Enterprise Products Partners Investor relations material Annual Report 2008

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EMPIRED Ltd. ABN 81 090 503 843 www.empired.com ANNUAL REPORT 2008 I E M P R E D L T D A N N U A L R E P O R T 2 0 0 8 EMPIRED Ltd. ABN 81 090 503 843 CORPORATE DIRECTORY DIRECTORS Mel Ashton (Non – Executive Chairman) COMPANY SECRETARY Mark Waller David Taylor (Non – Executive Director) Jeremy King Richard Bevan (Non – Executive Director) Russell Baskerville (Managing Director & CEO) REGISTERED OFFICE 469 Murray Street PERTH WA 6000 LEGAL ADVISERS McKenzie Moncrieff Lawyers Level 5, 37 St Georges Tce Telephone No: +618 9321 9401 Perth WA 6000 Fax No: +618 9321 9402 COMPANY NUMBER A.C.N: 090 503 843 COUNTRY OF INCORPORATION Australia AUDITORS Grant Thornton (WA) Partnership Level 1, 10 Kings Park Road WEST PERTH WA 6005 COMPANY DOMICILE AND LEGAL FORM Empired Limited is the parent entity and an SHARE REGISTER Computershare Investor Services Pty Ltd Australian Company limited by shares Level 2, 45 St Georges Tce PRINCIPLE PLACE OF BUSINESS Perth 469 Murray Street PERTH WA 6000 Perth WA 6000 ASX CODE: EPD Melbourne 470 Collins Street MELBOURNE VIC 3000 Telephone No: +618 9321 9401 Telephone No: +613 8610 0700 Fax No: +618 9321 9402 Fax No: +613 8610 0701 Level 13 Septimus Roe Square 256 Adelaide Terrace PERTH WA 6000 Telephone No: +618 9223 1234 Adelaide Level 5 City Central, Tower 2 121 King William Street ADELAIDE SA 5000 Fax No: +618 9223 1230 Telephone No: +618 8423 4426 Fax No: +618 8423 4500 WEBSITE www.empired.com CONTENTS CORPORATE DIRECTORY KEY ACHIEVEMENTS RESULTS CHAIRMAN & CEO REVIEW DIRECTORS’ REPORT 2 4 5 6 14 CORPORATE GOVERNANCE STATEMENT 24 FINANCE REPORT INCOME STATEMENT BALANCE SHEET CASH FLOW STATEMENT STATEMENT OF CHANGES IN EQUITY NOTES TO THE FINANCIAL STATEMENTS DIRECTORS’ DECLARATION AUDITOR’S INDEPENDENCE DECLARATION INDEPENDENT AUDIT REPORT SHAREHOLDING ANALYSIS 28 29 30 31 32 34 81 82 83 86 RESULTS Revenue EBITDA NPAT EPS 2007 2008 Growth $ 7,080,596 $ 19,312,728 $ 493,163 $ 1,183,148 $ 400,155 $ 1,295,055 1.1 cents per share 3.0 cents per share 172% 140% 224% 173% Dividend Declared - 0.5 cents per share 4 EMPIRED LIMITED | 2008 Annual Report HIGHLIGHTS » Record revenue of $19.3m (up 172%), EBITDA of $1.18m (up 140%) and NPAT of $1.30m (up 224%) » Earnings per share increased to a record 3.0 cents per share up 173% on the previous year A maiden full year fully franked dividend of 0.5 cents per share has been declared Completed capital raising and ASX listing Acquired and integrated Quadrant Group and Commander’s WA ICT business Invested in our managed services business Positioned to compete on larger multi-year contracts Increased the number of long term contracted clients and level of recurring revenue Expanded our service offerings and developed strong relationships with leading global technology providers Invested in our internal systems and processes to ensure a solid platform for growth Expanded our executive management team » » » » » » » » » “Our capability can be defined by the services we offer, the people we employ, our experience combined with “know how” and the technologies we invest in.” 5 CHAIRMAN & CEO REVIEW 6 EMPIRED LIMITED | 2008 Annual Report Dear Shareholder It is with great pleasure that we present to you our ﬁ rst annual report as an ASX listed company. In 2008 Empired achieved strong ﬁ nancial results experiencing triple digit growth. Revenue was up 172% to $19.3 million; EBITDA was up 140% to $1.18 million and net proﬁ t after tax was up 224% to $1.30 million. Importantly the key measure of earnings per share was up 173% to 3.0 cents demonstrating tight capital and ﬁ scal management. On the back of these strong results a maiden 0.5 cent per share fully franked dividend has been declared. This is a sign of the Board’s comfort in the achievements to date and continued growth of Empired. Subject to Empired’s continued strong performance, the Board intends to grow both the dividend payout ratio and the value of dividend payments. This strong performance is the result of a sound strategic plan that has been diligently executed. “Subject to Empired’s continued strong performance the board intends to grow both the dividend payout ratio and the value of dividend payments.” 7 CHAIRMAN & CEO REVIEW (cont’d) Monthly Recurring Revenue 172% 2006 2007 2008 STAFF 205% 2007 2008 8 EMPIRED LIMITED | 2008 Annual Report GROWING OUR RECURRING REVENUE We outlined a plan to focus on growing our managed services business, to build a stable base of long term cumulative revenue. Our monthly recurring revenue has grown across the year over 64% whilst increasing the number of long term contracted clients. This has allowed Empired to develop more strategic relationships with our customers. Relationships of this nature provide a seat at the table with the decision makers, resulting in a deeper understanding of our customers’ businesses and their core objectives, and an ability to provide strategic advice through an inherent level of trust across the organisation. Over 33% of Empired’s total revenue is now being derived from our long term contracted client base. This is a natural risk mitigation against cyclical project work and increased competition. Investments made over the previous year to ensure competitiveness include the implementation of new leading edge technology, an increase in the scope of services offered and the continued development and evolution of our ITIL based services framework. Empired’s managed services sales pipeline is the strongest it has ever been and we are conﬁ dent of achieving further substantial growth in the year ahead. “Empired has developed more strategic relationships with its customers.” 9 CHAIRMAN & CEO REVIEW (cont’d) Resources Government ICT Finance Other IT SERVICE OFFERINGS IT SERVICE OFFERINGS EMPIRED CORE SERVICE IT Strategic Planning IT Consulti ng Project Management Business Analysis Business Process Redesign Applicati on Development & Support Data Management & Migrati on Systems Integrati on Knowledge Management Business Intelligence Technical Infrastructure Services Infrastructure Outsourcing Recruitment & Resourcing √ √ √ √ √ √ √ √ √ √ √ √ √ 10 EMPIRED LIMITED | 2008 Annual Report “Part of our core strategy is to focus on larger and longer managed services contracts..” GROWING OUR CAPABILITY Empired’s capability can be deﬁ ned by the services we offer, the people we employ, our experience combined with “know how” and the technologies invested in. Empired’s ongoing development and commitment to capability enhancement in each of these areas has continued. We have introduced new service offerings through the acquisition of Quadrant Group, a leading information management and consulting business specialising in the provision of IT Planning & Strategy, Business Analysis, Project Management, Change Management and Business Continuity Management. Following this we increased the depth of our existing technical services and sales capability through the acquisition of Commander’s WA Enterprise ICT business. Empired’s stafﬁ ng levels grew over 105% to 154 full time equivalent employees. In line with this we continued our ongoing investment in training to ensure our consultants are among the best in our industry and equipped with the skills to ensure the highest quality services are delivered to our clients. A strategic focus has been placed on developing business relationships and partnerships with global technology providers whilst retaining our consulting independence. This has lead to strong relationships with world wide organisations including Microsoft, SUN Microsystems, NetApp and VMware to name a few. These relationships provide Empired with the ability to leverage capability from these large multinational organisations, provide consulting and technical services around their technology and be recognised by our customers as specialists. DELIVERING ON ACQUISITIONS During the past nine months Empired has been very active in the acquisition and integration of complimentary IT businesses. Acquisitions were a new area of growth for Empired. You, as a shareholder, were asked to trust our judgement and we have demonstrated our ability to identify, execute and integrate these businesses, without detriment to our existing operations and to translate these transactions into improved shareholder value. The two transactions undertaken in the last twelve months have proven a great success and position us well for future acquisitions. Empired’s greatest asset is its people and accordingly integrating our cultures was the highest of priorities. With staff numbers more than doubling over the last twelve months regular planned communication to all staff was paramount. We communicated our vision, our business model, our challenges, our values and much more. We reiterated these key messages to all staff through a variety of medium and forums. 11 CHAIRMAN & CEO REVIEW (cont’d) Today, only a few months following our latest acquisition our employees are of similar mindset, have adopted common workplace values and most importantly are working as a single team with a common vision. Operational integration was also undertaken with common systems, processes and procedures rolled out across the entire organisation. This has ensured a consistent experience for our clients, suppliers and employees. Our sales teams operate as one cohesive unit and are well versed in our expanded services capability and solution offerings. All of this has been communicated to our clients, both new and existing, and on the back of these initiatives we have experienced strong cross selling of these new service offerings to many of our clients. DRIVING OPERATIONAL IMPROVEMENTS With such growth has come great change across our business. We have had to diligently plan and manage this growth to ensure operational efﬁ ciency and consistent service quality. A range of new business management tools have been implemented to ensure our efﬁ ciency and standards are maintained. Active programs of work include improvements to our IT Systems, the introduction of new project management toolsets and increased functionality to our intranet creating a central repository for all information, collaboration and the core system to drive our business processes. With these new tools in place we expect to not only maintain, but improve our operating margins in the year ahead. THE ENVIRONMENT TODAY The Australian IT sector is a dynamic and growing $18 Billion market place. It employs over 50,000 staff providing critical business systems and support to Australia’s leading companies. Technology is a core component of our business and economic environment. Organisations today consider IT services spend as non-discretionary and the shift is far beyond the use of technology to drive organisational efﬁ ciency. 12 EMPIRED LIMITED | 2008 Annual Report “The Australian IT sector is a dynamic and growing $18 Billion market place.” These systems are vital to our customer’s core business operations, embedded deep within their business processes, products and services. They are reliant on these services to provide innovation, competitive advantage, and access to new markets and revenue streams. As we enter more uncertain times, these underlying demand drivers provide us with conﬁ dence that Empired’s services will remain in high demand and that our business will continue to experience sound growth. Whilst we are conﬁ dent in our sector, we are keenly aware of the current world economic environment and more speciﬁ cally the impact that this is having on the Australian economy where we have seen a tightening of credit markets and continuing interest rate pressure. In response to this we are assured by the strength of our robust business model, targeting long term contracted recurring revenue. This model is geared toward core business infrastructure that customers are required to operate and develop for the long term. Often this expenditure is a key component of their operating budgets as opposed to capital expenditure which is traditionally more volatile in tightening market conditions. In addition to our robust business model, Empired also boasts a sound business with a strong order book, a high level of contracted revenue, low debt levels and strong cash ﬂ ow. A BRIGHT FUTURE We are very proud of Empired’s achievements over the previous year and sincerely thank all our staff. What a fantastic effort, well done! Looking forward, we are acutely aware that there is still so much to be done, and so much to achieve! With our core business model now proven and our business in a strong ﬁ nancial position we are ready to move to the next level. The sector is ripe for consolidation and market share gains, our chosen industry is in high demand and continues to grow. Our challenge is to take this opportunity and build a world class, leading Australian IT services organisation. We are excited by this prospect, our team is excited by this prospect and we are conﬁ dent that striving toward this goal will deliver strong ﬁ nancial results and continue to improve shareholder value. We thank you for your support and look forward to delivering a strong result in the year ahead. Russell Baskerville Managing Director & Chief Executive Ofﬁ cer Mel Ashton Chairman 13 DIRECTOR’S REPORT The directors present their report together with the ﬁ nancial report of Empired Limited (“the Company”) and the consolidated ﬁ nancial report of the consolidated entity, being the Company and its controlled entities, for the year ended 30 June 2008. The names of the Company’s directors in ofﬁ ce during the year and until the date of this report are as below. Directors were in ofﬁ ce for this entire period unless stated. 14 EMPIRED LIMITED | 2008 Annual Report “Empired’s greatest asset is its people.” DIRECTORS Name Age Experience and special responsibilities Mel Ashton Chairman 50 Mel Ashton is a Chartered Accountant with over 25 years experience. For a majority of that time he has specialised in Corporate Reconstruction. Mel established his own practice in Western Australia, which has grown to be a market leader. Mel’s experience covers a wide range of industries. Mel is a Fellow of the Australian Institute of Company Directors and a Fellow of the Institute of Chartered Accountants in Australia. Mel’s other appointments include: Regional Councilor and former State Chairman of the WA Branch of Institute of Chartered Accountants Director and Vice President of the Fremantle Football Club Ltd Chairman of Venture Minerals Limited Chairman of Gryphon Minerals Ltd Chairman of Empire Beer Group Limited David Taylor Non - executive Director 66 David has extensive commercial experience with a banking and marketing background. During the nineties he held positions as General Manager of the principal operating divisions of BankWest. He was also Chairman of BankWest subsidiaries TrustWest and TW Nominees during that period. He currently holds the position of Chairman of both Perth Market Authority and Forest Products Commission and is a non-executive director of BigRedSky Limited. David is a Fellow of the Australian Institute of Company Directors. Russell Baskerville Managing Director & CEO 30 Mr Baskerville is an experienced business professional and has worked in the IT industry for in excess of 10 years. He has extensive knowledge in both the strategic growth and development of technology businesses balanced by strong commercial and corporate skills. Prior to joining Empired, Mr Baskerville was a founding member of Tusk Technologies Pty Ltd, which was acquired by the company in March 2002. He was also the founder and Managing Director of Procom Holdings Pty Ltd, a company established to provide technical service and support to merchant banking facilities on behalf of the larger banks in Australia. Mr Baskerville currently holds non-executive Directorships with Procom Holdings Pty Ltd and BigRedSky Limited. 15 DIRECTOR’S REPORT (cont’d) DIRECTORS (cont‘d) Name Age Experience and special responsibilities Richard Bevan Non – executive Director 42 Mr Bevan joined the board as a non-executive director on 31 January 2008 with corporate and senior management experience including various directorship’s and CEO/MD roles in ASX listed and private companies.Richard brings experience in the execution and integration of mergers, acquisitions and other major corporate transactions. Previously Richard was the Managing Director and Chief Executive Ofﬁ cer of Lifecare Health Limited where he led the company through a successful initial public offer and ASX listing and implemented a growth strategy that involved the acquisition and integration of a number of businesses nationally. Richard has been involved in a number of businesses in areas as diverse as healthcare, construction and engineering, mining technology and information services. Richard’s roles within these businesses have included operational management, implementing organic growth strategies and acquisitions and assisting with capital raisings. Richard is currently Managing Director of Cool Clear Water Group Limited, an unlisted public company which operates a national business in the water services sector. He is also a non- executive Director of e health Networks Pty Ltd which provides services in the Health care industry. Richard is a Member of the Australian Institute of Company Directors. COMPANY SECRETARIES Name Age Experience and special responsibilities 29 46 Mark Waller CFO & Company Secretary (appointed as Company Secretary 20 December 2007) Craig Ferrier Company Secretary (resigned 20 December 2007) Mark holds a degree in business from Curtin University majoring in Accounting and Business Law. He completed his CPA studies specializing in Strategic Business Management, Financial Planning and Taxation. Mark brings experience from running his own business in London to working for Ernst & Young. Mark has responsibility for ensuring the necessary operational and ﬁ nancial processes and infrastructure are in place to support the strategic direction and continued growth of Empired. Mr Ferrier holds a Bachelor of Business and is a CPA with approximately 20 years experience gained at chief ﬁ nancial ofﬁ cer and company secretary level. He has worked within a broad range of sectors including mining and exploration, venture capital, manufacturing and information technology. He is principle of Seincorp Pty Ltd, a consultancy providing specialist company secretarial and corporate advisory services. He is also a non-executive director of ASX listed pieNETWORKS Limited. Jeremy King (LLB) Company Secretary (appointed 20 December 34 Jeremy is a senior executive with Grange Consulting, providing general corporate, transaction and strategic advice, and managing legal issues associated with the activities undertaken by Grange’s clients. 2007) Jeremy is a corporate lawyer with over 9 years experience in domestic and international legal, ﬁ nancial and corporate matters. He spent several years in London where he worked with Allen & Overy LLP and Debevoise & Plimpton LLP and has extensive corporate experience particularly in relation to private equity, leveraged buy-out acquisitions and acting for banks, ﬁ nancial institutions and corporate issuers in respect of various debt and equity capital raisings. 16 EMPIRED LIMITED | 2008 Annual Report PRINCIPAL ACTIVITIES The principal activities of the consolidated entity during the year is the continued operation of its IT infrastructure services business resulting in the provision of services covering software systems, consulting and infrastructure design and deployment. The company demerged the BigRedSky operations in July 2007 leaving the IT infrastructure services business as the company’s only operation. Other than as described above there were no signiﬁ cant changes in the nature of the activities carried out during the year. NUMBER OF EMPLOYEES At 30 June 2008 the Company employed 154 staff. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS There were no signiﬁ cant changes in the state of affairs during the year. EVENTS SUBSEQUENT TO REPORTING DATE There has not arisen in the interval between the end of the ﬁ nancial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect signiﬁ cantly the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity or in future ﬁ nancial years. ENVIRONMENTAL REGULATION The consolidated entity’s operations are not subject to any signiﬁ cant environmental regulations under either Commonwealth or State Legislation. DIVIDENDS After the balance sheet date the following dividends were proposed by the directors. The dividends have not been provided and there are no income tax consequences. Declared and paid during the year 2008 Total amount Final ordinary dividend for the year ended 30 June 2008 of 0.5 cents per fully paid share to be paid 31st of October 2008 $231,112 The ﬁ nancial effect of these dividends has not been brought to account in the ﬁ nancial statements for the year ended 30 June 2008 and will be recognised in subsequent ﬁ nancial reports. OPERATING RESULTS FOR THE YEAR The net proﬁ t after tax from continuing operations for the year for the consolidated entity is $1,295,055 (2007: $400,155). LIKELY DEVELOPMENTS Except as detailed in the Chairman and Managing Director’s Review on pages 7 to 13, likely developments, future prospects and business strategies of the operations of the consolidated entity and the expected results of those operations have not been included in this report, as the directors believe, on reasonable grounds, that the inclusion of such information would be likely to result in unreasonable prejudice to the consolidated entity. 17 DIRECTOR’S REPORT (cont’d) SHARE OPTIONS Share Options Granted to Directors and Ofﬁ cers Share options were granted to Directors under the Executive Share Option Plan. Information relating to this grant is at note 13 to the ﬁ nancial statements. Unissued Shares At the date of this report, there were 8,026,476 unissued ordinary shares under options. Refer to note 13 of the ﬁ nancial statements for more detail. Option holders do not have any right, by virtue of the option, to participate in any share issue of the company or any related body corporate or in the interest issue of any other registered scheme. Shares Issued as a result of the exercise of options 11,666 share options were exercised during the ﬁ nancial year. SHARE ISSUES DURING THE YEAR 10,000,000 shares were issued during the year at $0.30 per share to raise $3,000,000. AUDITOR’S INDEPENDENCE DECLARATION TO THE DIRECTORS OF EMPIRED LIMITED The directors have received an Independence Declaration from Grant Thornton the auditors of Empired Limited and it is attached at page 82. NON-AUDIT SERVICES Non-Audit services provided by the entity’s Auditor can be found at note 26. The Directors are satisﬁ ed that the provision of non-audit services is compatible with the standard of independence for auditors imposed by the Corporations Act. The nature and scope of each non-audit service provided means that auditor independence was not compromised. INDEMNIFICATION OF OFFICERS AND DIRECTORS The company has from 19 September 2007 and since the end of the ﬁ nancial year, in respect of any person who has, is or has been an ofﬁ cer of the company or a related body corporate, paid a premium in respect of Directors and Ofﬁ cers Liability insurance which indemniﬁ es Directors, Ofﬁ cers and the Company of any claims made against the Directors, Ofﬁ cers of the Company and the Company, subject to conditions contained in the insurance policy. Further disclosure required under section 300(9) of the Corporations Act 2001 is prohibited under the terms of the contract. REMUNERATION REPORT This report outlines the remuneration arrangements in place for directors and executives of Empired Limited (the company). Remuneration Philosophy The performance of the company depends upon the quality of its directors and executives. To prosper, the company must attract, motivate and retain highly skilled directors and executives. 18 EMPIRED LIMITED | 2008 Annual Report To this end, the company embodies the following principles in its remuneration framework: • Provide competitive rewards to attract high calibre executives; • Link executive rewards to shareholder value; • Have a portion of certain executive’s remuneration ‘at risk’, dependant upon meeting pre-determined performance benchmarks; • Establish appropriate, demanding performances hurdles for variable executive remuneration. Remuneration Committee Due to the structure of the Board, a separate remuneration committee is not considered to add any efﬁ ciencies to the process of determining the levels of remuneration for the Directors and key executives. The Board considers that it is more appropriate that it set aside time at Board meetings to address matters that would normally fall to the remuneration committee. Remuneration Structure In accordance with the best practice corporate governance, the structure of non-executive director and executive remuneration is separate and distinct. A. Non-executive director remuneration Objective The board seeks to set aggregate remuneration at a level that provides the company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost that is acceptable to shareholders. Structure The constitution and the ASX Listing Rules specify that the aggregate remuneration of non-executive directors shall be determined from time by a general meeting. An amount not exceeding the amount determined is then divided between the directors as agreed. The latest determination was at the Annual General Meeting held on the 17th of November 2006 when shareholders approved an aggregated remuneration of $175,000 per year. The amount of aggregated remuneration sought to be approved by shareholders and the manner in which it is apportioned amongst directors is reviewed from time to time. The Board considers advice from external consultants as well as the fees paid to non-executive directors of comparable companies when undertaking the annual review process. The remuneration of non-executive directors (as deﬁ ned in AASB 124 Related Party Disclosures) for the period ending 30 June 2008 is detailed in Table 1 of this report. B. Executive remuneration Objective The company aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the company and so as to: • Reward executives for company, business unit and individual performances against targets set by reference to appropriate benchmarks; • Align the interests of executives with those of shareholders; • Link rewards with the strategic goals and performance of the company; and • Ensure total remuneration is competitive by market standards. 19 DIRECTOR’S REPORT (cont’d) Structure In determining the level of remuneration paid to senior executives of the company, the Board took into account available benchmarks and prior performance. Remuneration consists of the following key elements: Fixed Remuneration Variable Remuneration - Short Term Incentive (STI); and - Long Term Incentive (LTI). The proportion of ﬁ xed remuneration and variable remuneration (potential short term and long term incentives) is established for each senior executive by the Board. Table 1 details the ﬁ xed and variable components (%) of the executive directors of the company. Fixed Remuneration Objective Fixed remuneration is reviewed annually by the board. The process consists of a review of companywide, business unit and individual performance, relevant comparative remuneration in the market and internally and, where appropriate, external advice on policies and practices. As noted above, the Committee has access to external advice independent of management. Structure Senior executives are given the opportunity to receive their ﬁ xed (primary) remuneration in a variety of forms including cash and fringe beneﬁ ts such as motor vehicles and expense payment plans. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the group. The ﬁ xed remuneration component of the company executives is detailed in Table 1. Variable Remuneration - Short Term Incentive (STI) Objective The objective of the STI program is to link the achievement of the Group’s operational targets with the remuneration received by the executives charged with meeting those targets. Structure Actual STI payments granted to the company executives depend on the extent to which speciﬁ c operating targets set at the beginning of the ﬁ nancial year are met. The operational targets consist of a number of Key Performance Indicators (KPIs) covering both ﬁ nancial and non-ﬁ nancial measures of performance. Typically included are measures such as contribution to net proﬁ t after tax, customer service, risk management, and leadership/team contribution. Any STI payments are subject to the approval of the Remuneration Committee. Payments made are delivered as a cash bonus in the following ﬁ nancial year. For the 2008 ﬁ nancial year 50% of the STI cash bonus has been paid to executives during the 2009 ﬁ nancial year. 20 EMPIRED LIMITED | 2008 Annual Report Variable Pay - Long Term Incentive (LTI) Objective The objective of the LTI plan is to reward senior executives in a manner that aligns this element of remuneration with the creation of shareholder wealth. As such, LTI grants are only made to executives who are able to inﬂ uence the generation of shareholder wealth and thus have a direct impact on the Group’s performance against the relevant long term performance hurdle. Structure LTI grants to executives are delivered in the form of options. Table 2 provides details of options granted and the value of options granted, exercised and lapsed during the year. The options were issued free of charge. Each option entitles the holder to subscribe for one fully paid ordinary share in the entity at an exercise price of $0.40. For further details of the terms and conditions including the service and performance criteria that must be met refer to note 13. C. Service Agreements Russell Baskerville – Managing Director Terms of Agreement – commenced 1 July 2005 until terminated by either party Salary – base $240,000 per annum with an additional STI cash bonus capped at 50% of base fees Termination – three months written notice or three months remuneration in lieu. Mel Ashton – Chairman Terms of Agreement - appointed 21 December 2005 until terminated by either party Fee – ﬁ xed $60,000 per annum David Taylor – Non Executive Director Terms of Agreement - appointed 21 December 2005 until terminated by either party Fee – ﬁ xed $40,000 per annum Richard Bevan – Non Executive Director Terms of Agreement – commenced Fee – ﬁ xed $40,000 per annum Mark Waller – Company Secretary and Chief Financial Ofﬁ cer Terms of Agreement – commenced 18 April 2005, until terminated by either party Salary – base $163,500 per annum Termination – one month’s written notice or one month’s remuneration in lieu 21 DIRECTOR’S REPORT (cont’d) Table 1: Directors and executives remuneration for the year ended 30 June 2008 and 30 June 2007 Short term beneﬁ ts Post Employment Long term beneﬁ ts (LTI) % Performance related Total Salary & Fees Cash STI Superan- nuation Equity Options - - 4,800 68,918 6,000 56,000 34,750 2,800 42,550 25,000 6,000 36,000 - - 16,667 - - - - - 8,800 307,000 20% 12,750 212,750 13,500 3,200 166,708 10,574 747 128,808 - - - - 24,506 25,519 - - - - - - - - - - - Non-Executive Directors Executive Directors Key Management M. Ashton 2008 64,118 Chairman 2007 50,000 D. Taylor Non-executive Director 2008 2007 5,000 5,000 R. Bevan 2008 16,667 2007 - Non-executive Director (appointed 31 January 2008) - - - - - - R. Baskerville 2008 238,200 160,000 Chief Executive 2007 200,000 M. Waller 2008 150,008 Chief Financial Ofﬁ cer 2007 117,487 C. Ferrier 2008 24,506 Company Secretary 2007 25,519 - - - - - 1 Payable at 30 June 2008, paid September 2008 22 EMPIRED LIMITED | 2008 Annual Report Table 2: Options granted as part of remuneration Grant date Grant Number Average Value per option at grant date Value of options granted during the year % Remuneration consisting of options for the year Total value of options granted, exercised and lapsed during year Non Executive M. Ashton 23/07/2007 600,000 0.008 D. Taylor 23/07/2007 350,000 0.008 Executive R. Baskerville 23/07/2007 1,100,000 0.008 Key Management M. Waller 23/07/2007 400,000 0.008 4,800 2,800 8,800 3,200 4,800 2,800 8,800 3,200 6.96% 6.58% 3.56% 1.92% C. Ferrier 23/07/2007 350,000 0.008 2,800 2,800 11.42% Directors Meetings The number of Directors meetings and the number of meetings attended by each Director during the year are: Name of Director Russell Baskerville Mel Ashton David Taylor Richard Bevan No. of Meetings Held while a Director No. of Meetings Attended as a Director during the year ended 30 June 2008 12 12 12 6 12 11 12 6 Richard Bevan joined the board on the 31 January 2008. Director’s and Key Management Personnel Equity Holdings The following table sets out each Directors (including their related parties) interest in shares and options of the company as at the end of the ﬁ nancial year: Director Ordinary Shares Russell Baskerville Mel Ashton David Taylor Mark Waller 5,892,778 150,000 - 1,618,624 Signed in accordance with a resolution of directors. Options 2,550,000 850,000 600,000 814,038 Russell Baskerville Managing Director 30th of September 2008 23 CORPORATE GOVERNANCE STATEMENT This statement outlines the main corporate governance practices in place throughout the ﬁ nancial year, which comply with the ASX Corporate Governance Council’s “Principals of Good Corporate Governance and Best Practice Recommendations”, unless otherwise stated. The company has followed each of the Recommendations where the Board has considered the practices appropriate, taking into account factors such as size of the company and Board, the resources available, and the activities of the company. The corporate governance practices are reviewed regularly and will continue to be developed and reﬁ ned to meet the needs of the company and appropriate practices. The company includes information about its corporate governance practices on the company’s website at www.empired.com including the Board charter, the group’s code of conduct and other policies and procedures relating to the Board and its responsibilities. PRINCIPLE 1 – Lay solid foundations for management and oversight Recommendation 1.1 - Companies should establish the functions reserved to the Board and those delegated to senior executives and disclose those functions The Board has the responsibility for charting the direction, strategies and ﬁ nancial objectives for the Company and monitoring the compliance with regulatory requirements and ethical standards of those policies. In performing their responsibilities the Board are guided by the objective of protecting the rights and interest of shareholders. The roles and responsibilities of the Board are set out in the Board charter and this is available on the company website. The Board regularly reviews the charter to ensure that it is appropriate to meet the needs of the company and the Board and to comply with developing best practice standards. Recommendation 1.2 – Companies should disclose the process for evaluating the performance of senior executives During the reporting year an evaluation of the Board and key executives was carried out on an informal basis. As the activities of the Company develop, it will establish more formal evaluation procedures, including quantitative measures of performance. PRINCIPLE 2 – Structure of the Board to add value Recommendation 2.1 – A majority of the Board should be independent directors The Board comprises of four directors who are appointed to ensure that the company is run in the best interest of the all shareholders. Other than Russell Baskerville all directors are independent non-executives. The names, skills, experience and expertise of the directors of the company in ofﬁ ce at the date of this report are located in the Directors’ report on pages 15-16. A director is only to be regarded as independent if the director is independent of management and free of any business or other relationship what could materially interfere with or could reasonably be perceived to materially interfere with the exercise of the Director’s unfettered and independent judgement. In considering whether a Director is independent the Board considers: • the criteria for assessing the independence of a Director in the ASX Corporate Governance Council’s “Principles of Good Corporate Governance and Best Proactive Recommendations” • any information, facts or circumstances that the Board considers relevant; and • any materiality thresholds, standards or guidelines that the Board may adopt from time to time. Recommendation 2.2 – The chair should be an independent director During 2008 the chairman of the Board of Directors was Mr Mel Ashton. Mr Ashton meets the independence criteria. Recommendation 2.3 – The roles of chair and chief executive ofﬁ cer should not be exercised by the same individual The role of chairperson of the Board and the Managing Director (CEO role) are not exercised by the same person. Mr 24 EMPIRED LIMITED | 2008 Annual Report Baskerville is Managing Director and Mr Ashton is chairman of the Board. Recommendation 2.4 – The Board should establish a nomination committee Currently no formal committees to the Board have been established. The Board considers that given its size and that only one member of the Board holds an executive position in the company, no efﬁ ciencies or other beneﬁ ts would be gained by establishing separate committees. The Board intends to reconsider the requirement for and beneﬁ ts of separate committees as the company’s operations grow and evolve. Recommendation 2.5 – Companies should disclose the process for evaluating the performance of the Board, its committees and individual directors There is currently no formal process in place to evaluate the performance of the Board, its committees and individual directors. A review of the performance of the Board and its directors is undertaken by each director with respect to each other and the performance of the Board itself. The Board will reconsider the requirement for appropriate measures of performance as the company’s operations grow and evolve. PRINCIPLE 3 – Promote ethical and responsible decision making Recommendation 3.1 – Companies should establish a code of conduct and disclose the code or a summary of the code as to: • the practices necessary to maintain conﬁ dence in the company’s integrity, • the practices necessary to take into account their legal obligations and the reasonable expectations of stakeholders, and • the responsibility and accountability of individuals for reporting and investigation reports of unethical practices. All directors, managers and employees are expected to act with integrity and objectivity in their dealings with people that they come in contact with during their association with Empired Ltd. Such conduct is considered integral to the primary objective of working to enhance the Company’s reputation and shareholder value. The code of conduct adopted is available on the Company’s website www.empired.com. Recommendation 3.2 – Companies should establish a policy concerning trading in company securities by directors, senior executives and employees, and disclose the policy or a summary of that policy Directors and employees are prohibited from trading in Empired Limited shares, if the director or employee is in possession of inside or price sensitive information or would be trading for a short term gain. Directors and employees are encouraged to follow a long-term policy with respect to their investments in Empired. Directors and employees are also aware of their obligations to ensure that they do not communicate price sensitive information to any other person who is likely to buy or sell Empired Limited shares or communicate that information to another party. The company’s practices are documented in the securities trading policy, details of which are available on the company’s website. PRINCIPLE 4 – Safeguard integrity of ﬁ nancial reporting Recommendation 4.1 – The Board should establish an audit committee A separate audit committee has not been formed. The role of the audit committee is carried out by the Board of directors. The Board consider that given its size and that only one member of the Board holds an executive position in the Company no efﬁ ciencies or beneﬁ ts would be gained by establishing a separate audit committee. 25 CORPORATE GOVERNANCE STATEMENT (cont’d) The Board intends to reconsider the requirement for and beneﬁ ts of separate committees as the company’s operations grow and evolve. Recommendation 4.2 – The audit committee should be structured so that it: • consists only of non executive directors, • consists of a majority of independent directors, • is chaired by an independent chair, who is not chair of the Board, and • has at least three members This role is carried out by the Board and the requirement for a separate committee will be reconsidered on a regular basis. Recommendation 4.3 – The audit committee should have a formal charter An audit committee charter has been established setting out the role and responsibilities, composition structure, membership requirements and the manner in which the committee is to operate. This charter is available on the company website. PRINCIPLE 5 – Make timely and balanced disclosure Recommendation 5.1 – Companies should establish written policies and procedures designed to ensure compliance with ASX listing rule disclosure requirements and to ensure accountability at senior management level for that compliance and disclose those policies or a summary of those policies. The responsibility for the overall communication has been appointed to the Managing Director and Company Secretary. Empired Ltd is committed to: • ensuring that shareholders and the market are provided with timely and balanced information about its activities; • complying with the general and continuous disclosure principals contained in ASX Listing Rules and the Corporations Act 2001; and • ensuring that all market participants have equal opportunities to receive externally available information issued by Empired. The company continuous disclosure policy is available on the company website. PRINCIPLE 6 – Respect the rights of shareholders Recommendation 6.1 – Companies should design and disclose a communications strategy to promote effective communication with shareholders and encourage effective participation at general meetings and disclose their policy or a summary of that policy. The Board strongly believes in the importance of effective communication with shareholders to ensure their access to timely and relevant information. The Company’s website is regularly updated and provides details of recent announcements to the ASX, annual reports, and other signiﬁ cant information on the Company. Procedures are in place to review all information and to ensure all relevant information is immediately released to the market. Shareholders are encouraged to attend the annual general meeting, providing them with an opportunity to question the Board and senior executives. Empired has in place a written communications with shareholders policy which is available on the company website. 26 EMPIRED LIMITED | 2008 Annual Report PRINCIPLE 7 – Recognise and manage risk Recommendation 7.1 – Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies. The Board acknowledges that it is responsible for the overall internal control framework, but recognises there is no effective internal control system that will prevent all errors and irregularities. The company’s risk management program is available on the company’s website. The effectiveness of the risk management program is reviewed annually and updated accordingly. Recommendation 7.2 – The Board should require management to design and implement the risk management and internal control system to manage the company’s material business risks and report to it on whether those risks are being managed to the effectiveness of the company’s management of its material business risks. A risk may be initiated by any employee to a member of the Empired management team. Senior management are responsible for reviewing risks that have been escalated to them from an operational level. These risks are reviewed monthly by the Board. The Board also reviews recommendations made by the external auditors, and where appropriate ensures that the Company puts in place controls and systems to manage these risks identiﬁ ed. Recommendation 7.3 – The Board should disclose whether it has received assurance from the chief executive ofﬁ cer (or equivalent) and the chief ﬁ nancial ofﬁ cer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations act is founded on a sound system of risk management, and internal control and that the system is operating effectively in all material respects in relation to ﬁ nancial reporting risks. This recommendation was complied with for 2008 PRINCIPLE 8 – Remunerate fairly and responsibly Recommendation 8.1 – The Board should establish a remuneration committee Due to the structure of the Board, a separate remuneration committee is not considered to add any efﬁ ciencies to the process of determining the levels of remuneration of the Directors and key executives. The Board considers that is more appropriate that it set aside time at Board meetings to address such matter that would normally fall to the remuneration committee. Recommendation 8.2 – Companies should clearly distinguish the structure of non-executive directors’ remuneration from that of executive directors and senior executives Detailed information regarding the remuneration paid to directors and senior executives is set out in the remuneration report. 27 EMPIRED LIMITED and its Controlled Entities Annual Financial Report For the Year Ended 30 June 2008 28 EMPIRED LIMITED | 2008 Annual Report INCOME STATEMENT For the Year Ended 30 June 2008 Notes CONSOLIDATED PARENT 2008 $ 2007 $ 2008 $ 2007 $ 3 18,924,137 7,080,596 18,924,137 7,080,596 3 4 5 6 (13,674,937) (4,907,888) (13,674,937) (4,907,888) 5,249,200 2,172,708 5,249,200 2,172,708 388,591 (2,875) (17,598) (305,904) (61,370) 9,150 388,591 9,150 (36,384) (786) (61,569) (16,159) (2,875) (17,598) (305,904) (61,370) (36,384) (786) (61,569) (16,159) (2,630,014) (1,153,224) (2,630,014) (1,153,224) (149,932) (76,849) (145,048) (74,872) (1,498,252) (436,732) (1,503,136) (438,709) 971,846 400,155 971,846 400,155 323,209 - 303,209 - 1,295,055 400,155 1,295,055 400,155 - (2,610,401) - (2,610,401) 1,295,055 (2,210,246) 1,295,055 (2,210,246) Continuing Operations Revenue Rendering of services Cost of Sales Gross proﬁ t Other Income Legal expenses Marketing expenses Occupancy expenses Finance costs Employee beneﬁ ts Depreciation expenses Other expenses Proﬁ t before income tax Income tax beneﬁ t relating to ordinary activities Proﬁ t after tax from continuing operations Proﬁ t / (loss) from discontinued operations Proﬁ t / (Loss) after tax attributable to members of the Company Earnings per share (cents per share) Basic for proﬁ t for the year attributable to ordinary shareholders of the parent Basic for proﬁ t from continuing operations attributable to ordinary equity holders of the parent Diluted for proﬁ t for the year attributable to ordinary equity holders of the parent Diluted for proﬁ t from continuing operations attributable to ordinary equity holders of the parent 2.99 2.99 2.51 2.51 (6.1) 1.1 (6.1) 1.0 29 BALANCE SHEET As at 30 June 2008 Notes CONSOLIDATED PARENT 2008 $ 2007 $ 2008 $ 2007 $ ASSETS Current Assets Cash and cash equivalents Trade and other receivables Other current assets 8(i) 9 10 Assets classiﬁ ed as held for Sale 6 149,117 8,104,872 153,323 8,407,312 - - 1,355,037 93,364 1,448,401 1,596,326 149,117 8,104,872 153,323 8,407,312 - - 1,355,037 93,364 1,448,401 1,596,326 Total Current Assets 8,407,312 3,044,727 8,407,312 3,044,727 Non-Current Assets Other ﬁ nancial assets Property, plant and equipment Intangible assets Deferred tax asset Total Non-Current assets TOTAL ASSETS LIABILITIES Current Liabilities Bank overdraft Trade and other payables Financial liabilities Income tax payable Provisions Unearned revenue Liabilities directly associated with assets classiﬁ ed as held for sale Total Current Liabilities Non-Current Liabilities Financial liabilities Provisions Deferred tax liability Total Non-Current Liabilities 24 11 12 5 8(i) 14 15 5 16 17 6 15 16 5 - 701,610 3,827,164 676,928 5,205,702 - 325,108 1,866,958 - 2,192,066 367,485 685,777 1,960,206 676,928 3,690,396 372,369 304,390 - - 676,759 13,613,014 5,236,793 12,097,708 3,721,486 - 5,173,466 1,433,903 144,708 391,014 202,917 16,492 844,047 466,297 - 127,290 202,517 - 5,173,466 1,433,903 144,708 391,014 202,917 16,492 844,047 466,297 - 127,290 202,517 7,346,008 1,656,643 7,346,008 1,656,643 - 974,835 - 974,835 7,346,008 2,631,478 7,346,008 2,631,478 254,795 22,221 88,894 365,910 67,478 - - 67,478 606,446 22,221 88,894 717,561 419,129 - - 419,129 TOTAL LIABILITIES 7,711,918 2,698,956 8,063,569 3,050,607 NET ASSETS 5,901,096 2,537,837 4,034,139 670,879 EQUITY Issued capital Employee equity beneﬁ ts reserve Retained proﬁ ts / (accumulated losses) 18 2,775,982 98,439 5,936,265 56,602 2,775,982 98,439 5,936,265 56,602 3,026,675 (3,455,030) 1,159,718 (5,321,988) TOTAL EQUITY 5,901,096 2,537,837 4,034,139 670,879 30 EMPIRED LIMITED | 2008 Annual Report CASH FLOW STATEMENT For the Year Ended 30 June 2008 Notes CONSOLIDATED PARENT 2008 $ 2007 $ 2008 $ 2007 $ Cash ﬂ ows from operating activities Receipts from customers 12,502,533 7,957,076 12,502,533 7,957,076 Payments to suppliers and employees (13,582,662) (8,372,590) (13,582,662) (8,372,590) Borrowing costs Income tax rebate Income tax paid Interest received (61,370) - - 388,591 (24,860) 332,726 (36,338) 10,385 (61,370) - - 388,591 (24,860) 332,726 (36,338) 10,385 Net cash ﬂ ows used in operating activities 8(iii) (752,908) (133,601) (752,908) (133,601) Cash ﬂ ows from investing activities Purchase of property, plant and equipment Acquisition of business acquisitions (net of cash acquired) (526,434) (275,831) (526,434) (275,831) 21(c) (1,555,762) - (1,555,762) - Net cash ﬂ ows used in investing activities (2,082,196) (275,831) (2,082,196) (275,831) Cash ﬂ ows from ﬁ nancing activities Proceeds from issue of shares Payment of share issue and capital raising costs Repayment of borrowings Repayment of ﬁ nance lease liabilities Proceeds from borrowings 3,002,333 300,000 3,002,333 300,000 (494,401) (23,358) (494,401) (23,358) (477,398) (113,033) 683,212 - (477,398) (49,998) 568,260 (113,033) 683,212 - (49,998) 568,260 794,904 Net cash ﬂ ows from ﬁ nancing activities 2,600,713 794,904 2,600,713 Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period (234,391) 385,472 (234,391) 385,472 383,508 (1,964) 383,508 (1,964) 8(i) 149,117 383,508 149,117 383,508 31 STATEMENT OF CHANGES IN EQUITY For the Year Ended 30 June 2008 Attributable to equity holders of the parent Total equity Issued capital $ Retained earnings $ Employee Equity Beneﬁ ts Reserve $ $ 5,659,623 (1,244,784) 23,049 4,437,888 (23,358) - - (2,210,246) 300,000 - - - - - - - - - 33,553 56,602 CONSOLIDATED At 1 July 2006 Share raising costs Proﬁ t for the year Issue of share capital Exercise of options Cost of share-based payments At 30 June 2007 5,936,265 (3,455,030) Return of capital re: discontinued operation (5,788,331) 5,186,650 (19,810) Share raising costs Proﬁ t for the year Issue of share capital Exercise of options Expiry of options Cost of share-based payments (374,285) - - 1,295,055 3,000,000 2,333 - - - - - - At 30 June 2008 2,775,982 3,026,675 - - - (2,333) (4,400) 68,380 98,439 32 (23,358) (2,210,246) 300,000 - 33,553 2,537,837 (621,491) (374,285) 1,295,055 3,000,000 - (4,400) 68,380 5,901,096 EMPIRED LIMITED | 2008 Annual Report Attributable to equity holders of the parent Total equity Issued capital $ Retained Earnings $ Employee Equity Beneﬁ ts Reserve $ $ 5,659,623 (3,111,742) 23,049 2,570,930 (23,358) - - (2,210,246) 300,000 - - - - - - - - - 33,553 56,602 PARENT At 1 July 2006 Share raising costs Proﬁ t for the year Issue of share capital Exercise of options Cost of share-based payments At 30 June 2007 5,936,265 (5,321,988) Return of capital re: discontinued operation (5,788,331) 5,186,651 (19,810) Share raising costs Proﬁ t for the year Issue of share capital Exercise of options Expiry of options Cost of share-based payments (374,285) - - 1,295,055 3,000,000 2,333 - - - - - - At 30 June 2008 2,775,982 1,159,718 - - - (2,333) (4,400) 68,380 98,439 (23,358) (2,210,246) 300,000 - 33,553 670,879 (621,490) (374,285) 1,295,055 3,000,000 - (4,400) 68,380 4,034,139 33 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2008 1 CORPORATE INFORMATION The ﬁ nancial report of Empired Ltd for the year ended 30 June 2008 was authorised for issue in accordance with a resolution of the directors on 30 September 2008. Empired Limited is a company limited by shares incorporated in Australia. The ﬁ nancial report includes the consolidated ﬁ nancial statements and notes of Empired Limited and controlled entities (Consolidated) and separate ﬁ nancial statements and notes of Empired Limited as an individual parent entity (Parent). 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Preparation The ﬁ nancial report is a general-purpose ﬁ nancial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards, Australian Accounting Interpretations and other authorative pronouncements of the Australian Accounting Standards Board. The ﬁ nancial report has been prepared on an accruals basis, and is based on historical costs modiﬁ ed where applicable, by measurement at fair value of selected non-current assets, ﬁ nancial assets and ﬁ nancial liabilities. The ﬁ nancial report is presented in Australian dollars and all values are rounded to the nearest thousand unless otherwise stated. (b) Statement of compliance The ﬁ nancial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standard (‘AIFRS’). The ﬁ nancial report also complies with international ﬁ nancial standards (IFRS). In the current year the Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) and the Urgent Issues Group that are relevant to its operations and effective for annual reporting periods beginning on 1 July 2006. The adoption of these new and revised Standards and Interpretations did not have any effect on the ﬁ nancial position or performance of the Group. Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Group for the annual reporting period ended 30 June 2008. These are outlined in the table below. 34 EMPIRED LIMITED | 2008 Annual Report 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (b) Statement of compliance (cont’d) Application date of standard* Impact on Group ﬁ nancial report Application date for Group* 1 January 2009 AASB 8 is a disclosure 1 July 2009 standard so will have no direct impact on the amounts included in the Group’s ﬁ nancial statements. However the new standard may have an impact on the segment disclosures included in the Group’s ﬁ nancial report. 1 January 2009 As the Group does not 1 July 2009 currently construct or produce any qualifying assets which are ﬁ nanced by borrowings the revised standard will have no impact. 1 January 2009 Refer to AASB 2007-3 above. 1 July 2009 1 January 2009 Refer to AASB 2007-6 above. 1 July 2009 Reference Title Summary AASB 2007-3 AASB 2007-6 Amendments to Australian Accounting Standards arising from AASB 8 [AASB 5, AASB 6, AASB 102, AASB 107, AASB 119, AASB 127, AASB 134, AASB 136, AASB 1023 & AASB 1038] Amendments to Australian Accounting Standards arising from AASB 123 [AASB 1, AASB 101, AASB 107, AASB 111, AASB 116 & AASB 138 and Interpretations 1 & 12] AASB 8 Operating Segments Borrowing Costs AASB 123 (revised June 2007) Amending standard issued as a consequence of AASB 8 Operating Segments Amending standard issued as a consequence of AASB 123 (revised) Borrowing Costs. This new standard will replace AASB 114 Segment Reporting and adopts a management approach to segment reporting. AASB 123 previously permitted entities to choose between expensing all borrowing costs and capitalizing those that were attributable to the acquisition, construction or production of a qualifying asset. The revised version of AASB 23 requires borrowing costs to be capitalized if they are directly attributable to the acquisition, construction or production of a qualifying asset. 35 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2008 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (b) Statement of compliance (cont’d) Reference Title Summary AASB Interpretation 129 (revised June 2007) Service Concession Arrangements: Disclosures IFRIC Interpretation 13 Customer Loyalty Programmes IFRIC Interpretation 14 IAS 19 – The Asset Ceiling: Availability of Economic Beneﬁ ts and Minimum Funding Requirements AASB 2007-8 AASB 2008-1 Amendments to Australian Accounting Standards arising from AASB 101 Amendments to Australian Accounting Standard – Share- based Payments: Vesting Conditions and Cancellations [AASB 2] The revised interpretation was issued as a result of the issue of Interpretation 12 and requires speciﬁ c disclosures about service concession arrangements entered into by an entity, whether as a concession provider or a concession operator. Deals with the accounting for customer loyalty programmes, which are used by companies to provide incentives to their customers to buy their products or use their services. Aims to clarify how to determine in normal circumstances the limit on the asset that an employer’s balance sheet may contain in respect of its deﬁ ned beneﬁ t pension plan. Amending standards issued as a consequence of AASB 101. Objective of this standard is to make amendment to clarify vesting conditions wthin AASB 2 Share-based payments. Application date for Group* 1 July 2008 Application date of standard* 1 January 2008 Impact on Group ﬁ nancial report As the Group currently has no service concession arrangements or public- private-partnerships (PPP), it is expected that this Interpretation will have no impact on its ﬁ nancial report. 1 July 2008 1 July 2008 The Group does not have any customer loyalty programmes and as such this interpretation is not expected to have any impact on the Group’s ﬁ nancial report. 1 July 2008 1 January 2008 The Group does not have a deﬁ ned beneﬁ t pension plan and as such this interpretation will not have an impact on the Group’s ﬁ nancial report. 1 January 2009 Refer to ASSB 101 below. 1 January 2009 1 January 2009 There will be no material impact to the consolidated Group. 1 January 2009 36 EMPIRED LIMITED | 2008 Annual Report 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (b) Statement of compliance (cont’d) Reference Title Summary Application date of standard* 1 January 2009 Impact on Group ﬁ nancial report There will be no material impact to the consolidated Group. Application date for Group* 1 January 2009 The standard introduces an exception to the deﬁ nition of ﬁ nancial liability to classify as equity instruments certain puttable ﬁ nancial instruments and certain instruments that impose on an entity only on liquidation of the entity. AASB 2008-2 AASB 2008 -3 AASB 2008-5 Amendments to Australian Accounting Standards – Puttable Financial Instruments and Obligations arising on Liquidation [AASB 7, AASB 101, AASB 132, AASB 139 & Interpretation 2] Amendments to Australian Accounting Standards arising from AASB 3 and AASB 127 [AASBs 1, 2, 4, 5, 7, 101, 107,112,114, 116, 121, 128, 131, 132, 133, 134, 136, 137, 138 & 139 and interpretations 9 & 107] Amendments to Australian Accounting Standards arising from the Annual Improvements Project [ AASB 5, 7, 101, 102, 107, 108, 110, 116, 118, 119, 120, 123, 127, 128, 129, 131, 132, 134, 136, 138, 139, 140, 141, 1023 & 1038] Amending standards arising from revised AASB 3 and amended AASB 127. 1 July 2009 1 July 2009 The revisions to AASB 3 and amended AASB 127 will be taken into consideration with respect to transactions to which the above revision and amendment concern from the operative date. Amending standards as a consequence from the Annual Improvements Project. 1 January 2009 There will be no material impact to the consolidated Group. 1 January 2009 37 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2008 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (b) Statement of compliance (cont’d) Reference Title Summary AASB 2008-6 AASB 2008-7 Amending standards to include requirements relating to a sale plan involving loss of control of a subsidiary. Amending standards relating to the cost of investment in a Subsidiary, Jointly Controlled Entity or Associate. Further Amendments to Australian Accounting Standards arising from the annual Improvements Project [AASB 1 & AASB 5] Amendments to Australian Accounting Standards -Cost of Investment in Subsidiary, Jointly Controlled Entity or Associate [AASB 1, AASB 118, AASB 121, AASB 127 & AASB 136] AASB 3 Business Combinations Amended March 2008. AASB 127 Consolidated and Separate Financial Statements AASB 101 Presentation of Financial Statements Deals with information that a parent entity provides in its separate ﬁ nancial statements and in its consolidated ﬁ nancial statements for a group of entities under its control. AASB 101 is a disclosure standard. The new standard may have an impact on the disclosures included in the Group’s ﬁ nancial report. Application date of standard* 1 July 2009 Impact on Group ﬁ nancial report There will be no material impact to the consolidated Group. Application date for Group* 1 July 2009 1 January 2009 There will be no material impact to the consolidated Group. 1 January 2009 1 July 2009 1 July 2009 1 January 2009 1 July 2009 1 July 2009 1 January 2009 The Group will consider amendments to Business Combinations standard with respect to any business combinations the Group undertakes. The Group will consider the application of this amendment in respect to producing consolidated ﬁ nancial statements from the operative date. AASB 101 is a disclosure standard so it will have no direct impact on the amounts included in the Group’s ﬁ nancial report, however the new standard may have an impact on the disclosures included in the Group’s ﬁ nancial report. 38 EMPIRED LIMITED | 2008 Annual Report 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (c) Basis of consolidation The consolidated ﬁ nancial statements comprise the ﬁ nancial statements of Empired Limited and its subsidiaries as at 30 June each year (‘the Group’) (note 24). The ﬁ nancial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist. All intercompany balances and transactions, including unrealised proﬁ ts arising from intra-group transactions, have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered. Subsidiaries are consolidated from the date on which control is transferred to the group and cease to be consolidated from the date on which control is transferred out of the Group. Where there is loss of control of a subsidiary, the consolidated ﬁ nancial statements include the results for the part of the reporting period during which Empired Limited has control. Tusk Technologies Pty Ltd has been included in the consolidated ﬁ nancial statements using the purchase method of accounting, which measures the acquiree’s assets and liabilities at their fair value at acquisition date. Accordingly, the consolidated ﬁ nancial statements include the results of Tusk Technologies Pty Ltd for the full ﬁ nancial year. The purchase consideration has been allocated to the assets and liabilities on the basis of the fair value at the date of acquisition. 39 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2008 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (d) Property, plant and equipment Plant and equipment is stated at cost less accumulated depreciation and any impairment in value. Depreciation is calculated on a diminishing value, except computer software which is on a straight-line basis, over the estimated useful life of the asset as follows: Buildings & Improvements Leasehold Improvements Furniture & Fittings Computer Hardware Computer Software DV DV DV DV SL 7.5 – 20 yrs 5 – 20 yrs 3 – 20 yrs 3 – 5 yrs 1 – 2.5 yrs Impairment The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. For an asset that does not generate largely independent cash inﬂ ows, the recoverable amount is determined for the cash- generating unit to which the asset belongs. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash- generating units are written down to their recoverable amount. The recoverable amount of plant and equipment is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash ﬂ ows are discounted to their present value using a pre-tax discount rate that reﬂ ects current market assessments of the time value of money and the risks speciﬁ c to the asset. Impairment losses are recognised in the income statement in the cost of sales line item. An item of property, plant and equipment is derecognised upon disposal or when no future economic beneﬁ ts are expected to arise from the continued used of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the period the item is derecognised. 40 EMPIRED LIMITED | 2008 Annual Report 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (e) Borrowing costs Borrowing costs are recognised as an expense when incurred. (f) Goodwill Goodwill on acquisition is initially measured at cost being the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identiﬁ able assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. As at the acquisition date, any goodwill acquired is allocated to each of the cash-generating units expected to beneﬁ t from the combination’s synergies. Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured on the basis of the relative values of the operation disposed of and the portion of the cash-generating unit retained. (g) Intangible Assets Acquired both separately and from a business combination Intangible assets acquired separately are capitalised at cost. Following initial recognition, the cost model is applied to the class of intangible assets. Where amortisation is charged on assets with ﬁ nite lives, this expense is taken to the income statement through the ‘amortisation expenses’ line item. Intangible assets, excluding development costs, created within the business are not capitalised and expenditure is charged against proﬁ ts in the period in which the expenditure is incurred. Intangible assets are tested for impairment where an indicator of impairment exists and in the case of indeﬁ nite lived intangibles annually, either individually or at the cash generating unit level. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis. Research and development costs Research costs are expensed as incurred. Development expenditure incurred on an individual project is carried forward when its future recoverability can reasonably be regarded as assured. Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. 41 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2008 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (g) Intangible Assets (cont’d) A summary of the policies applied to the Group’s intangible assets is as follows: Useful lives Method used Patents and Licences Development Costs Indeﬁ nite Finite Not depreciated or revalued 6 years- Straight line Internally generated/ Acquired Acquired Internally generated Impairment test / Recoverable amount testing Annually and where an indicator of impairment exists Amortisation methods reviewed at each ﬁ nancial year-end; Reviewed annually for indicator of impairment Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised on the income statement when the asset is derecognised. (h) Impairment of assets At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Group makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount. Recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for an individual asset, unless the asset’s value in use cannot be estimated to be close to its fair value less costs to sell and it does not generate cash inﬂ ows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs. In assessing value in use, the estimated future cash ﬂ ows are discounted to their present value using a pre tax discount rate that reﬂ ects current market assessments of the time value of money and the risks speciﬁ c to the asset. (i) Financial assets and liabilities All investments are initially recognised at cost, being the fair value of the consideration given and including acquisition charges associated with the investment. The fair value is based on the net assets of the investment at balance date. (j) Trade and other receivables Trade receivables, which generally have 30-45 day terms, are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identiﬁ ed. (k) Cash and cash equivalents Cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less. For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as deﬁ ned above, net of outstanding bank overdrafts. 42 EMPIRED LIMITED | 2008 Annual Report 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (l) Interest-bearing loans and borrowings All loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of issue costs associated with the borrowing. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement. Gains and losses are recognised in the income statement when the liabilities are derecognised and as well as through the amortisation process. (m) Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outﬂ ow of resources embodying economic beneﬁ ts will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash ﬂ ows at a pre-tax rate that reﬂ ects current market assessments of the time value of money and, where appropriate, the risks speciﬁ c to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a ﬁ nance cost. (n) Employee leave beneﬁ ts (i) Wages, salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary beneﬁ ts, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employee’s services up to reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable. (ii) Long service leave The liability for long service leave is recognised in the provision for employee beneﬁ ts and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outﬂ ows. (o) Share-based payment transactions The Group provides to employees (including directors) of the Group in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares (‘equity-settled transactions’). There are currently two plans in place to provide these beneﬁ ts: The Empired Employee Share Option Plan (ESOP2), which provides to all employees excluding directors, and The Executive Share Option Plan (ESOP1), which provides beneﬁ ts to directors and senior executives. The cost of these equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined using a binomial model further details are given in note 13. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulﬁ lled, ending on the date on which the relevant employees become fully entitled to the award (‘vesting date’). 43 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2008 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (p) Share-based payment transactions (continued) The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reﬂ ects (i) the extent to which the vesting period has expired and (ii) the number of awards that, in the opinion of the directors of the Group, will ultimately vest. This opinion is formed based on the best available information at balance date. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. Where the terms of an equity-settled award are modiﬁ ed, as a minimum an expense is recognised as if the terms had not been modiﬁ ed. In addition, an expense is recognised for any increase in the value of the transaction as a result of the modiﬁ cation, as measured at the date of modiﬁ cation. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modiﬁ cation of the original award, as described in the previous paragraph. The dilutive effect, if any, of outstanding options is reﬂ ected as additional share dilution in the computation of earnings per share (see note 7). (q) Leases Finance leases, which transfer to the Group substantially all the risks and beneﬁ ts incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the ﬁ nance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term. Leases where the lessor retains substantially all the risks and beneﬁ ts of ownership of the asset are classiﬁ ed as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as the lease income. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. (r) Revenue Revenue is recognised to the extent that it is probable that the economic beneﬁ ts will ﬂ ow to the Group and the revenue can be reliably measured. The following speciﬁ c recognition criteria must also be met before revenue is recognised: Rendering of services Revenue from the provision of services is recognised when the service has been provided. Maintenance, Hosting and Support fees Revenue from maintenance, hosting and support is recognised and bought to account over the time it is earned. Unexpired revenue is recorded as unearned income. Interest received Revenue is recognised as the interest accrues (using the effective interest method, which is the rate that exactly discounts estimated future cash receipts through the expected life of the ﬁ nancial instrument) to the net carrying amount of the ﬁ nancial asset. 44 EMPIRED LIMITED | 2008 Annual Report 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (s) Government grants Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the periods necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, the fair value is credited to a deferred income amount and is released to the income statement over the expected useful life of the relevant asset by equal annual instalments. (t) Income tax Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for the ﬁ nancial reporting purposes. • • • • Deferred income tax liabilities are recognised for all taxable temporary differences: except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting proﬁ t nor taxable proﬁ t or loss; and in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable proﬁ t will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised: except where the deferred income tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting proﬁ t nor taxable proﬁ t or loss; and in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable proﬁ t will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufﬁ cient taxable proﬁ t will be available to allow all or part of the deferred income tax asset to be utilised. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Income taxes relating to items recognised directly in equity are recognised in equity and not in the income statement. 45 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2008 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (u) Other taxes Revenues, expenses and assets are recognised net of the amount of GST except: • where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and • receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet. Cash ﬂ ows are included in the Cash Flow statement on a gross basis and the GST component of cash ﬂ ows arising from investing and ﬁ nancing activities, which is recoverable from, or payable to, the taxation authority are classiﬁ ed as operating cash ﬂ ows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (v) Signiﬁ cant accounting judgements, estimates and assumptions Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a ﬁ nancial impact on the entity and that are believed to be reasonable under the circumstances. Critical accounting estimates and assumptions The Group makes estimates and assumptions concerning the future. The estimates and assumptions that have a signiﬁ cant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next ﬁ nancial year are discussed below. The Group tests annually whether goodwill costs have suffered any impairment, in accordance with the accounting policies. i. Impairment of goodwill and intangibles with indeﬁ nite useful lives The group determines whether goodwill and intangibles with indeﬁ nite useful lives are impaired at least on an annual basis. This requires an estimation of the recoverable amount of the cash-generating unit to which the goodwill and intangibles with indeﬁ nite useful lives are allocated. The assumptions used in this estimation of recoverable amount and carrying amount of goodwill and intangibles with indeﬁ nite useful lives are discussed in note 23. 46 3 REVENUES Sales Revenue Services Other Revenue Interest Government grants Management Fee Other EMPIRED LIMITED | 2008 Annual Report CONSOLIDATED PARENT 2008 $ 2007 $ 2008 $ 2007 $ 18,924,137 7,080,596 18,924,137 7,080,596 18,924,137 7,080,596 18,924,137 7,080,596 35,261 13,330 340,000 - 388,591 2,295 - - 6,855 9,150 35,261 13,330 340,000 - 388,591 2,295 - - 6,855 9,150 19,312,728 7,089,746 19,312,728 7,089,746 4 EXPENSES Proﬁ t before income tax includes the following speciﬁ c expenses: Operating Lease Rentals Minimum lease payments Other Expenses Insurance Travel Administration Other 5 INCOME TAX (a) Income tax expense The major components of income tax expense are: Income Statement Current income tax Current income tax charge Deferred income tax Relating to origination and reversal of temporary differences Income tax expense / (beneﬁ t) reported in income statement (b) Amounts charged or credited directly to equity Expenses relating to initial public offering Income tax expense reported in equity CONSOLIDATED PARENT 2008 $ 259,249 259,249 60,816 130,912 567,898 479,377 2007 $ 43,952 43,952 23,329 90,816 220,133 58,502 2008 $ 259,249 259,249 60,816 130,912 567,898 479,377 2007 $ 43,952 43,952 23,329 90,816 220,133 58,502 1,239,003 392,780 1,239,003 392,780 1,498,252 436,732 1,498,252 436,732 144,708 (467,917) (323,209) (120,117) (120,117) - - - - - 144,708 (467,917) (323,209) (120,117) (120,117) - - - - - 47 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2008 5 INCOME TAX (cont’d) Prima facie tax on operating proﬁ t calculated at 30% Add tax effect of: Non-deductible expenses Amortisation of trademark Entertainment Development expenditure Timing differences not bought to account Addition to prior year losses Adjustments for prior year losses now brought to account Income tax expense / (beneﬁ t) CONSOLIDATED PARENT 2008 $ 2007 $ 2008 $ 2007 $ 291,554 (663,074) 291,554 (663,074) 291,554 (663,074) 291,554 (663,074) 17,754 - 5,731 - - - (638,248) (323,209) 2,099 356 3,848 (29,234) 513,186 172,819 17,754 - 5,731 - - - - - (638,248) (323,209) 2,099 356 3,848 (29,234) 513,186 172,819 - - Deferred tax assets and liabilities as a result of temporary differences Consolidated Deferred Tax Liabilities Invoices in Dispute Work In Progress Prepayments Balance Sheet 2008 659 81,896 6,340 2007 659 47,704 4,977 Net Deferred Tax Liabilities (88,895) (53,340) Deferred Tax Assets Accrued Superannuation Provision For Annual Leave Provision for Long Service Leave Borrowing Costs Tax Losses Equity Raising Costs (direct to equity) DTA balance not recognised Deferred Tax Assets Net Deferred Tax Assets 48 80,172 117,304 6,667 5,393 347,276 120,117 - 676,929 588,034 35,415 57,540 - 6,494 260,876 - (306,985) 53,340 - EMPIRED LIMITED | 2008 Annual Report 5 INCOME TAX (cont’d) Tax consolidation Effective 1 July 2002, for the purposes of income taxation, Empired Limited and its 100% subsidiaries formed a tax consolidated group. The head entity of the consolidated group is Empired Limited. The head entity is responsible for tax liabilities of the group. Intra group transactions are ignored for tax purposes and there is a single return lodged on behalf of the group. Empired Limited formally notiﬁ ed the Australian Taxation Ofﬁ ce of its adoption of the tax consolidation regime upon lodgement of its 30 June 2003 consolidated tax return. There was a tax funding agreement formalised at 30 June 2003. Under this tax funding agreement Empired Limited is responsible for the tax liabilities of the group. No tax amounts have been recognised as part of the consolidated group. 49 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2008 6 DISCONTINUED OPERATIONS The Board of Directors decided to dispose of the BigRedSky talent management software business. A sale agreement was entered into on the 1st of July 2007. The disposal of BigRedSky to BigRedSky Limited and the subsequent return of capital to shareholders in the form of shares in BigRedSky Limited were executed on the 23rd of July 2007. At 30 June 2007 the assets and liabilities associated with the business were classiﬁ ed as assets and liabilities held for sale. The results of the Discontinued operations are presented below: Revenue Amortisation Impairment Other expenses Loss Before Tax from discontinued operations Income tax (expense) / beneﬁ t relating to discontinued operations Loss for the year from discontinued operations 2008 $ - - - - - - - The major classes of assets and liabilities of BigRedSky as at the date of demerger are as follows: Assets Cash Intangibles Property, plant and equipment Inventories Prepayments Trade and other receivables Assets classiﬁ ed as held for sale Liabilities Trade creditors Other payables Interest bearing liabilities Provisions Other Liabilities Directly associated with assets classiﬁ ed as held for sale Net Assets attributable to discontinued operations 50 2007 $ 913,227 (505,122) (1,168,446) (1,850,060) (2,610,401) - (2,610,401) 2007 $ 400,000 834,846 89,174 5,200 16,425 250,681 1,596,326 (51,031) (134,285) (74,133) (64,511) (650,875) (974,835) 621,491 EMPIRED LIMITED | 2008 Annual Report 6 DISCONTINUED OPERATIONS (cont’d) The net cash ﬂ ows of BigRedSky were as follows: Operating activities Investing activities Financing activities Net cash inﬂ ow / (outﬂ ow) 2008 2007 $ - - - - $ 357,931 - 42,756 400,687 The consideration receivable at the date of demerger is as follows: Present Value of deferred sales proceeds Total disposal consideration Less net assets disposed of Loss in disposal before income tax Income tax expense Loss on disposal after income tax The Proceeds on the sale were equal to the book value of the related net assets. As such no impairment expense was recognised on the reclassiﬁ cation of these operations as held for sale. Earnings per share (cents per share) Basic from discontinued operations Diluted from discontinued operations 2007 $ 621,491 621,491 621,491 - - - 2007 -7.2 -7.2 51 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2008 7 EARNINGS PER SHARE Basic earnings per share amounts are calculated by dividing net proﬁ t for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing net proﬁ t attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. The following represents the income and share data used in the basic and diluted earnings per share computations: CONSOLIDATED 2008 $ 2007 $ Net proﬁ t attributable to ordinary equity holders of the parent from continuing operations 1,295,055 400,155 Proﬁ t / (loss) attributable to ordinary equity holders of the parent from discontinued operations - (2,610,401) Net proﬁ t attributable to ordinary equity holders of the parent 1,295,055 (2,210,246) 2008 2007 Thousands Thousands Weighted average number of ordinary shares for basic earnings per share 43,294 36,210 Effect of dilution: Share options Weighted average number of ordinary shares adjusted for the effect of dilution 8,326 4,561 51,620 40,771 52 EMPIRED LIMITED | 2008 Annual Report 8 CASH AND CASH EQUIVALENTS (i) Reconciliation of Cash For the purposes of the cash ﬂ ow statement, cash includes cash on hand and cash in banks. Cash at the end of the year as shown in the cash ﬂ ow statement is reconciled to the related items in the balance sheet as follows: Cash assets Bank accounts Term deposit CONSOLIDATED PARENT 2008 $ 2007 $ 2008 $ 2007 $ 500 250 500 250 42,397 383,258 42,397 383,258 106,220 149,117 - 106,220 - 383,508 149,117 383,508 Overdraft in continuing operations Bank accounts in discontinuing operations - - - (16,492) 400,000 383,508 - - - (16,492) 400,000 383,508 (ii) Financing facilities available Invoice Discounting Facility 1,548,725 453,900 1,548,725 453,900 The Invoice Discounting Facility has a total limit of $2,500,000 (2007: $850,000) 53 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2008 8 CASH AND CASH EQUIVALENTS (cont’d) (iii) Reconciliation of net cash ﬂ ows from operating activities to operating proﬁ t (loss) after income tax Operating proﬁ t\(loss) after income tax 1,295,055 (2,210,246) 1,295,055 (2,210,246) CONSOLIDATED PARENT 2008 $ 2007 $ 2008 $ 2007 $ Depreciation Amortisation Write down\(up) of investment in subsidiary Impairment of deferred expenditure 149,932 118,229 145,049 505,122 - - 4,883 - - - 1,168,446 - 1,168,446 116,253 505,122 1,976 Option Plan Expense 61,647 33,554 61,647 33,554 Changes in assets and liabilities net of effects of purchases and disposals of controlled entities: (Increase)/decrease in net trade debtors (6,422,003) (508,860) (6,422,003) (508,860) (Increase)/decrease in other receivables (213,858) 336,226 (213,858) 336,226 (Increase)/decrease in other assets (490,138) (224,859) (490,138) (224,859) (Increase)/decrease in prepayments (59,959) (22,116) (59,959) (22,116) (Increase)/decrease in unbilled income (113,974) (156,825) (113,974) (156,825) (increase)/decrease in deferred R & D - 441,205 - 441,205 Increase/(decrease) in trade creditors 2,256,763 62,256 2,256,763 Increase/(decrease) in audit fees (13,000) (3,500) (13,000) Increase/(decrease) in other creditors 1,966,574 86,199 1,966,574 Increase/(decrease) in unexpired interest 19,218 8,516 19,218 62,256 (3,500) 86,199 8,516 Increase/(decrease) in accrued liabilities 379,782 143,342 379,782 143,342 Increase/(decrease) in unearned income 399 90,318 399 90,318 Increase/(decrease) in income tax 144,708 (36,338) 144,708 (36,338) Increase/(decrease) in provision for employee entitlements 285,946 35,730 285,946 35,730 Net cash used in operating activities (752,908) (133,601) (752,908) (133,601) (iv) Non-cash investing and ﬁ nancing activities Acquisition of plant and equipment by 338,395 172,160 338,395 172,160 means of ﬁ nance lease 54 EMPIRED LIMITED | 2008 Annual Report 9 TRADE AND OTHER RECEIVABLES (CURRENT) CONSOLIDATED PARENT 2008 $ 2007 $ 2008 $ 2007 $ Trade receivables 7,617,860 1,195,857 7,617,860 1,195,857 Term deposit receivable Unbilled income 7,617,860 1,195,857 7,617,860 1,195,857 3,500 - 3,500 - 272,987 159,013 272,987 159,013 Hire purchase funds receivable 210,358 - 210,358 Withholding tax receivable 167 167 167 - 167 8,104,872 1,355,037 8,104,872 1,355,037 Trade receivables are non-interest bearing and are generally on 30-day terms. (For further details on credit risk refer to Note 19). 10 OTHER ASSETS Current Prepayments 153,323 93,364 153,323 93,364 Total current other assets 153,323 93,364 153,323 93,364 55 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2008 11 PROPERTY, PLANT AND EQUIPMENT CONSOLIDATED PARENT 2008 $ 2007 $ 2008 $ 2007 $ Plant and Equipment Plant and equipment at cost Leased plant and equipment at cost 812,733 442,099 550,436 707,006 444,663 177,962 442,099 177,962 Accumulated depreciation (553,222) (403,290) (463,328) (318,236) Net carrying amount of plant and equipment 701,610 325,108 685,777 304,389 Assets are held as security for hire purchase contracts. Plant and Equipment Movements during the year: Opening balance 1 July 2007 Additions Disposals Assets included in discontinued operations held for sale (note 6) Depreciation expense relating to assets included in discontinued operations held for sale (note 6) 325,108 526,434 256,680 304,389 233,984 275,831 526,434 275,831 - - - - (89,174) (41,380) - - - - (89,174) (41,380) Depreciation expense (149,932) (76,849) (145,047) (74,872) Closing balance 30 June 2008 701,610 325,108 685,777 304,389 56 EMPIRED LIMITED | 2008 Annual Report 12 INTANGIBLE ASSETS & GOODWILL Year ended 30 June 2008 CONSOLIDATED Development costs1 $ Patents and licenses $ Goodwill2 $ Total $ PARENT Total $ At 1 July 2007 Cost (gross carrying amount) 4,244,832 13,389 1,866,958 6,125,179 4,258,221 Accumulated amortisation and impairment (3,411,142) (12,235) Intangible assets included in discontinued operations held for sale (note 6) (833,690) (1,154) - - (3,423,377) (3,423,377) (834,844) (834,844) - - - - - - - - - - 1,866,958 1,866,958 1,866,958 1,866,958 - - 1,960,206 1,960,206 1,906,206 - - - 3,827,164 3,827,164 1,906,206 At 30 June 2008 Cost (gross carrying amount) Additions Accumulated amortisation and impairment 1 Internally generated 2 Purchased as part of business combinations 57 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2008 12 INTANGIBLE ASSETS & GOODWILL (cont’d) Year ended 30 June 2007 CONSOLIDATED Development costs1 $ Patents and licenses $ Goodwill2 $ Total $ PARENT Total $ At 1 July 2006 Net of accumulated amortisation 2,116,276 2,342 1,866,958 3,985,576 2,118,618 Additions Impairment Amortisation At 30 June 2006, 389,795 (1,168,447) - - (503,934) (1,188) Intangible assets included in discontinued operations held for sale (note 6) (833,690) (1,154) - - - - 389,795 389,795 (1,168,447) (1,168,447) (505,122) (505,122) (834,844) (834,844) Net of accumulated amortisation - - 1,866,958 1,866,958 - At 1 July 2006 Cost (gross carrying amount) 3,855,037 13,389 1,866,958 5,735,384 3,037,427 Accumulated amortisation and impairment (1,738,761) (11,047) - (1,749,808) (1,209,896) Net carrying amount 2,116,276 2,342 1,866,958 3,985,576 1,827,531 At 30 June 2007 Cost (gross carrying amount) 4,244,832 13,389 1,866,958 6,125,179 4,258,221 Accumulated amortisation and impairment (3,411,142) (12,235) Intangible assets included in discontinued operations held for sale (note 6) (833,690) (1,154) - - (3,423,377) (3,423,377) (834,844) (834,844) - - 1,866,958 1,866,958 - 1 Internally generated 2 Purchased as part of business combinations 58 EMPIRED LIMITED | 2008 Annual Report 12 INTANGIBLE ASSETS & GOODWILL (cont’d) Development costs have been capitalised at cost. This intangible asset has been assessed as having a ﬁ nite life and is amortised using the straight line method over a period of 6 years. If an impairment indication arises, the recoverable amount is estimated and an impairment loss is recognised to the extent that the recoverable amount is lower than the carrying amount. The patent acquired has been granted for a minimum of ﬁ fty years by the relevant government agency with the option of renewal at the end of this period based on whether the entity meets certain predetermined targets. In view of the small cost to acquire this asset, it was decided to amortise over six years. Prior to the classiﬁ cation of BigRedSky as a discontinued operation, the recoverable amount was determined as value in use using a discounted rate of 12.75%. The impairment loss of $1,168,446 represents the write down of that intangible asset based on a discounted cash ﬂ ow valuation and testing for obsolescence in the cash-generating unit. The impairment loss has been recognised in the income statement in the line item ‘Loss for the year from discontinued operations’. Goodwill has been tested for impairment this is detailed at note 23. No impairment loss was charged for continuing operations in the 2008 ﬁ nancial year (note 23). 59 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2008 13 EMPLOYEE BENEFITS (a) Empired employee share option plan (ESOP2) The Group has an employee share options plan (ESOP2) for the granting of non-transferable options to employees and senior executives to assist in motivating and retaining employees. Options issued under ESOP2 will vest on the sooner of one of the following conditions being satisﬁ ed: (i) on the second anniversary, one third of the grant of options; (ii) on the third anniversary, two thirds of the grant of options; (iii) on the fourth anniversary, all of the grant of options; or (iv) a takeover offer or bid in respect of Empired shares is made in accordance with the Corporations Act and the Board recommends that shareholders accept the offer. Other relevant terms and conditions applicable to options granted under ESOP2 include: any vested options that are unexercised on the ﬁ fth anniversary of their grant date will expire; and upon exercise, options will be settled in ordinary shares of Empired Limited on the basis of one share for each option exercised. No options were granted to employees during the ﬁ nancial year. The following table illustrates the number (No.) and weighted average exercise prices (WAEP) of share options issued under ESOP2. 2008 No. 2008 WAEP 2007 No. 2007 WAEP Outstanding at the beginning of the year Granted during the year Forfeited during the year Exercised during the year Expired during the year 676,476 - - - - $0.35 - - - - 277,550 414,389 (15,463) - - Outstanding at the end of the year 676,476 $0.35 676,476 $0.35 $0.35 $0.35 - - $0.35 Exercisable at the end of the year - - - - The outstanding balance as at 30 June 2008 is represented by: • 277,550 options over ordinary shares with an average exercise price of $0.35 each, exercisable upon meeting the above conditions and until 31 July 2010; • 398,926 options over ordinary shares with an average exercise price of $0.35 each, exercisable upon meeting the above conditions and until 22 February 2012 The weighted average contractual life for the share options outstanding as at 30 June 2008 is 3 years (2007: 4 years). Share options issued under ESOP2 and outstanding at the end of the year have the following exercise prices: Expiry Date 31-Jul-2010 31-Jul-2010 31-Jul-2010 22-Feb-2012 22-Feb-2012 22-Feb-2012 Total 60 Exercise price 2008 No. 2007 No. $0.30 $0.35 $0.40 $0.30 $0.35 $0.40 94,364 91,593 91,593 132,981 132,977 132,968 94,364 91,593 91,593 132,981 132,977 132,968 676,476 676,476 EMPIRED LIMITED | 2008 Annual Report 13 EMPLOYEE BENEFITS (cont’d) (b) Empired executive share option plan (ESOP1) The Group has an executive share option plan (ESOP1) for the granting of non-transferable options to certain directors and senior executives to assist in motivating and retaining executives. Options issued under ESOP1 will vest on the sooner of one of the following conditions being satisﬁ ed: on the second anniversary of the grant of the options; (i) a takeover offer or bid in respect of Empired shares is made in accordance with the Corporations Act and the Board recommends that shareholders accept the offer. (ii) Other relevant terms and conditions applicable to options granted under ESOP1 include: (a) any vested options that are unexercised on the ﬁ fth anniversary of their grant date will expire; (b) upon exercise, options will be settled in ordinary shares of Empired Limited; and (c) options are issued to executives subject to successful ASX listing which has occurred post balance date. On 23 July 2007, 3,600,000 options were granted with a fair value as follows: Options 3,600,000 3,600,000 Fair value per option Exercise price per option $0.008 $0.40 The options were granted over ordinary shares and are exercisable upon meeting the vesting conditions outlined above and until their expiry on 23 July 2010. The fair value of the options are estimated at the date of grant using a binomial model. The following table gives the assumptions made in determining the fair value of the options granted in the year to 30 June 2008. Dividend yield (%) Expected volatility (%) Risk-free interest rate (%) Expected life of option (years) Option exercise price ($) Share price at grant date ($) (Net Asset Backing) 23 July 2008 (3,600,000) - 40% 6.08% 3 years $0.40 $0.15 The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reﬂ ects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. No other features of options granted were incorporated into the measurement of fair value. 61 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2008 13 EMPLOYEE BENEFITS (cont’d) (b) Empired executive share option plan (cont’d) During the year ended 30 June 2008, 11,666 options were exercised over ordinary shares. The following table illustrates the number (No.) and weighted average exercise prices (WAEP) of share options issued under the ESOP1. 2008 No. 2008 WAEP 2007 No. 2007 WAEP Outstanding at the beginning of the year 3,885,000 $0.25 2,035,000 $0.25 Granted during the year Forfeited during the year Exercised during the year Expired during the year 3,600,000 $0.40 1,850,000 $0.25 - (11,666) (123,334) - - - Outstanding at the end of the year 7,350,000 $0.32 3,885,000 $0.25 Exercisable at the end of the year - $ - 235,000 $0.25 As at 30 June 2008 there were 7,350,000 options over ordinary shares with an average exercise price of $0.32 each, exercisable upon meeting the conditions outlined above and until their expiry dates as set out in the table below. The weighted average contractual life for the share options outstanding as at 30 June 2008 is 2.39 years (2007:3.58 years). Share options issued under ESOP1 and outstanding at the end of the year have the following average exercise prices: Expiry Date 26 November 2007 23 November 2009 28 November 2010 23 March 2011 28 July 2011 17 November 2010 17 November 2011 23 July 2010 Exercise price 2008 No. 2007 No. $0.25 $0.25 $0.25 $0.25 $0.25 $0.25 $0.25 $0.40 - 135,000 100,000 100,000 700,000 700,000 1,100,000 1,100,000 600,000 600,000 750,000 750,000 500,000 500,000 3,600,000 - Total 7,350,000 3,885,000 62 EMPIRED LIMITED | 2008 Annual Report 13 EMPLOYEE BENEFITS (cont’d) Empired purchaser share option plan On the 1 November 2007 Empired Limited issued 300,000 share options to acquire the assets and liabilities of the Quadrant Group. The estimated fair value of each share based payment option at grant date is $0.056 The fair value of the options are estimated at the date of grant using a binomial model. The following table gives the assumptions made in determining the fair value of the options granted in the year to 30 June 2008. Dividend yield (%) Expected volatility (%) Risk-free interest rate (%) Expected life of option (years) Option exercise price ($) Share price at grant date ($) (Net Asset Backing) 14 TRADE AND OTHER PAYABLES (CURRENT) 1 November 2007 (300,000) - 40% 6.30% 3 years $0.40 $0.28 Trade payables Superannuation payable GST payable PAYG payable Accrued liabilities Credit cards payable Other CONSOLIDATED PARENT 2008 $ 2007 $ 2008 $ 2007 $ 2,547,060 290,297 2,547,060 290,297 267,237 90,349 267,237 90,349 645,853 98,955 645,853 98,955 1,076,817 91,965 1,076,817 91,965 606,476 239,694 606,476 239,694 25,948 32,787 25,948 32,787 4,075 - 4,075 - 5,173,466 844,047 5,173,466 844,047 Included in the above are aggregate amounts payable to the following related parties: Owing to directors and director related entities 26,292 24,709 26,292 24,709 Trade payables are non-interest bearing and are normally settled on 30-day terms. For terms and conditions relating to related parties refer to note 24. The net of GST payable and GST receivable and Superannuation payable and is remitted to the appropriate body on a quarterly basis. PAYG payable is remitted to the appropriate body on a monthly basis. 63 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2008 15 FINANCIAL LIABILITIES CONSOLIDATED PARENT Effective interest rate % 2008 2007 2008 2007 $ $ $ $ Current Obligations under ﬁ nance leases and hire purchase contracts (note 22) 164,981 46,423 164,981 46,423 Obligations under premium funding contracts 56,948 23,774 56,948 23,774 Invoice Discounting Facility Deferred consideration Non-current Obligations under ﬁ nance leases and hire purchase contracts (note 22) 951,274 396,100 951,275 396,100 260,700 - 260,700 - 1,433,903 466,297 1,433,903 466,297 254,795 67,478 254,795 67,478 Loan from Subsidiary - - 351,651 351,651 254,795 67,478 606,446 419,129 Deferred Consideration Payment is required 12 months after completion of the acquisition of Quadrant (Note 21). Hire Purchase Contracts Hire purchase contract maturity ranges from June 2008 to June 2011. CONSOLIDATED PARENT 2008 $ 2007 $ 2008 $ 2007 $ Finance facilities available At reporting date, the following ﬁ nancing facilities had been negotiated and were available: Total facilities: - Invoice discounting facility 2,500,000 850,000 2,500,000 850,000 Facilities used at reporting date - Invoice discounting facility Facilities unused at reporting date (951,275) (396,100) (951,275) (396,100) - Invoice discounting facility 1,548,725 453,900 1,548,725 453,900 Invoice discounting facility The invoice discounting facility is secured by the debtors ledger and a ﬂ oating charge over assets of the Group. The ﬁ nancial covenants on the facility are an EBITDA to be maintained at $1,400,000 or greater, net worth of $2,500,000 or greater and assessed at each quarter on a rolling previous twelve month period basis. At 30 June 2008, the EBITDA covenant was not met however, Bankwest has subsequently waived this breach and will review this at the next quarterly period. 64 16 PROVISIONS Current Employee beneﬁ ts Non-current Employee beneﬁ ts 17 UNEARNED REVENUE Current Unearned Revenue EMPIRED LIMITED | 2008 Annual Report CONSOLIDATED PARENT 2008 $ 2007 $ 2008 $ 2007 $ 391,014 127,290 391,014 127,290 391,014 127,290 391,014 127,290 22,221 22,221 - - 22,221 22,221 - - CONSOLIDATED PARENT 2008 $ 2007 $ 2008 $ 2007 $ 202,917 202,517 202,917 202,517 202,917 202,517 202,917 202,517 65 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2008 18 ISSUED CAPITAL AND RESERVES CONSOLIDATED PARENT 2008 $ 2007 $ 2008 $ Ordinary Shares Issued and fully paid 2,597,828 5,936,265 2,597,828 Issued and fully paid 2,597,828 5,936,265 2,597,828 2007 $ 5,936,265 5,936,265 No. Price ($) Value ($) No. Price ($) Value ($) Movement in ordinary shares on the issue At 1 July 2006 34,210,648 5,659,623 34,210,648 5,659,623 Capital raising 2,000,000 0.15 300,000 2,000,000 0.15 Issue costs (23,358) 300,000 (23,358) At 30 June 2007 36,210,648 5,936,265 36,210,648 5,936,265 Return of capital in discontinued operations - (5,788,331) - Capital raising 10,000,000 0.30 3,000,000 10,000,000 0.30 Issue costs - (374,285) - Conversion of options 11,666 0.20 2,333 11,666 0.20 (5,788,331) 3,000,000 (374,285) 2,333 At 30 June 2008 46,222,314 2,775,982 46,222,314 2,775,982 Ordinary shares entitle the holder to participate in dividends, and carry one vote per share. Capital Management Adequacy The Group’s objectives when managing capital is to safeguard the ability to continue as a going concern and to maintain a conservative capital structure to allow management to focus on the core business results, including returns to shareholders. The company has two share option schemes under which options to subscribe for the company’s shares have been granted to certain executives and employees (refer note 13). In addition a total 300,000 options were granted in relation to the acquisition of Quadrant Group. The employee equity beneﬁ ts reserve is used to record the value of equity beneﬁ ts provided to employees and directors as part of their remuneration. 66 EMPIRED LIMITED | 2008 Annual Report 19 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group’s principal ﬁ nancial instruments comprise bank loans and hire purchase contracts, cash and short-term deposits. The main purpose of these ﬁ nancial instruments is to raise ﬁ nance for the Group’s operations. The Group has various other ﬁ nancial instruments such as trade debtors and trade creditors, which arise directly from its operations. It is, and has been throughout the period under review, the Group’s policy that no trading in ﬁ nancial instruments shall be undertaken. The main risks arising from the Group’s ﬁ nancial instruments are interest rate risk, liquidity risk, and credit risk. The board reviews and agrees policies for managing each of these risks and they are summarised below. Market risk • Interest rate risk Exposure to market interest rates is limited to the Company’s cash balances. Cash balances are disclosed at note 8. Cash at bank accounts attract a variable interest rate of 5.95% (2007: 5.85%) based on the cash balance at year end. Cash on deposit attracts a variable interest rate of 5.00% at the end of the year. The Invoice Discounting Facility attracts a variable business market reference rate of 11.08% (2007: 9.99%). At 30 June 2008, if this rate had changed by +/- 1% from the year end rates, this would have changed to $9,512 (2007: $3,961) lower/higher. At 30 June 2008, if interest rates had changed by +/- 1% from the year end rates above, after tax proﬁ ts would have been $5,619 (2007: $90) lower/higher. The Company constantly monitors its interest rate exposure. • Foreign currency risk The Group’s exposure to foreign currency risk is minimal. • Commodity price risk The Group’s exposure to price risk is minimal. Credit risk The Group trades only with recognised, creditworthy third parties. It is the Group policy that all customers who wish to trade on credit terms are subject to credit veriﬁ cation procedures. Customers that fail to meet the Group’s creditworthiness may transact with the group only on a prepayment basis. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not signiﬁ cant. For transactions that are not denominated in the measurement currency of the relevant operating unit, the Group does not offer credit terms without the speciﬁ c approval of the Head of Credit Control. 67 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2008 19 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (cont’d) With respect to credit risk arising from the other ﬁ nancial assets of the Group, which comprise cash and cash equivalents, available-for-sale ﬁ nancial assets and certain derivative instruments, the Group’s exposure to credit risk arises from default of the counter party, with a maximum exposure equal to the carrying amount of these instruments. • Exposure to credit risk The Group’s maximum exposure to credit risk at the report date was: Loans and receivables (note 9) 7,617,860 1,195,857 2008 $ 2007 $ The aging of the Group’s trade receivables at reporting date was: 7,617,860 1,195,857 Not past due Past due 0-30 days Past due 31-60 days Past due 60 days 2008 $ 4,713,666 1,625,075 390,545 888,574 2007 $ 988,985 56,697 91,785 58,390 7,617,860 1,195,857 The group expects to be able to recover all outstanding debts. Liquidity risk The Group’s objective is to maintain a balance between continuity of funding and ﬂ exibility through the use of bank overdrafts, invoice discounting facilities and hire purchase contracts. The Group manages liquidity risk by forecasting and monitoring cash ﬂ ows on a continuing basis. 68 EMPIRED LIMITED | 2008 Annual Report 20 FINANCIAL INSTRUMENTS The fair value of ﬁ nancial assets and liabilities must be estimated for measurement and disclosure purposes. The tables below reﬂ ect the undiscounted contractual settlement terms for ﬁ nancial instruments of a ﬁ xed period of maturity, as well as management’s expectations of the settlement period for all other ﬁ nancial instruments. As such, the amounts may not reconcile to the balance sheet. Interest Rate Risk Exposure to interest rate risks on ﬁ nancial assets and liabilities are summarised as follows: 2008 Floating interest rate Fixed Interest Rate 1 year or less 2008 $ 2008 $ Fixed Interest Rate Over 1 to 5 years 2008 $ Non- interest bearing Carrying amount as per balance sheet 2008 $ 2008 $ Weighted average effective interest rate 2008 - - - - - - - - - - - - 3,500 1.250% 106,220 42,397 6.74% 5.95% 7,617,860 7,617,860 210,358 210,358 273,154 273,154 8,101,372 8,253,489 - - - - - 951,272 11.08% 2,547,060 2,547,060 164,981 254,795 - 419,776 56,947 - 260,700 317,647 1,173,200 254,795 2,807,760 4,235,755 i) Financial Assets Term deposit Term deposit Cash Receivables – trade Receivables – hire purchase Receivables – other - - 3,500 106,220 42,397 - - - - - - - Total ﬁ nancial assets 42,397 109,720 ii) Financial liabilities Invoice discounting facility Accounts payables Hire purchase Short term loans Total ﬁ nancial liabilities - - - - - 951,272 - iii) The aging of the Group’s trade payables at reporting date was: Not past due Past due 0-30 days Past due 31-60 days Past due 60 days 2008 $ 2,245,235 275,651 26,140 33 2,547,059 - 9.42% 6.93% - 69 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2008 20 FINANCIAL INSTRUMENTS (cont’d) 2007 Floating interest rate Fixed Interest Rate 1 year or less 2007 $ 2007 $ Fixed Interest Rate Over 1 to 5 years 2007 $ Non- interest bearing Carrying amount as per balance sheet 2007 $ 2007 $ Weighted average effective interest rate 2007 i) Financial Assets Receivables – trade Receivables – other Total ﬁ nancial assets ii) Financial liabilities Invoice discounting facility Accounts payables Hire purchase Short term loans Total ﬁ nancial liabilities - - - - - - - - - - - 396,100 - - - - - - 1,195,857 1,195,857 159,180 159,180 1,355,037 1,355,037 - - - 16,492 412,592 9.99% 290,297 290,297 46,423 67,478 23,744 - - - 113,901 23,744 466,267 67,478 306,789 840,534 - 9.03% 7.83% - iii) The aging of the Group’s trade payables at 30 June 2007: Not past due Past due 0-30 days Past due 31-60 days Past due 60 days 2007 $ 188,840 54,142 42,159 5,156 290,297 70 EMPIRED LIMITED | 2008 Annual Report 21 BUSINESS COMBINATIONS During the Financial Year Empired acquired two businesses, Quadrant Group and Commander Australia Limited’s WA ICT business. (a) Quadrant Group On 1 November 2007 Empired Limited acquired all of the assets and liabilities in Quadrant Group business, a Western Australian IT consulting services provider, for cash consideration of $1,719,838 plus 300,000 options at a fair value of $0.056 per option. In the eight months to 30 June 2008 the business contributed revenue of $2,602,283 and net proﬁ t of $503,619 to the Group. Details of net assets acquired and goodwill are as follows: Purchase consideration Cash paid Option costs relating to acquisition Direct costs relating to acquisition Total purchase consideration Fair value of net identiﬁ able assets acquired (refer below) Goodwill $ 1,719,838 16,800 12,486 1,749,124 4,016 1,753,140 The goodwill is attributable to Quadrant Group business’s strong position and proﬁ tability in providing IT consulting services and synergies expected to arise after the company’s acquisition. Numerous uncompleted contracts were acquired, however after review of their ﬁ nancial effect it was considered that customer related intangibles were not material and have not been separately recognised. The assets and liabilities arising from the acquisition are as follows: Property, plant and equipment Work in Progress Deferred tax asset Unearned revenue Annual leave Net identiﬁ able assets acquired Total Cash Outlaid Outﬂ ow of Cash for acquisition Payment of deferred consideration Outﬂ ow/ (inﬂ ow) of cash Acquiree’s carrying amount $ 22,684 2,094 8,538 (8,872) (28,460) (4,016) Fair value $ 22,684 2,094 8,538 (8,872) (28,460) (4,016) $ 1,124,025 347,600 1,471,625 71 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2008 21 BUSINESS COMBINATIONS (cont’d) (b) Commander Australia Limited – WA ICT Business Empired Limited acquired Commander Australia Limited’s WA ICT business on the 13th February 2008. Consideration of $30,000 was paid for plant & equipment, goodwill, and obligations in relation to fulﬁ lling customer contracts. To disclose the proﬁ t and loss results of Commander Australia WA ICT since the date of acquisition would not be feasible as the business was fully integrated into the Group on purchase. Details of the acquisition is as follows: Purchase consideration Cash paid Direct costs relating to acquisition Total purchase consideration Fair value of net identiﬁ able assets acquired (refer below) Goodwill $ 30,000 54,137 84,137 122,929 207,066 The goodwill is attributable to Commander Australia Limited’s WA ICT Business’ strong position and proﬁ tability in providing IT consulting services and synergies expected to arise after the company’s acquisition. Numerous uncompleted contracts were acquired, however after review of their ﬁ nancial effect it was considered that customer related intangibles were not material and have not been separately recognised. The assets and liabilities arising from the acquisition are as follows: Acquiree’s carrying amount $ Fair value $ Property, plant and equipment 80,000 80,000 Customer contract obligations (Unearned Income) Net identiﬁ able assets acquired Total Cash Outlaid Outﬂ ow of Cash for acquisition Outﬂ ow/ (Inﬂ ow) of cash (202,929) (122,929) (202,929) (122,929) $ 84,137 84,137 72 EMPIRED LIMITED | 2008 Annual Report 21 BUSINESS COMBINATIONS (cont’d) (c) Summary of total cash outlaid for acquisitions CONSOLIDATED PARENT 2008 $ 2007 $ 2008 $ 2007 $ Total cash outﬂ ow/(inﬂ ow) Quadrant Group 21(a) Commander Australia Limited WA ICT Business 21(b) 1,471,625 84,137 Outﬂ ow/(Inﬂ ow) of cash 8 1,555,762 - - - 1,471,625 84,137 1,555,762 - - - 22 COMMITMENTS AND CONTINGENCIES No contingent assets or liabilities as at 30 June 2008. Commitments for Expenditure A. Hire Purchase The consolidated entity has various computer equipment on hire purchase arrangements. The lease is for a period of 35 months. Not later than one year Later than one year but not later than ﬁ ve years Less: unexpired charges B. Hire Purchase Current (refer note 15) Non Current (refer note 15) CONSOLIDATED PARENT 2008 $ 2007 $ 2008 $ 2007 $ 200,933 279,719 (60,875) 54,872 73,022 (13,994) 200,933 279,719 (60,875) 54,872 73,022 (13,994) 419,777 113,900 419,777 113,900 164,981 254,796 46,422 67,478 164,981 254,796 46,422 67,478 Total Hire Purchase 419,777 113,900 419,777 113,900 Loan Repayments The consolidated entity has borrowed the necessary funds from CGU to ﬁ nance insurance. The terms of the loans are for 10 months each. Not later than one year Later than one year but not later than ﬁ ve years Less: unexpired charges Loan Repayments Current (refer note 15) Non Current (refer note 15) 60,893 - (3,946) 56,947 25,632 - (1,858) 23,774 60,893 - (3,946) 56,947 25,632 - (1,858) 23,774 56,947 - 23,774 - 56,947 - 23,774 - Total Loan Repayments 56,947 23,774 56,947 23,774 73 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2008 22 COMMITMENTS AND CONTINGENCIES (cont’d) Operating Leases Ofﬁ ce premises are leased under non-cancellable operating leases for periods as follows: LOCATION STATE TERMS 469 Murray Street PERTH 1 year to 30 June 2009 with an option to extend for 1 year Lvl 13 256 Adelaide Terrace PERTH Expire on 30 September 2010 470 Collins Street MELBOURNE 6 months to 15 January 2009 with an option to extend for 6 months 121 King William Street ADELAIDE 6 months to 28 February 2009 with an option to extend for 6 months Their commitment can be seen below: Minimum lease payments under non-cancellable operating leases according to the time expected to elapse to the expected date of payment: Not later than one year Later than one year but not later than ﬁ ve years 483,072 511,845 119,521 - 483,072 511,845 119,521 - 994,917 119,521 994,917 119,521 Bank Guarantee in relation to rental premises at 256 Adelaide Terrace: Maximum amount the bank may call 106,220 - 106,220 - 74 EMPIRED LIMITED | 2008 Annual Report 23 IMPAIRMENT TESTING OF GOODWILL Goodwill acquired through business combinations (refer Note 12 and 21) has been allocated to the individual cash generating units for impairment testing. The recoverable amount of each of the cash generating units has been determined based on a value in use calculation. To calculate this, cash ﬂ ow projections are based on ﬁ nancial budgets approved by senior management covering a ﬁ ve-year period. The discount rate applied to cash ﬂ ow projections is 11.08% (2007: 12.75%) using a 4.20% growth rate (2007: 12.7%) that is the same as the average growth rate for the IT Infrastructure Services market sector. Carrying amount of goodwill CONSOLIDATED IT Infrastructure Services Segment Total PARENT Total 2008 $ 2007 $ 2008 $ 2007 $ 2008 $ 2007 $ Carrying amount of goodwill 3,827,164 1,886,958 3,827,164 1,886,958 1,960,206 1,960,206 Key assumptions used in value in use calculation for 30 June 2008 and 30 June 2007 The following describes each key assumption on which management has based its cash ﬂ ow projections to undertake impairment testing of goodwill. Budgeted gross margins – the basis used to determine the value assigned to the budgeted gross margins is the average gross margins achieved in the year immediately before the budgeted year increased for expected efﬁ ciency improvements. Bond rates - the yield on a ﬁ ve-year government bond rate at the beginning of the budgeted year is utilised and the value assigned to the key assumption is consistent with external information sources. Values assigned to key assumptions reﬂ ect past experience, except for efﬁ ciency improvements which have been estimated at 3% per annum. Resources price inﬂ ation – the basis used to determine the value assigned to the resources price inﬂ ation is the forecast price indices during the budget year for Australia. Key assumptions are consistent with external information sources. 24 RELATED PARTY DISCLOSURE Other Financial Assets % Equity Interest Investment ($) Country of Incorporation 2008 % 2007 % 2008 $ 2007 $ Tusk Technologies Pty Ltd BigRedSky Limited Australia Australia 100 - 100 100 367,485 - 372,367 2 The balance of the Tusk Technologies Pty Ltd loan as at 30 June 2008 is $351,651. This loan is unsecured does not bear interest and is not repayable in the next 12 months. The investment in Tusk Technologies Pty Ltd is measured at fair value at the 30th of June 2008. The revaluation downwards is recorded in the income statement. Other than this related party loan there are no other related party transactions requiring disclosure. 367,485 372,369 75 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2008 25 EVENTS AFTER THE BALANCE SHEET DATE There has not arisen in the interval between the end of the ﬁ nancial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect signiﬁ cantly the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity, in future ﬁ nancial years other than as set out below: After the balance sheet date the following dividends were proposed by the directors. The dividends have not been provided and there are no income tax consequences. Declared and paid during the year 2008 Total amount Final ordinary dividend for the year ended 30 June 2008 of 0.5 cents per fully paid share to be paid 8th October 2008 $231,112 26 AUDITORS’ REMUNERATION CONSOLIDATED PARENT 2008 $ 2007 $ 2008 $ 2007 $ Amounts received or due and receivable by auditors or the parent entity: • an audit or review of the ﬁ nancial report of the entity and any other entity in the consolidated entity • other services in relation to the entity and any other entity in the consolidated entity tax compliance special audits required by regulators Amounts received or due and receivable by other auditors for: 19,175 32,340 19,175 32,340 - - 19,175 22,293 7,470 62,103 - - 19,175 22,293 7,470 62,103 • other non-audit services 20,210 4,000 20,210 4,000 • an audit or review the ﬁ nancial report of subsidiary entities 37,595 76,980 - 66,103 37,595 76,980 - 66,103 76 EMPIRED LIMITED | 2008 Annual Report 27 KEY MANAGEMENT PERSONNEL Directors The following persons were directors of Empired Limited during the ﬁ nancial year: M Ashton D Taylor R Bevan R Baskerville (b) Other key management personnel The following persons also had authority and responsibility for planning, directing and controlling the activities of the Group during the ﬁ nancial year: M Waller C Ferrier Chief Financial Ofﬁ cer and Company Secretary Company Secretary (resigned 20 December 2008) (c) Remuneration of Key Management Personnel Information regarding key management personnel compensation is provided in the remuneration section of the directors’ report on pages 15 to 16. 77 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2008 27 KEY MANAGEMENT PERSONNEL (cont’d) (d) Option holdings of directors and executives The movement during the reporting period in the number of options over ordinary shares in Empired Limited held, directly, indirectly or beneﬁ cially, by each of the key management person, including their related parties, is as follows: Balance at beg of period 01- Jul-07 Granted as Remuneration Options Exercised Net Change Other # Balance at end of period 30- Jun-08 Not Vested & Not Exercisable Vested & Exercisable 30 June 2008 Directors R. Baskerville 1,450,000 1,100,000 M. Ashton 250,000 600,000 D. Taylor R. Bevan Executives M. Waller C. Ferrier 250,000 350,000 - - 414,038 400,000 - - - - - - - - - - 2,550,000 2,550,000 850,000 850,000 600,000 600,000 - - 814,038 814,038 35,000 350,000 (11,666) (23,334) 350,000 350,000 Total 2,399,038 2,800,000 (11,666) (23,334) 5,164,038 5,164,038 - - - - - - - Balance at beg of period 01- Jul-06 Granted as Remuneration Options Exercised Net Change Other # Balance at end of period 30- Jun-07 Not Vested & Not Exercisable Vested & Exercisable 30 June 2007 Directors R. Baskerville 700,000 750,000 M. Ashton D. Taylor Executives M. Waller C. Ferrier - - 250,000 250,000 350,000 64,038 35,000 - Total 1,085,000 1,314,038 - - - - - - - - - - - - 1,450,000 1,450,000 250,000 250,000 250,000 250,000 414,038 414,038 - - - - - - 35,000 2,364,038 2,364,038 35,000 78 EMPIRED LIMITED | 2008 Annual Report 27 KEY MANAGEMENT PERSONNEL (cont’d) (e) Shareholdings of Directors and Executives Shares held in Empired Limited 30 June 2008 Balance 01-Jul-07 Remuneration Options Net Change Other Balance 30-June-08 Granted as On Exercise of Ord Pref Ord Pref Ord Pref Ord Pref Ord Pref Directors Mr. R Baskerville 4,889,269 Mr. M Ashton Mr. D Taylor Mr. R Bevan - - - Total 4,889,269 - - - - - - - - - - - - - - - - - - - - - - - - - 1,003,509 150,000 - - 1,153,509 - - - - - 5,892,778 150,000 - - 6,042,778 - - - - - 30 June 2007 Balance 01-Jul-06 Granted as Remuneration On Exercise of Options Net Change Other Balance 30-June-07 Ord Pref Ord Pref Ord Pref Ord Pref Ord Pref Directors Mr. R Baskerville 4,220,841 Mr. M Ashton Mr. D Taylor - - Total 4,220,841 - - - - - - - - - - - - - - - - - - - - 668,428 - - 668,428 - - - - 4,889,269 - - 4,889,269 - - - - All equity transactions with directors and other than those arising from the exercise of remuneration options have been entered into under terms and conditions no more favourable than those the entity would have adopted if dealing at arm’s length. 30 June 2008 Balance 01-Jul-07 Pref Ord Remuneration Pref Ord Options Net Change Other Balance 30-June-08 Ord Pref Ord Pref Ord Pref Granted as On Exercise of Speciﬁ ed Executives M. Waller C. Ferrier Total 1,483,811 - 1,483,811 - - - - - - - - - - 11,666 11,666 - - - 134,813 - 134,813 - - - 1,618,624 11,666 1,630,290 - - - 79 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2008 27 KEY MANAGEMENT PERSONNEL (cont’d) (e) Shareholdings of Directors and Executives (cont’d) 30 June 2007 Balance 01-Jul-06 Remuneration Options Net Change Other Balance 30-June-07 Granted as On Exercise of Ord Pref Ord Pref Ord Pref Ord Pref Ord Pref Executives M. Waller 810,001 C. Ferrier - Total 810,001 28 DIVIDENDS - - - - - - - - - - - - - - - 673,810 - 673,810 - - - 1,483,811 - 1,483,811 - - - No dividends have been paid during the year (2007 nil). A dividend of 0.5c per ordinary share has been declared by the Board. Record date will be the 15th of September and payment date the 8th of October. CONSOLIDATED 2008 ($) 2007 ($) (a) Dividends Proposed Proposed ﬁ nal fully franked ordinary dividend of 0.5 cents per ordinary share at the tax rate of 30% 231,112 - (b) Franking Credit Balance Balance of franking account at year end at 30% available to the shareholders of Empired Limited for subsequent ﬁ nancial years 209,213 155,429 29 SEGMENT INFORMATION (a) Primary segment – Business The consolidated entity’s operations are predominantly in consulting services in the information technology industry. (b) Secondary segment – Geographical The consolidated entity operates predominantly within Australia 80 EMPIRED LIMITED | 2008 Annual Report DIRECTOR’S DECLARATION In accordance with a resolution of the directors of Empired Limited, I state that: In the opinion of the directors: a) the ﬁ nancial statements and notes of the company and of the consolidated entity are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the company’s and consolidated entity’s ﬁ nancial position as at 30 June 2008 and of their performance for the year ended on that date; and (i) complying with Accounting Standards and 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. This declaration is made after receiving the declarations required to be made by the directors in accordance with section 295A of the Corporations Act 2001 for the ﬁ nancial year ended 30 June 2008. On behalf of the Board Russell Baskerville Managing Director 30th of September 2008 8181 82 EMPIRED LIMITED | 2008 Annual Report 83 84 EMPIRED LIMITED | 2008 Annual Report 85 SHAREHOLDING ANALYIS In accordance with Listing Rule 4.10 of the Australia Stock Exchange Limited, the Directors provide the following shareholding information which was applicable as at 30th June 2008. a. Distribution of Shareholding SIZE OF SHAREHOLDING NUMBER OF SHAREHOLDERS 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10001 - 100,000 100,001 - MAX Total 3 16 52 213 74 358 % 0.01 0.11 0.88 17.19 81.81 100.00 b. Substantial Shareholders The following are registered by the Company as substantial shareholders, having declared a relevant interest in the number of voting shares shown adjacent as at the date of giving the notice. SHAREHOLDER Mr Russell Baskerville Mr Gregory Leach c. Twenty Largest Shareholders The names of the twenty largest shareholders are: NAME Mr Russell Baskerville Mr Gregory Leach Uniplex Constructions Pty Ltd Mr John Alexander Bardwell Mr David Cawthorn Ms Kym Garreffa Mr Fraser Campbell Thames Holdings Pty Ltd Mr Mark Patton Mr Gregory Bandy Topsﬁ eld Pty Ltd Mr Mark Waller Mr Kevin Flynn Mr Anthony James Farrell GRD Limited Trovex Pty Ltd UBS Wealth Management Mr Mark Waller Locope Pty Ltd Cornela Pty Ltd Total NUMBER 5,481,531 3,504,225 NUMBER OF SHARES HELD 5,481,531 3,504,225 2,333,414 2,002,500 2,000,000 1,306,167 1,200,000 971,458 965,475 800,000 779,490 666,667 650,000 603,019 600,000 600,000 563,000 547,144 528,667 500,000 % 11.9 7.6 % 11.86 7.58 5.05 4.33 4.33 2.83 2.60 2.10 2.09 1.73 1.69 1.44 1.41 1.30 1.30 1.30 1.22 1.18 1.14 1.08 26,602,757 57.56 The twenty members holding the largest number of shares together held a total of 57.56% of issued capital. 86 EMPIRED LIMITED | 2008 Annual Report SHAREHOLDING ANALYIS d. Issued Capital The fully paid issued capital of the company consisted of 46,222,314 shares held by 358 shareholders. Each share entitles the holder to one vote. e. On-Market Buy-Back There is no current on-market buy-back. f. Company Secretary The Company Secretaries are Mr Mark Waller and Mr Jeremy King. g. Registered Ofﬁ ce The registered ofﬁ ce of Empired Ltd is 469 Murray Street, Perth WA 6000 h. Other Ofﬁ ces The other ofﬁ ces are: HEAD OFFICE 469 Murray Street Perth WA 6000 Telephone + 61 8 9321 9401 Level 13, Septimus Roe Square 256 Adelaide Terrace Perth WA 6000 Telephone + 61 8 9223 1234 Melbourne Level 3 470 Collins Street Melbourne VIC 300 Telephone +61 3 8610 0700 Adelaide Level 5 City Central Tower 2 121 King William Street Adelaide SA 5000 Telephone +61 8 8423 4426 87 OTHER INFORMATION FOR SHAREHOLDERS In accordance with Listing Rule 4.10 of the Australian Stock Exchange Limited, the Directors provide the following information not elsewhere disclosed in this report. SHAREHOLDER COMMUNICATIONS The Board of Directors aims to ensure that shareholders are informed of all major developments affecting the Company’s state of affairs. Information is communicated to shareholders as follows: - The annual report is distributed to shareholders who elect to receive the document. A copy of the full annual report is available free of charge, upon request, from the Company. The Board ensures that the annual report includes relevant information about the operation of the Company during the year, changes in the state of affairs of the Company and details of future developments, in addition to the other disclosures required by the Corporations Act; - The half-year report contains summarised ﬁ nancial information and a review of the operations of the Company during the period. The half-year ﬁ nancial report is prepared in accordance with the requirements of Accounting Standards and the Corporations Act, and is lodged with the Australian Securities and Investments Commission and the Australian Stock Exchange; and By registering with Computershare’s free Investor Centre service you can enjoy direct access to a range of functions to manage your personal investment details. You can create and manage your own portfolio of investments, check your security holding details, display the current value of your holdings and amend your details online. Changes to your shareholder details, such as a change of name or address, or notiﬁ cation of your tax ﬁ le number or direct credit of dividend advice can be made by printing out the forms you need, ﬁ lling them in and sending the changes back to the Computershare Investor Centre. SHARE REGISTRY ENQUIRIES Shareholders who wish to approach the Company on any matter related to their shareholding should contact the Computershare Investor Centre in Melbourne: The Registrar Computershare Investor Services Pty Ltd Level 2, 45 St Georges Tce Perth WA 6000 Telephone +61 8 9323 2000 Facsimile +61 8 9323 2033 Website www-au.computershare.com/investor ANNUAL GENERAL MEETING - The Company’s internet website at www.empired.com is regularly updated and provides details of recent material announcements by the Company to the stock exchange, annual reports and general information on the Company and its business. The Board encourages full participation of shareholders at the Annual General Meeting to ensure a high level of accountability and identiﬁ cation with the Company’s strategy and goals. Important issues are presented to the shareholders as single resolutions. - As per listing rule 4.10.19, the Company has used cash raised in listing on ASX in a way consistent with its business objectives. - As per listing rule 4.10.8, the Company had 17 shareholders with unmarketable parcels of ordinary shares. INTERNET ACCESS TO INFORMATION The 2008 Annual General Meeting of Empired Limited will be held in the: The Melbourne Hotel 942 Hay Street, Perth WA 6000 at 10:00am on Wednesday, 21 November 2008. Formal notice of the meeting will be circulated to shareholders separate to this report. STOCK EXCHANGE LISTING Empired Limited shares are listed on the Australian Stock Exchange (ASX:EPD). The home exchange is Perth. All shares are recorded on the principal share register of Empired Limited, held by Computershare Investor Services Pty Limited at the following street address: Empired maintains a comprehensive Investor Relations section on its website at www.empired.com/index.php?page=corpgovernance Computershare Investor Services Pty Ltd Level 2, 45 St Georges Tce Perth WA 60 You can also access comprehensive information about security holdings at the Computershare Investor Centre at www-au.computershare.com/investor/ 88 EMPIRED Ltd. ABN 81 090 503 843 www.empired.com ANNUAL REPORT 2008 I E M P R E D L T D A N N U A L R E P O R T 2 0 0 8

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