K&S Corporation Limited
Annual Report 2013

Plain-text annual report

A N N U A L R E P O R T 2 0 1 3 K & S C O R P O R A T I O N L I M I T E D SERVICE ALL THE WAY FINANCIAL CALENDAR Final dividend payment (4.5 cents per share) 31 October 2013 Annual General Meeting 26 November 2013 Half-year results and interim dividend announcement 26 February 2014 Interim dividend payment 3 April 2014 Full-year result and final dividend announcement 26 August 2014 Annual report mailed to Shareholders 7 October 2014 Final dividend payment 31 October 2014 Annual General Meeting 25 November 2014 ABN 67 007 561 837 CONTENTS Page Highlights 1 Chairman’s Overview 2 Financial Overview 5 Managing Director’s Report 6 Board of Directors 17 Five-Year Financial History 19 Directors’ Report 20 Remuneration Report 29 Corporate Governance 36 Financial Report 53 Corporate Directory 112 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 To be the leading provider of transport and logistic solutions within our target markets in Australia and New Zealand. (cid:129) Revenue increased 1.8% to $564.6 million (cid:129) Achieves profit after tax of $15.9 million in difficult trading environment (cid:129) Acquires Collare Transport in Western Australia (cid:129) Strong performance by Western Australian business (cid:129) Generates record operating cash flow of $46.4 million (cid:129) Balance sheet further strengthened with gearing at 17.6% (cid:129) Lost time injury rate was reduced to 11 1 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 On behalf of the Board of K&S Corporation, I am pleased to present the Company’s annual report. This year we have seen two distinctly different half years. The first half we had extremely strong demand for logistics and transport services particularly in the resources sector, with demand from manufacturers at a consistent level. In the second half of the year we have seen reduced demand across all sectors as the economy slowed. Activity slowed in the resource sector with declining commodity prices and as miners looked to reduce their costs and scale back a number of expansionary projects. The manufacturing sector was impacted by the continuing high $A dollar with imports reducing demand for locally manufactured goods. This in turn has reduced demand for transport services. Net profit after tax for 2012/1213 was $15.9 million compared with $16.4 for the 2011/12 financial year, down 3.0%. Operating revenue for the year was $564.6 million, an increase of 1.8% on the corresponding period. Operating cash flow increased 19.3% to $46.4 million. The strong cash generation enabled gearing to be reduced to 17.6%. 2 T O N Y J O H N S O N CHAIRMAN K&S CORPORATION LIMITED Earnings per share were 17.6 cents per share. We have declared a fully franked final dividend of 4.5 cents per share (last year 6.0 cents per share). This follows the interim dividend of 6.5 cents per share. The final dividend will be paid on 31 October 2013, with the date for determining entitlements being 17 October 2013. The dividend reinvestment plan (DRP) will once again apply in respect of the fully franked final dividend of 4.5 cents payable on 31 October 2013. The terms of the DRP will remain unchanged with the issue price under the DRP based on the weighted average trading price for K&S shares in the five business days ending on 17 October 2013 (the record date of the final dividend) less a discount of 2.5%. I would like to thank Richard Nicholson who retired from the Board in July after 27 years of service as a Director. Richard has been one of the longest serving Directors of the Company and has at various times been Chairman of the Audit Committee and of the Nomination and Remuneration Committee. We wish him well in his retirement from the Board. I am sure he will continue to take an active interest in the welfare of the Company. Legh Winser has rejoined the Board as a Non Executive Director. Following the announcement of Legh’s pending retirement as Managing Director early last year, we foreshadowed that we would give favourable consideration to him rejoining the Board at an appropriate time. Legh has enormous experience in transport and logistics which will greatly strengthen the Board. 3 On behalf of the Board, I thank our customers, suppliers and employees, who have contributed to the continuing success of the business. In particular, I thank the senior management team, led by Greg Stevenson, for their ongoing commitment and dedication under difficult circumstances. Tony Johnson Chairman “Management is focused on finding new growth opportunities and improving yield.” 4 F I N A N C I A L O V E R V E W I 2013 2012 % change Revenue $m 564.6 554.8 1.8 Operating profit before $m 52.0 55.0 (5.4) interest, tax and depreciation Operating profit before $m 27.8 30.5 (8.9) interest and tax Operating profit before tax $m 22.3 23.4 (4.7) Operating profit after tax $m 15.9 16.4 (3.0) Dividends paid $m 11.3 8.7 29.9 Total assets $m 403.7 401.4 0.6 Net borrowings $m 51.1 62.0 (17.6) Shareholders’ funds $m 239.6 224.9 6.5 Depreciation and amortisation $m 24.2 24.4 (1.0) Earnings per share cents 17.6 18.7 (5.9) Dividends per share cents 11.0 11.0 0.0 Net tangible assets per share $ 1.85 1.72 7.6 Cash flow per share $ 0.51 0.44 15.9 Return on Shareholders’ funds % 6.6 7.3 (9.6) Gearing % 17.6 21.6 (18.5) Lost time injuries 47.0 49.0 (4.1) Lost time injuries % 11.0 13.0 (15.4) frequency rate OPERATING REVENUE OPERATING CASH FLOW $564.6m $554.8m $523.4m $454.3m $441.0m $46.4m $38.9m $34.1m $35.9m $39.2m SHAREHOLDERS FUNDS GEARING $239.6m 17.6% $224.9m $213.6m $179.1m $146.5m 21.6% 26.4% 24.5% 22.6% 2013 2012 2011 2010 2009 2013 2012 2011 2010 2009 5 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 K&S experienced a challenging year in 2012-13. While the company enjoyed revenue growth of 8.0% and a profit increase of 37.4% in the first half of the year, activity slowed considerably after February in the face of tough global conditions and uncertainty before the September Federal election. Sales revenue for the year reached $564.6 million up 1.8% on the previous year. Profit after tax was $15.9 million compared to last year’s $16.4 million or 3.0% lower. Pleasing was the increase in operating cash flow to $46.4 million up 19.3% Earnings per share were 17.6 cents per share. The slowdown particularly affected manufacturing on the east coast of Australia, with volumes transported for our major customers falling significantly. In Western Australia, there has been a significant tightening in the mining and resources sector, as miners seek to reduce costs. One of the strategies K&S pursued during the year has been expansion of its customer base. Sales and marketing staff have been recruited to seek new opportunities from smaller, mid-size companies to help offset reduced volumes from major clients. 6 G R E G S T E V E N S O N MANAGING DIRECTOR K&S CORPORATION LIMITED By using our expertise in sea, rail and road transport, we have been successful in winning new work. Not only has this provided us with immediate benefits, but it ensures that when overall business conditions improve, we will be in a position to expand our operations far more rapidly than would otherwise be the case. Regal Transport enjoyed solid growth overall based on mining in the Pilbara and Kimberley regions, although some slowdown was experienced in the second half. The purchase of Bunbury-based Collare Transport, with its strong focus on the timber industry in WA, has also been positive with significant operations synergies flowing from the acquisition. While we continue to look at further potential acquisition opportunities, any purchase would need to meet our strategic requirements. Our New Zealand business is expected to benefit from new contracts in the dairy sector and greater efficiencies resulting from new heavier weight limits. DTM also had a solid year, with some exciting developments in specialist transport areas that are expected to provide good returns into the future. Volumes carried for our east coast customer base, which is strongly aligned with the manufacturing sector, were again subdued, especially in the second half of the year. Both road and rail linehaul operations were depressed, but import/export operations improved. 7 Steel haulage operations were mixed, with the slowdown in the housing market affecting the volume of building product being transported, but solid activity in the construction industry meaning structural steel transport remained steady. Our paper business was steady in 2012/13. However, our contract with Australian Paper expired on 30 June 2013. Despite a competitive tender from the Company, the contract was not renewed. During the 2013 financial year, the Australian Paper contract generated revenue of approximately $30 million. Steps have been taken to replace revenue from the warehousing component of the services performed for Australian Paper with other customers at our Truganina freight terminal. The gradual recovery of the Japanese paper manufacturing industry following the 2011 tsunami has resulted in increased timber and wood chip volumes being exported, while the purchase of Collare Transport in Bunbury has been positive. 8 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 “We will continue to implement a number of expansion initiatives aimed mainly at the oil, gas and resource sectors.” Regal Transport continued to deliver sound results in the heavy haulage and general freight areas, driven largely by the mining and resources sector in the Pilbara and Kimberley regions in the north of Western Australia. After a strong first half, activity softened at Christmas, especially in the general freight area, and it had not recovered by the end of the financial year. The increased focus on sales and developing relationships has enabled us to capture additional work at a time when many rivals are struggling. New scheduled services were added to Onslow and Solomon in the Pilbara region to meet the requirements of clients, while significant additional work was undertaken for explosives group Dyno Nobel. In the heavy haulage business, our activity for Westrac, which uses Regal for port-to-Westrac and Westrac-to-customer minesite haulage, reduced as a result of the slowdown in new mine development. However, this reduction was offset by new heavy haulage work from a number of existing clients and securing work with new customers. Regal has also taken on more sales people to help boost activity, which has provided positive results. While we have seen short term weakness, the future for heavy haulage remains positive with major potential mine developments for Fortescue Metals Group, Rio Tinto and Roy Hill in the wings and the expected expansion of a number of existing iron ore mines. Increased gas exploration around Broome and the Canning Basin is also providing additional opportunities for both the heavy haulage and general freight services. As the largest provider of heavy haulage services in Western Australia, Regal is well-positioned to take advantage of these developments. SERVICE ALL THE WAY 9 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 The DTM business continued its solid growth pattern of the past five years, with new or extended contracts signed with a number of established and new clients during the year. The strong focus of the group continues to be aimed at developing and providing to clients more tailored solutions which provide a unique value proposition. This has been supported by ongoing development of management systems and IT infrastructure, employee training and fleet upgrades. Substantial advances in safety performance were made in the year. Lost time injuries reduced by more than 60%, while improvements in other safety, health and environmental performance indicators were also achieved. The constant upgrade of company assets and fleet continued. Approximately 60 to 70 new vehicles were added to the DTM fleet as part of this program. DTM is now recognised as a market leader in contract distribution and warehouse services in Australia. It is a major provider of specialist services to the oils and lubricants, cryogenic gas, steel and FMCG industry segments. Independent market research has substantiated that the DTM customer net promoter score is at best-of-class levels. This reputation was further expanded during the year with the group winning one of six prestigious Coca Cola Amatil Supplier of the Year awards. New contracts were won with BP Castrol Australia in Perth, MacKay and Port Hedland, adding to the transport work already undertaken for petroleum and lubricant providers. Distribution services with Caltex, Fuchs and Shell have continued to grow. Marine bunkering services have also expanded. In all, distribution services in the petroleum and lubrication market segment have increased by more than 20% year on year. A new contract was signed with BlueScope for distribution of product from its Auburn-based distribution centre, while a major contract for Air Liquide was renewed. 10 Significant additional work has been undertaken for equipment handling specialist CHEP, which includes the bulk storage of pallets at the Truganina and Enfield facilities. Late in the year, DTM reached agreement working closely with CHEP to design, construct and commission two new market leading portable pallet repair plants. These are the first of their type in the Australian market and will offer CHEP improved flexibility and a strategic market advantage. Our New Zealand business is looking to grow revenues and improve yield on the back of high levels of service and customer satisfaction and as the impact of new regulations allowing longer vehicles with heavier weight limits to operate on NZ roads comes into effect. Under the new regulations, appropriate vehicles can now transport maximum payloads of up to 58 tonnes on specified routes, rather than the previous maximum of 44 tonnes, reducing costs and improving efficiencies. About 40% of our fleet is now compliant under the new regulations making K&S an attractive and preferred haulage operator. K&S is continuing to invest in new trucks and equipment to maximise the impact of these changes. By concentrating on higher productivity vehicles, we plan to increase average payloads by almost a third to 36 tonnes, which will enable us to reduce the total number of trips each year by around 2,000, with resulting reductions in carbon emissions. Activity in the timber industry expanded with K&S now running a 24 hour a day, five day a week service in the Bay of Plenty, while other contracts have remained steady. Higher exports levels on the back of improved log prices is expected to provide good upside for K&S. Strong progress was also made in the milk industry with a new contract for the haulage of milk powder resulting in new equipment purchases, while an existing contract was expanded. Negotiations are underway to further boost volumes in 2014. The kiwifruit industry is continuing its recovery from the impact of a bacterial infection in 2011. This year’s harvest was delayed as a result of drought across NZ, but had almost returned to normal levels by the end of the financial year. Fuel prices remained steady throughout the year. A renewed concentration on small to mid-tier businesses and diversification into new areas of activity has paid dividends, especially as economic conditions tightened in the second half of the year. This was achieved by a significant investment in business development through the employment of additional sales and marketing staff in our growth areas at a time when many competitors have cut costs in these areas. Strong emphasis has also been placed on working with procurement managers to ensure we offer the most cost effective transport solution through the imaginative use of different transport modes, whether it be rail, road or sea. 11 This has enabled K&S to increase its customer base in the SME market in Australia and New Zealand by around 10%, with the additional work helping to offset reduced volumes from larger blue-chip customers adversely affected by the economic downturn. Considerable work has also been undertaken to capture new wharf cartage work to take advantage of increased import/export activity in Australia and New Zealand. The new work will help K&S through the economic downturn, as well as setting the company up for a significant period of growth once economic conditions improve and activity for larger customers recovers. K&S Fuels recorded a steady result for the 2012-13 financial year. Total fuels sales increased slightly to almost 80 million litres, while a further 33 million litres were distributed for Caltex Fuels and Lubricants. Approximately 40% of the fuel is used by the K&S transport fleet, with the remainder servicing wholesale customers ranging from primary producers, professional fishing fleets, retail and transport operators. Sales from the four Caltex branded retail outlets operated by K&S Fuels in Mount Gambier and Millicent, which includes two franchised outlets, were down in the face of considerable discounting pressure from the major supermarket chains. Fuel volumes transported from Adelaide and Melbourne into fuel depots in Mount Gambier, Naracoorte and Millicent increased slightly with a new B-double added to the K&S Fuels tanker fleet. Diesel sales to the fishing fleet based along the Limestone Coast improved, as did sales to farm customers as a result of increased irrigation during the year following a dry summer. One of the key aims of K&S Fuels is to provide the K&S road fleet with a reliable supply of diesel at the best possible price. To achieve this, fuel outlets have been installed in K&S freight depots throughout Australia. The K&S Fuels card system, which is co-ordinated through the Mount Gambier headquarters, was further expanded to Port Hedland, Dardanup and Newcastle, providing significant cost savings. Sales of gas through autogas and bottle gas bottle refilling stations at Millicent and Kingston continue to provide good returns. 12 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 Work on the development of a five year strategic initiatives was a key focus for Human Resources management during the year. The scope, timeline and desired outcomes for those initiatives have been rigorously reviewed and committed to by the business. These initiatives cover areas ranging from employee benefits, career planning and further opportunities for training and development. This work is ongoing and we believe will result in a more motivated, productive and diverse workforce. The roll out of a new online induction program was another highlight. The program moved a large number of “read and sign” policies and safe operating practices online with voice-activated software providing employees with the option of listening to rather than reading material. The process is designed to improve online induction and refresher training programs, making them more user-friendly and easier to understand, resulting in a safer workplace. Work was also undertaken in Perth to welcome and induct workers at Collare Transport in Bunbury into the K&S organisation. The HR Department has a dedicated team in Melbourne and Perth along with a HR co-ordinator in New Zealand covering a full range of human resources management. K&S has continued to look for ways to increase overall energy efficiency across the Group. Under the National Greenhouse and Energy Reporting Act, K&S reported a total of 119,000 tonnes of carbon dioxide equivalent during 2011-12, slightly less than the 121,000 tonnes generated in 2010-11. K&S also completed the Energy Efficiency Opportunity Assessment Plan, which covers the whole Group through to 2016. The first public report is due by December 2013. 13 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 14 The introduction of the carbon tax on transport is scheduled to commence in July 2014. K&S anticipates that the costs of the carbon tax will largely be recovered via fuel surcharges. K&S has maintained its strong commitment to safety with a focus on loading, unloading and truck exclusion zones, falls, fitness for work and incident reporting and investigation. In September last year I attended a series of health and safety consultation meetings across the nation to provide K&S health and safety representatives with the opportunity to meet with me face-to-face and discuss safety. The results of these meetings were then tabled at K&S’ annual national safety conference held in October 2012. We have identified a number of key strategic and tactical safety initiatives to be implemented over the next five years, with the five main areas being: 1 Leadership and culture 2 Health and safety by design 3 Capabilities 4 Customer and supply chain networks 5 Regulatory framework Work to review safety systems as part of the new harmonised workplace health and safety laws has also continued. Last year, K&S was granted approval by the Safety, Rehabilitation and Compensation Commission to undertake in-house claims management as an extension to its self-insurance licence. In-house claims management commenced on September 1, 2012. The implementation plan has been on track with service delivery improvements recorded. The claims management department team is based in Mount Gambier. Monthly tool box meetings have continued and a new e-learning program rolled-out. This program uses voice recognition software as a tool to assist those workers with literacy difficulties. On an industry front, the Truck Emergency Breakdown and Roadside Safety program (TEBARS), formerly known as Breakdown Events and Roadside Safety (BEARS), is near completion with final guidelines delivered to the Victorian On Road Operators Group, which has endorsed the project work to date. The project will now be submitted to the Transport Industry Safety Group for adoption and promotion as industry guidelines. The project is planned to be launched at Freight Week in September, 2013. K&S has been a member of the project team and a significant contributor to the project. 15 K&S continues to be accredited to ISO 9001 2008 standard while its accreditation programs under the National Heavy Vehicle Accreditation Scheme are gradually being transferred under the administration of the new National Heavy Vehicle Regulator. The company remains a member of the ATA Council and remains represented on the Safety Committee, Skills and Workforce Committee and the Transport Economics Committee. It also continues to work with clients and peak industry bodies to ensure compliance with relevant obligations across other affected industries. I wish to thank our customers for their continued support and the Board for their guidance, the Management team and all employees for their hard work and diligence, and everyone else who has helped make K&S one of the major transport firms in Australia. I wish everyone every success in the coming year. Greg Stevenson Managing Director 16 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 The Directors of the Company in office at the date of this report, together with particulars of their qualifications, experience and special responsibilities, are set out below. Tony Johnson Chairman Age 66, Director since 1986 Tony Johnson BA, LLB, LLM, FAICD (Companies & Securities), is a lawyer and an accredited mediator. Tony is a Partner of the national law firm Johnson Winter & Slattery. He has worked extensively in the corporate advisory and commercial disputes area. Mr Johnson is also Chairman of AA Scott Pty Ltd, listed entity Scott Corporation Limited and Director of Adelaide Community Healthcare Alliance. Member of: (cid:129) Environmental Committee (Chairman) (cid:129) Nomination and Remuneration Committee Greg Stevenson Managing Director Age 45, Director since May 2012 Greg Stevenson AssocDip(PerAdmin), MBus(Sys), GradDip(BusSys), MBA(E) has extensive experience in the transport and logistics sector. From 2007 to 2010, Mr Stevenson was Managing Director of Kalari Pty Ltd (part of the Swire Group) during a period of significant growth and transformation. Member of: (cid:129) Environmental Committee 17 Greg Boulton AM Deputy Chairman Age 63, Director since January 1996 Greg Boulton BA(Accountancy), FCA, FCPA, FAICD is Chairman of private equity fund Paragon Equity Limited, Chairman of Southern Gold Limited, Director of Statewide Superannuation and holds board positions on a number of privately owned companies. He has over 30 years experience in transport related industry. Member of: (cid:129) Audit Committee (cid:129) Nomination and Remuneration Committee Legh Winser Age 65, Appointed 23 August 2013 Legh Winser is a former Managing Director of the Company, a position which he held for 14 years. He has extensive knowledge of the transport and logistics industry with more than 40 years experience. Mr Winser is also an alternate director of several companies with the Scott Group of Companies. Member of: (cid:129) Nomination and Remuneration Committee Bruce Grubb Age 63, Director since 2007 Bruce Grubb has over 30 years experience in the transport industry and is the former Chief Executive of Scott Transport Industries Pty Ltd. Mr Grubb is also a Non-Executive Director of the listed entity Scott Corporation Limited and a Director of Dangerous Goods Logistics Pty Ltd. Member of: (cid:129) Environmental Committee Ray Smith Age 66, Director since 2008 Ray Smith FCPA, FAICD, Dip Com was Chief Financial Officer of Smorgon Steel Group for 11 years. During that period Smorgon Steel Group was at the forefront of the rationalisation of the Australian Steel Industry. Mr Smith is a Director of listed entities Crowe Horwath Australasia Ltd, Warrnambool Cheese and Butter Factory Company Holdings Limited and Transpacific Industries Limited. Mr Smith is a trustee of the Melbourne and Olympic Parks Trust. Mr Smith brings a wealth of corporate and financial experience in the areas of strategy, acquisitions, treasury and capital raising. Member of: (cid:129) Audit Committee (Chairman) Secretary Chris Bright BEc, LLB, Grad Dip CSPM, FCIS Secretary since 2005 Chris Bright has held the position of Group Legal Counsel for 11 years. Mr Bright was admitted as a solicitor in South Australia in 1997. He also has experience working in private practice in Adelaide, principally in commercial dispute resolution. Retired Director Richard Nicholson Age 70, Retired 23 July 2013 Richard Nicholson ACA, is a Chartered Accountant in public practice. Mr Nicholson had been a Director of the Company since 1986. He was previously the Company Secretary and Finance Officer of the Scott Group of Companies and is a former Non-Executive Director of that Group. Member of: (cid:129) Nomination and Remuneration Committee (Chairman) 18 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 ($A Millions unless otherwise indicated) 2013 Variation 2012 2011 2010 2009 % Group Revenue 564.6 1.8 554.8 523.4 454.3 441.0 Operating Profit before Individually Significant Items, Interest and Tax 27.8 (8.9) 30.5 29.6 32.5 27.9 Individually Significant Items & Fraud - - - - - 2.5 Operating Profit before Interest and Income Tax 27.8 (8.9) 30.5 29.6 31.5 30.4 Interest Expense 5.5 (22.5) 7.1 8.4 5.2 5.3 Profit Before Tax 22.3 (4.7) 23.4 21.2 26.3 25.0 Income Tax Expense 6.4 (8.6) 7.0 6.3 7.6 6.9 Operating Profit after Tax 15.9 (3.0) 16.4 14.8 18.7 18.2 Earnings per Ordinary Share (cents) 17.6 (5.9) 18.7 18.3 26.3 26.1 Dividends per Share (cents) 11.0 0.0 11.0 10.0 14.0 12.0 Return on Shareholders Funds 6.6% (9.6) 7.3% 6.9% 10.5% 11.6% Paid Up Capital 101.2 3.6 97.7 94.3 64.5 57.4 Shareholders Funds 239.6 6.5 224.9 213.6 179.1 156.2 Total Assets 403.7 0.6 401.4 388.0 326.1 287.6 Net Tangible Assets (book value) per Share $1.85 7.6 $1.72 $1.65 $1.85 $1.87 19 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 The Directors’ present their report, together with the consolidated financial report of K&S Corporation Limited ("the Company") and the consolidated entity, for the year ended 30 June 2013 and the Auditor’s Report thereon. The principal activities of the consolidated entity during the course of the financial year were transport and logistics, contract management, warehousing and distribution, and fuel distribution. There were no significant changes in the nature of the activities of the consolidated entity during the year. The Board presents the 2013 Operating and Financial Review, which has been designed to provide Shareholders with a clear and concise overview of the Company’s operations, financial position, business strategies and outlook. The review complements the financial report and has been prepared in accordance with recently released guidelines set out in RG247. The consolidated profit for the year attributable to the members of K&S Corporation Limited (“K&S”) is shown on page 21, along with comparative results for 2012. 20 Financial Overview 2013 2012 % Change Operating revenue $m 564.6 554.8 Operating profit after tax $m 15.9 16.4 Net borrowings $m 51.1 62.0 Shareholders’ funds $m 239.6 224.9 Earnings per share (basic) cents 17.6 18.7 Dividends per share cents 11.0 11.0 Net tangible assets per share $ 1.85 1.72 Cash flow per share $ 0.51 0.44 Return on Shareholders’ funds % 6.6 7.3 Gearing % 17.6 21.6 Lost time injuries 47.0 49.0 Lost time injuries frequency rate % 11.0 13.0 1.8 (3.0) (17.6) 6.5 (5.9) 0.0 7.6 15.9 (9.6) (18.5) (4.1) (15.4) K&S is a mid-sized logistics company, recognised as the leader in customised logistics solutions for customers who demand high levels of customer service. The Group operates in Australian and New Zealand markets, our success is driven by our constant focus on service, safety and continuous improvement. The Directors announced a net profit after tax of $15.9 million, a reduction of 3.0% on the previous year. Operating revenue for the year was $564.6 million, an increase of 1.8% on the previous corresponding period. This year the Company saw two distinctly different half years. The first half had extremely strong demand for logistics and transport services increased revenues by 8.0% to $293.5 million. This was driven by the resources sector, with demand from manufacturers at a consistent level. In the second half of the year there was a reduced demand across all sectors as the economy slowed with revenues declining by 4.2% to $271.1 million. First half profit after tax recorded a 37.4% increase to $10.1 million while the second half declined to $5.8 million. Earnings per share were 17.6 cents per share. Activity slowed in the resource sector with declining commodity prices and as miners looked to reduce their costs and scale back a number of expansionary projects. The manufacturing sector was impacted by the high Australian dollar with imports reducing demand for locally manufactured goods. This in turn has reduced demand for transport services. During the difficult second half of the year we have continually reviewed our cost base and reduced variable costs from our operations. We have reduced our subcontractor costs, casual labor and overtime costs as volumes have declined. 21 We have implemented a freeze on new employment as a measure to reduce costs. Capital expenditure on non essential equipment has been reduced significantly in the second half. Operating cash flow for the year was a record of $46.4 million up 19.3%. This was achieved by increasing the resources and focus on customer collections and working capital management. With the strong generation of cash we have been able to reduce our gearing to 17.6%, which is well within our target range. Our net debt has reduced by 17.6% to $51.1 million. On 31 October 2012, K&S acquired the business and assets of Collare Transport (“Collare”) for $8.0 million. Collare is Bunbury based and has a strong focus on the timber industry in Western Australia. The Collare business has been integrated into our Bunbury based business which was formally known as Brookes. During the course of the year K&S acquired prime movers and trailing equipment for $24.0 million. Funding of this equipment was $17.3 million via Hire Purchase Agreements and the balance of $6.7 million was settled from our cash balance. K&S net asset position increased by 6.5% to $239.6 million. During the year we completed a revaluation of freehold land and buildings that resulted in an increase of the Asset Revaluation Reserve of $5.7 million. The Foreign Currency Reserve also increased in value by $0.9 million during the year. Profit after tax of $15.9 million for FY13 were offset by dividends paid of $11.3 million (Final FY12 and Interim FY13). As part of the Employee Share Scheme and the Dividend Reinvestment Scheme $3.5 million of new shares were issued. Dividend We have declared a fully franked final dividend of 4.5 cents per share (last year 6.0 cents per share). This follows the interim dividend of 6.5 cents per share paid in April 2013, making a total dividend of 11.0 cents per share. The final dividend will be paid on 31 October 2013, with the date for determining entitlements being 17 October 2013. The dividend reinvestment plan (DRP) will once again be part of the October 2013 dividend. The DRP will apply in respect of the fully franked final dividend of 4.5 cents payable on 31 October 2013. The terms of the DRP will remain unchanged with the issue price under the DRP based on the weighted average trading price for K&S shares in the five business days ending on 17 October 2013 (the record date of the final dividend) less a discount of 2.5%. Outlook Providing earnings guidance going forward remains a difficult task. The lower Australian dollar and more accommodative setting of interest rates may in time provide a positive stimulus for the domestic economy. We are well placed with a strong balance sheet, low gearing and secure customer contracts. Opportunities for potential acquisitions will also be closely evaluated where it makes strategic sense. 22 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 Significant changes in the state of affairs of the consolidated entity during the financial year were as follows: On 31 October 2012, the Company acquired the business and assets of Collare Transport (“Collare”). Collare is Bunbury-based with a strong focus on the timber industry in Western Australia, and at acquisition date had annual turnover of $12 million and employed 35 staff. Collare has a complimentary customer profile, lane mix and equipment base to K&S Dardanup based business (formerly known as Brookes Transport) and further expands K&S’ footprint in Western Australia. The acquisition gives the Group an excellent opportunity to generate operation synergies and to improve the returns of the combined Dardanup and Collare businesses. The consolidated entity’s operations are subject to environmental regulations under both Commonwealth and State legislation in relation to its transport and storage business and its fuel business. The consolidated entity has a Board Committee which monitors compliance with environmental regulations. The Directors are not aware of any significant breaches during the period covered by this report. Climate Change Reporting under the National Greenhouse and Energy Reporting Act (NGER) and the Energy Efficiency Opportunity Program (EEOP) were completed and submitted in October and December 2012. The Energy Efficiency Opportunity compliance report for June 2012 is available on the K&S website. For details on the introduction of the carbon pricing scheme, refer to ‘Likely Developments’ section on page 25 of this report. Transport and Warehousing The transport and warehousing business is subject to the Dangerous Goods Acts in Commonwealth and State Legislation. The consolidated entity monitors performance and recorded a number of minor incidents during the year. Fuel The fuel business is subject to the South Australian Environmental Protection Act 1993 and the South Australian Dangerous Substances Act 1979. The consolidated entity monitors performance and recorded a number of minor fuel related incidents during the year. In all cases, corrective actions have been taken. 23 Dividends paid or declared by the Company to members since the end of the previous financial year were: 1 A final fully franked ordinary dividend (taxed to 30%) of 6.0 cents per share amounting to $5,375,857 in respect of the year ended 30 June 2012 was declared on 21 August 2012 and paid on 31 October 2012; 2 A fully franked preference dividend (taxed to 30%) of 4.0 cents per share amounting to $4,800 in respect of the year ended 30 June 2012 was declared on 21 August 2012 and paid on 31 October 2012. An interim fully franked ordinary dividend (taxed to 30%) of 6.5 cents per share in respect of the year ended 30 June 2013 was declared on 26 February 2013 and paid on 3 April 2013 amounting to $5,882,295. The final dividend declared by the Directors of the Company on 23 August 2013 and payable on 31 October 2013 in respect of the year ended 30 June 2013 comprises: 1 A fully franked ordinary dividend (taxed to 30%) of 4.5 cents per share amounting to $4,103,106; and 2 A fully franked preference dividend (taxed to 30%) of 4.0 cents per share amounting to $4,800. The preference share dividends are included as interest expense in determining Net Profit. DIVIDENDS PAID TO SHAREHOLDERS Interim (cents) Final (cents) 2013 2012 2011 2010 2009 5.0 5.0 6.5 7.0 7.0 4.5 6.0 5.0 11.0 11.0 10.0 7.0 14.0 5.0 12.0 On 23 July 2013, the Company announced that Mr Nicholson was retiring as a Non-Executive Director. Mr Nicholson had been a Director of the Company since 1986. On 19 August 2013, the Company completed the purchase of 14.6 hectares of land in Bullsbrook, Western Australia for $13.3 million. The land on the Great Northern Highway, north of Perth, will consolidate the Regal Transport General Haulage operation and will be a bridging depot for the Regal Transport Heavy Haulage business, which encounters curfew issues at its current South Guildford location. The Company’s intention is to develop the site in stages, with initial construction of a workshop facility and hardstand proposed throughout the second half of the 2014 reporting period. On 23 August 2013, the former Managing Director of the Company, Mr Winser, was appointed as a Non-Executive Director. The Board is of the view that with his extensive knowledge of the transport and logistics industry generally and of the Company specifically, Mr Winser is eminently well qualified to act as a Non-Executive Director and will bring significant value to the Board. 24 On 23 August 2013, the Directors of K&S Corporation Limited declared a final dividend on ordinary shares in respect of the 2013 financial year. The total amount of the dividend is $4,103,106, which represents a fully franked dividend of 4.5 cents per share. The dividend is payable on 31 October 2013 and has not been provided for in the 30 June 2013 financial statements. The Dividend Reinvestment Plan (DRP) will apply to the final dividend and the issue price for shares under the DRP will be based on the weighted average trading price of K&S shares in the five business days ending on 17 October 2013 (the record date of the final dividend), less a discount of 2.5%. Other than the matters above, there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Company, to affect significantly the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in future financial years. It is anticipated that the consolidated entity will continue to expand transport and logistics operations during the next financial year by further extending its services throughout Australia and adopting the latest technology in the industry to contain costs and enhance the services offered to customers. The Federal Government’s carbon price legislation, commenced during 2013 in the form of a carbon tax. However, heavy on-road transport activities were excluded from the carbon pricing regime until 30 June 2014. From 1 July 2014 the amount of the business fuel tax credit (“FTC”) claimed by K&S in respect of purchases of diesel fuel will be reduced by the effective price on carbon. Based on the carbon price of $25.40 per tonne to apply in 2014/15, the effective price on carbon for diesel fuel would be 6.858 cents per litre. Currently, the carbon pricing regime is to move from a fixed price to a market determined price on 1 July 2015. From 1 July 2015, it is proposed that the effective price on carbon would be adjusted six monthly in line with that market determined price. K&S currently anticipates that any reduction in the FTC that it is able to claim in respect of diesel fuel purchases for heavy on-road transport activities from 1 July 2014, will be passed through to customers via fuel surcharges. K&S Corporation Limited is a company limited by shares that is incorporated and domiciled in Australia. 25 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 The Directors of the Company in office at any time during or since the end of the financial year are: Tony Johnson (Chairman) Greg Stevenson (Managing Director) Greg Boulton AM (Deputy Chairman) Legh Winser Bruce Grubb Ray Smith Richard Nicholson (retired 23 July 2013) (appointed 23 August 2013) Secretary – Chris Bright With the exception of Mr Stevenson, all Directors are Non-Executive Directors. Particulars of Directors’ qualifications, experience, special responsibilities and other relevant Directorships are on pages 17 and 18 of the Annual Report. Board of Directors Back row l to r: Ray Smith, Bruce Grubb, Legh Winser, Chris Bright (Secretary) Front row l to r: Greg Boulton, Tony Johnson, Greg Stevenson The beneficial interest of each Director in their own name in the share capital of the Company shown in the Register of Directors' Shareholdings as at the date of this report is: Ordinary Shares Mr R Nicholson 13,049 Mr L Winser 39,194 Mr B Grubb 17,034 Directors of the Company have relevant interests in additional shares as follows: Ordinary Shares Mr T Johnson 300,021 Mr G Boulton 254,724 Mr L Winser 1,112,005 Mr R Smith 36,794 Mr R Nicholson 17,858 Mr B Grubb 108,171 26 The number of Directors' meetings (including meetings of Committees of Directors) and number of meetings attended by each of the Directors of the Company during the financial year were: Director Directors’ Meetings Audit Committee Meetings Nomination and Remuneration Committee Meetings Environmental Committee Meetings No. attended No. held No. attended No. held No. attended No. held No. attended No. held Mr T Johnson 11 11 - - 5 5 4 4 Mr G Boulton 10 11 4 4 5 5 - - Mr R Smith 11 11 4 4 - - - - Mr B Grubb 11 11 - - - - 4 4 Mr R Nicholson 11 11 - - 5 5 - - Mr G Stevenson 11 11 - - - - 4 4 All Directors were eligible to attend all meetings held. In addition to the eleven regular meetings, there were three other special meetings of Directors held during the course of the year. Indemnification The Company indemnifies current and former Directors, Executive Officers and the Secretaries of the Company and its controlled entities against all liabilities, costs and expenses to another person (other than the Company or a related body corporate) to the maximum extent permitted by law that may arise from their position as Directors, Executive Officers and Secretaries of the Company and its controlled entities, except where the liability arises out of conduct involving a lack of good faith. Insurance Premiums Since the end of the previous financial year, the Company has paid insurance premiums of $42,766 in respect of Directors’ and Officers’ Liability insurance contracts for current and former officers, including Directors, Executive Officers and the Secretaries of the Company and its controlled entities. The insurance premiums relate to: (cid:129) Costs and expenses incurred by the relevant officers in successfully defending proceedings, whether civil or criminal; (cid:129) Other liabilities that may arise from their position, with the exception of conduct involving a wilful breach of duty or position to gain a personal advantage. The Officers of the Company covered by the policy include the current Directors: T Johnson, G Boulton, L Winser, R Smith, B Grubb, G Stevenson. Other officers covered by the contract are Executive Officers and the Secretaries of the Company and Directors and the Secretaries of controlled entities (who are not also Directors of the Company), General Managers and other Executive Officers of controlled entities. 27 Effective 1 July 2002, for the purposes of income taxation, K&S Corporation Limited and its domestic based 100% owned subsidiaries formed a tax consolidated group. Members of the Group entered into a tax sharing arrangement in order to allocate income tax expense to the wholly owned subsidiaries on a pro-rata basis. In addition, the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. In recognising the need for the highest standards of corporate behaviour and accountability, the Directors of K&S Corporation Limited support the principles of corporate governance. The Company’s Corporate Governance Statement commences on page 36 of the Annual Report. The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Class Order, amounts in the Financial Report and Directors’ Report have been rounded off to the nearest thousand dollars, unless otherwise stated. The entity’s Auditor, Ernst & Young has provided the economic entity with an Auditor’s Independence Declaration which is on page 108 of this report. Non-Audit Services The following non-audit services were provided by the entity’s Auditor, Ernst & Young. The Directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised. Ernst & Young received or are due to receive the following amounts for the provision of non-audit services: Information technology review $25,480 28 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 This remuneration report outlines the Director and Executive remuneration arrangements of the Company and the Group in accordance with the requirements of the Corporations Act 2001 and its Regulations. For the purposes of this report, Key Management Personnel (KMP) of the Group are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any Director (whether executive or otherwise) of the parent company. For the purposes of this report, the term executive encompasses the Managing Director, Senior Executives, General Managers and Secretaries of the Parent and the Group. Details of the Key Management Personnel are: i) Directors Mr T Johnson Non-Executive Chairman Mr G Boulton Non-Executive Deputy Chairman Mr R Smith Non-Executive Mr L Winser Non-Executive – Appointed 23 August 2013 Mr R Nicholson Non-Executive – Retired 23 July 2013 Mr B Grubb Non-Executive Mr G Stevenson Managing Director ii) Executives Mr B Walsh Chief Financial Officer Mr C Bright General Counsel & Company Secretary Mr G Wooller Chief Operating Officer Mr P Sarant Executive General Manager DTM Mr G Everest Executive General Manager Regal Transport Mr S Hine Executive General Manager Business Development Ms K Evans General Manager Human Resources Mr S Skazlic General Manager HS&E / Compliance Remuneration Philosophy The performance of the Company depends upon the quality of its Directors and Executives. To prosper, the Company must attract, motivate and retain highly skilled Directors and Executives. To this end, the Company adopts the following key principles in its remuneration policy: (cid:129) Remuneration is set at levels that will attract and retain good performers and motivate and reward them to continually improve business performance. (cid:129) Remuneration is structured to reward employees for increasing Shareholder value. (cid:129) Rewards are linked to the achievement of business targets. The Nomination and Remuneration Committee The Nomination and Remuneration Committee of the Board of Directors of the Company is responsible for reviewing compensation arrangements for the Directors, the Managing Director and the Senior Management team. The Nomination and Remuneration Committee assesses the appropriateness of the nature and amount of remuneration of Directors and Senior Managers on a periodic basis by reference to relevant employment market conditions, with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality Board and Executives. While the Nomination and Remuneration Committee reviews the remuneration paid to Non-Executive Directors and the Managing Director, and the aggregate remuneration paid to the Senior Management team, the Board of Directors has ultimate responsibility for determining these amounts. 29 Remuneration Structure In accordance with best practice corporate governance, the structure of Non-Executive Director, Executive Director and Senior Manager remuneration is separate and distinct. Non-Executive Director Remuneration Objective The Board seeks to set aggregate remuneration at a level which provides the Company with the ability to attract and retain quality Directors, whilst incurring a cost which is acceptable to Shareholders. Structure The Constitution and the ASX Listing Rules specify that the maximum aggregate remuneration of Non-Executive Directors’ shall be determined from time to time by a general meeting of Shareholders. The latest determination was at the Annual General Meeting held on 20 November 2012 when Shareholders approved a maximum aggregate remuneration of $600,000 per year, comprising an increase of $100,000 to the cap on the maximum aggregate remuneration payable to non-Executive Directors. That previous cap on the maximum aggregate payable to Non-Executive Directors of $500,000 had been in place since the Company’s 2007 Annual General meeting. The amount of aggregate remuneration sought to be approved by Shareholders and the amounts paid to Directors is reviewed annually. The Board considers the fees paid to Non-Executive Directors of comparable companies when undertaking the annual review, as well as periodically taking advice from external recruitment consultants. No advice was taken from external recruitment consultants in relation to the fees paid to Non-Executive Directors in 2012/13. Each Non-Executive Director receives a fee for being a Director of the Company. The Board has deferred any consideration of whether to increase the fees payable to Non-Executive Directors in the 2013/14 financial year until December 2013. If upon consideration in December 2013 the Board determines that it is appropriate to increase the fees payable to Non-Executive Directors, that increase (if any) will apply prospectively no earlier than from 1 January 2014. Pending any review in December 2013, the fees payable to Non-Executive Directors will remain at the level paid in the 2012/13 financial year. Non-Executive Directors have long been encouraged by the Board to hold shares in the Company (purchased by the Director on the market). It is considered good corporate governance for Directors to have a stake in the Company whose Board he or she sits on. The remuneration of Non-Executive Directors for the period ended 30 June 2013 is detailed on page 34 of this report. Executive Director and Senior Manager Remuneration Objective The Company aims to reward Executives with a level and mix of remuneration commensurate with their position and responsibilities within the Company to: (cid:129) reward Executives for Company, business unit and individual performance against targets set by reference to appropriate benchmarks; (cid:129) align the interests of Executives with those of Shareholders; (cid:129) link reward with the strategic goals and performance of the Company; and (cid:129) ensure total remuneration is competitive by market standards. 30 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 Structure In determining the level and make up of Executive remuneration, the Nomination and Remuneration Committee seeks external information detailing market levels of comparable executive roles from which the Committee makes its recommendation to the Board. For the Managing Director and the other Senior Executives, remuneration programs are balanced with a mix of fixed and variable rewards. The makeup and eligibility criteria for short term incentives are recommended to the Board by the Nomination and Remuneration Committee prior to the commencement of each financial year. For the year ended 30 June 2013, the adoption of at risk short term incentives comprising 20% and 10% of the base emolument of the Managing Director (Mr Stevenson) and Executives respectively was approved by the Board. The payment of such short term incentives can either be as a cash bonus or, subject to the applicable superannuation laws, as superannuation contributions and is in addition to the base emolument. Payment of the short term incentive in respect of the 2012/13 financial year was conditional upon the achievement by the Company of budgeted profit after tax on a normalised basis and excluding any one off or non-trading items (eg, profit on the sale of real estate). Where budgeted profit after tax on a normalised basis is not achieved, no short term incentive is payable to the Managing Director and Executives. As the Company’s annual budget for operating profit after tax is set with a view to increasing the profit generated by the Company, growing earnings per share, and improving the Company’s capacity to pay dividends, the Board believes that aligning the payment of short term incentives to the attainment by the Company of budgeted profit after tax on a normalised basis is appropriate and in the interests of Shareholders. For the year ended 30 June 2013, the eligibility criteria for the payment of short term incentives were not satisfied and no short term incentive payment was made to the Managing Director or Executives. During the course of 2012/13, the Nomination and Remuneration Committee obtained external advice from JWS Consulting in relation to the size and structure of remuneration payable to the Managing Director and Senior Executives. In accordance with sections 260K and 260L of the Corporations Act 2001 (Cth), JWS Consulting was engaged directly by, and reported to, the Nomination and Remuneration Committee. The advice of JWS Consulting on the structure of remuneration payable to the Managing Director and Senior Executives was that the at risk proportion of remuneration was significantly below market. With the assistance of JWS Consulting, the Nomination and Remuneration Committee developed a revised short term incentive (“STI”) scheme for the Managing Director and Key Management Personnel to apply for the 2013/14 financial year. 31 Full details of the new STI scheme for the 2013/14 financial year will be set out in the Company’s 2014 annual report. The total short term incentives payable to the Managing Director and Executives for the year ended 30 June 2014 if eligibility criteria are met will be $127,000, up to a maximum of $677,000 if all out-performance criteria are met. The fees paid to JWS Consulting for the remuneration recommendations were $36,576. Employment Contracts It is the Nomination and Remuneration Committee’s current policy that fixed term contracts are only entered into with the Managing Director and with no other Executives. The Managing Director, Mr Stevenson, has a contract of employment, key terms of which for 2012/13 are: (cid:129) A total remuneration package of $535,000 per annum (excluding short term incentive (STI)). (cid:129) Eligible for an STI of $90,000 (20% of base salary) against annual performance criteria set by the Board. For the year ended 30 June 2013, payment of the STI was dependent upon the achievement by the Company of its budgeted profit after tax on a normalised basis and excluding any one-off or non-trading items (eg, profit on the sale of real estate). (cid:129) If the Board introduces a long term incentive scheme (LTI), Mr Stevenson will be eligible to participate in that scheme. However, there is not presently any LTI scheme in place. (cid:129) In accordance with best practice, the Board may require Mr Stevenson to repay all or part of any bonus, STI or LTI paid in circumstances where there has been a material misstatement in relation to the financial statements of the Company in any qualifying period relevant to the payment of that bonus, STI or LTI. (cid:129) Either of Mr Stevenson and the Company may terminate Mr Stevenson’s employment on the giving of six months notice or, in the case of the Company, payment in lieu of that six months notice. Employee Share Plan At the Company’s Annual General Meeting on 21 November 2006, Shareholders approved the introduction of an Employee Share Plan (“the Plan”). Employees who have been with the Company for more than one year are entitled to participate in the Plan and the purpose of the Plan is to attract, retain and motivate employees by giving them a stake in the future growth of the Company. Non-Executive Directors of the Company are not eligible to participate in the Plan. Offers were made to eligible employees on 31 August 2012 under the Plan. Acceptances under the offer were 324,000 shares at $1.51 per share. The issue price of the shares offered under the Plan was the weighted average price of the Company’s shares on the first 5 trading days immediately following the announcement of the Company’s full year results for 2011/12 on 22 August 2012. Eligible employees’ annual entitlements to participate in the Plan are currently set by the Company Directors as follows, in line with the entitlements notified to Shareholders at the Company’s Annual General Meeting on 21 November 2006: 32 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 Annual Salary Less than $50,000 $50,000 to $100,000 $100,001 to $150,000 $150,001 to $200,000 Greater than $200,000 Number of Shares 1,000 2,000 5,000 7,000 10,000 Directors have approved the making of offers by the Company to eligible employees under the Plan in the year ended 30 June 2014. Directors’ Retirement Benefits A change to the Non-Executive Directors’ Retirement Benefits calculation was made in July 2004 to freeze accumulation of years of service of Directors as at 30 June 2004. No Non-Executive Director commencing after 1 July 2004 is eligible for any benefits under the retirement scheme. Following the retirement of Mr Nicholson on 23 July 2013, Messrs Johnson and Boulton are the only remaining Non-Executive Directors eligible to receive retirement benefits under the scheme. The expenditure provided (not paid) during the year ended 30 June 2012 is attributable only to the method of calculation which involves the averaging of the fees paid to Directors, as per the benefits scheme in operation up to 30 June 2004. Company Performance The graph below shows the performance of the Company, as measured by the Company’s operating profit before individually significant items, interest and tax (EBIT), and net operating profit before individually significant after tax (NPAT). Normalised EBIT $m 35 30 25 20 15 10 5 0 2004 2005 2006 2007 2008 2009 ■ NEBIT ■ NPAT 2010 2011 2012 2013 In addition, Dividends paid to Shareholders are disclosed on page 24 of the Directors’ report. The next graph highlights the performance of the share price of K&S Corporation Limited against the Australian Stock Exchange All Ordinaries Index and the Australian Stock Exchange Industrials Index over the past 5 years. K&S CORPORATION SHARE PRICE 2008-2013 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 6000 5000 4000 3000 2000 1000 0 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 ■ KSC ■ All Ords ■ Industrials Index 33 Remuneration of Key Management Personnel of the Company and the Group Remuneration for the year ended 30 June 2013 Non-Executive Directors Salary & Fees $ Short-Term Incentives $ Non-Cash Benefits $ Other Long-Term Long Service Benefit $ Post Employment Total Retirement Benefits $ Super Contributions $ Performance Related % $ T Johnson 118,000 - - - 28,000 12,980 158,980 - G Boulton 70,000 - - - 9,000 7,700 86,700 - R Smith 70,000 - - - - 7,700 77,700 - L Winser # - - - - - - - - B Grubb 70,000 - - - - 7,700 77,700 - R Nicholson* 70,000 - - - 18,000 7,700 95,700 Total Non-Executive 398,000 - - - 55,000 43,780 496,780 Directors Executive Director G Stevenson 480,000 - 30,000 7,501 - 25,000 542,501 - Other Key Management Personnel B Walsh 297,548 - 27,490 7,125 - 25,000 357,163 - C Bright 230,186 - 27,952 5,500 - 25,000 288,638 - G Wooller 428,425 - 27,273 6,501 - 25,000 487,199 - P Sarant 426,265 - 27,257 6,501 - 25,000 485,023 - G Everest 266,200 - 21,063 4,334 - 25,000 316,597 - K Evans 200,010 - 18,538 3,334 - 24,082 245,964 - S Hine 269,434 - 26,865 4,334 - 25,000 325,633 - S Skazlic 221,400 - 17,579 3,667 - 25,000 267,646 Total executive KMP 2,819,468 - 224,017 48,797 - 224,082 3,316,364 Totals 3,217,468 - 224,017 48,797 55,000 267,862 3,813,144 * Mr Nicholson retired on 23 July 2013. # Mr Winser was appointed Non-Executive Director on 23 August 2013. He received no remuneration during the 2013 reporting period. 34 Remuneration for the year ended 30 June 2012 Non-Executive Directors Salary & Fees $ Short-Term Incentives $ Non-Cash Benefits $ Other Long-Term Long Service Benefit $ Post Employment Total Retirement Benefits $ Super Contributions $ Performance Related % $ T Johnson 110,000 - - - 20,000 12,100 142,100 - G Boulton 65,000 - - - 6,500 7,150 78,650 - R Smith 65,000 - - - - 7,150 72,150 - B Grubb 65,000 - - - - 7,150 72,150 - R Nicholson 65,000 - - - 13,000 7,150 85,150 - Total Non-Executive 370,000 - - - 39,500 40,700 450,200 Directors Executive Director L Winser # 457,233 - 78,398 11,228 55,000 45,833 647,692 - G Stevenson^ 44,423 - 3,191 707 - 5,686 54,007 - Other Key Management Personnel B Walsh 265,000 - 27,608 6,625 - 34,885 334,118 - C Bright 213,285 - 27,676 5,250 - 25,000 271,211 - G Wooller 370,000 - 26,856 6,167 - 47,485 450,508 - P Sarant 392,485 - 27,178 6,167 - 25,000 450,830 - G Everest 243,800 - 17,329 4,000 - 25,000 290,129 - K Evans 190,000 - 17,179 3,167 - 22,800 233,146 - S Hine 258,084 - 27,165 4,167 - 25,000 314,416 - S Skazlic 210,200 - 8,772 3,500 - 25,000 247,472 - Total executive KMP 2,644,510 - 261,352 50,978 55,000 281,689 3,293,529 Totals 3,014,510 - 261,352 50,978 94,500 322,389 3,743,729 # Mr Winser retired as Managing Director on 25 May 2012. ^ Mr Stevenson was appointed Managing Director on 28 May 2012. Signed in accordance with a resolution of the Directors. T Johnson Chairman 23rd August 2013 Greg Stevenson Managing Director 23rd August 2013 35 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 The Board of Directors of K&S Corporation Limited is responsible for the governance of the consolidated entity. The Board guides and monitors the business and affairs of K&S Corporation Limited on behalf of the Shareholders by whom they are elected and to whom they are accountable. In keeping with the Australian Securities Exchange Corporate Governance Council’s updated Corporate Governance Principles and Recommendations, this statement outlines the Company’s compliance with the ASX principles. The K&S Corporation Limited Corporate Governance Statement is structured with reference to the Corporate Governance Council’s principles and recommendations, which are as follows: Principle 1 Lay solid foundations for management oversight Principle 2 Structure the board to add value Principle 3 Promote ethical and responsible decision making Principle 4 Safeguard integrity in financial reporting Principle 5 Make timely and balanced disclosure Principle 6 Respect the rights of shareholders Principle 7 Recognise and manage risk Principle 8 Remunerate fairly and responsibly 36 The Board has a Charter which establishes the relationship between the Board and Management and describes their functions and responsibilities in a manner which is consistent with ASX Principle 1. The role of the Board is to oversee and guide the Management of K&S Corporation Limited and its businesses with the aim of protecting and enhancing the interests of Shareholders while taking into account the interests of employees, customers, suppliers and the community at large. The Board is responsible for setting and approving the strategic direction of the Company, establishing goals for Management and monitoring the achievement of those goals. The Managing Director is responsible to the Board for the day to day management of the Company. All Management, including the Managing Director, have clear statements of roles and responsibilities. The performance of Key Executives is reviewed not less than annually by the Managing Director. The review involves an open exchange of ideas between the Managing Director and Key Executives. The performance of Key Executives is reviewed against matters including financial targets (eg, budget), HS&E management, and achievement of specific strategic and business objectives. The Board currently comprises five Non-Executive Directors, including the Chairman, and one Executive Director, namely, the Managing Director. The qualifications, experience and periods of service of each of the Directors is set out on pages 17 and 18 of the Annual Report. Directors are expected to bring independent views and judgement to the Board’s deliberations. Consistent with the ASX Principles, the Board Charter requires the Board to include a majority of Non-Executive Directors, a Non-Executive Chairman and to have a different person filling the roles of Chairman and Managing Director. The Chairman of the Audit Committee cannot be Chairman of the Board. Directors of the Company are considered to be independent when they are independent of management and free from any business or other relationship that could materially interfere with or could reasonably be perceived to materially interfere with the exercise of their unfettered independent judgement. Materiality of business and other relationships held by a Director is considered from both the Company and individual Director perspective. The determination of materiality requires consideration of both quantitative and qualitative elements. Quantitative factors relate to the financial value of the business or other relationship. Qualitative factors considered include whether a relationship is strategically important, the competitive context of the relationship, the nature of the relationship and the contractual or other arrangements governing it or other factors which point to the actual ability of the Director in question to influence the direction of the Company other than in the best interests of the Company as a whole. 37 The Board has reviewed the position of each of the six Directors in office at the date of this report and considers the following Directors of the Company to be independent: Name Position G Boulton R Smith R Nicholson* Non-Executive Director Non-Executive Director Non-Executive Director * Mr Nicholson retired as a Director on 23 July 2013. Mr Nicholson was a Director of the Company throughout 2012/13 financial year and the Board considered him to be independent. The Board assesses the independence of new Directors upon appointment and reviews their independence, and the independence of the other Directors, as appropriate. The Board considers the following Directors as not independent: G Stevenson Managing Director T Johnson Non-Executive Director (Chairman) Mr Johnson is a Director of AA Scott Pty Ltd, as well as Chairman of Scott Corporation Limited (a company controlled by AA Scott Pty Ltd, the largest Shareholder of K&S Corporation Limited). B Grubb Non-Executive Director Mr Grubb is the former Chief Executive Officer of the Scott Group of Companies. Mr Grubb is a Director of Scott Corporation Limited, and a former Director of a number of other companies within the Scott Group of companies, one of which (AA Scott Pty Ltd) is the largest Shareholder of K&S Corporation Limited. L Winser Non-Executive Director Mr Winser was appointed as a Director of the Company on 23 August 2013. Mr Winser formerly occupied the position of Managing Director of the Company until his retirement on 25 May 2012. Mr Winser is also an alternate director of several companies with the Scott Group of Companies. The Board structure is consistent with ASX Principle 2, with the exception of: (cid:129) Recommendation 2.1 which requires that the majority of the Board be independent Directors. The Board considers that the mix of skills and experience of and the contributions by the non-independent Non-Executive Directors offsets the benefits to the Company of having a majority of independent Non-Executive Directors. However, as part of the review of Board Performance (refer page 37), Directors have regard to the balance of independent and non-independent Non-Executive Directors. (cid:129) Recommendation 2.2 which requires that the Chairman of the Board be an independent Director. Mr Johnson is Chairman of the Board and is not considered by Directors to be independent. The Board considers that the skills and experience that Mr Johnson brings as Chairman add value to the deliberations and functioning of the Board. Further, K&S Corporation Limited’s Deputy Chairman, Mr Boulton, is an experienced and independent Non-Executive Director who is able to fulfil the role of Chairman where and to the extent that any conflicts of interest arise for Mr Johnson. 38 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 The Company has a Diversity Policy which is consistent with ASX Principle 2. The objective of the Diversity Policy is to promote a corporate culture within the Company where the diverse experiences, perspectives and backgrounds of people are valued and embraced and which is conducive to the recruitment of well qualified and diverse employees, senior management and Board members. There are procedures in place, agreed by the Board, to enable Directors, in furtherance of their duties, to seek independent professional advice at the Company’s expense. The Board meets formally eleven times a year and on other occasions as required. During the course of the year, the Board’s sub-committees meet on a number of occasions to deal with their specific responsibilities in relation to the Company’s business. Senior Management attend and are a vital ingredient to the sub-committees, making presentations, providing information and responding to questions of the Directors. All Directors have unrestricted access to all employees of the Group and, subject to the law, access to all Company records and information held by employees and external advisers. The Board receives regular financial and operational reports from Senior Management to enable it to carry out its duties and responsibilities. The Company’s Constitution requires one third of the Directors, other than the Managing Director, to retire from office at each Annual General Meeting. Directors who have been newly appointed by the Board during the year are also required to stand for re-election at the next Annual General Meeting, but are not taken into account in determining the number of Directors retiring at that Annual General Meeting. Retiring Directors are eligible for re-election by Shareholders. The Board has implemented a process for the regular review of its overall performance, consistent with ASX Recommendation 2.5. Regular review involves both analysis by the Board of the results of a questionnaire completed by all Directors and discussion between the Chairman and each of the Directors. The Board’s performance review departs from Recommendation 2.5 as the review is conducted by the full Board, and not the Nomination and Remuneration Committee. As the Board is comprised of only six Directors, the Board considers this the most effective way to address its own performance. Three standing Board Committees assist the Board in the discharge of its responsibilities. These committees are: (cid:129) The Audit Committee (cid:129) The Nomination and Remuneration Committee (cid:129) The Environmental Committee Audit Committee The Board has an established Audit Committee, which operates under a Charter approved by the Board. 39 It is the Board’s responsibility to ensure that an effective internal control framework exists within the entity. This includes internal controls to deal with both the effectiveness and efficiency of significant business processes, the safeguard of assets, the maintenance of proper accounting records, and the reliability of financial information. The Board has delegated to the Audit Committee the responsibility overseeing the financial reporting process of the consolidated entity and ensuring the competency and independence of the Company’s external auditors, consistent with ASX Principle 4. The Audit Committee provides the Board with additional assurance regarding the reliability of the financial information for inclusion in the financial reports. All members of the Audit Committee are currently independent Non-Executive Directors. Among the specific responsibilities set out in the Audit Committee Charter, the Audit Committee reviews all published accounts of the Group, reviews the scope and independence of external audits, reviews any comments and recommendations by the external auditors in relation to the company’s systems for internal compliance and control, and risk management and advises on the appointment, performance and remuneration of the external auditors. The members of the Audit Committee during the year were: Mr Smith (Chairman) Mr Boulton Mr Smith is Chairman of the Audit Committee. The Board considers Mr Smith to be independent using the ASX Council’s definition of independence. The Board also considers Mr Boulton to be independent using the ASX Council’s definition of independence. The ASX Council Recommendation 4.2 recommends that the Audit Committee consist of at least three members who are all Non-Executive and the majority independent. The Board is of the view that the current composition of the Audit Committee is appropriate given the size of the business, the extensive financial skills, and industry knowledge of the current members of the Audit Committee. The Managing Director, the Chief Financial Officer, the Company Secretary, the Group Commercial Manager, the external Auditors and any other persons considered appropriate attend meetings of the Audit Committee by invitation. The Committee also meets from time to time with the external Auditors, independent of management. The Audit Committee met on four occasions during the course of the year. Messrs Smith and Boulton both attended all four meetings. Nomination and Remuneration Committee Consistent with ASX Principle 8, the Board has a Nomination and Remuneration Committee with a formal Charter. The role of the Committee is to review and make recommendations to the Board on remuneration packages and policies applicable to the Managing Director, Senior Executives, Salaried Staff and Directors themselves. 40 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 The Nomination and Remuneration Committee does not make recommendations to the Board as to the nomination and appointment of new Directors. As the Board of K&S Corporation Limited is comprised of only six Directors, Directors are of the view that the nomination and appointment of new Directors is most efficiently discharged by the Board. When appointing new Directors, the Board have regard to the spread of skills and qualifications, experience, and independence of both the potential appointee and the existing members of the Board. The Board is of the view that a good depth of transport industry exposure and expertise is an integral element of the skills to be represented on the Board. The Board also views accounting and legal expertise as important elements to allow it to effectively discharge its duties and responsibilities. The Board recognises that a diversity of backgrounds and experience in its members will contribute to the Board functioning at its optimum. On 23 July 2013, the Company announced that Mr Nicholson was retiring as a Non-Executive Director. Mr Nicholson had been a Director of the Company since 1986. The former Managing Director of the Company, Mr Winser, was appointed as a Non-Executive Director on 23 August 2013. The Board is of the view that with his extensive knowledge of the transport and logistics industry generally and of the Company specifically, Mr Winser is eminently well qualified to act as a Non-Executive Director and will bring significant value to the Board. Remuneration levels are competitively set to attract and retain appropriately qualified and experienced Directors and Senior Executives. The Nomination and Remuneration Committee periodically obtains independent advice on the appropriateness of remuneration packages, as well as benchmarking comparable company remuneration data. It also plays a role in evaluation of the performance of the Managing Director and management succession planning. This role includes the responsibility for incentive performance packages, superannuation entitlements, retirement and termination entitlements, fringe benefit policies, professional indemnity and liability insurance policies. The members of the Nomination and Remuneration Committee during the year were: Mr Nicholson (Chairman) Mr Johnson Mr Boulton 41 The Nomination and Remuneration Committee meets at least twice a year and as required. The Committee met formally five times, but also informally on several other occasions during the year. Messrs Nicholson, Boulton and Johnson attended all five formal meetings of the Committee. The Company’s Non-Executive Directors receive only fees and superannuation for their services and the reimbursement of reasonable expenses. The fees paid to the Company’s Non-Executive Directors reflect the demands on, and responsibilities of, those Directors. The advice of independent remuneration consultants is taken periodically, as well as benchmarking against external remuneration data for comparable companies to establish that the Directors’ fees are in line with market standards. Non-Executive Directors do not receive any shares, options or other securities in addition to their remuneration. An increase in the Directors’ fee pool limit of $100,000 to a total of $600,000 for Non-Executive Directors was approved by Shareholders at the Annual General Meeting on 20 November 2012. This fee pool is only available to Non-Executive Directors. The Non-Executive Directors received $70,000 each and the Chairman was paid $118,000 in 2012/13. Committee membership does not entitle a Director to additional fees. The Board has decided not to increase the fees payable to Non-Executive Directors in the first half of the 2013/14 financial year. The Board has elected to defer any consideration of the level of fees payable to Non-Executive Directors until December 2013. During the course of 2012/13, the Nomination and Remuneration Committee obtained external advice for JWS Consulting in relation the size and structure of the remuneration payable to the Managing Director and Senior Executives. In accordance with sections 260K and 260L of the Corporations Act 2001 (Cth), JWS Consulting was engaged directly by, and responded to, the Nomination and Remuneration Committee. The advice of JWS Consulting was that the proportion of at risk remuneration payable to the Managing Director and Senior Executives was significantly below market. With the assistance of JWS Consulting, the Nomination and Remuneration Committee developed a revised short term incentive (“STI”) scheme for the Managing Director and Senior Executives to apply in 2013/14. The new STI scheme will involve performance hurdles linked to group net profit after tax, safety, share price, and divisional profit contribution. Full details of the new STI scheme will be provided in the Company’s remuneration report in relation to the 2013/14 financial year. The adoption of the new STI scheme was ratified by the Board. The new STI scheme will come into effect in the 2013/14 financial year. Directors are of the view that the STI scheme is consistent with market practice, will align the interests of Management and Shareholders, and will operate to attract, retain and motivate a strong senior management team. The Managing Director, Mr Stevenson, has a contract of employment with the Company. Key terms of Mr Stevenson’s contract of employment for the 2012/13 financial year were: 42 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 (cid:129) A total remuneration package of $535,000 per annum (excluding short term incentive (STI)). (cid:129) Eligible for an STI of up to $90,000 (20% of base salary) against annual performance criteria set by the Board. For the 2012/13 financial year, payment of the STI is dependent upon the achievement by the Company of its budgeted profit after tax (excluding any one off or abnormal items such as profit on the sale of a property). (cid:129) If the Board introduces a long term incentive scheme (LTI), Mr Stevenson will be eligible to participate in that scheme. However, there is not presently any LTI scheme in place. (cid:129) In accordance with best practice, the Board may require Mr Stevenson to repay all or part of any bonus, STI, or LTI paid in circumstances where there has been a material misstatement in relation to the financial statements of the Company in any qualifying period relevant to the payment of that bonus, STI, or LTI. (cid:129) Either of Mr Stevenson and the Company may terminate Mr Stevenson’s employment on the giving of six months notice or, in the case of the Company, payment in lieu of that six months notice. The Non-Executive Directors’ retirement benefits scheme entitlements were frozen in years of service as at 30 June 2004 and will be paid on retirement. Under the terms of the Non-Executive Directors’ retirement benefit scheme, participating Directors are entitled to receive up to the total remuneration paid to them in the last three years upon their retirement in accordance with the following formula: RB = TR x (Y ÷ 15) where RB = retirement benefit payable to the Director on retirement TR = the total remuneration paid to the Director in the last three years Y = the years of service of the Director prior to 30 June 2004, provided that Y shall not exceed 15 Non-Executive Directors appointed after 30 June 2004 are not eligible to participate in the retirement benefits scheme. Following the retirement of Mr Nicholson as a Director on 23 July 2013, Messrs Johnson and Boulton are the only remaining Directors eligible to participate in the retirement benefit scheme. The structure and disclosure of the Company’s remuneration of Non-Executive Directors is consistent with ASX Principle 8. Further details of Directors’ remuneration, superannuation and retirement payments are set out in the Directors’ Report on pages 29 to 35. Diversity The measurable objectives for achieving gender diversity set by the Board and progress towards achieving those objectives is: (cid:129) The Nomination and Remuneration Committee must review participation rates for women across all levels of the workforce not less than annually. That review was undertaken by the Committee in 2012/13. The Company saw a modest increase in participation rates for women at all levels of the organisation, with the exception of at Board level. 43 (cid:129) The Nomination and Remuneration Committee is to review pay parity data for women and men across all levels of the workforce not less than annually to determine whether there is any unconscious bias. To the extent that the review suggests that unconscious bias may exist, Management is to investigate and report to the Committee the causes of that bias, as well as to develop recommendations to address any bias. The Committee reviewed pay parity data in 2012/13 and Management is currently investigating whether unconscious bias exists. As women are over-represented in some areas of the Company’s workforce (eg, administration) and under-represented in other areas of the work-force (eg, operational), the data requires careful analysis. (cid:129) Management is required to report to the Nomination and Remuneration Committee not less than annually participation rates for women compared to men in externally provided training programs. A particular area of focus is management training programs (eg, Australian Institute of Management and equivalent) as it is through these training programs that the pool of future senior managers will be developed. Management has reported to the Committee on training participation rates in 2012/13. The proportion of women undertaking management training programs exceeded the participation rate for women in the Company’s workforce. (cid:129) The Nomination and Remuneration Committee is to review data re tenure and turnover levels for women compared to men across all levels of the Company’s workforce not less than annually as part of seeking to understand the reasons for differing participation rates for women and men. Tenure and turnover data was reviewed by the Committee in 2012/13. Turnover rates for men and women were equivalent across different levels of the organisation. The proportion of women employees across the Company for 2012/13 is set out in the table below: Category Women Men Casual % Full time Part time Full time Part time Women Men Board Senior Executives Senior Managers Line Managers 0 1 15 18 Administration 139 Service Staff Total 19 192 0 1 0 1 27 0 29 0 9 51 157 38 1,193 1,448 5 0 0 0 0 6 11 0 0 0 0 9 18 27 Total Staff 5 11 67 174 214 0 0 0 0 0 114 114 1,350 1,821 Women Men 0 18 23 11 82 3 14 100 82 77 89 18 97 86 This data is also reported by the Company under the Workplace Gender Equality Act 2012 (Cth). 44 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 The Company notes that the transport and logistics industry continues to have a stereotyped male dominated environment, with a substantial proportion of the Company’s workforce required to perform labour intensive / manual handling tasks as well as significant overtime in the course of their employment duties. While the Company is committed to diversity, the nature of the work undertaken by many employees has made it challenging to attract women to these roles. The Company will review on an ongoing basis the opportunities to overcome these impediments to higher participation rates by women. Other diversity initiatives pursued by the Company include: (cid:129) The Company is a participant in the indigenous employment program overseen by the Commonwealth Department of Education, Employment and Workplace Relations, as well as a participant in the Australian Employment Covenant which is also designed to secure indigenous employment opportunities. In support of these programs, the Company has an Indigenous Recognition Policy which outlines the Company’s commitment to build relationships with local and land-connected indigenous persons to achieve mutually beneficial outcomes. (cid:129) A number of strategic and tactical initiatives being implemented under the Company’s five year strategic plan aimed at attracting, developing and retaining female employees. As part of that strategy, the Company is reviewing a range of more flexible employment practices. 45 Environmental Committee The Board has an Environmental Committee, which operates under a Charter approved by the Board. The role of the Committee is to monitor environmental incidents, exposures and compliance with environmental regulations. The members of the Environmental Committee during the year were: Mr Johnson (Chairman) Mr Grubb Mr Stevenson * * The Board considers it appropriate that the Managing Director be a member of the Environmental Committee. The Company Secretary acts as Secretary to the Environmental Committee. The Environmental Committee is responsible for: (cid:129) reviewing and recommending, as appropriate, changes to the Company’s environmental policies; (cid:129) ensuring the adequacy of environmental procedures and controls implemented by Management; (cid:129) reporting to the Board on Company compliance with environmental procedures and controls; (cid:129) reviewing the adequacy and effectiveness of resources devoted to informing employees of their environmental obligations and to training employees to operate within Company guidelines and legal requirements; (cid:129) monitoring conformance by the Company with mandatory environmental reporting and improvement regimes; (cid:129) regular monitoring of licence requirements, with performance against licence conditions reported to the various State regulators on a regular basis; and (cid:129) reviewing any environmental incidents that have occurred and monitoring actions taken or to be taken. To enable it to meet its responsibilities, the Committee has established a regular internal reporting process. The Environmental Committee met four times during the year. Messrs Johnson, Grubb and Stevenson attended all four meetings of the Committee. Consistent with the ASX Principle 4 and Recommendation 7.3, the Company’s financial report preparation and approval process for the financial year ended 30 June 2013, involved both the Managing Director and Chief Financial Officer certifying that the Company’s financial reports present a true and fair view, in all material respects, of the Company’s financial condition and operational results and are in accordance with relevant accounting standards. In accordance with Recommendation 7.2, this sign off also includes assurances as to the Company’s risk management processes and internal compliance and control procedures. 46 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 As part of the Company’s commitment to safeguarding integrity in financial reporting, the Company has implemented a review process to monitor the independence and competence of the Company’s external Auditor. The Company’s current external Auditors are Ernst & Young. The effectiveness, performance and independence of the external Auditor is reviewed by the Audit Committee at least annually. The format of that review includes discussing the performance of the External Auditors with Management while the Auditors are not present. The Audit Committee also met with senior members of Ernst & Young to review the performance of the lead audit partner. Ernst & Young has a policy for the rotation of the lead audit partner for their clients. Under that policy, the lead audit partner and the audit review partner for the Company were most recently rotated following completion of the audit for the year ended 30 June 2012. While the Directors had no concerns as to the independence or competence of its external auditors, Ernst & Young, the audit of the accounts of the consolidated entity for 2013/14 financial year was put out to tender as a matter of good governance. Relevant factors in the determination of the successful participant in that tender process included competence, experience, independence, ability to add value to the company, and cost. The tender process was overseen by the Audit Committee, with the ultimate decision as to choice of external auditor made by the Board. The outcome of the tender process for the selection of external auditor for the 2013/14 financial year was to retain the services of Ernst & Young. The Board formed the view that it was appropriate to retain Ernst & Young having regard, amongst other things, to: (cid:129) past performance by Ernst & Young as auditor for the Company; (cid:129) the fact that the lead audit partner and audit review partner had recently been rotated providing a ‘fresh set of eyes’; (cid:129) the depth of Ernst & Young’s understanding of the Company and its accounting and internal control environment; and (cid:129) value. The Audit Committee’s Charter requires the provision of non-audit services to the Company or its business units by the external audit firm to be approved by the Audit Committee. In accordance with sections 249V and 250T of the Corporations Act 2001 (Cth), the Company’s current auditor, Ernst & Young, attends and is available to answer questions at the Company’s Annual General Meeting. Consistent with ASX Principle 7, the Company is committed to the identification, moni- toring and management of material risks in the business. Those material risks include a full spectrum of financial, strategic, compliance, and operational risks. While not wishing to stifle the entrepreneurial endeavours of Senior Executives, the Board takes a relatively conservative approach to risk. 47 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 48 The Board requires that Management have in place a system to identify, monitor, and manage the material business risks faced by the Company. The management systems in place as part of the risk management controls include: (cid:129) Capital expenditure commitments above set limits obtain prior Board approval. (cid:129) Financial exposures are controlled and the use of derivatives is limited to interest rate swaps. (cid:129) Occupational health and safety standards and management systems are monitored and reviewed to achieve high standards of performance and compliance with regulations. (cid:129) Business transactions are properly authorised and executed. (cid:129) A comprehensive annual insurance programme, including external risk management survey and action plans. (cid:129) Annual budgeting and monthly reporting systems for all business units, which enable the monitoring of progress against performance targets and the evaluation of trends. (cid:129) Appropriate due diligence procedures for acquisitions and divestments. (cid:129) Disaster management systems for key IT systems and recovery plans. (cid:129) Documentation and regular review of business wide risk identification and mitigation strategies. (cid:129) Review by the Audit Committee in conjunction with Management of all findings and recommendations in the Closing Report provided by the Company’s external auditors, Ernst & Young, as part of the full year audit and also half year review of the Company’s accounts. The Company has a risk management policy consistent with ASX Principle 7. The Company also has a number of policies and internal documents that are central to the management of risk. Those documents include: (cid:129) The Risk Review Statement that is designed to comprehensively document and rate all material business risks to which the Company is exposed, as well as setting out the actions being undertaken by Management to mitigate those risks. (cid:129) The Company’s Levels of Authority Statement which sets out the different levels of authority delegated to the Managing Director, General Managers, and Branch Managers in relation to financial and business matters such as capital expenditure, acquisitions, entering into contracts, treasury issues, and employment related issues. (cid:129) The Company’s Administration Manual which sets out the financial and administrative protocols for all staff. (cid:129) The Company’s HS&E Manual and supporting documented policies and procedures which are designed to minimise the risk of harm to employees engaged in operational tasks. (cid:129) The Company’s Quality Management System coupled with its extensive documented operating and compliance focused policies and procedures which are designed to ensure that the Company’s operations are conducted using industry best practice and in accordance with the numerous legislative regimes that apply. 49 (cid:129) The Company’s Disaster Recovery Manual sets out all of the protocols associated with the Company’s externally hosted disaster recovery plan (DRP). The DRP solution was reviewed by Ernst & Young as part of its full year audit for 2012/13. Management is responsible to the Board for the Group’s system of internal control and risk management. The Audit Committee through its Charter assists the Board in monitoring this role. The Risk Review Statement is designed to be a ‘living’ document and is regularly updated to address the emergence of new risks and changes to the priority of existing material business risks. The Risk Review Statement is provided to both the Audit Committee and the Board on a quarterly basis. In addition, a summary of the status of key risk items identified in the Risk Review Statement is provided to the Board at its monthly meetings. The Managing Director has reported to the Board that Management believes that the Company has in place an effective system of oversight and management and internal controls. The Managing Director and the Chief Financial Officer also certify on an annual basis that the Company has a sound system of risk management and internal control, and that the system is operating effectively in all material respects in relation to financial risks. The Company understands and respects that timely disclosure of price sensitive information is central to the efficient operation of the Australian Securities Exchange securities market and has adopted a comprehensive policy covering announcements to the Australian Securities Exchange. The Company Secretary has the responsibility for overseeing and co-ordinating disclosure of information to the Australian Securities Exchange. The Company Secretary also liaises with the Managing Director, Chairman and Chief Financial Officer in relation to continuous disclosure matters. The Board approves all price sensitive releases to the Australian Securities Exchange prior to release. The Company posts all price sensitive releases to the Australian Securities Exchange and media on the Company’s website. The Company’s Continuous Disclosure Policy is consistent with ASX Principle 5. In accordance with the Corporations Act 2001 (Cth) and the Company’s Constitution, Directors must keep the Board advised, on an ongoing basis, of any interest that could potentially conflict with those of the Company. Where the Board believes that a significant conflict exists, the Director concerned does not receive the relevant Board papers and is not present at the meeting whilst the item is considered. Details of Director related entity transactions with the Company and consolidated entity are set out in Note 26. 50 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 The Constitution permits Directors and Officers to acquire shares in the Company, subject to very limited exceptions contemplated in the Listing Rules. Company policy prohibits Directors, Associates and Officers from dealing in Company shares or Executive options: (cid:129) In the period of 60 days prior to the release of the Company’s half year and annual results to the Australian Securities Exchange. (cid:129) Whilst in possession of price sensitive information. In accordance with the provisions of the Corporations Act 2001 and the Listing Rules of the Australian Securities Exchange, the Company advises the Exchange of any transactions conducted by Directors in shares in the Company. The consolidated entity strives to ensure that its services are of the highest standard. Towards this aim, it has achieved ISO 9001 accreditation for its core business segment and is well advanced in the implementation of Occupational Health & Safety systems to meet the AS4801 Standard. 51 In accordance with Principle 3, the Board has adopted the Code of Conduct produced by the Australian Institute of Company Directors to guide the Directors and promote high ethical and professional standards. The Board acknowledges the need for continued maintenance of the highest standards of Corporate Governance practice and the ethical conduct by all Directors and employees of the Company and has approved the following policies: Code of Conduct The Company has a Code of Conduct for its employees to act within the law, avoid conflicts of interest, protect Company property, keep information confidential and act honestly and ethically in all business activities. The Code of Conduct is complemented by a Whistle Blower Policy which provides protection to employees who report instances of malpractice, impropriety, misconduct, or other unethical or illegal conduct involving the Company or its employees. Trade Practices The Company has a Trade Practices Policy advising employees on the legislative prohibitions on price fixing and anti-competitive arrangements, as well as other prohibited conduct. Other Policies Amongst other policies endorsed by the Board in previous years are the Occupational Health and Safety, Environment Protection, Electronic Communications policies and the Transport Law Compliance Policy. The Group’s ethical standards are consistent with the requirements of ASX Principle 3. The Company places considerable importance on communication with Shareholders. The Company’s communication strategy promotes the communication of information to Shareholders through the distribution of the Annual Report, announcements through the Australian Securities Exchange and subsequently the media regarding changes to the business, the Chairman’s and Managing Director’s addresses at the Annual General Meeting, and actively engaging the investment community. K&S Corporation Limited posts all price sensitive reports, Australian Securities Exchange releases and media releases on the Company’s website. The communication strategy is consistent with ASX Principle 6. The Company’s Communication Policy is available on the Company’s website: www.ksgroup.com.au. 52 F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 ABN 67 007 561 837 Contents Statement of Comprehensive Income 54 Statement of Financial Position 55 Statement of Changes in Equity 56 Statement of Cash Flows 57 Notes to the Financial Statements 58 Directors’ Declaration 107 Auditor’s Independence Declaration 108 Independent Auditor’s Report 109 Information on Shareholdings 111 53  Consolidated 2013 2012 Note $’000 $’000 Operating revenue 5(a) 564,580 554,803 Cost of goods sold (58,570) (62,477) Gross profit 506,010 492,326 Other income 5(b) 3,922 5,187 (168,554) Contractor expenses (170,471) Employee expenses 5(e) (168,750) (158,682) Fleet expenses (95,531) (94,269) Depreciation and amortisation expense 5(d) (24,166) (24,405) (7,142) Finance costs 5 (c) (5,467) Other expenses (23,237) (21,161) Share of profits of associates 13 42 106 Profit before income tax 22,352 23,406 Income tax (expense)/benefit 6 (6,448) (6,959) Profit after income tax 15,904 16,447 Other comprehensive income Items that may be reclassified subsequently to profit or loss Foreign currency translation 887 171 Income tax effect - - 887 171 Items that may not be reclassified subsequently to profit or loss Revaluation of land and buildings 8,125 - Income tax effect (2,437) - 5,688 - Other comprehensive income for the period, net of tax 6,575 171 Total comprehensive income for the period 22,479 16,618 Earnings per share (cents per share) 7 (cid:129) basic for profit for the year attributable to ordinary equity holders of the parent 17.6 18.7 (cid:129) diluted for profit for the year attributable to ordinary equity holders of the parent 17.6 18.7 Dividends per share (cents per share) 8 11.0 11.0 The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes. S T A T E M E N T O F C O M P R E H E N S I V E I N C O M E 54 S T A T E M E N T O F F I N A N C I A L P O S I T I O N K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 Consolidated 2013 2012 Note $’000 $’000 ASSETS Current assets Cash and cash equivalents 9 15,935 21,038 Trade and other receivables 10 64,076 73,189 Inventories 11 3,040 2,927 Prepayments 5,266 5,192 Total current assets 88,317 102,346 Non-current assets Other receivables 10 1,379 1,297 Investments in associates 13 200 158 Property, plant & equipment 14 234,750 219,448 Intangibles 15 71,176 71,108 Deferred tax assets 6 7,849 6,998 Total non-current assets 315,354 299,009 TOTAL ASSETS 403,671 401,355 LIABILITIES Current liabilities Trade and other payables 17 46,840 49,214 Interest bearing loans and borrowings 18 16,332 16,693 Income tax payable 6 555 1,700 Provisions 19 16,741 14,480 Total current liabilities 80,468 82,087 Non-current liabilities Other payables 17 8,471 6,358 Interest bearing loans and borrowings 18 50,726 66,345 Deferred tax liabilities 6 21,352 18,492 Provisions 19 3,019 3,139 Total non-current liabilities 83,568 94,334 TOTAL LIABILITIES 164,036 176,421 NET ASSETS 239,635 224,934 EQUITY Contributed equity 20 101,187 97,707 Reserves 31,243 24,678 Retained earnings 107,205 102,549 TOTAL EQUITY 239,635 224,934 The above Statement of Financial Position should be read in conjunction with the accompanying notes. 55  Asset Forex Issued Retained Revaluation Translation Total Capital Earnings Reserves Reserves Equity $’000 $’000 $’000 $’000 $’000 CONSOLIDATED At 1 July 2012 97,707 102,549 26,270 (1,592) 224,934 Profit for the year - 15,904 - - 15,904 Other comprehensive income - - 5,688 887 6,575 Total comprehensive income for the year - 15,904 5,688 887 22,479 Transactions with owners in their capacity as owners: Disposal transfer of land and buildings - 10 (10) - - Issue of share capital 3,480 - - - 3,480 Dividends paid - (11,258) - - (11,258) At 30 June 2013 101,187 107,205 31,948 (705) 239,635 At 1 July 2011 94,276 94,823 26,270 (1,763) 213,606 Profit for the year - 16,447 - - 16,447 Other comprehensive income - - - 171 171 Total comprehensive income for the year - 16,447 - 171 16,618 Transactions with owners in their capacity as owners: Issue of share capital 3,431 - - - 3,431 Dividends paid - (8,721) - - (8,721) At 30 June 2012 97,707 102,549 26,270 (1,592) 224,934 The above Statement of Changes in Equity should be read in conjunction with the accompanying notes. S T A T E M E N T O F C H A N G E S I N E Q U I T Y 56 S T A T E M E N T O F C A S H F L O W S K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 Consolidated 2013 2012 Note $’000 $’000 CASH FLOWS FROM OPERATING ACTIVITIES Cash receipts from customers 634,513 611,338 Cash payments to suppliers and employees (556,007) (538,494) Interest received 198 242 Borrowing costs paid (5,466) (7,142) Income taxes paid (8,045) (6,871) Net goods and services tax paid (18,767) (20,134) Net cash provided by/(used in) operating activities 9 46,426 38,939 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of non-current assets 4,636 4,889 Payments for property plant & equipment (6,737) (5,749) Acquisition of business (8,041) - Net cash provided by/(used in) investing activities (10,142) (860) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from share issue 488 325 Proceeds from borrowings 4,000 - Repayments of borrowings (18,843) (5,486) (16,029) Lease and hire purchase liability repayments (18,844) (5,615) Dividends paid, net of dividend reinvestment plan (8,266) Net cash provided by/(used in) financing activities (41,465) (26,805) 11,274 Net increase/(decrease) in cash held (5,181) Cash at the beginning of the financial year 21,038 9,747 Effects of exchange rate variances on cash 78 17 Cash at the end of the financial year 9 15,935 21,038 The above Statement of Cash Flows should be read in conjunction with the accompanying notes. 57 N O T E S T O T H E I F N A N C A L I S T A T E M E N T S K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 1 Corporate Information The financial report of K&S Corporation Limited for the year ended 30 June 2013 was authorised for issue in accordance with a resolution of Directors on 23 August 2013. K&S Corporation Limited is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Stock Exchange. The nature of the operation and principal activities of the Group are described in Note 4. 2 Summary of Significant Accounting Policies a) Basis of preparation The financial report is a general purpose financial report for a for-profit entity, which has been prepared in accordance with the requirements of the Corporation Act 2001 and Australian Accounting Standards. The financial report has also been prepared on a historical cost basis, except for land and buildings which have been measured at fair value. The carrying values of cash flow hedges are also stated at fair value with the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge recognised directly in equity and the ineffective portion recognised in profit or loss. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated under the option available to the Company under ASIC Class Order 98/0100. The Company is an entity to which the class order applies. b) Compliance with IFRS The financial report complies with Australian Accounting Standards and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. c) New Accounting Standards and Interpretations i) Changes in accounting policy and disclosures The accounting policies adopted are consistent with those of the previous financial year except as follows: The Group has adopted the following new and amended Australian Accounting Standards and AASB Interpretations as of 1 July 2012. Reference Title AASB 2010-8 Amendments to Australian Accounting Standards – Deferred Tax: Recovery of Underlying Assets [AASB 112] These amendments address the determination of deferred tax on investment property measured at fair value and introduce a rebuttable presumption that deferred tax on investment property measured at fair value should be determined on the basis that the carrying amount will be recoverable through sale. The amendments also incorporate SIC-21 Income Taxes – Recovery of Revalued Non-Depreciable Assets into AASB 112. Application date of standard Application date for Group 1 Jan 2012 1 July 2012 AASB 2011-9 Amendments to Australian Accounting Standards – Presentation of Other Comprehensive Income [AASB 1, 5, 7, 101, 112, 120, 121, 132, 133, 134, 1039 & 1049] 1 July 2012 1 July 2012 This standard requires entities to group items presented in other comprehensive income on the basis of whether they might be reclassified subsequently to profit or loss and those that will not. ii) Accounting standards and interpretations issued but not yet effective Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective and have not been adopted by the Group for the annual reporting period ending 30 June 2013, are outlined in the table on the following pages: 58 Application date of standard 1 Jan 2013 Impact on Group financial report The amendments are not expected to have any impact on the Group’s financial report. Application date for Group 1 July 2013 1 Jan 2013 The amendments are not expected to have any impact on the Group’s financial report. 1 July 2013 1 Jan 2013 The amendments are not expected to have any impact on the Group’s financial report. 1 July 2013 Reference Title Summary AASB 10 Consolidated Financial Statements AASB 11 Joint Arrangements AASB 12 Disclosure of Interests in Other Entities AASB 10 establishes a new control model that applies to all entities. It replaces parts of AASB 127 Consolidated and Separate Financial Statements dealing with the accounting for consolidated financial statements and UIG-112 Consolidation – Special Purpose Entities. The new control model broadens the situations when an entity is considered to be controlled by another entity and includes new guidance for applying the model to specific situations, including when acting as a manager may give control, the impact of potential voting rights and when holding less than a majority voting rights may give control. Consequential amendments were also made to this and other standards via AASB 2011-7 and AASB 2012-10. AASB 11 replaces AASB 131 Interests in Joint Ventures and UIG-113 Jointly-controlled Entities – Non-monetary Contributions by Ventures. AASB 11 uses the principle of control in AASB 10 to define joint control, and therefore the determination of whether joint control exists may change. In addition it removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, accounting for a joint arrangement is dependent on the nature of the rights and obligations arising from the arrangement. Joint operations that give the venturers a right to the underlying assets and obligations themselves is accounted for by recognising the share of those assets and obligations. Joint ventures that give the venturers a right to the net assets is accounted for using the equity method. Consequential amendments were also made to this and other standards via AASB 2011-7, AASB 2010-10 and amendments to AASB 128. AASB 12 includes all disclosures relating to an entity's interests in subsidiaries, joint arrangements, associates and structured entities. New disclosures have been introduced about the judgments made by management to determine whether control exists, and to require summarised information about joint arrangements, associates, structured entities and subsidiaries with non-controlling interests. 59 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 Application date of standard 1 Jan 2013 Impact on Group financial report The amendments are not expected to have any impact on the Group’s financial report. Application date for Group 1 July 2013 1 Jan 2013 The amendments are not expected to have any impact on the Group’s financial report. 1 July 2013 Reference Title Summary AASB 13 Fair Value Measurement AASB 119 Employee Benefits AASB 13 establishes a single source of guidance for determining the fair value of assets and liabilities. AASB 13 does not change when an entity is required to use fair value, but rather, provides guidance on how to determine fair value when fair value is required or permitted. Application of this definition may result in different fair values being determined for the relevant assets. AASB 13 also expands the disclosure requirements for all assets or liabilities carried at fair value. This includes information about the assumptions made and the qualitative impact of those assumptions on the fair value determined. Consequential amendments were also made to other standards via AASB 2011-8. The main change introduced by this standard is to revise the accounting for defined benefit plans. The amendment removes the options for accounting for the liability, and requires that the liabilities arising from such plans is recognised in full with actuarial gains and losses being recognised in other comprehensive income. It also revised the method of calculating the return on plan assets. The revised standard changes the definition of short-term employee benefits. The distinction between short-term and other long-term employee benefits is now based on whether the benefits are expected to be settled wholly within 12 months after the reporting date. Consequential amendments were also made to other standards via AASB 2011-10. AASB 2012-5 Amendments to Australian Accounting Standards arising from Annual Improvements 2009-2011 Cycle AASB 2012-5 makes amendments resulting from the 2009-2011 Annual Improvements Cycle. The standard addresses a range of improvements, including the following: 1 Jan 2013 The amendments are not expected to have any impact on the Group’s financial report. 1 July 2013 (cid:129) Repeat application of AASB 1 is permitted (AASB 1) (cid:129) Clarification of the comparative information requirements when an entity provides a third balance sheet (AASB 101 Presentation of Financial Statements). 60 Application date of standard 1 Jan 2013 1 Jul 2013 1 Jan 2015 Application date for Group 1 July 2013 1 July 2013 1 July 2015 Impact on Group financial report The amendments are not expected to have any impact on the Group’s financial report. The amendments remove the disclosures from the financial report and is transferred to the Remuneration report by amend- ments to the Corporations Act. The Group has not yet determined the extent of the impact of the amendments, if any. K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 Reference Title Summary AASB 2012-9 Amendment to AASB 1048 arising from the withdrawal of Australian Interpretation 1039 AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements [AASB 124] AASB 9 (continued on next page) Financial Instruments AASB 2012-9 amends AASB 1048 Interpretation of Standards to evidence the withdrawal of Australian Interpretation 1039 Substantive Enactment of Major Tax Bills in Australia. This amendment deletes from AASB 124 individual key management personnel disclosure requirements for disclosing entities that are not companies. It also removes the individual KMP disclosure requirements for all disclosing entities in relation to equity holdings, loans and other related party transactions. AASB 9 includes requirements for the classification and measurement of financial assets. It was further amended by AASB 2010-7 to reflect amendments to the accounting for financial liabilities. These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of AASB 139. The main changes are described below. a) Financial assets that are debt instruments will be classified based on; (1) the objective of the entity's business model for managing the financial assets; (2) the characteristics of the contractual cash flows. b) Allows an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument. c) Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so eliminates or significantly reduces a measure- ment or recognition inconsistency that would arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases. d) Where the fair value option is used for financial liabilities the change in fair value is to be accounted for as follows: (cid:129) The change attributable to changes in credit risk are presented in other comprehensive income (OCI) (cid:129) The remaining change is presented in profit or loss. 61 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 Application date of standard 1 Jan 2015 Application date for Group 1 July 2015 Impact on Group financial report The Group has not yet determined the extent of the impact of the amendments, if any. 1 Jan 2014 The amendments are not expected to have any impact on the Group’s financial report. 1 July 2014 1 Jan 2014 1 July 2014 The Group has not yet determined the extent of the impact of the amendments, if any. 1 Jan 2013 The amendments are not expected to have any impact on the Group’s financial report. 1 July 2013 Reference Title Summary AASB 9 (continued) Financial Instruments AASB 2012-3 Amendments to Australian Accounting Standards – Offsetting Financial Assets and Financial Liabilities Interpretation 21 Levies AASB 2012-2 Amendments to Australian Accounting Standards – Disclosures – Offsetting Financial Assets and Financial Liabilities If this approach creates or enlarges an accounting mismatch in the profit or loss, the effect of the changes in credit risk are also presented in profit or loss. Further amendments were made by AASB 2012-6 which amends the mandatory effective date to annual reporting periods beginning on or after 1 January 2015. AASB 2012-6 also modifies the relief from restating prior periods by amending AASB 7 to require additional disclosures on transition to AASB 9 in some circumstances. Consequential amendments were also made to other standards as a result of AASB 9, introduced by AASB 2009-11 and superseded by AASB 2010-7 and 2010-10. AASB 2012-3 adds application guidance to AASB 132 Financial Instruments: Presentation to address inconsistencies identified in applying some of the offsetting criteria of AASB 132, including clarifying the meaning of "currently has a legally enforceable right of set-off" and that some gross settlement systems may be considered equivalent to net settlement. This Interpretation confirms that a liability to pay a levy is only recognised when the activity that triggers the payment occurs. Applying the going concern assumption does not create a constructive obligation. AASB 2012-2 principally amends AASB 7 Financial Instruments: Disclosures to require disclosure of the effect or potential effect of netting arrangements. This includes rights of set-off associated with the entity's recognised financial assets and liabilities on the entity's financial position, when the offsetting criteria of AASB 132 are not all met. 62 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 d) Basis of consolidation The consolidated financial statements comprise the financial statements of K&S Corporation Limited and its subsidiaries (“the Group”) as at 30 June each year. The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. In preparing the consolidated financial statements, all intercompany balances and transactions, income and expenses and profit and losses resulting from inter-group transactions, have been eliminated in full. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Investments in subsidiaries by K&S Corporation Limited are accounted for at cost in the separate financial statements of the parent less any impairment charges. Dividends received from subsidiaries are recorded as a component of other revenues in the separate statement of comprehensive income of the parent entity, and do not impact the recorded cost of the investment. Upon receipt of the dividend payments from subsidiaries, the parent will assess whether any indicators of impairment of the carrying value of the investment in the subsidiary exists. Where such indicators exist, to the extent that the carrying value of the investment exceeds its recoverable amount, an impairment loss is recognised. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. The acquisition method of accounting involves recognising at acquisition date, separately from goodwill, the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree. The identifiable assets and the liabilities assumed are measured at their acquisition date fair values. The difference between the above items and the fair value of the consideration, (including the fair value of any pre-existing investment in the acquiree), is goodwill or a discount on acquisition. 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. Non-controlling interests are allocated their share of net profit after tax in the Statement of Comprehensive Income and are presented within equity in the Statement of Financial Position, separately from the equity of the owners of the parent. Losses are attributed to the non-controlling interest even if that results in a deficit balance. If the Group loses control over a subsidiary, it (cid:129) Derecognises the assets (including goodwill) and liabilities of the subsidiary. Derecognises the carrying amount of any non-controlling interest. Derecognises the cumulative translation differences, recorded in equity. Recognises the fair value of consideration received. (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) Recognises the fair value of any investment retained. Recognises any surplus or deficit in profit or loss. Reclassifies the parent’s share of components previously recognised in other comprehensive income to profit or loss. e) Business combinations Business combinations are accounted for using the acquisition method. The consideration transferred in a business combination shall be measured at fair value, which shall be calculated as the sum of the acquisition date fair values of the assets transferred to the acquirer, the liabilities incurred by the acquirer to former owners of the acquiree and the equity issued by the acquirer, and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition related costs are expensed as incurred. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the Group’s operating or accounting policies and other pertinent conditions as the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured at fair value as at the acquisition date through profit or loss. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with AASB 139 either in profit or loss in other comprehensive income. If the contingent consideration is classified as equity, it shall not be remeasured. f) Operating segments An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. This includes start up operations which are yet to earn revenues. Management will also consider other factors in determining operating segments such as the existence of a line manager and the level of segment information presented to the Board of Directors. Operating segments have been identified based on the information provided to the chief operating decision makers – being the executive management team. 63 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 The Group aggregates two or more operating segments when they have similar economic characteristics, and the segments are similar in each of the following aspects: (cid:129) (cid:129) Nature of the product or services; Type or class of customer for the product or services; and (cid:129) Methods used to distribute the products or provide services. Information about other business activities and operating segments that are below the quantitative criteria are combined and disclosed in a separate category for “all other segments”. g) Revenue Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: Sale of goods i) Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and can be measured reliably. Risks and rewards are considered passed to the buyer at the time of delivery of the goods to the customer. Sales revenue comprises revenue earned (net of returns, discounts and allowances) from the provision of fuel products to entities outside the consolidated entity. Sales revenue is recognised when fuel is provided. Rendering of services ii) Service revenue from the distribution of customer goods is recognised when delivered or when services are fully provided. Interest iii) Revenue is recognised as the interest accrues using the effective interest method. This method calculates the amortised cost of a financial asset and allocates the interest over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset. iv) Dividends Revenue is recognised when the Group’s right to receive the payment is established. h) Cash and cash equivalents Cash and cash equivalents in the Statement of Financial Position comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less. For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. i) Leases Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term. Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an expense on a straight-line basis over the lease term. j) Trade and other receivables Trade receivables, which generally have 30-90 day terms, are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. An allowance for doubtful debts is made when there is objective evidence that the Group will not be able to collect the debts. Bad debts are written off when identified. k) Inventories Inventories are valued at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and condition are accounted for as follows: Consumables – purchase cost on a first-in, first-out basis; Finished goods – weighted average cost. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs necessary to make the sale. l) Derivative financial instruments The Group uses derivative financial instruments such as interest rate swaps to hedge its risks associated with interest rate fluctuations. Such derivative financial instruments are stated at fair value. The fair value of interest rate contracts is determined by reference to market value for similar instruments. For the purposes of hedge accounting, hedges are classified as either fair value hedges when they hedge the exposure to changes in the fair value of a recognised asset or liability; or cash flow hedges where they hedge exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a forecasted transaction. 64 In relation to cash flow hedges (interest rate swaps) to hedge firm commitments which meet the conditions for special hedge accounting, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity and the ineffective portion is recognised in profit or loss. (cid:129) (cid:129) When the hedged firm commitment results in the recognition of an asset or a liability, then, at the time the asset or liability is recognised, the associated gains or losses that had previously been recognised in equity are included in the initial measurement of the acquisition cost or other carrying amount of the asset or liability. For all other cash flow hedges, the gains or losses that are recognised in equity are transferred to profit or loss in the same year in which the hedged firm commitment affects the net profit and loss, for example when the future sale actually occurs. For derivatives that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are taken directly to profit or loss. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. At that point in time, any cumulative gain or loss on the hedging instrument recognised in equity is kept in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to profit or loss. m) Derecognition of financial assets and liabilities Financial assets A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when: (cid:129) The rights to receive cash flows from the asset have expired; The Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; or The Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration received that the Group could be required to repay. When continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or similar provision) on the transferred asset, the extent of the Group’s continuing involvement is the amount of the transferred asset that the Group may repurchase, except that in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, the extent of the Group’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price. Financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss. 65 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 n) Impairment of financial assets The Group assesses at each reporting date whether a financial asset or group of financial assets is impaired. Financial assets carried at amortised cost If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through use of an allowance account. The amount of the loss is recognised in profit or loss. The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. 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. Any subsequent reversal of an impairment loss is recognised in profit or loss, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date. Financial assets carried at cost If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value (because its fair value cannot be reliably measured), or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the current market rate of return for a similar financial asset. o) Foreign currency translation Both the functional and presentation currency of K&S Corporation Ltd and its Australian subsidiaries is Australian dollars (A$). Transactions in foreign currencies are initially recorded in the functional currency at the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date. All exchange differences in the consolidated financial report are taken to profit or loss with the exception of differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity. These are taken directly to equity until the disposal of the net investment, at which time they are recognised in profit or loss. Tax charges and credits attributable to exchange differences on those borrowings are also recognised in equity. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. The functional currency of the overseas subsidiaries (K&S Freighters Limited and Cochrane’s Transport Limited) is New Zealand dollars (NZ$). As at the reporting date, the assets and liabilities of these overseas subsidiaries are translated into the presentation currency of K&S Corporation Limited at the rate of exchange ruling at the reporting date and the revenue and expenses are translated at the weighted average exchange rates for the period. The exchange differences arising on the retranslation are taken directly to a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating of that particular foreign operation is recognised in profit or loss. p) Investment in associates The Group’s investment in its associates is accounted for under the equity method of accounting in the consolidated financial statements and at cost in the parent. The associates are entities in which the Group has significant influence and that are neither a subsidiary nor a joint venture. Under the equity method, investments in associates are carried in the consolidated statement of financial position at cost plus post-acquisition changes in the Group’s share of net assets of the associate. Goodwill relating to an associate is included in the carrying amount of the investment and is not amortised. After application of the equity method, the Group determines whether it is necessary to recognise any impairment loss with respect to the Group’s net investment in associates. Goodwill included in the carrying amount of the investment in associate is not tested separately, rather the entire carrying amount of the investment is tested for impairment as a single asset. If an impairment loss is recognised, the amount is not allocated to the goodwill of the associate. The Group’s share of associates’ post-acquisition profits or losses is recognised in the statement of comprehensive income, and its share of post-acquisition movements in reserves is recognised in reserves. 66 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from the associates are recognised in the parent entity’s statement of comprehensive income as a component of other income. The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any unsecured long-term receivables and loans, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. The reporting dates of the associate and the Group are identical and the associates’ accounting policies conform to those used by the Group for like transactions and events in similar circumstances. Unrecognised deferred income tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. q) Income tax and other taxes Current tax assets and liabilities for the current period and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the current period’s taxable income. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date. Deferred income tax is provided on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences except: (cid:129) where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or when the taxable temporary differences is associated with investments in subsidiaries and associates and the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. (cid:129) Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and unused tax losses can be utilised, except: when the deferred income tax asset relating to the (cid:129) deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or when the deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. (cid:129) Income taxes relating to items recognised directly in equity are recognised in equity and not in the profit or loss. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxable authority. Other taxes Revenues, expenses and assets are recognised net of the amount of GST except: (cid:129) when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and receivables and payables are stated with the amount of GST included. (cid:129) The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the Statement of Cash Flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. r) Property, plant and equipment Plant and equipment is stated at cost less accumulated depreciation and any impairment in value. Land and buildings are measured at fair value less accumulated depreciation on buildings and less any impairment losses recognised after the date of the revaluation. Depreciation is calculated on a straight-line basis using the following rates: Land Buildings Motor vehicles Plant and equipment Not depreciated 2.5% p.a 5% – 40% p.a. 5% – 27% p.a. 67 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 i) Impairment The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. The recoverable amount of plant and equipment is the greater 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. Impairment exists when the carrying values of an asset or cash-generating unit exceeds its estimated recoverable amount. The assets or cash-generating units are written down to their recoverable amount. For plant and equipment, impairment losses are recognised in profit or loss. However, because land and buildings are measured at revalued amounts, impairment losses on land and buildings are treated as a revaluation decrement. ii) Revaluations Following initial recognition at cost, land and buildings are carried at a revalued amount which is the fair value at the date of the revaluation less any subsequent accumulated depreciation on buildings and accumulated impairment losses. Fair value is determined by reference to market-based evidence, which is the amount for which the assets could be exchanged between a knowledgeable willing buyer and a knowledgeable willing seller in an arm’s length transaction as at the valuation date. Any revaluation increment is credited to the asset revaluation reserve included in the equity section of the Statement of Financial Position unless it reverses a revaluation decrease of the same asset previously recognised in profit or loss. Any revaluation decrease is recognised in profit or loss unless it directly offsets a previous revaluation increase for the same asset debited directly to the asset revaluation reserve. In addition, any accumulated depreciation as at revaluation date is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings. Independent valuations are performed with sufficient regularity to ensure that the carrying amount does not differ materially from the asset's fair value at the reporting date. iii) Derecognition and disposal An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in profit or loss in the period the item is derecognised. s) Investments and other financial assets Financial assets in the scope of AASB 139 Financial Instruments: Recognition and Measurement are classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale investments, as appropriate. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transactions costs. The Group determines the classification of its financial assets after initial recognition and, when allowed and appropriate, re-evaluates this designation at each financial year-end. All regular way purchases and sales of financial assets are recognised on the trade date i.e. the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets under contracts that require delivery of the assets within the period established generally by regulation and convention in the marketplace. Financial assets at fair value through profit or loss Financial assets classified as held for trading are included in the category “financial assets at fair value through profit or loss”. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on investments held for trading are recognised in profit or loss. Held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to- maturity when the Group has the positive intention and ability to hold to maturity. Investments intended to be held for an undefined period are not included in this classification. Investments that are intended to be held- to-maturity, such as bonds, are subsequently measured at amortised cost. This cost is computed as the amount initially recognised minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initially recognised amount and the maturity amount. This calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums and discounts. For investments carried at amortised cost, gains and losses are recognised in profit or loss when the investments are derecognised or impaired, as well as through the amortisation process. 68 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process. The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the reporting date. For investments with no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current market value of another instrument that is substantially the same; discounted cash flow analysis and option pricing methods. t) Goodwill and intangibles Goodwill Goodwill acquired in a business combination is initially measured at cost of the business combination, being the excess of the consideration transferred over the fair value of the Group’s net identifiable assets acquired and liabilities assumed. If this consideration transferred is lower than the fair value of the net identifiable assets acquired, the difference is recognised in profit or loss. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to which goodwill is allocated represents the lowest level within the Group at which goodwill is monitored for internal management purposes, and is not larger than a operating segment determined in accordance with AASB 8. Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units), to which the goodwill relates. When the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. When goodwill forms part of a cash-generating unit (group of cash-generating units) and an operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this manner is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. Impairment losses recognised for goodwill are not subsequently reversed. Intangibles Intangible assets are initially measured at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at each financial year-end. 69 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 t) Goodwill and intangibles Intangibles continued Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, which is a change in accounting estimate. The amortisation expense on intangible assets with finite lives is recognised in profit or loss in the expense category consistent with the function of the intangible asset. Intangible assets with indefinite lives are tested for impairment annually either individually or at the cash-generating unit level. Such intangibles are not amortised. The useful life of an intangible asset with an indefinite life is reviewed each reporting period to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is accounted for as a change in an accounting estimate and is thus accounted for on a prospective basis. Development costs An intangible asset arising from development expenditure on an internal project is recognised only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to the use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the development and the ability to measure reliably the expenditure attributable to the intangible asset during the development. Following initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Any expenditure so capitalised is amortised over the period of expected benefits from the related project. The estimated useful life for the current and comparative periods are as follows: Software and technology 7 years The carrying value of an intangible asset arising from development expenditure is tested for impairment annually when the asset is not yet available for use, or more frequently when an indication of impairment arises during the reporting period. u) Impairment of assets The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of its fair value less costs to sell or its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent from other assets or groups of assets and the asset’s value in use cannot be estimated to be close to its fair value. In such cases the asset is tested for impairment as part of the cash-generating unit to which it belongs. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset or cash-generating unit is considered impaired and is written down to its recoverable amount. 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. Impairment losses are recognised in those expense categories consistent with the function of the impaired asset unless the asset is carried at revalued amounts (in which case the impairment loss is treated as a revaluation decrease). 70 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 An assessment is also made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to the recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the assets in prior years. Such reversal is recognised in the profit or loss unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. v) Interest-bearing loans and borrowings All loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of issue costs associated with the borrowing. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement. Gains and losses are recognised in profit or loss when the liabilities are derecognised, as well as through the amortisation process. w) Trade and other payables Trade payables and other payables are carried at amortised costs and represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. x) 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 an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the profit or loss net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. y) Employee leave benefits i) Wages, salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in current provisions in respect of employees’ service up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable. ii) Long service leave The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wages and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows. iii) Defined contribution superannuation funds The commitment to defined contribution plans is limited to making contributions in accordance with the minimum statutory requirements. The Group does not have any legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to current and past employee services. Obligations for contributions to defined contribution superannuation funds are recognised as an expense in profit or loss as incurred. iv) Directors retirement benefits Directors commencing after 30 June 2004 are not eligible for any benefit under the Directors Retirement Scheme. However, Non-Executive Directors appointed before that date are eligible to receive retirement benefits on retiring as a Director. In July 2004, the Directors Retirement benefit calculation changed, to freeze the accumulation of years of service for each Director. z) Contributed equity Ordinary shares are classified as equity. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the proceeds received. 71 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 aa) Earnings per share Basic earnings per share is calculated as net profit attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares. Diluted earnings per share is calculated as net profit attributable to members of the parent, adjusted for: Costs of servicing equity (other than dividends); (cid:129) The after tax effect of dividends and interest (cid:129) associated with dilutive potential ordinary shares that have been recognised as expenses; Other non-discretionary changes in revenues or expenses during the period that would result from dilution of potential ordinary shares; (cid:129) divided by the weighted average number of ordinary shares and dilutive potential ordinary shares. bb) Significant account judgments, estimates and assumptions The preparation of the financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgments and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgments and estimates on historical experience and on other various factors it believes to be reasonable under the circumstances, the result of which form the basis of the carrying values of assets and liabilities that are not readily apparent from other sources. 72 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 Management has identified the following critical accounting policies for which significant judgments, estimates and assumptions are made. Actual results may differ from these estimates under different assumptions and conditions and may materially affect financial results or the financial position reported in future periods. Further details of the nature of these assumptions and conditions may be found in the relevant notes to the financial statements. i) Significant accounting judgments Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary differences as management considers that it is probable that future taxable profits will be available to utilise those temporary differences. Significant manage- ment judgment is required to determine the amount of deferred taxes that can be recognised, based upon the likely timing and the level of future taxable profits. Taxation The Group’s accounting policy for taxation requires management judgment as to the types of arrangements considered to be a tax on income in contrast to an operating cost. Judgment is also required in assessing whether deferred tax assets and certain deferred tax liabilities are recognised on the Statement of Financial Position. Deferred tax assets are recognised only where it is considered more likely than not that they will be recovered, which is dependant on sufficient future profits. ii) Significant accounting estimates and assumptions Impairment of goodwill The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the recoverable amount of the cash generating units to which the goodwill is allocated. The assumptions used in this estimation of recoverable amount and the carrying amount of goodwill are discussed in Note 16. Make good provisions Provision is made for anticipated costs of future restoration of leased storage premises. The future cost estimates are discounted to their present value. The related carrying amounts are disclosed in Note 19. Allowance for impairment loss on trade receivables Where receivables are outstanding beyond normal trading terms, the likelihood of recovery of these receivables is assessed by management. This assessment is based on supportable past collection history and historical write-offs of bad debts. The allowance for impairment loss is outlined in Note 10. Long service leave provision As discussed in Note 2 (y), the liability for long service is recognised and measured at the present value of the estimated future cash flows to be made in respect of all employees at balance date. In determining the present value of the liability, attrition rates and pay increases through promotion and inflation have been taken into account. Impairment of non-financial assets other than goodwill The Group assesses impairment of all assets at each reporting date by evaluating conditions specific to the Group and to the particular asset that may lead to impairment. If an impairment trigger exists the recoverable amount of the asset is determined. This involves value in use calculations, which incorporate a number of key estimates and assumptions. 3 Financial Risk Management Objectives and Policies The Group’s principal financial instruments, other than derivatives, comprise bank loans and overdrafts, finance leases and hire purchase contracts and cash deposits. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations. The Group also entered into derivative transactions, principally interest rate swap contracts. The purpose was to manage the interest rate risk arising from the Group’s operations and its sources of finance. The main risks arising from the Group’s financial instruments are cash flow interest rate risk, liquidity risk, foreign currency risk and credit risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below. 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. Risk exposures and responses Fair Value The net values of receivables, bank overdraft, trade creditors, accruals, lease liabilities, hire purchase liabilities, credit facilities and other loans, approximated their book value. The net fair value of unlisted investments where there is no organised financial market has been based on a reasonable estimation of the underlying net assets. This approximates the book value. For other assets and liabilities the net fair value approximates their book value. No financial assets and liabilities are readily traded on organized markets in standardised form. 73 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 The movements in profit are due to higher/lower interest costs from variable debt and cash balances. Significant assumptions used in the interest rate sensitivity analysis include: (cid:129) Reasonably possible movements in interest rates were determined based upon the Group’s current credit rating and debt mix in Australia and New Zealand. The net exposure at balance date is representative of what the Group was and is expecting to be exposed to in the next twelve months. (cid:129) Liquidity risk Liquidity risk arises from the financial liabilities of the Group and the Group’s subsequent ability to meet their obligations to repay their financial liabilities as and when they fall due. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans, finance leases and committed lines of credit. The Group’s policy in managing liquidity risk is to ensure the Group always has sufficient liquidity to meet its financial obligations when due, as well as to accommodate unforeseen cash requirements over both the short and long term. i) Non-derivative financial liabilities The following liquidity risk disclosure reflect all contractually fixed pay-offs, repayments and interest resulting from recognised financial liabilities and financial guarantees as of 30 June 2013. For the other obligations the respective undiscounted cash flows for the respective upcoming fiscal years are presented. The timing of cash flows for liabilities is based on the contractual terms of the underlying contract. However, where the counterparty has a choice of when the amount is paid, the liability is allocated to the earliest period in which the Group can be required to pay. When the Group is committed to make amounts available in instalments, each instalment is allocated to the earliest period in which the Group is required to pay. For financial guarantee contracts, the maximum amount of the guarantee is allocated to the earliest period in which the guarantee can be called. Credit risk Credit risk represents the loss that would be recognised if counterparties failed to perform as contracted. It is the Group’s policy that customers who wish to trade on credit more than $1,000 per week are subject to credit verification procedures including an assessment of their independent credit rating, financial position, past experience and industry reputation. The consolidated entity also minimises concentrations of credit risk by undertaking transactions with a large number of customers and counterparties in various states. The Group is not materially exposed to any individual customer or individual state. Concentration of credit risk on trade debtors due from customers are: Transport 93% (2012: 94%) and Fuel 7% (2012: 6%). In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. Foreign currency risk The Group’s exposure to currency risk is minimal. Interest rate risk The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long term debt obligations with a floating interest rate. The level of debt is disclosed in Note 18. At balance date, the Group had the following mix of financial assets and liabilities exposed to variable interest rate risk that are not designated in cash flow hedges: Consolidated 2013 2012 $’000 $’000 Financial assets – Cash and cash equivalents 15,935 21,038 Financial liabilities – Bank loans (18,379) (33,175) Net exposure (2,444) (12,137) The following sensitivity analysis is based on the interest rate risk exposures in existence at the Balance Sheet date: Judgements of reasonably possible movements: Post Tax Profit Equity Higher/(Lower) Higher/(Lower) 2013 2012 2013 2012 $’000 $’000 $’000 $’000 Consolidated + 1% (100 basis points) (17) (85) (17) (85) – 0.5% (50 basis points) 9 42 9 42 74 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 The following table reflects a balanced view of cash inflows and outflows of non-derivative financial instruments: Greater Less than 1 to 2 2 to 5 than 1 year years years 5 years Total $’000 $’000 $’000 $’000 $’000 Year ended 30 June 2013 Liquid financial assets Cash and cash equivalents 15,935 - - - 15,935 Trade and other receivables 64,434 358 728 50 65,570 80,369 358 728 50 81,505 Financial liabilities Interest bearing loans and borrowings (19,963) (34,428) (18,975) - (73,366) Trade and other payables (46,840) (8,471) - - (55,311) Financial guarantees (15,872) - - - (15,872) (82,675) (42,899) (18,975) - (144,549) Net inflow/(outflow) (2,306) (42,541) (18,247) 50 (63,044) Year ended 30 June 2012 Liquid financial assets Cash and cash equivalents 21,038 - - - 21,038 Trade and other receivables 73,764 267 635 128 74,794 94,802 267 635 128 95,832 Financial liabilities Interest bearing loans and borrowings (21,648) (16,930) (54,570) - (93,148) Trade and other payables (49,214) (6,358) - - (55,572) Financial guarantees (13,909) - - - (13,909) (84,771) (23,288) (54,570) - (162,629) Net inflow/(outflow) 10,031 (23,021) (53,935) 128 (66,797) The Group’s available credit facilities are outlined in Note 18. ii) Derivative financial liabilities Due to the unique characteristics and risks inherent to derivative instruments, the Group separately monitors the liquidity risk arising from transacting in derivative instruments. The Group holds no derivative liabilities at balance date. 75 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 4 Operating Segments Accounting policies and inter-segment transactions Identification of reportable segments The Group has identified its operating segments based on the internal reports that are reviewed and used by the executive management team in assessing performance and in determining the allocation of resources. The executive management determined that the Group has three operating segments. The Group’s internal management reporting systems and business model, which monitors resource allocation and working capital fall under the following three segments: (cid:129) (cid:129) (cid:129) Australian Transport – The provision of logistical services to customers within Australia. Fuels – The distribution of fuel to fishing, farming and retail customers within the South East of South Australia. New Zealand Transport – The provision of logistical services to customers within New Zealand. The accounting policies used by the Group in reporting segments are the same as those contained in Note 2 to the accounts and in the prior period except as detailed below: Inter-entity sales Inter-entity sales are recognised based on an internally set transfer price. The price is set periodically and aims to reflect what the business operations could achieve if they sold their output and services to external parties at arm’s length. Corporate charges Corporate charges are allocated to each operating segment on a proportionate basis linked to segment revenue so as to determine a segmental result. Segment loans payable and loans receivable Segment loans are initially recognised at the consideration received excluding transaction costs. Inter-segment loans receivable and loans payable that earn or incur non-market interest are not adjusted to fair value based on market interest rates. The following table presents revenue and profit information for reportable segments for the years ended 30 June 2013 and 30 June 2012. 76 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 Australian New Zealand Transport Fuel Transport Total $’000 $’000 $’000 $’000 Year ended 30 June 2013 Revenue External customers 481,618 63,403 19,361 564,382 Finance revenue 181 - 17 198 Inter-segment sales 366 43,062 - 43,428 Total segment revenue 482,165 106,465 19,378 608,008 Results Depreciation and amortisation expense (21,636) (160) (2,370) (24,166) Finance costs (5,004) - (463) (5,467) Share of profits of associates 42 - - 42 Segment net operating profit after tax 15,127 756 21 15,904 Operating assets 368,900 18,286 22,237 409,423 Operating liabilities 137,622 6,185 11,923 155,730 Other disclosures Investments in an associate 200 - - 200 Capital expenditure (21,803) - (2,195) (23,998) Inter-segment revenues of $43,428,000 are eliminated on consolidation Year ended 30 June 2012 Revenue External customers 466,961 66,311 21,289 554,561 Finance revenue 216 - 26 242 Inter-segment sales 352 40,981 - 41,333 Total segment revenue 467,529 107,292 21,315 596,136 Results Depreciation and amortisation expense (21,641) (146) (2,618) (24,405) Finance costs (6,420) - (722) (7,142) Share of profits of associates 72 - 34 106 Segment net operating profit after tax 15,312 752 383 16,447 Operating assets 368,406 17,133 21,762 407,301 Operating liabilities 150,792 5,793 12,588 169,173 Other disclosures Investments in an associate 158 - - 158 Capital expenditure (21,959) - (1,481) (23,440) Inter-segment revenues of $41,333,000 are eliminated on consolidation 77 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 Consolidated 2013 2012 $’000 $’000 i) Segment revenue reconciliation to the Statement of Comprehensive Income Total segment revenue 608,008 596,136 Inter-segment sales elimination (43,428) (41,333) Total revenue 564,580 554,803 Revenue from external customers by geographical location is detailed below. Revenue is attributed to geographic location based on the location of the customers. The Company does not have external revenues from external customers that are attributable to any foreign country other than as shown. Australia 545,202 533,488 New Zealand 19,378 21,315 Total revenue 564,580 554,803 ii) Segment assets reconciliation to the Statement of Financial Position Segment assets are those operating assets of the entity that the Executive Management committee views as directly attributing to the performance of the segment. These assets include plant and equipment, receivables, inventory, intangibles and excludes deferred tax assets. Reconciliation of segment operating assets to total assets: Segment operating assets 409,423 407,301 Inter-segment eliminations (13,601) (12,944) Deferred tax assets 7,849 6,998 Total assets per the Statement of Financial Position 403,671 401,335 The analysis of location on non-current assets other than financial instruments and deferred tax assets is as follows: Australia 288,662 273,780 New Zealand 18,843 18,231 Total assets per the Statement of Financial Position 307,505 292,011 iii) Segment liabilities reconciliation to the Statement of Financial Position Segment liabilities include trade and other payables and debt. The Group has a centralised finance function that is responsible for raising debt and capital for the entire operations. Each entity or business uses this central function to invest excess cash or obtain funding for its operations. The Executive Management committee reviews the level of debts for each segment in the monthly meetings. Reconciliation of segment operating liabilities to total liabilities. Segment operating liabilities 155,730 169,173 Inter-segment eliminations (13,601) (12,944) Deferred tax liabilities 21,352 18,492 Income tax payable 555 1,700 Total liabilities per the Statement of Financial Position 164,036 176,421 78 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 Consolidated 2013 2012 $’000 $’000 5 Revenue and Expenses Revenue a) Rendering of services 500,979 488,250 Sale of goods 63,403 66,311 Finance revenue 198 242 Total revenue 564,580 554,803 b) Other income – Net gains on disposal of property, plant and equipment 2,422 2,580 – Net gain on derivatives classified as held for trading - 713 1,894 – Other 1,500 Total other income 3,922 5,187 c) Finance costs – Related parties – other 5 5 – Other parties 2,111 3,681 – Finance charges on hire purchase contracts 3,351 3,456 Total finance costs 5,467 7,142 d) Depreciation and amortisation expense Depreciation – Buildings 2,018 2,374 – Motor vehicles 18,989 18,739 – Plant and equipment 2,602 2,754 Amortisation – IT Development costs 557 538 Total depreciation and amortisation expenses 24,166 24,405 e) Employee expense – Wages and salaries 132,210 124,611 – Workers’ compensation costs 8,645 8,193 – Long service leave provision 1,291 1,337 – Annual leave provision 9,229 8,374 – Payroll tax 7,508 7,018 – Defined contribution plan expense 9,812 9,109 – Directors retirement scheme expense 55 40 Total employee expense 168,750 158,682 f) Operating lease rental expense – Property 11,493 10,913 – Plant and equipment 2,023 2,482 13,516 13,395 79 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 Consolidated 2013 2012 $’000 $’000 6 Income Tax The major components of income tax expense are: Statement of Comprehensive Income Current income tax – Current income tax charge 7,280 7,757 – Adjustments in respect of current income tax of previous years (327) (82) Deferred income tax – Relating to origination and reversal of temporary differences (505) (716) Income tax expense reported in the Statement of Comprehensive Income 6,448 6,959 Statement of Changes in Equity Deferred income tax related to items charged or credited directly to equity – Net gain on revaluation of land and buildings 2,437 - Income tax expense reported in equity 2,437 - A reconciliation between tax expense and the product of accounting profit before income tax multiplied by the Group’s applicable income tax rate is as follows: Accounting profit before income tax 22,352 23,406 At the Group’s statutory income tax rate of 30% (2012: 30%) 6,705 7,022 – Expenditure not allowable for income tax purposes 70 19 – Adjustments in respect of current income tax of previous years (327) (82) Income tax expense reported in the Statement of Comprehensive Income 6,448 6,959 Consolidated 2013 2013 2012 2012 $’000 $’000 $’000 $’000 Current Deferred Current Deferred Income Income Income Income Tax Tax Tax Tax Recognised deferred tax assets and liabilities Opening balance (1,700) (11,494) (894) (12,210) Charged to income (6,953) 505 (7,675) 716 Charged to equity - (2,438) - - Other payments 8,045 - 6,869 - Exchange rate 53 (76) - - Closing balance (555) (13,503) (1,700) (11,494) Tax expense in Statement of Comprehensive Income 6,448 6,959 Amounts recognised in the Statement of Financial Position: Deferred tax asset 7,849 6,998 Deferred tax liability (21,352) (18,492) (13,503) (11,494) 80 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 Statement of Financial Position 2013 2012 $’000 $’000 Deferred income tax Deferred income tax at 30 June relates to the following: Consolidated Deferred tax liabilities – Accelerated depreciation for tax purposes (6,146) (5,737) – Revaluation of land and buildings to fair value (13,696) (11,258) – Trade and other receivables not derived for tax purposes (1,510) (1,497) (21,352) (18,492) Deferred tax assets – Equity raising costs 68 102 – Accelerated depreciation for accounting purposes 885 811 – Trade and other payables not currently deductible 968 813 – Trade and other receivables not derived for tax purposes 107 93 – Employee entitlements not currently deductible 5,821 5,179 7,849 6,998 Tax consolidation Effective 1 July 2002, for the purposes of income taxation, K&S Corporation Limited and its 100% owned Australian resident subsidiaries formed a tax consolidated group. K&S Corporation Limited is the head entity of the tax consolidated group. Members of the group entered into a tax sharing arrangement in order to allocate income tax expense to the wholly-owned subsidiaries. In addition, the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. At balance date, the possibility of default is remote. K&S Corporation Limited formally notified the Australian Tax Office of its adoption of the tax consolidation regime when lodging its 30 June 2003 consolidated tax return. Tax effect accounting by members of the tax consolidated group Members of the tax consolidated group have entered into a tax funding agreement. The tax funding agreement requires members of the tax consolidated group to make contributions to the head company for tax liabilities and deferred tax balances arising from transactions occurring after the implementation of tax consolidation. Contributions are payable following the payment of the liabilities by K&S Corporation Limited. The assets and liabilities arising under the tax funding agreement are recognised as inter-company assets and liabilities with a consequential adjustment to income tax expense or benefit. In addition, the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations or upon leaving the Group. In preparing the accounts for K&S Corporation Ltd for the current year, the following amounts have been recognised as tax consolidation adjustments: 2013 2012 $’000 $’000 Parent Total increase/(reduction) to tax expense of K&S Corporation Ltd (7,079) (7,537) Total increase/(reduction) to inter-company assets of K&S Corporation Ltd 7,079 7,537 81 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 Consolidated 2013 2012 $’000 $’000 7 Earnings per Share Basic earnings per share amounts are calculated by dividing net profit after tax for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. The following reflects the income and share data used in the basic and diluted earnings per share computations: Net profit attributable to ordinary equity holders of the parent from continuing operations 15,904 16,447 Net profit attributable to ordinary equity holders of the parent 15,904 16,447 2013 2012 Thousands Thousands Weighted average number of ordinary shares used in the calculation of the basic earnings per share 90,269 87,720 Effect of dilution – Ordinary Shares - - Weighted average number of ordinary shares adjusted for the effect of dilution 90,269 87,720 Consolidated 2013 2012 $’000 $’000 8 Dividends Paid and Proposed Declared and paid during the year: Dividends on ordinary shares Final franked dividend for 2012: 6.0 cents (2011: 5.0 cents) 5,376 4,327 Interim franked dividend for 2013: 6.5 cents (2012: 5.0 cents) 5,882 4,394 11,258 8,721 Proposed (not recognised as a liability as at 30 June): Dividends on ordinary shares Final franked dividend for 2013: 4.5 cents (2012: 6.0 cents) 4,103 5,376 Franking credit balance The amount of franking credits available for the subsequent year are: (cid:129) franking account balance as at the end of the financial year at 30% (2012: 30%) 47,919 44,708 (cid:129) franking credits that will arise from the payment of income tax payable as at the end of the financial year 1,104 2,230 The amount of franking credits available for future reporting periods: (cid:129) impact on franking account of dividends proposed but not recognised as a distribution to equity holders during the period (1,758) (2,296) 47,265 44,642 Tax rates The tax rate at which dividends have been franked is 30% (2012: 30%). Dividends proposed will be franked at the rate of 30% (2012: 30%). 82 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 Consolidated 2013 2012 $’000 $’000 9 Cash and Cash Equivalents Cash 47 47 Cash deposits with banks 15,888 20,991 15,935 21,038 Cash at bank earns interest at floating rates based on daily bank deposit rates. Reconciliation of net profit after income tax to net cash flows from operations Net profit after income tax 15,904 16,447 Add/(less) items classified as investing/financing activities: (2,580) – (Profit)/loss on sale of non-current assets (2,422) Add/(less) non-cash items: – Amounts set aside to provisions 2,089 1,334 – Depreciation 24,167 24,405 – Share of associates’ net profit (42) (106) – Dividends received from associates - 148 Net cash provided by operating activities before changes in assets and liabilities 39,696 39,648 CHANGE IN ASSETS AND LIABILITIES (Increase)/decrease in inventories (113) (Increase)/decrease in income tax benefit (843) (Increase)/decrease in prepayments 15 (Increase)/decrease in receivables 9,044 (4,944) 4,000 (Decrease)/increase in trade creditors (634) 818 (Decrease)/increase in income taxes payable (1,090) (Decrease)/increase in deferred taxes payable 347 (465) Exchange rate changes on opening cash balances 4 2 54 (264) 90 Net cash provided by/(used in) operating activities 46,426 38,939 Disclosure of financing facilities Refer to Note 18. Disclosure of non-cash financing and investing activities Refer to Note 18. 83 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 Consolidated 2013 2012 $’000 $’000 10 Trade and Other Receivables Current 69,144 Trade debtors 61,485 (308) Allowance for impairment loss (a) (355) 61,130 68,836 4,353 Sundry debtors 2,946 64,076 73,189 Non-current Sundry debtors - - Related party receivables – Employee share plan loans 1,379 1,297 1,379 1,297 a) Allowance for impairment loss Trade receivables are non-interest bearing and are generally on 30-90 day terms. An allowance for doubtful debts is made when there is objective evidence that a trade receivable is impaired. The amount of the allowance/impairment loss has been measured as the difference between the carrying amount of the trade receivables and the estimated future cash flows expected to be received for the relevant debtors. Movements in the provision for impairment loss were as follows: At 1 July 308 292 Charge for the year 280 250 Amounts written off (233) (234) At 30 June 355 308 At 30 June, the aging analysis of trade receivables is as follows: Consolidated Total 0-30 days 31-60 days 61-90 days 61-90 days +91 days +91 days PDNI* CI** PDNI* CI** 2013 61,485 41,569 15,020 3,681 - 860 355 2012 69,144 44,418 19,602 3,111 - 1,705 308 * Past due not impaired (‘PDNI’) ** Considered impaired (‘CI’) Receivables past due but not impaired payment terms have not been re-negotiated. Each operating unit has been in direct contact with the relevant debtor and is satisfied that payment will be received in full. Other balances within trade and other receivables do not contain impaired assets and are not past due. It is expected that these other balances will be received when due. b) Fair value and credit risk Due to the short term nature of these receivables, their carrying value is assumed to approximate their fair value. The maximum exposure to credit risk is the fair value of receivables. Collateral is not held as security, nor is it the Group’s policy to transfer (on-sell) receivables to special purpose entities. 84 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 Consolidated 2013 2012 $’000 $’000 11 Inventories Consumable stores – at cost 795 863 2,064 Finished goods – fuel at cost 2,245 Total inventories at the lower of cost and net realisable value 3,040 2,927 a) Inventory expense Inventories recognised as an expense for the year ended 30 June 2013 totalled $58,570,000 (2012: $62,477,000) for the Group. This expense has been included in the cost of sales line item as a cost of inventories. Parent 2013 2012 $’000 $’000 12 Other Financial Assets Investments controlled entities – Shares – unlisted at cost 32,418 32,418 32,418 32,418 Investment Carrying Interest Owned Amount Consolidated 2013 2012 2013 2012 % % $’000 $’000 13 Investment in Associate a) Investment details Smart Logistics Pty Ltd 50 50 200 158 Investment in associates 200 158 Smart Logistics Pty Ltd is a provider of distribution services and consultant in transport and distribution. Smart Logistics Pty Ltd was incorporated in Australia. During the 2012 reporting period, the Company sold its 24.5% holding in Dairy Transport Logistics Pty Ltd (“DTL”). DTL is a provider of distribution services and consultant in transport and distribution and was incorporated in New Zealand. b) Movements in the carrying amount of the Group’s investment in associates Consolidated 2013 2012 $’000 $’000 Dairy Transport Logistics Pty Ltd At 1 July - 113 Share of profit after income tax - 34 Exchange rate changes on opening balances - 1 Proceeds from the sale of shares - (48) Dividend payment - (100) At 30 June - - 85 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 Consolidated 2013 2012 $’000 $’000 Smart Logistics Pty Ltd At 1 July 158 86 Share of profit/(loss) after income tax 42 72 Dividend payment - - At 30 June 200 158 c) Share of associates’ commitments Share of associates’ finance lease commitments: Within one year - 118 One year or later and no later than five years - - Minimum lease payments - 118 Less: Future finance charges - - Total lease liability - 118 d) Summarised financial information The following table illustrates summarised financial information relating to the Group’s associates: Extract from the associates’ Statement of Financial Position: Current assets 5,632 6,385 Non-current assets 81 106 5,713 6,491 Current liabilities (5,309) (6,172) Non-current liabilities (4) (3) (5,313) (6,175) Net assets/(liabilities) 400 316 Share of associates net assets/(liabilities) 200 158 200 158 Extract from the associates’ Statement of Comprehensive Income: Revenue 77,007 80,409 Net profit 72 144 86 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 Consolidated Freehold Land Motor Plant & and Buildings Vehicles Equipment Total $’000 $’000 $’000 $’000 14 Property, Plant and Equipment a) Reconciliation of carrying amounts at the beginning and end of the period: Year ended 30 June 2013 As at 1 July 2012 net of accumulated depreciation and impairment 97,299 111,617 10,532 219,448 Additions 1,100 19,787 3,111 23,998 Additions – Collare Transport - 8,388 - 8,388 Revaluation 8,125 - - 8,125 Disposals (418) (2,032) (11) (2,461) Depreciation charge for the year (2,018) (18,989) (2,602) (23,609) Transfer 272 - (272) - Exchange adjustment 30 824 7 861 At 30 June 2013 net of accumulated depreciation and impairment 104,390 119,595 10,765 234,750 At 30 June 2013 Cost or fair value 108,981 247,732 39,719 396,432 Accumulated depreciation and impairment (4,591) (128,137) (28,954) (161,682) Net carrying amount 104,390 119,595 10,765 234,750 Year ended 30 June 2012 As at 1 July 2011 net of accumulated depreciation and impairment 99,024 110,839 12,105 221,968 Additions 643 21,616 1,181 23,440 Disposals - (2,307) (2) (2,309) Depreciation charge for the year (2,374) (18,739) (2,754) (23,867) Exchange adjustment 6 208 2 216 At 30 June 2012 net of accumulated depreciation and impairment 97,299 111,617 10,532 219,448 At 30 June 2012 Cost or fair value 103,512 230,475 37,678 371,665 Accumulated depreciation and impairment (6,213) (118,858) (27,146) (152,217) Net carrying amount 97,299 111,617 10,532 219,448 b) Revaluation of freehold land and buildings The freehold land and buildings are included in the financial statements at fair value, except for capital expenditure subsequent to the valuation which is recorded at cost. The fair value of land and buildings in 2013 was determined based on an independent valuation undertaken in March 2013 by Jones Lang LaSalle on the basis of open market values of properties for the highest and best use. Directors have adopted this independent valuation as fair value. This resulted in an increase to the Asset Revaluation Reserve of $5,688,000. 87 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 Consolidated 2013 2012 Freehold Land Freehold Land and Buildings and Buildings $’000 $’000 c) Carrying amounts if land and buildings were measured at cost less accumulated depreciation and impairment If land and buildings were measured using the cost model the carrying amounts would be as follows: Cost 71,941 70,840 Accumulated depreciation and impairment (10,253) (8,877) Net carrying amount 61,688 61,963 d) Property, plant and equipment pledged as security for liabilities The carrying value of motor vehicles held under hire purchase contracts at 30 June 2013 is $68,692,406 (2012: $66,335,014). Hire purchase liabilities are secured by the relevant asset. Included in the balances of freehold land and buildings are assets on which mortgages have been granted as security over bank loans. The terms of the mortgages preclude the assets being sold or used as security for further mortgages without the permission of the mortgage holder. The mortgage also requires buildings that form part of the security to be fully insured at all times. Consolidated IT Development Costs Goodwill Total $’000 $’000 $’000 15 Intangible Assets and Goodwill Year ended 30 June 2013 At 1 July 2012 net of accumulated amortisation and impairment 2,830 68,278 71,108 Additions 237 - 237 Amortisation (557) - (557) Exchange adjustment - 388 388 At 30 June 2013 net of accumulated amortisation and impairment 2,510 68,666 71,176 At 30 June 2013 Cost (gross carrying amount) 4,190 68,666 72,856 Accumulated amortisation and impairment (1,680) - (1,680) Net carrying amount 2,510 68,666 71,176 88 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 Consolidated IT Development Costs Goodwill Total $’000 $’000 $’000 Year ended 30 June 2012 At 1 July 2011 net of accumulated amortisation and impairment 3,368 68,201 71,569 Amortisation (538) - ( 538) Exchange adjustment - 77 77 At 30 June 2012 net of accumulated amortisation and impairment 2,830 68,278 71,108 At 30 June 2012 Cost (gross carrying amount) 3,953 68,278 72,231 Accumulated amortisation and impairment (1,123) - (1,123) Net carrying amount 2,830 68,278 71,108 IT development costs have been capitalised at cost and relate to the development of the Group’s new core freight system (Panorama). As from 1 July 2005, goodwill is no longer amortised but is now subject to annual impairment testing (see Note 16). No impairment loss was recognised for continuing operations in the 2013 financial year. 16 Impairment Testing of Goodwill Cash generating units For the purpose of undertaking impairment testing, the Group identify cash generating units (CGU’s) according to the smallest group of assets that generate cash inflows that are largely independent of the cash inflows from the other assets or groups of assets. Goodwill acquired through business combinations have been allocated across three individual cash generating units as follows: Goodwill 2013 2012 $’000 $’000 Australian Transport 62,929 62,929 Fuel 165 165 New Zealand Transport 5,572 5,184 68,666 68,278 Impairment testing The Group’s impairment testing compares the carrying value of each CGU with its recoverable amount as determined using a value in use calculation. The assumptions for determining the recoverable amount of each CGU are based on past experience and Senior Management’s expectations for the future. The cash flow projections are based on financial budgets approved by Senior Management covering a five-year period. 89 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 The Group has used the following key assumptions in determining the recoverable amount of each CGU to which goodwill has been allocated: Terminal Value Discount Rate Growth Rate 2013 2012 2013 2012 % % % % Australian Transport 13.95 13.42 3.0 3.0 Fuel 13.95 13.42 3.0 3.0 New Zealand Transport 13.96 13.25 2.5 2.5 Discount rate The discount rate represent the current market assessment of the risks specific to each CGU, taking into consideration the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates. The discount rate calculation is based on the specific circumstances of the Group and its operating segments and is derived from its weighted average cost of capital (WACC). The WACC takes into account both debt and equity. The cost of equity is derived from the expected return on investment by the Group’s investors. The cost of debt is based on the interest bearing borrowings the Group is obliged to service. Segment specific risk is incorporated by applying individual beta factors. The beta factors are evaluated annually based on publicly available market data. In determining impairment, management has considered the impact of the Clean Energy Act 2011 (the “Act” or “Scheme”) on the Group. Management has estimated there are some minor increases in its cost base as a result of the price on carbon. However, from July 2014, heavy on-road transport activities are to be included in the carbon pricing regime, through a reduction in business fuel tax credits (“FTC”). Management anticipates that any reduction in the FTC, will be passed through to customers via fuel surcharges. Accordingly, management have not adjusted any cash flows. Terminal growth rate The terminal growth rate represents the growth rate applied to the extrapolated cash flows beyond the five year forecast period. This is based on Senior Management expectations of the cash generating units’ long term performance in their respective markets. i) Sensitivity to changes in assumptions The recoverable amount of the New Zealand Transport CGU currently exceeds its carrying value by $1.2m. This excess in recoverable amount could be reduced should changes in the following key assumptions occur: (cid:129) Discount rate – an increase in the discount rate of over 0.68% would result in a reduction of the recoverable amount to below the carrying value. (cid:129) Terminal growth rate – a decrease in the growth rate of over 0.66% would result in a reduction of the recoverable amount to below the carrying value. (cid:129) Terminal cash flow – a decrease in terminal cash flow of over 8.8% would result in a reduction of the recoverable amount to below the carrying value. Consolidated 2013 2012 $’000 $’000 17 Payables Current Trade creditors and payables 43,853 46,439 Self insured workers compensation liability 2,987 2,775 46,840 49,214 Non-current Self insured workers compensation liability 8,471 6,358 8,471 6,358 i) Trade payables are non-interest bearing and are normally settled on 30 day terms 90 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 Consolidated 2013 2012 $’000 $’000 18 Interest Bearing Loans and Borrowings Current Hire purchase liabilities – secured 16,332 16,693 16,332 16,693 Non-current Non redeemable preference shares 60 60 Hire purchase liabilities – secured 32,287 33,110 Bank loans – secured 18,379 33,175 50,726 66,345 Commitments in respect of hire purchase agreements are payable as follows: Not later than one year 19,006 19,683 Later than one year but not later than five years 35,024 36,360 54,030 56,043 Deduct: future finance charges (5,411) (6,240) Total hire purchase liability 48,619 49,803 Current 16,332 16,693 Non-current 32,287 33,110 48,619 49,803 Fair value disclosures The carrying amount of the Group’s current and non-current borrowings, approximate their fair value. Details of the fair value of the Group’s interest bearing liabilities are set out in Note 3. Hire purchase contracts The consolidated entity leases plant and equipment under hire purchase agreements for periods of one to five years. At the end of the term, the consolidated entity has the option to purchase the equipment at the agreed residual value. Hire purchase liabilities are secured by the relevant asset. The written down value of assets secured by hire purchase agreements is $68,692,406 (2012: $66,335,014). The weighted average cost of these facilities was 6.19% (2012: 7.27%). Bank loans All bank loans are denominated in Australian dollars. Bank loans are secured by fixed and floating charges over the assets of the consolidated entity. Bank loans are also secured by registered mortgages over a number of properties of the consolidated entity to the extent of $94,905,000 (2012: $87,870,000). The non-current bank loans are subject to annual review. The Group has bank loan facilities available for a period beyond June 2014. Maturity dates for the Group’s facilities are: Facility amount ($‘000) Expiry 40,000 30 June 2014 40,000 4 July 2014 20,000 30 June 2015 The facilities bear interest at 5.21% (2012: 5.93%). 91 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 Consolidated 2013 2012 $’000 $’000 Financing facilities available Total facilities available: Bank overdrafts 4,000 4,000 86,091 Bank loans 84,128 13,909 Standby letters of credit 15,872 104,000 104,000 Standby letters of credit The Group has the following guarantees at 30 June 2013: (cid:129) Bank guarantee of $14,543,000 has been provided by the Westpac Banking Corporation to Comcare for the due discharge of its liabilities to pay compensation and other amounts under the Safety Rehabilitation and Compensation Act 1988; (cid:129) Other bank guarantees of $1,338,250 have been provided by the Westpac Banking Corporation Limited to suppliers. Facilities utilised at balance date: Bank overdrafts - - Bank loans 18,379 33,175 13,909 Standby letters of credit 15,872 34,251 47,084 Facilities not utilised at balance date: Bank overdrafts 4,000 4,000 Bank loans 65,749 52,916 Standby letters of credit - - 69,749 56,916 Total facilities 104,000 104,000 Facilities used at balance date 34,251 47,084 Facilities unused at balance date 69,749 56,916 Bank overdrafts The bank overdrafts within the consolidated entity are secured by a guarantee from the Company. The bank overdraft is secured by fixed and floating charges over the assets of the consolidated entity. The facilities are subject to annual review by the banks concerned and have been extended to 30 June 2014. 92 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 Consolidated 2013 2012 $’000 $’000 Assets pledged as security Included in the balances of freehold land and buildings are assets on which mortgages have been granted as security over bank loans. The terms of the mortgages preclude the assets being sold or used as security for further mortgages without the permission of the mortgage holder. The mortgage also requires buildings that form part of the security to be fully insured at all times. The carrying amount of assets pledged as security for current and non-current interest bearing liabilities are: Non-current First mortgage – Freehold land and buildings 93,852 86,637 – Plant and equipment 1,053 1,233 Total non-current assets pledged as security 94,905 87,870 Non-cash financing and investment activities During the financial year, the economic entity acquired property, plant and equipment with an aggregate fair value of $17,261,000 (2012: $18,551,000) and disposed of property, plant and equipment with an aggregate fair value of $nil (2012: $nil) by means of finance lease or hire purchase arrangements. These acquisitions and disposals are not reflected in the Statement of Cash Flows. 19 Provisions Current Employee benefits 16,741 14,480 16,741 14,480 Non-current Employee benefits 2,025 2,200 Make good provision 356 356 583 Directors’ retirement allowance 638 3,019 3,139 No dividends have been provided for the year ended 30 June 2013. The extent to which dividends were franked, details of the franking account balance at balance date and franking credits available for the subsequent financial year are disclosed in Note 8. 93 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 Directors’ Make Good Retirement Provision Allowance Total $’000 $’000 $’000 a) Movements in provisions Movements in each class of provision during the financial year, other than provisions relating to employee benefits, are set out below: CONSOLIDATED At 1 July 2012 356 583 939 Arising during the year - 55 55 Utilised - - - At 30 June 2013 356 638 994 Current 2013 - - - Non-Current 2013 356 638 994 356 638 994 Current 2012 - - - Non-Current 2012 356 583 939 356 583 939 b) Nature and timing of provisions i) Make good provision In accordance with various lease agreements, the Group must restore leased premises in Western Australia, Victoria and New South Wales to their original condition at the end of the leases. Because of the long-term nature of the liability, the greatest uncertainty in estimating the provisions is the costs that will ultimately be incurred. ii) Long service leave Refer to Note 2(y) and Note 2(bb) for the relevant accounting policy and a discussion of the significant estimates and assumptions applied in the measurement of this provision. iii) Directors retirement allowance Refer to Note 2(y) for the relevant accounting policy and a discussion of the significant estimates and assumptions applied in the measurement of this provision. 94 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 Consolidated 2013 2012 $’000 $’000 20 Contributed Equity and Reserves a) Ordinary shares Contributed equity 91,180,135 (2012: 89,273,615) ordinary shares fully paid 101,187 97,707 101,187 97,707 Effective 1 July 1998, the Corporations legislation abolished the concepts of authorised capital and par value shares. Accordingly the Company does not have authorised capital nor par value in respect of its issued capital. Fully paid ordinary shares carry one vote per share, either in person or by proxy, at a meeting of the Company and carry the right to receive dividends as declared. Thousands $’000 Movements in ordinary shares on issue At 1 July 2011 86,286 94,276 Issued through Employee Share Plan – 244,500 ordinary shares at $1.33 244 325 Issued through Dividend Re-investment Plan – 1,363,639 ordinary shares at $1.14 1,364 1,561 Issued through Dividend Re-investment Plan – 1,379,980 ordinary shares at $1.12 1,380 1,545 At 30 June 2012 89,274 97,707 Issued through Employee Share Plan – 324,000 ordinary shares at $1.51 324 489 Issued through Dividend Re-investment Plan – 899,273 ordinary shares at $1.57 899 1,410 Issued through Dividend Re-investment Plan – 683,283 ordinary shares at $2.31 683 1,581 At 30 June 2013 91,180 101,187 b) Capital management When managing capital, the Group’s objective is to ensure the entity continues as a going concern as well as to maintain optimal returns to Shareholders and benefits to other stakeholders. Management also aims to maintain a capital structure that ensures the lowest cost of capital available to the entity. The Group is not subject to any externally imposed capital requirements. During 2013, the Group paid dividends of $11,258,000 (2012: $8,721,000). Management monitor capital through the gearing ratio (net debt/net debt + Shareholders funds). The gearing ratios based on continuing operations at 30 June were as follows: Total interest bearing loans and borrowings 67,058 83,038 Less cash and cash equivalents (15,935) (21,038) Net debt 51,123 62,000 Net debt + Shareholders funds 290,749 286,934 Gearing ratio 17.6% 21.6% Nature and purpose of reserves Asset revaluation reserve The asset revaluation reserve is used to record increases in the fair value of land and buildings and decreases to the extent that such decreases relate to an increase on the same asset previously recognised in equity. Foreign currency translation reserve The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign operations. 95 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 21 Derivative Financial Instruments a) Hedging activities The Group has no interest rate swap agreements in place at 30 June 2013. b) Interest rate risk Information regarding interest rate risk exposure is set out in Note 3. Consolidated 2013 2012 $’000 $’000 22 Commitments The estimated maximum amount of commitments not provided for in the accounts as at 30 June 2013 are: Capital expenditure commitments The aggregate amount of contracts for capital expenditure on plant and equipment due no later than one year 17,450 12,254 Lease rental commitments Operating lease and hire commitments: – Not later than one year 9,900 10,147 24,875 – Later than one year but not later than five years 22,349 14,495 – Later than five years 11,844 44,093 49,517 The consolidated entity leases property under non-cancellable operating leases expiring from one to fifteen years. Leases generally provide the consolidated entity with a right of renewal, at which time all terms are renegotiated. Lease payments comprise a base amount plus an incremental contingent rental. Contingent rentals are based on either movements in the Consumer Price Index or operating criteria. Finance lease commitments are disclosed in Note 18. 23 Contingent Liabilities Guarantees The Company and all its subsidiaries have interlocking guarantees in support of the Company’s banking facilities with Westpac Banking Corporation (“WBC”) and Commonwealth Bank of Australia (“CBA”). Details are: (cid:129) Interlocking guarantee and indemnity between WBC and the Company and its wholly owned subsidiaries dated 23 September 2002, pursuant to which the Company and its wholly owned subsidiaries jointly and severally guarantee to WBC the performance by the Company and its wholly owned subsidiaries of their respective obligations under the WBC multi-currency multiple option facility agreement. (cid:129) Guarantee and indemnity between CBA and the Company and its wholly owned subsidiaries dated 15 June 2007, pursuant to which the Company and its wholly owned subsidiaries jointly and severally guarantee to CBA the performance by the Company and its wholly owned subsidiaries of their respective obligations under the CBA multiple option facility agreement. Cross guarantees given by the Company and its wholly owned controlled entities are described in Note 24. Legal claim There are a number of minor legal actions pending against companies within the consolidated entity. Liability has not been admitted and the claims will be defended. The Directors do not believe these actions will result in any significant cost to the consolidated entity. 96 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 24 Deed of Cross Guarantee Pursuant to ASIC Class Order 98/1418 (as amended) dated 13 August 1998, the wholly owned subsidiaries listed below are relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports, and Directors' reports. It is a condition of the Class Order that the Company and each of the subsidiaries enter into a Deed of Cross Guarantee. The effect of the Deed is that the Company guarantees to each creditor payment in full of any debt in the event of winding up of any of the subsidiaries under certain provisions of the Corporations Act 2001. If a winding up occurs under other provisions of the Act, the Company will only be liable in the event that after six months any creditor has not been paid in full. The subsidiaries have also given similar guarantees in the event that the Company is wound up. The subsidiaries subject to the Deed are: K&S Group Pty Ltd Reid Bros Pty Ltd DTM Holdings (No. 2) Pty Ltd Kain & Shelton Pty Ltd Alento Pty Ltd K&S Freighters Pty Ltd DTM Holdings Pty Ltd K&S Group Administrative Services Pty Ltd DTM Pty Ltd Kain & Shelton (Agencies) Pty Ltd Regal Transport Group Pty Ltd K&S Transport Management Pty Ltd Strategic Transport Pty Ltd Blakistons-Gibb Pty Ltd Vortex Nominees Pty Ltd K&S Logistics Pty Ltd K&S Freighters Limited * K&S Project Services Pty Ltd Cochrane’s Transport Limited * K&S Integrated Distribution Pty Ltd * Both K&S Freighters Limited and Cochrane’s Transport Limited are New Zealand entities. A consolidated Statement of Comprehensive Income and consolidated Statement of Financial Position, comprising the Company and subsidiaries which are a party to the Deed, after eliminating all transactions between parties to the Deed of Cross Guarantee, at 30 June 2013 is set out below: Closed Group 2013 2012 $’000 $’000 Statement of Comprehensive Income Profit before income tax 22,352 23,406 Income tax expense (6,448) (6,959) Profit after income tax 15,904 16,447 Retained profits at the beginning of the year 102,549 94,823 Transfer asset revaluation reserve 10 - (8,721) Dividends provided for or paid (11,258) Retained earnings at the end of the year 107,205 102,549 97 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 Closed Group 2013 2012 $’000 $’000 Statement of Financial Position Cash 15,935 21,038 Trade and other receivables 64,076 73,189 Inventories 3,040 2,927 Prepayments 5,266 5,192 Total current assets 88,317 102,346 Other receivables 1,379 1,297 Investment in associates 200 158 Property, plant and equipment 234,750 219,448 Intangibles 71,176 71,108 6,998 Deferred tax assets 7,849 Total non-current assets 315,354 299,009 Total assets 403,671 401,355 Trade and other payables 46,840 Interest bearing loans and borrowings 16,332 Current tax liabilities 555 Provisions 16,741 Total current liabilities 80,468 49,214 16,693 1,700 14,480 82,087 Other payables 8,471 6,358 66,345 Interest bearing loans and borrowings 50,726 18,492 Deferred tax liabilities 21,352 3,139 Provisions 3,019 Total non-current liabilities 83,568 94,334 Total liabilities 164,036 176,421 Net assets 239,635 224,934 Contributed equity 101,187 Reserves 31,243 Retained earnings 107,205 97,707 24,678 102,549 Total equity 239,635 224,934 98 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 Class of Country of % Equity Interest 2013 2012 Share Incorporation 25 Controlled Entities Particulars in relation to controlled entities Name K&S Corporation Limited Controlled Entities Reid Bros Pty Ltd Ord Australia Kain & Shelton Pty Ltd Ord Australia K&S Freighters Pty Ltd Ord Australia K&S Group Administrative Services Pty Ltd Ord Australia Kain & Shelton (Agencies) Pty Ltd Ord Australia K&S Transport Management Pty Ltd Ord Australia Blakistons-Gibb Pty Ltd Ord Australia K&S Logistics Pty Ltd Ord Australia K&S Integrated Distribution Pty Ltd Ord Australia K&S Group Pty Ltd Ord Australia DTM Holdings (No. 2) Pty Ltd Ord Australia Alento Pty Ltd Ord Australia DTM Holdings Pty Ltd Ord Australia DTM Pty Ltd Ord Australia K&S Project Services Pty Ltd Ord Australia Regal Transport Group Pty Ltd Ord Australia Strategic Transport Services Pty Ltd Ord Australia Vortex Nominees Pty Ltd Ord Australia K&S Freighters Limited Ord New Zealand Cochrane’s Transport Limited Ord New Zealand 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 26 Related Party Disclosures DIRECTORS The names of each person holding the position of Director of K&S Corporation Limited during the financial year and up to the date of signing the financial report are Messrs. T Johnson, R Nicholson, L Winser, G Boulton, B Grubb, R Smith, and G Stevenson. Apart from the details disclosed in this note, no Director has entered into a material contract with the Company or the consolidated entity since the end of the previous financial year and there were no material contracts involving Directors' interests subsisting at year end. Other transactions with the Company or its Controlled Entities The estate of Mr A A Scott, the major Shareholder of the following entities which provide goods and services to the economic entity. AA Scott Pty Ltd Scott’s Agencies Pty Ltd Ascot Haulage (NT) Pty Ltd Scott’s Management Pty Ltd The Border Watch Pty Ltd Scott’s Transport Industries Pty Ltd Scott Corporation Limited First Radio Pty Ltd Northern Territory Freight Services Pty Ltd Mr Winser has an interest as an alternate Director of several companies within the Scott Group. Mr Grubb is the former Chief Executive Officer of the Scott Group of Companies and is a former Director of a number of other companies within the Scott Group, one of which (AA Scott Pty Ltd) is the largest Shareholder of K&S Corporation Limited. Transactions with these companies include sale and purchase of cartage services, advertising services, sale and purchase of fuel and other related products. First Radio Pty Ltd has an interest in a transport facility in Adelaide which the Company rents on a commercial basis. Rent in 2013 was $388,350 (2012: $376,249). Mr Johnson has an interest as a Director of AA Scott Pty Ltd. Mr Johnson has an interest as Chairman and Mr Grubb as Non-Executive Director in the publicly listed company Scott Corporation Limited. Transactions with this company during 2013 included sales of $24,907 (2012: $235,025) and purchase of transport related services totalling $1,561,231 (2012: $1,797,971). 99 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 2013 2012 2013 2012 $ $ $ $ Purchases Sales The aggregate amount of dealings with these companies during 2013 were as follows: Ascot Haulage (NT) Pty Ltd 3,015,978 1,078,919 - - Northern Territory Freight Services Pty Ltd 18,814 3,485 85,033 26,888 Scott’s Transport Industries Pty Ltd 122,662 156,110 932,480 1,124,324 Scott’s Agencies Pty Ltd 424,844 2,348,825 - 305 The Border Watch Pty Ltd 11,066 4,224 - - Mr Johnson has an interest as a partner in Johnson, Winter & Slattery, a firm of solicitors. This firm renders legal advice to the economic entity. The aggregate amount of dealings with this firm during 2013 was $30,145 (2012: $1,191) in professional service fees. Mr R Smith has an interest as Director of Transpacific Industries Limited. Transactions with this company during 2013 were sales of $310,372 (2012: $246,167) and purchases of $44,732 (2012: $37,792). Consolidated 2013 2012 $’000 $’000 Amounts payable to and receivable from Directors and their Director related entities at balance date arising from these transactions were as follows: Current receivables (included within trade debtors) Scott’s Transport Industries Pty Ltd 38 32 - Transpacific Industries Limited 56 No provision for doubtful debts has been recognised in respect of these balances as they are considered recoverable. Current payables (included within trade payables) 404 Ascot Haulage (NT) Pty Ltd 493 5 Scott’s Transport Industries Pty Ltd 5 177 Scott Corporation Ltd 156 - Transpacific Industries Limited 3 Wholly-owned Group Details of interests in wholly-owned controlled entities are set out at Note 25. 100 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 Parent 2013 2012 $’000 $’000 Details of dealings with these entities are set out below: Balances with entities within the wholly-owned group The aggregate amounts receivable from, and payable to, wholly-owned controlled entities by the Company at balance date: Receivables – Current 89,425 102,106 – Non-current 17,961 17,961 107,386 120,067 Payables – Current – Other loans - - - - Terms and conditions of transactions within the wholly-owned group Sales to and purchases from within the wholly-owned group are made at arm’s length. Terms and conditions of the tax funding agreement are set out in Note 6. Outstanding balances at year-end are unsecured and interest free. Dividends Dividends received or due and receivable by the Company from wholly-owned controlled entities amount to $10,000,000 (2012:$10,000,000). Consolidated 2013 2012 DIRECTORS’ SHARE TRANSACTIONS Shareholdings Aggregate number of shares held by Directors and their Director-related entities at balance date: – Ordinary shares 747,651 709,646 – Preference shares - - All share transactions were with the parent Company, K&S Corporation Limited. $’000 $’000 Dividends Aggregate amount of dividends paid in respect of shares held by Directors or their Director-related entities during the year: – Ordinary shares 90 178 – Preference shares - - Directors' transactions in shares and share options Purchases of shares by Directors and Director-related entities are set out in Note 27. Ultimate parent entity The immediate parent entity and ultimate controlling entity of K&S Corporation Ltd is AA Scott Pty Ltd, a company incorporated in South Australia. 101 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 27 Key Management Personnel a) Details of Key Management Personnel i) Directors Mr T Johnson Non-Executive Chairman Mr G Boulton Non-Executive Deputy Chairman Mr R Smith Non-Executive Mr L Winser Non-Executive – Appointed 23 August 2013 Mr R Nicholson Non-Executive – Retired 23 July 2013 Mr B Grubb Non-Executive Mr G Stevenson Managing Director ii) Executives Mr B Walsh Chief Financial Officer Mr C Bright General Counsel & Company Secretary Mr G Wooller Chief Operating Officer Mr P Sarant Executive General Manager DTM Mr G Everest Executive General Manager Regal Transport Mr S Hine Executive General Manager Business Development Ms K Evans General Manager Human Resources Mr S Skazlic General Manager HS&E /Compliance Consolidated 2013 2012 $ $ b) Compensation for Key Management Personnel Short-term 3,441,485 3,275,862 Long-term 48,797 50,978 Post employment 322,862 416,889 3,813,144 3,743,729 c) Loans to Key Management Personnel Details of aggregates of loans to Key Management Personnel are as follows: Balance at Balance at Number Beginning of Period Write-off End of Period in Group Total $’000 $’000 $’000 2013 291 - 346 6 2012 247 - 291 6 There are no loans to any Key Management Personnel above $100,000 in the reporting period. Loans to Key Management Personnel are made pursuant to the K&S Corporation Limited Employee Share Plan (“Plan”). As part of the Plan, loans are interest free with K&S Corporation, to fund the purchase of shares in the Company. Shares issued under the Plan are subject to a holding lock until the loan is repaid in full. Non-Executive Directors are not eligible to participate in the Plan. No other loans are made to any Key Management Personnel. d) Remuneration options: granted and vested during the year K&S Corporation Limited does not operate any option based schemes for its executives, employees or Directors. 102 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 e) Shareholding of Key Management Personnel Balance Balance 1 July 2012 Net Change 30 June 2013 Shares held in K&S Corporation Limited: Ordinary Ordinary Ordinary 30 June 2013 Non-Executive Directors T Johnson 281,066 18,955 300,021 G Boulton 238,631 16,093 254,724 R Smith 35,789 1,005 36,794 L Winser # 1,151,199 - 1,151,199 R Nicholson 28,955 1,952 30,907 B Grubb 125,205 - 125,205 Executive Director G Stevenson - - - Other Key Management Personnel B Walsh 106,032 14,655 120,687 C Bright 31,000 10,000 41,000 G Wooller 49,244 10,825 60,069 P Sarant 84,603 12,000 96,603 G Everest - 10,000 10,000 S Hine 10,000 10,000 20,000 K Evans 15,000 7,000 22,000 S Skazlic 3,205 - 3,205 Total 2,159,929 112,485 2,272,414 # Appointed Non-executive Director 23 August 2013 Balance Balance 1 July 2011 Net Change 30 June 2012 Shares held in K&S Corporation Limited: Ordinary Ordinary Ordinary 30 June 2012 Non-Executive Directors T Johnson 257,789 23,277 281,066 G Boulton 184,375 54,256 238,631 R Smith 20,789 15,000 35,789 R Nicholson 26,558 2,397 28,955 B Grubb 125,205 - 125,205 Executive Director L Winser* 1,093,024 58,175 1,151,199* G Stevenson - - - Other Key Management Personnel B Walsh 85,332 20,700 106,032 C Bright 21,000 10,000 31,000 G Wooller 38,229 11,015 49,244 P Sarant 38,000 46,603 84,603 G Everest - - - S Hine - 10,000 10,000 K Evans 15,000 - 15,000 S Skazlic 2,205 1,000 3,205 Total 1,907,506 252,423 2,159,929 * Shareholding balance as at date of retirement as Managing Director of the Company (25 May 2012) All equity transactions with specified Directors and specified Executives have been entered into under terms and conditions no more favourable than those the entity would have adopted if dealing at arm’s length. 103 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 28 Events Subsequent to Balance Date On 23 July 2013, the Company announced that Mr Nicholson was retiring as a Non-Executive Director. Mr Nicholson had been a Director of the Company since 1986. On 19 August 2013, the Company completed the purchase of 14.6 hectares of land in Bullsbrook, Western Australia for $13.3 million. The land on the Great Northern Highway, north of Perth, will consolidated the Regal Transport General Haulage operation and will be a bridging depot for the Regal Transport Heavy Haulage business, which encounters curfew issues at its current South Guildford location. The Company’s intention is to develop the site in stages, with initial construction of a workshop facility and hardstand proposed throughout the second half of the 2014 reporting period. On 23 August 2013, the former Managing Director of the Company, Mr Winser, was appointed as a Non-Executive Director. The Board is of the view that with his extensive knowledge of the transport and logistics industry generally and of the Company specifically, Mr Winser is eminently well qualified to act as a Non-Executive Director and will bring significant value to the Board. On 23 August 2013, the Directors of K&S Corporation Limited declared a final dividend on ordinary shares in respect of the 2013 financial year. The total amount of the dividend is $4,103,106, which represents a fully franked dividend of 4.5 cents per share. The dividend is payable on 31 October 2013 and has not been provided for in the 30 June 2013 financial statements. The Dividend Reinvestment Plan (DRP) will apply to the final dividend and the issue price for shares under the DRP will be based on the weighted average trading price of K&S shares in the five business days ending on 17 October 2013 (the record date of the final dividend), less a discount of 2.5%. Other than the matters above, there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Company, to affect significantly the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in future financial years. 104 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 29 Business Combinations Acquisitions in 2013 Acquisition of Collare Transport On 31 October 2012, K&S Corporation Limited (K&S) acquired the business and assets of Collare Transport (“Collare”). Collare is Bunbury based with a strong focus on the timber industry in Western Australia. The cash consideration transferred was $8,221,000. No goodwill has been recorded. Collare has a complimentary customer profile, lane mix and equipment base to K&S Dardanup based business (formerly known as Brookes Transport) and further expands K&S’ footprint in Western Australia. The acquisition gives the Group an excellent opportunity to generate operation synergies and to improve the returns of the combined Dardanup and Collare. The provisional fair values of identifiable assets and liabilities is as follows: Fair Value at Acquisition Date Carrying Value $’000 $’000 Plant & equipment 8,388 8,388 Prepayments 66 66 Deferred tax assets 23 23 8,477 8,477 Provision for employee entitlements (76) (76) Interest bearing loans and borrowings (341) (341) Deferred tax liability (20) (20) (437) (437) Provisional fair value of identifiable net assets 8,040 8,040 Acquisition-date fair-value of consideration transferred Cash paid 8,040 Consideration transferred 8,040 Direct costs relating to the acquisition 181 Cash outflow on acquisition (8,221) As the K&S Dardanup and Collare businesses are integrated, it is impractical to segregate and isolate the revenue and profit impact of the Collare business on the Statement of Comprehensive Income for the reporting period (1 July 2012 to 30 June 2013) and the period from the date of acquisition (31 October 2012 to 30 June 2013). Acquisition costs relating to the acquisition of Collare are reported within Other expenses in the Statement of Comprehensive Income. Acquisitions in 2012 No acquisitions were completed in 2012. 105 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 Consolidated 2013 2012 $ $ 30 Auditor’s Remuneration The auditor of K&S Corporation Limited is Ernst & Young. Audit services: Audit and review of the statutory financial reports 188,500 185,500 188,500 185,500 Other services: Other services – Ernst & Young: – Information Technology Review 24,580 - – IT Disaster Recovery Review - 9,820 24,580 9,820 Parent 2013 2012 $’000 $’000 31 Parent Entity Information Current assets 89,425 102,106 Total assets 141,477 154,094 Current liabilities (1,104) (2,419) Total liabilities (19,871) (35,132) Issued capital 101,187 97,707 Asset revaluation reserve 161 161 Retained earnings 20,258 21,094 Total Shareholders’ equity 121,606 118,962 Profit after tax of the Parent entity 10,422 9,992 Total comprehensive income of the Parent entity 10,422 9,992 Guarantees Cross guarantees given by the Company and its wholly-owned controlled entities are described in Note 24. Contingent liabilities Contingent liabilities of the Company and its wholly-owned controlled entities are outlined in Note 23. 106 DIRECTORS’ DECLARATION FOR THE YEAR ENDED 30 JUNE 2013 In accordance with a resolution of the Directors of K&S Corporation Limited, we state that: In the opinion of the Directors: a) the financial report of the Company and of the consolidated entity is in accordance with the Corporations Act 2001, including: i) giving a true and fair view of the Company’s financial position as at 30 June 2013 and of its performance for the year ended on that date; and ii) complying with Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001. b) the financial statements and notes also comply with International Financial Reporting Standards as disclosed in Note 2 (b). c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. d) this declaration has been made after receiving the declarations required to be made to the Directors in accordance with section 295A of the Corporations Act 2001 for the financial period ending 30 June 2013. e) as at the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group identified in Note 24 will be able to meet any obligations or liabilities to which they are or may become subject to, by virtue of the Deed of Cross Guarantee. Dated at Melbourne this 23rd day of August 2013. On behalf of the Board: Tony Johnson Chairman Greg Stevenson Managing Director 107 AUDITOR’S INDEPENDENCE DECLARATION TO THE DIRECTORS OF K&S CORPORATION LIMITED In relation to our audit of the financial report of K&S Corporation Limited for the financial year ended 30 June 2013, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct. Ernst & Young Mark Phelps Partner Adelaide 23 August 2013 A member of Ernst & Young Global Limited Liability Limited by a scheme approved under Professional Standards Legislation 108 INDEPENDENT AUDIT REPORT TO THE MEMBRS OF K&S CORPORATION LIMITED Report on the Financial Report We have audited the accompanying financial report of K&S Corporation Limited, which comprises the consolidated statement of financial position as at 30 June 2013, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal controls as the directors determine are necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 2, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. A member of Ernst & Young Global Limited Liability Limited by a scheme approved under Professional Standards Legislation 109 INDEPENDENT AUDIT REPORT FOR THE YEAR ENDED 30 JUNE 2013 Independence In conducting our audit we have complied with the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the directors’ report. Opinion In our opinion: a. the financial report of K&S Corporation Limited is in accordance with the Corporations Act 2001, including: i) giving a true and fair view of the consolidated entity’s financial position at 30 June 2013 and of its performance for the year ended on that date; and ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and b. the financial report also complies with International Financial Reporting Standards as disclosed in Note 2. Report on the Remuneration Report We have audited the Remuneration Report included in pages 29 to 35 of the directors’ report for the year ended 30 June 2013. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Opinion In our opinion, the Remuneration Report of K&S Corporation Limited for the year ended 30 June 2013, complies with section 300A of the Corporations Act 2001. Ernst & Young Mark Phelps Partner Adelaide 23 August 2013 A member of Ernst & Young Global Limited Liability Limited by a scheme approved under Professional Standards Legislation 110 K & S C O R P O R A T I O N L I M I T E D A N N U A L R E P O R T 2 0 1 3 INFORMATION ON SHAREHOLDINGS INFORMATION RELATING TO SECURITY HOLDERS AS AT 5 SEPTEMBER 2013 DISTRIBUTION OF SHAREHOLDINGS Ordinary Shares Number of Shareholders 1-1,000 Shares 484 1,001 - 5,000 Shares 977 5,001 - 10,000 Shares 419 10,001 - 100,000 Shares 559 100,001 and more Shares 46 2,485 136 shareholders hold less than a marketable parcel (283 shares). TWENTY LARGEST SHAREHOLDERS Name Number of Ordinary Shares Held % 1 AA Scott Pty Ltd 45,971,922 50.42 2 Citicorp Nominees Pty Limited 5,810,492 6.37 3 Bell Potter Nominees Ltd 2,726,732 2.99 4 Ascot Media Investments Pty Ltd 2,096,056 2.30 5 National Nominees Limited 1,635,454 1.79 6 Oakcroft Nominees Pty Ltd 1,013,268 1.11 7 Zena Kaye Winser 922,708 1.01 8 Sabadin Petroleum Pty Ltd 883,044 0.97 9 Winscott Investments Pty Ltd 875,992 0.96 10 Tribridge Holdings Pty Ltd 750,000 0.82 11 Mr Eric Joseph Roughana 700,000 0.77 12 Mr Barry William Page & Mrs Janice Mary Page 568,813 0.62 13 Mr William Clifton Anderson 424,275 0.47 14 JP Morgan Nominees Australia Limited 421,951 0.46 15 Mr John Irving Stepnell & Mrs Valerie Iris Stepnell 421,500 0.46 16 HSBC Custody Nominees Australia 412,054 0.45 17 Dixson Trust Pty Ltd 364,430 0.40 18 DeBruin Nominees Pty Ltd 310,000 0.34 19 Tirroki Pty Ltd 300,021 0.33 20 Angueline Capital Pty Limited 300,000 0.33 20 Mr Adrian Keith Crook & Mrs Samantha Jane Crook 300,000 0.33 67,208,712 73.71 AA Scott Pty Limited is the registered holder of all the 6% Non Redeemable Cumulative Preference Shares, participating to 8%. The 20 largest Shareholders hold 73.71% of the ordinary shares of the Company, and 100% of the preference shares. The following is an extract from the Company’s Register of Substantial Shareholders as at 5th September 2013: Number % of Class Estate of Mr A A Scott 49,016,492 53.76 Commonwealth Bank of Australia 4,735,537 5.19 VOTING RIGHTS The voting rights are as follows: Preference Shares: Nil Ordinary Shares: 1 vote per share 111 HEAD OFFICE 591 Boundary Road Truganina, Victoria 3029 Phone: (03) 8744 3500 Facsimile: (03) 8744 3599 REGISTERED OFFICE 141-147 Jubilee Highway West Mount Gambier South Australia 5290 Phone: (08) 8721 1700 Facsimile: (08) 8721 1799 STOCK EXCHANGE The Company is on the official list of the Australian Stock Exchange Limited. The Company’s Home Exchange is Australian Stock Exchange (Adelaide) Limited. SHARE REGISTRY c/o Computershare Investor Services Pty Ltd Level 5, 115 Grenfell Street Adelaide, South Australia 5000 Phone: (08) 8236 2300 Facsimile: (08) 9473 2102 GPO Box 1903 Adelaide SA 5001 Enquiries within Australia: 1300 556 161 Enquiries outside Australia: 61 3 9415 5000 Email: web.queries@computershare.com.au Website: www.computershare.com WEBSITE www.ksgroup.com.au CORPORATE DIRECTORY OPERATIONS ROAD, RAIL AND SEA New Zealand Cambridge 3847 Te Awamutu Road Cambridge, New Zealand Phone: (07) 827 6002 Facsimile: (07) 827 5606 Mount Maunganui 35 Portside Drive Mount Maunganui, New Zealand Phone: (07) 575 8265 Facsimile: (07) 575 8480 Napier 31 Pandora Road Ahuriri, Napier, New Zealand Phone: (06) 835 0162 Facsimile: (06) 835 0192 Auckland 4 Tinley Street Auckland, New Zealand Phone: (09) 307 0061 Facsimile: (09) 307 0027 DTM Sydney 2 Hope Street Enfield, New South Wales 2136 Phone: (02) 9735 2300 Facsimile: (02) 9735 2399 Regal Transport Perth 5 Kalamunda Road South Guildford, Western Australia 6935 Phone: (08) 9376 9600 Facsimile: (08) 9376 9666 Broome 18 McDaniel Road Broome, Western Australia 6725 Phone: (08) 9192 6599 Facsimile: (08) 9192 6588 Derby 23 Rodgers Street Derby, Western Australia 6728 Phone: (08) 9193 1771 Facsimile: (08) 9191 2880 Karratha Lot 102 Mooligun Road Karratha, Western Australia 6714 Phone: (08) 9144 1151 Facsimile: (08) 9144 1122 Newman Lot 1583 Woodstock Street Newman, Western Australia 6753 Phone: (08) 9175 2300 Facsimile: (08) 9175 2878 Melbourne Port Hedland 2-10 Gaine Road Dandenong Sth, Victoria 3175 Phone: (03) 9215 4700 Facsimile: (03) 9215 4799 Adelaide 128-138 Bedford Street Gillman, South Australia 5013 Phone: (08) 7224 5480 Facsimile: (08) 7224 5496 Brisbane 34 Postle Street Coopers Plains, Queensland 4108 Phone: (07) 3137 4400 Facsimile: (07) 3137 4441 Perth Lot 1 Kewdale Freight Precinct Off Fenton Street, Kewdale, Western Australia 6105 Phone: (08) 6466 6646 Facsimile: (08) 6466 6697 Lot 2521 Miller Street Port Hedland, Western Australia 6725 Phone: (08) 9140 2778 Facsimile: (08) 9140 2740 Onslow 558 Beadon Creek Road Onslow, Western Australia 6710 Phone: (08) 9144 1151 Kununurra 33 Poinciana Street Kununurra, Western Australia 6743 Phone: (08) 9169 3333 K&S Project Services Perth 72 Hyne Road South Guildford Western Australia 6055 Phone: (08) 9376 9656 Facsimile: (08) 9477 6877 Melbourne 591 Boundary Road Truganina, Victoria 3029 Phone: (03) 8744 3700 Facsimile: (03) 8744 3799 Portland 53 Fitzgerald Street Portland, Victoria 3305 Phone: (03) 5523 4144 Facsimile: (03) 5523 5647 Geelong 325 Thompson Road North Geelong, Victoria 3215 Phone: (03) 5278 5777 Facsimile: (03) 5278 5230 Ballarat c/o Laminex Industries 16 Trewin Street Wendouree, Victoria 3355 Phone: (03) 5338 1710 Facsimile: (03) 5338 1136 Sydney 1 Hope Street Enfield, New South Wales 2136 Phone: (02) 9735 2400 Facsimile: (02) 9735 2499 Brisbane 34 Postle Street Coopers Plains, Queensland 4108 Phone: (07) 3137 4400 Facsimile: (07) 3137 4441 Bundaberg Old Quanaba Mill, Grange Road Bundaberg, Queensland 4670 Phone: (07) 4159 2150 Facsimile: (07) 4159 1825 Perth Lot 1 Kewdale Freight Precinct Off Fenton Street Kewdale, Western Australia 6105 Phone: (08) 6466 6600 Facsimile: (08) 6466 6699 Bunbury 91 Moore Road Dardanup, Western Australia 6236 Phone: (08) 9725 4400 Facsimile: (08) 9725 4949 Adelaide Cnr Bedford Street and Kapara Road Gillman, South Australia 5013 Phone:(08) 7224 5400 Facsimile:(08) 7224 5497 Mount Gambier 141-147 Jubilee Highway West Mount Gambier, South Australia 5290 Phone: (08) 8721 1700 Facsimile: (08) 8721 1799 112 ABN 67 007 561 837 www.ksgroup.com.au 

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