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Annual Report 2009

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EMPIRED Ltd. ABN 81 090 503 843 ANNUALREPORT 2009 EMPIRED Ltd. ABN 81 090 503 843 CorporAte DiREcTORy pRInCIpal plaCE Of buSInESS perth 469 Murray Street PERTH WA 6000 Telephone No: +618 9321 9401 Fax No: +618 9321 9402 Level 13 Septimus Roe Square 256 Adelaide Terrace PERTH WA 6000 Telephone No: +618 9223 1234 Fax No: +618 9223 1230 melbourne 470 Collins Street MELBOURNE VIC 3000 Telephone No: +613 8610 0700 Fax No: +613 8610 0701 WebSITe www.empired.com DIRECTORS Mel Ashton (Non - Executive Chairman) Richard Bevan (Non - Executive Director) Russell Baskerville (Managing Director & CEO) COmpany SECRETaRy Mark Waller REgISTERED OffICE 469 Murray Street PERTH WA 6000 Telephone No: +618 9321 9401 Fax No: +618 9321 9402 COmpany numbER A.C.N: 090 503 843 COunTRy Of InCORpORaTIOn Australia COmpany DOmICIlE anD lEgal fORm Empired Limited is the parent entity and an Australian Company limited by shares lEgal aDvISERS McKenzie Moncrieff Lawyers Level 5, 37 St Georges Tce Perth WA 6000 auDITORS Grant Thornton (WA) Partnership Level 1, 10 Kings Park Road WEST PERTH WA 6005 ShaRE REgISTER Computershare Investor Services Pty Ltd Level 2, 45 St Georges Tce Perth WA 6000 aSX CODE: EpD CoNteNtS 2 4 6 14 24 28 29 30 31 32 34 77 78 79 81 CORpORaTE DIRECTORy RESulTS ChaIRman & CEO REvIEw DIRECTORS’ REpORT CORpORaTE gOvERanCE STaTEmEnT 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 RESULTS 2008 2009 Growth Revenue ebITDA $ 18,924,137 $ 32,633,570 $ 1,183,148 $ 1,228,186 Dividend Declared 0.5 cents per share 0.75 cents per share 72% 4% 50% REVENUE EBITDA DIVIDENDS 2007 2008 2009 2007 2008 2009 2007 2008 2009 1.00 0.80 0.60 0.40 0.20 0.00 4 EMPIRED LIMITED | 2009 Annual Report HIGHLIGHTS » Contracted annuity revenue up 101% against FY2008 » Positive net operating cash flow of $2.4 Million » Annualised expense reduction of approximately $1.8M per annum » Significant improvement in geographic diversification » Significant improvement in sector diversification » Secured first major State Government Managed Services client » Increased the average value and length of client engagements » Currently bidding on approximately $50 Million in Managed Services contracts ‘ 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 | 2009 Annual Report Dear Shareholder Throughout the previous financial year we have been presented with many challenges, many as a result of the Global Financial Crisis and its effect on trading conditions in Australia. We are pleased to report that Empired has effectively navigated this difficult environment and demonstrated the resilience of its business model. Empired has continued to grow its operating performance. Revenue is up 72% to $32.63 Million, EBITDA increased 4% to $1.23 Million delivering NPAT of $0.53 Million and EPS of 1.2 cents. These results have allowed us to grow our dividend payment with a fully franked 0.25 cents interim dividend and a final dividend of 0.5 cents fully franked delivering a full year dividend of 0.75 cents, a 50% increase on the 2008 financial year. There have been significant achievements in the previous 12 months ensuring Empired is well placed to continue to grow both earnings per share and dividend payments in the coming year. ‘ 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) Navigating an uncertain landscape The global financial crisis has caused a level of uncertainty not seen in many years. Some of the world’s largest and longest standing organisations have not survived, locally in Australia many organisations have seen earnings dip significantly and many more have experienced loss making years. I am pleased to report that during this period Empired’s management took clear and concise action to ensure Empired reduced its risk profile and minimised the possible impact of many of the threats posed by the economic conditions. This action included an expense reduction program, a focus on reducing debtor days, conservative cash management, reduced capital expenditure and reducing the risk of our variable costs through maximising the use of contractors in delivering peaks and troughs in demand. The results of these actions speak for themselves with annualised expenses reduced by $1.8 Million per annum, a reduction in debtor days and net cash holdings across the financial year increasing by $1.2 Million. 8 EMPIRED LIMITED | 2009 Annual Report ‘ We have adopted a focussed and disciplined approach. ‘ A clear focus During times of uncertainty decisive action is required. However these short term adjustments to meet drastically changing market dynamics can overshadow strategic initiatives and a focus on continuing to deliver on the overarching vision. Throughout this period we have adopted a focused and disciplined approach to ensure that we continue to deliver on Empired’s stated objectives. Through optimising the use of staff down time and selective investment in internal projects that demonstrate sound short and mid-term return, Empired has continued to advance its operational and strategic positioning. Empired’s most valuable asset is its people and great improvements have been made in the management of Human Resources. A new employee management program has been introduced that allows employees to work with their manager and Empired’s HR department to map career path direction within Empired. These career path plans ensure that employees are clear on their growth prospects within Empired, salary expectations and that appropriate training and development plans are in place to ensure employee career goals are aligned to Empired’s core objectives. Initiatives such as this and others like it are designed to make our employees lives easier at Empired whilst maximising the efficiency and effectiveness of Empired’s largest investment. Ongoing investment and advancement in human resources ensures that Empired retains its workforce and continues to attract the best talent in our industry. We have implemented a range of systems and processes both in our Consulting Practices and our Managed Services business. Operational improvements include the implementation of the Computer Associates operational management suite of tools and products, enhancements to our Change Management processes and improvements to our ITIL framework. A new time management system across the entire business will ensure we better capture and effectively manage employee time, resulting in improved utilisation, increased realisation and improved billing accuracy and efficiency. This system is also critical in providing detailed management reporting, project reporting and project costing information. Improvements to our project delivery framework and financial project controls have also resulted in reduced cost over runs and more efficient fixed price project delivery. Tactically these initiatives will improve the quality of our services and organisational efficiency. Strategically they enhance our competitive advantage and enable Empired to successfully win and deliver larger contracts with larger clients. 9 CHaIRman & CEO REviEw (cont’d) Delivering Results that count Since listing on ASX in October 2007 we have maintained a clear and consistent plan to grow Empired’s IT services business. We have outlined key areas of growth through larger and longer contracts, growing contracted recurring revenue, increased regional diversification and greater industry spread. During the 2009 financial year Empired has secured a number of multi-million dollar contracts, more than in any previous year measured by total order value and volume of contracts secured. Of note was the $11.6 Million contract secured with Main Roads in Western Australia which following signing has been successfully transitioned into full production support. Increases to the scope of work over the previous six months has seen the contracted recurring revenue value grow significantly plus a strong pipeline of project services to be delivered throughout the 2010 financial year. Empired has demonstrated that it can not only win large government and corporate contracts but can successfully deliver against these contracts, grow the ongoing value of these engagements and secure significant upside through providing project services to these clients. Importantly our clients see great value in these services and are highly supportive of Empired and its vision. Empired is currently contesting in excess of $50 Million in multi-million dollar recurring revenue managed services contracts. We are well placed and expect another record year. The successful year we have had in building our long term contracted revenue base has translated directly into the largest increase in recurring revenue ever experienced by Empired. Contracted recurring revenue has grown by 101% during the financial year. CONTRACTED REVENUE As at July 1, 2009 As at July 1, 2010 10 EMPIRED LIMITED | 2008 Annual Report ‘ Empired has secured a number of multi-million dollar contracts, more than in any previous year. ‘ 25% 1% 74% VIC Other WA We are pleased with the strong growth in recurring and long term contracted revenue particularly against the stark economic backdrop. This substantial increase further strengthens Empired’s position to continue growing all key measures of its business in 2009 and provides improved revenue and earnings certainty in an uncertain time. Victoria remains a key growth region for Empired. During the financial year Empired increased staff numbers, increased its client base and further enhanced its services breadth in Victoria. This has resulted in over 25% of Empired’s total revenue being generated from Victorian Clients up from 18% the previous year. 4% 7% 23% 10% 11% 15% 30% Finance Utilities ICT Oil & Gas Other Resources Goverment 11 CHaIRman & CEO REviEw (cont’d) This significantly diversifies Empired’s previous geographic concentration in Western Australia and provides a strong platform to further grow the region. To accelerate growth in Victoria, Empired has recently appointed a Business Development Executive devoted to the region where Empired is actively negotiating a number of multi- million dollar contracts. Historically Empired’s revenue has been weighted toward the resources sector. Over the previous seven years this sector has experienced rapid growth however in more recent times this sector has suffered from the impacts of the global financial crisis with demand for commodities reducing and the liquidity of debt and equity markets tightening. During this difficult period Empired has retained and grown its revenue from the resources sector and remains bullish on its prospects of benefiting further on the recovery of the sector mid to long term. Whilst this is positive, Empired management have been keenly aware of the risks associated with too larger exposure to any specific sector and have actively introduced a program to diversify revenue over the last two years. This program has successfully resulted in Empired now boasting a well diversified revenue base by sector with no single sector representing greater than 30% of annual revenue. Importantly during this period Empired has grown its government presence from virtually zero three years ago to 23% of revenue in the 2009 financial year. State and Federal government represent the largest percentage of Australian ICT spend per annum. Empired is now well placed to leverage its Government references and industry experience to further grow its exposure to this lucrative sector. 12 EMPIRED LIMITED | 2009 Annual Report ‘ The australian IT sector is a dynamic and growing market place. ‘ The year ahead The broader Australian economic environment is demonstrating genuine signs of recovery, interest rates have reduced and seem to have stabilised, and GDP has accelerated in the quarter ending June 30 2009 when compared with the prior quarter. In addition to this many of the index’s tracking the performance of the ASX have made considerable gains over the previous 5 months, general economic confidence has improved and client investment sentiment continues to grow. More acutely, the Australian IT sector has weathered the down turn well and maintained modest growth rates over the previous year. We are again seeing demand for our services continuing to grow with clients now preparing to invest in projects that were placed on hold over the previous two years, increase the scale of their operations and again use technology to reduce risk, enhance productivity and efficiency and as a medium to drive new business opportunities. Empired is poised to benefit from these improving market conditions. Throughout the downturn we retained the scale of our billable workforce, continued to invest in our core capabilities, improved our operational systems and grew the quality of our client base. In the first quarter of the 2010 financial year we have seen this translate into improved earnings, with increasing work levels driving utilisation of our staff up and demand for our core capabilities consistently improving. Whilst early in the financial year, we have seen investments made in our managed services business already drive further improvements in contracted recurring revenue levels. We expect to continue to see contracted recurring revenue grow as a result of growth in our already strong client base, healthy sales opportunities, a focused engagement model and demand for IT managed services continuing to increase. Our robust business model remains targeted at long term contracted recurring revenue geared toward core business systems and infrastructure that customers are required to operate and develop for the long term. This model allows Empired to develop long term relationships with its core customers, improving our understanding of their business and in turn allowing Empired to deliver greater value to our customers. This all adds up to improved earnings, an exciting environment and a bright year ahead! We would like to take this opportunity to sincerely thank our staff and partners for their outstanding contribution to Empired’s growth and success in FY2009 against a difficult and challenging environment. Further we extend our appreciation and thanks to all our shareholders who have patiently supported Empired during a volatile and uncertain market. We look forward to delivering strong results and continuing to drive Empired forward throughout the year ahead. We would like to make a special thank you to our former director Mr David Taylor who unfortunately resigned due to his relocation from Perth. David’s service to Empired over the last 4 years has been greatly appreciated and we wish him well for his future endeavours. Russell Baskerville Managing Director & Chief Executive Officer Mel Ashton Chairman 13 dIRECTOR’S REPORT The directors present their report together with the financial report of Empired Limited (“the Company”) and the consolidated financial report of the consolidated entity, being the Company and its controlled entities, for the year ended 30 June 2009. 14 EMPIRED LIMITED | 2009 Annual Report ‘ Empired’s greatest asset is its people. ‘ The names of the Company’s directors in office during the year and until the date of this report are as below. Directors were in office for this entire period unless stated. DIRECTORS name age Experience and special responsibilities Mel Ashton Chairman 51 Mel is a Fellow of the Australian Institute of Company Directors and a Fellow of the Institute of Chartered Accountants in Australia and has over 25 years corporate experience in a wide range of industries. David Taylor Non - executive Director (resigned 31 July 2009) Mel’s other directorships include: National Boardmember of the Institute of Chartered Accountants in Australia. Chairman of Venture Minerals Limited Chairman of Gryphon Minerals Ltd Boardmember of the Hawaiian Group of Companies Boardmember of Cullen Wines (Australia) Pty Ltd 67 David has extensive commercial experience with banking and marketing background. Since retiring as Head of the Bankwest Business Bank in 1999, David has progressed a career in corporate governance with appointments to the boards of listed and unlisted public companies and government business enterprises. He is immediate past Chairman of both Perth Market Authority and Forest Products Commission and is a non-executive director of Agrifood Skills Australia. David is a Fellow of the Australian Institute of Company Directors. Russell Baskerville Managing Director & CEO 31 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 43 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 Officer 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 strategic operational management, implementing organic growth strategies, business integration and raising capital in both public and private markets. 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 aMember of the Australian Institute of Company Directors. COmpany SECRETaRIES name age Experience and special responsibilities Mark Waller CFO & Company Secretary 30 Mark has responsibility for ensuring the necessary operational and financial processes and infrastructure are in place to support the strategic direction and continued growth of Empired. Mark holds a degree in business from Curtin University majoring in Accounting and Business Law and is a Certified Practicing Accountant. Mark brings experience from running his own business in London to working for Ernst & Young. Mark is also a Non-executive Director of BigRedSky Limited. Jeremy King (LLB) Company Secretary 35 (resigned December 2008) 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.  Jeremy is a corporate lawyer with over 9 years experience in domestic and international legal, financial 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, financial institutions and corporate issuers in respect of various debt and equity capital raisings. 16 EMPIRED LIMITED | 2009 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. There were no significant changes in the nature of the activities carried out during the year. SIgnIfICanT ChangES In ThE STaTE Of affaIRS There were no significant 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 financial 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 significantly the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity or in future financial years. EnvIROnmEnTal REgulaTIOn The consolidated entity’s operations are not subject to any significant environmental regulations under either Commonwealth or State Legislation. DIvIDEnDS Dividends paid or declared during the financial year are as follows: (a) Dividends paid during the year Final 2008 fully franked dividend of 0.50cents per share (2007: nil) Interim 2009 fully franked dividend of 0.025 cents per share (2008 :nil) 2009 $ 2008 $ 231,112 115,556 346,668 - - - (b) Dividends declared and not paid After the end of the financial year, the directors declared a fully franked dividend of 0.50 cents per share (2008: 0.50 cents).This dividend is not provided for. 231,112 231,112 OpERaTIng RESulTS fOR ThE yEaR The net profit after tax from continuing operations for the year for the consolidated entity is $532,411 (2008: $$1,295,055). lIkEly DEvElOpmEnTS Except as detailed in the Chairman and Managing Director’s Review on pages 6 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. ShaRE OpTIOnS Share Options Granted to Directors and Officers Share options were granted to Directors under the Executive Share Option Plan. Information relating to this grant is at note 12 to the financial statements. 17 dIRECTOR’S REPORT (cont’d) Unissued Shares At the date of this report, there were 9,703,474 unissued ordinary shares under options. Refer to note 12 of the financial 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 No share options were exercised during the financial year. ShaRE ISSuES DuRIng ThE yEaR No shares were issued during the year. 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 78. nOn-auDIT SERvICES Non-Audit services provided by the entity’s Auditor can be found at note 25. The Directors are satisfied 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 during and since the end of the financial year, in respect of any person who has, is or has been an officer of the company or a related body corporate, paid a premium in respect of Directors and Officers Liability insurance which indemnifies Directors, Officers and the Company of any claims made against the Directors, Officers 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. 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’, dependent 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 efficiencies 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. 18 EMPIRED LIMITED | 2009 Annual Report 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 21st of November 2008 when shareholders approved an aggregated remuneration of $300,000 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 defined in AASB 124 Related Party Disclosures) for the period ending 30 June 2009 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. 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 fixed remuneration and variable remuneration (potential short term and long term incentives) is established for each senior executive by the Board. Table 1 below details the fixed and variable components (%) of the executives of the company. 19 dIRECTOR’S REPORT (cont’d) 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 fixed (primary) remuneration in a variety of forms including cash and fringe benefits 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 fixed 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 specific operating targets set at the beginning of the financial year are met. The operational targets consist of a number of Key Performance Indicators (KPIs) covering both financial and non-financial measures of performance. Typically included are measures such as contribution to net profit 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 financial year. For the 2009 financial year 50% of the STI cash bonus has been paid to executives during the 2010 financial year (2008: 50%). 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 influence 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 below 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 $0.30. For further details of the terms and conditions including the service and performance criteria that must be met refer to note 12. 20 EMPIRED LIMITED | 2009 Annual Report 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 – fixed $75,000 per annum. David Taylor – Non Executive Director Terms of Agreement - appointed 21 December 2005, until terminated by either party. Fee – fixed $50,000 per annum. Richard Bevan – Non Executive Director Terms of Agreement – appointed 31 January 2008, until terminated by either party. Fee – fixed $50,000 per annum. Mark Waller – Company Secretary and Chief Financial Officer Terms of Agreement – commenced 18 April 2005, until terminated by either party. Salary – base $183,500 per annum. Termination – one month’s written notice or one month’s remuneration in lieu. Table 1: Directors and executives remuneration for the year ended 30 June 2009 and 30 June 2008 Short term benefits Post Employment Long term benefits (LTI) % Performance related Total Salary & Fees Cash STI Superan- nuation Equity Options Non-Executive Directors M. Ashton 2009  75,000 Chairman D. Taylor Non-executive Director R. Bevan Non-executive Director 2008 2009 2008 2009 2008 64,118 28,842 5,000 43,201 16,667 - - - - - - - - 21,158 34,750 2,763 - 2,850 4,800 1,900 2,800 - - 77,850 68,918 51,900 42,550 50,714 16,667 - - - - - - 21                 dIRECTOR’S REPORT (cont’d) Table 1: Directors and executives remuneration for the year ended 30 June 2009 and 30 June 2008 (cont’d) Short term benefits Post Employment Long term benefits (LTI) % Performance related Total Salary & Fees Cash STI Superan- nuation Equity Options Executive Directors key management R. Baskerville 2009 240,000 160,000 Chief Executive 2008 238,200 60,000 - - 5,700 305,700 19.60% 8,800 307,000 19.50% M. Waller 2009 183,487 2008 150,008 Chief Financial Officer - - 16,513 13,500 12,350 212,350 3,200 166,708 - - 1 Payable at 30 June 2009, paid September 2009 Table 2: Options granted as part of remuneration Average Value per option at grant date Value of options granted during the year Total value of options granted, exercised and lapsed during year % Remuneration consisting of options for the year Grant date Grant Number M. Ashton 21/11/2008 150,000 0.019 2,850 2,850 3.66% 2009 Non- Executive D. Taylor 21/11/2008 100,000 0.019 1,900 R. Bevan 21/11/2008 250,000 0.019 4,750 Executive R. Baskerville 21/11/2008 300,000 Key Management M. Waller 21/11/2008 01/12/2008 250,000 400,000 0.019 0.019 0.019 5,700 4,750 7,600 1,900 4,750 5,700 4,750 7,600 3.66% 9.37% 1.56% 5.81% 2008 Non- Executive M. Ashton 23/07/2007 150,000 0.008 2,850 4,800 6.96% D. Taylor 23/07/2007 350,000 0.008 Executive R. Baskerville 23/07/2007 1,100,000 Key Management 22 M. Waller 12/01/2008 400,000 0.008 0.019 2,800 8,800 3,200 2,800 8,800 3,200 6.58% 3.56% 1.92%                       EMPIRED LIMITED | 2009 Annual Report 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 2009 12 12 12 12 12 12 12 11 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 financial year: Director Ordinary Shares Russell Baskerville 8,533,240 Mel Ashton David Taylor Richard Bevan Key Management Mark Waller 150,000 60,000 - Options 2,850,000 1,000,000 700,000 250,000 1,755,124 1,064,068 Signed in accordance with a resolution of directors. Russell Baskerville Managing Director 30th of September 2009 23 CORpORaTE GOvERnanCE STaTEmEnT This statement outlines the main corporate governance practices in place throughout the financial 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 Ccompany 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 refined to meet the needs of the Company and appropriate practices. The Ccompany 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 financial 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 three directors who are appointed to ensure that the Company is run in the best interest of the shareholders. Other than Russell Baskerville all directors are independent non-executives. The names, skills, experience and expertise of the directors of the Company in office 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 2009 the chairman of the Board of Directors was Mr Mel Ashton. Mr Ashton meets the independence criteria. 24 EMPIRED LIMITED | 2009 Annual Report Recommendation 2.3 – The roles of chair and chief executive officer 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 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 efficiencies or other benefits would be gained by establishing separate committees. The Board intends to reconsider the requirement for and benefits of separate committees as the Ccompany’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 confidence 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. 25 CORpORaTE GOvERnanCE STaTEmEnT (cont’d) PRINCIPLE 4 – Safeguard integrity of financial 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 efficiencies or benefits would be gained by establishing a separate audit committee. The Board intends to reconsider the requirement for and benefits of separate committees as the Ccompany’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’s 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 significant information on the Company. Procedures are in place to review all information and 26 EMPIRED LIMITED | 2009 Annual Report 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. 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 identified. Recommendation 7.3 – The Board should disclose whether it has received assurance from the Chief Executive Officer (or equivalent) and the Chief Financial Officer (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 financial reporting risks. This recommendation was complied with for 2009 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 efficiencies 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 2009 28 EMPIRED LIMITED | 2009 Annual Report InCOmE STaTEmEnT For the year Ended 30 June 2009 Notes COnSOlIDaTED paREnT 2009 $ 2008 $ 2009 $ 2008 $ Revenue Rendering of services Cost of Sales gross profit Other Income Legal expenses Marketing expenses Occupancy expenses Finance costs Employee benefits Depreciation expenses Other expenses profit before income tax Income tax (expense)/benefit relating to ordinary activities profit / (loss) after tax attributable to members of the Company 3 3 4 5 32,633,570 18,924,137 32,633,570 18,924,137 (24,040,794) (13,674,937) (24,040,794) (13,674,937) 8,592,776 5,249,200 8,592,776 5,249,200 187,421 388,591 187,421 388,591 (34,437) (2,875) (34,437) (2,875) (139,965) (17,598) (139,965) (17,598) (648,238) (305,904) (648,238) (305,904) (164,252) (61,370) (164,252) (61,370) (4,675,866) (2,630,014) (4,675,866) (2,630,014) (254,076) (149,932) (251,818) (145,048) (2,053,504) (1,498,252) (2,055,762) (1,503,136) 809,859 971,846 809,859 971,846 (277,448) 323,209 (277,448) 323,209 532,411 1,295,055 532,411 1,295,055 Earnings per share (cents per share) Notes Basic earnings per share Diluted earnings per share Dividends per share (cents per share) 6 6 27 2009 1.15 0.96 0.75 2008 2.99 2.51 - This Income Statement should be read in conjunction with the accompanying notes. 29     baLanCE SHEET As at 30 June 2009 Notes COnSOlIDaTED paREnT 2009 $ 2008 $ 2009 $ 2008 $ aSSETS Current assets Cash and cash equivalents Trade and other receivables Other current assets Total Current assets non-Current assets Other financial assets Property, plant and equipment Intangible assets Deferred tax asset Total non-Current assets TOTal aSSETS lIabIlITIES Current liabilities Trade and other payables Financial liabilities Income tax payable Provisions Unearned revenue 7(i) 8 9 23 10 11 5 13 14 5 15 16 345,423 6,460,415 145,936 6,951,774 149,117 8,104,872 153,323 8,407,312 345,423 6,460,415 145,936 6,951,774 149,117 8,104,872 153,323 8,407,312 - - 908,414 701,610 365,227 894,839 367,485 685,777 3,948,764 3,827,164 2,081,806 1,960,206 463,239 676,928 463,239 676,928 5,320,417 5,205,702 3,805,111 3,690,396 12,272,191 13,613,014 10,756,885 12,097,708 4,254,843 264,358 81,526 574,293 565,355 5,173,466 1,433,903 144,708 391,014 202,917 4,254,843 264,358 81,526 574,293 565,355 5,173,466 1,433,903 144,708 391,014 202,917 Total Current liabilities 5,740,375 7,346,008 5,740,375 7,346,008 non-Current liabilities Financial liabilities Provisions Deferred tax liability Total non-Current liabilities 14 15 5 178,563 27,318 195,917 401,798 254,795 22,221 88,894 365,910 530,214 27,318 195,917 753,449 606,446 22,221 88,894 717,561 TOTal lIabIlITIES 6,142,173 7,711,918 6,493,824 8,063,569 nET aSSETS EquITy Issued capital 6,130,018 5,901,096 4,263,061 4,034,139 17 2,775,982 2,775,982 2,775,982 2,775,982 Employee equity benefits reserve Retained profits TOTal EquITy 141,618 3,212,418 6,130,018 98,439 3,026,675 5,901,096 141,618 1,345,461 4,263,061 98,439 1,159,718 4,034,139 This Balance Sheet should be read in conjunction with the accompanying notes. 30     EMPIRED LIMITED | 2009 Annual Report CaSH FLOW STaTEmEnT For the year Ended 30 June 2009 Notes CONSOLIDATED PARENT 2009 $ 2008 $ 2009 $ 2008 $ Cash flows from operating activities Receipts from customers 34,902,624 12,502,533 34,902,624 12,502,533 Payments to suppliers and employees (32,449,636) (13,582,662) (32,449,636) (13,582,662) (164,252) (61,370) (164,252) (61,370) (19,918) 104,778 - 388,591 (19,918) 104,778 - 388,591 7(iii) 2,373,596 (752,908) 2,373,596 (752,908) (461,220) (526,434) (461,220) (526,434) 136 - 136 - 20 (350,350) (1,555,762) (350,350) (1,555,762) (811,434) (2,082,196) (811,434) (2,082,196) Borrowing costs Income tax paid Interest received net cash flows (used in) from operating activities Cash flows from investing activities Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Acquisition of businesses acquisitions (net of cash acquired) net cash flows (used in) from investing activities Cash flows from financing activities Proceeds from issue of shares Payment of share issue and capital raising costs Dividends paid - - 3,002,333 (494,401) - - (346,668) - (346,668) 3,002,333 (494,401) - (477,398) (113,033) 683,212 Repayment of borrowings (1,138,589) (477,398) (1,138,589) Repayment of finance lease liabilities (208,427) (113,033) (208,427) Proceeds from borrowings 327,828 683,212 327,828 net cash flows (used in) from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period (1,365,856) 2,600,713 (1,365,856) 2,600,713 196,306 (234,391) 196,306 (234,391) 149,117 383,508 149,117 383,508 7(i) 345,423 149,117 345,423 149,117 This Cash Flow Statement should be read in conjunction with the accompanying notes. 31   STaTEmEnT OF CHanGES In EqUITY For the year Ended 30 June 2009 attributable to equity holders of the parent Total equity Issued capital $ Retained earnings $ Employee Equity benefits Reserve $ $ COnSOlIDaTED at 1 July 2007 Return of capital re: discontinued operation 5,936,265 (3,455,031) 56,602 2,537,836 (5,788,331) 5,186,651 (19,810) (621,490) Share raising costs (374,285) - Profit for the year - 1,295,055 Issue of share capital Exercise of options Expiry of options Cost of share-based payments 3,000,000 2,333 - - - - - - - - - (2,333) (4,400) 68,380 (374,285) 1,295,055 3,000,000 - (4,400) 68,380 at 30 June 2008 2,775,982 3,026,675 98,439 5,901,096 Profit for the year Cost of share-based payments Dividends paid to equity holders - - - 532,411 - 532,411 - 43,179 43,179 (346,668) - (346,668) at 30 June 2009 2,775,982 3,212,418 141,618 6,130,018 This Statement of Changes in Equity should be read in conjunction with accompanying notes. 32     EMPIRED LIMITED | 2009 Annual Report attributable to equity holders of the parent Total equity Issued capital $ Retained Earnings $ Employee Equity benefits Reserve $ $ paREnT at 1 July 2007 Return of capital re: discontinued operation 5,936,265 (5,321,988) 56,602 670,879 (5,788,331) 5,186,651 (19,810) (621,490) Share raising costs (374,285) - Profit for the year - 1,295,055 Issue of share capital Exercise of options Expiry of options Cost of share-based payments 3,000,000 2,333 - - - - - - - - - (2,333) (4,400) (374,285) 1,295,055 3,000,000 - (4,400) 68,380 68,380 at 30 June 2008 2,775,982 1,159,718 98,439 4,034,139 Profit for the year Cost of share-based payments Dividends paid to equity holders - - - 532,411 - 532,411 - 43,179 43,179 (346,668) - (346,668) at 30 June 2009 2,775,982 1,345,461 141,618 4,263,061 This Statement of Changes in Equity should be read in conjunction with accompanying notes. 33     nOTES TO THE FInanCIaL STaTEmEnTS For the year Ended 30 June 2009 1 CORpORaTE InfORmaTIOn The financial report of Empired Ltd for the year ended 30 June 2009 was authorised for issue in accordance with a resolution of the directors on 30 September 2009. Empired Limited is a company limited by shares incorporated in Australia. The financial report includes the consolidated financial statements and notes of Empired Limited and controlled entities (Consolidated) and separate financial statements and notes of Empired Limited as an individual parent entity (Parent). 2 SummaRy Of SIgnIfICanT aCCOunTIng pOlICIES (a) basis of Preparation The financial report is a general purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards, Australian Accounting Interpretations and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report has been prepared on an accruals basis, and is based on historical costs modified where applicable, by measurement at fair value of selected non-current assets, financial assets and financial liabilities. The financial report is presented in Australian dollars. (b) Statement of compliance The financial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standard (‘AIFRS’). The financial report also complies with International Financial Standards (‘IFRS’). 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 2009. These are outlined in the table below. Reference Title Summary Amending standard issued as a consequence of AASB 8 Operating Segments AASB 2007-3 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] Application date of standard* 1 January 2009 Application date for Group* 1 July 2009 Impact on Group financial report AASB 8 is a disclosure standard so will have no direct impact on the amounts included in the Group’s financial statements. However the new standard may have an impact on the segment disclosures included in the Group’s financial report. 34 EMPIRED LIMITED | 2009 Annual Report 2 SummaRy Of SIgnIfICanT aCCOunTIng pOlICIES (cont’d) (b) Statement of compliance (cont’d) Application date of standard* 1 January 2009 Application date for Group* 1 July 2009 Impact on Group financial report As the Group does not currently construct or produce any qualifying assets which are financed 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 2007-6 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 AASB 123 Borrowing Costs 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 123 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 2009 2 SummaRy Of SIgnIfICanT aCCOunTIng pOlICIES (cont’d) (b) Statement of compliance (cont’d) Application date for Group* 1 July 2009 Application date of standard* 1 January 2009 Impact on Group financial report These amendments are not expected to have any impact on the Group’s financial report as the group does not have on issue or expect to issue any puttable financial instruments as defined by the amendments. 1 January 2009 1 January 2009 1 January 2009 Refer to ASSB 101 below 1 July 2009 Refer to ASSB 101 below 1 July 2009 1 July 2009 The Group has share- based payment arrangements that may be affected by these amendments. However, the Group has not yet determined the extent of the impact, if any. Reference Title Summary AASB 2008-2 Amendments to Australian Accounting Standard - Puttable Financial Instruments and Obligations arising on Liquidation AASB 2007-8 AASB 2007-10 AASB 2008-1 Amendments to Australian Accounting Standards arising from AASB 101 Further amendments to Australian Accounting Standards arising from AASB 101 Amendments to Australian Accounting Standard – Share-based Payments: Vesting Conditions and Cancellations [AASB 2] These amendments introduce an exception to the definition of a financial liability to classify as equity instruments certain puttable financial instruments and certain other financial instruments that impose an obligation to deliver a pro-rata share of net assets only upon liquidation Amending standards issued as a consequence of AASB 101. Redefines the composition of financial statements including the inclusion of a statement of comprehensive income. Amendment to AASB2 clarifies that vesting conditions consist of service and performance conditions only. Other elements of a share-based payment transaction should therefore be considered for the purpose of determining fair value. Cancellations are also required to be treated in the same manner whether cancelled by the entity or by another party. 36 EMPIRED LIMITED | 2009 Annual Report 2 SummaRy Of SIgnIfICanT aCCOunTIng pOlICIES (cont’d) (b) Statement of compliance (cont’d) Application date for Group* 1 July 2009 Application date of standard* 1 July 2009 Impact on Group financial report 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. 1 January 2009 No changes are expected to materially affect the Group. 1 January 2009 1 July 2009 No changes are expected to materially affect the Group. 1 July 2009 1 July 2009 No changes are expected to materially affect the Group. 1 July 2009 Reference Title Summary AASB 2008 -3 AASB 2008- 5 AASB 2008- 6 AASB 2008- 8 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 (July 2008) (AASB 2008-5) Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project (July 2008) (AASB 2008-6) Amendments to Australian Accounting Standards - Eligible Hedged Items (AASB 139)] Amending standards arising from revised AASB 3 and amended 127. Details numerous non- urgent but necessary changes to accounting standards arising from the IASB’s annual improvements project. Details numerous non- urgent but necessary changes to accounting standards arising from the IASB’s annual improvements project. This amendment clarifies how the principles that determine whether a hedged risk or portion of cash flows is eligible for designation as a hedged item should be applied in particular situations. 37 nOTES TO THE FInanCIaL STaTEmEnTS For the year Ended 30 June 2009 2 SummaRy Of SIgnIfICanT aCCOunTIng pOlICIES (cont’d) (b) Statement of compliance (cont’d) Application date for Group* 1 July 2009 Application date of standard* 1 January 2009 Impact on Group financial report The Group will consider amendments to business combinations standard with respect to any business combinations the Group undertakes. 1 July 2009 The amendment may have an impact on the disclosures included in the Group’s financial report 1 July 2009 1 January 2009 AASB 101 is a disclosure standard so it will have no direct impact on the amounts included in the Group’s financial report. 1 July 2009 1 January 2009 Management does not believe this will represent a change in policy for the Group. 1 July 2009 Reference Title Summary AASB 3 Business Combinations AASB 127 Consolidated and Separate Financial Statements AASB 101 Presentation of Financial Statements AASB Interpretation 15 Agreements for the Construction of Real Estate This amendment incorporates IFRS 3, and enables reporting entities to continue to be compliant with IFRS’s in relation to the presentation of financial statements This amendment incorporates the amended IAS 127, and enables reporting entities to continue to be compliant with IFRS’s in relation to the presentation of financial statements Redefines the composition of financial statements including the inclusion of a statement of comprehensive income Under the interpretation, agreements for the construction of real estate shall be accounted for in accordance with AASB 111 where the agreement meets the definition of ‘construction contract’, revenue is to be accounted for in accordance with AASB 118. 38 EMPIRED LIMITED | 2009 Annual Report 2 SummaRy Of SIgnIfICanT aCCOunTIng pOlICIES (cont’d) (b) Statement of compliance (cont’d) Application date of standard* 1 October 2008 Impact on Group financial report The interpretation is not expected to impact the Group. Application date for Group* 1 July 2009 1 July 2009 The interpretation is not expected to impact the Group. Reference Title Summary AASB Interpretation 16 Hedges of a Net Investment in a Foreign Operation AASB Interpretation 15 Applies to entities that hedge foreign currency risk arising from net investments in foreign operations and that want to adopt hedge accounting. The interpretation provides clarifying guidance on several issues in accounting for the hedge of a net investment in a foreign operation. This guidance applies prospectively only and clarifies that non-cash dividends payable should be measures at the fair value of the net assets to be distributed where the difference between the fair value and carrying value of the assets is recognised in profit and loss 39 nOTES TO THE FInanCIaL STaTEmEnTS For the year Ended 30 June 2009 2 SummaRy Of SIgnIfICanT aCCOunTIng pOlICIES (cont’d) (c) basis of consolidation The consolidated financial statements comprise the financial statements of Empired Limited and its subsidiaries as at 30 June each year (‘the Group’) (note 23). The financial 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 profits 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 financial statements include the results for the part of the reporting period during which Empired Limited has control. Business Combinations Business combinations occur where control over another business is obtained and results in the consolidation of its assets and liabilities. All business combinations, including those involving entities under common control, are accounted for by applying the purchase method. The purchase method requires an acquirer of the business to be identified and the cost of the acquisition and fair values of identifiable assets, liabilities and contingent liabilities to be determined at acquisition date, being the date that control is obtained. Cost is determined as the aggregate of fair values of assets given, equity issued and liabilities assumed in exchange for control together with costs directly attributable to the business combination. Goodwill is recognised initially at the excess of cost over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If the fair value of the acquirer’s interests is greater than cost, the surplus is immediately recognised in profit or loss. 40 EMPIRED LIMITED | 2009 Annual Report 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 inflows, 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 flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific 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 benefits 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. 41 nOTES TO THE FInanCIaL STaTEmEnTS For the year Ended 30 June 2009 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 identifiable 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 benefit 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 finite 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 profits 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 indefinite 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. 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. 42 EMPIRED LIMITED | 2009 Annual Report 2 SummaRy Of SIgnIfICanT aCCOunTIng pOlICIES (cont’d) (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 inflows 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 flows are discounted to their present value using a pre tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. (i) Financial Instruments All financial assets and financial liabilities 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. Classification depends on the purpose for which the investments were acquired, and is determined at initial recognition. (i) Loans and receivables Loans and receivables are measured at fair value. If a receivable is uncollectible, it is written off against the allowance account for trade receivables. (ii) Other financial assets Non-listed investments for which fair value cannot be reliably measured are carried at cost and tested for impairment. (iii) Financial liabilities Non-derivative financial liabilities are recognised at amortised cost. Impairment At each reporting date the group assesses whether investments have been impaired. Impairment losses are recognised in the income statement. (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 identified. 43 nOTES TO THE FInanCIaL STaTEmEnTS For the year Ended 30 June 2009 2 SummaRy Of SIgnIfICanT aCCOunTIng pOlICIES (cont’d) (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 defined above, net of outstanding bank overdrafts. (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 outflow of resources embodying economic benefits 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 flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. (n) employee leave benefits (i) Wages, salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits, and annual 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 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 benefits 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 outflows. 44 EMPIRED LIMITED | 2009 Annual Report 2 SummaRy Of SIgnIfICanT aCCOunTIng pOlICIES (cont’d) (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 benefits: (i) The Empired Employee Share Option Plan (ESOP2), which provides to all employees excluding directors, and (ii) The Executive Share Option Plan (ESOP1), which provides benefits 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 Black Scholes model further details are given in note 12. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘vesting date’). The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (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 modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any increase in the value of the transaction as a result of the modification, as measured at the date of modification. 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 modification of the original award, as described in the previous paragraph. The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share (see note 6). (p) Leases Finance leases, which transfer to the Group substantially all the risks and benefits 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 finance 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. 45 nOTES TO THE FInanCIaL STaTEmEnTS For the year Ended 30 June 2009 2 SummaRy Of SIgnIfICanT aCCOunTIng pOlICIES (cont’d) (p) Leases (cont’d) 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 benefits of ownership of the asset are classified 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. (q) Revenue Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific 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 financial instrument) to the net carrying amount of the financial asset. (r) 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. (s) Foreign currency transactions Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Exchange differences arising on the translation of monetary items are recognised in the income statement 46 EMPIRED LIMITED | 2009 Annual Report 2 SummaRy Of SIgnIfICanT aCCOunTIng pOlICIES (cont’d) (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 financial 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 profit nor taxable profit 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 profit 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 profit nor taxable profit 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 profit 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 sufficient taxable profit 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. 47 nOTES TO THE FInanCIaL STaTEmEnTS For the year Ended 30 June 2009 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 flows are included in the Cash Flow statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (v) Significant 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 financial 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 significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial 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 indefinite useful lives The group determines whether goodwill and intangibles with indefinite 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 indefinite useful lives are allocated. The assumptions used in this estimation of recoverable amount and carrying amount of goodwill and intangibles with indefinite useful lives are discussed in note 22. ii. Provision for Impairment of Receivables Included in trade receivables at reporting date is an amount receivable from sales made to Commander Integrated Networks Pty Ltd during the financial year amounting to $8,477.55. Commander went into administration in August 2008. While there is inherent uncertainty in relation to the outcome of the administration, the directors understand that the full amount of the debt is unlikely to be recoverable from the administrators, and no provision for impairment has been made. 48 3 REvEnuES Sales Revenue Services Other Revenue Interest Government grants Management Fee Exchange gain Other EMPIRED LIMITED | 2009 Annual Report COnSOlIDaTED 2009 $ 2008 $ paREnT 2009 $ 2008 $ 32,633,570 32,633,570 18,924,137 18,924,137 32,633,570 32,633,570 18,924,137 18,924,137 14,788 - 60,468 82,643 29,522 187,421 35,261 13,330 340,000 - - 388,591 14,788 - 60,468 82,643 29,522 187,421 35,261 13,330 340,000 - - 388,591 32,820,991 19,312,728 32,820,991 19,312,728 4 EXpEnSES Profit before income tax includes the following specific 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: Current income tax payables Deferred income tax relating to origination and reversal of temporary differences COnSOlIDaTED 2009 $ 2008 $ 6,492 6,492 133,341 205,078 862,150 846,443 1,623 1,623 60,816 130,912 567,898 737,003 paREnT 2009 $ 6,492 6,492 133,341 205,078 862,150 848,701 2008 $ 1,623 1,623 60,816 130,912 567,898 741,887 2,047,012 1,496,629 2,049,270 1,501,513 2,053,504 1,498,252 2,055,762 1,503,136 81,526 144,708 81,526 144,708 320,712 (467,917) 320,712 (467,917) Adjustments (124,790) - (124,790) - Income tax expense / (benefit) reported in income statement (b) amounts charged or credited directly to equity Expenses relating to initial public offering Income tax expense reported in equity 277,448 (323,209) 277,448 (323,209) - - (120,117) (120,117) - - (120,117) (120,117) 49 nOTES TO THE FInanCIaL STaTEmEnTS For the year Ended 30 June 2009 5 InCOmE TaX (cont’d) (c) Reconciliation between aggregate tax expense recognised in the income statement and tax expenses calculated per the statutory income tax rate Prima facie tax on operating profit calculated at 30% Add tax effect of: Non-deductible expenses Entertainment Other non-deductible expenses Other Adjustments for prior year losses now brought to account COnSOlIDaTED 2009 $ 2008 $ paREnT 2009 $ 2008 $ 242,958 291,554 242,958 291,554 242,958 291,554 242,958 291,554 26,266 - 14,242 (6,018) 17,754 5,731 - - 26,266 - 14,242 (6,018) 17,754 5,731 - - - (638,248) - (638,248) Aggregate income tax expense (income) 277,448 (323,209) 277,448 (323,209) (d) Recognised deferred tax assets and liabilities Deferred income tax balances at 30 June relate to the following: (i) Deferred Tax Liabilities Prepaid expenses Invoices in dispute Work in progress Gross deferred tax liabilities Set-off deferred tax liabilities Net deferred tax liabilities (ii) Deferred Tax Assets Provisions: Annual leave Long service leave Accrued superannuation Equity raising costs Borrowing costs Tax losses Gross deferred tax assets Set-off deferred tax liabilities Net deferred tax assets 50 COnSOlIDaTED 2009 $ 2008 $ (3,268) (7,764) (184,885) (195,917) (6,340) (659) (81,895) (88,894) 195,917 88,894 - - 172,288 117,304 8,195 83,199 88,631 4,445 106,481 463,239 6,667 80,172 120,117 5,393 347,276 676,928 (195,917) (88,894) 267,322 588,034 EMPIRED LIMITED | 2009 Annual Report 5 InCOmE TaX (cont’d) (e) 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 notified the Australian Taxation Office 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. (f) Income Tax Payable COnSOlIDaTED 2009 $ 2008 $ paREnT 2009 $ 2008 $ Income Tax Payable 81,526 81,526 144,708 144,708 81,526 81,526 144,708 144,708 6 EaRnIngS pER ShaRE Basic earnings per share amounts are calculated by dividing net profit 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 profit 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 $ 2009 $ Net profit attributable to ordinary equity holders of the parent 532,411 1,295,055 2009 Thousands 2008 Thousands Weighted average number of ordinary shares for basic earnings per share 46,222 43,294 Effect of dilution: Share options 9,458 8,326 Weighted average number of ordinary shares adjusted for the effect of dilution 55,680 51,620 51 nOTES TO THE FInanCIaL STaTEmEnTS For the year Ended 30 June 2009 7 CaSh anD CaSh EquIvalEnTS (i) Reconciliation of Cash For the purposes of the cash flow statement, cash includes cash on hand and cash in banks. Cash at the end of the year as shown in the cash flow statement is reconciled to the related items in the balance sheet as follows: Cash at bank and in hand Term deposit COnSOlIDaTED paREnT 2009 $ 239,203 106,220 345,423 2008 $ 2009 $ 2008 $ 42,897 239,203 42,897 106,220 106,220 149,117 345,423 106,220 149,117 (ii) Financing facilities available At reporting date the following facilities were available: Bank overdraft facility 3,000,000 - 3,000,000 - Invoice Discounting Facility - 1,548,725 - 1,548,725 The invoice discounting facility with a limit of $2,500,000 (2008: $2,500,000) was converted to a bank overdraft facility in December 2008. The funds established with this facility are $3,000,000. (iii) Reconciliation of net cash flows from operating activities to operating profit (loss) after income tax COnSOlIDaTED paREnT 2009 $ 2008 $ 2009 $ 2008 $ Operating profit\(loss) after income tax 532,411 1,295,055 532,411 1,295,055 Depreciation 254,076 149,932 251,818 145,049 Write down\(up) of investment in subsidiary - - Option Plan Expense 43,179 61,647 2,258 43,179 4,883 61,647 52 EMPIRED LIMITED | 2009 Annual Report 7 CaSh anD CaSh EquIvalEnTS (cont’d) (iii) Reconciliation of net cash flows from operating activities to operating profit (loss) after income tax (cont’d) COnSOlIDaTED paREnT 2009 $ 2008 $ 2009 $ 2008 $ Changes in assets and liabilities net of effects of purchases and disposals of controlled entities: (Increase)/decrease in net trade debtors (Increase)/decrease in other receivables 1,777,227 (6,422,003) 1,777,227 (6,422,003) 210,525 (213,858) 210,525 (213,858) (Increase)/decrease in other assets 213,689 (490,138) 213,689 (490,138) (Increase)/decrease in prepayments 7,386 (59,959) 7,386 (59,959) (Increase)/decrease in unbilled income Increase/(decrease) in trade creditors (343,295) (113,974) (343,295) (113,974) 16,939 2,256,763 16,939 2,256,763 Increase/(decrease) in audit fees - (13,000) - (13,000) Increase/(decrease) in other creditors Increase/(decrease) in unexpired interest Increase/(decrease) in accrued liabilities Increase/(decrease) in unearned income (1,202,276) 1,966,574 (1,202,276) 1,966,574 2,365 19,218 2,365 19,218 373,737 379,782 373,737 379,782 362,438 399 362,438 399 Increase/(decrease) in income tax (63,181) 144,708 (63,181) 144,708 Increase/(decrease) in provision for employee entitlements net cash used in operating activities (iv) Non-cash investing and financing activities 188,376 285,946 188,376 285,946 2,373,596 (752,908) 2,373,596 (752,908) Acquisition of plant and equipment by means of finance lease 338,395 172,160 338,395 172,160 53 nOTES TO THE FInanCIaL STaTEmEnTS For the year Ended 30 June 2009 8 TRaDE anD OThER RECEIvablES (CuRREnT) Trade receivables 5,840,633 7,617,860 5,840,633 7,617,860 COnSOlIDaTED 2008 2009 $ $ paREnT 2009 $ 2008 $ Term deposit receivable Unbilled income Hire purchase funds receivable Withholding tax receivable 5,840,633 7,617,860 5,840,633 7,617,860 3,500 3,500 3,500 3,500 616,282 272,987 616,282 272,987 - - 210,358 167 - - 210,358 167 6,460,415 8,104,872 6,460,415 8,104,872 Trade receivables are non-interest bearing and are generally on 30-day terms. (For further details on credit risk refer to Note 18). 9 OThER aSSETS Current Prepayments 145,936 153,323 145,936 153,323 Total current other assets 145,936 153,323 145,936 153,323 54 EMPIRED LIMITED | 2009 Annual Report 10 pROpERTy, planT anD EquIpmEnT COnSOlIDaTED paREnT 2009 $ 2008 $ 2009 $ 2008 $ buildings and Improvements At cost 19,752 19,752 19,752 19,752 Accumulated depreciation (13,041) (12,243) (13,041) (12,243) Total Buildings and Improvements 6,711 7,509 6,711 7,509 plant and Equipment Plant and equipment At cost 1,019,228 706,169 913,501 600,442 Accumulated depreciation (664,359) (404,823) (572,207) (314,929) Leased plant and equipment At cost 354,869 301,346 341,294 285,513 544,921 442,099 544,921 442,099 Accumulated depreciation (553,222) (403,290) (463,328) (318,236) Total property, plant & 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 2008 Additions Disposals 701,610 461,559 (659) 325,108 685,777 304,389 526,434 461,559 526,434 - (659) - Depreciation expense (254,076) (149,932) (251,818) (145,048) Closing balance 30 June 2009 908,414 701,610 894,839 685,777 55 nOTES TO THE FInanCIaL STaTEmEnTS For the year Ended 30 June 2009 11 InTangIblE aSSETS COnSOlIDaTED 2008 2009 $ $ paREnT 2009 $ 2008 Goodwill at cost 3,948,764 3,827,164 2,081,806 1,960,206 Accumulated impaired losses - - - - 3,948,764 3,827,164 2,081,806 1,960,206 COnSOlIDaTED 2008 2009 $ $ paREnT 2009 $ 2008 Balance at the beginning of the year 3,827,164 1,866,958 1,960,206 - Additions 121,600 1,960,206 121,600 1,960,206 Accumulated amortisation and impairment - - - - 3,948,764 3,827,164 2,081,806 1,960,206 Goodwill has been tested for impairment as detailed at note 22. No impairment provision was required. 56 EMPIRED LIMITED | 2009 Annual Report 12 EMPLOYEE BENEFITS (a) Empired employee share option plan 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 the ESOP2 will vest on the sooner of one of the following conditions being satisfied: (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 the ESOP2 include: (a) any vested options that are unexercised on the fifth anniversary of their grant date will expire; and (b) upon exercise, options will be settled in ordinary shares of Empired Limited on the basis of one share for each option exercised. On the 1 August 2008, 953,814 options were granted with a fair value as follows: Options Fair value per option Exercise price per option Expiry Date 600,000 176,907 176,907 953,814 $0.040 $0.054 $0.051 $0.30 $0.25 $0.30 1 August 2011 1 August 2012 1 August 2012 The options were granted over ordinary shares and are exercisable upon meeting the vesting conditions outlined above and until their expiry date. The fair value of the options are estimated at the date of grant using the Black Scholes model taking into account the terms and the conditions upon which the options were granted. The following table gives the assumptions made in determining the fair value of the options granted: 1 August 2008 (600,000) options 1 August 2008 (353,814) options Dividend yield (%) Expected volatility (%) Risk-free interest rate (%) Expected life of option (years) Option exercise price ($) Share price at grant date ($) (Net Asset Backing) 4.16% 83% 5.98% 3 years $0.30 $0.12 4.16% 83% 5.98% 4 years $0.25,$0.30 $0.12 57 notes to the financial statements For the Year Ended 30 June 2009 12 EMPLOYEE BENEFITS (cont’d) The following table illustrates the number (No.) and weighted average exercise prices (WAEP) of share options issued under the ESOP2. Outstanding at the beginning of the year Granted during the year Forfeited during the year Exercised during the year Expired during the year Outstanding at the end of the year 2009 No. 676,476 953,814 (63,082) - (163,734) 1,403,474 2009 WAEP $0.35 $0.29 - - - $0.313 2008 No. 676,476 - - - - 676,476 Exercisable at the end of the year 700,773 $0.26 - 2008 WAEP $0.35 - - - - $0.35 - The 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 2009 is 1.89 years (2008: 3 years). Share options issued under the ESOP2 and outstanding at the end of the year have the following exercise prices: Expiry Date 31 July 2010 31 July 2010 31 July 2010 22 February 2012 22 February 2012 22 February 2012 1 August 2011 1 August 2011 1 August 2012 Total Exercise price 2009 No. 2008 No. $0.30 $0.35 $0.40 $0.30 $0.35 $0.40 $0.30 $0.25 $0.30 78,383 76,081 76,081 94,070 94,066 94,061 600,000 145,366 145,366 1,403,474 94,364 91,593 91,593 132,981 132,977 132,968 - - - 676,476 58 EMPIRED LIMITED | 2009 Annual Report 12 EMPLOYEE BENEFITS (cont’d) (b) Empired executive share option plan 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 the ESOP will vest on the sooner of one of the following conditions being satisfied: (i) (iI) a takeover offer or bid in respect of Empired shares is made in accordance with the Corporations Act on the second anniversary of the grant of the options; and the Board recommends that shareholders accept the offer. Other relevant terms and conditions applicable to options granted under the ESOP1 include: (a) any vested options that are unexercised on the fifth 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. During the financial year the below options were granted to executives: Options Fair value per option Exercise price per option Expiry date 1,050,000 1,200,000 2,250,000 $0.019 $0.019 $0.30 $0.30 21 November 2011 12 January 2011 The options were granted over ordinary shares and are exercisable upon meeting the vesting conditions outlined above and until their expiry date. The fair value of the options are estimated at the date of grant using the Black Scholes model. The following table gives the assumptions made in determining the fair value of the options granted in the year to 30 June 2009. 21 November 2008 (1,050,000) options 1 December 2008 (1,200,000 )options Dividend yield (%) Expected volatility (%) Risk-free interest rate (%) Expected life of option (years) Option exercise price ($) Share price at grant date ($) (Net Asset Backing) 7.5% 83% 4.62% 3 years $0.30 $0.066 7.5% 83% 4.26% 3 years $0.30 $0.066 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 reflects 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. 59 notes to the financial statements For the Year Ended 30 June 2009 12 EMPLOYEE BENEFITS (cont’d) (b) Empired executive share option plan (cont’d) The following table illustrates the number (No.) and weighted average exercise prices (WAEP) of share options issued under the ESOP1. Outstanding at the beginning of the year Granted during the year Forfeited during the year Exercised during the year Expired during the year 2009 WAEP $0.32 $0.35 2009 No. 7,350,000 2,250,000 (1,500,000) - (100,000) Outstanding at the end of the year 8,000,000 $0.32 2008 No. 3,885,000 3,600,000 - (11,666) (123,334) 7,350,000 2008 WAEP $0.25 $0.40 $0.32 Exercisable at the end of the year 2,288,345 $ 0.25 - - As at 30 June 2009 there were 8,000,000 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 2009 is 1.39 years (2008: 2.39 years). Share options issued under the ESOP1 and outstanding at the end of the year have the following average exercise prices: Expiry Date 23 November 2009 28 November 2010 23 March 2011 28 July 2011 17 November 2010 17 November 2011 23 July 2010 1 December 2011 21 November 2011 Total Exercise price 2009 No. 2008 No. $0.25 $0.25 $0.25 $0.25 $0.25 $0.25 $0.40 $0.40 $0.30 - 700,000 1,100,000 300,000 750,000 500,000 2,400,000 1,200,000 1,050,000 8,000,000 100,000 700,000 1,100,000 600,000 750,000 500,000 3,600,000 - - 7,350,000  60 EMPIRED LIMITED | 2009 Annual Report 12 EMPLOYEE BENEFITS (cont’d) c) Empired purchaser share option plan Empired Limited issued share options as part of the acquisition of the Quadrant Group. Details of the options granted can be found below. Outstanding at the beginning of the year Granted during the year Forfeited during the year Exercised during the year Expired during the year Outstanding at the end of the year 2009 No. 300,000 100,000 (100,000) - - 300,000 2009 WAEP $0.40 $0.30 $0.366 2008 No. - 300,000 - - - 300,000 Exercisable at the end of the year 300,000 $0.366 300,000 2008 WAEP - $0.40 $0.40 $0.40 The fair value of the options are estimated at the date of grant using a Black Scholes model. The following table gives the assumptions made in determining the fair value of the options granted in the year to 30 June 2009. 1 December 2008 Dividend yield (%) Expected volatility (%) Risk-free interest rate (%) Expected life of option (years) Option exercise price ($) Share price at grant date ($) (Net Asset Backing) 7.5% 83% 4.26% 3 years $0.40 $0.066 61 notes to the financial statements For the Year Ended 30 June 2009 13 TRADE AND OTHER PAYABLES (CURRENT) Trade payables Superannuation payable GST payable PAYG payable Accrued liabilities Credit cards payable Other CONSOLIDATED 2008 2009 $ $ PARENT 2009 $ 2008 $ 2,563,998 2,547,060 2,563,998 2,547,060 277,328 406,773 267,237 645,853 277,328 406,773 267,237 645,853 - 1,076,817 - 1,076,817 980,214 606,476 980,214 606,476 19,859 6,671 25,948 4,075 19,859 6,671 25,948 4,075 4,254,843 5,173,466 4,254,843 5,173,466 Included in the above are aggregate amounts payable to the following related parties: Owing to directors and director related entities 22,447 26,292 22,447 26,292 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 23. 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. 14 FINANCIAL LIABILITIES Effective interest rate % CONSOLIDATED 2008 2009 $ $ PARENT 2009 $ 2008 $ Current Obligations under finance leases and hire purchase contracts (note 19) Obligations under premium funding contracts Invoice discounting facility Deferred consideration Non-current Obligations under finance leases and hire purchase contracts (note 19) Loan from Subsidiary 192,310 164,981 192,310 164,981 72,048 - - 264,358 178,563 - 178,563 56,948 951,274 260,700 1,433,903 254,795 - 254,795 72,048 - - 264,358 178,563 351,651 530,214 56,948 951,274 260,700 1,433,903 254,795 351,651 606,446 Hire Purchase Contracts Hire purchase contract maturity ranges from June 2009 to June 2012. 62 EMPIRED LIMITED | 2009 Annual Report 14 FINANCIAL LIABILITIES (cont’d) CONSOLIDATED 2008 2009 $ $ PARENT 2009 $ 2008 $ Finance facilities available At reporting date, the following financing facilities had been negotiated and were available: Total facilities: - Invoice discounting facility - Bank overdraft facility Facilities used at reporting date - Invoice discounting facility - Bank overdraft facility - 3,000,000 2,500,000 - - 3,000,000 2,500,000 - - - (951,275) - - - (951,275) - Facilities unused at reporting date 3,000,000 1,548,725 3,000,000 1,548,725 The invoice discounting facility was converted to a bank overdraft facility in December 2008. The facility is reviewed on an annual basis with financial covenants of EBITDA and net tangible assets tested quarterly. The Bank of Western Australia holds a fixed floating charge over company assets. Maximum prospective liability set out in the charge is ten million dollars. 15 PROVISIONS Current Employee benefits Non-current Employee benefits 16 UNEARNED REVENUE Current Unearned Revenue CONSOLIDATED 2008 2009 $ $ PARENT 2009 $ 2008 $ 574,293 574,293 391,014 391,014 574,293 574,293 391,014 391,014 27,318 27,318 22,221 22,221 27,318 27,318 22,221 22,221 CONSOLIDATED 2008 2009 $ $ PARENT 2009 $ 2008 $ 565,355 565,355 202,917 202,917 565,355 565,355 202,917 202,917 63 notes to the financial statements For the Year Ended 30 June 2009 17 ISSUED CAPITAL AND RESERVES Ordinary Shares Issued and fully paid Issued and fully paid Movement in ordinary shares on the issue At 1 July 2007 Return of capital in discontinued operations Capital raising Issue costs CONSOLIDATED 2008 2009 $ $ PARENT 2009 $ 2008 $ 2,775,982 2,775,982 2,775,982 2,775,982 2,775,982 2,775,982 2,775,982 2,775,982 No. Price ($) Value ($) No. Price ($) Value ($) 36,210,648 5,936,265 36,210,648 5,936,265 - (5,788,331) - (5,788,331) 10,000,000 0.30 3,000,000 10,000,000 0.30 3,000,000 - (374,285) - (374,285) Conversion of options 11,666 0.20 2,333 11,666 0.20 2,333 At 30 June 2008 46,222,314 2,775,982 46,222,314 2,775,982 At 30 June 2009 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. These shares have no par value. 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. There are no externally imposed capital requirements. Options 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 12). In addition a total 300,000 options were granted in relation to the acquisition of Quadrant Group. The employee equity benefits reserve is used to record the value of equity benefits provided to employees and directors as part of their remuneration. 64         EMPIRED LIMITED | 2009 Annual Report 18 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group’s principal financial instruments comprise bank loans and hire purchase contracts, cash and short- term deposits. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial 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 financial instruments shall be undertaken. The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, foreign currency 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 7. Cash at bank accounts attract a variable interest rate of 2.75% (2008: 5.95%) based on the cash balance at year end. Cash on deposit attracts a variable interest rate of 3.71% (2008: 5.00%) at the end of the year. At 30 June 2009, if interest rates had changed by +/- 1% from the year end rates above, after tax profits would have been $2,412 (2008: $1,040) lower/higher. The Company constantly monitors its interest rate exposure. • Foreign currency risk The Group’s exposure to foreign currency risk is minimal. Trade debtor and trade creditor transactions are entered into in foreign currency and fluctuations in these currencies may have a minor impact on the Company’s financial results. The exchange rates are closely monitored within the Company. • Commodity price risk The Group’s exposure to price risk is minimal. 65 notes to the financial statements For the Year Ended 30 June 2009 18 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (cont’d) 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 verification 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 significant. For transactions that are not denominated in the measurement currency of the relevant operating unit, the Group does not offer credit terms without the specific approval of the Head of Credit Control. With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents, available-for-sale financial 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: 2009 $ Loans and receivables (note 8) 5,840,633 5,840,633 The aging of the Group’s trade receivables at reporting date was: Not past due Past due 0-30 days Past due 31-60 days Past due 60 days 2009 $ 5,046,582 272,285 34,186 487,580 5,840,633 The group expects to be able to recover all outstanding debts. Liquidity risk 2008 $ 7,617,860 7,617,860 2008 $ 4,713,666 1,625,075 390,545 888,574 7,617,860 The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts and hire purchase contracts. The Group manages liquidity risk by forecasting and monitoring cash flows on a continuing basis. 66 EMPIRED LIMITED | 2009 Annual Report 19 FINANCIAL INSTRUMENTS The fair value of financial assets and liabilities Is considered to approximate their carrying values. The tables below reflect the undiscounted contractual settlement terms for financial instruments of a fixed period of maturity, as well as management’s expectations of the settlement period for all other financial instruments. As such, the amounts may not reconcile to the balance sheet. Interest Rate Risk Exposure to interest rate risks on financial assets and liabilities are summarised as follows: 2009 Floating interest rate Fixed Interest Rate 1 year or less 2009 $ 3,500 106,220 - Fixed Interest Rate Over 1 to 5 years 2009 $ - - - - - Non-interest bearing Carrying amount as per balance sheet Weighted average effective interest rate 2009 $ - - - 2009 $ 3,500 106,220 238,300 2009 1.250% 4.69% 2.75% 6,456,915 6,456,915 - 6,456,915 6,804,935 2009 $ - - 238,300 Financial Assets Term deposit Term deposit Cash Loans and receivables Total financial assets 238,300 109,720 - - Financial liabilities – at amortised cost Overdraft Facility Accounts payables Hire purchase Short term loans Total financial liabilities - - - - - - - 192,310 72,048 - - 178,563 - - 2,563,998 - - - 2,563,998 370,873 72,048 - - 10.128% 6.215% 264,358 178,563 2,563,998 3,006,919 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 2009 $ 2,555,921 - - 8,078 2,563,998 67 notes to the financial statements For the Year Ended 30 June 2009 19 FINANCIAL INSTRUMENTS (cont’d) 2008 i) Financial Assets Term deposit Term deposit Cash Loans and receivables Floating interest rate 2008 $ - - 42,397 - Fixed Interest Rate 1 year or less 2008 $ 3,500 106,220 - - Total financial assets 42,397 109,720 Fixed Interest Rate Over 1 to 5 years 2008 $ Non- interest bearing Carrying amount as per balance sheet Weighted average effective interest rate 2008 $ 2008 $ 2008 - - - - - - - - 8,101,372 3,500 106,220 42,397 8,101,372 1.250% 6.74% 5.95% - 8,101,372 8,253,489 - ii) Financial liabilities – at amortised cost Invoice discounting facility Accounts payables Hire purchase Short term loans Total financial liabilities - - - - - 951,274 - 164,981 56,948 - - 254,795 - - 2,547,060 - 260,700 951,274 2,547,060 419,776 317,648 11.08% - 9.42% 6.93% 1,173,203 254,795 2,807,760 4,235,758 - iii) The aging of the Group’s trade payables at 30 June 2008: Not past due Past due 0-30 days Past due 31-60 days Past due 60 days 2008 $ 2,245,236 275,651 26,140 33 2,547,060 68 EMPIRED LIMITED | 2009 Annual Report 20 BUSINESS COMBINATIONS Reconciliation of carrying amounts of goodwill from business combinations during the year: Carrying amount at the beginning of the financial year Additions AMCOM Quadrant Group Commander Australia Limited – WA ICT Business CONSOLIDATED 2008 2009 $ $ PARENT 2009 $ 2008 $ 3,827,164 1,866,958 1,960,206 - 24,000 88,907 - 1,753,140 24,000 88,907 - 1,753,140 8,693 - 207,066 - 8,693 - 207,066 - 3,948,764 3,827,164 2,081,806 1,960,206 Summary of total cash outlaid in relation to Business Combinations: CONSOLIDATED 2008 2009 $ $ PARENT 2009 $ 2008 $ Notes Total cash outflow/(inflow) AMCOM Quadrant Group Commander Australia Limited WA ICT Business 20(a) 20(b) 20(c) - 349,607 - 1,471,625 - 349,607 - 1,471,625 743 84,137 743 84,137 Total cash outflow 7 350,350 1,555,762 350,350 1,555,762 (a) AMCOM On the 1 July 2008 Empired acquired from AMCOM IT Services, assigned customer contracts. The purchase price for this acquisition was $24,000, and has been retained by Empired Limited as a credit of purchase of goods from which AMCOM is to use within twelve months from acquisition date. Purchase consideration $ 24,000 During the 2008 financial year Empired acquired two businesses, Quadrant Group and Commander Australia Limited’s WA ICT business. Details of both these acquisitions are documented in the 2008 Annual Report. 69 notes to the financial statements For the Year Ended 30 June 2009 20 BUSINESS COMBINATIONS (cont’d) (b) 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. During the current financial year Empired Limited made payments of $349,607 of which $260,700 related to deferred consideration for the acquisition of Quadrant group and the balance stamp duty on the acquisition. (c) Commander Australia Limited – WA ICT Business A review of the fair value of the net identifiable assets acquired was made during the financial year. It was determined that the customer contract obligations (unearned revenue) were understated by $7,950. Payment of stamp duty for this acquisition was also made. As a result the goodwill from the acquisition of Commander Australia – WA ICT Business has been revised to $215,759 (2008: $207,066) Details of the acquisition are as follows: Purchase consideration Cash paid Direct costs relating to acquisition Total purchase consideration Fair value of net identifiable assets acquired (refer below) Goodwill $ 30,000 54,880 84,880 130,879 215,759 21 COMMITMENTS AND CONTINGENCIES No contingent assets or liabilities as at 30 June 2009. 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 five years Less: unexpired charges Hire Purchase Current (refer note 14) Non Current (refer note 14) CONSOLIDATED 2008 2009 $ $ PARENT 2009 $ 2008 $ 220,785 191,359 200,933 279,719 220,785 191,359 200,933 279,719 (41,271) (60,876) (41,271) (60,876) 370,873 419,776 370,873 419,776 192,310 178,563 164,981 254,795 192,310 178,563 164,981 254,795 Total Hire Purchase 370,873 419,776 370,873 419,776 70 EMPIRED LIMITED | 2009 Annual Report 21 COMMITMENTS AND CONTINGENCIES (cont’d) Commitments for Expenditure (cont’d) CONSOLIDATED 2008 2009 $ $ PARENT 2009 $ 2008 $ B. Loan Repayments The consolidated entity has borrowed the necessary funds from CGU to finance insurance. The terms of the loans are for 10 months each. Not later than one year Later than one year but not later than five years Less: unexpired charges Loan Repayments Current (refer note 14) Non Current (refer note 14) Total Loan Repayments C. Operating Leases 76,525 60,893 76,525 60,893 - (4,477) 72,048 72,048 - 72,048 - (3,945) 56,948 56,948 - 56,948 - (4,477) 72,048 72,048 - 72,048 - (3,945) 56,948 56,948 - 56,948 Office premises are leased under non-cancellable operating leases for periods as follows: LOCATION STATE TERMS 459 Murray Street PERTH 1 year to 30 June 2010 with two options to extend for 1 year. Lvl 13 256 Adelaide Terrace PERTH Expires on 30 September 2010. 470 Collins Street MELBOURNE Expires on 16 August 2009, monthly agreement from 17 August 2009. 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 five years CONSOLIDATED 2008 2009 $ $ PARENT 2009 $ 2008 $ 451,370 483,072 451,370 483,072 115,353 511,845 115,353 511,845 566,723 994,917 566,723 994,917 Bank Guarantee in relation to rental premises at 256 Adelaide Terrace: Maximum amount the bank may call 106,220 106,220 106,220 106,220 71 notes to the financial statements For the Year Ended 30 June 2009 22 IMPAIRMENT TESTING OF GOODWILL Goodwill acquired through business combinations (refer Note 11 and 20) 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. Value in use is calculated based on the present value of cash flow projections covering a five-year period. The discount rate applied to cash flow projections is 9.75% (2008: 11.08%) using a 1.4% growth rate (2008: 4.2%) that is the same as the average growth rate for the IT Infrastructure Services market sector. Carrying amount of goodwill CONSOLIDATED PARENT IT Infrastructure Services Segment Total Total 2009 $ 2008 $ 2009 $ 2008 $ 2009 $ 2008 $ Carrying amount of goodwill 3,948,764 3,827,164 3,948,764 3,827,164 2,081,806 1,960,206 There is no impairment losses in the current or prior period. 23 INVESTMENT IN CONTROLLED ENTITY Other Financial Assets Country of Incorporation % Equity Interest 2008 2009 % % Tusk Technologies Pty Ltd Australia 100 100 Investment ($) 2009 $ 365,227 365,227 2008 $ 367,485 367,485 The balance of the Tusk Technologies Pty Ltd loan as at 30 June 2009 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 2009. The revaluation downwards is recorded in the income statement. Other than this related party loan there are no other related party transactions requiring disclosure. 24 EVENTS AFTER THE BALANCE SHEET DATE There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity, in future financial 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. Final dividend declared for the year 2009 Final ordinary dividend for the year ended 30 June 2009 of 0.5 cents per fully paid share Total amount $231,112 Mr David Taylor resigned as a director of the company on the 31 July 2009. 72 EMPIRED LIMITED | 2009 Annual Report 25 AUDITORS’ REMUNERATION Amounts received or due and receivable by auditors or the parent entity: • an audit or review of the financial 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: • other non-audit services • an audit or review the financial report of subsidiary entities CONSOLIDATED 2008 2009 $ $ PARENT 2009 $ 2008 $ 46,375 19,175 46,375 19,175 - - - - 7,790 54,165 - 19,175 7,790 54,165 - 19,175 23,000 20,210 23,000 20,210 - 77,165 37,595 76,980 - 77,165 37,595 76,980 26 KEY MANAGEMENT PERSONNEL (a) Directors The following persons were directors of Empired Limited during the financial 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 financial year: M Waller Chief Financial Officer and Company Secretary (c) Remuneration of Key Management Personnel Information regarding key management personnel compensation for the year ended 30 June 2009 is provided in the remuneration section of the directors’ report on pages 18 to 23. 73 notes to the financial statements For the Year Ended 30 June 2009 26 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 beneficially, by each of the key management person, including their related parties, is as follows: Balance at beg of period 01-Jul-08 Granted as Remuneration Options Exercised Net Change Other # Balance at end of period 30-Jun-09 Not Vested & Not Exercisable Vested & Exercisable 2,550,000 850,000 600,000 - 300,000 150,000 100,000 250,000 814,038 650,000 - - - - - - - - - - 2,850,000 1,000,000 700,000 250,000 1,800,000 750,000 450,000 250,000 1,050,000 250,000 250,000 - (400,000) 1,064,038 325,692 738,346 (400,000) 5,864,038 3,575,692 2,288,346 Total 4,814,038 1,450,000 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 1,450,000 250,000 250,000 - 1,100,000 600,000 350,000 - 414,038 400,000 - - - - - - - - - - - - 2,550,000 850,000 600,000 - 2,550,000 850,000 600,000 - 814,038 814,038 4,814,038 4,814,038 - - - - - - 30 June 2009 Directors R. Baskerville M. Ashton D. Taylor R. Bevan Executives M. Waller 30 June 2008 Directors R. Baskerville M. Ashton D. Taylor R. Bevan Executives M. Waller Total 2,364,038 2,450,000 74 EMPIRED LIMITED | 2009 Annual Report 26 KEY MANAGEMENT PERSONNEL (cont’d) (e) Shareholdings of Directors and Executives Shares held in Empired Limited Balance 01-Jul-08 Ord Pref Granted as Remuneration Pref Ord On Exercise of Options Pref Ord Net Change Other Ord Pref Balance 30-June-09 Ord Pref 30 June 2009 Directors Mr. R Baskerville Mr. M Ashton Mr. D Taylor Mr. R Bevan 5,892,778 150,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - 2,582,411 - 60,000 - 2,642,411 - - - - - 8,475,189 150,000 60,000 - 8,685,189 - - - - - Total 6,042,778 30 June 2008 Directors Mr. R Baskerville Mr. M Ashton Mr. D Taylor Mr. R Bevan Total Balance 01-Jul-07 Ord Pref Granted as Remuneration Pref Ord On Exercise of Options Pref Ord Net Change Other Ord Pref Balance 30-June-08 Ord Pref 4,889,269 - - - 4,889,269 - - - - - - - - - - - - - - - - - - - - - - - - - 1,003,509 150,000 - - 1,153,509 - - - - - 5,892,778 150,000 - - 6,042,778 - - - - - 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. Balance 01-Jul-08 Granted as Remuneration On Exercise of Options Net Change Other Balance 30-June-09 Ord Pref Ord Pref Ord Pref Ord Pref Ord Pref 30 June 2009 Specified Executives M. Waller Total 1,618,624 1,618,624 - - - - - - - - - - 136,500 136,500 - - 1,755,124 1,755,124 - - 30 June 2008 Balance 01-Jul-07 Granted as Remuneration On Exercise of Options Net Change Other Balance 30-June- 08 Ord Pref Ord Pref Ord Pref Ord Pref Ord Pref Specified Executives M. Waller Total 1,483,811 1,483,811 - - - - - - - - - - 134,813 134,813 - - 1,618,624 1,618,624 - - 75 notes to the financial statements For the Year Ended 30 June 2009 27 DIVIDENDS A dividend of 0.5c per ordinary share has been declared by the Board. Record date will be the 30th of September 2009. CONSOLIDATED 2009 ($) 2008 ($) (a) Distributions Paid 2008 final franked dividend of 0.50 cents, paid 8 October 2008 (2007: nil) 231,112 Interim franked dividend of 0.25 cents, paid 7 April 2009 (2008: nil) 115,556 346,668 - - - (b) Dividends Proposed Proposed final 2009 fully franked ordinary dividend of 0.5 cents, payment date 14 October 2009 (2008: 0.50 cents) 231,112 231,112 (c) Franking Credit Balance Balance of franking account at year end at 30% available to the shareholders of Empired Limited for subsequent financial years 108,300 175,346 28 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 76 EMPIRED LIMITED | 2009 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 financial 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 financial position as at 30 June 2009 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 financial year ended 30 June 2009. On behalf of the Board Russell Baskerville Managing Director 30th of September 2009 77                  10 Kings Park Road West Perth WA 6005 PO BOX 570 West Perth WA 6872  T +61 8 9480 2000 F +61 8 9322 7787 E admin@gtwa.com.au W www.grantthornton.com.au                     Grant Thornton Audit Pty Ltd ACN 130 913 594, a subsidiary or related entity of Grant Thornton Australia Limited ABN 41 127 556 389. Grant Thornton Australia Limited is a member firm within Grant Thornton International Ltd. Grant Thornton International Ltd and the member firms are not a worldwide partnership. Grant Thornton Australia Limited, together with its subsidiaries and related entities, delivers its services independently in Australia. Liability limited by a scheme approved under Professional Standards Legislation. 82                10 Kings Park Road West Perth WA 6005 PO BOX 570 West Perth WA 6872 T +61 8 9480 2000 F +61 8 9322 7787 E admin@gtwa.com.au W www.grantthornton.com.au                           Grant Thornton (WA) Partnership ABN 17 735 344 518, a subsidiary or related entity of Grant Thornton Australia Limited ABN 41 127 556 389. Grant Thornton Australia Limited is a member firm within Grant Thornton International Ltd. Grant Thornton International Ltd and the member firms are not a worldwide partnership. Grant Thornton Australia Limited, together with its subsidiaries and related entities, delivers its services independently in Australia. Liability limited by a scheme approved under Professional Standards Legislation. 83                                          Grant Thornton (WA) Partnership ABN 17 735 344 518, a subsidiary or related entity of Grant Thornton Australia Limited ABN 41 127 556 389. Grant Thornton Australia Limited is a member firm within Grant Thornton International Ltd. Grant Thornton International Ltd and the member firms are not a worldwide partnership. Grant Thornton Australia Limited, together with its subsidiaries and related entities, delivers its services independently in Australia. Liability limited by a scheme approved under Professional Standards Legislation. 84 EMPIRED LIMITED | 2009 Annual Report 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 2009. 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 15 51 188 75 332 0.01 0.11 0.86 14.25 84.77 100.00 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: NUMBER 6,993,639 3,504,225 % 15.13 7.58 NAME NUMBER OF SHARES HELD % Baskerville Investments Pty Ltd Mr Gregory Leach Mr John Alexander Bardwell Mr David Cawthorn Uniplex Constructions Pty Ltd Ms Kym Garreffa Mr Fraser Campbell Mr John Alexander Bardwell & Mrs Paola Bardwell Jameker Pty Ltd Cornela Pty Ltd Mr Gregory Bandy Mr Mark Waller Two Tops Pty Ltd Mr Mark Waller Mr Kevin Flynn GRD Limited Locope Pty Ltd Trovex Pty Ltd Mr Anthony James Farrell Mr Glenn Thomas Baskerville Total 6,993,639 3,504,225 2,002,500 2,000,000 1,902,414 1,306,167 1,200,000 1,000,000 900,000 847,333 800,000 781,644 779,490 666,667 650,000 650,000 635,000 635,000 603,019 550,759 15.13 7.58 4.33 4.33 4.12 2.83 2.60 2.16 1.95 1.83 1.73 1.69 1.69 1.44 1.41 1.41 1.37 1.37 1.30 1.19 28,407,357 61.46 The twenty members holding the largest number of shares together held a total of 61.46% of issued capital. 81 shareholding analyis d. Issued Capital (i) Ordinary Shares The fully paid issued capital of the company consisted of 46,222,314 shares held by 332 shareholders. Each share entitles the holder to one vote. (ii) Unquoted Equity The options issued under the company share options plans consisted of 9,703,474 options held by 77 holders. e. On-Market Buy-Back There is no current on-market buy-back. f. Company Secretary The Company Secretaries is Mr Mark Waller. g. Registered Office The registered office of Empired Ltd is 469 Murray Street, Perth WA 6000 h. Other Offices The other offices are: Level 13, Septimus Roe Square 256 Adelaide Terrace Perth WA 6000 Telephone + 61 8 9223 1234 Level 3 470 Collins Street Melbourne VIC 300 Telephone +61 3 8610 0700 82 other information for shareholders EMPIRED LIMITED | 2009 Annual Report 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 financial information and a review of the operations of the Company during the period. The half-year financial 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 – 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 identification with the Company’s strategy and goals. Important issues are presented to the shareholders as single resolutions. INTERNET ACCESS TO INFORMATION Empired maintains a comprehensive Investor Relations section on its website at www.empired.com/index.php?page=corpgovernance You can also access comprehensive information about security holdings at the Computershare Investor Centre at www.au.computershare.com/investor/ 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 notification of your tax file number or direct credit of dividend advice can be made by printing out the forms you need, filling 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 2009 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, 23 November 2009. 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: Computershare Investor Services Pty Ltd Level 2, 45 St Georges Tce Perth WA 60 83 EMPIRED Ltd. ABN 81 090 503 843 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 9 www.empired.com ANNUALREPORT 2009 

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