ANNUAL
REPORT
2014
MITCHELL SERVICES LTD
ACN 149 206 333
ANNUAL REPORT
30 JUNE 2014
CONTENTS
Chairman’s Report
Chief Executive Officer’s Report
Directors’ Report
Corporate Governance Statement
Auditor’s Independence Declaration
Consolidated Statement of Profit or Loss and Other
Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report
Additional Australian Stock Exchange Information
Corporate Directory
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CHAIRMAN’S REPORT
I am pleased to present the annual report for the year ended 30 June 2014.
Nathan Andrew Mitchell
Executive Chairman
The Drill Torque board embarked on a ‘change program’
from May 2013 during which a number of proposals were
considered. The Mitchell Group proposal was considered to be
the best option to deliver shareholder value over time and was
approved by shareholders at the Annual General Meeting on 29
November 2013, culminating in the creation of Mitchell
Services Limited.
Previously, it took Mitchell Drilling Contractors nearly forty years
to grow to 30 rigs which led to the sale of that business for
$150m in 2008. The current acquisition of Tom Browne Drilling
Services’ assets will double our rig count to 58, significantly
increasing Mitchell Services’ capability. This is a compelling
bottom-of-the market investment with significant upside if
general market conditions improve.
‘Mitchell Services Limited evolved from
the merger of two different businesses and
pioneering drilling families, which have
specialised in various segments of the
drilling market’
On 22 August 2014 the company announced to the market that
it had entered into a sale agreement to acquire 29 drill rigs and
ancillary equipment from the receivers of Tom Browne Drilling
Services and had commenced a capital raising of circa $20.2m
(fully underwritten) to fund the proposed acquisition and provide
additional working capital.
Building the foundations of Mitchell Services, although costly,
has led to successfully winning a number of new contracts,
including Tier 1 clients which were previously out of reach of the
company. We have diligently built a world class management
and operational team, who are focused on reaching our growth
objectives. Through the successful recent capital raising, we
have attracted a number of sizeable institutional investors into
our shareholder base, broadening support for further
growth opportunities.
‘Mitchell Services Limited is building a strong
foundation for future growth’
4
MITCHELL SERVICES LTD ANNUAL REPORT 2014 A cyclical market presents opportunity: this is why I decided
to re-enter the Australian marketplace after the expiry of a
five-year non-compete period. As the market was at a low point
I believed it was the right time to invest. As this is the bottom
of a cycle, the year ended 30 June 2014 represented a difficult
year for the company as subdued general market conditions
persisted in the exploration and mining industries. These
conditions, combined with many one off costs associated with
the transformation of the business, are reflected in the financial
performance for the year ended 30 June 2014. It is however
pleasing to note that revenue has increased from a low of
$0.305m in September 2013 to a high of $2.015m in July 2014.
A contra-cyclical move in a depressed market is not an easy
decision, but the rewards are multiplied on the return to normal
market conditions. I would like to thank current shareholders
for their on-going support and welcome new shareholders that
participated in the recent capital raise.
On behalf of the Board, I would like to thank the Senior
Executive team for their efforts in leading the business
transformation. I would also like to recognise the broader
team that enables Mitchell Services to be recognised for its
operational excellence across a wide range of commodities and
market sectors.
Nathan Andrew Mitchell
Executive Chairman
THE CURRENT
ACQUISITION OF TOM
BROWNE DRILLING
SERVICES’ ASSETS
WILL DOUBLE OUR
RIG COUNT TO
58
SIGNIFICANTLY
INCREASING
MITCHELL SERVICES’
CAPABILITY
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MITCHELL SERVICES LTD ANNUAL REPORT 2014
CHIEF EXECUTIVE OFFICER’S REPORT ON OPERATIONS
FOR THE YEAR ENDED 30 JUNE 2014
Andrew Michael Elf
Chief Executive Officer
It has been a transformational year and this has come at a
cost. However, the business is now positioned to deliver on our
vision of being Australia’s leading provider of drilling services
to the global exploration, mining and energy industries. The
transformation has seen us create a drilling company that has
all of the systems, structures, procedures and certifications
that you would expect given Mitchell Group’s forty-plus years’
experience in the drilling industry.
I am pleased with the progress the company has made since
the merger of Mitchell Services with Drill Torque. The key points
below demonstrate the considerable work undertaken and
achievements following the merger.
The company has won approximately $30m worth of
contracts by revenue since the merger including contracts
with three ‘Tier 1’ clients. Tier 1 clients being major mining
and energy companies.
Rig utilisation has increased from four to twelve rigs.
Fourteen rigs are under tender at the current time with Tier
1 clients and enquiry levels continue to grow.
•
•
•
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•
•
•
•
•
•
A review and implementation of industrial relations strategy
to increase flexibility across the business has been
completed.
The company has relocated its operational base to new
Emerald premises and its corporate office to new Brisbane
premises.
The company has rented its Townsville facility to a major
global defence contractor, creating a valuable stand-alone
property investment that can potentially be divested in the
medium term.
An auction of surplus equipment has been undertaken.
The company has negotiated access to $3.4m worth of
equipment with an attractive buyout option through a
rental agreement.
Importantly, the company has achieved ISO-14001,
ISO-9001, OHSAS-18001 and AS/NZS 4801 safety,
environment and quality certifications.
MITCHELL SERVICES LTD ANNUAL REPORT 2014 THE FUTURE
The team’s top priorities in the year ahead are listed below. I
look forward to releasing quarterly reports to provide updates on
our progress.
1. Continue to improve the standards in the health and safety
of our people.
2. Meet and exceed the high standard of service that our
clients expect from Mitchell Services.
3.
4.
Integrate the Tom Browne Drilling Services assets
and inventory.
Increase rig utilisation with a view to increasing
shareholder value in the medium to long term.
I would like to thank the Board for their on-going support and
guidance, my senior executive and all of our teams that have
worked so hard to achieve so much in such a short time. I look
forward to a safe and productive year ahead.
Andrew Michael Elf
Chief Executive Officer
APPROXIMATELY
$30M
WORTH OF
CONTRACTS
RIG UTILISATION HAS
INCREASED FROM
4 TO 12 RIG
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MITCHELL SERVICES LTD ANNUAL REPORT 2014 CURRENT BUSINESS SUMMARY
VISION
TO BE AUSTRALIA’S LEADING PROVIDER OF DRILLING
SERVICES TO THE GLOBAL EXPLORATION, MINING AND
ENERGY INDUSTRIES
29 RIGS IN CURRENT FLEET AND
ACQUIRING ANOTHER 29 RIGS
REVENUE FOR
2013/14
FULL YEAR
$15.01M
RIG
UTILISATION
INCREASED
FROM 4 RIGS
TO 12 RIGS
50%
OF UTILISED RIGS ARE WORKING
FOR TIER 1 CLIENTS
80+
EXPERIENCED
EMPLOYEES
AS AT 30 JUNE
NO LOST TIME
INJURIES
SINCE
TRANSACTION
COMPLETION
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MITCHELL SERVICES LTD ANNUAL REPORT 2014 9
MITCHELL SERVICES LTD ANNUAL REPORT 2014 Dr Craven has a professional background in the energy
and resources sector having previously been CEO to the
predecessor to Ergon Energy and CEO of Transpower New
Zealand Ltd which owns and operates the National Grid. Dr
Craven held senior executive positions with Shell Coal Pty Ltd
and NRG Asia Pacific Limited. Dr Craven is currently Non-
Executive Director of Senex Energy Limited, Invion Limited,
AusNet Services Limited and Windlab Ltd. Dr Craven was
previously Chairman of Ergon Energy Corporation Limited,
Australian Electricity Systems Pty Ltd, Tully Sugar Limited and
Deputy Chairman of Arrow Energy Limited. Dr Craven is Chair
of the Audit and Risk Committee and the Remuneration and
Nomination Committee.
At the date of this report, Dr Craven has relevant interests in
1,779,857 shares and 10,000 options.
Peter Richard Miller (Non-Executive Director)
Mr Miller was appointed as director on 8 February 2011 and
continues in office at the date of this report. Mr Miller stepped
down from his senior management position on 17 May 2013 but
continued on as a non-executive director. Mr Miller founded Drill
Torque in 1992 with 1 drill rig which grew to 29 rigs. Mr Miller
has been involved in all aspects of the drilling industry for the
past 29 years. His experience encompasses working with all
types of drilling rigs, building rigs and managing
drilling companies.
Having worked in most exploration areas in Australia he
is intimately familiar with drilling conditions, equipment
requirements and pricing structure to maximise fleet
productivity. Mr Miller is widely known and well regarded in
the industry.
At the date of this report, Mr Miller has relevant interests in
42,433,619 shares and 4,208,362 options.
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2014
The directors of Mitchell Services Ltd submit herewith the
annual report of the company for the financial year ended
30 June 2014. In order to comply with the provisions of the
Corporations Act 2001, the directors report as follows:
DIRECTORS
The names and particulars of the directors of the company
during or since the end of the financial year are:
Nathan Andrew Mitchell (Executive Chairman)
Mr Mitchell has been involved in the drilling industry for virtually
his entire life and has been with Mitchell since the company’s
earliest days. With a career spanning almost 30 years, he
has a proven track record as an industry leader in technical
development and business growth.
Mr Mitchell is currently Executive Chairman of Mitchell Group
Holdings Pty Ltd including Ports, Energy, and Equipment.
Previously, as CEO for Mitchell Drilling Contractors the
company doubled in size and Mr Mitchell directed an
international expansion expanding into India, China, Indonesia,
the United States and various countries in southern Africa.
Other directorships include Tlou Energy Pty Ltd (ASX:TOU),
VMW Engineering Pty Ltd and Tom Browne International
Pty Ltd.
At the date of this report, Mr Mitchell has relevant interests in
86,650,890 shares and 94,607,500 options.
David John Fairfull B.Com, ACIS, CPA, ASIA, MAICD (Non-
Executive Chairman)
Mr Fairfull was appointed as director on 8 February 2011 and
ceased to be a director following his resignation on 20 March
2014. Mr Fairfull was also a member of the Audit and Risk
Committee and Remuneration and Nomination Committee until
his resignation on 20 March 2014.
As at 20 March 2014 Mr Fairfull had relevant interests in
5,400,000 shares and 270,000 options.
Ralph Howard Craven BE PhD FIEAust FIPENZ FAICD
CPEng (Non-Executive Director)
Dr Craven was appointed as director on 27 May 2011 and
continues in office at the date of this report.
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MITCHELL SERVICES LTD ANNUAL REPORT 2014
Guy Hamish Drummond B.Econ, CA (Non-Executive
Director)
Mr Drummond was appointed as director on 8 February 2011
and ceased to be a director following his resignation on 29
November 2013.
As at 29 November 2013 Mr Drummond had relevant interests
in 9,131,857 shares and 762,000 options
Robert Barry Douglas BCom, LLB (Non-Executive Director)
Mr Douglas was appointed a Non-Executive Director on 29
November 2013. Mr Douglas has over 15 years of experience
in finance and investment banking and is currently an Executive
Director of Morgans Financial.
Mr Douglas has experience in all aspects of corporate advisory
and equity capital raising for listed public companies and
companies seeking to list, including offer structure, prospectus
preparation, due diligence, accounts and forecasting, risk
management, sales and marketing, logistics and legal
requirements. During his time Mr Douglas has worked
extensively with energy and resource companies. Mr Douglas
has been a member of the Audit and Risk Committee and the
Remuneration and Nomination Committee since 20
March 2014.
secretary on 8 February 2011. Mr Witty also holds the position
of chief financial officer.
Mr Witty joined Drill Torque in August 2009 after 38 years’
experience in retail and business banking and 2 years’
experience as a senior manager with Pricewaterhouse
Coopers.
Mr Witty has an Associate Diploma of Business (Accounting)
and a Graduate Certificate in Management and is a Fellow of
the Institute of Public Accountants and is currently Chairman of
the Townsville Diocesan Development Fund (Catholic Diocese
of Townsville).
PRINCIPAL ACTIVITIES
The consolidated entity’s principal activities during the course
of the financial year were the provision of exploration and mine
site drilling services to the mining industry.
There were no significant changes in the nature of the activities
of the consolidated entity during the year.
REVIEW OF OPERATIONS
At the date of this report, Mr Douglas has relevant interests in
475,202 shares and 2,500 options.
The consolidated entity’s operating result after income tax for
the year ended 30 June 2014 was a loss of $4,607,258
(2013: $1,912,438 loss).
Grant Eric Moyle
Mr Moyle was appointed as an Alternate Director for Mr Nathan
Mitchell on 30 May 2014.
Further detailed comments on operations up to the date of
this report are included separately in this annual report in the
Chairman’s Report.
Mr Moyle is the Chief Executive Officer of Mitchell Group
Holdings in Brisbane. He brings to the Group his management
and board experience in International Mining Services,
Governance and Strategic Business Growth.
At the date of this report, Mr Moyle has relevant interests in
556,000 shares.
COMPANY SECRETARY
Robert Ian Witty was appointed to the position of company
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MITCHELL SERVICES LTD ANNUAL REPORT 2014
•
•
•
In the case of 65,000,000 Class B options if:
•
the Group has an audited EBITDA for its financial year
ending 30 June 2015 of at least $5,000,000; and
the company’s shares have a 10 day VWAP of at least 6
cents per share at any time during the 12 month period
commencing on the day of release to the ASX of the
Group’s final results for the financial year ending 30
June 2015.
In the case of 50,000,000 Class C options if:
•
the Group has an audited EBITDA for its financial year
ending 30 June 2016 of at least $7,000,000; and
the company’s shares have a 10 day VWAP of at least 7
cents per share at any time during the 12 month period
commencing on the day of release to the ASX of the
Group’s final results for the financial year ending 30
June 2016.
In the case of 50,000,000 Class D options if:
•
the Group has an audited EBITDA for its financial year
ending 30 June 2016 of at least $9,000,000; and
the company’s shares have a 10 day VWAP of at least 8
cents per share at any time during the 12 month period
commencing on the day of release to the ASX of the
Group’s final results for the financial year ending 30
June 2016.
CHANGES IN STATE OF AFFAIRS
Acquisition of Mitchell Operations Pty Ltd (formerly
Mitchell Services Pty Ltd)
On 29 November 2013, the Group’s parent entity, Mitchell
Services Limited, acquired all of the issued shares in Mitchell
Operations Pty Ltd (Mitchell Services Pty Ltd changed its name
to Mitchell Operations Pty Ltd on 10 December 2013). The
entity acquired includes drilling and wireline logging contracts
and senior management team members to lead and drive the
business forward. The directors believe that the acquisition will
have a marked effect on the current operations of the Group
and will provide a platform to accelerate the Group’s long
held strategic objective to become a national “tier one” drilling
operation. This acquisition was approved by shareholders at the
Annual General Meeting on 29 November 2013.
The consideration for the acquisition was:
$2,000,000 satisfied by the issue of 40,000,000 shares
(30,000,000 shares to Mitchell Family Investments (QLD) Pty
Ltd and 10,000,000 shares to Mitchell Group Holdings Pty Ltd
(as trustee for the Andala trust)) at 5 cents per share; and
the grant of 198,660,000 options to Mitchell Group Holdings Pty
Ltd (as trustee for the Andala trust) on the terms set out below.
Terms of options
The major terms of the options are as follows:
Each option entitles the holder to subscribe for one share upon
payment of the exercise price prior to the expiry date. Each
option will be either a Class A option, a Class B option, a Class
C option or a Class D option.
The options may only be exercised if they have vested. The
options will vest:
In the case of 45,000,000 Class A options if:
•
the Group has an audited EBITDA for its financial year
ending 30 June 2015 of at least $4,000,000; and
the company’s shares have a 10 day VWAP of at least 5
cents per share at any time during the 12 month period
commencing on the day of release to the ASX of the
Group’s final results for the financial year ending 30
June 2015.
•
12
MITCHELL SERVICES LTD ANNUAL REPORT 2014DIRECTORS’ REPORT CONTINUEDFOR THE YEAR ENDED 30 JUNE 2014 The Group has planned to raise additional equity to fund
the Tom Browne asset acquisition, provide working capital
for further growth aspirations and repay the Mitchell Family
Holdings loan. The equity raising is planned to be done in
stages and it is anticipated to be completed shortly after the
date of this report. The various stages of the capital raising are
outlined below:
•
•
•
The issue of 43,500,001 fully paid ordinary shares at
a price of $0.035 to raise approximately $1,520,000
by way of a first tranche placement to institutional and
sophisticated investors.
The undertaking of a 1 for 1 non-renounceable rights issue
at $0.035 per share to raise approximately $11,700,000.
The issue of 200,000,000 fully paid ordinary shares at
a price of $0.035 to raise approximately $7 million by
way of a second tranche placement to institutional and
sophisticated investors.
Cancellation of options
As part of the acquisition of the assets of Tom Browne Drilling
Services (Receivers and managers appointed: in liquidation)
and associated equity raising, 44,415,000 class A and
64,155,000 class B options issued to Mitchell Group Holdings
and to senior management were cancelled.
Lease of 133-137 Crocodile Crescent
On 21 July 2014 Mitchell Services Ltd entered into a five year
lease agreement to lease its building situated at 133-137
Crocodile Crescent, Mount St John, Townsville. Under the lease
agreement Mitchell Services Ltd will receive rental income of
$265,000 per annum.
The options may be exercised at any time from when they
vest until on or before 5pm (Sydney time) on the date that is
5 business days after the end of the relevant 12 month period
during which the VWAP vesting condition applying to that
class of options may be satisfied (“expiry date”). Options not
exercised by the expiry date will lapse.
The exercise price of each option is $0.000005.
The options will not be quoted on the ASX and are
not transferrable.
There are no participation rights or entitlements inherent in the
options and holders will not be entitled to participate in new
issues of securities offered to shareholders during the currency
of the options.
Prior to the acquisition, Mitchell Operations Pty Ltd (formerly
Mitchell Services Pty Ltd) had granted 11,340,000 options to a
number of its senior executives. In consideration for the senior
executives agreeing to cancel these options and agreeing
to become employees of Mitchell Services Limited on terms
acceptable to both parties, Mitchell Services Limited granted
11,340,000 options (replacement awards) to those senior
executives at the time of acquisition. The terms of these options
were identical to those issued to Mitchell Group Holdings
Pty Ltd.
Mitchell Family Holdings Pty Ltd Loan
Mitchell Family Holdings Pty Ltd is an entity controlled by
Nathan Andrew Mitchell. On 27 June 2014, the Group obtained
a $2,000,000 loan facility from Mitchell Family Holdings. As at
30 June 2014 this facility was undrawn. The loan is unsecured
and interest is charged at 14% per annum. The first draw took
place on 15 July 2014.
SUBSEQUENT EVENTS
Acquisition of Tom Browne Drilling Services assets
On 21 August 2014 Notch Holdings Pty Ltd (a wholly owned
subsidiary of the Mitchell Services Ltd), entered into a
conditional sale agreement to acquire 29 drill rigs and ancillary
equipment from Tom Browne Drilling Services Pty Ltd (receivers
and managers appointed: in liquidation). The purchase price per
this sale agreement was $9,500,000 plus GST.
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MITCHELL SERVICES LTD ANNUAL REPORT 2014 LIKELY DEVELOPMENTS
The consolidated entity will continue to pursue its principal activities during the next financial year.
ENVIRONMENTAL REGULATIONS
The consolidated entity’s operations are not subject to any particular and significant environmental regulation under a law of the
Commonwealth or of a State or Territory. However, the consolidated entity does provide services to entities that are licensed or
otherwise subject to conditions for the purposes of environmental legislation or regulation. In these instances, the consolidated entity
undertakes its compliance duties in accordance with the contractor regime implemented by the licensed or regulated entity.
DIVIDENDS
There were no dividends paid in respect of the year ended 30 June 2014.
SHARES UNDER OPTION
Details of unissued shares or interests under option as at the date of this report are:
Grant Date
27 July 2011
28 July 2011
29 November 2013
29 November 2013
Date of Expiry
Exercise Price
Number under Option
2 August 2016
2 August 2016
5 August 2017*
5 August 2017*
$0.30
$0.30
$0.000005
$0.000005
500,000
12,500,000
49,350,000
49,350,000
111,700,000
Option holders do not have any rights to participate in any issues of shares or other interests in the company or any other entity.
There have been no unissued shares or interests under option of any controlled entity within the Group during or since the end of the
reporting period.
During the year ended 30 June 2014, there were no shares in Mitchell Services Ltd issued on the exercise of options granted.
*Options expire 5 days after the end of the relevant 12 month period during which the VWAP vesting condition applying to that class
of options may be satisfied. These VWAP conditions are outlined on page 19 and 20 of the remuneration report.
14
MITCHELL SERVICES LTD ANNUAL REPORT 2014DIRECTORS’ REPORT CONTINUEDFOR THE YEAR ENDED 30 JUNE 2014 INDEMNIFICATION OF OFFICERS AND AUDITORS
During the financial year, the company has given an indemnity or entered into an agreement to indemnify, or paid or agreed to pay
insurance premiums as follows:
The company has paid premiums to insure each of the directors and company officers against liabilities for costs and expenses
incurred by them in defending legal proceedings arising from their conduct while acting in the capacity of director or officer of the
company other than conduct involving a wilful breach of duty in relation to the company. The total premiums paid in this regard
amounted to $35,643.
The company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or
agreed to indemnify an officer or auditor of the company against a liability incurred as such an officer or auditor.
DIRECTORS’ MEETINGS
The following table sets out the number of directors’ meetings (including meetings of committees of directors) held during the
financial year and the number of meetings attended by each director (while they were a director or committee member). During the
financial year, 17 board meetings, 2 remuneration and nomination committee meetings and 5 audit and risk committee meetings
were held.
Directors
Board of directors
Remuneration and
nomination committee
Audit and risk committee
Entitled to Attend
Attended
Entitled to Attend
Attended
Entitled to Attend
Attended
N.A. Mitchell
R.H. Craven
P.R. Miller
R.B. Douglas
G.E. Moyle
D.J. Fairfull
G.H Drummond
10
17
17
10
-
13
8
NON-AUDIT SERVICES
10
17
15
10
-
13
6
-
2
-
-
-
2
-
-
2
-
-
-
2
-
-
5
-
-
-
5
-
-
5
-
-
-
5
-
There were no amounts paid or payable to the auditor for non-audit services provided during the year by the auditor. Refer to note 20
to the financial statements.
AUDITOR’S INDEPENDENCE DECLARATION
The auditor’s independence declaration is included on page 28 of the annual report.
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MITCHELL SERVICES LTD ANNUAL REPORT 2014
REMUNERATION REPORT
Remuneration Policy
The remuneration policy of Mitchell Services Ltd has been
designed to align key management personnel objectives
with shareholder and business objectives by providing a
fixed remuneration component and offering specific long-
term incentives based on key performance areas affecting
the consolidated entity’s financial results. The board of
Mitchell Services Ltd believes the remuneration policy to be
appropriate and effective in its ability to attract and retain the
high quality key management personnel to run and manage the
consolidated entity, as well as create goal congruence between
directors, executives and shareholders.
The board’s policy for determining the nature and amount
of remuneration for key management personnel of the
consolidated entity is as follows:
•
•
•
•
•
The remuneration policy is to be developed by the
Remuneration and Nomination Committee and approved
by the board. Professional advice may be sought from
independent external consultants if required;
All key management personnel receive a base salary
(which is based on factors such as length of service and
experience), superannuation, and may receive fringe
benefits, options and performance incentives;
Any performance incentives will generally only be paid
once predetermined key performance indicators have
been met;
Incentives paid in the form of options or rights are intended
to align the interests of the directors and company with
those of the shareholders. In this regard, key management
personnel are prohibited from limiting risk attached to
those instruments by use of derivatives or other means;
The Remuneration and Nomination Committee reviews
key management personnel packages annually by
reference to the consolidated entity’s performance,
executive performance and comparable information from
industry sectors.
This remuneration report, which forms part of the directors’
report, sets out information about the remuneration of Mitchell
Services Ltd’s key management personnel for the financial year
ended 30 June 2014. The term “key management personnel”
refers to those persons having authority and responsibility
for planning, directing and controlling the activities of the
consolidated entity, directly or indirectly, including any director
(whether executive or otherwise) of the consolidated entity.
Key management personnel
The directors and other key management personnel of the
consolidated entity during or since the end of the financial
year were:
Nathan Andrew Mitchell (Executive Chairman – appointed
Managing Director 29 November 2013 and Executive Chairman
20 March 2014 )
Peter Richard Miller (Non-Executive Director)
Ralph Howard Craven (Non-Executive Director)
Robert Barry Douglas (Non-Executive Director – appointed 29
November 2013)
Grant Eric Moyle (Non – Executive Alternate Director to
Nathan Andrew Mitchell appointed 30 May 2014)
Guy Hamish Drummond (Former Non-Executive Director –
resigned 29 November 2013)
David John Fairfull (Former Chairman, Non-Executive Director
– resigned 20 March 2014)
Andrew Michael Elf (Chief Executive Officer – joined 29
November 2013 and appointed CEO 20 March 2014)
Robert Ian Witty (Chief Financial Officer and Company
Secretary)
Gary Raymond Salter (Chief Commercial Officer – joined 29
November 2013)
Martin James McIver (Former Chief Financial Officer Mitchell
Services Pty Ltd – joined 29 November 2013 – ceased
employment 10 January 2014)
Aaron Francis Short (Operations Manager – joined 29
November 2013)
William Arthur Fisher (Former Operations Manager Coal and
Energy – ceased employment 12 July 2013)
Simon Morrell Morgan (Former Operations Manager - ceased
employment 15 Feb 2014)
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MITCHELL SERVICES LTD ANNUAL REPORT 2014DIRECTORS’ REPORT CONTINUEDFOR THE YEAR ENDED 30 JUNE 2014 The performance of key management personnel is measured
against criteria agreed annually with each executive and is
based predominantly on the forecast growth of the consolidated
entity’s profits and shareholders’ value.
Options granted under the arrangement do not carry dividend
or voting rights. Each option is entitled to be converted into
ordinary shares once the attaching conditions are satisfied.
Any bonuses and incentives must be linked to predetermined
performance criteria. The board may, however, exercise its
discretion in relation to approving incentives, bonuses and
options, and can recommend changes to the Remuneration
and Nomination Committee’s recommendations. Any change
must be justified by reference to measurable performance
criteria. The policy is designed to attract the highest calibre of
executives and reward them for performance results leading to
long-term growth in shareholder wealth.
Key management personnel receive a superannuation
guarantee contribution required by the government, which is
currently 9.25% (to a maximum of $25,000 per annum) of the
individual’s average weekly ordinary times earnings, and do
not receive any other retirement benefits. Some individuals,
however, have chosen to sacrifice part of their salary to
increase payments towards superannuation.
Upon retirement, key management personnel are paid
employee benefit entitlements accrued to the date of retirement.
Key management personnel will receive redundancy benefits if
applicable. Any options not exercised before or on the date of
termination will lapse.
All remuneration paid to key management personnel is valued
at the cost to the consolidated entity and expensed.
The board’s policy is to remunerate non-executive directors
at market rates for time, commitment and responsibilities.
The Remuneration and Nomination Committee determines
payments to the non-executive directors and reviews their
remuneration annually, based on market practice, duties and
accountability. Independent external advice is sought when
required. The maximum aggregate amount of fees that can
be paid to non-executive directors is subject to approval by
shareholders at the Annual General Meeting.
Key management personnel participate in the employee share
and option arrangements to align directors’ and management’s
interests with shareholders’ interests.
Key management personnel or closely related parties
are prohibited from entering into hedge arrangements that
would have the effect of limiting the risk exposure relating to
their remuneration.
Performance-based remuneration
The board has not implemented performance based incentives.
Relationship between the remuneration policy and
company performance
The remuneration policy has been tailored to increase goal
congruence between shareholders, directors and executives.
To achieve this aim, options have been issued to specific
executive directors and executives to encourage the alignment
of personal and shareholder interests. The consolidated entity
believes this policy will be effective in increasing shareholder
wealth in forthcoming years.
Employment details of members of key management
personnel
The employment terms and conditions of key management
personnel are formalised in contracts of employment. Terms
of employment require that the relevant group entity provide
an executive contracted person with a minimum of 3 months’
notice prior to termination of contract. The group entity
may make payment in lieu of part or all of the notice period
calculated on the executive’s base salary. A contracted person
deemed employed on a permanent basis may terminate
their employment by providing at least one month’s notice. If
the executive does not provide the required period of notice
in writing or the executive leaves employment during the
period of notice, the group entity is entitled to withhold (to
the fullest extent permitted by law) from any monies owing
to the executive an amount representing the base salary the
executive would have earned for the number of months, weeks
or days of the notice period that the executive did not work.
Termination payments are not payable under the circumstances
of unsatisfactory performance.
17
MITCHELL SERVICES LTD ANNUAL REPORT 2014 Remuneration of key management personnel
The compensation of each member of the key management personnel of the consolidated entity is set out below:
Fixed remuneration paid
2014
Post-
employment
benefits
Super
annuation
$
Short-term
employee
benefits
Salary
$
Termination
benefits
$
Short-term
employee
benefits
Salary
$
2013
Post-
employment
benefits
Super
annuation
$
Termination
benefits
$
Nathan Andrew Mitchell - Executive Chairman
Peter Richard Miller - Non-Executive Director
Ralph Howard Craven - Non – Executive Director
Robert Barry Douglas - Non – Executive Director
Guy Hamish Drummond - Former Non – Executive Director
David John Fairfull - Former Non – Executive Director
David Charles Williamson - Former Non – Executive Director
Andrew Michael Elf - Chief Executive Officer
Robert Ian Witty - Chief Financial Officer and Company Secretary
Gary Raymond Salter - Chief Commercial Officer
Aaron Francis Short - Operations Manager
33,300
37,500
44,000
21,000
15,000
57,634
-
3,079
3,467
4,069
1,942
1,387
5,331
-
151,667
14,028
201,176
18,608
151,667
14,028
104,999
9,712
-
-
-
-
-
-
-
-
-
-
-
Martin James McIver - Former Chief Financial Officer Mitchell Services Pty Ltd
33,231
3,074
160,002
-
-
-
322,654
31,746
100,000
54,375
4,894
-
-
-
-
171,775
20,350
55,000
87,500
7,875
2,500
-
225
-
159,923
14,393
-
-
-
-
-
-
William Arthur Fisher - Former Operations Manager
6,093
563
24,922
178,427
16,058
Simon Morrell Morgan - Former Operations Manager
88,755
8,209
58,153
135,173
12,165
946,022
87,497
243,077
1,112,327
107,706
155,00
On 29 November 2013 Robert Ian Witty stepped down as
Interim General Manager and Nathan Andrew Mitchell was
appointed Managing Director. On 29 November 2013 Andrew
Michael Elf (Chief Operating Officer), Martin McIver (Chief
Financial Officer), Gary Raymond Salter (Chief Commercial
Officer) and Aaron Francis Short (Operations Manager) joined
the Group as part of the Mitchell Services Pty Ltd acquisition.
Robert Barry Douglas was appointed Non-Executive Director
on 29 November 2013. Former Non-Executive Director, Guy
Hamish Drummond resigned on 29 November 2013. On 10
January 2014 Martin James McIver ceased employment with
the Group.
18
On 20 March 2014 David John Fairfull resigned as Chairman
and Non-Executive Director. On 20 March 2014 Nathan Andrew
Mitchell resigned as Managing Director and was appointed
Executive Chairman. On 20 March 2014 Andrew Michael Elf
was promoted from his role as Chief Operating Officer to Chief
Executive Officer.
William Arthur Fisher, former Operations Manager Coal and
Energy, ceased employment 12 July 2013 and Simon Morrell
Morgan, former Operations Manager ceased employment 15
Feb 2014.
-
-
-
-
-
-
-
-
-
MITCHELL SERVICES LTD ANNUAL REPORT 2014DIRECTORS’ REPORT CONTINUEDFOR THE YEAR ENDED 30 JUNE 2014
Options
The following management options issued during the 2012 financial year to key management personnel still exist at the date of
this report:
Robert Ian Witty
Chief Financial Officer & Company Secretary
Options Issued
500,000
Key terms that are associated with these management options are as follows:
•
•
•
•
•
•
The option holder must be continuously employed to be able to exercise the management options.
The management options will not be listed.
The management options will not be encumbered or transferred.
The exercise price for each management option is 30 cents.
The management options may not be exercised before 2 August 2014, being the third anniversary of the listing date or after 2
August 2016, being the fifth anniversary of the listing date.
Upon the valid exercise of a management option, the company will issue and allot one fully paid ordinary share for each
management option to the option holder.
The issue of these options was not performance based.
Options granted during the 2014 financial year to key management personnel
Prior to the acquisition on 29 November 2013, Mitchell Operations Pty Ltd (formerly Mitchell Services Pty Ltd) had granted
11,340,000 options to a number of its senior executives. In consideration for the senior executives agreeing to cancel these options
and agreeing to become employees of Mitchell Services Limited on terms acceptable to both parties, Mitchell Services Limited
granted 11,340,000 options (replacement awards) to those senior executives at the time of acquisition. The table below shows the
number of options issued to key management personnel:
Andrew Michael Elf
Gary Raymond Salter
Aaron Francis
Martin James McIver
Total
A Class
B Class
C Class
D Class
Total
585,000
585,000
495,000
585,000
845,000
845,000
715,000
845,000
650,000
650,000
550,000
650,000
650,000
650,000
550,000
650,000
2,730,000
2,730,000
2,310,000
2,730,000
2,250,000
3,250,000
2,500,000
2,500,000
10,500,000
These options were issued under the following major terms:
Each option entitles the holder to subscribe for one share upon
payment of the exercise price prior to the expiry date. Each
option will be either a Class A option, a Class B option, a Class
C option or a Class D option.
•
The options may only be exercised if they have vested. The
options will vest:
In the case of 2,250,000 Class A options if:
•
the Group has an audited EBITDA for its financial year
ending 30 June 2015 of at least $4,000,000; and
the company’s shares have a 10 day VWAP of at least 5
cents per share at any time during the 12 month period
commencing on the day of release to the ASX of the
Group’s final results for the financial year ending 30
June 2015.
19
MITCHELL SERVICES LTD ANNUAL REPORT 2014
•
•
•
In the case of 3,250,000 Class B options if:
•
the Group has an audited EBITDA for its financial year
ending 30 June 2015 of at least $5,000,000; and
the company’s shares have a 10 day VWAP of at least 6
cents per share at any time during the 12 month period
commencing on the day of release to the ASX of the
Group’s final results for the financial year ending 30
June 2015.
In the case of 2,500,000 Class C options if:
•
the Group has an audited EBITDA for its financial year
ending 30 June 2016 of at least $7,000,000; and
the company’s shares have a 10 day VWAP of at least 7
cents per share at any time during the 12 month period
commencing on the day of release to the ASX of the
Group’s final results for the financial year ending 30
June 2016.
In the case of 2,500,000 Class D options if:
•
the Group has an audited EBITDA for its financial year
ending 30 June 2016 of at least $9,000,000; and
the company’s shares have a 10 day VWAP of at least 8
cents per share at any time during the 12 month period
commencing on the day of release to the ASX of the
Group’s final results for the financial year ending 30
June 2016.
The options may be exercised at any time from when they
vest until on or before 5pm (Sydney time) on the date that is
5 business days after the end of the relevant 12 month period
during which the VWAP vesting condition applying to that
class of options may be satisfied (“expiry date”). Options not
exercised by the expiry date will lapse.
The exercise price of each option is $0.000005.
The options will not be quoted on the ASX and are not
transferrable.
There are no participation rights or entitlements inherent in the
options and holders will not be entitled to participate in new
issues of securities offered to shareholders during the currency
of the options
Subsequent to the acquisition, 2,730,000 options granted to
Martin James McIver were cancelled on 20 May 2014 due to
Mr McIver ceasing employment with the Group. The 2,730,000
options consisted of 585,000 Class A options, 845,000 class B
options, 650,000 class C options and 650,000 Class D options.
As part of the acquisition of the assets of Tom Browne Drilling
Services (Receivers and managers appointed: in liquidation)
and associated equity raising after 30 June 2014, the remaining
1,845,000 class A and 2,665,000 class B options issued to
senior management were cancelled.
The following management performance options (replacement
options) issued during the 2014 financial year to key
management personnel still exist at the date of this report.
A Class
B Class
C Class
D Class
Total
-
-
-
-
-
-
-
-
650,000
650,000
550,000
650,000
1,300,000
650,000
1,300,000
550,000
1,100,000
1,850,000
1,850,000
3,700,000
Andrew Michael Elf
Gary Raymond Salter
Aaron Francis Short
Total
20
MITCHELL SERVICES LTD ANNUAL REPORT 2014DIRECTORS’ REPORT CONTINUEDFOR THE YEAR ENDED 30 JUNE 2014 This directors’ report, incorporating the remuneration report, is signed in accordance with a resolution of directors made pursuant to
section 298(2) of the Corporations Act 2001.
Nathan Andrew Mitchell
Executive Chairman
Dated at Brisbane this 17th day of September 2014.
21
MITCHELL SERVICES LTD ANNUAL REPORT 2014 CORPORATE GOVERNANCE STATEMENT
FOR THE YEAR ENDED 30 JUNE 2014
The board considers there to be a clear and positive
relationship between the creation and delivery of long-term
shareholder value and high-quality corporate governance.
Accordingly, in pursuing its objective, the board has committed
to corporate governance arrangements that strive to foster
the values of integrity, respect, trust and openness amongst
and between the board members, management, employees,
customers and suppliers.
Unless stated otherwise in this document, the board’s corporate
governance arrangements comply with the recommendations of
the ASX Corporate Governance Council for the entire financial
year ended 30 June 2014.
1. Board of directors
1.1 Role of the board
The board’s primary role is the protection and enhancement of
long-term shareholder value.
To fulfil this role, the board is responsible for the overall
corporate governance of the Group including formulating
its strategic direction, approving and monitoring capital
expenditure, setting remuneration, appointing, removing and
creating succession policies for directors and senior executives,
establishing and monitoring the achievement of management’s
goals and ensuring the integrity of risk management, internal
control, legal compliance and management information
systems. It is also responsible for approving and monitoring
financial and other reporting.
The board has delegated responsibility for operation and
administration of the Group to the chief executive officer and
executive management. Responsibilities are delineated by
formal authority delegations.
1.2 Board processes
To assist in the execution of its responsibilities, the board has
established 2 board committees which include Remuneration
and Nomination Committee and an Audit and Risk Committee.
Both committees have written charters which are reviewed on
a regular basis. The board has also established a framework
for the management of the Group including a system of
internal control, a business risk management process and the
establishment of appropriate ethical standards.
22
The full board currently holds not less than 10 scheduled
meetings each year, plus strategy meetings and any
extraordinary meetings at such other times as may be
necessary to address any specific significant matters that
may arise.
The agenda for meetings is prepared by the company secretary
in conjunction with the chairperson. Standing items include
the managing directors’ report, operational manager reports,
financial reports and training and safety reports. The board
package is provided to all concerned in advance of meetings.
Executives are regularly involved in board discussions and
directors have other opportunities, including visits to business
operations, for contact with a wider group of employees.
1.3 Director and executive education
The Group has an informal induction process to educate new
directors about the nature of the business, current issues, the
corporate strategy, the culture and values of the Group, and the
expectations of the Group concerning performance of directors.
In addition, directors are also educated regarding meeting
arrangements and director interaction with each other, senior
executives and other stakeholders. Directors also have the
opportunity to visit Group facilities and meet with management
to gain a better understanding of business operations.
Directors are given access to continuing education opportunities
to update and enhance their skills and knowledge.
The Group also has an informal process to educate new senior
executives upon taking such positions. This involves reviewing
the Group’s structure, strategy, operations, financial position
and risk management policies.
Independent professional advice and access to Group
1.4
information
Each director has the right of access to all relevant Group
information and to the Group’s executives and, subject to
prior consultation with the Chairman, may seek independent
professional advice from a suitably qualified adviser at the
Group’s expense. The director must consult with an adviser
suitably qualified in the relevant field, and obtain the chairman’s
approval of the fee payable for the advice before proceeding
with the consultation. A copy of the advice received by the
director is made available to all other members of the board.
MITCHELL SERVICES LTD ANNUAL REPORT 2014 1.5 Composition of the board
The names of the directors of the company in office at the date
of this report are set out in the Directors Report on page 10 and
11 of this report.
The Group believes it is in its best interests to maintain a small
but efficient board. For the majority of the reporting period,
the board consisted of 4 non-executive directors (being Peter
Richard Miller, Ralph Howard Craven, Robert Barry Douglas
and David John Fairfull) and an executive Chairman, Nathan
Andrew Mitchell. Robert Barry Douglas was appointed on
29 November 2013 following the resignation of Guy Hamish
Drummond on 29 November 2013. David John Fairfull resigned
on 20 March 2014. Two of the four board members as at the
date of this report are considered independent under the
guidelines. The board believes the experience and skills of
the current directors continue to be sufficient to discharge the
board’s duties effectively.
The Chairman is Mr Nathan Andrew Mitchell. Under the
guidelines, Mr Mitchell does not meet the criteria for
independence as he is a director of a substantial shareholder.
Peter Richard Miller is also a substantial shareholder and
does not meet the criteria for independence. All directors are
committed to bringing their independent views and judgement
to the board and, in accordance with the Corporations Act
2001, must inform the board if they have any interest that could
conflict with those of the Group. Where the board considers
that a significant conflict exists, it may exercise its discretion to
determine whether the director concerned may be present at
the meeting while the item is considered. For these reasons, the
board believes that each of these directors may be considered
to be acting independently in the execution of
their duties.
The board considers the mix of skills and the diversity of
board members when assessing the composition of the board.
The board assesses existing and potential directors’ skills to
ensure they have appropriate industry expertise in the Group’s
business operations. The board’s policy is to seek a diverse
range of directors who have a range of ages, genders and
ethnicity that complements the environment in which the Group
operates (refer section 8 on page 27 on diversity).
2. Remuneration and nomination committee
Under the principles and recommendations of the ASX
Corporate Governance Council, the remuneration and
nomination committee must consist of at least 3 members,
each of whom must be non-executive directors. The directors
are of the opinion that 2 members will be sufficient to properly
discharge the duties of the committee for the present time. The
Chairman of the committee should be an independent director.
The committee has 2 distinct roles as follows:
•
•
Remuneration related matters; and
Nomination related matters.
The members of the remuneration and nomination committee
during the year were:
•
Dr Ralph Howard Craven – Chairman and non-executive
director;
• Mr David John Fairfull – non-executive director; and
• Mr Robert Barry Douglas – non-executive director.
All directors are invited to remuneration and nomination
committee meetings at the discretion of the committee. The
committee met twice during the year and committee members’
attendance record is disclosed in the table of directors’
meetings on page 15 of this report.
Remuneration related matters
The committee assists the board in the general application
of the remuneration policy. In doing so, the committee is
responsible for:
•
•
•
Developing remuneration policies for directors and key
management personnel;
Reviewing key management personnel packages annually
and, based on these reviews, making recommendations
to the board on remuneration levels for key management
personnel; and
Assisting the board in reviewing key management
personnel performance annually.
23
MITCHELL SERVICES LTD ANNUAL REPORT 2014 Executive directors and senior executives are remunerated
by way of salary, non-monetary benefits and statutory
superannuation. Non-executive directors are remunerated
by way of salary and statutory superannuation. There are
no schemes for retirement benefits for directors other than
statutory superannuation arrangements for
non-executive directors.
The members of the audit and risk committee during the
year were:
•
Dr Ralph Howard Craven (BE PhD FIEAust FIPENZ
FAICD CPEng) – Chairman and non-executive director;
• Mr David John Fairfull (B.Com, ACIS, CPA, ASIA, MAICD)
– non-executive director; and
• Mr Robert Barry Douglas (BCom, LLB) – non-executive
Nomination related matters
director.
Mr Robert Ian Witty as company secretary/chief financial officer
also sits on this committee.
The external auditors and the managing director are invited
to audit and risk committee meetings at the discretion of the
committee. The committee met 5 times during the year and
committee members’ attendance record is disclosed in the table
of directors’ meetings on page 15 of this report.
The chief executive officer and the chief financial officer
declared in writing to the board that the financial records of the
Group for the financial year have been properly maintained, the
Group’s financial reports for the financial year ended 30 June
2014 comply with accounting standards and present a true
and fair view of the Group’s financial condition and operational
results. This statement is required annually.
4. Performance evaluation
The Remuneration and Nomination Committee is required
to annually review the effectiveness of the functioning of the
board, its committees, individual directors and senior executives
through internal peer review.
The committee assists the board in ensuring that the board
comprises directors with a range and mix of attributes
appropriate for achieving its objective. The committee does
this by:
•
•
•
•
•
Overseeing the appointment and induction process for
directors;
Reviewing the skills and expertise of directors and
identifying potential deficiencies;
Identifying suitable candidates for the board;
Overseeing board and director reviews on an annual basis;
and
Establishing succession planning arrangements for the
executive team.
3. Audit and risk committee
The audit and risk committee has a documented charter,
approved by the board. Under the principles and
recommendations of the ASX Corporate Governance Council,
the committee must consist of at least 3 members, each of
whom must be non-executive directors. The directors are
of the opinion that 2 members will be sufficient to properly
discharge the duties of the committee for the present time. At
least one of the members must have significant expertise in
financial reporting, accounting or auditing. The Chairman of
the committee should be an independent director and must not
be Chairman of the board. The purpose of the committee is to
assist the board in the effective discharge of its responsibilities
in relation to the external audit function, accounting policies,
financial reporting, funding, financial risk management,
business risk monitoring and insurance.
24
MITCHELL SERVICES LTD ANNUAL REPORT 2014CORPORATE GOVERNANCE STATEMENT CONTINUEDFOR THE YEAR ENDED 30 JUNE 2014 5. Risk management
The board considers identification and management of key risks
associated with the business as vital to creating and delivering
long-term shareholder value.
The main risks that could negatively impact on the performance
of the Group’s business activities include:
•
•
•
•
•
Safety of our people and our contractors;
Seasonal conditions and business interruptions;
Dependence on key personnel and labour shortages;
Customer demand and outlook for the resources industry;
High regulation in relation to health, safety and
the environment.
An assessment of the business’s risk profile is undertaken and
reviewed by the board annually, covering all aspects of the
business from the operational level through to strategic level
risks. Executive management has been delegated the task of
implementing internal controls to identify and manage risks for
which the board provides oversight. The effectiveness of these
controls is monitored and reviewed regularly by management.
Executive management has reported on an ongoing basis (via
monthly board meetings) to board as to whether the Group’s
business risks have been effectively managed.
In addition to their regular reporting on business risks, risk
management and internal control systems, the chief executive
officer and chief financial officer have provided assurance, in
writing to the board:
•
•
That the financial reporting risk management and
associated compliance and controls have been assessed
and found to be operating effectively; and
The Group’s financial reports are founded on a sound
system of risk management and internal compliance
and control.
The board is responsible for the overall internal control
framework, but recognises that no cost-effective internal
control system will preclude all errors and irregularities.
Comprehensive practices have been established to ensure:
•
Capital expenditure and revenue commitments above a
certain size obtain prior board approval;
•
•
•
•
•
•
Financial exposures are controlled;
Health and safety standards and management systems
are monitored and reviewed to achieve high standards of
performance and compliance with regulations;
Business transactions are properly authorised and
executed;
The quality and integrity of personnel;
Financial reporting accuracy and compliance with the
financial reporting regulatory framework. Monthly actual
results are reported against budgets approved by the
directors and revised forecasts for the year are prepared
regularly; and
Environmental regulation compliance. The Group’s health,
safety, environment and sustainability committee consists
of all members of the board and focuses on ensuring
compliance with these various areas.
25
MITCHELL SERVICES LTD ANNUAL REPORT 2014 6. Ethical standards
All directors, managers and employees are expected to act with the utmost integrity and objectivity, striving at all times to enhance
the reputation and performance of the Group. Every employee has a nominated supervisor to whom they may refer any issues
arising from their employment. The board reviews its Code of Conduct and Ethics regularly and processes are in place to promote
and communicate these policies.
Conflict of interest
Directors must keep the board advised, on an on-going basis, of any interest that could potentially conflict with those of the Group.
The board has developed procedures to assist directors to disclose potential conflicts of interest.
Where the board believes that a significant conflict exists for a director on a board matter, the director concerned does not
receive the relevant board papers and is not present at the meeting whilst the item is considered. Details of director related entity
transactions with the Group are set out in notes 22 to the financial statements.
Code of conduct
The Group has advised each director, manager and employee that they must comply with the Group’s Code of Conduct and Ethics.
The code requires all directors, management and employees to at all times with all relevant stakeholders:
•
•
•
•
•
•
Act honestly and in good faith;
Exercise due care and diligence in fulfilling the functions of office;
Avoid conflicts and make full disclosure of any possible conflict of interest;
Comply with both the letter and spirit of the law;
Encourage the reporting and investigation of unlawful and unethical behaviour; and
Comply with the share trading policy.
Share trading policy
The share trading policy restricts directors and employees from acting on price sensitive information (which is not available to the
public) until it has been released to the market and adequate time has been given for this to be reflected in the company’s
share price.
Directors and other key management personnel are also prohibited from trading during closed periods. Closed periods are periods
other than 6 weeks commencing from:
•
•
•
The release of the Group’s annual result to the ASX;
The release of the Group’s half-yearly result to the ASX; and
The date of the annual general meeting.
26
MITCHELL SERVICES LTD ANNUAL REPORT 2014CORPORATE GOVERNANCE STATEMENT CONTINUEDFOR THE YEAR ENDED 30 JUNE 2014 7. Communication with shareholders
The board provides shareholders with information using a comprehensive Continuous Disclosure Policy which includes identifying
matters that may have a material effect on the price of the company’s shares and notifying them to the ASX.
In summary, the Continuous Disclosure Policy operates as follows:
•
•
•
•
•
•
The company secretary (also the chief financial officer) and the managing director are responsible for interpreting the Group’s
policy and where necessary informing the board. The company secretary is responsible for all communications with the ASX.
Such matters are advised to the ASX on the day they are discovered but are referred to the board in the first instance.
The full annual report is provided via the company’s website to all shareholders (unless a shareholder has specifically requested
to receive a physical copy or not to receive the document). It provides relevant information about the operations of the Group
during the year, changes in the state of affairs and details of future developments.
The half-yearly report contains summarised financial information and a review of the operations of the Group during the period.
The half-year reviewed financial report is lodged with the ASX and sent to any shareholder who requests it.
Proposed major changes in the Group which may impact on share ownership rights are submitted to a vote of shareholders.
All announcements made to the market can be accessed via the company’s website after they have been released to the ASX.
The external auditor attends the annual general meetings to answer questions concerning the conduct of the audit, the
preparation and content of the auditor’s report, accounting policies adopted by the Group and the independence of the auditor
in relation to the conduct of the audit.
The board encourages full participation of shareholders at the Annual General Meeting, to ensure a high level of accountability and
identification with the Group’s strategy and goals. Important issues are presented to the shareholders as single resolutions.
8. Diversity
The board does not currently have an established policy regarding the gender, age, ethnic and cultural diversity of its board
members and senior executives. Given the size of the Group, the nature of the drilling industry and the limited number of board and
senior executive positions available, the group does not expect to develop a policy in this regard for the near future. Notwithstanding
this, and whenever the opportunity arises, the board will consider new board members and senior executives of any gender, age,
ethnicity and culture.
The proportion of women employees in the whole organisation is detailed below.
Women on the board
Women in senior management roles
Women employees in the Group
2014
2013
No.
-
-
5
%
-
-
7.05
No.
-
-
3
%
-
-
3.75
27
MITCHELL SERVICES LTD ANNUAL REPORT 2014 AUDITOR’S INDEPENDENCE DECLARATION
FOR THE YEAR ENDED 30 JUNE 2014
Auditor’s independence declaration under Section 307C of the Corporations Act 2001 to the directors of Mitchell
Services Ltd
As lead engagement auditor for the audit of the financial statements of Mitchell Services Ltd for the financial year ended 30 June
2014, I declare that to the best of my knowledge and belief, there have been no contraventions of:
the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
any applicable code of professional conduct in relation to the audit.
(i)
(ii)
Jessups
Ian Jessup
Partner
Dated at Townsville this 12th day of September 2014
Level 1, 19 Stanley Street
Townsville Qld 4810
28
MITCHELL SERVICES LTD ANNUAL REPORT 2014 CONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2014
Continuing operations
Revenue
Changes in inventories of finished goods
Advertising
Depreciation and amortisation expenses
Drilling consumables
Employee expenses
Finance costs
Fuel and oil
Hire of plant and equipment
Insurances
Rent
Service and repairs
Travel expenses
Other expenses
Impairment of goodwill
Profit/(loss) before income tax
Income tax expense
Profit/(loss) for the year from continuing operations
Discontinued operations
Profit/(loss) for the year from discontinued operations
Profit/(loss) for the year
Other comprehensive income, net of income tax
Other comprehensive income for the year, net of income tax
Total comprehensive income for the year
Profit/(loss) attributable to:
Owners of the Company
Total comprehensive income attributable to:
Owners of the Company
Earnings per share
From continuing and discontinued operations:
Basic (cents per share)
Diluted (cents per share)
From continuing operations:
Basic (cents per share)
Diluted (cents per share)
Note
2
8
13
26
26
26
26
2014
$
2013
$
15,015,003
38
(8,752)
(2,598,051)
(2,086,171)
(8,076,800)
(617,095)
(1,100,711)
(1,165,773)
(529,566)
(307,074)
(1,054,542)
(531,694)
(3,224,457)
-
(6,285,645)
1,678,387
(4,607,258)
26,321,843
(189,465)
(17,793)
(3,313,118)
(2,082,997)
(12,763,020)
(857,618)
(1,542,483)
(561,104)
(1,448,279)
(188,040)
(1,096,517)
(1,389,096)
(1,421,352)
(1,515,032)
(2,064,071)
151,633
(1,912,438)
-
-
(4,607,258)
(1,912,438)
-
-
(4,607,258)
(1,912,438)
(4,607,258)
(1,912,438)
(4,607,258)
(1,912,438)
(1.86)
(1.86)
(1.86)
(1.86)
(1.09)
(1.09)
(1.09)
(1.09)
29
MITCHELL SERVICES LTD ANNUAL REPORT 2014 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
FOR THE YEAR ENDED 30 JUNE 2014
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Other financial assets
Other assests
Current tax asset
Inventories
Total current assets
Non – current assets
Other financial assets
Property, plant and equipment
Other assets
Deferred tax asset
Goodwill
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Bank overdraft
Trade and other payables
Other financial liabilities
Current tax payable
Provisions
Total current liabilities
Non – current liabilities
Other financial liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Issued capital
Share issue costs
Contingent option reserve
Retained earnings
Total equity
30
Note
3(a)
4
5
6
14
7
5
12
6
14
8
3(b)
9
10
14
11
10
11
15
16
28
17
2014
$
2013
$
125,004
2,348,514
7,708
298,212
-
1,604,952
4,384,390
5,572
14,009,330
20,000
3,397,802
4,481,519
21,914,223
26,298,613
2,251,701
3,689,775
2,449,305
-
352,163
8,742,944
4,699,250
45,107
4,744,357
13,487,301
12,811,312
19,024,100
(1,199,944)
2,122,402
(7,135,246)
12,811,312
528,167
1,924,550
9,800
272,379
6,671
1,559,870
4,301,437
12,131
15,976,187
63,250
1,261,978
-
17,313,546
21,614,983
1,853,075
1,510,396
2,582,779
9,064
404,904
6,360,218
4,298,031
76,804
4,374,835
10,735,053
10,879,930
14,524,100
(1,049,780)
-
(2,594,390)
10,879,930
The accompanying notes are an integral part of these financial statements.
MITCHELL SERVICES LTD ANNUAL REPORT 2014 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2014
Note
Share
Capital
Contingent
Option
Reserve
Retained
Earnings
Total
Attributable
to Owners
of the
Parent
$
$
$
$
$
Balance at 1 July 2012
13,474,320
Comprehensive income
Profit/(loss) for the year
Other comprehensive income for the year
Total comprehensive income for the year
Balance at 30 June 2013
Comprehensive income
Profit/(loss) for the year
Other comprehensive income for the year
Total comprehensive income for the year
Issue of ordinary shares related to rights issue
Issue of ordinary shares related to business combination
Share issue costs
Contingent options
Recognition of share based payment
17
17
15
15
16
20
29
-
-
-
13,474,320
-
-
-
2,500,000
2,000,000
(150,164)
-
-
-
-
-
-
-
-
-
-
-
-
-
2,122,402
(681,952)
12,792,368
12,792,368
(1,912,438)
(1,912,438)
(1,912,438)
-
-
-
(1,912,438)
(1,912,438)
(1,912,438)
(2,594,390)
10,879,930
10,879,930
(4,607,258)
(4,607,258)
(4,607,258)
-
-
-
(4,607,258)
(4,607,258)
(4,607,258)
-
-
-
-
2,500,000
2,500,000
2,000,000
2,000,000
(150,164)
(150,164)
2,122,402
2,122,402
-
66,402
66,402
66,402
Balance at 30 June 2014
17,824,156
2,122,402
(7,135,246)
12,811,312
12,811,312
The accompanying notes are an integral part of these financial statements.
31
MITCHELL SERVICES LTD ANNUAL REPORT 2014 CONSOLIDATED STATEMENT OF OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2014
Note
2014
$
2013
$
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts from customers
Cash paid to suppliers and employees
Interest received
Interest paid
Income tax paid
Net cash generated by operating activities
19
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment
Acquisition of property, plant and equipment
Net cash generated by/(used) in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares
Payment for share issue costs
Proceeds from borrowings
Repayment of financial liabilities
Costs associated with borrowing
Net cash generated by/(used in) financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
3(c)
14,471,061
(15,917,753)
691
(599,238)
(160,214)
(2,205,453)
1,010,895
(922,355)
88,540
2,500,000
(214,520)
1,906,567
(2,876,221)
(702)
1,315,124
(801,789)
(1,324,908)
(2,126,697)
29,617,148
(26,591,790)
38,537
(752,277)
(4,481)
2,307,137
280,528
(901,822)
(621,294)
-
-
1,196,365
(3,749,139)
(5,135)
(2,557,909)
(872,066)
(452,842)
(1,324,908)
32
The accompanying notes are an integral part of these financial statements.
MITCHELL SERVICES LTD ANNUAL REPORT 2014 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
1. SIGNIFICANT ACCOUNTING POLICIES
(a) General information
Mitchell Services Ltd (the Company) is a limited company
incorporated in Australia. The addresses of its registered office
and principal place of business are disclosed in the Corporate
Directory of this Annual Report. The principal activities of the
Company and its subsidiaries (the Group) involve the provision
of exploration and mine site drilling services to the
mining industry.
(b) Statement of compliance
These financial statements are general purpose financial
statements which have been prepared in accordance with
the Corporations Act 2001, Accounting Standards and
Interpretations, and comply with other requirements of the law.
The financial statements comprise the consolidated financial
statements of the Group. For the purposes of preparing the
consolidated financial statements, the Company is a
for-profit entity.
Accounting Standards include Australian Accounting Standards.
Compliance with Australian Accounting Standards ensures that
the financial statements and notes of the Group comply with
International Financial Reporting Standards (‘IFRS’).
The financial statements were authorised for issue by the
directors on the date shown in the directors’ declaration.
(c) Basis of preparation
The consolidated financial statements have been prepared
on the basis of historical cost, except for certain non-current
assets and financial instruments that are measured at re-valued
amounts or fair values, as explained in the accounting policies
below. Historical cost is generally based on the fair values of
the consideration given in exchange for assets. All amounts are
presented in Australian dollars, unless otherwise noted.
(d) Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the
Company (its subsidiaries). Control is achieved where the
Company has the power to govern the financial and operating
policies of an entity so as to obtain benefits from its activities.
Income and expense of subsidiaries acquired or disposed of
during the year are included in the consolidated statement
of profit or loss and other comprehensive income from the
effective date of acquisition and up to the effective date of
disposal, as appropriate. Total comprehensive income of
subsidiaries is attributed to the owners of the Company.
Where necessary, adjustments are made to the financial
statements of subsidiaries to bring their accounting policies into
line with those used by other members of the Group.
All intra-group transactions, balances, income and expenses
are eliminated in full on consolidation.
Changes in the Group’s ownership interests in subsidiaries
that do not result in the Group losing control are accounted for
as equity transactions. The carrying amounts of the Group’s
interest’s and the non-controlling interests are adjusted to reflect
the changes in their relative interests in the subsidiaries. Any
difference between the amount by which the non-controlling
interests are adjusted and the fair value of the consideration
paid or received is recognised directly in equity and attributed to
owners of the Company.
When the Group loses control of a subsidiary, a gain or loss is
recognised in profit or loss and is calculated as the difference
between (i) the aggregate of the fair value of the consideration
received and the fair value of any retained interest and (ii) the
previous carrying amount of the assets (including goodwill), and
liabilities of the subsidiary and any non-controlling interests.
When assets of the subsidiary are carried at re-valued
amounts or fair values and the related cumulative gain or loss
has been recognised in other comprehensive income and
accumulated in equity, the amounts previously recognised in
other comprehensive income and accumulated in equity are
accounted for as if the Group had directly disposed of
the relevant assets (i.e. reclassified to profit or loss or
transferred directly to retained earnings as specified by
applicable Standards).
33
MITCHELL SERVICES LTD ANNUAL REPORT 2014 entry into the business combination with Mitchell Services Ltd
together with the retained profits (losses) of the continuing
Mitchell Services Ltd business combination.
(f) Goodwill and impairment
Goodwill arising on an acquisition of a business is carried at
cost as established at the date of the acquisition of the business
less accumulated impairment losses, if any.
For the purpose of impairment testing, goodwill is allocated to
each of the Group’s cash-generating units (or groups of cash-
generating units) that is expected to benefit from the synergies
of the combination.
A cash-generating unit to which goodwill has been allocated is
tested for impairment annually, or more frequently when there is
an indication that the unit may be impaired. If the recoverable
amount of the cash-generating unit is less than its carrying
amount, the impairment loss is allocated first to reduce the
carrying amount of any goodwill allocated to the unit and then
to the other assets of the unit pro rata based on the carrying
amount of each asset in the unit. Any impairment loss for
goodwill is recognised directly in profit or loss. An
impairment loss recognised for goodwill is not reversed in
subsequent periods.
On disposal of the relevant cash-generating unit, the
attributable amount of goodwill is included in the determination
of the profit or loss on disposal.
(g) Revenue recognition
Revenue is measured at the fair value of the consideration
received or receivable. Amounts disclosed as revenue are
net of returns, trade allowances and amounts collected on
behalf of third parties. The Group recognises revenue when
the amount of revenue can be reliably measured, it is probable
that economic benefits will flow to the entity and specific criteria
have been met for each of the Group’s activities as described
below. The amount of revenue is not considered to be reliably
measureable until all contingencies relating to the sale have
been resolved.
The fair value of any investment retained in the former
subsidiary at the date when control is lost is regarded as the
fair value on initial recognition for subsequent accounting
under AASB 139 “Financial Instruments: Recognition
and Measurement” or, when applicable, the cost on initial
recognition of an investment in an associate or jointly
controlled entity.
(e) Business combinations
Business combinations are accounted for using the acquisition
method as at the acquisition date – i.e. when control is
transferred to the group. Control is the power to govern the
financial and operating policies of an entity so as to obtain
benefits from its activities.
The Group measures goodwill at the acquisition date as:
•
•
•
•
the fair value of the consideration transferred; plus
the recognised amount of any non-controlling interests in
the acquiree; plus
if the business combination is achieved in stages, the fair
value of the existing equity interest in the acquiree; less
the net recognised amount (generally fair value) of the
identifiable assets acquired and liabilities assumed.
When the excess is negative, a bargain purchase gain is
recognised immediately in profit or loss.
Business combinations of the type whereby Mitchell Services
Ltd has legally acquired all of the issued capital of Notch
Holdings Pty Ltd are considered, for accounting purposes, to be
a reverse acquisition of Mitchell Services Ltd by Notch Holdings
Pty Ltd. These financial statements are issued under the name
of Mitchell Services Ltd but effectively represent a continuation
of the financial statements of Notch Holdings Pty Ltd.
The legal capital structure (shares and options) of the legal
controlling entity, Mitchell Services Ltd is reflected in these
financial statements, together with all amounts recognised as
equity interests in Notch Holdings Pty Ltd prior to its entry into
the business combination with Mitchell Services Ltd and the fair
value of equity interests in Mitchell Services Ltd.
The financial statements reflect all amounts recognised as
retained profits (losses) of Notch Holdings Pty Ltd prior to its
34
MITCHELL SERVICES LTD ANNUAL REPORT 2014NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2014 Revenue is recognised for the major business activities
as follows:
Drilling revenue
Drilling revenue is derived from the depth and type of drilling
and the hours worked on the specific site.
Interest income
Interest income from a financial asset is recognised when it
is probable that the economic benefits will flow to the Group
and the amount of revenue can be measured reliably. Interest
income is accrued on a time basis, by reference to the principal
outstanding and at the effective interest rate applicable, which
is the rate that exactly discounts estimated future cash receipts
through the expected life of the financial asset to that asset’s
net carrying amount on initial recognition.
Other revenue is recognised when the right to receive the
revenue has been established.
All revenue is stated net of the amount of goods and services
tax (GST).
(h) Leases
Leases are classified as finance leases whenever the terms
of the lease transfer substantially all the risks and rewards
of ownership to the lessee. All other leases are classified as
operating leases.
Assets held under finance leases are initially recognised as
assets of the Group at their fair value at the inception of the
lease or, if lower, at the present value of the minimum lease
payments. The corresponding liability to the lessor is
included in the statement of financial position as a finance
lease obligation.
Lease payments are apportioned between finance expenses
and reduction of the lease obligation so as to achieve a
constant rate of interest on the remaining balance of the
liability. Finance expenses are recognised immediately in profit
or loss, unless they are directly attributable to qualifying assets,
in which case they are capitalised in accordance with the
Group’s general policy on borrowing costs. Contingent
rentals are recognised as expenses in the periods in which they
are incurred.
Operating lease payments are recognised as an expense
on a straight-line basis over the lease term, except where
another systematic basis is more representative of the time
pattern in which economic benefits from the leased asset are
consumed. Contingent rentals arising under operating leases
are recognised as an expense in the period in which they are
incurred.
In the event that lease incentives are received to enter into
operating leases, such incentives are recognised as a liability.
The aggregate benefit of incentives is recognised as a reduction
of rental expense on a straight-line basis, except where another
systematic basis is more representative of the time pattern in
which economic benefits from the leased asset are consumed.
(i) Employee benefits
A liability is recognised for benefits accruing to employees in
respect of wages and salaries, annual leave and long service
leave when it is probable that settlement will be required and
they are capable of being measured reliably.
Liabilities recognised in respect of short-term employee
benefits, are measured at their nominal values using the
remuneration rate expected to apply at the time of settlement.
Liabilities recognised in respect of long term employee benefits
are measured as the present value of the estimated future
cash outflows to be made by the Group in respect of services
provided by employees up to reporting date.
Payments to defined contribution plans are recognised as an
expense when employees have rendered service entitling them
to the contributions.
35
MITCHELL SERVICES LTD ANNUAL REPORT 2014 the reporting period. The measurement of deferred tax assets
and liabilities reflects the tax consequences that would follow
from the manner in which the Group expects, at the end of the
reporting period, to recover or settle the carrying amount of its
assets and liabilities.
Deferred tax liabilities and assets are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes
levied by the same taxation authority and the Group intends to
settle its current tax assets and liabilities on a net basis.
Current and deferred tax for the year
Current and deferred tax are recognised in profit or loss,
except when they relate to items that are recognised in other
comprehensive income or directly in equity, in which case
the current and deferred tax are also recognised in other
comprehensive income or directly in equity, respectively. Where
current tax or deferred tax arises from the initial accounting
for a business combination, the tax effect is included in the
accounting for the business combination.
(k) Property, plant and equipment
Recognition and measurement
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 and any other
costs directly attributable to bringing the assets to a working
condition for their intended use.
Income taxes
(j)
The Company and its wholly-owned Australian resident entities
are part of a tax-consolidated group. As a consequence, all
members of the tax-consolidated group are taxed as a single
entity. The head entity within the tax-consolidated group is
Mitchell Services Ltd.
Income tax expense represents the sum of the tax currently
payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from profit before tax as reported
in the consolidated statement of profit or loss and other
comprehensive income because of items of income or expense
that are taxable or deductible in other years and items that are
never taxable or deductible. The Group’s liability for current
tax is calculated using tax rates that have been enacted or
substantively enacted by the end of the reporting period.
Deferred tax
Deferred tax is recognised on temporary differences between
the carrying amounts of assets and liabilities in the consolidated
financial statements and the corresponding tax bases used
in the computation of taxable profit. Deferred tax liabilities are
generally recognised for all taxable temporary differences.
Deferred tax assets are generally recognised for all deductible
temporary differences to the extent that it is probable that
taxable profits will be available against which those deductible
temporary differences can be utilised. Such deferred tax assets
and liabilities are not recognised if the temporary difference
arises from goodwill or from the initial recognition (other than
in a business combination) of other assets and liabilities in
a transaction that affects neither the taxable profit nor the
accounting profit.
The carrying amount of deferred tax assets is reviewed at the
end of each reporting period and reduced to the extent that it is
no longer probable that sufficient taxable profits will be available
to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates
that are expected to apply in the period in which the liability is
settled or the asset realised, based on tax rates (and tax laws)
that have been enacted or substantively enacted by the end of
36
MITCHELL SERVICES LTD ANNUAL REPORT 2014NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2014
Where 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.
Any gain or loss on disposal of an item of property, plant and
equipment (calculated as the difference between the net
proceeds from disposal and the carrying amount of the item) is
recognised in profit or loss.
Subsequent expenditure is capitalised only when it is probable
that future economic benefits associated with the expenditure
will flow to the Group. On-going repairs and maintenance are
expensed as incurred.
Depreciation
Items of property, plant and equipment are depreciated from the
date that they are installed and are ready for use, or in respect
of internally constructed assets, from the date that the asset is
completed and ready for use.
Depreciation is calculated to write off the cost of property, plant
and equipment using the diminishing value basis (excluding
buildings which are depreciated on a straight-line basis)
over their estimated useful lives. Depreciation is generally
recognised in profit or loss. Leased assets are depreciated over
the shorter of the lease term and their useful lives unless it is
reasonably certain that the Group will obtain ownership by the
end of the lease term. Land is not depreciated.
The depreciation rates used for the current and comparative
years of significant items of property, plant and equipment are
as follows:
Classes of Fixed Asset
Buildings
Plant & Equipment
Motor Vehicles
Office Equipment, Furniture & Fittings 10% - 67%
2.5%
6.67% - 40%
8.75% - 40%
Depreciation methods and useful lives are reviewed at each
reporting date and adjusted if appropriate.
Impairment of property, plant and equipment
At the end of each reporting period, the Group reviews the
carrying amounts of its tangible assets to determine whether
there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the
extent of the impairment loss (if any). When it is not possible
to estimate the recoverable amount of an individual asset,
the Group estimates the recoverable amount of the cash-
generating unit to which the asset belongs. When a reasonable
and consistent basis of allocation can be identified, corporate
assets are also allocated to individual cash-generating units,
or otherwise they are allocated to the smallest group of
cash-generating units for which a reasonable and consistent
allocation basis can be identified.
Recoverable amount is the higher of fair value less costs to
sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not
been adjusted.
If the recoverable amount of an asset (or cash-generating unit)
is estimated to be less than its carrying amount, the carrying
amount of the asset (or cash-generating unit) is reduced to
its recoverable amount. An impairment loss is recognised
immediately in profit or loss, unless the relevant asset is carried
at a re-valued amount, in which case the impairment loss is
treated as a revaluation decrease.
When an impairment loss subsequently reverses, the carrying
amount of the asset (or cash-generating unit) is increased to
the revised estimate of its recoverable amount, but so that the
increased amount does not exceed the carrying amount that
would have been determined had no impairment loss been
recognised for the asset (or cash-generating unit) in prior years.
A reversal of an impairment loss is recognised immediately in
profit or loss, unless the relevant asset is carried at a re-valued
amount, in which case the reversal of the impairment loss is
treated as a revaluation increase.
37
MITCHELL SERVICES LTD ANNUAL REPORT 2014
determinable payments that are not quoted in an active market.
Such assets are recognised initially at fair value plus any
directly attributable transaction costs. Subsequent to initial
recognition, loans and receivables are measured at amortised
cost using the effective interest method, less any
impairment losses.
Amortised cost is the amount at which the financial asset or
financial liability is measured at initial recognition less principal
repayments and any reduction for impairment, and adjusted
for any cumulative amortisation of the difference between that
initial amount and the maturity amount calculated using the
effective interest method.
The effective interest method is used to allocate interest income
or interest expense over the relevant period and is equivalent
to the rate that discounts estimated future cash payments or
receipts (including fees, transaction costs and other premiums
or discounts) over the expected life (or when this cannot
be reliably predicted, the contractual term) of the financial
instrument to the net carrying amount of the financial asset or
financial liability. Revisions to expected future net cash flows
will necessitate an adjustment to the carrying value with a
consequential recognition of an income or expense item in profit
or loss.
Impairment of financial assets
The Group’s financial assets are assessed for indicators of
impairment at the end of each reporting period. Financial assets
are considered to be impaired when there is objective evidence
that, as a result of one or more events that occurred after the
initial recognition of the financial asset, the estimated future
cash flows of the financial asset have been affected.
Inventories
(l)
Inventories are stated at the lower of cost and net realisable
value. Costs of inventories are determined on first-in-first-out
basis. Net realisable value represents the estimated selling
price for inventories less all estimated costs of completion and
costs necessary to make the sale. The cost of manufactured
products includes direct materials, direct labour and an
appropriate portion of variable and fixed overheads. Overheads
are applied on the basis of normal operating capacity. Costs are
assigned on the basis of weighted average costs.
(m) Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it is
probable that the Group will be required to settle the obligation,
and a reliable estimate can be made of the amount of
the obligation.
The amount recognised as a provision is the best estimate of
the consideration required to settle the present obligation at the
end of the reporting period, taking into account the risks and
uncertainties surrounding the obligation. When a provision is
measured using the cash flows estimated to settle the present
obligation, its carrying amount is the present value of those
cash flows (where the effect of the time value of money
is material).
When some or all of the economic benefits required to settle
a provision are expected to be recovered from a third party,
a receivable is recognised as an asset if it is virtually certain
that reimbursement will be received and the amount of the
receivable can be measured reliably.
(n) Financial Instruments
Financial assets
The only category of financial assets held by the Group relates
to “loans and receivables”.
Loans and receivables
Loans and receivables comprise cash and cash equivalents
and, trade and other receivables. The Group initially recognises
loans and receivables on the date that they are originated.
Loans and receivables are financial assets with fixed or
38
MITCHELL SERVICES LTD ANNUAL REPORT 2014NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2014
For financial assets carried at amortised cost, objective
evidence of impairment may include: indications that the
debtors or a group of debtors are experiencing significant
financial difficulty, default or delinquency in interest or principal
payments; indications that they will enter bankruptcy or other
financial reorganisation; and changes in arrears or economic
conditions that correlate with defaults.
For financial assets carried at amortised cost, the amount of
the impairment loss recognised is the difference between the
asset’s carrying amount and the present value of estimated
future cash flows, discounted at the financial asset’s original
effective interest rate.
the consideration received and receivable is recognised in profit
or loss.
Financial liabilities
The only category of financial liabilities owed by the Group
relates to “other financial liabilities”.
Other financial liabilities
Other financial liabilities comprise loans and borrowings, bank
overdrafts, and trade and other payables. The Group initially
recognises other financial liabilities on the trade date, which
is the date that the Group becomes a party to the contractual
provisions of the instrument.
The carrying amount of the financial asset is reduced by
the impairment loss directly for all financial assets with the
exception of trade receivables, where the carrying amount
is reduced through the use of an allowance account. When
a trade receivable is considered uncollectable, it is written
off against the allowance account. Subsequent recoveries
of amounts previously written off are credited against the
allowance account. Changes in the carrying amount of the
allowance account are recognised in profit or loss.
For financial assets measured at amortised cost, if, in a
subsequent period, the amount of the impairment loss
decreases and the decrease can be related objectively to
an event occurring after the impairment was recognised, the
previously recognised impairment loss is reversed through profit
or loss to the extent that the carrying amount of the financial
asset at the date the impairment is reversed does not exceed
what the amortised cost would have been had the impairment
not been recognised.
De-recognition of financial assets
The Group derecognises a financial asset when the contractual
rights to the cash flows from the asset expire, or it transfers the
rights to receive the contractual cash flows in a transaction in
which substantially all the risks and rewards of ownership of the
financial asset are transferred. Any interest in such transferred
financial assets that is created or retained by the Group is
recognised as a separate asset or liability.
On de-recognition of a financial asset in its entirety, the
difference between the asset’s carrying amount and the sum of
Other financial liabilities are recognised initially at fair value less
any directly attributable transaction costs. Subsequent to initial
recognition, these financial liabilities are measured at amortised
cost using the effective interest method, with interest expense
recognised on an effective yield basis.
De-recognition of financial liabilities
The Group de-recognises financial liabilities when, and only
when, the Group’s obligations are discharged, cancelled or
they expire. The difference between the carrying amount of the
financial liability de-recognised and the consideration paid and
payable is recognised in profit or loss.
(o) Trade and other receivables
Trade and other receivables include amounts due from
customers for goods and services performed in the ordinary
course of business. Receivables expected to be collected within
12 months of the end of the reporting period are classified as
current assets. All other receivables are classified as non-
current assets.
Trade and other receivables are initially recognised at fair
value and subsequently measured at amortised cost using the
effective interest method, less any provision for impairment.
Refer to note 1(n) for further discussion on the determination of
impairment losses.
39
MITCHELL SERVICES LTD ANNUAL REPORT 2014 (p) Trade and other payables
Trade and other payables represent the liabilities for goods and
services received by the Group that remain unpaid at the end
of the reporting period. The balance is recognised as a current
liability with the amounts normally paid within 30 days after the
end of the month in which they were initially recognised as
a liability.
Key estimates – impairment
The Group assesses impairment at each reporting date by
evaluating conditions specific to the Group that may lead to
impairment of assets. Where an impairment trigger exists,
the recoverable amount of the asset is determined. Value in
use calculations performed in assessing recoverable amounts
incorporate a number of key estimates.
(s) Application of new and revised Accounting Standards
Standards and Interpretations affecting amounts reported
in the current period (and/or prior periods)
There are no new and revised Standards and Interpretations
adopted in these financial statements affecting the reporting
results or financial position. The following new and revised
Standards and Interpretations affecting presentation and
disclosure have been adopted in the current year.
Amendments to AASB124 “Related Party Disclosures”
AASB 2011-4 amends AASB 124 to remove all individual KMP
disclosures with effect from annual reporting periods beginning
on or after 1 July 2013. With effect for years beginning on or
after 1 July 2013, Regulation 2M.3.03 was amended to require
additional individual disclosures about equity transactions,
loans and other transactions in the remuneration report.
Therefore, from financial years ending on or after 30 June
2014, all individual KMP disclosures are only required in the
remuneration report.
(q) Goods and services tax
Revenues, expenses and assets are recognised net of the
amount of goods and services tax (GST), except:
•
•
where the amount of GST incurred is not recoverable from
the Australian Taxation Office (ATO), it is recognised as
part of the cost of acquisition of an asset or as part of an
item of expense; or
for receivables and payables which are recognised
inclusive of GST.
The net amount of GST recoverable from, or payable to, the
ATO is included as part of receivables or payables.
Cash flows are included in the cash flow statement on a gross
basis. The GST component of cash flows arising from investing
and financing activities which is recoverable from, or payable to,
the ATO is classified within operating cash flows.
(r) Critical accounting judgements and key sources of
estimation uncertainty
In the application of the Group’s accounting policies, the
directors are required to make judgements, estimates and
assumptions about the carrying amounts of assets and liabilities
that are not readily apparent from other sources. The estimates
and associated assumptions are based on historical experience
and other factors that are considered to be relevant. Actual
results may differ from these estimates.
The estimates and underlying assumptions are reviewed on
an on-going basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the
revision affects only that period, or in the period of the revision
and future periods if the revision affects both current and
future periods.
40
MITCHELL SERVICES LTD ANNUAL REPORT 2014NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2014 Standards and Interpretations in issue not yet adopted
At the date of authorisation of the financial statements, the Standards and Interpretations listed below were in issue but not
yet effective.
Standard/Interpretation
Offsetting financial assets and liabilities – changes to IAS 32
Investment entities (IFRS 10, 12 and IAS 27)
Recoverable amount disclosures for Non – Financial Assets (IAS 36)
IFRIC 21 Levies
IFRS9 (2010)
IFRS9 (2009)
Effective for annual
reporting periods
beginning on or after
Expected to be
initially applied in
the financial year
ending
1-Jan-14
1-Jan-14
1-Jan-15
1-Jan-15
1-Jan-15
1-Jan-15
30-Jun-15
30-Jun-15
30-Jun-16
30-Jun-16
30-Jun-16
30-Jun-16
41
MITCHELL SERVICES LTD ANNUAL REPORT 2014 2. REVENUE
From continuing operations
Income from operations
Profit on sale of assets
Interest received
Recoveries
Rental income
Government subsidy
Management fees
Other
Total income from continuing operations
3. CASH AND CASH EQUIVALENTS
2014
$
2013
$
14,068,518
25,903,904
126,454
696
703,423
5,854
10,000
89,436
10,622
946,485
114,398
38,537
183,914
5,845
23,471
-
51,774
417,939
15,015,003
26,321,843
For the purposes of the consolidated statement of cash flows, cash and cash equivalents include cash on hand and in banks, net of
outstanding bank overdrafts. Cash and cash equivalents at the end of the year as shown in the consolidated statement of cash flows
can be reconciled to the related items in the consolidated statement of financial position as follows.
In funds accounts
3(a)
Bank balances
3(b) Bank overdraft
Bank overdraft
3(c) Net cash at bank
125,004
528,167
(2,251,701)
(1,853,075)
(2,126,697)
(1,324,908)
The Group’s bank overdraft facility has a total limit of $3,500,000. Refer to note 12(a) in relation to security pledged.
4. TRADE AND OTHER RECEIVABLES
Trade debtors
Less provision for doubtful debts
Bonds and deposits
4(a) CREDIT RISK AND AGEING OF TRADE DEBTORS
2,546,85
(212,058)
13,721
2,348,514
1,920,000
-
4,550
1,924,550
The class of assets described as “trade debtors” is considered to be the main source of credit risk related to the Group. In
determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable
from the date credit was initially granted up to the end of the reporting period. The Group has raised a provision for doubtful debts of
$212,058 at 30 June 2014. This amount represents a balance owing from a customer over which a sufficient level of uncertainty exits
regarding its recoverability. The Group does not hold any collateral over these balances. A single counterparty made up 44.8% of the
total trade receivables at 30 June 2014. All invoices to this counterparty included in the total trade and other receivables at 30 June
2014 have been received as at the date of this report. The ageing of trade debtors (financial assets) is as follows:
< 1 month
1 to 3 months
42
2,038,053
508,798
2,546,851
857,768
1,062,232
1,920,000
MITCHELL SERVICES LTD ANNUAL REPORT 2014NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2014 5. OTHER FINANCIAL ASSETS
Current
Borrowing costs
Non-current
Borrowing costs
5(a). AGEING OF OTHER FINANCIAL ASSETS
The ageing of other financial assets - current is as follows:
< 1 year
The ageing of other financial assets – non- current is as follows:
1 to 5 years
6. OTHER ASSETS
Current
Prepayments
Non-current
Property held for sale
Shares in listed company
INVENTORIES
7.
Finished goods
2014
$
2013
$
7,708
7,708
5,572
5,572
7,708
7,708
5,572
5,572
9,800
9,800
12,131
12,131
9,800
9,800
12,131
12,131
298,212
298,212
272,379
272,379
18,000
2,000
20,000
61,250
2,000
63,250
1,604,952
1,604,952
1,559,870
1,559,870
The cost of inventories recognised as an expense during the year in respect of continuing operations was $2,086,171
(2013: $2,082,997).
8. GOODWILL
Balance at the beginning of the year
Impairment loss during the year
Recognised as result of business combination
-
-
1,515,032
(1,515,032)
4,481,519
4,481,519
-
-
The goodwill arose as a result of the Group’s acquisition of Mitchell Operations Pty Ltd (previously Mitchell Services Pty Ltd) on 29
November 2013. Refer note 28 “Business Combination” for more details.
43
MITCHELL SERVICES LTD ANNUAL REPORT 2014 Impairment testing for goodwill
The Groups’ activities and geographical locations are not diverse enough to be split into separate Cash Generating Units. For this
reason, for purposes of impairment testing, the goodwill has been allocated to the cash generating assets of the Group as a whole.
The recoverable amount of the Group’s cash generating assets was based on their value in use, determined by discounting the
future cash flows to be generated from the continuing use of the assets. The value in use was determined to be higher than its
carrying value and no impairment deemed necessary.
The key assumptions used in the estimation of the recoverable amount are set out below. The values assigned to the key
assumptions represented management’s assessment of future trends and are based on data from both external and internal sources.
Discount rate – 17.42%
Growth rate – 2.8%
The discount rate was a pre-tax measure based on the 5 year government bond rate adjusted for a risk premium to reflect both the
increased risk of investing in equities generally and the systemic risk associated with the drilling services industry.
The cash flow projections included specific estimates for 12 months and a long term growth rate thereafter. The long term growth
rate was determined based on management’s estimate of the long term compound annual EBITDA growth rate, consistent with the
assumption that a market participant would make.
In determining gross margin and direct expenses management have used historical performance trends, excluding costs not directly
attributable to the cash generating assets .
Working capital assumptions are assumed to be in line with historic trends given the level of utilisation and operating activity.
Sensitivity analyses were performed to determine whether carrying values are supported by different assumptions. Key variables of
the sensitivity analysis include
•
•
Long term growth rates
Discount rates
Each of these variables in the analysis has been examined at levels above and below expectations. In the downside sensitivity
analysis, the value in use would be lower than the carrying value at the following levels:
•
•
If growth rates drop from 2.8% to 0.75%
If the discount rate changes from 17.42% to 19.15%
9. TRADE AND OTHER PAYABLES
Current
Trade creditors
Other creditors
Accrued expenses
44
2014
$
2013
$
2,627,043
23,900
1,038,832
595,363
250,435
664,598
3,689,775
1,510,396
MITCHELL SERVICES LTD ANNUAL REPORT 2014NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2014
9(a). AGEING OF TRADE AND OTHER PAYABLES
The ageing of trade creditors (financial liabilities) is as follows:
< 1 month
1 to 3 months
> 3 months
10. OTHER FINANCIAL LIABILITIES
Current
Equipment finance leases
Equipment line loan
Working capital loan 1
Working capital loan 2
Insurance Premium Funding
Non - current
Equipment finance leases
Equipment line loan
Working capital loan 1
Working capital loan 2
10(a) FINANCE LEASES
Current
Non-current
Minimum future lease payments
Not later than 1 year
Later than 1 year and not later than 5 years
Minimum future lease payments
Less future finance charges
Present value of minimum future lease payments
Not later than 1 year
Later than 1 year and not later than 5 years
2014
$
2013
$
2,184,300
38,179
404,564
2,627,043
262,493
296,501
36,369
595,363
1,716,344
2,105,234
207,966
20,091
185,480
319,424
190,585
2,881
-
284,079
2,449,305
2,582,779
2,939,474
2,946,551
443,514
679,909
636,353
651,480
700,000
-
4,699,250
4,298,031
1,716,344
2,105,234
2,939,474
2,946,551
4,655,818
5,051,785
1,967,742
2,401,746
3,205,499
3,206,357
5,173,241
5,608,103
(517,423)
(556,318)
4,655,818
5,051,785
1,716,344
2,105,234
2,939,474
2,946,551
4,655,818
5,051,785
45
MITCHELL SERVICES LTD ANNUAL REPORT 2014
The Group leases certain items of equipment under finance leases. The average term is 3.6 years (2013: 4 years). The Group has
options to purchase the equipment at the end of the lease terms for nominal amounts. The Group’s obligations under finance leases
are secured by lessor’s title to goods under finance lease.
The Group’s exposure to interest rate risk has been mitigated in that interest rates have been fixed for the duration of the finance
period. Effective interest rates payable under finance leases are between 5.25% and 10.52% (2013: 5.68% to 11.98%).
The fair value of the finance lease liabilities is approximately equal to the carrying amount.
10(b) LOANS
A summary of borrowing arrangements applicable to all loans is included in Note 20(a). Security pledged in respect of the equipment
line loan and working capital loan 1 is detailed in Note 12(a).
11. PROVISIONS
Annual leave provision - current
Opening balance
Movement
Closing balance
Long service leave provision - current
Opening balance
Movement
Closing balance
Provision for contract costs
Opening balance
Movement
Closing balance
Total current provisions
2014
$
2013
$
361,576
689,068
(148,185)
(327,492)
213,391
361,576
43,328
(19,671)
23,657
51,196
(7,868)
43,328
-
115,115
115,115
352,163
-
-
-
404,904
A provision has been made for anticipated demobilisation costs relating to a particular contract that, as at 30 June 2014, had come to
an end and no longer generated revenues.
Long service leave provision – non - current
Opening balance
Movement
Closing balance
Total non - current provisions
76,804
95,361
(31,697)
(18,557)
45,107
45,107
76,804
76,804
The above provisions represent annual leave and long service leave entitlements accrued by the Group’s employees.
46
MITCHELL SERVICES LTD ANNUAL REPORT 2014NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2014 12. PROPERTY, PLANT AND EQUIPMENT
At 1 July 2013
Cost or fair value
Accumulated depreciation
Net book amount
Year ended 30 June 2014
Opening net book amount
Acquired in business combination
Additions
Disposals
Depreciation
Closing net book amount
At 30 June 2014
Cost or fair value
Accumulated depreciation
Net book amount
At 1 July 2012
Cost or fair value
Accumulated depreciation
Net book amount
Year ended 30 June 2013
Opening net book amount
Additions
Disposals
Depreciation
Closing net book amount
At 30 June 2013
Cost or fair value
Accumulated depreciation
Net book amount
Land and
buildings
Plant and
equipment
Motor
vehicles
Furniture
and fittings
$
$
$
$
Total
$
3,591,170
12,702,440
14,459,339
93,061
30,846,010
(111,412)
(4,559,108)
(10,145,393)
(53,910)
(14,869,823)
3,479,758
8,143,332
4,313,946
39,151
15,976,187
3,479,758
8,143,332
4,313,946
33,791
-
-
832,711
862,969
(852,690)
(71,163)
(1,607,503)
3,442,386
7,378,819
-
59,386
(355,419)
(895,852)
3,122,061
39,151
50,446
-
-
15,976,187
916,948
922,355
(1,208,109)
(23,533)
(2,598,051)
66,064
14,009,330
3,625,070
12,600,751
12,868,490
146,047
29,240,358
(182,684)
(5,221,932)
(9,746,429)
(79,983)
(15,231,028)
3,442,386
7,378,819
3,122,061
66,064
14,009,330
3,591,170
12,626,348
16,379,160
225,576
32,822,254
(41,046)
(3,503,115)
(10,563,760)
(141,378)
(14,249,299)
3,550,124
9,123,233
5,815,400
84,198
18,572,955
3,550,124
9,123,233
5,815,400
-
-
832,617
54,675
-
(185,472)
84,198
14,530
-
18,572,955
901,822
(185,472)
(70,366)
(1,812,518)
(1,370,657)
(59,577)
(3,313,118)
3,479,758
8,143,332
4,313,946
39,151
15,976,187
3,591,170
12,702,440
14,459,339
93,061
30,846,010
(111,412)
(4,559,108)
(10,145,393)
(53,910)
(14,869,823)
3,479,758
8,143,332
4,313,946
39,151
15,976,187
The property, plant and equipment classifications of plant and equipment and motor vehicles are comprised mainly of drilling rigs
and associated equipment. Directors and management continually monitor both domestic and overseas markets on new and used
drill rig pricing and availability and as a result are of the opinion that the net written down book amount of the Group’s property, plant
and equipment is conservative. Remaining mindful of the volatility of the mining industry, Directors and management do not intend to
change the current depreciation and amortisation rates.
47
MITCHELL SERVICES LTD ANNUAL REPORT 2014 12(a) ASSETS PLEDGED AS SECURITY
The following has been pledged as security in relation to the Group’s bank overdraft and other financial liabilities.
Bank overdraft and working capital loan 1
The following securities will secure the repayment of the above facilities.
•
•
•
•
•
An existing registered mortgage given by Mitchell Services Ltd over the property situated at 133-137 Crocodile Crescent, Mount
St John, Qld (carrying amount of $3,409,394).
New registered general security agreement given by Notch Holdings Pty Ltd as grantor, over all of its present and after acquired
personal and real property including, the goodwill of its business, uncalled and unpaid capital and proceeds.
New registered general security agreement given by Well Drilled Pty Ltd as grantor, over all of its present and after acquired
personal and real property including, the goodwill of its business, uncalled and unpaid capital and proceeds.
Existing registered company charge given by Mitchell Services Ltd over all the assets and undertakings of the company
including uncalled and unpaid capital.
Guarantee and indemnity given by Well Drilled Pty Ltd and Notch Holdings Pty Ltd.
Equipment line loan
The following rigs have been pledged as security.
•
•
2006 Schramm T130XD drill rig (carrying amount of $340,701)
2005 Schramm T130XD drill rig (carrying amount of $391,217)
Working capital loan 2
The following rigs have been pledged as security.
•
•
2008 UDR1200 Rotadrill drill rig (carrying amount of $451,520)
2007 Schramm T685WS Rotadrill drill rig (carrying amount of $232,635)
48
MITCHELL SERVICES LTD ANNUAL REPORT 2014NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2014
13.
INCOME TAX EXPENSE
Income tax recognised in profit or loss
Income tax expense comprises
Current tax
Deferred tax
The income tax expense for the year can be reconciled to the accounting profit as follows:
Profit/(loss) before tax from continuing operations
Income tax expense calculated at 30% (2013: 30%)
Effect of expenses that are not deductible in determining taxable profit
Effect of tax rates in foreign jurisdictions (PNG)
Adjustments recognised in current year in relation to current tax of prior years
2014
$
2013
$
157,821
9,064
(1,836,208)
(160,697)
(1,678,387)
(151,633)
(6,285,645)
(2,064,071)
(1,885,693)
(619,221)
49,485
157,821
-
458,524
9,064
-
(1,678,387)
(151,633)
The tax rate used for 2014 and 2013 reconciliations above is the corporate tax rate of 30% payable by Australian corporate entities
on taxable profits under Australian tax law.
14. TAX ASSETS AND LIABILITIES
Tax assets – current
Income tax receivable
Tax assets – non - current
Deferred tax asset (refer note 14(a))
Tax liabilities – current
Provision for foreign contractor withholding tax PNG
-
6,671
3,397,802
1,261,978
-
9,064
49
MITCHELL SERVICES LTD ANNUAL REPORT 2014 2014
Temporary differences
Annual & long service leave provision
Super provision
Provision for contract costs
Provision for doubtful debts
Other accrued expenses
Building depreciation
Accrued income
Foreign exchange losses
Rights issue costs
Share issue costs
Unused tax losses
Losses carried forward
2013
Annual & long service leave provision
Super provision
Other accrued expenses
Finance leases
Building depreciation
Accrued income
Foreign exchange losses
Rights issue costs
IPO costs
Unused tax losses
Losses carried forward
Opening
balance
01/07/13
Recognised
in profit/
(loss)
Acquired in
business
combination
Recognised
in Equity
30%
Closing
balance
30/06/14
(144,512)
(53,733)
0
-
(16,349)
(240)
12,541
(2,162)
(8,407)
(310,155)
(523,017)
315,800
45,734
(115,115)
(212,058)
(106,355)
(3,439)
298,924
5,661
48,451
352,801
630,404
-
-
(116,247)
(27,262)
-
-
1,849
(207,223)
(7,297)
(141,660)
(214,520)
59,866
5,542
(34,534)
(63,617)
(31,907)
(1,032)
89,677
2,253
(47,632)
103,651
82,267
(84,646)
(48,191)
(34,534)
(63,617)
(48,256)
(1,272)
102,218
91
(56,039)
(206,504)
(440,750)
(738,961)
(6,751,096)
(1,261,978)
(6,120,692)
(642,541)
(784,201)
(2,218,091)
(2,957,052)
(214,520)
(2,135,824)
(3,397,802)
Opening
balance
01/07/12
Recognised
in profit/
(loss)
Acquired in
business
combination
Recognised
in Equity
30%
Closing
balance
30/06/13
(250,687)
(117,245)
(14,887)
(669)
174
23,207
-
-
(415,558)
(775,665)
353,917
211,707
(4,875)
2,229
(1,381)
(35,553)
(7,206)
(28,024)
351,342
842,156
(325,616)
(1,377,814)
(1,101,281)
(535,658)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
106,175
(144,512)
63,512
(1,462)
669
(414)
(10,666)
(2,162)
(8,407)
105,403
252,648
(53,733)
(16,349)
-
(240)
12,541
(2,162)
(8,407)
(310,155)
(523,017)
(413,345)
(738,961)
(160,697)
(1,261,978)
Based on four year forecasts and the Group’s assessment of the industry outlook, the Group believes that it will produce sufficient
future taxable profit against which the unused tax losses can be utilised.
14(b). UNRECOGNISED AMOUNTS
Franking account balance
50
870,635
879,970
MITCHELL SERVICES LTD ANNUAL REPORT 2014NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2014 15.
ISSUED CAPITAL
Fully paid ordinary shares
Balance at the beginning of the year
Issue of shares – rights issue
Issue of shares – acquisition of Mitchell Operations Pty Ltd (refer note 28)
2014
$
2013
$
14,524,100
14,524,100
2,500,000
2,000,000
-
-
19,024,100
14,524,100
Rights Issue
During November 2013, The Group completed a fully underwritten one for on non-renounceable rights issue at two cents per
share which raised $2,500,000.
Fully paid ordinary shares
Balance at the beginning of the year
Issue of shares – rights issue
Issue of shares – acquisition of Mitchell Operations Pty Ltd (refer note 28)
Fully paid ordinary shares carry one vote per share and carry a right to dividends.
16. SHARE ISSUE COSTS
Balance at the beginning of the year
Share issue costs relating to rights issue and business combination
Tax benefit
Consolidated
2014
Number
Consolidated
2013
Number
125,000,005
125,000,005
125,000,000
40,000,000
-
-
290,000,005
125,000,005
$
$
(1,049,780)
(1,049,780)
(214,520)
64,356
-
-
(1,199,944)
(1,049,780)
Costs incurred in relation to the rights issue and business combination that are available as an offset against equity amounted to
$214,520. The income tax benefit associated with these costs is $64,356
17. RETAINED EARNINGS
Balance at the beginning of the year
Profit/(loss) attributable to owners of the Company
Share based payment transaction (refer note 29)
(2,594,390)
(4,607,258)
66,402
(681,952)
(1,912,438)
-
(7,135,246)
(2,594,390)
51
MITCHELL SERVICES LTD ANNUAL REPORT 2014 19. RECONCILIATION OF PROFIT/(LOSS) FOR THE YEAR TO NET CASH FLOWS FROM OPERATING ACTIVITIES
2014
$
2013
$
Profit/(loss) for the year
Adjustments for:
Depreciation and amortisation
Goodwill impairment
Profit on sale of assets
Loss on sale of assets
Income tax expense
Change in trade and other receivables
Change in other assets
Change in inventories
Change in trade payables and accruals
Change in insurance premium funding balance
Change in provisions
Working capital acquired in business combination
Recognition of share based payment
Income tax paid
Net cash generated by operating activities
20. FINANCIAL RISK MANAGEMENT
(4,607,258)
(1,912,438)
2,598,051
-
(126,454)
366,919
3,322,722
1,515,032
(114,398)
19,342
(1,678,387)
(151,633)
(423,964)
1,755,854
(17,182)
(45,082)
(38,920)
189,465
2,179,379
(1,919,491)
35,345
(84,438)
(308,570)
66,402
(160,214)
-
(353,917)
-
-
(4,481)
(2,205,453)
2,307,137
The Group’s financial instruments mainly consist of deposits with banks, trade receivables and payables and borrowings and leases
from financial institutions. The Board of Directors are responsible for monitoring and managing the financial risks. They monitor these
risks through regular meetings with the Group’s management. The Group does not enter into derivative financial instruments and
does not speculate in any type of financial instrument.
Specific financial risk exposures and management thereof
The main risks the Group is exposed to through its financial instruments are interest rate risk, liquidity risk and credit risk. There
have been no substantive changes in the types of risks the Group is exposed to, how these risks arise, or the Board’s objectives,
policies and processes for managing or measuring the risks from the previous reporting period.
Interest rate risk
(a)
Exposure to interest rate risk arises on financial assets and liabilities recognised at reporting date whereby a future change in
interest rates will affect future cash flows or the fair value of fixed rate financial instruments. The Group is also exposed to earnings
volatility on floating rate instruments.
52
MITCHELL SERVICES LTD ANNUAL REPORT 2014NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2014 The following tables set out the Group’s exposure to interest rate risk.
2014
Bank Overdraft
Equipment finance leases
Premium Insurance
Equipment line loan
Working capital loan 1
Working capital loan 2
Within 1
year
$
2,251,701
1,716,344
319,424
207,966
20,091
185,480
Expected duration until repayment
1 to 2 years
2 to 3 years
More than
3 years
Total
$
$
$
-
-
-
1,171,192
967,999
800,283
-
225,664
124,882
198,005
-
217,850
132,649
211,581
-
-
422,378
226,767
$
2,251,701
4,655,818
319,424
651,480
700,000
821,833
4,701,006
1,719,743
1,530,079
1,449,428
9,400,256
(a)
(b)
(c)
(d)
(e)
(f)
a.
b.
c.
d.
e.
f.
Interest rates have varied between 6.01% and 6.28% per annum.
Interest rates are commercial lease finance rates and are fixed for the duration of the loan period.
Interest rate is fixed at a flat rate of 3.81% of the amount initially financed.
Interest is variable with rates varying between 8.195% and 8.5817% per annum.
Interest is variable with rates varying between 6.01% and 6.03% per annum.
Interest is fixed at a commercial lease finance rate of 6.6546% for the duration of the loan period
2013
Bank Overdraft
Equipment finance leases
Premium Insurance
Equipment line loan
Working capital loan 1
(a)
(b)
(c)
(d)
(e)
Within 1
year
$
1,853,075
2,105,234
284,079
190,585
2,881
Expected duration until repayment
1 to 2 years
2 to 3 years More than
Total
3 years
$
$
$
-
-
-
1,386,179
905,686
654,686
-
210,329
-
-
232,117
113,090
-
209,034
586,910
$
1,853,075
5,051,785
284,079
842,065
702,881
4,435,854
1,596,508
1,250,893
1,450,630
8,733,885
a.
b.
c.
d.
e.
Interest rates have varied between 6.28% and 7.03% per annum.
Interest rates are commercial lease finance rates and are fixed for the duration of the loan period.
Interest rate is fixed at a flat rate of 3.92% of the amount initially financed.
Interest is variable with rates varying between 8.5817% and 8.985% per annum.
Interest is variable with rates varying between 6.01% and 6.03% per annum.
53
MITCHELL SERVICES LTD ANNUAL REPORT 2014 20. FINANCIAL RISK MANAGEMENT
(b) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that
are settled by delivering cash or another financial asset. The Group’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, under both normal and stressed conditions, without incurring
unacceptable losses or risking damage to the Group’s reputation.
The Group manages this risk through the following mechanisms:
ensuring that there is access to adequate capital;
preparing forward looking cash flow analyses in relation to its operational, investing and financial activities;
obtaining funding from a variety of sources;
•
•
• monitoring undrawn credit facilities;
•
• maintaining a reputable credit profile;
• managing credit risk related to financial assets;
•
•
investing surplus cash only with major financial institutions; and
comparing the maturity profile of financial liabilities with the realisation profile of financial assets.
The table below reflects an undiscounted contractual maturity analysis for financial liabilities, compared with financial assets. Bank
overdrafts have been excluded from the analysis below as management does not consider that there is any material risk that the
bank will terminate such facilities.
Cash flows realised from financial assets reflect management’s expectation as to the timing of realisation. Actual timing may
therefore differ from that disclosed. The timing of cash flows presented in the table to settle financial liabilities reflect the earliest
contractual settlement dates and do not reflect management’s expectations that banking facilities will be rolled forward. The
deficiency identified in the table will be met from cash flows generated by the Group’s normal operations.
Financial liability and financial asset maturity analysis
Within 1 year
1 to 7 Years
Total
2014
$
2013
$
2014
$
2013
$
2014
$
2013
$
3,689,775
1,510,396
-
-
3,689,775
1,510,396
2,449,305
2,582,779
4,699,250
4,298,031
7,148,555
6,880,810
6,139,080
4,093,175
4,699,250
4,298,031
10,838,330
8,391,206
6,139,080
4,093,175
4,699,250
4,298,031
10,838,330
8,391,206
125,004
528,167
2,348,514
1,924,550
2,473,518
2,452,717
-
-
-
-
-
-
125,004
528,167
2,348,514
1,924,550
2,473,518
2,452,717
(3,665,562)
(1,640,458)
(4,699,250)
(4,298,031)
8,364,812
(5,938,489)
Financial liabilities due for payment
Trade and other payables (excluding
estimated employee entitlements)
Financial liabilities
Total contractual outflows
Total expected outflows
Financial assets – cash flows
realisable
Cash and cash equivalents
Trade and other receivables
Total anticipated inflows
Net (outflow)/inflow on financial
instruments
54
MITCHELL SERVICES LTD ANNUAL REPORT 2014NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2014 (c) Credit risk
22. RELATED PARTY TRANSACTIONS
Credit risk is the risk of financial loss to the Group if a customer
or counterparty to a financial instrument fails to meet its
contractual obligations, and arises principally from the Group’s
trade and other receivables from customers. The Group has
adopted a policy of only dealing with creditworthy counterparties
and uses publicly available financial information and its own
trading records to rate its customers. The Group’s exposure
and the credit ratings of its counterparties are continuously
monitored to mitigate financial loss. The maximum exposure
to credit risk by class of recognised financial assets at balance
date, excluding the value of any collateral or other security held,
is equivalent to the carrying value and classification of those
financial assets (net of any provisions) as presented in the
consolidated statement of financial position.
The Group has no significant concentration of credit risk with
any single counterparty or group of counterparties. Details with
respect to credit risk of trade and other receivables is provided
in note 4.
Trade and other receivables that are neither past due or
impaired are considered to be of high credit quality. Aggregates
of such amounts are detailed at note 4.
The credit risk on liquid funds is limited because the
counterparties are banks with high credit-ratings assigned by
international credit-rating agencies.
21. NET FAIR VALUES
Fair value estimation
The carrying values of financial assets and financial liabilities as
detailed in the consolidated statement of financial position and
these notes approximate their fair values at reporting date.
22(a) Related parties
The Group’s main related parties are as follows.
(i) Entities exercising control over the Group
The ultimate parent entity that exercises control over the Group
is Mitchell Services Ltd ACN 149 206 333. The subsidiary
companies in the Group are Notch Holdings Pty Ltd ACN 009
271 461, Well Drilled Pty Ltd ACN 123 980 343 and Mitchell
Operations Pty Ltd ACN 165 456 066.
Balances and transactions between the Company and its
subsidiaries, which are related parties of the Company, have
been eliminated on consolidation and are not disclosed in this
note.
(ii) Key management personnel
Any person(s) having authority and responsibility for planning,
directing and controlling the activities of the entity, directly
or indirectly, including any director (whether executive or
otherwise) of that entity are considered key management
personnel.
Disclosures relating to key management personnel are set out
in the remuneration report.
(iii) Other related parties
Other related parties include entities over which key
management personnel have control or joint control.
55
MITCHELL SERVICES LTD ANNUAL REPORT 2014
22(b) Transactions with related parties
Mitchell Group Holdings Pty Ltd and Mitchell Energy
Services Pty Ltd
Mitchell Group Holdings Pty Ltd and Mitchell Energy Services
Pty Ltd are entities controlled by Nathan Andrew Mitchell.
During the period from 1 September 2013 to 30 November
2013, the payroll cost associated with all employees of Mitchell
Services Pty Ltd was funded by both Mitchell Group Holdings
Pty Ltd and Mitchell Energy Services Pty Ltd to assist with
the working capital requirements of Mitchell Services Pty Ltd.
This arrangement ceased after the Group acquired Mitchell
Operations Pty Ltd (previously Mitchell Services Pty Ltd). An
amount of $369,413 remains owing to these related entities at
the end of the reporting period.
Mitchell Equipment Hire Pty Ltd
Mitchell Equipment Hire Pty Ltd is an entity controlled by
Nathan Andrew Mitchell. The Group hired plant and equipment
from Mitchell Equipment Hire Pty Ltd. Hire of plant and
equipment from this related entity from December 2013 to June
2014 amounted to $144,943 and was based on normal market
rates and under normal payment terms. An amount of $85,634
remains owing to this related entity at the end of the
reporting period.
VMW Engineering Pty Ltd
VMW Engineering Pty Ltd is an entity controlled by Nathan
Andrew Mitchell. VMW Engineering supplies the Group with
equipment and rig components to be used in the day to day
operations of the business. Amounts were billed on normal
market rates for such goods and were due and payable under
normal payment terms. Total purchases amounted to $61,429.
$767 remains owing to this related party at the end of the
reporting period.
Transactions between related parties are on normal commercial
terms and conditions no more favourable than those available
to other parties unless otherwise stated. The following
transactions occurred with related parties.
Lot 4 Sterritt Road Townsville
The property located at Lot 4 Sterritt Road Townsville is owned
by Peter Richard Miller. A portion of this property (that is, the
office, workshop and part of the land) has been leased to
the Group during the 2014 financial year at a gross rental of
$40,000 per annum plus GST. This lease expired on 30 June
2014.
Sale to Manutech Engineering and Maintenance
The Group entered into a contract with Manutech Engineering
and Maintenance for the sale of various items of plant and
equipment which were surplus to the Group’s requirements.
Manutech Engineering and Maintenance is an entity controlled
by Peter Richard Miller. The amount payable under the contract
of $233,705 including GST has been independently assessed
by two appropriately qualified valuers as being fair value. The
directors believe that this was an arms-length transaction.
Settlement of this transaction occurred on 10 September 2013.
Transactions with Manutech Engineering and Maintenance
The Group engages Manutech Engineering and Maintenance
to perform repair and maintenance type services. The amount
incurred during the reporting period in relation to these services
was $352,769. Amounts were billed on normal market rates
for such services and were due and payable under normal
payment terms. An amount of $4,023 remains owing to this
related entity at the end of the reporting period.
Transactions with Mitchell Group private entities
Maxial Technologies Pty Ltd
Maxial Technologies Pty Ltd is an entity controlled by Nathan
Andrew Mitchell. Prior to the acquisition of Mitchell Operations
Pty Ltd (previously Mitchell Services Pty Ltd), Maxial
Technologies Pty Ltd provided a short-term loan to Mitchell
Operations Pty Ltd to assist with working capital requirements.
The loan inclusive of interest of $293,189 was repaid to Maxial
Technologies Pty Ltd during December 2013.
56
MITCHELL SERVICES LTD ANNUAL REPORT 2014NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2014 Mitchell Family Investments (QLD) Pty Ltd
Mitchell Family Investments (QLD) Pty Ltd is an entity controlled by Nathan Andrew Mitchell. The Group leases part of the office
building located at 112 Bluestone Circuit, Seventeen Mile Rocks Brisbane, which is owned by Mitchell Family Investments (QLD) Pty
Ltd. The rental associated with this lease is $9,489 plus GST per month and an amount of $64,643 remains owing to this related
entity at the end of the reporting period. The rent payable under the lease has been independently assessed as being fair
market rental.
Mitchell African Holdings Pty Ltd
Mitchell African Holdings Pty Ltd is an entity controlled by Nathan Andrew Mitchell. Under an existing general services agreement,
the Group provides management and administrative support services, and other service activities conducted from time to time.
Under this general services arrangement the G
$10,000 per month. Management fee income for the year amounted to $89,436. $61,552 remains owing to the Group at the end of
the reporting period.
roup charges Mitchell African Holdings a management fee of approximately
Mitchell Family Holdings Pty Ltd
Mitchell Family Holdings Pty Ltd is an entity controlled by Nathan Andrew Mitchell. On 27 June 2014, the Group obtained a
$2,000,000 loan facility from Mitchell Family Holdings. As at 30 June 2014 this facility was undrawn. The loan is unsecured and
interest is charged at 14% per annum..
23. KEY MANAGEMENT PERSONNEL
Refer to the Remuneration Report contained in the Directors’ Report for details of the remuneration paid or payable to each member
of the Group’s key management personnel for the year ended 30 June 2014.
24. AUDITORS’ REMUNERATION
2014
$
2013
$
During the year, the following fees were paid or payable for services provided by the auditor or its related practices:
Audit and review of the financial statements
Other
25. OPERATING LEASE COMMITMENTS
57,971
52,500
-
-
57,971
52,500
Operating leases relate to leases of land and buildings with varying lease terms not exceeding five (2013: two) years. Some lease
contracts contain provision for market rental reviews within the remaining lease term.
Non-cancellable operating lease commitments:
Not later than 1 year
Between 1 and 3 years
Later than 3 years
230,195
227,736
132,846
590,777
20,000
-
-
20,000
57
MITCHELL SERVICES LTD ANNUAL REPORT 2014 26. EARNINGS PER SHARE
Basic earnings per share
From continuing operations
Diluted earnings per share
From continuing operations
Year ended
30-Jun-14
Cents per share
Year ended
30-Jun-13
Cents per share
(1.86)
(1.86)
(1.09)
(1.09)
Basic earnings per share and diluted earnings per share are calculated using earnings and weighted average number of ordinary
shares as follows:
Profit/(loss) for the year attributable to owners
Weighted average number of ordinary shares
(4,607,258)
(1,912,438)
247,184,940
176,250,007
The weighted number of ordinary shares for the period ended 30 June 2013 has been restated for the rights issue on 8 November
2013. An adjustment factor of 1.41 has been used. This adjustment factor is calculated as the fair value per share before exercise of
rights divided by the theoretical ex-rights value per share.
27. DEFINED CONTRIBUTION RETIREMENT BENEFIT OBLIGATIONS
The Group contributes superannuation on behalf of qualifying employees to defined contribution retirement benefit plans. The assets
of the funds are held separately from those of the Group in funds under the control of trustees. The only obligation of the Group is to
make specified contributions in accordance with contractual employment and statutory obligations. The total expense recognised in
the statement of profit or loss and other comprehensive income of $448,538 (2013: $1,012,788) represents the contributions payable
by the Group to these plans in accordance with contractual employment and statutory obligations. As at 30 June 2014, contributions
of $160,640 due in respect of the 2014 reporting period (2013: $179,112) had not been paid over to the plans. These amounts were
paid subsequent to the end of the 2014 reporting period.
28. BUSINESS COMBINATION
On 29 November 2013, the Group’s parent entity, Mitchell Services Limited, acquired all of the issued shares in Mitchell Operations
Pty Ltd (Mitchell Services Pty Ltd changed its name to Mitchell Operations Pty Ltd on 10 December 2013). The entity acquired
includes drilling and wireline logging contracts and senior management team members to lead and drive the business forward. The
directors believe that the acquisition will have a marked effect on the current operations of the Group and will provide a platform to
accelerate the Group’s long held strategic objective to become a national “tier one” drilling operation.
The consideration for the acquisition was:
$2,000,000 satisfied by the issue of 40,000,000 shares (30,000,000 shares to Mitchell Family Investments (QLD) Pty Ltd and
10,000,000 shares to Mitchell Group Holdings Pty Ltd (as trustee for the Andala trust) at 5 cents per share; and
the grant of 198,660,000 options to Mitchell Group Holdings Pty Ltd (as trustee for the Andala trust) on the terms set out below.
Terms of options
The major terms of the options are as follows:
Each option entitles the holder to subscribe for one share upon payment of the exercise price prior to the expiry date. Each option
will be either a Class A option, a Class B option, a Class C option or a Class D option.
58
MITCHELL SERVICES LTD ANNUAL REPORT 2014NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2014 The options may only be exercised if they have vested. The options will vest:
In the case of 45,000,000 Class A options if:
•
•
the Group has an audited EBITDA for its financial year ending 30 June 2015 of at least $4,000,000; and
the company’s shares have a 10 day VWAP of at least 5 cents per share at any time during the 12 month period commencing
on the day of release to the ASX of the Group’s final results for the financial year ending 30 June 2015.
In the case of 65,000,000 Class B options if:
•
•
the Group has an audited EBITDA for its financial year ending 30 June 2015 of at least $5,000,000; and
the company’s shares have a 10 day VWAP of at least 6 cents per share at any time during the 12 month period commencing
on the day of release to the ASX of the Group’s final results for the financial year ending 30 June 2015.
In the case of 50,000,000 Class C options if:
•
•
the Group has an audited EBITDA for its financial year ending 30 June 2016 of at least $7,000,000; and
the company’s shares have a 10 day VWAP of at least 7 cents per share at any time during the 12 month period commencing
on the day of release to the ASX of the Group’s final results for the financial year ending 30 June 2016.
In the case of 50,000,000 Class D options if:
•
•
the Group has an audited EBITDA for its financial year ending 30 June 2016 of at least $9,000,000; and
the company’s shares have a 10 day VWAP of at least 8 cents per share at any time during the 12 month period commencing
on the day of release to the ASX of the Group’s final results for the financial year ending 30 June 2016.
The options may be exercised at any time from when they vest until on or before 5pm (Sydney time) on the date that is 5 business
days after the end of the relevant 12 month period during which the VWAP vesting condition applying to that class of options may be
satisfied (“expiry date”). Options not exercised by the expiry date will lapse.
The exercise price of each option is $0.000005.
The options will not be quoted on the ASX and are not transferrable.
There are no participation rights or entitlements inherent in the options and holders will not be entitled to participate in new issues of
securities offered to shareholders during the currency of the options.
The following summarises the major classes of consideration transferred.
Equity instruments issued (40,000,000 ordinary shares)
Contingent consideration (grant of 198,660,000 options)
$
2,000,000
2,122,402
4,122,402
Equity instruments issued
The fair value of the ordinary shares issued was based on 5 cents per share which approximated the listed share price of the
company at 29 November 2013.
Contingent consideration
The Group has agreed to pay the selling shareholders additional consideration including the grant of 198,660,000 options subject
to the EBITDA and share price hurdles mentioned above. The fair value of these options of $2,122,402 has been determined by an
option valuation expert using the Black-Scholes option pricing model.
59
MITCHELL SERVICES LTD ANNUAL REPORT 2014
Identifiable assets acquired and liabilities assumed
The following summarises the recognised amounts of assets acquired and liabilities assumed at the acquisition date.
Cash and cash equivalents
Trade receivables
Accrued income
Other assets
Inventories
Plant and equipment
Deferred tax assets
Trade and other payables
Loans and borrowings
Provisions
$
1,438
443,765
189,975
583
46,046
916,948
235,260
(874,130)
(1,202,755)
(116,247)
(359,117)
The fair value of the deferred tax asset has been determined on a provisional basis pending assessment of the Mitchell Operations
Pty Ltd income tax return for the period up to acquisition date and determination of the resulting income tax losses available to
the Group. If new information obtained within one year from the acquisition date about facts and circumstances that existed at the
acquisition date identifies adjustments to the above amounts, then the acquisition accounting will be revised.
Goodwill
Goodwill was recognised as a result of the acquisition as follows.
Total consideration transferred
Fair value of identifiable net assets (deficiency)
$
4,122,402
359,117
4,481,519
The goodwill is mainly attributable to the skills and technical talent of the Mitchell Operations Pty Ltd work force, customer
relationships and the synergies expected to be achieved from integrating Mitchell Operations Pty Ltd into the Group’s existing
drilling contracting business. These assets could not be separately recognised from goodwill because they are not capable of being
separated from the Group and sold, transferred, licensed, rented or exchanged, either individually or together with any related
contracts. None of the goodwill recognised is expected to be deductible for tax purposes.
Acquisition-related costs
The Group incurred acquisition-related costs of $119,702 related to external legal fees, expert reports and due diligence costs.
These costs have been excluded from the consideration transferred and included in “Legal and consultant fees” in the Group’s
statement of profit or loss and other comprehensive income.
29 SHARE-BASED PAYMENT ARRANGEMENTS
Replacement awards (equity-settled)
Prior to the acquisition, Mitchell Operations Pty Ltd (formerly Mitchell Services Pty Ltd) had granted 11,340,000 options to a number
of its senior executives. In consideration for the senior executives agreeing to cancel these options and agreeing to become
employees of Mitchell Services Limited on terms acceptable to both parties, Mitchell Services Limited granted 11,340,000 options
(replacement awards) to those senior executives on the same terms set out in note 28.
60
MITCHELL SERVICES LTD ANNUAL REPORT 2014NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2014
The 11,340,000 options do not form part of the consideration transferred in relation to the acquisition of Mitchell Operations Pty Ltd
but represent remuneration for continued service in the post-combination period.
Subsequent to the acquisition 2,730,000 options granted to a senior executive were cancelled due to that senior executive ceasing
employment with the Group.
As at 30 June 2014 8,610,000 management options were on issue.
Measurement of fair values
The fair value of the 8,610,000 options was $256,443 as at 30 June 2014 and has been determined using the Black-Scholes option
pricing model. Expected volatility is estimated by considering historical volatility of comparable company share prices.
The inputs used in the measurement of the fair value at grant date of the equity-settled share-based payment plans were as follows.
Share price at grant date
Exercise price
Expected volatility
Time to maturity
Risk-free interest rate (based on government bonds)
Dividend yield (assumed no dividends paid)
Fair value at grant date per option
Number of options
Total Fair value of options
Tranche
Tranche
Tranche
Tranche
Total
A
$0.05
$0.00
50%
B
$0.05
$0.00
50%
C
$0.05
$0.00
50%
D
$0.05
$0.00
50%
2.6 years
2.6 years
3.6 years
3.6 years
2.89%
0%
$0.03
2.89%
0%
$0.03
3.13%
0%
$0.03
3.13%
0%
$0.03
1,845,000
2,665,000
2,050,000
2,050,000
8,610,000
$62,674
$79,470
$59,958
$54,341
$256,443
Expense recognised in profit or loss
Equity-settled share-based payment transactions
Replacement awards granted on 29 November 2013 (refer note 17)
Total expense recognised for equity-settled share-based payment
29. SEGMENT REPORTING
2014
$
2013
$
66,402
66,402
-
-
The Group operates primarily within Australia, providing services wholly to a discrete industry segment (provision of drilling services
to the mining industry). These geographic and operating segments are considered based on internal management reporting and the
allocation of resources by the Group’s chief decision makers (Board of Directors). On this basis, the financial results of the reportable
operating and geographic segments are equivalent to the financial statements of the Group as a whole and no separate segment
reporting is disclosed in these financial statements.
61
MITCHELL SERVICES LTD ANNUAL REPORT 2014 NOTES TO THE FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2014
30. EVENTS AFTER THE REPORTING PERIOD
The following events have occurred since the end of the reporting period.
Acquisition of Tom Browne Drilling Services assets
On 21August 2014 Notch Holdings Pty Ltd (a wholly owned subsidiary of the Mitchell Services Ltd), entered into a conditional sale
agreement to acquire 29 drill rigs and ancillary equipment from Tom Browne Drilling Services Pty Ltd (Receivers and managers
appointed) (In liquidation). The purchase price per this sale agreement was $9,500,000 plus GST.
The Group has planned to raise additional equity to fund the Tom Browne asset acquisition, provide working capital for further growth
aspirations and repay the Mitchell Family Holdings loan. The equity raising is planned to be done in stages and it is anticipated to be
completed shortly after the date of this report. The various stages of the capital raising are outlined below:
•
•
•
The issue of 43,500,001 fully paid ordinary shares at a price of $0.035 to raise approximately $1,520,000 by way of a first
tranche placement to institutional and sophisticated investors.
The undertaking of a 1 for 1 non-renounceable rights issue at $0.035 per share to raise approximately $11,700,000.
The issue of 200,000,000 fully paid ordinary shares at a price of $0.035 to raise approximately $7 million by way of a second
tranche placement to institutional and sophisticated investors.
Cancellation of options
As part of the acquisition of the assets of Tom Browne Drilling Services (Receivers and managers appointed: in liquidation) and
associated equity raising, 44,415,000 class A and 64,155,000 class B options issued to Mitchell Group Holdings and to senior
management were cancelled.
Lease of 133-137 Crocodile Crescent.
On 21 July 2014 Mitchell Services Ltd entered into a five year lease agreement to lease its building situated at 133-137 Crocodile
Crescent, Mount St John. Under the lease agreement Mitchell Services will receive rental income of $265,000 per annum.
62
MITCHELL SERVICES LTD ANNUAL REPORT 2014 DIRECTORS’ DECLARATION
The directors declare that:
a.
b.
c.
d.
in the directors’ opinion, there are reasonable grounds to believe that the company will be able to pay its debts as and when
they become due and payable;
in the directors’ opinion, the attached financial statements are in compliance with International Financial Reporting Standards,
as stated in note 1(b) to the financial statements;
in the directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001,
including compliance with accounting standards and giving a true and fair view of the financial position and performance of the
consolidated entity; and
the directors have been given the declarations required by section 295A of the Corporations Act 2001.
Signed in accordance with a resolution of the directors made pursuant to section 295(5) of the Corporations Act 2001.
Nathan Andrew Mitchell
Executive Chairman
Dated at Brisbane this 17th day of September 2014.
63
MITCHELL SERVICES LTD ANNUAL REPORT 2014 INDEPENDENT AUDITOR’S REPORT TO THE
MEMBERS OF MITCHELL SERVICES LTD ACN 149 206 333
FOR THE YEAR ENDED 30 JUNE 2014
Report on the Financial Report
I have audited the accompanying financial report of Mitchell Services Ltd, which comprises the consolidated statement of financial
position as at 30 June 2014, the 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 comprising a summary of significant
accounting policies and other explanatory information and the directors’ declaration of the consolidated entity comprising the
Company and the entities it controlled at the year’s end or from time to time during the financial year.
Directors’ Responsibility for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance
with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is
necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In
Note 1, the directors also state, in accordance with Accounting Standard AASB101: Presentation of Financial Statements, that the
financial statements comply with International Financial Reporting Standards (IFRS).
Auditor’s Responsibility
My responsibility is to express an opinion on the financial report based on our audit. I conducted our audit in accordance
with Australian Auditing Standards. Those Standards require that I comply with relevant ethical requirements relating to audit
engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The
procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the
financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to
the Company’s preparation of the financial report in order to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating
the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as
evaluating the overall presentation of the financial report.
I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.
Independence
In conducting my audit, I have complied with the independence requirements of the Corporations Act 2001. I confirm that the
independence declaration required by the Corporations Act 2001, which has been given to the directors of Mitchell Services Ltd,
would be in the same terms if provided to the directors as at the date of this auditor’s report.
Auditor’s Opinion
In my opinion:
(a)
the financial report of Mitchell Services Ltd is in accordance with the Corporations Act 2001, including:
(i)
giving a true and fair view of the consolidated entity’s financial position as at 30 June 2014 and of its
performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001;
the financial report also complies with International Financial Reporting Standards as disclosed in Note 1.
(b)
64
MITCHELL SERVICES LTD ANNUAL REPORT 2014
Report on the Remuneration Report
We have audited the Remuneration Report included in the directors’ report for the year ended 30 June 2014. The directors of the
company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the
Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
Auditor’s Opinion
In my opinion, the Remuneration Report of Mitchell Services Ltd for the year ended 30 June 2014, complies with section 300A of the
Corporations Act 2001.
I.D. Jessup
(Registered Company Auditor)
19 Stanley Street
TOWNSVILLE QLD 4810
Dated this 17th day of September 2014
65
MITCHELL SERVICES LTD ANNUAL REPORT 2014
ADDITIONAL AUSTRALIAN STOCK EXCHANGE
INFORMATION
The following information is current as at 27 August 2014
MSV Quoted Ordinary Shares
Number of
holders
Shares
% of total issued
capital
10
26
47
265
169
517
54
2,322
84,767
426,663
13,282,452
276,203,806
290,000,010
n/a
0.00%
0.03%
0.15%
4.58%
95.24%
100%
n/a
Number of
holders
Shares
% of total quoted
options
46
199
46
46
19
356
46,000
612,200
383,250
1,674,480
9,784,070
12,500,000
0.37%
4.90%
3.06%
13.40%
78.27%
100%
Spread of holdings
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
Greater than 100,000
Total
Holding less than a marketable parcel
MSVO Quoted Options
Spread of holdings
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
Greater than 100,000
Total
66
MITCHELL SERVICES LTD ANNUAL REPORT 2014
MSV Quoted Ordinary Shares
The twenty largest listed security holders comprise:
Rank
Shareholder
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Mitchell Group Holdings Pty Ltd
Mitchell Family Investments Pty Ltd
Washington H Soul Pattinson and Company Ltd
Sonya Miller
Peter Miller
Jumani Pty Ltd
Farjoy Pty Ltd
Australian Executor Trustees Ltd (No 1 Account)
Pybar Holdings Pty Ltd
Mr Pairatch Paotrakul
Clapsy Pty Ltd (Baron Super Fund)
Mr Michael Hunter Mansfield
Perryville Investments Pty Ltd
Netherfield Nominees Pty Ltd (Louise Christie Super Fund)
Mr Benjamin Eric Westaway
Mr Peter Miller & Mrs Sonya Miller (P&S Retirement Fund)
Richvale Pty Ltd
D J Fairfull Pty Ltd (Fairfull Superannuation Fund)
Mr Scott Michael Nicholas
Banjo Superannuation Fund Pty Ltd
Total
Ordinary
Shares
% of total
issued
capital
56,250,000
19.40%
30,000,000
10.34%
25,492,772
19,816,810
19,816,810
8,365,057
6.000,000
5,874,390
4,716,784
4,500,000
3,436,000
3,316,000
3,000,000
3,000,000
2,819,427
2,800,000
2,700,000
2,700,000
2,615,000
2,590,000
8.79%
6.83%
6.83%
2.88%
2.08%
2.03%
1.63%
1.55%
1.18%
1.15%
1.03%
1.03%
0.98%
0.97%
0.93%
0.93%
0.90%
0.89%
209,809,049
72.35%
67
MITCHELL SERVICES LTD ANNUAL REPORT 2014 MSVO Quoted Options
The twenty largest listed security option holders comprise:
Rank
Option holder
Mrs Sonya Miller
Mr Peter Miller
Washinghton H Soul Pattinson and Company Ltd
Mr Alfredo Varela
Jumani Pty Ltd
Farjoy Pty Ltd
Oztech Pty Ltd
Hamergin Pty Ltd (Super Fund)
Mr Peter Miller & Mrs Sonya Miller (P&S Retirement Fund)
Oztech Pty Ltd
Hancroft Pty Ltd
Mr William May
Mr Simon Hammer
Richvale Pty Ltd
D J Fairfull Pty Ltd (Fairfull Superannuation Fund)
Mr Anthony Hewett
Mr Diarmuid Joseph Galway
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
68
Options
% of total
quoted
options
1,981,681
15.85%
1,981,681
15.85%
1,274,638
10.20%
1,126,250
9.01%
698,520
5.59%
445,617
3.57%
270,500
2.16%
250,000
2.00%
245,000
1.96%
215,000
1.72%
200,000
1.60%
183,600
1.47%
163,000
1.30%
135,000
1.08%
135,000
1.08%
122,500
0.98%
120,000
0.96%
Mr Vincent Gordon Reibelt and Mrs Cecily Reibelt (Auto-Way Pty Ltd Staff Super Fund)
120,000
0.96%
Glenprice Pty Ltd
Flash Gordon Investments Pty Ltd (Matthew Gordon Super Fund)
Total
116,083
0.93%
100,000
0.80%
9,884,070
79.07%
MITCHELL SERVICES LTD ANNUAL REPORT 2014ADDITIONAL AUSTRALIAN STOCK EXCHANGE INFORMATION CONTINUED Unquoted Securities
Class
Number of options
Substantial holder
500,000
Bob Witty
49,350,000
Mitchell Group Holdings Pty Ltd
49,350,000
Mitchell Group Holdings Pty Ltd
Management options
Class C performance options
Class D performance options
Substantial Shareholders
Rank
Shareholder
Units held by
substantial holder
500,000
47,300,000
47,300,000
% of total issued capital
19.40%
10.34%
8.79%
6.83%
6.83%
Ordinary
Shares
56,250,000
30,000,000
25,492,772
19,816,810
19,816,810
1
2
3
4
5
Mitchell Group Holdings Pty Ltd
Mitchell Family Investments Pty Ltd
Washinghton H Soul Pattinson and Company Ltd
Mrs Sonya Miller
Mr Peter Miller
Voting Rights
Ordinary shares
The voting rights attached to ordinary shares is set out below:
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.
No other classes of securities have voting rights.
Restricted Securities
Unquoted Management Options that may not be exercised before 2 August 2014 comprise:
Number under Restriction
Percentage
500,000
100%
Restricted Date
7/27/2011
Release Date
8/2/2014
The following performance options are on issue. These options may only be exercised upon the Group achieving certain EBITDA
targets.
49,350,000 C class options subject to EBITDA targets for the year ending 30 June 2016
49,350,000 D class options subject to EBITDA targets for the year ending 30 June 2017
Recently listed entities
For the period from 1 July 2013 to 30 June 2014, the Group has used the cash and assets in a form readily convertible to cash that it
had at the time of admission in a way that is consistent with its business objectives.
69
MITCHELL SERVICES LTD ANNUAL REPORT 2014 Auditors
Jessups
Level 1, 19 Stanley Street
Townsville Qld 4810
Ph: 07 4755 3330
Fax: 07 4721 4513
Website: www.jessupsnq.com.au
Taxation Advisors
PricewaterhouseCoopers
51 Sturt Street
Townsville Qld 4810
Ph: 07 4721 8500
Fax: 07 4721 8599
Website: www.pwc.com.au
Bankers
Suncorp Metway Ltd
61-73 Sturt St
Townsville Qld 4810
Ph: 07 4760 8229
Fax: 07 4771 6348
Website: www.suncorpbank.com.au
CORPORATE DIRECTORY
Board of Directors
Executive Chairman
Nathan Andrew Mitchell
Directors
Ralph Howard Craven
Peter Richard Miller
Robert Barry Douglas
Grant Eric Moyle
Chief Executive Officer
Andrew Michael Elf
Chief Financial Officer and Company Secretary
Robert Ian Witty
Registered Office
Mitchell Services Ltd
ABN 31 149 206 333
112 Bluestone Circuit
Seventeen Mile Rocks
Qld 40763
Principal Place of Business
112 Bluestone Circuit
Seventeen Mile Rocks
Qld 4073
PO Box 3199
Darra Qld 4076
Ph: 07 3722 7222
Fax: 07 3722 7256
Website: www.mitchellservices.com.au
Share Registry
Advanced Share Registry
110 Stirling Highway
Nedlands Western Australia 6909
Ph: 08 9389 8033
Fax: 08 9262 3723
Website: www.advancedshare.com.au
70
MITCHELL SERVICES LTD ANNUAL REPORT 2014
www.mitchellservices.com.au