Imdex Limited Annual Report 2012

Plain-text annual report

ANNUAL REPORT 2012 Imdex Limited (Imdex) ABN 78 008 947 813 Australian Securities Exchange (ASX) Listing Date 24 September 1987 ASX Code IMD Registered Ofﬁ ce 8 Pitino Court Osborne Park Western Australia 6017 Head Ofﬁ ce 8 Pitino Court Osborne Park Western Australia 6017 Directors Mr Ross Kelly (Chairperson) Mr Bernie Ridgeway (Managing Director) Mr Kevin Dundo (Non-Executive Director) Mr Magnus Lemmel (Non-Executive Director) Ms Betsy Donaghey (Non-Executive Director) Company Secretary Mr Paul Evans 2012 Annual General Meeting Imdex’s AGM will be held at The Celtic Club, 48 Ord Street West Perth, Western Australia commencing at 11am on Thursday 18 October 2012. For further information please contact Paul Evans on 08 9445 4010 or visit the investor section of our website at www.imdexlimited.com Contents Imdex Group at a Glance Company Proﬁ le Key Data as at 30 June 2012 Company Structure Comprehensive Product Range Global Business FY12 Snapshot Strategy for Increasing Shareholder Value Growth Initiatives Operational Highlights and Challenges Market Review Revenue Base Geographic Diversiﬁ cation Financial Performance Summary Financial Highlights Board of Directors Chairperson’s Report Managing Director’s Report Operational Overview Global Team Research and Development Quality, Health, Safety and Environment Risk Management Focus for FY13 Strategy for Increasing Shareholder Value Growth Initiatives 2012 Financial Report 3 3 3 3 4 8 10 10 10 10 11 12 12 13 15 16 19 23 27 27 28 29 30 31 31 31 33 Throughout this document, unless otherwise stated, all monetary amounts are recorded in Australian currency. Company History 120 Imdex 2012 Annual Report 1 During FY12 the company increased its market share in all global regions; achieved record rental levels of its mining downhole instrumentation; successfully integrated three strategic acquisitions; executed a signiﬁ cant joint venture in the oil and gas sector; and further enhanced its product range and leading technology. 2 Imdex Group at a glance Company Proﬁ le Imdex is a global leader in the provision of innovative drilling ﬂ uid products and advanced downhole instrumentation. The company provides leading solutions and superior customer service to exploration, development and production companies within the minerals and oil and gas sectors worldwide. The company supports a diverse range of customers at all stages of the mining cycle, from junior explorers to major producers, across a wide range of commodities. In order to provide optimal service to these customers, Imdex has operational centres in key mining regions of the world, including: Asia-Paciﬁ c; Africa; Europe; and the Americas (for further details regarding global operations refer to pages 8 and 9). Imdex’s substantial commitment to ongoing research and development has enabled the company to achieve market leader status in its ﬁ elds of operation. The company is continuously reﬁ ning its range of unrivalled ﬂ uid products and instrumentation to ensure customers have the most efﬁ cient operational technology available. Imdex is a global leader in the provision of innovative drilling ﬂ uid products and advanced downhole instrumentation. COMPANY STRUCTURE KEY DATA AS AT 30 JUNE 2012 Market capitalisation: $366 million Shares on issue: 208 million Share price at 30 June 2012: $1.76 Number of shareholders: 3,853 Number of employees: 543 Banking institutions: HSBC and Westpac Legal advisors: QLegal Auditors: Deloitte Touche Tohmatsu Share registry: Computershare IMDEX LIMITED OIL & GAS DIVISION MINERALS DIVISION DHS ENERGY SERVICES JOINT VENTURE AMC REFLEX AMC IMDEX TECH GERMANY IMDEX TECH UK IMDEX TECH AUS IMDEX TECH USA Imdex 2012 Annual Report 3 Imdex Group at a glance The company supports a diverse range of customers at all stages of the mining cycle, from junior explorers to major producers, across a wide range of commodities. Comprehensive Product Range MINERALS DIVISION Brands Reﬂ ex Product Range Reﬂ ex ACT III: digital core orientation Reﬂ ex HT ACT: digital core orientation Reﬂ ex Ez-Shot: single-shot magnetic survey Reﬂ ex Ez-Trac: multi-shot magnetic survey Reﬂ ex HT Ez-Trac: multi-shot magnetic survey Reﬂ ex Maxibor II: optical survey Reﬂ ex Gyro: gyroscopic survey Reﬂ ex HT Gyro: gyroscopic survey Customised downhole motors Market Global mining / mineral exploration market AMC Drilling ﬂ uids and chemicals Fluid containment and transfer equipment Solids Removal Units (SRU) OIL & GAS DIVISION Brands DHS Energy Services Product Range Target INS, including Drop Flexi Shot Survey Tool Gyroﬂ ex Survey Tool, including Drop AMC Oil & Gas Drilling ﬂ uids and chemicals Fluid containment and transfer equipment PRODUCTS USED BY STAGE Market Global onshore / offshore oil & gas market AMC AMC REFLEX REFLEX SOLIDS REMOVAL UNITS FLUIDS REFLEX CORE ORIENTATION GYRO DOWN HOLE SURVEY MAGNETIC DOWN HOLE SURVEY REFLEX DIRECTIONAL EQUIPMENT EXPLORATION 29%* REVENUE DEVELOPMENT 47%* REVENUE PRODUCTION 24%* REVENUE * refers to Minerals revenue 4 What are Drilling Fluids? Drilling ﬂ uids, or mud as they are known in the industry, are a key part of the drilling process for mining, oil and gas, water-well, horizontal- directional-drilling and tunnelling applications. There is a broad range of drilling ﬂ uids, all with unique properties and uses, however, their principal role is to clean, cool and lubricate the drill-bit, return chips of rocks known as cuttings to the surface, and keep the borehole stabilised and open. During the drilling process a continuous circulation of drilling ﬂ uid is used. Fluid is pumped down the drill-pipe, through the drill-bit and returned to the surface via the aperture between the drill-pipe and borehole. The ﬂ uid then circulates through a shale shaker, mud tanks, or Imdex’s new solids removal units to remove the cuttings from the ﬂ uid for re- use. Drilling ﬂ uids also help keep the borehole stabilised by forming a thin membrane on the interior surface known as a ﬁ lter-cake. The pressure of the drilling ﬂ uid at depth keeps the borehole from collapsing. 1 2 3 Imdex Group at a glance What is Fluid Recycling Equipment? As the name suggests, ﬂ uid recycling equipment is used to eliminate cuttings in the drilling mud ﬂ ow cycle. These units provide economic and environmental advantages as they eliminate the need to dig mud pits, reduce water consumption and are simple to mobilise. Fig 1. The drilling process generates chips of rock known as cuttings Fig 2. Fluid is pumped down the drill pipe lubricating the drill bit and returning cuttings to the surface Fig 3. Fluids stabilize and keep the bore hole open Fig 4. Traditional mud pits leave signiﬁ cant environmental footprint and require site rehabilitation Fig 5. Solids Removal Units minimise environmental impact 4 5 Imdex 2012 Annual Report 5 6SOLIDS REMOVAL UNIT Imdex Group at a glance What are downhole survey and core orientation instruments? GYROSCOPIC SURVEY AND DIRECTIONAL STEERING INSTRUMENTS Drilling is becoming increasingly complex and challenging due to diminishing accessible reserves, high exploration costs and environmental impact concerns. As a result, energy companies are drilling deeper, for smaller targets, re-entering existing wells, and drilling multiple wells from a single platform. In such an environment, advanced technology and accurate data are crucial to locate reserves efﬁ ciently and to avoid collision with existing wells which can be catastrophic and cost millions of dollars to remediate. Imdex has developed a range of advanced gyroscopic survey and directional steering instruments speciﬁ cally designed for challenging multiple well environments, in areas of high magnetic interference, to allow directional drillers to accurately control the path of the wells. SURVEY INSTRUMENTATION Downhole survey instruments provide geologists and drillers with comprehensive data, including azimuth and dip, which allows the exact trajectory of boreholes to be determined, even at thousands of metres below the surface. Borehole deviations, where the actual path is different to the planned path, are common and costly. Geological variations, drilling parameters, including excessive or irregular thrust and hole design, are just some of the reasons why a borehole may deviate. A 2 degree deviation at the surface can lead to a 35 metre lateral displacement at a hole depth of 1000 metres, resulting in signiﬁ cant additional drilling costs and loss of opportunity if zones of economic mineralisation are missed. By surveying the borehole throughout the drilling process, deviations can be corrected and the likelihood of intercepting desired targets is signiﬁ cantly enhanced. CORE ORIENTATION INSTRUMENTS Core orientation instruments are used to determine the exact position of a core sample in the ground prior to extraction. This process allows geoscientists to accurately assess the sample to determine the structural geology, which often controls a mineralised ore system. By understanding the structural geology, wasted time and money caused by drilling in the wrong location or direction are avoided. Core orientation is also particularly important during mine planning and development to avoid potential problem areas such as faults or slip zones. Potential lateral displacement error Imdex 2012 Annual Report 7 North America North America 13% 8% 8% Africa Africa 13% 15% 46% Asia Pacific 46% Asia Pacific Europe Europe 15% Global Business Imdex has developed a truly global business, with operations in all key mining and exploration regions worldwide. The company’s extensive presence allows it to provide optimal customer service and greater access to international mineral exploration and oil and gas markets. During FY12 an additional base was established in Brazil with the acquisition of System Mud Indústria e Comércio Ltda. South America 18% South America 18% Europe Europe East Sussex, UK East Sussex, UK Rastede, Germany Riegel, Germany Rastede, Germany Prahova, Romania Riegel, Germany Prahova, Romania Aktau, Kazakstan Aktau, Kazakstan New Delhi, India New Delhi, India Asia Pacific Asia Pacific Accra, Ghana Accra, Ghana Africa Africa Singapore Singapore Jakarta Jakarta Johannesburg, South Africa Johannesburg, South Africa Townsville, QLD Kalgoorlie, WA Townsville, QLD Brisbane, QLD Perth, WA Kalgoorlie, WA Adelaide, SA Perth, WA Mudgee, NSW Brisbane, QLD Mudgee, NSW Adelaide, SA Calgary, Canada Timmins, Canada Calgary, Canada Salt Lake City, USA Timmins, Canada Salt Lake City, USA Torreon, Mexico Torreon, Mexico North America North America Lima, Peru Lima, Peru Santiago, Chile Santiago, Chile South America South America Belo Horizonte, Brazil Belo Horizonte, Brazil 8 North America 8% Africa 13% Europe 15% 18% South America 46% Asia Pacific North America 8% Africa 13% 46% Asia Pacific Distribution of employees by region Europe 15% 18% South America Calgary, Canada Timmins, Canada Salt Lake City, USA North America Europe East Sussex, UK Rastede, Germany Riegel, Germany Aktau, Kazakstan Calgary, Canada Timmins, Canada Prahova, Romania Salt Lake City, USA North America New Delhi, India Torreon, Mexico Torreon, Mexico Asia Pacific Accra, Ghana Africa Lima, Peru Singapore Jakarta Europe East Sussex, UK Rastede, Germany Riegel, Germany Prahova, Romania Aktau, Kazakstan New Delhi, India Asia Pacific Accra, Ghana Africa Singapore Jakarta Lima, Peru Santiago, Chile South America Belo Horizonte, Brazil Belo Horizonte, Brazil Kalgoorlie, WA Perth, WA Adelaide, SA Townsville, QLD Brisbane, QLD Mudgee, NSW Johannesburg, South Africa Santiago, Chile South America Imdex 2012 Annual Report 9 Johannesburg, South Africa Townsville, QLD Kalgoorlie, WA Brisbane, QLD Perth, WA Adelaide, SA Mudgee, NSW FY12 Snapshot FY12 Snapshot STRATEGY FOR INCREASING SHAREHOLDER VALUE OPERATIONAL HIGHLIGHTS AND CHALLENGES • Growing Imdex’s global business • Expanding into new markets, particularly oil and gas • Maintaining product leadership through investment in research and development • Increasing rental based revenue • Achieving operational efﬁ ciencies. GROWTH INITIATIVES • Manufacturing and marketing Imdex’s Solids Removal Units to the Australian market • Ongoing development of Reﬂ ex Ez-Gyro and • Reﬂ ex Smart Barrel for commercialisation in FY13 Increasing geographical market share in under- penetrated regions such as Canada, Latin America, Africa, the United States of America and Europe • Utilising Imdex’s specialist technical expertise and product development laboratories to enhance existing and develop new drilling ﬂ uid products and downhole instrumentation for the minerals and oil and gas markets Further expansion of Imdex’s capabilities and presence in the global conventional and unconventional oil and gas and geothermal markets. • Highlights • Acquisition of Brazilian based System Mud Industria e Comercio Ltda (System Mud), effective 1 August 2011 • Acquisition of USA based oil and gas downhole • • survey provider Vaughn Energy Services (Vaughn) by DHS Services (DHS), Imdex’s oil and gas services joint venture, effective 1 January 2012 Successful integration of Australian Drilling Specialities (ADS) Successful integration and signiﬁ cant development of AMC Oil & Gas Europe for revenue generation in FY13. This development includes investment in asset rental infrastructure, securing key personnel and ISO 9000 accreditation, which will enable the company to participate in additional contract tenders • Record mining downhole instrumentation rental ﬂ eet results (a graph of these results can be found on page 20) • Continuous product development of Imdex’s existing range of downhole instrumentation • Development of new technology including Reﬂ ex Ez-Gyro and Reﬂ ex Smart Barrel; further details on this instrumentation can be found on page 28 • Commercialisation of AMC’s solids removal technology; refer to page 28 for information regarding this unit • Marketing expansion in niche areas for production and completion chemicals • Continued investment in engineering and product development for oil and gas market. Challenges • Growing Imdex’s global business in a softening market where junior exploration companies found it difﬁ cult to raise new capital. From FY13 this challenge will be countered by: • The introduction of new products through AMC minerals and Reﬂ ex • Growing Imdex’s oil and gas business. 10 FY12 snapshot IMDEX STRATEGY ON TRACK PAST FY12 MEDIUM TERM Oil & Gas Minerals 100% 13% 87% Asia Paciﬁ c Other 100% 47% 53% Sales Rentals 100% 32% 68% Note: All numbers based on actual or anticipated combined revenue t e k r a m h c a e r d n E c i h p a r g o e G l l e S / t n e R i x m A STRATEGY THAT WORKS GOAL ENTERPRISE STRATEGY Market Review • Continuing global economic uncertainty attributed to European sovereign debt levels and the Chinese and USA economies • Trading activities remained high in all operating regions (Asia-Paciﬁ c, Africa, Europe and the Americas) • Drilling rig utilisation rates remained high in all operating regions, with drilling contractors estimating an average utilisation rate of 70%–80% across the year IMPERATIVES • Mineral and oil and gas exploration expenditure in all regions increased. Imdex 2012 Annual Report 11 FY12 snapshot Others 16% Iron 14% Copper 21% Gold 49% Production 24% Exploration 29% Development 47% FY12 Revenue Base SUSTAINABLE REVENUE BASE (Minerals revenue) The company provides leading solutions and superior customer service to exploration, development and production companies within the minerals and oil and gas sectors worldwide. Others 16% Others 16% Iron 14% Iron 14% Gold 49% Gold 49% Copper 21% Copper 21% Production 24% Exploration 29% Production 24% Development 47% Exploration 29% Junior 19% Development 47% Major / Intermediate 81% By Commodity By Stage By Customer STRENGTH THROUGH GEOGRAPHIC DIVERSIFICATION Junior 19% Americas 30% Junior Africa 19% 17% Europe 6% Americas 49% Africa 26% Major / Intermediate 81% Major / Intermediate 81% Asia Paciﬁ c 47% Europe 8% Asia Paciﬁ c 17% FY12 YoY Growth ($73.6m or 36%) FY12 Combined Revenue ($278.9m) 12 FY12 snapshot RECORD REVENUE 278.9 FINANCIAL PERFORMANCE IN FY12 Financial Performance • Revenue up 31% to $269.6 million (FY11: $205.2 million) • Combined revenue (excluding interest) up 36% to $278.9 million (FY11: $205.2 million) • Earnings before interest, tax and amortisation (EBITA) up 56% to $75.2 million (FY11: $48.1 million) • Net proﬁ t after tax (NPAT) up 58% to $45.8 million (FY11: $29.0 million) • Net assets up 34% to $168.1 million (30 June 2011: $125.4 million) • Operating cash-ﬂ ow, before taxes paid, up 29% to $56.9 million (FY11: $44.0 million) • • Low gearing levels with net debt/ capital of 22.3% Final fully franked dividend up 45% to 4.00 cents per share (FY11: 2.75 cents per share fully franked) • Total FY12 dividend up 61% to 7.25 cents per share fully franked (FY11: 4.50 cents per share fully franked) Combined Revenue* ($m) 205.2 142.0 137.0 134.3 Minerals 103.8 Oil & Gas FY07 FY08 FY09 FY10 FY11 FY12 *Includes Imdex share of DHS Joint Venture revenue RECORD EBITA 75.2 EBITA* ($m) 38.8 48.1 22.3 24.5 20.7 FY07 FY08 FY09 FY10 FY11 FY12 *Includes equity accounted DHS Joint Venture result Imdex 2012 Annual Report 13 14 FY12 snapshot Summary Financial Highlights for the Year Ended 30 June 2012 (Audited Results) Consolidated 2010 $’000 2010 $’000 Consolidated 2011 $’000 2011 $’000 2012 $’000 2012 $’000 11-12 Var % 11-12 Var % Revenue from continuing operations (excluding interest income) 134,253 205,163 269,563 Revenue from continuing operations (excluding interest income) Operating Profit before interest, tax, depreciation and amortisation 134,253 24,893 205,163 53,867 269,563 81,960 Depreciation Operating Profit before interest, tax, depreciation and amortisation Earnings before interest, tax and amortisation (EBITA) Depreciation EBITA margin Earnings before interest, tax and amortisation (EBITA) Amortisation EBITA margin Earnings before interest and tax (EBIT) Amortisation Net interest expense Earnings before interest and tax (EBIT) Net profit before tax Net interest expense Income tax expense Net profit before tax Net profit after tax (before non-operational items) Income tax expense Non-operational items Net profit after tax (before non-operational items) Forex loss on loan to SEH Non-operational items Impairment of SEH investment Forex loss on loan to SEH Impairment of operations Impairment of SEH investment Tax effect of non-operational items Impairment of operations Net Profit for the year after tax Tax effect of non-operational items Basic (loss)/earnings per share Net Profit for the year after tax Net Cash before tax provided by operating activities Basic (loss)/earnings per share Cash on hand Net Cash before tax provided by operating activities Net assets Cash on hand Total borrowings (Incl deferred acquisition payments) Net assets Net tangible assets per share Total borrowings (Incl deferred acquisition payments) (4,182 ) 24,893 20,711 (4,182 ) 15.0% 20,711 (6,363 ) 15.0% 14,348 (6,363 ) (771 ) 14,348 13,577 (771 ) (3,781 ) 13,577 9,796 (3,781 ) 9,796 (677 ) (10,440 ) (677 ) (23,531 ) (10,440 ) 3,304 (23,531 ) (21,548 ) 3,304 (11.05 ¢ ) (21,548 ) 16,013 (11.05 ¢ ) 9,007 16,013 94,495 9,007 32,018 94,495 22.83 ¢ 32,018 (5,721 ) 53,867 48,146 (5,721 ) 23.5% 48,146 (6,778 ) 23.5% 41,368 (6,778 ) (2,775 ) 41,368 38,593 (2,775 ) (9,591 ) 38,593 29,002 (9,591 ) 29,002 _ _ _ _ _ _ _ 29,002 _ 14.69 ¢ 29,002 44,039 14.69 ¢ 18,388 44,039 125,409 18,388 37,860 125,409 34.83 ¢ 37,860 (6,761 ) 81,960 75,199 (6,761 ) 27.9% 75,199 (5,957 ) 27.9% 69,242 (5,957 ) (1,742 ) 69,242 67,500 (1,742 ) (21,723 ) 67,500 45,777 (21,723 ) 45,777 _ _ _ _ _ _ _ 45,777 _ 22.34 ¢ 45,777 56,939 22.34 ¢ 11,232 56,939 168,066 11,232 59,429 168,066 51.35 ¢ 59,429 Net tangible assets per share 22.83 ¢ 34.83 ¢ 51.35 ¢ 31% 31% 52% 18% 52% 56% 18% 18.7% 56% (12% ) 18.7% 67% (12% ) (37% ) 67% 75% (37% ) 126% 75% 58% 126% 58% _ _ _ _ _ _ _ 58% _ 52% 58% 29% 52% (39% ) 29% 34% (39% ) 57% 34% 47% 57% 47% Imdex 2012 Annual Report 15 Board of Directors Board of Directors Imdex’s Board of Directors has extensive professional expertise, business experience and technical knowledge of the mineral exploration, mining and oil and gas industries. Members of the Board are well respected in these sectors and play an active role in the generation and management of the company’s strategic planning. Further information relating to the Board of Directors, including details of meetings and remuneration can be found on pages 34 to 44. Mr Ross Kelly AM BE (HONS) FAICD Non-Executive Chairperson Age 74 years • Appointed to the Board 14 January 2004 • Appointed as Chairperson 15 October 2009 • • • Advisor to the Western Australian Government on water policy and Bachelor of Electrical Engineering with Honours Fellow of the Australian Institute of Company Directors reform • Consultant to a number of major Australian companies in the mining, offshore gas, oil reﬁ ning, steel, construction and heavy process industries • Councillor of the Australian Institute of Company Directors and • member of the Advisory Board of the Curtin University Graduate School of Business Previously Chairperson and Non-Executive Director of Clough Limited, Sumich Group Limited, Orbital Corporation Limited, Beltreco Limited, Fraser Range Granite NL and Director of Aurora Gold Limited, PA Consulting Services Ltd and the Fremantle Football Club Ltd. Mr Bernard Ridgeway B.Bus (ACCTG) ACA Managing Director Age 58 years • Appointed to the Board 23 May 2000 • • Member of the Institute of Chartered Accountants Australia and the Bachelor of Business and Qualiﬁ ed Chartered Accountant Australian Institute of Company Directors • Non-Executive Director of Sino Gas and Energy Holdings Limited • Over 26 years experience with public and private companies as a business owner, Director and Manager. 16 Board of Directors Mr Magnus Lemmel B.A. Non-Executive Director Age 73 years • Appointed to the Board 19 October 2006 • Management consultant based in Brussels, Belgium, involved in small business development in Sweden. Former Chairman of Fiberform Vindic Holding AB, previously the largest Imdex shareholder, and member of the board of Norfram S.A., Luxemburg and Xinix AB Previously Senior Vice-President of Ericsson Telecommunications, Chief Executive Ofﬁ cer of the Federation of Swedish Industries and Director General for Enterprise Policy of the European Commission. • Mr Kevin Dundo B.Com, LLB Non-Executive Director Age 60 years • Appointed to the Board 14 January 2004 • • Member of the Law Society of Western Australia, Law Council of Bachelor of Commerce and Bachelor of Laws Western Australia, Australian Institute of Company Directors and a Fellow of the Australian Society of Certiﬁ ed Practicing Accountants. Practising lawyer, specialising in commercial and corporate law and in particular, mergers and acquisitions, with experience in the mining services and ﬁ nancial services industries • Director of Red 5 Limited and Synergy Plus Limited Previously a Director of Intrepid Mines Limited. • Ms Betsy Donaghey, B.S. Civil Engineering, M.S. Operations Research Non-Executive Director Age 54 years • Appointed to the Board 28 October 2009 • Bachelor of Civil Engineering A & M University, Texas, and Master in Operations Research University of Houston Extensive experience within the energy sector, including 19 years with BHP Billiton and nine years with Woodside Energy • • Non-Executive Director of St Barbara Limited. Imdex 2012 Annual Report 17 Throughout FY12 Imdex’s rental instrumentation for the minerals market reached new highs. 18 Chairperson’s Report Chairperson’s Report On behalf of the Board, I am delighted to present Imdex’s 2012 Annual Report; summarising a year of record performance and continued development. RECORD PERFORMANCE A total combined revenue of $278.9 million was achieved for the 12 months ending 30 June 2012 (FY12). This represents an increase of 36% from the previous ﬁ nancial year and is a record result for the company. EBITA from continuing operations increased 56% to $75.2 million and was also a record achievement. These exceptional results were largely driven by strong activity across all operating regions (Asia- Paciﬁ c, Africa, Europe and the Americas); Imdex’s ability to increase geographical market share; strategic acquisitions; and continuing demand for the company’s advanced suite of products and superior technology. INVESTING IN CONTINUED GROWTH The Board has a policy of reinvesting in product development and the long-term growth of Imdex, while maintaining a steady and sustainable dividend stream for shareholders. In accordance with this policy, an interim dividend of 3.25 cents and a ﬁ nal dividend of 4.00 cents, both fully franked, were declared in FY12. PROVEN STRATEGY As highlighted in previous years, Imdex is committed to a clear and focused strategy for growth, which includes: • Growing its global business • Expanding into new markets, particularly oil and gas • Maintaining product leadership through investment in research and development • Increasing rental based revenue • Achieving operational efﬁ ciencies. The company maintained this strategy throughout FY12 and made a number of noteworthy achievements including acquisitions; the development and commercialisation of new products; and record instrumentation rental revenue. STRATEGIC ACQUISITIONS During FY12 the company acquired Australian Drilling Specialities Pty Ltd; Brazilian based System Mud Indústria e Comércio Ltda (System Mud); and USA based oil and gas downhole survey provider Vaughn Energy Services (Vaughn) via DHS Services (DHS), a oil and gas services joint venture. All of these strategic acquisitions facilitate further global growth and the ability to increase Imdex’s presence in under-penetrated markets. In addition, the DHS acquisition of Vaughn will signiﬁ cantly enhance the company’s exposure in the oil and gas market. DEVELOPMENT AND COMMERCIALISATION OF NEW PRODUCTS Continued investment in the development of Imdex’s existing range of products has maintained the company’s reputation as a global provider of innovative drilling ﬂ uids and leading downhole instrumentation. Imdex has also made signiﬁ cant progress with the development of new downhole instrumentation technology and released its unique solids removal technology to the Australian market. Additional revenue is expected to be generated from both the new instrumentation and solids removal technology when they are introduced to the international market in FY13. RECORD RENTAL LEVELS Throughout FY12 Imdex’s rental instrumentation for the minerals market reached new highs. These excellent results highlight the demand for this superior range of instrumentation and align with the company’s strategy of increasing its rental based income. In FY12, total revenue generated by rentals increased from 31% in FY11 to 32%. Imdex 2012 Annual Report 19 Chairperson’s Report I am proud to say that, notwithstanding the cyclical nature of the resources sector, Imdex’s commitment to the strategic development of the company has established a strong organisation with the ability to accomplish positive outcomes. REFLEX RENTAL FLEET GROWTH TREND LONG-TERM GOLD AND COPPER PRICES d e s a e r c n i s a h s l a t n e r t n e m u r t s n i f o r e b m u N s r a e y 2 t s a l e h t r e v o % 9 8 y b GOLD COPPER Jun 10 Oct 10 Feb 11 Jun 11 Oct 11 Feb 12 Jun 12 Jul 02 Jul 03 Jul 04 Jul 05 Jul 06 Jul 07 Jul 08 Jul 09 Jul 10 Jul 11 Jul 12 This percentage is forecast to increase in FY13 with the commercialisation of the new instrumentation and solids removal technology mentioned above. • Gold and copper prices, which have the greatest impact on Imdex’s revenue, are above long-term averages OPERATIONAL EFFICIENCIES Further gains in market share resulted from Imdex’s decision to implement a regional structure. Imdex’s minerals division is now divided into four regions namely; Asia-Paciﬁ c, Africa, Europe and the Americas. This structure provides locally focussed customer service and signiﬁ cantly enhances cross-selling opportunities. I am proud to say that, notwithstanding the cyclical nature of the resources sector, Imdex’s commitment to the strategic development of the company has established a strong organisation with the ability to accomplish positive outcomes. LOOKING TO FY13 Despite global economic concerns, principally brought about by continuing European sovereign debt concerns, a slowing Chinese economy and an uneven USA recovery, the fundamentals that drive Imdex’s core markets remain positive. • Based on forecasts by Metals Economic Group, a respected worldwide minerals information consultancy, exploration expenditure for non- ferrous metals is expected to be robust in the 2013 calendar year. This is primarily driven by drilling activities of major and intermediate resource companies • Demand in the oil and gas sector remains strong, buoyed by continuing global demand. This demand is likely to continue due to a deﬁ ciency in signiﬁ cant discoveries and diminishing accessible reserves. This is good news for Imdex, as exploration companies increasingly rely on ﬂ uids and advanced technology to ensure optimum levels of efﬁ ciency in their operations. Imdex has a diverse customer base and I am conﬁ dent the company is in a strong position going into FY13 to grow the business and yield returns for shareholders. Gold and copper projects generate 70% of revenue; 80% of revenue is generated in the development phase of exploration from major and intermediate resource companies. The company now has the product range, expertise and global reach to further enhance revenue from the oil and gas sector. 20 Chairperson’s Report ESTIMATED GLOBAL EXPLORATION/DEVELOPMENT SPEND (non-ferrous) (US$Bn) Source: Metals Economics Group (1993-2012); Mckinsey 2011 analysis (2013-2018). Reproduced with permission from Boart Longyear. BALANCE SHEET STRENGTH Imdex’s solid balance sheet enables the advancement of growth initiatives as and when they are identiﬁ ed. This ability to respond quickly to opportunities as they arise has proven to be of signiﬁ cant beneﬁ t in the past and, together with signiﬁ cant organic growth, underpins the excellent results reported in FY12. SUSTAINABLE REPORTING AND CORPORATE GOVERNANCE Each year the company strives to enhance its sustainability reporting in order to provide additional, relevant and transparent information for all stakeholders. Imdex’s adherence to best practice in corporate governance principles also ensures prudent oversight of management. Further information regarding these policies can be found on pages 53 to 57 and the Board Charter is available on the company website. I would like to thank my fellow Board members for their expertise, guidance and willingness to make signiﬁ cant contributions to Imdex. It has been a rewarding experience and I look forward to working with them again in the coming year. I would also like to express my gratitude to our Managing Director, Bernie Ridgeway and Senior Executives Gary Weston, Derek Loughlin and Paul Evans for another year of dedication, leadership and excellent performance. Finally, on behalf of the Board members, senior executives and employees, I would like to thank all of our valued customers and shareholders for their loyalty and ongoing support. Ross Kelly AM BE (HONS) FAICD Chairperson Imdex’s solid balance sheet enables the advancement of growth initiatives as and when they are identiﬁ ed. Imdex 2012 Annual Report 21 Imdex has experienced extraordinary development, particularly over the past seven years. 22 Managing Director’s Report Managing Director’s Report I am pleased to report FY12 was a dynamic and rewarding year for Imdex, and one the Directors and I are very proud. During FY12 the company increased its market share in all global regions; achieved record rental levels of its mining downhole instrumentation; successfully integrated three strategic acquisitions; executed a signiﬁ cant joint venture in the oil and gas sector; and further enhanced its product range and leading technology. Such accomplishments, coupled with strong market activity in Asia-Paciﬁ c, Africa, Europe and the Americas, made positive contributions to Imdex’s earnings and laid solid foundations for further growth in FY13 and beyond. The extent of these accomplishments is reﬂ ected the following FY12 results. GROUP FINANCIAL PERFORMANCE • Record combined revenue (excluding interest), up 36% to $278.9 million (FY11: $205.2 million) • Record EBITA, up 56% to $75.2 million (FY11: $48.1 million) • Record net proﬁ t after tax, up 58% to $45.8 million (FY11: $29.0 million) • Net assets up 34% to $168.1 million (30 June 2011: $125.4 million) • Operating cash ﬂ ow, before taxes paid, up 29% to $56.9 million (FY11: $44.0 million) • Low gearing levels with net debt/capital of 22.3% (30 June 2011: 13.4%). MINERALS DIVISION The Minerals Division contributed 87% of the full year combined revenue and achieved a 36% increase to $241.7 million (FY11: $177.7 million). Operational EBITA increased 72% to $85.7 million (FY11: $49.9 million). These excellent results were driven by consistently strong performance in all geographical regions and validate the regional operating structure implemented in 2010. This structure allows operational efﬁ ciencies, better customer support and enhances product cross-selling opportunities. Importantly, the beneﬁ ts generated by this regional restructure are expected to continue. Highlights for the Minerals Division during FY12 include the following activities and achievements: • Successful integration of Australian Drilling Specialities (ADS) The acquisition of this Western Australian based manufacturer of high quality drilling ﬂ uids and chemicals was ﬁ nalised on 1 July 2011. The acquisition was made to complement Imdex’s existing operations and deliver additional growth opportunities within the mining and oil and gas industries. Importantly, ADS owns intellectual property for the manufacture of PHPA (polymer) which allows Imdex to establish polymer plants in strategic locations to enhance products and services across the company’s global markets. The acquisition was immediately earnings accretive and has merged seamlessly into Imdex’s operations. • Acquisition of Brazilian based System Mud Indústria e Comércio Ltda (System Mud) System Mud is a leading independent drilling ﬂ uids and chemicals supplier to the minerals industry in Brazil. This acquisition, effective 1 August 2011, signiﬁ cantly strengthens Imdex’s position in Latin America and also aligns with the strategic expansion of drilling ﬂ uids and chemicals enterprises in under-penetrated regions. • Record Reﬂ ex rental ﬂ eet levels The record rental revenue returns for FY12 conﬁ rms a strong demand for Reﬂ ex’s superior technology, which will be further enhanced with the release of new products in FY13 together with the active product development of the existing range of downhole instrumentation, Imdex 2012 Annual Report 23 Managing Director’s Report including the ACT III RD, ACT HT, HT Gyro and HT Ez-Trac. As with all leading technology, product reﬁ nement is a continuous and consultative process. Imdex has maintained its technological leadership by investing in product longevity, thus ensuring customers achieve the most efﬁ cient and accurate results. • Development of new instrumentation including the Reﬂ ex Ez-Gyro and Reﬂ ex Smart Barrel The Reﬂ ex Ez-Gyro is a unique patented north seeking gyro utilising new technology for mineral exploration. The Reﬂ ex Smart Barrel is an advanced coring tool that allows operators to control deviation and steer the hole accurately while collecting a core sample. Both of these revolutionary instruments will signiﬁ cantly enhance the efﬁ cient operations demanded by customers. This instrumentation will be released to the market during FY13. • Reﬁ nement and commercialisation of AMC’s solids removal technology Imdex’s Solids Removal Units (SRUs) are designed for solids removal and ﬂ uid property management. This technology meets customer demands by reducing the site footprint, the impact on the environment and site set-up and remediation costs. In addition, these highly mobile units have demonstrated signiﬁ cant reductions in water consumption and costly wear-and-tear of drilling components caused by abrasion. The SRU was released to the Australian market in late FY12 and is expected to generate signiﬁ cant revenue once marketed globally in FY13. The company will capitalise on its ﬁ rst mover advantage and the signiﬁ cant interest in this innovative technology, predominately from major exploration companies. OIL AND GAS DIVISION Imdex’s Oil & Gas Division contributed 13% of the full year combined revenue and achieved a 35% increase to $37.2 million. Operational EBITA saw a loss, returning $6.2 million. This is largely attributable to AMC Oil & Gas (AMC O&G). The acquisition of various revenue generating assets, however, will see the performance of AMC O&G increase signiﬁ cantly from FY13. Considerable investment and effort was committed to the consolidation and development of AMC O&G Europe to position it for growth in FY13. This included securing key personnel, equipment and ISO 9000 accreditation, which will enable participation in additional contract tenders. There were a number of signiﬁ cant achievements within the Oil & Gas Division during FY12 including expanded marketing efforts in niche production and completion chemicals markets and continued investment in engineering and product development. The most noteworthy achievement, however, was the acquisition of USA based oil and gas downhole survey provider Vaughn Energy Services (Vaughn) by DHS Services (DHS). This acquisition positions DHS as a leading global competitor in the circa US$400-$500 million annual oil and gas downhole survey market and offers numerous beneﬁ ts including: • • • Positioning of DHS as a signiﬁ cant global force in the oil and gas downhole survey market Facilitating entry into the USA onshore oil and gas market, which represents approximately one third of the global market Providing diversiﬁ cation and enhancement of DHS’s geographical footprint, range of technologies and customer base. The acquisition of Vaughn was immediately earnings accretive and supports Imdex’s strategy of generating 30-40% of revenue from the oil and gas market within the next 3-4 years. DHS has excellent growth prospects in the USA onshore oil and gas market and the offshore and onshore international markets. This joint venture is expected to generate signiﬁ cant revenue and proﬁ ts in FY13. CORPORATE SUPPORT At a corporate level, signiﬁ cant enhancements were made to employee engagement, development programmes, and workplace health and safety. Information relating to these achievements is detailed on pages 27 and 29. 24 Managing Director’s Report The acquisition of Vaughn was immediately earnings accretive and supports Imdex’s strategy of generating 30-40% of revenue from the oil and gas market within the next 3-4 years. commitment and ability to deliver superior technology and unrivalled customer service. On behalf of the Board of Directors, I would like to thank our management team, employees and contractors for their hard work, dedication and achievements in what has been a very rewarding year. I would also like to thank Imdex’s shareholders and customers for their continued support. Bernie Ridgeway Managing Director POSITIVE OUTLOOK FOR FY13 As outlined in the Chairperson’s report, despite a level of underlying macro-economic uncertainty, Imdex has a great deal to be optimistic about in the coming ﬁ nancial year. Gold and copper prices remain above long-term averages, exploration expenditure is forecast to be robust in the 2013 calendar year and drilling rig utilisation rates remain solid. Imdex will maintain a strategy of growing its global business, expanding into new markets, particularly oil and gas; maintaining product leadership through investment in research and development; increasing rental based revenue; and achieving operational efﬁ ciencies. More speciﬁ cally, the company will focus on the following key growth areas: • Manufacturing and marketing the Solids Removal Unit via Imdex’s global distribution channels • Commercialising the newly developed Reﬂ ex Ez-Gyro and Reﬂ ex Smart Barrel • Increasing geographical market share in under- penetrated regions such as Canada, Latin America, Africa, the United States and Europe • Utilising Imdex’s specialist technical expertise and product development laboratories to enhance existing, and develop new, drilling ﬂ uid products and downhole instrumentation for the minerals and oil and gas markets • Expanding Imdex’s capabilities and presence in the global conventional and unconventional oil and gas and geothermal markets. Imdex has experienced extraordinary development, particularly over the past seven years. The company has signiﬁ cantly increased its geographical presence (62% of employees are now based outside of Australia); successfully gained market share in under- penetrated regions; expanded its presence and opportunities for growth in the oil and gas market; diversiﬁ ed its customer base (with 80% of revenue now generated from major and intermediate resource companies); and developed a range of drilling ﬂ uids, associated equipment, and downhole instrumentation supporting customer operations at every stage of the mining cycle. What remains unchanged is Imdex’s Imdex 2012 Annual Report 25 Imdex’s substantial commitment to ongoing research and development has enabled the company to achieve market leader status in its ﬁ elds of operation. 26 Operational Overview Operational Overview GLOBAL TEAM Imdex’s 543 Imdex employees throughout the world are lead by a strong management team with extensive technical expertise, product knowledge and experience in the mineral exploration, mining and oil and gas sectors. The company strives to attract employees who share Imdex’s values for hard work, continual improvement, technical excellence and equity in the workplace. Imdex seeks to retain employees and protect its knowledge-base by increasing employee engagement and providing intrinsically valued reward systems. Throughout FY12 the company carried out the following initiatives to strengthen and support its global team: IMDEX’S SENIOR EXECUTIVES • Implemented a new global loyalty programme • Carried out an employee engagement survey (completed and evaluated every two years) Implemented a Learning Management System to track and manage employee training and development • • Developed an employee induction programme to provide all employees with a greater understanding of Imdex its products, markets, customers and values • Updated the performance management process, with local language versions prepared for Germany, Kazakhstan, Chile, Romania and South Africa • Translated the Code of Conduct into relevant local languages. Mr. Paul Evans Chief Financial Ofﬁ cer and Company Secretary • Chartered Accountant • • Chief Financial Ofﬁ cer and Company Secretary since 17 October 2006 • • Fellow of the Institute of Chartered Accountants in Australia Extensive experience in commercial, general management and ﬁ nancial roles Industry experience covering media, manufacturing, mining services and telecommunications industries. Mr. Derek Loughlin Divisional General Manager, Minerals 25 years experience within the drilling industry • 17 years with leading drilling company Boart Longyear in engineering, operations, sales and • global exports, working in Ireland, Australia and Germany • Honours Degree in Mining Engineering from the Camborne School Of Mines, UK • Diploma of Executive Development at the International Institute for Management and Development in Lausanne. Mr. Gary Weston Divisional General Manager, Oil and Gas • • • • • • 41 years in the drilling industry, in both the oil and gas and minerals sectors 1987, co-founder of Imdex Limited 1988, co-founder of Australian Mud Company 39 years management experience Strong international marketing experience Pivotal role identifying and negotiating Imdex’s strategic acquisitions. Imdex 2012 Annual Report 27 Operational Overview The company is continuously reﬁ ning its range of unrivalled ﬂ uid products and instrumentation to ensure customers have the most efﬁ cient operational technology available. Research and Development Imdex’s commitment and ability to invest in product research and development has enabled it to retain a reputation for innovative products and superior technology. Throughout FY12 the company continued to enhance a range of drilling ﬂ uids, commercialised its solid removal technology and made signiﬁ cant progress with the development of two new downhole instruments, the Reﬂ ex Ez-Gyro and Reﬂ ex Smart Barrel. Imdex has well developed policies for the management of its technical knowledge and protects its intellectual property, both internally and externally. SOLIDS REMOVAL UNIT Imdex’s unique Solids Removal Unit was designed as an environmentally acceptable alternative to the traditional methods of mixing, processing and storage of drilling ﬂ uids on site. Signiﬁ cant interest has been shown in the unit, particularly by major operators in the drilling industry as they seek to reduce water consumption and improve waste management. Principal features and customer beneﬁ ts of the unit include: • Reduced environmental impact of site • Reduced site set-up and remediation costs • Reduced water consumption Improved waste management • • Reduced wear and tear of drilling components caused by abrasive drilling ﬂ uid Easy mobilisation. • REFLEX EZ-GYRO The Reﬂ ex Ez-Gyro is a unique patented north seeking The Reﬂ ex Ez-Gyro is a unique patented north seeking gyro that utilises newly developed technology for gyro that utilises newly developed technology for mineral exploration. The instrument allows operators mineral exploration. The instrument allows operators to accurately survey underground operations, including to accurately survey underground operations, including surveys of internal reverse circulation or diamond surveys of internal reverse circulation or diamond drilling rods and casings. The Reﬂ ex Ez-Gyro has the drilling rods and casings. The Reﬂ ex Ez-Gyro has the ability to provide accurate data in a range of drilling ability to provide accurate data in a range of drilling applications, including data from horizontal holes. applications, including data from horizontal holes. Survey data is transferred via infrared to a hand held Survey data is transferred via infrared to a hand held Personal Digital Assistant (PDA), doing away with the Personal Digital Assistant (PDA), doing away with the need for post survey processing. Principal customer need for post survey processing. Principal customer beneﬁ ts include: • • • Enhanced accuracy of survey data Enhanced speed Elimination of conducting cables, surveying vehicles and specialist technicians on site. o r y G - z E x e ﬂ e R REFLEX SMART BARREL The Reﬂ ex Smart Barrel enables deeper directional core sampling and enhances accuracy by allowing operators to control deviation and achieve accurate hole-steering with simultaneous core sample collection. The principal customer beneﬁ ts include: Enhanced accuracy • • Reduced maintenance costs • Elimination of additional on-site technical operators t i n U l a v o m e R s d i l o S • Greater operational efﬁ ciency, which lead to signiﬁ cant time and cost savings. WORLD-CLASS GYRO TECHNOLOGY WORLD-CLASS GYRO TECHNOLOGY Imdex maintains a policy of investing in targeted Imdex maintains a policy of investing in targeted research and development to offer superior world- research and development to offer superior world- class technology to its customers. To achieve this, a class technology to its customers. To achieve this, a rigorous process of testing, customer feedback and rigorous process of testing, customer feedback and ongoing development is required. Throughout FY12 ongoing development is required. Throughout FY12 the company continued to reﬁ ne its gyro technology the company continued to reﬁ ne its gyro technology for the oil and gas sector, which will be marketed by for the oil and gas sector, which will be marketed by Imdex’s DHS Services joint venture, the third largest Imdex’s DHS Services joint venture, the third largest survey company in the oil and gas industry. l y g o o n h c e T o r y G 28 Operational Overview in line with the WorkSafe benchmark for oil and gas globally: six lost time injuries occurred globally, with a total of 75 days lost. Imdex maintains a philosophy of continual development of quality drilling ﬂ uid products that are environmentally friendly, biodegradable and meet the demands of its customers. Accordingly, Imdex will implement Environment Standard ISO14001 in Australia and Germany during FY13. This standard will assist the company achieve the growing environmental requirements of the oil and gas industry. Throughout FY12 Imdex also commercialised an environmental alternative to conventional mud-pits, the innovative Solids Removal Unit (further details can be found on page 28). Imdex Group Lost Time Injury Frequency Rate (LTIFR) Imdex Group Lost Time Injury Frequency Rate (LTIFR) Imdex Group Lost Time Injury Frequency Rate (LTIFR) Imdex Group Lost Time Injury Frequency Rate (LTIFR) Imdex Group Lost Time Injury Frequency Rate (LTIFR) Imdex 2012 Annual Report 29 INDUSTRY RECOGNITION In September 2011, Imdex’s subsidiary Reﬂ ex was recognised at the Australian Mining Prospect Awards, for its innovation, efﬁ ciency and advancement of the Australian mining industry. Also at these Awards, Reﬂ ex Global Products Manager, Kelvin Brown, received the Outstanding Contribution to Mining and Miner of the Year award for his role in the Chilean mine rescue. Quality, Health, Safety and Environment Imdex has a dedicated QHSE team that oversees the company’s commitment to continuous improvement and the safety and wellbeing of our employees and external stakeholders. During FY12, Imdex and subsidiaries, AMC, Reﬂ ex and Imdex Technology, successfully maintained globally certiﬁ cation to ISO9001:2007. The company’s facilities at Osborne Park and Kwinana, including AMC Asia- Paciﬁ c, Reﬂ ex Asia-Paciﬁ c and Imdex Technology, also maintained certiﬁ cation to the internationally recognized Occupational Health and Safety standard OHSAS18001:2007. Imdex also made the decision to transfer its various ISO certiﬁ cations around the world to Société Générale de Surveillance (SGS). SGS is the largest certiﬁ cation body in the world, with over 2000 ofﬁ ces. The beneﬁ ts of utilising SGS include: Signiﬁ cantly reduced costs • • Globalised group system reporting • Global audit reports with feedback through SGS’s Global Client manager and SGS’s Global Lead Auditor • Certiﬁ cation in the country of operation • • Better global visibility for senior management Internationally recognised certiﬁ cation brand standardisation. Imdex’s Lost Time Injury Frequency Rate (LTIFR) was below the strict Western Australian WorkSafe benchmark for services to the mining industry and Operational Overview Risk Management MANAGING RISKS TO DELIVER LONG-TERM SHAREHOLDER VALUE The identiﬁ cation and management of risk is central to delivering long-term value to Imdex’s shareholders. As part of the company’s annual strategic planning cycle, the Board reviews and considers the risk proﬁ le for the entire organisation. The principal aim of Imdex’s risk management governance structure and system of internal control is to create a culture of risk-informed decision- making to manage business risks, enhance the value of shareholder investments, and safeguard assets. Imdex is committed to an effective risk management process that enables management to operate a risk-based approach in establishing internal control systems to effectively identify, mitigate and/or control signiﬁ cant risks. CORPORATE GOVERNANCE STRUCTURE The Board has delegated the oversight of risk management to the Audit and Compliance Committee (ACC). The ACC monitors obligations in relation to: Financial reporting • • Internal control structure • Risk management systems • Internal and external audit functions. The ACC is supported by the Group Risk and Compliance function, which regularly carries out risk reviews, location-based internal audits, and compliance monitoring. RISK MANAGEMENT FRAMEWORK A risk management framework is used to provide governance for the identiﬁ cation, assessment and management of risks. Risks are rated using a methodology outlined in ISO 31000:2009 – Risk Management – Principles and guidelines. When a risk is assessed as material, it is reported to the senior management group on a monthly basis until it is satisfactorily mitigated. All employees are responsible for being aware of potential business operations risks and the supporting risk management frame work established by the ACC. Employees are also requested to promptly communicate signiﬁ cant issues to their line manager and in accordance with the risk management framework. Each business unit is responsible for incorporating risk management activities and controls into their daily operations and to monitor risks pertaining to the unit. The risk management framework incorporates the following factors: • Consideration of other ASX principles on Corporate Governance as they related to risk management • Consultation with the Board, senior management and the leadership group in identifying the business risk areas • Consideration of the Imdex Quality Assurance risk assessment system to ensure a common language is used across both operational and commercial environments • Assurance mapping of key risks across all areas of the organisation • Development of a Corporate Risk Register to record and manage risks by assigning an owner, designing mitigating treatments and then applying the treatment Identiﬁ cation of areas where additional work is required by an internal audit and/or business unit to reduce risk exposure. • 30 Focus for FY13 Focus for FY13 STRATEGY FOR INCREASING SHAREHOLDER VALUE • Continue growth of Imdex’s global business • Expand into new markets, with a particular focus on the oil and gas sector • Maintain product leadership through investment in research and development Increase rental based revenue • • Achieve operational efﬁ ciencies. GROWTH INITIATIVES • Manufacture and market the Solids Removal Units via Imdex’s global distribution channels • Commercialise the newly developed products Reﬂ ex Ez-Gyro and Reﬂ ex Smart Barrel • Increase geographical market share in under-penetrated regions such as Canada, Latin America, Africa, the United States and Europe • Utilise Imdex’s specialist technical expertise and product development laboratories to enhance existing, and • develop new, drilling ﬂ uid products and downhole instrumentation for the minerals and oil and gas markets Further expansion of Imdex’s capabilities and presence in the global conventional and unconventional oil and gas and geothermal markets. Imdex 2012 Annual Report 31 32 FY12 Financial Report FY 12 ﬁ nancial report Directors’ Report Auditor’s Independence Declaration Independent Auditor’s Report Directors’ Declaration Corporate Governance Statement Consolidated Income Statement 34 49 50 52 53 58 Consolidated Statement of Comprehensive Income 59 Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Report 60 61 62 63 Additional Securities Exchange Information 118 Imdex 2012 Annual Report 33 FY12 Financial Report Financial Report Directors’ Report for the Year Ended 30 June 2012 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 ﬁ nancial year ended 30 June 2012. In order to comply with the provisions of the Corporations Act 2001, the Directors’ report as follows: (a) Directors The names and particulars of the Directors of the Company during or since the end of the ﬁ nancial year are: Name Role Age Particulars Mr R W Kelly AM Non Executive 74 • Engineer Chairman • Director since 14 January 2004 • Appointed as Chairman on 15 October 2009 • Member of the Audit and Compliance Committee • Chairman of the Remuneration Committee until 14 December 2009 • Previously Chairman and Non Executive Director of Clough Limited, Sumich Group Limited, Orbital Corporation Limited, Beltreco Limited and Director of Aurora Gold Limited, PA Consulting Services Ltd and the Fremantle Football Club Mr B W Ridgeway Managing Director 58 • Chartered Accountant Mr K A Dundo Independent, Non Executive Director • Director since 23 May 2000 • Over 25 years experience with public and private companies as owner, director and manager • Member of the Institute of Chartered Accountants in Australia and Australian Institute of Company Directors. • Director of Sino Gas and Energy Holdings Ltd 60 • Lawyer • Chairman of the Audit and Compliance Committee • Member of the Remuneration Committee • Director since 14 January 2004 • Director of Red 5 Limited and Synergy Plus Limited • Previously Director of Intrepid Mines Ltd Mr M Lemmel Independent, Non Executive Director 73 • Management Consultant • Director since 19 October 2006 • Chairman of the Remuneration Committee from 14 December 2009 • Chairman of Fiberform Vindic AB • Previously Senior Vice President of Ericsson Telecommunications, Chief Executive Ofﬁ cer of the Federation of Swedish Industries and Director General for Enterprise Policy of the European Commission Ms E Donaghey Independent, Non Executive Director 54 • Civil Engineer • Director since 28 October 2009 • Member of the Audit and Compliance Committee from 14 December 2009 • Member of the Remuneration Committee from 14 December 2009 • Director of St Barbara Limited • Previously held a range of commercial and senior management positions in Woodside Petroleum and BHP Petroleum 34 FY12 Financial Report (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 ﬁ nancial year are: Name Company Position Period of Directorship Mr B W Ridgeway Sino Gas and Energy Holdings Limited Non Executive Director 2007 – Current Mr K A Dundo Red 5 Limited Non Executive Director 2010 – Current Synergy Plus Limited Non Executive Director 2006 – Current Ms E Donaghey St Barbara Limited Non Executive Director 2011 – Current (c) Company Secretary Mr P A Evans Mr Evans, a Chartered Accountant, joined Imdex Limited on 17 October 2006. After leaving professional practice he worked in a range of commercial and ﬁ nancial roles in the media, manufacturing and telecommunications industries. Mr Evans is a Fellow 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 ﬁ nancial year and the number of meetings attended by each Director (while they were a Director or committee member). During the ﬁ nancial year, eight Board meetings, four Audit and Compliance Committee meetings and four Remuneration Committee meetings were held. Board of Directors Audit and Compliance Committee Remuneration Committee Held Attended Held Attended Held Attended 8 8 8 8 8 8 8 8 7 8 4 - 4 - 4 4 - 4 - 4 - - 4 4 4 - - 4 3 4 R W Kelly B W Ridgeway K A Dundo M Lemmel E Donaghey (e) Directors’ Shareholdings At the date of this report the Directors held the following interests in shares, options in shares and performance rights of the Company: Directors Shares Held Directly Shares Held Indirectly Options Held Directly Performance Rights Held Directly ^ R W Kelly B W Ridgeway K A Dundo M Lemmel E Donaghey - - - 730,921 210,000 380,000 2,214,630 150,000 - - - - - - - - 349,897 - - - ^ - Performance rights expire either on failure to maintain employment tenure or on failure to satisfy performance hurdles. Refer to note 34 for further details. Details of options on issue at the date of this report are disclosed at (g) below. Details of options on issue at the end of the ﬁ nancial year are disclosed in note 33. Details of performance rights on issue at the end of the ﬁ nancial year are disclosed in note 34. Imdex 2012 Annual Report 35 FY12 Financial Report Financial Report (f) Remuneration Report Remuneration Policy for Directors and Executives Non Executive Directors The Board seeks the approval of Shareholders in relation to the aggregate of Non Executive Directors’ remuneration and any options and performance rights 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 cash remuneration of Non Executive Directors is not linked to the Company’s performance in order to preserve independence. Other than statutory superannuation, no Non Executive Director is entitled to any additional beneﬁ ts on retirement from the Company. 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. No Director received a payment during the current or prior years as consideration for agreeing to hold the relevant position. 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 $433,350, including statutory superannuation. The Board determines the apportionment of directors’ fees between each Director. Managing Director 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 33% of his base remuneration package. Each year the Remuneration Committee sets key performance indicators (KPIs) for the Managing Director to earn this short term incentive bonus. These KPIs typically include ﬁ nancial, strategic and risk based measures. The Remuneration Committee set these performance hurdles as they are signiﬁ cant proﬁ t and cash ﬂ ow drivers which are linked to Imdex’s increased growth and proﬁ tability and hence shareholder value. Performance is measured relative to budget and forecast results as these are the most accurate measures available against which to assess the achievement of set hurdles. The balance of his cash compensation package for the current year is not linked to the Group’s performance. From time to time options or performance rights may be issued to the Managing Director as a long term performance incentive. The portion of the Managing Director’s compensation package that comprises options or performance rights is linked to the Company’s performance. The number of options or performance rights granted are determined with regard to current market trends. The issue of any such options or performance rights requires the approval of Shareholders in General Meeting. The Managing Director is employed under a permanent contract that provides for a 12 month termination period. No additional beneﬁ ts above those already entitled to will become payable on termination. Executives and Staff All Executives and staff of the Company are subject to a formal annual performance review. The remuneration of Executives comprises a ﬁ xed monetary total, which is 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 base component of Executive salaries is benchmarked against current market trends and is not linked to Company performance as it serves to attract and retain suitably qualiﬁ ed and experienced staff. Performance incentives that are linked to Company performance are used to reward Executives for exceptional performance that beneﬁ ts the Company and Shareholders. Each year the Remuneration Committee sets the KPIs for each key management person. These KPIs typically include people, customer, system, ﬁ nancial, strategic and risk based measures. The Remuneration Committee set these performance hurdles as they are signiﬁ cant proﬁ t and cash ﬂ ow drivers which are linked to Imdex’s increased growth and proﬁ tability and hence shareholder value. Performance is measured relative to budget and forecast results as these are the most accurate measures available against which to assess the achievement of set hurdles. No bonus is awarded where hurdles are not met. From time to time options or performance rights may be issued to the Executives and staff as a long term performance incentive. The portion of remuneration package that comprises options or performance rights is linked to the Company’s performance. The number of options or performance rights granted are determined with regard to current market trends. The issue of any such options or performance rights requires the approval of Shareholders in General Meeting. All Executives are employed under permanent contracts, none of which provide for any termination payments. Mr G E Weston’s contract provides a 12 month notice period and Mr D J Loughlin’s and Mr P A Evans’ contracts provide a 6 month notice period. No additional beneﬁ ts above those already entitled to will become payable on termination. 36 FY12 Financial Report Director and Key Management Personnel details The Directors of Imdex Limited during the year were: (i) Mr R W Kelly (Non Executive Chairman) (ii) Mr B W Ridgeway (Managing Director) (iii) Mr K A Dundo (Non Executive Director) (iv) Mr M Lemmel (Non Executive Director) (v) Ms E Donaghey (Non Executive Director). The term ‘Key Person Management’ is used in this remuneration report to refer to the following persons: (i) Mr G E Weston (Project General Manager; General Manager: Oil & Gas Division) (ii) Mr D J Loughlin (General Manager: Minerals and Mining Division) (iii) Mr P A Evans (Company Secretary and Chief Financial Ofﬁ cer). Except as noted above Directors and Key Management Personnel held their current position for the whole of the ﬁ nancial year and since the end of the ﬁ nancial year. Elements of Director and Key Management Personnel Remuneration Remuneration packages contain the following key elements: (i) Short-term beneﬁ ts – salary/fees, bonuses and non monetary beneﬁ ts including principally motor vehicles; (ii) Post-employment beneﬁ ts – superannuation; (iii) Equity – share options granted under the Staff Option Scheme (note 33) or performance rights granted under the Performance Rights Plan (note 34) or any other equity related beneﬁ ts granted as approved by Shareholders in General Meeting; and (iv) Other beneﬁ ts – comprise payments made under the Imdex Loyalty Programme rewarding long term service with the Imdex Group. Earnings and Movements in Shareholder Wealth The table below sets out summary information about the Consolidated Entity’s earnings and movements in shareholder wealth for the ﬁ ve years to June 2012: 30 June 2012 30 June 2011 30 June 2010 30 June 2009 30 June 2008 Revenue – continuing and discontinued operations ($000s) Net proﬁ t / (loss) before tax from continuing operations ($000s) Net proﬁ t / (loss) after tax from continuing operations ($000s) 269,652 205,334 135,625 138,992 150,493 67,500 38,593 (21,071) 18,195 31,885 45,777 29,002 (21,548) 12,067 21,081 Share price at start of year (cents) 215.0 Share price at end of year (cents) 176.0 Interim dividend (cents) – fully franked 3.25 Final dividend (cents) – fully franked 4.00 * Basic earnings / (loss) per share (cents) – continuing operations Diluted earnings / (loss) per share (cents) – continuing operations 22.34 21.85 73.0 215.0 1.75 2.75 14.69 14.25 64.5 73.0 - - (11.05) (11.05) 165 64.5 1.00 - 6.37 6.23 150 165 1.75 2.25 11.22 10.79 * - Declared post year end on 17 August 2012 hence the ﬁ nancial effect of this dividend has not been recognised in the ﬁ nancial statements at 30 June 2012. Imdex 2012 Annual Report 37 FY12 Financial Report Financial Report , 4 9 8 7 7 0 1 , 0 5 1 7 4 1 , 0 0 1 8 9 , 0 0 0 0 9 , 0 0 1 8 9 , , 4 4 2 1 1 5 1 , l a t o T $ 2 8 7 9 0 9 , 2 9 8 5 7 6 , 1 9 9 8 0 6 , , 5 6 6 4 9 1 2 , - - - - - - - - - - - - - - - - 2 8 6 2 4 1 , - - - - 2 8 6 2 4 1 , - - - - - - - - - - - - 3 4 4 6 3 , - - - - 3 4 4 6 3 , - - - - - - 0 8 0 3 7 , 0 0 0 2 , 9 8 6 3 1 , 0 0 0 0 1 1 , 0 0 0 0 0 7 , 0 5 1 2 1 , 0 0 1 8 , - 0 0 1 8 , - - - - - - - - - - - - 0 0 0 5 3 1 , 0 0 0 0 9 , 0 0 0 0 9 , 0 0 0 0 9 , 0 3 4 1 0 1 , 0 0 0 2 , 9 8 6 3 1 , , 0 0 0 0 1 1 , 0 0 0 5 0 1 1 , r e h t O h s a C d e l t t e s ^ d e l t t e s - y t i u q E & s n o i t p O & s e r a h S s t h g i R s t i n U s t ﬁ e n e B m r e t - g n o l e e y o p m e l s t ﬁ e n e b r e h t O - r e p u S n o i t a u n n a y r a t e n o m * r e h t O - n o N s u n o B s e e f & y r a l a S t n e m y a p d e s a b - e r a h S n o i t a n m r e T i r e h t O t n e m y o p m E l t s o P s t ﬁ e n e b l e e y o p m e m r e t - t r o h S $ $ $ $ $ $ $ $ $ $ $ $ r o t c e r i D g n i g a n a M y a w e g d R W B i , s r o t c e r i D e v i t u c e x E n o N n a m r i a h C y , l l e K W R o d n u D A K l e m m e L M y e h g a n o D E - - - - 0 5 7 3 8 , 7 2 5 9 7 , 5 0 2 5 7 , 2 8 4 8 3 2 , - - - - - - - - 3 4 0 8 2 , 0 3 0 7 1 , 6 3 0 6 1 , 9 0 1 1 6 , - - - - 9 8 8 5 6 , 0 0 0 0 3 2 , 5 3 8 7 4 , 0 0 5 0 5 7 2 4 , 0 0 5 4 7 4 6 5 1 , 0 0 0 1 3 2 , - - - - 0 0 6 7 9 2 , , 0 0 0 0 1 2 1 , 0 0 1 2 6 , 0 0 0 0 4 4 , 0 0 5 3 4 1 , 0 0 5 7 8 3 , 0 0 0 2 9 , 0 0 5 2 8 3 , s a G & l i O : r e g a n a M l a r e n e G , n o t s e W E G n o i s i v i D s e v i t u c e x E p u o r G s l a r e n M i : r e g a n a M l a r e n e G , n i l h g u o L J D n o i s i v i D / r e c ﬁ O f l a i c n a n F i i f e h C , s n a v E A P y r a t e r c e S y n a p m o C . p u o r G x e d m I e h t h t i w e c i v r e s m r e t g n o l i g n d r a w e r e m m a r g o r P y t l a y o L x e d m I e h t r e d n u d e d r a w a s e s u n o b r e h c u o v d n a h s a c e s i r p m o c s t ﬁ e n e b l e e y o p m e m r e t - t r o h s r e h t O - * . s n o i t i d n o c g n i t s e v e v i s s e r g o r p e s i n g o c e r o t d o i r e p t n e r r u c e h t n i d e s n e p x e i g n e b e r a t a h t s t h g i r e c n a m r o f r e p f o e u l a v e h t t c e ﬂ e r s r e b m u n h s a c - n o n e s e h T - ^ l a t o T $ r e h t O h s a C d e l t t e s ^ d e l t t e s - y t i u q E & s n o i t p O & s e r a h S s t h g i R s t i n U s t ﬁ e n e B m r e t - g n o l e e y o p m e l s t ﬁ e n e b r e h t O - r e p u S n o i t a u n n a y r a t e n o m * r e h t O - n o N s u n o B s e e f & y r a l a S t n e m y a p d e s a b - e r a h S n o i t a n m r e T i r e h t O t n e m y o p m E l t s o P s t ﬁ e n e b l e e y o p m e m r e t - t r o h S $ $ $ $ $ $ $ $ $ $ $ $ 2 1 0 2 e n u J 0 3 d e d n e r a e Y 38 r o t c e r i D e v i t u c e x E FY12 Financial Report , , , , 9 2 3 9 5 2 1 4 1 4 1 1 1 2 6 9 7 8 0 8 , 9 4 2 4 0 6 , 6 6 6 6 3 , 3 0 7 1 6 6 , l a t o T $ l a t o T $ 0 5 1 , 7 4 1 0 0 1 , 8 9 0 0 0 , 0 9 0 0 1 , 8 9 4 4 2 , 1 1 5 , 1 l a t o T $ 2 8 7 , 9 0 9 2 9 8 , 5 7 6 1 9 9 , 8 0 6 5 6 6 , 4 9 1 , 2 9 2 0 5 8 8 , 0 0 9 9 1 1 , 0 0 2 7 8 , 0 0 0 0 8 , 0 0 2 7 8 , l a t o T $ r e h t O h s a C d e l t t e s ^ d e l t t e s - y t i u q E & s n o i t p O & s e r a h S s t h g i R s t i n U s t ﬁ e n e B m r e t - g n o l e e y o l p m e s t ﬁ e n e b r e h t O - r e p u S n o i t a u n n a y r a t e n o m * r e h t O - n o N s u n o B s e e f & y r a l a S t n e m y a p d e s a b - e r a h S n o i t a n i m r e T r e h t O t n e m y o l p m E t s o P s t ﬁ e n e b e e y o l p m e m r e t - t r o h S $ $ $ $ $ $ $ $ $ $ $ $ 4 9 8 , 7 7 0 , 1 2 8 6 , 2 4 1 3 4 4 , 6 3 0 8 0 , 3 7 0 0 0 , 2 9 8 6 , 3 1 0 0 0 , 0 1 1 0 0 0 , 0 0 7 r o t c e r i D g n i g a n a M , y a w e g d i R W B - - - - - - - - - - - - - - 0 5 7 , 3 8 7 2 5 , 9 7 5 0 2 , 5 7 2 8 4 , 8 3 2 - - - - - - - - - - - - - - - - - - - - - - - - 3 4 0 , 8 2 0 3 0 , 7 1 6 3 0 , 6 1 9 0 1 , 1 6 - - - - - - - - - - r e h t O h s a C d e l t t e s ^ d e l t t e s - y t i u q E & s n o i t p O & s e r a h S s t h g i R s t i n U s t ﬁ e n e B m r e t - g n o l e e y o l p m e s t ﬁ e n e b r e h t O - r e p u S n o i t a u n n a y r a t e n o m * r e h t O - n o N s u n o B s e e f & y r a l a S t n e m y a p d e s a b - e r a h S n o i t a n i m r e T r e h t O t n e m y o l p m E t s o P s t ﬁ e n e b e e y o l p m e m r e t - t r o h S $ $ $ $ $ $ $ $ $ $ $ $ 2 8 6 , 2 4 1 3 4 4 , 6 3 0 3 4 , 1 0 1 0 0 0 , 2 9 8 6 , 3 1 0 0 0 , 0 1 1 0 0 0 , 5 0 1 , 1 0 5 1 , 2 1 0 0 1 , 8 - 0 0 1 , 8 - - - - - - - - 0 0 0 , 5 3 1 0 0 0 , 0 9 0 0 0 , 0 9 0 0 0 , 0 9 - - - - - - - - 9 8 8 , 5 6 0 0 0 , 0 3 2 0 0 1 , 2 6 0 0 0 , 0 4 4 5 3 8 , 7 4 0 0 5 0 0 5 , 3 4 1 0 0 5 , 7 8 3 0 5 7 , 2 4 0 0 5 4 7 4 , 6 5 1 0 0 0 , 1 3 2 0 0 0 , 2 9 0 0 5 , 2 8 3 0 0 6 , 7 9 2 0 0 0 , 0 1 2 , 1 s a G & l i O : r e g a n a M l a r e n e G , n o t s e W E G s e v i t u c e x E p u o r G s l a r e n i M : r e g a n a M l a r e n e G , n i l h g u o L J D n o i s i v i D n o i s i v i D / r e c ﬁ f O l a i c n a n i F f e i h C , s n a v E A P y r a t e r c e S y n a p m o C . p u o r G x e d m I e h t h t i w e c i v r e s m r e t g n o l g n i d r a w e r e m m a r g o r P y t l a y o L x e d m I e h t r e d n u d e d r a w a s e s u n o b r e h c u o v d n a h s a c e s i r p m o c s t ﬁ e n e b e e y o l p m e m r e t - t r o h s r e h t O - * . s n o i t i d n o c g n i t s e v e v i s s e r g o r p e s i n g o c e r o t d o i r e p t n e r r u c e h t n i d e s n e p x e g n i e b e r a t a h t s t h g i r e c n a m r o f r e p f o e u l a v e h t t c e ﬂ e r s r e b m u n h s a c - n o n e s e h T - ^ 2 1 0 2 e n u J 0 3 d e d n e r a e Y s r o t c e r i D e v i t u c e x E n o N n a m r i a h C , y l l e K W R o d n u D A K l e m m e L M y e h g a n o D E r o t c e r i D e v i t u c e x E - - - - - - - - - - - - - - - - - - - - - & s n o i t p O & s e r a h S s t h g i R s t i n U r e h t O h s a C d e l t t e s ^ d e l t t e s - y t i u q E s t ﬁ e n e B m r e t - g n o l e e y o p m e l s t ﬁ e n e b r e h t O - r e p u S n o i t a u n n a y r a t e n o m r e h t O - n o N s u n o B s e e f & y r a l a S t n e m y a p d e s a b - e r a h S n o i t a n m r e T i r e h t O t n e m y o p m E l t s o P s t ﬁ e n e b l e e y o p m e m r e t - t r o h S $ $ $ $ $ $ $ $ $ $ $ $ - - - - - - 6 7 0 3 5 , - - - - 6 7 0 3 5 , - - - - - - - - - - - - 1 7 6 2 4 , - - - - 1 7 6 2 4 , - - - - - - 3 9 2 4 6 , - 0 0 9 9 , 0 0 2 7 , 0 0 2 7 , 3 9 5 8 8 , - - - - - - 6 2 6 0 1 , 0 0 0 0 4 1 , 3 6 3 4 7 5 , - - - - - - - - 0 0 0 0 1 1 , 0 0 0 0 8 , 0 0 0 0 8 , 0 0 0 0 8 , 6 2 6 0 1 , 0 0 0 0 4 1 , 3 6 3 4 2 9 , & s n o i t p O & s e r a h S s t h g i R s t i n U r e h t O h s a C d e l t t e s ^ d e l t t e s - y t i u q E s t ﬁ e n e B m r e t - g n o l e e y o p m e l s t ﬁ e n e b r e h t O - r e p u S n o i t a u n n a y r a t e n o m r e h t O - n o N s u n o B s e e f & y r a l a S t n e m y a p d e s a b - e r a h S n o i t a n m r e T i r e h t O t n e m y o p m E l t s o P s t ﬁ e n e b l e e y o p m e m r e t - t r o h S $ $ $ $ $ $ $ $ $ $ $ $ 1 1 0 2 e n u J 0 3 d e d n e r a e Y r o t c e r i D e v i t u c e x E r o t c e r i D g n i g a n a M y a w e g d R W B , i s r o t c e r i D e v i t u c e x E n o N n a m r i a h C y , l l e K W R o d n u D A K l e m m e L M y e h g a n o D E - - - - - 8 8 3 5 5 1 , 0 4 3 9 9 , - 8 6 0 3 1 1 , 6 9 7 7 6 3 , - - - - - - - - - - 1 9 9 0 4 , 2 2 4 1 1 , - 1 0 1 1 1 , 4 1 5 3 6 , - - - - - - 7 6 5 0 5 , 7 4 7 0 4 , 4 8 3 4 4 , 8 9 6 5 3 1 , - - - - - - - - - - 0 0 3 1 4 4 , , 6 0 1 3 0 1 1 , 0 0 5 8 7 1 , 0 5 3 3 8 3 , 0 5 1 3 1 1 , 0 9 5 9 3 3 , l a r e n e G , r e g a n a M l a r e n e G j t c e o r P , n o t s e W E G n o i s i v i D s a G & l i O : r e g a n a M s l a r e n M i : r e g a n a M l a r e n e G , n i l h g u o L J D n o i s i v i D s e v i t u c e x E p u o r G - 6 6 6 6 3 , * n o i s i v i D ) s a G & l i O ( i s l a c m e h C 0 5 6 9 4 1 , 0 0 5 3 4 3 , y n a p m o C / r e c ﬁ O f l a i c n a n F i i f e h C , s n a v E A P y r a t e r c e S d n a i s d u F l : r e g a n a M l a r e n e G , l e n s e u Q L M e t a l e r l y n o e v o b a s e r u s o c s i D l . 0 1 0 2 t s u g u A 1 3 n o d e n g i s e r l e n s e u Q L M r M . t c e f f e o t n i e m a c s e r u t c u r t s g n i t r o p e r l a n r e t n i d e g n a h c n e h w 0 1 0 2 y l u J 1 n o e v i t u c e x E p u o r G a e b o t d e s a e c r e d n a M J P r M - * . e c ﬁ o f n i n e h w d o i r e p e h t o t . s n o i t i d n o c g n i t s e v e v i s s e r g o r p e s i n g o c e r o t d o i r e p t n e r r u c e h t n i d e s n e p x e i g n e b e r a t a h t s t h g i r e c n a m r o f r e p d n a s n o i t p o f o e u l a v e h t t c e ﬂ e r s r e b m u n h s a c - n o n e s e h T - ^ Imdex 2012 Annual Report 39 FY12 Financial Report Financial Report (i) Mr B W Ridgeway is a party to a service contract with Imdex Limited, which sets out a ﬁ xed compensation package, reviewable annually. The service contract speciﬁ es a twelve month notice period in the event that the contract is terminated. If the contract is terminated without notice, the notice period will become payable in cash. There are no termination beneﬁ ts speciﬁ ed in this contract. Additional performance incentives may be agreed between Mr Ridgeway and Imdex Limited from time to time. The Managing Director’s compensation is reviewed and determined annually by the Remuneration Committee. In the current year Mr Ridgeway earned a short term cash bonus of $110,000 upon achievement of speciﬁ ed targets. An additional $140,000 could have been earned by Mr Ridgeway had the remaining targets been met. In addition Mr Ridgeway received a loyalty bonus in accordance with the Imdex Loyalty Programme. The Imdex Loyalty Programme is an employer of choice initiative in which all Imdex staff participate. For 10 years of service Mr Ridgeway earned a cash bonus of $2,000. Mr Ridgeway earned a short term cash bonus of $140,000 in the prior year for exceeding budgeted EBITA levels by more than a set percentage and for achieving one of three product development milestones. An additional $40,000 could have been earned by Mr Ridgeway had the remaining two product development targets and one cash ﬂ ow related target been met. No options were granted to Mr Ridgeway in the current year or in the prior year. The grant of 153,318 performance rights to Mr Ridgeway in the current year was approved by the shareholders at the Annual General Meeting on 20 October 2011. The Managing Director is subject to two hurdles each with equal weighting. The ﬁ rst is that the Total Shareholder Return (TSR) of Imdex Limited must exceed the average TSR of the ASX300 over the 3 year measurement period. The second is that the Earnings Per Share of Imdex Limited must exceed the average EPS of the ASX300 over the 3 year measurement period. The performance hurdle in relation to these performance rights will be measured after the audit sign off of the FY14 ﬁ nancial statements on or about August 2014. No value has therefore been received by Mr Ridgeway in the current year. Refer note 34 for further details. The grant of 196,579 performance rights to Mr Ridgeway in the prior year was approved by the shareholders at the Annual General Meeting on 14 October 2010. The performance hurdle in relation to these performance rights will be measured after the audit sign off of the FY13 ﬁ nancial statements on or about August 2013. No value was therefore received by Mr Ridgeway in the prior year. Refer note 34 for further details. (ii) Mr G E Weston is party to a service contract with Imdex Limited, which sets out a ﬁ xed compensation package, reviewable annually. The service contract stipulates a twelve month notice period in the event that the contract is terminated. There are no termination beneﬁ ts speciﬁ ed in this contract. Performance incentives may be agreed between Mr Weston and Imdex Limited from time to time. Additionally, Mr Weston is party to a deed with Imdex Limited, granting Mr Weston the right of ﬁ rst refusal of Australian Mud Company Pty Ltd, a 100% held subsidiary of Imdex Limited, in the event that an offer is received by the directors of Imdex Limited to purchase 100% of the Imdex Limited shares on issue. This ‘right’ lapses automatically should Mr Weston no longer be employed by Imdex Limited. In the current year Mr Weston earned a short term cash bonus of $62,100 upon achievement of speciﬁ ed targets. An additional $144,900 could have been earned by Mr Weston had the remaining targets been met. In addition Mr Weston received a loyalty bonus in accordance with the Imdex Loyalty Programme. The Imdex Loyalty Programme is an employer of choice initiative in which all Imdex staff participate. For 25 years of service Mr Weston earned a cash bonus of $230,000, being 50% of his current annual salary. In the prior year, Mr Weston earned a short term cash bonus of $178,500 on achievement of speciﬁ ed proﬁ tability hurdles. This was the maximum possible bonus that Mr Weston could have earned. No options were granted to Mr Weston in the current or prior year. Mr Weston was granted 48,611 performance rights in the current period under the Performance Rights Plan. It is expected that the hurdles applicable to 44,779 of these performance rights will be achieved in the current year. These 44,779 performance rights will be settled via the issue of 44,779 fully paid ordinary shares in Imdex Limited in equal one third tranches annually on or about August each year starting in August 2012 on condition that Mr Weston remains employed by Imdex Limited at that time. Refer note 34 for further details. Mr Weston was granted 120,897 performance rights in the prior year under the Performance Rights Plan. These 120,897 performance rights will be settled via the issue of 120,897 fully paid ordinary shares in Imdex Limited in equal one third tranches annually on or about August each year starting in August 2011 on condition that Mr Weston remains employed by Imdex Limited at that time. Refer note 34 for further details. (iii) Mr D J Loughlin is a party to a service contract with Imdex Limited, which sets out a ﬁ xed compensation package reviewable annually. The service contract speciﬁ es a six month notice period in the event that the contract is terminated. There are no termination beneﬁ ts speciﬁ ed 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 earned a short term cash bonus of $143,500 upon achievement of speciﬁ ed targets. An additional $28,700 could have been earned by Mr Loughlin had the remaining targets been met. The Imdex Loyalty Programme is an employer of choice initiative in which all Imdex staff participate. For 5 years of service Mr Loughlin earned a cash bonus of $500. In the prior year, Mr Loughlin earned a short term cash bonus of $113,150 on achievement of speciﬁ ed proﬁ tability hurdles. This was the maximum possible bonus that Mr Loughlin could have earned. 40 FY12 Financial Report No options were granted to Mr Loughlin in the current or prior year. Mr Loughlin was granted 42,245 performance rights in the current period under the Performance Rights Plan. It is expected that the hurdles applicable to 38,914 of these performance rights will be achieved in the current year. These 38,914 performance rights will be settled via the issue of 38,914 fully paid ordinary shares in Imdex Limited in equal one third tranches annually on or about August each year starting in August 2012 on condition that Mr Loughlin remains employed by Imdex Limited at that time. Refer note 34 for further details. Mr Loughlin was granted 125,587 performance rights in the prior year under the Performance Rights Plan. These 125,587 performance rights will be settled via the issue of 125,587 fully paid ordinary shares in Imdex Limited in equal one third tranches annually on or about August each year starting in August 2011 on condition that Mr Loughlin remains employed by Imdex Limited at that time. Refer note 34 for further details. (iv) Mr P A Evans is a party to a service contract with Imdex Limited, which sets out a ﬁ xed compensation package reviewable annually. The service contract speciﬁ es a six month notice period in the event that the contract is terminated. There are no termination beneﬁ ts speciﬁ ed in this contract. Additional performance incentives may be agreed between Mr Evans and Imdex Limited from time to time. In the current year Mr Evans earned a short term cash bonus of $92,000 upon achievement of speciﬁ ed targets. An additional $76,000 could have been earned by Mr Evans had the remaining targets been met. In addition Mr Evans received a loyalty bonus in accordance with the Imdex Loyalty Programme. The Imdex Loyalty Programme is an employer of choice initiative in which all Imdex staff participate. For 5 years of service Mr Evans earned a cash bonus of $500. In the prior year, Mr Evans earned a short term cash bonus of $149,650 on achievement of speciﬁ ed proﬁ tability hurdles. This was the maximum possible bonus that Mr Evans could have earned. No options were granted to Mr Evans in the current or prior year. Refer note 33 for further details. Mr Evans was granted 42,245 performance rights in the current period under the Performance Rights Plan. It is expected that the hurdles applicable to 38,914 of these performance rights will be achieved in the current year. These 38,914 performance rights will be settled via the issue of 38,914 fully paid ordinary shares in Imdex Limited in equal one third tranches annually on or about August each year starting in August 2012 on condition that Mr Evans remains employed by Imdex Limited at that time. Refer note 34 for further details. Mr Evans was granted 111,806 performance rights in the prior year under the Performance Rights Plan. These 111,806 performance rights will be settled via the issue of 111,806 fully paid ordinary shares in Imdex Limited in equal one third tranches annually on or about August each year starting in August 2011 on condition that Mr Evans remains employed by Imdex Limited at that time. Refer note 34 for further details. Bonuses granted to Directors and Key Management Personnel The table below sets out the bonuses earned by Directors and Key Management Personnel in the current year and includes a long service bonus. Bonuses are paid on the achievement of performance criteria speciﬁ c to the individual. Where performance hurdles are not met, no bonus is paid. The performance criteria used are chosen by the Remuneration Committee annually and are linked to the ﬁ nancial performance of the company and hence shareholder value. Performance criteria typically revolve around areas of risk management, people development, systems improvement and EBITA performance. Performance criteria are reviewed by the Remuneration Committee against budgeted outcomes before granting bonuses. Bonus $ Performance based bonus Loyalty bonus % of possible bonus earned % of possible bonus forfeited % of compensation for the year consisting of performance based bonuses B W Ridgeway G E Weston D J Loughlin P A Evans 110,000 62,100 143,500 92,000 2,000 230,000 500 500 44% 30% 83% 55% 56% 70% 17% 45% 10% 7% 21% 15% Imdex Loyalty Programme During the year Imdex Limited introduced a new global Loyalty Programme in recognition of employees with long standing years of service. Employees with 5, 10, 15, 20 or 25 years employment with Imdex will be entitled to rewards for their years of service. Rewards range from a AUD$500 voucher for 5 years’ service through to a cash equivalent of 3 and 6 months’ salary for employees who remain with the business for 20 and 25 years respectively. Imdex 2012 Annual Report 41 FY12 Financial Report Financial Report Value of options issued to Directors and Key Management Personnel The following table discloses the value of options granted, exercised or lapsed during the year: Options Granted Value at grant date Options Exercised Value at exercise date (i) Number of shares Issued Value paid for shares issued upon exercise of options Options Lapsed Value at lapsing date Number of options vested in the current year (ii) Options granted that have vested in current year Value of options included in remuneration during the year (iii) Percent- age of remunera- tion for the year that consisted of options $ $ Number $ $ Number % $ % B W Ridgeway G E Weston D J Loughlin P A Evans - - - - - - - - - - 700,000 (Tranche 3) 500,000 (Tranche 3) 309,000 (Tranche 4) 300,000 (Tranche 4) 375,000 (Tranche 3) 300,000 (Tranche 4) (i) No amounts remain unpaid on these options (ii) Represents 1/3 of each underlying tranche which vests annually - - - - - - - - - - - - - - - - - - - - (iii) The total value of options included in remuneration for the year is calculated in accordance with Accounting Standard AASB 2 Share Based Payments. These non-cash numbers reﬂ ect the value of options issued in prior periods that are being expensed in the current period to recognise progressive vesting conditions. No share options were granted to Directors or Key Management Personnel during or since the end of the ﬁ nancial year. Share based payment arrangements in existence during the current year 2012 Issue Date Expiry Date Exercise Price $ Fair Value at Grant Date $ Number of Options Opening balance Issued current year Exercised current year Lapsed current year Closing balance Staff Options Tranche 3 (i) 23-Feb-07 22-Feb-12 Tranche 4 (i) 23-Feb-07 22-Feb-12 Tranche 5 (i) 12-Jun-07 11-Jun-12 Tranche 6 (i) 18-Oct-07 17-Oct-12 Tranche 7 (i) 28-Mar-08 27-Mar-13 0.75 1.00 1.80 1.80 3.00 0.56 0.48 0.51 0.81 0.42 700,000 2,263,167 575,000 200,000 4,279,991 - - - - - (700,000) - (2,248,167) (15,000) (75,000) (500,000) - - - - - - 200,000 (586,658) 3,693,333 Former Chairman’s Options (Mr I F Burston) Tranche 1 (ii) 19-Oct-06 18-Oct-11 0.75 0.35 500,000 - (500,000) - - All staff options are exercisable one year after the date of issue, in one-third lots each year thereafter. 8,518,158 - (3,523,167) (1,101,658) 3,893,333 42 FY12 Financial Report Share options held by Directors and Key Management Personnel 2012 Balance at 1 July 2011 Granted as compensation Exercised Balance at 30 June 2012 Vested but not exercisable Vested and exercisable Options vested during year Inception / (cessation) as key management person No. No. No. No. No. No. No. No. Mr B W Ridgeway Mr R W Kelly Mr K A Dundo Mr M Lemmel Ms E Donaghey Mr G E Weston Mr D J Loughlin Mr P A Evans - - - - - 500,000 500,000 500,000 1,500,000 - - - - - - - - - - - - - - - (500,000) (300,000) (800,000) - - - - - - - - - - - - - - 500,000 - 200,000 700,000 - - - - - - - - - - - - - - 500,000 - 200,000 700,000 - - - - - - - - - 2011 Balance at 1 July 2010 Granted as compensation Exercised Balance at 30 June 2011 Vested but not exercisable Vested and exercisable Options vested during year Inception / (cessation) as key management person No. No. No. No. No. No. No. No. Mr B W Ridgeway 2,000,000 Mr R W Kelly Mr K A Dundo Mr M Lemmel Ms E Donaghey - - - - Mr G E Weston 1,500,000 Mr D J Loughlin Mr P J Mander ~ Mr P A Evans 500,000 150,000 500,000 4,650,000 - - - - - - - - - - (2,000,000) - - - - - (1,000,000) - - - - - - - - - (150,000) - - - - - 500,000 500,000 - - 500,000 (3,000,000) (150,000) 1,500,000 - - - - - - - - - - - - - - - - - - - - 500,000 166,668 500,000 - - - 500,000 66,667 1,500,000 233,335 ~ - Mr P J Mander ceased to be a Key Management Person on 1 July 2010 when changed internal reporting structures came into effect. Disclosures above relate only to the period when in ofﬁ ce. No options were granted to key management personnel in the current or prior year. A total of 800,000 options were exercised by key management personnel during the current year. The exercise price was 75c per share for the 500,000 exercised by Mr D Loughlin and $1.00 per share for the 300,000 exercised by Mr P Evans. No amounts remain unpaid on the options exercised. Imdex 2012 Annual Report 43 FY12 Financial Report Financial Report Value of performance rights granted to Directors and Key Management Personnel Performance rights are granted to Key Management Personnel at a ﬁ xed percentage of their base salaries depending on seniority. Percentages range from 7.5% to 25%. Each performance right is to be satisﬁ ed by the issue of one fully paid Imdex Limited ordinary share for nil consideration should speciﬁ ed proﬁ tability targets be met. Shares issued in satisfaction of performance rights are done so in 1/3 lots on the anniversary date of the satisfaction of the speciﬁ ed hurdles should employment tenure be ongoing. The following table discloses the value of performance rights granted and expired during the year: Granted Satisﬁ ed by the issue of shares Expired (iii) Value at grant date Value at issue date Value included in remuneration during the year Percentage of remuneration for the year that consisted of performance rights B W Ridgeway (i) G E Weston (ii) D J Loughlin (ii) P A Evans (ii) Number $ Number 153,318 (MD Tranche) 48,611 (Tranche 9) 42,245 (Tranche 9) 42,245 (Tranche 9) 292,500 - 67,926 59,030 59,030 40,299 (Tranche 2) 41,862 (Tranche 2) 37,269 (Tranche 2) $ - 82,613 85,817 76,401 Number $ - - - - 142,682 83,750 79,527 75,205 % 13% 9% 12% 12% (i) Approved by the shareholders at the Annual General Meeting on 20 October 2011. (ii) Granted per the Performance Rights Plan. (iii) Where performance rights expire no value is received by the performance rights holder. No performance rights were granted to Directors or Key Management Personnel since the end of the ﬁ nancial year. More details on the Performance Rights Plan can be found at note 34. Performance Rights in existence during the current year 2012 Grant Date Expiry Date Exercise Price $ Estimated Fair Value at Grant Date $ Estimated Number of Performance Rights Opening balance Granted Satisﬁ ed by the issue of shares Expired ^ Closing balance Tranche 1 19-Feb-10 Tranche 2 Tranche 3 3-Dec-10 28-Jan-11 Tranche 4 10-Jun-11 Tranche 9 14-Oct-10 MD Tranche 20-Oct-11 Tranche 7 5-Sep-11 Tranche 8 29-Aug-11 Tranche 9 7-Oct-11 Aug-14 Aug-15 Aug-15 Aug-16 Oct-15 Oct-16 Aug-16 Aug-16 Aug-16 - - - - - - - - - 0.685 1.395 1.990 2.160 1.140 1.910 2.100 2.080 1.790 253,669 2,072,372 200,000 200,000 196,579 - - - - - - - - - 153,318 615,000 15,000 835,090 (126,835) (5,635) 121,199 (677,001) (100,897) 1,294,474 (66,667) (133,333) - (66,667) - - - - - - - - - - 133,333 196,579 153,318 615,000 15,000 (21,743) 813,347 ^ - Performance rights expire either on failure to maintain employment tenure or on failure to satisfy performance hurdles. Refer to (h) Performance Rights in the Directors Report for vesting details. 44 FY12 Financial Report (g) Share Options (i) 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 op- tion Issue date of option Expiry date of option Key terms of option Number of shares under option Imdex Limited Imdex Limited Staff Share Options (Tranche 7) Staff Share Options (Tranche 6) Ordinary 300 cents 28 Mar 2008 27 Mar 2013 (aa) 3,693,333 Ordinary 180 cents 18 Oct 2007 17 Oct 2012 (aa) 200,000 (aa) exercisable one year after the date of issue, in one-third lots each year thereafter. The holders of these options do not have the right, by virtue of the option, to participate in any share issue or interest issue of the Company or of any other body corporate or registered scheme. (ii) Share options exercised during or since the end of the ﬁ nancial year Issuing Entity Imdex Limited Imdex Limited Imdex Limited Imdex Limited Class of op- tion Staff Share Options (Tranche 4) Staff Share Options (Tranche 3) Staff Share Options (Tranche 6) Former Chairman’s Options (Tranche 1) Class of shares Exercise price of option Issue date of option Expiry date of option Number of shares issued Ordinary 100 cents 23 Feb 2007 22 Feb 2012 2,248,167 Ordinary 75 cents 23 Feb 2007 22 Feb 2012 700,000 Ordinary 180 cents 12 Jun 2007 11 Jun 2012 75,000 Ordinary 75 cents 19 Oct 2006 18 Oct 2011 500,000 Imdex 2012 Annual Report 45 FY12 Financial Report Financial Report (h) Performance Rights (i) Performance rights on issue at the date of this report Issuing Entity Class Class of shares Exercise price Issue date Expiry date Key terms Number of shares under performance right 121,199 1,294,474 133,333 196,579 Imdex Limited Imdex Limited Imdex Limited Imdex Limited Imdex Limited Imdex Limited Imdex Limited Imdex Limited Performance Rights (Tranche 1) Performance Rights (Tranche 2) Performance Rights (Tranche 4) Performance Rights (Managing Directors’ Tranche 1) Performance Rights (Managing Directors’ Tranche 2) Performance Rights (Tranche 7) Performance Rights (Tranche 8) Performance Rights (Tranche 9) Ordinary Ordinary Ordinary Ordinary Nil Nil Nil Nil 19 Feb 2010 Aug 2014 3 Dec 2010 Aug 2015 10 Jun 2011 Aug 2016 14 Oct 2010 Oct 2015 (aa) (bb) (cc) (dd) Ordinary Nil 20 Oct 2011 Oct 2016 (ee) 153,318 Ordinary Ordinary Ordinary Nil Nil Nil 5 Sept 2011 Aug 2016 29 Aug 2011 Aug 2016 (ff) (gg) 615,000 15,000 7 Oct 2011 Aug 2016 (hh) 813,347 (aa) To be satisﬁ ed by the issue of fully paid ordinary shares in Imdex Limited in equal 1/3 lots annually with the anniversary date being the day after signature of the FY10 independent audit report. Subject to ongoing employment tenure. (bb) To be satisﬁ ed by the issue of fully paid ordinary shares in Imdex Limited in equal 1/3 lots annually with the anniversary date being the day after signature of the FY11 independent audit report. Subject to ongoing employment tenure. (cc) To be satisﬁ ed by the issue of fully paid ordinary shares in Imdex Limited in equal 1/3 lots annually with the anniversary date being the day after signature of the FY12 independent audit report. Subject to ongoing employment tenure. (dd) To be satisﬁ ed by the issue of fully paid ordinary shares in Imdex Limited on or about October 2015. Subject to the achievement of speciﬁ ed performance hurdles and ongoing employment tenure. (ee) To be satisﬁ ed by the issue of fully paid ordinary shares in Imdex Limited on or about October 2016. Subject to the achievement of speciﬁ ed performance hurdles and ongoing employment tenure. (ff) To be satisﬁ ed by the issue of fully paid ordinary shares in Imdex Limited with 1/4 allotted August 2014 and the remaining 3/4 allotted August 2015 with the anniversary date being the day after signature of the FY14 independent audit report. Subject to ongoing employment tenure. (gg) To be fully satisﬁ ed by the issue of fully paid ordinary shares in Imdex Limited in August 2012. (hh) To be satisﬁ ed by the issue of fully paid ordinary shares in Imdex Limited in equal 1/3 lots annually with the anniversary date being the day after signature of the FY12 independent audit report. Subject to ongoing employment tenure. (i) Principal Activities The Group’s principal continuing activities during the course of the ﬁ nancial year were manufacturing and sale and rental of a range of drilling ﬂ uids and chemicals and down hole instrumentation. 46 FY12 Financial Report (j) Review of Operations During the current year the Imdex Group continued with its strategy to sell drilling ﬂ uids and chemicals as well as develop, rent and sell technologically advanced down hole instrumentation to the mining and oil and gas industries globally. The Imdex Group vertically integrated its Australian ﬂ uids business by purchasing Australian Drilling Specialties Pty Ltd effective 1 July 2011 and effective 1 August 2011 entered the Brazilian ﬂ uids market by purchasing an established manufacturer and distributor of ﬂ uids, System Mud Indústria e Comércio Ltda, based in Brazil. These acquisitions occurred against the global backdrop of strong commodity prices, high drill rig utilisation rates and increasing exploration spending which assisted existing Imdex Group businesses to expand organically. The Imdex Group earned revenue from continuing operations (including interest) of $269.6 million (2011: $205.3 million) and proﬁ t after tax of $45.8 million (2011: $29.0 million). (k) Dividends In the current year a fully franked interim dividend of 3.25 cents per ordinary share was paid on 23 March 2012 to shareholders registered on 9 March 2012. Since 30 June 2012 the Directors have declared a fully franked ﬁ nal dividend of 4.00 cents per ordinary share, the ﬁ nancial effect of which has not been reﬂ ected in this Financial Report. In the prior year a fully franked interim dividend of 1.75 cents per ordinary share was paid on 25 March 2011 to shareholders registered on 11 March 2011, and a fully franked ﬁ nal dividend of 2.75 cents per ordinary share was paid on 21 October 2011 to shareholders registered on 7 October 2011. (l) Changes in State Of Affairs There were no signiﬁ cant changes in the state of affairs of the Group. (m) Subsequent Events Subsequent to year end the Directors declared a 4.00 cent per share fully franked dividend with a record date of 12 October 2012 and a payment date of 26 October 2012. The effect of this dividend has not been reﬂ ected in this ﬁ nancial report. (n) Future Developments Disclosure of information regarding likely developments in the operations of the Group in future ﬁ nancial 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. (o) 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 efﬂ uent discharge. This is controlled through an efﬂ uent system. No known environmental breaches have occurred in relation to the Group’s operations. (p) 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 satisﬁ ed that the provision of non-audit services, during the year, by the auditor (or by another person or ﬁ rm 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 fees paid for services provided as disclosed in note 6 to the ﬁ nancial 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 and 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. Imdex 2012 Annual Report 47 FY12 Financial Report Financial Report (q) Auditor’s Independence Declaration The auditor’s independence declaration is included in the Annual Report immediately prior to the Audit Report. (r) Indemniﬁ cation of Ofﬁ cers and Auditors During the ﬁ nancial year, the Company paid a premium in respect of a contract insuring the Directors of the Company, the Company Secretary, and all Executive Ofﬁ cers of the Company and of any related body corporate against a liability incurred as such a Director, Secretary or Executive Ofﬁ cer 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 ﬁ nancial year, except to the extent permitted by law, indemniﬁ ed or agreed to indemnify an ofﬁ cer or auditor of the Company or of any related body corporate against a liability incurred as such an ofﬁ cer or auditor. (s) 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 ﬁ nancial report are rounded off to the nearest thousand dollars unless otherwise indicated. 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 Ross Kelly AM Chairman Perth, Western Australia, 17 August 2012 48 FY12 Financial Report 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 Auditor’s Independence Declaration The Board of Directors Imdex Limited 8 Pitino Court Osborne Park WA 6017 17 August 2012 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 ﬁ nancial statements of Imdex Limited for the ﬁ nancial year ended 30 June 2012, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours sincerely DELOITTE TOUCHE TOHMATSU Peter Rupp Partner Chartered Accountants Imdex 2012 Annual Report 49 FY12 Financial Report Financial Report Independent Auditor’s Report Independent Auditor’s Report to the Members of Imdex Limited Report on the Financial Report 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 We have audited the accompanying ﬁ nancial report of Imdex Limited, which comprises the statement of ﬁ nancial position as at 30 June 2012, the income statement, the statement of comprehensive income, the statement of cash ﬂ ows and the statement of changes in equity for the year ended on that date, notes comprising a summary of signiﬁ cant accounting policies and other explanatory information, 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 ﬁ nancial year as set out on pages 52 and 58 to 117. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation of the ﬁ nancial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the ﬁ nancial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 2, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the consolidated ﬁ nancial statements comply with International Financial Reporting Standards. Auditor’s Responsibility Our responsibility is to express an opinion on the ﬁ nancial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those 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 ﬁ nancial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the ﬁ nancial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the ﬁ nancial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control, relevant to the company’s preparation of the ﬁ nancial report that gives a true and fair view, 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 company’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 ﬁ nancial report. We believe that the audit evidence we have obtained is sufﬁ cient and appropriate to provide a basis for our audit opinion. 50 FY12 Financial Report Auditor’s Independence Declaration In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We conﬁ rm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of Imdex Limited, would be in the same terms if given to the directors as at the time of this auditor’s report. Opinion In our opinion, the ﬁ nancial report of Imdex Limited is in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the consolidated entity’s ﬁ nancial position as at 30 June 2012 and of its performance for the year ended on that date; and (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Report on the Remuneration Report We have audited the Remuneration Report included in paragraph (f) of the directors’ report for the year ended 30 June 2012. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Opinion In our opinion the Remuneration Report of Imdex Limited for the year ended 30 June 2012, complies with section 300A of the Corporations Act 2001. DELOITTE TOUCHE TOHMATSU Peter Rupp Partner Chartered Accountants Perth, 17 August 2012 Imdex 2012 Annual Report 51 FY12 Financial Report Financial Report 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 ﬁ nancial 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 ﬁ nancial position and performance of the Group; (c) in the Directors’ opinion, the ﬁ nancial statements and notes thereto are in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board, as stated in note 2 to the ﬁ nancial statements; and (d) 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 ﬁ nancial 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) of the Corporations Act 2001. Dated at Perth, 17 August 2012. Mr Ross Kelly AM Chairman 52 FY12 Financial Report Corporate Governance Statement ASX Governance Principles and ASX Recommendations The Australian Securities 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 2012. In addition, the Company has a Corporate Governance section on its website: www.imdexlimited.com (under the “Investors” 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 2012, and the main corporate governance practices in place are set out below. 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. The performance of Senior Executives is measured against prescribed criteria as set by the Remuneration Committee. These criteria are set annually and individual performance is assessed annually. 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 ﬁ ve 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 ﬁ ve or six. The names of the Directors of the Company in ofﬁ ce at the date of this Statement are set out in the Directors’ Report and further details concerning the skills, experience, expertise and term of ofﬁ ce of each Director is set out in the Director’s Proﬁ les in the ﬁ rst section of the Annual Report. (ii) Board Independence Directors are expected to bring independent judgement to 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 Assessment Existence of any matters contained in ASX Recommendation 2.1 affecting Independence Mr R W Kelly, Non Executive Chairman Mr B W Ridgeway, Managing Director Mr K A Dundo, Non Executive Director Mr M Lemmel, Non Executive Director Ms E Donaghey, Non Executive Director Independent Nil Not Independent Managing Director Independent Independent Independent Nil Nil Nil Imdex 2012 Annual Report 53 FY12 Financial Report Financial Report (iii) Board Nomination The Board does not have a separate nomination committee and, given the Company’s size, does not intend to form such a committee. However, the composition of the Board is determined using the following principles: • 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 • 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. (v) Process for evaluating the performance of the Board, its committees and individual Directors Board performance is measured primarily by means of monitoring Group proﬁ tability and share price performance in the market. Individual Director performance is also measured by way of monitoring meeting attendance and individual contributions made at these meetings. Principle 3: Promote ethical and responsible decision-making Diversity The Company has adopted a diversity policy to guide the Company’s employees and Board in developing and achieving its diversity objectives. The Company values diversity among its workforce and seeks to employ, retain and develop employees for the long term, assisting in their development and the development of the culture and values of the Company. This is done by promoting the value of different perspectives, ideas and beneﬁ ts brought by engaging employees from all available talent. The Company seeks to develop a culture of diversity within the Company whereby a mix of skills and diverse backgrounds are employed by the Company at all levels. This is achieved by: • developing and maintaining a diverse and skilled workforce through transparent recruitment processes • promoting an inclusive workplace culture that values and utilises the contributions of all employees backgrounds, experiences and perspective through improved awareness of the beneﬁ ts of workforce diversity • facilitating diversity in the workplace by developing programs that promote growth for all employees, so each employee may reach their full potential, and providing maximum beneﬁ t for the Company • reviewing the demographic proﬁ le at all levels of the Company (considering any patterns or gaps that are apparent) • setting measurable objectives to encourage diversity within the Company. The Board continues to work on objectives that will work towards achieving these goals. The objectives will be reviewed and analysed regularly to assist the Company to beneﬁ t from a diverse workplace. At 30 June 2012: • of ﬁ ve Board positions, four (80%) were held by males, and one (20%) was held by a female • of eight senior executive positions, seven (87%) were held by males, and one (13%) was held by a female • of 543 full time employees, 420 (77%) were male and 123 (23%) were female. 54 FY12 Financial Report Principle 4: Safeguard integrity in ﬁ nancial reporting (i) Statement by the Managing Director and Chief Financial Ofﬁ cer The Managing Director and the Chief Financial Ofﬁ cer have signed a declaration to the Board attesting to the fact that the 2012 Annual Financial Report presents a true and fair view, in all material respects, of the Company’s ﬁ nancial 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, appropriate ethical standards for the management of the Company and to approve the annual internal audit plan. It also gives the Board assurance regarding the quality and reliability of ﬁ nancial information prepared for use by the Board in determining policies for inclusion in Financial Statements. The members of the Audit and Compliance Committee during the year and at the date of this Statement were: Mr K A Dundo (Chairman) Mr R W Kelly Ms E Donaghey. The experience and qualiﬁ cations of each committee member is set out in the Directors’ Proﬁ les in the ﬁ rst section of the Annual Report. The Company Secretary acts as secretary of this Committee. The external auditors, the Risk and Compliance Manager, the Managing Director and the Chief Financial Ofﬁ cer are invited to Audit and Compliance Committee meetings at the discretion of the Committee. Details of meetings held by the Audit and Compliance Committee during the year are set out in the Directors’ Report. (iii) External Auditors The Board reviews the performance, skills, cost and other matters when assessing the appointment of external auditors. This review is generally undertaken at the completion of the preparation of the Annual Financial 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 required to attend the Annual General Meeting of the Company and be available to answer questions from Shareholders. (iv) Internal Audit The Group has an internal audit function that reports directly to the Audit and Compliance Committee. The conduct and independence of the internal audit function are governed by the Internal Audit Charter which is approved by the Audit and Compliance Committee. The annual work plan of the internal audit function is approved annually by the Audit and Compliance Committee. Principle 5: Make timely and balanced disclosure (i) Continuous disclosure policies and procedures The Company has developed procedures to ensure that it complies with the disclosure requirements of the ASX Listing Rules. The procedures are published on the Company’s website. The procedures set out who is responsible for determining whether information is of a type or nature that requires disclosure, the Board’s role in reviewing the information disclosed to ASX and the procedures for ensuring that the information is released to ASX. All information disclosed to the ASX is published on the Company’s website as soon as practicable. Imdex 2012 Annual Report 55 FY12 Financial Report Financial Report 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: • • the Annual Report is made available to all Shareholders. 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; the Half-Yearly Report which contains summarised ﬁ nancial information and a review of the operations of the Group during the period. The Half-Year Financial Report is prepared in accordance with the requirements of Accounting Standards and the Corporations Act 2001 and is lodged with the Australian Securities and Investments Commission and the Australian Securities Exchange. The Half-Year Financial Report is made available to all Shareholders; • regular reports released through the ASX and the media; • proposed major changes in the Group, which may impact on share ownership rights are submitted to a vote of Shareholders; and • the Board encourages full participation by Shareholders at the Annual General Meeting to ensure a high level of accountability and identiﬁ cation 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.imdexlimited.com. Further information can also be obtained by emailing the Company at: imdex@imdexlimited.com. 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. 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. The Board is responsible for ensuring that the Company’s risk management systems are adequate and operating effectively. The Company has an independent internal audit function that operates under a Charter approved by the Audit and Compliance Committee. One of the tasks of the internal audit function is to review and evaluate the Company’s and Group’s risk management and internal control processes on a continuous basis. The risk management policy is published on the Company’s website. In addition to receiving Internal Audit Reports, the Audit and Compliance Committee also receives regular reports from the External Audit function. (ii) Statement by the Managing Director and Chief Financial Ofﬁ cer The Managing Director and the Chief Financial Ofﬁ cer 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 efﬁ ciently and effectively in all material respects. 56 FY12 Financial Report Principle 8: Remunerate fairly and responsibly (i) Company’s remuneration policies Details on the remuneration of Directors and Executives as well as the Company’s remuneration policies are set out in the Remuneration Report that is 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 M Lemmel (Chairman) Mr K Dundo Ms E Donaghey. The experience and qualiﬁ cations of each committee member is set out in the Directors’ Proﬁ les in the ﬁ rst section of the Annual Report. The Remuneration Committee operates under a written Charter that is published on the Company’s website. (iii) Structure of 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 ﬁ xed cash fees. Non Executive Directors are not provided with retirement beneﬁ ts 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. From time to time additional beneﬁ ts may be agreed with Directors with due regard to market conditions. Imdex 2012 Annual Report 57 FY12 Financial Report Financial Report Consolidated Income Statement for the Year Ended 30 June 2012 Revenue from sale of goods and operating lease rental Other revenue from operations Total revenue Other income Raw materials and consumables used Employee beneﬁ t expense Depreciation expense Amortisation expense Finance costs Share of loss of associate Other expenses Proﬁ t before tax Income tax expense Proﬁ t for the year Attributable to: Owners of the Company Non-controlling interests Earnings per share Basic earnings per share (cents) Diluted earnings per share (cents) Year Ended Year Ended 30 June 2012 30 June 2011 Notes $’000 $’000 269,563 89 269,652 205,163 171 205,334 275 - (104,985) (44,010) (6,761) (5,957) (1,831) (1,460) (37,423) 67,500 (21,723) 45,777 45,777 - 45,777 (84,514) (33,241) (5,721) (6,778) (2,946) - (33,541) 38,593 (9,591) 29,002 29,002 - 29,002 22.34 21.85 14.69 14.25 4 4 4 4 4 4 4 27 4 5 20 20 The Consolidated Income Statement should be read in conjunction with the accompanying notes. 58 FY12 Financial Report Consolidated Statement of Comprehensive Income for the Year Ended 30 June 2012 Year Ended Year Ended 30 June 2012 30 June 2011 Note $’000 $’000 Proﬁ t for the year Other comprehensive income Fair value adjustment on investment in Sino Gas and Energy Holdings Ltd (SEH) Exchange differences arising on the translation of foreign operations Other comprehensive income for the year Income tax relating to components of other comprehensive income 19 19 5 Total comprehensive income for the year Total comprehensive income attributable to: Owners of the parent Non-controlling interests 45,777 29,002 5,290 (6,831) (1,541) (1,018) 43,218 9,320 (5,291) 4,029 (3,324) 29,707 43,218 - 29,707 - The Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes. Imdex 2012 Annual Report 59 FY12 Financial Report Financial Report Consolidated Statement of Financial Position as at 30 June 2012 30 June 2012 30 June 2011 Notes $’000 $’000 Current Assets Cash and Cash Equivalents Trade and Other Receivables Inventories Other Total Current Assets Non Current Assets Other Financial Assets Property, Plant and Equipment Investment in Associates Deferred Tax Assets Goodwill Other Intangible Assets Total Non Current Assets Total Assets Current Liabilities Trade and Other Payables Borrowings Current Tax Liabilities Provisions Other Current Liabilities Total Current Liabilities Non Current Liabilities Borrowings Provisions Other Non Current Liabilities Total Non Current Liabilities Total Liabilities Net Assets Equity Issued Capital Shares Reserved for Performance Rights Plan Foreign Currency Translation Reserve Investment Revaulation Reserve Employee Equity-Settled Beneﬁ ts Reserve Manadatory Issuable Capital Retained Earnings Total Equity 29 7 8 10 9 11 27 5 12 13 14 15 5 16 17 15 16 17 18 18 19 19 19 19 11,232 59,689 52,106 11,295 18,388 50,219 40,565 4,596 134,322 113,768 21,412 19,730 24,255 13,700 54,577 6,556 140,230 274,552 33,349 12,880 9,547 2,896 - 58,672 46,549 1,265 - 47,814 106,486 168,066 86,069 (3,740) (17,703) 10,227 6,385 990 85,838 168,066 16,122 17,344 - 10,461 38,705 17,146 99,778 213,546 32,879 28,945 14,138 2,191 2,628 80,781 6,074 1,069 213 7,356 88,137 125,409 70,059 - (11,441) 6,524 7,158 - 53,109 125,409 The Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. 60 FY12 Financial Report Consolidated Statement Of Changes in Equity for the Year Ended 30 June 2012 Fully Paid Ordinary Shares Shares reserved for Performance Rights Plan Foreign Currency Translation Reserve Employee Equity- Settled Beneﬁ ts Reserve Investment Revaluation Reserve Mandatory Issuable Capital Retained Earnings Total Attributable to Equity Holders of the Entity Notes $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Balance at 1 July 2010 67,415 - (5,622) 5,107 - - - - - - - - 2,644 70,059 - - - - Exchange differences on translation of foreign operations after taxation Fair value adjustment on available for sale ﬁ nancial instrument net of taxation Proﬁ t for the year Total comprehensive income for the period Dividend paid Share based payments - options Share based payments - performance rights Shares purchased on market to satisfy performance rights 19 19 21 19 19 19 Issue of shares under staff option plan 18,19 Balance at 30 June 2011 Exchange differences on translation of foreign operations after taxation Fair value adjustment on available for sale ﬁ nancial instrument net of taxation 19 19 Proﬁ t for the year Total comprehensive income for the period Issue of shares as part consideration for the acquisition of Australian Drilling Specialties Issue of shares as part consideration for the acquisition of System Mud Industria e Comercio Ltda Issue of shares as consideration for the acquisition of Mud Systems Pte Ltd Deferred consideration - mandatory issuable capital Dividend paid 18,26(b) 3,840 18,26(e) 1,200 19,26(b) 21 - - - - (11,441) 7,158 6,524 - (5,819) - - (5,819) - - - - - - - 580 - 2,131 - - (134) (526) - - - - - - - - - - (6,262) - - - - - (6,262) - - - - - - - - - - - - - - - - - - - 6,524 - 6,524 - - - - - - 3,703 - - 27,595 94,495 - - - - - - - - - - - - - - (5,819) - 6,524 29,002 29,002 29,002 29,707 (3,488) (3,488) - - - - 580 2,131 (134) 2,118 53,109 125,409 - (6,262) - 3,703 45,777 45,777 3,703 - 45,777 43,218 - - - 6,000 - - - - - - - - - 990 - - - 3,840 1,200 990 - (12,327) (12,327) - (721) 2,222 - - - - (5,769) 3,283 Share based payments - performance rights 18,19 Shares purchased on market to satisfy performance rights 19 Issue of shares under staff option plan 18,19 4,970 (3,740) - 6,683 - - - (5,769) - (1,687) Balance at 30 June 2012 86,069 (3,740) (17,703) 6,385 10,227 990 85,838 168,066 The Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. Imdex 2012 Annual Report 61 18,26(a) 6,000 - - FY12 Financial Report Financial Report Consolidated Statement Of Cash Flows for the Financial Year Ended 30 June 2012 Year Ended Year Ended 30 June 2012 30 June 2011 Notes $’000 $’000 Cash Flows From Operating Activities Receipts from customers Payments to suppliers and employees Interest and other costs of ﬁ nance paid Income tax paid Net cash provided by Operating Activities 29(c) Cash Flows From Investing Activities Interest received Payment for property, plant and equipment Proceeds from sale of property, plant and equipment Payment for development costs capitalised 11 13 Payment for shares in Australian Drilling Specialties Pty Ltd net of cash acquired 26(a) Payment for shares in System Mud net of cash acquired 26(b) Payment for shares in Fluidstar Pty Ltd and Ecospin Pty Ltd net of cash acquired 26(c) Payment for shares in AMC Germany GmbH net of cash acquired Investment in Associate Net cash used in Investing Activities Cash Flows From Financing Activities Cash received on exercise of options Shares purchased on market to satisfy performance rights Dividend paid to owners of the Company Hire purchase and lease payments Proceeds from borrowings Repayment of borrowings Net cash provided by Financing Activities 26(d) 27 21 288,004 (229,320) (1,745) (29,883) 27,056 89 (11,065) 366 (1,254) (7,077) (2,726) - - (21,415) (43,082) 3,283 (5,769) (12,327) (930) 67,112 (42,252) 9,117 219,761 (173,417) (2,305) (8,146) 35,893 171 (11,402) 247 (691) - - (12,413) (2,067) - (26,155) 2,118 (134) (3,488) (2,987) 14,250 (8,001) 1,758 Net (Decrease) / Increase in Cash and Cash Equivalents Held (6,909) 11,496 Cash and Cash Equivalents at the Beginning Of The Financial Year 29(a) 18,388 9,007 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 29(a) (247) 11,232 (2,115) 18,388 The Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. 62 FY12 Financial Report Notes to the Financial Report 1 Ad option of New and Revised Accounting Standards Adoption of new and revised Accounting Standards 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 their operations and effective for the current reporting period. The adoption of these amendments has not resulted in any changes to the Group’s accounting policies and has no affect on the amounts reported for the current or prior periods. Accounting Standards and Interpretations issued but not yet effective Accounting Standards and Interpretations, including those issued by the IASB/IFRIC where an Australian equivalent has not yet been made by the AASB, that have recently been issued or amended but are not yet effective that have not been adopted for the annual reporting period ended 30 June 2012, but would be relevant to its operations, are: Affected Standards and Interpretations Application date (reporting period commences on or after) Application date for Group AASB 9 ‘Financial Instruments’, AASB 2009- 11 ‘Amendments to Australian Accounting Standards arising from AASB 9’ and AASB 2010-7 ‘Amendments to Australian Accounting Standards arising from AASB 9 (December 2010)’ * AASB 10 ‘Consolidated Financial Statements’ AASB 127 ‘Separate Financial Statements’ (2011) AASB 13 ‘Fair Value Measurement’ and AASB 2011-8 ‘Amendments to Australian Accounting Standards arising from AASB 13’ AASB 119 ‘Employee Beneﬁ ts’ (2011) and AASB 2011-10 “Amendments to Australian Accounting Standards arising from AASB 119 (2011)’ AASB 2010-8 ‘Amendments to Australian Accounting Standards –Deferred tax: Recovery of Underlying Assets’ AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements AASB 2011-9 ‘Amendments to Australian Accounting Standards- Presentation of Items of Other Comprehensive Income’ 1 January 2013 30 June 2014 1 January 2013 1 January 2013 30 June 2014 30 June 2014 1 January 2013 30 June 2014 1 January 2013 30 June 2014 1 January 2012 30 June 2013 1 July 2013 30 June 2014 1 July 2012 30 June 2013 * The IASB have recently deferred the application date of the IFRS equivalent to this standard until 1 January 2015. Imdex 2012 Annual Report 63 FY12 Financial Report Financial Report 2 Summary of Signiﬁ cant Accounting Policies The ﬁ nancial report is a general purpose ﬁ nancial report which has been prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The ﬁ nancial statements comprise the consolidated ﬁ nancial statements of the Group. The ﬁ nancial statements were authorised for issue by the directors on 17 August 2012. Where applicable comparative numbers have been reclassiﬁ ed to ensure consistent disclosure. (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 ﬁ nancial 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 ﬁ nancial report are rounded off to the nearest thousand dollars, unless otherwise indicated. Accounting policies are selected and applied in a manner which ensures that the resulting ﬁ nancial information satisﬁ es the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported. The following signiﬁ cant 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 consolidated statement of ﬁ nancial position. (c) Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except: (i) 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 (ii) 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 ﬂ ows are included in the consolidated statement of cash ﬂ ows on a gross basis. The GST component of cash ﬂ ows arising from investing and ﬁ nancing activities which is recoverable from, or payable to, the taxation authority is classiﬁ ed as operating cash ﬂ ows. (d) Goodwill Goodwill arising in a business combination is recognised as an asset at the date that control is acquired (the acquisition date). Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identiﬁ able assets acquired and the liabilities assumed. If, after reassessment, the Group’s interest in the fair value of the acquiree’s identiﬁ able net assets exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held equity interest in the acquiree (if any), the excess is recognised immediately in proﬁ t or loss as a bargain purchase gain. Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to beneﬁ t from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated ﬁ rst to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the proﬁ t or loss on disposal. (e) Inventories Inventories are valued at the lower of cost and net realisable value. Costs, including an appropriate portion of ﬁ xed 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 ﬁ rst in ﬁ rst out basis. Net realisable value represents the estimated selling price less all estimated costs of completion and costs necessary to make the sale. 64 FY12 Financial Report (f) Property, plant and equipment Plant and equipment, leasehold improvements and equipment under ﬁ nance 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 in order to write off the net cost of each asset over its expected useful life to its estimated residual value. Leasehold improvements and assets held under ﬁ nance lease 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 gain or loss arising on disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in proﬁ t or loss. The annual depreciation rates used for each class of assets are as follows: Plant and equipment: 10% to 50% Equipment rented to third parties: 10% to 50% Equipment under ﬁ nance lease: 10% to 50% Capital works in progress in the course of construction for production or supply purposes, or for purposes not yet determined, are carried at cost, less any recognised impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Group’s accounting policy. Depreciation of these assets, on the same basis as other property, plant and equipment assets, commences when the assets are ready for their intended use. (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, Binomial Tree Method and Monte-Carlo Simulation as appropriate. 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. The fair value determined at the grant date of the equity-settled share-based payments is expensed over the vesting period, based on the Group’s estimate of shares that will eventually vest. At each reporting date, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in proﬁ t or loss over the remaining vesting period, with a corresponding adjustment to the employee equity-settled beneﬁ ts reserve. (h) Basis of consolidation The consolidated ﬁ nancial statements incorporate the ﬁ nancial statements of the Company and entities controlled by the Company (its subsidiaries) (referred to as ‘the Group’ in these ﬁ nancial statements). Control is achieved where the Company has the power to govern the ﬁ nancial and operating policies of an entity so as to obtain beneﬁ ts 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 ﬁ nancial 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. (i) Business combinations Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured at 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. Acquisition-related costs are recognised in proﬁ t or loss as incurred. Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition-date fair value. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments (see below). All other subsequent changes in the fair value of contingent consideration classiﬁ ed as an asset or liability are accounted for in accordance with relevant Standards. Changes in the fair value of contingent consideration classiﬁ ed as equity are not recognised. Imdex 2012 Annual Report 65 FY12 Financial Report Financial Report Where a business combination is achieved in stages, the Group’s previously held interests in the acquired entity are remeasured to fair value at the acquisition date (i.e. the date the Group attains control) and the resulting gain or loss, if any, is recognised in proﬁ t or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassiﬁ ed to proﬁ t or loss, where such treatment would be appropriate if that interest were disposed of. The acquiree’s identiﬁ able assets, liabilities and contingent liabilities that meet the conditions for recognition under AASB 3(2008) are recognised at their fair value at the acquisition date, except that: deferred tax assets or liabilities and liabilities or assets related to employee beneﬁ t arrangements are recognised and measured in accordance with AASB 112 Income Taxes and AASB 119 Employee Beneﬁ ts respectively; liabilities or equity instruments related to the replacement by the Group of an acquiree’s share based payme nt awards are measured in accordance with AASB 2 Share-based Payment; and assets (or disposal groups) that are classiﬁ ed as held for sale in accordance with AASB 5 Noncurrent Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see below), or additional assets or liabilities are recognised, to reﬂ ect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date. The measurement period is the period from the date of acquisition to the date the Group obtains complete information about facts and circumstances that existed as of the acquisition date – and is subject to a maximum of one year. (j) Investments in associates An associate is an entity over which the Group has signiﬁ cant inﬂ uence and that is neither a subsidiary nor an interest in a joint venture. Signiﬁ cant inﬂ uence is the power to participate in the ﬁ nancial and operating policy decisions of the investee but is not control or joint control over those policies. The results and assets and liabilities of associates are incorporated in these ﬁ nancial statements using the equity method of accounting, except when the investment is classiﬁ ed as held for sale, in which case it is accounted for in accordance with AASB 5 ‘Non-current Assets Held for Sale and Discontinued Operations’. Under the equity method, an investment in an associate is initially recognised in the consolidated statement of ﬁ nancial position at cost and adjusted thereafter to recognise the Group’s share of the proﬁ t or loss and other comprehensive income of the associate. When the Group’s share of losses of an associate exceeds the Group’s interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. Any excess of the cost of acquisition over the Group’s share of the net fair value of the identiﬁ able assets, liabilities and contingent liabilities of the associate recognised at the date of acquisition is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the Group’s share of the net fair value of the identiﬁ able assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in proﬁ t or loss. The requirements of AASB 139 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with AASB 136 ‘Impairment of Assets’ as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with AASB 136 to the extent that the recoverable amount of the investment subsequently increases. When a group entity transacts with its associate, proﬁ ts and losses resulting from the transactions with the associate are recognised in the Group’s consolidated ﬁ nancial statements only to the extent of interests in the associate that are not related to the Group. (k) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of speciﬁ c borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in proﬁ t or loss in the period in which they are incurred. 66 FY12 Financial Report (l) Foreign currency The individual ﬁ nancial 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 ﬁ nancial statements, the results and ﬁ nancial position of each entity are expressed in Australian dollars, which is the functional currency of Imdex Limited, and the presentation currency for the consolidated ﬁ nancial statements. In preparing the ﬁ nancial 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 proﬁ t 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 proﬁ t or loss on disposal of the net investment. On consolidation, the assets and liabilities of the Group’s foreign operations are translated into Australian dollars at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates ﬂ uctuated signiﬁ cantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are classiﬁ ed as equity and transferred to the Group’s translation reserve. Such exchange differences are recognised in proﬁ t 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. (m) Derivative ﬁ nancial instruments The Group enters into derivative ﬁ nancial instruments to manage its exposure to interest rate risk. This risk is primarily managed through the use of an interest rate cap. Further details of derivative ﬁ nancial instruments are disclosed in the ﬁ nancial instruments note in the ﬁ nancial statements. Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The resulting gain or loss is recognised in the proﬁ t or loss immediately. The Group has not designated any ﬁ nancial instruments as being hedge accounted. (i) Embedded derivatives Derivatives embedded in other ﬁ nancial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts and the host contracts are not measured at fair value with changes in fair value recognised in proﬁ t or loss. (n) Financial assets All ﬁ nancial assets are recognised and derecognised on trade date where purchase or sale of a ﬁ nancial asset is under a contract whose terms require delivery of the ﬁ nancial asset within the timeframe established by the market concerned, and are initially measured at fair value, net of transaction costs except for those ﬁ nancial assets classiﬁ ed as ‘at fair value through the proﬁ t or loss’ which are initially measured at fair value. Financial assets are classiﬁ ed into the following speciﬁ ed categories: ﬁ nancial assets ‘at fair value through proﬁ t or loss’, ‘held-to- maturity’ investments, ‘available-for-sale’ ﬁ nancial assets, and ‘loans and receivables’. The classiﬁ cation depends on the nature and purpose of the ﬁ nancial assets and is determined at the time of initial recognition. (i) Effective interest method The effective interest method is a method of calculating the amortised cost of a ﬁ nancial 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 ﬁ nancial asset, or, where appropriate, a shorter period. Income is recognised on an effective interest rate basis for debt instruments other than those ﬁ nancial assets ‘at fair value through proﬁ t or loss’. Imdex 2012 Annual Report 67 FY12 Financial Report Financial Report (ii) Held-to-maturity investments Bills of exchange and debentures with ﬁ xed or determinable payments and ﬁ xed maturity dates where the Group has the positive intent and ability to hold to maturity are classiﬁ ed as held-to-maturity investments. Held-to-maturity investments are recorded at amortised cost using the effective interest method less impairment, with revenue recognised on an effective yield basis. Financial assets at fair value through proﬁ t or loss Financial assets are classiﬁ ed as ﬁ nancial assets at fair value through proﬁ t or loss where the ﬁ nancial asset: Has been acquired principally for the purpose of selling in the near future; Is a part of an identiﬁ ed portfolio of ﬁ nancial instruments that the Group manages together and has a recent actual pattern of short- term proﬁ t-taking; or Is a derivative that is not designated and effective as a hedging instrument. Financial assets at fair value through proﬁ t or loss are stated at fair value, with any resultant gain or loss recognised in proﬁ t or loss. The net gain or loss recognised in proﬁ t or loss incorporates any dividend or interest earned on the ﬁ nancial asset. (iii) Available-for-sale ﬁ nancial 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 proﬁ t 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 proﬁ t 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 proﬁ t or loss, and other changes are recognised in equity. Available-for-sale ﬁ nancial assets include investments where shareholding is greater than 20% but signiﬁ cant inﬂ uence is not exerted over the invested company. (iv) Loans and receivables Trade receivables, loans, and other receivables that have ﬁ xed or determinable payments that are not quoted in an active market are classiﬁ ed 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 ﬁ nancial assets Financial assets other than those at fair value through proﬁ t 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 ﬁ nancial asset, the estimated future cash ﬂ ows of the investment have been impacted. For ﬁ nancial 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 ﬂ ows, discounted at the original effective interest rate. The carrying value of the ﬁ nancial asset is reduced by the impairment loss directly for all ﬁ nancial 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 proﬁ t 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 proﬁ t 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. (vi) Derecognition of ﬁ nancial assets The Group derecognises a ﬁ nancial asset only when the contractual rights to the cash ﬂ ows from the asset expire, or it transfers the ﬁ nancial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risk and rewards of ownership of a transferred ﬁ nancial asset, the Group continues to recognise the ﬁ nancial asset and also recognises a collateralised borrowing for the proceeds received. 68 FY12 Financial Report (o) Financial liabilities and equity instruments issued by the Group (i) Debt and equity instruments Debt and equity instruments are classiﬁ ed as either liabilities or as equity in accordance with the substance of the contractual arrangement. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs. (ii) Financial liabilities Financial liabilities are classiﬁ ed as either ﬁ nancial liabilities ‘at fair value through proﬁ t or loss’ or other ﬁ nancial liabilities. (iii) Financial liabilities at fair value through proﬁ t or loss Financial liabilities at fair value through proﬁ t or loss are stated at fair value, with any resultant gain or loss recognised in proﬁ t or loss. The net gain or loss recognised through proﬁ t or loss incorporates any interest paid on the ﬁ nancial liability. A ﬁ nancial liability is held for trading if: • • it has been incurred principally for the purpose of repurchasing in the near future; or it is a part of an identiﬁ ed portfolio of ﬁ nancial instruments that the Group manages together and has a recent actual pattern of short-term proﬁ t-taking; or • it is a derivative that is not designated and effective as a hedging instrument. • A ﬁ nancial liability other than a ﬁ nancial liability held for trading is designated as ‘at fair value through proﬁ t or loss’ upon initial recognition if: • such designation eliminates or signiﬁ cantly reduces a measurement or recognition inconsistency that would otherwise arise; or • • the ﬁ nancial liability forms part of a group of ﬁ nancial assets or ﬁ nancial liabilities or both, which is managed and its performance evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally or on that basis; or it forms part of a contract containing one or more embedded derivatives, and AASB139 ‘Financial Instruments: Recognition and Measurement’ permits the entire combined contract (asset or liability) to be designated as ‘at fair value through proﬁ t or loss’. (iv) Other ﬁ nancial liabilities Other ﬁ nancial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other ﬁ nancial 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 ﬁ nancial 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 ﬁ nancial liability, or, where appropriate, a shorter period. (p) Intangible assets (i) Intangible assets acquired in a business combination All intangible assets acquired in a business combination are identiﬁ ed and recognised separately from goodwill where they satisfy the deﬁ nition of an intangible asset and their value can be measured reliably. Identiﬁ able intangible assets comprise intellectual property, technology, contracts, customers, development costs 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 Technology Contracts Customers Trade Names and Patents 10 years 5-7 years 1-5 years (term of contract) 5-6 years 1-6 years Each period, the useful life of this asset is reviewed to determine whether events and circumstances continue to support an indeﬁ nite useful life assessment for the asset. Such assets are tested for impairment in accordance with the policy stated in note 2(t). Imdex 2012 Annual Report 69 FY12 Financial Report Financial Report (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 beneﬁ ts • the availability of adequate technical, ﬁ nancial and other resources to complete the development and to use or sell the intangible asset • 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 between 3 and 5 years, commencing on commercialisation of the underlying projects. (q) Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. (i) Current tax The tax currently payable is based on taxable proﬁ t for the period. Taxable proﬁ t differs from proﬁ t as reported in the income statement because of items of income or expense that are taxable or deductible in other periods and items that are never taxable or deductible. The Company and the Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. (ii) Deferred tax Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the ﬁ nancial statements and the corresponding tax bases used in the computation of taxable proﬁ t. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable proﬁ ts will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable proﬁ t nor the accounting proﬁ t. Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Company and the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufﬁ cient taxable proﬁ ts against which to utilise the beneﬁ ts of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufﬁ cient taxable proﬁ ts will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reﬂ ects the tax consequences that would follow from the manner in which the Company and the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company and the Group intends to settle its current tax assets and liabilities on a net basis. (iii) Current and deferred tax for the period Current and deferred tax are recognised as an expense or income in proﬁ t or loss, except when they relate to items that are recognised outside proﬁ t or loss (whether in other comprehensive income or directly in equity), in which case the tax is also recognised outside proﬁ t or loss, or where they arise from the initial accounting for a business combination. In the case of a business combination, the tax effect is included in the accounting for the business combination. 70 FY12 Financial Report (iv) 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 ﬁ nancial 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 ﬁ nancial 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 ﬁ nancial 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. (r) Leased assets Leases are classiﬁ ed as ﬁ nance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classiﬁ ed as operating leases. (i) Group as Lessor 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 ﬁ nance 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 consolidated statement of ﬁ nancial position as a ﬁ nance lease obligation. Lease payments are apportioned between ﬁ nance 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 beneﬁ ts 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 beneﬁ ts 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 beneﬁ ts from the leased asset are consumed. (s) 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 satisﬁ ed: • • • • • the Group has transferred to the buyer the signiﬁ cant 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 beneﬁ ts associated with the transaction will ﬂ ow to the entity 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. Imdex 2012 Annual Report 71 FY12 Financial Report Financial Report (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 ﬁ nancial asset to that asset’s net carrying amount. (t) Employee beneﬁ ts (i) Provisions Provision is made for beneﬁ ts 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 beneﬁ ts 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 beneﬁ ts which are not expected to be settled within 12 months are measured as the present value of the estimated future cash outﬂ ows to be made by the Group in respect of services provided by employees up to reporting date. (ii) Deﬁ ned contribution plans Contributions to deﬁ ned contribution superannuation plans are expensed when incurred. (u) Impairment of other tangible and intangible assets (other than goodwill) 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 ﬂ ows 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 identiﬁ ed, 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 identiﬁ ed. Intangible assets with indeﬁ nite 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 ﬂ ows are discounted to their present value using a pre-tax discount rate that reﬂ ects current market assessments of the time value of money and the risks speciﬁ c to the asset for which the estimates of future cash ﬂ ows 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 proﬁ t 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 proﬁ t or loss immediately. (v) 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 cashﬂ ows estimated to settle the present obligation, its carrying amount is the present value of those cashﬂ ows. When some or all of the economic beneﬁ ts 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. 72 FY12 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 signiﬁ cant 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 signiﬁ cant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next ﬁ nancial year: Impairment of Goodwill and Intangibles Determining whether goodwill and intangibles are impaired requires an estimation of the value in use of the cash- generating units to which goodwill and intangibles are attributable. The value in use calculation requires the entity to estimate the future cash ﬂ ows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. A forward looking estimation of this nature is inherently uncertain. Details of the key assumptions made are contained in note 12 (Goodwill) and note 13 (Intangibles). No impairment losses were booked in the current or prior year. A goodwill amount of $54.6 million and intangible assets of $6.5 million have been recognised on the face of the balance sheet. Recognition of net deferred tax asset A net deferred tax asset of $13.7 million has been recognised on the face of the balance sheet. The largest component of this asset is the future tax beneﬁ t of depreciation of unrealised proﬁ ts in self manufactured inventory and property, plant and equipment items. This tax beneﬁ t will be realised progressively over the next 3-5 years as these assets are depreciated or sold. This net asset has been raised as it is considered more likely than not that it will be realised. In making this assessment of likelihood a forward looking estimation of cash ﬂ ows and the likelihood of business success needs to be made up to 5 years into the future. A forward looking estimation of this nature over 5 years is inherently uncertain. Details of deferred tax balances are contained in note 5. Fair value of options and performance rights Options and performance rights as detailed in notes 33 and 34 are inherently complex to value due to their nature and relationship to the share market and its uncertainties. The Imdex Group therefore engaged valuation professionals to perform a valuation. The models used by the valuation professionals, although they are industry standard models, are subject to limitations and uncertainties. Imdex 2012 Annual Report 73 FY12 Financial Report Financial Report 4 Proﬁ t from Operations (a) Revenue from operations Revenue Revenue from the sale of goods Operating rental income Interest income - bank deposits (b) Proﬁ t before income tax 2012 $’000 2011 $’000 182,416 87,147 89 269,652 142,254 62,909 171 205,334 Other than as disclosed on the face of the income statement, proﬁ t before income tax has been arrived at after charging the following losses: Loss on disposal of property, plant and equipment (27) (32) Financial liabilities at amortised cost Interest expense (1,831) (2,946) Proﬁ t before income tax has been arrived at after charging the following items of income and expense: Depreciation and amortisation of Non Current Assets Depreciation of Property, Plant and Equipment (note 11) Amortisation of Intangible Assets (note 13) Finance costs Interest on hire purchase liabilities Interest on deferred acquisition consideration (reversed in current year) Interest on commercial bills/bank loans Interest on overdraft Other interest Other income Foreign exchange gain Other expenses Commissions Consultancy fees Legal and professional expenses (i) Foreign exchange loss Rent and premises costs Travel and accommodation Freight Motor vehicle costs Other expenses (i) Includes legal, audit, accounting, share registry and corporate secretarial fees. 74 6,761 5,957 12,718 102 (101) 1,489 110 231 1,831 5,721 6,778 12,499 343 101 2,251 16 235 2,946 275 - 3,452 3,723 4,292 - 4,192 4,828 2,764 1,987 12,185 37,423 2,552 2,104 4,573 3,334 3,402 4,121 2,631 1,645 9,179 33,541 Employee beneﬁ ts expense Post-employment beneﬁ ts: Deﬁ ned contribution superannuation costs Share based payments: Equity-settled share based payments - share options (note 19) Equity-settled share based payments - performance rights (note 19) Other employee beneﬁ ts FY12 Financial Report 2012 $’000 2011 $’000 2,157 1,716 - 2,222 39,631 44,010 580 2,131 28,814 33,241 Raw materials and consumables used 104,985 84,514 Movement in provision for doubtful debts 142 t (325) Operating lease rental (minimum lease payments) 4,429 3,448 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 Under/over provision per prior year Total tax expense Prima facie income tax expense on pre-tax accounting proﬁ t from operations reconciles to income tax in the ﬁ nancial statements as follows: 2012 $’000 2011 $’000 17,229 21,911 2,312 2,182 21,723 (9,861) (2,459) 9,591 Proﬁ t from operations 67,500 38,593 Income tax expense calculated at 30% Non-deductible share based payments Deductible net contribution to share trust Non-deductible share of loss of Associate Other non-deductible and non-assessable items Tax rate differential arising from foreign entities Under/over provision of prior year income tax 20,250 667 (1,337) 438 122 (599) 2,182 21,723 11,578 773 - - (86) (215) (2,459) 9,591 The tax rate used in the above reconciliation is the corporate tax rate of 30% payable by Australian corporate entities on taxable proﬁ ts under Australian law. There has been no change in the corporate tax rate when compared with the previous reporting year. Imdex 2012 Annual Report 75 FY12 Financial Report Financial Report (b) Income tax recognised directly in equity The following current and deferred amounts were charged directly to equity during the year: Deferred tax: SEH fair value uplift taken directly to reserve Deferred tax: Translation of foreign operations (c) Current tax assets and liabilities 2012 $’000 (1,587) 569 (1,018) 2011 $’000 (2,796) (528) (3,324) Current tax payable 9,547 14,138 (d) Deferred tax balances Deferred tax assets comprise: Provisions Inventory Property, plant and equipment Carry forward tax losses in subsidiary companies Accruals Foreign currency translation reserves Deferred tax liabilities comprise: Intangible assets Available-for-sale non-current assets Share based payments Net deferred tax balances Unrecognised deferred tax assets: The following have not been brought to account as assets: 1,013 2,312 12,062 791 1,070 1,924 19,172 (1,967) (3,072) (433) (5,472) 13,700 569 3,133 7,989 1,700 2,860 1,355 17,606 (5,660) (1,485) - (7,145) 10,461 Temporary differences relating to the translation of investments in subsidiary undertakings 3,478 1,723 76 FY12 Financial Report 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 proﬁ t or loss of the entity and the current tax rate. Such amounts are reﬂ ected 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. The amount of contribution or distribution relating to tax consolidation in the current and prior year amounted to nil. 6 Remuneration of Auditors Deloitte Touche Tohmatsu (Australia) 2012 $ 2011 $ Audit or review of the ﬁ nancial report 313,110 271,085 Taxation services - mainly compliance work, transfer pricing and global restructuring advice Other non-audit services: Other consulting services Deloitte Touche Tohmatsu (overseas afﬁ liates) 490,828 - 803,938 184,060 13,690 468,835 Audit or review of the ﬁ nancial report 74,732 65,111 Taxation services - mainly compliance work, transfer pricing and global restructuring advice Other non-audit services: Other consulting services 31,031 69,539 175,302 13,733 17,070 95,914 Other auditors Audit or review of the ﬁ nancial report 25,718 69,075 Other non-audit services: Accounting assistance and taxation advice - 25,718 93,105 162,180 1,004,958 726,929 Imdex 2012 Annual Report 77 FY12 Financial Report Financial Report 7 Trade and Other Receivables Current Trade receivables Allowance for doubtful debts Other receivables Notes (i) (ii) 2012 $’000 2011 $’000 59,509 (1,463) 58,046 1,643 59,689 49,887 (1,321) 48,566 1,653 50,219 (i) The average credit period on sales of goods is around 60 days. Trade receivables are interest free. An allowance has been made for estimated irrecoverable amounts from the sale of goods and services, determined by reference to past default experience and speciﬁ c knowledge of individual debtors circumstances. Ageing of past due but not impaired debtors 0 – 30 days past due 31 – 60 days past due 61 + days past due 3,475 8,686 2,895 15,056 1,929 6,144 2,048 10,121 The above analysis shows debtors that are past due at the end of the reporting date where no provision has been raised as the Group believes that the amounts are still considered recoverable. The Group does not hold any collateral over these balances. (ii) Movement in the allowance for doubtful debts Balance at the beginning of the year Amounts written off during the year Decrease/increase in allowance recognised in proﬁ t or loss Balance at the end of the year 8 Inventories Current Raw materials – at cost Work in progress – at cost Finished goods – at cost 1,321 - 142 1,463 1,646 - (325) 1,321 2012 $’000 2011 $’000 6,984 1,581 43,541 52,106 9,493 499 30,573 40,565 A provision for diminution of stock of $717,000 existed at 30 June 2012 (2011: $163,000). 78 FY12 Financial Report Notes 2012 $’000 2011 $’000 9 Other Financial Assets Non-Current Available for sale ﬁ nancial asset at fair value Investment in Sino Gas and Energy Holdings Ltd (i) 21,412 16,122 i) Comprises 251,908,446 fully paid ordinary shares in Sino Gas and Energy Holdings Ltd (SEH) held at fair value (2011: 251,908,446 shares). This amounts to 22.48% of the issued share capital of SEH (2011: 25.96%). The shareholding percentage dropped in the current year due to additional shares being issued by SEH to third parties. Despite holding more than 20% of the issued share capital of SEH, the Company does not have signiﬁ cant inﬂ uence over SEH in the current or prior periods due to its limited Board representation and minimal involvement in strategic planning and day to day management. The shareholding in excess of 20% is a consequence of partially sub-underwriting SEH’s recent capital raising in June 2010. The partial sub-underwriting was undertaken to facilitate the Company’s exit from the SEH convertible note that had been issued by SEH to Imdex Limited in a prior year. As the Company’s intention remains to realise the value of the investment through sale, this investment has been classiﬁ ed, as an available-for-sale non-current asset and carried at fair value. Investment in Sino Gas and Energy Holdings Ltd Balance at beginning of ﬁ nancial year 251,908,446 16,122 251,908,446 Fair value adjustment taken directly to equity (pre-tax) - 5,290 - 2012 2011 Shares $000 Shares $000 6,802 9,320 Balance at end of ﬁ nancial year 251,908,446 21,412 251,908,446 16,122 During the current year the carrying value of this investment was written up to its market value of $0.085 per share or $21.4 million in total at 30 June 2012. During the prior year the carrying value of this investment was written up to its market value of $0.064 per share or $16.1 million in total at 30 June 2011. 10 Other Assets Current Prepayments 2012 $’000 11,295 11,295 2011 $’000 4,596 4,596 Imdex 2012 Annual Report 79 FY12 Financial Report Financial Report 11 Property, Plant and Equipment Plant and Equipment at cost Equipment Rented to Third Parties at cost Equipment under Hire Purchase at cost Capital Works in Progress at cost TOTAL $’000 $’000 $’000 $’000 $’000 Gross Carrying Value Balance at 30 June 2010 Additions Acquisitions through business combinations Disposals Net foreign currency exchange differences Transfer Balance at 30 June 2011 Additions Acquisitions through business combinations Disposals Net foreign currency exchange differences Transfer Balance at 30 June 2012 Accumulated Depreciation Balance at 30 June 2010 Disposals Acquisitions through business combinations Depreciation expense Net foreign currency exchange differences Transfer Balance at 30 June 2011 Disposals Depreciation expense Net foreign currency exchange differences Balance at 30 June 2012 Net Book Value As at 30 June 2011 As at 30 June 2012 10,806 5,303 1,536 (581) (387) 143 16,820 5,501 1,028 (2,267) (791) (2,410) 17,881 4,339 (1,418) 22 2,347 (162) (208) 4,920 (1,878) 2,459 (264) 5,237 11,900 12,644 7,014 5,346 - (834) (4,712) 389 7,203 3,716 - (689) (3,224) 2,410 9,416 3,628 (834) - 3,258 (1,775) (11) 4,266 (685) 3,634 (1,237) 5,978 2,937 3,438 2012 $’000 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 Plant and equipment rented to third parties Equipment under hire purchase 2,459 3,634 668 6,761 80 3,229 - - (590) - - 2,639 - - - - - 805 753 - (526) (14) (107) 911 1,848 - - (39) - 21,854 11,402 1,536 (2,531) (5,113) 425 27,573 11,065 1,028 (2,956) (4,054) - 2,639 2,720 32,656 - - - - - - - - - - - 8,250 (2,252) 22 5,721 (1,937) 425 10,229 (2,563) 6,761 (1,501) 12,926 911 2,720 17,344 19,730 283 - - 116 - 644 1,043 - 668 - 1,711 1,596 928 2011 $’000 2,347 3,258 116 5,721 FY12 Financial Report 12 Goodwill Gross Carrying Amount Notes 2012 $’000 2011 $’000 Balance at beginning of the ﬁ nancial year 61,203 53,204 Recognised on acquisition of Australian Drilling Specialties Pty Ltd (ADS) Recognised on acquisition of System Mud Indústria e Comércio Ltda (System Mud) Reclassiﬁ ed to Investment in Associate Recognised on acquisition of Fluidstar Pty Ltd and Ecospin Pty Ltd Recognised on acquisition of AMC Germany GmbH (formerly Mud-Data GmbH) Effect of foreign exchange movements Balance at end of the ﬁ nancial year Accumulated Impairment Losses Balance at beginning of the ﬁ nancial year Impairment losses for the year Balance at end of the ﬁ nancial year Net Book Value At the beginning of the ﬁ nancial year At the end of the ﬁ nancial year Goodwill is allocated to cash-generating units as follows: AMC Germany ADS / Fluidstar / Ecospin System Mud Reﬂ ex / Imdex Technology UK Flexit / Imdex Technology Germany (i) (ii) 27 (iii) (iv) (iv) (i) (ii) (v) (v) 10,513 6,808 (1,416) - - - - 7,848 152 (185) 77,075 (22,498) - (22,498) 145 6 61,203 (22,498) - (22,498) 38,705 54,577 30,706 38,705 297 18,360 6,808 29,112 - 54,577 145 7,848 - 19,953 10,759 38,705 (i) Goodwill arose during the period on the acquisition of Australian Drilling Specialties Pty Ltd (ADS) by Imdex Limited - (Refer note 26(a)). The goodwill of ADS forms part of the AMC CGU since it is a vertical integration with AMC and has been assessed for impairment as part of the AMC CGU. (ii) Goodwill arose in the current year on the acquisition of System Mud Indústria e Comércio Ltda (System Mud) by Imdex Limited - (Refer note 26(b)). System Mud is considered to be a separate cash generating unit since it operates independently from other Imdex operations in a separate geographical area being the Latin America region concentrating on the supply of drilling ﬂ uids and chemical supplies. (iii) Goodwill arose in the prior year on the acquisition of Fluidstar Pty Ltd (Fluidstar) and Ecospin Pty Ltd (Ecospin) by Imdex Limited - (Refer note 26(c)). Effective 1 January 2011, the businesses of Fluidstar and Ecospin were transferred into Australian Mud Company Pty Ltd (AMC), an existing legal entity and separate cash generating unit. This transfer occurred to gain synergies since these businesses are similar in nature and have similar customers and end markets. The goodwill of Fluidstar and Ecospin has therefore been absorbed into the AMC CGU and has been assessed for impairment as part of the AMC CGU. Imdex 2012 Annual Report 81 FY12 Financial Report Financial Report (iv) Goodwill arose in the prior year on the acquisition of AMC Germany GmbH (formerly Mud-Data GmbH) (AMC Germany) by Imdex Limited – (Refer to Note 26(d)). AMC Germany is considered to be a separate cash generating unit since it operates independently from other Imdex operations in a separate geographical area being the greater European region and in a separate market, being the oil and gas and geothermal markets. A true up of AMC Germany goodwill of $0.2m occurred in the current period. (v) Goodwill previously recognised for the Flexit / Imdex Technology Germany CGU has been reallocated to the Reﬂ ex CGU as the ITS goodwill (Gyrosmart) is now being marketed as the Reﬂ ex Gyro for mining. At 30 June 2012, the following cash-generating units (CGUs) were identiﬁ ed as requiring a test of impairment of goodwill at balance date, with no write down required. The key assumptions used in the value in use calculations for those CGU’s tested were as follows: CGU Forecasted revenue growth Discount Rate Forecasted net margins Expected exchange rate ﬂ uctuations AMC (including Fluidstar, Eco- spin, ADS and Mud Systems) AMC Germany (formerly Mud Data) Reﬂ ex/Imdex Technology System Mud Revenue growth has been forecast in line with the expected rate of growth in the mining and mineral exploration markets in Australia as driven by strong commodity prices and ongoing strong demand from Chinese and other emerging markets. Revenue has been forecast using contracted and committed revenues as a base on which a moderate growth projection has been based. Growth projections have been estimated using European market performance and client feedback as a guide. Revenue growth has been forecast in line with the expected rate of growth in the mining and mineral exploration markets in Australia and the broader Asia Paciﬁ c Region as driven by strong commodity prices and ongoing strong demand from Chinese and other emerging markets. Revenue growth has been forecast in line with the expected rate of growth in the mining and mineral exploration markets of South and Latin America as well as growth expected to arise from the global alliances and recent managerial changes. Flexit/Imdex Technology Germany Income from the services based associate will be accounted for at the net margin level. Net margins have been forecast by the associated company’s management taking into account local market conditions and expected strategic growth plans. 17.32% 13.04% 16.70% 17.97% 9.38% Net margins have been forecasted using current period actuals as a base on which operational improvements and economies of scale are expected to be gained, particularly from the introduction of a regionalised reporting structure and improved/ expanded product offerings. Returns from the joint venture are based on the expected rate of cash ﬂ ows as projected by joint venture management. These are a function of activity levels and market share expected in the Middle Eastern and North American oil and gas survey markets. Exchange rate ﬂ uctuation expectations have been built into the forecasted numbers based on FY13 forecasted exchange rates published by major local and international lending institutions. Discounted cash ﬂ ow outcomes using these rates are not materially different from having used current spot rates. 82 FY12 Financial Report 13 Other Intangible Assets Patents Intellectual Property Technology Based Contract Based Customer Based Development Costs Trade Name TOTAL Notes $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Gross Carrying Value Balance at 30 June 2010 Capitalised during the year Impact of exchange rate changes Balance at 30 June 2011 Capitalised during the year Reclassiﬁ ed to Investment in Associate 27(i) Amounts derecognised 26(d)(i) Impact of exchange rate changes Balance at 30 June 2012 Accumulated Amortisation and Impairment Balance at 30 June 2010 Amortisation expense Impact of exchange rate changes Balance at 30 June 2011 Amortisation expense / (write back) Impact of exchange rate changes Balance at 30 June 2012 Net Book Value As at 30 June 2011 As at 30 June 2012 1,505 14,080 5,229 10,945 761 1,505 14,080 - - 761 - - - - - - - - - (904) - - - - - - 1,315 3,914 - 10,931 - 14 943 - 7,401 691 - 8,092 1,254 - - (1,980) (3,914) - - (52) - - 3,893 39,886 - 4,605 2 16 3,895 44,507 - - - 2,197 (2,884) (3,914) (8) (60) 761 601 14,080 2,258 10,893 7,366 3,887 39,846 482 152 - 634 127 - 761 127 - 376 150 8,159 2,230 1,223 346 6,678 1,962 1,117 1,245 2,582 20,617 693 6,778 - - - (29) - (5) (34) 526 10,389 1,569 8,611 2,362 3,270 27,361 75 2,102 (254) 1,901 1,403 603 5,957 - - - (24) - (4) (28) 601 12,491 1,315 10,488 3,765 3,869 33,290 979 - 3,691 1,589 3,660 2,334 943 405 5,730 3,601 625 18 17,146 6,556 14 Trade and Other Payables Trade payables Accruals and other payables Notes (i) 2012 $’000 2011 $’000 17,384 15,965 33,349 22,926 9,953 32,879 (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 ﬁ nancial risk management policies in place to ensure that all payables are paid within the credit timeframe. Imdex 2012 Annual Report 83 FY12 Financial Report Financial Report 15 Borrowings Current borrowings Secured At amortised cost Club Facility - AUD Tranche Club Facility - USD Tranche Club Facility - CAD Tranche Commercial bill Bank loan - Sweden Bank loan - Canada Hire purchase liabilities Non-current borrowings Secured At amortised cost Club Facility - AUD Tranche Club Facility - USD Tranche Club Facility - CAD Tranche Commercial bills Hire purchase liabilities Notes (i) (i) (i) (ii) (iii) (iv) (v),24 (i) (i) (i) (ii) (v),24 2012 $’000 2011 $’000 5,580 4,961 1,943 - - - 396 12,880 22,595 17,406 6,478 - 70 46,549 - - - 20,350 971 6,904 720 28,945 - - - 5,500 574 6,074 (ii) On 7 October 2011 a clubbed banking facility involving Westpac Banking Corporation and HSBC was put in place. This facility replaced commercial bills and Canadian bank loans in place at that date. The facility allowed the Imdex Group access to a total facility of $50 million split equally between the two club participants. Westpac Banking Corporation provided AUD denominated borrowings in Australia while HSBC provided CAD and USD denominated borrowings in Chile, South Africa, Canada and Australia. On 19 January 2012 this facility was extended from $50 million to $75 million. The banking facility limit decreases with each repayment and at 30 June 2012 the total facility available was $64.96 million (including an unused $6 million facility) – (Refer note 29(d)). • AUD denominated borrowings bear interest at ﬂ oating rates (currently 6.10% per annum). These borrowings are repayable in equal monthly installments of $0.5 million to 31 October 2014 on which date the balance is payable. • USD denominated borrowings bear interest at ﬂ oating rates (currently between 2.09% and 4.24% per annum depending on the borrowing country). These borrowings are repayable in equal monthly installments of USD 0.4 million to 31 October 2014 on which date the balance is payable. • CAD denominated borrowings bear interest at ﬂ oating rates (currently 4.50% per annum). These borrowings are repayable in equal monthly installments of CAD 0.2 million to 31 October 2014 on which date the balance is payable. (iii) The club facility is secured by the assets of entities in Australia, Canada, South Africa and Chile. (iv) The prior period balance of commercial bills bore interest at a weighted average ﬂ oating rate of 7.46% per annum. Bills totaling $3.1 million were repayable on demand and bills totaling $14.3 million were due on 30 June 2011. The balance of bills were repayable in 13 installments of $0.75 million each due at the end of each calendar quarter and ending with a ﬁ nal installment of $0.25 million on 30 June 2014. An interest rate cap of 7% per annum was in place over $10 million of this debt until December 2010. The interest rate cap did not operate where the variable interest rate on bills is below 7%. These commercial bills were repaid in full in October 2011 when the clubbed banking facility per note (i) above came into operation. 84 FY12 Financial Report (v) These commercial bills were previously secured by a Mortgage Debenture over all the assets and liabilities of Imdex Limited, Australian Mud Company Pty Ltd, Reﬂ ex Instruments Asia Paciﬁ c Pty Ltd, Imdex International Pty Ltd, Wildcat Chemicals Australia Pty Ltd, Flexit Australia Pty Ltd, Imdex Sweden AB, Imdex Technology Sweden AB (formerly Flexit AB), Reﬂ ex Instruments AB, Fluidstar Pty Ltd, Ecospin Pty Ltd, AMC North America Ltd (formerly Poly-Drill Drilling Systems Ltd), Drillhole Surveying Instruments (Pty) Ltd and Samchem Drilling Fluids and Chemicals (Pty) Ltd. (vi) Comprised of a loan of SEK 3.3 million which was fully repaid on 30 June 2012. This loan was secured over the assets of the Reﬂ ex and Flexit companies that are domiciled in Sweden. (vii) The prior period balance comprised a loan of CAD 8.8 million at the Canadian Prime Interest Rate (3.0% at 30 June 2011) plus a margin of 1.5%. This loan was repayable in 3 quarterly installments of CAD 0.4 million each, 47 monthly installments of CAD 0.06 million due on the ﬁ rst day of each month and 58 monthly installments of CAD 0.08 million also due on the ﬁ rst day of each month. In the prior period the loan was disclosed as a current liability since the bank retained the option to have these loans repaid on demand. These borrowings were repaid in full in October 2011 when the clubbed banking facility per note (i) above came into operation. (viii) 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 the hire purchase pledged as security. The weighted average interest rate applicable to these liabilities is 9.67% (2011: 9.53%). 16 Provisions Current provisions Employee entitlements Non-current provisions Employee entitlements Notes 2012 $’000 2011 $’000 (i) 2,896 2,191 1,265 1,069 (i) The majority of these entitlements are expected to be taken during the coming year. 17 Other Liabilities Other Current Liabilities Unsecured At amortised cost Notes 2012 $’000 2011 $’000 Deferred acquisition payments 26(d)(i) Other Non Current Liabilities Unsecured At amortised cost Deferred acquisition payments 26(d)(i) - - - - 2,628 2,628 213 213 Imdex 2012 Annual Report 85 FY12 Financial Report Financial Report 18 Issued Capital and Shares reserved for Performance Rights Plan 2012 2011 Notes $’000 $’000 Issued and Paid Up Capital - Fully paid ordinary shares (i) 86,069 70,059 (i) Issued and Paid Up Capital - Fully paid ordinary shares 2012 2011 Notes Number $’000 Number $’000 Balance at beginning of the ﬁ nancial year 199,699,165 70,059 195,047,128 67,415 Issue of shares as part consideration for the acquisition of Australian Drilling Specialties Pty Ltd 3,206,770 6,000 Issue of shares as part consideration for the acquisition of System Mud Industria e Comercio Ltda 1,306,324 3,840 Issue of shares as part consideration for the acquisition of Mud Systems Pte Ltd 500,000 1,200 - - - - - - Issue of shares under staff option plan (ii) 3,523,167 4,970 4,652,037 2,644 Closing balance at end of the ﬁ nancial year 208,235,426 86,069 199,699,165 70,059 Fully paid ordinary shares carry one vote per share and the right to dividends. Changes to 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. (ii) Share options granted under the staff option plan No options were granted under the staff option plan in the current or prior year. In accordance with the provisions of the staff option plan, as at 30 June 2012, executives, directors and staff have options over 3,893,333 ordinary shares (all of which had vested), in aggregate. These options expire over a range of dates up to March 2013. As at 30 June 2011, executives, directors and staff had options over 8,518,158 ordinary shares (all of which had vested), in aggregate. These options expire over a range of dates up to March 2013. Share options granted under the employee share option plan carry no rights to dividends and no voting rights. Details of the Staff Option Plan can be found in note 33. (iii) Shares issued in satisfaction of Performance Rights No shares were issued in the current or prior years in satisfaction of performance rights. Performance rights obligations were settled by the purchase of existing shares on market. More information on the performance rights plan can be found in note 34. Notes 2012 $’000 2011 $’000 Shares reserved for Performance Rights Plan Balance at beginning of the ﬁ nancial year Movement Balance at the end of the ﬁ nancial year 19 - (3,740) (3,740) - - - Through a corporate trustee, the Company holds certain shares in Trust for employees under the Performance Rights Plan (PRP or Plan). Refer to note 34 for further information. 86 19 Reserves Foreign Currency Translation Reserve Balance at beginning of the ﬁ nancial year Translation of foreign operations Tax thereon Balance at the end of the ﬁ nancial year FY12 Financial Report Notes 2012 $’000 2011 $’000 (11,441) (6,831) 569 (17,703) (5,622) (5,291) (528) (11,441) 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. Investment Revaluation Reserve Balance at beginning of the ﬁ nancial year Arising on revalution of SEH shares to market value 9 Tax thereon Balance at the end of the ﬁ nancial year 6,524 5,290 (1,587) 10,227 - 9,320 (2,796) 6,524 The investment revaluation reserve records increases in the market value of the SEH investment net of deferred taxation. Refer note 9 for details of the SEH investment. Employee Equity-Settled Beneﬁ ts Reserve Balance at beginning of the ﬁ nancial year Options expensed Performance rights expensed Shares purchased on market to satisfy performance rights Options exercised during the ﬁ nancial year Amounts transferred to shares reserved for performance rights plan Amounts transferred to retained earnings Balance at the end of the ﬁ nancial year 4 4 18 7,158 - 2,222 (5,769) (1,687) 3,740 721 6,385 5,107 580 2,131 (134) (526) - - 7,158 The employee equity-settled beneﬁ ts reserve arises on the grant of share options and performance rights to Directors and employees. Amounts are transferred out of the reserve and into issued capital when options are exercised. Further information regarding the Staff Option Plan is contained in note 33. Further information regarding the Performance Rights Plan is contained in note 34. Mandatory Issuable Capital Mandatory issuable capital 26(b) 990 - Mandatory issuable capital relates to the future issue of 330,000 fully paid ordinary shares as consideration for the acquisition of System Mud. Imdex 2012 Annual Report 87 FY12 Financial Report Financial Report 20 Earnings Per Share Basic earnings per share Diluted earnings per share (a) Basic earnings per share The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows: Earnings Weighted average number of ordinary shares for the purposes of basic earnings per share 2012 2011 Cents per share Cents per share 22.34 14.69 21.85 14.25 2012 2011 $’000 $’000 45,777 29,002 Shares Shares 204,879,162 197,472,481 (b) Diluted earnings per share 2012 2011 The earnings and weighted average number of ordinary shares used in the calculation of diluted earnings per share are as follows: Earnings Weighted average number of ordinary shares for the purposes of diluted earnings per share (ii) (ii) 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 earnings per share Shares deemed to be issued for no consideration in respect of employee and Director options Shares deemed to be issued for no consideration in respect of performance rights (assuming not purchased on market) Weighted average number of ordinary shares used in the calculation of diluted earnings per share (iii) 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 5 Employees share options tranche 6 Employees share options tranche 7 88 $’000 $’000 45,777 29,002 Shares Shares 209,553,673 203,462,391 Shares Shares 204,879,162 197,472,481 1,310,518 3,663,869 3,363,993 2,326,041 209,553,673 203,462,391 Shares Shares - - 3,693,333 3,693,333 575,000 200,000 4,279,991 5,054,991 FY12 Financial Report 21 Dividends Recognised amounts 2012 Cents per share 2012 Total $’000 2011 Cents per share 2011 Total $’000 Fully paid ordinary shares - interim dividend franked to 30% 3.25 6,705 1.75 3,488 Unrecognised amounts Fully paid ordinary shares - ﬁ nal dividend franked to 30% 4.00 8,329 2.75 5,492 (i) (ii) The interim, fully franked dividend was paid on 23 March 2012. The record date for determining the entitlement to the interim dividend was 9 March 2012. There are no dividend reinvestment plans in operation. The ﬁ nal fully franked dividend was declared on 17 August 2012 with a record date of 12 October 2012 and a payment date of 26 October 2012. The ﬁ nancial effect of this dividend has not been recognised in the ﬁ nancial statements at 30 June 2012. In the prior year a ﬁ nal fully franked dividend was declared on 12 August 2011 with an entitlement date of 7 October 2011. A total payment of $5,622,000 relating to the ﬁ nal fully franked dividend was made on 21 October 2011. 2012 $’000 51,607 (3,570) - 2011 $’000 32,487 (2,354) - 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 2012 the Group had capital expenditure commitments amounting to $3,690,000. These commitments relate to the purchase of Solids Removal Units (SRU’s) and related equipment . At 30 June 2011 the Group had capital expenditure commitments amounting to $162,000. These commitments were for sundry capital equipment items for Australian Mud Company Pty Ltd in the Asia Paciﬁ c region. (b) Lease commitment Hire purchase liabilities and non-cancellable operating lease commitments are disclosed in note 24. 23 Contingent Liabilities and Contingent Assets There are no contingent liabilities or contingent assets at balance date (2011: nil). Imdex 2012 Annual Report 89 FY12 Financial Report Financial Report 24 Leases (a) Hire Purchases 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. Minimum future lease payments 2012 $’000 2011 $’000 Present value of minimum future lease payments 2012 $’000 2011 $’000 417 83 - 500 (34) 466 793 545 - 1,338 (44) 1,294 396 70 - 466 - 466 396 70 466 699 523 - 1,222 - 1,222 699 523 1,222 Hire purchase commitments Hire purchase commitments are payable as follows. Due: Within one year Between one and ﬁ ve years Later than ﬁ ve years Minimum lease payments Less: future ﬁ nance charges Hire purchase liabilities provided for in the Financial Report Current – Note 15 Non current – Note 15 (b) Operating Leases Operating leasing arrangements Operating leases relate to premises and equipment (including 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 ﬁ ve years Later than ﬁ ve years 2012 $’000 2,685 3,465 - 6,150 2011 $’000 2,734 4,624 275 7,633 90 FY12 Financial Report Notes Country of Incorporation Ownership Interest 2012 % 2011 % (i), (ii), (iii) Australia 25 Subsidiaries Parent Entity Imdex Limited Controlled Entities Australian Mud Company Pty Ltd Samchem Drilling Fluids & Chemicals (Pty) Ltd Imdex International Pty Ltd Imdex Sweden AB Reﬂ ex Instruments Asia Paciﬁ c Pty Ltd Reﬂ ex Instrument AB Reﬂ ex Instrument North America Reﬂ ex Instrument South America Ltda Reﬂ ex Instruments Europe Ltd Drillhole Surveying Instruments (Pty) Ltd Imdex Technology Sweden AB Flexit Australia Pty Ltd Suay Energy Services LLP AMC North America Ltd Imdex South America S.A. AMC Chile S.A. Wildcat Chemicals Australia Pty Ltd Imdex Technology Australia Pty Ltd AMC Reﬂ ex Argentina S.A. AMC Reﬂ ex Peru S.A.C. Imdex Technology Germany GmbH AMC Reﬂ ex Do Brasil Serviços Para Mineração Ltda AMC Drilling Fluids Pvt Limited Fluidstar Pty Ltd Ecospin Pty Ltd Imdex Nominees Pty Ltd AMC Germany GmbH (formerly Mud-Data GmbH) AMC Oil & Gas Rom SRL (formerly Mud-Data-Rom SRL) Australian Drilling Specialties Pty Ltd Imdex USA Inc Imdex Technologies USA LLC AMC USA LLC Reﬂ ex USA LLC Mud Systems Pte Ltd System Mud Indústria e Comércio Ltda Imdex Global Coöperatie U.A Imdex Global B.V. (ii), (iii) (ii), (iii) (ii), (iii) (ii) (ii) (ii), (iii) (ii), 26(c) (ii), 26(c) (ii) 26(d) 26(d) (ii), 26(a) (iv) (v) (v) (v) 26(e) 26(b) (vi) (vi) Australia South Africa Australia Sweden Australia Sweden Canada Chile United Kingdom South Africa Sweden Australia Kazakhstan Canada Chile Chile Australia Australia Argentina Peru Germany Brazil India Australia Australia Australia Germany Romania Australia United States of America United States of America United States of America United States of America Singapore Brazil Netherlands Netherlands 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - - - - - - - - - Imdex 2012 Annual Report 91 FY12 Financial Report Financial Report (i) Imdex Limited is the ultimate parent company and is the head entity within the tax consolidated group. (ii) These companies are part of the Australian tax consolidated group. (iii) 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 ﬁ nancial report. Australian Mud Company Pty Ltd became a party to the deed on 29 June 2006, Imdex International Pty Ltd on 20 October 2006, Reﬂ ex Instruments Asia Paciﬁ c Pty Ltd on 14 September 2007 and Imdex Technology Australia Pty Ltd on 28 April 2011. (iv) This entity was incorporated on 26 July 2011. (v) These entities were incorporated on 11 August 2011. (vi) These entities were incorporated on 22 June 2012. The consolidated income statement of income of the entities which are party to the deed of cross guarantee are: Income Statement Revenue from sale of goods and operating lease rental Other revenue from operations Total revenue Other income Raw materials and consumables used Employee beneﬁ t expenses Depreciation and amortisation expense Finance costs Auditors and accounting fees Commissions Consultancy fees Legal and professional expenses Rent and premises costs Travel and accommodation Motor vehicle costs Management fee overprovision from prior periods Foreign exchange loss Other expenses Proﬁ t before income tax expense Income tax expense Proﬁ t for the year 2012 $’000 2011 $’000 168,256 1,693 169,949 2,563 (62,126) (25,505) (13,991) (1,045) (938) (2,006) (1,323) (3,745) (1,607) (2,384) (924) - (2,135) (10,698) 44,085 (14,214) 29,871 155,969 1,386 157,355 1,929 (44,683) (22,084) (8,564) (2,435) (443) (1,522) (822) (3,186) (1,360) (1,913) (811) (5,753) (3,022) (10,572) 52,114 (15,811) 36,303 Other comprehensive income Fair value adjustment on investment in SEH Income tax relating to components of other comprehensive income Total comprehensive income for the year 5,290 (1,587) 3,703 9,320 (2,796) 6,524 92 FY12 Financial Report The consolidated statement of ﬁ nancial position of the 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 Total Current Assets Non Current Assets Other Financial Assets Property, Plant and Equipment Other Intangible Assets Total Non Current Assets Total Assets Current Liabilities Trade and Other Payables Borrowings Current Tax Payables Provisions Other Current Liabilities Total Current Liabilities Non Current Liabilities Borrowings Provisions Deferred Tax Liabilities Other Non Current Liabilities Total Non Current Liabilities Total Liabilities Net Assets Equity Contributed Capital Shares reserved for Performance Rights Plan Employee Equity-Settled Beneﬁ ts Reserve Investment Revaulation Reserve Retained Earnings * Total Equity * Retained Earnings at the beginning of the ﬁ nancial year Net Proﬁ t Dividends paid Amounts transferred from employee equity-settled beneﬁ ts reserve Opening retained earnings of entities joining the closed group Retained Earnings at the end of the ﬁ nancial year 2012 $’000 3,286 73,294 30,268 3,292 2011 $’000 10,647 79,409 28,491 120 110,140 118,667 166,842 16,929 1,324 185,095 295,235 19,795 9,514 4,020 2,042 - 35,371 35,346 1,265 5,629 - 42,240 77,611 217,624 86,069 (3,740) 6,385 10,227 118,683 217,624 101,860 29,871 (12,327) 118,166 20,622 4,186 142,974 261,641 25,612 21,070 12,633 1,769 2,628 63,712 6,074 1,069 4,972 213 12,328 76,040 185,601 70,059 - 7,158 6,524 101,860 185,601 56,803 36,303 (3,488) (721) - - 118,683 12,242 101,860 Imdex 2012 Annual Report 93 FY12 Financial Report Financial Report 26 Acquisition of Businesses (a) Acquisition of entity - Australian Drilling Specialties Pty Ltd With effect from 1 July 2011, Imdex Limited acquired 100% of the issued share capital of Australian Drilling Specialties Pty Ltd (ADS), incorporated in Australia and operating out of premises located in Western Australia. ADS is a drilling ﬂ uids and chemical manufacturer that owns the formulations and intellectual property for the products it manufactures. The numbers presented below are provisional and have been accounted for using the acquisition method of accounting. Details of the assets, liabilities and goodwill: Book value Notes $’000 Fair value adjustments $’000 Fair value on acquisition $’000 2,408 352 778 (901) (73) 2,564 - - - - - - Trade and other receivables Inventory Property, plant and equipment Trade and other payables Provisions Fair value of net identiﬁ able assets acquired Goodwill on acquisition Total purchase consideration Total purchase consideration comprises Consideration in cash and cash equivalents Overdraft acquired Issue of ordinary shares (i) (ii) (ii) 18 Operating results of ADS included in the Consolidated Income Statement of Imdex Limited from acquisition to 30 June 2012: Revenue Total expenses Proﬁ t after tax for the period 2,408 352 778 (901) (73) 2,564 10,513 13,077 6,000 1,077 6,000 13,077 Results since acquisition $’000 11,382 (9,052) 2,330 (i) Goodwill arose in the business combination because the cost of the combination included a control premium paid to acquire ADS. In addition, the consideration paid for the combination effectively included amounts in relation to the beneﬁ t of expected synergies, revenue growth, future market development and the assembled workforce of ADS. These beneﬁ ts are not recognised separately from goodwill as the future economic beneﬁ ts arising from them cannot be reliably measured. There were no acquisition provisions created, nor were there any contingent liabilities assumed in the acquisition. (ii) The Consolidated Cash Flow Statement for the year ended 30 June 2012 records the payment for the acquisition of ADS as $7.1 million being the cash purchase consideration of $6.0 million shown above plus $1.1 million overdraft acquired. 94 FY12 Financial Report (b) Acquisition of entity - System Mud Indústria e Comércio Ltda Imdex Limited acquired 100% of the issued share capital of System Mud Indústria e Comércio Ltda (System Mud), a manufacturer and seller of drilling muds to the mining and mineral exploration market in Brazil. The acquisition was completed on 18 April 2012. The numbers presented below are provisional and have been accounted for using the acquisition method of accounting. Details of the assets, liabilities and goodwill: Book value Notes $’000 Fair value adjustments $’000 Fair value on acquisition $’000 387 1,068 250 (957) 748 - - - - - Inventory Other debtors Property, plant and equipment Trade and other payables Fair value of net identiﬁ able assets acquired Goodwill on acquisition Total purchase consideration Total purchase consideration comprises Consideration in cash and cash equivalents Less cash and cash equivalents acquired Issue of Ordinary Shares Deferred consideration - Mandatory Convertible Capital (i) (ii) (ii) (iii),18 (iv) Operating results of System Mud included in the Consolidated Income Statement of Imdex Limited from acquisition to 30 June 2012: Revenue Total expenses Proﬁ t after tax for the period 387 1,068 250 (957) 748 6,808 7,556 3,350 (624) 3,840 990 7,556 Results since acquisition $’000 5,413 (4,481) 932 (i) (ii) (iii) Goodwill arose in the business combination because the cost of the combination included a control premium paid to acquire System Mud. In addition, the consideration paid for the combination effectively included amounts in relation to the beneﬁ t of expected synergies, revenue growth, future market development and the assembled workforce of System Mud. These beneﬁ ts are not recognised separately from goodwill as the future economic beneﬁ ts arising from them cannot be reliably measured. There were no acquisition provisions created, nor were there any contingent liabilities assumed in the acquisition. The Consolidated Cash Flow Statement for the year ended 30 June 2012 records the acquisition of System Mud as a net cash outﬂ ow of $2.7 million being the cash consideration of $3.3 million paid net of the $0.6 million of cash acquired. (iii) Comprises 1,306,324 fully paid Imdex limited ordinary shares issued on settlement to the four vendors in equal proportions. These shares were issued at the weighted average price of a fully paid Imdex Limited ordinary share for the ﬁ ve days leading up to settlement on 18 April 2012, being $2.94 per share. (iv) Comprises 330,000 fully paid ordinary shares in Imdex Limited to be issued on the two year anniversary of completion (18 April 2014). The future issue of these shares is at a guaranteed price of $3.50 per share. That is, if the share price on the two year anniversary date is below $3.50 there is a cash top up of the difference. However, in the event that the share price reaches $3.50 at any time within that two year period, the potential cash top up falls away. Management’s view at 30 June 12 is that the Imdex Limited share price will have exceeded $3.50 by 18 April 2014, consequently no cash liability has been booked. Imdex 2012 Annual Report 95 FY12 Financial Report Financial Report (c) Acquisition of entity - Fluidstar Pty Ltd and Ecospin Pty Ltd With effect from 1 September 2010, Imdex Limited, acquired 100% of the issued share capital of Fluidstar Pty Ltd (Fluidstar) and Ecospin Pty Ltd (Ecospin). Both companies are incorporated in Australia and operate out of premises located in Brisbane. Fluidstar manufactures and distributes drilling ﬂ uids throughout the Asia Paciﬁ c region with a strong presence in the Queensland market. Ecospin develops and sell solids control solutions for the drilling industry. Both companies focus predominately on the mineral drilling industry. The numbers presented below are provisional and have been accounted for using the acquisition method of accounting. Details of the assets, liabilities and goodwill: Book value Notes $’000 Fair value adjustments $’000 Fair value on acquisition $’000 3,357 2,970 434 (2,381) 4,380 - - - - - Trade and other receivables Inventory Property, plant and equipment Trade and other payables Fair value of net identiﬁ able assets acquired Goodwill on acquisition Total purchase consideration Total purchase consideration comprises Consideration in cash and cash equivalents Less: Cash and cash equivalents acquired (i) (ii) Operating results of Fluidstar and Ecospin included in the Consolidated Income Statement of Imdex Limited from acquisition to 31 December 2010: Revenue Total expenses Proﬁ t after tax for the period 3,357 2,970 434 (2,381) 4,380 7,848 12,228 12,395 (167) 12,228 Results since acquisition $’000 6,279 (5,503) 776 (i) Goodwill arose in the business combination because the cost of the combination included a control premium paid to acquire Fluidstar and Ecospin. In addition, the consideration paid for the combination effectively included amounts in relation to the beneﬁ t of expected synergies, revenue growth, future market development and the assembled workforce of Fluidstar and Ecospin. These beneﬁ ts are not recognised separately from goodwill as the future economic beneﬁ ts arising from them cannot be reliably measured. There were no acquisition provisions created, nor were there any contingent liabilities assumed in the acquisition. (ii) The Consolidated Cash Flow Statement for the year ended 30 June 2011 records the payment for the acquisition of Fluidstar and Ecospin as $12.4 million being the total purchase consideration of $12.4 million shown above plus $0.2 million of on-costs expensed during the period and less $0.2 million of cash acquired. 96 FY12 Financial Report (d) Acquisition of entity - AMC Germany GmbH With effect from 1 March 2011, Imdex Limited, acquired 100% of the issued share capital of Mud-Data GmbH, a company incorporated in Germany and operating out of premises in Rastede. This entity was subsequently renamed AMC Germany GmbH (AMC Germany). AMC Germany own 100% of the issued share capital of Mud-Data-Rom SRL, an entity incorporated in Romania. AMC Germany manufactures and distributes drilling ﬂ uids and solids control equipment for the oil and gas and geothermal industries in Europe. The numbers presented below are provisional and have been accounted for using the acquisition method of accounting. Details of the assets, liabilities and goodwill: Book value Notes $’000 Fair value adjustments $’000 Fair value on acquisition $’000 Trade and other receivables Inventory Property, plant and equipment Intangibles Trade and other payables Deferred tax Fair value of net identiﬁ able assets acquired Goodwill on acquisition Total purchase consideration Total purchase consideration comprises Consideration in cash and cash equivalents Less: Cash and cash equivalents acquired (i) (i) (ii) (iii) 985 231 1,080 - (1,078) - 1,218 - - - - - - - Operating results of AMC Germany included in the Consolidated Income Statement of Imdex Limited from acquisition to 30 June 2011: Revenue Total expenses Loss after tax for the period 985 231 1,080 - (1,078) - 1,218 297 1,515 1,601 (86) 1,515 Results since acquisition $’000 1,143 (1,593) (450) (i) The provisional accounting for this acquisition shown at 30 June 2011 included intangibles assets of $3.9 million and related deferred tax of $1.2 million, being the fair value of a key geothermal contract. Since 30 June 2011 the purchase agreement was renegotiated with deferred consideration hurdles relating to this contract being removed and the value of this contract being reassessed. As a consequence the intangible asset, deferred tax and deferred consideration have all been derecognised in the current period. In addition the fair value of net assets acquired was adjusted by $0.2 million causing an equivalent change to the value of goodwill recognised. (ii) Goodwill arose in the business combination because the cost of the combination included a control premium paid to acquire AMC Germany. In addition, the consideration paid for the combination effectively included amounts in relation to the beneﬁ t of expected synergies, revenue growth, future market development and the assembled workforce of AMC Germany. These beneﬁ ts are not recognised separately from goodwill as the future economic beneﬁ ts 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 2011 records the payment for the acquisition of AMC Germany as $2.1 million being the cash consideration above of $1.6 million above plus $0.6 million of on-costs expensed in the current year and less $0.1 million of cash acquired . (e) Acquisition of entity - Mud Systems Pte Ltd (Mud Systems) With effect from 1 January 2012, Imdex Limited acquired 100% of the issued share capital of Mud Systems Pte Ltd, a Singapore based company that is involved in the supply, manufacture and rental of equipment, predominately in the oil and gas industry. The purchase consideration for the acquisition was 500,000 fully paid ordinary shares of Imdex Limited issued to the vendor on 8 May 2012 at a fair value of $2.40 per share. The key reason for the purchase of Mud Systems was to access the exclusive supply agreement and ongoing relationship with the manufacturer of the centrifuges used in Solids Removal Units (SRU’s). The excess of fair value of consideration paid over fair value of net assets ($0.9 million) has been allocated in full to intangible assets. Imdex 2012 Annual Report 97 FY12 Financial Report Financial Report 27 Investment in Associates On 1 July 2011, Imdex Limited acquired 50% of the issued share capital of DHS Services (DHS) in exchange for granting an exclusive global licence over its oil and gas surveying instruments and technology. DHS is registered in the British Virgin Islands and operates an oil and gas services business based in Dubai using the technology licensed to it by Imdex Limited. Imdex Limited accounted for its investment in DHS as an associate as it was deemed to have a signiﬁ cant inﬂ uence over but not control of DHS since it held 50% of the issued capital but only 2 out of 5 board positions. Effective 1 January 2012, DHS shares were rolled over into a newly created entity, DHS Energy Services (DHSES). On 23 January 2012 Imdex Limited announced that, effective 1 January 2012, DHSES purchased the business of Vaughn Energy Services (VES), a US based oil and gas services provider, for US$100 million. To fund the purchase DHSES increased its share capital. On 19 January 2012 Imdex Limited raised additional debt of $25 million from its banking club facility and applied approximately USD$22.5 million of this debt to purchase additional shares in DHSES. Following this transaction Imdex Limited’s shareholding in DHSES decreased from 50% to 30%. The numbers presented below in relation to the acquisition of VES are provisional and have been accounted for using the acquisition method of accounting. Financial information in respect of the Associate is set out below: Note Total Assets Total Liabilities Net Assets Share of Net Assets of Associate Total Revenue Total Proﬁ t for the Period Share of loss of Associate Goodwill transferred to Associate Intangible assets transferred to Associate Investment in Associate (i) (i) (ii) 2012 $’000 139,961 (20,125) 119,836 35,951 28,901 2,216 (1,460) 1,416 2,884 21,415 24,255 (i) Goodwill and intangible assets transferred to the associate total $4.3 million and comprise the Technology Licence Agreement granted to DHS - (Refer to notes 12 and 13). (ii) Comprises a loan of USD $22.5 million advanced to the associate during the year that was subsequently capitalised. 98 FY12 Financial Report 28 Segment Information Reportable Segments 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. The Group comprises the following reportable segments which are based on the Group’s internal management reporting system: (i) Minerals Division: This segment comprises the manufacture, sale and rental of down hole instrumentation and manufacture and sale of drilling ﬂ uids and chemicals to the mining and mineral exploration industry globally; and (ii) Oil & Gas Division: This segment comprises the manufacture, sale and rental of down hole instrumentation and manufacture and sale of drilling ﬂ uids and chemicals to the oil and gas and geothermal industries globally; (a) Segment Revenues Minerals Oil and Gas Total of all segments Unallocated Total revenue (b) Segment Results Minerals Oil and Gas (i) Total of all segments Eliminations Central administration costs (ii) Proﬁ t before income tax expense Income tax expense Proﬁ t attributable to ordinary equity holders of Imdex Limited (i) Includes the share of loss of Associate 2012 $’000 2011 $’000 241,655 177,683 27,908 27,480 269,563 205,163 89 171 269,652 205,334 81,234 (7,674) 73,560 - (6,060) 67,500 (21,723) 45,777 45,916 (1,687) 44,229 - (5,636) 38,593 (9,591) 29,002 (ii) Central administration costs comprise net ﬁ nancing costs for the Group and the corporate portion of head ofﬁ ce costs. Head ofﬁ ce costs attributable to operations are allocated to reportable segments in proportion to the revenues earned from those segments. (c) Segment Assets and Liabilities Minerals Oil and Gas Total of all segments Unallocated (i) Consolidated Assets Liabilities 2012 $’000 2011 $’000 201,185 171,119 51,955 26,305 253,140 197,424 21,412 16,122 2012 $’000 20,610 26,447 47,057 59,429 274,552 213,546 106,486 2011 $’000 33,461 16,816 50,277 37,860 88,137 (i) Unallocated assets comprise the investment in Sino Gas & Energy Holdings Ltd. Unallocated liabilties comprise commerical bills, bank loans, hire pruchase liabilities and deferred acquisition payments. Imdex 2012 Annual Report 99 FY12 Financial Report Financial Report (d) Other segment information Minerals Oil & Gas Unallocated Total 2012 $’000 2011 $’000 2012 $’000 2011 $’000 2012 $’000 2011 $’000 2012 $’000 2011 $’000 5,562 4,510 4,132 4,006 800 1,345 1,447 2,772 399 - 244 - 6,761 5,957 5,721 6,778 6,652 7,650 3,750 3,009 663 743 11,065 11,402 1,778 2,169 444 542 (101) 101 2,121 2,812 Depreciation Amortisation Acquisition of segment assets Signiﬁ cant non cash expenses other than depreciation and amortisation Geographical Segments The Group operates in the following geographical segments: (i) Asia Paciﬁ c: Manufacture and sale/rental of products to the mining and mineral exploration and oil and gas industries (ii) Europe: Manufacture and sale/rental of products to the mining and mineral exploration and oil and gas industries (iii) Africa: Manufacture and sale/rental of products to the mining and mineral exploration and oil and gas industries (iv) Americas: Manufacture and sale/rental of products to the mining and mineral exploration and oil and gas industries Revenue from external customers Segment assets (non-current) Acquisition of segment assets 2012 $’000 2011 $’000 2012 $’000 2011 $’000 2012 $’000 2011 $’000 131,486 118,723 106,661 16,104 10,457 47,971 74,091 28,659 47,495 9,606 2,738 21,225 72,852 15,417 3,523 7,986 4,097 4,199 858 1,911 4,891 2,466 1,712 2,333 269,652 205,334 140,230 99,778 11,065 11,402 Asia Paciﬁ c Europe Africa Americas Total (e) Information about major customers The Group has a broad range of customers across its global operations with no single customer making up more than 10% of revenue. 100 FY12 Financial Report 29 Notes to the Statement of Cash Flows (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 Statement of Cash Flows is reconciled to the related items in the balance sheet as follows: Cash and cash equivalents Bank overdraft 2012 $’000 2011 $’000 11,232 18,388 - - 11,232 18,388 Cash at bank and in hand earns interest at ﬂ oating rates based on daily bank deposit rates. The fair value of cash and cash equivalents is $11,231,992 (2011: $18,388,328) (b) Non cash ﬁ nancing and investing activities During the year the Group provided non cash consideration to acquire the issued share capital for certain acquisitions and transferred intellectual property to an associate. These transactions are disclosed in note 26 and note 27 respectively. (c) Reconciliation from the Proﬁ t for the Year to Net Cash Provided by Operating Activities Proﬁ t for the year 45,777 29,002 Adjustments for non-cash and non-operational items Depreciation of non-current assets Amortisation of intangible assets Non-cash interest on deferred payments Impairment losses Interest received disclosed as investing activities Share options and performance rights expensed Loss on sale of non-current assets Share of loss of Associate Interest on hire purchase liabilities Other Changes in assets and liabilities during the ﬁ nancial year Increase in assets: Current receivables Current inventories Other current assets Increase / (decrease) in liabilities: Current payables Provision for employee entitlements Current and deferred tax liability Net Cash Provided by Operating Activities 6,761 5,957 (101) - (89) 2,222 27 1,460 102 (74) (8,016) (10,802) (6,699) (2,222) 828 (8,075) 27,056 5,721 6,778 101 737 (171) 2,711 32 - 343 - (5,380) (8,764) (1,100) 3,408 833 1,642 35,893 Imdex 2012 Annual Report 101 2012 $’000 2011 $’000 34,175 22,367 8,421 - - - 466 - 65,429 28,175 22,367 8,421 - - - 466 - 59,429 6,000 - - - - - - - 6,000 - - - 971 7,631 25,850 4,015 2,220 40,687 - - - 971 6,904 25,850 1,294 - 35,019 - - - - 727 - 2,793 2,220 5,668 FY12 Financial Report Financial Report (d) Financing facilities Total facilities available Club Facility - AUD Tranche Club Facility - USD Tranche Club Facility - CAD Tranche Bank loan - Sweden Bank loan - Canada Commercial bills Equipment ﬁ nance facility Multi option facility (including bank overdraft) Facilities utilised at balance sheet date Club Facility - AUD Tranche Club Facility - USD Tranche Club Facility - CAD Tranche Bank loan - Sweden Bank loan - Canada Commercial bills Equipment ﬁ nance facility Multi option facility (including bank overdraft) Facilities not utilised at balance sheet date Club Facility - AUD Tranche Club Facility - USD Tranche Club Facility - CAD Tranche Bank loan - Sweden Bank loan - Canada Commercial bills Equipment ﬁ nance facility Multi option facility (including bank overdraft) 102 FY12 Financial Report 30 Financial Instruments (a) Capital Risk Management The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 15, cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in notes 18 and 19. Management and the Board review the capital structure regularly. The treasury function present regular updates to the Board. As a part of these reviews management considers the cost of capital and the risks associated with each class of capital. Based on the outcome of these reviews the Group will balance its overall capital structure through payment of dividends and issue of new shares as well as the issue of new debt or repayment of existing debt. The Board does not have a speciﬁ c optimum gearing target other than to maintain a competitive weighted average cost of capital. The Group’s overall capital management strategy remains unchanged from prior years. Debt (i) Cash and bank balances Net debt Equity (ii) 2012 $ 000 59,429 (11,232) 48,197 2011 $ 000 37,786 (18,388) 19,472 168,066 125,409 Net debt divided by debt plus equity 22.3% 13.4% (i) Debt includes commercial bills, bank loans, deferred acquisition liabilities and hire purchase liabilities . (ii) Equity includes all capital and reserves of the Group that are managed as capital. (b) Signiﬁ cant accounting policies Details of the signiﬁ cant 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 ﬁ nancial asset, ﬁ nancial liability and equity instrument are disclosed in note 2 to the ﬁ nancial statements. (c) Categories of ﬁ nancial instruments Financial Assets Cash and cash equivalents Loans and receivables Available-for-sale ﬁ nancial assets Financial Liabilities Bank overdraft Amortised loans and payables 2012 $ 000 2011 $ 000 11,232 59,689 21,412 - 92,778 18,388 50,219 16,122 - 70,739 Imdex 2012 Annual Report 103 FY12 Financial Report Financial Report (d) Financial risk management objectives The Group’s treasury function provides services to the business, co-ordinates access to domestic and international ﬁ nancial markets, monitors and manages the ﬁ nancial risks relating to the operations of the Group through internal risk reports which analyse exposures by degree and magnitude of risks. These risks include market risk (including currency risk and fair value interest rate risk), credit risk, liquidity risk and cash ﬂ ow interest rate risk. The Group seeks to minimise the effects of these risks by using natural hedges where possible and derivative ﬁ nancial instruments to hedge remaining risk exposures where the beneﬁ t of the hedge outweighs the cost. The use of ﬁ nancial derivatives is governed by the Group’s treasury policies which are approved by the Board of Directors. These policies describe the Group’s policies with respect to foreign exchange risk, interest rate risk, credit risk, the use of ﬁ nancial derivatives and non-derivative ﬁ nancial instruments, and the investment of excess liquidity. The Group does not enter into or trade ﬁ nancial instruments, including derivative ﬁ nancial instruments for speculative purposes. There are no derivative instruments in operation at year end. (e) Market risk The Group’s activities expose it primarily to the ﬁ nancial risks of changes in foreign currency exchange rates (note (f) below) and interest rates (note (g) below). The Group monitors its exposure to these risks on a regular basis and enters into derivative ﬁ nancial instruments to manage these risks where appropriate. There are no derivative ﬁ nancial instruments in operation at year end. At a Group and at a company level market risk exposures are measured by sensitivity analyses and scenario modelling. There has been no change to the Group’s exposure to market risks or the manner in which it manages and measures the risk. (f) Foreign currency risk management The Group undertakes certain transactions denominated in foreign currencies, hence exposures to foreign exchange rate ﬂ uctuations arise. Exchange rate exposures are managed with the use of natural hedges where possible and with the use of ﬁ nancial instruments where beneﬁ t outweighs cost within approved policy parameters. During the current and prior year no ﬁ nancial instruments were used to manage foreign exchange risk. The carrying amount in Australian dollars of the Group’s monetary assets and liabilities denominated in currencies other than Australian dollars at the reporting date are as per the table below. Non Australian dollar liabilities include trade creditors, accruals and borrowings recorded in Australian as well as non-Australian entities. Non Australian dollar assets include cash on hand and debtors recorded in Australian as well as non-Australian entities. Any ﬂ uctuation in exchange rates relative to the Australian dollar will cause the below assets and liabilities to change in value. Liabilities Assets 2012 $ 000 29,911 3,571 10,211 - 2,815 2,002 6,115 1,601 2011 $ 000 3,548 3,098 8,604 971 2,497 7,229 4,546 3,487 2012 $ 000 25,151 2,783 5,916 162 1,311 6,771 4,414 9,593 2011 $ 000 20,212 5,294 7,375 205 100 2,260 3,978 5,722 United States Dollars South African Rand Canadian Dollars Swedish Kroner British Pound Euro Chilean Pesos Other 104 FY12 Financial Report Foreign currency sensitivity The Group is mainly exposed to United States Dollars, Canadian Dollars, European Dollars and South African Rand. The following table details the Group’s sensitivity to a 10% (2011: 10%) increase and decrease in the Australian Dollar against the relevant foreign currencies. The sensitivity rate of 10% (2011: 10%) is the rate used when performing regular reporting on foreign currency risk internally. Foreign exchange risk is reported regularly to key management personnel and the Board. The estimated movement of 10% (2011: 10%) represents management’s assessment of the possible change in foreign currency exchange rates which is based on regular forecasts received from major lending institutions. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjust their translation at the period end for a 10% (2011: 10%) change in foreign currency rates. The sensitivity analysis includes external loans as well as loans to foreign operations within the Group where the denomination of the loan is in a currency other than the currency of the lender or the borrower. A positive number indicates an increase in proﬁ t or loss and other equity where the Australian Dollar strengthens against the respective currency. For a weakening of the Australian Dollar against the respective currency there would be an equal and opposite impact on the proﬁ t and other equity, and the balances below would carry the opposite sign. United States Dollar Impact South African Rand Impact 2012 $ 000 2011 $ 000 2012 $ 000 2011 $ 000 (Loss) or proﬁ t Other equity 476 - (1,666) - (i) (ii) 79 - (220) (i) - (ii) European Dollar Impact Canadian Dollar Impact 2012 $ 000 (477) - 2011 $ 000 497 - (i) (ii) 2012 $ 000 430 - 2011 $ 000 123 (i) - (ii) (Loss) or proﬁ t Other equity (i) Proﬁ t and loss impacts are mainly attributable to exposure on outstanding receivables and payables at year end denominated in the applicable foreign currency (ii) Equity movements are attributable to the net investment in a foreign operation denominated in the applicable foreign currency (g) Interest rate risk management The Company and the Group are exposed to interest rate risk as entities in the Group borrow funds at ﬂ oating interest rates. Interest rate risk is managed within deﬁ ned treasury policy guidelines. This is achieved by the Group by maintaining an appropriate mix between ﬁ xed and ﬂ oating rate borrowings and by the use of an interest rate cap to limit the maximum exposure to interest rate rises on part of Group debt. The Company and the Group’s exposures to interest rates on ﬁ nancial assets and ﬁ nancial liabilities are detailed in the liquidity risk management section of this note. Interest rate sensitivity The sensitivity data presented in the below paragraph is based on the exposure to interest rates for both derivative and non-derivative instruments at the reporting date and the stipulated change taking place at the beginning of the ﬁ nancial year and held constant throughout the reporting period. A 100 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the possible changes in interest rates based on consultation with appropriately qualiﬁ ed ﬁ nancial professionals. Group sensitivity At reporting date, if interest rates had been 100 basis points higher and all other variables were held constant, the Group’s net proﬁ t would decrease by $0.6 million (2011: $0.3 million). There would be a nil impact on equity other than via proﬁ t. A 100 basis point decrease in interest rates, holding all other variables constant would yield an increase in the Group’s net proﬁ t of $0.6 million (2011: $0.3 million). This is mainly attributable to the Group’s exposure to interest rates on its variable rate borrowings. Imdex 2012 Annual Report 105 FY12 Financial Report Financial Report (h) Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in ﬁ nancial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufﬁ cient collateral where appropriate, as a means of mitigating the risk of ﬁ nancial loss from defaults. The Group’s exposure and the credit ratings of its counterparties are monitored on a weekly basis and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed regularly by management. Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. Ongoing credit evaluation is performed on the ﬁ nancial condition of accounts receivable. The Group does not have any signiﬁ cant credit risk exposure to any single counterparty or group of counterparties having similar characteristics. The credit risk on liquid funds and derivative ﬁ nancial instruments is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies. The carrying amount of ﬁ nancial assets recorded in the ﬁ nancial statements, net of any allowances for losses, represents the Group’s maximum exposure to credit risk without taking account of the value of collateral obtained. At 30 June 2012 no such collateral had been obtained. (30 June 2011 : nil) (i) Liquidity risk management Ultimate responsibility for liquidity risk management rests with the Board of Directors, who monitor short, medium and long term liquidity requirements through the use of ﬁ nancial models. The treasury function reports regularly to key management personnel and the Board on matters affecting liquidity risk. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash ﬂ ows and matching the maturity proﬁ les of ﬁ nancial assets and liabilities. Included in note 30(d) is a listing of additional undrawn facilities that the Company/Group has at its disposal to further reduce liquidity risk. Liquidity and interest risk tables The following tables detail the Company’s and the Group’s remaining contractual maturity for its non–derivative ﬁ nancial liabilities. The tables have been drawn up based on the undiscounted cash ﬂ ows of ﬁ nancial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash ﬂ ows. The adjustment column represents the possible future cash ﬂ ows attributable to the instrument included in the maturity analysis which are not included in the carrying amount of the ﬁ nancial liability on the consolidated statement of ﬁ nancial position. Weighted average effective interest rate 0-3 months 3 months to 1 year 1-5 years 5+ years 2012 Non-interest bearing Finance lease liability Variable interest rate instruments 2011 Non-interest bearing Finance lease liability Variable interest rate instruments % - 9.67% 5.13% - 9.53% 6.80% $’000 $’000 $’000 $’000 25,012 127 3,118 28,257 24,659 205 25,727 50,591 8,337 290 9,353 17,980 10,840 615 3,637 15,092 - 83 46,492 46,575 221 602 6,347 7,170 - - - - - - - - 106 FY12 Financial Report The following tables detail the Company’s and the Group’s remaining contractual maturity for its non–derivative ﬁ nancial assets. The tables have been drawn up based on the undiscounted cash ﬂ ows of ﬁ nancial assets including interest that will be earned on those assets except where the Company/Group anticipates that the cash ﬂ ow will occur in a different period. The adjustment column represents the possible future cash ﬂ ows attributable to the instrument included in the maturity analysis which are not included in the carrying amount of the ﬁ nancial asset on the consolidated statement of ﬁ nancial position. Weighted average effective interest rate 0-3 months 3 months to 1 year 1-5 years 5+ years Adjustment Total $’000 $’000 $’000 $’000 $’000 $’000 2012 Non-interest bearing Variable interest rate instruments % - 0.25% 59,689 11,232 70,921 2011 Non-interest bearing - 50,219 Variable interest rate instruments 0.25% 18,388 68,607 - - - - - - 21,412 - 21,412 16,122 - 16,122 - - - - - - - - - - - - 81,101 11,232 92,333 66,341 18,388 84,729 (j) Fair value of ﬁ nancial instruments The fair values of ﬁ nancial assets and ﬁ nancial liabilities are determined as follows: • the fair value of ﬁ nancial assets and ﬁ nancial liabilities (excluding derivative ﬁ nancial instruments) are determined in accordance with generally accepted pricing models based on discounted cash ﬂ ow analysis using pricing models based on observable current market transactions • the fair value of derivative ﬁ nancial instruments are calculated using quoted market prices. The ﬁ nancial statements include holdings in ‘available for sale’ listed shares which are measured at fair value (note 9). The Directors consider that the carrying amounts of ﬁ nancial assets and ﬁ nancial liabilities recorded at amortised cost in the ﬁ nancial statements approximates their fair values. Fair value measurements recognised in the statement of ﬁ nancial position The following table provides an analysis of ﬁ nancial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable. • Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities • Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) • Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). Available-for-sale ﬁ nancial assets 2012 Shares in Sino Gas & Energy Holdings Limited 2011 Shares in Sino Gas & Energy Holdings Limited Level 1 $ 000 Level 2 $ 000 Level 3 $ 000 Total $ 000 21,412 16,122 - - - - 21,412 16,122 Imdex 2012 Annual Report 107 FY12 Financial Report Financial Report 31 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 of 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) Key management personnel equity holdings 2012 Balance at 1 July 2011 No. Granted as compensation Received on exercise of options No. No. Net other change # No. Balance at 30 June 2012 Balance held nominally No. No. Mr B W Ridgeway 2,435,000 Mr R W Kelly Mr K A Dundo Mr M Lemmel Ms E Donaghey Mr G E Weston Mr D J Loughlin Mr P A Evans 380,000 300,000 903,921 185,000 1,000,000 - 45,000 - - - - - 40,299 41,862 37,269 5,248,921 119,430 2011 Balance at 1 July 2010 Granted as compensation - - - - - - 500,000 300,000 800,000 Received on exercise of options (220,370) 2,214,630 - (150,000) (173,000) 25,000 380,000 150,000 730,921 210,000 - 1,040,299 (288,500) - 253,362 382,269 (806,870) 5,361,481 - - - - - - - - - Net other change # Balance at 30 June 2011 Balance held nominally No. No. No. No. No. No. Mr B W Ridgeway 3,500,000 Mr R W Kelly Mr K A Dundo Mr M Lemmel Ms E Donaghey Mr G E Weston Mr D J Loughlin Mr P A Evans 380,000 300,000 903,921 110,000 350,000 - 45,000 5,588,921 # - represent on market transactions - - - - - - - - - 2,000,000 (3,065,000) 2,435,000 - - - - 1,000,000 - - - - - 75,000 (350,000) - - 380,000 300,000 903,921 185,000 1,000,000 - 45,000 3,000,000 (3,340,000) 5,248,921 - - - - - - - - - 108 FY12 Financial Report (iv) Share options issued by Imdex Limited 2012 Balance at 1 July 2011 Granted as compensation Exercised Inception / (cessation) as key management person Balance at 30 June 2012 Vested but not exercisable Vested and exercisable Options vested during year No. No. No. No. No. No. No. No. Mr B W Ridgeway Mr R W Kelly Mr K A Dundo Mr M Lemmel Ms E Donaghey Mr G E Weston Mr D J Loughlin Mr P A Evans - - - - - 500,000 500,000 500,000 1,500,000 - - - - - - - - - - - - - - - (500,000) (300,000) (800,000) - - - - - - - - - - - - - - 500,000 - 200,000 700,000 - - - - - - - - - - - - - - 500,000 - 200,000 700,000 - - - - - - - - - 2011 Balance at 1 July 2010 Granted as compensation Exercised Balance at 30 June 2011 Inception / (cessation) as key management person Vested but not exercisable Vested and exercisable Options vested during year No. No. No. No. No. No. No. No. Mr B W Ridgeway 2,000,000 Mr R W Kelly Mr K A Dundo Mr M Lemmel Ms E Donaghey - - - - Mr G E Weston 1,500,000 Mr D J Loughlin Mr P J Mander ~ Mr P A Evans 500,000 150,000 500,000 4,650,000 - - - - - - - - - - (2,000,000) - - - - - (1,000,000) - - - - - - - - - (150,000) - - - - - 500,000 500,000 - - 500,000 (3,000,000) (150,000) 1,500,000 - - - - - - - - - - - - - - - - - - - - 500,000 166,668 500,000 - - - 500,000 66,667 1,500,000 233,335 ~ - Mr P J Mander ceased to be a Key Management Person on 1 July 2010 when changed internal reporting No options were granted to key management personel in the current or prior year. A total of 800,000 options were exercised by key management personnel during the current year. The exercise price was 75c per share for the 500,000 exercised by Mr D Loughlin and $1.00 per share for the 300,000 exercised by Mr P Evans. No amounts remain unpaid on the options exercised. Imdex 2012 Annual Report 109 FY12 Financial Report Financial Report (v) Performance rights granted by Imdex Limited 2012 Balance at 1 July 2011 No. Granted as compensation No. Satisﬁ ed by the issue of shares No. Expired No. Mr B W Ridgeway 196,579 153,318 Mr R W Kelly Mr K A Dundo Mr M Lemmel Ms E Donaghey Mr G E Weston Mr D J Loughlin Mr P A Evans 2011 Mr B W Ridgeway Mr R W Kelly Mr K A Dundo Mr M Lemmel Ms E Donaghey Mr G E Weston Mr D J Loughlin Mr P A Evans - - - - 120,897 125,587 111,806 554,869 Balance at 1 July 2010 No. - - - - - - - - - - - - - - - - - - 48,611 42,245 42,245 (40,299) (41,862) (37,269) 286,419 (119,430) - - - - - (3,832) (3,331) (3,331) (10,494) Granted as compensation No. 196,579 - - - - 120,897 125,587 111,806 554,869 Satisﬁ ed by the issue of shares No. Expired No. - - - - - - - - - - - - - - - - - - Closing balance at 30 June 2012 No. 349,897 - - - - 125,377 122,639 113,451 711,364 Closing balance at 30 June 2011 No. 196,579 - - - - 120,897 125,587 111,806 554,869 Performance rights expired where performance hurdles were not met. No value was received where performance rights expired. More information on the Performance Rights Plan can be found in note 34. (vi) Other transactions with key management personnel (and their related parties) of Imdex Limited (a) Mr K A Dundo is a Partner of the legal ﬁ rm QLegal, that provided legal services to the Imdex Group on normal commercial terms and conditions. Total legal costs arising from QLegal were $549,874 (2011: $378,638). (b) Transactions with Directors Note 2012 $ 2011 $ Proﬁ t 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: Legal services expense vi(a) 549,874 378,638 Total assets and liabilities arising from transactions, other than compensation, with Directors or their related entities: Current Liabilities vi(a) 39,826 26,957 110 FY12 Financial Report (c) Parent entity The ultimate parent entity in the Group is Imdex Limited, a Company incorporated in Western Australia. 32 Key Management Personnel Compensation Key management personnel compensation The aggregate compensation of the key management personnel of the Group and the Company is set out below: 2012 $ 2011 $ 2,969,289 2,619,395 257,904 224,291 97,552 106,185 - - 381,164 420,872 3,705,909 3,370,743 Short-term employee beneﬁ ts Post-employment beneﬁ ts Other long-term beneﬁ ts Termination beneﬁ ts Share-based payments 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. Each employee share option converts to one ordinary share of Imdex Limited on exercise. No amounts are paid or payable by the recipient on receipt of the option. Options may be exercised at any time from the date of vesting to the date of expiry. 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 normally only eligible to receive options when they have been with the Company in excess of 6-12 months. Options expire when the option holder ceases to be employed by the Group. (b) Share Based Payment Arrangements Former Chairman’s Options Options were issued to the former Chairman as a reward for past performance and as an incentive for the future. The options carry no rights to dividends and no voting rights. These options were all exercised on 8 July 2011. Managing Director’s Options 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. These options were all exercised on 19 October 2010. Imdex 2012 Annual Report 111 FY12 Financial Report Financial Report (c) The following share based payment arrangements were in existence during the current and comparative periods: 2012 Issue Date Expiry Date Exercise Price $ Fair Value at Grant Date $ Number of Options Opening balance Issued current year Exercised current year Lapsed current year Closing balance Staff Options Tranche 3 (i) 23-Feb-07 22-Feb-12 Tranche 4 (i) 23-Feb-07 22-Feb-12 Tranche 5 (i) 12-Jun-07 11-Jun-12 Tranche 6 (i) 18-Oct-07 17-Oct-12 Tranche 7 (i) 28-Mar-08 27-Mar-13 0.75 1.00 1.80 1.80 3.00 0.56 0.48 0.51 0.81 0.42 700,000 2,263,167 575,000 200,000 4,279,991 - - - - - (700,000) - (2,248,167) (15,000) (75,000) (500,000) - - - - - - 200,000 (586,658) 3,693,333 Former Chairman’s Options (Mr I F Burston) Tranche 1 (ii) 19-Oct-06 18-Oct-11 0.75 0.35 500,000 - (500,000) - - 8,518,158 - (3,523,167) (1,101,658) 3,893,333 2011 Issue Date Expiry Date Exercise Price $ Fair Value at Grant Date $ Number of Options Opening balance Issued current year Exercised current year Lapsed current year Closing balance Staff Options Tranche 2 (i) 1-Feb-06 31-Jan-11 Tranche 3 (i) 23-Feb-07 22-Feb-12 Tranche 4 (i) 23-Feb-07 22-Feb-12 Tranche 5 (i) 12-Jun-07 11-Jun-12 Tranche 6 (i) 18-Oct-07 17-Oct-12 Tranche 7 (i) 28-Mar-08 27-Mar-13 0.35 0.75 1.00 1.80 1.80 3.00 0.02 0.56 0.48 0.51 0.81 0.42 1,579,536 700,000 3,014,001 575,000 200,000 4,368,327 - - - - - - (1,552,870) (26,666) - - - 700,000 (599,167) (151,667) 2,263,167 - - - - - 575,000 200,000 (88,336) 4,279,991 Former Chairman’s Options Tranche 1 (ii) 19-Oct-06 18-Oct-11 0.75 0.35 1,000,000 - (500,000) - 500,000 Managing Directors’ Options Tranche 1 (iii) 15-Sep-05 14-Sep-10 0.30 0.01 2,000,000 13,436,864 - - (2,000,000) - - (4,652,037) (266,669) 8,518,158 (i) Exercisable in one third lots in each year commencing one year after issue. (ii) Expire on their expiry date 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 date. (d) Fair value of options granted during the ﬁ nancial year No share options were issued in the current or prior year. 112 FY12 Financial Report (e) Exercised during the ﬁ nancial year 2012 Option Series Number Exercised Exercise Date Weighted Average Share Price at Exercise Date ($) Amount Paid ($) Amount Unpaid ($) Staff Options Tranche 3 Staff Options Tranche 4 Staff Options Tranche 5 Former Chairman’s Options 2011 700,000 2,248,167 Various Various 75,000 16-Apr-12 500,000 08-Jul-11 3,523,167 Option Series Number Exercised Exercise Date Staff Options Tranche 2 Staff Options Tranche 4 Former Chairman’s Options Managing Directors’ Options 599,167 1,552,870 Various Various 500,000 08-Feb-11 2,000,000 25-Oct-10 4,652,037 2.18 2.14 2.93 2.46 525,000 2,218,168 135,000 375,000 Weighted Average Share Price at Exercise Date ($) Amount Paid ($) Amount Unpaid ($) 1.94 1.88 2.05 1.26 543,503 599,167 375,000 600,000 - - - - - - - - (f) Balance at end of the ﬁ nancial year The share options outstanding at the end of the ﬁ nancial year had a weighted average exercise price of $2.94 (2011: $2.04), and a weighted average remaining contractual life of 262 days (2011: 442 days) (g) Reconciliation of movements in share options during the year The following reconciles the outstanding share options granted under the Staff Option Scheme at the beginning and end of the ﬁ nancial year 2012 2011 Number of Options Weighted Average Exercise Price ($) Number of Options Weighted Average Exercise Price ($) Balance at beginning of the ﬁ nancial year 8,518,158 Granted during the ﬁ nancial year Exercised during the ﬁ nancial year Expired/ forfeited during the ﬁ nancial year Balance at end of the ﬁ nancial year Exercisable at end of the ﬁ nancial year - (3,523,167) (1,101,658) 3,893,333 3,893,333 2.04 - 0.94 2.43 2.94 13,436,864 - (4,652,037) (266,669) 8,518,158 8,518,158 1.48 - 0.46 1.60 2.04 Imdex 2012 Annual Report 113 FY12 Financial Report Financial Report 34 Performance Rights Plan (a) Performance Rights Plan At the Imdex Limited Annual General Meeting on 15 October 2009 the shareholders approved the formation of a Performance Rights Plan (PRP or Plan). The Plan allows for the issue of performance rights to employees from time to time. The quantum of performance rights granted to employees is at the discretion of the Directors and is generally based on seniority and level of contribution to the strategic goals of Imdex Limited. A performance right is the right to receive one fully paid Imdex Limited ordinary share for nil consideration should set hurdles be achieved and tenure of employment be maintained. The hurdles are set by the Directors when performance rights are issued and are generally linked to the achievement of ﬁ nancial or other strategic goals of Imdex Limited. If hurdles are achieved generally shares will be issued evenly over the 3 year period assuming continuity of employment. (b) Performance rights granted in the current year Staff Performance Rights 1,465,090 performance rights were granted to employees during the current year in 3 tranches (Tranches 7, 8 and 9 in the table below): • Tranche 7 – 615,000 performance rights were issued to Key Management Personnel with 1/4 to be allotted in August 2014 with the remaining 3/4 to be allotted in August 2015. These performance rights are subject to ongoing employment tenure only. The fair value of a performance right at grant date was $2.10. The expected total cost of the estimated 615,000 fully paid ordinary shares to be issued in Imdex Limited will therefore be $1.3 million. This value will be expensed over the vesting period from September 2011 to August 2015, with $0.2 million expensed in the current year. • Tranche 8 – 15,000 performance rights were issued to an employee and all will be allotted in August 2013 subject to ongoing employment tenure only. The fair value of a performance right at grant date was $2.08. The expected total cost of the estimated 15,000 fully paid ordinary shares to be issued in Imdex Limited will therefore be $0.03 million and has been fully expensed in the current year. • Tranche 9 – 835,090 performance rights were issued to employees and are to be allotted in equal 1/3 lots annually beginning in August 2012. These performance rights are subject to proﬁ tability related hurdles as well as ongoing employment tenure. 21,743 of these performance rights expired due to performance hurdles not being met. The fair value of a performance right at grant date was $1.79. The expected total cost of the estimated 813,347 fully paid ordinary shares to be issued in Imdex Limited will therefore be $1.5 million. This value will be expensed over the vesting period from October 2011 to August 2014, with $0.9 million expensed in the current year. Since their granting no performance rights have expired by virtue of staff leaving the employment of the Imdex Group. One fully paid Imdex Limited ordinary shares will be issued in satisfaction of each performance right should speciﬁ ed targets be met. For the purposes of the FY12 ﬁ nancial statements, the Directors have made an estimate of the likelihood of the achievement of FY12 targets and hence the number of fully paid Imdex Limited ordinary shares that are likely to be issued. An adjustment will be made in the next ﬁ nancial year should the actual number of shares issued be different from those estimated. It is estimated that out of the 1,465,090 performance rights, 1,443,347 will meet the required performance hurdles and will result in 1,443,347 fully paid Imdex Limited ordinary shares being issued over three years should employment tenure be retained. Managing Director’s Performance Rights 153,318 performance rights were granted to the Managing Director on 20 October 2011 following approval by the shareholders at the Annual General Meeting. One fully paid Imdex Limited ordinary shares will be issued in satisfaction of each performance right should the speciﬁ ed earnings per share and total shareholder return targets be met over the 3 year measurement period from FY12 to FY14. The Managing Director is subject to two hurdles each with equal weighting. The ﬁ rst is that the Total Shareholder Return (TSR) of Imdex Limited must exceed the average TSR of the ASX300 over the 3 year measurement period. The second is that the Earnings Per Share of Imdex Limited must exceed the average EPS of the ASX300 over the 3 year measurement period. Measurement against targets will only be possible once the FY14 independent audit report is signed in August 2014. For the purposes of the FY12 ﬁ nancial statements, the Directors have made an estimate of the likelihood of the achievement of the speciﬁ ed targets and hence the number of fully paid Imdex Limited ordinary shares that are likely to be issued. Due to the hurdle being market related, adjustment will not be made in future periods should the actual number of shares issued be different from those estimated. It is estimated that out of the 153,318 performance rights issued, all will meet the required performance hurdles and will result in 153,318 fully paid Imdex Limited ordinary shares being issued on or about August 2014 should employment tenure be retained. The fair value of a performance right at grant date was $1.91 per right. The expected total cost of the estimated 153,318 fully paid ordinary shares to be issued in Imdex Limited will therefore be $0.3 million. This value will be expensed over the vesting period from October 2011 to August 2014, with $0.1 million expensed in the current year. 114 FY12 Financial Report (c) Performance rights Granted in the prior year Staff Performance Rights 2,630,029 performance rights were granted to employees during the prior year in 3 tranches (Tranches 2, 3 and 4 in the table below). Since their granting, 810,335 of these performance rights have met the required performance hurdles and fully paid Imdex Limited ordinary shares have been issued to staff, while 391,887 of these performance rights have expired by virtue of staff leaving the employment of the Imdex Group. Shares issued in satisfaction of performance rights occur annually in 1/3 lots, with the ﬁ rst 1/3 lot being issued after the FY11 independent audit report was signed in August 11. The weighted average fair value of performance rights outstanding at the end of the prior year was $1.50 per right. The expected total cost of the estimated 2,472,372 fully paid ordinary shares to be issued in Imdex Limited will therefore be $3.7 million. This value will be expensed over the remaining vesting period from July 2010 to August 2013, with $2.0 million expensed in the prior year. Managing Director’s Performance Rights 196,579 performance rights were granted to the Managing Director during the prior period following approval by the shareholders at the Annual General Meeting. Due to the hurdle being market related, adjustment will not be made in future periods should the actual number of shares issued be different from those estimated. It is estimated that out of the 196,579 performance rights issued, all will meet the required performance hurdles and will result in 196,579 fully paid Imdex Limited ordinary shares being issued on or about August 2013 should employment tenure be retained. The fair value of a performance right at grant date was $1.14 per right. The expected total cost of the estimated 196,579 fully paid ordinary shares to be issued in Imdex Limited will therefore be $0.2 million. This value will be expensed over the vesting period from October 2010 to August 2013, with $0.1 million expensed in the prior year. (d) Summary of performance rights outstanding Performance Rights Plan 2012 Grant Date Expiry Date Exercise Price Tranche 1 Tranche 2 Tranche 3 Tranche 4 19-Feb-10 3-Dec-10 28-Jan-11 10-Jun-11 MD Tranche 14-Oct-10 MD Tranche 20-Oct-11 Tranche 7 Tranche 8 Tranche 9 5-Sep-11 29-Aug-11 7-Oct-11 Aug-14 Aug-15 Aug-15 Aug-16 Oct-15 Oct-16 Aug-16 Aug-16 Aug-16 $ - - - - - - - - - Estimated Fair Value at Grant Date $ Estimated Number of Performance Rights Opening balance Granted Satisﬁ ed by the issue of shares Expired ^ Closing balance 0.685 1.395 1.990 2.160 1.140 1.910 2.100 2.080 1.790 253,669 2,072,372 200,000 200,000 196,579 - - - - - - - - - 153,318 615,000 15,000 835,090 (126,835) (5,635) 121,199 (677,001) (100,897) 1,294,474 (66,667) (133,333) - (66,667) - - - - - - - - - - 133,333 196,579 153,318 615,000 15,000 (21,743) 813,347 2011 Grant Date Expiry Date Exercise Price Tranche 1 Tranche 2 Tranche 3 Tranche 4 19-Feb-10 3-Dec-10 28-Jan-11 10-Jun-11 Aug-14 Aug-15 Aug-15 Aug-16 MD Tranche 14-Oct-10 Nov-15 $ - - - - - Estimated Fair Value at Grant Date $ Estimated Number of Performance Rights Opening balance Granted Satisﬁ ed by the issue of shares Expired ^ Closing balance 0.685 1.395 1.990 2.160 1.140 458,779 - (138,391) (66,719) 253,669 - - - - 2,230,029 200,000 200,000 196,579 - - - - (157,657) 2,072,372 - - - 200,000 200,000 196,579 ^ - Performance rights expire either on failure to maintain employment tenure or on failure to satisfy performance hurdles. Imdex 2012 Annual Report 115 FY12 Financial Report Financial Report 35 Parent Entity Information The accounting policies of the parent entity, which have been applied in determining the ﬁ nancial information shown below, are the same as those applied in the consolidated ﬁ nancial statements. Refer to note 2 for a summary of the signiﬁ cant accounting policies relating to the Group. 30 June 2012 30 June 2011 $’000 $’000 2,744 162,571 1,813 106,546 165,315 108,359 64,455 23,860 88,315 77,000 86,069 (3,740) 295 6,385 (12,009) 77,000 37,933 9,296 47,229 61,130 70,059 - 188 7,158 (16,275) 61,130 Year Ended Year Ended 30 June 2012 30 June 2011 $’000 $’000 (12,686) 107 (12,579) (16,275) (12,686) (721) 17,673 (12,009) (14,946) 188 (14,758) 2,159 (14,946) - (3,488) (16,275) Financial Position Assets Current Assets Non Current Assets Total Assets Liabilities Current Liabilities Non Current Liabilities Total Liabilities Net Assets Equity Issued Capital Shares reserved for Performance Rights Plan Investment Revaulation Reserve Employee Equity-Settled Beneﬁ ts Reserve Accumulated Losses * Total Equity Financial Performance Loss for the year Other comprehensive income, net of income tax Total comprehensive income * Accumulated Losses at the beginning of the ﬁ nancial year Loss for the year Amounts transferred from employee equity-settled beneﬁ ts reserve Dividend received / (paid) Accumulated Losses at the end of the ﬁ nancial year 116 FY12 Financial Report Guarantees entered into by the parent entity in relation to the debts of its subsidiaries 30 June 2012 30 June 2011 $’000 $’000 Guarantee provided under the deed of cross guarantee 77,611 76,040 The parent entity has no contingent liabilities or contingent assets at balance date (2011: nil). The parent entity has no commitments for the acquisition of property, plant and equipment at balance date (2011: nil). 36 Subsequent Events Subsequent to year end the Directors de clared a 4.00 cent per share fully franked dividend with a record date of 12 October 2012 and a payment date of 26 October 2012. The effect of this dividend has not been reﬂ ected in this ﬁ nancial report. Imdex 2012 Annual Report 117 FY12 Financial Report Financial Report Additional Securities Exchange Information as at 29 August 2012 (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 HSBC Custody Nominees (Australia) Limited J P Morgan Nominees Australia Limited (c) Twenty Largest Holders of Quoted Equity Securities Ordinary Shareholders HSBC Custody Nominees (Australia) Limited J P Morgan Nominees Australia Limited National Nominees Limited JP Morgan Nominees Australia Limited (Cash Income Account) Citicorp Nominees Pty Limited Citicorp Nominees Pty Limited (Colonial First State Inv Account) BNP Paribas Nominees Pty Ltd (Master Cust DRP) Telic Alcatel (Australia) Pty Ltd (Middendorp Directors SuperFund Account) Mr John Andrew Knox + Ms Janice Ann Knox (The JA Family Account) AMP Life Limited Buttonwood Nominees Pty Ltd RBC Investor Services Australia Nominees Pty Ltd (Pi Pooled Account) Imdex Nominees Pty Ltd (Imdex Equity Plans Account) Mr Petrus Middendorp Bond Street Custodians Ltd (Celeste Concentrated Fund) Keeble Nominees Pty Ltd (Ridgeway Super Fund Account) Aust Executor Trustees Ltd (Charitable Foundation) Passio Pty Ltd (G Weston & Assoc SuperFund Account) Methuen Holdings Pty Ltd (PB Family Account) Wear Services Pty Ltd 118 Number of Fully Paid Ordinary Shareholders Number of Performance Rights Holders Number of Option Holders 475 1,475 897 1,199 123 4,169 133 35 98 29 56 7 225 - - 9 23 67 8 107 - Fully Paid Number Percentage 36,769,302 29,468,514 17.66% 14.15% Fully Paid Number Percentage 36,769,302 29,468,514 20,217,787 14,508,763 6,110,662 4,645,671 3,219,154 3,028,152 2,928,627 2,732,212 1,984,012 1,591,884 1,510,927 1,495,372 1,402,869 1,226,737 1,056,067 1,025,000 1,000,000 987,893 17.66% 14.15% 9.71% 6.97% 2.93% 2.23% 1.55% 1.45% 1.41% 1.31% 0.95% 0.76% 0.73% 0.72% 0.67% 0.59% 0.51% 0.49% 0.48% 0.47% 136,909,605 65.75% FY12 Financial Report Number of Shares Number of Options 380,000 2,214,630 150,000 730,921 210,000 382,269 4,067,820 - - - - - 200,000 200,000 Number of Performance Rights - 349,897 - - - 116,782 466,679 (d) Director and Company Secretary Shareholdings Name Mr R W Kelly Mr B W Ridgeway Mr K A Dundo Mr M Lemmel Ms E Donaghey Mr P A Evans (e) Company Secretary Mr Paul Anthony Evans (f) Registered Ofﬁ ce 8 Pitino Court Osborne Park Western Australia 6018 Phone: (08) 9445 4010 (g) Share Registry Computershare Investor Services Level 2 45 St Georges Terrace Perth WA 6000 Phone: (08) 9323 2000 Imdex 2012 Annual Report 119 Company History 17 December 1980 Australian company Pilbara Gold NL incorporated 21 July 1985 Pilbara Gold NL changed name to Imdex Limited 24 September 1987 Imdex Limited listed on the ASX 1988 1997 2001 Formation of Australian Mud Company Acquisition of Surtron Technologies Pty Ltd and Ace Drilling Supplies Joint venture formed with Imdex and Rashid Trading Establishment (RTE) in Saudi Arabia 1 July 2005 Sale of Imdex Minerals 1 August 2005 Acquisition of African based company Samchem 1 August 2006 Acquisition of Swedish based Reﬂ ex Group of Companies and United Kingdom based company Chardec 1 May 2007 Acquisition of Swedish based company Flexit 1 July 2007 Ace merged with Reﬂ ex. Imdex ﬁ nalised the sale of its interest in Imdex Arabia to RTE. Acquisition of Canadian based Poly-Drill and a 75% interest in Kazakhstan based Suay Energy Services 31 October 2007 Sale of Surtron Technologies 1 November 2007 Acquisition of Chilean based company Southernland 1 January 2008 Acquisition of German based company System Entwicklungs 1 July 2008 Acquisition of the remaining 25% of Kazakhstan based Suay Energy Services 1 September 2008 Acquisition of Australian based company Wildcat Chemicals Australia 1 July 2010 New regional structure implemented and business reporting streamlined into Minerals and Oil & Gas Divisions 1 September 2010 Acquisition of Australian based companies Fluidstar and Ecospin 1 March 2011 Acquisition of German based company Mud-Data 1 July 2011 Formation of DHS Services joint venture 1 July 2011 Acquisition of Australian based company Australian Drilling Specialties Pty Ltd 1 August 2011 Acquisition of Brazilian based company System Mud Indústria e Comércio Ltda 1 January 2012 Acquisition of Vaughn Energy Services by Imdex’s DHS Services joint venture 120 Providing innovative drilling fluids and advanced downhole instrumentation worldwide. Imdex is an ASX listed company, which provides quality drilling fluids and leading down hole instrumentation to the mining, oil and gas, water well, and civil engineering industries worldwide. The company has a presence in all significant mining and exploration regions, and has a global profile and resources to position it for extended future growth. Imdex Limited ABN 78 008 947 813 Head office 8 Pitino Court, Osborne Park, Western Australia 6017 T: +61 8 9445 4010 F: +61 8 9445 4042 E: imdex@imdexlimited.com www.imdexlimited.com

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