STRONGER
SMARTER
TOGETHER
ANNUAL REPORT 2017
LAYING FOUNDATIONS
FOR A BRIGHTER FUTURE
Company Overview
Chairman’s Review
CEO’s Report
Operational and Financial Review
Board of Directors
Executive Management Team
Directors’ Report
Auditor’s Independence Declaration
Remuneration Report
Financial Report
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4
6
8
20
22
24
30
31
40
104 Summary of Consolidated Results
106 ASX Additional Information
108 Glossary
IBC Corporate Directory
MACMAHON HOLDINGS LIMITED ACN 007 634 406
STRONGER — With a strong balance sheet, healthy pipeline of
work and increased scale following the recent transaction with AMNT, Macmahon
is now a stronger and re-energised mining services provider. With an extensive
fleet of haul trucks, excavators, drill rigs, jumbos, and ancillary equipment,
we have what it takes to deliver any project, large or small.
SMARTER — We are continually investing in new technologies and
are often among the first to implement more efficient, sustainable and productive
delivery methods. By digitising our management systems we see any problems in
real time and can make adjustments to our operations promptly to create a safer
and more productive workplace.
TOGETHER — We are fortunate to employ some of the most
experienced and motivated people in the industry. Our continued emphasis on
training and development ensures we develop talent capable of delivering on the
expectations of our clients and shareholders.
MACMAHON ANNUAL REPORT 2017
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COMPANY OVERVIEW
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COMPANY OVERVIEWMACMAHON ANNUAL REPORT 2017 Macmahon is an ASX listed company offering the complete
package of mining services to miners throughout Australia,
South East Asia and Africa.
Macmahon’s extensive experience in both surface and underground mining
has established the Company as the contractor of choice for mining projects
across a range of locations and commodity sectors. Macmahon is focused on
developing strong relationships with its clients whereby both parties work in an
open, flexible and transparent way to ensure mutually beneficial outcomes whilst
also minimising risks for both parties.
Map of Operations:
Lhoknga
Kanthan
Martabe Gold Mine
Batu Hijau
Ranger 3 Deeps Exploration Decline
Argyle Underground
Telfer
Byerwen
Mt Wright
St Ives
Tropicana
Olympic Dam
Cadia
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MACMAHON ANNUAL REPORT 2017 CHAIRMAN’S REVIEW
Encouraging signs of improvement are now
evident in the resource services sector. Within
Macmahon’s business we are seeing a tightening
of key market indicators such as labour
rates, equipment availability and fast moving
consumables, as well as an increase in the
number of new work opportunities.
With improving market conditions, Macmahon’s flexible
approach to contracting has enabled the Company to
build an order book and tender pipeline that is now
significantly larger than in recent years. At 30 June 2017
Macmahon was in an exclusive, preferred or shortlisted
position for a significant percentage of its tender pipeline,
which suggests our growth trajectory will continue for the
year ahead.
Financial Performance
Whilst our balance sheet remains strong, with net cash
at year-end of $54.1 million, the Company recorded a
loss before interest and tax from continuing operations
of $1.7 million for the 2017 financial year which excludes
takeover defence costs. This result reflects ongoing issues
at Telfer which have been well documented. These issues
have been a core priority for the Board and management
team, and the Company remains on track to rectify them
over the coming period. In addition costs of $3.4 million
were incurred in relation to the defence of the takeover
attempt by CIMIC and a loss of $17.3 million was recorded
from discontinued operations.
Given this result, the Board has determined that no
dividend will be declared for the year ended 30 June
2017. However, the Board remains committed to delivering
value to shareholders and will assess capital management
initiatives as the Company’s performance improves.
AMNT Transaction
A key development during the second half of the 2017
financial year was the transformational opportunity
with Indonesian mining firm PT Amman Mineral Nusa
Tenggara (AMNT).
This opportunity comprised a life-of-mine mining services
contract at AMNT’s Batu Hijau Mine in Indonesia worth
approximately US$2.9 billion. It also involved Macmahon
acquiring US$145.6 million worth of plant and equipment
for this contract by issuing new Macmahon shares to a
subsidiary of AMNT.
After careful consideration, the Board concluded that
the transaction represented a compelling opportunity
for Macmahon and its shareholders. This view was shared
by Macmahon shareholders who voted overwhelmingly
in favour of the transaction at a general meeting held on
12 July 2017.
As a result, AMNT’s subsidiary has now obtained a
44.3% shareholding in Macmahon, which has in turn,
significantly stabilised Macmahon’s share register.
Other expected benefits of this transaction include
improved earnings, increased scale and diversity of the
order book, a strengthened balance sheet and improved
growth prospects.
People
Over the past year we have maintained a strong focus on
our people as we continued to restructure the business
to best meet our strategic objectives. During the year
we made a number of senior appointments that have
provided additional capability in key areas such as plant
maintenance, project management and technical support
services.
Our people are now clearly focussed on delivering
improved returns to shareholders through strong execution
of new and existing work. We are also working on evolving
the business into an advanced contracting organisation
through the utilisation of new technologies and innovative
mining solutions.
New Chief Executive Officer
In October 2016, Sybrandt van Dyk resigned as Chief
Executive Officer. Sybrandt had been with the Company
since 2014 when he was appointed as Chief Financial
Officer before taking on the role of Chief Executive
Officer in 2015. On behalf of the Board, I wish to take
this opportunity to thank Sybrandt for his hard work
and dedication during what was a very challenging
period for the Company. We wish him the best in his
future endeavours.
To replace Sybrandt, the Board was pleased to promote an
internal candidate, Michael Finnegan, to the role of Chief
Executive Officer. Michael is a professional mining engineer
who prior to his appointment held the key position of
General Manager of Surface Mining for Macmahon.
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MACMAHON ANNUAL REPORT 2017 “ Our strategy over the next 12–18 months is to remain
focused on executing our existing projects well by ensuring
that we deliver on our contractual obligations in a safe and
efficient manner and in line with expectations.”
Before joining Macmahon, Michael held senior operational
management positions with other major mining contracting
companies, both in Australia and across Asia. Since his
appointment Michael has led the Company through its
successful defence of the CIMIC bid, the development
and conversion of significant new business opportunities,
and the continued reshaping of the business into a more
dynamic and robust organisation.
We believe that good corporate governance is critical
to the long term sustainability of any organisation.
With this in mind we have continued to monitor and
review our corporate governance and reporting practices
to ensure alignment with the latest ASX principles and
recommendations. Our corporate governance statement
can be found on our website, and I encourage all
shareholders to read it.
Shareholders and Suppliers
Finally, I wish to acknowledge and thank our shareholders,
clients, suppliers and our employees for their ongoing
support during the year. We remain firmly committed
to returning Macmahon to sustainable profitability and to
achieving the returns that our shareholders deserve.
Jim Walker
Chairman
Strategy and Outlook
As I said in my introduction, the market has been showing
signs of improvement, however current conditions still
require the Company to be extremely disciplined in terms
of cost management.
In line with our recent market guidance, we expect to
achieve significantly improved results in the 2018 financial
year. Following completion of the AMNT transaction,
we now have a significantly expanded order book
approaching $5 billion and we are continuing to tender
for new opportunities both in Australia and overseas. We
are also now forecasting revenues of $620 – $680 million
for the coming year and earnings before interest and tax
(excluding one off costs) of between $40 and $50 million.
It is important to note that these figures do not represent
our full run rate, as a number of new projects are still in
ramp-up phase and will not be fully reflected until FY19.
Our strategy over the next 12 – 18 months is to remain
focused on executing our existing projects in a safe and
efficient manner and in line with expectations or better.
We are also investing in new technologies to ensure that
we position ourselves ahead of our peers in regards to
providing value-added mining solutions to clients.
Governance and the Board
Macmahon is committed to upholding the highest
standards of governance, compliance, business ethics and
safety performance. Throughout the year we continued
to monitor and evaluate the composition of the Board to
ensure an appropriate balance of experience and expertise.
As part of this review, and in line with the Corporate
Governance Guidelines, Mr Vella was assessed to now
be an independent director.
In addition, the composition of the board has been
expanded to incorporate two new directors nominated
by AMNT. As a result, the number of directors on the
Macmahon Board will increase to 6, of whom 4 will be
classified as independent.
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MACMAHON ANNUAL REPORT 2017
CEO’S REPORT
Over the past 6 months the leadership team
and I have worked hard to instil a proactive,
positive culture where our people are
empowered to make decisions, are accountable
for their actions and rewarded appropriately if
successful. In doing so we have refocused our
energy on our current base-load of work to
ensure that we are executing every project in
our portfolio well. We want to ensure that all
projects, regardless of their size or complexity,
deliver the returns that we expect.
We have been building our order book with clients who
value our partnership-style relationships and we believe
this enables us to be more flexible, nimble and further
develop our processes, systems and ultimately our
offerings to our clients.
Further to this, we have increased investment in innovation
and technology, in partnership with our key clients, to
ensure that we deliver our services in the most efficient and
productive manner. This investment is already delivering
significant benefits through real time analysis of our core
mining operations. This analysis has helped us to improve
the way we manage our daily operations by enabling us
to make constant adjustments to our work flows, thereby
maximising utilisation of our resources and improving
productivity.
With these improvements already in place, and many
more scheduled to be rolled out over the near term, I am
confident that we will begin to set ourselves apart from
our peers. With the exclusion of Telfer, which is still in a
turnaround phase, all of our projects are already performing
in line with tender expectations. In the years ahead I believe
we can build on this momentum to establish ourselves as
the leading mining contractor in the region.
Financial results
As noted in the Chairman’s Review the Company reported
a loss before interest and tax from continuing operations
and excluding takeover defence costs of $1.7 million for
FY17 which was in line with guidance and reflects the
financial performance on the Telfer contract. I am pleased
to report however that the second half result of $2.8 million
was a clear improvement from the loss of $4.5 million
recorded in the first half of the 2017 financial year. We are
continuing to work hard to rectify the remaining issues at
Telfer and are committed to ensuring all our projects are
executed as per our tendered expectations.
AMNT Transaction
The AMNT Transaction will transform our business and
is expected to provide significant benefits as we move
forward. It has already delivered a much improved balance
sheet and order book, and will enable us to pursue further
work in the region from a position of strength, with the
support of our major shareholder.
I would like to take this opportunity to thank everyone who
contributed to this outcome. To prepare and execute this
transaction took an enormous amount of effort and I’m
pleased to report that everyone embraced the opportunity
and went above and beyond to get the transaction
finalised. We are now firmly focused on delivering on this
exciting opportunity and ensuring it delivers the returns
that we expect.
Work Winning
Maintaining a healthy pipeline of work is critical for any
contractor. Macmahon’s opportunity list is now stronger
than ever, with more than $6 billion of new opportunities
currently being pursued. Importantly, our partnership
approach has continued to gain traction with clients and
we are currently in an exclusive, preferred or shortlisted
position for much of our current pipeline of work.
With the inclusion of Batu Hijau, Macmahon’s order book
is now very healthy, which ensures calm assessment of
all tendering and due diligence in relation to pursuing
new work.
Underground
Underground is a key focus area for the Company, which
regrettably has been underutilised since the completion
of our contract with BHP Billiton at Olympic Dam in
South Australia. However, we believe that this business unit
represents an important growth pathway for Macmahon,
and we therefore remain committed to pursuing new
opportunities as and when they arise.
To assist us in re-establishing ourselves in the market, I’m
pleased to announce we recently appointed Warren Uyen
to the position of General Manager, Underground. Warren
has extensive underground experience, gained both in
Australia and overseas, having worked for a number of
major mining companies including Eldorado Gold, Barrick
Gold, Teck Cominco and Western Metals Zinc. We intend to
fully utilise Warren’s experience and networks as we work
to reinvigorate and grow our underground business.
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MACMAHON ANNUAL REPORT 2017 “ We have increased investment in innovation
and technology, in partnership with our key clients,
to ensure that we deliver our services in the most
efficient and productive manner.”
People
As a core services provider to clients, our people often
are a key differentiator. Accordingly, during the year we
continued to seek out top talent in an effort to broaden
our collective skill set and increase our leadership bench
strength. This saw us recruit some senior appointments
including a new operations manager for our Surface
Division, Dan Peel. Our efforts are now firmly focused on
harnessing the full potential of our people and aligning
everyone’s motivation with our business goals.
Conclusion
I am honoured to have the opportunity to lead Macmahon
as we enter the next phase of the Company’s evolution.
I believe we have an incredible opportunity in front of us
if we remain focused on execution and ensure all team
members maintain a “finger on the pulse” mentality.
I would like to thank all our shareholders and clients
and I look forward to working with all stakeholders in the
coming months and years to deliver on the opportunity
in front of us.
With this in mind, we have decided to offer all permanent
Australian based staff personnel, and key managers
overseas, the opportunity to share in the success of the
Company in FY18 via a short term incentive plan. This plan
has been designed to focus the collective efforts of our
people on exceeding the Company’s EBIT target.
Michael Finnegan
Chief Executive Officer
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MACMAHON ANNUAL REPORT 2017
OPERATIONAL AND
FINANCIAL REVIEW
Macmahon provides innovative, value-adding mining
solutions to clients in Australia, South East Asia and Africa.
Headquartered in Perth, Western Australia, the Company
has extensive knowledge and experience in both surface
and underground mining as well as engineering design and
fabrication, and maintenance services.
OPERATIONAL REVIEW
Surface Mining
Macmahon offers a full range of surface mining services,
including (but not limited to) mine planning, drill and blast,
bulk and selective mining, crushing and screening, materials
handling, resource infrastructure development, and plant
operation and maintenance.
Project activity
Macmahon has continued to provide services to the
following Projects:
– Tropicana Gold Mine in Western Australia for Anglo Gold
Ashanti and Independence Group. Macmahon provides
a full range of mining services for Tropicana. Operational
highlights for 2017 include:
– The successful implementation of a 600 tonne
Caterpillar 6060 face shovel;
– Achievement of record production levels throughout
the year;
– Achievement of industry best productivity and
efficiency benchmarks as evidenced by monthly
analysis of equipment productivities;
– High levels of spatial compliance being achieved due
to strong planning and execution integrity; and
– Ongoing commitment to a zero incident workforce
which has assisted in delivering a high level of
performance.
These outcomes are largely attributable to the highly
effective alliance team structure in place at Tropicana.
The alliance relationship remains strong, is highly valued
by Macmahon and will be a key factor in identifying and
unlocking the improvements required to continually
reduce base operating costs and extend the mine life.
The contract is based on a Life-of-Mine principle and
planning is currently underway to define the scope of
work for the Long Island project.
– Telfer Gold Mine in Western Australia’s Pilbara region
for Newcrest. Macmahon currently provides a full
mining services contract which includes Drill & Blast
subcontract management, mining, ROM management
and maintenance of the client owned equipment.
As indicated in previous market announcements,
Macmahon has been incurring losses at Telfer since
it commenced operations in February 2016 due to
larger than expected start-up costs, difficult operating
conditions and additional maintenance rectification
costs for the equipment. During the year, Macmahon
continued to work hard to address these issues and
in doing so, set new bench marks in pit production
and crusher feed, whilst providing a safe operating
environment in the open cut. The Telfer project recorded
a loss before tax of $29.2 million. As per the Company’s
previous guidance, Macmahon expects this contract to
be reporting a monthly profit by the latter part of the
calendar year 2017.
– St Ives Gold Mine in Western Australia for Gold Fields.
Macmahon provides plant and personnel for large
scale open cut mining operations. Over the past year
Macmahon has exceeded its forecast production
targets and achieved very high equipment availability
and utilisation. This relationship and contract is very
important to Macmahon and it enjoys a strong safety
culture and working environment on site. Macmahon is
hopeful of continuing its relationship with Gold Fields at
the St Ives Gold Mine beyond the current contract term.
– Argyle Diamond Mine in Western Australia for Rio Tinto.
During the period Macmahon continued to fulfil its
3-year contract with Rio Tinto to manage its tailings dam
operations at the Argyle Diamond Mine.
New Projects
– Byerwen Coal Mine in Queensland. In April 2017
Macmahon was selected as the exclusive mining
contractor for the establishment and operation of the
new Byerwen Coal Mine near Glenden in Queensland’s
Bowen Basin. While the mining services contract is
still in the process of being negotiated, Macmahon
has commenced mobilisation and other preparatory
activities. The scope of work in the proposed contract
expected to include the full range of open cut mining
and bulk earthworks related services for at least
three years.
Underground Mining
Macmahon has a long and proud history of providing high
quality underground development and production services.
The Company’s underground capability also includes
the full suite of ground support services (rock bolting,
cable bolting and shotcreting) as well as ventilation and
access services including shaft sinking, raise drilling and
shaft lining.
Project activity
– Macmahon’s Mining Services business is currently
providing an extensive range of services to a number
of projects that have had contracts extended including
the Mount Wright Gold Mine in Queensland for
Carpentaria Gold, the Ballarat Gold Project in Victoria
for Castlemaine Gold Fields and the Newcrest Cadia
Project in New South Wales.
– Macmahon is continuing to provide raise drilling services
at BHP Billiton’s Olympic Dam Mine in South Australia.
Macmahon has been active at this site for more than
10 years with the current scope of works contracted
to 2018.
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MACMAHON ANNUAL REPORT 2017 since 2003. Macmahon has maintained an exemplary
safety record at this project, registering 4,896 LTI free
days at year end, reflecting the strong safety culture
on site. Macmahon also managed to meet its client’s
requirement and forecast margin and revenue for the
year which is a testament to Macmahon’s long term
national workforce.
– LhokNga Quarry in Banda Aceh, Indonesia for
LafargeHolcim. Macmahon has been operating on the
northern most tip of Sumatra since 2008. Classed as
one of the most difficult limestone quarries within the
LafargeHolcim portfolio of cement plants globally,
the Company has completed yet another year with
no Lost Time Injury’s and pleasing financial results.
This is a further testament of Macmahon’s ability to
operate successfully and safely in remote parts of the
Indonesian Archipelago.
Project activity – Africa
– Calabar Mine in Nigeria for LafargeHolcim. In October
2016 Macmahon ceased operations at the Calabar mine
site in Nigeria with demobilisation commencing shortly
thereafter. The project had been underperforming due
to ongoing low mining volumes linked to the client’s
production plant and high rental and maintenance costs.
The only remaining financial exposure is for closure costs
which have been provided for during the year as part of
the loss on discontinued operations.
– Macmahon is continuing to deliver its care and
maintenance services contract at the Ranger Mine in
the Northern Territory for Energy Resources of Australia.
– During the period new work was awarded at Minjar
Gold’s Pajingo Mine for provision of box hole drilling.
– New work was also awarded at Metals X Nifty Mine
in Western Australia to conduct production drilling
and ground support works including cablebolting
and shotcreting.
– Macmahon is also assisting numerous clients with short
to medium term equipment hire.
Projects completed
– During the period Macmahon successfully completed
short-term cablebolting contracts at the CMOC
Northparkes Mine and ITH drilling for Newcrest at its
Telfer mine.
– A number of raise drilling contracts were also completed
including a large diameter surface ventilation shaft
for Goldfields at its Wallaby Mine and underground
ventilation shafts for Evolution Mining at its Cracow Mine
and BHP at their Leinster Mine.
Since the completion of the Olympic Dam contract with
BHP Billiton, Macmahon’s underground development
business has been underutilised. However, Macmahon
views this business unit as important to its overall mining
services strategy, and is currently tendering a number of
opportunities both in Australia and overseas.
International Operations
Macmahon has been operating internationally for more
than 25 years. Currently, Macmahon is active in South East
Asia and is continuing to seek new opportunities to further
expand its footprint.
Project activity – South East Asia
– Martabe Gold Mine in North Sumatra, Indonesia for
PT Agincourt Resources. The Company’s first full year
operating at its Martabe operation in North Sumatra
went remarkably well with mine planning, forecasted
revenue and profit being delivered consistently and
in line with expectations. This result was driven by
Macmahon’s exceptionally capable national workforce.
Significant milestones achieved during the year
included access to the new Ramba Joring open pit,
the successful tender of a fixed equipment contract
and local employees comprising 83% of the workforce.
Furthermore, the Company’s strong safety culture on
site also resulted in no Lost Time Injury’s (LTI’s). Gender
equality for female workers has been another key focus
at Martabe during the period, with the project expecting
to exceed 30% women by December 2019.
– Kanthan Quarry in Perak, Malaysia for LafargeHolcim.
Throughout the period, Macmahon continued to deliver
on its contract at Kanthan where it has been operating
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MACMAHON ANNUAL REPORT 2017 FINANCIAL REVIEW
Profit and Loss
Income
The Company reported total revenue of $359.6 million.
Revenue was 15.2% higher than the 2016 financial year
which included first half revenues from the wind down
and demobilisation of both the Christmas Creek and
Olympic Dam projects. 2017 included increased revenue
from Tropicana with additional volumes moved, whilst
both Telfer and St Ives were fully operational for the year
having only been awarded and ramped up towards the
end of 2016.
The Company reported a consolidated loss after tax of
$22.8 million for the 2017 financial year. This includes a loss
from discontinued operations of $17.3 million (principally
in relation to the cessation of operations in Nigeria) and
$3.4 million of costs in relation to the defence of a takeover
attempt by CIMIC. Excluding discontinued operations
and takeover defence costs, the Company reported an
underlying Net Loss After Tax of $2.1 million. Earnings
before interest and tax (EBIT) from continuing operations
excluding takeover defence costs was a loss of $1.7 million.
Expenditure
Recurring expenditure from continuing operations
(consisting of materials, sub-contractors, operating leases
and personnel costs) was $329.1 million. This was higher
than the prior year and was mainly as a result of the
increased expenditure in relation to materials.
Depreciation of property, plant and equipment from
continuing operations for the 2017 financial year was
$33.5 million which is comparable to the prior year
as a percentage of revenue. The vast majority of the
Company’s plant and equipment is depreciated based
on hours worked.
Included in expenditure this year is an amount for
$3.4 million that relates to costs incurred as a result
of the Company defending an unsuccessful hostile
takeover attempt.
Net finance costs of $0.1 million, were lower than the
2016 financial year. The decrease was as a result of the
repayment of the Company’s Syndicated Debt Facility
in the previous year.
Tax Expense
The Group reported a tax expense of $0.3 million
for continuing operations. The effective tax rate for
continuing operations is 6.2%. Excluding the non deductible
expenditure and deferred tax assets not recognised the
resultant tax rate would be a 31.0% benefit.
Dividend and Capital Management
The Board has determined that a dividend will not be
declared for the year ended 30 June 2017.
The share buy-back concluded in October 2016 and
saw the Company buy back, on market, 60,779,072
fully paid ordinary shares during the buy-back period.
This represented 4.8% of the original shares on issue and
was an effective way to return capital to shareholders at
that time.
The Board remains committed to returning value to
shareholders and will continue to consider capital
management initiatives as the Company’s performance
improves.
Balance Sheet
Financing
The Company’s balance sheet is in a strong position, with
a cash balance of $62.9 million at year end against a total
debt of $8.8 million. This resulted in a net cash position of
$54.1 million.
The Company has a general purpose corporate facility of
$10 million which expires in November 2017. This facility is
currently drawn for bank guarantees for $3.8 million.
Working Capital
Current trade and other receivables were $53.4 million at
30 June 2017 ($59.6 million in 2016) while current trade
and other payables were $74.0 million at 30 June 2017
($61.4 million in 2016). Inventory reduced from $37.3 million
in 2016 to $32.1 million. The reduction in inventory is a
result of the Company’s increased focus on inventory
management.
Non-current Assets
As at 30 June 2017, the value of the Company’s property,
plant and equipment totalled $122.7 million, compared to
$117.7 million from the prior year. The increase in property
plant and equipment was driven largely by asset additions.
The Company continues to redeploy surplus equipment
to new and existing projects to reduce levels of idle
equipment. Management recognises the importance of
discipline with regards to its capital expenditure and will
seek to transition idle fleet when appropriate either via
deployment to new projects or disposal.
During the prior financial year the Company established
a joint venture in Indonesia for the Martabe Project and
an equity accounted profit of $2.5 million was earned
from that venture.
Cash Flow
Net operating cash during the year totalled $30.2 million
compared to $9.1 million in 2016.
The Company realised $12.6 million from sales of surplus
and idle assets. Offsetting this inflow the Company incurred
capital expenditure of $34.9 million, mainly on component
spend on existing fleet and new fleet.
Net cash outflows on financing activities in the 2017
financial year totalled $2.6 million.
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OPERATIONAL AND FINANCIAL REVIEWMACMAHON ANNUAL REPORT 2017 STRATEGY
By providing its services safely and efficiently, Macmahon
aims to secure and deliver work that is profitable and
repeatable in order to deliver sustainable returns to
shareholders.
Taking into account Macmahon’s significantly expanded
order book following the finalisation of the AMNT
transaction, the Company’s immediate priorities are
to execute its existing work whilst pursuing select
opportunities where the Company has a strategic
advantage.
In pursuing these priorities Macmahon currently has
six key focus areas:
1. Technology and Innovation
Macmahon aims to differentiate itself from its peers by
harnessing new technologies and developing innovative
delivery solutions. By being at the forefront of the mining
services industry, Macmahon is able to provide additional
value to its clients through the delivery of safer, more
efficient and productive operations. Macmahon’s flexible
and nimble operating model enables the rapid testing
and deployment of new technologies. A recent example
during the period has been the digitisation of a number
of Macmahon’s mining management systems, which
has enabled the Company to begin making real-time
adjustments to its operations, thus creating a safer and
more productive working environment.
2. People and Culture
Macmahon recognises that its people are the key to its
success which is why the Company strives to attract and
retain the best people in the industry. During the year
Macmahon continued to seek out top talent in an effort
to broaden its collective skill set and increase its leadership
capacity. The Company’s recruitment efforts were
supported by the Macmahon’s work-winning culture which
permeates throughout the business. This culture of success
is reinforced by clear accountabilities and the alignment
of the Company’s strategic priorities with appropriate
financial incentives.
3. Safety
Looking for ways to further improve safety performance
across all operations remains a core priority for the
Company. Macmahon has a solid reputation as an industry
leader when it comes to operating safely and the Company
is continuing to focus its efforts in this area to ensure that
safety remains the top priority of all employees.
4. Work Winning and Diversification
Maintaining a healthy tender pipeline is critical to the
longevity of any contractor. By fostering client relationships
and focusing on opportunities where the Company has a
strategic advantage, Macmahon has been able to establish
a healthy tender pipeline. Furthermore, due largely to
Macmahon’s flexible, partnership-based contracting
approach, Macmahon is currently in an exclusive, preferred
or shortlisted position for more than 44% of this pipeline
of work. Key areas of focus are on improving the level of
work for our Underground business and to seek out new
opportunities in mine site rehabilitation.
5. Financial Strength
Ensuring Macmahon has sufficient financial capacity to
grow and evolve is a key priority for the business. At year
end, the Company’s balance sheet remained in a strong
position, with a cash balance of $62.9 million against a total
debt of $8.8 million. Moving forward, Macmahon intends
to maintain this strong position by further utilising a mix of
equipment financing, debt and other funding solutions to
support future expansion initiatives.
6. Shareholder Base
Having recently defeated a hostile takeover attempt,
Macmahon understands the importance of maintaining
a stable and supportive shareholder base. Following the
completion of the AMNT transaction Macmahon enjoys the
support of a major shareholder who is completely aligned
with the Company’s strategy. Furthermore, the Company’s
remaining institutional support base is also comprised of
high quality, long-term, value driven investors who are
looking for consistent, sustainable returns.
11
MACMAHON ANNUAL REPORT 2017 Underground Mining Services – Macmahon successfully
renegotiated a 4-year Enterprise Agreement for its
Raisedrill operations at Olympic Dam with no industrial
disputation. The Company’s Underground Mining Services
business unit continued to win work throughout the year
providing many opportunities for our mining services team.
International
Nigeria – Macmahon successfully negotiated the closure of
the Calabar project with no industrial disputation or unrest.
185 national employees were made redundant and received
entitlements as per the appropriate agreements and/
or legislation. Where possible, Macmahon facilitated new
employment via our existing clients or in-country network.
Indonesia – Macmahon successfully transferred the
Martabe workforce from fixed term contracts to permanent
employment and has continued to bring a strong focus
on the development of the capability of its national
workforce. Macmahon also increased its emphasis on the
gender diversity with the Martabe project now comprising
19% female employees, including women operating
dump trucks, graders, loaders and drills. Macmahon has
also provided development opportunities for national
employees to visit Australia to enhance their understanding
of Macmahon systems and processes and to facilitate
cross-cultural competency throughout the organisation.
PEOPLE
At 30 June 2017 Macmahon had 1,659 employees.
Macmahon maintains that its people are critical to
strong and sustainable business growth and during
the year the Company was named in the Top 25 of
Randstad’s Most Attractive Employers for 2017. This clearly
reinforced Macmahon’s brand as an attractive place to
work, which further aids in our ability to attract and retain
quality employees.
Several initiatives were implemented during the year to
build on our status as a preferred employer including
the introduction of new benefits to our employees,
changes to our EAP service and the implementation
of a company-wide communications smartphone App,
StaffConnect, to facilitate information flow throughout the
organisation. Macmahon will continue to develop simple
people-orientated processes to enhance the employee
work environment.
Australia
Tropicana – During the year Macmahon continued to
work closely with Anglo Gold Ashanti at its Tropicana
Gold Mine to further leverage synergies between the
two organisations. This includes the co-participation in
leadership programs and other development activities
for Alliance employees. Macmahon also successfully
renegotiated a 4-year Enterprise Agreement to cover
the workforce at Tropicana until 2020. Pleasingly during
the period, the Company also successfully recruited,
trained and mobilised new shovel operators to bolster
production on site.
St Ives – Following excellent performance on site, during
the period Macmahon was asked to recruit additional
people and expand its scope of work. Macmahon also
successfully renegotiated its Enterprise Agreement at
St Ives to cover surface mining operations until 2021.
Macmahon has been working closely with the community
at Kambalda and has successfully completed two intakes
of local trainees.
Telfer – Macmahon implemented a successful pilot project
for utilisation of a new online survey tool to assist with the
assessment of engagement and morale of the workforce.
This pilot project will now be rolled out across the rest
of the Company and we will work with the workforce to
develop initiatives to improve the attraction and retention
across the broader business.
12
OPERATIONAL AND FINANCIAL REVIEWMACMAHON ANNUAL REPORT 2017 “ Macmahon is committed to the safety of all employees
and achieving a resilient safety culture.”
HSEQT Management Committee
The Macmahon HSEQT Management Committee
comprises the Executive Leadership Team and department
managers. The Committee is governed by the HSEQT
Management Committee Charter and advises on strategy,
policy, corporate governance and monitoring of HSEQT
systems and processes. Outcomes from the Committee
meetings are actioned for continuous improvement and
communicated with the business through the management
of change process.
Maintaining the safety or our workers
Macmahon is committed to the safety of all employees and
achieving a resilient safety culture. As a core value, safety
is integrated into all phases of the project life cycle and
is supported by management across all areas and levels
of the business. Macmahon utilises industry recognised
systems and processes to reduce the risks to our people
and to maintain a safe working environment.
Macmahon also recognises the importance of building
strong and effective relationships with our clients and
alliance partners, as alignment on safety is critical in
establishing and maintaining a resilient safety culture.
MACMAHON’S HSEQT COMMITMENT
Macmahon is committed to providing a safe and healthy
work environment for all employees, contractors and
visitors to all our premises and project sites.
Our business success and continued licence to operate
is dependent upon the successful implementation,
maintenance and review of our Health, Safety, Environment
Quality and Training (HSEQT) systems. As such our work
is planned, our risks are managed and opportunity is taken
to review and improve the means by which we carry out
our work.
To successfully meet our commitment to provide a
safe and healthy work environment, during the period
Macmahon continued to:
– clearly define and establish safe systems of work in
multiple jurisdictions;
– effectively identify and treat risk;
– apply consistent, visible, felt safety leadership;
– comply with relevant statutory, legal, customer and
internal requirements;
– empower everyone to maintain a reporting culture;
– protect our workforce from harm, both mentally
and physically;
– protect the environment; and
– invest in our people.
Macmahon Policies
Macmahon’s policies serve as a set of guiding principles
to guide decisions and shape the expected behaviours
needed to achieve the company’s goals. Whilst Macmahon’s
Vision and Values remained unchanged during the period,
a review of the Health, Safety, Environment and Quality
polices was undertaken. The review focused on our
commitment within the business and defined accountability
across all levels. The Company’s policies can be found on
the Macmahon website.
Standards and audits
Macmahon’s Standards and Audits are fundamental
in maintaining effective and healthy systems. During
the period Macmahon completed certification
surveillance audits against the requirements of:
ISO 14001 (Environment), OHSAS 18001 and AS/
NZS 4801 (Health and Safety), and ISO 9001 (Quality).
The Company’s focus is now on early preparation for
the recertification audits in April 2018.
13
MACMAHON ANNUAL REPORT 2017 SAFETY PERFORMANCE
Measuring safety performance is a fundamental part of our
safety management system. The measurement of safety
performance is intended to provide decision makers within
Macmahon with reliable and verifiable information on an
ongoing basis to determine whether the Company’s safety
performance is meeting pre-determined criteria.
Our performance evaluation process enables us to
measure, evaluate and communicate our performance
using indicators which are based on accurate, relevant,
reliable, measureable and verifiable information. The use of
our indicators is established at our enterprise level rolling
down to each project.
Our Lead and Lag Indicators Procedure describes
indicators which are reported on a monthly basis and
reviewed by management. These indicators are based on
the use of our processes and tools which we believe will
achieve our overall objective which is documented within
our Health and Safety Policy.
At year end, Macmahon’s Lost Time Injury Frequency
Rate (LTIFR) was 0.39, while the Total Recordable Injury
Frequency Rate (TRIFR) was 5.65. There was a total of
2 Lost Time Injuries (LTI) recorded in the year. There were
no permanent disabling injuries or fatalities recorded across
the Company’s operations.
Pleasingly, there were multiple examples of excellent
safety performance across our projects, with 93% of
all Macmahon projects remaining LTI free for the entire
year, while 66% of all projects were both LTI and Total
Recordable Injury (TRI) free.
Examples of Exceptional Performance:
– 2017 Kanthan, Malaysia operating 12 years LTI free
– 2017 Lhok Nga, Indonesia operating 8 years LTI free
– 2017 Underground Drilling and Ground Support
operating 8 years LTI Free
– 2016 WAC workshop achieved 8 years LTI free
– 2015 Nebo workshop achieved 7 years LTI free
– 2015 Doorn-Djil Yoordaning – No LTIs recorded
The below graph provides an indication of the 5 year safety
performance for the business.
Table 1 – 5 Year Group Injury Statistics
Macmahon remains focused and committed to continuous
improvement on safety performance and is targeting a
reduction in the Total Recordable Injury Frequency Rate
(TRIFR) as part of its FY18 HSEQT Strategic Plan.
S
E
I
R
U
J
N
I
L
A
T
O
T
70
60
50
40
30
20
10
0
10.1
1.04
8.61
0.94
2013
2014
LTI MTI RWI LTIFR TRIFR
Graph excludes the impact of the Nigerian incident.
14
12
10
8
6
4
2
0
Y
C
N
E
U
Q
E
R
F
5.45
5.65
4.43
1.06
2016
0.91
2015
0.39
2017
OPERATIONAL AND FINANCIAL REVIEWMACMAHON ANNUAL REPORT 2017
TRAINEESHIPS
The Macmahon Traineeship Program offers site-based
employees the opportunity to gain the nationally
recognised RII30113 Certificate III in Surface Extraction
Operations.
During the year Macmahon expanded the program to
encompass all major sites in Western Australia including
Tropicana, Telfer and St Ives with the view of doubling the
number of employees enrolled.
APPRENTICESHIPS
In FY17 Macmahon continued to develop its successful
Apprenticeship Program. As part of the program’s ongoing
development, during the period Macmahon established a
candidate assessment centre which enabled the Company
to screen and select exceptional candidates for future
development. This ongoing commitment ensures that
Macmahon continues to be one of Western Australia’s
larger employers of apprentices.
ENVIRONMENT
We believe that the effective management of environmental
aspects of Macmahon depends on the commitment of its
people to drive continual improvement. This commitment
is supported through the implementation of our strong
management practices, new and innovative technology and
strategies for more effective use of resources.
At the outset of all projects, we identify risks and develop
appropriate control strategies which we document in
our HSEQ management plans. The purpose of the plan
is to provide documentation in a suitable framework to
minimise potential environmental impacts associated
with project activities in accordance with contract
requirements, relevant legislation and project objectives.
In addition, the HSEQ management plan describes
management responsibilities and authorities with respect
to environmental procedures and controls that apply to
the contract.
The implementation of these plans is assessed through
regular inspections and audits which help drive continual
improvement on our Projects. Our projects are subject
to regular surveillance audits which helps ensure all the
relevant requirements are achieved and exceeded.
Although our environmental management standards
are high, we believe we can always improve on current
performance. In order to achieve continual improvement
we aim to learn from any environmental incidents we
are involved in and apply those lessons to our future
performance. We also seek to learn from positive impacts
when projects make breakthroughs in environmental
management practices, such as protecting ecological
communities or successfully minimising waste.
A table outlining Macmahon’s Environmental Aspects
and Objectives, can be found on our website
www.macmahon.com.au
15
MACMAHON ANNUAL REPORT 2017 RISK MANAGEMENT
Given the nature of Macmahon’s operations and the geographies and markets in which it operates, a wide range of risks
have the potential to affect the Company.
Set out below is an overview of a number of material risks facing Macmahon. These risks are not set out in any particular
order and do not represent every risk that Macmahon could encounter when conducting its business. Rather, they are
the most significant risks that, in the opinion of the Board, should be monitored and managed by the Company, and
considered by investors before investing in Macmahon.
Reliance on key
customers
– Macmahon derives a significant proportion of its revenue from a small number of key customers.
In the event that any of these customers reduces production or scales back operations,
terminates the relationship, suffers an insolvency event or otherwise defaults on a contract,
or fails to renew their contract with Macmahon, this may have an adverse impact on the
financial position of Macmahon.
Industry and
commodity
cycles
– Macmahon’s financial performance is influenced by the level of activity in the resources and
mining industry, which is impacted by a number of factors beyond the control of Macmahon.
These factors include:
– demand for mining production, which may be influenced by factors including (but not
limited to) prices of commodities, exchange rates and the competitiveness of Australian
mining operations;
– government policy on infrastructure spending;
– the policies of mine owners including their decisions to undertake their own mining operations
or to outsource these functions; and
– the availability and cost of key resources including people, large earth moving equipment and
critical consumables.
– Macmahon is indirectly exposed to movements in commodity prices, which are volatile and
beyond Macmahon’s control.
– Adverse movements in commodity prices may reduce the pipeline of work in the mining sector
and the level of demand for the services of Macmahon’s mining business, which could have a
material impact on Macmahon’s operating and financial performance.
Failure to win
new contracts
– Macmahon’s performance is impacted by its ability to win, extend and complete new contracts.
Any failure by Macmahon to continue to win new contracts and work will impact its financial
performance and position.
– Macmahon expects to continue to have a broad range of competitors across all of its operations,
which impacts the margins obtainable on contracts. There is a risk that existing and increased future
competition may limit the ability to win new contracts or achieve attractive margins.
Early contract
termination
and contract
variations
– Macmahon’s current EBIT guidance is partly based on current contracts in hand and Macmahon
derives a significant proportion of its revenue from providing services under large contracts.
A client could terminate services on short term notice and as a result, there can be no assurance
that work in hand will be realised as revenue in any future period. There could be future risks and
costs arising from any termination of contract.
– Early termination or failure to renew a contract by Macmahon’s clients when that renewal is
expected or likely to have an adverse effect on financial performance.
– While Macmahon has no reason to believe any existing or potential contracts will be terminated,
there can be no assurance that this will not occur.
– Due to the nature of Macmahon’s contracts, there is also a risk that Macmahon’s claims
for payments under those contracts will be disputed and not ultimately agreed, or will be
insufficiently certain at a point in time such that they cannot be brought to account in a given
accounting period.
16
OPERATIONAL AND FINANCIAL REVIEWMACMAHON ANNUAL REPORT 2017 Project
delivery risk
Margins,
operations,
safety and
environment
– Execution and delivery of projects involves judgment regarding the planning, development and
operation of complex operating facilities and equipment. As a result, Macmahon’s operations,
cash flows and liquidity could be affected if the resources or time needed to complete a
project are miscalculated, if it fails to meet contractual obligations, or if it encounters delays or
unspecified conditions.
– Cost overruns, unfavourable contract outcomes, serious or continued operational failure,
disruption at key facilities, disruptions to communication systems or a safety incident have
the potential to have an adverse financial impact.
– Macmahon is also exposed to input costs through its operations, such as the cost of fuel and
energy sources, equipment and personnel. To the extent that these costs cannot be passed
on to customers in a timely manner, or at all, Macmahon’s financial performance could be
adversely affected.
– Macmahon’s operations involve risk to personnel and property. An accident may occur that
results in serious injury or death, damage to property and environment, which may have an
adverse effect on Macmahon’s financial performance, reputation and ability to win new contracts.
Contract
pricing risk
Commodity
price exposure
– If Macmahon materially underestimates the cost of providing services, equipment, or plant,
there is a risk of a negative impact on Macmahon’s financial performance.
– Gold and copper are the two most important commodities contributing to Macmahon’s order
book and tender pipeline. If the gold and copper industries were to suffer, it would have a
material adverse effect on Macmahon revenues and profitability.
Equipment and
consumable
availability
– Macmahon has a significant fleet of equipment and has a substantial ongoing requirement for
consumables including tyres, parts and lubricants. If Macmahon cannot secure a reliable supply
of equipment and consumables, there is a risk that its operational and financial performance may
be adversely affected.
Key personnel
– Macmahon’s growth and profitability may be limited by loss of key Board, management or
operating personnel, inability to recruit and retain skilled and experienced employees or by
increases in compensation costs.
Currency
fluctuation
Partner and
control risk
– Macmahon is exposed to fluctuations in the value of the Australian dollar versus other currencies
due to its international operations. Because Macmahon’s consolidated financial results are
reported in Australian dollars, if Macmahon generates sales or earnings or has assets and
liabilities in other currencies, the translation into Australian dollars for financial reporting
purposes could result in a significant increase or decrease in the amount of those sales or
earnings and net assets.
– Macmahon may undertake services through and participate in joint ventures or partnering/
alliance arrangements. The success of these partnering activities depends on satisfactory
performance by Macmahon’s partners. The failure of partners to meet performance obligations
could impose additional financial and performance obligations that could cause significant
impact on Macmahon’s reputation and financial results, including loss or termination of the
contract and loss of profits.
– Following the completion of the AMNT transaction, AMC has become the largest shareholder
of Macmahon with a 44.3% shareholding, giving AMC significant influence over Macmahon, with
the ability to block special resolutions of shareholders and potentially to pass or block ordinary
resolutions. AMC’s interests as a shareholder of Macmahon may differ from the interests of other
shareholders, and the existence of this shareholding (together with other major shareholdings)
may reduce the prospects of persons making takeover bids for Macmahon in the future.
17
MACMAHON ANNUAL REPORT 2017 Country risk
– While Macmahon primarily operates in Australia it also operates in South East Asia and may
undertake new projects in mining regions such as West Africa, where sovereign risk may be
higher than is the case in Australia.
– Operating in international markets can expose Macmahon to additional adverse economic
conditions, civil unrest, conflicts, security breaches and bribery and corrupt practices.
– Some countries in which Macmahon operates, or may operate in future, have less developed legal,
regulatory or political systems than in Australia, which may be subject to unexpected or sudden
change in which it may be more difficult to enforce legal rights.
– The financial performance and position of Macmahon’s foreign operations may be adversely
affected by changes in the fiscal or regulatory regimes applying in the relevant jurisdictions,
changes in, or difficulties in interpreting and complying with local laws and regulations of
different countries (including tax, labour, foreign investment law) and nullification, modification
or renegotiation of, or difficulties or delays in enforcing contracts with clients or joint venture
partners that are subject to local law.
Performance of
Telfer Mine
– There is a risk that the assumptions made about the performance of the Telfer project in
forecasting the Company’s current EBIT guidance may be incorrect. Although these risks
apply to all projects, Telfer is particularly material to Macmahon.
Performance of
Batu Hijau Mine
– There is a risk that the assumptions made about the performance of the Batu Hijau project in
forecasting the Company’s current EBIT guidance may be incorrect.
– There is a risk that AMNT’s ability to export production from the Batu Hijau Mine project will be
curtailed, and that this will have a negative impact on the viability of the project.
– There is a risk that AMNT will not be able to secure finance to complete the cut-backs at the
Batu Hijau Mine required to expose the next stage of ore.
– Commencement of full operations at this project requires certain matters to be agreed/achieved
during Phase 1 of the Mining Services Contract. There is no guarantee this will occur.
– Any underperformance at the Batu Hijau Mine will be particularly material to Macmahon.
Guidance
– Macmahon has provided earnings Guidance on the basis of several assumptions and forecasts,
which may subsequently prove to be incorrect.
– Guidance is not a guarantee of future performance, and involves known and unknown risks,
many of which are beyond the control of Macmahon.
– Key identified risks that may result in Macmahon not meeting its guidance include, but are not
limited to, termination of key contracts, variability in cost and productivity assumptions, and
inability to recover claims and variations from clients.
– Macmahon’s actual results may differ materially from its earnings guidance and the assumptions
on which the guidance is based.
Other material
risks
– A major operational failure or disruption at key facilities or to communication systems which
interrupt Macmahon’s business;
– Changing government regulation including tax, occupational health and safety, and changes in
policy and spending;
– Loss of reputation through poor project outcomes, unsafe work practices, unethical business
practices, and not meeting the market’s expectation of our financial performance; and
– Foreign exchange rates and interest rates in the ordinary course of business.
The above risks are sourced from the Company’s corporate and project risk registers which are updated periodically.
18
OPERATIONAL AND FINANCIAL REVIEWMACMAHON ANNUAL REPORT 2017 MACMAHON ANNUAL REPORT 2017
19
BOARD OF DIRECTORS
Board of Directors
Jim Walker
Non-executive Director, Chairman
Giles Everist
Independent, Non-executive Director
Eva Skira
Independent, Non-executive Director
Mr Walker has over 40 years of
experience in the resources sector.
He was previously Managing Director
and Chief Executive Officer of
WesTrac Group, where he led the
Company’s rapid development in
industrial and mining services locally
and in China.
Mr Everist brings a strong commercial
background and extensive experience
in the contracting and resources
sectors at both the Board and
executive management level.
Mr Everist completed his Bachelor
of Sciences (Honours) in Mechanical
Engineering at the University of
Edinburgh and is also a Chartered
Accountant.
Ms Skira has a background in banking,
capital markets, stockbroking and
financial markets, previously holding
executive positions at Commonwealth
Bank in the Corporate Banking/Capital
Markets divisions and later with
stockbroker Barclays de Zoete Wedd.
She has served on a number of boards
in business, government and the not-
for-profit sectors across a range of
industries.
20
MACMAHON ANNUAL REPORT 2017 AMNT Appointed Directors
As approved at the General Meeting of Shareholders on 12 July 2017, subsequent
to year end, two AMNT appointed Directors joined the Macmahon Board.
Vyril Vella
Independent, Non-executive Director
Alex Ramlie
Non-executive Director
Arief Sidarto
Non-executive Director
Mr Vella has over 40 years’ experience
in the civil engineering, building,
property and construction industries.
During Mr Vella’s 34 years with the
Leighton Group (now CIMIC) he held
various positions including General
Manager NSW, Director of Leighton
Contractors Pty Ltd, Founding
Director of Welded Mesh Pty Ltd,
Managing Director of Leighton
Properties and Associate Director of
Leighton Holdings.
Mr Ramlie is a Director of AMNT.
Prior to joining AMNT, Alex was the
President Director and Chief Executive
Officer of PT Borneo Lumbung Energi
& Metal Tbk which operates a hard
coking coal mine in Tuhup, Central
Kalimantan. Between 2012 and 2015,
Alex was also a Director of Bumi
PLC, a Vice-President Commissioner/
Vice-Chairman of PT Berau Coal
Energy Tbk and its subsidiary, PT
Berau Coal, and held Commissioner
positions in PT Bumi Resources
Tbk, PT Kaltim Prima Coal, and PT
Arutmin Indonesia. Before entering
the mining industry in 2011, Alex was
a private equity professional and was
Managing Director of Ancora Capital
Management Pte. Ltd., an Indonesia-
focused private equity fund.
Mr Sidarto is the Chief Financial
Officer of AMNT. His qualifications
include an MBA from Harvard
Business School and two bachelor
degrees with summa cum laude
from The Wharton School of Finance
and The Engineering School of the
University of Pennsylvania. Prior to
joining AMNT in April 2017, Arief held
the position of Managing Director and
Member of the Board of PT Rajawali
Corporation. He was also Managing
Partner of Samuel Group from 2009
to 2015 and Managing Director of
Wellspring Capital Partners from
2010 to 2014.
Mr Sidarto was previously with
Goldman Sachs New York in 1991 in its
Structured Finance Division; before
relocating to Hong Kong and then
Singapore to run investment banking
and corporate finance as Chief
Operating Officer.
21
MACMAHON ANNUAL REPORT 2017 EXECUTIVE MANAGEMENT TEAM
Michael Finnegan
Chief Executive Officer
Russell Taylor
General Manager, Surface
Mr Finnegan holds a Bachelor of Science (Mining)
with 24 years’ experience in the mining industry.
The last 15 years have primarily been spent in senior
line management positions. Mr Finnegan has a strong
commercial and technical background and has spent
time in operations on the east and west coast of Australia
as well as a number of countries throughout Asia.
José Martins
Chief Financial Officer
Mr Martins was appointed as Chief Financial Officer
in December 2015. He has more than 30 years finance
experience primarily within the resources sector.
He holds a Bachelor of Accountancy (with Distinction)
and is a Chartered Accountant. Prior to joining Macmahon,
Mr Martins held the position of Chief Financial Officer for
the Ausdrill Group.
Greg Gettingby
General Counsel and Company Secretary
Mr Gettingby holds a Bachelor of Arts and a Bachelor
of Laws and has more than 16 years’ experience in the
contracting industry. Mr Gettingby joined Macmahon
in 2002 and was appointed to the position of Group
General Counsel/Company Secretary in 2011. He previously
held commercial management and legal roles with the
Company. Prior to joining Macmahon Mr Gettingby worked
as a lawyer in private practice.
Mr Russell Taylor holds a master’s degree in Mining
Engineering and was appointed General Manager,
Surface Mining Australia for Macmahon in January 2017.
Mr Taylor has 25 years’ experience, commencing his career
in technical positions, with the last 10 years in senior
operational roles in Australia, Mongolia and India. He has
worked for both major resource houses and international
contracting firms, where he led international teams
developing greenfield mines.
Warren Uyen
General Manager, Underground
Mr Uyen holds an MBA (Project Management) and
Bachelor of Science in Mining along with a First Class Mine
Managers Certificate. Mr Uyen has over 30 years mining
industry experience working for both contractors and
mining companies. He has spent the last 14 years in various
senior management operational roles throughout Australia,
Papua New Guinea and China.
Brett Maney
Manager, Mining Services
Mr Maney commenced with Macmahon in 2006 to assist
with the growth and development of a newly formed
underground drilling division and was appointed Manager
of Mining Services in 2012. He has more than 30 years of
experience as a miner and equipment operator working
through to supervisory, tendering and safety and training
roles.
22
MACMAHON ANNUAL REPORT 2017 Dan Peel
Manager, Surface Operations
David van den Berg
Chief Technology and Innovation Officer
Mr Peel holds a Bachelor of Engineering (Mining) and
a Graduate Diploma of Applied Finance and has 15 years’
experience in the mining industry. Prior to joining
Macmahon in May 2017, Mr Peel was General Manager at
RPM Global where he provided technical advice to mining
companies and investors in Australia and internationally.
Grahame White
Manager, Qld Operations
Mr White is a construction and mining executive with
extensive experience in engineering and resource
business management, strategic and business planning,
project technical and commercial analysis, and project
development and operations management. Mr White
has held numerous executive management positions
with responsibility for strategic planning, business planning
and operations with a requirement to develop teams with
a values based culture to achieve business objectives.
Michael Fisher
President Director, PT Macmahon Mining Services
Mr Fisher has 20 years’ experience in the mining industry,
the last 8 years of which have primarily been spent in
senior management positions. Mr Fisher holds a Graduate
Diploma of Mine Engineering. He has a strong commercial
and operational background, with experience in mineral
and coal operations in the Northern Territory, east coast
of Australia and several provinces across Indonesia.
Mark Hatfield
General Manager, Plant and Maintenance Services
Mr Hatfield has more than 16 years’ experience within the
mining and heavy equipment industry and has fulfilled
numerous operational and senior leadership roles.
Mr Hatfield has a strong technical background and has
spent time in operations on the west coast of Australia
as well as a number of countries throughout Asia.
Mr van den Berg was appointed as Chief Technology
and Innovation Officer in August 2016. He brings an
extensive technology and commercial background to
Macmahon through his 23 years’ experience across
the mining, management consulting and technology
sectors. Mr van den Berg commenced with Macmahon
in 2008, as Chief Information Officer. Prior to Macmahon,
Mr van den Berg held senior management and technology
positions in both Australia and the UK, including
BHP Billiton, PriceWaterhouseCoopers and CitiGroup.
Katherine Blacklock
Manager, Human Resources
Katherine Blacklock was appointed Manager – Human
Resource in November 2016. She holds a Bachelor of
Science (Psychology and Anatomy) and Grad. Dip. Bus
(HRM) with 25 years in Human Resource management
in the resources sectors. Prior to joining Macmahon,
Mrs Blacklock was the Human Resources Manager –
International Projects at Bis Industries and was the
founding Director of HRwise, an HR consultancy providing
hands-on HR support to resource sector clients both in
Australia and internationally for 10 years.
Kale Ross
Manager, HSEQT
Kale Ross has more than 16 years’ experience working
across construction, underground and surface mining
operations in numerous operational and senior leadership
roles. Mr Ross has a strong operational and technical, safety
and training background and has worked across multiple
jurisdictions with Australia and more recently in Nigeria and
South-East Asia.
23
MACMAHON ANNUAL REPORT 2017 DIRECTORS’ REPORT
The Directors present their report, together with the
financial statements, on the consolidated entity (referred
to hereafter as the “Group” or the “consolidated entity”)
consisting of Macmahon Holdings Limited (referred to
hereafter as the “parent entity” or “the Company”) and
the entities it controlled at the end of, or during, the year
ended 30 June 2017.
DIRECTORS
The following persons were Directors of Macmahon
Holdings Limited during the whole of the financial year
and up to the date of this report, unless otherwise stated:
J A Walker (Chairman, Non-executive) (Executive
Chairman for the period 22 January 2015 to 13 July 2015)
C R G Everist (Non-executive)
E D R Skira (Non-executive)
V A Vella (Non-executive)
S J van Dyk (Chief Executive Officer and Managing
Director resigned 11 November 2016)
A Ramlie (Non-executive appointed 8 August 2017)
A W Sidarto (Non-executive appointed 8 August 2017)
PRINCIPAL ACTIVITIES
The principal activities of the consolidated entity consisted
of the provision of contract mining services. There were
no significant changes in the nature of the activities of the
consolidated entity during the financial year under review.
DIVIDENDS
There were no dividends paid, recommended or declared
during the current or previous financial year.
REVIEW OF OPERATIONS
The loss for the consolidated entity after providing
for income tax amounted to $5.5 million (June 2016:
profit of $10.8 million) from continuing operations and
$17.3 million loss (June 2016: loss of $9.1 million) from
discontinued operations.
The loss for the year from continuing operations was
due to the losses recorded on the Telfer project of
$29.2 million.
A review of and information about the operations of the
consolidated entity during the financial year and of the
results of those operations is contained on pages 8 to 18,
which forms part of this Directors’ report.
SIGNIFICANT CHANGES IN THE STATE OF
AFFAIRS
Unsuccessful Hostile Takeover Attempt by CIMIC
During the year CIMIC Group Investments Pty Ltd (“CIMIC”)
made an off–market takeover offer for all of the shares in
Macmahon it did not already control. This takeover attempt
was not supported by Macmahon and the offer closed on
9 March 2017 without CIMIC acquiring control.
Macmahon incurred costs of $3.4 million in responding to
the takeover offer. These costs were all expensed during
the year.
AMNT Transaction
During the year Macmahon entered agreements with
PT Amman Mineral Nusa Tenggara (“AMNT”) and various
related parties. These agreements included arrangements
for Macmahon to become the life–of–mine mining services
contractor for AMNT’s Batu Hijau mine in Indonesia, and
for a related party of AMNT to be issued 954,064,924 new
shares in Macmahon (the “AMNT Transaction”). Full details
of the AMNT Transaction are set out in the Notice of
General Meeting released by Macmahon on 13 June 2017.
The AMNT Transaction achieved completion in August 2017.
The costs incurred by Macmahon in negotiating the
transaction and progressing it to completion will be
recognised as share issue costs in Macmahon’s accounts
for FY18.
MATTERS SUBSEQUENT TO THE END OF THE
FINANCIAL YEAR
AMNT Transaction
The AMNT Transaction was approved by Macmahon
shareholders at a General Meeting on 12 July 2017.
Completion of the Transaction occurred on 8 August 2017.
This involved:
a) the issue of 954,064,924 new Macmahon shares to
a related party of AMNT, bringing the total number
of Macmahon shares on issue to 2,154,985,818;
b) AMNT transferring mobile mining equipment assets
valued at US$145.6 million to Macmahon Indonesia;
c) the mining services contract with AMNT becoming
effective; and
d) two new Directors joining the Macmahon Board,
Mr Alex Ramlie and Mr Arief Sidarto.
Following completion of the transaction AMNT's related
party has an interest in 44.3% of Macmahon's total shares
on issue.
For details of the AMNT Transaction please refer to the
Notice of Meeting for the AMNT Transaction published on
the ASX website on 13 June 2017.
LIKELY DEVELOPMENTS AND EXPECTED RESULTS
OF OPERATIONS
Likely developments in the operations of the consolidated
entity in future financial years and the expected results of
those operations have been included generally within the
financial report and on pages 1 to 23.
ENVIRONMENTAL REGULATION
The consolidated entity is not subject to any significant
environmental regulation under Australian Commonwealth
or State law.
24
MACMAHON ANNUAL REPORT 2017 INFORMATION ON DIRECTORS
Name: Mr James Walker
Title:
Independent Non-executive Chairman (since
14 July 2015), Executive Chairman (22 January
2015 to 13 July 2015)
Qualifications: GAICD, FAIM
Experience and expertise:
Mr Walker joined the Board as a Non-executive Director in
October 2013 and was appointed Chairman in March 2014.
From January 2015 until July 2015 Mr Walker assumed
the role of Executive Chairman while the Board sought
a replacement Chief Executive Officer.
Mr Walker has over 40 years of experience in the resources
sector, most recently as Managing Director and Chief
Executive Officer of WesTrac Pty Ltd, where he led the
company’s rapid development in industrial and mining
services locally and in China. Prior to this, Mr Walker held
various roles with other Australian Caterpillar dealers.
Mr Walker is a graduate member of the Australian Institute
of Company Directors (AICD) and a member of the
Australian Institute of Management (AIM WA), holding
the position of President WA (2008–2010) and National
President – Australia (2010–2013).
Other current directorships:
Mr Walker is currently Chairman of Austin Engineering
Limited (appointed November 2016), and a Non-executive
Director of Programmed Group Limited (appointed
November 2013), Seeing Machines (appointed May 2014)
and RACWA Holdings Pty Ltd (appointed November
2013). He also chairs the State Training Board WA and
Wesley College WA, and is a trustee of the WA Motor
Museum.
Former directorships (last 3 years):
Mr Walker was a director of Seven Group Holdings Ltd,
National Hire Group Limited, Skilled Group Limited and
Coates Group Holdings Pty Ltd.
Special responsibilities:
Mr Walker is currently a member of the Board’s Audit
& Risk Committee and the Board’s Remuneration &
Nomination Committee.
Interests in shares:
Interests in options: None
425,000
Name: Mr Giles Everist
Title:
Independent Non-executive Director
Qualifications: BSc (Hons), CA, GAICD
Experience and expertise:
Mr Everist joined the Board as a Non-executive Director in
June 2013. Mr Everist has a strong commercial background
and extensive experience in the contracting and resources
sectors at both the Board and executive management level.
Mr Everist completed his Bachelor of Sciences (Honors)
in Mechanical Engineering at the University of Edinburgh
and is also a Chartered Accountant. He was previously
the Chief Financial Officer and Company Secretary at
Monadelphous Group and has also held senior roles at
Fluor Australia, Hamersley Iron and Rio Tinto London.
Other current directorships:
Mr Everist is a director of Austal Group Ltd and Norwood
Systems Limited.
Former directorships (last 3 years):
Decmil Group, APE Mobile Pty Ltd and LogiCamms Ltd
Special responsibilities:
Mr Everist is currently a member of the Board’s Audit
& Risk Committee and the Board’s Remuneration &
Nomination Committee.
Interests in shares:
Interests in options: None
100,000
Name: Ms Eva Skira
Title:
Independent Non-executive Director
Qualifications: BA (Hons), MBA, SF Fin (Life Member Fin),
FAICD, FAID, FGIA, FCIS
Experience and expertise:
Ms Skira joined the Board as a Non-executive Director in
September 2011. Ms Skira has a background in banking,
capital markets, stockbroking and financial markets,
previously holding executive positions at Commonwealth
Bank in the Corporate Banking/Capital Markets divisions
and later with stockbroker Barclays de Zoete Wedd. She
has served on a number of boards in business, government
and the not–for–profit sectors across a range of industries.
Ms Skira completed her BA (1st Class Honors, Economic
History) at the University of New South Wales, and
obtained her Masters of Business Administration (Dux
and Distinction) at the IMD business school, Switzerland.
Other current directorships:
Ms Skira is currently the Chairman of the Trustee of
St John of God Health Care Inc., and a director of
RCR Tomlinson and the WA Parks Foundation.
Former directorships (last 3 years): None
Special responsibilities:
Ms Skira is currently the Chair of the Board’s Audit & Risk
Committee and a member of the Board’s Remuneration
& Nomination Committee.
Interests in shares: None
Interests in options: None
25
MACMAHON ANNUAL REPORT 2017 Name: Mr Vyril Vella
Name: Mr Alexander Ramlie
Title:
Non-independent Non-executive Director until
23 May 2017 when the Board assessed Mr Vella
as an Independent Director
Title:
Non-Executive Director (AMNT Nominee)
Non-Independent Non-executive Director
(appointed 8 August 2017)
Qualifications: BSc, BE (Hons), M.Eng.Sc, FIEAust, FAICD
Experience and expertise:
Mr Vella joined the Board as a Non-independent Non-
executive Director in November 2007. Mr Vella has over
40 years’ experience in the civil engineering, building,
property and construction industries. During Mr Vella’s
34 years with the Leighton Group he held various positions
including General Manager NSW, Director of Leighton
Contractors Pty Ltd, Founding Director of Welded Mesh
Pty Ltd, Managing Director of Leighton Properties and
Associate Director of Leighton Holdings. Mr Vella was a
consultant to Leighton Holdings, where he advised on
investment in the residential market, general property
issues and major construction and infrastructure projects.
Other current directorships: None
Former directorships (last 3 years):
Mr Vella was a Non-executive Director of Devine Limited
from April 2007 until April 2014.
Qualifications: Bachelor of Arts and a Master of Arts
in Economics from Boston University.
Experience and expertise:
Mr Ramlie joined the Board as a Non-executive Director
and nominee of AMNT in August 2017 after the successful
completion of the AMNT Transaction.
Prior to becoming a director of AMNT, Alex was the
President Director and Chief Executive Officer of PT
Borneo Lumbung Energi & Metal Tbk from 2011 to 2015.
Borneo operates a hard coking coal mine in Tuhup, Central
Kalimantan, which is held by its wholly-owned subsidiary,
PT Asmin Koalindo Tuhup.
Between 2012 and 2015, Alex was also a Director of Bumi
PLC, a Vice-President Commissioner/Vice-Chairman of
PT Berau Coal Energy Tbk and its subsidiary, PT Berau
Coal, and held Commissioner positions in PT Bumi
Resources Tbk, PT Kaltim Prima Coal, and PT Arutmin
Indonesia.
Special responsibilities:
Mr Vella is currently Chairman of the Board’s Remuneration
& Nomination Committee and a member of the Board’s
Audit & Risk Committee.
Before entering the mining industry in 2011, Alex was a
private equity professional and was Managing Director
of Ancora Capital Management Pte. Ltd., an Indonesia-
focused private equity fund.
Interests in shares:
1,857,842
Interests in options: None
26
Mr Ramlie began his career as an investment banker at
Lazard Frères & Co and has a Bachelor of Arts and a
Master of Arts in Economics from Boston University.
Other current directorships:
Mr Ramlie is currently President Director of PT Cakrawala
Langit Sejahtera (an Indonesian entity) and a director
of PT Amman Mineral Nusa Tenggara (an Indonesian
entity), Amman Mineral Contractors (Singapore) Pte Ltd
(a Singapore entity), Shwegen Asia Pte Ltd (a Singapore
entity), Nusa Tenggara Mining Services Contractors Pte.
Ltd (a Singapore entity), Amman Mineral Singapore
Pte. Ltd. (a Singapore entity), Phase Seven Contractors
Pte. Ltd. (a Singapore entity), Benete Mining Pte. Ltd.
(a Singapore entity) and Benete International Trading FZE
(a Dubai, UAE entity).
Former directorships (last 3 years):
– President Director PT Borneo Lumbung Energi & Metal
Tbk from 2011 to 2015
– Director Bumi PLC, a Vice-President Commissioner/
Vice-Chairman of PT Berau Coal Energy Tbk and its
subsidiary, PT Berau Coal between 2012 and 2015
Special responsibilities: None
Interests in shares: None
Interests in options: None
MACMAHON ANNUAL REPORT 2017DIRECTORS’ REPORT “Other current directorships” quoted above are current
directorships for listed entities only and excludes directorships
of all other types of entities, unless otherwise stated.
“Former directorships (last 3 years)” quoted above are
directorships held in the last 3 years for listed entities only
and excludes directorships of all other types of entities,
unless otherwise stated.
COMPANY SECRETARY
Mr Gettingby holds a Bachelor of Arts and a Bachelor
or Laws and has more than 16 years’ experience in the
contracting industry.
Mr Gettingby joined Macmahon in 2002 and was
appointed to the position of Group General Counsel/
Company Secretary in 2011. He previously held commercial
management and legal roles with the Company.
Prior to joining Macmahon Mr Gettingby worked as a
lawyer in private practice.
Name: Mr Arief Widyawan Sidarto
Title:
Non-Executive Director (AMNT Nominee)
Non-Independent Non-executive Director
(appointed 8 August 2017)
Qualifications: Mr Sidarto qualifications include an MBA
from Harvard Business School and two bachelor degrees
with summa cum laude from The Wharton School of
Finance and The Engineering School of the University of
Pennsylvania.
Experience and expertise:
Prior to joining AMNT in April 2017, Mr Sidarto has had the
following roles:
Managing Director and Member of the Board of
PT Rajawali Corporation, the holding company of a
diversified business group with businesses, among others,
palm plantation (IDX-listed), gold mining, coal mining
(IDX-listed) and other mining assets, properties (St Regis,
Four Seasons, Sheraton, etc.), transportation (IDX-listed),
infrastructure (IDX-listed), and ad agency (IDX-listed);
member of Finance and Investment Committee, Ethics
Committee and Audit & Risk Management Committee.
Managing Partner of Samuel Group from 2009 to 2015.
Concurrently, Managing Director of Wellspring Capital
Partners from 2010 to 2014.
Previously with Goldman Sachs New York in 1991 in its
Structured Finance Division; relocated to Hong Kong and
subsequently to Singapore to run investment banking and
corporate finance as Chief Operating Officer. Responsible
for deal execution (M&As, LBOs, restructuring, debt and
equity capital raisings), select client relationships and
cross selling (commodities, asset-liability management
products). Member of Goldman Sach’s Commitments
Committee.
Other current directorships:
Mr Sidarto is currently Director of Amman Mineral
Contractors (Singapore) Pte Ltd (a Singapore entity),
In-Sing Minerals Pte. Ltd. (a Singapore entity), Goodearth
Universal Pte. Ltd. (a Singapore entity), Nusa Tenggara
Mining Services Contractors Pte. Ltd. (a Singapore entity),
Amman Mineral Singapore Pte. Ltd. (a Singapore entity),
Phase Seven Contractors Pte. Ltd. (a Singapore entity) and
Benete Mining Pte. Ltd.(a Singapore entity).
Former directorships (last 3 years):
Managing Director and Member of the Board of PT
Rajawali Corporation.
Special responsibilities: None
Interests in shares: None
Interests in options: None
27
MACMAHON ANNUAL REPORT 2017 MEETINGS OF DIRECTORS
The number of meetings of the Company’s Board of Directors (“the Board”) and of each Board committee held during the
year ended 30 June 2017, and the number of meeting attended by each Director were:
Full Board
Meetings
Special Board
Meetings1
Audit & Risk
Committee
Meetings
Remuneration
& Nomination
Committee Meetings
Other
Meetings
Attended
Held
Attended
Held
Attended
Held
Attended
Held
Attended
Held
J A Walker
V A Vella3
E D R Skira
C R G Everist
S J van Dyk2
7
6
7
7
2
8
8
8
8
8
31
29
29
29
8
31
31
31
31
31
4
4
4
4
1
4
4
4
4
4
3
3
3
3
1
3
3
3
3
3
13
2
13
13
–
13
2
13
13
13
Held: represents the number of meetings held during the time the Director held office or was a member of the relevant committee.
1. Special meetings were held on short notice during the financial year to deal with business matters.
2. S J van Dyk resigned from the position of CEO and Managing Director 11 November 2016.
3. Mr Vella was initially excluded from several meetings in relation to the CIMIC takeover bid given his historical association with that company.
REMUNERATION REPORT (AUDITED)
The audited remuneration report is set out on pages 31 to 39 and forms part of this Directors' report.
INDEMNITY AND INSURANCE OF OFFICERS
The Company has indemnified the Directors and Executives of the Company for costs incurred, in their capacity
as a Director or Executive, for which they may be held personally liable, except where there is a lack of good faith.
During the financial year, the Company paid a premium in respect of a contract to insure the Directors and Executives of
the company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits
disclosure of the nature of liability and the amount of the premium.
INDEMNITY AND INSURANCE OF AUDITOR
The Company has not, during or since the financial year, indemnified or agreed to indemnify the auditor of the Company
or any related entity against a liability incurred by the auditor.
During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the
Company or any related entity.
PROCEEDINGS ON BEHALF OF THE PARENT ENTITY
No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on
behalf of the parent entity, or to intervene in any proceedings to which the parent entity is a party for the purpose of
taking responsibility on behalf of the parent entity for all or part of those proceedings.
SECURITIES PURCHASED ON MARKET
The following securities were purchased on market during the financial year for the share buy back.
Number
of Shares
Purchased
Average
price paid
per share
9,566,980
11.66c
Ordinary Shares
28
MACMAHON ANNUAL REPORT 2017DIRECTORS’ REPORT NON-AUDIT SERVICES
Details of the amounts paid or payable to the auditor
for non-audit services provided during the financial year
by the auditor are outlined in note 26 to the financial
statements.
The Directors are satisfied that the provision of non-
audit services during the financial year, by the auditor
(or by another person or firm on the auditor’s behalf),
is compatible with the general standard of independence
for auditors imposed by the Corporations Act 2001.
The Directors are of the opinion that the services as
disclosed in note 26 to the financial statements do
not compromise the external auditor’s independence
requirements of the Corporations Act 2001 for the
following reasons:
– all non-audit services have been reviewed and approved
to ensure that they do not impact the integrity and
objectivity of the auditor; and
– none of the services undermine the general principles
relating to auditor independence as set out in APES
110 Code of Ethics for Professional Accountants issued
by the Accounting Professional and Ethical Standards
Board, including reviewing or auditing the auditor’s
own work, acting in a management or decision–making
capacity for the parent entity, acting as advocate for
the parent entity or jointly sharing economic risks
and rewards.
ROUNDING OF AMOUNTS
The consolidated entity is of a kind referred to in ASIC
Corporations (Rounding in Financial/Directors’ Reports)
Instrument 2016/191, issued by the Australian Securities
and Investments Commission, relating to “rounding–
off”. Amounts in this report have been rounded off in
accordance with that Class Order to the nearest thousand
dollars, or in certain cases, the nearest dollar.
AUDITOR’S INDEPENDENCE DECLARATION
A copy of the auditor’s independence declaration as
required under section 307C of the Corporations Act 2001
is set out on page 30.
AUDITOR
KPMG continues in office in accordance with section 327
of the Corporations Act 2001.
This report is made in accordance with a resolution
of Directors, pursuant to section 298(2)(a) of the
Corporations Act 2001.
On behalf of the Directors
J A Walker
Director
24 August 2017
Perth
Michael Finnegan
Chief Executive Officer
24 August 2017
Perth
29
MACMAHON ANNUAL REPORT 2017 AUDITOR’S INDEPENDENCE
DECLARATION
30
MACMAHON ANNUAL REPORT 2017 KPMG, an Australian partnership and amember firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.Liability limited by a scheme approved under ProfessionalStandards Legislation.Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of Macmahon Holdings Limited I declare that, to the best of my knowledge and belief, in relation to the audit of Macmahon Holdings Limited for the financial year ended 30 June 2017 there have been: i.no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and ii.no contraventions of any applicable code of professional conduct in relation to the audit. KPMG Denise McComish Partner Perth 24 August 2017 REMUNERATION REPORT
INTRODUCTION FROM THE CHAIR OF THE REMUNERATION AND NOMINATION COMMITTEE
Dear Shareholder,
On behalf of the Board, I am pleased to present the Remuneration Report for the financial year ended 30 June 2017 (“FY17”).
The past year was a busy one for the Company, with considerable effort devoted to defending the hostile takeover
attempt by CIMIC and completing the subsequent transformational transaction with AMNT. Employee engagement
was also a key focus area, with there being an ongoing need to control costs, but also a heightened need to retain and
motivate key employees. This coincided with emerging signs of increased demand for workers in some markets. To remain
competitive in these conditions required careful management of remuneration issues.
FY 17 REMUNERATION OUTCOMES
During FY17 the key developments or outcomes in senior executive remuneration were:
1. the Board welcomed the appointment of Mr Michael Finnegan as the CEO on 1 November 2016. The remuneration
package awarded to Mr Finnegan involved a lower fixed salary than that paid to the previous CEO in exchange
for an increased opportunity to earn variable incentive payments. Thus, from 1 July 2017, the three components of
Mr Finnegan’s remuneration package became evenly split between fixed salary, a short term incentive opportunity,
and a long term incentive opportunity;
2. Macmahon did not pay any short term incentives; and
3. as foreshadowed in last year’s Report, Macmahon issued performance rights to senior managers in FY17 which will vest
into shares in 2019 if the Company achieves significant increases in total shareholder returns over a three year period.
Experience to date suggests that this incentive structure has been an effective method to motivate employees and
align the interests of management and shareholders.
REMUNERATION STRATEGY FOR FY18
FY18 will be an important growth year for Macmahon, with our people key to capturing the potential benefits ahead as
the Company ramps up significant new work. We still need to control costs, but we will also need our people to continue
to be dedicated and to work as a motivated and coordinated team in order to be successful.
Against this background, and to strike a balance between cost control, incentivising employees to outperform, and
aligning employee and shareholder interests, the Board has implemented the following remuneration strategy for FY18:
1. the salaries of Australian based staff employees will not be subject to any inflation related increase in FY18;
2. however, all of these employees, including key managers overseas, are now participants in a simplified, short term
incentive plan for the year. Under this plan, participants will receive a cash bonus if the Company meets or exceeds its
EBIT target for FY18. The amount of this bonus will increase in line with any EBIT outperformance, up to a cap; and
3. an expanded list of management positions (project manager and above) will now participate in the Company’s existing
long term incentive plan. As described above, this plan provides for participants to receive performance rights that will
vest into fully paid Macmahon shares in three years if the Company achieves significant increases in total shareholder
returns over this period.
The Board believes that the incentive plans described above will be useful tools to focus staff on delivering positive
returns for shareholders over the short and medium term, without increasing the Company’s fixed cost base.
RESPONSE TO VOTE AGAINST 2016 REMUNERATION REPORT
At the 2016 Annual General Meeting, Macmahon received votes against the Remuneration Report representing greater
than 25% of the votes cast by persons entitled to vote. In accordance with the Corporations Act 2001, this resulted in
Macmahon receiving a “Second Strike” against its 2016 Remuneration Report. In these circumstances, the Act requires
Macmahon to include in this year’s Remuneration Report, an explanation of the Board’s proposed action in response to
that Second Strike or, alternatively, if the Board does not propose any action, the Board’s reason for such inaction.
Macmahon does not propose any specific action in response to the Second Strike. The Second Strike was overwhelmingly
due to the vote cast by CIMIC, which went on to make a hostile takeover bid for the Company in January 2017. As a result,
Macmahon considers that CIMIC’s vote is likely to have been motivated by its takeover strategy rather than any real issue
with the Company’s 2016 Remuneration Report. Also, shareholders other than CIMIC have mostly been supportive of
the Company’s remuneration practices. At the last AGM for example, a large majority of shareholders voted against the
opportunity to hold a Board spill, which they could have done, after the Second Strike was received.
In closing, the Macmahon Board considers that the Company’s remuneration settings in FY17 were entirely appropriate for
the Company’s circumstances, and that proper thought and attention continues to be exercised in this area. We therefore
seek your support for this Report at the Company’s Annual General Meeting in November 2017.
Vyril Vella
Chairman of the Remuneration & Nomination Committee
31
MACMAHON ANNUAL REPORT 2017 REMUNERATION REPORT – AUDITED
This Remuneration Report forms part of the Directors’ Report for 2017 and has been audited by the Company’s
external auditor.
1. EXECUTIVE REMUNERATION
1.1 Overview
The Company’s approach to remuneration is to compensate employees in a way that is cost effective and appropriate
for current industry conditions, but also sufficient to attract, retain and incentivise the calibre of personnel needed to
effectively manage the Company’s business. To this end the remuneration packages offered to senior executives have
three components:
– market competitive fixed remuneration;
– a short term incentive opportunity, or the opportunity to earn a cash bonus dependent on performance over an
annual period; and
– a long term incentive opportunity, or the opportunity to earn Macmahon shares dependent on performance over
a three year period.
The table below represents the current mix of these remuneration components for the CEO and CFO. The short term
incentive is provided at the amount payable at the “Target” performance level, and the long term incentive amount
is provided based on the value granted in the current year (where the value of the performance rights issued under
the long term incentive plan is assumed to be the same as the volume weighted average share price at the start of
the performance period):
CEO
CFO
At risk
Fixed
remuneration
Short term
incentive
Long term
incentive
33.3%
50%
33.3%
25%
33.3%
25%
1.2 Fixed remuneration
The fixed remuneration paid to senior executives is based on the size and scope of their role, knowledge and experience,
and market benchmarks for that role. Fixed remuneration comprises base salary, any applicable role specific allowances,
and superannuation.
Macmahon regularly reviews and benchmarks fixed remuneration to ensure that the remuneration is appropriate and
competitive with its market and industry peers. Benchmarking was completed during FY17 using industry surveys and
reports, however the Board determined that there should not be a general, inflationary increase to the fixed remuneration
of Australian based staff employees.
1.3 Short term incentive
The short term incentive opportunity provided to senior executives has traditionally been linked to a range of
performance criteria set each year according to the Company’s priorities at the start of each annual period.
During FY17 Macmahon did not implement a short term incentive plan (“STI Plan”). However, for FY18 the Company
has rolled out a simplified plan under which a much wider group of employees than in prior years will receive a cash
bonus if the Company meets or exceeds its EBIT target for FY18. The amount of this bonus will increase in line with
any EBIT outperformance, up to a cap. This performance condition was chosen to simplify administration of the plan, to
ensure unity of purpose for all staff, to make the plan easier for employees to understand and monitor, and to focus staff
attention on a key metric for investors in the Company.
Further details of the FY18 STI plan are set out below.
Participants
The participants in the plan will be all Australian based staff employees and key managers overseas who are not already
covered by a project-specific incentive program, provided such individuals have been employed for more than 6 months
during the plan period.
32
MACMAHON ANNUAL REPORT 2017REMUNERATION REPORT Deferral and clawback
The FY18 STI Plan includes a deferral arrangement for Executive Team members. Under this arrangement, the payment
of 25% of any bonus due to an Executive Team member will be deferred for two years. If one of these individuals ceases
to be an employee during this period, payment will be at the Board’s discretion. The Plan also includes a “clawback”
provision by which up to 30% of any bonus awarded to an Executive Team member may be claimed back by the
Company at any time up to two years after the award if there is a restatement of the Company’s financial results (other
than a restatement caused by a change in applicable accounting rules or interpretations), the result of which is that any
bonus awarded would have been a lower amount had it been calculated based on such restated results.
Potential bonus amounts
The table below shows the potential bonus amounts (as a percentage of total fixed remuneration) available to the CEO
and CFO under the FY18 STI Plan.
Performance level
CEO
CFO
Threshold
(100% achievement
of EBIT target)
35% of TFR
17.5% of TFR
Target
(125% achievement
of EBIT target)
100% of TFR
50% of TFR
Stretch
(144% achievement
of EBIT target)
150% of TFR
75% of TFR
1.4 Long term incentive
The current long term incentive opportunity provided to senior executives involves the grant of performance rights which
can vest into fully paid ordinary shares in Macmahon after three years for no consideration, dependent on performance
over this three year period.
For FY17 the Board determined that the only performance condition that should apply to the Company’s long term
incentive plan (“LTI Plan”) was absolute shareholder returns. This performance condition has also been used for the FY18
LTI Plan. The reasons for selecting this performance condition include that (a) it provides a straightforward measure of
Company performance that is simple to communicate to employees and for them to continuously monitor; and (b) it is an
important metric for investors in a company of Macmahon’s size and risk profile, many of whom have indicated that they
seek absolute returns, rather than returns relative to an index.
In most other areas, the framework for the Company’s FY18 LTI Plan is the same as in FY17, with the key difference being
that an expanded list of management positions (project manager and above) have been offered the opportunity to
participate in FY18.
Further details of the current LTI Plan framework are set out below.
Performance condition – targets
The vesting of performance rights is dependent on the Company’s absolute level of total shareholder returns (TSR) over
the three year performance period. The portion of performance rights eligible to vest at various levels of increase in the
Company’s TSR (expressed as a compound annual growth rate or CAGR) is:
Macmahon’s TSR performance over
three year performance period
Less than 17% CAGR in TSR
17% CAGR in TSR
Between 17% and 25% CAGR in TSR
Proportion of performance rights that are eligible
to vest at the end of the performance period
0%
50%
50% plus a straight line increase in % award
until 25% TSR is achieved.
At 25% CAGR TSR growth and above
100%
Continued employment condition
Performance rights are immediately cancelled if a holder ceases employment before the rights vest, unless the Board in its
absolute discretion determines otherwise. There is no vesting of performance rights based solely on continued employment.
33
MACMAHON ANNUAL REPORT 2017 Change of control
If a change of control occurs or if the Company is wound up or delisted, the Board may (in its absolute discretion)
determine that all or a portion of the performance rights then on issue will vest, notwithstanding that time restrictions
or performance conditions applicable to the performance rights have not been satisfied.
Testing of the performance condition
Performance rights are tested for vesting only once, at the end of the performance period. That is, there is no re-testing
of performance rights.
Dividends and voting rights
Performance rights do not have dividend or voting rights. However, the shares allocated upon vesting of performance
rights rank equally with other ordinary shares on issue.
Restriction on disposal of shares
The shares allocated to performance rights holders upon the vesting of those rights are initially held in a trust, and are
subject to disposal restrictions in line with the Company’s Trading in Shares Policy.
Number of performance rights granted to Plan participants
The number of performance rights granted to participants in the LTI Plan is sometimes specified by an individual’s
employment contract, but is generally at the discretion of the Board.
For FY18 the CEO and CFO were awarded the number of performance rights needed to provide a value consistent with
the current target remuneration mix, where the value of each performance right was assumed to be the same as the
30 day volume weighted average share price at the start of the performance period.
1.5 Relationship between remuneration policy and company performance
As required by the Corporations Act 2001, the Company’s financial performance across various indices over the past five
years is set out below:
Profit/(loss) after income tax expense from
continuing operations
Reported basic earnings per share from continuing
operations (EPS) (cents)
Dividends paid (cents)
Share price at 30 June (cents)
Total Shareholder Return (TSR) (%)
FY17
(5.5)
FY16
10.8
FY15
(220.6)
FY14
28.9
FY13
43.6
(0.47)
0.87
(17.55)
2.30
4.37
–
16.5
87.5
–
8.8
33.3
–
6.6
–
10.0
–
13.0
(34.0)
(20.6)
(70.0)
Given the Company’s profit performance in recent years the FY18 STI Plan is designed to incentivise the achievement
of a much improved EBIT target in that year. Similarly, the current LTI Plan is intended to drive growth in TSR, which will
benefit shareholders through increases in the price of their shares and/or the payment of dividends.
1.6 Employment contracts
The Company’s senior executives are engaged under employment contracts that are ongoing and have no fixed end date.
However, these contracts may be terminated by notice from either party.
34
MACMAHON ANNUAL REPORT 2017REMUNERATION REPORT Key details of the employment contracts of the current CEO and CFO are set out below.
CEO
Michael Finnegan
Annual fixed
remuneration
$530,000
(including
superannuation)
CFO
$458,000
José Martins
(including
superannuation)
Notice periods
to terminate
3 months’ notice
by either party or
payment in lieu,
except in certain
circumstances such
as misconduct
where no notice
period applies.
Other remuneration
Short term and
long term incentive
opportunities as
described above.
In addition, a one
off retention bonus
of 20% of the
executive’s annual
fixed remuneration
is due on 15 October
2018 provided
the individual has
not resigned from
employment with
Macmahon prior to
that time.
Termination payments
Statutory entitlements;
plus
if the executive is made redundant
prior to 15 October 2018, or
resigns prior to this time in certain
circumstances following a change
of control or delisting of Macmahon,
payment of the retention bonus;
plus
if the executive is terminated or
resigns in certain circumstances
following a change of control or
delisting of Macmahon, a payment
equal to 6 months of annual fixed
remuneration.
2. NON-EXECUTIVE DIRECTOR REMUNERATION
The structure of the remuneration provided to non-executive directors is distinct from that applicable to executives.
Non-executive directors receive only fixed remuneration which is not linked to the financial performance of the Company.
The remuneration provided to non-executive directors in FY17 was the same as in FY16, and is set out below:
Chairman
Other Non-executive Directors (per director)
Remuneration for FY17
178,200
97,605
The maximum aggregate amount that can be paid to Non-executive Directors (the fee pool) is currently $1,100,000 per
annum, including superannuation. There has been no increase in the fee pool amount since its approval by shareholders
at the 2008 Annual General Meeting.
3. REMUNERATION GOVERNANCE
The Board oversees the remuneration arrangements of the Company. In performing this function the Board is assisted by
input and recommendations from the Remuneration & Nomination Committee (“Committee”), external consultants and
internal advice. The Committee is responsible for the overview, and recommendation to the full Board, of remuneration
arrangements for Directors, the CEO, and Executive Team members. The CEO, in consultation with the Board, sets
remuneration arrangements for other executives. No employee is directly involved in deciding their own remuneration
(including the CEO).
Further details of the role and function of the Committee are set out in the Charter for the Remuneration & Nomination
Committee on the Company’s website at http://www.macmahon.com.au
The Committee obtains advice and market remuneration data from external remuneration advisors as required. When
advice and market remuneration data is obtained, the Committee follows protocols regarding the engagement and use of
external remuneration consultants to ensure ongoing compliance with Executive remuneration legislation. These protocols
ensure that any remuneration recommendation from an external consultant is free from undue influence by any member
of the Company’s Key Management Personnel (“KMP”) to whom it relates.
During the 2017 financial year, no external consultants were engaged by the Committee, and no advice on remuneration
recommendations as defined by Division 1 of Part 1.2 of Chapter 1 of the Corporations Act 2011 was obtained.
The protocols for any external consultant providing remuneration recommendations prohibit them from providing advice
or recommendations to employees or directors before recommendations are given to the Committee. These arrangements
were implemented to ensure that any external party will be able to carry out its work, including information capture and
formation of its recommendations, free from undue influence by the individuals to whom they relate.
35
MACMAHON ANNUAL REPORT 2017 4. VALUE PROVIDED TO KMP
Details of the nature and value of each major element of remuneration provided to KMP or key management personnel of
the Company (as defined by the Corporations Act 2001) during FY17 are set out in the table below. In this table the value
of share based payments has been calculated in accordance with accounting standards.
J A Walker (Chairman)
C R G Everist
E D R Skira
V A Vella
Total compensation for
Non-executive Directors
M J Finnegan1
Chief Executive Officer
J E Martins
Chief Financial Officer
S J van Dyk2
Chief Executive Officer
Total compensation
executive personnel
Total compensation for
Directors and Executives
Year
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
Year
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
Salary
$
162,740
162,740
84,196
89,100
80,632
80,632
80,632
80,632
408,200
413,104
Short-term
Post employment
Share-based
payment
Committee
fees
$
Non-
monetary
benefits
$
Total
short-term
$
Leave
Payout
Payments
$
Other
long-term
benefits
Super-
Termination
Options and
Performance
Performance
annuation
payments
rights
related
related
and rights
compensation
Non-
Compensation
consisting
of options
–
–
–
–
–
–
–
–
–
–
162,740
162,740
92,701
97,605
89,137
89,137
89,137
89,137
433,715
438,619
–
–
–
–
–
–
–
–
–
–
–
–
8,505
8,505
8,505
8,505
8,505
8,505
25,515
25,515
Short-term
Committee
fees
$
Non-
monetary
benefits
$
Total
short-term
$
Leave
Payout
Payments
$
–
–
–
–
–
–
–
–
1,946
342,783
–
–
5,296
423,099
1,770
204,633
–
–
–
–
2,878
4,668
10,120
6,438
205,150
59,582
561,438
971,032
766,071
–
59,582
–
25,515
25,515
10,120
1,404,747
59,582
6,438
1,204,690
–
Salary
$
340,837
–
417,803
202,863
202,272
556,770
960,912
759,633
1,369,112
1,172,737
$
–
–
–
–
–
–
–
–
–
–
$
–
Other
long-term
benefits
18,783
(51,693)
51,971
5,310
70,754
5,310
70,754
15,460
15,460
4,904
$
–
8,468
8,468
8,468
8,468
37,300
32,396
$
–
18,290
12,860
30,417
50,973
48,707
88,274
81,103
20,096
13,113
36,907
25,000
$
–
–
–
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
–
–
–
rights
$
54,611
61,165
–
–
(152,083)
76,042
(36,307)
76,042
(36,307)
76,042
%
–
–
–
–
–
–
–
–
–
–
%
13
–
11
–
–
11
–
8
–
5
%
100
100
100
100
100
100
100
100
100
100
%
87
–
89
100
100
89
100
92
100
95
Post employment
Share-based
payment
Super-
Termination
Options and
Performance
Performance
annuation
payments
related
related
and rights
compensation
Non-
Compensation
consisting
of options
Total
$
178,200
178,200
97,605
97,605
97,605
97,605
97,605
97,605
471,015
471,015
Total
$
–
430,603
546,172
241,706
73,816
719,868
1,050,591
961,574
1,521,606
1,432,589
%
–
–
–
–
–
–
–
–
–
–
%
13
11
–
–
–
11
–
8
–
5
1. M J Finnegan was appointed CEO on 01 November 2016. Mr Finnegan’s remuneration in the above table is from 1 November 2016.
2. S J Van Dyk was CEO until 11 November 2016.
36
MACMAHON ANNUAL REPORT 2017REMUNERATION REPORT
4. VALUE PROVIDED TO KMP
Details of the nature and value of each major element of remuneration provided to KMP or key management personnel of
the Company (as defined by the Corporations Act 2001) during FY17 are set out in the table below. In this table the value
of share based payments has been calculated in accordance with accounting standards.
J A Walker (Chairman)
C R G Everist
E D R Skira
V A Vella
Total compensation for
Non-executive Directors
M J Finnegan1
Chief Executive Officer
J E Martins
Chief Financial Officer
S J van Dyk2
Chief Executive Officer
Total compensation
executive personnel
Total compensation for
Directors and Executives
Year
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
Year
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
Short-term
Committee
fees
Non-
monetary
benefits
Leave
Payout
short-term
Payments
$
–
–
8,505
8,505
8,505
8,505
8,505
8,505
25,515
25,515
Total
$
162,740
162,740
92,701
97,605
89,137
89,137
89,137
89,137
433,715
438,619
$
–
–
–
–
–
–
–
–
–
–
$
–
Short-term
Committee
fees
Non-
monetary
benefits
Leave
Payout
short-term
Payments
Total
$
–
1,946
342,783
5,296
423,099
1,770
204,633
2,878
4,668
10,120
6,438
561,438
971,032
766,071
$
–
–
–
–
–
–
–
–
205,150
59,582
59,582
25,515
25,515
10,120
1,404,747
59,582
6,438
1,204,690
$
–
–
–
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
Salary
$
162,740
162,740
84,196
89,100
80,632
80,632
80,632
80,632
408,200
413,104
Salary
$
340,837
–
417,803
202,863
202,272
556,770
960,912
759,633
1,369,112
1,172,737
1. M J Finnegan was appointed CEO on 01 November 2016. Mr Finnegan’s remuneration in the above table is from 1 November 2016.
2. S J Van Dyk was CEO until 11 November 2016.
Post employment
Share-based
payment
Other
long-term
benefits
$
Super-
annuation
$
Termination
payments
$
Options and
rights
$
Performance
related
%
Non-
Performance
related
%
Compensation
consisting
of options
and rights
%
Total
compensation
$
–
–
–
–
–
–
–
–
–
–
15,460
15,460
4,904
–
8,468
8,468
8,468
8,468
37,300
32,396
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100
100
100
100
100
100
100
100
100
100
–
–
–
–
–
–
–
–
–
–
178,200
178,200
97,605
97,605
97,605
97,605
97,605
97,605
471,015
471,015
Post employment
Share-based
payment
Other
long-term
benefits
$
Super-
annuation
$
Termination
payments
$
Options and
rights
$
Performance
related
%
Non-
Performance
related
%
Compensation
consisting
of options
and rights
%
Total
compensation
$
20,096
13,113
–
–
36,907
25,000
18,783
(51,693)
51,971
5,310
70,754
5,310
70,754
18,290
12,860
30,417
50,973
48,707
88,274
81,103
–
–
–
–
–
–
–
–
–
–
54,611
–
61,165
–
(152,083)
76,042
(36,307)
76,042
(36,307)
76,042
13
–
11
–
–
11
–
8
–
5
87
–
89
100
100
89
100
92
100
95
13
430,603
–
11
–
–
11
–
8
–
5
–
546,172
241,706
73,816
719,868
1,050,591
961,574
1,521,606
1,432,589
37
MACMAHON ANNUAL REPORT 2017
5. ANALYSIS OF BONUSES INCLUDED IN REMUNERATION
No bonuses were paid to KMP during FY17.
6. EQUITY INSTRUMENTS
6.1 Rights over equity instruments granted as compensation
Details of performance rights over ordinary shares in the Company that were granted as compensation to KMP during the
reporting period are as follows:
Name
M J Finnegan
Number of rights
granted during FY17
Vesting
condition
Effective date
Fair value at
grant date
($)
2,456,731
Absolute TSR
1 July 2016
184,255
J E Martins
2,446,581
Absolute TSR
1 July 2016
183,494
Expiry date
See explanation
below
See explanation
below
Rights will expire on the earlier of the termination of the individual’s employment, or the date after 1 July 2019 that they
are tested by the Board against the vesting condition and found not to satisfy that condition. Rights are eligible to vest on
1 July 2019. In addition to a continuing performance condition, vesting is conditional on the extent to which the Company
achieves increases in absolute TSR, as described on page 33.
6.2 Details of equity incentives affecting current and future remuneration
Details of the vesting profiles of the rights over ordinary shares in the Company held by KMP during FY17 are detailed
below:
Name
M J Finnegan
J E Martins
Effective
Date
Number
Granted
1 July 14
700,000
1 July 16
2,456,731
1 July 16
2,446,581
Number
vested
in FY17
Number
forfeited
in FY17
Held at
30 June 2017
–
–
–
–
–
–
700,000
2,456,731
2,446,581
Financial year in
which the grant
vests, subject to
performance
FY18
FY20
FY20
All performance rights held at 30 June 2017 have not vested and are neither exercisable or unexercisable.
Mr Finnegan – on 1 July 2017, 254,100 performance rights became eligible to vest in relation to the 1 July 2014 plan
for which shares will be granted. On 1 July 2017, Mr Finnegan was offered 3,333,333 performance rights as part of the
company’s FY18 LTI Plan.
Mr Martins – on 1 July 2017, Mr Martins was offered 1,440,252 performance rights as part of the company’s FY18 LTI Plan.
6.3 Analysis of movements in equity instruments
The value of rights over ordinary shares in the Company granted and exercised by KMP during the reporting period is
detailed below:
M J Finnegan
J E Martins
Value granted
in year
($)
Value of rights
exercised
in year
($)
184,255
183,494
–
–
The value of rights granted in the year is the fair value of the rights calculated at grant date. The total value of rights
granted is included in the table above. This amount is allocated to remuneration over the performance period (i.e. in years
1 July 2016 to 1 July 2019).
38
MACMAHON ANNUAL REPORT 2017REMUNERATION REPORT The movement during the reporting period, by number of rights over ordinary shares in the Company held, directly,
indirectly or beneficially, by each KMP, including their related parties, is as follows:
M J Finnegan
J E Martins
Held at
1 July 2016
Granted as
compen-
sation
700,000
2,456,731
–
2,446,581
Exercised
Lapsed
Forfeited
Held at
30 June
2017
Vested
during the
year
–
–
–
–
–
–
3,156,731
2,446,581
–
–
6.3 Movements in shareholdings
The movement during the reporting period in the number of ordinary shares in the Company held directly, indirectly or
beneficially, by each KMP including their related parties, is as follows:
Directors
J A Walker
C R G Everist
E D R Skira
V A Vella
Executives
M J Finnegan
J E Martins
S J van Dyk
Total
Purchases
Sold
Balance at
end of the
year
Balance at
the start of
the year
300,000
100,000
–
1,357,842
125,000
(purchased
29/06/2017)
–
–
500,000
(purchased
13/06/2017)
–
425,000
100,000
–
1,857,842
300,000
–
–
–
–
300,000
–
–
1,400,000
Ceased to be a KMP on 11 November 2016.
3,457,842
625,000
2,682,842
39
MACMAHON ANNUAL REPORT 2017
FINANCIAL REPORT
FINANCIAL STATEMENTS
Statement of profit or loss and other comprehensive income
Statement of financial position
Statement of changes in equity
Statement of cash flows
Notes to the financial statements
Directors’ declaration
Independent auditor’s report
41
43
44
45
46
99
100
GENERAL INFORMATION
The financial statements cover Macmahon Holdings Limited (“the company”) as a consolidated entity (referred to
hereafter as “the Group” or “the consolidated entity” consisting of Macmahon Holdings Limited and the entities it
controlled at the end of, or during, the year. The financial statements are presented in Australian dollars, which is
Macmahon Holdings Limited’s functional and presentation currency.
Macmahon Holdings Limited is a listed public company limited by shares, incorporated and domiciled in Australia.
The Group is a for–profit entity.
REGISTERED OFFICE & PRINCIPAL PLACE OF BUSINESS
15 Hudswell Road
PERTH AIRPORT
Western Australia, 6105
A description of the nature of the consolidated entity’s operations and its principal activities are included in the Directors’
report, which is not part of the financial statements.
The financial statements were authorised for issue, in accordance with a resolution of Directors, on 24 August 2017.
Where an accounting policy, critical accounting estimate, assumption or judgement, is specific to a note these are
described within the note to which they relate.
40
MACMAHON ANNUAL REPORT 2017
STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
for the year ended 30 June 2017
Revenue from continuing operations
Other income
Expenses
Materials and consumables used
Employee benefits expense
Subcontractor costs
Depreciation and amortisation expense
Equipment and office expenses under operating leases
Takeover defence costs
Other expenses
Net finance costs
Share of profit of equity–accounted investees, net of tax
Onerous lease provisions raised
Profit/(Loss) before income tax expense from continuing operations
Income tax expense
2017
$’000
Restated*
2016
$’000
359,645
312,167
6,845
8,814
(174,795)
(125,277)
(134,212)
(118,463)
(5,866)
(7,835)
(33,476)
(28,799)
(14,266)
(16,772)
(3,408)
–
(8,061)
(10,694)
(150)
2,524
(650)
609
(5,220)
13,100
–
(2,058)
(5,220)
11,042
(322)
(247)
Note
2
3
3
3
3
3
3
3
4
Profit/(Loss) after income tax expense from continuing operations
(5,542)
10,795
Loss after income tax expense from discontinued operations
29
(17,264)
(9,069)
Profit/(Loss) after income tax expense for the year
(22,806)
1,726
Other comprehensive income/(loss)
Items that are or may be reclassified subsequently to profit or loss
Foreign currency translation
Reclassification of foreign currency reserve on closure of foreign operation
Cash flow hedges – reclassified to profit or loss
17
Other comprehensive (loss)/income for the year, net of tax
Total comprehensive loss for the year
Total comprehensive loss for the year is attributable to:
Continuing operations
Discontinued operations
* Prior year amounts have been restated to exclude discontinued operations.
(5,212)
6,982
–
(9,272)
–
(251)
1,770
(9,523)
(21,036)
(7,797)
(3,772)
1,272
(17,264)
(9,069)
(21,036)
(7,797)
The above statement of profit or loss and other comprehensive income should be read in conjunction with the
accompanying notes.
41
MACMAHON ANNUAL REPORT 2017
Earnings per share for profit/(loss) from continuing operations attributable to the
owners of Macmahon Holdings Limited
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
Earnings per share for profit/(loss) from discontinued operations attributable to the
owners of Macmahon Holdings Limited
Basic earnings per share
Diluted earnings per share
Earnings per share for profit/(loss) attributable to the owners of
Macmahon Holdings Limited
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
* Prior year amounts have been restated to exclude discontinued operations.
2017
Cents
*Restated
2016
Cents
Notes
5
5
5
5
5
5
(0.47)
(0.47)
0.87
0.87
(1.45)
(1.45)
(0.73)
(0.73)
(1.92)
(1.92)
0.14
0.14
The above statement of profit or loss and other comprehensive income should be read in conjunction with the
accompanying notes.
42
MACMAHON ANNUAL REPORT 2017STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEfor the year ended 30 June 2017 STATEMENT OF FINANCIAL POSITION
as at 30 June 2017
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Income tax
Assets classified as held for sale
Total current assets
Non-current assets
Investments accounted for using the equity method
Property, plant and equipment
Deferred tax
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Borrowings
Income tax
Employee benefits
Provisions
Liabilities directly associated with assets classified as held for sale
Total current liabilities
Non-current liabilities
Borrowings
Employee benefits
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Accumulated losses
Total equity
Note
2017
$’000
2016
$’000
7
8
10
4b
13
22
13
4c
9
15
4b
11a
12
15
11b
62,925
53,423
32,086
12,963
161,397
3,079
56,699
59,578
37,264
12,750
166,291
9,210
164,476
175,501
6,891
122,679
917
6,294
117,653
617
130,487
124,564
294,963
300,065
73,990
61,352
1,939
–
12,111
14,582
204
193
11,589
17,135
102,622
90,473
–
1,834
102,622
92,307
6,909
441
7,350
–
383
383
109,972
92,690
184,991
207,375
16
17
384,794
385,957
(10,421)
(12,933)
(189,382)
(165,649)
184,991
207,375
The above statement of financial position should be read in conjunction with the accompanying notes.
43
MACMAHON ANNUAL REPORT 2017 STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2017
Consolidated
Balance at 1 July 2016
Profit/(loss) after income tax for the year
Other comprehensive income for the year, net of tax
Total comprehensive (loss)/income for the year
Transactions with owners in their capacity as owners:
Treasury shares allocated on vesting of performance rights
Share–based payments (note 25)
Share buy–back (note 16)
Balance at 30 June 2017
Consolidated
Balance at 1 July 2015
Profit/(loss) after income tax expense for the year
Other comprehensive loss for the year, net of tax
Total comprehensive (loss)/income for the year
Transactions with owners in their capacity as owners:
Derecognition of deferred tax asset (note 4)
Share–based payments (note 25)
Share buy–back (note 16)
Balance at 30 June 2016
Issued
capital
$’000
Reserves
$’000
(Accumulated
losses)/
Retained profits
$’000
Total
equity
$’000
385,957
(12,933)
(165,649)
207,375
–
–
–
–
–
(1,163)
–
1,770
1,770
742
–
–
(22,806)
(22,806)
–
1,770
(22,806)
(21,036)
(742)
(185)
–
–
(185)
(1,163)
384,794
(10,421)
(189,382)
184,991
Issued
capital
$’000
Reserves
$’000
Retained
profits
$’000
Total
equity
$’000
391,390
(1,468)
(168,112)
221,810
–
–
–
–
–
(5,433)
–
(9,523)
(9,523)
(1,942)
–
–
1,726
1,726
–
(9,523)
1,726
(7,797)
–
737
–
(1,942)
737
(5,433)
385,957
(12,933)
(165,649)
207,375
The above statement of changes in equity should be read in conjunction with the accompanying notes.
44
MACMAHON ANNUAL REPORT 2017 STATEMENT OF CASH FLOWS
for the year ended 30 June 2017
Cash flows from operating activities
Receipts from customers
Payments to suppliers
Net receipts from joint venture entities
Interest received
Interest and other finance costs paid
Income taxes paid
Net cash from operating activities
Cash flows from investing activities
Payments for property, plant and equipment
Proceeds from disposal of property, plant and equipment
Investment in joint venture
Net cash generated from/(used in) investing activities
Cash flows from financing activities
Purchase of own shares
Repayment of borrowings
Repayment of hire purchase and finance lease liabilities
Settlement of derivatives
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
Consolidated
Note
2017
$’000
2016
$'000
402,438
394,331
(376,422)
(381,630)
4,319
402
(480)
(42)
175
1,263
(2,231)
(2,842)
6
30,215
9,066
13
(34,917)
(23,532)
12,579
1,859
17,568
(5,622)
(20,479)
(11,586)
(1,163)
(5,433)
–
(159,000)
(1,432)
(3,402)
–
(9,204)
(2,595)
(177,039)
7,141
(179,559)
56,699
236,892
(915)
(634)
Cash and cash equivalents at the end of the financial year
7
62,925
56,699
The above statement of cash flows should be read in conjunction with the accompanying notes.
45
MACMAHON ANNUAL REPORT 2017 CONTENTS OF THE NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
PART A: RESULTS
Note 1. Segment information
Note 2. Other income
Note 3. Expenses
Note 4. Tax
Note 5. Earnings per share
PART B: CASH FLOW INFORMATION
Note 6. Reconciliation of profit/(loss) after income tax to net cash from operating activities
PART C: WORKING CAPITAL
Note 7. Cash and cash equivalents
Note 8. Trade and other receivables
Note 9. Trade and other payables
Note 10. Inventories
Note 11. Employee benefits
Note 12. Provisions
PART D: FIXED ASSETS
Note 13. Property, plant and equipment
PART E: RISK
Note 14. Financial Risk Management
PART F: DEBT AND EQUITY
Note 15. Borrowings
Note 16. Equity – issued capital
Note 17. Equity – reserves
PART G: UNRECOGNISED ITEMS
Note 18. Contingent liabilities
Note 19. Commitments
Note 20. Events after the reporting period
PART H: OTHER INFORMATION/GROUP STRUCTURE
Note 21. Interests in subsidiaries
Note 22. Interests in joint ventures
Note 23. Related party transactions
Note 24. Key management personnel disclosures
Note 25. Share–based payments
Note 26. Remuneration of auditors
Note 27. Deed of cross guarantee
Note 28. Parent entity information
Note 29. Discontinued operations and assets classified as held for sale
Note 30. Other significant accounting policies
47
50
51
53
56
58
59
59
60
61
61
63
64
68
76
77
79
80
80
81
82
83
85
86
86
90
90
93
94
95
46
MACMAHON ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 30 June 2017
PART A – RESULTS
NOTE 1. SEGMENT INFORMATION
Identification of reportable operating segments
The consolidated entity has identified its reportable segments based on the internal reports that are reviewed and used
by the Chief Executive Officer and Managing Director (the chief operating decision maker) in assessing performance and
in determining the allocation of resources.
Management have identified three operating segments; Surface Mining, Underground Mining and International Mining.
These segments have been aggregated into “Mining” due to all segments exhibiting similar economic characteristics in
terms of the nature of the products and services, production processes, type or class of customers, methods used to
provide their services and regulatory environments which these services are provided in.
The following describes the operations of each reportable segment.
Mining
Provides a complete set of mining services for surface and underground operations – from mine development to materials
delivery, including the full range of engineering services which include design, construction and on site services to deliver
on client needs from the design phase right through to completion.
Joint Ventures
Revenue from joint venture entities is not recognised in the financial statements as these entities are equity accounted.
For such entities, the share of net profits is recognised.
The consolidated entity’s share of revenue from joint venture entities is excluded from the income statement in
accordance with Accounting Standards.
Information regarding the results of each reportable segment is included below. Performance is measured based on
segment profit before income tax as included in the internal management reports that are reviewed by the consolidated
entity’s CEO. Segment profit is used to measure performance as management believes that such information is the most
relevant in evaluating the results of certain segments relative to other entities that operate within these industries.
For clarity and reconcilitation to the statement of profit and loss, discontinued operations relating to Nigeria are
separately disclosed. The comparative segment information for the operating performance of Nigeria has been restated.
47
MACMAHON ANNUAL REPORT 2017 NOTE 1. SEGMENT INFORMATION CONTINUED
Operating segment information
Consolidated – 2017
Revenue
External revenues
Total revenue
Earnings before interest, tax, depreciation and amortisation
(and other significant items)
Interest income
Finance costs
Depreciation and amortisation
Impairment of property, plant and equipment
Takeover defence cost
Nigeria
Discontinued
Operations
$’000
Mining
$’000
Unallocated
$’000
Total
$’000
359,645
359,645
6,595
6,595
303
303
366,543
366,543
35,199
(16,459)
(1,461)
17,279
51
(494)
(33,476)
–
–
68
–
(740)
(1,683)
297
–
–
–
416
(494)
(34,216)
(1,683)
–
(3,408)
(3,408)
Profit/(loss) before income tax expense
1,280
(18,814)
(4,572)
(22,106)
Income tax expense
Loss after income tax expense
Assets
Segment assets
Total assets
Liabilities
Segment liabilities
Total liabilities
Capital Expenditure
(700)
(22,806)
217,774
150
77,039
294,963
294,963
101,713
1,368
6,891
109,972
109,972
44,993
–
–
44,993
48
MACMAHON ANNUAL REPORT 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 30 June 2017 Consolidated – 2016 Restated
Revenue
External revenues
Total revenue
Nigeria
Discontinued
Operations
$’000
Unallocated
$’000
Total
$’000
34,233
34,233
1,588
1,588
348,988
348,988
Mining
$’000
313,167
313,167
Earnings before interest, tax, depreciation and amortisation
(and other significant items)
53,901
(9,194)
(4,721)
39,986
Interest income
Finance costs
Depreciation and amortisation
Onerous lease provision
84
(5,496)
(27,067)
–
32
(1,795)
(4,187)
–
Profit/(loss) before income tax expense
21,422
(15,144)
1,147
3,663
1,263
(3,628)
(1,880)
(33,134)
(2,058)
(3,849)
(2,058)
2,429
(703)
1,726
Income tax expense
Loss after income tax expense
Assets
Segment assets
Total assets
Liabilities
Segment liabilities
Total liabilities
Capital Expenditure
Geographical information
Australia
Nigeria – discontinued operations
Other
212,344
19,389
68,332
300,065
73,280
7,960
11,450
300,065
92,690
92,690
23,345
–
187
23,532
Sales to
external customers
Geographical
non-current assets
2017
$’000
2016*
$’000
2017
$’000
2016
$’000
348,458
300,841
123,648
112,525
6,595
11,490
34,233
13,914
–
6,839
7,748
4,291
366,543
348,988
130,487
124,564
* The operating performance of Nigeria, previously included in Other segment, has been separately disclosed as the operations have been discontinued.
The Mining segment operates in two principal geographical areas – Australia and Other. In presenting information on the
basis of geographical segments, segment revenue is based on the geographical location of customers. Segment assets
are based on the geographical location of the assets.
Major customer
Approximately 55% (2016: 48%) of the consolidated entity’s revenue is attributable to sale transactions with its
largest customer.
49
MACMAHON ANNUAL REPORT 2017 NOTE 1. SEGMENT INFORMATION CONTINUED
Operating segments
An operating segment is a component of the consolidated entity that engages in business activities from which it
may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the
consolidated entity’s other components. All operating segments’ operating results are regularly reviewed by the
consolidated entity’s CEO to make decisions about resources to be allocated to the segment and assess its performance,
and for which discrete financial information is available.
Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be
allocated on a reasonable basis. Unallocated items comprise mainly corporate assets, head office expenses, and income
tax assets and liabilities.
Segment capital expenditure is the total cost incurred during the year to acquire property, plant and equipment, and
intangible assets other than goodwill.
NOTE 2. OTHER INCOME
Net gain on disposal of property, plant and equipment
Net foreign exchange gain
Other
Other income
Consolidated
2017
$’000
2,268
892
3,685
6,845
2016
$’000
5,294
2,451
1,069
8,814
Other income
Other income includes management fees from joint venture partners of $3.4 million (June 2016: $1.1 million). Refer to
note 23.
The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds
from disposal with the carrying amount of property, plant and equipment, and is recognised within other income/other
expenses in profit or loss.
50
MACMAHON ANNUAL REPORT 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 30 June 2017 NOTE 3. EXPENSES
Profit/(Loss)before income tax from continuing operations includes the following specific expenses:
Consolidated
2017
$’000
2016
$’000
Depreciation from continuing operations
Leasehold improvements
Plant and equipment
Plant and equipment under lease
Buildings
Total depreciation from continuing operations
Depreciation included in discontinued operations
Plant and equipment
Total depreciation from discontinued operations
Total depreciation expense
Amortisation
Software
Total depreciation and amortisation
Cost of Sales
Materials and consumables used
Employee benefits expense
Subcontractor costs
Total cost of sales
Finance (income) and costs
Interest income on financial assets (bank deposits)
Interest expense on financial liabilities carried at amortised cost
80
31,744
1,652
–
67
27,708
756
247
33,476
28,778
740
740
34,216
4,335
4,335
33,113
–
21
34,216
33,134
174,795
134,212
5,866
125,277
118,463
7,835
314,873
251,575
(344)
494
150
(1,181)
1,831
650
51
MACMAHON ANNUAL REPORT 2017 NOTE 3. EXPENSES CONTINUED
Finance costs
Finance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are expensed in
the period in which they are incurred, including:
– interest on short–term and long–term borrowings
– interest on finance leases.
Rental expense relating to operating leases
Onerous lease provisions raised*
Equipment and office expenses under operating leases
Total rental expense
* Onerous lease provisions raised.
Consolidated
2017
$’000
–
14,266
2016
$’000
2,058
16,772
14,266
18,830
During the 2015 financial year, the Company relocated all of the West Perth based employees to the Hudswell Road airport facilities. The Company has partially sublet the
West Perth office to save on rental expenses. An onerous contract provision of $nil million (2016: $2.1 million) has been recognised in the year which is based on the present
value of future outgoings (rental payments) net of estimated recoveries (from sub–letting).
Superannuation expense
Defined contribution superannuation expense
Defined benefit superannuation expense
Total superannuation expense
Share–based payments (reversal)/expense
Share–based payments (reversal)/expense
9,248
17
8,611
17
9,265
8,628
(185)
737
52
MACMAHON ANNUAL REPORT 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 30 June 2017 NOTE 4. TAX
a) Income tax expense
Income tax expense
Current tax
Adjustment recognised for prior periods
Deferred tax – origination and reversal of temporary differences
Aggregate income tax expense
Income tax expense/(benefit) is attributable to:
Profit/(Loss) from continuing operations
Profit/(Loss) from discontinued operations
Aggregate income tax expense
Numerical reconciliation of income tax expense and tax at the statutory rate
Profit/(Loss) before income tax expense from continuing operations
Profit/(Loss) before income tax expense from discontinued operations
Consolidated
2017
$’000
2016*
$’000
923
77
3,114
81
(300)
(2,492)
700
703
322
378
700
247
456
703
(5,220)
(16,886)
11,042
(8,613)
(22,106)
2,429
Numerical reconciliation of income tax expense and tax at the statutory rate
(22,106)
2,429
Tax at the statutory tax rate of 30%
(6,632)
729
Tax effect amounts which are not deductible/(taxable) in calculating taxable income:
Share–based payments
(Non-assessable income)/Non-deductible expenses
Foreign tax rate differential
Utilisation of foreign and domestic income tax losses not previously recognised
Other
Impairment for which no deferred tax asset was recognised
Current year temporary differences for which no deferred tax asset was recognised
Current year losses for which no deferred tax asset was recognised
Adjustment recognised for prior periods
Income tax expense
* Prior year amounts have been restated to exclude discontinued operations.
(55)
2,557
(450)
(21)
(13)
–
2,886
2,351
623
77
700
221
(178)
(555)
(121)
(25)
–
551
–
622
81
703
53
MACMAHON ANNUAL REPORT 2017 NOTE 4. TAX CONTINUED
b) Current assets and liabilities – income tax
Income tax refund due – Australian Operations
Income tax payable – overseas
c) Non-current assets – deferred tax
Net Deferred tax asset comprises temporary differences attributable to:
Amounts recognised in profit or loss:
Inventories
Property, plant and equipment
Unbilled work
Employee benefits
Other creditors and accruals
Other items
Tax loss carry forward
Comprising of:
Deferred tax asset
Deferred tax asset/(liability)
Amount recognised in equity during the year:
Treasury shares expense/(benefit)
Consolidated
2017
$’000
12,963
2016
$’000
12,750
–
193
Consolidated
2017
$’000
2016
$’000
(301)
(19,288)
(1,307)
(11,155)
(10,760)
(7,894)
10,101
6,439
76
14,650
11,096
4,206
398
5,273
917
617
917
917
–
–
617
617
1,942
1,942
Amount recognised in profit or loss during the year
(300)
(2,492)
Unrecognised deferred tax asset
Australian impairment and other deductible differences (excluding inventory)
Allowances for inventory
Foreign deductible differences (excluding inventory)
Unrecognised temporary differences
Foreign tax losses
43,855
8,198
6,189
40,681
10,140
4,248
58,242
55,069
8,206
5,855
66,448
60,924
54
MACMAHON ANNUAL REPORT 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 30 June 2017 Income tax
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognised in profit or loss
except to the extent that it relates to items recognised directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted
or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax
payable also includes any tax liability arising from the declaration of dividends.
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when
the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted,
except for:
– When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in
a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting
nor taxable profits; or
– When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and
the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the
foreseeable future.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse,
based on laws that have been enacted or substantively enacted at the reporting date.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets,
and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities,
but they intend to settle current tax assets and liabilities on a net basis or their tax assets and liabilities will be realised
simultaneously.
A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent
that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are
reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will
be realised.
Additional income tax expenses that arise from the distribution of cash dividends are recognised at the same time that
the liability to pay the related dividend is recognised. The consolidated entity does not distribute non-cash assets as
dividends to its Shareholders.
Tax consolidation
The Company and its wholly–owned Australian resident entities have formed a tax–consolidated group with effect from
1 July 2003 and are therefore taxed as a single entity from that date. The head entity within the tax–consolidated group
is Macmahon Holdings Limited.
Current income tax expense/benefit, deferred tax liabilities and deferred tax assets arising from temporary differences
of the members of the tax–consolidated group are recognised in the separate financial statements of the members of
the tax–consolidated group using the “separate taxpayer within group” approach by reference to the carrying amounts
of assets and liabilities in the separate financial statements of each entity and the tax values applying under tax
consolidation.
Any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses of the subsidiaries are
assumed by the head entity in the tax–consolidated group and are recognised as amounts payable to/(receivable from)
other entities in the tax consolidated group in conjunction with any tax funding arrangement amounts (refer below).
Any difference between these amounts is recognised by the consolidated entity as an equity contribution or distribution.
The consolidated entity recognises deferred tax assets arising from unused tax losses of the tax–consolidated group to
the extent that it is probable that future taxable profits of the tax–consolidated group will be available against which the
unused tax losses can be utilised. Any subsequent period adjustments to deferred tax assets arising from unused tax
losses as a result of revised assessments of the probability of recoverability is recognised by the head entity only.
55
MACMAHON ANNUAL REPORT 2017 NOTE 4. TAX CONTINUED
Nature of tax funding arrangements and tax sharing arrangements
The head entity, in conjunction with other members of the tax–consolidated group, has entered into a tax funding
arrangement which sets out the funding obligations of members of the tax–consolidated group in respect of tax amounts.
The tax funding arrangements require payments to/(from) the head entity equal to the current tax asset/(liability)
assumed by the head entity and any deferred tax loss asset assumed by the head entity, resulting in the head entity
recognising an inter–entity payable/(receivable) equal in amount to the tax asset/(liability) assumed. The inter–entity
payables/(receivables) are at call.
Contributions to fund the current tax liabilities are payable as per the tax funding arrangement and reflect the timing of
the head entity’s obligation to make payments for tax liabilities to the relevant tax authorities.
The head entity in conjunction with other members of the tax–consolidated group has also entered into a tax sharing
agreement. The tax sharing agreement provides for the determination of the allocation of income tax liabilities between
the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the
financial statements in respect of this agreement as payment of any amounts under the tax sharing agreement is
considered remote.
Income tax
The consolidated entity is subject to income taxes in the jurisdictions in which it operates. Significant judgment is required
in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary
course of business for which the ultimate tax determination is uncertain. The consolidated entity recognises liabilities for
anticipated tax audit issues based on the consolidated entity's current understanding of the tax law. Where the final tax
outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred
tax provisions in the period in which such determination is made.
Recovery of deferred tax assets
Deferred tax assets are recognised for deductible temporary differences only if the consolidated entity considers it is
probable that future taxable amounts will be available to utilise those temporary differences and losses.
NOTE 5: EARNINGS PER SHARE
Earnings per share for profit/(loss) from continuing operations
Profit/(loss) after income tax from continuing operations attributable to the owners
of Macmahon Holdings Limited
Consolidated
2017
$’000
2016*
$’000
(5,542)
10,795
Number
Number
Weighted average number of ordinary shares used in calculating basic earnings per share
1,189,689,643 1,247,929,728
Adjustments for calculation of diluted earnings per share:
Effect of performance rights on issue
–
2,383,265
Weighted average number of ordinary shares used in calculating diluted earnings per share 1,189,689,643 1,250,312,993
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
* Prior year amounts have been restated to exclude discontinued operations.
Cents
(0.47)
(0.47)
Cents
0.87
0.87
56
MACMAHON ANNUAL REPORT 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 30 June 2017
Earnings per share for loss from discontinued operations
Loss after income tax from discontinued operations attributable to the owners of
Macmahon Holdings Limited
Consolidated
2017
$’000
2016*
$’000
(17,264)
(9,069)
Number
Number
Weighted average number of ordinary shares used in calculating basic earnings per share
1,189,689,643 1,247,929,728
Adjustments for calculation of diluted earnings per share:
Effect of performance rights on issue
–
2,383,265
Weighted average number of ordinary shares used in calculating diluted earnings per share 1,189,689,643 1,250,312,993
Basic loss per share
Diluted loss per share
*Prior year amounts have been restated to exclude discontinued operations.
Cents
(1.45)
(1.45)
Cents
(0.73)
(0.73)
Consolidated
2017
$’000
2016
$’000
Earnings per share for profit/(loss)
Profit/(Loss) after income tax attributable to the owners of Macmahon Holdings Limited
(22,806)
1,726
Weighted average number of ordinary shares used in calculating basic earnings per share
1,189,689,643 1,247,929,728
Adjustments for calculation of diluted earnings per share:
Effect of performance rights on issue
–
2,383,265
Weighted average number of ordinary shares used in calculating diluted earnings per share 1,189,689,643 1,250,312,993
Number
Number
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
Cents
(1.92)
(1.92)
Cents
0.14
0.14
At 30 June 2017, Macmahon performance rights were excluded from the diluted weighted average number of ordinary
shares calculation as their effect would have been anti-dilutive.
Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing the (loss)/profit attributable to the owners of Macmahon Holdings
Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary
shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year.
Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account
the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and
the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential
ordinary shares.
57
MACMAHON ANNUAL REPORT 2017
PART B: CASH FLOW INFORMATION
NOTE 6. RECONCILIATION OF PROFIT/(LOSS) AFTER INCOME TAX TO NET CASH
FROM OPERATING ACTIVITIES
Profit/(Loss) after income tax expense for the year from continuing operations
Adjustments for:
Depreciation and amortisation
Cash flow hedges – reclassified from reserve
Net gain on disposal of property, plant and equipment and other
Share of profit – joint ventures
Share–based payments
Foreign exchange gains
Income tax expense/(benefit)
Change in operating assets and liabilities:
Decrease/(increase) in trade and other receivables
Decrease/(increase) in inventories
Increase/(decrease) in trade and other payables
Decrease in income tax balances
Decrease in employee benefits
Net cash from operating activities – continuing operations
Net cash from operating activities – discontinued operations
Net cash from operating activities
Consolidated
2017
$’000
2016
$’000
(5,542)
10,795
33,476
28,799
–
(2,268)
(2,524)
(185)
1,397
(6,348)
(609)
737
(1,239)
(1,006)
322
247
(5,302)
850
6,943
12,329
15,487
(31,454)
(3)
(2,842)
(2,062)
(7,857)
31,010
11,131
(795)
(2,065)
30,215
9,066
58
MACMAHON ANNUAL REPORT 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 30 June 2017 PART C: WORKING CAPITAL
NOTE 7. CASH AND CASH EQUIVALENTS
Cash on hand
Cash at bank
Consolidated
2017
$’000
8
2016
$’000
16
62,917
56,683
62,925
56,699
Cash and cash equivalents
Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short–term, highly
liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash
and which are subject to an insignificant risk of changes in value.
NOTE 8. TRADE AND OTHER RECEIVABLES
a) Current trade and other receivables
Trade receivables
Less: allowance for doubtful debts
Other receivables and prepayments
Accrued revenue
Allowance for doubtful debts
The ageing of the doubtful receivables allowance are as follows:
Over 3 months overdue
Movements in the allowance for doubtful debts is as follows:
Opening balance
Additional allowances (released)/recognised
Allowances recovered through sale of subsidiaries and settlement of dispute
Closing balance
Consolidated
2017
$’000
8,506
2016
$’000
22,835
(216)
(1,260)
8,290
21,575
9,163
35,970
9,020
28,983
53,423
59,578
Consolidated
2017
$’000
216
216
2016
$’000
1,260
1,260
Consolidated
2017
$’000
1,260
(935)
(109)
2016
$’000
1,512
(252)
–
216
1,260
59
MACMAHON ANNUAL REPORT 2017 NOTE 8: TRADE AND OTHER RECEIVABLES CONTINUED
Past due but not doubtful
There are no customers with balances past due but without any allowance for doubtful debts as at 30 June 2017
($4.3 million as at 30 June 2016).
After reviewing credit terms of customers based on recent collection practices, the consolidated entity did not consider a
credit risk on the aggregate balances.
The ageing of the past due but not doubtful debts are as follows:
Past due 0–30 days
Past due 31+ days
For information on credit risk refer to note 14.
Trade and other receivables
Consolidated
2017
$’000
658
–
658
2016
$’000
1,496
3,589
5,085
Trade and other receivables
Trade and other receivables are stated at cost less impairment losses. Due to the short–term nature of trade and other
receivables, their carrying value is assumed to approximate their fair value.
Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written
off by reducing the carrying amount directly. A provision for doubtful trade receivables is raised when there is objective
evidence that the consolidated entity will not be able to collect all amounts due according to the original terms of the
receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial
reorganisation and default or delinquency in payments (more than 60 days overdue) are considered indicators that the
trade receivable may be doubtful. The amount of the doubtful allowance is the difference between the asset’s carrying
amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows
relating to short–term receivables are not discounted if the effect of discounting is immaterial.
Accrued revenue
Accrued revenue represents the unbilled amount at year end in respect of mining services provided.
Provision for doubtful receivables
The provision for doubtful receivables assessment requires a degree of estimation and judgment. The level of provision
is assessed by taking into account the recent sales experience, the ageing of receivables, historical collection rates and
specific knowledge of the individual debtors financial position.
NOTE 9. TRADE AND OTHER PAYABLES
Trade payables
Accrued expenses
Other payables
Refer to note 14 for further information on financial instruments.
60
Consolidated
2017
$’000
28,313
40,306
5,371
2016
$’000
24,360
33,873
3,119
73,990
61,352
MACMAHON ANNUAL REPORT 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 30 June 2017 Trade and other payables
These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the
financial year and which are unpaid. Due to their short–term nature they are measured at amortised cost and are not
discounted. The amounts are unsecured and are usually paid within 30 days of recognition.
NOTE 10. INVENTORIES
Operating inventory at cost
Less: Allowance for obsolescence
Inventory at Net Realisable Value
Consolidated
2017
$’000
2016
$’000
30,630
30,846
(3,925)
(4,090)
26,705
26,756
5,381
32,086
10,508
37,264
The Company reviewed the value of items in inventory and reduced inventory to net realisable value based on an
assessment of current market conditions with the assistance of external valuations provided by an independent valuer
and internal assessments, where necessary. This did not result in any inventory writedowns in the current year (2016: nil).
Inventories
Inventories are measured at the lower of cost and net realisable value.
The cost of inventories is based on the weighted average principle and includes expenditure incurred in acquiring the
inventories and other costs incurred in bringing them to their existing location and condition.
Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion
and the estimated costs necessary to make the sale.
Allowances for obsolescence
The provision for impairment of inventories assessment requires a degree of estimation and judgment. The level of the
provision is assessed by taking into account the recent sales experience, the ageing of inventories and other factors that
affect inventory obsolescence.
NOTE 11. EMPLOYEE BENEFITS
a) Current liabilities – employee benefits
Annual leave
Long service leave
Consolidated
2017
$’000
8,885
3,226
2016
$’000
8,275
3,314
12,111
11,589
Accrued wages and salaries between the last pay date and 30 June 2017 of $2.0 million (2016: $1.4 million) are included
within the accrued expenses balance as disclosed in note 9.
b) Non-current liabilities – employee benefits
Long service leave
Consolidated
2017
$’000
441
441
2016
$’000
383
383
61
MACMAHON ANNUAL REPORT 2017 NOTE 11. EMPLOYEE BENEFITS CONTINUED
c) Non-current liabilities – retirement benefit obligations
Superannuation plan
The Trust Company Ltd is the Trustee of the Macmahon Employees Superannuation Fund (“the Fund”) and is responsible
for all areas of compliance with regard to the Fund. All members of the now closed defined benefit section were
previously invited to transfer their entitlement to the accumulation section of the Fund. At 30 June 2017, 1 member
(2016: 1 member) remained in the defined benefit section.
Employee benefits
Wages and salaries, annual leave and sick leave
Liabilities for wages and salaries, including non-monetary benefits, annual leave, long service leave and accumulating
sick leave expected to be settled within 12 months of the reporting date are recognised in current liabilities in respect of
employees' services up to the reporting date and are measured at the amounts expected to be paid when the liabilities
are settled. Non-accumulating sick leave is expensed to profit or loss when incurred.
Long service leave
The liability for long service leave is recognised in current and non-current liabilities, depending on the unconditional right
to defer settlement of the liability for at least 12 months after the reporting date. The liability is 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 wage and salary levels, experience of
employee departures and periods of service. Expected future payments are discounted using market yields on national
government bonds at the reporting date with terms to maturity and currency that match, as closely as possible, the
estimated future cash outflows.
Defined contribution superannuation expense
A defined contribution plan is a post–employment benefit plan under which an entity pays fixed contributions into a
separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to
defined contribution plans are recognised as an employee benefit expense in profit or loss in the periods during which
services are rendered by employees. Prepaid contributions are recognised as an asset to the extent that a cash refund or
reduction in future payments is available. Contributions to a defined contribution plan which are due more than 12 months
after the end of the period in which the employees render the service are discounted to their present value.
Defined benefit plans
The consolidated entity's net obligation in respect of defined benefit plans is calculated separately for each plan by
estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that
amount and deducting the fair value of any plan assets.
The calculation of defined benefit obligations is performed every three years and in intervening periods calculated on
actuarial estimates using the projected unit credit method. When the calculation results in a potential asset for the
consolidated entity, the recognised asset is limited to the present value of the economic benefits available in the form
of any future refunds from the plan or reductions in future contributions to the plan. To calculate the present value of
economic benefits, consideration is given to any applicable minimum funding requirements.
Termination benefits
Termination benefits are recognised as an expense when the consolidated entity is committed demonstrably, without
realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement
date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination
benefits for voluntary redundancies are recognised as an expense if the consolidated entity has made an offer
encouraging voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be
estimated reliably. If benefits are payable more than 12 months after the reporting date, then they are discounted to their
present value.
Long service leave provision
The liability for employee benefits expected to be settled more than 12 months from the reporting date is recognised and
measured at the present value of the estimated future cash flows to be made in respect of all employees at the reporting
date. In determining the present value of the liability, estimates of attrition rates and pay increases through promotion and
inflation have been taken into account.
62
MACMAHON ANNUAL REPORT 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 30 June 2017 NOTE 12. PROVISIONS
Project closure
Warranties
Project bonus
Client plant maintenance
Onerous contracts
Other
Consolidated
2017
$’000
6,916
429
141
1,206
1,018
4,872
2016
$’000
8,515
459
66
1,040
3,585
3,470
14,582
17,135
Movements in provisions
Movements in each class of provision during the current financial year, are set out below:
Consolidated – 2017
Carrying amount at the
start of the year
Additional provisions
recognised
Provisions released during
the year
Provisions utilised during
the year
Carrying amount at the
end of the year
Project
Closure
$'000
8,515
3,097
(3,591)
Warranties
$'000
459
71
–
Project
Bonus
$'000
Client Plant
Maintenance
$'000
Onerous
Contracts
$'000
66
125
–
1,040
3,585
4,053
–
–
–
Other
$'000
3,470
Total
$'000
17,135
4,683
12,029
(2,770)
(6,361)
(1,105)
(101)
(50)
(3,887)
(2,567)
(511)
(8,221)
6,916
429
141
1,206
1,018
4,872
14,582
Provisions
Provisions are recognised when the consolidated entity has a present (legal or constructive) obligation as a result of a
past event, it is probable the consolidated entity will be required to settle the obligation, and a reliable estimate can be
made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration
required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding
the obligation. If the time value of money is material, provisions are discounted using a current pre–tax rate specific to the
liability. The increase in the provision resulting from the passage of time is recognised as a finance cost.
The consolidated entity accrues for its contracted obligation to replace major components and tyres for client owned
equipment, which it operates under its mining service contracts. The provision represents the wear and tear of
components and tyres up to the balance date. As components and tyres are replaced, these items are charged against
that provision. The provision is utilised completely by the end of the contract term.
63
MACMAHON ANNUAL REPORT 2017 NOTE 12. PROVISIONS CONTINUED
Provision for project closure
The provision for project closure requires a degree of estimation and judgement around contractual term, expected
redundancy and demobilisation costs, and reimbursement from customers. The provision is assessed by taking into
account past history of contract closures and likelihood of contract extensions.
Client plant maintenance provision
The provision for client plant maintenance requires a degree of estimation and judgment. The level of provision is assessed
by taking into account actual and forecast utilisation of the fleet and current consumption rate and maintenance cost.
Other
Other provisions reflect miscellaneous contract related claim provisions and require a degree of estimation and judgement.
Onerous Contracts
Leases
In 2015 the Group exited certain premises for which they have a non-cancellable lease. The lease will expire in 2019.
The facilities have been sub-let at rates lower than the lease rate. The obligation for the discounted future payments,
net of expected rental income has been provided for.
Other operating contracts
The Telfer Mining Services contract has incurred significant losses to date recording an operating loss of $29.2 million
for FY2017.
The Group has determined the contract is not considered onerous based on a positive cashflow forecast over the
remaining contract term.
PART D: FIXED ASSETS
NOTE 13. PROPERTY, PLANT AND EQUIPMENT
Leasehold improvements – at cost
Less: Accumulated depreciation
Plant and equipment – at cost
Less: Accumulated depreciation and impairment losses
Equipment under finance lease
Less: Accumulated depreciation
64
Consolidated
2017
$’000
3,183
2016
$’000
7,109
(3,144)
(6,811)
39
298
442,843
461,593
(329,017)
(350,709)
113,826
110,884
10,466
24,894
(1,652)
(18,423)
8,814
6,471
122,679
117,653
MACMAHON ANNUAL REPORT 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 30 June 2017 Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set
out below:
Consolidated
Balance at 30 June 2015
Additions
Disposals
Exchange differences
Reclassification to and from assets classified as
held for sale and transfers
432
4
(20)
(169)
–
Buildings &
freehold
land
$'000
Leasehold
improvements
$'000
Plant &
equipment
$'000
Equipment
under
finance
lease
$'000
Total
$'000
141,479
23,532
367
131,046
9,634
–
–
–
(2)
23,528
(10,856)
(774)
(17)
–
(310)
(11,186)
(2,097)
(3,040)
–
(19)
Depreciation expense*
(247)
(67)
(32,043)
(756)
(33,113)
Balance at 30 June 2016
Additions
Disposals
Exchange differences
Reclassification to and from assets classified as
held for sale and transfers
Impairment of assets (discontinued operations)
Depreciation expense*
Balance at 30 June 2017
*Includes depreciation from discontinued operations of $0.7 million (2016: $4.3 million).
–
–
–
–
–
–
–
–
298
110,884
6,471
117,653
–
–
(661)
618
(106)
(110)
34,527
10,466
44,993
(3,356)
(2,929)
–
(3,356)
(412)
(4,002)
8,696
(6,024)
3,290
(1,577)
–
(1,683)
(32,419)
(1,687)
(34,216)
39
113,826
8,814
122,679
Profit on disposal of property, plant and equipment from continuing operations was $2.3 million (2016: $5.3 million)
There was impairment of assets in discontinued operations during the current financial year of $1.7 million (2016: nil).
Refer to note 29.
Included above is non-operating plant and equipment of $16.7 million (2016: $17 million) which is not allocated to
operating sites or contracts at 30 June 2017.
Property, plant and equipment secured under finance leases
Refer to note 15 for further information on property, plant and equipment secured under finance leases.
Security
Freehold land, buildings, leasehold improvements and plant and equipment are subject to a registered charge to secure
banking facilities (see note 15).
Assets classified as held for sale
Assets classified as held for sale include surplus mining plant and equipment which the company is actively marketing for
sale amounting to $3.1 million (2016: $8.1 million). Discontinued operations comprise the remaining balance of the assets
classified as held for sale amounting to nil (2016: $1.1 million).
65
MACMAHON ANNUAL REPORT 2017 NOTE 13. PROPERTY, PLANT AND EQUIPMENT CONTINUED
Property, plant and equipment
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment
losses.
Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self–constructed assets
includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working
condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they
are located, and capitalised borrowing costs. Cost may also include transfers from equity of any gain or loss on qualifying
cash flow hedges from foreign currency purchases of property, plant and equipment. Purchased software that is integral
to the functionality of the related equipment is capitalised as part of that equipment.
The fair value of property, plant and equipment recognised as a result of a business combination is based on market
values. The market value of property is the estimated amount for which a property could be exchanged, on the date of
valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing, wherein the
parties had each acted knowledgeably, prudently and without compulsion. The market value of items of plant, equipment,
fixtures and fittings is based on the quoted market prices for similar items.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate
items (major components) of property, plant and equipment.
Depreciation and amortisation
Depreciation is based on the cost of an asset less its residual value. Significant components of individual assets are
assessed and if a component has a useful life that is different from the remainder of that asset, that component is
depreciated separately.
Depreciation on buildings, leasehold improvements and minor plant and equipment is calculated on a straight–line basis.
Depreciation on major plant and equipment and components is calculated on machine hours worked over their estimated
useful life. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably
certain that the consolidated entity will obtain ownership by the end of the lease term. Land is not depreciated.
Depreciation methods, useful lives and residual values are reviewed on regular basis with annual reassessments for major
items and adjusted if appropriate.
The expected useful lives for the current and comparative years are as follows:
– Buildings: 40 Years
– Leasehold improvements: Period of the lease
– Plant and equipment: 3–12 years
The carrying amounts of the consolidated entity’s assets, other than inventories (see inventory accounting policy) and
deferred tax assets (see income tax accounting policy), are reviewed at each balance sheet date to determine whether
there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated (see
impairment of non-financial assets below).
For goodwill, the recoverable amount is estimated annually or more frequently if events or changes in circumstances
indicate that goodwill might be impaired.
An impairment loss is recognised whenever the carrying amount of an asset or its cash–generating unit exceeds its
recoverable amount. Impairment losses are recognised in profit or loss.
Leasehold improvements and plant and equipment under lease are depreciated over the unexpired period of the lease or
the estimated useful life of the assets, whichever is shorter.
An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to
the consolidated entity. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or
loss. Any revaluation surplus reserve relating to the item disposed of is transferred directly to retained profits.
66
MACMAHON ANNUAL REPORT 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 30 June 2017 Subsequent costs
The cost of replacing a component of an item of property, plant and equipment is recognised in the carrying amount of
the item if it is probable that the future economic benefits embodied within the component will flow to the consolidated
entity, and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the
day–to–day servicing of property, plant and equipment are recognised in profit or loss as incurred.
Non-current assets or disposal groups classified as held for sale
Non-current assets and assets of disposal groups are classified as held for sale if their carrying amount will be recovered
principally through a sale transaction rather than through continued use. They are measured at the lower of their carrying
amount and fair value less costs of disposal. For non-current assets or assets of disposal groups to be classified as held
for sale, they must be available for immediate sale in their present condition and their sale must be highly probable.
An impairment loss is recognised for any initial or subsequent write down of the non-current assets and assets of disposal
groups to fair value less costs of disposal. A gain is recognised for any subsequent increases in fair value less costs of
disposal of a non-current assets and assets of disposal groups, but not in excess of any cumulative impairment loss
previously recognised.
Non-current assets are not depreciated or amortised while they are classified as held for sale. Interest and other expenses
attributable to the liabilities of assets held for sale continue to be recognised.
Non-current assets classified as held for sale and the assets of disposal groups classified as held for sale are presented
separately on the face of the statement of financial position, in current assets. The liabilities of disposal groups classified
as held for sale are presented separately on the face of the statement of financial position, in current liabilities.
Estimation of useful lives of assets
The consolidated entity determines the estimated useful lives and related depreciation and amortisation charges for its
property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of
technical innovations or some other event. The depreciation and amortisation charge will increase where the useful lives
are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold
will be written off or written down.
Impairment of non-financial assets other than goodwill and other indefinite life intangible assets
The consolidated entity assesses impairment of non-financial assets other than goodwill and other indefinite life
intangible assets at each reporting date by evaluating conditions specific to the consolidated entity 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 fair value less costs of disposal or value–in–use calculations, which incorporate a number of key estimates
and assumptions; including the continued performance of contracted work, growth rates of the estimated future cash
flows and discount rates based on the current cost of capital.
67
MACMAHON ANNUAL REPORT 2017 PART E: RISK
NOTE 14. FINANCIAL RISK MANAGEMENT
Consolidated – 2017
Financial Assets
Cash and cash equivalents
Trade and other receivables1
Total financial assets
Financial liabilities
Trade and other payables
Borrowings
Total financial liabilities
Loans and
Receivables
$'000
At
Amortised
Cost
$'000
62,925
46,762
109,687
–
–
–
Total
$'000
62,925
46,762
109,687
–
–
–
73,990
73,990
8,848
8,848
82,838
82,838
1. Trade and other receivables excludes prepayments of $3.8 million and contract closure reimbursement $2.9 million.
Consolidated – 2016
Financial Assets
Cash and cash equivalents
Trade and other receivables1
Total financial assets
Financial liabilities
Trade and other payables
Borrowings
Total financial liabilities
Loans and
Receivables
$'000
At
Amortised
Cost
$'000
Total
$'000
56,699
53,281
109,980
–
–
–
56,699
53,281
109,980
–
–
–
61,352
204
61,352
204
61,556
61,556
1. Trade and other receivables excludes prepayments of $3.8 million (2016: $3.5 million) and contract closure reimbursement $2.9 million (2016: $2.8 million).
There were no transfers between levels during the financial year.
68
MACMAHON ANNUAL REPORT 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 30 June 2017 Valuation techniques for fair value measurements categorised within level 2 and level 3
Derivative financial instruments have been valued using market comparison technique. This valuation technique maximises
the use of observable market data where it is available and relies as little as possible on entity specific estimates.
The fair values of financial assets and liabilities, together with their carrying amounts in the statement of financial position,
for the consolidated entity are as follows:
Consolidated
Lease liability
2017
2016
Carrying
amount
$'000
Fair Value
$'000
Carrying
amount
$'000
Fair Value
$'000
(8,848)
(8,968)
(204)
(204)
All other assets and liabilities carrying amount is the same as the fair value.
Financial instruments not measured at fair value
Fair value of cash and cash equivalents, receivables and trade payables approximate their carrying amounts largely due to
the short–term maturities of these instruments.
Fair value of loans from banks and other financial liabilities, obligations under finance and hire purchase leases are
estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and
remaining maturities.
Financial risk management objectives
The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework.
This framework is designed to identify, monitor and manage the material risks throughout the consolidated entity, to
ensure risks remain within appropriate limits.
Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the
consolidated entity’s activities. The consolidated entity, through its training and management standards and procedures,
aims to develop a disciplined and constructive control environment in which all employees understand their roles and
obligations.
The Board of Directors oversees how management monitors compliance with the consolidated entity’s risk management
policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by
the consolidated entity. The Board of Directors is assisted in its oversight role by the Audit and Risk Committee, to which
internal audit reports. Internal audit undertakes reviews of controls and procedures, the results of which are reported to
the Audit and Risk Committee.
The consolidated entity has exposure to the following risks from its use of financial instruments:
– Market risk
– Credit risk
– Liquidity risk
– Operational risk
This note presents qualitative and quantitative information about the consolidated entity’s exposure to each of the above
risks, their objectives, policies and processes for measuring and managing risk, and the management of capital.
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect
the consolidated entity’s income or the value of its holdings of financial instruments. The objective of market risk
management is to manage and control market risk exposures within acceptable parameters, while optimising returns.
69
MACMAHON ANNUAL REPORT 2017 NOTE 14. FINANCIAL RISK MANAGEMENT CONTINUED
Currency risk
The consolidated entity is exposed to currency risk on sales, purchases and borrowings that are denominated in a
currency other than respective functional currencies of entities within the consolidated Group, which are primarily the
Australian Dollar (AUD), but also the US Dollar (USD), New Zealand Dollar (NZD), Malaysian Ringgit (MYR), Nigerian
Naira (NGN), Ghanaian Cedi (GHS), Indonesian Rupiah (IDR), Great British Pounds (GBP) and Mongolian Tugrik (MNT).
The consolidated entity is also exposed to foreign currency risk on plant and equipment purchases that are denominated
in a currency other than the AUD. The currencies giving rise to this risk are primarily US Dollar (USD) and European
Euro (EUR).
The consolidated entity uses foreign exchange forward contracts to hedge its purchases of major items of plant and
equipment that are denominated in a foreign currency when a firm commitment is made. As at 30 June 2017 there are
no foreign exchange forward contracts in place.
In respect of other monetary assets and liabilities held in currencies other than the AUD, the consolidated entity ensures
that the net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary
to address short–term imbalances.
The average exchange rates and reporting date exchange rates applied were as follows:
Australian dollars
USD
NZD
MYR
NGN
MNT
IDR
GHS
GBP
SGD
Average exchange rates
Reporting date
exchange rates
2017
0.7531
1.0573
3.2308
288.94
2016
0.7283
1.0908
3.0031
145.76
2017
0.7692
1.0500
3.3029
281.91
2016
0.7426
1.0489
2.9905
209.78
1,775.21
1,456.06
1,801.49
1,472.02
9,999
9,953
10,252
9,790
3.12
0.59
1.0505
2.83
0.49
1.0121
3.35
0.59
3.33
0.55
1.0598
1.0027
The carrying amount of the consolidated entity's foreign currency denominated financial assets and financial liabilities at
the reporting date were as follows:
Consolidated
USD
SGD
MYR
IDR
NGN
GBP
MNT
GHS
NZD
70
Assets
Liabilities
2017
$'000
7,104
48
1,365
3,728
113
4,935
–
162
120
2016
$'000
4,254
–
1,567
4,793
2,169
–
1
202
712
2017
$'000
2016
$'000
–
–
–
–
–
–
(685)
(502)
–
–
–
–
–
–
–
–
–
–
17,575
13,698
(685)
(502)
MACMAHON ANNUAL REPORT 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 30 June 2017 The following analysis demonstrates the increase/(decrease) to profit or loss and equity at the reporting date, assuming
a 10 percent strengthening and a 10 percent weakening of the Australian dollar against the following currencies. This
analysis also assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the
same basis for 2016.
Consolidated – 2017
% change
Effect
on profit
before tax
$'000
Effect on
equity
$'000
Effect
on profit
before tax
$'000
Effect on
equity
$'000
% change
AUD strengthened
AUD weakened
USD
SGD
MYR
IDR
NGN
GBP
MNT
GHS
NZD
10%
10%
10%
10%
10%
10%
10%
10%
10%
(646)
(4)
(124)
(277)
(10)
(449)
–
(15)
(11)
(1,536)
–
–
–
–
–
–
–
–
–
–
10%
10%
10%
10%
10%
10%
10%
10%
10%
789
5
152
338
13
548
–
18
13
1,876
–
–
–
–
–
–
–
–
–
–
Consolidated – 2016
% change
Effect
on profit
before tax
$'000
Effect on
equity
$'000
Effect
on profit
before tax
$'000
Effect on
equity
$'000
% change
AUD strengthened
AUD weakened
USD
SGD
MYR
IDR
NGN
GBP
MNT
GHS
NZD
10%
10%
10%
10%
10%
10%
10%
10%
10%
(387)
–
(142)
(390)
(197)
–
–
(18)
(65)
(1,199)
–
–
–
–
–
–
–
–
–
–
0%
0%
0%
0%
0%
0%
0%
0%
0%
473
–
174
477
241
–
–
22
79
1,466
Price risk
The consolidated entity is not exposed to any significant price risk.
–
–
–
–
–
–
–
–
–
–
71
MACMAHON ANNUAL REPORT 2017 NOTE 14. FINANCIAL RISK MANAGEMENT CONTINUED
Interest rate risk
Interest rate risk on variable rate borrowings is managed under the consolidated entity’s approved Financial Risk
Management Policy. Under this policy, interest rate exposures on committed capital finance borrowings can be hedged up
to 75% (by volume). The hedging instruments approved by the Board of Directors for this purpose, are interest rate swaps
and interest rate caps and floors.
As at the reporting date, the consolidated entity had the following variable rate exposed financial assets and liabilities:
Consolidated
Variable financial assets
Net exposure to cash flow interest rate risk (before hedging)
An analysis by remaining contractual maturities is shown in 'liquidity risk' section.
Fair value sensitivity analysis for fixed rate instruments
There are no fixed rate instruments at 30 June 2017.
2017
$’000
2016
$’000
62,925
56,699
62,925
56,699
Cash flow sensitivity analysis for variable rate instruments
The following analysis demonstrates the increase/(decrease) to profit or loss and equity at the reporting date, assuming
a change in interest rates of 100 basis points. This analysis also assumes that all other variables, in particular foreign
currency rates, remain constant. The analysis is performed on the same basis for 2016.
Consolidated – 2017
Variable rate instruments
Consolidated – 2016
Variable rate instruments
Basis points increase
Basis points decrease
Basis
points
change
100
Effect
on profit
before tax
$'000
Effect on
equity
$'000
629
629
–
–
Basis
points
change
100
Effect
on profit
before tax
$'000
(629)
(629)
Effect on
equity
$'000
–
–
Basis points increase
Basis points decrease
Basis
points
change
100
Effect
on profit
before tax
$'000
Effect on
equity
$'000
567
567
–
–
Basis
points
change
100
Effect
on profit
before tax
$'000
(567)
(567)
Effect on
equity
$'000
–
–
72
MACMAHON ANNUAL REPORT 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 30 June 2017 Credit risk
Credit risk is the risk of financial loss to the consolidated entity if a customer or counterparty to a financial instrument fails
to meet its contractual obligations, and arises principally from the consolidated entity’s receivables from customers and
cash and cash equivalents.
Cash and cash equivalents
The consolidated entity limits its exposure to credit risk for cash and cash equivalents by only investing in liquid securities
and with counterparties that have an acceptable credit rating where possible.
Trade and other receivables
The consolidated entity’s exposure to credit risk is influenced mainly by the characteristics of each individual customer.
The demographics of the consolidated entity’s customer base, including the default risk of the industries and countries in
which customers operate, has less influence on credit risk. Approximately 55% (2016: 48%) of the consolidated entity’s revenue
is attributable to sale transactions with a single customer. Geographically, the concentration of credit risk is in Australia.
Under the consolidated entity’s systems and procedures, each new customer is analysed individually for creditworthiness
before the consolidated entity’s standard payment and delivery terms and conditions are offered. The exposure to credit
risk is monitored on an ongoing basis. The consolidated entity’s analysis includes external ratings, when available, and in
some cases bank references. Credit risk is minimised by managing payment terms, receiving advance payments, receiving
the benefit of a bank guarantee or by entering into credit insurance for customers considered to be at risk.
More than 61% (2016: 72%) of the consolidated entity’s trade receivables exposed to credit risk are from customers who
have been transacting with the consolidated entity for over three years.
The consolidated entity establishes an allowance for impairment that represents its estimate of expected/incurred losses
in respect of trade and other receivables. At 30 June 2017 the consolidated entities collective impairment on its trade
receivables was $0.2 million (2016: $1.3 million).
Guarantees
The consolidated entity’s policy is to provide financial guarantees only to or for subsidiaries. Details of outstanding
guarantees are provided in note 18.
Exposure to credit risk
The carrying amount of the consolidated entity’s financial assets represents the maximum credit exposure. The consolidated
entity’s maximum exposure to credit risk at the reporting date was:
Cash and cash equivalents
Receivables*
Total credit risk exposure
* Receivables are shown excluding work in progress and prepayments.
Consolidated
2017
$’000
62,925
44,260
2016
$’000
56,699
50,558
107,185
107,257
The consolidated entity’s maximum exposure to credit risk for trade receivables at the reporting date by type of customer was:
Mining customers
Other
Total credit risk exposure by customer
Consolidated
2017
$’000
2016
$’000
44,092
50,292
168
266
44,260
50,558
The consolidated entity’s most significant trade receivable, a mining customer, accounts for $20.8 million of the trade
receivables carrying amount at 30 June 2017 (2016: $16.1 million).
73
MACMAHON ANNUAL REPORT 2017 NOTE 14. FINANCIAL RISK MANAGEMENT CONTINUED
Liquidity risk
Liquidity risk is the risk that the consolidated entity will not be able to meet its financial obligations as they fall due.
The consolidated entity’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient
liquidity to meet its liabilities when due, without incurring unacceptable losses or risking damage to the consolidated
entity’s reputation.
The consolidated entity manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities
by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and
liabilities.
Information about changes in term facilities during the year is disclosed in note 15. As at 30 June 2017, the undrawn
amount on the term facility was $5.9 million (2016: $23.7 million). The facility was utilised for bank guarantees of
$3.8 million (2016: $6.3 million). Outstanding individual lease agreements drawn under past facilities remain in place until
their expiry date. In addition, the consolidated entity has a $20.0 million (2016: $71.3 million) insurance bond facility with
$11.8 million (2016: $59.6 million) available at year end.
Remaining contractual maturities
The following tables detail the consolidated entity's remaining contractual maturity for its financial instrument liabilities.
The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on
which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed
as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of
financial position.
Consolidated – 2017
Non-derivatives
Non-interest bearing
Trade payables and accrued expenses
Other payables
Interest–bearing – variable
Lease liability
Total non-derivatives
Consolidated – 2016
Non-derivatives
Non-interest bearing
Trade payables and accrued expenses
Other payables
Interest–bearing – variable
Lease liability
Term facility
Total non-derivatives
1 year
or less
$'000
Between
1 and 2
years
$'000
Between
2 and 5
years
$'000
Over
5 years
$'000
Remaining
contractual
maturities
$'000
(68,619)
(5,371)
–
–
(2,365)
(76,355)
(7,135)
(7,135)
–
–
–
–
–
–
–
–
(68,619)
(5,371)
(9,500)
(83,490)
1 year
or less
$'000
Between
1 and 2
years
$'000
Between
2 and 5
years
$'000
Over
5 years
$'000
Remaining
contractual
maturities
$'000
(58,233)
(3,119)
(207)
–
(61,559)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(58,233)
(3,119)
(207)
–
(61,559)
The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed
above except in term facility payment.
74
MACMAHON ANNUAL REPORT 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 30 June 2017 Operational risk
Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the consolidated
entity’s processes, personnel, technology and infrastructure, and from external factors other than credit, market and
liquidity risks such as those arising from the unexpected termination of contracts by customers, legal and regulatory
requirements and generally accepted standards of corporate behaviour. This risk includes loss of major contract or non
extension of current contracts. Operational risks arise from all of the consolidated entity’s operations.
The consolidated entity’s objective is to manage operational risk so as to balance the avoidance of financial losses and
damage to the consolidated entity’s reputation with overall cost effectiveness and to avoid control procedures that
restrict initiative and creativity.
The primary responsibility for the development and implementation of controls to address operational risk is assigned to
senior management within each business unit (operating segments). This responsibility is supported by the development
of overall consolidated entity’s standards for the management of operational risk.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market. They are carried at amortised cost using the effective interest rate method. Gains and losses are recognised
in profit or loss when the asset is derecognised or impaired.
Impairment of financial assets
The consolidated entity assesses at the end of each reporting period whether there is any objective evidence that a
financial asset or group of financial assets is impaired. Objective evidence includes significant financial difficulty of the
issuer or obligor; a breach of contract such as default or delinquency in payments; the lender granting to a borrower
concessions due to economic or legal reasons that the lender would not otherwise do; it becomes probable that the
borrower will enter bankruptcy or other financial reorganisation; the disappearance of an active market for the financial
asset; or observable data indicating that there is a measurable decrease in estimated future cash flows.
The amount of the impairment allowance for loans and receivables carried at amortised cost is the difference between the
asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest
rate. If there is a reversal of impairment, the reversal cannot exceed the amortised cost that would have been recognised
had the impairment not been made and is reversed to profit or loss.
Investments and other financial assets
Investments and other financial assets are initially measured at fair value. Transaction costs are included as part of the
initial measurement, except for financial assets at fair value through profit or loss. They are subsequently measured at
either amortised cost or fair value depending on their classification. Classification is determined based on the purpose of
the acquisition and subsequent reclassification to other categories is restricted.
For unlisted investments, the consolidated entity establishes fair value by using valuation techniques. These include the
use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash
flow analysis, and option pricing models.
Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have
been transferred and the consolidated entity has transferred substantially all the risks and rewards of ownership.
75
MACMAHON ANNUAL REPORT 2017 PART F: DEBT AND EQUITY
NOTE 15. BORROWINGS
a) Current borrowings
Lease liability
Refer to note 14 for further information on financial instruments.
b) Non-current liabilities – borrowings
Lease liability
Refer to note 14 for further information on financial instruments.
Total secured liabilities
The total secured liabilities (current and non-current) are as follows:
Lease liability
Details of currency, interest rate and year of maturity of borrowings are:
Finance lease liabilities
Finance lease liabilities
Currency
AUD
NGN
Interest
Rate
Range
5.39%
16.0%
Calendar
year of
maturity
2019
2016
Consolidated
2017
$’000
1,939
1,939
2016
$’000
204
204
Consolidated
2017
$’000
6,909
6,909
2016
$’000
–
–
Consolidated
2017
$’000
8,848
8,848
2017
$’000
8,848
–
8,848
2016
$’000
204
204
2016
$’000
–
204
204
Term facilities
In November 2016 the Company executed a $10 million multi–option financing facility (including a $0.3 million credit card
facility). The facility has been extended to November 2017 can be used for general corporate purposes. $3.8 million of the
facility is drawn at 30 June 2017 for bank guarantees.
Operating lease facility
As at 30 June 2017, the domestic operating lease facility was drawn by $39.9 million (2016: $37.3 million).
76
MACMAHON ANNUAL REPORT 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 30 June 2017 Assets pledged as security
The consolidated entity’s hire purchase/finance lease liabilities are secured by the leased assets and in the event of
default, the leased assets revert to the lessor. All remaining assets of the Group are pledged as security under the multi–
option financing facility.
Finance lease liabilities are payable as follows:
Finance lease liabilities
Less than one year
Between one and 5 years
More than 5 years
Minimum lease payments
Interest
Principal
2017
$’000
2016
$’000
2017
$’000
2016
$’000
2,365
7,135
–
207
–
–
9,500
207
426
226
–
652
3
–
–
3
2017
$’000
1,939
6,909
–
2016
$’000
204
–
–
8,848
204
Borrowings
Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs.
They are subsequently measured at amortised cost using the effective interest method.
Where there is an unconditional right to defer settlement of the liability for at least 12 months after the reporting date, the
loans or borrowings are classified as non-current.
NOTE 16. EQUITY – ISSUED CAPITAL
Ordinary shares – fully paid
1,200,920,894
1,210,487,874
390,575
392,480
Less: treasury shares
Ordinary shares
(13,042,548)
(14,716,948)
(5,781)
(6,523)
1,187,878,346
1,195,770,926
384,794
385,957
Consolidated
2017
Shares
2016
Shares
2017
$’000
2016
$’000
On issue at 1 July
Repurchased and cancelled
On issue 30 June
The Company
No. ordinary shares
2017
2016
1,210,487,874
1,261,699,966
(9,566,980)
(51,212,092)
1,200,920,894
1,210,487,874
77
MACMAHON ANNUAL REPORT 2017 NOTE 16. EQUITY – ISSUED CAPITAL CONTINUED
Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the parent entity in
proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and
the parent entity does not have authorised capital.
On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each
share shall have one vote.
Capital risk management
The consolidated entity's objectives when managing capital are to safeguard its ability to continue as a going concern,
so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital
structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the consolidated entity may adjust the amount of dividends paid to
shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
The consolidated entity would look to raise capital when an opportunity to invest in a business or company was seen as
value adding relative to the current parent entity's share price at the time of the investment.
The consolidated entity is subject to certain financing arrangements covenants and meeting these is given priority in
all capital risk management decisions. There have been no events of default on the financing arrangements during the
financial year.
The consolidated entity monitors capital on the basis of the gearing ratio. The ratio is calculated as net debt divided by
total equity. Net debt is calculated as 'total borrowings' less 'cash and cash equivalents' as shown in the statement of
financial position. Total equity is as shown in the statement of financial position. At 30 June 2017 the consolidated entity
was in a net cash position (Gearing ratio: nil).
Share buy–back
On 6 October 2015, the Company announced an on–market share buy–back of up to 10% over 12 months of its fully paid
ordinary shares as part of a capital management plan. During the financial year, the Company acquired 9,566,980 shares
(2016: 51,212,092 shares) at an average price of 11.1 cents per share (2016: 10.7 cents per share) for a total of $1,163,668
(2016; $5,432,691). The conclusion of the share buy back process taking the percentage of shares acquired for the
12 month period from October 2015 to 4.82%.
Issued capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax,
from the proceeds.
Shares purchased on market by the consolidated entity are recognised at fair value, less transaction costs and reduce
issued capital.
78
MACMAHON ANNUAL REPORT 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 30 June 2017 NOTE 17. EQUITY – RESERVES
Reserve for own shares (net of tax)
Foreign currency reserve (net of tax)
Consolidated
2017
$’000
(5,781)
(4,640)
2016
$’000
(6,523)
(6,410)
(10,421)
(12,933)
Reserve for own shares
The reserve for the Company's own shares comprises the cost (net of tax) of the Company's shares held by the trustee of
the consolidated entity's equity compensation plans which were purchased on–market in anticipation of vesting of share–
based payment awards under the equity compensation plans. During the year no shares were purchased (2016: nil). As at
30 June 2017, there are 13,042,548 (2016: 14,716,948) unallocated Macmahon shares held in trust.
Foreign currency reserve
The reserve is used to recognise exchange differences arising from the translation of the financial statements of foreign
operations to Australian dollars. It is also used to recognise gains and losses on the net investments in foreign operations.
The foreign currency translation reserve is reclassified to the profit and loss either on sale or cessation of the underlying
foreign operation.
At 30 June 2017 $6,982,000 was reclassified to the profit and loss from the foreign currency translation reserve.
Hedging reserve – cash flow hedges
The reserve is used to recognise the effective portion of the gain or loss of cash flow hedge instruments that is
determined to be an effective hedge.
Movements in reserves
Movements in each class of reserve during the current and previous financial year are set out below:
Consolidated
Balance at 30 June 2015
Foreign currency translation
Derecognition of deferred tax asset (note 4c)
Cash flow hedges – reclassified to profit or loss
Balance at 30 June 2016
Foreign currency translation
Treasury shares allocated on vesting performance rights
Balance at 30 June 2017
Reserve for
own shares
$'000
Foreign
currency
$'000
Hedging
$'000
Total
$’000
(4,581)
2,862
251
(1,468)
–
(9,272)
(1,942)
–
–
–
(6,523)
(6,410)
–
742
1,770
–
(5,781)
(4,640)
–
–
(251)
–
–
–
–
(9,272)
(1,942)
(251)
(12,933)
1,770
742
(10,421)
Dividends
There were no dividends paid, recommended or declared during the current or previous financial year (2016: nil)
Dividends are recognised when declared during the financial year and no longer at the discretion of the Company.
79
MACMAHON ANNUAL REPORT 2017 PART G: UNRECOGNISED ITEMS
NOTE 18. CONTINGENT LIABILITIES
The following identifiable contingencies exist at 30 June 2017:
Bank guarantees
Insurance performance bonds
Consolidated
2017
$’000
3,794
8,150
2016
$’000
6,295
11,675
11,944
17,970
Bank guarantees and insurance bonds are issued to contract counterparties in the normal course of business as security
for the performance by Macmahon of various contractual obligations.
Other contingent liabilities
Bank guarantees and insurance bonds are issued to contract counterparties in the normal course of business as security
for the performance by Macmahon of various contractual obligations. Macmahon is also called upon to give guarantees
and indemnities direct to contract counterparties in relation to the performance of contractual and financial obligations.
The value of these guarantees and indemnities is indeterminable.
Macmahon has the normal contractor’s liability in relation to its current and completed mining and construction projects
(for example, liability relating to design, workmanship and damage), as well as liability for personal injury and property
damage during a project. Potential liability may arise from claims, disputes and/or litigation against Group companies
and/or joint venture arrangements in which the Group has an interest. Macmahon is currently managing a number of
claims, disputes and litigation processes in relation to its contracts, as well as in relation to personal injury and property
damage arising from project delivery.
On 9 November 2015, Macmahon was served with a shareholder class action filed in the Federal Court of Australia by
ACA Lawyers. The action was filed on behalf of shareholders who acquired Macmahon securities between 2 May 2012 and
19 September 2012 and relates to disclosures by Macmahon in 2012 regarding the now completed Hope Downs 4 contract.
Macmahon denies any wrong doing and is defending the proceeding.
Macmahon does not consider there is a reasonable basis on which to assess or estimate any potential liability and,
therefore, continues to treat the proceeding as an unquantified contingent liability.
NOTE 19. COMMITMENTS
Capital commitments
Committed at the reporting date but not recognised as liabilities, payable:
Within one year
Lease commitments – operating
Committed at the reporting date but not recognised as liabilities, payable:
Within one year
One to five years
80
Consolidated
2017
$’000
2016
$’000
47,021
47,021
3,168
3,168
15,086
14,984
9,287
17,880
30,070
27,167
MACMAHON ANNUAL REPORT 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 30 June 2017 Operating lease facility
The consolidated entity leases a number of offices and industrial workshop facilities. The leases typically run for a period
of 10 years, with an option to renew the lease after that date. Some leases provide for additional payments that are based
on changes in a local price index or CPI. The consolidated entity does not have an option to purchase the leased assets at
the expiry of their lease period.
Operating leases – equipment
On 31 July 2013, the consolidated entity entered into a Master Operating Lease Agreement for plant and equipment. The
leases typically run for a term of 3 to 5 years with the ability to extend for up to 3 years after that date. The consolidated
entity has an option to purchase the assets at the expiry of their lease period. As at 30 June 2017, the total value of
outstanding operating leases was $39.9 million (2016: $37.3 million).
Finance leases – equipment
Finance lease commitments in Note 15 include contracted amounts for various plant and equipment with a written down
value of $8.8 million (2016: $5.3 million) under finance leases. Under the terms of the leases, the consolidated entity has
the option to acquire the leased assets for predetermined residual values on the expiry of the leases.
Leases
The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and
requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets
and the arrangement conveys a right to use the asset.
A distinction is made between finance leases, which effectively transfer from the lessor to the lessee substantially all the
risks and benefits incidental to the ownership of leased assets, and operating leases, under which the lessor effectively
retains substantially all such risks and benefits.
Finance leases are capitalised. A lease asset and liability are established at the fair value of the leased assets, or if lower,
the present value of minimum lease payments. Lease payments are allocated between the principal component of the
lease liability and the finance costs, so as to achieve a constant rate of interest on the remaining balance of the liability.
Leased assets acquired under a finance lease are depreciated over the asset's useful life or over the shorter of the asset's
useful life and the lease term if there is no reasonable certainty that the consolidated entity will obtain ownership at the
end of the lease term.
Operating lease payments, net of any incentives received from the lessor, are charged to profit or loss on a straight-line
basis over the term of the lease.
Major component expenditure on operating leased equipment is capitalised to plant and equipment and amortised over
the shorter of the remaining lease term or the useful life of the component.
NOTE 20. EVENTS AFTER THE REPORTING PERIOD
AMNT Transaction
The AMNT transaction was approved by Macmahon shareholders at a General Meeting on 12 July 2017. Completion of the
Transaction occurred on 8 August 2017. This involved:
a) the issue of 954,064,924 new Macmahon shares to a related party of AMNT, bringing the total number of Macmahon
shares on issue to 2,154,985,818;
b) AMNT transferring mobile mining equipment assets valued at US$145.6 million to Macmahon Indonesia;
c) the mining services contract with AMNT becoming effective; and
d) two new Directors joining the Macmahon Board, Mr Alex Ramlie and Mr Arief Sidarto.
Following completion of the transaction AMNT's related party has an interest in 44.3% of Macmahon's total shares on issue.
For details of the AMNT transaction please refer to the Notice of Meeting for the AMNT Transaction published on the ASX
website on 13 June 2017.
No other matter or circumstance has arisen since 30 June 2017 that has significantly affected, or may significantly affect
the consolidated entity's operations, the results of those operations, or the consolidated entity's state of affairs in future
financial years.
81
MACMAHON ANNUAL REPORT 2017 PART H: OTHER INFORMATION/GROUP STRUCTURE
NOTE 21. INTERESTS IN SUBSIDIARIES
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in
accordance with the accounting policy:
Name
Incorporated subsidiaries
Macmahon Contractors Pty Ltd
Macmahon Contractors (WA) Pty Ltd*
Macmahon (Southern) Pty Ltd*
Macmahon Mining Services Pty Ltd
Doorn-Djil Yoordaning Mining and Construction Pty Ltd
Macmahon Underground Pty Ltd
Macmahon Africa Pty Ltd*
Macmahon Malaysia Pty Ltd
Macmahon Rail Pty Ltd*
Macmahon Contractors (NZ) Ltd*
PT Macmahon Indonesia
PT Macmahon Mining Services
Macmahon Contractors Nigeria Ltd**
Macmahon Sdn Bhd
Macmahon Constructors Sdn Bhd*
Macmahon Contracting International Pte Ltd
Macmahon Mongolia Holdings Pte Ltd*
Macmahon Mongolia LLC*
Macmahon Contracting Ghana Limited
Macmahon Rail Holdings Pty Ltd*
Macmahon Rail Investments Pty Ltd*
Macmahon Rail Operations Pty Ltd*
Thomco (No. 2020) Pty Ltd*
Thomco (No. 2021) Pty Ltd*
Thomco (No. 2022) Pty Ltd*
Principal place of
business/Country of
incorporation
Ownership interest
2017
%
2016
%
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
New Zealand
100.00%
100.00%
Indonesia
Indonesia
Nigeria
Malaysia
Malaysia
Singapore
Singapore
Mongolia
Ghana
Australia
Australia
Australia
Australia
Australia
Australia
100.00%
100.00%
50.00%
50.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Macmahon Botswana (Pty) Ltd*
Botswana
100.00%
100.00%
Interest in trusts
Macmahon Holdings Limited Employee Share Ownership Plan Trust Australia
100.00%
100.00%
Macmahon Underground Unit Trust
Australia
100.00%
100.00%
*Entities were inactive during the year.
**Macmahon Contractors Nigeria Ltd ceased operations during the year. Refer to Note 29 for additional information.
82
MACMAHON ANNUAL REPORT 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 30 June 2017 NOTE 22. INTERESTS IN JOINT VENTURES
Interests in joint ventures are accounted for using the equity method of accounting. Information relating to joint ventures
that are material to the consolidated entity are set out below:
Name
PT Macmahon Mining Services
Macmahon/Adasa JV*
Gooring Jimbila Contracting JV*
Malana JV*
Marapikurrinya JV*
Karara Yamatji JV*
Tonkin Highway JV*
Roe Highway JV*
Hale Street Link JV*
Ross River Dam JV*
Bell Bay Alliance JV*
Rail Link JV*
Eyre Peninsula JV*
* Joint Ventures that were deregistered or not active during the year.
Investments accounted for using the equity method
Loans to PT Macmahon Mining Services
Investment in PT Macmahon Mining Services at cost
Other investments
Share of profit of equity-accounted investees, net of tax
Principal activities
Ownership interest
2017
%
2016
%
Mining services
50.00%
50.00%
Non-active
Non-active
Non-active
Non-active
Non-active
Non-active
Non-active
Non-active
Non-active
Non-active
Non-active
Non-active
50.00%
50.00%
50.00%
50.00%
50.00%
50.00%
45.00%
45.00%
50.00%
50.00%
50.00%
50.00%
50.00%
50.00%
33.33%
33.33%
50.00%
50.00%
20.00%
20.00%
25.00%
25.00%
50.00%
50.00%
Consolidated
2017
$'000
–
3,662
96
3,133
6,891
2016
$'000
2,145
3,515
25
609
6,294
PT Macmahon Mining Services is a joint venture in which the Group has joint control and a 50% ownership interest.
The Company is involved in contract mining services in Indonesia and is not publicly listed.
PT Macmahon Mining Services is structured as a separate vehicle and the Group has a residual interest in the net assets
of the entity. Accordingly, the Group has classified its interest in PT Macmahon Mining Services as a joint venture.
In accordance with the agreement between the shareholders of PT Macmahon Mining Services, the Group and the
other investor in the joint venture have agreed to ensure the joint venture has sufficient funds to perform its contract
to provide mining services at the Martabe project. The commitment has not been recognised in these consolidated
financial statements.
The following table summarises the financial information of the Group's joint ventures as included in their own financial
statements, adjusted for fair value adjustments and differences in accounting policies. The table also reconciles the
summarised financial information to the carrying amount of the Group's interest in joint ventures.
83
MACMAHON ANNUAL REPORT 2017 NOTE 22. INTERESTS IN JOINT VENTURES CONTINUED
Summary financial information for equity accounted investees, unadjusted for percentage ownership held by the
consolidated entity (100%):
Summarised statement of financial position
Cash
Other current assets (excluding cash)
Total current assets
Total non-current assets
Total assets
Current payables
Current borrowings external
Total current liabilities
Non-current borrowings – external
Other non-current financial liabilities (shareholder loans)
Total non-current liabilities
Total liabilities
Net assets (100%)
Group's share of net assets (50%)
Group's share of other non-current financial liabilities
Summarised statement of profit or loss and other comprehensive income
Revenue
Finance Costs
Depreciation
Other Expenses
Profit before income tax
Tax
Net profit after tax (100%)
Share of profit of equity-accounted investees, net of tax (50%)
Dividends received by the Group
2017
$'000
2016
$'000
4,680
19,173
23,853
15,228
10,649
4,612
15,261
19,452
39,081
34,713
(11,165)
(1,268)
(12,433)
(1,698)
(3,819)
(5,517)
(10,801)
(13,652)
(2,066)
(13,981)
(12,867)
(27,633)
(25,300)
(33,150)
13,781
1,563
6,891
–
6,891
782
5,512
6,294
57,387
26,613
(740)
(728)
(3,493)
(4,249)
(46,844)
(20,015)
6,310
1,621
(1,262)
(403)
5,048
2,524
–
1,218
609
–
To support the activities of the joint venture, the consolidated entity and the other investors in the joint venture have agreed
to make additional contribution in proportion to the interest to make up any losses, if required. The jointly controlled entities
do not have any capital commitments.
84
MACMAHON ANNUAL REPORT 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 30 June 2017 Joint ventures
A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject
to joint control. Investments in joint ventures are accounted for using the equity method. Under the equity method, the
share of the profits or losses of the joint venture is recognised in profit or loss and the share of the movements in equity
is recognised in other comprehensive income.
NOTE 23. RELATED PARTY TRANSACTIONS
Parent entity
Macmahon Holdings Limited is the parent entity.
Subsidiaries
Interests in subsidiaries are set out in note 21.
Joint ventures
Interests in joint ventures are set out in note 22.
Key management personnel
Disclosures relating to key management personnel are set out in note 24 and the remuneration report in the Directors' report.
Transactions with related parties
The following transactions occurred with related parties:
Recharges
Management fee charged to Joint Venture
Receivable from and payable to related parties
Receivable from Joint Venture
Loans to/from related parties
Loan to Joint Venture
Terms and conditions
All transactions were made on normal commercial terms and conditions and at market rates.
Consolidated
2017
$
713
3,381
Consolidated
2017
$
1,381
Consolidated
2017
$
–
2016
$
668
1,061
2016
$
1,729
2016
$
2,145
85
MACMAHON ANNUAL REPORT 2017 NOTE 24. KEY MANAGEMENT PERSONNEL DISCLOSURES
Compensation
The aggregate compensation made to Directors and other members of key management personnel of the consolidated
entity is set out below:
Short-term employee benefits
Long-term employee benefits
Post-employment benefits
Leave benefits
Share-based payments
Consolidated
2017
$
2016
$
1,404,747
1,204,690
5,310
88,274
59,582
70,754
81,103
–
(36,307)
76,042
1,521,606
1,432,589
NOTE 25. SHARE-BASED PAYMENTS
The consolidated entity has the following equity compensation plans in place to remunerate executives and employees of
the Group:
– Macmahon Executive Equity Plan (“EEP” or “LTI Plan”)
Macmahon EEP or LTI Plan
The LTI Plan provides Executives (including the CEO) and other senior personnel with the opportunity to receive fully paid
shares in Macmahon for no consideration, subject to specified time restrictions, continuous employment and performance
conditions being met. Each performance right will entitle participants to receive one fully paid ordinary share at the time
of vesting. The LTI Plan is designed to assist with employee retention, and to incentivise employees to maximise returns
and earnings for shareholders.
Participants are granted Performance Rights, which are contractual rights to receive fully paid shares in Macmahon, subject
to the LTI Plan conditions being satisfied. The Board determines which Executives are eligible to participate and the number
of rights granted. Each right will entitle the participant to receive one fully paid ordinary Macmahon share on vesting.
Performance rights effective on 1 July 2012
Time-based condition
only ending 1/07/2015
3 years ending
1/07/2015
4 years ending
1/07/2016
Performance period
Tranche and number of Performance Rights
1,597,000
Tranche 1
1,597,000
Tranche 2
4,791,000
1,597,000
4,791,000
–
–
798,500 plus 2%
for each percentile
above 50%
2,395,500 plus 2%
for each percentile
above 50%
Nil
Nil
Vesting performance condition
TSR Ranking 75% or higher of the TSR of two peer
groups (50% weighting to each peer group)
TSR Ranking 50%-75% of the TSR of two peer groups
(50% weighting to each peer group)
TSR Ranking below 50% of the TSR of two peer groups
(50% weighting to each peer group)
There were no remaining 2012 performance rights at 30 June 2017 as these rights lapsed.
86
MACMAHON ANNUAL REPORT 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 30 June 2017 Performance rights effective on 1 July 2013
Tranche and number of Performance Rights
Vesting performance condition
At or above 27% EPS CAGR
EPS Between 6% EPS CAGR and 27% EPS CAGR
Less than 6% EPS CAGR and 27% EPS CAGR
TSR Ranking 75% or higher of the TSR of two peer groups
TSR Ranking 50%-75% of the TSR of two peer groups
(50% weighting to each peer group)
TSR Ranking below 50% of the TSR of two peer groups
(50% weighting to each peer group)
Performance period
3 years ending
1/07/2016
Tranche 1
8,000,000
3 years ending
1/07/2016
Tranche 2
8,000,000
8,000,000
4,000,000 plus
2.38% for each
additional EPS CAGR
% above 6% CAGR
Nil
8,000,000
4,000,000 plus
2% for each
percentile above 50%
Nil
On 1 July 2016, 1,674,400 performance rights vested. There were no remaining 2013 performance rights at 30 June 2017.
Performance rights effective on 1 July 2014
Tranche and number of Performance Rights
Vesting performance condition
At or above 12% EPS CAGR
EPS Between 5% EPS CAGR and 12% EPS CAGR
Less than 5% EPS CAGR and 12% EPS CAGR
TSR Ranking 75% or higher of the TSR of two peer groups
TSR Ranking 50%-75% of the TSR of two peer groups
(50% weighting to each peer group)
TSR Ranking below 50%1 of the TSR of two peer groups
(50% weighting to each peer group)
Performance period
3 years ending
1/07/2017
3 years ending
1/07/2017
Tranche 1
Tranche 2
10,550,000
10,550,000
10,550,000
5,275,000 plus
7.14% for each
additional EPS CAGR
% above 5% CAGR
Nil
10,550,000
5,275,000 plus
2% for each
percentile above 50%
Nil
At 30 June 2017 the amount of performance rights decreased to 3,700,000 as a result of redundancies and resignations.
87
MACMAHON ANNUAL REPORT 2017 NOTE 25. SHARE-BASED PAYMENTS CONTINUED
Performance rights effective on 1 July 2016
Tranche and number of Performance Rights
Vesting performance condition
Less than 17% CAGR in Absolute TSR
17% CAGR in Absolute TSR
25% or more CAGR in Absolute TSR
Between 17% and 25% CAGR in Absolute TSR
Performance period
3 years ending
1/07/2019
Tranche 1
12,659,501
0%
50%
100%
Pro-rata between
50% and 100%
At 30 June 2017 the number of performance rights decreased to 8,418,502 as a result of redundancies and resignations.
The two comparator groups for the TSR calculation for plans up until and including 2012 are:
– ASX 200: the constituents of the ASX 200 index; and
– Peer group: a group of seven companies consisting of Ausdrill Limited, Downer EDI Limited, Leighton Holdings Limited
(now Cimic Group Limited), Monadelphous Group Limited, NRW Holdings Limited, Transfield Services Limited and
UGL Limited.
The two comparator groups for the TSR calculation for the 2013 plan onwards are:
– All companies in the S&P ASX 200 that are ranked 101 to 200 and have Global Industry Classification Standard (“GICS”)
classification of Materials and Industries as at the commencement of the performance period; and
– Peer group: a group of eight companies consisting of Ausdrill Limited, Decmil Group Limited, Downer EDI Limited,
Leighton Holdings Limited (now Cimic Group Limited), MACA Limited, Monadelphous Group Limited, Emeco Holdings
Limited and NRW Holdings Limited.
Information about performance rights and share options outstanding at year end
The following unvested unlisted Executive performance rights were outstanding at year end under the Macmahon EEP
LTI Plan:
Executive
performance rights
2017
2016
17,505,741 23,996,625
12,659,501
–
(1,674,400)
(404,997)
(4,481,341)
(1,745,425)
(11,890,999) (4,340,462)
12,118,502
17,505,741
Balance at start of the year
Granted during the year
Vested during the year
Expired during the year
Forfeited during the year
Balance at the end of year
88
MACMAHON ANNUAL REPORT 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 30 June 2017 Share-based payments recognised in employee benefits expense
The following amounts were recognised as employee benefits expense in profit or loss, in connection with the Company's
equity compensation plans:
Performance rights
Total (income)/expense recognised in employee benefits expense
Consolidated
2017
$'000
(185)
(185)
2016
$'000
737
737
Measurement of grant date fair values
The following inputs were used in the measure of the fair values at grant date of the 2017 share-based payment plans:
Fair value at grant date
Share price at grant date
Expected volatility (weighted average volatility)
Optional life (expected weighted average life)
Expected dividends
Risk-free interest rate (based on government bonds)
Performance rights
Key
management
personnel
Senior
employees
$0.075
$0.125
$0.075
$0.125
55.00%
55.00%
2.9 years
2.9 years
0%
1.42%
0%
1.42%
Expected volatility is estimated taking into account historic average share price volatility
Share-based payment transactions
The consolidated entity measures the cost of equity-settled transactions with employees by reference to the fair value
of the equity instruments at the date at which they are granted. The fair value is determined by using either the Binomial,
Black-Scholes or Monte Carlo model taking into account the terms and conditions upon which the instruments were
granted. The accounting estimates and assumptions relating to equity-settled share-based payments would have no
impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit
or loss and equity.
Share-based payments
Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for
the rendering of services. Cash-settled transactions are awards of cash for the exchange of services, where the amount of
cash is determined by reference to the share price.
The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined
using either the Binomial, Monte Carlo or Black-Scholes option pricing model that takes into account the exercise price,
the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying
share, the expected dividend yield and the risk free interest rate for the term of the option, together with non-vesting
conditions that do not determine whether the consolidated entity receives the services that entitle the employees to
receive payment. No account is taken of any other vesting conditions.
The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the
vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the
best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount
recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts
already recognised in previous periods.
Market conditions are taken into consideration in determining fair value. Therefore any awards subject to market
conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other
conditions are satisfied.
89
MACMAHON ANNUAL REPORT 2017 NOTE 25. SHARE-BASED PAYMENTS CONTINUED
If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made.
An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair
value of the share-based compensation benefit as at the date of modification.
If the non-vesting condition is within the control of the consolidated entity or employee, the failure to satisfy the condition
is treated as a cancellation. If the condition is not within the control of the consolidated entity or employee and is not
satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period,
unless the award is forfeited.
If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining
expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and
new award is treated as if they were a modification.
If any performance rights have been forfeited for failure to complete a service period, the costs of the performance rights
costs are trued up i.e., amounts previously expensed are no longer incurred and accordingly reversed in the current year.
This policy is applied irrespective of whether the employee resigns voluntarily or is dismissed by the Company.
NOTE 26. REMUNERATION OF AUDITORS
During the financial year the following fees were paid or payable for services provided by KPMG, the auditor of the parent
entity, and its international network firms:
Audit services – KPMG
Audit or review of the financial statements – Australia
Audit or review of the financial statements – Network firms
Other services – KPMG
Tax services – Australia
Tax services – Network firms
Other assurance services
Consolidated
2017
$
2016
$
294,000
214,300
110,494
145,000
404,494
359,300
29,875
55,202
151,523
34,750
52,425
7,038
236,600
94,213
641,094
453,513
NOTE 27. 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 statements,
and Directors’ report.
It is a condition of the Class Order that Macmahon Holdings Limited (“the Company”) and each of the subsidiaries
(“Extended Closed Group”) below enter into a Deed of Cross Guarantee (“Deed”). 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.
90
MACMAHON ANNUAL REPORT 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 30 June 2017 The following entities are party to a Deed of Cross Guarantee under which each company guarantees the debts of the others:
Macmahon Southern Pty Ltd
Macmahon Mining Services Pty Ltd
Macmahon Underground Pty Ltd
Macmahon Contractors Pty Ltd
Macmahon Rail Pty Ltd
Set out below is a consolidated statement of profit or loss and other comprehensive income and statement of financial
position, comprising the Company and its controlled entities which are a party to the Deed, after eliminating all
transactions between parties to the Deed of Cross Guarantee, at the end of the financial year.
Statement of profit or loss and other comprehensive income
Revenue
Other income
Materials and consumables used
Employee benefits expense
Subcontractor costs
Depreciation and amortisation expense
Equipment and office expenses under operating leases
Net finance costs
Other expenses
(Loss)/profit before income tax expense
Income tax benefit
(Loss)/profit after income tax expense
Other comprehensive income
Cash flow hedges transferred to profit or loss, net of tax
Foreign currency translation
Other comprehensive income for the year, net of tax
Total comprehensive loss for the year
Equity – retained profits
Accumulated losses at the beginning of the financial year
Loss after income tax expense
Share-based payments
Accumulated losses at the end of the financial year
Consolidated
2017
$'000
2016
$'000
328,078
247,540
4,343
5,887
(159,288)
(109,580)
(125,327)
(97,927)
(5,888)
(6,663)
(31,944)
(25,588)
(14,178)
(18,643)
(639)
70
(21,775)
22,704
(26,618)
17,800
159
112
(26,459)
17,912
Consolidated
2017
$'000
–
(930)
2016
$'000
(251)
–
(930)
(251)
(27,389)
17,661
Consolidated
2017
$'000
2016
$'000
(289,011)
(307,409)
(26,459)
(927)
17,661
737
(316,397)
(289,011)
91
MACMAHON ANNUAL REPORT 2017 NOTE 27. DEED OF CROSS GUARANTEE CONTINUED
Statement of financial position
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Income tax
Assets of disposal groups classified as held for sale
Non-current assets
Receivables
Other financial assets
Property, plant and equipment
Intangibles
Deferred tax
Total assets
Current liabilities
Trade and other payables
Borrowings
Employee benefits
Provisions
Liabilities directly associated with assets classified as held for sale
Non-current liabilities
Payables
Borrowings
Deferred tax liabilities
Employee benefits
Total liabilities
Net assets
Equity
Issued capital
Reserves
Accumulated losses
Total equity
92
2017
$'000
2016
$'000
57,452
45,647
25,672
12,876
3,079
45,083
44,707
22,316
12,750
9,210
144,726
134,066
31,663
34,139
112,348
–
164
49,446
33,402
97,242
–
86
178,314
180,176
323,040
314,242
69,037
47,105
1,939
7,807
11,171
–
–
10,201
16,242
1,834
89,954
75,382
160,040
147,040
6,909
–
3,396
–
–
342
170,345
147,382
260,299
222,764
62,741
91,478
384,794
385,957
(5,656)
(5,468)
(316,397)
(289,011)
62,741
91,478
MACMAHON ANNUAL REPORT 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 30 June 2017 NOTE 28. PARENT ENTITY INFORMATION
Set out below is the supplementary information about the parent entity.
Statement of profit or loss and other comprehensive income
Profit/(Loss) after income tax
Total comprehensive profit/(loss)
Statement of financial position
Total current assets
Total assets
Total current liabilities
Total liabilities
Equity
Issued capital
Reserve for own shares
Accumulated losses
Total equity
Parent
2017
$'000
8,110
2016
$'000
17,148
8,110
16,897
Parent
2017
$'000
13,302
2016
$'000
18,330
149,021
138,788
(2,047)
(1,175)
(58,307)
(55,021)
384,794
385,957
(5,781)
(6,523)
(288,299)
(295,667)
90,714
83,768
Guarantees entered into by the parent entity in relation to the debts of its subsidiaries
The parent entity has entered into a Deed of Cross Guarantee with the effect that the Company guarantees debts in
respect of some of its subsidiaries. Further details of the Deed of Cross Guarantee and the subsidiaries subject to the
deed, are disclosed in note 27.
Contingent liabilities
Refer to note 18 for information in relation to the shareholder class action.
Significant accounting policies
The accounting policies of the parent entity are consistent with those of the consolidated entity.
93
MACMAHON ANNUAL REPORT 2017 NOTE 29. DISCONTINUED OPERATIONS AND ASSETS CLASSIFIED AS HELD FOR SALE
a) Discontinued operations
Nigeria
In October 2016 Macmahon ceased operations at the Calabar mine site in Nigeria. Operations ceased on 28 October 2016
and demobilisation commenced in November 2016. The contract was scheduled to conclude in 2018 but the operation
had been underperforming due to ongoing low mining volumes linked to the client’s production plant and high rental and
maintenance costs.
A provision for project closure costs of $1.3 million was raised during the financial year.
At 30 June 2017 the cash balance in the Nigerian operations totalled $0.1 million. This balance is included in the Group
cash balance however it is not readily available for repatriation at official exchange rates but is available over time through
the government sanctioned parallel market.
Other
At 30 June 2017 Management made the decision not to return to seek additional opportunities in certain geographical
locations. As a result the foreign currency translation reserve was released to the profit or loss and the 2016 discontinued
operations has been restated.
b) Results of discontinued operations – Nigeria and Other
Nigeria Discontinued Operations
Revenue
Expenses
Results from operating activities
Profit on sale of assets
Foreign currency difference on closure of foreign operations reclassified to profit and loss
Impairment
Early termination fee
Closure costs
Foreign currency exchange differences
Inventory writedown
Results from operating activities
Income tax benefit
Loss after income tax expense – Nigeria
Other Discontinued Operations
Foreign currency difference on closure of foreign operations reclassified to profit and loss
Other gain/(loss)
Profit before tax
Income tax expense
Total other discontinued operations
Total Nigeria and Other discontinued operations
Basic (loss)/earnings per share (cents)
Diluted earnings/(loss) per share (cents)
94
2017
$'000
2016
$'000
6,595
34,233
(12,251)
(44,386)
(5,656)
(10,153)
786
(9,656)
(1,683)
(1,352)
(1,284)
1
–
–
–
–
31
–
1,488
(6,480)
(18,814)
(15,144)
(422)
–
(19,236)
(15,144)
1,664
264
1,928
44
1,972
–
6,531
6,531
(456)
6,075
(17,264)
(9,069)
(1.45)
(1.45)
(0.73)
(0.73)
MACMAHON ANNUAL REPORT 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 30 June 2017 c) Cash flows from/(used in) discontinued operations – Nigeria
Net cash flows from/(used in) operating activities
Net cash flows from/(used in) investing activities
Net cash flows (used in)/from financing activities
Exchange rate variations
Net cash flow for the year
2017
$'000
2016
$'000
(795)
(2,065)
3,700
(243)
(4,675)
3,358
(383)
(859)
(2,153)
191
d) Assets classified as held for sale – Australia
Assets classified as held for sale include surplus mining plant and equipment which the company is actively marketing for
sale amounting to $3.1 million (30 June 2016: $8.1 million). Discontinued operations comprise the remaining balance of the
assets classified as held for sale amounting to nil (30 June 2016: $1.1 million).
Significant accounting policies
A discontinued operation is a component of the consolidated entity that has been disposed of or is classified as held
for sale and that represents a separate major line of business or geographical area of operations, is part of a single
coordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a
view to resale. The results of discontinued operations are presented separately on the face of the statement of profit or
loss and other comprehensive income.
NOTE 30. OTHER SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies
have been consistently applied to all the years presented, unless otherwise stated.
New, revised or amending Accounting Standards and Interpretations adopted
The consolidated entity has adopted all of the new, revised or amending Accounting Standards and Interpretations issued
by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period.
Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have not been early
adopted.
Changes in accounting policy
The accounting policies applied in these financial statements are the same as those applied in the consolidated entity’s
annual financial statements as at and for the year ended 30 June 2016, except for new and revised or amended
Accounting Standards below.
New, revised or amended Accounting Standards and Interpretations adopted:
AASB 2015-2: Disclosure Initiative (AASB 101)
AASB 2014-3: Accounting for Acquisitions of Interests in Joint Operations
The above have had no significant impact to the financial statements.
Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have not been
early adopted.
New Standards and interpretations
Certain new standards and interpretations have been published that are not effective for the 30 June 2017 reporting
period. The Group's assessment of the impact of those new standards and interpretations considered relevant to the
Group are set out below;
AASB 15 Revenue from Contracts with Customers (effective from 1 January 2018)
AASB 15 establishes a model to account for revenue arising from contracts with customers. Revenue is recognised at an
amount that reflects the consideration to which an entity expects to be entitled when control of the goods or services
passes to the customer. The Group plans to adopt the new standard during the 30 June 2019 reporting period.
95
MACMAHON ANNUAL REPORT 2017 NOTE 30. OTHER SIGNIFICANT ACCOUNTING POLICIES CONTINUED
AASB 16 leases (effective 1 January 2018)
AASB 16 will result in leases being recognised on the Balance Sheet and the distinction between operating and finance
leases removed. The standard will primarily affect the accounting for the Group's operating leases which will require the
present value of the leases captured by the standard being recognised as right to use assets and lease liabilities on the
balance sheet. The Group plans to adopt the new standard during the 30 June 2019 reporting period.
AASB 9 Financial Instruments (effective 1 January 2018)
AASB 9 Financial Instruments – published in July 2014, replaces the existing guidance in IAS 39 Financial Instruments:
Recognition and Measurement. AASB 9 includes revised guidance on the classification and measurement of financial
instruments, including a new expected credit loss model for calculating impairment on financial assets, and the new
general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition for
financial instruments from IAS 39. AASB 9 is effective for annual reporting periods beginning on or after 1 January 2018,
with early adoption permitted. The Group is assessing the potential impact on its consolidated financial statements
resulting from the application of AASB 9.
New Accounting Standards and Interpretations not yet mandatory or early adopted
Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet
mandatory, have not been early adopted by the consolidated entity for the annual reporting period ended 30 June
2017. The consolidated entity has not yet assessed the impact of these new or amended Accounting Standards and
Interpretations.
Basis of preparation
These general purpose financial statements have been prepared in accordance with Australian Accounting Standards
and Interpretations issued by the Australian Accounting Standards Board ('AASB') and the Corporations Act 2001, as
appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting
Standards as issued by the International Accounting Standards Board ('IASB').
Historical cost convention
The financial statements have been prepared under the historical cost convention, except for, defined benefit plan
assets and liabilities and derivative financial instruments which are stated at their fair value. Certain property, plant and
equipment and inventory is recognised at fair value less costs to sell and net realisable value respectively.
Critical accounting estimates
The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires
management to exercise its judgment in the process of applying the consolidated entity's accounting policies. The areas
involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the
financial statements, are included in the respective notes to the financial statements.
Parent entity information
In accordance with the Corporations Act 2001, these financial statements present the results of the consolidated entity
only. Supplementary information about the parent entity is disclosed in note 28.
96
MACMAHON ANNUAL REPORT 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 30 June 2017 Principles of consolidation
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Macmahon Holdings Limited
('parent entity' or 'parent entity') as at 30 June 2017 and the results of all subsidiaries for the year then ended. Macmahon
Holdings Limited and its subsidiaries together are referred to in these financial statements as the 'consolidated entity'.
Subsidiaries are all those entities over which the consolidated entity has control. The consolidated entity controls an entity
when the consolidated entity is exposed to, or has rights to, variable returns from its involvement with the entity and has
the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated
from the date on which control is transferred to the consolidated entity. They are de-consolidated from the date that
control ceases.
Interest in equity accounted investees
The consolidated entity's interests in equity accounted investees comprise interests in associates and joint ventures.
Associates are those entities in which the consolidated entity has significant influence, but not control or joint control,
over the financial and operating policies. A joint venture is an arrangement in which the consolidated entity has joint
control, whereby the consolidated entity has rights to the net assets of the arrangement, rather than rights to its assets
and obligations for its liabilities.
Interest in associates and the joint ventures are accounted for using the equity method. They are recognised initially at
cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the
consolidated entity's share of the profit or loss and other comprehensive income of equity accounted investees, until the
date on which significant influence or joint control ceases.
Transactions eliminated on consolidation
Intercompany transactions, balances and unrealised gains on transactions between entities in the consolidated entity
are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the
asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with
the policies adopted by the consolidated entity.
Foreign currency translation
The financial statements are presented in Australian dollars, which is Macmahon Holdings Limited's functional and
presentation currency.
Foreign currency transactions
Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the dates of
the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the
translation of monetary assets and liabilities denominated in foreign currencies, at the reporting date exchange rates,
are recognised in profit or loss.
Foreign operations
The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at the
reporting date. Monetary assets and liabilities denominated in foreign currency at the reporting date are translated to
the functional currency at the exchange rate at that date. The income and expenses of foreign operations are translated
into Australian dollars at the average exchange rates for the period. Foreign currency differences are recognised in other
comprehensive income, and presented in the foreign currency translation reserve in equity.
When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in
the foreseeable future, foreign exchange gains and losses arising from such a monetary item are recognised to form part
of a net investment in a foreign operation and are recognised in other comprehensive income, and are presented in the
foreign currency translation reserve in equity.
97
MACMAHON ANNUAL REPORT 2017 NOTE 30. OTHER SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Revenue recognition
Revenue (including maintenance services) is recognised when the services are provided and is based on surveys of
work performed where applicable. Revenues are based on volumes of work performed on a monthly basis and in certain
contracts are performed throughout the first life of the underlying mine or continuously throughout the duration of the
contract.
Revenue is recognised at the fair value of the consideration received or receivable, to the extent that it is probable that
the economic benefits will flow to the entity and the revenue can be reliably measured.
Current and non-current classification
Assets and liabilities are presented in the statement of financial position based on current and non-current classification.
An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in normal
operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the
reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability
for at least 12 months after the reporting period. All other assets are classified as non-current.
A liability is classified as current when: it is either expected to be settled in normal operating cycle; it is held primarily for
the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right
to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as
non-current.
Deferred tax assets and liabilities are always classified as non-current.
Goods and Services Tax ('GST') and other similar taxes
Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not
recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part
of the expense.
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST
recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of
financial position.
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing
activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax
authority.
Rounding of amounts
The consolidated entity is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument
2016/191, issued by the Australian Securities and Investments Commission, relating to 'rounding-off'. Amounts in this
report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases,
the nearest dollar.
98
MACMAHON ANNUAL REPORT 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 30 June 2017 DIRECTORS’ DECLARATION
In the Directors' opinion:
– the attached financial statements and notes, and the remuneration report on pages 31 to 39 in the Directors' report, are
in accordance with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other
mandatory professional reporting requirements;
– the attached financial statements and notes comply with International Financial Reporting Standards as issued by the
International Accounting Standards Board as described in note 30 and throughout the financial statements;
– the attached financial statements and notes give a true and fair view of the consolidated entity's financial position as at
30 June 2017 and of its performance for the financial year ended on that date and comply with Australian Accounting
Standards and the Corporations Regulations 2001;
– there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due
and payable; and
– at the date of this declaration, there are reasonable grounds to believe that the members of the Extended Closed
Group will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed
of cross guarantee (pursuant to ASIC Class Order 98/1418) described in note 27 to the financial statements.
The Directors have been given the declarations required by section 295A of the Corporations Act 2001.
Signed in accordance with a resolution of Directors made pursuant to section 295(5)(a) of the Corporations Act 2001.
On behalf of the Directors
J A Walker
Director
24 August 2017
Perth
Michael Finnegan
Chief Executive Officer
24 August 2017
Perth
99
MACMAHON ANNUAL REPORT 2017
INDEPENDENT AUDITOR’S REPORT
100
MACMAHON ANNUAL REPORT 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.Liability limited by a scheme approved under ProfessionalStandards Legislation.Independent Auditor’s Report To the shareholders of Macmahon Holdings Limited Report on the audit of the Financial Report Opinion We have audited the Financial Report of Macmahon Holdings Limited (the Company). In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including: •giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its financial performance for the year ended on that date; and •complying with Australian Accounting Standards and the Corporations Regulations 2001. The Financial Report comprises: •Consolidated statement of financial position as at 30 June 2017 •Consolidated statement of profit or loss and other comprehensive income, Consolidated statement of changes in equity, and Consolidated statement of cash flows for the year then ended •Notes including a summary of significant accounting policies •Directors Declaration. The Group consists of the Company and the entities it controlled at the year-end or from time to time during the financial year. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code. Key Audit Matters The Key Audit Matters we identified are: •Recoverability of non-operating plant and equipment. •Assessment of potential onerous contract – Telfer. Key Audit Matters are those matters that, in our professional judgment, were of most significance in our audit of the Financial Report of the current period. These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 101
MACMAHON ANNUAL REPORT 2017 Recoverability of non-operating plant and equipment ($ 16.7m) Refer to Note 13 to the Financial Report The key audit matter How the matter was addressed in our audit The Group has certain non-operating plant and equipment which is not allocated to operating sites or contracts at the present time. The recoverability of these assets is considered a key audit matter due to the significant value and the potential for negative impact on sales values given fluctuating market conditions and demand. These conditions increase the estimation uncertainty and the associated audit risk. The Group have determined the recoverable amount of these assets at year end based on a combination of external valuations obtained in prior years and internal assessments of current market conditions on the value of these assets, including recent sales prices obtained. The assets are carried at the lower of cost and the Group’s assessment of recoverable amount. Our procedures included: •Assessing the competency and objectivity of the external valuers. •Considering the appropriateness of the valuation methodology adopted for consistency with accounting standards, industry practice and Group policy. •Challenging the Group’s assessments by checking, on a sample basis, the asset valuations included in valuers’ reports taking into consideration recent sales prices achieved by the Group on similar assets and market information regarding selling prices for similar assets currently available in the market. Assessment of potential onerous contract - Telfer Refer to Note 12 to the Financial Report The key audit matter How the matter was addressed in our audit The assessment of a potential onerous contract for the Telfer Mining Services Contract is considered a key audit matter due to the Telfer Contract incurring significant losses to date and the estimation uncertainty in forecasting cashflows leading to an increased audit risk. The Group’s assessment as to whether the contract is onerous is based on whether forecast cashflows over the remaining contract term are positive. We focused on evaluating the Group’s assessment of future cashflows, in particular the impact of various productivity initiatives including completion of the equipment rectification and anticipated improved financial and operational performance. Our procedures included: In relation to losses incurred to date we assessed the Group’s analysis of the actual costs incurred against the following sources, for consistency of application and performance: •Reading monthly management reports. •Obtaining and reading correspondence between the Group and Telfer for evidence of performance issues and concerns. •Discussing contract performance with operational management. In relation to the forecast cashflows over the remaining contract term we challenged their composition against the following sources, for feasibility and consistency: •Reading the terms of the contract including performance standards and conditions and variations. 102
MACMAHON ANNUAL REPORT 2017INDEPENDENT AUDITOR’S REPORT •Comparing to past events resulting in losses from our testing outlined earlier. •Assessing future changes aimed to improve financial and operational performance. •Reading the following for evidence of issues or concerns relevant to the forecast period: •correspondence between the Group and Telfer. •minutes of the monthly management meetings between Telfer and the Group. •the Group’s monthly board minutes. •Inspecting updated mine plans and production schedules. Other Information Other Information is financial and non-financial information in Macmahon Holdings Limited annual reporting which is provided in addition to the Financial Report and the Auditor's Report. The Directors are responsible for the Other Information. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for: •preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 •implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error •assessing the Group’s ability to continue as a going concern. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. 103
MACMAHON ANNUAL REPORT 2017 Auditor’s responsibilities for the audit of the Financial Report Our objective is: •to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and •to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_files/ar2.pdf. This description forms part of our Auditor’s Report. Report on the Remuneration Report Opinion In our opinion, the Remuneration Report of Macmahon Holdings Limited for the year ended 30 June 2017, complies with Section 300A of the Corporations Act 2001. Directors’ responsibilities 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 responsibilities We have audited the Remuneration Report included in pages 31 to 39 of the Directors’ report for the year ended 30 June 2017. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG Denise McComish Partner Perth 24 August 2017 SUMMARY OF CONSOLIDATED RESULTS
Profit and Loss ($m)
Revenue from continuing operations
Underlying EBITDA
Depreciation and amortisation
Underlying EBIT
Significant and non-recurring items and impairment
Reported EBIT
Net interest
Reported operating profit/(loss) before tax
Tax (expense)/benefit
Reported NPAT from continuing operations
Minority interest ("MI")
Reported NPAT attibutable to Macmahon
Add: significant and non-recurring items (net of tax
and MI)1
Underlying NPAT attributable to Macmahon
Balance Sheet ($m)
Plant and equipment
Total assets
Net assets
Equity attributable to Macmahon
Net debt/(net cash)
Cash Flow ($m)
Underlying EBITDA
Net interest paid
Income tax (paid)/refund
Working capital, provisions and other non cash items
decrease/(increase)
Operating cash flow including JV
Investing and financing cash flows (net)
Effect of exchange rates on cash
Cash at beginning of financial year
Closing cash balance
1. Significant and non-recurring items in:
2015
660.2
97.0
(59.6)
37.4
(233.8)
(196.4)
(23.7)
(220.1)
(0.5)
(220.6)
–
(220.6)
233.8
2014
1,015.9
171.0
(101.7)
69.3
(2.0)
67.3
(18.8)
48.5
(19.6)
28.9
–
28.9
2.0
2013
1,165.5
172.0
(85.6)
86.4
(1.8)
84.6
(18.3)
66.3
(22.7)
43.6
–
43.6
1.3
13.2
30.9
44.9
2017
359.6
31.8
(33.5)
(1.7)
(3.4)
(5.1)
(0.1)
(5.2)
(0.3)
(5.5)
–
(5.5)
3.4
(2.1)
122.7
295.0
185.0
185.0
2016
312.2
42.5
(28.8)
13.8
(2.1)
11.7
(0.7)
11.0
(0.2)
10.8
–
10.8
2.1
12.9
117.7
300.1
207.4
207.4
141.5
524.3
221.8
221.8
(54.1)
(56.5)
(74.2)
31.8
(0.1)
–
(1.5)
30.2
(23.1)
(0.9)
56.7
62.9
42.5
(1.0)
(2.8)
(29.7)
9.0
(188.6)
(0.6)
236.9
56.7
100.8
(10.8)
(1.9)
(34.3)
53.8
70.6
3.1
109.4
236.9
442.9
823.7
432.2
432.2
55.9
172.9
(15.9)
(8.7)
(70.4)
77.9
(122.3)
0.3
153.5
109.4
471.1
944.5
401.2
401.2
61.7
67.5
(18.8)
(9.6)
69.5
108.6
(91.6)
1.5
134.9
153.4
– 2017 includes the takeover defence costs;
– 2016 relates to onerous lease provisions;
– 2015 relates to property, plant and equipment impairment, inventory write downs and onerous lease provisions; and
– 2013 includes the Construction Business represented as a discontinued operation.
104
MACMAHON ANNUAL REPORT 2017 2017
2016
2015
2014
2013
1,659
1,529
1,295
2,467
3,495
People and Safety
Number of employees
LTIFR
TRIFR
Order Book
Work in hand ($m)1
New contracts and extension ($m)2
Revenue growth (%)
Reported NPAT/Total revenue (%)
Underlying NPAT/Total revenue (%)3
EBIT interest cover (x)
Reported basic EPS from continuing operations (cents)
Underlying basic EPS from continuing operations (cents)3
Balance Sheet Ratios
0.4
5.7
4,973
3,889
15.2
(1.5)
(0.6)
(33.8)
(0.47)
(0.18)
1.1
4.5
1,507
624
(52.7)
3.5
4.1
18.0
0.87
1.03
Gearing (Net debt or (Net cash))/Equity
(29.2)
(27.2)
Reported ROC (%)
Underlying ROC (%)3
Reported ROE (%)
Underlying ROE (%)3
Reported ROA (%)
Underlying ROA (%)3
NTA per share ($)
Cash Flow Ratios
(2.2)
(0.7)
(2.8)
(1.1)
(1.9)
(0.7)
0.15
3.5
4.1
5.0
6.0
2.6
3.1
0.17
0.9
5.4
1,150
68
(35.0)
(33.4)
2.0
(8.3)
(17.5)
1.05
(33.5)
(35.7)
6.8
(67.5)
4.0
(32.7)
2.0
0.18
0.9
8.5
0.9
7.7
2,573
387
3,230
1,846
(12.8)
(29.9)
2.8
3.0
3.6
2.30
2.46
12.9
9.3
9.6
6.9
7.4
3.3
3.5
(3.7)
(3.8)
(4.6)
4.37
4.50
15.4
11.9
12.2
11.5
11.8
4.5
4.6
0.34
0.32
Operating cash flow per share (cents)
2.5
0.7
4.3
6.2
8.6
Shareholders
Shares on issue (m) @ 30 June
Share price @ 30 June (cents)
Dividend declared (cents)
Percentage franked (%)
Market capitalisation ($m)
Enterprise value (EV)
Price/NTA (x)
1,200.9
1,210.5
1,261.7
1,261.7
1,261.7
16.5
–
n/a
198.2
144.1
1.1
8.8
–
n/a
106.5
50.0
0.5
6.6
–
n/a
83.3
9.1
0.4
10.0
–
n/a
126.2
182.1
0.3
13.0
–
n/a
164.0
225.7
0.4
1. The order book for 2017 includes the Batu Hijau contract. The order book for 2016 includes a proportional share of joint venture order books. Construction included in
historical numbers.
2. New contracts and extensions for 2017 includes the Batu Hijau contract.
3. Adjusted for significant and non-recurring items:
– 2017 includes the takeover defence costs;
– 2016 relates to onerous lease provisions;
– 2015 relates to property, plant and equipment impairment, inventory write downs and onerous lease provisions; and
– 2013 includes the Construction Business represented as a discontinued operation.
105
MACMAHON ANNUAL REPORT 2017 ASX ADDITIONAL INFORMATION
as at 21 August 2017
Additional information required by the Australian Securities Exchange Limited Listing Rules and not disclosed elsewhere
in this report is set out below.
SHAREHOLDING SUMMARY
The following details of Shareholders of Macmahon Holdings Limited have been taken from the share register on
21 August 2017.
a. The twenty largest Shareholders held 84.93% of the ordinary shares.
b. There were 7,189 ordinary Shareholders as follows:
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 Over
Total
684
2,059
1,104
2,738
604
7,189
TWENTY LARGEST SHAREHOLDERS AS AT 21 AUGUST 2017
See attached
Rank Name
Units
% of Units
PERPETUAL CORPORATE TRUST LIMITED
954,064,924
1.
2.
3.
4.
5.
6.
7.
8.
9.
J P MORGAN NOMINEES AUSTRALIA LIMITED
HSBC CUSTODY NOMINEES
CITICORP NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
BNP PARIBAS NOMS PTY LTD
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LTD
NATIONAL NOMINEES LIMITED
HSBC CUSTODY NOMINEES
10. BOND STREET CUSTODIANS LIMITED
11.
ZERO NOMINEES PTY LTD
12. CPU SHARE PLANS PTY LIMITED
13.
BNP PARIBAS NOMINEES PTY LTD
14. BNP PARIBAS NOMINEES PTY LTD
15.
BNP PARIBAS NOMS (NZ) LTD
16. MR PAULUS GERARDUS BROUWER + MR REMY PAULUS BROUWER
17. ALKAT PTY LTD
18. CS THIRD NOMINEES PTY LIMITED
19. BPM CAPITAL LIMITED
20. CITICORP NOMINEES PTY LIMITED
313,248,140
180,248,830
130,565,590
49,599,195
38,128,285
26,242,532
23,374,475
21,908,873
18,222,606
18,006,900
13,022,783
7,695,702
7,459,298
5,644,230
5,600,000
4,779,420
4,467,050
4,000,000
3,893,704
44.27
14.54
8.36
6.06
2.30
1.77
1.22
1.08
1.02
0.85
0.84
0.60
0.36
0.35
0.26
0.26
0.22
0.21
0.19
0.18
Totals: Top 20 holders of ORDINARY SHARES (GROUPED)
Total Remaining Holders Balance
1,830,172,537
324,813,281
84.93
15.07
106
MACMAHON ANNUAL REPORT 2017 SUBSTANTIAL SHAREHOLDERS
As at 21 August 2017, the register of substantial shareholders disclosed the following information:
Holders giving notice
Number of ordinary shares in which interest is held
1. Perpetual Corporate Trust Limited
954,064,924
VOTING RIGHTS
The voting rights attaching to ordinary shares are set out below:
On a show of hands every member present in person or by proxy shall have one vote and upon a poll each share shall
have one vote.
FEEDBACK
Macmahon would appreciate your feedback on this report. Your input will assist us to improve as a business and develop
our report to further suit your needs. To respond, please either:
email investors@macmahon.com.au, or
mail to: Investor Relations
PO Box 198
Cannington WA 6987
www.macmahon.com.au
CALENDAR OF EVENTS
Annual General Meeting November 2017
Release of half year results February 2018
Release of full year results August 2018
107
MACMAHON ANNUAL REPORT 2017 GLOSSARY
Term
EBIT
Meaning
Earnings before net interest expense and tax expense/benefit
EBITDA
Earnings before net interest expense, tax expense/benefit, depreciation and amortisation
EV
LTIFR
TRIFR
NPAT
NTA
ROC
ROE
ROA
Enterprise value, being market capitalisation plus net debt less net cash
Lost time injury frequency rate
Total recordable injury frequency rate
Net profit after tax
Net tangible assets
Return on capital – EBIT/Average Capital employed, where capital employed is total tangible assets less
payables less bank overdraft.
Return on equity – NPAT/Average net assets
Return on assets – NPAT/Average assets at year end
108
MACMAHON ANNUAL REPORT 2017 CORPORATE DIRECTORY
DIRECTORS
J A Walker (Chairman, Non-executive)
C R G Everist (Non-executive)
E D R Skira (Non-executive)
V A Vella (Non-executive)
A Ramlie (Non-executive) appointed 8 August 2017
A Sidarto (Non-executive) appointed 8 August 2017
COMPANY SECRETARY
G Gettingby
PRINCIPAL REGISTERED OFFICE
15 Hudswell Road
Perth Airport, Western Australia 6105
Telephone: +61 (08) 9232 1000
Facsimile: +61 (08) 9232 1001
LOCATION OF SHARE REGISTRIES
Computershare Investor Services Pty Ltd
Level 11, 172 St Georges Terrace
Perth WA 6000
SECURITIES EXCHANGE
Macmahon is listed on the Australian Securities Exchange
with an ASX code of “MAH”
AUDITOR
KPMG
235 St Georges Terrace
Perth Western Australia, 6000
OTHER INFORMATION
Macmahon Holdings Limited ACN 007 634 406,
incorporated and domiciled in Australia, is a publicly listed
company limited by shares.
MACMAHON ANNUAL REPORT 2017RM-17115