ABN 78 008 947 813 2007 Annual General Meeting Meeting Documents Notice of Annual General Meeting & Explanatory Memorandum Proxy Form for Annual General Meeting Corporate Representative Certificate for Annual General Meeting To be held on Friday, 19 October 2007 at the Celtic Club, 48 Ord Street, West Perth, Western Australia commencing at 11.00am WST T R O P E R L A U N N A 7 0 0 2 “Australia’s global drilling products and services company” C O N T E N T S 07 IMDEX AT A GLANCE 3 IMDEX 2007 SNAPSHOT 4 GLOBAL REACH 6 CHAIRMAN’S REPORT 8 MANAGING DIRECTOR’S REPORT 10 BOARD OF DIRECTORS 16 FINANCIAL REPORT 2007 19 IMDEX is listed on the Australian Stock Exchange under the ASX code IMD. IMDEX AT A GLANCE Imdex is a Perth based, ASX listed company supplying drilling products and services to the mining, oil and gas, water well and civil industries globally. Imdex has two global operational divisions: • Drilling fl uids and chemicals • Drilling products (down hole instrumentation) and services Imdex is a market leader in many disciplines Imdex is establishing a comprehensive global distribution and supply network IMDEX 2007 HIG HLIG HTS ...D el i ver i ng on it’s str ategy Fina nc ial Perfo rma nc e UP 79% OPERATING REVENUE UP 153% EBITA (normal operations) UP 69% UP 60% UP 44% 2.5 CENTS NET PROFIT AFTER TAX OPERATIING CASH FLOW EARNINGS PER SHARE (8.7 cents) FULLY FRANKED DIVIDEND PER SHARE Divisi on al H ig hli ghts FLUIDS AND CHEMICALS Comprises: Australian Mud Company and Samchem Segment revenue of $62.4m (up 50% on prior period) Segment EBITA up 82% on prior period PRODUCTS AND SERVICES Comprises: Surtron, Refl ex, Chardec and Flexit Segment revenue of $56.1m (up 124% on prior period) Segment EBITA up 235% on prior period A N N U A L R E P O R T 2 0 0 7 IMDEX 3 I M D E X 2 0 0 7 S N A P S H O T Total Revenue Change in percentage Operating Profi t before Interest, Tax, Depreciation & Amortisation (normal operations only) Depreciation Earnings before Interest, Tax & Amortisation (EBITA) (normal operations only) EBITA margin Amortisation Earnings before Interest & Tax (EBIT) (normal operations only) Net interest expense Income tax expense Net Profi t after Tax (normal operations only) Change in percentage Change in percentage Change in percentage Non-operational items Sino value uplift RTE/Imdex Joint Venture Recovery / (Impairment) Tax effect of non-operational items Net Profi t for the Year from Continuing Operations Profi t from discontinuing operations Net Profi t for the Year Total Group EBIT Basic earnings per share (cents) Net Cash provided by Operating Activities Net Assets Change in percentage Change in percentage Change in percentage Change in percentage Change in percentage Change in percentage FY07 $’000 119.3 79% 29.1 (4.4) 24.7 21% 152% (3.4) 21.3 117% (2.0) (6.6) 12.7 82% - 1.1 (0.3) 13.5 69% - 13.5 69% 22.4 87% 8.78 45% 16.1 60% 69.4 112% FY06 $’000 FY05 $’000 66.8 43% 12.2 (2.4) 9.8 15% 77% - 9.8 78% (0.2) (2.6) 7.0 114% 4.5 (2.3) (1.2) 8.0 143% - 8.0 90% 12.0 118% 6.07 66% 10.1 216% 32.7 72% 46.8 6.9 (1.4) 5.5 12% - 5.5 (0.5) (1.7) 3.3 - - - 3.3 0.9 4.2 5.5 3.66 3.2 19.0 4 Total Revenue and EBITA Three Year Trend 100 ) s n o i l l i m ( 30 25 20 15 10 5 ) s n o i l l i m ( A T B E I e u n e v e R 50 ) s n o i l l i m ( s t e s s A t e N 80 70 60 50 40 30 20 10 - FY 05 FY06 FY07 Total Revenue EBITA ) s n o i l l i m ( e u n e v e R 140 120 100 80 60 40 20 - Divisional Revenue Three Year Trend $6.8 $23.2 $16.9 FY05 $41.7 $25.0 FY06 $62.4 $56.1 FY07 Net Asset growth refl ects our strength Products and Services Fluids and Chemicals Minerals Processing FY05 FY06 FY07 e r a h S r e p s t n e C 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 - Continued earnings growth has led to an uplift in the fully franked dividend payment program FY05 FY06 FY07 Dividends Per Share Earnings Per Share A N N U A L R E P O R T 2 0 0 7 IMDEX 5 G L O B A L R E A C H – REGIONAL EXPERT ISE COUNTRIES WE OPERATE IN AUSTRALIA BOTSWANA CANADA CHILE CHINA CONGO GERMANY GHANA INDONESIA KAZAKHSTAN KENYA LAOS MALAYSIA MALI MAURITANIA MEXICO MONGOLIA SWITZERLAND NEW ZEALAND TANZANIA PAPUA NEW GUINEA THAILAND PERU PHILIPPINES SINGAPORE SOUTH AFRICA SWEDEN TURKEY UNITED KINGDOM ZAMBIA T I M M I N S C A L G A RY S A N T I A G O 6 MAJOR LOCATIONS WE OPERATE OUT OF ALMATY, KAZAKHSTAN BRISBANE CALGARY, CANADA EAST SUSSEX, UK KALGOORLIE PERTH SANTIAGO, CHILE TIMMINS, CANADA JOHANNESBURG, SOUTH AFRICA VALLENTUNA, SWEDEN VA L L E N T U N A E A S T S U S S E X A L M AT Y J O H A N N E S B U R G B R I S B A N E P E RT H K A L G O O R L I E A N N U A L R E P O R T 2 0 0 7 IMDEX 7 M R I A N B U R S T O N C H A I R M A N ’ S R E P O R T It gives me great pleasure to report an outstanding fi nancial result for the Imdex Group for the year ended 30 June 2007 (FY07). The dramatic increase in profi tability refl ects the many strategic and operational changes which have been made during the past few years. The company is also benefi ting from the uplift in global exploration and resource development activity. The Imdex Group is continuing to deliver on the strategy I outlined at the 2006 Annual General Meeting. This strategy aimed at building value for our shareholders through: • • • continued operational earnings improvement within Australia; moving toward an increasing global presence; achieving an overall improvement in Group fi nancial performance to make Imdex a competitive investment in the Australian market; and • translating the improved performance into dividend income. The Imdex Group achieved a 79% increase in revenue to $119.3 million and a 69% increase in total net profi t to $13.5 million. This delivered earnings per share of 8.74 cents, up from 6.07 cents per share in FY06. As well as focusing on growing our core businesses we have continued to extend our global reach through strategic acquisitions and business partnerships. Through this two pronged approach, both divisions of Imdex have been recording outstanding growth. The Drilling Fluids and Chemicals division increased revenue by 50% and normalised EBITA by 82%. Within the Drilling Products and Services division, revenue and normalised EBITA were up 124% and a massive 235%, respectively. Our global expansion continued with the acquisition of Flexit from 1 May 2007 and the purchases of Poly-Drill in Canada and a 75% interest in Suay Energy Services in Kazakhstan with effect from 1 July 2007. Flexit is a signifi cant global supplier of borehole survey systems to the mineral exploration, mining, tunnelling and geotechnical industries. The acquisition of Flexit complements the recent purchases of Refl ex and Chardec. 8 Poly-Drill manufactures and sells polymer drilling fl uid based systems and solids control systems from Calgary. Poly-Drill is close to commercialising a solids control system for the removal of oil from drill cuttings. There is strong demand for such systems due to increasing environmental concerns worldwide. Suay provides drilling fl uids and services to the Kazakhstan oilfi elds and the surrounding Caspian Sea region. These acquisitions provide an expanded global capability. Combined with our strategic alliances with other international drilling and supply companies, these initiatives will give us access to new clients and markets in North America, Latin America, Africa, the CIS and Asia. The acquisitions will expand the Imdex product range and consolidate Imdex’s position as a leading global supplier of technologically advanced down hole instrumentation, fl uids and chemicals. They will also strengthen Imdex’s existing research and development and manufacturing skill base allowing Imdex to be a market leader in sophisticated down hole instrumentation. As part of the company’s growth plans, the management and board are actively reviewing the group’s ongoing management requirements. Important additional skills and resources have come with the business acquisitions we have made in recent years. However, there is a need to recruit additional senior management with industry experience to ensure successful implementation of our strategies. As part of the strategic repositioning of the company, Imdex successfully recovered all outstanding amounts owing from Rashid Trading Establishment and sold its remaining 20% interest in Imdex Arabia. The greatly improved fortunes of the company and the attractive outlook have encouraged directors to declare an increased dividend. Imdex paid a 1 cent per share interim dividend and the Board has approved the payment of a further 1.5 cents per share fi nal dividend. The Board’s goal of delivering a sustainable and increasing dividend stream, consistent with the capital needs of the Company, remains a high priority. I would like to thank all our employees, my fellow Board members and the company’s consultants for their special efforts during the year as it has taken a lot of hard work and dedication to deliver these outstanding results. I would also like to recognise the importance of our customers and the role played by all shareholders in supporting the activities of the company. I look forward to seeing many of you at the forthcoming Annual General Meeting to be held in Perth on 19 October 2007. I F Burston C h a i r m a n A N N U A L R E P O R T 2 0 0 7 IMDEX 9 M R B E R N I E R I D G E W AY M A N A G I N G D I R E C T O R ’ S R E P O R T The last year has been an exciting time of strategic expansion and business growth. • Financially, we increased revenue by 79% and net profi t by 69%; • Operationally, we successfully integrated Refl ex and Chardec, the two businesses we acquired in 2006, with better than expected results; and • Strategically, we pursued our global expansion plans through organic growth and additional off-shore acquisitions. We have been engaged in a multi-year business plan which has been delivering successively better outcomes. We begin the new fi nancial year in a far stronger strategic position both geographically and technically, leaving us poised for another year of signifi cant growth and improved shareholder returns. The management team is very pleased with the outstanding results achieved. Special mention should be made of the growing number of people contributing to the performance in many different parts of the world as a result of the global repositioning of the company we began a few years ago. The results are a strong indicator of the commitment and skill of the managers and staff in our more recently acquired businesses as well as those in the ongoing operations. There were many highlights in the past year, including: • • • • • profi t growth in all our core businesses; a rise in group sales of 79% to $119.3 million; growth in earnings before interest, tax and amortisation of 116% to $25.8 million; a 1.5 cents per share fi nal dividend to be paid in October 2007 compared with the 1 cent per share fi nal dividend in 2006; purchase and successful integration of the Swedish-based Refl ex Group and the United Kingdom-based Chardec Technologies; 1 0 “We are a market leader in many of our disciplines” Imdex assisted to pioneer horizontal directional drilling in the coal bed methane industry in Scotland • • • • acquisition of the Swedish-based Flexit in May 2007; completion of capital and debt raisings to support our growth strategy; recovery of all outstanding amounts due from Rashid Trading Establishment and the sale of the remaining 20% interest in Imdex Arabia; and acquisition of 100% of Canadian-based Poly-Drill and a 75% interest in Kazakhstan-based Suay Energy Services, both effective from 1 July 2007. RECENT ACQUISITIONS FLEXIT The Swedish-based Flexit Group was acquired with effect from 1 May 2007. Flexit has a global perspective and focuses on the technologically advanced down hole survey tool market. This acquisition complements the earlier acquisitions of Refl ex and Chardec. One of the benefi ts brought to the Group by Flexit is a new generation micro-electro-mechanical systems (MEMS) gyro. This gives Imdex market leading technology. The transaction valued Flexit at $22 million. A cash payment of $12 million was made on 1 May 2007. The balance is payable on 1 May 2009 through the issue of 5 million fully paid ordinary Imdex shares at an issue price of $2 per share to the vendors. If the Imdex share price at that time is less than $2.00 per share, an additional amount of cash will be paid to bring the combined market value of shares issued and cash paid at that time to $10 million. POLY-DRILL DRILLING SYSTEMS Canadian-based Poly-Drill Drilling Systems Limited (Poly-Drill) was acquired with effect from 1 July 2007. The purchase price of $3.5 million was made up of $1.75 million cash and the balance in Imdex shares which are subject to voluntary escrow for a period of 12 months. Poly-Drill manufactures and sells polymer drilling fl uid based systems and solids control systems from Calgary in Canada. Its fl uid systems enable drilling without the use of numerous conventional drilling fl uid products, such as fl uid loss control additives and gels. The fl uid systems are in use in the mining and oil & gas markets throughout North America and have established new standards in drilling fl uid technology. A N N U A L R E P O R T 2 0 0 7 IMDEX 1 1 M A N A G I N G D I R E C T O R ’ S R E P O R T C o n t . Poly-Drill is also close to commercialising a solids control system for the removal of oil from drill cuttings. Many countries require oil cuttings/sludge from oilfi eld drilling activities to be removed and some countries are seeking to enforce a zero impact policy for environmental protection reasons. This will provide exciting new markets for the Poly-Drill solids control equipment complementing the existing range of Imdex group products. SUAY ENERGY SERVICES (Suay) Imdex acquired a 75% interest in Kazakhstan-based Suay Energy Services LLP (Suay) with effect from 1 July 2007 for a cash consideration of US$393,000. Imdex also holds an option to acquire the remaining 25% at fair value. Suay had been a privately held company established in 2004 by an experienced executive with a long history in the industry within the region. The purchase complements the existing businesses of Imdex. It facilitates our global expansion by giving us an excellent platform for extending our presence into this highly prospective oil and gas region. The business will offer advantages in servicing markets in Turkmenistan, Kurdistan, Azerbaijan and Uzbekistan and the border regions of Russia. ASSET SALES During 2006/07, Imdex successfully recovered all outstanding amounts due from Rashid Trading Establishment (RTE) and sold its remaining 20% interest in Imdex Arabia to RTE. Total cash received amounted to $1.1 million. This amount has been treated as ‘Other Income’ in the statement of fi nancial performance as these assets had previously been written down to a zero value. DIVISONAL OPERATING RESULTS DRILLING FLUIDS AND CHEMICALS DIVISION The Drilling Fluids and Chemicals division (DFC) comprises the Australian Mud Company (AMC) and Samchem Drilling Fluids and Chemicals (Pty) Ltd (Samchem). Both Suay and Poly-Drill will be reported as part of DFC in FY08. This division focuses on the provision of drilling fl uids and chemicals to the mining, oil and gas, water well and horizontal directional drilling industries. Fluids and chemicals are required in the drilling process primarily to cool and lubricate the drill bit, keep the hole open and to return cuttings to the surface. Divisional revenue increased 50% to $62.4 million (FY06 - $41.7 million) and normalised EBITA increased 82% to $10.4 million (FY06 - $5.7 million). The DFC trading results have benefi ted from buoyancy in the worldwide resources and energy markets. These market conditions have led to strong growth in exploration and development expenditure, particularly in Australia, Africa and Asia. As well as expanding sales in Australia, DFC has increased its market penetration in Africa and South East Asia and our products are now sold to over 30 countries worldwide. In the year ahead, integration and growth of Suay and Poly-Drill will be a high priority to ensure we maximise the benefi ts of those acquisitions. 1 2 “We demonstrate our commitment to the environment by using cardboard packaging” M A N A G I N G D I R E C T O R ’ S R E P O R T C o n t . We will also be aiming to ensure high standards of service for our existing clients whilst targeting growth in a broader range of international markets including previously under-exploited markets in Africa and Latin America. Our ability to penetrate these and other global markets will be assisted by strategic alliances with major international drilling and supply companies as well as the marketing footprint of our own businesses. DRILLING PRODUCTS AND SERVICES DIVISION The Drilling Products and Services division (DPS) comprises the Refl ex Group of companies (Refl ex), Chardec Technologies (Chardec), Flexit, Ace Drilling Supplies (Ace) and Surtron Technologies and Surtron Technologies UK (together Surtron). This division has grown signifi cantly in the current year primarily due to the acquisitions of Refl ex, Chardec and Flexit. Notwithstanding the growth due to acquisitions, we are very pleased with the organic growth achieved by our ongoing operations. Divisional revenue increased 124% to $56.1 million ($25.0 million in FY06). Divisional normalised EBITA increased 235% to $17.6 million ($5.3 million in FY06). The strong growth in this division during the year refl ected the acquisitions of Refl ex, Chardec and Flexit. However, the existing Ace and Surtron business units also delivered outstanding increases in profi tability through the organic growth opportunities within their market segments. Key drivers in the success of DPS were: • • • • the continued international roll out of the Ace Core Tool, with particularly strong revenue growth coming from Canada; cost savings from integration of the Refl ex and Chardec general management and administration functions; lower costs from taking better advantage of the technical skills across previously separate companies to allow a renewed focus on research and development; and, new contracts for Surtron in Western Australia and South Australia as well as growth offshore with additional work in China, Mauritania and the United Kingdom. The outlook during FY08 for the DPS division is continued strong growth assisted by global alliances with international drilling and supply companies. NON-OPERATING INVESTMENT SINO GAS & ENERGY LTD (SGE) Imdex holds 13.6% of the ordinary share capital of Sino Gas & Energy Limited (SGE), an energy company operating in the coal bed methane industry in China. It has also extended a secured loan facility to the company on commercial terms. The investment in SGE which cost $0.3 million had a fair value for accounting purposes of $4.5 million at 30 June 2007. The company plans to exit this investment during FY08. COMPANY OUTLOOK As a service provider to the oil and gas and mining industries, Imdex will benefi t from continuing growth in global demand for raw materials. Continuing strong exploration and development activity within the natural resources industry will be necessary if the industry is to meet the demands for additional supplies in the coming years. The company’s growing global presence provides the springboard for further signifi cant earnings growth in the current year. Our performance will also be assisted by a number of strategic alliances with major international drilling and supply companies. 1 4 Imdex will continue to develop technology to increase effi ciency in the drilling industry. The company’s experience in integrating new acquisitions has grown considerably and, in the coming year, the integration and growth of Suay and Poly-Drill will be a priority. Asian Pacifi c operations should grow organically as demand for products continues to be fuelled by the energy and resources needs of emerging economies in China and South East Asia. Within Africa, the company expects to extend its sales footprint beyond an already strong position in South Africa. The company will benefi t from higher rates of mining and exploration activity in other parts of Africa, including the emerging oilfi eld sector in East Africa. It is also positioning itself to take advantage of the demand for environmental management products in Africa as well as in Europe and Australia. In the Americas, the company’s expanded tool offering should help consolidate its market leadership in Canada. Expansion into the United States onshore oil and gas market is a priority. The company is confi dent of achieving signifi cant market penetration in Latin America. Key markets include Mexico and Chile and a senior Chilean based manager has been appointed. Recent acquisitions will help in the plans to extend the presence of the group in this part of the world. The emphasis on research and development including establishment of manufacturing centres of excellence in Europe and the United Kingdom will continue. This will help maintain the company’s competitive edge in the provision of technologically advanced down-hole tools, permitting further expansion into the oil and gas sector. Overall, as the Chairman announced when we released our fi nancial results in August, we are, based on current market conditions and Group structure, expecting further signifi cant growth in operating revenue in FY08 at similar margins to those we were able to achieve in FY07. As always, these outcomes depend on many factors being aligned including there being no material change in the business environment. There is nothing we can see at this point which would qualify our enthusiasm about the coming year. Based on current business plans, there should be another increase in the underlying value of the company through our focus on core skills and the competitive advantages which we have steadily built in an increasingly global company. Bernie Ridgeway M a n a g i n g D i r e c t o r A N N U A L R E P O R T 2 0 0 7 IMDEX 1 5 B O A R D O F D I R E C T O R S MR IAN BURSTON AM Non EXECUTIVE CHAIRMAN Age: 72 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 Offi cer for Kalgoorlie Consolidated Gold Mines, the Managing Director and Chief Executive Offi cer 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 qualifi ed to lead Imdex during this important growth phase of the Company. MR BERNARD RIDGEWAY B.Bus (ACCTG) ACA MANAGING DIRECTOR Age: 53 years Mr Ridgeway was appointed to the Board on 23 May 2000 and appointed Managing Director effective from 3 July 2000. He is a qualifi ed 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 fi nance, administration, marketing and business development. 1 6 FROM LEFT TO RIGHT: Mr Bernard Ridgeway, Mr Ross Kelly, Mr Ian Burston, Mr Kevin Dundo, Mr Magnus Lemmel MR ROSS KELLY BE(HONS) FAICD NON EXECUTIVE DIRECTOR Age: 69 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 qualifi ed 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 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 refi ning 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. MR KEVIN DUNDO B. Com, LLB NON EXECUTIVE DIRECTOR Age: 56 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 Intrepid Mines Ltd ASX: IAU (formerly NuStar Mining Corporation Limited) and Computercorp Limited (ASX:CZP). Previous directorships include St Barbara Mines Limited (ASX: SBM) and Defi ance 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 fi nancial 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 Certifi ed Practising Accountants and a Member of the Australian Institute of Company Directors. MR MAGNUS LEMMEL B. A. NON EXECUTIVE DIRECTOR Age: 67 years Mr Lemmel is a management consultant based in Brussels, Belgium and involved in developing small business in Sweden. Mr Lemmel is a former Senior Vice President of Ericsson Telecommunications and Chief Executive Offi cer of the Federation of Swedish Industries as well as Director General for Enterprise Policy of the European Commission. He has a vast experience from working as a Director of companies and institutions. Mr Lemmel was the President of Smaforetagsinvest AB, the previous owners of Refl ex, and it was a condition of the Refl ex acquisition that Mr Lemmel be appointed to the Imdex Board. Due to his previous association with Refl ex and the technology, he is the Chairman of the Technical Advisory Committee of Refl ex/Chardec and with his network in Sweden and internationally, will bring added value to the Board. Mr Lemmel was appointed to the Board on 19 October 2006. A N N U A L R E P O R T 2 0 0 7 IMDEX 1 7 “Our tools help our clients achieve their goals” 1 8 Directors’ Report 20 Independent Audit Report 30 Directors’ Declaration 32 F I N A N C I A L R E P O R T Auditors’ Independence Declaration 33 Corporate Governance Statement 34 Income Statement 38 Balance Sheet 39 Statement of Changes in Equity 40 Cash Flow Satement 41 Notes to the Financial Report 42 Additional Stock Exchange Information 91 A N N U A L R E P O R T 2 0 0 7 IMDEX 1 9 IMDEX LIMITED IMDEX LIMITED and its controlled entities and its controlled entities DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2007 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2007 The Directors of Imdex Limited (“Imdex” or “the Company”) present their report together with the annual Financial Report of the Company and its Subsidiaries (“the Group”) for the financial year ended 30 June 2007. The Directors of Imdex Limited (“Imdex” or “the Company”) present their report together with the annual Financial Report of the Company and its Subsidiaries (“the Group”) for the financial year ended 30 June 2007. In order to comply with the provisions of the Corporations Act 2001, the Directors’ report as follows: In order to comply with the provisions of the Corporations Act 2001, the Directors’ report as follows: IMDEX LIMITED (a) Directors (a) Directors and its controlled entities The names and particulars of the Directors of the Company during or since the end of the financial year are: The names and particulars of the Directors of the Company during or since the end of the financial year are: Name DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2007 Particulars Particulars Name Role Role Age Age Mr I F Burston Mr I F Burston Independent, Non Executive Chairman Independent, Non Executive Chairman 72 72 The Directors of Imdex Limited (“Imdex” or “the Company”) present their report together with the annual Financial Report of the Company and its Subsidiaries (“the Group”) for the financial year ended 30 June 2007. Mechanical Engineer Mechanical Engineer Member of the Audit and Compliance & Member of the Audit and Compliance & Remuneration Committees Remuneration Committees Director since November 2000 Director since November 2000 Mr B W Ridgeway In order to comply with the provisions of the Corporations Act 2001, the Directors’ report as follows: Managing Director Managing Director Mr B W Ridgeway 53 53 Chartered Accountant Chartered Accountant Director since May 2000 Director since May 2000 Mr R W Kelly Mr R W Kelly (a) Directors Independent, Non Executive Director Independent, Non Executive Director 69 69 The names and particulars of the Directors of the Company during or since the end of the financial year are: Name Mr K A Dundo Mr K A Dundo Role Independent, Non Executive Director Independent, Non Executive Director Mr I F Burston Independent, Non Executive Chairman Mr M Lemmel Mr M Lemmel Independent, Non Executive Director Independent, Non Executive Director Mr B W Ridgeway Managing Director Mr H H Al-Merry Mr H H Al-Merry Mr R W Kelly Non Executive Director Non Executive Director Independent, Non Executive Director Mr I R Freeman Mr K A Dundo Mr I R Freeman Non Executive Director Independent, Non Executive Director Non Executive Director Age 55 55 72 68 68 53 45 45 69 65 55 65 Engineer Engineer Member of the Audit and Compliance & Member of the Audit and Compliance & Remuneration Committees Remuneration Committees Director since 14 January 2004 Director since 14 January 2004 Particulars Lawyer Lawyer Chairman of the Audit and Compliance & Chairman of the Audit and Compliance & Mechanical Engineer Remuneration Committees Remuneration Committees Member of the Audit and Compliance & Director since 14 January 2004 Director since 14 January 2004 Remuneration Committees Director since November 2000 Management Consultant Management Consultant Director since 19 October 2006 Director since 19 October 2006 Chartered Accountant Director since May 2000 President of Rashid Trading Establishment President of Rashid Trading Establishment (involved in a Joint Venture with Imdex, known (involved in a Joint Venture with Imdex, known Engineer as the RTE/Imdex Joint Venture) as the RTE/Imdex Joint Venture) Member of the Audit and Compliance & Director since April 2002 Director since April 2002 Remuneration Committees Office vacated 18 August 2006 Office vacated 18 August 2006 Director since 14 January 2004 Chemical Technology and Production Engineer Chemical Technology and Production Engineer Lawyer Director since 23 August 2005 Director since 23 August 2005 Chairman of the Audit and Compliance & Resigned 10 April 2007 Resigned 10 April 2007 Remuneration Committees Director since 14 January 2004 Additional information on the Director’s experience and qualifications is set out under Director Profiles. Additional information on the Director’s experience and qualifications is set out under Director Profiles. Mr M Lemmel Independent, Non Executive Director 68 Management Consultant Director since 19 October 2006 (b) Directorships of other listed companies (b) Directorships of other listed companies Mr H H Al-Merry Non Executive Director Directorships of other listed companies held by the Directors in the 3 years immediately before the end of the financial year are as follows: Directorships of other listed companies held by the Directors in the 3 years immediately before the end of the financial year are as follows: 45 Name Name Company Company Position Position Mr I F Burston Mr I F Burston Mr I R Freeman Non Executive Director Mincor Resources NL Mincor Resources NL Aviva Corporation Ltd Aviva Corporation Ltd Aztec Resources Ltd Aztec Resources Ltd Kansai Mining Corporation Kansai Mining Corporation Cape Lambert Iron Ore Ltd Cape Lambert Iron Ore Ltd Non Executive Director Non Executive Director 65 Non Executive Director Non Executive Director Chairman and Chief Executive Officer Chairman and Chief Executive Officer Non Executive Director Non Executive Director Non Executive Chairman Non Executive Chairman Additional information on the Director’s experience and qualifications is set out under Director Profiles. Period of Directorship President of Rashid Trading Establishment (involved in a Joint Venture with Imdex, known as the RTE/Imdex Joint Venture) Director since April 2002 Office vacated 18 August 2006 2003 – Current 2003 – Current Chemical Technology and Production Engineer 2003 – 2006 2003 – 2006 Director since 23 August 2005 2004 – 2006 2004 – 2006 Resigned 10 April 2007 2006 – Current 2006 – Current 2006 – Current 2006 – Current Period of Directorship Mr R W Kelly Mr R W Kelly Clough Limited Clough Limited Non Executive Director Non Executive Director 1996 – Current 1996 – Current (b) Directorships of other listed companies Mr K A Dundo Mr K A Dundo Non Executive Director Directorships of other listed companies held by the Directors in the 3 years immediately before the end of the financial year are as Non Executive Director follows: Non Executive Director Non Executive Director 2006 – Current 2002 – Current 2006 – Current 2002 – Current Computercorp Limited Computercorp Limited Intrepid Mines Ltd (formerly Intrepid Mines Ltd (formerly NuStar Mining Corp Ltd) NuStar Mining Corp Ltd) Name Company Position Period of Directorship Mr I F Burston Mincor Resources NL Aviva Corporation Ltd Aztec Resources Ltd Kansai Mining Corporation Cape Lambert Iron Ore Ltd Non Executive Director Non Executive Director Chairman and Chief Executive Officer Non Executive Director Non Executive Chairman Mr R W Kelly Clough Limited Non Executive Director 2003 – Current 2003 – 2006 2004 – 2006 2006 – Current 2006 – Current 1996 – Current Mr K A Dundo Computercorp Limited Intrepid Mines Ltd (formerly NuStar Mining Corp Ltd) Non Executive Director Non Executive Director 2006 – Current 2002 – Current Page 1 of 73 Page 1 of 73 2 0 Page 1 of 73 IMDEX LIMITED and its controlled entities DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2007 (c) Company Secretary Mr P A Evans Chartered Accountant aged 44. Mr Evans joined Imdex Limited on 17 October 2006. After leaving professional practice he worked in a range of commercial and financial roles in the media, manufacturing and telecommunications industries. Mr Evans 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, six Board meetings, two Audit and Compliance Committee and two Remuneration Committee meetings were held. Board of Directors Audit and Compliance Committee Remuneration Committee Held Attended Held Attended Held Attended 6 6 1 6 6 4 4 6 6 - 6 4 3 3 2 - - 2 2 - - 2 - - 2 2 - - 2 - - 2 2 - - 2 - - 2 2 - - I F Burston B W Ridgeway H H Al-Merry R W Kelly K A Dundo I R Freeman M Lemmel (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 R W Kelly K A Dundo M Lemmel Shares Held Directly Shares Held Indirectly Options Held Directly - - 260,000 1,000,000 3,500,000 2,000,000 143,200 121,800 - 300,000 200,000 200,000 - - - At the date of this report, the options on issue by the Company are disclosed at (g) below and in Note 33. Page 2 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 2 1 IMDEX LIMITED and its controlled entities IMDEX LIMITED and its controlled entities DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2007 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2007 The Directors of Imdex Limited (“Imdex” or “the Company”) present their report together with the annual Financial Report of the Company and its Subsidiaries (“the Group”) for the financial year ended 30 June 2007. In order to comply with the provisions of the Corporations Act 2001, the Directors’ report as follows: (f) Remuneration Report (a) Directors Remuneration policy for Directors and Executives The names and particulars of the Directors of the Company during or since the end of the financial year are: 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 IMDEX LIMITED market rates. The cash remuneration of 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. and its controlled entities Independent, Non Executive Chairman Mr I F Burston Particulars Name Role Age 72 Mechanical Engineer Member of the Audit and Compliance & Remuneration Committees Director since November 2000 The Managing Director’s remuneration is determined by the Remuneration Committee with due regard to current market rates. DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2007 Managing Director Mr B W Ridgeway 53 Chartered Accountant Director since May 2000 Mr R W Kelly Independent, Non Executive Director In order to comply with the provisions of the Corporations Act 2001, the Directors’ report as follows: The Managing Director has a short term incentive bonus amounting to 20% of his cash compensation package. Of this bonus, 75% is payable on achievement of the FY07 EBIT budget by Group companies and 25% on the purchase of Flexit AB prior to 30 June 2007. The Remuneration Committee set these performance hurdles as the achievement of Group EBIT and purchase of Flexit AB are closely linked to Imdex’s increased growth and profitability and hence shareholder value. The balance of his cash compensation package for the current year is not linked to the Group’s performance. Mr K A Dundo The Directors of Imdex Limited (“Imdex” or “the Company”) present their report together with the annual Financial Report of the Company and its Subsidiaries (“the Group”) for the financial year ended 30 June 2007. Engineer Member of the Audit and Compliance & Remuneration Committees Director since 14 January 2004 Lawyer From time to time options may be issued to the Managing Director as an additional performance incentive. The portion of the Managing Chairman of the Audit and Compliance & Director’s compensation package that comprises options is linked to the Company’s performance. The issue of any such options Remuneration Committees Director since 14 January 2004 requires the approval of Shareholders in General Meeting. No such options were granted to the Managing Director in the current year. Management Consultant Director since 19 October 2006 All Executives, and all staff of the Company, are subject to formal annual reviews of their performance. The remuneration of Executives Role 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 table on page 5 for further details. Mechanical Engineer President of Rashid Trading Establishment Member of the Audit and Compliance & (involved in a Joint Venture with Imdex, known All Executives are employed under permanent contracts, none of which provide for any termination payments. Mr G E Weston’s contract Remuneration Committees as the RTE/Imdex Joint Venture) Director since November 2000 Director since April 2002 provides a 12 month notice period, Mr D J Loughlin’s a 3 month notice period, Mr S J Lyons’s a 2 month notice period and Mr P A Office vacated 18 August 2006 Evans, Mr D L Kinley and Mr C S Munyard’s contracts provide for a 1 month notice period. The names and particulars of the Directors of the Company during or since the end of the financial year are: Independent, Non Executive Chairman Independent, Non Executive Director Independent, Non Executive Director Non Executive Director Mr H H Al-Merry (a) Directors Managing Director Mr I F Burston Mr M Lemmel Particulars Name Age 55 69 53 68 45 72 Mr B W Ridgeway Mr I R Freeman Non Executive Director The remuneration policy for the Managing Director is linked to the Company’s performance as an additional incentive to build Engineer shareholder value. The remuneration of Non Executive Directors is not linked to the Company’s performance except as noted below, in Member of the Audit and Compliance & order to preserve their independence. The increase in the net profits of the Company and hence the increase in shareholder value over Remuneration Committees the last five years is indicative of the success of this policy. Director since 14 January 2004 Additional information on the Director’s experience and qualifications is set out under Director Profiles. Independent, Non Executive Director Mr R W Kelly 69 Chartered Accountant Director since May 2000 65 Chemical Technology and Production Engineer Director since 23 August 2005 Resigned 10 April 2007 Lawyer Management of the Company believes that in order to retain quality Non Executive Directors on the Board, some incentive to maintain Chairman of the Audit and Compliance & their future involvement, commitment and loyalty to the Company, is required on certain occasions, over and above nominal Directors' Remuneration Committees fees. Director since 14 January 2004 Directorships of other listed companies held by the Directors in the 3 years immediately before the end of the financial year are as follows: Mr K A Dundo (b) Directorships of other listed companies Independent, Non Executive Director 55 Name Mr M Lemmel Independent, Non Executive Director Mr I F Burston Mr H H Al-Merry Management Consultant Company To this end, a total of 1,000,000 options were issued during the current year to Mr Ian Burston, a Non Executive Director, who has been Director since 19 October 2006 a member of the Board of the Company (and Chairman) for 5 years. Management of the Company intends that these options will 2003 – Current Non Executive Director 2003 – 2006 Non Executive Director operate as an incentive for Mr Burston to assist in the future performance and growth of the Company. Management of the Company President of Rashid Trading Establishment 2004 – 2006 Chairman and Chief Executive Officer (involved in a Joint Venture with Imdex, known acknowledge the valuable contribution that Mr Burston has made and is expected to make to the Company in the future. 2006 – Current Non Executive Director as the RTE/Imdex Joint Venture) 2006 – Current Non Executive Chairman Director since April 2002 The Company is mindful of the ASX Corporate Governance Council's (Principles of Good Corporate Governance and Best Practice Office vacated 18 August 2006 Recommendations) recommendation that Non Executive Directors should not be remunerated via the issue of options. However as Chemical Technology and Production Engineer noted above, the Company regards the incentive created to Non Executive Directors by allowing them the opportunity to share in the Director since 23 August 2005 growth of the Company via the issue of the Options (and thereby assist in the future performance and growth of the Company) to be Resigned 10 April 2007 aligned to and consistent with long-term benefit to investors in achieving such growth. The issue of these options was approved by the shareholders at the 2006 Annual General Meeting on 19 October 2006. Mincor Resources NL Aviva Corporation Ltd Aztec Resources Ltd Kansai Mining Corporation Cape Lambert Iron Ore Ltd Additional information on the Director’s experience and qualifications is set out under Director Profiles. Computercorp Limited Intrepid Mines Ltd (formerly NuStar Mining Corp Ltd) Non Executive Director Non Executive Director Mr R W Kelly Mr I R Freeman 2006 – Current 2002 – Current Period of Directorship Non Executive Director Non Executive Director Non Executive Director 1996 – Current Clough Limited Mr K A Dundo Position 68 45 65 (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 Mincor Resources NL Aviva Corporation Ltd Aztec Resources Ltd Kansai Mining Corporation Cape Lambert Iron Ore Ltd Non Executive Director Non Executive Director Chairman and Chief Executive Officer Non Executive Director Non Executive Chairman Mr R W Kelly Clough Limited Non Executive Director Mr K A Dundo Computercorp Limited Intrepid Mines Ltd (formerly NuStar Mining Corp Ltd) Non Executive Director Non Executive Director 2003 – Current 2003 – 2006 2004 – 2006 2006 – Current 2006 – Current 1996 – Current 2006 – Current 2002 – Current Page 1 of 73 Page 1 of 73 Page 3 of 73 2 2 IMDEX LIMITED and its controlled entities DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2007 Director and Executives details The Directors of Imdex Limited during the year were: (i) (ii) Mr I F Burston (Non Executive Chairman); Mr B W Ridgeway (Managing Director); (iii) Mr R W Kelly (Non Executive Director); (iv) Mr K A Dundo (Non Executive Director); (v) Mr M Lemmel (Non Executive Director), appointed 19 October 2006; (vi) Mr H H Al-Merry (Non Executive Director), office vacated 18 August 2006; and (vii) Mr I R Freeman (Non Executive Director), resigned 10 April 2007. The Executives of Imdex Limited during the year were: (i) (ii) (iii) Mr G E Weston (Group General Manager); Mr D J Loughlin (General Manager: Products and Services Division), appointed 1 September 2006; Mr S J Lyons (Company Secretary), resigned 17 October 2006; (iv) Mr P A Evans (Company Secretary and Chief Financial Officer), appointed 17 October 2006; (v) Mr D L Kinley (Group Financial Controller), ceased to be an executive 17 October 2006; and (vi) Mr C S Munyard (Manager: Surtron), ceased to be an executive 1 September 2006. Elements of Director and Executive Remuneration Remuneration packages contain the following key elements: (i) Short-term benefits – salary/fees, bonuses and non monetary benefits including 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 (Note 33) or any other options granted as approved by Shareholders in General Meeting; and (iv) Other benefits. Page 4 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 2 3 a n d i t s c o n t r o l l e d e n t i t i e s I M D E X L I M T E D I D e t a i l s o f D i r e c t o r s ’ r e m u n e r a t i o n a r e s e t o u t l b e o w . F u r t h e r i n f o r m a t i o n i s l a s o s e t o u t i n N o t e 3 2 : I D R E C T O R S ’ R E P O R T F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 7 C o m p a n y S e c r e t a r y S J L y o n s , C o m p a n y S e c r e t a r y C S M u n y a r d , M a n a g e r : S u r t r o n D L K n e y , i l G r o u p F n a n c a i i l C o n t r o l l e r P A E v a n s , C h e f i i F n a n c a i l O f f i c e r / G r o u p E x e c u t i v e s P r o d u c t s a n d S e r v i c e s D v i i i s o n D J L o u g h l i n , G e n e r a l M a n a g e r : G E W e s t o n , G r o u p G e n e r a l M a n a g e r ( i i i ) ( i i i ) ( i i i ) ( i i i ) ( i i i ) ( i i i ) N o t e s 6 1 9 , 7 3 5 1 7 , 5 0 0 3 9 , 3 7 5 4 4 , 2 6 5 1 5 3 , 0 7 6 1 4 0 , 6 7 3 2 2 4 , 8 4 6 2 0 , 0 0 0 8 5 , 5 9 2 2 0 , 0 0 0 - - - - - 6 , 1 3 4 8 , 5 2 3 1 , 5 2 2 - 3 1 , 3 2 1 3 8 , 0 9 2 $ $ $ $ f e e s l S a a r y & B o n u s m o n e t a r y N o n - O t h e r S h o r t - t e r m e m p o y e e b e n e f i t s l D e t a i l s o f r e m u n e r a t i o n o f i t h e h g h e s t r e m u n e r a t e d G r o u p E x e c u t i v e s a r e s e t o u t l b e o w : M L e m m e l I R F r e e m a n K A D u n d o R W K e l l y H H A l - M e r r y I F B u r s t o n , C h a i r m a n N o n E x e c u t i v e D i r e c t o r s E x e c u t i v e D i r e c t o r i B W R d g e w a y , M a n a g n g D i i r e c t o r ( i i ) ( i i ) ( i i ) ( i i ) ( i i ) ( i i ) ( i ) N o t e s 5 6 3 , 8 8 9 7 5 , 0 0 0 4 8 , 7 2 5 3 5 , 0 5 4 3 7 , 5 0 0 5 0 , 0 0 0 5 0 , 0 0 0 8 1 , 7 2 0 - - - - - - - - - - - - - 3 0 9 , 6 1 5 7 5 , 0 0 0 4 8 , 7 2 5 - - - - - - - - - - - - - - - 5 6 , 2 0 3 1 , 5 7 5 3 , 5 4 4 3 , 6 0 0 1 3 , 7 7 7 1 2 , 6 6 1 2 1 , 0 4 6 - - - - - - - 1 4 , 7 6 5 - - - - - 1 4 , 7 6 5 $ $ $ $ a n n u a t i o n S u p e r - O t h e r b e n e f i t s l e m p o y e e t e r m B e n e f i t s P o s t l E m p o y m e n t O t h e r l o n g - i T e r m n a t i o n 3 6 , 8 6 5 4 , 5 0 0 4 , 5 0 0 - - - - 2 7 , 8 6 5 - - - - - - - - 2 0 , 0 2 0 - - - - - - 2 0 , 0 2 0 - - - - - - - - - - - - - - - - - - - - - - 8 6 , 3 2 9 2 9 , 3 9 4 5 6 , 9 3 5 - - - - - - - - - - - U n i t s i R g h t s S h a r e s & O p t i o n s & $ $ $ $ E q u i t y - s e t t l e d s e t t l e d C a s h O t h e r S h a r e - b a s e d p a y m e n t - - - - - - - - 1 2 2 , 6 2 3 1 2 2 , 6 2 3 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 8 8 2 , 6 2 4 2 5 , 2 0 9 5 1 , 4 4 2 4 9 , 3 8 7 2 1 6 , 2 4 7 2 4 1 , 5 9 0 2 9 8 , 7 4 9 $ T o t a l 8 6 7 , 1 2 2 3 5 , 0 5 4 3 7 , 5 0 0 5 4 , 5 0 0 5 4 , 5 0 0 - 2 0 4 , 3 4 3 4 8 1 , 2 2 5 $ T o t a l f e e s l S a a r y & B o n u s m o n e t a r y N o n - O t h e r a n n u a t i o n S u p e r - O t h e r b e n e f i t s l e m p o y e e t e r m B e n e f i t s U n i t s i R g h t s S h a r e s & O p t i o n s & E q u i t y - s e t t l e d s e t t l e d C a s h O t h e r $ $ $ $ $ $ $ $ $ $ $ $ S h o r t - t e r m e m p o y e e b e n e f i t s l P o s t l E m p o y m e n t O t h e r l o n g - i T e r m n a t i o n S h a r e - b a s e d p a y m e n t i B R d g e w a y 7 5 % a n d P E v a n s 6 7 % . B o n u s e s w e r e e a r n e d d u r i n g t h e c u r r e n t y e a r i b y B R d g e w a y a n d P E v a n s a s p e r f o r m a n c e t a r g e t s w e r e m e t . T h e b o n u s e s p a d i r e p r e s e n t t h e f o l l o w n g i p e r c e n t a g e s o f l i t h e p o s s b e a m o u n t s p a y a b e : l P a g e 5 o f 7 3 2 4 IMDEX LIMITED and its controlled entities DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2007 Elements of remuneration related to performance (i) (ii) (iii) Managing Director: Of the cash remuneration package of the Managing Director, 20% is linked to the performance of the Company by way of short term cash incentives. In addition options have been the long term 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. 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 2006 Annual General Meeting and is currently $500,000. In the current year remuneration to Non Executive Directors totalled $385,897, including statutory superannuation. The Board determines the apportionment of directors’ fees between each Director. 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 lapsing date 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 $ $ $ $ $ % I F Burston 352,000 B W Ridgeway G E Weston - - D J Loughlin 279,500 S J Lyons (iii) - P A Evans (iv) 144,300 - - 214,075 - - - - - - - - - 352,000 122,623 60% - 214,075 - - 279,500 56,935 - - 144,300 29,394 - - 24% - 14% (i) (ii) (iii) (iv) 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. The total value of options included in remuneration for the year is calculated in accordance with Accounting Standard AASB 124 “Related Party Disclosures”. Transactions applicable for the period 1 July 2006 to date of resignation on 17 October 2006. Transactions applicable for the period 17 October 2006 to 30 June 2007. Page 6 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 2 5 IMDEX LIMITED and its controlled entities DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2007 (g) Share options (i) Share options granted to Directors and Executives During or since the end of the financial year an aggregate of 1,800,000 options were granted to the following directors and executives of the Group. Name I F Burston D J Loughlin P A Evans Number of options granted Issuing entity Number of ordinary shares under option 1,000,000 Imdex Limited 1,000,000 500,000 Imdex Limited 300,000 Imdex Limited 500,000 300,000 (ii) Share options on issue at the date of this report 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 Imdex Limited Imdex Limited Imdex Limited Imdex Limited Staff Share Options Staff Share Options Staff Share Options Staff Share Options Staff Share Options Imdex Limited Managing Director Options Imdex Limited Chairman’s Options Ordinary 180 cents 12 Jun 2007 11 Jun 2012 (aa) 675,000 Ordinary 100 cents 23 Feb 2007 22 Feb 2012 (aa) 4,350,000 Ordinary 75 cents 23 Feb 2007 22 Feb 2012 (aa) 700,000 Ordinary 35 cents 1 Feb 2006 31 Jan 2011 (aa) 2,154,905 Ordinary 20 cents 1 Aug 2004 31 Jul 2009 (aa) 2,067,167 Ordinary 30 cents 15 Sep 2005 14 Sep 2010 (bb) 2,000,000 Ordinary 75 cents 19 Oct 2006 18 Oct 2011 (bb) 1,000,000 (aa) exercisable one year after the date of issue, in one-third lots each year thereafter; and (bb) exercisable at any point from 2 years after date of issue until expiry. 2 6 Page 7 of 73 IMDEX LIMITED and its controlled entities DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2007 (iii) Share options exercised during or since the end of the financial year Issuing Entity Class of option Class of shares Exercise price of option Issue date of option Expiry date of option Number of shares issued Ordinary 35 cents 1 Feb 2006 31 Jan 2011 463,428 Ordinary 20 cents 1 Aug 2004 31 Jul 2009 961,166 Ordinary 100 cents 23 Feb 2007 22 Feb 2012 75,000 Ordinary 20 cents 23 Dec 04 31 Jul 09 100,000 Ordinary 20 cents 23 Dec 04 31 Oct 07 2,000,000 Ordinary 35 cents 23 Dec 04 31 Oct 07 1,000,000 Imdex Limited Imdex Limited Imdex Limited Staff Share Options Staff Share Options Staff Share Options Imdex Limited Corporate Advisors Options Imdex Limited Corporate Advisors Options Imdex Limited Corporate Advisors Options (h) Principal Activities The Group’s principal continuing activities during the course of the financial year were the manufacturing and sale of a range of drilling products and services. (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 Report. (j) Dividends A fully franked interim dividend of 1 cent per ordinary share was paid on 26 March 2007 to shareholders registered on 13 March 2007. A fully franked final dividend of 1 cent per ordinary share was paid on 13 October 2006 to shareholders registered on 10 October 2006. In the prior year a fully franked interim dividend of 1 cent per ordinary share was paid on 30 March 2006 to shareholders registered on 23 March 2006. Since 30 June 2007 the Directors have declared a fully franked final dividend of 1.5 cents per ordinary share, the financial effect of which has not been reflected in the Financial Report. (k) Changes in State Of Affairs During the financial year the Group acquired three down hole tool survey businesses, Chardec Technology Ltd, the Reflex Group and the Flexit Group. Other than the above, there were no significant changes in the state of affairs of the Group. Page 8 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 2 7 IMDEX LIMITED and its controlled entities DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2007 (l) Subsequent Events Effective 1 July 2007 Imdex Limited acquired 100% of the issued share capital of the Canadian based Poly-Drill Drilling Systems Ltd (Poly-Drill) for a total of $3,500,000. The purchase price was settled by way of $1,750,000 cash and 1,212,751 fully paid ordinary shares in Imdex Limited with a fair value of $1,750,000. The issue price of the Imdex shares was the weighted average share price on the 5 business days prior to 1 July 2007. The issued shares are under a voluntary escrow until 30 June 2008. Poly-Drill manufactures and sells polymer drilling fluid based systems and solids control systems. Additional disclosures with respect to this acquisition are impractical at this stage as the acquisition accounting is still being finalised. Effective 1 July 2007, Imdex Limited acquired 75% of the issued share capital of Suay Energy Services LLP (Suay), a private company incorporated in Kazakhstan. The purchase price was US$393,000 (A$450,000) payable in cash. Of this amount US$200,000 (A$230,000) was paid in May 2007 with the balance paid on settlement. Imdex Limited has the right to acquire the remaining 25% interest at fair value. Suay supply drilling fluids and chemicals to the oil and gas industry in the Caspian Sea region. Additional disclosures with respect to this acquisition are impractical at this stage as the acquisition accounting is still being finalised. On 31 July 2007 Imdex Limited paid the next deferred settlement instalment of GBP 2,180,000 (A$5,373,000) due to the vendors of Chardec Technology Limited. On 3 August 2007, a Heads of Agreement was signed to acquire Southernland S.A., a drilling fluids and chemicals manufacturer and distributor based in Santiago, Chile. The purchase price is US$2,550,000 (A$3,000,000), with 50% payable in cash on settlement and 50% to be paid in fully paid ordinary shares in Imdex Limited to be escrowed for two years from the date of settlement. The shares will be issued at the weighted average closing price of the 5 days immediately prior to settlement. The proposed settlement date is 1 October 2007. The acquisition of Southernland S.A. provides the Imdex Group with manufacturing capability in Chile in order to access the growing Central and Southern American markets. Additional disclosures with respect to this acquisition are impractical at this stage as the due diligence process is still being finalised. Subsequent to year end the Directors declared a 1.5 cent per share fully franked dividend with an entitlement date of 5 October 2007 and a payment date of 17 October 2007. The effect of this dividend has not been reflected in this financial report. (m) Future Developments Disclosure of information regarding likely developments in the operations of the Group in future financial years and the expected results of those operations is likely to result in unreasonable prejudice to the Group. Accordingly, this information has not been disclosed in this report. (n) Environmental Regulations The only entity in the Group that is subject to environmental regulations is Samchem Drilling Fluids and Chemicals (Pty) Ltd. They are required to comply with the South African National Water Act, Act No 36 of 1998 which requires the management of effluent discharge. This is controlled through an effluent pit system using an oil separator. No known environmental breaches have occurred in relation to the Group’s operations. (o) Non-audit services Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are outlined in Note 6 to the Financial Report. 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. The Directors are of the opinion that the services as disclosed in Note 6 to the financial statements do not compromise the external auditor’s independence, based on advice received from the Audit and Compliance Committee, for the following reasons: • • All non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor, and None of the services undermine the general principles relating to auditor independence as set out in Code of Conduct APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional & Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards. 2 8 Page 9 of 73 IMDEX LIMITED and its controlled entities DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2007 (p) Auditor’s Independence Declaration The auditor’s independence declaration is included on page 14 of the Annual 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, except to the extent permitted by law, 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 I F Burston Chairman Mr Ian Burston Chairman PERTH, Western Australia, 15 August 2007. Page 10 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 2 9 Deloitte Touche Tohmatsu ABN 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 Deloitte Touche Tohmatsu ABN 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 Independent Auditor’s Report to the members of Imdex Limited Independent Auditor’s Report to the members of Imdex Limited We have audited the accompanying financial report of Imdex Limited, which comprises the balance sheet as at 30 June 2007, and the income statement, cash flow statement and statement of changes in equity for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year as set out on pages 19 to We have audited the accompanying financial report of Imdex Limited, which comprises the balance sheet as at 30 June 2007, and the income statement, cash flow statement and statement of changes in equity for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year as set out on pages 19 to 71. 38 to 90. 71. Directors’ Responsibility for the Financial Report Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal control relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 2, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that compliance with the Australian equivalents to International Financial Reporting Standards ensures that the consolidated financial statements and notes, comply with The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal control relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 2, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that compliance with the Australian equivalents to International Financial Reporting Standards ensures that the consolidated financial statements and notes, comply with International Financial Reporting Standards. International Financial Reporting Standards. Auditor’s Responsibility Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. evaluating the overall presentation of the financial report. Liability limited by a scheme approved under Professional Standards Legislation. 3 0 Liability limited by a scheme approved under Professional Standards Legislation. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Auditor’s Independence Declaration In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditor’s Opinion In our opinion: (a) the financial report of Imdex Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2007 and of their performance for the year ended on that date; and (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and (b) the consolidated financial statements and notes also comply with International Financial Reporting Standards as disclosed in Note 2. DELOITTE TOUCHE TOHMATSU KEITH F JONES Partner Chartered Accountants Perth, 15 August 2007 A N N U A L R E P O R T 2 0 0 7 IMDEX 3 1 IMDEX LIMITED and its controlled entities DIRECTORS’ DECLARATION The Directors declare that: (a) (b) 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; 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 Group; and (c) the Directors have been given the declarations required by s.295A of the Corporations Act 2001. At the date of this declaration, the Company is within the class of companies affected by ASIC Class Order 98/1418. The nature of the deed of cross guarantee is such that each company which is party to the deed guarantees to each creditor payment in full of any debt in accordance with the deed of cross guarantee. In the Directors’ opinion, there are reasonable grounds to believe that the Company and the companies to which the ASIC Class Order applies, as detailed in note 25 to the financial statements will, as a group, be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee. Signed in accordance with a resolution of the Directors made pursuant to s.295(5) for the Corporations Act 2001. Dated at Perth, 15 August 2007. Ian F Burston Chairman 3 2 Page 13 of 73 Deloitte Touche Tohmatsu ABN 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 1, 15 Rehola Street WEST PERTH WA 6005 15 August 2007 Dear Board Members 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 2007, 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 faithfully DELOITTE TOUCHE TOHMATSU KEITH F JONES Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation. IMDEX LIMITED and its controlled entities 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 2007. 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 2007, and the main corporate governance practices in place are set out below. (b) Principle 1: Lay solid foundation for management and oversight The Board has implemented a Board Charter that formalises the functions and responsibilities of the Board. The Charter is published on the Company’s website. (c) Principle 2: Structure the Board to add value Imdex’s Board structure is consistent with the ASX Recommendations on Principle 2, with the exception that it does not have a separate nomination committee for the reasons detailed below. (i) Board Structure The Board consists of a Non Executive Chairman, three Non Executive Directors and one Executive Director. Of the five Board members, four are considered independent. 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 Group’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 Mr I F Burston, Non Executive Chairman Mr B W Ridgeway, Managing Director Mr R W Kelly, Non Executive Director Mr K A Dundo, Non Executive Director Mr M Lemmel, Non Executive Director (iii) Board Nomination Assessment Existence of any matters contained in ASX Recommendation 2.1 affecting Independence Independent Nil Not Independent Managing Director Independent Independent Independent Nil Nil Nil 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: • • 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 Page 15 of 73 3 4 IMDEX LIMITED and its controlled entities CORPORATE GOVERNANCE STATEMENT • 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 Chief Financial Officer The Managing Director and the Chief Financial Officer have signed a declaration to the Board attesting to the fact that the 2007 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; 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 Company Secretary acts as secretary of this Committee. The external auditors, the Managing Director and the Chief Financial Officer are invited to Audit Committee meetings at the discretion of the Committee. The Audit Committee met twice during the year as set out in the Directors’ Report. Page 16 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 3 5 IMDEX LIMITED and its controlled entities CORPORATE GOVERNANCE STATEMENT (iii) External Auditors The Board reviews the performance, skills, cost and other matters when assessing the appointment of external auditors. This review is generally undertaken at the completion of the preparation of the Annual Financial Report and involves discussions with the auditors and the Group'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 Group '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 Group during the year, changes in the state of affairs of the Group 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 Group during the period. Half-Year Financial Report 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 Half-Year Financial Report is sent to any Shareholder who requests them; (iii) regular reports released through the ASX and the media; (iv) proposed major changes in the Group, 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 Group '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. The Company does not have a separate internal audit function and, given the Company’s size, the Board does not intend to implement such a function. The Board believes that through the Board itself, the Audit Committee and the external auditors there is adequate oversight of the Company’s risk management and internal controls. The risk management policy is published on the Company’s website. Page 17 of 73 3 6 IMDEX LIMITED and its controlled entities CORPORATE GOVERNANCE STATEMENT (ii) Statement by the Managing Director and Chief Financial Officer The Managing Director and the Chief Financial Officer 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 32. 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 R W Kelly (Chairman); Mr I F Burston; and, Mr K A Dundo. 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 2006 Annual General Meeting and is currently $500,000. (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. Page 18 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 3 7 IMDEX LIMITED and its controlled entities INCOME STATEMENT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007 Consolidated Company Year Ended Year Ended Year Ended Year Ended 30 June 2007 30 June 2006 30 June 2007 30 June 2006 Notes $’000 $’000 $’000 $’000 Revenue from sale of goods, rendering of services and operating lease rental Other revenue from operations Total revenue Other income Share of losses of associates accounted for using the equity method Raw materials and consumables used Employee benefit expense Depreciation expense Amortisation expense Finance costs Change in fair value of investments held for trading Impairment adjustment Other expenses Profit before income tax expense Income tax expense 4 4 4 4 4 4 4 9(i) 4 4 5 118,440 900 119,340 1,597 - (53,618) (16,092) (4,368) (3,430) (2,886) - - (20,131) 20,412 66,614 178 66,792 76 (301) (32,776) (11,086) (2,431) - (216) 4,500 (2,275) (10,419) 11,864 22,503 2,849 25,352 8,084 - (7,202) (3,646) (2,269) - (1,543) - - (5,691) 13,085 11,379 82 11,461 1,402 - (4,415) (2,179) (1,268) - (40) 4,199 (3,460) (3,193) 2,507 (6,894) (3,880) (3,219) (1,329) Profit attributable to ordinary equity holders of Imdex Limited 13,518 7,984 9,866 1,178 Earnings per share: Basic earnings per share (cents) Diluted earnings per share (cents) 20 20 8.74 8.00 6.07 5.95 The Income Statement should be read in conjunction with the accompanying notes. 3 8 Page 19 of 73 IMDEX LIMITED and its controlled entities BALANCE SHEET AS AT 30 JUNE 2007 Current Assets Cash and Cash Equivalents Trade and Other Receivables Inventories Other Financial Assets Other Non Current Assets classified as held for sale Total Current Assets Non Current Assets Other Financial Assets Property, Plant and Equipment Goodwill Other Intangible Assets Other Total Non Current Assets Total Assets Current Liabilities Trade and Other Payables Borrowings Current Tax Payables Provisions Total Current Liabilities Non Current Liabilities Borrowings Deferred Tax Liabilities Provisions Total Non Current Liabilities Total Liabilities Net Assets Equity Contributed Capital Foreign Currency Translation Reserve Employee Equity-Settled Benefits Reserve Retained Profits/(Accumulated Losses) Total Equity Consolidated Company 30 June 2007 30 June 2006 30 June 2007 30 June 2006 Notes $’000 $’000 $’000 $’000 30 7 8 9 10 11 9 12 13 14 10 15 16 5 17 16 5 17 18 19 19 15,271 27,806 13,839 11,556 224 68,696 4,500 73,196 - 13,207 35,033 27,746 664 76,650 149,846 16,741 11,881 8,913 1,212 38,747 28,556 5,481 448 34,485 73,232 76,614 60,982 (2,137) 751 17,018 76,614 6,421 18,798 9,707 4,500 12 39,438 - 39,438 - 9,967 1,906 1,313 124 13,310 52,748 13,629 1,391 2,058 830 17,908 1,503 458 226 2,187 20,095 32,653 26,490 (494) 105 6,552 32,653 962 10,213 2,085 12,176 49 25,485 4,500 29,985 43,339 4,886 - 429 664 49,318 79,303 5,570 2,685 5,450 265 13,970 10,064 796 116 10,976 24,946 54,357 60,982 - 751 (7,376) 54,357 2,003 3,153 1,081 6,849 4 13,090 - 13,090 2,172 4,088 - - 124 6,384 19,474 3,111 498 1,973 189 5,771 220 1,038 40 1,298 7,069 12,405 26,490 - 105 (14,190) 12,405 The Balance Sheet should be read in conjunction with the accompanying notes. Page 20 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 3 9 IMDEX LIMITED and its controlled entities STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007 CONSOLIDATED Notes $'000 $'000 $'000 $'000 $'000 Contributed Capital Ordinary Shares Mandatory Convertible Capital Foreign Currency Translation Reserve Employee Equity- Settled Benefits Reserve Retained Earnings / (Accumulated Losses) Total Attributable to Equity Holders of the Entity $'000 Balance at 1 July 2005 Exchange differences on translation of foreign operations after taxation Net income recognised directly in equity Profit for the period Total recognised income and expense for the period Dividend paid Share based payments Issue of shares as part consideration for the acquisition of Samchem Issue of equity securities for working capital Share issue costs (net of tax) Issue of shares under staff option plan Balance at 30 June 2006 Exchange differences on translation of foreign operations after taxation Net income recognised directly in equity Profit for the period Total recognised income and expense for the period Dividend paid Share based payments Issue of equity securities for working capital Issue of equity securties on conversion of debt Issue of equity securities on purchase of entity Share issue costs (net of tax) Issue of shares under staff option plan Deferred consideration - mandatory convertible capital Balance at 30 June 2007 COMPANY Balance at 1 July 2005 Profit for the period Total recognised income and expense for the period Dividend paid Share based payments Issue of shares as part consideration for the acquisition of Samchem Issue of equity securities for working capital Share issue costs (net of tax) Issue of shares under staff option plan Balance at 30 June 2006 Profit for the period Total recognised income and expense for the period Dividend paid Share based payments Issue of equity securities for working capital Issue of equity securities on conversion of debt Issue of equity securities on purchase of entity Share issue costs (net of tax) Issue of shares under staff option plan Deferred consideration - mandatory convertible capital Balance at 30 June 2007 19 19 18 18 18 18 19 19 18 18 18 18 18 18 19 18 18 18 18 19 18 18 18 18 18 18 19,008 - - - - - - 3,592 3,990 (111) 11 26,490 - - - - - - 16,500 10,400 200 (510) 1,202 - 54,282 19,008 - - - - 3,592 3,990 (111) 11 26,490 - - - - 16,500 10,400 200 (510) 1,202 - 54,282 - - - - - - - - - - - - - - - - - - - - - - - - (494) (494) - - - - - - - - (494) (1,643) (1,643) - - - - - - - - - 6,700 6,700 - (2,137) - - - - - - - - - - - - - - - - - - - 6,700 6,700 - - - - - - - - - - - - - - - - - - - - - The Statement of Changes in Equity should be read in conjunction with the accompanying notes. 48 - - - - - 59 - - - (2) 105 - - - - - 728 - - - - (82) - 751 48 - - - 59 - - - (2) 105 - - - 728 - - - - (82) - 751 (36) 19,020 - - 7,984 7,984 (1,396) - - - - - 6,552 - - 13,518 13,518 (3,052) - - - - - - - 17,018 (13,972) 1,178 1,178 (1,396) - - - - - (14,190) 9,866 9,866 (3,052) - - - - - - - (7,376) (494) (494) 7,984 7,984 (1,396) 59 3,592 3,990 (111) 9 32,653 (1,643) (1,643) 13,518 13,518 (3,052) 728 16,500 10,400 200 (510) 1,120 6,700 76,614 5,084 1,178 1,178 (1,396) 59 3,592 3,990 (111) 9 12,405 9,866 9,866 (3,052) 728 16,500 10,400 200 (510) 1,120 6,700 54,357 Page 21 of 73 4 0 IMDEX LIMITED and its controlled entities CASH FLOW STATEMENT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007 Consolidated Company Year Ended Year Ended Year Ended Year Ended 30 June 2007 30 June 2006 30 June 2007 30 June 2006 Notes $’000 $’000 $’000 $’000 Cash Flows From Operating Activities Receipts from customers Payments to suppliers and employees Intercompany management fees received Intercompany dividend received Interest and other costs of finance paid Income tax paid Net cash provided by Operating Activities Cash Flows From Investing Activities Interest and bill discounts received Payment for property, plant and equipment Proceeds from sale of property, plant and equipment Proceeds from Rashid Trading Establishment Proceeds from sale of Imdex Minerals Payment for development costs capitalised Payment for shares of Flexit net of cash acquired Payment for shares of Reflex net of cash acquired Payment for shares of Chardec net of cash acquired Payment for the acquisition of patent Payment for the acquisition of the business of Samchem Amounts advanced to Sino Gas & Energy Ltd Amounts repaid by Sino Gas & Energy Ltd Payment of deferred acquisition costs Net cash provided by / (used in) Investing Activities Cash Flows From Financing Activities Advances from / (to) Controlled Entities Proceeds from issue of equity securities Payment for share issue costs Cash received on exercise of options Dividend paid Hire purchase and lease payments Proceeds from borrowings Repayment of borrowings Net cash provided by/(used in) Financing Activities Net Increase / (Decrease) in Cash and Cash Equivalents Held Cash and Cash Equivalents At The Beginning Of The Financial Year Effects of exchange rate changes on the balance of cash and cash equivalents held in foreign currencies Cash and Cash Equivalents At The End Of The Financial Year 30(c) 28 14 26(a) 26(b) 26(c) 26(d) 18 18 21 30(a) 128,311 (105,288) - - (1,490) (5,392) 16,141 267 (5,733) 710 1,121 - (429) (10,274) (15,194) (6,352) (328) - (11,307) 200 (540) (47,859) - 16,500 (729) 1,120 (3,052) (1,801) 33,890 (5,700) 40,228 67,509 (55,633) - - (6) (1,796) 10,074 97 (5,295) 652 928 6,271 - - - - - (3,011) - - (350) (708) - 3,990 (112) 10 (1,396) (1,507) - (3,625) (2,640) 18,124 (12,701) 1,363 3,000 (1,022) (3,241) 5,523 217 (3,358) 2,886 1,121 - (429) - - - (328) - (11,307) 200 (540) (11,538) (20,444) 16,500 (729) 1,120 (3,052) (721) 18,000 (5,700) 4,974 10,568 (10,207) 1,020 344 - - 1,725 82 (2,847) 122 928 6,271 - - - - - (3,011) - - (350) 1,195 2,435 3,990 (112) 10 (1,396) (506) - (3,625) 796 8,510 6,726 (1,041) 3,716 6,421 340 (364) 59 2,003 (1,713) - 962 - 2,003 30(a) 15,271 6,421 The Cash Flow Statement should be read in conjunction with the accompanying notes. Page 22 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 4 1 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 1 Adoption of New and Revised Accounting Standards In the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to its operations and effective for the current annual reporting period. The adoption of these new and revised Standards and Interpretations has resulted in a change to the Group’s accounting policies in the following areas: • • • Investments classified as at fair value through profit or loss (AASB 2005-04 ‘Amendments to Australian Accounting Standards’); Accounting for business combinations involving entities or businesses under common control (AASB 2005-6 ‘Amendments to Australian Accounting Standards’); and Accounting for financial guarantee contracts (AASB 2005-9 ‘Amendments to Australian Accounting Standards’). At the date of authorisation of the financial report, the following Standards and Interpretations were in issue but not yet effective: Standard / Interpretation Effective Date AASB 7 ‘Financial Instruments: Disclosures’ and consequential amendments to other accounting standards resulting from its issue Effective for annual reporting periods beginning on or after 1 January 2007 AASB 101 ‘Presentation of Financial Statements’ – revised standard Interpretation 10 ‘Interim Financial Reporting and Impairment’ Effective for annual reporting periods beginning on or after 1 January 2007 Effective for annual reporting periods beginning on or after 1 November 2006. AASB 8 ‘Operating Segments’ and consequential amendments to other accounting standards resulting from its issue Effective for annual reporting periods beginning on or after 1 January 2009 AASB 123 ‘Borrowing Costs’ revised Effective for annual reporting periods beginning on or after 1 January 2009 AASB 2007-4 ‘Amendments to Australian Accounting Standards arising from ED 151 and Other Amendments’ Effective for annual reporting periods beginning on or after 1 July 2007 AASB 2007-7 ‘Amendments to Australian Accounting Standards - June 2007’ Interpretation 11 ‘AASB 2 – Group and Treasury Share Transactions’ Interpretation 12 ‘Service Concession Arrangements’ Interpretation 13 ‘Customer Loyalty Programmes’ Effective for annual reporting periods beginning on or after 1 July 2007 Effective for annual reporting periods beginning on or after 1 March 2007 Effective for annual reporting periods beginning on or after 1 January 2008 Effective for annual reporting periods beginning on or after 1 July 2008 Interpretation 14 ‘Limit on a defined benefit asset, Minimum Funding Requirements and their Interaction’ Effective for annual reporting periods beginning on or after 1 January 2008 The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material financial impact on the financial statements of the Company or the Group. The circumstances addressed by Interpretation 10, which prohibits the reversal of certain impairment losses, does not affect either the Company’s or the Group’s previously reported results and accordingly, there will be no impact to these financial statements on adoption of the Interpretation. The application of AASB 101 (revised), AASB 7, AASB 8, AASB 123, AASB 2007-4, AASB 2007-7 and Interpretation 11 are not expected to have a material effect on any of the amounts recognised in the financial statements, but may change the disclosures presently made in relation to the Company’s and the Group’s assets, liabilities, segments, financial instruments and the objectives, policies and processes for managing capital. The circumstances addressed by Interpretations 12, 13 and 14 do not have application to the business of the Company or Group. These Standards and Interpretations will be first applied in the financial report of the Group that relates to the annual reporting period beginning after the effective date of each pronouncement. 4 2 Page 23 of 73 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 1 Adoption of New and Revised Accounting Standards (continued) Limitation of ability to designate financial assets and financial liabilities through profit or loss The Australian Accounting Standards Board released AASB 2005-4 “Amendments to Australian Accounting Standards” in June 2005. AASB 2005-4 amends AASB 139 “Financial Instruments: Recognition and Measurement” by limiting the ability of entities to designate any financial asset or financial liability as ‘at fair value through profit or loss’. Financial assets that can no longer be designated as ‘at fair value through profit or loss’ shall be classified into either loans and receivables, held-to-maturity investments or available-for-sale investments, as appropriate, and measured at amortised cost or at fair value with changes in fair value recognised in equity, depending on classification. Financial liabilities that can no longer be designated as ‘at fair value through profit or loss’ shall be classified as ‘other’ financial liabilities and measured at amortised cost. Although ordinarily the designation of a financial asset as available-for-sale is made on initial recognition, the transitional provisions of the standard allow such designation to be made on the date of de-designation (1 July 2005). The changes introduced by AASB 2005-4 are applied by the Group with effect from the beginning of the comparative reporting period presented in this financial report (i.e. with effect from 1 July 2005). Financial assets and financial liabilities designated by the Group as ‘at fair value through profit or loss’ continue to meet the revised designation rules and accordingly, the application of these amendments has no impact on the financial statements. Accounting for business combinations involving entities or businesses under common control The AASB released AASB 2005-6 ‘Amendments to Australian Accounting Standards’ in June 2006. AASB 2005-6 amends AASB 3 ‘Business Combinations’ by removing business combinations involving entities or businesses under common control from its scope. The effect of the scope amendment is that there is no longer any explicit guidance under Accounting Standards as to how to account for these types of business combinations. Due to the requirements of AASB 1 ‘First-Time Adoption of the Australian Equivalents to International Financial Reporting Standards’ permitting the non-restatement of pre-transition business combinations, the amendments has no effect on the financial statements of the Company or Group for the current or prior reporting periods,. However, future transactions involving entities under common control will be affected. Details of the entity’s accounting policies in relation to common control transactions are outlined in note 2(h). Accounting for financial guarantee contracts The AASB released AASB 2005-9 ‘Amendments to Australian Accounting Standards’ in September 2005. AASB 2005-9 amends AASB 139 ‘Financial Instruments: Recognition and Measurement’ to require certain financial guarantee contracts to be recognised in accordance with AASB 139 and measured initially at their fair values, and subsequently measured at the higher of the amount recognised as a provision and the amount initially recognised less cumulative amortisation in accordance with the revenue recognition policies described in note 2(q). The changes introduced by AASB 2005-9 are applied by the Group with effect from the beginning of the comparative reporting period presented in this financial report (i.e. with effect from 1 July 2005). The Company is party to a deed of cross guarantee with other entities in the Group. The nature of the deed of cross guarantee is such that each company which is party to the deed guarantees, to each creditor, payment in full of any debt in accordance with the deed of cross guarantee. The application of these amendments results in such financial guarantees now being recognised and measured at the higher of the best estimate of the expenditure required to settle the obligation and the amount initially recognised less, where appropriate, accumulated amortisation. No material adjustment is required in the separate financial statements of the Company to recognise the financial guarantee liability associated with its exposure under the deed of cross guarantee. Page 24 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 4 3 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 2 Summary of Significant Accounting Policies The financial report is a general purpose financial report which has been prepared in accordance with the Corporations Act 2001 and Accounting Standards and interpretations and complies with other requirements of the law. Accounting Standards include Australian equivalents to International Financial Reporting Standards (‘A-IFRS’). Compliance with the A-IFRS ensures that the consolidated financial statements and notes of the Group comply with International Financial Reporting Standards (‘IFRS’). The parent entity financial statements and notes also comply with IFRS except for the disclosures requirements in IAS 32 Financial Instruments: Disclosure and Presentation as the Australian equivalent Accounting Standard, AASB 132 Financial Instruments: Disclosure and Presentation does not require such disclosures to be presented by the parent entity where its separate financial statements are presented together with the consolidated financial statements of the group. The financial report includes the separate financial statements of the Company and the consolidated financial statements of the Group. The financial statements were authorised for issue by the directors on 15 August 2007. (a) Basis of preparation The Financial Report has been prepared on the basis of historical cost except for the revaluation of certain non-current assets and financial instruments. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are presented in Australian dollars, unless otherwise noted. 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 financial report are rounded off to the nearest thousand dollars, unless otherwise indicated. In the application of A-IFRS management is required to make judgments, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstance, the results of which form the basis of making the judgments. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Judgments made by management in the application of A-IFRS that have significant effects on the financial statements and estimates with a significant risk of material adjustments in the next year are disclosed, where applicable, in the relevant notes to the financial statements. 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 following significant accounting policies have been adopted in the preparation and presentation of the Financial Report: (b) Cash and cash equivalents Cash and cash equivalents comprise cash on hand, cash in banks and investments in money market instruments, net of outstanding bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet. (c) Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except: (i) (ii) where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or for receivables and payables which are recognised inclusive of GST. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables. Cash flows are included in the cash flow statement on a gross basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows. (d) Goodwill Goodwill acquired in a business combination is initially measured at its cost, being the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. Goodwill is subsequently measured at its cost less any impairment losses. For the purpose of impairment testing goodwill is allocated to each of the Group’s cash-generating units (CGU’s), or groups of CGU’s, expected to benefit from the synergies of the business combination. CGU’s (or groups of CGU’s) to which goodwill has been allocated are tested for impairment annually, or more frequently if events or changes in circumstances indicate that goodwill might be impaired. If the recoverable amount of the CGU (or group of CGU’s) is less than the carrying amount of the CGU (or groups of CGU’s), the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the CGU (or groups of CGU’s) and then to the other assets of the CGU (or groups of CGU’s) pro-rata on the basis of the carrying amount of each asset in the CGU (or groups of CGU’s). An impairment loss recognised for goodwill is recognised immediately in profit or loss and is not reversed in a subsequent period On disposal of an operation within a CGU, the attributable amount of goodwill is included in the determination of the profit or loss on disposal of the operation. Page 25 of 73 4 4 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 2 Summary of Significant Accounting Policies (continued) (e) Inventories Inventories are valued at the lower of cost and net realisable value. Costs, including an appropriate portion of fixed and variable overhead expenses, are assigned to inventory on hand by the method most appropriate to each particular class of inventory, with the majority being valued on a first in first out basis. Net realisable value represents the estimated selling price less all estimated costs of completion and costs necessary to make the sale. (f) Property, plant and equipment Plant and equipment, leasehold improvements and equipment under finance lease are stated at cost less accumulated depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the item. In the event that settlement of all or part of the purchase consideration is deferred, cost is determined by discounting the amounts payable in the future to their present value as at the date of acquisition. Depreciation is calculated on a straight line basis so as to write off the net cost of each asset over its expected useful life to its estimated residual value. Leasehold improvements are depreciated over the period of the lease or estimated useful life, whichever is the shorter, using the straight line method. The estimated useful lives, residual values and depreciation method is reviewed at the end of each annual reporting period, with the effect of any changes recognised on a prospective basis. The annual depreciation rates used for each class of assets are as follows: Plant and equipment: 10% to 40% Equipment rented to third parties: 10% to 40% Equipment under finance lease: 13% to 22.5% (g) Share-based payments Equity-settled share-based payments with employees and others providing similar services are measured at the fair value of the equity instrument at the grant date. Fair value is measured by the use of the Black-Scholes Model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. Further details on how the fair value of equity-settled share-based transactions has been determined can be found in note 33. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest. (h) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) (referred to as ‘the Group’ in these financial statements). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. Page 26 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 4 5 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 2 (i) Summary of Significant Accounting Policies (continued) Business combinations Acquisitions of subsidiaries and businesses are accounted for using the purchase method. The cost of the business combination is measured as the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under AASB 3 ‘Business Combinations’ are recognised at their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with AASB 5 ‘Non-current Assets Held for Sale and Discontinued Operations’, which are recognised and measured at fair value less costs to sell. Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss. (j) Borrowing costs Borrowing costs are expensed as incurred. (k) Foreign currency The individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each entity are expressed in Australian dollars, which is the functional currency of the Group, and the presentation currency for the consolidated financial statements. In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences are recognised in profit or loss in the period in which they arise except for exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned or likely to occur, which form part of the net investment in a foreign operation, and which are recognised in the foreign currency translation reserve and recognised in profit or loss on disposal of the net investment. On consolidation, the assets and liabilities of the Group’s foreign operations (including comparatives) are translated into Australian dollars at exchange rates prevailing on the balance sheet date. Income and expense items (including comparatives) are translated at the average exchanges rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are classified as equity and transferred to the Group’s translation reserve. Such exchange differences are recognised in profit or loss in the period in which the foreign operation is disposed. Goodwill and fair value adjustments arising on the acquisition of a foreign entity on or after the date of transition to A-IFRS are treated as assets and liabilities of the foreign entity and translated at exchange rates prevailing at the reporting date. Goodwill arising on acquisitions before the date of transition to A-IFRS is treated as an Australian dollar denominated asset. (l) Financial assets Investments are recognised and derecognised on trade date where purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, net of transaction costs. Subsequent to initial recognition, investments in subsidiaries are measured at cost. Subsequent to initial recognition, investments in associates are accounted for under the equity method in the consolidated financial statements and the cost method in the Company financial statements. Other financial assets are classified into the following specified categories: financial assets ‘at fair value through profit or loss’, ‘held-to- maturity’ investments, ‘available-for-sale’ financial assets, and ‘loans and receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. 4 6 Page 27 of 73 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 2 (i) Summary of Significant Accounting Policies (continued) Effective interest method The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period. Income is recognised on an effective interest rate basis for debt instruments other than those financial assets ‘at fair value through profit or loss’. (ii) Financial assets at fair value through profit or loss Financial assets are classified as financial assets at fair value through profit or loss where the financial asset: • • • Has been acquired principally for the purpose of selling in the near future; Is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or Is a derivative that is not designated and effective as a hedging instrument. Financial assets at fair value through profit or loss are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset. (iii) Available-for-sale financial assets Available-for-sale assets are stated at fair value. Gains and losses arising from changes in fair value are recognised directly in the investments revaluation reserve with the exception of impairment losses, interest calculated using the effective interest rate method and foreign exchange gains and losses on monetary assets which are recognised directly in profit or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognised in the investments revaluation reserve is included in profit or loss for the period. The fair value of available-for-sale monetary assets held in a foreign currency is determined in that foreign currency and translated at the spot rate at reporting date. The change in fair value attributable to translation differences that results from a change in amortised cost of the asset is recognised in profit or loss, and other changes are recognised in equity. (vi) Loans and receivables Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest rate method less impairment. Interest is recognised by applying the effective interest rate. (v) Impairment of financial assets Financial assets other than those at fair value through profit or loss, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying value of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables where the carrying value is reduced through the use of an allowance account. When a trade receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. With the exception of available-for-sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. In respect of available-for-sale instruments, any subsequent increase in fair value after an impairment loss is recognised directly in equity. Page 28 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 4 7 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 2 (m) (i) Summary of Significant Accounting Policies (continued) Financial instruments issued by the Company 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) Financial liabilities Financial liabilities are classified as either financial liabilities ‘at fair value through profit or loss’ or other financial liabilities. (iii) Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised through profit or loss incorporates any interest paid on the financial liability. Fair value is determined in the manner described in note 31. (iv) Other financial liabilities Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest rate method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period. (n) (i) Intangible assets Intangible assets acquired in a business combination All intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their value can be measured reliably. Identifiable intangible assets comprise intellectual property, technology, contracts, customers and trade marks. These are recorded at cost less accumulated amortisation and impairment. Amortisation is charged on a straight line basis over their estimated useful lives. The estimated useful life and amortisation method is reviewed at the end of each annual reporting period. Estimated useful lives are as follows: Intellectual property indefinite Technology 5-7 years Contracts Customers 5 years 6 years Trade Marks 5-6 years Intellectual property recognised by the Company has an indefinite useful life and is not amortised. Each period, the useful life of this asset is reviewed to determine whether events and circumstances continue to support an indefinite useful life assessment for the asset. Such assets are tested for impairment in accordance with the policy stated in note 2(s). (ii) Research and development costs Expenditure on research activities is recognised as an expense in the period in which it is incurred. Where no internally-generated intangible asset can be recognised, development expenditure is recognised as an expense in the period as incurred. An intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following are demonstrated: • • • • • • the technical feasibility of completing the intangible asset so that it will be available for use or sale; the intention to complete the intangible asset and use or sell it; the ability to use or sell the intangible asset; how the intangible asset will generate probable future economic benefits; the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and the ability to measure reliably the expenditure attributable to the intangible asset during its development. Capitalised development costs are stated at cost less accumulated amortisation and impairment, and are amortised on a straight-line basis over their useful life of 5 years, commencing on commercialisation of the underlying projects. 4 8 Page 29 of 73 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 2 (o) (iii) Summary of Significant Accounting Policies (continued) Taxation Current tax Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or tax loss for the period. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by reporting date. Current tax for current and prior periods is recognised as a liability (or asset) to the extent that it is unpaid (or refundable). (iv) Deferred tax Deferred tax is accounted for using the balance sheet liability method. Temporary differences are differences between the tax base of an asset or liability and its carrying amount in the balance sheet. The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes. In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities (other than as a result of a business combination) that affects neither taxable income nor accounting profit. Furthermore, a deferred tax liability is not recognised in relation to taxable temporary differences arising from goodwill. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, branches, associates and joint ventures except where the Group is able to control the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with these investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company/Group intends to settle its current tax assets and liabilities on a net basis. (v) Current and deferred tax for the period Current and deferred tax is recognised as an expense or income in the income statement, except when it relates to items credited or debited directly to equity, in which case the deferred tax is also recognised directly in equity, or where it arises from the initial accounting for a business combination, in which case it is taken into account in the determination of goodwill or excess. (vi) Tax consolidation The Company and all its wholly-owned Australian resident entities are part of a tax-consolidated group under Australian taxation law. Imdex Limited is the head entity in the tax-consolidated group. Tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences in the members of the tax-consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group using the ‘separate taxpayer within group’ approach by reference to the carrying amounts in the separate financial statements of each entity and the tax values applying under tax consolidation. Current tax liabilities and assets and deferred tax assets arising from unused tax losses and relevant tax credits of the members of the tax-consolidated group are recognised by the Company (as head entity in the tax-consolidated group). Due to the existence of a tax funding arrangement between the entities in the tax-consolidated group, amounts are recognised as payable to or receivable by the Company and each member of the group in relation to the tax contribution amounts paid or payable between the parent entity and the other members of the tax-consolidated group in accordance with the arrangement. Further information about the tax funding arrangement is detailed in note 5 to the financial statements. Where the tax contribution amount recognised by each member of the tax-consolidated group for a particular period is different to the aggregate of the current tax liability or asset and any deferred tax asset arising from unused tax losses and tax credit in respect of that period, the difference is recognised as a contribution from (or distribution to) equity participants. Page 30 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 4 9 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 2 Summary of Significant Accounting Policies (continued) (p) Leased assets Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. (i) Group as Lessor Amounts due from lessees under finance leases are recorded as receivables. Finance lease receivables are initially recognised at amounts equal to the present value of the minimum lease payments receivable plus the present value of any unguaranteed residual value expected to accrue at the end of the lease term. Finance lease payments are allocated between interest revenue and reduction of the lease receivable over the term of the lease in order to reflect a constant periodic rate of return on the net investment outstanding in respect of the lease. Rental income from operating leases is recognised on a straight line basis over the term of the relevant lease. (ii) Group as Lessee Assets held under finance leases are initially recognised at their fair value or, if lower, at amounts equal to the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group’s general policy on borrowing costs. Finance leased assets are amortised on a straight line basis over the estimated useful life of the asset. Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. (iii) Lease incentives In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefits of incentives are recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. (q) Revenue Revenue is measured at the fair value of the consideration received or receivable. (i) Sale of goods Revenue from the sale of goods is recognised when all the following conditions are satisfied: • • • • the Group has transferred to the buyer the significant risks and rewards of ownerships of the goods; the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the entity; and the costs incurred or to be incurred in respect of the transaction can be measured reliably. (ii) Rendering of services Revenue from a contract to provide services is recognised by reference to the stage of completion of the contract. (iii) Royalties Royalty revenue is recognised on an accrual basis in accordance with the substance of the relevant agreement. (iv) Dividend and interest revenue Dividend revenue from investments is recognised when the shareholders right to receive payment has been established. Interest revenue is accrued on a time basis, by reference to the principle outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount. 5 0 Page 31 of 73 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 2 (r) (i) Summary of Significant Accounting Policies (continued) Employee benefits Provisions Provision is made for benefits accruing to employees in respect of wages and salaries, annual leave, long service leave, and sick leave when it is probable that settlement will be required and they are capable of being measured reliably. Provisions made in respect of employee benefits expected to be settled within 12 months, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Provisions made in respect of employee benefits which are not expected to be settled within 12 months are measured as the present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to reporting date. (ii) Defined contribution plans Contributions to defined contribution superannuation plans are expensed when incurred. (s) Impairment of other tangible and intangible assets At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash- generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in profit or loss immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised in profit or loss immediately. (t) Provisions Provisions are recognised when the Group has a present obligation (legal or constructive), as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. 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. 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 virtually certain that recovery will be received and the amount of the receivable can be measured reliably. (u) Non-current assets held for sale Non-current assets (and disposal groups) classified as held for sale are measured, with certain exceptions, at the lower of carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the asset (or disposal group) is available for immediate sale in its present condition subject only to terms that are usual or customary for such a sale and the sale is highly probable. The sale of the asset (or disposal group) must be expected to be completed within one year from the date of classification, except in the circumstances where sale is delayed by events or circumstances outside the Group’s control and the Group remains committed to a sale. Page 32 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 5 1 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 3 Critical Accounting Judgements and Key Sources of Estimation Uncertainty In the application of the Group’s accounting policies, which are described in note 2, management is required to make judgements, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstance, the results of which form the basis of making the judgements. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Critical judgements in applying the entity’s accounting policies Management have not made any significant critical judgements in the process of applying the Group’s accounting policies. Key sources of estimation uncertainty The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year: Value of Shares Notes 9 and 11 describe the investment held in Sino Gas & Energy Ltd (SGE). Australian Accounting Standards require this investment to be held at the lower of carrying value and fair value less costs to sell. In making the assessment of which value is the lower, the Directors have had to make estimates of the fair value of this investment and the expected costs to sell. The Directors have estimated this investment to have a fair value in excess of its carrying value of $4,500,000 at 30 June 2007. (2006: $4,500,000) The fair value of this non-listed investment has been determined using the Directors' best estimate. The Directors have estimated the fair market value by having regard to share placements previously made by SGE, the results of exploration activity to date, discussions with potential investors and having regard to the fact that SGE is an unlisted entity and the shares held in SGE can not be readily traded on any share market. Value of Intangibles Notes 14 and 26 describe intangibles that have arisen on business combinations during the current year. The Directors have engaged independent valuation professionals to identify and value such intangibles. The valuers have used industry accepted valuation techniques such as the relief-from-royalty, multi-period excess earnings and replacement cost methodologies as appropriate to value these assets. Data inputs into these models are derived largely from internal management budgets. Should actual financial results differ from managements budgeted expectations, this would have a consequent effect on the value of intangibles. Value of Goodwill Notes 13 and 26 describe the goodwill that has arisen on business combinations in the current year. Goodwill acquired in a business combination is initially measured at its cost, being the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. Goodwill is subsequently measured at its cost less any impairment losses. Any change in the value of the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised would have had a consequent impact on the carrying value of goodwill at the time of initial recognition. Goodwill is impairment tested annually. 5 2 Page 33 of 73 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 4 Profit from Operations (a) Revenue from operations Revenue from the sale of goods Revenue from the rendering of services Operating rental income Interest income Other operating revenue (b) Profit before income tax Other than as disclosed on the face of the income statement, profit before income tax has been arrived at after crediting / (charging) the following gains and losses: Gain on disposal of property, plant and equipment (i) Foreign exchange gain/(loss) (ii) (i) In the current year the Company sold some items of plant and equipment to a subsidiary company. This profit is eliminated on consolidation. (ii) Foreign exchange loss in the parent arises primarily on intercompany loans. These amounts are eliminated on consolidation. Profit before income tax has been arrived at after charging the following items of income and expense: Other income Gain on disposal of property, plant and equipment Management fees from Subsidiaries Dividends from Subsidiaries Amounts received from Rashid Trading Establishment (i) Other revenue (i) Comprises $812,000 in full recovery of a loan considered to have been impaired at 30 June 2006 and $309,000 for the sale of the Company's remaining 20% interest in Imdex Arabia previously carried in the Company's books at nil. No further amounts remain outstanding from Rashid Trading Establishment. Refer note 29(b)(v)(e) Depreciation and amortisation of Non Current Assets Depreciation of property, plant and equipment Amortisation of intangible assets Finance costs Interest on hire purchase liabilities Interest on convertible note Interest on deferred acquisition consideration Interest on commercial bills Interest on bank loan Interest on overdraft Other interest Consolidated 2007 $’000 2006 $’000 Company 2007 $’000 2006 $’000 82,244 16,650 19,546 900 - 119,340 47,251 13,843 5,520 97 81 66,792 10,002 - 12,501 2,849 - 25,352 5,859 - 5,520 82 - 11,461 76 (372) (296) 76 (15) 61 2,200 (953) 1,247 38 533 571 76 - - 1,121 400 1,597 4,368 3,430 7,798 225 464 707 923 350 18 199 2,886 76 - - - - 76 2,431 - 2,431 210 - - - - - 6 216 2,200 1,363 3,000 1,121 400 8,084 2,269 - 2,269 57 464 - 923 - 11 88 1,543 38 1,020 344 - - 1,402 1,268 - 1,268 40 - - - - - - 40 Page 34 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 5 3 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 4 Profit from Operations (continued) (b) Profit before income tax (continued) Profit before income tax has been arrived at after charging the following items of income and expense: Other expenses Commissions Consultancy fees Legal and professional expenses Foreign exchange loss / (gain) Rent and premises costs Repairs and maintenance Research and development costs immediately expensed Travel and accommodation Motor vehicle costs Other expenses Employee benefits expense Post-employment benefits: Defined contribution superannuation costs Share based payments: Equity-settled share based payments Other employee benefits Cost of sales Impairment of trade receivables Operating lease rental expense (minimum lease payments) Impairment adjustment Receivable due from Rashid Trading Enterprise Investment in RTE/Imdex Joint Venture 5 Income Taxes (a) Income tax recognised in the income statement Tax expense comprises: Current tax expense Deferred tax expense relating to the origination and reversal of temporary differences (Over)/under provision per prior year Total tax expense 5 4 Consolidated 2007 $’000 2006 $’000 Company 2007 $’000 2006 $’000 1,650 1,243 49 24 1,834 626 338 141 618 316 447 246 372 15 953 (533) 1,489 1,275 473 306 1,511 1,097 982 553 1,007 - 2,186 1,215 437 216 1,167 1,057 198 165 8,297 3,575 1,814 2,075 - - 20,131 10,419 5,691 3,193 426 728 14,938 16,092 53,618 173 1,682 - - - 2,488 59 8,539 11,086 32,776 2 1,443 875 1,400 2,275 74 728 2,844 3,646 7,202 (43) 478 - - - 59 59 2,061 2,179 4,415 2 312 875 2,585 3,460 Consolidated Company 2007 $’000 2006 $’000 2007 $’000 2006 $’000 9,924 (2,727) (303) 6,894 2,835 1,430 (385) 3,880 3,297 57 (135) 3,219 153 1,564 (388) 1,329 Page 35 of 73 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 5 Income Taxes (continued) Consolidated Company 2007 $’000 2006 $’000 2007 $’000 2006 $’000 The prima facie income tax expense on pre-tax accounting profit from operations reconciles to the income tax expense in the financial statements as follows: Profit from operations 20,412 11,864 13,085 Income tax expense calculated at 30% Tax benefit of losses not previously brought to account Impairment of investment in RTE/Imdex Joint Venture Intercompany dividends received Bad debts Non-deductible share based payments Additional provincial tax arising in a foreign jurisdiction Non-deductible interest on deferred payments Other non-deductible expenses Tax rate differential arising from foreign entities Adjustments in respect of prior year deferred tax balances (Over) / under provision of prior year income tax The tax rate used in the above reconciliation is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits under Australian law. There has been no change in the corporate tax rate when compared with the previous reporting period. (b) Income tax recognised directly in equity The following current and deferred amounts were charged directly to equity during the period: Current tax: Share issue expenses Deferred tax: Share issue expenses deductible over five years Deferred tax: Translation of foreign operations (c) Current tax assets and liabilities Current tax payable (d) Deferred tax balances Deferred tax assets comprise: Provisions Inventory Property, plant and equipment Accruals Foreign currency translation reserves Share issue expenses Deferred tax liabilities comprise: Property, plant and equipment Intangible assets Non-current assets classified as held for sale (current year) / Fair value through profit and loss financial assets (prior year) Net deferred tax balances Unrecognised deferred tax assets: The following have not been brought to account as assets: Temporary differences relating to the translation of investments in subsidary undertakings 6,124 (23) - - - 218 142 212 232 38 254 (303) 6,894 3,559 - 420 - 263 18 - - 11 (6) - (385) 3,880 3,926 - - (900) - 218 - - 10 - 100 (135) 3,219 2,507 752 - 776 (103) 263 18 - - 11 - - (388) 1,329 (53) (165) (71) (289) 48 - 212 260 (53) (165) - (218) 48 - - 48 8,913 2,058 5,450 1,973 304 125 1,871 518 282 204 3,304 (4) (7,521) (1,260) (8,785) (5,481) 455 - - 262 212 38 967 (146) (19) (1,260) (1,425) (458) 86 - - 175 - 203 464 - - 153 - - 90 - 38 281 (59) - (1,260) (1,260) (796) (1,260) (1,319) (1,038) 427 - - - Page 36 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 5 5 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 5 Income Taxes (continued) Tax Consolidation Relevance of tax consolidation to the Group 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 in the tax consolidated group for the purposes of the tax consolidation system is Imdex Limited. Nature of tax funding arrangements and tax sharing agreements Entities within the tax-consolidated group have entered into a tax funding and 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. The tax sharing agreement entered into between members of the tax consolidated group provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations or if an entity should leave the tax consolidated group. The effect of the tax sharing agreement is that each member's liability for tax payable by the tax consolidated group is limited to the amount payable by the head entity under the tax funding arrangement. 6 Remuneration of Auditors Auditor of the parent entity - Deloitte Touche Tohmatsu Audit or review of the financial report Taxation services - mainly compliance work and transfer pricing and global restructuring advice Other non-audit services: Other consulting services Other non-audit services: A-IFRS assistance Other auditors Audit or review of the financial report Other non-audit services: Accounting assistance and taxation advice Consolidated Company 2007 $ 2006 $ 2007 $ 2006 $ 175,715 122,190 175,715 122,190 251,549 - - 427,264 356,471 78,814 435,285 24,182 9,850 35,439 191,661 27,501 14,462 41,963 251,549 - - 427,264 24,182 9,850 35,439 191,661 - - - - - - 862,549 233,624 427,264 191,661 5 6 Page 37 of 73 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 7 Trade and Other Receivables Current Trade receivables Allowance for doubtful debts Notes (i) Due from Quadripart Investment Holdings (Pty) Ltd Other receivables 29(b)(v)(b) Consolidated Company 2007 $’000 2006 $’000 2007 $’000 2006 $’000 27,966 (479) 27,487 - 319 27,806 18,660 (306) 18,354 444 - 18,798 10,173 (71) 10,102 - 111 10,213 3,267 (114) 3,153 - - 3,153 (i) The average credit period on sales of goods is 60 days. Trade receivables are interest free. An allowance has been made for estimated irrecoverable amounts from the sale of goods, determined by reference to past default experience. The movement in the allowance was recognised in the income statement for the current year. 8 Inventories Current Raw materials - at cost Work in progress - at cost Finished goods - at cost Consolidated 2007 $’000 2006 $’000 Company 2007 $’000 2006 $’000 1,251 51 12,537 13,839 420 - 9,287 9,707 - - 2,085 2,085 - - 1,081 1,081 9 Other Financial Assets Current Financial assets carried at fair value through profit or loss Shares Loans carried at amortised cost Loan to Sino Gas & Energy Limited Loans to Subsidiaries Non-current Loans carried at amortised cost Loans to Subsidiaries Investments carried at cost Investments in Subsidiaries Consolidated 2007 $’000 2006 $’000 Company 2007 $’000 2006 $’000 Notes (i) (ii) (iii) (iii) - 4,500 - 4,500 11,556 - 11,556 - - 4,500 11,556 620 12,176 - 2,349 6,849 - - - - - - 40,638 - 2,701 43,339 2,172 2,172 Page 38 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 5 7 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 9 Other Financial Assets (continued) (i) In the prior year the Group held 19.1% of the ordinary share capital of Sino Gas & Energy Limited (SGE), an energy company operating in China. These shares were classified as 'at fair value through profit or loss' as it is the intention of the Company to dispose of these shares as soon as it is practicable. In the prior year these shares were revalued from their carrying value of $300,000 to their fair value of $4,500,000 with the revaluation being recognised on the face of the income statement. (ii) During the current period the Group advanced $11,307,000 million to SGE as a short term facility pending the finalisation of their capital raising initiatives. This loan comprised of two advances, one of A$5,000,000 and one of US$5,000,000. A total of $200,000 of this loan was repaid during the year and a foreign currency revaluation loss of $184,000 was recorded. Interest of $633,000 was charged on the balance. The funds advanced are secured by a fixed and floating charge over all the assets held by SGE. The loan bears interest at 13.5% per annum and is repayable on the IPO of SGE. The loan carries the option for Imdex Limited to convert the loan balance into equity in SGE at market price. As a result of the above and Imdex’s holding of 13.6% (percentage reduced from 19.1% to 13.6% in the current period), the Company has determined that it has significant influence. However, as the Company’s intention is to realise the value of the investment through sale and it meets the requirements of AASB 5: ‘Non-Current Assets Held for Sale and Discontinued Operations’ the investment is not within the scope of AASB 128: ‘Investments in Associates’. Accordingly, the investment has been classified as a non-current asset held for sale. Refer to Note 11. (iii) Loans to Subsidiaries have no specific terms or conditions other than the loans to Samchem Drilling Fluids and Chemicals (Pty) Ltd and Imdex Sweden AB which were put in place in the current year. These loans are repayable in quarterly instalments commencing on 1 July 2007 with the last payment due on 30 June 2017. The loan to Samchem carries interest at the South African prime overdraft rate (currently 14.5%) plus a 2% margin. The loan to Imdex Sweden carries interest at the Stockholm Interbank Offered Rate (currently 3.65%) plus a weighted average margin of 0.75%. 10 Other Current Assets Notes Consolidated 2007 $’000 2006 $’000 Company 2007 $’000 2006 $’000 Current Prepayments Non-current Deferred acquisition costs (i) 224 224 664 664 12 12 124 124 49 49 664 664 4 4 124 124 (i) Comprises legal, consulting and other direct costs associated with the acquisitions of Suay and Poly-Drill in the current year (refer note 34) and Reflex and Chardec in the prior year. These costs will be included in the cost of investment on settlement. 11 Non-Current Assets Classified as Held for Sale Shares held for sale Notes (i) Consolidated 2007 $’000 2006 $’000 Company 2007 $’000 2006 $’000 4,500 4,500 - - 4,500 4,500 - - (i) The investment in SGE has been classified as a non-current asset held for sale as its carrying amount will be recovered principally through a sale transaction. 5 8 Page 39 of 73 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 12 Property, Plant and Equipment Consolidated Gross Carrying Value Balance at 30 June 2005 Additions Acquisitions through business combinations Disposals Net foreign currency exchange differences Transfer Balance at 30 June 2006 Additions Acquisitions through business combinations Disposals Net foreign currency exchange differences Balance at 30 June 2007 Accumulated Depreciation Balance at 30 June 2005 Disposals Acquisitions through business combinations Depreciation expense Net foreign currency exchange differences Transfer Balance at 30 June 2006 Disposals Acquisitions through business combinations Depreciation expense Net foreign currency exchange differences Balance at 30 June 2007 Net Book Value As at 30 June 2006 As at 30 June 2007 Company Gross Carrying Value Balance at 30 June 2005 Additions Disposals Transfer Balance at 30 June 2006 Additions Disposals Balance at 30 June 2007 Accumulated Depreciation Balance at 30 June 2005 Disposals Depreciation expense Transfer Balance at 30 June 2006 Disposals Depreciation expense Balance at 30 June 2007 Net Book Value As at 30 June 2006 As at 30 June 2007 Plant and Equipment at cost $’000 Equipment Rented to Third Parties at cost $’000 Equipment under hire purchase at cost $’000 Capital works in progress at cost TOTAL $’000 $’000 6,222 1,245 4,437 353 12,257 3,006 3,150 574 - 6,730 416 - - - 416 (54) - (1,052) - (1,106) (71) - - - (71) 966 1,245 (2,022) (189) - 10,485 5,640 1,937 164 18,226 3,341 3,057 37 387 6,822 654 2,726 77 - 3,457 (368) (1,634) (107) - (2,109) (109) (394) (4) (3) (510) 14,003 9,395 1,940 548 25,886 4,943 534 890 - 6,367 (9) - (521) - (530) - - - - - 746 1,058 627 - 2,431 (9) - - - (9) (612) 533 79 - - 5,059 2,125 1,075 - 8,259 (298) (1,130) (47) - (1,475) 278 1,399 8 - 1,685 1,484 2,691 193 - 4,368 (28) (129) (1) - (158) 6,495 4,956 1,228 - 12,679 5,426 3,515 862 164 9,967 7,508 4,439 712 548 13,207 477 1,245 1,361 298 3,381 96 3,150 147 - 3,393 - - (84) - (84) 613 1,245 (1,376) (300) 182 1,186 5,640 48 (2) 6,872 499 3,228 5 21 3,753 (55) (1,595) - - (1,650) 1,630 7,273 53 19 8,975 396 534 404 - 1,334 - - - - - 104 1,058 106 - 1,268 138 533 (489) - 182 638 2,125 21 - 2,784 (44) (926) 5 - (965) 200 2,064 6 - 2,270 794 3,263 32 - 4,089 548 3,515 27 (2) 4,088 836 4,010 21 19 4,886 Page 40 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 5 9 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 12 Property, Plant and Equipment (continued) Aggregate depreciation allocated, whether recognised as an expense or capitalised as part of the carrying amount of other assets during the year: Plant and equipment Equipment under hire purchase Consolidated Company 2007 $’000 2006 $’000 2007 $’000 2006 $’000 4,175 1,804 2,264 1,162 193 627 6 106 4,368 2,431 2,270 1,268 13 Goodwill Consolidated Company Notes 2007 $’000 2006 $’000 2007 $’000 2006 $’000 Gross Carrying Amount Balance at beginning of the financial year Recognised on acquisition of Samchem Drilling Fluids & Chemicals (Pty) Ltd Recognised on acquisition of Reflex Holding AB Recognised on acquisition of Chardec Technology Ltd Recognised on acquisition of Flexit AB Effect of foreign exchange movements Balance at end of the financial year (i) (ii) (ii) (ii) Accumulated Impairment Losses Balance at beginning of the financial year Impairment losses for the year Balance at end of the financial year Net Book Value At the beginning of the financial year At the end of the financial year 1,906 - 14,623 8,319 11,107 (922) 35,033 - - - - 2,492 - - - (586) 1,906 - - - 1,906 35,033 - 1,906 - - - - - - - - - - - - - - - - - - - - - - - - 6 0 Page 41 of 73 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 13 Goodwill (continued) (i) Goodwill arose during the prior year on the acquisition by Samchem Drilling Fluids & Chemicals (Pty) Ltd, a wholly owned subsidiary of Imdex Limited, of the business of SA Mud Services (Pty) Ltd and a range of clay and cement chemical additive inventory items effective 1 August 2005. Refer note 26(d). Samchem Drilling Fluids & Chemicals (Pty) Ltd is considered to be a separate cash generating unit since it operates independently from other Imdex operations in a separate geographical area. The recoverable amount of this goodwill has been determined based on a value in use calculation which uses a 6 year discounted cash flow projection based on the 2008 budget. The projection assumes no additional growth in the business. A discount rate of 10%, being the Imdex Group weighted average cost of capital has been used. Management believe that any reasonably possible change in the key assumptions on which recoverable amount is based would not cause the carrying amount to exceed its recoverable amount. (ii) Goodwill arose during the year on the acquisition of 100% of the issued share capital of Reflex Holding AB (refer note 26(b)), Chardec Technology Ltd (refer note 26(c)) and Flexit AB (refer note 26(a)). These three operations are considered to be a single cash generating unit as they were purchased in close succession to create a single vertically integrated operation in the Drilling Products and Services division. They operate in the same business segment and geographical area and have the same operational management and a high level of operational and financial interdependency. The recoverable amount of this goodwill has been determined based on a value in use calculation which uses a 6 year discounted cash flow projection based on the 2008 budget. The projection assumes no additional growth in the business. A discount rate of 10%, being the Imdex Group weighted average cost of capital has been used. Management believe that any reasonably possible change in the key assumptions on which recoverable amount is based would not cause the carrying amount to exceed its recoverable amount. The key assumptions used in the value in use calculations for the various significant cash generating units are as follows: Key Assumption Samchem CGU Reflex/Chardec/Flexit CGU Budgeted sales growth Budgeted net margins Sales growth has been budgeted in line with the expected increase in activity in the local industries serviced by Samchem. Net margins have been budgeted using the prior year actuals as a base on which operational improvements are expected to be made. Sales growth has been budgeted based on the expected activity levels in the global down hole tool market plus an increment for the market share expected to be gained from the release of new tools. Net margins have been budgeted using the prior year actuals as a base on which operational and integration improvements are expected to be made. Exchange rate fluctuations Exchange rate fluctuation expectations have been built into the budget numbers based on standard forecast advice received from major lending institutions. Page 42 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 6 1 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 14 Other Intangibles Consolidated Patents Intellectual Property Technology Based Contract Based Customer Based Development Costs Trade Name TOTAL $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Gross Carrying Value Balance at 30 June 2005 Additions through business combinations Written off Impact of exchange rate changes Balance at 30 June 2006 Additions through business combinations Capitalised during the year Impact of exchange rate changes Balance at 30 June 2007 Accumulated Amortisation and Impairment Balance at 30 June 2005 Amortisation expense Impairment losses Balance at 30 June 2006 Amortisation expense Impact of exchange rate changes Impairment losses Balance at 30 June 2007 Net Book Value As at 30 June 2006 As at 30 June 2007 Company Gross Carrying Value Balance at 30 June 2005 Additions through business combinations Written off Impact of exchange rate changes Balance at 30 June 2006 Additions through business combinations Capitalised during the year Impact of exchange rate changes Balance at 30 June 2007 Accumulated Amortisation and Impairment Balance at 30 June 2005 Amortisation expense Impairment losses Balance at 30 June 2006 Amortisation expense Impairment losses Balance at 30 June 2007 Net Book Value As at 30 June 2006 As at 30 June 2007 12 - (12) - - 755 - - 755 - - - - 25 - - 25 - 1,437 - (124) 1,313 - - (143) 1,170 - - - - - - - - - - - - - 14,937 - (234) 14,703 - - - - 1,501 (41) - 1,460 - - - - - 425 - - 425 - - - - 78 - - 78 - - - - - 9,781 - (483) 9,298 - - - - 1,491 (71) - 1,420 - - - - - - 429 - 429 - - - - - - - - - - - - - 4,470 - (202) 4,268 - - - - 335 (16) - 319 12 1,437 (12) (124) 1,313 30,368 429 (1,062) 31,048 - - - - 3,430 (128) - 3,302 - 730 1,313 1,170 - 13,243 - 347 - 7,878 - 429 - 3,949 1,313 27,746 12 - (12) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 429 - 429 - - - - - - - - 429 - - - - - - - - - - - - - - - - - - 12 - (12) - - - 429 - 429 - - - - - - - - 429 Page 43 of 73 6 2 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 14 Other Intangibles (continued) Intellectual Property Intellectual Property arose during the prior year on the acquisition by Samchem Drilling Fluids & Chemicals (Pty) Ltd, a wholly owned subsidiary of Imdex Limited, of the business of SA Mud Services (Pty) Ltd and a range of clay and cement chemical additive inventory items effective 1 August 2005. Refer note 26(d). Intellectual Property has an indefinite life due to the uniqueness of the manufacturing processes and products, high cost barriers to entry and the dominant market share held. Intellectual Property is therefore subjected to annual impairment testing. The recoverable amount has been determined based on a value in use calculation which uses a 6 year discounted cash flow projection based on the 2008 budget. The projection assumes no additional growth in the business. A discount rate of 10% has been used. Management believe that any reasonably possible change in the key assumptions on which recoverable amount is based would not cause the carrying amount to exceed its recoverable amount. 15 Trade and Other Payables Trade payables Accruals and other payables Notes (i) Consolidated 2007 $’000 2006 $’000 Company 2007 $’000 2006 $’000 12,290 4,451 16,741 11,280 2,349 13,629 3,562 2,008 5,570 2,202 909 3,111 (i) Trade payables are interest free for periods ranging from 30 to 180 days. Thereafter interest is charged at commercial rates. The consolidated entity has financial risk management policies in place to ensure that all payables are paid within the credit timeframe. 16 Borrowings Current borrowings Secured At amortised cost Commercial bill Bank loan Hire purchase liabilities Other Unsecured At amortised cost Deferred acquisition payments Non-current borrowings Secured At amortised cost Commerical bills Bank loan Hire purchase liabilities Other Unsecured At amortised cost Deferred acquisition payments Notes (i) (ii) (iii) 24 (iv) (v) 34 (i) (ii) (iii) 24 (iv) (v) 34 Consolidated 2007 $’000 2006 $’000 Company 2007 $’000 2006 $’000 2,300 2,430 1,443 335 5,373 11,881 10,000 12,710 964 167 4,715 28,556 - - 1,391 - - 1,391 - - 1,503 - - 1,503 2,300 - 385 - - 2,685 10,000 - 64 - - 10,064 - - 498 - - 498 - - 220 - - 220 Page 44 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 6 3 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 16 Borrowings (continued) (i) Commercial bills bear interest at 8.54% per annum. On 1 September 2007 a bill of $800,000 is repayable. Thereafter bills are repayable in quarterly instalments of $500,000 each with the final payment due on 1 June 2013. The bills are secured by a Mortgage Debenture over all the assets and liabilities of Imdex Limited, Australian Mud Company Pty Ltd, Surtron Technologies Pty Ltd, Imdex International Pty Ltd, Chardec Technology Limited and Samchem Drilling Fluids and Chemicals (Pty) Ltd. (ii) Comprises a loan of SEK 88,000,000 against an available facility of SEK 90,000,000. This loan, which was raised in the current year, bears interest at the 7 day Stockholm Interbank Offered Rate ('STIBOR') plus a weighted average margin of 0.75% per annum and is repayable in quarterly instalments of SEK 4,125,000 each starting on 1 December 2007 increasing to SEK 5,875,000 each from 1 June 2008 onwards with the final instalment due on 1 March 2013. The interest rate applicable at 30 June 2007 was 4.4% per annum. This loan is secured over the assets of the Reflex and Flexit Groups of companies. (iii) Hire purchase liabilities are secured over the assets to which they relate, the carrying value of which exceeds the value of the hire purchase liability. The Group does not hold title to the equipment under hire purchase pledged as security. (iv) Other current and non-current loans comprise sundry advances from third party lenders. (v) Deferred acquisition payments are those portions of the purchase price of recent acquisitions that are due in future periods. The cash component of these deferred amounts have been discounted to their present values using an interest rate of 8% per annum. For further details refer to notes 26(b) and (c). (vi) A convertible note with a face value of $10,400,000 was issued on 1 August 2006 and carried interest at the rate of 8% per annum payable in arrears. The note carried the right to convert into 20.8 million fully paid ordinary Imdex shares at any time up to 1 August 2008. Conversion would be automatically triggered upon the Imdex share price reaching $1 per share. This condition was satisfied on 15 February 2007. Refer note 18 for details of shares issued. These shares will be held in voluntary escrow until 1 August 2008. 17 Provisions Current provisions Employee entitlements Non-current provisions Employee entitlements Consolidated 2007 $’000 2006 $’000 Company 2007 $’000 2006 $’000 Notes (i) 1,212 830 265 189 448 226 116 40 (i) The majority of these entitlement are expected to be taken during the coming year. (2006: same) 6 4 Page 45 of 73 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 18 Contributed Capital Issued and Paid Up Capital - Fully paid ordinary shares Mandatory convertible capital Notes (i) (ii) Consolidated 2007 $’000 2006 $’000 Company 2007 $’000 2006 $’000 54,282 6,700 60,982 26,490 - 26,490 54,282 6,700 60,982 26,490 - 26,490 (i) Fully paid ordinary shares carry one vote per share and the right to dividends. (ii) Mandatory Convertible Capital relates to the future issue of 5 million fully paid ordinary shares as consideration for the acquisition of Flexit AB. Refer to Note 26(a)(iv) Consolidated and Company 2007 2006 Notes Number $'000 Number $'000 Ordinary shares Balance at beginning of the financial year 139,466,037 26,490 110,055,368 19,008 Issue of shares as part consideration for the acquisition of Samchem Issued on conversion of debt instrument Issue of equity securities as part of working capital raising Issue of shares as part consideration for the acquisition of patent Share issue costs (net of tax) Issue of shares under staff option plan Closing balance at end of the financial year 24(d) 16(vi) - 20,800,000 15,000,000 155,039 - 4,527,927 179,949,003 - 10,400 16,500 200 (510) 1,202 54,282 16,059,002 13,300,000 - - 51,667 139,466,037 3,592 3,990 - (111) 11 26,490 Changes to the the Corporations Law abolished the authorised capital and par value concept in relation to share capital from 1 July 1998. Therefore, the Company does not have a limited amount of authorised capital and issued shares do not have a par value. Share options granted under the staff option scheme In accordance with the provisions of the staff option scheme, as at 30 June 2007, executives, directors and staff have options over 13,080,406 ordinary shares (all of which were vested), in aggregate. These options expire over a range of dates up to February 2012. As at 30 June 2006, executives, directors and staff have options over 10,808,333 ordinary shares (all of which were vested), in aggregate. These options expire over a range of dates up to January 2011. Details of the Staff Option Plan can be found in note 33. 19 Reserves Consolidated 2007 $’000 2006 $’000 Company 2007 $’000 2006 $’000 Notes Foreign Currency Translation Reserve Balance at beginning of the financial year Translation of foreign operations after taxation Balance at the end of the financial year (494) (1,643) (2,137) - (494) (494) - - - - - - Exchange differences relating to the translation from the functional currencies of the Group's foreign controlled entities into Australian dollars are brought to account by entries made directly to the foreign currency translation reserve. This reserve is shown net of deferred tax. Employee Equity-Settled Benefits Reserve Balance at beginning of the financial year Options issued during the financial year Options exercised during the financial year Balance at the end of the financial year 4 105 728 (82) 751 48 59 (2) 105 105 728 (82) 751 48 59 (2) 105 The employee equity-settled benefits reserve arises on the grant of share options to Directors and employees. Amounts are transferred out of the reserve and into issued capital when the options are exercised. Further information regarding the Staff Option Plan is contained in note 33. Page 46 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 6 5 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 20 Earnings Per Share Basic earnings per share Diluted earnings per share (a) Basic earnings per share Consolidated 2007 Cents per share 2006 Cents per share 8.74 8.00 6.07 5.95 The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows: Earnings Consolidated 2007 $'000 2006 $'000 13,518 7,984 Shares Shares Weighted average number of ordinary shares per the purposes of basic earnings per share 154,717,072 131,472,906 (b) 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: Net profit Adjustment to exclude the impact of interest expense on convertible note Earnings used in the calculation of diluted EPS Consolidated 2007 $'000 2006 $'000 13,518 318 13,836 7,984 - 7,984 Shares Shares Weighted average number of ordinary shares for the purposes of diluted earnings per share 172,920,311 134,096,984 The weighted average number of ordinary shares for the purposes 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 Potential ordinary shares arising on conversion of convertible note Shares deemed to be issued for no consideration for employee and Director options Weighted average number of ordinary shares used in the calculation of diluted EPS (ii) The following potential ordinary shares are not dilutive and are therefore excluded from the weighted average number of ordinary shares for the purposes of diluted earnings per share: Employees share options tranche 4 Employees share options tranche 5 (iii) Weighted average number of converted potential ordinary shares included in the calculation of diluted earnings per share: Convertible note (iv) Shares issued after balance date Shares Shares 154,717,072 11,340,274 6,862,965 172,920,311 131,472,906 - 2,624,078 134,096,984 Shares Shares 4,425,000 675,000 5,100,000 $'000 $'000 7,693,151 - - - - A total of 1,212,751 fully paid ordinary shares were issued after the balance date as part settlement of the acquisition of Poly-Drill Drilling Systems Ltd. Refer note 34. Page 47 of 73 6 6 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 21 Dividends Recognised amounts Notes 2007 Cents per share 2007 Total $’000 2006 Cents per share 2006 Total $’000 Fully paid ordinary shares - interim dividend franked to 30% Fully paid ordinary shares - final dividend franked to 30% (i) (ii) 1.00 1.00 2.00 1,641 1,411 3,052 1.00 - 1.00 1,396 - 1,396 Unrecognised amounts Fully paid ordinary shares - final dividend franked to 30% (iii) 1.50 2,699 1.00 1,396 (i) The interim, fully franked dividend was paid on 26 March 2007 (2006: 30 March 2006). The record date for determining the entitlement to the interim dividend was 13 March 2007 (2006: 23 March 2006). There are no dividend reinvestment plans in operation. (ii) The final, fully franked dividend was paid on 13 October 2006 (2006: nil). The record date for determining the entitlement to the interim dividend was 10 October 2006 (2006: nil). There are no dividend reinvestment plans in operation. (iii) The final, fully franked dividend was declared on 15 August 2007 with an entitlement date of 5 October 2007 and a payment date of 17 October 2007. The financial effect of this dividend has not been recognised in the financial statements at 30 June 2007. Consolidated 2007 $'000 2006 $'000 7,062 (1,157) - 5,060 (598) - Adjusted franking account balance Impact on franking account of dividends not recognised Income tax consequences of unrecognised dividends 22 Commitments for Expenditure (a) Capital expenditure commitments At 30 June 2007 capital expenditure commitments were nil (2006: nil). (b) Lease commitments Hire purchase liabilities and non-cancellable operating lease commitments are disclosed in note 24. 23 Contingent Liabilities and Contingent Assets Contingent Liabilities Rental bond Contingent Assets Consolidated Company Notes 2007 $’000 2006 $’000 2007 $’000 2006 $’000 (i) 119 119 - 100 100 - 100 100 - 100 100 - (i) Comprise bank guarantees supporting the extension of credit or the performance of the Group 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. Consequently no provisions have been made in the Financial Report in respect of these matters. No material losses are expected to arise in respect of these guarantees. Page 48 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 6 7 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 24 Leases (a) Hire Purchases Hire purchase arrangements Hire purchase arrangements relate to plant and equipment with terms of up to 5 years. The Group has options to purchase the equipment for a nominal amount at the conclusion of the arrangements. Hire purchase commitments Hire purchase commitments are payable as follows. Due: Within one year Between one and five years Later than five years Minimum lease payments Less: future finance charges Minimum future lease payments Present value of minimum future lease payments Consolidated 2007 2006 $’000 $’000 Company 2007 $’000 2006 $’000 Consolidated 2007 2006 $’000 $’000 Company 2007 $’000 2006 $’000 1,580 1,569 467 534 1,443 1,391 449 498 760 1,591 - 226 728 1,503 - 220 248 - - - 236 - - - 2,588 3,160 467 760 2,407 2,894 449 718 (181) (266) (18) (42) - - - - 2,407 2,894 449 718 2,407 2,894 449 718 Hire purchase liabilities provided for in the Financial Report Current – Note 16 Non current - Note 16 (b) Operating Leases Operating leasing arrangements 1,443 1,391 385 498 964 1,503 64 220 2,407 2,894 449 718 Operating leases relate to premises and the lease of motor vehicles used by the Group 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. Non-cancellable operating lease payments Within one year Between one and five years Later than five years Consolidated 2007 2006 $’000 $’000 Company 2007 $’000 2006 $’000 1,062 1,911 686 3,659 791 1,478 851 3,120 162 352 - 514 86 11 - 97 6 8 Page 49 of 73 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 25 Subsidiaries Parent Entity Imdex Limited Controlled Entities Australian Mud Company Pty Ltd Australian Mud Company Chile SA Samchem Drilling Fluids & Chemicals (Pty) Ltd Surtron Technologies Pty Ltd Surtron Technologies UK Ltd Surtron Technologies US Inc Imdex International Pty Ltd Imdex Sweden AB Reflex Instruments Asia Pacific Pty Ltd Chardec Technology Ltd Reflex Holding AB Reflex Instrument AB Reflex Instrument North America Reflex Instrument South America Ltda Drill Hole Surveys (Pty) Ltd Flexit AB Flexit Navigation AB Flexit Australia Pty Ltd Nudge Geotechnical Instrumentation Inc Notes Country of Incorporation Ownership Interest 2007 % 2006 % (i), (iii) Australia (iii), (iv) (ii) 26(d) (iii), (iv) (v) (iii), (iv), (vi) (vii) (viii) 26(c) 26(b) 26(b) 26(b) 26(b) 26(b) 26(a) 26(a) (ix) (x) Australia Chile South Africa Australia United Kingdom United States of America Australia Sweden Australia United Kingdom Sweden Sweden Canada Chile South Africa Sweden Sweden Australia Canada 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - - - - - - - - - - - - - - (i) Imdex Limited is the ultimate parent company and is the head entity within the tax consolidated group. (ii) Under Chilean law an audit of this company is not required. (iii) These companies are part of the tax consolidated group. (iv) These wholly-owned subsidiaries have entered into a deed of cross guarantee with Imdex Limited pursuant to ASIC Class Order 98/1418 and are relieved from the requirement to prepare and lodge an audited financial report. Australian Mud Company Pty Ltd and Surtron Technologies Pty Ltd became a party to the deed on 29 June 2006 and Imdex International Pty Ltd on 20 October 2006. (v) This entity was incorporated on 16 November 2006 (vi) This entity was incorporated on 4 July 2006 (vii) This entity was incorporated on 5 July 2006 (viii) This entity was incorporated on 1 March 2007 (ix) This entity was incorporated on 11 May 2007 (x) 100% of the issued share capital of this entity was acquired on 1 May 2007. As this entity is non-trading and holds one asset being a patent, this purchase transaction was accounted for as an acquisition of an asset, not as a business combination. Page 50 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 6 9 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 25 Subsidiaries (continued) The consolidated income statement of entities which are party to the deed of cross guarantee are: Income Statement 2007 $’000 2006 $’000 Revenue from sale of goods, rendering of services and operating lease rental Other revenue from operations Total revenue Other income Share of losses of associates accounted for using the equity method Change in fair value of investments held for trading Impairment adjustment Raw materials and consumables used Employee benefit expenses Depreciation and amortisation expense Finance costs Commissions Consultancy fees Legal and professional expenses Rent and premises costs Repairs and maintenance Travel and accommodation Motor vehicle costs Foreign exchange gain/(loss) Other expenses Profit before income tax expense Income tax expense relating to ordinary activities Profit for the year 81,500 2,866 84,366 4,814 - - - (36,495) (11,593) (3,533) (2,402) (1,170) (1,399) (449) (1,008) (1,008) (1,654) (911) (958) (5,770) 20,830 56,240 88 56,328 149 (301) 4,500 (2,275) (26,578) (9,145) (2,322) (211) (939) (614) (95) (1,186) (998) (1,110) (854) (572) (3,579) 10,198 (6,657) (3,568) 14,173 6,630 7 0 Page 51 of 73 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 25 Subsidiaries (continued) The consolidated balance sheet of entities which are party to the deed of cross guarantee are: Balance Sheet Current Assets Cash and Cash Equivalents Trade and Other Receivables Inventories Other Financial Assets Other Total Current Assets Non Current Assets Other Financial Assets Property, Plant and Equipment Other Intangible Assets Other Total Non Current Assets Total Assets Current Liabilities Trade and Other Payables Borrowings Current Tax Payables Provisions Total Current Liabilities Non Current Liabilities Borrowings Deferred Tax Liabilities Provisions Total Non Current Liabilities Total Liabilities Net Assets Equity Issued Capital Employee Equity-Settled Benefits Reserve Retained Profits * Total Equity * Retained Profit at the beginning of the financial year Net Profit Dividend provided for or paid Retained Profit at the end of the financial year 2007 $’000 2006 $’000 7,171 24,861 11,085 60,871 56 104,044 8,492 11,768 429 664 21,353 125,397 14,871 9,060 5,358 1,475 30,764 15,678 303 116 16,097 46,861 78,536 60,982 751 16,803 78,536 5,682 14,173 (3,052) 16,803 5,816 15,164 8,538 4,500 12 34,030 6,658 9,382 - 28 16,068 50,098 11,364 1,391 1,823 1,037 15,615 1,503 663 40 2,206 17,821 32,277 26,490 105 5,682 32,277 448 6,630 (1,396) 5,682 Page 52 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 7 1 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 26 Acquisition of Businesses (a) Acquisition of entity - Flexit AB With effect from 1 May 2007, Imdex Sweden AB, wholly owned subsidiary of Imdex Limited, acquired 100% of the issued share capital of Flexit AB (Flexit), a company incorporated in Sweden. Flexit AB has one Swedish wholly owned subsidiary, Flexit Navigation AB. Flexit are leading developers and suppliers of borehole survey equipment to the exploration and mining industries globally. At the General Meeting of Shareholders held on 30 April 2007, the shareholders of Imdex Limited approved this acquisition and the associated issue of shares. The numbers presented below have been accounted for using the acquisition method of accounting. Details of the assets, liabilities and goodwill are as follows: Book value Notes $’000 Fair value adjustments $’000 Fair value on acquisition $’000 Trade and other receivables Inventory Deferred tax assets / (liabilities) Property, plant and equipment Technology based intangibles Trade name based intangibles Trade and other payables Long term liabilities Fair value of net identifiable assets acquired (other than cash and cash equivalents) Goodwill on acquisition Total purchase consideration Total purchase consideration comprises Consideration in cash and cash equivalents Less cash and cash equivalents acquired Deferred consideration - Mandatory Convertible Capital Direct costs relating to the acquisition (i) (i) (i) (ii) (iv), 18 896 557 - 207 - - (1,203) (54) 403 - - (2,124) - 4,672 2,916 - - 5,464 Operating results of the Flexit consolidated group included in the Consolidated Income Statement of Imdex Limited from acquisition on 1 May 2007 to 30 June 2007: Operating revenue Total expenses Loss for the period after tax (v) 896 557 (2,124) 207 4,672 2,916 (1,203) (54) 5,867 11,107 16,974 12,000 (1,842) 6,700 116 16,974 Results since acquisition $’000 1,275 (1,315) (40) (i) Technology based intangible assets of $4.7 million comprise technical knowledge and other know-how in existence at the time of acquisition. Trade name based intangibles of $2.9 million represents the value of the Flexit and GyroSmart trade names at acquisition. Deferred tax of $2.1 million was raised on these balances. These intangibles have been valued by independent valuation professionals using the replacement cost and relief-from-royalty methods respectively. Data inputs into the model were derived from internal management budgets. Intangible assets are being amortised over their estimated useful lives of 5 years. (ii) Goodwill arose in the business combination because the cost of the combination included a control premium paid to acquire Flexit. In addition, the consideration paid for the combination effectively included amounts in relation to the benefit of expected synergies, revenue growth, future market development and the assembled workforce of Flexit. These benefits are not recognised separately from goodwill as the future economic benefits arising from them cannot be reliably measured. There were no acquisition provisions created, nor were there any contingent liabilities assumed in the acquisition. (iii) The Consolidated Cash Flow Statement for the year ended 30 June 2007 records the payment for the acquisition of Flexit as $10.3 million being the total consideration of $20.3 million above less $10.0 million of deferred consideration. (iv) The balance of the purchase price is due on 1 May 2009. This will be settled by way of the issue of 5 million fully paid ordinary shares in Imdex Limited. Should the Imdex share price be below $2 per share at that time, an additional cash payment will be made to bring the total of cash paid and shares issued at that time to $10 million. At the General Meeting of Shareholders held on 30 April 2007 the shareholders approved the future issue of these shares to the vendors of Flexit. The deferred consideration has been recorded at $6,700,000 based on the Company's analysis of the fair value of the consideration at acquisition date. (v) Had the acquisition of Flexit been effected on 1 July 2006, the beginning of the financial year, the Flexit financial results included in the Imdex consolidated results would have been revenue of approximately $9.2 million and profit of approximately $1.0 million. The results of Flexit are included in the Drilling Products & Services segment. The Board considers these 'pro-forma' numbers to represent an approximate measure of the performance of the combined group on an annualised basis and to provide a reference point for comparison in future periods. Page 53 of 73 7 2 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 26 Acquisition of Businesses (continued) (b) Acquisition of entity - Reflex Holding AB With effect from 1 August 2006, Imdex Sweden AB, a wholly owned subsidiary of Imdex Limited, acquired 100% of the issued share capital of Reflex Holding AB (Reflex), a company incorporated in Sweden. Reflex Holding AB is the parent of a group of companies operating in South Africa, Europe, North and South America under the "Reflex Instrument" trading name. Reflex are leading developers and suppliers of borehole survey equipment globally. At the General Meeting of Shareholders held on 8 August 2006, the shareholders of Imdex Limited approved this acquisition and the associated issue of the convertible note. The numbers presented below have been accounted for using the acquisition method of accounting. Details of the assets, liabilities and goodwill are as follows: Book value Notes $’000 Fair value adjustments $’000 Fair value on acquisition $’000 Trade and other receivables Inventory Deferred tax assets / (liabilities) Property, plant and equipment Goodwill Intangibles Other non-current assets Trade and other payables Fair value of net identifiable assets acquired (other than cash and cash equivalents) Goodwill on acquisition Total purchase consideration Total purchase consideration comprises Consideration in cash and cash equivalents Less cash and cash equivalents acquired Convertible note raised Bank loan raised Deferred vendor finance - due and paid on 31 January 2007 Direct costs relating to the acquisition (i) (i) (ii) (iv) 16 3,818 1,511 405 1,566 670 - 22 (4,966) 3,026 (14) - (3,174) - (670) 11,335 (19) 487 7,945 Operating results of the Reflex consolidated group included in the Consolidated Income Statement of Imdex Limited from acquisition on 1 August 2006 to 30 June 2007: Operating revenue Total expenses Profit for the period after tax (v) 3,804 1,511 (2,769) 1,566 - 11,335 3 (4,479) 10,971 14,623 25,594 2,884 (111) 10,400 9,955 2,000 466 25,594 Results since acquisition $’000 18,492 (14,626) 3,866 (i) Customer based intangible assets of $9.8 million comprise customer lists and relationships at the time of acquisition. Trade name based intangible assets of $1.5 million represent the value to the Group of the Reflex trading name in the markets in which they operate. Deferred tax of $3.2 million was raised on these balances. These intangibles have been valued by independent valuation professionals using the multi period excess earnings model. Data inputs into the model were derived from internal management budgets. These intangible assets are being amortised over their estimated useful lives of 6 years each. (ii) Goodwill arose because the cost of the combination included a control premium paid to acquire Reflex. In addition, the consideration paid for the combination effectively included amounts in relation to the benefit of expected synergies, revenue growth, future market development and the assembled workforce of Reflex. These benefits are not recognised separately from goodwill as the future economic benefits arising from them cannot be reliably measured. There were no acquisition provisions created, nor were there any contingent liabilities assumed in the acquisition. (iii) The Consolidated Cash Flow Statement for the year ended 30 June 2007 records the payment for the acquisition of Reflex as $15.2 million being the total consideration of $25.6 million above less the $10.4 million convertible note. (iv) At the General Meeting of Shareholders held on 8 August 2006 the shareholders approved the issue of a convertible note with a face value of $10.4 million. This convertible note converted into equity on 15 February 2007. Refer to notes 16 and 18. (v) Had the acquisition of Reflex been effected on 1 July 2006, the beginning of the financial year, the Reflex financial results included in the Imdex consolidated results would have been revenue of approximately $20.3 million and profit of approximately $4.6 million. The results of Reflex are included in the Drilling Products & Services segment. The Board considers these 'pro-forma' numbers to represent an approximate measure of the performance of the combined group on an annualised basis and to provide a reference point for comparison in future periods. Page 54 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 7 3 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 26 Acquisition of Businesses (continued) (c) Acquisition of entity - Chardec Technology Ltd (previously Chardec Consultants Ltd) With effect from 1 August 2006, Imdex International Pty Ltd, a newly incorporated, wholly owned subsidiary of Imdex Limited acquired 100% of the issued share capital of Chardec Technology Ltd (Chardec), a company incorporated in the United Kingdom. Chardec is a leading developer and supplier of borehole survey equipment globally. At the General Meeting of Shareholders held on 8 August 2006, the shareholders of Imdex Limited approved this acquisition. The numbers presented below have been accounted for using the acquisition method of accounting. Details of the assets, liabilities and goodwill are as follows: Book value Notes $’000 Fair value adjustments $’000 Fair value on acquisition $’000 Trade and other receivables Inventory Deferred tax assets / (liabilities) Technology based intangibles Contract based intangibles Trade and other payables Fair value of net identifiable assets acquired (other than cash and cash equivalents) Goodwill on acquisition Total purchase consideration Total purchase consideration comprises Consideration in cash and cash equivalents Less cash and cash equivalents acquired Direct costs relating to the acquisition Deferred vendor finance (i)(ii) (i) (ii) (iii) (v) 2,111 273 3 - - (2,456) - - (3,207) 10,265 425 - 2,111 273 (3,204) 10,265 425 (2,456) (69) 7,483 7,414 8,319 15,733 6,203 (175) 324 9,381 15,733 Results since acquisition $’000 6,685 (4,281) 2,404 Operating results of Chardec included in the Consolidated Income Statement from 1 August 2006 to 30 June 2007: Operating revenue Total expenses Profit for the period after tax (vi) (i) Technology based intangible assets of $10.3 million comprise intellectual property and technical expertise contained within the business of Chardec at the time of acquisition. Deferred tax of $3.1 million was raised on this balance. These intangibles have been valued by independent valuation professionals using the multi period excess earnings model. Data inputs into the model were derived from internal management budgets. Technology based intangible assets are being amortised over their estimated useful life of 7 years. (ii) Contract based intangible assets of $0.4 million represent the value to the Group of the 5 year employment contract signed with the vendor and now employee of Chardec. Deferred tax of $0.1 million was raised on this balance. This contract has been valued by independent valuation professionals using the multi period excess earnings model. Data inputs into the model were derived from internal management budgets. Contract based intangible assets are being amortised over the term of the contract which is 5 years. (iii) Goodwill arose in the business combination because the cost of the combination included a control premium paid to acquire Chardec. In addition, the consideration paid for the combination effectively included amounts in relation to the benefit of expected synergies, revenue growth, future market development and the assembled workforce of Chardec. These benefits are not recognised separately from goodwill as the future economic benefits arising from them cannot be reliably measured. There were no acquisition provisions created, nor were there any contingent liabilities assumed in the acquisition. (iv) The Consolidated Cash Flow Statement for the year ended 30 June 2007 records the payment for the acquisition of Chardec as $6.4 million being the total consideration of $15.7 million above less deferred consideration of $9.4 million. (v) Further purchase price instalments are due as follows: GBP 2.18 million on 31 July 2007; GBP 1.09 million on 31 July 2008 and GBP 1.045 million on 31 July 2009. In addition a revenue based earn-out may also become payable. The additional revenue based earn-out payments have been estimated by management as totalling nil over the three years. All expected future payments have been discounted to their present values using a discount rate of 8% per annum. (vi) Had the acquisition of Chardec been effected on 1 July 2006, the beginning of the financial year, the Chardec financial results included in the Imdex consolidated results would have been revenue of approximately $7.3 million and profit of approximately $2.8 million. The results of Chardec are included in the Drilling Products & Services segment. The Board considers these 'pro-forma' numbers to represent an approximate measure of the performance of the combined group on an annualised basis and to provide a reference point for comparison in future periods. Page 55 of 73 7 4 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 26 Acquisition of Businesses (continued) (d) Acquisition of business - Samchem Drilling Fluids and Chemicals (Pty) Ltd With effect from 1 August 2005, Samchem Drilling Fluids & Chemicals (Pty) Ltd (Samchem), Imdex’s 100% owned South African subsidiary, acquired the business of SA Mud Services (Pty) Ltd and a range of clay and cement chemical additive inventory items. SA Mud Services (Pty) Ltd was the largest supplier of drilling fluids and chemicals to the mining industry in Africa. Samchem operates a manufacturing facility in Johannesburg, South Africa from which it manufactures and markets a wide range of chemicals primarily for the drilling industry. At the General Meeting held on 5 August 2005, the shareholders of Imdex Limited approved this acquisition and the associated share issue. This transaction has been accounted for using the acquisition method of accounting. Details of the assets, liabilities and goodwill are as follows: Book value Notes $’000 Fair value adjustments $’000 Fair value on acquisition $’000 Trade and other receivables Inventory Property, plant and equipment Intellectual property associated with clay chemical and mud brick manufacture Trade and other payables Provision for employee entitlements Deferred tax liabilities Fair value of net identifiable assets acquired (other than cash and cash equivalents) Goodwill on acquisition Total purchase consideration Total purchase consideration comprises Consideration in cash and cash equivalents Less cash and cash equivalents acquired Direct costs relating to the acquisition Shares issued: 16,059,002 ordinary shares of Imdex Limited (i) (i) (iv) (iv) (ii) 1,735 1,507 373 - (523) (44) - 3,048 - - 43 1,437 - - (417) 1,063 Operating results of the business of Samchem included in the Consolidated Income Statement of Imdex Limited from acquisition on 1 August 2005 to 30 June 2006: Operating revenue Total expenses Profit for the period after tax (iii) 1,735 1,507 416 1,437 (523) (44) (417) 4,111 2,492 6,603 2,901 - 110 3,592 6,603 Results since acquisition $’000 10,391 (9,969) 422 (i) Imdex acquired the business of Samchem, and paid the premium (goodwill) over identifiable assets, due to the fact that Samchem is expected to complement the business of the Australian Mud Company (AMC) (Imdex's wholly owned drilling fluids subsidiary). There were no acquisition provisions created, nor were there any contingent liabilities assumed in the acquisition. The balances of goodwill and intellectual property, noted above, do not tie to the Balance Sheet. This is due to the fact that these balances are translated at the exchange rates prevailing at the reporting date, rather than the acquisition date as above. In determining the value attributed to identifiable intangibles and goodwill, the following additional possible intangible assets were identified: customer relationships, brands and unpatented technology. In all cases these intangibles did not meet the “identifiability” criteria and therefore were not recognised. The intellectual property associated with the clay chemical and mud brick manufacture has been assessed as having an indefinite useful life and therefore has not been amortised. This estimated useful life of these assets will be reviewed annually. (ii) The fair value of the ordinary shares issued were 22.37 cents each which was based on the weighted average share price of Imdex's ordinary shares in the 10 trading days prior to the completion of the acquisition. (iii) Had the acquisition of Samchem been effected on 1 July 2005, the beginning of the prior financial year, the revenue of Samchem included in the consolidated Imdex results for the prior year would have been approximately $11.3 million and the profit would have been approximately $0.5 million. The results of Samchem are included in the Drilling Fluids & Chemicals segment. The Board considers these 'pro-forma' numbers to represent an approximate measure of the performance of the combined group on an annualised basis and to provide a reference point for comparison in future periods. (iv) The Consolidated Cash Flow Statement for the year ended 30 June 2006 records the payment for the acquisition of the business of Samchem as $3.0 million comprising cash paid at acquisition of $2.9 million and direct costs of $0.1 million. Page 56 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 7 5 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 27 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 interest 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. Business Segments The Group comprises the following business segments which are based on the Group's internal management reporting system: (i) Drilling products and services: This segment comprises the provision of down hole surveying, geophysical services as well as the sale and rental of down hole motors, cameras and drilling products; and (ii) Drilling fluids and chemicals: This segment comprises the manufacture and supply of drilling fluids and chemicals to the mining, mineral exploration, oil and gas and water well drilling industries. logging and directional drilling Geographical Segments The Group operates in the following geographical segments which are based on the Group's internal management reporting system: (i) Asia Pacific: Manufacture and sale of drilling fluids and chemicals; provision of drilling services; sale and rental of drilling products (ii) European Union: Provision of drilling services; manufacture, sale and rental of drilling products (iii) Africa: Manufacture and sale of drilling fluids and chemicals; provision of drilling services; sale and rental of drilling products (iv) Americas: Sale of drilling fluids and chemicals; provision of drilling services; sale and rental of drilling products Primary reporting: Business Segments (a) Segment Revenues Drilling fluids and chemicals Drilling products and services Total of all segments Unallocated Total revenue (b) Segment Results Drilling fluids and chemicals * Drilling products and services Total of all segments Eliminations Unallocated Profit before income tax expense Income tax expense Profit for the year External revenue 2007 2006 $'000 $'000 Inter-segment Other Total 2007 $'000 2006 $'000 2007 $'000 2006 $'000 2007 $'000 2006 $'000 62,337 56,103 118,440 41,593 25,021 66,614 - - - - - - 16 36 52 96 2 98 62,353 56,139 118,492 848 119,340 11,570 14,155 25,725 - (5,313) 20,412 (6,894) 13,518 41,689 25,023 66,712 80 66,792 3,462 5,253 8,715 - 3,149 11,864 (3,880) 7,984 * - Included in the current period is a $1.1 million recovery from the RTE/Imdex Joint Venture. The prior period includes an impairment adjustment of $2.3 million relating to the same joint venture. (c) Segment Assets and Liabilities Drilling fluids and chemicals Drilling products and services Total of all segments Eliminations Unallocated Consolidated Assets Liabilities 2007 $'000 2006 $'000 2007 $'000 2006 $'000 33,997 101,837 135,834 - 14,012 149,846 37,808 16,255 54,063 (2,393) 1,078 52,748 10,580 34,795 45,375 - 27,857 73,232 9,492 8,588 18,080 (443) 2,458 20,095 7 6 Page 57 of 73 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 27 Segment Information (continued) Drilling fluids and chemicals Drilling products and services Total of all segments Unallocated Consolidated Drilling fluids and chemicals Drilling products and services Total of all segments Unallocated Consolidated Secondary Reporting: Geographical Segments Asia Pacific European Union Africa Americas Total Depreciation Acquisition of segment assets Significant non cash expenses other than depreciation and amortisation 2007 $'000 2006 $'000 2007 $'000 2006 $'000 2007 $'000 2006 $'000 258 3,947 4,205 163 4,368 237 2,108 2,345 86 2,431 373 7,788 8,161 433 8,594 467 4,724 5,191 104 5,295 364 364 728 707 1,435 2,305 30 2,335 301 2,636 Carrying amounts of associates / joint ventures Impairment losses Share of profits/(losses) of associates / joint ventures 2007 $'000 2006 $'000 2007 $'000 2006 $'000 2007 $'000 2006 $'000 - - - - - - - - - - - - - - - (2,275) - (2,275) - (2,275) - - - - - - - - (301) (301) Revenue from external customers Segment assets Acquisition of segment assets 2007 $'000 2006 $'000 2007 $'000 2006 $'000 2007 $'000 2006 $'000 77,858 5,057 22,858 13,567 119,340 51,835 648 13,014 1,295 66,792 99,199 37,501 4,783 8,363 149,846 45,581 585 5,411 1,171 52,748 6,302 1,334 293 665 8,594 4,916 - 379 - 5,295 Page 58 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 7 7 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 28 Discontinued Operations On 1 February 2005, Imdex Limited initiated an active program to dispose of the Imdex Minerals Division, its industrial minerals processing business. 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”. 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 with the sale being completed on 1 July 2005. Financial information relating to the discontinued operation for the period to the date of disposal is set out below. Consolidated 2007 $’000 2006 $’000 Notes Profit from discontinued operations Revenue Expenses Profit before income tax Income tax expense Profit after income tax of discontinued operations Gain/(loss) on remeasurement to fair value less costs to sell Gain/(loss) on sale of the division before income tax Income tax expense Gain/(loss) on sale of the division after income tax Profit from discontinued operations Cash flows from discontinued operations Net cash inflow from ordinary activities Net cash inflow from investing activities (including the proceeds from the sale of the business) Net cash inflow from financing Carrying amounts of assets and liabilities Property, plant and equipment Inventories Prepayments Total assets classified as held for sale Hire purchase liabilities Employee entitlements Total liabilities associated with assets classified as held for sale Net assets Details of the sale of the division Consideration received: Cash Additional deferred consideration Total disposal consideration Carrying amount of net assets sold Gain/(loss) on sale before income tax Income tax expense Gain/(loss) on sale after income tax - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 6,271 - 6,271 - - - - - - - - 6,271 - 6,271 (6,271) - - - (i) (i) 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 still in the early stages of development and commercialisation. This has not been recognised in the consideration received and the gain on sale of Imdex Minerals as the probability of receiving the deferred consideration cannot be accurately predicted at this stage. If this consideration is recognised in a future period it will increase the gain on the sale of Imdex Minerals. This entitlement lapses on 30 June 2008. As recovery of this amount is considered to be remote, it has not been shown as a contingent asset. 7 8 Page 59 of 73 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 29 Related Party Disclosures (a) Equity interests in related parties Details of the percentage ownership of subsidiaries and the wholly owned Group is set out in Note 25. The wholly owned Group consists of Imdex Limited and its wholly owned subsidiaries. (b) Transactions with key management personnel (i) Key management personnel compensation Details key management personnel compensation is set out in Note 32. (ii) Loans to key management personnel No loans were made during the current or prior years to key management personnel or their related parties. (iii) Fully paid ordinary shares issued by Imdex Limited 2007 Balance at 1 July 2006 Granted as compensation Received on exercise of options Cession as key management person Net other change Balance at 30 June 2007 Balance held nominally Mr I F Burston Mr B W Ridgeway Mr H H Al-Merry Mr R W Kelly Mr K A Dundo Mr I R Freeman Mr M Lemmel * Mr G E Weston Mr D J Loughlin Mr S J Lyons Mr P A Evans Mr D L Kinley Mr C S Munyard No. 200,000 5,000,000 755,000 265,000 300,000 16,059,002 - - - 50,000 - 120,000 25,000 22,774,002 No. No. No. - - - - - - - - - - - - - - - - - - - - - 500,000 - - - - - 500,000 - - - - - - - - - (50,000) - (120,000) (25,000) (195,000) No. 60,000 (1,500,000) (755,000) - - (16,059,002) 400,000 (500,000) 10,000 - 5,000 - - (18,339,002) No. 260,000 3,500,000 - 265,000 300,000 - 400,000 - 10,000 - 5,000 - - 4,740,000 No. - - - - - - - - - - - - - - * - Represent on market transactions after appointment as a director. Mr M Lemmel's shareholding at the date of becoming a director was nil. It should be noted that Mr S J Lyons resigned on 17 October 2006, Mr D L Kinley ceased to be a key management person on 17 October 2006 and Mr C S Munyard ceased to be a key management person on 1 September 2006. Accordingly, the movement in equity holdings disclosed reflects only those movements which took place during the period that these persons were key management persons. The balance of securities held as at 30 June 2007 is nil as they are no longer key management persons and therefore the net change shown in the table above is not as a result of the sale of any securities whilst being a key management person. 2006 Balance at 1 July 2005 Granted as compensation Received on exercise of options Cession as key management person Net other change Balance at 30 June 2006 Balance held nominally Mr I F Burston Mr B W Ridgeway Mr H H Al-Merry Mr R W Kelly Mr K A Dundo Mr I R Freeman Mr J P O'Neil Mr S J Lyons Mr D L Kinley Mr G E Weston Mr C S Munyard No. 100,000 6,025,000 755,000 65,000 100,000 - - 50,000 120,000 - - 7,215,000 No. No. No. - - - - - - - - - - - - - - - - - - - - - - 25,000 25,000 - - - - - - - - - - - - No. 100,000 (1,025,000) - 200,000 200,000 16,059,002 12,847,202 - - - - 28,381,204 No. 200,000 5,000,000 755,000 265,000 300,000 16,059,002 12,847,202 50,000 120,000 - 25,000 35,621,204 No. - - - - - - - - - - - - Page 60 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 7 9 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 29 Related Party Disclosures (continued) (iv) Share options issued by Imdex Limited 2007 Balance at 1 July 2006 Granted as compensation Exercised Cession as key management person Balance at 30 June 2007 Vested but not exercisable Vested and exercisable Options vested during year Mr I F Burston Mr B W Ridgeway Mr H H Al-Merry Mr R W Kelly Mr K A Dundo Mr I R Freeman Mr M Lemmel Mr G E Weston Mr D J Loughlin Mr S J Lyons Mr P A Evans Mr D L Kinley Mr C S Munyard No. - 2,000,000 - - - - - 3,000,000 - 200,000 - 200,000 125,000 5,525,000 No. No. No. 1,000,000 - - - - - - - 500,000 - 300,000 - - - - - - - - - (500,000) - - - - - 1,800,000 (500,000) No. 1,000,000 2,000,000 - - - - - 2,500,000 500,000 - - - - - - - - - (200,000) - - 300,000 (200,000) (125,000) (525,000) - - 6,300,000 No. No. No. - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,166,667 - - - - - 1,166,667 1,000,000 - 16,667 - 33,333 25,000 1,075,000 It should be noted that Mr S J Lyons resigned on 17 October 2006, Mr D L Kinley ceased to be a key management person on 17 October 2006 and Mr C S Munyard ceased to be a key management person on 1 September 2006. Accordingly, the movement in share options disclosed reflects only those movements which took place during the period that these persons were key management persons. The balance of options held as at 30 June 2007 is nil as they are no longer key management persons and therefore the net change shown in the table above is not as a result of the any transaction whilst being a key management person. 2006 Balance at 1 July 2005 Granted as compensation Exercised Cession as key Mr I F Burston Mr B W Ridgeway Mr H H Al-Merry Mr R W Kelly Mr K A Dundo Mr I R Freeman Mr J P O'Neil Mr S J Lyons Mr D L Kinley Mr G E Weston Mr C S Munyard No. - - - - - - - 50,000 100,000 2,000,000 75,000 2,225,000 No. - 2,000,000 - - - - - 150,000 100,000 1,000,000 75,000 3,325,000 No. - - - - - - - - - - (25,000) (25,000) management person No. - - - - - - - - - - - - Balance at 30 June 2006 Vested but not exercisable Vested and exercisable Options vested during year No. - 2,000,000 - - - - - 200,000 200,000 3,000,000 125,000 5,525,000 No. No. - - - - - - - - - - - - - - - - - - - 16,667 33,333 666,667 - 716,667 No. - - - - - - - 16,667 33,333 666,667 25,000 741,667 Options granted to D J Loughlin and P A Evans during the financial year were made in accordance with the Staff Option Plan, as further described in Note 33. Options granted to I F Burston were approved by the shareholders at the 2006 Annual General Meeting on 19 October 2006. 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 issued to D J Loughlin and P A Evans are exercisable in one third lots at the end of each of the first three years during their life. The options issued to I F Burston are exerciseable at any time after 2 years from the date of issue until their expiry. A total of 500,000 options were exercised by key management persons during the year. The exercise price was 20c per share. No amounts remain unpaid on the options exercised during the financial year at year end. 8 0 Page 61 of 73 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 29 Related Party Disclosures (continued) (v) Other transactions with key management personnel (and their related parties) of Imdex Limited (a) Lot 1598 Willis Street, Newman was rented by Surtron Technologies Pty Ltd from Mr G E Weston on normal commercial terms and conditions for the period 1 July 2005 to 16 January 2006. Total rental cost arising from this arrangement in the current year was nil (2006: $12,600) (b) An amount of $ nil (2006: R2,364,160 or A$443,516) was owed to Samchem Drilling Fluids & Chemicals (Pty) Ltd, a wholly owned Imdex Limited subsidiary, by Quadripart Investment Holdings (Pty) Ltd, a company in which Mr I R Freeman has an interest. This loan does not carry interest and has no specific terms and conditions. Refer Note 7. Mr I R Freeman was a non-executive director of Imdex Limited from the beginning of the financial year until his resignation on 10 April 2007. (c) The premises on which the administration and factory buildings of Samchem Drilling Fluids & Chemicals (Pty) Ltd are located in Alrode, Alberton, South Africa are leased on normal commercial terms and conditions from PTS Investments (Pty) Ltd and Basalt Properties (Pty) Ltd, companies in which Mr I R Freeman has an interest. Mr I R Freeman was a non-executive director of Imdex Limited from the beginning of the financial year until his resignation on 10 April 2007. Total lease cost arising from this arrangement was $129,460 (2006: $117,375) (d) Mr K A Dundo is a Partner of the legal firm QLegal, that provided legal services to the Imdex Group on normal commercial terms and conditions. Total legal costs arising from Qlegal were $208,785 (2006: $111,331) (e) Imdex Limited was 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. No amounts were recognised during the year relating to transactions between the Company and RTE as agent. During the prior year the investment balance in the Joint Venture of $1,400,000 (parent: $2,585,000) and the receivable balance due from RTE of $875,000 (parent: $875,000) were considered to be fully impaired. The impairment adjustment is shown on the face of the income statement in the prior period. During the current year $1,121,246 was received from RTE, $308,888 in payment for Imdex's 20% share in the Imdex Arabia and $812,358 in full recovery of the receivable previously considered impaired after a $62,642 foreign exchange movement. Refer note 4. (f) Transactions with Directors Profit from ordinary activities before income tax includes the following items of income and expenses relating to transactions, other than compensation, with Directors or their related entities: Other income Operating lease rental expense Legal services expense Impairment adjustment Total assets arising from transactions, other than compensation, with Directors or their related entities: Note v(e) v(a) v(c) v(d) v(e) Consolidated Company 2007 $ 2006 $ 2007 $ 2006 $ - 1,121,246 1,121,246 129,460 117,375 31,281 25,604 31,281 25,604 - 3,460,000 - 2,275,000 - - - Goodwill and intercompany loans (parent: acquisiton costs) v(d) 177,504 85,727 177,504 85,727 Total assets and liabilities arising from transactions, other than compensation, with Directors or their related entities: Current Assets Current Liabilities (c) Transactions with other related parties (i) Transactions within the wholly-owned Group v(b) v(c) v(d) - 443,516 - 54,554 - - - 34,196 Details of dividend revenue received by the ultimate parent entity is disclosed in Note 4. Amounts receivable from entities in the wholly-owned Group are disclosed in Note 9. During the financial year Imdex Limited provided management services amounting to $1,363,000 (2006: $1,020,000) to entities in the wholly-owned Group as disclosed in Note 4. (d) Parent entity The ultimate parent entity in the Group is Imdex Limited, a Company incorporated in Western Australia. Page 62 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 8 1 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 30 Notes to the Cash Flow Statement (a) Reconciliation of cash and cash equivalents For the purposes of the Statement of Cash Flows, cash and cash equivalents includes cash on hand and in banks and investment in money market instruments, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the year as shown in the Cash Flow Statement is reconciled to the related items in the balance sheet as follows: Cash and cash equivalents Bank overdraft Consolidated Company 2007 $’000 2006 $’000 2007 $’000 2006 $’000 15,271 - 15,271 6,421 - 6,421 962 - 962 2,003 - 2,003 Cash at bank and in hand earns interest at floating rates based on daily bank deposit rates. The fair value of cash and cash equivalents is $15,271,482 (2006: $6,420,802) (b) Non cash financing and investing activities During the year the Group acquired $1.1 million (2006: $1.4 million) of equipment under a finance lease. This acquisition will be reflected in the cash flow statement over the term of the finance lease via lease repayments. (c) Reconciliation from the Profit for the Year to Net Cash Provided by Operating Activities Consolidated Company 2007 $’000 2006 $’000 2007 $’000 2006 $’000 13,518 7,984 9,866 1,178 Profit for the year Adjustments for non-cash items Depreciation of non-current assets Amortisation of intangible assets Share of associates losses Non-cash interest on deferred payments Interest earned on intercompany accounts Interest received disclosed as investing activities Share options expensed Profit on sale of non-current assets Interest on hire purchase liabilities Fair value adjustment: Held for Trading investments Impairment adjustment Proceeds from Rashid Trading Establishment shown as investing activities Increase / (decrease) in current tax liability Increase in deferred tax balances Changes in assets and liabilities during the financial year (Increase) / decrease in assets: Current receivables Current inventories Other current assets Increase / (decrease) in liabilities: Current payables Provision for employee entitlements 4,368 3,430 - 707 - (267) 728 (76) 225 - - (1,121) 4,584 (3,082) (3,169) (1,791) (212) (2,305) 604 2,431 - 301 - - (97) 59 (76) 210 (4,500) 2,275 - 1,528 556 (4,851) (1,284) 18 5,370 150 Net Cash Provided by Operating Activities 16,141 10,074 8 2 2,269 - - - (1,999) (217) 728 (2,200) 57 - - (1,121) 3,477 (23) (6,876) (1,004) (45) 2,459 152 5,523 1,268 - - - - (82) 59 (38) 40 (4,199) 3,460 - 67 1,262 (1,772) (158) 11 585 44 1,725 Page 63 of 73 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 30 Notes to the Cash Flow Statement (continued) (d) Financing facilities Total facilities available Bank loan Commercial bills Equipment finance facility Multi option facility (including bank overdraft) Facilities utilised at balance sheet date Bank loan Commercial bills Equipment finance facility Multi option facility (including bank overdraft) Facilities not utilised at balance sheet date Bank loan Commercial bills Equipment finance facility Multi option facility (including bank overdraft) 31 Financial Instruments (a) Financial risk management objectives 15,484 12,300 2,591 2,522 32,897 15,140 12,300 2,407 - 29,847 344 - 184 2,522 3,050 1,870 - - 1,130 3,000 - - - - - 1,870 - - 1,130 3,000 - 12,300 633 2,020 14,953 - 12,300 449 - 12,749 - - 184 2,020 2,204 1,870 - - 1,110 2,980 - - - - - 1,870 - - 1,110 2,980 The Group’s corporate treasury function provides services to the business, co-ordinates access to domestic and international markets, monitors and manages the financial risks relating to the operations of the Group through internal risk reports which analyses exposures by degree and magnitude of risks. These risks include market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. The corporate treasury function reports quarterly to the Board who monitor risks and policies implemented to mitigate risk exposures. (b) Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2 to the financial statements. (c) Foreign currency risk management The group undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters. Approved exchange rate policy allows the use of currency management instruments where benefit exceeds cost. In all other cases exchange rates are managed within approved ranges, outside of which the Group seeks to pass gains/losses on to customers and suppliers. (d) Interest rate risk management The Group is exposed to interest rate risk as it borrows funds at both fixed and floating interest rates. The risk is managed by maintaining an appropriate mix between fixed and floating rate borrowings. The following table details the Group’s exposure to interest rate risk. Page 64 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 8 3 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 31 Financial Instruments (continued) Notes Weighted average effective interest rate Floating interest rate Less than 1 year Fixed Interest Maturing in: 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years 5+ years Total Non- interest bearing % $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 2007 Financial Assets Cash and cash equivalents Receivables Other Financial Liabilities Payables Commercial bills Bank loans Hire purchase liabilities Deferred acquisition payments Other borrowings Employee entitlements 2006 Financial Assets Cash and cash equivalents Receivables Other Financial Liabilities Payables Hire purchase liabilities Employee entitlements 30 7 9,10,11 2.50% - 13.50% 15 16 16 16 16 16 (i) 17 30 7 9, 10 15 16 (i) 17 - 8.54% 4.40% 7.60% 8.00% 5.15% 5.97% 4.10% - - - 7.56% 5.97% 15,271 - - 15,271 - 12,300 15,140 - - - - 27,440 6,421 - - 6,421 - - 11,556 11,556 - - - 1,443 5,373 335 - 7,151 - - - - - - - - - 1,391 - 1,391 - - - - - - - 727 - - - - - - - 237 2,494 146 - 3,367 2,221 17 - 2,475 - - - - - 986 - 986 - - - - - 258 - 258 - - - - - - - - - 4 - 4 - - - - - 172 - 172 - - - - - - - - - - - - - - - - - 87 - 87 - - - - - - - - - - - - - - - - - - - - - 27,806 5,164 32,970 16,741 - - - - - 1,660 18,401 - 18,798 4,624 23,422 13,629 - 1,056 14,685 15,271 27,806 16,720 59,797 16,741 12,300 15,140 2,407 10,088 502 1,660 58,838 6,421 18,798 4,624 29,843 13,629 2,894 1,056 17,579 (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. (e) Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Trade accounts receivable consist of a large number of customers, spread across diverse industries and geographical areas. Ongoing credit evaluation is performed on the financial condition of accounts receivable and, where appropriate, credit guarantee insurance cover is purchased. The Group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents the Group’s maximum exposure to credit risk without taking account of the value of any collateral obtained. (f) Fair value of financial instruments The fair values of financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analyses. The financial statements include holdings in unlisted shares which were measured at fair value in the prior year. Details of the determination of this fair value is contained in note 9. The Directors consider that the carrying amount of financial assets and financial liabilities recorded at amortised cost in the financial statements approximates their fair values. (g) Liquidity risk management Ultimate responsibility for liquidity risk management rests with the Board, who has built an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Page 65 of 73 8 4 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 32 Key Management Personnel Compensation (a) Details of key management personnel The key management personnel of Imdex Limited during the year were: Mr I F Burston (Independent, Non Executive Chairman) Mr B W Ridgeway (Managing Director) Mr H H Al-Merry (Non Executive Director), office vacated 18 August 2006 Mr R W Kelly (Independent, Non Executive Director) Mr K A Dundo (Independent, Non Executive Director) Mr I R Freeman (Non Executive Director), appointed 23 August 2005, resigned 10 April 2007 Mr M Lemmel (Non Executive Director), appointed 19 October 2006 Mr G E Weston (Group General Manager) Mr D J Loughlin (General Manager: Products and Services Division), appointed 1 September 2006 Mr S J Lyons (Company Secretary), resigned 17 October 2006 Mr P A Evans (Company Secretary and Chief Financial Officer), appointed 17 October 2006 Mr D L Kinley (Group Financial Controller), ceased to be a key management person on 17 October 2006 Mr C S Munyard (Manager: Surtron), ceased to be a key management person on 1 September 2006. (b) Key management personnel compensation policy 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 Managing Director has a short term incentive bonus amounting to 20% of his cash compensation package. Of this bonus, 75% is payable on achievement of the FY07 EBIT budget by Group companies and 25% on the purchase of Flexit AB prior to 30 June 2007. The Remuneration Committee set these performance hurdles as the achievement of Group EBIT and purchase of Flexit AB are closely linked to Imdex’s increased growth and profitability and hence shareholder value. The balance of his compensation package for the current year is not linked to the Group’s performance. From time to time options may be issued to the Managing Director as an additional performance incentive. The portion of the Managing Director’s compensation package that comprises options is linked to the Company’s performance. The issue of any such options requires the approval of Shareholders in General Meeting. No such options were granted to the Managing Director in the current year. All Executives, and all staff of the Company, are subject to formal annual reviews of their performance. The remuneration of 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. The remuneration policy for the Managing Director is linked to the Company’s performance as an additional incentive to build shareholder value. The remuneration of Non Executive Directors is not linked to the Company’s performance except as noted below, in order to preserve their independence. The increase in the net profits of the Company and hence the increase in shareholder value over the last five years is indicative of the success of this policy. Management of the Company believes that in order to retain quality Non Executive Directors on the Board, some incentive to maintain their future involvement, commitment and loyalty to the Company, is required on certain occasions, over and above nominal Directors' fees. To this end, a total of 1,000,000 options were issued during the current year to Mr Ian Burston, a Non Executive Director, who has been a member of the Board of the Company (and Chairman) for 5 years. Management of the Company intends that these options will operate as an incentive for Mr Burston to assist in the future performance and growth of the Company. Management of the Company acknowledge the valuable contribution that Mr Burston has made and is expected to make to the Company in the future. The Company is mindful of the ASX Corporate Governance Council's (Principles of Good Corporate Governance and Best Practice Recommendations) recommendation that Non Executive Directors should not be remunerated via the issue of options. However as noted above, the Company regards the incentive created to Non Executive Directors by allowing them the opportunity to share in the growth of the Company via the issue of the Options (and thereby assist in the future performance and growth of the Company) to be aligned to and consistent with long-term benefit to investors in achieving such growth. The issue of these options was approved by the shareholders at the 2006 Annual General Meeting on 19 October 2006. Key management personnel compensation The aggregate compensation of the key management personnel of the Group and the Company is set out below: Short-term employee benefits Post-employment benefits Other long-term benefits Termination benefits Share-based payments Consolidated Company 2007 $ 2006 $ 2007 $ 2006 $ 1,412,941 93,068 34,785 - 208,952 1,749,746 1,399,249 86,041 28,075 - 23,306 1,536,671 1,150,003 72,022 20,020 - 208,952 1,450,997 882,514 48,531 4,789 - 9,768 945,602 The compensation of each member of the key management personnel of the Group is set out on the following page: Page 66 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 8 5 S J L y o n s , C o m p a n y S e c r e a r y t * A c e & S u r t r o n * C S M u n y a r d , M a n a g e r : S u r t r o n * G E W e s t o n , G e n e r a l M a n a g e r : A M C , D L K n e y , i l G r o u p F n a n c a i i l C o n t r o l l e r I R F r e e m a n , N o n E x e c u t i v e D i r e c t o r K A D u n d o , N o n E x e c u t i v e D i r e c t o r R W K e l l y , N o n E x e c u t i v e D i r e c t o r H H A l - M e r r y , N o n E x e c u t i v e D i r e c t o r i B W R d g e w a y , M a n a g n g D i i r e c t o r * 2 0 0 6 I F B u r s t o n , C h a i r m a n ^ - B o n u s e s w e r e e a r n e d o n t ( v i i i ) ( i i i ) ( v i i ) ( v i ) ( i i ) ( i ) , 1 2 9 5 3 8 , 2 3 7 5 3 9 , 1 1 8 4 1 3 , 1 3 4 9 0 0 , 4 3 2 8 8 , 5 0 0 0 0 , 5 0 0 0 0 - , 2 6 1 8 2 7 , 8 2 8 7 5 , 1 1 0 8 3 8 0 , , 1 2 8 8 5 0 , 1 6 2 0 1 9 , 5 4 9 5 0 , 2 0 0 0 0 , 3 9 0 0 - - - - - , 3 6 8 3 6 , 3 7 8 7 2 , 2 9 2 2 3 , 2 2 8 2 - - - - , 5 0 0 0 0 , 5 5 8 0 6 - - - - - - - - - - - - - 8 6 , 0 4 1 1 1 , 6 5 8 2 5 , 8 5 2 1 0 , 6 5 7 5 , 3 1 0 4 , 5 0 0 4 , 5 0 0 - - 2 3 , 5 6 4 - - - - - - - - - - - - 2 8 , 0 7 5 1 0 , 2 6 2 1 3 , 0 2 4 - - - - - - 4 , 7 8 9 - - - - - - - - - - - - - - - - - - - - - - - 2 3 , 3 0 6 1 2 , 8 2 6 7 1 2 1 , 0 9 1 9 4 9 7 , 7 2 8 - - - - - C S M u n y a r d , M a n a g e r : S u r t r o n D L K n e y , i l G r o u p F n a n c a i i l C o n t r o l l e r C o m p a n y S e c r e a r y t ^ S J L y o n s , C o m p a n y S e c r e a r y t P A E v a n s , C h e i f i F n a n c a i l O f f i c e r / P r o d u c t s a n d S e r v i c e s D v i i i s o n D J L o u g h l i n , G e n e r a l M a n a g e r : G E W e s t o n , G r o u p G e n e r a l M a n a g e r M L e m m e l , N o n E x e c u t i v e D i r e c t o r K A D u n d o , N o n E x e c u t i v e D i r e c t o r R W K e l l y , N o n E x e c u t i v e D i r e c t o r I R F r e e m a n , N o n E x e c u t i v e D i r e c t o r H H A l - M e r r y , N o n E x e c u t i v e D i r e c t o r 2 0 0 7 I F B u r s t o n , C h a i r m a n i B W R d g e w a y , M a n a g n g D i i r e c t o r ^ ( v i i i ) ( v i i ) ( v i ) ( v ) ( i v ) ( i i i ) ( i i ) ( i ) , 1 7 5 0 0 , 3 9 3 7 5 , 4 4 2 6 5 , 1 5 3 0 7 6 , 1 4 0 6 7 3 , 2 2 4 8 4 6 , 3 5 0 5 4 , 3 7 5 0 0 , 5 0 0 0 0 , 5 0 0 0 0 - , 3 0 9 6 1 5 , 8 1 7 2 0 , 1 1 8 3 6 2 4 , , 9 5 0 0 0 , 1 3 4 3 1 7 , 2 0 0 0 0 - - - - - - - - - - , 6 1 3 4 , 8 5 2 3 , 1 5 2 2 - , 3 1 3 2 1 , 3 8 0 9 2 - - - - - , 7 5 0 0 0 , 4 8 7 2 5 - - - - - - - - - - - - - - - - 9 3 , 0 6 8 1 , 5 7 5 3 , 5 4 4 3 , 6 0 0 1 3 , 7 7 7 1 2 , 6 6 1 2 1 , 0 4 6 4 , 5 0 0 4 , 5 0 0 - 2 7 , 8 6 5 - - - - - - - - - - - - - - - - - 3 4 , 7 8 5 - - - - - 1 4 , 7 6 5 2 0 , 0 2 0 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2 0 8 , 9 5 2 2 9 , 3 9 4 5 6 , 9 3 5 - - - 1 2 2 , 6 2 3 - - - - - - - h e a c h e v e m e n i t o f p e r f o r m a n c e t a r g e t s a n d r e p r e s e n t t h e f o l l i o w n g p e r c e n t a g e s o f l i p o s s b e a m o u n t s p a y a b e : l i B R d g e w a y 7 5 % a n d P E v a n s 6 7 % . a n d i t s c o n t r o l l e d e n t i t i e s I M D E X L I M T E D I I N O T E S T O T H E F N A N C A L R E P O R T I ( c ) K e y m a n a g e m e n t p e r s o n n e l c o m p e n s a t i o n 3 2 K e y M a n a g e m e n t P e r s o n n e l C o m p e n s a t i o n ( c o n t i n u e d ) N o e s t $ $ $ $ $ $ $ $ $ $ $ $ f e e s l S a a r y & B o n u s m o n e a r y t N o n - O t h e r a n n u a t i o n S u p e r - O t h e r b e n e f i t s l e m p o y e e t e r m B e n e f i t s U n i t s i R g h t s S h a r e s & O p t i o n s & E q u i t y - s e t t l e d s e t t l e d C a s h O t h e r S h o r t - t e r m e m p o y e e b e n e f i t s l P o s t l E m p o y m e n t O t h e r l o n g - i T e r m n a t i o n S h a r e - b a s e d p a y m e n t - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1 , 5 3 6 , 6 7 1 2 4 3 , 9 5 6 3 4 7 , 1 1 3 1 5 9 , 2 4 2 1 4 7 , 4 8 3 4 3 , 2 8 8 5 4 , 5 0 0 5 4 , 5 0 0 - 4 0 3 , 7 1 4 8 2 , 8 7 5 1 , 7 4 9 , 7 4 6 2 5 , 2 0 9 5 1 , 4 4 2 4 9 , 3 8 7 2 1 6 , 2 4 7 2 4 1 , 5 9 0 2 9 8 , 7 4 9 3 5 , 0 5 4 3 7 , 5 0 0 5 4 , 5 0 0 5 4 , 5 0 0 4 8 1 , 2 2 5 2 0 4 , 3 4 3 - $ T o t a l * - B o n u s e s w e r e e a r n e d o n t h e a c h e v e m e n i t o f p e r f o r m a n c e t a r g e t s a n d r e p r e s e n t t h e f o l l i o w n g p e r c e n t a g e s o f p o s s b e i l a m o u n t s p a y a b e : l i B R d g e w a y 6 7 % , S L y o n s 5 0 % , G W e s t o n 2 9 % a n d C M u n y a r d 1 0 0 % . P a g e 6 7 o f 7 3 8 6 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 32 Key Management Personnel Remuneration (continued) (i) The Managing Director, Mr B W Ridgeway does not, currently, have a service contract with the Company. The Managing Director’s compensation is reviewed and determined by the Remuneration Committee. During the current year Mr B W Ridgeway earned a bonus of $75,000, representing 75% of the possible bonus payable for the year. This bonus was paid on the satisfaction of two out of three criteria linked to current year audited EBIT and one out of one acquisition related criteria. During the prior year a bonus of $50,000 was earned, representing 67% of the possible bonus payable for that year. This bonus was paid on the satisfaction of two out of three criteria linked to prior year audited EBIT. No options were granted to Mr Ridgeway in the current year. In the prior year, following approval by members in General Meeting, Mr Ridgeway was granted 2,000,000 options. The options carry no rights to dividends and no voting rights. They expire on their expiry date or three calendar months after ceasing to be a Director, and may be exercised after 2 years and at any time to their expiry date. The percentage of the value of prior year compensation that consisted of options was 2.2%. (ii) Mr H H Al-Merry is the President and owner of Rashid Trading Establishment (RTE), which was involved in a Joint Venture with Imdex Limited in the Middle East. Mr Al-Merry is remunerated directly by the RTE/Imdex Joint Venture. None of the remuneration received from the Joint Venture is in relation to work done for Imdex. Mr Al-Merry’s office was vacated on 18 August 2006. (iii) Mr G E Weston is party to a service contract with the Australian Mud Company Pty Ltd, which sets out a fixed compensation package, reviewable annually. The service contract stipulates a 12 month notice period in the event that the contract is terminated. There are no termination benefits specified in this contract. Performance incentives may be agreed between Mr Weston and the Australian Mud Company Pty Ltd 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 Pty Ltd. This ‘right’ lapses automatically should Mr Weston no longer be employed by the Australian Mud Company Pty Ltd. During the current year Mr G E Weston was entitled to a bonus of $70,000 that was linked to the satisfaction of current year audited EBIT figures. None of the required performance hurdles were achieved in the current year. During the prior year Mr G E Weston earned a bonus of $20,000, representing 29% of the possible bonus payable for that year. This bonus was paid on the satisfaction of one out of two criteria linked to current year audited EBIT. No options were granted to Mr Weston in the current year. In the prior year, Mr Weston was granted 1,000,000 options under Staff Option Tranche 2, along with other staff of the Group, under the Staff Option Scheme as set out in Note 33. The percentage of the value of prior year compensation that consisted of options was 3.9%. (iv) Mr D J Loughlin is a party to a service contract with Imdex Limited, which sets out a fixed compensation package reviewable annually. The service contract specifies a three month notice period in the event that the contract is terminated. There are no termination benefits specified in this contract. Additional performance incentives may be agreed between Mr Loughlin and Imdex Limited from time to time. In the current year, Mr Loughlin was granted 500,000 options, under Staff Option Tranche 3, along with other staff of the Group, under the Staff Option Scheme as set out in Note 33. The percentage of the value of compensation that consisted of options was 24%. (v) Mr P A Evans is a party to a service contract with Imdex Limited, which sets out a fixed compensation package reviewable annually. The service contract specifies a one month notice period in the event that the contract is terminated. There are no termination benefits specified in this contract. Additional performance incentives may be agreed between Mr Evans and Imdex Limited from time to time. During the current year Mr P A Evans earned a bonus of $20,000, representing 67% of the possible bonus payable for the year. This bonus was paid on the satisfaction of one out of one criteria linked to current year audited EBIT and nil out of one systems based criteria. In the current year, Mr Evans was granted 300,000 options, under Staff Option Tranche 4, along with other staff of the Group, under the Staff Option Scheme as set out in Note 33. The percentage of the value of compensation that consisted of options was 14%. (vi) Mr S J Lyons was party to a service contract with Imdex Limited, which sets out a fixed compensation package, reviewable annually. The service contract specifies a two month notice period in the event that the contract is terminated. There are no termination benefits specified in this contract. Additional performance incentives may be agreed between Mr Lyons and the Company from time to time. Mr Lyons resigned on 17 October 2006. During the prior year Mr S J Lyons earned a bonus of $3,900, representing 50% of the possible bonus payable for that year. This bonus was paid on the satisfaction of one out of two criteria linked to current year audited EBIT. No options were granted to Mr Lyons in the current year. In the prior year, Mr Lyons was granted 150,000 options, under Staff Option Tranche 2, along with other staff of the Group, under the Staff Option Scheme as set out in Note 33. The percentage of the value of prior year compensation that consisted of options was 0.8%. (vii) Mr D L Kinley is a party to a service contract with Imdex Limited, which sets out a fixed compensation package, reviewable annually. The service contract specifies a one month notice period in the event that the contract is terminated. There are no termination benefits specified in this contract. Additional performance incentives may be agreed between Mr Kinley and the Company from time to time. Mr D L Kinley ceased to be a key management member on 17 October 2006 following the appointment of Mr P A Evans as Company Secretary and Chief Financial Officer on that date. In the prior year, Mr Kinley was granted 100,000 options, under Staff Option Tranche 2, along with other staff of the Group, under the Staff Option Scheme as set out in Note 33. The percentage of the value of prior year compensation that consisted of options was 0.6%. Page 68 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 8 7 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 32 Key Management Personnel Remuneration (continued) (viii) Mr C S Munyard is a party to a service contract with Surtron Technologies Pty Ltd, which sets out a fixed compensation package reviewable annually. The service contract specifies a one month notice period in the event that the contract is terminated. There are no termination benefits specified in this contract. Additional performance incentives may be agreed between Mr Munyard and Surtron Technologies Pty Ltd from time to time. Mr C S Munyard ceased to be a key management member on 1 September 2006 following the appointment of Mr D J Loughlin as General Manager: Products and Services Division on that date. In the prior year, Mr Munyard was granted 75,000 options, under Staff Option Tranche 2, along with other staff of the Group, under the Staff Option Scheme as set out in Note 33. The percentage of the value of prior year compensation that consisted of options was 0.3%. 33 Staff Option Scheme (a) Share Based Payment Arrangements Staff Option Plan The Group has in place a Staff Option Scheme (Scheme) to reward employees (including Key Management Personnel) for their past services as well as to 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. Options expire when the option holder ceases to be employed by the Group. As at 30 June 2007 a total of 3,006,111 of these options had vested. Chairman’s Options During the current year options were issued to the Chairman as a reward for past performance and as an incentive for the future. These options 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 when ceasing to be a Director, and may be exercised after 2 years at any time to their expiry date. As at 30 June 2007 none of these options had vested. Managing Director’s Options During the prior year options were issued to the Managing Director as a reward for past performance and as an incentive for the future. The options carry no rights to dividends and no voting rights. As at 30 June 2007 none of these options had vested. Corporate Advisors Options During the prior year options were issued to Corporate Advisors of the Company as a reward for past performance and as an incentive for the future. The options carry no rights to dividends and no voting rights. As at 30 June 2007 all of the options had vested. (b) The following share based payment arrangements were in existence during the current and comparative periods: 2007 Issue Date Expiry Date Exercise Price Fair Value at Grant $ Date Opening balance Number of Options Exercised current year Lapsed current year Closing balance Issued current year Staff Options Tranche 1 (i) Tranche 2 (i) Tranche 3 (i) Tranche 4 (i) Tranche 5 (i) 31-Jul-09 0.20 1-Aug-04 1-Feb-06 31-Jan-11 0.35 23-Feb-07 22-Feb-12 0.75 23-Feb-07 22-Feb-12 1.00 12-Jun-07 11-Jun-12 1.80 $ 0.01 0.02 0.56 0.48 0.51 3,048,333 2,660,000 - 700,000 - 4,575,000 - 675,000 - (937,832) (20,000) - (428,428) (41,667) 2,090,501 2,189,905 - - 700,000 - (150,000) 4,425,000 - - 675,000 Chairmans Options Tranche 1 (ii) 19-Oct-06 18-Oct-11 0.75 0.35 - 1,000,000 - - 1,000,000 Managing Directors' Options Tranche 1 (iii) 15-Sep-05 14-Sep-10 0.30 0.01 2,000,000 - - - 2,000,000 Corporate Advisors Options Tranche 1 (iv) Tranche 2 (v) Tranche 3 (iv) 23-Dec-04 31-Jul-09 0.20 23-Dec-04 31-Oct-07 0.20 23-Dec-04 31-Oct-07 0.35 0.03 0.02 0.01 8 8 - (100,000) 100,000 - (2,000,000) 2,000,000 1,000,000 - (1,000,000) 10,808,333 6,950,000 (4,466,260) (211,667) - - - - - - 13,080,406 Page 69 of 73 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 33 Staff Option Scheme (continued) 2006 Issue Date Expiry Date Exercise Price $ Fair Value at Grant Date $ Opening balance Issued current year Number of Options Exercised current year Lapsed current year Closing balance Staff Options Tranche 1 (i) Tranche 2 (i) 1-Aug-04 1-Feb-06 31-Jul-09 0.20 31-Jan-11 0.35 0.01 0.02 3,160,000 - 2,680,000 - (51,667) (60,000) - (20,000) 3,048,333 2,660,000 Managing Directors' Options Tranche 1 (iii) 15-Sep-05 14-Sep-10 0.30 Corporate Advisors Options Tranche 1 (iv) Tranche 2 (v) Tranche 3 (iv) 31-Jul-09 0.20 23-Dec-04 23-Dec-04 31-Oct-07 0.20 23-Dec-04 31-Oct-07 0.35 0.01 - 2,000,000 - - 2,000,000 0.03 0.02 0.01 100,000 2,000,000 1,000,000 6,260,000 4,680,000 (51,667) (80,000) - - - 100,000 - - - 2,000,000 - - - 1,000,000 10,808,333 (i) Excercisable in one third lots in each year commencing one year after issue. (ii) Expire on their expiry date or when ceasing to be a Director, and may be exercised after 2 years at any time to their expiry date. (iii) Expire on their expiry date or 3 months after ceasing to be a Director, and may be exercised after 2 years at any time to their expiry (iv) Exercisable at any time up to expiry. (v) Exercisable at any time after Imdex shares trade at 30 cents for 5 consecutive trading days. This condition has been satisfied. (c) Fair value of options granted during the financial year The weighted average fair value of the share options granted during the financial year is $0.47 (2006: $0.02). Options were priced using a Black-Scholes option pricing model. Where relevant, the expected life used in the model has been adjusted based on management’s best estimate for the effects of non-transferability, exercise restrictions (including the probability of meeting market conditions attached to the option), and behavioural considerations. Expected volatility is based on the historical share price volatility trends. 2007 Inputs into the model Grant date share price ($) Exercise price ($) Expected volatility Option life (years) Marketability discount Risk-free interest rate Dividend yield 2006 Inputs into the model Grant date share price ($) Exercise price ($) Expected volatility Option life (years) Marketability discount Risk-free interest rate Dividend yield Chairmans Options Tranche 1 Staff Options Tranche 3 Staff Options Tranche 4 Staff Options Tranche 5 1.08 1.00 50% 5.00 0% 6.00% 2.30% 1.40 1.80 50% 5.00 0% 6.38% 2.30% 0.80 0.75 50% 5.00 0% 5.89% 2.30% 1.08 0.75 50% 5.00 0% 6.00% 2.30% Managing Directors Options Tranche 1 Staff Options Tranche 2 0.25 0.30 9% 5.00 40% 5.50% 0.00% 0.20 0.35 9% 5.00 40% 5.75% 0.00% Page 70 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 8 9 IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 33 Staff Option Scheme (continued) (d) Exercised during the financial year 2007 Option Series Staff Options Tranche 1 Staff Options Tranche 2 Corp Advisor Tranche 1 Corp Advisor Tranche 2 Corp Advisor Tranche 3 2006 Option Series Staff Options Tranche 1 Staff Options Tranche 1 Staff Options Tranche 1 Number Exercised Exercise Date Weighted Average Share Price at Exercise Date 937,832 428,428 100,000 2,000,000 1,000,000 4,466,260 Various Various 24-Nov-06 Various Various 0.97 0.97 0.78 0.74 0.77 Number Exercised Exercise Date Share Price at Exercise Date 16,667 25,000 10,000 51,667 15-Nov-05 1-Feb-06 29-Jun-06 0.30 0.41 0.58 (e) Balance at end of the financial year The share options outstanding at the end of the financial year had a weighted average exercise price of $0.67 (2006: $0.28), and a weighted average remaining contractual life of 1398 days (2006: 796 days) 34 Subsequent Events Effective 1 July 2007 Imdex Limited acquired 100% of the issued share capital of the Canadian based Poly-Drill Drilling Systems Ltd (Poly-Drill) for a total of $3.5 million. The purchase price was settled by way of $1.75 million cash and 1,212,751 fully paid ordinary shares in Imdex Limited with a fair value of $1.75 million. The issue price of the Imdex shares was the weighted average share price on the 5 business days prior to 1 July 2007. The issued shares are under a voluntary escrow until 30 June 2008. Poly-Drill manufactures and sells polymer drilling fluid based systems and solids control systems. Additional disclosures with respect to this acquisition are impractical at this stage as the acquisition accounting is still being finalised. Effective 1 July 2007, Imdex Limited acquired 75% of the issued share capital of Suay Energy Services LLP (Suay), a private company incorporated in Kazakhstan. The purchase price was US$0.4 million (A$0.5 million) payable in cash. Of this amount US$0.2 million (A$0.2 million) was paid in May 2007 with the balance paid on settlement. Imdex Limited has the right to acquire the remaining 25% interest at fair value. Suay supply drilling fluids and chemicals to the oil and gas industry in the Caspian Sea region. Additional disclosures with respect to this acquisition are impractical at this stage as the acquisition accounting is still being finalised. On 31 July 2007 Imdex Limited paid the next deferred settlement instalment of GBP 2.2 million ($5.4 million) due to the vendors of Chardec Technology Limited. On 3 August 2007, a Heads of Agreement was signed to acquire Southernland S.A., a drilling fluids and chemicals manufacturer and distributor based in Santiago, Chile. The purchase price is US$2.6 million, with 50% payable in cash on settlement and 50% to be paid in fully paid ordinary shares in Imdex Limited to be escrowed for two years from the date of settlement. The shares will be issued at the weighted average closing price of the 5 days immediately prior to settlement. The proposed settlement date is 1 October 2007. The acquisition of Southernland S.A. provides the Imdex Group with manufacturing capability in Chile in order to access the growing Central and Southern American markets. Additional disclosures with respect to this acquisition are impractical at this stage as the due diligence process and acquisition accounting are still being finalised. Subsequent to year end the Directors declared a 1.5 cent per share fully franked dividend with an entitlement date of 5 October 2007 and a payment date of 17 October 2007. The effect of this dividend has not been reflected in this financial report. 9 0 Page 71 of 73 IMDEX LIMITED and its controlled entities ADDITIONAL STOCK EXCHANGE INFORMATION AS AT 13 AUGUST 2007 (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 Fiberform Vinidic Holding AB ANZ Nominees Limited J P Morgan Nominees Australia Limited Fully Paid Ordinary Shares Options 238 1,044 730 1,239 138 3,389 36 - - 9 95 22 126 - Fully Paid Number Percentage 20,800,000 12,051,399 9,952,463 11.47% 6.65% 5.49% (c) Twenty Largest Holders of Quoted Equity Securities Ordinary Shareholders Fiberform Vinidic Holding AB ANZ Nominees Limited J P Morgan Nominees Australia Limited National Nominees Limited Citicorp Nominees Pty Limited RBC Dexia Investor Services Australia Nominees Pty Limited (PIIC Account) Queensland Investment Corporation Limited RBC Dexia Investor Services Australia Nominees Pty Limited (PIPooled Account) RBC Dexia Investor Services Australia Nominees Pty Limited (BKCust Account) Telic Alcatel (Australia) Pty Ltd Wear Services Pty Ltd HSBC Custody Nominees (Australia) Limited Bond Street Custodians Limited WB Nominees Limited Mr Petrus Cornelius Nicolaas Middendorp Primbee Investments Pty Ltd Longo Pty Ltd Citicorp Nominees Pty Limited Mr Robert Whipple Chippell Pty Ltd Fully Paid Number Percentage 20,800,000 12,051,399 9,952,463 7,314,593 6,698,865 6,610,314 5,569,120 4,591,351 4,312,763 3,603,152 3,500,000 3,266,893 2,200,000 1,800,000 1,753,500 1,615,921 1,572,826 1,343,725 1,212,751 1,210,273 11.47% 6.65% 5.49% 4.03% 3.69% 3.65% 3.07% 2.53% 2.38% 1.99% 1.93% 1.80% 1.21% 0.99% 0.97% 0.89% 0.87% 0.74% 0.67% 0.67% 100,979,909 55.69% Page 72 of 73 A N N U A L R E P O R T 2 0 0 7 IMDEX 9 1 IMDEX LIMITED and its controlled entities ADDITIONAL STOCK EXCHANGE INFORMATION AS AT 13 AUGUST 2007 (d) Director and Company Secretary Shareholdings Number of Shares 3,500,000 260,000 265,000 300,000 400,000 5,000 4,730,000 Number of Options 2,000,000 1,000,000 - - - 300,000 3,300,000 Name Mr B W Ridgeway Mr I F Burston Mr R W Kelly Mr K A Dundo Mr M Lemmel Mr P A Evans (e) Company Secretary Mr Paul Anthony Evans (f) Registered Office Level 1, Canute House 15 Rheola Street West Perth Western Australia Phone: (08) 9481 5777 (g) Share Registry Computershare Investory Services Level 2 45 St Georges Terrace Perth WA 6000 Phone: (08) 9323 2000 9 2 Page 73 of 73 T R O P E R L A U N N A 7 0 0 2 w w w . i m d e x . c o m . a u ABN 78 008 947 813 NOTICE OF ANNUAL GENERAL MEETING Notice is given that the 2007 Annual General Meeting of Shareholders of Imdex Limited will be held at The Celtic Club, 48 Ord Street, West Perth, Western Australia, on 19 October 2007 commencing at 11.00am WST Agenda Ordinary Business 1 To receive and consider the Annual Financial Report, together with the Directors’ and Auditor’s reports for the year ended 30 June 2007. 2 To consider and, if thought fit, pass the following Resolution as an Ordinary Resolution: That, for all purposes, Mr Kevin Dundo, who retires from the office of Director by rotation, and being eligible, offers himself for re-election, is re-elected as a Director. 3 To consider and, if thought fit, pass the following resolution as an Ordinary Resolution: That, for all purposes, Mr Magnus Lemmel, who was appointed to the Board of Directors on 19 October 2006 as an additional Director, and being eligible, offers himself for re-election, is re- elected as a Director. 4 To consider and, if thought fit, pass, with or without amendment, the following resolution as an Ordinary Resolution: That, for the purposes of ASX Listing Rule 7.4 and for all other purposes, the Company ratifies the allotment and issue of 1,367,790 fully paid ordinary shares in the capital of the Company on the terms set out in the accompanying Explanatory Memorandum. Voting Exclusion: The Company will disregard any votes cast on Resolution 4 by Robert Whipple or David Scott or any person who participated in the issue and any associate of such person. However, the Company need not disregard a vote if it is cast by a person as a proxy for a person who is entitled to vote, in accordance with the direction on the proxy form, or it is cast by the person chairing the Meeting as a proxy for a person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides. 5 To consider and, if thought fit, pass, with or without amendment, the following resolution as an Ordinary Resolution: That, for the purposes of ASX Listing Rule 7.4 and for all other purposes, the Company ratifies the allotment and issue of 1,919,627 fully paid ordinary shares in the capital of the Company issued upon the exercise of Staff Options on the terms and conditions set out in the accompanying Explanatory Memorandum. Voting Exclusion: The Company will disregard any votes cast on Resolution 5 by any person who participated in the issue and any associate of such person. However, the Company need not disregard a vote if it is cast by a person as a proxy for a person who is entitled to vote, in accordance with the direction on the proxy form, or it is cast by the person chairing the Meeting as a proxy for a person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides. NOTICE OF ANNUAL GENERAL MEETING 6 To consider and, if thought fit, pass the following resolution as an Advisory Resolution: That, for all purposes, the Directors’ and Executives’ Remuneration Report, included within the Directors’ Report, for the year ended 30 June 2007 be approved. 7 To consider any other business that may be brought before the Meeting in accordance with the Company’s Constitution. Explanatory Memorandum Shareholders are referred to the Explanatory Memorandum accompanying and forming part of this Notice of Annual General Meeting. Snap Shot Time Regulation 7.11.37 of the Corporations Regulations 2001 permits the Company to specify a time, not more than 48 hours before the meeting, at which a “snap shot” of Shareholders will be taken for the purposes of determining Shareholder entitlements to vote at the Meeting. The Company’s Directors have determined that all Shares of the Company that are quoted on ASX at 5pm WST, 17 October 2007 shall, for the purposes of determining voting entitlements at the Annual General Meeting, be taken to be held by the persons registered as holding the Shares at that time. Proxies Please note that: (a) a member of the Company entitled to attend and vote at the Annual General Meeting is entitled to appoint a Proxy; (b) a Proxy need not be a member of the Company; and (c) a member of the Company entitled to cast two or more votes may appoint two proxies and may specify the proportion or number of votes each Proxy is appointed to exercise, but where the proportion or number is not specified, each Proxy may exercise half of the votes. The enclosed Proxy Form for the Annual General Meeting provides further details on appointing Proxies and lodging the Proxy Form. Proxies must be returned by 11.00am WST on 17 October 2007. Corporate Representative If a representative of a Shareholder corporation is to attend the meeting the attached “Appointment of Corporate Representative” form should be completed and produced prior to admission. Dated 11 September 2007 By Order of the Board of Directors Imdex Limited Paul Evans Company Secretary EXPLANATORY MEMORANDUM 1 Purpose of this Document This Explanatory Memorandum has been prepared to assist Shareholders with their consideration of the Resolutions in the accompanying Notice of Annual General Meeting. 2 Resolution 2 and 3 – Re-election of Directors In accordance with ASX Listing Rule 14.4 and Article 17.4 of the Constitution, at every Annual General Meeting, one third of the Directors for the time being must retire from office and are eligible for re-election. The Directors to retire are to be those who have been longest in office since their appointment or last re- appointment or, if the Directors have been in office for an equal length of time and unless mutually agreed, by lot. Mr Kevin Dundo, a Director of the Company since 14 January 2004, seeks re-election by reason of his retirement by rotation pursuant to Resolution 2 of the Notice of Meeting. A record of Mr Kevin Dundo’s attendances at Board meetings over the 12 month period to 30 June 2007 is set out in the 2007 Annual Report as are further details concerning his qualifications and experience. Article 17.3 of the Constitution, requires that any Director appointed by the Board to fill a casual vacancy or as an additional Director, must retire at the next Meeting of the Company following his or her appointment, but is eligible for re-election at that Meeting. Mr Magnus Lemmel, who was appointed to the Board on 19 October 2006 following the completion of the Reflex acquisition, seeks re-election as a Director pursuant to Resolution 3 of the Notice of Meeting. Further details concerning Mr Lemmel’s qualifications and experience are set out in the 2007 Annual Report. The Directors recommend that Shareholders vote in favour of Resolution 2 and 3 to appoint Mr Kevin Dundo and Mr Magnus Lemmel. 3 Resolution 4 – Ratification of the issue of 1,367,790 Shares Resolution 4 seeks Shareholder ratification for the issue and allotment of 1,367,790 Shares which relate to recent acquisitions by the Company of two Canadian companies. 1,212,751 Shares were issued to Robert Whipple as part consideration for the purchase of all of the shares of Poly Drill Drilling Systems Limited (Poly Drill), and the remaining 155,039 Shares were issued to David Scott as part consideration for the purchase of all of the Shares in Nudge Geotechnical Instrumentation Inc (Nudge). 3.1 Poly Drill Drilling Systems Limited 1,212,751 Shares were issued as part consideration for the purchase of Poly Drill, a Canadian based company which specialises in the provision of polymer drilling fluid base systems. The business of Poly Drill is complementary to the existing drilling products and services business of Imdex. The total consideration for the purchase of all of the shares of Poly Drill was $3,500,000, consisting of a payment of $1,750,000 and the issue of 1,212,751 Shares at a deemed issue price of $1.443 per share. 3.2 Nudge Geotechnical Instrumentation Inc 155,039 Shares were issued as part consideration for the acquisition of all the shares in Canadian company Nudge. Nudge's significant asset is the ownership of a Canadian patent which is similar in operation to the Ace Orientation Core Tool owned by the Company. The total consideration for the purchase of all of the shares in Nudge was $500,000, consisting of a payment of $300,000 and the issue of 155,039 Shares at a deemed issue price of $1.29 per Share. Page 1 EXPLANATORY MEMORANDUM 3.3 ASX Listing Rule 7.4 ASX Listing Rule 7.1 provides that a company must not, subject to specified exceptions, issue or agree to issue during any 12 month period any equity securities, or other securities with rights to conversion to equity (such as an option), if the number of those securities exceeds 15% of the number of securities in the same class on issue at the commencement of that 12 month period. ASX Listing Rule 7.4 sets out an exception to ASX Listing Rule 7.1. It provides that where a company in general meeting ratifies the previous issue of securities made pursuant to ASX Listing Rule 7.1 (and provided that the previous issue did not breach Listing Rule 7.1) those securities will be deemed to have been made with shareholder approval for the purpose of ASX Listing Rule 7.1. Ratification by the shareholders of the Company is now sought pursuant to ASX Listing Rule 7.4 in order to reinstate the Company’s capacity to issue up to 15% of its issued capital, if required, in the next 12 months without shareholder approval. ASX Listing Rule 7.5 requires that the following information be provided to shareholders in relation to the Shares the subject of Resolution 4: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) the total number of Shares issued by the Company was 1,367,790 Shares; 1,212,751 Shares were issued on 2 August 2007 1,212,751 of these Shares are subject to voluntary escrow for 12 months from 1 July 2007, being the shares issued by the Company in relation to the purchase of Poly Drill; 1,212,751 of the Shares were issued at a deemed price of $1.443 per Share, being the closing weighted average share price of the Company's Shares on ASX on the five business days prior to 1 July 2007; 1,212,751 Shares were allotted to Robert Whipple as part consideration for the purchase by the Company of Poly Drill Drilling Systems Limited; 155,039 Shares were issued on 9 May 2007; 155,039 Shares were issued at a deemed price of $1.29 per Share, being the average traded price of the Company's shares on the ASX on April 16 2007. 155,039 Shares were allotted to David Scott as part consideration for the purchase by the Company of Nudge Geotechnical Instrumentation Inc; all of the Shares allotted and issued rank equally in all respects with the Company’s existing Shares on issue; no Shares were issued to any related party of the Company; and no monies were raised by either issue as the issues were in part consideration for the purchase by the Company of all of the shares in Poly Drill Drilling Systems Limited and Nudge Geotechnical Instrumentation Inc respectively. The Directors recommend that Shareholders vote in favour of Resolution 4. Page 2 EXPLANATORY MEMORANDUM 4 Resolution 5 – Ratification of the issue of Staff Shares Resolution 5 seeks Shareholder ratification for the issue and allotment of 1,919,627 Shares which were issued to employees and consultants of the Company (Staff Shares). 4.1 Staff Shares 1,919,627 Staff Shares were issued to various employees and consultants of the Company on the exercise of employee options previously granted by the Board in accordance with the Company's Staff Option Plan as incentives and rewards for staff loyalty and performance. The Company notes that the Staff Option Plan has since been superseded by an Employee Option Plan approved by Shareholders at a general meeting held on 30 April 2007. The full details of all the Staff Shares issued are provided at Annexure A, however by way of summary: (a) (b) 999,532 Shares were issued at a price of $0.20; and 920,095 Shares were issued at a price of $0.35; 4.2 ASX Listing Rule 7.4 ASX Listing Rule 7.1 provides that a company must not, subject to specified exceptions, issue or agree to issue during any 12 month period any equity securities, or other securities with rights to conversion to equity (such as an option), if the number of those securities exceeds 15% of the number of securities in the same class on issue at the commencement of that 12 month period. ASX Listing Rule 7.4 sets out an exception to ASX Listing Rule 7.1. It provides that where a company in general meeting ratifies the previous issue of securities made pursuant to ASX Listing Rule 7.1 (and provided that the previous issue did not breach Listing Rule 7.1) those securities will be deemed to have been made with shareholder approval for the purpose of ASX Listing Rule 7.1. Ratification by the shareholders of the Company is now sought pursuant to ASX Listing Rule 7.4 in order to reinstate the Company’s capacity to issue up to 15% of its issued capital, if required in the next 12 months without shareholder approval. ASX Listing Rule 7.5 requires that the following information be provided to shareholders in relation to the Shares the subject of Resolution 5: (a) (b) (c) (d) (e) (f) The total number of Shares issued by the Company was 1,919,627 Shares; 999,532 Shares were issued at a price of $0.20 per Share, and 920,095 Shares were issued at a price of $0.35 per Share. The Shares were issued on the dates detailed in the table in Annexure A, which dates are between 2 January 2007 and 25 June 2007; The Shares were allotted to employees and consultants of the Company by the exercise of Staff Options held by the employees and consultants, which Staff Options had been issued by way of incentive and reward for performance and loyalty pursuant to the Company's Staff Option Plan; The Shares allotted and issued rank equally in all respects with the Company’s existing Shares on issue; No Shares were issued to any related party of the Company; and $521,940 in total was raised by the issue, which was used as general working capital. The Directors recommend that Shareholders vote in favour of Resolution 5. Page 3 EXPLANATORY MEMORANDUM 5 Resolution 6 – Remuneration Report Included in the Directors' Report contained within the 2007 Annual Report is a Remuneration Report that sets out the details of the remuneration of all Directors and the highest paid group executives. In addition, it describes the Board’s remuneration policy. The Board submits the Remuneration Report to Shareholders for their consideration and adoption by way of a non-binding resolution as required by the Corporations Act. The Directors recommend that Shareholders vote in favour of Resolution 6. 6 Glossary In this Explanatory Memorandum, the following terms have the following meanings unless the context otherwise requires: AGM ASIC ASX means the 2007 Annual General Meeting of the Company to be held at 11.00am on 19 October 2007. means the Australian Securities & Investments Commission. means the Australian Securities Exchange operated by ASX Limited ABN 98 008 624 691. means the Board of Directors. Board means Imdex Limited ABN 78 008 947 813. Company Constitution means the Constitution of the Company. Corporations Act means the Corporations Act 2001 (Cth). Director Nudge Poly Drill Share Shareholder Staff Options means a Director of the Company. means Nudge Geotechnical Instrumentation Inc means Poly Drill Drilling Systems Ltd means a fully paid ordinary share in the capital of the Company. means a holder of a Share. means the options issued to employees and/or consultants of the Company pursuant to the Staff Option Plan Staff Option Plan means the previous option plan for employees and consultants of the Company. Staff Shares WST means the Shares issued on the exercise of the Staff Options. means Australian Western Standard Time. Page 4 ANNEXURE A – STAFF SHARES Date of exercise of options Number of Staff Issue Price ($) Shares issued 2/01/2007 8/02/2007 8/02/2007 16/02/2007 20/02/2007 22/02/2007 2/03/2007 5/03/2007 5/03/2007 7/03/2007 7/03/2007 7/03/2007 7/03/2007 22/03/2007 28/03/2007 28/03/2007 13/04/2007 13/04/2007 13/04/2007 13/04/2007 13/04/2007 23/04/2007 27/04/2007 27/04/2007 10/05/2007 15/05/2007 15/05/2007 15/05/2007 16/05/2007 21/05/2007 21/05/2007 22/05/2007 22/05/2007 23/05/2007 500,000 10,000 10,000 8,333 15,000 16,666 500,000 66,500 33,300 33,333 50,000 16,666 150,000 10,000 33,334 16,666 3,333 30,000 6,666 3,333 10,000 28,000 33,333 16,667 16,500 16,700 3,333 50,000 100,000 50,000 16,666 16,666 16,666 3,333 $0.35 $0.20 $0.35 $0.35 $0.20 $0.20 $0.20 $0.20 $0.35 $0.20 $0.20 $0.35 $0.35 $0.20 $0.20 $0.35 $0.20 $0.20 $0.35 $0.35 $0.35 $0.20 $0.20 $0.35 $0.35 $0.20 $0.35 $0.35 $0.20 $0.20 $0.35 $0.35 $0.35 $0.35 Page 5 ANNEXURE A – STAFF SHARES (continued) Date of exercise of options Number of Staff Issue Price ($) Shares issued 5/06/2007 5/06/2007 19/06/2007 19/06/2007 19/06/2007 25/06/2007 8,333 5,000 3,333 3,300 6,667 2,000 Total 1,919,627 $0.35 $0.35 $0.20 $0.35 $0.35 $0.35 Page 6 Shareholder Details This is to certify that by a resolution of the Directors of: (Insert name of shareholder company) The Company has appointed: (Insert name of corporate representative) CORPORATE REPRESENTATIVE CERTIFICATE (Company) (Authorised corporate representative) in accordance with the provisions of section 250D of the Corporations Act 2001, to act as the body corporate representative of that Company at the Annual General Meeting of Imdex Limited to be held on 19 October 2007 and at any adjournments of that meeting. DATED ………………………………………………………………………………………………………………………………..2007 Please sign here Executed by the Company in accordance with its constituent documents Signed by authorised representative Signed by authorised representative Name of authorised representative (print) Name of authorised representative (print) Position of authorised representative (print) Position of authorised representative (print) Instructions for Completion 1. Insert name of appointor Company and the name or position of the appointee (eg “John Smith” or “each Director of the Company”). 2. Execute the Certificate following the procedure required by your Constitution or other constituent documents. 3. Print the name and position (eg Director) of each Company officer who signs this Certificate on behalf of the Company. 4. Insert the date of execution where indicated. 5. The certificate must be produced prior to admission to the Meeting. You may send or deliver the Certificate to Imdex Limited, Level 1, 15 Rheola Street, West Perth WA 6005 or fax to (08) 9481 6527. Imdex Limited ABN 78 008 947 813 000001 000 IMD MR SAM SAMPLE 121 SAMPLE STREET MELBOURNE VIC 3000 All correspondence to: Computershare Investor Services Pty Limited GPO Box 242 Melbourne Victoria 3001 Australia Enquiries (within Australia) 1300 850 505 (outside Australia) 61 3 9415 4000 Facsimile 61 8 9323 2033 www.computershare.com Holder Identification Number (HIN) X 1234567890 I N D I/We being a member/s of Imdex Limited and entitled to attend and vote hereby appoint or failing the individual or body corporate named, or if no individual or body corporate is named, the Chairman of the Meeting, as my/our proxy to act generally at the meeting on my/our behalf and to vote in accordance with the following directions (or if no directions have been given, as the proxy sees fit) at the Annual General Meeting of Imdex Limited to be held at The Celtic Club, 48 Ord Street, West Perth, Western Australia on Friday, 19 October 2007 at 11.00am (WST) and at any adjournment of that meeting. For Against Abstain* Item 2 Re-election of Mr Kevin Dundo as a Director Item 3 Re-election of Mr Magnus Lemmel as a Director Item 4 Ratification of issue of 1,367,790 Shares Item 5 Ratification of issue of Shares - Staff Options Item 6 Approval of Remuneration Report In addition to the intention advised above, the Chairman of the Meeting intends to vote undirected proxies in favour of each of the other items of business. * If you mark the Abstain box for a particular item, you are directing your proxy not to vote on your behalf on a show of hands or on a poll and your votes will not be counted in computing the required majority on a poll. In addition to signing the Proxy Form in the above box(es) please provide the information below in case we need to contact you. I M D 1 P R IMD_4_1_053474/000001/000001 How to complete the Proxy Form 1 Your Address This is your address as it appears on the company’s Share register. If this information is incorrect, please mark the box and make the correction on the form. Securityholders sponsored by a broker (in which case your reference number overleaf will commence with an ‘x’) should advise your broker of any changes. Please note, you cannot change ownership of your securities using this form. 2 Appointment of a Proxy If you wish to appoint the Chairman of the Meeting as your proxy, mark the box. If the individual or body corporate you wish to appoint as your proxy is someone other than the Chairman of the Meeting please write the full name of that individual or body corporate in the space provided. If you leave this section blank, or your named proxy does not attend the meeting, the Chairman of the Meeting will be your proxy. A proxy need not be a securityholder of the company. Do not write the name of the issuer company or the registered securityholder in the space. 3 Votes on Items of Business You may direct your proxy how to vote by placing a mark in one of the three boxes opposite each item of business. All your securities will be voted in accordance with such a direction unless you indicate only a portion of voting rights are to be voted on any item by inserting the percentage or number of securities you wish to vote in the appropriate box or boxes. If you do not mark any of the boxes on a given item, your proxy may vote as he or she chooses. If you mark more than one box on an item your vote on that item will be invalid. 4 Appointment of a Second Proxy You are entitled to appoint up to two proxies to attend the meeting and vote on a poll. If you wish to appoint a second proxy, an additional Proxy Form may be obtained by telephoning the company's Share registry or you may copy this form. To appoint a second proxy you must: (a) indicate that you wish to appoint a second proxy by marking the box. (b) on each of the first Proxy Form and the second Proxy Form state the percentage of your voting rights or number of securities applicable to that form. If the appointments do not specify the percentage or number of votes that each proxy may exercise, each proxy may exercise half your votes. Fractions of votes will be disregarded. (c) return both forms together in the same envelope. 5 Signing Instructions You must sign this form as follows in the spaces provided: Individual: where the holding is in one name, the holder must sign. Joint Holding: where the holding is in more than one name, all of the securityholders should sign. Power of Attorney: to sign under Power of Attorney, you must have already lodged this document with the registry. If you have not previously lodged this document for notation, please attach a certified photocopy of the Power of Attorney to this form when you return it. Companies: where the company has a Sole Director who is also the Sole Company Secretary, this form must be signed by that person. If the company (pursuant to section 204A of the Corporations Act 2001) does not have a Company Secretary, a Sole Director can also sign alone. Otherwise this form must be signed by a Director jointly with either another Director or a Company Secretary. Please indicate the office held by signing in the appropriate place. If a representative of a corporate Securityholder or proxy is to attend the meeting the appropriate "Certificate of Appointment of Corporate Representative" should be produced prior to admission. A form of the certificate may be obtained from the company's Share registry or at www.computershare.com. Lodgement of a Proxy This Proxy Form (and any Power of Attorney under which it is signed) must be received at an address given below no later than 48 hours before the commencement of the meeting at 11.00am (WST) on Friday, 19 October 2007. Any Proxy Form received after that time will not be valid for the scheduled meeting. Documents may be lodged: IN PERSON BY MAIL BY FAX Registered Office - PO Box 1325 West perth WA 6872 Share Registry - Computershare Investor Services Pty Limited, Level 2, 45 St Georges Terrace, Perth WA 6000 Australia Registered Office - PO Box 1325 West perth WA 6872 Share Registry - Computershare Investor Services Pty Limited, GPO Box 242, Melbourne VIC 3001 Australia 61 8 9323 2033 Imdex Limited ABN 78 008 947 813 000001 000 IMD MR SAM SAMPLE 121 SAMPLE STREET MELBOURNE VIC 3000 14 September 2007 Dear Shareholder LEGISLATION CHANGE - WHAT THIS MEANS FOR YOU The Australian Government recently introduced legislation changing the default option for receiving annual reports to be via a company's website. You will now receive timely, cost effective and greener online annual reports unless you request a printed version. To assist us with our commitment to the environment and our focus on cost control, we further encourage you to provide your email address and receive all your shareholder communications online. Please refer to the back of this letter to make your communication selection. If you have any questions about this letter please contact an investor services representative on 1300 850 505. Yours sincerely Paul Evans Company Secretary IMD_4_1_053474/000001/000002/i X1234567890 0800 000001 000 IMD MR SAM SAMPLE 121 SAMPLE STREET MELBOURNE VIC 3000 X 1234567890 I N D IMD
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