Annual Financial Report Engenco Limited ACN 120 432 144 30 June 2013 CONTENTS Corporate Governance Statement ................................................................................ 1 Directors’ Report ......................................................................................................... 6 Directors’ Declaration .................................................................................................17 Auditor’s Independence Declaration............................................................................18 Independent Auditor’s Report .....................................................................................19 Consolidated Statement of Comprehensive Income .....................................................21 Consolidated Statement of Financial Position ..............................................................22 Consolidated Statement of Changes in Equity ..............................................................23 Consolidated Statement of Cash Flows ........................................................................24 Notes to the Consolidated Financial Statements ..........................................................25 Note 1 – Summary of Significant Accounting Policies ..............................................25 Note 2 – Revenue and Other Income .....................................................................37 Note 3 – Expenses ................................................................................................37 Note 4 – Income Tax Expense ................................................................................38 Note 5 – Key Management Personnel ....................................................................39 Note 6 – Parent Entity Disclosures .........................................................................41 Note 7 – Auditor’s Remuneration ..........................................................................42 Note 8 – Dividends ................................................................................................42 Note 9 – Earnings Per Share ..................................................................................43 Note 10 – Cash and Cash Equivalents .....................................................................43 Note 11 – Trade and Other Receivables .................................................................44 Note 12 – Inventories ............................................................................................46 Note 13 – Financial Assets .....................................................................................46 Note 14 – Controlled Entities .................................................................................47 Note 15 – Property, Plant and Equipment ..............................................................48 Note 16 – Intangible Assets ...................................................................................50 Note 17 – Other Assets .........................................................................................51 Note 18 – Trade and Other Payables ......................................................................52 Note 19 – Financial Liabilities .................................................................................52 Note 20 – Tax Assets and Liabilities .......................................................................54 Note 21 – Provisions .............................................................................................55 Note 22 – Issued Capital ........................................................................................56 Note 23 – Capital and Leasing Commitments..........................................................57 Note 24 – Operating Segments ..............................................................................58 Note 25 – Cash Flow Information ...........................................................................65 Note 26 – Share Based Payments...........................................................................66 Note 27 – Net Tangible Assets ...............................................................................66 Note 28 – Events Subsequent to Reporting Date ....................................................66 Note 29 – Related Party Transactions ....................................................................67 Note 30 – Financial Risk Management ....................................................................68 Note 31 – Reserves ...............................................................................................73 Note 32 – Contingent Liabilities .............................................................................73 Shareholder Information ............................................................................................74 Corporate Directory ....................................................................................................76 Corporate Governance Statement Corporate Governance Statement Engenco Limited ACN 120 432 144 and Controlled Entities Engenco Limited (“the Company”) and the Board are committed to achieving compliance with all the best practice recommendations released by the Australian Securities Exchange (ASX) 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 Corporate Governance Statement, 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 directors of the Company in office at the date of this report, specifying which are independent, are set out in the Directors’ Report. 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 director; and • none of the director’s income or 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. 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. Engenco Limited – 2013 Annual Report | Page 1 Corporate Governance Statement Engenco Limited ACN 120 432 144 and Controlled Entities The majority of the Board are not is a departure from ASX Corporate Governance Recommendation 2.1. The Chairman is also not an independent director which is a departure from ASX Corporate Governance Recommendation 2.2. These factors are due to the ownership structure of the listed company. independent directors which 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 Group. The number of meetings held and attended by each of the directors for the financial year ended 30 June 2013 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 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 or beyond the third annual general meeting following their appointment, whichever is longer, 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 Group. 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. Engenco Limited – 2013 Annual Report | Page 2 Corporate Governance Statement Reward and Remuneration Engenco Limited ACN 120 432 144 and Controlled Entities Reward and remuneration of directors and executives will be objectively linked to achieving the Group’s objectives and consistent with the financial performance of the Group. 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 Group, the Board has not formed a Nomination or Remuneration Committee which is a departure from ASX Corporate Governance Recommendations 2.4 and Principle 8. 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 Audit Committee is chaired by a non-executive director of the Company and membership of the Audit Committee must include at least two directors (other than the Managing Director/CEO and the Chief Financial Officer) and the Company Secretary. The members of the Audit Committee during the year were: • D Hector (Non-Executive Director) – Chair of Audit Committee • R Dunning (Non-Executive Director) • A Bagley (Committee Secretary) On 15 July 2013 Ross Dunning was appointed as Interim Managing Director of the Company and on 31 July 2013 was replaced on the Audit Committee by Vincent De Santis (Non–Executive Director). The external auditors are invited to attend meetings as required and the Managing Director/CEO and Chief Financial Officer may be invited, but will be excused from discussions if the committee so determines. 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 Audit Committee. The current composition of the Audit Committee does not meet ASX Corporate Governance Recommendation 4.2 however the Board believes that this is the most effective structure for the Audit Committee given the structure of the Board itself. The Audit Committee Charter is published on the Company’s website. Financial Reporting Consistent with ASX Corporate Governance Recommendation 7.3, and in accordance with section 295A of the Corporations Act 2001, the Group’s financial report preparation and approval process for the year ended 30 June 2013 involved both the Managing Director/CEO and Chief Financial Officer providing a written statement to the Board that, in their opinion: • • the Group’s financial statements and notes for the financial year present a true and fair view of the Group’s financial condition and operating results, and are in accordance with applicable accounting standards; and the Group’s financial records for the financial year have been properly maintained in accordance with section 286 of the Corporations Act 2001. Engenco Limited – 2013 Annual Report | Page 3 Corporate Governance Statement Audit Governance and Independence External Auditors Engenco Limited ACN 120 432 144 and Controlled Entities KPMG is the Group’s current external auditors. The performance of the external auditor is reviewed annually by the Audit Committee. KPMG was appointed as the external auditor at the Company’s annual general meeting in 2012. It is currently the Group’s policy that no non-audit services are provided by the external auditor to ensure independence is maintained. However, during the current financial year, KPMG were appointed to perform other assurance services as part of the Group’s capital raising, and for tax services in the Philippines. It is KPMG’s policy and a Corporations Act 2001 requirement to rotate audit engagement partners on listed companies at least every five years. Independence Declaration The Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 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 the Corporations Act 2001 and the rules of the professional accounting bodies. KPMG has provided such a declaration to the Audit Committee for the financial year ended 30 June 2013. Attendance of External Auditors at Annual General Meetings In accordance with the Corporations Act 2001, the Company requires that KPMG attends the Company’s annual general meeting and is 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 7 days prior to the annual general meeting. Risk Identification and Management The Group 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. Engenco has various risk management procedures and registers in place to enable the identification, assessment and mitigation of risks that arise through its activities. Code of Conduct The Company recognises the need for directors and employees to observe the highest standards of behaviour and business ethics when engaging in corporate activity. The Board is developing a Code of Conduct which sets out the principles and standards with which all officers and employees are expected to comply in the performance of their respective functions in respect of responsibilities to shareholders, customers, clients, consumers and the community. The Code of Conduct has not been formally approved as at the reporting date which is a departure from ASX Corporate Governance Recommendation 3.1. Securities Trading Policy The Company’s Securities 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 Securities Trading Policy is published on the Company’s website. Engenco Limited – 2013 Annual Report | Page 4 Corporate Governance Statement Continuous Disclosure Engenco Limited ACN 120 432 144 and Controlled Entities 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. The Company’s Continuous Disclosure Policy is published on the Company’s website. 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 to by the Board, and are able to appoint proxies. Diversity Policy The Group has developed a diversity policy, which has the following objectives: To recognise and embrace our multicultural diversity and grow our workforce to reflect the diversity of the communities in which we operate; To recognise that those in the community that have disabilities have an equal right to suitable employment and rewarding career advancement opportunities; and To create programs to ensure that gender representation at all levels of the Group (including senior management) accurately represents our society. Engenco’s commitment to diversity is led by our Diversity Committee and representatives come from all levels of the Group. The Diversity Committee is sponsored by the Managing Director/CEO of the Company and will make recommendations on diversity related initiatives, monitor and evaluate their implementation and ensure that diversity related programs are progressing successfully. The Group’s annual compliance report for the period 1 April 2012 to 31 March 2013 is below. We have received confirmation from the Workplace Gender Equality Agency that the Group is compliant with the Workplace Gender Equality Act 2012. Board Senior Executive Senior Management Line Managers Professional/Technical Administration Staff Shop Floor Staff TOTAL excl. Board TOTAL incl. Board Full-Time Part-Time Casual Total Employees Female - 1 5 1 25 23 1 56 56 Male 4 5 13 72 65 2 178 335 339 % Female - 17% 28% 1% 28% 92% 1% 14% 14% Female - - - - - - - - - Male - - - - - - 1 1 1 % Female - - - - - - - Female - - - - 4 8 44 - - 56 56 Male - - - - 22 - 530 552 552 % Female - - - - 15% 100% 8% Female - 1 5 1 29 31 45 9% 9% 112 112 Male 4 5 13 72 87 2 709 888 892 % Female - 17% 28% 1% 25% 94% 6% 11% 11% Engenco Limited – 2013 Annual Report | Page 5 Directors’ Report Directors’ Report Engenco Limited ACN 120 432 144 and Controlled Entities The directors present their report, together with the consolidated financial statements of the Group, being Engenco Limited (the Company) and its controlled entities for the financial year ended 30 June 2013 and the auditor’s report thereon. Directors The directors of the Company at any time during or since the end of the financial year are: Dale Elphinstone Non-Executive Director (Chairman) FAICD Appointed: Age: 19 July 2010 62 Directorships held in other listed entities in the past three years: Non-executive Director, National Hire Group Limited, 2008 – December 2011 Summary of current equity holdings: 202,249,018 ordinary shares Dale is the Executive Chairman of the Elphinstone Group which he founded in 1975. Dale 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. Dale was also a director of ASX listed National Hire Group Limited until December 2011. Vincent De Santis Non-Executive Director 1 B.Com LLB (Hons) Appointed: Age: 19 July 2010 43 Directorships held in other listed entities in the past three years: Alternate Director, National Hire Group Limited, 2008 – December 2011 Summary of current equity holdings: 300,003 ordinary shares 1 On 31 July 2013, Vince was appointed as a member of the Audit Committee. 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. He was Dale Elphinstone’s alternate on the board of Queensland Gas Company Limited and of National Hire Group 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. Engenco Limited – 2013 Annual Report | Page 6 Engenco Limited ACN 120 432 144 and Controlled Entities Directors’ Report Donald Hector Independent Non-Executive Director BE (Chem), PhD, FAICD, FIEAust, FIChemE Appointed: Age: 2 November 2006 63 Special Responsibilities: Chairman of Audit Committee Directorships held in other listed entities in the past three years: None Summary of current equity holdings: 113,163 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 a council member of one of Sydney’s leading independent schools. Don served as Non-Executive Chairman of Engenco Limited until 19 July 2010. Ross Dunning AC Non-Executive Director / Interim Managing Director 1 BE (Hons), B.Com, FCILT, FAIM, FIE Aust, FIRSE, MAICD Appointed: Age: 8 November 2010 71 Special Responsibilities: Member of Audit Committee 2 Directorships held in other listed entities in the past three years: None None Summary of current equity holdings: 104,000 ordinary shares 1 Ross held the position of Non-Executive Director during the financial year and was appointed as Interim Managing Director on 15 July 2013. 2 On 31 July 2013, Ross ceased to be a member of the Audit Committee following his appointment as Interim Managing Director of the Company. 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. Engenco Limited – 2013 Annual Report | Page 7 Engenco Limited ACN 120 432 144 and Controlled Entities Directors’ Report Company Secretary Anna Bagley BSc, LLB (Hons), GCInfTech, LLM Admitted to practice as a solicitor of the Supreme Court of Victoria and the High Court of Australia Registered Australian Trade Mark Attorney Appointed: Age: 9 November 2011 34 With more than 10 years’ experience in legal roles, Anna holds a Bachelor of Science, a Bachelor of Laws (Hons) and a Graduate Certificate in Information Technology from the University of Queensland. She also holds a Masters of Laws from the University of Melbourne. Anna is a qualified and practising solicitor and Australian trade mark attorney. She has worked at national and international laws firms including the Melbourne offices of Corrs Chambers Westgarth and Baker & McKenzie. Most recently, Anna was a member of the legal team at the ASX listed company, Spotless Group Limited. Anna is also a member of the executive and is the Company Secretary for the incorporated associate, Australian Corporate Lawyers Association. Josephine Tan B.Mus, LLB (Hons) Appointed: Age: 22 August 2013 48 Josephine Tan was recently appointed Chief Legal Officer and joint Company Secretary of Engenco Limited whilst Anna Bagley is on maternity leave. Josephine brings with her over 10 years’ of legal experience in a broad range of matters. Prior to joining Engenco Limited she was General Counsel and a member of Senior Management at VicForests. Josephine also spent 8 years at the international law firm Baker & McKenzie. As a Senior Associate there, her work included advising various ASX listed entities in relation to corporate transactions and compliance matters. Josephine holds a Bachelor of Laws (Hons) from the University of Melbourne. Kevin Pallas BCom, MAICD Appointed: Age: 13 September 2013 51 Kevin possesses senior management and leadership experience through a 23 year career in engineering, mining supplies, metals and manufacturing industries. Holding a Bachelor of Commerce degree, Kevin specialised in the areas of financial and cost accounting systems design and development, and operational and commercial management for a number of multinationals in South Africa, New Zealand, Singapore and Australia prior to joining the Group in 2007. Changes in Directors and Executives Subsequent to Year End On 12 July 2013, Dennis Quinn resigned as Chief Executive Officer of the Company and Ross Dunning was appointed as Interim Managing Director effective 15 July 2013. Josephine Tan was appointed as an additional Company Secretary on 22 August 2013. Kevin Pallas was appointed as an additional Company Secretary on 13 September 2013. Engenco Limited – 2013 Annual Report | Page 8 Directors’ Report Meetings of Directors Engenco Limited ACN 120 432 144 and Controlled Entities During the financial year, 16 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 16 16 16 16 Number Attended 15 16 16 15 Number Eligible to attend - - 2 2 Number Attended - - 2 2 Dale Elphinstone Vincent De Santis Donald Hector Ross Dunning Principal Activities The Group delivers a diverse range of engineering services and products through two business streams: Power & Propulsion and Rail & 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; Manufacture and supply of road transport and storage tankers for dry bulk products; and Project management, training and workforce provisioning services; Leasing of locomotives, wagons and other rail equipment. The Group services a diverse client base across the defence, resources, marine, power generation, rail, heavy industrial and infrastructure sectors. The Group employs around 520 people operating from more than twenty locations in five countries. Strategy The Group remains committed to a strategy of pursuing business in both the Rail & Road and Power & Propulsion business segments, with a focus on developing current core business capability and improving operating efficiency within the businesses by leveraging the group structure. In Rail we propose to further consolidate our Western Australian sites to reduce costs and improve operating efficiency in Forrestfield. The Greentrains leasing fleet is now focussed to meet the addressable market and is proposed only to be expanded on the basis of pre-committed contracts. The CERT business is being positioned to take advantage of the growing market particularly in Queensland. Momentum continues to focus on partnering principals on major project work by levering off compliance and quality attributes. Drivetrain Power and Propulsion is well positioned to maximise the opportunity of the expected recovery in the resources sector. The consolidation of sites in Sydney is aimed at rationalising operations and saving costs. In Sweden the Hedemora engine parts and HS Turbocharger and support business continues to be a core revenue driver, and the development of the new generation HS Turbocharger business remains a focus for future market growth in both Europe and the Americas. The ongoing strategy to improve the efficiency and to right-size the business to better meet current and potential future markets has put the business on a firmer footing which in turn has much improved relations with our financiers, insurers, suppliers and of course our customers. Engenco Limited – 2013 Annual Report | Page 9 Directors’ Report Operating and Financial Review Overview of the Group Engenco Limited ACN 120 432 144 and Controlled Entities Drivetrain Power and Propulsion 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 12 locations in the ANZ region, Asia, Sweden and USA. Gemco Rail Gemco has been a well-known supplier of quality products and services to the rail sector for many years. Building on this solid reputation and experience the business specialises in providing fleet management services to national rail operators, and in the manufacture, refurbishment and overhaul of rail equipment. 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 and wagon 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 complemented by a country-wide footprint including workshops on main lines in Victoria, South Australia and New South Wales. Total Momentum Total 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. The business 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. Total 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 branches in Forrestfield, Port Hedland, Norwood, Thornton, Clyde and Williamstown – Total Momentum's strategic presence is well placed 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. Engenco Limited – 2013 Annual Report | Page 10 Directors’ Report Engenco Limited ACN 120 432 144 and Controlled Entities 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 Engineering (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 its plant based in Melbourne, Convair services customers throughout Australia and in New Zealand. Operating Results The Group reported a net loss after tax including non-controlling interests of $91,515,000 for the year ended 30 June 2013, which included significant items amounting to a net loss of $79,235,000. The consolidated result for the year is summarised as follows: Revenue 2 EBITDA 1 EBIT Profit / (loss) for the period Underlying trading loss 3 Net operating cash flow Net assets Net debt 1 EBIT is earnings before finance costs and income tax expense. 2 EBITDA is EBIT before depreciation and amortisation. 3 Underlying trading loss is net loss after tax excluding significant items. 2013 $000 176,088 (67,008) (79,642) (91,515) (12,280) 6,235 89,029 18,867 2012 $000 199,197 (16,049) (27,055) (35,599) (1,868) (858) 151,793 46,514 Note - EBIT, EBITDA and underlying trading loss are non-IFRS financial measures, which have not been subject to review or audit by the Group’s external auditors. These measures are presented to enable understanding of the underlying performance of the Group. The significant reduction in resources sector activity was a major cause of revenue reduction in FY13. The greatest impact of this was felt in the Drivetrain business in Australia and New Zealand and in the Gemco fabrication business. Operational efficiencies and rationalisations have been implemented in the Drivetrain business across Australia and New Zealand and the effect of this is expected to be evident in FY14 results. The offshore operations in Singapore and Europe (Sweden) continue to operate profitably and early indicators are that this will continue in FY14. Gemco Rail’s operational efficiency program which commenced in Western Australia is continuing and will lead to facilities better suited to meet market demands. Onerous contracts on foot in the rail sector have been taken to account in FY13 and new locomotive maintenance work is being pursued on better commercial terms. The wheel and bearing activities, including bogie refurbishment, are now operating more efficiently and higher throughput is being realised. Momentum’s performance was affected by a downturn in rail infrastructure spend during FY13 but there are positive indicators of a recovery in this sector in the new year. The Convair and CERT businesses are operating profitably and are expected to perform well in FY14. The Greentrains business has been affected by the oversupply of narrow gauge and standard gauge locomotives of which a major contributing factor has been the sudden reduction in the requirements of the resources sector, particularly in coal haulage. No material improvement in demand for the current Greentrains fleet is expected during FY14. Engenco Limited – 2013 Annual Report | Page 11 Directors’ Report Engenco Limited ACN 120 432 144 and Controlled Entities The Commonwealth Bank of Australia (CBA) facility agreement was completed on 13 September 2013 and expires on 31 October 2014. The Elph Pty Ltd facility agreement has been extended to 30 September 2014. Market indicators suggest slow improvement in all sectors. Directors and management are confident that FY14 will see the Company return to profit and that the three to five year recovery plan is still on track. The following table shows a reconciliation of underlying trading loss: Profit / (loss) for the period Significant Items: Impairment of goodwill and other intangible assets Impairment of property, plant and equipment Impairment of inventory Impairment of accounts receivable Legal settlements and associated costs Onerous contract provision Staff termination costs Derecognition of deferred tax assets Other significant items Underlying trading loss 1 1 Underlying trading loss is net loss after tax excluding significant items. Investments for Future Performance There were no significant investments or acquisitions in the year. Review of Principal Businesses 2013 $000 (91,515) 43,275 20,350 1,529 861 2,004 1,705 1,167 8,344 - 2012 $000 (35,599) 3,813 3,547 19,871 3,959 - - - 685 1,856 (12,280) (1,868) Drivetrain Power and Propulsion’s revenue and EBITDA were depressed largely owing to lower component and service sales to customers in mining related business and slower than expected penetration of identified growth segments. Gemco Rail’s revenue was lower owing to less fabrication work being received than anticipated. Profitability was significantly impacted by losses on fabrication projects completed in the period, and the close-out of legal disputes. Momentum’s revenue grew year on year based on new contracts particularly in Western Australia and this resulted in an improvement in earnings. CERT generated higher revenue in the comparable period but margins were impacted by costs associated with new location establishment. Greentrains’ revenue and earnings were down slightly when compared with financial year 2012 results as demand for rolling stock was slower with excess locomotive capacity being available. Convair’s dry bulk tanker business performed profitably although revenue was lower than in the previous financial year due to the soft construction and associated industry markets. Significant Changes in State of Affairs No significant changes in the state of affairs have occurred. Likely Developments The Company anticipates a slow recovery as key markets improve. Firm foundations have been set with regard to capital management and sustained funding arrangements. The Company is well positioned to take full advantage from greater than expected improvements in market conditions should they occur, due to the cost saving initiatives already undertaken which would lead to an advantageous operating leverage position. The Board is of the opinion that the senior management team is now much better placed to meet the challenges and opportunities that lie ahead. Engenco Limited – 2013 Annual Report | Page 12 Directors’ Report Dividends The directors have decided not to declare a final dividend. Events Subsequent to Reporting Date Engenco Limited ACN 120 432 144 and Controlled Entities Dennis Quinn resigned as Chief Executive Officer on 12 July 2013 and Ross Dunning (Non-Executive Director at the reporting date) was appointed as Interim Managing Director on 15 July 2013. Glenn Parrett resigned as Chief Executive Officer of Drivetrain on 26 August 2013 and Frank Gili has been appointed to lead the Drivetrain business. The Commonwealth Bank of Australia (CBA) facility agreement was completed on 13 September 2013 and expires on 31 October 2014. The Elph Pty Ltd facility agreement has been extended to 30 September 2014. Other than the above, there has not arisen, in the interval between the end of the financial year and the date of this report, any item, transaction or event which would have a material effect on the financial statements of the Group at 30 June 2013. Environmental Regulation Group operations are subject to significant environmental regulation under Commonwealth, state 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. The Company is not subject to the conditions imposed by the registration and reporting requirements of the National Greenhouse and Energy Reporting Act 2007. Indemnifying Officers The Company has indemnified and paid premiums to insure each of the following directors and executives against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in their capacity, other than conduct involving a wilful breach of duty in relation to the Company: D Elphinstone, V De Santis, D Hector, R Dunning, K Pallas, A Bagley, G Parrett, J Tan Options At the date of this report, there are no unissued ordinary shares of the Company under option. During the year ended 30 June 2013, no ordinary shares of the Company were issued on the exercise of options granted. Non-audit Services During the current financial year, KPMG were appointed to perform other assurance services as part of the Group’s capital raising ($75,000), and for tax services in the Philippines ($20,000). Auditor’s Independence Declaration The lead auditor’s independence declaration is set out on page 18 and forms part of the Directors’ Report for the financial year ended 30 June 2013. Rounding of Amounts The Group is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Class Order, amounts in the consolidated financial statements and Directors’ Report have been rounded off to the nearest thousand dollars, unless otherwise stated. Engenco Limited – 2013 Annual Report | Page 13 Directors’ Report Remuneration Report - Audited Remuneration Policy Engenco Limited ACN 120 432 144 and Controlled Entities This report details the nature and amount of remuneration for each director of the Company, and other key executives of the Group who have a strategic commercial impact upon the Group’s activities. The remuneration policy of the Group 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 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 Group. The Board’s policy for determining the nature and amount of remuneration for board members and senior executives of the Group is as follows: • All executive directors and key executives receive a salary package comprised of a base salary, superannuation, and fringe benefits. • The Board will review executive packages annually by reference to the Group’s performance, executive performance and comparable market information. • The performance of executives is measured against criteria agreed annually with each executive and is based predominantly on the forecast growth of the 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 was 9% during the year, 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 Group and expensed. • 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. Performance Conditions Linked to Remuneration The remuneration level for key management personnel is based on a number of factors, including skills and qualifications, achievements of performance metrics and demonstrated management capability. The contracts for service between the Group and key management personnel are on a continuing basis. Relationship between Remuneration Policy and Company Performances There are short-term incentives available to certain key management personnel which are linked to achieving Group budget NPAT performance. There were no payments of short-term incentives in the current financial year with regard to NPAT performance (2012: $75,000). Current remuneration policies are under review. The following table shows the gross revenue, profits and dividends for the last 5 years for Engenco Limited, as well as the share prices at the end of the respective financial years. Revenue NPAT attributable to members Share price at year end * Dividends paid 2009 $ 317,187,000 (4,541,000) $0.20 - 2010 $ 224,331,000 (113,712,000) $0.15 - 2011 $ 207,352,000 4,905,000 $0.09 - 2012 $ 199,197,000 (35,683,000) $0.50 - 2013 $ 176,088,000 (87,731,000) $0.14 - During November 2011 there was a share consolidation whereby every ten (10) fully paid ordinary shares on issue were consolidated into one (1) fully paid ordinary share. Each fraction of a share was rounded up. Engenco Limited – 2013 Annual Report | Page 14 Directors’ Report Engenco Limited ACN 120 432 144 and Controlled Entities Remuneration Details for Year Ended 30 June 2013 The Board determines the proportion of fixed and variable compensation for key management personnel - refer to table below: Short-Term Post-Employment Salary and Fees $ Non- Monetary Benefits $ STI Cash Bonus $ Super- annuation $ Termination Benefits $ Long- Term Long Service Leave $ 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 174,000 174,400 80,000 21,753 92,000 92,000 86,000 86,000 432,000 374,153 443,757 128,400 280,019 228,794 184,518 96,330 - 107,200 186,279 120,677 364,070 343,017 186,644 223,142 223,913 - NON-EXECUTIVE DIRECTORS D Elphinstone Chairman V De Santis D Hector R Dunning 1 SUB – TOTAL OTHER KEY MANAGEMENT D Quinn 2 Chief Executive Officer K Pallas 3 Chief Financial Officer 3 P Coombe Chief Financial Officer G Jean: resigned 25 Jan 2012 Interim CFO / Company Secretary A Bagley Company Secretary G Parrett CEO – Drivetrain P Swann General Manager – Convair G Thorn: appointed 8 Oct 2012 EGM – Gemco Rail W Manners: resigned 29 Feb 2012 CEO – Gemco Rail SUB – TOTAL TOTAL - - - - - - - - - - - - - - - - - - - - - - 50,000 - - - - - - - - - - 5 - - - - 75,000 - - - - 8,280 8,280 7,740 7,740 16,020 16,020 22,960 6,215 25,063 20,592 20,025 8,670 - 9,648 16,765 10,860 15,775 18,290 20,641 20,083 21,267 - - 20,000 - - - - - - 39,915 95,497 70,605 - 12,384 - - - 122,904 115,497 122,904 115,497 4 - 2013 291,054 2012 1,869,200 2013 1,538,614 2012 2013 2,301,200 1,912,767 2012 - - 50,000 75,000 50,000 75,000 - 14,503 142,496 108,861 158,516 124,881 - - - - - - - - - - - - - - 80,000 - - - - - - - - - - - - - 80,000 - 80,000 - - - - - - - - - - - - - 5,925 - - - - - - - 8,947 - 8,528 - - - - - 23,400 - 23,400 - % of remuneration performance related $ - - - - - - - - - - - - - - - - - - 14.1% - - - - - - Total $ 174,000 174,400 80,000 21,753 100,280 100,280 93,740 93,740 448,020 390,173 516,717 134,615 311,007 269,386 284,543 105,000 - 116,848 203,044 131,537 428,707 531,804 286,418 243,225 257,564 - - 305,557 2,288,000 1,837,972 2,736,020 2,228,145 1 2 3 R Dunning was appointed as Interim Managing Director on 15 July 2013. D Quinn resigned as Chief Executive Officer on 12 July 2013. The STI cash bonus paid in the year related to a guaranteed sum and did not relate to meeting performance targets. P Coombe resigned as Chief Financial Officer on 1 March 2013. K Pallas was appointed as Chief Financial Officer (previously Chief Operating Officer), effective on this date. 4 W Manners was retained as a consultant until August 2012. 5 Bonus paid in 2012 was discretionary and referred to business performance in 2011. Fees to Dale Elphinstone and Vincent De Santis are paid via agreements with Elphinstone Pty Ltd which is a related party of the Company. Fees to Don Hector are paid via an agreement with Grassick SSG Pty Ltd which is a related party of the Company. Engenco Limited – 2013 Annual Report | Page 15 Directors’ Report Service Agreements Engenco Limited ACN 120 432 144 and Controlled Entities 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. D Elphinstone V De Santis D Hector R Dunning * D Quinn K Pallas P Coombe A Bagley G Parrett P Swann G Thorn Terms of Agreement Termination Benefit Ongoing director agreement Ongoing director agreement Ongoing director agreement Ongoing director agreement Permanent employment contract Permanent employment contract Permanent employment contract Permanent employment contract Permanent employment contract Informal employment contract Permanent employment contract N/A - Non-Executive Director N/A - Non-Executive Director N/A - Non-Executive Director N/A - Non-Executive Director 3 months’ pay 8 weeks’ pay 8 weeks’ pay 8 weeks’ pay 12 months’ pay N/A 8 weeks’ pay On 15 July 2013 Ross Dunning was appointed as Interim Managing Director. Options and Rights Granted In the 2012 and 2013 financial years no Executive Directors, Non-Executive Directors or Key Management Personnel have any options or rights. This report of the directors is signed in accordance with a resolution of the Board of Directors. Dale Elphinstone Chairman Dated 16 September 2013 Engenco Limited – 2013 Annual Report | Page 16 Engenco Limited ACN 120 432 144 and Controlled Entities Directors’ Declaration 1. a. In the opinion of the directors of Engenco Ltd (the Company): the financial statements and notes that are set out on pages 21 to 73, and the Remuneration report on pages 14 to 16 in the Directors’ report, are in accordance with the Corporations Act 2001, including: i. ii. giving a true and fair view of the Group’s financial position as at 30 June 2013 and of its performance for the financial year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001; and b. there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2. The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the chief executive officer and chief financial officer for the financial year ended 30 June 2013. 3. The directors draw attention to Note 1 to the financial statements, which includes a statement of compliance with International Financial Reporting Standards. Signed in accordance with a resolution of the directors: Dale Elphinstone Chairman Dated 16 September 2013 Engenco Limited – 2013 Annual Report | Page 17 Auditor’s Independence Declaration Engenco Limited ACN 120 432 144 and Controlled Entities Engenco Limited – 2013 Annual Report | Page 18 Independent Auditor’s Report Engenco Limited ACN 120 432 144 and Controlled Entities Engenco Limited – 2013 Annual Report | Page 19 Engenco Limited ACN 120 432 144 and Controlled Entities Engenco Limited – 2013 Annual Report | Page 20 Financial Statements Consolidated Statement of Comprehensive Income for the year ended 30 June 2013 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 Impairment of goodwill and intangible assets Impairment of property, plant and equipment Impairment of inventory Impairment of accounts receivable 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 Profit / (loss) attributable to: Members of the parent entity Non-controlling interest OTHER COMPREHENSIVE INCOME Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of overseas subsidiaries 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 operations: Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Engenco Limited ACN 120 432 144 and Controlled Entities Consolidated Group 2013 $000 Consolidated Group 2012* $000 Note 2 2 3 3 4 176,088 1,247 (5,531) (89,729) (51,263) (12,634) (43,275) (20,350) (1,529) (861) (4,352) (1,911) (1,729) (1,770) (8,828) (715) (327) (96) (16,429) (83,994) (7,521) (91,515) (87,731) (3,784) (91,515) 199,197 2,028 (13,201) (84,916) (55,504) (11,006) (3,813) (3,547) (19,871) (3,959) (5,553) (1,825) (1,543) (1,913) (9,126) (477) (491) (399) (16,689) (32,608) (2,991) (35,599) (35,683) 84 (35,599) 1,833 1,833 (290) (290) (89,682) (35,889) (85,898) (3,784) (89,682) (35,973) 84 (35,889) Cents Cents ** 9 9 (40.06) (40.06) (25.85) (25.85) 2012 comparative figures have been reclassified. Full details are disclosed in Note 1 (w). ** Restated for renounceable entitlement offer in the current financial year. The accompanying notes form an integral part of the consolidated financial statements. Engenco Limited – 2013 Annual Report | Page 21 Financial Statements Consolidated Statement of Financial Position as at 30 June 2013 CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Current tax receivables Other current assets TOTAL CURRENT ASSETS NON-CURRENT ASSETS Trade and other receivables Financial assets Property, plant and equipment Deferred tax assets Intangible assets TOTAL NON-CURRENT ASSETS 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 Issued capital Reserves Non-controlling interest Retained earnings / (accumulated losses) TOTAL EQUITY Engenco Limited ACN 120 432 144 and Controlled Entities Consolidated Group 2013 $000 Consolidated Group 2012* $000 Note 10 11 12 20 17 11 13 15 20 16 18 19 20 21 19 21 20 22 5,028 30,174 39,179 336 1,358 76,075 2 20 61,404 192 3,536 65,154 3,759 47,250 44,710 - 1,868 97,587 513 17 86,856 8,344 49,091 144,821 141,229 242,408 15,864 23,468 - 8,591 47,923 427 2,106 1,744 4,277 52,200 89,029 30,278 49,153 1,972 4,352 85,755 1,120 1,996 1,744 4,860 90,615 151,793 302,260 591 (778) (213,044) 275,342 (1,050) 3,006 (125,505) 89,029 151,793 2012 comparative figures have been reclassified. Full details are disclosed in Note 1 (w). The accompanying notes form an integral part of the consolidated financial statements. Engenco Limited – 2013 Annual Report | Page 22 Financial Statements Consolidated Statement of Changes in Equity for the year ended 30 June 2013 Engenco Limited ACN 120 432 144 and Controlled Entities Consolidated Group Issued Capital Ordinary Shares $000 Retained Earnings / (Accumulated Losses) $000 Non- controlling Interest $000 Foreign Currency Translation Reserve $000 Option Reserves $000 BALANCE AT 1 JULY 2011 Shares issued during the year Transaction costs Total comprehensive income for the period SUB-TOTAL 275,342 - - - (89,822) - - (35,683) 275,342 (125,505) Share options expired during the year - - 2,922 - - 84 3,006 - (952) - - (290) (1,242) - BALANCE AT 30 JUNE 2012 275,342 (125,505) 3,006 (1,242) BALANCE AT 1 JULY 2012 * Shares issued during the year Transaction costs Total comprehensive income for the period SUB-TOTAL 275,342 28,000 (1,082) - (125,505) - - (87,731) 302,260 (213,236) Share options expired during the year - 192 3,006 - - (3,784) (778) - BALANCE AT 30 JUNE 2013 302,260 (213,044) (778) (1,242) - - 1,833 591 - 591 2012 comparative figures have been reclassified. Full details are disclosed in Note 1 (w). The accompanying notes form an integral part of the consolidated financial statements. Total $000 187,682 - - (35,889) 151,793 - 151,793 151,793 28,000 (1,082) (89,682) 89,029 - 192 - - - 192 - 192 192 - - - 192 (192) - 89,029 Engenco Limited – 2013 Annual Report | Page 23 Financial Statements Consolidated Statement of Cash Flows for the year ended 30 June 2013 Engenco Limited ACN 120 432 144 and Controlled Entities Consolidated Group 2013 $000 Consolidated Group 2012* $000 Note 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 25(b) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of property, plant and equipment Purchase of non-current assets NET CASH PROVIDED BY / (USED IN) INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares Payment of transaction costs related to issue of shares Proceeds from borrowings Repayment of borrowings NET CASH PROVIDED BY / (USED IN) FINANCING ACTIVITIES Net increase / (decrease) in cash held Cash (net of bank overdrafts) at beginning of financial year CASH (NET OF BANK OVERDRAFTS) AT END OF FINANCIAL YEAR 25(a) 2012 comparative figures have been reclassified. Full details are disclosed in Note 1 (w). The accompanying notes form an integral part of the consolidated financial statements. 213,335 (201,175) 103 (4,352) (1,676) 6,235 517 (5,769) (5,252) 28,000 (1,082) 3,933 (25,462) 5,389 6,372 (2,181) 4,191 223,516 (215,157) 348 (5,553) (4,012) (858) 1,359 (7,994) (6,635) - - 9,527 (14,759) (5,232) (12,725) 10,544 (2,181) Engenco Limited – 2013 Annual Report | Page 24 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements for the year ended 30 June 2013 Note 1 – Summary of Significant Accounting Policies Reporting Entity Engenco Limited ACN 120 432 144 and Controlled Entities Engenco Limited (the ‘Company’) is a company domiciled in Australia. The address of the Company’s registered office is Level 22, 535 Bourke Street, Melbourne, VIC 3000. The consolidated financial statements as at, and for the year ended, 30 June 2013 comprise the Company and its controlled entities (together referred to as ‘Group’ or ‘Consolidated Group’ and individually as ‘Controlled Entities’). The Group is a for-profit entity and is involved in the delivery of a diverse range of engineering services and products. Basis of Preparation Statement of Compliance The consolidated financial statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board (IASB). The consolidated financial statements were authorised for issue by the Board of Directors on 16 September 2013. Basis of Measurement The financial report has been prepared on an accruals basis and is based on historical costs except for financial instruments at fair value through profit or loss, which are measured at fair value. Going Concern The full year financial report has been prepared on the going concern basis, which contemplates the continuity of normal business activity, and the realisation of assets and the settlement of liabilities in the ordinary course of business without the necessity to curtail or dispose of a material part of the operations. At the time of issuing this report, the Group has available debt facilities (bank overdraft facility and bank guarantees) with the Commonwealth Bank of Australia (CBA) which are due to expire on 31 October 2014, and is then subject to annual review. As at 30 June 2013, Engenco Limited (excluding Greentrains Limited) was within its loan covenants with CBA. Greentrains Limited (an 81% owned subsidiary of Engenco Limited) has a debt facility with a related party, Elph Pty Ltd (Elph). The facility is secured by assets owned by Greentrains Limited. The facility is currently non-recourse to the Group’s other assets. The Elph debt facility is due to expire on 30 September 2014 but it is subject to termination events linked to compliance with debt covenants. As at 30 June 2013, Greentrains Limited was in breach of one of the covenants relating to the Elph debt facility. The breach was formally waived by Elph on 13 September 2013. Based on current management forecasts, Greentrains Limited may breach the Elph debt facility covenants. Further waivers may be required to be sought from Elph or covenants may require renegotiation with Elph. These conditions give rise to a material uncertainty that may cast doubt on the ability of Greentrains Limited and the Group to continue to operate as a going concern. The Group’s ability to continue as a going concern will also be dependent upon its ability to continue cash generating operations. After making enquiries, and considering the uncertainties described above, the directors are satisfied that the Group will have sufficient cash and undrawn facilities to continue to operate and pay its debts as and when they fall due for the 12 month period from the date of signing this financial report. For these reasons, the directors have determined that it is appropriate for the Group to continue to adopt the going concern basis in preparing the financial report and no adjustments have been made to the carrying value and classification of assets and the amount and classification of liabilities that may be required if the Group does not continue as a going concern. Engenco Limited – 2013 Annual Report | Page 25 Notes to the Consolidated Financial Statements Note 1 – Summary of Significant Accounting Policies (cont’d) Significant Accounting Policies (a) Principles of Consolidation Engenco Limited ACN 120 432 144 and Controlled Entities 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 14 – Controlled Entities. Investments in subsidiaries are carried at cost less accumulated impairment losses. In preparing the consolidated financial statements, all inter-group balances and transactions and any unrealised income and expenses between entities in the Consolidated Group have been eliminated on consolidation. Accounting policies of subsidiaries are consistent 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 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. 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. 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. Engenco Limited – 2013 Annual Report | Page 26 Notes to the Consolidated Financial Statements Note 1 – Summary of Significant Accounting Policies (cont’d) (b) Income Tax Engenco Limited ACN 120 432 144 and Controlled Entities The income tax expense/benefit for the year comprises current income tax expense/benefit and deferred tax expense/benefit. 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/benefit 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. 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 included in bringing them to their existing location and condition. 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. Engenco Limited – 2013 Annual Report | Page 27 Notes to the Consolidated Financial Statements Note 1 – Summary of Significant Accounting Policies (cont’d) (d) Construction Contracts and Work in Progress Engenco Limited ACN 120 432 144 and Controlled Entities Construction work in progress is valued at cost, plus profit recognised to date less progress billings and 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 accumulated impairment losses. Property Freehold land and buildings are shown at their cost (being the consideration paid plus any additional direct costs), less accumulated depreciation for buildings. Plant and equipment Plant and equipment are measured on the cost basis less accumulated depreciation and, where applicable, any accumulated 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, capitalised 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. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Engenco Limited – 2013 Annual Report | Page 28 Notes to the Consolidated Financial Statements Note 1 – Summary of Significant Accounting Policies (cont’d) Depreciation Engenco Limited ACN 120 432 144 and Controlled Entities 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 20% - 67% 2.5% - 67% 30% - 67% 2.50% The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting 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. (f) Leases Leases 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) (2) the amount at which the financial asset or financial liability is measured at initial recognition; 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. Engenco Limited – 2013 Annual Report | Page 29 Notes to the Consolidated Financial Statements Note 1 – Summary of Significant Accounting Policies (cont’d) Engenco Limited ACN 120 432 144 and Controlled Entities 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. 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. 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 measured initially at fair value plus directly attributable transaction costs and subsequently 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 measured initially at fair value plus directly attributable transaction costs and 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 measured initially at fair value plus directly attributable transaction costs and 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. Engenco Limited – 2013 Annual Report | Page 30 Notes to the Consolidated Financial Statements Note 1 – Summary of Significant Accounting Policies (cont’d) Engenco Limited ACN 120 432 144 and Controlled Entities 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. (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 fair value of 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 16 – 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, or when there is an impairment indicator, 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 accumulated impairment losses. Customer related intangibles are amortised over a period of 3 to 10 years. 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 accumulated impairment losses. Patents and trademarks are amortised over their useful life. The current patents and trademarks are amortised over a period of up to 13 years. Other identifiable intangibles Computer software and other intangibles are stated at cost less accumulated amortisation and, where applicable, any accumulated impairment losses. Computer software and other identifiable intangibles are amortised over a period of 5 to 8 years. Engenco Limited – 2013 Annual Report | Page 31 Notes to the Consolidated Financial Statements Note 1 – Summary of Significant Accounting Policies (cont’d) Research and development Engenco Limited ACN 120 432 144 and Controlled Entities 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. (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 reporting date 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 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 reporting 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. A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and has no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognised as an employee benefit expense in the Statement of Comprehensive Income in the periods during which related services are rendered by employees. (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. Engenco Limited – 2013 Annual Report | Page 32 Notes to the Consolidated Financial Statements Note 1 – Summary of Significant Accounting Policies (cont’d) (m) Provision for Warranties Engenco Limited ACN 120 432 144 and Controlled Entities Provision is made in respect of the Consolidated Group’s estimated liability on all products and services under warranty at reporting 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, where the Group does not have the legal right and the intention to settle on a net basis, are shown within short-term borrowings in current liabilities on the Statement of Financial Position. (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 if expected to be settled within 12 months. (q) Borrowing Costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying 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 Statement of Comprehensive Income in the period in which they are incurred. (r) Goods and Services Tax (GST) Revenues, expenses and non-financial 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. Engenco Limited – 2013 Annual Report | Page 33 Notes to the Consolidated Financial Statements Note 1 – Summary of Significant Accounting Policies (cont’d) (s) Comparative Figures Engenco Limited ACN 120 432 144 and Controlled Entities When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. Refer to Note 1(w). 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 Group has applied the relief available to it under ASIC Class Order 98/100 and accordingly, amounts in the financial statements and Directors’ Report have been rounded off to the nearest thousand dollars (unless otherwise indicated). (u) Critical Accounting Estimates and Judgments The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. 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 16 – 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 20 – Tax Assets and Liabilities. 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. Trade receivables are reviewed and impaired where significant uncertainty is identified as to the recoverability of amounts due, and where the amounts to which the uncertainty relates can be quantified. Further details can be found in Note 11 – Trade and Other Receivables. Property, plant and equipment is assessed for impairment with reference to fair value less cost to sell. Further details can be found in Note 15 – Property, Plant and Equipment. Net realisable value – inventory and WIP Inventory and WIP value is determined using the net realisable value, where the cost is in excess of this value. Engenco Limited – 2013 Annual Report | Page 34 Notes to the Consolidated Financial Statements Note 1 – Summary of Significant Accounting Policies (cont’d) (v) New Accounting Standards and Interpretations New accounting standards adopted Engenco Limited ACN 120 432 144 and Controlled Entities From 1 July 2012 the Group applied amendments to AASB 101 Presentation of Financial Statements outlined in AASB 2011-9 Amendments to Australian Accounting Standards – Presentation of Items of Other Comprehensive Income. The change in accounting policy only relates to disclosures and has had no impact on consolidated earnings per share or net income. The changes have been applied retrospectively and require the Group to separately present those items of other comprehensive income that may be reclassified to profit or loss in the future from those that will never be reclassified to profit or loss. These changes are included in the Statement of Comprehensive Income. New accounting standards not yet adopted A number of new standards, amendments to standards and interpretations which may be relevant to the Group were available for early adoption but have not been applied in preparing these financial statements. The Group does not plan to adopt these standards early and the extent of the impact has not yet been determined. (w) Prior Year Reclassifications The 2012 comparative figures have been reclassified as follows: Consolidated Statement of Comprehensive Income ‘Impairment of inventory’ was previously reported within ‘Raw materials and consumables used’. This has been reported separately in the current financial year with the 2012 comparatives being reclassified. ‘Impairment of accounts receivable’ was previously reported within ‘Other expenses’. This has been reported separately in the current financial year with the 2012 comparatives being reclassified. Raw materials and consumables used Impairment of inventory Impairment of accounts receivable Other expenses 2012 Annual Report $000 2012 Reclassified $000 (104,787) - - (20,648) (84,916) (19,871) (3,959) (16,689) Change $000 19,871 (19,871) (3,959) 3,959 Engenco Limited – 2013 Annual Report | Page 35 Notes to the Consolidated Financial Statements Note 1 – Summary of Significant Accounting Policies (cont’d) Consolidated Statement of Financial Position Engenco Limited ACN 120 432 144 and Controlled Entities ‘Cash and cash equivalents’ has been reclassified to account for the net cash balance where the Group has a legal right of offset and the intention to settle on a net basis (offsetting adjustment within ‘Current financial liabilities’). ‘Property, plant and equipment’ has been reclassified to account for software assets being reclassified to ‘Intangible assets’. ‘Profit reserve for foreign deferred tax’ has been reclassified as ‘Retained earnings / (accumulated losses)’. Cash and cash equivalents Current financial liabilities Property, plant and equipment Intangible assets Reserves Retained earnings / (accumulated losses) 2012 Annual Report $000 2012 Reclassified $000 15,644 61,038 92,072 43,875 3,759 49,153 86,856 49,091 3,756 (130,311) (1,050) (125,505) Consolidated Statement of Changes in Equity ‘Profit reserve for foreign deferred tax’ has been reclassified as ‘Retained earnings / (accumulated losses)’. Retained earnings / (accumulated losses) Foreign deferred tax reserve Consolidated Statement of Cash Flows 2012 Annual Report $000 2012 Reclassified $000 (130,311) 4,806 (125,505) - ‘Receipts from customers’ and ‘Payments to suppliers and employees’ have been reclassified to include GST. Receipts from customers Payments to suppliers and employees 2012 Annual Report $000 2012 Reclassified $000 203,596 (195,237) 223,516 (215,157) Change $000 (11,885) 11,885 (5,216) 5,216 (4,806) 4,806 Change $000 4,806 (4,806) Change $000 19,920 (19,920) Engenco Limited – 2013 Annual Report | Page 36 Notes to the Consolidated Financial Statements Note 2 – Revenue and Other Income SALES REVENUE Sales of goods and services Lease rental income TOTAL SALES REVENUE OTHER REVENUE Interest received - external TOTAL OTHER REVENUE TOTAL REVENUE OTHER INCOME Gain on disposal of property, plant and equipment Other gains TOTAL OTHER INCOME Note 3 – Expenses FINANCE COSTS Interest – external Interest – related parties Other finance costs TOTAL FINANCE COSTS EMPLOYEE BENEFITS EXPENSE Wages and salaries Annual leave expense Long service leave expense Termination costs Defined contribution plan TOTAL EMPLOYEE BENEFITS EXPENSE RENTAL EXPENSE ON OPERATING LEASES Minimum lease payments TOTAL RENTAL EXPENSE ON OPERATING LEASES Engenco Limited ACN 120 432 144 and Controlled Entities Consolidated Group 2013 $000 Consolidated Group 2012 $000 166,899 9,086 175,985 103 103 189,017 9,832 198,849 348 348 176,088 199,197 108 1,139 1,247 124 1,904 2,028 Consolidated Group 2013 $000 Consolidated Group 2012 $000 1,684 2,099 569 4,352 41,570 3,764 357 1,167 4,405 51,263 6,789 6,789 2,598 2,050 905 5,553 47,169 3,677 281 - 4,377 55,504 7,504 7,504 Engenco Limited – 2013 Annual Report | Page 37 Notes to the Consolidated Financial Statements Note 4 – Income Tax Expense (a) The components of tax expense comprise: Current income tax expense/(benefit) - Current income tax expense/(benefit) - Adjustment for prior years Deferred income tax expense/(benefit) - Derecognition of deferred tax assets - Relating to origination and reversal of temporary differences 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: Engenco Limited ACN 120 432 144 and Controlled Entities Consolidated Group 2013 $000 Consolidated Group 2012 $000 (345) (286) 8,344 (192) 7,521 2,183 - 685 123 2,991 Accounting profit (loss) before tax At the Company’s statutory domestic income tax rate of 30% (2012: 30%) (83,994) (25,198) (32,608) (9,782) Add / (Less) tax effect of: - Non-deductible depreciation and amortisation - Research and development deduction - Impairment of goodwill and other intangibles - Foreign tax rate adjustment - Losses for which no deferred tax asset is recognised - Derecognition of deferred tax assets - Adjustment for prior years - Movements in unrecognised temporary differences - Other non-allowable items Income tax expense Effective income tax rate 6,105 - 12,983 (176) 6,752 8,344 (286) (1,003) - 7,521 (9.0%) 1,703 (49) 1,144 (75) 9,413 - - (25) 662 2,991 (9.2%) Engenco Limited – 2013 Annual Report | Page 38 Notes to the Consolidated Financial Statements Note 5 – Key Management Personnel (a) Directors Engenco Limited ACN 120 432 144 and Controlled Entities The following persons were directors of Engenco Limited during the financial year: Name D Elphinstone V De Santis D Hector R Dunning Position Chairman Non-Executive Director (Interim Managing Director until 22 February 2012) Non-Executive Director Non-Executive Director (appointed Interim Managing Director on 15 July 2013) (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 D Quinn K Pallas P Coombe A Bagley G Parrett P Swann G Thorn Position Chief Executive Officer (resigned 12 July 2013) Chief Operating Officer; Chief Financial Officer (appointed 1 March 2013) Chief Financial Officer (resigned 1 March 2013) Company Secretary CEO – Drivetrain Power and Propulsion (resigned 26 August 2013) General Manager – Convair Engineering CEO – Gemco Rail (appointed 8 October 2012) (c) Key management personnel compensation The totals of remuneration paid to key management personnel during the year (including termination benefits) are as follows: Short-term employee benefits Post-employment benefits Termination benefits Other long-term benefits TOTAL 2013 $ 2,474,104 158,516 80,000 23,400 2,736,020 2012 $ 2,103,264 124,881 - - 2,228,145 Engenco Limited – 2013 Annual Report | Page 39 Engenco Limited ACN 120 432 144 and Controlled Entities Notes to the Consolidated Financial Statements Note 5 – Key Management Personnel (cont’d) (d) Equity instrument disclosures relating to key management personnel Options No options are currently on issue to key management personnel. (e) Shareholdings Number of shares held by key management personnel at 30 June 2012 and 30 June 2013: 2012 D Elphinstone V De Santis D Hector R Dunning D Quinn K Pallas P Coombe A Bagley G Parrett W Manners P Swann Balance 1 July 2011 Received as compensation Options exercised Share consolidation * Net change other Balance 30 June 2012 445,616,538 1,000,000 136,647 100,000 - 50,000 - - 201,654 118,421 101,094 - - - - - - - - - - - - - - - - - - - - - - (404,999,999) (1,079,999) (212,982) (180,000) - (45,000) - - (181,488) (106,578) (90,984) 6,122,096 200,000 100,000 100,000 - - - - - - - 46,738,635 120,001 23,665 20,000 - 5,000 - - 20,166 11,843 10,110 During November 2011 there was a share consolidation whereby every ten (10) fully paid ordinary shares on issue were consolidated into one (1) fully paid ordinary share. Each fraction of a share was rounded up. 2013 D Elphinstone V De Santis D Hector R Dunning D Quinn K Pallas P Coombe A Bagley G Parrett W Manners P Swann G Thorn Balance 1 July 2012 46,738,635 120,001 23,665 20,000 - 5,000 - - 20,166 11,843 10,110 - Received as compensation Options exercised Share consolidation Net change other Balance 30 June 2013 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 155,510,383 180,002 89,498 84,000 - - - - - - 15,165 - 202,249,018 300,003 113,163 104,000 - 5,000 - - 20,166 11,843 25,275 - (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 29 - Related Party Transactions. Engenco Limited – 2013 Annual Report | Page 40 Notes to the Consolidated Financial Statements Note 6 – Parent Entity Disclosures Engenco Limited ACN 120 432 144 and Controlled Entities As at, and throughout the financial year ended 30 June 2013, the parent entity of the Group was Engenco Limited. The ultimate controlling party of the Company at reporting date was Elph Investments Pty Ltd, incorporated in Australia. (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 (Loss) / Profit for the year Other comprehensive income TOTAL COMPREHENSIVE INCOME / (LOSS) (c) Guarantees 2013 $000 213 99,483 99,696 8,778 1,889 10,667 89,029 2012 $000 1,100 172,875 173,975 20,492 1,690 22,182 151,793 302,260 275,342 - (213,231) 89,029 192 (123,741) 151,793 (89,682) - (89,682) (35,744) - (35,744) The parent entity acts as guarantor for bank debt facilities. Details of these facilities can be found in Note 19(c) – Financial Liabilities. (d) Contingent Liabilities At 30 June 2013, the parent entity has no significant contingent liabilities (2012: Nil). (e) Contractual Commitments At 30 June 2013, the parent entity had not entered into any contractual commitments for the acquisition of property, plant and equipment and other intangible assets (2012: Nil). Engenco Limited – 2013 Annual Report | Page 41 Notes to the Consolidated Financial Statements Note 7 – Auditor’s Remuneration Audit and review services Auditors of the Company - KPMG Australia – audit and review of financial statements - KPMG Overseas – audit and review of financial statements Other auditors - audit and review of financial statements TOTAL AUDIT AND REVIEW SERVICES Other Services Auditors of the Company - KPMG Australia – other assurance services - KPMG Overseas – tax services TOTAL OTHER SERVICES Note 8 – Dividends The directors have decided not to declare a final dividend. Engenco Limited ACN 120 432 144 and Controlled Entities Consolidated Group 2013 $ Consolidated Group 2012 $ 290,000 77,000 44,000 411,000 75,000 20,000 95,000 - 62,000 432,000 494,000 - - - Consolidated Group 2013 $000 Consolidated Group 2012 $000 (a) DECLARED AND PAID Final fully franked ordinary dividend of nil (2012: nil) cents per share franked at the tax rate of 30% (2012: 30%) - - (b) FRANKING CREDIT BALANCE The amount of franking credits available for subsequent financial years are: Franking account balance as at the end of the financial year at 30% (2012: 30%) 11,253 11,253 Engenco Limited – 2013 Annual Report | Page 42 Notes to the Consolidated Financial Statements Note 9 – Earnings Per Share (a) RECONCILIATION OF EARNINGS TO PROFIT OR LOSS Profit / (Loss) for the period 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 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) WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES OUTSTANDING DURING THE YEAR USED IN CALCULATING BASIC EPS Weighted average number of dilutive options outstanding Weighted average number of ordinary shares outstanding during the year used in calculating dilutive EPS Restated for renounceable entitlement offer (rights issue) in the current financial year. Note 10 – Cash and Cash Equivalents CASH AT BANK AND IN HAND Engenco Limited ACN 120 432 144 and Controlled Entities Consolidated Group 2013 $000 Consolidated Group 2012 $000 (91,515) 3,784 (87,731) (87,731) (91,515) 3,784 (87,731) (87,731) No. ‘000 219,019 - (35,599) (84) (35,683) (35,683) (35,599) (84) (35,683) (35,683) No. ‘000 138,038 * - 219,019 138,038 Consolidated Group 2013 $000 Consolidated Group 2012 $000 5,028 5,028 3,759 3,759 As at the reporting date, where the Group has the legally enforceable right of set-off and the intention to settle on a net basis, the Group has set-off bank overdrafts of $17,469,204 (2012: $16,245,338) against cash and cash equivalents of $19,975,541 (2012: $11,194,198) resulting in a net cash position of $2,506,337 (2012: net bank overdraft position of $5,051,140). Engenco Limited – 2013 Annual Report | Page 43 Notes to the Consolidated Financial Statements Note 11 – Trade and Other Receivables CURRENT Trade receivables Provision for impairment of receivables Total trade receivables Accrued income Sundry receivables Total other receivables Engenco Limited ACN 120 432 144 and Controlled Entities Note 11 (b) Consolidated Group 2013 $000 Consolidated Group 2012 $000 30,446 (1,143) 29,303 701 170 871 46,380 (4,587) 41,793 5,188 269 5,457 TOTAL CURRENT TRADE AND OTHER RECEIVABLES 30,174 47,250 NON-CURRENT Amounts receivable from: - Key management personnel and employees TOTAL NON-CURRENT TRADE AND OTHER RECEIVABLES (a) Key management personnel 11 (a) 2 2 513 513 Balance at Beginning of Year $ 512,500 512,500 Interest Charged $ Interest Not Charged $ Provision for Impairment $ Loan Repayment $ Balance at End of Year $ Number of Individuals - - 30,750 (508,686) (1,714) 2,100 30,000 - - 512,500 2 4 2013 2012 Individuals with loans above $100,000 in reporting period: Balance at Beginning of Year $ 205,000 102,500 102,500 102,500 Interest Charged $ Interest Not Charged $ Provision for Impairment $ Loan Repayment $ Balance at End of Year $ Highest Balance During Period - - - - 12,300 (203,600) 6,150 6,150 6,150 (101,800) (101,620) (101,666) - - (880) (834) 1,400 700 - - 205,000 102,500 102,500 102,500 G Parrett K Pallas J Hickey A Butters 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. Engenco Limited – 2013 Annual Report | Page 44 Notes to the Consolidated Financial Statements Note 11 – Trade and Other Receivables (cont’d) (b) Provision for impairment of receivables Engenco Limited ACN 120 432 144 and Controlled Entities Current trade and other receivables are non-interest bearing and generally on 30 to 60 day terms. Trade and other 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 impairment of accounts receivable and other expenses in the Statement of Comprehensive Income. Movement in the provision for impairment of receivables is as follows: 2013 Current trade receivables 2012 Current trade receivables Opening Balance 1 Jul 2012 $000 (4,587) (4,587) Opening Balance 1 Jul 2011 $000 (860) (860) Consolidated Group Charge for the Year $000 (1,627) (1,627) Charge for the Year $000 (4,445) (4,445) Amounts Written Off $000 5,071 5,071 Amounts Written Off $000 718 718 Closing Balance 30 Jun 2013 $000 (1,143) (1,143) Closing Balance 30 Jun 2012 $000 (4,587) (4,587) 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 receivables 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 $000 $000 < 30 days $000 Past due but not impaired 31 – 60 days $000 61 – 90 days $000 > 90 days $000 Within initial trade terms $000 30,446 871 31,317 46,380 5,457 51,837 1,143 - 1,143 4,587 - 4,587 6,357 - 6,357 11,308 - 11,308 2,397 - 2,397 4,072 - 4,072 2,136 - 2,136 2,663 - 2,663 1,849 - 1,849 1,866 - 1,866 16,564 871 17,435 21,884 5,457 27,341 2013 Trade receivables Other receivables Total 2012 Trade receivables Other receivables Total 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. Engenco Limited – 2013 Annual Report | Page 45 Notes to the Consolidated Financial Statements Note 12 – Inventories CURRENT At cost: - Raw materials and stores - Work in progress - Finished goods At net realisable value: - Work in progress - Finished goods TOTAL INVENTORY Engenco Limited ACN 120 432 144 and Controlled Entities Consolidated Group 2013 $000 Consolidated Group 2012 $000 - 5,136 29,057 34,193 - 4,986 4,986 39,179 7 2,016 33,097 35,120 4,450 5,140 9,590 44,710 The Group has completed a comprehensive review of the carrying value of inventory. As a result of the review, inventory has been impaired by $1,529,000 (2012: $19,871,000). Note 13 – Financial Assets NON CURRENT Shares in listed companies Loans receivable - other TOTAL FINANCIAL ASSETS Consolidated Group 2013 $000 Consolidated Group 2012 $000 13 7 20 11 6 17 Engenco Limited – 2013 Annual Report | Page 46 Notes to the Consolidated Financial Statements Note 14 – Controlled Entities Note: Subsidiaries are indented beneath their parent entity Engenco Limited Convair Engineering Pty Ltd Engenco Logistics Pty Ltd (formerly Coote Logistics Pty Ltd) Asset Kinetics Pty Ltd Engenco Investments Pty Ltd (formerly Coote Investments Pty Ltd) Australian Rail Mining Services Pty Ltd Centre for Excellence in Rail Training Pty Ltd EGN Rail Pty Ltd EGN Rail (NSW) Pty Ltd Midland Railway Company Pty Ltd Momentum Rail (Vic) Pty Ltd Momentum Rail (WA) Pty Ltd Sydney Railway Company Pty Ltd Greentrains Limited 1 Greentrains Leasing Pty Ltd Drivetrain Power and Propulsion Pty Ltd Drivetrain Australia Pty Ltd DTPP Energy Pty Ltd Drivetrain Philippines Inc Drivetrain Singapore Pte Ltd Drivetrain Limited Drivetrain USA Inc o o Hyradix Inc Drivetrain Americas Inc 2 Hedemora Investments AB o Drivetrain Sweden AB Gemco Rail Pty Ltd Railway Bearings Refurbishment Services Pty Ltd New RTS Pty Ltd Hedemora Pty Ltd Industrial Powertrain Pty Ltd PC Diesel Pty Ltd Total Momentum Pty Ltd Engenco Limited ACN 120 432 144 and Controlled Entities Country of Incorporation Date of Control Percentage Owned 2013 Percentage Owned 2012 Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Philippines Singapore New Zealand USA USA USA Sweden Sweden Australia Australia Australia Australia Australia Australia Australia 1 Jul 06 1 Jul 06 1 Jul 06 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 17 Jul 09 18 Jun 08 1 Jul 06 1 Jul 06 25 May 10 1 Jul 07 1 Jul 07 1 Jul 07 31 Dec 08 31 Dec 08 18 Feb 11 1 Jul 06 1 Jul 06 1 Jul 07 1 Jul 07 3 Dec 08 1 Jul 06 1 Jul 07 1 Jul 06 30 Apr 07 100 100 100 100 100 100 100 100 100 100 100 100 81 100 100 100 100 100 100 100 100 100 - 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 81 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 1 2 Total Engenco Group ownership of Greentrains Ltd is 81% (split between Engenco Investments Pty Ltd, 61%, and Engenco Ltd, 20%). During the year Drivetrain Americas Inc was dissolved. Engenco Limited – 2013 Annual Report | Page 47 Notes to the Consolidated Financial Statements Note 15 – 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 Total Plant and Equipment Leasehold improvements: - At cost - Accumulated depreciation Total Leasehold Improvements Leased plant and equipment: - Capitalised leased assets - Accumulated depreciation Total Leased Plant and Equipment TOTAL PLANT AND EQUIPMENT TOTAL PROPERTY, PLANT AND EQUIPMENT Engenco Limited ACN 120 432 144 and Controlled Entities Consolidated Group 2013 $000 Consolidated Group 2012 $000 53 53 768 (498) 270 323 96,330 (38,601) 57,729 3,377 (1,071) 2,306 1,334 (288) 1,046 61,081 61,404 53 53 762 (478) 284 337 116,248 (32,359) 83,889 2,259 (881) 1,378 2,633 (1,381) 1,252 86,519 86,856 Plant and Equipment has been restated to include the reclassification of SAP capitalised assets from Property, Plant & Equipment to Intangible Assets. Refer to Note 1(w). Property, Plant and Equipment of $43,129,000 (2012: $68,124,000) was pledged as security as part of the Group’s total financing arrangements as at the reporting date. Engenco Limited – 2013 Annual Report | Page 48 Notes to the Consolidated Financial Statements Note 15 – Property, Plant and Equipment (cont’d) (a) Movements in Carrying Amounts Engenco Limited ACN 120 432 144 and Controlled Entities Movement in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the current financial year. BALANCE AT 1 JULY 2011 Additions Disposals (Impairment) / reversal of impairment Depreciation expense Disposals of assets on sale of subsidiary BALANCE AT 30 JUNE 2012 Additions Disposals (Impairment) / reversal of impairment Depreciation expense Disposals of assets on sale of subsidiary BALANCE AT 30 JUNE 2013 Consolidated Group Freehold Land $000 Buildings $000 Leasehold Improvements $000 Plant and Equipment $000 53 - - - - - 53 - - - - - 53 283 23 - - (22) - 284 6 - - (20) - 270 1,400 153 (62) - (113) - 1,378 1,291 (55) - (308) - 2,306 84,831 8,733 (1,011) (672) (7,992) - 83,889 3,625 (259) (20,350) (9,176) - 57,729 Leased Plant and Equipment $000 5,008 357 (841) (2,875) (397) - Total $000 91,575 9,266 (1,914) (3,547) (8,524) - 1,252 86,856 369 (268) - (307) - 1,046 5,291 (582) (20,350) (9,811) - 61,404 As at the reporting date, there existed key impairment indicators. The Group has completed a comprehensive review of the carrying value of property, plant and equipment. As a result of the review property, plant and equipment has been impaired by $20,350,000 (2012: $3,547,000). Engenco Limited – 2013 Annual Report | Page 49 Notes to the Consolidated Financial Statements Note 16 – Intangible Assets GOODWILL Cost: Opening balance Impairment for the year Closing balance CUSTOMER RELATED INTANGIBLES Cost: Opening balance Additions Closing balance Accumulated amortisation: Opening balance Amortisation for the year Impairment for the year Closing balance Net book value PATENTS AND TRADEMARKS Cost: Opening balance Additions Closing balance Accumulated amortisation: Opening balance Amortisation for the year Impairment for the year Closing balance Net book value Engenco Limited ACN 120 432 144 and Controlled Entities Consolidated Group 2013 $000 Consolidated Group 2012 $000 32,459 (32,459) - 14,494 - 14,494 (7,477) (666) (6,351) (14,494) - 1,227 - 1,227 (553) (47) (627) (1,227) - 36,272 (3,813) 32,459 14,494 - 14,494 (5,980) (1,497) - (7,477) 7,017 1,227 - 1,227 (457) (96) - (553) 674 Engenco Limited – 2013 Annual Report | Page 50 Notes to the Consolidated Financial Statements Note 16 – Intangible Assets (cont’d) OTHER IDENTIFIABLE INTANGIBLES Cost: Opening balance Additions Closing balance Accumulated amortisation: Opening balance Amortisation for the year Impairment for the year Closing balance Net book value TOTAL INTANGIBLE ASSETS At cost Accumulated amortisation and impairment Net book value Engenco Limited ACN 120 432 144 and Controlled Entities Consolidated Group 2013 $000 Consolidated Group 2012* $000 12,372 543 12,915 (3,431) (2,110) (3,838) (9,379) 3,536 61,095 (57,559) 3,536 9,542 2,830 12,372 (2,542) (889) - (3,431) 8,941 64,365 (15,274) 49,091 Other Identifiable Intangibles have been restated to include the reclassification of SAP capitalised assets from Property, Plant & Equipment to Intangible Assets. Refer to Note 1(w). 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. As at the reporting date, there existed key impairment indicators. These included the Group valuation reported in an Independent Expert’s Report dated 16 January 2013, the current business performance of the Group and the ASX market capitalisation. Based on these factors the total intangible value (excluding reclassified software costs) of $43,275,000 on the Consolidated Statement of Financial Position has been impaired. Note 17 – Other Assets CURRENT Other current assets Prepayments TOTAL CURRENT OTHER ASSETS Consolidated Group 2013 $000 Consolidated Group 2012 $000 268 1,090 1,358 242 1,626 1,868 Engenco Limited – 2013 Annual Report | Page 51 Notes to the Consolidated Financial Statements Note 18 – Trade and Other Payables CURRENT Unsecured liabilities: Trade payables ATO payables Sundry payables and accrued expenses Deferred income TOTAL TRADE AND OTHER PAYABLES Note 19 – Financial Liabilities CURRENT Secured liabilities: Bank overdrafts Lease liability Other loans Loans from related parties Bank loans TOTAL CURRENT FINANCIAL LIABILITIES NON-CURRENT Secured liabilities: Bank loans Lease liability TOTAL NON-CURRENT FINANCIAL LIABILITIES (a) Total current and non-current secured liabilities: Bank overdraft Bank loans Other loans Loans from related parties Lease liability Engenco Limited ACN 120 432 144 and Controlled Entities Consolidated Group 2013 $000 Consolidated Group 2012 $000 11,566 1,113 3,185 - 15,864 20,722 6,156 3,220 180 30,278 Consolidated Group 2013 $000 Consolidated Group 2012 $000 837 239 177 22,000 215 23,468 - 427 427 5,940 335 - 22,000 20,878 49,153 1,120 - 1,120 Consolidated Group 2013 $000 837 215 177 22,000 666 Consolidated Group 2012 $000 5,940 21,998 - 22,000 335 23,895 50,273 Note 25(a) 29(d) Note 23(a) Engenco Limited – 2013 Annual Report | Page 52 Notes to the Consolidated Financial Statements Note 19 – Financial Liabilities (cont’d) (b) Collateral provided Bank Debt Engenco Limited ACN 120 432 144 and Controlled Entities The bank debt is secured by first registered fixed and floating charges over assets owned by Engenco Limited and other Group members excluding Greentrains Limited and its subsidiary. The financial covenants were renegotiated in January 2013 and applied to the quarter to March 2013 and the 6 months to June 2013. Key financial covenants agreed between Engenco Limited and its primary lender (CBA) are: i. Asset Cover Ratio, (the ratio of tangible assets less employee liabilities to the accommodation limit) of at least 4.0 times at 31 March 2013 and June 2013; ii. Debt Service Cover Ratio, (the ratio of EBITDA adjusted for working capital movement in the period, less capital expenditure financed from operational cash-flow to interest expense) to be at least 1.75 for the 3 months to March 2013 and at least 2.00 for the 6 months to June 2013). Related Party Debt The debt with Elph Pty Ltd is secured by first registered fixed and floating charges over assets owned by Greentrains Limited. Key financial covenants agreed between Greentrains Limited and its related party (Elph Pty Ltd) are: i. ii. Interest Coverage Ratio, (the ratio of EBITDA to gross interest expense) to be greater than 2.0 times; Loan to Valuation Ratio, (the ratio of the total outstanding loan to the total of the locomotive asset value) to be less than 0.5 times; and iii. Gearing Ratio, (the ratio of Total Debt to EBITDA) to be no more than 5.0 times. Defaults and Breaches As a consequence of the impairment of property, plant and equipment in Greentrains Limited the loan to valuation ratio covenant relating to the debt facility with Elph Pty Ltd was breached. A waiver was obtained from Elph Pty Ltd on 13 September 2013. Lease Liabilities 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: - Cash Advance Facility Facility Available 2013 $000 - Facility Used 2013 $000 - - Working Capital Multi Option Facility * 12,500 3,000 - Drivetrain NAB Loan Facility - Swedish Loan Facility (EUR and SEK) - Swedish Overdraft Facility (SEK) - Greentrains Loan Facility - Other Loans - Leases - 215 1,960 - 215 737 30,000 22,000 177 666 177 666 Maturity Dates 2013 Jul-13 Jul-13 Jun-13 Mar-14 n/a Jul-13 Jun-13 Various Facility Available 2012 $000 16,964 12,500 3,000 1,842 1,693 Facility Used 2012 $000 16,964 8,319 3,000 1,842 1,538 Maturity Dates 2012 Interest Basis Jul-13 Jul-13 Floating Floating Various Floating Various Floating n/a Floating 30,000 22,000 Jul-13 Floating - 335 - n/a 335 Various n/a Fixed Comprises net bank overdrafts, off balance sheet bank guarantees of $3,400,000, business cards and other trade products. 45,518 26,795 66,334 53,998 Engenco Limited – 2013 Annual Report | Page 53 Notes to the Consolidated Financial Statements Note 20 – Tax Assets and Liabilities CURRENT Income tax (receivable) / payable TOTAL Engenco Limited ACN 120 432 144 and Controlled Entities Consolidated Group 2013 $000 Consolidated Group 2012 $000 (336) (336) 1,972 1,972 This relates to tax receivable/payable for Group companies outside the Australian Tax Consolidated Group. Consolidated Group Opening Balance $000 Balance Acquired $000 Charged to Income $000 Charged directly to Equity $000 Changes in Tax rate $000 Exchange Differences $000 Closing Balance $000 NON-CURRENT Deferred tax liability: Other Balance at 30 June 2012 Other Balance at 30 June 2013 Deferred tax assets: Provisions Transaction costs on equity issue Losses Other Balance at 30 June 2012 Provisions Transaction costs on equity issue Losses Other Balance at 30 June 2013 1,300 1,300 1,744 1,744 2,494 1,944 1,495 2,849 8,782 3,634 1,492 9,043 (5,825) 8,344 - - - - - - - - - - - - - - 444 444 - - 1,140 (452) 7,548 (8,599) (363) (3,600) (1,492) (8,954) 5,894 (8,152) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (75) (75) - - - - - 1,744 1,744 1,744 1,744 3,634 1,492 9,043 (5,825) 8,344 34 - 89 69 192 The Company has estimated carry forward operating tax losses of $54,968,848 at June 2013 (2012: $48,213,920) which are not recognised. The ability to utilise the operating tax losses will be subject to satisfying relevant eligibility criteria for the recoupment of carry forward tax losses. Engenco Limited – 2013 Annual Report | Page 54 Notes to the Consolidated Financial Statements Note 21 – Provisions Engenco Limited ACN 120 432 144 and Controlled Entities OPENING BALANCE AT 1 JULY 2012 Additional provisions Amounts used BALANCE AT 30 JUNE 2013 Current Non-current Long Service Leave Employee Benefits $000 Annual Leave Employee Benefits $000 1,996 357 (483) 1,870 1,043 827 1,870 3,814 3,764 (4,635) 2,943 2,943 - 2,943 Consolidated Group Legal $000 500 2,147 (600) 2,047 2,047 - 2,047 Onerous Contract $000 - 1,705 - 1,705 426 1,279 1,705 Other $000 38 2,094 - 2,132 2,132 - 2,132 Total $000 6,348 10,067 (5,718) 10,697 8,591 2,106 10,697 Analysis of Total Provisions Current Non-current (a) Significant provisions Provision for long-term employee benefits Consolidated Group 2013 $000 Consolidated Group 2012 $000 8,591 2,106 10,697 4,352 1,996 6,348 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. Legal There are a number of ongoing legal proceedings involving the Group at the reporting date. Provisions have been taken up for some of these exposures based on the Board’s determination. Onerous contracts In the current financial year, the Group identified loss making contracts which are non-cancellable. The obligation for expected future losses has been provided for as at the reporting date. Other Provisions Other provisions relate to various categories including provisions for reorganisation costs and warranty costs. Engenco Limited – 2013 Annual Report | Page 55 Notes to the Consolidated Financial Statements Note 22 – Issued Capital 310,891,432 (2012: 124,224,766) fully paid ordinary shares with no par value (a) Ordinary shares At beginning of reporting period Shares issued during the year 29 January 2013 Shares cancelled or consolidated during the year 18 November 2011 At reporting date Engenco Limited ACN 120 432 144 and Controlled Entities Consolidated Group 2013 $000 302,260 302,260 Consolidated Group 2012 $000 275,342 275,342 2013 No. 2012 No. 124,224,766 1,242,242,634 186,666,666 - - (1,118,017,868) 310,891,432 124,224,766 At the Engenco Limited annual general meeting held 9 November 2011, shareholders approved the share consolidation whereby every ten (10) fully paid ordinary shares on issue were consolidated into one (1) fully paid ordinary share as at 18 November 2011. Where the consolidation resulted in a shareholder being entitled to a fraction of a share, the total shareholding was rounded up to the next whole number. All of these shares were eligible to participate in dividends from the date of issue. On 12 December 2012 a renounceable 3 for 2 entitlement offer at 15c per share was announced. On 29 January 2013, 186,666,666 fully paid ordinary shares were issued pursuant to the pro-rata entitlement offer. Ordinary shares are eligible to 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 2013 there were no options on issue (2012: 100,000). No options were exercised during this financial year. On 29 August 2012, 100,000 share options expired which were granted to Azure Capital on 29 February 2008. Further details on these options are contained in Note 26 – Share Based Payments. Engenco Limited – 2013 Annual Report | Page 56 Notes to the Consolidated Financial Statements Note 23 – Capital and Leasing Commitments LEASES AS LESSEE (a) Finance Lease Commitments not later than 12 months between 12 months and 5 years greater than 5 years Payable - minimum lease payments: - - - Minimum lease payments Future finance charges Present value of minimum lease payments 19 (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 Engenco Limited ACN 120 432 144 and Controlled Entities Consolidated Group 2013 $000 Consolidated Group 2012 $000 Note 254 446 - 700 (34) 666 5,692 11,687 3,268 20,647 342 - - 342 (7) 335 6,609 13,807 4,965 25,381 The Group’s finance lease commitments relate primarily to capitalised software licence fees. The leases typically run for a period of 3 years. The Group also leases a number of sites under operating leases which include land and buildings for the purpose of operating its business. The leases typically run for a period of between 3 and 10 years, sometimes with an option to renew the leases after that date. None of the leases include contingent rentals. During the year-ended 30 June 2013, $6,789,000 was recognised as an expense in the Statement of Comprehensive Income in respect of operating leases (2012: $7,504,000). (c) Contractual Commitments At 30 June 2013, the Group had not entered into any contractual commitments for the acquisition of property, plant and equipment and other intangible assets. LEASES AS LESSOR (d) Operating Lease Receivables Receivable - minimum lease payments - not later than 12 months - between 12 months and 5 years - greater than 5 years Consolidated Group 2013 $000 Consolidated Group 2012 $000 12,838 13,719 - 26,557 18,011 18,641 - 36,652 The Group leases out its fleet of rolling stock to customers. At the end of the reporting period, the future minimum lease payments under non-cancellable leases are receivable as shown above. Engenco Limited – 2013 Annual Report | Page 57 Notes to the Consolidated Financial Statements Note 24 – Operating Segments Segment Information Identification of Reportable Segments Engenco Limited ACN 120 432 144 and Controlled Entities The Group has identified its operating segments based on the internal reports that are reviewed and used by the CEO/Managing Director (chief operating decision maker) 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 maker considers the business from a Business Line perspective and have identified six (6) reportable segments as follows: (a) 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. (b) Centre for Excellence in Rail Training (CERT) CERT 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. (c) Convair Engineering (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. (d) Total Momentum Total 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. (e) Gemco Rail Gemco Rail specialises 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. (f) Greentrains Greentrains leases rolling stock to freight rail operators throughout Australia. (g) All Other This includes the parent entity and consolidation / elimination adjustments. Engenco Limited – 2013 Annual Report | Page 58 Notes to the Consolidated Financial Statements Note 24 - Operating Segments (cont’d) Basis of Reporting by Operating Segments (a) Basis of reporting Engenco Limited ACN 120 432 144 and Controlled Entities Unless stated otherwise, all amounts reported to the CEO/Managing Director as the chief operating 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 transactions 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: Impairment of goodwill and other intangibles Impairment of property, plant and equipment Finance costs Deferred tax assets and liabilities Impairment of accounts receivable Impairment of inventory Engenco Limited – 2013 Annual Report | Page 59 Primary Reporting Business Segments REVENUE External sales Inter-segment sales Interest revenue Notes to the Consolidated Financial Statements Note 24 - Operating Segments (cont’d) (i) Segment Performance Year ended 30 June 2013 Engenco Limited ACN 120 432 144 and Controlled Entities Drivetrain Power & Propulsion $000 Total CERT $000 Convair Momentum Gemco Rail $000 $000 $000 Green- trains $000 All Other Consol. Group $000 $000 71,564 5,886 16,722 22,864 49,748 9,086 391 8 79 - - 21 2,060 4,316 - - - 17 TOTAL SEGMENT REVENUE 71,963 5,965 16,743 24,924 54,064 9,103 Reconciliation of segment revenue to group revenue Inter-segment elimination TOTAL GROUP REVENUE 115 - 57 172 175,985 6,846 103 182,934 (6,846) (6,846) 176,088 SEGMENT EBITDA 5,237 764 2,238 1,826 (7,555) 5,814 (9,317) (993) 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 Impairment of intangibles Impairment of inventory Impairment of accounts receivable Finance costs NET PROFIT BEFORE TAX FROM CONTINUING OPERATIONS (1,671) (66) (135) (455) (3,669) (3,623) (3,015) (12,634) (20,350) (43,275) (1,529) (861) (4,352) (83,994) Engenco Limited – 2013 Annual Report | Page 60 Notes to the Consolidated Financial Statements Note 24 – Operating Segments (cont’d) Engenco Limited ACN 120 432 144 and Controlled Entities Year ended 30 June 2012 Primary Reporting Business Segments REVENUE External sales Inter-segment sales Interest revenue Drivetrain Power & Propulsion CERT Convair Total Momentum Gemco Rail Green- trains All Other Consol. Group $000 $000 $000 $000 $000 $000 $000 $000 93,394 5,227 18,722 603 24 80 3 - 1 19,927 1,552 - 51,369 2,257 47 9,832 378 198,849 - 62 - 211 4,492 348 TOTAL SEGMENT REVENUE 94,021 5,310 18,723 21,479 53,673 9,894 589 203,689 Reconciliation of segment revenue to group revenue Inter-segment elimination TOTAL GROUP REVENUE (4,492) (4,492) 199,197 SEGMENT EBITDA 9,043 1,150 2,922 1,420 1,276 6,432 (7,102) 15,141 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 Impairment of intangibles Impairment of inventory Impairment of accounts receivable Finance costs NET PROFIT BEFORE TAX FROM CONTINUING OPERATIONS (1,789) (54) (94) (459) (2,240) (3,663) (2,707) (11,006) (3,547) (3,813) (19,871) (3,959) (5,553) (32,608) Engenco Limited – 2013 Annual Report | Page 61 Notes to the Consolidated Financial Statements Note 24 - Operating Segments (cont’d) Engenco Limited ACN 120 432 144 and Controlled Entities (ii) Segment Assets As at 30 June 2013 Primary Reporting Business Segments ASSETS Segment assets (excl. capital expenditure, investments and intangibles) Capital expenditure Investments Intangibles Reconciliation of segment assets to Group assets Segment eliminations Unallocated Items: Deferred tax assets TOTAL ASSETS As at 30 June 2012 Primary Reporting Business Segments ASSETS Segment assets (excl. capital expenditure, investments and intangibles) Capital expenditure Investments Intangibles Reconciliation of segment assets to Group assets Segment eliminations Unallocated Items: Deferred tax assets TOTAL ASSETS Drivetrain Power & Propulsion CERT Convair Total Momentum Gemco Rail Green- trains All Other Consol. Group $000 $000 $000 $000 $000 $000 $000 $000 54,708 3,930 10,771 7,329 30,875 33,822 (4,983) 136,452 1,002 7 - 83 - - 418 - - 615 2,426 - - - - 747 13 3,536 5,291 20 3,536 - - 55,717 4,013 11,189 7,944 33,301 33,822 (687) 141,229 (4,262) 192 Drivetrain Power & Propulsion CERT Convair Total Momentum Gemco Rail Green- trains All Other Consol. Group $000 $000 $000 $000 $000 $000 $000 $000 67,588 1,419 3,567 6,387 45,003 55,504 1,285 180,753 1,999 7 20,890 171 - - 106 - - 497 - 3,181 5,827 - 9,588 - - - 666 10 9,266 17 15,432 49,091 90,484 1,590 3,673 10,065 60,418 55,504 17,393 242,408 (5,063) 8,344 Engenco Limited – 2013 Annual Report | Page 62 Notes to the Consolidated Financial Statements Note 24 - Operating Segments (cont’d) Engenco Limited ACN 120 432 144 and Controlled Entities (iii) Segment Liabilities As at 30 June 2013 Primary Reporting Business Segments LIABILITIES Segment liabilities Reconciliation of segment liabilities to Group liabilities Segment eliminations Unallocated Items: Deferred tax liabilities TOTAL LIABILITIES As at 30 June 2012 Primary Reporting Business Segments LIABILITIES Segment liabilities Reconciliation of segment liabilities to Group liabilities Segment eliminations Unallocated Items: Deferred tax liabilities TOTAL LIABILITIES Drivetrain Power & Propulsion CERT Convair Total Momentum Gemco Rail Green- trains All Other Consol. Group $000 $000 $000 $000 $000 $000 $000 $000 74,323 1,266 3,138 6,588 91,785 27,719 (150,101) 54,718 74,323 1,266 3,138 6,588 91,785 27,719 (150,101) 52,200 (4,262) 1,744 Drivetrain Power & Propulsion CERT Convair Total Momentum Gemco Rail Green- trains All Other Consol. Group $000 $000 $000 $000 $000 $000 $000 $000 91,726 (436) (2,434) 6,821 94,723 32,674 (129,140) 93,934 91,726 (436) (2,434) 6,821 94,723 32,674 (129,140) 90,615 (5,063) 1,744 Engenco Limited – 2013 Annual Report | Page 63 Notes to the Consolidated Financial Statements Note 24 - Operating Segments (cont’d) (iv) Revenue by geographical region Revenue attributable to external customers is disclosed below, based on the location of the external customer: Australasia United States of America Europe TOTAL REVENUE (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 Engenco Limited ACN 120 432 144 and Controlled Entities Consolidated Group 2013 $000 Consolidated Group 2012 $’000 160,813 666 14,609 176,088 181,064 1,028 17,105 199,197 Consolidated Group 2013 $000 Consolidated Group 2012 $000 119,954 1,909 19,366 141,229 213,758 1,048 27,602 242,408 The Group has a large and diverse customer base. No individual customer has contributed in excess of 10% to overall Group revenue. Engenco Limited – 2013 Annual Report | Page 64 Notes to the Consolidated Financial Statements Note 25 – Cash Flow Information (a) Reconciliation of cash at end of financial year Cash and cash equivalents Bank overdrafts CASH (NET OF BANK OVERDRAFTS) AT END OF FINANCIAL YEAR Engenco Limited ACN 120 432 144 and Controlled Entities Consolidated Group 2013 $000 5,028 (837) 4,191 Consolidated Group 2012* $000 3,759 (5,940) (2,181) Note 10 19 The 2012 comparatives have been reclassified to account for net cash balance where the Group has a legal right of offset and the intention to settle on a net basis. (b) Reconciliation of cash flow from operating activities with profit / loss after income tax PROFIT (LOSS) AFTER INCOME TAX Adjustments for non-cash items: - Depreciation - Other Intangibles amortisation - Impairment of goodwill and other intangibles - Impairment of property, plant and equipment - Impairment of inventory - Impairment of accounts receivable - Net finance costs - Income tax expense / (benefit) - Gain on sale of property, plant and equipment - (Increase)/decrease in trade and other receivables - (Increase)/decrease in prepayments - (Increase)/decrease in inventories - Increase/(decrease) in trade payables and accruals - Increase/(decrease) in provisions Cash generated from operating activities - Net interest paid - Income taxes paid CASH FLOW FROM / (USED IN) OPERATIONS Consolidated Group 2013 $000 Consolidated Group 2012 $000 (91,515) (35,599) 9,811 2,823 43,275 20,350 1,529 861 4,249 7,521 (108) (1,204) 16,726 510 4,002 (12,223) 4,349 12,160 (4,249) (1,676) 6,235 8,524 2,482 3,813 3,547 19,871 3,959 5,205 2,991 (124) 14,669 (2,348) (575) (10,341) 4,980 1,974 8,359 (5,205) (4,012) (858) Engenco Limited – 2013 Annual Report | Page 65 Notes to the Consolidated Financial Statements Note 26 – Share Based Payments Engenco Limited ACN 120 432 144 and Controlled Entities No share-based payment arrangements existed at 30 June 2013 and no options were issued or exercised during the year ended 30 June 2013. 2013 2012 Number of Options 100,000 (100,000) - - - Weighted Average Exercise Price $ 40.00 40.00 - - - Number of Options 3,000,000 (1,100,000) (1,800,000) 100,000 100,000 Weighted Average Exercise Price $ 3.50 3.25 - 40.00 40.00 Outstanding at the beginning of the year Expired during the year 10:1 share consolidation Outstanding at year-end Exercisable at year-end Note 27 – Net Tangible Assets Net tangible assets per ordinary share: (2013: 310,891,432 shares, 2012: 124,224,766 shares ) 2013 Cents 28.2 2012* Cents 74.9 Restated for exclusion of non-controlling interest from the net asset base and reclassification of software assets from property, plant and equipment to intangible assets. Note 28 – Events Subsequent to Reporting Date Dennis Quinn resigned as Chief Executive Officer on 12 July 2013 and Ross Dunning (Non-Executive Director at the reporting date) was appointed as Interim Managing Director on 15 July 2013. Glenn Parrett resigned as Chief Executive Officer of Drivetrain on 26 August 2013 and Frank Gili has been appointed to lead the Drivetrain business. The Commonwealth Bank of Australia (CBA) facility agreement was completed on 13 September 2013 and expires on 31 October 2014. The Elph Pty Ltd facility agreement has been extended to 30 September 2014. Other than the above, there has not arisen, in the interval between the end of the financial year and the date of this report, any item, transaction or event which would have a material effect on the financial statements of the Group at 30 June 2013. Engenco Limited – 2013 Annual Report | Page 66 Notes to the Consolidated Financial Statements Note 29 – Related Party Transactions Engenco Limited ACN 120 432 144 and Controlled Entities Transactions with related parties are on normal commercial terms and conditions no more favourable than those available to other parties. (a) Transactions with subsidiaries The following transactions occurred with related parties: Related Party Transaction Tax consolidation legislation: Current tax payable assumed from wholly-owned tax consolidated entities (b) Other transactions 2013 $000 2012 $000 - 1,234 Management fees of $NIL (2012: $516,250) were paid to Elphinstone Pty Ltd for the services of Vincent De Santis who is a director of Elphinstone Pty Ltd. Dale Elphinstone is also Chairman of this entity. Director fees of $254,000 (2012: $196,153) and travel expense reimbursements of $82,132 (2012: $127,937) were paid to Elphinstone Pty Ltd for the services of Dale Elphinstone (Chairman) and Vincent De Santis (Non-Executive Director). Fees of $220,060 (2012: NIL) were paid to Elphinstone Pty Ltd for the services of consultants to Gemco Rail Pty Ltd. Goods were purchased from William Adams Pty Ltd of $366,947 (2012: $34,570) during the year. Dale Elphinstone is the Chairman and Vincent De Santis is a director of this entity. Director fees of $100,280 (2012: $100,280) were paid to Grassick SSG Pty Ltd for the services of Don Hector (Non-Executive Director). Goods were purchased from United Equipment Pty Ltd of $60,840 (2012: $20,215) during the year. United Equipment is a related party of Engenco Limited. (c) Outstanding balances arising from sales/purchases of goods and services The Group has the following balances outstanding at the reporting date in relation to transactions with related parties: Related Party Transaction Current receivables (parent entity): Receivables from subsidiaries Current payables: Payables to Elph Pty Ltd Payables to Elphinstone Pty Ltd Payables to William Adams Pty Ltd Payables to United Equipment 2013 $000 177 (368) (26) (12) (1) 2012 $000 161 - (11) (8) - Engenco Limited – 2013 Annual Report | Page 67 Notes to the Consolidated Financial Statements Note 29 – Related Party Transactions (cont’d) (d) 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 Engenco Limited ACN 120 432 144 and Controlled Entities 2013 $000 95,107 (1,431) 2012 $000 163,941 (1,675) (22,000) (22,000) The intercompany loans extended from Engenco Limited to its wholly owned subsidiaries are extended on the following terms: Term: Rate: Revolving Facility repayable when subsidiary is in a position to do so or as otherwise decided by the Company. Fixed rate reviewable quarterly. At the reporting date, the related party loan from Elph Pty Ltd to Greentrains Limited was extended on arms’ length terms for up to $30 million maturing not earlier than July 2013. Subsequent to the reporting date, the facility agreement has been extended to 30 September 2014. Note 30 – Financial Risk Management The Group’s financial instruments consist mainly of investments, accounts receivable and payable, loans from external and related parties and leases. FINANCIAL ASSETS Cash and cash equivalents Other assets Trade and other receivables FINANCIAL LIABILITIES Financial liabilities at amortised cost: - Trade and other payables - Borrowings i. Treasury Risk Management Consolidated Group 2013 $000 Consolidated Group 2012 $000 5,028 20 30,176 35,224 15,864 23,895 39,759 3,759 17 47,763 51,539 30,278 50,273 80,551 Note 10 13 11 18 19 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 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. Engenco Limited – 2013 Annual Report | Page 68 Notes to the Consolidated Financial Statements Note 30 – Financial Risk Management (cont’d) ii. Financial Risk Exposures and Management Engenco Limited ACN 120 432 144 and Controlled Entities 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 Group’s 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 Drivetrain NAB Facility Swedish Loan Facility Swedish Overdraft Facility Greentrains Loan Facility Total b. Liquidity Risk Consolidated Group 2013 $000 Consolidated Group 2012 $000 100 - - 215 737 22,000 23,052 4,402 16,964 3,000 1,842 1,538 22,000 49,746 Note 19(c) 19(c) 19(c) 19(c) 19(c) 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 forecast cash flow analysis in relation to its operational, investing and financing activities; monitoring undrawn credit facilities; managing credit risk related to financial assets; and monitoring the maturity profile of financial liabilities. obtaining funding from a variety of sources; 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. Engenco Limited – 2013 Annual Report | Page 69 Notes to the Consolidated Financial Statements Note 30 – Financial Risk Management (cont’d) Financial Liability Maturity Analysis Engenco Limited ACN 120 432 144 and Controlled Entities Consolidated Group Within 1 Year 2013 $000 2012 $000 1 to 5 Years 2013 $000 2012 $000 Over 5 Years 2013 $000 2012 $000 Total 2013 $000 2012 $000 FINANCIAL LIABILITIES DUE FOR PAYMENT Bank overdrafts and loans Trade and other payables (excluding estimated annual leave) Finance lease liabilities 23,229 48,818 15,864 30,278 239 335 Total Expected Outflows 39,332 79,431 c. Foreign Exchange Risk - - 427 427 1,120 - - 1,120 - - - - - - - - 23,229 49,938 15,864 30,278 666 335 39,759 80,551 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 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 11. 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 11. Balances held with banks are with AA rated financial institutions, details of these holdings can be found in Note 10 – Cash and Cash Equivalents. Engenco Limited – 2013 Annual Report | Page 70 Notes to the Consolidated Financial Statements Note 30 – Financial Risk Management (cont’d) iii. Net Fair Values Fair Value Estimation Engenco Limited ACN 120 432 144 and Controlled Entities 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 Statement of Financial Position. 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. Estimates, judgments and the associated 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. FINANCIAL ASSETS Cash and cash equivalents Trade and other receivables Other assets FINANCIAL LIABILITIES Trade and other payables Lease liability Loans and borrowings 2013 Net Carrying Value $000 Consolidated Group 2013 Net Fair Value $000 2012 Net Carrying Value $000 5,028 30,176 20 35,224 15,864 666 23,229 39,759 5,028 30,176 20 35,224 15,864 666 23,229 39,759 3,759 47,763 17 51,539 30,278 335 49,938 80,551 2012 Net Fair Value $000 3,759 47,763 17 51,539 30,278 335 49,938 80,551 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. 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 foreign currency 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. Engenco Limited – 2013 Annual Report | Page 71 Notes to the Consolidated Financial Statements Note 30 – Financial Risk Management (cont’d) b. Interest Rate Sensitivity Analysis Engenco Limited ACN 120 432 144 and Controlled Entities At 30 June 2013, 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 2013 $000 Consolidated Group 2012 $000 (363) 363 (363) 363 (712) 712 (712) 712 At 30 June 2013, 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: CHANGE IN EARNINGS - 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% 2013 $000 (193) 193 (1,198) 1,198 2012 $000 (188) 188 (946) 946 The Group does not currently hedge against foreign exchange movements in net assets of its Swedish subsidiaries. v. 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. The Consolidated Group’s debt and capital includes ordinary shares and financial liabilities. The gearing ratios as at 30 June 2013 and 2012 are as follows: Total Borrowings Net Debt Total Equity TOTAL EQUITY AND NET DEBT GEARING RATIO 2013 $000 23,895 18,867 89,029 107,896 21% 2012 $000 50,273 46,514 151,793 198,307 31% The gearing ratio has decreased in the year largely due to the capital raised from the share entitlement offer during the current year being used to repay of portion of the debt. Engenco Limited – 2013 Annual Report | Page 72 Notes to the Consolidated Financial Statements Note 31 – Reserves (a) Foreign currency translation reserve Engenco Limited ACN 120 432 144 and Controlled Entities The foreign currency translation reserve records exchange differences arising on translation of overseas subsidiaries. (b) Option reserve The option reserve records items recognised as expenses on valuation of employee share options. Note 32 – Contingent Liabilities Gemco Rail Pty Ltd (a subsidiary of Engenco Limited) has a contingent liability relating to a property lease whereby, if the lease is not surrendered during the following financial year, there may be a contractual obligation to incur capital expenditure on leasehold improvements estimated to be $1,300,000. There are a number of legal claims and exposures which arise from the ordinary course of business. There is significant uncertainty as to whether a future liability will arise in respect to these items. The amount of the liability, if any, which may arise cannot be reliably measured at the reporting date. The Group has arranged for its bankers to guarantee its performance to third parties. The maximum amount of these guarantees at 30 June 2013 is $3,376,100 (2012: $3,240,000). Engenco Limited – 2013 Annual Report | Page 73 Engenco Limited ACN 120 432 144 and Controlled Entities Shareholder Information Additional Information for Listed Companies at 4 September 2013 The following information is provided in accordance with the ASX Listing Rules. 1. Shareholding (a) Distribution of shareholders Category (size of holding) 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – and over No. of shareholders 572 402 180 381 111 1,646 % 0.07 0.34 0.45 4.21 94.93 100.00 No. Ordinary Shares 226,525 1,066,053 1,405,732 13,097,228 295,095,894 310,891,432 (b) The number of shareholdings held in less than marketable parcels (less than $500 in value) is 847. (c) 20 largest shareholders – ordinary shares Position Name Number of Ordinary Fully Paid Shares Held % Held of Issued Ordinary Capital 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Elph Investments Pty Ltd Elph Pty Ltd National Nominees Limited UBS Nominees Pty Limited Thorney Holdings Pty Ltd RAC & JD Brice Superannuation Ltd Equity Trustees Limited Mr Clarence John Kelly, & Mrs Robyn Suzanne Kelly Mr Neville Leslie Esler, & Mrs Cheryl Anne Esler Marford Group Pty Ltd Mr Dennis Graham Austin, & Mrs Marilyn Alice Austin UBS Wealth Management Australia Nominees Pty Ltd T B I C Pty Mr Bruce Ballantine Teele, & Mrs Helen Patricia Teele Shymea Pty Ltd Neko Super Pty Ltd CFF Pty Ltd Mr Hugh William Maguire, & Mrs Susan Anne Maguire Simzam Nominees Pty Ltd Mr Benjamin Pinwill, & Mrs Carly Esler Totals 108,981,588 93,267,430 19,366,456 16,069,684 10,085,674 8,593,260 3,630,727 3,255,000 2,396,925 2,243,680 1,502,540 1,427,668 1,000,000 980,996 900,000 850,000 758,619 700,000 551,390 501,703 35.05% 30.00% 6.23% 5,17% 3.24% 2.76% 1.17% 1.05% 0.77% 0.72% 0.48% 0.46% 0.32% 0.32% 0.29% 0.27% 0.24% 0.23% 0.18% 0.16% 277,063,340 89.12% (d) Shareholders holding in excess of 10% of issued capital were listed in the holding company’s register as follows: Shareholder Elph Investments Pty Ltd Elph Pty Ltd No. Ordinary Shares 108,981,588 93,267,430 % 35.05% 30.00% Engenco Limited – 2013 Annual Report | Page 74 Engenco Limited ACN 120 432 144 and Controlled Entities Shareholder Information (cont’d) (e) Voting Rights 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 Secretaries are: Anna Bagley Josephine Tan Kevin Pallas 3. The address of the principal registered office in Australia is: Level 22, 535 Bourke Street, Melbourne, VIC 3000 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 N/A. 7. Other Disclosures There were no restricted securities at this date. Engenco Limited – 2013 Annual Report | Page 75 Corporate Directory Corporate Office 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 Engenco Limited Level 22 535 Bourke Street Melbourne VIC 3000 T: +61 (0)3 8620 8900 F: +61 (0)3 8620 8999 Directors Dale Elphinstone FAICD Non-Executive Chairman Vincent De Santis BCom LLB (Hons) Non-Executive Director Donald Hector BE(Chem), PhD, FAICD, FIEAust, FIChemE Non-Executive Director Ross Dunning AC BE(Hons), BCom, FCILT, FAIM, FIEAust, FIRSE, MAICD Interim Managing Director Company Secretary Anna Bagley BSc, LLB (Hons), GCInfTech, LLM Josephine Tan B.Mus, LLB (Hons) Kevin Pallas BCom Engenco Limited ACN 120 432 144 and Controlled Entities Auditors KPMG 147 Collins Street Melbourne VIC 3000 T: +61 (0)3 9288 5555 F: +61 (0)3 9288 6666 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 Engenco Limited – 2013 Annual Report | Page 76