Innovative Technologies Integrated Solutions Global Support ANNUAL REPORT 2014 imdexlimited.com Imdex Limited (Imdex) ABN 78 008 947 813 Australian Securities Exchange (ASX) Listing Date 24 September 1987 ASX Code: IMD Registered Office 216 Balcatta Road, Balcatta Western Australia 6021 Head Office 216 Balcatta Road, Balcatta Western Australia 6021 Directors Mr Ross Kelly (Chairman) 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 2014 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 16 October 2014. For further information please contact Paul Evans on 08 9445 4010 or visit the investor section of Imdex’s website at: www.imdexlimited.com 2 Throughout this document, unless otherwise stated, all monetary amounts are recorded in Australian currency. 2014 IMDEX LIMITED ANNUAL REPORT2014 IMDEX LIMITED ANNUAL REPORTIMDEX GROUP AT A GLANCE Contents Imdex Group at a Glance Group Financial Performance Corporate Profile The Imdex Way Key Data Company Structure Innovative Technologies Minerals Products Used by Stage What are Drilling Fluids? What are Solids Removal Units? What are Downhole Survey & Core Orientation Instruments? What is On-site Geoanalysis? What is Geochemical Data Analysis Software? What are Rig Monitoring Instruments? What are Data Management Solutions? Global Business FY14 SnapShot Strategy for Increasing Shareholder Value FY14 Growth Initiatives & Performance FY14 Market Overview Operational Highlights & Challenges 3 4 5 6 7 8 9 9 10 11 11 12 13 14 16 17 18 18 Minerals Division Oil & Gas Division Summary Financial Highlights corporate Governance Board oF dIrectorS chaIrman’S report manaGInG dIrector’S report operatIonal overvIew Executive Management Team Global Team Community Involvement Quality, Health, Safety & Environment Managing Risk Ongoing Product Development 2014 FInancIal report companY hIStorY 19 20 21 23 24 25 29 32 35 36 38 39 42 43 49 129 1 2014 Imdex LImIted AnnuAL RepoRtImdex GRoup At A GLAnCe Imdex Mission “We deliver leading innovative technologies to the global minerals industry and select oil and gas markets, focusing on integrated solutions that enhance our customers’ operations and deliver value for shareholders. We achieve this through our extensive industry knowledge and commitment to product development, ensuring innovative, simple to use and fit for purpose technologies.” AMC Drilling Fluids, Drilling Operation Western Australia 2 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtImdex GRoup At A GLAnCe Corporate Profile Imdex is a leading provider of drilling fluid products, advanced downhole instrumentation, data management solutions and geo-analytical services. The Company’s strength is derived from its global operations, superior customer service and leading technologies. Imdex 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. Customers include: exploration, development, production and mining services companies within the minerals and oil and gas sectors; together with horizontal directional drilling and civil construction companies worldwide. The Company has operational centres in key mining regions of the world, including Asia-Pacific, Africa, Europe and the Americas, to provide optimal service to customers. Imdex’s substantial commitment to ongoing product development has enabled the Company to achieve market leader status in its fields of operation. It is continuously refining its integrated range of fluid products, unrivalled instrumentation and data management solutions to ensure customers have the most advanced operational technology available. 3 2014 Imdex LImIted AnnuAL RepoRtImdex GRoup At A GLAnCe IMDEX GROUP AT A G LA N CE AMC Minerals conducting a mud test The Imdex Way the Imdex way sets out the key principles and expected behaviours that govern the company’s decision making, business practices and employee reward programs. Integrity – Communicating openly and honestly. Avoiding activities or organisations that are unethical, harm people or the environment. Teamwork – Working collaboratively, safely and with respect for diversity within Imdex’s Group to achieve the best results for the Company, customers and colleagues. Accountability – Taking responsibility for and delivering on Imdex’s commitments to the Company, customers and colleagues. Being Dynamic – Maintaining an efficient global company with the flexibility to provide localised customer solutions and the adaptability to react quickly to new opportunities and change. Innovation – Leveraging Imdex’s advanced technologies, research and development capabilities to deliver innovative, leading edge products and services that optimise customer operations. Continuous Improvement – Pursuing Imdex’s strategy of ongoing growth and reward for shareholders, customers and employees through continuous improvement of the Company’s products, services and work practices. 4 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtImdex GRoup At A GLAnCe IMDEX GRO UP AT A GL ANCE Key Data AS AT 30 JUNE 2013 AS AT 30 JUNE 2014 Market capitalisation: $130.5 million Shares on issue: 210.5 million Market capitalisation: $133.6 million Shares on issue: 212.1 million Share price at 30 June 2013: Share price at 30 June 2014: $0.62 $0.63 Number of shareholders: Number of shareholders: 3,897 Number of employees: 604 3,367 Number of employees: 567 Banking institutions: HSBC and Westpac Banking institutions: HSBC and Westpac Legal advisors: Hopgoodganim Auditors: Legal advisors: Hopgoodganim Auditors: Deloitte Touche Tohmatsu Deloitte Touche Tohmatsu Share registry: Computershare Share registry: Computershare 5 5 2014 Imdex LImIted AnnuAL RepoRtImdex GRoup At A GLAnCe Company Structure Imdex has two operational divisions, Minerals and Oil & Gas. Imdex’s Minerals Division includes the AMC and REFLEX businesses. AMC is a leading provider of innovative drilling fluids, chemicals and solids removal technologies to the global drilling industry. REFLEX markets downhole instrumentation and data management solutions; together with geoanalytical consulting services and software to resource, mining services and civil construction companies worldwide. Imdex’s Oil & Gas Division comprises AMC Oil & Gas and a 30% share of VES International. The VES joint venture is the third largest provider of downhole survey services to the oil and gas markets, primarily in the USA and Middle East. The AMC Oil & Gas and VES International businesses provide drilling fluids, production and completion chemicals, together with downhole survey services to the global oil and gas market. Imdex lImIted oIl & GaS dIvISIon mIneralS dIvISIon 30% joint venture 6 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtImdex GRoup At A GLAnCe Innovative Technologies Brand reFlex product & Service range market REFLEX ACT III: Digital core orientation REFLEX HT ACT: Digital core orientation REFLEX EZ-Shot: Single-shot magnetic survey REFLEX EZ-Trac: Multi-shot magnetic survey REFLEX HT EZ-Trac: Multi-shot magnetic survey REFLEX Maxibor II: Optical survey REFLEX Gyro: Gyroscopic survey REFLEX HT Gyro: Gyroscopic survey REFLEX TN14 Gyrocompass: Rig aligner REFLEX XRF: On-site geoanalysis REFLEX HUB: Data management solutions REFLEX Geochemistry: Geochemical data analysis ioGAS: Geochemical data analysis software Customised downhole motors Global mining / mineral exploration, HDD and civil construction markets amc minerals Drilling fluids and chemicals Fluid containment and transfer equipment Waste management equipment Solids removal units (surface, underground & heli-portable SRUs) Brands product range market amc oil & Gas Drilling fluids and production chemicals market Fluid containment and transfer equipment Waste management equipment Solids control units (SCUs) veS International Joint venture Inflex (formerly Target INS) Gyroflex survey tool Global oil & gas market 7 2014 Imdex LImIted AnnuAL RepoRtImdex GRoup At A GLAnCe Mineral Products Used by Stage amc SOLIDS REMOVAL UNITS amc reFlex reFlex FLUIDS reFlex CORE ORIENTATION INTEGRATED SaaS / DATA MANAGEMENT SOLUTIONS GYRO DOWNHOLE SURVEY reFlex MAGNETIC DOWNHOLE SURVEY reFlex DIRECTIONAL EQUIPMENT reFlex GEOANALYSIS non-Mining 10% revenue* EXPLORATION 21% REVENUE DEVELOPMENT 46% REVENUE PRODUCTION 23% REVENUE *Non-mining includes waterwell drilling, civil and tunnelling operations 8 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtImdex GRoup At A GLAnCe What are Drilling Fluids? What are Solids Removal Units? AMC’s Solids Removal Units (SRUs) are used to eliminate cuttings in the drilling mud flow cycle. Drilling fluid is circulated directly from the drill collar to the SRU’s shaker or centrifuge feed tube, where drill solids are removed via a centrifuge. Cleaned drilling fluids are then returned to the drill hole. The highly mobile units also incorporate a mixing chamber and weir system, which enables drilling fluids to be added accurately and efficiently. AMC’s SRUs provide significant economic and environmental advantages as they eliminate the need to dig and rehabilitate traditional mud pits. The sumpless technology also reduces water consumption, mud usage and wear-and-tear to drilling components, while enhancing drilling productivity. Surface, underground and heli-portable units are available. Drilling fluids, or mud as referred to 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 fluids, 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 fluid 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 fluid then circulates through a shale shaker, mud tanks, or AMC’s Solids Removal Units to remove the cuttings from the fluid for re-use. Drilling fluids also help keep the borehole stabilised by forming a thin membrane on the interior surface. Traditional drilling fluid sumps Sumpless drilling sites 9 2014 Imdex LImIted AnnuAL RepoRtImdex GRoup At A GLAnCe What are Downhole Survey & Core Orientation Instruments? 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 two degree deviation at the surface can lead to a 35 metre lateral displacement at a hole depth of 1000 metres, resulting in significant 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 significantly 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. 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 efficiently 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 specifically designed for challenging multiple well environments, in areas of high magnetic interference, to allow directional drillers to accurately control the path of the wells. On-site training with the REFLEX ACT 10 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtImdex GRoup At A GLAnCe What is On-site Geoanalysis? The REFLEX XRF is a hand-held instrument, which collects and transmits geochemical data to REFLEX HUB, where built-in analytics produce derived outputs that can be used immediately for logging, domaining and classification. Customers can obtain real-time geochemical analysis in the field then immediately reassess drilling programs. They can also reduce time and costs by screening and prioritising samples before assaying. What is Geochemical Data Analysis Software? REFLEX ioGAS is the optimal software for exploratory and geochemical data analysis. The software has been specially developed for exploratory and geochemical data analysis. It offers the best tools and workflows for efficiently interpreting customers’ data by capturing the experience and knowledge of the REFLEX Geochemistry team of world-class geochemists. The REFLEX XRF hand-held instrument REFLEX Geochemical data analysis 11 2014 Imdex LImIted AnnuAL RepoRtImdex GRoup At A GLAnCe What are Rig Monitoring Instruments? REFLEX TN14 GYROCOMPASS The REFLEX TN14 Gyrocompass (TN14) provides fast and accurate rig alignment in surface and underground operations. The TN14 was designed as an alternative to the traditional manual system of rig alignment, which is often inefficient and prone to human error. The TN14’s settlement and calibration process takes approximately 15 minutes and then a rig can be aligned to the correct azimuth and dip within 5 minutes. Drillers no longer need to wait hours, or occasionally days, for surveyors to determine the azimuth line for rig alignment and drilling to commence. The REFLEX Gyrocompass TN14 is the only rig aligner with the capability to preload co-ordinates from any location through REFLEX HUB. It also has enhanced accuracy with a roll and pitch range of +/- 90 degrees and does not have the attitude limitations seen on lower quality instruments. REFLEX TN14 Gyrocompass 12 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtImdex GRoup At A GLAnCe What are Data Management Solutions? REFLEX HUB REFLEX HUB delivers a new way of operating for the drilling, exploration, production and mining services sectors. It provides a complete solution for the collection, storage and reporting of data and critical operational information – directly from site to the office, with real time visibility. Data is automatically transmitted, whenever an internet connection is available, directly to REFLEX HUB’s secure, central database. Customers can then access their data via a web browser from any location worldwide. Customised dashboards provide real time information and critical statistics for a single site or an entire business. The unique paperless system makes collecting field data easy and accurate using any iPad, Android or Windows Mobile device to digitally record and validate data as it is entered. It also delivers significant operational efficiencies through highly efficient workflows and reduces the cost and time associated with managing valuable and complex data sets. REFLEX HUB 13 2014 Imdex LImIted AnnuAL RepoRtImdex GRoup At A GLAnCe IMDEX GROUP AT A G LA N CE Global Business Imdex is a global business operating in diversified geographical markets. The Company has successfully established operations in all key mining and exploration regions throughout Asia Pacific, Africa, Europe and the Americas. Imdex is also growing its business in the principal oil and gas regions within Africa, Asia Pacific, Europe and the Middle East. Vancouver, Canada Calgary, Canada Timmins, Canada San Luis Obispo, USA Salt Lake City, USA NORTH AMERICA Corpus Christi, USA Torreon, Mexico EUROPE East Sussex, UK Amsterdam, Netherlands Bremen, Germany Rastede, Germany Romania New Delhi, India Dubai (DMCC), UAE ASIA PACIFIC Ecuador Lima, Peru SOUTH AMERICA Belo Horizonte, Brazil Itajai S.C., Brazil Santiago, Chile Mendoza, Argentina Accra, Ghana AFRICA Singapore Jakarta Johannesburg, South Africa Newman, WA Kalgoorlie, WA Perth, WA Adelaide, SA Townsville, QLD Roma, QLD Brisbane, QLD Mudgee, NSW 14 14 Imdex’s Regional Offices New Operational and Service Facility Opened in FY14 VES JV Office 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtImdex GRoup At A GLAnCe IMDEX GRO UP AT A GL ANCE Imdex’s global presence and comprehensive distribution network allows it to provide a unique service to customers and allows greater access to international mineral exploration and oil and gas markets. During FY14 the Company established a new operational and service facility in Belo Horizonte, Brazil. Vancouver, Canada Calgary, Canada Timmins, Canada San Luis Obispo, USA Salt Lake City, USA NORTH AMERICA Corpus Christi, USA Torreon, Mexico EUROPE Vancouver, Canada East Sussex, UK Calgary, Canada Bremen, Germany Timmins, Canada Amsterdam, Netherlands San Luis Obispo, USA Rastede, Germany Salt Lake City, USA Romania NORTH AMERICA Corpus Christi, USA New Delhi, India Torreon, Mexico Dubai (DMCC), UAE ASIA PACIFIC EUROPE East Sussex, UK Amsterdam, Netherlands Bremen, Germany Rastede, Germany Romania New Delhi, India Dubai (DMCC), UAE ASIA PACIFIC Ecuador Lima, Peru Accra, Ghana Ecuador Singapore AFRICA Jakarta Accra, Ghana AFRICA Singapore Jakarta SOUTH AMERICA Belo Horizonte, Brazil Itajai S.C., Brazil Santiago, Chile Mendoza, Argentina SOUTH AMERICA Johannesburg, South Africa Santiago, Chile Kalgoorlie, WA Itajai S.C., Brazil Perth, WA Adelaide, SA Mendoza, Argentina Lima, Peru Newman, WA Townsville, QLD Belo Horizonte, Brazil Roma, QLD Brisbane, QLD Mudgee, NSW Johannesburg, South Africa Newman, WA Kalgoorlie, WA Perth, WA Adelaide, SA Townsville, QLD Roma, QLD Brisbane, QLD Mudgee, NSW Imdex’s Regional Offices New Operational and Service Facility Opened in FY14 VES JV Office Imdex’s Regional Offices New Operational and Service Facility Opened in FY14 VES JV Office 15 15 2014 Imdex LImIted AnnuAL RepoRtImdex GRoup At A GLAnCe FY14 S NAPSHOT Strategy for Increasing Shareholder Value • Growing Imdex’s global business • Expanding into new markets, particularly oil and gas • Maintaining product leadership through investment in product development • • Increasing rental based revenue Achieving operational efficiencies. ON TRACK WITH STRATEGY END MARKET Minerals Oil and Gas END MARKET Asia Pacific Other Regions RENT/SELL MIX Sales Rentals PAST FY14 100% 39% 61% 100% 56% 44% 100% 34% 66% Note: All numbers based on actual or anticipated combined revenue 16 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRt FY 14 S NAPS HOT FY14 Growth Initiatives & Performance FY14 GROWTH INITIATIVES FY14 PERFORMANCE Strong cost discipline and prudent working capital management. $15.7 million of working capital was released due to improvements in stock and debtor levels. Continuing to increase Imdex’s market share in previously under-penetrated regions. Imdex successfully increased its market share in the Americas. Utilising Imdex’s specialist technical expertise and product development capabilities. During FY14 Imdex successfully commercialised a number of new AMC drilling fluids and REFLEX technologies to the minerals market. Expanding Imdex’s data solution offerings to new and existing customers globally. Imdex continued to market REFLEX HUB and successfully expanded its customer base to include a greater number of blue chip resource companies. Investing further and growing Imdex’s oil and gas market presence to increase return on investment in this Division. Imdex continued to invest in equipment, working capital and talented personnel, including a new CEO of AMC Oil & Gas, to support ongoing growth. Capitalising on investment in Imdex’s oil and gas equipment and SRUs. AMC Oil & Gas achieved record revenue and a 16% increase on FY13 reflecting the ongoing development of the Division. Continued support of customers as they seek to increase efficiencies and reduce costs. Imdex successfully commercialised new technologies, which are designed to enhance the efficiency of customers’ operations including its underground and heli-portable SRUs and REFLEX technologies. 17 17 2014 Imdex LImIted AnnuAL RepoRt FY14 S NAPSHOT FY14 Market Overview • • Subdued activity within the global minerals industry due to the cyclical slowdown • Growth available in under-penetrated mining regions • Low utilisation of REFLEX rental fleet in line with challenging conditions within the minerals industry • Minerals sector rig utilisation rates of approximately 25% • • • Signs of increasing activity within the minerals industry during the 4Q14 Imdex’s Minerals revenue increased month-on- month from 3Q14 Positive customer feedback regarding the benefits of REFLEX’s new technologies Relatively low commodity prices • Utilisation of REFLEX rental feel increased week-on- week during 4Q14 – up 21% on 3Q14 • • REFLEX HUB throughput and revenue increased during 4Q14 Positive traction with SRUs and a growing number on hire • Continuing strong long-term growth potential within the conventional and unconventional oil and gas industries globally • Record revenue generated by Oil & Gas Division. Operational Highlights & Challenges HIGHLIGHTS • Continued product development during the minerals sector downturn producing an exciting pipeline of AMC fluids and REFLEX technologies; • Growing industry demand and continued positive momentum with solids removal units (SRUs) – particularly in the Americas; • Development of Imdex’s underground and heli- portable SRUs and positive customer feedback from field trials; • • Increased throughput and continuing positive feedback with the marketing of REFLEX HUB; Expansion of the Company’s customer base, together with greater exposure to resource companies and the production phase of the mining cycle; • Commercialisation of new REFLEX technologies – enhancing REFLEX’s leading product range; • • Adoption of REFLEX HUB by blue chip resource companies and mining service companies; Increasing exposure and capabilities within non mining applications, including HDD and waterwell markets; • • Record revenue levels for Oil & Gas, reflecting ongoing development of the Division; Further investment in equipment, working capital and talented personnel to support ongoing growth; • Continuing strong revenue and EBITDA performance by the VES joint venture; • • • Imdex Technology successfully relocated from Germany to California in the USA; Appointment of a new CEO of AMC Oil & Gas; and Investment in InFlex (previously known as the Target INS) resulting in the most accurate and fastest downhole survey instrument in the oil and gas industry. CHALLENGES • The subdued minerals market deflated the sector’s interest in adopting new technologies; • Managing down working capital, particularly stock levels, in a slow minerals market; • A product contamination incident - AMC Oil & Gas; and • Managing costs ahead of revenue growth in AMC Oil & Gas. 18 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRt FY 14 S NAPS HOT Group Financial Performance • Statutory revenue down 21% to $183.5 million (FY13: $232.8 million); - - 31% decline in Minerals Division revenue reflecting the cyclical downturn in the minerals sector 19% increase in revenue in Oil & Gas Division • Combined revenue (excluding the interest) down 18% to $204.6 million (FY13: $249.4 million); • Underlying EBITA of $0.5 million1 (FY13: $35.2 million) reflecting the higher fixed cost base and continued investment in product development through the cycle; • Gross margins largely maintained; • EBITA loss of $2.8 million (FY13: $35.2 million profit), impacted by a number of one-off balance sheet adjustments and non-recurring items; • Net profit after tax (NPAT) a loss of $5.3 million (FY13: $19.4 million profit) • Net assets of $176.9 million (30 June 2013: $188.5 million); • • • Positive operating cash-flow of $2.9 million (FY13: $39.0 million); Reduced gearing with net debt / capital of 18.5% (30 June 2013: 22%); and Positive signs of improvement in the minerals sector evident in 4Q14. 1 Adjusted to exclude one-off items (totalling a net loss of $3.2 million) as follows: $24.1 million profit on the partial sale of Imdex’s shareholding in Sino Gas & Energy Holdings (ASX: SEH); $18.2 million of non-cash balance sheet adjustments ($14.4 million of asset write downs and $3.8 million of closure costs); and $9.1 million of costs and provisions relating to the product containment incident as reported on 13 March 2014. COMBINED REVENUE ($m) NORMALISED EBITA ($m) 278.9 249.4 87% 73% 205.3 87% Minerals Oil and Gas 137.0 134.3 80% 83% 20% 17% 13% 13% 27% 204.6 61% 39% 75.2 48.1 35.2 24.5 21.3 0.5 FY09 FY10 FY11 FY12 FY13 FY14 FY09 FY10 FY11 FY12 FY13 FY14 *Includes share of VES JV revenue $21.1m (FY13: $16.6m) *Includes 30% equity accounted VES International JV NPAT. Strong EBITDA margins in the JV of 37% (FY13 31%). Imdex share of result impacted by amortisation, depreciation and tax charges. 19 2014 Imdex LImIted AnnuAL RepoRt FY14 S NAPSHOT Minerals Division Imdex’s Minerals Division generated $125.3 million and contributed 61% of our combined full year revenue. This result represents a 31% decrease on the previous corresponding period (FY13: $182.7 million). DIVISIONAL REVENUE Revenue ($m) Europe (9%) Africa (16%) Americas (33%) Asia Pacific (42%) 108.8 111.3 241.7 177.7 182.7 125.3 FY09 FY10 FY11 FY12 FY13 FY14 DIVERSIFIED REVENUE BASE (Minerals Revenue) CUSTOMER PROJECT PHASE COMMODITY Junior 19% Intermediate/ Major 81% Non Mining 10% Exploration 21% Production 23% Development 46% Gold 39% Others 27% Iron 13% Copper 21% • • • 60% from gold and copper 70% from development and production with growing proportion from non mining 81% from major and intermediate customers Customer Type defined as annual revenue: Major – Greater than US$500m Intermediate – Greater than US$50m Junior – Less than US$50m Drilling Phase defined as follows: Exploration - Pre-inferred resource/greenfields Development - Post-inferred resource moving towards indicated and measured resource Production - In-Pit / Underground drilling , mine life extension drilling programmes, resource delineation drilling, grade control, dewatering, etc. Non-Mining - Drilling in the Construction/Civil Industry, Non-Mining Waterwell and Non-Mining HDD. 20 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRt FY 14 S NAPS HOT Oil & Gas Division Imdex’s Oil & Gas Division generated $79.3 million revenue in FY14 and contributed 39% of the Company’s combined full year revenue. This result represents a 19% increase on the previous corresponding period (FY13: $66.7 million). DIVISIONAL REVENUE Combined Revenue* ($m) VES International JV revenue AMC Oil & Gas 66.7 79.2 37.2 28.0 23.0 27.4 FY09 FY10 FY11 FY12 FY13 FY14 *Includes 30% of VES International JV revenue AMC’s Solids Removal Unit (SRU), Austria 21 2014 Imdex LImIted AnnuAL RepoRt AMC Minerals conducting a viscosity test 22 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtImdex GRoup At A GLAnCe FY 14 S NAPS HOT Summary Financial Highlights for the Year Ended 30 June 2014 (Audited Results) Consolidated 2012 $’000 2013 $’000 2014 $’000 13-14 Var % Revenue from continuing operations (excluding interest income) 269,563 232,791 183,485 Operating Profit before Interest, Tax, Depreciation & Amortisation Depreciation 81,960 (6,761) 42,910 (7,728) 8,035 (7,575) Earnings / (Loss) before Interest, Tax & Amortisation (EBITA) 75,199 35,182 460 0.3% 27.9% 15.1% (5,957) (3,364) (1,469) (21%) (81%) (2%) (99%) (98%) (56%) EBITA margin Amortisation Earnings / (Loss) before Interest & Tax (EBIT) 69,242 31,818 (1,009) (103%) Net interest expense Net profit before tax Income tax expense (1,742) (3,308) (2,811) (15%) 67,500 28,510 (3,820) (113%) (21,723) (9,127) 1,785 (120%) Net Profit / (Loss) after Tax (before non-operational items) 45,777 19,383 (2,035) (110%) Non-operational items Gain on the disposal of shares in Sino Gas and Energy Holdings Ltd (SEH) Office and business closure costs Write down of assets Product containment costs - - - - - - - - 24,094 (3,837) (14,419) (9,080) - - - - Net Profit / (Loss) for the Year after Tax 45,777 19,383 (5,277) (127%) Basic earnings / (loss) per share from continuing operations (cents) 22.32 ¢ 9 .24 ¢ ( 2.50 ¢) - Net Cash provided by Operating Activities Cash on hand Net Assets 56,939 11,232 38,970 2,914 (93%) 9,979 10,070 168,066 188,452 176,922 Total Borrowings (incl deferred acquisition payments) 59,429 63,986 50,141 Net Tangible Assets per Share 51.35 ¢ 57.52 ¢ 54.06 ¢ 1% (6%) (22%) (6%) 23 2014 Imdex LImIted AnnuAL RepoRt CORPORAT E G OVER N ANCE Corporate Governance Imdex’s Board and Leadership Team strive to achieve best practice in all aspects of corporate governance. The Company’s practices and disclosures are underpinned by the Australian Securities Exchange Corporate Governance Council recommendations. Further information relating to Imdex’s Corporate Governance during FY14 can be found on pages 69 to 73 of this report. 24 24 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRt BOARD O F DI RECTO RS 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 50 to 60 of this report. 25 25 2014 Imdex LImIted AnnuAL RepoRtImdex GRoup At A GLAnCe BOARD O F DI R ECTO RS mr ross Kelly am Be (honS) FaIcd non-executive chairman mr Bernard ridgeway B.Bus (acctG) aca managing director Age 76 years Age 60 years • • Appointed to the Board 23 May 2000 Bachelor of Business and Qualified Chartered Accountant • Member of the Institute of Chartered Accountants Australia and the Australian Institute of Company Directors • Non-Executive Director of Sino Gas and Energy Holdings Limited • Over 28 years’ experience with public and private companies as a business owner, Director and Manager. • • • • Appointed to the Board 14 January 2004 Appointed as Chairman 15 October 2009 Bachelor of Electrical Engineering with Honours Fellow of the Australian Institute of Company Directors • Consultant to a number of major Australian companies in the mining, offshore gas, oil refining, steel, construction and heavy process industries • • • Previously advisor to the Western Australian Government on water policy and reform Previously Councillor of the Australian Institute of Company Directors and member of the Advisory Board of the Curtin University Graduate School of Business Previously Chairman 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. 26 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRt BOARD O F DI RECTO RS mr magnus lemmel B.a. non-executive director mr Kevin dundo B. comm, llB non-executive director ms Betsy donaghey, B.S. civil engineering, m.S. operations research non-executive director Age 75 years Age 62 years Age 56 years • Appointed to the Board 19 October 2006 • Management consultant based in Brussels, Belgium, involved in small business development in Sweden. Former Chairman of FiberformVindic Holding AB, previously the largest Imdex shareholder • Previously Senior Vice-President of Ericsson Telecommunications, Chief Executive Officer of the Federation of Swedish Industries and Director General for Enterprise Policy of the European Commission. • • Appointed to the Board 14 January 2004 Bachelor of Commerce and Bachelor of Laws • Member of the Law Society of Western Australia, Law Council of Western Australia, Australian Institute of Company Directors and a Fellow of the Australian Society of Certified Practicing Accountants • Practising lawyer, specialising in commercial and corporate law and in particular, mergers and acquisitions, with experience in the mining services and financial services industries • Director of Red 5 Limited and Synergy Plus Limited • Previously a Director of ORM Limited. • • • 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 9 years with Woodside Energy • Non-Executive Director of Australian Renewable Energy Agency • Previously Non-Executive Director of St Barbara Limited. 27 2014 Imdex LImIted AnnuAL RepoRt AMC Oil & Gas Environmental Technology, Mixing Tank 28 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtImdex GRoup At A GLAnCe CH AI RMAN’S REP ORT Chairman’s Report Dear Shareholders, LONG-TERM STRATEGY As anticipated, the 2014 financial year (FY14) was challenging for Imdex. The Minerals Division was adversely affected by the cyclical downturn, where activity levels continued to decline throughout most of FY14. Imdex’s long term strategy is designed to facilitate growth and reduce the Company’s exposure to cyclical variations, which are characteristic of the mining and minerals exploration industries. Activity levels within the energy sector remained robust and Imdex’s Oil & Gas Division achieved revenue growth of 16% during the year. Unfortunately the performance of AMC Oil & Gas was negatively impacted during the fourth quarter (4Q14) by the product containment incident, which was announced to the market on 13 March 2014. The appropriateness and importance of such a strategy was highlighted by the minerals industry downturn and its negative impact on the Company’s FY14 results. I am therefore pleased to report Imdex’s balance sheet, despite the downturn, allowed the Company to continue to invest in its diversification strategy by: On a more positive note, encouraging signs of improvement in the minerals industry were evident in 4Q14. The number of instruments and solids removal units (SRUs) on hire increased month-on-month, which saw the Minerals Divisional revenue increase in step – suggesting a cyclical recovery is underway. Imdex’s significant investment in its Oil & Gas Division also started to yield rewards. AMC Oil & Gas was cash positive in 4Q14 and is continuing to grow. Furthermore, Imdex’s suite of new high-tech products is gaining strong market interest and the Company is confident that, over time, they will be widely accepted by the industry. FY14 PERFORMANCE SUMMARY Over the twelve months ended 30 June 2014, Imdex achieved: • • • • A total combined revenue of $204.6 million – down 18% on last year’s figure of $249.4 million; An EBITA before one-off balance sheet adjustments and non-recurring items of $0.5 million (FY13 – $35.2 million); An EBITA loss of $2.8 million (FY 13 – a profit of $35.2 million) after adjustments and non- recurring items; and A net loss after tax of $5.3 million (FY13 – a profit of $19.4 million). Further details regarding Imdex’s financial performance, including the one-off balance sheet adjustments and non- recurring items mentioned above, are provided in the Managing Director’s Report on pages 32 to 34. • • Expanding geographically; Expanding into new markets, particularly oil & gas; and • Developing new and innovative technologies to further penetrate existing and new markets. expanding geographically Imdex made its first international acquisition in 2005. Since that time the Company has pursued a considered international growth strategy with the view to supporting its international mining customers, irrespective of where they operate; and developing or acquiring leading technology to enhance the operations of its customers. As a result of this international growth strategy, approximately 60% of Imdex’s revenue is now generated outside Australia. The Company continues to focus on this element of its strategy and accordingly, its international business is expected to grow further. expanding into new markets, particularly oil & gas As I mentioned earlier, Imdex is successfully building its oil and gas business and the Company is confident both revenue and profit will increase in FY15 and beyond. Other areas for market expansion include the horizontal directional drilling and water well drilling industries. During FY14 customers, particularly in the Americas, started to embrace Imdex’s drilling products and services – this trend is expected to accelerate and will further diversify the Company’s revenue stream. 29 2014 Imdex LImIted AnnuAL RepoRt CHAIRMA N’S RE PORT new and innovative technologies Innovative technologies capable of producing step change improvements in customers’ operations are now part of Imdex’s DNA and are critical to the Company’s future success. The acquisition of REFLEX and Chardec in 2006 commenced a transformation that has seen Imdex move from being a provider of drilling fluids and downhole instrumentation to a company facilitating integrated solutions including: simple-to-use data acquisition; data management and data analysis. The combination of Imdex’s traditional product offering, together with its new technologies and services, has the potential to transform a significant part of the minerals industry. During FY15 the Company will continue down the path of enhancing its integrated range of technologies. Imdex’s recent acquisition of 2iC Australia Pty Ltd represents another strategic step in this journey. Further details regarding this acquisition are also outlined in the Managing Director’s report. FY15 will also see Imdex commercialise another group of technically advanced products to the market, thereby further differentiating itself from its competitors; increasing the revenue available from existing customers; and expanding its customer base. CORPORATE GOVERNANCE Your Board strives to achieve best practice in all aspects of corporate governance. It also applies insight, industry experience and commercial acumen to its deliberations. Information pertaining to corporate governance within Imdex is provided on page 69 of this report. LOOKING FORWARD TO FY15 While the Company remains cautious, the outlook for the minerals industry is optimistic. At the macroeconomic level the: • Chinese economy is expected to maintain its current rate of growth; • US economy is predicted to experience modest growth; and • Japanese and European economies should be relatively flat or grow marginally. In Australia, the mining industry, (which is transitioning from a phase of strong development to one of higher production), will continue to be challenged by lower commodity prices and a relatively high exchange rate – hence considerations related to cost reduction and production efficiency will remain paramount. 30 At an industry level, the performance of our Minerals Division in 4Q14, coupled with a 21% increase in the number of REFLEX instruments on hire (from 3Q14), an increasing number of SRUs on hire and strengthening demand for the REFLEX HUB, indicates the market is improving and should continue to improve. As mentioned previously, the oil and gas sector remains robust and continues to offer substantial year-on-year growth opportunities for Imdex’s Oil & Gas Division. During calendar 2014, the global markets for drilling fluids, completion fluids and solids control and waste management are expected to grow by between 15% and 20%. Very small shares of each of these multibillion dollar markets represent significant opportunities for the Company. Summing up, Imdex is in a good position to capitalise on the opportunities that exist within its core markets and therefore, the Company predicts improved results in FY15. STRONG MANAGEMENT TEAM Imdex continues to have a dedicated, talented workforce led by an exceptional executive team that has been strengthened by the addition of new Chief Executives for AMC Minerals and AMC Oil and Gas. Through the application of their experience and leadership skills, they have already had a significant positive impact on the operations for which they are responsible. I would also like to recognise and thank our Managing Director, Bernie Ridgeway and his executive team for their dedication and hard work. The effective way in which they handled the year’s significant challenges, while continuing to work towards the achievement of the Company’s strategic objectives, should be acknowledged. I also offer my sincere thanks to all of Imdex’s employees globally for their commitment and for what they achieved throughout the year. To my fellow Board Members I once again say thank you for your significant contributions. I look forward to continuing to work with you all during FY15. Finally on behalf of Imdex’s Board and all of its employees I say to our customers and shareholders thank you for your loyalty and ongoing support. Yours Faithfully ross Kelly am Be (honS) FaIcd chairman 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRt AMC Minerals drilling fluids on site, Turkey 31 2014 Imdex LImIted AnnuAL RepoRtImdex GRoup At A GLAnCe MANAGING D IRE CTOR S’ RE PO RT Managing Director’s Report Dear Shareholders, I am pleased to present Imdex’s full year report for the 2014 financial year (FY14). Imdex’s performance over the 2014 financial year was adversely impacted by subdued activity within the minerals sector, underscoring the importance of our diversification strategies. It is pleasing to note our Oil & Gas Division generated record revenue for the year in line with these strategies. Unfortunately the Division was not profitable due to the product containment incident that impacted revenue and earnings in the 4Q14. Our Oil & Gas Division was cash positive in July 2014 and we remain confident the Division will make a meaningful contribution to the Company’s earnings in the future. As we move into FY15, we are seeing evidence that the minerals market is improving, with month-on-month increases in Minerals revenue during the 4Q14. REFLEX instruments on hire are increasing, up 21% from 3Q14 and the number of solids removals units on hire is also rising. Our strategy of continuing to invest through the cycle means we are well positioned to benefit from an upturn in the minerals sector. FY14 FINANCIAL SUMMARY Following is a summary of Imdex’s FY14 performance: • Statutory revenue down 21% to $183.5 million (FY13: $232.8 million) - 31% decline in Minerals Division revenue reflecting the cyclical downturn in minerals sector - 19% increase in revenue in Oil & Gas Division • Combined revenue (excluding interest) down 18% to $204.6 million (FY13: $249.4 million); • Underlying EBITA of $0.5 million1(FY13: $35.2 million) reflecting the higher fixed cost base and continued investment in product development through the cycle; • Gross margins largely maintained; • EBITA loss of $2.8 million (FY13: $35.2 million profit), impacted by a number of one-off balance sheet adjustments and non-recurring items; • Net profit after tax (NPAT) a loss of $5.3 million (FY13: $19.4 million profit); • Net assets of $176.9 million (30 June 2013: $188.5 million); 32 • • • Positive operating cash-flow of $2.9 million (FY13: $39.0 million); Reduced gearing with net debt / capital of 18.5% (30 June 2013: 22%); and Positive signs of improvement in the minerals sector evident in 4Q14. 1Adjusted to exclude one-off items (totalling a net loss of $3.2 million) as follows: $24.1 million profit on the partial sale of Imdex’s shareholding in Sino Gas & Energy Holdings (ASX: SEH); $18.2 million of non-cash balance sheet adjustments ($14.4 million of asset write downs and $3.8 million of closure costs); and $9.1 million of costs and provisions relating to the product containment incident as reported on 13 March 2014. one-off balance sheet adjustments and non- recurring items Our FY14 results were negatively impacted by a number of one-off balance sheet adjustments and non-recurring items as noted above. Asset write-downs and closure costs totalled $18.2 million, largely relating to: the closure of AMC Oil & Gas Kazakhstan; goodwill impairment related to AMC Minerals in South America; the write off of capitalized R&D costs related to the MEMS Gyro development and debtors and stock provisioning. As announced to the market on 13 March 2014, Imdex’s subsidiary Australian Mud Company Pty Ltd, a global drilling fluids provider, undertook precautionary measures for the containment of an imported product used by a limited number of customers in drilling operations within Queensland, Australia. The measures were taken following notification that certain batches were contaminated with asbestos. The containment incident has subsequently resulted in costs and provisions totalling $9.1 million being brought to account in FY14. Imdex continues to pursue the recovery of costs associated with this incident. During FY14, we partially disposed of our shareholding in Sino Gas & Energy Holdings (SEH) – a non-core asset – resulting in a profit on disposal of $24.1 million. The remaining share of our investment in SEH was divested in July 2014 resulting in a further profit on disposal of $14.2 million, which will be recognised in FY15. The impact of these one-off balance sheet adjustments and non-recurring items to our FY14 financial results was a net loss of $3.2 million. 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRt MANAGING DI RECTO RS’ RE PO RT MINERALS DIVISION OIL & GAS DIVISION Our Minerals Division generated $125.3 million and contributed 61% of our combined full year revenue. This result represents a 31% decrease on the previous corresponding period (FY13: $182.7 million). Our Oil & Gas Division generated $79.3 million revenue in FY14, and contributed 39% of our Company’s combined full year revenue. This result represents a 19% increase on the previous corresponding period (FY13: $66.7 million). Operational EBITA was a loss of $21.2 million (FY13: loss of $4.1 million) resulting from one-off balance sheet adjustments totalling $7.8 million and costs associated with product containment as outlined above which totalled $9.1 million. The Division’s underlying EBITA was a loss of $4.3 million. This loss was principally due to the product containment incident and subsequent loss of revenue and profit in 4Q14, together with underperformance by AMC Germany. It is important to note AMC Oil & Gas in Europe and the Middle East were both cash positive in 4Q14 and profitable in July 2014. AMC Oil & Gas in Asia Pacific was also profitable in July 2014. Key operating highlights and achievements • • Record revenue levels for Oil & Gas, reflecting ongoing development of the Division; Further investment in equipment, working capital and talented personnel to support ongoing growth; • Continuing strong revenue and EBITDA performance by the VES joint venture; • • • Imdex Technology successfully relocated from Germany to California in the USA; Appointment of a new CEO of AMC Oil & Gas; and Investment in InFlex (previously known as the Target INS) resulting in the most accurate and fastest downhole survey instrument in the oil and gas industry. Operational EBITA decreased 96% to $1.6 million (FY13: $43.2 million). As expected, the decline in revenue and EBITA reflects the subdued activity levels within the minerals market, which persisted throughout the majority of FY14. Prior to asset write-downs and closure costs mentioned earlier, EBITA was a profit of $11.6 million. Notwithstanding challenging market conditions, our Minerals Division made significant progress with its technology development, successfully strengthened its operations and diversified its customer base. Key operating highlights and achievements Highlights and achievements for our Minerals Division throughout FY14 included: • Continued product development during the minerals sector downturn producing an exciting pipeline of AMC drilling fluids and REFLEX technologies; • Growing industry demand and continued positive momentum with AMC’s Solids Removal Units (SRUs) – particularly in the Americas; • Development of Underground and Heli-portable SRUs and positive customer feedback from field trials; • • Increased throughput and continuing positive feedback with the marketing of REFLEX HUB; Expansion of our customer base, together with greater exposure to resource companies and the production phase of the mining cycle; • Commercialisation of new REFLEX technologies – enhancing REFLEX’s leading product range; • • Adoption of REFLEX HUB by blue chip resource companies and mining service companies; and Increasing exposure and capabilities within non mining applications, including HDD and waterwell markets. number of instruments on rent N 08 JU D E C 08 JU N 09 D E C 09 JU N 10 D E C 10 JU N 11 D E C 11 JU N 12 D E C 12 JU N 13 D E C 13 JU N 14 • Monthly reductions from July 12 peak to December 13 reflecting cyclical slowdown • Up month-on-month for last 3 months, reflecting bottom of cycle • The typical seasonal shut down is throughout December and January 33 2014 Imdex LImIted AnnuAL RepoRt MANAGING D IRE CTOR S’ RE PO RT OUTLOOK The outlook for our minerals markets in FY15 is encouraging. Fourth quarter performance of the Minerals Division provides evidence of improving market conditions and provides confidence that market activity will continue to strengthen over the next 12 months. Equally, it is encouraging to note the 21% increase in the number of REFLEX rental instruments on hire in 4Q14, coupled with an increasing number of SRUs on hire and improving demand for REFLEX HUB. The expected increase in activity levels is largely due to the return of some brown field expenditure and recent capital raisings by junior exploration companies, with some of these funds being converted into metres drilled. Assets divested by the major companies are also being acquired by smaller companies, with Imdex well positioned to benefit. Growing customer interest in our new technologies provides an attractive platform for further sustainable revenue growth through FY15 and beyond, with customers focused on maximizing the efficiency and productivity of their operations. Imdex’s technologies enable customers to achieve this and provide our Company with a growing sustainable annuity revenue stream. Activity within the energy sector remains robust and continues to offer substantial year-on-year growth opportunities for Imdex’s Oil and Gas Division. As noted during the fourth quarter, the global drilling and completion fluids market is expected to increase by more than 20% to US$13.5 billion during calendar year 2014, and the solids control and waste management market is forecast to grow by more than 15% to US$4.3 billion. A small share of this market will make a significant contribution to our growth. We have historically continued to invest in growth and diversification strategies through previous cycles, which have positioned the business well for long-term growth. At the same time, our Company maintains a disciplined approach to investments in new products and technologies. We are managing our inventory and working capital with care and will continue to manage costs in a measured and disciplined manner. Moving into FY15, we are particularly encouraged by improving minerals market activity at the end of FY14 and into early FY15 as follows: • Month-on-month increases in Minerals revenue during 4Q14; • • REFLEX rental instruments on hire are increasing, up 21% from 3Q14; and SRUs on hire increasing. We are in a strong position to capitalise on a number of opportunities within its core markets and forecasts improved results for FY15. 34 KEY AREAS OF FOCUS AND GROWTH INITIATIVES FOR FY15 With our technologies and services supporting customers to increase the productivity and efficiency of their operations, during FY15 we will focus on the following growth initiatives: • Investing in our oil and gas business to accelerate the Division’s growth; • Marketing new technologies to new and existing customers globally; • • • • • • Increasing annuity revenue streams via REFLEX HUB; Supporting customers to increase the productivity and efficiency of their operations; Increasing exposure and capabilities within non mining applications, including HDD and waterwell markets; Leveraging our specialist expertise and product development capabilities; Increasing market share in previously underpenetrated regions; and Identification of strategic market opportunities and acquisitions. Accordingly, we recently made the $3 million equity acquisition of 2iC Australia Pty Ltd, a developer and supplier of patented exploration, production and technical downhole products. 2iC’s portfolio of products and mechanical engineering expertise will complement REFLEX’s capabilities and further enhance its leading range of technologies. The acquisition will position REFLEX as the single provider of the most complete range of core orientation solutions, for mining and exploration, globally. We are becoming a stronger, more diversified business to better meet the challenges presented by downturns in the minerals sector. At the same time, our Company is successfully growing its business in the oil and gas sector and is continuing to develop its innovative products and leading technologies. We are well on our way to becoming the industry standard in providing innovative, simple- to-use technologies, which improve the productivity, efficiency and environmental impact of customers’ day-to-day operations. I would like to thank our Executive Management Team for their leadership and dedication to our Company throughout a challenging year. I would also like to extend my thanks to all of our global team for their hard work, innovation and expertise – it is a pleasure working with you all and I look forward with enthusiasm for what we can achieve during FY15. I would also like to thank Imdex’s valued customers and shareholders for their ongoing support of our Company. Yours Faithfully Bernie ridgeway managing director 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRt O PERATI ONAL OVERVIEW Executive Management Team mr. paul evans mr. mark parsons chief Financial officer and company Secretary chief executive, amc minerals • Chartered Accountant • Fellow of the Institute of Chartered Accountants in Australia • Chief Financial Officer and Company Secretary since 17 October 2006 • • Extensive experience in commercial, general management and financial roles Industry experience covering the media, manufacturing, mining services and telecommunications industries. • • 34 years within the minerals and oil and gas industries with Halliburton and BHP Extensive management and leadership experience - particular strengths include: setting strategy, execution, cost management, business development and company mergers • Diverse geographical experience including Eurasia, South East Asia, China and Australia. mr. derek loughlin chief executive, reFlex mr. Sven maikranz chief executive, amc oil & Gas • • • 28 years experience within the drilling industry 8 years in executive management positions at Imdex 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. • • • • 17 years within the oil and gas industry, including 11 years with MI-Swaco and Schlumberger Extensive management and leadership experience with a focus on driving profitability, business turnarounds and start-ups 14 years on international assignments in Asia, Europe and the USA Executive Masters of Business. Masters of Business and Masters in Chemistry. 35 2014 Imdex LImIted AnnuAL RepoRt OPERATIONA L OVERV IEW Global Team Imdex values talented people who are committed to the Company’s guiding principles and expected behaviours. Imdex’s Recruitment & Selection Policy also ensures suitably qualified and experienced employees are engaged to meet business needs. Key principles of the Policy include: • Recruitment of the person whose competencies best match requirements of the role; • Compliance with Equal Employment Opportunity Legislation; • Development of existing employees and where possible, provide employees with career opportunities; and • Support of local industry, communities and talent through the recruitment of local nationals in the first instance, where ever possible. Imdex also adheres to its Equal Employment Opportunity Policy, whereby all decisions affecting employment and career development, including those associated with hiring, training, promotion, transfer and general working conditions are based on the principle of merit. Discrimination in any form is considered an unacceptable practice, which is contrary to the spirit and intent of this policy. WORKFORCE PROFILE As at 30 June 2014, Imdex employed 567 people globally and engaged 26 contractors. The number of employees reduced by 6% from the previous year (604), principally due to a heightened focus on productivity and cost savings in line with the downturn of the minerals market. During the year Imdex took advantage of lower levels of competition for talent in the marketplace by continuing to invest in high-calibre personnel – particularly in key management and strategic growth positions. Retaining the knowledge, skills and experience of personnel remains a priority. The Company’s lower than global industry average of voluntary turnover (13%) demonstrates Imdex’s employees are committed to the Company and its future. 36 employees by region FY14 Employees by Region FY2014 Employees by Region FY2014 Employees by Region FY2014 Africa (49) Asia Pacific (24) Africa (49) Africa (49) Africa (49) Australia (228) Asia Pacific (24) Asia Pacific (24) Asia Pacific (24) Central Asia (22) Australia (228) Australia (228) Europe (95) Australia (228) Central Asia (22) Middle East (22) Central Asia (22) Central Asia (22) Europe (95) North America (75) Europe (95) Europe (95) Middle East (22) South America (63) Middle East (22) Middle East (22) North America (75) Total Employees 567 North America (75) North America (75) South America (63) South America (63) South America (63) Total Employees 567 Total Employees 567 Total Employees 567 Employees by Region FY2013 employees by region FY13 Employees by Region FY2013 Employees by Region FY2014 Employees by Region FY2013 Africa (60) Asia Pacific (21) Africa (60) Africa (60) Australia (234) Africa (49) Asia Pacific (21) Central Asia (46) Asia Pacific (21) Asia Pacific (24) Africa (60) Australia (234) Europe (102) Australia (234) Australia (228) Asia Pacific (21) Central Asia (46) Middle East (8) Central Asia (46) Central Asia (22) Australia (234) Europe (102) North America (66) Europe (102) Europe (95) Middle East (8) Central Asia (46) South America (67) Middle East (8) Middle East (22) North America (66) Total Employees 604 Europe (102) North America (66) North America (75) South America (67) Middle East (8) South America (67) South America (63) Total Employees 604 North America (66) Total Employees 604 Total Employees 567 South America (67) Total Employees 604 Gender Diversity FY14 Gender Diversity FY14 Employees by Region FY2013 Gender Diversity FY14 Africa (60) Asia Pacific (21) Female 23% (129 employees) Australia (234) Male 77% (438 employees) Central Asia (46) Female 23% (129 employees) Total Employees 567 Male 77% (438 employees) Europe (102) Total Employees 567 Middle East (8) Gender Diversity FY13 Gender Diversity FY13 North America (66) Female 23% (129 employees) South America (67) Male 77% (438 employees) Total Employees 604 Total Employees 567 Gender Diversity FY13 Gender Diversity FY14 Female 24% (142 employees) Male 76% (462 employees) Female 24% (142 employees) Male 76% (462 employees) Female 23% (129 employees) Female 24% (142 employees) Male 77% (438 employees) Male 76% (462 employees) Total Employees 567 Gender Diversity FY13 Female 24% (142 employees) Male 76% (462 employees) Total Number of Contractors Total Number of Contractors FY2012 (28) FY2013 (31) FY2012 (28) FY2013 (31) Total Number of Contractors FY2012 (28) FY2013 (31) FY2012 (28) FY2013 (31) Total Number of Contractors 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRt Employees by Region FY2014 Employees by Region FY2014 Employees by Region FY2014 Employees by Region FY2013 Employees by Region FY2013 Employees by Region FY2014 Employees by Region FY2013 Africa (49) Asia Pacific (24) Australia (228) Central Asia (22) Europe (95) Middle East (22) North America (75) South America (63) Total Employees 567 Africa (60) Asia Pacific (21) Australia (234) Africa (49) Central Asia (46) Asia Pacific (24) Europe (102) Australia (228) Middle East (8) Central Asia (22) North America (66) Europe (95) South America (67) Middle East (22) Total Employees 604 North America (75) South America (63) Total Employees 567 Africa (49) Asia Pacific (24) Australia (228) Central Asia (22) Europe (95) Middle East (22) Africa (49) North America (75) Asia Pacific (24) South America (63) Australia (228) Total Employees 567 Central Asia (22) Europe (95) Middle East (22) North America (75) South America (63) Total Employees 567 Africa (60) Asia Pacific (21) Australia (234) Central Asia (46) Africa (60) Europe (102) Asia Pacific (21) Middle East (8) Australia (234) North America (66) Central Asia (46) South America (67) Europe (102) Total Employees 604 Middle East (8) North America (66) Gender Diversity FY14 Employees by Region FY2013 Africa (60) Asia Pacific (21) Australia (234) Central Asia (46) Europe (102) Female 23% (129 employees) Middle East (8) Male 77% (438 employees) North America (66) Total Employees 567 South America (67) Total Employees 604 Gender Diversity FY13 Gender Diversity FY14 South America (67) Total Employees 604 Gender Diversity FY14 O PERATI ONAL OVERVIEW Female 23% (129 employees) Male 77% (438 employees) Total Employees 567 Female 23% (129 employees) Male 77% (438 employees) Total Employees 567 Gender Diversity FY13 Gender diversity FY14 Gender Diversity FY14 Gender diversity FY13 Gender Diversity FY13 Female 23% (129 employees) Female 23% (129 employees) Female 24% (142 employees) Male 77% (438 employees) Male 77% (438 employees) Male 76% (462 employees) Total Employees 567 Total employees 567 Female 24% (142 employees) Female 24% (142 employees) Female 24% (142 employees) Male 76% (462 employees) Male 76% (462 employees) Male 76% (462 employees) Total employees 604 Total Number of Contractors Total Number of Contractors Total Number of Contractors Gender Diversity FY13 WORKFORCE EQUALITY AND DIVERSITY During the reporting year Imdex updated its Code of Conduct in order to ensure that the Company provides a fair and equal workplace that is free from discrimination. Workplace diversity is important to Imdex and the Company is committed to providing a balanced and inclusive working environment. Female 24% (142 employees) Male 76% (462 employees) Imdex’s annual compliance report to the Workplace Gender Equality Agency confirmed the Company is compliant with the Workplace Gender Equality Act 2012 (Act). During FY14 Imdex maintained the proportion of women in its global workforce at 23%. The Company also values the expertise and guidance of a female Director and has female representation in its Senior Management Team. FY2012 (28) FY2013 (31) FY2012 (28) FY2013 (31) FY2012 (28) FY2013 (31) DEVELOPING A HIGH PERFORMANCE CULTURE Imdex continues to foster a culture of achievement and innovation with a highly engaged and effective team. Essential employee training continued throughout the year, however, cost management limited the Company’s investment in non-essential training and development programs. Throughout FY14 Imdex carried out the following initiatives to strengthen, support and engage its diverse global team: • • • Introduction and implementation of Document Management System to HR; Long Term Incentive Plan revision to create a stronger link between performance and reward and align the interests and aims of Imdex employees and shareholders; Short Term Incentive Plan revision to instill a culture focused on specific business objectives and align the reward with business results; and • Global salary reviews awarded in line with cost of living increases. Total Number of Contractors FY2012 (28) FY2013 (31) 37 2014 Imdex LImIted AnnuAL RepoRt OPERATIONA L OVERV IEW Community Involvement Imdex supports events and initiatives undertaken by its regional operations to assist their local communities and charity fundraisers. Support during FY14 included: • • • The Movember Foundation; Breast Cancer Care WA; The Good Samaritan Children’s Home and Rehabilitation Centre, Kenya; • Grupo Simsa (Gas Natural Industrial, Mexico); and • WHOlives.org The Good Samaritan Children’s Home and Rehabilitation Centre The Village Drill, Tanzania HOLISTIC SERVICES AND SUPPORT FOR NEEDY AND VULNERABLE CHILDREN The Good Samaritan Children’s Home and Rehabilitation Center located in Mathare Valley near the Kosovo slum, was founded to help the victims of teenage pregnancy, orphans, family breakdown and separation of spouses leading to abandonment of children and possible child abuse. The home provides shelter, food, education and clothing to these children irrespective of age, race, gender and religious belief. Its Vision is to be a leading well managed institution offering holistic services and support for needy and vulnerable children in Kenya. WATER, HEALTH & OPPORTUNITY AMC was proud to assist a small not for profit organization, Water, Health, Opportunity (WHOlives. org) based in Salt Lake City, Utah. WHOlives.org aims to save and improve the lives of millions by providing easy access to clean water via the Village Drill – a human powered drill. AMC’s products, training and phone support enabled WhoLives.org to produce safe drinking water wells in very remote areas. Hundreds of people in these villages are benefiting from the work of WhoLives.org – Imdex is glad to be a part of this humanitarian initiative. 38 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRt O PERATI ONAL OVERVIEW Quality, Health, Safety & Environment COMPLIANCE, REVIEW AND CONTINUAL IMPROVEMENT Regular risk assessments are carried out at all of Imdex’s global operational facilities. These assessments then underpin site specific systems, schedules, registers, controls and procedures. To ensure the Company’s high level of system compliance is maintained, Imdex Global QHSE representatives perform scheduled audits against established processes and their associated procedures or standards. Audit reports are validated by the Global QHSE Manager before release and action assignment within the Company’s global continual improvement database, the Quality Alert system. To close the system review cycle, additional regular QHSE Management reviews are performed at all operational facilities to ensure system effectiveness and to monitor performance. HEALTH AND SAFETY During FY14 Imdex maintained its focus on reducing the risk of injuries globally and successfully reduced its Total Recordable Injuries (TRIs) for the year. The Company also adopted the more stringent APPEA oil and gas industry results to benchmark its performance. Over the last twelve months two medical treatment injuries and one lost time injury occurred. Imdex Group lost time Injury Frequency rate (ltIFr) June 2014 = 0.88 (incidents per million hours worked) s t n e d c n i i f o o n & F R T L I 4 3 2 1 0 JUL 13 SEPT 13 NOV 13 JAN 14 MAR 14 MAY14 No. of Lost Time Injuries LTIFR LTIFR Benchmark (APPEA = 0.8) total reportable Injury Frequency rate (trIFr) by division FY14 16 14 12 10 8 6 4 2 0 7.61 0 JUL 13 AUG 13 SEPT 13 OCT 13 NOV 13 DEC 13 JAN 14 FEB 14 MAR 14 APR14 MAY14 JUN 14 REFLEX Injuries AMC Oil & Gas Injuries AMC APPEA Benchmark AMC Injuries REFLEX AMC Oil & Gas 39 2014 Imdex LImIted AnnuAL RepoRt OPERATIONA L OVERV IEW HAZARD IDENTIFICATION During FY14 Imdex introduced a hazard identification process utilising a Take-5 card. The process is a pre-task hazard identification tool for non-routine tasks where there is no procedure. The pocket size hazard identification card assists employees to determine the safest method to proceed, based on a risk rating. The card guides employees through the steps for completion, hazard identification, risk assessment, risk rating and determining control measures that may be used to do the job safely. AMC’S GAME-CHANGING TECHNOLOGY WINS AMEC ENVIRONMENTAL AWARD FOR SOLIDS REMOVAL UNIT The environmental benefits of AMC’s unique Solids Removal Unit (SRU) were recognised at the AMEC Convention Award Winners’ Dinner held at Crown Perth on 2 July 2014. AMC General Manager – Asia Pacific, Mr Craig Weston, said he was really pleased the SRU won the AMEC Environmental Award, as a lot of work has been invested in its technology to benefit customers within the global minerals industry. ‘The SRU was developed with our customers to reduce their environmental footprint while enhancing the efficiency of their drilling operations. The unit has demonstrated significant reductions in water usage, site rehabilitation and contamination risks – at some site customers have achieved a 90% reduction in water’, said Mr Weston. The AMEC Environment Award reflects the increasing importance of managing environmental impacts of mineral mining and exploration projects. It recognises a company that goes above and beyond in its management of environmental impacts or is developing innovative methods to achieve better long-term environmental outcomes. Mr Weston added the AMC SRU also provides significant economic benefits to customers, such as effective cuttings management, enhanced mud properties, less wear-and-tear to drilling components and reduced mud usage. 40 NEW SAFETY DATA SHEETS Imdex worked with Chemwatch to develop an advanced online product labelling system. This initiative utilises GHS regulatory MSDS data from the Chemwatch database and displays it in a customised label format in four languages. This new system enables the Company to easily print product labels that are compliant to country regulatory requirements from any of its global locations. ENVIRONMENT Imdex’s production of emissions and consumption of energy do not meet the reporting thresholds of the National Greenhouse and Energy Reporting (NGER) Act, therefore it is not required to provide a formal environmental report. The company, however, is integrating environmental requirements into its day-to-day operational procedures to ensure environmental considerations are standard practice. 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRt O PERATI ONAL OVERVIEW ISO (SGS) CERTIFICATIONS During the year, all Imdex certified sites successfully maintained their certifications to ISO9001 (Quality Assurance), OHSAS18001 (Heath & Safety) and ISO14001 Environmental. In total Imdex has 55 certifications globally and a global certification programme with SGS (largest certification body in the world). Certified countries include Australia, Brazil, Canada, Chile, Germany, Romania, South Africa and the UK. This certification enables these entities to use the above SGS certification marks. During FY14 the following certifications were achieved: • AMC Oil & Gas Adelaide received additional certification ISO 14001; • Wildcat Chemicals received additional certification to OHSAS18001 and ISO 14001; • • • • AMC Brisbane received additional certification ISO 14001; REFLEX Brisbane received additional certification ISO 14001; REFLEX Kalgoorlie received certification to ISO9001 and OHSAS18001; and AMC Kalgoorlie received certification to ISO9001 and OHSAS18001. Some of the REFLEX and AMC Brisbane team who received additional certification ISO 14001 41 2014 Imdex LImIted AnnuAL RepoRt OPERATIONA L OVERV IEW Managing Risk MANAGING RISKS TO DELIVER LONG-TERM SHAREHOLDER VALUE The identification and management of risk is central to delivering long-term value to Imdex’s shareholders. Each year, as part of the Company’s annual strategic planning cycle, the Board reviews and considers the risk profile for the entire organisation. Imdex has also established a formal framework for governance of managing risk. The principal aim of Imdex’s risk management governance structure is to enhance the system of internal control to create a culture of risk-informed decision making to manage business risks, enhance the value of shareholder investments, and safeguard assets. The Company is committed to an effective risk management process, which enables management to operate a risk-based approach in establishing internal control systems to effectively identify, mitigate and/or control significant risks. The risk management framework is used to provide governance for the identification, 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 globally are responsible for being aware of potential business and operational risks and the supporting risk management frame work established by the Audit, Risk and Compliance Committee (ARCC). Employees are also requested to promptly communicate significant issues to their line manager in accordance with the Group’s risk management framework. Each business unit is responsible for incorporating risk management activities and controls into their daily operations and to monitor risks relating to the unit. The risk management framework incorporates the following factors: • Consideration of other ASX principles on corporate governance as they relate 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, quality control and health and safety risk assessment system to ensure a common language is used across both operational and commercial environments; • Development of a Corporate risk register to record and manage risks by assigning an owner, designing mitigating treatments and then applying the treatment; and • Identification of areas where additional work is required by an internal audit and/or business unit to reduce risk exposure. COMPLIANCE INTERNAL AUDIT CORPORATE GOVERNANCE RISk MANAGEMENT 42 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRt O PERATI ONAL OVERVIEW Ongoing Product Development SOLIDS REMOVAL UNITS – THE WAY OF THE FUTURE AMC’s unique Solids Removal Unit (SRU) provides a highly innovative alternative to traditional drilling sumps and is being described as the way of the future by drilling contractors and resource companies worldwide. The closed-loop fluid system significantly reduces the environmental impact and greatly improves the efficiency of drilling operations. Drilling fluid is circulated directly from the drill collar to the SRU’s shaker, then drill solids are removed via the centrifuge. Cleaned drilling fluids are then returned to the drill hole. The highly mobile unit also incorporates a mixing chamber and weir system, which enables drilling fluids to be added accurately and efficiently. During FY14 Imdex successfully commercialised underground and heli-portable options to meet customer demand. Underground Solids Removal Unit (UG-SRU) Heli-portable Solids Removal Unit (HP-SRU) 43 2014 Imdex LImIted AnnuAL RepoRt OPERATIONA L OVERV IEW CASE STUDY: AMC’S UNDERGROUND SRU SIGNIFICANTLY REDUCED WATER COSTS FOR UNDERGROUND DRILLING OPERATIONS CASE STUDY: Background In many remote areas water is a scare commodity. When coupled with underground mining operations, its management becomes challenging and costly. AMC’s customer took the initiative to seek ways to reduce the amount of water and mud used. A trial was conducted comparing two holes – one was using the AMC’s Underground Solids Removal Unit (UG-SRU) and the other traditional methods. Key challenges Reduce water and mud consumption, together with associated costs for underground drilling operations. Solution AMC’s UG-SRU was trialled to determine the reduction in water and mud consumption, together with the associated economic benefits. results The trial demonstrated economic benefits for the drilling operator and the mining resource company. A significant reduction in water (90%) and mud consumption (55%), together with associated costs, were achieved when utilizing the UG-SRU. The trial also highlighted the success of the unit’s small footprint and its ability to operate when water supply is interrupted due to technical difficulties. Mud uSAGE WAtEr CoStS Slurry VoluME down BY 55% down BY 90% down BY 96% $7,134* net SavInGS per rIG per month * Does not include rental of the UG-SRU as the terms of the contact vary depending on the project. 44 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRt O PERATI ONAL OVERVIEW CASE STUDY: CASE STUDY: AMC’S HELI-PORTABLE SRU RESOLVED CHALLENGES AT REMOTE AND INACCESSIBLE SITE Background The customer’s diamond drilling operation was in a remote location within the Flinders Ranges, South Australia. The site was not accessible by road and only a small footprint for drilling was available due to the steep hills and dense vegetation. Key challenges • Solids removal at a remote site - inaccessible by road • Minimal drilling footprint • Reducing environmental impact Solution The customer trialled AMC’s Heli-portable Solids Removal Unit (HP-SRU) – the unit’s light, highly mobile and compact design can be installed for operation at remote and inaccessible sites within four heli-lifts. results Lifting and placement of AMC’s HP-SRU was completed within 20 minutes following its delivery. The drill crew, geologist and pilot were impressed with how fast and easy it was to mobilise for operation – no aligning of nuts and bolts was required. The unit’s compact design also reduced the drilling footprint by 70%; limited clearing of vegetation; eliminated the need to dig earthen sumps; and reduced the amount of water required by 60%. SEt up drillinG footprint WAtEr uSAGE Mud CoSt opErAtionAl EffiCiEnC y 20 mInuteS down BY 70% down BY 60% down BY 79% SavInG oF $1,800 EnVironMEntAl CoStS SavInG oF $2,500 diSpoSAl of WAStE Mud SavInG oF up to $4,000 $9,100* (8 dAy triAl pEriod) total SavInGS per hole/rIG* * Does not include rental of the HP-SRU as the terms of the contact vary depending on the project. 45 2014 Imdex LImIted AnnuAL RepoRt OPERATIONA L OVERV IEW GAME-CHANGING TECHNOLOGY “ESSENTIAL” TO SURVIVE THE CYCLES REFLEX recently launched three new technologies, which are playing a pivotal role in the future of global exploration and mining operations. The leader of innovative technology for field data collection and analysis, officially unveiled its REFLEX XRF and REFLEX TN14 GYROCOMPASS at the Mining Indaba expo in South Africa. Commenting on the Company’s commitment to innovation and investment in ongoing product development, REFLEX’s Chief Executive, Derek Loughlin, said: “It is essential. Our clear focus is to be ahead of the game and deliver real economic and operational benefits to our customers. “While the downturn of the global minerals industry is challenging for everyone within the sector, it also presents opportunities for our business. Resource, drilling and service companies are looking increasingly to technologies to reduce costs, enhance the efficiencies of their operations and remain competitive – our technologies are specifically designed to achieve these objectives.” Mr Loughlin said he had experienced a great deal during his 28 years within the drilling industry, however, he was now witnessing fundamental operational changes that were rapidly gaining momentum. “Our customers want greater accuracy, visibility and flexibility when collecting, accessing and analysing their data – they need to make informed decisions faster from any location and at any time without the time delays and inefficiencies that typified the past”, said Mr Loughlin. Each of REFLEX’s new technologies enables standalone customer benefits, yet form part of the company’s integrated product offering via REFLEX Connect and REFLEX HUB. REFLEX CONNECT allows seamless transfer of survey data from the drill rig to a secure, central database for review in near real-time. Survey and geochemical data is transferred automatically from the digital instrumentation to REFLEX HUB via a mobile device. Geologists can view and approve survey records and then commit them for storage. Data is then available for incorporation with other core geological data sets or exporting directly into mining and GIS software packages. REFLEX HUB is a complete Software-as-a-Service solution that seamlessly transfers data – including maintenance, operational, safety, drilling, rig operational, survey, accreditation and geological data – from the drill site to a secure central database, where it can be accessed via a web browser from any location worldwide. REFLEX Gyrocompass REFLEX XRF 46 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRt O PERATI ONAL OVERVIEW Looking to FY15 LONG-TERM STRATEGY • Continue growth of Imdex’s global business; • Expand into new markets, with particular focus on the oil and gas sector; • Maintain product leadership through investment in product development; • • Increase rental based revenue; and Achieve operational efficiencies. FY15 GROWTH INITIATIVES AND KEY AREAS OF FOCUS • • • Strong cost discipline and prudent working capital management; Increasing market share in previously under-penetrated regions; Increasing exposure and capabilities within non-mining applications, including HDD and waterwell markets; • Marketing new technologies to new and existing customers globally; • • • • Increasing annuity revenue streams via REFLEX HUB; Leveraging Imdex’s specialist expertise and product development capabilities; Investing in Imdex’s oil and gas business to accelerate the Division’s growth; and Supporting customers to increase the productivity and efficiency of their operations. 47 2014 Imdex LImIted AnnuAL RepoRt FY14 FINANCI AL R EPORT [FINANCIALS SECTION] AMC Minerals mud testing in the field 48 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRt FY14 financial report Directors’ report AuDitor’s inDepenDence DeclArAtion inDepenDent AuDitor’s report Directors’ DeclArAtion corporAte GovernAnce stAtement consoliDAteD stAtement of profit or loss AnD other comprehensive income consoliDAteD stAtement of finAnciAl position consoliDAteD stAtement of chAnGes in equity consoliDAteD stAtement of cAsh flows notes to the finAnciAl report 50 65 66 68 69 74 75 76 77 78 ADDitionAl securities exchAnGe informAtion 127 49 IMDEX LIMITED and its controlled entities DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2014 The Directors of Imdex Limited (“Imdex” or “the Company”) present their report together with the annual Financial Report of the Company and its Subsidiaries (“the Group”) for the financial year ended 30 June 2014. In order to comply with the provisions of the Corporations Act 2001, the Directorsʼ report as follows: (a) Directors The names and particulars of the Directors of the Company during or since the end of the financial year are: Name Role Age Particulars Mr R W Kelly AM Non Executive Chairman 76 Mr B W Ridgeway Managing Director 60 Mr K A Dundo Independent, Non Executive Director 61 Mr M Lemmel Independent, Non Executive Director 75 Ms E Donaghey Independent, Non Executive Director 56 Engineer 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. Chartered Accountant 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 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 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 Officer of the Federation of Swedish Industries and Director General for Enterprise Policy of the European Commission 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 Non Executive Director of Australian Renewable Energy Agency Previously held a range of commercial and senior management positions in Woodside Petroleum and BHP Petroleum 50 Page 1 of 79 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2014 (b) Directorships of other listed companies Directorships of other listed companies held by the Directors in the 3 years immediately before the end of the financial year are: Name Company Position Period of Directorship Mr B W Ridgeway Mr K A Dundo Sino Gas and Energy Holdings Limited Red 5 Limited Synergy Plus Limited ORH Limited Non Executive Director 2007 – Current Non Executive Director Non Executive Director Non Executive Director 2010 – Current 2008 – Current 2013 – 2014 Ms E Donaghey St Barbara Limited Non Executive Director 2011 – 2014 (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 financial roles in the media, manufacturing and telecommunications industries. Mr Evans is a Fellow of the Institute of Chartered Accountants in Australia. (d) Directorsʼ Meetings The following table sets out the number of Directorsʼ meetings (including meetings of committees of Directors) held during the financial year and the number of meetings attended by each Director (while they were a Director or committee member). During the financial year, eight Board meetings, four Audit and Compliance Committee meetings and four Remuneration Committee meetings were held. Board of Directors (Number) Audit and Compliance Committee (Number) Remuneration Committee (Number) Held Attended Held Attended Held Attended R W Kelly B W Ridgeway K A Dundo M Lemmel E Donaghey 8 8 8 8 8 8 8 7 7 8 4 - 4 - 4 4 - 4 - 4 - - 4 4 4 - - 4 2 4 (e) Directorsʼ 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 R W Kelly B W Ridgeway K A Dundo M Lemmel E Donaghey Shares Held Directly (#) Shares Held Indirectly (#) Options Held Directly (#) Performance Rights Held Directly ^ (#) - 380,000 128,876 2,214,630 - 150,000 562,000 210,000 - - - - - - - - 718,136 - - - ^ - Performance rights expire either on failure to maintain employment tenure or on failure to satisfy performance hurdles. Refer to note 33 for further details. Details of performance rights on issue at the end of the financial year are disclosed in note 33. Page 2 of 79 51 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2014 (f) Remuneration Report (audited) Remuneration policy for Directors and Executives Non Executive Directors The Board seeks the approval of Shareholders in relation to the aggregate of Non Executive Directorsʼ 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 Companyʼs performance in order to preserve independence. Other than statutory superannuation, no Non Executive Director is entitled to any additional benefits 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 $434,138, including statutory superannuation. The Board determines the apportionment of directorsʼ fees between each Director. Managing Director The Managing Directorʼs remuneration is determined by the Remuneration Committee with due regard to current market rates. The Managing Director has a short term incentive bonus up to 35% 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 financial, strategic and risk based measures. The Remuneration Committee set these performance hurdles as they are significant profit and cash flow drivers which are linked to Imdexʼs increased growth and profitability 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 Groupʼs performance. From time to time performance rights may be issued to the Managing Director as a long term performance incentive. The portion of the Managing Directorʼs compensation package that comprises performance rights is linked to the Companyʼs performance. The number of performance rights granted is determined with regard to current market trends. The issue of any such 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 benefits 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 fixed 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 qualified and experienced staff. Performance incentives that are linked to Company performance are used to reward Executives for exceptional performance that benefits the Company and Shareholders. Each year the Remuneration Committee sets the KPIs for each key management person. These KPIs typically include people, customer, system, financial, strategic and risk based measures. The Remuneration Committee set these performance hurdles as they are significant profit and cash flow drivers which are linked to Imdexʼs increased growth and profitability 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 performance rights may be issued to the Executives and staff as a long term performance incentive. The portion of remuneration package that comprises performance rights is linked to the Companyʼs performance. The number of performance rights granted is determined with regard to current market trends. The issue of any such performance rights requires the approval of Shareholders in General Meeting. All Executives are employed under permanent contracts. Mr D J Loughlinʼs and Mr P A Evanʼs contracts provide a six month notice period upon termination and a six month termination pay out. Mr S Maikranzʼs contract specifies a 12 week notice period in the event that the contract is terminated. If the employment is terminated by Imdex after the probation period and prior to completion of 1 (one) year employment, Imdex will pay as compensation the monthly base salary times the number of months remaining to complete 12 months. Mr M Parsonsʼs contract specifies a 12 week notice period in the event that the contract is terminated. No additional benefits above those already entitled to will become payable on termination. 52 Page 3 of 79 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2014 (f) Remuneration Report (audited) (continued) Director and Key Management Personnel details The Directors of Imdex Limited during the year were: 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); and (i) (ii) (iii) (iv) (v) Ms E Donaghey (Non Executive Director). The term ʻKey Person Managementʼ is used in this remuneration report to refer to the following persons: Mr D J Loughlin (Chief Executive Reflex); (i) (iii) Mr P A Evans (Company Secretary and Chief Financial Officer). (iii) Mr M Parsons (Chief Executive AMC Minerals); commenced 1 October 2013 (iv) Mr S Maikranz (Chief Executive AMC Oil & Gas); commenced 17 March 2014 (v) Mr G E Weston (Project General Manager; General Manager: Oil & Gas Division); resigned 31 December 2013 Except as noted above Directors and Key Management Personnel held their current position for the whole of the financial year and since the end of the financial year. Elements of Director and Key Management Personnel Remuneration Remuneration packages contain the following key elements: Short-term benefits – salary/fees, bonuses and non monetary benefits including principally motor vehicles; Post-employment benefits – superannuation; (i) (ii) (iii) Equity – share options granted under the Staff Option Scheme (note 32) or performance rights granted under the Performance Rights Plan (note 33) or any other equity related benefits granted as approved by Shareholders in General Meeting; and (iv) Other benefits – 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 Entityʼs earnings and movements in shareholder wealth for the five years to June 2014: 30 June 2014 30 June 2013 30 June 2012 30 June 2011 30 June 2010 Revenue – continuing and discontinued operations ($000s) Net (loss) / profit before tax from continuing operations ($000s) Net (loss ) / profit after tax from continuing operations ($000s) Share price at start of year (cents) Share price at end of year (cents) Interim dividend (cents) – fully franked Final dividend (cents) – fully franked Basic (loss) / earnings per share (cents) – continuing operations Diluted (loss) / earnings per share (cents) – continuing operations 183,557 232,921 269,652 205,334 135,625 (7,062) 28,510 67,500 38,593 (21,071) (5,277) 19,383 45,777 29,002 (21,548) 62.0 63.0 - - 176.0 62.0 2.50 0.40 215.0 176.0 3.25 4.00 73.0 215.0 1.75 2.75 64.5 73.0 - - (2.50) 9.24 22.34 14.69 (11.05) (2.50) 9.14 21.85 14.25 (11.05) Page 4 of 79 53 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt 9 7 f o 5 e g a P f o e u s s i e h T . s n o i t i d n o c g n i t s e v i e v s s e r g o r p e s n g o c e r i 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 e b i 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 a v l e h t t c e l f e r s t n e m e l t i t n e h s a c - n o n e s e h T - ^ . t e m e r a s n o i t i d n o c g n i t s e v e h t f i s d o i r e p e r u t u f n i r u c c o y n o l l l i w s t h g i r e c n a m r o f r e p e s e h t o t g n i t a e r l s e r a h s 3 1 0 2 / 2 1 / 1 3 d e n g i s e R 3 3 1 0 2 / 0 1 / 1 0 4 1 0 2 / 3 0 / 7 1 d e c n e m m o C d e c n e m m o C 2 1 l a t o T $ 9 7 1 , 5 8 9 5 2 3 , 8 9 0 0 0 , 0 9 5 2 3 , 8 9 8 8 4 , 7 4 1 7 1 3 , 9 1 4 , 1 4 1 1 , 1 2 5 5 4 0 , 0 9 4 6 4 2 , 1 9 2 3 6 5 , 4 1 1 l a t o T $ 9 7 4 , 0 0 9 7 4 4 , 7 1 3 , 2 - - - - - - - - - - - - - - - - - - 8 1 2 , 0 2 - - - - 8 1 2 , 0 2 - - - - - - t n e m y a p d e s a b - e r a h S 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 h g R i & s t i n U s n o i t p O & s e r a h S $ $ $ $ - - - - - - - - 0 5 1 , 6 0 5 1 , 6 7 7 0 , 7 7 7 3 , 9 1 - - - - - - - - - - - - - - - - - - n o i t a n i m r e T - g n o l r e h t O t n e m y o l p m E t s o P s t i f e n e b e e y o l p m e m r e t - t r o h S s t i f e n e B m r e t r e h t O e e y o l p m e s t i f e n e b - r e p u S n o i t a u n n a r e h t O - n o N s u n o B & y r a l a S y r a t e n o m s e e f $ $ $ $ $ $ $ $ - - 3 2 6 , 3 1 8 6 1 , 3 1 8 8 0 , 5 3 2 9 7 8 , 1 6 2 - - - - - - 4 9 6 , 5 2 5 6 6 , 9 1 - 4 9 6 , 5 2 1 7 2 , 9 1 7 4 8 , 2 1 - - - - 6 0 5 , 3 8 5 6 6 , 9 1 - - - - - - - - - - - - 2 8 9 , 5 5 4 3 3 0 , 5 4 4 5 7 9 , 1 7 2 3 6 5 , 4 1 1 7 6 4 , 5 4 6 0 2 0 , 3 3 9 , 1 & l i O C M A , e v i t u c e x E f e i h C , z n a r k i a M S 2 s a G 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 G x e l f e R e v i t u c e x E f e i h C , n i l h g u o L / r e c i f f O l a i c n a n i F f e i h C , s n a v E D P s e v i t u c e x E p u o r G y r a t e r c e S y n a p m o C C M A e v i t u c e x E f e i h C , s n o s r a P M 1 s l a r e n M i 3 n o i i s v D i 1 6 5 , 0 2 - - - - 1 6 5 , 0 2 - - - - - - 4 9 6 , 5 2 5 2 3 , 8 8 8 4 , 2 1 5 2 3 , 8 2 3 8 , 4 5 - - - - - - 4 3 4 , 4 1 - - - - 4 3 4 , 4 1 - - - - - - 2 7 2 , 4 0 9 r o t c e r i D g n i g a n a M , y a w e g d R i W B r o t c e r i D e v i t u c e x E 0 0 0 , 0 9 0 0 0 , 0 9 0 0 0 , 0 9 0 0 0 , 5 3 1 2 7 2 , 9 0 3 , 1 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 l e m m e L y e h g a n o D K M E 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 h g R i & s t i n U s n o i t p O & s e r a h S s t i f e n e B m r e t r e h t O e e y o l p m e s t i f e n e b - r e p u S n o i t a u n n a r e h t O - n o N s u n o B & y r a l a S y r a t e n o m s e e f 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 - g n o l r e h t O t n e m y o l p m E t s o P s t i f e n e b e e y o l p m e m r e t - t r o h S $ $ $ $ $ $ $ $ $ $ $ $ 4 1 0 2 E N U J 0 3 D E D N E R A E Y E H T R O F T R O P E R ’ S R O T C E R D I s e i t i t n e d e l l o r t n o c s t i d n a ) d e u n i t n o c ( ) d e t i d u a ( t r o p e R n o i t a r e n u m e R ) f ( 4 1 0 2 e n u J 0 3 d e d n e r a e Y I I D E T M L X E D M I 54 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt l a t o T $ 3 2 4 , 6 3 2 , 1 0 0 1 , 8 9 0 0 0 , 0 9 0 0 1 , 8 9 0 5 1 , 7 4 1 3 7 7 , 9 6 6 , 1 l a t o T $ 4 7 7 , 2 0 6 7 8 3 , 2 4 5 7 0 9 , 8 2 5 8 6 0 , 4 7 6 , 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 t h g R & i s t i n U s n o i t p O & s e r a h S s t i f e n e B m r e t r e h t O e e y o p m e l s t i f e n e b - r e p u S n o i t a u n n a r e h t O - n o N * s u n o B & y r a a S l y r a t e n o m s e e f $ $ $ $ $ $ $ $ $ $ $ $ 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 - g n o l r e h t O t n e m y o p m E l t s o P s t i f e n e b e e y o l p m e m r e t - t r o h S - - - - - - 8 5 4 , 2 4 2 - - - - 8 5 4 , 2 4 2 - - - - - - - - - - - - 0 4 1 , 1 5 - - - - 0 4 1 , 1 5 - - - - - - 0 0 0 , 5 2 - 0 0 1 , 8 0 5 1 , 2 1 0 0 1 , 8 0 5 3 , 3 5 - - - - - - 5 2 3 , 6 1 - - - - 5 2 3 , 6 1 - - - - - - 0 0 5 , 1 0 9 0 0 0 , 0 9 0 0 0 , 0 9 0 0 0 , 0 9 0 0 0 , 5 3 1 0 0 5 , 6 0 3 , 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 t h g R & i s t i n U s n o i t p O & s e r a h S s t i f e n e B m r e t r e h t O e e y o p m e l s t i f e n e b - r e p u S n o i t a u n n a r e h t O - n o N * s u n o B & y r a a S l y r a t e n o m s e e f $ $ $ $ $ $ $ $ $ $ $ $ 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 - g n o l r e h t O t n e m y o p m E l t s o P s t i f e n e b e e y o l p m e m r e t - t r o h S - - - - 5 6 3 , 4 4 1 3 4 , 1 4 0 2 5 , 9 3 6 1 3 , 5 2 1 - - - - - - - - 9 5 7 , 9 2 6 5 3 , 1 2 7 8 6 , 0 2 2 0 8 , 1 7 - - - - 0 0 0 , 5 2 0 0 0 , 5 2 0 0 0 , 5 2 0 0 0 , 5 7 - - - - - - - - - - - - 0 5 6 , 3 0 5 0 0 6 , 4 5 4 0 0 7 , 3 4 4 0 5 9 , 1 0 4 , 1 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 & 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 i i n o s vi D s a G l s 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 / r e c i f f O l i a c n a n F i i f e h C , s n a v E A P i n o s vi D i y r a t e r c e S y n a p m o C r o t c e r i i D g n g a n a M , y a w e g d R W B i r o t c e r i D e v i t u c e x E 4 1 0 2 E N U J 0 3 D E D N E R A E Y E H T R O F T R O P E R ’ S R O T C E R D I s e i t i t n e d e l l o r t n o c s t i d n a ) d e u n i t n o c ( ) d e t i d u a ( t r o p e R n o i t a r e n u m e R ) f ( 3 1 0 2 e n u J 0 3 d e d n e r a e Y I I D E T M L X E D M I 9 7 f o 6 e g a P e h T . s n o i t i d n o c g n i t s e v i e v s s e r g o r p e s n g o c e r i 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 e b i 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 a v l e h t t c e l f e r s t n e m e l t i t n e h s a c - n o n e s e h T - ^ . t e m e r a s n o i t i d n o c g n i t s e v e h t f i s d o i r e p e r u t u f n i r u c c o y n o l l l i w s t h g i r e c n a m r o f r e p e s e h t o t g n i t a e r l s e r a h s f o e u s s i 55 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2014 (f) Remuneration Report (audited) (continued) (i) Mr B W Ridgeway is a party to a service contract with Imdex Limited, which sets out a fixed compensation package, reviewable annually. The service contract specifies 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 benefits specified in this contract. Additional performance incentives may be agreed between Mr Ridgeway and Imdex Limited from time to time. The Managing Directorʼs compensation is reviewed and determined annually by the Remuneration Committee. In the current year Mr Ridgeway did not earn a cash bonus as specified targets were not met. A bonus of $280,000 could have been earned by Mr Ridgeway had the targets been met. Mr Ridgeway did not earn a cash bonus in the prior year as specified targets were not met. A bonus of $320,000 could have been earned by Mr Ridgeway had the targets been met. No options were granted to Mr Ridgeway in the current year or in the prior year. The grant of 300,000 performance rights to Mr Ridgeway in the current year was approved by the shareholders at the Annual General Meeting on 17 October 2013. The Managing Director is subject to two hurdles each with equal weighting. The first 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 FY16 financial statements on or about August 2016, which will determine the number of performance rights to be issued. Refer note 33 for further details. The grant of 264,818 performance rights to Mr Ridgeway in the prior year was approved by the shareholders at the Annual General Meeting on 20 October 2012. The Managing Director is subject to two hurdles each with equal weighting. The first 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 FY15 financial statements on or about August 2015, which will determine the number of performance rights to be issued. Refer note 33 for further details. 196,579 Performance Rights were issued to Mr Ridgeway for nil consideration after approval at the FY 10 AGM. These performance rights were subject to performance hurdles being met. Following the successful satisfaction of the majority of the performance hurdles over the 3 year measurement period, 128,876 shares were issued in October 2013 to Mr Ridgeway. (ii) Mr D J Loughlin is a party to a service contract with Imdex Limited, which sets out a fixed compensation package reviewable annually. The service contract specifies a six month notice period in the event that the contract is terminated and a six month pay out upon termination. Additional performance incentives may be agreed between Mr Loughlin and Imdex Limited from time to time. In the current year Mr Loughlin did not earn a cash bonus as specified targets were not met. A bonus of $100,000 could have been earned by Mr Loughlin had the targets been met. Mr Loughlin did not earn a cash bonus in the prior year as specified targets were not met. A bonus of $176,000 could have been earned by Mr Loughlin had the targets been met. No options were granted to Mr Loughlin in the current or prior year. Mr Loughlin was granted 174,603 performance rights in the current period under the Performance Rights Plan. As the hurdles applicable to these performance rights were not achieved all of the performance rights expired. Mr Loughlin was granted 58,239 performance rights in 2013 under the Performance Rights Plan. As the hurdles applicable to these performance rights were not achieved all of the performance rights expired. During the year Mr Loughlin was allocated 53,982 shares upon the successful achievement of hurdles relating to performance rights granted prior to 2013. During the prior year Mr Loughlin was allocated 53,981 shares upon the successful achievement of hurdles relating to performance rights granted prior to 2013. (iii) Mr P A Evans is a party to a service contract with Imdex Limited, which sets out a fixed compensation package reviewable annually. The service contract specifies a six month notice period in the event that the contract is terminated and a six month pay out upon termination. Additional performance incentives may be agreed between Mr Evans and Imdex Limited from time to time. In the current year Mr Evans did not earn a cash bonus as specified targets were not met. A bonus of $97,850 could have been earned by Mr Evans had the targets been met. Mr Evans did not earn a cash bonus in the prior year as specified targets were not met. A bonus of $172,000 could have been earned by Mr Evans had the targets been met. No options were granted to Mr Evans in the current or prior year. Mr Evans was granted 170,635 performance rights in the current period under the Performance Rights Plan. As the hurdles applicable to these performance rights were not achieved all of the performance rights expired. Mr Evans was granted 56,818 performance rights in 2013 under the Performance Rights Plan. As the hurdles applicable to these performance rights were not achieved all of the performance rights expired. Page 7 of 79 56 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2014 (f) Remuneration Report (audited) (continued) During the year Mr Evans was allocated 49,387 shares upon the successful achievement of hurdles relating to performance rights granted prior to 2013. During the prior year Mr Evans was allocated 49,388 shares upon the successful achievement of hurdles relating to performance rights granted prior to 2013. (iv) Mr M Parsons is a party to a service contract with Imdex Limited, which sets out a fixed compensation package reviewable annually. The service contract specifies a 12 week notice period in the event that the contract is terminated. In the current year Mr Parsons did not earn a cash bonus as specified targets were not met. A bonus of $55,000 could have been earned by Mr Parsons had the targets been met. No options or performance rights were granted to Mr Parsons in the current year. (v) Mr S Maikranz is a party to a service contract with Imdex Limited, which sets out a fixed compensation package reviewable annually. The service contract specifies a 12 week notice period in the event that the contract is terminated. If the employment is terminated by Imdex after the probation period and prior to completion of 1 (one) year employment, Imdex will pay as compensation the monthly base salary times the number of months remaining to complete 12 months. In the current year Mr Maikranz did not earn a cash bonus as specified targets were not met. A bonus of $16,500 could have been earned by Mr Maikranz had the targets been met. No options or performance rights were granted to Mr Maikranz in the current year. (vi) Mr G E Weston ceased to be Project General Manager; General Manager: Oil & Gas Division on 31 December 2013 upon the termination of his contract with Imdex Limited. Per his service contract, Mr Weston received a twelve month pay out upon his termination of employment. No cash bonus was earned in the current or prior year. No options were granted to Mr Weston in the current or prior year. Mr Weston was granted 192,460 performance rights in the current period under the Performance Rights Plan. As the hurdles applicable to these performance rights were not achieved due to his employment tenure ceasing all of the performance rights expired. Mr Weston was granted 65,341 performance rights in 2013 under the Performance Rights Plan. As the hurdles applicable to these performance rights were not achieved all of the performance rights expired. During the year Mr Weston was allocated 54,245 shares upon the successful achievement of hurdles relating to performance rights granted prior to 2013. During the prior year Mr Weston was allocated 54,245 shares upon the successful achievement of hurdles relating to performance rights granted prior to 2013. Bonuses granted to Directors and Key Management Personnel During the current year there were no bonuses earned by Directors and Key Management Personnel. Bonuses are paid on the achievement of performance criteria specific to the individual and as performance hurdles were not met in the current year then no bonus was paid. The performance criteria used are chosen by the Remuneration Committee annually and are linked to the financial 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. Imdex Loyalty Programme Imdex Limited has 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 $500 voucher for 5 years' service through to a cash equivalent of 3 and 6 monthsʼ salary for employees who remain with the business for 20 and 25 years respectively. Page 8 of 79 57 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2014 (f) Remuneration Report (audited) (continued) Key Management Personnel Equity Holdings Ke y m a na ge m e nt pe rsonne l e quity holdings 2014 Ba la nce a t 1 July 2013 Gra nte d a s com pe nsa tion M r B W Ridgeway M r R W Kelly M r K A Dundo M r M Lemm el M s E Donaghey M r D J Loughlin M r P A Evans M r M Parsons 1 M r S Maikranz 2 M r G E W eston 3 No. 2,214,630 380,000 150,000 648,000 210,000 207,343 346,657 - - 499,151 4,655,781 No. 128,876 - - - - 53,982 49,387 - - 54,245 286,490 Re ce ive d on e x e rcise of options No. Ne t othe r cha nge # Ba la nce a t 30 June 2014 Ba la nce he ld nom ina lly No. No. No. - - - - - - - - - - - - - - (86,000) - (261,325) - - - (553,396) (900,721) 2,343,506 380,000 150,000 562,000 210,000 - 396,044 - - - 4,041,550 - - - - - - - - - - - 2013 Ba la nce a t 1 July 2012 Gra nte d a s com pe nsa tion Re ce ive d on e x e rcise of options Ne t othe r cha nge # Ba la nce a t 30 June 2013 Ba la nce he ld nom ina lly M r B W Ridgeway M r R W Kelly M r K A Dundo M r M Lemm el M s E Donaghey M r G E W eston M r D J Loughlin M r P A Evans No. 2,214,630 380,000 150,000 730,921 210,000 1,040,299 253,362 382,269 5,361,481 # - represent on m arket transactions 1 Commenced 01/10/2013 2 Comm enced 17/03/2014 3 Resigned 31/12/2013 No. No. No. No. No. - - - - - 54,245 53,981 49,388 157,614 - - - - - - - - - - - - (82,921) - (595,393) (100,000) (85,000) (863,314) 2,214,630 380,000 150,000 648,000 210,000 499,151 207,343 346,657 4,655,781 - - - - - - - - - Value of performance rights granted to Directors and Key Management Personnel Performance rights are granted to Key Management Personnel at a fixed percentage of their base salaries depending on seniority. Percentages range from 7.5% to 25%. Each performance right is to be satisfied by the allocation/allotment of one fully paid Imdex Limited ordinary share for nil consideration should specified performance hurdles be met. The following table discloses the value of performance rights granted and allocated as shares during the year: Granted Satisfied by the allocation/allotment of shares Value at grant date Value at allocation/ allotment date Percentage of remuneration for the year that consisted of performance rights Number $ Number $ % B W Ridgeway (i) G E Weston (ii) D J Loughlin (ii) P A Evans (ii) 300,000 (MD Tranche) 192,460 (Tranche 11) 174,603 (Tranche 11) 170,635 (Tranche 11) 232,890 128,876 90,213 121,250 54,245 37,972 110,000 53,982 37,787 107,500 49,387 34,572 (i) Approved by the shareholders at the Annual General Meeting on 17 October 2013. (ii) Granted per the Performance Rights Plan. 58 2% 1% 1% 1% Page 9 of 79 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2014 (f) Remuneration Report (audited) (continued) Key Management Personnel Performance Rights Holdings 2014 Mr B W Ridgeway Mr R W Kelly Mr K A Dundo Mr M Lemmel Ms E Donaghey Mr D J Loughlin Mr P A Evans Mr M Parsons 1 Mr S Maikranz 2 Mr G E Weston 3 2013 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 Balance at 1 July 2013 No. 614,715 Granted as compensation No. 300,000 - - - - 77,394 72,586 - - 80,933 845,628 - - - - 174,603 170,635 - - 192,460 837,698 Balance at 1 July 2012 No. 349,897 - - - - 125,377 122,639 113,451 711,364 Granted as compensation No. 264,818 - - - - 65,341 58,239 56,818 445,216 Satisfied by the allocation/ allotment of shares No. (128,876) - - - - (53,982) (49,387) - - (54,245) (286,490) Satisfied by the allocation/ allotment of shares No. - - - - - (54,245) (53,981) (49,388) (157,614) Closing balance at 30 June 2014 No. 718,136 - - - - 12,120 12,120 - - - 742,376 Closing balance at 30 June 2013 No. 614,715 - - - - 80,933 77,394 72,586 845,628 Expired No. # (67,703) - - - - (185,895) (181,714) - - (219,148) (654,460) Expired No. # - - - - - (55,540) (49,503) (48,295) (153,338) 1 Commenced 01/10/2013 2 Commenced 17/03/2014 3 Resigned 31/12/2013 # 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 33. Share options held by Directors and Key Management Personnel No options were issued to, granted to or exercised by Key Management Personnel in the current or prior year. There were no share options held by Directors and Key Management Personnel at the end of the current financial year or prior financial year. Page 10 of 79 59 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2014 (f) Remuneration Report (audited) (continued) Other transactions with key management personnel (and their related parties) of Imdex Limited Mr K A Dundo is a Partner of the legal firm HopgoodGanim, that provided legal services to the Imdex Group on normal commercial terms and conditions. Total legal costs arising from HopgoodGanim were $506,857 (2013: $116,619). Transactions with Directors 2014 $ 2013 $ Profit from ordinary activities before income tax includes the following items of income and expenses relating to transactions, other than compensation, with Directors or their related entities: Legal services expense 506,857 116,619 Total assets and liabilities arising from transactions, other than compensation, with Directors or their related entities: Current Liabilities 70,680 5,731 (g) Performance Rights Performance Rights in existence during the current year 2014 Grant Date Expiry Date Exercise Price $ Estimated Fair Value at Grant Opening balance Date $ Estimated Number of Performance Rights Granted Satisfied by the allocation/ allotment of shares Expired ^ Closing balance Tranche 2 Tranche 4 MD Tranche MD Tranche Tranche 7 Tranche 9 Tranche 10 MD Tranche MD Tranche Tranche 11 3-Dec-10 10-Jun-11 14-Oct-10 20-Oct-11 5-Sep-11 7-Oct-11 28-Sep-12 18-Oct-12 17-Oct-13 4-Oct-13 Aug-15 Aug-16 Oct-15 Oct-16 Aug-15 Aug-16 Aug-17 Oct-17 Oct-18 Oct-18 - - - - - - - - - - 1.395 2.160 1.140 1.910 2.100 1.790 1.620 1.440 0.780 0.810 580,117 66,666 196,579 153,318 665,000 437,811 38,463 264,818 - 300,000 - 5,124,070 - - (536,534) (43,583) - - - (66,666) - - (128,876) (67,703) - - - 153,318 640,000 - - (25,000) 210,596 - (204,713) (22,502) - - (38,463) - - - - 264,818 - - 300,000 - - (5,124,070) ^ - Performance rights expire either on failure to maintain employment tenure or on failure to satisfy performance hurdles. Refer below for vesting details. 60 Page 11 of 79 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2014 (g) Performance Rights (continued) Performance rights on issue at the date of this report Issuing Entity Class Class of shares Exercise price Grant date Expiry date Key terms Number of shares under performance right Imdex Limited Imdex Limited Imdex Limited Imdex Limited Imdex Limited Performance Rights (Managing Directorsʼ Tranche 2) Performance Rights (Tranche 7) Performance Rights (Tranche 9) Performance Rights (Managing Directorsʼ Tranche 3) Performance Rights (Managing Directorsʼ Tranche 4) Ordinary Nil 20 Oct 2011 Oct 2016 (aa) 153,318 Ordinary Nil 5 Sept 2011 Aug 2016 (bb) 640,000 Ordinary Nil 7 Oct 2011 Aug 2016 (cc) 210,596 Ordinary Nil 18 Oct 2012 Oct 2017 (dd) 264,818 Ordinary Nil 17 Oct 2013 Oct 2018 (ee) 300,000 (aa) To be satisfied by the issue of fully paid ordinary shares in Imdex Limited on or about October 2016. Subject to the achievement of specified performance hurdles and ongoing employment tenure. (bb) To be satisfied 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. (cc) To be satisfied 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 satisfied by the issue of fully paid ordinary shares in Imdex Limited on or about October 2017. Subject to the achievement of specified performance hurdles and ongoing employment tenure. (ee) To be satisfied by the issue of fully paid ordinary shares in Imdex Limited on or about October 2018. Subject to the achievement of specified performance hurdles and ongoing employment tenure. (h) Share options There are no share options on issue at the date of this report and there were no share options exercised during or since the end of the financial year. (i) Principal Activities The Groupʼs principal continuing activities during the course of the financial year were providing drilling fluid products, advanced downhole instrumentation, data solutions and geo-analytics services to exploration, development and production companies in the minerals and oil and gas sectors worldwide. Page 12 of 79 61 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2014 (j) Review of Operations Imdexʼs FY14 results reflected the subdued activity levels within the minerals industry due to the cyclical downturn. Positive signs of improvement, however, were evident during 4Q14 including: Month-on-month increases in Minerals revenue from 3Q14; A 21% increase in the number of REFLEX rental instruments on hire (a key leading indicator for Imdexʼs Minerals business and sector activity) from 3Q14; Increasing throughput and revenue generated by REFLEX HUB, a trend that is expected to continue in FY15 and beyond providing a growing and sustainable annuity revenue stream; and A growing number of solids removal units (SRUs) on hire with further increases forecast in early FY15. Notwithstanding the challenging market conditions, Imdexʼs Minerals Division made significant progress with its technology development, successfully strengthened its operations and diversified its customer base. Strong activity levels continued within the oil and gas sector with substantial opportunities for long-term growth. Imdex continued to invest in the development of this business and the Companyʼs Oil & Gas Division achieved record revenue levels for the year. Financial results for FY14: Statutory revenue down 21% to $183.5 million (FY13: $232.8 million); Combined revenue (excluding interest) down 18% to $204.6 million (FY13: $249.4 million); EBITA loss of $2.8 million (FY13: $35.2 million profit) including: $24.1 million profit on sale of SEH; $18.2 million of asset write-downs and closure costs; and $9.1 million of costs and provisions relating to the product containment incident; EBITA profit of $0.5 million prior to the profit on sale of SEH and product containment, asset write-downs and closure costs; Gross margins were largely maintained; Net profit after tax (NPAT) a loss of $5.3 million (FY13: $19.4 million profit); Net assets of $176.9 million (30 June 2013: $188.5 million); Positive operating cash-flow of $2.9 million (FY13: $39.0 million); and Reduced gearing with net debt / capital of 18.5% (30 June 2013: 22%). Key operational highlights for the year included: Continued product development during the minerals sector downturn producing an exciting pipeline of AMC Fluids and REFLEX technologies; Growing industry demand and continued positive momentum with our solids removal units (SRUs) – particularly in the Americas; Development of underground and heli-portable SRUs and positive customer feedback from field trials; An AMEC Environmental Award for our SRUs; Increased throughput and continuing positive feedback with the marketing of REFLEX HUB; Expansion of our customer base, together with greater exposure to resource companies and the production phase of the mining cycle; Commercialization of four new REFLEX technologies – further enhancing REFLEXʼs leading product range; Adoption of REFLEX HUB by blue chip resource companies for their drilling programs and maintenance management; Increasing exposure and capabilities within non-mining applications, including HDD and waterwell markets; Year-on-year revenue growth reported since FY10; Further investment in equipment, working capital and talented personnel to support ongoing growth of the Companyʼs oil and gas business; Continuing strong revenues and EBITDA performance by VES International (VES); and Continuing growth from the coal bed methane industry in Australia with an increased demand for equipment solutions to ensure environmental disturbance by drilling activities is minimised. Key operational challenges for the year included: The subdued minerals market deflated the sectorʼs interest in adopting new technologies; Managing equipment utilisation levels and managing down working capital, particularly stock levels and increasing pressure on customer collections, in a slow minerals market; Managing costs ahead of revenue growth in AMC Oil & Gas – Germany; and A product containment incident – as announced to the market on 13 March 2014. (k) Dividends No dividend was paid during the current year. In the prior year a fully franked interim dividend of 2.50 cents per ordinary share was paid on 22 March 2013 to shareholders registered on 8 March 2013, and a fully franked final dividend of 0.40 cents per ordinary share was paid on 25 October 2013 to shareholders registered on 11 October 2013. 62 Page 13 of 79 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2014 (l) Changes in State Of Affairs There were no significant changes in the state of affairs of the Group. (m) Subsequent Events Subsequent to year end, the Group sold the remaining 91.9 million shares of its Sino Gas and Energy Holdings Ltd shareholdings at a share price of 18.5 cents per share to realise gross cash proceeds of $17.0 million at a book profit before tax of $14.2 million. Amounts shown within the Investment Revaluation Reserve at 30 June 2014 will be recycled to the Income Statement as a result of this sale. (n) Future Developments In support of our mission to deliver leading innovative technologies and solutions to the global minerals and oil and gas industry, we continue to focus on integrated solutions that enhance our customersʼ operations and deliver value for shareholders. We achieve this through our extensive industry knowledge and commitment to product development, ensuring innovative, simple to use and fit-for- purpose technologies. The outlook for Imdexʼs minerals markets in FY15 is encouraging. There is evidence of increasing activity and growing optimism that the current cycle has bottomed and is forecast to improve over the next twelve months. This expected increase in activity levels is largely due to the return of some brown field expenditure and recent capital raisings by junior exploration companies. The juniors have not been a factor over the last two years or so, however, they are raising funds and are now converting some of these funds into metres drilled. Assets divested by the major companies are also being acquired by smaller companies who are working those assets. There is also growing interest in the Companyʼs new technologies, which provide an attractive platform for further revenue growth through FY15 and beyond. Customers are focused on maximising the efficiency and productivity of their operations – Imdexʼs technologies enable them to achieve this and provide Imdex with a growing and sustainable annuity revenue stream. Activity within the energy sector remains robust and continues to offer substantial year-on-year growth opportunities for Imdexʼs Oil & Gas Division. The global drilling and completion fluids market is expected to increase by more than 20% to US$13.5 billion during calendar year 2014, and the solids control and waste management market is forecast to grow by more than 15% to US$4.3 billion. Even a fraction of this market will make a significant contribution to the Companyʼs growth. Imdex is in a strong position to capitalise on a number of opportunities within its core markets and are forecasting significantly better results in the new financial year. Key Areas of Focus and Growth Initiatives for FY15 Strong cost discipline and prudent working capital management; Increasing market share in previously under-penetrated regions; Increasing exposure and capabilities within non-mining applications, including HDD and waterwell markets; Marketing new technologies to new and existing customers globally; Increasing annuity revenue streams via REFLEX HUB; Leveraging Imdexʼs specialist expertise and product development capabilities; Investing in Imdexʼs Oil & Gas business to accelerate the Divisionʼs growth; and Supporting customers to increase the productivity and efficiency of their operations. Imdex is becoming a stronger, more diversified business to better meet the challenges presented by downturns in the minerals sector. At the same time, the company is growing its business in the oil and gas sector and is continuing to develop its innovative products and leading technologies. Imdex aims to become the industry standard in providing innovative, simple to use technologies, which improve the effectiveness and efficiency of customersʼ day to day operations. (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 effluent discharge. This is controlled through an effluent system. As announced to the market on 13 March 2014, Imdexʼs subsidiary the Australian Mud Company Pty Ltd (AMC), undertook precautionary measures for the containment of an imported product used in some drilling operations within Queensland, Australia. The measures were taken following notification that certain batches were contaminated. Page 14 of 79 63 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2014 (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 satisfied that the provision of non-audit services, during the year, by the auditor (or by another person or firm on the auditorʼs 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 financial statements do not compromise the external auditorʼs independence, based on advice received from the Audit and Compliance Committee, for the following reasons: All non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor, and None of the services undermine the general principles relating to auditor independence as set out in Code of Conduct APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional & Ethical Standards Board, including reviewing or auditing the auditorʼs 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. (q) Auditorʼs Independence Declaration The auditorʼs independence declaration is included in the Annual Report immediately prior to the Audit Report. (r) Indemnification of Officers and Auditors During the financial year, the Company paid a premium in respect of a contract insuring the Directors of the Company, the Company Secretary, and all Executive Officers of the Company and of any related body corporate against a liability incurred as such a Director, Secretary or Executive Officer to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. The Company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an officer or auditor of the Company or of any related body corporate against a liability incurred as such an officer or auditor. (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 Directorsʼ report and the financial 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, 15 August 2014. 64 Page 15 of 79 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt 65 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt 66 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt 67 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities DIRECTORS’ DECLARATION The Directors declare that: (a) (b) in the Directorsʼ 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 Directorsʼ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of the Group; (c) in the Directorsʼ opinion, the financial 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 financial 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 Directorsʼ opinion, there are reasonable grounds to believe that the Company and the companies to which the ASIC Class Order applies, as detailed in note 24 to the financial statements will, as a group, be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee. Signed in accordance with a resolution of the Directors made pursuant to s.295(5) of the Corporations Act 2001. Dated at Perth, 15 August 2014. Mr Ross Kelly AM Chairman 68 Page 19 of 79 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities 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 2014. 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 2014, 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 Companyʼs 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 Imdexʼs Board structure is consistent with the ASX Recommendations on Principle 2, with the exception that it does not have a separate nomination committee for the reasons detailed below. (i) Board Structure The Board consists of a Non Executive Chairman, three Non Executive Directors and one Executive Director. Of the five Board members, four are considered independent. In accordance with the Companyʼs Constitution the minimum number of Directors is three. There is no maximum number, although it would be expected that the optimal number of Directors would be five or six. The names of the Directors of the Company in office at the date of this Statement are set out in the Directorsʼ Report and further details concerning the skills, experience, expertise and term of office of each Director is set out in the Directorʼs Profiles in the first 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 Groupʼs 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 Shareholdersʼ understanding of the Directorʼs performance. The Board has conducted a review of each Directorʼs independence and reports as follows: Director 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 Assessment Existence of any matters contained in ASX Recommendation 2.1 affecting Independence Independent Nil Not Independent Managing Director Independent Independent Independent Nil Nil Nil Page 20 of 79 69 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities CORPORATE GOVERNANCE STATEMENT (iii) Board Nomination The Board does not have a separate nomination committee and, given the Companyʼs size, does not intend to form such a committee. However, the composition of the Board is determined using the following principles: The Board should comprise a majority of independent, Non Executive Directors with a broad range of experience, skills and expertise; The Chairman of the Board should be an independent, Non Executive Director; and 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 Companyʼs 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 Companyʼs 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 Directorʼs 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 profitability 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 Companyʼs 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 benefits 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 benefits 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 benefit for the Company reviewing the demographic profile at all levels of the Company (considering any patterns or gaps that are apparent); and 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 benefit from a diverse workplace. At 30 June 2014: of five Board positions, four (80%) were held by males, and one (20%) was held by a female. of nine senior executive positions, eight (89%) were held by males, and one (11%) was held by a female. Of 567 full time employees, 438 (77%) were male and 129 (23%) were female. 70 Page 21 of 79 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities CORPORATE GOVERNANCE STATEMENT Principle 4: Safeguard integrity in financial reporting (i) Statement by the Managing Director and Chief Financial Officer The Managing Director and the Chief Financial Officer have signed a declaration to the Board attesting to the fact that the 2014 Annual Financial Report presents a true and fair view, in all material respects, of the Companyʼs financial condition and operational results and are in accordance with relevant accounting standards. (ii) The Audit and Compliance Committee The Audit and Compliance Committee consists of three independent Non Executive Directors and operates under a formal charter approved by the Board. The Charter is published on the Companyʼs 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 financial 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; and Ms E Donaghey. The experience and qualifications of each committee member is set out in the Directorsʼ Profiles in the first 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 Officer 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 Directorsʼ 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 Companyʼs 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 Companyʼs website. The procedures set out who is responsible for determining whether information is of a type or nature that requires disclosure, the Boardʼs 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 Companyʼs website as soon as practicable. Page 22 of 79 71 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities CORPORATE GOVERNANCE STATEMENT 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 which 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 financial 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 & 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 including Quarterly Shareholder newsletters; 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 identification with the Group's strategy and goals. Important issues are presented to the Shareholders as single resolutions. The Shareholders are responsible for voting on the re-appointment of Non Executive Directors. Further information concerning the Company and the full text of the various announcements and reports referred to above are available on the Companyʼs 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 Companyʼs Annual General Meetings and is available to answer Shareholders questions concerning the conduct of the audit. The Companyʼs Shareholder Communications Strategy is published on the Companyʼs 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 Companyʼs 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 Companyʼs and Groupʼs risk management and internal control processes on a continuous basis. The risk management policy is published on the Companyʼs 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 Officer The Managing Director and the Chief Financial Officer have signed a declaration to the Board attesting to the fact that the integrity of Financial Reports are founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board, and that the system is operating efficiently and effectively in all material respects. 72 Page 23 of 79 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities CORPORATE GOVERNANCE STATEMENT Principle 8: Remunerate fairly and responsibly (i) Companyʼs remuneration policies Details on the remuneration of Directors and Executives as well as the Companyʼs 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; and Ms E Donaghey. The experience and qualifications of each committee member is set out in the Directorsʼ Profiles in the first section of the Annual Report. The Remuneration Committee operates under a written Charter that is published on the Companyʼs website. (iii) Structure of Non Executive Directorʼs remuneration The terms and conditions governing the remuneration of Non Executive Directorʼs are set out in their appointment letter. All Non Executive Directors are remunerated by way of fixed cash fees. Non Executive Directors are not provided with retirement benefits other than statutory superannuation. The maximum total remuneration payable to Non Executive Directors was approved by Shareholders at the 2006 Annual General Meeting and is currently $500,000. From time to time additional benefits may be agreed with Directors with due regard to market conditions. Page 24 of 79 73 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2014 Revenue from sale of goods and operating lease rental Other revenue from operations Total revenue Other income Gain on the disposal of shares in Sino Gas and Energy Holdings Ltd (SEH) Raw materials and consumables used Employee benefit expense Depreciation expense Amortisation expense Write down of fixed assets Impairment of intangibles and goodwill Finance costs Share of profit of associate Other expenses (Loss)/profit before tax Income tax credit/(expense) (Loss)/profit for the year Other comprehensive income Items that may be reclassified subsequently to profit or loss Fair value adjustment on investment in SEH Income tax relating to components of other comprehensive income Cumulative profit reclassified to profit or loss on sale of SEH shares, net of tax Exchange differences arising on the translation of foreign operations Other comprehensive income for the year, net of income tax Year Ended Year Ended 30 June 2014 30 June 2013 Notes $ʼ000 $ʼ000 4 4 4 4 4 4 4 4 4 4 26 4 5 18 18 18 18 183,485 72 183,557 89 24,094 (86,870) (51,448) (7,575) (1,469) (3,803) (3,746) (2,883) 715 (57,723) (7,062) 1,785 (5,277) 17,107 (5,132) (17,172) (595) (5,792) 232,791 130 232,921 46 - (101,069) (51,339) (7,728) (3,364) - - (3,438) 1,300 (38,819) 28,510 (9,127) 19,383 5,038 (1,511) - 6,536 10,063 Total comprehensive (loss)/income for the year (11,069) 29,446 (Loss)/profit attributable to owners of the parent (5,277) 19,383 Total comprehensive (loss)/income attributable to owners of the parent (11,069) 29,446 (Loss)/earnings per share Basic (loss)/earnings per share (cents) Diluted (loss)/earnings per share (cents) 19 19 (2.50) (2.50) 9.24 9.14 The Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes. 74 Page 25 of 79 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2014 Note s 30 June 2014 $ʼ000 30 June 2013 $ʼ000 Curre nt Asse ts Cas h and Cas h E quivalents Trade and Other Rec eivables Inventories Current Tax A s s ets Other Financ ial A s s et A vailable for S ale Tota l Curre nt Asse ts Non Curre nt Asse ts P roperty , P lant and E quipm ent Inves tm ent in A s oc iates Deferred Tax A s s ets Goodwill Other Intangible A s s ets Other Rec eivables Tota l Non Curre nt Asse ts Tota l Asse ts Curre nt Lia bilitie s Trade and Other P ay ables B orrowings Other Financ ial Liabilities Current Tax Liabilities P rovis ions Tota l Curre nt Lia bilitie s Non Curre nt Lia bilitie s B orrowings P rovis ions Tota l Non Curre nt Lia bilitie s Tota l Lia bilitie s Ne t Asse ts Equity Is s ued Capital S hares Res erved for P erform anc e Rights P lan Foreign Currenc y Trans lation Res erve Inves tm ent Revaulation Res erve E m ploy ee E quity -S ettled B enefits Res erve M andatory Is s uable Capital Retained E arnings Tota l Equity 28 7 8 5 10 9 11 26 5 12 13 14 15 29 5 16 15 16 17 17 18 18 18 18 10,070 39,744 42,631 267 2,870 95,582 14,705 110,287 47,180 26,270 15,832 60,377 1,884 957 152,500 262,787 17,306 6,902 80 - 16,185 40,473 43,239 2,153 45,392 85,865 176,922 90,259 - (11,762) 8,557 6,266 - 83,602 176,922 9,979 45,231 53,356 2,661 5,909 117,136 26,450 143,586 40,701 25,555 8,632 61,782 5,610 - 142,280 285,866 25,776 14,738 - 1,900 4,681 47,095 49,248 1,071 50,319 97,414 188,452 89,269 (952) (11,167) 13,754 6,087 990 90,471 188,452 The Cons olidated S tatem ent of Financ ial P os ition s hould b e read in c onjunc tion with the ac c om panying notes . Page 26 of 79 75 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt l a t o T o t e l b a t u b i r t t A s r e d l o H y t i u q E y t i t n E e h t f o d e n i a t e R s g n i n r a E e l b a u s s I l a t i p a C y r o t a d n a M e e y o l p m E t n e m t s e v n I d e l t t e S - y t i u q E n o i t a u l a v e R n g i e r o F y c n e r r u C s e r a h S r o f d e v r e s e r s t i f e n e B e v r e s e R e v r e s e R n o i t a l s n a r T e c n a m r o f r e P e v r e s e R n a l P s t h g i R d i a P y l l u F y r a n i d r O s e r a h S 6 6 0 , 8 6 1 8 3 8 , 5 8 0 9 9 5 8 3 , 6 7 2 2 , 0 1 ) 3 0 7 , 7 1 ( ) 0 4 7 , 3 ( 9 6 0 , 6 8 0 0 0 ' $ 0 0 0 ' $ 0 0 0 ' $ 0 0 0 ' $ 0 0 0 ' $ 0 0 0 ' $ 0 0 0 ' $ 0 0 0 ' $ s e t o N 6 3 5 , 6 8 3 0 , 5 ) 1 1 5 , 1 ( 3 8 3 , 9 1 6 4 4 , 9 2 0 0 2 , 3 ) 1 9 5 , 3 1 ( 1 3 3 , 1 - 2 5 4 , 8 8 1 ) 5 9 5 ( 7 0 1 , 7 1 ) 2 3 1 , 5 ( ) 7 7 2 , 5 ( ) 2 7 1 , 7 1 ( ) 9 6 0 , 1 1 ( - ) 2 4 8 ( - ) 4 6 4 ( 5 4 8 2 2 9 , 6 7 1 9 7 f o 7 2 e g a P - - - 3 8 3 , 9 1 3 8 3 , 9 1 - ) 1 9 5 , 3 1 ( - ) 9 5 1 , 1 ( 1 7 4 , 0 9 - - - - ) 7 7 2 , 5 ( ) 7 7 2 , 5 ( - ) 2 4 8 ( - - ) 0 5 7 ( 2 0 6 , 3 8 - - - - - - - - - - - - - - - 0 9 9 ) 0 9 9 ( - - - - - - - - - - - - 1 3 3 , 1 ) 9 2 6 , 1 ( 7 8 0 , 6 - - - - - - - - - 5 4 8 ) 6 6 6 ( 6 6 2 , 6 - 8 3 0 , 5 ) 1 1 5 , 1 ( - 7 2 5 , 3 - - - - 6 3 5 , 6 - - - 6 3 5 , 6 - - - - 4 5 7 , 3 1 ) 7 6 1 , 1 1 ( - 7 0 1 , 7 1 ) 2 3 1 , 5 ( - ) 7 9 1 , 5 ( ) 2 7 1 , 7 1 ( - - - - - ) 5 9 5 ( - - - - ) 5 9 5 ( - - - - - 7 5 5 , 8 ) 2 6 7 , 1 1 ( - - - - - - - ) 2 5 9 ( 8 8 7 , 2 - - - - - - - - - ) 4 6 4 ( 6 1 4 , 1 - - - - - - - - 0 0 2 , 3 9 6 2 , 9 8 - - - - - - 8 1 8 1 8 1 7 1 8 1 8 1 8 1 8 1 8 1 8 1 n g i e r o f f o n o i t a l s n a r t n o s e c n e r e f f i d e g n a h c x E 2 1 0 2 y l u J 1 t a e c n a l a B n o i t a x a t r e t f a s n o i t a r e p o H E S n i t n e m t s e v n i n o t n e m t s u j d a e u l a v r i a F r e h t o f o s t n e n o p m o c o t g n i t a l e r x a t e m o c n I e h t r o f n o i t a r e d i s n o c t r a p s a s e r a h s f o e u s s I d o i r e p e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T l a b o G o l i f o n o i t i s i u q c a e m o c n i e v i s n e h e r p m o c r a e y e h t r o f t i f o r P d i a p d n e d v D i i s t h g i r e c n a m r o f r e p - s t n e m y a p d e s a b e r a h S s t h g i r e c n a m r o f r e p f o t n e m e l t t e s / g n i t n a r G n g i e r o f f o n o i t a l s n a r t n o s e c n e r e f f i d e g n a h c x E 3 1 0 2 e n u J 0 3 t a e c n a l a B H E S n i t n e m t s e v n i n o t n e m t s u j d a e u l a v r i a F r e h t o f o s t n e n o p m o c o t g n i t a l e r x a t e m o c n I n o i t a x a t r e t f a s n o i t a r e p o e m o c n i e v i s n e h e r p m o c e l a s n o s s o l r o t i f o r p o t d e i f i s s a l c e r t i f o r p e v i t a l u m u C d o i r e p e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T x a t f o t e n , s e r a h s H E S f o r a e y e h t r o f s s o L 0 9 9 8 1 , 7 1 a d t L o i c r e m o C e a i r t s u d n I d u M m e t s y S f o n o i t i s i u q c a e h t r o f n o i t a r e d i s n o c t r a p s a s e r a h s f o e u s s I - - - - 9 5 2 , 0 9 n i d a e r e b d u o h s l y t i u q E n i s e g n a h C f o t n e m e t a t S d e t a d i l o s n o C e h T 8 1 8 1 s t h g i r e c n a m r o f r e p - s t n e m y a p d e s a b e r a h S s t h g i r e c n a m r o f r e p f o t n e m e l t t e s / g n i t n a r G 4 1 0 2 e n u J 0 3 t a e c n a l a B e c n a m r o f r e p y f s i t a s o t t e k r a m n o d e s a h c r u p s e r a h S s t h g i r d i a p d n e d v D i i i . s e t o n g n y n a p m o c c a e h t h t i w n o i t c n u n o c j I Y T U Q E N I S E G N A H C F O T N E M E T A T S D E T A D I L O S N O C 4 1 0 2 E N U J 0 3 D E D N E R A E Y E H T R O F I D E T M I L X E D M I s e i t i t n e d e l l o r t n o c s t i d n a 76 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2014 Ye a r Ende d 30 June 2014 $ʼ000 Ye a r Ende d 30 June 2013 $ʼ000 Note s Ca sh Flow s From Ope ra ting Activitie s Rec eipts from c us tom ers P ay m ents to s uppliers and em ploy ees Interes t and other c os ts of financ e paid Inc om e tax refund/(paid) Ne t ca sh provide d by Ope ra ting Activitie s Ca sh Flow s From Inve sting Activitie s Interes t rec eived P ay m ent for property , plant and equipm ent P roc eeds from s ale of S E H s hares , net of trans ac tion c os ts P roc eeds from s ale of property , plant and equipm ent P ay m ent for developm ent c os ts c apitalis ed P ay m ent for s hares in ioGlobal net of c as h ac quired Ne t ca sh provide d by/(use d in) Inve sting Activitie s Ca sh Flow s From Fina ncing Activitie s S hares purc has ed on m ark et to s atis fy perform anc e rights Dividend paid to owners of the Com pany Hire purc has e and leas e pay m ents P roc eeds from borrowings Repay m ent of borrowings Ne t ca sh use d in Fina ncing Activitie s 28(c ) 9 13 25(a) 201,995 (197,690) (2,850) 1,459 2,914 72 (16,903) 28,414 540 - - 12,123 (464) (842) (266) 46,568 (59,743) (14,747) 278,526 (216,267) (3,219) (20,070) 38,970 130 (23,768) - 180 (996) (3,874) (28,328) - (13,591) (581) 13,924 (12,314) (12,562) Ne t Incre a se /(De cre a se ) in Ca sh a nd Ca sh Equiva le nts He ld 290 (1,920) Cas h and Cas h E quivalents at the B eginning Of The Financ ial Y ear E ffec ts of ex c hange rate c hanges on the balanc e of c as h and c as h equivalents held in foreign c urrenc ies Ca sh a nd Ca sh Equiva le nts a t the End Of The Fina ncia l Ye a r 9,979 (199) 28(a) 10,070 11,232 667 9,979 The Cons olidated S tatem ent of Cas h Flows s hould b e read in c onjunc tion with the ac c om panying notes . Page 28 of 79 77 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 1 Adoption 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. In the current year, the Group has applied for the first time AASB 10, AASB 11, AASB 12, AASB 13, AASB 119 and AASB 128 (as revised in 2011) together with the amendments to AASB 10, AASB 11 and AASB 12 regarding the transitional guidance. AASB 127 (as revised in 2011) is not applicable to the Group as it deals only with separate financial statements. The adoption of these amendments has not resulted in any significant changes to the Groupʼs accounting policies and has no significant affect on the amounts reported for the current or prior periods. Accounting Standards and Interpretations issued but not yet effective At the date of authorisation of the financial report, a number of Standards and Interpretations were in issue but not yet effective. Initial application of the following Standards/Interpretations is not, based on managementʼs assessment to date, expected to have any material impact on the financial report of the company: Standard/Interpretation Effective for annual reporting periods beginning on or after: Expected to be initially applied in the financial year ending: AASB 9 ʻFinancial Instrumentsʼ, and the relevant amending standards1 1 January 2017 30 June 2018 AASB 1031 ʻMaterialityʼ (2013) 1 January 2014 30 June 2015 AASB 2012-3 ʻAmendments to Australian Accounting Standards – Offsetting Financial Assets and Financial Liabilitiesʼ 1 January 2014 30 June 2015 AASB 2013-3 ʻAmendments to AASB 136 – Recoverable Amount Disclosures for Non-Financial Assetsʼ 1 January 2014 30 June 2015 AASB 2013-4 ʻAmendments to Australian Accounting Standards – Novation of Derivatives and Continuation of Hedge Accountingʼ AASB 2013-9 ʻAmendments to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instrumentsʼ INT 21 ʻLeviesʼ AASB 2014-1 ʻAmendments to Australian Accounting Standardsʼ - - Part A: ʻAnnual Improvements 2010–2012 and 2011–2013 Cyclesʼ Part C: ʻMaterialityʼ 1 January 2014 30 June 2015 1 January 2014 30 June 2015 1 January 2014 30 June 2015 1 July 2014 30 June 2015 AASB 2014-1 ʻAmendments to Australian Accounting Standardsʼ – Part E: ʻFinancial Instrumentsʼ 1 January 2015 30 June 2016 IFRS 15 ʻRevenue from Contracts with Customersʼ 1 January 2017 30 June 2018 1 The AASB has issued the following versions of AASB 9 and the relevant amending standards: AASB 9 ʻFinancial Instrumentsʼ (December 2009), AASB 2009-11 ʻAmendments to Australian Accounting Standards arising from AASB 9ʼ, AASB 2012-6 ʻAmendments to Australian Accounting Standards – Mandatory Effective Date of AASB 9 and Transition Disclosuresʼ AASB 9 ʻFinancial Instrumentsʼ (December 2010), AASB 2010-7 ʻAmendments to Australian Accounting Standards arising from AASB 9 (December 2010)ʼ, AASB 2012-6 ʻAmendments to Australian Accounting Standards – Mandatory Effective Date of AASB 9 and Transition Disclosureʼ. In December 2013 the AASB issued AASB 2013-9 ʻAmendment to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instrumentsʼ, Part C – Financial Instruments. This amending standard has amended the mandatory effective date of AASB 9 to 1 January 2017. For annual reporting periods beginning before 1 January 2017, an entity may early adopt either AASB 9 (December 2009) or AASB 9 (December 2010) and the relevant amending standards. Page 29 of 79 78 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 2 Summary of Significant Accounting Policies The financial report is a general purpose financial report which has been prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial statements comprise the consolidated financial statements of the Group. For the purposes of preparing the consolidated financial statements, the Group is a for-profit entity. Accounting Standards include Australian Accounting Standards. Compliance with Australian Accounting Standards ensures that the financial statements and notes of the company and the Group comply with International Financial Reporting Standards (ʻIFRSʼ). The financial statements were authorised for issue by the directors on 15 August 2014. Where applicable comparative numbers have been reclassified 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 current assets held for sale and financial instruments. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are presented in Australian dollars, unless otherwise noted. The Company is a company of the kind referred to in ASIC Class Order 98/0100, dated 10 July 1998, and in accordance with that Class Order amounts in the financial report are rounded off to the nearest thousand dollars, unless otherwise indicated. Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported. The following significant accounting policies have been adopted in the preparation and presentation of the Financial Report: (b) Basis of Consolidation The financial statements of the Company and entities controlled by the Company (its subsidiaries) (referred to as ʻthe Groupʼ in these financial statements). Control is achieved when the Group has power over an entity and is exposed to, or has rights over, the variable returns of the entity, as well as the ability to use this power to affect the variable returns of the entity. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. A change in the ownership interest of a subsidiary that does not result in a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it: derecognises the assets (including goodwill) and liabilities of the subsidiary; derecognises the carrying amount of any non-controlling interest; recognises the fair value of the consideration received; recognises the fair value of any investment retained; recognises any surplus or deficit in profit or loss, and; reclassifies to profit or loss or transfers directly to retained earnings, as appropriate, the parentʼs share of components previously recognised in other comprehensive income. Interest in associates are equity accounted and are not part of the consolidated Group (see 2(j)). Transactions and balances between the company and its associates were eliminated in the preparation of consolidated financial statements of the Group to the extent of the Groupʼs share in profits and losses of the associate resulting from these transactions. Page 30 of 79 79 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 2 (c) Summary of Significant Accounting Policies (continued) 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 financial position. (d) Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except: (i) (ii) where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or for receivables and payables which are recognised inclusive of GST. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables. Cash flows are included in the consolidated statement of cash flows on a gross basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows. (e) 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 acquirerʼs previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the Groupʼs interest in the fair value of the acquireeʼs identifiable 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 acquirerʼs previously held equity interest in the acquiree (if any), the excess is recognised immediately in profit 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 Groupʼs cash-generating units expected to benefit 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 first 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 profit or loss on disposal. (f) Inventories Inventories are valued at the lower of cost and net realisable value. Costs, including an appropriate portion of fixed and variable overhead expenses, are assigned to inventory on hand by the method most appropriate to each particular class of inventory, with the majority being valued on a first in first out basis. Net realisable value represents the estimated selling price less all estimated costs of completion and costs necessary to make the sale. (g) Property, plant and equipment Plant and equipment, leasehold improvements and equipment under finance lease are stated at cost less accumulated depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the item. In the event that settlement of all or part of the purchase consideration is deferred, cost is determined by discounting the amounts payable in the future to their present value as at the date of acquisition. Depreciation is calculated on a straight line basis 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 finance 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 profit 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 finance 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 Groupʼs 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. Page 31 of 79 80 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 2 Summary of Significant Accounting Policies (continued) (h) Performance rights Equity-settled performance rights 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 managementʼs best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. The fair value determined at the grant date of the performance right is expensed over the vesting period, based on the Groupʼs estimate of shares that will eventually vest. At each reporting date, the Group revises its estimate of the number of performance rights expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss over the remaining vesting period, with a corresponding adjustment to the employee equity-settled benefits reserve. (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 profit 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 classified as an asset or liability are accounted for in accordance with relevant Standards. Changes in the fair value of contingent consideration classified as equity are not recognised. Where a business combination is achieved in stages, the Groupʼs 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 profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss, where such treatment would be appropriate if that interest were disposed of. The acquireeʼs identifiable 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 benefit arrangements are recognised and measured in accordance with AASB 112 Income Taxes and AASB 119 Employee Benefits respectively; liabilities or equity instruments related to the replacement by the Group of an acquireeʼs share based payment awards are measured in accordance with AASB 2 Share-based Payment; and assets (or disposal groups) that are classified 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 reflect 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 significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial 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 financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for in accordance with AASB 5 ʻNon-current Assets Held for Sale and Discontinued Operationsʼ. Under the equity method, an investment in an associate is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Groupʼs share of the profit or loss and other comprehensive income of the associate. When the Groupʼs share of losses of an associate exceeds the Groupʼs interest in that associate (which includes any long-term interests that, in substance, form part of the Groupʼs 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 Groupʼs share of the net fair value of the identifiable 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 Groupʼs share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss. Page 32 of 79 81 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 2 (j) Summary of Significant Accounting Policies (continued) Investments in associates (continued) The requirements of AASB 139 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Groupʼs investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with AASB 136 ʻImpairment of Assetsʼ 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, profits and losses resulting from the transactions with the associate are recognised in the Group's consolidated financial 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 specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. (l) Foreign currency The individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each entity are expressed in Australian dollars, which is the functional currency of Imdex Limited, and the presentation currency for the consolidated financial statements. In preparing the financial statements of the individual entities, transactions in currencies other than the entityʼs functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences are recognised in profit or loss in the period in which they arise except for exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned or likely to occur, which form part of the net investment in a foreign operation, and which are recognised in the foreign currency translation reserve and recognised in profit or loss on disposal of the net investment. On consolidation, the assets and liabilities of the Groupʼs 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 fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are classified as equity and transferred to the Groupʼs translation reserve. Such exchange differences are recognised in profit or loss in the period in which the foreign operation is disposed. Goodwill and fair value adjustments arising on the acquisition of a foreign entity on or after the date of transition to A-IFRS are treated as assets and liabilities of the foreign entity and translated at exchange rates prevailing at the reporting date. Goodwill arising on acquisitions before the date of transition to A-IFRS is treated as an Australian dollar denominated asset. (m) Derivative financial instruments The Group enters into derivative financial 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 financial instruments are disclosed in the financial instruments note in the financial 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 profit or loss immediately. The Group has not designated any financial instruments as being hedge accounted. (i) Embedded derivatives Derivatives embedded in other financial 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 profit or loss. 82 Page 33 of 79 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 2 Summary of Significant Accounting Policies (continued) (n) Financial assets All financial assets are recognised and derecognised on trade date where purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured at fair value, net of transaction costs except for those financial assets classified as ʻat fair value through the profit or lossʼ which are initially measured at fair value. Financial assets are classified into the following specified categories: financial assets ʻat fair value through profit or lossʼ, ʻheld-to- maturityʼ investments, ʻcurrent assets held for saleʼ, ʻavailable-for-saleʼ financial assets, and ʻloans and receivablesʼ. The classification depends on the nature and purpose of the financial 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 financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period. Income is recognised on an effective interest rate basis for debt instruments other than those financial assets ʻat fair value through profit or lossʼ. (ii) Held-to-maturity investments Bills of exchange and debentures with fixed or determinable payments and fixed maturity dates where the Group has the positive intent and ability to hold to maturity are classified 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. (iii) Financial assets at fair value through profit or loss Financial assets are classified as financial assets at fair value through profit or loss where the financial asset: Has been acquired principally for the purpose of selling in the near future; Is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or Is a derivative that is not designated and effective as a hedging instrument. Financial assets at fair value through profit or loss are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset. (iv) Available-for-sale financial assets Available-for-sale assets are stated at fair value. Gains and losses arising from changes in fair value are recognised directly in the investments revaluation reserve with the exception of impairment losses, interest calculated using the effective interest rate method and foreign exchange gains and losses on monetary assets which are recognised directly in profit or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognised in the investments revaluation reserve is included in profit or loss for the period. The fair value of available-for-sale monetary assets held in a foreign currency is determined in that foreign currency and translated at the spot rate at reporting date. The change in fair value attributable to translation differences that results from a change in amortised cost of the asset is recognised in profit or loss, and other changes are recognised in equity. Available-for-sale financial assets include investments where shareholding is greater than 20% but significant influence is not exerted over the invested company. (v) Loans and receivables Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ʻloans and receivablesʼ. 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. (vi) Impairment of financial assets Financial assets other than those at fair value through profit or loss, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. For financial assets carried at amortised cost, the amount of the impairment is the difference between the assetʼs carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying value of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables where the carrying value is reduced through the use of an allowance account. When a trade receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. With the exception of available-for-sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. Page 34 of 79 83 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 2 Summary of Significant Accounting Policies (continued) (n) Financial assets (continued) In respect of available-for-sale instruments, any subsequent increase in fair value after an impairment loss is recognised directly in equity. (vii) Derecognition of financial assets The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or it transfers the financial 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 financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. (o) (i) Financial liabilities and equity instruments issued by the Group Debt and equity instruments Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual arrangement. 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 classified as either financial liabilities ʻat fair value through profit or lossʼ or other financial liabilities. (iii) Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised through profit or loss incorporates any interest paid on the financial liability. A financial 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 identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or it is a derivative that is not designated and effective as a hedging instrument. A financial liability other than a financial liability held for trading is designated as ʻat fair value through profit or lossʼ upon initial recognition if: such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance evaluated on a fair value basis, in accordance with the Groupʼs 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 ʻFinancial Instruments: Recognition and Measurementʼ permits the entire combined contract (asset or liability) to be designated as ʻat fair value through profit or lossʼ. (iv) Other financial liabilities Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest rate method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period. 84 Page 35 of 79 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 2 (p) (i) Summary of Significant Accounting Policies (continued) Intangible assets Intangible assets acquired in a business combination All intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their value can be measured reliably. Identifiable intangible assets comprise intellectual property, technology, contracts, customers, 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 indefinite useful life assessment for the asset. Such assets are tested for impairment in accordance with the policy stated in note 2(u). (ii) Research and development costs Expenditure on research activities is recognised as an expense in the period in which it is incurred. Where no internally-generated intangible asset can be recognised, development expenditure is recognised as an expense in the period as incurred. An intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following are demonstrated: the technical feasibility of completing the intangible asset so that it will be available for use or sale; the intention to complete the intangible asset and use or sell it; the ability to use or sell the intangible asset; how the intangible asset will generate probable future economic benefits; the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and the ability to measure reliably the expenditure attributable to the intangible asset during its development. Capitalised development costs are stated at cost less accumulated amortisation and impairment, and are amortised on a straight-line basis over their useful life of 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 profit for the period. Taxable profit differs from profit 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 Groupʼs 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 financial statements and the corresponding tax bases used in the computation of taxable profit. 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 profits 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 profit nor the accounting profit. 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 sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. Page 36 of 79 85 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 2 Summary of Significant Accounting Policies (continued) (q) Taxation (continued) 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 sufficient taxable profits 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 reflects 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 profit or loss, except when they relate to items that are recognised outside profit or loss (whether in other comprehensive income or directly in equity), in which case the tax is also recognised outside profit 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. (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 financial statements of the members of the tax-consolidated group using the ʻseparate taxpayer within groupʼ approach by reference to the carrying amounts in the separate financial statements of each entity and the tax values applying under tax consolidation. Current tax liabilities and assets and deferred tax assets arising from unused tax losses and relevant tax credits of the members of the tax-consolidated group are recognised by the Company (as head entity in the tax-consolidated group). Due to the existence of a tax funding arrangement between the entities in the tax-consolidated group, amounts are recognised as payable to or receivable by the Company and each member of the group in relation to the tax contribution amounts paid or payable between the parent entity and the other members of the tax- consolidated group in accordance with the arrangement. Further information about the tax funding arrangement is detailed in note 5 to the financial statements. Where the tax contribution amount recognised by each member of the tax-consolidated group for a particular period is different to the aggregate of the current tax liability or asset and any deferred tax asset arising from unused tax losses and tax credit in respect of that period, the difference is recognised as a contribution from (or distribution to) equity participants. (r) Leased assets Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. (i) Group as Lessor Rental income from operating leases is recognised on a straight line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term. (ii) Group as Lessee Assets held under finance leases are initially recognised at their fair value or, if lower, at amounts equal to the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the consolidated statement of financial position as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Groupʼs general policy on borrowing costs. Finance leased assets are amortised on a straight line basis over the estimated useful life of the asset. Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. (iii) Lease incentives In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefits of incentives are recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. 86 Page 37 of 79 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 2 Summary of Significant Accounting Policies (continued) (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 satisfied: the Group has transferred to the buyer the significant risks and rewards of ownerships of the goods; the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the entity; and the costs incurred or to be incurred in respect of the transaction can be measured reliably. (ii) Rendering of services Revenue from a contract to provide services is recognised by reference to the stage of completion of the contract. (iii) Rental income The Groupʼs policy for recognition of revenue from operating leases is described in note 2 (r)(i). (iv) Royalties Royalty revenue is recognised on an accrual basis in accordance with the substance of the relevant agreement. (v) Dividend and interest revenue Dividend revenue from investments is recognised when the shareholders right to receive payment has been established. Interest revenue is accrued on a time basis, by reference to the principle outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that assetʼs net carrying amount. (t) (i) Employee benefits Provisions Provision is made for benefits accruing to employees in respect of wages and salaries, annual leave, long service leave, and sick leave when it is probable that settlement will be required and they are capable of being measured reliably. Provisions made in respect of employee benefits expected to be settled within 12 months, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Provisions made in respect of employee benefits which are not expected to be settled within 12 months are measured as the present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to reporting date. (ii) Defined contribution plans Contributions to defined contribution superannuation plans are expensed when incurred. (iii) Termination benefit A liability for a termination benefit is recognised at the earlier of when the entity can no longer withdraw the offer of the termination benefit and when the entity recognises any related restructuring costs. (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 flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash- generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in profit or loss immediately. Page 38 of 79 87 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 2 Summary of Significant Accounting Policies (continued) (u) Impairment of other tangible and intangible assets (other than goodwill) (continued) Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised in profit or loss immediately. (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 cashflows estimated to settle the present obligation, its carrying amount is the present value of those cashflows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that recovery will be received and the amount of the receivable can be measured reliably. (w) Contingent Liabilities A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non- occurrence of one or more uncertain future events beyond the control of the Group or a present obligation that is not recognised because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognised because it cannot be measured reliably. The Group does not recognise a contingent liability but discloses its existence in the financial statements. (x) Contingent Assets A contingent asset is a possible asset that arises from past events whose existence will be confirmed by the occurrence or non- occurrence of one or more uncertain future events beyond the control of the Group. The Group does not recognise contingent assets but discloses its existence where inflows of economic benefits are probable, but not virtually certain. 88 Page 39 of 79 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 3 Critical Accounting Judgements and Key Sources of Estimation Uncertainty In the application of the Groupʼs 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 entityʼs accounting policies Management has not made any significant critical judgements in the process of applying the Groupʼs accounting policies. Key sources of estimation uncertainty The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year: Use of forecasts The directors have considered a number of factors in regard to any forward looking estimates. Imdexʼs results for the year ended 30 June 2014 reflected the subdued activity levels within the minerals industry due to the cyclical downturn. Positive signs of improvement were evident during 4Q14, as outlined within the Directorsʼ report. The use of estimates is inherently uncertain and requires a significant level of judgement. Forward looking estimates have been used in the preparation of the financial report in respect of impairment of assets, recognition of deferred tax assets, the appropriate level of provisions and preparation of the financial report on a going concern basis. Management and the Directors have concluded that appropriate assessments have been made with respect to the use of forecasts in the preparation of the financial report. 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 flows 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). An impairment loss of $3.7 million was booked in the current year (2013: nil). A goodwill amount of $60.3 million and intangible assets of $1.9 million have been recognised on the face of the consolidated statement of financial position. Recognition of net deferred tax asset A net deferred tax asset of $15.8 million has been recognised on the face of the consolidated statement of financial position. The largest component of this asset is the future tax benefit of depreciation of unrealised profits in property, plant and equipment items. This tax benefit 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 flows 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 performance rights Performance rights as detailed in note 33 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. Provisions and contingent liabilities The Group exercises judgement in measuring and recognising provisions and the exposures to contingent liabilities related to pending litigation or other outstanding claims subject to negotiated settlement, mediation, arbitration or government regulation. Judgement is necessary in assessing the likelihood that a pending claim will succeed, or a liability will arise and to quantify the possible range of the financial settlement. Because of the inherent uncertainty in this evaluation process, actual losses may be different from the originally estimated provision. As announced to the market on 13 March 2014, Imdexʼs subsidiary the Australian Mud Company Pty Ltd (AMC), undertook precautionary measures for the containment of an imported product used in some drilling operations within Queensland, Australia. The measures were taken following notification that certain batches were contaminated. Costs relating to the product containment incident are unlikely to be recoverable. As a result, management have made an estimate of the costs to remediate and have provided for these costs in FY14 based on this best estimate. In making this assessment a forward looking estimate has been made of future cash flows and the likely outcome of remediation negotiations. Page 40 of 79 89 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 4 Profit from Operations (a ) R e ve n u e fro m o p e ra tio n s R e ve n u e R evenue from the s ale of goods O perating rental inc om e Interes t inc om e - bank depos its (b ) (L o ss)/p ro fit b e fo re in co m e ta x 2014 $ʼ000 2013 $ʼ000 137,765 45,720 72 183,557 165,827 66,964 130 232,921 O ther than as dis c los ed on the fac e of the inc om e s tatem ent, profit before inc om e tax has been arrived at after c rediting / (c harging) the follow ing gains and los s es : Los s on dis pos al of property , plant and equipm ent (206) (58) O th e r in co m e G ain on the dis pos al of s hares in S E H (note 9) O ther D e p re cia tio n , a m o rtisa tio n a n d im p a irm e n t o f N o n C u rre n t A sse ts D eprec iation of P roperty , P lant and E quipm ent (note 11) A m ortis ation of Intangible A s s ets (note 13) Im pairm ent of G oodw ill (note 12) Im pairm ent of Intangibles (note 13) W rite dow n of fix ed as s ets (note 11) F in a n ce co sts Interes t on hire purc has e liabilities Interes t on c om m erc ial bills /bank loans Interes t on overdraft O ther interes t O th e r e x p e n se s C om m is s ions C ons ultanc y fees Legal and profes s ional ex pens es (i) F oreign ex c hange los s R ent and prem is es c os ts Travel and ac c om m odation F reight M otor vehic le c os ts O bs olete s toc k D oubtful debts (note 7) K az ak hs tan bus ines s c los ure c os ts O ffic e c los ure c os ts P roduc t c ontainm ent O ther ex pens es 24,094 89 24,183 (7,575) (1,469) (1,500) (2,246) (3,803) (16,593) (33) (2,717) (103) (30) (2,883) (1,416) (2,297) (7,261) (859) (6,913) (5,458) (1,106) (2,700) (2,568) (4,199) (2,437) (1,400) (9,080) (10,029) (57,723) - 46 46 (7,728) (3,364) - - - (11,092) (68) (3,016) (88) (266) (3,438) (2,120) (2,783) (6,435) (1,061) (5,354) (5,512) (1,973) (2,514) (593) (1,098) - - - (9,376) (38,819) (i) Inc ludes legal, audit, ac c ounting, s hare regis try and c orporate s ec retarial fees . Em p lo ye e b e n e fits e x p e n se P os t-em ploy m ent benefits : D efined c ontribution s uperannuation c os ts S hare bas ed pay m ents : E quity -s ettled s hare bas ed pay m ents - perform anc e rights (note 18) Term ination benefits O ther em ploy ee benefits C o st o f sa le s (2,649) (2,549) (845) (547) (47,407) (51,448) (1,331) - (47,459) (51,339) (86,870) (101,069) M o ve m e n t in p ro visio n fo r d o u b tfu l d e b ts (n o te 7) 4,199 1,098 O p e ra tin g le a se re n ta l (m in im u m le a se p a ym e n ts) (7,045) (6,174) Page 41 of 79 90 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 5 Income Taxes (a) Income credit/(tax) recognised in the income statement Tax (credit)/expense comprises: Current tax expense Deferred tax (credit)/expense relating to the origination and reversal of temporary differences (Over)/Under provision per prior year Total tax (credit)/expense 2014 $ʼ000 2013 $ʼ000 2,757 (3,728) (814) (1,785) 7,853 884 390 9,127 Prima facie income tax expense on pre-tax accounting (loss)/profit from operations reconciles to income (credit)/tax in the financial statements as follow s: (Loss)/profit from operations (7,062) 28,510 Income tax (credit)/expense calculated at 30% Impairment of Goodwill Non-assessable share of profit of Associate Current year losses not recognised for deferred tax purposes Other non-deductible and non-assessable items (Over)/Under provision of prior year income tax (2,119) 450 (215) 638 275 (814) (1,785) 8,553 - (390) - 573 390 9,127 The tax rate used in the above reconciliation is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits under Australian law. There has been no change in the corporate tax rate when compared with the previous reporting year. (b) Income tax recognised directly in OCI The following current and deferred amounts were charged directly to equity during the year: Deferred tax: SEH fair value uplift taken directly to reserve (5,132) (1,511) (c) Current tax assets and liabilities Current tax receivable Current tax payable 267 - 2,661 1,900 Page 42 of 79 91 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 5 Income Taxes (continued) (d) Deferred tax balances Deferred tax assets comprise: Provisions Inventory Property, plant and equipment Carry forward tax losses in subsidiary companies Accruals Foreign currency movement Other Deferred tax liabilities comprise: Intangible assets Available-for-sale non-current assets Untaxed reserves Net deferred tax balances Unrecognised deferred tax assets: The following have not been brought to account as assets: 2014 $ʼ000 2013 $ʼ000 7,391 1,820 3,041 5,220 469 1,638 548 20,127 (280) (3,667) (348) (4,295) 15,832 1,464 488 7,067 2,434 874 1,634 1,373 15,334 (1,693) (4,584) (425) (6,702) 8,632 Temporary differences relating to the translation of investments in subsidiary undertakings 2,018 2,802 Deferred Tax Assets in respect of unrecognised tax losses 761 - Tax Consolidation Relevance of tax consolidation to the Group Legislation to allow groups, comprising a parent entity and its Australian resident wholly-owned entities, to elect to consolidate and be treated as a single entity for income tax purposes was substantively enacted on 21 October 2002. The Company and its wholly-owned Australian resident entities are eligible to consolidate for tax purposes under this legislation and have elected to be taxed as a single entity from 1 July 2003. The head entity in the tax consolidated group for the purposes of the tax consolidation system is Imdex Limited. Nature of tax funding arrangements and tax sharing agreements Entities within the tax-consolidated group have entered into a tax funding and a tax-sharing agreement with the head entity. Under the terms of this agreement, Imdex Limited and each of the entities in the tax consolidated group has agreed to pay a tax equivalent payment to or from the head entity, based on the net accounting profit or loss of the entity and the current tax rate. Such amounts are reflected in amounts receivable from or payable to other entities in the tax consolidated group. The tax sharing agreement entered into between members of the tax consolidated group provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations or if an entity should leave the tax consolidated group. The effect of the tax sharing agreement is that each member's liability for tax payable by the tax consolidated group is limited to the amount payable by the head entity under the tax funding arrangement. The amount of contribution or distribution relating to tax consolidation in the current and prior year amounted to nil. 92 Page 43 of 79 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 6 Remuneration of Auditors Deloitte Touche Tohmatsu (Australia) Audit or review of the financial report Other audit related services Taxation services - mainly compliance work, transfer pricing and global restructuring advice Deloitte Touche Tohmatsu (overseas affiliates) Audit or review of the financial report Taxation services - mainly compliance work, transfer pricing and global restructuring advice Other non-audit services: Other consulting services Other auditors 2014 $ 2013 $ 345,500 9,000 47,176 401,676 326,550 - 762,501 1,089,051 56,300 81,601 47,919 22,750 126,969 68,131 - 149,732 Audit or review of the financial report 28,534 25,583 Total Auditor Remuneration 557,179 1,264,366 Page 44 of 79 93 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 7 Trade and Other Receivables Curre nt Trade rec eivables A llowanc e for doubtful debts O ther rec eivables Note s 2014 $ʼ000 2013 $ʼ000 (i) (ii) 42,650 (4,771) 37,879 1,865 39,744 45,071 (1,269) 43,802 1,429 45,231 (i) The average c redit period on s ales of goods is around 60 day s . Trade rec eivables are interes t free. A n allowanc e has been m ade for es tim ated irrec overable am ounts from the s ale of goods and s ervic es , determ ined by referenc e to pas t default ex perienc e and s pec ific k nowledge of individual A geing of pas t due but not im paired debtors 0 - 30 day s pas t due 31 - 60 day s pas t due 61 + day s pas t due 1,719 7,493 2,498 11,710 2,034 8,629 2,876 13,539 The above analy s is s hows debtors that are pas t due at provis ion has been rais ed as the G roup believes that The G roup does not hold any c ollateral over thes e balanc es . the end of the reporting date where no the am ounts are s till c ons idered rec overable. (ii) M ovem ent in the allowanc e for doubtful debts B alanc e at the beginning of the y ear A m ounts written off during the y ear Inc reas e in allowanc e rec ognis ed in profit or los s B alanc e at the end of the y ear A ll im paired debtors are in ex c es s of 90 day s overdue. 1,269 (697) 4,199 4,771 1,463 (1,292) 1,098 1,269 In determ ining the rec overability of a trade rec eivable the G roup c ons iders any c hange in the c redit quality of the trade rec eivable from the date c redit was initially granted up to the reporting date. The ris k is lim ited due to the c us tom er bas e being large and unrelated. c onc entration of c redit there is no further c redit provis ion required in ex c es s of the A c c ordingly , allowanc e for doubtful debts . the direc tors believe that 8 Inventories Current Raw materials Work in progress Finished goods 2014 $ʼ000 2013 $ʼ000 7,597 1,321 33,713 42,631 7,989 4,331 41,036 53,356 A provision for diminution of stock of $2,762,530 existed at 30 June 2014 (2013: $722,000). 94 Page 45 of 79 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 9 Financial Assets Available for Sale Curre nt Fina ncia l Asse t Ava ila ble for Sa le Investment in Sino Gas and Energy Holdings Ltd Note s 2014 $ʼ000 2013 $ʼ000 (i) 14,705 26,450 (i) Comprises 91,908,446 fully paid ordinary shares in Sino Gas and Energy Holdings Ltd (SEH) held at fair value (2013: 251,908,446 shares). This amounts to 6.01% of the issued share capital of SEH (30 June 2013: 20.11%). This asset is non-core and accordingly, this investment has been classified as a Financial Asset Available for Sale and is carried at fair value. During the year Imdex disposed of 160,000,000 SEH shares resulting in cash proceeds (net of selling expenses) of $28.4m, and resulting in a gain on disposal of $24.1m recognised in the Consolidated Statement of Profit or Loss and Other Comprehensive Income. SEH shares have previously been accounted for as a financial asset held for sale, with revaluation gains/losses recorded within other comprehensive income (net of tax). Historical revaluation gains up to the date of disposal of $17.2m (net of tax), have been reclassified at the date of disposal from Other Comprehensive Income to the Statement of profit or loss. Subsequent to year end, the Group sold the remaining 91.9 million shares of its Sino Gas and Energy Holdings Ltd shareholdings at a share price of 18.5 cents per share to realise gross cash proceeds of $17.0 million at a book profit before tax of $14.2 million. Amounts shown within the Investment Revaluation Reserve at 30 June 2014 will be recycled to the Income Statement as a result of this sale. Investment in Sino Gas and Energy Holdings Ltd Balance at beginning of the financial year Part disposal of shares held in Sino Gas and Energy Holdings Ltd Fair value adjustment taken directly to equity (pre-tax) Balance at the end of the period Shares 251,908,446 (160,000,000) - 91,908,446 2014 $ʼ000 26,450 (28,852) 17,107 14,705 During the current year the carrying value of this investment was written up to its market value of $0.16 per share or $14.7 million in total at 30 June 2014. 10 Other Assets Current Prepayments 2014 $ʼ000 2013 $ʼ000 2,870 5,909 Page 46 of 79 95 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 11 Property, Plant and Equipment Plant and Equipment at cost Leasehold Improvements at cost Capital W orks in Progress at cost TOTAL $ʼ000 $ʼ000 $ʼ000 $ʼ000 Gross Carrying Value Balance at 30 June 2012 Additions Acquisitions through business combinations Disposals Net foreign currency exchange differences Balance at 30 June 2013 Additions Disposals W rite down of fixed assets Net foreign currency exchange differences 3,339 2,720 32,656 26,597 21,597 680 2,043 24,320 175 - - 175 (1,596) - (292) (1,888) 5,334 104 188 5,626 52,107 4,123 4,659 60,889 8,102 4,366 4,523 16,991 (370) (340) - (710) - - (3,803) (3,803) (140) 1,472 1,595 17 Balance at 30 June 2014 61,434 8,166 5,239 74,839 Accumulate d Depre ciation Balance at 30 June 2012 Disposals Depreciation expense Net foreign currency exchange differences Balance at 30 June 2013 Disposals Depreciation expense Net foreign currency exchange differences 1,475 - 12,926 11,451 (1,650) - - (1,650) 7,083 645 - 7,728 1,171 13 - 1,184 18,055 2,133 - 20,188 (67) (247) - (314) 6,818 757 - 7,575 - 210 206 4 Balance at 30 June 2014 25,012 2,647 - 27,659 Net Book Value As at 30 June 2013 As at 30 June 2014 34,052 1,990 4,659 40,701 36,422 5,519 5,239 47,180 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 Leasehold improvements 2014 $ʼ000 2013 $ʼ000 6,818 7,083 757 645 7,575 7,728 96 Page 47 of 79 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 12 Goodwill Gross Ca rrying Am ount Balance at beginning of the financial year Recognised on acquisition of ioGlobal Recognised on acquisition of System Mud Industria e Comercio Ltda (System Mud) Effect of foreign exchange movements Balance at end of the financial year Accum ula te d Im pa irm e nt Losse s Balance at beginning of the financial year Impairment losses for the year Balance at end of the financial year Ne t Book Va lue At the beginning of the financial year At the end of the financial year Goodw ill is a lloca te d to ca sh-ge ne ra ting units a s follow s: Reflex AMC Minerals Asia Pacific AMC Minerals South America AMC Oil & Gas Europe Note s 2014 $ʼ000 2013 $ʼ000 (i) (ii) 84,280 - - 95 84,375 77,075 6,357 338 510 84,280 (22,498) (1,500) (23,998) (22,498) - (22,498) 61,782 60,377 54,577 61,782 35,909 18,360 5,811 297 60,377 35,979 18,360 7,146 297 61,782 (i) Foreign currency conversion of goodwill Some goodwill balances are denominated in currencies other than Australian Dollars. In particular a portion of goodwill associated with the Reflex CGU is denominated in Swedish Kroner and a portion of the AMC Minerals South America CGU is denominated in Brazilian Real. These non-Australian Dollar balances are translated into Australian Dollars and fluctuate in line with foreign exchange movements. (ii) Impairment losses recognised by cash-generating units: AMC Minerals South America (1,500) - AMC Minerals South America Imdex has performed a value in use calculation, using a post tax discount rate of 13.47%, for the AMC Minerals South America CGU and has determined that the recoverable value is $5.8m (FY13: $7.1m). $1.5m of goodwill recognised on the acquisition of AMC Minerals South America is not recoverable, and a goodwill impairment charge of $1.5m has been recognised as at 30 June 2014. Page 48 of 79 97 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 12 Goodwill (continued) (iii) Value in use calculations for AMC Minerals Asia Pacific, Reflex and AMC Oil and Gas Europe The recoverable amount of AMC Minerals Asia Pacific, Reflex, and AMC Oil and Gas CGUʼs have been determined based on a value in use calculation using cash flow projections covering a five year period, based on financial forecast models prepared by management and approved by the Imdex Limited Board. The following describes each key assumption on which management has based its value in use calculation for the above CGUʼs: The discount rate applied to post tax cash flow projections is 11.47% (2013: 7.26%); Revenue growth over the five year plan period for AMC Minerals Asia Pacific and Reflex has been forecast in line with the expected rate of recovery of the mining and mineral exploration markets, while revenue growth for AMC Oil and Gas in Europe has been projected to be in line with forecast growth in the Oil and Gas sector in the region. Projections are based on a five year forecast model prepared by management and approved by the Board of Directors; Cash flows beyond the five year period are estimated using a terminal value calculated under standard valuation principles incorporating a long term growth rate of 2.5% (2013: nil); The impact of working capital has been assumed to increase in line with revenue growth; Capital investment required to run the business has been assumed based on a five year forecast model prepared by management and approved by the Board of Directors. Management has considered the possibility that discount rates, long-term growth rates and forecast EBITDA growth could vary and have concluded that there are no reasonably possible changes in key assumptions that would result in a material impairment of goodwill for these CGUʼs. (iv) Value in use calculations for AMC Minerals South America The recoverable amount of AMC Minerals South America has been determined based on a value in use calculation using cash flow projections covering a five year period, based on financial forecast models prepared by management and approved by the Imdex Limited Board. The following describes each key assumption on which management has based its value in use calculation for AMC Minerals South America: The discount rate applied to post tax cash flow projections is 13.47% (2013: 11.62%); Revenue growth over the five year plan period for AMC Minerals South America has been forecast in line with the expected rate of recovery of the mining and mineral exploration market within South and Latin America. Projections are based on a five year forecast model prepared by management and approved by the Board of Directors; Cash flows beyond the five year period are estimated using a terminal value calculated under standard valuation principles incorporating a long term growth rate of 2.5% (2013: nil); The impact of working capital has been assumed to increase in line with revenue growth; Capital investment required to run the business has been assumed based on a five year forecast model prepared by management and approved by the Board of Directors. 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 flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. Management has considered the implications of the key assumptions for the recoverable amount. The two main sensitivities where a reasonably possible change could lead to further impairment are considered further below, demonstrating the impact of the recoverable amount of a 0.25% change in these assumptions. A forward looking estimation of this nature is inherently uncertain and these sensitivities may vary by more or less than this percentage. Discount rate: the recoverable amount of the AMC Minerals South America CGU would be negatively impacted by approximately $0.3m if the discount rate increased by 0.25%; Long term growth rate: the recoverable amount of the AMC Minerals South America CGU would be negatively impacted by approximately $0.2m if the long term growth rate decreased by 0.25%; Page 49 of 79 98 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED IMDEX LIMITED IMDEX LIMITED and its controlled entities and its controlled entities and its controlled entities NOTES TO THE FINANCIAL REPORT NOTES TO THE FINANCIAL REPORT 13 13 Other Intangible Assets Other Intangible Assets Other Intangible Assets NOTES TO THE FINANCIAL REPORT 13 Intellectual Intellectual Property Property Intellectual Property Technology Technology Based Based Technology Based Contract Contract Based Based Contract Based Customer Customer Based Based Customer Based Development Development Costs Costs Development Costs Trade Trade Name Name Trade Name TOTAL TOTAL TOTAL Gross Carrying Value Gross Carrying Value Gross Carrying Value Balance at 30 June 2012 Balance at 30 June 2012 Balance at 30 June 2012 Capitalised during the year Capitalised during the year Capitalised during the year Recognition on acquisition of ioGlobal Recognition on acquisition of ioGlobal Recognition on acquisition of ioGlobal Impact of exchange rate changes Impact of exchange rate changes Impact of exchange rate changes Balance at 30 June 2013 Balance at 30 June 2013 Balance at 30 June 2013 Impact of exchange rate changes Impact of exchange rate changes Impact of exchange rate changes Balance at 30 June 2014 Balance at 30 June 2014 Balance at 30 June 2014 Accumulated Amortisation and Accumulated Amortisation and Accumulated Amortisation and Impairment Impairment Impairment Balance at 30 June 2012 Balance at 30 June 2012 Balance at 30 June 2012 Amortisation expense Amortisation expense Amortisation expense Impact of exchange rate changes Impact of exchange rate changes Impact of exchange rate changes Balance at 30 June 2013 Balance at 30 June 2013 Balance at 30 June 2013 Amortisation expense Amortisation expense Amortisation expense Impact of exchange rate changes Impact of exchange rate changes Impact of exchange rate changes Impairment losses for the year Impairment losses for the year Impairment losses for the year Balance at 30 June 2014 Balance at 30 June 2014 Balance at 30 June 2014 Net Book Value Net Book Value As at 30 June 2013 As at 30 June 2013 As at 30 June 2014 As at 30 June 2014 Net Book Value As at 30 June 2013 As at 30 June 2014 Notes Notes Notes $ʼ000 $ʼ000 $ʼ000 $ʼ000 $ʼ000 $ʼ000 $ʼ000 $ʼ000 $ʼ000 $ʼ000 $ʼ000 $ʼ000 $ʼ000 $ʼ000 $ʼ000 $ʼ000 $ʼ000 $ʼ000 $ʼ000 $ʼ000 $ʼ000 601 601 - - 1,300 1,300 - - 1,901 1,901 - - 1,901 1,901 601 - 1,300 - 1,901 - 1,901 14,080 14,080 14,080 - - - - - - - - - 14,080 14,080 14,080 - - - 14,080 14,080 14,080 2,258 2,258 - - - - - - 2,258 2,258 - - 2,258 2,258 10,893 10,893 2,258 10,893 - - - - - - - - - - - - 10,893 10,893 2,258 10,893 - - - - 10,893 10,893 2,258 10,893 7,366 7,366 996 996 - - 213 213 8,575 8,575 (34) (34) 8,541 8,541 7,366 996 - 213 8,575 (34) 8,541 3,887 3,887 - - - - - - 3,887 3,887 - - 3,887 3,887 601 601 173 173 - - 774 774 260 260 - - - - 1,034 1,034 601 173 - 774 260 - - 1,034 12,491 12,491 12,491 1,589 1,589 1,589 - - - 14,080 14,080 14,080 - - - - - - - - - 14,080 14,080 14,080 1,315 1,315 472 472 - - 1,787 1,787 314 314 - - - - 2,101 2,101 10,488 10,488 1,315 10,488 405 405 472 405 - - - - 10,893 10,893 1,787 10,893 - - 314 - - - - - - - - - 10,893 10,893 2,101 10,893 3,765 3,765 707 707 91 91 4,563 4,563 895 895 (23) (23) 2,246 2,246 7,681 7,681 3,765 707 91 4,563 895 (23) 2,246 7,681 3,869 3,869 18 18 - - 3,887 3,887 - - - - - - 3,887 3,887 (i) (i) (i) 3,887 - - - 3,887 - 3,887 39,085 39,085 996 996 1,300 1,300 213 213 41,594 41,594 (34) (34) 41,560 41,560 39,085 996 1,300 213 41,594 (34) 41,560 3,869 18 - 3,887 - - - 3,887 33,290 33,290 3,364 3,364 91 91 35,984 35,984 1,469 1,469 (23) (23) 2,246 2,246 39,676 39,676 33,290 3,364 91 35,984 1,469 (23) 2,246 39,676 1,127 1,127 867 867 1,127 867 - - - - - - 471 471 157 157 471 157 - - - - - - 4,012 4,012 860 860 4,012 860 - - - - - - 5,610 5,610 1,884 1,884 5,610 1,884 Where relevant, these intangible assets have been tested for impairment as part of the testing of CGUs referred to in note 12, and an annual Where relevant, these intangible assets have been tested for impairment as part of the testing of CGUs referred to in note 12, and an annual assessment is performed for impairment indicators. assessment is performed for impairment indicators. Where relevant, these intangible assets have been tested for impairment as part of the testing of CGUs referred to in note 12, and an annual assessment is performed for impairment indicators. (i) Impairment losses: (i) Impairment losses: (i) Impairment losses: 2014 2014 $ʼ000 $ʼ000 2014 $ʼ000 2013 2013 $ʼ000 $ʼ000 2013 $ʼ000 Development costs (Reflex CGU) Development costs (Reflex CGU) Development costs (Reflex CGU) 2,246 2,246 2,246 - - - The above impairment charge arises as a result of a decision to cease development of a specific product. The above impairment charge arises as a result of a decision to cease development of a specific product. The above impairment charge arises as a result of a decision to cease development of a specific product. 14 14 14 Trade and Other Payables Trade and Other Payables Trade and Other Payables Trade pay ables Trade pay ables A c c ruals and other pay ables A c c ruals and other pay ables Trade pay ables A c c ruals and other pay ables Note s Note s Note s (i) (i) (i) 2014 2014 $ʼ000 $ʼ000 2014 $ʼ000 2013 2013 $ʼ000 $ʼ000 2013 $ʼ000 13,791 13,791 3,515 3,515 17,306 17,306 13,791 3,515 17,306 19,768 19,768 6,008 6,008 25,776 25,776 19,768 6,008 25,776 (i) Trade pay ables are interes t free for periods ranging from 30 to 180 day s . Thereafter interes t is c harged at c om m erc ial rates . (i) Trade pay ables are interes t free for periods ranging from 30 to 180 day s . Thereafter interes t is c harged at c om m erc ial rates . The c ons olidated entity has financ ial ris k m anagem ent polic ies in plac e to ens ure that all pay ables are paid within the c redit The c ons olidated entity has financ ial ris k m anagem ent polic ies in plac e to ens ure that all pay ables are paid within the c redit tim efram e. tim efram e. (i) Trade pay ables are interes t free for periods ranging from 30 to 180 day s . Thereafter interes t is c harged at c om m erc ial rates . The c ons olidated entity has financ ial ris k m anagem ent polic ies in plac e to ens ure that all pay ables are paid within the c redit tim efram e. Page 50 of 79 Page 50 of 79 Page 50 of 79 99 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 15 Borrowings Current borrow ings Secured At amortised cost Club Facility - AUD Tranche Club Facility - USD Tranche Club Facility - CAD Tranche Hire purchase liabilities Non-current borrow ings Secured At amortised cost Club Facility - AUD Tranche Club Facility - USD Tranche Club Facility - CAD Tranche Hire purchase liabilities Notes 2014 $ʼ000 2013 $ʼ000 (i,a) (i,b) (i,c) (ii),23 (i,a) (i,b) (i,c) (ii),23 4,476 255 1,983 188 6,902 26,004 14,420 2,643 172 43,239 7,056 5,372 2,065 245 14,738 21,089 23,082 4,817 260 49,248 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. In December 2013, this facility was renewed for a further three years. As at 30 June 2014: (i,a) (i,b) AUD denominated borrowings includes an amortising facility that is repayable in equal monthly installments of $373,000 to 31 December 2016 on which date the balance remaining is payable, and a revolving facility that is fully repayable on 31 December 2016. Both facilities bear interest at floating rates. USD denominated borrowings includes an amortising facility that is repayable in equal monthly installments of $21,000 to 31 December 2016 on which date the balance remaining is payable, and a revolving facility that is fully repayable on 31 December 2016. Both facilities bear interest at floating rates. (i,c) CAD denominated borrowings include an amortising facility that bears interest at a floating rate and is repayable in equal monthly installments of $165,000 to 31 December 2016 on which date the balance remaining is payable. The club facility is secured by the assets of entities in Australia, Canada, Chile, South Africa and Europe. At 30 June 2014, the Group had unused banking facilities totalling AUD$3.3 million, comprising AUD$2.5 million and ZAR7.9 million (AUD$0.8 million). (ii) 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 5.98% (2013: 6.52%). 100 Page 51 of 79 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 16 Provisions Current provisions Employee entitlements Other provisions (see below) (ii) Other provisions Balance at 1 July 2013 Provsions recognised Balance at 30 June 2014 Notes (i) 2014 $ʼ000 2013 $ʼ000 4,011 12,174 16,185 4,681 - 4,681 Kazakhstan business closure provision (ii) $ʼ000 Office closure provision (iii) $ʼ000 Origin product containment provision (iv) $ʼ000 - 2,434 2,434 - 1,240 1,240 - 8,500 8,500 Total $ʼ000 - 12,174 12,174 (i) The provision for employee entitlements represents annual leave with the majority of these entitlements expected to be taken during the coming year. (ii) The Kazakhstan business closure provison relates to the estimated costs of the closure of the Kazakhstan business (Suay Energy Services LLP). (iii) The office closure provison relates to the estimated costs of the closure of the Osborne Park premises. (iv) The Origin product containment provison relates to the estimated costs made by Management to settle with affected parties following notification that certain batches of imported product were contaminated. Non-current provisions Employee entitlements 2014 $ʼ000 2013 $ʼ000 2,153 1,071 Page 52 of 79 101 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 17 Issued Capital and Shares reserved for Performance Rights Plan Issued and Paid Up Capital - Fully paid ordinary shares (i) Fully paid ordinary shares carry one vote per share and the right to dividends. Notes (i) 2014 $ʼ000 2013 $ʼ000 90,259 89,269 Ordinary shares Notes Number $'000 Number $'000 2014 2013 Balance at beginning of the financial year 210,473,188 89,269 208,235,426 86,069 Issue of shares as part consideration for the acquisition of System Mud Industria e Comercio Ltda 18 1,637,180 990 - - Issue of shares as part consideration for the acquisition of ioGlobal 25(a) - - 2,237,762 Closing balance at end of the financial year 212,110,368 90,259 210,473,188 3,200 89,269 (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 2014 (2013: nil), executives, directors and staff have no options over ordinary shares. Details of the Staff Option Plan can be found in note 32. (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 33. Shares reserved for Performance Rights Plan Balance at beginning of the period Net movement of shares Balance at the end of the period Notes 2014 $ʼ000 2013 $ʼ000 (952) 952 - (3,740) 2,788 (952) At balance date, the Company, through a Trustee, holds nil shares in Trust for employees under the Performance Rights Plan. 102 Page 53 of 79 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 18 Reserves Fore ign Curre ncy Tra nsla tion Re se rve Balance at beginning of the financial year Translation of foreign operations Balance at the end of the financial year Note s 2014 $ʼ000 2013 $ʼ000 (11,167) (595) (11,762) (17,703) 6,536 (11,167) 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. Inve stm e nt Re va lua tion Re se rve Balance at beginning of the financial year Net gain arising on revalution of SEH shares to market value Income tax relating to gain arising on revalution of SEH shares to market value Cumulative profit reclassified to profit or loss on sale of SEH shares, net of tax Balance at the end of the financial year 5(b) 13,754 17,107 (5,132) (17,172) 8,557 10,227 5,038 (1,511) - 13,754 The investment revaluation reserve records increases in the market value of the SEH investment net of deferred tax. Refer note 9 for details of the SEH investment. Em ploye e Equity-Se ttle d Be ne fits Re se rve Balance at beginning of the financial year Performance rights expensed Amounts transferred to shares reserved for performance rights plan Amounts transferred to retained earnings Balance at the end of the financial year 4 6,087 845 (1,416) 750 6,266 6,385 1,331 (2,788) 1,159 6,087 The employee equity-settled benefits reserve arises on the grant of performance rights to Directors and employees. Amounts transferred to shares reserved for performance rights plan relates to the cost of performance rights issued to Directors and employees during the year. Further information regarding the Performance Rights Plan is contained in note 33. Ma nda tory Issua ble Ca pita l Mandatory Issuable Capital 17 - 990 In May 14, a total of 1,637,180 shares were issued as the final payment for the acquisition of System Mud (refer to note 17). The final payment was subject to the issue of 330,000 shares at a guaranteed issued price of $3. As the share price on the two year anniversary date was below the guaranteed price then the previous owners were appropriately compensated with the issue of an extra 1,307,180 shares. Page 54 of 79 103 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 19 (Loss)/earnings Per Share Basic (loss)/earnings per share Diluted (loss)/earnings per share (a) Basic (loss)/earnings per share The (loss)/earnings and weighted average number of ordinary shares used in the calculation of basic (loss)/earnings per share are as follows: (Loss)/earnings Weighted average number of ordinary shares for the purposes of basic (loss)/earnings per share 2014 2013 Cents per share Cents per share (2.50) (2.50) 9.24 9.14 2014 2013 $'000 $'000 (5,277) 19,383 Shares Shares 210,751,284 209,712,962 (b) Diluted (loss)/earnings per share 2014 2013 The (loss)/earnings and weighted average number of ordinary shares used in the calculation of diluted (loss)/earnings per share are as follows: (Loss)/earnings Weighted average number of ordinary shares for the purposes of diluted (loss)/earnings per share (i) (i) The weighted average number of ordinary shares for the purposes of diluted (loss)/earnings per share reconciles to the weighted average number of ordinary shares used in the calculation of basic (loss)/earnings per share as follows: Weighted average number of ordinary shares used in the calculation of basic (loss)/earnings per share Shares deemed to be issued for no consideration in respect of performance rights Weighted average number of ordinary shares used in the calculation of diluted (loss)/earnings per share $'000 $'000 (5,277) 19,383 Shares Shares 212,320,016 212,115,734 Shares Shares 210,751,284 209,712,962 1,568,732 2,402,772 212,320,016 212,115,734 104 Page 55 of 79 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 20 Dividends Recognised amounts Notes 2014 Cents per share 2014 Total $ʼ000 2013 Cents per share 2013 Total $ʼ000 Fully paid ordinary shares - interim dividend franked to 30% (i) Unrecognised amounts Fully paid ordinary shares - final dividend franked to 30% (ii) - - - - 2.50 5,262 0.40 842 (i) In the prior year, the interim, fully franked dividend was paid on 22 March 2013. The record date for determining the entitlement to the interim dividend was 8 March 2013. There are no dividend reinvestment plans in operation. (ii) In the prior year, the final fully franked dividend was declared on 16 August 2013 with an entitlement date of 11 October 2013 and a payment date of 25 October 2013. The financial effect of this dividend was not recognised in the financial statements at 30 June 2013. Adjusted franking account balance Impact on franking account of dividends not recognised Income tax consequences of unrecognised dividends 21 Commitments for Expenditure (a) Capital expenditure commitments 2014 $'000 2013 $'000 52,733 - - 56,112 (361) - At 30 June 2014 the Group had capital expenditure commitments amounting to $2,683,000 (2013: $3,145,000). These commitments relate to the purchase of Minerals and Oil and Gas rental equipment and the final payments of the Balcatta premises. (b) Lease commitment Hire purchase liabilities and non-cancellable operating lease commitments are disclosed in note 23. 22 Contingent Liabilities and Contingent Assets The Group is party to legal proceedings and claims which arise in the normal course of business. Any liabilities may be mitigated by legal defences, insurance, and third party indemnities. Unless recognised as a provision (refer Note 16), management do not consider it to be probable that they will require settlement at the Groupʼs expense. Whilst the outcome of these claims are, by their nature, uncertain, the directors do not currently anticipate that the outcome of the proceedings either individually, or in aggregate, will have a material adverse effect upon the Groupʼs financial position. A provision is recognised related to pending litigation or other outstanding claims where probable and estimable. Actual costs can differ from estimates for many reasons. For instance, settlement costs for claims and litigation can vary from estimates based on differing interpretations of laws, opinions on responsibility and assessments of the amount of damages. Our in-house legal counsel regularly assesses contingent liabilities and in certain circumstances, outside legal counsel is utilised. As at 30 June 2014, the main contingent liability relates to potential costs associated with the product containment incident which have been provided for based on managementʼs estimate of the costs to remediate (as detailed in note 16). In making this assessment a forward looking estimate has been made of future cash flows and the likely outcome of remediation negotiations. Because of the inherent uncertainty in this evaluation process, actual losses may be different from the originally estimated provision. Page 56 of 79 105 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 23 Leases (a ) Hire Purcha se s Hire purcha se a rra nge m e nts 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. Minim um future le a se pa ym e nts 2014 $ʼ000 2013 $ʼ000 Pre sent va lue of m inim um future le a se pa ym e nts 2014 $ʼ000 2013 $ʼ000 Hire purcha se com m itm e nts Hire purchase commitments are payable as follows. Due: W ithin one year Between one and five years Later than five years Minimum lease payments Less: future finance charges 199 252 189 293 - - 545 388 (28) (40) 505 360 Hire purchase liabilities provided for in the Financial Report Current – Note 15 Non current – Note 15 188 172 - 360 - 360 188 172 360 245 260 - 505 - 505 245 260 505 (b) Ope ra ting Le a se s Ope ra ting le a sing a rra nge m e nts 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-ca nce lla ble ope ra ting le a se pa ym e nts W ithin one year Between one and five years Later than five years 2014 $ʼ000 2013 $ʼ000 5,946 12,331 8,094 26,371 4,474 4,966 1,560 11,000 106 Page 57 of 79 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 24 Subsidiaries Parent Entity Imdex Limited Controlled Entities Notes Country of Incorporation Ownership Interest 2014 2013 % % (i),(ii),(iii) Australia Australian Mud Company Pty Ltd Samchem Drilling Fluids & Chemicals (Pty) Ltd Imdex International Pty Ltd Imdex Sweden AB Reflex Instruments Asia Pacific Pty Ltd Reflex Instrument AB Reflex Instrument North America Reflex Instrument South America Ltda Reflex 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 Reflex Technology International Pty Ltd AMC Reflex Argentina S.A. AMC Reflex Peru S.A.C. Imdex Technology Germany GmbH AMC Reflex Do Brasil Serviços Para Mineração Ltda AMC Drilling Fluids Pvt Limited Fluidstar Pty Ltd Ecospin Pty Ltd Imdex Nominees Pty Ltd AMC Germany GmbH AMC Oil & Gas Rom SRL Australian Drilling Specialties Pty Ltd Imdex USA Inc Imdex Technologies USA LLC AMC USA LLC Reflex USA LLC AMC Oilfield Services Pte Ltd (formerly Mud Systems Pte Ltd) System Mud Industria e Comercio Ltda Imdex Global Coöperatie U.A Imdex Global B.V. AMC Oil & Gas International Limited ioGlobal Pty Ltd ioGlobal Solutions Inc ioAnalytics Pty Ltd AMC Drilling Fluids & Products - Mexico S. de RL de C.V. Mexico AMC Myanmar Limited (ii),(iii) (ii),(iii) (ii),(iii) (ii) (ii),(iii) (ii),(iii) (ii) (ii) (ii) (ii) 25(a),(ii) 25(a) 25(a),(ii) (iv) 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 British Virgin Islands Australia Canada Australia Mexico Myanmar 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 - 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - (i) Imdex Limited is the ultimate parent company and is the head entity within the tax consolidated group. (ii) 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 financial report. Australian Mud Company Pty Ltd became a party to the deed on 29 June 2006, Imdex International Pty Ltd on 20 October 2006, Reflex Instruments Asia Pacific Pty Ltd on 14 September 2007, Reflex Technology International Pty Ltd on 28 April 2011 and Wildcat Chemicals Australia Pty Ltd on 7 September 2011. (iv) This entity was incorporated on 10 March 2014. Page 58 of 79 107 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 24 Subsidiaries (continued) 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 Gain on the disposal of shares in SEH Foreign exchange (loss)/gain Raw materials and consumables used Employee benefit 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 Product containment Research and Development costs Bad debts Other expenses (Loss)/profit before income tax expense Income tax benefit/(expense) Loss for the year Other comprehensive income Fair value adjustment on investment in SEH Income tax relating to components of other comprehensive income Cumulative profit reclassified to profit or loss on sale of SEH shares, net of tax Other comprehensive income for the year Total comprehensive income for the year 2014 $ʼ000 2013 $ʼ000 97,003 398 97,401 1,459 24,094 (473) (52,277) (28,044) (9,900) (2,405) (653) (909) (887) (5,418) (2,509) (2,550) (1,018) (9,080) (4,219) (1,578) (9,051) (8,017) 1,654 (6,363) 17,107 (5,132) (17,172) (5,197) (11,560) 117,162 1,420 118,582 2,005 - 882 (54,143) (31,404) (13,680) (2,996) (1,039) (1,148) (840) (3,422) (2,052) (2,838) (1,082) - - (930) (1,605) 4,290 (6,840) (2,550) 5,038 (1,511) - 3,527 977 108 Page 59 of 79 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 24 Subsidiaries (continued) The consolidated statement of financial 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 Current Tax Assets Other Financial Asset Held for Sale Total Current Assets Non Current Assets Other Financial Assets Property, Plant and Equipment Other Intangible Assets Deferred Tax Assets Other Receivables Total Non Current Assets Total Assets Current Liabilities Trade and Other Payables Other Financial Liabilities Borrowings Current Tax Payables Provisions Total Current Liabilities Non Current Liabilities Borrowings Provisions Deferred Tax Liabilities Total Non Current Liabilities Total Liabilities Net Assets Equity Contributed Capital Shares Reserved for Performance Rights Plan Employee Equity-Settled Benefits Reserve Investment Revaulation Reserve Retained Earnings * Total Equity * Retained Earnings at the beginning of the financial year Net Loss Dividends Received/(Paid) Amounts transferred from employee equity-settled benefits reserve Retained Earnings at the end of the financial year 2014 $ʼ000 2013 $ʼ000 446 51,286 21,743 - 441 73,916 14,705 88,621 165,447 19,124 875 9,215 957 195,618 284,239 16,867 80 4,664 1,288 12,696 35,595 39,684 1,781 3,061 44,526 80,121 204,118 90,259 - 6,266 8,557 99,036 204,118 101,383 (6,363) 4,766 (750) 99,036 - 51,507 35,247 1,749 732 89,235 26,450 115,685 164,238 12,793 2,258 6,061 - 185,350 301,035 28,084 - 10,961 - 3,586 42,631 40,972 699 7,192 48,863 91,494 209,541 89,269 (952) 6,087 13,754 101,383 209,541 118,683 (2,550) (13,591) (1,159) 101,383 Page 60 of 79 109 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 25 Acquisition of Businesses (a) 2013 Acquisition of entity - ioGlobal Pty Ltd and ioAnalytics Pty Ltd With effect from 1 November 2012, Imdex Limited acquired 100% of the issued share capital of ioGlobal Pty Ltd and ioAnalytics Pty Ltd (together ioGlobal). ioGlobal provides innovative cloud-based data management solutions for the mining and mineral exploration industries. The numbers presented below have been accounted for using the acquisition method of accounting. Details of the assets, liabilities and goodwill: Book value Notes $ʼ000 Fair value adjustments $ʼ000 Fair value on acquisition $ʼ000 Trade and other receivables Property, plant and equipment Intangibles (Intellectual Property) Trade and other payables Deferred tax Provisions Fair value of net identifiable 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 1,441 175 - (1,654) - (155) (193) - - 1,300 - (390) - 910 (iii) (iii) (i) (ii) (ii) 17 Operating results of ioGlobal included in the Consolidated Income Statement of Imdex Revenue Total expenses (including income tax) Loss after tax for the period 1,441 175 1,300 (1,654) (390) (155) 717 6,357 7,074 4,800 (926) 3,200 7,074 8 months to 30 June 2013 $ʼ000 2,826 (3,478) (652) (i) Goodwill arose in the business combination because the cost of the combination included a control premium paid to acquire ioGlobal. In addition, the consideration paid for the combination effectively included amounts in relation to the benefit of expected synergies, revenue growth, future market development and the assembled workforce of ioGlobal. These benefits are not recognised separately from goodwill as the future economic benefits arising from them cannot be reliably measured. There were no acquisition provisions created, nor were there any contingent liabilities assumed in the acquisition. ioGlobal has been assessed for impairment as part of the Reflex CGU. (ii) The Consolidated Cash Flow Statement for the year ended 30 June 2013 records the payment for the acquisition of ioGlobal as $3.9 million being the cash purchase consideration of $4.8 million paid net of the $0.9 million of cash acquired. (iii) Intangible assets of $1.3 million comprise the fair value of the intellectual property and know-how associated with ioGlobal. The discounted present value of expected future cash flows on a relief from royalty method has been used to determine the fair value of this intangible asset. This intangible asset is being amortised over its expected useful life of 5 years. Deferred tax of $0.4 million was raised on this asset. (iv) Had the acquisition of ioGlobal been effected on 1 July 2012, the beginning of the current year, the ioGlobal financial results included in the Imdex consolidated results would have been revenue of approximately $4.2 million with a loss of $1.0 million. The results of ioGlobal are included in the Minerals segment. The Board considers these 'pro-forma' numbers to represent an approximate measure of the performance of the combined group on an annualised basis and to provide a reference point for comparison in future periods. 110 Page 61 of 79 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 26 Investment in Associates VES International (VES) 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. The shares of VES are not publicly listed on a stcok exchange and hence published priced quotes are not available. Effective 1 January 2012 VES purchased the business of Vaughn Energy Services, a US based oil & gas services provider. Following this transaction Imdex Limitedʼs shareholding in VES decreased from 50% to 30%. The investment is accounted for under the equity method and has a reporting date of 31 December 2013. Financia l informa tion in re spe ct of the Associate is se t out be low : Note 2014 $ʼ000 2013 $ʼ000 Total Revenue 69,451 55,498 Total profit/(loss) for the Period (i) 1,425 (7,114) Total profit/(loss) for the Period includes the following: Depreciation Amortisation Income Tax Expense Current Assets Non Current Assets Total Assets Current Liabilities Non Current Liabilities Total Liabilities Net Assets Share of Net Assets of Associate (8,245) (8,485) (6,483) (5,912) (10,570) (6,838) 23,321 21,807 96,968 104,308 120,289 126,115 (6,269) (11,996) (18,265) 102,024 31,219 (5,059) (20,457) (25,516) 100,599 30,180 The Inve stme nt in Associa te comprise s the follow ing: Opening cost of investment in Associate Share of profit of Associate Closing cost of investment in Associate (i) 25,555 715 26,270 24,255 1,300 25,555 (i) The prior period share of Associateʼs profit reflects 30% of the underlying profit of VES, the effect of adjustments to eliminate unrealised intercompany profits and fair value adjustments related to the acquisition of Vaughn Energy Services, including a $3m gain arising on dilution and an adjustment to the amortisation of intangibles. (ii) At 30 June 2014, VES had no significant commitments or contingencies (2013: nil). (iii) VES has no material items of other comprehensive income, and has paid no dividends in the year. Page 62 of 79 111 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 27 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, the manufacture and sale of drilling fluids and chemicals and related equipment and the provision of innovative cloud-based data management solutions 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 fluids and chemicals to the oil & gas and geothermal industries globally. (a) Segment Revenues Minerals Oil & Gas Total of all segments Unallocated Total revenue (b) Segment Results Minerals Oil & Gas (i) Total of all segments Central administration costs (ii) Gain on the disposal of shares in SEH (Loss)/profit before income tax expense Income tax expense (Loss)/profit attributable to ordinary equity holders of Imdex Limited (i) Includes the share of profit of Associate (ii) Central administration costs comprise net financing costs for the Group and the corporate portion of head office costs. Head office costs attributable to operations are allocated to reportable segments in proportion to the revenues earned from those segments. (c) Segment Assets and Liabilities 2014 $'000 2013 $'000 125,317 58,168 183,485 72 183,557 182,681 50,110 232,791 130 232,921 430 (21,540) (21,110) (10,046) 24,094 (7,062) 1,785 (5,277) 44,314 (5,080) 39,234 (10,724) - 28,510 (9,127) 19,383 Minerals Oil & Gas Total of all segments Unallocated (i) Consolidated Assets Liabilities 2014 $'000 2013 $'000 2014 $'000 2013 $'000 176,001 72,081 248,082 14,705 262,787 182,412 77,004 259,416 26,450 285,866 23,464 12,261 35,725 50,140 85,865 11,616 21,812 33,428 63,986 97,414 (i) Unallocated assets comprise the investment in SEH. Unallocated liabilties comprise commerical bills, bank loans and hire pruchase liabilities. 112 Page 63 of 79 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 27 Segment Information (continued) Minerals Oil & Gas Unallocated Total 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 4,881 1,155 2,623 5,138 6,171 2,593 - 14,856 2,120 314 1,123 7,610 1,070 771 - 8,936 574 - 4,243 487 - - 528 7,575 1,469 3,746 16,991 7,728 3,364 - 24,320 676 1,065 169 266 - - 845 1,331 Depreciation Amortisation Impairment Acquisition of segment assets Significant non cash expenses other than depreciation and amortisation Geographical Segments The Group operates in the following geographical segments: (i) Asia Pacific: Manufacture and sale/rental of products to the mining and mineral exploration and oil & gas industries (ii) Europe: Manufacture and sale/rental of products to the mining and mineral exploration and oil & gas industries (iii) Africa/Middle East: Manufacture and sale/rental of products to the mining and mineral exploration and oil & gas industries (iv) Americas: Manufacture and sale/rental of products to the mining and mineral exploration and oil & gas industries Asia Pacific Europe Africa/Middle East Americas Total (e) Information about major customers Revenue from external customers 2014 $'000 2013 $'000 Segment assets (non-current) Acquisition of segment assets 2014 $'000 2013 $'000 2014 $'000 2013 $'000 91,377 24,865 26,263 41,052 183,557 113,980 28,300 34,128 56,513 232,921 130,351 9,002 2,851 10,296 152,500 122,428 6,825 1,505 11,522 142,280 9,028 1,347 2,157 4,459 16,991 9,568 2,783 1,858 10,111 24,320 The Group has a broad range of customers across its global operations with no single customer making up more than 10% of revenue. Page 64 of 79 113 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 28 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 2014 $ʼ000 10,070 2013 $ʼ000 9,979 Cash at bank and in hand earns interest at floating rates based on daily bank deposit rates. The fair value of cash and cash equivalents is $10,070,184 (2013: $9,978,758). (b) Non cash financing and investing activities During the year the Group provided non cash consideration to complete the acquisition of System Mud. This transaction is disclosed in note 17. (c) Reconciliation from the (Loss)/profit for the Year to Net Cash Provided by Operating Activities (Loss)/profit for the year (5,277) 19,383 Adjustments for non-cash and non-operational items Gain on the disposal of shares in SEH Depreciation of non-current assets Amortisation of intangible assets Impairment expense W rite down of fixed assets Interest received disclosed as investing activities Share options and performance rights expensed Loss on sale of non-current assets Share of profit of Associate Interest on hire purchase liabilities Increase in other provisions (note 16) Other Changes in assets and liabilities during the financial year (Increase) / decrease in assets: Current receivables Current inventories Other current assets Increase / (decrease) in liabilities: Current payables Provision for employee entitlements Current and deferred tax liability Net Cash Provided by Operating Activities (24,094) 7,575 1,469 3,746 3,803 (72) 845 206 (715) 33 12,174 - 58 10,725 3,039 (10,687) 412 (326) 2,914 - 7,728 3,364 - - (130) 1,331 58 (1,300) 68 - (118) 20,368 (1,250) 5,386 (6,680) 1,436 (10,674) 38,970 114 Page 65 of 79 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 28 Notes to the Cash Flow Statement (continued) (d) Fina ncing fa cilitie s Total fac ilities available Club Fac ility - A UD Tranc he Club Fac ility - US D Tranc he Club Fac ility - CA D Tranc he ZA R Overdraft E quipm ent financ e fac ility Fac ilities utilis ed at balanc e s heet date Club Fac ility - A UD Tranc he Club Fac ility - US D Tranc he Club Fac ility - CA D Tranc he ZA R Overdraft E quipm ent financ e fac ility Fac ilities not utilis ed at balanc e s heet date Club Fac ility - A UD Tranc he Club Fac ility - US D Tranc he Club Fac ility - CA D Tranc he ZA R Overdraft E quipm ent financ e fac ility 2014 $ʼ000 2013 $ʼ000 34,197 14,676 4,626 1,838 360 55,697 31,719 14,676 4,626 1,038 360 52,419 2,478 - - 800 - 3,278 33,395 33,442 6,882 1,951 505 76,175 31,475 28,454 6,882 419 505 67,735 1,920 4,988 - 1,532 - 8,440 Page 66 of 79 115 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 29 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 17 and 18. Management and the Board review the capital structure regularly. The treasury function presents 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 specific optimum gearing target other than to maintain a competitive weighted average cost of capital. The Groupʼs overall capital management strategy remains unchanged from prior years. Debt (i) Cash and bank balances Net debt Equity (ii) Net debt divided by debt plus equity (i) Debt includes commercial bills, bank loans and hire purchase liabilities . (ii) Equity includes all capital and reserves of the Group that are managed as capital. 2014 $ 000's 2013 $ 000's 50,141 (10,070) 40,071 63,986 (9,979) 54,007 176,922 188,452 18.5% 22.3% (b) Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2 to the financial statements. (c) Categories of financial instruments Financial Assets Cash and cash equivalents Loans and receivables Financial Asset Held for Sale Financial Liabilities Amortised cost 2014 $ 000s 2013 $ 000s 10,070 39,744 14,705 9,979 45,231 26,450 67,527 89,762 116 Page 67 of 79 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 29 Financial Instruments (continued) (d) Financial risk management objectives The Groupʼs treasury function provides services to the business, co-ordinates access to domestic and international financial markets, monitors and manages the financial 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 flow interest rate risk. The Group seeks to minimise the effects of these risks by using natural hedges where possible and derivative financial instruments to hedge remaining risk exposures where the benefit of the hedge outweighs the cost. The use of financial derivatives is governed by the Groupʼs treasury policies which are approved by the Board of Directors. These policies describe the Groupʼs policies with respect to foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment of excess liquidity. The Group does not enter into or trade financial instruments, including derivative financial instruments for speculative purposes. There are no derivative instruments in operation at year end. (e) Market risk The Groupʼs activities expose it primarily to the financial 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 financial instruments to manage these risks where appropriate. There are no derivative financial 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 Groupʼs 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 fluctuations arise. Exchange rate exposures are managed with the use of natural hedges where possible and with the use of financial instruments where benefit outweighs cost within approved policy parameters. During the current and prior year no financial instruments were used to manage foreign exchange risk. The carrying amount in Australian dollars of the Groupʼs 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 fluctuation in exchange rates relative to the Australian dollar will cause the below assets and liabilities to change in value. United States Dollars South African Rand Canadian Dollars British Pound Euro Chilean Pesos Other Liabilities Assets 2014 $ 000s 2013 $ 000s 2014 $ 000s 2013 $ 000s 18,298 794 5,335 539 3,326 1,164 1,793 37,078 969 8,642 969 2,177 5,792 2,327 14,638 771 3,654 953 4,088 1,488 6,825 23,233 2,092 1,227 1,276 3,939 2,317 7,217 Page 68 of 79 117 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 29 Financial Instruments (continued) (f) Foreign currency risk management (continued) 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 Groupʼs sensitivity to a 10% (2013: 10%) increase and decrease in the Australian Dollar against the relevant foreign currencies. The sensitivity rate of 10% (2013: 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% (2013: 10%) represents managementʼs 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% (2013: 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 profit 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 profit and other equity, and the balances below would carry the opposite sign. Profit or (loss) Other equity Profit or (loss) Other equity United States Dollar Impact South African Rand Impact 2014 $ 000's 2013 $ 000's 2014 $ 000's 2013 $ 000's 1,079 (713) 1,586 (184) (i) (ii) - 2 11 (121) European Dollar Impact 2014 $ 000's 2013 $ 000's Canadian Dollar Impact 2014 $ 000's 2013 $ 000's 60 (136) 206 (378) (i) (ii) 6 163 449 296 (i) Profit 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 floating interest rates. Interest rate risk is managed within defined treasury policy guidelines. This is achieved by the Group by maintaining an appropriate mix between fixed and floating rate borrowings. In the absence of fixed rate debt the Groupʼs policy allows for the use of interest rate swaps. Where the group enters into fixed rate debt it is understood that this creates a fair value exposure as a by-product of the Groupʼs attempt to manage its cash flow volatility arising from interest rate changes. For the 2014 financial year the Group entered into an AUD interest swap at 3.01% maturing in December 2016, in order to protect against rising interest rates, under which it has a right to receive interest at a variable rates and to pay interest at a fixed rate. The swap in place has a fair value of $0.08m (liability). This swap covers approximately 40% (2013: nil) of the principal outstanding at reporting date and is timed to expire at the renewal date of the loans. The interest rate swap requires settlement of net interest receivable or payable each month. The settlement date coincides with the date on which interest is payable on the underlying debt. The swap is measured at fair value and all gains and losses attributable to the hedged risk is taken directly to equity and re-classified into profit or loss when the interest expense is recognised. 118 Page 69 of 79 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 29 Financial Instruments (continued) (g) Interest rate risk management (continued) Fair value of interest rate swap contracts - cash flow hedges Notes (i) 2014 $ʼ000 2013 $ʼ000 80 - (i) The interest rate swap contract is exposed to fair value movement if interest rates change. Under this contract the Group is committed to $0.3m interest expense within 12 months (on $12m of notional debt), $0.2m interest expense between 1 year and 2 years on $8m of notional debt), and $0.1m interest expense between 2 years and 5 years (on $4m of notional debt). The interest expense is calculated at 3.01%. The Company and the Groupʼs exposures to interest rates on financial assets and financial 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 financial 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 managementʼs assessment of the possible changes in interest rates based on consultation with appropriately qualified financial professionals. Group sensitivity At reporting date, if interest rates had been 100 basis points higher and all other variables were held constant, the Groupʼs net profit would decrease by $0.6 million (2013: $0.6 million). There would be a nil impact on equity other than via profit. A 100 basis point decrease in interest rates, holding all other variables constant would yield an increase in the Groupʼs net profit of $0.5 million (2013: $0.6 million). This is mainly attributable to the Groupʼs exposure to interest rates on its variable rate borrowings. (h) Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. The Groupʼs 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 financial condition of accounts receivable. The Group does not have any significant credit risk exposure to any single counterparty or group of counterparties having similar characteristics. The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies. The carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents the Groupʼs maximum exposure to credit risk without taking account of the value of collateral obtained. At 30 June 2014 no such collateral had been obtained (2013: 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 financial 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 flows and matching the maturity profiles of financial assets and liabilities. Included in note 28(d) is a listing of additional undrawn facilities that the Company/Group has at its disposal to further reduce liquidity risk. Page 70 of 79 119 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 29 Financial Instruments (continued) Liquidity and interest risk tables The following tables detail the Companyʼs and the Groupʼs remaining contractual maturity for its non–derivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows. Weighted average effective interest rate % - 5.98% 4.74% - 6.52% 4.25% 0-3 months 3 months to 1 year 1-5 years 5+ years Total $ʼ000 $ʼ000 $ʼ000 $ʼ000 $ʼ000 12,980 50 1,683 14,713 19,332 64 3,623 23,019 4,326 149 5,049 9,524 6,444 188 10,870 17,502 - 189 43,050 43,239 - 293 48,988 49,281 - - - - - - - - 17,306 388 49,782 67,476 25,776 545 63,481 89,802 2014 Non-interest bearing Finance lease liability Variable interest rate instruments 2013 Non-interest bearing Finance lease liability Variable interest rate instruments The following tables detail the Companyʼs and the Groupʼs remaining contractual maturity for its non–derivative financial assets. The tables have been drawn up based on the undiscounted cash flows of financial assets including interest that will be earned on those assets except where the Company/Group anticipates that the cash flow will occur in a different period. Weighted average effective interest rate % - 0.25% - 0.25% 0-3 months 3 months to 1 year 1-5 years 5+ years Total $ʼ000 $ʼ000 $ʼ000 $ʼ000 $ʼ000 54,449 10,070 64,519 71,681 9,979 81,660 - - - - - - - - - - - - - - - - - - 54,449 10,070 64,519 71,681 9,979 81,660 2014 Non-interest bearing Variable interest rate instruments 2013 Non-interest bearing Variable interest rate instruments 120 Page 71 of 79 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 29 Financial Instruments (continued) (j) Fair value of financial instruments The fair value of the Groupʼs financial assets and liabilities are determined on the following basis: Financial Assets and Financial Liabilities that are measured at fair value on a recurring basis Subsequent to initial recognition, at fair value financial instruments are grouped into Levels 1 to 3 based on the degree to which the fair value is observable. Levels are defined as follows: 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 with 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). At 30 June 2014, the Group has listed equity securities which are classified as level 1 and level 2 fair value measurements. There were no transfers between levels in the period. Financial Instruments Fair value as at Fair value hierarchy Valuation technique and key inputs Financial asset held for sale 30/06/2014 30/06/2013 Listed equity securities in Sino Gas and Energy Holdings Ltd (SEH) - $14,705,000 Listed equity securities in Sino Gas and Energy Holdings Ltd (SEH) - $26,450,000 Level 1 Quoted bid prices in an active market Interest rate swap liability Interest rate swap - $80,000 nil Level 2 Valued using discounted cash flow techniques based on forward interest rates from observable yield curves at the end of the reporting period, discounted at a rate that reflects the credit risk of the counterparties Financial Assets and Financial Liabilities that are measured at fair value on a non-recurring basis At 30 June 2014, the carrying amount of financial assets and financial liabilities for the Group is considered to approximate their fair values. Page 72 of 79 121 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 30 Related Party Disclosures (a ) E q u i ty i n te re sts i n re l a te d p a rti e s D e t a ils o f t h e p e rc e n t a g e o w n e rs h ip o f s u b s id ia rie s a n d t h e w h o lly o w n e d G ro u p is s e t o u t in n o t e 2 4 . Th e w h o lly o w n e d G ro u p c o n s is t s o f Im d e x L im it e d a n d it s w h o lly o w n e d s u b s id ia rie s . (b ) T ra n sa c ti o n s w i th k e y m a n a g e m e n t p e rso n n e l (i ) K e y m a n a g e m e n t p e rso n n e l c o m p e n sa ti o n D e t a ils o f k e y m a n a g e m e n t p e rs o n n e l c o m p e n s a t io n is s e t o u t in n o t e 3 1 . (i i ) L o a n s to k e y m a n a g e m e n t p e rso n n e l N o lo a n s w e re m a d e d u rin g t h e c u rre n t o r p rio r y e a rs t o k e y m a n a g e m e n t p e rs o n n e l o r t h e ir re la t e d p a rt ie s . (c ) O th e r tra n sa c ti o n s w i th re l a te d p a rti e s o f I m d e x L i m i te d Th e G ro u p re c e ive s re c h a rg e re ve n u e fro m V E S re la t in g t o w o rk p e rfo rm e d o n t h e re s e a rc h a n d d e ve lo p m e n t o f t a rg e t t o o ls . S e rvic e s t o V E S a re p ro vid e d o n n o rm a l c o m m e rc ia l t e rm s a n d c o n d it io n s . To t a l re ve n u e a ris in g fro m V E S w a s $ 9 9 0 , 2 2 0 (2 0 1 3 : $ 1 , 6 2 5 , 3 4 7 ) Tra n s a c t io n s w it h R e la t e d P a rt ie s P ro fit fro m o rd in a ry a c t ivit ie s b e fo re in c o m e t a x R e c h a rg e R e ve n u e fro m V E S 2 0 1 4 $ 2 0 1 3 $ 9 9 0 , 2 2 0 1 , 6 2 5 , 3 4 7 Th e re w e re n o a s s e t s o r lia b ilit ie s a ris in g fro m t ra n s a c t io n s w it h V E S a s a t 3 0 Ju n e 2 0 1 4 o r 2 0 1 3 . (d ) P a re n t e n ti ty Th e u lt im a t e p a re n t e n t it y in t h e G ro u p is Im d e x L im it e d , a C o m p a n y in c o rp o ra t e d in W e s t e rn A u s t ra lia . 31 Key Management Personnel Compensation Ke y m a na ge m e nt pe rson ne l co m pe nsa tion The aggregate c om pens ation of the k ey m anagem ent pers onnel of the G roup and the Com pany is s et out below: S hort-term em ploy ee benefits P os t-em ploy m ent benefits O ther long-term benefits Term ination benefits S hare-bas ed pay m ents 122 2014 $ 2013 $ 3,276,391 2,724,775 138,338 282,440 - 39,595 3,736,764 128,350 122,942 - 367,774 3,343,841 Page 73 of 79 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 32 Staff Option Scheme Share Based Payment Arrangements There were no options issued or exercised during the current or prior year. There were no outstanding options at the end of the financial year. 33 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) and subsequently renewed at the Annual General Meeting on 18 October 2012. 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 financial 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 Tranche 11 comprising 5,124,070 performance rights was issued to employees on 4 October 2013 and were to be allotted in equal 1/3 lots annually beginning in August 2014. These performance rights were subject to profitability related hurdles as well as ongoing employment tenure. All of these performance rights expired due to performance hurdles not being met and no expense was incurred in the current year. Managing Directorʼs Performance Rights 300,000 performance rights were granted to the Managing Director on 17 October 2013 following approval by the shareholders at the Annual General Meeting. One fully paid Imdex Limited ordinary share will be issued in satisfaction of each performance right should the specified earnings per share and total shareholder return targets be met over the 3 year measurement period from FY14 to FY16. The Managing Director is subject to two hurdles each with equal weighting. The first 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 FY16 independent audit report is signed in August 2016. For the purposes of the FY14 financial statements, the Directors have made an estimate of the likelihood of the achievement of the specified 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 300,000 performance rights issued, all will meet the required performance hurdles and will result in 300,000 fully paid Imdex Limited ordinary shares being issued on or about August 2016 should employment tenure be retained. The fair value of a performance right at grant date was $0.78 per right. The expected total cost of the estimated 300,000 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 2013 to August 2016, with $0.1 million expensed in the current year. (c) Performance rights Granted in the prior year Staff Performance Rights Tranche 10 comprising 1,261,991 performance rights was issued to employees on 28 September 2012 and are to be allotted in equal 1/3 lots annually beginning in August 2013. These performance rights are subject to profitability related hurdles as well as ongoing employment tenure. 1,223,528 of these performance rights expired due to performance hurdles not being met. The fair value of a performance right at grant date was $1.62. The expected total cost of the estimated 38,463 fully paid ordinary shares to be issued in Imdex Limited will therefore be $62,310. This value will be expensed over the vesting period from October 2012 to August 2015, with $0.03 million expensed in the current year. An additional 50,000 performance rights were issued under Tranche 7 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 50,000 fully paid ordinary shares to be issued in Imdex Limited will therefore be $0.1 million. This value will be expensed over the vesting period to August 2015, with $0.2 million expensed in the current year. Since their granting a number of performance rights have expired by virtue of staff leaving the employment of the Imdex Group, details of which are contained in the table below. One fully paid Imdex Limited ordinary shares will be issued in satisfaction of each performance right should specified targets be met. Page 74 of 79 123 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 33 Performance Rights Plan (continued) (c) Performance rights Granted in the prior year (continued) Managing Directorʼs Performance Rights 264,818 performance rights were granted to the Managing Director on 18 October 2012 following approval by the shareholders at the Annual General Meeting. One fully paid Imdex Limited ordinary share will be issued in satisfaction of each performance right should the specified earnings per share and total shareholder return targets be met over the 3 year measurement period from FY13 to FY15. The Managing Director is subject to two hurdles each with equal weighting. The first 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 FY15 independent audit report is signed in August 2015. The fair value of a performance right at grant date was $1.44 per right. The expected total cost of the estimated 264,818 fully paid ordinary shares to be issued in Imdex Limited will therefore be $0.4 million. This value will be expensed over the vesting period from October 2012 to August 2015, with $0.1 million expensed in the current year. (d) Summary of performance rights outstanding 2014 Grant Date Expiry Date Exercise Price $ - - - - - - - - - - Tranche 2 Tranche 4 MD Tranche MD Tranche Tranche 7 Tranche 9 Tranche 10 MD Tranche MD Tranche Tranche 11 3-Dec-10 10-Jun-11 14-Oct-10 20-Oct-11 5-Sep-11 7-Oct-11 28-Sep-12 18-Oct-12 17-Oct-13 4-Oct-13 Aug-15 Aug-16 Oct-15 Oct-16 Aug-15 Aug-16 Aug-17 Oct-17 Oct-18 Oct-18 2013 Grant Date Expiry Date Exercise Price Tranche 1 Tranche 2 Tranche 4 MD Tranche MD Tranche Tranche 7 Tranche 8 Tranche 9 Tranche 10 MD Tranche 19-Feb-10 3-Dec-10 10-Jun-11 14-Oct-10 20-Oct-11 5-Sep-11 29-Aug-11 7-Oct-11 28-Sep-12 18-Oct-12 Aug-14 Aug-15 Aug-16 Oct-15 Oct-16 Aug-15 Aug-16 Aug-16 Aug-17 Oct-17 $ - - - - - - - - - - Estimated Fair Value at Grant Date $ Opening balance Granted Estimated Number of Performance Rights Satisfied by the allocation/ allotment of shares Expired ^ Closing balance 1.395 2.160 1.140 1.910 2.100 1.790 1.620 1.440 0.790 0.810 - 580,117 66,666 196,579 153,318 665,000 437,811 38,463 264,818 - 300,000 - 5,124,070 - - (536,534) (43,583) - - (66,666) - (128,876) (67,703) - - - - 153,318 640,000 - - (25,000) 210,596 - (204,713) (22,502) - - (38,463) - - - - 264,818 - - 300,000 - - (5,124,070) Estimated Fair Value at Grant Date $ Estimated Number of Performance Rights Opening balance Granted Satisfied by the issue of shares Expired ^ Closing balance 0.685 1.395 2.160 1.140 1.910 2.100 2.080 1.790 1.620 1.440 - 121,199 1,294,474 133,333 196,579 153,318 615,000 50,000 15,000 813,347 - 1,261,991 - 264,818 - - (121,199) 580,117 - (661,179) (53,178) - (66,667) - 66,666 - - - 196,579 - - - 153,318 - - 665,000 - - (15,000) 437,811 - (256,667) (118,869) - (1,223,528) 38,463 - - 264,818 - ^ - Performance rights expire either on failure to maintain employment tenure or on failure to satisfy performance hurdles. Reinstatements occur from time to time to correct historical errors when noted. 124 Page 75 of 79 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 34 Parent Entity Information The accounting policies of the parent entity, which have been applied in determining the financial information shown below, are the same as those applied in the consolidated financial statements. Refer to note 2 for a summary of the significant accounting policies relating to the Group. Financial Position Asse ts Current Assets Non Current Assets Total Assets Liabilitie s Current Liabilities Non Current Liabilities Total Liabilities Net Assets Equity Issued Capital Shares Reserved for Performance Rights Plan Investment Revaulation Reserve Employee Equity-Settled Benefits Reserve Retained Earnings Tota l Equity Financial Performance Loss for the year Other comprehensive income, net of income tax Total comprehensive loss 30 June 2014 30 June 2013 $ʼ000 $ʼ000 73,296 75,014 149,141 165,298 222,437 240,312 13,147 11,923 41,292 54,439 40,712 52,635 167,998 187,677 90,259 - - 6,266 71,473 89,269 (952) 396 6,087 92,877 167,998 187,677 Ye a r Ende d Ye ar Ende d 30 June 2014 30 June 2013 $ʼ000 $ʼ000 (22,425) (20,672) (396) 102 (22,821) (20,570) Retained Earnings/(Accumulated Losses) at the beginning of the financial year 92,877 (12,009) Loss for the year (22,425) (20,364) Amounts transferred from employee equity-settled benefits reserve (396) (1,159) Dividend received Retained Earnings at the end of the financial year 1,417 126,409 71,473 92,877 Page 76 of 79 125 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities NOTES TO THE FINANCIAL REPORT 34 Parent Entity Information (continued) Guarantees entered into by the parent entity in relation to the debts of its subsidiaries Guarantee provided under the deed of cross guarantee 80,121 91,494 30 June 2014 30 June 2013 $ʼ000 $ʼ000 Contingent liabilities of the parent entity - Com mitments for the aquisition of property, plant and equipment by the parent entity Pla nt a nd e quipme nt W ithin one year Between one and five years Later than five years 1.176 4.704 5.880 11,760 - - - - - 35 Subsequent Events Subsequent to year end, the Group sold the remaining 91.9 million shares of its Sino Gas and Energy Holdings Ltd shareholdings at a share price of 18.5 cents per share to realise gross cash proceeds of $17.0 million at a book profit before tax of $14.2 million. Amounts shown within the Investment Revaluation Reserve at 30 June 2014 will be recycled to the Income Statement as a result of this sale. 126 Page 77 of 79 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities ADDITIONAL SECURITIES EXCHANGE INFORMATION AS AT 31 AUGUST 2014 (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 Citicorp Nominees Pty Limited Citicorp Nominees Pty Limited (Colonial First State Inv Account) RBC Investor Services Australia Nominees Pty Ltd (Pi Pooled Account) BNP Paribas Noms Pty Ltd (DRP) Mr Richard Karl Hill (Icena Account) ABN Amro Clearing Sydney Nominees Pty Ltd (Custodian Account) UBS Nominees Pty Ltd (TP00014 15 Account) Aust Executor Trustees Ltd (Charitable Foundation) Telic Alcatel (Australia) Pty Ltd (Middendorp Directors SF Account) RBC Investor Services Australia Nominees Pty Limited (BKcust Account) Keeble Nominees Pty Ltd (Ridgeway Super Fund Account) Wear Services Pty Ltd Warbont Nominees Pty Ltd (Accumulation Entrepot Account) Mr David Charles Lawie (COG Family Account) SAO Group Pty Ltd (The Springbank Family Account) Dimana Holdings Pty Ltd Vanward Investments Limited Number of Fully Paid Ordinary Shareholders Number of Performance Rights Holders 476 1,076 642 940 101 3,235 274 70 50 3 20 2 145 - Fully Paid Number Percentage 55,007,045 41,464,746 25.93% 19.55% Fully Paid Number Percentage 55,007,045 41,464,746 18,894,854 10,172,917 5,702,219 4,073,920 4,010,846 3,000,000 2,323,676 2,195,550 1,781,067 1,514,076 1,288,705 1,226,737 987,893 983,598 978,042 978,042 880,000 775,958 25.93% 19.55% 8.91% 4.80% 2.69% 1.92% 1.89% 1.41% 1.10% 1.04% 0.84% 0.71% 0.61% 0.58% 0.47% 0.46% 0.46% 0.46% 0.41% 0.37% 158,239,891 74.60% 127 2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt IMDEX LIMITED and its controlled entities ADDITIONAL SECURITIES EXCHANGE INFORMATION AS AT 31 AUGUST 2014 (d) Director and Company Secretary Shareholdings Number of Shares Number of Options 380,000 2,343,506 150,000 562,000 260,000 396,044 4,091,550 - - - - - - - Number of Performance Rights - 718,136 - - - 12,120 730,256 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 Office 216 Balcatta Road Balcatta Western Australia 6021 Phone: (08) 9445 4010 (g) Share Registry Computershare Investor Services Level 2 45 St Georges Terrace Perth WA 6000 Phone: (08) 9323 2000 128 2014 Imdex LImIted AnnuAL RepoRt2014 Imdex LImIted AnnuAL RepoRtFY2014 FInAncIAL RepoRt 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 REFLEX Group of Companies and United Kingdom based company Chardec 1 May 2007 Acquisition of Swedish based company Flexit 1 July 2007 Ace merged with REFLEX. Imdex finalised 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 ComércioLtda 1 January 2012 Acquisition of Vaughn Energy Services (VES) by Imdex’s DHS Services joint venture 1 November 2012 Acquisition of ioGlobal Pty Ltd, ioAnalytics Pty Ltd and ioGlobal Solutions Inc. (together ioGlobal) 1 December 2012 DHS Services and Vaughn Energy Services rebranded as VES International 3 2014 IMDEX LIMITED ANNUAL REPORTIMDEX GROUP AT A GLANCE Innovative Technologies Integrated Solutions Global Support Imdex delivers leading innovative technologies to the global minerals industry and select oil and gas markets, focusing on integrated solutions that enhance customers’ operations and deliver value for shareholders. The company achieves this through its extensive industry knowledge and commitment to product development, ensuring innovative, simple to use and fit-for purpose technologies. Imdex Limited ABN 78 008 947 813 Head Office 216 Balcatta Road, Balcatta, Western Australia 6021 T: +61 8 9445 4010 F: +61 8 9445 4042 E: imdex@imdexlimited.com imdexlimited.com
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