National HealthCare Corporation
Annual Report 2019

Plain-text annual report

2019 ANNUAL REPORT 2 4 6 8 18 20 23 23 24 52 53 110 111 116 116 117 120 Looking forward to a brighter future. Sustainable energy for sustainable communities. Contents OPERATIONS REVIEW 2019 Snapshot Chairman’s Review Operations Overview Operating and Financial Review Sustainability Highlights Tax Contribution Report DIRECTORS’ REPORT Financial Summary Directors’ Report Auditor’s Independence Declaration FINANCIAL REPORT Directors’ Declaration Independent Auditor’s Report to the Members of New Hope Corporation Limited OTHER INFORMATION Shareholder Information Glossary Tenements NEW HOPE CORPORATION LIMITED AND CONTROLLED ENTITIES CORPORATE DIRECTORY DIRECTORS Robert D. Millner Chairman of Directors Todd J. Barlow Non Executive Director William H. Grant Non Executive Director Thomas C. Millner Non Executive Director Sue J. Palmer Non Executive Director Ian M. Williams Non Executive Director MANAGING DIRECTOR Shane O. Stephan COMPANY SECRETARY Janelle S. Moody AUDITORS Deloitte Touche Tohmatsu Level 23, Riverside Centre, 123 Eagle Street, Brisbane QLD 4000 PRINCIPAL ADMINISTRATION & REGISTERED OFFICE 3/22 Magnolia Drive, Brookwater QLD 4300 Telephone: (07) 3418 0500 Facsimile: (07) 3418 0355 SHARE REGISTER Computershare Investor Services Pty Limited Level 1, 200 Mary Street, Brisbane QLD 4000 Telephone: 1300 552 270 www.computershare.com WEBSITE ADDRESS www.newhopegroup.com.au ASX CODE: NHC This is an interactive PDF designed to enhance your experience. The best way to view this report is with Adobe Reader. Click on the links on the contents pages or use the home button in the footer to navigate the report. New Hope Corporation Limited and Controlled Entities 2019 Annual Report 1 2 4 6 8 18 20 23 23 24 52 53 110 111 116 116 117 120 Contents OPERATIONS REVIEW 2019 Snapshot Chairman’s Review Operations Overview Operating and Financial Review Sustainability Highlights Tax Contribution Report DIRECTORS’ REPORT Financial Summary Directors’ Report Auditor’s Independence Declaration FINANCIAL REPORT Directors’ Declaration OTHER INFORMATION Shareholder Information Glossary Tenements AND CONTROLLED ENTITIES CORPORATE DIRECTORY DIRECTORS Robert D. Millner Chairman of Directors Todd J. Barlow Non Executive Director William H. Grant Non Executive Director Thomas C. Millner Non Executive Director Sue J. Palmer Non Executive Director Ian M. Williams Non Executive Director MANAGING DIRECTOR Shane O. Stephan COMPANY SECRETARY Janelle S. Moody Independent Auditor’s Report to the Members of New Hope Corporation Limited NEW HOPE CORPORATION LIMITED AUDITORS Deloitte Touche Tohmatsu Level 23, Riverside Centre, 123 Eagle Street, Brisbane QLD 4000 3/22 Magnolia Drive, Brookwater QLD 4300 PRINCIPAL ADMINISTRATION & REGISTERED OFFICE Telephone: (07) 3418 0500 Facsimile: (07) 3418 0355 SHARE REGISTER Computershare Investor Services Pty Limited Level 1, 200 Mary Street, Brisbane QLD 4000 Telephone: 1300 552 270 www.computershare.com WEBSITE ADDRESS www.newhopegroup.com.au ASX CODE: NHC Looking forward to a brighter future. Sustainable energy for sustainable communities. New Hope Corporation Limited and Controlled Entities 2019 Annual Report 1 2019 Snapshot 11% EBITDA (before non regular items) $517M FINANCIALS 23% TOTAL TONNES SOLD 10.9M 13% FINAL DIVIDEND 9.0 cents 3% PROFIT AFTER INCOME TAX (before non regular items) $268M 18% 3% EARNINGS PER SHARE Before non regular items 32.3 cents OPERATIONS CASH GENERATED FROM OPS (before interest, tax and acquisition costs) $510M CUSTOMER PROFILE Chile Vietnam India China Total segment revenue by geographical location Korea/Indonesia Japan Japan Japan China China Taiwan Taiwan Chile Chile Korea/Indonesia Korea/Indonesia Vietnam Vietnam India India Other Other Australia Australia $557,285 $557.3M $116,322 $116.3M $312.7M $312,722 $19.4M $19,360 $97.0M $96,967 $1.9M $1,890 $10.2M $10,231 $98.2M $98,237 $78.9M $78,901 Taiwan Other Australia Australia R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R Korea/Indonesia Japan China Taiwan Chile Vietnam India Other Australia $390,678 $174,324 $212,282 $8,858 $38,718 $11,779 $15,105 $136,564 $73,164 2 2 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 3 3 2019 Snapshot 11% EBITDA (before non regular items) $517M FINANCIALS 23% TOTAL TONNES SOLD 10.9M 3% PROFIT AFTER INCOME TAX (before non regular items) $268M 3% EARNINGS PER SHARE Before non regular items 32.3 cents OPERATIONS CASH GENERATED FROM OPS (before interest, tax and acquisition costs) 13% FINAL DIVIDEND 9.0 cents 18% $510M Chile Vietnam India CUSTOMER PROFILE China Total segment revenue by geographical location Korea/Indonesia Japan Korea/Indonesia Korea/Indonesia Japan Japan China China Taiwan Taiwan Chile Chile Vietnam Vietnam India India Other Other Australia Australia $557,285 $557.3M $116,322 $116.3M $312,722 $312.7M $19,360 $19.4M $96,967 $97.0M $1,890 $1.9M $10,231 $10.2M $98,237 $98.2M $78,901 $78.9M Taiwan Other Australia Australia R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R Japan China Taiwan Chile Korea/Indonesia Vietnam India Other Australia $390,678 $174,324 $212,282 $8,858 $38,718 $11,779 $15,105 $136,564 $73,164 2 2 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 3 3 Chairman’s Review Dear Shareholders, By many criteria 2019 was a record year for New Hope. The Company achieved record saleable production and sales as well as a record full year profit before non regular items. Jeebropilly, our oldest operation which will close this calendar year, delivered its best ever financial performance. The team at Jeebropilly are achieving their objective of finishing well as the last operating mine in the West Moreton district of Queensland. Our continued success validates our customer driven strategy in meeting their demand for high quality thermal coal. Asian power utilities continue to invest in new High Efficiency Low Emissions (HELE) thermal coal power generation capacity. These HELE power plants have economic lives of many decades. Realising this market opportunity, New Hope over the past year increased its interest in the Bengalla mine from 40% to 80% through acquisition of an additional 30% interest from Wesfarmers on 3 December 2018 and an acquisition of 10% from Mitsui on 25 March 2019. Bengalla now forms the largest component of New Hope’s asset portfolio with the mine’s management an integral part of the New Hope management team. Bengalla achieved many milestones during the past year as it celebrated twenty years of operations including achieving record monthly production and a new sustained production target of 10 million tonnes per annum. Working with our joint venture partner, Taipower we have simplified the ownership and management processes at the mine. Your management team is working on several further initiatives to optimise returns from our significant investment in Bengalla. Affordable, reliable access to electricity is a foundation stone of economic development. Our resources help improve the living standards of our Asian neighbours and coal will continue to play a key role in poverty alleviation and economic development. For example, India currently generates approximately 75% of its electricity from coal. By 2040 the International Energy Agency predicts that India will use coal to produce only around half of their electricity. However, because of the significant increase in per capita electricity demanded over this time, it is forecast that India will need an additional 700 million tonnes of coal every year compared to today. Over 150 million people in India lack access to electricity. How do the anti-coal activists morally justify withholding the benefits of affordable electricity from so many people? Your Company creates wealth for its stakeholders though providing energy, a key development need, to these growing markets creating massive benefits to the large populations demanding energy to our north. These demands will continue to grow. Financial Performance An increase in sales tonnages in combination with healthy coal prices has enabled the Company to achieve a full year profit before tax and non regular items of $384.3 million up 3% on last year’s record of $373.2 million. After non regular items the Company reported net profit after tax of $210.7 million for the year ended 31 July 2019. The result is 41% higher than the 2018 result of $149.5 million. During the year the Company generated a strong cash operating surplus of $509.8 million (before acquisition costs, interest and tax) which is an increase of 18% on the 2018 result of $433.9 million. Before non regular items, basic earnings for 2019 were 32.3 cents per share, compared to 31.5 cents per share in 2018. After non regular items, basic earnings per share were 25.3 cents per share for 2019 against 18.0 cents in 2018. Directors have declared a final dividend of 9.0 cents per share (2018 – 8.0 cents per share). This dividend is fully franked at a rate of 30% and payable on 5 November 2019 to shareholders registered as at 22 October 2019. Key Points The Company produced 10.9 million tonnes of saleable coal in 2019 which is a 21% increase on 2018 and the highest in the Company’s history. New Hope’s two operating mines in South East Queensland (New Acland and Jeebropilly) combined to produce 4.8 million tonnes of saleable coal during the year ended 31 July 2019. New Hope’s share of the Bengalla mine (which increased from 40% to 80% during the year) produced 6.0 million tonnes. Safe production is a value of New Hope. Safety controls have to be particularly effective when using such large equipment with high levels of stored energies as in the resources industry. During the past year the safety performance of the Queensland mining industry has been particularly poor resulting in the entire industry undertaking a “safety reset” involving a recommitment by all staff to core safety principles. Some of our operations, such as Bridgeport and Queensland Bulk Handling continued their remarkable track record of no lost time injuries occurring for many years of operation. Our group Total Recordable Injury Frequency Rate continued its long-term downwards trend and Jeebropilly won the Queensland Mining Industry Best Health and Wellness Program Award. Tragically on 3 November 2018 a tyre fitter employed by a contractor to Bengalla was fatally injured. The NSW Department of Planning’s Resource Regulator is continuing their investigations and Bengalla continues to cooperate with the authorities. Bengalla continues to offer support tothe contractor’s family and to all personnel who have been affected by the tragedy. Acland Pastoral operations continued to manage its breeder herd through a severe drought period with minimal losses. During the summer drought period up to 400 head 3% PROFIT BEFORE INCOME TAX (BEFORE NON REGULAR ITEMS) $384M 21% REVENUE FROM OPERATIONS $1,306M Unfortunately at the time of release of this report these approvals have not been forthcoming from the Queensland Government and therefore the Company has had to begin a redundancy process for 150 employees. R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R of cattle grazed on New Acland Mine rehabilitation areas. Conclusion The irrigation footprint at Acland operations has increased Your Company continues to grow despite the real from 26 to 112 hectares. Acland Pastoral expertise is now impediments to growth caused through over regulation being applied to buffer land areas at Bengalla. New Hope’s oil production subsidiary, Bridgeport Energy Limited produced 381,000 barrels during 2019 a 2% increase on 2018. During the year five development wells were drilled of which three were successful and placed into production. Bridgeport has also been successful in de-risking its exploration portfolio through negotiation of several farm-out agreements. Following the positive result of a judicial review in the Queensland Supreme Court of the original Land Court decision, the New Acland Stage 3 project approvals were remitted to the Queensland Land Court. On 7 November 2018 the Land Court handed down a positive recommendation and subsequently, in February 2019 the Coordinator-General issued a change report approving amendments to noise limit conditions as recommended by the Land Court. During March 2019 the Queensland Department of Environment and Science granted the application to amend the Environmental Authority. An appeal to the Supreme Court decision was heard in the Queensland Court of Appeal during late February and very early March 2019. On 10 September 2019, the Queensland Court of Appeal ruled against Oakey Coal Action Alliance on all matters it had appealed and in the Company’s favour on the matter of apprehended bias and groundwater. The Acland Stage 3 project needs to secure Mining Leases, an Associated Water Licence, the continued use of the Jondaryan load-out facility and a number of secondary approvals before mining activity can commence. New Hope remains committed to delivering the New Acland Stage 3 project, the approval of which in a timely manner is crucial to the continuity of operations and therefore employment for approximately 300 employees and 500 contractors. of the Australian resources industry. Back in 2011 environmental activists prepared a strategy called, “Stopping the Coal Export Boom”. Their strategy was to use the court systems to hold up projects by prolonging approval processes to discourage investment. Sadly many of these campaigns are being funded by State Governments using our taxes, having the effect of costing jobs in regional Australia. These anti-development campaigns have been effective due to outdated overly complex legislation and have resulted in a significant deterioration in our political risk profile for resource investment. The Fraser Institute has ranked Queensland in the policy area of “certainty of environmental regulation” behind Russia, PNG, and Congo. It is encouraging to see the establishment of a Productivity Commission inquiry into the unnecessary red tape holding back investment in the resources industry. Hopefully the tide is turning as a greater number of people become aware of the critical importance of the resources industry to the quality of living for all Australians. Put simply, the resource industry generates high paying jobs and not just in the regions but also in our capital cities. Whilst other companies are giving up, exiting assets for non-financial reasons, New Hope will continue to meet the challenge of growing a profitable coal exporting business serving our Asian customer’s needs. I thank my Board colleagues for their significant efforts during this very active year for the Company. I would also like to thank the management and staff of the Company for their work in producing the record financial result whilst also demonstrating resilience in progressing the New Acland Stage 3 approvals process. Finally, I acknowledge the continued support we receive from you, our shareholders. R.D. Millner | CHAIRMAN 4 4 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 5 5 Our continued success validates our customer driven strategy 2018. After non regular items, basic earnings per share were Chairman’s Review Dear Shareholders, By many criteria 2019 was a record year for New Hope. The Company achieved record saleable production and sales as well as a record full year profit before non regular items. Jeebropilly, our oldest operation which will close this calendar year, delivered its best ever financial performance. The team at Jeebropilly are achieving their objective of finishing well as the last operating mine in the West Moreton district of Queensland. in meeting their demand for high quality thermal coal. Asian power utilities continue to invest in new High Efficiency Low Emissions (HELE) thermal coal power generation capacity. These HELE power plants have economic lives of many decades. Realising this market opportunity, New Hope over the past year increased its interest in the Bengalla mine from 40% to 80% through acquisition of an additional 30% interest from Wesfarmers on 3 December 2018 and an acquisition of 10% from Mitsui on 25 March 2019. Bengalla now forms the largest component of New Hope’s asset portfolio with the mine’s management an integral part of the New Hope management team. Bengalla achieved many milestones during the past year as it celebrated twenty years of operations including achieving record monthly production and a new sustained production target of 10 million tonnes per annum. Working with our joint venture partner, Taipower we have simplified the ownership and management processes at the mine. Your management team is working on several further initiatives to optimise returns from our significant investment in Bengalla. Affordable, reliable access to electricity is a foundation stone of economic development. Our resources help improve the living standards of our Asian neighbours and coal will continue to play a key role in poverty alleviation and economic development. For example, India currently generates approximately 75% of its electricity from coal. By 2040 the International Energy Agency predicts that India will use coal to produce only around half of their electricity. However, because of the significant increase in per capita electricity demanded over this time, it is forecast that India will need an additional 700 million tonnes of coal every year compared to today. Over 150 million people in India lack access to electricity. How do the anti-coal activists morally justify withholding the benefits of affordable electricity from so many people? Your Company creates wealth for its stakeholders though providing energy, a key development need, to these growing markets creating massive benefits to the large populations demanding energy to our north. These demands will continue to grow. Financial Performance An increase in sales tonnages in combination with healthy coal prices has enabled the Company to achieve a full year profit before tax and non regular items of $384.3 million up 3% on last year’s record of $373.2 million. After non regular items the Company reported net profit after tax of $210.7 million for the year ended 31 July 2019. The result is 41% higher than the 2018 result of $149.5 million. During the year the Company generated a strong cash operating surplus of $509.8 million (before acquisition costs, interest and tax) which is an increase of 18% on the 2018 result of $433.9 million. Before non regular items, basic earnings for 2019 were 32.3 cents per share, compared to 31.5 cents per share in 25.3 cents per share for 2019 against 18.0 cents in 2018. Directors have declared a final dividend of 9.0 cents per share (2018 – 8.0 cents per share). This dividend is fully franked at a rate of 30% and payable on 5 November 2019 to shareholders registered as at 22 October 2019. Key Points The Company produced 10.9 million tonnes of saleable coal in 2019 which is a 21% increase on 2018 and the highest in the Company’s history. New Hope’s two operating mines in South East Queensland (New Acland and Jeebropilly) combined to produce 4.8 million tonnes of saleable coal during the year ended 31 July 2019. New Hope’s share of the Bengalla mine (which increased from 40% to 80% during the year) produced 6.0 million tonnes. Safe production is a value of New Hope. Safety controls have to be particularly effective when using such large equipment with high levels of stored energies as in the resources industry. During the past year the safety performance of the Queensland mining industry has been particularly poor resulting in the entire industry undertaking a “safety reset” involving a recommitment by all staff to core safety principles. Some of our operations, such as Bridgeport and Queensland Bulk Handling continued their remarkable track record of no lost time injuries occurring for many years of operation. Our group Total Recordable Injury Frequency Rate continued its long-term downwards trend and Jeebropilly won the Queensland Mining Industry Best Health and Wellness Program Award. Tragically on 3 November 2018 a tyre fitter employed by a contractor to Bengalla was fatally injured. The NSW Department of Planning’s Resource Regulator is continuing their investigations and Bengalla continues to cooperate with the authorities. Bengalla continues to offer support tothe contractor’s family and to all personnel who have been affected by the tragedy. Acland Pastoral operations continued to manage its breeder herd through a severe drought period with minimal losses. During the summer drought period up to 400 head R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 3% PROFIT BEFORE INCOME TAX (BEFORE NON REGULAR ITEMS) $384M 21% REVENUE FROM OPERATIONS $1,306M Unfortunately at the time of release of this report these approvals have not been forthcoming from the Queensland Government and therefore the Company has had to begin a redundancy process for 150 employees. Conclusion Your Company continues to grow despite the real impediments to growth caused through over regulation of the Australian resources industry. Back in 2011 environmental activists prepared a strategy called, “Stopping the Coal Export Boom”. Their strategy was to use the court systems to hold up projects by prolonging approval processes to discourage investment. Sadly many of these campaigns are being funded by State Governments using our taxes, having the effect of costing jobs in regional Australia. These anti-development campaigns have been effective due to outdated overly complex legislation and have resulted in a significant deterioration in our political risk profile for resource investment. The Fraser Institute has ranked Queensland in the policy area of “certainty of environmental regulation” behind Russia, PNG, and Congo. It is encouraging to see the establishment of a Productivity Commission inquiry into the unnecessary red tape holding back investment in the resources industry. Hopefully the tide is turning as a greater number of people become aware of the critical importance of the resources industry to the quality of living for all Australians. Put simply, the resource industry generates high paying jobs and not just in the regions but also in our capital cities. Whilst other companies are giving up, exiting assets for non-financial reasons, New Hope will continue to meet the challenge of growing a profitable coal exporting business serving our Asian customer’s needs. I thank my Board colleagues for their significant efforts during this very active year for the Company. I would also like to thank the management and staff of the Company for their work in producing the record financial result whilst also demonstrating resilience in progressing the New Acland Stage 3 approvals process. Finally, I acknowledge the continued support we receive from you, our shareholders. R.D. Millner | CHAIRMAN of cattle grazed on New Acland Mine rehabilitation areas. The irrigation footprint at Acland operations has increased from 26 to 112 hectares. Acland Pastoral expertise is now being applied to buffer land areas at Bengalla. New Hope’s oil production subsidiary, Bridgeport Energy Limited produced 381,000 barrels during 2019 a 2% increase on 2018. During the year five development wells were drilled of which three were successful and placed into production. Bridgeport has also been successful in de-risking its exploration portfolio through negotiation of several farm-out agreements. Following the positive result of a judicial review in the Queensland Supreme Court of the original Land Court decision, the New Acland Stage 3 project approvals were remitted to the Queensland Land Court. On 7 November 2018 the Land Court handed down a positive recommendation and subsequently, in February 2019 the Coordinator-General issued a change report approving amendments to noise limit conditions as recommended by the Land Court. During March 2019 the Queensland Department of Environment and Science granted the application to amend the Environmental Authority. An appeal to the Supreme Court decision was heard in the Queensland Court of Appeal during late February and very early March 2019. On 10 September 2019, the Queensland Court of Appeal ruled against Oakey Coal Action Alliance on all matters it had appealed and in the Company’s favour on the matter of apprehended bias and groundwater. The Acland Stage 3 project needs to secure Mining Leases, an Associated Water Licence, the continued use of the Jondaryan load-out facility and a number of secondary approvals before mining activity can commence. New Hope remains committed to delivering the New Acland Stage 3 project, the approval of which in a timely manner is crucial to the continuity of operations and therefore employment for approximately 300 employees and 500 contractors. 4 4 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 5 5 Operations overview E C EXPLORATION & DEVELOPMENT COAL & REHABILITATION PORT FACILITY LENTON/BURTON NORTH SURAT QLD E Lenton/Burton E Churchyard Creek Yamala E E North Surat C A E New Acland P Brisbane C West Moreton NSW C Bengalla C A P E OPERATIONS COAL OPERATIONS AGRICULTURE OPERATIONS PORT FACILITY EXPLORATION & DEVELOPMENT LOCATION South West Queensland (near Taroom and Wandoan) PROJECT AREAS Elimatta, Taroom, Collingwood and Woori PRODUCT Thermal coal MINING METHOD Open cut DEVELOPMENT STATUS Pre-Feasibility Study consisting of Elimatta, Taroom, Collingwood and Woori together as the North Surat Project is being finalised. On ground exploration coal quality core drilling program undertaken at Taroom for improved resource definition. The Elimatta Mining Lease applications have entered the final stages of the statutory approvals process. PROJECT NAME Lenton Joint Venture Burton Mine LOCATION Bowen Basin, Queensland PROJECT AREAS Burton Mine and Lenton Project PRODUCT Coking/thermal coal MINING METHOD Open cut Lenton Joint Venture Burton Mine is a joint venture project (New Hope 90%, Formosa Plastics Group 10%). ` BURTON MINE Existing open-cut operation DEVELOPMENT STATUS Geological assessment of the Burton tenements and developing detailed plans for the re-commissioning of the infrastructure ` LENTON PROJECT Neighbouring greenfield Mine DEVELOPMENT STATUS Progressing a major amendment to the Environmental Authority, Associated Water Licence (AWL) application and EPBC Act referral. NEW ACLAND WEST MORETON LOCATION North-west of Oakey, Queensland ` JEEBROPILLY LOCATION Amberley, Queensland multi-thin-seam mining multi-thin-seam mining OPERATIONS 2002 to present PRODUCT Thermal coal MINING METHOD Open cut, BENGALLA LOCATION Hunter Valley, New South Wales OPERATIONS 1996 to 2039 PRODUCT Thermal coal MINING METHOD Open cut OPERATIONS 1982 to present PRODUCT Thermal coal MINING METHOD Open cut, ` NEW OAKLEIGH LOCATION Rosewood, Queensland CURRENT ACTIVITIES Monitoring program and on-going maintenance of previously rehabilitated areas and the development and implementation of a detailed rehabilitation plan for the New Oakleigh East rehabilitation area. Ipswich, Queensland CURRENT ACTIVITIES Monitoring program and on-going maintenance of previously rehabilitated areas. Bengalla Mine is a joint venture (New Hope 80%, and Taipower 20%). ` CHUWAR LOCATION P A QUEENSLAND BULK HANDLING QBH is a separate venture located at the Port of Brisbane. It is a multi-user facility with the capacity to export 10 million tonnes per annum (mtpa) of coal and is Brisbane’s leading coal export terminal. It has an international reputation as one of the nation’s most reliable, efficient and quality assured facilities. AGRICULTURE ACLAND PASTORAL COMPANY Cattle breeding, backgrounding and cropping operation that owns more than 10,000ha of land on and around New Acland Mine. The operation runs largely on recycled waste water and provides a clear demonstration of the compatibility of mining and agriculture. 6 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 7 Operations overview E North Surat C A E New Acland P Brisbane C West Moreton Coking/thermal coal MINING METHOD LENTON/BURTON NORTH SURAT PROJECT NAME LOCATION Lenton Joint Venture South West Queensland Bowen Basin, Queensland PROJECT AREAS (near Taroom and Wandoan) Elimatta, Taroom, Collingwood and Woori PRODUCT Thermal coal Open cut DEVELOPMENT STATUS Pre-Feasibility Study consisting of Elimatta, Taroom, Collingwood and Woori together as the North Surat Project is being finalised. On ground exploration coal quality core drilling program undertaken at Taroom for improved resource definition. The Elimatta Mining Lease applications have entered the final stages of the statutory approvals process. Burton Mine LOCATION PROJECT AREAS Burton Mine and Lenton Project PRODUCT MINING METHOD Open cut Lenton Joint Venture Burton Mine is a joint venture project (New Group 10%). ` BURTON MINE Existing open-cut operation Hope 90%, Formosa Plastics DEVELOPMENT STATUS Geological assessment of the Burton tenements and developing detailed plans for the re-commissioning of the infrastructure ` LENTON PROJECT Neighbouring greenfield Mine DEVELOPMENT STATUS Progressing a major amendment to the Environmental Authority, Associated Water Licence (AWL) application and EPBC Act referral. QLD E Lenton/Burton E Churchyard Creek E Yamala NSW C Bengalla C A P E OPERATIONS COAL OPERATIONS AGRICULTURE OPERATIONS PORT FACILITY EXPLORATION & DEVELOPMENT E C P EXPLORATION & DEVELOPMENT COAL & REHABILITATION PORT FACILITY NEW ACLAND LOCATION North-west of Oakey, Queensland OPERATIONS 2002 to present PRODUCT Thermal coal WEST MORETON ` JEEBROPILLY LOCATION Amberley, Queensland OPERATIONS 1982 to present PRODUCT Thermal coal MINING METHOD Open cut, multi-thin-seam mining MINING METHOD Open cut, multi-thin-seam mining BENGALLA LOCATION Hunter Valley, New South Wales OPERATIONS 1996 to 2039 PRODUCT Thermal coal MINING METHOD Open cut Bengalla Mine is a joint venture (New Hope 80%, and Taipower 20%). ` NEW OAKLEIGH LOCATION Rosewood, Queensland CURRENT ACTIVITIES Monitoring program and on-going maintenance of previously rehabilitated areas and the development and implementation of a detailed rehabilitation plan for the New Oakleigh East rehabilitation area. ` CHUWAR LOCATION Ipswich, Queensland CURRENT ACTIVITIES Monitoring program and on-going maintenance of previously rehabilitated areas. QUEENSLAND BULK HANDLING QBH is a separate venture located at the Port of Brisbane. It is a multi-user facility with the capacity to export 10 million tonnes per annum (mtpa) of coal and is Brisbane’s leading coal export terminal. It has an international reputation as one of the nation’s most reliable, efficient and quality assured facilities. A AGRICULTURE ACLAND PASTORAL COMPANY Cattle breeding, backgrounding and cropping operation that owns more than 10,000ha of land on and around New Acland Mine. The operation runs largely on recycled waste water and provides a clear demonstration of the compatibility of mining and agriculture. 6 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 7 250 200 150 100 50 Operating and financial review 0 -50 Segment profit before tax and non regular items $m 250 200 150 100 50 0 (50) Coal Mining QLD Coal Mining NSW Other 2019 2018 The Company reported net profit before tax and non regular items of $384.3 million for the year ended 31 July 2019. The result is 3% higher than the 2018 result of $373.2 million. The contribution of the operating segments to the net profit before tax and non regular items of $391.7 million (2018 – $357.9 million) is shown in the graph to the left. After non regular items the Company reported net profit after tax of $210.7 million for the year ended 31 July 2019. The result is 41% higher than the 2018 result of $149.5 million. During the year the company generated a strong cash operating surplus of $509.8 million (before acquisition costs, interest and tax) which is an increase of 18% on the 2018 result of $433.9 million. Before non regular items, basic earnings for 2019 were 32.3 cents per share, compared to 31.5 cents per share in 2018. After non regular items, basic earnings per share were 25.3 cents per share for 2019 against 18.0 cents in 2018. Directors have declared a final dividend of 9.0 cents per share (2018 – 8.0 cents per share). This dividend is fully franked and payable on 5 November 2019 to shareholders registered as at 22 October 2019. Compared to the previous corresponding period, the 2019 full year result benefited from: • Increased production and sales driven by the acquisition of an additional interest in the Bengalla Joint venture; • A lower AUD:USD exchange rate. Partially offset by: • Increased cost of sales as the Acland Mine nears the end of the Stage 2 life; • Increased cost of sales at Bengalla with increased stripping activities combined with timing of major repairs; • Reduction in interest revenue and increase in interest expenses resulting from borrowings required for the Bengalla acquisition; and • Non regular items including acquisition costs relating to the Bengalla acquisition. R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 8 8 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 99 Operating and financial review 0 Segment profit before tax and non regular items The Company reported net profit before tax and non regular items of $384.3 million for the year ended 31 July 2019. The result is 3% higher than the 2018 result of $373.2 million. The contribution of the operating segments to the net profit before tax and non regular items of $391.7 million (2018 – $357.9 million) is shown in the graph to the left. 250 200 150 100 50 -50 $m 250 200 150 100 50 0 (50) Coal Mining Coal Mining QLD NSW Other 2019 2018 After non regular items the Company reported net profit after tax of $210.7 million for the year ended 31 July 2019. The result is 41% higher than the 2018 result of $149.5 million. During the year the company generated a strong cash operating surplus of $509.8 million (before acquisition costs, interest and tax) which is an increase of 18% on the 2018 result of $433.9 million. Before non regular items, basic earnings for 2019 were 32.3 cents per share, compared to 31.5 cents per share in 2018. After non regular items, basic earnings per share were 25.3 cents per share for 2019 against 18.0 cents in 2018. Directors have declared a final dividend of 9.0 cents per share (2018 – 8.0 cents per share). This dividend is fully franked and payable on 5 November 2019 to shareholders registered as at 22 October 2019. Compared to the previous corresponding period, the 2019 full year result benefited from: • Increased production and sales driven by the acquisition of an additional interest in the Bengalla Joint venture; • A lower AUD:USD exchange rate. Partially offset by: • Increased cost of sales as the Acland Mine nears the end of the Stage 2 life; • Increased cost of sales at Bengalla with increased stripping activities combined with timing of major repairs; • Reduction in interest revenue and increase in interest expenses resulting from borrowings required for the Bengalla acquisition; and • Non regular items including acquisition costs relating to the Bengalla acquisition. R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 8 8 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 99 Operations The Company remains focused on safety with all sites recently completing safety reset conversations following industry wide consultation on the importance of safety at work. A refocus on hazard identification and the implementation of effective controls has occurred across all sites including a focus also on personal risk management and safe behaviours. OPERATIONS The Company produced 10.9 million tonnes of saleable coal in 2019 which is a 21% increase on 2018. New Hope’s two operating mines in South East Queensland (New Acland and Jeebropilly) combined to produce 4.8 million tonnes of saleable coal during the year ended 31 July 2019. New Hope’s share of the Bengalla mine (which increased from 40% to 80% during the year) produced 6.0 million tonnes. The total quantity of coal sold in 2019 was 10.9 million tonnes. NEW ACLAND COAL MINE New Acland produced 4.1 million tonnes of clean coal for the year, down 8% year on year due to operating constraints and the quality of raw coal as operations extract the final coal from the Stage 2 resource area. Key achievements and challenges during the period included: • Recovering all coal from South Pit in the Stage 2 area and preparing for a transition to Stage 3 once approvals are received; • Progressing with difficult but economic coal recovery in the underground workings in West Pit whilst undertaking strict noise monitoring to ensure compliance with the sites operating conditions; and • The Department of Natural Resources and Mines certifying 349ha of rehabilitation, the single largest certification at an opencut operation in Queensland. Safety continues to be a prime focus at New Acland. The site recorded two lost time injuries, four disabling injuries and three medical treatment cases over the 12 months. Nine high potential incidents were reported to the Department. The site continued to focus on personal risk management processes as well as increasing intra-site communication and learning from incidents. ` New Acland Stage 3 Development (NAC03) The remitted Queensland Land Court hearing took place in early October 2018. On 7 November 2018, the Court handed down a positive recommendation in respect of the New Acland Mine Stage 3 mining lease and environmental authority amendment applications. On 12 February 2019, the Coordinator-General of Queensland issued a change report approving amendments to noise limit conditions as recommended by the Land Court. On 12 March 2019 the Queensland Department of Environment and Science granted the application to amend the Environmental Authority. From 27 February to 1 March 2019, the Queensland Court of Appeal heard the Oakey Coal Action Alliance (OCAA) appeal against the May 2018 Judicial Review findings of the Queensland Supreme Court. On 10 September 2019, the Company received the judgement from the Queensland Court of Appeal in relation to the New Acland Stage 3 project which ruled against OCAA on all matters and in favour of New Acland on groundwater and apprehension of bias. The Company is pleased with the outcome however will await final orders to be handed down in due course before assessing next steps for the project. The Group remains committed to delivering the New Acland Stage 3 project in a timely manner to ensure continuity of operations and ongoing employment in the region. The public notification period for the AWL application ended on 7 May 2019. A change request was submitted to the Office of the Coordinator-General on 24 May 2019 regarding Imposed Condition 4 from the Coordinator-General’s evaluation report on the Environmental Impact Statement (December 2014). The application seeks the extended use of the Jondaryan load-out facility for a period of time to allow the new rail infrastructure to be built. Public notification of the change request occurred from 22 June to 21 July 2019. The project needs to secure Mining Leases (ML), an AWL and a number of secondary approvals before mining activity can commence. New Hope remains committed to delivering the New Acland Mine Stage 3 project and will continue to work with the relevant government departments to ensure all necessary approvals are received for the project. Obtaining final approval in a timely manner is critical to ensuring the continuity of operations and therefore employment for approximately 300 employees and 500 contractors currently engaged at the New Acland mine. Unfortunately at the time of release of this report these approvals have not been forthcoming from the Queensland Government and therefore the Company has had to begin a redundancy process for 150 employees. ` New Acland Exploration The drilling program consisted of 177 open holes, nine core holes and three groundwater monitoring bores, with a total of 13,138 metres drilled. The focus of this work has been resource and reserve definition, in and around the existing operation. A relinquishment program of non-prospective tenure across the Darling Downs Region continued. WEST MORETON OPERATIONS The Jeebropilly Mine produced 0.7 million tonnes of saleable coal in 2019. This volume is in line with the previous year. Rehabilitation activities at the New Oakleigh and Chuwar sites continued including the capping of remnant tailings dams and further works required to achieve final rehabilitation at other areas of the site. R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 10 10 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 11 11 Operations The Company remains focused on safety with all sites recently completing safety reset conversations following industry wide consultation on the importance of safety at work. A refocus on hazard identification and the implementation of effective controls has occurred across all sites including a focus also on personal risk management and safe behaviours. OPERATIONS The Company produced 10.9 million tonnes of saleable coal in 2019 which is a 21% increase on 2018. New Hope’s two operating mines in South East Queensland (New Acland and Jeebropilly) combined to produce 4.8 million tonnes of saleable coal during the year ended 31 July 2019. New Hope’s share of the Bengalla mine (which increased from 40% to 80% during the year) produced 6.0 million tonnes. The total quantity of coal sold in 2019 was 10.9 million tonnes. NEW ACLAND COAL MINE New Acland produced 4.1 million tonnes of clean coal for the year, down 8% year on year due to operating constraints and the quality of raw coal as operations extract the final coal from the Stage 2 resource area. Key achievements and challenges during the period included: • Recovering all coal from South Pit in the Stage 2 area and preparing for a transition to Stage 3 once approvals are received; • Progressing with difficult but economic coal recovery in the underground workings in West Pit whilst undertaking strict noise monitoring to ensure compliance with the sites operating conditions; and • The Department of Natural Resources and Mines certifying 349ha of rehabilitation, the single largest certification at an opencut operation in Queensland. Safety continues to be a prime focus at New Acland. The site recorded two lost time injuries, four disabling injuries and three medical treatment cases over the 12 months. Nine high potential incidents were reported to the Department. The site continued to focus on personal risk management processes as well as increasing intra-site communication and learning from incidents. ` New Acland Stage 3 Development (NAC03) The remitted Queensland Land Court hearing took place in early October 2018. On 7 November 2018, the Court handed down a positive recommendation in respect of the New Acland Mine Stage 3 mining lease and environmental authority amendment applications. On 12 February 2019, the Coordinator-General of Queensland issued a change report approving amendments to noise limit conditions as recommended by the Land Court. On 12 March 2019 the Queensland Department of Environment and Science granted the application to amend the Environmental Authority. From 27 February to 1 March 2019, the Queensland Court of Appeal heard the Oakey Coal Action Alliance (OCAA) appeal against the May 2018 Judicial Review findings of the Queensland Supreme Court. On 10 September 2019, the Company received the judgement from the Queensland Court of Appeal in relation to the New Acland Stage 3 project which ruled against OCAA on all matters and in favour of New Acland on groundwater and apprehension of bias. The Company is pleased with the outcome however will await final orders to be handed down in due course before assessing next steps for the project. The Group remains committed to delivering the New Acland Stage 3 project in a timely manner to ensure continuity of operations and ongoing employment in the region. The public notification period for the AWL application ended on 7 May 2019. A change request was submitted to the Office of the Coordinator-General on 24 May 2019 regarding Imposed Condition 4 from the Coordinator-General’s evaluation report on the Environmental Impact Statement (December 2014). The application seeks the extended use of the Jondaryan load-out facility for a period of time to allow the new rail infrastructure to be built. Public notification of the change request occurred from 22 June to 21 July 2019. The project needs to secure Mining Leases (ML), an AWL and a number of secondary approvals before mining activity can commence. New Hope remains committed to delivering the New Acland Mine Stage 3 project and will continue to work with the relevant government departments to ensure all necessary approvals are received for the project. Obtaining final approval in a timely manner is critical to ensuring the continuity of operations and therefore employment for approximately 300 employees and 500 contractors currently engaged at the New Acland mine. Unfortunately at the time of release of this report these approvals have not been forthcoming from the Queensland Government and therefore the Company has had to begin a redundancy process for 150 employees. ` New Acland Exploration The drilling program consisted of 177 open holes, nine core holes and three groundwater monitoring bores, with a total of 13,138 metres drilled. The focus of this work has been resource and reserve definition, in and around the existing operation. A relinquishment program of non-prospective tenure across the Darling Downs Region continued. WEST MORETON OPERATIONS The Jeebropilly Mine produced 0.7 million tonnes of saleable coal in 2019. This volume is in line with the previous year. Rehabilitation activities at the New Oakleigh and Chuwar sites continued including the capping of remnant tailings dams and further works required to achieve final rehabilitation at other areas of the site. R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 10 10 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 11 11 Operations continued KEY ACHIEVEMENTS AT WEST MORETON IN 2019 ` A focus on ‘Finishing Well’ at the Jeebropilly operations, which includes recovery of final coal by December 2019, the design and execution of final landform and a site rehabilitation plan, infrastructure demobilisation planning and preparing/supporting employees for mine closure ` A focus on realising optimal asset value post mining activities ` Continuation of the site’s health and wellness program which won the 2019 Queensland Mining Industry Best Health and Wellness Program Award ` Continuation of community partnerships Queensland Bulk Handling QBH, New Hope’s 100% owned coal terminal at the Port of Brisbane, exported 6.7 million tonnes of coal on 85 vessels in 2019, which is 7% lower than 2018. QBH remains essentially a demurrage free port. Key achievements at Queensland Bulk Handling in 2019: • Achieving seven years Lost Time Injury (LTI) free; • Maximising customer throughput through flexible work practices and stockpile availability; and • Partnering with the Bulimba Creek Catchment Coordinating Committee to create an industrial ecological site that assists wildlife to coexist with industry. Bengalla Joint Venture New Hope completed its acquisition of an additional 30% interest in the Bengalla Joint Venture from Wesfarmers on 3 December 2018 and its acquisition of 10% from Mitsui on 25 March 2019 (effective date 1 December 2018), bringing New Hope ownership to 80%. The Bengalla Mine (100% basis) produced 9.3 million tonnes of coal in 2019 which is in line with the prior year. In the last quarter of the year Bengalla operations achieved an annualised production rate of 10 million tonnes per annum, a level that the Company believes can be sustained into the future. Tragically, on 3 November 2018, a tyre fitter employed by a contractor to Bengalla was fatally injured whilst working at the Bengalla Mine. The NSW Department of Planning’s Resource Regulator is still undertaking their investigations and Bengalla continues to cooperate with the authorities. Bengalla continues to offer support to the contractor’s family and to all personnel who have been affected by the tragedy. Lenton Joint Venture Burton Mine The Burton coking coal mine remained on care and maintenance for the duration of the year pending a final decision on the future of the project. Work progressed on an amendment application to the existing environmental authority for the revised Lenton Project. Applications for an AWL and Environmental Protection and Biosecurity Conservation approval will follow. A drilling program was undertaken at Lenton consisting of eight groundwater monitoring bores, with a total of 241 metres drilled. The focus of this work has been to collect information as part of a groundwater study. In addition to this work, an electromagnetic survey was completed to provide inputs into the depth of the alluvium between the Lenton and Burton Mine. A new geological model and resource estimate has been produced, using the data collected during the 2018 drilling campaign. The resource volume has been included in this years’ Resource and Reserve table. North Surat Project The North Surat Project pre-feasibility study (consisting of Elimatta, Taroom, Collingwood and Woori) advanced during the year with a focus on infrastructure options, analysis and progressing environmental baseline studies. The Elimatta ML application is well advanced and is progressing through the final statutory approvals process. Resource definition drilling continued during 2019 on Taroom, Woori and Collingwood tenements, with 35 core holes and three groundwater monitoring bores, a total of 4,223 meters drilled. Colton Exploration Project On 17 October 2018, the Directors of Northern Energy Corporation Limited (NEC) and Colton Coal Pty Ltd (Colton) placed the entities into voluntary administration. On 1 February 2019 the Company and relevant subsidiaries commenced proceedings in the Supreme Court of New South Wales (Proceedings) seeking orders confirming that the Company is not bound by a Deed of Cross Guarantee (DOCG) in respect of the debts of certain subsidiaries including NEC and Colton. On 12 July 2019, the Supreme Court of New South Wales concluded that the Company has not guaranteed the debts of NEC and Colton under the DOCG. On 20 August 2019, Wiggins Island Coal Export Terminal Pty Ltd (WICET) filed an appeal with the Court of Appeal in New South Wales in relation to the Supreme Court’s decision on the DOCG. If WICET’s claim is upheld, the Company will be exposed to a liability of approximately $155,000,000. The Group continues to deny this claim. In February 2019, in proceedings relating to the administrations of NEC and Colton, WICET applied successfully to the Court for an order that special purpose administrators be appointed to investigate a transaction that NEC entered into prior to the administrations of NEC R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R KEY ACHIEVEMENTS AT BENGALLA IN 2019 ` Introduction of new truck fleet to utilise latent excavator capacity ` Record monthly production and a new sustained production target of 10mtpa ` Ongoing progress of a new water management and diversion project ` The grant of Development Consent modification 4 in December 2018 ` Developing a plan to maximise the operations agricultural land holdings ` Growing its community involvement in particular inrelation to education in the local area 12 12 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 13 13 Operations continued KEY ACHIEVEMENTS AT WEST MORETON IN 2019 ` A focus on ‘Finishing Well’ at the Jeebropilly operations, which includes recovery of final coal by December 2019, the design and execution of final landform and a site rehabilitation plan, infrastructure demobilisation planning and preparing/supporting employees for mine closure ` A focus on realising optimal asset value post mining activities ` Continuation of the site’s health and wellness program which won the 2019 Queensland Mining Industry Best Health and Wellness Program Award ` Continuation of community partnerships Queensland Bulk Handling QBH, New Hope’s 100% owned coal terminal at the Port of Brisbane, exported 6.7 million tonnes of coal on 85 vessels in 2019, which is 7% lower than 2018. QBH remains essentially a demurrage free port. Key achievements at Queensland Bulk Handling in 2019: • Achieving seven years Lost Time Injury (LTI) free; • Maximising customer throughput through flexible work practices and stockpile availability; and • Partnering with the Bulimba Creek Catchment Coordinating Committee to create an industrial ecological site that assists wildlife to coexist with industry. Bengalla Joint Venture New Hope completed its acquisition of an additional 30% interest in the Bengalla Joint Venture from Wesfarmers on 3 December 2018 and its acquisition of 10% from Mitsui on 25 March 2019 (effective date 1 December 2018), bringing New Hope ownership to 80%. The Bengalla Mine (100% basis) produced 9.3 million tonnes of coal in 2019 which is in line with the prior year. In the last quarter of the year Bengalla operations achieved an annualised production rate of 10 million tonnes per annum, a level that the Company believes can be sustained into the future. Tragically, on 3 November 2018, a tyre fitter employed by a contractor to Bengalla was fatally injured whilst working at the Bengalla Mine. The NSW Department of Planning’s Resource Regulator is still undertaking their investigations and Bengalla continues to cooperate with the authorities. Bengalla continues to offer support to the contractor’s family and to all personnel who have been affected by the tragedy. Lenton Joint Venture Burton Mine The Burton coking coal mine remained on care and maintenance for the duration of the year pending a final decision on the future of the project. Work progressed on an amendment application to the existing environmental authority for the revised Lenton Project. Applications for an AWL and Environmental Protection and Biosecurity Conservation approval will follow. A drilling program was undertaken at Lenton consisting of eight groundwater monitoring bores, with a total of 241 metres drilled. The focus of this work has been to collect information as part of a groundwater study. In addition to this work, an electromagnetic survey was completed to provide inputs into the depth of the alluvium between the Lenton and Burton Mine. A new geological model and resource estimate has been produced, using the data collected during the 2018 drilling campaign. The resource volume has been included in this years’ Resource and Reserve table. North Surat Project The North Surat Project pre-feasibility study (consisting of Elimatta, Taroom, Collingwood and Woori) advanced during the year with a focus on infrastructure options, analysis and progressing environmental baseline studies. The Elimatta ML application is well advanced and is progressing through the final statutory approvals process. Resource definition drilling continued during 2019 on Taroom, Woori and Collingwood tenements, with 35 core holes and three groundwater monitoring bores, a total of 4,223 meters drilled. Colton Exploration Project On 17 October 2018, the Directors of Northern Energy Corporation Limited (NEC) and Colton Coal Pty Ltd (Colton) placed the entities into voluntary administration. On 1 February 2019 the Company and relevant subsidiaries commenced proceedings in the Supreme Court of New South Wales (Proceedings) seeking orders confirming that the Company is not bound by a Deed of Cross Guarantee (DOCG) in respect of the debts of certain subsidiaries including NEC and Colton. On 12 July 2019, the Supreme Court of New South Wales concluded that the Company has not guaranteed the debts of NEC and Colton under the DOCG. On 20 August 2019, Wiggins Island Coal Export Terminal Pty Ltd (WICET) filed an appeal with the Court of Appeal in New South Wales in relation to the Supreme Court’s decision on the DOCG. If WICET’s claim is upheld, the Company will be exposed to a liability of approximately $155,000,000. The Group continues to deny this claim. In February 2019, in proceedings relating to the administrations of NEC and Colton, WICET applied successfully to the Court for an order that special purpose administrators be appointed to investigate a transaction that NEC entered into prior to the administrations of NEC R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R KEY ACHIEVEMENTS AT BENGALLA IN 2019 ` Introduction of new truck fleet to utilise latent excavator capacity ` Record monthly production and a new sustained production target of 10mtpa ` Ongoing progress of a new water management and diversion project ` The grant of Development Consent modification 4 in December 2018 ` Developing a plan to maximise the operations agricultural land holdings ` Growing its community involvement in particular inrelation to education in the local area 12 12 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 13 13 Operations continued R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R KEY ACHIEVEMENTS AT BRIDGEPORT IN 2019 ` The drilling of five development wells (three successful and on production) ` Production optimisation from well workovers resulting in increased production ` Progressing feasibility studies for the enhanced oil recovery project at the Moonie field in the Surat Basin ` Successfully de-risking our exploration portfolio with farm-out of work programme activities ` Achieving the grant of an additional exploration tenement, ATP 2036 in the Surat Basin and Colton, being a corporate restructure NEC undertook in February 2016. On 28 June 2019, the special purpose administrators appointed to NEC and Colton provided a report on their investigations into the February 2016 corporate restructure. On 19 July 2019, the administrators appointed to NEC and Colton issued a Voluntary Administrators Report (the Report) in advance of the second meeting of creditors. The Report identified a number of alleged claims that may be available to any liquidators appointed to NEC and Colton, subject to the liquidators obtaining funding and conducting further investigations. If funding is obtained, further investigations are conducted and the alleged claims are pursued against the Group, the Report identifies potential exposure to the Group of between nil and $48,100,000. The claims which it is alleged may be available to the liquidators relate to two transactions: • The corporate restructure that NEC undertook in February 2016. The value attributed to the claims it is alleged may be available in respect of this transaction in the Report is between nil and $20,500,000; and • A loan repayment made by Colton to the Group in 2017. The value attributed to the claims it is alleged may be available in respect of this transaction in the Report is between nil and $27,600,000. The Group denies these alleged claims and does not consider that it has any obligations in respect of them. In July 2019, the Company gave a revised DOCA proposal (following an initial proposal made in March 2019) to NEC and Colton that was presented to the second meeting of creditors held on 26 July 2019 which included a revised Contribution of $16,000,000 however introduced a subordination of the secured loan receivable of the Company to below the claims of unsecured creditors. At the second meeting of creditors on 26 July 2019, the creditors did not vote in favour of this DOCA and instead voted to place NEC and Colton into liquidation. In acknowledging the ongoing matters associated with the liquidation, the Company has considered its position and has determined that the proposed revised Contribution of $16,000,000 is the best estimate of the future probable economic outflows that will be incurred as a result of the NEC and Colton liquidation process and has reflected a provision for this amount in its financial statements. Coal Development and Exploration The Company continued an active exploration program throughout 2019 utilising the Company’s drill rigs. Exploration activities focused on resource definition and groundwater monitoring bore installation at New Acland Mine, Lenton Joint Venture Project, North Surat project and at the Captain’s Mountain exploration lease. During the year 251 holes were drilled, for a total 18,935 meters. During the year a review of all coal and mineral tenures was undertaken to ensure the portfolio remained aligned with the corporate strategy. This resulted in some tenure being relinquished where there was no indication of economically viable resources or there were no foreseeable opportunities to develop the projects. The exploration team incurred no LTIs during the year and is currently over five years LTI free. Pastoral Operations Acland Pastoral successfully managed its breeder herd through a severe drought period with minimal losses and the breeders producing in excess of a 90% calving rate in very trying conditions. As the drought continued, Acland Pastoral responded by reducing its breeder herd numbers with 1,181 breeder cattle, 1,143 weaner heifers, and 174 calves sold during the year leaving a closing inventory of 1,271 breeders, 1,260 weaners and 54 bulls. Dryland sorghum crops totalling 458 hectares were planted, however the drought severely impacted yield with 550 round bales harvested, of which 291 bales remain as inventory. On a positive note, rain in March promoted substantial regrowth in the previously harvested sorghum paddocks, allowing in crop grazing. The 100 hectare corn crop suffered similar yield impacts as the sorghum and cattle were introduced to the corn paddocks for in crop grazing. Fencing programs were completed during the year in order to increase the footprint available for grazing activities on rehabilitated areas of the New Acland ML. During the summer drought period up to 400 head of cattle grazed the area with no environmental impact noted. The Acland Pastoral irrigation footprint, utilising water from the Wetalla pipeline, was substantially increased from 26 to 112 hectares, which presents attractive opportunities for future cropping in the area. Following the acquisition of a controlling interest in the Bengalla Mine, New Hope’s land management experience is being applied to the active management of agricultural land surrounding the Bengalla operations. Bridgeport Energy Limited Oil production for Bridgeport was 381,474 barrels in 2019, a 2% increase on 2018. This production level was achieved without any lost time injuries, with the operations now five years LTI free. Revenue for the year was $33.9 million against $29.1 million for the prior year, an improvement of 16%. Realised oil sales prices averaged A$98/bbl against the previous year of A$88/bbl. 14 14 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 15 15 Operations continued R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R KEY ACHIEVEMENTS AT BRIDGEPORT IN 2019 ` The drilling of five development wells (three successful and on production) ` Production optimisation from well workovers resulting in increased production ` Progressing feasibility studies for the enhanced oil recovery project at the Moonie field in the Surat Basin ` Successfully de-risking our exploration portfolio with farm-out of work programme activities ` Achieving the grant of an additional exploration tenement, ATP 2036 in the Surat Basin and Colton, being a corporate restructure NEC undertook in February 2016. On 28 June 2019, the special purpose administrators appointed to NEC and Colton provided a report on their investigations into the February 2016 corporate restructure. On 19 July 2019, the administrators appointed to NEC and Colton issued a Voluntary Administrators Report (the Report) in advance of the second meeting of creditors. The Report identified a number of alleged claims that may be available to any liquidators appointed to NEC and Colton, subject to the liquidators obtaining funding and conducting further investigations. If funding is obtained, further investigations are conducted and the alleged claims are pursued against the Group, the Report identifies potential exposure to the Group of between nil and $48,100,000. The claims which it is alleged may be available to the liquidators relate to two transactions: • The corporate restructure that NEC undertook in February 2016. The value attributed to the claims it is alleged may be available in respect of this transaction in the Report is between nil and $20,500,000; and • A loan repayment made by Colton to the Group in 2017. The value attributed to the claims it is alleged may be available in respect of this transaction in the Report is between nil and $27,600,000. The Group denies these alleged claims and does not consider that it has any obligations in respect of them. In July 2019, the Company gave a revised DOCA proposal (following an initial proposal made in March 2019) to NEC and Colton that was presented to the second meeting of creditors held on 26 July 2019 which included a revised Contribution of $16,000,000 however introduced a subordination of the secured loan receivable of the Company to below the claims of unsecured creditors. At the second meeting of creditors on 26 July 2019, the creditors did not vote in favour of this DOCA and instead voted to place NEC and Colton into liquidation. In acknowledging the ongoing matters associated with the liquidation, the Company has considered its position and has determined that the proposed revised Contribution of $16,000,000 is the best estimate of the future probable economic outflows that will be incurred as a result of the NEC and Colton liquidation process and has reflected a provision for this amount in its financial statements. Coal Development and Exploration The Company continued an active exploration program throughout 2019 utilising the Company’s drill rigs. Exploration activities focused on resource definition and groundwater monitoring bore installation at New Acland Mine, Lenton Joint Venture Project, North Surat project and at the Captain’s Mountain exploration lease. During the year 251 holes were drilled, for a total 18,935 meters. During the year a review of all coal and mineral tenures was undertaken to ensure the portfolio remained aligned with the corporate strategy. This resulted in some tenure being relinquished where there was no indication of economically viable resources or there were no foreseeable opportunities to develop the projects. The exploration team incurred no LTIs during the year and is currently over five years LTI free. Pastoral Operations Acland Pastoral successfully managed its breeder herd through a severe drought period with minimal losses and the breeders producing in excess of a 90% calving rate in very trying conditions. As the drought continued, Acland Pastoral responded by reducing its breeder herd numbers with 1,181 breeder cattle, 1,143 weaner heifers, and 174 calves sold during the year leaving a closing inventory of 1,271 breeders, 1,260 weaners and 54 bulls. Dryland sorghum crops totalling 458 hectares were planted, however the drought severely impacted yield with 550 round bales harvested, of which 291 bales remain as inventory. On a positive note, rain in March promoted substantial regrowth in the previously harvested sorghum paddocks, allowing in crop grazing. The 100 hectare corn crop suffered similar yield impacts as the sorghum and cattle were introduced to the corn paddocks for in crop grazing. Fencing programs were completed during the year in order to increase the footprint available for grazing activities on rehabilitated areas of the New Acland ML. During the summer drought period up to 400 head of cattle grazed the area with no environmental impact noted. The Acland Pastoral irrigation footprint, utilising water from the Wetalla pipeline, was substantially increased from 26 to 112 hectares, which presents attractive opportunities for future cropping in the area. Following the acquisition of a controlling interest in the Bengalla Mine, New Hope’s land management experience is being applied to the active management of agricultural land surrounding the Bengalla operations. Bridgeport Energy Limited Oil production for Bridgeport was 381,474 barrels in 2019, a 2% increase on 2018. This production level was achieved without any lost time injuries, with the operations now five years LTI free. Revenue for the year was $33.9 million against $29.1 million for the prior year, an improvement of 16%. Realised oil sales prices averaged A$98/bbl against the previous year of A$88/bbl. 14 14 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 15 15 Operations continued COAL RESOURCES DEPOSIT New Acland *1 Bengalla *2 Burton *3 Lenton *4 Yamala *5 Elimatta * Collingwood * Taroom ** Woori ** Total Notes on resources: STATUS Mine Mine Mine Exploration Exploration Exploration Exploration Exploration Exploration COAL RESOURCES AS AT 31 MAY 2019 (MILLION TONNES) (COAL RESOURCES ARE INCLUSIVE OF THE RESERVES REPORTED BELOW) INFERRED INDICATED MEASURED 2019 TOTAL 2018 TOTAL 23 116 8 208 184 73 94 126 – 832 189 141 11 104 39 105 139 149 – 877 285 154 13 68 14 108 43 158 84 927 497 411 32 380 237 286 276 433 84 2,636 506 422 – 380 240 286 276 433 84 2,627 1 Resources are re-quoted from 2018, less depletion of what was mined between the reporting period. 2 Figures shown are 100% of total resources. New Hope Group Share is 80%. Resources are re-quoted from 2018, less depletion of what was mined between the reporting period. The Resource number includes 74 Mt of inferred Underground resource. 3 New Hope Group share is 90%. Reserves to be estimated in due course. 4 New Hope Group share is 90%. 5 New Hope Group share is 70%. The inferred tonnage has changed due to an administrative error identified in the 2018 annual report. * Denotes the Resource estimations that have been reviewed against and follow the 2012 JORC Code. ** This information was prepared and first disclosed under the JORC Code 2004. It has not been updated since to comply with the JORC Code 2012 on the basis that the information has not materially changed since it was last prepared. Exploration drilling on the Taroom and Woori tenements occurred in 2018/2019 and a new resource model will be prepared in due course. COAL RESERVES DEPOSIT STATUS PROBABLE PROVED TOTAL 2019 TOTAL 2018 PROBABLE PROVED TOTAL 2019 COAL RESERVES AS AT 31 MAY 2019 (MILLION TONNES) RECOVERABLE RESERVES MARKETABLE RESERVES 4 New Acland 1 Mine Lenton 2 Elimatta Bengalla 3 Total Exploration Exploration Mine Notes on Reserves: 125 12 29 87 253 245 23 96 132 496 370 35 125 218 749 381 35 125 229 770 68 7 17 68 160 133 14 66 110 323 201 21 83 178 483 1 240Mt of Recoverable Reserves require additional approvals beyond Acland Stage 3. The Reserves are based on those reported in 2018, less depletion. 2 Figures shown are 100% of total Reserves. New Hope share is 90%. 3 Figures shown are 100% of total Reserves. New Hope share is 80%. 4 Marketable Reserves are based on modelled washplant yields based off reconciled data for the operating mines, or simulated product yields for the exploration areas. The Coal Resources and Reserves are as at 31 May 2019. The Company is not aware of any events occurring up to the reporting date of 31 July 2019 which will impact the reserves and resources as reported. Please see the New Hope Group website for the Coal Resource and Coal Reserve release including Table 1 details for all Coal Reserves and Resources dated 17 September 2019. The Company confirms that the form and context in which the Competent Person’s findings are presented have not been materially modified from the original publication. R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R Information in this report that relates to Coal Resources and Coal Reserves is based on and accurately reflects reports prepared by the Coal Resources New Acland, Burton, Lenton, Yamala, Woori, Taroom, Collingwood and Elimatta – Mr Sean Dixon, who is a full time Coal Resources Bengalla – Mr Marko Seppanen, a consultant from Geomine Pty Ltd; Coal Reserves – New Acland, Lenton and Elimatta – Mr Brett Domrow, who is a full time employee of the Company; Coal Reserves – Bengalla – Mr Chris Dutton, a consultant from Xenith Consulting. Competent Person as follows: employee of the company; • • • • OIL RESERVES AND RESOURCES RESERVES (NET) Oil (thousand barrels) RESOURCES (NET) Oil (thousand barrels) Notes: 2019 2018 1P 3,218 1C 6,664 2P 5,731 2C 11,263 1P 3,229 1C 7,567 2P 5,581 2C 11,405 Petroleum reserves have been prepared using principally deterministic methods, supported by field reservoir modelling where available. Contingent resources (2C) have been estimated using a combination of deterministic assessments and probabilistic volumetric assessments. BEL aggregates reserves (1P and 2P) and contingent resources (2C) using arithmetic summation. The economic assumptions used to evaluate each project are commercially sensitive. Reserves have been assessed as economic using discounted cash flow methods in compliance with PRMS guideline. Costs have been estimated using actual costs and reasonable estimates of forecast future costs. Oil prices have been forecast using reasonable estimates of future prices. The reference points are at each field where crude oil is sold into a road tanker, except for the Surat where the reference point is Caltex in Brisbane and for Cuisinier and Naccowlah where the reference point is at the Moomba plant inlet. Reserves reported include fuel consumed in operations at each field; totalling 392 1P and 665 2P Mbbls. In accordance with the SPE-PRMS guidelines, only infill wells or similar projects are captured as 2P reserves. 2C resources include: additional workover or drilling opportunities as per SPE-PRMS guidelines, uncommitted infill drilling opportunities, and enhanced recovery projects such as waterflood or CO2 miscible sweep. The above oil reserves and resources are the subject of a separate ASX announcement dated 17 September 2019. NEW HOPE GROUP OUTLOOK The acquisition of an additional 40% stake in Bengalla during the 2019 financial year combined with an increase in Bengalla’s production rate to 10 million tonnes per annum provides a profitable and sustainable asset base for the Company. New Hope will continue to focus on creating synergies and integration efficiencies across all sites by leveraging off the individual strengths of each operation and where possible, applying those across other sites. Queensland operations are set to record lower production volumes in the year ahead with Acland production constrained to mining remnant coal from Stage 2 operations in the absence of receiving Stage 3 approvals while, the Jeebropilly mine will cease mining operations in December 2019 once all economically viable reserves have been extracted. The Company remains focused on securing all necessary approvals for Acland Stage 3 in a timely manner to target continuity of operations and employment for the workforce and contractors who rely upon the operation to support their families. At the conclusion of mining, activities in West Moreton will turn to final rehabilitation and optimising the value from the land portfolio. Work will continue on the Company’s development assets at Burton, Lenton and the North Surat, with the Burton coking coal project being the most prospective short term development opportunity. Final approvals will be sought for the Lenton project, with exploration and feasibility planning ongoing for the North Surat group of projects. Coal markets have been and are likely to remain volatile in the near term however demand for high quality thermal coal remains strong across Asia. For most Asian countries thermal coal will continue to be a significant component of their energy mix for many years to come, underpinned by continued investment in new coal fired power stations. With a suite of quality assets and strong balance sheet, the Company remains well positioned to retain its position as one of Australia’s leading coal producers. 16 16 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 17 17 Operations continued COAL RESOURCES DEPOSIT New Acland *1 Bengalla *2 Burton *3 Lenton *4 Yamala *5 Elimatta * Taroom ** Woori ** Total Collingwood * Notes on resources: STATUS Mine Mine Mine Exploration Exploration Exploration Exploration Exploration Exploration COAL RESOURCES AS AT 31 MAY 2019 (MILLION TONNES) (COAL RESOURCES ARE INCLUSIVE OF THE RESERVES REPORTED BELOW) INFERRED INDICATED MEASURED 2019 TOTAL 2018 TOTAL 23 116 8 208 184 73 94 126 – 832 189 141 11 104 39 105 139 149 – 877 285 154 13 68 14 108 43 158 84 927 497 411 32 380 237 286 276 433 84 506 422 – 380 240 286 276 433 84 2,636 2,627 1 Resources are re-quoted from 2018, less depletion of what was mined between the reporting period. 2 Figures shown are 100% of total resources. New Hope Group Share is 80%. Resources are re-quoted from 2018, less depletion of what was mined between the reporting period. The Resource number includes 74 Mt of inferred Underground resource. 3 New Hope Group share is 90%. Reserves to be estimated in due course. 4 New Hope Group share is 90%. 5 New Hope Group share is 70%. The inferred tonnage has changed due to an administrative error identified in the 2018 annual report. * Denotes the Resource estimations that have been reviewed against and follow the 2012 JORC Code. ** This information was prepared and first disclosed under the JORC Code 2004. It has not been updated since to comply with the JORC Code 2012 on the basis that the information has not materially changed since it was last prepared. Exploration drilling on the Taroom and Woori tenements occurred in 2018/2019 and a new resource model will be prepared in due course. DEPOSIT STATUS PROBABLE PROVED TOTAL 2019 TOTAL 2018 PROBABLE PROVED TOTAL 2019 COAL RESERVES AS AT 31 MAY 2019 (MILLION TONNES) RECOVERABLE RESERVES MARKETABLE RESERVES 4 125 12 29 87 253 245 23 96 132 496 370 35 125 218 749 381 35 125 229 770 68 7 17 68 160 133 14 66 110 323 201 21 83 178 483 COAL RESERVES New Acland 1 Mine Lenton 2 Elimatta Exploration Exploration Bengalla 3 Mine Total Notes on Reserves: 1 240Mt of Recoverable Reserves require additional approvals beyond Acland Stage 3. The Reserves are based on those reported in 2018, less depletion. 2 Figures shown are 100% of total Reserves. New Hope share is 90%. 3 Figures shown are 100% of total Reserves. New Hope share is 80%. 4 Marketable Reserves are based on modelled washplant yields based off reconciled data for the operating mines, or simulated product yields for the exploration areas. The Coal Resources and Reserves are as at 31 May 2019. The Company is not aware of any events occurring up to the reporting date of 31 July 2019 which will impact the reserves and resources as reported. Please see the New Hope Group website for the Coal Resource and Coal Reserve release including Table 1 details for all Coal Reserves and Resources dated 17 September 2019. The Company confirms that the form and context in which the Competent Person’s findings are presented have not been materially modified from the original publication. R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R Information in this report that relates to Coal Resources and Coal Reserves is based on and accurately reflects reports prepared by the Competent Person as follows: • • • • Coal Resources New Acland, Burton, Lenton, Yamala, Woori, Taroom, Collingwood and Elimatta – Mr Sean Dixon, who is a full time employee of the company; Coal Resources Bengalla – Mr Marko Seppanen, a consultant from Geomine Pty Ltd; Coal Reserves – New Acland, Lenton and Elimatta – Mr Brett Domrow, who is a full time employee of the Company; Coal Reserves – Bengalla – Mr Chris Dutton, a consultant from Xenith Consulting. OIL RESERVES AND RESOURCES RESERVES (NET) Oil (thousand barrels) RESOURCES (NET) Oil (thousand barrels) Notes: 2019 2018 1P 3,218 1C 6,664 2P 5,731 2C 11,263 1P 3,229 1C 7,567 2P 5,581 2C 11,405 Petroleum reserves have been prepared using principally deterministic methods, supported by field reservoir modelling where available. Contingent resources (2C) have been estimated using a combination of deterministic assessments and probabilistic volumetric assessments. BEL aggregates reserves (1P and 2P) and contingent resources (2C) using arithmetic summation. The economic assumptions used to evaluate each project are commercially sensitive. Reserves have been assessed as economic using discounted cash flow methods in compliance with PRMS guideline. Costs have been estimated using actual costs and reasonable estimates of forecast future costs. Oil prices have been forecast using reasonable estimates of future prices. The reference points are at each field where crude oil is sold into a road tanker, except for the Surat where the reference point is Caltex in Brisbane and for Cuisinier and Naccowlah where the reference point is at the Moomba plant inlet. Reserves reported include fuel consumed in operations at each field; totalling 392 1P and 665 2P Mbbls. In accordance with the SPE-PRMS guidelines, only infill wells or similar projects are captured as 2P reserves. 2C resources include: additional workover or drilling opportunities as per SPE-PRMS guidelines, uncommitted infill drilling opportunities, and enhanced recovery projects such as waterflood or CO2 miscible sweep. The above oil reserves and resources are the subject of a separate ASX announcement dated 17 September 2019. NEW HOPE GROUP OUTLOOK The acquisition of an additional 40% stake in Bengalla during the 2019 financial year combined with an increase in Bengalla’s production rate to 10 million tonnes per annum provides a profitable and sustainable asset base for the Company. New Hope will continue to focus on creating synergies and integration efficiencies across all sites by leveraging off the individual strengths of each operation and where possible, applying those across other sites. Queensland operations are set to record lower production volumes in the year ahead with Acland production constrained to mining remnant coal from Stage 2 operations in the absence of receiving Stage 3 approvals while, the Jeebropilly mine will cease mining operations in December 2019 once all economically viable reserves have been extracted. The Company remains focused on securing all necessary approvals for Acland Stage 3 in a timely manner to target continuity of operations and employment for the workforce and contractors who rely upon the operation to support their families. At the conclusion of mining, activities in West Moreton will turn to final rehabilitation and optimising the value from the land portfolio. Work will continue on the Company’s development assets at Burton, Lenton and the North Surat, with the Burton coking coal project being the most prospective short term development opportunity. Final approvals will be sought for the Lenton project, with exploration and feasibility planning ongoing for the North Surat group of projects. Coal markets have been and are likely to remain volatile in the near term however demand for high quality thermal coal remains strong across Asia. For most Asian countries thermal coal will continue to be a significant component of their energy mix for many years to come, underpinned by continued investment in new coal fired power stations. With a suite of quality assets and strong balance sheet, the Company remains well positioned to retain its position as one of Australia’s leading coal producers. 16 16 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 17 17 Sustainability highlights INTEGRITY We are ethical, honest and can be trusted to do the right thing. RESPECT We listen to our stakeholders and treat others as we expect to be treated ourselves SAFETY We share a mutual responsibility to prevent harm and promote wellbeing. FINANCIALS $243M CONTRIBUTIONS TO GOVERNMENT SUCCESS RESILIENCE ACCOUNTABILITY We take pride in We strive to We act in the achievement achieve long term accordance with of our goals, being innovative and sustainability by navigating our obligations, deliver on our making a positive through change commitments and difference. and uncertainty. take responsibility for our actions. R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L 280% $1.9M COMMUNITY INVESTMENTS AND DONATIONS $160M WAGES AND BENEFITS ›$372M PAYMENTS TO 851 LOCAL SUPPLIERS OUR PEOPLE 1024 EMPLOYEES ACROSS QUEENSLAND AND NEW SOUTH WALES 114% INCREASE IN FEMALE REPRESENTATION IN MANAGEMENT ROLES OPERATIONS I N F O O T H E R RECORD 349Ha OF PROGRESSIVELY REHABILITATED MINED LAND CERTIFIED BY THE QUEENSLAND STATE GOVERNMENT FEMALES INCREASED BY 88% MALES INCREASED BY 91% 31 EMPLOYEES WITH 25 YEARS TENURE OR GREATER A full version of the 2019 Sustainability Report can be found at www.newhopegroup.com.au 18 18 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 19 19 Sustainability highlights INTEGRITY We are ethical, honest and can be trusted to do the right thing. RESPECT SAFETY We listen to our We share a mutual stakeholders and responsibility to treat others as prevent harm and we expect to be promote wellbeing. treated ourselves $243M CONTRIBUTIONS TO GOVERNMENT FINANCIALS 280% $1.9M COMMUNITY INVESTMENTS AND DONATIONS $160M WAGES AND BENEFITS ›$372M PAYMENTS TO 851 LOCAL SUPPLIERS R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L SUCCESS We take pride in the achievement of our goals, being innovative and making a positive difference. RESILIENCE We strive to achieve long term sustainability by navigating through change and uncertainty. ACCOUNTABILITY We act in accordance with our obligations, deliver on our commitments and take responsibility for our actions. OUR PEOPLE 1024 EMPLOYEES ACROSS QUEENSLAND AND NEW SOUTH WALES 114% INCREASE IN FEMALE REPRESENTATION IN MANAGEMENT ROLES OPERATIONS I N F O O T H E R RECORD 349Ha OF PROGRESSIVELY REHABILITATED MINED LAND CERTIFIED BY THE QUEENSLAND STATE GOVERNMENT FEMALES INCREASED BY 88% MALES INCREASED BY 91% 31 EMPLOYEES WITH 25 YEARS TENURE OR GREATER A full version of the 2019 Sustainability Report can be found at www.newhopegroup.com.au 18 18 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 19 19 Tax Contribution Report Tax Contribution Report The Group is pleased to present its Tax Contribution Report for the financial year ended 31 July 2019. The Group considers that additional disclosure as a ‘large’ business under the Voluntary Tax Transparency Code will assist stakeholders to understand its position as a responsible corporate taxpayer and is a key part of its social and economic responsibility. Our guiding principle in relation to taxation is to pay the right amount of tax at the appropriate time. We will comply with all tax obligations and engage in a constructive manner with the tax authorities. OUR BUSINESS MODEL AND OPERATIONS The success of the Group’s diversification in combination with its reputation for hard work and sensible management has seen the business grow to become one of the State’s largest regionally based corporations, with 1,024 people under management across its operations. Our continued growth is founded on a long‑term commitment to our employees, alongside a proactive approach to environment, community and social responsibility. KEY TAX POINTS • New Hope Group’s Effective Tax Rate for 2019 is 31.6% (2018 – 30.1%); • • Total Corporate Tax payable for 2019 is $86.8 million (2018 – $94.8 million); Total Tax and Government contributions in 2019 is $258.1 million (2018 – $185.6 million). TAX POLICY AND GOVERNANCE APPROACH TO TAX Our approach to tax is aligned with our Code of Conduct and our long term business strategy. • New Hope acts to pay the right amount of tax, in the right place, at the right time. • • • This means that we comply with our legal obligations for tax, we file our tax returns on time with full disclosure of all relevant matters, and pay our taxes on time. The Group has a low risk threshold in respect of taxation matters. The Group’s approach to tax compliance, governance and risk is focussed on people. A flat management structure and clear understanding of responsibilities by those involved in managing the tax affairs of the Group is key to successful tax management for the Group. TAX GOVERNANCE The Group’s tax affairs are overseen by the Board of Directors who approve the overall tax strategy and appetite for tax related risk. Executive management are responsible for ensuring that resources are capable of accurately and effectively discharging all tax related obligations in line with the overall tax strategy. The executive team employs a number of finance personnel with relevant experience and engages external consultants when appropriate. The governance is managed within the Group’s broader governance processes and our Corporate Governance Statement can be found at: www.newhopegroup.com.au/content/investors/corporate‑governance We act in accordance with the Code of Conduct and our decisions are guided by the Core Values. These cultural principles, combined with the overall tax strategy and internal guidelines together provide a strong foundation for doing the right thing. TAX STRATEGY The key points in New Hope’s tax strategy are: • Effectively manage risk by application our approach to tax listed above. • Observe all applicable laws, rules, regulations and disclosure requirements. • Apply diligent professional care and judgement to arrive at well‑supported conclusions. • Develop and foster good working relationships with tax authorities, government bodies and other relevant parties. • Seek expert advice on any positions where tax law is unclear or subject to interpretation and ensure positions ultimately adopted are supportable and well documented. NUMERICAL RECONCILIATION OF ACCOUNTING PROFIT TO INCOME TAX EXPENSE YEAR ENDED Profit from continuing operations before income tax Profit/(loss) from discontinued operations Profit before income tax Income tax calculated at 30% Tax Effect of amounts not deductible in calculating taxable income – Non‑deductible amounts from discontinued operations – Other deductible amounts – Sundry items Under provision provided in prior year Effect of previously unrecognised capital losses Income Tax Expense – Effective Tax Rate RECONCILIATION OF INCOME TAX EXPENSE FROM DISCONTINUED OPERATION Income Tax Expense Restatement for discontinued operations Income Tax Expense from continuing operations RECONCILIATION OF INCOME TAX EXPENSE TO TAX PAYABLE YEAR ENDED Profit before income tax Income tax calculated at 30% Tax effected adjustments to taxable income: – Previously unrecognised capital losses – Other non‑temporary items – Discontinued operations Temporary differences: – Non‑deductible impairment expense – Fixed assets – Other deductible amounts – Tax losses utilised Current tax liability – Tax instalments paid Tax payable TAX LOSSES RECONCILIATION Opening Tax Losses – Group losses – under/over – Transferred losses utilised Closing Tax Losses R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 2019 $000 307,770 220 307,990 92,397 66 4,493 256 126 – 97,338 31.6% 97,338 – 97,338 – 256 66 – (235) (4,522) (1,182) 86,780 (80,963) 5,817 1,182 (40) (1,142) – 2018 $000 267,613 (53,801) 213,812 64,144 170 – 114 (81) (33) 64,314 30.1% 64,314 15,970 80,284 (33) 284 170 39,688 (8,464) 4,071 (5,097) 94,763 (13,672) 81,091 7,165 (886) (5,097) 1,182 307,990 92,397 213,812 64,144 20 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 21 Tax Contribution Report Tax Contribution Report The Group is pleased to present its Tax Contribution Report for the financial year ended 31 July 2019. The Group considers that additional disclosure as a ‘large’ business under the Voluntary Tax Transparency Code will assist stakeholders to understand its position as a responsible corporate taxpayer and is a key part of its social and economic responsibility. Our guiding principle in relation to taxation is to pay the right amount of tax at the appropriate time. We will comply with all tax obligations and engage in a constructive manner with the tax authorities. OUR BUSINESS MODEL AND OPERATIONS The success of the Group’s diversification in combination with its reputation for hard work and sensible management has seen the business grow to become one of the State’s largest regionally based corporations, with 1,024 people under management across its operations. Our continued growth is founded on a long‑term commitment to our employees, alongside a proactive approach to environment, community and social responsibility. KEY TAX POINTS • New Hope Group’s Effective Tax Rate for 2019 is 31.6% (2018 – 30.1%); Total Corporate Tax payable for 2019 is $86.8 million (2018 – $94.8 million); Total Tax and Government contributions in 2019 is $258.1 million (2018 – $185.6 million). TAX POLICY AND GOVERNANCE APPROACH TO TAX Our approach to tax is aligned with our Code of Conduct and our long term business strategy. • New Hope acts to pay the right amount of tax, in the right place, at the right time. This means that we comply with our legal obligations for tax, we file our tax returns on time with full disclosure of all relevant matters, and pay our taxes on time. The Group has a low risk threshold in respect of taxation matters. The Group’s approach to tax compliance, governance and risk is focussed on people. A flat management structure and clear understanding of responsibilities by those involved in managing the tax affairs of the Group is key to successful tax management • • • • • for the Group. TAX GOVERNANCE The Group’s tax affairs are overseen by the Board of Directors who approve the overall tax strategy and appetite for tax related risk. Executive management are responsible for ensuring that resources are capable of accurately and effectively discharging all tax related obligations in line with the overall tax strategy. The executive team employs a number of finance personnel with relevant experience and engages external consultants when appropriate. The governance is managed within the Group’s broader governance processes and our Corporate Governance Statement can be found at: www.newhopegroup.com.au/content/investors/corporate‑governance We act in accordance with the Code of Conduct and our decisions are guided by the Core Values. These cultural principles, combined with the overall tax strategy and internal guidelines together provide a strong foundation for doing the right thing. TAX STRATEGY The key points in New Hope’s tax strategy are: • Effectively manage risk by application our approach to tax listed above. • Observe all applicable laws, rules, regulations and disclosure requirements. • Apply diligent professional care and judgement to arrive at well‑supported conclusions. • Develop and foster good working relationships with tax authorities, government bodies and other relevant parties. • Seek expert advice on any positions where tax law is unclear or subject to interpretation and ensure positions ultimately adopted are supportable and well documented. R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R NUMERICAL RECONCILIATION OF ACCOUNTING PROFIT TO INCOME TAX EXPENSE YEAR ENDED Profit from continuing operations before income tax Profit/(loss) from discontinued operations Profit before income tax Income tax calculated at 30% Tax Effect of amounts not deductible in calculating taxable income – Non‑deductible amounts from discontinued operations – Other deductible amounts – Sundry items Under provision provided in prior year Effect of previously unrecognised capital losses Income Tax Expense – Effective Tax Rate RECONCILIATION OF INCOME TAX EXPENSE FROM DISCONTINUED OPERATION Income Tax Expense Restatement for discontinued operations Income Tax Expense from continuing operations RECONCILIATION OF INCOME TAX EXPENSE TO TAX PAYABLE YEAR ENDED Profit before income tax Income tax calculated at 30% Tax effected adjustments to taxable income: – Previously unrecognised capital losses – Other non‑temporary items – Discontinued operations Temporary differences: – Non‑deductible impairment expense – Fixed assets – Other deductible amounts – Tax losses utilised Current tax liability – Tax instalments paid Tax payable TAX LOSSES RECONCILIATION Opening Tax Losses – Group losses – under/over – Transferred losses utilised Closing Tax Losses 2019 $000 307,770 220 307,990 92,397 66 4,493 256 126 – 97,338 31.6% 97,338 – 97,338 2018 $000 267,613 (53,801) 213,812 64,144 170 – 114 (81) (33) 64,314 30.1% 64,314 15,970 80,284 307,990 92,397 213,812 64,144 – 256 66 – (235) (4,522) (1,182) 86,780 (80,963) 5,817 1,182 (40) (1,142) – (33) 284 170 39,688 (8,464) 4,071 (5,097) 94,763 (13,672) 81,091 7,165 (886) (5,097) 1,182 20 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 21 Tax Contribution Report Financial Summary TAX CONTRIBUTIONS SUMMARY TAX CONTRIBUTIONS SUMMARY Corporate Tax Mining Royalties 1 Oil Royalties Employee Taxes Withheld Fringe Benefits Tax Payroll Tax Transfer Duty – Business Combination Other Taxes, Rates and Levies Total Tax Contributions 2019 $000 86,780 62,065 2,031 40,297 1,654 7,476 42,327 11,062 253,692 2018 $000 94,763 42,043 1,473 29,390 959 5,815 – 11,145 185,587 1 Mining Royalties includes $56 million paid to the State Government with a further $6 million paid to third party landholders in line with State legislation requirements. R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R Earnings before interest, tax, depreciation and amortisation (before non regular items)^ 2 517,061 465,484 283,118 81,270 Total revenue Profit before tax (before non regular items)^ ^ 2 Profit after tax (before non regular items) Profit/(loss) from continuing operations before tax Tax benefit/(expense) from continuing operations Profit/(loss) from continuing operations after tax Profit/(loss) before tax Tax benefit/(expense) Profit/(loss) after tax Total assets employed Shareholders’ funds 2019 $000 RESTATED 1 2018 $000 2017 $000 2016 $000 1,306,429 1,078,439 844,077 531,459 384,287 268,487 307,770 (97,338) 210,432 307,990 (97,338) 210,652 373,207 261,245 267,613 (80,284) 187,329 213,812 (64,314) 149,498 184,335 128,713 202,213 (61,594) 140,619 202,213 (61,594) 140,619 6,116 5,029 (74,112) 20,432 (53,680) (74,112) 20,432 (53,680) 2,801,413 1,961,012 2,338,367 1,888,400 2,181,645 1,853,428 2,018,549 1,750,412 Loss attributable to minority interests – – (1) (1) Net profit/(loss) attributable to NHCL members 210,652 149,498 140,620 (53,679) Dividends paid during the financial year 133,002 99,738 49,864 66,484 Weighted average shares on issue 831,261,875 831,141,985 831,067,979 831,050,306 2019 2018 2017 2016 Net profit/(loss) attributable to NHCL members (as a % of shareholders’ funds) Earnings per share before non regulars (cents)^ ^ 2 Earnings/(loss) per share (cents) Normal dividends per share (cents) 10.7% 32.3 25.3 17.0 7.9% 31.5 18.0 14.0 7.6% 15.4 16.9 10.0 (3.1%) 0.6 (6.5) 4.0 Net tangible asset backing per share (cents) 224.3 220.2 215.9 203.5 1 Comparative figures have been restated to present the impacts of the current year discontinued operations. 2 The Earnings before interest, tax, depreciation and amortisation, profit before non regular items and the earnings per share before non regular items contained within this Directors’ Report have not been audited in accordance with Australian Auditing Standards. 22 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 23 Tax Contribution Report Financial Summary TAX CONTRIBUTIONS SUMMARY TAX CONTRIBUTIONS SUMMARY Corporate Tax Mining Royalties 1 Oil Royalties Employee Taxes Withheld Fringe Benefits Tax Payroll Tax Transfer Duty – Business Combination Other Taxes, Rates and Levies Total Tax Contributions 2019 $000 86,780 62,065 2,031 40,297 1,654 7,476 42,327 11,062 253,692 2018 $000 94,763 42,043 1,473 29,390 959 5,815 – 11,145 185,587 1 Mining Royalties includes $56 million paid to the State Government with a further $6 million paid to third party landholders in line with State legislation requirements. Total revenue 2019 $000 RESTATED 1 2018 $000 2017 $000 2016 $000 1,306,429 1,078,439 844,077 531,459 Earnings before interest, tax, depreciation and amortisation (before non regular items)^ 2 517,061 465,484 283,118 81,270 ^ 2 Profit before tax (before non regular items)^ Profit after tax (before non regular items) Profit/(loss) from continuing operations before tax Tax benefit/(expense) from continuing operations Profit/(loss) from continuing operations after tax Profit/(loss) before tax Tax benefit/(expense) Profit/(loss) after tax 384,287 268,487 307,770 (97,338) 210,432 307,990 (97,338) 210,652 373,207 261,245 267,613 (80,284) 187,329 213,812 (64,314) 149,498 184,335 128,713 202,213 (61,594) 140,619 202,213 (61,594) 140,619 6,116 5,029 (74,112) 20,432 (53,680) (74,112) 20,432 (53,680) Loss attributable to minority interests – – (1) (1) Net profit/(loss) attributable to NHCL members 210,652 149,498 140,620 (53,679) Total assets employed Shareholders’ funds 2,801,413 1,961,012 2,338,367 1,888,400 2,181,645 1,853,428 2,018,549 1,750,412 Dividends paid during the financial year 133,002 99,738 49,864 66,484 Weighted average shares on issue 831,261,875 831,141,985 831,067,979 831,050,306 2019 2018 2017 2016 Net profit/(loss) attributable to NHCL members (as a % of shareholders’ funds) ^ 2 Earnings per share before non regulars (cents)^ Earnings/(loss) per share (cents) Normal dividends per share (cents) 10.7% 32.3 25.3 17.0 7.9% 31.5 18.0 14.0 7.6% 15.4 16.9 10.0 (3.1%) 0.6 (6.5) 4.0 Net tangible asset backing per share (cents) 224.3 220.2 215.9 203.5 1 Comparative figures have been restated to present the impacts of the current year discontinued operations. 2 The Earnings before interest, tax, depreciation and amortisation, profit before non regular items and the earnings per share before non regular items contained within this Directors’ Report have not been audited in accordance with Australian Auditing Standards. R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 22 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 23 Directors’ Report for the year ended 31 July 2019 Directors’ Report for the year ended 31 July 2019 DIRECTORS The following persons were Directors of New Hope Corporation Limited during the whole of the financial year and up to the date of this report: Mr R.D. Millner Mr T.J. Barlow Mr W.H. Grant Mr T.C. Millner Ms S.J. Palmer Mr I.M. Williams Mr S.O. Stephan CONSOLIDATED RESULTS Revenue from operations 2019 $000 RESTATED 1 2018 $000 1,306,429 1,078,439 Earnings before interest, tax, depreciation and amortisation (before non regular items) 517,061 465,484 Profit before income tax (before non regular items)^ 3 384,287 373,207 Insurance proceeds from shiploader Gain/(loss) on discontinued operation Onerous contract and related expenses Acquisition costs expensed Establishment costs on guarantee facility West Moreton redundancies Impairment of coal exploration and evaluation assets Reversal of impairment of coal to liquids facility assets Profit before income tax (after non regular items) 2 ^ 3 Profit after income tax (before non regular items)^ Insurance proceeds from shiploader Gain/(loss) on discontinued operation Onerous contract and related expenses Acquisition costs expensed Establishment costs on guarantee facility West Moreton redundancies Impairment of coal exploration and evaluation assets Reversal of impairment of coal to liquids facility assets 2,370 220 (21,675) (47,729) (4,367) (5,116) – (53,801) (14,976) – – – – – (91,475) 857 307,990 213,812 268,487 261,245 1,659 220 (19,666) (33,410) (3,057) (3,581) – (37,831) (10,483) – – – – – (64,033) 600 % CHANGE 21% ^11% ^3% ^44% ^3% Profit after income tax (after non regular items) 210,652 149,498 ^41% Profit attributable to New Hope Shareholders 210,652 149,498 Basic earnings per share (cents) (before non regular items)^ 3 Insurance proceeds from shiploader Gain/(loss) on discontinued operation Onerous contract and related expenses Acquisition costs expensed Establishment costs on guarantee facility West Moreton redundancies Impairment of coal exploration and evaluation assets Reversal of impairment of coal to liquids facility assets Basic earnings per share (cents) (after non regular items) 32.3 0.2 – (2.4) (4.0) (0.4) (0.4) – – 25.3 31.5 – (4.6) (1.3) – – – (7.7) 0.1 18.0 ^3% ^41% 1 Comparative figures have been restated to present the impacts of the current year discontinued operations. 2 Profit before income tax and after non regulars items reconciles to the Statement of Comprehensive Income with an adjustment for the profit/(loss) from discontinued operations before tax as per note 24 of the financial statements. 3 The profit before non regular items and the earnings per share before non regular items contained within this Directors’ Report have not been audited in accordance with Australian Auditing Standards. R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R PRINCIPAL ACTIVITIES The principal activities of New Hope Corporation Limited and its controlled entities (New Hope, the Company or the Group) consisted of: Coal exploration and project development in Queensland; Coal extraction, processing, marketing and logistics in Queensland and New South Wales; • • • Agriculture; and • Oil and gas – exploration, development, production and processing. Dividends paid to members during the financial year were: A final dividend for the year ended 31 July 2018 of 8.0 cents per share paid on 6 November 2018 An interim dividend for the year ended 31 July 2019 of 8.0 cents per share paid on 7 May 2019 $000 66,501 66,501 In addition to the above dividends, since the end of the financial year, the Directors have declared a final dividend of 9.0 cents per share. This dividend is fully franked, to be paid on 5 November 2019 out of retained profits at 31 July 2019 with the record date for such dividend to be 22 October 2019. This will provide shareholders of New Hope with total dividends for the year of 17.0 cents per share (8.0 cents per share interim) compared with total dividends for the 2018 year of 14.0 cents per share. OPERATING AND FINANCIAL REVIEW A review of the Group’s operations during the year and the results of those operations is set on pages 8 to 17 of this Annual Report. These pages also deal with the Group’s operations, financial position and prospects for future financial years. RISK MANAGEMENT The operations of the Company span a number of industries and geographical locations, all of which are subject to specific risks. The Company has a robust and well documented risk management framework which is overseen by the Board of Directors and embedded into all levels of the organisation. The framework assists the organisation to identify, classify, document, manage and report on the risks facing the Company. Each identified risk is tracked in a risk register and allocated to an accountable individual who is discharged with managing and reporting on the risk. Maintenance of the risk register has been delegated to the Manager Risk Management and The perceived likelihood and potential consequence of each risk are used to determine the risk level, which in turn determines the actions required to manage the risk and reporting obligations. The risk management framework requires that all significant risks have a specific documented action plan, and that updates are provided to the Board of Directors on a periodic basis. A summary of the significant risks facing the entity include the following: RISK CATEGORY POTENTIAL RISKS POTENTIAL OPPORTUNITIES APPLICATION TO NEW HOPE Internal Audit. Safety The nature of the Company’s New Hope seeks to continuously These risks are proactively operations comes with an reduce the frequency of harmful managed using comprehensive inherent risk of accidents which incidents. Key performance have the potential to cause indicators are designed to harm to individuals. safety management systems as well as a continual focus on a strong safety culture. measure safety performance and targets are set to prevent harm and promote wellbeing. Performance in relation to those measures and targets is monitored at all levels of the organisation up to and including the Board of Directors. 24 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 25 O N S R E V I E W O P E R A T I Directors’ Report for the year ended 31 July 2019 Directors’ Report for the year ended 31 July 2019 The following persons were Directors of New Hope Corporation Limited during the whole of the financial year and up to the date of this report: PRINCIPAL ACTIVITIES The principal activities of New Hope Corporation Limited and its controlled entities (New Hope, the Company or the Group) consisted of: Earnings before interest, tax, depreciation and amortisation (before non regular items) 517,061 465,484 Profit before income tax (before non regular items)^ 3 384,287 373,207 2019 $000 RESTATED 1 2018 $000 1,306,429 1,078,439 % CHANGE 21% ^11% ^3% DIRECTORS Mr R.D. Millner Mr T.J. Barlow Mr W.H. Grant Mr T.C. Millner Ms S.J. Palmer Mr I.M. Williams Mr S.O. Stephan CONSOLIDATED RESULTS Revenue from operations Insurance proceeds from shiploader Gain/(loss) on discontinued operation Onerous contract and related expenses Acquisition costs expensed Establishment costs on guarantee facility West Moreton redundancies Impairment of coal exploration and evaluation assets Reversal of impairment of coal to liquids facility assets Profit before income tax (after non regular items) 2 Profit after income tax (before non regular items)^ ^ 3 Insurance proceeds from shiploader Gain/(loss) on discontinued operation Onerous contract and related expenses Acquisition costs expensed Establishment costs on guarantee facility West Moreton redundancies Impairment of coal exploration and evaluation assets Reversal of impairment of coal to liquids facility assets Basic earnings per share (cents) (before non regular items)^ 3 Insurance proceeds from shiploader Gain/(loss) on discontinued operation Onerous contract and related expenses Acquisition costs expensed Establishment costs on guarantee facility West Moreton redundancies Impairment of coal exploration and evaluation assets Reversal of impairment of coal to liquids facility assets Basic earnings per share (cents) (after non regular items) 307,990 213,812 268,487 261,245 ^44% ^3% 2,370 220 (21,675) (47,729) (4,367) (5,116) – – – – 1,659 220 (19,666) (33,410) (3,057) (3,581) 32.3 0.2 – (2.4) (4.0) (0.4) (0.4) – – 25.3 – – – – – – – – (53,801) (14,976) (91,475) 857 (37,831) (10,483) (64,033) 600 31.5 (4.6) (1.3) – – – – (7.7) 0.1 18.0 ^3% ^41% Profit after income tax (after non regular items) 210,652 149,498 ^41% Profit attributable to New Hope Shareholders 210,652 149,498 1 Comparative figures have been restated to present the impacts of the current year discontinued operations. 2 Profit before income tax and after non regulars items reconciles to the Statement of Comprehensive Income with an adjustment for the profit/(loss) from discontinued operations before tax as per note 24 of the financial statements. 3 The profit before non regular items and the earnings per share before non regular items contained within this Directors’ Report have not been audited in accordance with Australian Auditing Standards. • • • Coal exploration and project development in Queensland; Coal extraction, processing, marketing and logistics in Queensland and New South Wales; Agriculture; and • Oil and gas – exploration, development, production and processing. Dividends paid to members during the financial year were: A final dividend for the year ended 31 July 2018 of 8.0 cents per share paid on 6 November 2018 An interim dividend for the year ended 31 July 2019 of 8.0 cents per share paid on 7 May 2019 $000 66,501 66,501 In addition to the above dividends, since the end of the financial year, the Directors have declared a final dividend of 9.0 cents per share. This dividend is fully franked, to be paid on 5 November 2019 out of retained profits at 31 July 2019 with the record date for such dividend to be 22 October 2019. This will provide shareholders of New Hope with total dividends for the year of 17.0 cents per share (8.0 cents per share interim) compared with total dividends for the 2018 year of 14.0 cents per share. OPERATING AND FINANCIAL REVIEW A review of the Group’s operations during the year and the results of those operations is set on pages 8 to 17 of this Annual Report. These pages also deal with the Group’s operations, financial position and prospects for future financial years. RISK MANAGEMENT The operations of the Company span a number of industries and geographical locations, all of which are subject to specific risks. The Company has a robust and well documented risk management framework which is overseen by the Board of Directors and embedded into all levels of the organisation. The framework assists the organisation to identify, classify, document, manage and report on the risks facing the Company. Each identified risk is tracked in a risk register and allocated to an accountable individual who is discharged with managing and reporting on the risk. Maintenance of the risk register has been delegated to the Manager Risk Management and Internal Audit. The perceived likelihood and potential consequence of each risk are used to determine the risk level, which in turn determines the actions required to manage the risk and reporting obligations. The risk management framework requires that all significant risks have a specific documented action plan, and that updates are provided to the Board of Directors on a periodic basis. A summary of the significant risks facing the entity include the following: RISK CATEGORY POTENTIAL RISKS POTENTIAL OPPORTUNITIES APPLICATION TO NEW HOPE R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R Safety The nature of the Company’s operations comes with an inherent risk of accidents which have the potential to cause harm to individuals. These risks are proactively managed using comprehensive safety management systems as well as a continual focus on a strong safety culture. New Hope seeks to continuously reduce the frequency of harmful incidents. Key performance indicators are designed to measure safety performance and targets are set to prevent harm and promote wellbeing. Performance in relation to those measures and targets is monitored at all levels of the organisation up to and including the Board of Directors. 24 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 25 Directors’ Report for the year ended 31 July 2019 Directors’ Report for the year ended 31 July 2019 RISK MANAGEMENT (CONTINUED) RISK CATEGORY POTENTIAL RISKS POTENTIAL OPPORTUNITIES APPLICATION TO NEW HOPE RISK CATEGORY POTENTIAL RISKS POTENTIAL OPPORTUNITIES APPLICATION TO NEW HOPE Bengalla Joint Venture New Hope has developed valuable and longstanding relationships with all key stakeholder groups and is well respected in the areas that we operate. Many of these stakeholder groups independently advocate on behalf of the Company which is a critical component in developing relationships in new areas of operation or with emerging stakeholder groups. The Company engages appropriately qualified experts to both manage the underlying risks and to engage proactively with stakeholder groups. The Company also utilises a variety of systems to manage and report upon the Company’s performance against those obligations. Obtaining the necessary approvals for the NAC03 project will secure employment for the existing workforce, provide continuing economic stimulus to the local community and deliver value to shareholders. Social Licence New Acland Stage 3 (NAC03) Approval A number of stakeholders have an interest in the impact our operations have on the surrounding environment and the communities in which we operate. In addition, the Company is subject to stringent regulation and reporting obligations spanning multiple government jurisdictions and departments. Failure to adequately acknowledge and address the interests of these stakeholders could negatively impact the operations of the Company and potentially result in an inability to secure, maintain or renew the regulatory approvals required to continue the operations of the Company. There is a risk that approvals for the NAC03 expansion are not obtained. These approvals are critical to ensure operations continue beyond Stage 2 as reserves on the existing lease are depleted. Risks associated with prolonged approval delays or an inability secure project approvals include but are not limited to the potential impairment of asset values, take or pay commitments exceeding project requirements or the potential loss of key long term customers. Project Development The Company’s ongoing economic sustainability is dependent on successful identification and development of projects. Failure to do so effectively will limit the businesses’ longevity. New Hope actively seeks to identify potential opportunities that offer the prospect of building shareholder value. New Hope also acknowledges that sustainable long term value creation can only be achieved by respecting and delivering positive outcomes for the broader stakeholder community. The Company has engaged appropriately qualified experts to both manage the underlying risks and to engage proactively with stakeholder groups. The Company also utilises a variety of systems to manage and report upon the Company’s performance against those obligations. Detailed impairment assessments for the assets have been undertaken as detailed in note 10 to the financial statements. Strategies have been adopted to extend the life of Stage 2 to ensure supplier and customer commitments are appropriately managed while approvals continue to be pursued. The Company is actively pursuing growth through both development of existing assets and the acquisition of complimentary assets. Such activities will ultimately require the deployment of significant capital. To ensure that capital is deployed in an optimal manner, the Company undertakes rigorous and well documented due diligence using a mix of internal and external subject matter experts prior to making any investment decisions. All significant project development and acquisition transactions require approval from the Board of Directors. Failure of Infrastructure The Company is highly Monitoring and early dependent upon the availability identification of potential Market Forces The Group’s activities expose Opportunities exist to refine the The Group’s overall risk it to a variety of financial risks existing policies for commodity management program focuses on R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R The Bengalla mine faces many of the same risks as the New Acland and Jeebropilly mining operations. Bengalla mine management is charged with Knowledge gained from risk The Company engages with the identification and management Bengalla management team on at one or more mines, including an ongoing basis with the aim successful and unsuccessful approaches to mitigating and to identify, monitor, mitigate and actively manage risks, not discharging these duties day to managing those risks can be only unique to Bengalla, but also day with the Company providing shared across management risks common to New Acland oversight and governance via teams, thereby improving and Jeebropilly. participation in the Bengalla Joint the group’s overall risk Venture management committee management strategy. and by monitoring operational performance. From 1 December 2018, the Company has assumed a more active role in the direct management of day to day activities for the Bengalla Mine. and effectiveness of key infrastructure in order to produce and bring products to market. including but not limited to commodity price risk, foreign currency risk and interest rate risk. The Company undertakes timely and effective preventative maintenance as well as regular failures will improve productivity and performance third party inspections of key outcomes for the Company. There is ongoing effort to infrastructure to minimise the risk of unforeseen failure. identify opportunities and adopt The Company also actively processes that will reduce participates in a comprehensive infrastructure failure, or reduce insurance program to ensure the cost to the Company in the assets are insured for event that a failure does occur. appropriate value. price hedging and foreign exchange hedging such as the unpredictability of financial markets and seeks to minimise investigating the use of different potential adverse effects on the hedging instruments or the level of cover that is taken. financial performance of the Group. The Group uses derivative The Company also has the ability financial instruments to hedge to consider active management risk exposures associated with of any interest rate and commodity price exposures. fluctuations in foreign exchange rates and has commenced an initial trial program to assess the appropriateness of coal price commodity hedging. POTENTIAL RISKS POTENTIAL OPPORTUNITIES APPLICATION TO NEW HOPE Changes in government regulations in Australia which restrict the use of coal, or the use of land for coal mining, As the global economy transitions towards lower emission energy sources, it is likely there will be an ongoing Ongoing demand for the Group’s high quality thermal coal is anticipated to underpin the Group’s revenues in the short could impact the ability of the demand for high quality thermal to medium term. Group to develop new coal coal to supply HELE coal fired projects, or to extend the life power stations in order to of existing projects. The introduction of new and/or more stringent carbon pricing mechanisms, both within Australia as well as key coal generate affordable base load power. The Group’s high quality thermal coal reserves are ideally placed to meet that demand. importing countries, may reduce existing approvals that extend the cost competitiveness of coal to 2039, enabling New Hope to avoid potentially lengthy and costly mine extension approvals. New Hope’s Bengalla Mine has reserve assets. Changes in the longer term global coal demand outlook could have an impact on the Group’s future coal revenues and the recoverability of undeveloped coal The financial impact of any future policy changes will depend on the nature and timing of those changes. Note 10 Property, Plant and Equipment, Note 12 Exploration and Evaluation and Note 13 Provisions have identified specific financial risks associated with policy risk. as an energy source. Changes in government policy relating to either coal consumption or energy generation in large Asian economies such as China, Japan and India could impact the longer term outlook for global coal demand. CLIMATE CHANGE RISK CATEGORY Policy risk Domestic and international policy actions around climate change continue to evolve. 26 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 27 O N S R E V I E W O P E R A T I Directors’ Report for the year ended 31 July 2019 RISK CATEGORY POTENTIAL RISKS POTENTIAL OPPORTUNITIES APPLICATION TO NEW HOPE Directors’ Report for the year ended 31 July 2019 RISK MANAGEMENT (CONTINUED) Social Licence Project Development The Company’s ongoing economic sustainability is dependent on successful New Hope actively seeks to The Company is actively identify potential opportunities pursuing growth through that offer the prospect of both development of existing identification and development building shareholder value. New assets and the acquisition of of projects. Failure to do so effectively will limit the businesses’ longevity. Hope also acknowledges that sustainable long term value complimentary assets. Such activities will ultimately require creation can only be achieved the deployment of significant by respecting and delivering positive outcomes for the capital. To ensure that capital is deployed in an optimal manner, broader stakeholder community. the Company undertakes utilises a variety of systems to manage and report upon the Company’s performance against those obligations. Detailed impairment assessments for the assets have been undertaken as detailed in note 10 to the financial statements. Strategies have been adopted to extend the life of Stage 2 to ensure supplier and customer commitments are appropriately managed while approvals continue to be pursued. rigorous and well documented due diligence using a mix of internal and external subject matter experts prior to making any investment decisions. All significant project development and acquisition transactions require approval from the Board of Directors. RISK CATEGORY POTENTIAL RISKS POTENTIAL OPPORTUNITIES APPLICATION TO NEW HOPE Bengalla Joint Venture A number of stakeholders have an interest in the impact our operations have on the surrounding environment and the communities in which we operate. In addition, the New Hope has developed valuable and longstanding relationships with all key stakeholder groups and is well respected in the areas that we operate. Many of Company is subject to stringent these stakeholder groups regulation and reporting independently advocate on obligations spanning multiple behalf of the Company which The Company engages appropriately qualified experts to both manage the underlying risks and to engage proactively with stakeholder groups. The Company also utilises a variety of systems to manage and report upon the Company’s performance against those obligations. is a critical component in developing relationships in new areas of operation or with emerging stakeholder groups. Failure of Infrastructure The Bengalla mine faces many of the same risks as the New Acland and Jeebropilly mining operations. Bengalla mine management is charged with discharging these duties day to day with the Company providing oversight and governance via participation in the Bengalla Joint Venture management committee and by monitoring operational performance. From 1 December 2018, the Company has assumed a more active role in the direct management of day to day activities for the Bengalla Mine. The Company is highly dependent upon the availability and effectiveness of key infrastructure in order to produce and bring products to market. New Acland Stage 3 (NAC03) Approval There is a risk that approvals for the NAC03 expansion are Obtaining the necessary The Company has engaged approvals for the NAC03 project appropriately qualified not obtained. These approvals will secure employment for experts to both manage the are critical to ensure operations the existing workforce, provide underlying risks and to engage continue beyond Stage 2 as continuing economic stimulus to proactively with stakeholder reserves on the existing lease the local community and deliver groups. The Company also are depleted. value to shareholders. Market Forces The Group’s activities expose it to a variety of financial risks including but not limited to commodity price risk, foreign currency risk and interest rate risk. government jurisdictions and departments. Failure to adequately acknowledge and address the interests of these stakeholders could negatively impact the operations of the Company and potentially result in an inability to secure, maintain or renew the regulatory approvals required to continue the operations of the Company. Risks associated with prolonged approval delays or an inability secure project approvals include but are not limited to the potential impairment of asset values, take or pay commitments exceeding project requirements or the potential loss of key long term customers. Knowledge gained from risk identification and management at one or more mines, including successful and unsuccessful approaches to mitigating and managing those risks can be shared across management teams, thereby improving the group’s overall risk management strategy. The Company engages with the Bengalla management team on an ongoing basis with the aim to identify, monitor, mitigate and actively manage risks, not only unique to Bengalla, but also risks common to New Acland and Jeebropilly. Monitoring and early identification of potential failures will improve productivity and performance outcomes for the Company. There is ongoing effort to identify opportunities and adopt processes that will reduce infrastructure failure, or reduce the cost to the Company in the event that a failure does occur. The Company undertakes timely and effective preventative maintenance as well as regular third party inspections of key infrastructure to minimise the risk of unforeseen failure. The Company also actively participates in a comprehensive insurance program to ensure assets are insured for appropriate value. Opportunities exist to refine the existing policies for commodity price hedging and foreign exchange hedging such as investigating the use of different hedging instruments or the level of cover that is taken. The Company also has the ability to consider active management of any interest rate and commodity price exposures. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses derivative financial instruments to hedge risk exposures associated with fluctuations in foreign exchange rates and has commenced an initial trial program to assess the appropriateness of coal price commodity hedging. R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R CLIMATE CHANGE RISK CATEGORY POTENTIAL RISKS POTENTIAL OPPORTUNITIES APPLICATION TO NEW HOPE Policy risk Domestic and international policy actions around climate change continue to evolve. As the global economy transitions towards lower emission energy sources, it is likely there will be an ongoing demand for high quality thermal coal to supply HELE coal fired power stations in order to generate affordable base load power. The Group’s high quality thermal coal reserves are ideally placed to meet that demand. New Hope’s Bengalla Mine has existing approvals that extend to 2039, enabling New Hope to avoid potentially lengthy and costly mine extension approvals. Changes in government regulations in Australia which restrict the use of coal, or the use of land for coal mining, could impact the ability of the Group to develop new coal projects, or to extend the life of existing projects. The introduction of new and/or more stringent carbon pricing mechanisms, both within Australia as well as key coal importing countries, may reduce the cost competitiveness of coal as an energy source. Changes in government policy relating to either coal consumption or energy generation in large Asian economies such as China, Japan and India could impact the longer term outlook for global coal demand. Ongoing demand for the Group’s high quality thermal coal is anticipated to underpin the Group’s revenues in the short to medium term. Changes in the longer term global coal demand outlook could have an impact on the Group’s future coal revenues and the recoverability of undeveloped coal reserve assets. The financial impact of any future policy changes will depend on the nature and timing of those changes. Note 10 Property, Plant and Equipment, Note 12 Exploration and Evaluation and Note 13 Provisions have identified specific financial risks associated with policy risk. 26 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 27 Directors’ Report for the year ended 31 July 2019 Directors’ Report for the year ended 31 July 2019 CLIMATE CHANGE (CONTINUED) RISK CATEGORY POTENTIAL RISKS POTENTIAL OPPORTUNITIES APPLICATION TO NEW HOPE RISK CATEGORY POTENTIAL RISKS POTENTIAL OPPORTUNITIES APPLICATION TO NEW HOPE Pricing for financing and key New Hope has a long and The Group may see an increase services such as insurance may enviable reputation for being in specific costs such as Policy risk (continued) Legal risk Increased litigation from shareholders, insurers and activist organisations against governments and companies, either seeking compensation for damages caused to them because of climate change impacts or to force greater action on climate change. Global political disputes or policy positions may restrict the ability to export or import coal from certain ports or through certain shipping channels. Changes in government policy which increase the cost of land rehabilitation requirements and bring forward the timing of various rehabilitation obligations. The group could incur increased costs associated with defending legal claims related to coal mining operations or when seeking project approvals. Land rehabilitation requirements, both from a timing and cost perspective, may increase. Refer to Policy Risk discussion. Technology risk Technological improvements or innovations that support the transition to a lower‑ carbon economy will affect the competitiveness of certain organisations, their production and distribution costs, and ultimately the demand for their products and services from end users. Demand for coal could be impacted if future improvements in the efficiency, affordability, and reliability of alternative energy sources and battery storage solutions occur at a faster pace than similar improvements in the thermal coal industry. Market risk Markets could be affected by the transition to a lower carbon global economy through shifts in supply and demand for certain commodities, products, and services as climate‑related risks and opportunities are increasingly taken into account. Demand for thermal coal could be impacted if alternative energy sources become more competitive and reliable, relative to thermal coal as an energy source. The number and mix of market participants could lead to increased volatility in the supply and pricing of thermal coal. New Hope has long standing experience with undertaking progressive rehabilitation at its sites in Queensland. There is an opportunity to leverage this expertise across the Group’s other operations to effectively manage any changes to rehabilitation obligations. The Group will continue to proactively monitor the policy environment both domestically and internationally and take appropriate steps to manage, maximise opportunities and mitigate risks associated with policy changes. The recoverability of undeveloped coal reserve assets will be underpinned by the ability of the Group to secure and maintain necessary project approvals. Note 10 of the Financial Statements specifically considers the assessment of impairment for the QLD mining CGU which has been triggered by indicators of impairment arising from the delays in securing necessary approvals for the mine extension. The timing of technology development and deployment is a key uncertainty in assessing the financial implications of technology risk. The financial implications of technology risk, as they relate to coal demand, are similar to those noted above for policy risk. The Group will continue to monitor developments that have application to the mining and broader energy industries and invest in new technologies where they deliver an acceptable return on investment. The Group will continue to work closely with its key customers to ensure it is well positioned to meet the demand for high quality thermal coal. The Group will proactively monitor the market environment and take appropriate steps to manage the impact of any shifts in supply and demand for thermal coal. The Group has a strong, long standing reputation for operating in a responsible and respectful way. This includes the support of the communities in which we operate, and an excellent track record of regulatory compliance. This strong reputation will enable the Group to distinguish itself as an “operator of choice” for both current and future projects. The continued development of HELE coal fired power stations (and other clean coal technology) underpin the demand for the Group’s high quality thermal coal assets. Additional details of these technologies and opportunities are considered in the Group’s separate online Sustainability Report. There is an opportunity for the Group to leverage its existing innovative capabilities to derive further cost efficiencies from emerging developments in energy‑efficient mining equipment. There is an opportunity for the Group to leverage the anticipated sustained demand for high quality thermal coal as part of a diversified energy portfolio. The role of the Group’s high quality thermal coal and its position in the market have been outlined further in a separate online Sustainability Report. Pressure from external stakeholders could see some producers exit the thermal coal industry with a resultant reduction in supply and increase in pricing for remaining industry participants. R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R Reputation risk Customers, suppliers and other stakeholders have begun including climate related considerations into their decision making process around which businesses they will engage with. increase if the pool of parties prepared to partner with the thermal coal industry reduces significantly. Increased regulatory compliance costs. The ability to attract and retain a suitably skilled workforce could be impacted by employee perceptions about what it means to work in the coal mining industry. interest expense and insurance premiums as well as increasing workforce related costs. The Group will work to manage the impact of these potential cost increases through the ongoing implementation of operational efficiency initiatives including through the deployment of emerging technological solutions and the consideration of non‑traditional markets for access to financing and key services such as insurance. a respectful and trustworthy operator. The Company has formed strong relationships with the communities in which we operate, our employees, suppliers, customers, and regulatory bodies with many of these relationships spanning multiple decades. The continuity of these relationships are underpinned by a strong corporate culture which acknowledges that long term success can only be achieved by respecting the views of our key stakeholders. New Hope has the ability to leverage and grow this support base so as to differentiate the Company from its peers and be seen as an “Operator of Choice”. Physical risks An increase in the intensity and The Group’s key operations are While direct risks associated Climate change modelling suggests that climate change has the potential to increase the frequency and intensity of extreme weather events as well as longer term shifts in climate patterns. frequency of extreme weather events may have the potential to damage infrastructure and interrupt mining and port operations. An increase in temperatures could impact the health and safety workplace requirements located in geographic areas with lost production time or which are not areas of high risk increased costs due to weather in relation to extreme weather are considered to be a low events such as cyclones or flooding. This may give the possibility and low consequence they continue to be pro‑ Group competitive advantage actively managed through relative to other market participants. the Company’s standard risk management process. for employees as per the New Hope’s existing New Acland The most significant of these relevant Occupational Health Mine utilises recycled waste risks would be a loss of key and Safety regulations. water from the Wetalla Waste infrastructure for a prolonged Sustained increase in temperatures as well as intensity and duration of droughts, may have a longer term impact on operational reliability or longevity of mining equipment. Water treatment facility. This period, which is actively provides the Company with managed with a dedicated risk a competitive advantage for this action plan. site, which could be potentially duplicated and leveraged at other locations. 28 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 29 Directors’ Report for the year ended 31 July 2019 Directors’ Report for the year ended 31 July 2019 CLIMATE CHANGE (CONTINUED) RISK CATEGORY POTENTIAL RISKS POTENTIAL OPPORTUNITIES APPLICATION TO NEW HOPE R E V I E W O P E R A T I O N S Reputation risk Customers, suppliers and other stakeholders have begun including climate related considerations into their decision making process around which businesses they will engage with. Pricing for financing and key services such as insurance may increase if the pool of parties prepared to partner with the thermal coal industry reduces significantly. Increased regulatory compliance costs. The ability to attract and retain a suitably skilled workforce could be impacted by employee perceptions about what it means to work in the coal mining industry. Physical risks Climate change modelling suggests that climate change has the potential to increase the frequency and intensity of extreme weather events as well as longer term shifts in climate patterns. An increase in the intensity and frequency of extreme weather events may have the potential to damage infrastructure and interrupt mining and port operations. An increase in temperatures could impact the health and safety workplace requirements for employees as per the relevant Occupational Health and Safety regulations. Sustained increase in temperatures as well as intensity and duration of droughts, may have a longer term impact on operational reliability or longevity of mining equipment. New Hope has a long and enviable reputation for being a respectful and trustworthy operator. The Company has formed strong relationships with the communities in which we operate, our employees, suppliers, customers, and regulatory bodies with many of these relationships spanning multiple decades. The continuity of these relationships are underpinned by a strong corporate culture which acknowledges that long term success can only be achieved by respecting the views of our key stakeholders. New Hope has the ability to leverage and grow this support base so as to differentiate the Company from its peers and be seen as an “Operator of Choice”. The Group’s key operations are located in geographic areas which are not areas of high risk in relation to extreme weather events such as cyclones or flooding. This may give the Group competitive advantage relative to other market participants. New Hope’s existing New Acland Mine utilises recycled waste water from the Wetalla Waste Water treatment facility. This provides the Company with a competitive advantage for this site, which could be potentially duplicated and leveraged at other locations. The Group may see an increase in specific costs such as interest expense and insurance premiums as well as increasing workforce related costs. The Group will work to manage the impact of these potential cost increases through the ongoing implementation of operational efficiency initiatives including through the deployment of emerging technological solutions and the consideration of non‑traditional markets for access to financing and key services such as insurance. While direct risks associated with lost production time or increased costs due to weather are considered to be a low possibility and low consequence they continue to be pro‑ actively managed through the Company’s standard risk management process. The most significant of these risks would be a loss of key infrastructure for a prolonged period, which is actively managed with a dedicated risk action plan. R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R RISK CATEGORY POTENTIAL RISKS POTENTIAL OPPORTUNITIES APPLICATION TO NEW HOPE Policy risk (continued) Global political disputes or New Hope has long standing The Group will continue to policy positions may restrict the experience with undertaking proactively monitor the policy ability to export or import coal progressive rehabilitation at its environment both domestically from certain ports or through sites in Queensland. There is and internationally and take certain shipping channels. an opportunity to leverage this appropriate steps to manage, expertise across the Group’s maximise opportunities and other operations to effectively mitigate risks associated with manage any changes to rehabilitation obligations. policy changes. Legal risk Increased litigation from shareholders, insurers and activist organisations against governments and companies, either seeking compensation for damages caused to them because of climate change impacts or to force greater action on climate change. Technology risk Technological improvements or innovations that support the transition to a lower‑ carbon economy will affect the competitiveness of certain organisations, their production and distribution costs, and ultimately the demand for their products and services from end users. Changes in government policy which increase the cost of land rehabilitation requirements and bring forward the timing of various rehabilitation obligations. legal claims related to coal mining operations or when seeking project approvals. Land rehabilitation requirements, both from a timing and cost perspective, may increase. Refer to Policy Risk discussion. The group could incur increased The Group has a strong, The recoverability of costs associated with defending long standing reputation for undeveloped coal reserve operating in a responsible and assets will be underpinned respectful way. This includes by the ability of the Group to the support of the communities secure and maintain necessary in which we operate, and an excellent track record of regulatory compliance. This strong reputation will enable the Group to distinguish itself as an “operator of choice” for both current and future projects. project approvals. Note 10 of the Financial Statements specifically considers the assessment of impairment for the QLD mining CGU which has been triggered by indicators of impairment arising from the delays in securing necessary approvals for the mine extension. Demand for coal could be impacted if future The continued development of HELE coal fired power improvements in the efficiency, stations (and other clean affordability, and reliability of coal technology) underpin The timing of technology development and deployment is a key uncertainty in assessing the financial implications of alternative energy sources and the demand for the Group’s technology risk. battery storage solutions occur at a faster pace than similar improvements in the thermal high quality thermal coal assets. Additional details of these technologies and coal industry. opportunities are considered in the Group’s separate online Sustainability Report. There is an opportunity for the Group to leverage its existing innovative capabilities to derive further cost efficiencies from emerging developments in energy‑efficient mining equipment. The financial implications of technology risk, as they relate to coal demand, are similar to those noted above for policy risk. The Group will continue to monitor developments that have application to the mining and broader energy industries and invest in new technologies where they deliver an acceptable return on investment. Demand for thermal coal could There is an opportunity for be impacted if alternative the Group to leverage the The Group will continue to work closely with its key customers energy sources become more anticipated sustained demand to ensure it is well positioned for high quality thermal coal to meet the demand for high as part of a diversified energy quality thermal coal. The Group will proactively monitor the market environment and take appropriate steps to manage the impact of any shifts in supply and demand for thermal coal. portfolio. The role of the Group’s high quality thermal coal and its position in the market have been outlined further in a separate online Sustainability Report. Pressure from external stakeholders could see some producers exit the thermal coal industry with a resultant reduction in supply and increase in pricing for remaining industry participants. Market risk Markets could be affected by the transition to a lower carbon global economy through shifts in supply and demand for certain commodities, products, and services as climate‑related risks and opportunities are competitive and reliable, relative to thermal coal as an energy source. The number and mix of market participants could lead to and pricing of thermal coal. increasingly taken into account. increased volatility in the supply 28 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 29 Directors’ Report for the year ended 31 July 2019 Directors’ Report for the year ended 31 July 2019 INSURANCE OF OFFICERS In accordance with the provisions of the Corporations Act 2001, New Hope Corporation Limited (the Company, Corporation or parent entity) has a Directors’ and Officers’ Liability policy covering Directors and Officers of the Group. The insurance policy prohibits disclosure of the nature of the liability insured against and the amount of the premium. PROCEEDINGS ON BEHALF OF THE CORPORATION No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Corporation, or to intervene in any proceedings to which the Corporation is a party, for the purpose of taking responsibility on behalf of the Corporation for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under section 237 of the Corporations Act 2001. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS Except as disclosed in the review of operations, there has not arisen any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the parent entity, to affect substantially the operations or results of the consolidated entity in subsequent financial years. MATTERS SUBSEQUENT TO THE END OF FINANCIAL YEAR On 10 September 2019, the Company received the judgement from the Queensland Court of Appeal in relation to the New Acland Stage 3 project which ruled against OCAA and in favour of New Acland on groundwater and apprehension of bias. The Company is pleased with the outcome however will await final orders to be handed down in due course before assessing next steps for the project. The Group remains committed to delivering the New Acland Stage 3 project in a timely manner to ensure continuity of operations and ongoing employment in the region. LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS The activities of the consolidated entity in the next financial year are expected to be similar to those of the financial year just ended. The consolidated entity will continue to pursue a policy of increasing its strength in its major business sectors including the development and operation of additional mineral resource projects in Australia and is regularly reviewing potential new opportunities. The Group will disclose further information on likely developments in the operations of the consolidated entity and the expected results of operations as appropriate. However, Directors are mindful that premature release of information may be prejudicial to the best interests of the Company and its shareholders. CORPORATE GOVERNANCE STATEMENT The Company’s Corporate Governance statement can be accessed on the New Hope Corporation website at: www.newhopegroup.com.au/content/investors/corporate‑governance. WORK PLACE COMPLIANCE The company has complied with the Workplace Gender Equality Act 2012 and has lodged its report with the Workplace Gender Equality Agency. The report can be accessed on the New Hope Corporation website at: www.newhopegroup.com.au/content/investors/corporate‑governance. R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R SUSTAINABILITY The Board maintains direct oversight of climate‑related risks and opportunities through its corporate risk management processes and is assisted in this by the Audit and Risk Committee. Responsibility is delegated to Management for the identification and ongoing management of the opportunities and risks of climate change. The Group recognises that there is a shift in the market in respect of primary energy sources from coal to lower‑carbon alternatives and that there are opportunities and risks associated with this change. The Group acknowledges the increasing interest from various stakeholders and the need for increased transparency of climate related opportunities and risks to the business in the medium to long term. The Group have developed a framework for guiding its strategy and disclosure regarding the sustainability of its operations including managing potential risks posed by changes to the external environment from a physical, policy, legal, market demand, reputational and technological perspective and has considered the Taskforce on Climate‑related Financial Disclosures (TCFD) Recommendations as part of establishing its strategy and framework. The Group provides further information in a separate online Sustainability Report. ENVIRONMENTAL COMPLIANCE During the 2019 financial year, the Group was not prosecuted for any breach of environmental laws. The Group did receive a Penalty Infringement Notice during 2019 for an environmental compliance matter regarding noise at its New Acland operations. No environmental harm was caused by the environmental compliance matter, however the Group has taken corrective actions to minimise the likelihood of reoccurrence. ENVIRONMENTAL PERFORMANCE The Company’s businesses include coal mining operations and exploration activities in Queensland and New South Wales (NSW), the QBH coal export port facility and oil and gas operations and exploration activities in Queensland. The key pieces of Queensland environmental legislation are the Environmental Protection Act 1994, the Water Act 2000, and the Nature Conservation Act 1992. Principal environmental legislation in NSW includes the Environmental Planning and Assessment Act 1979, Protection of the Environment Operations Act 1997 and the Water Management Act 2000. The main Commonwealth environmental legislation is the Environment Protection and Biodiversity Conservation Act 1999, which operates across Australian states and territories in the interests of the protection of matters of national environmental significance. The Group’s operations continue to undertake proactive initiatives to improve their environmental performance. For example, during 2019 the Group received official certification for 349 hectares of progressive rehabilitation at its New Acland operations. ENVIRONMENTAL SYSTEMS During the 2019 financial year the Group adhered to its Environmental policy which is aligned with the requirements of the ISO 14001 standard and the Group’s operations have continued improvement of the Environmental Management System (EMS). The EMS enables the Group’s operations to effectively manage their environmental performance by increasing environmental awareness, optimising operational control, monitoring compliance and facilitating continuous improvement. ENVIRONMENTAL REPORTING The Group’s operational sites have submitted reports under the National Pollutant Inventory program. For the purposes of National Greenhouse and Energy Reporting the Company reports as part of the corporate group of Washington H. Soul Pattinson and Company Limited with the Bengalla Mine reporting through the operator currently Bengalla Mining Company Pty Ltd. 30 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 31 Directors’ Report for the year ended 31 July 2019 Directors’ Report for the year ended 31 July 2019 INSURANCE OF OFFICERS In accordance with the provisions of the Corporations Act 2001, New Hope Corporation Limited (the Company, Corporation or parent entity) has a Directors’ and Officers’ Liability policy covering Directors and Officers of the Group. The insurance policy prohibits disclosure of the nature of the liability insured against and the amount of the premium. PROCEEDINGS ON BEHALF OF THE CORPORATION No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Corporation, or to intervene in any proceedings to which the Corporation is a party, for the purpose of taking responsibility on behalf of the Corporation for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under section 237 of the Corporations Act 2001. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS Except as disclosed in the review of operations, there has not arisen any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the parent entity, to affect substantially the operations or results of the consolidated entity in subsequent financial years. MATTERS SUBSEQUENT TO THE END OF FINANCIAL YEAR On 10 September 2019, the Company received the judgement from the Queensland Court of Appeal in relation to the New Acland Stage 3 project which ruled against OCAA and in favour of New Acland on groundwater and apprehension of bias. The Company is pleased with the outcome however will await final orders to be handed down in due course before assessing next steps for the project. The Group remains committed to delivering the New Acland Stage 3 project in a timely manner to ensure continuity of operations and ongoing employment in the region. LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS The activities of the consolidated entity in the next financial year are expected to be similar to those of the financial year just ended. The consolidated entity will continue to pursue a policy of increasing its strength in its major business sectors including the development and operation of additional mineral resource projects in Australia and is regularly reviewing potential new opportunities. The Group will disclose further information on likely developments in the operations of the consolidated entity and the expected results of operations as appropriate. However, Directors are mindful that premature release of information may be prejudicial to the best interests of the Company and its shareholders. CORPORATE GOVERNANCE STATEMENT The Company’s Corporate Governance statement can be accessed on the New Hope Corporation website at: www.newhopegroup.com.au/content/investors/corporate‑governance. WORK PLACE COMPLIANCE The company has complied with the Workplace Gender Equality Act 2012 and has lodged its report with the Workplace Gender Equality Agency. The report can be accessed on the New Hope Corporation website at: www.newhopegroup.com.au/content/investors/corporate‑governance. SUSTAINABILITY The Board maintains direct oversight of climate‑related risks and opportunities through its corporate risk management processes and is assisted in this by the Audit and Risk Committee. Responsibility is delegated to Management for the identification and ongoing management of the opportunities and risks of climate change. The Group recognises that there is a shift in the market in respect of primary energy sources from coal to lower‑carbon alternatives and that there are opportunities and risks associated with this change. The Group acknowledges the increasing interest from various stakeholders and the need for increased transparency of climate related opportunities and risks to the business in the medium to long term. The Group have developed a framework for guiding its strategy and disclosure regarding the sustainability of its operations including managing potential risks posed by changes to the external environment from a physical, policy, legal, market demand, reputational and technological perspective and has considered the Taskforce on Climate‑related Financial Disclosures (TCFD) Recommendations as part of establishing its strategy and framework. The Group provides further information in a separate online Sustainability Report. ENVIRONMENTAL COMPLIANCE During the 2019 financial year, the Group was not prosecuted for any breach of environmental laws. The Group did receive a Penalty Infringement Notice during 2019 for an environmental compliance matter regarding noise at its New Acland operations. No environmental harm was caused by the environmental compliance matter, however the Group has taken corrective actions to minimise the likelihood of reoccurrence. ENVIRONMENTAL PERFORMANCE The Company’s businesses include coal mining operations and exploration activities in Queensland and New South Wales (NSW), the QBH coal export port facility and oil and gas operations and exploration activities in Queensland. The key pieces of Queensland environmental legislation are the Environmental Protection Act 1994, the Water Act 2000, and the Nature Conservation Act 1992. Principal environmental legislation in NSW includes the Environmental Planning and Assessment Act 1979, Protection of the Environment Operations Act 1997 and the Water Management Act 2000. The main Commonwealth environmental legislation is the Environment Protection and Biodiversity Conservation Act 1999, which operates across Australian states and territories in the interests of the protection of matters of national environmental significance. The Group’s operations continue to undertake proactive initiatives to improve their environmental performance. For example, during 2019 the Group received official certification for 349 hectares of progressive rehabilitation at its New Acland operations. ENVIRONMENTAL SYSTEMS During the 2019 financial year the Group adhered to its Environmental policy which is aligned with the requirements of the ISO 14001 standard and the Group’s operations have continued improvement of the Environmental Management System (EMS). The EMS enables the Group’s operations to effectively manage their environmental performance by increasing environmental awareness, optimising operational control, monitoring compliance and facilitating continuous improvement. ENVIRONMENTAL REPORTING The Group’s operational sites have submitted reports under the National Pollutant Inventory program. For the purposes of National Greenhouse and Energy Reporting the Company reports as part of the corporate group of Washington H. Soul Pattinson and Company Limited with the Bengalla Mine reporting through the operator currently Bengalla Mining Company Pty Ltd. R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 30 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 31 Directors’ Report for the year ended 31 July 2019 INFORMATION ON DIRECTORS Directors’ Report for the year ended 31 July 2019 MR R.D. MILLNER (NON‑EXECUTIVE CHAIRMAN) MR W.H. GRANT – OAM, FAICD, ALGA (NON‑EXECUTIVE DIRECTOR) EXPERIENCE Mr Millner is Chairman of the Company’s holding company, Washington H. Soul Pattinson and Company Limited. Mr Millner joined the Board of New Hope Corporation Limited on 1 December 1995 and was appointed Chairman in 1998. EXPERIENCE Appointed 1984 Appointed 2000 Appointed 2000 Appointed 2003 Appointed 1997 Appointed 1998 Appointed 2000 Chairman since 1998 Chairman since 2003 Chairman since 1999 Chairman since 2002 OTHER CURRENT LISTED DIRECTORSHIPS Washington H. Soul Pattinson and Company Limited Apex Healthcare Berhad Australian Pharmaceutical Industries Limited BKI Investment Company Limited Brickworks Limited Milton Corporation Limited TPG Telecom Limited FORMER LISTED DIRECTORSHIPS IN LAST 3 YEARS Nil SPECIAL RESPONSIBILITIES Chairman of the Board INTERESTS IN SHARES AND OPTIONS 4,157,774 ordinary shares in New Hope Corporation Limited Nil options or rights over ordinary shares in New Hope Corporation Limited MR T.J. BARLOW – BBUS, LLB (NON‑EXECUTIVE DIRECTOR) EXPERIENCE Mr Barlow joined the Board of New Hope Corporation Limited on 22 April 2015. He is the Managing Director of Washington H. Soul Pattinson and Company Limited. Prior to that role Mr Barlow was the Managing Director of Pitt Capital Partners for 8 years. He has extensive experience in corporate finance across a range of industries. OTHER CURRENT LISTED DIRECTORSHIPS Washington H. Soul Pattinson and Company Limited TPI Enterprises Limited FORMER LISTED DIRECTORSHIPS IN LAST 3 YEARS PM Capital Asian Opportunities Fund Limited Appointed 2015 Appointed 2015 Resigned 2017 SPECIAL RESPONSIBILITIES Chair of the Nomination Committee and Member of the Human Resources and Remuneration Committee and Audit and Risk Committee INTERESTS IN SHARES AND OPTIONS 19,900 ordinary shares in New Hope Corporation Limited Nil options or rights over ordinary shares in New Hope Corporation Limited R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R Mr Grant has over 35 years experience in project management, corporate and fiscal governance, local government administration and strategic planning. He joined the Board of New Hope Corporation Limited on 25 May 2006. Mr Grant was the CEO of South Bank Corporation in Brisbane from 1997 to 2005 and General Manager/CEO of the Newcastle City Council from 1992 to 1997. He retired as Chairman of Brisbane Airport Corporation in 2017 after almost 10 years. Chair of the Human Resources and Remuneration Committee, Chair of the Bridgeport Energy Limited Board, Member of the Nomination OTHER CURRENT LISTED DIRECTORSHIPS FORMER LISTED DIRECTORSHIPS IN LAST 3 YEARS Nil Nil SPECIAL RESPONSIBILITIES Committee and Member of the Audit and Risk Committee INTERESTS IN SHARES AND OPTIONS 30,000 ordinary shares in New Hope Corporation Limited MR T.C. MILLNER – (NON‑EXECUTIVE DIRECTOR) EXPERIENCE Nil options or rights over ordinary shares in New Hope Corporation Limited Mr Millner joined the Board of New Hope Corporation Limited on 16 December 2015. He is Director and Co‑Portfolio Manager of Contact Asset Management Pty Limited, manager of Listed Investment Companies BKI Investment Company Limited (BKI.ASX) and URB Investments Limited (URB.ASX). He is also a non‑executive Director of Washington H. Soul Pattinson and Company Limited (SOL.ASX). Mr Millner’s experience includes 17 years of experience within the financial services industry, including: 15 years’ experience in active portfolio management of Australian equities, 8 years’ experience as a CEO of an Australian publically listed company, BKI and 8 years’ experience as a Company Director of Australian publicly listed companies. OTHER CURRENT LISTED DIRECTORSHIPS Washington H. Soul Pattinson and Company Limited Appointed 2011 FORMER LISTED DIRECTORSHIPS IN LAST 3 YEARS PM Capital Global Opportunities Fund Limited Resigned 2017 SPECIAL RESPONSIBILITIES Nil INTERESTS IN SHARES AND OPTIONS 3,974,368 ordinary shares in New Hope Corporation Limited Nil options or rights over ordinary shares in New Hope Corporation Limited 32 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 33 O N S R E V I E W O P E R A T I Directors’ Report for the year ended 31 July 2019 Directors’ Report for the year ended 31 July 2019 INFORMATION ON DIRECTORS MR R.D. MILLNER (NON‑EXECUTIVE CHAIRMAN) EXPERIENCE OTHER CURRENT LISTED DIRECTORSHIPS Washington H. Soul Pattinson and Company Limited Apex Healthcare Berhad Australian Pharmaceutical Industries Limited BKI Investment Company Limited Brickworks Limited Milton Corporation Limited TPG Telecom Limited Nil SPECIAL RESPONSIBILITIES Chairman of the Board FORMER LISTED DIRECTORSHIPS IN LAST 3 YEARS Mr Millner is Chairman of the Company’s holding company, Washington H. Soul Pattinson and Company Limited. Mr Millner joined the Board of New Hope Corporation Limited on 1 December 1995 and was appointed Chairman in 1998. Appointed 1984 Appointed 2000 Appointed 2000 Appointed 2003 Appointed 1997 Appointed 1998 Appointed 2000 Chairman since 1998 Chairman since 2003 Chairman since 1999 Chairman since 2002 INTERESTS IN SHARES AND OPTIONS 4,157,774 ordinary shares in New Hope Corporation Limited Nil options or rights over ordinary shares in New Hope Corporation Limited MR T.J. BARLOW – BBUS, LLB (NON‑EXECUTIVE DIRECTOR) EXPERIENCE Mr Barlow joined the Board of New Hope Corporation Limited on 22 April 2015. He is the Managing Director of Washington H. Soul Pattinson and Company Limited. Prior to that role Mr Barlow was the Managing Director of Pitt Capital Partners for 8 years. He has extensive experience in corporate finance across a range of industries. OTHER CURRENT LISTED DIRECTORSHIPS Washington H. Soul Pattinson and Company Limited TPI Enterprises Limited FORMER LISTED DIRECTORSHIPS IN LAST 3 YEARS PM Capital Asian Opportunities Fund Limited SPECIAL RESPONSIBILITIES Appointed 2015 Appointed 2015 Resigned 2017 Chair of the Nomination Committee and Member of the Human Resources and Remuneration Committee and Audit and Risk Committee INTERESTS IN SHARES AND OPTIONS 19,900 ordinary shares in New Hope Corporation Limited Nil options or rights over ordinary shares in New Hope Corporation Limited MR W.H. GRANT – OAM, FAICD, ALGA (NON‑EXECUTIVE DIRECTOR) EXPERIENCE Mr Grant has over 35 years experience in project management, corporate and fiscal governance, local government administration and strategic planning. He joined the Board of New Hope Corporation Limited on 25 May 2006. Mr Grant was the CEO of South Bank Corporation in Brisbane from 1997 to 2005 and General Manager/CEO of the Newcastle City Council from 1992 to 1997. He retired as Chairman of Brisbane Airport Corporation in 2017 after almost 10 years. OTHER CURRENT LISTED DIRECTORSHIPS Nil FORMER LISTED DIRECTORSHIPS IN LAST 3 YEARS Nil SPECIAL RESPONSIBILITIES Chair of the Human Resources and Remuneration Committee, Chair of the Bridgeport Energy Limited Board, Member of the Nomination Committee and Member of the Audit and Risk Committee INTERESTS IN SHARES AND OPTIONS 30,000 ordinary shares in New Hope Corporation Limited Nil options or rights over ordinary shares in New Hope Corporation Limited MR T.C. MILLNER – (NON‑EXECUTIVE DIRECTOR) EXPERIENCE Mr Millner joined the Board of New Hope Corporation Limited on 16 December 2015. He is Director and Co‑Portfolio Manager of Contact Asset Management Pty Limited, manager of Listed Investment Companies BKI Investment Company Limited (BKI.ASX) and URB Investments Limited (URB.ASX). He is also a non‑executive Director of Washington H. Soul Pattinson and Company Limited (SOL.ASX). Mr Millner’s experience includes 17 years of experience within the financial services industry, including: 15 years’ experience in active portfolio management of Australian equities, 8 years’ experience as a CEO of an Australian publically listed company, BKI and 8 years’ experience as a Company Director of Australian publicly listed companies. R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R OTHER CURRENT LISTED DIRECTORSHIPS Washington H. Soul Pattinson and Company Limited Appointed 2011 FORMER LISTED DIRECTORSHIPS IN LAST 3 YEARS PM Capital Global Opportunities Fund Limited Resigned 2017 SPECIAL RESPONSIBILITIES Nil INTERESTS IN SHARES AND OPTIONS 3,974,368 ordinary shares in New Hope Corporation Limited Nil options or rights over ordinary shares in New Hope Corporation Limited 32 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 33 Directors’ Report for the year ended 31 July 2019 INFORMATION ON DIRECTORS (CONTINUED) Directors’ Report for the year ended 31 July 2019 MS S.J. PALMER – BCOM, CA, FAICD (NON‑EXECUTIVE DIRECTOR) MR S.O. STEPHAN – BBUS (DIST), MBA (AGSM), MAUSIMM, MAICD (MANAGING DIRECTOR) EXPERIENCE Ms Palmer is a Chartered Accountant with over 30 years of extensive experience in the financial and resources fields. Ms Palmer brings a current knowledge to the New Hope Board in all aspects of accounting, finance, financial reporting, risk management and corporate governance. Her most recent executive role was as Chief Financial Officer and Executive Director with Thiess Pty Ltd. Ms Palmer was appointed to the New Hope Corporation Limited Board on 1 November 2012. OTHER CURRENT LISTED DIRECTORSHIPS Charter Hall Retail REIT Qube Holdings Ltd Appointed 2015 Appointed 2017 FORMER LISTED DIRECTORSHIPS IN LAST 3 YEARS RCR Tomlinson Ltd (Liquidators appointed, delisted from ASX on 5 July 2019) SPECIAL RESPONSIBILITIES Chair of the Audit and Risk Committee INTERESTS IN SHARES AND OPTIONS 15,000 ordinary shares in New Hope Corporation Limited Nil options or rights over ordinary shares in New Hope Corporation Limited MR I.M. WILLIAMS – BEC, LLB (NON‑EXECUTIVE DIRECTOR) EXPERIENCE As a legal and strategic adviser to International investors in the energy and resources sectors, Mr Williams has been involved in every aspect of the Australian coal industry. Mr Williams was appointed to the New Hope Corporation Limited Board on 1 November 2012. OTHER CURRENT LISTED DIRECTORSHIPS Nil FORMER LISTED DIRECTORSHIPS IN LAST 3 YEARS Nil SPECIAL RESPONSIBILITIES Member of the Human Resources and Remuneration Committee and Member of Nomination Committee INTERESTS IN SHARES AND OPTIONS 38,087 ordinary shares in New Hope Corporation Limited Nil options or rights over ordinary shares in New Hope Corporation Limited EXPERIENCE Mr Stephan has over 30 years experience in the coal mining industry including senior line management roles, experience as a District Inspector of Mines in Queensland and as a member of the Coal Industry Health and Safety Advisory Council. He has also held executive roles in the corporate finance division of an investment bank. He commenced with New Hope as Chief Financial Officer in 2009. He was appointed Managing Director on 20 November 2014. OTHER CURRENT LISTED DIRECTORSHIPS FORMER LISTED DIRECTORSHIPS IN LAST 3 YEARS Nil Nil SPECIAL RESPONSIBILITIES Managing Director INTERESTS IN SHARES AND OPTIONS 436,365 ordinary shares in New Hope Corporation Limited 420,641 performance rights over ordinary shares in New Hope Corporation Limited Appointed 2014 COMPANY SECRETARY Ms Janelle Moody was appointed to the role of Company Secretary and Joint Venture Manager on 31 May 2016. Ms Moody has extensive legal experience, specifically in the area of corporate and commercial matters for the resources industry. Prior to joining New Hope Corporation Limited, Ms Moody was running her own legal practice, and has previously been a Partner in the law firm McCullough Robertson. She was appointed to the role of General Counsel and Company Secretary on 1 May 2018 and Executive General Manager Legal on 1 January 2019. She leads the Company’s in‑house legal team and continues to manage the Company’s interests in the Bengalla Joint Venture, Lenton Joint Venture and Yamala Joint Venture. R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 34 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 35 Directors’ Report for the year ended 31 July 2019 INFORMATION ON DIRECTORS (CONTINUED) Directors’ Report for the year ended 31 July 2019 MS S.J. PALMER – BCOM, CA, FAICD (NON‑EXECUTIVE DIRECTOR) MR S.O. STEPHAN – BBUS (DIST), MBA (AGSM), MAUSIMM, MAICD (MANAGING DIRECTOR) EXPERIENCE Ms Palmer is a Chartered Accountant with over 30 years of extensive experience in the financial and resources fields. Ms Palmer brings a current knowledge to the New Hope Board in all aspects of accounting, finance, financial reporting, risk management and corporate governance. Her most recent executive role was as Chief Financial Officer and Executive Director with Thiess Pty Ltd. Ms Palmer was appointed to the New Hope Corporation Limited Board on 1 November 2012. EXPERIENCE Mr Stephan has over 30 years experience in the coal mining industry including senior line management roles, experience as a District Inspector of Mines in Queensland and as a member of the Coal Industry Health and Safety Advisory Council. He has also held executive roles in the corporate finance division of an investment bank. He commenced with New Hope as Chief Financial Officer in 2009. He was appointed Managing Director on 20 November 2014. OTHER CURRENT LISTED DIRECTORSHIPS Charter Hall Retail REIT Qube Holdings Ltd Appointed 2015 Appointed 2017 FORMER LISTED DIRECTORSHIPS IN LAST 3 YEARS RCR Tomlinson Ltd (Liquidators appointed, delisted from ASX on 5 July 2019) SPECIAL RESPONSIBILITIES Chair of the Audit and Risk Committee INTERESTS IN SHARES AND OPTIONS 15,000 ordinary shares in New Hope Corporation Limited Nil options or rights over ordinary shares in New Hope Corporation Limited MR I.M. WILLIAMS – BEC, LLB (NON‑EXECUTIVE DIRECTOR) EXPERIENCE Nil Nil OTHER CURRENT LISTED DIRECTORSHIPS FORMER LISTED DIRECTORSHIPS IN LAST 3 YEARS SPECIAL RESPONSIBILITIES Member of the Human Resources and Remuneration Committee and Member of Nomination Committee INTERESTS IN SHARES AND OPTIONS 38,087 ordinary shares in New Hope Corporation Limited Nil options or rights over ordinary shares in New Hope Corporation Limited As a legal and strategic adviser to International investors in the energy and resources sectors, Mr Williams has been involved in every aspect of the Australian coal industry. Mr Williams was appointed to the New Hope Corporation Limited Board on 1 November 2012. OTHER CURRENT LISTED DIRECTORSHIPS Nil FORMER LISTED DIRECTORSHIPS IN LAST 3 YEARS Nil SPECIAL RESPONSIBILITIES Managing Director INTERESTS IN SHARES AND OPTIONS 436,365 ordinary shares in New Hope Corporation Limited 420,641 performance rights over ordinary shares in New Hope Corporation Limited Appointed 2014 COMPANY SECRETARY Ms Janelle Moody was appointed to the role of Company Secretary and Joint Venture Manager on 31 May 2016. Ms Moody has extensive legal experience, specifically in the area of corporate and commercial matters for the resources industry. Prior to joining New Hope Corporation Limited, Ms Moody was running her own legal practice, and has previously been a Partner in the law firm McCullough Robertson. She was appointed to the role of General Counsel and Company Secretary on 1 May 2018 and Executive General Manager Legal on 1 January 2019. She leads the Company’s in‑house legal team and continues to manage the Company’s interests in the Bengalla Joint Venture, Lenton Joint Venture and Yamala Joint Venture. R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 34 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 35 Directors’ Report for the year ended 31 July 2019 Directors’ Report for the year ended 31 July 2019 LETTER FROM THE CHAIR OF THE HUMAN RESOURCES AND REMUNERATION COMMITTEE REMUNERATION REPORT Dear Shareholders, On behalf of the Board, the Human Resources and Remuneration Committee is pleased to present the Remuneration Report for the financial year ended 31 July 2019, outlining the nature and amount of remuneration for New Hope Corporation Limited (New Hope or the Company) Non‑Executive Directors, Executive Director and other Key Management Personnel (collectively the KMP). During the 2019 financial year we have reviewed the Company’s remuneration policies, practices and disclosure in the interests of all stakeholders. In developing this year’s Remuneration Report the Board intended to provide more information to shareholders than the statutory requirements of a typical Remuneration Report. This provides shareholders with insights into the remuneration governance, policies, procedures and practices being applied, so that informed judgements can be made in relation to the consideration of the Remuneration Report at the upcoming Annual General Meeting (AGM). The Company’s approach to remuneration governance and process will continue to evolve in line with prevailing market conditions and stakeholder expectations. The Company appreciates the value that gender diversity in the workforce can deliver, and we have successfully continued to improve our diversity year on year. Our focus remains on ensuring that all individuals are given the same opportunities. The Board will continue to consider what further improvements to remuneration governance, policies, procedures and practices could be made and provide updates in future Remuneration Reports. Given the results for the 2019 financial year, the Board is satisfied there is an appropriate link between performance and reward. The Board welcomes feedback in relation to this report and is committed to engaging with all stakeholders on these matters. Mr W.H. Grant Chair of the Human Resources and Remuneration Committee R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 1‑Dec‑95 27‑Nov‑98 22‑Apr‑15 25‑May‑06 15‑Nov‑07 16‑Dec‑15 1‑Nov‑12 1‑Nov‑12 20‑Nov‑14 1‑Feb‑19 19‑Dec‑15 1‑Feb‑14 The information provided in the remuneration report has been audited as required by section 308(3C) of the Corporations Act 2001. PERSONS ADDRESSED AND SCOPE OF THE REMUNERATION REPORT The Remuneration Report sets out the remuneration information of the Company’s KMP in accordance with section 300A of the Corporations Act 2001 and associated regulations. The names and positions held by the Company’s KMPs in office at any time during the financial year are outlined below: POSITIONS HELD COMMENCEMENT DATE NAME Directors Mr T.C. Millner Ms S.J. Palmer Executive KMP Mr S.O. Stephan Mr B.C. Armitage Mr A.L. Boyd Mr M.J. Busch Mr R.D. Millner Non‑Executive Director Chair Mr T.J. Barlow Non‑Executive Director Mr W.H. Grant Independent Non‑Executive Director Chair of the Nomination Committee Chair of the Human Resources and Remuneration Committee Non‑Executive Director Independent Non‑Executive Director Chair of the Audit and Risk Committee Mr I.M. Williams Independent Non‑Executive Director Managing Director (MD) Chief Development Officer (CDO) Chief Operating Officer (COO) Chief Financial Officer (CFO) REMUNERATION GOVERNANCE The following outlines the aspects of the Remuneration Governance framework relevant to KMP remuneration. TRANSPARENCY AND ENGAGEMENT We seek input regarding the governance of KMP remuneration from a wide range of sources, including: • Shareholders; • Human Resources and Remuneration Committee Members; • External remuneration consultants; • Other experts and professionals; and • Management. HUMAN RESOURCES AND REMUNERATION COMMITTEE CHARTER The performance of the Company depends upon the quality of its Directors and Executives. It is our objective to attract and retain appropriately qualified and experienced Directors and Executives. The Human Resources and Remuneration Committee (HRRC) comprises Messrs Grant (Chair), Barlow and Williams. The HRRC is responsible for reviewing and setting the remuneration packages for Directors and Executives on an annual basis. The HRRC engages independent consultants, utilises data from independent surveys and reviews other market information and reports to ensure that remuneration is consistent with current industry practices. No remuneration advice was received in the 2019 financial year from a Remuneration Consultant. 36 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 37 Directors’ Report for the year ended 31 July 2019 Directors’ Report for the year ended 31 July 2019 LETTER FROM THE CHAIR OF THE HUMAN RESOURCES AND REMUNERATION COMMITTEE Dear Shareholders, On behalf of the Board, the Human Resources and Remuneration Committee is pleased to present the Remuneration Report for the financial year ended 31 July 2019, outlining the nature and amount of remuneration for New Hope Corporation Limited (New Hope or the Company) Non‑Executive Directors, Executive Director and other Key Management Personnel (collectively the KMP). During the 2019 financial year we have reviewed the Company’s remuneration policies, practices and disclosure in the interests of all stakeholders. In developing this year’s Remuneration Report the Board intended to provide more information to shareholders than the statutory requirements of a typical Remuneration Report. This provides shareholders with insights into the remuneration governance, policies, procedures and practices being applied, so that informed judgements can be made in relation to the consideration of the Remuneration Report at the upcoming Annual General Meeting (AGM). The Company’s approach to remuneration governance and process will continue to evolve in line with prevailing market conditions and stakeholder expectations. The Company appreciates the value that gender diversity in the workforce can deliver, and we have successfully continued to improve our diversity year on year. Our focus remains on ensuring that all individuals are given the same opportunities. The Board will continue to consider what further improvements to remuneration governance, policies, procedures and practices could be made and provide updates in future Remuneration Reports. Given the results for the 2019 financial year, the Board is satisfied there is an appropriate link between performance and reward. The Board welcomes feedback in relation to this report and is committed to engaging with all stakeholders on these matters. Mr W.H. Grant Chair of the Human Resources and Remuneration Committee REMUNERATION REPORT The information provided in the remuneration report has been audited as required by section 308(3C) of the Corporations Act 2001. PERSONS ADDRESSED AND SCOPE OF THE REMUNERATION REPORT The Remuneration Report sets out the remuneration information of the Company’s KMP in accordance with section 300A of the Corporations Act 2001 and associated regulations. The names and positions held by the Company’s KMPs in office at any time during the financial year are outlined below: NAME Directors POSITIONS HELD COMMENCEMENT DATE Mr R.D. Millner Non‑Executive Director Chair Mr T.J. Barlow Non‑Executive Director Mr W.H. Grant Independent Non‑Executive Director Chair of the Nomination Committee Chair of the Human Resources and Remuneration Committee Mr T.C. Millner Ms S.J. Palmer Non‑Executive Director Independent Non‑Executive Director Chair of the Audit and Risk Committee Mr I.M. Williams Independent Non‑Executive Director Executive KMP Mr S.O. Stephan Mr B.C. Armitage Mr A.L. Boyd Mr M.J. Busch Managing Director (MD) Chief Development Officer (CDO) Chief Operating Officer (COO) Chief Financial Officer (CFO) 1‑Dec‑95 27‑Nov‑98 22‑Apr‑15 25‑May‑06 15‑Nov‑07 16‑Dec‑15 1‑Nov‑12 1‑Nov‑12 20‑Nov‑14 1‑Feb‑19 19‑Dec‑15 1‑Feb‑14 REMUNERATION GOVERNANCE The following outlines the aspects of the Remuneration Governance framework relevant to KMP remuneration. TRANSPARENCY AND ENGAGEMENT We seek input regarding the governance of KMP remuneration from a wide range of sources, including: • Shareholders; • Human Resources and Remuneration Committee Members; • External remuneration consultants; • Other experts and professionals; and • Management. HUMAN RESOURCES AND REMUNERATION COMMITTEE CHARTER The performance of the Company depends upon the quality of its Directors and Executives. It is our objective to attract and retain appropriately qualified and experienced Directors and Executives. The Human Resources and Remuneration Committee (HRRC) comprises Messrs Grant (Chair), Barlow and Williams. The HRRC is responsible for reviewing and setting the remuneration packages for Directors and Executives on an annual basis. The HRRC engages independent consultants, utilises data from independent surveys and reviews other market information and reports to ensure that remuneration is consistent with current industry practices. No remuneration advice was received in the 2019 financial year from a Remuneration Consultant. R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 36 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 37 Directors’ Report for the year ended 31 July 2019 Directors’ Report for the year ended 31 July 2019 REMUNERATION REPORT (CONTINUED) REMUNERATION STRUCTURE – NON-EXECUTIVE DIRECTORS Remuneration of Non‑Executive Directors is determined by the Board with reference to market rates for comparable companies and reflective of the responsibilities and commitment required of the Director. Shareholders have the opportunity to provide feedback to the Company in respect of remuneration of Non‑Executive Directors each year via their consideration of the Remuneration Report at the Company’s Annual General Meeting. Non‑Executive Directors are paid within an aggregate fee limit which is approved by shareholders. The current limit is $1,750,000 and was approved by shareholders on 15 November 2012. In the 2019 financial year, the aggregate amount expended for Non‑Executive Directors remuneration was at 66% of this limit. Non‑Executive Directors are paid a fixed annual fee (inclusive of superannuation where relevant). The fees payable to Non‑Executive Directors for 2020 will be as follows: • • • • $328,364 (inclusive of superannuation) for the Chair; $158,415 (inclusive of superannuation) for Non‑Executive Directors; $18,615 (inclusive of superannuation) for the Chair of the Human Resources and Remuneration Committee; and $54,750 (inclusive of superannuation) for the Chair of the Audit and Risk Committee. Non‑Executive Directors may trade and hold equity investments in the Company in accordance with the Company’s Share Trading Policy. Non‑ Executive Directors are eligible to participate in the Company’s equity plans, however at present no remuneration is paid or payable to Non‑ Executive Directors under such plans. REMUNERATION STRUCTURE – EXECUTIVE KMP Remuneration of the Company’s Executive KMP is underpinned by the Company’s Vision and Core Values. Vision: We will deliver sustainable growth and enduring shareholder value through our people and quality assets Delivery Base salary, superannuation and other non‑cash benefits (e.g. company vehicle). Cash bonus payable upon the Performance Rights which convert Executive KMP achieving required to ordinary shares upon the performance hurdles for the satisfaction of the Executive KMP THE COMPANY’S CORE VALUES INTEGRITY RESPECT ACCOUNTABILITY SAFETY RESILIENCE SUCCESS We are ethical, honest and can be trusted to do the right thing We listen to our stakeholders and treat others as we expect to be treated ourselves We act in accordance with our obligations, deliver on our commitments and take responsibility for our actions We share a mutual responsibility to prevent harm and promote wellbeing We strive to achieve long term sustainability by navigating through change and uncertainty We take pride in the achievements of our goals, being innovative and making a positive difference THE COMPANY’S REMUNERATION OBJECTIVES Attract quality Directors and Executives Deliver the Group’s short term objectives Deliver sustainable and long term shareholder value R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R REMUNERATION STRUCTURE – EXECUTIVE KMP (CONTINUED) The following table summarises the Company’s policy regarding Executive KMP remuneration and how it is intended to be structured, benchmarked and adjusted in response to changes in the circumstances of the Company and in line with good governance: TOTAL FIXED REMUNERATION (TFR) SHORT TERM INCENTIVE (STI) LONG TERM INCENTIVE (LTI) EXECUTIVE KMP REMUNERATION COMPONENTS Purpose To attract and retain executives Create a strong link between Create a strong link between with the appropriate skills and performance and reward over the performance and reward over the capabilities in order to deliver our vision in accordance with our Core Values. short to medium term. long‑term. Focus the attention of the Executive Align the long‑term interests KMP on delivering against short of shareholders with the Executive term goals that underpin the KMP who have a key role in success of the Company. influencing the creation of long term value. Performance measures The Executive KMP receive a fixed Individual Executive KMP Long term Company performance amount which is set annually by the HRRC. performance indicators are based upon the short term is measured by the relative shareholder return achieved by the requirements of the role and needs Company over a three year period of the Company. against the ASX 200. Company performance indicators Individual Executive KMP underpin the short term success performance indicators are of the Company. based upon the long‑term requirements of the role and needs of the Company. relevant financial year. The maximum STI entitlement payable to each Executive KMP meeting required performance hurdles and satisfying the requisite service conditions. is currently between 30% and 37% The maximum LTI entitlement of their TFR (depending on the role). payable to each Executive KMP is currently between 30% and 37% of their TFR (depending on the role). Market Positioning Internal relativities and external market factors are considered when calculating the TFR, STI and LTI for each role. Remuneration is managed within a range so as to allow for the recognition of individual differences such as the calibre of the incumbent and the competency with which they fulfil a role. The Company typically targets remuneration levels at the median of the relevant market so as to create a strong incentive to achieve objectives. Company at the time. All components of remuneration are structured with reference to market practices and the circumstances of the 38 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 39 Directors’ Report for the year ended 31 July 2019 Directors’ Report for the year ended 31 July 2019 REMUNERATION STRUCTURE – EXECUTIVE KMP (CONTINUED) The following table summarises the Company’s policy regarding Executive KMP remuneration and how it is intended to be structured, benchmarked and adjusted in response to changes in the circumstances of the Company and in line with good governance: TOTAL FIXED REMUNERATION (TFR) SHORT TERM INCENTIVE (STI) LONG TERM INCENTIVE (LTI) EXECUTIVE KMP REMUNERATION COMPONENTS R E V I E W O P E R A T I O N S REMUNERATION REPORT (CONTINUED) REMUNERATION STRUCTURE – NON-EXECUTIVE DIRECTORS Remuneration of Non‑Executive Directors is determined by the Board with reference to market rates for comparable companies and reflective of the responsibilities and commitment required of the Director. Shareholders have the opportunity to provide feedback to the Company in respect of remuneration of Non‑Executive Directors each year via their consideration of the Remuneration Report at the Company’s Annual General Meeting. Non‑Executive Directors are paid within an aggregate fee limit which is approved by shareholders. The current limit is $1,750,000 and was approved by shareholders on 15 November 2012. In the 2019 financial year, the aggregate amount expended for Non‑Executive Directors remuneration was at 66% of this limit. Directors for 2020 will be as follows: Non‑Executive Directors are paid a fixed annual fee (inclusive of superannuation where relevant). The fees payable to Non‑Executive • • • • $328,364 (inclusive of superannuation) for the Chair; $158,415 (inclusive of superannuation) for Non‑Executive Directors; $18,615 (inclusive of superannuation) for the Chair of the Human Resources and Remuneration Committee; and $54,750 (inclusive of superannuation) for the Chair of the Audit and Risk Committee. Non‑Executive Directors may trade and hold equity investments in the Company in accordance with the Company’s Share Trading Policy. Non‑ Executive Directors are eligible to participate in the Company’s equity plans, however at present no remuneration is paid or payable to Non‑ Executive Directors under such plans. REMUNERATION STRUCTURE – EXECUTIVE KMP Remuneration of the Company’s Executive KMP is underpinned by the Company’s Vision and Core Values. Purpose To attract and retain executives with the appropriate skills and capabilities in order to deliver our vision in accordance with our Core Values. Performance measures The Executive KMP receive a fixed amount which is set annually by the HRRC. Vision: We will deliver sustainable growth and enduring shareholder value through our people and quality assets Delivery Base salary, superannuation and other non‑cash benefits (e.g. company vehicle). THE COMPANY’S CORE VALUES INTEGRITY RESPECT ACCOUNTABILITY SAFETY RESILIENCE SUCCESS We are ethical, We listen to our We act in We share a mutual We strive to We take pride in honest and can be stakeholders and accordance with responsibility to achieve long term the achievements trusted to do the right thing treat others as we expect to be our obligations, prevent harm and sustainability by of our goals, being deliver on our promote wellbeing navigating through innovative and treated ourselves commitments and take responsibility for our actions change and uncertainty making a positive difference Market Positioning THE COMPANY’S REMUNERATION OBJECTIVES Attract quality Directors and Executives Deliver the Group’s short term objectives Deliver sustainable and long term shareholder value Create a strong link between performance and reward over the short to medium term. Create a strong link between performance and reward over the long‑term. Focus the attention of the Executive KMP on delivering against short term goals that underpin the success of the Company. Align the long‑term interests of shareholders with the Executive KMP who have a key role in influencing the creation of long term value. Individual Executive KMP performance indicators are based upon the short term requirements of the role and needs of the Company. Long term Company performance is measured by the relative shareholder return achieved by the Company over a three year period against the ASX 200. Company performance indicators underpin the short term success of the Company. Cash bonus payable upon the Executive KMP achieving required performance hurdles for the relevant financial year. The maximum STI entitlement payable to each Executive KMP is currently between 30% and 37% of their TFR (depending on the role). Individual Executive KMP performance indicators are based upon the long‑term requirements of the role and needs of the Company. Performance Rights which convert to ordinary shares upon the satisfaction of the Executive KMP meeting required performance hurdles and satisfying the requisite service conditions. The maximum LTI entitlement payable to each Executive KMP is currently between 30% and 37% of their TFR (depending on the role). R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R Internal relativities and external market factors are considered when calculating the TFR, STI and LTI for each role. Remuneration is managed within a range so as to allow for the recognition of individual differences such as the calibre of the incumbent and the competency with which they fulfil a role. The Company typically targets remuneration levels at the median of the relevant market so as to create a strong incentive to achieve objectives. All components of remuneration are structured with reference to market practices and the circumstances of the Company at the time. 38 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 39 Directors’ Report for the year ended 31 July 2019 Directors’ Report for the year ended 31 July 2019 REMUNERATION REPORT (CONTINUED) REMUNERATION STRUCTURE – EXECUTIVE KMP (CONTINUED) The below table demonstrates the target remuneration mix for our Executive KMPs. CEO CFO COO CDO $1,500,000 $555,000 $555,000 $645,000 $193,500 $193,500 $820,000 $550,000 $287,000 $287,000 $176,000 $176,000 TFR STI LTI 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% FIXED REMUNERATION TFR for Executive KMPs is fixed annually by the HRRC. It comprises a cash salary, superannuation, and other non‑cash benefits (e.g. a Company provided vehicle or vehicle allowance). SHORT TERM INCENTIVES The Company’s STI policy may be summarised as follows: • Executive KMPs are offered STI entitlements as part of their remuneration package in order to: – Motivate Executive KMPs to achieve the short‑term objectives linked to Company success; – Create a strong link between performance and reward; – Ensure correct behaviour, in line with our Core Values; – Share Company success with the Executive KMPs that contribute to it; and – Create a component of the employment cost that is responsive to short to medium term changes in the circumstances of the Company. • Non‑Executive Directors do not currently receive STI entitlements; • • STI entitlements are measured against the performance of the Company and the Executive KMPs across a given financial year; and STI payments are outcome focused and based upon both the performance of the individual and broader executive team in delivering successful outcomes for the Company. LONG TERM INCENTIVES The Company’s LTI policy may be summarised as follows: • Executive KMPs are offered LTI entitlements as part of their remuneration package in order to: – Motivate Executive KMPs to achieve objectives linked to shareholder value creation over the long‑term; – Create a strong link between performance and reward over the long‑term; – Align the interests of shareholders and the Executive KMPs that have a key role in influencing the creation of long term value; – Retain the services of Executive KMPs over time; and – Create a good behaviour link that will extend beyond cessation of employment and create a disincentive to take actions that are not deemed to be in the long‑term interests of shareholders. • Non‑Executive Directors do not currently receive LTI entitlements; • • LTI entitlements are measured against the performance of the Company and the Executive KMPs across a window of three consecutive financial years; and LTI entitlements also require an Executive KMP to remain an employee of the Company for twelve months beyond the three year performance window in order to be eligible to receive any LTI benefit. SECURITIES TRADING POLICY The Trading in Company Securities Policy applies to all Directors, Employees and Contractors (collectively Personnel) and parties associated with them. The Policy sets out the guidelines for dealing in any type of Company Securities and summarises the law relating to insider trading which applies to everyone. Under the current policy: • Trading is prohibited during a “closed period” which is: – Each of the four weeks prior to the announcement of the Company’s half year and full year results; – At any time without the relevant approval or notification required by the Policy; – At any time while being in the possession of price sensitive information that is not generally available; and – For short term or speculative gain. • KMPs and other Company leaders must seek approval at least two days prior to trading securities; • Directors must immediately notify the Company of the details of any trading; • Other Personnel must notify the Company at least two days prior to trading securities; and • Personnel are prohibited from entering into margin loans or products which operate to limit the financial risk associated with holding the securities (e.g. hedging arrangements). VARIABLE EXECUTIVE REMUNERATION – SHORT-TERM INCENTIVES ASPECT PLAN, OFFERS AND COMMENTS Form of Award Cash bonus entitlement. Performance Period The Company’s financial year (12 months). Maximum Entitlements The maximum STI entitlement payable to each Executive KMP is currently between 30% and 37% of their TFR (depending on the role). Award Determination and Payment Calculations are performed following the end of the Performance Period. Awards will generally be paid in cash in the month of October following the end of the Performance Period. Gate Individuals must meet or exceed expectations to be eligible for any STI award. Cessation of Employment Generally all STI entitlements will be forfeited in the event that cessation of employment occurs prior During a Period to the completion of the Performance Period. The Board retains discretion to consider extenuating circumstances and may choose to award some or all of the STI entitlement to an Executive. Key Performance The chart below indicates the weightings of KPIs applicable to the STI entitlements for the 2019 and Indicators (KPIs) criteria 2020 financial years. and weighting Short-term KPIs R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 50% 30% 10% 10% Group Profit Group Sales Group Costs Attributable to individual performance criteria associated with the role 40 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 41 Directors’ Report for the year ended 31 July 2019 Directors’ Report for the year ended 31 July 2019 REMUNERATION REPORT (CONTINUED) REMUNERATION STRUCTURE – EXECUTIVE KMP (CONTINUED) The below table demonstrates the target remuneration mix for our Executive KMPs. CEO CFO COO CDO $1,500,000 $555,000 $555,000 $645,000 $193,500 $193,500 $820,000 $550,000 $287,000 $287,000 $176,000 $176,000 TFR STI LTI 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% TFR for Executive KMPs is fixed annually by the HRRC. It comprises a cash salary, superannuation, and other non‑cash benefits FIXED REMUNERATION (e.g. a Company provided vehicle or vehicle allowance). SHORT TERM INCENTIVES The Company’s STI policy may be summarised as follows: • Executive KMPs are offered STI entitlements as part of their remuneration package in order to: – Motivate Executive KMPs to achieve the short‑term objectives linked to Company success; – Create a strong link between performance and reward; – Ensure correct behaviour, in line with our Core Values; – Share Company success with the Executive KMPs that contribute to it; and – Create a component of the employment cost that is responsive to short to medium term changes in the circumstances of the Company. • Non‑Executive Directors do not currently receive STI entitlements; STI entitlements are measured against the performance of the Company and the Executive KMPs across a given financial year; and STI payments are outcome focused and based upon both the performance of the individual and broader executive team in delivering successful outcomes for the Company. LONG TERM INCENTIVES The Company’s LTI policy may be summarised as follows: • Executive KMPs are offered LTI entitlements as part of their remuneration package in order to: – Motivate Executive KMPs to achieve objectives linked to shareholder value creation over the long‑term; – Create a strong link between performance and reward over the long‑term; – Align the interests of shareholders and the Executive KMPs that have a key role in influencing the creation of long term value; – Create a good behaviour link that will extend beyond cessation of employment and create a disincentive to take actions that are – Retain the services of Executive KMPs over time; and not deemed to be in the long‑term interests of shareholders. • Non‑Executive Directors do not currently receive LTI entitlements; LTI entitlements are measured against the performance of the Company and the Executive KMPs across a window of three consecutive financial years; and LTI entitlements also require an Executive KMP to remain an employee of the Company for twelve months beyond the three year performance window in order to be eligible to receive any LTI benefit. • • • • SECURITIES TRADING POLICY The Trading in Company Securities Policy applies to all Directors, Employees and Contractors (collectively Personnel) and parties associated with them. The Policy sets out the guidelines for dealing in any type of Company Securities and summarises the law relating to insider trading which applies to everyone. Under the current policy: • Trading is prohibited during a “closed period” which is: – Each of the four weeks prior to the announcement of the Company’s half year and full year results; – At any time without the relevant approval or notification required by the Policy; – At any time while being in the possession of price sensitive information that is not generally available; and – For short term or speculative gain. • KMPs and other Company leaders must seek approval at least two days prior to trading securities; • Directors must immediately notify the Company of the details of any trading; • Other Personnel must notify the Company at least two days prior to trading securities; and • Personnel are prohibited from entering into margin loans or products which operate to limit the financial risk associated with holding the securities (e.g. hedging arrangements). VARIABLE EXECUTIVE REMUNERATION – SHORT-TERM INCENTIVES ASPECT PLAN, OFFERS AND COMMENTS Form of Award Cash bonus entitlement. Performance Period The Company’s financial year (12 months). Maximum Entitlements The maximum STI entitlement payable to each Executive KMP is currently between 30% and 37% of their TFR (depending on the role). Award Determination and Payment Calculations are performed following the end of the Performance Period. Awards will generally be paid in cash in the month of October following the end of the Performance Period. Gate Individuals must meet or exceed expectations to be eligible for any STI award. Cessation of Employment During a Period Generally all STI entitlements will be forfeited in the event that cessation of employment occurs prior to the completion of the Performance Period. Key Performance Indicators (KPIs) criteria and weighting The Board retains discretion to consider extenuating circumstances and may choose to award some or all of the STI entitlement to an Executive. The chart below indicates the weightings of KPIs applicable to the STI entitlements for the 2019 and 2020 financial years. Short-term KPIs 50% 30% 10% 10% Group Profit Group Sales Group Costs Attributable to individual performance criteria associated with the role R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 40 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 41 Directors’ Report for the year ended 31 July 2019 REMUNERATION REPORT (CONTINUED) VARIABLE EXECUTIVE REMUNERATION – LONG-TERM INCENTIVES ASPECT PLAN RULES, INVITATIONS AND COMMENTS Form of Award Deferred equity entitlement. Form of Equity Performance Rights which will convert to Ordinary Shares upon the satisfaction of both performance and service related vesting conditions. Maximum Entitlement The maximum LTI entitlement payable to each Executive KMP is currently between 30% and 37% of their TFR (depending on the role). Performance Period Performance is measured over three consecutive financial years. For the entitlements relating to the 2019 financial year, the Performance Period is from 1 August 2018 to 31 July 2021. Service Period The Executive KMP must remain an employee of the Company for 12 months beyond the Performance Period in order to be eligible to receive any LTI benefit. Directors’ Report for the year ended 31 July 2019 Long-term Incentives KPI 25% 75% Attributable to Shareholder Value Attributable to the delivery of strategic plan (individual performance criteria associated with the role) For the entitlements relating to the 2019 financial year, the Service Period is from 1 August 2018 to 31 July 2022. The Total Shareholder Return (TSR) vesting scale appears as follows: Cessation of Employment During the Performance or Service Period Generally all LTI entitlements will be forfeited in the event that cessation of employment occurs prior to the completion of the Performance or Service Period. The Board retains discretion to consider extenuating circumstances and may choose to award some or all of the LTI entitlement to an Executive. Retesting Retesting is a provision in incentive plans that allows performance against pre‑defined targets to be assessed again at some time (or times) after the initial assessment. There is no retesting applicable to LTI entitlements. Award Determination and Issue of Shares All vesting conditions must be satisfied in order for the Performance Rights to be converted to Ordinary Shares. The Board ultimately decides what percentage of LTI will be awarded based on the performance criteria. Performance Rights that are not converted to Ordinary Shares will lapse. The LTI entitlements for the 2019 financial year include two separate performance criteria described below: • • Long term Company performance measured by the total shareholder return achieved by the Company over a three year period relative to the ASX 200 Net Total Return (XNT) index (in the table below); and Individual Executive KMP performance indicators based upon the Company’s strategic plan, the needs of the Company and the requirements of the role. Gate Individuals must meet or exceed expectations to be eligible for any LTI award. % OF 3 YEAR COMPANY TSR VS ASX % VESTING ‹ 100% 100% 105% 110% 115% 120% › 125 % 0% 25% 35% 45% 55% 65% 75% At the commencement of a new performance year, the Executive KMP are issued with Performance Rights to the value of their maximum potential earnings related to their individual role (for example MD 37% of TFR). Over the next three years, both the individual performance of the Executive KMP (25% weighting) and the Company Performance (75% weighting) are assessed to determine what overall percentage of the original performance rights issued will be eligible to vest to the Executive KMP. In addition to the three years performance condition the Executive is also required to complete an additional 12 months service condition before the approved performance rights will vest The agreements with the Executive KMP provide for a cash salary, superannuation and a fully maintained motor vehicle. Executives may elect to take a vehicle allowance in lieu of a Company vehicle and may salary sacrifice a portion of their cash salary into superannuation TERM OF AGREEMENT AND NOTICE PERIOD 1 BASE REMUNERATION PLUS SUPERANNUATION 2 TERMINATION PAYMENTS 3 to the Executive KMP. EMPLOYMENT CONTRACTS or other benefits. NAME Mr S.O. Stephan Mr B.C. Armitage Mr A.L. Boyd Mr M.J. Busch No fixed term. 6 months’ notice period No fixed term. 3 months’ notice period No fixed term. 3 months’ notice period No fixed term. 3 months’ notice period $1,458,244 6 months’ base remuneration $514,843 3 months’ base remuneration $784,843 3 months’ base remuneration $609,843 3 months’ base remuneration 1 This notice applies equally to all parties. 2 Fixed remuneration quoted is for the year ended 31 July 2019; they are reviewed annually by the HRRC. 3 Base salary payable if the Company terminates employees with notice, and without cause (e.g. for reasons other than unsatisfactory performance). R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 42 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 43 Directors’ Report for the year ended 31 July 2019 REMUNERATION REPORT (CONTINUED) VARIABLE EXECUTIVE REMUNERATION – LONG-TERM INCENTIVES ASPECT PLAN RULES, INVITATIONS AND COMMENTS Form of Award Deferred equity entitlement. Form of Equity Performance Rights which will convert to Ordinary Shares upon the satisfaction of both performance Maximum Entitlement The maximum LTI entitlement payable to each Executive KMP is currently between 30% and 37% and service related vesting conditions. of their TFR (depending on the role). Performance Period Performance is measured over three consecutive financial years. For the entitlements relating to the 2019 financial year, the Performance Period is from 1 August 2018 to 31 July 2021. to 31 July 2022. Service Period The Executive KMP must remain an employee of the Company for 12 months beyond the Performance Period in order to be eligible to receive any LTI benefit. For the entitlements relating to the 2019 financial year, the Service Period is from 1 August 2018 Cessation of Employment During the Performance or Service Period Generally all LTI entitlements will be forfeited in the event that cessation of employment occurs prior to the completion of the Performance or Service Period. The Board retains discretion to consider extenuating circumstances and may choose to award some or all of the LTI entitlement to an Executive. Retesting Retesting is a provision in incentive plans that allows performance against pre‑defined targets to be assessed again at some time (or times) after the initial assessment. There is no retesting applicable to LTI entitlements. Award Determination and Issue of Shares All vesting conditions must be satisfied in order for the Performance Rights to be converted to Ordinary Shares. The Board ultimately decides what percentage of LTI will be awarded based on the performance criteria. Performance Rights that are not converted to Ordinary Shares will lapse. The LTI entitlements for the 2019 financial year include two separate performance criteria described below: table below); and • Long term Company performance measured by the total shareholder return achieved by the Company over a three year period relative to the ASX 200 Net Total Return (XNT) index (in the • Individual Executive KMP performance indicators based upon the Company’s strategic plan, the needs of the Company and the requirements of the role. Gate Individuals must meet or exceed expectations to be eligible for any LTI award. Directors’ Report for the year ended 31 July 2019 Long-term Incentives KPI 25% 75% Attributable to Shareholder Value Attributable to the delivery of strategic plan (individual performance criteria associated with the role) The Total Shareholder Return (TSR) vesting scale appears as follows: % OF 3 YEAR COMPANY TSR VS ASX % VESTING ‹ 100% 100% 105% 110% 115% 120% › 125 % 0% 25% 35% 45% 55% 65% 75% At the commencement of a new performance year, the Executive KMP are issued with Performance Rights to the value of their maximum potential earnings related to their individual role (for example MD 37% of TFR). Over the next three years, both the individual performance of the Executive KMP (25% weighting) and the Company Performance (75% weighting) are assessed to determine what overall percentage of the original performance rights issued will be eligible to vest to the Executive KMP. In addition to the three years performance condition the Executive is also required to complete an additional 12 months service condition before the approved performance rights will vest to the Executive KMP. EMPLOYMENT CONTRACTS The agreements with the Executive KMP provide for a cash salary, superannuation and a fully maintained motor vehicle. Executives may elect to take a vehicle allowance in lieu of a Company vehicle and may salary sacrifice a portion of their cash salary into superannuation or other benefits. NAME Mr S.O. Stephan Mr B.C. Armitage Mr A.L. Boyd Mr M.J. Busch TERM OF AGREEMENT AND NOTICE PERIOD 1 BASE REMUNERATION PLUS SUPERANNUATION 2 TERMINATION PAYMENTS 3 No fixed term. 6 months’ notice period No fixed term. 3 months’ notice period No fixed term. 3 months’ notice period No fixed term. 3 months’ notice period $1,458,244 6 months’ base remuneration $514,843 3 months’ base remuneration $784,843 3 months’ base remuneration $609,843 3 months’ base remuneration 1 This notice applies equally to all parties. 2 Fixed remuneration quoted is for the year ended 31 July 2019; they are reviewed annually by the HRRC. 3 Base salary payable if the Company terminates employees with notice, and without cause (e.g. for reasons other than unsatisfactory performance). R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 42 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 43 Directors’ Report for the year ended 31 July 2019 Directors’ Report for the year ended 31 July 2019 REMUNERATION REPORT (CONTINUED) VOTING AT THE COMPANY’S 2018 ANNUAL GENERAL MEETING This chart portrays the percentage of votes for and against the Remuneration Report at the 2018 AGM. Votes on Remuneration Report 2018 0.7% 99.3% Voted for Voted Against VARIABLE REMUNERATION OUTCOMES To determine the short‑term incentive that will apply in the performance year, the Board assesses the Executive KMP against the individual role KPIs and the performance of the Company. The performance of the company is measured by reference to group profit, group sales volumes and group operating costs. Details of the Maximum STI entitlements and cash bonuses payable to Executive KMPs in relation to the 2019 financial year are set out below. These amounts will be paid during the 2020 financial year. EXECUTIVE KMP Mr S.O. Stephan Mr B.C. Armitage 1 Mr A.L. Boyd Mr M.J. Busch PAYABLE FORFEITED FORFEITED MAXIMUM STI $ 555,000 176,000 287,000 193,500 PAYABLE STI $ 370,000 102,500 220,000 121,500 STI % 67% 58% 77% 63% STI $ 185,000 73,500 67,000 72,000 STI % 33% 42% 23% 37% 1 Mr B.C. Armitage was appointed Chief Development Officer on 1 February 2019. The amount of STI maximum is payable for the period 1 August 2018 to 31 July 2019 which includes amounts relating to pre‑KMP appointment. The amount of STI payable for the 2019 financial year has been awarded based on the performance for the full year. Mr S.O. Stephan Mr A. L. Boyd COMPANY PERFORMANCE The following table outlines the performance of the Company over the 2019 financial year and the previous four financial years in accordance with the requirements of the Corporations Act 2001: Net profit/(loss) attributable to shareholders A$000’s Profit/(loss) after tax A$000’s Net profit after tax before non regular items A$000’s Earnings/(loss) per share Dividends paid during the year Share price as at 31 July Shareholders’ funds cps cps $/share A$000’s 2019 210,652 210,652 268,487 25.3 16.0 2.51 2018 149,498 149,498 261,245 18.0 12.0 3.19 2017 140,620 140,619 128,713 16.9 6.0 1.60 2016 2015 (53,679) (53,680) 5,029 (6.5) 8.0 1.60 (21,820) (21,821) 51,749 (2.6) 9.5 1.91 1,961,012 1,888,400 1,853,428 1,750,412 1,852,625 This graph represents the key financial performance measures for the Company over the previous five financial years. Historical Financial Performance $million 600 500 400 300 200 100 – (100) 2015 2016 2017 2018 2019 NPAT NPAT before non-regular EBITDA before non-regular 33% 67% STI Received STI Forfeited 23% 77% Mr M. J. Busch Mr B. C. Armitage 37% STI Received STI Forfeited 42% 63% 58% STI Received STI Forfeited R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 44 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 45 Directors’ Report for the year ended 31 July 2019 Directors’ Report for the year ended 31 July 2019 REMUNERATION REPORT (CONTINUED) VOTING AT THE COMPANY’S 2018 ANNUAL GENERAL MEETING This chart portrays the percentage of votes for and against the Remuneration Report at the 2018 AGM. Votes on Remuneration Report 2018 0.7% 99.3% Voted for Voted Against VARIABLE REMUNERATION OUTCOMES To determine the short‑term incentive that will apply in the performance year, the Board assesses the Executive KMP against the individual role KPIs and the performance of the Company. The performance of the company is measured by reference to group profit, group sales volumes and group operating costs. Details of the Maximum STI entitlements and cash bonuses payable to Executive KMPs in relation to the 2019 financial year are set out below. These amounts will be paid during the 2020 financial year. EXECUTIVE KMP Mr S.O. Stephan Mr B.C. Armitage 1 Mr A.L. Boyd Mr M.J. Busch STI MAXIMUM $ 555,000 176,000 287,000 193,500 STI PAYABLE $ 370,000 102,500 220,000 121,500 STI PAYABLE % 67% 58% 77% 63% STI FORFEITED $ 185,000 73,500 67,000 72,000 STI FORFEITED % 33% 42% 23% 37% 1 Mr B.C. Armitage was appointed Chief Development Officer on 1 February 2019. The amount of STI maximum is payable for the period 1 August 2018 to 31 July 2019 which includes amounts relating to pre‑KMP appointment. The amount of STI payable for the 2019 financial year has been awarded based on the performance for the full year. Mr S.O. Stephan Mr A. L. Boyd COMPANY PERFORMANCE The following table outlines the performance of the Company over the 2019 financial year and the previous four financial years in accordance with the requirements of the Corporations Act 2001: Net profit/(loss) attributable to shareholders A$000’s Profit/(loss) after tax Net profit after tax before non regular items A$000’s Earnings/(loss) per share Dividends paid during the year Share price as at 31 July Shareholders’ funds 2019 210,652 210,652 268,487 25.3 16.0 2.51 2018 149,498 149,498 261,245 18.0 12.0 3.19 2017 140,620 140,619 128,713 16.9 6.0 1.60 2016 2015 (53,679) (53,680) 5,029 (6.5) 8.0 1.60 (21,820) (21,821) 51,749 (2.6) 9.5 1.91 1,961,012 1,888,400 1,853,428 1,750,412 1,852,625 A$000’s cps cps $/share A$000’s This graph represents the key financial performance measures for the Company over the previous five financial years. Historical Financial Performance $million 600 500 400 300 200 100 – (100) 2015 2016 2017 2018 2019 NPAT NPAT before non-regular EBITDA before non-regular 33% 67% STI Received STI Forfeited 23% 77% Mr M. J. Busch Mr B. C. Armitage 37% STI Received STI Forfeited 42% 63% 58% STI Received STI Forfeited R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 44 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 45 Directors’ Report for the year ended 31 July 2019 Directors’ Report for the year ended 31 July 2019 REMUNERATION REPORT (CONTINUED) VARIABLE REMUNERATION OUTCOMES (CONTINUED) The HRRC is of the view that the Executive KMP have continued to successfully execute the Company’s strategy. The table below is designed to provide shareholders with a better understanding of the actual remuneration paid to each Executive KMP in 2019 and 2018. It includes: • • • • Fixed remuneration earned and paid in the year ended 31 July 2018 and 31 July 2019; STI earned in respect of 31 July 2018 and 31 July 2019 performance noting that: – The STI entitlement in respect of the 2018 financial year was paid in October 2018; – The STI entitlement in respect of the 2019 financial year will be paid in October 2019; LTI entitlements for which both the performance criteria and service criteria have been satisfied during the 2018 or 2019 financial year. The value is calculated by reference to the market value of any shares issued to the Executive on the date of issue; and Any non‑monetary benefits provided to KMP in the year ended 31 July 2018 and 31 July 2019 (including fringe benefits). EXECUTIVE KMP 2019 Executive Directors Mr S.O. Stephan Other Key Management Personnel Mr B.C. Armitage 5 Mr A.L. Boyd Mr M.J. Busch Total Other Key Management Personnel Total – 2019 2018 Executive Directors Mr S.O. Stephan Other Key Management Personnel Mr A.L. Boyd Mr M.J. Busch Total Other Key Management Personnel Total – 2018 TFR 1 $ STI 2 CASH $ TOTAL CASH $ LTI 3 VESTED AT MARKET $ OTHER 4 $ TOTAL REMUNERATION $ 1,402,072 370,000 1,772,072 513,000 153,379 2,438,451 229,614 757,695 606,120 1,593,429 2,995,501 102,500 220,000 121,500 444,000 814,000 332,114 977,695 727,620 2,037,429 3,809,501 – 252,778 188,326 441,104 954,104 19,513 79,317 60,448 159,278 312,657 351,627 1,309,790 976,394 2,637,811 5,076,262 1,296,511 383,000 1,680,311 266,083 75,534 2,021,928 691,271 586,295 1,277,566 2,574,077 212,940 140,600 353,540 737,340 904,211 726,895 1,631,106 3,311,417 – 99,782 99,782 365,865 63,094 62,509 967,305 889,186 125,603 201,137 1,856,491 3,878,419 1 TFR comprises base salary and superannuation and motor vehicle benefits. 2 STI represents the amount of cash STI that each Executive KMP was paid in October 2018 and will be paid in October 2019 in respect of performance during the 2018 and 2019 financial years respectively. 3 The LTI award for 2019 is in respect of the 2016 LTI entitlement which covers the performance period 1 August 2015 to 31 July 2018 and a service condition that was satisfied on 31 July 2019. Shares were issued in August 2019 after satisfaction of the service condition. The LTI awarded for 2018 in respect of the 2015 LTI entitlement which covers the performance period 1 August 2014 to 31 July 2017 and a service condition that was satisfied on 31 July 2018. Shares were issued in August 2018 after satisfaction of the service condition. 4 Other includes parking, movements in annual and long service leave provisions and other sundry items. 5 Mr B.C. Armitage was appointed as Chief Development Officer on 1 February 2019. The graphs below reflect the Executives at risk remuneration of total remuneration package for 2019. Mr S.O. Stephan – 2019 Mr A. L. Boyd – 2019 21% 15% 64% Fixed remuneration At Risk STI At Risk LTI 19% 17% 64% Mr M. J. Busch – 2019 Mr B. C. Armitage – 2019 20% 12% 68% Fixed remuneration 29% At Risk STI At Risk LTI 71% Fixed remuneration At Risk STI At Risk LTI R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 46 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 47 Directors’ Report for the year ended 31 July 2019 REMUNERATION REPORT (CONTINUED) VARIABLE REMUNERATION OUTCOMES (CONTINUED) It includes: • • • • EXECUTIVE KMP 2019 Executive Directors Mr S.O. Stephan Mr B.C. Armitage 5 Mr A.L. Boyd Mr M.J. Busch 2018 Executive Directors Mr S.O. Stephan Mr A.L. Boyd Mr M.J. Busch Total – 2018 The HRRC is of the view that the Executive KMP have continued to successfully execute the Company’s strategy. The table below is designed to provide shareholders with a better understanding of the actual remuneration paid to each Executive KMP in 2019 and 2018. Fixed remuneration earned and paid in the year ended 31 July 2018 and 31 July 2019; STI earned in respect of 31 July 2018 and 31 July 2019 performance noting that: – The STI entitlement in respect of the 2018 financial year was paid in October 2018; – The STI entitlement in respect of the 2019 financial year will be paid in October 2019; LTI entitlements for which both the performance criteria and service criteria have been satisfied during the 2018 or 2019 financial year. The value is calculated by reference to the market value of any shares issued to the Executive on the date of issue; and Any non‑monetary benefits provided to KMP in the year ended 31 July 2018 and 31 July 2019 (including fringe benefits). TFR 1 $ STI 2 CASH $ TOTAL CASH $ LTI 3 VESTED AT MARKET $ OTHER 4 REMUNERATION $ TOTAL $ 1,402,072 370,000 1,772,072 513,000 153,379 2,438,451 Other Key Management Personnel Total Other Key Management Personnel Total – 2019 229,614 757,695 606,120 1,593,429 2,995,501 102,500 220,000 121,500 444,000 814,000 332,114 977,695 727,620 2,037,429 3,809,501 – 252,778 188,326 441,104 954,104 19,513 79,317 60,448 159,278 312,657 351,627 1,309,790 976,394 2,637,811 5,076,262 1,296,511 383,000 1,680,311 266,083 75,534 2,021,928 Other Key Management Personnel Total Other Key Management Personnel 691,271 586,295 1,277,566 2,574,077 212,940 140,600 353,540 737,340 904,211 726,895 1,631,106 3,311,417 – 99,782 99,782 365,865 63,094 62,509 967,305 889,186 125,603 201,137 1,856,491 3,878,419 1 TFR comprises base salary and superannuation and motor vehicle benefits. 2 STI represents the amount of cash STI that each Executive KMP was paid in October 2018 and will be paid in October 2019 in respect of performance during the 2018 and 2019 financial years respectively. 3 The LTI award for 2019 is in respect of the 2016 LTI entitlement which covers the performance period 1 August 2015 to 31 July 2018 and a service condition that was satisfied on 31 July 2019. Shares were issued in August 2019 after satisfaction of the service condition. The LTI awarded for 2018 in respect of the 2015 LTI entitlement which covers the performance period 1 August 2014 to 31 July 2017 and a service condition that was satisfied on 31 July 2018. Shares were issued in August 2018 after satisfaction of the service condition. 4 Other includes parking, movements in annual and long service leave provisions and other sundry items. 5 Mr B.C. Armitage was appointed as Chief Development Officer on 1 February 2019. Directors’ Report for the year ended 31 July 2019 The graphs below reflect the Executives at risk remuneration of total remuneration package for 2019. Mr S.O. Stephan – 2019 Mr A. L. Boyd – 2019 21% 15% 64% Fixed remuneration At Risk STI At Risk LTI 19% 17% 64% Mr M. J. Busch – 2019 Mr B. C. Armitage – 2019 20% 12% 68% Fixed remuneration At Risk STI At Risk LTI 29% 71% Fixed remuneration At Risk STI At Risk LTI R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 46 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 47 Directors’ Report for the year ended 31 July 2019 Directors’ Report for the year ended 31 July 2019 REMUNERATION REPORT (CONTINUED) REMUNERATION – STATUTORY TABLES Details of the remuneration of Directors and the Executive KMP of the Company are set out below for the current and previous financial years. SHORT-TERM EMPLOYEE BENEFITS CASH SALARY AND FEES $ CASH BONUS $ NON CASH BENEFITS 1 $ LONG-TERM BENEFITS LSL $ POST EMPLOYMENT SUPER- ANNUATION $ SHARE-BASED PAYMENTS PERFORMANCE RIGHTS $ TOTAL $ 2019 Non-executive Directors Mr R.D. Millner Mr T.J. Barlow Mr W.H. Grant Mr T.C. Millner Ms S.J. Palmer Mr I.M. Williams 304,704 140,392 155,991 140,392 180,236 140,392 Total Non-executive Directors 1,062,107 – – – – – – – – – – – – – – – – – – – – – 20,590 13,337 14,819 13,337 17,122 13,337 92,542 – – – – – – – 325,294 153,729 170,810 153,729 197,358 153,729 1,154,649 Executive Directors Mr S.O. Stephan Other Key Management Personnel Mr B.C. Armitage Mr A.L. Boyd Mr M.J. Busch Total Other Key Management Personnel Total Remuneration – 2019 2018 Non-executive Directors Mr R.D. Millner Mr T.J. Barlow Mr W.H. Grant Mr T.C. Millner Ms S.J. Palmer Mr I.M. Williams 1,381,424 383,000 107,703 45,676 20,649 249,709 2,188,161 220,573 737,047 585,522 1,543,142 3,986,673 – 212,940 140,600 353,540 736,540 15,622 60,878 47,171 123,671 231,374 3,892 18,439 13,277 35,608 81,284 9,042 20,649 20,599 24,160 273,289 125,867 1,175,820 93,554 900,723 50,290 163,481 243,581 2,349,832 493,290 5,692,642 297,272 136,968 152,187 136,968 162,333 136,968 – – – – – – – – – – – – – – – – – – – – – 20,106 13,012 14,457 13,012 15,421 13,012 89,020 – – – – – – – 317,378 149,980 166,644 149,980 177,754 149,980 1,111,716 Total Non-executive Directors 1,022,696 R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R SHARE BASED COMPENSATION The terms and conditions of each grant of Performance Rights affecting remuneration of Executive KMP in the current or future reporting periods and the associated pricing model inputs are as follows: PERFORMANCE PERIOD TO WHICH LTI RELATES 2015–2018 2016–2019 2017–2020 2018–2021 GRANT DATE VESTING DATE VALUE OF A PERFORMANCE RIGHT AT GRANT DATE Nov‑15 Dec‑16 Mar‑18 Mar‑19 Aug‑18 Aug‑19 Aug‑20 Aug‑21 ($) 1.08 0.80 1.23 1.47 Performance Rights granted under the plan carry no dividend or voting rights. Details of Performance Rights over ordinary shares in the Company as at 31 July 2019, provided as remuneration to the Executive KMP of the Company are set out below. No Performance Rights have been issued to Non‑Executive Directors in the 2019 financial year. Upon satisfaction of the service period and performance conditions each Performance Right will automatically vest and convert into one ordinary share in New Hope Corporation Limited. The minimum value of the Performance Rights yet to vest is nil, as the Performance Rights will lapse if the vesting conditions are not met. The maximum value in future periods has been determined as the amount of the grant date fair value of the Performance Right that is yet to be expensed. NAME GRANT DATE VESTING DATE NUMBER GRANTED VALUE PER SHARE NUMBER VESTED 83,674 VESTED % LAPSED % NUMBER LAPSED 41% 120,408 59% Mr S.O. Stephan Mr B.C. Armitage Mr A.L. Boyd Nov‑15 Dec‑16 Mar‑18 Mar‑19 Mar‑18 Mar‑19 Dec‑16 Mar‑18 Mar‑19 Nov‑15 Dec‑16 Mar‑18 Mar‑19 Aug‑18 204,082 Aug‑19 1 250,000 Aug‑20 Aug‑21 Aug‑20 Aug‑21 Aug‑19 Aug‑20 Aug‑21 Aug‑18 Aug‑19 1 Aug‑20 Aug‑21 263,158 157,483 62,230 32,843 124,497 131,049 85,134 76,531 93,750 98,684 59,251 $1.08 $0.80 $1.23 $1.47 $1.23 $1.47 $0.80 $1.23 $1.47 $1.08 $0.80 $1.23 $1.47 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Mr M.J. Busch 31,378 41% 45,153 59% MAXIMUM VALUE IN FUTURE PERIODS 134,140 192,773 31,721 39,905 66,800 103,440 – – – – – 50,302 71,991 – – – – – – – – – – – 1 The Performance Rights vesting in August 2019 do not have a maximum value at 31 July 2019 as they vest in August 2019. The fair value of the Performance Rights is determined based on the market price of the Company’s shares at the grant date. Executive Directors Mr S.O. Stephan Other Key Management Personnel Mr A.L. Boyd Mr M.J. Busch Total Other Key Management Personnel Total Remuneration – 2018 1,276,342 320,000 42,902 32,632 20,169 211,674 1,903,719 670,803 565,970 1,236,773 3,535,811 140,000 100,900 240,900 560,900 42,590 39,425 82,015 124,917 20,504 23,084 43,588 76,220 20,468 20,325 65,385 79,378 959,750 829,082 40,793 149,982 144,763 1,788,832 356,437 4,804,267 1 Non‑cash benefits include movements in annual leave provisions. 48 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 49 Details of the remuneration of Directors and the Executive KMP of the Company are set out below for the current and previous financial years. SHORT-TERM EMPLOYEE BENEFITS CASH SALARY AND FEES $ CASH BONUS $ NON CASH BENEFITS 1 POST SHARE-BASED LONG-TERM EMPLOYMENT PAYMENTS BENEFITS SUPER- PERFORMANCE LSL $ ANNUATION $ RIGHTS $ Directors’ Report for the year ended 31 July 2019 REMUNERATION REPORT (CONTINUED) REMUNERATION – STATUTORY TABLES Total Non-executive Directors 1,062,107 304,704 140,392 155,991 140,392 180,236 140,392 297,272 136,968 152,187 136,968 162,333 136,968 2019 Non-executive Directors Mr R.D. Millner Mr T.J. Barlow Mr W.H. Grant Mr T.C. Millner Ms S.J. Palmer Mr I.M. Williams Executive Directors Mr S.O. Stephan Mr B.C. Armitage Mr A.L. Boyd Mr M.J. Busch Total Other Key Management Personnel Total Remuneration – 2019 2018 Non-executive Directors Other Key Management Personnel Mr R.D. Millner Mr T.J. Barlow Mr W.H. Grant Mr T.C. Millner Ms S.J. Palmer Mr I.M. Williams Executive Directors Mr S.O. Stephan Other Key Management Personnel Mr A.L. Boyd Mr M.J. Busch Total Other Key Management Personnel Total Remuneration – 2018 Total Non-executive Directors 1,022,696 1 Non‑cash benefits include movements in annual leave provisions. 1,381,424 383,000 107,703 45,676 20,649 249,709 2,188,161 220,573 737,047 585,522 1,543,142 3,986,673 212,940 140,600 353,540 736,540 15,622 60,878 47,171 123,671 231,374 3,892 18,439 13,277 35,608 81,284 9,042 20,649 20,599 24,160 273,289 125,867 1,175,820 93,554 900,723 50,290 163,481 243,581 2,349,832 493,290 5,692,642 $ – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 20,590 13,337 14,819 13,337 17,122 13,337 92,542 20,106 13,012 14,457 13,012 15,421 13,012 89,020 TOTAL $ 325,294 153,729 170,810 153,729 197,358 153,729 1,154,649 317,378 149,980 166,644 149,980 177,754 149,980 1,111,716 – – – – – – – – – – – – – – 1,276,342 320,000 42,902 32,632 20,169 211,674 1,903,719 670,803 565,970 1,236,773 3,535,811 140,000 100,900 240,900 560,900 42,590 39,425 82,015 124,917 20,504 23,084 43,588 76,220 20,468 20,325 65,385 79,378 959,750 829,082 40,793 149,982 144,763 1,788,832 356,437 4,804,267 Directors’ Report for the year ended 31 July 2019 SHARE BASED COMPENSATION The terms and conditions of each grant of Performance Rights affecting remuneration of Executive KMP in the current or future reporting periods and the associated pricing model inputs are as follows: PERFORMANCE PERIOD TO WHICH LTI RELATES 2015–2018 2016–2019 2017–2020 2018–2021 GRANT DATE VESTING DATE VALUE OF A PERFORMANCE RIGHT AT GRANT DATE ($) Nov‑15 Dec‑16 Mar‑18 Mar‑19 Aug‑18 Aug‑19 Aug‑20 Aug‑21 1.08 0.80 1.23 1.47 Performance Rights granted under the plan carry no dividend or voting rights. Details of Performance Rights over ordinary shares in the Company as at 31 July 2019, provided as remuneration to the Executive KMP of the Company are set out below. No Performance Rights have been issued to Non‑Executive Directors in the 2019 financial year. Upon satisfaction of the service period and performance conditions each Performance Right will automatically vest and convert into one ordinary share in New Hope Corporation Limited. The minimum value of the Performance Rights yet to vest is nil, as the Performance Rights will lapse if the vesting conditions are not met. The maximum value in future periods has been determined as the amount of the grant date fair value of the Performance Right that is yet to be expensed. NAME GRANT DATE Mr S.O. Stephan Mr B.C. Armitage Mr A.L. Boyd Mr M.J. Busch Nov‑15 Dec‑16 Mar‑18 Mar‑19 Mar‑18 Mar‑19 Dec‑16 Mar‑18 Mar‑19 Nov‑15 Dec‑16 Mar‑18 Mar‑19 VESTING DATE Aug‑18 Aug‑19 1 Aug‑20 Aug‑21 Aug‑20 Aug‑21 Aug‑19 Aug‑20 Aug‑21 Aug‑18 Aug‑19 1 Aug‑20 Aug‑21 NUMBER GRANTED VALUE PER SHARE 204,082 250,000 263,158 157,483 62,230 32,843 124,497 131,049 85,134 76,531 93,750 98,684 59,251 $1.08 $0.80 $1.23 $1.47 $1.23 $1.47 $0.80 $1.23 $1.47 $1.08 $0.80 $1.23 $1.47 NUMBER VESTED 83,674 VESTED % NUMBER LAPSED LAPSED % 41% 120,408 59% – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 31,378 41% 45,153 59% – – – – – – – – – – – – 1 The Performance Rights vesting in August 2019 do not have a maximum value at 31 July 2019 as they vest in August 2019. The fair value of the Performance Rights is determined based on the market price of the Company’s shares at the grant date. MAXIMUM VALUE IN FUTURE PERIODS – – 134,140 192,773 31,721 39,905 – 66,800 103,440 – – 50,302 71,991 R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 48 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 49 Directors’ Report for the year ended 31 July 2019 Directors’ Report for the year ended 31 July 2019 REMUNERATION REPORT (CONTINUED) EQUITY HOLDINGS The tables below show the number of Performance Rights and shares in New Hope Corporation Limited that were held during the financial year KMP of the Company, including their close family members and entities related to them. Performance Rights Holdings NAME Mr S.O. Stephan Mr B.C. Armitage 1 Mr A.L. Boyd Mr M.J. Busch BALANCE AT THE START OF THE YEAR GRANTED AS REMUNERATION VESTED FORFEITED LAPSED BALANCE AT THE END OF THE YEAR 717,240 62,230 255,546 268,965 157,483 32,843 85,134 59,251 83,674 – – 31,378 – – – – 120,408 – – 45,153 670,641 95,073 340,680 251,685 UNVESTED 670,641 95,073 340,680 251,685 1 Mr B.C. Armitage was appointed Chief Development Officer on 1 February 2019, at the time of his appointment has held performance rights holdings granted in the previous year which have been included above as part of the balance held at the start of the year. Share Holdings NAME Mr R.D. Millner Mr T.J. Barlow Mr W.H. Grant Mr T.C. Millner Ms S.J. Palmer Mr I.M. Williams Mr S.O. Stephan Mr B.C. Armitage Mr A.L. Boyd Mr M.J. Busch BALANCE AT THE START OF THE YEAR PURCHASED/ (SOLD) 3,937,774 220,000 19,900 30,000 – – 3,774,368 200,000 RECEIVED ON THE VESTING OF PERFORMANCE RIGHTS BALANCE AT THE END OF THE YEAR – – – – – – 4,157,774 19,900 30,000 3,974,368 15,000 38,087 436,365 – 39,898 773,258 15,000 38,087 337,691 – 15,438 741,880 – – 15,000 83,674 – 24,460 – – – 31,378 Shares issued on the vesting of rights Since the end of the financial year, 441,715 rights have vested and converted to ordinary shares in the Company. Loans to directors and executives There were no loans to directors and executives granted during the reporting period, nor were there any outstanding loans as at balance date. 50 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 51 R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R CONSOLIDATED 2019 $ 2018 $ 612,150 443,750 612,150 443,750 84,400 64,382 35,400 29,800 77,000 225,782 837,932 38,400 103,600 547,350 Non-audit services Deloitte Touche Tohmatsu has acted as auditor for the Group for the entire 2019 year. The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Company are important. During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non‑related audit firms (refer note 31): Audit services Audit and review of financial reports and other audit work under the Corporations Act 2001: Deloitte Touche Tohmatsu (Australian firm) Total remuneration for audit services Other services Deloitte Touche Tohmatsu (Australian firm) Audit of joint operations and other unincorporated interests Sustainability and other advisory services Ernst & Young (Australian firm) Audit of joint operations Total remuneration for non-audit services Total auditors remuneration AUDITOR’S INDEPENDENCE DECLARATION A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 52. The Company is of a kind referred to in ASIC Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission (ASIC), relating to the “rounding off” of amounts in the Directors’ report. Amounts in the Directors’ report have been rounded off in accordance with that ASIC Instrument to the nearest thousand dollars, or in certain cases, to the nearest dollar. MEETINGS OF DIRECTORS of meetings attended by each Director: The following table sets out the number of meetings of the Company’s Directors held during the year ended 31 July 2019 and the number FULL MEETINGS OF DIRECTORS AUDIT AND RISK COMMITTEE HUMAN RESOURCES AND REMUNERATION COMMITTEE NOMINATION COMMITTEE HELD ATTENDED HELD ATTENDED HELD ATTENDED HELD ATTENDED 20 20 20 20 20 20 20 20 19 19 20 20 20 18 – 5 5 – 5 – – – 5 5 – 5 – – – 3 3 – – 3 – – 3 3 – – 3 – – 1 1 – – 1 – – 1 1 – – 1 – Signed at Sydney this 16th day of September 2019 in accordance with a resolution of Directors. Mr R.D. Millner Mr T.J Barlow Mr W.H. Grant Mr T.C. Millner Ms S.J. Palmer Mr I.M. Williams Mr S.O. Stephan R.D. Millner Director O N S R E V I E W O P E R A T I The tables below show the number of Performance Rights and shares in New Hope Corporation Limited that were held during the financial year KMP of the Company, including their close family members and entities related to them. During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non‑related audit firms (refer note 31): Non-audit services Deloitte Touche Tohmatsu has acted as auditor for the Group for the entire 2019 year. The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Company are important. Directors’ Report for the year ended 31 July 2019 Directors’ Report for the year ended 31 July 2019 REMUNERATION REPORT (CONTINUED) EQUITY HOLDINGS Performance Rights Holdings NAME Mr S.O. Stephan Mr B.C. Armitage 1 Mr A.L. Boyd Mr M.J. Busch BALANCE AT THE START OF THE GRANTED AS YEAR REMUNERATION VESTED FORFEITED LAPSED END OF THE YEAR UNVESTED BALANCE AT THE 717,240 62,230 255,546 268,965 157,483 32,843 85,134 59,251 83,674 – – 31,378 – – – – 120,408 – – 45,153 670,641 95,073 340,680 251,685 670,641 95,073 340,680 251,685 1 Mr B.C. Armitage was appointed Chief Development Officer on 1 February 2019, at the time of his appointment has held performance rights holdings granted in the previous year which have been included above as part of the balance held at the start of the year. Share Holdings NAME Mr R.D. Millner Mr T.J. Barlow Mr W.H. Grant Mr T.C. Millner Ms S.J. Palmer Mr I.M. Williams Mr S.O. Stephan Mr B.C. Armitage Mr A.L. Boyd Mr M.J. Busch BALANCE AT THE START OF THE YEAR RECEIVED ON THE VESTING OF PERFORMANCE PURCHASED/ (SOLD) BALANCE AT THE RIGHTS END OF THE YEAR 3,937,774 220,000 3,774,368 200,000 19,900 30,000 15,000 38,087 337,691 – 15,438 741,880 – – – – – – 15,000 83,674 24,460 31,378 – – – – – – – – 4,157,774 19,900 30,000 3,974,368 15,000 38,087 436,365 – 39,898 773,258 Since the end of the financial year, 441,715 rights have vested and converted to ordinary shares in the Company. Shares issued on the vesting of rights Loans to directors and executives There were no loans to directors and executives granted during the reporting period, nor were there any outstanding loans as at balance date. R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R Audit services Audit and review of financial reports and other audit work under the Corporations Act 2001: Deloitte Touche Tohmatsu (Australian firm) Total remuneration for audit services Other services Deloitte Touche Tohmatsu (Australian firm) Audit of joint operations and other unincorporated interests Sustainability and other advisory services Ernst & Young (Australian firm) Audit of joint operations Total remuneration for non-audit services Total auditors remuneration CONSOLIDATED 2019 $ 2018 $ 612,150 443,750 612,150 443,750 84,400 64,382 35,400 29,800 77,000 225,782 837,932 38,400 103,600 547,350 AUDITOR’S INDEPENDENCE DECLARATION A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 52. The Company is of a kind referred to in ASIC Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission (ASIC), relating to the “rounding off” of amounts in the Directors’ report. Amounts in the Directors’ report have been rounded off in accordance with that ASIC Instrument to the nearest thousand dollars, or in certain cases, to the nearest dollar. MEETINGS OF DIRECTORS The following table sets out the number of meetings of the Company’s Directors held during the year ended 31 July 2019 and the number of meetings attended by each Director: Mr R.D. Millner Mr T.J Barlow Mr W.H. Grant Mr T.C. Millner Ms S.J. Palmer Mr I.M. Williams Mr S.O. Stephan FULL MEETINGS OF DIRECTORS AUDIT AND RISK COMMITTEE HUMAN RESOURCES AND REMUNERATION COMMITTEE NOMINATION COMMITTEE HELD ATTENDED HELD ATTENDED HELD ATTENDED HELD ATTENDED 20 20 20 20 20 20 20 20 19 19 20 20 20 18 – 5 5 – 5 – – – 5 5 – 5 – – – 3 3 – – 3 – – 3 3 – – 3 – – 1 1 – – 1 – – 1 1 – – 1 – Signed at Sydney this 16th day of September 2019 in accordance with a resolution of Directors. R.D. Millner Director 50 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 51 Auditor’s Independence Declaration for the year ended 31 July 2019 Financial Report for the year ended 31 July 2019 Deloitte Touche Tohmatsu A.C.N. 74 490 121 060 Level 23 Riverside Centre 123 Eagle Street Brisbane QLD 4000 Australia Tel: ^61 (0) 7 3308 7000 www.deloitte.com.au The Board of Directors New Hope Corporation Limited 3/22 Magnolia Drive Brookwater QLD 4300 16 September 2019 Dear Board Members Auditor’s Independence Declaration to New Hope Corporation Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of New Hope Corporation Limited. As lead audit partner for the audit of the financial report of New Hope Corporation Limited for the year ended 31 July 2019, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours faithfully DELOITTE TOUCHE TOHMATSU Richard Wanstall Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited CONTENTS Balance Sheet Statement of Comprehensive Income Statement of Changes in Equity Cash Flow Statement Notes to the Financial Statements Results for the year 1. Financial reporting segments 2. Revenue 3. Other income and expenses 4. Income taxes 5. Cash flow information 6. Earnings per share Operating assets and liabilities 7. Receivables 8. Accounts payable 9. Inventories 10. Property, plant and equipment 11. Intangibles 12. Exploration and evaluation 13. Provisions Capital 14. Cash and cash equivalents 15. Term deposits 16. Equity investments 17. Borrowings 18. Derivative financial instruments 19. Dividends 20. Equity Risk 21. Financial risk management Group structure 22. Interests in other entities 23. Business combinations 24. Discontinued operations Unrecognised items 25. Commitments 26. Subsequent events Other 27. Related party transactions 28. Share based payments 29. Parent entity 30. Deed of Cross Guarantee 31. Remuneration of Auditors 32. Other accounting policies Directors’ declaration Shareholder Information Glossary Tenements Independent auditor’s report to the members of New Hope Corporation Limited The Company is a company limited by shares on the Australian Securities Exchange (ASX). The Company is incorporated and domiciled in Australia and its registered office and A description of the nature of the consolidated entity’s operations and its principal activities is included in the Operations Overview on pages 6 to 17, which is not part of this financial report. The financial report was authorised for issue by the Directors on 16 September 2019. The Company has the power to amend and reissue the financial report. principal place of business is: New Hope Corporation Limited 3/22 Magnolia Drive BROOKWATER QLD 4300 Through the use of the internet, the Company has ensured that corporate reporting is timely, complete and available globally at minimum cost to the Company. All financial reports and other announcements to the ASX are available on the Investor Relations pages of the website: www.newhopegroup.com.au/content/investors. R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R PAGE 54 55 56 57 58 59 64 65 66 69 70 71 72 72 73 78 79 80 83 83 84 85 88 89 90 93 97 98 100 101 101 101 103 104 105 107 107 110 111 116 117 120 52 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 53 Auditor’s Independence Declaration for the year ended 31 July 2019 Financial Report for the year ended 31 July 2019 Deloitte Touche Tohmatsu A.C.N. 74 490 121 060 Level 23 Riverside Centre 123 Eagle Street Brisbane QLD 4000 Australia Tel: ^61 (0) 7 3308 7000 www.deloitte.com.au CONTENTS Statement of Comprehensive Income Balance Sheet Statement of Changes in Equity Cash Flow Statement Notes to the Financial Statements Results for the year Auditor’s Independence Declaration to New Hope Corporation Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of New Hope Corporation Limited. As lead audit partner for the audit of the financial report of New Hope Corporation Limited for the year ended 31 July 2019, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours faithfully The Board of Directors New Hope Corporation Limited 3/22 Magnolia Drive Brookwater QLD 4300 16 September 2019 Dear Board Members DELOITTE TOUCHE TOHMATSU Richard Wanstall Partner Chartered Accountants Financial reporting segments 1. 2. Revenue 3. Other income and expenses 4. 5. Cash flow information 6. Earnings per share Income taxes Operating assets and liabilities 7. Receivables 8. Accounts payable 9. Inventories 10. Property, plant and equipment 11. Intangibles 12. Exploration and evaluation 13. Provisions Capital 14. Cash and cash equivalents 15. Term deposits 16. Equity investments 17. Borrowings 18. Derivative financial instruments 19. Dividends 20. Equity Risk 21. Financial risk management Group structure 22. Interests in other entities 23. Business combinations 24. Discontinued operations Unrecognised items 25. Commitments 26. Subsequent events Other 27. Related party transactions 28. Share based payments 29. Parent entity 30. Deed of Cross Guarantee 31. Remuneration of Auditors 32. Other accounting policies Directors’ declaration Independent auditor’s report to the members of New Hope Corporation Limited Shareholder Information Glossary Tenements R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R PAGE 54 55 56 57 58 59 64 65 66 69 70 71 72 72 73 78 79 80 83 83 84 85 88 89 90 93 97 98 100 101 101 101 103 104 105 107 107 110 111 116 117 120 Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited The Company is a company limited by shares on the Australian Securities Exchange (ASX). The Company is incorporated and domiciled in Australia and its registered office and principal place of business is: New Hope Corporation Limited 3/22 Magnolia Drive BROOKWATER QLD 4300 A description of the nature of the consolidated entity’s operations and its principal activities is included in the Operations Overview on pages 6 to 17, which is not part of this financial report. The financial report was authorised for issue by the Directors on 16 September 2019. The Company has the power to amend and reissue the financial report. Through the use of the internet, the Company has ensured that corporate reporting is timely, complete and available globally at minimum cost to the Company. All financial reports and other announcements to the ASX are available on the Investor Relations pages of the website: www.newhopegroup.com.au/content/investors. 52 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 53 Statement of Comprehensive Income for the year ended 31 July 2019 Balance Sheet as at 31 July 2019 Revenue from continuing operations Other income Expenses Cost of sales Marketing and transportation Administration Other expenses Financing costs Acquisition costs expensed Impairment of assets Profit before income tax from continuing operations Income tax expense Profit after income tax from continuing operations Profit/(loss) after income tax from discontinued operations Profit for the year Profit attributable to: New Hope Shareholders Other comprehensive income/(loss) Items that may be reclassified to profit and loss: Changes to the fair value of cash flow hedges, net of tax Transfer to profit and loss for cash flow hedges, net of tax Items that will not be reclassified to profit and loss: NOTES 2 3(a) 17(c) 3(b) 3(b) 2019 $000 RESTATED 1 2018 $000 1,306,429 1,078,439 3,456 964 1,309,885 1,079,403 (716,198) (179,508) (14,041) (21,675) (22,964) (47,729) (524,818) (161,730) (15,428) (14,976) (3,363) – – (91,475) 307,770 267,613 4(a) (97,338) (80,284) 210,432 187,329 24(b) 220 (37,831) 210,652 149,498 210,652 149,498 20(f) 20(f) (19,838) 14,772 (5,923) (9,071) Changes to the fair value of equity investments, net of tax 20(f) (696) (129) Other comprehensive loss for the year, net of tax Total comprehensive income for the year Total comprehensive income attributable to: New Hope Shareholders (5,762) (15,123) 204,890 134,375 204,890 134,375 Earnings per share for profit from continuing operations attributed to ordinary equity holders of the Company Basic earnings per share (cents/share) Diluted earnings per share (cents/share) Earnings per share for profit attributed to ordinary equity holders of the Company Basic earnings per share (cents/share) Diluted earnings per share (cents/share) 25.3 25.3 25.3 25.3 22.5 22.5 18.0 18.0 6 6 1 Comparative figures have been restated to present the impacts of the current year discontinued operations (as outlined in note 24) as well as other reclassifications on the Statement of Comprehensive Income to better reflect the disclosures in the current year. The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes. Current assets Cash and cash equivalents Term deposits Receivables Inventories Total current assets Non-current assets Receivables Equity investments Derivative financial instruments Property, plant and equipment Intangible assets Exploration and evaluation assets Total non‑current assets Total assets Current liabilities Accounts payable Borrowings Current tax liabilities Derivative financial instruments Provisions Total current liabilities Non-current liabilities Borrowings Deferred tax liabilities Provisions Total non‑current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained profits Total equity The above Balance Sheet should be read in conjunction with the accompanying notes. R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R NOTES 2019 $000 2018 $000 14 15 7 9 7 16 18 10 11 12 8 17(a) 4(d) 18 13 17(a) 4(e) 13 58,827 – 108,069 274,975 205,000 105,473 96,269 61,175 263,165 646,623 1,056 723 190 1,499 1,845 – 2,138,233 1,350,057 96,457 58,042 301,589 280,301 2,538,248 1,691,744 2,801,413 2,338,367 108,701 2,532 5,817 10,774 78,753 2,442 81,091 3,344 86,270 66,758 214,094 232,388 358,206 52,633 215,468 626,307 7,790 49,862 159,927 217,579 840,401 449,967 1,961,012 1,888,400 20(d) 20(f) 20(g) 96,315 (2,977) 95,905 21,617 1,867,674 1,770,878 1,961,012 1,888,400 54 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 55 Statement of Comprehensive Income for the year ended 31 July 2019 Balance Sheet as at 31 July 2019 Revenue from continuing operations Other income Expenses Cost of sales Marketing and transportation Administration Other expenses Financing costs Acquisition costs expensed Impairment of assets Profit before income tax from continuing operations Income tax expense Profit after income tax from continuing operations Profit/(loss) after income tax from discontinued operations Profit for the year Profit attributable to: New Hope Shareholders Other comprehensive income/(loss) Items that may be reclassified to profit and loss: Changes to the fair value of cash flow hedges, net of tax Transfer to profit and loss for cash flow hedges, net of tax Items that will not be reclassified to profit and loss: Other comprehensive loss for the year, net of tax Total comprehensive income for the year Total comprehensive income attributable to: New Hope Shareholders holders of the Company Basic earnings per share (cents/share) Diluted earnings per share (cents/share) Basic earnings per share (cents/share) Diluted earnings per share (cents/share) Changes to the fair value of equity investments, net of tax 20(f) (696) (129) Earnings per share for profit from continuing operations attributed to ordinary equity Earnings per share for profit attributed to ordinary equity holders of the Company 1 Comparative figures have been restated to present the impacts of the current year discontinued operations (as outlined in note 24) as well as other reclassifications on the Statement of Comprehensive Income to better reflect the disclosures in the current year. The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes. NOTES 2 3(a) 17(c) 3(b) 3(b) 2019 $000 RESTATED 1 2018 $000 1,306,429 1,078,439 3,456 964 1,309,885 1,079,403 (716,198) (179,508) (14,041) (21,675) (22,964) (47,729) (524,818) (161,730) (15,428) (14,976) (3,363) – – (91,475) 307,770 267,613 4(a) (97,338) (80,284) 210,432 187,329 24(b) 220 (37,831) 210,652 149,498 210,652 149,498 20(f) 20(f) (19,838) 14,772 (5,923) (9,071) (5,762) (15,123) 204,890 134,375 204,890 134,375 25.3 25.3 25.3 25.3 22.5 22.5 18.0 18.0 6 6 Current assets Cash and cash equivalents Term deposits Receivables Inventories Total current assets Non-current assets Receivables Equity investments Derivative financial instruments Property, plant and equipment Intangible assets Exploration and evaluation assets Total non‑current assets Total assets Current liabilities Accounts payable Borrowings Current tax liabilities Derivative financial instruments Provisions Total current liabilities Non-current liabilities Borrowings Deferred tax liabilities Provisions Total non‑current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained profits Total equity The above Balance Sheet should be read in conjunction with the accompanying notes. NOTES 2019 $000 2018 $000 14 15 7 9 7 16 18 10 11 12 8 17(a) 4(d) 18 13 17(a) 4(e) 13 58,827 – 108,069 274,975 205,000 105,473 96,269 61,175 263,165 646,623 1,056 723 190 1,499 1,845 – 2,138,233 1,350,057 96,457 58,042 301,589 280,301 2,538,248 1,691,744 2,801,413 2,338,367 108,701 2,532 5,817 10,774 78,753 2,442 81,091 3,344 86,270 66,758 214,094 232,388 358,206 52,633 215,468 626,307 7,790 49,862 159,927 217,579 840,401 449,967 1,961,012 1,888,400 20(d) 20(f) 20(g) 96,315 (2,977) 95,905 21,617 1,867,674 1,770,878 1,961,012 1,888,400 R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 54 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 55 Statement of Changes in Equity for the year ended 31 July 2019 Cash Flow Statement for the year ended 31 July 2019 CONTRIBUTED EQUITY $000 NOTES RESERVES $000 RETAINED EARNINGS $000 NON- CONTROLLING INTERESTS $000 95,905 21,617 1,770,878 32 – (27,861) 27,861 95,905 (6,244) 1,798,739 Balance at 1 August 2018 Reclassify equity investments from retained earnings to FVOCI on initial adoption of AASB 9 Restated balance as at 1 August 2018 Profit for the year Other comprehensive loss Total comprehensive income/(loss) Transactions with owners in their capacity as owners Dividends provided for or paid Transfer from equity investment reserve to retained earnings Transfer from share based payment reserve to equity Net movement in share based payment reserve 19(a) 20(f) 20(f) 20(f) – – – – – 410 – 410 – 210,652 (5,762) (5,762) – 210,652 – (133,002) 8,715 (8,715) (410) 724 9,029 – – (141,717) Balance at 31 July 2019 96,315 (2,977) 1,867,674 TOTAL $000 1,888,400 – 1,888,400 210,652 (5,762) 204,890 (133,002) – – 724 (132,278) 1,961,012 – – – – – – – – – – – – Balance at 1 August 2017 Profit for the year Other comprehensive loss Total comprehensive income/(loss) Transactions with owners in their capacity as owners Dividends provided for or paid Transfer from share based payment reserve to equity Net movement in share based payment reserve Acquisition of non‑controlling interests 19(a) 20(f) 20(f) Balance at 31 July 2018 95,772 36,518 1,721,118 20 1,853,428 – – – – – 149,498 (15,123) (15,123) – 149,498 – (99,738) 133 (133) – – – (99,738) 355 – 222 21,617 1,770,878 – – 133 95,905 – – – – – – (20) (20) – 149,498 (15,123) 134,375 (99,738) – 355 (20) (99,403) 1,888,400 The above Statement of Changes in Equity should be read in conjunction with the accompanying notes. 1 The amount of income taxes paid for the year represents current year instalments as well as settlement of the current tax liability from 31 July 2018. 2 ^ The total change in liabilities arising from financing activities relates to cash repayments made during the year, see Note 17 (a). The above Cash Flow Statement should be read in conjunction with the accompanying notes. 56 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 57 Cash flows from operating activities Receipts from customers inclusive of GST Payments to suppliers and employees inclusive of GST Payment of acquisition costs Interest received Interest paid Income taxes paid 1 Net cash inflow from operating activities Cash flows from investing activities Payments for property, plant and equipment Payments for intangibles Payments for exploration and evaluation activities Payments for acquisition of Bengalla – net cash Proceeds from disposal of equity investments – Planet Gas Proceeds from/(investment in) term deposits Proceeds from sale of property, plant and equipment Interest received from term deposits (Payments)/refunds for security and bond guarantees Dividends received Net cash outflow from investing activities Cash flows from financing activities 2^ Repayment of finance leases Dividends paid Proceeds from debt borrowings Repayments of debt borrowings Payments for debt establishment and transaction costs Payments for establishment costs for guarantee facility Net cash inflow/(outflow) from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at the end of the financial year R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R NOTES 2019 $000 2018 $000 1,390,916 1,090,295 (881,144) (656,437) 509,772 433,858 3(b) 5 10 11 12 23 19 17(a) 17(c) 14 (47,729) 5,490 (10,772) (162,977) 293,784 (76,942) (54) (21,286) (831,264) 429 557 648 (59) 2 (2,443) (133,002) 760,000 (400,000) (8,436) (4,366) – 4,825 (101) (15,779) 422,803 (62,935) (1,237) (25,737) – – 3 2 – – – – (2,356) (99,738) 205,000 (205,000) 2,359 583 (722,969) (291,962) 211,753 (102,094) (217,432) 274,975 1,284 58,827 28,747 236,885 9,343 274,975 Statement of Changes in Equity for the year ended 31 July 2019 Cash Flow Statement for the year ended 31 July 2019 NOTES CONTRIBUTED EQUITY $000 95,905 RESERVES $000 RETAINED EARNINGS $000 NON- CONTROLLING INTERESTS $000 21,617 1,770,878 32 (27,861) 27,861 95,905 (6,244) 1,798,739 – 210,652 (5,762) (5,762) – 210,652 – (133,002) (133,002) Balance at 1 August 2018 Reclassify equity investments from retained earnings to FVOCI on initial adoption of AASB 9 Restated balance as at 1 August 2018 Profit for the year Other comprehensive loss Total comprehensive income/(loss) Transactions with owners in their capacity as owners Dividends provided for or paid Transfer from equity investment reserve to retained earnings Transfer from share based payment reserve to equity Net movement in share based payment reserve 19(a) 20(f) 20(f) 20(f) Balance at 1 August 2017 Profit for the year Other comprehensive loss Total comprehensive income/(loss) Transactions with owners in their capacity as owners Dividends provided for or paid Transfer from share based payment reserve to equity Net movement in share based payment reserve Acquisition of non‑controlling interests 19(a) 20(f) 20(f) Balance at 31 July 2018 410 – 410 – – – – – – – – – – – – Balance at 31 July 2019 96,315 (2,977) 1,867,674 95,772 36,518 1,721,118 20 1,853,428 – (99,738) (99,738) 133 (133) 355 – 222 133 95,905 (99,738) 21,617 1,770,878 – – – – 355 (20) (20) (20) – (99,403) 1,888,400 The above Statement of Changes in Equity should be read in conjunction with the accompanying notes. TOTAL $000 1,888,400 – 1,888,400 210,652 (5,762) 204,890 – – 724 (132,278) 1,961,012 149,498 (15,123) 134,375 – – – – – – – – – – – – – – – – – – 8,715 (8,715) (410) 724 9,029 – – (141,717) – 149,498 (15,123) (15,123) – 149,498 Cash flows from operating activities Receipts from customers inclusive of GST Payments to suppliers and employees inclusive of GST Payment of acquisition costs Interest received Interest paid Income taxes paid 1 Net cash inflow from operating activities Cash flows from investing activities Payments for property, plant and equipment Payments for intangibles Payments for exploration and evaluation activities Payments for acquisition of Bengalla – net cash Proceeds from disposal of equity investments – Planet Gas Proceeds from/(investment in) term deposits Proceeds from sale of property, plant and equipment Interest received from term deposits (Payments)/refunds for security and bond guarantees Dividends received Net cash outflow from investing activities Cash flows from financing activities 2^ Repayment of finance leases Dividends paid Proceeds from debt borrowings Repayments of debt borrowings Payments for debt establishment and transaction costs Payments for establishment costs for guarantee facility Net cash inflow/(outflow) from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at the end of the financial year NOTES 2019 $000 2018 $000 1,390,916 1,090,295 (881,144) (656,437) 509,772 433,858 (47,729) 5,490 (10,772) (162,977) 293,784 (76,942) (54) (21,286) (831,264) 429 – 4,825 (101) (15,779) 422,803 (62,935) (1,237) (25,737) – – 205,000 (205,000) 557 648 (59) 2 2,359 583 3 2 (722,969) (291,962) (2,443) (133,002) 760,000 (400,000) (8,436) (4,366) (2,356) (99,738) – – – – 211,753 (102,094) (217,432) 274,975 1,284 58,827 28,747 236,885 9,343 274,975 3(b) 5 10 11 12 23 19 17(a) 17(c) 14 1 The amount of income taxes paid for the year represents current year instalments as well as settlement of the current tax liability from 31 July 2018. 2 ^ The total change in liabilities arising from financing activities relates to cash repayments made during the year, see Note 17 (a). The above Cash Flow Statement should be read in conjunction with the accompanying notes. R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 56 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 57 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 The financial report covers New Hope Corporation Limited and its subsidiaries as the consolidated entity and together are referred to as New Hope, the Company or the Group in this financial report. BASIS OF PREPARATION This financial report is a general purpose financial report which: • Has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Australian Accounting Interpretations and the Corporations Act 2001. • • Complies with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). For the purposes of preparing the consolidated Financial Statements, the Company is a for profit entity. Adopts policies which are consistent with those of the previous financial year and corresponding interim reporting period with the exception of changes required on adoption of new accounting standards as identified in note 32. • Has been prepared under the historical cost convention, as modified by the revaluation of equity investments, trade receivables held at fair value, derivative instruments carried at fair value and agricultural assets carried at fair value. • Has been prepared on a going concern and accruals basis. • Does not adopt any Accounting Standards and Interpretations that have been issued or amended but are not yet effective (such as AASB 16 Leases). Refer to note 32 for more information on this and other accounting policies. • Is for a company which is of a kind referred to in ASIC Corporations Instrument 2016/191, issued by the Australian Securities and Investment Commission, relating to the “rounding off” of amounts in the financial statements. Amounts in the financial statements have been rounded off in accordance with that Instrument to the nearest thousand dollars, or in certain cases, to the nearest dollar. • Presents comparative information that has been reclassified where appropriate to enhance comparability. BASIS OF CONSOLIDATION (i) SUBSIDIARIES The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of New Hope Corporation Limited (Company or parent entity) as at 31 July 2019 and the results of all subsidiaries for the year then ended. Subsidiaries are all those entities (including special purpose entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group. Development Officer (CDO). Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Non‑controlling interests in the results and equity of subsidiaries are shown separately in the Statement of Comprehensive Income, Statement of Changes in Equity and Balance Sheet respectively. INTERESTS IN OTHER ENTITIES (ii) For information on Joint Arrangements and interests in Other unincorporated entities refer to note 22. R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R PAGE 69 74 74 74 78 79 79 81 99 Significant and other accounting policies relevant to gaining an understanding of the financial statements have been grouped with the OTHER ACCOUNTING POLICIES relevant notes to the financial statements. KEY JUDGEMENTS AND ESTIMATES The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed within the following notes: Note 4 Note 10 Note 10 Note 10 Note 11 Note 12 Note 12 Note 13 Note 23 Deferred Tax Assets Impairment assessment Estimation of coal and oil reserves and resources New Acland Stage 3 approvals Goodwill impairment assessments Exploration and evaluation expenditure Impairment of exploration and evaluation assets Provisions – rehabilitation Business Combination 1. FINANCIAL REPORTING SEGMENTS ACCOUNTING POLICY Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker (CODM). The CODM, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as comprising the Board, Managing Director (MD), Chief Operations Officer (COO), Chief Financial Officer (CFO) and Chief The Group disaggregates revenue based on the geographical region to which goods and services are provided to customers. Outlined in note 1(c) is the disaggregation of the Group’s revenue from contracts with customers. Refer to note 2 for further information on the Group’s revenue accounting policy. A. DESCRIPTION OF SEGMENTS The Group has three reportable segments, namely Coal mining in Queensland (including mining related production, processing, transportation, port operations and marketing), Coal mining in New South Wales (including mining related production, processing, transportation and marketing) and Other (including coal exploration, oil and gas related exploration, development, production and processing, pastoral operations and administration). Treasury and income tax expense have not been allocated to an operating segment and are reconciliation items. Operating segments have been determined based on the analysis provided in the reports reviewed by the Board, MD, COO, CFO and CDO (being the CODM). The reportable segments reflect how performance is measured, and decisions regarding allocations of resources are made by the CODM. Other immaterial coal mining and related operations that do not meet the quantitative thresholds requiring separate disclosure in AASB 8 Operating Segments have been combined with the Other segment. Segment information is presented on the same basis as that used for internal reporting purposes. 58 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 59 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 The financial report covers New Hope Corporation Limited and its subsidiaries as the consolidated entity and together are referred to as New Hope, the Company or the Group in this financial report. BASIS OF PREPARATION This financial report is a general purpose financial report which: • Has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Australian Accounting Interpretations and the Corporations Act 2001. • • Complies with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). For the purposes of preparing the consolidated Financial Statements, the Company is a for profit entity. Adopts policies which are consistent with those of the previous financial year and corresponding interim reporting period with the exception of changes required on adoption of new accounting standards as identified in note 32. • Has been prepared under the historical cost convention, as modified by the revaluation of equity investments, trade receivables held at fair value, derivative instruments carried at fair value and agricultural assets carried at fair value. • Has been prepared on a going concern and accruals basis. • Does not adopt any Accounting Standards and Interpretations that have been issued or amended but are not yet effective (such as AASB 16 Leases). Refer to note 32 for more information on this and other accounting policies. • Is for a company which is of a kind referred to in ASIC Corporations Instrument 2016/191, issued by the Australian Securities and Investment Commission, relating to the “rounding off” of amounts in the financial statements. Amounts in the financial statements have been rounded off in accordance with that Instrument to the nearest thousand dollars, or in certain cases, to the nearest dollar. • Presents comparative information that has been reclassified where appropriate to enhance comparability. BASIS OF CONSOLIDATION (i) SUBSIDIARIES The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of New Hope Corporation Limited (Company or parent entity) as at 31 July 2019 and the results of all subsidiaries for the year then ended. Subsidiaries are all those entities (including special purpose entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Non‑controlling interests in the results and equity of subsidiaries are shown separately in the Statement of Comprehensive Income, Statement of Changes in Equity and Balance Sheet respectively. (ii) INTERESTS IN OTHER ENTITIES For information on Joint Arrangements and interests in Other unincorporated entities refer to note 22. OTHER ACCOUNTING POLICIES Significant and other accounting policies relevant to gaining an understanding of the financial statements have been grouped with the relevant notes to the financial statements. KEY JUDGEMENTS AND ESTIMATES The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed within the following notes: Note 4 Note 10 Note 10 Note 10 Note 11 Note 12 Note 12 Note 13 Note 23 Deferred Tax Assets Impairment assessment Estimation of coal and oil reserves and resources New Acland Stage 3 approvals Goodwill impairment assessments Exploration and evaluation expenditure Impairment of exploration and evaluation assets Provisions – rehabilitation Business Combination 1. FINANCIAL REPORTING SEGMENTS PAGE 69 74 74 74 78 79 79 81 99 ACCOUNTING POLICY Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker (CODM). The CODM, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as comprising the Board, Managing Director (MD), Chief Operations Officer (COO), Chief Financial Officer (CFO) and Chief Development Officer (CDO). The Group disaggregates revenue based on the geographical region to which goods and services are provided to customers. Outlined in note 1(c) is the disaggregation of the Group’s revenue from contracts with customers. Refer to note 2 for further information on the Group’s revenue accounting policy. A. DESCRIPTION OF SEGMENTS The Group has three reportable segments, namely Coal mining in Queensland (including mining related production, processing, transportation, port operations and marketing), Coal mining in New South Wales (including mining related production, processing, transportation and marketing) and Other (including coal exploration, oil and gas related exploration, development, production and processing, pastoral operations and administration). Treasury and income tax expense have not been allocated to an operating segment and are reconciliation items. Operating segments have been determined based on the analysis provided in the reports reviewed by the Board, MD, COO, CFO and CDO (being the CODM). The reportable segments reflect how performance is measured, and decisions regarding allocations of resources are made by the CODM. Other immaterial coal mining and related operations that do not meet the quantitative thresholds requiring separate disclosure in AASB 8 Operating Segments have been combined with the Other segment. Segment information is presented on the same basis as that used for internal reporting purposes. R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 58 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 59 B. SEGMENT INFORMATION YEAR ENDED 31 JULY 2019 Total segment revenue Intersegment revenue Revenue from external customers Interest revenue COAL MINING QLD $000 COAL MINING NSW $000 NOTES OTHER $000 TOTAL $000 571,435 692,789 61,978 1,326,202 – – (24,995) (24,995) 571,435 692,789 36,983 1,301,207 206,913 (34,682) (325) 315,293 (76,196) (1) (9,573) (9,769) (1) 5,222 1,306,429 517,061 512,633 (120,647) (327) 171,906 239,096 (19,343) 391,659 Total revenue from external customers 2 Group EBITDA from continuing operations Segment EBITDA from continuing operations Depreciation and amortisation Interest expense Segment profit/(loss) before tax and non regular items from continuing operations Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 1. FINANCIAL REPORTING SEGMENTS (CONTINUED) R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 5,977 1,078,439 465,484 450,141 (92,176) (100) 15,342 267,613 (80,284) 187,329 (37,831) 149,498 YEAR ENDED 31 JULY 2018 1^ Total segment revenue Intersegment revenue Revenue from external customers Interest revenue Total revenue from external customers 2 COAL MINING COAL MINING NOTES NSW $000 OTHER $000 TOTAL $000 602,963 435,843 53,180 1,091,986 602,963 435,843 33,656 1,072,462 – (19,524) (19,524) QLD $000 – Group EBITDA from continuing operations Segment EBITDA from continuing operations Depreciation and amortisation Interest expense Segment profit/(loss) before tax and non regular items from continuing operations Non regular items before tax Profit/(loss) before tax after non regular items from continuing operations Treasury profit before income tax Profit before tax (after non regular items) from continuing operations Income tax expense operations Profit after tax and non regular items from continuing Loss from discontinued operations Profit after tax and non regular items Reportable segment assets Total segment assets includes: Additions to non‑current assets 4(a) 24 600 500 400 300 200 100 – (100) 3 0 6 6 3 4 3 3 2 7 9 1 7 9 1 8 2 2 2 8 1 2 8 1 Coal mining QLD Coal mining NSW 4 3 ) 1 1 ( ) 1 2 ( ) 6 2 1 ( Other 233,315 (36,370) (411) 227,716 (45,846) (10,890) (9,960) 311 – – 196,534 181,870 (20,539) 357,865 – (105,594) (105,594) 196,534 181,870 (126,133) 252,271 537,647 873,198 927,522 2,338,367 45,444 22,308 22,157 89,909 $928 $538 $873 Non regular items before tax 1^ Profit/(loss) before tax after non regular items from continuing operations (2,746) (47,729) (21,675) (72,150) 169,160 191,367 (41,018) 319,509 Treasury loss before income tax Profit before tax (after non regular items) from continuing operations Income tax expense Profit after tax and non regular items from continuing operations Profit from discontinued operations Profit after tax and non regular items Reportable segment assets Total segment assets includes: Additions to non‑current assets 4(a) 24 (11,739) 307,770 (97,338) 210,432 220 210,652 520,522 1,747,390 533,501 2,801,413 28,565 849,463 33,889 911,917 Segment performance ($million) – 2019 Segment assets ($million) – 2019 Segment performance ($million) – 2018 Segment assets ($million) – 2018 700 600 500 400 300 200 100 – (100) 3 9 6 1 7 5 7 0 2 2 7 1 9 6 1 5 1 3 9 3 2 1 9 1 Coal mining QLD Coal mining NSW 7 3 ) 0 1 ( ) 9 1 ( ) 1 4 ( Other $534 $521 $1,747 Segment revenue EBITDA Segment profit before non regulars Segment profit and loss Coal mining QLD Coal mining NSW Other Segment revenue EBITDA Segment profit Segment profit Coal mining Coal mining Other before non regulars and loss QLD NSW 1 Non regular items for the year ended 31 July 2019 relate to provisions movements associated with non‑controlled subsidiaries and related costs, insurance note has been restated to align with reporting in the current period and to provide better comparability. 1 During the year the information requirements of the CODM were altered with the changing nature of the Group and how it is managed. The prior period segment proceeds, acquisition costs expensed, guarantee facility costs and mine closure redundancy costs. 60 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 61 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 1. FINANCIAL REPORTING SEGMENTS (CONTINUED) B. SEGMENT INFORMATION YEAR ENDED 31 JULY 2019 Total segment revenue Intersegment revenue Revenue from external customers Interest revenue COAL MINING COAL MINING NOTES QLD $000 NSW $000 OTHER $000 TOTAL $000 571,435 692,789 61,978 1,326,202 – – (24,995) (24,995) 571,435 692,789 36,983 1,301,207 YEAR ENDED 31 JULY 2018 1^ Total segment revenue Intersegment revenue Revenue from external customers Interest revenue COAL MINING QLD $000 COAL MINING NSW $000 NOTES OTHER $000 TOTAL $000 602,963 435,843 53,180 1,091,986 – – (19,524) (19,524) 602,963 435,843 33,656 1,072,462 233,315 (36,370) (411) 227,716 (45,846) – (10,890) (9,960) 311 5,977 1,078,439 465,484 450,141 (92,176) (100) 196,534 181,870 (20,539) 357,865 – – (105,594) (105,594) 196,534 181,870 (126,133) 252,271 15,342 267,613 (80,284) 187,329 (37,831) 149,498 537,647 873,198 927,522 2,338,367 45,444 22,308 22,157 89,909 Total revenue from external customers 2 Total revenue from external customers 2 Group EBITDA from continuing operations Segment EBITDA from continuing operations Depreciation and amortisation Interest expense Segment profit/(loss) before tax and non regular items from continuing operations Non regular items before tax Profit/(loss) before tax after non regular items from continuing operations Treasury profit before income tax Profit before tax (after non regular items) from continuing operations Income tax expense Profit after tax and non regular items from continuing operations Loss from discontinued operations Profit after tax and non regular items Reportable segment assets Total segment assets includes: Additions to non‑current assets 4(a) 24 5,222 1,306,429 517,061 512,633 (120,647) (327) (11,739) 307,770 (97,338) 210,432 220 210,652 Group EBITDA from continuing operations Segment EBITDA from continuing operations Depreciation and amortisation Interest expense Segment profit/(loss) before tax and non regular items from continuing operations 206,913 (34,682) (325) 315,293 (76,196) (1) (9,573) (9,769) (1) 171,906 239,096 (19,343) 391,659 Non regular items before tax 1^ Profit/(loss) before tax after non regular items from continuing operations (2,746) (47,729) (21,675) (72,150) 169,160 191,367 (41,018) 319,509 Treasury loss before income tax Profit before tax (after non regular items) from continuing operations Income tax expense operations Profit after tax and non regular items from continuing 4(a) 24 Profit from discontinued operations Profit after tax and non regular items Reportable segment assets Total segment assets includes: Additions to non‑current assets 700 600 500 400 300 200 100 – (100) 3 9 6 1 7 5 7 0 2 2 7 1 9 6 1 5 1 3 9 3 2 1 9 1 Coal mining QLD Coal mining NSW 7 3 ) 0 1 ( ) 9 1 ( ) 1 4 ( Other 520,522 1,747,390 533,501 2,801,413 28,565 849,463 33,889 911,917 $534 $521 $1,747 Segment performance ($million) – 2019 Segment assets ($million) – 2019 Segment performance ($million) – 2018 Segment assets ($million) – 2018 600 500 400 300 200 100 – (100) 3 0 6 6 3 4 3 3 2 7 9 1 7 9 1 8 2 2 2 8 1 2 8 1 Coal mining QLD Coal mining NSW 4 3 ) 1 1 ( ) 1 2 ( ) 6 2 1 ( Other $928 $538 $873 Segment revenue EBITDA Segment profit Segment profit Coal mining Coal mining Other before non regulars and loss QLD NSW Segment revenue EBITDA Segment profit before non regulars Segment profit and loss Coal mining QLD Coal mining NSW Other 1 Non regular items for the year ended 31 July 2019 relate to provisions movements associated with non‑controlled subsidiaries and related costs, insurance note has been restated to align with reporting in the current period and to provide better comparability. 1 During the year the information requirements of the CODM were altered with the changing nature of the Group and how it is managed. The prior period segment proceeds, acquisition costs expensed, guarantee facility costs and mine closure redundancy costs. 60 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 61 YEAR ENDED 31 JULY 2018 Total segment revenue by geographical region COAL MINING COAL MINING NOTES QLD $000 NSW $000 OTHER $000 TOTAL $000 Japan China Taiwan Chile Vietnam India Other Australia Korea/Indonesia 226,816 108,610 187,727 30,593 11,779 7,218 – – 26,702 599,445 163,862 65,714 24,555 8,858 8,125 – 7,887 136,564 17,310 432,875 – – – – – – – – 390,678 174,324 212,282 8,858 38,718 11,779 15,105 136,564 29,152 73,164 29,152 1,061,472 16,967 1,078,439 Revenue from customer contracts 1 Other revenue Total revenue 2 1 Revenue from customer contracts includes income from commodity sales and services as disclosed in note 2. (ii) SEGMENT ASSETS The amounts provided to the CODM with respect to total assets are measured in a manner consistent with that of the financial statements. These assets are allocated based on the operations of the segment. All non‑current assets are located in Australia. R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 1. FINANCIAL REPORTING SEGMENTS (CONTINUED) C. OTHER SEGMENT INFORMATION (i) SEGMENT REVENUE YEAR ENDED 31 JULY 2019 Total segment revenue by geographical region Japan China Taiwan Chile Korea/Indonesia Vietnam India Other Australia Revenue from customer contracts 1 Other revenue Total revenue 2 COAL MINING QLD $000 COAL MINING NSW $000 NOTES OTHER $000 TOTAL $000 218,399 68,562 219,332 7,677 26,967 – – – 29,708 570,645 338,886 47,760 93,390 11,683 70,000 1,890 10,231 98,237 15,239 687,316 – – – – – – – – 33,954 33,954 557,285 116,322 312,722 19,360 96,967 1,890 10,231 98,237 78,901 1,291,915 14,514 1,306,429 1 Revenue from customer contracts includes income from commodity sales and services as disclosed in note 2. Included within revenue for the Coal mining QLD segment is one customer that represents more than 10% of the Group’s total revenue. For the year ended 31 July 2019, one customer contributed $189,013,000 (2018 – $210,390,000) in sales revenue. Segment revenue 2019 2018 Japan China Taiwan Chile Korea/Indonesia Vietnam India Other Australia $557,285 $116,322 $312,722 $19,360 $96,967 $1,890 $10,231 $98,237 $78,901 Japan China Taiwan Chile Korea/Indonesia Vietnam India Other Australia $390,678 $174,324 $212,282 $8,858 $38,718 $11,779 $15,105 $136,564 $73,164 Japan China Taiwan Chile Korea/Indonesia Vietnam India Other Australia 2019 $000 557,285 116,322 312,722 19,360 96,967 1,890 10,231 98,237 78,901 2018 $000 390,678 174,324 212,282 8,858 38,718 11,779 15,105 136,564 73,164 62 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 63 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 1. FINANCIAL REPORTING SEGMENTS (CONTINUED) C. OTHER SEGMENT INFORMATION (i) SEGMENT REVENUE YEAR ENDED 31 JULY 2019 Total segment revenue by geographical region COAL MINING COAL MINING NOTES QLD $000 NSW $000 OTHER $000 TOTAL $000 218,399 68,562 219,332 7,677 26,967 – – – 29,708 570,645 338,886 47,760 93,390 11,683 70,000 1,890 10,231 98,237 15,239 687,316 – – – – – – – – 33,954 33,954 557,285 116,322 312,722 19,360 96,967 1,890 10,231 98,237 78,901 1,291,915 14,514 1,306,429 Revenue from customer contracts 1 Other revenue Total revenue 2 1 Revenue from customer contracts includes income from commodity sales and services as disclosed in note 2. Included within revenue for the Coal mining QLD segment is one customer that represents more than 10% of the Group’s total revenue. For the year ended 31 July 2019, one customer contributed $189,013,000 (2018 – $210,390,000) in sales revenue. 2019 2018 YEAR ENDED 31 JULY 2018 Total segment revenue by geographical region COAL MINING QLD $000 COAL MINING NSW $000 NOTES OTHER $000 TOTAL $000 Japan China Taiwan Chile Korea/Indonesia Vietnam India Other Australia Revenue from customer contracts 1 Other revenue Total revenue 2 226,816 108,610 187,727 – 30,593 11,779 7,218 – 26,702 599,445 163,862 65,714 24,555 8,858 8,125 – 7,887 136,564 17,310 432,875 – – – – – – – – 390,678 174,324 212,282 8,858 38,718 11,779 15,105 136,564 29,152 73,164 29,152 1,061,472 16,967 1,078,439 1 Revenue from customer contracts includes income from commodity sales and services as disclosed in note 2. (ii) SEGMENT ASSETS The amounts provided to the CODM with respect to total assets are measured in a manner consistent with that of the financial statements. These assets are allocated based on the operations of the segment. All non‑current assets are located in Australia. Korea/Indonesia Japan China Taiwan Chile Vietnam India Other Australia $557,285 $116,322 $312,722 $19,360 $96,967 $1,890 $10,231 $98,237 $78,901 Japan China Taiwan Chile Korea/Indonesia Vietnam India Other Australia $390,678 $174,324 $212,282 $8,858 $38,718 $11,779 $15,105 $136,564 $73,164 2019 $000 557,285 116,322 312,722 19,360 96,967 1,890 10,231 98,237 78,901 2018 $000 390,678 174,324 212,282 8,858 38,718 11,779 15,105 136,564 73,164 Japan China Taiwan Chile Vietnam India Other Australia Korea/Indonesia Segment revenue Japan China Taiwan Chile Vietnam India Other Australia Korea/Indonesia R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 62 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 63 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 2. REVENUE ACCOUNTING POLICY The Group recognises sales revenue related to the transfer of promised goods or services when the performance obligations under the contract have been satisfied. The amount of revenue recognised reflects the consideration to which the Group is or expects to be entitled for satisfying the performance obligation. Revenue is recognised for the major business activities as follows: • Coal sales revenue is recognised at a the point in time when control of the products have been transferred to the customer in accordance with the sales terms, in this instance when the risks and benefits of ownership has transferred. The title, risks and rewards, and therefore the fulfilment of performance obligations normally occurs at the time of loading the shipment for export sales, and generally at the time the coal is delivered to the customer for domestic sales. • Oil sales revenue is recognised at the point in time when control of the products have been transferred to the customer in accordance with the sales terms, in this instance when the risks and benefits of ownership have transferred. This is normally when the oil is delivered to the customer. • Service fee income and management fee income is recognised as revenue over time as the services are performed. Sales revenue Revenue from commodity sales Revenue from provisional pricing adjustments Services Other revenue Property rent Interest Sundry revenue NOTES 2019 $000 RESTATED 1 2018 $000 1,278,350 1,047,876 2,885 13,565 5,365 13,596 1,294,800 1,066,837 1,195 5,407 5,027 986 5,843 4,773 1(c) 1,306,429 1,078,439 1 Comparative figures have been restated to present the impacts of the current year discontinued operations (as outlined in note 24) as well as other reclassifications on the Statement of Comprehensive Income to better reflect the disclosures in the current year. 3. OTHER INCOME AND EXPENSES A. OTHER INCOME Insurance recovery Gain on sale of property, plant and equipment B. BREAKDOWN OF EXPENSES Profit before income tax includes the following specific expenses: Foreign exchange gains and losses Net foreign exchange gains Depreciation Buildings Plant and equipment Amortisation Mining reserves, leases and mine development Oil producing assets Software Mining information Water rights Other charges against assets Impairment of coal exploration assets Reversal of impairment of coal to liquids facility assets Acquisition costs expensed Exploration costs expensed^ 3 Employee benefits expensed Superannuation expensed 4 Operating lease costs expensed R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R NOTES 2019 $000 3,264 192 3,456 RESTATED 1 2018 $000 298 666 964 10 10 10 10 11 11 11 12 1,284 9,343 1,894 57,182 59,076 50,407 7,885 534 2,313 433 61,572 – – – 1,197 47,424 48,621 33,235 7,961 702 1,396 262 43,556 92,332 (857) 91,475 23 47,729 – 16,009 13,393 174,356 132,817 11,203 8,829 19,685 14,260 Onerous contract and other liquidation related expenses^ 2 21,675 14,976 1 Comparative figures have been restated to present the impacts of the current year discontinued operations (as outlined in note 24). ^2 Onerous contract and other provision movements have been included in Other Expenses. 3 Exploration costs expensed includes relevant Employee expenses. 4 Superannuation expensed is included in Employee benefits expensed. 64 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 65 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 • Coal sales revenue is recognised at a the point in time when control of the products have been transferred to the customer Gain on sale of property, plant and equipment Insurance recovery 3. OTHER INCOME AND EXPENSES A. OTHER INCOME B. BREAKDOWN OF EXPENSES Profit before income tax includes the following specific expenses: Foreign exchange gains and losses Net foreign exchange gains Depreciation Buildings Plant and equipment Amortisation Mining reserves, leases and mine development Oil producing assets Software Mining information Water rights Other charges against assets Impairment of coal exploration assets Reversal of impairment of coal to liquids facility assets 2. REVENUE ACCOUNTING POLICY The Group recognises sales revenue related to the transfer of promised goods or services when the performance obligations under the contract have been satisfied. The amount of revenue recognised reflects the consideration to which the Group is or expects to be entitled for satisfying the performance obligation. Revenue is recognised for the major business activities as follows: in accordance with the sales terms, in this instance when the risks and benefits of ownership has transferred. The title, risks and rewards, and therefore the fulfilment of performance obligations normally occurs at the time of loading the shipment for export sales, and generally at the time the coal is delivered to the customer for domestic sales. • Oil sales revenue is recognised at the point in time when control of the products have been transferred to the customer in accordance with the sales terms, in this instance when the risks and benefits of ownership have transferred. This is normally when the oil is delivered to the customer. • Service fee income and management fee income is recognised as revenue over time as the services are performed. Sales revenue Revenue from commodity sales Revenue from provisional pricing adjustments Services Other revenue Property rent Interest Sundry revenue NOTES 2019 $000 RESTATED 1 2018 $000 1,278,350 1,047,876 2,885 13,565 5,365 13,596 1,294,800 1,066,837 1,195 5,407 5,027 986 5,843 4,773 1(c) 1,306,429 1,078,439 1 Comparative figures have been restated to present the impacts of the current year discontinued operations (as outlined in note 24) as well as other reclassifications on the Statement of Comprehensive Income to better reflect the disclosures in the current year. R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R NOTES 2019 $000 3,264 192 3,456 RESTATED 1 2018 $000 298 666 964 10 10 10 10 11 11 11 12 1,284 9,343 1,894 57,182 59,076 50,407 7,885 534 2,313 433 61,572 – – – 1,197 47,424 48,621 33,235 7,961 702 1,396 262 43,556 92,332 (857) 91,475 Onerous contract and other liquidation related expenses^ 2 21,675 14,976 Acquisition costs expensed Exploration costs expensed^ 3 Employee benefits expensed Superannuation expensed 4 Operating lease costs expensed 23 47,729 – 16,009 13,393 174,356 132,817 11,203 8,829 19,685 14,260 1 Comparative figures have been restated to present the impacts of the current year discontinued operations (as outlined in note 24). ^2 Onerous contract and other provision movements have been included in Other Expenses. 3 Exploration costs expensed includes relevant Employee expenses. 4 Superannuation expensed is included in Employee benefits expensed. 64 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 65 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 4. INCOME TAXES B. NUMERICAL RECONCILIATION OF INCOME TAX EXPENSE TO PRIMA FACIE TAX PAYABLE ACCOUNTING POLICY The income tax expense or revenue for the period is the tax payable on the current period’s taxable income, based on the relevant income tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities attributable to temporary differences, and unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the jurisdictions where the company’s subsidiaries and associates operate and generate taxable income. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. TAX CONSOLIDATION LEGISLATION New Hope Corporation Limited and its wholly owned Australian controlled entities are subject to tax consolidation legislation. All entities within the group are party to both Tax Sharing and Funding Agreements (TSA and TFA). The TSA, in the opinion of the Directors, limits the joint and several liability of each entity in the case of default by New Hope Corporation Limited. The TFA provides the basis to account for compensation for tax related items transferred between the subsidiaries and the head entity of the group. The head entity, New Hope Corporation Limited, and the controlled entities in the tax consolidated group account for their own current and deferred tax amounts. In addition to its own current and deferred tax amounts, the Company also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. Assets or liabilities arising under TFAs with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the Group. Any difference between the amounts assumed and amounts receivable or payable under the TFA are recognised as a contribution to (or distribution from) wholly‑owned tax consolidated entities. A. INCOME TAX EXPENSE Income tax – Current tax expense Income tax – Adjustments for current tax of prior periods^ 2 Income tax – Deferred tax expense/(benefit) Income tax – 2018 restatement for discontinued operations Effective tax rate 2019 $000 91,273 924 5,141 – 97,338 RESTATED 1 2018 $000 94,762 15,132 (45,580) 15,970 80,284 31.6% 30.1% 1 Comparative figures have been restated to present the impacts of the current year discontinued operations (as outlined in note 24) as well as other reclassifications on the Statement of Comprehensive Income to better reflect the disclosures in the current year. 2 During the 2018 year the Company changed its estimate in the useful life of certain mining assets in the finalisation of its income tax return resulting in a revised tax balance between current and deferred income tax expense. R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L Profit from continuing operations before income tax Profit/(loss) from discontinued operations before income tax Income tax calculated at 30% (2018 – 30%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Non‑deductible amounts from discontinuing operations Other deductible amounts Sundry items (Over)/under provided in prior year Effect of previously unrecognised capital losses Income tax expense NOTES 2019 $000 RESTATED 1 2018 $000 307,770 267,613 24 220 (53,801) 307,990 213,812 92,397 64,144 66 4,493 256 126 – 170 – 114 (81) (33) 97,212 64,428 97,338 64,314 C. TAX EXPENSE RELATING TO ITEMS OF OTHER COMPREHENSIVE INCOME Cash flow hedges 20(f) 2,172 6,426 D. RECONCILIATION OF INCOME TAX PAYABLE/(RECEIVABLE) Profit from continuing operations before income tax Profit/(loss) from discontinued operations before income tax Income tax calculated at 30% (2018 – 30%) Tax effected adjustments to taxable income: Non temporary differences Other non temporary items Non‑deductible amounts from discontinuing operations Temporary differences: Non deductible impairment expenses Other assessable/(deductible) amounts Tax losses utilised Taxable income at 30% (2018 – 30%) Current tax liability Less: Tax instalments paid Tax payable 307,770 267,613 24 220 (53,801) 307,990 213,812 I N F O O T H E R 92,397 64,144 66 256 170 251 – (4,757) (1,182) 86,780 39,688 (4,393) (5,097) 94,763 86,780 94,763 (80,963) (13,672) 5,817 81,091 1 Comparative figures have been restated to present the impacts of the current year discontinued operations (as outlined in note 24) as well as other reclassifications on the Statement of Comprehensive Income to better reflect the disclosures in the current year. 66 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 67 R E V I E W O P E R A T I O N S Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 B. NUMERICAL RECONCILIATION OF INCOME TAX EXPENSE TO PRIMA FACIE TAX PAYABLE 4. INCOME TAXES ACCOUNTING POLICY and unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the jurisdictions where the company’s subsidiaries and associates operate and generate taxable income. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. TAX CONSOLIDATION LEGISLATION New Hope Corporation Limited and its wholly owned Australian controlled entities are subject to tax consolidation legislation. All entities within the group are party to both Tax Sharing and Funding Agreements (TSA and TFA). The TSA, in the opinion of the Directors, limits the joint and several liability of each entity in the case of default by New Hope Corporation Limited. The TFA provides the basis to account for compensation for tax related items transferred between the subsidiaries and the head entity of the group. The head entity, New Hope Corporation Limited, and the controlled entities in the tax consolidated group account for their own current and deferred tax amounts. In addition to its own current and deferred tax amounts, the Company also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. Assets or liabilities arising under TFAs with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the Group. Any difference between the amounts assumed and amounts receivable or payable under the TFA are recognised as a contribution to (or distribution from) wholly‑owned tax consolidated entities. A. INCOME TAX EXPENSE Income tax – Current tax expense Income tax – Adjustments for current tax of prior periods^ 2 Income tax – Deferred tax expense/(benefit) Income tax – 2018 restatement for discontinued operations Effective tax rate 2019 $000 91,273 924 5,141 – 97,338 RESTATED 1 2018 $000 94,762 15,132 (45,580) 15,970 80,284 31.6% 30.1% 1 Comparative figures have been restated to present the impacts of the current year discontinued operations (as outlined in note 24) as well as other reclassifications on the Statement of Comprehensive Income to better reflect the disclosures in the current year. 2 During the 2018 year the Company changed its estimate in the useful life of certain mining assets in the finalisation of its income tax return resulting in a revised tax balance between current and deferred income tax expense. The income tax expense or revenue for the period is the tax payable on the current period’s taxable income, based on the relevant income tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities attributable to temporary differences, Profit from continuing operations before income tax Profit/(loss) from discontinued operations before income tax Income tax calculated at 30% (2018 – 30%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Non‑deductible amounts from discontinuing operations Other deductible amounts Sundry items (Over)/under provided in prior year Effect of previously unrecognised capital losses Income tax expense NOTES 2019 $000 307,770 RESTATED 1 2018 $000 267,613 24 220 (53,801) 307,990 213,812 92,397 64,144 66 4,493 256 170 – 114 97,212 64,428 126 – (81) (33) 97,338 64,314 R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L C. TAX EXPENSE RELATING TO ITEMS OF OTHER COMPREHENSIVE INCOME Cash flow hedges 20(f) 2,172 6,426 D. RECONCILIATION OF INCOME TAX PAYABLE/(RECEIVABLE) Profit from continuing operations before income tax Profit/(loss) from discontinued operations before income tax Income tax calculated at 30% (2018 – 30%) Tax effected adjustments to taxable income: Non temporary differences Non‑deductible amounts from discontinuing operations Other non temporary items Temporary differences: Non deductible impairment expenses Other assessable/(deductible) amounts Tax losses utilised Taxable income at 30% (2018 – 30%) Current tax liability Less: Tax instalments paid Tax payable 307,770 267,613 24 220 (53,801) 307,990 213,812 I N F O O T H E R 92,397 64,144 66 256 170 251 – (4,757) (1,182) 86,780 86,780 (80,963) 5,817 39,688 (4,393) (5,097) 94,763 94,763 (13,672) 81,091 1 Comparative figures have been restated to present the impacts of the current year discontinued operations (as outlined in note 24) as well as other reclassifications on the Statement of Comprehensive Income to better reflect the disclosures in the current year. 66 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 67 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 4. INCOME TAXES (CONTINUED) E. DEFERRED TAX BALANCES ACCOUNTING POLICY Deferred tax assets are recognised for the deductible temporary differences and unused tax losses only when it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the company is able to control the timing of the reversal of the temporary difference and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. NET BALANCE AT 1 AUGUST $000 RECOGNISED IN PROFIT OR LOSS $000 RECOGNISED IN OCI $000 ACQUIRED IN BUSINESS COMBINATION $000 DEFERRED TAX ASSETS $000 DEFERRED TAX LIABILITIES $000 NET $000 F. UNRECOGNISED DEFERRED TAX ASSETS Deferred tax assets have not been recognised in respect of the following items: Tax losses (capital) PRRT (net of income tax) Temporary differences associated with equity investments 2019 $000 2018 $000 7,146 – 5,551 12,697 9,091 160,784 8,133 178,008 SIGNIFICANT JUDGEMENTS AND ESTIMATES The deferred taxation benefits will only be obtained if assessable income is derived of a nature and of an amount sufficient to enable the benefit from the deductions to be realised, conditions for deductibility imposed by the law are complied with and no changes in tax legislation adversely affect the realisation of the benefit from the deductions. Capital tax losses do not expire under current tax legislation. Deferred tax assets have not been recognised in respect of these items because it is uncertain when future capital gains will be available against which the Group can utilise the benefits from these assets. 2019 Rehabilitation provision Property, plant and equipment Capitalised exploration Cash flow hedges Inventories Employee benefits Other Revenue tax losses Capital losses 2018 Rehabilitation provision Property, plant and equipment Capitalised exploration Cash flow hedges Inventories Employee benefits Other Revenue tax losses Capital losses 36,678 26,431 (42,485) (21,866) (56,708) (2,879) – – – 1,003 (5,465) 13,749 684 1,182 1,500 – 2,172 (1,835) 1,959 (5,571) (1,182) – – – – – – (49,862) (4,943) 2,172 32,287 (45,729) (93,265) (5,423) (6,502) 12,255 (4,155) 7,165 1,500 4,391 3,244 36,557 – – – – 6,426 1,037 1,494 4,839 (5,983) – – – – – – (101,867) 45,579 6,426 – – (77,225) (59,587) 3,175 – – (7,300) 5. RECONCILIATION OF NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES TO PROFIT AFTER INCOME TAX 10,677 73,786 73,786 – (12,874) (77,225) – – – 2,259 (62) – – – – – – – – – – – – – (59,587) 3,175 (7,300) 17,967 (4,949) – 17,967 – – – (4,949) – – 1,500 1,500 (52,633) 96,428 (149,061) 36,678 36,678 – (42,485) (56,708) 1,003 (5,465) 13,749 684 1,182 1,500 – – – – (42,485) (56,708) 1,003 (5,465) 13,749 684 1,182 1,500 – – – – (49,862) 53,793 (103,655) R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R Profit after income tax Depreciation and amortisation Non‑cash employee benefit expense – share based payments (Gain)/Loss from discontinued operations after tax Impairment of coal exploration assets Reversal of impairment of coal to liquids facility assets Net foreign exchange gains Net (profit)/loss on sale of non‑current assets Interest income Income taxes paid Income tax expense Payment of establishment costs for guarantee facility Amortisation of transaction cost Changes in operating assets and liabilities (Increase)/decrease in receivables and prepayments Increase in inventories Increase/(decrease) in payables Increase/(decrease) in provisions and employee entitlements Net cash provided by operating activities NOTES 20(f) 24(b) 3(b) 3(b) 3(b) 4(a) 17(c) 17(c) 2019 $000 210,652 120,649 724 (220) – – (1,284) (175) (648) (162,977) 97,338 4,366 1,384 14,273 (6,967) 8,710 7,959 RESTATED 1 2018 $000 149,498 92,176 355 37,831 91,475 (857) (9,343) 639 (583) (15,779) 80,284 – – (34,060) (1,394) (2,250) 34,811 293,784 422,803 1 Comparative figures have been restated to present the impacts of the current year discontinued operations (as outlined in note 24). 68 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 69 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 4. INCOME TAXES (CONTINUED) E. DEFERRED TAX BALANCES ACCOUNTING POLICY Deferred tax assets are recognised for the deductible temporary differences and unused tax losses only when it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the company is able to control the timing of the reversal of the temporary difference and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. 2019 Rehabilitation provision Property, plant and equipment Capitalised exploration Cash flow hedges Inventories Employee benefits Other Revenue tax losses Capital losses 2018 Rehabilitation provision Property, plant and equipment Capitalised exploration Cash flow hedges Inventories Employee benefits Other Revenue tax losses Capital losses NET BALANCE AT 1 AUGUST $000 RECOGNISED IN PROFIT OR LOSS $000 RECOGNISED IN OCI $000 ACQUIRED IN BUSINESS COMBINATION $000 DEFERRED DEFERRED TAX ASSETS $000 TAX LIABILITIES $000 NET $000 36,678 26,431 (42,485) (21,866) (56,708) (2,879) – 2,172 10,677 73,786 73,786 (12,874) (77,225) 1,003 (5,465) 13,749 684 1,182 1,500 32,287 (45,729) (93,265) (5,423) (6,502) 12,255 (4,155) 7,165 1,500 (1,835) 1,959 (5,571) (1,182) – 4,391 3,244 36,557 1,037 1,494 4,839 (5,983) – – 6,426 – – – – – – – – – – – – – – – – 3,175 17,967 (77,225) (59,587) (7,300) (4,949) – – – – – – – – – 13,749 684 1,182 1,500 – – – – – – – – – – (42,485) (56,708) 1,003 (5,465) 1,500 1,500 36,678 36,678 2,259 (62) – – – – – – – – – – – – – – – – (59,587) 3,175 (7,300) 17,967 (4,949) – (42,485) (56,708) 1,003 (5,465) 13,749 684 1,182 1,500 (101,867) 45,579 6,426 (49,862) 53,793 (103,655) (49,862) (4,943) 2,172 (52,633) 96,428 (149,061) F. UNRECOGNISED DEFERRED TAX ASSETS Deferred tax assets have not been recognised in respect of the following items: Tax losses (capital) PRRT (net of income tax) Temporary differences associated with equity investments 2019 $000 2018 $000 7,146 – 5,551 12,697 9,091 160,784 8,133 178,008 SIGNIFICANT JUDGEMENTS AND ESTIMATES The deferred taxation benefits will only be obtained if assessable income is derived of a nature and of an amount sufficient to enable the benefit from the deductions to be realised, conditions for deductibility imposed by the law are complied with and no changes in tax legislation adversely affect the realisation of the benefit from the deductions. Capital tax losses do not expire under current tax legislation. Deferred tax assets have not been recognised in respect of these items because it is uncertain when future capital gains will be available against which the Group can utilise the benefits from these assets. 5. RECONCILIATION OF NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES TO PROFIT AFTER INCOME TAX Profit after income tax Depreciation and amortisation Non‑cash employee benefit expense – share based payments (Gain)/Loss from discontinued operations after tax Impairment of coal exploration assets Reversal of impairment of coal to liquids facility assets Net foreign exchange gains Net (profit)/loss on sale of non‑current assets Interest income Income taxes paid Income tax expense Payment of establishment costs for guarantee facility Amortisation of transaction cost Changes in operating assets and liabilities (Increase)/decrease in receivables and prepayments Increase in inventories Increase/(decrease) in payables Increase/(decrease) in provisions and employee entitlements Net cash provided by operating activities NOTES 20(f) 24(b) 3(b) 3(b) 3(b) 4(a) 17(c) 17(c) 2019 $000 210,652 120,649 724 (220) – – (1,284) (175) (648) (162,977) 97,338 4,366 1,384 14,273 (6,967) 8,710 7,959 RESTATED 1 2018 $000 149,498 92,176 355 37,831 91,475 (857) (9,343) 639 (583) (15,779) 80,284 – – (34,060) (1,394) (2,250) 34,811 293,784 422,803 1 Comparative figures have been restated to present the impacts of the current year discontinued operations (as outlined in note 24). R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 68 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 69 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 6. EARNINGS PER SHARE ACCOUNTING POLICY BASIC EARNINGS PER SHARE Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the year, adjusted for bonus element in ordinary shares issued during the year. DILUTED EARNINGS PER SHARE Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financial costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. A. B. Basic earnings per share attributable to ordinary equity holders of the Company Diluted earnings per share attributable to ordinary equity holders of the Company C. Reconciliation of adjusted profits Profit attributable to the ordinary equity holders of the Company D. Weighted average number of shares used as the denominator Weighted average number of ordinary shares (basic) Rights Weighted average number of ordinary shares (diluted) EARNINGS PER SHARE (CENTS) 2019 25.3 25.3 2018 18.0 18.0 BASIC AND DILUTED 2019 $000 2018 $000 210,652 149,498 CONSOLIDATED 2019 2018 831,261,875 831,141,985 1,414,347 1,064,431 832,676,222 832,206,416 E. Rights granted to employees are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share to the extent to which they are dilutive. The rights have not been included in the determination of basic earnings per share. Details relating to the rights are set out in note 28. R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 2019 $000 2018 $000 54,976 19,285 24,596 9,212 39,198 38,565 21,781 5,929 108,069 105,473 1,056 1,499 7. RECEIVABLES ACCOUNTING POLICY Trade receivables derived from contracted sales are recognised initially at fair value and subsequently at amortised cost, less any expected credit losses (ECL). Trade receivables from provisionally priced sales are carried at fair value. The carrying value less the estimated credit adjustments is assumed to approximate their fair values due to their short term nature. Trade receivables are due for settlement no more than forty five days from the date of recognition. Loans and receivables are non‑derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are initially recognised at fair value, and subsequently at amortised cost less any ECLs. They are included in current assets, except for those with maturities greater than 12 months after the reporting date which are classified as non‑current assets. The Group measures the loss allowance for a financial asset at an amount equal to the lifetime ECL. Where the financial asset’s credit risk has not increased significantly since initial recognition, the Group will measure the loss allowance based on 12‑months ECL. A simplified approach is taken to accounting for trade and other receivables as well as contract assets and records the loss allowance at the amount equal to the lifetime ECL. In applying this simplified method, the Group uses its historical experience, external indicators and forward‑looking information to calculate the ECL. Trade receivables – provisionally priced Current Trade receivables Other receivables (a) Prepayments Non-current Other receivables A. OTHER RECEIVABLES due but not impaired. in note 21. C. FAIR VALUE AND CREDIT RISK These amounts relate to long service leave payments recoverable from the Coal Mining Industry Long Service Leave Fund, diesel fuel rebates receivable, Goods and Services Tax (GST) refunds receivable and security deposits. None of these receivables are impaired or past B. FOREIGN EXCHANGE AND INTEREST RATE RISK Information about the Group’s exposure to foreign currency risk and interest rate risk in relation to trade and other receivables is provided Due to the short term nature of current receivables, their carrying value is assumed to approximate their fair value. The fair value of non‑current receivables approximates their carrying amounts. Information about the Group’s exposure to fair value and credit risk in relation to trade and other receivables is provided in note 21. The Group assessed the ECL in relation to trade and other receivables in the current year and the prior year to be immaterial and no loss allowance has been recorded. 70 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 71 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 6. EARNINGS PER SHARE ACCOUNTING POLICY BASIC EARNINGS PER SHARE Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the year, adjusted for bonus element in ordinary shares issued during the year. DILUTED EARNINGS PER SHARE Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financial costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. A. B. Basic earnings per share attributable to ordinary equity holders of the Company Diluted earnings per share attributable to ordinary equity holders of the Company C. Reconciliation of adjusted profits Profit attributable to the ordinary equity holders of the Company D. Weighted average number of shares used as the denominator Weighted average number of ordinary shares (basic) Rights Weighted average number of ordinary shares (diluted) EARNINGS PER SHARE (CENTS) 2019 25.3 25.3 2018 18.0 18.0 BASIC AND DILUTED 2019 $000 2018 $000 210,652 149,498 CONSOLIDATED 2019 2018 831,261,875 831,141,985 1,414,347 1,064,431 832,676,222 832,206,416 E. Rights granted to employees are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share to the extent to which they are dilutive. The rights have not been included in the determination of basic earnings per share. Details relating to the rights are set out in note 28. 7. RECEIVABLES ACCOUNTING POLICY Trade receivables derived from contracted sales are recognised initially at fair value and subsequently at amortised cost, less any expected credit losses (ECL). Trade receivables from provisionally priced sales are carried at fair value. The carrying value less the estimated credit adjustments is assumed to approximate their fair values due to their short term nature. Trade receivables are due for settlement no more than forty five days from the date of recognition. Loans and receivables are non‑derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are initially recognised at fair value, and subsequently at amortised cost less any ECLs. They are included in current assets, except for those with maturities greater than 12 months after the reporting date which are classified as non‑current assets. The Group measures the loss allowance for a financial asset at an amount equal to the lifetime ECL. Where the financial asset’s credit risk has not increased significantly since initial recognition, the Group will measure the loss allowance based on 12‑months ECL. A simplified approach is taken to accounting for trade and other receivables as well as contract assets and records the loss allowance at the amount equal to the lifetime ECL. In applying this simplified method, the Group uses its historical experience, external indicators and forward‑looking information to calculate the ECL. Current Trade receivables Trade receivables – provisionally priced Other receivables (a) Prepayments Non-current Other receivables 2019 $000 2018 $000 54,976 19,285 24,596 9,212 39,198 38,565 21,781 5,929 108,069 105,473 1,056 1,499 A. OTHER RECEIVABLES These amounts relate to long service leave payments recoverable from the Coal Mining Industry Long Service Leave Fund, diesel fuel rebates receivable, Goods and Services Tax (GST) refunds receivable and security deposits. None of these receivables are impaired or past due but not impaired. B. FOREIGN EXCHANGE AND INTEREST RATE RISK Information about the Group’s exposure to foreign currency risk and interest rate risk in relation to trade and other receivables is provided in note 21. C. FAIR VALUE AND CREDIT RISK Due to the short term nature of current receivables, their carrying value is assumed to approximate their fair value. The fair value of non‑current receivables approximates their carrying amounts. Information about the Group’s exposure to fair value and credit risk in relation to trade and other receivables is provided in note 21. The Group assessed the ECL in relation to trade and other receivables in the current year and the prior year to be immaterial and no loss allowance has been recorded. R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 70 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 71 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 8. ACCOUNTS PAYABLE ACCOUNTING POLICY These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. The amounts are unsecured and usually paid within forty five days of recognition. 10. PROPERTY, PLANT AND EQUIPMENT ACCOUNTING POLICY Trade payables and accruals 9. INVENTORIES 2019 $000 2018 $000 108,701 78,753 ACCOUNTING POLICY Coal stocks are valued at the lower of cost and net realisable value in the normal course of business. Cost comprises the weighted average costs of direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity. Self‑generating and regenerating assets are valued at fair value less costs to sell. Inventories of consumable supplies and spare parts expected to be used in production are valued at weighted average cost. Coal stocks Self‑generating and regenerating assets Raw materials and stores at cost Less: Provision for obsolescence 2019 $000 67,658 2,748 27,485 (1,622) 96,269 2018 $000 40,572 2,559 20,656 (2,612) 61,175 INVENTORY EXPENSE A. Coal stocks recognised as an expense during the year ended 31 July 2019 amounted to $755,856,000 (2018 – $622,277,000). There were no write‑downs of inventory to net realisable value recognised as an expense during the year (2018 – $2,010,000). R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R Property, plant and equipment is stated at historical cost less applicable depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other subsequent costs are expensed to the Statement of Comprehensive Income during the financial period in which they are incurred. Depreciation is calculated so as to write off the cost of each item of property, plant and equipment over its expected economic life to the consolidated entity. Each item’s useful life has due regard both to its own physical life limitations and to present assessments of economically recoverable resources of the mine property at which the item is located. Estimates of residual values and remaining useful lives are made on an annual basis. An annual review of the appropriateness of the method of depreciation is also undertaken noting the straight line method was predominately used in the 2019 year. The expected useful life of plant and equipment is 4 to 20 years, buildings is 25 to 40 years and motor vehicles is 4 to 8 years. Land is not depreciated. An asset’s carrying amount is immediately written down to its recoverable amount if the asset’s carrying amount is greater than Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the Statement its recoverable amount. of Comprehensive Income. Sheet as incurred. for use. MINE PROPERTIES, DEVELOPMENT COSTS, RESERVES AND LEASES AND OIL PRODUCING ASSETS Development expenditure incurred by the consolidated entity is accumulated separately for each area of interest in which economically recoverable resources have been identified to the satisfaction of the Directors. Direct development expenditure, pre‑operating start‑up costs and an appropriate portion of related overhead expenditures are capitalised as development costs up until the relevant area of interest is ready for use. The cost of acquiring reserves and resources are capitalised in the Balance Mining reserves, leases and development costs are amortised over the estimated productive life of each applicable mine on either a unit of production basis or years of operation basis, as appropriate. Amortisation commences when an area of interest is ready Oil development assets are amortised on a unit of production basis. The method uses the actual costs of the asset to date plus all its projected future development costs. Amortisation commences when an area of interest is ready for use. DEFERRED STRIPPING COSTS The Group does not recognise any deferred stripping costs. Based on the nature of the Group’s mining operations and the stripping ratio for the components of its operations, the recognition criteria of a deferred stripping asset are not satisfied. Further, it is anticipated that the operations will maintain a consistent stripping ratio at the component level and as such no overburden in advance should be recognised. In the event that a stripping campaign is undertaken in the future a deferred stripping asset will be recognised at that time and amortised in accordance with the requirements of IFRIC 20. An asset will be recognised for stripping activity where the following criteria are met: It is probable that future economic benefits (improved access to the ore body) associated with the stripping activity will flow The entity can identify the component of the ore body for which access has been improved; and The costs relating to the stripping activity associated with that component can be measured reliably. Assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less cost to dispose (FVLCD) and its value in use. For the purposes of assessing impairment under value in use testing, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash‑generating units (CGU)). The Company assesses annually for any indicator of a reversal of a previous impairment. to the entity; • • • IMPAIRMENT be recoverable. 72 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 73 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. The amounts are unsecured and usually paid within forty five days of recognition. Coal stocks are valued at the lower of cost and net realisable value in the normal course of business. Cost comprises the weighted average costs of direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity. Self‑generating and regenerating assets are valued at fair value less costs to sell. Inventories of consumable supplies and spare parts expected to be used in production are valued at weighted average cost. 8. ACCOUNTS PAYABLE ACCOUNTING POLICY Trade payables and accruals 9. INVENTORIES ACCOUNTING POLICY Coal stocks Self‑generating and regenerating assets Raw materials and stores at cost Less: Provision for obsolescence 2019 $000 2018 $000 108,701 78,753 2019 $000 67,658 2,748 27,485 (1,622) 96,269 2018 $000 40,572 2,559 20,656 (2,612) 61,175 A. INVENTORY EXPENSE Coal stocks recognised as an expense during the year ended 31 July 2019 amounted to $755,856,000 (2018 – $622,277,000). There were no write‑downs of inventory to net realisable value recognised as an expense during the year (2018 – $2,010,000). 10. PROPERTY, PLANT AND EQUIPMENT ACCOUNTING POLICY Property, plant and equipment is stated at historical cost less applicable depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other subsequent costs are expensed to the Statement of Comprehensive Income during the financial period in which they are incurred. Depreciation is calculated so as to write off the cost of each item of property, plant and equipment over its expected economic life to the consolidated entity. Each item’s useful life has due regard both to its own physical life limitations and to present assessments of economically recoverable resources of the mine property at which the item is located. Estimates of residual values and remaining useful lives are made on an annual basis. An annual review of the appropriateness of the method of depreciation is also undertaken noting the straight line method was predominately used in the 2019 year. The expected useful life of plant and equipment is 4 to 20 years, buildings is 25 to 40 years and motor vehicles is 4 to 8 years. Land is not depreciated. An asset’s carrying amount is immediately written down to its recoverable amount if the asset’s carrying amount is greater than its recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the Statement of Comprehensive Income. MINE PROPERTIES, DEVELOPMENT COSTS, RESERVES AND LEASES AND OIL PRODUCING ASSETS Development expenditure incurred by the consolidated entity is accumulated separately for each area of interest in which economically recoverable resources have been identified to the satisfaction of the Directors. Direct development expenditure, pre‑operating start‑up costs and an appropriate portion of related overhead expenditures are capitalised as development costs up until the relevant area of interest is ready for use. The cost of acquiring reserves and resources are capitalised in the Balance Sheet as incurred. Mining reserves, leases and development costs are amortised over the estimated productive life of each applicable mine on either a unit of production basis or years of operation basis, as appropriate. Amortisation commences when an area of interest is ready for use. Oil development assets are amortised on a unit of production basis. The method uses the actual costs of the asset to date plus all its projected future development costs. Amortisation commences when an area of interest is ready for use. DEFERRED STRIPPING COSTS The Group does not recognise any deferred stripping costs. Based on the nature of the Group’s mining operations and the stripping ratio for the components of its operations, the recognition criteria of a deferred stripping asset are not satisfied. Further, it is anticipated that the operations will maintain a consistent stripping ratio at the component level and as such no overburden in advance should be recognised. In the event that a stripping campaign is undertaken in the future a deferred stripping asset will be recognised at that time and amortised in accordance with the requirements of IFRIC 20. An asset will be recognised for stripping activity where the following criteria are met: • • • It is probable that future economic benefits (improved access to the ore body) associated with the stripping activity will flow to the entity; The entity can identify the component of the ore body for which access has been improved; and The costs relating to the stripping activity associated with that component can be measured reliably. IMPAIRMENT Assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less cost to dispose (FVLCD) and its value in use. For the purposes of assessing impairment under value in use testing, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash‑generating units (CGU)). The Company assesses annually for any indicator of a reversal of a previous impairment. R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 72 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 73 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 10. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) SIGNIFICANT JUDGEMENTS AND ESTIMATES – IMPAIRMENT OF ASSETS IMPAIRMENT ASSESSMENT (A) All property, plant and equipment allocated to cash generating units (CGU’s) containing goodwill must be tested for impairment at the CGU level on an annual basis. Other property, plant and equipment assets must also be tested for impairment when impairment indicators are identified. Judgement is involved in assessing whether there are indicators of impairment of property, plant and equipment including in relation to the impact of events or changes in circumstances. For coal mining and oil producing assets, key judgements include external factors such as forecast commodity prices and foreign exchange rates. Judgement is also required in relation to the estimation of coal and oil reserves and resources (refer (b) below for further information in relation to the estimation of coal reserves and resources). Where the recoverable amounts of the Group’s CGU’s are tested for impairment using analyses of discounted cash flows, the resulting valuations are also sensitive to changes in estimates of long‑term commodity prices, production timing and recovery rates, exchange rates, operating costs, reserve and resource estimates, closure costs and discount rates. Estimates in respect of the timing of project expansions and the cost to complete asset construction are also critical to determining the recoverable amounts for CGUs (refer (C) below in relation to specific considerations related to NAC03 approvals). (B) ESTIMATION OF COAL AND OIL RESERVES AND RESOURCES The Group estimates its coal reserves and resources based on information compiled by Competent Persons as defined in accordance with the JORC Code, which is produced by the Australasian Joint Ore Reserves Committee. The oil reserves and resources are equivalently calculated by appropriately qualified persons in accordance with the SPE Petroleum Reserves Management System (SPE‑PRMS) published by the Society of Petroleum Engineers (updated June 2019). The estimation of reserves and resources requires judgement to interpret available geological data and then to select an appropriate mining method and establish an extraction schedule. It also requires assumptions about future commodity prices, exchange rates, production costs, recovery rates and discount rates and, in some instances, the renewal of mining licences. There are many uncertainties in the estimation process and assumptions that are valid at the time of estimation may change significantly when new information becomes available. In particular the increasing global focus on climate change and associated policy and regulatory risks may impact on future coal demand and prices which could impact reserves and resource estimations. Changes in coal reserves could have an impact on: the calculation of depreciation, amortisation and impairment charges; the timing of the payment of closedown and restoration costs; and the recovery of deferred tax assets. Changes in coal resources could have an impact on the recoverability of Exploration and evaluation costs capitalised (refer note 12). (C) NEW ACLAND STAGE 3 APPROVALS A number of uncertainties associated with the approvals timeline and conditionality of the NAC03 project remain at 31 July 2019. Consistent with the position outlined in the financial report for the previous year ended 31 July 2018, and the half‑year financial report for the period ended 31 January 2019, the significant delays in the approval process, which have the potential to delay the commencement of NAC03, have been assessed to be an indicator of potential impairment of the QLD coal mining CGU assets. A summary of the key events pertaining to NAC03 project approvals are: • On 31 May 2017, the Land Court recommended that the EA and ML for the project not be granted; • On 14 February 2018, the Chief Executive of the Department of Environment and Science (DES) made a decision to refuse the application for amendment of the EA; • On 28 May 2018 the Supreme Court of Queensland ruled in favour of New Acland with the key orders being: – The decisions made by the Land Court on 31 May 2017 recommending rejection of the ML applications for NAC03, and for the refusal of the application for amendment of the EA, were set aside with effect from 31 May 2017; – The decision of the Chief Executive of DES to refuse the application for an amendment of the EA was set aside with effect from 14 February 2018; and – The recommendations of the Land Court in respect of groundwater and intergenerational equity (as it relates to groundwater) were held to be not relevant for consideration by the Land Court and that the matter of noise required further consideration by the Land Court. • A hearing of the Land Court, in accordance with the instructions of the Supreme Court from the Judicial Review, was held in early October 2018 with a decision handed down on 7 November 2018. The Land Court conditionally recommended that the MLs and EA amendment be granted subject to certain conditions including the Coordinator‑General first amending the noise limit conditions to 35 dBA in the evening and night with the DES incorporating the changes in the amendment of the EA by 31 May 2019; • On 12 February 2019, NAC received a change report from the Coordinator‑General in respect of the noise conditions for NAC03. On 15 February 2019, the DES confirmed that the change report had satisfied all of the preconditions imposed by the Land Court for the approval of the ML and amendments to the EA and the EA was granted on 12 March 2019; R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L SIGNIFICANT JUDGEMENTS AND ESTIMATES – IMPAIRMENT OF ASSETS • The Supreme Court of Queensland decision was appealed by the OCAA. New Acland has successfully defended the Judicial Review decision of the Supreme Court of QLD in the Court of Appeal with a judgement against the OCAA received on 10 September 2019. The orders relating to the judgement are yet to be finalised. The decision from the Court of Appeal process may still be subject to an application for special leave to appeal to the High Court by the appellant (OCAA); • The AWL application process re‑started during July 2018 following engagement with the Department of Natural Resources, Mines and Energy (DNRM). On 19 January 2019, NAC lodged an Amended AWL application which has now progressed through public consultation and is with the Minister for decision The Company has undertaken a detailed assessment regarding impairment as required under AASB 136 for the year ended 31 July 2019. The Company carefully considered the potential impact that recent developments in the legal and regulatory environment may have and the possibility of any resultant impacts on future cash flows. The fair value discounted cash flow models prepared for the CGU have confirmed the recoverable amount exceeds the carrying value. The updated models include assumptions relating to approval timelines and coal price as follows: The assessments assume that project approvals will be received at the commencement of the 2021 financial year and any delay beyond this may result in impairment. The assumptions of the impairment assessment reflect that once approvals are granted (i) Extensions of approvals timeline NAC03 operates for the full life of mine. (ii) Coal price assumptions Short term coal prices have improved slightly since 31 July 2018 and long term indications of pricing have also improved. The Company has also acknowledged the decrease in the current spot pricing during the second half of the financial year and also the increased differential between high calorific value coals and lower calorific value coals in concluding on its pricing assumptions. The coal price range for assessments at 31 July 2019 is US$59 – US$125 per tonne (nominal basis). In undertaking its impairment assessment, the Company has considered the potential impact of climate change risk on the future cash flows contained within the fair value discounted cash flow model. These risks include the potential impact on future coal prices of changes in market supply and demand dynamics over the life of NAC03, and the potential for cost volatility associated with factors I N F O O T H E R such as climate change related regulatory changes and/or market participation by suppliers of services to the Company. These types of risks are taken into account in a variety of ways which include the use of forecast commodity prices and industry risk measures as an input into the calculation of the discount rate applied against future cash flows. In addition, given the near term timing and expected life of the project, the Company does not consider there to be significant risk of climate change materially impacting project outcomes once current approvals are received. Having due regard to all relevant information, the Company has concluded that none of these matters, either individually or in aggregate, result in the recoverable amount for the CGU being below its carrying value. As a result of the impairment assessment undertaken there are no impairments required in relation to the assets of the QLD coal mining CGU as at 31 July 2019. The carrying value of the QLD coal mining CGU’s assets is set out below: Property, plant and equipment Land and buildings – mining Plant and equipment Mining reserves, leases and development assets Plant under construction Intangibles Software Exploration and evaluation Exploration and evaluation at cost Total carrying value 2019 $000 2018 $000 56,193 98,025 2,887 49,495 55,509 107,981 3,977 50,978 887 1,207 42,025 249,512 37,873 257,525 The Queensland mining operations CGU has take or pay agreements for rail, port and water supply. The rail agreement is generally aligned to the recovery of Stage 2 coal while the port and water agreements are longer term. These arrangements are not of a sufficient amount to constitute a material impact on value unless approval delays extend beyond those currently foreseeable. 74 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 75 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 SIGNIFICANT JUDGEMENTS AND ESTIMATES – IMPAIRMENT OF ASSETS • The Supreme Court of Queensland decision was appealed by the OCAA. New Acland has successfully defended the Judicial Review decision of the Supreme Court of QLD in the Court of Appeal with a judgement against the OCAA received on 10 September 2019. The orders relating to the judgement are yet to be finalised. The decision from the Court of Appeal process may still be subject to an application for special leave to appeal to the High Court by the appellant (OCAA); • The AWL application process re‑started during July 2018 following engagement with the Department of Natural Resources, Mines and Energy (DNRM). On 19 January 2019, NAC lodged an Amended AWL application which has now progressed through public consultation and is with the Minister for decision The Company has undertaken a detailed assessment regarding impairment as required under AASB 136 for the year ended 31 July 2019. The Company carefully considered the potential impact that recent developments in the legal and regulatory environment may have and the possibility of any resultant impacts on future cash flows. The fair value discounted cash flow models prepared for the CGU have confirmed the recoverable amount exceeds the carrying value. The updated models include assumptions relating to approval timelines and coal price as follows: (i) Extensions of approvals timeline The assessments assume that project approvals will be received at the commencement of the 2021 financial year and any delay beyond this may result in impairment. The assumptions of the impairment assessment reflect that once approvals are granted NAC03 operates for the full life of mine. (ii) Coal price assumptions Short term coal prices have improved slightly since 31 July 2018 and long term indications of pricing have also improved. The Company has also acknowledged the decrease in the current spot pricing during the second half of the financial year and also the increased differential between high calorific value coals and lower calorific value coals in concluding on its pricing assumptions. The coal price range for assessments at 31 July 2019 is US$59 – US$125 per tonne (nominal basis). R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L In undertaking its impairment assessment, the Company has considered the potential impact of climate change risk on the future cash flows contained within the fair value discounted cash flow model. These risks include the potential impact on future coal prices of changes in market supply and demand dynamics over the life of NAC03, and the potential for cost volatility associated with factors such as climate change related regulatory changes and/or market participation by suppliers of services to the Company. I N F O O T H E R These types of risks are taken into account in a variety of ways which include the use of forecast commodity prices and industry risk measures as an input into the calculation of the discount rate applied against future cash flows. In addition, given the near term timing and expected life of the project, the Company does not consider there to be significant risk of climate change materially impacting project outcomes once current approvals are received. Having due regard to all relevant information, the Company has concluded that none of these matters, either individually or in aggregate, result in the recoverable amount for the CGU being below its carrying value. As a result of the impairment assessment undertaken there are no impairments required in relation to the assets of the QLD coal mining CGU as at 31 July 2019. The carrying value of the QLD coal mining CGU’s assets is set out below: Property, plant and equipment Land and buildings – mining Plant and equipment Mining reserves, leases and development assets Plant under construction Intangibles Software Exploration and evaluation Exploration and evaluation at cost Total carrying value 2019 $000 2018 $000 56,193 98,025 2,887 49,495 55,509 107,981 3,977 50,978 887 1,207 42,025 249,512 37,873 257,525 The Queensland mining operations CGU has take or pay agreements for rail, port and water supply. The rail agreement is generally aligned to the recovery of Stage 2 coal while the port and water agreements are longer term. These arrangements are not of a sufficient amount to constitute a material impact on value unless approval delays extend beyond those currently foreseeable. 74 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 75 10. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) SIGNIFICANT JUDGEMENTS AND ESTIMATES – IMPAIRMENT OF ASSETS (A) IMPAIRMENT ASSESSMENT impairment indicators are identified. All property, plant and equipment allocated to cash generating units (CGU’s) containing goodwill must be tested for impairment at the CGU level on an annual basis. Other property, plant and equipment assets must also be tested for impairment when Judgement is involved in assessing whether there are indicators of impairment of property, plant and equipment including in relation to the impact of events or changes in circumstances. For coal mining and oil producing assets, key judgements include external factors such as forecast commodity prices and foreign exchange rates. Judgement is also required in relation to the estimation of coal and oil reserves and resources (refer (b) below for further information in relation to the estimation of coal reserves and resources). Where the recoverable amounts of the Group’s CGU’s are tested for impairment using analyses of discounted cash flows, the resulting valuations are also sensitive to changes in estimates of long‑term commodity prices, production timing and recovery rates, exchange rates, operating costs, reserve and resource estimates, closure costs and discount rates. Estimates in respect of the timing of project expansions and the cost to complete asset construction are also critical to determining the recoverable amounts for CGUs (refer (C) below in relation to specific considerations related to NAC03 approvals). (B) ESTIMATION OF COAL AND OIL RESERVES AND RESOURCES The Group estimates its coal reserves and resources based on information compiled by Competent Persons as defined in accordance with the JORC Code, which is produced by the Australasian Joint Ore Reserves Committee. The oil reserves and resources are equivalently calculated by appropriately qualified persons in accordance with the SPE Petroleum Reserves Management System (SPE‑PRMS) published by the Society of Petroleum Engineers (updated June 2019). The estimation of reserves and resources requires judgement to interpret available geological data and then to select an appropriate mining method and establish an extraction schedule. It also requires assumptions about future commodity prices, exchange rates, production costs, recovery rates and discount rates and, in some instances, the renewal of mining licences. There are many uncertainties in the estimation process and assumptions that are valid at the time of estimation may change significantly when new information becomes available. In particular the increasing global focus on climate change and associated policy and regulatory risks may impact on future coal demand and prices which could impact reserves and resource estimations. Changes in coal reserves could have an impact on: the calculation of depreciation, amortisation and impairment charges; the timing of the payment of closedown and restoration costs; and the recovery of deferred tax assets. Changes in coal resources could have an impact on the recoverability of Exploration and evaluation costs capitalised (refer note 12). (C) NEW ACLAND STAGE 3 APPROVALS A number of uncertainties associated with the approvals timeline and conditionality of the NAC03 project remain at 31 July 2019. Consistent with the position outlined in the financial report for the previous year ended 31 July 2018, and the half‑year financial report for the period ended 31 January 2019, the significant delays in the approval process, which have the potential to delay the commencement of NAC03, have been assessed to be an indicator of potential impairment of the QLD coal mining CGU assets. A summary of the key events pertaining to NAC03 project approvals are: • On 31 May 2017, the Land Court recommended that the EA and ML for the project not be granted; • On 14 February 2018, the Chief Executive of the Department of Environment and Science (DES) made a decision to refuse the application for amendment of the EA; • On 28 May 2018 the Supreme Court of Queensland ruled in favour of New Acland with the key orders being: – The decisions made by the Land Court on 31 May 2017 recommending rejection of the ML applications for NAC03, and for the refusal of the application for amendment of the EA, were set aside with effect from 31 May 2017; – The decision of the Chief Executive of DES to refuse the application for an amendment of the EA was set aside with effect – The recommendations of the Land Court in respect of groundwater and intergenerational equity (as it relates to groundwater) were held to be not relevant for consideration by the Land Court and that the matter of noise required further from 14 February 2018; and consideration by the Land Court. • A hearing of the Land Court, in accordance with the instructions of the Supreme Court from the Judicial Review, was held in early October 2018 with a decision handed down on 7 November 2018. The Land Court conditionally recommended that the MLs and EA amendment be granted subject to certain conditions including the Coordinator‑General first amending the noise limit conditions to 35 dBA in the evening and night with the DES incorporating the changes in the amendment of the EA by 31 May 2019; • On 12 February 2019, NAC received a change report from the Coordinator‑General in respect of the noise conditions for NAC03. On 15 February 2019, the DES confirmed that the change report had satisfied all of the preconditions imposed by the Land Court for the approval of the ML and amendments to the EA and the EA was granted on 12 March 2019; Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 10. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) The financial statements have been prepared on the basis that approvals are granted within a reasonable time period, and as a result, there is no significant impact on the value recoverable from the project and therefore the QLD coal mining CGU at 31 July 2019. In the event that future events have a negative impact on the recoverable value of the QLD coal mining operations CGU, the assets of that CGU may be subject to impairment. The QLD coal mining CGU is a customer of the Port operations CGU of the Group. As such in the event that there are circumstances which further impact the coal mining operations this may be relevant to the value of those operations and will be a factor in any future impairment considerations. The carrying value of the Port operation CGU’s assets is set out below: Property, plant and equipment Land and buildings Plant and equipment Port development Plant under construction Intangibles Software Goodwill Total carrying value 2019 $000 2018 $000 1,617 80,552 11,367 1,556 112 5,596 1,694 84,477 11,872 284 142 5,596 100,800 104,065 R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L LAND AND BUILDINGS LAND AND BUILDINGS MINING $000 NON- MINING $000 PLANT AND EQUIPMENT $000 MINING MINE AND OIL RESERVES PORT DEVEL- PRODUCING AND LEASES $000 OPMENT $000 ASSETS $000 PLANT UNDER CON- STRUCTION $000 NOTES TOTAL $000 Balance at 1 August 2018 189,148 8,737 406,091 570,506 45,937 90 431 43,598 69,787 18,596 59,848 1,350,057 13,540 76,942 23,952 172,502 546,476 17,426 11,699 772,055 4,771 14,960 1,616 – 35,552 – – – – – 108 3,498 – (288) 21,347 35,552 – (61) (288) (3,955) (61) – – – – – – – – – – – – 687 – – – 349 656 4,531 5,807 – – – – – – – – – – – – – 5,873 – – – – 55 – – – – Balance at 31 July 2019 211,579 8,993 572,990 1,106,979 (1,611) (283) (57,182) (45,555) (4,852) 74,507 (7,885) 82,114 (117,368) 81,071 2,138,233 9,052 377,368 598,745 39,938 171,838 5,089 4,520 9,229 – – (60) (568) 11 12 37,724 40,849 (287) – – (2,136) (3) 66,658 5,980 61,038 1,324,637 13,486 62,935 (763) – 49,137 (14,731) I N F O O T H E R – 55 5,873 (2,193) (571) (89,816) Balance at 31 July 2018 189,148 8,737 406,091 570,506 59,848 1,350,057 (900) (297) (47,424) (28,239) (4,995) 45,937 (7,961) 69,787 – – – – – – – – – – – (18) Year ended 31 July 2019 Additions Movements in rehabilitation Acquisition of business – Bengalla rehabilitation Acquisition of business – Bengalla Transfers in/(out) Transfers to Intangibles 11 Disposal of assets Depreciation/ amortisation expense Year ended 31 July 2018 Balance at 1 August 2017 Additions Movements in rehabilitation Transfers in/(out) Transfers from Intangibles Transfers from Exploration and evaluation Disposal of assets Impairment expense Depreciation/ amortisation expense FINANCE LEASES ACCOUNTING POLICY further details). Leasehold equipment Cost Accumulated depreciation Plant and equipment includes the following amounts where the Group is a lessee under a finance lease (refer to note 17 (b) for 2019 $000 2018 $000 15,845 (9,416) 6,429 15,845 (6,737) 9,108 76 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 77 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 LAND AND BUILDINGS MINING $000 LAND AND BUILDINGS NON- MINING $000 NOTES PLANT AND EQUIPMENT $000 MINING RESERVES AND LEASES $000 MINE AND PORT DEVEL- OPMENT $000 OIL PRODUCING ASSETS $000 PLANT UNDER CON- STRUCTION $000 TOTAL $000 Year ended 31 July 2019 Balance at 1 August 2018 189,148 8,737 406,091 570,506 45,937 431 43,598 69,787 18,596 59,848 1,350,057 13,540 76,942 687 Additions Movements in rehabilitation Acquisition of business – Bengalla rehabilitation Acquisition of business – Bengalla Transfers in/(out) Transfers to Intangibles 11 Disposal of assets Depreciation/ amortisation expense 90 – – 23,952 – – – – – – – – 108 – – 4,771 14,960 1,616 – 35,552 – 172,502 546,476 17,426 3,498 – (288) – – – 349 – – – – – – – Balance at 31 July 2019 211,579 8,993 572,990 1,106,979 (1,611) (283) (57,182) (45,555) (4,852) 74,507 (7,885) 82,114 – – 21,347 35,552 11,699 772,055 (3,955) (61) – – – (61) (288) (117,368) 81,071 2,138,233 10. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) The financial statements have been prepared on the basis that approvals are granted within a reasonable time period, and as a result, there is no significant impact on the value recoverable from the project and therefore the QLD coal mining CGU at 31 July 2019. In the event that future events have a negative impact on the recoverable value of the QLD coal mining operations CGU, the assets of that CGU may be subject to impairment. The QLD coal mining CGU is a customer of the Port operations CGU of the Group. As such in the event that there are circumstances which further impact the coal mining operations this may be relevant to the value of those operations and will be a factor in any future impairment considerations. The carrying value of the Port operation CGU’s assets is set out below: Property, plant and equipment Land and buildings Plant and equipment Port development Plant under construction Intangibles Software Goodwill Total carrying value 2019 $000 2018 $000 1,617 80,552 11,367 1,556 112 5,596 1,694 84,477 11,872 284 142 5,596 100,800 104,065 Year ended 31 July 2018 Balance at 1 August 2017 Additions Movements in rehabilitation Transfers in/(out) Transfers from Intangibles Transfers from Exploration and evaluation Disposal of assets Impairment expense Depreciation/ amortisation expense 171,838 5,089 4,520 9,229 – – (60) (568) 11 12 9,052 377,368 598,745 39,938 – – (18) 37,724 40,849 (287) – – – – – – (2,136) (3) – – – – – – – 656 4,531 5,807 – – – – Balance at 31 July 2018 189,148 8,737 406,091 570,506 FINANCE LEASES (900) (297) (47,424) (28,239) (4,995) 45,937 (7,961) 69,787 66,658 5,980 61,038 1,324,637 13,486 62,935 (763) – 49,137 – – 5,873 – – (14,731) 55 – – – – – 55 5,873 (2,193) (571) (89,816) 59,848 1,350,057 R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R ACCOUNTING POLICY Plant and equipment includes the following amounts where the Group is a lessee under a finance lease (refer to note 17 (b) for further details). Leasehold equipment Cost Accumulated depreciation 2019 $000 2018 $000 15,845 (9,416) 6,429 15,845 (6,737) 9,108 76 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 77 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 11. INTANGIBLES ACCOUNTING POLICY IT development and software Water rights and mining information Goodwill Costs incurred in IT development and developing software and costs incurred in acquiring software and licenses that will contribute to future period financial benefits through revenue generation and/or cost reduction are capitalised to software and systems. Costs capitalised are external direct costs of materials and services. Amortisation is calculated on a straight line basis over periods generally ranging from 3 to 5 years. The Group benefits from water rights associated with its mining operations through the efficient and cost effective operation of the mine. These rights are amortised on a straight line basis over the life of the mine. The value of exploration, pre‑feasibility and feasibility costs necessary for regulatory, reporting and internal control purposes have been recognised as a mining information intangible asset. The total value is amortised over the estimated life of the mine. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is included in investments in associates. Goodwill is not amortised. Goodwill is carried at cost less accumulated impairment losses. Gains or losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to CGUs for the purpose of impairment testing. The allocation is made to those CGUs or groups of CGUs that are expected to benefit from the business combination in which the goodwill arose. Impairment Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Refer to note 10 for details of impairment testing. Goodwill impairments are not reversible. NOTES SOFTWARE $000 GOODWILL $000 WATER RIGHTS $000 MINING INFORMATION $000 Year ended 31 July 2019 Balance at 1 August 2018 Additions Acquisition of business – Bengalla Transfer from Property, Plant and Equipment 23 10 Amortisation charge Balance at 31 July 2019 Year ended 31 July 2018 Balance at 1 August 2017 Additions Transfer to Property, Plant and Equipment 10 Amortisation charge Balance at 31 July 2018 54 69 61 (534) 1,468 2,247 328 (55) (702) 1,818 1,818 17,866 – – – – 5,926 – 6,511 – (433) 17,866 12,004 32,432 – 35,000 – (2,313) 65,119 17,866 6,188 32,919 – – – 17,866 – – (262) 5,926 909 – (1,396) 32,432 TOTAL $000 58,042 54 41,580 61 (3,280) 96,457 59,220 1,237 (55) (2,360) 58,042 CRITICAL ESTIMATE – GOODWILL IMPAIRMENT ASSESSMENT Goodwill costs relate to the acquisition of Queensland Bulk Handling Pty Ltd (QBH) ($5,596,000) and certain coal exploration assets (the exploration assets) ($12,271,000). The recoverable amount of the CGU to which the exploration asset goodwill is attributable has been based on FVLCD using a comparable resource transaction multiple multiplied by the resources attributable to this CGU. This assessment is determined under Level 2 of the fair value hierarchy based on observable external market data for reserve and resource transaction multiples, rather than quoted prices. Observable transactions included in the assessment of an appropriate multiple are comparable transactions in the last four years for Australian coal exploration projects with a similar coal type as the CGU’s assets. The estimation of the resources used to determine the recoverable amount requires judgement and assumptions as detailed in note 10. The recoverable amount of the QBH CGU has been based on value in use calculations using a discounted cashflow model. The future cashflows have been discounted using a post tax rate of 9% (31 July 2018: 9%). 78 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 79 R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 12. EXPLORATION AND EVALUATION ACCOUNTING POLICY Costs are carried forward only if they relate to an area of interest for which rights of tenure are current and such costs are expected to be recouped through successful development and exploitation or from sale of the area. At the time that a decision is taken to develop an area with proven technical feasibility and commercial viability the costs will cease to be capitalised as exploration and evaluation assets and existing assets will be transferred to property, plant and equipment. Exploration and evaluation expenditure which do not satisfy these criteria are expensed. CRITICAL JUDGEMENTS IN APPLYING THE ENTITY’S ACCOUNTING POLICY – EXPLORATION AND EVALUATION EXPENDITURE During the year the entity capitalised various items of expenditure to the exploration expenditure asset. The relevant items of expenditure were deemed to be part of the capital cost of developing future mining and oil operations, which will subsequently be amortised over the life of the mine or oil field. The key judgement applied in considering whether the costs should be capitalised, is that costs are expected to be recovered through either successful development or sale of the relevant area. There are a number of factors which will be considered in determining the potential for successful development or sale of an exploration asset and in particular the Company will consider the key climate change risks of a project in making an investment decision. Exploration and evaluation assets Reconciliation Balance at 1 August Additions Movements in rehabilitation Transfers to property, plant and equipment Impairment expense Balance at 31 July Impairment expense from discontinued operations NOTES 2019 $000 2018 $000 301,589 280,301 10 3(b) 280,301 21,286 2 – – 392,569 25,737 157 (5,873) (92,332) – (39,957) 301,589 280,301 SIGNIFICANT JUDGEMENT AND ESTIMATES – IMPAIRMENT OF COAL EXPLORATION ASSETS In the 2018 year, the Group determined that an indicator of impairment existed as at balance date in respect of the Colton Coal exploration project. The indicator arose as a result of the increased charges associated with access to WICET which were materially higher than those previously forecast and ongoing work regarding the assessment of JORC reserves position of this asset. As a result an impairment test was undertaken and an impairment recognised for the year ended 31 July 2018. For the purposes of assessing impairment of the Colton exploration project, the Group utilised the FVLCD method underpinned by a resource multiple. A resource multiple is considered the appropriate valuation methodology for an exploration asset of this type. The fair value methodology adopted is considered Level 3 in the hierarchy due to the judgemental nature of the discounts applied to the resource multiples. Given the significant costs associated with access to WICET (which have increased significantly since the terminal commenced operations) the Group determined that it is appropriate to discount recent transaction multiples to account for the onerous nature of the obligations to WICET. At the prevailing WICET costs the Group determined that it was inappropriate to ascribe any value to the JORC resources and as a result a full impairment for the carrying value of the Colton assets of $132,860,000 was recognised as outlined below: 2018 Exploration and evaluation Property, plant and equipment NOTE 10 CARRYING RECOVERABLE IMPAIRMENT VALUE $000 VALUE $000 LOSS $000 132,289 571 132,860 – – – (132,289) (571) (132,860) Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 11. INTANGIBLES ACCOUNTING POLICY IT development and software Costs incurred in IT development and developing software and costs incurred in acquiring software and licenses that will contribute to future period financial benefits through revenue generation and/or cost reduction are capitalised to software and systems. Costs capitalised are external direct costs of materials and services. Amortisation is calculated on a straight line basis over periods generally ranging from 3 to 5 years. Water rights and mining information The Group benefits from water rights associated with its mining operations through the efficient and cost effective operation of the mine. These rights are amortised on a straight line basis over the life of the mine. The value of exploration, pre‑feasibility and feasibility costs necessary for regulatory, reporting and internal control purposes have been recognised as a mining information intangible asset. The total value is amortised over the estimated life of the mine. Goodwill Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is included in investments in associates. Goodwill is not amortised. Goodwill is carried at cost less accumulated impairment losses. Gains or losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to CGUs for the purpose of impairment testing. The allocation is made to those CGUs or groups of CGUs that are expected to benefit from the business combination in which the goodwill arose. Impairment Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Refer to note 10 for details of impairment testing. Goodwill impairments are not reversible. Acquisition of business – Bengalla Transfer from Property, Plant and Equipment 23 10 Year ended 31 July 2019 Balance at 1 August 2018 Additions Amortisation charge Balance at 31 July 2019 Year ended 31 July 2018 Balance at 1 August 2017 Additions Amortisation charge Balance at 31 July 2018 Transfer to Property, Plant and Equipment 10 NOTES SOFTWARE $000 GOODWILL WATER RIGHTS INFORMATION $000 $000 TOTAL $000 1,818 17,866 5,926 32,432 58,042 MINING $000 – – 909 – (1,396) 32,432 – – – – 6,511 35,000 41,580 17,866 (433) 12,004 (2,313) 65,119 (3,280) 96,457 17,866 6,188 32,919 54 69 61 (534) 1,468 2,247 328 (55) (702) 1,818 – – – – – – – 17,866 (262) 5,926 54 61 59,220 1,237 (55) (2,360) 58,042 CRITICAL ESTIMATE – GOODWILL IMPAIRMENT ASSESSMENT Goodwill costs relate to the acquisition of Queensland Bulk Handling Pty Ltd (QBH) ($5,596,000) and certain coal exploration assets (the exploration assets) ($12,271,000). The recoverable amount of the CGU to which the exploration asset goodwill is attributable has been based on FVLCD using a comparable resource transaction multiple multiplied by the resources attributable to this CGU. This assessment is determined under Level 2 of the fair value hierarchy based on observable external market data for reserve and resource transaction multiples, rather than quoted prices. Observable transactions included in the assessment of an appropriate multiple are comparable transactions in the last four years for Australian coal exploration projects with a similar coal type as the CGU’s assets. The estimation of the resources used to determine the recoverable amount requires judgement and assumptions as detailed in note 10. The recoverable amount of the QBH CGU has been based on value in use calculations using a discounted cashflow model. The future cashflows have been discounted using a post tax rate of 9% (31 July 2018: 9%). 12. EXPLORATION AND EVALUATION ACCOUNTING POLICY Costs are carried forward only if they relate to an area of interest for which rights of tenure are current and such costs are expected to be recouped through successful development and exploitation or from sale of the area. At the time that a decision is taken to develop an area with proven technical feasibility and commercial viability the costs will cease to be capitalised as exploration and evaluation assets and existing assets will be transferred to property, plant and equipment. Exploration and evaluation expenditure which do not satisfy these criteria are expensed. CRITICAL JUDGEMENTS IN APPLYING THE ENTITY’S ACCOUNTING POLICY – EXPLORATION AND EVALUATION EXPENDITURE During the year the entity capitalised various items of expenditure to the exploration expenditure asset. The relevant items of expenditure were deemed to be part of the capital cost of developing future mining and oil operations, which will subsequently be amortised over the life of the mine or oil field. The key judgement applied in considering whether the costs should be capitalised, is that costs are expected to be recovered through either successful development or sale of the relevant area. There are a number of factors which will be considered in determining the potential for successful development or sale of an exploration asset and in particular the Company will consider the key climate change risks of a project in making an investment decision. Exploration and evaluation assets Reconciliation Balance at 1 August Additions Movements in rehabilitation Transfers to property, plant and equipment Impairment expense Impairment expense from discontinued operations Balance at 31 July NOTES 2019 $000 2018 $000 301,589 280,301 10 3(b) 280,301 21,286 2 – – 392,569 25,737 157 (5,873) (92,332) – (39,957) 301,589 280,301 SIGNIFICANT JUDGEMENT AND ESTIMATES – IMPAIRMENT OF COAL EXPLORATION ASSETS In the 2018 year, the Group determined that an indicator of impairment existed as at balance date in respect of the Colton Coal exploration project. The indicator arose as a result of the increased charges associated with access to WICET which were materially higher than those previously forecast and ongoing work regarding the assessment of JORC reserves position of this asset. As a result an impairment test was undertaken and an impairment recognised for the year ended 31 July 2018. For the purposes of assessing impairment of the Colton exploration project, the Group utilised the FVLCD method underpinned by a resource multiple. A resource multiple is considered the appropriate valuation methodology for an exploration asset of this type. The fair value methodology adopted is considered Level 3 in the hierarchy due to the judgemental nature of the discounts applied to the resource multiples. Given the significant costs associated with access to WICET (which have increased significantly since the terminal commenced operations) the Group determined that it is appropriate to discount recent transaction multiples to account for the onerous nature of the obligations to WICET. At the prevailing WICET costs the Group determined that it was inappropriate to ascribe any value to the JORC resources and as a result a full impairment for the carrying value of the Colton assets of $132,860,000 was recognised as outlined below: 2018 Exploration and evaluation Property, plant and equipment NOTE 10 CARRYING VALUE $000 RECOVERABLE VALUE $000 IMPAIRMENT LOSS $000 132,289 571 132,860 – – – (132,289) (571) (132,860) R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 78 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 79 B. MINING RESTORATION AND REHABILITATION Movements Balance at 1 August Provision capitalised/(written down) Provision (debited)/credited to profit and loss Provision arising on acquisition Charged to profit and loss – unwinding of discount Balance at 31 July NOTES 2019 $000 2018 $000 167,643 21,348 (3,427) 35,552 4,746 225,862 107,622 49,295 7,464 – 3,262 167,643 10 17(c) SIGNIFICANT ESTIMATE – DETERMINATION OF RESERVES ESTIMATES AND REHABILITATION COSTS Provision is made for rehabilitation, restoration and environmental costs when the obligation arises, based on the net present value of estimated future costs. The ultimate cost of rehabilitation and restoration is uncertain, and management uses its judgement and experience to provide for these costs over the life of the operations. The Group makes estimates about the future cost of rehabilitating tenements which are currently disturbed, based on legislative requirements and current costs. There are policy change risks in particular with the growing global focus on climate change which may impact on rehabilitation obligations. Cost estimates take into account past experience and expectations of future events that are expected to alter past experiences. Any changes to legislative requirements could have a significant impact on the expenditure The estimation of reserves and resources are also a key judgement that affects the timing of the payment of closedown and required to restore these areas. restoration costs as detailed in note 10. C. ONEROUS CONTRACTS exploration project for $14,976,000. R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 13. PROVISIONS ACCOUNTING POLICY Short-term employee benefit obligations Liabilities for wages and salaries, including non‑monetary benefits, annual leave, vesting sick leave and redundancies expected to be settled within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period. These are measured at the amounts expected to be paid when the liabilities are settled. The liability of annual leave and accumulating sick leave is recognised in the provision for employee benefits. All other short‑term employee benefit obligations are presented as payables. Other long-term employee benefit obligations The liability for long service leave and annual leave which is not expected to be settled within 12 months of balance date is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end of the reporting period on a high quality corporate bonds rate with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Restoration, rehabilitation and environmental expenditure Provisions are raised for restoration and rehabilitation expenditure as soon as an obligation exists, with the cost being charged to the Statement of Comprehensive Income in respect of ongoing rehabilitation. Where the obligation relates to decommissioning of assets and restoring the sites on which they are located, the costs are carried forward in the value of the asset and amortised over its useful life. Provisions are measured at the present value of expected future cash outflows with future cash outflows reassessed on a regular basis. The present value is determined using an appropriate discount rate. The obligations include profiling, stabilisation and revegetation of the completed area, with cost estimates based on current statutory requirements and current technology. 2019 Current Non‑current 2018 Current Non‑current EMPLOYEE BENEFITS $000 RESTORATION/ REHABILITATION $000 ONEROUS CONTRACT $000 OTHER $000 TOTAL $000 52,553 7,323 59,876 17,717 208,145 225,862 – – – 16,000 – 16,000 86,270 215,468 301,738 38,870 5,196 44,066 12,912 154,731 167,643 14,976 – 14,976 – – – 66,758 159,927 226,685 In the 2018 year, the Group recognised provisions for onerous contracts in relation to take or pay agreements associated with the Colton As outlined in note 12, there was an impairment of the assets of the Colton exploration project. It was considered that the charges associated with the WICET Agreement at that time were materially higher than previously forecast, and had a material impact on the viability of that project. As such, the Group had determined that the long term take or pay agreements associated with this project were onerous contracts. The Group determined for the 2018 year that the lowest unavoidable cost associated with the onerous contracts was represented by a failure to fulfil the contracts. The cost to the Group of failing to fulfil its obligations under the contracts was the value of the bank guarantees which had been provided as security against the contractual obligations. During the 2019 year, the bank guarantees issued by the Group in respect of the take or pay agreements were fully drawn and settled. As such, the lowest unavoidable costs under the contracts is considered to be nil. Additional details relating to the basis for this conclusion are outlined in note 13(d). A. EMPLOYEE BENEFITS Current long service leave obligations expected to be settled after 12 months 2019 $000 2018 $000 17,410 12,816 The current provision for employee benefits includes accrued annual leave, vested sick leave and long service leave for all unconditional settlements where employees have completed the required period of service and also those where employees are entitled to pro‑rata payment in certain circumstances. The entire amount is presented as current, since the Group does not have an unconditional right to defer settlement. However, based on past experience, the Group does not expect all employees to take the full amount of accrued long service leave or require payment within the next 12 months. 80 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 81 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 13. PROVISIONS ACCOUNTING POLICY Short-term employee benefit obligations Liabilities for wages and salaries, including non‑monetary benefits, annual leave, vesting sick leave and redundancies expected to be settled within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period. These are measured at the amounts expected to be paid when the liabilities are settled. The liability of annual leave and accumulating sick leave is recognised in the provision for employee benefits. All other short‑term employee benefit obligations are presented as payables. Other long-term employee benefit obligations The liability for long service leave and annual leave which is not expected to be settled within 12 months of balance date is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end of the reporting period on a high quality corporate bonds rate with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Restoration, rehabilitation and environmental expenditure Provisions are raised for restoration and rehabilitation expenditure as soon as an obligation exists, with the cost being charged to the Statement of Comprehensive Income in respect of ongoing rehabilitation. Where the obligation relates to decommissioning of assets and restoring the sites on which they are located, the costs are carried forward in the value of the asset and amortised over its useful life. Provisions are measured at the present value of expected future cash outflows with future cash outflows reassessed on a regular basis. The present value is determined using an appropriate discount rate. The obligations include profiling, stabilisation and revegetation of the completed area, with cost estimates based on current statutory requirements and current technology. 2019 Current Non‑current 2018 Current Non‑current EMPLOYEE BENEFITS RESTORATION/ REHABILITATION $000 $000 ONEROUS CONTRACT $000 OTHER $000 TOTAL $000 52,553 7,323 59,876 17,717 208,145 225,862 – – – 16,000 16,000 86,270 215,468 301,738 38,870 5,196 44,066 12,912 154,731 167,643 14,976 – 14,976 66,758 159,927 226,685 – – – – A. EMPLOYEE BENEFITS Current long service leave obligations expected to be settled after 12 months The current provision for employee benefits includes accrued annual leave, vested sick leave and long service leave for all unconditional settlements where employees have completed the required period of service and also those where employees are entitled to pro‑rata payment in certain circumstances. The entire amount is presented as current, since the Group does not have an unconditional right to defer settlement. However, based on past experience, the Group does not expect all employees to take the full amount of accrued long service leave or require payment within the next 12 months. 2019 $000 2018 $000 17,410 12,816 B. MINING RESTORATION AND REHABILITATION Movements Balance at 1 August Provision capitalised/(written down) Provision (debited)/credited to profit and loss Provision arising on acquisition Charged to profit and loss – unwinding of discount Balance at 31 July NOTES 2019 $000 2018 $000 167,643 21,348 (3,427) 35,552 4,746 225,862 107,622 49,295 7,464 – 3,262 167,643 10 17(c) SIGNIFICANT ESTIMATE – DETERMINATION OF RESERVES ESTIMATES AND REHABILITATION COSTS Provision is made for rehabilitation, restoration and environmental costs when the obligation arises, based on the net present value of estimated future costs. The ultimate cost of rehabilitation and restoration is uncertain, and management uses its judgement and experience to provide for these costs over the life of the operations. The Group makes estimates about the future cost of rehabilitating tenements which are currently disturbed, based on legislative requirements and current costs. There are policy change risks in particular with the growing global focus on climate change which may impact on rehabilitation obligations. Cost estimates take into account past experience and expectations of future events that are expected to alter past experiences. Any changes to legislative requirements could have a significant impact on the expenditure required to restore these areas. The estimation of reserves and resources are also a key judgement that affects the timing of the payment of closedown and restoration costs as detailed in note 10. C. ONEROUS CONTRACTS In the 2018 year, the Group recognised provisions for onerous contracts in relation to take or pay agreements associated with the Colton exploration project for $14,976,000. As outlined in note 12, there was an impairment of the assets of the Colton exploration project. It was considered that the charges associated with the WICET Agreement at that time were materially higher than previously forecast, and had a material impact on the viability of that project. As such, the Group had determined that the long term take or pay agreements associated with this project were onerous contracts. The Group determined for the 2018 year that the lowest unavoidable cost associated with the onerous contracts was represented by a failure to fulfil the contracts. The cost to the Group of failing to fulfil its obligations under the contracts was the value of the bank guarantees which had been provided as security against the contractual obligations. During the 2019 year, the bank guarantees issued by the Group in respect of the take or pay agreements were fully drawn and settled. As such, the lowest unavoidable costs under the contracts is considered to be nil. Additional details relating to the basis for this conclusion are outlined in note 13(d). R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 80 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 81 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 13. PROVISIONS (CONTINUED) D. OTHER PROVISIONS The Directors of NEC and Colton placed the companies into voluntary administration on 17 October 2018. The companies have subsequently been placed into liquidation. The Group has recognised a provision for $16,000,000 which it considers is the best estimate of the probable future economic outflows associated with the NEC and Colton liquidation process. There have been a number of developments during the year associated with this matter outlined below: DEED OF CROSS GUARANTEE PROCEEDINGS • In proceedings relating to those administrations, WICET submitted that the debts of NEC and Colton are guaranteed by the Company and certain of its subsidiaries pursuant to a DOCG. The Company denied this claim; • On 1 February 2019, the Company and relevant subsidiaries commenced proceedings in the Supreme Court of New South Wales (Proceedings) seeking orders confirming that the Company is not bound by the DOCG in respect of the debts of certain subsidiaries including NEC and Colton. A hearing of these Proceedings occurred between 17 to 20 June 2019; • On 12 July 2019, the Supreme Court of New South Wales concluded that the Company has not guaranteed the debts of NEC and Colton under the DOCG. On 20 August 2019, WICET filed an appeal with the Court of Appeal in New South Wales in relation to the Supreme Court’s decision on the DOCG; • If WICET’s claim is upheld, the Group will be exposed to a liability of approximately $155,000,000. The Group continues to deny this claim. ADMINISTRATION/LIQUIDATION PROCESS • In February 2019, in proceedings relating to the administrations of NEC and Colton, WICET applied successfully to the Court for an order that special purpose administrators be appointed to investigate a transaction that NEC entered into prior to the administrations of NEC and Colton, being a corporate restructure NEC undertook in February 2016; • In March 2019, the Company put forward a conditional binding Term Sheet in respect of a proposed Deed of Company Arrangement (DOCA) for NEC and Colton. The proposed DOCA, subject to all conditions being met, required the Company to contribute $19,000,000 into trust for the purpose of distribution to the creditors of NEC and Colton in accordance with the priorities and principles of the administration (Contribution). As the Company has a secured loan receivable of $7,060,000 from NEC (representing the amount owing at the date of administration which was impaired during the year ended 31 July 2019), the Contribution, if paid and the proposed DOCA accepted, would have in resulted $7,060,000 being paid in priority by NEC to the Company, and any and all claims by NEC or Colton against the Group (whether in respect of the DOCG, the February 2016 corporate restructure or otherwise) being released; • On 28 June 2019, the special purpose administrators appointed to NEC and Colton provided a report on their investigations into the February 2016 corporate restructure; • On 19 July 2019, the administrators appointed to NEC and Colton issued a Voluntary Administrators Report (the Report) in advance of the second meeting of creditors. The Report identified a number of alleged claims that may be available to any liquidators appointed to NEC and Colton, subject to the liquidators obtaining funding and conducting further investigations. If funding is obtained, further investigations are conducted and the alleged claims are pursued against the Group, the Report identifies potential exposure to the Group is between nil and $48,100,000. The claims which it is alleged may be available to the liquidators relate to two transactions: – The corporate restructure that NEC undertook in February 2016. The value attributed to the claims it is alleged may be available in respect of this transaction in the Report is between nil and $20,500,000; – A loan repayment made by Colton to the Group in 2017. The value attributed to the claims it is alleged may be available in respect of this transaction in the Report is between nil and $27,600,000. The Group denies these alleged claims and does not consider that it has any obligations in respect of them. • • In July 2019, the Company gave a revised DOCA proposal to NEC and Colton that was presented to the second meeting of creditors held on 26 July 2019 which included a revised Contribution of $16,000,000 however introduced a subordination of the secured loan receivable of the Company to below the claims of unsecured creditors. At the second creditors meeting of creditors on 26 July 2019, the creditors did not vote in favour of this DOCA and instead voted to place NEC and Colton into liquidation. In acknowledging the ongoing matters associated with the liquidation the Company has considered its position and has determined that the proposed revised Contribution of $16,000,000 is the best estimate of the future probable economic outflows that will be incurred as a result of the NEC and Colton liquidation process. Although the DOCA has lapsed following the second meeting of creditors, the Company has not withdrawn the proposal and considers it to represent a present obligation that should be reflected as a provision. R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 14. CASH AND CASH EQUIVALENTS ACCOUNTING POLICY Cash and cash equivalents include cash on hand, deposits held at call with financial institutions and other short‑term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value, excluding funds on deposit for which there is no short term identified use in the operating cash flows of the Group. 2019 $000 2018 $000 58,827 274,975 Cash at bank and on hand includes deposits for which there is a short term identified use in the operating cash flows of the Group, and attracts interest at rates between 0% and 1.85% (2018 – 0% and 1.85%). Information about the Group’s exposure to foreign exchange risk and credit risk is detailed in note 21. Cash at bank and on hand A. CASH AT BANK AND ON HAND B. RISK EXPOSURE 15. TERM DEPOSITS ACCOUNTING POLICY interest method. IMPAIRMENT Investments are non‑derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. Investments are carried at amortised cost using the effective The Group measures the loss allowance for a financial asset at an amount equal to the lifetime expected credit losses (ECL). Where the financial assets credit risk has not increased significantly since initial recognition, the Group will measure the loss allowance based on 12‑ months ECL. A simplified approach is taken to accounting for trade and other receivables as well as contract assets and records the loss allowance at the amount equal to the lifetime ECL. In applying this simplified method, the Group uses its historical experience, external indicators and forward‑looking information to calculate the ECL. Term deposits in note 21. The term deposits held during the year carried a weighted average fixed interest rate of 2.20% (2018 – 2.55%). Due to their short‑term nature the carrying value is assumed to approximate fair value. Information about the Group’s exposure to credit risk is disclosed 2019 $000 – 2018 $000 205,000 82 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 83 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 13. PROVISIONS (CONTINUED) D. OTHER PROVISIONS The Directors of NEC and Colton placed the companies into voluntary administration on 17 October 2018. The companies have subsequently been placed into liquidation. The Group has recognised a provision for $16,000,000 which it considers is the best estimate of the probable future economic outflows associated with the NEC and Colton liquidation process. There have been a number of developments during the year associated with this matter outlined below: DEED OF CROSS GUARANTEE PROCEEDINGS • In proceedings relating to those administrations, WICET submitted that the debts of NEC and Colton are guaranteed by the Company and certain of its subsidiaries pursuant to a DOCG. The Company denied this claim; • On 1 February 2019, the Company and relevant subsidiaries commenced proceedings in the Supreme Court of New South Wales (Proceedings) seeking orders confirming that the Company is not bound by the DOCG in respect of the debts of certain subsidiaries including NEC and Colton. A hearing of these Proceedings occurred between 17 to 20 June 2019; • On 12 July 2019, the Supreme Court of New South Wales concluded that the Company has not guaranteed the debts of NEC and Colton under the DOCG. On 20 August 2019, WICET filed an appeal with the Court of Appeal in New South Wales in relation to the • If WICET’s claim is upheld, the Group will be exposed to a liability of approximately $155,000,000. The Group continues to deny Supreme Court’s decision on the DOCG; this claim. ADMINISTRATION/LIQUIDATION PROCESS • In February 2019, in proceedings relating to the administrations of NEC and Colton, WICET applied successfully to the Court for an order that special purpose administrators be appointed to investigate a transaction that NEC entered into prior to the administrations of NEC and Colton, being a corporate restructure NEC undertook in February 2016; • In March 2019, the Company put forward a conditional binding Term Sheet in respect of a proposed Deed of Company Arrangement (DOCA) for NEC and Colton. The proposed DOCA, subject to all conditions being met, required the Company to contribute $19,000,000 into trust for the purpose of distribution to the creditors of NEC and Colton in accordance with the priorities and principles of the administration (Contribution). As the Company has a secured loan receivable of $7,060,000 from NEC (representing the amount owing at the date of administration which was impaired during the year ended 31 July 2019), the Contribution, if paid and the proposed DOCA accepted, would have in resulted $7,060,000 being paid in priority by NEC to the Company, and any and all claims by NEC or Colton against the Group (whether in respect of the DOCG, the February 2016 corporate restructure or otherwise) • On 28 June 2019, the special purpose administrators appointed to NEC and Colton provided a report on their investigations into the being released; February 2016 corporate restructure; • On 19 July 2019, the administrators appointed to NEC and Colton issued a Voluntary Administrators Report (the Report) in advance of the second meeting of creditors. The Report identified a number of alleged claims that may be available to any liquidators appointed to NEC and Colton, subject to the liquidators obtaining funding and conducting further investigations. If funding is obtained, further investigations are conducted and the alleged claims are pursued against the Group, the Report identifies potential exposure to the Group is between nil and $48,100,000. The claims which it is alleged may be available to the liquidators relate to two transactions: – The corporate restructure that NEC undertook in February 2016. The value attributed to the claims it is alleged may be available in respect of this transaction in the Report is between nil and $20,500,000; – A loan repayment made by Colton to the Group in 2017. The value attributed to the claims it is alleged may be available in respect of this transaction in the Report is between nil and $27,600,000. The Group denies these alleged claims and does not consider that it has any obligations in respect of them. • In July 2019, the Company gave a revised DOCA proposal to NEC and Colton that was presented to the second meeting of creditors held on 26 July 2019 which included a revised Contribution of $16,000,000 however introduced a subordination of the secured loan receivable of the Company to below the claims of unsecured creditors. • At the second creditors meeting of creditors on 26 July 2019, the creditors did not vote in favour of this DOCA and instead voted to place NEC and Colton into liquidation. In acknowledging the ongoing matters associated with the liquidation the Company has considered its position and has determined that the proposed revised Contribution of $16,000,000 is the best estimate of the future probable economic outflows that will be incurred as a result of the NEC and Colton liquidation process. Although the DOCA has lapsed following the second meeting of creditors, the Company has not withdrawn the proposal and considers it to represent a present obligation that should be reflected as a provision. 14. CASH AND CASH EQUIVALENTS ACCOUNTING POLICY Cash and cash equivalents include cash on hand, deposits held at call with financial institutions and other short‑term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value, excluding funds on deposit for which there is no short term identified use in the operating cash flows of the Group. Cash at bank and on hand 2019 $000 2018 $000 58,827 274,975 A. CASH AT BANK AND ON HAND Cash at bank and on hand includes deposits for which there is a short term identified use in the operating cash flows of the Group, and attracts interest at rates between 0% and 1.85% (2018 – 0% and 1.85%). B. RISK EXPOSURE Information about the Group’s exposure to foreign exchange risk and credit risk is detailed in note 21. 15. TERM DEPOSITS ACCOUNTING POLICY Investments are non‑derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. Investments are carried at amortised cost using the effective interest method. IMPAIRMENT The Group measures the loss allowance for a financial asset at an amount equal to the lifetime expected credit losses (ECL). Where the financial assets credit risk has not increased significantly since initial recognition, the Group will measure the loss allowance based on 12‑ months ECL. A simplified approach is taken to accounting for trade and other receivables as well as contract assets and records the loss allowance at the amount equal to the lifetime ECL. In applying this simplified method, the Group uses its historical experience, external indicators and forward‑looking information to calculate the ECL. Term deposits 2019 $000 – 2018 $000 205,000 The term deposits held during the year carried a weighted average fixed interest rate of 2.20% (2018 – 2.55%). Due to their short‑term nature the carrying value is assumed to approximate fair value. Information about the Group’s exposure to credit risk is disclosed in note 21. R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 82 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 83 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 16. EQUITY INVESTMENTS ACCOUNTING POLICY From 1 August 2018, the Group classifies its financial assets as either subsequently measured at fair value or amortised cost and the classification is determined by the Group’s business model for managing the financial assets and the contractual terms of the cash flows. For assets measured at fair value, gains and losses will be recorded through profit and loss or OCI. For equity investments the Group must make an irrevocable election on initial recognition to account for any equity investment at FVOCI. At initial recognition the group measures a financial asset at its fair value plus transaction costs attributable to the acquisition (where the asset is not FVTPL). Transaction costs for financial assets that are FVTPL are expensed in the profit and loss. The Group elected to present in OCI changes in the fair value of all its equity investments previously classified as available for sale on the basis of the long term nature of the investments. As a result there was a reclassification of the available for sale financial assets to equity investments at FVOCI resulting in the change as reflected in the Statement of Changes in Equity from retained earnings to reserves as noted above. Listed equity securities An irrevocable election has been made in respect of the existing equity investments held by the Group. 2019 $000 723 2018 $000 1,845 Borrowings are initially recognised at fair value, net of any transactions costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the Statement of Comprehensive Income over the term of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the term of the facility to which it relates. Borrowings are classified as current liabilities to the extent that the Group has no unconditional right to defer settlement of the liability for at least 12 months after the balance date. 17. BORROWINGS A. INTEREST-BEARING LOANS ACCOUNTING POLICY Current liabilities Finance lease liabilities Non-current liabilities Finance lease liabilities Secured loans R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 2019 $000 2018 $000 2,532 2,442 5,258 352,948 358,206 360,738 7,790 – 7,790 10,232 $000 FINANCING ACTIVITIES DURING THE PERIOD During the current year, the Group entered into a secured loan facility with a syndicate of Australian and international banks. The initial facility was comprised of $600,000,000 drawable amortising facility and a $300,000,000 credit support facility. The secured loan facility has amortised to $570,000,000 as at 31 July 2019. The facility’s drawable line for credit is for general corporate purposes and has a maturity of November 2023. During the period, $400,000,000 of debt drawn under the facility was repaid. 210,000 360,000 Facilities utilised at reporting date Facilities not utilised at reporting date Lease liabilities Secured borrowings Total liabilities from financing activities TRANSACTION NON-CASH CHARGES 2018 CASH FLOWS COSTS AMORTISATION 10,232 (2,442) – 10,233 360,000 357,557 – (8,436) (8,436) – 1,384 1,384 2019 7,790 352,948 360,738 The fair value of interest bearing liabilities materially approximate their respective carrying values as at 31 July 2019. (i) SECURED LIABILITIES AND ASSETS PLEDGED AS SECURITY As outlined above, the secured facility holds a fixed and floating charge over all assets held by the Group (with the exception of excluded subsidiaries). The excluded subsidiaries include the following controlled subsidiaries Bridgeport Energy Limited, Bridgeport Eromanga Pty Ltd, Bridgeport (Cooper Basin) Pty Ltd, Bridgeport (QLD) Pty Ltd, Bridgeport Surat Basin Pty Ltd, Oilwells Inc of Kentucky and Oilwells Sole Risk Pty Ltd as well as previously controlled subsidiaries NEC and Colton. Lessors hold first rights in respect of leased assets. 84 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 85 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 16. EQUITY INVESTMENTS ACCOUNTING POLICY cash flows. From 1 August 2018, the Group classifies its financial assets as either subsequently measured at fair value or amortised cost and the classification is determined by the Group’s business model for managing the financial assets and the contractual terms of the For assets measured at fair value, gains and losses will be recorded through profit and loss or OCI. For equity investments the Group must make an irrevocable election on initial recognition to account for any equity investment at FVOCI. At initial recognition the group measures a financial asset at its fair value plus transaction costs attributable to the acquisition (where the asset is not FVTPL). Transaction costs for financial assets that are FVTPL are expensed in the profit and loss. The Group elected to present in OCI changes in the fair value of all its equity investments previously classified as available for sale on the basis of the long term nature of the investments. As a result there was a reclassification of the available for sale financial assets to equity investments at FVOCI resulting in the change as reflected in the Statement of Changes in Equity from retained earnings to reserves as noted above. Listed equity securities An irrevocable election has been made in respect of the existing equity investments held by the Group. 2019 $000 723 2018 $000 1,845 17. BORROWINGS A. INTEREST-BEARING LOANS ACCOUNTING POLICY Borrowings are initially recognised at fair value, net of any transactions costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the Statement of Comprehensive Income over the term of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the term of the facility to which it relates. Borrowings are classified as current liabilities to the extent that the Group has no unconditional right to defer settlement of the liability for at least 12 months after the balance date. Current liabilities Finance lease liabilities Non-current liabilities Finance lease liabilities Secured loans 2019 $000 2018 $000 2,532 2,442 5,258 352,948 358,206 360,738 7,790 – 7,790 10,232 $000 FINANCING ACTIVITIES DURING THE PERIOD During the current year, the Group entered into a secured loan facility with a syndicate of Australian and international banks. The initial facility was comprised of $600,000,000 drawable amortising facility and a $300,000,000 credit support facility. The secured loan facility has amortised to $570,000,000 as at 31 July 2019. The facility’s drawable line for credit is for general corporate purposes and has a maturity of November 2023. During the period, $400,000,000 of debt drawn under the facility was repaid. 210,000 360,000 Facilities utilised at reporting date Facilities not utilised at reporting date Lease liabilities Secured borrowings Total liabilities from financing activities 2018 CASH FLOWS 10,232 (2,442) – 10,233 360,000 357,557 TRANSACTION COSTS NON-CASH CHARGES AMORTISATION – (8,436) (8,436) – 1,384 1,384 2019 7,790 352,948 360,738 The fair value of interest bearing liabilities materially approximate their respective carrying values as at 31 July 2019. (i) SECURED LIABILITIES AND ASSETS PLEDGED AS SECURITY As outlined above, the secured facility holds a fixed and floating charge over all assets held by the Group (with the exception of excluded subsidiaries). The excluded subsidiaries include the following controlled subsidiaries Bridgeport Energy Limited, Bridgeport Eromanga Pty Ltd, Bridgeport (Cooper Basin) Pty Ltd, Bridgeport (QLD) Pty Ltd, Bridgeport Surat Basin Pty Ltd, Oilwells Inc of Kentucky and Oilwells Sole Risk Pty Ltd as well as previously controlled subsidiaries NEC and Colton. Lessors hold first rights in respect of leased assets. R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 84 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 85 2019 $000 2018 $000 5,407 5,407 (325) (10,440) (1,384) (4,366) (2,175) (4,746) 472 (22,964) 5,977 5,977 (411) – – – – (3,262) 310 (3,363) 2019 $000 2018 $000 R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R Recognised in the statement of comprehensive income Interest income Finance income Interest expense on finance lease liabilities Interest on drawn debt facility Amortisation of transaction costs on borrowings Establishment costs of bank guarantee facility Commitment fees on borrowings Unwinding of discount on provisions Other financing costs Net financing expenses D. CONTINGENT LIABILITIES Details and estimates of maximum amounts of contingent liabilities for which no provision is included in the accounts, are as follows: The bankers of the consolidated entity have issued undertakings and guarantees to the Department of Natural Resources and Mines, Statutory Power Authorities and various other entities. 11,318 10,295 The Company’s share of security provided by the bankers of the Bengalla Joint Venture in respect of bank guarantees provided to rail and port suppliers. 13,422 6,391 No losses are anticipated in respect of any of the above contingent liabilities. The parent entity has given secured guarantees in respect of: (i) Mining restoration and rehabilitation 209,657 153,457 The liability has been recognised by the Group in relation to its rehabilitation obligations. (ii) Statutory body suppliers, financiers and various other entities 24,740 30,803 No liability was recognised by the consolidated entity in relation to these guarantees as no losses are foreseen on these contingent liabilities. Other than the above and the matters set out in note 13(d) there are no other contingent liabilities of the Group as at 31 July 2019. LINES OF CREDIT Unrestricted access was available at balance date to the following lines of credit available of $300,000,000 (2018 – $197,406,000): Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 17. BORROWINGS (CONTINUED) B. LEASE LIABILITIES ACCOUNTING POLICY Leases of property, plant and equipment where the Group, as lessee, has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other short‑term and long‑term payables. The property, plant and equipment acquired under finance leases is depreciated over the asset’s useful life or (if there is no reasonable certainty that the group will obtain ownership at the end of the lease term), over the shorter of the asset’s useful life and the lease term. Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the Statement of Comprehensive Income on a straight line basis over the term of the lease. The Group leases various plant and equipment with a carrying amount of $6,430,000 (2018 – $9,108,000) under finance leases expiring within two to three years. Refer to note 10 for further detail on these assets. Commitments in relation to finance leases are payable as follows: Within one year Later than one year but not later than five years Minimum lease payments Future finance charges Total lease liability The present value of finance lease liabilities is as follows: Within one year Later than one year but not later than five years Minimum lease payments 2019 $000 2,767 5,353 8,120 (330) 7,790 2,532 5,258 7,790 2018 $000 2,767 8,120 10,887 (655) 10,232 2,442 7,790 10,232 SECURED LIABILITY Lease liabilities are effectively secured as the rights to the leased assets recognised in the financial statements revert to the lessor in the event of default. No other assets are pledged as security for borrowings. RISK EXPOSURES Details of the Group’s exposure to risks arising from current and non‑current borrowings are set out in note 21. 2019 $000 2018 $000 C. FINANCE INCOME AND EXPENSE ACCOUNTING POLICY Finance income comprises interest income on funds invested. Interest income is recognised as it accrues, using the effective interest method. Finance expenses comprise interest expense on borrowings, unwinding of the discount on provisions, interest expenses in relation to finance leases. All finance expenses are recognised as expenses in the period in which they are incurred unless they relate to the construction of a qualifying asset and are then capitalised. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale. 79,025 19,538 Guarantee facility used Unused at balance date 220,975 177,868 Guarantee facility used Unused at balance date 86 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 87 O P E R A T I O N S R E V I E W Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 Recognised in the statement of comprehensive income Interest income Finance income Interest expense on finance lease liabilities Interest on drawn debt facility Amortisation of transaction costs on borrowings Establishment costs of bank guarantee facility Commitment fees on borrowings Unwinding of discount on provisions Other financing costs Net financing expenses 2019 $000 2018 $000 5,407 5,407 (325) (10,440) (1,384) (4,366) (2,175) (4,746) 472 (22,964) 5,977 5,977 (411) – – – – (3,262) 310 (3,363) 2019 $000 2,767 5,353 8,120 (330) 7,790 2,532 5,258 7,790 2018 $000 2,767 8,120 10,887 (655) 10,232 2,442 7,790 10,232 D. CONTINGENT LIABILITIES Details and estimates of maximum amounts of contingent liabilities for which no provision is included in the accounts, are as follows: The bankers of the consolidated entity have issued undertakings and guarantees to the Department of Natural Resources and Mines, Statutory Power Authorities and various other entities. The Company’s share of security provided by the bankers of the Bengalla Joint Venture in respect of bank guarantees provided to rail and port suppliers. No losses are anticipated in respect of any of the above contingent liabilities. The parent entity has given secured guarantees in respect of: (i) Mining restoration and rehabilitation 2019 $000 2018 $000 11,318 10,295 13,422 6,391 209,657 153,457 The liability has been recognised by the Group in relation to its rehabilitation obligations. (ii) Statutory body suppliers, financiers and various other entities 24,740 30,803 No liability was recognised by the consolidated entity in relation to these guarantees as no losses are foreseen on these contingent liabilities. Other than the above and the matters set out in note 13(d) there are no other contingent liabilities of the Group as at 31 July 2019. LINES OF CREDIT Unrestricted access was available at balance date to the following lines of credit available of $300,000,000 (2018 – $197,406,000): 17. BORROWINGS (CONTINUED) B. LEASE LIABILITIES ACCOUNTING POLICY Leases of property, plant and equipment where the Group, as lessee, has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other short‑term and long‑term payables. The property, plant and equipment acquired under finance leases is depreciated over the asset’s useful life or (if there is no reasonable certainty that the group will obtain ownership at the end of the lease term), over the shorter of the asset’s useful life and the lease term. Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the Statement of Comprehensive Income on a straight line basis over the term of the lease. The Group leases various plant and equipment with a carrying amount of $6,430,000 (2018 – $9,108,000) under finance leases expiring within two to three years. Refer to note 10 for further detail on these assets. Commitments in relation to finance leases are payable as follows: Within one year Later than one year but not later than five years Minimum lease payments Future finance charges Total lease liability The present value of finance lease liabilities is as follows: Within one year Later than one year but not later than five years Minimum lease payments SECURED LIABILITY RISK EXPOSURES C. FINANCE INCOME AND EXPENSE ACCOUNTING POLICY interest method. Lease liabilities are effectively secured as the rights to the leased assets recognised in the financial statements revert to the lessor in the event of default. No other assets are pledged as security for borrowings. Finance income comprises interest income on funds invested. Interest income is recognised as it accrues, using the effective Finance expenses comprise interest expense on borrowings, unwinding of the discount on provisions, interest expenses in relation to finance leases. All finance expenses are recognised as expenses in the period in which they are incurred unless they relate to the construction of a qualifying asset and are then capitalised. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale. Details of the Group’s exposure to risks arising from current and non‑current borrowings are set out in note 21. 2019 $000 2018 $000 79,025 19,538 Guarantee facility used Unused at balance date 220,975 177,868 Guarantee facility used Unused at balance date 86 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 87 R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 18. DERIVATIVE FINANCIAL INSTRUMENTS (ii) COMMODITY HEDGE CONTRACTS ACCOUNTING POLICY COMMODITY HEDGING AND FORWARD FOREIGN EXCHANGE CONTRACTS Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates derivatives as hedges of highly probable forecast transactions (cash flow hedges). At the inception of the transaction, the Group documents the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items. The effective portion of changes in the fair value of derivatives that are designated and qualify as a cash flow hedge is recognised in the hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the Statement of Comprehensive Income. Amounts accumulated in equity are recycled in the Statement of Comprehensive Income in the periods when the hedged item will affect profit or loss (for instance when the forecast sale that is hedged takes place). However, when the forecast transaction that is hedged, results in the recognition of a non‑financial asset (for example, inventory) or a non‑financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the measurement of the initial carrying amount of the asset or liability. When a hedging instrument expires, is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the Statement of Comprehensive Income. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately reclassified to the Statement of Comprehensive Income. Non current assets Forward foreign exchange contracts Current liabilities Forward commodity price hedge contracts Forward foreign exchange contracts 2019 $000 190 – 10,774 10,774 2018 $000 – 1,517 1,827 3,344 INSTRUMENTS USED BY THE GROUP A. New Hope Corporation Limited and certain controlled entities are parties to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuations in foreign exchange rates and commodity pricing. At balance date foreign exchange contracts represented assets with a fair value of $190,000 (2018 – nil) and liabilities of $10,774,000 (2018 – $1,827,000). Commodity hedge contracts represented liabilities with a fair values of nil (2018 – $1,517,000). At balance date the details of outstanding contracts are: (i) FOREIGN EXCHANGE CONTRACTS MATURITY 0 to 6 months 6 to 12 months 12 to 18 months SELL US DOLLARS BUY AUSTRALIAN DOLLARS AVERAGE EXCHANGE RATE 2019 $000 365,570 311,894 37,482 714,946 2018 $000 183,219 85,882 – 269,101 2019 2018 0.7057 0.7022 0.6937 0.7510 0.7452 – R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R MATURITY 0 to 6 months 6 to 12 months US DOLLAR REVENUE US DOLLAR PER TONNE 2019 $000 – – – 2018 $000 24,827 8,188 33,015 2019 2018 – – 103.44 102.35 The above table has been shown in US dollars as the contracts applicable are denominated in US dollars. B. CREDIT RISK EXPOSURES Credit risk also arises from the potential failure of counterparties to meet their obligations under the respective contracts at maturity. A material exposure arises from forward exchange and pricing contracts and the consolidated entity is exposed to loss in the event that counterparties fail to deliver the contracted amount. At balance date $714,946,000 (2018 – $269,101,000) was receivable relating to forward foreign exchange contracts and nil (2018 – $44,114,000) relating to forward price hedge contracts (AUD equivalents). Provision is made for any dividend declared on or before the end of the financial year but not distributed at balance date. 19. DIVIDENDS ACCOUNTING POLICY A. ORDINARY DIVIDEND PAID Total dividends paid B. PROPOSED DIVIDENDS C. FRANKED DIVIDENDS 2017 final dividend at 6.00 cents per share – 100% franked (tax rate – 30%) (paid on 7 Nov 2017) 2018 interim dividend at 6.00 cents per share – 100% franked (tax rate – 30%) (paid on 1 May 2018) 2018 final dividend at 8.00 cents per share – 100% franked (tax rate – 30%) (paid on 6 Nov 2018) 2019 interim dividend at 8.00 cents per share – 100% franked (tax rate – 30%) (paid on 7 May 2019) 2019 $000 – – 66,501 66,501 133,002 2018 $000 49,869 49,869 – – 99,738 In addition to the above dividends, since the end of the financial year, the Directors have declared a final dividend of 9.0 cents (2018 – 8.0 cents per share). The dividend is fully franked based on tax paid at 30%. The proposed dividend expected to be paid on 5 November 2019 but not recognised as a liability at year end is $74,854,000 (2018 – $66,501,000). The franked portions of the final dividend recommended after 31 July 2019 will be franked out of existing franking credits. Franking credits available for subsequent financial years based on a tax rate of 30% (2018 – 30%) 556,919 526,216 The above amounts represent the balances of the franking account as at the end of the financial year, adjusted for franking credits that will arise from the payment of income tax, franking debits that will arise from the payment of dividends recognised as a liability at the reporting date and franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date. The impact on the franking account of the dividend recommended by the Directors since year end, but not recognised as a liability at year end, will be a reduction in the franking account of $32,080,000 (2018 – $28,501,000). D. DIVIDEND REINVESTMENT PLANS There were no dividend reinvestment plans in operation at any time during or since the end of the financial year. 88 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 89 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 18. DERIVATIVE FINANCIAL INSTRUMENTS (ii) COMMODITY HEDGE CONTRACTS R E V I E W O P E R A T I O N S ACCOUNTING POLICY COMMODITY HEDGING AND FORWARD FOREIGN EXCHANGE CONTRACTS Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates derivatives as hedges of highly probable forecast transactions (cash flow hedges). At the inception of the transaction, the Group documents the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items. The effective portion of changes in the fair value of derivatives that are designated and qualify as a cash flow hedge is recognised in the hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the Statement of Comprehensive Income. Amounts accumulated in equity are recycled in the Statement of Comprehensive Income in the periods when the hedged item will affect profit or loss (for instance when the forecast sale that is hedged takes place). However, when the forecast transaction that is hedged, results in the recognition of a non‑financial asset (for example, inventory) or a non‑financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the measurement of the initial carrying amount of the asset or liability. When a hedging instrument expires, is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the Statement of Comprehensive Income. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately reclassified to the Statement of Comprehensive Income. A. INSTRUMENTS USED BY THE GROUP New Hope Corporation Limited and certain controlled entities are parties to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuations in foreign exchange rates and commodity pricing. At balance date foreign exchange contracts represented assets with a fair value of $190,000 (2018 – nil) and liabilities of $10,774,000 (2018 – $1,827,000). Commodity hedge contracts represented liabilities with a fair values of nil (2018 – $1,517,000). At balance date Non current assets Forward foreign exchange contracts Current liabilities Forward commodity price hedge contracts Forward foreign exchange contracts the details of outstanding contracts are: (i) FOREIGN EXCHANGE CONTRACTS MATURITY 0 to 6 months 6 to 12 months 12 to 18 months 2019 $000 190 – 10,774 10,774 2018 $000 – 1,517 1,827 3,344 SELL US DOLLARS BUY AUSTRALIAN DOLLARS AVERAGE EXCHANGE RATE 2019 $000 365,570 311,894 37,482 714,946 2018 $000 183,219 85,882 – 269,101 2019 2018 0.7057 0.7022 0.6937 0.7510 0.7452 – R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R MATURITY 0 to 6 months 6 to 12 months US DOLLAR REVENUE US DOLLAR PER TONNE 2019 $000 – – – 2018 $000 24,827 8,188 33,015 2019 2018 – – 103.44 102.35 The above table has been shown in US dollars as the contracts applicable are denominated in US dollars. B. CREDIT RISK EXPOSURES Credit risk also arises from the potential failure of counterparties to meet their obligations under the respective contracts at maturity. A material exposure arises from forward exchange and pricing contracts and the consolidated entity is exposed to loss in the event that counterparties fail to deliver the contracted amount. At balance date $714,946,000 (2018 – $269,101,000) was receivable relating to forward foreign exchange contracts and nil (2018 – $44,114,000) relating to forward price hedge contracts (AUD equivalents). 19. DIVIDENDS ACCOUNTING POLICY Provision is made for any dividend declared on or before the end of the financial year but not distributed at balance date. A. ORDINARY DIVIDEND PAID 2017 final dividend at 6.00 cents per share – 100% franked (tax rate – 30%) (paid on 7 Nov 2017) 2018 interim dividend at 6.00 cents per share – 100% franked (tax rate – 30%) (paid on 1 May 2018) 2018 final dividend at 8.00 cents per share – 100% franked (tax rate – 30%) (paid on 6 Nov 2018) 2019 interim dividend at 8.00 cents per share – 100% franked (tax rate – 30%) (paid on 7 May 2019) Total dividends paid 2019 $000 – – 66,501 66,501 133,002 2018 $000 49,869 49,869 – – 99,738 B. PROPOSED DIVIDENDS In addition to the above dividends, since the end of the financial year, the Directors have declared a final dividend of 9.0 cents (2018 – 8.0 cents per share). The dividend is fully franked based on tax paid at 30%. The proposed dividend expected to be paid on 5 November 2019 but not recognised as a liability at year end is $74,854,000 (2018 – $66,501,000). C. FRANKED DIVIDENDS The franked portions of the final dividend recommended after 31 July 2019 will be franked out of existing franking credits. Franking credits available for subsequent financial years based on a tax rate of 30% (2018 – 30%) 556,919 526,216 The above amounts represent the balances of the franking account as at the end of the financial year, adjusted for franking credits that will arise from the payment of income tax, franking debits that will arise from the payment of dividends recognised as a liability at the reporting date and franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date. The impact on the franking account of the dividend recommended by the Directors since year end, but not recognised as a liability at year end, will be a reduction in the franking account of $32,080,000 (2018 – $28,501,000). D. DIVIDEND REINVESTMENT PLANS There were no dividend reinvestment plans in operation at any time during or since the end of the financial year. 88 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 89 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 20. EQUITY ACCOUNTING POLICY Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction net of tax, from the proceeds. The amounts of any capital returns are applied against contributed equity. E. CAPITAL RISK MANAGEMENT The Group’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or source debt to fund growth projects. A. ORDINARY SHARES Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the company in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy is entitled to one vote, and upon a poll each share is entitled to one vote. Ordinary shares have no par value and the Company does not have a limited amount of authorised capital. B. RIGHTS Information relating to the Rights Plan, including details of rights granted, vested and the amount lapsed during the financial year and rights outstanding at the end of the financial year, is set out in note 28. C. SHARE CAPITAL Issued and paid up capital D. MOVEMENTS IN SHARE CAPITAL DATE 1 August 2018 1 August 2018 31 July 2019 31 July 2019 1 August 2017 1 August 2017 31 July 2018 31 July 2018 1 SBP – Share based payment DETAILS Opening Balance Vesting of performance rights Transfer from SBP 1 reserve to equity Balance Opening Balance Vesting of performance rights Transfer from SBP1 reserve to equity Balance 2019 NO. OF SHARES 2019 $000 2018 NO. OF SHARES 2018 $000 831,266,603 96,315 831,151,552 95,905 NUMBER OF SHARES 831,151,552 ISSUE PRICE 115,051 $0.0000 – 831,266,603 831,070,344 81,208 $0.0000 – 831,151,552 $000 95,905 – 410 96,315 95,772 – 133 95,905 R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R F. RESERVES At 1 August 2018 Reclassify equity investments from retained earnings to FVOCI on initial adoption of AASB 9 Restated balance as at 1 August 2018 Transfer to retained earnings – gross Transfer to net profit – gross Transfer to net profit – deferred tax Revaluation – gross Revaluation – deferred tax Transactions with owners in their capacity as owners Net movement in share based payment reserve Transfer to contributed equity 28 20(d) Transfer to net profit – gross Transfer to net profit – deferred tax Revaluation – gross Revaluation – deferred tax Transactions with owners in their capacity as owners Net movement in share based payment reserve Transfer to contributed equity 28 20(d) 1 NCI – Non‑controlling interest. 1,343 (19,327) 27,412 717 (6,029) NOTES INVESTMENTS REVALUATION $000 HEDGING $000 CAPITAL PROFITS $000 1,343 EQUITY $000 515 SHARE- BASED PAYMENTS $000 717 PREMIUM PAID ON NCI 1^ $000 TOTAL $000 27,412 (2,341) (6,029) 21,617 32 (27,861) – (27,861) 1,343 (27,346) 27,412 (2,341) 717 (6,029) (6,244) 20(g) 8,715 – – – – – – – – – – – – – – (696) (129) – – – – – – – – – – – – – – – – – – – – – – – – 21,103 (6,331) (28,342) 8,504 (7,407) (12,959) 3,888 (8,461) 2,538 (2,341) – – – – – – – – – – – – – – – – 724 (410) 355 (133) 717 – – – – – – – – – – – – – 8,715 21,103 (6,331) (29,038) 8,504 (3,291) 724 (410) (12,959) 3,888 (8,590) 2,538 21,395 355 (133) 1,343 515 27,412 495 (6,029) At 31 July 2019 1,343 (19,327) 27,412 (7,407) 1,031 (6,029) (2,977) At 1 August 2017 1,343 644 27,412 12,653 495 (6,029) 36,518 At 31 July 2018 1,343 515 27,412 (2,341) (6,029) 21,617 90 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 91 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 E. CAPITAL RISK MANAGEMENT The Group’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or source debt to fund growth projects. F. RESERVES CAPITAL PROFITS $000 EQUITY INVESTMENTS $000 NOTES REVALUATION $000 HEDGING $000 SHARE- BASED PAYMENTS $000 PREMIUM PAID ON NCI 1^ $000 TOTAL $000 At 1 August 2018 1,343 515 27,412 (2,341) 717 (6,029) 21,617 Reclassify equity investments from retained earnings to FVOCI on initial adoption of AASB 9 Restated balance as at 1 August 2018 Transfer to retained earnings – gross Transfer to net profit – gross Transfer to net profit – deferred tax Revaluation – gross Revaluation – deferred tax 32 – (27,861) – – – – (27,861) 1,343 (27,346) 27,412 (2,341) 717 (6,029) (6,244) 20(g) – – – – – 8,715 – – (696) – – – – – – 1,343 (19,327) 27,412 – 21,103 (6,331) (28,342) 8,504 (7,407) – – – – – – – – – – 717 (6,029) 8,715 21,103 (6,331) (29,038) 8,504 (3,291) Transactions with owners in their capacity as owners Net movement in share based payment reserve Transfer to contributed equity 28 20(d) – – – – – – – – 724 (410) – – 724 (410) At 31 July 2019 1,343 (19,327) 27,412 (7,407) 1,031 (6,029) (2,977) At 1 August 2017 1,343 644 27,412 12,653 495 (6,029) 36,518 Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction net of tax, from the proceeds. The amounts of any capital returns are applied against contributed equity. 20. EQUITY ACCOUNTING POLICY A. ORDINARY SHARES have a limited amount of authorised capital. B. RIGHTS C. SHARE CAPITAL Issued and paid up capital D. MOVEMENTS IN SHARE CAPITAL Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the company in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy is entitled to one vote, and upon a poll each share is entitled to one vote. Ordinary shares have no par value and the Company does not Information relating to the Rights Plan, including details of rights granted, vested and the amount lapsed during the financial year and rights outstanding at the end of the financial year, is set out in note 28. 2019 NO. OF SHARES 2019 $000 2018 NO. OF SHARES 2018 $000 831,266,603 96,315 831,151,552 95,905 DATE 1 August 2018 1 August 2018 31 July 2019 31 July 2019 1 August 2017 1 August 2017 31 July 2018 31 July 2018 1 SBP – Share based payment DETAILS Opening Balance Vesting of performance rights Transfer from SBP 1 reserve to equity Balance Opening Balance Vesting of performance rights Transfer from SBP1 reserve to equity Balance ISSUE PRICE 115,051 $0.0000 NUMBER OF SHARES 831,151,552 – – 831,266,603 831,070,344 831,151,552 81,208 $0.0000 $000 95,905 – 410 96,315 95,772 – 133 95,905 – – – – 27,412 (12,959) 3,888 (8,461) 2,538 (2,341) – – – – – – – – 495 (6,029) (12,959) 3,888 (8,590) 2,538 21,395 Transfer to net profit – gross Transfer to net profit – deferred tax Revaluation – gross Revaluation – deferred tax Transactions with owners in their capacity as owners Net movement in share based payment reserve Transfer to contributed equity 28 20(d) – – – – 1,343 – – – – (129) – 515 – – – – – – 355 (133) 717 – – 355 (133) (6,029) 21,617 At 31 July 2018 1,343 515 27,412 (2,341) 1 NCI – Non‑controlling interest. R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 90 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 91 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 20. EQUITY (CONTINUED) NATURE AND PURPOSE OF RESERVES Capital profits This reserve represents amounts allocated from retained profits that were profits of a capital nature. Equity investments Revaluation Hedging Share based payments Premium paid on non-controlling interest acquisition Changes in the fair value of equity investments are taken to this reserve. Amounts are recognised in the Statement of Comprehensive Income or transferred to retained earnings when the associated assets are sold or impaired. This reserve represents the revaluation arising on the fair value uplift of property, plant and equipment on the initial holding of QBH further to the acquisition of the remaining 50% of this company. The hedging reserve is used to record the gains and losses on a hedging instrument in a cash flow hedge that are recognised directly in equity, as described in note 18. Amounts are recognised in the Statement of Comprehensive Income when the associated hedged transaction affects the Statement of Comprehensive Income. The share based payment reserve is used to recognise the fair value of options and rights issued, but not yet exercised. Fair values at grant date are independently determined using the Black‑Scholes options pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected volatility of the underlying share, the expected dividend yield and risk free interest rate for the term of the option. The premium paid on non‑controlling interest acquisition is used to recognise any excess paid on the acquisition of a non‑controlling interest in a subsidiary. G. RETAINED PROFITS Carrying amount at beginning of year Net profit after income tax Dividends paid Reclassify equity investments from retained earnings to FVOCI on initial adoption of AASB 9 Transfer to retained earnings on disposal of equity investments Carrying amount at end of year NOTES 19(a) 20(f) 20(f) 2019 $000 2018 $000 1,770,878 1,721,118 210,652 (133,002) 149,498 (99,738) 27,861 (8,715) – – 1,867,674 1,770,878 R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 21. FINANCIAL RISK MANAGEMENT ACCOUNTING POLICY The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, price risk and interest rate risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses derivative financial instruments such as foreign exchange contracts to hedge certain risk exposures. Derivatives are used exclusively for hedging purposes, i.e. not as trading or other speculative instruments. The Group uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and other price risks and aging analysis for credit risk. Risk management is carried out in accordance with written policies approved by the Board of Directors. These written policies cover specific areas, such as mitigating foreign exchange, interest rate and credit risks, use of forward exchange contracts and investment of excess liquidity. The Group holds the following financial instruments: Financial assets 2019 Cash and cash equivalents Trade and other receivables Equity investments Derivative financial instruments 2018 Cash and cash equivalents Term deposits Trade and other receivables Equity investments Financial liabilities 2019 Lease liabilities Accounts Payable Derivative financial instruments Secured borrowings 2018 Lease liabilities Accounts Payable Derivative financial instruments FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME $000 HEDGING DERIVATIVES $000 AMORTISED COST $000 FAIR VALUE THROUGH PROFIT & LOSS $000 19,285 139,455 19,285 159,653 38,565 542,453 38,565 TOTAL $000 58,827 99,913 723 190 274,975 205,000 101,043 1,845 582,863 7,790 108,701 10,774 352,948 480,213 10,232 78,753 3,344 92,329 – – – – – – – – – – – – – – – – – – 723 723 1,845 1,845 – – – – – – – – – – – – 190 190 – – – – – – – – – – – – – 10,774 10,774 3,344 3,344 58,827 80,628 – – 274,975 205,000 62,478 – 7,790 108,701 – 352,948 469,439 10,232 78,753 – 88,985 92 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 93 20. EQUITY (CONTINUED) NATURE AND PURPOSE OF RESERVES Capital profits This reserve represents amounts allocated from retained profits that were profits of a capital nature. Equity investments Changes in the fair value of equity investments are taken to this reserve. Amounts are recognised in the Statement of Comprehensive Income or transferred to retained earnings when the associated assets are sold or impaired. Revaluation This reserve represents the revaluation arising on the fair value uplift of property, plant and equipment on the initial holding of QBH further to the acquisition of the remaining 50% of this company. Hedging The hedging reserve is used to record the gains and losses on a hedging instrument in a cash flow hedge that are recognised directly in equity, as described in note 18. Amounts are recognised in the Statement of Comprehensive Income when the associated hedged transaction affects the Statement of Comprehensive Income. Share based payments The share based payment reserve is used to recognise the fair value of options and rights issued, but not yet exercised. Fair values at grant date are independently determined using the Black‑Scholes options pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected volatility of the underlying share, the expected dividend yield and risk free interest rate for the term of the option. The premium paid on non‑controlling interest acquisition is used to recognise any excess paid on the acquisition of a non‑controlling interest in a subsidiary. Premium paid on non-controlling interest acquisition G. RETAINED PROFITS Carrying amount at beginning of year Net profit after income tax Dividends paid Reclassify equity investments from retained earnings to FVOCI on initial adoption of AASB 9 Transfer to retained earnings on disposal of equity investments Carrying amount at end of year NOTES 19(a) 20(f) 20(f) 2019 $000 2018 $000 1,770,878 1,721,118 210,652 (133,002) 149,498 (99,738) 27,861 (8,715) – – 1,867,674 1,770,878 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 21. FINANCIAL RISK MANAGEMENT ACCOUNTING POLICY The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, price risk and interest rate risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses derivative financial instruments such as foreign exchange contracts to hedge certain risk exposures. Derivatives are used exclusively for hedging purposes, i.e. not as trading or other speculative instruments. The Group uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and other price risks and aging analysis for credit risk. Risk management is carried out in accordance with written policies approved by the Board of Directors. These written policies cover specific areas, such as mitigating foreign exchange, interest rate and credit risks, use of forward exchange contracts and investment of excess liquidity. The Group holds the following financial instruments: FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME $000 HEDGING DERIVATIVES $000 AMORTISED COST $000 FAIR VALUE THROUGH PROFIT & LOSS $000 Financial assets 2019 Cash and cash equivalents Trade and other receivables Equity investments Derivative financial instruments 2018 Cash and cash equivalents Term deposits Trade and other receivables Equity investments Financial liabilities 2019 Lease liabilities Accounts Payable Derivative financial instruments Secured borrowings 2018 Lease liabilities Accounts Payable Derivative financial instruments – – 723 – 723 – – – 1,845 1,845 – – – – – – – – – – – – 190 190 – – – – – – – 10,774 – 10,774 – – 3,344 3,344 TOTAL $000 58,827 99,913 723 190 58,827 80,628 – – – 19,285 – – 139,455 19,285 159,653 274,975 205,000 62,478 – – – 38,565 – 542,453 38,565 7,790 108,701 – 352,948 469,439 10,232 78,753 – 88,985 – – – – – – – – – 274,975 205,000 101,043 1,845 582,863 7,790 108,701 10,774 352,948 480,213 10,232 78,753 3,344 92,329 R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 92 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 93 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 21. FINANCIAL RISK MANAGEMENT (CONTINUED) A. MARKET RISK (i) FOREIGN EXCHANGE RISK Foreign exchange risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the entity’s functional currency. The Group is exposed to foreign exchange risk arising from currency exposures to the US dollar. Forward contracts are used to manage foreign exchange risk. Senior management is responsible for managing exposures in each foreign currency by using forward currency contracts. Contracts are designated as cash flow hedges. Foreign exchange contracts are designated at Group level as hedges of foreign exchange risk on specific future transactions. The Group’s risk management policy is to hedge up to 65% of anticipated transactions (export coal sales) in US dollars for the subsequent year, up to 57% of anticipated revenue beyond a year but less than two years and up to 50% for revenue beyond two years but less than three years. All hedges of projected export coal sales qualify as “highly probable” forecast transactions for hedge accounting purposes. The Group’s exposure to foreign currency risk at the reporting date was as follows: Cash and cash equivalents Trade receivables Forward exchange contracts – sell foreign currency (cash flow hedges) Trade payables 2019 USD $000 18,393 36,975 503,000 1,711 2018 USD $000 6,070 49,161 201,600 1,363 (ii) COMMODITY HEDGE RISK Commodity hedge contracts are used to manage price risk. Senior management is responsible for managing exposures in pricing by using commodity hedge contracts. Contracts are designated as cash flow hedges. Commodity price contracts are designated at Group level as hedges of price risk on specific future transactions. Group sensitivity Based on the trade receivables, cash and trade payables held at 31 July 2019, had the Australian dollar weakened/strengthened by 10% against the US dollar with all other variables held constant, the Group’s post‑tax profit for the year would have increased/(decreased) by $6,054,000/($4,953,000) (2018 – $4,613,000/($5,638,000)), mainly as a result of foreign exchange gains/losses on translation of US dollar receivables and cash balances as detailed in the above table. The Group’s equity as at balance date would have increased/ (decreased) by the same amounts. Based on the forward exchange contracts held at 31 July 2019, had the Australian dollar weakened/strengthened by 10% against the US dollar with all other variables held constant, the Group’s equity would have increased/(decreased) by $79,647,000/($65,239,000) (2018 – $24,406,000/($29,821,000)). There is no effect on post‑tax profits. (iii) PRICE RISK The Group is exposed to equity securities price risk arising from certain investments held by the Group and classified on the Balance Sheet as equity instruments. The majority of the Group’s equity investments are publicly traded. The impact of increases/decreases in the financial instrument on the Group’s equity as at balance date is $72,000/($72,000) (2018 – $178,000/($178,000)). The analysis is based on the assumption that the equity instrument had increased/decreased by 10% with all other variables held constant. The price risk for unlisted securities is immaterial in terms of the possible impact on total equity. It has therefore not been included in the sensitivity analysis. (iv) FAIR VALUE INTEREST RATE RISK Refer to (e) below. R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R B. CREDIT RISK Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposure to export and domestic customers, including outstanding receivables and committed transactions. The Group has no significant concentrations of credit risk. The Group has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history. The majority of customers, both export and domestic, have long term relationships with the Group and sales are secured with long term supply contracts. Sales are secured by letters of credit when deemed appropriate. Derivative counterparties, held to maturity investments and cash transactions are limited to financial institutions with a rating of at least BBB. The Group has policies that limit the maximum amount of credit exposure to any one financial institution. Credit risk further arises in relation to financial guarantees given to certain parties (see note 25). Such guarantees are only provided in exceptional circumstances and are subject to specific Board approval. The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to historical information about counterparty default rates. The table below summarises the assets which are subject to credit risk. NOTES 14 18 2019 $000 99,913 58,827 190 2018 $000 101,043 274,975 – Trade receivables Cash at bank and short term bank deposits Derivative financial instruments C. LIQUIDITY RISK that are tradeable in highly liquid markets. Financing arrangements of these arrangements are shown in (d) below. Prudent liquidity risk management is adopted through maintaining sufficient cash and marketable securities, the ability to borrow funds from credit providers and to close‑out market positions. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Surplus funds are generally only invested in instruments The Group’s only significant external borrowings relate to secured loan facilities and finance leases detailed in note 17. The maturity D. MATURITY OF FINANCIAL LIABILITIES The maturity groupings of derivative financial instruments are detailed in note 18. Trade payables and accruals (note 8) are normally settled within 45 days of recognition. The Group’s borrowings (note 17) comprise finance leases payable over a period of two to four years. The finance lease are fixed rate leases with a weighted average interest rate of 3.55%. The table below details the contractual cash flows of finance lease liabilities: Finance leases 0 TO 6 MONTHS 6 TO 12 MONTHS 1 TO 2 YEARS 2 TO 5 YEARS $000 1,383 $000 1,383 $000 5,354 $000 – TOTAL $000 8,120 CARRYING AMOUNT $000 7,790 The Group’s secured borrowings as outlined in note 17 are an amortising facility reducing by $30,000,000 six monthly with any final balance up to $330,000,000 at the end of the facility term being repayable in the 2 to 5 year period. E. CASH FLOW AND FAIR VALUE INTEREST RATE RISK The Group is exposed to interest rate risk because entities in the Group borrow funds at floating interest rates. This risk of adverse movements in floating interest rates has been considered and at this time is not deemed appropriate to actively mitigate this risk through the use of derivatives or similar products. Group Sensitivity 31 July 2019 would decrease/increase by $5,040,000. If interest rates had been 2% higher/lower and all other variables were held constant, the Group’s profit after tax for the year ended 94 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 95 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 21. FINANCIAL RISK MANAGEMENT (CONTINUED) A. MARKET RISK (i) FOREIGN EXCHANGE RISK Foreign exchange risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the entity’s functional currency. The Group is exposed to foreign exchange risk arising from currency exposures to the US dollar. Forward contracts are used to manage foreign exchange risk. Senior management is responsible for managing exposures in each foreign currency by using forward currency contracts. Contracts are designated as cash flow hedges. Foreign exchange contracts are designated at Group level as hedges of foreign exchange risk on specific future transactions. The Group’s risk management policy is to hedge up to 65% of anticipated transactions (export coal sales) in US dollars for the subsequent year, up to 57% of anticipated revenue beyond a year but less than two years and up to 50% for revenue beyond two years but less than three years. All hedges of projected export coal sales qualify as “highly probable” forecast transactions for hedge accounting purposes. The Group’s exposure to foreign currency risk at the reporting date was as follows: 2019 USD $000 18,393 36,975 503,000 1,711 2018 USD $000 6,070 49,161 201,600 1,363 Forward exchange contracts – sell foreign currency (cash flow hedges) Cash and cash equivalents Trade receivables Trade payables (ii) COMMODITY HEDGE RISK as hedges of price risk on specific future transactions. Group sensitivity Commodity hedge contracts are used to manage price risk. Senior management is responsible for managing exposures in pricing by using commodity hedge contracts. Contracts are designated as cash flow hedges. Commodity price contracts are designated at Group level Based on the trade receivables, cash and trade payables held at 31 July 2019, had the Australian dollar weakened/strengthened by 10% against the US dollar with all other variables held constant, the Group’s post‑tax profit for the year would have increased/(decreased) by $6,054,000/($4,953,000) (2018 – $4,613,000/($5,638,000)), mainly as a result of foreign exchange gains/losses on translation of US dollar receivables and cash balances as detailed in the above table. The Group’s equity as at balance date would have increased/ (decreased) by the same amounts. Based on the forward exchange contracts held at 31 July 2019, had the Australian dollar weakened/strengthened by 10% against the US dollar with all other variables held constant, the Group’s equity would have increased/(decreased) by $79,647,000/($65,239,000) (2018 – $24,406,000/($29,821,000)). There is no effect on post‑tax profits. (iii) PRICE RISK as equity instruments. The Group is exposed to equity securities price risk arising from certain investments held by the Group and classified on the Balance Sheet The majority of the Group’s equity investments are publicly traded. The impact of increases/decreases in the financial instrument on the Group’s equity as at balance date is $72,000/($72,000) (2018 – $178,000/($178,000)). The analysis is based on the assumption that the equity instrument had increased/decreased by 10% with all other variables held constant. The price risk for unlisted securities is immaterial in terms of the possible impact on total equity. It has therefore not been included in the sensitivity analysis. (iv) FAIR VALUE INTEREST RATE RISK Refer to (e) below. B. CREDIT RISK Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposure to export and domestic customers, including outstanding receivables and committed transactions. The Group has no significant concentrations of credit risk. The Group has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history. The majority of customers, both export and domestic, have long term relationships with the Group and sales are secured with long term supply contracts. Sales are secured by letters of credit when deemed appropriate. Derivative counterparties, held to maturity investments and cash transactions are limited to financial institutions with a rating of at least BBB. The Group has policies that limit the maximum amount of credit exposure to any one financial institution. Credit risk further arises in relation to financial guarantees given to certain parties (see note 25). Such guarantees are only provided in exceptional circumstances and are subject to specific Board approval. The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to historical information about counterparty default rates. The table below summarises the assets which are subject to credit risk. Trade receivables Cash at bank and short term bank deposits Derivative financial instruments NOTES 14 18 2019 $000 99,913 58,827 190 2018 $000 101,043 274,975 – C. LIQUIDITY RISK Prudent liquidity risk management is adopted through maintaining sufficient cash and marketable securities, the ability to borrow funds from credit providers and to close‑out market positions. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Surplus funds are generally only invested in instruments that are tradeable in highly liquid markets. Financing arrangements The Group’s only significant external borrowings relate to secured loan facilities and finance leases detailed in note 17. The maturity of these arrangements are shown in (d) below. D. MATURITY OF FINANCIAL LIABILITIES The maturity groupings of derivative financial instruments are detailed in note 18. Trade payables and accruals (note 8) are normally settled within 45 days of recognition. The Group’s borrowings (note 17) comprise finance leases payable over a period of two to four years. The finance lease are fixed rate leases with a weighted average interest rate of 3.55%. The table below details the contractual cash flows of finance lease liabilities: 0 TO 6 MONTHS $000 6 TO 12 MONTHS $000 Finance leases 1,383 1,383 1 TO 2 YEARS $000 5,354 2 TO 5 YEARS $000 – TOTAL $000 8,120 CARRYING AMOUNT $000 7,790 The Group’s secured borrowings as outlined in note 17 are an amortising facility reducing by $30,000,000 six monthly with any final balance up to $330,000,000 at the end of the facility term being repayable in the 2 to 5 year period. E. CASH FLOW AND FAIR VALUE INTEREST RATE RISK The Group is exposed to interest rate risk because entities in the Group borrow funds at floating interest rates. This risk of adverse movements in floating interest rates has been considered and at this time is not deemed appropriate to actively mitigate this risk through the use of derivatives or similar products. Group Sensitivity If interest rates had been 2% higher/lower and all other variables were held constant, the Group’s profit after tax for the year ended 31 July 2019 would decrease/increase by $5,040,000. R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 94 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 95 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 21. FINANCIAL RISK MANAGEMENT (CONTINUED) F. FAIR VALUE MEASUREMENTS 22. INTERESTS IN OTHER ENTITIES ACCOUNTING POLICY The fair value of financial assets and financial liabilities must be estimated for recognition and measurement for disclosure purposes. The fair value of financial instruments that are not traded in an active market (for example, over‑the‑counter derivatives) is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance date. The fair value of forward exchange contracts is determined using forward exchange market rates at balance date. The carrying value less the estimated credit adjustments of trade receivables and payables is assumed to approximate their fair values due to their short term nature. The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. AASB 7 Financial Instruments: Disclosures requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: a. Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1); b. Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (level 2); and c. Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3). The following table presents the Group’s assets measured and recognised at fair value as at 31 July 2019 and 31 July 2018. Interests in joint ventures are accounted for using the equity method, after initially being recognised at cost in the Balance Sheet. LEVEL 1 $000 LEVEL 2 $000 TOTAL $000 Other unincorporated arrangements 2019 Assets Derivatives used for hedging Trade receivables – provisionally priced Equity securities Total assets Liabilities Derivatives used for hedging Total liabilities 2018 Assets Trade receivables – provisionally priced Equity securities Total assets Liabilities Derivatives used for hedging Total liabilities – – 723 723 – – – 1,845 1,845 190 19,285 – 19,475 190 19,285 723 20,198 10,774 10,774 10,774 10,774 38,565 – 38,565 38,565 1,845 40,410 – – 3,344 3,344 3,344 3,344 The fair value of financial instruments traded in active markets (such as equity investments) is based on quoted market prices at the reporting date. The quoted market price used for financial assets held by New Hope Corporation Limited is the last sale price. The fair value of forward exchange contracts is determined using forward exchange market rates at the reporting date. The fair value of trade receivables on provisionally priced sales is determined with reference to market pricing and contractual terms at the reporting date. R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R ACCOUNTING POLICY A. SUBSIDIARIES of Cross Guarantee in note 30. B. JOINT ARRANGEMENTS Accounting policy joint arrangement. Joint operations appropriate headings. Lenton Joint Venture described above. Joint ventures Significant subsidiaries include New Hope Bengalla Pty Ltd and Bridgeport Energy Limited as well as companies identified in the Deed Under AASB 11 Joint Arrangements, investments in joint arrangements are classified as either joint operations or joint ventures. The classification depends on the contractual rights and obligations of each investor, rather than the legal structure of the The Group recognises its direct right to the assets, liabilities, revenues and expenses of joint operations and its share of any jointly held or incurred assets, liabilities, revenues and expenses. These have been incorporated in the financial statements under the A subsidiary of New Hope Corporation Limited has entered into a joint operation to develop the Burton Mine and Lenton Project area. The subsidiary has a 90% participating interest in this joint operation and is entitled to 90% of the output of the project. The Group’s interests employed in the joint operations are included in the Balance Sheet, in accordance with the accounting policy As a result of the acquisition of an additional 30% interest in the Bengalla Joint Venture, the Group has identified another category of interest in other entities and provides below the updated accounting policy of that arrangement. In some cases, the Group participates in unincorporated arrangements and has rights to its share of the assets and obligations rather than a right to a net return, but does not share joint control. In such cases, the Group recognises its share of assets and liabilities; revenue from the sale of its share of the output and its share of any revenue generated from the sale of the output by the unincorporated arrangement and its share of expenses. The Group measures these interests in accordance with the terms of the arrangement, which is usually in proportion to the Group’s ownership interest. These amounts are recorded in the Group’s financial statements on the appropriate lines. Bengalla Joint Venture A subsidiary of New Hope Corporation Limited holds a 80% interest in the Bengalla thermal coal mine in New South Wales. This is an unincorporated Joint Venture that is operated by Bengalla Mining Company Pty Ltd (BMC). BMC is proportionately owned by the participants. 96 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 97 O N S R E V I E W O P E R A T I Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 22. INTERESTS IN OTHER ENTITIES ACCOUNTING POLICY 21. FINANCIAL RISK MANAGEMENT (CONTINUED) F. FAIR VALUE MEASUREMENTS ACCOUNTING POLICY The fair value of financial assets and financial liabilities must be estimated for recognition and measurement for disclosure purposes. The fair value of financial instruments that are not traded in an active market (for example, over‑the‑counter derivatives) is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance date. The fair value of forward exchange contracts is determined using forward exchange market rates at balance date. values due to their short term nature. disclosure purposes. measurement hierarchy: The carrying value less the estimated credit adjustments of trade receivables and payables is assumed to approximate their fair The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for AASB 7 Financial Instruments: Disclosures requires disclosure of fair value measurements by level of the following fair value a. Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1); b. Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (level 2); and c. Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3). The following table presents the Group’s assets measured and recognised at fair value as at 31 July 2019 and 31 July 2018. 2019 Assets Derivatives used for hedging Trade receivables – provisionally priced Equity securities Total assets Liabilities Derivatives used for hedging Total liabilities 2018 Assets Equity securities Total assets Trade receivables – provisionally priced Liabilities Derivatives used for hedging Total liabilities LEVEL 1 $000 LEVEL 2 $000 TOTAL $000 190 19,285 – 19,475 190 19,285 723 20,198 10,774 10,774 10,774 10,774 – – 723 723 – – – 1,845 1,845 38,565 – 38,565 38,565 1,845 40,410 – – 3,344 3,344 3,344 3,344 The fair value of financial instruments traded in active markets (such as equity investments) is based on quoted market prices at the reporting date. The quoted market price used for financial assets held by New Hope Corporation Limited is the last sale price. The fair value of forward exchange contracts is determined using forward exchange market rates at the reporting date. The fair value of trade receivables on provisionally priced sales is determined with reference to market pricing and contractual terms at the reporting date. A. SUBSIDIARIES Significant subsidiaries include New Hope Bengalla Pty Ltd and Bridgeport Energy Limited as well as companies identified in the Deed of Cross Guarantee in note 30. B. JOINT ARRANGEMENTS Accounting policy Under AASB 11 Joint Arrangements, investments in joint arrangements are classified as either joint operations or joint ventures. The classification depends on the contractual rights and obligations of each investor, rather than the legal structure of the joint arrangement. Joint operations The Group recognises its direct right to the assets, liabilities, revenues and expenses of joint operations and its share of any jointly held or incurred assets, liabilities, revenues and expenses. These have been incorporated in the financial statements under the appropriate headings. Lenton Joint Venture A subsidiary of New Hope Corporation Limited has entered into a joint operation to develop the Burton Mine and Lenton Project area. The subsidiary has a 90% participating interest in this joint operation and is entitled to 90% of the output of the project. The Group’s interests employed in the joint operations are included in the Balance Sheet, in accordance with the accounting policy described above. Joint ventures Interests in joint ventures are accounted for using the equity method, after initially being recognised at cost in the Balance Sheet. Other unincorporated arrangements As a result of the acquisition of an additional 30% interest in the Bengalla Joint Venture, the Group has identified another category of interest in other entities and provides below the updated accounting policy of that arrangement. In some cases, the Group participates in unincorporated arrangements and has rights to its share of the assets and obligations rather than a right to a net return, but does not share joint control. In such cases, the Group recognises its share of assets and liabilities; revenue from the sale of its share of the output and its share of any revenue generated from the sale of the output by the unincorporated arrangement and its share of expenses. The Group measures these interests in accordance with the terms of the arrangement, which is usually in proportion to the Group’s ownership interest. These amounts are recorded in the Group’s financial statements on the appropriate lines. Bengalla Joint Venture A subsidiary of New Hope Corporation Limited holds a 80% interest in the Bengalla thermal coal mine in New South Wales. This is an unincorporated Joint Venture that is operated by Bengalla Mining Company Pty Ltd (BMC). BMC is proportionately owned by the participants. R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 96 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 97 Outflow of cash to acquire subsidiary, net of cash acquired Total cash consideration Less: Balances acquired Cash Outflow of cash – investing activities 30% $000 10% $000 TOTAL 40% $000 645,147 193,275 838,422 (3,787) 641,360 (3,371) 189,904 (7,158) 831,264 It is noted that incidental costs of acquisition have been expensed of $47,729,000 (stamp duty $42,327,000, financial advice $4,516,000 and other costs of $886,000) and these cash flows are recognised as outflows from operating activities. SIGNIFICANT JUDGEMENT AND ESTIMATE – ACQUISITION FAIR VALUE The determination of the fair values of net identifiable assets acquired, and of any goodwill, involves significant judgement. The allocation of fair value between intangible assets, and the tangible assets with which they are used, is also judgemental. The Group engages third‑party valuers to advise on the purchase price allocation for significant acquisitions. R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 23. BUSINESS COMBINATION B. PURCHASE CONSIDERATION ACCOUNTING POLICY The acquisition method of accounting is used to account for all business combinations regardless of whether equity instruments or assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre‑existing equity interest in the subsidiary. Acquisition‑related costs are expensed as incurred. Identifiable assets acquired, and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured at fair values at the acquisition date. On an acquisition‑by‑acquisition basis, the Group recognises any non‑controlling interest in the acquiree either at fair value or at the non‑controlling interest’s proportionate share of the acquiree’s net identifiable assets. The excess of the consideration transferred, the amount of any non‑controlling interest in the acquiree and the acquisition‑date fair value of any previous equity interest in the acquiree over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in profit or loss as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which similar borrowings could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss. A. SUMMARY OF ACQUISITION New Hope Corporation Limited’s wholly owned subsidiary, New Hope Bengalla Pty Ltd, increased its stake in the assets and liabilities of the Bengalla Joint Venture by 30% on 3 December 2018 and a further 10% on 25 March 2019. The 10% acquisition had an effective date of 1 December 2018. The Bengalla Joint Venture is a coal mining and extraction operation producing thermal coal in the Hunter Valley, New South Wales in which New Hope Bengalla Pty Ltd has held 40% since 1 March 2016. Details of the purchase consideration and the net assets acquired are as follows: Purchase Consideration (refer b below) Total Purchase Consideration The fair value of assets and liabilities recognised as a result of the acquisition are as follows: Cash Trade and other receivables Inventories Property, Plant and Equipment Intangibles Accounts payable and accruals Provisions Net assets acquired There were no acquisitions in the prior period. 30% $000 10% $000 TOTAL 40% $000 645,147 193,275 838,422 3,787 13,721 18,236 622,188 31,133 (12,240) (31,678) 645,147 3,371 5,239 7,233 185,419 10,447 (7,038) (11,396) 193,275 7,158 18,960 25,469 807,607 41,580 (19,278) (43,074) 838,422 11 Revenue and profit contribution The acquired business contributed revenues of $253,024,000 and profit before tax and non regular items since acquisition of $82,173,000 to the Group for the period 1 December 2018 to 31 July 2019. The anticipated increase in production and sales tonnes annually are 4,000,000 tonnes. Due to the variability in key market factors and operational variations it is considered impractical to disclose an estimated revenue and profit/(loss) assuming the acquisition had occurred 1 August 2018. 98 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 99 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 B. PURCHASE CONSIDERATION Outflow of cash to acquire subsidiary, net of cash acquired Total cash consideration Less: Balances acquired Cash Outflow of cash – investing activities 30% $000 10% $000 TOTAL 40% $000 645,147 193,275 838,422 (3,787) 641,360 (3,371) 189,904 (7,158) 831,264 It is noted that incidental costs of acquisition have been expensed of $47,729,000 (stamp duty $42,327,000, financial advice $4,516,000 and other costs of $886,000) and these cash flows are recognised as outflows from operating activities. SIGNIFICANT JUDGEMENT AND ESTIMATE – ACQUISITION FAIR VALUE The determination of the fair values of net identifiable assets acquired, and of any goodwill, involves significant judgement. The allocation of fair value between intangible assets, and the tangible assets with which they are used, is also judgemental. The Group engages third‑party valuers to advise on the purchase price allocation for significant acquisitions. 23. BUSINESS COMBINATION ACCOUNTING POLICY The acquisition method of accounting is used to account for all business combinations regardless of whether equity instruments or assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre‑existing equity interest in the subsidiary. Acquisition‑related costs are expensed as incurred. Identifiable assets acquired, and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured at fair values at the acquisition date. On an acquisition‑by‑acquisition basis, the Group recognises any non‑controlling interest in the acquiree either at fair value or at the non‑controlling interest’s proportionate share of the acquiree’s net identifiable assets. The excess of the consideration transferred, the amount of any non‑controlling interest in the acquiree and the acquisition‑date fair value of any previous equity interest in the acquiree over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in profit or loss as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which similar borrowings could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss. A. SUMMARY OF ACQUISITION New Hope Corporation Limited’s wholly owned subsidiary, New Hope Bengalla Pty Ltd, increased its stake in the assets and liabilities of the Bengalla Joint Venture by 30% on 3 December 2018 and a further 10% on 25 March 2019. The 10% acquisition had an effective date of 1 December 2018. The Bengalla Joint Venture is a coal mining and extraction operation producing thermal coal in the Hunter Valley, New South Wales in which New Hope Bengalla Pty Ltd has held 40% since 1 March 2016. Details of the purchase consideration and the net assets acquired are as follows: Purchase Consideration (refer b below) Total Purchase Consideration The fair value of assets and liabilities recognised as a result of the acquisition are as follows: Trade and other receivables Cash Inventories Intangibles Property, Plant and Equipment Accounts payable and accruals Provisions Net assets acquired There were no acquisitions in the prior period. Revenue and profit contribution 30% $000 10% $000 TOTAL 40% $000 645,147 193,275 838,422 3,787 13,721 18,236 622,188 31,133 (12,240) (31,678) 645,147 3,371 5,239 7,233 185,419 10,447 (7,038) (11,396) 193,275 7,158 18,960 25,469 807,607 41,580 (19,278) (43,074) 838,422 11 The acquired business contributed revenues of $253,024,000 and profit before tax and non regular items since acquisition of $82,173,000 to the Group for the period 1 December 2018 to 31 July 2019. The anticipated increase in production and sales tonnes annually are 4,000,000 tonnes. Due to the variability in key market factors and operational variations it is considered impractical to disclose an estimated revenue and profit/(loss) assuming the acquisition had occurred 1 August 2018. R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 98 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 99 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 24. DISCONTINUED OPERATIONS ACCOUNTING POLICY A discontinued operation is a component or subsidiary of the entity that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single co‑ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately in the Statement of Comprehensive Income. A. DESCRIPTION On 17 October 2018, two New Hope wholly owned subsidiaries, NEC and Colton were placed into voluntary administration. Effective on this date, the Group lost control over these subsidiaries. The financial information relating to the discontinued operations for the period to 17 October 2018 is set out below. B. FINANCIAL PERFORMANCE AND CASH FLOW INFORMATION The financial performance and cash flow information presented reflects the operations for the period ended 17 October 2018 and the comparative balance for the year ended 31 July 2018. Revenue Expenses Loss before income tax Income tax benefit Loss after income tax of discontinued operations Profit on loss of control of subsidiary after income tax (see (c) below) Profit/(loss) from discontinued operations 2019 $000 26 (2,828) (2,802) – (2,802) 3,022 220 2018 $000 134 (53,935) (53,801) 15,970 (37,831) – (37,831) Other comprehensive income from discontinued operations – – Further to the disclosures regarding the status of the NAC03 project in note 10 the Company provides this subsequent events disclosure. Net cash outflow from operating activities Net cash inflow/(outflow) from investing activities Net cash inflow/(outflow) from financing activities Net cash inflow/(outflow) from discontinued operations Basic earnings per share from discontinued operations Diluted earnings per share from discontinued operations C. DETAILS OF THE DISPOSAL OF THE SUBSIDIARIES Total consideration Carrying amount of net liabilities Profit before income tax Income tax expense Profit on loss of control of subsidiary after income tax (329) 26 303 – CENTS 0.03 (0.03) 2019 $000 – (3,022) 3,022 – 3,022 (9,940) (667) (4,016) (14,623) CENTS (4.55) (4.55) 2018 $000 – – – – – 100 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 101 R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 25. COMMITMENTS A. CAPITAL COMMITMENTS Property, plant and equipment Within one year Capital expenditure contracted for at the reporting date but not recognised as liabilities is as follows: 2019 $000 2018 $000 16,372 24,022 12,832 24,909 19,509 57,250 10,359 22,272 24,883 57,514 B. LEASE COMMITMENTS: GROUP AS LESSEE Non-cancellable operating leases The Group leases port facilities and has a share in commitments for minimum lease payments relating to property, plant and equipment under non‑cancellable operating leases expiring within five to ten years. The leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated. The Group leases office space and small items of office equipment under operating leases. Commitments for minimum lease payments in relation to non‑cancellable operating leases are payable as follows: Within one year Later than five years Later than one year but not later than five years C. TAKE OR PAY COMMITMENTS port service providers in respect of operating sites. The Group has purchase obligations in relation to take or pay agreements which are legally binding and enforceable with rail, water and 26. EVENTS OCCURRING AFTER THE REPORTING PERIOD On 10 September 2019, the Company received the judgement from the Queensland Court of Appeal in relation to the New Acland Stage 3 project which ruled against OCAA and in favour of New Acland on groundwater and apprehension of bias. The Company is pleased with the outcome however will await final orders to be handed down in due course before assessing next steps for the project. The Group remains committed to delivering the New Acland Stage 3 project in a timely manner to ensure continuity of operations and ongoing employment in the region. 27. RELATED PARTY TRANSACTIONS A. PARENT ENTITIES ordinary shares of New Hope Corporation Limited. B. TRANSACTIONS WITH RELATED PARTIES The parent entity within the Group is New Hope Corporation Limited. The ultimate Australian parent entity and controlling entity is Washington H. Soul Pattinson and Company Limited (WHSP) which at 31 July 2019 owned 50.01% (2018 – 50.01%) of the issued Reimbursement of travel related expenses paid to Australian controlling entity (WHSP) Payment for legal services rendered (Herbert Smith Freehills) Dividends paid to ultimate Australian controlling entity (WHSP) Payment for consulting services rendered (Pitt Capital Partners Ltd) 2019 $ 1,010 135,440 2018 $ 1,957 35,816 66,511,427 54,683,570 4,956,369 – C. OUTSTANDING BALANCES ARISING FROM SALES/PURCHASES OF GOODS AND SERVICES No provision for impairment of receivables has been raised to any outstanding balances and no impairment expense has been recognised in the books of the parent entity in respect of amounts owing from subsidiaries. O N S R E V I E W O P E R A T I Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 24. DISCONTINUED OPERATIONS ACCOUNTING POLICY A discontinued operation is a component or subsidiary of the entity that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single co‑ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately in the Statement of Comprehensive Income. A. DESCRIPTION On 17 October 2018, two New Hope wholly owned subsidiaries, NEC and Colton were placed into voluntary administration. Effective on this date, the Group lost control over these subsidiaries. The financial information relating to the discontinued operations for the period to 17 October 2018 is set out below. 25. COMMITMENTS A. CAPITAL COMMITMENTS Capital expenditure contracted for at the reporting date but not recognised as liabilities is as follows: Property, plant and equipment Within one year B. LEASE COMMITMENTS: GROUP AS LESSEE 2019 $000 2018 $000 16,372 24,022 Non-cancellable operating leases The Group leases port facilities and has a share in commitments for minimum lease payments relating to property, plant and equipment under non‑cancellable operating leases expiring within five to ten years. The leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated. The Group leases office space and small items of office equipment under operating leases. The financial performance and cash flow information presented reflects the operations for the period ended 17 October 2018 and the Commitments for minimum lease payments in relation to non‑cancellable operating leases are payable as follows: Within one year Later than one year but not later than five years Later than five years 12,832 24,909 19,509 57,250 10,359 22,272 24,883 57,514 B. FINANCIAL PERFORMANCE AND CASH FLOW INFORMATION comparative balance for the year ended 31 July 2018. Revenue Expenses Loss before income tax Income tax benefit Loss after income tax of discontinued operations Profit on loss of control of subsidiary after income tax (see (c) below) Profit/(loss) from discontinued operations Other comprehensive income from discontinued operations Net cash outflow from operating activities Net cash inflow/(outflow) from investing activities Net cash inflow/(outflow) from financing activities Net cash inflow/(outflow) from discontinued operations Basic earnings per share from discontinued operations Diluted earnings per share from discontinued operations C. DETAILS OF THE DISPOSAL OF THE SUBSIDIARIES Total consideration Carrying amount of net liabilities Profit before income tax Income tax expense Profit on loss of control of subsidiary after income tax 2019 $000 26 (2,828) (2,802) (2,802) 3,022 220 – – (329) 26 303 – CENTS 0.03 (0.03) 2019 $000 (3,022) 3,022 – – 3,022 2018 $000 134 (53,935) (53,801) 15,970 (37,831) (37,831) – – (9,940) (667) (4,016) (14,623) CENTS (4.55) (4.55) 2018 $000 – – – – – C. TAKE OR PAY COMMITMENTS The Group has purchase obligations in relation to take or pay agreements which are legally binding and enforceable with rail, water and port service providers in respect of operating sites. I N F O O T H E R 26. EVENTS OCCURRING AFTER THE REPORTING PERIOD Further to the disclosures regarding the status of the NAC03 project in note 10 the Company provides this subsequent events disclosure. On 10 September 2019, the Company received the judgement from the Queensland Court of Appeal in relation to the New Acland Stage 3 project which ruled against OCAA and in favour of New Acland on groundwater and apprehension of bias. The Company is pleased with the outcome however will await final orders to be handed down in due course before assessing next steps for the project. The Group remains committed to delivering the New Acland Stage 3 project in a timely manner to ensure continuity of operations and ongoing employment in the region. 27. RELATED PARTY TRANSACTIONS A. PARENT ENTITIES The parent entity within the Group is New Hope Corporation Limited. The ultimate Australian parent entity and controlling entity is Washington H. Soul Pattinson and Company Limited (WHSP) which at 31 July 2019 owned 50.01% (2018 – 50.01%) of the issued ordinary shares of New Hope Corporation Limited. B. TRANSACTIONS WITH RELATED PARTIES Reimbursement of travel related expenses paid to Australian controlling entity (WHSP) Payment for legal services rendered (Herbert Smith Freehills) Dividends paid to ultimate Australian controlling entity (WHSP) Payment for consulting services rendered (Pitt Capital Partners Ltd) 2019 $ 1,010 135,440 2018 $ 1,957 35,816 66,511,427 54,683,570 4,956,369 – C. OUTSTANDING BALANCES ARISING FROM SALES/PURCHASES OF GOODS AND SERVICES No provision for impairment of receivables has been raised to any outstanding balances and no impairment expense has been recognised in the books of the parent entity in respect of amounts owing from subsidiaries. 100 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 101 R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 27. RELATED PARTY TRANSACTIONS (CONTINUED) D. TERMS AND CONDITIONS Transactions relating to dividends were on the same terms and conditions that applied to other shareholders. E. KEY MANAGEMENT PERSONNEL (i) DIRECTORS The following persons were Directors of New Hope Corporation Limited during the financial year: Chairman – Non-executive Mr R.D. Millner Non-executive Directors Mr T.J Barlow Mr W.H. Grant Mr T.C. Millner Ms S.J. Palmer Mr I.M. Williams Executive Directors Mr S.O. Stephan (ii) OTHER KEY MANAGEMENT PERSONNEL The following persons also had authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, during the financial year: NAME Mr S.O. Stephan Mr B. Armitage Mr A.L Boyd Mr M.J. Busch POSITION EMPLOYER Managing Director Chief Development Officer Chief Operating Officer Chief Financial Officer New Hope Corporation Limited New Hope Corporation Limited New Hope Corporation Limited New Hope Corporation Limited (iii) Key management personnel compensation Short‑term employee benefits Long‑term employee benefits Post‑employment benefits Share based payment 2019 $ 2018 $ 4,954,587 4,221,628 81,284 163,481 493,290 76,220 149,982 356,437 5,692,642 4,804,267 Detailed remuneration disclosures can be found in the Remuneration Report on pages 37 to 50. F. OTHER TRANSACTIONS OF KEY MANAGEMENT PERSONNEL Mr R.D. Millner, Mr T.C. Millner and T.J. Barlow are Directors of WHSP, the ultimate parent entity of New Hope Corporation Limited and Pitt Capital Partners Limited. Pitt Capital Partners Limited acted as financial advisor to the Group for various corporate transactions during the 2019 financial year. All transactions were on normal commercial terms. Mr. I. M. Williams is a Director of the Company. Mr Williams is a partner in the firm Herbert Smith Freehills which provided legal services to the Group during the year. All transactions are on normal commercial terms. Directors are required to take all reasonable steps to manage actual, potential or perceived conflicts of interest. Directors are required to consider and notify the Company of any potential or actual conflicts of interest and Related Party transactions. Directors do not participate in any negotiations of transactions with related parties. G. LOANS TO KEY MANAGEMENT PERSONNEL No loans have been made available to the key management personnel of the Group. 28. SHARE BASED PAYMENTS ACCOUNTING POLICY Share based compensation benefits are provided to employees via the New Hope Corporation Limited Employee Share Option Plan and the New Hope Corporation Limited Employee Performance Rights Share Plan. The fair value of options granted under the New Hope Corporation Limited Employee Share Option Plan and Rights granted under the New Hope Corporation Limited Employee Performance Rights Share Plan are recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employee becomes unconditionally entitled to the options or rights. Options are exercisable by current employees during the nominated vesting period or by Directors’ consent. Rights vest at the nominated vesting date upon successful completion of applicable service and performance conditions. Detailed vesting conditions are set out in the Directors’ Report. The fair value of the rights is determined based on the market price of shares at the grant date, with an adjustment made to take into account the vesting period, expected dividends during that period that will not be received by the participants and the probability that the performance conditions will be met. The fair value of options at grant date is independently determined using a Black‑Scholes option pricing model that takes into account the exercise price, the term of the option, the vesting criteria, the impact of dilution, the non‑tradeable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk‑free interest rate for the term of the option. The fair value of the options granted is adjusted to reflect the market vesting condition, but excludes the impact of any non‑market vesting conditions. Non‑market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each reporting date, the entity revises its estimate of the number of options that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate. The impact of the revision to the original estimates is recognised in profit or loss with a corresponding adjustment to equity. Rights are granted under the New Hope Corporation Limited Employee Performance Rights Share Plan (Rights Plan). Membership of the Plan is open to those senior employees and those Directors of New Hope Corporation Limited, its subsidiaries and associated bodies corporate whom the Directors believe have a significant role to play in the continued development of the Group’s activities. Rights are granted for no consideration. Rights will vest and automatically convert to ordinary shares in the Company following the satisfaction of the relevant service and performance conditions. Service and performance conditions applicable to each issue of rights are determined by the Directors at the time of grant. Total expense arising from rights issued under the Rights Plan during the financial year was $724,000 (2018 – $355,000). Rights Set out below are the summaries of rights granted under the plan: R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R As at 1 August Granted during the year Lapsed during the year Forfeited during the year Vested during the year As at 31 July GRANT DATE 20 Nov 2015 22 Dec 2016 26 Mar 2018 29 Mar 2019 Total 2019 2018 AVERAGE PRICE PER SHARE NUMBER OF AVERAGE PRICE RIGHTS PER SHARE $2.038 $3.010 $2.120 $2.120 $2.120 $2.281 1,586,728 432,148 (165,562) (153,240) (115,051) 1,585,023 $1.885 $2.120 $1.638 – $1.638 $2.038 NUMBER OF RIGHTS 933,424 837,868 (103,356) – (81,208) 1,586,728 VESTING DATE 1 Aug 2018 1 Aug 2019 1 Aug 2020 1 Aug 2021 VALUE OF RIGHT AT GRANT DATE $1.083 $0.804 $1.232 $1.472 SHARE RIGHTS 2019 – 468,247 837,868 278,908 2018 280,613 468,247 837,868 – 1,585,023 1,586,728 The weighted average share price at the date of vesting of rights during the 2019 year was $3.19 (2018 – $1.60). Share rights outstanding at the end of the year have the following expiry date and fair value at grant date: Weighted average remaining contractual life of rights outstanding at end of period 1.0 years 1.4 years 102 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 103 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 27. RELATED PARTY TRANSACTIONS (CONTINUED) D. TERMS AND CONDITIONS Transactions relating to dividends were on the same terms and conditions that applied to other shareholders. E. KEY MANAGEMENT PERSONNEL The following persons were Directors of New Hope Corporation Limited during the financial year: (i) DIRECTORS Chairman – Non-executive Mr R.D. Millner Non-executive Directors Mr T.J Barlow Mr W.H. Grant Mr T.C. Millner Ms S.J. Palmer Mr I.M. Williams Executive Directors Mr S.O. Stephan (ii) OTHER KEY MANAGEMENT PERSONNEL or indirectly, during the financial year: The following persons also had authority and responsibility for planning, directing and controlling the activities of the Group, directly NAME Mr S.O. Stephan Mr B. Armitage Mr A.L Boyd Mr M.J. Busch POSITION EMPLOYER Managing Director Chief Development Officer Chief Operating Officer Chief Financial Officer New Hope Corporation Limited New Hope Corporation Limited New Hope Corporation Limited New Hope Corporation Limited (iii) Key management personnel compensation Short‑term employee benefits Long‑term employee benefits Post‑employment benefits Share based payment 2019 $ 2018 $ 4,954,587 4,221,628 81,284 163,481 493,290 76,220 149,982 356,437 5,692,642 4,804,267 Detailed remuneration disclosures can be found in the Remuneration Report on pages 37 to 50. F. OTHER TRANSACTIONS OF KEY MANAGEMENT PERSONNEL Mr R.D. Millner, Mr T.C. Millner and T.J. Barlow are Directors of WHSP, the ultimate parent entity of New Hope Corporation Limited and Pitt Capital Partners Limited. Pitt Capital Partners Limited acted as financial advisor to the Group for various corporate transactions during the 2019 financial year. All transactions were on normal commercial terms. Mr. I. M. Williams is a Director of the Company. Mr Williams is a partner in the firm Herbert Smith Freehills which provided legal services to the Group during the year. All transactions are on normal commercial terms. Directors are required to take all reasonable steps to manage actual, potential or perceived conflicts of interest. Directors are required to consider and notify the Company of any potential or actual conflicts of interest and Related Party transactions. Directors do not participate in any negotiations of transactions with related parties. G. LOANS TO KEY MANAGEMENT PERSONNEL No loans have been made available to the key management personnel of the Group. 28. SHARE BASED PAYMENTS ACCOUNTING POLICY Share based compensation benefits are provided to employees via the New Hope Corporation Limited Employee Share Option Plan and the New Hope Corporation Limited Employee Performance Rights Share Plan. The fair value of options granted under the New Hope Corporation Limited Employee Share Option Plan and Rights granted under the New Hope Corporation Limited Employee Performance Rights Share Plan are recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employee becomes unconditionally entitled to the options or rights. Options are exercisable by current employees during the nominated vesting period or by Directors’ consent. Rights vest at the nominated vesting date upon successful completion of applicable service and performance conditions. Detailed vesting conditions are set out in the Directors’ Report. The fair value of the rights is determined based on the market price of shares at the grant date, with an adjustment made to take into account the vesting period, expected dividends during that period that will not be received by the participants and the probability that the performance conditions will be met. The fair value of options at grant date is independently determined using a Black‑Scholes option pricing model that takes into account the exercise price, the term of the option, the vesting criteria, the impact of dilution, the non‑tradeable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk‑free interest rate for the term of the option. The fair value of the options granted is adjusted to reflect the market vesting condition, but excludes the impact of any non‑market vesting conditions. Non‑market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each reporting date, the entity revises its estimate of the number of options that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate. The impact of the revision to the original estimates is recognised in profit or loss with a corresponding adjustment to equity. Rights are granted under the New Hope Corporation Limited Employee Performance Rights Share Plan (Rights Plan). Membership of the Plan is open to those senior employees and those Directors of New Hope Corporation Limited, its subsidiaries and associated bodies corporate whom the Directors believe have a significant role to play in the continued development of the Group’s activities. Rights are granted for no consideration. Rights will vest and automatically convert to ordinary shares in the Company following the satisfaction of the relevant service and performance conditions. Service and performance conditions applicable to each issue of rights are determined by the Directors at the time of grant. Total expense arising from rights issued under the Rights Plan during the financial year was $724,000 (2018 – $355,000). Rights Set out below are the summaries of rights granted under the plan: As at 1 August Granted during the year Lapsed during the year Forfeited during the year Vested during the year As at 31 July 2019 2018 AVERAGE PRICE PER SHARE NUMBER OF RIGHTS AVERAGE PRICE PER SHARE $2.038 $3.010 $2.120 $2.120 $2.120 $2.281 1,586,728 432,148 (165,562) (153,240) (115,051) 1,585,023 $1.885 $2.120 $1.638 – $1.638 $2.038 NUMBER OF RIGHTS 933,424 837,868 (103,356) – (81,208) 1,586,728 The weighted average share price at the date of vesting of rights during the 2019 year was $3.19 (2018 – $1.60). Share rights outstanding at the end of the year have the following expiry date and fair value at grant date: GRANT DATE 20 Nov 2015 22 Dec 2016 26 Mar 2018 29 Mar 2019 Total VESTING DATE 1 Aug 2018 1 Aug 2019 1 Aug 2020 1 Aug 2021 VALUE OF RIGHT AT GRANT DATE $1.083 $0.804 $1.232 $1.472 SHARE RIGHTS 2019 – 468,247 837,868 278,908 2018 280,613 468,247 837,868 – 1,585,023 1,586,728 Weighted average remaining contractual life of rights outstanding at end of period 1.0 years 1.4 years R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 102 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 103 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 29. PARENT ENTITY FINANCIAL INFORMATION ACCOUNTING POLICY The financial information for the parent entity, New Hope Corporation Limited, has been prepared on the same basis as the consolidated financial statements, except as set out below. INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES Investments in subsidiaries, associates and joint ventures are accounted for at cost in the financial report of New Hope Corporation Limited. Dividends received from subsidiaries are recognised in the parent entity’s income statement rather than being deducted from the carrying amount of these investments. A. SUMMARY FINANCIAL INFORMATION The individual financial statements for the parent entity show the following aggregate amounts: Balance Sheet Current assets Non‑current assets Total assets Current liabilities Non‑current liabilities Total liabilities Shareholders^ equity Issued capital Reserves Share‑based payment Retained earnings Profit/(loss) for the year Total comprehensive income/(loss) 2019 $000 2018 $000 542,301 1,385,656 1,927,957 576,105 353,650 929,755 711,185 934,894 1,646,079 476,391 1,260 477,651 96,319 95,905 1,031 900,852 998,202 717 1,069,836 1,168,428 (35,982) 35,446 35,982) 35,446 B. GUARANTEES ENTERED INTO BY PARENT ENTITY Bank guarantees issued in relation to rehabilitation, statutory body suppliers and various other entities 234,397 184,260 The parent entity has given secured guarantees in respect of mining restoration and rehabilitation. The liability has been recognised in the consolidated accounts of the parent entity in relation to its rehabilitation obligations however are not recognised in the parent entity Balance Sheet. See note 17(d). Further guarantees are provided in respect of statutory body suppliers and other various entities with no liability being recognised by the parent entity as no losses are foreseen on these contingent liabilities. C. CONTINGENT LIABILITIES OF THE PARENT ENTITY Details and estimates of maximum amounts of contingent liabilities for which no provision is included in the accounts, are as follows: CONTROLLED ENTITIES 2019 $000 2018 $000 The bankers of the consolidated entity have issued undertakings and guarantees to the Department of Natural Resources and Mines, Statutory Power Authorities and various other entities. 220,975 163,752 The Company’s share of security provided by the bankers of the Bengalla Joint Venture in respect of bank guarantees provided to rail and port suppliers. 13,422 6,391 No losses are anticipated in respect of any of the above contingent liabilities. D. CONTRACTUAL COMMITMENTS FOR THE ACQUISITION OF PROPERTY, PLANT AND EQUIPMENT As at 31 July 2019, the parent entity had contractual commitments for the acquisition of property, plant or equipment totalling nil (2018 – nil). 30. DEED OF CROSS GUARANTEE A number of entities within the Group have entered into a deed of cross guarantee. New Hope Corporation Limited, Jeebropilly Collieries Pty Ltd, Acland Pastoral, New Oakleigh Coal Pty Ltd, New Acland Coal Pty Ltd, New Lenton Coal Pty Ltd, Andrew Wright Holdings Pty Ltd, Arkdale Pty Ltd and Queensland Bulk Handling Pty Ltd are parties to a deed of cross guarantee under which each company guarantees the debts of the others. By entering into the deed, the wholly‑owned entities have been relieved from the requirement to prepare a financial report and Directors’ Report under Class Order 98/1418 (as amended) issued by ASIC. A. STATEMENT OF COMPREHENSIVE INCOME The above companies represent a “closed group” for the purposes of the Class Order, and as there are no other parties to the deed of cross guarantee that are controlled by New Hope Corporation Limited, they also represent the “extended closed group”. Set out below is the Statement of Comprehensive Income for the year ended 31 July 2019 for the closed group: R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R Revenue from operations Other income Marketing and transportation Expenses Cost of sales Administration Financing costs Other expenses Impairment of assets Profit/(loss) before income tax Income tax expense Profit/(loss) after income tax for the year Other comprehensive income Items to be reclassified to profit and loss Changes in the fair value of cash flow hedges, net of tax Transfer to profit and loss for cash flow hedges, net of tax Other comprehensive loss for the year, net of tax Total comprehensive income/(loss) for the year 2019 $000 602,676 3,259 605,935 2018 $000 613,884 423 614,307 (343,454) (321,094) (88,544) (12,758) (21,046) (21,675) (119,332) (874) (40,204) (41,078) (90,653) (9,236) – (14,976) (6,783) 171,565 (51,498) 120,067 (17,104) 6,456 (10,648) (51,726) (3,816) (5,083) (8,899) 111,168 104 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 105 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 29. PARENT ENTITY FINANCIAL INFORMATION ACCOUNTING POLICY The financial information for the parent entity, New Hope Corporation Limited, has been prepared on the same basis as the consolidated financial statements, except as set out below. INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES Investments in subsidiaries, associates and joint ventures are accounted for at cost in the financial report of New Hope Corporation Limited. Dividends received from subsidiaries are recognised in the parent entity’s income statement rather than being deducted from the carrying amount of these investments. A. SUMMARY FINANCIAL INFORMATION The individual financial statements for the parent entity show the following aggregate amounts: Balance Sheet Current assets Non‑current assets Total assets Current liabilities Non‑current liabilities Total liabilities Shareholders^ equity Issued capital Reserves Share‑based payment Retained earnings Profit/(loss) for the year Total comprehensive income/(loss) 2019 $000 2018 $000 542,301 1,385,656 1,927,957 576,105 353,650 929,755 711,185 934,894 1,646,079 476,391 1,260 477,651 96,319 95,905 1,031 900,852 998,202 717 1,069,836 1,168,428 (35,982) 35,446 35,982) 35,446 B. GUARANTEES ENTERED INTO BY PARENT ENTITY Bank guarantees issued in relation to rehabilitation, statutory body suppliers and various other entities 234,397 184,260 The parent entity has given secured guarantees in respect of mining restoration and rehabilitation. The liability has been recognised in the consolidated accounts of the parent entity in relation to its rehabilitation obligations however are not recognised in the parent entity Balance Sheet. See note 17(d). Further guarantees are provided in respect of statutory body suppliers and other various entities with no liability being recognised by the parent entity as no losses are foreseen on these contingent liabilities. C. CONTINGENT LIABILITIES OF THE PARENT ENTITY Details and estimates of maximum amounts of contingent liabilities for which no provision is included in the accounts, are as follows: CONTROLLED ENTITIES The bankers of the consolidated entity have issued undertakings and guarantees to the Department of Natural Resources and Mines, Statutory Power Authorities and various other entities. The Company’s share of security provided by the bankers of the Bengalla Joint Venture in respect of bank guarantees provided to rail and port suppliers. 2019 $000 2018 $000 220,975 163,752 13,422 6,391 No losses are anticipated in respect of any of the above contingent liabilities. D. CONTRACTUAL COMMITMENTS FOR THE ACQUISITION OF PROPERTY, PLANT AND EQUIPMENT As at 31 July 2019, the parent entity had contractual commitments for the acquisition of property, plant or equipment totalling nil (2018 – nil). 30. DEED OF CROSS GUARANTEE A number of entities within the Group have entered into a deed of cross guarantee. New Hope Corporation Limited, Jeebropilly Collieries Pty Ltd, Acland Pastoral, New Oakleigh Coal Pty Ltd, New Acland Coal Pty Ltd, New Lenton Coal Pty Ltd, Andrew Wright Holdings Pty Ltd, Arkdale Pty Ltd and Queensland Bulk Handling Pty Ltd are parties to a deed of cross guarantee under which each company guarantees the debts of the others. By entering into the deed, the wholly‑owned entities have been relieved from the requirement to prepare a financial report and Directors’ Report under Class Order 98/1418 (as amended) issued by ASIC. A. STATEMENT OF COMPREHENSIVE INCOME The above companies represent a “closed group” for the purposes of the Class Order, and as there are no other parties to the deed of cross guarantee that are controlled by New Hope Corporation Limited, they also represent the “extended closed group”. Set out below is the Statement of Comprehensive Income for the year ended 31 July 2019 for the closed group: Revenue from operations Other income Expenses Cost of sales Marketing and transportation Administration Financing costs Other expenses Impairment of assets Profit/(loss) before income tax Income tax expense Profit/(loss) after income tax for the year Other comprehensive income Items to be reclassified to profit and loss Changes in the fair value of cash flow hedges, net of tax Transfer to profit and loss for cash flow hedges, net of tax Other comprehensive loss for the year, net of tax Total comprehensive income/(loss) for the year 2019 $000 602,676 3,259 605,935 2018 $000 613,884 423 614,307 (343,454) (321,094) (88,544) (12,758) (21,046) (21,675) (119,332) (874) (40,204) (41,078) (90,653) (9,236) – (14,976) (6,783) 171,565 (51,498) 120,067 (17,104) 6,456 (10,648) (51,726) (3,816) (5,083) (8,899) 111,168 R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 104 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 105 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 30. DEED OF CROSS GUARANTEE (CONTINUED) B. BALANCE SHEET Set out below is a Balance Sheet as at 31 July 2019 of the closed group: Current assets Cash and cash equivalents Term deposits Trade and other receivables Inventories Total current assets Non-current assets Receivables Other financial assets Property, plant and equipment Intangible assets Exploration and evaluation assets Deferred tax assets Total non-current assets Total assets Current liabilities Accounts Payable Current tax liabilities Provisions Derivative financial instruments Borrowings Total current liabilities Non-current liabilities Provisions Borrowings Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained earnings Total equity During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and Audit and review of financial reports and other audit work under the Corporations Act 2001: 2019 $000 2018 $000 50,387 – 454,011 61,869 566,267 1,098,659 129,477 427,634 7,753 81,159 60,241 271,885 205,000 235,652 46,872 759,409 653,850 248,506 432,599 8,050 71,316 46,037 1,804,923 1,460,358 2,371,190 2,219,767 52,157 5,817 72,432 3,520 2,532 65,389 45,946 63,851 2,512 2,442 31. REMUNERATION OF AUDITORS non‑related audit firms: A. AUDIT SERVICES Deloitte Touche Tohmatsu (Australian firm) Total remuneration for audit services B. OTHER SERVICES Deloitte Touche Tohmatsu (Australian firm) Ernst & Young (Australian firm) Audit of joint ventures Total remuneration for other services Total auditors’ remuneration Audit of joint operations and other unincorporated interests Sustainability and other advisory services 32. OTHER ACCOUNTING POLICIES A. FOREIGN CURRENCY TRANSLATION Functional and presentation currency Transactions and balances 2019 $ 2018 $ 612,150 612,150 443,750 443,750 84,400 64,382 77,000 225,782 837,932 35,400 29,800 38,400 103,600 547,350 R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 136,458 180,140 Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. 148,493 358,206 506,699 643,157 127,848 7,790 135,638 315,778 1,728,033 1,903,989 92,302 35,081 91,809 35,429 1,600,650 1,776,751 1,728,033 1,903,989 Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial statements are presented in Australian dollars, which is New Hope Corporation Limited’s functional and presentation currency. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognised in profit or loss. They are deferred in equity if they relate to qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign operation. Translation differences on non‑monetary items, such as equity instruments held at fair value through profit or loss, are reported as part of the fair value gain or loss on the instrument. Translation differences on non‑monetary items are included in the fair value reserve in equity. Group companies The results and financial position of all of foreign operations (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • • Assets and liabilities for each Balance Sheet presented are translated at the closing rate at the date of that Balance Sheet; Income and expenses for each Statement of Comprehensive Income are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and • All resulting exchange differences are recognised in other comprehensive income. On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are recognised in other comprehensive income. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, the associated exchange differences are reclassified to the Statement of Comprehensive Income, as part of the gain or loss on sale. 106 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 107 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 30. DEED OF CROSS GUARANTEE (CONTINUED) B. BALANCE SHEET Set out below is a Balance Sheet as at 31 July 2019 of the closed group: 31. REMUNERATION OF AUDITORS During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non‑related audit firms: A. AUDIT SERVICES R E V I E W O P E R A T I O N S Current assets Cash and cash equivalents Term deposits Trade and other receivables Inventories Total current assets Non-current assets Receivables Other financial assets Property, plant and equipment Intangible assets Exploration and evaluation assets Deferred tax assets Total non-current assets Total assets Current liabilities Accounts Payable Current tax liabilities Provisions Derivative financial instruments Borrowings Total current liabilities Non-current liabilities Provisions Borrowings Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained earnings Total equity 2019 $000 2018 $000 50,387 – 454,011 61,869 566,267 1,098,659 129,477 427,634 7,753 81,159 60,241 271,885 205,000 235,652 46,872 759,409 653,850 248,506 432,599 8,050 71,316 46,037 1,804,923 1,460,358 2,371,190 2,219,767 52,157 5,817 72,432 3,520 2,532 65,389 45,946 63,851 2,512 2,442 136,458 180,140 148,493 358,206 506,699 643,157 127,848 7,790 135,638 315,778 1,728,033 1,903,989 92,302 35,081 91,809 35,429 1,600,650 1,776,751 1,728,033 1,903,989 R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R Audit and review of financial reports and other audit work under the Corporations Act 2001: Deloitte Touche Tohmatsu (Australian firm) Total remuneration for audit services B. OTHER SERVICES Deloitte Touche Tohmatsu (Australian firm) Audit of joint operations and other unincorporated interests Sustainability and other advisory services Ernst & Young (Australian firm) Audit of joint ventures Total remuneration for other services Total auditors’ remuneration 32. OTHER ACCOUNTING POLICIES A. FOREIGN CURRENCY TRANSLATION 2019 $ 2018 $ 612,150 612,150 443,750 443,750 84,400 64,382 77,000 225,782 837,932 35,400 29,800 38,400 103,600 547,350 Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial statements are presented in Australian dollars, which is New Hope Corporation Limited’s functional and presentation currency. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognised in profit or loss. They are deferred in equity if they relate to qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign operation. Translation differences on non‑monetary items, such as equity instruments held at fair value through profit or loss, are reported as part of the fair value gain or loss on the instrument. Translation differences on non‑monetary items are included in the fair value reserve in equity. Group companies The results and financial position of all of foreign operations (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • • Assets and liabilities for each Balance Sheet presented are translated at the closing rate at the date of that Balance Sheet; Income and expenses for each Statement of Comprehensive Income are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and • All resulting exchange differences are recognised in other comprehensive income. On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are recognised in other comprehensive income. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, the associated exchange differences are reclassified to the Statement of Comprehensive Income, as part of the gain or loss on sale. 106 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 107 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 D. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET ADOPTED Certain new accounting standards and interpretations have been published that are not mandatory for the 31 July 2019 reporting period and have not been early adopted by the Group. The Group’s assessment of the impact of these new standards and interpretations is set out below. • • AASB 16 Leases – Replaces AASB 117. AASB 16 Leases will result in almost all leases of lessees being on Balance Sheet, with the distinction between operating and finance leases effectively removed. On initial application of AASB 16 Leases, the Group will: Recognise right‑of‑use assets and lease liabilities in the consolidated statement of financial position, initially measured at the present value of the future lease payments; and Recognise depreciation of right‑of‑use assets and interest on lease liabilities in the consolidated Statement of Comprehensive Income. The only exceptions are short‑term and low‑value leases. The Group has reviewed all the leasing arrangements in light of the changes required under AASB 16 Leases. The standard will affect primarily the accounting for the Group’s operating leases. As at the balance date, the Group has non‑cancellable operating lease commitments. The Group does hold within these lease commitments a number of short term leases and low value assets which will be recognised on a straight‑line basis as an expense in profit or loss. For the remaining lease commitments existing at the reporting date, the Group expects to recognise on Balance Sheet right‑of‑use assets in the region of $65,600,000, with lease liabilities of approximately $65,600,000 in respect of the initial adoption of AASB 16 Leases (excluding existing finance lease liabilities). Overall net assets will remain unchanged. In modelling these scenarios, the Directors have made certain assumptions and judgements in relation to economic conditions including, but not limited to: the incremental borrowing rates, composition of the lease portfolio, and non‑cancellable lease terms that may cause the actual output to differ from that concluded in 2019. The reclassification will affect the Group’s Statement of Comprehensive Income and classification of cash flows going forward. Operating cash flows are likely to increase and financing cash flows to decrease as repayment of the principal portion of the lease liabilities will be classified as cash flows from financing activities. Interest costs associated with the lease liabilities will remain classified as cash flows from operating activities. AASB 16 Leases is mandatory for financial years commencing on or after 1 January 2019 and the Group did not adopt the standard before its effective date. The date of first application of the standard was 1 August 2019. The Group intends to apply the simplified transition approach and will not restate comparative amounts for the year ended 31 July 2020 upon initial adoption. Interpretation 23 Uncertainty over Income Tax Treatments. Interpretation 23 sets out how to determine the accounting tax position when there is uncertainty over income tax treatments. The Interpretation requires an entity to: • Determine whether uncertain tax positions are assessed separately or as a group, and • Assess whether it is probable that a tax authority will accept an uncertain tax treatment used, or proposed to be used, by an entity in its income tax filings. The Interpretation is effective for annual periods beginning on or after 1 January 2019 and the Group did not adopt the standard before its effective date. The date of first application of the standard was 1 August 2019. The directors of the Company do not anticipate that the application of the Interpretation will have a material impact on the Group’s consolidated financial statements. R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 32. OTHER ACCOUNTING POLICIES (CONTINUED) B. GOODS AND SERVICES TAX (GST) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the Balance Sheet. Cash flows are presented on a gross basis. The GST component of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows. C. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS ADOPTED This note explains the impact of the adoption of AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers on the Group’s financial statements that have been applied from 1 August 2018. The new accounting policies adopted from 1 August 2018 have been reflected in the notes to the financial statements. AASB 9 FINANCIAL INSTRUMENTS – IMPACT ON ADOPTION AASB 9 Financial Instruments and the related consequential amendments to other Accounting Standards are applicable to the Group effective on 1 August 2018. AASB 9 introduced new requirements for: • • • The classification and measurement of financial assets and financial liabilities; Impairment of financial assets; and General hedge accounting. The adoption of AASB 9 Financial Instruments has resulted in changes to accounting policies and adjustments to amounts recognised in the financial statements. It is noted there have been no restatements of prior period comparatives as a result of the adoption of AASB 9. The total impact on the Group’s retained earnings as at 1 August 2018 has been included in the Statement of Changes in Equity representing a transfer of previous impairment losses from retained earnings to be presented in reserves. Classification and measurement i) All recognised financial assets that are within the scope of AASB 9 Financial Instruments are required to be subsequently measured at amortised cost or fair value on the basis of the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. On initial adoption at 1 August 2018, the Company has assessed the Group’s existing financial assets and concluded that the initial application of AASB 9 Financial Instruments has had the following impact on the Group’s financial assets as regards to their classification and measurement: • • The Group elected to present in OCI changes in the fair value of all its equity investments previously classified as available for sale on the basis of the long term nature of the investments. As a result there was a reclassification of the available for sale financial assets to equity investments at FVOCI resulting in the change as reflected in the Statement of Changes in Equity from retained earnings to reserves as noted above. The new hedge accounting rules align the accounting for hedging instruments more closely with the Group’s risk management practices. The Group has confirmed that its current hedge relationships qualify as continuing hedges upon the adoption of AASB 9 Financial Instruments on 1 August 2018. There is no rebalancing of any of the hedging relationships necessary on initial application as the critical terms of the hedging instruments match those of their corresponding hedged items, all hedging relationships continue to be effective under AASB 9’s effectiveness assessment requirements. The Group has also not designated any hedging relationships under AASB 9 that would not have met the qualifying hedge accounting criteria under AASB 139. AASB 15 REVENUE FROM CONTRACTS WITH CUSTOMERS – IMPACT ON ADOPTION In the current year, the Group has applied AASB 15 Revenue from Contracts with Customers from 1 August 2018. The Group has adopted the modified retrospective approach however there has been no change to the amounts recognised in the financial statements. As the Group’s revenue is derived primarily from the sale of coal on a free on board basis in which the transfer of the risks and rewards coincides with the fulfilment of performance obligations and transfer of control as defined by AASB 15 Revenue from Contracts with Customers, there was no quantitative change in respect of the timing and amount of revenue the Group currently recognises. See the revenue accounting policy at note 2. 108 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 109 Notes to the Financial Statement for the year ended 31 July 2019 Notes to the Financial Statement for the year ended 31 July 2019 32. OTHER ACCOUNTING POLICIES (CONTINUED) B. GOODS AND SERVICES TAX (GST) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the Balance Sheet. Cash flows are presented on a gross basis. The GST component of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows. C. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS ADOPTED This note explains the impact of the adoption of AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers on the Group’s financial statements that have been applied from 1 August 2018. The new accounting policies adopted from 1 August 2018 AASB 9 Financial Instruments and the related consequential amendments to other Accounting Standards are applicable to the Group have been reflected in the notes to the financial statements. AASB 9 FINANCIAL INSTRUMENTS – IMPACT ON ADOPTION effective on 1 August 2018. AASB 9 introduced new requirements for: The classification and measurement of financial assets and financial liabilities; • • • Impairment of financial assets; and General hedge accounting. The adoption of AASB 9 Financial Instruments has resulted in changes to accounting policies and adjustments to amounts recognised in the financial statements. It is noted there have been no restatements of prior period comparatives as a result of the adoption of AASB 9. The total impact on the Group’s retained earnings as at 1 August 2018 has been included in the Statement of Changes in Equity representing a transfer of previous impairment losses from retained earnings to be presented in reserves. i) Classification and measurement All recognised financial assets that are within the scope of AASB 9 Financial Instruments are required to be subsequently measured at amortised cost or fair value on the basis of the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. On initial adoption at 1 August 2018, the Company has assessed the Group’s existing financial assets and concluded that the initial application of AASB 9 Financial Instruments has had the following impact on the Group’s financial assets as regards to their classification and measurement: • The Group elected to present in OCI changes in the fair value of all its equity investments previously classified as available for sale on the basis of the long term nature of the investments. As a result there was a reclassification of the available for sale financial assets to equity investments at FVOCI resulting in the change as reflected in the Statement of Changes in Equity from retained earnings to reserves as noted above. • The new hedge accounting rules align the accounting for hedging instruments more closely with the Group’s risk management practices. The Group has confirmed that its current hedge relationships qualify as continuing hedges upon the adoption of AASB 9 Financial Instruments on 1 August 2018. There is no rebalancing of any of the hedging relationships necessary on initial application as the critical terms of the hedging instruments match those of their corresponding hedged items, all hedging relationships continue to be effective under AASB 9’s effectiveness assessment requirements. The Group has also not designated any hedging relationships under AASB 9 that would not have met the qualifying hedge accounting criteria under AASB 139. AASB 15 REVENUE FROM CONTRACTS WITH CUSTOMERS – IMPACT ON ADOPTION In the current year, the Group has applied AASB 15 Revenue from Contracts with Customers from 1 August 2018. The Group has adopted the modified retrospective approach however there has been no change to the amounts recognised in the financial statements. As the Group’s revenue is derived primarily from the sale of coal on a free on board basis in which the transfer of the risks and rewards coincides with the fulfilment of performance obligations and transfer of control as defined by AASB 15 Revenue from Contracts with Customers, there was no quantitative change in respect of the timing and amount of revenue the Group currently recognises. See the revenue accounting policy at note 2. D. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET ADOPTED Certain new accounting standards and interpretations have been published that are not mandatory for the 31 July 2019 reporting period and have not been early adopted by the Group. The Group’s assessment of the impact of these new standards and interpretations is set out below. AASB 16 Leases – Replaces AASB 117. AASB 16 Leases will result in almost all leases of lessees being on Balance Sheet, with the distinction between operating and finance leases effectively removed. On initial application of AASB 16 Leases, the Group will: • • Recognise right‑of‑use assets and lease liabilities in the consolidated statement of financial position, initially measured at the present value of the future lease payments; and Recognise depreciation of right‑of‑use assets and interest on lease liabilities in the consolidated Statement of Comprehensive Income. The only exceptions are short‑term and low‑value leases. The Group has reviewed all the leasing arrangements in light of the changes required under AASB 16 Leases. The standard will affect primarily the accounting for the Group’s operating leases. As at the balance date, the Group has non‑cancellable operating lease commitments. The Group does hold within these lease commitments a number of short term leases and low value assets which will be recognised on a straight‑line basis as an expense in profit or loss. For the remaining lease commitments existing at the reporting date, the Group expects to recognise on Balance Sheet right‑of‑use assets in the region of $65,600,000, with lease liabilities of approximately $65,600,000 in respect of the initial adoption of AASB 16 Leases (excluding existing finance lease liabilities). Overall net assets will remain unchanged. In modelling these scenarios, the Directors have made certain assumptions and judgements in relation to economic conditions including, but not limited to: the incremental borrowing rates, composition of the lease portfolio, and non‑cancellable lease terms that may cause the actual output to differ from that concluded in 2019. The reclassification will affect the Group’s Statement of Comprehensive Income and classification of cash flows going forward. Operating cash flows are likely to increase and financing cash flows to decrease as repayment of the principal portion of the lease liabilities will be classified as cash flows from financing activities. Interest costs associated with the lease liabilities will remain classified as cash flows from operating activities. AASB 16 Leases is mandatory for financial years commencing on or after 1 January 2019 and the Group did not adopt the standard before its effective date. The date of first application of the standard was 1 August 2019. The Group intends to apply the simplified transition approach and will not restate comparative amounts for the year ended 31 July 2020 upon initial adoption. Interpretation 23 Uncertainty over Income Tax Treatments. Interpretation 23 sets out how to determine the accounting tax position when there is uncertainty over income tax treatments. The Interpretation requires an entity to: • Determine whether uncertain tax positions are assessed separately or as a group, and • Assess whether it is probable that a tax authority will accept an uncertain tax treatment used, or proposed to be used, by an entity in its income tax filings. The Interpretation is effective for annual periods beginning on or after 1 January 2019 and the Group did not adopt the standard before its effective date. The date of first application of the standard was 1 August 2019. The directors of the Company do not anticipate that the application of the Interpretation will have a material impact on the Group’s consolidated financial statements. R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 108 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 109 Directors’ Declaration Independent Auditor’s Report to the Members of New Hope Corporation Limited In the Directors’ opinion: a. the financial statements and notes set out on pages 54 to 109 are in accordance with the Corporations Act 2001, including: (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (ii) giving a true and fair view of the consolidated entity’s financial position as at 31 July 2019 and of their performance, for the financial year ended on that date; and b. there are reasonable grounds to believe that the Company will be able to pay its debts, as and when they become due and payable. The Basis of preparation on page 58 confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001. At the date of this declaration, the Company is within the class of companies affected by ASIC Class Order 98/1418. The nature of the deed of cross guarantee is such that each company which is party to the deed guarantees to each creditor payment in full of any debt in accordance with the deed of cross guarantee. In the Directors’ opinion, there are reasonable grounds to believe that the Company and the companies to which the ASIC Class Order applies, as detailed in note 30 to the financial statements will, as a group, be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee. This declaration is made in accordance with a resolution of the Directors. R.D. Millner Director Sydney 16 September 2019 Deloitte Touche Tohmatsu A.C.N. 74 490 121 060 Level 23 Riverside Centre 123 Eagle Street Brisbane QLD 4000 Australia Tel: ^61 (0) 7 3308 7000 www.deloitte.com.au R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R Independent Auditor’s Report to the Members of New Hope Corporation Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of New Hope Corporation Limited (the “Company”) and its subsidiaries (the “Group”) which comprises the consolidated balance sheet as at 31 July 2019, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 31 July 2019 and of their financial performance for the year then (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. 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. ended; and Basis for Opinion Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 110 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 111 Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited Directors’ Declaration Independent Auditor’s Report to the Members of New Hope Corporation Limited In the Directors’ opinion: a. the financial statements and notes set out on pages 54 to 109 are in accordance with the Corporations Act 2001, including: (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting (ii) giving a true and fair view of the consolidated entity’s financial position as at 31 July 2019 and of their performance, for the requirements; and financial year ended on that date; and b. there are reasonable grounds to believe that the Company will be able to pay its debts, as and when they become due and payable. The Basis of preparation on page 58 confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001. At the date of this declaration, the Company is within the class of companies affected by ASIC Class Order 98/1418. The nature of the deed of cross guarantee is such that each company which is party to the deed guarantees to each creditor payment in full of any debt in accordance with the deed of cross guarantee. In the Directors’ opinion, there are reasonable grounds to believe that the Company and the companies to which the ASIC Class Order applies, as detailed in note 30 to the financial statements will, as a group, be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee. This declaration is made in accordance with a resolution of the Directors. R.D. Millner Director Sydney 16 September 2019 Deloitte Touche Tohmatsu A.C.N. 74 490 121 060 Level 23 Riverside Centre 123 Eagle Street Brisbane QLD 4000 Australia Tel: ^61 (0) 7 3308 7000 www.deloitte.com.au Independent Auditor’s Report to the Members of New Hope Corporation Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of New Hope Corporation Limited (the “Company”) and its subsidiaries (the “Group”) which comprises the consolidated balance sheet as at 31 July 2019, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 31 July 2019 and of their financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion 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. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 110 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 111 Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited Independent Auditor’s Report to the Members of New Hope Corporation Limited Independent Auditor’s Report to the Members of New Hope Corporation Limited KEY AUDIT MATTER Carrying value of non-current assets (refer Notes 10, 11 and 12) As at 31 July 2019 the Group has property, plant and equipment of $2,138 million, exploration and evaluation assets of $302 million, and intangible assets of $96 million which includes goodwill of $18 million, which have been allocated across the Group’s cash generating units (“CGUs”) and areas of interest. All CGUs containing goodwill must be tested for impairment on an annual basis. The determination of the recoverable amount of assets, being the higher of value‑in‑use and fair value less costs to dispose, also requires judgement on the part of management in both identifying and then valuing the relevant CGUs. Recoverable amounts are assessed using either discounted cash flow or commodity resource multiple valuation techniques. These assessments are dependent upon management’s view of key variables and market conditions including future commodity prices, the timing and approval of mining leases, future capital and operating expenditure, appropriate discount rates and comparable observable market transactions. As disclosed in Note 10 to the financial statements, a specific area of management judgement during the year has been their assessment of the impact of the changes to the legal environment and timelines surrounding the New Acland Stage 3 mine lease application on the recoverability of assets associated with the Queensland Coal Mining CGU. As well as considering indicators of impairment, management must determine whether any indicators of reversal of previous impairments are apparent for assets other than goodwill. HOW THE SCOPE OF OUR AUDIT RESPONDED TO THE KEY AUDIT MATTER Our audit procedures included, but were not limited to: • • • • • evaluating management’s assessment of impairment indicators, as well as indicators of impairment reversal, including the conclusions reached; engaging our valuation specialists to assist with assessing the reasonableness of management’s key market related assumptions including future commodity prices, foreign exchange rate forecasts, discount rates and comparable transaction multiples. This included benchmarking against external data; evaluating that commodity resource multiples were determined with reference to appropriate comparable transactions taking into account the timing of those transactions, subsequent market changes, and the type of assets, their location, and their proximity to infrastructure; evaluating management’s process for calculating the carrying values; in relation to the Queensland Coal Mining CGU, assessing the Group’s progress in obtaining relevant mining leases, and, in relation to the Group’s mining lease application for New Acland Stage 3, evaluating management’s assessment of the impact of the changes to the project’s legal environment and timelines including: – obtaining an understanding of the status of the overall mine lease application and legal processes; – assessing the Group’s scenario analyses to determine whether the conclusions are reasonable and supportable given the status of the overall mine lease application process and the Group’s legal advice; – evaluating the key assumptions within management’s modelling for reasonableness compared to historical actual performance and market benchmarks including in relation to prices, foreign exchange rates, production costs and growth rates; and – verifying the mathematical accuracy of management’s modelling. • assessing the appropriateness of the disclosures in Notes 10, 11 and 12 to the financial statements. KEY AUDIT MATTER Rehabilitation provision (refer Note 13) As at 31 July 2019 the Group has provisions for mining restoration and rehabilitation of $226 million. Management judgement is required in estimating the quantum and timing of future costs, particularly given the unique nature of each site, the long timescales involved and the potential associated obligations. This also requires management to determine an appropriate rate to discount these future costs back to their net present value. Provisions and contingent liabilities (refer Note 13) At 31 July 2019, the Group has recognised a provision of $16 million which it considers is the best estimate of the probable future economic outflows which will be incurred as a result of the Northern Energy Corporation Limited and Colton Coal Pty Limited liquidation process. Given the complexity of the liquidation processes and associated legal proceedings, the determination of the provision and the associated disclosures involves a high degree of judgement. R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R HOW THE SCOPE OF OUR AUDIT RESPONDED TO THE KEY AUDIT MATTER Our audit procedures included, but were not limited to: • evaluating the independence, competence and objectivity of management’s expert and challenging the reasonableness of the assumptions used to produce the cost estimates prepared by management by verifying against actual costs incurred; validating the assumptions used to calculate the discount rates and recalculating these rates; evaluating management’s process for calculating the rehabilitation provisions; confirming the existence of legal and/or constructive obligations with respect to the restoration and rehabilitation for each site; • assessing the appropriateness of the intended method of restoration and rehabilitation and associated cost estimate for each site; and • assessing the appropriateness of the disclosures in Note 13 to the financial statements. Our audit procedures included, but were not limited to: • obtaining an understanding of the legal considerations relevant to management’s assessment and calculation of the Group’s estimated future economic outflows, including holding discussions with management and the Group’s legal advisors; reading external legal advice obtained by the Group and where relevant publically available reports; engaging our technical accounting specialists to assist with assessing the reasonableness of management’s accounting position; • evaluating, including through the engagement of our taxation specialists, the reasonableness of management’s assessment of any taxation consequences; and • assessing the appropriateness of the disclosures in Note 13 to the financial statements. • • • • • Other Information The directors are responsible for the other information. The other information comprises the Financial Summary, Directors’ Report, Tax Contribution Report, Chairman’s Review and Shareholder Information which we obtained prior to the date of this auditor’s report, and also includes the following information which will be included in the Group’s annual report (but does not include the financial report and our auditor’s report thereon). Sustainability Report, which is expected to be made available to us after that date. Our opinion on the financial report does not cover the other information and we do not and will 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 identified above 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 on the other information that we obtained prior to the date of this auditor’s report, 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. When we read the Sustainability Report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and use our professional judgement to determine the appropriate action. 112 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 113 Independent Auditor’s Report to the Members of New Hope Corporation Limited Independent Auditor’s Report to the Members of New Hope Corporation Limited KEY AUDIT MATTER Carrying value of non-current assets (refer Notes 10, 11 and 12) As at 31 July 2019 the Group has property, plant and equipment of $2,138 million, exploration and evaluation assets of $302 million, and intangible assets of $96 million which includes • engaging our valuation specialists to assist with assessing goodwill of $18 million, which have been allocated across the the reasonableness of management’s key market related Group’s cash generating units (“CGUs”) and areas of interest. assumptions including future commodity prices, foreign All CGUs containing goodwill must be tested for impairment on an annual basis. The determination of the recoverable amount of assets, being the higher of value‑in‑use and fair value less costs to dispose, also requires judgement on the part of management in both identifying and then valuing the relevant CGUs. Recoverable amounts are assessed using either discounted cash flow or commodity resource multiple valuation techniques. These assessments are dependent upon management’s view of key variables and market conditions including future commodity prices, the timing and approval of mining leases, future capital and operating expenditure, appropriate discount rates and comparable observable market transactions. • • As disclosed in Note 10 to the financial statements, a specific area of management judgement during the year has been their assessment of the impact of the changes to the legal environment and timelines surrounding the New Acland Stage 3 mine lease application on the recoverability of assets associated with the Queensland Coal Mining CGU. As well as considering indicators of impairment, management must determine whether any indicators of reversal of previous impairments are apparent for assets other than goodwill. HOW THE SCOPE OF OUR AUDIT RESPONDED TO THE KEY AUDIT MATTER Our audit procedures included, but were not limited to: • evaluating management’s assessment of impairment indicators, as well as indicators of impairment reversal, including the conclusions reached; exchange rate forecasts, discount rates and comparable transaction multiples. This included benchmarking against external data; • evaluating that commodity resource multiples were determined with reference to appropriate comparable transactions taking into account the timing of those transactions, subsequent market changes, and the type of assets, their location, and their proximity to infrastructure; evaluating management’s process for calculating the carrying values; in relation to the Queensland Coal Mining CGU, assessing the Group’s progress in obtaining relevant mining leases, and, in relation to the Group’s mining lease application for New Acland Stage 3, evaluating management’s assessment of the impact of the changes to the project’s legal environment and timelines including: – obtaining an understanding of the status of the overall mine lease application and legal processes; – assessing the Group’s scenario analyses to determine whether the conclusions are reasonable and supportable given the status of the overall mine lease application process and the Group’s legal advice; – evaluating the key assumptions within management’s modelling for reasonableness compared to historical actual performance and market benchmarks including in relation to prices, foreign exchange rates, production costs and growth rates; and – verifying the mathematical accuracy of management’s modelling. • assessing the appropriateness of the disclosures in Notes 10, 11 and 12 to the financial statements. KEY AUDIT MATTER Rehabilitation provision (refer Note 13) As at 31 July 2019 the Group has provisions for mining restoration and rehabilitation of $226 million. Management judgement is required in estimating the quantum and timing of future costs, particularly given the unique nature of each site, the long timescales involved and the potential associated obligations. This also requires management to determine an appropriate rate to discount these future costs back to their net present value. Provisions and contingent liabilities (refer Note 13) At 31 July 2019, the Group has recognised a provision of $16 million which it considers is the best estimate of the probable future economic outflows which will be incurred as a result of the Northern Energy Corporation Limited and Colton Coal Pty Limited liquidation process. Given the complexity of the liquidation processes and associated legal proceedings, the determination of the provision and the associated disclosures involves a high degree of judgement. HOW THE SCOPE OF OUR AUDIT RESPONDED TO THE KEY AUDIT MATTER Our audit procedures included, but were not limited to: • • • • • • evaluating the independence, competence and objectivity of management’s expert and challenging the reasonableness of the assumptions used to produce the cost estimates prepared by management by verifying against actual costs incurred; validating the assumptions used to calculate the discount rates and recalculating these rates; evaluating management’s process for calculating the rehabilitation provisions; confirming the existence of legal and/or constructive obligations with respect to the restoration and rehabilitation for each site; assessing the appropriateness of the intended method of restoration and rehabilitation and associated cost estimate for each site; and assessing the appropriateness of the disclosures in Note 13 to the financial statements. Our audit procedures included, but were not limited to: • • • • • obtaining an understanding of the legal considerations relevant to management’s assessment and calculation of the Group’s estimated future economic outflows, including holding discussions with management and the Group’s legal advisors; reading external legal advice obtained by the Group and where relevant publically available reports; engaging our technical accounting specialists to assist with assessing the reasonableness of management’s accounting position; evaluating, including through the engagement of our taxation specialists, the reasonableness of management’s assessment of any taxation consequences; and assessing the appropriateness of the disclosures in Note 13 to the financial statements. Other Information The directors are responsible for the other information. The other information comprises the Financial Summary, Directors’ Report, Tax Contribution Report, Chairman’s Review and Shareholder Information which we obtained prior to the date of this auditor’s report, and also includes the following information which will be included in the Group’s annual report (but does not include the financial report and our auditor’s report thereon). Sustainability Report, which is expected to be made available to us after that date. Our opinion on the financial report does not cover the other information and we do not and will 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 identified above 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 on the other information that we obtained prior to the date of this auditor’s report, 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. When we read the Sustainability Report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and use our professional judgement to determine the appropriate action. R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 112 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 113 Independent Auditor’s Report to the Members of New Hope Corporation Limited Independent Auditor’s Report to the Members of New Hope Corporation Limited We have audited the Remuneration Report included in pages 37 to 50 of the Directors’ Report for the year ended 31 July 2019. In our opinion, the Remuneration Report of New Hope Corporation Limited for the year ended 31 July 2019, complies with section 300A The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Report on the Remuneration Report Opinion on the Remuneration Report of the Corporations Act 2001. Responsibilities DELOITTE TOUCHE TOHMATSU Richard Wanstall Partner Chartered Accountants Sydney, 16 September 2019 R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In 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 has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report 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. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group’s audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. 114 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 115 Independent Auditor’s Report to the Members of New Hope Corporation Limited Independent Auditor’s Report to the Members of New Hope Corporation Limited Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 37 to 50 of the Directors’ Report for the year ended 31 July 2019. In our opinion, the Remuneration Report of New Hope Corporation Limited for the year ended 31 July 2019, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional DELOITTE TOUCHE TOHMATSU scepticism throughout the audit. We also: Richard Wanstall Partner Chartered Accountants Sydney, 16 September 2019 Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In 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 has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report 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. • Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures • • made by the directors. Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group’s audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 114 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 115 Shareholder Information for the year ended 31 July 2019 Glossary As at 6 September 2019 there were 831,708,319 holders of ordinary shares in the Company. Voting entitlement is one vote per fully paid ordinary share. DISTRIBUTION OF EQUITY SECURITIES 1 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over NUMBER OF SHAREHOLDERS 2,246 3,445 1,898 1,718 FULLY PAID ORDINARY SHARES 1,179,254 10,077,790 14,079,411 46,349,100 124 760,022,764 9,431 831,708,319 NUMBER OF RIGHTS HOLDERS ORDINARY RIGHTS – – – 3 4 7 – – – 211,066 905,710 1,116,776 ACRONYM AASB MEANING Australian Accounting Standards Board Acland Pastoral Acland Pastoral Company Pty Ltd Acland Pastoral Company Accounting professional and ethical standard Australian Securities and Investment Commission Holding less than a marketable parcel 540 49,349 Australian Securities Exchange 1 This table is as at 31 August 2019. The names of substantial shareholders as disclosed in substantial shareholder notices received by the Company: SHAREHOLDER Washington H. Soul Pattinson and Company Limited Mitsubishi Materials Corporation 20 largest shareholders as disclosed on the share register as at 6 September 2019. SHAREHOLDER Washington H. Soul Pattinson and Company Limited Mitsubishi Materials Corporation HSBC Custody Nominees (Australia) Limited J P Morgan Nominees Australia Pty Ltd Citicorp Nominees Pty Ltd Farjoy Pty Ltd BKI Investment Company Limited UBS Nominees Pty Ltd Domer Mining Co Pty Ltd National Nominees Limited BNP Paribas Noms Pty Ltd (DRP) BNP Paribas Nominees Pty Ltd (Agency Lending DRP Account) Taiheiyo Kouhatsu Inc J S Millner Holdings Pty Limited CS Third Nominees Pty Limited (HSBC Cust Nom Au Limited 13 Account) Brazil Farming Pty Ltd Dixson Trust Pty Limited Milton Corporation Limited HSBC Custody Nominees (Australia) Limited GSCO ECA Neale Edwards Pty Ltd UNQUOTED EQUITY SECURITIES Rights issued under the New Hope Corporation Limited Employee Performance Rights Share Plan to take up ordinary shares NUMBER OF SHARES 415,696,418 93,240,000 NUMBER OF SHARES 415,696,418 93,240,000 71,746,025 41,349,384 27,355,433 15,500,000 14,815,952 13,709,370 10,000,000 6,152,775 4,726,327 4,130,664 4,054,000 2,209,197 2,176,793 1,683,077 1,295,596 1,290,107 1,258,095 1,037,000 % 49.98% 11.21% % 49.98% 11.21% 8.63% 4.97% 3.29% 1.86% 1.78% 1.65% 1.20% 0.74% 0.57% 0.50% 0.49% 0.27% 0.26% 0.20% 0.16% 0.16% 0.15% 0.12% 733,426,213 88.19% NUMBER ON ISSUE NUMBER OF HOLDERS 1,116,776 7 R E V I E W O P E R A T I O N S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R APC APES ASIC ASX AUD AWL bbl bcm BMC CDO CEO CFO CGU CODM Colton COO DES DOCA DOCG EA ECL EIS EMS Australian Dollar Associated Water Licence Barrels Bank cubic meters Bengalla Mining Company Pty Ltd Chief Development Officer Chief Executive Officer Chief Financial Officer Cash generating units Chief Operating Decision Maker Colton Coal Pty Ltd Chief Operating Officer Department of Environmental Science Deed of Company Agreement Deed of Cross Guarantee Environmental Authority Expected credit losses Environmental Impact Statement Environmental Management System EBITDA Earnings before Interest, Tax, Depreciation and Amortisation EPBC Act Environment Protection and Biodiversity Conservation Act 1999 116 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 117 Shareholder Information for the year ended 31 July 2019 Glossary As at 6 September 2019 there were 831,708,319 holders of ordinary shares in the Company. Voting entitlement is one vote per fully paid DISTRIBUTION OF EQUITY SECURITIES 1 ordinary share. 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over NUMBER OF SHAREHOLDERS FULLY PAID ORDINARY SHARES RIGHTS HOLDERS NUMBER OF ORDINARY RIGHTS 2,246 3,445 1,898 1,718 1,179,254 10,077,790 14,079,411 46,349,100 124 760,022,764 9,431 831,708,319 – – – 3 4 7 211,066 905,710 1,116,776 Holding less than a marketable parcel 540 49,349 1 This table is as at 31 August 2019. The names of substantial shareholders as disclosed in substantial shareholder notices received by the Company: SHAREHOLDER Washington H. Soul Pattinson and Company Limited Mitsubishi Materials Corporation 20 largest shareholders as disclosed on the share register as at 6 September 2019. SHAREHOLDER Washington H. Soul Pattinson and Company Limited Mitsubishi Materials Corporation HSBC Custody Nominees (Australia) Limited J P Morgan Nominees Australia Pty Ltd Citicorp Nominees Pty Ltd Farjoy Pty Ltd BKI Investment Company Limited UBS Nominees Pty Ltd Domer Mining Co Pty Ltd National Nominees Limited BNP Paribas Noms Pty Ltd (DRP) Taiheiyo Kouhatsu Inc J S Millner Holdings Pty Limited Brazil Farming Pty Ltd Dixson Trust Pty Limited Milton Corporation Limited BNP Paribas Nominees Pty Ltd (Agency Lending DRP Account) CS Third Nominees Pty Limited (HSBC Cust Nom Au Limited 13 Account) HSBC Custody Nominees (Australia) Limited GSCO ECA Neale Edwards Pty Ltd UNQUOTED EQUITY SECURITIES Rights issued under the New Hope Corporation Limited Employee Performance Rights Share Plan to take up ordinary shares – – – % % 49.98% 11.21% 49.98% 11.21% 8.63% 4.97% 3.29% 1.86% 1.78% 1.65% 1.20% 0.74% 0.57% 0.50% 0.49% 0.27% 0.26% 0.20% 0.16% 0.16% 0.15% 0.12% NUMBER OF SHARES 415,696,418 93,240,000 NUMBER OF SHARES 415,696,418 93,240,000 71,746,025 41,349,384 27,355,433 15,500,000 14,815,952 13,709,370 10,000,000 6,152,775 4,726,327 4,130,664 4,054,000 2,209,197 2,176,793 1,683,077 1,295,596 1,290,107 1,258,095 1,037,000 733,426,213 88.19% NUMBER ON ISSUE NUMBER OF HOLDERS 1,116,776 7 ACRONYM AASB MEANING Australian Accounting Standards Board Acland Pastoral Acland Pastoral Company Pty Ltd APC APES ASIC ASX AUD AWL bbl bcm BMC CDO CEO CFO CGU CODM Colton COO DES DOCA DOCG EA Acland Pastoral Company Accounting professional and ethical standard Australian Securities and Investment Commission Australian Securities Exchange Australian Dollar Associated Water Licence Barrels Bank cubic meters Bengalla Mining Company Pty Ltd Chief Development Officer Chief Executive Officer Chief Financial Officer Cash generating units Chief Operating Decision Maker Colton Coal Pty Ltd Chief Operating Officer Department of Environmental Science Deed of Company Agreement Deed of Cross Guarantee Environmental Authority EBITDA Earnings before Interest, Tax, Depreciation and Amortisation ECL EIS EMS Expected credit losses Environmental Impact Statement Environmental Management System EPBC Act Environment Protection and Biodiversity Conservation Act 1999 R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 116 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 117 Glossary ACRONYM MEANING FVLCD FVOCI FVTPL GST ha HELE HRRC IASB IFRIC IFRS JORC KMP KPI LTI LTI M MD ML Mt mtpa NAC03 NCI NEC NHCL OCAA OCI PRM Fair value less cost to dispose Fair value through other comprehensive income Fair value through profit or loss Goods and Services Tax Hectare High Efficiency Low Emission Human Resources and Remuneration Committee International Accounting Standards Board International financial reporting interpretations committee International Financial Reporting Standards Joint Ore Reserves Committee Key management personnel Key performance indicator Long‑term incentives Lost time Injury Million Managing Director Mining leases Million tonnes Million tonnes per annum New Acland Stage 3 Project Non‑controlling interest Northern Energy Corporation Limited New Hope Corporation Limited Oakley Coal Action Alliance Other comprehensive income Personal Risk Management 118 New Hope Corporation Limited and Controlled Entities Glossary Glossary ACRONYM MEANING ACRONYM MEANING R E V I E W O P E R A T I O N S PRMS PRRT QBH SBP SPE STI TCFD TFA TFR TRIFR TSA TSR USD WACC WHSP WICET Petroleum Reserves Management System Petroleum Resource Rent Tax Queensland Bulk Handling Share based payment Society of Petroleum engineers Short‑term incentives Taskforce on Climate related Financial Disclosures Tax funding agreements Total fixed remuneration Total recordable injury frequency rate Tax sharing agreements Total shareholder return US Dollar Weighted average cost of capital Washington H. Soul Pattinson and Company Pty Ltd Wiggins Island Coal Export Terminal R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R FVLCD FVOCI FVTPL GST ha HELE HRRC IASB IFRIC IFRS JORC KMP KPI LTI LTI M MD ML Mt mtpa NAC03 NCI NEC NHCL OCAA OCI PRM Fair value less cost to dispose Fair value through other comprehensive income Fair value through profit or loss Goods and Services Tax Hectare High Efficiency Low Emission Human Resources and Remuneration Committee International Accounting Standards Board International financial reporting interpretations committee International Financial Reporting Standards Joint Ore Reserves Committee Key management personnel Key performance indicator Long‑term incentives Lost time Injury Million Managing Director Mining leases Million tonnes Million tonnes per annum New Acland Stage 3 Project Non‑controlling interest Northern Energy Corporation Limited New Hope Corporation Limited Oakley Coal Action Alliance Other comprehensive income Personal Risk Management 118 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 119 Tenements PROJECT NAME TENEMENT ^ BASIN DESCRIPTION COAL Bee Creek EPC777 Bowen Basin Childers EPC1265 Maryborough Churchyard Creek EPC1876 Bowen Basin Clarence‑West Moreton Basin Chuwar Collingwood ML4659 ML4662 ML4667 ML4668 EPC1322 EPC640 MLA55011 MLA55012 MLA55015 MLA55016 Culgowie EPC1205 Surat Basin Elimatta Surat Basin EPC1171 EPC1603 EPC650 MLA50254 MLA50270 MLA50271 Inglewood EPC970 Surat Basin 120 New Hope Corporation Limited and Controlled Entities Surat Basin The Collingwood Project is located approximately 15km north of the township of Wandoan, Queensland. The New Hope Group acquired full ownership of the Collingwood Project in 2015. The Bee Creek Project is in the Bowen Basin, Queensland, approximately 100km south west of Mackay, and west of the Nebo Township. In terms of surrounding tenures, EPC777 is immediately east of South Walker Creek Mine. Hail Creek Mine is located to the north of EPC777. Basin EPC 1265 is centred approximately 3km east of the town of Childers, Queensland. Taroom Coal Pty Ltd applied for the tenure in March 2008, and it was granted in September 2015, with the intent to explore for coal. The Churchyard Creek tenement is located approximately 45km north of the town of Blackwater in Central Queensland. The primary focus of New Hope Group’s exploration program is to evaluate the economic potential of EPC1876. The Chuwar leases were operated from 1980 to 1984. In 2013 New Hope Collieries Pty Ltd, following extensive consultation with the Department of Natural Resources, Mines and Energy and the Department of Environment and Science, commenced final rehabilitation of the site. Rehabilitation monitoring and maintenance is ongoing. The Surat Basin has been identified by New Hope Group as a strategic investment opportunity. Pre‑feasibility for all four North Surat Project Areas; Collingwood, Elimatta, Taroom & Woori has commenced. Culgowie is located approximately 375 km west,north‑west of Brisbane and approximately 10–15 km north of the town of Wandoan. The tenure lies in the northern Surat Basin of South‑East Queensland. New Hope Group considers Culgowie to be a key component of the Elimatta Project due to its proximity to the Leichhardt Highway and the proposed Surat Basin Rail. The Elimatta Project is located in the Western Downs Regional Council area in Southern Queensland, approximately 45 km south‑west of Taroom. The Elimatta Project is based on the development of a thermal coal resource (JORC 2004 compliant) within the Juandah Formation in the Surat Basin. Pre‑feasibility has commenced. The town of Millmerran is 25 km to the north of EPC970: Darling Downs. The EPC extends some 10km west and 50km south of the town. The primary focus of New Hope Group’ s exploration program is to further evaluate the economic potential of EPC970. Tenements Tenements PROJECT NAME TENEMENT ^ BASIN DESCRIPTION PROJECT NAME TENEMENT ^ BASIN DESCRIPTION COAL Jandowae EPC760 Surat Basin Bee Creek EPC777 Bowen Basin The Bee Creek Project is in the Bowen Basin, Queensland, Childers EPC1265 Maryborough Basin EPC 1265 is centred approximately 3km east of the town Churchyard Creek EPC1876 Bowen Basin The Churchyard Creek tenement is located approximately Jeebropilly Chuwar Clarence‑West The Chuwar leases were operated from 1980 to 1984. In 2013 Moreton Basin New Hope Collieries Pty Ltd, following extensive consultation New Acland Collingwood Surat Basin The Collingwood Project is located approximately 15km north Culgowie EPC1205 Surat Basin Culgowie is located approximately 375 km west,north‑west Elimatta Surat Basin The Elimatta Project is located in the Western Downs Regional Lenton JV Burton Mine New Oakleigh ML4677 ML4689 ML4690 ML4705 ML4710 ML4711 ML50082 ML50093 ML50132 ML50133 ML7186 PFL17 EPC1136 EPC762 EPC919 MDL244 ML50170 ML50216 MLA50232 MLA700002 EPC1675 EPC766 EPC865 ML70337 MLA70456 EPC857 MDL315 MDL349 ML70109 ML4568 ML4584 ML4675 ML4683 ML4698 ML4699 ML50175 approximately 100km south west of Mackay, and west of the Nebo Township. In terms of surrounding tenures, EPC777 is immediately east of South Walker Creek Mine. Hail Creek Mine is located to the north of EPC777. of Childers, Queensland. Taroom Coal Pty Ltd applied for the tenure in March 2008, and it was granted in September 2015, with the intent to explore for coal. 45km north of the town of Blackwater in Central Queensland. The primary focus of New Hope Group’s exploration program is to evaluate the economic potential of EPC1876. with the Department of Natural Resources, Mines and Energy and the Department of Environment and Science, commenced final rehabilitation of the site. Rehabilitation monitoring and maintenance is ongoing. of the township of Wandoan, Queensland. The New Hope Group acquired full ownership of the Collingwood Project in 2015. The Surat Basin has been identified by New Hope Group as a strategic investment opportunity. Pre‑feasibility for all four North Surat Project Areas; Collingwood, Elimatta, Taroom & Woori has commenced. of Brisbane and approximately 10–15 km north of the town of Wandoan. The tenure lies in the northern Surat Basin of South‑East Queensland. New Hope Group considers Culgowie to be a key component of the Elimatta Project due to its proximity to the Leichhardt Highway and the proposed Surat Basin Rail. Council area in Southern Queensland, approximately 45 km south‑west of Taroom. The Elimatta Project is based on the development of a thermal coal resource (JORC 2004 compliant) within the Juandah Formation in the Surat Basin. Pre‑feasibility has commenced. Downs. The EPC extends some 10km west and 50km south of the town. The primary focus of New Hope Group’ s exploration program is to further evaluate the economic potential of EPC970. ML4659 ML4662 ML4667 ML4668 EPC1322 EPC640 MLA55011 MLA55012 MLA55015 MLA55016 EPC1171 EPC1603 EPC650 MLA50254 MLA50270 MLA50271 Inglewood EPC970 Surat Basin The town of Millmerran is 25 km to the north of EPC970: Darling Pittsworth EPC758 EPC761 Surat Basin Clarence‑West Moreton Basin The tenement lies approximately 30km northwards across the township of Jimbour. This tenure continues to be explored for thermal coal deposits along with the wider Darling Downs Project area. Jeebropilly Collieries Pty Ltd owns and operates the Jeebropilly Mine, which is located near Amberley, in the city of Ipswich In South East Queensland. Mining has been conducted at Jeebropilly since the late 1970s. The current Project consists of 11 mining leases and one Petroleum Facility Licence. The Project is a thin seam open cut operation utilising truck and shovel methodology to extract thermal coal, which is predominantly sold to the export market. The Project went into a care and maintenance period in 2007 and recommenced operations in 2008. Mining at Jeebropilly will cease at the end of 2019. Surat Basin The New Acland Project is located north‑west of Oakey, Queensland. Open cut coal mining activities are conducted on MLs 50170 and 50216. New Acland Coal mine transports product coal from the mine by rail and road and supplies coal to export and domestic markets. Bowen Basin This Project is located in the Bowen Basin Coalfields, approximately 65 km north‑west of Nebo and 20 km south of Glenden in Central Queensland. The Project will produce coking and thermal coal for export. Neighbouring ML 70109 and its infrastructure, along with EPC 857, MDL 315 and MDL 349, were acquired from Peabody (Burton Coal) Pty Ltd in November 2017. Clarence‑West Moreton Basin New Oakleigh Coal Pty Ltd, a wholly owned subsidiary within the New Hope Group, is the holder of the seven mining leases associated with the New Oakleigh Coal Mine. The mine is located approximately 2km north west of the town of Rosewood, in south‑east Queensland. Last coal was extracted from the New Oakleigh Coal Mine in December 2012. Progressive rehabilitation was carried out in parallel with mining operations to 2012. Rehabilitation of the site by New Oakleigh Coal Pty Ltd is ongoing. The Pittsworth Project is located in the Darling Downs region of South East Queensland. The primary focus of New Hope Exploration Pty Ltd ’s exploration program is to further evaluate the economic potential of the Pittsworth Project tenures. R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 120 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 121 Tenements PROJECT NAME TENEMENT ^ BASIN DESCRIPTION Taroom MDL158 MDL275 Surat Basin Taroom East EPC2207 Surat Basin Woori MDL187 Surat Basin Yamala EPC927 MDL3007 Bowen Basin The Taroom Project is located 9km east south‑east of the town of Taroom. The Taroom Project is being assessed as part of a program of assets including Elimatta, Collingwood and Woori. Pre‑feasibility has commenced. EPC2207 is located 13km south‑east of Taroom, within the Shire of Banana. EPC2207 is part of the Taroom Project, which is one of four New Hope Group (NHG) Projects in the North Surat Basin area. New Hope Group acquired full ownership of the Woori Project in 2015. The Surat Basin has been identified by New Hope Group as a strategic investment opportunity. New Hope Group now holds a resource of thermal coal through several deposits including Taroom, Elimatta, Collingwood, and Woori. Pre‑feasibility has commenced. The Yamala Project is located approximately 35km east of Emerald, and 6km west of the town of Comet. The Project tenures lie in the central Bowen Basin, Queensland. The primary focus of New Hope Group ’s program for the Yamala Project is to further evaluate its economic potential. Bengalla MINERALS Courtenay OIL & GAS ML1728 ML1450 ML1729 ML1397 ML1469 ML1711 Hunter Valley Bengalla is a single pit open cut mine, using a dragline, truck and excavator method. Geologically, the operation is situated in the Permian, Sydney Basin and mines the Whittingham Coal Measures of the Hunter Coalfields. EPM18581 EPM19508 Mount Isa Inlier Mount Isa Inlier The Courtenay Project has the potential to host Iron Oxide Copper Gold (IOCG) and Broken Hill Type (BHT) mineralised systems. The primary focus of New Hope Group’ s exploration program is to further evaluate the economic potential of the Courtenay Project. Cuisinier PL 303/PL 1028 Eromanga Inland PL 98 Eromanga Utopia PL 214 Eromanga 64 km2/12 km2 total – Bridgeport holds a 15% interest in the Cuisinier Field, located on the northern flank of the Cooper Basin. The field is operated by Santos and is producing net 3,526 bopm to Bridgeport. 40 km2 total – Bridgeport holds 100% interest and is the operator of the Inland oil field. The field is currently producing at 5,525 bopm. 220 km2 total – PL 214 is located southeast of the township of Eromanga in southwestern Queensland. The field presently produces at 3,476 bopm. Bodalla South PL 31 Eromanga 258 km2. Bodalla South is producing at around 5,209 bopm. 122 New Hope Corporation Limited and Controlled Entities Tenements Tenements PROJECT NAME TENEMENT ^ BASIN DESCRIPTION PROJECT NAME TENEMENT ^ BASIN DESCRIPTION Taroom Surat Basin The Taroom Project is located 9km east south‑east of the MDL158 MDL275 town of Taroom. The Taroom Project is being assessed as part of a program of assets including Elimatta, Collingwood and Woori. Pre‑feasibility has commenced. Taroom East EPC2207 Surat Basin EPC2207 is located 13km south‑east of Taroom, within the Kenmore Black Stump PL 32 PL 47 Eromanga 258 km2. Kenmore is producing at 6,027 bopm. Eromanga 28 km2. Black Stump is producing at 579 bopm. Marcoola/Coolum/ Byrock PLs 482/483/484 Eromanga 30 km2. These fields are producing at 647 bopm. EPC927 MDL3007 ML1728 ML1450 ML1729 ML1397 ML1469 ML1711 EPM18581 EPM19508 MINERALS Courtenay OIL & GAS Woori MDL187 Surat Basin New Hope Group acquired full ownership of the Woori Project Shire of Banana. EPC2207 is part of the Taroom Project, which is one of four New Hope Group (NHG) Projects in the North Surat Basin area. in 2015. The Surat Basin has been identified by New Hope Group as a strategic investment opportunity. New Hope Group now holds a resource of thermal coal through several deposits including Taroom, Elimatta, Collingwood, and Woori. Pre‑feasibility has commenced. of Emerald, and 6km west of the town of Comet. The Project tenures lie in the central Bowen Basin, Queensland. The primary focus of New Hope Group ’s program for the Yamala Project is to further evaluate its economic potential. and excavator method. Geologically, the operation is situated in the Permian, Sydney Basin and mines the Whittingham Coal Measures of the Hunter Coalfields. Yamala Bowen Basin The Yamala Project is located approximately 35km east Bengalla Hunter Valley Bengalla is a single pit open cut mine, using a dragline, truck Mount Isa Inlier Mount Isa Inlier The Courtenay Project has the potential to host Iron Oxide Copper Gold (IOCG) and Broken Hill Type (BHT) mineralised systems. The primary focus of New Hope Group’ s exploration program is to further evaluate the economic potential of the Courtenay Project. Cuisinier PL 303/PL 1028 Eromanga 64 km2/12 km2 total – Bridgeport holds a 15% interest in the Inland PL 98 Eromanga 40 km2 total – Bridgeport holds 100% interest and is the Cuisinier Field, located on the northern flank of the Cooper Basin. The field is operated by Santos and is producing net 3,526 bopm to Bridgeport. operator of the Inland oil field. The field is currently producing at 5,525 bopm. of Eromanga in southwestern Queensland. The field presently produces at 3,476 bopm. Utopia PL 214 Eromanga 220 km2 total – PL 214 is located southeast of the township Bodalla South PL 31 Eromanga 258 km2. Bodalla South is producing at around 5,209 bopm. Bargie PL 256 Eromanga 15 km2. Bridgeport holds 93.9% of this oil field that is producing at 202 bopm. Jackson/Watson Naccowlah PLs Eromanga 1,606 km2 in area. This production project is operated by Santos. Bridgeport’s 2% holding netted 3993 bopm. Maslins PEL 641 Eromanga 1,954 km2. Tenement was granted 9‑02‑2018 and has been put in suspension to allow time to farm‑out interest. Playford PEL 630 1 Cooper‑Eromanga 393 km2 – This exploration tenement is located on the prospective Western flank of the Cooper Basin and is operated by Beach Energy. BEL WI = 50%^ Barta ATP 752/ PCA 206/207 Eromanga 380 km2. This exploration block (BEL 15%) is adjacent to the Cuisinier oil field and newly‑acquired seismic data has identified some drilling candidates. Santos operates ATP 752. Wompi/Nubba/ Yilgarn ATP 752/PCA 155 Cooper‑Eromanga 91 km2. Bridgeport holds 17.5% of this gas project, which is operated by Santos. Coolum/Byrock ATP 269 Eromanga 390 km2. This exploration tenement was acquired with the Kenmore‑Bodalla assets. Jundah Barcoo Block ATP 736 ATP 737 ATP 738 ATP 2025/ PCA 186/195 ATP 2026/ PCA 187‑194 Cooper‑Eromanga 6,400 km2 – Bridgeport holds 100% of these exploration permits, following a purchase of 55% from Senex. Technical studies to assess the oil and gas potential of these Cooper Basin tenements are progressing. Cooper‑Eromanga 310 km2/1,725 km2. Bridgeport operates and hold 100% of this area, which is the subject of multiple Potential Commercial Area applications. Canaway ATP 948 Cooper‑Eromanga 2,007 km2. Technical studies have identified a prospective trend that is the subject of a 100 line km 2D seismic survey. Naccowlah Block ATP 1189 Eromanga 314 km2 – Bridgeport holds 2% interest in exploration tenement ATP 1189 that is located in the vicinity of the Jackson production facility, operated by Santos. Morney ATP 2022 Cooper‑Eromanga 441 km2 – Adjacent to the Inland oil field. Granting of ATP 2022 is subject to Ministerial approval. Akama ATP 2023 Cooper‑Eromanga 434 km2. This application area (adjacent to the Naccowlah project area) is expected to be granted to Bridgeport in 2019. 1 BEL holds a 50% WI (Beach Operates) in PEL 630. Elsewhere when no WI% is given, please assume 100% BEL interest. R E V I E W O P E R A T I O N S R E P O R T I D R E C T O R S ’ R E P O R T F I N A N C I A L I N F O O T H E R 122 New Hope Corporation Limited and Controlled Entities 2019 Annual Report 123 Tenements PROJECT NAME TENEMENT ^ BASIN DESCRIPTION Olba ATP 2024 Cooper‑Eromanga 421 km2. This application area (adjacent to the Naccowlah project area) is expected to be granted to Bridgeport in 2019. Moonie PL 1 (1) Surat 201 km2 – PL 1 is located in the eastern Surat Basin of southeast Qld. The field is producing at approximately 3257 bopm. Cabawin PL 1 (2) PL 1 (2) FO Surat Rookwood ATP 608/PCA 156 Surat 1 km2/54 km2. This Bridgeport‑operated oil field (54%) is currently shut‑in, but is being technically assessed for future work and subsequent production. 229 km2/153 km2. ATP 608 contains the Rookwood oil field, which produced oil on extended test prior to being shut‑ in by the prior operator. Donga ATP 805/PCA 161 Surat 152 km2 – ATP 805 contains the Donga oil field, which produced oil on test prior to being shut‑in by the previous operator. Boxvale PL 15 FO Surat 259 km2. Bridgeport holds 25% of this non‑producing petroleum lease, which is operated by AGL. ATP 2036 Surat 299 km2. This tenement, located adjacent to the Cabawin field, was granted in June 2019. Digby PEP 150 Otway Arkarua PEP 151 Otway 3,253 km2 – Bridgeport has increased its interest holding to 50% at no cost and has been appointed operator. The tenement is affected by the current drilling moratorium, onshore Victoria. 864 km2 – This exploration permit is located near the town of Portland in southwest Victoria. Bridgeport holds 100% of the tenement, which is under an onshore exploration moratorium. 124 New Hope Corporation Limited and Controlled Entities Tenements PROJECT NAME TENEMENT ^ BASIN DESCRIPTION Olba ATP 2024 Cooper‑Eromanga 421 km2. This application area (adjacent to the Naccowlah project area) is expected to be granted to Bridgeport in 2019. Moonie PL 1 (1) Surat 201 km2 – PL 1 is located in the eastern Surat Basin of southeast Qld. The field is producing at approximately 3257 bopm. Cabawin Surat 1 km2/54 km2. This Bridgeport‑operated oil field (54%) PL 1 (2) PL 1 (2) FO is currently shut‑in, but is being technically assessed for future work and subsequent production. Rookwood ATP 608/PCA 156 Surat 229 km2/153 km2. ATP 608 contains the Rookwood oil field, which produced oil on extended test prior to being shut‑ in by the prior operator. Donga ATP 805/PCA 161 Surat 152 km2 – ATP 805 contains the Donga oil field, which produced oil on test prior to being shut‑in by the previous operator. Boxvale PL 15 FO Surat 259 km2. Bridgeport holds 25% of this non‑producing petroleum ATP 2036 Surat 299 km2. This tenement, located adjacent to the Cabawin field, lease, which is operated by AGL. was granted in June 2019. Digby PEP 150 Otway 3,253 km2 – Bridgeport has increased its interest holding to Arkarua PEP 151 Otway 864 km2 – This exploration permit is located near the town 50% at no cost and has been appointed operator. The tenement is affected by the current drilling moratorium, onshore Victoria. of Portland in southwest Victoria. Bridgeport holds 100% of the tenement, which is under an onshore exploration moratorium. 124 New Hope Corporation Limited and Controlled Entities Designed and produced by ArmstrongQ armstrongq.com.au 

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