ANNUAL
REPORT
2015
For personal use only MITCHELL SERVICES LTD
ACN 149 206 333
ANNUAL REPORT
30 JUNE 2015
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 Consolidated Financial Statements
Directors’ Declaration
Independent Auditor’s Report
Additional Australian Stock Exchange Information
Corporate Directory
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CHAIRMAN’S REPORT
FOR THE YEAR ENDED 30 JUNE 2015
Nathan Andrew Mitchell
Executive Chairman
The 2015 financial year, although challenging, was a busy
and exciting year for Mitchell Services with a number of
key achievements.
In September 2014 the Company purchased 29 drill rigs and
support equipment from Tom Browne Drilling Services (in
liquidation), increasing both its fleet size and ability to service its
Tier 1 client base of major mining companies.
In March 2015 the Company was awarded a significant contract
with global mining company Anglo American. The award of
this contract is further evidence of strengthened relationships
among Tier 1 clients.
In June 2015 the Company announced to the market that it
had entered into an agreement to acquire the assets of Nitro
Drilling Pty Ltd (In liquidation). The assets acquired include
25 drilling rigs and a wide array of support equipment and
inventory. These assets provide capacity for Mitchell Services to
fulfil a strong Tier 1 tender pipeline. Similar to the Tom Browne
assets acquisition, this is a compelling bottom-of-the market
investment of the highest quality assets that will allow Mitchell
Services Limited to further extend its service offering with
Tier 1 clients.
The Company has made significant progress towards
delivering on its vision of being Australia’s leading provider
of drilling services. Delivering on this vision has been a three
phase process.
Phase 1 (to 30 June 2014) was about getting the business
ready. This involved restructuring, gaining ISO certifications and
implementing the business systems and structures synonymous
with the Mitchell brand over its forty plus year history. Phase
2 (to 30 June 2015) was about ramping the business up and
building on the strong foundation that the team had built, whilst
demonstrating to the market that we were capable of winning
and delivering on Tier 1 contracts in a supressed market.
‘Phase 1 was about getting business ready
and Phase 2 was about ramping up’
Ramping up through to 30 June 2015, although costly, has led
to a material increase in revenue primarily from Tier 1 clients.
The work of the management and operational teams has
positioned Mitchell Services to capitalise on any improvement
in general market conditions. It is pleasing to note that revenue
from Tier 1 clients has increased from $5.5m in 2014 to $16.3m
in 2015 which represents an increase year on year of 195%.
3
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only Given the strong emphasis that the Board places on safety it is
also pleasing to note that safety statistics during this period of
growth have continued to improve.
This ramp up, combined with ongoing subdued general market
conditions, and a number of one off costs associated with the
Tom Browne asset acquisition have resulted in Mitchell Services
recording an EBITDA loss of $4.3 million ($3.1million loss
in 2014).
Combined write downs to previously recognised Goodwill and
Deferred Tax assets of $10.8 million have resulted in the Group
recording an after tax loss of $17mil ($4.6 million in 2014). I
acknowledge that this result was unsatisfactory and that we are
taking the right actions to manage the business through this
protracted downturn in our industry.
With the business ready and ramp up phases and the
associated costs now completed, phase 3 is the process of
taking advantage of our strong position in the drilling market
and capitalising on long term revenue streams from high
quality Tier 1 clients. This phase also involves a strong focus
on reducing costs in the business, delivering efficient, safe and
quality services to our clients and identifying appropriate levels
of surplus assets that could potentially be sold to reduce
debt levels.
‘Mitchell Services has the opportunity to sell
assets, reduce debt and increase the overall
quality of the entire fleet’
We will continue to be heavily reliant on the general
strengthening of our sector, however the broader strategy
of the business remains; that upon return to normal market
conditions with a significantly diminished competitor base, we
will be well placed to deliver strong returns to
our shareholders.
Thank you to all shareholders who took part in the September
2014 and June 2015 capital raisings. We thank you for your
ongoing support and patience. I would also like to thank the
Senior Executive team for their efforts over the last year. 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 RECENT
ACQUISITION
OF NITRO
DRILLING
ASSETS WILL
SIGNIFICANTLY
INCREASE
MITCHELL
SERVICES’
CAPABILITY.
4
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only
CHIEF EXECUTIVE OFFICER’S REPORT
FOR THE YEAR ENDED 30 JUNE 2015
Andrew Michael Elf
Chief Executive Officer
It has been a year of ramping the business up and this has
come at a cost. However, the business is starting to deliver
on our vision of being Australia’s leading provider of drilling
services to the global exploration, mining and energy industries.
The Company now has all of the systems, structures,
procedures and certifications that you would expect under
the Mitchell brand given its forty-plus years’ experience in the
drilling industry. The business is strengthening and extending its
relationship with its Tier 1 client base.
•
•
•
•
Even though rig utilisation has increased the incidence and
severity of safety incidents has continued to decrease.
Rig utilisation has increased from twelve to nineteen rigs.
Revenue is spread more widely across geography,
commodities and drilling type.
Tier 1 client revenue has increased significantly as a
percentage of overall income.
‘Mitchell Services Limited is strengthening
and extending its relationship with its Tier 1
client base’
I am pleased with the progress the Company has made given
the continued challenges we face as a mining services provider
under the current general market conditions. The key points
below demonstrate the considerable work undertaken and
achievements of the team over the last year.
• Material growth in the size of our tender pipeline.
•
•
•
The integration of the Tom Browne assets was completed
safely and efficiently.
Announcement to acquire the assets of Nitro drilling.
The Company has retained ISO-14001, ISO-9001,
OHSAS-18001 and AS/NZS 4801 safety, environment and
quality certifications.
5
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only THE FUTURE
In the year ahead the team’s top priorities are listed below:
1. Continue to improve the standards of the health and safety
of our people.
2. Meet and exceed the high standard of service that our
clients expect from Mitchell Services.
3.
Integrate the Nitro Drilling assets and inventory.
4. Sell surplus assets to reduce debt and increase the overall
quality of the fleet accordingly.
5.
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
gone above and beyond in the hardest of times in the mining
services industry. I look forward to a safe and productive
year ahead.
Andrew Michael Elf
Chief Executive Officer
RIG UTILISATION HAS
INCREASED FROM
12 TO 19RIGS
TIER 1 REVENUE HAS
INCREASED FROM
$5.5M TO $16.3M
AN INCREASE OF
195%
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MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only
CURRENT BUSINESS SUMMARY
VISION
TO BE AUSTRALIA’S LEADING PROVIDER OF DRILLING
SERVICES TO THE GLOBAL EXPLORATION, MINING AND
ENERGY INDUSTRIES
SAFETY PERFORMANCE
CONTINUES TO IMPROVE WITH
A REDUCTION IN OCCURRENCE
AND SEVERITY
REVENUE FOR
2014/15
FULL YEAR
$25.3M
RIG
UTILISATION
INCREASED
FROM 12 RIGS
TO 19 RIGS
INCREASE IN TIER 1 REVENUE
FROM $5.5M IN 2014 TO
$16.3M IN 2015
7
120+
EXPERIENCED
EMPLOYEES
ASSET SALES
TO REDUCE
DEBT AND
INCREASE
OVERALL
FLEET QUALITY
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only 8
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2015
The Directors of Mitchell Services Limited submit herewith the
financial report of Mitchell Services Limited (Company) and its
subsidiaries (Group) for the year ended 30 June 2015. 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. 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 Limited (ASX:TOU),
VMW Engineering Pty Ltd and Tom Browne International
Pty Ltd.
At the date of this report, Mr Mitchell has relevant interests in
272,299,942 shares and 94,607,500 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.
9
At the date of this report, Mr Miller has relevant interests in
43,721,854 shares and 4,208,362 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 is Chairman of the Audit and Risk Committee and the
Remuneration and Nomination Committee and has served on
both Committees since 20 March 2014.
At the date of this report, Mr Douglas has relevant interests in
1,964,921 shares and 2,500 options.
Ralph Howard Craven (Non-executive Director)
Dr Craven was appointed as Director on 27 May 2011
and ceased to be a Director following his retirement on 20
November 2014. Dr Craven was also the Chairman of the
Audit and Risk Committee and the Remuneration and
Nomination Committee.
As at 30 November 2014 Dr Craven had relevant interests in
3,000,001 shares and 10,000 options.
Grant Eric Moyle
Mr Moyle was appointed as an Alternate Director for Mr Nathan
Mitchell on 30 May 2014.
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
2,369,143 shares.
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only
COMPANY SECRETARY
REVIEW OF OPERATIONS
The names and particulars of the Company Secretaries of the
Company during or since the end of the financial year are:
Robert Ian Witty
Robert Ian Witty was appointed to the position of Company
Secretary on 8 February 2011 and retired from the position on
28 November 2014. Mr Witty also held the position of Chief
Financial Officer.
Mr Witty joined the Group in August 2009 after 38 years’
experience in retail and business banking and 2 years’
experience as a senior manager with PricewaterhouseCoopers.
Gregory Michael Switala
Gregory Michael Switala was appointed to the position of
Company Secretary and Chief Financial Officer on 1 December
2014 following the retirement of Mr Witty.
Mr Switala joined the Group in April 2014 as Financial
Controller. Prior to joining the Group Mr Switala had six years’
financial accounting and reporting experience in the property
and gaming industries and three years’ experience in audit with
KPMG Inc. Mr Switala holds a BCom (Hons) (CTA) Accounting
Sciences Degree and is a member of the South African Institute
of Chartered Accountants.
PRINCIPAL ACTIVITIES
The Group provides exploration and mine site drilling services
to the exploration, mining, and energy industries, primarily in
Australia. The Group (in its current form) evolved from the
acquisition of Mitchell Services Pty Ltd by Drill Torque Ltd (DTQ)
in December 2013. The Group is currently headquartered in
Seventeen Mile Rocks, Queensland.
The Group specialises in various segments of the drilling
market and has a history of innovation in the drilling industry.
The Group’s offerings include coal exploration, mineral
exploration, mine services, large diameter, coal seam gas,
directional drilling services, coal mine gas drainage and
wireline services.
There were no significant changes in the Group’s nature of the
activities during the year.
The Group recorded an EBITDA loss of $4.3million for the
year ended 30 June 2015 compared to an EBITDA loss of
$3.1million in the prior year. Factors that contributed to this
EBITDA loss included difficult trading conditions, upfront one off
spend to facilitate certain long term contracts, and various other
integration and restructuring costs.
Combined write downs to Investment Property and Goodwill
of $4.9million resulted in the Group recording an EBIT loss of
$12.6million compared to $5.7 million in 2014.
The Group also derecognised its Deferred Tax Asset of $6.3m
comprising mainly of tax losses carried forward. This has
resulted in the Group recording an after tax loss of $17million
compared to $4.6million in 2014.
Further detailed comments on operations and financial
performance are included in the Chairman’s Report, Chief
Executive Officer’s Report and Financial Statements included in
this Annual Report.
CHANGES IN STATE OF AFFAIRS
Acquisition of Assets from Tom Browne Drilling Services
Pty Ltd (In Liquidation)
On 30 September 2014, the Group purchased 29 drill rigs and
ancillary equipment from Tom Browne Drilling Services Pty Ltd
(receivers and managers appointed) (in liquidation) (‘TBDS’) for
$9.5million, increasing both its fleet size and Tier 1 client base
of major mining and energy companies. The purchase was
funded by a $20.2million equity raising, which was completed in
September 2014. The equity raising also allowed the Group to
improve its financial position and reduce debt.
Further details on the acquisition and associated equity raise
are included in the Financial Statements included in this
Annual Report.
10
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only
SUBSEQUENT EVENTS
Acquisition of Assets from Nitro Drilling Pty Ltd (in Liquidation) and its related entities
On 6 July 2015, the Group acquired assets from Nitro Drilling Pty Ltd (Receivers and Managers appointed) (In Liquidation) for
$16.1million, funded by a combination of $8.4million in equity raised and $8.5 million debt provided by major shareholders,
Washington H. Soul Pattinson & Company Limited (‘WHSP’) and Mitchell Family Investments (Qld) Pty Ltd as trustee for the Mitchell
Family Investment Trust (‘Mitchell Group’).
The acquisition further strengthened the Group’s position as a leading provider in the eastern Australian drilling market and provided
capacity to fulfil the Group’s tender pipeline for Tier 1 contracts. The acquired assets include 25 drilling rigs and an extensive array of
other support equipment and inventory.
The Group raised $8.4 million in equity to fund the acquisition through a fully underwritten non-renounceable entitlement offer of 4
new shares for 7 existing shares held in Mitchell Services Limited (‘MSV’) at an offer price of $0.017 per share. The issue of the new
shares settled on 3 July 2015 bringing the total number of shares on hand at 3 July 2015 to 1,362,428,920.
The terms of the loans provided by major shareholders WHSP and Mitchell Group are as follows:
Mitchell Group Loan
Facility Amount $3.5million
Term
Interest rate
Initial Two
Years Interest
5 years
10%
Subject to MSV shareholder approval, the interest accruing on the Mitchell Group Loan during the first two years
of the five year term will be paid at the start of each year by way of issuing MSV shares as follows:
•
Year One – Interest paid by way of issuing MSV shares with an assumed issue price of $0.017 per share;
and
Year Two – Interest paid by way of issuing MSV shares with an assumed issue price equal to the volume
weighted average price (‘VWAP’) of MSV shares over the 30 trading days prior to the issue of the new shares
in year two (that is, 12 months from the first drawdown date, which is 6 July 2016). In the event that the
VWAP falls below $0.005 the shares will be issued at $0.005 with the difference between interest charged
and the value of those shares issued being payable in cash.
•
Security
The Mitchell Group Loan will be secured by the grant of a General Security Agreement over the Nitro assets,
subject to shareholder approval.
5 years
10%
The interest accruing on the WHSP Loan during the first two years of the five year term will be paid at the start of
each year by way of issuing MSV shares as follows:
•
Year One – Interest paid by way of issuing MSV shares with an assumed issue price of $0.017 per share;
and
Year Two – Interest paid by way of issuing MSV shares with an assumed issue price equal to the volume
weighted average price (‘VWAP’) of MSV shares over the 30 trading days prior to the issue of the new
shares in year two (that is, 12 months from the first drawdown date, which is 6 July 2016).
WHSP Loan
Facility Amount $5 million
Term
Interest rate
Initial Two
Years Interest
•
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MITCHELL SERVICES LTD ANNUAL REPORT 2015DIRECTORS’ REPORT CONTINUEDFOR THE YEAR ENDED 30 JUNE 2015For personal use only
Security
The WHSP loan is secured by the grant of a General Security Agreement over the Nitro assets, subject to
shareholder approval.
The terms of the Mitchell Group Loan are the same as the terms of the WHSP Loan, but for the year two share issue price floor of
$0.005 and the requirement to obtain shareholder approval in relation to the grant of the General Security Agreement and the issue
of MSV shares in lieu of paying interest during the first two year period. If shareholder approval for the security transaction is not
obtained, the Mitchell Group Loan is repayable within 90 days and the interest for the first two years of the five year term is payable
upfront on the day following the shareholder meeting.
On 6 July 2015 MSV issued 29,411,765 new ordinary shares in MSV to WHSP as consideration for interest payable under the facility
bringing the total number of shares on hand on 6 July 2015 to 1,391,840,685.
LIKELY DEVELOPMENTS
The Group will continue to pursue its principal activities during the next financial year.
ENVIRONMENTAL REGULATIONS
The Group’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 Group 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 Group 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 2015.
SHARES UNDER OPTION
Details of unissued shares or interests under option as at the date of this report are:
Grant Date
28 July 2011
29 November 2013
29 November 2013
Date of Expiry
2 August 2016
5 August 2017*
5 August 2017*
Exercise Price
Number under Option
$0.30
$0.000005
$0.000005
12,499,900
48,800,000
48,800,000
110,099,900
Option holders do not have any rights to participate in any issues of shares or other interests in the Company or any other entity in
relation to those options.
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.
12
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only During the year ended 30 June 2015, there were 100 shares in Mitchell Services Limited 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 17 of the Remuneration Report.
INDEMNIFICATION OF OFFICERS AND AUDITORS
During the financial year, the Group has given an indemnity or entered into an agreement to indemnify, or paid or agreed to pay
insurance premiums as follows:
The Group 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
Group other than conduct involving a wilful breach of duty in relation to the Group. The total premiums paid in this regard amounted
to $39,256.
The Group 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 Group 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, 20 Board meetings, 1 Remuneration and Nomination Committee meetings and 3 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
20
9
20
20
1
NON-AUDIT SERVICES
19
9
17
19
1
-
1
-
1
-
-
1
-
1
-
-
2
-
3
-
-
2
-
3
-
There were no amounts paid or payable to the auditor for non-audit services provided during the year by the auditor. Refer to note
27 to the Financial Statements.
AUDITOR’S INDEPENDENCE DECLARATION
The Auditor’s Independence Declaration is included on page 25 of the Annual Report.
13
MITCHELL SERVICES LTD ANNUAL REPORT 2015DIRECTORS’ REPORT CONTINUEDFOR THE YEAR ENDED 30 JUNE 2015For personal use only REMUNERATION REPORT
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 2015. The term “Key Management Personnel”
(KMP) refers to those persons having authority and responsibility for planning, directing and controlling the activities of the Group,
directly or indirectly, including any Director (whether executive or otherwise) of the Group.
Key Management Personnel
The Directors and other KMP of the Group during or since the end of the financial year were:
Nathan Andrew Mitchell (Executive Chairman)
Peter Richard Miller (Non-executive Director)
Robert Barry Douglas (Non-executive Director)
Grant Eric Moyle (Non-executive Alternate Director to Nathan Andrew Mitchell)
Ralph Howard Craven (Former Non-executive Director – retired 20 November 2014)
Andrew Michael Elf (Chief Executive Officer)
Gregory Michael Switala (Chief Financial Officer and Company Secretary – appointed 1 December 2014)
Robert Ian Witty (Former Chief Financial Officer and Company Secretary – retired 28 November 2014)
Gary Raymond Salter (Chief Commercial Officer)
Aaron Francis Short (Former Operations Manager and General Manager Drilling – resigned 23 June 2015)
Remuneration Policy
The remuneration policy of Mitchell Services Ltd has been designed to align KMP 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 Group’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 KMP to run and manage the Group, as well as create goal congruence
between Directors, executives and shareholders.
The Board’s policy for determining the nature and amount of remuneration for KMP of the Group 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 KMP 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;
The performance criteria relating to incentives paid in the form of options or rights are intended to align with the interests of the
Company and therefore shareholders. In this regard, KMP are prohibited from limiting risk attached to those instruments by use
of derivatives or other means;
The Remuneration and Nomination Committee reviews KMP packages annually by reference to the Group’s performance,
executive performance and comparable information from industry sectors.
The performance of KMP is measured against criteria agreed annually with each executive and is based predominantly on the
forecast growth of the Group’s profits and shareholders’ value.
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.
14
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only KMP receive a superannuation guarantee contribution required by the government, which is currently 9.5% (to a maximum of
$30,000 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, KMP are paid employee benefit entitlements accrued to the date of retirement. KMP will receive redundancy
benefits if applicable. Any options not exercised before or on the date of termination will lapse.
All remuneration paid to KMP is valued at the cost to the Group 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.
KMP participate in the employee share and option arrangements to align Directors’ and management’s interests with
shareholders’ interests.
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.
KMP 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.
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 Group 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 KMP are formalised in contracts of employment. A contracted person deemed employed
on a permanent basis may terminate their employment by providing at least four weeks’ 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 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.
15
MITCHELL SERVICES LTD ANNUAL REPORT 2015DIRECTORS’ REPORT CONTINUEDFOR THE YEAR ENDED 30 JUNE 2015For personal use only
Remuneration of Key Management Personnel
The compensation of each member of the KMP of the Group is set out below:
Fixed remuneration paid
2015
Post-
employment
benefits
Super
annuation
$
Short-term
employee
benefits
Salary
$
Termination
benefits
$
Short-term
employee
benefits
Salary
$
2014
Post-
employment
benefits
Super
annuation
$
Termination
benefits
$
Nathan Andrew Mitchell - Executive Chairman
Peter Richard Miller - Non-Executive Director
Robert Barry Douglas - Non – Executive Director
Ralph Howard Craven -Former Non – Executive Director
Guy Hamish Drummond - Former Non – Executive Director
David John Fairfull - Former Non – Executive Director
80,000
36,000
36,000
20,367
-
-
7,599
3,419
3,419
1,935
-
-
Andrew Michael Elf - Chief Executive Officer
254,604
24,187
Gregory Michael Switala - Chief Financial Officer and Company Secretary1
104,999
9,974
-
-
-
-
-
-
-
-
33,300
37,500
21,000
44,000
15,000
57,634
3,079
3,467
1,942
4,069
1,387
5,331
151,667
14,028
-
-
Robert Ian Witty - Former Chief Financial Officer and Company Secretary
96,611
9,392
129,179
201,176
18,608
Gary Raymond Salter - Chief Commercial Officer
260,000
24,699
-
151,667
14,028
Aaron Francis Short - Former Operations Manager and General Manager
Drilling
187,336
17,796
22,276
104,999
9,712
-
-
-
-
-
-
-
-
-
-
-
Martin James McIver - Former Chief Financial Officer Mitchell Services Pty Ltd
William Arthur Fisher - Former Operations Manager
Simon Morrell Morgan - Former Operations Manager
-
-
-
-
-
-
-
-
-
33,231
3,074
160,002
6,093
563
24,922
88,755
8,209
58,153
1,075,917
102,420
151,455
946,022
87,497
243,077
1. Appointed to the position 1 December 2014, remuneration included from appointment date
•
•
•
Ralph Howard Craven retired as Non-executive Director on 20 November 2014.
Robert Ian Witty resigned as Chief Financial Officer and Company Secretary on 28 November 2014
Gregory Michael Switala was appointed Chief Financial Officer and Company Secretary on 1 December 2014.
On 23 June 2015 Aaron Francis Short resigned from his position as Operations Manager and General Manager Drilling. Following
Mr Short’s resignation, Cameron John Wright was appointed Interim General Manager Drilling until 1 July 2015 upon which date the
Group appointed Philip Anthony Spence as General Manager Drilling.
16
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only Options
The following management options issued during the 2014 financial year to KMP still exist at the date of this report:
Andrew Michael Elf
Gary Raymond Salter
Total
C Class
D Class
Total
650,000
650,000
1,300,000
650,000
650,000
1,300,000
1,300,000
1,300,000
2,600,000
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 2,500,000 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.
•
The options will vest 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.
•
•
•
•
17
MITCHELL SERVICES LTD ANNUAL REPORT 2015DIRECTORS’ REPORT CONTINUEDFOR THE YEAR ENDED 30 JUNE 2015For personal use only
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.
On behalf of the Directors
Nathan Andrew Mitchell
Executive Chairman
Dated at Brisbane this 27th day of August 2015
18
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only
CORPORATE GOVERNANCE STATEMENT
FOR THE YEAR ENDED 30 JUNE 2015
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 2015.
1. Board of Directors
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, Operations reports,
Financial reports, Commercial and Business Development
report 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.
1.1. Role of the Board
The Board’s primary role is the protection and enhancement of
long-term shareholder value.
The Company Secretary is accountable directly to the
Board, through the chair, on all matters to do with the proper
functioning of the Board.
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.
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
1.4.
Group 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 Directors must consult with an adviser
suitably qualified in the relevant field, and obtain the Chairman’s
19
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only approval of the fee payable for the advice before proceeding
with the consultation. A copy of the advice received by the
Directors is made available to all other members of the Board.
1.5. Composition of the Board
The names of the Directors of the Company in office at the
date of this report together with their respective mix of skills,
experience and length of service are set out in the Directors’
Report on page 9 and 10 of this report.
The Group believes it is in its best interests to maintain a small
but efficient Board. During the reporting period, the Board
consisted of 3 Non-executive Directors (being Peter Richard
Miller, Ralph Howard Craven and Robert Barry Douglas) and
an Executive Chairman, Nathan Andrew Mitchell. Before
Ralph Howard Craven retired on 20 November 2014, two of
the four Directors were considered independent under the
guidelines and as at the date of this report one of the three
board members is considered independent. As at the date of
this report Robert Barry Douglas is considered independent.
Given the challenging market conditions in the mining services
industry and the resulting financial constraints to appoint
additional Non-executive Directors, the mix of independent
and non-independent Directors following the retirement of Dr
Ralph Craven is not ideal. The Board is actively pursuing the
appointment of an additional highly skilled independent Non-
executive Director.
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 undertakes appropriate checks
before appointing a person as a director and provides security
holders with all material information relevant to a decision
on whether or not to elect a director. No new directors were
appointed during the year ended 30 June 2015. The Board’s
policy is to seek a diverse range of Directors who have a range
of skills, ages, genders and ethnicity that complements the
environment in which the Group operates (refer section 8 below
on skills and 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. 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:
• Mr Robert Barry Douglas – Chairman and Non-executive
•
Director
Dr Ralph Howard Craven – Former Chairman and Non-
executive Director;
Ralph Howard Craven retired on 20 November 2014 and Robert
Barry Douglas was subsequently appointed Chairman.
Given the challenging market conditions in the mining services
industry and the resulting financial constraints to appoint
additional non-executive directors and committee members,
the size of the Remuneration and Nomination Committee
was smaller than ideal following the retirement of Dr Ralph
Craven in November 2014. The board is actively pursuing the
appointment of an additional highly skilled independent non-
executive director to sit on both the Audit and Risk Committee
and the Remuneration and Nomination Committees.
20
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only All Directors are invited to Remuneration and Nomination
Committee meetings at the discretion of the Committee. The
Committee met once during the year and Committee members’
attendance record is disclosed in the table of Directors’
meetings on page 13 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.
Executive Directors and senior executives are remunerated
by way of salary, non-monetary benefits and statutory
superannuation in accordance with written agreements that set
out the terms of their appointments. 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. Further disclosure on the policies and practices
regarding remuneration is contained in the remuneration report
of this annual report.
Nomination related matters
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 Directors reviews on an annual
•
•
•
•
21
•
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.
The members of the Audit and Risk Committee during the
year were:
• Mr Robert Barry Douglas – Chairman and Non-executive
•
Director
Dr Ralph Howard Craven – Former Chairman and Non-
executive Director;
Ralph Howard Craven retired on 20 November 2014 and Robert
Barry Douglas was subsequently appointed Chairman.
Given the challenging market conditions in the mining services
industry and the resulting financial constraints to appoint
additional non-executive directors and committee members, the
size of the Audit and Risk Committee was smaller than ideal
following the retirement of Dr Ralph Craven in November 2014.
The board is actively pursuing the appointment of an additional
highly skilled independent non-executive director to sit on
both the Audit and Risk Committee and the Remuneration and
Nomination Committees.
The Company Secretary also sits on this committee; Robert Ian
Witty sat on the committee until his retirement on 28 November
2014 and was replaced by Gregory Michael Switala on his
MITCHELL SERVICES LTD ANNUAL REPORT 2015CORPORATE GOVERNANCE STATEMENT CONTINUEDFOR THE YEAR ENDED 30 JUNE 2015For personal use only appointment to the role on 1 December 2014.
The external auditors and the Managing Director are invited
to Audit and Risk Committee meetings at the discretion of the
Committee. The Committee met 3 times during the year and
Committee members’ attendance record is disclosed in the
table of Directors’ meetings on page 13 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
2015 comply with accounting standards and present a true
and fair view of the Group’s financial condition and operational
results and that the opinion has been formed on the basis of a
sound system of risk management and internal control which is
operating effectively. 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.
Given the challenging market conditions in the mining services
industry and the resulting financial constraints to appoint
additional Non-executive Directors and Committee members,
the sizes of both the Remuneration and Nomination Committee
and Audit and Risk committee were smaller than ideal following
the retirement of Dr Ralph Craven in November 2014. The
Board is actively pursuing the appointment of an additional
highly skilled independent Non-executive Director to sit on
both the Audit and Risk Committee and the Remuneration
and Nomination Committee. For this reason the performance
evaluation process for the year ended 30 June 2015 was an
informal one conducted by all Board members.
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. In the absence
of an internal audit function, 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
22
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only •
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.
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 note 25
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.
•
•
•
•
23
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.
7. Communication with shareholders
The Board provides shareholders with information using a
comprehensive Continuous Disclosure Policy and investor
relations program 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
MITCHELL SERVICES LTD ANNUAL REPORT 2015CORPORATE GOVERNANCE STATEMENT CONTINUEDFOR THE YEAR ENDED 30 JUNE 2015For personal use only •
•
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. Skills and diversity
Diversity
The Board has an established Diversity Policy relating to its
board members, senior executives and across the whole
organisation with an objective to recruit and manage on
the basis of qualification for the position and performance;
regardless of gender, age, nationality, race, religious beliefs,
cultural background or sexuality.
•
•
In summary, the Diversity Policy operates as follows:
•
Discrimination, harassment, vilification and victimisation
cannot and will not be tolerated with regard to any aspect
of the Company’s operations.
The Company will conduct regular programs to familiarise
each employee with the objectives and content this
Diversity Policy in order to promote greater awareness and
positive workplace culture.
Recruitment and selection practices at all levels (from the
Board downwards) are to be structured to ensure that
a diverse range of candidates are considered and that
there are no conscious or unconscious biases that might
discriminate against certain types of candidates.
Identify and implement programs that will assist in the
development of a broader and more diverse pool of skilled
and experienced employees and that, over time, will
prepare them for senior management and Board positions.
• Where practicable, recognise that employees (female and
male) at all levels may have domestic responsibilities and
adopt flexible work practices that will assist them to meet
those responsibilities
•
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
Skills matrix
2015
2014
No.
-
-
4
%
-
-
3.33
No.
-
-
5
%
-
-
7.05
Mitchell Services aims to maintain a diverse, multi-skilled Board with a range of different skills and expertise. At a minimum, these
skills and expertise include:
•
•
•
An understanding of technological advances in the mining
services industry
Financial acumen and strategic capabilities
Environment and sustainability experience
An understanding of risk management
Capital management and corporate finance experience
Experience at both executive and non-executive levels
An understanding of the drilling industry and mining
services sector
Exceptional leadership skills
Experience in workplace health and safety
•
•
•
•
•
•
24
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only AUDITOR’S INDEPENDENCE DECLARATION
FOR THE YEAR ENDED 30 JUNE 2015
Auditors Independence Declaration under Section 307C of the Corporations Act 2001 to the Directors of Mitchell
Services Limited
As lead engagement auditor for the review of Mitchell Services Limited for the period ended 30 June 2015, I declare that, to the best
of my knowledge and belief, there have been:
no contraventions of independence requirements as set out in the Corporations Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
(i)
(ii)
Jessups
Ian Jessup
Partner
Dated this day the 20th August 2015
Level 1, 19 Stanley Street
TOWNSVILLE QLD 4810
25
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only CONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2015
Continuing operations
Revenue
Advertising
Drilling consumables
Employee and contract labour expenses
Fuel and oil
Freight and couriers
Hire of plant and equipment
Insurances
Legal and consultant fees
Loss on sale of assets
Rent
Service and repairs
Travel expenses
Other expenses
EBITDA
Change in fair value of investment property
Impairment of goodwill
Depreciation expense
EBIT
Finance expenses
Profit/(loss) before tax
Income tax (expense)/benefit
Profit/(loss) for the period from continuing operations
Profit/(loss) for the period from discontinued operations
Profit/(loss) for the period
Other comprehensive income, net of income tax
Other comprehensive income for the period, net of income tax
Total comprehensive income for the period
Profit attributable to:
Owners of the parent
Total comprehensive income attributable to:
Owners of the parent
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)
The accompanying notes are an integral part of these financial statements.
Note
2
3
15
10
16
29
29
29
29
2015
$
2014
$
25,290,974
(67,229)
(4,495,425)
(13,254,828)
(1,975,127)
(913,405)
(1,608,672)
(499,588)
(829,597)
(146,249)
(392,253)
(2,860,539)
(1,367,977)
(1,202,532)
(4,322,447)
(414,282)
(4,481,519)
(3,429,323)
(12,647,571)
(526,579)
(13,174,150)
(3,825,333)
(16,999,483)
-
15,015,003
(8,752)
(2,086,171)
(8,076,800)
(1,100,711)
(890,825)
(1,165,773)
(529,566)
(575,905)
(366,916)
(307,074)
(1,054,542)
(531,694)
(1,390,773)
(3,070,499)
-
-
(2,598,051)
(5,668,550)
(617,095)
(6,285,645)
1,678,387
(4,607,258)
-
(16,999,483)
(4,607,258)
-
-
(16,999,483)
(4,607,258)
(16,999,483)
(4,607,258)
(16,999,483)
(4,607,258)
(2.32)
(2.32)
(2.32)
(2.32)
(1.73)
(1.73)
(1.73)
(1.73)
26
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
FOR THE YEAR ENDED 30 JUNE 2015
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Other financial assets
Right to purchase assets
Other assets
Inventories
Total current assets
Non-current assets
Other financial assets
Property, plant and equipment
Investment property
Other assets
Deferred tax asset
Goodwill
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Bank overdraft
Trade and other payables
Other financial liabilities
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
27
Note
4(a)
5
6
7
8
9
6
14
15
8
17
10
4(b)
11
12
13
12
13
18
19
20
2015
$
2014
$
515,679
7,148,908
3,724
16,125,000
440,156
1,869,518
26,102,985
3,195
18,286,816
2,975,000
18,000
-
-
21,283,011
47,385,996
1,130,013
24,587,154
2,293,225
367,360
28,377,752
3,655,853
97,963
3,753,816
32,131,568
15,254,428
39,219,134
(1,922,724)
2,122,402
(24,164,384)
15,254,428
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
The accompanying notes are an integral part of these financial statements.
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2015
Note
Issued
Capital
Contingent
Option
Reserve
Retained
Earnings
Attributable
to Owners
of the Parent
Total
$
$
$
$
$
Balance at 1 July 2013
13,474,320
Comprehensive income
Profit/(loss) for the period
Other comprehensive income for the period
Total comprehensive income for the period
20
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 payments
-
-
-
2,500,000
2,000,000
(150,164)
-
-
-
-
-
-
-
-
-
2,122,402
(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
Comprehensive income
Profit/(loss) for the period
Other comprehensive income for the period
Total comprehensive income for the period
Issue of ordinary shares
Share issue costs
Recognition of share-based payments
20
18
19
21
-
-
-
20,195,034
(722,780)
-
-
-
-
-
-
-
(16,999,483)
(16,999,483)
(16,999,483)
-
-
-
(16,999,483)
(16,999,483)
(16,999,483)
-
-
20,195,034
20,195,034
(722,780)
(722,780)
(29,655)
(29,655)
(29,655)
Balance at 30 June 2015
37,296,410
2,122,402
(24,164,384)
15,254,428
15,254,428
The accompanying notes are an integral part of these financial statements.
28
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only
CONSOLIDATED STATEMENT OF OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2015
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers
Payments to suppliers and employees
Interest received
Interest paid
Income tax paid
Note
2015
$
2014
$
21,669,432
(25,822,159)
52,706
(498,287)
(117,767)
14,471,061
(15,917,753)
691
(599,238)
(160,214)
Net cash provided by/(used in) operating activities
22
(4,716,075)
(2,205,453)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment
Payment for Tom Browne assets
Payment for Nitro Drilling assets
Payment for other property, plant and equipment
Net cash provided by/(used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares
Payments for share issue costs
Proceeds from borrowings
Repayment of borrowings
Costs associated with borrowing
Net cash provided by/(used in) financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
4(c)
551,916
(9,617,678)
(1,499,550)
(875,535)
(11,440,847)
20,195,034
(1,032,542)
1,282,532
(2,775,739)
-
17,669,285
1,512,363
(2,126,697)
(614,334)
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
The accompanying notes are an integral part of these financial statements.
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2015
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).
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
30
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only 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.
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.
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.
(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.
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.
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.
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.
31
MITCHELL SERVICES LTD ANNUAL REPORT 2015NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2015For personal use only 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.
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.
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.
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
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
32
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates
that are expected to apply in the period in which the liability is
settled or the asset realised, based on tax rates (and tax laws)
that have been enacted or substantively enacted by the end of
the reporting period. The measurement of deferred tax 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.
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%
18.75% - 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
33
MITCHELL SERVICES LTD ANNUAL REPORT 2015NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2015For personal use only
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.
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
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
34
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only
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.
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.
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.
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 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
35
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
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.
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.
MITCHELL SERVICES LTD ANNUAL REPORT 2015NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2015For personal use only 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.
(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.
(q) Goods and services tax
Revenues, expenses and assets are recognised net of the
amount of goods and services tax (GST), except:
and financing activities which is recoverable from, or payable to,
the ATO is classified within operating cash flows.
Investment property
(r)
Investment property is property held to earn rentals or for
capital appreciation or both, rather than for either use in the
production or supply of goods or services or for administrative
purposes or sale in the ordinary course of business.
The Group uses the fair value model for investment property.
The Group’s investment property is 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.
An impairment loss is recognised immediately in profit or loss,
unless the investment property 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 investment property 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 investment property 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.
•
•
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.
(s) 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.
Cash flows are included in the cash flow statement on a gross
basis. The GST component of cash flows arising from investing
The estimates and underlying assumptions are reviewed on
an on-going basis. Revisions to accounting estimates are
36
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only 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.
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.
(t) 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.
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
Effective for annual
reporting periods
beginning on or after
AASB 9 ‘Financial Instruments’, and the relevant amending standards
AASB 15 ‘Revenue from Contracts with Customers’
AASB 2014-5 ‘Amendments to Australian Accounting Standards arising from AASB 15'
AASB 2014-3 ‘Amendments to Australian Accounting Standards – Accounting for
Acquisitions of Interests in Joint Operations’
AASB 2014-4 ‘Amendments to Australian Accounting Standards – Clarification of
Acceptable Methods of Depreciation and Amortisation’
AASB 2014-6 ‘Amendments to Australian Accounting Standards – Agriculture: Bearer
Plants’
AASB 2014-9 ‘Amendments to Australian Accounting Standards – Equity Method in
Separate Financial Statements’
1-Jul-18
1-Jul-17
1-Jul-17
1-Jan-16
1-Jan-16
1-Jan-16
1-Jan-16
Expected to be
initially applied in
the financial year
ending
30-Jun-19
30-Jun-18
30-Jun-18
30-Jun-17
30-Jun-17
30-Jun-17
30-Jun-17
37
MITCHELL SERVICES LTD ANNUAL REPORT 2015NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2015For personal use only 2. REVENUE
From continuing operations
Income from operations
Government subsidy
Interest received
Management fees
Profit on sale of assets
Recoveries
Rental income
Other
Total income from continuing operations
3. RECLASSIFICATION OF OTHER EXPENSES
2015
$
2014
$
24,691,591
14,068,518
-
52,706
204,515
116,287
67,182
158,193
500
599,383
25,290,974
10,000
696
89,436
126,454
703,423
5,854
10,622
946,485
15,015,003
Items reported as other expenses in the 2014 Annual Report have been reclassified into separate categories in this report as
management believe providing more detailed disclosure is relevant to an understanding of the entity’s financial performance. Details
of this reclassification is provided in the table below.
Previous
Classification
Current
Classification
$
$
38
-
-
-
(3,224,457)
-
(890,825)
(575,905)
(366,916)
(1,390,773)
From continuing operations
Changes in inventories of finished goods
Freight and couriers
Legal and consultant fees
Loss on sale of assets
Other expenses
4. CASH AND CASH EQUIVALENTS
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 shown in the consolidated statement of cash flows
can be reconciled to the related items in the consolidated statement of financial position as follows.
4(a)
In funds accounts
Bank balances
4(b) Bank overdraft
Bank overdraft
4(c) Net cash at bank
2015
$
2014
$
515,679
125,004
(1,130,013)
(2,251,701)
(614,334)
(2,126,697)
38
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only
5. TRADE AND OTHER RECEIVABLES
Trade debtors
Less provision for doubtful debts
Bonds and deposits
GST receivable
5(a) CREDIT RISK AND AGEING OF TRADE DEBTORS
2015
$
2014
$
5,569,827
(34,258)
2,000
1,611,339
7,148,908
2,546,851
(212,058)
13,721
-
2,348,514
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 has raised a provision for doubtful debts of $34,258 at 30 June
2015 (2014: $212,085). This amount represents a balance owing from a customer over which a sufficient level of uncertainty exists
regarding its recoverability. The Group does not hold any collateral over these balances. A single counterparty made up of 24.41%
of the total trade receivables at 30 June 2015. All invoices to this counterparty included in the total trade and other receivables at 30
June 2015 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
3 to 6 months
6. OTHER FINANCIAL ASSETS
Current
Borrowing costs
Non-current
Borrowing costs
6(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
39
4,551,084
863,514
155,229
5,569,827
2,038,053
508,798
-
2,546,851
3,724
3,724
3,195
3,195
3,724
3,724
3,195
3,195
7,708
7,708
5,572
5,572
7,708
7,708
5,572
5,572
MITCHELL SERVICES LTD ANNUAL REPORT 2015NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2015For personal use only 2015
$
2014
$
7. RIGHT TO PURCHASE ASSETS
On 5 June 2015 the Group entered into an agreement to acquire the drilling rigs and associated assets of Nitro Drilling Pty
Ltd (Receivers and Managers appointed) (In Liquidation) for an agreed purchase price of $16,125,000. Under the terms of the
agreement the Group was required to pay a 10% deposit within 2 business days and the balance of the agreed purchase price
within 30 business days at which time all risks and rewards associated with the assets passed to the Group. Given the fact that
such risks and regards did not pass until after 30 June 2015, the Group has classified the purchase as a right as opposed to
Property Plant and Equipment. Upon settlement of the transaction (6 July 2015) the Group reclassified the purchase price to
Property Plant and Equipment. For further notes on the purchase refer note 32 – Events After the Reporting Date.
Right to purchase the assets of Nitro Drilling Pty Ltd
8. OTHER ASSETS
Current
Prepayments
Non-current
Property held for sale
Shares in listed company
9.
INVENTORIES
Finished goods
16,125,000
16,125,000
-
-
440,156
440,156
18,000
-
18,000
298,212
298,212
18,000
2,000
20,000
1,869,518
1,869,518
1,604,952
1,604,952
The cost of inventories recognised as an expense during the year in respect of continuing operations was $4,495,425 (2014:
$2,086,171)
10. GOODWILL
Balance at the beginning of the period
Impairment loss
Amount recognised as result of business combination
4,481,519
(4,481,519)
-
-
-
-
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.
40
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only Impairment testing for goodwill
For the purpose of impairment testing, goodwill is allocated to the Group’s operating division which represent the lowest level within
the Group at which goodwill is monitored for internal management purposes.
In June 2015, the Group reassessed the recoverable amount of each Cash Generating Unit (CGU) resulting in goodwill being
fully impaired.
The recoverable amount of each CGU is based on its value in use and is determined by discounting the future cash flows to be
generated from continuing operations of the CGUs. The calculation used actual results for the 12 months ending 30 June 2015
extended over five years based on management’s estimate of future growth rates. Cash flows into perpetuity were extrapolated
using a terminal growth factor relevant to the sector and business plan. A pre-tax discount rate was applied and adjusted for the
industry in which each CGU operates.
EBITDA growth, capital expenditure, terminal value growth rate, discount rate and revenue security were key drivers for determining
cash flows. These assumptions were projected based on past experience, actual operating results and management’s outlook for
future years taking into account forecast industry growth rates.
Growth rates were determined after considering a number of factors including the nature of the industry, the overall market including
competition, past performance and the economic outlook. A long term growth rate into perpetuity of 2% was used.
A pre-tax discount rate of 17% was applied to the Group’s operating division to discount the forecast future attributable pre-tax cash
flows. The discount rates have been calculated after assessing the relevant risks applicable to each CGU, the current risk free rate
of return and the volatility of the Group’s performance compared to the sectors in which it operates.
11. TRADE AND OTHER PAYABLES
Current
Trade creditors 1
Other creditors 2
Accrued expenses
2015
$
2014
$
21,393,159
1,300,000
1,893,995
24,587,154
2,627,043
23,900
1,038,832
3,689,775
1. Includes $16,237,950 payable for the purchase of Nitro Drilling Pty Limited (Receivers and Managers Appointed). See Note 7.
2. Comprises $1,300,000 for the purchase of a 2010 Schramm T130XD rig. See note 14.
11(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
41
18,989,048
2,383,258
20,853
21,393,159
2,184,300
38,179
404,564
2,627,043
MITCHELL SERVICES LTD ANNUAL REPORT 2015NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2015For personal use only 12. 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
12(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
2015
$
2014
$
1,483,169
1,716,344
224,949
124,882
198,875
261,350
207,966
20,091
185,480
319,424
2,293,225
2,449,305
2,426,634
2,939,474
216,451
575,118
437,650
443,514
679,909
636,353
3,655,853
4,699,250
1,483,169
2,426,634
3,909,803
1,665,107
2,618,474
4,283,581
(373,778)
3,909,803
1,469,260
2,440,543
3,909,803
1,716,344
2,939,474
4,655,818
1,967,742
3,205,499
5,173,241
(517,423)
4,655,818
1,716,344
2,939,474
4,655,818
The Group leases certain items of equipment under finance leases. The average term is 3.32 years (2014: 3.6 years). 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 4.45% and 9.61% (2014: 5.25% to 10.52%).
The fair value of the finance lease liabilities is approximately equal to the carrying amount.
42
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only 12(b) LOANS
A summary of borrowing arrangements applicable to all loans is included in Note 23(a). Security pledged in respect of the equipment
line loan and working capital loan 1 is detailed in Note 14(a).
13. 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
Long service leave provision - non-current
Opening balance
Movement
Closing balance
Total non-current provisions
2015
$
2014
$
213,391
153,969
367,360
23,657
(23,657)
-
115,115
(115,115)
-
367,360
45,107
52,856
97,963
97,963
361,576
(148,185)
213,391
43,328
(19,671)
23,657
-
115,115
115,115
352,163
76,804
(31,697)
45,107
45,107
The above provisions represent annual leave and long service leave entitlements accrued by the Group’s employees.
43
MITCHELL SERVICES LTD ANNUAL REPORT 2015NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2015For personal use only 14. PROPERTY, PLANT AND EQUIPMENT
At 1 July 2014
Cost or fair value
Accumulated depreciation
Net book amount
Year ended 30 June 2015
Opening net book amount
Additions
Disposals
Depreciation
Land and
buildings
Plant and
equipment
Motor
vehicles
Furniture
and fittings
Total
$
$
$
$
$
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
3,442,386
7,378,819
3,122,061
66,064
14,009,330
-
10,540,700
704,847
36,934
11,282,481
-
(121,288)
(65,103)
-
(186,391)
(36,500)
(2,633,050)
(730,675)
(29,098)
(3,429,323)
Transfer to investment property
(3,374,210)
(15,071)
-
-
(3,389,281)
31,676
15,150,110
3,031,130
73,900
18,286,816
At 30 June 2015
Cost or fair value
Accumulated depreciation
Net book amount
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
At 30 June 2014
Cost or fair value
Accumulated depreciation
Net book amount
33,900
22,874,594
13,273,131
182,981
36,364,606
(2,224)
(7,724,484)
(10,242,001)
(109,081)
(18,077,790)
31,676
15,150,110
3,031,130
73,900
18,286,816
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
-
39,151
50,446
-
862,969
59,386
-
15,976,187
916,948
922,355
-
(852,690)
(355,419)
-
(1,208,109)
(71,163)
(1,607,503)
(895,852)
(23,533)
(2,598,051)
3,442,386
7,378,819
3,122,061
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
44
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only Plant and equipment and motor vehicles comprise 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 value of the Group’s property, plant and equipment is less than its recoverable amount.
Remaining mindful of the volatility of the mining industry, Directors and management do not intend to change the current depreciation
and amortisation rates.
Acquisition of Tom Browne Drilling Services assets
On 30 September 2014, the Group purchased 29 drill rigs and ancillary equipment from Tom Browne Drilling Services Pty Ltd
(receivers and managers appointed: in liquidation) for $9,481,933. The purchase price (plus associated stamp duty of $135,745)
was allocated to the following asset categories:
Current assets
Inventory
Assets held for sale*
Non-current property, plant and equipment
Motor vehicles
Plant and equipment
467,046
414,637
881,683
168,013
8,567,982
8,735,995
9,617,678
* On 21 October 2014 the Group held an auction for excess assets that were acquired as part of the Tom Browne asset purchase.
These assets were sold for their carrying value of $414,637.
Other significant additions
In June 2015 the Group purchased a 2010 Schramm T130XD rig previously held under a hire agreement for $1,300,000. Extended
payment terms were agreed under the terms of the sale. Under these terms payment of the purchase price is required to be made
in full by March 2016. An unconditional bank guarantee has been provided in favour of the Vendor as security for the payment. The
Group has obtained pre approval from Suncorp bank to enter into a five year equipment finance facility in March 2016 in order to
fund the required payment.
Assets held for sale
Following the acquisition of Nitro Drilling Pty Limited (Receivers and Managers Appointed) assets (for further details refer to Note 32
Events After the Reporting Date) management and Board have identified appropriate surplus assets to be sold with a view to deliver
on its strategy of reducing debt levels post 30 June 2015. These assets include a combination of tier 2 drilling rigs and large number
of assets not specific to the drilling industry including light vehicles, support trucks, trailers and other items of plant & equipment. An
active program to locate buyers has been initiated and the assets have been actively marketed, the sale of these assets is expected
to be completed by the end of December 2015.
14(a) ASSETS PLEDGED AS SECURITY
The following has been pledged as security in relation to the Group’s bank overdraft and other financial liabilities.
45
MITCHELL SERVICES LTD ANNUAL REPORT 2015NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2015For personal use only 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 $2,975,000).
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.
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 Mitchell Services Limited, Well Drilled Pty Ltd, Notch Holdings Pty Ltd and Mitchell
Operations Pty Ltd.
•
•
•
Bank guarantee
The following rigs have been pledged as security:
•
2010 Schramm T130XD drill rig and loadsafe (carrying amount of $1,175,851.27)
Equipment line loan
The following rigs have been pledged as security:
•
•
2006 Schramm T130XD drill rig (carrying amount of $272,562)
2005 Schramm T130XD drill rig (carrying amount of $312,975)
Working capital loan 2
The following rigs have been pledged as security:
•
•
2008 UDR1200 Rotadrill drill rig (carrying amount of $361,217)
2007 Schramm T685WS Rotadrill drill rig (carrying amount of $180,287)
15.
INVESTMENT PROPERTY
On 1 January 2015, the Group reclassified its building and land situated at 133-137 Crocodile Crescent, Mount St John to
investment property and subsequently revalued to fair value. This is in line with the Group’s accounting policies, given that this
property is held to generate rental income as opposed to owner occupation. Management have valued the property on a rental
yield basis using an annual yield of 8.75% which it deems appropriate.
2015
$
2014
$
Balance at the beginning of the period
Transfer from land and buildings
Revaluation to fair value
-
3,389,282
(414,282)
2,975,000
-
-
-
46
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only 16.
INCOME TAX EXPENSE
Income tax expense recognised in profit/(loss)
Income tax expense comprises
Current tax
Deferred tax
Derecognised tax losses and tax losses not recognised in current year
2015
$
2014
$
117,769
(2,603,381)
6,310,945
3,825,333
157,821
(1,836,208)
-
(1,678,387)
The income tax expense for the year can be reconciled to the accounting profit as follows:
Profit/(loss) before tax from continuing operations
(13,174,150)
(6,285,645)
Income tax expense calculated at 30%
Effect of expenses that are not deductible in determining taxable profit
Derecognised tax losses and tax losses not recognised in current year
Effect of tax rates in foreign jurisdictions (PNG)
Adjustments recognised in current year in relation to current tax of prior years
(3,952,245)
(1,885,693)
1,348,864
6,310,945
117,769
-
49,485
-
157,821
-
3,825,333
(1,678,387)
The tax rate used for 2015 and 2014 reconciliations above is the corporate tax rate of 30% payable by Australian corporate entities
on taxable profits under Australian tax law.
17. TAX ASSETS AND LIABILITIES
Tax assets - current
Income tax receivable
Tax assets - non-current
Deferred tax asset
Tax liabilities - current
Provision for foreign contractor withholding tax PNG
-
-
-
-
3,397,802
-
47
MITCHELL SERVICES LTD ANNUAL REPORT 2015NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2015For personal use only 2015
Temporary differences
Annual & long service leave provision
Superannuation provision
Provision for contract costs
Provision for doubtful debts
Other accrued expenses
Prepaid expenses
Fixed assets
Asset acquisition costs & initial repairs
Accrued income
Foreign exchange gains/(losses)
Rights issue costs
Share issue costs
Unused tax losses
Losses carried forward
Deferred tax asset derecognised
2014
Temporary differences
Annual & long service leave provision
Superannuation provision
Provision for contract costs
Provision for doubtful debts
Other accrued expenses
Fixed assets
Accrued income
Foreign exchange gains/(losses)
Rights issue costs
Share issue costs
Unused tax losses
Losses carried forward
Opening
balance
01/07/14
Recognised
in profit/
(loss)
Acquired in
business
combination
Recognised
in Equity
30%
Closing
balance
30/06/15
(84,646)
(48,191)
(34,535)
(63,617)
(48,256)
-
(1,272)
(183,170)
(133,104)
115,117
(34,259)
84,370
(123,502)
(636,253)
-
(1,466,807)
102,218
(186,566)
91
(56,039)
(206,504)
(3,469)
48,451
527,073
(440,751)
(1,745,115)
(2,957,051)
(6,932,820)
(3,397,802)
(8,677,935)
(3,397,802)
(8,677,935)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(54,951)
(39,931)
34,535
(10,278)
25,311
37,051
(190,876)
(440,042)
(55,970)
(1,041)
14,535
(139,597)
(88,122)
-
(73,895)
(22,945)
37,051
(372,432)
(440,042)
46,248
(950)
(41,504)
(1,032,542)
(1,032,542)
(151,641)
(358,145)
(833,297)
(1,454,332)
-
(2,079,846)
(4,856,613)
(1,032,542)
(2,913,143)
(6,310,945)
(1,032,542)
(2,913,143)
Opening
balance
01/07/13
Recognised
in profit/
(loss)
Acquired in
business
combination
Recognised
in Equity
30%
(144,512)
(53,733)
-
-
(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
-
-
(141,660)
-
-
-
-
-
-
-
-
(207,223)
(7,297)
(214,520)
59,866
5,542
(34,534)
(63,617)
(31,907)
(1,032)
89,677
2,253
(47,632)
103,651
82,267
6,310,945
-
Closing
balance
30/06/14
(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)
-
-
(2,218,091)
(2,957,052)
(1,261,978)
(6,120,692)
(141,660)
(214,520)
(2,135,824)
(3,397,802)
48
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only 17(b) UNRECOGNISED AMOUNTS
Franking account balance
2015
$
2014
$
872,635
870,635
As at 30 June 2015, the Group has not recognised deferred tax assets of $6,310,945 predominantly in relation to income
tax losses.
18.
ISSUED CAPITAL
Fully paid ordinary shares
Balance at the beginning of the period
Issue of shares - rights issue
Issue of shares - acquisition of Mitchell Operations Pty Ltd
Issue of shares - first tranche
Issue of shares - second tranche
Issue of shares - option conversion
Fully paid ordinary shares
Balance at the beginning of the period
Issue of shares - rights issue
Issue of shares - acquisition of Mitchell Operations Pty Ltd
Issue of shares - first tranche
Issue of shares - second tranche
Issue of shares - option conversion
19,024,100
11,672,504
-
1,522,500
7,000,000
30
14,524,100
2,500,000
2,000,000
-
-
-
39,219,134
19,024,100
Number of Shares Number of Shares
125,000,005
290,000,005
333,500,111
-
43,500,001
200,000,000
100
125,000,000
40,000,000
-
-
-
867,000,217
290,000,005
The following shares were issued during the year ended 30 June 2015:
•
•
•
On 28 August 2014, 43,500,001 fully paid ordinary shares were issued at a price of $0.035 by way of a first tranche placement
to institutional and sophisticated investors.
On 26 September 2014, 333,500,111 fully paid ordinary shares were issued at a price of $0.035 by way of a 1 for 1 non-
renounceable rights issue.
On 26 September 2014, 200,000,000 fully paid ordinary shares were issued at a price of $0.035 by way of a second tranche
placement to institutional and sophisticated investors.
The transaction costs directly attributable to the above issue of shares that otherwise would have been avoided have been
accounted for as a deduction from equity, net of income tax benefit (refer note 19).
49
MITCHELL SERVICES LTD ANNUAL REPORT 2015NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2015For personal use only 19. SHARE ISSUE COSTS
Balance at the beginning of the period
Share issue costs
Tax benefit
20. RETAINED EARNINGS
Balance at the beginning of the period
Profit/(loss) attributable to owners of the company
Share based payment transactions (refer note 21)
2015
$
2014
$
(1,199,944)
(1,032,542)
309,762
(1,922,724)
(7,135,246)
(16,999,483)
(29,655)
(24,164,384)
(1,049,780)
(214,520)
64,356
(1,199,944)
(2,594,390)
(4,607,258)
66,402
(7,135,246)
21. SHARE BASED PAYMENT TRANSACTIONS
•
resignation of Aaron Short during the year
Replacement awards (equity-settled)
Prior to the acquisition of Mitchell Operations Pty Ltd (formerly
Mitchell Services Pty Ltd), Mitchell Operations 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.
As at 30 June 2015 3,000,000 management options were on
issue.
Measurement of fair values
The fair value of Tranche C and D options was $83,550 as
at 30 June 2015 and has been determined using the Black-
Scholes option pricing model. Expected volatility is estimated
by considering historical volatility of comparable company share
prices.
During the year ended 30 June 2015, 8,340,000 senior
management options were cancelled due to a combination of:
requirement as part of the September 2014 equity raise
•
The inputs used in the measurement of the fair value at grant
date of the equity-settled share-based payment plans were
as follows:
Tranche
A
Tranche
B
Tranche
C
Tranche
D
Total
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
$0.0495
$0.0495
$0.000005
$0.000005
50%
50%
3.6 years
3.6 years
3.13%
0%
3.13%
0%
$0.0292
$0.0265
1,500,000
1,500,000
3,000,000
$43,800
$39,750
$83,550
50
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only
Expense recognised in profit or loss
Equity-settled share-based payment transactions
Replacement awards granted on 29 November 2013
Total expense recognised for equity-settled share-based payment
2015
$
2014
$
(29,655)
(29,655)
66,402
66,402
22. RECONCILIATION OF PROFIT/(LOSS) FOR THE YEAR TO NET CASH FLOWS FROM OPERATING ACTIVITIES
Profit/(loss) for the year
Adjustments for:
Depreciation and amortisation
Fair value adjustment
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
23. FINANCIAL RISK MANAGEMENT
(16,999,483)
(4,607,258)
3,429,323
414,282
4,481,519
(116,287)
146,249
3,825,333
(4,800,394)
(133,583)
202,480
4,971,929
(58,074)
68,053
-
(29,655)
(117,767)
(4,716,075)
2,598,051
-
-
(126,454)
366,919
(1,678,387)
(423,964)
(17,182)
(45,082)
2,179,379
35,345
(84,438)
(308,570)
66,402
(160,214)
(2,205,453)
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.
51
MITCHELL SERVICES LTD ANNUAL REPORT 2015NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2015For personal use only 23(a)
Interest rate risk
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.
The following tables set out the Group’s exposure to interest rate risk.
2015
Bank overdraft
Equipment finance leases
Premium insurance
Equipment line loan
Working capital loan 1
Working capital loan 2
Expected duration until repayment
Within 1
year
1 to 2 years
2 to 3 years
More than
3 years
$
$
$
$
Total
$
1,130,013
-
-
-
1,130,013
1,469,260
1,224,777
543,779
671,987
3,909,803
261,350
-
225,712
215,688
-
-
-
261,350
-
441,400
144,972
132,650
140,901
281,477
700,000
197,996
211,512
227,017
-
636,525
3,429,303
1,784,627
911,697
953,464
7,079,091
(a)
(b)
(c)
(d)
(e)
(f)
a.
b.
c.
d.
e.
f.
Interest rates have varied between 5.48% and 6.12% 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 2.3273% of the amount initially financed.
Interest is variable with rates varying between 7.74% and 8.25% per annum.
Interest is variable with rates varying between 5.24% and 5.88% per annum.
Interest is fixed at a commercial lease finance rate of 6.6546% for the duration of the loan period.
2014
Bank overdraft
Equipment finance leases
Premium insurance
Equipment line loan
Working capital loan 1
Working capital loan 2
Expected duration until repayment
Within 1
year
1 to 2 years
2 to 3 years
More than
3 years
$
$
$
$
2,251,701
-
-
-
1,716,344
1,171,192
967,999
800,283
319,424
-
-
-
207,966
20,091
185,480
225,664
124,882
198,005
217,850
-
132,649
211,581
422,378
226,767
Total
$
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
52
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only 23(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
2015
$
2014
$
2015
$
2014
$
2015
$
2014
$
24,587,154
3,689,775
-
-
24,587,154
3,689,775
2,299,290
2,449,305
3,649,788
4,699,250
5,949,078
7,148,555
26,886,444
6,139,080
3,649,788
4,699,250
30,536,232
10,838,330
26,886,444
6,139,080
3,649,788
4,699,250
30,536,232
10,838,330
515,679
125,004
-
-
515,679
125,004
7,148,908
2,348,514
-
-
7,148,908
2,348,514
7,664,587
2,473,518
-
-
7,664,587
2,473,518
(19,221,857)
(3,665,562)
(3,649,788)
(4,699,250)
(22,871,645)
(8,364,812)
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
53
MITCHELL SERVICES LTD ANNUAL REPORT 2015NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2015For personal use only 23(c) Credit risk
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 5(a).
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 5(a).
The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international
credit-rating agencies.
24. 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.
25. RELATED PARTY TRANSACTIONS
25(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, Mitchell Operations
Pty Ltd ACN 165 456 066 and Notch No. 2 Pty Ltd ACN 606 170 138.
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 KMP.
Disclosures relating to Key Management Personnel are set out in the remuneration report.
54
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only
(iii) Other related parties
Other related parties include entities over which KMP have control or joint control.
25(b) Transactions with related parties
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.
Transactions with Manutech Engineering and Maintenance
The Group engages Manutech Engineering and Maintenance to perform repair and maintenance type services. Manutech
Engineering and Maintenance is an entity controlled by Peter Richard Miller. The amount incurred during the reporting period in
relation to these services was $271,776 excluding GST. Amounts were billed on normal market rates for such services and
were due and payable under normal payment terms. An amount of $57,311 remains owing to this related entity at the end of the
reporting period.
Transactions with Mitchell Group private entities
MEH Equipment Hire Pty Ltd
MEH Equipment Hire Pty Ltd is an entity controlled by Nathan Andrew Mitchell. The Group hired plant and equipment from MEH
Equipment Hire Pty Ltd. Hire of plant and equipment from this related entity for the reporting period amounted to $1,046,188
excluding GST and was based on normal market rates and under normal payment terms. An amount of $452,965 remains owing to
this related entity at the end of the reporting period.
MEH Equipment Hire Pty Ltd hired plant and equipment from the Group. Hire of plant and equipment to this related entity for the
reporting period amounted to $21,802 excluding GST and was based on normal market rates and under normal payment terms.
There are no amounts outstanding as at the end of the reporting period.
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 funding via
a $2,000,000 loan facility from Mitchell Family Holdings. The loan was unsecured and interest was charged at 14% per annum. The
facility was fully repaid on 26 September 2014 and interest paid was $17,874. The purpose of the loan was to fund working capital
on a short term basis until the successful completion of the equity raise in late September 2014.
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 Group charges Mitchell African Holdings a management fee of approximately $10,000
per month and at times pays for expenses on their behalf to be recharged back. Management fee income for the year amounted to
$204,515. $279,102 remains owing to the Group at the end of the reporting period.
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 $9,916 plus GST per month and an amount of $50,198 remains owing to this related
entity at the end of the reporting period.
55
MITCHELL SERVICES LTD ANNUAL REPORT 2015NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2015For personal use only Mitchell Family Superannuation Fund
Mitchell Family Superannuation Fund is an entity controlled by Nathan Andrew Mitchell. The Group entered into a short term General
Tenancy Agreement for rental of a section of 112 Ebbern Street, Darra Brisbane, which is owned by Mitchell Family Superannuation
Fund. The agreement ended on 8 May 2015. The rental expense associated with this lease amounted to $36,750 plus GST and an
amount of $31,341 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 $36,699 excluding GST; $3,487
remains owing to this related entity at the end of the reporting period.
26. 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 KMP for the year ended 30 June 2015.
27. AUDITORS REMUNERATION
Audit and review of financial statements
Other
28. OPERATING LEASE COMMITMENTS
2015
$
2014
$
84,208
84,208
57,971
-
57,971
Operating leases relate to leases of land and buildings with varying lease terms not exceeding five (2014: five) 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
29. EARNINGS PER SHARE
Basic earnings per share
From continuing operations
Diluted earnings per share
From continuing operations
241,496
281,157
22,632
522,098
(2.32)
(2.32)
230,195
227,736
132,846
590,777
(1.73)
(1.73)
56
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only 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
2015
(16,999,483)
731,344,015
2014
(4,607,258)
266,699,541
The weighted number of ordinary shares for the period ended 30 June 2014 has been restated for the rights issue on 26 September
2014. An adjustment factor of 1.079 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.
30. 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 $843,568 (2014: $448,538) represents the contributions payable
by the Group to these plans in accordance with contractual employment and statutory obligations. As at 30 June 2015, contributions
of $293,744 due in respect of the 2015 reporting period (2014: $160,640) had not been paid over to the plans. These amounts were
paid subsequent to the end of the 2015 reporting period.
31. OPERATING SEGMENTS
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.
32. EVENTS AFTER THE REPORTING DATE
Acquisition of Assets from Nitro Drilling Pty Ltd (in Liquidation) and its related entities
On 6 July 2015, the Group acquired assets from Nitro Drilling Pty Ltd (Receivers and Managers appointed) (In Liquidation) for
$16.1million, funded by a combination of $8.4million in equity raised and $8.5 million debt provided by major shareholders,
Washington H. Soul Pattinson & Company Limited (‘WHSP’) and Mitchell Family Investments (Qld) Pty Ltd as trustee for the Mitchell
Family Investment Trust (‘Mitchell Group’).
The acquisition further strengthened the Group’s position as a leading provider in the eastern Australian drilling market and provided
capacity to fulfil the Group’s tender pipeline for Tier 1 contracts. The acquired assets include 25 drilling rigs and an extensive array of
other support equipment and inventory.
The Group raised $8.4 million in equity to fund the acquisition through a fully underwritten non-renounceable entitlement offer of 4
57
MITCHELL SERVICES LTD ANNUAL REPORT 2015NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2015For personal use only new shares for 7 existing shares held in Mitchell Services Limited (‘MSV’) at an offer price of $0.017 per share. The issue of the new
shares settled on 3 July 2015 bringing the total number of shares on hand at 3 July 2015 to 1,362,428,920.
The terms of the loans provided by major shareholders WHSP and Mitchell Group are as follows:
Mitchell Group Loan
Facility Amount $3.5million
Term
Interest rate
5 years
10%
Initial Two
Years Interest
•
Subject to MSV shareholder approval, the interest accruing on the Mitchell Group Loan during the first two years
of the five year term will be paid at the start of each year by way of issuing MSV shares as follows:
•
Year One – Interest paid by way of issuing MSV shares with an assumed issue price of $0.017 per share;
and
Year Two – Interest paid by way of issuing MSV shares with an assumed issue price equal to the volume
weighted average price (‘VWAP’) of MSV shares over the 30 trading days prior to the issue of the new
shares in year two (that is, 12 months from the first drawdown date, which is 6 July 2016). In the event
that the VWAP falls below $0.005 the shares will be issued at $0.005 with the difference between interest
charged and the value of those shares issued being payable in cash.
Security
The Mitchell Group Loan will be secured by the grant of a General Security Agreement over the Nitro assets,
subject to shareholder approval.
WHSP Loan
Facility Amount $5 million
Term
Interest rate
5 years
10%
Initial Two
Years Interest
The interest accruing on the WHSP Loan during the first two years of the five year term will be paid at the start of
each year by way of issuing MSV shares as follows:
•
Year One – Interest paid by way of issuing MSV shares with an assumed issue price of $0.017 per share;
and
Year Two – Interest paid by way of issuing MSV shares with an assumed issue price equal to the volume
weighted average price (‘VWAP’) of MSV shares over the 30 trading days prior to the issue of the new
shares in year two (that is, 12 months from the first drawdown date, which is 6 July 2016).
•
Security
The WHSP loan is secured by the grant of a General Security Agreement over the Nitro assets, subject to
shareholder approval.
The terms of the Mitchell Group Loan are the same as the terms of the WHSP Loan, but for the year two share issue price floor of
$0.005 and the requirement to obtain shareholder approval in relation to the grant of the General Security Agreement and the issue
of MSV shares in lieu of paying interest during the first two year period. If shareholder approval for the security transaction is not
obtained, the Mitchell Group Loan is repayable within 90 days and the interest for the first two years of the five year term is payable
upfront on the day following the shareholder meeting.
On 6 July 2015 MSV issued 29,411,765 new ordinary shares in MSV to WHSP as consideration for interest payable under the facility
bringing the total number of shares on hand on 6 July 2015 to 1,391,840,685.
58
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only DIRECTORS’ DECLARATION
The Directors declare that:
in the Directors’ opinion, there are reasonable grounds to believe that the company will be able to pay its debts as and when
(a)
they become due and payable;
in the Directors’ opinion, the attached financial statements are in compliance with International Financial Reporting Standards,
(b)
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,
(c)
including compliance with accounting standards and giving a true and fair view of the financial position and performance of the
consolidated entity; and
(d)
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.
On behalf of the Directors
Nathan Mitchell
Executive Chairman
Dated at Brisbane this 27th day of August 2015
59
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF MITCHELL SERVICES LTD ACN 149 206 333
FOR THE YEAR ENDED 30 JUNE 2015
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 2015, 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 gives a true and fair view and 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 about whether the financial report is free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The
procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the
financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the
Company’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An
audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates
made by the directors, as well as evaluating the overall presentation of the 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 given to the directors as at the time of this auditor’s report.
Auditor’s Opinion
In my opinion the financial report of Mitchell Services Ltd is in accordance with the Corporations Act 2001, including:
(a) giving a true and fair view of the Company’s financial position as at 30 June 2015 and of its performance for the year ended on
that date; and
(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.
60
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only INDEPENDENT AUDITOR’S REPORT CONTINUED
TO THE MEMBERS OF MITCHELL SERVICES LTD ACN 149 206 333
FOR THE YEAR ENDED 30 JUNE 2015
Report on the Remuneration Report
I have audited the Remuneration Report included in the directors’ report for the year ended 30 June 2015. 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. My responsibility is to express an opinion on the Remuneration Report, based on my 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 2015 complies with section 300A of the
Corporations Act 2001.
Ian Jessup
Jessups
Level 1 19 Stanley Street
TOWNSVILLE QLD 4810
Dated this 27th day of August 2015
61
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only ADDITIONAL AUSTRALIAN STOCK EXCHANGE
INFORMATION
The following information is current as at 13 August 2015.
MSV Quoted Ordinary Shares
Spread of holdings
1 - 1,000
1,000 - 5,000
5,000 - 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
1,000 - 5,000
5,000 - 10,000
10,001 - 100,000
Greater than 100,000
Total
Number of
holders
Shares % of total capital
issued
8
22
38
263
426
757
120
1,390
66,062
334,398
13,533,238
1,377,905,597
1,391,840,685
n/a
0.00%
0.01%
0.02%
0.97%
99.00%
100%
n/a
Number of
holders
Shares % of total capital
issued
44
199
47
46
19
355
44,000
612,475
383,875
1,675,480
9,784,070
0.35%
4.90%
3.08%
13.40%
78.27%
12,499,900
100.00%
62
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only
MSVO Quoted Ordinary Shares
The twenty largest listed security holders comprise:
Rank
Shareholder
Mitchell Group Holdings Pty Ltd
Washington H Soul Pattinson and Company Ltd
CVC Limited
Mitchell Family Investments Pty Ltd
National Nominees Limited
J P Morgan Nominees Australia
Farjoy Pty Ltd
Mirrabooka Investments Limited
Jumani Pty Ltd
Citicorp Nominees Pty Limited
Pybar Holdings Pty Limited
CVC Private Equity Limited
Sonya Miller
Peter Miller
Pacific Development Corporation Pty Ltd
Australian Executor Trustees Limited
Clapsy Pty Ltd
Netherfield Nominees Pty Ltd
Carinda Pty Ltd
Richvale Pty Ltd
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Total
63
Ordinary
Shares
% of total
capital
issued
176,785,715
12.70%
149,177,561
10.72%
100,696,309
94,285,715
81,463,151
61,158,682
56,114,711
51,366,930
26,705,037
24,175,716
23,803,771
21,843,076
19,816,810
19,816,809
15,000,001
14,754,693
12,004,233
9,500,000
9,249,793
8,485,715
976,204,428
7.23%
6.77%
5.85%
4.39%
4.03%
3.69%
1.92%
1.74%
1.71%
1.57%
1.42%
1.42%
1.08%
1.06%
0.86%
0.68%
0.66%
0.61%
70%
MITCHELL SERVICES LTD ANNUAL REPORT 2015ADDITIONAL AUSTRALIAN STOCK EXCHANGE INFORMATION CONTINUEDFor personal use only MSVO Quoted Options
The twenty largest listed security holders comprise:
Rank
Shareholder
Sonya Miller
Peter Miller
Washington H Soul Pattinson and Company Ltd
Mr Alfredo Varela
Jumani Pty Ltd
Oztech Pty Ltd
Farjoy Pty Ltd
Hamergin Pty Ltd
Mr Peter Richard Miller & Mrs Sonya Margaret Miller
Hancroft Pty Ltd
Mr William May
Mr Simon Hammer
Richvale Pty Ltd
D J Fairfull Pty Ltd
Mr Anthony Hewett
Mr Diarmuid Joseph Galway
Mr Vincent Gordon Reibelt & Mrs Cecily Reibelt
Glenprice Pty Ltd
Mrs Diane Jeanette Harrison-Bialas
Mr Andrew Petrie & Mrs Edwina Petrie
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Total
Ordinary
Shares
% of total
quoted
options
1,981,681
15.85%
1,981,681
15.85%
1,274,638
10.20%
1,126,250
698,520
485,500
445,617
250,000
245,000
200,000
183,600
163,000
135,000
135,000
122,500
120,000
120,000
116,083
100,000
100,000
9,984,070
9.01%
5.59%
3.88%
3.56%
2.00%
1.96%
1.60%
1.47%
1.30%
1.08%
1.08%
0.98%
0.96%
0.96%
0.93%
0.80%
0.80%
80%
64
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only Unquoted Securities
Class
Number of options
Substantial holder
Class C performance options
Class D performance options
48,800,000
48,800,000
Mitchell Group Holdings Pty Ltd
Mitchell Group Holdings Pty Ltd
Units held by
substantial holder
47,300,000
47,300,000
Substantial Shareholders
Rank
Shareholder
1
2
3
4
Mitchell Group Holdings Pty Ltd and associates
Washington H Soul Pattinson and Company Limited
Acorn Capital Limited
CVC Limited
Voting Rights
Ordinary shares
The voting rights attached to ordinary shares is set out below:
Ordinary Shares
% of total
capital issued
272,299,942
149,177,561
134,744,220
122,539,385
19.56%
10.72%
9.68%
8.80%
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
The following performance options are on issue. These options may only be exercised upon the Group achieving certain
EBITDA targets.
Performance options
Total
Recently listed entities
C Class
1,300,000
1,300,000
D Class
1,300,000
1,300,000
Total
2,600,000
2,600,000
For the period from 1 July 2014 to 30 June 2015, 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.
65
MITCHELL SERVICES LTD ANNUAL REPORT 2015ADDITIONAL AUSTRALIAN STOCK EXCHANGE INFORMATION CONTINUEDFor personal use only
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
123 Eagle Street
Brisbane Qld 4000
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
Peter Richard Miller
Robert Barry Douglas
Chief Executive Officer
Andrew Michael Elf
Chief Financial Officer and Company Secretary
Gregory Michael Switala
Registered Office
Mitchell Services Ltd
ABN 31 149 206 333
112 Bluestone Circuit
Seventeen Mile Rocks
Qld 4073
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
66
MITCHELL SERVICES LTD ANNUAL REPORT 2015For personal use only
www.mitchellservices.com.au
For personal use only