I M D E X L I I M T E D 2 0 0 5 A N N U A L R E P O R T www.imdex.com.au Imdex Limited is an Australian, publicly listed, Drilling Products and Services company, dedicated to becoming a significant global player in supplying Drilling Products and Services to the Mining, Oil and Gas, Water Well, Horizontal Directional Drilling and Civil industries. IMDEX LIMITED ANNUAL REPORT TABLE OF CONTENTS Imdex at a Glance Imdex 2005 Snapshot Financial Highlights Chairman’s Report Managing Director’s Report Imdex’s Businesses 1 2 3 4 5 8 Director Profiles 10 Financial Report 2005 12 CONTENTS N IMDEX An Australian Global Drilling Products & Services Company. "a service provider to the natural resources industries" Registered Office Imdex Limited, ABN 78 008 947 813 PO Box 1325 Level 3, Redgum House West Perth WA 6872 18 Richardson Street Telephone: (+61 8) 9481 5777 West Perth, Western Australia, 6005 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 & 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 AUSTRALIAN MUD COMPANY PTY 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 SAMCHEM DRILLING FLUIDS & CHEMICALS 31 Basalt Street Alrode Ext 7 PO Box 455 ALBERTON 1450 South Africa Telephone: +2711 908 5595 Facsimile: +2711 908 5526 Email: samchem@acenet.co.za Website: www.samchem.co.za 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 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 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 REPRESENTATIVE OFFICES WESTERN AUSTRALIA AUSTRALIAN MUD COMPANY PTY 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 SURTRON TECHNOLOGIES PTY LTD Lot 1598 Willis Street NEWMAN WA 6753 PO Box 681 NEWMAN WA 6753 Tel/Facsimile: +61 8 9175 1230 OUTH WALES NEW SOUTH WALES MPANY PTY AUSTRALIAN MUD COMPANY PTY 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 PTY LTD 20 Alexandra Place ROSE PARK SA 5067 Telephone: +61 8 8364 4110 Facsimile: +61 8 8364 4151 Email: kbooth@imdex.com.au QUEENSLAND AUSTRALIAN MUD COMPANY PTY 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 PTY LTD 31 Koala Court, Little Mountain CALOUNDRA QLD 4551 Telephone: +61 7 5437 0373 Facsimile: +61 7 5437 0886 Email: mcouchman@imdex.com.au 1 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 and gas industry. The Board’s continuing strategy is to transform a diverse local company into a focused global company providing drilling products and services to the oil and 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; Achieve an overall improvement in Group financial performance to make Imdex a competitive investment in the Australian market; Progressively realise the potential of Imdex’s 20% investment in Imdex Arabia (post re-structure); Translate the improved performance into dividend income for our Shareholders. IMDEX’S TRADING LOCATIONS Eastern Europe China Saudi Arabia India Laos Thailand Philippines Ghana Tanzania Zambia South Africa Indonesia PNG Australia Canada USA New Zealand Peru Chile 2 IMDEX 2005 SNAPSHOT For the financial year ended 30 June 2005 (FY05) Net Profit after Tax increased by 183% to $3.1 million, with Revenue increasing by 21% to $48.2 million. FINANCIAL PERFORMANCE ➜ Total revenue increased by 21% to $48.2 million in FY05 from $39.8 million in FY04; ➜ Earnings before Interest and Tax (EBIT) increased to $4.0 million in FY05, from a loss of $3.2 million in FY04. DIVISIONAL HIGHLIGHTS ➜ The Australian Mud Company (AMC) traded strongly in FY05, delivering 50% of the Group’s revenue and an EBIT contribution of $3.0 million; ➜ ➜ ➜ Surtron Technologies (Surtron) off the back of its Logging, Survey and Coal Bed Methane (CBM) steering activities in Australia and the USA, recorded 63% revenue and 237% EBIT growth in FY05; Ace Drilling Supplies (Ace) benefited from the strong increases in the resources sector and the introduction of the new electronic core orientation tool, lifting revenue by 23% and EBIT by 63% in FY05; The RTE/Imdex Joint Venture re-structure was approved by Shareholders at the 2004 AGM and, as a result, 10 million shares held by RTE were cancelled and RTE is repaying US$1.5 million to Imdex. On completion of the re-structure Imdex’s interest in the Joint Venture will reduce from 49% to 20%. DELIVERING ON ITS STRATEGY ➜ The non-core Imdex Minerals was sold on 1 July 2005 for $6.3 million, with further, deferred, sale proceeds of $1.5 million conditional on the future success of certain new agricultural products being developed by the business; ➜ ➜ The business of Samchem, the South African muds and chemicals company, was acquired effective from 1 August 2005; Continuing Divisional operational and earnings improvement forecast for FY06. 3 FINANCIAL HIGHLIGHTS TOTAL REVENUE Change in percentage Earnings before Interest, Tax, Depreciation & Amortisation (EBITDA) Depreciation & Amortisation EARNINGS BEFORE INTEREST & TAX (EBIT) Change in percentage Net Interest Expense NET PROFIT BEFORE TAX (NPBT) Income Tax Benefit/(Expense) NET PROFIT AFTER TAX (NPAT) Change in percentage FY03 ($m) FY04 ($m) 30.9 39.8 3.9 (1.8) 2.0 (0.6) 1.5 (0.6) 0.9 (1.3) (1.9) (3.2) (0.6) (3.8) 0.1 (3.7) FY05 ($m) 48.2 + 21% 5.9 (1.9) 4.0 + 224% (0.5) 3.5 (0.4) 3.1 + 183% NET ASSETS 21.8 18.1 19.1 NET TANGIBLE ASSET BACKING PER SHARE (cents) 16.58 14.59 Change in percentage EARNINGS PER SHARE (cents) Change in percentage 16.78 + 15% 0.76 (3.07) 2.69 + 188% INCREASING THREE YEAR REVENUE AND EBIT TREND THREE YEAR REVENUE (BY DIVISION) ) S N O I L L I M ( E U N E V E R $50 $45 $40 $35 $30 $25 $20 $15 $10 $5 $0 4.0 2.0 $30.9 $39.8 $48.2 FY03 (3.2) FY04 FY05 $5 $4 $3 $2 $1 $0 ($1) ($2) ($3) ($4) ) S N O I L L I M ( T I B E ) S N O I L L I M ( E U N E V E R $50 $45 $40 $35 $30 $25 $20 $15 $10 $5 $0 $23.3 $6.8 $16.9 $21.3 $6.4 $11.8 FY04 FY05 $15.3 $6.2 $9.2 FY03 TOTAL REVENUE EBIT DRILLING PRODUCTS & SERVICES MINERALS PROCESSING DRILLING FLUIDS & CHEMICALS 4 CHAIRMAN’S REPORT The year ended 30 June 2005 (FY05) has been very positive and it is pleasing to see the benefit of the strategy adopted in 2004 showing through in the improved financial results of the Company. There is no doubt that the buoyant resources and energy sectors have seen increased expenditure in exploration and IAN BURSTON Chairman development of which Imdex has been a beneficiary. However, management must be able to take advantage of the favourable trading conditions and I am pleased to report that this has been the case in FY05. As a result of the Samchem acquisition, we are also pleased to welcome to the Board Mr Ivan Freeman. Surtron’s improved financial performance was pleasing and is a tribute to the hard work and dedication of the Surtron team. All divisions within Surtron experienced improved revenue and profitability and further growth is forecast for FY06. Ace Drilling Supplies was also a significant improver in FY05. The staged introduction of an electronic core orientation tool has proven to be a success and further growth is expected in the new financial year as its international roll-out gathers pace. This new product was the concept of one of our senior staff members and we have a patent pending on the device. This is evidenced by the 21% increase in revenue in comparison to FY04 with a substantial lift in Net Profit after Tax to $3.1 million for FY05 from a loss of $3.7 million in FY04. This equates to Earnings per Share of 2.7 cents (FY04, loss per share of 3.1 cents) with a Net tangible Asset Backing per Share of 16.8 cents (FY04, 14.6 cents). The re-structure of the Saudi Arabian Joint Venture was approved by Shareholders at the 2004 Annual General Meeting. The cancellation of the 10 million shares previously held by Rashid Trading Establishment (RTE) has occurred and RTE is continuing to pay Imdex a total of US$1.5 million in instalments. The total amount is due to be paid by RTE to Imdex by 31 December 2005. There has continued to be a steady movement to focus on our core businesses, and during the year we sold Imdex Minerals and the results referred to above include the write down of $1.4 million in the net assets of Imdex Minerals at 30 June 2005 in preparation for the sale of the business which occurred on 1 July 2005. The Board adopted a conservative approach in relation to this issue as there remains the strong possibility of receiving an additional sale consideration of $1.5 million in the future. This additional cash amount is conditional on the future profitability of certain agricultural products sold with the business. If and when the additional consideration is received, it will be accounted for as a credit to the Profit and Loss account. The Balance Sheet is strong, profits are improving and the Company’s cash position continues to strengthen. This is at a time when, according to Metals Economics Group’s latest edition of Corporate Exploration Strategies, 2004, worldwide non-ferrous exploration budgets totalled US$3.8 billion which is up 58% on 2003. Exploration expenditure is up in most regions around the world with sharp increases in countries such as Russia, Mongolia and China and regions such as Africa and Latin America led by Peru and Mexico. Increased expenditure in these regions supports the strategy adopted by the Board in concentrating on growing our business internationally. The Australian Mud Company has been expanding its sales profile internationally and was a solid profit contributor for the year. Part of the international growth strategy includes the acquisition of the South African drilling fluids and chemicals company, Samchem. This acquisition was approved by Shareholders in General Meeting on 5 August 2005. The Samchem acquisition provides a strategic manufacturing and research and development facility in South Africa from which the business is ideally located to supply greater Africa and take advantage of the increased exploration expenditure being experienced in Africa generally. There is also good scope to expand Samchem’s oilfield business in Africa. Our aims are to continue to focus on wealth creation for you, the Shareholders, the owners of the business and during FY05, much progress was made with the generation of Net Profit after Tax of $3.1 million with continuing growth forecast for FY06. The Board has decided not to declare a dividend for the year ended 30 June 2005. However, delivering a sustainable and increasing dividend stream to Shareholders remains one of the goals set by Directors for the Company to achieve in the short to medium term. The timing of this goal has been balanced against the capital needs of the business. Directors have been driving Shareholder value by continuing to invest in the expansion of the domestic and international businesses. This strategy has been successful and the revenue and profit growth is now readily evident giving Directors greater confidence that the goal for the payment of dividends to Shareholders will be met. Such growth cannot be achieved without the dedication and hard work demonstrated by all of the Company’s employees, consultants and fellow Board members. On behalf of you, the Shareholders, I would like to extend my utmost appreciation to all of our workforce for their efforts during the year. In addition, I would like to thank all Shareholders for your support and trust that this may continue and I look forward to seeing as many of you at the forthcoming Annual General Meeting to be held in Perth on 27 October 2005. Ian Burston CHAIRMAN 5 MANAGING DIRECTOR’S REPORT BERNIE RIDGEWAY Managing Director The result for the year is a reflection of the strategy enunciated at the 2004 Annual General Meeting to expand the core drilling products and services business and the continued good operational performances of the core business units. Revenue was up 21% to $48.2 million for the year ended 30 June 2005 (FY05). Highlights for the year included the following: ➜ ➜ ➜ ➜ continued growth in the core businesses; Group sales up by 21% on FY04; Earnings before Interest and Tax (EBIT) strong and expected to improve further in FY06; and Net Profit after Tax of $3.1 million with significant growth forecast for FY06. During the year, the Board decided that Imdex Minerals was non-core and should be sold. Accordingly, an agreement was reached with Unimin Australia Pty Ltd (Unimin) and the business was sold for a price of $6.3 million cash which settled on 1 July 2005. As part of the sale agreement, Imdex Limited is entitled to a further $1.5 million, subject to the future profitability of certain agricultural products which, at the time of sale, were in the early stages of development and commercialisation. Unimin have confirmed that they are continuing the commercialisation of one of these products, in particular, and Imdex has reason to believe that future profitability will be sufficient to ensure the collection of the additional consideration. At the time of sale of the business, net assets totalled $7.6 million compared to the sale price of $6.3 million. However, the Directors have taken a conservative view in relation to the collection of the additional $1.5 million conditional consideration and have written the net assets down to the cash consideration received at settlement on 1 July 2005. This one- off adjustment has caused the EBIT to be reduced from $5.4 million to $4.0 million. Nevertheless, the disposal of Imdex Minerals placed the Company in a position to acquire the business of Samchem, further enhancing the core business of drilling products and services and was a positive step in the implementation of the strategic plan adopted by Imdex in 2004. The solid performance of the Australian Mud Company (AMC) and the continued improvement in the operations of Surtron Technologies (Surtron) and Ace Drilling Supplies (Ace) was pleasing. THE AUSTRALIAN MUD COMPANY PTY LTD (AMC) Australian Mud Company (AMC) provides drilling products and services to the mining, oil and gas, water well and horizontal directional drilling industries. It traded strongly during the year generating EBIT in excess of $3 million for FY05. AMC’s revenue accounted for approximately 50% of total Imdex Group sales. In November 2004, the Metals Economics Group in Canada forecast an increase in overall non-ferrous worldwide exploration expenditure over that experienced in 2004. Base metals commodity markets are being supported by low inventories and a lack of new production with the gold price remaining buoyant. These factors continue to drive exploration expenditure and AMC is a beneficiary of this increased exploration spending in Australia and internationally. AMC continues to offer a superior service which is supported by a very strong brand identity within the industry in Australia and overseas. International markets continue to be a focus for AMC and increased sales have been achieved in China, Africa, New Zealand and Asia. AMC will continue to consolidate its presence in the Australian market and pursue growth internationally. SURTRON TECHNOLOGIES PTY LTD Surtron Technologies (Surtron) provides geophysical logging, downhole surveying and steering services. Geophysical logging services are provided to Australia’s major iron ore producers in BHP Billiton, and Rio Tinto. Surtron provides downhole survey services to the major gold producers operating in Australia and steering services are provided to coal seam gas explorers and producers in Australia and the United States. 6 SURTRON TECHNOLOGIES (CONTINUED) Surtron continued to build on its improved trading performance demonstrated in FY04 with a 63% increase in revenue and a 237% increase in EBIT in FY05 compared to FY04. It is well documented that there is significant expansion taking place in the iron ore industry in the Pilbara region of Western Australia to meet demand from China and Japan. Surtron is a beneficiary of this expansion in that the additional drilling by the iron ore producers requires geophysical logging; and additional logging trucks have been placed into the field. These vehicles are operating at increased day rates and utilisation is also at elevated levels. Surtron’s downhole survey division has also been very active primarily servicing the gold producers in Australia. The gold price has been relatively buoyant and a number of the junior exploration companies have been active in the sector. The majors have also been active as they recognised a dearth of new projects moving to production and exploration budgets have been increased post the industry consolidation phase seen in 2000 and 2001. The coal bed methane gas drainage (CBM) market continued to be the focus for Surtron’s steering division during the year. Services continue to be supplied to CBM explorers and producers in Australia, including CH4 at Moranbah in Queensland. The CH4 project is a joint venture between CH4 and BHP Billiton and is operated by CH4. It is the largest CBM project utilising surface to in seam (STIS) technology in Australia. Further increases in sales and EBIT margin are expected in FY06 as a result of the market acceptance of the quality products in the Ace portfolio and the expected continuation of favourable trading conditions in the resources sector. RTE/IMDEX JOINT VENTURE Imdex currently has a Joint Venture interest with Rashid Trading Establishment (RTE) to provide drilling products and services to the oil and gas industry in the Kingdom of Saudi Arabia. Joint Venture sales, which commenced in June 2001, have been building steadily and totalled US$25.3 million in 2005 (2004 – US$17.6m) producing a Net Profit of US$351,000 (100%) for the year ended 30 June 2005. On 5 July 2004, Imdex announced a re-structure of the Saudi Arabian Joint Venture. In summary, Imdex is reducing its equity in the Joint Venture to 20% (being a 20% interest in Imdex Arabia Limited). The re-structure was approved by Shareholders at the 2004 Annual General Meeting whereby it was agreed that RTE would return 10 million shares in Imdex for cancellation and RTE would also pay a total of US$1.5 million cash to Imdex. try in the United Surtron provides similar services to the CBM industry in the United unities in that market. States and is evaluating additional opportunities in that market. The 10 million share The 10 million shares in Imdex held by RTE were duly cancelled in accordance with the re-struc accordance with the re-structure agreement. note and personal gua In relation to the US$1.5 million due In relation to the US$1.5 million due from RTE as part of the re- ement, a further legally bindi structure agreement, a further legally binding agreement, including a promissory note and personal guarantee from Mr HH Al-Merry, (the principal of RTE and currently a Director of Imdex), was reached with RTE at the end of February 2005 which required RTE to pay a minimum of US$100,000 per month to Imdex with the entire amount to be paid by 31 December 2005. As at the date of this report, RTE had paid a total of US$550,000 in accordance with this agreement. l of RTE and current e end of February s re this agr 100,000 per m otal of US$550 31 December ware development to assist and Surtron continues to invest in software development to assist and enhance the Company’s steering capability which ensures Surtron’s rship in Australia. continued industry leadership in Australia. ring capability which ensu Surtron is forecasting further revenue and EBIT growth in FY06. g further revenue a E DRILLING ACE DRILLING SUPPLIES Ace Drilling Supplies (Ace) markets drilling consumables and ce Drilling Supplies (Ace) markets drilling consumables and downhole motors and cameras to the drilling industry in Australia downhole motors and cameras to the drilling industry in Australia and internationally. Ace experienced strong demand for its and internationally. Ace experienced strong demand for its products products and services during the year. This has seen revenue increase by 23% producing a robust EBIT This has seen revenue increase by 23% producing a robust EBIT margin of almost 16%. The improved financial performance is margin of almost 16%. The improved financial performance is a result of the general increase in activity in the resources sector a result of the general increase in activity in the resources sector and the introduction of the new electronic core orientation tool and the introduction of the new electronic core orientation tool (patent pending) to the diamond drilling industry. This tool is (patent pending) to the diamond drilling industry. This tool is being phased into the market and is gaining wide accept being phased into the market and is gaining wide acceptance in Australia and internationally as the only electronic core Australia and internationally as the only electronic core orientation tool on the market. Marketing of this tool will continue tool on the market. Marketing of this tool will continue in FY06 and it is expected that the Ace core tool will be the do and it is expected that the Ace core tool will be the dominant core orientation tool in the market by the end of FY06. orientation tool in the market by the end of FY06. 7 COMPANY OUTLOOK The strong performances of the core business units in FY05 has continued into FY06. AMC has continued to trade strongly in the initial months of FY06, and international expansion plans continue in order to capitalise on the buoyant business conditions being experienced in the resources industries. Surtron experienced a very good year in FY05 and favourable trading conditions have continued into FY06. The Company has expanded capacity in the geophysical logging division and the steering division to satisfy increased demand in these areas. Surtron will continue to pursue opportunities and grow its business in international markets. Ace is forecasting strong growth in both revenue and earnings through the continued introduction of the electronic core orientation tool into the marketplace and the expansion of its traditional business of downhole motors and cameras. In relation to the Imdex Group of businesses, the Board is anticipating continuing revenue growth in FY06 of around 15% to $55 million. Profit levels are also expected to increase on the levels achieved in FY05. Looking ahead, the Board remains committed to its four-point plan to build value for Shareholders: ➜ ➜ ➜ ➜ continuing operational and earnings improvement in all business units; progressive realisation of the potential of its 20% investment in Imdex Arabia; overall improvement in Group financial performance to make Imdex a competitive investment in the Australian market; and, translation of the improved performance into dividend income for Shareholders. Bernie Ridgeway MANAGING DIRECTOR SAMCHEM DRILLING FLUIDS & CHEMICALS (PTY) LTD The acquisition of Samchem on 1 August 2005 is expected to impact positively on earnings for FY06. The business is currently trading well and is also a beneficiary of increased exploration spending, particularly in Africa. There are a number of opportunities to expand the business and these include the oilfield and through the worldwide application for the chemicals used in the clay brick manufacturing process. Samchem Research and Development facility - South Africa Samchem Manufacturing Plant 8 DRILLING FLUIDS & CHEMICALS DRILLING FLUIDS & CHEMICALS Drilling fluids, chemicals and services to the mining, oil and gas, water well and horizontal directional drilling industries. Drilling fluids, chemicals and services to the mining, oil and gas, water well and horizontal directional drilling industries. Clay and cement chemical additives. FINANCIAL ➜ ➜ Revenue $23.2m EBIT $3.0m YEAR IN BRIEF ➜ ➜ ➜ ➜ ➜ 10% increase in revenue Continued to increase sales in onshore oil & gas industry Further brand development from superior service offering International growth initiatives continued Increasing sales into China and India continuing FUTURE DIRECTIONS ➜ ➜ ➜ Exploration sector continues to appear buoyant Continued international expansion Further consideration of mergers / acquisitions / alliances Samchem Drilling Fluids & Chemicals acquired effective 1 August 2005 NEW ACQUISITION ➜ ➜ Shareholders approved acquisition on 5 August 2005 16m shares in Imdex issued, cash purchase price of approx $3.5m THE BUSINESS ➜ ➜ ➜ ➜ In FY05 reported revenue of AUD$8.7m with EBIT of AUD$1.5m Major manufacturer and supplier of drilling fluids and services in South Africa – expanding in other African countries Highly qualified and capable research and development function 35 employees including key management es including key management transferred with the business rred with the business FUTURE DIRECTIONS FUTURE DIRECTIONS ➜ ➜ ➜ ➜ ➜ Combined operating synergies of AMC and Combine Sa Samchem to be realised Capitalise on strategic location for manufacturing, supply and R&D of drilling fluids & chemicals Diversify via chemical additives for clay brick and cement block manufacturing Expand the mining, oil and gas business. 9 DRILLING PRODUCTS & SERVICES DRILLING FLUIDS & CHEMICALS JOINT VENTURE Geophysical logging, down hole surveying, steering, sale and rental of drill hole survey instruments, down hole motors, cameras and drilling products. FINANCIAL ➜ ➜ Revenue $16.9m EBIT $2.9m YEAR IN BRIEF ➜ ➜ ➜ ➜ ➜ ➜ ➜ 43% increase in revenue Increased EBIT contribution by 153% Pilbara iron ore expansion drove strong demand for logging services Survey operations servicing the gold sector have been very active Wireless steering to the CBM market was strong in Australia and increased in the USA Continued high demand for down hole cameras and motors Electronic core orientation tool gaining market acceptance Drilling fluids, chemicals and services to the oil and gas and water well industries. FINANCIAL ➜ ➜ Revenue US$25.3m (100% Joint Venture) NPAT US$351k (100% Joint Venture) YEAR IN BRIEF ➜ ➜ ➜ Re-structure approved by Shareholders at 2004 AGM 10m shares held by RTE cancelled RTE is repaying US$1.5m to Imdex at which time Imdex’s interest will reduce from 49% to 20% FUTURE DIRECTIONS ➜ ➜ Continue to realise value of 20% investment (post re-structure) To consider introduction of services F FUTURE DIRECTIONS MINERALS PROCESSING ➜ ➜ ➜ ➜ ➜ Additional offshore CBM steering in the USA Additi remains remains a focus Secure domin Secure dominance of core orientation tool in the market place market place Continue to service offshore survey markets tinue to service Toll milling, silica flour, custom packaging, agricultural products, sand and gravel packs and micaceous iron oxide (MIO) SOLD EFFECTIVE 1 JULY 2005 FINANCIAL ➜ ➜ Revenue $6.7m EBIT loss $229k YEAR IN BRIEF ➜ ➜ ➜ Board determination that business was non-core Successfully negotiated sale of business Cash proceeds realised of $6.3m. Deferred sale proceeds of $1.5m conditional on success of new agricultural products. Sale placed Imdex in a position to acquire the Samchem business, reduce debt and augment working capital 10 MR IAN BURSTON MR ROSS KELLY BE(Hons) FAICD Non Executive Director Age: 67 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 January 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 Services 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 Advisory Board, Curtin Graduate School of Business. AM Non Executive Chairman Age: 70 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 Officer 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 BERNARD RIDGEWAY B,Bus (ACCTG) ACA Managing Director Age: 51 years 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. 11 MR HADI HAMMED AL-MERRY Non Executive Director Age: 43 years Mr Al-Merry was appointed as a Non Executive Director in April 2002. He is currently the President of RTE and has been involved in supplying products and services 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. MR STEPHEN LYONS B.BUS (ACCTG) ACA Company Secretary Age: 36 years Mr Lyons is a qualified Chartered Accountant and a Member of the Institute of Chartered Accountants in Australia: he has an audit, corporate services and banking background. He was previously the Company Secretary for the Australian operations of the Swiss based, Société Générale de Surveillance (SGS) Group and has consulted to other private and public companies. He was appointed Company Secretary on 19 November 2001. MR KEVIN DUNDO B Com, LLB Non Executive Director Age: 53 years Mr Dundo practises as a lawyer in Perth. He was appointed to the Board on 14 January 2004. He is also a Director of NuStar Mining Corporation Limited (ASX: NMC). Previous directorships include St Barbara Mines Limited (ASX: SBM) and Defiance Mining Corporation (listed on the Toronto Stock Exchange). 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 service industry and the financial services industry. 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 IVAN FREEMAN Non Executive Director Age: 63 years Mr Freeman is the Executive Chairman of the Iscosa group of companies and is based in Johannesburg, South Africa. Mr Freeman was appointed to the Board on 23 August 2005. He holds advanced Diplomas in Chemical Technology and Production Engineering and has completed several courses in business administration, supervisory management, marketing and finance. His career has focused mainly on mining and oil exploration related projects and he is well versed in the use of chemical additives that improve the clay brick making process. He is an Associate Member of the South African Clay Brick Association. Administrative and fiscal disciplines form the corner stone of his management style. IMDEX LIMITED FINANCIAL REPORT CONTENTS Directors’ Report 14 Independence Declaration 21 Corporate Governance Statement 22 Independent Audit Report 26 Directors’ Declaration 28 Statements of Financial Performance 29 Statements of Financial Position 30 Statements of Cash Flow 31 Notes to the Financial Statements 32 ASX Additional Information 65 DIRECTORS’ REPORT The Directors of Imdex Limited (“Imdex” or “the Company”) present their report together with the annual Financial Report of the Company and its controlled entities for the financial year ended 30 June 2005. 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 R W Kelly Independent, Non Executive Director Age 70 51 67 Mr K A Dundo Independent, Non Executive Director 53 Mr H H Al-Merry Non Executive Director Mr I R Freeman Non Executive Director Mr J P O’Neil Non Executive Director – Alternate Director to Mr I Freeman 43 63 58 Particulars Mechanical Engineer Member of the Audit & Remuneration Committees. Director since November 2000. Chartered Accountant Director since May 2000. Engineer Member of the Audit & Remuneration Committees. Director since 14 January 2004. Practicing Lawyer Chairman of the Audit & Remuneration Committees. Director since 14 January 2004. President of Rashid Trading Establishment (involved in a Joint Venture with Imdex, known as the RTE/Imdex Joint Venture) Director since April 2002. Chemical Technology and Production Engineer Director since 23 August 2005. Muds and Drilling Fluids Engineer Alternate Director since 23 August 2005. ß ß ß ß ß ß ß ß ß ß ß ß ß ß ß ß ß Information on the Director’s experience and qualifications is set out under Director Profiles. (b) Directorships of other listed companies Directorships of other listed companies held by the Directors in the 3 years immediately before the end of the financial year are as follows: Name Company Position Period of Directorship Mr I F Burston Aztec Resources Ltd Chairman and Chief Executive Officer 2004 - Current Mincor Resources NL Non Executive Director Aviva Corporation Ltd Non Executive Director Mr R W Kelly Clough Limited Non Executive Director 2003 - Current 2003 - Current Since 1996 Clough Limited Chairman During 2002 – 2003 Orbital Engine Corp Ltd Chairman and Non Executive Director Resigned 21 August 2003 Aurora Gold Limited Non Executive Director Resigned 5 February 2003 Mr K A Dundo NuStar Mining Corp Ltd Non Executive Director St Barbara Mines Limited Non Executive Director Defiance Mining Corporation Non Executive Director 2002 – Current 2002 – 2004 2003 - 2004 14 DIRECTORS’ REPORT (c) Company Secretary Mr S J Lyons Chartered Accountant aged 36. Mr Lyons was appointed Company Secretary of Imdex Limited on 19 November 2001. He has an audit, corporate services and banking background. Previously, he was the Company Secretary for the Australian operations of the Swiss based, Société Générale de Surveillance (SGS) Group and has consulted to other private and public companies. Mr Lyons is a Member of the Institute of Chartered Accountants in Australia. (d) 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, nine Board meetings and three Audit and Compliance Committee meetings were held. The Remuneration Committee did not meet during the year, however has met once since the end of the year. I F Burston B W Ridgeway H H Al-Merry R W Kelly K A Dundo Board of Directors Audit and Compliance Committee Held Attended Held Attended 9 9 9 9 9 9 9 - 8 9 3 - - 3 3 3 - - 3 3 In addition to the Directors’ and Audit and Compliance Committee meetings, there were also regular meetings of the RTE/Imdex Saudi Arabian Joint Venture. These are attended by Mr Ridgeway on behalf of Imdex Limited and Mr Al-Merry on behalf of Rashid Trading Company. (e) Directors’ Shareholdings At the date of this report the Directors held the following interests in shares and options of the Company: Directors I F Burston B W Ridgeway H H Al-Merry R W Kelly K A Dundo I R Freeman J P O’Neil – alternate Director to Mr I Freeman Shares Held Indirectly Options Held Directly Shares Held Directly 100,000 - - 5,000,000 755,000 - - 265,000 300,000 - - - 16,059,002 12,847,202 - - - - - - - At the date of this report, the options on issue by the Company are disclosed at (g) below and in Note 28. No shares were issued during the year on the exercise of options granted by the Company. 15 DIRECTORS’ REPORT (f) Remuneration Report Remuneration policy for Directors and Executives The Board seeks the approval of Shareholders in relation to the aggregate of Non Executive Directors remuneration and any options that may be granted to Directors. The remuneration for Non Executive Directors is reviewed from time to time, with due regard to current market rates. The remuneration for Non Executive Directors is not linked to the Company’s performance. Other than statutory superannuation, no Non Executive Director is entitled to any additional benefits on retirement from the Company. The Managing Director’s remuneration is determined by the Remuneration Committee with due regard to current market rates. The remuneration for the Managing Director is not linked to the Company’s performance. The Remuneration Committee intends to review the Managing Director’s remuneration at 31 December 2005 and, at that time, the extent to which it is linked to the performance of the Company. All specified Executives, and all staff of the Company, are subject to formal annual reviews of their performance. The remuneration of specified Executives comprises a fixed monetary total, not linked to the performance of the Company, although bonuses related to the performance of the Company may be agreed between that Executive and the Company from time to time. Refer below for further details. Director and Executives details The Directors of Imdex Limited during the year were: (i) Mr I F Burston (Non Executive Chairman); (ii) Mr B W Ridgeway (Managing Director); (iii) Mr R W Kelly (Non Executive Director); (iv) Mr K A Dundo (Non Executive Director); and (v) Mr H H Al-Merry (Non Executive Director). The Group Executives of Imdex Limited during the year were: (i) Mr S J Lyons (Company Secretary); (ii) Mr D L Kinley (Group Financial Controller); (iii) Mr G E Weston (General Manager: Australian Mud Company Pty Ltd, Surtron Technologies Pty Ltd and Ace Drilling Supplies); (iv) Mr C S Munyard (Manager Surtron Technologies Pty Ltd); and (v) Mr I Tan (General Manager: Imdex Minerals). Elements of Director and Executive Remuneration Remuneration packages contain the following key elements: (i) Primary benefits – salary/fees, bonuses and non monetary benefits including the provision of motor vehicles and health benefits; (ii) Post-employment benefits – including superannuation and prescribed retirement benefits; (iii) Equity – share options granted under the Staff Option Scheme as disclosed in Note 28; and (iv) Other benefits. Details of Directors’ remuneration are set out below. Further information is also set out in Note 26: Primary Post Employment Equity Other benefits Total Salary & fees $ Bonus $ Non- monetary $ Super- annuation $ Prescribed benefits $ Other $ Options $ $ $ 250,000 - 22,123 22,500 - - - - 294,623 Executive Director B W Ridgeway, Managing Director (i) Non Executive Directors I F Burston, Chairman 50,000 - - 4,500 - - - - 54,500 H H Al-Merry - - - - - - - - - R W Kelly K A Dundo Total 35,000 - - 3,150 - - - - 38,150 35,000 - - 3,150 - - - - 38,150 370,000 - 22,123 33,300 - - - - 425,423 16 DIRECTORS’ REPORT Details of remuneration of the highest remunerated Group Executives are set out below: Primary Post Employment Equity Other benefits Total Salary & fees $ Bonus $ Non- monetary $ Super- annuation $ Prescribed benefits $ Other $ Options $ $ $ S J Lyons, Company Secretary (iii) 112,078 D L Kinley, Group Financial Controller (iii) 107,231 G E Weston, General Manager AMC, Ace & Surtron (iii) C S Munyard, Manager Surtron (iii) I Tan, General Manager Imdex Minerals (iii) Total 200,000 106,838 152,269 678,416 - - - - - - - - 9,612 9,651 6,795 17,965 9,351 9,615 6,357 13,704 32,115 50,935 - - - - - - - - - - - - 600 1,200 24,000 900 - 26,700 - - - - - - 112,678 127,694 248,760 126,704 172,330 788,166 Elements of remuneration related to performance (i) Managing Director: The remuneration of the Managing Director is not directly linked to the performance of the Company. In general terms, options have been the method by which Imdex has sought to reward key executives in a manner linked to the performance of the Company. Any such options to the Managing Director, or any Director, require the approval by Shareholders in General Meeting. As set out in (g) below, during the year the Managing Director’s options expired. (ii) Non Executive Directors: The remuneration of Non Executive Directors is not linked to the performance of the Company. The maximum total remuneration payable to Non Executive Directors was approved by Shareholders at the 2003 Annual General Meeting and is currently $300,000. In the current year remuneration to Non Executive Directors totalled $130,800, including statutory superannuation. The Board determines the apportionment of directors’ fees between each Director. (iii) Group Executives: The remuneration of specified Executives generally comprises a fixed monetary total that is not linked to the performance of the Company. Bonuses related to the performance of the Company may, however, be agreed between that Executive and the Company from time to time. In addition, subject to a qualifying period, Group Executives may be issued options in the Staff Option Plan at the discretion of the Board. The percentage of the value of remuneration that consisted of options for each Executive is set out below. Value of options issued to Directors and Executives The following table discloses the value of options granted, exercised or lapsed during the year: Options Granted (i) Options Exercised Options Lapsed Value at grant date $ Value at exercise date $ Value at time of lapse $ S J Lyons D L Kinley G E Weston C S Munyard 600 1,200 24,000 900 - - - - - - - - Total value of options granted, exercised and lapsed Value of options included in remuneration during the year (ii) Percentage of remuneration for the year that consisted of options $ 600 1,200 $ 600 1,200 24,000 24,000 900 900 % 0.5% 0.9% 8.9% 0.7% (i) the total value of options granted during the year is calculated based on the fair value of the option at grant date multiplied by the number of options issued during the year; (ii) The total value of options included in remuneration for the year is calculated in accordance with Accounting Standard AASB 1046 “Director and Executive Disclosures by Disclosing Entities”, as amended by Accounting Standard AASB 1046A. As the options immediately vest the full value of the option is recognised in remuneration in the current year. 17 DIRECTORS’ REPORT (g) Share options (i) Share options granted to Directors and Executives During or since the end of the financial year an aggregate of 2,225,000 options were granted to the following executives of the Group under the Staff Option Plan – refer Note 28. No options were granted during or since the end of the financial year to Directors. Name S J Lyons D L Kinley G E Weston C S Munyard Number of options granted Issuing entity Number of ordinary shares under option 50,000 100,000 2,000,000 75,000 Imdex Limited Imdex Limited Imdex Limited Imdex Limited 50,000 100,000 2,000,000 75,000 During the financial year the following options to Directors expired: Name I F Burston B W Ridgeway Number of options that expired 1,000,000 2,000,000 Issuing entity Imdex Limited Imdex Limited Number of ordinary shares under option 1,000,000 2,000,000 The options held by Mr Ridgeway and Mr Burston were granted on 25 October 2001, following approval by Shareholders at the 2001 Annual General Meeting. These options expired on 24 October 2004. (ii) Share options on issue at year end Details of unissued shares or interests under option are: Issuing Entity Class of option Class of shares Exercise price of option Issue date of option Expiry date of option Key terms of option Number of shares under option Imdex Limited Staff Share Options Ordinary 20 cents 1 Aug 2004 31 Jul 2009 Imdex Limited Corporate Advisor Options Ordinary 20 cents 23 Dec 2004 31 Jul 2009 Imdex Limited Corporate Advisor Options Ordinary 20 cents 23 Dec 2004 31 Oct 2007 Imdex Limited Corporate Advisor Options Ordinary 35 cents 23 Dec 2004 31 Oct 2007 (aa) (bb) (cc) (dd) 3,160,000 100,000 2,000,000 1,000,000 (aa) exercisable one year after the date of issue, in one-third lots each year thereafter; (bb) exercisable at any point prior to expiry; (cc) exercisable at any point prior to expiry on the condition that Imdex shares trade at 30 cents for 5 consecutive trading days; and (dd) exercisable at any point prior to expiry. (iii) No shares were issued during the financial year or since the end of the financial year as a result of the exercise of an option. (h) 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 services, and minerals processing. (i) Review of Operations A review of the operations for the financial year together with future prospects is contained in the Chairman’s Report, the Managing Director’s Review and the Financial Statements. 18 DIRECTORS’ REPORT (j) Dividends No dividends were paid or declared by the Company during the year (2004 $Nil). The Directors do not recommend the payment of a dividend in respect of the financial year ended 30 June 2005. (k) Changes in State Of Affairs During the financial year, there were no significant changes in the state of affairs of the Consolidated Entity other than referred to in the Financial Statements or notes thereto. (i) Subsequent Events (i) On 1 July 2005 Imdex Limited sold its mineral processing business, Imdex Minerals, for a cash price of $6.3 million. As part of the sale agreement, Imdex Limited is entitled to a further cash payment of $1.5 million, subject to the future profitability of certain agricultural products which, at the time of sale, were in the early stages of development and commercialisation. Whilst Imdex has reason to believe that the future profitability of these products will be sufficient to ensure the collection of the additional consideration, a definitive assessment is unable to be made at 30 June 2005. The Directors have therefore taken a conservative view of the carrying value of Imdex Minerals business as at 30 June 2005. As the carrying value of the net assets of Imdex Minerals at 30 June 2005 totalled $7.6 million, the Directors have decided to write down the carrying value by $1.37 million at 30 June 2005 to $6.3 million, representing the amount realised in cash on 1 July 2005. This write down, of property, plant and equipment, has been reflected as a charge against current period profits. Further details concerning this event are set out in Note 31 to the Financial Report. (ii) On 5 August 2005, Imdex Limited held a General Meeting of Shareholders at which the acquisition, and associated share issue, of the business, certain related assets and intellectual property of SA Mud Services (Pty) Ltd and Iscosa (Pty) Ltd was approved. On 10 August 2005, settlement of the acquisition took place and 16,059,002 shares in Imdex Limited were issued to SA Mud Services and Iscosa. The balance of the purchase price, approximately $3.5m, was transferred to the trust account of an independent attorney pending the finalisation of the completion accounts and other defined matters. Apart from these matters, 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. (m) 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. (n) 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 by Imdex Minerals, continue to minimise dust emission and the impact of dust on the surrounding area. A dust management and improvement program was completed during the year which resulted in the improved efficiency of site dust collectors. One complaint was received by the Department of Environmental Protection (DEP) during the year. The complaint related to the storm water run off from the plant sedimentation pond. In response, a new stormwater pond and pump was installed and consequently resulted in the matter being rectified. During the year the Environmental Protection Act (EPA) 1986 Licence was revised by DEP representatives and presented to Imdex Minerals management in September 2004. The revision of the licence enables Imdex Minerals to enhance their ability to monitor and manage environmental protection matters. As described in this Financial Report, Imdex Minerals was sold on 1 July 2005. (o) Non-audit services The Directors are satisfied that the provision of non-audit services, during the year, by the auditor (or by another person or firm on the auditor’s behalf) is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are outlined in Note 4 to the Financial Report. (p) Auditor’s Independence Declaration The auditor’s independence declaration is included on page 21 of the Financial Report. 19 DIRECTORS’ REPORT (q) 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 Secretary, and all executive officers of the Company and of any related body corporate against a liability incurred as such a Director, Secretary 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 otherwise, 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. (r) 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 Ian Burston Chairman PERTH, Western Australia, 22 September, 2005 20 INDEPENDENCE DECLARATION Deloitte Touche Tohmatsu A.B.N. 74 490 121 060 Woodside Plaza Level 14 240 St. Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6837 Australia DX 206 Tel: +61 (0) 8 9365 7000 Fax: +61 (0) 8 9365 7001 www.deloitte.com.au The Board of Directors Imdex Limited Level 3, Redgum House 18 Richardson Street West Perth WA 6005 22 September 2005 Dear Sirs Imdex Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Imdex Limited. As lead audit partner for the audit of the financial statements of Imdex Limited for the financial year ended 30 June 2005, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours sincerely DELOITTE TOUCHE TOHMATSU Keith Jones Partner Chartered Accountant The liability of Deloitte Touche Tohmatsu, is limited by, and to the extent of, the Accountants’ Scheme under the Professional Standards Act 1994 (NSW). 21 CORPORATE GOVERNANCE STATEMENT (a) ASX Governance Principles and ASX Recommendations The Australian Stock Exchange Corporate Governance Council sets out best practice recommendations, including corporate governance practices and suggested disclosures. 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. Unless otherwise indicated the best practice recommendations of the ASX corporate Governance Council, including corporate governance practices and suggested disclosures, have been adopted by the Company for the full year ended 30 June 2005. In addition, the Company has 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. The extent to which Imdex has complied with the ASX Recommendations during the year ended 30 June 2005, 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. In addition, excluding Mr J P O’Neil who is an alternate Director for Mr I F Freeman, the Board currently has six Directors, three of whom are considered independent. Despite not having a “majority” of independent Non Executive Directors, the structure of the Board is considered appropriate and adequate at the current time, for the Company’s operations. (i) Board Structure The Board consists of a Non Executive Chairman, four 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 Director’s 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: Director Assessment Existence of any matters contained in ASX Recommendation 2.1 affecting Independence Mr I F Burston, Non Executive Chairman Mr B W Ridgeway, Managing Director Mr H H Al-Merry, Non Executive Director Mr R W Kelly, Non Executive Director Mr K A Dundo, Non Executive Director Mr I R Freeman, Non Executive Director Independent Nil Not Independent Managing Director Not Independent Mr Al-Merry is the principal of Rashid Trading Establishment which is involved as a Joint Venture partner with the Company in the Middle East. Independent Nil Independent Nil Not Independent Mr Freeman is a major shareholder, having an indirect interest in 16,059,002 shares of the Company. Mr J P O’Neil, Alternate Director to Mr I R Freeman Not Independent Mr O’Neil is a major shareholder, having an indirect interest in 12,847,202 shares of the Company. Mr O’Neil is the Managing Director of Samchem Drilling Fluids and Chemicals (Pty) Ltd, Imdex’s South African subsidiary. 22 CORPORATE GOVERNANCE STATEMENT (iii) Board Nomination The Board does not have a separate nomination committee and, given the Company’s size, does not intend to form such a committee. However, the composition of the Board is determined using the following principles: ü · ü · ü · 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 arbitrary 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 and 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. (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, prior to trading, to determine whether trading at that 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 2005 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 A Dundo (Chairman); Mr I F Burston; Mr R W Kelly. 23 CORPORATE GOVERNANCE STATEMENT The experience and qualifications of each committee member is set out in the Directors’ Profiles in the first section of the Annual Report. The Company Secretary acts as secretary of this Committee. 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. (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 Boards role in reviewing the information disclosed to ASX and the procedures for ensuring that the information is released to ASX. All information disclosed to the ASX is published on the Company’s website as soon as practicable. (g) Principle 6: Respect the rights of Shareholders Shareholders Communications Strategy: The Board 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: (i) 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; (ii) the Half-Yearly report which contains summarised financial information and a review of the operations of the Consolidated Entity during the period. Half year 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; (iii) regular reports released through the ASX and the media; (iv) proposed major changes in the Consolidated Entity, which may impact on share ownership rights are submitted to a vote of Shareholders; and (v) 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 re-appointment of Non Executive 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 and Shareholders may register on the Company’s website to receive automatic notification of ASX announcements. The auditor is also invited to the Company’s Annual General Meetings and is available to answer Shareholders questions concerning the conduct of the audit. The Company’s Shareholder Communications Strategy is published on the Company’s website. (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. During the year, and with the assistance of an independent consultant, the Company Secretary and the Group Financial Controller conducted a targeted internal control review programme for the Imdex Group during the year. The results of this review were reported to the Audit Committee, Apart from this review, which may be conducted from time to time in the future, 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. 24 CORPORATE GOVERNANCE STATEMENT 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 Reports are 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 an informal process in place 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. A formal performance evaluation of the Board was not conducted during the year. 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 or to formalise the performance evaluation process. All other Executives, and all staff of the Company, are subject to formal annual reviews of their performance as set out in the Directors Report. 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 and Executives are set out in Note 26. The Company’s remuneration policies are set out in the Remuneration Report contained in the Directors Report. (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 K A Dundo (Chairman); Mr I F Burston; and, Mr R W Kelly. The experience and qualifications of each committee member is set out in the Directors’ Profiles in the first section of the Annual Report. 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. All Non Executive Directors are remunerated by way of fixed cash fees. Non Executive Directors are not provided with retirement benefits other than statutory superannuation. The maximum total remuneration payable to Non Executive Directors was approved by Shareholders at the 2003 Annual General Meeting and is currently $300,000. No Non Executive Director received options in the Company during the year. (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. 25 INDEPENDENT AUDIT REPORT Independent audit report to the members of Imdex Ltd Scope Deloitte Touche Tohmatsu A.C.N. 74 490 121 060 Woodside Plaza Level 14 240 St Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6837 Australia DX 206 Tel: +61 (0) 8 9365 7000 Fax: +61 (0) 8 9365 7001 www.deloitte.com.au The financial report and directors’ responsibility The financial report comprises the statement of financial position, statement of financial performance, statement of cash flows, accompanying notes to the financial statements, and the directors’ declaration for both Imdex Ltd (“the company”) and the consolidated entity, for the financial year ended 30 June 2005 as set out on page 21 and pages 28to 64. The consolidated entity comprises the company and the entities it controlled at the year’s end or from time to time during the financial year. The directors of the company are responsible for the preparation and true and fair presentation of the financial report in accordance with the Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the financial report. Audit approach We have conducted an independent audit of the financial report in order to express an opinion on it to the members of the company. Our audit has been conducted in accordance with Australian Auditing Standards to provide reasonable assurance whether the financial report is free of material misstatement. The nature of an audit is influenced by factors such as the use of professional judgement, selective testing, the inherent limitations of internal controls, and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannot guarantee that all material misstatements have been detected. We performed procedures to form an opinion whether, in all material respects, the financial report is presented fairly in accordance with the Corporations Act 2001 and Accounting Standards and other mandatory professional reporting requirements in Australia so as to present a view which is consistent with our understanding of the company’s and the consolidated entity’s financial position, and performance as represented by the results of their operations and their cash flows. Our procedures included examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial report, and the evaluation of accounting policies and significant accounting estimates made by the directors. While we considered the effectiveness of management’s internal controls over financial reporting when determining the nature and extent of our procedures, our audit was not designed to provide assurance on internal controls. The audit opinion expressed in this report has been formed on the above basis. Liability limited by the Accountants' Scheme, approved under the Professional Standards Act 1994 (NSW). 26 INDEPENDENT AUDIT REPORT Page 2 Audit Opinion In our opinion, the financial report of Imdex Ltd is in accordance with: (a) the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2005 and of their performance for the year ended on that date; and complying with Accounting Standards in Australia and the Corporations Regulations 2001; and (b) other mandatory professional reporting requirements in Australia. DELOITTE TOUCHE TOHMATSU Keith Jones Partner Chartered Accountants Perth, 22 September 2005 27 DIRECTORS’ DECLARATION The Directors declare that: (i) 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; (ii) in the Directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of the Company and the Consolidated Entity; and (iii) the Directors have been given the declarations required by s.295A of the Corporations Act 2001. 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 Ian Burston Chairman PERTH, Western Australia, 22 September, 2005 28 STATEMENTS OF FINANCIAL PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2005 Consolidated Company Note 2005 $’000 2004 $’000 2005 $’000 2004 $’000 Revenue from sale of goods Revenue from rendering of services Other revenue from ordinary activities Total Revenue Share of net (profit)/loss of equity accounted investments Write down of the investment in the RTE/Imdex Joint Venture to recoverable amount Prior year adjustments relating to Imdex Minerals Write down of property, plant and equipment of Imdex Minerals to recoverable amount Raw materials and consumables used Other expenses from ordinary activities Employee benefits expenses Depreciation and amortisation expenses Borrowing costs Profit/(Loss) from ordinary activities before related income tax expense Income tax (expense)/benefit relating to ordinary activities 2 2 2 16 2,16 2 2 2 2 2 5 37,156 33,423 13,986 12,275 9,679 1,335 5,948 - - 460 1,959 1,110 48,170 39,831 15,945 13,385 - - - 292 3,108 2,796 - - - - 3,108 2,796 1,370 - 1,370 - 21,637 19,338 10,660 8,569 1,949 529 8,837 6,739 1,938 559 6,103 4,569 3,079 1,040 359 5,798 4,853 2,565 1,034 420 3,456 (3,776) (575) (7,189) (383) 87 431 (144) (144) - 289 (6,900) (6,900) - Profit/(Loss) from ordinary activities after related income tax expense 3,073 (3,689) Net Profit/(Loss) Net profit attributable to outside equity interests 3,073 (3,689) - - Net Profit/(Loss) attributable to members of the Parent Entity 23 3,073 (3,689) (144) (6,900) Total Changes in Equity Other than those Resulting from Transactions with Owners as Owners 3,073 (3,689) (144) (6,900) Basic Earnings per Share (cents) Ordinary Shares Diluted Earnings per Share (cents) Ordinary Shares Consolidated 2005 Cents 2004 Cents 6 6 2.69 (3.07) 2.69 (3.07) The Statements of Financial Performance are to be read in conjunction with the notes to the Financial Statements. 29 STATEMENTS OF FINANCIAL POSITION AS AT 30 JUNE 2005 Current Assets Cash Assets Receivables Inventories Current Tax Assets Other Total Current Assets Non Current Assets Other Financial Assets Property, Plant and Equipment Exploration, Evaluation and Development Expenditure Intangibles 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 Total Non Current Liabilities Total Liabilities Net Assets Equity Contributed Equity Reserves Retained Profits/(Accumulated Losses) Total Equity Consolidated Company Note 2005 $’000 2004 $’000 2005 $’000 2004 $’000 7 8 9 11 12 10 13 14 15 11 17 18 11 19 18 11 19 21 22 23 103 13,920 8,356 - 19 56 9,355 6,340 - 7 96 4,556 2,249 - 3 35 2,548 947 22 - 22,398 15,758 6,904 3,552 1,475 5,413 10,414 11,771 601 12 664 641 - 595 2,984 6,571 601 12 329 6,917 7,429 641 - 260 13,166 18,420 10,497 15,247 35,564 34,178 17,401 18,799 7,971 4,047 574 860 7,221 4,429 39 639 2,526 4,698 531 247 2,482 3,898 - 203 13,452 12,328 8,002 6,583 2,883 3,239 4,172 4,405 - 103 370 130 - 38 370 50 2,986 3,739 4,210 4,825 16,438 16,067 12,212 11,408 19,126 18,111 5,189 7,391 19,008 21,058 19,008 21,058 - 8 - 8 118 (2,955) (13,819) (13,675) 19,126 18,111 5,189 7,391 The Statements of Financial Position are to be read in conjunction with the notes to the Financial Statements. 30 STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2005 Cash flows from Operating Activities Receipts from customers Other income Consolidated Company Note 2005 $’000 2004 $’000 2005 $’000 2004 $’000 48,767 40,747 15,135 13,699 - - 1,020 840 Payments to suppliers and employees (44,975) (38,366) (16,027) (13,982) Dividends received Interest received Interest and other costs of finance paid Income taxes paid - 16 (351) (286) - - (378) (543) Net cash provided by Operating Activities 34 3,171 1,460 688 18 - - (351) (376) - 483 Cash flows from Investing Activities Payments for property, plant and equipment (2,791) (1,926) (1,719) Proceeds from disposal of property, plant and equipment Proceeds from receivable – RTE/Imdex Joint Venture Payments for intangible assets Payments for other assets 639 189 (11) (216) 343 - - - 251 189 (11) (216) (14) 167 (463) 270 - - - Net cash used in Investing Activities (2,190) (1,583) (1,506) (193) Cash flows from Financing Activities Advances from Controlled Entities Repayments hire purchase and lease borrowings Proceeds from borrowings Repayment of borrowings - - (1,296) (1,234) 657 (387) 757 (522) 2,479 2,176 1,682 1,122 (1,075) (1,250) (1,075) (1,250) Net cash provided by/(used in) Financing Activities 108 (308) 877 107 Net Increase/(Decrease) in Cash Held 1,089 (431) (146) 81 Cash at the beginning of the financial year Cash at the end of the financial year 34 34 (1,453) (1,022) (1,567) (1,648) (364) (1,453) (1,713) (1,567) The Statements of Cash Flows are to be read in conjunction with the notes to the Financial Statements. 31 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 24 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 Services Tax (GST). Exchanges of goods or services 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 services is recognised in the period when the service is provided, having regard to the stage of completion of the contract. (iii) Interest income Interest income is recognised as it accrues. (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 carrying amount of the asset at the time of disposal and the net proceeds on disposal. (e) Goods and Services Tax Revenues, expenses and assets are recognised net of the amount of Goods and Services 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. 32 NOTES TO THE FINANCIAL STATEMENTS (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 forward 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 mandatory 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. (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 for as separate assets and are separately depreciated over their useful lives. (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 forward 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 reserves 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 forward 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 carrying 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 2005 2.5% 2004 2.5% 10% - 40% 10% - 40% 13% - 22.5% 13% - 22.5% 33 NOTES TO THE FINANCIAL STATEMENTS (i) Leased assets 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. (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 necessary 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 inventory 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 forward 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 reserves. Development costs related to an area of interest are carried forward 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. (l) Recoverable Amounts of Non Current Assets The carrying amounts of non current assets valued on the cost basis, other than exploration and evaluation expenditure carried forward, are reviewed to determine whether they are in excess of their recoverable amount at balance date. If the carrying 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’ services provided up to the balance date. Provisions expected to be settled within 12 months, are calculated at nominal amounts based on the remuneration rate expected to apply at the time of settlement. The liability for employee benefits to long service leave represents the present value of the estimated future cash outflows to be made by the employer resulting from employee’s services provided up to the balance date. 34 NOTES TO THE FINANCIAL STATEMENTS 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 salary 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 28 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 to several defined contribution Superannuation plans. Contributions are charged as an expense as they are incurred. Further information is set out in Note 27. (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 reserves are recognised directly in consolidated reserves. (iv) Dividend Revenue Dividend revenue is recognised on a receivable basis. (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 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 services. 35 NOTES TO THE FINANCIAL STATEMENTS (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 recovery 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 carrying 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 monetary 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 services 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 amortised over the period until maturity. Interest expense is recognised on an effective yield basis. 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. Ancillary 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. 2. PROFIT FROM ORDINARY ACTIVITIES Profit from ordinary activities before income tax includes the following items of revenues and expenses: Operating Revenue Sale of goods Rendering of services Non Operating Revenue Consolidated Company 2005 $’000 2004 $’000 2005 $’000 2004 $’000 37,156 33,423 13,986 12,275 9,679 5,948 - - 46,835 39,371 13,986 12,275 Gross proceeds from sale of non-current assets 1,254 343 Management fees from Controlled Entities Dividends from Controlled Entities Grants received Other revenue - - 77 4 - - 59 58 251 1,020 688 - - 270 840 - - - Total Revenue from Ordinary Activities 48,170 39,831 15,945 13,385 1,335 460 1,959 1,110 36 NOTES TO THE FINANCIAL STATEMENTS Expenses Gross proceeds from the sale of non-current assets Written down value of non-current assets sold Net gain on disposal of non-current assets – property, plant and equipment Depreciation of non-current assets - buildings - plant and equipment Amortisation of: - leased assets - exploration, evaluation and development expenditure Consolidated Company 2005 $’000 2004 $’000 2005 $’000 2004 $’000 1,254 (870) 384 98 1,124 1,222 687 40 727 343 (288) 55 102 1,131 1,233 660 45 705 251 (207) 44 98 695 793 207 40 247 270 (208) 62 102 708 810 179 45 224 Total Depreciation/Amortisation 1,949 1,938 1,040 1,034 Borrowing costs: - hire purchase liabilities - other parties Cost of sales Bad debts written off – trade debtors Operating lease rental expense Other Expenses from Other Activities Commissions Consultancy fees Electricity Repairs and maintenance Rent and premises costs Insurance Freight Communication Hire of plant and equipment Travel and accommodation Vehicle expenses Foreign exchange gain/(loss) Other expenses 194 335 529 181 378 559 26 333 359 44 376 420 23,180 25,083 7,832 8,148 9 715 726 634 377 964 1,013 280 518 320 811 989 748 (84) 30 504 608 656 414 714 770 276 575 305 298 801 511 87 9 278 120 279 362 586 331 99 305 122 168 122 211 (6) 30 225 210 266 411 470 277 140 436 139 182 99 129 67 3,364 10,660 2,822 8,837 1,870 4,569 2,027 4,853 37 NOTES TO THE FINANCIAL STATEMENTS Consolidated Company 2005 $’000 2004 $’000 2005 $’000 2004 $’000 Write down of the property, plant and equipment of Imdex Minerals to recoverable amount (i) 1,370 - 1,370 - Write down of the investment in the RTE/Imdex Joint Venture to recoverable amount (ii) Prior year adjustments relating to Imdex Minerals (iii) - - 3,108 2,796 - - 3,108 2,796 (i) On 1 July 2005 Imdex Limited sold its mineral processing business, Imdex Minerals, for a cash price of $6.3 million. As part of the sale agreement, Imdex Limited is entitled to a further cash payment of $1.5 million, subject to the future profitability of certain agricultural products which, at the time of sale, were in the early stages of development and commercialisation. Whilst Imdex has reason to believe that the future profitability of these products will be sufficient to ensure the collection of the additional consideration, a definitive assessment is unable to be made at 30 June 2005. The Directors have therefore taken a conservative view of the carrying value of Imdex Minerals business as at 30 June 2005. As the carrying value of the net assets of Imdex Minerals at 30 June 2005 totalled $7.6 million, the Directors have decided to write down the carrying value by $1.37 million at 30 June 2005 to $6.3 million, representing the amount realised in cash on 1 July 2005. This write down, of property, plant and equipment, has been reflected as a charge against current period profits and is noted above as a significant expense. Further details concerning this matter are set out in Note 31. (ii) In the prior year, the Company reached agreement with Rashid Trading Establishment (RTE), to re-structure the existing drilling fluids and chemicals joint venture in Saudi Arabia. As part of the re-structure, as at 30 June 2004, Imdex Limited wrote down the carrying value of the investment in the Joint Venture to its recoverable amount. (iii) In the prior year, discrepancies in the recorded value of stock and debtors, totalling $4.06 million, were uncovered at Imdex Minerals. Of this total, $1.3 million related to the year ended 30 June 2004, and $2.8 million related to earlier financial years. The background and rectification measures initiated by Directors as a result of the discrepancies have been the subject of previous announcements to ASX and the 2004 Annual Financial Report. Due to the nature of the discrepancies, and the period 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 ordinary course of business have given rise to the following profits and losses: Net profits Property, plant and equipment 4. AUDITORS’ REMUNERATION Auditor of the parent entity – Deloitte Touche Tohmatsu Audit or review of the financial report Taxation services Other non-audit services: other consulting services Other non-audit services: advice concerning the impact of A-IFRS Other auditors Other non-audit services: taxation services Consolidated Company 2005 $’000 2004 $’000 2005 $’000 2004 $’000 384 55 44 62 Consolidated Company 2005 $ 2004 $ 2005 $ 2004 $ 83,206 59,185 83,206 59,185 82,326 22,840 82,326 22,840 27,300 12,500 - - 27,300 12,500 - - 205,332 82,025 205,332 82,025 - 600 - 600 205,332 82,625 205,332 82,625 38 NOTES TO THE FINANCIAL STATEMENTS 5. INCOME TAX Consolidated Company 2005 $’000 2004 $’000 2005 $’000 2004 $’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 ordinary activities before tax 3,456 (3,776) (575) (7,189) Income tax expense/(benefit) calculated at 30% 1,037 (1,133) (173) (2,157) Permanent Differences Tax benefit of losses transferred to a controlled entity Prior year adjustments relating to Imdex Minerals Non-deductible write down of the investment in the RTE/Imdex Joint Venture Non-deductible expenses and capital proceeds relating to the investment in the RTE/Imdex Joint Venture Intercompany dividends Bad debts written off Non-deductible share of RTE/Imdex Joint Venture losses Recoverable amount write off – fixed assets Deductible share raising costs Taxable/(Non taxable) income Non deductible expenses 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 year 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 - - - - - (876) - 379 (13) - 43 24 (211) - - (25) 788 932 - - - 87 - (13) 31 38 - (4) (788) - 389 - - 379 (206) (876) - - 395 788 932 - - - - - (13) (13) - 29 24 16 - - 4 27 - 4 (788) 519 Income tax expense/(benefit) relating to ordinary activities 383 (87) (431) (289) Future income tax benefits not brought to account as assets: Tax losses – revenue Tax losses – capital Timing differences Consolidated Company 2005 $’000 2004 $’000 2005 $’000 2004 $’000 - - - - 135 - - - - - 135 - 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. 39 NOTES TO THE FINANCIAL STATEMENTS 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 have elected to be taxed as a single entity from 1 July 2003. The head entity within the tax consolidated group for the purposes of the tax consolidation system is Imdex Limited. Entities within the tax-consolidated group have entered into a tax-sharing agreement with the head entity. Under the terms of this agreement, Imdex Limited and each of the entities in the tax consolidated group has agreed to pay a tax equivalent payment to or from the head entity, based on the net accounting profit or loss of the entity and the current tax rate. Such amounts are reflected in amounts receivable from or payable to other entities in the tax consolidated group. 6. EARNINGS 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: Consolidated 2005 Cents Per Share 2004 Cents Per Share 2.69 2.69 (3.07) (3.07) Consolidated 2005 $’000 2004 $’000 Earnings (a) 3,073 (3,689) Weighted average number of ordinary shares (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: 2005 Number 2004 Number 114,055,368 120,055,368 2005 $’000 3,073 3,073 2004 $’000 (3,689) (3,689) 2005 $’000 2004 $’000 Earnings (a) 3,073 (3,689) 2005 Number 2004 Number Weighted average number of ordinary shares (b) (c) 114,086,252 120,055,368 (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/(loss) Earnings used in the calculation of diluted EPS 2005 $’000 3,073 3,073 2004 $’000 (3,689) (3,689) Options outstanding to Directors and Employees, under their respective option plans, have been classified as potential ordinary shares and considered for the purpose of calculating the diluted earnings per share only. 40 NOTES TO THE FINANCIAL STATEMENTS (b) Weighted average number of ordinary shares and potential ordinary shares used in the calculation of diluted earnings per share reconciles to the weighted average number of ordinary shares used in the calculation of basic earnings per share as follows: Weighted average number of ordinary shares used in the calculation of basic EPS Shares deemed to be issued for no consideration in respect of employee and Director options Consolidated 2005 Number 2004 Number 114,055,368 120,055,368 30,884 - Weighted average number of ordinary shares and potential ordinary shares used in the calculation of diluted EPS 114,086,252 120,055,368 (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 share: Director share options Employee and Consultants share options Corporate Advisors share options 2005 Number 2004 Number - 3,000,000 3,160,000 3,100,000 - - 6,260,000 3,000,000 7. CASH ASSETS Cash 8. RECEIVABLES Current Receivables Consolidated Company 2005 $’000 2004 $’000 2005 $’000 2004 $’000 103 56 96 35 Consolidated Company 2005 $’000 2004 $’000 2005 $’000 2004 $’000 11,871 9,765 2,744 2,789 Allowance for doubtful debts (383) (557) (113) (252) Other receivables Due from Rashid Trading Establishment – refer Note 10 9. INVENTORIES Current Raw material – at cost Finished goods – at cost 11,488 9,208 2,631 2,537 663 1,769 147 - 13,920 9,355 156 1,769 4,556 11 - 2,548 Consolidated Company 2005 $’000 2004 $’000 2005 $’000 2004 $’000 1,070 7,286 8,356 34 6,246 6,340 1,070 1,179 2,249 34 913 947 41 NOTES TO THE FINANCIAL STATEMENTS 10. OTHER FINANCIAL ASSETS Consolidated Company 2005 $’000 2004 $’000 2005 $’000 2004 $’000 Non-current: at recoverable amount (i) Investment in Other Entities – RTE/Imdex Saudi Arabian Joint Venture (ii) 1,400 5,413 2,585 6,593 Other Investments in Controlled Entities 75 - - - 75 324 - 324 1,475 5,413 2,984 6,917 (i) Based on the Directors conservative estimate of the discounted future cash flows arising from each asset; (ii) At the Annual General Meeting on 8 November 2004, Shareholders approved the re-structure of the investment in Imdex Arabia and the RTE/Imdex Joint Venture. The main outcomes of the re-structure were: ü · ü · ü · The cancellation of 10,000,000 shares in Imdex Limited held by Mr H H Al-Merry. This occurred on 23 November 2004. Refer Note 21; That RTE pay to Imdex Limited, $US1.5 million net; and That, on the completion of the re-structure, the Company’s interest in Imdex Arabia and the RTE/Imdex Joint Venture be reduced from 49% to 20%. In relation to the US$1.5 million due from Rashid Trading Establishment (RTE), in February 2005, a further binding agreement, including a promissory note and personal guarantee from Mr H H Al-Merry (the principal of RTE and a Director of Imdex) was reached with RTE which required RTE to pay US$100,000 per month to Imdex with the entire amount to be paid by 31 December 2005. At the date of this report, of the $US1.5 million due from RTE, $US550k has been received with the balance of $US950k due from RTE on, or before, 31 December 2005. As at 30 June 2005, the amount due from RTE is AUD $1.769 million as disclosed in Note 8 whilst the carrying value of the investment in Imdex Arabia Limited and the RTE/Imdex Joint Venture is AUD $1.400 million as shown above. 11. TAX ASSETS/LIABILITIES Current tax assets Tax refund receivable Consolidated Company 2005 $’000 2004 $’000 2005 $’000 2004 $’000 - - - 22 Non-current tax assets Future income tax benefit arising from timing differences 664 595 329 260 Current tax liabilities Tax payable Non-current Deferred tax liability 12. OTHER ASSETS Prepayments 42 574 39 531 - - 370 - 370 Consolidated Company 2005 $’000 2004 $’000 2005 $’000 2004 $’000 19 7 3 - 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 2004 875 3,278 12,915 5,093 - 22,161 Additions Disposals Transfer Recoverable amount write down – refer Note 2 - - - - - - - - 1,540 (627) 426 (1,370) 899 353 2,792 (1,112) (443) - - - - (1,739) (17) (1,370) Balance at 30 June 2005 875 3,278 12,884 4,437 353 21,827 Accumulated Depreciation/Amortisation Balance at 30 June 2004 Disposals Depreciation expense Transfer Balance at 30 June 2005 Net book value As at 30 June 2004 As at 30 June 2005 - - - - - 744 - 98 - 842 875 875 2,534 2,436 7,902 (195) 1,124 850 9,681 5,013 3,203 1,744 (674) 687 (867) 890 3,349 3,547 - - - - - - 10,390 (869) 1,909 (17) 11,413 11,771 353 10,414 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 2004 875 3,278 Additions Disposals Transfer Recoverable amount write down – refer Note 2 - - - - - - - - 7,388 1,117 (427) 431 (1,370) 1,597 304 (99) (441) - - 13,138 298 1,719 - - - (526) (10) (1,370) Balance at 30 June 2005 875 3,278 7,139 1,361 298 12,951 Accumulated Depreciation/Amortisation Balance at 30 June 2004 Disposals Depreciation expense Transfer Balance at 30 June 2005 - - - - - 744 4,446 - 98 - (5) 695 (2) 842 5,134 519 (314) 207 (8) 404 - - - - - 5,709 (319) 1,000 (10) 6,380 43 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 Net book value As at 30 June 2004 As at 30 June 2005 875 875 2,534 2,436 2,942 2,005 1,078 957 - 298 7,429 6,571 (i) Land and buildings located at 7-15 Spencer Street, Jandakot, Western Australia and 1 Tichbourne Street, Jandakot, Western Australia, were independently valued in January 2005 by T D Anderson FAPI (Certified Practising Valuer – Reg No.471), of Jones Lang LaSalle, on the basis of existing use at $3,900,000. At 30 June 2005 the carrying value of the land and buildings was $3,310,000. Aggregate depreciation/amortisation allocated, whether recognised as an expense or capitalised as part of the carrying amount of other assets during the year: Freehold Buildings Plant and Equipment Equipment under finance lease Consolidated Company 2005 $’000 2004 $’000 2005 $’000 2004 $’000 98 1,124 687 1,909 102 1,131 660 1,893 98 695 207 1,000 102 708 179 989 14. EXPLORATION, EVALUATION AND DEVELOPMENT EXPENDITURE Costs carried forward 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 Consolidated Company 2005 $’000 2004 $’000 2005 $’000 2004 $’000 894 (293) 601 894 - 894 253 40 293 894 (253) 641 894 - 894 208 45 253 894 (293) 601 894 - 894 253 40 293 894 (253) 641 894 - 894 208 45 253 No Government subsidies or grants were received in respect of these areas of interest. 44 NOTES TO THE FINANCIAL STATEMENTS 15. INTANGIBLES Patent costs Accumulated amortisation Aggregate amortisation allocated, whether recognised as an expense or capitalised as part of the carrying amount of other assets during the year: Patent costs 16. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (a) Details of Joint Venture entities Consolidated Company 2005 $’000 2004 $’000 2005 $’000 2004 $’000 12 - 12 - - - - - 12 - 12 - - - - - Percentage interest held Note Principal Activities Balance Date 2005 % 2004 % Investment Carrying Amount 2005 $’000 2004 $’000 RTE/Imdex Saudi Arabian Joint Venture (i) Oil & Gas 31 Dec 20% (i) 49% 1,400 (i) 5,413 At the Annual General Meeting on 8 November 2004, Shareholders approved the re-structure of the investment in Imdex Arabia and the Rashid Trading Establishment (RTE)/Imdex Joint Venture. The main outcomes of the re-structure were: ü ü ü The cancellation of 10,000,000 shares in Imdex Limited held by Mr H H Al-Merry. This occurred on 23 November 2004. Refer Note 21; That RTE pay to Imdex Limited, $US1.5 million net as set out in Note 8; and That, on the completion of the re-structure, the Company’s interest in Imdex Arabia and the RTE/Imdex Joint Venture be reduced from 49% to 20%. Following the re-structure, the carrying amount of the interest in the Joint Venture was $3.363 million (refer (b) below). This represented the investment of $1.400 million and a receivable from RTE of $1.958 million which were separately classified as ‘Other Financial Assets’ and ‘Receivables” respectively. As at 30 June 2005, the receivable from RTE is AUD $1.769 million as disclosed in Note 8 whilst the carrying value of the investment in Imdex Arabia Limited is AUD $1.400 million as shown in Note 10. (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. Equity accounted amount of investment at the beginning of the financial year Re-structure of the investment in the Joint Venture Share of losses Write down of investment Reclassification of equity accounted investment during the year Consolidated 2005 $’000 5,413 (4,013) - - (1,400) 2004 $’000 8,811 - (292) (3,108) - Note (e) (i) Equity accounted amount of investment at the end of the financial year - 5,413 (i) As indicated above, as a result of this re-structure, Imdex will have a 20% interest in Imdex Arabia Limited which is no longer classified as a joint venture entity. As a result, equity accounting for a joint venture entity has ceased, and the investment will be recognised at the lower of cost and recoverable value. Refer to (a) above for further details. 45 NOTES TO THE FINANCIAL STATEMENTS (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. 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 Consolidated 2005 $’000 2004 $’000 - - - - - - - - - 1,725 2,035 28 142 559 (4,892) - - (403) As described above, due to the fact that the investment in the Joint Venture is no longer equity accounted, the summary of the financial position of the Joint Venture at year end is not disclosed. (d) Share of Reserves attributable to Joint Venture entities Retained profit/(loss) At the beginning of the financial year Share of net loss of associates after income tax Cessation of equity accounting during the year At the end of the financial year (e) Share of Net result of Joint Venture entities Consolidated 2005 $’000 2004 $’000 (1,186) - 1,186 (894) (292) - - (1,186) 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 (f) Contingent Liabilities and Capital Commitments Consolidated 2005 $’000 2004 $’000 12,097 (12,389) (292) - (292) - - - - - 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. 46 NOTES TO THE FINANCIAL STATEMENTS 17. PAYABLES Trade payables Other payables 18. INTEREST BEARING LIABILITIES Current Bank overdraft (i) Bank loan – secured (i) Hire purchase liabilities (ii) Non-current Bank loan – secured (i) Hire purchase liabilities (ii) Loans from Controlled Entities Financing Arrangements Consolidated Company 2005 $’000 6,795 1,176 7,971 2004 $’000 2005 $’000 2004 $’000 6,360 2,208 1,987 861 318 495 7,221 2,526 2,482 Consolidated Company Note 2005 $’000 2004 $’000 2005 $’000 2004 $’000 34 27 27 467 2,500 1,080 4,047 1,125 1,758 - 1,509 2,000 920 1,809 2,500 389 1,602 2,000 296 4,429 4,698 3,898 1,700 1,539 - 1,125 1,700 331 2,716 4,172 102 2,603 4,405 2,883 3,239 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) 2,755 3,700 2,755 3,700 500 2,175 5,430 500 1,550 5,750 500 2,175 5,430 500 1,550 5,750 2,755 3,700 2,755 3,700 500 622 3,877 257 1,509 5,466 372 622 3,749 257 1,509 5,466 47 NOTES TO THE FINANCIAL STATEMENTS (c) Facilities not utilised at balance date Bank loan Equipment finance facility Multi option facility (including bank overdraft) (i) Bank Overdraft and Bank Loans Consolidated Company Note 2005 $’000 2004 $’000 2005 $’000 2004 $’000 - - 1,553 1,553 - 243 41 284 - 128 1,553 1,681 - 243 41 284 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 Pty Ltd 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 25. (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. 19. PROVISIONS Current Employee entitlements Non-current Employee entitlements 20. EMPLOYEE BENEFITS 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 Consolidated Company 2005 $’000 2004 $’000 2005 $’000 2004 $’000 860 639 247 203 103 130 38 50 Consolidated Company Note 2005 $’000 2004 $’000 2005 $’000 2004 $’000 19 19 860 103 320 1,283 127 639 130 178 947 120 247 38 63 348 50 203 50 38 291 46 (i) Accrued wages and salaries are included in the current trade payables balance in Note 17. 48 NOTES TO THE FINANCIAL STATEMENTS 21. CONTRIBUTED EQUITY Issued and paid up capital Fully paid ordinary shares (i) Consolidated Company 2005 $’000 2004 $’000 2005 $’000 2004 $’000 19,008 21,058 19,008 21,058 (i) Fully paid ordinary shares carry one vote per share and the right to dividends. 2005 2004 Note Number of shares $’000 Number of shares $’000 Ordinary shares Balance at beginning of financial year 120,055,368 21,058 120,055,368 21,058 Cancellation of shares held up Mr H H Al-Merry in connection with the re-structure of the RTE/Imdex Joint Venture 16 (10,000,000) (2,050) - - Balance at the end of financial year 110,055,368 19,008 120,055,368 21,058 22. RESERVES Asset revaluation Asset revaluation reserve Balance at beginning of financial year Written off to the Profit and Loss Balance at end of financial year 23. RETAINED PROFITS/(ACCUMULATED LOSSES) (Accumulated losses)/retained profits at the beginning of the year Net profit/(loss) attributable to members of the members of the parent entity Consolidated Company 2005 $’000 2004 $’000 2005 $’000 2004 $’000 - 8 (8) - 8 8 - 8 - 8 (8) - 8 8 - 8 Consolidated Company 2005 $’000 2004 $’000 2005 $’000 2004 $’000 (2,955) 734 (13,675) (6,775) 3,073 (3,689) (144) (6,900) Retained profits/(accumulated losses) at the end of the year 118 (2,955) (13,819) (13,675) 49 NOTES TO THE FINANCIAL STATEMENTS 24. CONTROLLED ENTITIES Particulars in relation to Controlled Entities Parent Entity Imdex Limited Controlled Entities Australian Mud Company Pty Ltd Surtron Technologies Pty Ltd Australian Mud Company Chile SA (i) Ultimate parent Company. (ii) Under Chilean law an audit of this Company is not required. 25. ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURE (a) Interest rate risk Country of incorporation Percentage interest held Note 2005 % 2004 % (i) Australia Australia Australia (ii) Chile 100 100 100 100 100 100 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 years More than 5 years Non-interest bearing Total % $’000 $’000 $’000 $’000 $’000 $’000 2005 Financial Assets Cash Receivables Financial Liabilities Payables Bank overdraft Bank loans 7 8 17 18 18 0.50% - - 8.95% 95 - 95 - 467 - - - - - 7.12% 2,625 1,000 - - - - - - Hire purchase/lease liabilities 18 7.56% Employee entitlements 19 (i) 5.97% - - 1,080 1,758 - - 3,092 2,080 1,758 - - - - - - - - - 8 103 13,920 13,920 13,928 14,023 7,971 7,971 - - - 467 3,625 2,838 963 963 8,934 15,864 50 NOTES TO THE FINANCIAL STATEMENTS Fixed Interest Maturing in: Note Weighted average interest rate Floating interest rate Less than 1 year 1 to 5 years More than 5 years Non-interest bearing Total % $’000 $’000 $’000 $’000 $’000 $’000 2004 Financial Assets Cash Receivables Financial Liabilities Payables Bank overdraft Bank loans 7 8 17 18 18 0.25% - - 33 - 33 - 8.70% 6.87% 1,509 2,000 - - - - - - - - - - - 1,700 Hire purchase/lease liabilities 18 7.62% Employee entitlements 19 (i) 5.97% - - 920 1,539 - - 4,209 920 2,539 - - - - - - - - - 23 56 9,355 9,355 9,378 9,411 7,221 7,221 - - - 1,509 3,700 2,459 769 769 7,990 15,658 (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 Service Leave Liability. (b) Net fair values of financial assets and liabilities The carrying amount of financial assets and financial liabilities recorded in the Financial Statements approximates their net fair values. (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. 26. DIRECTORS’ AND EXECUTIVES’ REMUNERATION (a) Specified Directors and Executives 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-Merry (Non Executive Director); (iv) Mr R W Kelly (Independent, Non Executive Director); (v) Mr K A Dundo (Independent, Non Executive Director). The specified Executives of Imdex Limited during the year were: (i) Mr S J Lyons (Company Secretary, Imdex Limited); (ii) Mr D L Kinley (Group Financial Controller, Imdex Limited); (iii) Mr G E Weston (General Manager: Australian Mud Company Pty Ltd, Surtron Technologies Pty Ltd and Ace Drilling Supplies); (iv) Mr C S Munyard (Manager: Surtron Technologies Pty Ltd); (v) Mr I Tan (General Manager Imdex Minerals). 51 NOTES TO THE FINANCIAL STATEMENTS (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 monetary 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 Non Executive Director remuneration and any options that may be granted to Directors. Remuneration packages are reviewed and determined with due regard to current market rates. Specified Director’s Remuneration 2005 Primary Post Employment Equity Other benefits Total Salary & fees Bonus Non- monetary Super- annuation Prescribed benefits Other Options $ $ $ $ 250,000 - 22,123 22,500 50,000 - 35,000 35,000 370,000 - - - - - - - - - 4,500 - 3,150 3,150 22,123 33,300 $ - - - - - - $ - - - - - - $ - - - - - - $ $ - 294,623 - - - - - 54,500 - 38,150 38,150 425,423 Executive Director B W Ridgeway, Managing Director (i) Non Executive Directors I F Burston, Chairman H H Al-Merry (ii) R W Kelly K A Dundo Total Specified Director’s Remuneration 2004 Primary Post Employment Equity Other benefits Total Salary & fees Bonus Non- monetary Super- annuation Prescribed benefits Other Options $ $ $ $ $ $ $ $ $ 250,000 50,000 - 16,040 16,040 12,500 8,333 352,913 - - - - - - - - 42,101 22,500 - - - - - - 4,500 - 1,444 1,444 21,125 750 42,101 51,763 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 314,601 54,500 - 17,484 17,484 33,625 9,083 446,777 Executive Director B W Ridgeway, Managing Director (i) Non Executive Directors I F Burston, Chairman H H Al-Merry (ii) R W Kelly K A Dundo M L Gasson G W Cobbledick Total (i) The Managing Director, Mr B W Ridgeway does not, currently, have a service contract with the Company. The Managing Director’s remuneration is reviewed and determined by the Remuneration Committee; (ii) Mr H H Al-Merry 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-Merry is remunerated directly by the RTE/Imdex Joint Venture. 52 NOTES TO THE FINANCIAL STATEMENTS Specified Executive’s (Excluding Directors) Remuneration 2005 Primary Post Employment Equity Other benefits Total Salary & fees Bonus Non- monetary Super- annuation Prescribed benefits Other Options $ $ $ $ $ $ $ $ $ S J Lyons, Company Secretary (i) D L Kinley, Group Financial Controller (ii) G E Weston, General Manager AMC, Ace & Surtron (iii) C S Munyard, Manager Surtron (iv) I Tan, General Manager Imdex Minerals (v) Total 112,078 107,231 200,000 106,838 152,269 678,416 - - - - - - - - 9,612 9,651 6,795 17,965 9,351 9,615 6,357 13,704 32,115 50,935 - - - - - - - - - - - - 600 1,200 24,000 900 - 26,700 - - - - - - 112,678 127,694 248,760 126,704 172,330 788,166 Specified Executive’s (Excluding Directors) Remuneration 2004 Primary Post Employment Equity Other benefits Total Salary & fees Bonus Non- monetary Super- annuation Prescribed benefits Other Options $ $ $ $ $ $ $ $ $ G E Weston, General Manager AMC, Ace & Surtron (iii) I Tan, General Manager Imdex Minerals (v) 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 - - - - - - - - - - - - - - - - 224,145 32,071 111,997 368,213 (i) Mr S J Lyons is party to a consulting agreement with the Company, which sets out a fixed fee basis and prescribes other general terms and conditions. The consulting agreement specifies a two month notice period in the event that the agreement is terminated. In the current year, Mr Lyons was granted 50,000 options, along with other staff of the Group, under the Imdex Staff Option Scheme as set out in Note 28. The percentage of the value of remuneration that consisted of options was 0.5%; (ii) Mr D L Kinley is a party to a service contract with Imdex Limited, which sets out a fixed remuneration package, reviewable annually. The service contract specifies a one month notice period in the event that the contract is terminated. Additional performance incentives may be agreed between Mr Kinley and the Company from time to time. In the current year, Mr Kinley was granted 100,000 options, along with other staff of the Group, under the Imdex Staff Option Scheme as set out in Note 28. The percentage of the value of remuneration that consisted of options was 0.9%; (iii) Mr G E Weston is party to a service contract with the Australian Mud Company Pty Ltd, which sets out a fixed remuneration package, reviewable annually. The service contract stipulates a 12 month notice period in the event that the contract is terminated. Performance incentives may be agreed between Mr Weston and the Australian Mud Company from time to time. Additionally, Mr Weston is party to a deed with Imdex Limited, in respect of which Mr Weston has a right of first refusal in the event that Imdex receives an offer to purchase 100% of the shares held by Imdex in the Australian Mud Company. This ‘right’ lapses automatically should Mr Weston no longer be employed by the Australian Mud Company. 53 NOTES TO THE FINANCIAL STATEMENTS Mr Weston was granted a cash bonus of $20,000 in 2004 due to the Australian Mud Company exceeding pre-determined earnings hurdles for that year. In the current year, Mr Weston was granted 2,000,000 options, along with other staff of the Group, under the Imdex Staff Option Scheme as set out in Note 28. The percentage of the value of remuneration that consisted of options was 8.9%; (iv) Mr C S Munyard is a party to a service contract with Surtron Technologies Pty Ltd, which sets out a fixed remuneration package reviewable annually. The service contract specifies a one month notice period in the event that the contract is terminated. Additional performance incentives may be agreed between Mr Munyard and the Surtron Technologies Pty Ltd from time to time. In the current year, Mr Munyard was granted 75,000 options, along with other staff of the Group, under the Imdex Staff Option Scheme as set out in Note 28. The percentage of the value of remuneration that consisted of options was 0.7%; (v) Mr I Tan is party to a service contract with Imdex Limited, which sets out a fixed remuneration package, reviewable annually. The service contract specifies a one month notice period in the event that the contract is terminated. Mr Tan was not granted any options during the current year due to his limited tenure at the time the Staff options were issued. 27. COMMITMENTS Operating lease expense commitments 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 Consolidated Company 2005 $’000 2004 $’000 2005 $’000 2004 $’000 Note (i) 537 675 300 484 746 400 251 102 - 249 327 - 1,512 1,630 353 576 Minimum future lease payments Present value of minimum future lease payments Consolidated Company Consolidated Company 2005 $’000 2004 $’000 2005 $’000 2004 $’000 2005 $’000 2004 $’000 2005 $’000 2004 $’000 Hire purchase commitments Hire purchase commitments are payable as follows. Due: Within one year 1,261 1,077 Between one and five years 1,907 1,707 Later than five years - - Minimum lease payments 3,168 2,784 Less: future finance charges (330) (325) 2,838 2,459 425 347 - 772 (52) 720 311 104 - 415 (17) 398 1,216 920 1,622 1,539 - - 396 324 - 2,838 2,459 720 - - - 2,838 2,459 720 Hire purchase liabilities provided for in the Financial Statements Current - Note 18 Non current - Note 18 54 1,080 920 1,758 1,539 2,838 2,459 389 331 720 296 102 - 398 - 398 296 102 398 NOTES TO THE FINANCIAL STATEMENTS (i) Operating leases relate to premises and the lease of motor vehicles 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. 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. 28. SHARE OPTIONS (a) Staff Option Plan The Consolidated Entity has in place a Staff Option Scheme (Scheme) to reward employees (including Executives) for their past services 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 carry no rights to dividends and no voting rights. The options expire on their expiry date. The number of options granted to staff is generally based on an assessment of the performance of that staff member as determined by the Board of Directors. Staff are only eligible to receive options when they have been with the Company in excess of 12 months. Generally the options will also be taken to have expired when the option holder ceases to be employed by the Consolidated Entity. As at 30 June 2005 all of the options had vested. (b) Directors Options The options issued to the Directors have been approved by members in General Meeting. The options carry no rights to dividends and no voting rights. The options expire on their expiry 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 expiry date. As at 30 June 2004 all of the options had vested. (c) Corporate Advisors Options During the year options were issued to Corporate Advisors of the Company as a performance incentive. The options carry no rights to dividends and no voting rights. As at 30 June 2005 all of the options had vested. Issue Date Vesting Date Expiry Date Exercise Price $ Opening balance Issued current year Exercised current year Lapsed current year Closing balance 1 Aug 04 1 Aug 04 31 July 09 0.20 - 3,210,000 - (50,000) 3,160,000 25 Oct 01 25 Oct 01 24 Oct 04 0.20 1,000,000 25 Oct 01 25 Oct 01 24 Oct 04 0.35 1,000,000 25 Oct 01 25 Oct 01 24 Oct 04 0.45 1,000,000 3,000,000 - - - - - 1,000,000 - 1,000,000 - 1,000,000 - 3,000,000 - - - - Staff Options Tranche 1 Directors’ Options Tranche 1 Tranche 2 Tranche 3 Corporate Advisors Options Tranche 1 (i) 23 Dec 04 23 Dec 04 31 Jul 09 0.20 - 100,000 Tranche 2 (ii) 23 Dec 04 23 Dec 04 31 Oct 07 0.20 - 2,000,000 Tranche 3 (i) 23 Dec 04 23 Dec 04 31 Oct 07 0.35 - 1,000,000 - 3,100,000 - - - - - 100,000 - 2,000,000 - 1,000,000 - 3,100,000 (i) Exercisable at any time up to expiry; (ii) Exercisable at any time on the condition that Imdex shares have traded at 30 cents for 5 consecutive trading days. 55 NOTES TO THE FINANCIAL STATEMENTS 29. CONTINGENT LIABILITIES 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 2005 $’000 2004 $’000 2005 $’000 2004 $’000 (i) (i) (i) (i) 16 100 27 12 155 16 100 27 12 155 16 100 27 12 155 16 100 27 12 155 (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 crystallise 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. 30. 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 services: Down hole surveying, 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 services; 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 industry; (iii) Africa: Drilling services, supply of drilling fluids and chemicals; (iv) South East Asia: Manufacture and supply of drilling fluids and chemicals to the mining and mineral exploration industries. 56 NOTES TO THE FINANCIAL STATEMENTS Primary Reporting: Business Segments Segment Revenues Revenue from external customers Inter-segment Other Total 2005 $’000 2004 $’000 2005 $’000 2004 $’000 2005 $’000 2004 $’000 2005 $’000 2004 $’000 Drilling products and services 16,880 11,796 Minerals processing 6,784 6,436 Drilling fluids and chemicals 23,171 21,139 Total of all segments 46,835 39,371 - - - - - - - - - - 81 81 - - 16,880 11,796 6,784 6,436 117 23,252 21,256 117 46,916 39,488 Eliminations Unallocated Total - - 1,254 343 48,170 39,831 Segment results, assets and liabilities Segment results Segment assets Segment liabilities 2005 $’000 2004 $’000 2005 $’000 2004 $’000 2005 $’000 2004 $’000 Drilling products and services 2,872 1,137 12,474 8,052 6,051 3,859 Minerals processing Drilling fluids and chemicals Total of all segments (229) (3,721) 8,820 8,582 900 2,528 3,006 3,257 13,427 11,376 4,644 4,265 5,649 673 34,721 28,010 11,595 10,652 Share of net profit/(loss) of equity accounted investments Carrying value of equity accounted investment Receivable and investment in the RTE/Imdex Joint Venture Eliminations Write down of the investment in the RTE/Imdex Joint Venture Write down of the property, plant and equipment of Imdex Minerals to recoverable amount - - - (292) - 5,408 3,169 - - (2,077) (60) (2,077) (60) (3,108) (1,370) - (1,370) - Unallocated (823) (1,050) 1,121 820 6,920 5,475 Profit from ordinary activities before income tax expense 3,456 (3,776) Income tax expense Profit/(loss) from ordinary activities after related income tax expense (383) 87 3,073 (3,689) Consolidated 35,564 34,178 16,438 16,067 57 NOTES TO THE FINANCIAL STATEMENTS Other segment information Drilling products and services Minerals processing Drilling fluids and chemicals Total of all segments Unallocated Consolidated Secondary Reporting: Geographical Segments Australia Saudi Arabia Africa South East Asia China Other Total Depreciation and amortisation Acquisition of segment assets Non cash expenses other than depreciation and amortisation 2005 $’000 2004 $’000 2005 $’000 2004 $’000 2005 $’000 2004 $’000 1,166 1,042 2,198 1,566 63 7 560 147 652 150 65 250 107 1,101 2,889 246 41 65 1,873 1,844 2,513 1,919 1,205 2,961 76 94 279 7 - 3,052 1,949 1,938 2,792 1,926 1,205 6,013 Revenue from external customers Segment assets Acquisition of segment assets 2005 $’000 2004 $’000 2005 $’000 2004 $’000 2005 $’000 2004 $’000 37,389 30,597 29,886 26,756 2,792 1,926 - - 3,169 5,408 1,217 475 335 298 4,808 6,474 1,264 1,349 543 - 2,878 1,825 316 594 - 367 - - - - - - - - - - 46,835 39,371 35,564 34,178 2,792 1,926 58 NOTES TO THE FINANCIAL STATEMENTS 31. DISCONTINUING OPERATIONS As announced to the Australian Stock Exchange, on 9 June 2005 Imdex Limited entered into a definitive agreement for the sale of the Imdex Minerals Division. As set out in Note 33 the sale was completed on 1 July 2005. The sale was one part of the Company’s strategy to focus on its core business as a global provider of “drilling products and services”. The Imdex Minerals Division is disclosed in Note 30 “Segment Information” as the Minerals Processing segment in the current and prior financial years. Details of the financial performance, financial position and cash flows of the Imdex Minerals Division are as follows: Financial Performance Revenue from operating activities Expenses from operating activities Loss from ordinary activities before income tax expense Income tax benefit/(expense) relating to ordinary activities Net Loss after tax Financial Position Assets Liabilities Net assets Cash Flows Net cash from operating activities Net cash from investing activities Net cash from financing activities 2005 $’000 2004 $’000 6,784 6,436 (8,383) (10,157) (1,599) (3,721) 695 477 (904) (3,244) 6,453 6,443 (182) (285) 6,271 6,158 (1,077) (65) (285) (1,427) 208 (41) (842) (675) 59 NOTES TO THE FINANCIAL STATEMENTS 32. RELATED PARTY DISCLOSURES (a) Controlling Entity The ultimate parent entity in the Consolidated Entity is Imdex Limited, a Company incorporated in Western Australia. (b) Equity interests in related parties Details of the percentage ownership of controlled entities and the wholly owned Group is set out in Note 24. The wholly owned Group consists of Imdex Limited and its wholly owned Controlled Entities. Details of ownership interests in joint venture entities are set out in Note 16. (c) Directors’ and Specified Executives’ Remuneration Information on the remuneration of Directors is disclosed in Note 26. (d) Directors’ and Specified Executives holdings of Shares and Share Options The numbers of shares in the Company held during the financial year by Directors’ and specified Executives of the Group are set out below: (i) Fully paid ordinary shares issued by Imdex Limited Balance at 1 July 2004 Granted as remuneration Received on exercise of options Net other change Balance at 30 June 2005 Balance held nominally No. No. No. No. No. No. Directors Mr I F Burston Mr B W Ridgeway 100,000 6,143,993 Mr H H Al-Merry 10,755,000 Mr R W Kelly Mr K A Dundo Specified Executives Mr S J Lyons Mr D L Kinley Mr G E Weston Mr C S Munyard Mr I Tan 65,000 - 17,063,993 50,000 120,000 - - - 170,000 - - - - - - - - - - - - - - - - - - - - - - - - - 100,000 (118,993) 6,025,000 (10,000,000) 755,000 - 65,000 100,000 100,000 (10,018,993) 7,045,000 - - - - - - 50,000 120,000 - - - 170,000 - - - - - - - - - - - - (ii) Share options issued by Imdex Limited Balance at 1 July 2004 Granted as remuneration Exercised Other change Balance at 30 June 2005 Bal. vested at 30 June 2005 Vested but not exercisable Vested and exercisable Options vested during year No. No. No. No. No. No. No. No. No. Directors Mr I F Burston 1,000,000 Mr B W Ridgeway 2,000,000 3,000,000 - - - - - - (1,000,000) (2,000,000) (3,000,000) - - - - - - - - - - - - - - - 60 NOTES TO THE FINANCIAL STATEMENTS Balance at 1 July 2004 Granted as remuneration Exercised Other change Balance at 30 June 2005 Bal. vested at 30 June 2005 Vested but not exercisable Vested and exercisable Options vested during year No. No. No. No. No. No. No. No. No. Specified Executives Mr S J Lyons Mr D L Kinley - - 50,000 100,000 Mr G E Weston - 2,000,000 Mr C S Munyard Mr I Tan - - 75,000 - - 2,225,000 - - - - - - - - 50,000 50,000 50,000 100,000 100,000 100,000 - 2,000,000 2,000,000 2,000,000 - - 75,000 75,000 75,000 - - - - 2,225,000 2,225,000 2,225,000 - - - - - - - - - - - - The options granted to specified Executives during the financial year were made in accordance with the Staff Option Plan, as further described in Note 28. Each share option converts into 1 ordinary share of Imdex Limited. No amounts were paid, or are payable, by the recipient on receipt of the option. The options are exercisable in one third lots at the end of each of the first three years during their life. (e) Directors’ Transactions in Shares and Share Options During the year, and as approved by Shareholders at the 2004 Annual General Meeting, 10,000,000 shares held by Mr H H Al-Merry, in connection with the RTE/Imdex Saudi Arabian Joint Venture, were cancelled. Refer to Note 10 for further details. As set out in (c) above, there were no other share or share options issued to the Directors during the current year. (f) Directors’ Share transactions with the Company or its Controlled Entities As described in these financial statements, Imdex Limited is involved in a Joint Venture with Rashid Trading Establishment (RTE), a Company in which Mr H H Al-Merry 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 the Company and RTE as agent. (g) Transactions with Directors The following transactions occurred with related parties: Consolidated Company Note 2005 $ 2004 $ 2005 $ 2004 $ Profit from ordinary activities before income tax includes the following items of expenses relating to transactions, other than remuneration, with Directors or their personally-related entities Legal services (i) 82,126 Total liabilities arising from transactions, other than remuneration, with Directors or their personally-related entities Current Liabilities 37,572 - - 82,126 37,572 - - (i) Mr K A Dundo is a Partner of the legal firm Q Legal, that provided legal services to the Imdex Group on normal commercial terms and conditions. (h) Transactions within the wholly-owned Group Details of dividend revenue received by the ultimate parent entity is disclosed in Note 2. Amounts receivable from, and payable to entities in the wholly-owned Group are disclosed in Note 18, Note 8 and Note 17. During the financial year Imdex Limited provided management services to entities in the wholly-owned Group as disclosed in Note 2. During the financial year, the Directors elected for wholly-owned Australian entities within the Group to be taxed as a single entity from 1 July 2003. Entities within the tax-consolidated group have entered into a tax-sharing agreement with the head entity. Under the terms of this agreement, Imdex Limited and each of the entities in the tax consolidated group has agreed to pay a tax equivalent payment to or from the head entity, based on the net accounting profit or loss of the entity and the current tax rate. Such amounts are reflected in amounts receivable from or payable to other entities in the tax consolidated Group. 61 NOTES TO THE FINANCIAL STATEMENTS 33. SUBSEQUENT EVENTS (i) On 1 July 2005 Imdex Limited sold its mineral processing business, Imdex Minerals, for a cash price of $6.3 million. As part of the sale agreement, Imdex Limited is entitled to a further cash payment of $1.5 million, subject to the future profitability of certain agricultural products which, at the time of sale, were in the early stages of development and commercialisation. Whilst Imdex has reason to believe that the future profitability of these products will be sufficient to ensure the collection of the additional consideration, a definitive assessment is unable to be made at 30 June 2005. The Directors have therefore taken a conservative view of the carrying value of Imdex Minerals business as at 30 June 2005. As the carrying value of the net assets of Imdex Minerals at 30 June 2005 totalled $7.6 million, the Directors have decided to write down the carrying value by $1.37 million at 30 June 2005 to $6.3 million, representing the amount realised in cash on 1 July 2005. This write down, of property, plant and equipment, has been reflected as a charge against current period profits. (ii) On 5 August 2005, Imdex Limited held a General Meeting of Shareholders at which the acquisition, and associated share issue, of the business, certain related assets and intellectual property of SA Mud Services (Pty) Ltd and Iscosa (Pty) Ltd was approved. On 10 August 2005, settlement of the acquisition took place and 16,059,002 shares in Imdex Limited were issued to SA Mud Services and Iscosa. The balance of the purchase price, approximately $3.5m, was transferred to the trust account of an independent attorney pending the finalisation of the completion accounts and other defined matters. Apart from these matters, 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. 34. 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 Note 7 18 Consolidated Company 2005 $’000 2004 $’000 2005 $’000 2004 $’000 103 (467) (364) 56 96 35 (1,509) (1,809) (1,602) (1,453) (1,713) (1,567) Reconciliation of profit from ordinary activities after income tax to net cash provided by operating activities Consolidated Company 2005 $’000 2004 $’000 2005 $’000 2004 $’000 Profit/(loss) from ordinary activities after related income tax 3,073 (3,689) (144) (6,900) Profit on sale of non-current assets Share of Associates loss (less dividends) Write down of the property, plant and equipment of Imdex Minerals to recoverable amount (384) - (55) 292 (44) - 1,370 - 1,370 (62) - - Write down on the investment in the RTE/Imdex Joint venture - 3,108 Interest on hire purchase liabilities 194 181 - 26 3,108 44 Depreciation and amortisation of non-current assets 1,949 1,938 1,040 1,034 Increase/(decrease) in current tax liability Increase in deferred tax balances 535 (439) (574) (56) (14) (418) (257) (46) 62 NOTES TO THE FINANCIAL STATEMENTS 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 Consolidated Company 2005 $’000 2004 $’000 2005 $’000 2004 $’000 (2,039) (1,649) (97) 368 (2,016) (13) 383 (57) (1,301) 2,398 (2) 40 748 193 1,579 59 3,171 1,460 35 32 483 453 (13) 167 (c) Non Cash Financing and Investing Activities The following non cash financing and investing activities occurred during the year. (i) At the Company’s Annual General Meeting on 8 November 2004, Shareholders approved the re-structure of the investment in Imdex Arabia and the RTE/Imdex Joint Venture. One of the outcomes of the re-structure was the cancellation of 10,000,000 shares in Imdex Limited held by Mr H H Al-Merry; and (ii) During the year, the Company issued 3,210,000 options to Employees and Consultants and 3,100,000 to Corporate Advisors of the Company. These transactions are not reflected in the statement of cash flows. 35. IMPACTS OF ADOPTING THE AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (a) Management of the transition to A-IFRS 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 January 2005. Accordingly Imdex Limited’s first half-year report prepared under A-IFRS will be for the half-year reporting period ending 31 December 2005, and its first annual financial report prepared under A-IFRS will be for the year ending 30 June 2006. As previously reported in the 2004 Annual Report and ASX Appendix 4E Preliminary Final Report at 30 June 2005, Imdex has managed the transition to A-IFRS in 3 phases: phase 1, a scoping and impact analysis; phase 2, an evaluation and design phase; and phase 3, implementation and review. Risk management and change management has been managed throughout the life of the project. The Company has substantially completed the transition to A-IFRS, including the assessment of likely impacts on the results and financial position of Imdex Limited. Based on the work completed, the Board believes that the Company will be able to comply with its reporting obligations to present a financial report appropriately prepared in accordance with A-IFRS for the half-year ended 31 December 2005 and the full year ended 30 June 2006. As set out in the Appendix 4E Preliminary Final Report at 30 June 2005, it was intended that the quantitative impact of A-IFRS would be disclosed in the Consolidated Financial Report at 30 June 2005. However, despite the fact that the Company has substantially completed the work required to transition to A-IFRS, at this time, the impacts of adopting A-IFRS have not been finalised. (b) The likely impacts of A-IFRS on the results and financial position of Imdex Limited The impact of transition to A-IFRS, including the transitional adjustments disclosed is based on A-IFRS standards that management expect to be in place, or where applicable, early adopted, when preparing the Consolidated Entity’s first complete A-IFRS Financial Report (being the half-year ending 31 December 2005). The likely impacts of A-IFRS on the Company, which may change as the impacts are finalised, are outlined below. Users of the financial report should note that further developments in A-IFRS (for example, the release of further pronouncements by the Australian Accounting Standards Board and the Urgent Issues Group), if any, may also result in changes to the accounting policy decisions made by the Directors to date, and, consequently, the likely impacts outlined below. In accordance with AASB 1, Imdex has elected not to restate business combinations and acquisitions of investments in associates and interest in joint ventures prior to the date of transition. 63 NOTES TO THE FINANCIAL STATEMENTS (i) Share-based payments During the year the Company issued the Staff and Corporate Advisor options set out in Note 28. Equity settled share based payments in respect of equity instruments issued after 7 November 2002 that were unvested as at 1 January 2005 are measured at fair value at grant date. The fair value determined at grant date of equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the estimated number of equity instruments that will vest. The impact of A-IFRS, which is expected to be immaterial, is likely to result in an increase in contributed equity with a corresponding additional employee benefit expense and consultants’s expense recognised in the Statement of Financial Performance for the financial year ended 30 June 2005. (ii) Impairment of assets Non-current assets are written down to recoverable amount when the asset’s carrying amount exceeds recoverable amount. Historically, although not mandated, Imdex Limited has discounted cash flows in determining the recoverable amount of some of defined 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. Based on the work completed, it is likely that there will be an impairment write down of selected property, plant and equipment within the Imdex Minerals Division. As a consequence, as at 1 July 2004, opening retained earnings will decrease with a corresponding write-down of the carrying amount of the applicable assets. The amount of this adjustment has not yet been finalised. This decrease in the carrying value of property, plant and equipment will also result in the reduction in the depreciation expense relating to the Minerals Division. (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 ‘temporary differences’ determined as the difference between the carrying amount and the tax base of assets and liabilities recognised in the balance sheet. This impact of A-IFRS is likely to result in a decrease in the opening deferred tax liability due to the expected impairment of the property, plant and equipment relating to the Imdex Minerals impairment writedown described above. The Company is still considering the impact of UIG 1052 Tax Consolidation Accounting. (iv) Financial Instruments The Directors expect to take advantage of the election to not restate comparatives for AASB 132 Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement. As a result, there are no expected adjustments in relation to these standards as at 1 July 2004 or the year ended 30 June 2005 as the current AGAAP will continue to apply. The Company is still considering the impact of AASB 132 and AASB 139 on the year ended 30 June 2006. (v) Exploration, Evaluation and Development Expenditure The introduction of A-IFRS is not likely to result in any material change to accounting for exploration, evaluation and development expenditure. (vi) Proceeds from sale of assets The current definition of revenue requires proceeds on the 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 the profit or loss. Consequently, there will be no net impact on the income statement. (vii) Retained Earnings With limited exceptions, adjustments required on first time adoption of A-IFRS are recognised directly in retained earnings at the date of transition to A-IFRS. The cumulative effect of the expected adjustments referred to above will be treated in this manner. 64 ADDITIONAL STOCK EXCHANGE INFORMATION AS AT 16 SEPTEMBER 2005 (a) Distribution of Shareholders 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 Ordinary Shareholders SA Mud Services (Pty) Ltd J P Morgan Nominees Limited Midcontinent Equipment (Australia) Pty Ltd (c) Twenty Largest Holders of Quoted Equity Securities Ordinary Shareholders SA Mud Services (Pty) Ltd J P Morgan Nominees Limited Midcontinent Equipment (Australia) Pty Ltd Wear Services Pty Ltd Chelverton Dividend Income Fund Ltd Iscosa (Pty) Ltd Telic Alcatel (Australia) Pty Ltd Merrill Lynch (Australia) Nominees Pty Ltd Warnford Nominees Pty Limited Australian Executor Trustees Limited Mr Clarke James Roycroft Mr Petrus Cornelius Nicolaas Middendorp National Nominees Limited Tepany Pty Ltd Primbee Investments Pty Ltd Longo Pty Ltd Chippell Pty Ltd Runyon Pty Ltd Citicorp Nominees Pty Limited Mrs Patricia Rachel Shackell Fully Paid Ordinary Shares Options 18 227 240 526 144 1,155 24 - 4 5 29 3 41 - Fully Paid Number Percentage 12,847,202 10.19% 7,403,523 6,131,643 5.87% 4.86% Fully Paid Number Percentage 12,847,202 10.19% 7,403,523 6,131,643 5,000,000 5,000,000 3,211,800 2,850,000 2,750,000 2,750,000 2,498,943 2,151,731 1,753,500 1,700,000 1,647,500 1,615,921 1,572,826 1,210,273 1,206,939 1,138,194 1,100,000 5.87% 4.86% 3.96% 3.96% 2.55% 2.26% 2.18% 2.18% 1.98% 1.71% 1.39% 1.35% 1.31% 1.28% 1.25% 0.96% 0.96% 0.90% 0.87% 65,539,995 51.97% 65 ADDITIONAL STOCK EXCHANGE INFORMATION AS AT 16 SEPTEMBER 2005 (d) Director’s & Company Secretary’s Shareholdings Name Mr B W Ridgeway (indirectly) Mr I F Burston (indirectly) Mr H H Al-Merry (directly) Mr R W Kelly (indirectly) Mr K A Dundo (directly) Mr I R Freeman (indirectly) Mr J P O’Neil – alternate Director for Mr Freeman (indirectly) Mr S J Lyons (directly) Number of Shares Number of Options 5,000,000 100,000 755,000 265,000 300,000 16,059,002 12,847,202 - - - - - - - 50,000 50,000 35,374,204 50,000 (e) Interests in Mining Tenements Due to the disposal of Imdex Minerals on 1 July 2005, Imdex no longer holds an interest in any mining tenements at the date of this report. (f) Company Secretary Mr Stephen John Lyons (g) Registered Office Level 3, Redgum House 18 Richardson Street West Perth Western Australia Phone: Fax: (+61 8) 9481 5777 (+61 8) 9481 6527 (h) Share Registry Computershare Investory Services Level 2 45 St Georges Terrace Perth WA 6000 Phone: (+61 8) 9328 2000 66 TABLE OF CONTENTS Imdex at a Glance Imdex 2005 Snapshot Financial Highlights Chairman’s Report Managing Director’s Report Imdex’s Businesses 1 2 3 4 5 8 Director Profiles 10 Financial Report 2005 12 CONTENTS N IMDEX An Australian Global Drilling Products & Services Company. "a service provider to the natural resources industries" Registered Office Imdex Limited, ABN 78 008 947 813 PO Box 1325 Level 3, Redgum House West Perth WA 6872 18 Richardson Street Telephone: (+61 8) 9481 5777 West Perth, Western Australia, 6005 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 & 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 AUSTRALIAN MUD COMPANY PTY 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 SAMCHEM DRILLING FLUIDS & CHEMICALS 31 Basalt Street Alrode Ext 7 PO Box 455 ALBERTON 1450 South Africa Telephone: +2711 908 5595 Facsimile: +2711 908 5526 Email: samchem@acenet.co.za Website: www.samchem.co.za 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 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 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 REPRESENTATIVE OFFICES WESTERN AUSTRALIA AUSTRALIAN MUD COMPANY PTY 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 SURTRON TECHNOLOGIES PTY LTD Lot 1598 Willis Street NEWMAN WA 6753 PO Box 681 NEWMAN WA 6753 Tel/Facsimile: +61 8 9175 1230 OUTH WALES NEW SOUTH WALES MPANY PTY AUSTRALIAN MUD COMPANY PTY 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 PTY LTD 20 Alexandra Place ROSE PARK SA 5067 Telephone: +61 8 8364 4110 Facsimile: +61 8 8364 4151 Email: kbooth@imdex.com.au QUEENSLAND AUSTRALIAN MUD COMPANY PTY 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 PTY 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 I M T E D 2 0 0 5 A N N U A L R E P O R T www.imdex.com.au Imdex Limited is an Australian, publicly listed, Drilling Products and Services company, dedicated to becoming a significant global player in supplying Drilling Products and Services to the Mining, Oil and Gas, Water Well, Horizontal Directional Drilling and Civil industries. IMDEX LIMITED ANNUAL REPORT
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