisition method requires that for each business combination one of the combining entities must be identified as the acquirer (i.e. parent entity). the business combination will be accounted for as at the acquisition date, which is the date that control over the acquiree is obtained by the parent entity. at this date, the parent shall recognise, in the consolidated accounts, and subject to certain limited exceptions, the fair value of the identifiable assets acquired and liabilities assumed. in addition, contingent liabilities of the acquiree will be recognised where a present obligation has been incurred and its fair value can be reliably measured. the acquisition may result in the recognition of goodwill - refer to note 1(i) - or a gain from a bargain purchase. the method adopted for the measurement of goodwill will impact on the measurement of any non-controlling interest to be recognised in the acquiree where less than 100% ownership interest is held in the acquiree. 40 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport NoTes To The FINaNCIal sTaTemeNTs 1. Statement of Significant accounting PolicieS (cont’d) (a) Principles of Consolidation (cont'd) Business Combinations (cont'd) The acquisition date fair value of the consideration transferred for a business combination plus the acquisition date fair value of any previously held equity interest shall form the cost of the investment in the separate financial statements. Consideration may comprise the sum of the assets transferred by the acquirer, liabilities incurred by the acquirer to the former owners of the acquiree and the equity interests issued by the acquirer. Fair value uplifts in the value of pre-existing equity holdings are taken to the statement of comprehensive income. Where changes in the value of such equity holdings had previously been recognised in other comprehensive income, such amounts are recycled to profit or loss. Included in the measurement of consideration transferred is any asset or liability resulting from a contingent consideration arrangement. Any obligation incurred relating to contingent consideration is classified as either a financial liability or equity instrument, depending upon the nature of the arrangement. Rights to refunds of consideration previously paid are recognised as a receivable. Subsequent to initial recognition, contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or a liability is remeasured each reporting period to fair value through the statement of comprehensive income unless the change in value can be identified as existing at acquisition date. All transaction costs incurred in relation to the business combination are expensed to the statement of comprehensive income. (b) Income Tax The income tax expense (revenue) for the year comprises current income tax expense (income) and deferred tax expense (income). Current income tax expense charged to the profit or loss is the tax payable on taxable income calculated using applicable income tax rates enacted, or substantially enacted, as at the end of the reporting period. Current tax liabilities (assets) are therefore measured at the amounts expected to be paid to (recovered from) the relevant taxation authority. Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well as unused tax losses. Current and deferred income tax expense (income) is charged or credited directly to equity instead of the profit or loss when the tax relates to items that are credited or charged directly to equity. Deferred tax assets and liabilities are ascertained based on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets also result where amounts have been fully expensed but future tax deductions are available. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on the tax rates enacted or substantively enacted at the end of the reporting period. Their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future. 41 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport 1. StateMent of Significant accounting policieS (cont’d) (b) income tax (cont'd) current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where a legally enforceable right of set-off exists, the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. Tax Consolidation engenco limited and its wholly-owned australian subsidiaries have formed an income tax consolidated group under tax consolidation legislation. each entity in the group recognises its own current and deferred tax assets and liabilities. Such taxes are measured using the ‘stand-alone taxpayer’ approach to allocation. current tax liabilities (assets) and deferred tax assets arising from unused tax losses and tax credits in the subsidiaries are immediately transferred to the head entity. the group notified the australian tax office that it had formed an income tax consolidated group to apply from 31 october 2007. the tax consolidated group has entered into a tax funding arrangement whereby each company in the group contributes to the income tax payable by the group in proportion to their contribution to the group’s taxable income. Differences between the amounts of net tax assets and liabilities derecognised and the net amounts recognised pursuant to the funding arrangement are recognised as either a contribution by, or distribution to the head entity. (c) inventories inventories are measured at the lower of cost and net realisable value. the cost of finished goods includes direct materials, direct labour and an appropriate portion of variable and fixed overheads. costs are assigned on the basis of weighted average costs. the cost of raw materials includes all costs to transport the goods to a location ready for use including any duties and charges on items purchased overseas. a review of inventory was completed at year end to identify items to be classed as non-current. non-current inventory is defined as inventory not expected to be utilised in the next financial year. the majority of items identified were long life locomotive spares which require refurbishment prior to use. (d) Construction Contracts and work in progress construction work in progress is valued at cost, plus profit recognised to date less any provision for anticipated future losses. cost includes both variable and fixed costs relating to specific contracts, and those that are attributable to the contract activity in general and that can be allocated on a reasonable basis. construction profits are recognised on the stage of completion basis and measured using the proportion of costs incurred to date as compared to expected actual costs. where losses are anticipated they are provided for in full. construction revenue has been recognised on the basis of the terms of the contract adjusted for any variations or claims allowable under the contract. work in progress is valued at cost. cost includes both variable and fixed costs relating to specific projects, and those that are attributable to the project activity in general and that can be allocated on a reasonable basis. (e) property, plant and equipment each class of property, plant and equipment is carried at cost or fair value less accumulated depreciation and, where applicable, any impairment losses. Property freehold land and buildings are shown at their cost (being the consideration paid plus any additional direct costs), less subsequent depreciation for buildings. 42 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 1. StateMent of Significant accounting policieS (cont’d) (e) property, plant and equipment (cont'd) Property (cont'd) increases in the carrying amount arising on revaluation of land and buildings are credited to a revaluation reserve in equity. Decreases that offset previous increases of the same asset are charged against fair value reserves directly in equity; all other decreases are charged to the income statement. each year the difference between depreciation based on the revalued carrying amount of the asset charged to the income statement and depreciation based on the asset’s original cost is transferred from the revaluation reserve to retained earnings. any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. Plant and Equipment Plant and equipment are measured on the cost basis less depreciation and, where applicable, any impairment losses. the carrying amount of plant and equipment is reviewed annually by the directors to ensure it is not in excess of the recoverable amount from these assets. the recoverable amount is assessed on the basis of the expected net cash flows that will be received from the assets employment and subsequent disposal. the expected net cash flows have been discounted to their present values in determining recoverable amounts. the cost of fixed assets constructed within the consolidated group includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. all other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred. Depreciation the depreciable amount of all fixed assets including buildings and capitalised lease assets, but excluding freehold land, is depreciated on a diminishing value over their useful lives to the consolidated group commencing from the time the asset is held ready for use. leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. the depreciation rates used for each class of depreciable assets are: class of fixed asset Depreciation Rate leasehold improvements Plant and equipment leased plant and equipment buildings 40% - 67% 2.5% - 67% 30% - 67% 2.50% the assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance date. an asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. gains and losses on disposals are determined by comparing proceeds with the carrying amount. these gains and losses are included in the statement of comprehensive income. when revalued assets are sold, amounts included in the revaluation reserve relating to that asset are transferred to retained earnings. 43 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 1. StateMent of Significant accounting policieS (cont’d) (f) leases lease of fixed assets where substantially all the risks and benefits incidental to the ownership of the assets, but not the legal ownership that is transferred to entities in the consolidated group, are classified as finance leases. finance leases are capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. leased assets are depreciated on a diminishing value basis over their estimated useful lives or the lease term. lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred. (g) financial instruments Initial Recognition and Measurement financial assets and liabilities are recognised when the entity becomes a party to the contractual provisions to the instrument. for financial assets, this is equivalent to the date that the company commits itself to either the purchase or sale of the asset (i.e. trade date accounting is adopted). financial instruments are initially measured at fair value plus transactions costs, except where the instrument is classified ‘at fair value through profit or loss’, in which case transaction costs are expensed to profit or loss immediately. Classification and Subsequent Measurement financial instruments are subsequently measured at their fair value, amortised cost using the effective interest rate method, or cost. fair value represents the amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties. when quoted prices are available in an active market they are used to determine fair value. in other circumstances, valuation techniques are adopted. amortised cost is calculated as: (1) the amount at which the financial asset or financial liability is measured at initial recognition; (2) less principal repayments; (3) plus or minus the cumulative amortisation of the difference, if any, between the amount initially recognised and the maturity amount calculated using the effective interest method, and (4) less any reduction for impairment. the effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that exactly discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) through the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying value with a consequential recognition of an income or expense in profit or loss. the group does not designate any interests in subsidiaries, associates or joint venture entities as being subject to the requirements of accounting standards specifically applicable to financial instruments. Financial Assets at Fair Value Through Profit and Loss financial assets are classified at fair value through profit or loss when they are held for trading for the purpose of short term profit taking, derivatives not held for hedging purposes, or when they are designated as such to avoid an accounting mismatch. Realised and unrealised gains and losses arising from changes in fair value are included in profit or loss in the period in which they arise. 44 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 1. StateMent of Significant accounting policieS (cont’d) (g) financial instruments (cont'd) Loans and Receivables loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost. loans and receivables are included in current assets, except for those which are not expected to mature within 12 months after the end of the reporting period. all other loans and receivables are classified as non-current assets. Held-to-Maturity Investments held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable payments, and it is the group’s intention to hold these investments to maturity. they are subsequently measured at amortised cost using the effective interest rate method. Available-for-Sale Financial Assets available-for-sale financial assets are non-derivative financial assets that are either not suitable to be classified into other categories of financial assets due to their nature, or they are designated as such by management. they comprise investments in the equity of other entities where there is neither a fixed maturity nor fixed or determinable payments. Financial Liabilities non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost. Fair Value fair value is determined based on current bid prices for all quoted investments. valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm’s length transactions, reference to similar instruments and option pricing models. Impairment at each reporting date, the group assesses whether there is objective evidence that a financial instrument has been impaired. in the case of available-for-sale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether impairment has arisen. impairment losses are recognised in the statement of comprehensive income. Financial Guarantees where material, financial guarantees issued, which require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due, are recognised as a financial liability at fair value on initial recognition. the guarantee is subsequently measured at the higher of the best estimate of the obligation and the amount initially recognised less, when appropriate, cumulative amortisation in accordance with aaSb 118: Revenue. where the entity gives guarantees in exchange for a fee, revenue is recognised under aaSb 118. the fair value of financial guarantee contracts has been assessed using a probability weighted discounted cash flow approach. the probability has been based on: }} the likelihood of the guaranteed party defaulting in a year period; }} the proportion of the exposure that is not expected to be recovered due to the guaranteed party defaulting; and }} the maximum loss exposed if the guaranteed party were to default. Derecognition financial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. financial liabilities are derecognised where the related obligations are discharged, cancelled or expired. the difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss. 45 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 1. StateMent of Significant accounting policieS (cont’d) (h) impairment of assets at each reporting date, the group reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. if such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. any excess of the asset’s carrying value over its recoverable amount is expensed to the statement of comprehensive income. impairment testing is performed at least annually for goodwill and intangible assets with indefinite lives. where it is not possible to estimate the recoverable amount of an individual asset, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs. (i) intangibles Goodwill goodwill is carried at cost less accumulated impairment losses. goodwill is calculated as the excess of the sum of: (1) the consideration transferred; (2) any non-controlling interest; and (3) the acquisition date fair value of any previously held equity interest over the acquisition date fair value of net identifiable assets acquired. the value of goodwill recognised on acquisition of each subsidiary in which the group holds less than a 100% interest measures the non-controlling interest in the acquiree using the proportionate interest method. Refer to note 17 – intangible assets for information on the goodwill policy adopted by the group for acquisitions. goodwill on acquisitions of subsidiaries is included in intangible assets. goodwill is tested for impairment annually and is allocated to the group’s cash generating units or groups of cash generating units, which represent the lowest level at which goodwill is monitored but where such level is not larger than an operating segment. gains and losses on the disposal of an entity include the carrying amount of goodwill related to the entity sold. changes in the ownership interests in a subsidiary are accounted for as equity transactions and do not affect the carrying values of goodwill. Customer Related Intangibles customer related intangibles are stated at cost less accumulated amortisation and, where applicable, any impairment losses. Patents and Trademarks Patents and trademarks are recognised at cost of acquisition. Patents and trademarks have a finite life and are carried at cost less any accumulated amortisation and, where applicable, any impairment losses. Patents and trademarks are amortised over their useful life. Other Identifiable Intangibles other intangibles are stated at cost less accumulated amortisation and, where applicable, any impairment losses. at balance date the amount in other identifiable intangibles can be attributed to the value applied to Rail access on acquisition. Research and Development expenditure during the research phase of a project is recognised as an expense when incurred. Development costs are capitalised only when technical feasibility studies identify that the project will deliver future economic benefits and these benefits can be measured reliably. Development costs have a finite life and are amortised on a systematic basis matched to the future economic benefits over the useful life of the project. 46 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 1. StateMent of Significant accounting policieS (cont’d) (j) foreign Currency transactions and Balances Functional and Presentation Currency the functional currency of each of the group’s entities is measured using the currency of the primary economic environment in which that entity operates. the consolidated financial statements are presented in australian dollars which is the parent entity’s functional and presentation currency. Transaction and Balances foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. foreign currency monetary items are translated at the year-end exchange rate. non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined. exchange differences arising on the translation of monetary items are recognised in the statement of comprehensive income, except where deferred in equity as a qualifying cash flow or net investment hedge. exchange differences arising on the translation of non-monetary items are recognised directly in equity to the extent that the gain or loss is directly recognised in equity, otherwise the exchange difference is recognised in the statement of comprehensive income. Group Companies the financial results and position of foreign operations whose functional currency is different from the group’s presentation currency are translated as follows: }} assets and liabilities are translated at year-end exchange rates prevailing at that reporting date; }} income and expenses are translated at average exchange rates for the period; and }} retained earnings are translated at the exchange rates prevailing at the date of the transaction. exchange differences arising on translation of foreign operations are transferred directly to the group’s foreign currency translation reserve in the statement of comprehensive income. these differences are recognised in the statement of comprehensive income in the period in which the operation is disposed. (k) employee Benefits Provision is made for the company’s liability for employee benefits arising from services rendered by employees to balance date. employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled. (l) provisions Provisions are recognised when the group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. (m) provision for warranties Provision is made in respect of the consolidated group’s estimated liability on all products and services under warranty at balance date. the future cash flows have been estimated by reference to the consolidated group’s history of warranty claims. (n) Cash and Cash equivalents cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. bank overdrafts are shown within short-term borrowings in current liabilities on the statement of financial position. 47 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 1. StateMent of Significant accounting policieS (cont’d) (o) revenue and other income Revenue is measured at fair value of the consideration received or receivable after taking into account any trade discounts and volume rebates allowed. Revenue from the sale of goods is recognised at the point of delivery or as contractually negotiated as this corresponds to the transfer of significant risks and rewards of ownership of the goods and the cessation of all involvement in those goods. Revenue recognition relating to the provision of services is determined with reference to the stage of completion of the transaction at reporting date and 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. where the outcome cannot be estimated reliably, revenue is recognised only to the extent that related expenditure is recoverable. Revenue relating to construction activities is detailed in note 1(d). interest revenue is recognised as it accrues using the effective interest rate method. all revenue is stated net of the amount of goods and services tax (gSt). (p) trade and other payables trade and other payables represent the liability outstanding at the end of the reporting period for goods and services received by the group during the reporting period which remains unpaid. the balance is recognised as a current liability. (q) Borrowing Costs borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to prepare for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. all other borrowing costs are recognised in the income statement in the period in which they are incurred. (r) Goods and Services tax (GSt) Revenues, expenses and assets are recognised net of the amount of gSt, except where the amount of gSt incurred is not recoverable from the tax office. in these circumstances the gSt is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the Statement of financial Position are shown inclusive of gSt. cash flows are presented in the statement of cash flows on a gross basis, except for the gSt component of investing and financing activities, which are disclosed as operating cash flows. (s) Comparative figures when required by accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. when the group applies an accounting policy retrospectively, makes a retrospective restatement or reclassifies items in its financial statements, a statement of financial position as at the beginning of the earliest comparative period will be disclosed. (t) rounding of amounts the parent entity has applied the relief available to it under aSic class order 98/100 and accordingly, amounts in the financial report and directors’ report have been rounded off to the nearest $1,000. 48 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 1. StateMent of Significant accounting policieS (cont’d) (u) Critical accounting estimates and Judgments Goodwill and Intangibles Significant judgments are made with respect to identifying and valuing intangible assets on acquisitions of new businesses. the group assesses impairment of intangibles at each reporting date by evaluating conditions specific to the group that may lead to impairment of assets. where an impairment trigger exists, the recoverable amount of the asset is determined. value- in-use and fair value calculations performed in assessing recoverable amounts incorporate a number of key estimates which can be found in note 17 – intangible assets. Income Tax balances disclosed in the financial statements and the notes thereto, related to taxation, are based on the best estimates of directors. these estimates take into account both the financial performance and position of the company as they pertain to current income taxation legislation, and the directors’ understanding thereof. no adjustment has been made for pending or future taxation legislation. the current income tax position represents the directors’ best estimate, pending an assessment by taxable authorities in relevant jurisdictions. further details can be found in notes 4 – income tax expense and note 21 - tax. Impairment the group assesses impairment at the end of each reporting period by evaluating conditions and events specific to the group that may be indicative of impairment triggers. Recoverable amounts of relevant assets are reassessed using value-in- use and fair value calculations which incorporate various key assumptions. with respect to cash flow projections for the impairment testing of goodwill, a growth rate to reflect business efficiencies and market growth opportunities have been factored into valuation models for the next five years. additional allowance for inflation has been factored into all valuation models. Pre-tax discount rates of 23.5% have been used in all models. Property, plant and equipment were assessed for impairment with reference to fair value less cost to sell. this is reflected in note 16 – Property, Plant and equipment. Net, Realisable Value – inventory and WIP inventory and wiP value was determined using the net realisable value, where the cost was in excess of this value. this is reflected in note 13 – inventories. Environmental Issues balances disclosed in the financial statements and notes thereto are not adjusted for any pending or enacted environmental legislation, and the directors understanding thereof. at the current stage of the company’s development and its current environmental impact the directors believe such treatment is reasonable and appropriate. (v) new accounting Standards for application in future periods the aaSb has issued new and amended accounting standards and interpretations that have mandatory application dates for future reporting periods. the group has decided against early adoption of these standards. a discussion of those future requirements and their impact on the group follows: }} aaSb 9: financial instruments (December 2010) (applicable for annual reporting periods commencing on or after 1 January 2013). these standards are applicable retrospectively and includes revised requirements for the classification and measurement of financial instruments, as well as recognition and derecognition requirements for financial instruments. the group has not yet determined any potential impact on the financial statements. 49 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 1. StateMent of Significant accounting policieS (cont’d) (v) new accounting Standards for application in future periods (cont'd) the changes made to accounting requirements include: - - - - - - - simplifying the classifications of financial assets into those carried at amortised cost and those carried at fair value; simplifying the requirements for embedded derivatives; removing the tainting rules associated with held-to-maturity assets; removing the requirements to separate and fair value embedded derivatives for financial assets carried at amortised cost; allowing an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument; reclassifying financial assets where there is a change in an entity’s business model as they are initially classified based on: (a) the objective of the entity’s business model for managing the financial assets; and (b) the characteristics of the contractual cash flows; and requiring an entity that chooses to measure a financial liability at fair value to present the portion of the change in its fair value due to changes in the entity’s own credit risk in other comprehensive income, except when that would create an accounting mismatch. if such a mismatch would be created or enlarged, the entity is required to present all changes in fair value (including the effects of changes in the credit risk of the liability) in profit or loss. }} aaSb 1053: application of tiers of australian accounting Standards and aaSb 2010–2: amendments to australian accounting Standards arising from Reduced Disclosure Requirements [aaSb 1, 2, 3, 5, 7, 8, 101, 102, 107, 108, 110, 111, 112, 116, 117, 119, 121, 123, 124, 127, 128, 131, 133, 134, 136, 137, 138, 140, 141, 1050 & 1052 and interpretations 2, 4, 5, 15, 17, 127, 129 & 1052] (applicable for annual reporting periods commencing on or after 1 July 2013). aaSb 1053 establishes a revised differential financial reporting framework consisting of two tiers of financial reporting requirements for those entities preparing general purpose financial statements: tier 1: australian accounting Standards; and tier 2: australian accounting Standards – Reduced Disclosure Requirements. tier 2 of the framework comprises the recognition, measurement and presentation requirements of tier 1, but contains significantly fewer disclosure requirements. the following entities are required to apply tier 1 reporting requirements (i.e. full ifRS): • • for-profit private sector entities that have public accountability; and the Australian Government and state, territory and local governments. Since the group is a for-profit private sector entity that has public accountability, it does not qualify for the reduced disclosure requirements for tier 2 entities. aaSb 2010–2 makes amendments to australian accounting Standards and interpretations to give effect to the reduced disclosure requirements for tier 2 entities. it achieves this by specifying the disclosure paragraphs that a tier 2 entity need not comply with as well as adding specific “RDR” disclosures. 50 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 1. StateMent of Significant accounting policieS (cont’d) (v) new accounting Standards for application in future periods (cont'd) }} aaSb 2009–12: amendments to australian accounting Standards [aaSbs 5, 8, 108, 110, 112, 119, 133, 137, 139, 1023 & 1031 and interpretations 2, 4, 16, 1039 & 1052] (applicable for annual reporting periods commencing on or after 1 January 2011). this standard makes a number of editorial amendments to a range of australian accounting Standards and interpretations, including amendments to reflect changes made to the text of international financial Reporting Standards by the iaSb. the standard also amends aaSb 8 to require entities to exercise judgment in assessing whether a government and entities known to be under the control of that government are considered a single customer for the purposes of certain operating segment disclosures. these amendments are not expected to impact the group. }} aaSb 2010–4: further amendments to australian accounting Standards arising from the annual improvements Project [aaSb 1, aaSb 7, aaSb 101 & aaSb 134 and interpretation 13] (applicable for annual reporting periods commencing on or after 1 January 2011). this Standard details numerous non-urgent but necessary changes to accounting Standards arising from the iaSb’s annual improvements project. Key changes include: • • • clarifying the application of AASB 108 prior to an entity’s first Australian-Accounting-Standards financial statements; adding an explicit statement to AASB 7 that qualitative disclosures should be made in the context of the quantitative disclosures to better enable users to evaluate an entity’s exposure to risks arising from financial instruments; amending AASB 101 to the effect that disaggregation of changes in each component of equity arising from transactions recognised in other comprehensive income is required to be presented, but is permitted to be presented in the statement of changes in equity or in the notes; • adding a number of examples to the list of events or transactions that require disclosure under AASB 134; and • making sundry editorial amendments to various Standards and Interpretations. this Standard is not expected to impact the group. }} aaSb 2010–5: amendments to australian accounting Standards [aaSb 1, 3, 4, 5, 101, 107, 112, 118, 119, 121, 132, 133, 134, 137, 139, 140, 1023 & 1038 and interpretations 112, 115, 127, 132 & 1042] (applicable for annual reporting periods beginning on or after 1 January 2011). this Standard makes numerous editorial amendments to a range of australian accounting Standards and interpretations, including amendments to reflect changes made to the text of ifRSs by the iaSb. however, these editorial amendments have no major impact on the requirements of the respective amended pronouncements. }} aaSb 2010–6: amendments to australian accounting Standards – Disclosures on transfers of financial assets [aaSb 1 & aaSb 7] (applicable for annual reporting periods beginning on or after 1 July 2011). this Standard adds and amends disclosure requirements about transfers of financial assets, especially those in respect of the nature of the financial assets involved and the risks associated with them. accordingly, this Standard makes amendments to aaSb 1: first-time adoption of australian accounting Standards, and aaSb 7: financial instruments: Disclosures, establishing additional disclosure requirements in relation to transfers of financial assets. this Standard is not expected to impact the group. }} aaSb 2010–7: amendments to australian accounting Standards arising from aaSb 9 (December 2010) [aaSb 1, 3, 4, 5, 7, 101, 102, 108, 112, 118, 120, 121, 127, 128, 131, 132, 136, 137, 139, 1023 & 1038 and interpretations 2, 5, 10, 12, 19 & 127] (applies to periods beginning on or after 1 January 2013). this Standard makes amendments to a range of australian accounting Standards and interpretations as a consequence of the issuance of aaSb 9: financial instruments in December 2010. accordingly, these amendments will only apply when the entity adopts aaSb 9. as noted above, the group has not yet determined any potential impact on the financial statements from adopting aaSb 9. 51 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 1. StateMent of Significant accounting policieS (cont’d) (v) new accounting Standards for application in future periods (cont'd) }} aaSb 2010–8: amendments to australian accounting Standards – Deferred tax: Recovery of underlying assets [aaSb 112] (applies to periods beginning on or after 1 January 2012). this Standard makes amendments to aaSb 112: income taxes. the amendments brought in by this Standard introduce a more practical approach for measuring deferred tax liabilities and deferred tax assets when investment property is measured using the fair value model under aaSb 140: investment Property. under the current aaSb 112, the measurement of deferred tax liabilities and deferred tax assets depends on whether an entity expects to recover an asset by using it or by selling it. the amendments introduce a presumption that an investment property is recovered entirely through sale. this presumption is rebutted if the investment property is held within a business model whose objective is to consume substantially all of the economic benefits embodied in the investment property over time, rather than through sale. the amendments brought in by this Standard also incorporate interpretation 121 into aaSb 112. the amendments are not expected to impact the group. the group does not anticipate the early adoption of any of the above australian accounting Standards. (w) prior year Correction Statement of Comprehensive Income }} ‘Repairs and maintenance’ of $6.55 million was incorrectly disclosed in the 2010 annual Report and has been reclassified into ‘other expenses’ in the 2011 annual Report comparative. this reclassification has a nil impact on the profit result of the group. Refer to table below. }} ‘income tax expense’ of $2.76 million was previously overstated and has been corrected in the 2011 annual Report comparative. this correction has resulted in a decrease in the reported 2010 group loss from $116.47 million to $113.71 million. Refer to table below. Statement of Financial Position }} Due to the overstatement of income tax expense noted above the ‘deferred tax liability’ was also overstated by $2.76 million and the reserve was understated by the same amount in the 2010 annual Report and has been corrected in the 2011 annual Report comparative. Refer to table below. impacted accounts Statement of Comprehensive Income Repairs and maintenance other expenses income tax expense Profit / (loss) attributable to members of the parent entity Statement of Financial Position Deferred tax liabilities Reserves (refer below) Statement of Changes in Equity foreign deferred tax reserve 2010 comparative in 2011 annual Report 2010 annual Report $000 $000 (8,645) (12,609) (2,096) (19,158) (5,259) (116,470) (2,501) (113,712) change $000 6,549 (6,549) - 2,758 2,758 (2,758) 2,758 1,553 2,758 4,311 - - 2,758 2,758 the financial statements were authorised for the issue on 29 September 2011 by the board of Directors. 52 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 2. Revenue SaleS Revenue Sales of goods and services total SaleS Revenue otheR Revenue interest received fuel rebates total otheR Revenue total SaleS Revenue anD otheR Revenue otheR income gain on disposal of property, plant and equipment gains on foreign exchange total otheR income a. interest revenue from: other persons total inteReSt Revenue note (a) conSoliDateD gRouP 2011 2010 $000 $000 198,935 198,935 186,330 186,330 332 28 360 324 2,025 2,349 199,295 188,679 661 1,579 2,240 332 332 857 2,523 3,380 324 324 53 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts conSoliDateD gRouP 2011 2010 $000 $000 114,478 134,978 8,618 840 9,458 4,789 4,789 748 748 8,292 8,292 (567) - - - - 13,122 2,500 15,622 5,511 5,511 248 248 9,731 9,731 11,491 44,224 12,575 5,199 6,000 3. pRofit foR the yeaR exPenSeS cost of sales finance coStS interest – external other finance costs total finance coStS emPloYee SuPeRannuation exPenSe Defined contribution plan total emPloYee SuPeRannuation exPenSe baD anD Doubtful DebtS trade receivables total baD anD Doubtful DebtS Rental exPenSe on oPeRating leaSeS minimum lease payments total Rental exPenSe on oPeRating leaSeS Reversal of impairment of property, plant and equipment goodwill written off write-down of inventories to net realisable value write-off obsolete stock loss on sale of locomotives to P&o trans australia 54 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 4. incoMe t ax expenSe conSoliDateD gRouP 2011 2010 $000 $000 note (a) the components of tax expense comprise: current income tax - current income tax charge Deferred income tax - Relating to origination and reversal of temporary differences 21 income tax expense reported in the statement of comprehensive income (b) a reconciliation between tax expense and the product of accounting profit before income tax multiplied by the Group’s applicable income tax rate is as follows: accounting profit (loss) before tax from continuing operations - - loss before tax from discontinued operations total accounting profit (loss) before income tax at the Parent entity’s statutory income tax rate of 30% (2010: 30%) Add (Less) tax effect of: - non-deductible depreciation and amortisation - write-downs to recoverable amounts - - - - - Research and development deduction other non-allowable items foreign tax rate adjustment losses for which no deferred tax asset is recognised amounts recognised directly in equity weighted average income tax expense Weighted average income tax expense is attributable to: continuing operations Discontinued operations weighted average income tax rate * foreign tax payable on foreign taxable income. 5 3,297 3,250 43 3,340 (749) 2,501 10,090 (2,172) 7,918 2,375 460 (2,583) (99) (128) 333 2,492 - 2,850 3,340 (490) 2,850 33.1% (101,505) (11,683) (113,188) (33,956) 13,727 6,801 (115) 3,186 1,828 12,337 (2,758) 1,050 2,501 (1,451) 1,050 * (2.5%) 55 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 5. diScontinued opeRationS Claw environmental on 2 July 2010, the consolidated group announced its decision to dispose of claw environmental – a business unit of coote investments Pty ltd, thereby discontinuing its operations in this business segment. financial information relating to the discontinued operation to the date of disposal is set out below. the financial performance of the discontinued operation to the date of sale which is included in profit/(loss) from the discontinued operations per the statement of comprehensive income is as follows: Revenue Raw materials and consumables used employee benefits expense Depreciation and amortisation expense write-back of impairment of property, plant and equipment finance costs Rent and outgoings vehicle expenses other expenses loSS befoRe income tax income tax expense PRofit attRibutable to membeRS of the PaRent entitY total PRofit afteR tax attRibutable to the DiScontinueD oPeRation 2011 $000 2 (5) (29) (46) 300 (20) (5) (3) (200) (6) 17 11 11 56 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 5. diScontinued opeRationS (cont'd) fCD logistics pty ltd on 14 January 2011, the consolidated group announced its decision to dispose of its container depot operations entity of fcD logistics Pty ltd, thereby discontinuing its operations in this business segment. financial information relating to the discontinued operation to the date of disposal is set out below. the financial performance of the discontinued operation to the date of sale which is included in profit/(loss) from the discontinued operations per the statement of comprehensive income is as follows: Revenue Raw materials and consumables used employee benefits expense Depreciation and amortisation expense finance costs insurances Rent and outgoings vehicle expenses other expenses loSS befoRe income tax income tax expense loSS attRibutable to membeRS of the PaRent entitY Profit on sale before income tax PRofit on Sale afteR income tax total loSS afteR tax attRibutable to the DiScontinueD oPeRation 2011 $000 2,937 (549) (1,955) (355) (346) (98) (290) (101) (829) (1,586) 476 (1,110) 843 843 (267) 57 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 5. diScontinued opeRationS (cont’d) eden Cryogenics llC on 22 february 2011, the consolidated group announced its decision to dispose of eden cryogenics llc, thereby discontinuing its operations in this business segment. financial information relating to the discontinued operation to the date of disposal is set out below. the financial performance of the discontinued operation to the date of sale which is included in profit/(loss) from the discontinued operations per the statement of comprehensive income is as follows: Revenue Raw materials and consumables used employee benefits expense Depreciation and amortisation expense finance costs insurances Rent and outgoings vehicle expenses other expenses loSS befoRe income tax income tax expense loSS attRibutable to membeRS of the PaRent entitY loss on sale before income tax loSS on Sale afteR income tax total loSS afteR tax attRibutable to the DiScontinueD oPeRation 2011 $000 5,118 (3,148) (1,526) (121) (14) (57) (138) (2) (720) (608) (3) (611) (815) (815) (1,426) 58 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 5. diScontinued opeRationS (cont’d) South Spur rail Services pty ltd on 11 June 2010, the consolidated group announced its decision to dispose of South Spur Rail Services Pty ltd, thereby discontinuing its operations in this business segment. financial information relating to the discontinued operation to the date of disposal is set out below. the financial performance of the discontinued operation to the date of sale which is included in profit/(loss) from the discontinued operations per the statement of comprehensive income is as follows: Revenue employee benefits expense Depreciation and amortisation expense finance costs insurances Rent and outgoings vehicle expenses fuel other expenses loSS befoRe income tax income tax expense loSS attRibutable to membeRS of the PaRent entitY loss on sale before income tax loSS on Sale afteR income tax total loSS afteR tax attRibutable to the DiScontinueD oPeRation 2010 $000 35,652 (12,778) (639) (225) (1,179) (1,102) (334) (183) (24,072) (4,860) 1,451 (3,409) (6,823) (6,823) (10,232) 59 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 6. key ManageMent peRSonnel (a) Directors the following persons were directors of engenco limited during the financial year: name position D elphinstone v De Santis D hector R Dunning m coote D Patterson chairman (appointed 19 July 2010) chief executive officer/managing Director (appointed 19 July 2010) non-executive Director non-executive Director (appointed 8 november 2010) managing Director (resigned 22 July 2010) chief executive officer/executive Director (resigned 22 July 2010) (b) other Key management personnel the following persons also had authority and responsibility for planning, directing and controlling the activities of the group, directly or indirectly, during the financial year: name position K Pallas R Stampalia g Jean g Parrett w manners P Swann chief operating officer company Secretary / chief financial officer (resigned 6 may 2011) company Secretary / chief financial officer (appointed 6 may 2011) ceo – Drivetrain Power and Propulsion ceo – gemco Rail general manager – convair (c) Key management personnel Compensation Refer to the Remuneration Report contained in the Directors' Report for details of the remuneration paid or payable to each member of the groups key management personnel for the year ended 30 June 2011. the totals of remuneration paid to key management personnel during the year (including termination benefits) are as follows: 2011 $000 1,848 126 - 617 - 2010 $000 2,236 196 - - - 2,591 2,432 Short-term employee benefits Post-employment benefits other long-term benefits termination benefits Share-based payments total (d) equity instrument Disclosures relating to Key management personnel Options no options are currently on issue to key management personnel. 60 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 6. key ManageMent peRSonnel (cont’d) (e) Shareholdings number of shares held by Key management Personnel at 30 June 2011: 2011 D elphinstone g Parrett w manners v De Santis P Swann K Pallas D hector R Dunning m coote (resigned 22 July 2010) D Patterson (resigned 22 July 2010) balance 1 July 2010 Received as compensation options exercised net change other balance 30 June 2011 102,695,243 201,654 62,693 257,693 53,520 50,000 36,171 - 42,811,164 1,422,786 - - - - - - - - - - - - - - - - - - - - 342,921,295 445,616,538 - 55,728 742,307 47,574 - 100,476 100,000 (42,749,670) (1,422,786) 201,654 118,421 1,000,000 101,094 50,000 136,647 100,000 61,494 - (f) other Key management personnel transactions there have been no other transactions involving equity instruments other than those described in the tables above. for details of other transactions with Key management Personnel, refer to note 30: Related Party transactions. 61 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 7. paRent entity diScloSuReS (a) financial position aSSetS current assets non-current assets total aSSetS liabilitieS current liabilities non-current liabilities total liabilitieS net aSSetS equitY issued capital Reserves: option reserves accumulated losses total equitY (b) financial performance comPRehenSive income Profit for the year other comprehensive income total comPRehenSive income (c) Guarantees 2011 $000 2010 $000 17,439 192,918 210,357 22,852 1,975 24,827 185,530 4,650 140,140 144,790 68,083 3,539 71,622 73,168 275,342 152,808 192 (90,004) 185,530 192 (79,832) 73,168 (10,172) (89,037) - - (10,172) (89,037) the parent entity acts as guarantor for bank debt facilities. Details of these facilities can be found in note 20(c). (d) Contingent liabilities at 30 June 2011, the parent entity has no significant contingent liabilities (2010: nil). (e) Contractual Commitments at 30 June 2011, the parent entity had not entered into any contractual commitments for the acquisition of property, plant and equipment (2010: nil). 62 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 8. auditoR’S ReMuneRation Remuneration of bentley’s as auditor of the parent for: - auditing or reviewing the financial report Remuneration of other auditors of subsidiaries for: - auditing or reviewing the financial report of subsidiaries 9. dividendS the Directors have decided not to declare a final dividend. (a) DeClareD anD paiD final fully franked ordinary dividend of nil (2010: nil) cents per share franked at the tax rate of 30% (2010: 30%) (b) franKinG CreDit BalanCe the amount of franking credits available for the subsequent financial year are: - franking account balance as at the end of the financial year at 30% (2010: 30%) conSoliDateD gRouP 2011 2010 $000 $000 346 163 622 44 conSoliDateD gRouP 2011 2010 $000 $000 - - - - 10,939 10,939 9,274 9,274 63 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 10. eaRningS peR ShaRe (a) reConCiliation of earninGS to profit or loSS Profit/(loss) Profit attributable to non-controlling equity interest earnings used to calculate basic ePS earnings used in the calculation of dilutive ePS (b) reConCiliation of earninGS to profit or loSS from ContinuinG operationS Profit/(loss) from continuing operations Profit/(loss) attributable to non-controlling equity interest in respect of continuing operations earnings used to calculate basic ePS from continuing operations earnings used in the calculation of dilutive ePS from continuing operations (c) reConCiliation of earninGS to profit or loSS from DiSContinuinG operationS Profit/(loss) from discontinuing operations Profit/(loss) attributable to non-controlling equity interest from discontinuing operations earnings used to calculate basic ePS from discontinuing operations earnings used in the calculation of dilutive ePS from discontinuing operations (d) weiGhteD averaGe numBer of orDinary ShareS outStanDinG DurinG the year uSeD in CalCulatinG BaSiC epS weighted average number of options outstanding weighted average number of ordinary shares outstanding during the year used in calculating dilutive ePS 11. caSh and caSh equivalentS caSh at banK anD in hanD 64 conSoliDateD gRouP 2011 2010 $000 $000 5,068 (163) 4,905 4,905 6,750 (163) 6,587 6,587 (114,238) 526 (113,712) (113,712) (104,006) 526 (103,480) (103,480) (1,682) (10,232) - (1,682) (1,682) - (10,232) (10,232) no. 000’s no. 000’s 716,384 199,595 3,000 5,062 719,384 204,657 conSoliDateD gRouP 2011 $000 14,098 14,098 2010 $000 2,727 2,727 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 12. tRade and otheR ReceivaBleS cuRRent trade receivables Provision for impairment of receivables total trade receivables other receivables accrued income Sundry receivables fuel rebate receivables total other receivables note b(i)(ii) conSoliDateD gRouP 2011 $000 2010 $000 38,974 (860) 38,114 - 8,176 492 - 8,668 39,820 (70) 39,750 - 4,350 - 324 4,674 total cuRRent tRaDe anD otheR ReceivableS 46,782 44,424 non-cuRRent amounts receivable from: - wholly-owned entities - - external parties Key management personnel and employees (a) total non-cuRRent tRaDe anD otheR ReceivableS - - 512 512 - - 2,255 2,255 65 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 12. tRade and otheR ReceivaBleS (cont’d) (a) Key management personnel balance at beginning of Year $000 2,255 2,255 interest charged interest not charged Provision for impairment balance at end of Year number of individuals $000 $000 $000 - - 82 135 - - $000 512 2,255 4 5 2011 2010 individuals with loans above $100,000 in reporting period: balance at beginning of Year interest charged interest not charged Provision for impairment balance at end of Year highest balance During Period $000 $000 $000 $000 $000 1,743 206 102 102 102 - - - - - 52 12 6 6 6 - - - - - - 206 102 102 102 1,743 206 102 102 102 D Patterson * g Parrett K Pallas J hickey a butters * cancellation of shares the amounts shown for interest not charged in the tables above represent the difference between the amount paid and payable for the year and the amount of interest that would have been charged on an arm’s length basis (b) provision for impairment of receivables current trade and term receivables are non-interest bearing loans and generally on 30 day terms. non-current trade and term receivables are assessed for recoverability based on the underlying terms of the contract. a provision for impairment is recognised when there is objective evidence that an individual trade or term receivable is impaired. these amounts have been included in other expenses in the statement of comprehensive income. movement in the provision for impairment of receivables is as follows: consolidated group opening balance 1 Jul 09 charge for the Year amounts written off closing balance 30 Jun 10 $000 $000 $000 $000 (111) (111) opening balance 1 Jul 10 (60) (60) 101 101 (70) (70) charge for the Year amounts written off closing balance 30 Jun 11 $000 $000 $000 $000 (70) (70) (850) (850) 60 60 (860) (860) 2010 (i) current trade receivables 2011 (ii) current trade receivables 66 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 12. tRade and otheR ReceivaBleS (cont’d) the following table details the group’s trade and other receivables exposed to credit risk with ageing analysis and impairment provided thereon. amounts are considered as ‘past due’ when the debt has not been settled, within the terms and conditions agreed between the group and the customer or counter party to the transaction. Receivables that are past due are assessed for impairment by ascertaining solvency of the debtors and are provided for where there are specific circumstances indicating that the debt may not be fully repaid to the group. the balances of receivable that remain within initial trade terms (as detailed in the table) are considered to be of high credit quality. consolidated group gross amount Past Due and impaired Past due but not impaired within initial trade terms $000 $000 < 30 days $000 31 – 60 days $000 61 – 90 days $000 > 90 days $000 $000 2011 trade and term receivables other receivables total 2010 trade and term receivables other receivables total 38,974 8,668 47,642 39,820 4,674 44,494 860 - 860 70 - 70 9,474 - 9,474 18,587 4,350 22,937 4,462 - 4,462 4,113 - 4,113 3,596 - 3,596 3,582 - 3,582 1,437 3,034 4,471 1,929 - 1,929 19,145 5,634 24,779 11,539 324 11,863 in determining the recoverability of a trade receivable, the group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reportable date. the concentration of credit risk is limited to the customer base being large and unrelated. accordingly, the directors believe that there is no further credit provision required in excess of the allowance for doubtful debts. 67 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts conSoliDateD gRouP 2011 2010 $000 $000 17 7,487 42,987 50,491 511 511 1,132 5,543 37,565 44,240 511 511 51,002 44,751 4,082 4,082 2,827 2,827 6,909 3,095 3,095 2,826 2,826 5,921 conSoliDateD gRouP 2011 2010 $000 $000 139 6 145 147 10 157 13. inventoRieS cuRRent at cost: - Raw materials and stores - work in progress - finished goods at net realisable value - finished goods non cuRRent at cost: - work in progress at net realisable value: - work in progress 14. financial aSSetS non cuRRent Shares in listed companies loans receivable - other total financial assets 68 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 15. contRolled entitieS note: Subsidiaries are indented beneath their parent entity acn country of incorporation Date of control Percentage owned 2011 Percentage owned 2010 engenco ltd }} convair engineering Pty ltd }} coote logistics Pty ltd • Asset Kinetics Pty Ltd • FCD Logistics Pty Ltd atf Fremantle container Depot (1996) unit trust }} coote investments Pty ltd • Australian Rail Mining Services Pty Ltd 120 432 144 058 868 134 120 436 562 109 795 753 073 856 274 124 975 462 116 954 324 • Centre for Excellence in Rail Training Pty Ltd 104 577 933 • Midland Railway Company Pty Ltd • Momentum Rail (VIC) Pty Ltd 098 960 591 111 896 514 • Momentum Rail (Momentum WA) Pty Ltd 096 233 948 • Southern and Silverton Railway Pty Ltd • South Spur Rail Services (NSW) Pty Ltd • Sydney Railway Company Pty Ltd }} Drivetrain Power and Propulsion Pty ltd • Drivetrain Australia Pty Ltd * DtPP energy Pty ltd 116 489 475 105 065 183 109 980 029 052 506 886 060 704 789 060 901 555 australia australia australia australia australia australia australia australia australia australia australia australia australia australia australia australia australia * Drivetrain Philippines inc cS200717491 Philippines * Drivetrain Singapore Pte ltd 199802543c Singapore * Drivetrain limited * Drivetrain uSa inc - hyradix inc - eden cryogenics llc 1945211 new Zealand 30-0524815 68-0493799 20-4363135 uSa uSa uSa • Hedemora Investments AB 556696-9431 Sweden * Drivetrain Sweden ab (formerly hedemora Diesel ab) }} gemco Rail Pty ltd • Railway Bearing Refurbishment Services Pty ltd • New RTS Pty Ltd }} greentrains ltd • Greentrains Leasing Pty Ltd }} hedemora Pty ltd }} industrial Powertrain Pty ltd • P C Diesel Pty Ltd }} total momentum Pty ltd (a) Sales and Disposals 556018-7113 079 764 444 117 649 804 131 310 926 131 890 545 131 687 128 009 394 030 009 213 727 095 951 812 109 979 991 Sweden australia australia australia australia australia australia australia australia australia 1 Jul 06 1 Jul 06 1 Jul 06 1 Jul 07 18 apr 07 30 apr 07 30 apr 07 30 apr 07 30 apr 07 30 apr 07 30 apr 07 30 apr 07 30 apr 07 1 Jul 06 1 Jul 06 25 may 10 1 Jul 07 1 Jul 07 1 Jul 07 31 Dec 08 31 Dec 08 31 Dec 08 1 Jul 06 1 Jul 06 1 Jul 07 1 Jul 07 3 Dec 08 17 Jul 09 18 Jun 08 1 Jul 06 1 Jul 07 1 Jul 06 30 apr 07 100 100 100 0 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 0 100 100 100 100 100 81 81 100 100 100 100 on 14 January 2011, our controlled entity coote logistics Pty ltd sold its 100% shareholding in fcD logistics Pty ltd. on 22 february 2011, our controlled entity Drivetrain uSa inc sold its 100% shareholding in eden cryogenics llc. 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 81 81 100 100 100 100 69 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts conSoliDateD gRouP 2011 2010 $000 $000 53 53 739 (456) 283 336 120,336 (28,764) (3,845) 87,727 2,168 (768) - 1,400 16,840 (3,162) (8,670) 5,008 94,135 94,471 53 53 739 (455) 284 337 103,168 (26,025) (3,191) 73,952 3,302 (1,075) (17) 2,210 19,268 (4,166) (9,142) 5,960 82,122 82,459 16. pRopeRty, plant and equipMent lanD anD builDingS freehold land: - at cost total land buildings: - - at cost less accumulated depreciation total buildings total lanD anD builDingS Plant anD equiPment Plant and equipment: - - - at cost accumulated depreciation accumulated impairment losses total Plant and equipment leasehold improvements: - - - at cost accumulated depreciation accumulated impairment losses total leasehold improvements leased plant and equipment: - - - capitalised leased assets accumulated depreciation accumulated impairment losses total leased Plant and equipment total Plant anD equiPment total PRoPeRtY, Plant anD equiPment 70 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 16. pRopeRty, plant and equipMent (cont’d) (a) movements in Carrying amounts movement in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the current financial year. consolidated group freehold land buildings leasehold improvements Plant and equipment leased Plant and equipment $000 $000 $000 $000 $000 total $000 balance at 1 JulY 2009 53 285 additions Disposals additions through acquisition of entity Revaluation increments/ (decrements) Depreciation expense Disposals of assets on sale of subsidiary - - - - - - - - - - (1) - 2,516 1,120 (1,070) - (17) (276) (63) balance at 1 JulY 2010 53 284 2,210 additions Disposals Revaluation increments/ (decrements) Depreciation expense Disposals of assets on sale of subsidiary - - - - - - - - (1) - 78 (15) 17 (172) (718) balance at 30 June 2011 53 283 1,400 21,677 6,019 (11,777) 73,116 (3,192) (9,496) (2,395) 73,952 24,918 (950) (356) (8,251) (1,586) 87,727 21,793 244 46,324 7,383 (5,541) (18,388) - (8,282) (2,034) (220) 5,960 827 (1,379) 679 (629) (450) 5,008 73,116 (11,491) (11,807) (2,678) 82,459 25,823 (2,344) 340 (9,053) (2,754) 94,471 71 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 17. intangiBle aSSetS gooDwill Cost: opening balance impairment for the year Divestment through subsidiaries sold acquisition through subsidiaries acquired closing balance cuStomeR RelateD intangibleS Cost: opening balance additions acquisitions through subsidiaries acquired closing balance Accumulated amortisation: opening balance amortisation for the year closing balance net book value PatentS anD tRaDemaRKS Cost: opening balance additions acquisitions through subsidiaries acquired foreign exchange movement closing balance Accumulated amortisation: opening balance amortisation for the year closing balance net book value 72 conSoliDateD gRouP 2011 2010 $000 $000 37,277 - (1,005) - 36,272 14,494 - - 14,494 (4,451) (1,529) (5,980) 8,514 85,799 (44,224) (4,958) 660 37,277 15,614 1 (1,121) 14,494 (2,917) (1,534) (4,451) 10,043 1,227 1,227 - - - - - - 1,227 1,227 (357) (100) (457) 770 - (357) (357) 870 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 17. intangiBle aSSetS (cont'd) otheR iDentifiable intangibleS Cost: opening balance additions acquisitions through subsidiaries acquired closing balance total intangible aSSetS at cost impairment for the year accumulated amortisation net book value conSoliDateD gRouP 2011 2010 $000 $000 4,105 4,105 - - - - 4,105 4,105 56,098 - (6,437) 49,661 101,327 (44,224) (4,808) 52,295 intangible assets, other than goodwill, have finite useful lives. the current amortisation charges for intangible assets are included under depreciation and amortisation expense in the statement of comprehensive income. goodwill has an infinite useful life. (a) impairment tests for Cash Generating units Containing Goodwill for the purpose of impairment testing, goodwill is allocated to the consolidated group’s key businesses which represent the lowest level within the consolidated group at which goodwill is monitored for internal management purposes as follows: gooDwill convair Drivetrain australia Drivetrain Sweden Drivetrain uSa gemco Rail momentum greentrains total gooDwill conSoliDateD gRouP 2011 2010 $000 $000 1,889 9,265 9,520 - 3,813 11,125 660 36,272 1,889 9,265 9,520 1,005 3,813 11,125 660 37,277 the recoverable amount of the cash generating units is based on value in use and fair value calculations. the calculations use cash flow projections based on the following year’s budget and plan, extended over a period of 5 years using a growth factor relevant to the sector and business plan. a pre-tax discount rate is applied adjusted for the risk of the industry in which each unit operates. 73 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 17. intangiBle aSSetS (cont'd) (b) Key assumptions used for value in use Calculations a growth rate to reflect business efficiencies and market growth opportunities has been used to extrapolate cash flows. the growth rate does not exceed the long-term average growth rate for the business in which the cash generating units operate. a pre-tax discount rate of 23.5% has been applied to discount the forecast future attributable pre-tax cash flows. the discount rate reflects specific risks relating to the relevant cash generating units in their country of operation. the recoverable amount of each cash generating unit exceeds the carrying amount of the gross assets of that unit. (c) Sensitivity analysis with respect to cash flow projections, a growth rate to reflect business efficiencies and market growth opportunities have been factored into valuation models for the next five years. based on sensitivities to the resulting ebit projections, the following table represents potential incremental impairment of goodwill, based on 5% and 10% reductions to projected ebit. -5% ebit $000 -10% ebit $000 - - - - - - - - - 1,205 - 1,205 conSoliDateD gRouP 2011 2010 $000 $000 2,215 1,051 3,266 791 1,568 2,359 cash generating unit convair Drivetrain australia Drivetrain Sweden gemco Rail momentum total 18. otheR aSSetS cuRRent other current assets Prepayments 74 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 19. tRade and otheR p ayaBleS cuRRent unsecured liabilities: trade payables ato payables Sundry payables and accrued expenses Deferred income 20. financial liaBilitieS cuRRent Secured liabilities: bank overdrafts lease liability other loans loans from related parties bank loans non-cuRRent Secured liabilities: bank loans other loans lease liability note 26(a) conSoliDateD gRouP 2011 2010 $000 $000 20,260 1,646 9 316 22,231 38,327 15,592 9 2,453 56,381 conSoliDateD gRouP 2011 2010 $000 $000 3,554 961 - - 27,380 31,895 20,828 - 650 21,478 14,350 3,160 21 14,992 48,547 81,070 26,711 35 5,367 32,113 75 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 20. financial liaBilitieS (cont'd) (a) total Current and non-Current Secured liabilities: bank overdraft bank loan other loans loans from related parties lease liability (b) Collateral provided conSoliDateD gRouP 2011 2010 $000 $000 3,554 48,208 - - 1,611 53,373 14,350 75,258 56 14,992 8,527 113,183 note 24 the bank debt is secured by first registered fixed and floating charges over assets owned by engenco limited and other group members. Key financial covenants agreed between engenco limited and its primary lender (cba) following debt refinancing are: i. minimum net worth of $100 million for each quarter ending 31 march 2012. for all quarters ending 30 June 2012 or after no less than $125 million; ii. Gearing ratio, (the ratio of total Debt to ebitDa) to be no more than 3.0 times for each quarter ending to 31 march 2012. for all quarters ending 30 June 2012 or after, no greater than 2.75 times; and iii. interest Coverage ratio, (the ratio of ebitDa to gross interest expense) to be greater than 3.0 times. lease liabilities are secured by underlying leased assets. (c) Debt facilities and Credit Standby arrangements a summary of the group’s loan facilities are provided in the table below: facility available 2011 $000 20,200 12,500 - - 3,679 24,329 1,611 62,319 facility used 2011 $000 20,200 8,756 - - 3,679 24,329 1,611 58,575 maturity Dates 2011 facility available 2010 $000 facility used 2010 $000 maturity Dates 2010 interest basis Jul-13 Jul-13 40,500 40,500 - - - - feb-12 Jul-12 various 15,000 7,100 6,540 28,218 8,527 10,304 6,998 6,540 28,218 8,527 105,885 101,087 feb-11 - feb-11 feb-11 feb-12 Jul-12 various floating floating floating floating floating floating fixed cash advance facility - working capital multi option facility * - group limit facility - contingent liabilities - Swedish loan facility - greentrains loan facility - leases * comprises net bank overdrafts, off balance sheet bank guarantees of $7 million, business cards and other trade products. 76 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 21.Tax CURRENT Income tax payable Total CONSOLIDATED GROUP 2011 2010 $000 $000 3,361 3,361 2,860 2,860 This relates to tax payable for Group companies outside the Australian Tax Consolidated Group. Consolidated Group Note 1(w) Opening Balance Balance Acquired Charged to Income Charged directly to Equity Changes in Tax rate Exchange Differences Closing Balance $000 $000 $000 $000 $000 $000 $000 NON-CURRENT Deferred tax liability Other Balance at 30 June 2010 Other Balance at 30 June 2011 Deferred tax assets Provisions Transaction costs on equity issue Losses Other Balance at 30 June 2010 Provisions Transaction costs on equity issue Losses Other Balance at 30 June 2011 1,930 1,930 1,553 1,553 2,296 545 686 440 3,967 2,871 724 863 457 4,915 763 763 - - 1,160 - - - 1,160 (85) - - - (85) (1,140) (1,140) 745 745 (585) - 177 17 (391) (291) - 805 188 702 - - - - - 179 - - 179 - 1,220 - - 1,220 - - - - - - - - - - - - - - - - - - - - - - - (1) - (173) - (174) 1,553 1,553 2,298 2,298 2,871 724 863 457 4,915 2,494 1,944 1,495 645 6,578 The Company has carry forward operating tax losses of $35.2 million from the 2010 year. A deferred tax asset of $0.81 million equal to the tax benefit of $2.7 million of these losses has been brought to account, the benefits of which will only be realised if the conditions for deductibility set out in Note 1(b) occur. The ability to utilise the $35.2 million of operating tax losses will be subject to satisfying relevant eligibility criteria for the recoupment of carry forward tax losses. 77 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 22. pRoviSionS consolidated group long Service leave employee benefits annual leave employee benefits $000 $000 oPening balance at 1 JulY 2010 additional provisions amounts used Decrease in provisions from divestment of entity additional provisions through acquisition of entity balance at 30 June 2011 1,950 444 (447) (21) - 1,926 analysis of total Provisions current non-current (a) Significant provisions Turbomeca Provision other $000 5,836 - (3,237) - - total $000 11,897 3,634 (7,437) (46) - 4,111 3,190 (3,753) (25) - 3,523 2,599 8,048 conSoliDateD gRouP 2011 2010 $000 $000 6,121 1,927 8,048 9,947 1,950 11,897 a provision of $2.86 million recognised in the 2009/2010 financial year for the balance of the purchase price payable to the previous owner of turbomeca has subsequently been reduced by a payment of $0.85 million on achieving a targeted level of sales. at balance date the remaining provision of $2.01 million for the balance payable has been provided on the expectation of meeting future sales targets. O’Connor Lease a provision of $0.7 million was recognised in the 2009/2010 financial year for future site lease payments in the discontinued operation fcD logistics Pty ltd. During the 2010/2011 financial year $0.52 million was utilised. the balance of $0.18 million was increased by $0.14 million to $0.32 million to cover an agreed one-off payment to release the company from all future lease obligations. Site Restoration Provision a provision of $1.35 million was recognised in the 2009/2010 financial year for future costs in meeting property restoration obligations for the container depot operations of fcD logistics Pty ltd. following the completion during the 2010/2011 financial year of an independent baseline environmental assessment the provision has been reduced to $0.16 million based on the current estimation of restoration costs to be incurred. Provision for Long-term Employee Benefits a provision has been recognised for employee entitlements relating to long service leave. in calculating the present value of future cash flows in respect of long service leave, the probability of long service leave being taken is based on historical data. the measurement and recognition criteria relating to employee benefits has been included in note 1(k) to this report. 78 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 23. iSSued capital 1,242,242,634 (2010: 266,438,788) fully paid ordinary shares with no par value (a) ordinary Shares at beginning of reporting period Shares issued during year 24 nov 09 9 Dec 09 29 Dec 09 14 Jul 10 21 feb 11 22 mar 11 30 mar 11 4 apr 11 Shares cancelled during the year 28 Sep 10 at reporting date conSoliDateD gRouP 2011 2010 $000 $000 275,342 275,342 152,808 152,808 no. no. 266,438,788 123,075,146 115,384,615 23,328,894 4,650,133 266,438,788 79,801,636 86,001,111 543,848,189 564,122 (850,000) 1,242,242,634 266,438,788 Date 14 Jul 10 28 Sep 10 21 feb 11 22 mar 11 30 mar 11 4 apr 11 no. Price Description 266,438,788 $0.16 Shares issued pursuant to a non-renounceable entitlement offer (850,000) 79,801,636 86,001,111 543,848,189 564,122 n/a $0.12 $0.12 $0.12 $0.12 cancellation of directors shares Shares issued to institutional and sophisticated investors Shares issued to institutional and sophisticated investors Shares issued pursuant to a non-renounceable entitlement offer Shares issued to institutional and sophisticated investors all of these shares were eligible to participate in dividends from the date of issue. ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion to the number of shares on issue. at shareholders’ meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands. (b) options at 30 June 2011 3,000,000 (2010: 3,000,000) options were on issue. no options were exercised during this financial year. further details on these options are contained in note 27 – Share based Payments. (c) Capital management management monitors the capital of the consolidated group in an effort to maintain an appropriate debt to equity ratio, provide the shareholders with adequate returns and ensure that the consolidated group can fund its operations and continue as a going concern. 79 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 23. iSSued capital (cont’d) the consolidated group’s debt and capital includes ordinary shares and financial liabilities. the gearing ratios for the year ended 30 June 2011 are as follows: total borrowings net Debt total equity total capital gearing Ratio conSoliDateD gRouP 2011 2010 $000 $000 53,373 39,275 184,113 223,388 21% 113,183 110,456 56,389 166,845 195% the gearing ratio has decreased substantially in fY2011 as compared to fY2010. this has been due to a significant reduction in debt and an increase in equity following the successful completion of several capital raisings during the year. 24. capital and leaSing coMMitMentS conSoliDateD gRouP 2011 2010 $000 $000 note (a) finanCe leaSe CommitmentS Payable — minimum lease payments: - - - not later than 12 months between 12 months and 5 years greater than 5 years minimum lease payments future finance charges Present value of minimum lease payments 20 (b) operatinG leaSe CommitmentS non-cancellable operating leases contracted for but not capitalised in the financial statements Payable — minimum lease payments - - - not later than 12 months between 12 months and 5 years greater than 5 years 1,041 677 - 1,718 (107) 1,611 3,777 4,928 1,440 10,145 (1,618) 8,527 6,789 14,772 2,309 23,870 6,206 14,696 2,987 23,889 80 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 25. opeRating SegMentS Segment information Identification of Reportable Segments the group has identified its operating segments based on the internal reports that are reviewed and used by the board of Directors (chief operating decision makers) in assessing performance and determining the allocation of resources. the group is managed primarily on the basis of service offerings since the diversification of the group’s operations inherently have notably different risk profiles and performance assessment criteria. operating segments are therefore determined on the same basis. Types of Products and Services by Segment the chief operating decision makers consider the business from a business line perspective and have identified nine (9) reportable segments as follows: (a) Convair convair is a manufacturer of bulk pneumatic road tankers and mobile silos for the carriage and storage of construction materials, grains, and other dry bulk materials. additional services include maintenance, repair and overhaul and provisioning of ancillary equipment and spare parts sales. (b) Drivetrain power and propulsion Drivetrain Power and Propulsion is a provider of technical sales and services to the mining, oil & gas, rail, transport, defence, marine, construction, materials handling, automotive, agriculture, and power generation industries. a broad product and service offering includes engine and powertrain maintenance, repair and overhaul, new components and parts, fluid connector products, power generation design and construction, technical support, professional engineering and training services. (c) Gemco rail gemco Rail specialise in the remanufacture and repair of locomotives, wagons, bearings and other rail products for rail operators and maintainers. gemco provides wheel-set, bogie and in-field wagon maintenance and manufactures new and refurbished wagons, bogie component parts, customised remote controlled ballast car discharge gates; and a range of rail maintenance equipment and spares. (d) Cert centre for excellence in Rail training provides specialist rail training including the provision of competency based training; issuing of certificates of competency; rail incident investigation training; security (transit guard) training; first aid training; company inductions and course design and management of apprenticeship and trainee schemes to major infrastructure and rail clients throughout australia. (e) momentum momentum is a provider of personnel and project management services to freight rail and mining rail infrastructure managers. Services include professional recruitment, training and workforce solutions, including managing and provisioning track construction and maintenance projects. (f) Coote logistics coote logistics provides specialised road transportation and port logistics services, primarily for mine-site inputs and outputs, agricultural and industrial equipment. (g) Coote investments this segment comprises miscellaneous investments and shareholdings. 81 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 25. opeRating SegMentS (cont’d) Segment information (cont'd) Types of Products and Services by Segment (cont'd) (h) Greentrains greentrains leases rollingstock to freight rail operators throughout australia. (i) all other Segments this includes the parent entity and consolidation / elimination adjustments. Basis of Accounting for Purposes of Reporting by Operating Segments (a) accounting policies adopted unless stated otherwise, all amounts reported to the board of Directors as the chief decision maker with respect to operating segments are determined in accordance with accounting policies that are consistent to those adopted in the annual financial statements of the group. (b) inter-segment Sransactions an internal transfer price is set for all inter-segment sales. this price is set based on what would be realised in the event the sale was made to an external party at arm’s length. all such transactions are eliminated on consolidation of the group’s financial statements. (c) Segment assets unless indicated otherwise in the segment assets note, deferred tax assets have not been allocated to operating segments. (d) Segment liabilities liabilities are allocated to segments where there is nexus between the incurrence of the liability and the operations of the segment. unless indicated otherwise in the segment liabilities note, deferred tax liabilities have not been allocated to operating segments. (e) unallocated items the following items of expenses, assets and liabilities are not allocated to operating segments as they are not considered part of the core operations of any segment: }} finance costs }} goodwill impairment }} impairment of property, plant and equipment }} Deferred tax assets and liabilities 82 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 25. opeRating SegMentS (cont’d) (i) Segment performance Year ended 30 June 2011 Primary Reporting: business Segments Drivetrain Power & Propulsion ceRt convair logistics momentum coote gemco Rail green- trains coote invest- ments all other consol. group $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 Revenue external sales inter-segment sales other revenue total Segment Revenue Reconciliation of segment revenue to Group revenue: inter-segment elimination total gRouP Revenue Segment ebitDa Reconciliation of Segment ebitDa: Amounts not included in Segment EBITDA but reviewed by Board: Depreciation and amortisation Unallocated items: impairment of property, plant and equipment finance costs net PRofit befoRe tax fRom continuing oPeRationS 93,845 3,726 15,769 1,527 88 64 - - 3 257 102 - 25,926 50,124 9,288 1,287 1,228 - 31 - - 95,460 3,790 15,772 359 27,213 51,383 9,288 - - - - - - 238 198,935 4,208 360 238 203,503 (4,208) (4,208) 199,295 19,778 729 2,183 204 3,540 2,388 7,563 - (7,244) 29,141 (1,716) (23) (94) (117) (592) (1,255) (3,613) - (2,750) (10,160) 567 (9,458) 10,090 83 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 25. opeRating SegMentS (cont’d) (i) Segment performance (cont'd) Year ended 30 June 2010 Primary Reporting: business Segments Drivetrain Power & Propulsion ceRt convair logistics momentum coote gemco Rail green- trains coote invest- ments all other consol. group $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 100,652 3,565 8,552 10,651 23,402 25,209 13,019 1,280 2,522 29 108 - - 4 454 - 672 10,719 - - 291 - - - 2,025 186,330 14,475 2,349 103,203 3,673 8,556 11,105 24,074 36,219 13,019 1,280 2,025 203,154 8,528 622 877 (10,641) 2,131 (20,948) 10,850 (515) (8,013) (17,109) (14,475) 188,679 (2,576) (23) (103) (1,279) (557) (2,447) (3,715) (179) (2,180) (13,059) (15,622) (11,491) (44,224) (101,505) Revenue external sales inter-segment sales other revenue total Segment Revenue Reconciliation of segment revenue to Group revenue: inter-segment elimination total gRouP Revenue Segment ebitDa Reconciliation of Segment ebitDa: Amounts not included in Segment EBITDA but reviewed by Board: Depreciation and amortisation Unallocated items: finance costs impairment of property, plant and equipment goodwill write-down net loSS befoRe tax fRom continuing oPeRationS 84 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 25. opeRating SegMentS (cont’d) (ii) Segment assets As at 30 June 2011 Primary Reporting: business Segments Drivetrain Power & Propulsion ceRt convair logistics momentum coote gemco Rail green- trains coote invest- ments all other consol. group $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 aSSetS Segment assets (excluding capital expenditure, investments and intangibles) capital expenditure investments intangibles Reconciliation of segment assets to group assets Segment eliminations Unallocated items: Deferred tax assets 70,646 2,200 6,926 2,405 5,903 44,235 54,740 895 17,766 205,716 1,150 - 21,835 - - 24 - - - - 116 - 1,889 - - 703 228 17,087 3,942 - 2,573 25,823 - - - - - - 3,181 9,588 - - - - - - - - 20,179 (20,034) 145 - - - 13,168 49,661 - - (14,499) 6,578 total aSSetS 93,631 2,224 8,931 3,108 9,312 70,910 58,682 21,074 13,473 273,424 As at 30 June 2010 Primary Reporting: business Segments Drivetrain Power & Propulsion ceRt convair logistics momentum coote gemco Rail green- trains coote invest- ments all other consol. group $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 aSSetS Segment assets (excluding capital expenditure, investments and intangibles) capital expenditure investments intangibles Reconciliation of segment assets to group assets Segment eliminations Unallocated items: Deferred tax assets 65,454 1,657 5,001 5,224 5,218 40,112 58,003 (1,223) 10,962 190,408 1,616 - 23,374 - - 23 - - - - 107 - 1,889 - - 187 - - - - 79 - 2,529 - 3,327 9,588 - - - - - - - - - 922 1,922 26,688 (26,531) 7,384 157 - - - 14,117 52,295 - - (12,895) 4,915 total aSSetS 90,444 1,680 6,997 5,411 8,624 52,229 58,003 26,387 470 242,263 85 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 25. opeRating SegMentS (cont’d) (iii) Segment liabilities As at 30 June 2011 Primary Reporting: business Segments Drivetrain Power & Propulsion ceRt convair logistics momentum coote gemco Rail green- trains coote invest- ments all other consol. group $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 liabilitieS Segment liabilities 88,079 1,231 3,211 24,893 6,859 87,775 36,096 27,274 (171,442) 103,976 Reconciliation of segment liabilities to group liabilities: Segment eliminations Unallocated items: Deferred tax liabilities - - - - - - - - - - - - - - - - - - total liabilitieS 88,079 1,231 3,211 24,893 6,859 87,775 36,096 27,274 (171,442) (16,963) 2,298 89,311 As at 30 June 2010 Primary Reporting: business Segments Drivetrain Power & Propulsion ceRt convair logistics momentum coote gemco Rail green- trains coote invest- ments all other consol. group $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 liabilitieS Segment liabilities 95,966 1,160 2,633 28,035 7,663 70,133 36,275 32,611 (77,261) 197,215 Reconciliation of segment liabilities to group liabilities: Segment eliminations Unallocated items: Deferred tax liabilities - - - - - - - - - - - - - - - - - - (12,894) 1,553 total liabilitieS 95,966 1,160 2,633 28,035 7,663 70,133 36,275 32,611 (77,261) 185,874 (iv) revenue by Geographical region conSoliDateD gRouP 2011 2010 $000 $000 175,359 1,811 22,125 157,363 13,123 18,193 199,295 188,679 Revenue attributable to external customers is disclosed below, based on the location of the external customer: australasia united States of america europe total Revenue 86 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 25. opeRating SegMentS (cont’d) (v) assets by Geographical region The location of segment assets is disclosed below by geographical location of the assets: australasia united States of america europe total aSSetS (vi) major Customers conSoliDateD gRouP 2011 2010 $000 $000 242,356 2,711 28,357 207,953 7,234 27,076 273,424 242,263 the group has a large and diverse customer base. no individual customer has contributed in excess of 10% to overall group revenue. 26. caSh flow infoRMation (a) reconciliation of Cash at end of financial year cash and cash equivalents bank overdrafts (disclosed in current ‘financial liabilities’) caSh at enD of financial YeaR conSoliDateD gRouP 2011 2010 $000 $000 14,098 (3,554) 10,544 2,727 (14,350) (11,623) note 11,20 87 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 26. caSh flow infoRMation (cont'd) (b) reconciliation of Cash flow from operations with profit after income tax PRofit (loSS) afteR income tax non-cash flows in profit: - - - - amortisation / impairment goodwill write-down Depreciation net gain (loss) on disposal of property, plant and equipment changeS in aSSetS anD liabilitieS changes in assets and liabilities, net of the effects of purchase of subsidiaries - - - - - - - (increase)/decrease in trade and term receivables (increase)/decrease in prepayments (increase)/decrease in inventories increase/(decrease) in trade payables and accruals increase/(decrease) in income taxes payable increase/(decrease) in deferred taxes payable increase/(decrease) in provisions caSh flow fRom oPeRationS (c) Disposal of entities (i) FCD Logistics Pty Ltd conSoliDateD gRouP 2011 2010 $000 $000 5,068 (114,238) 762 - 9,053 (42) (6,881) 517 (7,238) (25,107) 6,741 (4,968) (3,490) 13,382 44,224 11,807 (647) 66,944 (87) 18,708 14,340 (5,433) (1,325) (7,047) (25,585) 40,628 on 14 January 2011 the controlled entity fcD logistics Pty ltd was sold. aggregate details of this transaction are: DiSPoSal PRice: cash received vendor finance total Sale conSiDeRation net book value of assets and liabilities disposed: Receivables inventories / wiP Property, plant and equipment Payables hire purchase liabilities employee benefit liabilities including superannuation Sub-total net gain / (loSS) on DiSPoSal 88 $000 1,112 1,604 2,716 718 266 1,927 (360) (645) (33) 1,873 843 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 26. caSh flow infoRMation (cont'd) (c) Disposal of entities (cont'd) (ii) Eden Cryogenics LLC on 22 february 2011 the controlled entity eden cryogenics llc was sold. aggregate details of this transaction are: DiSPoSal PRice: cash received total Sale conSiDeRation net book value of assets and liabilities disposed: goodwill Receivables inventories / wiP Property, plant and equipment Payables employee benefit liabilities including superannuation Sub-total net gain / (loSS) on DiSPoSal (iii) South Spur Rail Services Pty Ltd $000 1 1 1,008 748 1,083 656 (2,600) (79) 816 (815) on 11 June 2010 the sale of controlled entity South Spur Rail Services Pty ltd was settled. aggregate details of this transaction are: DiSPoSal PRice: cash received final consideration adjustment total Sale conSiDeRation net book value of assets and liabilities disposed: cash goodwill Revaluation reserve reversal Receivables inventories / wiP Property, plant and equipment Payables employee benefit liabilities including superannuation Sub-total net gain / (loSS) on DiSPoSal $000 9,266 (3,031) 6,235 1,180 4,958 7,648 6,440 1,407 2,679 (6,780) (1,065) 16,467 (10,232) 89 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 27. ShaRe BaSed p ayMentS the following share-based payment arrangements existed at 30 June 2011: on 29 february 2008, 3,000,000 share options were granted to azure capital to accept ordinary shares at an exercise price of $1.00. the options are on the following basis: grant Date number exercise Price $ exercise Date expiry Date 29 feb 08 29 feb 08 29 feb 08 1,000,000 1,000,000 1,000,000 3.00 3.50 4.00 29 aug 08 28 feb 09 29 aug 09 29 aug 11 29 feb 12 29 aug 12 2011 2010 number of options weighted average exercise Price $ number of options weighted average exercise Price $ outstanding at the beginning of the year 3,000,000 3.50 7,150,000 2.01 granted forfeited exercised expired outstanding at year-end exercisable at year-end - - - - 3,000,000 3,000,000 - - - - 3.50 3.50 - - - (4,150,000) 3,000,000 3,000,000 - - - 1.00 3.50 3.50 no options were issued or exercised during the year ended 30 June 2011. 28. net tangiBle aSSetS 2011 cents 2010 cents net tangible assets per share: (2011: 1,242,242,634 shares, 2010: 266,438,788 shares) 11 1.5 90 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 29. eventS SuBSequent to RepoRting date (a) Debt refinancing on 1 august 2011 debt facilities with the commonwealth bank of australia were refinanced for a further term of two years. the new facilities include a Revolving cash advance facility ($20.2m) together with a multi option facility ($12.5m) comprising cash advances, bank guarantees, letters of credit, business cards and other trade products. these facilities do not include the loan from the commonwealth bank of australia to greentrains limited which is a separate facility that does not mature until July 2012. (b) lease Surrender on 19 august 2011 coote logistics Pty ltd made a one-off payment as way of compensation to release the company from all lease obligations on the property leased at 2 Jones Street, o’connor, fremantle. further details on the lease surrender are contained in note 22(a) – Provisions. (c) options on 29 august 2011 1,000,000 share options granted to azure capital expired. further details of options granted to azure capital are disclosed in note 27. 30. Related paRty tRanSactionS transactions with related parties are on normal commercial terms and conditions no more favourable than those available to other parties. (a) lease agreements with related parties the company leases operating sites from entities related to michael coote. lease payments of $45,205 were paid to these related entities and cover the period to 22 July 2010 being the date of michael coote’s resignation as a director of engenco limited. (b) other transactions management fees of $560,000 were paid to elph Pty ltd and $111,875 paid to elphinstone Pty ltd for the services of vincent De Santis who is a director of both elph Pty ltd and elphinstone Pty ltd. Dale elphinstone is also chairman of both these entities. (c) transactions with Subsidiaries the following transactions occurred with related parties: Related Party transaction Tax consolidation legislation: 2011 $000 2010 $000 current tax payable assumed from wholly-owned tax consolidated entities 1,456 1,197 Dividend revenue: Subsidiaries Interest revenue: Subsidiaries - - 4,450 12,474 91 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 30. Related paRty tRanSactionS (cont'd) (d) outstanding Balances arising from Sales/purchases of Goods and Services the following balances are outstanding at the reporting date in relation to transactions with related parties: Related Party transaction cuRRent ReceivableS wholly-owned entities (e) loans to/from related parties Related Party transaction Loans to/from subsidiaries (parent entity): loans to subsidiaries loans from subsidiaries Loans to/from other related parties: loans from elph Pty ltd 2011 $000 2010 $000 78 82 2011 $000 2010 $000 194,760 (1,675) 148,881 (3,020) - (14,992) the intercompany loans extended from engenco ltd to its wholly owned subsidiaries are extended on the following terms: term: Revolving facility repayable when subsidiary is in a position to do so or as otherwise decided by the company. Rate: fixed rate reviewable quarterly 31. financial RiSk ManageMent the group’s financial instruments consist mainly of short-term investments, accounts receivable and payable, loans to and from subsidiaries, bills and leases. financial aSSetS cash and cash equivalents other loans and Receivables financial liabilitieS financial liabilities at amortised cost - - trade and other payables borrowings conSoliDateD gRouP 2011 2010 note $000 $000 11 14 12 19 20 14,098 145 47,294 61,537 22,231 53,373 75,604 2,727 157 46,679 49,563 56,381 113,183 169,564 the main purpose of non-derivative financial instruments is to raise finance for group operations. 92 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 31. financial RiSk ManageMent (cont’d) i. treasury risk management management consisting of senior executives of the group discusses and monitors financial risk exposure and evaluates treasury management strategies in the context of current economic conditions and forecasts. management’s overall risk management strategy seeks to assist the consolidated group in meeting its financial targets, whilst minimising potential adverse effects on financial performance. management operates under the supervision of members of the board of Directors. Risk management transactions are approved by senior management personnel. this includes the use of hedging derivative instruments and decisions in relation to sources of future funding. ii. financial risk exposures and management the main risks the group is exposed to through its financial instruments are interest rate risk, foreign currency risk, liquidity risk and credit risk. a. Interest Rate Risk exposure to interest rate risk arises on financial liabilities recognised at reporting date whereby a future change in interest rates will affect future cash flows or the fair value of fixed rate financial instruments. currently the groups’ operations are financed using a mixture of fixed and floating debt. the group is not currently entered into any interest rate swaps to fix its floating rate debt. the variable interest rate borrowings exposes the group to interest rate risk which will impact future cash flows and interest charges and is indicated by the following floating interest rate financial liabilities: floating Rate inStRumentS bank overdrafts cash advance facility Swedish loan facilities greentrains loan facilities total conSoliDateD gRouP 2011 2010 $000 $000 3,554 20,200 3,679 24,329 51,762 14,350 40,500 6,540 28,218 89,608 note 20(c) 20(c) 20(c) 20(c) 93 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 31. financial RiSk ManageMent (cont’d) ii. financial risk exposures and management (cont'd) b. Liquidity Risk liquidity risk arises from the possibility that the group might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities. the group manages this risk through the following mechanisms: }} preparing forward looking cash flow analysis in relation to its operational, investing and financing activities }} monitoring undrawn credit facilities }} obtaining funding from a variety of sources }} managing credit risk related to financial assets }} comparing the maturity profile of financial liabilities with the realisation profile of financial assets the tables below reflect an undiscounted contractual maturity analysis for financial liabilities. cash flows realised from financial assets reflect management’s expectations as to the timing of realisation. actual timing may therefore differ from that disclosed. the timing of cash flows presented in the table to settle financial liabilities reflects the earliest contractual settlement dates and does not reflect management’s expectations that banking facilities will be rolled forward. Defaults and Breaches as a consequence of its earnings results in the first half of the reporting period the group was operating outside two of its financial covenants in respect to its facilities with the commonwealth bank of australia as at 30 June 2011. Financial Liability and Financial Asset Maturity Analysis within 1 Year 1 to 5 Years over 5 Years total consolidated group 2011 $000 2010 $000 2011 $000 2010 $000 2011 $000 2010 $000 2011 $000 2010 $000 financial liabilitieS Due foR PaYment bank overdrafts and loans 30,934 77,910 20,828 26,746 22,231 961 56,381 3,160 - 650 54,126 137,451 21,478 - 4,322 31,068 trade and other payables (excluding estimated annual leave) finance lease liabilities total expected outflows financial aSSetS – caSh flow RealiSable cash and cash equivalents trade, term and loans receivables investments available for sale 14,098 46,782 145 2,727 44,424 157 - 512 - 512 - 2,255 - 2,255 total anticipated inflows 61,025 47,308 net (outflow)/inflow on financial instruments 6,899 (90,143) (20,966) (28,813) 94 - - - - - - - - - - 1,045 1,045 51,762 104,656 22,231 56,381 1,611 8,527 75,604 169,564 - - - - 14,098 47,294 145 2,727 46,679 157 61,537 49,563 (1,045) (14,067) (120,001) EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 31. financial RiSk ManageMent (cont’d) ii. financial risk exposures and management (cont'd) c. Foreign Exchange Risk exposure to foreign exchange risk may result in the fair value or future cash flows of a financial instrument fluctuating due to movement in foreign exchange rates of currencies in which the group holds financial instruments which are other than the auD functional currency of the group. the group currently undertakes some hedging against the potential impact of this risk on its operations. the majority of financial liabilities and assets of the group are denominated in the functional currency of the operational location. these are primarily australian Dollars and Swedish Krona. d. Credit Risk exposure to credit risk relating to financial assets arises from potential non-performance by counter parties of contract obligations that could lead to a financial loss to the group. credit risk is managed through the maintenance of procedures (such procedures include monitoring of exposures, payment cycles and monitoring of the financial stability of significant customers and counter parties) ensuring to the extent possible, that customers and counter parties to transactions are of sound credit worthiness. Such monitoring is used in assessing receivables for impairment. credit terms differ between each key business but are generally 30 to 60 days. where the group is unable to ascertain a satisfactory credit risk profile in relation to a customer or counter party, then risk may be further managed through title retention clauses over goods or obtaining security by way of personal or commercial guarantees over assets of sufficient value which can be claimed against in the event of any default. Credit Risk Exposures the maximum exposure to credit risk by class of recognised financial assets at balance date, excluding the value of any collateral or security held, is equivalent to the carrying value and classification of those financial assets (net of any provisions) as presented in the balance sheet. on a geographical basis the group has significant credit risk exposures in australia given the substantial operations in this region. Details with respect of the credit risk of trade and other Receivables can be found in note 12. trade and other receivables that are neither past due or impaired are considered to be of high credit quality. aggregates of such amounts are detailed in note 12. balances held with banks are with aa rated financial institutions, details of these holdings can be found in note 11. iii. net fair values Fair Value Estimation the fair values of financial assets and financial liabilities are presented in the following table and can be compared to their carrying values as presented in the balance sheet. fair values are those amounts at which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. fair values derived may be based on information that is estimated or subject to judgment, where changes in assumptions may have a material impact on the amounts estimated. areas of judgment and the assumptions have been detailed below. where possible, valuation information used to calculate fair value is extracted from the market, with more reliable information available from markets that are actively traded. in this regard, fair values for listed securities are obtained from quoted market bid prices. 95 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 31. financial RiSk ManageMent (cont’d) iii. net fair values (cont'd) financial aSSetS cash and cash equivalents trade and other Receivables other financial liabilitieS trade and other Payables lease liability bank Debt 2011 net carrying value $000 consolidated group 2011 net fair value $000 2010 net carrying value $000 2010 net fair value $000 $000 $000 $000 $000 14,098 47,294 145 61,537 22,231 1,611 51,762 75,604 14,098 47,294 145 61,537 22,231 1,611 51,762 75,604 2,727 46,679 157 49,563 56,381 8,527 89,608 154,516 2,727 46,679 157 49,563 56,381 8,527 89,608 154,516 the fair values disclosed in the above table have been determined based on the following methodologies: }} Cash and cash equivalents, trade and other receivables and trade and other payables are short-term instruments in nature whose carrying value is equivalent to fair value. Trade and other payables exclude amounts provided for relating to annual leave which is not considered a financial instrument. }} Loans and receivables have carrying values equivalent to fair value. The majority of these facilities have floating rates and those that are fixed are expected to be held to maturity and as such when discounted bear little resemblance to the carrying value. }} For other assets, closing quoted bid prices at reporting date are used where appropriate. iv. Sensitivity analysis a. Interest Rate Risk and Foreign Currency Risk the following table illustrates sensitivities to the group’s exposures to changes in interest rates and exchange rates. the table indicates the impact on how profit and equity values reported at balance date would have been affected by changes in the relevant risk variable that management considers to be reasonably possible. these sensitivities assume that the movement in a particular variable is independent of other variables. 96 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts 31. financial RiSk ManageMent (cont’d) iv. Sensitivity analysis (cont'd) b. Interest Rate Sensitivity Analysis at 30 June 2011, the effect on earnings and equity as a result of changes in the interest rate, with all other variables remaining constant would be as follows: change in eaRningS - increase in interest rates by 100 basis points - Decrease in interest rates by 100 basis points change in equitY - increase in interest rates by 100 basis points - Decrease in interest rates by 100 basis points c. Foreign Currency Risk Sensitivity Analysis conSoliDateD gRouP 2011 2010 $000 $000 (518) 518 (518) 518 (799) 799 (799) 799 at 30 June 2011, the effect on earnings and equity as a result of changes in the value of the australian Dollar to the Swedish Krona, with all other variables remaining constant is as follows: - - improvement in auD to SeK by 5% Decline in auD to SeK by 5% change in equitY - - improvement in auD to SeK by 5% Decline in auD to SeK by 5% conSoliDateD gRouP 2011 2010 $000 $000 (53) 53 (160) 160 (266) 266 (541) 541 the group does not currently hedge against foreign exchange movements against the net assets of its Swedish subsidiaries. 32. ReSeRveS (a) foreign Currency translation reserve the foreign currency translation reserve records exchange differences arising on translation of a foreign controlled subsidiary. (b) option reserve the option reserve records items recognised as expenses on valuation of employee share options. (c) foreign Deferred tax reserve the foreign deferred tax reserve records Swedish profits transferred for the purpose of deferring the payment of Swedish corporate income tax. under Swedish tax legislation Swedish corporations can transfer 25% of current year profits to a foreign deferred tax reserve and defer the payments of corporate income tax for a maximum period of six years. at the reporting date the value of the ‘foreign deferred tax reserve’ is auD $4.05 million (Swedish Krona – SeK 24.7 million). 97 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEportNotes to the FiNaNcial statemeNts ShareholDer information ShaReholDeR infoRmation Additional Information for Listed Companies at 16 September 2011 the following information is provided in accordance with the aSx listing Rules. 1. Shareholding (a) Distribution of Shareholders category (size of holding) no. of shareholders 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – and over 152 390 300 1,024 625 2,491 % 6.10 15.66 12.04 41.11 25.09 100.00 no. ordinary Shares 44,579 1,254,430 2,459,475 44,706,356 1,193,777,794 1,242,242,634 (b) The number of shareholdings held in less than marketable parcels (less than $500 in value) is 537. (c) 20 Largest Shareholders – Ordinary Shares Position name elph Pty ltd JP morgan nominees australia limited national nominees limited equity trustees limited ubS nominees Pty limited Rac & JD brice Superannuation Pty ltd citicorp nominees Pty limited australian foundation investment company limited cogent nominees Pty limited mirrabooka investments limited Sandhurst trustees ltd marford group Pty ltd mr neville leslie esler, & mrs cheryl anne esler Rbc Dexia investor Services australia nominees Pty limited Pan australian nominees Pty limited grahger capital Securities Pty limited amcil limited Sacrosanct Pty ltd bond Street custodians limited albers custodian company Pty ltd totals 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 98 number of ordinary fully Paid Shares held % held of issued ordinary capital 450,000,000 36.22% 110,528,611 77,862,012 70,597,590 42,325,347 33,545,036 32,932,529 31,663,292 13,505,423 10,999,960 9,170,557 8,974,716 8,937,691 8,656,206 8,250,000 8,000,000 6,893,706 5,501,354 4,650,078 4,605,630 8.90% 6.27% 5.68% 3.41% 2.70% 2.65% 2.55% 1.09% 0.89% 0.74% 0.72% 0.72% 0.70% 0.66% 0.64% 0.55% 0.44% 0.37% 0.37% 947,629,512 76.28% EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport ShAREhOLDER INfORmATION 1. Shareholding (cont'd) (d) A single shareholder holding in excess of 10% of issued capital was listed in the holding company’s register as follows: Shareholder Elph Pty Ltd (e) Voting Rights No. Ordinary Shares % 450,000,000 36.22% Each ordinary share is entitled to one vote when a poll is called, otherwise each member present at a meeting or by proxy has one vote on a show of hands. 2. The Name of the Company Secretary is: Gary Jean 3. The Address of the Principal Registered Office in Australia is: Level 1, 10 Kings Park Road, West Perth WA 6005 4. Registers of Securities are held at the following Addresses: 770 Canning Highway, Applecross, WA 6153 5. Securities Exchange Listing Quotation has been granted for all the ordinary shares of the company on all Member Exchanges of the ASX Limited. 6. Unquoted Securities A total of 2,000,000 options are on issue to Azure Capital. 7. Other Disclosures There were no restricted securities at this date. 99 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport Corporate DireCtory coRPoRate DiRectoRY coRpoRate headquaRteRS diRectoRS auditoRS engenco limited level 22 535 bourke Street melbourne vic 3000 t: +61 (0)3 8620 8900 f: +61 (0)3 8620 8999 investor.relations@engenco.com.au www.engenco.com.au RegiSteRed office level 1, 10 Kings Park Road west Perth wa 6005 Dale elphinstone: faicD non-executive chairman vincent De Santis: bcom llb (hons) managing Director Donald hector: be(chem), PhD, faicD, fieaust, ficheme non-executive Director ross Dunning aC: be (hons), b.com, fcilt, faim, fieaust, fiRSe, maicD non-executive Director coMpany SecRetaRy Gary Jean: bbus, ca, mba chief financial officer Bentleys level 1, 12 Kings Park Road west Perth wa 6005 t: +61 (0)8 9226 4500 f: +61 (0)8 9216 4300 ShaRe RegiStRy Security transfer registrars pty ltd 770 canning highway applecross wa 6153 t: +61 (0)8 9315 2333 f: +61 (0)8 9315 2233 100 EngEnco LimitEd (formErLy cootE industriaL Ltd) 2011 annuaL rEport A N N U A L R E P O R T FOLLOw US www.engenco.com.au DesigneD by enge_13903
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