PPK Group Limited
Annual Report 2010

Plain-text annual report

PPK-cover-hi-res.pdf 1 2/09/10 5:15 PM Annual Report 2010 C M Y CM MY CY CMY K PPK-cover-hi-res.pdf 1 2/09/10 5:15 PM C M Y CM MY CY CMY K Annual Report 2010 FINANCIAL HIGHLIGHTS Sales revenue from Continuing Operations ($’000) 4,746 ∨ 2.5% _________________________________________________________________________________ Rental income from Investment Properties ($’000) 3,109 ∨ 35% _________________________________________________________________________________ Profit Before Income Tax ($’000) 1,246 ∧ 170% _________________________________________________________________________________ Profit After Tax ($’000) 762 ∧ 41% _________________________________________________________________________________ Earnings Per Share (cents) 1.3 ∧ 44% _________________________________________________________________________________ Notice of Annual General Meeting The 2010 Annual General Meeting of PPK Group Limited will be held at: 3:00pm on Tuesday, 23 November 2010 at The Grace Hotel, 77 York Street, Sydney The business of the meeting is outlined in the Notice of Meeting and Proxy Form. ASX Code: Website: Share Registry: PPK Group Limited Contents PPK www.ppkgroup.com.au www.registries.com.au ABN: 65 003 964 181 Chairman & Executive Director’s Overview Five Year Financial Summary Directors’ Report Statement of Corporate Governance Practices – 2010 Financial Statements Corporate Directory 3 6 7 20 30 Inside back cover COVER: Pictorial representation of the location of the Willoughby Market Gardens ‘Kiah’ (Sydney, New South Wales) syndicated development project in which PPK has an investment interest and lead management role (see page 3 for more details). Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMP P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 CHAIRMAN AND EXECUTIVE DIRECTOR’S OVERVIEW OVERVIEW OF PERFORMANCE PPK Group Limited (“PPK”) reported a profit after tax of $0.762 million for the year ended 30 June 2010. The full year result: • compares to a profit of $0.540 million in the corresponding period last year; and • equates to earnings per share of 1.3 cents for the period (FY2009: 0.9 cents). The performance of PPK in respect of the financial year ended 30 June 2010 includes: Industrial properties owned by PPK at Seven Hills in New South Wales and Dandenong South in Victoria were fully tenanted throughout the year and are expected to remain so for the duration of the 2011 financial year. In August 2010, PPK entered into an unconditional Contract for Sale of its property located at Kirrawee in New South Wales for a price of $8.25 million. The sales price obtained by PPK represents a profit before tax of approximately $1.45 million.  Completion of the sale is scheduled to take place in early November 2010. As the Kirrawee property is unencumbered, PPK will retain the full sale proceeds and will hold these funds for future investment activities. • realised gains of $1.022 million on the disposal of shares held by PPK as investments in selected listed companies; INVESTMENTS • a profit of $2.184 million generated on the sale in November in Virginia, investment property located 2009 of an Queensland; • non-cash write downs: - required under AIFRS Accounting Standards of $0.320 million in the value of listed shares and derivatives held by PPK as at 30 June 2010; - in the value of the PPK investment property located at Arndell Park, New South Wales (“Arndell Park Property”) of $1.15 million, following an independent market valuation undertaken in June 2010.  • a $684,000 non-cash share of losses by Cool or Cosy Limited (COS) and Frigrite Limited (FRR) inclusive of impairments in the value of these investments; and • a profit of $2.4 million after tax and before non-cash adjustments  (4.14 cents per share) for investments  and property. PROPERTY  Despite the non-cash write down in the value of the Arndell Park Property, all other properties owned by PPK have been independently assessed at values which are greater than the historical cost of these assets recorded on the Company’s Balance Sheet. In November 2009, PPK sold its industrial property at Virginia in Queensland for $5.2 million. This property had been vacant since February 2009. The Arndell Park Property remains vacant with the tenant having vacated the premises on 31 August, 2009.  Litigation continues between PPK and the former tenant.  All legal expenses and holding costs in respect of the dispute and this property have been expensed as they have been incurred. At the date of this report, PPK has increased its shareholding in COS to 23.34% and FRR to 33.9%.  Each of these companies is now considered to be an ‘associate’ of PPK for financial reporting purposes; in the case of the COS from 29 October, 2009 and in respect of FRR from 26 August, 2009. The carrying value of PPK’s investments in FRR and COS was restated at the time each of FRR and COS became an ‘associate’ of PPK. This gave rise to a one-off non- cash investment gain.  PPK is now equity accounting after the tax earnings of both COS and FRR and takes up in its earnings a share of the after tax profits (or losses) of these entities for the relevant periods. Otherwise, as part of its overall investment strategy, PPK generated profits during the year from the sale of shares in publicly listed entities held for resale. In January 2010, PPK invested in and participated as the lead manager of a syndicate for the purchase of 4.013 hectares of prime residential land located at Willoughby in New South Wales (“Willoughby Market Gardens” or “Kiah”).  This land will be developed over the next three (3) years with construction and sale of seventy six (76) prestige residential dwellings.  Based on its proportionate shareholding in the entity responsible for the purchase of the property to be developed, PPK will be entitled to an 18.2% share of profits from the Kiah Project in its capacity as an investor and secured lender to the project. MINING EQUIPMENT MANUFACTURE The earnings of Rambor Pty Ltd (“Rambor”) continued to be impacted by the lack of export orders from its principal market in Russia.  However, Rambor has now received orders for the manufacture and delivery of equipment to Russia in September 2010, with indications of further orders to come. The prototype of equipment developed under the joint development contract between Rambor and Hilti Corporation has undergone testing and met its key KPI targets.  The Colin Ryan CHAIRMAN Glenn Molloy EXECUTIVE DIRECTOR P A G E 3 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM            CHAIRMAN AND EXECUTIVE DIRECTOR’S OVERVIEW equipment is now being developed for commercialisation.  Sales of the developed product are expected to commence in the third quarter of the 2011 financial year. COMMITMENT TO OCCUPATIONAL, HEALTH, SAFETY & ENVIRONMENT During this year, the Company continued its strong commitment to the prevention of injuries and harm in the workplace with positive results achieved through the continued success of its comprehensive workplace health and safety systems and policies. The year in review saw continuing focus and commitment to health and safety through a group wide commitment to maintaining the highest occupational health and safety standards for the benefit of its employees, contractors and visitors. Information relating to occupational health and safety issues continues to be regularly considered by the Board which makes recommendations, where necessary, for the improvement in workplace systems and practices. The Company also has a comprehensive employment practices manual which confirms minimum standards of behaviour of employees, contractors, directors and officers while reinforcing the laws and regulations including those relating to occupational health and safety obligations. importance of compliance with applicable PPK is also committed to the minimisation of the consumption of resources at all of its facilities and in its manufacturing operations. To this end, the Company has an established Environment Policy which may be found on its website at www.ppkgroup.com.au.   PRIVACY PPK has developed a Privacy Disclosure Statement consistent with the National Privacy Principles incorporated in prevailing privacy laws dealing with the collection, use, disclosure, security, access and accuracy of information available to it during the course of its business operations. The Company has appointed a designated Privacy Officer to deal with queries regarding the application of the policy. A copy of the PPK Privacy Disclosure Statement is detailed on the Company website at www.ppkgroup.com.au. The combined effect of these factors is expected to provide the basis for an improved operating performance from Rambor in the next reporting period. DIVIDENDS Based on an assessment of the Company’s core earnings, realised profits and confidence in an improved earnings outlook in respect of the 2011 financial year, the Board has resolved to pay a final dividend of one (1) cent per share fully franked bringing the total fully franked dividends for the year to two and one-half (2.5) cents per share. CORPORATE GOVERNANCE PPK: • • its adherence to the Company’s established continues corporate governance framework consistent with the ASX Principles of Good Corporate Governance and Best Practice Recommendations (2nd edition) (“ASX Principles & Recommendations”); and intends to make an early transition, commencing from the 2011 financial year, to changes to the ASX Principles & Recommendations introduced by the ASX Corporate Governance Council in June 2010. Copies of the documents underlying the PPK Corporate Governance Framework are publicly accessible on the Company’s website at www.ppkgroup.com.au. OUR PEOPLE PPK’s people provide the Company with the competitive advantage required to satisfy the needs of its customers, shareholders and other stakeholders. The Board would like to record its appreciation of the on-going dedication and commitment of our employees during the year. PPK will continue to promote the fostering of a supportive, family oriented and co-operative work place within a performance based environment where innovation, initiative and productivity are encouraged and rewarded. Human resource policies, practices and procedures are in place each of which are designed to attract, engage and retain the highest possible calibre of employees on the Company’s prevailing circumstances. P A G E 4 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMP P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 CHAIRMAN AND EXECUTIVE DIRECTOR’S OVERVIEW FUTURE DIRECTION & BUSINESS OUTLOOK The future direction and business outlook for PPK is detailed within the Review of Operations and under the heading Future Direction & Business Outlook, each contained within the Directors’ Report included in this year’s Annual Report. In summary, PPK will focus on the following key areas, namely the: 1. completion of the sale of its industrial property located at Kirrawee in New South Wales which is scheduled to take place in early November 2010; 2. resolution of the dispute involving PACT Group and the Arndell Park Property in New South Wales which is currently the subject of Court proceedings; 3. progression and active participation as lead manager of the Willoughby Market Gardens ‘Kiah’ syndicated development project; 4. commercialisation initiatives the Rambor pneumatic handheld bolters designed for Hilti One-Step rock anchor installations jointly developed with Hilti Corporation during the 2010 financial year; relating to 5. pursuit of suitable growth opportunities, in both domestic its retained manufacturing and overseas markets, for operation Rambor; these opportunities are expected to deliver improved earnings performance from this business in future periods; and 6. identification of and investment in appropriate public and private companies in which there exists an opportunity for PPK to be actively involved in the management of these businesses utilising its core management expertise. Future investment earnings are dependent on the performance of the ‘associates’ and other listed company investments in which PPK holds an interest, improvements in economic outlook and the stability of the Australian share market. Colin Ryan Chairman Glenn Molloy Executive Director Sydney, 28 September 2010 ∨ PPK property: Hydrive Close, South Dandenong, Victoria P A G E 5 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMFIVE YEAR FINANCIAL SUMMARY Consolidated Income Statement Sales Revenue Rental Income Profit Before Income Tax 2010 2009 2008 2007 2006 $000 $000 $000 4,746 3,109 1,246 4,867 4,776 461 4,251 4,396 702 34,112 4,403 16,760 98,408 2,101 2,979 Net profit attributable to members of PPK Group Limited $000 762 540 607 10,111 4,292 Balance Sheet Total assets Net debt $000 $000 57,427 50,184 64,144 63,473 123,693 21,444 12,087 21,069 9,184 58,235 Equity attributable to members of PPK Group Limited $000 34,794 35,449 38,309 46,959 46,187 Total equity Share information Dividends on ordinary shares Dividends per ordinary share Dividend payout ratio Number of ordinary shares issued at year end Market capitalisation Ratios and statistics Return on equity attributable to members of PPK Group Ltd Basic earnings per share Net debt/equity Debt/(Equity – Intangibles) Interest cover on continuing operations Net Tangible Assets per Share $000 $000 cents % 000 $000 % cents % % times cents 34,794 35,449 38,309 46,959 46,338 1,450 2,759 6,998 4,562 4,425 2.5 190 58,007 22,623 4.75 511 58,007 16,242 11.5 1,153 59,253 41,477 7.0 45.1 61,186 47,725 2.1 1.3 61.6 63.0 3.07 58.6 1.5 0.9 34.1 34.9 3.04 59.6 1.6 1.0 55.0 56.3 2.25 63.1 21.5 15.9 19.6 19.9 42.8 75.3 6.5 103.1 68,153 51,115 9.3 6.3 126.0 139.9 5.1 61.1 P A G E 6 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMP P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 DIRECTORS’ REPORT Your directors present their report on the parent entity and its subsidiaries for the financial year ended 30 June 2010. DIRECTORS The names of directors in office at any time during or since the financial year are: Colin Francis Ryan David Alfred Hoff (resigned due to retirement on 7 September 2009) Glenn Robert Molloy Raymond Michael Beath Jury Ivan Wowk Directors have been in office since the start of the financial year to the date of this report unless otherwise stated. INFORMATION ON DIRECTORS the directors’ qualifications, experience and Details of responsibilities together with details of other directorships of other listed public companies in the preceding three (3) years are detailed below: Colin Ryan (73) (Securities held or controlled as at the date of this report: 500,000 shares) B.Com., Dip Ed., CA Chairman & Non-Executive, Independent Director Member of the Board since November 1995 and Chairman since March 1999. Member of the Audit Committee Colin Ryan is an independent director of PPK Group Limited and has no business relationship with the company or its related bodies other than his directorship. Colin manages an investment and professional consultancy business providing a variety of professional management, financial and marketing services to various businesses. This follows experience as a Chartered Accountant and extensive service as an executive and non-executive director of various public companies. Colin has a Bachelor of Commerce degree from the University of New South Wales, a Diploma of Education from Sydney University and is an Associate Member of the Institute of Chartered Accountants. Other listed public company directorships held in the last 3 years: Nil David Hoff (61) (Securities held or controlled as at the date of this report: 156,960 shares) C.P.A Managing Director Member of the Board since November 2000. Resigned due to retirement on 7 September 2009 David Hoff joined the Company as Chief Executive Officer in 1997. He was appointed its Managing Director in November 2000 and continued in this role until his retirement in September 2009. Prior to commencing with PPK, David had several years experience in financial accounting positions within a multinational corporation in the mining industry followed by a position as Chief Financial Officer of a publicly listed Australian real estate development company. David has over 27 years experience in the packaging industry, in general management and managing director roles, gained with multinational corporations based in the United States of America, Europe, and with a global packaging company in the Asia region. David is a Non-Executive Director and Chairman of Cool or Cosy Limited (ASX: COS) and Frigrite Limited (ASX: FRR), entities in each of which PPK holds a substantial investment interest. He is currently engaged by PPK to provide selected consultancy services to the consolidated entity excluding investments by the Company in COS and FRR. Other listed public company directorships held in the last 3 years: Cool or Cosy Limited, Non-Executive Director (Appointed: 19 September 2007) & Chairman (Appointed 30 November 2007) Frigrite Limited, Non-Executive Director (Appointed: 23 July 2008) & Chairman (Appointed: 12 December 2008) Glenn Molloy (55) (Securities held or controlled as at the date of this report: 10,987,997 shares) Executive Director (from 7 September 2009) Member of the PPK Group Limited Board since listing on 21 December 1994. Founder of the former entity Plaspak Pty Limited in 1979. Appointed Executive Director in September 2009 Glenn Molloy founded the former entity Plaspak Pty Ltd in 1979 and has acted as a director of the consolidated entity since that time. He has extensive experience on public company boards, and in advising publicly listed and private entities on commercial aspects of mergers, acquisitions and divestment activities. P A G E 7 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM DIRECTORS’ REPORT CONTINUED Glenn was appointed to the role of Executive Director in September 2009 following the retirement and resignation of David Hoff as Managing Director. COMPANY SECRETARY The Company Secretary in office at the end of the financial year was Mr Robert Nicholls. Other listed public company directorships held in the last 3 years: Nil INFORMATION ON COMPANY SECRETARY Jury Wowk (59) (Securities held or controlled as at the date of this report: 212,302 shares) BA., LLB Non-Executive, Independent Director Member of the PPK Group Limited Board since listing on 21 December 1994. Jury Wowk was a Partner of and is currently a consultant to HWL Ebsworth Lawyers and has provided legal services to the PPK Group since the establishment of Plaspak Pty Limited in 1979. From 1987 to 1989, Jury performed the role of Operations Manager at Plaspak Pty Ltd gaining valuable hands on practical experience in the management of the company’s operations. Jury has a Bachelor of Arts Degree and a Bachelor of Laws Degree from the University of Sydney. He is also a Law Society of New South Wales Accredited Specialist in Business Law and an Associate Member of the Australian Institute of Company Directors. Other listed public company directorships held in the last 3 years: HomeLeisure Limited, Non-Executive Director (Appointed: 29 July 2002; Ceased: 16 April 2007) Allied Brands Limited, Non-Executive Director (Appointed: 5 February 2010; Ceased: 15 April 2010) Raymond Beath (59) (Securities held or controlled as at the date of this report: 42,821 shares) B.Com, F.C.A Non-Executive, Independent Director Member of the PPK Group Limited Board since listing on 21 December 1994. Chairman of the Audit Committee. Raymond Beath is a Director of Holden & Bolster Avenir Pty Limited, Chartered Accountants. He has a Bachelor of Commerce (Accounting) degree from the University of New South Wales and is a Fellow of the Institute of Chartered Accountants. Raymond has advised the consolidated entity on taxation, corporate and financial management since 1984 and has been non-executive director of PPK Australia Pty Limited since 1986. Other listed public company directorships held in the last 3 years: Nil Details of the qualifications and experience of the Company Secretary are detailed below: Robert Nicholls (41) (Securities held or controlled as at the date of this report: 27,000 shares) MBA (Distinction), LL.B (Hons), Grad Dip Leg Prac, Grad Dip CSP, FCIS, GAICD Group Company Secretary Robert is a practising solicitor and chartered company secretary. Between April 2000 to July 2008, Robert performed the role of Group General Counsel & Company Secretary providing legal and company secretarial services for the PPK Group of Companies. In July 2008, he was appointed Managing Director of Cool or Cosy Limited, a company in which PPK holds a substantial investment interest, and continues to provide company secretarial services to PPK and its subsidiaries. Prior to joining PPK in April 2000, Mr Nicholls performed roles as a solicitor in private practice and with a Commonwealth regulatory body. Robert has a Masters of Business Administration (With Distinction) from Charles Sturt University, Bachelor of Laws (Honours) Degree from the University of Technology, Sydney, Graduate Diploma in Legal Practice and Graduate Diploma in Company Secretarial Practice. He is a Fellow of The Institute of Chartered Secretaries and Administrators and Chartered Secretaries Australia and a graduate of the Australian Institute of Company Directors. Relevant Associated Directorships: Cool or Cosy Limited, Non-Executive Director (1 June 2007 to 7 July 2008); Managing Director (from 8 July 2008) PRINCIPAL ACTIVITIES The principal activities of the consolidated entity during the financial year were the: • investment in publicly listed and privately held businesses; • property ownership and management; and • design, manufacture and distribution of portable underground mining equipment. There were no significant changes in the nature of the consolidated entity’s principal activities during the financial year. P A G E 8 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 Additional information relating to PPK industrial properties is detailed within this Directors’ Report under the heading After Balance Date Events. PPK continues to explore opportunities to make strategic investments. Major investment activity by PPK during the reporting period included the following: • disposal of shares held by PPK as investments in selected listed companies yielding a realised gain of $1.022 million; • acquisition of additional shares in Frigrite Limited (FRR) and Cool or Cosy Limited (COS) bringing the total shareholding held by PPK in: - FRR to 27,010,324 (or 32.89% of the issued capital of FRR); and - COS to 15,310,000 (or 23.34% of the issued capital of COS); In January 2010, PPK invested in and participated as the lead manager of a syndicate for the purchase of 4.013 hectares of prime residential land located at Willoughby in New South Wales (“Willoughby Market Gardens” or “Kiah” Project).  This land will be developed over the next three (3) years with construction and sale of seventy six (76) prestige residential dwellings.  Based on its proportionate shareholding in the entity responsible for the purchase of the property to be developed, PPK will be entitled to an 18.2% share of profits from the Kiah Project in its capacity as an investor and secured lender to the project. DIRECTORS’ REPORT CONTINUED OPERATING RESULTS The consolidated profit after tax of the consolidated entity for the period ended 30 June 2010 amounted to $762,000 (2009: $540,000). DIVIDENDS PAID OR RECOMMENDED Dividends paid or recommended for payment are as follows: Final dividend in respect of the 2009 year of 1.00 cents per ordinary share paid in November 2009 Interim dividend in respect of the reporting period of 1.5 cents per ordinary share paid in March 2010 Final dividend in respect of the reporting period of 1.00 cent per share to be paid in November, 2010 $580,067 $870,100 $580,067 • REVIEW OF OPERATIONS Information on the entity’s operations, financial position, business strategies and prospects for the future is detailed below and further within the Chairman and Executive Director’s Review included in the Annual Report accompanying these Financial Statements. PROPERTY AND OTHER INVESTMENTS PPK will continue to explore suitable investment opportunities which have the potential to add value for its shareholders. PPK continues to maintain a portfolio of industrial properties and strategic investments in a number of ASX listed companies. MINING EQUIPMENT MANUFACTURE During the year, PPK’s property portfolio consisted of five (5) industrial properties: • one located in Virginia, Queensland which was sold in November 2009 for $5.166 million generating a $2.184 million profit on sale; • three (3) were leased to subsidiaries of PACT Group Pty Ltd (“PACT Group”), the purchaser of the packaging business; and • one (1) was leased in December 2009, to a private manufacturing company for a term of three (3) years with a three (3) year option. PPK continues to be involved in litigation with PACT Group over the property at Arndell Park in New South Wales, where PPK contends it has a valid registered lease which expires on 8 September 2013. PACT Group is disputing the validity of the registration of this lease and the matter is before the courts and likely to be determined in the current financial year. The Board will keep the market developments regarding this on-going dispute. informed of significant During the 2010 financial year, Rambor Pty Ltd (“Rambor”): • • continued to develop and release new products to the market; and signed a Development & Commercial Contract with global company Hilti Corporation (“Hilti/Rambor Agreement”) in joint development and proposed commercialisation of Rambor pneumatic handheld bolters designed for Hilti One-Step rock anchor installations. respect of the The Hilti/Rambor Agreement provides that for a period of six (6) years, Rambor has the exclusive right to sell pneumatic handheld machinery for handheld One-Step applications. Rambor and Hilti are actively working on the: • proposed expansion of their joint offering of the Hilti One- Step and Rambor bolter systems to include a full range of handheld delivery platforms for the mining industry; and • international launch of the combined systems. Based on these initiatives and current orders from customers Rambor is expected to deliver an improved contribution to PPK’s consolidated result in future periods. P A G E 9 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMDIRECTORS’ REPORT CONTINUED DIVIDENDS The Board has declared a final fully franked dividend of 1.00 cent per share yielding a yearly dividend of 2.5 cents per share fully franked. FUTURE DIRECTION & BUSINESS OUTLOOK With a portfolio of industrial properties in desirable geographical locations continuing to provide the basis for core stable earnings in the years ahead, PPK will focus on the following key areas, namely the: 1. completion of the sale of its industrial property located at Kirrawee in New South Wales which is scheduled to take place in late October 2010; 2. resolution of the dispute involving PACT Group and the Arndell Park Property in New South Wales which is currently the subject of Court proceedings; 3. progression and active participation as lead manager of the Willoughby Market Gardens ‘Kiah’ syndicated development project; 4. commercialisation of Rambor pneumatic handheld bolters designed for Hilti One-Step rock anchor installations jointly developed with Hilti Corporation during the 2010 financial year; 5. pursuit of suitable growth opportunities, in both domestic and overseas markets, for its retained manufacturing operation Rambor; these opportunities are expected to deliver improved earnings performance from this business in future periods; and 6. identification of and investment in appropriate public and private companies in which there exists an opportunity for PPK to be actively involved in the management of these businesses utilising its core management expertise. Future investment earnings are dependent on the performance of the ‘associates’ and other listed company investments in which PPK holds an interest, improvements in economic outlook and the stability of the Australian share market. FINANCIAL POSITION The net assets of the consolidated entity have decreased by $655,000 from 30 June 2009. The main changes in the financial position have resulted from the: • accounting treatment relating to the impairment of available for sale financial assets and derivatives; and • payment of dividends at disclosed levels. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS There have been no significant changes in the state of affairs during the 2010 financial year or existing at the time of this report. AFTER BALANCE DATE EVENTS P A G E 1 0 PPK increased its substantial holding in Frigrite Limited (FRR) on 1 July 2010 from 27,010,324 shares (or 32.89% of the issued capital of FRR) to 27,841,862 (or 33.9% of the issued share capital of FRR). In August 2010, PPK entered into an unconditional Contract for Sale of its property located at Kirrawee in New South Wales for a price of $8.25 million. The sales price obtained by PPK represents a profit before tax of approximately $1.45 million.  Completion of the sale is scheduled to take place in early November 2010. The performance of Rambor during the 2010 financial year was impacted by a lack of orders from its principal export market of Russia. In September 2010, Rambor received orders for the manufacture and delivery of its equipment to Russia with indications of further orders to come. These orders are expected to provide the basis for an improved operating performance from and contribution to group earnings by Rambor in the current reporting period. PPK Properties Pty Ltd is in litigation with the tenant of Arndel Park, Sydney property over the validity of the lease on this property. It is anticipated that the dispute will be determined by the Court in November 2010. The lease is due to expire in August 2013. In August 2010, the National Australia Bank (NAB) confirmed an extension of the bank finance facility provided to PPK. As part of the bank review and extension of the facilities provided to PPK, the NAB has: • removed the registered first mortgage it held on the property at Kirrawee in New South Wales; and • obtained a registered first mortgage against the land and buildings held by PPK at Arndell Park in New South Wales. No other matter or circumstance has arisen since the end of the financial year which is not otherwise dealt with in this report or in the Consolidated Financial Statements that has significantly affected or may significantly affect the operations of the consolidated entity, the results of those operations or the state of affairs of the consolidated entity in subsequent financial years. FUTURE DEVELOPMENTS The likely developments in the operations of the consolidated entity and the expected results of those operations in financial years subsequent to the year ended 30 June 2010 are included in the Chairman and Executive Director’s Overview detailed in the 2010 PPK Annual Report and in the Review of Operations section of this Directors’ Report. ENVIRONMENTAL ISSUES PPK remains committed to: • the effective management of environmental issues having the potential to impact on its remaining business; and • minimising the consumption of resources utilised by its operations. Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMP P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 DIRECTORS’ REPORT CONTINUED The Company has otherwise complied with all government legislation and regulations with respect to disposal of waste and other materials and has not received any notices of breach of environmental laws and/or regulations. The Company’s approach to environmental sustainability is outlined in its Environmental Policy at www.ppkgroup.com.au. The PPK Board believes the remuneration policy to be appropriate and effective in its ability to attract, retain and motivate directors and executives of the highest possible quality and standard to manage the affairs of the consolidated entity, as well as, create goal congruence between directors, executives and shareholders. PROCEEDINGS ON BEHALF OF COMPANY No person has applied for leave of the Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. The Company was not a party to any such proceedings during the year. REMUNERATION REPORT Remuneration Report - Audited This Remuneration Report details the nature and amount of remuneration, including prescribed details under the Corporations Regulations 2001, of each director and other key management personnel for the consolidated entity and the company and: • • relevant group executives of the consolidated entity; and company executives (as each these italicised terms are defined in the Corporations Act 2001) receiving the highest remuneration for the year ended 30 June 2010. Remuneration Policy The remuneration policy of the Company has been designed to align director and executive objectives with shareholder and business objectives by providing a fixed remuneration component and offering specific short-term incentives based on key performance areas affecting the consolidated entity’s financial results. ∧ PPK is a substantial Shareholder in Frigrite Limited (ASX Code: FRR) The remuneration policy, setting the terms and conditions for directors, executives and management was developed by the Board. The policy for determining the nature and amount of remuneration for board members and senior executives of the consolidated entity is detailed in the paragraphs which follow. Remuneration of non-executive directors is determined by the Board from the maximum amount available for distribution to the non-executive directors as approved by shareholders. Currently this amount is set at $275,000 per annum in aggregate as approved by shareholders at the 2003 Annual General Meeting. In determining the appropriate level of directors’ fees, data from surveys undertaken of other public companies similar in size or market section to the Company is taken into account. During the year, the Board resolved to reduce the fees payable to non-executive directors with effect from 1 September 2009 to reflect the existing size, nature and extent of the Company’s operations. Non-executive directors are remunerated by means of cash benefits. They are not entitled to participate in performance based remuneration practices unless approved by shareholders. The Company will not generally use options as a means of remuneration for non-executive directors and will continue to remunerate those directors by means of cash benefits. PPK does not provide retirement benefits for its non-executive directors. Executive directors do not receive director’s fees. The Board of Directors is responsible for approving remuneration policies and packages applicable to senior executives of the company. The broad remuneration policy is to ensure that the remuneration package properly reflects the person’s duties and responsibilities and that the remuneration is competitive in attracting, retaining and motivating people of the highest possible quality and standard. A review of the compensation arrangements for executive directors and senior executives is conducted by the full Board at a duly constituted Directors meeting. The Board conducts its review annually based on established criteria which includes: • • the individual’s performance; reference to market data for broadly comparable positions or skill sets in similar organisations or industry; P A G E 1 1 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM DIRECTORS’ REPORT CONTINUED • the performance of the company or consolidated entity during the relevant period; and • the broad remuneration policy of the consolidated entity. A significant proportion of eligible bonus payments to key management personnel, group executives and company executives are linked to the earnings of either the: Senior executives and executive directors may receive bonuses based on the achievement of specific goals of the consolidated entity. An executive incentive scheme approved by shareholders is in place which provides the board with the discretion to grant options and provide loans to Eligible Executives for the purpose of acquiring Scheme Shares (as each of these italicised terms are defined under the PPK Executive Incentive Scheme)(“PEIS”). The Board exercises its discretion under the PEIS in a manner consistent with the broad remuneration policy objectives of the consolidated entity. The grant of options to executives is linked to significant performance hurdles including the exercise price of the options being subject to material improvement in Company performance (measured by its share price) during a restricted exercise period. COMPANY PERFORMANCE, SHAREHOLDER WEALTH AND DIRECTORS AND EXECUTIVES REMUNERATION The Remuneration Policy has been designed to achieve the goal congruence between shareholders, directors and executives. The two methods employed in achieving this aim are: • a performance based bonus for executives based on key performance indicators (KPI’s) which include a combination of short-term financial and non-financial indicators; and/or • the issue of options to executives as a means of long-term incentive to encourage the alignment of personal and shareholder interests. There were no options issued to directors or executives during the year. The Board considers that the existing remuneration arrangements regarding executives are appropriate in the Company’s prevailing circumstances to achieve the desired objectives of its Remuneration Policy. These policy measures are chosen as they directly align the individual’s reward to the KPI’s of the consolidated entity and to its strategy and performance. The Company considers this policy is an effective means of maintaining shareholder wealth and in retaining quality employees committed to the long term objectives of the Company. Eligible executives may be entitled to receive incentive payments of between 10% and up to 15% of their base salary during each full year of employment in which they achieve pre-determined levels of productivity, goals and targets in consultation with the Board and Executive Director. • • consolidated entity; or individual company performs his or her primary duties and responsibilities. in which the company executive Advanced Fluid Systems Pty Limited, an entity related to P.R.Mastalir, Managing Director of Rambor Pty Limited (“Rambor”) and King Cobra Mining Equipment Pty Limited (“King Cobra”), was paid a bonus payment relating to the achievement of performance targets in respect of the company earnings of Rambor and King Cobra for the 2009 financial year. No other bonus payments have been made to key management personnel for the consolidated entity and the company and: • • group executives of the consolidated entity; and company executives in respect of objectives relating to the earnings of the Company or consolidated entity during the year or in respect of the preceding four (4) years. The remaining proportion of eligible bonus payments relate to non-financial performance measures which may include, for example, people, safety, strategy and risk measures having overall benefits for the consolidated entity. There were no bonuses paid to executives in respect of the attainment of predetermined non-financial performance indicators are detailed within this report. CONSEQUENCES OF COMPANY PERFORMANCE ON SHAREHOLDER WEALTH The following table outlines the impact of company performance on shareholder wealth: Earnings per share (cents) Full year ordinary dividends (cents) per share Special dividend (cents) per share Year-end share price Shareholder return (annual) 2010 1.3 2009 0.9 2008 1.0 2007 15.9 2006 6.3 2.5 2.5 - - 6.5 5.0 7.0 6.5 - - $0.39 $0.28 $0.70 $0.78 $0.75 45.4% (51.4%) 5.3% 13.2% (8.8%) The above table shows the annual returns to shareholders calculated to include the difference in percentage terms between the dividend yield for the year (based on the average share price during the period) and changes in the price at which shares in the Company are traded between the beginning and the end of the relevant financial year. P A G E 1 2 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMP P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 DIRECTORS’ REPORT CONTINUED In addition, the information provided in the table and this report highlights that the payment of bonuses to executives is closely aligned to company performance. In respect of the 2009 financial year, for example, no bonuses were paid or accrued to company executives relating to earnings performance conditions pertaining to that year while bonuses were paid to selected executives in respect of the 2007 financial year based on the positive performance of the consolidated entity in that year. Further, the bonus payment disclosed in respect of relevant group executive Peter Mastalir in respect of the 2009 financial year is based on the positive performance of the individual company in which the relevant group executive performs his or her primary duties and responsibilities. In contrast, there were no bonuses paid or accrued to company executives or relevant group executives in respect of the 2010 financial year due to the fact that the required pre-determined performance targets linked to incentive payments were not achieved during the period. DETAILS OF REMUNERATION FOR THE YEAR ENDED 30 JUNE 2010 Directors’ and executive officers’ remuneration Details of the nature and amount of each major element of compensation of each director, company executive and relevant group executive who receive the highest remuneration for the year ended 30 June 2010 are included in the following table: SHORT TERM INCENTIVES Salary& Fees ($) Short Term Incentive Cash Bonus ($) Non- Cash Benefits ($) POST EMPLOYMENT Superannuation ($) LONG TERM INCENTIVES/BENEFITS Long Service Leave Post Employment Benefits ($) Share based payments ($) Total ($) Proportion of Remuneration Performance Related (%) Directors Non –Executive C F Ryan G R Molloy R M Beath J I Wowk Executive D A Hoff * Total Directors Company Executive R J Nicholls Total Company Executives Relevant Group Executive P R Mastalir Total Relevant Group Executive 49,500 220,250 33,000 33,000 311,601 30,000 135,200 - - - - - - - - - - - - - - - - - - - 18,347 50,000 359,919 - - - 82,996 11,700 2,252 - - - - - - - - - 49,500 220,250 33,000 33,000 739,867 1,075,617 30,000 30,000 232,148 232,148 - - - - - - - * Resigned due to retirement on 7 September 2010. Amounts disclosed as remuneration to this executive include a combination of salary paid to the executive while Managing Director of the consolidated entity until retirement and consultancy fees paid to this executive during the remainder of the financial year. The named company executive and relevant group executive held the following positions during the period: Company Executive R J Nicholls Relevant Group Executive P R Mastalir Position Group Company Secretary Position Managing Director, Rambor Pty Ltd There are no other company executives or relevant group executives. P A G E 1 3 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMDIRECTORS’ REPORT CONTINUED The names and positions held by Key Management Personnel (as defined by the Corporations Act 2001 and Australian Accounting Standards) of the consolidated entity during the year are as follows: Key Management Personnel Position Non-Executive Director Chairman Managing Director (retired 7 September 2009) Executive Director (from 7 September 2009) Non-Executive Director Non-Executive Director SHORT TERM INCENTIVES Salary& Fees ($) Short Term Incentive Cash Bonus ($) Non-Cash Benefits ($) POST EMPLOYMENT Superannuation ($) LONG TERM INCENTIVES/BENEFITS Long Service Leave Post Employment Benefits ($) Share based payments ($) Total ($) 72,000 48,000 48,000 48,000 223,745 30,000 - - - - - - - - - - - - - - - - - - 57,757 85,000 8,687 31,000 - - - 135,200 106,589 81,432 11,700 2,643 Proportion of Remuneration Performance Related (%) - - - - - - 31.6% - - - - - - - 72,000 48,000 48,000 48,000 406,219 622,219 30,000 30,000 337,564 337,564 - - C F Ryan D A Hoff G R Molloy J I Wowk R M Beath 2009 Directors Non –Executive C F Ryan G R Molloy R M Beath J I Wowk Executive D A Hoff Total Directors Company Executives R J Nicholls Total Company Executives Relevant Group Executive P R Mastalir Total Relevant Group Executive The named company executives and relevant group executive held the following positions during the period: Company Executive R J Nicholls Relevant Group Executive P R Mastalir Position Group Company Secretary Position Managing Director, Rambor Pty Ltd There are no other company executives or relevant group executives. The names and positions held by Key Management Personnel (as defined by the Corporations Act 2001 and Australian Accounting Standards) of the consolidated entity during the year are as follows: Key Management Personnel C F Ryan D A Hoff G R Molloy J I Wowk R M Beath Position Non-Executive Director Chairman Managing Director Non-Executive Director Non-Executive Director Non-Executive Director P A G E 1 4 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMP P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 DIRECTORS’ REPORT CONTINUED PERFORMANCE INCOME AS A PROPORTION OF TOTAL REMUNERATION Performance based bonuses are based on proportions of salary and not on set monetary figures. This may result in the proportion of remuneration related to performance varying between individuals. The Board has set these bonuses to encourage achievement of specific goals that have been given a high level of importance in relation to growth and profitability of the consolidated entity. ANALYSIS OF BONUSES INCLUDED IN REMUNERATION The vesting profile of the short-term incentive cash bonus awarded as compensation to each director, company executive and relevant group executives and which may have vested at the date of this report are detailed below: Short term incentive cash bonus Included in Remuneration ($) Vested in period (%) Forfeited in period (A) (%) Available for vesting in future years (B) Director D A Hoff Relevant group executive P R Mastalir - - - - 100% 100% - - (A) The amounts forfeited are due to the performance of service criteria not being met in relation to the current financial reporting period. (B) This relates to the amount of short term bonus which may have accrued from the 2010 financial year and be payable in future financial years. The maximum potential value of the short term incentive is dependent upon the attainment of specified threshold earnings targets and the maximum potential value is dependant upon actual earnings achieved. No bonuses were paid to any director, company executive or relevant group executives in respect of the current period. The performance conditions relating to: • D A Hoff comprised designated earnings per share (EPS) targets for the consolidated entity; and • P R Mastalir related to the achievement of pre-determined and specified Earnings Before Interest & Tax (EBIT) targets for Rambor. Each of these performance incentive targets were not achieved during the 2010 financial year and, therefore, the bonus was forfeited. The Company’s Secretary, R J Nicholls: • • is engaged in a non-executive, consultative capacity; and is not remunerated by means of specified performance conditions and targets. ANALYSIS OF PROSPECTIVE BONUS PAYMENTS FOR FUTURE YEARS The vesting profile of the short-term incentive cash bonus which may otherwise be payable in future financial years if the executive meets pre-determined service and performance criteria awarded as compensation to each director, company executive and relevant group executive are detailed below: Short term incentive cash bonus Value yet to vest or which may vest Financial years in which bonus vests or may vest Minimum Maximum Relevant Group Executive P R Mastalir 2011 0 (A) (A) The maximum potential value of the short term incentive cash bonus for future financial years cannot be determined for this executive as vesting is dependent upon the attainment of specified threshold earnings targets and the maximum potential value is dependant upon actual earnings achieved. The performance conditions included in the determination of the prospective bonus which may vest in future financial years and be payable to P R Mastalir includes specified EBIT targets for Rambor Pty Limited. These performance conditions were selected because each seeks to align the potential payment of bonuses to the creation of shareholder value and growth of the Company’s operations. Achievement of these performance conditions are assessed by means of specifically defined targets and definitions of the key requirements detailed within the relevant service and consultancy agreements with the respective personnel. The main reason for applying these methods of assessment is that they are based on readily accepted measurements of shareholder value creation and company earnings growth. P A G E 1 5 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMDIRECTORS’ REPORT CONTINUED OPTIONS ISSUED AS PART OF REMUNERATION FOR THE YEAR ENDED 30 JUNE 2010 Options may be issued to executives as part of their remuneration. The options are issued to encourage goal alignment between executives, directors and shareholders. No options were issued to, or exercised by, directors or specified executives during the year. EMPLOYMENT CONTRACTS • Remuneration - Consultancy fee payable during the period 1 September 2009 to 30 June 2010 was $250,000 per annum. The Company must supply a mobile phone and laptop and shall reimburse all expenses incurred in relation to provision of the consultancy services. • Duties - The duties of Mr Hoff include the oversight of general administrative functions of the Company and supervising special projects and/or the Company’s operating businesses. David Hoff is required to attend to his duties 3 days per week on average for 48 weeks per year. Mr Hoff is likely to be invited to attend the Company Board Meetings. The Company’s Managing Director, David Hoff, retired on 7 September 2009. • The remuneration and other terms of Mr Hoff’s employment during the year were based on a previously executed written Service Agreement. The key provisions of the Service Agreement were as follows: • Term of agreement - 4 years commencing 1 July 2004. • Base salary inclusive of superannuation to be reviewed annually by the Board of Directors. • Provision of a fully maintained motor vehicle. • Payment of a post employment benefit equal to 12 months of the current base salary and benefits in the event that either party does not renew the Service Agreement on expiry of the 4 year term. • Payment of a termination benefit on early termination by the employer, other than in specified circumstances based on misconduct or non-performance, equal to the current base salary and benefits for 12 months or the remaining term of the agreement whichever is the greater. • A notice period of 6 months in respect of early termination of the agreement. The payment of a performance related cash bonus based on the consolidated entity achieving specified earnings per share targets. On 7 September 2009, David Hoff retired as Managing Director and as a Director of the Company. Following his resignation, the Company and Mr Hoff agreed the remuneration and other terms of David Hoff continuing in the role of a consultant. The key provisions of the consultancy arrangement are as follows: • Initial period of 3 years Term - commencing on 1 September 2009. Unless either the Company or David Hoff serves a written notice at least 120 days prior to the expiry of the term, the consultancy arrangement will automatically renew for a further term of 2 years. This renewal process may continue indefinitely. P A G E 1 6 Termination - The consultancy arrangement may be terminated at any time by David Hoff by giving the Company 6 months written notice. The Company can terminate the arrangement at any time with no cause by paying an amount equivalent to the greater of the then current consultancy fee for a term of 12 months, or the remainder of the term. In the event Mr Hoff’s services are not provided for a continuous period in excess of 3 months, the Company can terminate the consultancy arrangement by paying an amount equivalent to the current consultancy fee for a period of 12 months. Both the Company and Mr Hoff can immediately terminate the arrangement in the event the other breaches the terms of the consultancy and that breach is not remedied within 4 weeks notice of that breach. The Company has immediate termination rights for specified misconduct. A performance review was undertaken in August 2010 regarding the performance of Mr Hoff and his related entity in respect of the year ended 30 June 2010. Glenn Molloy was appointed an Executive Director on 7 September 2009. The remuneration and other terms of Mr Molloy’s employment have been approved by the Board and include payment of the amount of $3,500 per day worked for PPK plus reasonable out of pocket expenses and the provision of a mobile phone and laptop for business use. Robert Nicholls and Prestige Corporate Services Pty Ltd, an entity related to Mr Nicholls, provide company secretarial consultancy services to the consolidated entity pursuant to the terms of a Consultancy Agreement. The key provisions of the Consultancy Agreement are as follows: • Term of Agreement – Initial period of 4 years commencing 8 July 2008 with an option to the Company to extend the agreement for a further 2 years at the end of the initial period; • Base Consultancy Fee on commencement to be reviewed annually by the Board of Directors; • Payment of a termination benefit on early termination by the employer, other than in specified circumstances based on misconduct or non-performance, equal to the prevailing remuneration amount for a 12 month period; Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 DIRECTORS’ REPORT CONTINUED • A notice period of 6 months in respect of early termination of the agreement for non-performance or generally at the election of Mr Nicholls; and • Immediate termination by the Company for specified misconduct. A performance review was undertaken in August 2010 regarding the performance of Mr Nicholls and his related entity in respect of the year ended 30 June 2010. P.R.Mastalir and Advanced Fluid Systems Pty Limited, an entity related to Mr Mastalir, provide consultancy services to Rambor Pty Limited (“Rambor”) and King Cobra Mining Equipment Pty Limited (“King Cobra”) pursuant to the terms of a Consultancy Agreement. The key provisions of the Consultancy Agreement are as follows: • Term of agreement - 5 years commencing 1 July 2007. • Base Consultancy Fee upon commencement to be reviewed annually by the Board of Directors. • Restraints on competition for specified time periods in certain geographical areas in respect of defined services and activities in the event of termination. • Early termination provisions on the occurrence of specified events such as, for example, insolvency or the failure or inability to perform the contracted service. • A notice period of 6 months in respect of early termination of the agreement. • The payment of a performance related cash bonus based on Rambor and/or King Cobra achieving specified earnings before interest and taxation (EBIT) targets. A performance review was undertaken in August 2010 regarding the performance of Mr Mastalir and his related entity in respect of the year ended 30 June 2010. There are no formalised written contracts in place with any other specified executives. End of Audited Remuneration Report OPTIONS There were no options outstanding as at the date of this report. DIRECTORS’ INTERESTS Particulars of Directors’ interests in shares as at the date of this report are as follows: C F Ryan D A Hoff* G R Molloy J I Wowk R M Beath Ordinary Shares 500,000 156,960 10,987,997 212,302 42,821 Options - - - - - * Resigned due to retirement on 7 September 2009. ∧ Rambor spilling rig P A G E 1 7 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMDIRECTORS’ REPORT CONTINUED Balance 01-Jul-09 Granted as remuneration On exercise of options SHARES Directors C F Ryan D A Hoff* G R Molloy J I Wowk R M Beath Company Executives 500,000 156,960 10,329,098 187,302 42,821 R J Nicholls 27,000 Relevant Group Executive P R Mastalir - Total 11,243,181 Net change other Balance as at the date of this report - - 658,899 25,000 - 500,000 156,960 10,987,997 212,302 42,821 - - 27,000 - 683,899 11,900,080 - - - - - - - - - - - - - - * Resigned due to retirement on 7 September 2010. MEETINGS OF DIRECTORS During the financial year, meetings of directors (including committee meetings) were held. Attendances were: DIRECTORS’ MEETINGS COMMITTEE MEETINGS Number Eligible to attend Number Attended Number Eligible to attend Number Attended 11 11 11 11 2 10 11 11 10 2 3 - - 3 - 3 - - 3 2 C F Ryan G R Molloy J I Wowk R M Beath DA Hoff RISK & CONTROL COMPLIANCE STATEMENT Under ASX Listing Rules and the ASX Corporate Government Council’s Principles of Good Corporate Governance and Best Practice Recommendations (“ASX Recommendations”), the Company is required to disclose in its Annual Report the extent of its compliance with the ASX Recommendations. OPTIONS Directors C F Ryan D A Hoff* G R Molloy J I Wowk R M Beath Company Executives R J Nicholls Relevant Group Executive P R Mastalir Total P A G E 1 8 Balance 01-Jul-09 Granted as remuneration Options lapsed Net change other Balance as at the date of this report Throughout the reporting period, and as at the date of signing of this Directors’ Report, the Company was in compliance with a majority of the ASX Recommendations in all material respects as more fully detailed in the Statement of Corporate Governance Practices on pages 20 to 29 of the PPK 2010 Annual Report. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - In accordance with the Recommendations, the Board has: • • received and considered from management regarding the effectiveness of the Company’s management of its material business risks; and reports received assurance from the chief executive officer and the person performing the chief financial officer function regarding the consolidated financial statements and the effective operation of risk management systems and internal controls in relation to financial reporting risks. Material associates and joints ventures, which the company does not control, are not dealt with for the purposes of this statement. AUDIT COMMITTEE The consolidated entity has an Audit Committee. Details of the composition, role and Terms of Reference of the PPK Audit Committee are contained in the Statement of Corporate Governance Practices accompanying this Report and are available on the Company’s website at www.ppkgroup.com.au The PPK Audit Committee currently comprises the following Non- Executive, Independent Directors: R M Beath (Chairman) C F Ryan Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMP P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 AUDIT INDEPENDENCE The lead auditor has provided the Auditor’s Independence Declaration under section 307C of the Corporations Act 2001 (Cth) for the year ended 30 June 2010 and a copy of this declaration is set out on page 79 and forms part of the Directors’ Report. ROUNDING OF ACCOUNTS The parent entity has applied the relief available to it in ASIC Class Order 98/100 and, accordingly, amounts in the Financial Statements and Directors’ Report have been rounded to the nearest thousand dollars. Signed in accordance with a resolution of the Board of Directors. Colin Francis Ryan Director Sydney, 28 September 2010 DIRECTORS’ REPORT CONTINUED The Company’s lead signing and review External Audit Partner, Executive Director and selected consultants attend meetings of the Audit Committee by standing invitation. DIRECTORS’ AND AUDITORS’ INDEMNIFICATION During or since the end of the financial year the company has given an indemnity or entered an agreement to indemnify, or paid or agreed to pay insurance premiums as follows: The Company has paid premiums to insure all directors of the parent entity and officers of the consolidated entity against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity of director or officer of the Company, other than conduct involving a wilful breach of duty in relation to the Company. The amount of the premium was $22,958. DIRECTORS’ BENEFITS Since 30 June 2009, no director has received or become entitled to receive a benefit because of a contract made by the consolidated entity, or a related body corporate with a director, a firm of which a director is a member or an entity in which a director has a substantial financial interest except for: • Mr Raymond Beath is a director of Holden & Bolster Avenir Pty Ltd which provided tax and accounting services to the consolidated entity in the ordinary course of business. • Mr Jury Wowk was a partner in HWL Ebsworth Lawyers and is currently a consultant to HWL Ebsworth Lawyers which has provided legal services to the consolidated entity in the ordinary course of business. This statement excludes a benefit included in the aggregate amount of remuneration received or due and receivable by directors and shown in the company’s accounts, or the fixed salary of a full- time employee of the parent entity, controlled entity, or related body corporate. NON-AUDIT SERVICES There were no non-audit services performed by the external auditors, BDO Audit (NSW-VIC) Pty Ltd, during the year ended 30 June 2010. ∧ Rambor Trussmaster P A G E 1 9 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMSTATEMENT OF CORPORATE GOVERNANCE PRACTICES - 2010 PPK GROUP LIMITED (“PPK” OR “THE COMPANY”) APPROACH TO CORPORATE GOVERNANCE AND RESPONSIBILITY The PPK Board of Directors is committed to the principles underpinning good corporate governance, applied in a manner which is most suited to PPK, and to best addressing the directors’ accountability to shareholders and other stakeholders. This is supported by an overriding organisation-wide commitment to the highest standards of legislative compliance and financial and ethical behaviour. The Company continues to address directors’ accountability to stakeholders in a manner consistent with the Company’s individual circumstances enhanced through the introduction of publicly available policies and procedures which are designed to foster a culture of transparency in the way PPK is directed and managed. As a measure of its stated commitment to good corporate governance principles, the Board will continue to: • review and continually improve its governance practices; and • monitor developments in good corporate governance. REPORT ON COMPLIANCE WITH THE ASX BEST PRACTICE RECOMMENDATIONS Currently, the ASX Listing Rules require listed companies to include in their Annual Report a statement disclosing the extent to which they have followed the recommendations set by the ASX Corporate Governance Council (“ASX Recommendations”) in the reporting period. Listed companies must identify the ASX Recommendations that have not been followed and provide reasons for the company’s decision. Where a recommendation has been followed for only part of the period the company must state the period during which it had been followed. As detailed within this Statement of Corporate Governance Practices, PPK considers its governance practices comply with each of the ASX Corporate Governance Principles and Recommendations (“ASX Principles & Recommendations”) except for those detailed, and for the reasons outlined, in this Report. For the reasons expressed within this Statement, PPK has elected not to adopt ASX Recommendations 2.4, 4.2 and 8.1. PPK has posted copies of its relevant corporate governance policies and practices to its website consistent with the ASX RECOMMENDATIONS P A G E 2 0 PPK’s Statement of Corporate Governance Practices and copies of its policies are available in the designated corporate governance area of its website at www.ppkgroup.com.au. TRANSITION TO REVISED PRINCIPLES & RECOMMENDATIONS On 30 June 2010, the ASX Corporate Governance Council released amendments to the 2nd edition of the ASX Principles and Recommendations in relation to diversity, remuneration, trading policies and briefings (“Revised ASX Principles & Recommendations”). The change in the reporting requirements for each of the amendments to the ASX Principles and Recommendations will: • apply to PPK in relation to the financial year ending 30 June 2012; and • require disclosure by PPK in its 2012 Annual Report. PPK intends, however, to make an early transition to the Revised ASX Principles and Recommendations in the 2011 financial year. DATE OF THIS STATEMENT This statement outlines the: • ASX Principles & Recommendations (2nd edition) identified by the ASX as underlying good corporate governance; and • main corporate governance practices of PPK during the year to 30 June 2010, except where stated otherwise. Principle 1: Lay solid foundations for management and oversight Companies should establish and disclose the respective roles and responsibilities of board and management. Recommendation 1.1: Formalise and disclose the functions reserved to the board and those delegated to senior executives and disclose those functions. Recommendation 1.2: Disclose the process for evaluating the performance of senior executives. Recommendation 1.3: Provide the information indicated in the Guide to reporting on Principle 1. Formalisation of board and management functions. The Board has formalised its roles and responsibilities into a Charter. The Board Charter clearly defines the matters that are reserved for the Board and those that the Board has delegated to management. In summary, the responsibilities of the PPK Board include: • oversight of the Company, including its control and accountability systems; • setting the Company’s major goals including the strategies and financial objectives to be implemented by management; • appointing, removing and controlling the Managing Director; Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMP P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 STATEMENT OF CORPORATE GOVERNANCE PRACTICES - 2010 • • • ratifying the appointment and, where appropriate, the removal of the Chief Financial Officer (“CFO”) and/or Company Secretary; input into and final approval of management’s development of corporate strategy and performance objectives; reviewing and ratifying systems of risk management and internal compliance and control, codes of conduct and legal compliance; management regarding the group financial performance and forecasted results, presentations and operational reports, and the achievement of predetermined performance objectives. Evaluations of the performance of senior executives for the 2010 financial year were conducted in August 2010. These evaluations were undertaken in accordance with the process outlined in this Statement. Board Charter • monitoring senior management’s performance and implementation of strategy, and ensuring that appropriate resources are available; • approving and monitoring the progress of major capital expenditure, capital management, and acquisitions and divestitures; • approving and monitoring financial and other reporting; and • corporate governance. The Board has delegated responsibility to the Managing Director for: • developing and implementing corporate strategies and making recommendations on significant corporate strategic initiatives; • maintaining an effective risk management framework and keeping the Board and market fully informed about material risks; • developing PPK’s annual budget, recommending it to the Board for approval and managing day-to-day operations within the budget; • managing day-to-day operations in accordance with standards for social and ethical practices which have been set by the Board; • making recommendations for the appointment of key management personnel, determining terms of appointment, evaluating performance, and developing and maintaining succession plans for key management roles; and The roles and responsibilities of the Board and management are detailed in the Board Charter which is available within the designated corporate governance area of the Company website at www.ppkgroup.com.au. Principle 2: Structure the board to add value. Companies should have a board of an effective composition, size and commitment to adequately discharge its responsibilities and duties. Recommendation 2.1: A majority of the board should be independent directors. Recommendation 2.2: The chair should be an independent director. Recommendation 2.3: The roles of chair and chief executive officer should not be exercised by the same individual. Recommendation 2.4: The board should establish a nomination committee. Recommendation 2.5: Disclose the process for evaluating the performance of the board, its committees and individual directors Recommendation 2.6: Provide the information included in the Guide to reporting on Principle 2 • approval of capital expenditure and business transactions Independence within predetermined limits set by the Board. Senior Executive Performance Evaluation The Board is responsible for approving the performance objectives and measures for the Chief Executive Officer (“CEO”) and assessing whether these objectives have been satisfied by the performance of the CEO during the relevant period and in accordance with agreed terms of engagement. A PPK director will be considered independent where he or she is: • • independent of management, that is, a non-executive director; and, free from any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the exercise of his or her unfettered and independent judgement. The CEO is responsible for approving the performance objectives and measures of other senior executives in consultation with the Board. The Board provides input into the evaluation of performance by senior executives against the established performance objectives. The performance of senior executives is monitored by means of scrutiny by the Board of regular monthly reports provided by Materiality is assessed on a case by case basis by reference to the director’s individual circumstances rather than general materiality thresholds. The PPK Board has made its own assessment to determine the independence of each director on the Board. It is the Board’s view that each of the current non-executive directors is independent, namely: Mr C F Ryan, Mr J I Wowk and Mr R M Beath. P A G E 2 1 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMSTATEMENT OF CORPORATE GOVERNANCE PRACTICES - 2010 In view of the size of the Company and the nature of its activities, the Board considers that the current mix of skills, qualifications and experience on the Board is consistent with the long-term interests of the Company. The Board will continue to monitor the requirement for independent directors in the context of the Company’s communicated long term objectives. The Board has established criteria for assessing independence of its directors and these can be found in the corporate governance section of the PPK website at www.ppkgroup.com.au. Composition of the Board On 7 September 2009: • Mr D A Hoff resigned as a Director; and • Mr G R Molloy commenced as an Executive Director, of the Company. Following these changes, the PPK Board currently comprises three (3) non-executive directors and one (1) executive director. The composition of the Board is set based on the following factors: • • the Company’s Constitution provides for the number of directors to be not less than three (3) and not more than ten (10) as determined by the directors from time to time; the Board has adopted a policy that the position of Chairman will continue to be held by a non-executive director; • consistent with the Company’s objective that the Board should encompass a broad range of relevant expertise, the present Board consists of directors with a collective of diverse skills, qualifications and experience as more fully detailed in the Company’s Annual Report and on its website at www. ppkgroup.com.au. PPK’s Constitution is available in the corporate governance area of its website at www.ppkgroup.com.au. There is no shareholding requirement imposed upon directors under the Company’s Constitution, however, all of the directors of PPK do hold shares in the Company. Details of all holdings by directors in the Company are detailed within the Directors’ Report. Chairman The Chairman is selected by the Board from the non-executive directors. The current Chairman, Mr C R Ryan, is a non-executive director appointed by the Board. Mr Ryan has been a Director of PPK since November 1995 and Chairman since March 1999. He is considered an independent director. Separation of roles of Chair and CEO PPK’s Chairman and Executive Director have separate roles. The roles and responsibilities of the Chairman and the Executive Director are set out in the Board Charter which is available within the designated corporate governance area of the company website at www.ppkgroup.com.au. Establishment of Nomination Committee PPK has elected not to adopt Recommendation 2.4 because it considers that its existing selection and appointment practices, detailed within this Statement, are an efficient means of meeting the needs of the company, particularly having regard to the fact that PPK is a relatively small publicly listed company by comparison to other listed entities which is reflected by the size of its operations, board structure and composition. The PPK Board currently consists of only four (4) members. It is considered that further division of the Board for the purposes of establishing a formal committee structure would not achieve enhanced efficiency or enable the Board to add greater value to this process. The small size of the PPK Board, and the nature of its business, means that PPK has the present capacity to consider director competencies, selection and nomination practices in the context of duly constituted meetings of the Board and as a part of its self-evaluation processes. Board Performance Evaluation The Board has adopted an on-going, self-evaluation process to measure its own performance and the performance of its committee during the reporting period. The Chairman meets periodically with individual directors to discuss the performance of the Board and the director. In addition, an evaluation is undertaken by the Chairman of the contribution of directors retiring by rotation prior to the Board endorsing their candidature. The review process involves consideration of all of the Board’s key areas of responsibility and accountability and is based on an amalgamation of factors including capability, skill levels, understanding of industry complexities, risks and challenges, and value adding contribution to the overall management of the business. A performance evaluation for the Board, its committee and directors took place during the reporting period in accordance with the process detailed within this Statement. The outcomes of the self-assessment program are used to enhance the effectiveness of individual directors and the Board collectively. P A G E 2 2 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMP P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 STATEMENT OF CORPORATE GOVERNANCE PRACTICES - 2010 Enhanced effectiveness of the Board and management is also addressed through: Board Meetings The frequency of Board meetings and director’s attendance at those meetings is detailed within the Directors’ Report. Directors are expected to prepare for meetings in a manner which will enable them to attend and participate at the meeting. Directors are also required to make on-site visits and attend workshops as required. Induction Program Procedures for induction of new directors are in place to allow new directors to participate fully and actively in board decision making at the earliest opportunity. All directors are offered an induction program appropriate to their experience upon appointment so as to familiarise them with matters relating to the business, strategy and any current issues under consideration by the Board. This program consists of written background material on the company, its products, services and operations; scheduled meetings with the Chairman, Executive Director and key senior management executives of the Company. Director education The Board encourages directors to continue their education by participating in applicable workshops and seminars, attending relevant site visits and undertaking relevant external education. The Company Secretary provides directors with on-going guidance on matters such as corporate governance, the Company’s Constitution and the law. Board Papers & Agendas Board agendas are structured throughout the year in order to ensure that each of the significant responsibilities of the Board is addressed. Directors receive board packs prior to each meeting which detail financial, operational and strategy reports from senior management who are available to discuss reports with the Board. Access to information All directors have access to company records and information, and receive regular detailed financial and operational reports from senior management. The Company Secretary is available to all Directors and may be consulted on on-going issues of corporate governance, the PPK Constitution and the law. In addition, the Chairman and other independent non-executive directors regularly consult with the Executive Director and Group Accountant, and may confer and request additional information from any PPK employee. Management are available to discuss reports, and any issue arising, with the Board as required. The Board collectively, each Board Committee and each individual Director has the right, following appropriate consultation, to seek independent professional advice at PPK’s expense to help them carry out their responsibilities. A copy of the process for performance evaluation of the board, its committees and individual directors, and key executives is available in the designated area for corporate governance on the Company website at www.ppkgroup.com.au. Term of office, skills, experience and expertise of each director The qualifications, experience and expertise of the directors, and the respective terms in the office held by individual directors, are set out in the Directors’ Report on pages 7 and 8 of the PPK 2010 Annual Report. Independent Professional Advice PPK has in place a procedure whereby, after appropriate consultation, directors are entitled to seek independent professional advice, at the expense of PPK, to assist them to carry out their duties as directors. The policy of PPK provides that any such advice is made available to all directors. Procedure for Selection and Appointment of New Directors The process for appointing a director within PPK is that, when a vacancy exists, the Board identifies candidates with the appropriate expertise and experience, using external consultants as appropriate. The most suitable candidate is appointed but must stand for election at the next Company Annual General Meeting following the appointment. Consistent with the current law there is no retirement age for directors fixed by the Corporations Act 2001 (Cth) or ASX Listing Rules, although a person of or over the age of seventy-two (72) years of age may not be appointed, or re-appointed as a director except pursuant to a resolution of the Company in accordance with the Company’s Constitution. The process for re-election of a director is in accordance with the Company’s Constitution, which requires that each year, at least one-third of the non-executive directors retire from office at the Annual General Meeting. The retiring directors may be eligible for re-election. P A G E 2 3 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMSTATEMENT OF CORPORATE GOVERNANCE PRACTICES - 2010 Principle 3: Promote ethical and responsible decision- making. • use the powers of their position for a proper purpose, in the interests of the Company; Companies should actively promote ethical and responsible decision-making. Recommendation 3.1: Establish a code of conduct and disclose the code or a summary of the code as to the: • practices necessary to maintain confidence in the company’s integrity; • practices necessary to take into account their legal obligations and the reasonable expectations of shareholders; and • responsibility and accountability of individuals for reporting and investigating reports of unethical practices. Recommendation 3.2: Establish a policy concerning trading in company securities by directors, senior executives and employees, and disclose the policy or a summary of that policy. Recommendation 3.3: Provide the information indicated in Guide to reporting on Principle 3. Code of Conduct PPK is committed to the operation of its business in a manner that meets or exceeds the ethical, legal, commercial and public expectations that society has of the Company and the industry in which it operates. The Board has approved a Code of Conduct and Ethics which applies to all directors, executives, management and employees without exception. In addition, the conduct of directors and executives is also governed by Code of Conduct for Directors and Executives. Each Code of Conduct is designed to ensure that: • high standards of corporate and individual behaviour are observed by all PPK directors and executives in the context of their respective roles and the performance of their duties with PPK; • directors and executives are aware of their responsibilities to PPK under the terms of their appointment or contract of employment; and • all of the stakeholders of the Company can be guided by the stated values and policies of PPK. In summary, the Code provides that directors and senior executives must: • act honestly, in good faith and in the best interests of the Company; • use due care, skill and diligence in the fulfilling their duties; • not make improper use of information acquired their position; • not allow personal interests, or those of associates, conflict with the interests of the Company; • exercise independent judgement and actions; • maintain the confidentiality of company information acquired by virtue of their position; • not engage in conduct likely to bring discredit to the Company; and • comply at all times with both the spirit and the letter of the law, as well as, policies of the Company. Directors of the Company may act in a professional capacity for the Company or its controlled entities, other than as auditor of the Company. These arrangements are subject to the restrictions of the Corporations Act 2001 (Cth). Disclosure of related party transactions is set out in Note 29 to the Financial Statements. Under the Constitution of the Company, and the Corporations Act 2001 (Cth), where the possibility of a conflict of interest exists and involves a director, directly or indirectly, the director must declare the fact, nature, character and extent of the conflict at the first meeting of directors held after the relevant facts come to the director’s knowledge. The director concerned does not receive copies of the relevant Board papers, if any, and withdraws from the Board meeting while such matters are considered by the remainder of the Board. Accordingly, the interested director takes no part in discussions nor exercises any influence over other members of the Board if a potential conflict of interest exists. In addition, PPK has developed a series of policies designed to promote ethical and responsible decision making by directors, executives, employees and contractors of the Company, including: • Trading Policy; • Market Disclosure Policy; • Privacy Policy; • Occupational Health & Safety Policy; • • Code of Conduct and Ethics (General); and Code of Conduct for Directors’ & Executives. Employees are actively encouraged to report activities or behaviour to senior management, the Company Secretary or the Board, which are a breach of the Code of Conduct and Ethics, other PPK policies or regulatory requirements or laws. The Company will investigate any concerns raised in a manner P A G E 2 4 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMP P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 STATEMENT OF CORPORATE GOVERNANCE PRACTICES - 2010 that is fair, objective and affords natural justice to all people involved. The Company is committed to making necessary changes to its processes and taking appropriate action in relation to employees found to have behaved contrary to legal and company standard requirements. Trading Policy Directors, senior executives and employees are subject to the Corporations Act 2001 (Cth) relative to restrictions applying for, acquiring and disposing of securities in, or other relevant products of, the Company (or procuring another person to do so), if they are in possession of inside information. Inside information is that information which is not generally available, and which if generally available, a reasonable person would expect it to have a material effect on the price or value of the securities in the Company. Under the PPK Trading Policy, directors, senior executives and employees of the Company are restricted from trading in the Company’s securities during the period of one (1) month preceding the making of an announcement to the market by the Company relating to the: • Company’s Annual results; • Company’s Half Year results; and • Chairman’s Address. The Company notifies the ASX of any change in a director’s interests in securities, and in contracts relevant to securities, as required by the ASX Listing Rules. Policy Disclosure Recommendation 4.4: Provide the information indicated in Guide to reporting on Principle 4. Establishment of Audit Committee The PPK Board has an established Audit Committee which continues to provide assistance to the Board in accordance with its established Terms of Reference. Audit Committee Structure PPK: • does not comply with ASX Recommendation 4.2 regarding the desired number of members of an audit committee; and • is not presently required to comply with the requirement for at least three (3) members on its Audit Committee under the current ASX Listing Rules. The Company, therefore, otherwise complies with ASX Recommendation 4.2. The current PPK Audit Committee comprises only two (2) non- executive directors and is chaired by Mr R M Beath who is not Chairman of the Board. The Board considers that the technical skills, qualifications and experience represented by the involvement of members Mr R M Beath and Mr C F Ryan are most suited to the effective discharge of the responsibilities of the committee. PPK does not consider that any further value will be added by the inclusion of another member for the sake of satisfying this requirement, particularly given the small size and diversity of the PPK Board. Copies of the PPK Code of Conduct & Ethics, Code of Conduct for Directors and Executives and Trading Policy are available at www. ppkgroup.com.au. The Board will, however, continue to monitor the requirements of this recommendation in the context of the Company’s prevailing circumstances. Principle 4: Safeguard integrity of financial reporting. Audit Committee – Terms of Reference Companies should have a structure to independently verify and safeguard the integrity of their financial reporting. Recommendation 4.1: The Board should establish an audit committee. The PPK Audit Committee role and responsibilities, composition, structure and membership requirements are detailed in a formalised charter comprising the Audit Committee – Terms of Reference. The principal functions of the PPK Audit Committee as detailed within the Terms of Reference are to: Recommendation 4.2: Structure the audit committee so that it: • • • consists of only non-executive directors; consists of a majority of independent directors; is chaired by an independent chair, who is not chair of the board; • has at least three (3) members. • • • Recommendation 4.3: The audit committee should have a formal charter. review of the annual and half yearly financial reporting carried out by PPK; review of the accounting policies of PPK; review the scope and audit programmes of the internal and external auditors and any material issues arising from these audits; • oversee the independence of external auditors and determining P A G E 2 5 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMSTATEMENT OF CORPORATE GOVERNANCE PRACTICES - 2010 procedures for the rotation of audit partners; and • report to the Board on the effectiveness of PPK’s systems of accounting and internal controls. Reflecting the relative small size of the company, the full Board remain responsible for: • • • the sufficiency of, and compliance with, ethical guidelines and company policies affecting corporate governance, financial reporting and corporate control together with compliance with laws and external regulations; identification of the full range of actual or potential risk exposures which are material to PPK; and the effectiveness of the group’s risk management systems and strategies. Meetings The PPK Audit Committee prepares and maintains a register of minutes of its meetings and these are included in the Board papers for the next full Board meeting after each Audit Committee meeting. Reporting The Chair of the Audit Committee reports to the Board as and when required on matters relevant to the committee’s role and responsibilities. Engagement & Rotation of External Auditor The Audit Committee is responsible for nominating the external auditor to the Board for re-appointment. If the Audit Committee recommends a change in external auditor to the Board, the Board’s nomination of external auditor requires the approval of shareholders. The Audit Committee recommends to the Board the compensation of the external auditor. The Audit Committee meets with the external auditor throughout the year to review the adequacy of the existing external audit arrangements with particular emphasis on the scope, quality and independence of the audit. It has been determined by the Audit Committee that the external auditor will not provide services to the company where the auditor would: • have a mutual or conflicting interest with the Company; • be in a position where they audit their own work; • function as management of the Company; or • have their independence impaired or perceived to be impaired in any way. P A G E 2 6 Specifically, the external auditor will not normally provide the following types of services to the Company: • bookkeeping or other services relating to the accounting records or financial statements of the group; • financial information or information technology systems design and implementation; • appraisal and valuation services, fairness opinions or contributions-in-kind reports; • actuarial services; • • management internal audit outsourcing services; functions, assignments or human recruitment of senior management; including resource temporary staff including services, • broker or dealer services, investment advisor, corporate finance or investment banking services; and • legal and litigation support services. Procedures are in place governing approval of any non-audit work before the commencement of any engagement. BDO Kendalls were appointed independent external auditors of PPK on listing of the former entity Plaspak Group Limited in 1994. In 2008, BDO Kendalls resigned as auditor and were replaced by BDO Audit (NSW-VIC) Pty Ltd (“BDO Audit”) following receipt of consent from ASIC and shareholder approval at the Company’s 2008 Annual General Meeting respectively. BDO Audit continues to act in this role in respect of the consolidated entity. The Board has elected to adopt a policy which is consistent with the primary and secondary rotation obligations regarding auditors such that: • • the lead or review audit partner’s responsibilities may not be performed by the same person for longer than five (5) successive years (“primary rotation obligation”); and the lead or review audit partner’s responsibilities may not be performed by the same person for more than five (5) out of seven (7) successive years (“secondary rotation obligation”). In addition, the Board requires a minimum of two (2) consecutive years “cooling off” period before an auditor undergoing rotation can return to playing a significant role in the audit of the Company. During the reporting period, the lead External Audit Partner for PPK was Mr Wayne Basford. Mr Basford has fulfilled this role in respect of the Company since the 2006 financial year. Details of the members of the Audit Committee The Board’s Audit Committee consists of: Mr R M Beath (Chairman) Mr C F Ryan Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMP P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 STATEMENT OF CORPORATE GOVERNANCE PRACTICES - 2010 The lead signing and review External Audit Partner and the Company’s Executive Director attend committee meetings by standing invitation. Market Disclosure Policy available at www.ppkgroup.com.au. Principle 6: Respect the rights of shareholders. The qualifications of each member of the committee are set out in the Directors’ Report on pages 8 to 9 of the PPK 2010 Annual Report. Number of Meetings and Names of Attendees The number of meetings held during the reporting period and the attendees at these meetings is detailed within the Directors’ Report. Companies should respect the rights of shareholders and facilitate the effective exercise of those rights. Recommendation 6.1: Design and disclose a communications policy to promote effective communication with shareholders and encourage effective participation by them at general meetings. Recommendation 6.2: Provide the information indicated in Guide to reporting on Principle 6. Audit Committee Charter Shareholder Communication Policy The PPK Audit Committee Charter is available at www.ppkgroup. com.au. PPK recognises the right of shareholders to be informed of matters, in addition to those prescribed by law, which affect their investments in the Company. Principle 5: Make timely and balanced disclosure. Companies should promote timely and balanced disclosure of all material matters concerning the company. Recommendation 5.1: Establish written policies and procedures designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies. Recommendation 5.2: Provide the information indicated in Guide to reporting on Principle 5. Policies & procedures regarding disclosure requirements The PPK Board is committed to keeping its shareholders, and the market, fully informed of major developments having an impact on the Company. Comprehensive procedures are in place to identify matters that are likely to have a material affect on the price, or value, of the PPK securities and to ensure those matters are notified to the ASX in accordance with ASX Listing Rule disclosure requirements. Senior management and the Board are responsible for scrutinising events and information to determine whether the disclosure of the information is required in order to maintain the market integrity of the Company’s shares listed on the ASX. The Company Secretary is responsible for all communications with the ASX. Compliance with Listing Rule Disclosure Requirements The procedures relating to the notification of price sensitive information to the ASX and the subsequent posting of announcements on the PPK website are detailed within the PPK The PPK Shareholder Communication Policy demonstrates PPK’s commitment to: • dealing fairly, transparently and openly with both current and prospective shareholders; • • the use of available channels and cost effective technologies to reach shareholders who may be geographically dispersed and in order to communicate promptly with all shareholders; and facilitating participation dealing promptly with shareholder enquiries. in shareholders meetings and PPK communicates information to shareholders through: • its Annual Report; • disclosures to the ASX and ASIC; • notices and explanatory memoranda of annual general meetings and general meetings; • occasional letters from the Executive Director and Chairman to inform shareholders of key matters of interest; and the Company’s website at www.ppkgroup.com.au. • The Board encourages active participation by shareholders at each Annual General Meeting, or other general meetings, to ensure a high level of accountability and understanding of PPK’s strategy, performance and goals. Consistent with best practice, important issues are presented to shareholders as single resolutions expressed in plain, unambiguous language. Proceedings are held in a locality, and at a readily accessible venue, conducive to maximising the number of shareholders present, and able to participate, at the meeting. Shareholders are provided with opportunities of asking the Board questions regarding the management of the Company. P A G E 2 7 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMSTATEMENT OF CORPORATE GOVERNANCE PRACTICES - 2010 Policy Disclosure group’s risk management and control practices. The ways in which PPK will communicate effectively with its shareholders are detailed within the Cool of Cosy Shareholders Communications Policy available at www.ppkgroup.com.au. Principle 7: Recognise and manage risk Companies should establish a sound system of risk oversight and management and internal control. Recommendation 7.1: Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies. Recommendation 7.2: The board should require management to design and implement the risk management and internal control system to manage the company’s material business risks and report to it on whether those risks are being managed effectively. The board should disclose that management has reported to it as to the effectiveness of the company’s management of its material business risks. Recommendation 7.3: The Board should disclose whether it has received assurance from the chief executive officer (or equivalent) and the chief financial officer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. Recommendation 7.4: Companies should provide the information indicated in the Guide to reporting on Principle 7. Oversight and management of material business risks The Board of PPK: • • recognise that effective management of risk is an integral part of good management and vital to the continued growth and success of PPK; for the oversight of the group’s risk is responsible management and the framework development of risk profiles as a part of the overall business and strategic planning process; and including control • has implemented a policy framework designed to ensure that the group’s risks are identified, analysed, evaluated, monitored, and communicated within the organisation on an on-going basis, and that adequate controls are in place and functioning effectively. The PPK Risk Management and Control Policy Framework incorporates the maintenance of appropriate policies, procedures and guidelines which address the Company’s unique operating environment and is utilised by the Board as a means of identifying opportunities and avoiding or mitigating losses in the context of its businesses. The Audit Committee assists the Board in its risk management role by reviewing the financial and reporting aspects of the P A G E 2 8 The Executive Director has ultimate responsibility for control and management of operational risk and the implementation of avoidance or mitigation measures within the group and may delegate control of these risks to the appropriate level of management at each site. The Board regularly monitors the operational and financial performance of the Company and the economic entity against budget and other key performance measures. The Board also receives and reviews advice on areas of operational and financial risk and develops strategies, in conjunction with management, to mitigate those risks. Each month, reports are presented to the Board by the Executive Director and retained consultants. The reports encompass matters including actual financial performance against budgeted forecasts, workplace health and safety, legal compliance, corporate governance, strategy, quality assurance and standards, human resources, industry and market information, operational developments and environmental conformance. Reports are prepared and submitted on a monthly basis by the Group Accountant in relation to the overall financial position and performance of the Company. In addition to formalised written reporting procedures, the Board is regularly briefed by the Executive Director, retained consultants and senior management on emerging or developed trends in market and operational conditions having the potential to impact on the overall performance of the group. Management has reported to the Board on the effectiveness of the Company’s management of its material business risks in respect of the year ended 30 June 2010. This report was undertaken in accordance with the process outlined in this Statement. CEO & CFO Assurance The Executive Director and Group Accountant of PPK report annually in writing to the Board that: • consolidated financial statements of PPK and its controlled entities for each subsequent half year and full financial year present a true and fair view, in all material respects, of the Group’s financial condition and operational results and are in accordance with accounting standards; and • declarations provided in accordance with section 295A of the Corporations Act are founded on a sound system of risk management and internal control, and that the system is operating effectively in all material respects in relation to financial reporting risks. The Board has received assurance from the Executive Director and the person performing the chief financial officer function under Recommendation 7.3 in respect of the year ended 30 June 2010. Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMP P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 STATEMENT OF CORPORATE GOVERNANCE PRACTICES - 2010 This assurance was provided in accordance with the process outlined in this Statement. surveys undertaken of other public companies similar in size or market section to PPK is taken into account. Policy Disclosure Non-executive directors of PPK are: PPK has made a description of its Risk Oversight and Management Framework comprising its internal compliance and control system policy publicly available and posted it to its website in the designated corporate governance area at www. ppkgroup.com.au. Principle 8: Remunerate fairly and responsibly. Companies should ensure that the level and composition of remuneration is sufficient and reasonable and that its relationship to performance is clear. Recommendation 8.1: The Board should establish a remuneration committee. Recommendation 8.2: Companies should clearly distinguish the structure of non-executive directors’ remuneration from that of executive directors and senior executives. Recommendation 8.3: Companies should provide the information indicated in the Guide to reporting on Principle 8. Establishment of Remuneration Committee PPK has elected not to adopt Recommendation 8.1 because it considers that its existing remuneration practices, detailed within this Statement, are an efficient means of meeting the needs of the company, particularly having regard to the fact that PPK is a relatively small publicly listed company by comparison to other listed entities which is reflected by the size of its operations, board and management structure and composition. The PPK Board currently consists of only four (4) members. It is considered that further division of the Board for the purposes of establishing a formal remuneration committee structure would not achieve enhanced efficiency or enable the Board to add greater value to this process. The small size of the PPK Board, the nature of its business and its management structure, means that PPK has the present capacity of giving due consideration to the overall remuneration policies and strategies of the company during the conduct of its regular board meetings and by appropriate recourse to relevant market data and, where applicable, to external executive remuneration consultants. Executive Director & Non-Executive Director remuneration The aggregate remuneration of non-executive directors is approved by shareholders. Individual directors’ remuneration is determined by the board within the approved aggregate total. In determining the appropriate level of director’s fees, data from • not entitled in performance based remuneration practices unless approved by shareholders; and to participate • currently remunerated by means of the payment of cash benefits in the form of directors’ fees. PPK does not currently have in place a retirement benefit scheme or allowance for its non-executive directors. Executive directors do not receive directors’ fees. A review of the compensation arrangements for the Executive Director and senior executives is conducted by the full Board at a duly constituted Directors’ Meeting. The review is performed annually and is based on criteria including the individual’s performance, market rates paid for similar positions and the results of the Company during the relevant period. The broad remuneration policy objective of PPK is to ensure that the emoluments provided properly reflect the person’s duties and responsibilities and is designed to attract, retain and motivate executives of the highest possible quality and standard in the Company’s prevailing circumstances to enable the organisation to succeed. The PPK Executive Incentive Plan (“PEIS”) has been approved by shareholders and provides the Board with the discretion to grant options and provide loans to Eligible Executives (as defined under the PEIS) for the purpose of acquiring Scheme Shares under the PEIS. The Board ensures that the payment of equity-based executive remuneration is made in accordance with thresholds established by the PEIS and exercises its discretion under the scheme in a manner consistent with the broad remuneration policy objectives of the Company. PPK is committed to making timely disclosure of all relevant information relating to its remuneration practices and policies in the context of reporting obligations in its Corporate Governance Statement, in its Annual Report, and pursuant to continuous disclosure requirements. Policy Disclosure The Company’s policies relating to the remuneration of directors and senior executives and the level of their remuneration are detailed in the Directors’ Report on pages 11-18 of the PPK 2010 Annual Report and Note 5 to the 2010 Financial Statements. Copies of the PPK Remuneration Policy and PEIS are publicly available in the designated corporate governance area of its website at www.ppkgroup.com.au. P A G E 2 9 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMCONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2010 REVENUES Mining equipment manufacture Investment properties Investment activities Interest receivable TOTAL REVENUE OTHER INCOME EXPENDITURE Mining equipment manufacture Investment properties Investment activities Administrative expenses Finance costs TOTAL EXPENDITURE Share of profit/(loss) from associates accounted for using the equity method PROFIT BEFORE INCOME TAX EXPENSE Income tax credit / (expense) attributable to profit PROFIT AFTER INCOME TAX OTHER COMPREHENSIVE INCOME Changes in value on available-for-sale financial assets Provision for deferred tax thereon Unrealised impairment losses on available-for-sale financial assets transferred to profit or loss from the asset revaluation reserve Provision for deferred tax thereon Realised gain on sale of available-for-sale financial assets transferred to profit or loss from the asset revaluation reserve Provision for income tax thereon Other comprehensive income net of income tax TOTAL COMPREHENSIVE INCOME FOR THE YEAR Overall Operations Basic earnings per share ( cents per share ) Diluted earnings per share ( cents per share ) Dividends per share P A G E 3 0 Note 2(a) 2(b) 2(e) 2(d) 3 7 7 CONSOLIDATED ENTITY 2010 $000s CONSOLIDATED ENTITY 2009 $000s 4,867 4,746 3,109 4,776 59 47 428 1,158 9,072 10,118 3,894 220 (4,538) (3,515) (700) (1,165) (1,118) (11,036) (684) 1,246 (3,872) (783) (2,755) (1,308) (1,159) (9,877) - 461 (484) 79 762 540 194 (264) (58) 79 - - 468 (140) (147) 44 - - 34 143 795 683 1.3 1.3 2.50 0.9 0.9 4.75 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2010 CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Other current assets Assets classified as held for sale TOTAL CURRENT ASSETS NON-CURRENT ASSETS Trade and other receivables Investments in associated companies - equity accounted Financial assets Investment Properties Other Property, plant and equipment Deferred tax assets Intangible assets Derivatives TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Interest Bearing Liabilities Current tax liabilities Provisions TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Interest Bearing Liabilities Deferred tax liabilities Provisions TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS SHAREHOLDERS' EQUITY Contributed equity Reserves Retained earnings TOTAL SHAREHOLDERS' EQUITY Note 9 10 11 12 14(b) 10 13(b) 13(c) 14(a) 15 16(a) 17 18 19 20 16(b) 21 22 16 (b) 21 23 24 CONSOLIDATED ENTITY 2010 $000s CONSOLIDATED ENTITY 2009 $000s 191 23 7,153 2,261 1,509 1,423 355 410 9,095 4,230 7,103 703 16,198 4,933 7,617 2,331 3,692 - 1,105 2,411 24,248 35,137 1,624 2,027 2,036 2,200 857 779 128 288 41,229 45,251 57,427 50,184 692 413 178 2,944 730 458 215 688 4,030 2,288 18,500 12,100 318 55 29 48 18,603 12,447 22,633 14,735 34,794 35,449 31,249 31,249 24 (9) 3,521 4,209 34,794 35,449 P A G E 3 1 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMCONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2010 CASH FLOWS FROM OPERATING ACTIVITIES Cash receipts from customers Cash payments to suppliers and employees Other revenue Dividends received Interest received Income tax paid Note CONSOLIDATED ENTITY 2010 $000s CONSOLIDATED ENTITY 2009 $000s 7,992 (7,282) 241 191 451 (869) 9,920 (6,597) 5 47 397 (806) Net cash provided by / ( used in ) operating activities 30 (a) 724 2,966 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of investment property Purchase of property, plant & equipment Proceeds from sale of available-for-sale financial assets Payments for available-for-sale financial assets Payments for investments in associated companies Payment for convertible notes Payments for investment in derivatives Payment for intangibles 5,166 (293) 2,452 (1,161) (2,829) (2,000) (272) (2) 4,920 (396) 401 (896) - (303) - (78) Net cash provided by / (used in) investing activities 1,061 3,648 CASH FLOWS FROM FINANCING ACTIVITIES Loans advanced Payment for buyback of shares (Repayment of)/Proceeds from bank loans Loans repaid Repayment of borrowings Dividends paid Interest paid (8,700) - 6,400 149 (23) (1,450) (1,118) (149) (784) (7,393) 7,219 (392) (2,759) (1,159) Net cash (used in) / provided by financing activities (4,742) (5,417) Net increase / (decrease ) in cash held Cash at the beginning of the financial year (2,957) 36 1,197 (1,161) Cash at the end of the financial year 30 (b) (2,921) 36 P A G E 3 2 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2010 CONSOLIDATED ENTITY At 1 July 2008 Total comprehensive income for the year Profit for the year Other comprehensive income Fair value adjustment on available-for-sale financial assets expensed on impairment less deferred tax impact Fair value adjustment on available-for-sale financial assets less deferred tax impact Total comprehensive income for the year Transactions with owners in their capacity as owners Dividends paid Shares repurchased At 30 June 2009 Total comprehensive income for the year Profit for the year Other comprehensive income Fair value adjustment on available-for-sale financial assets expensed on impairment less deferred tax impact Fair value adjustment on available-for-sale financial assets less deferred tax impact Total comprehensive income for the year Transactions with owners in their capacity as owners Dividends paid Shares repurchased At 30 June 2010 Issued Capital $000s Retained Earnings $000s Other Reserves $000s Total Equity $000s 32,033 6,428 (152) 38,309 - 540 - 540 - - - - - - - - - 540 468 468 (140) (140) (264) (264) 79 79 683 143 - (784) (784) 31,249 (2,759) - (2,759) 4,209 - - - (9) (2,759) (784) (3,543) 35,449 - 762 - 762 - - - - - - - - - 762 (147) 44 194 (58) 33 - - - 31,249 (1,450) - (1,450) 3,521 - - - 24 (147) 44 194 (58) 795 (1,450) - (1,450) 34,794 P A G E 3 3 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 1 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES Corporate Information The financial statements of PPK Group Limited for the year ended 30 June 2010 were authorised for issue in accordance with a resolution of the directors on 28th September 2010 and covers the Group consisting of PPK Group Limited and its subsidiaries as required by the Corporation Act 2001. Separate financial statements for PPK Group Limited as an individual entity are no longer presented as a consequence of a change to the Corporations Act 2001, however, limited financial information for PPK Group Limited is provided as an individual entity in note 8. PPK Group Limited is a company limited by shares, incorporated in Australia. Its shares are publicly traded on the Australian Stock Exchange. (a) Basis of Preparation The financial statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards and other authorative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. The financial statements also comply with International Financial Reporting Standards (IFRS) as issued by The International Accounting Standards Board. The financial statements have been prepared on an accruals basis and are based on historical costs, except for available-for-sale financial assets and derivatives which have been measured at fair value and land and buildings, plant and equipment where impairment has been recognised when the fair value of the asset is less than the historical cost. Non-current assets and disposal groups held-for-sale are measured at the lower of carrying amounts and fair value less costs to sell. The accounting policies have been consistently applied to the entities of the Group unless otherwise stated. The Financial Statements are presented in Australian currency. (b) Principles of Consolidation Subsidiaries The consolidated financial statements comprise the financial statements of PPK Group Limited and its subsidiaries at 30 June each year (“the Group”). Subsidiaries are entities over which the Group has the power to govern the financial and operating policies generally over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. Potential voting rights that are currently exercisable or convertible are considered when assessing control. Consolidated financial statements include all subsidiaries from the date that control commences until the date that control ceases. The financial statements of subsidiaries are prepared for the same reporting period as the parent, using consistent accounting policies. All intercompany balances and transactions, including unrealised profits arising from intergroup transactions have been eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Associates Associates are entities over which the Group has significant influence but not control. Associates are accounted for in the consolidated financial statements using the equity method accounting. Under the equity method the Group’s share of the post-acquisition profits or losses of the associates is recognised in consolidated profit or loss and the Group’s share of the post-acquisition movements in reserves of associates is recognised in consolidated other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends received from associates reduce the carrying amount of the investment in the consolidated financial statements. When the Group’s share of post-acquisition losses in an associate exceeds its interest in the associate (including any unsecured receivables), the Group does not recognise further losses unless it has obligations to, or has made payments, on behalf of the associate. The financial statements of the associate are used to apply the equity method. The end of the reporting period of the associate and the parent are identical and both use consistent accounting policies. (c) Revenue and Revenue Recognition Revenue is recognised at the fair value of consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowance and duties and taxes paid. The following specific recognition criteria must also be met before revenue is recognised: Sales of goods Revenue from the sale of mining equipment is recognised when significant risk and rewards of rewards of ownership have passed to the buyer and can be reliable measured. Risks and rewards are considered passed to the buyer when the goods have been delivered to the customer. P A G E 3 4 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 1 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Rental income on investment properties is accounted for on a straight-line basis over the lease term. Contingent rentals are recognised as income in the periods when they are earned. Interest income Interest income is recognised as it accrues using the effective interest rate method. The effective interest method uses the effective interest rate which is the rate that exactly discounts the estimated future cash receipts over the expected life of the financial asset. Asset sales Gains and losses on sale of assets is recognised on a net basis. The gain or loss on disposal of assets is brought to account at the date an unconditional contract of sale is signed, or if a conditional contract is signed, the date it becomes unconditional. In the case of real estate sales under AASB 118 it becomes unconditional when title passes. Dividends Dividends are recognised when the right to receive payment is established. (d) Inventories Raw materials, work in progress and finished goods Inventories are stated at the lower of cost and net realisable value. Costs comprise all direct materials, direct labour and an appropriate portion of variable and fixed overheads. Fixed overheads are allocated on the basis of normal operating capacity. Costs are assigned to inventory using a standard costing system. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated selling cost of completion and selling expenses. (e) Trade Receivables & other receivables Trade and other receivables and are recognised initially at original invoice amounts less an allowance for uncollectible amounts and have repayment terms between 30 - 45 days. Collectability is assessed on an ongoing basis. Debts which are known to be uncollectible are written off. An allowance is made for doubtful debts where there is objective evidence that the Group may not be able to collect all amounts due according to the original terms. Objective evidence of impairment include financial difficulties of the debtor, default of payment terms or debts more than 60 days past due. On confirmation that the trade receivable will not be collectible the gross carrying value of the asset is written off against the associated provision. From time to time the Group elects to renegotiate the terms of trade receivables due from customers with which it has previously had a good trading history. Such renegotiations will lead to a change in the timing of payments rather than changes to the amount owed and are not, in the view of the directors, sufficient to require the derecognition of the original instrument. (f) Income Tax The income tax expense for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax base of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses. Deferred tax assets are only recognised for deductible temporary differences, between carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases, at the tax rates expected to apply when the assets are recovered or liabilities settled, based on those tax rates which are enacted or substantially enacted for each jurisdiction. Exceptions are made for certain temporary differences arising on initial recognition of an asset or liability if they arose in a transaction other than a business combination that at the time of the transaction did not affect either accounting profit or taxable profit. Deferred tax assets are only recognised for deductible temporary differences and unused tax losses if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets and liabilities are not recognised for temporary differences between the carrying amount and tax bases of investments in subsidiaries, associates and interests in joint ventures where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Current and deferred tax balances relating to amounts recognised directly in other comprehensive income or equity are also recognised directly in other comprehensive income or equity. PPK Group Limited and its wholly owned Australian subsidiaries have implemented the tax consolidation legislation for the whole of the financial year. PPK Group Limited is the head entity in the tax consolidated group. The stand-alone taxpayer/separate taxpayer within a group approach has been used to allocate current income tax expense and deferred tax expense to wholly-owned subsidiaries that form part of the tax consolidated group. P A G E 3 5 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 1 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Group Limited has assumed all the current tax liabilities and the deferred tax assets arising from unused tax losses for the tax consolidated group via intercompany receivables and payables because a tax funding arrangement has been in place for the whole of the financial year. The amounts receivable/ payable under tax funding arrangements are due upon notification by the head entity. Interim funding notices may also be issued by the head entity to its wholly-owned subsidiaries in order for the head entity to be able to pay tax instalments. (g) Investment Property & Property, Plant and Equipment Investment Properties Investment properties are initially measured at cost including transaction costs. Subsequent to initial recognition, investment properties are carried at cost, less depreciation and any impairment losses. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group. Depreciation on investment properties is calculated on a straight-line basis over the estimated useful life of the asset of 50 50 years. Land is not depreciated. The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, at the end of each reporting period. Gains and losses on disposals are calculated as the difference between the net disposal proceeds and the asset’s carrying amount and are included in profit or loss in the year that the item is derecognised. Other Property, plant and equipment Other Property, plant and equipment are brought to account at cost less, where applicable, any accumulated depreciation or amortisation. The cost of fixed assets constructed within the Group includes the cost of materials used in construction, direct labour and an appropriate proportion of fixed and variable overheads. The depreciable amount of all fixed assets including buildings and capitalised leased assets, but excluding freehold land, is depreciated over their useful lives to the Group commencing from the time the asset is held ready for use. Leasehold improvements are amortised over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The gain or loss on disposal of all fixed assets is determined as the difference between the carrying amount of the asset at the time of disposal and the proceeds of disposal, and is included in the profit before income tax of the Group in the year of disposal. The depreciation rates used for each class of depreciable assets are: Class of Fixed Asset Depreciation Rate Straight Line Buildings Leasehold Improvements Plant & Equipment Leased Plant & Equipment 2 % over the term of the lease 3-50 % 3-33 % Non-current assets classified as held for resale Non-current assets classified as held for sale are those assets whose carrying amounts will be recovered principally through a sale transaction rather than through continuing use and sale is considered highly probable. These assets are stated at the lower of their carrying amount and fair value less costs to sell and are not depreciated or amortised. Interest expense continues to be recognised on liabilities of a disposal group classified as an asset held for sale. An impairment loss is recognised for any initial or subsequent write-down of the asset to fair value less costs to sell. A gain is recognised for subsequent increases in fair value less costs to sell of an asset but not exceeding any cumulative impairment losses previously recognised. A discontinued operation is a component of the Group that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical operations, is part of a single co-ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately on the face of the statement of comprehensive income. P A G E 3 6 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 1 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (h) Investments and Other Financial Assets All investments and other financial assets are initially stated at cost, being the fair value of consideration given plus acquisition costs. Purchases and sales of investments are recognised at trade date which is the date on which the Group commits to purchase or sell the asset. Accounting policies for each category of investments and other financial assets subsequent to initial recognition are set out below. Derecognition Financial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset is transferredto another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised where the related obligations are either discharged, cancelled or expire. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss. Classification and subsequent measurement (i) Loans and receivables Loans and receivables are non-derivative financial assets with a fixed or determinable payments that are not quoted on an active market and are subsequently measured at amortised cost using the effective interest rate method. The host debt contract of a convertible note is classified as loans and receivables. The host debt contract is measured initially at the residual amount after separating the embedded option derivative. The host debt contract is subsequently at amortised cost using the effective interest rate method. (ii) Held-to-maturity investments Held to maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable payments, and it is the group’s intention to hold the investments to maturity. They are subsequently measured at amortised cost using the effective interest rate method. (iii) Available-for-sale financial assets Available-for-sale financial assets comprise investments in listed and unlisted entities and any non-derivatives that are not classified as any other category of financial assets, and are classified as non-current assets. (unless management intends to dispose of the investment within 12 months of the end of the reporting period). After initial recognition, these investments are measured at fair value with gains or losses recognised in other comprehensive income (available-for-sale investments revaluation reserve). Where there is a significant or prolonged decline in the fair value of an available-for-sale (which constitutes objective evidence of impairment) the full amount including any amount previously charged to other comprehensive income is recognised in profit or loss. Purchases and sales of available-for-sale are recognised on settlement date with any change in fair value between trade date and settlement being recognised in other comprehensive income. On sale the amount held in available-for-sale reserves associated with that asset is recognised in profit or loss as a reclassification adjustment. Investments in subsidiaries, associates and joint venture entities are accounted for in the consolidated financial statements as described in note 1(b). Reversal of impairment losses on equity instruments classified as available-for-sale cannot be reversed through profit or loss. Reversals of impairment losses on debt instruments classified as available-for-sale can be reversed through profit or loss where the reversal relates to an increase in the fair value of the debt instrument occurring after impairment loss was recognised in profit or loss. The fair value of quoted investments are determined by reference to Securities Exchange quoted market bid prices at the close of business at the end of the reporting period. For investments where there is no quoted market price, fair value is determined by reference to current market value of another instrument which is substantially the same or is calculated based on the expected cash flows of the underlying net asset base of the investment. (iv) Financial liabilities Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost using the effective interest rate method. (v) Derivatives Share options embedded in a convertible note is not closely related to the debt host contract and are separated from the host debt contract and accounted for as a separate derivative. The share options are initially measured at fair value using the Black Scholes model or the listed market price if one exists. Other share options are classified as a derivative and initially measured at fair value net of transaction costs. Subsequent adjustments to fair value of the share options are taken to profit or loss. P A G E 3 7 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 1 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The group does not use derivative financial instruments such as forward exchange contracts and interest rate swap to mitigate risks associated with interest rate and foreign exchange fluctuations. (vi) Held for trading financial assets Investments classified as Held for Trading are measured at fair value with gains or losses recognised in the profit or loss. A financial asset is classified Held for Trading if acquired principally for the purpose of selling in the short term or if it is a derivative that is not designated as a hedge. (i) Leased Assets For leases, a distinction is made between finance leases which effectively transfers from the lessor to the lessee substantially all the risks and benefits incidental to ownership of the leased property, and operating leases under which the lessor retains all such risks and benefits. Where fixed assets are acquired by means of finance leases, the lower of the present value of lease payments or the fair value of the leased property is established as an asset at the beginning of the lease term and amortised on a straight line basis over its expected useful life. A corresponding liability is also established and each lease payment is allocated between such liability and interest expense so as to achieve a constant rate of interest on the remaining balance of the liability. Operating lease payments are charged to profit or loss on a straight line basis over the period of the lease. (j) Foreign Currency Transactions and Balances Foreign currency transactions during the period are converted to Australian currency at rates of exchange applicable at the dates of the transactions. Amounts receivable and payable in foreign currency at the end of the reporting period are converted at the rates of exchange rates ruling at the end of the reporting period. The gains and losses from conversion of short term balances, whether realised or unrealised, are recognised in profit or loss. (k) Trade and Other payables These amounts represent unpaid liabilities for goods received and services provided to the group prior to the end of the financial year. The amounts are unsecured and are normally settled within 30 to 60 days, except for imported items for which 90 or 120 day payment terms are normally available. (l) Interest Bearing Liabilities All loans and borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the loans and borrowings using the effective interest method. Bank loans are subject to set-off arrangements. (m) Employee Benefit Provisions Salary, wages and annual leave Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months of the end of the reporting period are recognised in other liabilities or provision for employee benefits in respect of employees’ services rendered up to the end of the reporting period and are measured at amounts expected to be paid when the liabilities are settled. Long service leave Liabilities for long service leave are recognised as part of the provision for employee benefits and measure as the present value of expected future payments to be made in respect of services provided by employees to the end of the reporting period using the projected unit credit method. Consideration is given to expected future salaries and wages levels, experience of employee departures and period of service. Expected future payments are discounted using national government bond rates at the end of the reporting period with terms to maturity that match as close as possible, the estimated future cash outflows. Retirement benefit obligations The Group contributes to defined contribution superannuation funds for employees. All funds are accumulation plans where the Group contributed various percentages of employee gross incomes, the majority of which were as determined by the superannuation guarantee legislation. Benefits provided are based on accumulated contributions and earnings for each employee. There is no legally enforceable obligation on the Group to contribute to the superannuation plans other than requirements under the superannuation guarantee legislation. Contributions are recognised as expenses as they become payable. P A G E 3 8 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 1 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (n) Cash For the purposes of the statement of cash flows, cash includes cash on hand and at call deposits with banks or financial institutions, net of bank overdrafts. (o) Intangible assets Brands Names Expenditure on internally generated brand names are expensed as incurred. Acquired Brand names are stated at cost and are considered to have indefinite (o) Intangible assets (cont) useful lives and are not amortised. The useful life is assessed annually to determine whether events or circumstances continue to support an indefinite useful life assessment. The carrying value of brand names is reviewed annually for impairment. Research and Development Research costs are expensed as incurred. Development expenditure incurred on an individual project is capitalised if the product or service is technically feasible, adequate resources are available to complete the project, it is probable that future economic benefits will be generated and expenditure attributable to the project can be measured reliably. Expenditure capitalised comprises costs of materials, services, direct labour and an appropriate proportion of overheads. Other development costs are expensed when incurred. Capitalised development expenditure is stated at cost less accumulated amortisation and any impairment losses and amortised over the period of expected future sales from the related projects which vary from 3 - 5 years. The carrying value of development costs is reviewed annually when the asset is not yet available for use, or when events or circumstances indicate that the carrying value may be impaired. Patents, Trademarks and Licences Patents, trademarks and licences have a finite useful life and are carried at cost less accumulated amortisation and impairment losses. Amortisation is calculated on a straight line basis over the number of years of their expected benefit which ranges from 3 to 10 years. Goodwill Goodwill represents the excess of the consideration transferred and the amount of the non-controlling interest in the acquiree over the fair value of the identifiable assets, liabilities and contingent liabilities. Goodwill is not amortised but is measured at cost less any accumulated impairment losses. Goodwill is reviewed annually for impairment annually, or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill acquired is allocated to each of the cash-generating units expected to benefit from the combinations synergies. Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Impairment losses on goodwill cannot be reversed. (p) Impairment of Assets At the end of each reporting period the Group assesses whether there is an indication that individual assets are impaired. Where impairment indicators exist, recoverable amount is determined and impairment losses are recognised in profit or loss statement where the asset’s carrying value exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purpose of assessing value in use, the estimated future cash flows are discounted to the present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where it is not possible to estimate recoverable amount for an individual asset, recoverable amount is determined for the cash-generating unit to which the asset belongs. (q) Finance costs All interest costs are recognised in profit or loss the period in which they are incurred. (r) Share-Based Payments The Group recognises an expense for all share-based remuneration, including deferred shares and options, and amortises those expenses over the relevant vesting periods. No expense has been recognised in respect of options granted before 7 November 2002. Shares are recognised when options are exercised and the proceeds received are allocated to share capital. P A G E 3 9 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 1 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (s) Rounding of Amounts The parent entity applied the relief available under ASIC Class Order 98/100 and accordingly, amounts in the financial statements and directors’ report have been rounded to the nearest thousand dollars, or in certain cases, to the nearest dollar. (t) Dividends Provision is made for dividends declared, and no longer at the discretion of the Group, on or before the end of the reporting period but not distributed at the end of the reporting period. (u) Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to members of PPK Group Limited, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares during the year. Diluted earnings per share Earnings used to calculate diluted earnings per share are calculated by adjusting the basic earnings by the after-tax effect of dividends and interest associated with dilutive potential ordinary shares. The weighted average number of shares used is adjusted for the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (v) GST Revenues and expenses are recognised net of GST except where GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Statement of Financial Position. Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (w) New Accounting Standards and interpretations The AASB has issued new and amended accounting standards and interpretations that have mandatory application dates for future reporting periods and which the company has decided not to early adopt. A discussion of those future requirements and their impact on the group is as follows: • AASB 9: Financial Instruments and AASB 2009-11: Amendments to Australian Accounting Standards arising from AASB 9 [AASB 1, 3, 4, 5, 7, 101, 102, 108, 112, 118, 121, 127, 128, 131, 132, 136, 139, 1023 & 1038 and Interpretations 10 & 12] (applicable for annual reporting periods commencing on or after 1 January 2013) These standards are applicable retrospectively and amend the classification and measurement of financial assets. The company is in compliance with these accounting standards and has determined that there is no impact to the company financial report from the implementation of these amended accounting standards. The changes made to accounting requirements include: – simplifying the classifications of financial assets into those carried at amortised cost and those carried at fair value – simplifying the requirements for embedded derivatives – removing the tainting rules associated with held-to-maturity assets – removing the requirements to separate and fair value embedded derivatives for financial assets carried at amortised cost – allowing an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument – requiring financial assets to be reclassified where there is a change in an entity’s business model as they are initially classified based on (a) the objective of the entity’s business model for managing the financial assets; and (b) the characteristics of the contractual cash flows.” P A G E 4 0 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 1 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (w) New Accounting Standards and interpretations (cont) • AASB 2009–5: Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 5, 8, 101, 107, 117, 118, 136 & 139] (applicable for annual reporting periods commencing from 1 January 2010). These standards detail numerous non-urgent but necessary changes to accounting standards arising from the IASB’s annual improvements project. No changes are expected to materially affect the company. • AASB 2009-8 “Amendments to Australian Accounting Standards – Group Cash-settled Share-based Payment Transactions [AASB 2]” (applicable for annual reporting periods commencing on or after 1 January 2010) These amendments clarify the accounting for group cash-settled share-based payment transactions in the separate or individual financial statements of the entity receiving the goods or services when the entity has no obligation to settle the share-based payment transaction. The amendments incorporate the requirements previously included in Interpretation 8 and Interpretation 11 and as a consequence these two Interpretations are superseded by the amendments. These amendments are not expected to impact the Group. • AASB Interpretation 19 “Extinguishing Financial Liabilities with Equity Instruments” (applicable for annual reporting periods commencing from 1 July 2010). This Interpretation deals with how a debtor would account for the extinguishment of a liability through the issue of equity instruments. The Interpretation states that the issue of equity should be treated as the consideration paid to extinguish the liability, and the equity instruments issued should be recognised at their fair value unless fair value cannot be measured reliably in which case they shall be measured at the fair value of the liability extinguished. The Interpretation deals with situations where either partial or full settlement of the liability has occurred. This Interpretation is not expected to impact the Group. • AASB 2010-3 Amendments to Australian Accounting Standards arising from the Annual Improvements Project Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 3, AASB 7, AASB 121, AASB 128, AASB 131, AASB 132 & AASB 139] (commencing from 1 July 2010 and 1 July 2013 respectively) This standard makes various amendments as a result of the annual improvements project: - AASB 1 First-time Adoption of Australian Accounting Standards - Use of deemed cost for operations subject to rate regulation - AASB 7 Financial Instruments: Disclosures - Clarification of disclosures - AASB 101 Presentation of Financial Statements - Clarification of statement of changes in equity - AASB 134 Interim Financial Reporting - Significant events and transactions - Interpretation 13 Customer Loyalty Programmes - Fair value of award credits These amendments are not expected to impact the Group. • AASB 2010-4 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 1, AASB 7, AASB 101 & AASB 134 and Interpretation 13] (commencing from 1 July 2010 and 1 July 2013 respectively) This standard makes various amendments as a result of the annual improvements project to: - The transition requirements for contingent consideration from a business combination that occurred before the effective date of revised AASB 3. - Transition requirements for amendments arising as a result of AASB 127 Consolidated and Separate Financial Statements. The effect of these amendments is not expected to impact the Group. Critical accounting estimates and judgements The directors evaluate estimates and judgements incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the group. P A G E 4 1 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 1 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Critical accounting estimates and judgements (cont) Key estimates - Impairment The Group assesses impairment at the end of each reporting period by evaluating conditions specific to the group that may lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined. Value-in-use calculations performed in assessing recoverable amounts incorporate a number of key estimates. Available-for-sale financial assets The continued volatility in the Australian share market had a significant impact on the fair value of listed investments. The Group reviewed each of its listed investments to consider whether there was any indication that individual investments were impaired. Based on all the information available to the Directors it was determined that the Group’s investment in in the following listed companies were impaired: Industrea Limited Allied Brands Limited As a result an impairment loss of $700,000 (2009 $1,696,000) was taken up in profit or loss on these investments. The Directors determined that no other listed investments were impaired at the end of the reporting period. Investment in Associates The Group reviewed its investments in associate companies to consider whether there was any indication that the individual investments were impaired. The share price of Cool or Cosy Limited has fallen significantly from when it became an associate to 30 June 2010, based on the Directors have determined that the Group’s investment in Cool or Cosy Limited was impaired at 30 June 2010. An impairment loss of $589,000 was taken up in profit or loss on this investment (refer Note 2(d) for disclosure of this impairment). Investment Properties An independent valuation of all investments properties was undertaken in May 2010. All investment properties have been included in the financial statements at cost. The independent valuation indicated that the current market value of one property was below cost, as a result an impairment has been recognised on the land & buildings that the Group owns at Arndel Park, New South Wales. An impairment loss of $1,159,000 was taken up in profit or loss on this property. Other Receivables The Group has been in a dispute with the tenant of the Arndel Park property as to whether a valid lease is in exists. The Group has invoiced the tenant for rent on a monthly basis since August 2009. The rent remains outstanding at 30 June 2010. It is expected that the matter will be resolved by the Courts in the December 2010 half-year. A provision for doubtful debts of this outstanding receivable of $1,249,000 has been taken up in profit or loss pending resolution of the dispute by the Courts. No impairment has been recognised in respect of goodwill, brand names, plant and equipment or convertible notes for the current financial year. Refer to note 17 for details of assumptions used in estimating the recoverable amount of intangible assets. Key judgements - Classification as Held for Sale The Group classifies assets as held for sale where an asset (or disposal group) is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets (or disposal groups) and the sale is highly probable. For the sale to be assessed as highly probable, management must be committed to a plan to sell the asset (or disposal group), and an active program to locate a buyer and complete the plan must have been initiated. Further, the asset (or disposal group) must be actively marketed for sale at a price that is reasonable in relation to its current fair value. In addition, the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification and actions required to complete the plan should indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. P A G E 4 2 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 1 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The Group has land located at Arndel Park, New South Wales currently on the market for sale and consequently have classified this asset as Held for Sale. Although this property has been on the market for sale for more than 12 months, it is considered appropriate to still classify this property as Held for Sale, as it has continued to be actively marketed through a period of adverse economic conditions, which have impacted on the ability to achieve a sale. The Group has also classified land & buildings located at Kirrawee, New South Wales as held for sale. The property has been actively marketed for sale or lease for 12 months. Subsequent to the end of the reporting period contracts were exchanged for the sale of this property consequently this property has been classified as an asset Held for Sale. Notes ( c) NOTE 2 REVENUE, OTHER INCOME & EXPENSES FROM OPERATIONS (a) REVENUE Sale of goods Rental income from investment properties Dividends received - other parties Interest receivable (b) OTHER INCOME Net gain on disposal of investment properties Net gain on sale of available-for-sale financial assets Fair value adjustment on derivatives Foreign currency translation gains Sundry income (c) INTEREST INCOME Other persons Directors (d) SHARE OF LOSS FROM ASSOCIATES ACCOUNTED FOR USING THE EQUITY METHOD Fair value adjustment to carrying value of available-for-sale financial assets at the time the entities became associates Impairment to carrying value of associate at year end Share of after tax profit (loss) from associates accounted for under the equity method (e) EXPENSES Profit before income tax has been determined after: Amortisation of intangibles Cost of sales - mining equipment manufacture Depreciation - investment properties - plant and equipment Fair value adjustment on derivatives Foreign currency translation losses Impairment - investment properties Impairment of available-for-sale financial assets - Listed investments CONSOLIDATED ENTITY 2010 $000s CONSOLIDATED ENTITY 2009 $000s 4,746 3,109 59 1,158 9,072 4,867 4,776 47 428 10,118 2,184 1,022 380 - 308 3,894 13 132 - 70 5 220 1,158 - 1,158 417 11 428 580 (589) (675) (684) - - 80 113 3,279 2,583 432 486 918 478 410 888 - 23 1,159 1,059 - - 740 1,696 P A G E 4 3 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 2 REVENUE, OTHER INCOME & EXPENSES FROM OPERATIONS (CONTINUED) Interest paid - other Doubtful debts - trade receivables - other receivables Defined contribution superannuation expense Employee benefit expenses Research and development expense Rental expense on operating leases (f) INDIVIDUALLY SIGNIFICANT ITEMS - Gains or ( losses ) Net Gain on Sale of rental property Fair value adjustment on derivatives Realised gain on sale of Industrea Ltd shares Fair value adjustment on exercise of IDL options Realised gain on sale of Alchemy Resources Ltd shares Impairment of investment property Provision for doubtful debts - other receivables Impairment of available-for-sale financial assets NOTE 3 INCOME TAX EXPENSE (a) The prima facie tax payable/(benefit) on the profit before income tax is reconciled to the income tax as follows: Profit before tax Prima facie tax payable at 30% (2009: 30%) Fully franked dividend received Share of after tax loss of associate companies Research & Development concession Building allowance Difference between accounting and tax cost base of investment properties disposed of during the year Sundry items Over provision relating to prior year Income tax expense / ( credit ) The applicable weighted average effective tax rates are as follows: (b) The components of tax expense comprise Current tax Deferred tax Under / (over) provision in respect of prior years P A G E 4 4 CONSOLIDATED ENTITY 2010 $000s 1,118 CONSOLIDATED ENTITY 2009 $000s 1,159 12 1,249 207 1,706 142 114 12 - 276 1,660 73 106 2,184 13 (267) (1,059) 130 588 - 647 - 415 - (1,159) (1,249) - (740) (1,696) 419 (2,612) 1,246 461 374 138 (18) 203 (30) (64) (14) - (26) (78) - 3 16 (55) 6 (50) 484 (79) 39% -17% 621 (153) 16 484 721 (750) (50) (79) Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 3 INCOME TAX EXPENSE (CONTINUED) (c) Deferred tax recognised (reversed) directly in other comprehensive income through Available-for-sale Financial Asset Reserve relating to valuing investments at fair value (d) Tax Consolidation PPK Group Limited ("PPK") has formed a consolidated group for income tax purposes, effective on and from 1 July 2003, with each of its wholly owned Australian subsidiaries. PPK, as the head entity, has recognised all current income tax assets and liabilities relating to the consolidated group. The entities within the Group have entered into a tax sharing agreement where each subsidiary will compensate PPK for the amount of tax payable that would be calculated as if the subsidiary was a tax paying entity. CONSOLIDATED ENTITY 2010 $000s CONSOLIDATED ENTITY 2009 $000s 15 61 NOTE 4 AUDITORS' REMUNERATION Remuneration of the auditor of the group and parent entity for : - auditing or reviewing the financial statements - non audit services ( accounting / technical advice ) NOTE 5 KEY MANAGEMENT PERSONNEL DISCLOSURES (a) Key management personnel disclosures Short-term benefits Post-employment benefits Other long-term benefits Termination benefits Share-based payments 77,085 - 77,085 76,835 - 76,835 665,698 50,000 - 359,919 - 1,075,617 497,532 85,000 8,687 31,000 - 622,219 Further information regarding the identity of key management personnel and their compensation can be found in the Audited Remuneration Report contained in the Directors' Report of this annual report. (b) Equity Instruments Details of options and rights held directly, indirectly or beneficially by key management personnel and their related parties are as follows: There were no options and rights held directly, indirectly or beneficially by key management personnel and their related parties in the current financial year. All options and rights held expired in the 2008 financial year. P A G E 4 5 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 5 KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED) (c) Shareholdings Number of Shares held by Parent Entity Directors and other key management personnel Parent Entity Directors Mr C.F. Ryan Mr G.R. Molloy Mr R.M.Beath Mr J.I. Wowk Mr D.A. Hoff (Director to 7 September 2009) Parent Entity Directors Mr C.F. Ryan Mr G.R. Molloy Mr R.M.Beath Mr J.I. Wowk Mr D.A. Hoff (d) Loans Balance 1.7.09 Received as Options Remuneration Exercised Net Change Other Balance 30.6.10 500,000 10,245,358 42,821 187,302 156,960 11,132,441 - - - - - - - - - 742,639 - - - 25,000 - (156,960) 500,000 10,987,997 42,821 212,302 0 - 610,679 11,743,120 Balance 1.7.08 Received as Options Remuneration Exercised Net Change Other Balance 30.6.09 500,000 8,752,400 42,821 87,302 856,960 10,239,483 - - - - - - - - - - - - - 1,492,958 - 100,000 (700,000) 500,000 10,245,358 42,821 187,302 156,960 892,958 11,132,441 Loans advanced to Parent Entity Directors, Executives and Key management personnel 2010 There were no loans or advances to parent entity directors, executives and key management personnel in the current financial year. The details of loans and advances to parent entity directors, executives and key management personnel that were repaid in the previous financial year are as follows: 2009 Parent Entity Directors Mr D.A. Hoff Balance Net Change Balance 1.7.08 $ 439,250 Other $ (439,250) 30.6.09 $ - 439,250 (439,250) - Interest Paid or Payable Highest Indebtedness During the Year $ 11,523 $ 439,250 Loans to key management personnel excluding directors were made pursuant to the Plaspak Executive Incentive Scheme to assist in the exercise of options to acquire shares in the Parent Entity. Loans are limited to 70% of the current market value of the shares at the time of the loan. Loans are for a term of 5 years or immediately repayable on termination of employment. Interest only is payable monthly in arrears at a rate which is 3.25% above the current Reserve Bank of Australia Cash Rate. Security for the loans is by way of a holding lock over the shares acquired with the loans. The loans are limited recourse, limited to the realisable value of the shares. The lender has the right to sell or buy back the shares in the event that the value of the shares held as security falls below the purchase price of the shares or the amount lent to acquire the shares. During the 2009 financial year the shares were sold and the proceeds used to repay the loan to the Managing Director. The loans to key management personnel were repaid at the time employment ceased. (e) Other transactions with directors Refer to note 29 for further details of transactions with directors and director related entities. P A G E 4 6 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMP P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 6 DIVIDENDS (a) Dividends paid Final ordinary dividend of 1.00c per share for 2009 year - 100% franked at 30% tax rate ( prior year 3.25c per share ) Interim ordinary dividend of 1.50c per share for 2010 year - 100% franked at 30% tax rate (prior year 1.50c per share - 100% franked) (b) Dividends declared after the end of the reporting period Final ordinary dividend of 1.00c per share - 100% franked and amounting to $580,000 not included as declared after the end of the reporting period. (c) Franked dividends The franked portions of the final dividends recommended after 30th June 2010 will be franked out of existing franking credits or out of franking credits arising from the payment of income tax in the year ending 30th June 2010. Franking credits available for subsequent financial years based on a tax rate of 30% (2009 - 30%) CONSOLIDATED CONSOLIDATED ENTITY 2010 $000s ENTITY 2009 $000s 580 1,889 870 870 1,450 2,759 4,054 3,987 The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for: (a) franking credits that will arise from the payment of the current tax liability (b) franking debits that will arise from the payment of dividends recognised as a liability at the reporting date (c) franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date, and (d) franking credits that may be prevented from being distributed in subsequent financial years. The consolidated amounts include franking credits that would be available to the parent entity if distributable profits of subsidiaries were paid as dividends. The impact on the franking account of dividends recommended after year end but before the financial statements were authorised for issue and not recognised as a liability at year end will be a reduction on the franking account of $249,000 (2009: $249,000). Under legislation that took effect on 1st July 2002, the amount recorded in the franking account is the amount of Australian income tax paid, rather than franking credits based on after tax profits, and amounts debited to that account in respect of dividends paid after 30 June 2002 are the franking credits attaching to those dividends rather than the gross amount of the dividends. P A G E 4 7 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 7 EARNINGS PER SHARE Basic earnings per share (cents per share) Continuing operations Diluted earnings per share ( cents per share ) Continuing operations (a) Reconciliation of Earnings to Net Profit Earnings used in calculating Basic EPS Continuing operations Earnings used in calculating Diluted EPS Continuing operations (b) Weighted average number of ordinary shares outstanding during the year used in calculation of basic EPS Potential ordinary shares assumed to have been issued for no consideration Weighted average number of ordinary shares outstanding during the year used in calculation of diluted EPS NOTE 8 PARENT ENTITY INFORMATION CONSOLIDATED CONSOLIDATED ENTITY 2009 $000s ENTITY 2010 $000s 1.3 1.3 0.9 0.9 762 540 762 540 No. 58,006,650 - No. 58,271,808 - 58,006,650 58,271,808 The following details information related to the parent entity, PPK Group Limited at 30 June 2010. The information presented here has been prepared using consistent accounting policies as presented in Note 1. 2010 PARENT ENTITY $000s 2009 PARENT ENTITY $000s Current assets Non-current assets Total Assets Current liabilities Non-current liabilities Total liabilities Net Assets Contributed equity Reserves Retained earnings Total Equity (Loss)/Profit for the year Other comprehensive income for the year Total comprehensive (loss)/income for the year Refer to note 27 for details of Cross Guarantees. P A G E 4 8 35,259 42,004 77,263 24,810 18,561 43,371 33,892 31,249 8 2,635 33,892 (695) - (695) 34,453 41,651 76,104 28,015 12,279 40,294 35,810 31,249 8 4,553 35,810 654 - 654 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMP P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 9 CASH AND CASH EQUIVALENTS Cash at bank and on hand Short-term bank deposits Cash at bank and on hand Cash at bank consists of temporary surplus funds which are non interest bearing. Reconciliation of Cash The above figures are reconciled to the cash at the end of the financial year as shown in the statement of cash flows as follows: Cash and cash equivalents Bank overdrafts NOTE 10 TRADE AND OTHER RECEIVABLES Current Trade receivables Less: Allowance for doubtful debts Other Receivables Less: Allowance for doubtful debts Loans and receivables - other loans - secured - convertible notes - trade finance facility - secured Non-Current Loans and receivables - other loans - secured - convertible notes NOTE CONSOLIDATED CONSOLIDATED ENTITY 2009 $000s ENTITY 2010 $000s 23 191 - - 23 191 23 (2,944) 191 (155) 19 (2,921) 36 (a) (b) (c ) (e) (d) (c ) (e) 946 - 946 954 (32) 922 1,751 (1,249) 502 4,872 833 - 5,705 7,153 4,498 3,119 7,617 1,816 (626) 1,190 - - 149 149 2,261 - 2,331 2,331 (a) Trade Receivables Current trade receivables are non-interest bearing and are generally 30 day terms. A provision for doubtful debts is raised when there is objective evidence that it is considered unlikely that any amounts will be recovered. (b) Other Receivables Other receivables are non-interest bearing and are generally 30 day terms. A provision for doubtful debts has been raised for the loans in other receivables where it is considered that there is some doubt as to whether the amounts will be recovered. (c) Other loans Other loans are funds advanced to the PPK Willoughby Funding Unit Trust during the year. The amounts are secured by a registered first mortgage over property owned by PPK Willoughby Pty Ltd as trustee for The Willoughby Market Gardens Purchaser Unit Trust and a first ranking fixed and floating charge over that entity. The current loan has interest rate of 13.5% per annum calculated daily and compounded monthly with principal and interest due for repayment in the first half of the 2011 financial year. The non-current loan has interest rate of 15% per annum calculated daily and compounded annually. The loan is for a maximum period of 4 years with principal and interest due for repayment in second half of the 2014 financial year. P A G E 4 9 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 10 TRADE AND OTHER RECEIVABLES (CONTINUED) Movement in balance of loan to PPK Willoughby Funding Unit Trust - current Opening Balance Funds advanced Fee due for providing finance Less principal and interest repaid Interest revenue added to carrying value Movement in balance of loan to PPK Willoughby Funding Unit Trust - non-current Opening Balance Funds advanced Less principal and interest repaid Interest revenue added to carrying value CONSOLIDATED CONSOLIDATED ENTITY 2010 $000s ENTITY 2009 $000s - 4,500 68 - 4,568 304 4,872 - - - - - - - - 4,200 - 4,200 298 4,498 - - - - - - (d) Trade finance facility Trade finance facility was provided to Cool or Cosy Limited to finance the purchase of certain stock lines from approved suppliers. The facility is up to a maximum of $800,000 and interest is charged at the Reserve Bank cash rate plus 4.75%. Repayment of amounts advanced are required within 120 days of receipt of goods. Security is by way of a first ranking floating charge over the air-conditioning stock of Cool or Cosy Ltd, limited to the maximum value of the facility. The average interest rate for the year was 7.75%. The facility was fully repaid in August 2009 and has not been utilised since that date. The group received 4,000,000 options in Cool or Cosy Limited for providing this facility (refer Note 18 for further details of options held). (e) Convertible notes Convertible notes are funds invested in listed companies that can be converted to shares. The amounts are secured over a first or second ranking fixed and floating charge over the companies assets. On acquisition the note is split into its loan component and is recorded at amortised cost and is classified as a receivable and its derivative element is recorded at its fair value and is classified as a derivative. The convertible notes maybe redeemed by the issuing company, prior to conversion into shares, for 110% of their face value. The discount to their face value is taken as interest received over the life of the note. Interest is received on the convertible notes at a fixed rate each quarter. The weighted average interest rate for the year on these notes was 12.53% Movement in balance of convertible notes in listed companies Opening Balance Investment in convertible note Less part of cost assigned to cost of embedded option Less conversion into shares Interest revenue added to carrying value Current - repayment due within 12 months Non-current - repayment due after 12 months P A G E 5 0 CONSOLIDATED CONSOLIDATED ENTITY 2010 $000s ENTITY 2009 $000s 2,331 1,997 2,000 (123) 303 - (352) - 3,856 96 3,952 833 3,119 3,952 2,300 31 2,331 - 2,331 2,331 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 10 TRADE AND OTHER RECEIVABLES (CONTINUED) Provision for doubtful debts - Receivables Current trade, term and other receivables and loans are assessed for recoverability based on the underlying terms of the contract. A provision for doubtful debts is recognised when there is objective evidence that it is considered unlikely or there is some doubt as to whether the amounts will be recovered. These amounts have been included in the administrative expenses or investment properties expenses as appropriate. Movements in the provision for impairment are as follows: Consolidated Group 2010 Current Trade receivables Other receivables Consolidated Group 2009 Current Trade receivables Other receivables Opening balance $000s Charge for the year $000s Amounts written off $000s Closing balance $000s 32 626 12 1,249 (44) (626) - 1,249 658 1,261 (670) 1,249 145 32 626 - - 626 (125) 12 There are no provisions for impairment for Non-current Trade and other receivables for the current year or prior year for both the Group and the parent entity. 771 12 (125) 658 Trade receivables aging analysis The ageing analysis of trade receivables for amounts not impaired for the Group is as follows CONSOLIDATED CONSOLIDATED ENTITY 2010 $000s ENTITY 2009 $000s Not past due Past due 1 - 30 days Past due 31 - 60 days Past due over 60 days With respect to trade receivables that are neither impaired or past due, there are no indications as at the end of the reporting period that the debtors will not meet their obligations as they fall due. Other receivables aging analysis The ageing analysis of other receivables for amounts not impaired for the Group is as follows Not past due Past due 1 - 30 days Past due 31 - 60 days Past due over 60 days With respect to other receivables that are neither impaired or past due, there are no indications as at the end of the reporting period that the debtors will not meet their obligations as they fall due. 578 207 103 58 517 152 110 143 946 922 307 171 24 - 502 539 408 215 28 1,190 P A G E 5 1 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 11 INVENTORIES On hand Finished goods at cost Finished goods at net realisable value Work in Progress Raw materials Refer to note 22 for details of inventory pledged as security NOTE 12 OTHER CURRENT ASSETS Prepayments The carrying amount of prepayments approximates fair value. CONSOLIDATED CONSOLIDATED ENTITY 2009 $000s ENTITY 2010 $000s 642 84 540 243 591 43 530 259 1,509 1,423 410 410 355 355 NON-CURRENT ASSETS NOTE 13 FINANCIAL ASSETS (a) Investments (at cost) in subsidiary comprise: Rutuba Pty Limited Seven Hills Property Pty Ltd PPK Property Trust Dandenong South Property Pty Ltd PPK Willoughby Pty Ltd PPK Willoughby Holdings Pty Ltd PPK Aust. Pty Ltd Trigger Sprays Pty Ltd PPK Investment Holdings Pty Ltd PPK Easy Living Pty Ltd Easy Living Unit Trust PPK Investment Holdings Pty Ltd PPK Properties Pty Ltd Landmark Property Syndicate No 4 York Group Limited Rambor Pty Ltd King Cobra Mining Equipment Pty Ltd COUNTRY OF INCORPORATION BENEFICIAL PERCENTAGE OWNED BY CONSOLIDATED ENTITY PARENT ENTITY 2010 % 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 2009 % 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 2010 2009 $000s $000s - 8,051 6,339 9,430 - - 5,497 - - - - - - - 12,056 - - 41,373 - 8,051 6,339 9,430 - - 5,497 - - - - - - - 12,056 - - 41,373 Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia The proportion of ownership interest is equal to the proportion of voting power held. The above investments in subsidiaries are all in ordinary class shares. P A G E 5 2 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 13 FINANCIAL ASSETS (b) Investments in Associated companies - equity accounted Listed Investments - Summary of movement in carrying value Opening Balance Transfer from available-for-sale financial assets Additions at cost Fair value adjustment to the carrying value of available-for-sale financial assets at the time the entities became associates - to profit and loss Fair value adjustment to the carrying value of available-for-sale financial assets at the time the entities became associates - to equity Share of after tax profit/(loss) from associates accounted for under the equity method Impairment of carrying value of associates Dividends received from associates Information relating to associates is set out below OWNERSHIP INTEREST 2010 % 32.89% 23.34% 22.86% Name of Company Listed Frigrite Limited Cool or Cosy Limited Unlisted entities PPK Willoughby Funding Unit Trust (40 units of $1 each are held) Total listed and unlisted entities Fair value of listed investments in associates Frigrite Limited Cool or Cosy Limited Share of associates' profit or (loss) Profit or (loss) before income tax Income tax expense or (credit) Profit or (loss) after income tax Summarised financial information of associates Frigrite Limited Assets Liabilities Equity Revenues Profit or (loss) before income tax Income tax expense or (credit) Profit or (loss) after income tax Contingent liabilities of associate Share incurred jointly with other investors Contingent liabilities relating to liabilities of the associates for which the company is severally liable CONSOLIDATED CONSOLIDATED ENTITY ENTITY 2010 $000s 2009 $000s - 1,463 2,830 580 - - - - 215 (675) (589) (132) 3,692 - - - - - 2009 % CONSOLIDATED ENTITY 2010 $000s CONSOLIDATED ENTITY 2009 $000s - 2,693 999 - 3,692 - - - 3,692 3,207 999 4,206 (696) (21) (675) 38,849 29,217 9,632 130,856 (1,563) (489) (1,074) - - - - - - - - - 49,303 42,072 7,231 173,944 (3,157) (455) (2,702) - - - P A G E 5 3 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 13 FINANCIAL ASSETS CONTINUED Cool or Cosy Limited Assets Liabilities Equity Revenues Profit or (loss) before income tax Income tax benefit Profit or (loss) after income tax Contingent liabilities of associate Share incurred jointly with other investors Contingent liabilities relating to liabilities of the associates for which the company is severally liable PPK Willoughby Funding Unit Trust Assets Liabilities Equity Revenues Profit or (loss) before income tax Income tax expense or (credit) Profit or (loss) after income tax Contingent liabilities of associate Share incurred jointly with other investors Contingent liabilities relating to liabilities of the associates for which the company is severally liable An independent valuation of the land owned by the PPK Willoughby Funding Unit Trust group in August 2010 has valued that land "as is" at $32.6 million. (c) Available-for-sale financial assets ( i ) Listed Investments - at fair value - Shares in listed corporations Opening Balance Transfer to investments in associated companies Additions at cost Conversion of convertible notes into listed investments Exercise of options held Fair Value adjustments Impairment Disposals Listed investments are recorded at fair value based on the ASX closing price at the 30 June of the relevant financial period. ( ii ) Unlisted Investments - at cost less impairment - Shares and units held in other corporations Cost Impairment Unlisted investments are recorded at cost less impairment which represents fair value at nil. ( iii ) Total Listed & Unlisted Investments P A G E 5 4 CONSOLIDATED ENTITY 2010 $000s CONSOLIDATED ENTITY 2009 $000s 5,250 5,280 (30) 11,316 1,146 33 1,179 4,635 5,767 (1,132) 10,065 (2,020) 33 (1,987) - - - 31,203 31,205 (2) (2) - (2) - - - 2,411 (1,463) 729 400 1,366 (22) (740) (1,576) 1,105 3,276 - 896 - - 204 (1,696) (269) 2,411 249 (249) - 249 (249) - 1,105 2,411 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 13 FINANCIAL ASSETS CONTINUED Gains or losses arising from changes in the fair value of available-for-sale financial assets are initially recognised directly in other comprehensive income through a reserve, unless they are impaired. When the available-for-sale financial asset is disposed of, any gain or loss arising from the sale is taken out of the reserve and included in profit or loss. A significant or prolonged decline in the fair value of a security below its cost is considered an indicator that the securities are impaired. If such evidence exists for available-for-sale financial assets, the value of the impairment is assessed and the difference between the cost and the impaired value, less any impairment loss on that financial asset previously recognised in the profit or loss, is removed from other comprehensive income and recognised in profit or loss. Any subsequent reversal of impairment will be recognised in other comprehensive income through the reserve. Impairment losses recognised in profit or loss on equity instruments classified as available-for-sale are not reversed through profit or loss. NOTE 14 INVESTMENT PROPERTIES (a) Non current Freehold land & buildings - at cost Land Buildings Less: Accumulated depreciation Less: Provision for impairment Total Investment Properties (b) Current - classified assets held for sale Freehold land & buildings - at cost Land Buildings Less: Accumulated depreciation Land at Arndell Park and Land & Buildings at Kirrawee are being marketed for sale and have been classified as assets held for sale. Subsequent to the end of the reporting period contracts were exchanged on the Kirrawee property and settlement is expected in the December 2010 half year. Reconciliations Balance at the beginning of the year Transfers from other property, plant & equipment Expenditure subsequent to acquisition Disposals Depreciation expense Impairment expense Less Classified as assets held for sale Land & Buildings Total investment properties of continuing operations NOTE CONSOLIDATED CONSOLIDATED ENTITY 2010 $000s ENTITY 2009 $000s 12,980 16,272 22,463 15,117 (3,598) (2,690) 18,865 12,427 25,407 35,137 (1,159) - 35,137 24,248 3,053 703 4,621 - (571) - 4,050 - 703 7,103 35,840 15 - 25 (2,923) (432) (1,159) 31,351 (7,103) 24,248 41,169 17 39 (4,907) (478) - 35,840 (703) 35,137 P A G E 5 5 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 14 INVESTMENT PROPERTIES (CONTINUED) NOTE CONSOLIDATED CONSOLIDATED The following amounts have been recognised in profit or loss Rental income Direct operating expenses arising from investment property that generated rental income during the period Direct operating expenses arising from investment property that did not generate rental income during the period ENTITY 2010 $000s ENTITY 2009 $000s 3,109 4,776 2,018 337 747 36 The Virginia, Queensland, land & building was sold for $5.166 million resulting in profit on sale over it's carrying value of $2.184 million. ( 2009 - The Riverwood, NSW, land & building was sold for $4.92 million resulting in profit on sale over it's carrying value of $13,000). A independent valuation of Land & Buildings was undertaken in May 2010 on investment properties. The independent valuation valued the investment properties at $37.8 million. Capital gains tax that could be paid if the Land & Buildings were sold at the end of the reporting period at the independent valuation is $2.0 million. These valuations have been reflected in the financial statements to the extent that the value of one of the properties was considered impaired. Non-current assets pledged as security Refer to note 22(b) for information on non-current assets pledged as security by the parent entity or its subsidiaries. The Group tests for impairment and measures recoverable amount based on value-in-use based on the discounted future cash flows derived from continued use of assets. Impairment losses are included in the line item "Administrative expenses" in profit or loss. During the year the a provision for impairment of $1.159 million was made against the carrying value of the land and buildings at Arndell Park, NSW. Leases as Lessor The investments properties are leased to tenants under long term operating leases with rentals payable monthly. In relation to one of the properties there is a current dispute as to whether a valid lease is in place. It is expected that the Courts will determine the dispute during the 2011 financial year. If the Courts find in favour of the Group then the minimum lease payments under non cancellable operating leases of the investment properties not recognised in the financial statements would be receivable as follows: - not later than 1 year - later than 1 year but not later than 5 years - later than 5 years If the Group is unsuccessful in the legal action then them minimum lease payments under non cancellable operating leases of the investment properties not recognised in the financial statements would be receivable as follows: - not later than 1 year - later than 1 year but not later than 5 years - later than 5 years Refer to Subsequent Event Note 31 for further details as to the current position in relation to investment properties. CONSOLIDATED CONSOLIDATED ENTITY 2010 $000s ENTITY 2009 $000s 3,095 3,801 - 6,896 3,382 8,293 720 12,395 1,751 2,288 990 - 2,741 4,137 720 7,145 P A G E 5 6 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMP P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 15 OTHER PROPERTY PLANT AND EQUIPMENT Leasehold improvements - at cost Less: Accumulated depreciation Plant and equipment - at cost Less: Accumulated depreciation Capital works in progress - at cost CONSOLIDATED CONSOLIDATED ENTITY 2010 $000s 424 ENTITY 2009 $000s 398 (185) (148) 239 2,873 (1,531) 1,342 43 250 2,921 (1,168) 1,753 24 Total property, plant and equipment of continuing operations 1,624 2,027 Reconciliations Reconciliations of the carrying amounts of each class of plant & equipment are set out below. Leasehold Plant & Improvements Equipment $'000 $'000 Capital Works In Progress $'000 Total $'000 Consolidated - 2010 Carrying amount at start of year Additions Manufactured plant & equipment for hire Disposals Transfers to inventories Transfers to Investment properties - Note 14 Depreciation & Amortisation expense 24 1,753 29 19 194 - (60) - (127) - 2,027 250 76 28 194 - (60) - (127) - - - - - (486) (39) (447) - Carrying amount at end of year 239 1,342 43 1,624 Consolidated - 2009 Carrying amount at start of year Additions Manufactured plant & equipment for hire Disposals Transfers to inventories Transfers to Investment properties - Note 14 Depreciation & Amortisation expense Carrying amount at end of year 28 13 1,836 340 285 2,149 357 4 - - - - - - - - (52) - (17) - - (410) 2,027 (52) - (17) (371) - 24 1,753 (39) 250 P A G E 5 7 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 16 TAX (a) Assets Deferred tax assets comprise temporary differences attributable to: Amounts recognised in profit and loss Doubtful Debts Employee benefits Building depreciation Depreciation of intangibles Impairment of investments Fair value adjustment on derivatives Inventory s40-880 Black hole expenses Other Movements Opening balance Credit/(charged) to profit or loss Prior year adjustment There are no unrecognised capital losses for which no deferred tax asset has been recognised. (b) Liabilities CURRENT Income Tax provision of continuing operations NON-CURRENT Deferred tax liability comprises temporary differences attributable to: Amounts recognised in profit and loss Rent receivable Plant and equipment depreciation Building depreciation Fair value adjustment of derivatives Fair value adjustment of Investments Other Deferred tax liability of continuing operations Movements Opening balance (Credit)/charged to profit or loss (Credit)/charged to other comprehensive income Prior year adjustment P A G E 5 8 CONSOLIDATED CONSOLIDATED ENTITY 2010 $000s ENTITY 2009 $000s 375 79 527 - 938 88 3 2 24 2,036 2,200 (124) (40) 2,036 198 215 606 28 1,122 - 3 5 23 2,200 2,070 130 - 2,200 458 730 33 4 - - 7 11 55 318 (278) 15 - 55 61 32 196 14 (7) 22 318 876 (619) 61 - 318 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMP P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 17 INTANGIBLE ASSETS Licences, software and patents - at cost Less: Accumulated amortisation Goodwill - Mining equipment manufacturing Brand names - at cost Intangible Assets of continuing operations Reconciliations Licences, software and patents - at cost Balance at the beginning of year Additions - external purchases Transfers from Plant and Equipment Impairment of costs brought forward Disposals Amortisation charge (Amortisation charges are included in Mining equipment manufacture or Administration expenses in profit or loss. ) Goodwill Balance at the beginning of year Additions / Disposals / Impairment Brand Names Balance at the beginning of year Additions / Disposals / Impairment CONSOLIDATED CONSOLIDATED ENTITY 2010 $000s ENTITY 2009 $000s 652 (525) 127 155 497 779 205 2 - - - (80) 127 155 - 155 497 - 497 650 (445) 205 155 497 857 240 78 - - - (113) 205 155 - 155 497 - 497 Licences, software and patents have a finite useful life. They are recorded at cost and amortised on a straight line basis over the number of years of their expected life which ranges from 3 to 10 years. Goodwill is assessed to have an indefinite life, it is tested annually for impairment with any impairment losses being charged to profit or loss. Brand names have been assessed to have an indefinite useful life. These brands are registered with the relevant agencies. The registrations are renewed at insignificant cost to the group. This, combined with continued support for the brands by product development, advertising and marketing expenditure, has allowed the group to determine that the assets have an indefinite useful life. They are recorded at cost and tested annually for impairment. Impairment losses are charged to profit or loss. Impairment disclosures Intangible assets deemed to have indefinite lives are allocated to the Group's cash generating units identified according to operating segments. P A G E 5 9 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 17 INTANGIBLE ASSETS (CONT.) A segment level summary of the intangible assets deemed to have indefinite lives is as follows: Year ended 30 June 2010 Mining Equipment Manufacturing Year ended 30 June 2009 Mining Equipment Manufacturing Brand Names $'000 497 497 Goodwill $'000 155 155 Total $'000 652 652 The recoverable amount of intangibles in the mining equipment manufacturing cash-generating units are determined based on value-in-use calculations. Value-in-use is calculated based on the present value of 5 year discounted cash flow projections based on budgets approved by management. The growth rate used in these budgets does not exceedthe long term average growth rate for the business in which cash-generating units operate. The following assumptions were used in the value-in-use calculations: Mining Equipment Manufacturing Growth Rate 3.50% 2010 Discount Rate 12.50% Growth Rate 5.00% 2009 Discount Rate 12.00% The budgets used by management use historical weighted average growth rates, adjusted for the current economic conditions to project revenue. Costs are calculated taking into account historical gross margins as well as estimated weighted average inflation rates over the period which are consistent with inflation rates applicable to the locations in which the segments operate. Discount rates are pre-tax and are adjusted to incorporate risks associated with a particular segment. The estimated recoverable amount of intangible assets exceeds the carrying amount of these assets at 30 June 2010. If a discount rate of 25.0% was used instead of 12.5%, and if sales growth was limited to the inflation rate of 3.0% instead of 3.5%, the estimated recoverable amount of the intangible assets would equal the carrying value. NOTE 18 DERIVATIVES Non-Current Assets Options in listed companies at fair value Options in listed companies Opening Balance Additions at cost Fair Value adjustments Value of options exercised CONSOLIDATED CONSOLIDATED ENTITY 2010 $000s ENTITY 2009 $000s 128 288 288 395 380 (935) 128 1,347 - (1,059) - 288 Options consist of various listed and unlisted options in listed companies. They are initially recorded at cost with adjustments to fair value taken to profit or loss. If options are unlisted the group uses the Black Scholes model to determine fair value. The Directors have elected not to record the nominal values that Black Scholes model places on the unlisted options where the exercise price of the option is significantly above the June share price of the underlying security. For unlisted options there is no ready market on which they can be traded and the likelihood of sale and realising this value at 30 June is unlikely. All options can be exercised at anytime up to their expiry date. Details of options held are as follows: P A G E 6 0 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMP P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 18 DERIVATIVES (CONT.) Number Exercise Price Option Expiry date Within 1 Year 1 to 2 years $000s $000s 2 to 5 years $000s Total $000s 2010 Company Alchemy Ltd Frigrite Ltd Allied Brands Ltd Cool or Cosy Ltd Cool or Cosy Ltd 2009 Company Industrea Ltd Allied Brands Ltd Allied Brands Ltd Allied Brands Ltd Cool or Cosy Ltd Cool or Cosy Ltd Listed Unlisted Listed 350,000 10,000,000 2,136,007 Unlisted 6,250,000 3,300,000 Unlisted Unlisted Unlisted Unlisted Listed Unlisted Unlisted 2,875,000 200,000 300,000 2,136,007 6,250,000 3,300,000 0.25 0.20 0.60 0.15 0.15 0.15 0.35 0.45 0.60 0.15 0.15 31-Aug-10 20-Aug-12 28-Dec-10 16-Aug-10 17-Dec-11 52 76 - - - - 52 - 76 - - - - - - - - - - - 128 128 - - 28-Sep-09 22-May-10 14-Oct-09 28-Dec-10 16-Aug-10 17-Dec-11 288 - - - - - 288 - - - - - - - - - - - - - - 288 - - - - - 288 Derivative Instruments used by the Group The Group has elected not to hedge account. As a result the value of foreign currency liabilities is taken up at the spot rate at the end of the reporting period and the value of all derivativesis taken up as a hedge asset or liability. Gains and losses resulting to fair value are taken to profit or loss. CURRENT LIABILITIES NOTE 19 TRADE AND OTHER PAYABLES Trade payables Sundry payables and accruals NOTE 20 INTEREST BEARING LIABILITIES Bank overdraft -secured Hire purchase liabilities - Secured Interest bearing liabilities of continuing operations (a) Bank overdraft and bank loans - secured The bank overdraft, bank loans and certain hire purchase liabilities are secured by certain charges over the group's freehold properties, assets and undertakings. Bank overdrafts have been reflected after taking account of legal right of set-off which was established with the bank and whereby interest is charged on the net balance. (b) Total secured liabilities - see note 22 NOTE CONSOLIDATED CONSOLIDATED ENTITY 2010 $000s ENTITY 2009 $000s 328 85 413 20(a) 26 2,944 - 2,944 508 184 692 155 23 178 P A G E 6 1 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 21 PROVISIONS Current Annual leave Long service leave Non Current Long service leave Total Provisions CONSOLIDATED CONSOLIDATED ENTITY 2010 $000s ENTITY 2009 $000s 121 94 215 48 263 143 545 688 29 717 Annual leave and current long service leave comprise amounts payable that are vested and could be expected to be settled within 12 months of the end of the reporting period. Non current long service leave comprise amounts that are not vested at the end of the reporting period and the amount and timing of the payments to be made when leave is taken is uncertain. Refer accounting policy Note 1(m) for more detail. ANNUAL LEAVE 2010 $000s LONG SERVICE LEAVE 2009 $000s 143 112 (134) - 121 574 23 (451) (4) 142 121 94 - 48 142 CONSOLIDATED CONSOLIDATED 121 ENTITY 2010 $000s ENTITY 2009 $000s 18,500 18,500 12,100 12,100 2,944 18,500 - 21,444 155 12,100 23 12,278 Provisions made during the year Provisions used during the year Increase (decrease) in discount due to time and change in the discount rate Balance at end of year Current Non-current NON-CURRENT LIABILITIES NOTE 22 INTEREST BEARING LIABILITIES Bank Loans - Secured Interest bearing liabilities of continuing operations (a) Secured liabilities Total secured liabilities ( current and non-current ) are: Bank overdrafts Bank loans Hire purchase liabilities Bank overdrafts and loans are secured as noted in note 20 above. Lease and Hire Purchase liabilities are effectively secured as the rights to those assets revert to the lessor or hirer in the event of default. P A G E 6 2 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 22 INTEREST BEARING LIABILITIES (CONTINUED) (b) Assets pledged as security The carrying amounts of non-current assets pledged as security are: First mortgage Freehold investment properties Assets classified as held for sale Registered Mortgage Debentures over company assets and cross guarantees & indemnities Freehold investment properties Term receivables Financial Assets Investments in associated companies Plant & equipment Intangible Assets Derivatives Total non-current assets pledged as security NOTES 14(a) 14(b) 14(a) The following current assets are also pledged as security under the registered mortgage and cross guarantees & indemnities Cash assets Term receivables Receivables - current Inventories Other current assets Total current assets pledged as security Total assets pledged as security The total financial assets included in the above pledged as security for liabilities is $10,193,000 ( 2009 $7,194,000 ) (c) Unused credit facilities (i) The consolidated entity had access to the following lines of credit at the end of the reporting period: Total facilities available Bank Overdraft Bank Loans Not utilised at the end of the reporting period Bank Overdraft Bank Loans Utilised at the end of the reporting period Bank Overdraft Bank Loans CONSOLIDATED ENTITY 2010 $000s CONSOLIDATED ENTITY 2009 $000s 11,906 7,103 12,342 7,617 1,105 3,692 1,624 779 128 46,296 23 - 1,448 1,509 410 3,390 18,502 703 16,635 2,331 2,411 - 2,027 857 288 43,754 191 149 2,112 1,423 355 4,230 49,686 47,984 3,000 23,080 26,080 56 4,580 4,636 2,944 18,500 21,444 3,000 23,080 26,080 2,845 10,980 13,825 155 12,100 12,255 The major facilities are summarised as follows: Banking overdrafts Bank overdraft facilities are arranged with the National Australia Bank with the general terms and conditions being set from time to time. Overdraft balances are subject to set-off arrangements whereby credit balances can be netted off against debit balances with the total facility and interest being applied to the net balance. Commercial bill facilities $23,080,000 variable interest rate facilities provided by the National Australia Bank Ltd Further details of the banking facilities with the NAB are included in note 25( c). Interest rates on facilities range from 5.74% to 9.93% inclusive of bank margins. P A G E 6 3 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 SHAREHOLDERS' EQUITY NOTE 23 CONTRIBUTED EQUITY PAID-UP CAPITAL 58,006,650 ordinary shares fully paid Movements in ordinary share capital Balance at the beginning of the financial year Shares repurchased under approved buy back scheme CONSOLIDATED ENTITY 2010 $000s CONSOLIDATED ENTITY 2009 $000s 31,249 31,249 31,249 - 32,033 (784) 31,249 The shares have no par value. Ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion to the number of shares held. Each ordinary share is entitled to one vote at shareholder meetings. 31,249 Movements in number of ordinary shares Balance at the beginning of the financial year Shares repurchased under approved buy back scheme No. No. 58,006,650 - 59,252,613 (1,245,963) 58,006,650 58,006,650 Capital Risk Management The Group considers its capital to comprise its ordinary share capital, share premium and accumulated retained earnings. In managing its capital, the Group’s primary objective is to ensure its continued ability to provide a consistent return for its equity shareholders through a combination of capital growth and distributions and through the payment of annual dividends to its shareholders. In order to achieve this objective, the Group seeks to maintain a gearing ratio that balances risks and returns at an acceptable level and also to maintain a sufficient funding base to enable the Group to meet its working capital and strategic investment needs. In making decisions to adjust its capital structure to achieve these aims, either through altering its dividend policy, new share issues, share buy-backs, or the reduction of debt, the Group considers not only its short-term position but also its long-term operational and strategic objectives . It is the Group’s policy to maintain its gearing ratio within the range of 20% - 50% (2009: 20% - 50%). The Group’s gearing ratio at the balance sheet date is shown below : Gearing ratios Total borrowings less Cash and cash equivalents Net debt Total equity Total capital Gearing Ratio CONSOLIDATED ENTITY 2010 $000s CONSOLIDATED ENTITY 2009 $000s 21,444 (23) 21,421 34,770 56,191 38% 12,278 (191) 12,087 35,458 47,545 25% The increase in gearing has been brought about in order to facilitate the Groups' investment activities during the year. The Group intends to maintain these gearing levels going forward. There have been no other significant changes to the Group’s capital management objectives, policies and processes in the year nor has there been any change in what the Group considers to be its capital. P A G E 6 4 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 24 RESERVES Available-for-sale financial assets Share options Movement in reserves Share options Opening balance Closing balance Available-for-sale financial assets reserve Opening balance Fair value adjustment Deferred tax impact Transfer to (profit) or loss Deferred tax impact Closing balance CONSOLIDATED ENTITY 2010 $000s CONSOLIDATED ENTITY 2009 $000s 16 8 24 8 8 (17) 194 (58) (147) 44 16 (17) 8 (9) 8 8 (160) (264) 79 468 (140) (17) The available-for-sale financial assets reserve carries fair value adjustments made to available-for-sale financial assets which are recognised in other comprehensive income. When the available-for-sale financial asset is either sold or considered impaired the amount held in this reserve is recognised in the profit or loss. NOTE 25 FINANCIAL RISK MANAGEMENT The Group's financial instruments include investments in deposits with banks, receivables, equities, derivatives, payables and interest bearing liabilities. The accounting classifications of each category of financial instruments as defined in note 1(i) and their carrying amounts are set out below. Weighted Average Interest Rate 0.0% 13.95% 15.0% 12.5% 0.0% 0.0% 0.0% 0.0% Consolidated 2010 Financial Assets Receivables Loans receivable Loans receivable Convertible notes Loans and receivables Cash and cash equivalents Available-for-sale financial assets Investments in associated companies Financial assets at fair value through profit or loss - held for trading (derivatives) Total financial assets Fixed Interest Rate Maturing Floating Interest Rate Within 1 Year 1 to 5 Years Non-Interest Bearing Total Note $000s $000s $000s $000s $000s 10 10 10 10 9 13c 13b 18 - - - - - - - - - - 4,872 - 833 5,705 - - - - 5,705 - 4,498 3,119 7,617 - - - - 7,617 1,448 - - 1,448 23 1,105 3,692 128 6,396 1,448 4,872 4,498 3,952 14,770 23 1,105 3,692 128 19,718 P A G E 6 5 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 25 FINANCIAL RISK MANAGEMENT (CONTINUED) Weighted Average Interest Rate Financial Liabilities Bank Overdrafts Bank Loans Trade & Other Payables Total financial liabilities at amortised cost Consolidated 2009 Financial Assets Receivables Loans receivable Convertible notes Loans and receivables Cash Available-for-sale financial assets Financial assets at fair value through profit or loss - held for trading (derivatives) Total financial assets Financial Liabilities Bank Overdrafts Bank Loans Trade & Other Payables Lease & Hire Purchase Liabilities Total financial liabilities at amortised cost 9.3% 6.1% 0.0% 0.0% 9.3% 11.6% 0.0% 0.0% 0.0% 10.7% 6.8% 0.0% 7.0% Note 20 22(a) 19 10 10 10 9 13b 18 20 22(a) 19 20 & 26 Fixed Interest Rate Maturing Within 1 Year 1 to 5 Years Non-Interest Bearing Total Floating Interest Rate $000s $000s $000s $000s $000s 2,944 - - - 18,500 - 21,444 - 149 - 149 - - - 149 - - - - - - - - - - - - - - - 2,331 2,331 - - - - 2,331 - 413 413 2,112 - - 2,112 191 2,411 288 5,002 155 12,100 - - 12,255 - - - 23 - - - - - - 692 - 23 - 692 2,944 18,500 413 21,857 2,112 149 2,331 4,592 191 2,411 288 7,482 155 12,100 692 23 12,970 Fair Value The carrying values of financial assets and liabilities listed above approximate their fair value except for Convertible notes which have a fair value of $4,065,000 (2009 $2,375,000) and non-current loans receivable which have a fair value of $4,083,000 at the end of the reporting period. Estimated discounted cash flows were used to measure fair value, except for fair values of financial assets that were traded in active markets that are based on quoted market prices. The Group's investments and obligations expose it to market, liquidity and credit risks. The nature of the risks and the policies the Group has for controlling them and any concentrations of exposure are discussed as follows: (i) Hierarchy The following tables classify financial instruments recognised in the statement of financial position of the group according to the hierarchy stipulated in AASB 7 as follows: - Level 1 - the instrument has quoted prices (unadjusted) in active markets for identical assets or liabilities; - Level 2 - a valuation technique is used using inputs other than quoted prices within Level 1 that are observable for the financial instrument, either directly (i.e. as prices), or indirectly (i.e. derived from prices); or - Level 3 - a valuation technique is used using inputs that are not based on observable market data (unobservable inputs). P A G E 6 6 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 25 FINANCIAL RISK MANAGEMENT (CONTINUED) Group - 2010 Assets Fair value through profit or loss Derivatives Available for sale financial assets: Listed equity securities Unlisted equity securities Level 1 Level 2 Level 3 Total 52 1,105 - 1,157 76 - - 76 - - - - 128 1,105 - 1,233 Financial risk Management The Board of Directors has overall responsibility for the establishment and oversight of the financial risk management framework. PPK Group's activities expose it to a range of financial risks including market risk, credit risk and liquidity risk. The Group's risk management policies and objectives are therefore designed to minimise the potential impacts of these risks on the results of the Group where such impacts may be material. The Board receives monthly reports, which it reviews and regularly discuss the effectiveness of the processes put in place and the appropriateness of the objectives and policies to support the delivery of the Group's financial targets while protecting future financial security. The Board also has in place informal policies over the use of derivatives and does not permit their use for speculative purposes. (a) Market risk Market risk is the risk that the fair value of future cash flows of the Group's financial instruments will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, equity price risk and currency risk. (i) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a security, will fluctuate due to changes in interest rates. Exposure to interest risk arises due to holding floating rate interest bearing liabilities, investments in cash and cash equivalents and loans to related parties and other persons. Although a change in the current market interest rate may impact the fair value of the Group's fixed interest financial liabilities and other receivables, it does not impact the Group profit after tax or equity as these financial liabilities and other receivables are carried at amortised cost and not fair value through profit or loss. Floating interest rates attached to the Group's and parent's financial assets and liabilities give rise to cash flow interest rate risk. Any changes in the current market rate will affect the cash flows payable on floating rate interest bearing liabilities and hence impact the Group's profit after tax. Sensitivity disclosure analysis The Group's exposure to its floating interest rate financial assets and liabilities is as follows: Financial Assets Cash Receivables Financial Liabilities Bank overdraft Bank Loans Net Exposure The group has performed sensitivity analysis relating to its interest rate risk based on the Group's year end exposure. This sensitivity demonstrates the effect on after tax results and equity which could result from a movement in interest rates of +/- 1%. Change in after tax profit - increase in interest rate by 1% - decrease in interest rate by 1% CONSOLIDATED CONSOLIDATED ENTITY 2010 $000s ENTITY 2009 $000s - - - 2,944 18,500 21,444 (21,444) - 149 149 155 12,100 12,255 (12,106) (150) 150 (85) 85 P A G E 6 7 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 25 FINANCIAL RISK MANAGEMENT (CONTINUED) (ii) Equity Price risk Equity securities price risk is the risk that changes in market prices will affect the fair value of future cash flows of the Group's financial instruments. The group is exposed to equity price risk through the movement in share prices of the companies in which it is invested. These are determined by market forces and and are outside control of the group. The risk of loss is limited to the capital invested in relation to shares and options held. The market value of listed companies fluctuate and the fair value of the available-for-sale financial assets and derivatives of the group changes continuously. Changes in fair value of available-for-sale financial assets are recognised through the asset revaluation reserve unless the there is objective evidence that available-for-sale financial assets have been impaired. Impairment losses are recognised in profit or loss. Unlisted investments do not have a quoted price in an active market and their fair value cannot be reliably measured, so they remain valued at cost after their initial recognition. However when there is objective evidence of impairment of these unlisted investments, such impairment losses are recognised in profit or loss. The value of unlisted investments the end of the reporting period was nil as the group considers that there is little or no likelihood of any return from these investments. The group also has investments by way of derivates in listed companies, these are held as options. Any gains or losses in the fair values of these derivatives are taken directly to profit or loss for the year. The Group's portfolio of investments in listed companies is concentrated in small number of companies. The individual performances of these companies exposes the group to a greater concentration of risk than just that of general market forces if a more wide-spread portfolio were held. However, because of this concentration of holdings the Directors are able to regularly monitor the performance of the companies within its portfolio, Cool or Cosy Ltd and Frigrite Ltd that became associated companies during the year. Sensitivity disclosure analysis The Group's and parent's exposure to equity price fluctuations on the fair value of its available-for-sale financial assets and derivatives is as follows: Financial Assets Available-for-sale financial assets Investments in listed companies Derivatives Options in listed companies The Group has performed sensitivity analysis relating to its exposure equity price risk based on it's year end asset holdings. This sensitivity demonstrates the effect on after tax results and equity which could result from a movement in equity prices at year end of +/- 10%. CONSOLIDATED CONSOLIDATED ENTITY 2010 $000s ENTITY 2009 $000s 1,105 2,411 128 288 1,233 2,699 14 (14) Change in after tax profit - increase in equity price by 10% - decrease in equity price by 10% Change in equity - increase in equity price by 10% - decrease in equity price by 10% (iii) Currency Risk Currency risk is the risk that the fair value or future cash flows of a financial item will fluctuate as a result of movements in international exchange rates. The Group is exposed to exchange rate transaction risk on foreign currency sales and purchases primarily with respect to the United States dollar (USD). Of the total sales revenue for the Group some 33% (2009 40%) is in export sales, all sales from 1 January 2009 are designated in AUD thus limiting the currency risk exposure. The group does not take forward cover or hedge and was therefore at risk in relation to foreign currency movements during the year. The group has maintained a USD bank account for receiving payments (if any) from trade receivables and making payment to trade payables. The account is held with a major Australian Bank, which limits the group's exposure to credit risk associated with this deposit. 143 (143) 73 (73) 219 (219) P A G E 6 8 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMP P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 25 FINANCIAL RISK MANAGEMENT (CONTINUED) Sensitivity disclosure analysis The Group's exposure to currency fluctuations on its USD assets and liabilities at year end is as follows: Financial Assets Cash and cash equivalents Trade receivables Financial Liabilities Other payables Net exposure The group has performed sensitivity analysis relating to its foreign currency exposure on year end amounts that are not hedged. This sensitivity demonstrates the effect on after tax results and equity which could result from a movement in AUS against the USD at year end of +/- 10%. Change in after tax profit - AUD strengthens against USD by 10% - AUD weakens against USD by 10% CONSOLIDATED CONSOLIDATED ENTITY 2010 $000s ENTITY 2009 $000s 16 - 16 188 - 188 - - 16 188 (2) 2 (12) 15 (b) Credit Risk The group's maximum exposure to credit risk is generally the carrying amount net of any provisions for doubtful debts. The Groups exposure is minimised by the fact that the trade receivables balance is with a diverse range of Australian and Multi-national customers. The Group has in place informal policies for establishing credit approval and limits so as to manage the risk. The group also has a credit risk exposure in relation to cash at bank. The group's policy is ensure funds are placed only with major Australian banks thus minimising the group's exposure to this credit risk. The group's credit risk relating to tenants is primarily the risk that they will fail to honour their lease agreements. The lease agreements with the Arndell Park and Dandenong properties are secured by a guarantee from the head entity, Visy Industrial Plastics Pty Ltd, and the lease in relation to the Seven Hills property is supported by a bank guarantee. Loans receivable from the associate entity PPK Willoughby Funding Unit Trust are secured by a registered first mortgage over property owned by that entity. Convertible notes in listed companies have a first or second ranking fixed and floating charge over all the assets of the issuing companies and their subsidiaries. Trade and other receivables that are neither past due or impaired are considered to be of high credit quality. Refer to note 10 for detail the Group's trade and other receivables. The group's exposure to credit risk at the end of the reporting period by country of loans and receivables is as follows: Loans and receivables by country Australia United States of America United Kingdom Germany Indonesia New Zealand CONSOLIDATED CONSOLIDATED ENTITY 2010 $000s ENTITY 2009 $000s 14,401 204 142 5 2 16 14,770 4,453 101 35 - - 3 4,592 P A G E 6 9 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 25 FINANCIAL RISK MANAGEMENT (CONTINUED) The groups exposure to credit risk at the end of the reporting period by industry of loans and receivables is as follows: Loans and receivables by industry Property development Plastic Packaging Mining Equipment Insulation and air-conditioning Retail franchising Manufacturing Property and investing CONSOLIDATED CONSOLIDATED ENTITY 2010 $000s ENTITY 2009 $000s 9,370 349 946 1,236 852 1,997 20 14,770 - 637 922 1,366 1,172 245 250 4,592 (c) Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities. The Group’s objective to mitigate liquidity risk is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans and hire purchase contracts. The Group's exposure to liquidity risk is not significant based on available funding facilities and cash flow forecasts. Details of the groups financing facilities are set-out in note 22. Financial Liabilities maturity analysis The tables below reflect the undiscounted contractual settlement terms for the groups financial liabilities of a fixed period of maturity, as well as the earliest possible settlement period for all other financial liabilities. As such the amounts may not reconcile to the statement of financial position. Bank loans provided by the NAB are subject to an annual review with the next review date being 30 November 2011, with the facilities requiring renewal on 30 November 2011 and 30 November 2013. In August 2010 the NAB confirmed that they would extend current facilities to 30 November 2011 in relation to the bank overdraft and 30 November 2013 in relation to the bank loans. Bank overdraft facility is provided by the NAB with the current facility expiring on 30 November 2011. The renewal dates that were applicable at the end of the reporting period have been used for disclosure of maturity dates of bank overdraft and loans. Even though the facilities are subject to an annual reviewit is considered more appropriate to use the renewal dates as there is no reason to believe that the facilities will be altered by the bank at the time of annual review. Carrying amount < 6 months 6 - 12 months 1 - 3 years > 3 years Contractual Cash flows Consolidated 2010 Financial Liabilities (current & non-current) Non derivatives Trade, Other Payables Bank Loans & overdrafts 413 21,444 413 3,625 Total Financial Liabilities 21,857 4,038 Consolidated 2009 Financial Liabilities (current & non-current) Non derivatives Trade, Other Payables Bank Loans & overdrafts Hire Purchase Liabilities Total Financial Liabilities P A G E 7 0 692 12,255 23 12,970 692 487 23 1,202 - 567 567 - 325 - 325 - 18,972 18,972 - 12,371 - 12,371 - - - - - - 413 23,164 23,577 692 13,183 23 13,898 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMP P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 26 HIRE PURCHASE AND LEASE COMMITMENTS (a) Hire Purchase commitments payable: - not later than 1 year - later than 1 year but not later than 5 years Minimum hire purchase payments Less: Future finance charges not provided in the financial statements Total hire purchase liability Provided in the financial statements as: Current liabilities (b) Operating lease commitments Operating lease rentals contracted for but not capitalised in the financial statements payable: - not later than 1 year - later than 1 year but not later than 5 years - later than 5 years CONSOLIDATED CONSOLIDATED ENTITY 2010 $000s ENTITY 2009 $000s - - - - - - 82 13 - 95 23 - 23 - 23 23 51 - - 51 The Group leases premises in Nowra under non cancellable operating leases. The terminating date of the leases is 31 January 2011 and 31 January 2012, the Group has an option to renew the lease expiring in 2011 for a further period of 1 year, there is no option renewal on the lease expiring in 2012. There are no contingent rentals as part of finance lease arrangements and no restrictions on the ability of PPK Group Ltd and its subsidiaries from borrowing further funds or paying dividends. NOTE 27 CONTINGENT LIABILITIES (a) Group Cross guarantees of the Group's banking and finance facilities totalling $26,080,000 (2010: $26,080,000) of which $21,444,000 (2009: $12,255,000) was drawn at the end of the reporting period. NOTE 28 SEGMENT INFORMATION The group has adopted AASB 8 Operating Segments from 1 July 2009 whereby segment information is presented using a "management approach", i.e. segment information is provided on the same basis as information used for internal reporting purposes by the chief operating decision makers. There has been no changes to the reporting segments following the amendment to the standard. Information regarding segment assets is not provided to the Directors. As such, the group has early adopted the amendment to AASB 2009-5 so that segment asset information need not be disclosed. Operating segments have been determined on the basis of reports reviewed by the Directors. The Directors are considered to be the chief operating decision makers of the group. The reportable segments are as follows: - The Investment property segment owns the properties from which the Group previously carried out its manufacturing operations. These properties were retained and leased at commercial rents to the purchasers of those businesses. - The Investment segment owns primarily listed and some unlisted investments and has also made loans from which earns income and capital growth. Investments in associate companies are included in this segment. - The Mining equipment segment manufactures portable underground mining equipment. P A G E 7 1 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 28 SEGMENT INFORMATION (CONTINUED) (a) Year ended 30 June 2010 Segment revenue from external customers Sales revenue Rental income Interest received Dividends received Segment other income Net gain on disposal of rental property Other segment income Total Revenue and other income Segment net profit Reconciliation of segment net profit to group net profit before tax Amounts not included in segment profit but reviewed by the Board Share of loss from associates accounted for using the equity method Unallocated corporate expenses Unallocated interest expense Consolidated operating profit before income tax Income tax (expense) Consolidated profit after income tax (b) Year ended 30 June 2009 Segment revenue from external customers Sales revenue Rental income Interest received Dividends received Segment other income Net gain on disposal of rental property Other segment income Total Revenue and other income Segment net profit Reconciliation of segment net profit to group net profit before tax Amounts not included in segment profit but reviewed by the Board Unallocated corporate expenses Unallocated interest expense Consolidated operating profit before income tax Income tax (expense) Consolidated profit after income tax P A G E 7 2 Investment Properties $000s Investing $000s Mining Equipment Manufacturing $000s Total of Continuing Operations $000s - 3,109 - - 3,109 2,184 - 2,184 5,293 1,778 - - 1,158 59 1,217 4,746 - - - 4,746 - 1,710 1,710 2,927 - - - 4,746 2,195 208 4,746 3,109 1,158 59 9,072 2,184 1,710 3,894 12,966 4,181 (684) (1,133) (1,118) 1,246 (484) 762 Investment Properties $000s Investing $000s Mining Equipment Manufacturing $000s Total of Continuing Operations $000s - 4,776 - - 4,776 13 - 13 4,789 4,006 - - 428 47 475 4,867 - - - 4,867 - 137 137 612 - 70 70 4,937 (2,295) 1,062 4,867 4,776 428 47 10,118 13 207 220 10,338 2,773 (1,306) (1,006) 461 79 540 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMP P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 28 SEGMENT INFORMATION (CONTINUED) (c) Geographic location of Customers The group operates in Australia the mining equipment manufacturing segment but has sales revenue from customers located overseas. Other income is with customers based in Australia Additional disclosure of sales revenue by geographical location is as follows: CONSOLIDATED CONSOLIDATED ENTITY 2010 $000s ENTITY 2009 $000s Australia China Germany United States of America United Kingdom New Zealand Other countries 3,168 - 138 581 559 150 150 4,746 2,899 842 507 418 113 - 88 4,867 The geographical location of receivables, relating to these sales, is disclosed in Note 25 of these financial statements. All Non-current receivables are from customers based in Australia. Rental income of $2,717,000 (2009 $3,835,000) was derived from a group of companies with common parent ownership. These revenues are attributable to the investment property segment. NOTE 29 RELATED PARTIES Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. Transactions are inclusive of GST. Transactions with related parties: (a) Share transactions of directors: Directors and director-related entities have acquired or disposed of ordinary shares in the Parent entity during the financial year as follows : PPK Group Limited - acquired PPK Group Limited - disposed Net movement Directors and director-related entities hold directly, indirectly or beneficially as at the end of reporting period the following equity interests in the group: 2010 No. 000s 2009 No. 000s 768 (157) 611 1,593 (700) 893 PPK Group Limited - ordinary shares 11,132 11,132 P A G E 7 3 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 29 RELATED PARTIES (CONT.) (b) Associated companies Interest Revenue Frigrite Limited Cool or Cosy Limited PPK Willoughby Funding Unit Trust Dividend Revenue Frigrite Limited Fees received Frigrite Limited PPK Willoughby Funding Unit Trust Loans advanced to associates Frigrite Limited PPK Willoughby Funding Unit Trust Subscription for new ordinary shares in associates Frigrite Limited Subscription for new options (derivatives) in associates Frigrite Limited NOTE 30 CASH FLOW INFORMATION (a) Reconciliation of profit after income tax to the cash provided by operating activities Profit after income tax Cash flows in operating result attributable to non-operating activities: Interest paid Cash flows in operating activities but not attributable to operating result: Payments from employee provisions Dividends received from associated companies Non-cash flows in operating profit: Amortisation Depreciation Impairment of land & buildings Interest received on convertible notes Interest received on other loans Recognition of income from rent free periods deferred on acquisition Impairment of available-for-sale-assets Transfers to provisions Other Income Share of loss from associated companies (Profits) on sale of available for sale assets Fair value adjustments on derivatives Loss/(Profits) on sale of property, plant & equipment Increase/(decrease) in tax payable decrease/(increase) in deferred tax assets Increase/(decrease) in deferred tax liabilities Changes in assets and liabilities, decrease/(increase) in trade and other debtors decrease/(increase) in prepayments (increase)/decrease in inventories (decrease)/increase in trade creditors and accruals Net cash/(used in) provided by operating activities P A G E 7 4 CONSOLIDATED CONSOLIDATED ENTITY 2010 $000s ENTITY 2009 $000s 250 - 144 - 602 - 132 - 178 - 67 - 1,877 8,700 2,244 123 762 1,118 - - - 540 1,159 (585) (145) 132 - 113 888 - (31) 80 918 1,159 (104) (603) (55) 107 1,696 700 226 1,392 (67) - 684 - (132) 1,059 (13) (136) (130) (619) (1,022) (380) (2,184) (272) 164 (277) (704) (55) 40 (279) 724 (793) 7 (320) (348) 2,966 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 30 CASH FLOW INFORMATION (CONTINUED) (b) Reconciliation of Cash For the purposes of the statement of cash flows, cash includes: Cash on hand Call deposits with financial institutions Bank overdrafts - secured (c) Non-cash Financing and Investing Activities During the financial year, the group had an the following non cash adjustments, Conversion of convertible notes to available-for-sale financial assets CONSOLIDATED CONSOLIDATED ENTITY 2010 $000s ENTITY 2009 $000s 3 3 188 20 (155) (2,944) (2,921) 352 352 36 - - NOTE 31 EVENTS SUBSEQUENT TO THE END OF THE REPORTING PERIOD Investment Properties The investment property at Kirrawee New South Wales has had a contract for sale exchanged for a sale price of $8.25 million. The contract is due for settlement at the end of October 2010, a profit before tax of approximately $1.45 million will be recorded on this sale. PPK Properties Pty Ltd is in litigation with the tenant of Arndel Park, Sydney property over the validity of the lease on this property. It is anticipated that the dispute will be determined by the Court in November 2010. The lease is due to expire in August 2013. In August 2010 the National Australia Bank confirmed an extension of the bank finance facility (as disclosed in note 25). As part of this review and extension the NAB has removed the registered first mortgage it held on the property at Kirrawee, New South Wales and taken an registered first mortgage against the land & buildings at Arndell Park, New South Wales. Investing Activities The volatility of the Australian securities market in the future could impact upon the value attributed to the group's investments in listed companies, in future reporting periods. No other matters or circumstances have arisen since the end of the period which significantly affected the operations of the group, the results of those operations or the state of affairs of the group in the financial year subsequent to 30 June, 2010. P A G E 7 5 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM DIRECTORS’ DECLARATION FOR THE YEAR ENDED 30 JUNE 2010 The Directors of the Company declare that: 1. The Financial Statements comprising the Statement of Comprehensive Income, Statement of Financial Position, Statement of Cash Flows, Statement of Changes in Equity and accompanying Notes to the Financial Statements are in accordance with the Corporations Act 2001 and: (a) comply with Accounting Standards and the Corporations Regulations 2001; and (b) give a true and fair view of the consolidated entity’s financial position as at 30 June 2010 and of its performance for the year ended on that date. The Company has included in the notes to the financial statements an explicit and unreserved statement of compliance with International Financial Reporting Standards. In the Directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. The remuneration disclosures included on pages 11 to 17 of the Directors’ Report (as part of the audited Remuneration Report), for the year ended 30 June 2010, comply with section 300A of the Corporations Act 2001. The Directors have been given the declarations by the chief executive officer and the person performing the chief financial officer function required by section 295A of the Corporations Act 2001. 2. 3. 4. 5. This declaration is made in accordance with a resolution of the Board of Directors and is signed for and on behalf of the directors by: Colin Ryan Director Sydney, 28 September 2010 Glenn Molloy Director P A G E 7 6 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 INDEPENDENT AUDITOR’S REPORT                                          P A G E 7 7 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMINDEPENDENT AUDITOR’S REPORT (CONTINUED)                                     P A G E 7 8  Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMP P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 AUDITOR’S INDEPENDENCE DECLARATION                       P A G E 7 9 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMADDITIONAL INFORMATION FOR LISTED PUBLIC COMPANIES PPK GROUP LIMITED AND SUBSIDIARIES ADDITIONAL INFORMATION FOR LISTED PUBLIC COMPANIES 1. Shareholding (a) Distribution of shareholders at 20th August 2010 Category (size of holding) 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over Number of Shareholders 2010 000s Number of Shareholders 2009 000s 132 415 350 457 54 138 456 368 492 49 1,408 1,503 (b) The number of shareholdings held in less than marketable parcels is 147 (c) The names of the substantial shareholders listed in the holding company's register at the 20th August 2010 Corso Investments Pty Ltd ANZ Nominees Ltd Equipment Co of Australia Pty Ltd Applied Colour Pty Limited John E Gill Operations Pty Ltd (d) Voting rights The consolidated entity has one class of ordinary shares with equal voting rights attached to them. Number of shares 000s 2010 10,998 7,281 6,618 1,970 1,569 Number of shares 000s 2009 10,289 8,664 6,618 2,200 1,569 (e) Twenty largest shareholders Name John E Gill Operations Pty Ltd Number of ordinary fully paid shares held 000s 10,998 1 Corso Management Pty Ltd 7,281 2 ANZ Nominees Ltd 6,618 3 Equipment Co of Australia Pty Ltd 1,970 4 Applied Colour Pty Limited 1,569 5 1,059 6 Metal Industries Pty Ltd 698 7 Contemplator Pty Ltd 635 8 Ruminator Pty Ltd 609 9 Citicorp Nominees Pty Limited 500 10 Ryan Consultancy Group Pty Ltd 11 Flagstaff Superannuation Pty Ltd 470 12 Mr Robert Joseph Faulks & Mrs Patricia Baynton Faulks 439 425 13 Mr Ian MacDonald 14 Ms Alison Irving 342 300 15 Mr Charles Peter Taylor 300 16 Chandos Nursing Home Pty Ltd 281 17 Bell Potter Nominees Ltd 262 18 Mr Edward James Stephen Dally & Mrs Selina Dally 260 19 Majana Pty Ltd 255 20 Mrs Patricia Baynton Faulks Percentage held of listed ordinary capital % 18.94 12.55 11.41 3.40 2.71 1.83 1.20 1.10 1.05 0.86 0.81 0.76 0.73 0.59 0.52 0.52 0.48 0.45 0.45 0.44 P A G E 8 0 35,271 60.79 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM P P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 ADDITIONAL INFORMATION FOR LISTED PUBLIC COMPANIES 2. The name of the company secretary is Mr Robert Nicholls. 3. The address of the principal registered office in Australia is 25-27 Waratah Street, Kirrawee, NSW 2232 Telephone (02) 9521 8444 Fax (02) 9521 4561 Email info@ppkgroup.com.au 4. Registers of securities are held at the following addresses: New South Wales Registries Limited Level 7 207 Kent Street, Sydney NSW 2000 Telephone 1300 737 760 Fax: 1300 653 459 Email: registries@registries.com.au 5. Security Exchange Listing Quotation has been granted for all the ordinary shares of the company on all Member Exchanges of the Australian Securities Exchange Ltd. P A G E 8 1 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMThis page is left blank intentionally P A G E 8 2 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMP P K G R O U P L I M I T E D A N N U A L R E P O R T 2 0 1 0 This page is left blank intentionally P A G E 8 3 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMThis page is left blank intentionally P A G E 8 4 Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010 CORPORATE DIRECTORY AS AT 29 SEPTEMBER 2010 DIRECTORS Colin Ryan B.Com.,Dip.Ed.,CA DIRECTOR AND CHAIRMAN (non-executive) Glenn Molloy DIRECTOR executive Raymond Beath B.Com.,F.C.A DIRECTOR (non-executive) Jury Wowk B.A., LL.B DIRECTOR (non-executive) COMPANY SECRETARY Robert Nicholls MBA (Distinction), LL.B (Hons) Grad Dip Leg Prac., Grad Dip CSP, FCIS, GAICD HEAD OFFICE & REGISTERED OFFICE PPK Group Limited 25-27 Waratah Street Kirrawee NSW 2232 Telephone 02 9521 8444 Facsimile 02 9521 4561 www.ppkgroup.com.au SHARE REGISTRY Registries Limited Level 7, 207 Kent Street Sydney NSW 2000 Telephone 02 9290 9600 Facsimile 02 9279 0664 www.registries.com.au AUDITORS BDO Audit (NSW-VIC) Allianz Centre 2 Market Street Sydney NSW 2000 Telephone 02 9286 5555 Facsimile 02 9286 5599 PPK GROUP PROPERTIES New South Wales 8 Contaplas Street Arndell Park NSW 2148 14 Contaplas Street Arndell Park NSW 2148 13A Station Road Seven Hills NSW 2147 25-27 Waratah Street Kirrawee NSW 2232 Victoria 36-42 Hydrive Close Remington Industrial Estate Dandenong South VIC 3175 PPK GROUP BUSINESSES New South Wales Rambor Pty Limited 108 Albatross Road South Nowra NSW 2541 Telephone 02 4422 6323 Facsimile 02 4422 5423 www.rambor.com.au PPK-cover-hi-res.pdf 1 2/09/10 5:15 PM C M Y CM MY CY CMY K Annual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PMAnnual Report 2010CMYCMMYCYCMYKPPK-cover-hi-res.pdf 1 2/09/10 5:15 PM

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