ANNUAL
REPORT
2018
For personal use only MITCHELL SERVICES LTD
ACN 149 206 333
ANNUAL REPORT
30 JUNE 2018
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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For personal use only
CHAIRMAN’S REPORT
FOR THE YEAR ENDED 30 JUNE 2018
Nathan Andrew Mitchell
Executive Chairman
Dear Shareholders
The 2018 financial year saw unprecedented growth for Mitchell
Services Limited with significant increases across all key
metrics including operating rig numbers, shift numbers, revenue
and EBITDA.
This growth was fuelled by a variety of different factors
including:
•
•
•
an increased demand for near mine, production related
drilling services across our existing client base amid
improvements to general market conditions within the
resources sector
the award of multi rig contracts with new Tier 1 clients,
most notably the seven rig Olympic Dam project in South
Australia with BHP, and
the significant growth within our underground energy
division following the acquisition of Radco Drilling.
Despite the growth in the number of operating rigs, I am
pleased to inform shareholders that continued improvements
and initiatives across our safety and risk management systems
have resulted in both the frequency and severity of injuries
reducing across the business.
Having experienced several industry cycles previously, current
indicators would suggest that we are in the early stages of
the growth phase within the mining services cycle. Of our
$72.7 million revenue in 2018, 92% was brownfield related
predominantly on long life Tier 1 mine sites.
We are seeing an increase in demand for brownfield drilling
services and the early signs of increased demand for greenfield
drilling services.
I have written previously about the significant leverage within
this organisation as utilisation, productivity, pricing and contract
terms begin to improve. Increases in utilisation (from 35%
FY17 to 57% FY18), productivity and pricing resulted in an
80% increase in revenue year on year and an increase in FY18
EBITDA to 279% of FY17 EBITDA.
Recognising that we are in the early stages of this cycle and
that the organisation has idle rig capacity to meet growing
demand, we are well positioned to take advantage of further
anticipated improvements in general market conditions. Looking
at the year ahead, the business anticipates material increases
in revenues, EBITDA and NPAT in FY19. The Board’s near term
focus is to utilise anticipated surplus cash to reduce debt and is
also considering capital management options such as a share
buyback or a dividend.
I mentioned earlier that I have experienced several industry cycles. One
noticeable characteristic of the current cycle is that the growth appears
to be measured, deliberate and steady. This may be a function of past
lessons learned by the resources industry or the geopolitical uncertainty
facing global markets affecting expectations for longer term commodities
demand. Whatever the reason, steady and measured growth will serve
Mitchell Services and its shareholders well. The recent downturn saw
numerous competitors exit the market (forced or voluntarily) and the
barriers to entry for new competitors remain high.
Measured growth in early stages of the cycle will create favourable
conditions to take advantage of growth opportunities. Price expectations
are realistic, making attractive returns possible in an improving market,
and this was certainly the case with the recent acquisition of
Radco Drilling at a price representing approximately 2 times EBITDA.
I am pleased to inform shareholders that the Radco Drilling business
is performing safely and in line with expectations. Radco Drilling is a
specialist in the market of underground coal drilling and gas drainage
which is linked to production and required by long life underground
coking coal mines. The acquisition (which is anticipated to be materially
EPS accretive into the foreseeable future) has further strengthened our
diversity across different drilling types and commodities, making Mitchell
Services one of the most diverse drilling companies in Australia.
‘making Mitchell Services one of the most diverse
drilling companies in Australia’
In closing I would once again like to thank all shareholders for your
continued patience and support. Thank you to all those shareholders who
participated in the $8.8million capital raising that took place during the
2018 financial year which ensured that the business is adequately funded
to mobilise additional rigs and take advantage of improving general
market conditions.
On behalf of the Board, thank you.
Nathan Andrew Mitchell
Executive Chairman
MEASURED
GROWTH IN
EARLY
STAGES OF
THE CYCLE
CREATES
FAVOURABLE
CONDITIONS
TO TAKE
ADVANTAGE
OF GROWTH
OPPORTUNITIES
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MITCHELL SERVICES LTD MITCHELL SERVICES LTD ANNUAL REPORT 2018ANNUAL REPORT 2018For personal use only CHIEF EXECUTIVE OFFICER’S REPORT
FOR THE YEAR ENDED 30 JUNE 2018
Andrew Michael Elf
Chief Executive Officer
I am exceptionally proud of what our teams have achieved
during the past year.
With a strong base of long term, high quality Tier 1 client
contracts, increased utilisation across all divisions and early
signs of pricing increases, the business is well positioned to
take advantage of the positive industry outlook.
The growth that the business has experienced in 2018 was
significant across all key metrics. As at 30 June 2018 the
business employed over 350 experienced staff compared to 200
in 2017. Our average operating rig count was 37 rigs in 2018
(76% greater than in 2017) and collectively our people worked
over 15,000 shifts, compared to approximately 9,000 shifts in
2017. Average revenue per rig of $1.95 million in 2018 was 5%
greater than in 2017.
I am proud of our safety culture and would like to acknowledge
everyone’s efforts in once again ensuring that despite significant
growth in the organisation, the frequency and severity of safety
incidents year on year continued to decrease. We are a people
business and the quality of our people is what underpins our
vision, which is to be Australia’s leading provider of drilling
services to the global exploration, mining and energy industries.
Our people have a clear mandate to “find a better way” in
everything they do and I attribute our positive culture to a
number of key initiatives that were rolled out during the
year including:
Operation “Home stretch” – A campaign based on a “safety
differently” approach that recognises what we do well thus
creating a positive culture and strong teamwork.This campaign
has been nominated for an Australian safety award and we will
run it again in FY19.
Journey management system – Mitchell Services, in
collaboration with a third-party technology provider has created
an end-to-end journey management mobile and web application
to reduce risk and facilitate safer travel across the organisation.
As has always been the case (but particularly now in an
improving market), we are focusing on training to attract, retain
and further develop our own drillers to ensure that our service
level remains high. In 2018 we partnered with the Australasian
Drilling Institute and were the first drilling company in Australia
to roll out an electronic app-based competency assessment
process. This app has delivered outstanding results in a short
space of time.
The acquisition and integration of earnings accretive Radco
Drilling has been hugely successful. The business continues to perform
safely, efficiently and in line with expectations. The integration process
has allowed Radco to benefit from our sophisticated, streamlined shared
services support functions whilst at the same time maintaining their own
identity, brand and ability to be nimble in decision-making to service
customers with whom sound relationships have been built.
The increased utilisation levels from FY17 to FY18 (35% to 57%) have
driven an 80% increase in revenue ($72.7m FY18 vs $40.3m FY17), with
FY18 EBITDA 2.8 times that of FY17 ($2.2m in FY17 to $6.3m in FY18)
demonstrating the significant leverage in the business. FY18 EBITDA was
impacted by material levels of ramp up associated with major project wins
and we expect further material increases in FY19 as EBITDA begins
to normalise.
Our ability to secure and retain long term, multi rig contracts with Tier
1 clients across a range of different drilling types, commodities and
geographies has provided a solid base to take advantage of further
anticipated market improvements. I see FY19 as a breakthrough year
for the organisation in terms of financial results with EBITDA anticipated
to increase materially versus FY18 which should translate into a positive
NPAT.
The outlook remains positive with continued improvements expected
across all metrics, and our focus is to:
•
•
Continue to operate safely across all operations
Leverage off the successful integration of Radco and increase its
operating rig count
• Generate strong operational cash flow
•
Pay down debt.
I would like to thank the Board for their ongoing support and guidance, my
senior executive and all our teams that have truly gone above and beyond
to deliver improving performance and prospects for our shareholders.
Thank you.
Andrew Michael Elf
Chief Executive Officer
WE ARE A
PEOPLE
BUSINESS
I ATTRIBUTE
OUR
POSITIVE
CULTURE
TO A NUMBER
OF KEY
INITIATIVES
I SEE FY19 AS A
BREAK-
THROUGH
YEAR FOR THE
ORGANISATION
FINANCIALLY
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MITCHELL SERVICES LTD MITCHELL SERVICES LTD ANNUAL REPORT 2018ANNUAL REPORT 2018For personal use only CURRENT BUSINESS SUMMARY
VISION
TO BE AUSTRALIA’S LEADING PROVIDER OF
DRILLING SERVICES TO THE GLOBAL EXPLORATION,
MINING AND ENERGY INDUSTRIES
REVENUE FOR
2017/18
FULL YEAR
$72.7M
UP 80%
SUCCESSFUL ACQUISITION AND
INTEGRATION OF EARNINGS ACCRETIVE
RADCO DRILLING FURTHER
IMPROVES REVENUE DIVERSITY
TOTAL
RECORDABLE
INJURY
FREQUENCY RATE
LESS THAN 15
AT 30 JUNE 2018
350+
EXPERIENCED
EMPLOYEES
INDUSTRY OUTLOOK
POSITIVE WITH PRICING
EXPECTED TO IMPROVE
$6.3M EBITDA
IN 2018 IS
2.8 TIMES
2017 EBITDA
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MITCHELL SERVICES LTD MITCHELL SERVICES LTD ANNUAL REPORT 2018ANNUAL REPORT 2018For personal use only DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2018
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 2018. 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 was appointed to the Board on 29 November 2013 and
appointed as Executive Chairman on 19 March 2014.
Mr Mitchell has been involved in the drilling industry for virtually his
entire life. With a career spanning over 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
including Energy and Equipment. Previously, as CEO of Mitchell
Drilling Contractors, Mr Mitchell led the Company through a period
of rapid local growth and directed an international expansion into
India, China, Indonesia, the United States and southern Africa.
Other directorships include Mitchell Drilling International Pty Ltd and
Sub 161 Pty Ltd. Mr Mitchell also previously served on the board of
Tlou Energy Limited (ASX:TOU) from June 2009 to February 2016.
At the date of this report, Mr Mitchell has relevant interests in
354,108,575 shares.
Peter Richard Miller (Non-Executive Director)
Mr Miller was appointed as Director on 8 February 2011.
Mr Miller has been involved in all aspects of the drilling industry for
the past 30 years and founded Drill Torque in 1992. 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 structures to maximise fleet
productivity. Mr Miller is widely known and well regarded in
the industry.
At the date of this report, Mr Miller has relevant interests in
24,005,045 shares.
Robert Barry Douglas BCom, LLB (Non-Executive Director)
Mr Douglas was appointed as Non-Executive Director on 29
November 2013. Mr Douglas has over 19 years of experience
in finance and investment banking and is currently an Executive
Director of Morgans Financial.
Mr Douglas has experience in all aspects of corporate advisory
and equity capital raising for listed public companies and
companies seeking to list, including offer structure, prospectus
preparation, due diligence, accounts and forecasting, risk
management, sales and marketing, logistics and legal
requirements. During his time Mr Douglas has worked
extensively with energy and resource companies. Mr Douglas
has served on both the Audit and Risk Committee and the
Remuneration and Nomination Committee since 20 March 2014
and was Chairman of both Committees between 21 November
2014 and 20 October 2015.
At the date of this report, Mr Douglas has relevant interests in
2,210,537 shares.
Neal Macrossan O’Connor LLB, GAICD (Non-Executive
Director)
Mr O’Connor was appointed as Non-Executive Director on 21
October 2015 and is also Chairman of the Audit and Risk and
Remuneration and Nomination Committees.
Mr O’Connor was formerly General Counsel and Company
Secretary and an Executive Committee member of the global
Xstrata Copper. He has extensive experience in the resource
industry and brings an added focus on Corporate Governance
and Risk Management to the Board.
Mr O’Connor currently serves on the board of Stanmore Coal
Limited (ASX: SMR).
At the date of this report, Mr O’Connor has relevant interests in
1,168,875 shares.
Grant Eric Moyle
Mr Moyle was appointed as Alternate Director for Mr Nathan
Mitchell on 30 May 2014.
Mr Moyle is the Chief Executive Officer of the Mitchell
Group 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
2,665,286 shares.
CHIEF EXECUTIVE OFFICER
Andrew Michael Elf BCom, FCPA, MBA, GAICD
Andrew was appointed as Chief Executive Officer on 20
March 2014.
Andrew has over 15 years finance, commercial and
operational experience working in various senior roles both
in Australia and overseas and was a Financial Director
in Indonesia for a top 100 ASX listed company before
transitioning into the drilling industry in early 2004. Andrew
held several senior roles with Boart Longyear before joining
Mitchell Group in March 2010, where he spearheaded the
growth of the African business to an annual turnover in excess
of $30 million.
Andrew has extensive experience in managing drilling
companies in various regions around the world which have
worked for global Tier 1 mining and energy houses.
CHIEF FINANCIAL OFFICER & COMPANY SECRETARY
Gregory Michael Switala BCom (Hons), CA
Gregory Michael Switala was appointed to the position
of Chief Financial Officer and Company Secretary on 1
December 2014.
Greg joined Mitchell Services in 2014 and has lead the finance
team through a period of substantial growth. Greg has over 10
years’ experience in audit and commercial finance roles.
PRINCIPAL ACTIVITIES
The Group provides exploration and mine site drilling services
to the exploration, mining, and energy industries, primarily in
Australia and 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
activities during the year.
CHANGES IN STATE OF AFFAIRS
There was no significant change in the state of affairs of the
Group during the financial year.
SUBSEQUENT EVENTS
There has not been any matter or circumstance occurring
subsequent to the end of the financial year that has
significantly affected, or may significantly affect, the operations
of the Group, the results of those operations, or the state of
affairs of the Group in future financial years.
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.
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MITCHELL SERVICES LTD MITCHELL SERVICES LTD ANNUAL REPORT 2018ANNUAL REPORT 2018For personal use only
REVIEW OF OPERATIONS
The table below outlines a number of key six-monthly utilisation metrics and the impact of those utilisation levels on financial results.
Rig utilisation and productivity increased significantly in 2018 compared to 2017 as general market conditions continued to improve.
These improvements have led to a material increase in rig utilisation and number of shifts as the below charts demonstrate.
Operating Rig Count
Number of Shifts
The continual increase in both operating rig count and number of shifts has driven a significant increase in revenue, with a 380%
increase since 2014.
Annual Average Operating Rig Count vs Revenue
Average operating rigs
Number of shifts
Revenue ($000’s)
EBITDA ($000’s)
Operating cash flow ($000’s)
Annualised revenue per rig ($000’s)
FY16
FY17
FY18
1H
20
3,036
18,472
131
236
1,847
2H
15
3,471
14,498
391
(302)
1,933
1H
23
4,528
20,843
2,559
2,400
1,797
2H
20
4,029
19,460
(321)
1,907
1,946
1H
37
7,423
33,215
2,678
(2,290)
1,795
2H
37
8,332
39,485
3,576
1,016
2,106
EBITDA in FY18 was impacted by material levels of ramp up associated with major project wins. In October 2017 the Group
completed an $8.8million equity raising, the proceeds of which were applied to fund the preparation and mobilisation of un-utilised
rigs and associated equipment at the time, procurement of consumables and recruitment of personnel to fulfil contract pipeline
requirements and additional working capital. EBITDA in FY18 was, as such, impacted by material levels of ramp up associated with
major project wins. EBITDA in the 4th quarter of FY18 began to normalise and the Group anticipates further material increases in
revenue and EBITDA during FY19.
On 4 April 2018 the Group completed the acquisition of Radco Technologies Pty Ltd and Radco Group Australia Pty Ltd (collectively
Radco Drilling) for a cash consideration purchase price of approximately 2 times historic EBITDA. Radco Drilling operate in the
market of underground coal drilling and gas drainage which is linked to production and required by long life underground coking coal
mines. The acquisition (which is anticipated to be materially EPS and EBITDA accretive) further strengthens the Group’s overall
revenue diversity as the below two charts demonstrate:
FY18 revenue by drilling type
FY18 revenue by commodity
11
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.
12
MITCHELL SERVICES LTD MITCHELL SERVICES LTD ANNUAL REPORT 2018ANNUAL REPORT 2018DIRECTORS’ REPORT CONTINUEDFOR THE YEAR ENDED 30 JUNE 2018For personal use only DIVIDENDS
There were no dividends paid in respect of the year ended 30 June 2018.
SHARES UNDER OPTION
Details of unissued shares or interests under option as at the date of this report are:
Grant Date
23 May 2016
4 August 2017
14 June 2018
Expiry Date
7 years after vesting
7 years after vesting
7 years after vesting
Exercise Price
Number under Option
$0.03950
$0.05390
$0.07035
16,362,395
11,353,565
13,337,370
41,053,330
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
P.R Miller
R.B Douglas
N.M O'Connor
17
17
17
17
NON-AUDIT SERVICES
17
14
16
17
-
-
2
2
-
-
2
2
-
-
3
3
-
-
3
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 25
to the Financial Statements.
Options per the above table were granted under the Company’s Executive Share and Option Plan (ESOP).
AUDITOR’S INDEPENDENCE DECLARATION
Further details with regards to the ESOP are provided as part of the Remuneration Report on pages 14 to 18.
The Auditor’s Independence Declaration is included on page 25 of the Annual Report.
During the year ended 30 June 2018, there were no shares in Mitchell Services Limited issued on the exercise of options exercised.
REMUNERATION REPORT
INDEMNIFICATION OF OFFICERS AND AUDITORS
During the financial year, the Company has given an indemnity or entered into an agreement to indemnify, or paid or agreed to pay
insurance premiums as follows:
The Company has paid premiums to insure each of the Directors and Company Officers against liabilities for costs and expenses
incurred by them in defending legal proceedings arising from their conduct while acting in the capacity of Director or Officer of the
Company other than conduct involving a wilful breach of duty in relation to the Company. The total premiums paid in this regard
amounted to $98,505.
The Company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or
agreed to indemnify an officer or auditor of the Company against a liability incurred as such an Officer or auditor.
DIRECTORS’ MEETINGS
The following table sets out the number of Directors’ meetings (including meetings of Committees of Directors) held during the
financial year and the number of meetings attended by each Director (while they were a Director or Committee Member). During the
financial year, 17 Board meetings, 2 Remuneration and Nomination Committee meetings and 3 Audit and Risk Committee meetings
were held.
This Remuneration Report, which forms part of the Directors’ Report, sets out information about the remuneration of the Group’s
Key Management Personnel (KMP) for the financial year ended 30 June 2018. The term Key Management Personnel 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)
Neal Macrossan O’Connor (Non-Executive Director)
Andrew Michael Elf (Chief Executive Officer)
Gregory Michael Switala (Chief Financial Officer and Company Secretary)
Remuneration Policy
The Remuneration Policy of the Group has been designed to align KMP objectives with shareholder and business objectives by
providing a fixed remuneration component and offering specific long-term incentives to key employees based on key performance
areas affecting the Group’s financial results. The Board believes the Remuneration Policy to be appropriate and effective in its ability
to attract and retain high quality KMP to run and manage the Group.
The Board’s policy for determining the nature and amount of remuneration for KMP of the Group is as follows:
13
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MITCHELL SERVICES LTD MITCHELL SERVICES LTD ANNUAL REPORT 2018ANNUAL REPORT 2018DIRECTORS’ REPORT CONTINUEDFOR THE YEAR ENDED 30 JUNE 2018For personal use only 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 and performance incentives;
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 the relevant notice period as outlined below.
Any performance incentives will generally only be paid once predetermined key performance indicators have been met;
The performance criteria relating to incentives are aligned with the interests of the Group and therefore shareholders;
Andrew Michael Elf
Gregory Michael Switala
Notice Period
3 months
4 weeks
•
•
•
•
•
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 executive KMP is measured against criteria agreed annually based predominantly on the growth of the Group’s
profits and shareholder’s value and take into account critical safety and operational metrics.
Any bonuses and incentives awarded must be linked to predetermined performance criteria. The Board may, however, exercise
its discretion in relation to approving incentives and bonuses, 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 Senior Managers and reward them for performance results leading to long-
term growth in shareholder wealth.
KMP receive a superannuation guarantee contribution required by the government, which is currently 9.5% of the individual’s
ordinary earnings, and do not receive any other retirement benefits. Some individuals 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.
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.
Relationship between the Remuneration Policy and Group performance
The Remuneration Policy has been tailored to align the pursuit of growth and success of the Group between shareholders, Directors
and Executives. The table below sets out summary information about the Group’s earnings and movements in share price for the five
years to 30 June 2018.
30 Jun 18
30 Jun 17
30 Jun 16
30 Jun 15
30 Jun 14
72,700
6,254
(2,340)
3.9c
40,303
2,238
(4,407)
3.3c
32,970
522
(6,049)
1.7c
25,175
(4,322)
(16,999)
2.2c
15,015
(3,071)
(4,607)
2.1c
Revenue ($’000s)
EBITDA ($’000s)
Profit/(loss) after tax ($’000s)
Share price
15
Long-term employee benefits
Mitchell Services Limited operates an Executive Share and Option Plan (ESOP) for executives and senior employees of the Group.
In accordance with the provisions of the plan, as approved by shareholders at a previous annual general meeting, the Board may
designate a Director or employee of the Company as an eligible participant of the ESOP (Eligible Participant). The Board may offer
rights, options or shares to an Eligible Participant under the ESOP. A participant is not required to pay for the grant of any rights or
options or for the issue of shares.
The objectives of the ESOP are to:
•
•
•
Attract and retain a high standard of managerial and technical personnel for the benefit of the Group
Establish a method by which Eligible Participants can participate in future growth and profitability of the Group
Provide an incentive and reward for Eligible Participants for their contributions to the Group
Equity instruments issued under the ESOP are subject to satisfaction of certain vesting conditions, being:
(a) EBITDA performance of the Company having regard to respective prior years EBITDA performance, performance against
budgets and general market conditions between the date of the offer and the vesting date
the Company’s share price performance between the date of the offer and the vesting date
the Company’s safety performance across all operations as determined on a financial year annual Total Recordable Injury
Frequency Rate (TRIFR) basis, having regard to respective prior years’ TRIFR performance
the Company’s operational performance, having particular regard to key operational metrics
(b)
(c)
(d)
The proportion of the vesting conditions listed above varies according to each Eligible Participant’s role, with the following table
providing indicative guidelines:
Role
Chief Executive Officer
Corporate Management
Operational Management
(a)
30%
40%
(b)
30%
40%
(c)
30%
20%
50%
(d)
10%
50%
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MITCHELL SERVICES LTD MITCHELL SERVICES LTD ANNUAL REPORT 2018ANNUAL REPORT 2018DIRECTORS’ REPORT CONTINUEDFOR THE YEAR ENDED 30 JUNE 2018For personal use only The Board may, at its absolute discretion, vary, add, remove or alter the vesting conditions and indicative proportional allocation
for respective Eligible Participant roles in circumstances in which the Board considers that such a change is appropriate to ensure
that the vesting conditions and proportional allocation of them continue to represent a fair measure of performance. The vesting
conditions are tested two years after the relevant securities are offered to an Eligible Participant.
The table below summarises the shares and options offered to KMP’s pursuant to the ESOP during the 2018 and 2017 financial
years. The table also shows the shares and options that vested during the 2018 financial year pertaining to instruments that were
offered under the ESOP in the 2016 financial year.
KMP
Award
Offer date
Number of
Instruments
Fair value per
instrument at
offer date*
Vested in
FY2018
Exercisable
at 30 June
2018
Date award may
vest
Andrew Michael Elf
Options
1 March 2016
6,643,133
Gregory Michael
Switala
Shares
1 March 2016
1,995,531
Options
1 March 2016
4,581,471
Shares
1 March 2016
1,376,228
Andrew Michael Elf
Options
29 June 2017
3,824,355
Gregory Michael
Switala
Shares
29 June 2017
1,148,805
Options
29 June 2017
2,688,992
Shares
29 June 2017
807,754
Andrew Michael Elf
Options
4 May 2018
3,208,350
Gregory Michael
Switala
Shares
4 May 2018
963,755
Options
4 May 2018
2,406,260
Shares
4 May 2018
722,820
0.0074
0.0140
0.0074
0.0140
0.0273
0.0330
0.0273
0.0330
0.0209
0.0390
0.0209
0.0390
6,643,133
6,643,133
1,995,531
na
4,581,471
4,581,471
1,376,228
na
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
29 June 2019
29 June 2019
29 June 2019
29 June 2019
4 May 2020
4 May 2020
4 May 2020
4 May 2020
*In the case of shares, the fair value was determined with reference to the ASX quoted price on the last trading day of the financial
year. In the case of the options, fair value was determined using a Black-Scholes pricing model. Further details on the inputs in the
measurement of the fair value of the options are provided in note 19 of the financial statements.
The shares and options per the table above were offered pursuant to the ESOP under the following major terms:
In the case of the options:
(a) Subject to the satisfaction of vesting conditions, each option entitles the holder to purchase one fully paid ordinary share.
(b) The options will expire on a date that is the earlier of:
the date upon which it is deemed that the vesting conditions have not been met
the date upon which the employee ceases employment
(i)
(ii)
(iii) seven years after vesting date.
(c) The exercise price is $0.07035 for each option offered under the ESOP in the 2018 financial year (2017: $0.05339 and 2016:
$0.0395)
(d) Options granted do not carry dividend or voting rights.
17
In the case of the shares:
(a) Shares issued under the ESOP are held by a designated Corporate Trustee subject to the satisfaction of vesting conditions.
(b) Upon satisfaction of vesting conditions, shares will be issued for nil consideration.
Remuneration of Key Management Personnel
The compensation of each member of the KMP of the Group is set out below:
Short-term
employee
benefits
Post-
employment
benefits
Short-term
incentives
Salary
Superannuation
Bonus
Non-
monetary
benefits
Motor
Vehicles1
Long-term employee
benefits2
Shares
Options
$
$
$
$
$
$
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
80,000
80,000
36,000
36,000
36,000
36,000
52,000
52,000
320,000
319,998
240,000
179,998
7,600
7,599
3,420
3,419
3,420
3,419
3,534
2,039
30,400
30,399
22,800
17,099
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
64,000
-
-
-
14,861
14,861
4,189
4,189
73,495
109,527
25,339
70,864
51,079
76,239
17,475
48,871
Nathan Andrew Mitchell
Executive Chairman
Peter Richard Miller
Non-Executive Director
Robert Barry Douglas
Non-Executive Director
Neal Macrossan O’Connor
Non-Executive Director
Andrew Michael Elf
Chief Executive Officer
Gregory Michael Switala
Chief Financial Officer and Company Secretary
1. The figures in this column relate to use of a Company motor vehicle to carry out duties as well as reasonable personal use. The amount included in the above remuneration table is the
value attributable to such personal use calculated in accordance with the statutory requirements of the Fringe Benefits Tax Act 1986
2. These amounts were not actually provided to KMP during FY18. The figures are calculated in accordance with the Australian Accounting Standards and are the amortised AASB fair
values of equity instruments (whether vested or not) that have been granted to KMP. Refer to page 17 of this Remuneration Report for information on awards during FY18 and the vesting
status of previous year’s awards.
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 28th day of August 2018
18
MITCHELL SERVICES LTD MITCHELL SERVICES LTD ANNUAL REPORT 2018ANNUAL REPORT 2018DIRECTORS’ REPORT CONTINUEDFOR THE YEAR ENDED 30 JUNE 2018For personal use only
CORPORATE GOVERNANCE STATEMENT
FOR THE YEAR ENDED 30 JUNE 2018
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 2018.
1. Board of Directors
1.1. Role of the Board
The Board’s primary role is the protection and enhancement of
long-term shareholder value.
To fulfil this role, the Board is responsible for the overall
corporate governance of the Group including formulating
its strategic direction, approving and monitoring capital
expenditure, setting remuneration, appointing, removing
and creating succession policies for Directors and Senior
Executives, establishing and monitoring the achievement
of management’s goals and ensuring the integrity of
risk management, internal control, legal compliance and
management information systems. It is also responsible for
approving and monitoring financial and other reporting.
The Board has delegated responsibility for operation and
administration of the Group to the Chief Executive Officer and
Executive Management. Responsibilities are delineated by
formal authority delegations.
1.2. Board processes
To assist in the execution of its responsibilities, the Board has
established 2 board committees which include a 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.
19
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 Chairman. Standing items
include the Chief Executive Officer report, People and Risk
report, General Manager’s reports, Financial reports, Asset
reports and Commercial and Business Development 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.
The Company Secretary is accountable directly to the Board,
through the Chairman, on all matters to do with the proper
functioning of the Board.
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
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. The Board consists of 3 Non-
executive Directors (being Peter Miller, Robert Douglas and
Neal O’Connor) and Executive Chairman, Nathan Mitchell.
As at the date of this report two of the four board members
are considered independent, being Robert Douglas and Neal
O’Connor.
The Executive Chairman is Mr Nathan 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 has a material shareholding and does not
meet the criteria for independence. Under the guidelines, the
majority of the Board should be independent as should the
Chair. 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 conflict exists, the Director concerned
will not 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. 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 and having due regard to the current
size of the Group (refer section 8 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 should consist of at least 3 members,
each of whom should be Non-Executive Directors. Given the
relatively small size of the Board, the Directors are of the
opinion that 2 members are 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 Neal Macrossan O’Connor – Chairman and Non-
Executive Director
• Mr Robert Barry Douglas – Non-Executive Director
All Directors are invited to Remuneration and Nomination
Committee meetings at the discretion of the Committee. The
Committee met twice during the year and Committee members’
attendance record is disclosed in the table of Directors’
meetings on page 14 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.
20
MITCHELL SERVICES LTD MITCHELL SERVICES LTD ANNUAL REPORT 2018ANNUAL REPORT 2018For personal use only 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. 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
• Mr Neal Macrossan O’Connor – Chairman and Non-
Executive Director
• Mr Robert Barry Douglas – Non-Executive Director
The external auditors and the Chief Executive Officer 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 14 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
2018 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
•
basis; and
Establishing succession planning arrangements for the
Executive team.
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.
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 should consist of at least 3 members, each of
whom should be Non-Executive Directors. Given the relatively
small size of the Board, the Directors are of the opinion that
2 members are sufficient to properly discharge the duties
of the Committee for the present time. The Chairman of the
Committee should be an independent Director and should 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.
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;
Obsolescence of certain machinery due to technological
advancements or client requirements;
Customer demand and outlook for the resources industry.
The members of the Audit and Risk Committee during the
year were:
An assessment of the Group’s business risk profile is
undertaken and reviewed by the Board annually, covering all
21
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 the 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
regularly; and
Regulation compliance. The Group’s health, safety,
environment and sustainability obligations are monitored
by all members of the Board.
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 conflict exists the Director
concerned will not be present at the meeting while the item is
considered. Details of Director related entity transactions with
the Group are set out in note 23 to the financial statements.
Code of conduct
The Group has advised each Director, manager and employee
that they must comply with the Group’s Code of Conduct and
Ethics. The code requires all Directors, management and
employees to at all times with all relevant stakeholders:
•
•
•
•
•
•
Act honestly and in good faith;
Exercise due care and diligence in fulfilling the functions of
office;
Avoid conflicts and make full disclosure of any possible
conflict of interest;
Comply with both the letter and spirit of the law;
Encourage the reporting and investigation of unlawful and
unethical behaviour; and
Comply with the share trading policy.
Share trading policy
The Share Trading Policy restricts Directors and employees
from acting on price sensitive information (which is not available
to the public) until it has been released to the market and
adequate time has been given for this to be reflected in the
Company’s share price.
Directors and other Key Management Personnel are also
22
MITCHELL SERVICES LTD MITCHELL SERVICES LTD ANNUAL REPORT 2018ANNUAL REPORT 2018CORPORATE GOVERNANCE STATEMENT CONTINUEDFOR THE YEAR ENDED 30 JUNE 2018For personal use only 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 Chief Executive Officer 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 after they are discovered
but are referred to the Board in the first instance.
The full Annual Report is provided via the Company’s
website to all shareholders (unless a shareholder has
specifically requested to receive a physical copy or not
to receive the document). It provides relevant information
about the operations of the Group during the year, changes
in the state of affairs and details of future developments.
The half-yearly report contains summarised financial
information and a review of the operations of the Group
during the period. The half-year reviewed financial report
is lodged with the ASX and sent to any shareholder who
requests it.
Proposed major changes in the Group which may impact
on share ownership rights are submitted to a vote of
shareholders.
All announcements made to the market can be accessed
via the Company’s website after they have been released
to the ASX.
The external auditor attends the Annual General
Meetings to answer questions concerning the conduct
of the audit, the preparation and content of the auditor’s
•
•
•
•
•
•
23
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 Company has an established Equity and 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.
•
•
•
•
colour, religion, gender, gender identity or expression, sexual orientation, national origin, genetics, disability, or age.
Select on the principles of merit and fairness in all employment practices.
Ensure that all reports of workplace discrimination are treated seriously, promptly and fairly with due regard to the principals of
procedural fairness, natural justice and confidentiality.
Take appropriate action against individuals engaging in discriminatory conduct.
Build relationships and promote opportunities for Indigenous peoples throughout all of our operations, while encouraging
cultural awareness and respect amongst our staff.
• Make confidential counselling and support available to employees to assist with any workplace issues that may arise.
The proportion of women employees in the whole organisation is detailed below:
Women on the Board
Women in senior management roles1
Women employees in the Group
2018
2017
No.
-
1
19
%
-
11.11
5.28
No.
-
1
11
%
-
14.29
5.37
In summary, the Equity and Diversity Policy operates as follows:
Financial Officer.
1. The Company has defined senior management roles as those roles which are responsible for a key business function and that report directly to either the Chief Executive Officer or Chief
The Company has zero tolerance toward discrimination.
To achieve this, we are committed to:
•
•
•
•
•
Ensuring a working environment that is free of all forms of
harassment.
Valuing the diversity among our employees, and all those
with whom we do business.
Conducting business activities such as the hiring,
promotion, and compensation of employees without
regard to race, colour, religion, gender, gender identity or
expression, sexual orientation, national origin, genetics,
disability, or age.
The employment and development of Indigenous
employees in all the countries where we operate.
Complying with all applicable legislative requirements.
To achieve this, we will:
•
•
•
Adhere to the Company Code of Conduct and be guided
by the Company’s Values.
Recruit a diverse range of people with a diverse range of
talents to help us achieve our goals.
Employ the best person for the job regardless of race,
Skills matrix
The Company aims to maintain a diverse, multi-skilled Board with a range of different skills and expertise. At a minimum, these skills
and expertise include:
•
•
•
•
•
•
•
•
•
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
An understanding of technological advances in the mining services industry
Financial acumen and strategic capabilities
Environment and sustainability experience
An understanding of risk management
24
MITCHELL SERVICES LTD MITCHELL SERVICES LTD ANNUAL REPORT 2018ANNUAL REPORT 2018CORPORATE GOVERNANCE STATEMENT CONTINUEDFOR THE YEAR ENDED 30 JUNE 2018For personal use only
I declare that, to the best of my knowledge and belief, during the year ended 30 June
2018 there have been no contraventions of:
(i)
the auditor independence requirements as set out in the Corporations Act 2001 in
relation to the audit; and
(ii)
any applicable code of professional conduct in relation to the audit.
JESSUPS
Rodger Dunstan
Director
Level 1, 19 Stanley Street, Townsville QLD 4810
Dated this 28th day of August 2018
25
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2018
Continuing operations
Revenue
Gain/(loss) on sale of assets
Gain on bargain purchase
Advertising
Drilling consumables
Employee and contract labour expenses
Fuel and oil
Freight and couriers
Hire of plant and equipment
Insurances
Legal and consultant fees
Rent
Service and repairs
Travel expenses
Change in fair value of asset held for sale
Other expenses
EBITDA
Depreciation expense
Amortisation of intangibles
EBIT
Finance expenses
Profit/(loss) before tax
Income tax benefit
Profit/(loss) for the period from continuing operations
Discontinued 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
30
12
14
27
27
27
27
2018
$
2017
$
72,700,410
862,024
350,663
(93,798)
(10,618,674)
(38,593,882)
(1,432,915)
(1,062,070)
(3,230,693)
(1,054,585)
(739,970)
(992,045)
(3,823,823)
(3,202,602)
(419,312)
(2,394,500)
6,254,228
(6,724,594)
(890,371)
(1,360,737)
(1,687,257)
(3,047,994)
708,217
(2,339,777)
-
(2,339,777)
-
(2,339,777)
40,302,633
(24,612)
-
(33,230)
(6,847,191)
(19,800,102)
(964,309)
(697,353)
(1,953,855)
(663,694)
(463,150)
(694,809)
(2,701,575)
(1,762,854)
-
(1,457,622)
2,238,277
(5,434,817)
-
(3,196,540)
(1,210,369)
(4,406,909)
-
(4,406,909)
-
(4,406,909)
-
(4,406,909)
(2,339,777)
(4,406,909)
(2,339,777)
(4,406,909)
(0.14)
(0.14)
(0.14)
(0.14)
(0.24)
(0.24)
(0.24)
(0.24)
26
MITCHELL SERVICES LTD MITCHELL SERVICES LTD ANNUAL REPORT 2018ANNUAL REPORT 2018For personal use only
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2018
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2018
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Other financial assets
Other assets
Inventories
Intangibles
Assets held for sale
Total current assets
Non-current assets
Other financial assets
Property, plant and equipment
Investment property
Other assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Bank overdraft
Trade and other payables
Other financial liabilities
Current tax liability
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
Retained earnings
Total equity
27
Note
3(a)
4
5
6
7
8
12
5
13
12
6
3(b)
9
10
15
11
10
11
16
17
18
2018
$
2017
$
1,863,738
17,608,675
68,251
1,154,077
2,274,563
1,989,629
2,560,050
27,518,983
15,278
30,740,385
-
18,000
30,773,663
58,292,646
-
13,163,681
6,071,669
1,164,958
2,724,543
23,124,851
13,877,025
256,306
14,133,331
37,258,182
21,034,464
816,511
7,120,015
46,740
823,162
1,293,200
-
-
10,099,628
11,652
26,932,379
2,975,000
18,000
29,937,031
40,036,659
535,000
8,035,875
2,326,838
-
1,241,178
12,138,891
13,071,624
181,175
13,252,799
25,391,690
14,644,969
58,245,137
(3,070,575)
(34,140,098)
21,034,464
49,454,378
(2,521,167)
(32,288,242)
14,644,969
Note
Issued
Capital
Contingent
Option
Reserve
Retained
Earnings
Attributable
to Owners
of the Parent
Total
$
$
$
$
$
Balance at 30 June 2016
46,089,856
2,122,402
(30,240,688)
17,971,570
17,971,570
Comprehensive income
Profit/(loss) for the period
Other comprehensive income for the period
Total comprehensive income for the period
Transfer contingent option reserve
Issue of ordinary shares
Share issue costs
Recognition of share-based payments
Balance at 30 June 2017
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
Balance at 30 June 2018
18
18
16
17
19
18
16
17
19
-
-
-
-
850,000
(6,645)
-
46,933,211
-
-
-
8,790,759
(549,408)
-
55,174,562
-
-
-
(4,406,909)
(4,406,909)
(4,406,909)
-
-
-
(4,406,909)
(4,406,909)
(4,406,909)
(2,122,402)
2,122,402
-
-
236,953
-
850,000
(6,645)
236,953
-
850,000
(6,645)
236,953
-
-
-
-
-
-
-
-
-
-
-
(32,288,242)
14,644,969
14,644,969
(2,339,777)
(2,339,777)
(2,339,777)
-
-
-
(2,339,777)
(2,339,777)
(2,339,777)
-
-
8,790,759
8,790,759
(549,408)
(549,408)
487,921
487,921
487,921
(34,140,098)
21,034,464
21,034,464
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
28
MITCHELL SERVICES LTD MITCHELL SERVICES LTD ANNUAL REPORT 2018ANNUAL REPORT 2018For personal use only
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
Note
2018
$
2017
$
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers
Payments to suppliers and employees
Interest received
Interest paid
Income tax paid
Net cash provided by/(used in) operating activities
20
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment
Payment for property, plant and equipment
Payment for purchase of Radco, net of cash acquired
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
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
3(c)
64,342,703
(63,696,562)
13,378
(1,712,393)
(221,444)
(1,274,318)
2,339,325
(5,660,946)
(4,251,263)
(7,572,884)
8,790,759
(549,408)
7,000,000
(4,811,922)
10,429,429
1,582,227
281,511
1,863,738
40,438,132
(35,737,360)
4,477
(398,387)
-
4,306,862
15,000
(1,939,903)
-
(1,924,903)
-
(6,645)
120,120
(2,082,808)
(1,969,333)
412,626
(131,115)
281,511
1. SIGNIFICANT ACCOUNTING POLICIES
(a) General information
Mitchell Services Ltd (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 (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
29
The accompanying notes are an integral part of these financial statements.
30
MITCHELL SERVICES LTD MITCHELL SERVICES LTD ANNUAL REPORT 2018ANNUAL REPORT 2018For 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.
Intangibles
(f)
Goodwill and impairment
Goodwill arising on an acquisition of a business is carried at
cost as established at the date of the acquisition of the business
less accumulated impairment losses, if any.
For the purpose of impairment testing, goodwill is allocated to
each of the Group’s cash-generating units (or groups of cash-
generating units) that is expected to benefit from the synergies
of the combination.
A cash-generating unit to which goodwill has been allocated is
tested for impairment annually, or more frequently when
there is an indication that the unit may be impaired. If the
recoverable amount of the cash-generating unit is less than
its carrying amount, the impairment loss is allocated first to
reduce the carrying amount of any goodwill allocated to the
unit and then to the other assets of the unit pro rata based on
the carrying amount of each asset in the unit. Any impairment
loss for goodwill is recognised directly in profit or loss. An
impairment loss recognised for goodwill is not reversed in
subsequent periods.
31
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.
Customer contracts
Customer contracts acquired are initially recognised at
fair value and are subsequently carried at fair value less
accumulated amortisation and accumulated impairment losses.
These costs are amortised to profit or loss using the straightline
method over the contract period or estimated useful life,
whichever is shorter.
(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
measurable 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.
Interest income
Interest income from a financial asset is recognised when it
is probable that the economic benefits will flow to the Group
and the amount of revenue can be measured reliably. Interest
income is accrued on a time basis, by reference to the principal
outstanding and at the effective interest rate applicable, which
is the rate that exactly discounts estimated future cash receipts
through the expected life of the financial asset to that asset’s
net carrying amount on initial recognition.
Other revenue is recognised when the right to receive the
revenue has been established.
All revenue is stated net of the amount of goods and services
tax (GST).
(h) Leases
Leases are classified as finance leases whenever the terms
of the lease transfer substantially all the risks and rewards
of ownership to the lessee. All other leases are classified as
operating leases.
Assets held under finance leases are initially recognised as
assets of the Group at their fair value at the inception of the
lease or, if lower, at the present value of the minimum lease
payments. The corresponding liability to the lessor is included in
the statement of financial position as a finance lease obligation.
Lease payments are apportioned between finance expenses
and reduction of the lease obligation so as to achieve a
constant rate of interest on the remaining balance of the liability.
Finance expenses are recognised immediately in profit or
loss, unless they are directly attributable to qualifying assets,
in which case they are capitalised in accordance with the
Group’s general policy on borrowing costs. Contingent rentals
are recognised as expenses in the periods in which they are
incurred.
Operating lease payments are recognised as an expense
on a straight-line basis over the lease term, except where
another systematic basis is more representative of the time
pattern in which economic benefits from the leased asset are
consumed. Contingent rentals arising under operating leases
are recognised as an expense in the period in which they are
incurred.
In the event that lease incentives are received to enter into
operating leases, such incentives are recognised as a liability.
The aggregate benefit of incentives is recognised as a reduction
of rental expense on a straight-line basis, except where another
systematic basis is more representative of the time pattern in
which economic benefits from the leased asset are consumed.
(i) Employee benefits
A liability is recognised for benefits accruing to employees in
respect of wages and salaries, annual leave and long service
leave when it is probable that settlement will be required and
they are capable of being measured reliably.
Liabilities recognised in respect of short-term employee
benefits, are measured at their nominal values using the
remuneration rate expected to apply at the time of settlement.
Liabilities recognised in respect of long term employee benefits
are measured as the present value of the estimated future
cash outflows to be made by the Group in respect of services
provided by employees up to reporting date.
Payments to defined contribution plans are recognised as an
expense when employees have rendered service entitling them
to the contributions.
Income taxes
(j)
The Company and its wholly-owned Australian resident entities
are part of a tax-consolidated group. As a consequence, all
members of the tax-consolidated group are taxed as a single
entity. The head entity within the tax-consolidated group is
Mitchell Services Ltd.
Income tax expense represents the sum of the tax currently
payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from profit before tax as reported
in the consolidated statement of profit or loss and other
comprehensive income because of items of income or expense
that are taxable or deductible in other years and items that are
never taxable or deductible. The Group’s liability for current
tax is calculated using tax rates that have been enacted or
substantively enacted by the end of the reporting period.
Deferred tax
Deferred tax is recognised on temporary differences between
the carrying amounts of assets and liabilities in the consolidated
financial statements and the corresponding tax bases used
in the computation of taxable profit. Deferred tax liabilities are
generally recognised for all taxable temporary differences.
Deferred tax assets are generally recognised for all deductible
temporary differences to the extent that it is probable that
taxable profits will be available against which those deductible
temporary differences can be utilised. Such deferred tax assets
and liabilities are not recognised if the temporary difference
arises from goodwill or from the initial recognition (other than
in a business combination) of other assets and liabilities in
a transaction that affects neither the taxable profit nor the
accounting profit.
The carrying amount of deferred tax assets is reviewed at the
32
MITCHELL SERVICES LTD MITCHELL SERVICES LTD ANNUAL REPORT 2018ANNUAL REPORT 2018NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2018For personal use only end of each reporting period and reduced to the extent that it is
no longer probable that sufficient taxable profits will be available
to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates
that are expected to apply in the period in which the liability is
settled or the asset realised, based on tax rates (and tax laws)
that have been enacted or substantively enacted by the end of
the reporting period. The measurement of deferred tax 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.
33
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 both the diminishing value basis or
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
2.5%
Buildings
6.67% - 40%
Plant & Equipment
Motor Vehicles
12.50% - 50%
Office Equipment, Furniture & Fittings 10% - 67.67%
Depreciation methods and useful lives are reviewed at each
reporting date and adjusted if appropriate.
Impairment of property, plant and equipment
At the end of each reporting period, the Group reviews the
carrying amounts of its tangible assets to determine whether
there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the
extent of the impairment loss (if any). When it is not possible
to estimate the recoverable amount of an individual asset,
the Group estimates the recoverable amount of the cash-
generating unit to which the asset belongs. When a reasonable
and consistent basis of allocation can be identified, corporate
assets are also allocated to individual cash-generating units,
or otherwise they are allocated to the smallest group of
cash-generating units for which a reasonable and consistent
allocation basis can be identified.
Recoverable amount is the higher of fair value less costs to
sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset
for which the estimates of future cash flows have not
been adjusted.
If the recoverable amount of an asset (or cash-generating unit)
is estimated to be less than its carrying amount, the carrying
amount of the asset (or cash-generating unit) is reduced to
its recoverable amount. An impairment loss is recognised
immediately in profit or loss, unless the relevant asset is carried
at a re-valued amount, in which case the impairment loss is
treated as a revaluation decrease.
When an impairment loss subsequently reverses, the carrying
amount of the asset (or cash-generating unit) is increased to
the revised estimate of its recoverable amount, but so that the
increased amount does not exceed the carrying amount that
would have been determined had no impairment loss been
recognised for the asset (or cash-generating unit) in prior years.
A reversal of an impairment loss is recognised immediately in
profit or loss, unless the relevant asset is carried at a re-valued
amount, in which case the reversal of the impairment loss is
treated as a revaluation increase.
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
repayments and any reduction for impairment, and adjusted
34
MITCHELL SERVICES LTD MITCHELL SERVICES LTD ANNUAL REPORT 2018ANNUAL REPORT 2018NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2018For personal use only
for any cumulative amortisation of the difference between that
initial amount and the maturity amount calculated using the
effective interest method.
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
of amounts previously written off are credited against the
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.
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.
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.
(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:
•
•
where the amount of GST incurred is not recoverable from
the Australian Taxation Office (ATO), it is recognised as
part of the cost of acquisition of an asset or as part of an
item of expense; or
for receivables and payables which are recognised
inclusive of GST.
The net amount of GST recoverable from, or payable to, the
ATO is included as part of receivables or payables.
Cash flows are included in the cash flow statement on a gross
basis. The GST component of cash flows arising from investing
and financing activities which is recoverable from, or payable to,
the ATO is classified within operating cash flows.
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.
(s) Capital management
Management controls the capital of the Group in order to
maintain an appropriate debt to equity ratio, generate long-
term shareholder value and ensure that the Group can fund its
operations and continue as a going concern.
The Group’s debt and capital include ordinary share capital, and
financial liabilities, supported by financial assets.
Management effectively manages the Group’s capital by
assessing the Group’s financial risks and adjusting its capital
structure in response to changes in these risks and in the
market. These responses include the management of debt
levels, distributions to shareholders and share issues.
There have been no changes in the strategy adopted by
36
MITCHELL SERVICES LTD MITCHELL SERVICES LTD ANNUAL REPORT 2018ANNUAL REPORT 2018NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2018For personal use only management to control the capital of the Group since the
prior year.
(t) Assets held for sale
The Group recognises assets as held for sale when the sale of
the asset is approved by the Board and is actively marketed at
a reasonable price for immediate sale that is probable within 12
months.
After these conditions are met, the Group measures the assets
held for sale at the lower of carrying amount and fair value less
costs to sell and are not depreciated.
Any reduction in value on initial recognition or any reduction
in fair value less costs to sell after initial recognition shall be
recognised as impairment in the profit and loss. A gain for
any subsequent increase in fair value less costs to sell shall
be recognised in the profit or loss to the extent that it is not in
excess of the cumulative impairment loss.
(u) Critical accounting judgements and key sources of
estimation uncertainty
In the application of the Group’s accounting policies, the
Directors are required to make judgements, estimates and
assumptions about the carrying amounts of assets and liabilities
that are not readily apparent from other sources. The estimates
and associated assumptions are based on historical experience
and other factors that are considered to be relevant. Actual
results may differ from these estimates.
The estimates and underlying assumptions are reviewed on
an on-going basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the
revision affects only that period, or in the period of the revision
and future periods if the revision affects both current and future
periods.
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.
(v) Application of new and revised Accounting Standards
Standards and Interpretations listed below were in issue but not yet effective.
Standards and Interpretations affecting amounts reported
in the current period (and/or prior periods)
AASB 2014-4 Amendments to Australian Accounting Standards
– Clarification of Acceptable Methods of Depreciation and
Amortisation and AASB 2015-2 Amendments to Australian
Accounting Standards – Disclosure Initiative: Amendments to
AASB 101.
Impact of the application of AASB 2016-1 Amendments to
Australian Accounting Standards – Recognition of Deferred
Tax Assets for Unrealised Losses
The Group has applied these amendments for the first time in
the current year. The amendments clarify how an entity should
evaluate whether there will be sufficient future taxable profits
against which it can utilise a deductible temporary difference.
The application of these amendments has had no impact on the
Group’s consolidated financial statements as the Group already
assesses the sufficiency of future taxable profits in a way that is
consistent with these amendments.
Impact of the application of AASB 2016-2 Amendments to
Australian Accounting Standards – Disclosure Initiative:
Amendments to AASB 107
The Group has applied these amendments for the first time in
the current year. The amendments require an entity to provide
disclosures that enable users of financial statements
to evaluate changes in liabilities arising from financing activities,
including both cash and noncash changes.
The Group’s liabilities arising from financing activities consist
of borrowings and certain other financial liabilities (note 10).
A reconciliation between the opening and closing balances
of these items is provided in note 10(c). Consistent with the
transition provisions of the amendments, the Group has not
disclosed comparative information for the prior period. Apart
from the additional disclosure in note 10(c), the application
of these amendments has had no impact on the Group’s
consolidated financial statements.
Standards and Interpretations in issue not yet adopted
At the date of authorisation of the financial statements, the
Standard/Interpretation
Effective for annual
reporting periods
beginning on or after
Expected to be
initially applied in the
financial year ending
AASB 9 Financial Instruments
AASB 15 Revenue from Contracts with Customers
AASB 16 Leases
AASB 7 Insurance Contracts
AASB 2014-10 Amendments to Australian Accounting Standards – Sale or
Contribution of Assets between an Investor and its Associate or Joint Venture [AASB
10 & AASB 128], AASB 2015-10 Amendments to Australian Accounting Standards
– Effective Date of Amendments to AASB 10 and AASB 128 and AASB 2017-5
Amendments to Australian Accounting Standards –Effective Date of Amendments to
AASB 10 and AASB 128 and Editorial Corrections
AASB 2016-5 Amendments to Australian Accounting Standards – Classification and
Measurement of Share Based Payment Transactions
AASB 2017-1 Amendments to Australian Accounting Standards – Transfers of
Investment Property, Annual Improvements 2014-2016 Cycle and Other Amendments
AASB 2017-6 Amendments to Australian Accounting Standards – Prepayment
Features with Negative Compensation
AASB 2017-7 Amendments to Australian Accounting Standards – Long-term Interests
in Associates and Joint Ventures
AASB 2008-1 Amendments to Australian Accounting Standards – Annual
Improvements 2015-2017 Cycle
AASB 2008-2 Amendments to Australian Accounting Standards – Plan Amendment,
Curtailment or Settlement
Interpretation 22 Foreign Currency Transactions and Advance Consideration
Interpretation 23 Uncertainty over Income Tax Treatments
1-Jan-18
1-Jan-18
1-Jan-19
1-Jan-21
1-Jan-22
(Editorial corrections in
AASB 2017-5 apply from
1-Jan-18)
1-Jan-18
1-Jan-18
1-Jan-19
1-Jan-19
1-Jan-19
1-Jan-19
1-Jan-18
1-Jan-19
30-Jun-19
30-Jun-19
30-Jun-20
30-Jun-22
30-Jun-23
30-Jun-19
30-Jun-19
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-19
30-Jun-20
The Directors anticipate that the adoption of AASB 9 and AASB 15 will not have a material impact on the Group’s financial
statements. The adoption of AASB 16 at 30 June 2018 would result in the recognition of a right of use asset and a lease liability of
approximately $934,000.
37
38
MITCHELL SERVICES LTD MITCHELL SERVICES LTD ANNUAL REPORT 2018ANNUAL REPORT 2018NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2018For personal use only 2. REVENUE
From continuing operations
Income from operations
Interest received
Rental income
Other
Total income from continuing operations
3. CASH AND CASH EQUIVALENTS
2018
$
2017
$
72,383,718
40,003,304
13,378
303,314
-
316,692
72,700,410
4,477
288,577
6,275
299,329
40,302,633
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.
3(a)
In funds accounts
Bank balances
3(b) Bank overdraft
Bank overdraft
3(c) Net cash at bank
4. TRADE AND OTHER RECEIVABLES
Trade debtors
Less provision for doubtful debts
Bonds and deposits
1,863,738
816,511
-
1,863,738
(535,000)
281,511
17,596,306
6,939,895
-
12,369
17,608,675
-
180,120
7,120,015
4(a) CREDIT RISK AND AGEING OF TRADE DEBTORS
The class of assets described as “trade debtors” is considered to be the main source of credit risk related to the Group. The Group
does not hold any collateral over these balances. A single counterparty made up of 28.03% of the total trade receivables at 30 June
2018. $1,897,250 remains outstanding from this counterparty included in the total trade and other receivables at 30 June 2018
has not been received as at the date of this report, all outstanding amounts are within payment terms. The ageing of trade debtors
(financial assets) is as follows:
< 1 month
1 to 3 months
3 to 6 months
39
13,244,810
4,273,715
77,781
17,596,306
5,450,529
1,489,366
-
6,939,895
5. OTHER FINANCIAL ASSETS
Current
Borrowing costs
Non-current
Borrowing costs
5(a) AGEING OF OTHER FINANCIAL ASSETS
The ageing of other financial assets – current is as follows:
< 1 year
The ageing of other financial assets - non-current is as follows:
1 to 5 years
6. OTHER ASSETS
Current
Prepayments
Non-current
Property held for sale
7.
INVENTORIES
Finished goods
2018
$
2017
$
68,251
68,251
15,278
15,278
68,251
68,251
15,278
15,278
1,154,077
1,154,077
18,000
18,000
46,740
46,740
11,652
11,652
46,740
46,740
11,652
11,652
823,162
823,162
18,000
18,000
2,274,563
2,274,563
1,293,200
1,293,200
The cost of inventories recognised as an expense during the year in respect of continuing operations was $10,618,674
(2017: $6,847,191).
40
MITCHELL SERVICES LTD MITCHELL SERVICES LTD ANNUAL REPORT 2018ANNUAL REPORT 2018NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2018For personal use only
8.
INTANGIBLES
Customer Contracts
Opening balance
Acquired in business combination (see note 30)
Amortisation
Closing balance
2018
$
2017
$
-
2,880,000
(890,371)
1,989,629
-
-
-
-
The customer contracts expire on 31 December 2018 and 30 April 2019 and have been amortised on a straight-line basis.
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
2018
$
2017
$
3,304,383
5,691,709
8,996,092
(650,748)
8,345,344
2,968,319
5,377,025
8,345,344
1,975,159
4,826,907
6,802,066
(553,093)
6,248,973
1,684,066
4,564,907
6,248,973
9. TRADE AND OTHER PAYABLES
Current
Trade creditors
Accrued expenses
GST payable
9(a) AGEING OF TRADE AND OTHER PAYABLES
The ageing of trade creditors (financial liabilities) is as follows:
< 1 month
1 to 3 months
> 3 months
10. OTHER FINANCIAL LIABILITIES
Current
Equipment finance leases
Property loan
Working capital loan
Premium funding
Non-current
Equipment finance leases
Working capital loan
Shareholder loan
10(a) FINANCE LEASES
Current
Non-current
41
7,889,377
3,482,965
1,791,339
13,163,681
5,982,408
1,893,043
13,926
7,889,377
2,968,319
2,713,115
-
390,235
6,071,669
5,377,025
-
8,500,000
13,877,025
5,525,567
1,938,985
571,323
8,035,875
2,638,134
2,881,342
6,091
5,525,567
1,696,498
-
207,806
422,534
2,326,838
4,552,475
19,149
8,500,000
13,071,624
2,968,319
5,377,025
8,345,344
1,696,498
4,552,475
6,248,973
The Group leases certain items of equipment under finance leases. The average term is 3.67 years (2017: 3.77 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 4.09% and 8.50% (2017: 4.45% and 8.33%).
The fair value of the finance lease liabilities is approximately equal to the carrying amount.
Temporary working capital facility
In order to fund an increase in working capital requirements associated with new contracts, the Company secured a $2.6 million
overdraft facility with National Australia Bank (NAB) in July 2017 on the following terms:
•
•
•
•
Interest charge at 5.25% per annum
Secured by a guarantee in favour of NAB provided by Export Finance and Insurance Corporation (EFIC) as part of a Working
Capital Guarantee Facility (WCGF)
An EFIC utilisation fee of 4.5% per annum on the balance of the guarantee amount
The expiry date of the WCGF was 30 September 2018
This facility (The $2.6 million facility) together with the Company’s pre-existing $2.5 million Suncorp overdraft facility (The $2.5
million facility) provided the Group with $5.1 million in working capital funding.
Working capital facility refinance and trade finance facility
In December 2017, the Group completed a refinance of its working capital facilities. The $2.5 million facility and the $2.6 million
facility were fully repaid. Following the repayment of these facilities, the Group entered into a trade finance facility with NAB under
the following terms:
•
•
•
NAB will advance 75% of the Group’s outstanding trade receivables up to a maximum advance of $9 million.
The advances are secured against the Group’s trade receivables balance and first ranking general security interest in Mitchell
Operations Pty Ltd and a guarantee provided by the Company.
Interest is levied at 6.5% per annum plus an annual line fee of 1% applicable to the facility limit.
As at 30 June 2018 this trade finance facility was undrawn.
42
MITCHELL SERVICES LTD MITCHELL SERVICES LTD ANNUAL REPORT 2018ANNUAL REPORT 2018NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2018For personal use only 10(b) LOANS
12. ASSETS HELD FOR SALE
A summary of borrowing arrangements applicable to all loans is included in note 21(a). Security pledged under these borrowing
arrangements is detailed in note 13(a).
10(c) RECONCILIATION OF OTHER FINANCIAL LIABILITIES
2017
6,248,973
-
226,955
422,534
8,500,000
Cash
Flows
(284,967)
2,700,000
(226,955)
(625,753)
-
Non Cash Changes
New
Leases
Accrued
Interest
2,381,338
-
-
593,454
-
-
13,115
-
-
-
2018
8,345,344
2,713,115
-
390,235
8,500,000
15,398,462
1,562,325
2,974,792
13,115
19,948,694
Equipment finance leases
Property loan
Working capital loan
Premium funding
Shareholder loan
11. PROVISIONS
Annual leave provision - current
Opening balance
Movement
Closing balance
Long service leave provision - current
Opening balance
Movement
Closing balance
Provision for relocation costs
Opening balance
Movement
Closing balance
Total current provisions
Long service leave provision - non-current
Opening balance
Movement
Closing balance
Total non-current provisions
2018
$
2017
$
1,213,220
1,437,431
2,650,651
27,958
45,934
73,892
-
-
-
607,893
605,327
1,213,220
9,708
18,250
27,958
108,670
(108,670)
-
2,724,543
1,241,178
181,175
75,131
256,306
256,306
121,534
59,641
181,175
181,175
The above provisions represent annual leave and long service leave entitlements accrued by the Group’s employees.
43
The Company owns an investment property located in Townsville that generates cash flows through rental income as opposed to
being used for core business activities. In December 2017, the Company made the strategic decision to actively market this property
for sale. The property has been reclassified as a current asset held for sale on the basis that it is expected to be sold within the next
12 months. Proceeds from the sale of this property will be used to extinguish the $2.7 million property loan. During the reporting
period, management have reviewed the fair value less costs to sell of the asset and have recognised an impairment of $419,312.
13. PROPERTY, PLANT AND EQUIPMENT
At 1 July 2017
Cost or fair value
Accumulated depreciation
Net book amount
Year ended 30 June 2018
Opening net book amount
Additions
Acquired in Radco Acquisition
Transfer from Inventory
Disposals
Depreciation
At 30 June 2018
Cost or fair value
Accumulated depreciation
Net book amount
At 1 July 2016
Cost or fair value
Accumulated depreciation
Net book amount
Year ended 30 June 2017
Opening net book amount
Additions
Disposals
Depreciation
At 30 June 2017
Cost or fair value
Accumulated depreciation
Net book amount
Land and
buildings
Plant and
equipment
Motor
vehicles
Furniture
and fittings
$
$
$
$
Total
$
101,473
(32,474)
68,999
35,418,170
(13,273,830)
22,144,340
14,692,236
(10,254,128)
4,438,108
361,506
(80,574)
280,932
50,573,385
(23,641,006)
26,932,379
68,999
-
-
-
-
(18,154)
50,845
22,144,340
7,121,038
3,936,883
163,773
(2,187,820)
(5,361,538)
25,816,676
4,438,108
1,506,085
79,500
-
(214,805)
(1,248,437)
4,560,451
280,932
122,493
5,453
-
-
(96,465)
312,413
26,932,379
8,749,616
4,021,836
163,773
(2,402,625)
(6,724,594)
30,740,385
101,473
(50,628)
50,845
41,212,515
(15,395,839)
25,816,676
14,241,390
(9,680,939)
4,560,451
578,693
(266,280)
312,413
56,134,071
(25,393,686)
30,740,385
33,900
(14,568)
19,332
31,037,599
(9,063,431)
21,974,168
14,329,331
(9,115,224)
5,214,107
220,433
(152,429)
68,004
45,621,263
(18,345,652)
27,275,611
19,332
67,573
-
(17,906)
68,999
21,974,168
4,439,269
(24,897)
(4,244,200)
22,144,340
5,214,107
362,905
-
(1,138,904)
4,438,108
68,004
261,451
(14,716)
(33,807)
280,932
27,275,611
5,131,198
(39,613)
(5,434,817)
26,932,379
101,473
(32,474)
68,999
35,418,170
(13,273,830)
22,144,340
14,692,236
(10,254,128)
4,438,108
361,506
(80,574)
280,932
50,573,385
(23,641,006)
26,932,379
Plant and equipment and motor vehicles comprise mainly of drilling rigs and associated vehicles and 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.
44
MITCHELL SERVICES LTD MITCHELL SERVICES LTD ANNUAL REPORT 2018ANNUAL REPORT 2018NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2018For personal use only 13(a) ASSETS PLEDGED AS SECURITY
The following has been pledged as security in relation to the Group’s bank overdraft and other financial liabilities.
The tax rate used for 2018 and 2017 reconciliations above is the corporate tax rate of 30% payable by Australian corporate entities
on taxable profits under Australian tax law.
Bank overdraft / trade finance facility
The advances made under this facility are secured against the trade receivables balance of wholly owned subsidiary, Mitchell
Operations Pty Ltd, a first ranking general security interest in Mitchell Operations Pty Ltd and a guarantee provided by the Company.
Property loan
A registered mortgage given by Mitchell Services Ltd over the property situated at 133-137 Crocodile Crescent, Mount St John, Qld
(carrying amount of $2,560,050).
Shareholder loan
These loans were provided by major shareholders Washington H Soul Pattinson Limited and Mitchell Family Investments (Qld) Pty
Ltd as trustee for the Mitchell Family Investments Trust to partly fund the Nitro asset acquisition in 2015. These assets are held by a
wholly owned subsidiary of the Company, Notch No 2 Pty Ltd.
The shareholder loans are secured by a grant of a general security agreement over all Notch No 2 Pty Ltd assets. The carrying
amount of these assets is $8,989,871.
Equipment finance leases
The Group has entered into a number of equipment finance lease arrangements with a range of lenders. Under the terms of these
facilities, security is limited to the assets to which the facility relates.
14.
INCOME TAX EXPENSE
Income tax expense recognised in profit/(loss)
Income tax expense comprises
Current tax
Deferred tax
Derecognition of deferred tax relating to Radco Drilling acquisition
Derecognised tax losses and tax losses not recognised in current year
2018
$
2017
$
-
(712,068)
708,217
712,068
708,217
-
(1,311,764)
-
1,311,764
-
15. TAX ASSETS AND LIABILITIES
Tax assets - current
Income tax receivable
Tax assets - non-current
Deferred tax asset
Tax liabilities - current
Current tax liability
15(a) UNRECOGNISED AMOUNTS
Unused tax losses
Other unrecognised temporary differences
Franking account balance
16.
ISSUED CAPITAL
Fully paid ordinary shares
Balance at the beginning of the period
Issue of shares - rights issue
Issue of shares - placement
Issue of shares - share based payments
Fully paid ordinary shares
Balance at the beginning of the period
Issue of shares - rights issue
Issue of shares - placement
Vesting of ESOP shares
Issue of shares - in lieu of interest on shareholder loans
The income tax expense for the year can be reconciled to the accounting profit as follows:
Profit/(loss) before tax from continuing operations
(3,047,994)
(4,406,909)
Income tax expense calculated at 30%
Effect of expenses that are not deductible in determining taxable profit
Derecognition of deferred tax relating to Radco Drilling acquisition
Derecognised tax losses and tax losses not recognised in current year
(914,398)
(1,322,073)
202,330
708,217
712,068
708,217
10,308
-
1,311,765
-
Issue of shares
The following shares were issued during the year ended 30 June 2018
Placement and Entitlement Offer Capital Raising
The following shares were issued pursuant to a capital raising during reporting period:
2018
$
2017
$
-
-
1,164,958
28,006,427
3,848,283
1,196,734
49,454,378
6,274,759
2,516,000
-
58,245,137
-
-
-
27,136,337
3,832,210
872,635
48,604,378
-
-
850,000
49,454,378
Number of Shares Number of Shares
1,418,373,968
1,471,498,968
184,551,759
74,000,000
4,915,099
-
-
-
-
53,125,000
1,734,965,826
1,471,498,968
45
46
MITCHELL SERVICES LTD MITCHELL SERVICES LTD ANNUAL REPORT 2018ANNUAL REPORT 2018NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2018For personal use only • On 21 September 2017, 74,000,000 fully paid ordinary shares were issued at a price of $0.034 by way of an institutional share
placement.
• On 16 October 2017, 184,551,759 fully paid ordinary shares were issued at a price of $0.034 by way of a 1 for 8 pro rata non-
renounceable entitlement offer.
Proceeds from the capital raising were used to fund the preparation and mobilisation of unutilised rigs and associated equipment,
procurement of consumables and recruitment of personnel to fulfil contract pipeline requirements and additional working capital.
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 17).
Shares issued under the Executive Share and Option Plan
During the reporting period, Mitchell Services Limited issued 3,410,515 new fully paid ordinary shares under the Mitchell Service
Executive Share and Option Plan (ESOP). The shares are held by the plan trustee for the benefit of eligible participants and are
subject to vesting conditions. Under AASB132, the Group recognises unvested shares held by the plan trustee as ‘treasury shares’
and accordingly has eliminated them for consolidation purposes. During the reporting period, 4,915,099 shares that were issued to
the plan trustee in 2016 (pursuant to offers made under the ESOP) vested. Upon vesting, these 4,915,099 shares were transferred
from the plan trustee to the individual ESOP participants. These shares were recognised as “treasury shares” during previous
reporting periods and were accordingly eliminated for consolidated reporting purposes at 30 June 2017. Please see page 16 of the
Remuneration Report for further details pertaining to the ESOP.
Executive share and option plan
The Group accounts for instruments that are still in their vesting period issued under the Executive Share and Option Plan (ESOP)
by recognising the fair value of the relevant equity instruments as an expense over the vesting period.
The fair value of the equity instruments is calculated at each reporting period and vesting conditions are taken into account by
adjusting the number of equity instruments included in the measurement of the transaction amount so that, ultimately, the amount
recognised for goods or services received as consideration for the equity instruments granted is based on the number of equity
instruments that eventually vest.
Measurement of fair values
The calculated fair value of the shares issued during the years ended 30 June 2017 and 30 June 2018 under the ESOP was
$133,010 and $156,247 respectively at 30 June 2018 and has been determined with reference to the closing price of the Company’s
fully paid ordinary shares.
The calculated fair value at 30 June 2018 of the Options granted during the years ended 30 June 2017 and 30 June 2018 was
$238,425 and $278,751 respectively and has been determined using the Black-Scholes option pricing model. Expected volatility is
estimated by considering historical volatility of comparable company share prices.
The inputs in the measurement of the fair value at 30 June 2018 of the equity-settled share-based payment plans granted during the
years ended 30 June 2017 and 30 June 2018 were as follows:
17. SHARE ISSUE COSTS
Balance at the beginning of the period
Share issue costs
18. RETAINED EARNINGS
Balance at the beginning of the period
Profit/(loss) attributable to owners of the company
Transfer from contingent option reserve
Share based payment transactions (refer Note 19)
19. SHARE BASED PAYMENT TRANSACTIONS
Expense recognised in profit or loss
Equity-settled share-based payment transactions
Executive share and option plan
Shareholder loan interest
Total expense/(income) recognised for equity-settled share-based payment
2018
$
2017
$
(2,521,167)
(549,408)
(3,070,575)
(2,514,522)
(6,645)
(2,521,167)
(32,288,242)
(2,339,777)
-
487,921
(34,140,098)
(30,240,688)
(4,406,909)
2,122,402
236,953
(32,288,242)
487,921
-
487,921
236,953
850,000
1,086,953
Share price
Exercise price
Expected volatility
Time to maturity
Risk-free interest rate
Dividend yield (assumed no dividends paid)
Fair value per option
Number of options
Total fair value of options
Granted during year
ended 30 June 2017
Granted during year
ended 30 June 2018
$0.03900
$0.05390
76%
8 years
2.79%
0%
$0.0210
11,353,565
$238,425
$0.03900
$0.07035
76%
9 years
2.79%
0%
$0.0209
13,337,370
$278,751
The calculated fair value of the shares that vested under the ESOP during the year ended 30 June 2018 (which were issued under
the ESOP in 2016) was $196,604 as at the vesting date of 20 April 2018 and has been determined with reference to the closing price
of the Company’s fully paid ordinary shares.
The calculated fair value of the options that vested under the ESOP during the year ended 30 June 2018 (which were granted under
the ESOP in 2016) was $359,972 as at the vesting date of 20 April 2018 and has been determined using the Black-Scholes option
pricing model. Expected volatility is estimated by considering historical volatility of comparable company share prices.
The inputs in the measurement of the fair value at vesting date of the options were as follows:
47
48
MITCHELL SERVICES LTD MITCHELL SERVICES LTD ANNUAL REPORT 2018ANNUAL REPORT 2018NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2018For personal use only Share price
Exercise price
Expected volatility
Time to maturity
Risk-free interest rate
Dividend yield (assumed no dividends paid)
Fair value per option
Number of options
Total fair value of options
$0.0400
$0.0395
76%
7 years
2.79%
0%
$0.0220
16,362,395
$359,973
does not speculate in any type of financial instrument.
Specific financial risk exposures and management thereof
The main risks the Group is exposed to through its financial instruments are interest rate risk, liquidity risk and credit risk. There have
been no substantive changes in the types of risks the Group is exposed to, how these risks arise, or the Board’s objectives, policies
and processes for managing or measuring the risks from the previous reporting period.
Interest rate risk
21(a)
Exposure to interest rate risk arises on financial assets and liabilities recognised at reporting date whereby a future change in
interest rates will affect future cash flows or the fair value of fixed rate financial instruments. The Group is also exposed to earnings
volatility on floating rate instruments.
The following tables set out the Group’s exposure to interest rate risk.
20. RECONCILIATION OF PROFIT/(LOSS) FOR THE YEAR TO NET CASH FLOWS FROM OPERATING ACTIVITIES
2018
2018
$
2017
$
Bank overdraft
Equipment finance leases
Premium insurance
Shareholder loan
Property loan
(a)
(b)
(c)
(d)
(e)
Expected duration until repayment
Within 1
year
$
1 to 2
years
$
2 to 3
years
$
More than
3 years
$
Total
$
-
-
-
-
-
2,968,319
3,393,685
1,808,376
174,965
8,345,344
390,235
-
-
-
390,235
-
-
8,500,000
-
8,500,000
2,713,115
-
-
-
2,713,115
6,071,669
3,393,685
10,308,376
174,965
19,948,694
(a)
(b)
(c)
(d)
(e)
Interest rates is fixed at a flat rate of 6.30% of drawn funds.
Interest rates are commercial lease finance rates and are fixed for the duration of the loan period.
Interest rate is fixed at a flat rates of 3.30% and 2.69% of the amount initially financed.
Interest is fixed at 10.00% for the duration of the loan period
Interest rates have varied between 6.050% and 6.085% per annum..
Profit/(loss) for the year
Adjustments for:
Depreciation and amortisation
Profit on sale of assets
Loss on sale of assets
Gain on Bargain Purchase
Change in fair value of asset held for sale
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
Recognition of share based payment
Income tax paid
21. FINANCIAL RISK MANAGEMENT
(2,339,777)
(4,406,909)
7,614,965
(996,254)
134,230
(350,663)
419,312
(708,217)
5,434,817
(314)
24,926
-
-
-
(10,565,660)
(1,012,273)
(356,052)
(981,363)
4,953,692
76,496
1,558,496
487,921
(221,444)
(418,484)
41,989
2,850,586
131,023
574,548
1,086,953
-
(1,274,318)
4,306,862
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
49
50
MITCHELL SERVICES LTD MITCHELL SERVICES LTD ANNUAL REPORT 2018ANNUAL REPORT 2018NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2018For personal use only 2017
Bank overdraft
Equipment finance leases
Premium insurance
Working capital loan
Shareholder loan
Expected duration until repayment
Within 1
year
$
1 to 2
years
$
2 to 3
years
$
More than
3 years
$
Total
$
535,000
-
-
-
535,000
1,696,498
2,346,895
1,703,249
502,331
6,248,973
422,534
-
-
-
422,534
207,806
19,149
-
-
226,955
-
-
-
8,500,000
8,500,000
2,861,838
2,366,044
1,703,249
9,002,331
15,933,462
(a)
(b)
(c)
(d)
(e)
(a)
(b)
(c)
(d)
(e)
Interest rates have varied between 5.55% and 5.63% 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 2.2592% of the amount initially financed.
Interest is fixed at a commercial lease finance rate of 6.6546% for the duration of the loan period
Interest is fixed at 10% for the duration of the loan period.
21(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.
Financial liability and financial asset maturity analysis
Financial liabilities due for payment
Trade and other payables (excluding estimated
employee entitlements)
Within 1 year
1 to 7 Years
Total
2018
$
2017
$
2018
$
2017
$
2018
$
2017
$
13,163,681
8,035,875
-
-
13,163,681
8,035,875
Financial liabilities
Total contractual outflows
Total expected outflows
6,071,669
2,326,838
13,877,025
13,071,624
19,948,694
15,398,462
19,235,350
10,362,713
13,877,025
13,071,624
33,112,375
23,434,337
19,235,350
10,362,713
13,877,025
13,071,624
33,112,375
23,434,337
Financial assets - cash flows realisable
Cash and cash equivalents
Trade and other receivables
Total anticipated inflows
1,863,738
816,511
-
-
1,863,738
816,511
17,608,675
7,120,015
-
-
17,608,675
7,120,015
19,472,413
7,936,526
-
-
19,472,413
7,936,526
Net (outflow)/inflow on financial instruments
237,063
(2,426,187)
(13,877,025)
(13,071,624)
(13,639,962)
(15,497,811)
21(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.
Details with respect to credit risk of trade and other receivables is provided in note 4(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 4(a).
The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international
credit-rating agencies.
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.
22. NET FAIR VALUES
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.
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.
51
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MITCHELL SERVICES LTD MITCHELL SERVICES LTD ANNUAL REPORT 2018ANNUAL REPORT 2018NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2018For personal use only
23. RELATED PARTY TRANSACTIONS
23(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:
Entity Name
Notch Holdings Pty Ltd
Well Drilled Pty Ltd
Mitchell Operations Pty Ltd
Notch No. 2 Pty Ltd
Mitchell Services Share Plan Pty Ltd
Radco Technologies Pty Ltd
Radco Group Australia Pty Ltd
ACN
009 271 461
123 980 343
165 456 066
606 170 138
610 901 221
137 688 227
137 688 745
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.
(iii) Other related parties
Other related parties include entities over which KMP have control or joint control.
23(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.
Manutech Engineering and Maintenance
The Group engages Manutech Engineering and Maintenance to purchase parts and in some instances perform repair and
maintenance type services. Manutech Engineering and Maintenance is an entity controlled by Peter Miller. The amount incurred
during the reporting period in relation to these services was $135,647 including GST. Amounts were billed on normal market rates for
such services and were due and payable under normal payment terms. An amount of $20,130 remains owing to this related entity at
the end of the reporting period.
Equipment Hub Pty Ltd
Nathan Mitchell is a significant shareholder of Equipment Hub Pty Ltd. In order to satisfy specific contract requirements, the Group
hired plant and equipment not available in its fleet from Equipment Hub. Equipment Hub also provide other ancillary services to the
Group from time to time. Hire of plant and equipment from this related entity for the reporting period amounted to $597,860 including
GST and was based on normal market rates and under normal payment terms. Fees for other services amounted to $74,250
including GST. An amount of $118,719 remains owing to this related entity at the end of the reporting period.
MEH Equipment Hire Pty Ltd
MEH Equipment Hire Pty Ltd is an entity controlled by Nathan Mitchell. On 5 October 2016, the Group entered into a vendor finance
asset sale agreement with MEH Equipment Hire Pty Ltd for the purchase of a Schramm T685 truck-mounted drill rig for $798,600
including GST. The purchase price was determined based on normal market rates and the interest rate on outstanding amounts is
5% per annum. At the end of the reporting period $407,300 remained outstanding and is fully repayable in July 2019.
Mitchell Family Investments (QLD) Pty Ltd
Mitchell Family Investments (QLD) Pty Ltd is an entity controlled by Nathan Mitchell. The Group leases the majority of the premises
located at 112 Bluestone Circuit, Seventeen Mile Rocks Brisbane, which is owned by Mitchell Family Investments (QLD) Pty Ltd. The
rental associated with this property for the reporting period amounted to $201,000 net of applied rental reductions associated with
the revised lease. An amount of $83,676 remains owing to this related entity at the end of the reporting period.
On 6 July 2015, the Group entered into a 5 year debt facility agreement of $3.5million with Mitchell Family Investments (QLD) Pty
Ltd at an interest rate of 10%. Interest paid to Mitchell Family Investments (QLD) Pty Ltd during the reporting period in relation to this
debt facility was $350,000.
In order to facilitate the completion of the Radco Drilling acquisition, the Group obtained a temporary, $2,000,000 facility from Mitchell
Family Investments (Qld) Pty Ltd on 28 March 2018. Interest was levied at 12% per annum on the facility which was unsecured. This
facility was repaid in full on 5 April 2018 following the completion of the acquisition which took place on 4 April 2018.
As part of an asset optimisation strategy (that included a comprehensive public sales and marketing campaign), the Group sold
surplus assets during the reporting period including assets with a written down value of $870,465 sold to Mitchell Family Investments
for $1,000,000, representing current market value. As part of the same asset optimisation strategy, the Group purchased an asset
from Mitchell Family Investments for $102,800 excluding GST, representing current market value.
Mitchell Group Pty Ltd
Mitchell Group Pty Ltd is an entity controlled by Nathan Mitchell. On 30 November 2016, the Group entered into a licence deed with
Mitchell Group for the use by Mitchell Group of a designated area within 112 Bluestone Circuit, Seventeen Mile Rocks Brisbane.
There are no rental charges associated with this property and Mitchell Group used the designated area under the licence deed for
the duration of the reporting period.
Mitchell Family Superannuation Fund
Mitchell Family Superannuation Fund is an entity controlled by Nathan Mitchell. On 30 November 2016, the Group entered into a
licence deed with Mitchell Family Superannuation Fund for the use by the Group of 119 Thomas Mitchell Drive, Muswellbrook to
facilitate the Group’s expansion into NSW. There are no rental charges associated with this property and The Group used occupied
this property under the licence deed for the duration of the reporting period.
Adaman Resources Pty Ltd
Adaman Resources Pty Ltd is an entity over which Nathan Mitchell has significant influence. During the reporting period, the Group
provided drilling services based on normal market rates and under normal payment terms to Adaman Resources Pty Ltd. Revenue
relating to these services was $216,160 excluding GST during the reporting and no amount remains outstanding from this related
entity at the end of the reporting period.
53
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MITCHELL SERVICES LTD MITCHELL SERVICES LTD ANNUAL REPORT 2018ANNUAL REPORT 2018NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2018For personal use only 24. 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 2018.
statement of profit or loss and other comprehensive income of $2,937,554 (2017: $1,448,168) represents the contributions payable
by the Group to these plans in accordance with contractual employment and statutory obligations. As at 30 June 2018, contributions
of $842,568 due in respect of the 2018 reporting period (2017: $421,739) had not been paid over to the plans. These amounts were
paid subsequent to the end of the 2018 reporting period.
25. AUDITORS REMUNERATION
29. OPERATING SEGMENTS
During the year, the following fees were paid or payable for services provided by the auditor or its related practices:
Audit and review of financial statements
Other
26. OPERATING LEASE COMMITMENTS
2018
$
2017
$
96,825
-
96,825
57,210
-
57,210
Operating leases relate to leases of land and buildings with varying lease terms not exceeding five (2017: 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
27. EARNINGS PER SHARE
Basic earnings per share
From continuing operations
Diluted earnings per share
From continuing operations
495,436
734,587
155,950
366,283
821,101
471,910
1,385,973
1,659,294
(0.14)
(0.14)
(0.24)
(0.24)
29(a) 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.
29(b) The Group generates revenue from external customers who individually account for greater than 10% of the Groups total
revenue. The below table sets out the applicable revenue percentage generated from each of these customers.
External Customer 1
External Customer 2
External Customer 3
External Customer 4
External Customer 5
External Customer 6
External Customer 7
30. BUSINESS COMBINATION
2018
$
23.30%
22.05%
16.36%
8.42%
7.67%
5.06%
4.04%
2017
$
10.78%
23.61%
0.42%
16.30%
17.82%
12.99%
11.00%
On 4 April 2018 the Group acquired 100% of the issued share capital of Radco Technologies Pty Ltd and Radco Group Australia Pty
Ltd (Radco Drilling). Radco Drilling operates in Queensland and New South Wales and is a specialist in the market of underground
coal drilling and gas drainage which is linked to production and required by long life underground coking coal mines. The acquisition
(which is expected to be materially earnings accretive into the foreseeable future) has further strengthened the Group’s diversity
across different drilling types and commodities.
Basic earnings per share and diluted earnings per share are calculated using earnings and weighted average number of ordinary
shares as follows:
The fair value of the purchase consideration as at the date of acquisition was $7,633,502 and was paid in cash.
Profit/(loss) for the year attributable to owners
Weighted average number of ordinary shares
28. SUPERANNUATION CONTRIBUTIONS
(2,339,777)
(4,406,909)
1,640,334,238
1,816,655,252
The Group contributes superannuation on behalf of qualifying employees to superannuation funds. The Group is required to make
specified contributions in accordance with contractual employment and statutory obligations. The total expense recognised in the
To the extent that that the fair value of the purchase consideration is greater than the fair values of the assets and liabilities acquired,
goodwill is recognised on acquisition. Conversely, to the extent that that the fair values of the assets and liabilities acquired exceed
the fair value of the purchase consideration, a resultant discount/gain on bargain purchase is recognised and included in the
Consolidated Statement of Profit or Loss and Other Comprehensive Income. The fair values of the assets and liabilities recognised
as at the date of the acquisition (and the comparison of those values with the purchase consideration of $7,633,502) are set out in
the following page.
55
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MITCHELL SERVICES LTD MITCHELL SERVICES LTD ANNUAL REPORT 2018ANNUAL REPORT 2018NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2018For personal use only
ANNUAL REPORT 2018
MITCHELL SERVICES LTD
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2018
DIRECTORS’ DECLARATION
Cash assets
Current receivables
Other current assets
Property, plant and equipment
Intangible assets - customer contracts
Deferred tax asset
Payables
Current tax liabilities
Provisions
Deferred tax liabilities
Financial liabilities
Net Assets
Gain on bargain purchase
In accordance with a resolution of the directors of Mitchell Services Limited, the Directors of the company declare that:
1.
the financial statements and notes, as set out on pages 26 to 57, are in accordance with the Corporations Act 2001 and:
comply with Australian Accounting Standards, which, as stated in accounting policy Note 1 to the financial statements,
(a)
constitutes compliance with International Financial Reporting Standards; and
(b) give a true and fair view of the financial position as at 30 June 2018 and of the performance for the year ended on that
date of the consolidated group;
2.
3.
in the directors’ opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they
become due and payable; and
the directors have been given the declarations required by s 295A of the Corporations Act 2001 from the Chief Executive
Officer and Chief Financial Officer.
$
3,382,239
1,240,811
113,173
4,021,835
2,880,000
155,783
(1,175,921)
(1,386,402)
(374,358)
(864,000)
(8,995)
7,984,165
350,663
Acquisition related costs of $80,342 are included in Legal and consultant fees in the Consolidated Statement of Profit or Loss and
Other Comprehensive Income and in Cashflows from operating activities in the Consolidated Statement of Cash Flows.
Radco Drilling contributed revenues of $4,910,544 and net profit of $1,192,568 to the Group for the period from 4 April 2018 to 30
June 2018.
Nathan Mitchell
Executive Chairman
If the acquisition had occurred on 1 July 2017, consolidated pro-forma revenue and loss for the year ending 30 June 2018 would
have been $85,019,904 and $2,241,978 respectively. These amounts have been calculated using the Radco Drilling results and
adjusting them for differences in the accounting policies between the Group and Radco Drilling.
Purchase consideration – cash outflow:
Cash consideration
Cash acquired
Net outflow of cash - investing activities
31. EVENTS AFTER THE REPORTING DATE
Dated at Brisbane this 28th day of August 2018
(7,633,502)
3,382,239
(4,251,263)
There has not been any matter or circumstance occurring subsequent to the end of the financial year that has significantly affected,
or may significantly affect, the operations of the Group, the results of those operations, or the state of affairs of the Group in future
financial years.
57
58
MITCHELL SERVICES LTD ANNUAL REPORT 2018For personal use only
We have audited the financial report of Mitchell Services Limited (the Company) and
Controlled Entities (the Group), which comprises the consolidated statement of financial
position as at 30 June 2018, the consolidated statement of profit or loss and other
comprehensive income, the consolidated statement of changes in equity and the
consolidated statement of cash flows for the year then ended, and notes comprising a
summary of significant accounting policies and other explanatory information, and the
directors’ declaration.
In our opinion:
(a) the accompanying financial report of Mitchell Services Limited and Controlled Entities
is in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the Group’s financial position as at 30 June
2018 and of its financial performance for the year then ended; and
(ii) complying with Australian Accounting Standards and the Corporations
Regulations 2001, and
(b) the financial report also complies with International Financial Reporting Standards as
disclosed in Note 1.
We conducted our audit in accordance with Australian Auditing Standards. Our
responsibilities under those standards are further described in the Auditor’s
Responsibilities for the Audit of the Financial Report section of our report. We are
independent of the Group in accordance with the auditor independence requirements of
the Corporations Act 2001 and the ethical requirements of the Accounting Professional
and Ethical Standards Board’s APES 110: Code of Ethics for Professional Accountants
(the Code) that are relevant to our audit of the financial report in Australia. We have also
fulfilled our other ethical responsibilities in accordance with the Code.
We confirm that the independence declaration required by the Corporations Act 2001,
which has been given to the directors of the company, would be in the same terms if
given to the directors as at the time of this auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
59
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report for the year ended 30 June 2018. These matters were addressed in
the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
Revenue Recognition
This is a key audit matter given that it is material to the Group’s results and the rates at which
revenue is charged to customers is complex and varies depending on the type of drilling service
performed and whether the drilling service is coal or minerals based.
Our audit procedures to address the risk of material misstatement relating to the determination and
recognition of drilling service revenue included, amongst others:
We obtained a detailed understanding of the revenue streams and the processes for calculating
and recording revenue. We also gained an understanding of the key internal controls in place to
ensure that recorded revenue had occurred and was accurate and that revenue had been
completely recorded. We tested these controls on a sample basis to ensure that they were
operating effectively throughout the year.
We tested a sample of revenue transactions to the daily drilling reports (which are signed by the
customer), to signed contracts (ensuring rates charged were accurate) and to receipt of funds in
the Group’s bank account.
We tested a sample of revenue earning activities from the daily drilling reports to customer
invoices ensuring that revenue earned had been recorded as revenue.
Radco Acquisition
During the year, the Group completed the acquisition of 100% of the Radco Group as disclosed in
Note 30. The Group has determined this acquisition to be a business combination in accordance with
AASB 3 Business Combinations and has applied the acquisition method to account for the
transaction. The acquisition method requires the recognition and measurement of the identifiable
assets acquired, the liabilities assumed and any goodwill or gain from a bargain purchase. The
identification of such assets and liabilities and their measurement at fair value is inherently
judgemental and we therefore considered this to be a key audit matter.
Our audit procedures to address the risk of material misstatement relating to the Radco business
combination included, amongst others:
We reviewed the Share Sale Deed to obtain a high level understanding of the business
combination.
We checked the calculation of the fair value of the purchase consideration and the relevant
amounts paid from the Group’s bank account.
We performed testing on the fair value of the net tangible assets acquired (other than plant and
equipment). These items included cash at bank, trade receivables, trade payables, provision for
income tax and provision for employee entitlements.
We reviewed management’s assessment of the fair value of the plant and equipment acquired
which was based on an independent valuation of those assets.
We performed testing on the discounted cash flows and contributory asset charges included
within the multi-period excess earnings method used to determine the fair value of customer
contracts.
60
MITCHELL SERVICES LTD MITCHELL SERVICES LTD ANNUAL REPORT 2018ANNUAL REPORT 2018For personal use only
We ensured that any deferred tax assets or liabilities at acquisition date were identified and
measured properly. A deferred tax liability in relation to the customer contracts was initially
recorded and subsequently taken to the statement of profit or loss and other comprehensive
income based on the Group’s current approach to deferred tax accounting.
We checked the accuracy of the resulting gain from bargain purchase which represented the
difference between the fair value of the purchase consideration and the fair value of the
identifiable assets and liabilities acquired.
The directors are responsible for the other information. The other information comprises the
information included in the Group’s annual report for the year ended 30 June 2018, but does not
include the financial report and our auditor’s report thereon. Our opinion on the financial report does
not cover the other information and accordingly we do not express any form of assurance conclusion
thereon. In connection with our audit of the financial report, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent with
the financial report or our knowledge obtained in the audit or otherwise appears to be materially
misstated. If, based on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report that fact. We have nothing to report
in this regard.
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 preparing the financial report, the directors are responsible for assessing the
ability of the Group to continue as a going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting unless the directors either intend to
liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with the Australian Auditing Standards will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of this financial report.
A further description of our responsibilities for the audit of the financial report is located at the
Auditing and Assurance Standards Board website at:
http://www.auasb.gov.au/auditors_responsibilities/ar2.pdf. This description forms part of our auditor’s
report.
61
We have audited the remuneration report included in pages 14 – 18 of the directors’ report for the
year ended 30 June 2018. The directors of the company are responsible for the preparation and
presentation of the remuneration report in accordance with s 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the remuneration report, based on our audit conducted in
accordance with Australian Auditing Standards.
In our opinion, the remuneration report of Mitchell Services Limited, for the year ended 30 June
2018, complies with s 300A of the Corporations Act 2001.
JESSUPS
Rodger Dunstan
Director
Level 1, 19 Stanley Street, Townsville QLD 4810
Dated this 28th day of August 2018
62
MITCHELL SERVICES LTD MITCHELL SERVICES LTD ANNUAL REPORT 2018ANNUAL REPORT 2018For personal use only
ADDITIONAL AUSTRALIAN STOCK EXCHANGE
INFORMATION
The following information is current as at 9 August 2018.
MSV Quoted Ordinary Shares
Spread of holdings
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
Greater than 100,000
Total
Holding less than a marketable parcel
The twenty largest listed security holders comprise:
Rank
Shareholder
Mitchell Group Holdings Pty Ltd
Washington H Soul Pattinson And Company Limited
Mitchell Family Investments (QLD) Pty Ltd
CVC Limited
HSBC Custody Nominees (Australia) Limited
Bond Street Custodians Limited
J P Morgan Nominees Australia Limited
Farjoy Pty Ltd
National Nominees Limited
Jumani Pty Ltd
Banjo Superannuation Fund Pty Ltd
Sonya Miller
Peter Miller
Pacific Development Corporation Pty Ltd
Berne No 132 Nominees Pty Ltd
BNP Paribas Noms Pty Ltd
Douglas Financial Consultants Pty Ltd
Poal Pty Ltd
Patricia Property Investments Pty Ltd
Carinda Pty Ltd
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Total
63
Number of
holders
Shares
% of total capital
issued
17
22
33
674
911
1,657
74
1,785
68,902
296,724
35,898,151
1,702,110,784
1,738,376,346
n/a
0.00%
0.00%
0.02%
2.07%
97.91%
100%
n/a
Ordinary
Shares
% of total
capital issued
198,883,930
172,725,354
153,842,569
106,664,147
96,610,448
85,894,515
69,593,010
63,129,050
32,061,096
29,100,279
20,907,500
19,816,810
19,816,809
19,000,000
17,348,034
14,966,320
14,823,552
13,504,763
13,000,000
13,000,000
11.44%
9.94%
8.85%
6.14%
5.56%
4.94%
4.00%
3.63%
1.84%
1.67%
1.20%
1.14%
1.14%
1.09%
1.00%
0.86%
0.85%
0.78%
0.75%
0.75%
1,174,688,186
67.57%
Unquoted and Restricted Securities
The following options granted as part of the Employee Share and Option Plan are on issue. The exercise of these options is subject
to vesting conditions. For more information, refer to the Directors’ Report.
Class
Management options
Number of options
41,053,330
Substantial Shareholders
The following is a summary of the current substantial shareholders pursuant to notices lodged with the ASX in accordance with
section 671B of the Corporations Act:
Name
Date of notice
Ordinary shares (1)
Mitchell Group Holdings Pty Ltd and associates
Washington H Soul Pattinson and Company Limited
Brickworks Limited and subsidiaries
CVC Limited
Mason Stevens Limited
Macquarie Group Limited
26 Oct 2015
16 Oct 2017
17 Oct 2017
26 Apr 2018
18 Jun 2018
10 Aug 2018
292,888,177
187,192,267
187,192,267
102,644,147
91,632,024
87,069,222
% of total capital
issued (2)
20.74%
10.79%
10.79%
5.92%
5.28%
5.00%
1. As disclosed in the most recent notice lodged with the ASX by the substantial shareholder
2.
The percentage set out in the notice lodged with the ASX is based on the total share capital at the date of interest
Voting Rights
Ordinary shares
The voting rights attached to ordinary shares is set out below:
On a show of hands, every member present at a meeting in person, or by proxy, shall have one vote, and upon a poll, each share
shall have one vote.
No other classes of securities have voting rights.
64
MITCHELL SERVICES LTD MITCHELL SERVICES LTD ANNUAL REPORT 2018ANNUAL REPORT 2018For personal use only CORPORATE DIRECTORY
Board of Directors
Executive Chairman
Nathan Andrew Mitchell
Directors
Peter Richard Miller
Robert Barry Douglas
Neal Macrossan O’Connor
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 3250
Darra Qld 4076
Ph: 07 3722 7222
Fax: 07 3722 7256
Website: www.mitchellservices.com.au
Share Registry
Link Market Services
10 Eagle Street
Brisbane QLD 4000
Ph: 07 3320 2200
Fax: 02 9287 0309
Website: www.linkmarketservices.com.au
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
480 Queen Street
Brisbane QLD 4000
Ph: 07 3257 5000
Fax: 07 3257 5999
Website: www.pwc.com.au
Bankers
National Australia Bank
20 Kerry Road
Archerfield QLD 4108
Ph: 13 2265
Fax: 1300 882 536
Website: www.nab.com.au
65
MITCHELL SERVICES LTD ANNUAL REPORT 2018For personal use only www.mitchellservices.com.au
For personal use only