I M D E X L I M I T E D 2 0 0 4 A N N U A L R E P O R T w w w . i m d e x . c o m . a u A N N U A L R E P O R T 2 0 0 4 I M D E X L I M I T E D CONTENTS 1 2 3 4 Imdex at a Glance Imdex 2004 Snapshot Year in Review & Group Results Chairman’s Report 5 Managing Director’s Report 10 Imdex’s Businesses 12 Director Profiles 15 Financial Report 2004 Registered Office Imdex Limited, ABN 78 008 947 813 Level 3, Redgum House 18 Richardson Street West Perth, Western Australia, 6005 PO Box 1325 West Perth WA 6872 Telephone: (+61 8) 9481 5777 Facsimile: (+61 8) 9481 6527 Email: imdex@imdex.com.au Website: www.imdex.com.au Imdex is listed on the Australian Stock Exchange under the ASX code IMD GROUP HEAD OFFICE AND REGISTERED OFFICE IMDEX LIMITED Level 3, Redgum House 18 Richardson Street WEST PERTH WA 6005 PO Box 1325 WEST PERTH WA 6872 Telephone: +61 8 9481 5777 Facsimile: +61 8 9481 5377 Email: imdex@imdex.com.au Website: www.imdex.com.au DIVISIONS/SUBSIDIARIES/ ASSOCIATED ENTITIES IMDEX ARABIA COMPANY LTD 12TH Floor, Khashoggi Bldg PO Box 30530 Al Khobar 31952 SAUDI ARABIA Telephone: +966 3 899 1955 Facsimile: +966 3 893 5551 Email: ykhawaja@rteksa.com Website: www.imdexarabia.com AUSTRALIAN MUD COMPANY LTD 5 Pitino Court OSBORNE PARK WA 6017 PO Box 1141 OSBORNE PARK WA 6916 Telephone: +61 8 9445 4000 Facsimile: +61 8 9445 4040 Email: gweston@imdex.com.au Website: www.ausmud.com SURTRON TECHNOLOGIES PTY LTD 5 Pitino Court OSBORNE PARK WA 6017 PO Box 1130 OSBORNE PARK WA 6916 Telephone: +61 8 9445 4050 Facsimile: +61 8 9445 4060 Email: smunyard@imdex.com.au Website: www.surtron.com.au IMDEX MINERALS 15 Spencer Street JANDAKOT WA 6164 Telephone: +61 8 9417 9900 Facsimile: +61 8 9417 3222 Email: itan@imdex.com.au Website: www.imdexminerals.com.au SURTRON TECHNOLOGIES PTY LTD Lot 1598 Willis Street NEWMAN WA 6753 PO Box 681 NEWMAN WA 6753 Tel/Facsimile: +61 8 9175 1230 ACE DRILLING PRODUCTS & RENTALS 5 Pitino Court OSBORNE PARK WA 6017 PO Box 1148 OSBORNE PARK WA 6916 Telephone: +61 8 9445 4020 Facsimile: +61 8 9445 4040 Email: mgregg@imdex.com.au Website: www.acedrilling.com.au REPRESENTATIVE OFFICES WESTERN AUSTRALIA AUSTRALIAN MUD COMPANY LTD 5 Close Way KALGOORLIE WA 6430 Telephone: +61 8 9021 2925 Facsimile: +61 8 9091 5925 Email: tmcwhinney@imdex.com.au ACE DRILLING PRODUCTS & RENTALS 5 Close Way KALGOORLIE WA 6430 Telephone: +61 8 9021 2925 Facsimile: +61 8 9091 5925 Email: dmunro@imdex.com.au SURTRON TECHNOLOGIES PTY LTD 5 Close Way KALGOORLIE WA 6430 Telephone: +61 8 9091 9511 Facsimile: +61 8 9091 9522 Email: jsmith@imdex.com.au NEW SOUTH WALES AUSTRALIAN MUD COMPANY LTD 21 Illawarra Avenue CARDIFF NSW 2285 Telephone: +61 2 4953 6165 Facsimile: +61 2 4953 6448 Email: tfuller@imdex.com.au SOUTH AUSTRALIA AUSTRALIAN MUD COMPANY LTD 20 Alexander Place ROSE PARK SA 5067 Telephone: +61 8 8364 4110 Facsimile: +61 8 8364 4151 Email: kbooth@imdex.com.au QUEENSLAND AUSTRALIAN MUD COMPANY LTD 1/26 Neon Street SUMNER PARK QLD 4074 PO Box 110 SUMNER PARK QLD 4074 Telephone: +61 7 3279 3199 Facsimile: +61 7 3279 3538 Email: amcbrisbane@imdex.com.au SURTRON TECHNOLOGIES PTY LTD 1/26 Neon Street SUMNER PARK QLD 4074 PO Box 110 SUMNER PARK QLD 4074 Telephone: +61 7 3279 2331 Facsimile: +61 7 3279 2495 Email: surtronec@imdex.com.au INTERNATIONAL SALES AUSTRALIAN MUD COMPANY LTD 31 Koala Court, Little Mountain CALOUNDRA QLD 4551 Telephone: +61 7 5437 0373 Facsimile: +61 7 5437 0886 Email: mcouchman@imdex.com.au Imdex at a Glance Imdex Limited is Australia’s leading supplier of drilling products and services to the mining, water well and horizontal directional drilling industries and is expanding its presence in the oil & gas industry. Imdex also conducts minerals processing. The Board’s strategy is to transform a diverse domestic Group into a focused, global Group providing drilling products & services to the oil & gas, mining, water well and civil industries. The Board remains committed to its four-point plan to build value for Shareholders: • • • • Continue operational earnings improvement within Australia; Progressively realize the potential of Imdex’s investment in Imdex Arabia; Achieve an overall improvement in Group financial performance to make Imdex a competitive investment in the Australian market; and Translate the improved performance into dividend income for our Shareholders. Imdex’s Trading Locations United Kingdom Eastern Europe China Japan Thailand India Laos Phillipines Indonesia PNG Saudi Arabia Ghana Tanzania Zambia South Africa Australia New Zealand USA Peru Chile 1 1 Imdex 2004 Snap-shot M u c h h a s b e e n a c c o m p l i s h e d d u r i n g t h e y e a r. T h e u n d e r l y i n g f i n a n c i a l p e r f o r m a n c e o f t h e G r o u p w a s s t r o n g , w i t h a n i n c r e a s e i n r e v e n u e o f 2 9 % t o $ 3 9 . 8 3 m i l l i o n f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 4 ( F Y 0 4 ) . Financial Performance: • Total revenue increased by 29% from $30.9 million in FY03 to $39.8 million in FY04, with a 95% increase in underlying profitability; • Write downs of $4.1 million relating to shortfalls in stock and debtors at Imdex Minerals, and a $3.1 million write down in the value of the investment in the Rashid Trading Establishment/Imdex Limited Joint Venture in Saudi Arabia; • The write downs referred to above have given rise to a net loss after tax of $3.7 million. Divisional Highlights: • The Australian Mud Company (AMC) was the standout performer for the Group generating FY04 revenue of $21 million and earnings before interest & tax of $3.3 million; • Surtron Technologies (Surtron) logging activities are at record levels based on the strength of the Iron Ore industr y. Surtron is arguably the industr y leader in Australia for wireless steering technology in the Coal Bed Methane gas industr y; • Ace Drilling Supplies (Ace) experienced strong demand for its products and ser vices during FY04 and is now a solid contributor to the Imdex Group. Saudi Arabian Joint Venture: • Heads of Agreement reached with Rashid Trading Establishment (RTE) to re-structure the drilling fluids and chemicals Joint Venture in Saudi Arabia (subject to Shareholders’ approval). 2 Year in Review & Group Results FY04 ($M) % CHANGE FROM FY03 FY03 ($M) % CHANGE FROM FY02 FY02 ($M) 39.83 +29% 30.91 -14% 35.99 Total Revenue Comprising Revenue from sale of goods Revenue from rendering of services Other revenue Earnings before interest, tax and depreciation (EBITDA) - pre adjustments Depreciation and amorisation EBIT - pre adjustments Adjustments: Minerals prior years one-off write-downs Minerals current year one-off write-down Saudi Joint Venture write-down Reported EBIT Net interest expense Taxation expense Net profit/(loss) after tax 33.42 5.95 0.46 5.89 (1.94) 3.95 (2.80) (1.26) (3.11) (3.22) (0.56) 0.09 (3.69) Net assets Shares on issue 18.11 120,055,368 +27% +37% +60% +52% +6% +95% -259% -2% +115% -506% -17% +0% 26.30 4.33 0.28 3.86 (1.83) 2.03 - - - 2.03 (0.55) (0.57) 0.91 21.80 120,055,368 -4% +28% -95% +134% -5% -802% +802% -10% -312% +275% +18% +11% 27.27 3.39 5.33 1.65 (1.94) (0.29) - - - (0.29) (0.50) 0.27 (0.52) 18.45 107,881,455 Net tangible asset backing per share Earnings per share 14.59c (3.07)c -12% -504% 16.58c 0.76c +2% +252% 16.33c (0.50)c Vermiculite Drilling Products & Services Minerals Processing Drilling Fluids & Chemicals EBIT - pre adjustments $39.8 $3.95 $30.9 $2.03 $45 $40 $35 $30 $25 $20 $15 $10 $5 $0 ) s n o i l l i m ( e u n e v e R $25.8 ($0.29) FY02 Other South East Asia Domestic $4.5 $4.0 $3.5 $3.0 $2.5 $2.0 $1.5 $1.0 $0.5 $0.0 ($0.5) ($1.0) $45.0 $40.0 $35.0 $30.0 $25.0 $20.0 $15.0 $10.0 $5.0 $0.0 ) s n o i l l i m ( e u n e v e R ) s n o i l l i m ( I T B E FY03 FY04 1 FY02 FY03 FY04 Increasing Three Year Operating Revenue and EBIT Trend (pre-adjustments) Increasing International Revenue 1FY02 excludes the sale proceeds relating to the Vermiculite Division of $4.85m & non profit sales to KSA JV of $5.34m 3 Chairman’s Report Imdex Minerals can, we believe, become a significant contributor to the Company’s success in dealing with a variety of sought after industrial minerals in Australia. Surtron is strengthening both its competency and market position with Coal Bed Methane technology as well as in drill hole logging and sur veying ser vices. Ace Drilling Supplies is likewise trading profitably and is expected to continue to do so with the intending introduction of new technically “smart” devices. The re-structure proposed for the Saudi Arabian Joint Venture is directed at diminishing Imdex’s equity interest in the supply of drilling fluids and chemicals, whilst maintaining the ability to create a ser vice organisation in Saudi Arabia at the appropriate time. The ability to provide Australian Mud Company products, ser vices and technology will also be retained. Our aims are as before, and despite the recent set backs, will continue to be focused upon wealth creation for of shareholders, the business. owners you, the the The year has been one of contradictions – improvements in the conditions of trade for the Drilling Fluids and Ser vices Divisions – negated in terms of profit by the discover y during the period of improper practices in the Minerals Division. A re-appraisal of the Saudi Arabian Joint Venture leading to a re-structure of this arrangement has also led to a write down of the carr ying value of the investment in the Balance Sheet at 30 June 2004. Whilst underlying earnings have been significantly stronger than in the previous year (almost double), one off adjustments have resulted in a net loss for the year of $3.7 million. The Board believes appropriate actions have been taken with respect to the circumstances relating to both Imdex Minerals and the Saudi Arabian Joint Venture, enabling re-development of these businesses to ensure a profit contribution in the years ahead. With the international focus on the extractive industries being, probably, at an all time high given energy supply/demand as well as the demand for minerals, particularly by China, Imdex finds itself with an unprecedented demand skills, products and ser vices. for it’s The Australian Mud Company has an increasing sales profile and is broadening its sphere of operations into additional overseas markets, fur ther building on successes over the past two years. I.F. Burston Chairman 4 Managing Director’s Report These one-off adjustments have destroyed a good operating result and have translated into a net loss after tax of $3.7 million for FY04. The frustrating part of this is that Imdex, being a provider of products and ser vices to the resources industr y, is the beneficiar y of strong market conditions in the sector associated with growth in demand from China and the additional oil and gas exploration activity as a result of higher oil prices. The continuation of these buoyant trading conditions is evident in the early part of the 2005 financial year (FY05) and the results for FY05 should not be impaired by any of the circumstances which affected the results for FY04. The one-off adjustments referred to above mask the true trading position of the Group and the table below shows the strong underlying performance. Much has been accomplished during the year as the underlying financial performance of the Group was strong with an increase in revenue of 29% to $39.83 million for the year ended 30 June 2004 (FY04). Among the highlights were the following: • continued growth in the core businesses; • Group sales up by 29% on FY03; • underlying EBIT strong and improving further; and • 28% increase in Saudi Arabian Joint Venture sales. During the year, our internal processes discovered major problems with debtors and stock at Imdex Minerals and it also became necessar y to re-structure the Saudi Arabian Joint Venture. We have taken responsible action by bringing to account the following: • one-off write downs at Imdex Minerals totalling $4.06 million; and • a $3.11 million write-down in the value of the investment in the Rashid Trading Establishment/ Imdex Joint Venture in Saudi Arabia as a result of the proposed re-structure of the Joint Venture. YEAR ENDED 30 JUNE 04 ($M) 30 JUNE 03 ($M) CHANGE % Total Revenue Earnings before interest, tax and depreciation (EBITDA) - pre adjustments Depreciation and amortisation EBIT - pre adjustments Adjustments Minerals prior years one-off write-downs Minerals current year one-off write-down Saudi Joint Venture write-down Reported EBIT 39.83 5.89 (1.94) 3.95 (2.80) (1.26) (3.11) (3.22) +29% +52% +95% 30.91 3.86 (1.83) 2.03 - - - 2.03 -259% 5 T h e e x c e l l e n t p e r f o r m a n c e o f t h e A u s t r a l i a n b a s e d b u s i n e s s e s , ( a p a r t f r o m I m d e x M i n e r a l s ) , p a r t i c u l a r l y t h e A u s t r a l i a n M u d C o m p a n y , w a s v e r y p l e a s i n g . Australian Mud Company (AMC) AMC provides drilling products and ser vices to the mining, oil and gas, water well and horizontal directional drilling industries. It was trading especially strongly in the latter part of the year, generating EBIT in excess of $1 million for the final quarter of FY04. AMC has more than doubled sales in the last two years to $21 million and, in FY04, generated a record EBIT margin of 15%. AMC’s revenue accounted for 54% of total Imdex domestic Group sales. The increase in revenue has largely flowed from offshore activities in Africa, South America, Asia, Eastern Europe, China and increased activity in the onshore oilfields in Australia and Papua New Guinea. AMC is a beneficiar y of increased exploration spending in Australia and overseas. The buoyant state of mineral commodity markets supported by growing demand in the Asian region is likely to sustain relatively high levels of exploration spending for the foreseeable future. AMC has developed a ver y strong brand identity within the industr y in Australia and in a number of overseas jurisdictions. Its strong technical back-up and ser vice complements the extensive product range. AMC will continue to expand its presence locally and in offshore markets. 6 Managing Director’s Report Surtron Technologies (Surtron) Surtron Technologies (Surtron) provides geophysical logging, down hole sur veying and steering ser vices. Geophysical to Australia’s major iron ore producers, including BHP Billiton, Hamersley Iron and Robe River. ser vices are provided logging Surtron’s trading performance has continued to improve with a 37% increase in revenue in FY04 compared to FY03 with a commensurate increase in EBIT for the year. Late in the year, logging ser vice rates were increased and additional logging field ser vice vehicles have been commissioned in order to satisfy client demand driven by the expansion of the iron ore industr y in the Pilbara region of Western Australia. Surtron has made a substantial investment in the successful introduction of new wireless steering technology into the Coal Bed Methane (CBM) market and is arguably the industr y leader in Australia. Surtron continues to work on the Moranbah Gas Project for Mitchell Drilling and CH4 in Queensland. Surtron also provided steering ser vices to BHP Billiton in New South Wales during the year. Surtron has also invested in software development to assist and enhance the Company’s steering capability which should also dif ferentiate Sur tron its competitors. The CBM industr y should continue to expand in Australia and Surtron is also examining offshore opportunities. Surtron’s down hole sur vey activities continued throughout the year. The Company continues to ser vice many of Australia’s major gold producers and also provides ser vices offshore. from Surtron is forecasting a significant increase in revenue and EBIT in FY05 primarily due to the continued expansion of the Steering Division and the increased profitability of the Logging Division. Wireless Steering Technology 7 Imdex Minerals Imdex Minerals operates a multi-purpose industrial minerals processing facility in Western Australia. Toll milling for mineral sands producers is a major part of its activities. The mining, processing and sale of micaceous iron oxide (MIO) and custom packaging also represent significant activities of Imdex Minerals. The operations during the year were marred by the discover y of shortfalls in debtors and stock and the impact of these adjustments have been highlighted above. The overstatement in debtors and stock have masked what was, in reality, an under performing division of Imdex. The problems were not discovered until three quarters of the way through FY04 and swift action was taken to re-structure the business, including the appointment of a new general manager and the implementation of more rigid internal controls. Under new management, the performance of this division has been stabilised and a high priority has been placed on strengthening existing client and business relationships. Management is also focusing on expanding its existing business and taking advantage of the growing demand for the type of mineral processing ser vices which it can offer the mining industr y in Western Australia. It is anticipated that Imdex Minerals will return to profitability in the first half of FY05. Ace Drilling Supplies (Ace) Ace Drilling Supplies (Ace) markets drilling consumables and down hole motors and cameras to the drilling industr y in Australia and internationally. Ace experienced strong demand for its products and ser vices during FY04, with revenue up by 21% at an EBIT margin of 12%. The financial performance has been driven by the general increase in activity in the resources sector, together with a strong customer focus by management. improved Further increases in sales and EBIT margin are expected in FY05 as a result of the introduction of new products and the continuation of buoyant trading conditions in the resources sector. RTE/Imdex Joint Venture Imdex currently has a 49% Joint Venture interest with Rashid Trading Establishment (RTE) to provide drilling products and ser vices to the oil and gas industr y in the Kingdom of Saudi Arabia. Joint Venture sales, which commenced in June 2001, have been building steadily and totalled US$17.6 million in 2004 (2003 – US$13.8m). Operationally, Imdex’s 49% share of losses for FY04 was $292,000, down from $894,000 in FY03. This financial result was below Imdex expectations as gross margins continued at less than desirable levels. On 5 July 2004, Imdex announced that a Heads of Agreement had been signed with RTE to re-structure the Saudi Arabian Joint Venture. In summar y, it is proposed that Imdex will reduce its equity in the Joint Venture to 20% (being a 20% interest in Imdex Arabia Limited). In return, Imdex will receive a net US$1.5 million in cash and RTE will return 10 million shares in Imdex which will be cancelled. As part of the proposed re-structure, Imdex has written down its investment by AUD$3.1 million at 30 June 2004 to a value approximating $2 million once the re- structure has been completed. The oil & gas business in Saudi Arabia is the largest in the world and we believe that Imdex should continue to have a presence there. We have a good relationship with our Joint Venture partner, sales are trending up (currently exceeding US$2 million per month) and gross margins should continue to show improvement. The introduction of ser vices, which are planned for FY05, should further enhance the business. 8 Managing Director’s Report COMPANY OUTLOOK The strong performance experienced by the Australian- based businesses (excluding Imdex Minerals) in FY04 has continued into FY05. AMC has continued to trade strongly in the first part of FY05, and international expansion plans continue in order to take advantage of increased world wide exploration expenditure. Surtron is operating with increased rates and expanded capacity in geophysical logging in the Pilbara region of Western Australia. The emerging CBM industr y is continuing to be a focus for Surtron’s wireless steering technology both in Australia and internationally. In relation to the Australian based businesses, the Board is anticipating domestic revenue growth of around 15% to $46 million in FY05 generating an EBIT margin of around 11%. Internationally, the proposed 20% investment in Imdex Arabia should generate an adequate return on the post re-structure carr ying value of $2 million. Looking ahead, the Board remains committed to its four-point plan to build value for shareholders: • continuing operational and earnings improvement within Australia; • progressive realisation of the potential of its 20% holding in Imdex Arabia (post re-structure); Ace is forecasting strong growth in both revenue and earnings through the introduction of additional products into the marketplace. • overall improvement in Group financial performance to make Imdex a competitive investment in the Australian market; and, Imdex Minerals is consolidating its proprietar y business in toll milling, custom packaging, micaceous iron oxide, agricultural products and New management is focused on growing the business in traditional and new areas. sand/gravel. • translation of the improved per formance into dividend income for shareholders. B.W. Ridgeway Managing Director 9 DRILLING FLUIDS & CHEMICALS DRILLING FLUIDS & CHEMICALS JOINT VENTURE Drilling fluids, chemicals and ser vices to the mining, oil & gas, water well and horizontal directional drilling industries. RTE Drilling fluids, chemicals and ser vices to the oil & gas and water well industries. • Revenue $21.3m • EBIT $3.3m 1 • Revenue US$17.6m (100% Joint Venture) • Net Loss $0.292m (Imdex 49% share) • 38% increase in revenue; • 28% increase in revenue; • Exceeded budget EBIT by 125%; • Continued to demonstrate reliable track record; • Continued to increase sales in onshore oil & gas • Gross margins at unacceptable levels; industr y; • Heads of Agreement reached to re-structure Joint • International growth initiatives continued; Venture; • Niche products added to extensive product range; • One-off write down in value of investment of • Environmentally friendly packaging successfully $3.11m. introduced into market place; • First sales into China & India. • Continued international expansion; • Complete re-structuring process; • Further diversification of product range; • Continue to deliver on contracts worth approx USD • Consolidate rapid revenue/earnings growth; • Mergers/acquisitions/alliances. $30m, p.a.; • New products/ser vices and contracts; • Earnings and margin growth. 1 Earnings before interest and tax, and before allocation of corporate overheads. 10 L A I C N A N I F F E I R B N I R A E Y S N O I T C E R I D E R U T U F Imdex’s Businesses DRILLING PRODUCTS AND SERVICES MINERALS PROCESSING Geophysical logging, down hole sur veying, steering, sale and rental of drill hole sur vey instruments, down hole motors, cameras and drilling products. Toll milling, silica flour, custom packaging, agricultural products, sand & gravel packs and micaceous iron oxide (MIO). • Revenue $11.8m • EBIT $1.14m 1 • Revenue $6.4m • EBIT ($0.921m) 1 , before prior years adjustments of $2.8m. • 29% increase in revenue; • Serious misrepresentations discovered in • Increased profitability by 306% on FY03; • EBIT margin of 10% in FY04; • Geophysical logging capacity expanded at debtors/stock; • One-off write downs of $4.06m: • Appointment of new General Manager; increased rates; • Stabilisation of business; • Sur vey ser vices provided internationally; • Implementation of tighter internal controls; • Wireless steering technology proven in market • Continued strong demand for toll milling, primarily place; zircon sand; • Expansion of steering ser vices; • Focus on ser vicing existing client base and markets, • Continued high demand for down hole cameras and motors. quality and processes. • Continued expansion steering technology in CBM market, both in Australia and internationally; of wireless • Increase capacity further in logging; • Continue to ser vice offshore sur vey markets; • Introduce new products, including core orientation tool. • Return the business to profitability; • Increase efficiencies of plant and processes; • Grow domestic and international silica flour markets; • Increase profitability of MIO business; • Develop further toll milling and custom packaging business. 11 Mr Ian Fred Burston AM Non Executive Chairman Age: 69 years Mr Bernard William Ridgeway B.Bus (ACCTG) ACA Managing Director Age: 50 years Mr Burston holds a Diploma in Aeronautical Engineering and a Bachelor of Engineering (Mechanical). He is a Fellow of the Institution of Engineers, Australia, a Fellow of the Australasian Institute of Mining and Metallurgy and he is a Fellow of the Australian Institute of Company Directors. Mr Burston was appointed Chairman at the Annual General Meeting held on 22 November 2000. Mr Burston has been the Managing Director of Hamersley Iron, the Chief Executive Of ficer for Kalgoorlie Consolidated Gold Mines, the Managing Director and Chief Executive Officer of Aurora Gold Ltd and the Managing Director of Portman Limited. Mr Burston’s vast experience at the helm of public companies, both listed and unlisted, makes him well qualified to lead Imdex during this important growth phase of the Company. Mr Ridgeway was appointed to the Board on 23 May 2000 and appointed Managing Director effective from 3 July 2000. He is a qualified Chartered Accountant and a Member of the Institute of Chartered Accountants in Australia and a Member of the Australian Institute of Company Directors. Mr Ridgeway has been involved with a number of public and private companies for the last 20 years as an Owner, Director or Manager. He embraces a hands-on management style and has extensive experience and expertise in finance, administration, marketing and business development. Mr Hadi Hammed Al-Merr y Non Executive Director Age: 42 years Mr Al-Merr y was appointed as a Non Executive Director in April 2002. He is the President of RTE and has been involved in supplying products and ser vices to the oil and gas business in Saudi Arabia and the Middle East for many years. He has many long-standing business and government relationships in Saudi Arabia and the Middle East. 12 Director Profiles Mr Ross Kelly BE(Hons) FAICD Non Executive Director Age: 66 years Mr Kevin Dundo B Com, LLB Non Executive Director Age: 52 years Mr Kelly graduated as an engineer from the University of Western Australia and has worked in Australia and many overseas countries. Mr Kelly was appointed to the Board on 14 Januar y 2004. Mr Kelly is a qualified engineer, a fellow of the Institute of Company Directors, a director of Clough Limited and a commissioner with the Western Australian Football Commission. He has previously been Chairman of Clough Limited, Sumich Group Limited, Orbital Engine Corporation Limited, Beltreco Limited and a director of Aurora Gold Limited, PA Consulting Ser vices Ltd and the Fremantle Football Club. He has specialised in the mining and heavy process industries and has consulted to many of Australia's major mining companies and the Western Australian Government. He has also worked in the offshore gas, oil refining and steel industries. Mr Kelly was previously a Councillor of the Australian Institute of Company Directors, and a Member of the Advisor y Board, Curtin Graduate School of Business. Mr Dundo practises as a lawyer in Perth. Mr Dundo was appointed to the Board on 14 Januar y 2004. He is also a Director of NuStar Mining Corporation Ltd (formerly Taipan Resources NL). Mr Dundo gained a Bachelor of Commerce from the University of Western Australia and a Bachelor of Laws from the Australian National University. Mr Dundo specialises in the commercial and corporate areas (in particular mergers and acquisitions) with experience in the mining sector, the ser vice industr y and the financial ser vices industr y. Mr Dundo is a Member of the Law Society of Western Australia, a Member of the Law Council of Western Australia, a Fellow of the Australian Society of Certified Practising Accountants and a Member of the Australian Institute of Company Directors. Mr Stephen John Lyons B.Bus (ACCTG) ACA Company Secretar y Age: 35 years Mr Lyons is a qualified Chartered Accountant and a Member of the Institute of Chartered Accountants in Australia: he has an audit, corporate ser vices and banking background. He was previously the Company Secretar y for the Australian operations of the Swiss based, Société Générale de Sur veillance (SGS) Group and has consulted to other private and public companies. He was appointed Company Secretar y on 19 November 2001. 13 14 Financial Report 2004 CONTENTS 16 22 28 30 31 32 33 Directors’ Report Corporate Governance Statement Independent Audit Report Directors’ Declaration Statements of Financial Performance Statements of Financial Position Statements of Cash Flows 34 Notes to the Financial Statements 75 ASX Additional Information 15 A Directors’ Report The Directors of Imdex Limited present their report together with the annual financial report of the Company for the financial year ended 30 June 2004. In order to comply with the provisions of the Corporations Act 2001, the Directors report as follows: (a) Directors The names and particulars of the Directors of the Company during or since the end of the financial year are: Name Role Mr I F Burston Independent Non Executive Chairman Mr B W Ridgeway Managing Director Mr H H Al-Merry Non Executive Director Mr R Kelly Independent Non Executive Director Age 69 50 42 66 Particulars Member of the Audit & Remuneration Committees. Director since November 2000. Director since May 2000. Director since April 2002. Member of the Audit & Remuneration Committees. Director since 14 January 2004. Mr K Dundo Independent 52 Chairman of the Audit & Non Executive Director Remuneration Committees. - Director since 14 January 2004. Mr M L Gasson Independent 56 Chairman of the Audit & Non Executive Director Remuneration Committees. Appointed a Director in May 1989, resigned as a Director on 14 January 2004. Mr G W Cobbledick Independent 36 Member of the Audit & Non Executive Director Remuneration Committees. Appointed a Director in January 2003, resigned as a Director on 30 October 2003. Information on the Director’s experience and qualifications is set out under Director Profiles. 16 Directors’ Report (b) Directors’ Meetings The following table sets out the number of Directors’ meetings (including meetings of committees of Directors) held during the financial year and the number of meetings attended by each Director (while they were a Director or committee member). During the financial year, sixteen Board meetings and three Audit and Compliance Committee meetings were held. Due to the recent appointment of Mr Kelly and Mr Dundo to the Board, the Remuneration Committee did not formally meet during the year. Decisions relating to remuneration were instead dealt with by the Board. Board of Directors Audit and Compliance Committee Held Attended Held Attended 16 16 16 8 8 8 4 16 16 4 8 8 7 4 3 - - 2 2 1 1 3 - - 2 2 1 1 I F Burston B W Ridgeway H H Al-Merry R Kelly K Dundo M L Gasson G W Cobbledick In addition to the Directors’ and Audit and Compliance Committee meetings there are also regular meetings in relation to the RTE/Imdex Saudi Arabian Joint Venture. These are attended by Mr B W Ridgeway, and regularly by Mr I F Burston, on behalf of Imdex Limited and Mr H H Al-Merr y on behalf of Rashid Trading Company. (c) Directors’ Shareholdings At the date of this report the Directors held the following interests in shares and options of the Company: I F Burston B W Ridgeway H H Al-Merry R Kelly Shares Held Directly Shares Held Indirectly Options Held Directly - - 100,000 1,000,000 6,143,993 2,000,000 10,755,000 - - 65,000 - - At the date of this report, the options issued under the Imdex Limited Employee Staff Option Scheme are disclosed in Note 27. No additional options were granted during the year. No shares were issued during the year on the exercise of options granted to Directors and employees. 17 Directors’ Report (d) Directors’ and Executives’ Remuneration The remuneration policy for Directors is set out in the Corporate Governance Statement. The Remuneration Committee assists the Board in determining executive remuneration policy. Remuneration packages are reviewed with due regard to performance and other relevant factors. Remuneration packages contain the following key elements: (i) Primar y benefits – salar y/fees, bonuses and non monetar y benefits including the provision of motor vehicles; (ii) Post-employment benefits – including superannuation and prescribed retirement benefits; (iii) Equity – share options granted under the Staff Option Scheme as disclosed in Note 27; and (iv) Other benefits. Details of Directors’ remuneration and the remuneration of the five highest remunerated executives of the Company and the Consolidated Entity are set out below. 2004 Primary Bonus Salary & fees Post Employment Equity Non- monetary Super annuation Prescribed Other benefits Options Other benefits $ $ $ $ $ $ $ $ Total $ Executive Director B W Ridgeway, Managing Director 249,999 Non Executive Directors I F Burston, Chairman H H Al-Merry (i) R Kelly K Dundo M L Gasson (ii) 50,000 - 16,040 16,040 12,500 G W Cobbledick (iii) 8,333 Executive Officers (excluding Directors) - - - - - - - 42,101 22,500 - - - - - - 4,500 - 1,444 1,444 21,125 750 G E Weston, General Manager AMC, Ace Drilling Supplies & Surtron Technologies I Tan, General Manager Imdex Minerals R Hancock, General Manager Imdex Minerals 179,423 20,000 8,574 16,148 29,423 102,072 - - - 2,648 2,023 7,902 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 314,600 - - - - - - 54,500 - 17,484 17,484 33,625 9,083 - 224,145 - 32,071 - - 111,997 18 Directors’ Report (i) Mr H H Al-Merr y is the President and owner of Rashid Trading Establishment (RTE), which is involved in a Joint Venture with Imdex Limited in the Middle East. Mr Al-Merr y is remunerated directly by the RTE/Imdex Joint Venture; (ii) Mr M L Gasson resigned from the Company on 14 Januar y 2004; (iii) Mr G W Cobbledick resigned from the Company on 30 October 2003; (iv) Mr I Tan was appointed as the General Manager of Imdex Minerals on 14 April 2004; and (v) Mr R Hancock was terminated from Imdex Minerals on 25 March 2004. (e) Principal Activities The Consolidated Entity’s principal continuing activities during the course of the financial year were the manufacturing and sale of a range of drilling products and ser vices and minerals processing. (f) Review of Operations A review of the operations for the financial year together with future prospects is contained in the Chairman’s Report and Managing Director’s Review. (g) Dividends No dividends were paid or declared by the Company during the year (2003 $Nil). The Directors do not recommend the payment of a dividend in respect of the financial year ended 30 June 2004. (h) Changes in State Of Affairs During the financial year there was no significant change in the state of affairs of the Consolidated Entity other than referred to in the Financial Statements or notes thereto. (i) Subsequent Events On 5 July 2004, Imdex Limited announced to the ASX that it had signed a Heads of Agreement with Rashid Trading Establishment (RTE) to re-structure the existing RTE/Imdex Limited Joint Venture. The proposed re- structure, which is subject to shareholder approval, involves: (i) (ii) RTE increasing its interest in the Joint Venture from 51% to 80% and accordingly, Imdex reducing its interest in the Joint Venture from 49% to 20%; Imdex cancelling 10,000,000 shares held by Mr H H Al-Merr y, the President of RTE and a Director of Imdex. The number of shares on issue in Imdex will be reduced to 110,055,368; (iii) RTE paying to Imdex a total of USD$2.25 million: USD$1.75 million due on the date that shareholders approve the transaction and USD$500,000 due on, or before, 31 March 2005; and (iv) Imdex subscribing for additional shares in Imdex Arabia with an aggregate subscription price of USD$750,000. 19 Directors’ Report Following completion of the proposed re-structure, the value of the capital of Imdex Arabia will be AUD$10 million, of which Imdex will hold 20% and RTE will hold 80%. The carr ying value of the investment in the RTE/Imdex Joint Venture at 30 June 2004 is AUD$5.413 million. Following the receipt of the AUD$2.089 million (net) in cash (items (iii) and (iv) above) and the cancellation of the 10,000,000 shares held by Mr H H Al-Merr y totalling approximately AUD$1.25 million (item (ii) above), the post proposed re-structure carr ying value will be AUD$2.074 million. Apart from this matter, no other matter or circumstance has arisen since the end of the financial year that has significantly affected or may significantly affect the operation of the Consolidated Entity, the results of those operations, the financial position or the state of af fairs of the Consolidated Entity in future financial years. (j) Future Developments Disclosure of information regarding likely developments in the operations of the Consolidated Entity in future financial years and the expected results of those operations is likely to result in unreasonable prejudice to the Consolidated Entity. Accordingly, this information has not been disclosed in this report. (k) Environmental Regulations The Consolidated Entity’s operations are conducted in environments that are subject to significant environmental regulation under both Commonwealth and State Legislation. The Directors of the Consolidated Entity are conscious of these regulations and understand that good environmental management reduces costs and minimises the impact on the environment. At its Jandakot facility, in Western Australia, Imdex Minerals, a division of Imdex Limited, carries out toll milling of mineral sands in what is a naturally dusty process. The Jandakot area is also a wind prone location. Significant efforts continue to minimise dust emission and the impact of dust on the surrounding area. A dust management and control systems audit for the main processing equipment, materials handling and transfer points was conducted in April 2004 by environmental consultants, MPL Pty Ltd (MPL). The MPL report notes the significant changes in housekeeping and dust management already implemented since the recent change of management at Imdex Minerals. A similar audit of the Dust Collectors has been conducted by Advanced Pollution Control. An improvement program is under way to improve the efficiency of these collectors. Two complaints were received by the Department of Environmental Protection (DEP) during the year. Both complaints related to dust emissions on one of the processing plants. On both occasions, the plant was shut down, corrective action implemented and the DEP consequently recommended no further action be taken over the matter. 20 Directors’ Report (l) Indemnification of Officers and Auditors During the financial year, the Company paid a premium in respect of a contract insuring the Directors of the Company, the Company Secretar y, and all executive officers of the Company and of any related body corporate against a liability incurred as such a Director, Secretar y or Executive Officer to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. The Company has not other wise, during or since the end of the financial year, indemnified or agreed to indemnify an officer or auditor of the Company or of any related body corporate against a liability incurred as such an officer or auditor. (m) Rounding Off of Amounts The Company is a Company of the kind referred to in ASIC Class Order 98/0100, dated 10 July 1998, and in accordance with that Class Order amounts in the Directors’ report and the financial report are rounded off to the nearest thousand dollars. Signed in accordance with a resolution of the Directors made pursuant to S.298(2) of the Corporations Act 2001. On behalf of the Directors Mr I F Burston Chairman PERTH, Western Australia 27 September 2004. 21 Corporate Governance Statement (a) ASX Governance Principles and ASX Recommendations On 31 March 2003, the Australian Stock Exchange Corporate Governance Council released its Principles and Best Practice Recommendations (ASX Recommendations) of Good Corporate Governance. ASX Listing Rule 4.10.3 requires companies to disclose the extent to which they have complied with the ASX Recommendations and to give reasons for not following them. Imdex commenced the process of assessing the impact of the ASX Recommendations in April 2003 and since that time the various policies and procedures have been reviewed and refined to their current form. The Board of Imdex formally approved and adopted the Company’s ASX Principles in late June 2004. As required, the Company has included a Corporate Governance section on its website: www.imdex.com.au (under the “Investor” heading) which includes the relevant documentation suggested by the ASX Recommendations. Unless other wise indicated, the Company has formally adopted the ASX Recommendations in late June 2004, although many of them have been in operation for the full year ended 30 June 2004. In its 2003 Annual Report, Imdex reported on the extent to which each of the ASX Recommendations were met and the additional work under way to ensure compliance. The extent to which Imdex has complied with the ASX Recommendations during the year ended 30 June 2004, and the main corporate governance practices in place are set out below. (b) Principle 1: Lay solid foundation for management and oversight The Board has implemented a Board Charter that formalises the functions and responsibilities of the Board. The Charter is published on the Company’s website. (c) Principle 2: Structure the Board to add value Imdex’s Board structure is consistent with the ASX Recommendations on Principle 2, with the exception that it does not have a separate nomination committee for the reasons detailed below. (i) Board Structure The Board consists of a Non Executive Chairman, three Non Executive Directors and one Executive Director. In accordance with the Company’s Constitution the minimum number of Directors is three. There is no maximum number, although it would be expected that the optimal number of Directors would be five or six. The names of the Directors of the Company in office at the date of this Statement are set out in the Directors’ Report and further details concerning the skills, experience, expertise and term of office of each Director is set out in the Directors’ Profiles in the first section of the Annual Report. (ii) Board Independence Directors are expected to bring independent judgement to bear in the decision making of the Board. To facilitate this, each Director has the right to seek independent legal advice at the Consolidated Entity’s expense with the prior approval of the Chairman, which may not be unreasonably withheld. In assessing Director independence, materiality has been determined from both a quantitative and qualitative perspective. An amount of over 5% of turnover is considered material. Similarly, a transaction of any amount, or a relationship, is deemed material if knowledge of it impacts, or may impact, the Shareholders’ understanding of the Director’s performance. The Board has conducted a review of each Director’s independence and reports as follows: 22 Corporate Governance Statement Director Assessment Existence of any matters contained in ASX Recommendation 2.1 affecting Independence Mr I F Burston, Non Executive Chairman Independent Nil Mr B W Ridgeway, Managing Director Not Independent Managing Director Mr H H Al-Merry, Non Executive Director Not Independent Mr Al-Merry is a substantial shareholder of the Company and the principal of Rashid Trading Establishment which is involved as a Joint Venture partner with the Company in the Middle East. Mr R Kelly, Non Executive Director Independent Mr K Dundo, Non Executive Director Independent Nil Nil (iii) Board Nomination The Board does not have a separate nomination committee and, given the Company’s size, the Board does not intend to form such a committee. However, the composition of the Board is determined using the following principles: • • • The Board should comprise a majority of independent, Non Executive Directors with a broad range of experience, skills and expertise; The Chairman of the Board should be an independent, Non Executive Director; and The roles of the Chairman and the Managing Director should not be exercised by the same individual. (iv) Procedure for the selection and appointment of new Directors to the Board The Company has published on its website, procedures for the selection and appointment of new Directors to the Board. The Company also has terms and conditions which govern the appointment of Non Executive Directors. These are subject to the Company’s Constitution and the Corporations Act 2001, and cover: appointment, retirement, Corporate Governance, remuneration, Board meetings and Board Committees. The Board does not impose on Directors an arbitrar y time limit on their tenure. Under the Company’s Constitution and the ASX Listing Rules however, each Director must retire by rotation within a three year period following their appointment. In such cases, the Director’s nomination for re-election should be based on performance and the needs of the Company. (d) Principle 3: Promote ethical and responsible decision-making (i) Code of Conduct The Company has developed a Code of Conduct that applies to all employees, officers or Directors of the Company. The Code addresses matters relevant to the Company’s legal and other obligations to its Shareholders and covers: the way in which we must discharge our duties; compliance with laws; conflicts of interest; confidentiality; insider trading; the use of the Company’s resources and the environment, health and safety. The Code is published on the Company’s website. 23 Corporate Governance Statement (ii) Share Trading Policy The Board has developed a Share Trading Policy that restricts Directors and Senior Management to trading in the Company’s shares during the one month periods following the annual and half yearly results announcements and the Annual General Meeting. At all other times the Chairman must be approached to determine whether trading at the particular time is appropriate. The Policy also reminds other staff of the laws applying to insider trading and stipulates that employees must not engage in short term trading of Imdex’s shares. Each of the Directors has signed an agreement requiring them to provide immediate notification to the Company of any changes in securities held, or controlled, by the Director. The Company makes an immediate notification to the ASX providing details of any changes in a Director’s shareholding. The Policy is published on the Company’s website. (e) Principle 4: Safeguard integrity in financial reporting (i) Statement by the Managing Director and Group Financial Controller The Managing Director and the Group Financial Controller have signed a declaration to the Board attesting to the fact that the 2004 Annual Financial Report presents a true and fair view, in all material respects, of the Company’s financial condition and operational results and are in accordance with relevant accounting standards. (ii) The Audit and Compliance Committee The Audit and Compliance Committee consists of three independent Non Executive Directors and operates under a formal charter approved by the Board. The Charter is published on the Company’s website. The Committee is chaired by an independent Chairperson who is not the Chairman of the Board of Directors. The role of the Committee is to advise on the establishment and maintenance of a framework of internal control, risk management protocols and appropriate ethical standards for the management of the Company. It also gives the Board assurance regarding the quality and reliability of financial information prepared for use by the Board in determining policies for inclusion in Financial Statements. The members of the Audit Committee during the year and at the date of this Statement were: Mr K Dundo (Chairman), joined the Committee on 14 January 2004 when he was appointed as a Director; Mr I F Burston; Mr R Kelly, joined the Committee on 14 January 2004 when he was appointed as a Director; Mr M L Gasson, was Chairman of the Committee until his resignation as a Director on 14 January 2004; Mr G W Cobbledick, was a Committee member until his resignation as a Director on 30 October 2003. The experience and qualifications of each committee member is set out in the Directors’ Profiles in the first section of the Annual Report. The external auditors, the Managing Director and the Group Financial Controller are invited to Audit Committee meetings at the discretion of the Committee. The Audit Committee met three times during the year as set out in the Directors’ Report. 24 Corporate Governance Statement (iii) External Auditors The Board reviews the performance, skills, cost and other matters when assessing the appointment of external auditors. This review is generally undertaken at the completion of the preparation of the annual Financial Statements and involves discussions with the auditors and the Consolidated Entity's senior management. Information concerning the selection and appointment of external auditors is published on the Company’s website. The external auditors are invited to attend the Annual General Meeting of the Company and to be available to answer questions from Shareholders. (f) Principle 5: Make timely and balanced disclosure (i) Continuous disclosure policies and procedures The Company has developed procedures to ensure that it complies with the disclosure requirements of the ASX Listing Rules. The procedures are published on the Company’s website. The procedures set out who is responsible for determining whether information is of a type or nature that requires disclosure, the Board’s role in reviewing the information disclosed to ASX and the procedures for ensuring that the information is released to the ASX. All information disclosed to the ASX is published to the Company’s website as soon as practicable. (g) Principle 6: Respect the rights of Shareholders (i) Shareholder Communications Strategy The Board of Directors aims to ensure that Shareholders are informed of all major developments affecting the Consolidated Entity's state of affairs. Information is communicated to Shareholders through: • • • • • the Annual Report distributed to all Shareholders (unless a Shareholder has specifically requested not to receive the Report). The Board ensures that the Annual Report includes relevant information about the operations of the Consolidated Entity during the year, changes in the state of affairs of the Consolidated Entity and details of future developments, in addition to the other disclosures required by the Corporations Act 2001; the Half-Yearly report which contains summarised financial information and a review of the operations of the Consolidated Entity during the period. Half year audited Financial Statements prepared in accordance with the requirements of Accounting Standards and the Corporations Act 2001 are lodged with the Australian Securities & Investments Commission and the Australian Stock Exchange. The Financial Statements are sent to any Shareholder who requests them; regular reports released through the ASX and the media; proposed major changes in the Consolidated Entity, which may impact on share ownership rights are submitted to a vote of Shareholders; and the Board encourages full participation by Shareholders at the Annual General Meeting to ensure a high level of accountability and identification with the Consolidated Entity's strategy and goals. Important issues are presented to the Shareholders as single resolutions. The Shareholders are responsible for voting on the appointment of Directors. Further information concerning the Company and the full text of the various announcements and reports referred to above are available on the Company’s website: www.imdex.com.au. Further information can also be obtained by emailing the Company at: imdex@imdex.com.au The Company’s Shareholder Communications Strategy is published on the Company’s website. 25 Corporate Governance Statement (h) Principle 7: Recognise and manage risk (i) Risk oversight and management policies The Board has sought to minimise the business' risks by focusing on the Company's core business, making changes as outlined in the Chairman’s Report and the Managing Director’s Report. The Board is responsible for ensuring that the Company’s risk management systems are adequate and operating effectively. The Company Secretar y and the Group Financial Controller have been instructed by the Audit Committee to develop a targeted internal control review programme for the Imdex Group; to conduct such a review and to report the findings to the Committee. Apart from this action, the Company does not have a separate internal audit function and, given the Company’s size, the Board does not intend to implement such a function. The Board believes that through the Board itself, the Audit Committee and the external auditors there is adequate oversight of the Company’s risk management and internal controls. The risk management policy is published on the Company’s website. (ii) Statement by the Managing Director and Group Financial Controller The Managing Director and the Group Financial Controller have signed a declaration to the Board attesting to the fact that the integrity of financial statements is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board, and that the system is operating efficiently and effectively in all material respects. (i) Principle 8: Encourage enhanced performance (i) Performance evaluation of the Board, its Committees, individual Directors and key executives There is a regular process to enable the Chairman to discuss and evaluate with each Director their contribution to the Board and to enable that Director to comment on all facets of the operation of the Board. Given the recent changes in the composition of the Board a performance evaluation was not conducted during the period, of individual directors, including the Managing Director. Given the Company’s size, the Board considers that this process is adequate and does not envisage forming a Nomination Committee to perform this function. All other Executives, and all staff of the Company, are subject to formal annual reviews of their performance. The description of the process for performance evaluation is published on the Company’s website. (j) Principle 9: Remunerate fairly and responsibly (i) Company’s remuneration policies Details on the remuneration of Directors are set out in Note 25. The Managing Director’s remuneration is determined by the Chairman who seeks independent advice on the appropriateness of the Managing Director’s salar y package as required. The Managing Director’s remuneration is currently a fixed monetar y total that is not linked to the Company’s performance. It is the intention of the Remuneration Committee to review the Managing Director’s remuneration, including the extent to which it is linked to the Company’s performance, during the year ended 30 June 2005. 26 Corporate Governance Statement The remuneration of key executives generally comprises a fixed monetar y total, although bonuses related to the performance of the Company may be agreed between that executive and the Company from time to time. Details concerning the remuneration of Non Executive Directors is set out in this statement. The Board seeks the approval of Shareholders, where required, in relation to the aggregate of Directors fees and option allocations to staff and Directors. (ii) Remuneration Committee The Remuneration Committee consists of three Non-Executive Directors and assists the Board in determining executive remuneration policy, determining the remuneration of Executive Directors and reviewing and approving the remuneration of senior management. The members of the Committee during the year and at the date of this Statement were: Mr I F Burston (Chairman); Mr K Dundo, joined the Committee on 14 Januar y 2004 when he was appointed as a Director; Mr R Kelly, joined the Committee on 14 Januar y 2004 when he was appointed as a Director; Mr M L Gasson, was Committee member until his resignation as a Director on 14 Januar y 2004; Mr G W Cobbledick, was a Committee member until his resignation as a Director on 30 October 2003. The experience and qualifications of each committee member is set out in the Directors’ Profiles in the first section of the Annual Report. Due to the recent appointment of Mr Kelly and Mr Dundo to the Board, the Remuneration Committee did not formally meet during the year. Decisions relating to remuneration were instead dealt with by the Board. The Remuneration Committee Charter is published on the Company’s website. (iii) Non Executive Director’s remuneration The terms and conditions governing the remuneration of Non Executive Director’s are set out in their appointment letter. With the exception of Mr M L Gasson, who resigned as a Director on 14 Januar y 2004, all Non Executive Directors are remunerated by way of fixed cash fees and statutor y superannuation contributions only. In addition, Non Executive Directors are not provided with retirement benefits other than statutor y superannuation. A benefit of $20,000 was paid to Mr M L Gasson in connection with his retirement from the Board. This payment was for past ser vices provided to the Company and did not exceed the payment limit set by section 200G(2) of the Corporations Act 2001. This payment has been included in the Directors’ and Executives’ remuneration set out in the Directors’ Report and in Note 25. The Chairman, Mr I F Burston, holds 1,000,000 options in the Company that were allotted on 25 October 2001 and expire on 24 October 2004. Apart from Mr Burston, no other Non Executive Director holds options in the Company. (k) Principle 10: Recognise the legitimate interests of stakeholders (i) Code of Conduct As set out in Principle 3 above, the Company has developed and published to its website a Code of Conduct. 27 Independent Audit Report Independent Audit Report Auditor’s report 28 29 Independent Audit Report Independent Audit Report Auditor’s report 28 29 Directors’ Declaration The Directors declare that: (i) the attached financial statements and notes thereto comply with accounting standards; (ii) the attached financial statements and notes thereto give a true and fair view of the financial position and performance of the Company and the Consolidated Entity; (iii) in the Directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001; and (iv) in the Directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. Signed in accordance with a resolution of the Directors made pursuant to S.295(5) of the Corporations Act 2001. On behalf of the Directors Mr I F Burston Chairman PERTH, Western Australia 27 September 2004. 30 Statements of Financial Performance for the year ended 30 June 2004 Note Consolidated Company 2004 $’000 2003 $’000 2004 $’000 2003 $’000 Revenue from sale of goods 2 33,423 26,297 12,275 11,032 Revenue from rendering of ser vices Other revenue from ordinar y activities 2 2 5,948 460 4,326 - 288 1,110 - 941 Total Revenue 39,831 30,911 13,385 11,973 Share of net loss of equity accounted investments 15 292 894 - Write down of the investment in the RTE/Imdex Joint Venture to recoverable amount 15 3,108 Prior year adjustments relating to Imdex Minerals 2 2,796 - - Raw materials and consumables used 19,338 14,315 Other expenses from ordinar y activities 2 8,837 Employee benefits expenses Depreciation and amortisation expenses Borrowing costs 6,739 1,938 559 2 2 6,163 5,676 1,834 551 3,108 2,796 5,798 4,853 2,565 1,034 420 - - - 4,405 3,074 2,390 1,043 465 Profit/(Loss) from ordinar y activities before related income tax expense Income tax benefit/(expense) relating to ordinar y activities Profit/(Loss) from ordinar y activities after related income tax expense Net Profit/(Loss) Net profit attributable to outside equity interests Net Profit/(Loss) attributable to members of the Parent Entity Total Changes in Equity Other than those Resulting from Transactions with Owners as Owners (3,776) 1,478 (7,189) 596 5 87 (570) 289 (4) (3,689) (3,689) - 908 908 - (6,900) (6,900) - 592 592 - 22 (3,689) 908 (6,900) 592 (3,689) 908 (6,900) 592 Basic Earnings per Share (cents) Ordinar y Shares Diluted Earnings per Share (cents) Ordinar y Shares Consolidated 2004 Cents Per Share 2003 Cents Per Share 6 (3.07) 0.76 6 (3.07) 0.76 The Statements of Financial Performance are to be read in conjunction with the notes to the Financial Statements. 31 Statements of Financial Position as at 30 June 2004 B Current Assets Cash Assets Receivables Inventories Current Tax Assets Other Total Current Assets Non Current Assets Receivables Other Financial Assets Property, Plant and Equipment Exploration, Evaluation and Development Expenditure Deferred Tax Assets Total Non Current Assets Total Assets Current Liabilities Payables Interest Bearing Liabilities Current Tax Liabilities Provisions Total Current Liabilities Non Current Liabilities Interest Bearing Liabilities Deferred Tax Liabilities Provisions Note Consolidated Company 2004 $’000 2003 $’000 2004 $’000 2003 $’000 7 8 9 11 12 56 9,355 6,340 - 7 325 7,617 6,723 - 42 35 2,548 947 22 - 42 2,915 3,345 - 39 15,758 14,707 3,552 6,341 8 - - 10 5,413 8,811 13 11,771 12,027 14 11 641 595 686 605 - 6,917 7,429 641 260 2,243 10,029 8,164 686 263 18,420 22,129 15,247 21,385 34,178 36,836 18,799 27,726 16 7,221 17 4,429 11 18 39 639 5,645 3,171 561 595 2,482 3,898 - 203 2,031 3,042 236 213 12,328 9,972 6,583 5,522 17 3,239 4,460 4,405 7,439 11 18 370 130 489 115 370 50 421 53 Total Non Current Liabilities 3,739 5,064 4,825 7,913 Total Liabilities Net Assets Equity Contributed Equity Reser ves Retained Profits Total Equity 16,067 15,036 11,408 13,435 18,111 21,800 7,391 14,291 20 21,058 21,058 21,058 21,058 21 8 8 8 8 22 (2,955) 734 (13,675) (6,775) 18,111 21,800 7,391 14,291 The Statements of Financial Position are to be read in conjunction with the notes to the Financial Statements. 32 B Statements of Cash Flows for the year ended 30 June 2004 Cash flows from Operating Activities Receipts from customers Other income Note Consolidated Company 2004 $’000 2003 $’000 2004 $’000 2003 $’000 40,747 32,218 13,699 11,992 - - 840 840 Payments to suppliers and employees (38,366) (29,487) (13,982) (12,140) Interest received Interest and other costs of finance paid Income taxes paid - (378) (543) 12 (407) (131) Net cash provided by Operating Activities 32 1,460 2,205 - (376) (14) 167 10 (405) (27) 270 Cash flows from Investing Activities Payments for property, plant and equipment (1,926) (2,162) (463) (770) Proceeds from disposal of property, plant and equipment Proceeds from sale of shares Proceeds from disposal of Controlled Entities Payments for mine development Payments for other assets/investments – Saudi Arabia, Dubai 343 - - - - 223 54 500 (150) (1,325) 270 - - - - Net cash used in Investing Activities (1,583) (2,860) (193) 91 54 500 (150) (1,325) (1,600) Cash flows from Financing Activities Advances from Controlled Entities - - Repayments hire purchase and lease borrowings (1,234) (868) 757 (522) 906 (386) Proceeds from borrowings Repayment of borrowings 2,176 3,806 1,122 2,726 (1,250) (1,000) (1,250) (1,000) Net cash provided by/(used in) Financing Activities (308) 1,938 107 2,246 Net Increase/(Decrease) in Cash Held (431) 1,283 81 Cash at the beginning of the financial year 32 (1,022) (2,305) (1,648) Cash at the end of the financial year 32 (1,453) (1,022) (1,567) 916 (2,564) (1,648) The Statements of Cash Flows are to be read in conjunction with the notes to the Financial Statements. 33 Notes to the Financial Statements 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (a) Financial Reporting Framework The financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards, Urgent Issues Group Consensus Views, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. It has been prepared on the basis of historical costs and, except where stated, does not take into account changing money values or fair values of non current assets. Cost is based on the fair values of the consideration given in exchange for assets. (b) Significant Accounting Policies Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported. The accounting policies have been consistently applied by each entity in the Consolidated Entity and, except where there is a change in accounting policy, are consistent with the previous year. Comparative information has been restated where applicable to ensure consistency. The significant policies which have been adopted in the preparation of this Financial Report are as follows: (c) Principles of Consolidation The consolidated Financial Statements are prepared by combining the financial statements of all the entities that comprise the Consolidated Entity, being the Company (the Parent Entity) and its controlled entities as defined in Accounting Standard AASB 1024 ‘Consolidated Accounts’. A list of controlled entities appears in Note 23 to the Financial Statements. Consistent accounting policies are employed in the preparation and presentation of the consolidated Financial Statements. The consolidated Financial Statements include the information and results of each controlled entity from the date on which the company obtains control and until such time as the company ceases to control such entity. In preparing the consolidated Financial Statements, all intercompany balances and transactions, and unrealised profits arising within the Consolidated Entity are eliminated in full. (d) Revenue Recognition Revenue is recognised at the fair value of the consideration received net of the amount of Goods and Ser vices Tax (GST). Exchanges of goods or ser vices of the same nature and value without any cash consideration are not recognised as revenues. (i) Sale of goods Revenues from sale of goods are recognised (net of returns of discounts and allowances) when the control of goods passes to the customer. (ii) Rendering of services Revenue from rendering ser vices is recognised in the period when the ser vice is provided, having regard to the stage of completion of the contract. (iii) Interest income Interest income is recognised as it accrues. 34 Notes to the Financial Statements (iv) Sale of Non Current Assets The gross proceeds of non current asset sales are included as revenue at the date control of the asset passes to the buyer, usually when an unconditional contract of sale is signed. The gain or loss on disposal is calculated as the difference between the carr ying amount of the asset at the time of disposal and the net proceeds on disposal. (e) Goods and Ser vices Tax Revenues, expenses and assets are recognised net of the amount of Goods and Ser vices Tax (GST), except where the amount of GST incurred is not recoverable from the Australian Tax Office (ATO). In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the Statements of Financial Position. Cash flows from operating activities are included in the Statements of Cash Flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows. (f) Taxation The Consolidated Entity adopts the income statement liability method of tax effect accounting. Income tax expense is calculated on operating profit adjusted for permanent differences between taxable and accounting income. The tax effect of timing differences, which arise from items being brought to account in different periods for income tax and accounting purposes, is carried for ward in the Statement of Financial Position as a future income tax benefit or a provision for deferred income tax. Future income tax benefits are not brought to account unless realisation of the assets is assured beyond reasonable doubt. Future income tax benefits relating to tax losses are only brought to account when their realisation is virtually certain. Legislation to allow groups, comprising a parent entity and its Australian resident wholly-owned entities, to elect to consolidate and be treated as a single entity for income tax purposes was substantively enacted on 21 October 2002. This legislation, which includes both mandator y and elective elements, is applicable to the Company. Further details concerning the impact of this legislation on the Company are set out at Note 5. (g) Acquisition of Assets (i) Acquisition All assets acquired, including property, plant and equipment are initially recorded at their cost of acquisition at the date of acquisition, being the fair value of the consideration provided plus incidental costs directly attributable to the acquisition. The costs of assets constructed or internally generated by the Consolidated Entity, include the cost of materials and direct labour. Directly attributable overheads and other incidental costs are also capitalised to the asset. Expenditure including that on internally generated assets, is only recognised as an asset when the entity controls future economic benefits as a result of the costs incurred, it is probable that those future economic benefits will eventuate, and the costs can be reliably measured. Costs attributable to feasibility and alternative approach assessment are expensed as incurred. 35 Notes to the Financial Statements (ii) Subsequent Additional Costs Costs incurred on property, plant and equipment subsequent to initial acquisition are capitalised when it is probable that future economic benefits, in excess of the originally assessed performance of the asset, will flow to the Consolidated Entity in future years. Where these costs represent separate components they are accounted their useful lives. separately depreciated over separate assets and are for as (h) Depreciation and Amortisation (i) Useful Lives All assets have limited useful lives and are depreciated using the straight line or diminishing value method over their estimated useful lives, with the exception of carried for ward exploration, evaluation and development costs on areas of interest in production which is amortised on a units of production basis over the life of the economically recoverable reser ves and finance lease assets which are amortised over the term of the relevant lease, or where it is likely the Consolidated Entity will obtain ownership of the asset, the life of the asset. Assets are depreciated or amortised from the date of acquisition. Amortisation is not charged on costs carried for ward in respect of areas of interest in the development phase until commercial production commences. Depreciation and amortisation rates and methods are reviewed annually for appropriateness. When changes are made, adjustments are reflected prospectively in current and future periods only. Depreciation and amortisation are expensed, except to the extent that they are included in the carr ying amount of another asset as an allocation of production overheads. (ii) The depreciation/amortisation rates used for each class of asset are as follows: Buildings Plant and Equipment Leased Plant and Equipment (i) Leased assets 2004 2.5% 2003 2.5% 10% - 40% 10% - 40% 13% - 22.5% 13% - 22.5% Leases of plant and equipment under which the Company or its Controlled Entities assume substantially all of the risks and benefits of ownership, are classified as finance leases. Other leases are classified as operating leases. (i) Finance Leases Finance leases are capitalised. A lease asset and liability equal to the present value of the minimum lease payments are recorded at the inception of the lease. Lease liabilities are reduced by repayments of principal. The interest components of the lease payments are expensed as incurred. Finance lease assets are amortised on a straight line basis over the estimated useful life of the asset. (ii) Operating Leases Payments made under operating leases are recognised as an expense on a basis which reflects the pattern in which economic benefits from the leased assets are consumed. 36 Notes to the Financial Statements (j) Inventories Inventories are carried at the lower of cost and net realisable value. Cost includes direct materials, direct labour, other direct variable costs and allocated production overheads necessar y to bring inventories to their present location and condition, based on normal operating capacity of the production facilities. (i) Manufacturing activities The cost of manufacturing inventories and work in progress are assigned on a first in, first out basis. Costs arising from exceptional wastage are expensed as incurred. (ii) Mining activities The cost of mining inventories is determined using a weighted average basis. (iii) Net realisable value Net realisable value is determined on the basis of each inventor y line's normal selling pattern. Expenses of marketing, selling and distribution to customers are estimated and are deducted to establish net realisable value. (k) Exploration, Evaluation and Development Expenditure Exploration, evaluation and development costs are accumulated in respect of each separate area of interest. Exploration and evaluation costs are carried for ward where right of tenure of the area of interest is current and they are expected to be recouped through sale or successful development and exploitation of the area of interest, or where exploration and evaluation activities in the area of interest have not yet reached a stage that permits reasonable assessment of the existence of economically recoverable reser ves. Development costs related to an area of interest are carried for ward to the extent that they are expected to be recouped either through sale or successful exploitation of the area of interest. When an area of interest is abandoned or the Directors decide that it is not commercial, any accumulated costs in respect of that area are written off in the financial period the decision is made. Each area of interest is also reviewed at the end of each accounting period and accumulated costs written off to the extent that they will not be recoverable in the future. Provisions are made for mine site rehabilitation and restoration on an incremental basis during the course of mine life (which includes the mine closure phase). Provisions, which are determined on an undiscounted basis, include the following costs: reclamation, plant closure, waste site closure and monitoring activities. These costs have been determined on the basis of current costs, current legal requirements and current technology. Changes in estimates are dealt with on a prospective basis. 37 Notes to the Financial Statements (l) Recoverable Amounts of Non Current Assets The carr ying amounts of non current assets valued on the cost basis, other than exploration and evaluation expenditure carried for ward, are reviewed to determine whether they are in excess of their recoverable amount at balance date. If the carr ying amount of a non current asset exceeds its recoverable amount, the asset is written down to the lower amount. The write down is expensed in the reporting period in which it occurs. Where a group of assets working together supports the generation of cash inflows, recoverable amount is assessed in relation to that group of assets. In assessing recoverable amounts of non current assets, the relevant cash flows have not been discounted to their present value, except where specifically stated. (m) Employee Benefits The provision for employee benefits to wages, salaries, annual leave and other employee benefits represents the amount which the Consolidated Entity has a present obligation to pay resulting from employees’ ser vices provided up to the balance date. Provisions expected to be settled within 12 months, are calculated at nominal time of settlement. remuneration expected amounts based apply rate the the on at to The liability for employee benefits to long ser vice leave represents the present value of the estimated future cash outflows to be made by the employer resulting from employee’s ser vices provided up to the balance date. Liabilities for employee benefits which are not expected to be settled within twelve months are discounted using the rates attaching to national government securities at balance date, which most closely match the terms of maturity of the related liabilities. In determining the liability for employee entitlements, consideration has been given to future increases in wages and salar y rates, and the Consolidated Entity’s experience with staff departures. Related on-costs have also been included in the liability. (i) Employee Share and Option Plans Imdex Limited has granted options to certain employees under an Employee Share Option Plan. Further information is set out in Note 27 to the Financial Statements. Other than the costs incurred in administering the plan, which are expensed when incurred, the plan does not result in any expense being recognised in the financial report of the Consolidated Entity. (ii) Superannuation Plan The Company and other Controlled Entities contribute Superannuation plans. to several defined contribution Contributions are charged as an expense as they are incurred. Further information is set out in Note 26. 38 Notes to the Financial Statements (n) Financial instruments issued by the Company (i) Debt and equity instruments Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual arrangement. (ii) Transaction costs on the issue of equity instruments Transaction costs arising on the issue of equity instruments are recognised directly in equity as a reduction of the proceeds of the equity instruments to which the costs relate. Transaction costs are the costs that are incurred directly in connection with the issue of those equity instruments and which would normally not have been incurred had those instruments not been issued. (iii) Interest and dividends Interest and dividends are classified as expenses or as distributions of profit consistent with the Statement of Financial Position classification of the related debt or equity instrument. (o) Investments (i) Controlled Entities Investments in Controlled Entities are carried in the Company’s Financial Statements at the lower of cost and recoverable amount. (ii) Other Companies Investments in other unlisted companies are carried at the lower of cost and recoverable amount. (iii) Associates Associates are those entities, other than partnerships, over which the Consolidated Entity exercises significant influence and which are not intended for sale in the near future. In the Consolidated Financial Statements, investments in associates are accounted for using equity accounting principles. Investments in associates are carried at the lower of the equity accounted amount and recoverable amount. The Consolidated Entity's equity accounted share of the associates' net profit or loss is recognised in the consolidated statement of financial performance from the date significant influence commences until the date significant influence ceases. Other movements in reser ves are recognised directly in consolidated reser ves. (iv) Dividend Revenue Dividend revenue is recognised on a receivable basis. 39 Notes to the Financial Statements (p) Joint Ventures Interests in joint venture entities that are: (i) Partnerships are accounted for under the equity method in the company and the consolidated Financial Statements; and (ii) Not partnerships are accounted for under the equity method in the consolidated Financial Statements and the cost method in the company Financial Statements. (q) Accounts Payable Trade payables and other accounts payable are recognised when the Consolidated Entity becomes obliged to make future payments resulting from the purchase of goods and ser vices. (r) Provisions Provisions are recognised when the Consolidated Entity has a present obligation, the future sacrifice of economic benefits is probable, and the amount of the provision can be measured reliably. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is probable that recover y will be received and the amount of the receivable can be measured reliably. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cashflows estimated to settle the present obligation, its carr ying amount is the present value of those cashflows. (s) Foreign Currency All foreign currency transactions during the financial year are brought to account using the exchange rate in effect at the date of the transaction. Foreign currency monetar y items at reporting date are translated at the exchange rate existing at that date. Exchange differences are recognised in net profit or loss in the period in which they arise except that: (i) (ii) exchange differences which relate to assets under construction for future productive use are included in the cost of those assets; and exchange differences on transactions entered into in order to hedge the purchase or sale of specific goods and ser vices are deferred and included in the measurement of the purchase or sale. (t) Interest Bearing Liabilities Bills of exchange are recorded at an amount equal to the net proceeds received, with the premium or discount amor tised over recognised on an ef fective yield basis. the period until maturity. Interest expense is Debentures, bank loans and other loans are recorded at an amount equal to the net proceeds received. Interest expense is recognised on an accrual basis. Ancillar y costs incurred in connection with the arrangement of borrowings are deferred and amortised over the period of the borrowing. (u) Receivables Trade receivables and other receivables are recorded at amounts due less any allowance for doubtful debts. 40 Notes to the Financial Statements 2. PROFIT FROM ORDINARY ACTIVITIES Consolidated Company 2004 $’000 2003 $’000 2004 $’000 2003 $’000 Profit from ordinar y activities before income tax includes the following items of revenue: Operating Revenue Sale of goods Rendering of ser vices Non Operating Revenue Interest from other parties Gross proceeds from sale of non-current assets Management fees from Controlled Entities Grants received Other revenue 33,423 26,297 12,275 11,032 5,948 4,326 - - 39,371 30,623 12,275 11,032 - 343 - 59 58 12 223 - 53 - - 270 840 - - 10 91 840 - - 460 288 1,110 941 Total Revenue from Ordinary Activities 39,831 30,911 13,385 11,973 Profit from ordinar y activities before income tax includes the following items of revenue and expense Net foreign exchange loss 87 73 Net (gain)/loss on disposal of non-current assets – property, plant and equipment (55) (92) Depreciation of non-current assets - buildings - plant and equipment 102 1,131 1,233 94 1,246 1,340 67 62 102 708 810 25 19 94 763 857 41 Notes to the Financial Statements Amortisation of: - leased assets - exploration, evaluation and development expenditure Consolidated Company 2004 $’000 2003 $’000 2004 $’000 2003 $’000 661 44 705 458 36 494 179 45 224 150 36 186 Total Depreciation/Amortisation 1,938 1,834 1,034 1,043 Borrowing costs: - hire purchase liabilities - other parties 181 378 559 144 407 551 44 376 420 60 405 465 Cost of sales 25,083 19,303 8,148 6,910 Bad debts written off – trade debtors Provisions - Doubtful debts - Stock obsolesence 30 28 80 9 55 65 30 14 15 Operating lease rental expense 504 390 225 Other Expenses from Other Activities Commissions Consultancy fees Electricity Repairs and maintenance Rent and premises costs Insurance Freight Communication Travel and accommodation Foreign exchange loss Other expenses 6 131 - 202 97 192 301 268 270 117 97 141 51 25 608 656 414 714 770 276 575 305 801 87 399 404 318 428 702 232 186 285 564 58 210 266 411 470 277 140 436 139 99 67 3,631 8,837 2,587 6,163 2,338 4,853 1,515 3,074 42 Notes to the Financial Statements Consolidated Company 2004 $’000 2003 $’000 2004 $’000 2003 $’000 Prior year adjustments relating to Imdex Minerals 2,796 - 2,796 - In March 2004, discrepancies in the recorded value of stock and debtors, totalling $4.06 million, were uncovered at Imdex Minerals, a division of Imdex Limited. Of this total, $1.3 million relates to the current financial year (stock $0.5 million; debtors $0.8 million), and $2.8 million relates to prior financial years (stock $2.2 million; debtors $0.6 million). The background and rectification measures initiated by Directors as a result of the discrepancies have been the subject of previous announcements to the ASX. Due to the nature of the discrepancies, and the periods to which they relate, it is impracticable to restate the comparative information relating to prior financial years. 3. SALES OF ASSETS Sales of assets in the ordinar y course of business have given rise to the following profits and losses: Net profits Investments Property, plant and equipment Net losses Property, plant and equipment Consolidated Company 2004 $’000 2003 $’000 2004 $’000 2003 $’000 - 55 55 - - 92 92 - - 62 62 - 1 - 1 (20) 4. AUDITORS’ REMUNERATION Consolidated Company 2004 $ 2003 $ 2004 $ 2003 $ Audit services: - Auditors of the Company – Deloitte Touche Tohmatsu 59,185 50,425 59,185 50,425 Other services: - Auditors of the Company – KPMG 600 25,420 600 25,420 - Auditors of the Company – Deloitte Touche Tohmatsu 22,840 - 22,840 - 82,625 75,845 82,625 75,845 43 Notes to the Financial Statements 5. INCOME TAX Consolidated Company 2004 $’000 2003 $’000 2004 $’000 2003 $’000 The prima facie income tax expense on pre-tax accounting profit reconciles to the income tax expense in the Financial Statements as follows: Profit/(loss) from ordinar y activities before tax Income tax expense/(benefit) calculated at 30% (3,776) (1,133) 1,478 (7,189) 443 (2,157) 596 179 Permanent Differences Tax benefit of losses transferred to a controlled entity Prior years adjustments relating to Imdex Minerals Non-deductible write down of the investment in the RTE/Imdex Joint Venture Non-deductible share of RTE/Imdex Joint Venture losses Recoverable amount write off – fixed assets Deductible share raising costs Taxable/(Non taxable) income Other items Recognition of net timing differences not previously brought to account (Over)/under provision of income tax in previous year (Over)/under provision of income tax in previous year – relating to the prior years stock and debtors write-downs at Imdex Minerals (Over)/under provision of income tax in previous year – relating to loss transfers between entities in the wholly owned group Income tax expense/(benefit) relating to ordinary activities Future income tax benefits not brought to account as assets: Tax losses – revenue Tax losses – capital Timing differences (25) 788 932 87 - (13) 31 38 - (4) (788) - (87) - 135 - - - - 247 2 (13) 7 31 (194) 47 - - 570 - 135 - 395 788 932 - - (13) 4 27 - 4 (788) 519 (289) - 135 - - - - - 4 (13) 7 17 (190) - - - 4 - 135 - 44 Notes to the Financial Statements The taxation benefits of tax losses and timing differences not brought to account will only be obtained if: (i) assessable income is derived of a nature and of amount sufficient to enable the benefit from the deductions to be realised; (ii) conditions for deductibility imposed by the law are complied with; and (iii) no changes in tax legislation adversely affect the realisation of the benefit from the deductions. Tax Consolidation System Legislation to allow groups, comprising a parent entity and its Australian resident wholly-owned entities, to elect to consolidate and be treated as a single entity for income tax purposes was substantively enacted on 21 October 2002. The company and its wholly-owned Australian resident entities are eligible to consolidate for tax purposes under this legislation and the Directors of these entities consider it likely that they will elect to implement the tax consolidation system in due course. However, at the date of this report the Directors have not yet finalised an assessment of the financial effect that implementation may have on the company and the consolidated entity. Accordingly, the Directors have not made a final formal decision whether or not to implement the tax consolidation system, and if so, from which date implementation would occur. As a result, only the financial effects of the mandator y aspects of the enabling legislation has been recognised in the financial statements and no adjustment has been made to recognise the financial effects that may arise from the implementation of the tax consolidation system. In the event that the tax consolidation system is implemented, the company is likely to become the ‘head entity’ of the tax-consolidated group, and has agreed to compensate each wholly-owned subsidiar y for the carr ying amount of its deferred tax balances. 45 Notes to the Financial Statements 6. EARNINGS PER SHARE Consolidated 2004 Cents Per Share 2003 Cents Per Share Basic earnings per share Diluted earnings per share Basic Earnings per share The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows: (3.07) (3.07) 2004 $’000 Consolidated Earnings (a) (3,689) 2004 Number 0.76 0.76 2003 $’000 908 2003 Number Weighted average number of ordinary shares 120,055,368 118,752,211 (a) Earnings used in the calculation of basic earnings per share reconciles to the net result in the statement of financial performance as follows: Net profit/(loss) Earnings used in the calculation of basic EPS Diluted Earnings per share The earnings and weighted average number of ordinary shares used in the calculation of diluted earnings per share are as follows: 2004 $’000 (3,689) (3,689) 2004 $’000 Earnings (a) (3,689) 2004 Number 2003 $’000 908 908 2003 $’000 908 2003 Number Weighted average number of ordinary shares (b) (c) 120,055,368 118,752,211 (a) Earnings used in the calculation of diluted earnings per share reconciles to net profit in the statement of financial performance as follows: Net profit Earnings used in the calculation of diluted EPS Options outstanding to Directors and Employees, under their respective option plans, have been classified as potential ordinar y shares and considered for the purpose of calculating the diluted earnings per share only. 2004 $’000 (3,689) (3,689) 2003 $’000 908 908 46 Notes to the Financial Statements (b) Weighted average number of ordinar y shares and potential ordinar y shares used in the calculation of diluted earnings per share reconciles to the weighted average number of ordinar y shares used in the calculation of basic earnings per share as follows: Weighted average number of ordinar y shares used in the calculation of basic EPS Shares deemed to be issued for no consideration in respect of employee and director options Weighted average number of ordinar y shares and potential ordinar y shares used in the calculation of diluted EPS (c) The following potential ordinary shares are not dilutive and are therefore excluded from the weighted average number of ordinary shares used in the calculation of diluted earnings per shares 2004 Number 2003 Number 120,055,368 118,752,211 - - 120,055,368 118,752,211 Employee and Director options 3,000,000 6,050,000 7. CASH ASSETS Consolidated Company 2004 $’000 2003 $’000 2004 $’000 2003 $’000 Cash 56 325 35 42 8. RECEIVABLES Current Receivables Consolidated Company 2004 $’000 2003 $’000 2004 $’000 2003 $’000 9,765 8,151 2,789 3,116 Allowance for doubtful debts (557) (592) (252) (247) Other receivables Non-current 9,208 147 9,355 7,559 2,537 2,869 58 11 46 7,617 2,548 2,915 Loans to Controlled Entity - - - 2,243 47 Notes to the Financial Statements C 9. INVENTORIES Consolidated Company Current Raw material – (at cost) Finished goods – (at cost) 2004 $’000 2003 $’000 2004 $’000 2003 $’000 6,660 (320) 6,340 1,296 5,427 6,723 1,215 (268) 947 1,296 2,049 3,345 10. OTHER FINANCIAL ASSETS Consolidated Company 2004 $’000 2003 $’000 2004 $’000 2003 $’000 Non-current: at recoverable amount (i) Investment in Other Entities – RTE/Imdex Saudi Arabian Joint Venture (ii) 5,413 8,811 6,593 9,705 Investments in Controlled Entities – at recoverable amount - - 324 324 5,413 8,811 6,917 10,029 (i) Based on the Directors conser vative estimate of the discounted future cash flows arising from each asset. (ii) Refer to Note 15 for accounting treatment of investments accounted for using the equity method. 11. TAX ASSETS/LIABILITIES Current tax assets Tax refund receivable Non-current tax assets Consolidated Company 2004 $’000 2003 $’000 2004 $’000 2003 $’000 - - 22 - Future income tax benefit arising from timing differences 595 605 260 263 Current tax liabilities Tax payable Non-current 39 561 - 236 Deferred tax liability 370 489 370 421 12. OTHER ASSETS Consolidated Company 2004 $’000 2003 $’000 2004 $’000 2003 $’000 Prepayments 7 42 - 39 48 C Notes to the Financial Statements 13. PROPERTY, PLANT AND EQUIPMENT Consolidated Freehold Land at cost (i) Freehold Buildings at cost (i) Plant and Equipment at cost Equipment under hire purchase at cost Capital works in progress at cost TOTAL $’000 $’000 $’000 $’000 $’000 $’000 Gross Carrying Value Balance at 30 June 2003 875 2,920 Additions Disposals Transfer - - - Balance at 30 June 2004 875 Accumulated Depreciation/ Amortisation Balance at 30 June 2003 Disposals Depreciation expense Transfer Balance at 30 June 2004 Net book value As at 30 June 2003 As at 30 June 2004 - - 358 3,278 642 - 102 - 744 12,576 1,169 (466) (364) 4,106 414 757 (237) 467 - - (414) 12,915 5,093 7,092 (321) 1,131 - 1,130 (94) 661 47 7,902 1,744 - - - - - - 20,891 1,926 (703) 47 22,161 8,864 (415) 1,894 47 10,390 - - - - 875 875 2,278 2,534 5,484 5,013 2,976 3,349 414 - 12,027 11,771 Company Freehold Land at cost (i) Freehold Buildings at cost (i) Plant and Equipment at cost Equipment under hire purchase at cost Capital works in progress at cost TOTAL $’000 $’000 $’000 $’000 $’000 $’000 Gross Carrying Value Balance at 30 June 2003 875 2,920 7,375 1,586 414 13,170 Additions Disposals Transfer - - - Balance at 30 June 2004 875 - - 358 3,278 322 (365) 56 141 (137) 7 - - (414) 463 (502) 7 7,388 1,597 - 13,138 49 Notes to the Financial Statements Company Freehold Land at cost (i) Freehold Buildings at cost (i) Plant and Equipment at cost Equipment under hire purchase at cost Capital works in progress at cost TOTAL $’000 $’000 $’000 $’000 $’000 $’000 - - - - - 642 - 102 - 744 3,985 (247) 708 - 4,446 379 (46) 179 7 519 - - - - - 5,006 (293) 989 7 5,709 875 875 2,278 2,534 3,390 2,942 1,207 1,078 414 - 8,164 7,429 Accumulated Depreciation/ Amortisation Balance at 30 June 2003 Disposals Depreciation expense Transfer Balance at 30 June 2004 Net book value As at 30 June 2003 As at 30 June 2004 (i) Land and buildings located at 7-15 Spencer Street, Jandakot, Western Australia and 1 Tichbourne Street, Jandakot, Western Australia, were independently valued in September 2002 by N F Freshwater AAPI (Certified Practising Valuer), of Jones Lang LaSalle, on the basis of existing use at $3,450,000. At 30 June 2004 the carr ying value of the land and buildings was $3,409,000. Aggregate depreciation/amortisation allocated, whether recognised as an expense or capitalised as part of the carr ying amount of other assets during the year: Freehold Buildings Plant and Equipment Equipment under finance lease Consolidated Company 2004 $’000 2003 $’000 2004 $’000 2003 $’000 102 94 1,131 1,246 661 458 1,894 1,798 102 708 179 989 94 763 150 1,007 50 Notes to the Financial Statements 14. EXPLORATION, EVALUATION AND DEVELOPMENT EXPENDITURE Consolidated Company 2004 $’000 2003 $’000 2004 $’000 2003 $’000 Costs carried for ward in respect of areas of interest in production phase: - At cost - Accumulated amortisation Cost Balance at the beginning of the financial year Expenditure incurred Balance at the end of the financial year Accumulated Amortisation Balance at the beginning of the financial year Amortisation charge Balance at the end of the financial year 894 (253) 641 894 - 894 208 45 253 894 (208) 686 744 150 894 172 36 208 894 (253) 641 894 - 894 208 45 253 894 (208) 686 744 150 894 172 36 208 No Government subsidies or grants were received in respect of these areas of interest. 15 INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (a) Details of Joint Venture entities Percentage interest held Investment Carrying Amount Name Note Principal Activities Balance Date 2004 % 2003 % 2004 $’000 2003 $’000 RTE/Imdex Saudi Arabian Joint Venture(i) Oil & Gas 31 Dec 49% 49% 5,413 8,811 (i) This represents the RTE/Imdex Saudi Arabian Joint Venture in the Kingdom of Saudi Arabia (KSA). The Joint Venture provides drilling fluids and chemicals to the oil and gas business in KSA. Imdex holds a 49% equity interest in the Venture, with Rashid Trading Establishment (RTE) holding the remaining 51%. RTE is a Saudi based entity in which Mr H H Al-Merr y, a Director of Imdex, is the President and Owner. On 7 June 2001, Imdex and RTE entered into a formal Shareholders Agreement which set out the nature and terms of the Joint Venture and also provided for the formation and registration of Imdex Arabia Company Ltd. In compliance with the laws in KSA, the Shareholders’ Agreement also provides for RTE to act as agent for the Joint Venture. On 5 July 2004, Imdex Limited announced that a Heads of Agreement had been signed with RTE to re-structure the Joint Venture. Further details concerning the proposed re-structure are set out in Note 31. 51 Notes to the Financial Statements (b) Movements in Investments in Joint Venture entities The following is a summary of the movement in the carrying value of the RTE/Imdex Saudi Arabian Joint Venture. Consolidated Equity accounted amount of investment at the beginning of the financial year Issue of shares to Mr H H Al-Merry on the issuance of the formal Certificate of Registration for Imdex Arabia Company Ltd. Note 20 Formation capital for Imdex Arabia Company Ltd and additional establishment costs Share of losses (e) Write down of investment Equity accounted amount of investment at the end of the financial year 2004 $’000 8,811 - - (292) (3,108) 5,413 (c) Share of assets and liabilities in Joint Venture entities The following is a summary of the financial position of the Joint Venture entities at year end. Consolidated Current assets Receivables Inventories Other Non current assets Property, plant and equipment Other Current liabilities Payables Interest bearing liabilities Non current liabilities Other Net assets 2004 $’000 1,725 2,035 28 142 559 (4,892) - - (403) 2003 $’000 6,379 2,000 1,326 (894) - 8,811 2003 $’000 1,210 1,651 49 68 662 (3,746) - (4) (110) 52 Notes to the Financial Statements (d) Share of Reser ves attributable to Joint Venture entities Retained profit/(loss) At the beginning of the financial year At the end of the financial year (e) Share of Net result of Joint Venture entities Consolidated 2004 $’000 (894) (1,186) 2003 $’000 - (894) The following is a summary of the aggregate share of results from the RTE/Imdex Saudi Arabian Joint Venture. Revenue from ordinary activities Expenses from ordinary activities Profit/(Loss) from ordinary activities before income tax Income tax (expense)/benefit on ordinary activities Share of net profit/(loss) of associates after income tax 2004 $’000 12,097 (12,389) (292) - (292) Consolidated 2003 $’000 10,731 (11,646) (915) 21 (894) (f) Contingent Liabilities and Capital Commitments The Consolidated Entity does not have any contingent liabilities or capital commitments in relation to its interest in the RTE/Imdex Saudi Arabian Joint Venture. 16. PAYABLES Trade payables Other payables Consolidated Company 2004 $’000 2003 $’000 2004 $’000 2003 $’000 6,360 4,912 1,987 1,764 861 733 495 267 7,221 5,645 2,482 2,031 53 Notes to the Financial Statements 17. INTEREST BEARING LIABILITIES Consolidated Company Note 2004 $’000 2003 $’000 2004 $’000 2003 $’000 Current Bank overdraft (i) Bank loan – secured (i) Finance lease liabilities (ii) Hire purchase liabilities (ii) Non-current Bank loan – secured (i) Finance lease liabilities (ii) Hire purchase liabilities (ii) Loans from Controlled Entities Financing Arrangements The Consolidated Entity has access to the following lines of credit: (a) Total facilities available Bank loan Equipment finance facility Multi option facility (including bank overdraft) (b) Facilities utilised at balance date Bank loan Equipment finance facility Multi option facility (including bank overdraft) (c) Facilities not utilised at balance date Bank loan Equipment finance facility Multi option facility (including bank overdraft) (i) Bank Overdraft and Bank Loans 32 1,509 2,000 - 920 4,429 26 26 26 26 1,347 1,000 29 795 3,171 1,602 2,000 - 296 3,898 1,690 1,000 15 337 3,042 1,700 2,950 1,700 2,950 - - 1,539 1,510 - - 3,239 4,460 - 102 2,603 4,405 3,700 500 1,550 5,750 3,700 257 1,509 5,466 - 243 41 284 3,950 500 1,800 6,350 3,950 372 1,407 5,729 - 128 393 621 3,700 500 1,550 5,750 3,700 257 1,509 5,466 - 243 41 284 - 400 4,089 7,439 3,950 500 1,800 6,350 3,950 48 1,407 5,405 - 452 393 945 The bank overdraft together with the other loan facilities are secured by a registered mortgage over the Company’s freehold land and a registered debenture over all of the Consolidated Entity’s assets. The loan is subject to a cross guarantee and indemnity between the Challenge Bank and Imdex Limited, Australian Mud Company Limited and Surtron Technologies Pty Ltd. The bank overdraft is repayable on demand and is subject to regular review. The weighted average interest rate for the overdraft and bank loans is set out in Note 24. (ii) The finance and hire purchase liabilities are secured over the assets to which they relate, the current market value of which exceeds the value of the finance and hire purchase liability. Assets Pledged as Security In accordance with the security arrangements of liabilities, as disclosed above, effectively all non-current assets of the Consolidated Entity, except goodwill and deferred tax assets, have been pledged as security. 54 Notes to the Financial Statements 18. PROVISIONS Current Employee entitlements Non-current Employee entitlements Consolidated Company 2004 $’000 2003 $’000 2004 $’000 2003 $’000 639 130 595 203 213 115 50 53 19. EMPLOYEE ENTITLEMENTS Consolidated Company Note 2004 $’000 2003 $’000 2004 $’000 2003 $’000 The aggregate employee benefit liability recognised and included in the Financial Statements is as follows: Provision for employee entitlements Current Non Current Accrued wages and salaries (i) Number of employees at year end 18 18 639 130 178 947 120 595 115 40 750 101 203 50 38 291 46 213 53 1 267 43 (i) Accrued wages and salaries are included in the current trade payables balance in Note 16. 20. CONTRIBUTED EQUITY Issued and paid up capital Consolidated Company 2004 $’000 2003 $’000 2004 $’000 2003 $’000 Fully paid ordinar y shares (i) 21,058 21,058 21,058 21,058 (i) Fully paid ordinar y shares carr y one vote per share and the right to dividends. 2004 2003 Note Number of $’000 shares Number of shares $’000 Ordinary shares Balance at beginning of financial year Issue of shares - 6 September 2002 Issue of shares to Mr H H Al-Merr y 15 120,055,368 21,058 107,881,455 18,612 - - - - 2,173,913 446 10,000,000 2,000 Balance at the end of financial year 120,055,368 21,058 120,055,368 21,058 55 Notes to the Financial Statements D 21. RESERVES Consolidated Company 2004 $’000 2003 $’000 2004 $’000 2003 $’000 Asset revaluation 8 8 8 8 22. RETAINED PROFITS/(ACCUMULATED LOSSES) Consolidated Company Retained profits/(accumulated losses) at the beginning of the year Net profit/(loss) attributable to members of the parent entity Retained profits/(accumulated losses) at the end of the year 23. CONTROLLED ENTITIES Particulars in relation to controlled entities. 2004 $’000 2003 $’000 2004 $’000 2003 $’000 734 (174) (6,775) (7,367) (3,689) 908 (6,900) 592 (2,955) 734 (13,675) (6,775) Name Note Country of incorporation Percentage interest held 2004 % 2003 % Parent Entity Imdex Limited Controlled Entities Australian Mud Company Limited Surtron Technologies Pty Ltd (i) Australia Australian Mud Company Chile SA (ii) Australia Australia Chile 100 100 100 100 100 100 (i) Ultimate parent Company (ii) Under Chilean law an audit of this Company is not required. 56 Notes to the Financial Statements D 24. ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURE (a) Interest rate risk The Consolidated Entity’s exposure to interest rate risk and the effective weighted average interest rate for classes of financial assets and liabilities are set out below: Fixed Interest Maturing in: Note Weighted average interest rate Floating interest rate Less than 1 year 1 to 5 More than years 5 years Total Non- interest bearing % $’000 $’000 $’000 $’000 $’000 $’000 2004 Financial Assets Cash Receivables Other financial assets Financial Liabilities Payables Bank overdraft and loans Hire purchase/lease liabilities 7 0.025 33 - - 33 - 4,209 8 10 16 17 17 - - - 7.40 7.62 5.97 - - - - - - - - - - - 1,000 1,539 - - - 920 - Employee entitlements 18(i) 4,209 920 2,539 2003 Financial Assets Cash Receivables Other financial assets Financial Liabilities Payables 7 0.025 313 8 10 16 - - - - - 313 - Bank overdraft and loans 17 7.05% 3,797 - - - - - - Hire purchase/lease liabilities 17 7.52% Employee entitlements 18(i) 5.97% - - 824 - - - - - - 1,500 1,510 - 3,797 824 3,010 - - - - - - - - - - - - - - - - - - 23 56 9,355 9,355 - - 9,378 9,411 7,139 - - 769 7,139 5,209 2,459 769 7,908 15,576 12 325 7,617 7,617 - - 7,629 7,942 5,573 - - 710 5,573 5,297 2,334 710 6,283 13,914 (i) Employee entitlements to be settled in cash fall under the definition of financial liabilities. The weighted average interest rate is the discount rate used to calculate Long Ser vice Leave Liability. (b) Net fair values of financial assets and liabilities The carr ying amount of financial assets and financial liabilities recorded in the Financial Statements approximates their net fair values. 57 Notes to the Financial Statements (c) Credit Risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Consolidated Entity. The Consolidated Entity has adopted the policy of only dealing with creditworthy counterparties and obtaining sufficient collateral or other security where appropriate, as a means of mitigating the risk of financial loss from defaults. The Consolidated Entity measures credit risk on a fair value basis. The Consolidated Entity does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. 25. DIRECTORS’ AND EXECUTIVES’ REMUNERATION The information relating to Directors’ and Executives’ remuneration has been prepared in accordance with the new Accounting Standard AASB 1046 “Directors and Executives Disclosures by Disclosing Entities”. The Standard replaces the disclosure previously required by section 4 of AASB 1017 “Related Party Disclosures” and section 6 of AASB 1034 “Financial Report Presentation and Disclosures”. (a) The specified Directors of Imdex Limited during the year were: (i) Mr I F Burston (Independent, Non Executive Chairman); (ii) Mr B W Ridgeway (Managing Director); (iii) Mr H H Al-Merr y (Non Executive Director); (iv) Mr R Kelly (Independent, Non Executive Director), appointed on 14 Januar y 2004; (v) Mr K Dundo (Independent, Non Executive Director), appointed on 14 Januar y 2004; (vi) Mr M L Gasson (Independent, Non Executive Director), resigned on 14 Januar y 2004; and (vii) Mr G W Cobbledick (Independent, Non Executive Director), resigned on 30 October 2003. The specified Executives of Imdex Limited during the year were: (i) Mr G E Weston (General Manager AMC, Surtron and Ace Drilling Supplies); (ii) Mr I Tan (General Manager Imdex Minerals), appointed on 14 April 2004; (iii) Mr R Hancock (General Manager Imdex Minerals), left the Company on 25 March 2004; and (iv) Mr H H Al-Merr y (Non Executive Director). (b) Specified Directors’ and specified Executives remuneration All specified Executives, and all staff of the Company, are subject to formal annual reviews of their performance. The remuneration of specified Executives generally comprises a fixed monetar y total, although bonuses related to the performance of the Company may be agreed between that Executive and the Company from time to time. The Board seeks the approval of Shareholders, where required, in relation to the aggregate of Directors remuneration. The Managing Director’s remuneration is determined by the Chairman who seeks independent advice on the appropriateness of the Managing Director’s salar y package as required. The Managing Director’s remuneration is currently a fixed monetar y total that is not linked to the Company’s performance. It is the intention of the Remuneration Committee to review the Managing Director’s remuneration, including the extent to which it is linked to the Company’s performance, during the year ended 30 June 2005. 58 Notes to the Financial Statements Primary Post Employment Equity 2004 Salary Bonus Non- Super- Prescribed Other Options Other Total & fees monetary annuation benefits benefits $ $ $ $ $ $ $ $ $ Executive Director B W Ridgeway, Managing Director Non Executive Directors I F Burston, Chairman 249,999 50,000 H H Al-Merry (i) - R Kelly K Dundo M L Gasson 16,040 16,040 12,500 G W Cobbledick 8,333 Total 352,912 - - - - - - - - 42,101 22,500 - - - - - - 4,500 - 1,444 1,444 21,125 750 42,101 51,763 Specified Executives (excluding Directors) G E Weston, General Manager AMC, Ace Drilling Supplies & Surtron Technologies (ii) I Tan, General Manager Imdex Minerals (iii) R Hancock, General Manager Imdex Minerals 179,423 20,000 8,574 16,148 29,423 102,072 - - - 2,648 2,023 7,902 Total 310,918 20,000 10,597 26,698 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 314,600 54,500 - 17,484 17,484 33,625 9,083 446,776 224,145 32,071 - 111,997 368,214 - - - - - - - - - - - 59 Notes to the Financial Statements (i) Mr H H Al-Merr y is the President and owner of Rashid Trading Establishment (RTE), which is involved in a Joint Venture with Imdex Limited in the Middle East. Mr Al-Merr y is remunerated directly by the RTE/Imdex Joint Venture; (ii) Mr G E Weston (General Manager – Australian Mud Company) was granted a cash bonus of $20,000 due to the Australian Mud Company exceeding a pre-determined hurdle based on the earnings before interest and tax for the division, for the year ended 30 June 2004. Mr Weston is party to a ser vice contract with the Australian Mud Company, which sets out a fixed remuneration package, reviewable annually. Additional performance incentives may be agreed between Mr Weston and the Australian Mud Company; (iii) Mr I Tan is party to a ser vice contract with Imdex Limited, which sets out a fixed remuneration package, reviewable annually. E 26. COMMITMENTS Consolidated Company Note 2004 $’000 2003 $’000 2004 $’000 2003 $’000 Operating lease expense commitments (i) Future operating lease commitments contracted for at balance date, but not provided for in the Financial Statements are as follows. Due: Within one year Between one and five years Later than five years 484 746 1,562 2,792 291 436 - 727 249 327 - 576 165 297 - 462 60 Notes to the Financial Statements Minimum future lease payments Present value of minimum future lease payments Consolidated Company Consolidated Company 2004 $’000 2003 $’000 2004 $’000 2003 $’000 2004 $’000 2003 $’000 2004 2 0 0 3 $’000 $’000 E Hire purchase commitments (ii) Hire purchase commitments are payable as follows. Due: Within one year 1,077 936 311 376 920 795 296 337 Between one and five years 1,707 1,661 Later than five years - - 104 - 426 1,539 1,510 - - - 102 - 400 - Minimum lease payments Less: future finance charges 2,784 2,597 415 802 2,459 2,305 398 737 (325) (292) 2,459 2,305 (17) 398 (65) 737 - - 2,459 2,305 - 398 - 737 Hire purchase liabilities provided for in the Financial Statements Current - Note 17 Non current - Note 17 Finance lease payment commitments (ii) Finance lease commitments are payable as follows. Due:Within one year Between one and five years Later than five years Minimum lease payments Less: future finance charges Finance lease commitments provided for in the Financial Statements Current - Note 17 Non current - Note 17 - - - - - - 29 - - 29 - 29 - - - - - - 15 - - 15 - 15 920 1,539 2,459 795 1,510 2,305 296 102 398 337 400 737 - - - - - - - - - 29 - - 29 - 29 29 - 29 15 - - 15 - 15 15 - 15 - - - - - - - - - 61 Notes to the Financial Statements (i) Operating leases relate to premises used by the Consolidated Entity in its operations, generally with terms between 2 and 5 years. Some of the operating leases contain options to extend for further periods and an adjustment to bring the lease payments into line with market rates prevailing at that time. The leases do not contain an option to purchase the leased property; (ii) Finance and hire purchase leases relate to plant and equipment used by the Consolidated Entity in its operations with lease terms generally between 3 and 5 years. The Consolidated Entity has options to purchase the equipment for a nominal amount at the end of the lease term. Superannuation commitments The Company and its Controlled Entities contribute to various defined contribution employee superannuation funds in accordance with the requirements of the Superannuation Guarantee Administration Act 1992. The contributions are based on a percentage of employee gross salaries. All employees are entitled to benefit on retirement, disability or death. The Company and its Controlled Entities are under no legal obligation to make up any shortfall in the funds assets to meet payments due to employees. 27. SHARE OPTION PLANS The Consolidated Entity has in place a Staff Option Scheme (Scheme) to reward employees for their past ser vices as well as provide an incentive for future efforts. The terms and conditions of the Scheme are set out in the Scheme Rules with the Board of Directors responsible for the administration of the Scheme. The options carr y no rights to dividends and no voting rights. The options expire on their expir y date and generally there is a vesting period of 12 months from the issue date. Generally the options will also be taken to have expired when the option holder ceases to be employed by the Consolidated Entity. The options existing at the beginning and end of the financial year, those options issued and exercised during the financial year and those options lapsing during the financial year are set out below. As at 30 June 2003 and 30 June 2004 all of the options have vested. The options issued to the Directors have been approved by members in General Meeting. The options carr y no rights to dividends and no voting rights. The options expire on their expir y date or three calendar months after ceasing to be a Director, and may be exercised at any time from the date of issue to their expir y date. As at 30 June 2003 and 30 June 2004 all of the options have vested. 62 Notes to the Financial Statements Issue Date Vesting Date Expiry Date Exercise Price $ Opening Balance Issued Current Year Exercised Current Year Lapsed Current Year Closing Balance Employee Options Tranch 1 31 Jan 01 31 Jan 02 31 Jan 04 Tranch 2 31 Jan 01 31 Jan 02 31 Jan 04 Tranch 3 10 Jan 02 10 Jan 03 31 Jan 04 Tranch 4 28 Feb 03 28 Feb 03 31 Jan 04 Directors’ Options Tranch 1 25 Oct 01 25 Oct 01 24 Oct 04 Tranch 2 25 Oct 01 25 Oct 01 24 Oct 04 Tranch 3 25 Oct 01 25 Oct 01 24 Oct 04 28. CONTINGENT LIABILITIES 0.25 0.45 0.25 0.25 0.20 0.35 0.45 1,700,000 1,000,000 50,000 300,000 3,050,000 1,000,000 1,000,000 1,000,000 3,000,000 - - - - - - - - - - - - - - - - - - 1,700,000 1,000,000 50,000 300,000 3,050,000 - - - - - - - - - 1,000,000 1,000,000 1,000,000 3,000,000 The details and estimated maximum amounts of contingent liabilities that may become payable are set out below. Indemnity to power transmission utility Rental bond Department of Mines Minister of State Development Consolidated Company Note 2004 $’000 2003 $’000 2004 $’000 2003 $’000 (i) (i) (i) (i) 16 100 27 12 155 16 20 27 12 75 16 100 27 12 155 16 20 27 12 75 (i) Comprise bank guarantees supporting the extension of credit or the performance of the Consolidated Entity in respect of its operations. The Directors are not aware of any circumstance or information which would lead them to believe that these liabilities will cr ystallise and consequently no provisions are included in the Financial Statements in respect of these matters. No material losses are anticipated in respect of any of the guarantees. 63 Notes to the Financial Statements 29. SEGMENT INFORMATION Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items mainly comprise income-earning assets and revenue, interest-bearing loans, borrowings and expenses, and corporate assets and expenses. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period. (a) Business Segments The Consolidated Entity comprises the following main business segments, based on the Consolidated Entity's management reporting system: (i) Drilling products and ser vices: Down hole sur veying, geophysical logging and directional drilling; down hole motors, cameras and drilling products; (ii) Minerals Processing: Milling and processing of industrial minerals; and (iii) Drilling fluids and chemicals: Manufacture and supply of drilling fluids and chemicals to the mining, mineral exploration, oil and gas and water well drilling industries. (b) Geographical Segments In presenting information on the basis of geographical segments, segment revenue is based on geographical location of customers. Segment assets are based on the geographical location of the assets. The Consolidated Entity's business segments operate geographically as follows: (i) Australia: Drilling ser vices; milling and processing of industrial minerals; manufacture and supply of drilling fluids and chemicals; down hole motors, cameras and drilling products; (ii) Saudi Arabia: Supply of drilling fluids and chemicals to the oil and gas industr y; (iii) Africa: Drilling ser vices, supply of drilling fluids and chemicals; and (iv) South East Asia: Manufacture and supply of drilling fluids and chemicals to the mining and mineral exploration industries. Primary Reporting: Business Segments Segment Revenues Revenue from external customers Inter-segment Other Total 2004 $'000 2003 $'000 2004 $'000 2003 $'000 2004 $'000 2003 $'000 2004 $'000 2003 $'000 Drilling products and services 11,796 Minerals processing 6,436 Drilling fluids and chemicals 21,139 Total of all segments 39,371 9,156 6,202 15,265 30,623 - - - - - - - - - - 117 117 - - 53 53 Eliminations Unallocated Total 11,796 6,436 9,156 6,202 21,256 15,318 39,488 30,676 - 343 - 235 39,831 30,911 64 Notes to the Financial Statements Segment results, assets and liabilities Segment Results Segment assets Segment liabilites Drilling products and services Minerals processing 2004 $'000 1,137 (3,721) 2003 $'000 280 972 2004 $'000 2003 $'000 8,052 7,146 8,582 12,306 Drilling fluids and chemicals 3,257 1,847 11,376 7,751 2004 $'000 3,859 2,528 4,265 Total of all segments 673 3,099 28,010 27,203 10,652 2003 $'000 3,586 1,976 2,783 8,345 Share of net profit/(loss) of equity accounted investments Carrying value of equity accounted investment Eliminations Write down of the investment in the RTE/Imdex Joint Venture Unallocated Profit from ordinary activities before income tax expense Income tax expense Profit/(loss) from ordinary activities after related income tax expense Consolidated (292) (894) - (3,108) (1,050) 5,408 8,811 - - (60) (133) (60) (133) - - (727) 820 955 5,475 6,824 (3,776) 1,478 87 (570) (3,689) 908 34,178 36,836 16,067 15,036 Other segment information Depreciation and amortisation Acquistion of segment assets Non cash expenses other than depreciation and amortistation Drilling products and services Minerals processing Drilling fluids and chemicals Total of all segments 2004 $'000 1,042 652 150 2003 $'000 932 643 160 2004 $'000 2003 $'000 1,566 1,724 107 246 720 144 2004 $'000 7 2,889 65 1,844 1,735 1,919 2,588 2,961 2003 $'000 118 19 31 168 - Unallocated 94 99 Acquisitions of non current assets - Investment in Saudi Arabia 7 - Consolidated 1,938 1,834 1,926 18 3,052 3,325 5,931 6,013 168 65 Notes to the Financial Statements Secondary Reporting: Geographical Segments Australia Saudi Arabia Africa South East Asia Other Total 30. RELATED PARTY DISCLOSURES (a) Directors’ Remuneration Revenue from external customers Segment assets Acquisition of segment assets 2004 $'000 2003 $'000 2004 $'000 2003 $'000 2004 $'000 30,597 24,733 26,756 26,990 1,926 - 475 6,474 1,825 - 5,408 8,811 325 298 4,776 1,349 789 367 181 670 184 - - - - 2003 $'000 2,595 3,325 - - 11 39,371 30,623 34,178 36,836 1,926 5,931 Information on remuneration of Directors is disclosed in Note 25. (b) Specified Directors’ and Specified Executives holdings of Share and Share Options The interests of Directors of the Consolidated Entity, and their Director-related entities in shares and share options of entities within the Consolidated Entity, at the current date, are set out below: (i) Fully paid ordinary shares issued by Imdex Limited Balance at 1 July 2003 Granted as renumeration Received on exercise of options Net other change Balance at 30 June 2004 Balance held nominally No. No. No. No. No. No. Specified Directors Mr I F Burston 100,000 MR B W Ridgeway 6,000,000 MR H H Al-Merry 10,755,000 Mr R Kelly – appointed 14 January 2004 Mr K Dundo – appointed 14 January 2004 - - Mr M L Gasson – resigned 14 January 2004 5,165,838 Mr G W Cobbledick – resigned 30 October 2004 Total Specified Executives Mr G E Weston Mr I Tan Mr R Hancock Total 10,000 22,030,838 - - 50,000 50,000 - - - - - - - - - - - - - - - - - - - - - - - - - 100,000 143,993 6,143,993 - 10,755,000 - - - 65,000 65,000 66 - - (5,165,838) (10,000) - - - (4,966,845) 17,063,993 - - (50,000) (50,000) - - - - - - - - - - - - 66 Notes to the Financial Statements (ii) Share options issued by Imdex Limited Balance at 1 July 2003 Granted as renumeration Received on exercise of options Other change Balance at 30 June 2004 Balance vested at 30 June 04 Vested but not exercisable Vested and exercisable Option vested during year No. No. No. No. No. No. No. No. No. Specified Directors Mr I F Burston 1,000,000 Mr B W Ridgeway 2,000,000 3,000,000 Specified Executives Mr G E Weston Mr R Hancock 2,000,000 200,000 2,200,000 - - - - - - - - - - - - - - - 1,000,000 2,000,000 3,000,000 (2,000,000) (200,000) (2,200,000) - - - - - - - - - - - - - - - 1,000,000 2,000,000 3,000,000 - - - - - - - - - No other Directors or Executives, other than those listed above, hold options in the company. Further details concerning options are set out in Note 27. (c) Directors’ Transactions in Shares and Share Options In the prior year, there were 10,000,000 shares issued to Mr H H Al-Merr y in connection with the RTE/Imdex Saudi Arabian Joint Venture, further details of which are set out at Note 20. There were no other share or share options issued to the Directors during the current year. No Directors’ options were exercised during the year. (d) Directors' Transactions with the Company or its Controlled Entities As set out in this Financial Report, Imdex Limited is involved in a Joint Venture with Rashid Trading Establishment (RTE), a Company in which Mr H H Al-Merr y is the President and Owner. RTE also acts as the agent of the Joint Venture in some circumstances. There were no amounts recognised during the year relating to transactions between RTE as agent. (e) Non Director/Executive related parties The classes of Non Director related parties are: (i) controlling entity of the Company; (ii) wholly-owned Controlled Entities; (iii) associated companies; and (iv) Directors of related parties and their Director-related entities. 67 Notes to the Financial Statements (f) Transactions Transactions with Non Director related parties consisted of: (i) loans advanced by Imdex Limited to Controlled Entities; (ii) loans repaid to Imdex Limited from Controlled Entities; (iii) the payment of management fees to Imdex Limited. Refer Note 2; and (iv) inter-entity transactions in relation to the sale of finished goods at cost plus an average margin of 10%. The amounts receivable from, and payable to, Controlled Entities are set out in Note 17 and Note 8. (g) Controlling Entity The ultimate parent entity in the Consolidated Entity is Imdex Limited, a Company incorporated in Western Australia. (h) Wholly-Owned Group The wholly owned Group consists of Imdex Limited and its wholly owned Controlled Entities. Ownership interests in these Controlled Entities are set out in Note 23. (i) Joint Venture Entities Details of ownership interests in joint venture entities are set out in Note 15. 31. SUBSEQUENT EVENTS On 5 July 2004, Imdex Limited announced to the ASX that it had signed a Heads of Agreement with Rashid Trading Establishment (RTE) to re-structure the existing RTE/Imdex Limited Joint Venture. The proposed re- structure, which is subject to shareholder approval, involves: (i) (ii) RTE increasing its interest in the Joint Venture from 51% to 80% and accordingly, Imdex reducing its interest in the Joint venture from 49% to 20%; Imdex cancelling 10,000,000 shares held by Mr H H Al-Merr y, the President of RTE and a Director of Imdex. The number of shares on issue in Imdex will be reduced to 110,055,368; (iii) RTE paying to Imdex a total of USD$2.25 million: USD$1.75 million due on the date that shareholders approve the transaction and USD$500,000 due on, or before, 31 March 2005; and (iv) Imdex subscribing for additional shares in Imdex Arabia with an aggregate subscription price of USD$750,000. Following completion of the proposed re-structure, the value of the capital of Imdex Arabia will be AUD$10 million, of which Imdex will hold 20% and RTE will hold 80%. The carr ying value of the investment in the RTE/Imdex Joint Venture at 30 June 2004 is AUD$5.413 million. Following the receipt of the AUD$2.089 million (net) in cash (items (iii) and (iv) above) and the cancellation of the 10,000,000 shares held by Mr H H Al-Merr y totalling approximately AUD$1.25 million (item (ii) above), the post proposed re-structure carr ying value will be AUD$2.074 million. Apart from this matter, no other matter or circumstance has arisen since the end of the financial year that has significantly affected or may significantly affect the operation of the Consolidated Entity, the results of those operations, the financial position or the state of affairs of the Consolidated Entity in future financial years. 68 Notes to the Financial Statements 32. NOTES TO THE STATEMENT OF CASH FLOWS (a) Reconciliation of cash For the purposes of the Statements of Cash Flows, cash includes cash on hand and at bank and short term deposits at call, net of outstanding bank overdrafts. Cash at the end of the financial year as shown in the statements of cash flows is reconciled to the related items in the statements of financial position as follows: Cash Bank overdraft Consolidated Company Note 2004 $’000 7 56 17 (1,509) (1,453) 2003 $’000 325 (1,347) (1,022) 2004 $’000 35 (1,602) (1,567) 2003 $’000 42 (1,690) (1,648) (b) Reconciliation of profit from ordinar y activities after income tax to net cash provided by operating activities Profit from ordinar y activities after related income tax Add/(Less) (Profit)/loss on sale of non-current assets Share of Joint Ventures loss (less dividends) Write down on the investment in the RTE/Imdex Joint venture Interest on hire purchase liabilities Depreciation and amortisation of non-current assets Bad and doubtful debts Increase/(decrease) in current tax liability Increase/(decrease) in deferred tax balances Changes in assets and liabilities during the financial year: (Increase)/decrease in assets: Current receivables Current inventories Other current assets Increase/(decrease) in liabilities: Current payables Provision for employee entitlements Net cash from operating activities 1,460 2,205 Consolidated Company 2004 $’000 2003 $’000 2004 $’000 2003 $’000 (3,689) 908 (6,900) 592 (55) 292 3,108 181 1,938 30 (574) (56) (92) 894 (62) - - 3,108 (19) - - 44 60 1,034 1,043 144 1,834 9 686 (254) - (257) (46) (1,679) (622) 368 383 (57) (1,500) 2,398 (24) 40 1,579 59 112 110 6 216 (238) (24) (959) (29) (398) 20 270 453 (13) 167 69 Notes to the Financial Statements (c) Non Cash Financing and Investing Activities The following non cash financing and investing activities occurred during the year. Consolidated Company Note 2004 $’000 2003 $’000 2004 $’000 2003 $’000 Share issue to Mr H H Al-Merr y 20 - 2,000 - 2,000 33. IMPACTS OF ADOPTING THE AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (a) Management of the transition to A-IFRS In accordance with the Financial Reporting Council’s strategic directive, Imdex Limited will be required to prepare financial statements that comply with Australian equivalents to International Financial Reporting Standards (“A-IFRS”) for annual reporting periods beginning on or after 1 Januar y 2005. Accordingly, Imdex Limited’s first half-year report prepared under A-IFRS will be for the half-year reporting period ended 31 December 2005, and its first annual financial report prepared under A-IFRS will be for the year ended 30 June 2006. During the year, Imdex Limited commenced the management of the transition process to A-IFRS, with its Audit Committee being the ultimate body responsible for the transition to A-IFRS. The consolidated entity plans to manage the transition to A-IFRS in 3 phases: a scoping and impact analysis, an evaluation and design phase and an implementation and review phase. Risk management and change management will be managed throughout the life of the project. Imdex Limited completed the high-level scoping and impact analysis in late July 2004, as part of its awareness training to obtain an idea of the effect and effort involved in adopting A-IFRS on the consolidated entity. Part of the scoping exercise involved identifying key areas of impact that will arise on adoption of A-IFRS including financial impact, effort required, and options available to the consolidated entity on first-time adoption of A-IFRS. Now that the consolidated entity has this information, it intends to conduct an additional, and more detailed, business impact study to determine the approximate impact and best options for the consolidated entity for future reporting periods, and to begin a process to identify any system and process changes required in order to capture information necessar y to allow the preparation of financial statements which are fully compliant with A-IFRS. The Audit Committee believes Imdex Limited will be able to achieve its plan for A-IFRS implementation such that financial statements which are fully compliant with A-IFRS will be able to be prepared. (b) Key differences from current accounting policies Imdex Limited has identified the following as being the significant areas of differences affecting the consolidated entity on first time adoption of A-IFRS. This does not represent an exhaustive list of the differences that will arise, and further analysis may change the consolidated entity’s assessment of the importance or other wise of the various differences. 70 Notes to the Financial Statements (i) First-time adoption of A-IFRS On first-time adoption of A-IFRS, the consolidated entity will be required to restate its comparative balance sheet such that the comparative balances presented comply with the requirements specified in the A-IFRS. That is, the balances that will be presented in the financial report for the year ended 30 June 2005 may not be the balances that will be presented as comparative numbers in the financial report for the following year, as a result of the requirement to retrospectively apply the A- IFRS. In addition, certain assets and liabilities may not qualify for recognition under A-IFRS, and will need to be derecognised. As any adjustments on first-time adoption are to be made against opening retained earnings, the amount of retained earnings at 30 June 2004 presented in the 2005 financial report and the 2006 financial report available to be paid out as dividends may differ significantly. Various voluntar y and mandator y exemptions are available to the consolidated entity on first-time adoption, which will not be available on an ongoing basis. The exemptions provide relief from retrospectively accounting for certain balances, instruments and transactions in accordance with A- IFRS, and includes relief from having to restate past business combinations, expense share-based payments granted before 7 November 2002, and the identification of a ‘deemed cost’ for property, plant and equipment. The impact on Imdex Limited of the changes in accounting policies on first-time adoption of A-IFRS will be affected by the choices made. The consolidated entity is evaluating the effect of the options available on first-time adoption in order to determine the best possible outcome for the consolidated entity. (ii) Share-based payment The consolidated entity has in place a Staff Option Scheme to reward employees for the past ser vices as well as to provide an incentive for future efforts, as disclosed in Note 27. The consolidated entity does not recognise an expense for any share-based compensation granted. Under A-IFRS, the consolidated entity will be required to recognise an expense for such share-based compensation. Share-based compensation is measured at the fair value of the share options determined at grant date and recognised over the expected vesting period of the options. A reversal of the expense will be permitted to the extent non-market based vesting conditions (e.g. ser vice conditions) are not met. The entity will not retrospectively recognise share-based payments vested before 1 Januar y as permitted under A-IFRS first time adoption. The recognition of the expense will decrease the consolidated entity’s opening retained earnings on initial adoption of A-IFRS and increase share capital by the same amount for share-based payments issued after 7 November 2002 but not vested before 1 Januar y 2005. Similar impacts will also occur in future periods, however, quantification of the impact on equity and in the income statement of the existing share options granted as remuneration has not been completed at the reporting date. (iii) Income tax The consolidated entity currently recognises deferred taxes by accounting for the differences between accounting profits and taxable income, which give rise to ‘permanent’ and ‘timing’ differences. Under A-IFRS, deferred taxes are measured by reference to the ‘temporar y differences’ determined as the difference between the carr ying amount and the tax base of assets and liabilities recognised in the balance sheet. 71 Notes to the Financial Statements Because A-IFRS has a wider scope than the entity’s current accounting policies, it is likely that the amount of deferred taxes recognised in the balance sheet will increase. In particular, increases in deferred tax liabilities may occur in relation to deferred taxes associated with fair value adjustments and intangibles arising in relation to pre-transition business combinations, revaluations of land and buildings and investments in associates. Adjustments to the recognised amounts of deferred taxes will also result as a consequence of adjustments to the carr ying amounts of assets and liabilities resulting from the adoption of other A-IFRS. The likely impact of these changes on deferred tax balances has not currently been determined. (iv) Property, plant and equipment On transition to A-IFRS, the entity has several options in the determination of the cost of each tangible asset, and can also elect to use the cost or fair value basis for the measurement of each class of property, plant and equipment after transition. At the date of this report, the entity has not decided which options and measurement basis will be adopted and the likely impacts therefore cannot be determined. (v) Provision for decommissioning, restoration and similar liabilities A-IFRS specifically requires the capitalisation of costs of dismantling and removing an asset and restoring the site on which the asset was created when an asset is initially recognised. The consolidated entity currently accrues through profit and loss for the cost of dismantling and restoration over the life of the asset. Adjustments may be required to the liability recognised where the amount accrued and the date of transition under AGAAP differs from that required under A-IFRS. The entity is also still determining the adjustments to the carr ying amounts of assets that may result from these requirements. (vi) Impairment of assets Non-current assets are written down to recoverable amount when the asset’s carr ying amount exceeds recoverable amount. Historically, although not mandated, Imdex Limited has discounted cash flows in determining the recoverable amount of its non-current assets. Under A-IFRS, both current and non-current assets, are tested for impairment. In addition, A-IFRS has a more prescriptive impairment test, and requires discounted cash flows to be used where value in use is used to assess recoverable amount. Consequently, on adoption of A-IFRS, a further impairment of certain assets may need to be recognised, thereby decreasing opening retained earnings and the carr ying amount of assets – the consolidated entity has not yet determined the impact, if any, of any further impairment which may be required. It is not practicable to determine the impact of the change in accounting policy for future financial reports, as any impairment or reversal thereof will be affected by future conditions. (vii) Off-balance sheet financial assets and liabilities A-IFRS requires the recognition of all financial assets and financial liabilities, including all derivatives and embedded derivatives, some of which may not be recognised under current Australian GAAP. Accordingly, recognition of these financial assets and financial liabilities may significantly change the net asset position of the consolidated entity, but the impact of the change will not be known until all financial instruments, including any embedded derivatives, are identified, measured and recognised in accordance with the new requirements. An embedded derivative will have to be separately recognised at fair value from its host contract unless certain conditions are met. Changes in the fair value of the derivative are to be recognised in the income statement unless specific hedging criteria are met. The process of reviewing all contracts (e.g. lease contracts) for the existence of such derivatives is time-consuming, and whether any such derivatives exist and the value attaching to them, can only be determined subsequent to the review. 72 Notes to the Financial Statements (viii) Financial assets and financial liabilities Under current Australian GAAP, financial assets and financial liabilities are recognised at cost, at fair value, or at net market value. On adoption of A-IFRS, the consolidated entity will be required to classify these financial instruments into various specified categories. The classification of the instrument will affect the instrument’s subsequent measurement – at amortised cost using the effective interest rate method, fair value with movements recognised through equity or fair value recognised through the profit and loss. The consolidated entity is evaluating the different options available, but has not made any determination at reporting date of the accounting to be adopted, and consequently, the impact of the change on the financial statements cannot yet be quantified. (ix) Impairment of financial assets The consolidated entity provides for doubtful debts using an estimate based on historical trends. Under A-IFRS, the entity will no longer be able to provide for doubtful debts on this basis, as a financial asset or group of financial assets is impaired only if there is objective evidence as a result of one or more events that occurred after the initial recognition of the asset – that is, an incurred but not yet reported model rather than an expected loss model must be applied. Consequently, on adoption of A-IFRS, and on an ongoing basis, general provisions and expected loss models may no longer be appropriate, which may cause the carr ying amount of various financial assets to increase. (x) Business combinations Historically, the acquisition of an entity or operation is accounted for under the purchase method of accounting by the legal acquirer. Where consolidated accounts are prepared, the assets and liabilities purchased are initially recognised at their fair values in the consolidated accounts. Under A-IFRS, the purchase method of accounting must be applied where there is a business combination, however, not all acquisitions will qualify as a business combination, and as such the purchase method of accounting for these acquisitions will no longer be appropriate. In addition, the legal acquirer may not be the ‘acquirer’ per A-IFRS, and the consolidated accounts may consequently reflect the fair values of the legal acquirer’s assets and liabilities rather than the fair value of the assets and liabilities of the entity legally acquired. Furthermore, there are a number of recognition and measurement differences that result in relation to assets and liabilities acquired in a business combination, particularly in relation to intangible assets and restructuring provisions. Acquired contingent liabilities must also be recognised at their fair values where acquired in a business combination. The impact of these changes in accounting policy on first-time adoption will depend on whether the consolidated entity will elect to adopt the exemption available to it to not reopen past acquisitions and retrospectively account for them appropriately. On an ongoing basis, this change in policy may significantly affect the profit and loss and balance sheet, as the accounting going for ward significantly differs from the manner in which such transactions are treated under current Australian GAAP. (xi) Extractive industries An A-IFRS on extractive industries has not yet been issued. Consequently, the consolidated entity is unable to determine the change in policies and related impacts, if any, that may arise on adoption of A-IFRS on its extractive-related operations and balances at reporting date. 73 Notes to the Financial Statements (xii) Depreciation Under current Australian GAAP, the consolidated entity’s property, plant and equipment is depreciated to the extent of its depreciable amount, determined as the difference between carr ying amount and residual value. The residual amount used in the determination of recoverable amount is estimated at the date of acquisition and is not subsequently increased for changes in prices, except where the asset had been revalued. Under A-IFRS, the residual amount is reviewed at each balance date and revised to the current net amount expected from the disposal of the asset if it were already at the age and condition expected at the end of its useful life. Accordingly, changes to the residual value may introduce additional volatility in the profit or loss. (xiii) Employee benefits Under A-IFRS, the consolidated entity will no longer be able to recognise provisions for annual leave on a nominal basis, regardless of when the leave is expected to be taken, but will instead be required to discount the portion of annual leave liabilities expected to be taken more than twelve months from the reporting date. This change in accounting policy is likely to reduce the aggregate provision for annual leave, but is unlikely to significantly affect the income statement. (xiv) Proceeds from sale of assets The current definition of revenue requires proceeds on sale of non-current assets to be included as revenue – this has the effect of ‘grossing up’ the statement of financial performance. Under A-IFRS, only the net gain or loss from the sale will be recognised in profit or loss. Consequently, there will be no net impact on the income statement. (xv) Correction of errors An error made in a prior reporting period is presently corrected in the reporting period in which the error is discovered by recognising the effect of the error in the current financial statements. In future financial periods, any material prior period errors are to be accounted for retrospectively, i.e. by adjusting the opening balance of retained earnings of the comparative period. Accordingly, the identification of a material prior period error will no longer give rise to volatility in the current period income statement. (xvi) Government grants Presently, non-reciprocal grants received are recognised as revenue when the consolidated entity obtains control of the grant, regardless of the specific purpose to which the grant is required to be expended or the periods over which the grant conditions apply. A liability to repay the grant is only recognised where a present obligation exists to repay grant monies. A-IFRS requires grants received to be recognised as income on a systematic basis over the periods necessar y to match them with the related costs which they are intended to compensate, but only when there is reasonable assurance that the entity will comply with the conditions attaching to them and that the grants will be received. Accordingly, the change in accounting policy will result in the later recognition of grants as revenue and the recognition of additional liabilities on the balance sheet. This will reduce some of the volatility in the income statement arising from the current Australian GAAP grant revenue recognition policies. 74 Additional Stock Exchange Information as at 14 September 2004 (a) Distribution of Shareholders Fully Paid Ordinary Shares Options 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – and over Holding less than a marketable parcel (b) Substantial Shareholders 18 251 266 670 146 1,351 109 2 - - - - 2 - Ordinary Shareholders Fully Paid Number Percentage Mr H H Al-Merr y Midcontinent Equipment (Aust) Pty Ltd Wear Ser vices Pty Ltd 10,755,000 6,131,643 6,000,000 8.96% 5.11% 5.00% (c) Twenty Largest Holders of Quoted Equity Securities Ordinary Shareholders Fully Paid Number Percentage Hadi Hammad Al-Merr y 10,755,000 6,131,643 Midcontinent Equipment (Aust) Pty Ltd 6,000,000 Wear Ser vices Pty Ltd 4,965,838 Chartac Pty Ltd 3,382,042 J P Morgan Nominees 3,321,500 Mr Clarke James Roycroft 2,900,000 Telic Alcatel (Australia) Pty Ltd 2,000,000 Total Meat Exports Pty Ltd 1,615,921 Primbee Investments Pty Ltd Chippell Pty Ltd 1,581,000 1,572,826 Longo Pty Ltd Mrs Patricia Rachel Shackell 1,500,000 1,475,000 Tepany Pty Ltd 1,208,000 Bremecca Nomiees Pty Ltd 1,206,939 Runyon Pty Ltd 1,100,000 Amsamac Pty Ltd 1,100,000 Dimana Holdings Pty Ltd 1,100,000 Midlec Agency Pty Ltd Mr Gordon Matthew & Ms Francine Wilson Mr B A Conway & Ms R O Conway 1,062,000 1,000,000 54,977,709 8.96% 5.11% 5.00% 4.14% 2.82% 2.77% 2.42% 1.67% 1.35% 1.32% 1.31% 1.25% 1.23% 1.01% 1.01% 0.92% 0.92% 0.92% 0.88% 0.83% 45.84% 75 Additional Stock Exchange Information as at 14 September 2004 (d) Director’s Shareholdings Name Number of Shares Number of Options F Mr B W Ridgeway (directly) - 2,000,000 Mr B W Ridgeway (indirectly) 6,143,993 - Mr I F Burston (directly) - 1,000,000 Mr I F Burston (indirectly) 100,000 Mr H H Al-Merr y (directly) 10,755,000 Mr Ross Kelly (indirectly) 65,000 - - - 17,063,993 3,000,000 (e) Interests in Mining Tenements Imdex holds the following interest in mining tenements at the date of this report. Project Particulars Tenement Imdex’s Interest Mt Gould Micaceous Iron Oxide M52/0236 Right to occupy, explore, mine and market MIO product (f) Company Secretar y Mr Stephen John Lyons (g) Registered Office Level 3, Redgum House 18 Richardson House West Perth Western Australia Phone: (+61 8) 9481 5777 Fax: (+61 8) 9481 6527 (h) Share Registr y Computershare Investor y Ser vices Level 2 45 St Georges Terrace Perth WA 6000 Phone: (08) 9328 2000 76 CONTENTS 1 2 3 4 Imdex at a Glance Imdex 2004 Snapshot Year in Review & Group Results Chairman’s Report 5 Managing Director’s Report 10 Imdex’s Businesses 12 Director Profiles 15 Financial Report 2004 Registered Office Imdex Limited, ABN 78 008 947 813 Level 3, Redgum House 18 Richardson Street West Perth, Western Australia, 6005 PO Box 1325 West Perth WA 6872 Telephone: (+61 8) 9481 5777 Facsimile: (+61 8) 9481 6527 Email: imdex@imdex.com.au Website: www.imdex.com.au Imdex is listed on the Australian Stock Exchange under the ASX code IMD GROUP HEAD OFFICE AND REGISTERED OFFICE IMDEX LIMITED Level 3, Redgum House 18 Richardson Street WEST PERTH WA 6005 PO Box 1325 WEST PERTH WA 6872 Telephone: +61 8 9481 5777 Facsimile: +61 8 9481 5377 Email: imdex@imdex.com.au Website: www.imdex.com.au DIVISIONS/SUBSIDIARIES/ ASSOCIATED ENTITIES IMDEX ARABIA COMPANY LTD 12TH Floor, Khashoggi Bldg PO Box 30530 Al Khobar 31952 SAUDI ARABIA Telephone: +966 3 899 1955 Facsimile: +966 3 893 5551 Email: ykhawaja@rteksa.com Website: www.imdexarabia.com AUSTRALIAN MUD COMPANY LTD 5 Pitino Court OSBORNE PARK WA 6017 PO Box 1141 OSBORNE PARK WA 6916 Telephone: +61 8 9445 4000 Facsimile: +61 8 9445 4040 Email: gweston@imdex.com.au Website: www.ausmud.com SURTRON TECHNOLOGIES PTY LTD 5 Pitino Court OSBORNE PARK WA 6017 PO Box 1130 OSBORNE PARK WA 6916 Telephone: +61 8 9445 4050 Facsimile: +61 8 9445 4060 Email: smunyard@imdex.com.au Website: www.surtron.com.au IMDEX MINERALS 15 Spencer Street JANDAKOT WA 6164 Telephone: +61 8 9417 9900 Facsimile: +61 8 9417 3222 Email: itan@imdex.com.au Website: www.imdexminerals.com.au SURTRON TECHNOLOGIES PTY LTD Lot 1598 Willis Street NEWMAN WA 6753 PO Box 681 NEWMAN WA 6753 Tel/Facsimile: +61 8 9175 1230 ACE DRILLING PRODUCTS & RENTALS 5 Pitino Court OSBORNE PARK WA 6017 PO Box 1148 OSBORNE PARK WA 6916 Telephone: +61 8 9445 4020 Facsimile: +61 8 9445 4040 Email: mgregg@imdex.com.au Website: www.acedrilling.com.au REPRESENTATIVE OFFICES WESTERN AUSTRALIA AUSTRALIAN MUD COMPANY LTD 5 Close Way KALGOORLIE WA 6430 Telephone: +61 8 9021 2925 Facsimile: +61 8 9091 5925 Email: tmcwhinney@imdex.com.au ACE DRILLING PRODUCTS & RENTALS 5 Close Way KALGOORLIE WA 6430 Telephone: +61 8 9021 2925 Facsimile: +61 8 9091 5925 Email: dmunro@imdex.com.au SURTRON TECHNOLOGIES PTY LTD 5 Close Way KALGOORLIE WA 6430 Telephone: +61 8 9091 9511 Facsimile: +61 8 9091 9522 Email: jsmith@imdex.com.au NEW SOUTH WALES AUSTRALIAN MUD COMPANY LTD 21 Illawarra Avenue CARDIFF NSW 2285 Telephone: +61 2 4953 6165 Facsimile: +61 2 4953 6448 Email: tfuller@imdex.com.au SOUTH AUSTRALIA AUSTRALIAN MUD COMPANY LTD 20 Alexander Place ROSE PARK SA 5067 Telephone: +61 8 8364 4110 Facsimile: +61 8 8364 4151 Email: kbooth@imdex.com.au QUEENSLAND AUSTRALIAN MUD COMPANY LTD 1/26 Neon Street SUMNER PARK QLD 4074 PO Box 110 SUMNER PARK QLD 4074 Telephone: +61 7 3279 3199 Facsimile: +61 7 3279 3538 Email: amcbrisbane@imdex.com.au SURTRON TECHNOLOGIES PTY LTD 1/26 Neon Street SUMNER PARK QLD 4074 PO Box 110 SUMNER PARK QLD 4074 Telephone: +61 7 3279 2331 Facsimile: +61 7 3279 2495 Email: surtronec@imdex.com.au INTERNATIONAL SALES AUSTRALIAN MUD COMPANY LTD 31 Koala Court, Little Mountain CALOUNDRA QLD 4551 Telephone: +61 7 5437 0373 Facsimile: +61 7 5437 0886 Email: mcouchman@imdex.com.au I M D E X L I M I T E D 2 0 0 4 A N N U A L R E P O R T w w w . i m d e x . c o m . a u A N N U A L R E P O R T 2 0 0 4 I M D E X L I M I T E D
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