NRW Holdings Limited Annual Report 2007

Plain-text annual report

HOLDINGS LIMITED NRW HOLDINGS LIMITED ANNUAL REPORT 2007 NWH Annual Report _Draft 2.indb a 22/10/2007 7:02:51 PM For personal use onlyCONTENTS Year in review Corporate governance statement Financial report Directors’ report Auditor’s independence declaration Directors’ declaration Income statements Balance sheets Statements of recognised income and expense Statements of cash ﬂ ows Notes to the ﬁ nancial statements Independent audit report Shareholder information Corporate directory 2 12 16 17 25 26 27 28 29 30 31 68 70 72 HOLDINGS LIMITED ABN 95 118 300 217 NOTICE OF ANNUAL GENERAL MEETING The AGM will be held at 10.00 am on Wednesday 28 November, 2007. The venue will be the Novotel Langley Hotel, Silver Room, 221 Adelaide Terrace, Perth WA 6000. NRW HOLDINGS LIMITED ABN 95 118 300 217 NWH Annual Report _Draft 2.indb b 22/10/2007 7:02:57 PM For personal use onlyHI GHLI GHT S FOR 2 0 07 F IN AN CIAL YE A R $277. 6 MILLION PRO FOR MA REVENUE $45.2 MILLION PRO FOR MA EBITDA $20.1 MILLION PRO FOR MA NET PR OFIT AF TE R TAX NWH Annual Report _Draft 2.indb 1 22/10/2007 7:03:10 PM ANNUAL REPORT 2007 For personal use onlyYEAR IN REV IEW Services have historically been provided in Australia only, however NRW has now commenced operations in the Northern Territory and in the West African country of Guinea Unless otherwise indicated, the results referred to in this review (including references to EBITDA, net proﬁ t and revenue) are set out on a pro forma basis, to show the ﬁ nancial performance as if the business units of NRW Holdings Limited were controlled by NRW for the twelve months ended 30 June 2007, in order to provide a meaningful comparison with the pro forma ﬁ nancial information that was contained in the Company’s initial public offering prospectus dated 27 July 2007. The pro forma adjustments are consistent with those made in the prospectus. NRW Holdings Limited commenced trading on the Australian Stock Exchange on 5 September 2007, after successfully completing an initial public offering of its shares. Prior to becoming a listed company, NRW was privately held, initially by its founders and key management personnel. In July 2006, an investment of $21.4 million was made in NRW by Stark NRWHPL Holding Limited, a company within the Stark Investments group. Stark Investments and key management personnel continue to hold signiﬁ cant interests in NRW following the initial public offering. NRW has established relationships with key clients including Rio Tinto, BHP Billiton and Fortescue Metals Group, and provides services to many other leading mining companies. Services have historically been provided in Australia only, however NRW is now commencing operations in Africa, initially as a contractor for Rio Tinto’s Simandou iron ore project. 2 NRW HOLDINGS LIMITED ABN 95 118 300 217 NWH Annual Report _Draft 2.indb 2 22/10/2007 7:03:15 PM For personal use onlyNRW is a leading Western Australian based provider of services to the resources sector. NRW was founded in 1994 and has developed a complementary and diversiﬁ ed service offering across four divisions: CIVIL CONTRACTING Providing construction services including rail formation, bulk earthworks, and road and tunnel construction. MINING SERVICES Offering a wide range of contracting services including earth moving, waste stripping, ore haulage and related ancillary services. SALES AND RENTAL Through its subsidiary, Promac Rental & Sales Pty Ltd, NRW offers the rental and sale of new and used heavy earthmoving equipment and the sale of off-road tyres. SERVICES Through its subsidiary, Actionblast Pty Ltd, NRW provides equipment repairs, sandblasting and painting services, service truck and water tanker fabrication and import services (including quarantine cleaning). ANNUAL REPORT 2007 3 NWH Annual Report _Draft 2.indb 3 22/10/2007 7:03:31 PM For personal use onlyFinancial Overview NRW grew strongly in the 2007 ﬁ nancial year, reﬂ ecting the performance of several substantial civil and mining contracts. Financial Performance NRW’s pro forma and statutory ﬁ nancial performance is summarised in the table below. NRW has achieved pro forma revenue of $277.6 million for the year ended 30 June 2007, up 49.1% as compared to the previous corresponding period. This increase was largely driven by new contracts in the Civil Contracting division in which revenue was up 40.8% from $115.0 million to $162.0 million and the Mining Services division in which revenue was up 158.5% from $30.1 million to $77.8 million. The increase in revenue of approximately $20 million between the Prospectus Pro Forma Forecast for FY2007 and the Pro Forma Actual for FY2007 is largely attributable to increased revenue from the Fortescue Rail and Camp project. This project commenced in April 2007 and progress to date has exceeded expectations, especially in the camp project area. NRW has achieved pro forma EBITDA of $45.2 million and pro forma EBIT of $33.6 million for the year ended 30 June 2007, up 42.1% and 34.4% respectively as compared to the previous corresponding period. Pro forma net proﬁ t after tax was $20.1 million for the year ended 30 June 2007. The increase in net proﬁ t after tax of $1.2 million between the Prospectus Statutory Forecast and the Statutory Actual for the year ended 30 June 2007 is largely attributable to the forgiveness of a $1.0 million loan owed to a director related entity and forgiven during the year as part of an agreement with Stark Investments upon the restructuring of the Group on 2 July 2006. PROSPECTUS PRO-FORMA HISTORICAL PRO-FORMA FORECAST PRO-FORMA ACTUAL PROSPECTUS STATUTORY FORECAST STATUTORY ACTUAL FY2006 186.2 31.8 25.0 FY2007 257.2 43.9 31.9 27.9 19.5 FY2007 277.6 45.2 33.6 28.7 20.1 FY2007 243.2 35.6 23.8 19.8 12.7 FY2007 264.4 37.5 25.9 21 13.9 In millions of AUD Revenue EBITDA EBIT Proﬁ t Before Tax Net Proﬁ t After Tax 4 NRW HOLDINGS LIMITED ABN 95 118 300 217 NWH Annual Report _Draft 2.indb 4 22/10/2007 7:03:36 PM For personal use only Financial Position Capital Expenditure As at 30 June 2007, NRW had net assets of $45.5 million. The Company successfully completed an initial public offering of shares and listed on the Australian Securities Exchange after the end of the ﬁ nancial year, raising approximately $46.6 million from the issue of new ordinary shares. The proceeds of the issue of shares were applied to the repayment of debt and the payment of costs of the initial public offering, with the balance of the funds raised available for future growth opportunities. Cash Flow and Borrowings Cash provided by operating activities for the ﬁ nancial year was $41.9 million. Cash and cash equivalents increased by $16.5 million during the ﬁ nancial year. NRW is continuing to make substantial investments in new and replacement equipment, in order to meet the expected requirements of existing and new projects. Property, plant and equipment of $40.8 million was acquired during the year ended 30 June 2007. Investments On 30 March 2007, NRW completed the acquisition of Actionblast Pty Ltd. The acquisition of Actionblast Pty Ltd provides NRW with the ability to provide a range of services to owners and operators of heavy earthmoving equipment. The repair, maintenance and rebuild capabilities of Actionblast Pty Ltd will support the growth of the civil contracting, mining services and rental and sales activities of NRW. STATUTORY ACTUAL NRW will consider future opportunities to expand by making strategic acquisitions. In millions of AUD Net cash provided by operating activities Net cash used in investing activities Net cash provided by ﬁ nancing activities Net increase in cash for the year FY2007 41.9 (28.6) 3.2 16.5 Group Outlook The ﬁ nancial performance of NRW in the 2008 ﬁ nancial year to date has been consistent with expectations. This performance and the continued positive outlook for each of the divisions underpins management and the Board’s conﬁ dence in achieving the forecasts of pro forma EBITDA of $85.4 million and pro forma net proﬁ t after tax of $40.2 million for the 2008 ﬁ nancial year, as set out in the Company’s initial public offering prospectus. Pro forma net proﬁ t after tax was $20.1 million for the year ended 30 June 2007 ANNUAL REPORT 2007 5 NWH Annual Report _Draft 2.indb 5 22/10/2007 7:04:01 PM For personal use onlyDivisional Overview Operations PROSPECTUS PRO FORMA FORECAST PRO FORMA ACTUAL Contracts and contract extensions won during the period were: FY2007 FY2007 In millions of AUD Revenue Civil contracting Mining services Sales and rental Services Other/eliminations Total revenue 140.3 78.2 30.8 21.4 (13.5) 257.2 162.0 77.8 28.6 20.7 (11.5) 277.6 Civil Contracting NRW civil contracting projects have included bulk earthworks, project rehabilitation, conveyor line preparation and construction of access roads, rail sidings, tailings dams, run-of-mine pads, seawalls, airstrips, greenﬁ eld mine development, bridges and iron ore storage facilities. Revenue for the civil contracting division was $162.0 million, up 41% from $115.0 million in the 2006 ﬁ nancial year. • • • • • • • • • Rio Tinto Expansion Projects: Yandi Access Road. Rio Tinto Expansion Projects: Lang Hancock Rail Sidings. Pilbara Iron: Nammuldi Multi Plate Tunnels. Rio Tinto Expansion Projects: Hope Downs Village Access Road. Fortescue Metals Group: Railway Earthworks and Drainage Sections 6 – 9. Fortescue Metals Group: Accommodation Village Facilities. Energy Resources of Australia: Ranger Radiometric Sorter Site Works. Energy Resources of Australia: Ranger Laterite Plant Expansion Site Works. BHP Billiton: ADP RGP4 – Jimblebar Mine and Rail Earthworks. Signiﬁ cant project achievements during the year included: Yandi JSE plant site and rail expansion The division’s growth was driven by the Pilbara Iron Ore producers’ need for new or enhanced infrastructure to meet expanding demand for their ore. This environment will continue to support the expected growth in the division for the coming year with contribution expected from the emerging Midwest Iron ore province and other commodity mine sites commencing construction in the coming year. The Yandi JSE plant and rail expansion was completed during the year, ahead of time and under budget. When awarded this project, combining two civil expansion projects, was the division’s largest ever. The project included railway embankments, conveyor embankments, detailed earthworks, bridge works, drainage structures, reinforced earth wall construction, road construction and detailed drill and blast 6 NRW HOLDINGS LIMITED ABN 95 118 300 217 NWH Annual Report _Draft 2.indb 6 22/10/2007 7:04:07 PM For personal use onlywork. Much of the work was carried out in and around the existing plant site and railway line. The project provided NRW with the growth in systems, personnel and capacity to enable the division to complete future major infrastructure projects. Hope Downs Stage 1 Bulk Earthworks, Roadwork’s and Drainage NRW was involved in the Hope Downs Stage 1 Project from the design phase and was awarded the work prior to the ﬁ nalisation of the design. NRW proved to be both adaptable and ﬂ exible in providing the site with its access roads, drainage structures, plant site, administration and stockyard earthworks and drainage. All facets were ﬁ nished to the highest standards. Yandi Access Road The Yandi Access Road involved 57km of reconstruction and new construction to main roads standards. The core team that completed this project has now gone on to the Hope Downs Village Access Road. Nammuldi Multi Plate Tunnels To provide ore to the Nammuldi processing plant from lenses E & F, Pilbara Iron contracted NRW to construct 3 multi plate steel tunnels. The tunnels allowed ore trucks to pass over the Nammuldi Access Road, The Brockman Access Road and the Brockman Railway. NRW staff worked around the clock managing the road trafﬁ c and liaising with Pilbara Iron’s rail system to complete these impressive 7 and 9 meter steel tunnels with minimal disruption to existing operations. Lang Hancock Rail Sidings NRW has long been the most proliﬁ c sidings contractor in the Pilbara having built over 20 sidings. The Lang Hancock Rail sidings project saw NRW complete Dove, Juna and Eagle sidings on the Lang Hancock rail on route to Hope Downs. NRW’s site team performed well in overcoming difﬁ cult logistical issues including coordinating works in three separate areas. Fortescue Rail and Camp Project In April 2007, NRW was awarded sections 8 & 9 of the FMG Railway project consisting of 46kms of rail formation passing through the Chichester Ranges. NRW has subsequently been awarded sections 6 & 7 of the rail taking our length of the rail formation works to 106kms. Drawing resources from all NRW’s divisions and with currently more than 300 personnel on site, this project will eventually expand to over 400 personnel. Outlook FY2008 is expected to be a year of further growth driven by the continued commodity demand and the infrastructure required by our clients to meet that demand. The development of Western Australia’s proposed Midwest iron ore projects is expected to progress towards production and existing iron ore producers will continue to expand and develop new resources. It is also expected that a signiﬁ cant number of quality projects in other commodities will commence during this period. Revenue for the civil contracting division was $162.0 million, up 41% from $115.0 million in the 2006 ﬁ nancial year ANNUAL REPORT 2007 7 NWH Annual Report _Draft 2.indb 7 22/10/2007 7:04:34 PM For personal use onlyMining Services NRW’s mining services division provides contract mining services to mining companies and has extensive experience in developing mines in remote locations. Signiﬁ cant work has been undertaken in the iron ore, copper, gold, diamond, nickel and mineral sand sectors. Services include earth moving, waste stripping, ore haulage and related ancillary services. Revenue for the mining services division was $77.8 million, up 158% from $30.1 million in the 2006 ﬁ nancial year. Growth in the division was driven by the increased demand for natural resources, particularly iron ore and other related commodities. • • Matilda Minerals: Tiwi Mineral Sands (NT) – Mining, plant feed, product stockpile management and product haulage Simfer SA (Rio Tinto Guinea): Simandou Pre Development (Guinea, West Africa) – Exploration access, infrastructure development and trial mining Key works undertaken during the year included: Tiwi Mineral Sands NRW was awarded a 2 year total mining services contract with Matilda Minerals on remote Melville Island in the Northern Territory. The works include the provision of all mobile plant to service the mineral sand mining works and the haulage by road train of all heavy mineral concentrates to the shipping facility. Operations Yandi JSE Prestrip Contracts and contract extensions won during the period were: • • • • • • Pilbara Iron: Tom Price Mining (WA) – Load and haul of ore and waste, stockpile rehandle Pilbara Iron: Brockman No. 7 Development (WA) – Waste prestrip Aditya Birla: Nifty Pad 2 Rehandle (WA) – Reclaim and haul Pilbara Iron: Marandoo Mining (WA) – Waste prestrip Pilbara Iron: Yandi Mining Services (WA) – Waste prestrip Rio Tinto Expansion Projects: Yandi Continuous Miner Trials (WA) – Load and haul of ore and waste Following from the Yandi JSE construction works, a ﬂ eet of 100 tonne dump trucks was mobilised to pre-strip the Yandi Junction South East ore body to allow access to the high grade channel ore deposit. This work saw the addition of the ﬁ rst 200t class mining excavator to NRW’s ﬂ eet, as well as the expansion of the trucking ﬂ eet to twenty one Caterpillar 777D 100 tonne dump trucks. This high capacity mining equipment saw a projected 9 month work program completed in 7 months, allowing the successful commissioning of the new Yandi JSE infrastructure. 8 NRW HOLDINGS LIMITED ABN 95 118 300 217 NWH Annual Report _Draft 2.indb 8 22/10/2007 7:04:36 PM For personal use onlyto our ﬂ eet. These works were undertaken and managed by a predominantly indigenous work crew which saw an indigenous employee ratio of over 85%. Simandou Pre Development In June 2007, NRW mobilised two CAT D9R dozers by heavy lift aircraft from Dubai into Guinea to commence development works including roads and drill pads at the Simandou project. Signiﬁ cant additional plant will be mobilised by air and sea during FY2008 to assist Simfer SA with an aggressive development program for this highly prospective iron ore resource. Outlook The outlook for further growth in the Mining sector remains strong, buoyed by the current strong resource commodities price cycle and the signiﬁ cant number of development projects in the approvals and construction pipeline. Continued focus on NRW’s indigenous involvement program will assist with resourcing this growth potential. Tom Price Mining Following three years of short tenure works, a two year contract was awarded for the provision of mining services within the Tom Price mine and associated pits. The works include pre stripping of waste, remnant mining, bench development, stockpile rehandle and drop cut development. This contract saw the purchase of a second 200 tonne class mining excavator. A signiﬁ cant indigenous employee program was initiated on this contract which saw indigenous involvement on this project climb to 22% at years end. Marandoo Mining Due to short term waste stripping requirements, mining plant and personnel were temporarily relocated from Tom Price to Marandoo Mine to ensure Pilbara Iron were able to maintain their budgeted product output. Upon successful completion of the works, the plant and personnel were returned to Tom Price. This project demonstrated the ﬂ exibility that NRW can provide to clients. Yandi Continuous Miner Trials Following the successful completion of the Yandi JSE Pre Strip works, an arrangement was negotiated to provide the materials haulage services to support the trial mining of the Yandi JSE orebody using a continuous cutting mobile miner. To support these works NRW added a Cat 992 front end loader, and an additional three 100t dump trucks Revenue for the mining services division was $77.8 million, up 158% from $30.1 million in the 2006 ﬁ nancial year ANNUAL REPORT 2007 9 NWH Annual Report _Draft 2.indb 9 22/10/2007 7:04:43 PM For personal use onlySales and rental Through its subsidiary, Promac Rental & Sales Pty Ltd, NRW offers the rental and sale of new and used heavy earthmoving equipment and the sale of off-road tyres. The sales and rental division supports the growth of NRW’s civil contracting and mining services divisions, and the majority of equipment rental revenue is generated from sales to these divisions. Promac has a ﬂ eet of highly reliable, low-hour heavy earth moving equipment including articulated dump trucks, rollers, excavators and loaders. Promac also leases mining support equipment including service trucks, mobile lighting towers, generator sets, personnel transporters and other ancillary equipment. Revenue for Promac Rental & Sales Pty Ltd was $28.6 million, down 14% from $33.1 million in the 2006 ﬁ nancial year. This was due to a reduction in tyre sales revenue which was partically high in the 2006 ﬁ nancial year due to a large one off second hand tyre sale transaction.However Rental revenue increased 95% due to an expansion of the rental ﬂ eet following strong demand for heavy machinery which was largely driven by the growth in other divisions within the NRW group. Outlook The outlook for further growth in the mining and civil construction sectors remains strong. An expansion in the client base and the rental machinery ﬂ eet are planned for the 2008 ﬁ nancial year. Promac Rental and Sales Pty Ltd has developed relationships with machinery manufacturers and importers, enabling it to introduce new machines into key markets. In addition, Promac Rental and Sales Pty Ltd is the authorized distributor for Patron Saint and Amberstone off road tyres. Services Through its subsidiary, Actionblast Pty Ltd (trading as Action Mining Services), NRW provides equipment repairs, sandblasting and painting services, service truck and water tanker fabrication and import services (including quarantine cleaning). Actionblast Pty Ltd was acquired on 30 March 2007. Revenue for the services division was $20.7 million, up 74% from $11.9 million in the 2006 ﬁ nancial year. Growth was driven by increasing demand for heavy earthmoving repair and maintenance services from civil and mining equipment owners and operators. Strong demand for fabricated products was also experienced. The Hazelmere premises were expanded during the year, with the construction of a new facility for the fabrication of Actionblast Pty Ltd’s range of service trucks and water tankers, an additional wash down bay, new storage buildings and an upgrade to yard and hardstand areas. Fabricated products, comprising service modules and water tankers, were successfully designed and developed by Actionblast Pty Ltd during the year and have been in strong demand from customers. The workshop workforce was increased by approximately 25%, including a signiﬁ cant commitment to training apprentices and the recruitment of overseas workers in areas where specialist skills were not readily available in the local market. A joint venture with Cavico, a Vietnamese company, has been negotiated for the fabrication of water tanks, which is expected to reduce production costs and delays. Signiﬁ cant resources have been allocated to training and safety during the period since the acquisition of Actionblast Pty Ltd. Investment in operating systems and software are currently being introduced, with productivity expected to increase as a result. Outlook The outlook for continuing growth within the services division remains strong, driven by the growth in overall numbers of earth moving machines operating in Western Australia. Improvements in throughput are expected during the 2008 ﬁ nancial year, and additions to the range of fabricated products are under consideration. Human Resources As at 30 June 2007, NRW had a total of approximately 550 employees. NRW’s workforce includes 45 indigenous employees, reﬂ ecting the strong commitment to indigenous employment and training. In addition, NRW employs 21 apprentices. 1010 NRW HOLDINGS LIMITED ABN 95 118 300 217 NWH Annual Report _Draft 2.indb 10 22/10/2007 7:04:45 PM For personal use onlyNRW’s Occupational Health and Safety Management Systems are accredited to AS4801-2001, the applicable Australian Standard. The company manages risk through hazard identiﬁ cation, minimisation, monitoring and control procedures, and by reviewing safety performance. NRW ensures that all employees, including subcontractors’ employees, are fully instructed, trained and assessed in the tasks each will be required to perform, and in the operation of plant and equipment. ‘Live It’ Safe Practices Programme During 2007, NRW introduced the Live It Safe Practices Programme. This programme was introduced to trigger a quantum shift in the health and safety thinking of NRW employees and to create a real and recognisable safety culture. LiveIt represents NRW’s promotion of safety as a way of life not only at work but at home – 24 hours per day. Environment In 2007 NRW achieved accreditation to ASNZS ISO 14001:2004 Certiﬁ ed Environmental Management which covers environmental management systems in the civil engineering and mining industries. This accreditation reinforces NRW’s commitment to maintaining strict environmental protocols on all projects undertaken. As a rapidly growing company operating in an environment where skilled labour is in short supply, NRW remains focused on the attraction and retention of quality employees. NRW provides its people with development opportunities at all levels. By identifying employees with potential and allowing access to high quality training and development, NRW provides its people with opportunities to grow with the business. Community NRW supports the communities in which it operates by sponsoring a range of charities, community events and sporting clubs. Awards NRW was proud to be a ﬁ nalist in the Rio Tinto Iron Ore Supplier Recognition Program for 2007. Training and Assessment During 2007 NRW introduced a nationally accredited Certiﬁ cate Two in the Metalliferous Competencies for all operators company wide. It is intended to replace the current training regime with a formally accredited system which will see all assessment conducted by nationally accredited, third party assessors. The aim of the new training and assessment regime will be to improve safe operation of plant and equipment, improve productivity and decrease costs associated with down time, tyre wear and general damage. Safety NRW is committed to achieving the highest possible performance in occupational health and safety across all of its business operations. A key safety performance measure is lost time injury frequency rate, which measures the number of injuries that result in an employee being absent from work for one or more whole shifts per million exposure hours. The LTIFR was 2.4 as at 30 June 2007. NRW remains focused on the attraction and retention of quality employees. NRW provides its people with development opportunities at all levels 11 ANNUAL REPORT 2007 NWH Annual Report _Draft 2.indb 11 22/10/2007 7:04:51 PM For personal use onlyCORPORATE GO VERNANCE S T AT E MEN T The Australian Stock Exchange Corporate Governance Council sets out best practice recommendations, including corporate governance practices and suggested disclosures. ASX Listing Rule 4.10.3 requires companies to disclose the extent to which they have complied with the ASX recommendations and to give reasons for not following them. The aim of the policies is to ensure that the Company is effectively directed and managed, risks are identiﬁ ed, monitored and assessed and appropriate disclosures made on a continuous basis. Unless otherwise indicated the best practice recommendations of the ASX Corporate Governance Council, including corporate governance practices and suggested disclosures, have been adopted and complied with by the Company for the relevant period since the preparation of the company’s Prospectus and subsequent admission to the ASX Ofﬁ cial List on 3 September 2007. In addition, the Company has a Corporate Governance section on its website: www.nrw.com.au which includes the relevant documentation suggested by the ASX Recommendations. 1. The Board The Board is responsible for, and has the authority to determine, all matters relating to strategic direction, policies, practices, management goals and the operations of the Company. (a) The Board Charter The Board has adopted a Board Charter which sets out the responsibilities of the Board in greater detail, including the following responsibilities: • • • approving the strategic objectives of NRW and establishing goals to promote their achievement; monitoring the operational and ﬁ nancial position and performance of NRW; ensuring the Directors inform themselves of NRW’s business and ﬁ nancial status; • • • • • • • • • • • • establishing investment criteria including acquisitions and divestments, approving investments, and implementing ongoing evaluations of investments against such criteria; providing oversight of NRW, including its control and accountability systems; exercising due care and diligence and sound business judgment in the performance of those functions and responsibilities; considering and approving NRW’s budgets; reviewing and ratifying systems of risk management and internal compliance and control, codes of conduct and legal compliance; appointing and removing the Chief Executive Ofﬁ cer, monitoring performance and approving remuneration of the Chief Executive Ofﬁ cer and the remuneration policy and succession plans for the Company’s Chief Executive Ofﬁ cer; ratifying the appointment and, where appropriate, the removal of the Chief Financial Ofﬁ cer and Company Secretary; monitoring senior management’s performance and implementation of strategy and ensuring appropriate resources are available; ensuring that business risks facing NRW are, where possible, identiﬁ ed and that appropriate monitoring and reporting of internal controls is in place to manage such risks; approving and monitoring ﬁ nancial and other reporting; ensuring the Company complies with its responsibilities under the Corporations Act, the ASX Listing Rules, the Company’s Constitution and other relevant laws; and ensuring that collectively, the Board has the appropriate range of expertise to properly fulﬁ l the above responsibilities and reviewing this on a regular basis to ensure it continues to have operating and technical expertise relevant to the operations of NRW. The charter provides for the Board to delegate speciﬁ c matters to senior management, or to committees established by the Board. 12 NRW HOLDINGS LIMITED ABN 95 118 300 217 NWH Annual Report _Draft 2.indb 12 22/10/2007 7:04:51 PM For personal use only(b) The composition of the Board The composition of the Board is determined in accordance with the following general principles: • • • the Chairman shall be an independent non-executive Director; the majority of Directors shall be independent non-executive Directors(i); and the Board shall comprise Directors with a broad mix of business expertise and experience. The composition of the Board, its performance and the appointment of new Directors will be reviewed periodically by the Board, taking advice from external advisers where considered appropriate. The Board, from 27 July 2007, comprises two executive directors (Jeffery McGlinn and Julian Pemberton) and two non-executive directors (Ian Burston and Michael Arnett). The qualiﬁ cations and experience of the directors is set out on pages 17 to 18 of this report. The Board has determined that both of the non-executive directors are independent non-executive directors having regard to the principles set out in the ASX Corporate Governance Principles and Recommendations. Recommendation 2.1 of the ASX Corporate Governance Principles and Recommendations states that a majority of the board should be independent directors, which is not currently the case for NRW’s Board. The Board is actively seeking to identify and appoint an appropriately qualiﬁ ed additional non- executive and independent director. The term of ofﬁ ce held by each director of NRW during the reporting period is outlined on pages 17 to 18 of this report. 2. Committees In order to better manage its responsibilities, the Board established an Audit and Risk Management Committee, a Nomination Committee and a Remuneration Committee on 27 July 2007. Each committee has adopted a charter approved by the Board, setting out its responsibilities. Each committee will comprise a minimum of two non-executive Directors, a majority of independent Directors, and a non- executive Chairman. The committees are comprised of: • • • Audit and Risk Management Committee: Michael Arnett (chair) and Ian Burston; Nomination Committee: Michael Arnett (chair), Jeffery McGlinn and Ian Burston; and Remuneration Committee: Michael Arnett (chair), Ian Burston and Julian Pemberton as members. Executives may attend committee meetings by invitation of the chairman of the relevant committee. (a) Audit and Risk Management Committee The Audit and Risk Management Committee’s primary objectives are to assist and advise the Board in fulﬁ lling its responsibilities in relation to the accounting and reporting practices of the consolidated entity and the identiﬁ cation and management of signiﬁ cant ﬁ nancial risk areas and regulatory compliance. The role and responsibilities, composition, structure and membership requirements of the Audit and Risk Management Committee are documented in an Audit and Risk Management Charter approved by the Board and include: • • • • • the nomination and remuneration of external auditors; reviewing the quality of the external audit; providing an independent, objective review of ﬁ nancial information provided by management to Shareholders and regulatory authorities; reviewing the Company’s ﬁ nancial control practices; and assisting the Board in fulﬁ lling its responsibilities relating to the risk management and compliance practices of the Company. Formal systems have been introduced for regular reporting to the Board on ﬁ nancial risks and compliance matters. The independent auditors will have a direct line of reporting to the Committee and have clear and open access to members of this Committee. (i) At the time of this report the Board is comprised of two independent non-executive Directors and two executive Directors. The Board is actively seeking to identify and appoint an appropriately qualiﬁ ed additional non-executive Director. ANNUAL REPORT 2007 13 NWH Annual Report _Draft 2.indb 13 22/10/2007 7:04:52 PM For personal use onlyCORPORATE GO VERNANCE S T AT E MEN T This Committee will meet at least twice each year. Recommendation 4.3 of the ASX Corporate Governance Principles and Recommendations states that the audit committee should be structured so that it consists of only non-executive directors, a majority of independent directors, an independent chairperson, who is not chairperson of the board and at least 3 members. NRW’s Audit and Risk Management Committee currently consists of two non- executive and independent directors (Ian Burston and Michael Arnett). As noted above, the Board is actively seeking to identify and appoint an appropriately qualiﬁ ed additional non-executive and independent director. NRW envisages that this person, once appointed, will become a non-executive and independent member of the Audit and Risk Management Committee. (b) Nomination Committee This Committee’s principal function is reviewing and making recommendations to the Board on the composition and performance of the Board and its committees, the recruitment and appointment of new Directors and senior executives and the performance of incumbent Directors and senior executives. The role and responsibilities, composition, structure and membership requirements of the Nomination Committee are set out in detail in a Nomination Committee Charter approved by the Board. This Committee will meet at least once each year. (c) Remuneration Committee This Committee’s principal function is reviewing and making recommendations to the Board on remuneration packages and policies applicable to Directors and senior executives to ensure that those packages and policies are consistent with the Company’s strategic goals and objectives. The role and responsibilities, composition, structure and membership requirements of the Remuneration Committee are set out in detail in a Remuneration Committee Charter approved by the Board. This Committee will meet at least once each year. Detail on NRW’s remuneration policies and practices are set out in the Remuneration Report on pages 20 to 24 of this report. 3. Code of conduct for Directors and Ofﬁ cers To promote ethical and responsible decision-making, the Board has approved a Code of Conduct for Directors and Ofﬁ cers (including the Chief Executive Ofﬁ cer, the Chief Financial Ofﬁ cer, the Company Secretary and any other key executives) as to the practices necessary to maintain conﬁ dence in the Company’s integrity and the responsibility and accountability of individuals for reporting and investigating reports of unethical practices. The Code of Conduct for Directors and Ofﬁ cers deals with the following principal areas: • • • • • • • • integrity and professionalism; conﬂ icts of interest; conﬁ dentiality; fair dealing; inside information; compliance with laws and regulations; corporate opportunities; and encouraging the reporting of unlawful, unethical behaviour. Directors and the senior management team must comply with the Code of Conduct. 14 NRW HOLDINGS LIMITED ABN 95 118 300 217 NWH Annual Report _Draft 2.indb 14 22/10/2007 7:04:53 PM For personal use only(c) Communication Strategy with Shareholders The Company’s Communication Strategy is designed to promote effective communication with Shareholders and encourage participation at general meetings. The Board aims to ensure that all Shareholders of the Company are kept informed of all material developments affecting the Company’s business. Information will be communicated to Shareholders through announcements to ASX, the Company’s annual report, annual general meetings, half yearly and full year results, and the Company’s website, www.nrw.com.au. The Company Secretary has been appointed as the person primarily responsible for managing external communications with ASX. (d) Disclosure The Company’s Disclosure Policy is designed to ensure compliance with the ASX Listing Rules disclosure requirements and to ensure accountability at a senior management level for that compliance. The Disclosure Policy includes vetting and authorisation processes designed to ensure that Company information: • • • • is disclosed in a timely manner; is factual; does not omit material information; and is expressed in a clear and objective manner that allows the input of the information when making investment decisions. 4. Code of conduct covering obligations to stakeholders The Board has established a code of conduct to guide compliance with legal and other obligations to legitimate stakeholders. This code deals with the following principal areas: • • • • • • • responsibilities to Shareholders; responsibilities to clients and consumers; employment practices; obligations relating to fair trading and dealing; responsibilities to the community; how the Company complies with legislation affecting its operations; and how the Company monitors and ensures compliance with the code. 5. Policies (a) Statement of Delegated Authority The Company’s Statement of Delegated Authority sets out the Company’s policy relevant to the delegation of authority to management to conduct the day-to-day management of the Company. The policy contains various levels of authority in relation to entering transactions and other legally binding agreements on behalf of the Company. (b) Securities trading The Company has a Securities Trading Policy for Directors and senior executives. The policy requires Directors and senior executives to advise the Chairman or Chief Executive Ofﬁ cer if they intend to trade in securities in the Company and provides safeguards for both the Company and the individual with respect to securities trading. The Securities Trading Policy clearly identiﬁ es those individuals who are restricted from trading and the relevant laws relating to trading. NWH Annual Report _Draft 2.indb 15 22/10/2007 7:04:55 PM ANNUAL REPORT 2007 15 For personal use onlyDIR ECTOR S’ R EPORT FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2007 16 16 NRW HOLDINGS LIMITED ANNUAL REPORT 2007 NRW HOLDINGS LIMITED ABN 95 118 300 217 NWH Annual Report _Draft 2.indb 16 22/10/2007 7:04:56 PM For personal use onlyDIRECTOR S’ R EPORT The Directors present their report together with the ﬁ nancial report of NRW Holdings Limited (“the Company”) and of the Consolidated Group (also referred to as “the Group”), comprising the Company and its subsidiaries, for the ﬁ nancial year ended 30 June 2007 and the Auditor’s report thereon. Comparative ﬁ nancial information for the Group and the Company has not been included in the Directors’ report or the ﬁ nancial report because the Group was legally formed on 2 July 2006. Whilst the Company was incorporated on 10 February 2006 it did not hold any material assets or have any operating activities until after the legal formation of the Group on 2 July 2006. Directors The following persons that held ofﬁ ce as Directors of NRW Holdings Limited during the ﬁ nancial year and up to the date of this report are: Name, Status Qualiﬁ cations, special responsibilities and other Directorships Ian Burston Chairman and Independent Non-Executive Director Dr Burston was appointed as a Director and Chairman on 27 July 2007. His career includes former positions as Managing Director of Portman Limited, Managing Director and Chief Executive Ofﬁ cer of Aurora Gold Ltd, Chief Executive Ofﬁ cer of Kalgoorlie Consolidated Gold Mines Pty Ltd, Vice President – WA Business Development of CRA Ltd and Managing Director of Hamersley Iron Pty Ltd. He was a non-executive Director of the Esperance Port Authority for ten years and is currently executive Chairman of Cape Lambert Iron Ore Ltd, a non-executive Chairman of Broome Port Authority and Imdex Ltd and a non-executive Director of Mincor Resources NL. Dr Burston has a Bachelor of Engineering (Mech) degree from Melbourne University and a Diploma in Aeronautical Engineering from Royal Melbourne Institute of Technology. He has completed the Insead Management Course in Paris and the Harvard Advanced Management Program in Boston. He was awarded the Western Australian Citizen of the Year (category of Industry and Commerce) in 1992, the Order of Australia (General Division) in 1993 and an Honorary Doctor of Science (Curtin) in 1995. Dr Burston has held the following directorships of listed companies in the 3 years immediately before the end of the ﬁ nancial year: • Non Executive Chairman, Imdex Limited • Non Executive Director, Mincor Resources NL • Non Executive Director, Aviva Corporation Limited (resigned 2006) • Chairman and Chief Executive Ofﬁ cer, Aztec Resources Limited (resigned 2007) • Non Executive Director, Kansai Mining Corporation • Executive Chairman, Cape Lambert Iron Ore Limited Jeffrey McGlinn Chief Executive Ofﬁ cer Mr McGlinn was appointed as a Director on 10 February 2006. Mr McGlinn is the founding Managing Director of NRW. He has over 27 years of experience in civil contracting, mining and marketing. His major responsibilities within NRW are in the areas of Group management and ﬁ nance including strategy, acquisitions and overall business development. Julian Pemberton Chief Operating Ofﬁ cer and Executive Director Mr Pemberton was appointed as a Director on 1 July 2006. He has over 18 years of experience in business, sales and management in both Australia and the United Kingdom. Mr Pemberton joined NRW in 1997 and initially worked on site before progressing into the sales and hire area. He has held roles as Operations Manager and General Manager for NRW prior to his current role. NWH Annual Report _Draft 2.indb 17 22/10/2007 7:05:02 PM ANNUAL REPORT 2007 17 For personal use onlyDIR ECTOR S’ R EPORT Name, Status Qualiﬁ cations, special responsibilities and other Directorships Michael Arnett Non-executive Director Mr Arnett was appointed as a Director on 27 July 2007. Michael Arnett is a consultant to and former partner of and member of the Board of Directors and national head of the Natural Resources Business Unit of the law ﬁ rm Deacons. Michael has been involved in signiﬁ cant corporate and commercial legal work for the resource industry for over 20 years. Mr Arnett has held the following directorships of listed companies in the 3 years immediately before the end of the ﬁ nancial year: • Non Executive Director, Anzon Australia Limited • Non Executive Director, Anzon Energy Limited • Non Executive Director, Archipelago Resources PLC • Non Executive Chairman, Aztec Resources Limited (resigned 2007) • Non Executive Director, Kids Campus Limited (resigned 2006) • Non Executive Director, Axiom Mining Limited (resigned 2007) • Non Executive Director, Queensland Energy Resources Limited • Non Executive Director, Red Sky Energy Limited John Silverthorne Executive Director Mr Silverthorne was appointed a Director on 10 February 2006 and resigned on 27 July 2007. He is a founding shareholder of NRW, and has over 28 years of experience in the civil contracting and mining services industries. Keith Bounsell Executive Director Mr Bounsell was appointed a Director on 10 February 2006 and resigned on 2 July 2007. He has over 23 years experience in heavy duty plant maintenance for the civil contracting and mining services industries. Lexan Piper Executive Director Mr Piper was appointed a Director on 10 February 2006 and resigned on 27 July 20007. He is a founding shareholder of NRW. Company Secretary Mr Kim Hyman was appointed to the position of company secretary on 10 July 2007. Mr Hyman has responsibility for company secretarial and general legal services and the risk management portfolio. He has over 15 years experience in the construction industry as a partner in a commercial building company and with the specialised rooﬁ ng company, Trustek Australia. Mr Jeffrey McGlinn held the position of Company Secretary from 10 February 2006 to 10 July 2007. Directors’ meetings The number of Directors’ meetings and number of meetings attended by each of the Directors of the Company during the ﬁ nancial year are: 18 NRW HOLDINGS LIMITED ABN 95 118 300 217 Director Jeffrey McGlinn Julian Pemberton John Silverthorne Keith Bounsell Lexan Piper Directors’ Meetings Attended Directors’ Meetings Held 6 6 6 6 6 6 6 6 6 6 The Audit and Risk, Nomination and Remuneration Committees were not established until after the end of the ﬁ nancial year. Principal activities The principal continuing activities of the Group, comprising the Company and the entities that it controlled during the ﬁ nancial year, were: • • civil and mining contracting services rental and sale of new and used heavy mining and ancillary equipment NWH Annual Report _Draft 2.indb 18 22/10/2007 7:05:05 PM For personal use only• • • • sale of new and used off-road tyres equipment repair, sandblasting and painting services service truck and tanker fabrication import services, including quarantine cleaning State of Affairs Signiﬁ cant changes in the state of affairs of the Group during the ﬁ nancial year were as follows: • • • • • On 2 July 2006 Stark NRWHPL Holding Limited subscribed for 18,042,857 fully paid ordinary shares of the Company, at an issue price of $1.186 per share. On 2 July 2006 the Company undertook a restructure of the NRW Unit Trust and Promac Rental & Sales Pty Ltd to combine the businesses into one legal group. The businesses of NRW Unit Trust and Promac have historically been managed as one business throughout the historical period, although statutory reporting for NRW or a combined NRW Unit Trust and Promac business was not required. On 9 October 2006 the Company acquired the remaining 55% minority interest in Promac. On 30 March 2007, the Company completed the acquisition of Actionblast Pty Ltd. The ﬁ nancial report includes the ﬁ nancial position, the results from operations and cash ﬂ ows of Actionblast Pty Ltd from that date. On 6 April 2007 the Company was converted to a public company limited by shares. Other than as set out above there were no signiﬁ cant changes in the state of affairs of the Company or the Group during the ﬁ nancial year. Review of Operations and Results A review of the operations and results for the Group for the ﬁ nancial year to 30 June 2007, as well as information on the ﬁ nancial position of the Group, is set out in the Year in Review on pages 2 to 11 in this Annual Financial Report. objectives, as set out in the Company’s IPO prospectus dated 27 July 2007. On 27 July 2007 the 65,974,869 then issued ordinary shares of the Company were split into 226,250,000 ordinary shares. No other matter or circumstance has arisen since the end of the ﬁ nancial year that has signiﬁ cantly affected, or may signiﬁ cantly affect, the Group’s operations, the results of those operations, or its state of affairs in future ﬁ nancial years. Likely Developments Likely developments in the Group’s operations in future ﬁ nancial years and the expected results of those operations are reported, as appropriate, in the Year in Review on pages 2 to 11 in this Annual Financial Report. Further information about likely developments in the Group’s operations in future ﬁ nancial years, the expected results of those operations and the Group’s business strategy and prospects for future ﬁ nancial years has not been included in this report because disclosure of such information would be likely to result in unreasonable prejudice to the Company and the Group. Directors’ Interests At the date of this report the relevant interest of each Director in the ordinary share capital of the Company was: Director Jeffrey McGlinn Julian Pemberton Ian Burston Michael Arnett Ordinary Shares (NWH) 22,859,402 2,534,540 50,000 175,000 Transactions between entities within the Group and Director- related entities are set out in Note 39 to the ﬁ nancial statements on page 62 to 64 of this Annual Financial Report. Signiﬁ cant Events after Year End Dividends Since the end of the ﬁ nancial year, the Company was admitted to the Ofﬁ cial List of the Australian Stock Exchange on 5 September 2007 after raising approximately $46.6 million from its Initial Public Offering (IPO). Funds raised from the IPO were used to the repayment of interest bearing debt, the payment of offer costs and to provide working capital. The Directors consider that this use of the funds raised from the IPO is consistent with the Company’s business No interim or ﬁ nal dividends were paid or declared for the ﬁ nancial year ended 30 June 2007. Options over Unissued Shares or Interests There were no options for ordinary shares on issue during the ﬁ nancial year, and none had been granted or were on issue as at the date of this report. ANNUAL REPORT 2007 19 NWH Annual Report _Draft 2.indb 19 22/10/2007 7:05:05 PM For personal use onlyDIR ECTOR S’ R EPORT Auditor The Company’s auditor is WHK Horwath Perth Audit Partnership. During the ﬁ nancial year there were no ofﬁ cers of the Company who were former partners or directors of WHK Horwath Perth Audit Partnership. Auditor’s Independence and Non Audit Services The Directors received the Auditor’s Independence Declaration from the auditor of the Company, which is included on page 25 of this report. No non-audit services were provided to the Company by its auditor, WHK Horwath Perth Audit Partnership. Indemniﬁ cation and Insurance of Ofﬁ cers and Auditors The Company has executed a deed of access, indemnity and insurance in favour of each Director. The indemnity requires the Company to indemnify each Director for liability incurred by the Director as an ofﬁ cer of the Company subject to the restrictions prescribed in the Corporations Act. The deed also gives each Director a right of access to Board papers and requires the Company to maintain insurance cover for the Directors. The Company has also executed an indemnity and insurance deed in favour of certain executives of the Company. The deed requires the Company to indemnify each of these executives for liability incurred by them as executives of NRW subject to the restrictions prescribed in the Corporations Act. The deed also requires the Company to maintain insurance cover for these executives. The total amount of insurance premiums paid during the ﬁ nancial year was $18,755. The Company has not otherwise, during or since the end of the ﬁ nancial year, except to the extent permitted by law, indemniﬁ ed or agreed to indemnify an ofﬁ cer or auditor of the Company or of any related body corporate against a liability incurred as such an ofﬁ cer or auditor. Environmental Regulations 20 The Group holds various licenses and is subject to various environmental regulations. No known environmental breaches have occurred in relation to the Group’s operations. NRW HOLDINGS LIMITED ABN 95 118 300 217 Remuneration report Remuneration committee The remuneration committee has been formed post reporting date. The remuneration committee’s principal function is reviewing and making recommendations to the Board on remuneration packages and policies applicable to Directors and senior executives to ensure that those packages and policies are consistent with the Company’s strategic goals and objectives. The role and responsibilities, composition, structure and membership requirements of the remuneration committee are set out in detail in a Remuneration Committee Charter approved by the Board. The composition of the Remuneration Committee is as follows: • • • Michael Arnett (non-executive Director) Ian Burston (non-executive Director) Julian Pemberton (executive Director) The committee will meet at least once each year. Principles of compensation Key management personnel have authority and responsibility for planning, directing and controlling the activities of the Company and the Group, including directors of the company and other executives. Key management personnel compensation is competitively set to attract and retain appropriately qualiﬁ ed and experienced directors and executives, reward the achievement of strategic objectives, and achieve the broader outcome of creating shareholder value. The compensation structures take into account: • • • capability and experience of the individuals individual’s ability to manage and control the relevant performance criteria the overall Groups performance considering Group earnings, share price and returns on shareholders wealth. Compensation consists of a mix of ﬁ xed and variable compensation and short and long term performance based incentives. NWH Annual Report _Draft 2.indb 20 22/10/2007 7:05:06 PM For personal use onlyFixed compensation Short term incentive bonus Fixed compensation consists of base compensation (which is calculated on a total cost basis and includes the cost of non- cash beneﬁ ts provided to key management personnel), as well as employer contributions to superannuation funds. Each year the remuneration committee sets the measures of performance for the key management personnel. The measures are determined in order to align the individual’s reward with the strategy, objectives and performance of the Group. Compensation levels are reviewed annually by the remuneration committee through a process that considers individual, segment and overall Group performance. In addition, external consultants provide analysis and advice to ensure the directors’ and senior executives’ compensation is competitive in the market place. A senior executive’s compensation is also reviewed on promotion. Performance linked compensation Performance linked compensation includes both long term and short term incentives and is designed to reward key management personnel for meeting or exceeding their ﬁ nancial and personal objectives. The short term incentive is a bonus provided in the form of cash plus statutory employer superannuation contributions. The long term incentive comprises options over the ordinary shares of the Company under the Senior Management and Director Option Plan. No options have yet been issued under the Senior Management and Director Option Plan. In-substance options Limited recourse loans were made to key management personnel whereby loans are to be repaid by 15 March 2009 and accrue interest at a rate of 7.5% per annum, payable half- yearly. The loans have been issued in order for selected key management persons to acquire shares in the Company. The employees’ obligation for repayment of the loans is limited to the dividends declared and the capital returns by the Company, and in the event that the employee ceases employment, the market price achieved on the sale of the shares held as security by the Company for the loans. The employee has no exposure to unfavourable changes in market price below the price at which the shares were issued. The shares issued under the limited recourse loan arrangements are accordingly accounted for as in-substance options (equity-settled share-based payments). To date 1,275,533 ordinary shares have been issued to key management personnel under this arrangement with the in- substance options having a total fair value of $1,128,509 on issue date. The ﬁ nancial performance objectives are ‘proﬁ t after tax’ compared to budgeted amounts. The non-ﬁ nancial measures vary with position and responsibility and include such aspects as achieving strategic outcomes, safety, customer relationship management and staff development. At the end of the ﬁ nancial year the remuneration committee assesses the actual performance of the Group and the individual against the measures determined at the beginning of the period. A percentage of the pre-determined maximum amount will be awarded depending on the extent to which the individual exceeded the performance measures. No bonus is awarded where performance falls below the minimum expectations. The remuneration committee recommends the cash incentive to be paid to the individuals for approval by the Board. Long term incentive Options are issued under the Senior Management and Director Option Plan (“SMDOP”) in accordance with the thresholds set in the terms of the SMDOP. The objective of the SMDOP is to recognise the ability and efforts of senior executives who contribute to the Group’s success, provide an incentive to achieve individual long term performance objectives and assist in the recruitment and retention of quality senior executives. The board has the discretion to determine the terms and conditions applying to each offer of options under the SMDOP including conditions attaching to the exercise of options, restrictions on transfer and disposal, exercise price of options and amount payable for a grant of options. As at the date of issue of this report the board had not resolved to issue any options under the SMDOP. It is expected that the board will attach conditions to the issue of options under the SMDOP where the right to exercise the options is conditional on the Group achieving certain performance hurdles as determined by the remuneration committee. ANNUAL REPORT 2007 21 NWH Annual Report _Draft 2.indb 21 22/10/2007 7:05:06 PM For personal use onlyNon-executive Directors’ fees to be paid by the Company upon admission to the ASX are as follows: Director Dr I F Burston Mr M Arnett Fee per annum $ 120,000 80,000 Non-executive directors are also entitled to receive reimbursement for travelling and other expenses that they properly incur in attending Directors’ meetings, attending any general meetings of the Company or in connection with the Company’s business. DIR ECTOR S’ R EPORT Other beneﬁ ts Key management personnel can receive additional beneﬁ ts in the form of non-cash beneﬁ ts, as part of the terms and conditions of their appointment. Non-cash beneﬁ ts typically include the provision of motor vehicles, motor vehicle running costs and other personal expense payments, and the applicable Fringe Beneﬁ ts Tax on these amounts. Service contracts NRW has entered into executive service agreements with each of Jeffrey McGlinn as Chief Executive Ofﬁ cer, John Silverthorne as Managing Director – NRW Civil and Mining, and Julian Pemberton as Chief Operating Ofﬁ cer. The executive service agreements: • • • • • are not ﬁ xed term agreements and continue on an ongoing basis until terminated; contain non-compete provisions restraining the executives from operating or being associated with an entity that competes with the business of NRW in Western Australia for 12 months after termination; provide for annual salaries of $1,510,000 for Jeffrey McGlinn, $1,000,000 for John Silverthorne and $400,000 for Julian Pemberton. In addition, the executives receive statutory superannuation contributions, motor vehicle allowance and other fringe beneﬁ ts; provide for remuneration to be reviewed by NRW annually; and may be terminated by either the executive or the Company giving six months’ notice of termination, or in the case of Julian Pemberton’s agreement, three months’ notice. Non-executive directors Non-executive directors do not receive performance related compensation. The Company’s Constitution provides that non-executive Directors’ remuneration must not exceed the maximum aggregate sum determined by the Company in general meeting. At present, the nominated sum is ﬁ xed at a maximum of $350,000, in aggregate, per annum. This maximum sum cannot be increased without members’ approval by ordinary resolution at a general meeting. 22 NRW HOLDINGS LIMITED ABN 95 118 300 217 NWH Annual Report _Draft 2.indb 22 22/10/2007 7:05:06 PM For personal use onlyDirectors’ and executive ofﬁ cers’ remuneration (Company and Consolidated) Details of the nature and amount of each major element of remuneration of each director of the Company, and relevant Company and Group executives and key management personnel, who receive the highest remuneration, are: Short Term Beneﬁ ts Salary & fees $ STI cash bonus $ Non cash beneﬁ t $ Post Employment Beneﬁ ts Other Long Term Beneﬁ ts Share Based Payments Other $ Superannuation $ Other $ Equity $ In substance Optionsi $ Total $ Performance related % Value of options % Key Person Mr L N Piper 304,807 Mr J W McGlinn 1,088,653 Mr N J Silverthorne 784,615 Mr J A Pemberton 352,416 Mr K Bounsell Mr G Chiarelli Mr J A Kenny Mr P J McBain Mr R J Morrow Mr A C Hunt 392,307 297,832 180,769 275,036 275,036 200,000 Mr C Lindsay–Rae 229,428 Mr M Arnett Dr I F Burston – – Total compensation (Consolidated) Total compensation (Company) 4,380,899 2,570,382 – – – – – – – – – – – – – – – 65,314 93,554 78,636 38,599 68,730 13,120 21,206 15,095 15,087 20,791 5,317 – – 435,449 306,235 – – – – – – – – – – – – – – – 16,875 97,979 70,615 31,717 35,308 27,000 16,269 24,753 24,753 18,000 – – – 363,269 220,777 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 386,996 1,280,186 933,866 241,896 664,628 – 496,345 241,896 579,848 161,264 379,508 241,896 556,780 241,896 556,772 – – – – 238,791 234,745 – – 1,128,848 6,308,465 – 3,097,394 – – – – – – – – – – – – – – – – – – 25.1% – 41.7% 42.5% 43.4% 43.4% – – – – – – Notes in relation to the table of directors’ and executive ofﬁ cers’ remuneration i) The in-substance options have arisen as a result of the issue of fully paid ordinary shares to certain key management personnel funded by way of limited recourse loans. As the Company has limited recourse only to the value of the shares then the shareholder is not subject to any downside in share price below the issue price of $2.26. As a result each share has an in-substance option over them and is accounted for as equity-settled-share-based payments within the scope of AASB 2 Share-based payments (see note 36). The fair value of the in-substance options is calculated at the issue date of the underlying ordinary shares using a Black-Scholes option-pricing model and allocated to the 30 June 2007 reporting period in which the employment services were performed. The value disclosed is the total fair value of options recognised in the Income Statement in this reporting period. In valuing the options, market conditions have been taken into account. The fair value of the in-substance options is determined using the Black-Scholes option-pricing model. The model inputs were: • • • • • • share price of $2.75 (before the share split which occurred on 27 July 2007) exercise price of $2.26 (before the share split which occurred on 27 July 2007) expected volatility of 40% (based upon the historical volatility of comparable securities) expected dividend yield of 2.2% (net yield, after interest cost on the limited recourse loan) term of two years (with no early exercise assumed) risk free interest rate of 6.1% ANNUAL REPORT 2007 23 NWH Annual Report _Draft 2.indb 23 22/10/2007 7:05:06 PM For personal use onlyDIR ECTOR S’ R EPORT Rounding of Amounts The amounts contained in this report and the ﬁ nancial report have been rounded to the nearest $1,000 (where rounding is applicable) under the option available to the Company under ASIC Class Order 98/0100. The Company is an entity to which the Class Order applies. This report has been made in accordance with a resolution of the Directors of the Company. Jeffrey W McGlinn Chief Executive Ofﬁ cer Ian Burston Chairman 26 September 2007 24 NRW HOLDINGS LIMITED ABN 95 118 300 217 NWH Annual Report _Draft 2.indb 24 22/10/2007 7:05:07 PM For personal use onlyAUD ITOR’ S I NDEPENDEN CE D EC LA RAT I O N NWH Annual Report _Draft 2.indb 25 22/10/2007 7:05:09 PM ANNUAL REPORT 2007 25 For personal use onlyDIR ECTOR S’ DE CLARAT IO N The directors of the company declare that: 1. the remuneration disclosures are set out on pages 17 to 24 of the Directors’ Report, and the ﬁ nancial statements and notes are set out on pages 27 to 67, are in accordance with the Corporations Act 2001 and: a. comply with Australian Accounting Standards and the Corporations Regulations 2001; and b. give a true and fair view of the ﬁ nancial position as at 30 June 2007 and of the performance for the year ended on that date of the company and economic entity; 2. the Chief Executive Ofﬁ cer and Chief Finance Ofﬁ cer have each declared that: a. the ﬁ nancial records of the company for the ﬁ nancial year have been properly maintained in accordance with section 286 of the Corporations Act 2001; b. the ﬁ nancial statements and notes for the ﬁ nancial year comply with the Accounting Standards; and c. the ﬁ nancial statements and notes for the ﬁ nancial year give a true and fair view; 3. in the director’s opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. This declaration is made in accordance with a resolution of the Board of Directors. Jeffrey W McGlinn Chief Executive Ofﬁ cer Ian Burston Chairman 26 September 2007 26 NRW HOLDINGS LIMITED ABN 95 118 300 217 NWH Annual Report _Draft 2.indb 26 22/10/2007 7:05:12 PM For personal use onlyINCOM E ST AT EMENTS FOR TH E Y EAR ENDED 30 JUNE 20 07 Consolidated Company Revenue Other income Materials and consumables used Employee beneﬁ ts expense Subcontractor costs Depreciation and amortisation expenses Plant and equipment costs Travel and accommodation Other expenses Proﬁ t from operating activities Financial income Financial expenses Net ﬁ nancing costs Proﬁ t before income tax Income tax expense Proﬁ t for the year Attributable to: Equity holders of the Company Minority interest Earnings per share (cents per share) Basic earnings per share (AUD) Diluted earnings per share (AUD) Alternative earnings per share (cents per share) Basic earnings per share post-share split (AUD) Diluted earnings per share post-share split (AUD) 2007 $’000 – 25,419 (17) (5,447) – – (47) – (2,352) 17,556 – (652) (652) 16,904 (5,155) 11,749 Note 7 8 9 10 12 15 15 2007 $’000 260,457 3,310 (42,144) (61,987) (49,180) (11,576) (46,869) (13,576) (13,195) 25,240 639 (4,888) (4,249) 20,990 (7,140) 13,850 13,503 347 13,850 21.3 cents 21.2 cents 6.2 cents 6.2 cents The accompanying notes are an integral part of these consolidated ﬁ nancial statements. NWH Annual Report _Draft 2.indb 27 22/10/2007 7:05:14 PM ANNUAL REPORT 2007 27 For personal use onlyBALANCE SHEET S AS AT 3 0 JUNE 200 7 Consolidated 2007 $’000 Company 2007 $’000 Note Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Other current assets Total current assets Non-current assets Trade and other receivables Property, plant and equipment Intangible assets Financial assets Deferred tax assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Short-term borrowings Other ﬁ nancial liabilities Current tax liabilities Short-term provisions Total current liabilities Non-current liabilities Trade and other payables Long-term borrowings Deferred tax liabilities Long-term provisions Total non-current liabilities Total liabilities Net assets Equity Share capital Reserves 28 Retained earnings Total equity 20 22 23 25 22 13 14 24 28 26 29 30 27 37 26 29 28 37 16 17 18 16,551 66,964 8,574 2,203 94,291 – 83,714 27,101 – 2,624 113,439 207,731 60,182 55,523 6,749 7,256 587 130,296 – 27,691 3,896 334 31,921 162,217 30,723 1,290 13,501 45,513 1 – – 314 315 43,188 – – 34,060 1,073 78,322 78,637 852 24,000 3,319 6,094 587 34,852 23 – – – 23 34,875 45,513 30,723 1,290 11,749 43,762 The accompanying notes are an integral part of these consolidated ﬁ nancial statements. NRW HOLDINGS LIMITED ABN 95 118 300 217 NWH Annual Report _Draft 2.indb 28 22/10/2007 7:05:14 PM For personal use onlySTATEMENT S O F RECOGN ISED I N C O ME AN D E XP ENSE FOR TH E Y EAR ENDED 30 JUNE 20 07 Note Proﬁ t for the year Total recognised income and expense for the year Attributable to: Equity holders of the Company Minority interest Total recognised income and expense for the year The accompanying notes are an integral part of these consolidated ﬁ nancial statements. Consolidated Company 2007 $’000 13,850 13,850 13,503 347 13,850 2007 $’000 11,749 11,749 11,749 – 11,749 NWH Annual Report _Draft 2.indb 29 22/10/2007 7:05:14 PM ANNUAL REPORT 2007 29 For personal use onlySTATEMENT S O F CASH FLO WS FOR TH E Y EAR ENDED 30 JUNE 20 07 Cash ﬂ ows from operating activities Cash receipts from customers Cash paid to suppliers and employees Interest paid Interest received Income tax paid Net cash provided by/(used in) operating activities Cash ﬂ ows from investing activities Acquisition of subsidiaries net of cash acquired Proceeds from the sale of property, plant and equipment Acquisition of property, plant and equipment Loans received from subsidiaries Funds from repayment of related party loans Loans to subsidiaries Net cash used in investing activities Cash ﬂ ows from ﬁ nancing activities Proceeds from the issue of share capital Proceeds from borrowings Repayment of borrowings and ﬁ nance/hire purchase liabilities Payment of costs relating to initial public offering Repayment of director related party loans Net cash provided by ﬁ nancing activities Net increase in cash and cash equivalents Cash and cash equivalents at 1 July 2006 Cash and cash equivalents at 30 June 2007 Consolidated 2007 $’000 Note 243,372 (199,416) (1,045) 201 (1,165) 41,948 (24,650) 5,874 (9,867) – 4 – (28,640) 21,400 32,176 (32,616) (2,800) (14,918) 3,242 16,550 1 16,551 21 6(a), 6(b) 20 Company 2007 $’000 – (3,097) (438) – – (3,534) (26,771) 350 (365) 23 – (12,303) (39,066) 21,400 24,000 – (2,800) – 42,600 – 1 1 The accompanying notes are an integral part of these consolidated ﬁ nancial statements. 30 NRW HOLDINGS LIMITED ABN 95 118 300 217 NWH Annual Report _Draft 2.indb 30 22/10/2007 7:05:14 PM For personal use onlyNOTES T O T HE FI NANCIA L STAT E ME NT S NOTE 1. REPORTING ENTITY NRW Holdings Limited (the ‘Company’) is a company domiciled in Australia. The address of the Company’s registered ofﬁ ce is 73-75 Dowd Street, Welshpool, Western Australia. The consolidated ﬁ nancial statements of the Company as at and for the year ended 30 June 2007 comprise the Company and its subsidiaries (together referred to as ‘Consolidated’, the ‘Consolidated Group’ or the ‘Group’). The Group is primarily involved in civil and mining contracting, and the fabrication, maintenance and rental of earthmoving equipment. NOTE 2. BASIS OF PREPARATION Comparative ﬁ nancial information for the Group and the Company has not been included in the Directors’ report or the ﬁ nancial report because the Group was legally formed on 2 July 2006. Whilst the Company was incorporated on 10 February 2006 it did not hold any material assets or have any operating activities until after the establishment of the Group on 2 July 2007. a) Statement of compliance The ﬁ nancial report is a general purpose ﬁ nancial report which has been prepared in accordance with the Corporations Act 2001, Accounting Standards and Interpretations, and complies with other requirements of the law. The ﬁ nancial report includes the separate ﬁ nancial statements of the Company and the consolidated ﬁ nancial statements of the Group. Accounting Standards include Australian equivalents to International Financial Reporting Standards (‘AIFRS’). Compliance with AIFRS ensures that the ﬁ nancial statements and notes of the Company and the Group comply with International Financial Reporting Standards (‘IFRS’). The ﬁ nancial statements were approved by the Board of Directors on 26 September 2007. b) Basis of measurement The consolidated ﬁ nancial statements have been prepared on an accruals basis and are based on historical costs modiﬁ ed by the revaluation of selected non-current assets, ﬁ nancial assets and ﬁ nancial liabilities for which the fair value basis of accounting has been applied. c) Use of estimates and judgements The preparation of ﬁ nancial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. In particular, information about signiﬁ cant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most signiﬁ cant effect on the amount recognised in the ﬁ nancial statements are described in the following notes: 4(d) Construction Work in Progress NOTE 3. ADOPTION OF NEW AND REVISED ACCOUNTING STANDARDS In the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to its operations and effective for the current annual reporting period. The adoption of these new and revised Standards and Interpretations has also resulted in a change to the Group’s accounting policies in relation to business combinations involving entities under common control. Such business combinations were formerly within the scope of AASB 3 ‘Business Combinations’, but are now scoped out of that Standard by AASB 2005-6 ‘Amendments to Australian Accounting Standards’. ANNUAL REPORT 2007 31 NWH Annual Report _Draft 2.indb 31 22/10/2007 7:05:14 PM For personal use onlyNOTES TO T HE FI NANCIA L STAT E ME NT S NOTE 3. ADOPTION OF NEW AND REVISED ACCOUNTING STANDARDS (CONTINUED) At the date of authorisation of the ﬁ nancial report, the following Standards and Interpretations were in issue but not yet effective: AASB 7 ‘Financial Instruments: Disclosures’ and consequential amendments to other accounting standards resulting from its issue. Effective for annual reporting periods beginning on or after 1 January 2007 AASB 101 ‘Presentation of Financial Statements’ – revised standard. Effective for annual reporting periods beginning on or after 1 January 2007 Interpretation 10 ‘Interim Financial Reporting and Impairment’. Effective for annual reporting periods beginning on or after 1 November 2006 The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material ﬁ nancial impact on the ﬁ nancial statements of the Company or the Group. The issue of Interpretation 7, Interpretation 8 and Interpretation 9 do not affect the Group’s present policies and operations. The circumstances addressed by Interpretation 10, which prohibits the reversal of certain impairment losses, do not affect either the Company’s or the Group’s previously reported results and accordingly, there will be no impact to these ﬁ nancial statements on adoption of the Interpretation. The application of AASB 101 (revised), AASB 7 and AASB 2005-10 will not affect any of the amounts recognised in the ﬁ nancial statements, but will change the disclosures presently made in relation to the Company and the Group’s ﬁ nancial instruments and the objectives, policies and processes for managing capital. These Standards and Interpretations will be ﬁ rst applied in the ﬁ nancial report of the Group that relates to the annual reporting period beginning after the effective date of each pronouncement, which will be the Company’s annual reporting period beginning on 1 July 2007. The AASB released AASB 2005-6 ‘Amendments to Australian Accounting Standards’ in June 2006. AASB 2005-6 amends AASB 3 ‘Business Combinations’ by removing business combinations involving entities or business under common control from its scope. The effect of the scope amendment is that there is no longer any explicit guidance under Accounting Standards as to how to account for these types of business combinations. Due to the requirements of AASB 1 ‘First-time Adoption of Australian Equivalents to International Financial Reporting Standards’ permitting the non-restatement of pre-transition business combinations, the amendment has no effect on the ﬁ nancial statements of the Company or Group for the current or prior reporting periods. However, future transactions involving entities under common control will be affected. Details of the entity’s accounting policies in relation to common control transactions are outlined in Note 4(r). NOTE 4. SIGNIFICANT ACCOUNTING POLICIES The accounting policies described below have been applied consistently by Group entities: a) Principles of consolidation A controlled entity is any entity where NRW Holdings Limited has the power to control the ﬁ nancial and operating policies so as to obtain beneﬁ ts from its activities. The Group comprising NRW Holdings Ltd, and its controlled entities, was legally formed following a restructure of the existing businesses of NRW, the NRW Unit Trust and Promac on 2 July 2006. The business combination included entities that were under common control in accordance with AASB 3 Business Combinations as all of the combining entities were controlled by the same parties both before and after the business combination and that control was not transitory. 32 Accordingly, the provisions of AASB 3 Business Combinations did not apply to the restructure. The Company has determined to account for the common control combinations based on the existing book values of the entities involved in the combination as the Company considers that the combination does not have economic substance. The assets, liabilities and contingent liabilities of the combining entities were therefore stated at the book value at the date of restructure being 2 July 2006. NRW HOLDINGS LIMITED ABN 95 118 300 217 NWH Annual Report _Draft 2.indb 32 22/10/2007 7:05:14 PM For personal use onlyThe proportion of interests in Promac that were not transferred to the Company at the date of restructure were treated as minority interests until those interests were acquired on the 9 October 2006. On acquisition of those minority interests, the Company has calculated the difference between the fair value of consideration paid for those minority interests and the fair value of assets and liabilities acquired and recorded the difference as goodwill. A list of controlled entities is contained in Note 19 to the ﬁ nancial statements. All controlled entities have a June ﬁ nancial year-end. Inter-company loans which have no interest or repayment terms are effectively investments in controlled entities and are reﬂ ected at cost. All intra-Group balances and transactions between entities in the consolidated Group, including any unrealised proﬁ ts or losses, have been eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with those policies applied by the parent entity. Where controlled entities have entered or left the consolidated Group during the year, their operating results have been included/ excluded from the date control was obtained or until the date control ceased. b) Income tax The charge for current income tax expense is based on the proﬁ t for the year adjusted for any non-assessable or disallowed items. It is calculated using the tax rates that have been enacted or are substantially enacted by the balance date. Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the ﬁ nancial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable proﬁ t or loss. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the income statement except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity. Deferred income tax assets are recognised to the extent that it is probable that future tax proﬁ ts will be available against which deductible temporary differences can be utilised. The amount of beneﬁ ts brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that sufﬁ cient future assessable income will be derived to enable the beneﬁ t to be realised and comply with the conditions of deductibility imposed by the law. c) Inventories Inventories are measured at the lower of cost and net realisable value. The cost of manufactured products includes direct materials, direct labour and an appropriate portion of variable and ﬁ xed overheads. Overheads are applied on the basis of normal operating capacity. Costs are assigned on the basis of weighted average costs. d) Construction work in progress Construction work in progress represents the gross unbilled amount expected to be collected from customers for contract work performed to date. It is measured at cost plus proﬁ t recognised to date less progress billings and recognised losses. Cost includes all expenditure related directly to speciﬁ c projects and an allocation of ﬁ xed and variable overheads incurred in the Group’s contract activities based on normal operating capacity. Construction work in progress is presented as part of trade and other receivables in the balance sheet. If payments received from customers exceed the income recognised, then the difference is presented as deferred income in the balance sheet. e) Property, plant and equipment Each class of property, plant and equipment is carried at cost or fair value less, where applicable, any accumulated depreciation and impairment losses. ANNUAL REPORT 2007 33 NWH Annual Report _Draft 2.indb 33 22/10/2007 7:05:14 PM For personal use onlyNOTES TO T HE FI NANCIA L STAT E ME NT S NOTE 4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) e) Property, plant and equipment (continued) Property Freehold land and buildings are shown at their fair value (being the amount for which an asset could be exchanged between knowledgeable willing parties in an arms length transaction), based on periodic, but at least triennial, valuations by external independent valuers, less subsequent depreciation for buildings. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. Plant and equipment Plant and equipment are measured on the cost basis. The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash ﬂ ows that will be received from the assets employment and subsequent disposal. The expected net cash ﬂ ows have been discounted to their present values in determining recoverable amounts. The cost of ﬁ xed assets constructed within the consolidated Group includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of ﬁ xed and variable overheads. The costs of replacing part of an item of property, plant or equipment are recognised in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic beneﬁ ts associated with the item will ﬂ ow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the ﬁ nancial period in which they are incurred. Increases in the carrying amount arising on revaluation of land and buildings are credited to a revaluation reserve in equity. Decreases that offset previous increases of the same asset are charged against fair value reserves directly in equity; all other decreases are charged to the income statement. Each year the difference between depreciation based on the revalued carrying amount of the asset charged to the income statement and depreciation based on the assets original cost is transferred from the revaluation reserve to retained earnings. Depreciation The depreciable amount of all ﬁ xed assets including building and capitalised lease assets, but excluding freehold land, is depreciated on a straight-line basis over their useful lives to the consolidated Group commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The depreciation rates used for each class of depreciable assets are: Class of Fixed Asset Depreciation Rate Buildings Leasehold improvements Plant and equipment 2.5% - 7.5% 33.3% 7.5% - 40% The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the income statement. When revalued assets are sold, amounts included in the revaluation reserve relating to that asset are transferred to retained earnings. 34 f) Leases Leases of ﬁ xed assets where substantially all the risks and beneﬁ ts incidental to the ownership of the asset, but not the legal ownership are transferred to entities in the consolidated Group are classiﬁ ed as ﬁ nance leases. Finance leases are capitalised by NRW HOLDINGS LIMITED ABN 95 118 300 217 NWH Annual Report _Draft 2.indb 34 22/10/2007 7:05:15 PM For personal use onlyrecording an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. Leased assets are depreciated on a straight-line basis over the shorter of their estimated useful lives or the lease term. Lease payments for operating leases, where substantially all the risks and beneﬁ ts remain with the lessor, are charged as expenses in the periods in which they are incurred. Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the life of the lease term. g) Financial instruments Recognition Financial instruments are initially measured at cost on trade date, which includes transaction costs, when the related contractual rights or obligations exist. Subsequent to initial recognition these instruments are measured as set out below. Financial assets at fair value through proﬁ t and loss A ﬁ nancial asset is classiﬁ ed in this category if acquired principally for the purpose of selling in the short term or if so designated by management and within the requirements of AASB 139: Recognition and Measurement of Financial Instruments. Derivatives are also categorised as held for trading unless they are designated as hedges. Realised and unrealised gains and losses arising from changes in the fair value of these assets are included in the income statement in the period in which they arise. Loans and receivables Loans and receivables are non-derivative ﬁ nancial assets with ﬁ xed or determinable payments that are not quoted in an active market and are stated at amortised cost using the effective interest rate method. Held-to-maturity investments These investments have ﬁ xed maturities, and it is the Group’s intention to hold these investments to maturity. Any held-to- maturity investments held by the Group are stated at amortised cost using the effective interest rate method. Available-for-sale ﬁ nancial assets Available-for-sale ﬁ nancial assets include any ﬁ nancial assets not included in the above categories. Available-for-sale ﬁ nancial assets are reﬂ ected at fair value. Unrealised gains and losses arising from changes in fair value are taken directly to equity. Financial liabilities Non-derivative ﬁ nancial liabilities are recognised at amortised cost, comprising original debt less principal payments and amortisation. Derivative instruments Derivative instruments are measured at fair value. Gains and losses arising from changes in fair value are taken to the income statement unless they are designated as hedges. Share capital Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any related income tax beneﬁ t. Fair value Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arms length transactions, reference to similar instruments and option pricing models. Impairment At each reporting date, the Group assess whether there is objective evidence that a ﬁ nancial instrument has been impaired. In the case of available-for sale ﬁ nancial instruments, a prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are recognised in the income statement. ANNUAL REPORT 2007 35 NWH Annual Report _Draft 2.indb 35 22/10/2007 7:05:15 PM For personal use onlyNOTES TO T HE FI NANCIA L STAT E ME NT S NOTE 4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) h) Impairment of assets At each reporting date, the Group reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the assets carrying value. Any excess of the assets carrying value over its recoverable amount is expensed to the income statement. Impairment testing is performed annually for goodwill and intangible assets with indeﬁ nite lives. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. i) Intangibles Goodwill Goodwill and goodwill on consolidation are initially recorded at the amount by which the purchase price for a business or for an ownership interest in a controlled entity exceeds the fair value attributed to its net assets at date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisition of associates is included in investments in associates. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. j) Foreign currency transactions and balances Functional and presentation currency The functional currency of each of the Group’s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated ﬁ nancial statements are presented in Australian dollars which is the parent entity’s functional and presentation currency. Transaction and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the yearend exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined. Exchange differences arising on the translation of monetary items are recognised in the income statement, except where deferred in equity as a qualifying cash ﬂ ow or net investment hedge. Exchange differences arising on the translation of non-monetary items are recognised directly in equity to the extent that the gain or loss is directly recognised in equity, otherwise the exchange difference is recognised in the income statement. k) Employee beneﬁ ts Provision is made for the Group’s liability for employee beneﬁ ts arising from services rendered by employees to balance date. Employee beneﬁ ts that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Employee beneﬁ ts payable later than one year have been measured at the present value of the estimated future cash outﬂ ows to be made for those beneﬁ ts. Obligations for contributions to deﬁ ned contribution superannuation funds are recognised as an expense in proﬁ t or loss when they are due. 36 l) Provisions Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outﬂ ow of economic beneﬁ ts will result and that outﬂ ow can be reliably measured. NRW HOLDINGS LIMITED ABN 95 118 300 217 NWH Annual Report _Draft 2.indb 36 22/10/2007 7:05:15 PM For personal use onlym) Share-based payments The fair value determined at the grant date of the equity-settled share based payments is expensed on a straight-line basis over the vesting period, based on the estimate of shares that will eventually vest. The Employee Share Plan (‘ESP’) is accounted for as an “in-substance” option plan due to the limited recourse nature of the loan between the employees and the Company to ﬁ nance the purchase of ordinary shares. The dilutive effect, if any, of outstanding options is reﬂ ected as additional share dilution in the computation of earnings per share. Shares in the Group held under the ESP are deducted from equity, and the fair value of the options at reporting date is credited to Options reserve. n) Cash and cash equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within short-term borrowings in current liabilities on the balance sheet. o) Revenue Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns and allowances. Revenue is recognised when the signiﬁ cant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of the goods can be estimated reliably, and there is no continuing management involvement with the goods. Revenue from the rendering of a service is recognised in proﬁ t or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed. Construction contract revenue is recognised in proﬁ t or loss when the outcome of a construction contract can be measured reliably, in proportion to the stage of completion of the contract. Contract revenue includes the initial amount agreed in the contract plus any variations in contract work, claims and incentive payments to the extent that it is probable that they will result in revenue and can be measured reliably. The stage of completion is assessed by reference to surveys of work performed. When the outcome of a construction contract cannot be measured reliably, contract revenue is recognised only to the extent of contract costs incurred that are likely to be recoverable. An expected loss on a contract is recognised immediately in proﬁ t or loss. Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the ﬁ nancial assets. Dividend revenue is recognised when the right to receive a dividend has been established. All revenue is stated net of the amount of goods and services tax (GST). p) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to prepare for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in income in the period in which they are incurred. q) Goods and services tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Ofﬁ ce. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the balance sheet are shown inclusive of GST. Cash ﬂ ows are presented in the cash ﬂ ow statement on a gross basis, except for the GST component of investing and ﬁ nancing activities, which are disclosed as operating cash ﬂ ows. NWH Annual Report _Draft 2.indb 37 22/10/2007 7:05:15 PM ANNUAL REPORT 2007 37 For personal use onlyNOTES TO T HE FI NANCIA L STAT E ME NT S NOTE 4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) r) Business combinations The purchase method of accounting is used to account for all business combinations within the scope of AASB 3, regardless of whether equity instruments or other assets are acquired. Cost is measured of the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of the exchange plus costs directly attributable to the acquisition. Transaction costs arising on the issue of equity instruments are recognised directly in equity. Identiﬁ able assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at acquisition date, irrespective of the extent of any minority interest. The excess of the costs of the acquisition over the fair value of the identiﬁ able net assets acquired is recorded as goodwill. If the cost of the acquisition is less than the Group’s share of fair value of the identiﬁ able net assets of the subsidiary acquired, the difference is recognised directly in the income statement, but only after reassessment of the identiﬁ cation and measurement of the net assets acquired. s) Segment reporting A segment is a distinguishable component of the Group that is engaged either in providing related products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. The Group’s primary format for segment reporting is based upon business segments. t) Earnings per share Basic earnings per share is determined by dividing the net proﬁ t after income tax attributable to members of NRW by the weighted average number of ordinary shares outstanding during the year, adjusted for any bonus elements in ordinary shares issued during the year. Diluted earnings per share adjusts the ﬁ gures used in the determination of basic earnings per share by taking into account the after income tax effect of interest and other ﬁ nancing costs associated with dilutive potential ordinary shares and the weighted average number of shares issued in relation to dilutive potential ordinary shares. u) Rounding of amounts The parent entity has applied the relief available to it under ASIC Class Order 98/100 and accordingly, amounts in the ﬁ nancial report and directors’ report have been rounded off to the nearest $1,000. NOTE 5. SEGMENT REPORTING Segment information is presented in respect of the Group’s business and geographical segments. The primary format, business segments, is based upon the Group’s management and internal reporting structure. Inter-segment pricing is determined on an arm’s length basis. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise predominantly income-earning assets and revenue, interest bearing loans, borrowings and expenses, and corporate assets and expenses. Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill. 38 NRW HOLDINGS LIMITED ABN 95 118 300 217 NWH Annual Report _Draft 2.indb 38 22/10/2007 7:05:15 PM For personal use onlyBusiness segments The Group comprises the following main business segments: • • • • Civil Contracting The provision of construction services including rail formation, bulk earthworks and detailed road and tunnel construction. Mining Services Mining contracting services including earth moving, waste stripping, ore haulage and related ancillary services. Equipment Rental and Sales Rental and sale of new and used, heavy mining and ancillary equipment and the distribution of off-road tyres, loaders, excavators and rollers. Services The provision of equipment repairs, sandblasting and painting services, service truck and water tanker fabrication and import services, including quarantine cleaning. Geographical segments The Group operates predominantly in one geographical segment, being Australia. Business segments Civil Contracting Mining Services Equipment Rental & Sales Services Eliminations Consolidated Total external revenue Inter-segment revenue Total segment revenue Segment result Unallocated expenses Results from operating activities Net ﬁ nance costs Income tax expense Proﬁ t for the period Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Capital expenditure Depreciation 2007 $’000 161,975 161,975 15,706 2007 $’000 77,838 77,838 10,107 2007 $’000 16,098 12,499 28,597 4,067 2007 $’000 4,546 285 4,832 858 2007 $’000 – (12,784) (12,784) 2007 $’000 260,457 – 260,457 30,739 (5,500) 25,240 (4,249) (7,140) 13,850 Civil Contracting Mining Services Equipment Rental & Sales Services Consolidated 2007 $’000 82,209 82,209 (55,735) 2007 $’000 68,975 68,975 (44,050) 2007 $’000 17,179 17,179 (14,067) 2007 $’000 6,910 6,910 (3,160) (55,735) (44,050) (14,067) (3,160) 10,303 3,309 20,920 6,718 9,491 1,502 124 47 2007 $’000 175,273 32,458 207,731 (117,013) (45,204) (162,217) 40,838 11,576 ANNUAL REPORT 2007 39 NWH Annual Report _Draft 2.indb 39 22/10/2007 7:05:15 PM For personal use onlyNOTES TO T HE FI NANCIA L STAT E ME NT S NOTE 6. ACQUISITIONS OF SUBSIDIARIES a) Acquisition of entities – NRW Unit Trust and Promac Rental & Sales Pty Ltd On the 2 July 2006, NRW Holdings Ltd undertook a restructure of the NRW Unit Trust and Promac Rental & Sales Pty Ltd to combine the businesses into one legal group. The businesses of NRW Unit Trust and Promac have historically been managed as one business throughout the historical period, although statutory reporting for NRW or a combined NRW Unit Trust and Promac business was not required. The business combination included entities that were under common control in accordance with AASB 3 Business Combinations as all of the combining entities were controlled by the same parties both before and after the business combination and that control was not transitory. Accordingly, the provisions of AASB 3 Business Combinations did not apply to the restructure. The Company has determined to account for the common control combinations based on the existing book values of the entities involved in the combination as the Company considers that the combination does not have economic substance. The assets, liabilities and contingent liabilities of the combining entities were therefore stated at the book value at the date of restructure being 2 July 2006. The value of the equity instruments issued for the transfer of the two entities was determined on the basis of the proportion of the book values of the net assets of the two entities on the date of the transfer of the title of the capital to the two entities, with an adjustment for the deferred tax assets and liabilities that were not recognised in the books of NRW Unit Trust. The book value of the identiﬁ able assets and liabilities of NRW Unit Trust (after adjusting for the deferred tax assets and liabilities) and Promac Rental & Sales Pty Ltd at the date of the business combination is as follows: Cash and cash equivalents Trade and other receivables Inventories Other assets Property, plant and equipment Deferred tax assets Intangible assets Trade and other payables Other ﬁ nancial liabilities Current tax liabilities Provisions Interest bearing liabilities Deferred tax liability Less minority interests Total book value of net assets transferred Total purchase consideration comprises Issue of share capital 40 NRW HOLDINGS LIMITED ABN 95 118 300 217 NRW Unit Trust Promac Rental & Sales Pty Ltd $’000 381 27,908 5,601 742 53,244 686 – (26,846) (19,358) – (104) (36,140) (2,243) 3,870 – 3,870 $’000 940 5,263 950 90 6,321 8 14 (3,369) – (440) (2) (7,372) (10) 2,395 (1,317) 1,078 Total $’000 1,321 33,172 6,551 832 59,565 694 14 (30,215) (19,358) (440) (106) (43,513) (2,253) 6,264 (1,317) 4,947 4,947 4,947 NWH Annual Report _Draft 2.indb 40 22/10/2007 7:05:15 PM For personal use onlyThe net cash paid by the Group in respect of the acquisition of NRW Unit Trust was $2,000,000, comprising transaction costs of $2,381,000 less cash and cash equivalents acquired of $381,000. Acquisition of 55% minority interest in Promac Rental & Sales Pty Ltd The proportion of interests in Promac that were not transferred to the Company at the date of restructure were treated as minority interests until those interests were acquired on the 9 October 2006. On acquisition of those minority interests, the Company has calculated the difference between the fair value of consideration paid for those minority interests and the fair value of assets and liabilities acquired and recorded the difference as goodwill. The remaining 55% of Promac Rental & Sales Pty Ltd was acquired by NRW Intermediate Holdings Pty Ltd (100% owned by NRW Holdings Ltd) effective 9 October 2006 in exchange for shares in the Company. 55% of book value of assets acquired Goodwill Total purchase consideration Total purchase consideration comprises Issue of share capital Note (i) Promac Rental & Sales Pty Ltd $’000 1,664 2,710 4,374 4,374 4,374 i) Goodwill arising on the acquisition of minority interests in Promac Rental & Sales Pty Ltd relates to the synergies existing within the business transferred and also any synergies expected to be achieved from the total integration of Promac Rental & Sales Pty Ltd with the Group (refer Note 14). ii) The stamp duty of $2,381,000 paid on the transfer of dutiable assets to NRW Holdings has been charged to the Income Statement of the Group on consolidation (see Note 9) but forms part of the cost of the investment in NRW Unit Trust by the Company. iii) Operating results of NRW Unit Trust and Promac Rental & Sales Pty Ltd included in the Consolidated Income Statement of NRW Holdings Ltd from the dates of acquisition to 30 June 2007 are as follows: Contribution to: Operating and other revenue Total expenses Proﬁ t after tax for the period Less minority interests Contribution to net proﬁ t NRW Unit Trust Promac Rental & Sales $’000 $’000 242,565 (216,680) 25,885 – 25,885 28,673 (26,031) 2,642 (347) 2,294 ANNUAL REPORT 2007 41 NWH Annual Report _Draft 2.indb 41 22/10/2007 7:05:15 PM For personal use onlyNOTES TO T HE FI NANCIA L STAT E ME NT S NOTE 6. ACQUISITIONS OF SUBSIDIARIES (CONTINUED) b) Acquisition of entity – Actionblast Pty Ltd With effect from 30 March 2007, NRW Holdings Ltd, acquired 100% of the issued share capital of Actionblast Pty Ltd (Action Mining Services), a company incorporated in Australia. Action Mining Services provides equipment repairs, sandblasting and painting services, service truck and water tank fabrication and import services (including quarantine cleaning). The operations of Action Mining Services are in Hazelmere, Western Australia. The numbers presented below have been accounted for using the acquisition method of accounting. The fair values of the consideration paid, assets, liabilities and contingent liabilities acquired have only been provisionally determined due to the deferred settlement component of consideration subject to adjustment for loss on warranties. Note Book value $’000 Fair value adjustments Fair value on acquisition $’000 $’000 Details of the assets, liabilities and goodwill are as follows: Trade and other receivables Inventories Other assets Property, plant and equipment Intangible assets Trade and other payables Current tax liabilities Provisions Interest bearing liabilities Deferred tax liability Fair value of net identiﬁ able assets acquired Goodwill on acquisition Total purchase consideration Total purchase consideration comprises Consideration in cash and cash equivalents Less cash and cash equivalents acquired Deferred consideration – issued share capital Deferred vendor ﬁ nance Direct costs relating to the acquisition (i) (ii) (iii) (iv) (v) (vi) 3,436 1,670 228 678 501 (2,591) (608) (120) (234) (81) 2,878 240 (501) (261) 3,436 1,670 228 919 – (2,591) (608) (120) (234) (81) 2,618 24,391 27,009 23,819 (801) 2,500 1,000 490 27,009 The net cash paid by the Group in respect of the acquisition of Actionblast Pty Ltd was $23,589,000, comprising purchase consideration and transaction costs of $27,809,000, less non cash and deferred consideration of $3,319,000, deferred transaction costs of $100,000 and cash and cash equivalents acquired of $801,000. 42 i) An upward fair value adjustment has been made to the property, plant and equipment based on an independent valuation undertaken as at 30 March 2007. ii) A downward fair value adjustment has been made for the intangible assets of Action Mining Services which are not permitted to be recognised under Australian Equivalents to International Financial Reporting Standards. NRW HOLDINGS LIMITED ABN 95 118 300 217 NWH Annual Report _Draft 2.indb 42 22/10/2007 7:05:16 PM For personal use onlyiii) Goodwill arose in the business combination reﬂ ecting expected synergies, revenue growth and future market development. Refer Note 14. iv) The $24,000,000 paid to the vendor in cash and cash equivalents, was ﬁ nanced by way of a new bank loan facility (refer to Note 29 – Interest bearing loans and borrowings). This amount is to be repaid in September 2007 from the proceeds raised from the initial public offering. This amount has been offset by a purchase price adjustment of $181,000 owed by the vendor to NRW Holdings Ltd as agreed in the share purchase agreement. v) The $2,500,000 deferred consideration due to the vendor upon listing on the Australian Stock Exchange on 5th September 2007 has been settled by way of 1,250,000 issued shares at the issue price of $2.00 per share. vi) A further purchase price instalment is due within 10 business days of 30 March 2008. The amount due of $1,000,000 is to be reduced by any loss resulting from a breach of warranties by the vendor as set out in the share purchase agreement. vii) No contingent liabilities have been acquired as part of the acquisition of Action Mining Services. viii) Operating results of Action Mining Services included in the Consolidated Income Statement of NRW Holdings Ltd from acquisition on 30 March 2007 to 30 June 2007. Contribution to: Operating and other revenue Total expenses Proﬁ t after tax for the period Action Mining Services $’000 4,956 (4,344) 613 Had the acquisition of Action Mining Services been effected on 1 July 2006, the beginning of the ﬁ nancial year, management estimates that the pro-forma Action Mining Services ﬁ nancial results included in the consolidated results would have been as follows: Contribution to: Pro-forma operating and other revenue Pro-forma proﬁ t after tax for the period Action Mining Services $’000 20,860 3,192 The board considers these pro-forma numbers to represent an approximate measure of the performance of Action Mining Services on an annualised basis and provides a reference point for comparison in future periods. NWH Annual Report _Draft 2.indb 43 22/10/2007 7:05:16 PM ANNUAL REPORT 2007 43 For personal use onlyNOTES TO T HE FI NANCIA L STAT E ME NT S NOTE 7. REVENUE Revenue from the sale of goods Revenue from the rendering of services(i) Fuel rebate revenue Other operating revenue Consolidated Company 2007 $’000 2007 $’000 17,429 239,925 3,074 29 260,457 i) Included within revenue from the rendering of services are the following amounts recognised from construction contracts during the period: Construction work in progress Less Construction contract advances received Construction revenue – work in progress Construction revenue – billed Debts forgiven Trust distribution income Net gain/(loss) on sale of depreciable assets Net gain/(loss) on sale of land and buildings Other income 10,413 (1,430) 8,983 227,740 1,010 – 270 1,727 303 3,310 – – – – – – – – – 1,010 24,424 – (15) – 25,419 NOTE 9. PROFIT FOR THE YEAR a) Gains and losses Proﬁ t/(loss) for the year has been arrived at after crediting/(charging) the following gains and losses: Gain/(loss) on disposal of property, plant and equipment Net foreign exchange gains/(losses) 1,997 3 (15) – 44 NRW HOLDINGS LIMITED ABN 95 118 300 217 NWH Annual Report _Draft 2.indb 44 22/10/2007 7:05:16 PM For personal use onlyb) Other expenses Proﬁ t for the year includes the following expenses Cost of sales Impairment of trade receivables Depreciation of non-current assets Operating lease and rentals: Minimum lease payments Sub-lease payments received Employee beneﬁ ts expense: Superannuation contributions Share-based payment – equity-settled Wages and salaries Payroll tax Other(i) Note 36 Consolidated Company 2007 $’000 (24,931) (45) (11,576) (34,745) – (34,745) (3,940) (1,290) (53,993) (2,764) (61,987) (4,765) 2007 $’000 – – – – – – (221) (1,290) (3,936) – (5,447) (2,352) i) Other expenses in the Group include various restructuring and share offer costs. $2,381,000 was incurred in relation to an assessment of stamp duty payable on the transfer of NRW Unit Trust’s dutiable business assets to NRW Holdings Ltd as part of the restructure of the Group. An additional $33,000 of sundry restructure costs was also expensed. Of the total share offer costs incurred to 30 June 2007 an amount has been recorded in the Income Statement of the Group and the Company and as other non-current assets of the Group and the Company in proportion to the respective existing shareholders’ sell-down and new equity raised in relation to the total offer size. A total of $2,352,000 of share offer costs have been charged to the Income Statement at 30 June 2007. NOTE 10. FINANCE INCOME AND EXPENSE Interest income Finance Income Interest expense Finance expense Net ﬁ nance income and expense 639 639 4,888 4,888 (4,249) – – 652 652 (652) ANNUAL REPORT 2007 45 NWH Annual Report _Draft 2.indb 45 22/10/2007 7:05:16 PM For personal use onlyNOTES TO T HE FI NANCIA L STAT E ME NT S NOTE 11. AUDITORS’ REMUNERATION Audit services WHK Horwath Perth Audit Partnership Audit and review of ﬁ nancial reports Consolidated Company 2007 $ 158,550 158,550 2007 $ 84,000 84,000 No other services have been rendered between WHK Horwath Perth Audit Partnerships and the Consolidated Group. All amounts payable to the Auditors of the Company were paid by a Group subsidiary. NOTE 12. INCOME TAX EXPENSE Recognised in the income statement Current tax expense Current period Adjustments for prior years Deferred tax expense Origination and reversal of temporary differences Total income tax expense in income statement Numerical reconciliation between tax expense and pre-tax net proﬁ t Proﬁ t for the period Total income tax expense Proﬁ t excluding income tax Income tax using the Company’s domestic tax rate of 30% Increase in income tax expense due to: Non-allowable expenses Share-based payments Non-allowable stamp duty Decrease in income tax expense due to: Non-assessable debt forgiven 46 Effective tax rate NRW HOLDINGS LIMITED ABN 95 118 300 217 Consolidated Company 2007 $’000 7,373 – 7,373 (234) 7,140 20,990 (7,140) 13,850 6,297 45 387 714 (303) 7,140 34.0% 2007 $’000 6,094 – 6,094 (939) 5,155 16,904 (5,155) 11,749 5,071 – 387 – (303) 5,155 30.5% NWH Annual Report _Draft 2.indb 46 22/10/2007 7:05:16 PM For personal use onlyNOTE 13. PROPERTY, PLANT AND EQUIPMENT Consolidated Freehold land $’000 Buildings $’000 Leasehold improvements $’000 Plant and equipment $’000 Leased plant and equipment $’000 Cost Balance at 1 July 2006 Acquisitions through business combinations Other acquisitions Disposals Balance at 30 June 2007 Depreciation Balance at 1 July 2006 Depreciation charge for the year Disposals Balance at 30 June 2007 Carrying amounts At 1 July 2006 At 30 June 2007 – 1,695 – (1,695) – – – – – – – – 1,500 400 (1,409) 491 – 43 (28) 14 – 476 – – 71 – 71 – 4 – 4 – 67 Total $’000 – 60,483 40,838 (6,235) 95,087 – 11,576 (203) 11,372 – 20,193 11,581 (2,932) 28,842 – 3,056 (138) 2,918 – 37,095 28,787 (199) 65,683 – 8,473 (37) 8,436 – – – 25,924 57,247 83,714 Cost Balance at 1 July 2006 Acquisitions through business combinations Other acquisitions Disposals Balance at 30 June 2007 Depreciation Balance at 1 July 2006 Depreciation charge for the year Disposals Balance at 30 June 2007 Carrying amounts At 1 July 2006 At 30 June 2007 Company Freehold land $’000 Buildings $’000 Leasehold improvements $’000 Plant and equipment $’000 Leased plant and equipment $’000 – – 365 (365) – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Total $’000 – – 365 (365) – – – – – – – ANNUAL REPORT 2007 47 NWH Annual Report _Draft 2.indb 47 22/10/2007 7:05:16 PM For personal use onlyNOTES TO T HE FI NANCIA L STAT E ME NT S NOTE 14. INTANGIBLE ASSETS Cost Balance at 1 July 2006 Acquisitions through business combinations(i),(ii) Balance at 30 June 2007 Accumulated Impairment Balance at 1 July 2006 Impairment loss Balance at 30 June 2007 Carrying amounts At 1 July 2006 At 30 June 2007 Consolidated Company Goodwill $’000 – 27,101 27,101 – – – – Total $’000 – 27,101 27,101 – – – – 27,101 27,101 Goodwill $’000 Total $’000 – – – – – – – – – – – – – – – – i) Goodwill of $2,710,000 arose during the year as a result of the acquisition of minority interests in Promac Rental & Sales Pty Ltd by NRW Intermediate Holdings Pty Ltd, a wholly owned subsidiary of NRW Holdings Limited (refer Note 6). Promac Rental and Sales Pty Ltd is considered to be a separate cash generating unit since it operates independently from other NRW operations. The recoverable amount of this goodwill has been determined based on a value in use calculation which uses a 6 year discounted cash ﬂ ow projection based on the 2008 forecast. The projection assumes no additional growth in the business. A discount rate of 10% has been adopted. Management believe that any reasonably possible change in the key assumptions on which the recoverable amount is based would not cause the carrying amount to exceed its recoverable amount. ii) Goodwill of $24,391,000 arose during the year as a result of the acquisition of 100% of the issued capital of Actionblast Pty Ltd by NRW Holdings Limited. (refer Note 6) Actionblast Pty Ltd is considered to be a separate cash generating unit since it operates independently from other NRW operations. The recoverable amount of this goodwill has been determined based on a value in use calculation which uses a 6 year discounted cash ﬂ ow projection based on the 2008 forecast. The projection assumes no additional growth in the business. A discount rate of 10% has been adopted. Management believe that any reasonably possible change in the key assumptions on which the recoverable amount is based would not cause the carrying amount to exceed its recoverable amount. The key assumptions used in the value in use calculations for the signiﬁ cant cash generating units are as follows: Key Assumption Promac Rental and Sales CGU Actionblast CGU Forecast sales growth Sales growth has been forecast based upon expected demand for hire equipment and tyres, plus an increment for an expected increase in equipment sales Sales growth has been forecast based upon expected demand for workshop services and manufactured products Forecast net margins 48 Net margins have been forecast using prior year actual margins as a base, with allowances for expected changes to costs Net margins have been forecast using prior year actual margins as a base, with allowances for expected changes to costs NRW HOLDINGS LIMITED ABN 95 118 300 217 NWH Annual Report _Draft 2.indb 48 22/10/2007 7:05:17 PM For personal use onlyNOTE 15. EARNINGS PER SHARE Basic earnings per share at 30 June 2007 is calculated by dividing net proﬁ t for the year attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares (excluding shares issued under the Employee Share Plan (“ESP”) treated as in-substance options) outstanding during the year. Dilutive earnings per share at 30 June 2007 is calculated by dividing net proﬁ t for the year attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares (including shares issued under the ESP treated as in- substance options) outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. The income and share data used in the calculation of basic and dilutive earnings per share are as follows: Proﬁ t attributable to ordinary shareholders Proﬁ t attributable to ordinary shareholders Weighted average number of ordinary shares Issued ordinary shares at 1 July Effect of shares issued Weighted average number of ordinary shares at 30 June 2007 excluding shares issued under the ESP Effect of dilution - shares issued under the ESP Weighted average number of ordinary shares adjusted for the effect of dilution Earnings per share (cents per share) – basic for proﬁ t for the year attributable to ordinary equity holders of the Company – diluted for proﬁ t for the year attributable to ordinary equity holders of the Company Consolidated 2007 $’000 13,503 100 63,169 63,269 431 63,701 21.3 cents 21.2 cents As part of the initial public offering on 5th September 2007, the Company undertook a share split post balance date at a ratio of 226,250,000/65,974,869 shares. The revised share data used in the calculation of basic and dilutive earnings per share as if the share-split occurred at the beginning of the period are as follows: Weighted average number of ordinary shares Issued ordinary shares at 1 July Effect of shares issued Weighted average number of ordinary shares at 30 June 2007 excluding shares issued under the ESP Effect of dilution – shares issued under the ESP Weighted average number of ordinary shares adjusted for the effect of dilution 343 216,629 216,972 1,479 218,451 NWH Annual Report _Draft 2.indb 49 22/10/2007 7:05:17 PM ANNUAL REPORT 2007 49 For personal use onlyNOTES TO T HE FI NANCIA L STAT E ME NT S NOTE 15. EARNINGS PER SHARE (CONTINUED) Alternative earnings per share (cents per share) – basic for proﬁ t for the year attributable to ordinary equity holders of the Company – diluted for proﬁ t for the year attributable to ordinary equity holders of the Company Consolidated 2007 6.2 cents 6.2 cents The board considers the alternative earnings per share calculation to represent a more suitable basis to serve as a reference point for comparison in future periods. NOTE 16. ISSUED CAPITAL Ordinary shares Balance at the beginning of the ﬁ nancial year Issued as consideration for acquisition of NRW Unit Trust and 45% of Promac Rental & Sales Pty Ltd Issued to Stark NRWHPL Holding Limited to raise new capital for growth Issued as consideration for acquisition of 55% of Promac Rental & Sales Pty Ltd Issued to employees under the employee share plan (see Note 36) Balance at the end of the ﬁ nancial year Consolidated Company 2007 No. 2007 $’000 2007 No. 100,000 42,000,000 1 100,000 4,947 42,000,000 2007 $’000 1 4,947 18,042,857 21,400 18,042,857 21,400 4,374,260 4,374 4,374,260 4,374 1,457,752 65,974,869 – 1,457,752 – 30,723 65,974,869 30,723 The Company does not have a limited amount of authorised capital and issued shares do not have a par value. After 30 June 2007, the Company undertook a share split at a ratio of 226,250,000/65,974,869 shares. Fully paid ordinary shares carry one vote per share and carry the right to dividends. NOTE 17. RESERVES Option reserve Balance at the beginning of the ﬁ nancial year In-substance options issued to employees under the employee share plan Balance at the end of the ﬁ nancial year Consolidated Company 2007 $’000 – 1,290 1,290 2007 $’000 – 1,290 1,290 50 The option reserve arose on the grant of ordinary shares to key management personnel ﬁ nanced by way of limited recourse loans with Company creating an in-substance option over the ordinary shares (see Note 36). Amounts are transferred out of the reserve and into issued capital as the limited recourse loans are repaid to the Company. NRW HOLDINGS LIMITED ABN 95 118 300 217 NWH Annual Report _Draft 2.indb 50 22/10/2007 7:05:17 PM For personal use only NOTE 18. RETAINED EARNINGS Balance at the beginning of the ﬁ nancial year Net proﬁ t attributable to members of the parent entity Balance at the end of the ﬁ nancial year NOTE 19. CONTROLLED ENTITIES Parent entity NRW Holdings Ltd Wholly owned subsidiaries NRW Pty Ltd as trustee for NRW Unit Trust Actionblast Pty Ltd NRW Intermediate Holdings Pty Ltd Promac Rental & Sales Pty Ltd NRW Mining Pty Ltd Indigenous Mining & Exploration Company Pty Ltd NRW Aviation Pty Ltd (dormant entity deregistered 3 June 2007) NOTE 20. CASH AND CASH EQUIVALENTS Cash at bank and on hand Consolidated Company 2007 $’000 (2) 13,503 13,501 2007 $’000 – 11,749 11,749 Country of incorporation Ownership interest 2007 Australia Australia Australia Australia Australia Australia Australia Australia 100% 100% 100% 100% 100% 100% 100% Consolidated Company 2007 $’000 16,551 16,551 2007 $’000 1 1 NWH Annual Report _Draft 2.indb 51 22/10/2007 7:05:17 PM ANNUAL REPORT 2007 51 For personal use only NOTES TO T HE FI NANCIA L STAT E ME NT S NOTE 21. RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES Cash ﬂ ows from operating activities Proﬁ t for the period Adjustments for: Trust distribution income Debts forgiven income Restructure costs Gain on sale of property, plant and equipment Depreciation Hire purchase interest In-substance options Operating proﬁ t before changes in working capital and provisions Change in trade and other receivables Change in inventories Change in other assets Change in trade and other payables Change in provisions and employee beneﬁ ts Change in provision for income tax Change in deferred tax balances Net cash from operating activities NOTE 22. TRADE AND OTHER RECEIVABLES Current Trade receivables Construction work in progress Other receivables Non-current Receivables due from subsidiaries Loans to controlled entities are interest free and have no ﬁ xed repayment terms. Construction work in progress comprises: 52 Gross cost plus proﬁ t recognised to date Less: progress billings received Net construction work in progress NRW HOLDINGS LIMITED ABN 95 118 300 217 Consolidated Company 2007 $’000 2007 $’000 13,850 11,749 – (1,010) 4,733 (1,788) 11,576 3,707 1,290 32,358 (31,042) (1,079) (935) 34,183 2,603 7,517 (1,658) 41,948 54,813 10,413 1,738 66,964 (24,424) (1,010) 2,352 15 – – 1,290 (10,028) – – – 752 587 6,094 (939) (3,534) – – – – – – 43,188 43,188 191,734 (181,320) 10,413 – – – NWH Annual Report _Draft 2.indb 52 22/10/2007 7:05:17 PM For personal use onlyNOTE 23. INVENTORIES Raw materials and consumables Work in progress Finished goods NOTE 24. FINANCIAL ASSETS Non-current Investments carried at cost – investments in subsidiaries NOTE 25. OTHER ASSETS Current Prepayments Share offer costs Consolidated Company 2007 $’000 6,475 1,133 966 8,574 2007 $’000 – – – – – – 34,060 34,060 1,889 314 2,203 – 314 314 Current share offer costs have been capitalised and carried forward as current other assets until the new ordinary share capital is issued upon listing on the ASX. These issue costs will then be offset against the new equity raised in September 2007. NOTE 26. TRADE AND OTHER PAYABLES Current Trade payables Non-trade payables and accrued expenses Construction contract advances received Payables due to related parties Non-current Payables due to subsidiaries 33,585 24,422 1,430 745 60,182 – – – 852 – – 852 23 23 NOTE 27. CURRENT TAX LIABILITIES The current tax liability of the consolidated entity of $7,256,000 and for the Company of $6,094,000 represents the amount of income taxes payable in respect of the current and prior periods. NWH Annual Report _Draft 2.indb 53 22/10/2007 7:05:17 PM ANNUAL REPORT 2007 53 For personal use onlyNOTES TO T HE FI NANCIA L STAT E ME NT S NOTE 28. DEFERRED TAX ASSETS AND LIABILITIES Deferred tax assets and liabilities are attributable to the following: Consolidated Doubtful debts Work in progress Inventories Property, plant and equipment Other assets Other creditors and accruals Provisions Tax assets / (liabilities) Company Other assets Other creditors and accruals Provisions Tax assets / (liabilities) Assets 2007 $’000 111 – 99 6 906 1,219 283 2,624 672 225 176 1,073 Liabilities 2007 $’000 – (340) (2,041) (1,510) – (4) – (3,896) – – – – NOTE 29. INTEREST-BEARING LOANS AND BORROWINGS This Note provides information about the contractual terms of the Company’s and Group’s interest bearing loans and borrowings. For more information about the consolidated entity’s exposure to interest rate and foreign currency risk, see Note 31. Consolidated Company 2007 $’000 20,387 2,073 27,486 5,577 55,523 27,691 27,691 2007 $’000 – – 24,000 – 24,000 – – Current liabilities Current portion of hire purchase liabilities Current portion of insurance premium funding liabilities Current portion of secured bank loans Trade ﬁ nance liabilities Non-current liabilities Hire purchase liabilities 54 NRW HOLDINGS LIMITED ABN 95 118 300 217 NWH Annual Report _Draft 2.indb 54 22/10/2007 7:05:17 PM For personal use onlyConsolidated ﬁ nance facilities as at 30 June 2007 Finance description Asset ﬁ nancing Loans Trade ﬁ nance Other Face value (limit) Carrying amount (utilised) $’000 92,923 30,880 9,900 2,229 $’000 48,077 27,486 5,577 2,074 Financing arrangements / security The various ANZ facilities are secured by a ﬁ xed and ﬂ oating charge over the consolidated entities assets and are reviewed on an annual basis. Loans The bank loan is secured by a standard shares and securities Mortgage given by NRW Holdings Ltd as Mortgagor over Actionblast Pty Ltd shares. Asset ﬁ nancing facilities The hire purchase liabilities are secured by the assets under ﬁ nance and in the event of default, the leased assets revert to the lessor. Performance Guarantees Also Corporate Guarantees & Indemnities, unlimited as to amounts exist between the various entities. The facilities are used for general corporate requirements and attract variable rates of interest. Future ﬁ nancing arrangements The Group has renegotiated a number of its ﬁ nance facilities post balance date as part of it’s listing on the ASX. The following table summarises the facilities that the Directors consider will be material to the Group on listing. In addition to the facilities below, the Group still has access to the hire purchase agreements highlighted above. Lender Facility ANZ ANZ ANZ ANZ ANZ ANZ NRW Interchangeable Facility 1 Sub-limit of $5,000,000 for overdraft component of facility NRW Performance Guarantee Facility NRW Interchangeable Facility 2 Action Mining Overdraft Facility Action Mining Asset Finance Facility Promac Interchangeable Facility 1 Sub-limit of $2,500,000 for overdraft component of facility Other Other facilities Face Value (Limit $’000) 19,500 36,000 9,500 2,500 2,500 5,000 2,400 The consolidated entity has a revolving facility with the ANZ Banking Group which is secured by a ﬁ xed and ﬂ oating charge over the Group’s assets and is reviewed on an annual basis. Also Corporate Guarantees & Indemnities, unlimited as to amounts exist between the various entities. The facilities are used for general corporate requirements including asset ﬁ nance, international documentary credit, foreign currency loan/trade ﬁ nance and attract variable rates of interest. NWH Annual Report _Draft 2.indb 55 22/10/2007 7:05:17 PM ANNUAL REPORT 2007 55 For personal use onlyNOTES TO T HE FI NANCIA L STAT E ME NT S NOTE 30. OTHER FINANCIAL LIABILITIES Current Payables to related party entities Consideration payable to AMS vendor – to be satisﬁ ed by the issue of shares in the Company Consideration payable to AMS vendor – to be satisﬁ ed in cash Note 39 6(b) 6(b) Consolidated Company 2007 $’000 3,430 2,500 819 6,749 2007 $’000 – 2,500 819 3,319 Exposure to credit, interest rate and currency risks arise in the normal course of the Company’s and the Group’s business. Liquidity risk The Group manages liquidity risk by monitoring cash ﬂ ows by forecasting inﬂ ows and outﬂ ows of funds, to ensure adequate funding arrangements are in place and maintained. Credit risk Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a certain amount. The Group does not require collateral in respect of ﬁ nancial assets. At the reporting date there were no signiﬁ cant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each ﬁ nancial asset in the balance sheet. Interest rate risk The Group is exposed to interest rate risk as it borrows funds at both ﬁ xed and ﬂ oating interest rates. The risk is managed by maintaining an appropriate mix between ﬁ xed and ﬂ oating rate borrowings. Foreign exchange rate risk The Group does not currently have substantial operations outside Australia and accordingly it does not have a material exposure to foreign exchange rate movements. The Group does however purchase goods that are often denominated in a foreign currency and utilises either spot or trade ﬁ nance facilities. No hedging currently takes place and the Group does not have a material exposure to foreign currency other than short term funding arrangements when purchasing these goods. Fair value of ﬁ nancial instruments The fair values of ﬁ nancial assets and ﬁ nancial liabilities are determined in accordance with generally accepted pricing models based upon discounted cash ﬂ ow analyses. The Directors consider that the carrying amount of ﬁ nancial assets and ﬁ nancial liabilities recorded in the ﬁ nancial statements approximates their fair values. Aggregate net fair values and carrying amounts of ﬁ nancial assets and ﬁ nancial liabilities at balance date. 56 NRW HOLDINGS LIMITED ABN 95 118 300 217 NWH Annual Report _Draft 2.indb 56 22/10/2007 7:05:18 PM For personal use onlyFinancial assets Trade and other receivables Financial liabilities Borrowings – asset ﬁ nancing Borrowings – loans Borrowings – trade ﬁ nance Other borrowings Trade and other payables Carrying Amount Net Fair Value 2007 $’000 2007 $’000 66,964 66,964 48,077 27,486 5,577 2,074 60,182 48,077 27,486 5,577 2,074 60,182 Fair values are materially in line with carrying values. Effective interest rates and repricing analysis In respect of income-earning ﬁ nancial assets and interest-bearing ﬁ nancial liabilities, the following tables indicate their effective interest rates at the balance sheet date and the periods in which they reprice. Consolidated 2007 Effective interest rate % Total $’000 1 year or less $’000 1-5 years $’000 More than 5 years $’000 Financial assets Cash and cash equivalents Loan receivable Financial liabilities Asset ﬁ nancing Loans Trade ﬁ nance Other borrowings Net ﬁ nancial assets / (liabilities) 5.90% 16,546 16,546 7.39% 9.14% 8.45% 8.45% 16,546 16,546 (48,077) (27,486) (5,577) (2,074) (83,214) (66,668) (20,386) (27,486) (5,577) (2,074) (55,523) (38,977) – – (27,691) – – – (27,691) (27,691) – – – – – – – – NWH Annual Report _Draft 2.indb 57 22/10/2007 7:05:18 PM ANNUAL REPORT 2007 57 For personal use onlyNOTES TO T HE FI NANCIA L STAT E ME NT S NOTE 31. FINANCIAL INSTRUMENTS (CONTINUED) Effective interest rates and repricing analysis (continued) Company 2007 Financial assets Cash and cash equivalents Inter-company loans receivable Financial liabilities Other Loan – ANZ Inter-company loans payable Net ﬁ nancial assets / (liabilities) Effective interest rate % Total $’000 1 year or less $’000 1-5 years $’000 More than 5 years $’000 – – 9.14% – 1 43,188 43,189 (24,000) (23) (24,023) 19,166 1 – 1 (24,000) – (24,000) (23,999) – 43,188 43,188 – (23) (23) 43,165 – – – – NOTE 32. FINANCE LEASES Finance leases as lessee Non cancellable ﬁ nance leases are payable as follows: Less than one year Between one and ﬁ ve years More than ﬁ ve years Minimum lease payments Less: future ﬁ nance charges Present value of minimum future lease payments Consolidated Company 2007 $’000 2007 $’000 23,336 29,586 – 52,922 (4,844) 48,077 – – – – – – – – – – NRW has a number of hire purchase agreements with various lenders. The majority of NRW’s heavy earthmoving equipment assets are under hire purchase agreement over a 24 month to 48 month period. The equipment is utilised by Civil Contracting and Mining Services for various contracts and also the Promac Rental business. NOTE 33. OPERATING LEASES Operating leases as lessee Non cancellable operating lease rentals are payable as follows: 58 Less than one year Between one and ﬁ ve years More than ﬁ ve years NRW HOLDINGS LIMITED ABN 95 118 300 217 994 135 – 1,129 NWH Annual Report _Draft 2.indb 58 22/10/2007 7:05:18 PM For personal use onlyProperty lease rentals are payable as follows: Less than one year Between one and ﬁ ve years More than ﬁ ve years Consolidated Company 2007 $’000 2007 $’000 1,138 4,047 3,040 8,225 The majority of property leases relate to commercial properties, all with lease terms of 5 years with options to renew every 5 years until the year commencing 28 February 2022. All commercial property leases contain market or CPI review clauses during the term of the leases. Property leases relating partially to the leasing of a residential property are for terms of one year with an option to renew every year until the year commencing 28 February 2011. Rent review is undertaken annually with reference to market rates. The consolidated entity does not have the option to purchase the leased assets at the end of the lease period. Capital expenditure commitments – Plant and equipment Within one year Between one and ﬁ ve years Later than ﬁ ve years 7,444 14,889 – 22,233 The Directors are of the opinion that provisions are not required in respect of these matters as it is not probable that a future sacriﬁ ce of economic beneﬁ ts will be required or the amount is not capable of reliable measurement Contingent Liabilities Bank guarantees(i) 10,358 10,358 – – – – – – – – – – (i) Bank guarantees are issued in the normal course of business to clients to guarantee the performance of NRW under contracts and the period of each guarantee varies depending upon contract terms. NOTE 36. SHARE BASED PAYMENTS Employee Share Plan (“ESP”) Certain key employees as determined by the directors of NRW were invited to apply for a speciﬁ ed number of fully paid ordinary shares in the Company, funded by way of limited recourse loans from the Company. These loans are to be repaid by 15 March 2009 and accrue interest at a rate of 7.5% per annum, payable half-yearly. Under the ESP, shares were allotted on 15 March 2007 at an issue price of $2.26 and are not subject to any speciﬁ c vesting conditions. ANNUAL REPORT 2007 59 NWH Annual Report _Draft 2.indb 59 22/10/2007 7:05:18 PM For personal use onlyNOTES TO T HE FI NANCIA L STAT E ME NT S NOTE 36. SHARE BASED PAYMENTS (CONTINUED) Employee Share Plan (“ESP”) (continued) The employees’ obligation for repayment of the loans is limited to the dividends declared and the capital returns by the Company, and in the event that the employee ceases employment, the market price achieved on the sale of the shares held as security by the Company for the loans. The issue under the ESP during the ﬁ nancial year is accounted for as an in-substance option plan, with the contractual life of each option equivalent to the estimated loan life of 2 years. Repayment of the loan constitutes exercise of the option. This treatment requires the balance of the employee share loan receivable asset to be derecognised and offset against contributed equity, and diluted earnings per share has been adjusted accordingly. Additionally the value of the in-substance option has been recognised as an equity-settled employee beneﬁ ts expense with a corresponding entry to the Option Reserve. To date 1,457,752 ordinary shares have been issued under this arrangement with the in-substance options having a total fair value of $1,289,725 on issue date. The fair value of the in-substance options is determined using the Black-Scholes option-pricing model. The model inputs were: – share price of $2.75 (before the share split which occurred on 27 July 2007) – exercise price of $2.26 (before the share split which occurred on 27 July 2007) – expected volatility of 40% (based upon the historical volatility of comparable securities) – expected dividend yield of 2.2% (net yield, after interest cost on the limited recourse loan) – term of two years (with no early exercise assumed) – risk free interest rate of 6.1% Senior Management and Director Option Plan (“SMDOP”) The SMDOP is a senior management and director share option plan and has been put in place since reporting date. No options have been issued under the plan to date. The board has the discretion to determine the terms and conditions applying to each offer of options under the SMDOP including performance conditions attaching to the exercise of options, restrictions on transfer and disposal, exercise price of options and amount payable for a grant of options. The SMDOP will be accounted for as equity settled share-based payments where the fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the estimate of shares that will eventually vest. 60 NRW HOLDINGS LIMITED ABN 95 118 300 217 NWH Annual Report _Draft 2.indb 60 22/10/2007 7:05:18 PM For personal use onlyNOTE 37. PROVISIONS Balance at 1 July 2006 Acquired in a business combination Provisions made during the year Provisions used during the year Provisions reversed during the year Balance at 30 June 2007 Short-term provisions Long-term provisions Total balance at 30 June 2007 Consolidated Company Employee benefits(i) $’000 – 183 739 – – 922 587 334 922 Total $’000 – 183 739 – – 922 587 334 922 Employee benefits(i) $’000 – – 587 – – 587 587 – 587 Total $’000 – – 587 – – 587 587 – 587 (i) Short-term and long-term provisions consist entirely of vested long service leave entitlement accrued for current employees of the Group and the Company. NOTE 38. SUBSEQUENT EVENTS Subsequent to the end of the ﬁ nancial year, the Company issued and allotted 23,750,000 ordinary shares at $2.00 per share, and was admitted to the Australian Stock Exchange on 5 September 2007. The proceeds from the issue of the shares have been applied to the repayment of Group debt of $27,500,000, the payment of share offer costs and working capital. There has not arisen in the interval between the end of the ﬁ nancial year and the date of this report, any other item, transaction or event of a material nature likely in the opinion of the Directors, to affect signiﬁ cantly the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in subsequent ﬁ nancial years. NWH Annual Report _Draft 2.indb 61 22/10/2007 7:05:18 PM ANNUAL REPORT 2007 61 For personal use onlyNOTES TO T HE FI NANCIA L STAT E ME NT S NOTE 39. RELATED PARTIES The following were key management personnel of the Group at any time during the period and unless otherwise indicated were key management personnel for the entire period: Name Positions held Resigned / Appointed Non-executive directors Dr I F Burston Mr M Arnett Executive directors Chairman and Non Executive Director Appointed as Non-executive Director, 27 July 2007 Non Executive Director Appointed as Non-executive Director, 27 July 2007 Mr J W McGlinn Chief Executive Ofﬁ cer Mr L N Piper Director Mr N J Silverthorne Operations Director Resigned as Director, 27 July 2007 Resigned as Director, 27 July 2007 Mr J A Pemberton Director of Promac and NRW Holdings Ltd Appointed as Director of the Company, 2 July 2006 Mr K Bounsell General Manager – NRW Maintenance and Action Mining Resigned as Director of the Company, 2 July 2007 Executives Mr G Chiarelli Mr J A Kenny Mr P J McBain Mr R J Morrow Mr A C Hunt Chief Financial Ofﬁ cer General Manager – Promac Rental & Sales General Manager – Civil Contracting General Manager – Mining Services Director and Special Manager Projects – Promac Rental & Sales Resigned as Director of Promac, 9 October 2006 Mr C Lindsay-Rae Director and General Manager – Promac Rental & Sales Resigned as Director of Promac, 9 October 2006 Key management personnel compensation The key management personnel compensation included in ‘Employee beneﬁ ts expense’ (see Note 9) is as follows: Short term employee beneﬁ ts Other long term beneﬁ ts Post employment beneﬁ ts Termination beneﬁ ts Share-based payments Consolidated Company 2007 $ 2007 $ 4,816,348 2,876,617 – 363,270 – 1,128,848 6,308,466 – 220,777 – – 3,097,394 Individual directors and executives compensation disclosures Information regarding individual directors and executives compensation and some equity instruments disclosures as permitted by Corporations Regulations 2M.3.03 and 2M.6.04 are provided in the Remuneration Report section of the Directors’ report on pages 20 to 23. 62 NRW HOLDINGS LIMITED ABN 95 118 300 217 NWH Annual Report _Draft 2.indb 62 22/10/2007 7:05:18 PM For personal use onlyLoans to key management personnel and their related parties Details regarding loans outstanding at reporting date to key management personnel and their related parties are as follows: Mr J A Pemberton(i) Mr G Chiarelli(i) Mr J A Kenny(i) Mr P J McBain(i) Mr R J Morrow(i) Totals Balance 1 July 2006 Balance 30 June 2007 Interest paid during the period Highest balance in the period $ – – – – – – $ 619,071 619,071 412,713 619,071 619,071 2,888,997 $ – – – – – – $ 619,071 619,071 412,713 619,071 619,071 2,888,997 (i) Limited recourse loans were issued by the Company on 15 March 2007 to speciﬁ c key management personnel as part of the Employee Share Plan described in Note 36 in order to ﬁ nance the purchase of fully paid ordinary shares in the Company at $2.26 per share. Interest is payable half-yearly at 7.5% due on the 30 September and 31 March each year whilst the loan is still on foot. Loans from key management personnel and their related parties Details regarding loans outstanding at reporting date from key management personnel and their related parties are as follows: Mr L N Piper(i) Mr J W McGlinn Mr J N Silverthorne Mr K Bounsell Totals Balance 1 July 2006 Balance 30 June 2007 Interest paid during the period Highest balance in the period $ 6,982,597 5,491,789 5,940,700 942,653 19,357,739 $ 1,857,321 307,618 1,170,850 93,871 3,429,660 $ – – – – – $ 6,982,597 5,491,789 5,940,700 942,653 19,357,739 (i) An amount of $1,010,030 owing to Mr L N Piper was forgiven during the year as part of the agreement with Stark NRWHPL Holding Limited upon restructuring of the Group when Stark NRWHPL Holding Limited became a substantial shareholder of NRW Holdings Ltd on 2 July 2006. This amount has been recognised as Other Income (see Note 8) of the Company. Other key management personnel transactions A number of key management personnel or their related parties hold positions in other entities that result in them having control or signiﬁ cant inﬂ uence over the ﬁ nancial or operating policies of those entities. A number of these entities transacted with the Company or its subsidiaries in the reporting period. The terms and conditions of the transactions with management persons and their related parties were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-director related entities on an arms-length basis. NWH Annual Report _Draft 2.indb 63 22/10/2007 7:05:18 PM ANNUAL REPORT 2007 63 For personal use onlyNOTES TO T HE FI NANCIA L STAT E ME NT S NOTE 39. RELATED PARTIES (CONTINUED) Other key management personnel transactions (continued) The aggregate amounts recognised during the year relating to key management personnel and their related parties were as follows: Transaction value year ended 30 June 2007 Key management person and related parties Transaction (i) Key management person Mr J A Pemberton (ii) Other related parties Purchase motor vehicle Mr J W McGlinn – Mystica Trust Purchase several items of plant and equipment Mr J W McGlinn – McGlinn Property Trust Purchase of land and buildings Mr J W McGlinn Mr L N Piper – Fallbrook Pty Ltd Mr C Lindsay-Rae Mr J W Mcglinn – Springpark International Ltd Mr C Lindsay-Rae Mr J W Mcglinn – Springpark International Ltd Mr C Lindsay-Rae Mr J W Mcglinn – Springpark Australia Pty Ltd Mr C Lindsay-Rae Mr J W Mcglinn – Springpark Australia Pty Ltd Back-charges and purchase motor vehicle Sale of tyres and machinery Sale of plant and equipment Sale of tyres and machinery Services for earthmoving contract works Mr J N Silverthorne – Silverthorne Trust Purchase of land and buildings Mr C Lindsay-Rae Mr J W Mcglinn – Springpark Australia Pty Ltd Mr C Lindsay-Rae Mr J W Mcglinn – Springpark Australia Pty Ltd Back charge and purchase of motor vehicle Back charges of travel and other Note (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) $ 9,091 57,000 3,625,000 13,666 17,589,338 1,201,490 11,431,639 2,662,439 1,700,000 71,401 6,806 i) The Group sold a motor vehicle held as a depreciable asset to Mr J A Pemberton at market price. ii) The Group sold sundry items of depreciable plant and equipment at market price to Mystica Trust, an entity controlled by Mr J W McGlinn. iii) The Group sold its Welshpool premises at market value to the McGlinn Property Trust, an entity controlled by Mr J W McGlinn. The property is now being leased back to the Group at market rates and is included in operating lease commitments at Note 33. iv) The Group invoiced Fallbrook Pty Ltd, a company controlled by Mr J W McGlinn and Mr L N Piper, for various back charges relating to operating expenses of Fallbrook paid by NRW for wages and various consumables. Additionally the Group sold a motor vehicle held as a depreciable asset to Fallbrook Pty Ltd at market price. v) The Group purchased tyres and machinery at market price from Springpark International Ltd, a company signiﬁ cantly inﬂ uenced and part owned by Mr J W McGlinn and Mr C Lindsay-Rae. vi) The Group purchased plant and equipment at market price from Springpark International Ltd, a company signiﬁ cantly 64 inﬂ uenced and part owned by Mr J W McGlinn and Mr C Lindsay-Rae. vii) The Group purchased tyres and machinery at market price from Springpark Australia Pty Ltd, a company signiﬁ cantly inﬂ uenced and part owned by Mr J W McGlinn and Mr C Lindsay-Rae. NRW HOLDINGS LIMITED ABN 95 118 300 217 NWH Annual Report _Draft 2.indb 64 22/10/2007 7:05:18 PM For personal use onlyviii) The Group provided mining services at market rates to Springpark Mining Services Pty Ltd, a company signiﬁ cantly inﬂ uenced and part owned by Mr J W McGlinn and Mr C Lindsay-Rae. ix) The Group and Company sold various properties held as non-current assets at market value to the Silverthorne Trust, an entity controlled by Mr J N Silverthorne. The properties are now being leased back to the Group at market rates and are included in operating lease commitments at Note 33. x) The Group sold a motor vehicle at market value to Springpark International Ltd and charged Springpark International Ltd for the reimbursement of travel and incidental costs incurred on its behalf. xi) The Group charged Springpark Australia Pty Ltd for the reimbursement of travel and incidental costs incurred on its behalf. Assets and liabilities arising from the above transactions Amounts receivable from and payable to key management personnel and other related parties at reporting date were as follows: Other related parties Trade debtors Current receivables / total assets Other related parties Trade creditors Total payables / total liabilities Consolidated Company 2007 $ 2007 $ 9,330,871 9,330,871 556,206 556,206 – – – – Options and rights over equity instruments Apart from the in-substance options described in Note 36, no options were issued to or held by key management personnel or their related parties during the reporting period. NWH Annual Report _Draft 2.indb 65 22/10/2007 7:05:19 PM ANNUAL REPORT 2007 65 For personal use onlyNOTES TO T HE FI NANCIA L STAT E ME NT S NOTE 39. RELATED PARTIES (CONTINUED) Movements in shares The movement during the reporting period in the number of ordinary shares in NRW Holdings Ltd held directly, indirectly or beneﬁ cially, by each key management person, including their related parties, is as follows: Key Person Mr L N Piper Mr J W McGlinn Mr J N Silverthorne Mr J A Pemberton Mr K Bounsell Mr G Chiarelli Mr J A Kenny Mr P J McBain Mr R J Morrow Mr A C Hunt Mr C Lindsae-Rae Mr M Arnett Dr I Burston Held at 1 July 2006 31,667 31,667 31,667 Purchases* 13,300,012 13,300,012 13,300,012 – 994,150 4,999 2,099,964 – – – – – – – – 795,320 – – – 795,320 994,150 – – 100,000 45,578,940 Received as compensation Received on options exercised – – – – – – – – – – – – – – – – – – – – – – – – – – – – Sales/ transfers** (840,201) – (840,201) (62,654) (132,661) (50,123) – – – (50,123) (62,654) – – Other changes*** Held at 30 June 2007 – – – 273,329 – 273,329 182,219 273,328 273,328 – – – – 12,491,478 13,331,679 12,491,478 1,204,825 1,972,302 1,018,526 182,219 273,328 273,328 745,197 931,496 – – (2,038,617) 1,275,533 44,915,856 * Shares purchased by all key management persons were acquired by way of transfer of each person’s share of net assets in NRW Unit Trust or Promac Rental & Sales Pty Ltd to NRW Holdings Ltd as consideration for shares in the Company. This was done as part of the restructure of the Group. ** All sales/transfers of shares relate to the transfer of shares to a non-director related party in exchange for facilitator services as part of the initial public offering process. *** All other changes relate to the issue of fully paid ordinary shares to certain key management personnel at $2.26 per share, funded by limited recourse loans with the Company as described at Note 36. Changes in key management personnel in the period after the reporting date but prior to the date when the ﬁ nancial report is authorised for issue. The following changes in key management personnel have occurred in the period between reporting date and the date when the ﬁ nancial report is authorised for issue: Key person Mr L N Piper Mr N J Silverthorne Mr M Arnett Dr I F Burston 66 Nature of change Resigned as executive director Resigned as executive director Appointed as non-executive director Appointed as non-executive director and Chairman Date of effect 27 July 2007 27 July 2007 27 July 2007 27 July 2007 NRW HOLDINGS LIMITED ABN 95 118 300 217 NWH Annual Report _Draft 2.indb 66 22/10/2007 7:05:19 PM For personal use onlyNon-key management personnel disclosures Subsidiaries Loans are made by the Company to wholly owned subsidiaries to be employed as working capital, for capital purchases or for investing activities. Loans outstanding between the Company and its subsidiaries have no ﬁ xed date of repayment and are non- interest bearing. During the ﬁ nancial year, such loans to subsidiaries totalled $43,188,000. These loans are repayable on demand and recognised as non-current trade and other receivables. Other related parties Key management persons related parties For details of these transactions refer to key management personnel related disclosures above. Other related parties Contributions to superannuation funds on behalf of employees are disclosed in Note 9. NWH Annual Report _Draft 2.indb 67 22/10/2007 7:05:19 PM ANNUAL REPORT 2007 67 For personal use onlyINDEPE NDENT AU DIT R EPO RT 68 NRW HOLDINGS LIMITED ABN 95 118 300 217 NWH Annual Report _Draft 2.indb 68 22/10/2007 7:05:19 PM For personal use onlyNWH Annual Report _Draft 2.indb 69 22/10/2007 7:05:23 PM ANNUAL REPORT 2007 69 For personal use onlySHAREHOL DER INFOR MATION The shareholder information set out below was applicable as at 19 October 2007 NRW’s issued capital comprises 251,223,000 fully paid ordinary shares. Distribution of shareholdings (i) Distribution schedule of shareholdings 1 – 1,000 Shares 1,001 – 5,000 Shares 5,001 – 10,000 Shares 10,001 – 100,000 Shares 100,001 Shares and over (ii) Total number of holders (iii) Number of holders of less than a marketable parcel (iv) Percentage held by the 20 largest holders NRW’s 20 largest shareholders Rank Name Number of shareholders 613 796 490 527 85 2,511 3 Shares 353,652 2,805,890 4,145,847 12,989,486 230,928,125 251,223,000 % Total Shares 0.14 1.12 1.65 5.17 91.92 100.00% 76.38 Shares % Total Shares 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 70 Stark NRWHPL Holding Limited Jeffery William Mcglinn J P Morgan Nominees Australia Limited Nicholas John Ross Silverthorne + Maureen Kaye Silverthorne National Nominees Limited Cogent Nominees Pty Limited ANZ Nominees Limited UBS Nominees Pty Ltd Queensland Investment Corporation UBS Wealth Management Australia Nominees Pty Ltd Walsec Pty Ltd Citicorp Nominees Pty Limited Citicorp Nominees Pty Limited Suncorp Custodian Services Pty Limited Keith Bounsell Cogent Nominees Pty Limited Stark Asia Master Fund Ltd Julian Alexander Pemberton Citicorp Nominees Pty Limited Gino Chiarelli NRW HOLDINGS LIMITED ABN 95 118 300 217 28,987,736 22,677,431 22,641,505 21,333,485 19,826,700 10,850,945 10,215,011 8,866,835 5,723,375 5,422,300 5,144,004 4,890,500 4,278,586 4,161,082 3,381,843 3,338,485 2,898,775 2,534,540 2,471,293 2,215,100 11.54 9.03 9.01 8.49 7.89 4.32 4.07 3.53 2.28 2.16 2.05 1.95 1.70 1.66 1.35 1.33 1.15 1.01 0.98 0.88 NWH Annual Report _Draft 2.indb 70 22/10/2007 7:05:27 PM For personal use onlySubstantial shareholders As at the date of this report, the names of substantial holders in the Company who have notiﬁ ed the Company in accordance with Section 671B of the Corporations Act 2001 are set out below: Name Stark Investments (Hong Kong) Limited Jeffery William McGlinn as trustee for the Mystica Trust Nicholas John Ross Silverthorne and Maureen Kaye Silverthorne as trustees for the Silverthorne Trust 21,333,485 Shares Percentage % 31,886,511 22,677,431 12.69 9.03 8.49 Voting rights On a show of hands, every shareholder present in person or represented by a proxy or representative shall have one vote and on a poll, every member who is present in person or represented by a proxy or representative shall have one vote for every share held by them. Shares subject to voluntary escrow Dealing is restricted in the shares outlined in the table below which are subject to voluntary escrow arrangements until the end of the relevant escrow period. Date relevant voluntary escrow period ends 2 business days after the date on which NRW announces its results for the year ending 30 June 2008 to ASX 5 December 2007 Number of shares subject to voluntary escrow 91,079,320 1,250,000 % Total Shares 36.25 0.50 NWH Annual Report _Draft 2.indb 71 22/10/2007 7:05:27 PM ANNUAL REPORT 2007 71 71 For personal use onlyCORPORATE DIR ECTOR Y DIRECTORS Ian Burston – Non-executive Chairman Jeffrey McGlinn – Chief Executive Ofﬁ cer Julian Pemberton – Executive Director and Chief Operating Ofﬁ cer Michael Arnett – Non-executive Director COMPANY SECRETARY Kim Hyman REGISTERED OFFICE 73-75 Dowd Street WELSHPOOL WA 6106 Telephone: +61 8 9358 5510 Facsimile: +61 8 9311 7336 Email: info@nrw.com.au AUDITOR WHK Horwath Perth Audit Partnership Level 6, 256 St Georges Terrace PERTH WA 6000 SHARE REGISTRY Link Market Services Limited Level 2, 118 Bennett Street EAST PERTH WA 6004 Telephone: +61 2 8280 7111 Facsimile: +61 2 8287 0303 ASX CODE NWH – NRW Holdings Limited Fully Paid Ordinary Shares WEB PAGE www.nrw.com.au 72 NRW HOLDINGS LIMITED ABN 95 118 300 217 NWH Annual Report _Draft 2.indb 72 22/10/2007 7:05:27 PM For personal use onlyHOLDINGS LIMITED Designed and produced by Text Paciﬁ c Publishing \ www.textpaciﬁ c.com.au NWH Annual Report _Draft 2.indb c 22/10/2007 7:05:27 PM For personal use onlywww.nrw.com.au NWH Annual Report _Draft 2.indb d 22/10/2007 7:05:33 PM For personal use only

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