PPK Group Limited
Annual Report 2014

Plain-text annual report

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 4 ANNUAL REPORT 2014 CONTENTS 1 2 4 6 Company Profile and Growth Strategy 2015 Goals 2014 Highlights Executive Chairman’s Report 14 Board of Directors 16 Executive Management 18 Corporate Governance Statement 27 Financial Report IBC Corporate Directory COrpOraTE DirECTOry ppK Group Limited aBN 65 003 964 181 A public company incorporated in New South Wales and listed on the Australian Securities Exchange (ASX Code: PPK) Directors Robin Levison (Executive Chairman) Jury I. Wowk (Non-Executive Deputy Chairman) Glenn R. Molloy (Executive Director) Raymond M. Beath (Non-Executive Director) Graeme D. Webb (Non-Executive Director) Company Secretary Andrew J. Cooke Head and Registered Office PPK Group Limited Level 27, 10 Eagle Street Brisbane QLD 4000 Telephone Email Web Site: +61 7 3054 4500 info@ppkgroup.com.au www.ppkgroup.com.au Auditors Grant Thornton Audit Pty Limited Level 17, 383 Kent Street Sydney NSW 2000 Australia Telephone: Fax: + 61 2 8297 2400 +61 2 9299 4445 Share Registry Boardroom Pty Limited Level 7, 207 Kent Street Sydney NSW 2000 Australia Tel Fax 1300 737 760 1300 653 459 International Tel Fax +61 2 9290 9600 +61 2 9279 0664 www.boardroomlimited.com.au 4 1 O 2 T R O P E R L A U N N A I I I I D D E E T T M M L L P P U U O O R R G G K K P P P P COMPANY PROFILE AND GROWTH STRATEGY 1 Conversely, there are a number of mining businesses which are not aligned with PPK’s growth direction including open cut mine fleet contracting, mine consulting and planning and mine site development and operations, and companies within these segments of the market will not be considered for future acquisition. PPK is headquartered in Brisbane and operates manufacturing plants and service and support centres in Port Kembla, Tomago (Newcastle)and Nowra, and will shortly open its China head office in Beijing. PPK Group Ltd (PPK) is an expanding ASX listed company whose core operations are being progressively refocused on to the manufacture, supply and maintenance of mining equipment and technology products that are utilised to enhance customer’s safety, productivity, efficiency and automation levels. • Utilising funds generated from the above to acquire established, successful businesses in the mining sector to take advantage of historically low entry prices, and if appropriate opportunities are identified, to make selective investment in other property ventures. The company will continue to derive revenue from selected property investment and property development activities which have historically been the primary group revenue earners. Under a revitalised growth strategy being architected and led by Executive Chairman, Robin Levison, who previously guided Industrea Limited from a $2 million into a $450 million market cap company, PPK’s growth strategy is focused on: • Capitalising on stronger property and equity market conditions to progressively rotate out of selected industrial and development properties, loan book and share investments. Mining businesses acquired by PPK under this strategy must satisfy the following investment criteria: • Existing equipment or technology with a proven ability to enhance end user’s safety, efficiency, automation and productivity levels • Near or market leading product categories with an established or potential export capability • A synergistic fit with PPK’s existing manufacturing businesses • Immediately earnings accretive. Beijing China Office (to be opened shortly) Brisbane Head Office Newcastle COALTRAM Manufacturing Facility Port Kembla COALTRAM. Service & Repair Facility/Alternators Nowra Rambor Manufacturing Facility 4 1 O 2 T R O P E R L A U N N A 2 2015 GOALS Expand PPK’s mining equipment operations through selected acquisitions of synergistic businesses at prices representing discernable value for shareholders and which are immediately earnings accretive. Drive additional cost savings, efficiencies and productivity gains from within PPK’s existing businesses and grow each organically. Leverage off the opening of a new China head office to generate first exports of PPK products into China and to open opportunities for the import of class leading components into Australia as OEM products. Investigate other potential export opportunities in key targeted overseas markets. Further strengthen PPK’s balance sheet and reduce group debt. Gain additional cost savings across all areas of existing operations. Continue the progressive, orderly rotation out of current property assets and other historical investments to generate funds for new acquisitions, additional working capital and group debt reduction; and continue to monitor any new profitable property investments that will add to shareholder value. I I D E T M L P U O R G K P P 3 4 1 O 2 T R O P E R L A U N N A “ Continue the successful rotation out of property assets and other historical investments to generate funds for new acquisitions and additional working capital” 4 2014 HIGHLIGHTS Positive progress was made in FY2014 in reinvigorating PPK and commencing the implementation of the new growth strategy. Among the major achievements the company made during the year under review were: Appointment of Robin Levison as Executive Chairman and the announcement of a new forward growth blueprint for PPK with a focus on acquiring undervalued, market leading mining equipment and technology businesses. Forging a strong cornerstone for the future expansion of PPK Mining Equipment through acquiring the established and market leading COALTRAM business and acquiring, post balance date, the MONEx Electronic Engine Management System technology. Strengthening key customer relationships, including BHP Illawarra Coal, through commissioning a new state-of-the-art mining equipment and technology service and support facility in the strategic Illawarra mining basin. Commencing the announced rotation out of selected property assets at upper quartile prices to generate additional working capital, fund future acquisitions and retire debt with the sale of the Arndell Park site for $12.2 million and divestment of PPK’s retirement village interests for $7.8 million, which is due for settlement in December 2014. Relocating PPK’s head office to Brisbane and strengthening the senior executive team through the appointment of a new, highly experienced Chief Financial Officer, and the two major architects of Industrea’s highly successful expansion into China, as head of Global Mining and President – PPK China Operations. Providing major performance incentives for directors and key executive managers through the issue of shares, ensuring the complete alignment of key personnel and shareholder interests. I I D E T M L P U O R G K P P 5 5 4 1 O 2 T R O P E R L A U N N A Primary sales targets Secondary sales targets Australia (Bowen Basin & Hunter Illawarra) China South Africa Russia USA +100% +150% +23% Group Revenue Revenue from Mining Equipment and Technology Net Assets $20,550,000 $12,568,000 $37,400,000 Group Revenue Revenue from Mining Equipment and Technology Net Assets 6 eXecUtiVe cHairman’S rePort It gives me considerable pleasure to present my first Annual Report to the shareholders of PPK Group Ltd (PPK), and to report on what I believe has been the positive, measureable progress made in implementing the revitalised growth strategy as outlined at the company’s Annual General Meeting in late 2013. In summary, some of the key achievements made on behalf of shareholders since that time include: • Establishing a stronger and market competitive mining equipment and technology business through the acquisition of the established COALTRAM business and the subsequent purchase, post balance date, of the MONEx Electronic Engine Management System technology. • Doubling group revenue from the prior year, reflecting the increasing scale and scope of PPK following the initial execution of the group’s growth strategy in 2014. • Commencing the orderly divestment of selected property assets at high quartile prices with the post balance date settlement of the Arndell Park industrial property for $12.24 million. • Commissioning of a new state-of- the-art diesel equipment service and support facility at Port Kembla to strengthen PPK’s established market presence in the Hunter/ Illawarra coal basins. • Relocating the corporate head office to Brisbane and establishing an experienced executive management team following several key appointments including a new Chief Financial Officer, new Head of Global Mining and new President-PPK China Operations. • Laying the groundwork for a successful foothold in the potentially lucrative Chinese underground mine market through securing a new China head office which will open shortly, and appointing initial, key local employees. Financial PerFormance and management For the year to 30 June 2014, PPK posted a net profit after tax of $2.519 million, up from $2.383 million the prior year. A series of one-off items associated with implementing the company’s previously announced growth strategy, including the cost of securing key personnel considered critical to its successful implementation, and a gain on purchase of the COALTRAMs business impacted on the year’s result. Group revenue for the year doubled from $10.273 million to $20.550 million, primarily reflecting the expansion of PPK’s mining equipment and technology manufacturing business with $12.568 million attributable from this source (FY2013 $5.002 million). Revenues derived from investment properties, investment activities and interest received totalled $7.982 million compared to $5.271 million the prior year. Directors have declared a final dividend of 2 cents fully franked per share lifting the full year dividend to 3.5 cents per share fully franked. Book closing date for dividend entitlements is 27 October 2014, with the final dividend payable on 10 November 2014. It is the board’s policy that wherever possible, and accounting for the financial position of the company, it will continue to pay regular interim and final dividends each year. During FY2014 PPK raised $4.881 million to acquire and provide working capital for the COALTRAM business via: • A Share Placement of 5,380,232 fully paid ordinary shares at 75 cents per share to professional or sophisticated investors • A Share Purchase Plan under which 1,128,833 fully paid ordinary shares were issued at 75 cents per share. These capital raisings were strongly supported by PPK’s shareholders, including the directors, along with a number of new investors. While the company remains totally committed to its well documented acquisition strategy, this will be judiciously balanced against the overriding need to maintain a prudent and relatively conservative approach to debt and capital management, and the maintenance of a strong balance sheet. In line with this policy, it is pleasing to note that the company’s net assets increased by $7 million to $37.4 million as at 30 June 2014. Under the company’s capital management plan, any debt associated with PPK’s current property assets, will be repaid in entirety at settlement. PPK GROUP LIMITED7 4 1 O 2 T R O P E R L A U N N A “ Group revenue for the year doubled from $10.273 million to $20.550 million, primarily reflecting the expansion of PPK’s mining quipment and manufacturing technology businesses” 8 STRONGER CORPORATE STRUCTURE Management Team Bolstered Several key personnel appointments were made in FY2014 to bolster the company’s resources at both a senior executive and operational management level. These appointments will ensure PPK has the resources and expertise to maintain the successful execution of our growth strategy and sustain future earnings growth. Dale McNamara and Zhang Jinping, who both served in senior positions with me at Industrea Limited prior to its acquisition by a US multinational, were appointed as Director Global Mining and President of PPK China Operations respectively. Both men have extensive experience in the Chinese coal industry and in establishing and expanding commercially successful businesses in that country, and were responsible for building Industrea’s exports of underground mining equipment and technology into China from a zero base to a value approaching $100 million over several years. Mr McNamara has over 30 years’ experience in the coal mining industry in Australia and China. He founded Wadam Industries, a China-focused subsidiary of Industrea, and served as its Managing Director from 1993 till 2012. Mr Zhang holds a mining bachelor degree from China Henan Polytechnic University and has 30 years experience in underground coal mining operations in China. He was a senior employee of China Coal Research Institute for 12 years and Chief Representative in China for Wadam Industries and Industrea for 18 years. In addition, Peter Barker was appointed Chief Financial Officer in June 2014. Mr Barker is a Fellow of CPA Australia, holds an MBA and BCom, and brings extensive domestic and international commercial experience to PPK. He joined PPK following a senior position with a privately held technology group in Hong Kong. Prior to this he was Chief Financial Officer at Computershare. During the year under review PPK also recruited a select number of highly experienced personnel to strengthen the Mining Equipment business’ management resources. Among several key appointments made in FY2014 were a new General Manager and new Field Service Manager for PPK Mining Equipment Head Office Relocation Towards the end of the financial year PPK completed the relocation of its corporate head office from Sydney to Brisbane’s CBD. It is considered this location will best serve the future interests of shareholders and allow for the ordered execution of the company’s growth strategy. I, along with Peter Barker our CFO, and several other managers are now all working from this location, which also provides the company strategic geographic access to both the key coal producing regions in Queensland and New South Wales. REVIEW OF OPERATIONS Mining Equipment and Technology In line with the previously announced realignment of PPK’s operational focus, considerable time and resources were expended during FY2014 in expanding the company’s mining equipment and technology manufacturing business. In March 2014 PPK completed the $13 million acquisition of the COALTRAM mining equipment manufacturing business from Diversified Mining Services. COALTRAM is an established and highly respected brand name within the Australian underground mining market, with its class leading products deployed by companies including BHP, BMA, Centennial Coal, Glencore, Mastermyne and Xstrata. The acquisition underscores the financial rationale behind PPK’s strategy of identifying and capitalising on counter cyclical acquisitions nearing the lower end of the pricing spectrum, with the business’ net assets having a conservative value of over $17 million ($15.8 million after allowing for future tax liabilities associated with the purchase). The businesses acquired under the COALTRAM purchase include: • Manufacture, service and support of the trademark COALTRAM underground transport utility vehicle; • Manufacture and distribution of Australia’s leading flameproof alternator for use in methane gas prone underground environments; and • Equipment hire with a range of clients including BHP, Centennial Coal and Glencore. Recognised for its durability, flexibility and safety, the COALTRAM utility vehicle can be manufactured in configurations of 8, 10 and 13 tonnes, and is equipped with an array of features designed specifically for high methane gas underground coalmine environments. The COALTRAM vehicle category is the most commonly found in these underground mine environments, given their multiplicity of applications including material movement, supply handling, movement of long wall components and other utility tasks. The flameproof alternator manufacturing business included in the acquisition is a market-leading supplier whose product is IEC internationally certified for use in high methane gas prone mines, and through this certification has gained an established export revenue base from a number of multinational OEM manufacturers. In an initiative which further strengthens the earnings capacity of PPK Mining Equipment, in August 2014 PPK acquired the MONEx Electronic Management System (EMS) technology, associated intellectual property, manufacturing line and existing inventory for $2.8 million. PPK GROUP LIMITED9 Prior to acquiring full ownership of EMS, PPK held shared ownership in parts of the EMS technology and intellectual property. This acquisition represents a highly strategic and profitable fit for PPK, as it provides the group with sole Original Equipment Manufacturer status for all COALTRAM vehicles and opens additional potential sales avenues via re-powering other underground flameproof and explosion proof vehicles with EMS technology. PPK is already evaluating possible export opportunities for these fabricated vehicles to China and South Africa. To complement COALTRAM’s existing world class quality controlled manufacturing plant in Tomago, Newcastle and to consolidate PPK’s foothold in the strategic Hunter/ Illawarra coal basins, in June 2014 the company commissioned a new state- of-the-art service and support centre at Port Kembla. This new facility is equipped to not only service and maintain COALTRAM products, but also to capitalise on the exit of several multinational equipment providers from the regional market, to service and support other diesel mining products. The COALTRAM service facility’s relocation from Newcastle to Port Kembla also provides significant logistic benefits to, and strengthens our relationship with major customer BHP Illawarra Coal, which has around 60 of the 100 COALTRAM vehicles deployed in Australia, operating from various mines in the Illawarra. To optimise efficiencies, PPK’s alternator business was also relocated to the new Illawarra service centre, with the move to a more technologically advanced facility expected to bolster the business’s already strong export channels. PPK’s original mining equipment business Rambor, experienced a dampened trading performance in FY2014, which reflected the tightening mining market. A strong focus in the current financial year is being placed on reducing cost structures and new product development and innovation. These measures, along with the benefits and synergies of being part of a much larger mining services operation are expected to improve its performance in the current financial year. CHINA MARkET EXPANSION One of PPK’s operational priorities in FY2014 was laying the foundations for a beachhead into the potentially lucrative Chinese underground coal market. While there is continuing commentary on the slow down of China’s phenomenal growth rates, it is often overlooked that the country’s huge economy continues to consume around 4 billion tons of coal per annum, of which 90% is extracted from often high methane gas prone underground mines. The Chinese government continues to enforce the consolidation and modernisation of the country’s coal sector through closing small producers, and focusing production on fewer but larger and more professional miners. As part of this policy China’s coal miners are also being directed to lift safety, productivity and automation levels, which are all attributes PPK’s current and future mining equipment and technology are specifically designed to deliver. ANNUAL REPORT 2O1410 Dale McNamara, PPK’s Director Global Mining and Zhang Jinping, President- PPK China Operations, both have extensive experience in the Chinese coal sector, and their knowledge base and industry contacts have proved invaluable in laying an initial foundation in this lucrative market. As a result of these endeavours, at the time of this report’s publication, PPK has finalised the lease of premises in Beijing as a Chinese head office, hired a number of key employees and is well advanced on establishing our Chinese legal entity subsidiary. The initial progress made to date in China has already unlocked preliminary sales opportunities, with the company fielding initial market enquiries and preparing a number of quotes and pricing estimates. With time it is envisaged that we will both export PPK manufactured components, products and technology that offer Chinese customers decided safety, efficiency, automation and productivity gains, as well as import carefully selected speciality components into Australia as high quality, cost competitive OEM products. PROPERTY INVESTMENT AND DEVELOPMENT Industrial Property As previously disclosed in late FY2014, PPK contracted to sell one of its three industrial properties at Arndell Park. This divestment has now settled for $12.24 million, with the net proceeds, following pay down of associated debt, allocated as working capital and to help fund future acquisitions or other select property investments should they arise. The two remaining industrial properties at Seven Hills, New South Wales and Dandenong, Victoria remain fully tenanted and will, at a time considered appropriate in what is a continually strengthening property cycle, be placed on the market for sale as separate parcels. Both properties have attracted broad interest from potential purchasers, and we are confident that once formally marketed, both will attract keen buyer demand. Retirement Villages In line with PPK’s strategy of divesting selected property assets, particularly those considered outside the expertise of the company, in early 2014 PPK contracted to sell its interest in two freehold retirement village assets at Bundaberg, Queensland, and Elizabeth Vale, South Australia, for $8.2 million. Settlement of both interests is confirmed to occur in December 2014, at which time around $6 million will be used to reduce debt and the remainder allocated as working capital. Property Development PPK has an 18.2% interest in the Kiah Willoughby residential project located in Sydney’s lower north shore area. This staged development project has generated strong market demand since its inception, and made a solid contribution to revenue in FY2014. The project is scheduled for completion by June 2015, with around $9 million in revenue attributable to PPK as loan repayments, accumulated interest and profits over this period. The company’s other property development asset is an 18.74% interest in the Nerang Street Project Trust, which owns an 11,000 square meter development site at Southport, on the Gold Coast. This site is currently being marketed for sale, to capitalise on stronger local property market conditions. Future Property Investment Over recent years, PPK’s operations have primarily focused on, and its revenue predominantly derived from, property investment and property development. As previously disclosed, PPK intends to capitalise on a stronger property market cycle, by progressively divesting selected properties at higher quartile prices, with funds realised rotated into identified acquisition opportunities, working capital and continued debt reduction. While the focus of future acquisition activity will be on undervalued businesses in the mining equipment and technology sectors, PPK will continue to monitor property related opportunities which offer discernible value to shareholders, and may selectively invest in such opportunities if identified. FY2015 OUTLOOk It is expected that a continuation of the external market conditions prevailing in FY2014 into the current financial year will provide additional opportunities for PPK to leverage longer-term value for shareholders. From the perspective of the property sector, continuing buoyant conditions should enable the divestment of additional assets at prices nearing the upper quartile. These positive conditions will also benefit the concluding stages and successful completion of PPK’s involvement in the Kiah Willoughby residential development, with as previously outlined should return around $9 million in proceeds to PPK in the current financial year. We expect that proceeds from any additional property asset divestments made in the current financial year, will in line with our stated policy, be used to further reduce group debt levels. The continuing execution of PPK’s growth mandate is firmly predicated on the time honoured and historically proven adage of ‘buy low, sell high’. While it is readily apparent that Australia’s mining cycle is at the lower end of the spectrum, and that in the short term this impacts to some degree on the sale of our existing mining equipment and technology businesses, it also continues to offer PPK GROUP LIMITED11 4 1 O 2 T R O P E R L A U N N A “ It is expected that a continuation of the external market conditions prevailing in FY2014 into the current financial year will provide additional opportunities for PPK to leverage longer-term value for shareholders” 12 an opportunity to acquire class leading mining services assets at prices considered virtually impossible only a few years back. As at the date of this report’s publication, we are continuing to identify and be presented with a range of potential acquisition opportunities. At the current time, PPK holds the decided strategic advantage of ‘cherry picking’ the best of the crop at our chosen price, as there remains limited competition evaluating these opportunities. We continue to monitor opportunities and, as previously foreshadowed, expect to make additional mining equipment and technology acquisitions, and are confident that again they will provide significant value for shareholders. As with all asset cycles, the resource commodities market is historically proven to reach its lowest quartile before entering a concerted upswing phase. PPK’s current and future products are all to some degree targeted at the underground coal market, and in particular metallurgical or coking coal which is used primarily for steel making. The demand and pricing for metallurgical coal has remained far firmer than for thermal coal, used for power generation, and which has undergone a well documented price decline. The CEO of Komatsu Ltd, the world’s second largest manufacturer of building and mining equipment has commented that “the mining equipment market (in China) could be very close to bottoming out and that he expects to see more mining companies seeking quotations for products.” (“Komatsu CEO Flags China Slump as Mining Nears Bottom”. Masumi Suga and Jason Rogers, Bloomberg, Jul 2, 2014 12:15 PM GMT+1000). In September respected industry analysts HDR Salva released a report in which they stated that a massive 23 gigawatts of electricity generating capacity will come on stream in South- East Asia by 2018, requiring about 40 million tonnes of coal. The report also forecast that another 50 gigawatts would come on stream in China and India. HDR Salva believe Australian exporters will be ideally placed to satisfy this demand, particularly as Indonesia’s thermal coal supply growth has slowed this year. The board shares the view that the bottom of the thermal coal cycle maybe nearing and that once this occurs a gradual upswing in coal demand and prices will eventuate. The board and myself are confident that the strategy currently being pursued will ensure PPK is strongly positioned to fully capitalise on the eventual upswing in the global resources market. In FY2015, we anticipate that the physical presence a Chinese head office provides, along with the extensive experience and contacts our Head of Global Mining and President- PPK China Operations have, that our initial export opportunities to this vast market will be unlocked. The opening in FY2014 of our new state-of-the-art service and support centre at Port Kembla, has strengthened our relationship with several key mining customers in that market, and created a strong, recurring revenue stream from servicing and repair work. We are confident that these revenues will at the very least continue as strongly in the current financial year. Before concluding this report, I would like to highlight to shareholders that the other directors, key executive staff members and myself cumulatively hold a 39.95% stake in the company. As such, our personal financial interests, along with the continued successful execution of PPK’s growth strategy, are irrevocably aligned with the future interests of all shareholders. Given our expectations for the current year, and barring any unforseen conditions and events occurring, we expect to maintain dividend payments in FY2015 at levels at least commensurate with those paid in the period under review. I sincerely thank all shareholders for their continued support, and pledge that my endeavours, along with those of other directors and senior executives, will be solely focused on creating sustained, longer-term shareholder value for all those with a vested stake in the company. I also wish to extend a special thanks to all PPK employees for their dedication and diligence over the past year as they have all made a contribution to the undoubted progress made by the group over this time. Robin Levison Executive Chairman PPK GROUP LIMITED13 “ The board and myself are confident that the strategy currently being pursued, will ensure PPK is strongly positioned to fully capitalise on the eventual upswing in the global resources market” ANNUAL REPORT 2O1414 BOARD OF DIRECTORS ROBIN LEVISON CA, MBA, F.A.I.C.D Executive Chairman Robin Levison was appointed to the Board of PPK Group Limited as Executive Chairman on 22 October 2013. Mr Levison joined Industrea Limited in 2005, following a successful career in accountancy and merchant banking. As Managing Director, he implemented and executed a successful growth strategy under which the company’s range of specialist mining and productivity equipment targeting the underground coal mining sector expanded significantly. Through a mix of strong organic growth and strategic acquisitions, Mr Levison oversaw a significant increase in Industrea’s revenue base, and group employee numbers climb to in excess of 1000 people located globally, which eventually led to the company being acquired by General Electric (GE). The company’s products and services were sold extensively to countries including Australia, China, India, Indonesia, Russia, Japan, USA and Chile. Mr Levison holds a Masters of Business Administration from the University of Queensland, is a Chartered Accountant and is a Graduate and Fellow of the Australian Institute of Company Directors. JURY WOWk BA., LLB Non-Executive Deputy Chairman, Independent Director Jury Wowk has been a member of the PPK Group Limited Board since listing on 21 December 1994. He served as Chairman of the Company from 13 September 2011 to 22 October 2013 and was appointed as Deputy Chairman 22 October 2013. He was a Partner of and is currently a consultant to HWL Ebsworth Lawyers and has provided legal services to the PPK Group since 1979. From 1987 to 1989, Mr Wowk performed the role of Operations Manager at Plaspak Pty Ltd. He 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. GLENN MOLLOY Executive Director Glenn Molloy is a substantial shareholder of PPK Group Limited and has been a member of the PPK Group Limited Board since listing on 21 December 1994. He is the founder of the former entity Plaspak Pty Limited in 1979 and was appointed Executive Director in September 2009. Mr 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. Mr Molloy was appointed to the role of Executive Director in September 2009 following the retirement and resignation of David Hoff as Managing Director. I I D E T M L P U O R G K P P RAYMOND BEATH B.Com, F.C.A Non-Executive, Independent Director Raymond Beath has been a member of the PPK Group Limited Board since listing on 21 December 1994 and is currently Chairman of the Audit Committee. He 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. Mr Beath 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. GRAEME WEBB Non-Executive Director Graeme Webb is a substantial shareholder of PPK Group Limited. He is Chairman of EDG Capital Limited and has over 40 years of experience in building, construction and property development undertaking over $200 million of projects during his career to date. In addition, Mr Webb has a broad range of business experience having acted as a director and/or chairman of a number of private and public companies engaged in a range of industries including plastics packaging, merchant banking, aluminium fabrication, glazing and glass toughening. 15 4 1 O 2 T R O P E R L A U N N A 16 EXECUTIVE MANAGEMENT ROBIN LEVISON CA, MBA, F.A.I.C.D Executive Chairman Robin Levison was appointed to the Board of PPK Group Limited as Executive Chairman on 22 October 2013. Mr Levison joined Industrea Limited in 2005, following a successful career in accountancy and merchant banking. As Managing Director, he implemented and executed a successful growth strategy under which the company’s range of specialist mining and productivity equipment targeting the underground coal mining sector expanded significantly. Through a mix of strong organic growth and strategic acquisitions, Mr Levison oversaw a significant increase in Industrea’s revenue base, and group employee numbers climb to in excess of 1000 people located globally, which eventually led to the company being acquired by General Electric (GE). The company’s products and services were sold extensively to countries including Australia, China, India, Indonesia, Russia, Japan, USA and Chile. Mr Levison holds a Masters of Business Administration from the University of Queensland, is a Chartered Accountant and is a Graduate and Fellow of the Australian Institute of Company Directors. GLENN MOLLOY Executive Director Glenn Molloy is a substantial shareholder of PPK Group Limited and has been a member of the PPK Group Limited Board since listing on 21 December 1994. He is the founder of the former entity Plaspak Pty Limited in 1979 and was appointed Executive Director in September 2009. Mr 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. Mr Molloy was appointed to the role of Executive Director in September 2009 following the retirement and resignation of David Hoff as Managing Director. DALE MCNAMARA Director – Global Mining Dale McNamara has more than 30 years experience in operational and management roles in the coal mining industry in Australia and China. He founded Wadam Industries, a subsidiary of ASX Listed Industrea Ltd, and served as its Managing Director from 1993. He was then appointed as Deputy Chief Executive Officer of Industrea in 2009. Following the takeover of Industrea in November 2012 Dale assumed the position of Global Director, Mining with the new owner. I I D E T M L P U O R G K P P ZHANG JINPING President — PPK China Operations Zhang Jinping graduated from China Henan Polytechnic University with a Mining bachelor degree and has 30 years experience in underground coal mining operations in China. He was a senior employee of China Coal Research Institute for 12 years and Chief Representative based in Beijing, China for both Wadam Industries and Industrea for 18 years. Mr Zhang has a significant understanding of the Chinese coal sector and the major participants active in that market. PETER BARkER Chief Financial Officer Peter Barker joined PPK Group as CFO on 1 July 2014. Having worked and lived in multiple countries in Europe, Asia and North America, he brings extensive domestic and international experience to PPK. Immediately prior to returning to Australia to join PPK he was in Hong Kong with a privately held technology group. Before this Peter was the CFO of Computershare Ltd from 2009 to 2013. Peter is a Fellow of CPA Australia and holds an MBA and B.Comm. 17 4 1 O 2 T R O P E R L A U N N A 18 CORPORATE GOVERNANCE STATEMENT This statement has been approved by the Board of the Company. The statement has been prepared as at 22 September 2014 with reference to the 3rd Edition of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations. PRINCIPLE 1: LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT RECOMMENDATION 1.1 A listed entity should disclose: (e) review performance of senior staff (if any); (f) review financial performance against Key Performance Indicators on a quarterly basis; (g) approve acquisition and disposal of assets, products and technology; (h) approve operating budgets, capital, development and other large expenditures; (i) review risk management and compliance; (j) oversee the integrity of the Company’s control and (a) the respective roles and responsibilities of its Board accountability systems; and management; and (b) those matters expressly reserved to the Board and those delegated to management The Board of Directors has been charged by shareholders with overseeing the affairs of the Company to ensure that they are conducted appropriately and in the interests of all shareholders. The Board defines the strategic goals and objectives of the Group, as well as broad issues of policy and establishes an appropriate framework of Corporate Governance within which the Board members and management must operate. The Board reviews and monitors management and the Group’s performance. The Board has also taken responsibility for establishing control and accountability systems/processes and for monitoring senior executive performance and implementation of strategy. The roles and responsibilities of the Board have been set out in a Board charter which is available on the Company’s website. Amongst other things the Board charter sets out the role and responsibility of the chair of the Board. The Board has specifically identified the following matters for which it will be responsible: (a) reviewing and determining the Company’s strategic direction and operational policies; (b) review and approve business plans, budgets and forecasts and set goals for management; (c) overseeing management’s implementation of the Company’s strategic objectives and its performance generally; (d) appoint and remunerate senior staff (if any); (k) Oversee the Company’s processes for making timely and balanced disclosure of all material information concerning it that a reasonable person would expect to have a material effect on the price or value of the Company’s shares; (l) reporting to shareholders; (m) ensure compliance with environmental, taxation, Corporations Act and other laws and regulations; and (n) monitoring the effectiveness of the Company’s governance practices. Management is charged with the day to day running and administration of the Company consistent with the objectives and policies as set down by the Board. Within this framework, the Executive Chairman is directly accountable to the Board for the performance of the management team. RECOMMENDATION 1.2 A listed entity should: (a) undertake appropriate checks before appointing a person, or putting forward to security holders a candidate for election, as a Director; and (b) provide security holders with all material information in its possession relevant to a decision whether or not to elect or re-elect a Director. The Company does undertake checks before it appoints a person, or puts forward to shareholders a new candidate for election, as a Director. These checks include references as to the person’s character, experience and education. The Company does not propose to check criminal records or I I D E T M L P U O R G K P P 19 the bankruptcy history for potential new Board members however may consider such checks where necessary or appropriate in the future. The Company will include all material information in its possession relevant to a decision whether or not to elect or re-elect a Director in the relevant Notice of Meeting. Information relating to each of the Directors is also provided on the Company’s website. RECOMMENDATION 1.3 A listed entity should have a written agreement with each Director and senior executive setting out the terms of their appointment. The Company has not established written agreements with its non-executive directors which set out the terms of their appointment. Accordingly the appointment of Directors is governed by the relevant provisions of the Company’s Constitution. Directors are not appointed for a fixed term but are, excluding any Managing Director, subject to re-election by shareholders at least every three years in accordance with the Constitution of the Company. A Director appointed to fill a casual vacancy or as an addition to the Board, only holds office until the next general meeting of shareholders and must then retire. After providing for the foregoing, one-third of the remaining Directors (excluding the Managing Director) must retire at each Annual General Meeting of shareholders. The Company does maintain written agreements with each of its executive directors and with senior executives which set out the terms of their appointment. RECOMMENDATION 1.4 The Company Secretary of a listed entity should be accountable directly to the board, through the chair, on all matters to do with the proper functioning of the board. The Company Secretary has been appointed on the basis that he will be accountable directly to the Board, through the chair, on all matters to do with the proper functioning of the Board. All Directors of the board have access to the Company Secretary who is appointed by the Board. The Company Secretary reports to the Chairman, in particular to matters relating to corporate governance. RECOMMENDATION 1.5 A listed entity should: (a) have a diversity policy which includes requirements for the board or a relevant committee of the Board to set measurable objectives for achieving gender diversity and to assess annually both the objectives and the entity’s progress in achieving them; (b) disclose that policy or a summary of it; and (c) disclose as at the end of each reporting period the measurable objectives for achieving gender diversity set by the board or a relevant committee of the Board in accordance with the entity’s diversity policy and its progress towards achieving them, and either: (1) the respective proportions of men and women on the Board, in senior executive positions and across the whole organisation (including how the entity has defined “senior executive” for these purposes); or (2) if the entity is a “relevant employer” under the Workplace Gender Equality Act, the entity’s most recent “Gender Equality Indicators”, as defined in and published under that Act. The Company has established a Diversity Policy Statement which is available on the Company’s website. PPK is committed to an inclusive workplace that embraces and promotes diversity. The Company believes that the promotion of diversity on its Board and within the organisation generally is good practice. Diversity at PPK refers to all the characteristics that make individuals different from each other. It includes characteristics or factors such as religion, race, ethnicity, language, gender, sexual orientation, disability, age or any other area of potential difference. PPK values the unique contributions made by people with diverse backgrounds, experiences and perspectives, and believes that greater diversity of thought throughout the organisation will lead to more informed decision making and ultimately better business outcomes. The Company’s policy is to recruit and manage its employees on the basis of their competence, performance and potential, regardless of the individual’s background or points of difference. Diversity at PPK is about the commitment to equality and the treating of all individuals with respect. The Company is committed to promoting a culture of diversity in the workplace by: • recruiting and managing on the basis of an individual’s competence and performance; • respecting the unique attributes that each individual brings to the workplace; • fostering an inclusive and supportive culture to enable people to develop to their full potential; • taking action to prevent and stop bullying, discrimination or harassment; • rewarding and remunerating fairly; • offering flexible work practices which recognise that employees may have different domestic responsibilities throughout their career; • maintaining policies and procedures to provide employees at all levels of the Company with guidelines for behaviour. ANNUAL REPORT 2O1420 Our commitment to diversity forms part of our culture dedicated to retaining the best qualified employees, management and Board. Our commitment applies in all phases of employee engagement including recruitment, selection, development, promotion, rewards and remuneration. The Board acknowledges the benefits of and will seek to achieve diversity during the process of employment at all levels without detracting from the principal criteria for selection and promotion of people to work within the Company based on merit. The measurable objectives for achieving gender diversity will be appropriate for the size and nature of the Company and may include initiatives and programs and/or targets in respect of: • the number of women on the Board; • the number of women employed by the Company; • the nature of the roles in which women are employed, including on full time, part time or contracted bases, and in leadership, management, professional speciality or supporting roles. At 30 June 2014: • there were no women on the Board of PPK; • there were 10 women employed by the Company; • women within the PPK organisation were predominantly employed in full time administrative roles. RECOMMENDATION 1.6 A listed entity should: (a) have and disclose a process for periodically evaluating the performance of the Board, its committees and individual Directors; and (b) disclose, in relation to each reporting period, whether a performance evaluation was undertaken in the reporting period in accordance with that process. The Board has adopted an on-going, self-evaluation process to measure its own performance and the performance of its committee and individual directors. The process of evaluation is set out in detail and available on the Company’s website. The Executive Chairman together with the Deputy Chairman meet periodically with individual directors to discuss the performance of the Board and the director. In addition, an evaluation is undertaken by the Executive Chairman together with the Deputy 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. The Board believes that this approach is appropriate given its size and the nature of the Company’s operations. No formal evaluation was undertaken in the reporting period ended 30 June 2014. RECOMMENDATION 1.7 A listed entity should: (a) have and disclose a process for periodically evaluating the performance of its senior executives; and (b) disclose, in relation to each reporting period, whether a performance evaluation was undertaken in the reporting period in accordance with that process. The Board is responsible for approving the performance objectives and measures for executive directors and assessing whether these objectives have been satisfied by the performance of the executive directors during the relevant period and in accordance with agreed terms of engagement. The Executive Chairman 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 management regarding the group financial performance and forecasted results, presentations and operational reports, and the achievement of predetermined performance objectives. PRINCIPLE 2: STRUCTURE THE BOARD TO ADD VALUE RECOMMENDATION 2.1 The Board of a listed entity should: (a) have a nomination committee which: (1) has at least three members, a majority of whom are independent Directors, and (2) is chaired by an independent director; and disclose (3) the charter of the committee (4) the members of the committee; and (5) as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) if it does not have a nomination committee, disclose that fact and the processes it employs to address Board succession issues and to ensure that the Board has the appropriate balance of skills, knowledge, experience, independence and diversity to enable it to discharge its duties and responsibilities effectively. Due to the size of the Company and the number of Board members, the Board does not have a formal nomination committee. Any new Directors will be selected according to the needs of the Company at that particular time, the composition and the balance of experience on the Board as well as the strategic direction of the Company. Where PPK GROUP LIMITEDa vacancy arises or it is considered appropriate to vary the composition of the Board of Directors, the full Board generally participates in any review of the Board’s composition and the qualifications and experience of candidates. Directors are selected upon the basis of their specialist skills and business background so as to provide an appropriate mix of skills, perspective and business experience. At each annual general meeting, the following Directors retire: i. one third of Directors (excluding the Managing Director or Chief Executive Officer, if he/she is a Director, if any); ii. Directors appointed by the Board to fill casual vacancies or (i) Directors are entitled to seek independent professional advice at the Company’s expense. Prior written approval of the Chairman is required but this is not unreasonably withheld. (ii) Directors having a conflict of interest with an item for discussion by the Board must absent themselves from a Board meeting where such item is being discussed before commencement of discussion on such topic. 21 Details of each Directors experience and length of service can be found on the Company’s website and are reported in the Company’s Financial Report on an annual basis. otherwise; and RECOMMENDATION 2.4 iii. Directors who have held office for more than three years since the last general meeting at which they were elected. A majority of the Board of a listed entity should be independent Directors. RECOMMENDATION 2.2 A listed entity should have and disclose a Board skills matrix setting out the mix of skills and diversity that the Board currently has or is looking to achieve in its membership. The Board does review its composition from time to time taking into account the length of service on the Board, age, qualification and experience, any requirements of the Company’s constitution, and in light of the needs and direction of the Company, together with such other criteria considered desirable for composition of a balanced Board and the overall interests of the Company. A Director is expected to resign if the remaining Directors recommend that a Director should not continue in office, but is not obliged to do so. Details of each Directors experience and length of service can be found on the Company’s website and are reported in the Company’s Financial Report on an annual basis. RECOMMENDATION 2.3 A listed entity should disclose: (a) the names of the directors considered by the Board to be independent Directors; (b) if a director has an interest, position, association or relationship of the type described in Box 2.3 but the Board is of the opinion that it does not compromise the independence of the director, the nature of the interest, position, association or relationship in question and an explanation of why the Board is of that opinion; and (c) the length of service of each Director. The PPK Board is currently comprised of 5 directors of whom Mr Jury Wowk, Mr Ray Beath and Mr Glenn Webb are considered to be independent directors. Mr Robin Levison is the Executive Chairman and accordingly is not considered to be an independent director. Mr Glenn Molloy is also an executive director and accordingly is not considered to be an independent director. In addition, the Board has adopted a series of safeguards to ensure that independent judgement is applied when considering the business of the Board: The PPK Board is currently comprised of 5 directors, a majority of whom are independent directors. RECOMMENDATION 2.5 The chair of the Board of a listed entity should be an independent Director and, in particular, should not be the same person as the CEO of the entity. The Executive Chairman Mr Robin Levison is not considered to be an independent director due to his executive responsibilities and accordingly the Company does not comply with this recommendation. The Board considers that Mr Levison has an outstanding track record of successfully expanding mining services businesses both organically and via acquisitions and accordingly believes that it is appropriate for him to lead PPK’s future strategic direction which is focused on mining services activities. The Deputy Chairman Mr Jury Wowk, is considered to be an independent director. As Mr. Levison is Executive Chairman and the Company does not have a Managing Director or Chief Executive Officer the roles of chair and its chief executive officer are exercised by the same individual and accordingly the Company does not comply with this recommendation. As stated above, the Board considers that Mr Levison has an outstanding track record of successfully expanding mining services businesses both organically and via acquisitions and accordingly believes that it is appropriate for him to lead PPK’s future strategic direction which is focused on mining services activities. Before joining PPK Mr Levison had been the Managing Director of Industrea Limited following a successful career in accountancy and merchant banking. As Managing Director of Industrea, he implemented and executed a successful growth strategy under which the company’s range of specialist mining and productivity equipment targeting the underground coal mining sector expanded significantly. The Board considers that Mr. Levison is well placed to lead PPK with the objective of achieving similar success through a mix of organic growth and strategic acquisitions. The Board considers that Mr Levison is uniquely qualified to lead PPK as he holds a Masters of Business Administration from the University of Queensland, is a Chartered Accountant and is a Graduate and Fellow of the Australian Institute of Company Directors. ANNUAL REPORT 2O14RECOMMENDATION 2.6 A listed entity should have a program for inducting new Directors and provide appropriate professional development opportunities for Directors to develop and maintain the skills and knowledge needed to perform their role as Directors effectively 22 The Company provides new Directors with an induction package including copies of the Board Charter and relevant policies and procedures. 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. Directors are encouraged to pursue appropriate professional development opportunities to develop and maintain their skills and knowledge in order to perform their role as Directors effectively. 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. All Board members have access to professional independent advice at the Company’s expense, provided they first obtain the Chairman’s approval, with such approval not being withheld unreasonably. PRINCIPLE 3: ACT ETHICALLY AND RESPONSIBLY RECOMMENDATION 3.1 A listed entity should: (a) have a code of conduct for its Directors, senior executives and employees; and (b) disclose that code or a summary of it. 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 a Code of Conduct for Directors and Executives. In summary, these Codes provide 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; • use the powers of their position for a proper purpose, in the interests of the Company; The Company will investigate any concerns raised in a manner 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. PRINCIPLE 4: SAFEGUARD INTEGRETY IN CORPORATE REPORTING RECOMMENDATION 4.1 The Board of a listed entity should: (a) have an audit committee which: (1) has at least three members, all of whom are non executive Directors and a majority of whom are independent Directors; an (2) is chaired by an independent Director, who is not the chair of the Board, and disclose: (3) the charter of the committee; (4) the relevant qualifications and experience of the members of the committee; and (5) in relation to each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or • not make improper use of information acquired in their (b) if it does not have an audit committee, disclose that 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. fact and the processes it employs that independently verify and safeguard the integrity of its corporate reporting, including the processes for the appointment and removal of the external auditor and the rotation of the audit engagement partner. The Company has established an audit committee which is comprised of Mr. Ray Beath and Mr. Jury Wowk. Due to the small size of the Company and the number of Board members, the committee is not comprised of three members. Mr. Ray Beath acts as Chairman of the audit committee. Mr. Beath is an independent Director and not the Chair of the Board. Mr. Wowk is also an independent Director. PPK GROUP LIMITEDThe Board has established Terms of Reference for the Audit Committee. The Terms of Reference set out in detail the purpose, composition and membership, meeting procedures, roles and responsibilities of the committee and the authorities of the committee. The Terms of Reference are available on the Company’s website. Details relating to the relevant qualifications and experience of the members of the committee and the number of times the committee met throughout the reporting period and the individual attendances of the members at those meetings are set out on an Annual Basis in the Directors Report contained in the Company’s Year End Financial Report which is released to the market and posted on the Company’s website. RECOMMENDATION 4.2 The Board of a listed entity should, before it approves the entity’s financial statements for a financial period, receive from its CEO and CFO a declaration that, in their opinion, the financial records of the entity have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the entity and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively. The Company’s Executive Chairman and Chief Financial Officer will report in writing to the Board on a yearly and half-yearly basis to confirm that: (i) the financial records of the entity have been properly maintained and that the financial statements comply with the appropriate accounting standards; (ii) the Company’s financial statements are complete and present a true and fair view, in all material respects, of the financial condition and performance of the Company; and (iii) the above statement is founded on a sound system of internal control and risk management which implements the policies adopted by the Board and that the Company’s risk management and internal controls are operating effectively in all material respects. RECOMMENDATION 4.3 A listed entity that has an AGM should ensure that its external auditor attends its AGM and is available to answer questions from security holders relevant to the audit. The Company’s external auditor attends the AGM and is available to answer questions from shareholders relevant to the audit. PRINCIPLE 5: MAkE TIMELY AND BALANCED DISCLOSURE RECOMMENDATION 5.1 A listed entity should: (a) have a written policy for complying with its continuous disclosure obligations under the Listing Rules; and (b) disclose that policy or a summary of it. The PPK Board is committed to keeping its shareholders, and the market, fully informed of major developments having an impact on the Company. The Company has a Market Disclosure Policy which is available on the Company’s website. 23 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. PRINCIPLE 6: RESPECT THE RIGHTS OF SECURITY HOLDERS RECOMMENDATION 6.1 A listed entity should provide information about itself and its governance to investors via its website. Information about the Company and its governance are available on the Company’s website. The Company’s website provides detailed corporate information and has a specific section relating to corporate governance. RECOMMENDATION 6.2 A listed entity should design and implement an investor relations program to facilitate effective two-way communication with investors. 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. The Company has a formal Shareholder Communication Policy which is available on the Company’s website. PPK communicates information to shareholders through: • disclosures to the ASX including the Company’s Annual Report; • notices and explanatory memoranda of annual general meetings and general meetings; and • the Company’s website at www.ppkgroup.com.au It is the Company’s communication policy to communicate with shareholders and other stakeholders in an open, regular and timely manner so that the market has sufficient information to make informed investment decisions on the operations and results of the Company. Investors and other stakeholders are invited to subscribe to an email alert facility on the Company’s website so that they can receive material announcements which have been released by the Company to the market via an email in a timely manner. ANNUAL REPORT 2O14RECOMMENDATION 6.3 A listed entity should disclose the policies and processes it has in place to facilitate and encourage participation at meetings of security holders. 24 The Board encourages active participation by shareholders at each Annual General Meeting, or other general meetings of the Company. The Company does not have formal policies or process in place to facilitate or encourage participation at shareholder meetings. The Company will despatch a Notice of Meeting and Explanatory Statement to shareholders in accordance with statutory requirements. In addition details of any shareholder meeting will be posted on the Company’s website. At any meeting of shareholders, shareholders will be encouraged to ask questions of the Board of Directors in relation to the matters to be considered at such meeting and where appropriate relating to the operation of the Company. RECOMMENDATION 6.4 A listed entity should give security holders the option to receive communications from, and send communications to, the entity and its security registry electronically. The Company provides shareholders with the option to receive communications from, and send communications to, the entity and its security registry electronically. PRINCIPLE 7: RECOGNISE AND MANAGE RISk RECOMMENDATION 7.1 The Board of a listed entity should: (a) have a committee or committees to oversee risk, each of which: (1) has at least three members, a majority of whom are independent Directors; and (2) is chaired by an independent director, and disclose: (3) the charter of the committee; (4) the members of the committee; and (5) as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) if it does not have a risk committee or committees that satisfy (a) above, disclose that fact and the processes it employs for overseeing the entity’s risk management framework. The Board of PPK has established a Risk Oversight and Management Framework. In accordance with this framework the Board of PPK: • recognises that effective management of risk is an integral part of good management and vital to the continued growth and success of PPK; • is responsible for the oversight of the group’s risk management and control framework including the development of risk profiles as a part of the overall business and strategic planning process; and • has implemented policies 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. RECOMMENDATION 7.2 The Board or a committee of the Board should: (a) review the entity’s risk management framework at least annually to satisfy itself that it continues to be sound; and (b) disclose, in relation to each reporting period, whether such a review has taken place. The PPK Risk Management and Control Policy Framework 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 group’s risk management and control practices. The Executive Chairman 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 Chairman and the Chief Financial Officer and relevant senior executives 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 Chief Financial Officer 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 Chairman 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. The Executive Chairman 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 2014. PPK GROUP LIMITED25 RECOMMENDATION 7.3 A listed entity should disclose: (a) if it has an internal audit function, how the function is structured and what role it performs; or (b) if it does not have an internal audit function, that fact and the processes it employs for evaluating and continually improving the effectiveness of its risk management and internal control processes. In light of the nature and extent of the Company’s operations and activities, the Company has not established an internal audit function. The Board continuously reviews the activities of the Group to identify key business and operational risks and, where possible, will implement policies and procedures to address such risks and where approval to establish appropriate internal control processes. The Board is provided with regular reporting on the management of operations and the financial condition of the Company aimed at ensuring that risks are identified, assessed and appropriately managed as and when they arise. RECOMMENDATION 7.4 A listed entity should disclose whether it has any material exposure to economic, environmental and social sustainability risks and, if it does, how it manages or intends to manage those risks. In light of the nature and extent of the Company’s operations its business activities have limited sustainability implications at this stage of its business strategy. PRINCIPLE 8: REMUNERATE FAIRLY AND RESPONSIBLY RECOMMENDATION 8.1 The Board of a listed entity should: RECOMMENDATION 8.2 A listed entity should separately disclose its policies and practices regarding the remuneration of non-executive Directors and the remuneration of executive Directors and other senior executives. 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 surveys undertaken of other public companies similar in size or market section to PPK is taken into account. Non-executive directors of PPK are: • not entitled to participate in performance based remuneration practices unless approved by shareholders; and • 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 Chairman, the Executive Director and senior executives is conducted on a regular basis by the full Board 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. (a) have a remuneration committee which: RECOMMENDATION 8.3 (1) has at least three members, a majority of whom are independent Directors; and A listed entity which has an equity-based remuneration scheme should: (2) is chaired by an independent director, and disclose: (3) the charter of the committee; (4) the members of the committee; and (5) as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) if it does not have a remuneration committee, disclose that fact and the processes it employs for setting the level and composition of remuneration for Directors and senior executives and ensuring that such remuneration is appropriate and not excessive. The PPK Board has not established a formal Remuneration Committee as PPK is a relatively small publicly listed company and remuneration matters relating to executive Directors and Senior Executives are considered by the full Board where appropriate. (a) have a policy on whether participants are permitted to enter into transactions (whether through the use of derivatives or otherwise) which limit the economic risk of participating in the scheme; and (b) disclose that policy or a summary of it. The Company is in the process of implementing Employee Share Incentive Schemes. The Company has not yet established a formal policy on whether participants are permitted to enter into transactions (whether through the use of derivatives or otherwise) which limit the economic risk of participating in the scheme. The Corporations Act prohibits the key management personnel of an ASX listed company established in Australia, or a closely related party of such personnel, from entering into an arrangement that would have the effect of limiting their exposure to risk relating to an element of their remuneration that either has not vested or has vested but remains subject to a holding lock. ANNUAL REPORT 2O1426 PPK GROUP LIMITED2014 FINANCIAL REPORT 27 28 Directors’ Report 41 Auditor’s Independence Declaration 42 Consolidated Statement of Profit or Loss and Other Comprehensive Income 43 Consolidated Statement of Financial Position 44 Consolidated Statement of Cash Flows 45 Consolidated Statement of Changes in Equity 46 Notes to the Accounts 84 Directors’ Declaration 85 Independent Auditor’s Report 88 Shareholder Information 4 1 O 2 T R O P E R L A U N N A 28 DIRECTORS’ REPORT Your directors present their report on the parent entity and its subsidiaries for the financial year ended 30 June 2014. DIRECTORS The names of directors in office at any time during or since the financial year are: Robin Levison (appointed: 22 October 2013) Jury Ivan Wowk Glenn Robert Molloy Raymond Michael Beath Graeme Douglas Webb David Alfred Hoff (alternate for Raymond Beath: 5 February 2013 to 7 July 2013) Directors have been in office since the start of the financial year to the date of this report unless otherwise stated. INFORMATION ON DIRECTORS Details of the current directors’ qualifications, experience and responsibilities are detailed below: Robin Levison CA MBA FAICD (Age 56) Executive Chairman, Appointed Executive Chairman of the PPK Group Limited Board on 22 October 2013. Robin Levison holds a Masters of Business Administration from the University of Queensland and is a Member of the Institute of Chartered Accountants in Australia. Robin has 14 years of public company management experience. During this time he has served as Managing Director at Industrea Limited and Spectrum Resources Limited and has held senior roles at KPMG, Barclays Bank and Merrill Lynch. Robin is also Deputy Chair of the University of Queensland Business, Economics and Law Alumni Ambassador Council, Director of St Aidan’s Foundation Limited and is a Graduate and Fellow of Australian Institute of Company Directors. Other listed public company directorships held in the last 3 years: Industrea Limited, Managing Director and Chief Executive Officer (Appointed: May 2005; Ceased: December 2012) Eureka Group Holdings Limited, Non-executive Director & Chairman (Appointed: 24 December 2013) Jury Wowk BA., LLB (age 63) Non-Executive Deputy Chairman, Independent Director Member of the PPK Group Limited Board since listing on 21 December 1994 Chairman from 13 September 2011 to 22 October 2013. Appointed Deputy Chairman 22 October 2013. 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 1979. From 1987 to 1989, Jury performed the role of Operations Manager at Plaspak Pty Ltd. 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. I I D E T M L P U O R G K P P Other listed public company directorships held in the last 3 years: Frigrite Limited, Non-executive Director (Appointed: 22 September 2010; Ceased: 29 November 2011) Intelligent Solar Limited, Non-executive Director (Appointed: 30 November 2010; Ceased 15 December 2011) 29 Glenn Molloy (Age 59) Executive Director 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. Glenn was appointed to the role of Executive Director in September 2009 following the retirement and resignation of David Hoff as Managing Director. Other listed public company directorships held in the last 3 years: SubZero Group Limited, Non-executive Director (Appointed 10 April 2013; Ceased 25 November 2013), Chairman (Appointed 10 April 2013; ceased 31 July 2013) Raymond Beath B.Com, F.C.A (Age 64) 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. Other listed public company directorships held in the last 3 years: Nil Graeme Webb (Age 63) Non-Executive Director Graeme Webb is a substantial shareholder of PPK Group Limited. Graeme is Chairman of EDG Capital Limited and has over 40 years of experience in building, construction and property development undertaking over $200 million of projects during his career to date. In addition, Graeme has a broad range of business experience having acted as a director and/or chairman of a number of private and public companies engaged in a range of industries including plastics packaging, merchant banking, aluminium fabrication, glazing and glass toughening. Other listed public company directorships in the last 3 years: Nil David Hoff (65) Alternate Non-Executive Director for Raymond Beath from 5 February 2013 to 7 July 2013 David Hoff was appointed as an alternate Director for Raymond Beath while Mr Beath was on leave from 5 February to 7 July 2013. Mr Hoff has a long history of association with the Company and was previously a Director of the company for 9 years until his retirement in 2009. David has international experience in the packaging industry, the mining industry and real estate development. Other listed public company directorships in the last 3 years: Nil ANNUAL REPORT 2O1430 INFORMATION ON COMPANY SECRETARY Andrew J. Cooke LL.B, FCIS (Age 54) Group Company Secretary Andrew Cooke was appointed as Group Company Secretary on 9 May 2012. Andrew has extensive experience in law, corporate finance and as the Company Secretary of a number of ASX listed companies. He is responsible for corporate administration together with stock exchange and regulatory compliance. PRINCIPAL ACTIVITIES The principal activities of the consolidated entity during the financial year were the: • design, manufacture, distribution and servicing of underground mining equipment; • property ownership and management; and • investment in publicly listed and privately held businesses. There were no other significant changes in the nature of the consolidated entity’s principal activities during the financial year. OPERATING RESULTS The profit after tax of the consolidated entity for the period ended 30 June 2014 amounted to $2,951,000 (2013: Profit of $2,748,000). DIVIDENDS PAID OR RECOMMENDED Dividends paid or recommended for payment are as follows: Interim dividend in respect of the reporting period of 1.5 cents per ordinary share paid on 9 May 2014. A final dividend on respect of the reporting period of 2.0 cents per ordinary share will be paid on 10 November 2014. $1,089,000 $1,453,000 Both dividends are fully franked. REVIEW OF OPERATIONS The review of operations is outlined in the Executive Chairman’s Report set out on pages 6 to 12 and which forms part of this report. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS • Acquisition of COALTRAMS In March 2014 the Group completed the acquisition of the COALTRAMS business. The acquisition represents a strong cornerstone from which the Group can achieve the continued expansion of the Group’s manufacturing and service operations through future acquisitions and organic growth. The $13 million cost of acquisition was settled in cash. • Issue of Share Capital In April 2014 the Group issued 6,509,065 shares as part of a capital raising plan to fund the acquisition of COALTRAMS. Proceeds from the 75 cents per share issue were $4,881,799, each share has the same terms and conditions as the existing ordinary shares. PPK GROUP LIMITED • Issue of Shares under a Share and Loan Plans 31 On 28 April 2014 shares totalling 15,500,000 were issued to key Senior Executives. The shares were issued at 70 cents each and each parcel was fully funded by a limited recourse loan for a term of 3 years at an initial interest rate of 6.45%. Since issue $232,500 has been recorded as payment for those shares, being the interim dividend entitlement in respect of those shares paid on 9th May 2014. Under the applicable Accounting Standards, the Share and Loan Plans gave rise to a share-based payment expense totalling $1,329,900. • On-Market Buy-Back Scheme During the reporting period, PPK had in place an on-market buy-back scheme which commenced on 10 December 2012 and concluded on 9 December 2013 and pursuant to which a total of 125,938 shares were bought back in the financial year ended 30 June 2014 for a total consideration of $56,007. There have been no other significant changes in the state of affairs during the 2014 financial year or existing at the time of this report. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR Completion of the MONEx acquisition occurred on 28 August 2014 with 50% of the $2.8 million purchase price paid up- front with the balance payable over 12 equal monthly instalments. 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 2014 are included in the Executive Chairman’s Review set out on pages 6 to 12 and which forms part of this report. ENVIRONMENTAL ISSUES PPK remains committed to: • the effective management of environmental issues having the potential to impact on its businesses; and • minimising the consumption of resources utilised by its operations. 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. 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. ANNUAL REPORT 2O1432 REMUNERATION REPORT (AUDITED) The Directors of PPK present the Remuneration Report for non-executive directors, executive directors and other key management personnel, prepared in accordance with the Corporations Act 2001 and the Corporations Regulations 2001. 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. The PPK Board believes the remuneration policy to be appropriate and effective in its ability to attract, retain and motivate directors and executives of high quality and standard to manage the affairs of the consolidated entity, as well as, create goal congruence between directors, executives and shareholders. 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. 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 high 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; • the performance of the Company or consolidated entity during the relevant period; and • the broad remuneration policy of the consolidated entity. Senior executives and executive directors may receive bonuses based on the achievement of specific goals of the consolidated entity. 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 shares or options to executives as a means of long-term incentive to encourage the alignment of personal and shareholder interests. PPK GROUP LIMITEDOn 28 April 2014 a General Meeting of Shareholders approved the issue of 15,500,000 shares to key management personnel. The shares were issued to each of the Senior Executives as a parcel of “sign-on” shares at an issue price of 70 cents per share under a Share and Loan Plan in which the Group agreed to fully fund the acquisition of each parcel of plan shares by way of a limited recourse loan for a term of 3 years at an initial interest rate of 6.45% per annum. 33 The primary objectives of the Share and Loan Plan are to: • align the interests of the Senior Executives with the interests of the Group and its shareholders and other stakeholders by rewarding their performance with the delivery of sustainable shareholder value; • motivate and retain the services of the Senior Executives; • ensure that the Senior Executives’ remuneration is competitive and aligned with remuneration in the Australian mining services market; and • encourage the performance and growth the Mining Services Division of the Group. Details of the Share and Loan Plans issue are disclosed in the table below. Senior Executive Plan Shares Loan Amount Share-based payment Robin Levison Dale McNamara Zhang Jinping Total 7,500,000 4,000,000 4,000,000 $5,250,000 $2,800,000 $2,800,000 $643,500 $343,200 $343,200 15,500,000 $10,850,000 $1,329,900 The following is a summary of the key terms and conditions of each Share and Loan Plan: • Interest is payable on the loan at the benchmark interest rate from time to time determined under section 136 of the Fringe Benefits Tax Assessment Act 198. Interest accrues monthly but any unpaid interest is capitalised at 6 monthly intervals. • The shares rank equally with other ordinary shares on issue with respect to dividends, distribution or return of capital. The Group may in its absolute discretion set off against the outstanding balance of any loan and accrued interest any amount that is required to be paid in cash in respect of Plan Shares, including any dividends, distribution or return of capital, net of any tax payable on that amount. • Limited Recourse: if the Senior Executive fails to repay the outstanding loan balance in accordance with the Plan, they are under no obligation to repay the full amount of the Outstanding Loan Balance and the Group must accept the net proceeds of the sale or buy-back of the Plan Shares in full satisfaction of the Outstanding Loan Balance. Under the applicable Accounting Standards, the Plans gave rise to a share-based payment expense which were measured by reference to the fair value of the Plan Shares as at the date on which the Share Plan Resolutions were passed. As the Plan Shares were acquired by way of limited recourse loans the fair value of the Plan Shares were measured using an option pricing model in accordance with the Accounting Standard. The fair value of each share issued under the share loan plan at the date of shareholder approval was $0.0858. The company has recognised an after tax, non-cash share-based payment of $1,329,900 during the financial year with a corresponding credit to Shareholders’ Equity in the form of a Share Option Reserve. The treatment of the Plan Shares under the applicable Accounting Standards as options requires that the value of the loans and issue price of the shares are not recorded as Loans Receivables or Share Capital of the Group until repayment or part repayment of the loans occurs. The Plan Shares were entitled to dividends totalling $232,500 from the dividend paid on 9 May 2014. This amount was applied to reduce the loans and increase Share Capital in accordance with both the Plan rules and applicable Accounting Standards. 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. ANNUAL REPORT 2O1434 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 Year-end share price Shareholder return (annual) 2014 2013 2012 4.8 3.5 $0.66 58% 4.7 3.5 $0.44 25% 2.9 1.0 $0.38 30% 2011 (4.5) 2.5 $0.30 (17%) 2010 1.3 2.5 $0.39 45% The above table shows the annual returns to shareholders calculated to include the difference in percentage terms between the dividend yield for the year (based on the average share price during the period) and changes in the price at which shares in the Company are traded between the beginning and the end of the relevant financial year. Details of Remuneration for the year ended 30 June 2014 DIRECTORS’ AND OTHER kEY MANAGEMENT PERSONNEL REMUNERATION Details of the nature and amount of each element of the remuneration of each key management personnel (‘KMP”) of PPK Group Limited are shown in the table below: 2014 SHORT TERM INCENTIVES POST EMPLOY- MENT LONG TERM INCENTIVES/BENEFITS Salary& Fees ($) Short Term Incentive Cash Bonus ($) Non- Cash Benefits ($) Super- annuation ($) Long Service Leave Post Employment Benefits ($) Share Based Payments ($) Proportion of Remuneration Performance Related (%) Total ($) Directors Non –Executive J I Wowk R M Beath GD Webb Executive R Levison G R Molloy Total Directors 197,871 30,000 30,000 200,500 145,500 603,871 Other Key Management Personnel D A Hoff D McNamara Z Jinping Total other 130,000 86,666 70,666 287,332 Total Key Management Personnel 891,203 - - - - - - - - - - - - - - - - - - - - - - - - - 3,469 - 3,469 - 1,542 1,542 3,084 6,553 - - - - - - - - - - - - - - 197,871 30,000 30,000 643,500 - 847,469 145,500 643,500 1,250,840 - 343,200 343,200 686,400 130,000 431,408 415,408 976,816 - 1,329,900 2,227,656 2014 Directors Non –Executive J I Wowk R M Beath GD Webb Executive R Levison G R Molloy Total Directors Other Key Management Personnel D A Hoff D McNamara Z Jinping Total other Total Key Management Personnel 197,871 30,000 30,000 200,500 145,500 603,871 130,000 86,666 70,666 287,332 891,203 POST EMPLOY- MENT SHORT TERM INCENTIVES LONG TERM INCENTIVES/BENEFITS Salary& Short Term Incentive Non- Cash Super- Long Employment Post Share Based Fees Cash Bonus Benefits annuation Service Benefits Payments ($) ($) ($) ($) Leave ($) ($) Total ($) Proportion of Remuneration Performance Related (%) - - - - - - - - - - - - - - - - - - - - - - - - - 3,469 - 3,469 - 1,542 1,542 3,084 6,553 - - - - - - - - - - - - - - - 197,871 30,000 30,000 643,500 - 847,469 145,500 643,500 1,250,840 343,200 343,200 686,400 130,000 431,408 415,408 976,816 - 1,329,900 2,227,656 2013 35 SHORT TERM INCENTIVES POST EMPLOY- MENT LONG TERM INCENTIVES/BENEFITS Salary& Fees ($) Short Term Incentive Cash Bonus ($) Non- Cash Benefits ($) Super- annuation ($) Long Service Leave Post Employment Benefits ($) Share Based Payments ($) Proportion of Remuneration Performance Related (%) Total ($) Directors Non –Executive J I Wowk R M Beath GD Webb Executive G R Molloy Total Directors 149,983 15,000 30,000 163,000 357,983 Other Key Management Personnel D A Hoff 166,542 Total Key Management Personnel 524,525 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 149,983 15,000 30,000 163,000 357,983 166,542 524,525 - - - - - Performance Income as a Proportion of Total Remuneration No bonuses were paid to Key Management Personnel during the year. No performance criteria or bonuses have been set by the Board for Key Management Personnel for future financial years. Options issued as part of remuneration for the year ended 30 June 2014 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 other Key Management Personnel during the year apart from those disclosed above as a consequence of the Share and Loan Plans. Employment Contracts Mr. Robin Levison Employment and consultancy agreements are in place between the parties on terms as follows: Term: Commencing on 1 October 2013 – no fixed term. Remuneration: Base remuneration under the agreements $290,000 per annum. Duties: Executive Chairman. Termination: The consultancy agreement may be terminated with no cause at any time by PPK Group Limited by giving not less than 12 months written notice or by Mr Levison giving not less than 6 months written notice. Mr. Dale McNamara Employment and consultancy agreements are in place between the parties on terms as follows: Term: Commencing on 1 November 2013 and 1 April 2014 – no fixed term. Remuneration: Base remuneration under the agreements $200,000 per annum. Duties: PPK’s director of Global Mining. Termination: The consultancy agreement may be terminated with no cause at any time by PPK Group Limited by giving not less than 12 months written notice or by Mr McNamara giving not less than 6 months written notice. ANNUAL REPORT 2O1436 Mr. Zhang Jinping Employment and consultancy agreements are in place between the parties on terms as follows: Term: Commencing on 1 November 2013 and 1 April 2014 – no fixed term. Remuneration: Base remuneration under the agreements $200,000 per annum. Duties: President – PPK China Operations. Termination: The consultancy agreement may be terminated with no cause at any time by PPK Group Limited by giving not less than 12 months written notice or by Mr Zhang giving not less than 6 months written notice. Mr. David Hoff A consultancy agreement was in place between the parties on terms as follows: Term: Commencing on 1 September 2012 – no fixed term. Remuneration: Consultancy fee payable $10,000 per month. Attendances at Board Meetings, if required at $2,000 per meeting. Duties: Oversight of the mining manufacturing business, Rambor Pty. Ltd and the Company’s industrial property portfolio. Termination: The consultancy agreement may be terminated with no cause at any time by either party serving 3 months written notice. Mr Hoff’s consultancy agreement ended on 30 June 2014. Mr. Glenn Molloy 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. There are no formalised written contracts in place with any other key management personnel. PPK GROUP LIMITEDSHARES HELD BY DIRECTOR AND kEY MANAGEMENT PERSONNEL 37 The number of ordinary shares held by directors and Key Management Personnel during the 2014 reporting period is set out below: Directors R Levison G Molloy (1) R Beath J Wowk G Webb Balance at Start of year Net change Other Shares Purchased New Share Issue Share and Loan Plan Issue Held at the End of the Reporting Period - - 4,000,000 266,667 7,500,000 11,766,667 11,944,566 (120,000) 42,821 212,302 7,491,653 - - - 680,434 200,000 200,000 874,979 19,691,342 (120,000) 5,955,413 1,050,000 57,179 87,688 1,093,308 2,554,912 - - - - 13,555,000 300,000 500,000 9,460,000 7,500,000 35,581,667 Key Management Personnel D McNamara Z Jinping D Hoff (2) - - - - 156,960 156,960 (156,960) (156,960) - - - - - - 4,000,000 4,000,000 - 4,000,000 4,000,000 - 8,000,000 8,000,000 (1) Adjustment for shares incorrectly recorded as Mr Molloy having a relevant interest in. (2) Mr Hoff’s consultancy agreement concluded at 30 June 2014. (End of Audited Remuneration Report) OPTIONS Apart from the Share Loan Plans as discussed above there were no options outstanding as at the date of this report. OTHER INTERESTS IN RELATED ENTITIES OF THE GROUP In addition all of the current Directors of the Company have an interest in various unit trusts, the trustees of which are subsidiaries of the Company. As unit holders, the Directors have advanced, or agreed to advance loan funds, to the trustees in proportion to the number of units held by them on usual commercial terms for the purpose of undertaking commercial lending in which the Company has an indirect equity interest - along with other unassociated investors. Details of the units and the trusts in which each Director has a relevant interest and of the nature of that relevant interest are set out in the tables below: J I Wowk: Trusts - registered holder(s) Number of Units Nature of Interest (all indirect) Willoughby Funding Unit Trust - Dealcity Pty Ltd Nerang Street Southport Project Trust – Dealcity Pty Ltd Easy Living Unit Trust - Dealcity Pty Ltd Easy Living (Bundaberg) Trust – Dealcity Pty Ltd SLOT Loan Trust - Dealcity Pty Ltd 2 33 20 40 100 Director & Member Director & Member Director & Member Director & Member Director & Member ANNUAL REPORT 2O1438 G R Molloy: Trusts - registered holder(s) Willoughby Funding Unit Trust - Wavet Fund No. 2 Pty Limited Nerang Street Southport Project Trust - Wavet Fund No. 2 Pty Limited Easy Living Unit Trust - Wavet Fund No. 2 Pty Limited Easy Living (Bundaberg) Trust - Wavet Fund No. 2 Pty Limited - Quality Dispensers Super Fund Pty Ltd SLOT Loan Trust - VIP Golf Australia Pty Ltd - Corso Investments Pty Ltd - Quality Dispensers Super Fund Pty Ltd R M Beath: Trusts - registered holder(s) Willoughby Funding Unit Trust - Zenaval Pty Ltd Easy Living Unit Trust - Zenaval Pty Ltd Easy Living (Bundaberg) Trust - Zenaval Pty Ltd SLOT Loan Trust - Zenaval Pty Ltd G D Webb: Number of Units Nature of Interest (all indirect) 10 286 180 200 60 500 100 150 Director & Member Director & Member Director & Member Director & Member Director Director & Member Director Number of Units Nature of Interest (all indirect) 1 20 20 50 Director & Member Director & Member Director & Member Director & Member Trusts - registered holder(s) Number of Units Nature of Interest (all indirect) Willoughby Funding Unit Trust - GRG Finance Pty Ltd - Phillip Street Properties Pty Ltd Nerang Street Southport Project Trust - GRG Finance Pty Ltd Easy Living Unit Trust - GRG Finance Pty Ltd Easy Living (Bundaberg) Trust – Stadurn Pty Ltd 20 20 231 40 60 Director Director Director Director Director PPK GROUP LIMITED MEETINGS OF DIRECTORS During the financial year, meetings of directors (including committee meetings) were held. 39 Attendances were: DIRECTORS’ MEETINGS COMMITTEE MEETINGS Number Eligible to attend Number Attended Number Eligible to attend Number Attended Robin Levison Jury Ivan Wowk Glenn Robert Molloy Raymond Michael Beath Graeme Douglas Webb 9 12 12 12 12 9 12 12 12 7 - 3 - 3 - - 3 - 3 - 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. 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 as set out in the PPK 2014 Annual Report. In accordance with the Recommendations, the Board has: • received and considered reports from management regarding the effectiveness of the Company’s management of its material business risks; and • received assurance from the people performing each of the chief executive officer and chief financial officer functions 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 joint 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 During the reporting period, the PPK Audit Committee consisted of the following Non-executive, Independent Directors: R M Beath (Chairman) J I Wowk 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. ANNUAL REPORT 2O1440 DIRECTORS’ BENEFITS Since 30 June 2014, 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. 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 during the year. 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 2014 and a copy of this declaration 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. ROBIN LEVISON Executive Chairman Sydney, 30 September 2014 GLENN MOLLOY Executive Director PPK GROUP LIMITED AUDITOR’S INDEPENDENCE DECLARATION            41                                                       ANNUAL REPORT 2O14CONSOlIDaTED STaTEMENT OF PROFIT OR lOSS aND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2014 42 Consolidated Entity REVENUE Mining equipment manufacture Investment properties Investment activities Interest receivable Total Revenue OTHER INCOME Gain from a bargain purchase in business combination Other EXPENDITURE Mining equipment manufacture Investment properties Investment activities Administrative expenses Share Based payment expense Business combination acquistion costs Finance costs TOTal EXPENDITURE Share of profit / (loss) from associates accounted for using the equity method PROFIT / (lOSS) BEFORE INCOME TaX EXPENSE Income tax (expense) attributable to profit PROFIT / (lOSS) aFTER INCOME TaX Profit / (loss) is attributable to: Owners of PPK Group Limited Non-controlling interests OTHER COMPREHENSIVE INCOME Items that will not be reclassified to profit or loss Changes in value of available-for-sale financial assets Provision for income tax thereon Unrealised impairment losses on available-for-sale financial assets transferred to the profit or loss statement from the available-for-sale reserve Provision for income tax thereon Realised gain on sale of available-for-sale financial assets transferred to the profit or loss statement from the available-for-sale reserve Provision for income tax thereon Other comprehensive income net of income tax Total Comprehensive Income / (loss) for the year Total comprehensive income / (loss) for the year is attributable to: Owners of PPK Group Limited Non-controlling interests Overall Operations Basic earnings per share ( cents per share ) Diluted earnings per share ( cents per share ) The accompanying notes form part of these financial statements Notes 2(b) 2(d) 2(a) 29 2(c) 5 2(f) 2(e) 3 24 7 7 2014 $000s 12,568 4,414 1,268 2,300 20,550 2,828 52 2,880 (12,195) (1,817) (828) (1,900) (1,330) (731) (1,569) (20,370) - 3,060 (109) 2,951 2,519 432 2,951 53 (15) 263 (78) (109) 33 147 3,098 2,666 432 3,098 4.8 4.6 2013 $000s 5,002 3,060 38 2,173 10,273 - 667 667 (4,301) (812) (53) (1,514) - - (1,298) (7,978) 493 3,455 (707) 2,748 2,383 365 2,748 (180) 54 - - (36) 10 (152) 2,596 2,231 365 2,596 4.7 4.7 PPK GROUP LIMITEDCONSOlIDaTED STaTEMENT OF FINaNCIal POSITION AS AT 30 JUNE 2014 Consolidated Entity 43 Notes 9 10 11 12 14(a) 10 13(a) 13(c) 14(b) 15 16(a) 17 18 19 16(b) 20 21 22 16 20 23 24 2014 $000s 4,904 19,235 10,612 1,069 35,820 18,517 54,337 - 493 1,437 11,479 6,718 2,132 4,607 26,866 81,203 7,401 19,230 264 1,833 28,728 13,281 - 1,482 279 15,042 43,770 37,433 33,731 1,392 2,160 37,283 150 37,433 2013 $000s 1,345 8,850 1,017 312 11,524 - 11,524 10,472 493 2,259 30,430 993 1,375 1,985 48,007 59,531 493 6,720 58 520 7,791 18,080 2,881 235 89 21,285 29,076 30,455 28,673 (85) 1,741 30,329 126 30,455 CURRENT aSSETS Cash and cash equivalents Trade and other receivables Inventories Other current assets Assets held for sale TOTal CURRENT aSSETS NON-CURRENT aSSETS Trade and other receivables Investments in associated entities - equity accounted Other financial assets Investment Properties Other Property, plant and equipment Deferred tax assets Intangible assets 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 Trade and Other Payables Deferred tax liabilities Provisions TOTal NON-CURRENT lIaBIlITIES TOTal lIaBIlITIES NET aSSETS SHaREHOlDERS’ EQUITY Contributed equity Reserves Retained earnings / (Accumulated losses) Capital and reserves attributable to owners of PPK Group Ltd Non-controlling interests TOTal EQUITY The accompanying notes form part of these financial statements ANNUAL REPORT 2O14CONSOlIDaTED STaTEMENT OF CaSH FlOWS FOR THE YEAR ENDED 30 JUNE 2014 44 Consolidated Entity Notes CaSH FlOWS FROM OPERaTING aCTIVITIES Cash receipts from customers Cash payments to suppliers and employees Other revenue Dividends received Proceeds from sale financial assets at fair value through profit or loss Interest received Income tax paid Interest paid Net cash provided by / ( used in ) operating activities 31(a) CaSH FlOWS FROM INVESTING aCTIVITIES Purchase of investment property Proceeds from sale of plant & equipment Purchase of property, plant & equipment Proceeds from sale of available-for-sale financial assets Purchase of available-for-sale financial assets Payment for acquisition of business, net of cash acquired Payment for intangibles Net cash (used in) / provided by investing activities CaSH FlOWS FROM FINaNCING aCTIVITIES Other receivables - loans advanced Other receivables - loans repaid Payment for buyback of shares Proceeds from new issue of shares Proceeds from bank loans Proceeds from other borrowings Repayment of other borrowings Dividends paid Transactions with non-controlling interests Net cash (used in) / provided by financing activities Net increase / (decrease ) in cash held Cash at the beginning of the financial year Cash at the end of the financial year 31(b) 2014 $000s 15,765 (16,979) 44 62 - 1,416 (196) (1,569) (1,457) - 8 (396) 2,754 (1,583) (13,000) (174) (12,391) (759) 8,002 (56) 4,882 4,000 5,292 (1,960) (1,868) (126) 17,407 3,559 1,345 4,904 2013 $000s 8,320 (6,420) 57 38 360 987 (586) (1,298) 1,458 (3,438) - (142) 2,530 (2,912) - (584) (4,546) (9,697) 144 (343) - 3,150 3,625 (335) (765) - (4,221) (7,309) 8,654 1,345 The accompanying notes form part of these financial statements PPK GROUP LIMITEDCONSOlIDaTED STaTEMENT OF CHaNGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2014 Issued Capital $000s Retained Earnings $000s Options Reserve $000s Available- for-sale Reserve $000s Total Attributable to Owners of PPK Group Ltd $000s Non- controlling Interests $000s Total Equity $000s 45 CONSOlIDaTED ENTITY at 1 July 2012 Total comprehensive income for the year Profit for the year Other comprehensive income Realised gain on available-for-sale financial assets less deferred tax impact Fair value adjustment on available-for-sale financial assets less deferred tax impact Total comprehensive income / (loss) for the year Transactions with owners in their capacity as owners Dividends paid Trust distributions Shares repurchased at 30 June 2013 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 Realised gain on available-for-sale financial assets less deferred tax impact Fair value adjustment on available-for-sale financial assets less deferred tax impact Total comprehensive income / (loss) for the year Transactions with owners in their capacity as owners Dividends paid Trust distributions Shares issued - ordinary Shares issued - share and loan plan Shares repurchased Employee share-based payment Change in holding of non- controlling interest in subsidiaries At 30 June 2014 29,016 123 - - - - - - - - (343) (343) 28,673 - - - - - - - - - - 4,882 232 (56) - - 5,058 33,731 2,383 - - - - 2,383 (765) - (765) 1,741 2,519 - - - - - - 2,519 (2,100) - - - - - - (2,100) 2,160 The accompanying notes form part of these financial statements 8 - - - - - - - - - 8 - - - - - - - - - - - - - 1,330 - 1,330 1,338 59 - (36) 10 (180) 54 (152) - - - (93) 29,206 2 29,208 2,383 365 2,748 (36) 10 (180) 54 - - - - (36) 10 (180) 54 2,231 365 2,596 (765) (343) (1,108) 30,329 - (241) (765) (241) - (343) (241) 126 (1,349) 30,455 - 2,519 432 2,951 263 (78) (109) 33 53 (15) 147 - - - - - - - - 54 263 (78) (109) 33 53 (15) - - - - - - 263 (78) (109) 33 53 (15) 2,666 432 3,098 (2,100) - 4,882 232 (56) 1,330 - 4,288 37,283 - (408) - - (2,100) (408) 4,882 232 - - - (56) 1,330 - (408) 3,880 150 37,433 ANNUAL REPORT 2O14NOTES TO THE CONSOlIDaTED FINaNCIal STaTEMENTS FOR THE YEAR ENDED 30 JUNE 2014 NOTE 1 STaTEMENT OF SIGNIFICaNT aCCOUNTING POlICIES Corporate Information 46 The financial statements of PPK Group Limited for the year ended 30 June 2014 were authorised for issue in accordance with a resolution of the directors on 30 September 2014 and covers 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 for-profit 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. PPK Group Limited is a for- profit entity. 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 consolidated entity unless otherwise stated. The financial statements are presented in Australian currency. (b) Basis of Consolidation Subsidiaries The financial statements consolidate those of the Parent Company PPK Group Limited and all of its subsidiaries at 30 June each year (“the Group”). The Parent Company, regardless of the nature of its involvement with an entity (the investee), determines whether it is a parent by assessing control. This occurs when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns. 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. The Parent Company, regardless of the nature of its involvement with an entity (the investee), determines whether it is a parent by assessing control. 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. Non-controlling interests, presented as part of equity, represent the portion of a subsidiary’s profit or loss and net assets that is not held by the Group. The Group attributes total comprehensive income or loss of subsidiaries between the owners of the parent and the non-controlling interests based on their respective ownership interests. 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 other comprehensive income or loss 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 and distributions 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. Spare parts sales are recognised when spare parts leave the warehouse and risks and rewards of ownership have passed. Rental Income 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. PPK GROUP LIMITEDNOTE 1 STaTEMENT OF SIGNIFICaNT aCCOUNTING POlICIES (continued) Interest income Revenue 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 Group’s right to receive payment is established. Reclassification of income In prior years, the gain on sale of available for sale financial assets was recorded as other income. It was resolved that the gain for this year be classified as investment income and not other income. This is now consistent with the presentation of other investment income and expenses. (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 uncollectable amounts and have repayment terms between 30 - 45 days. Collectability is assessed on an ongoing basis. Debts which are known to be uncollectable 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 collectable 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 47 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 there is reasonable certainty 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 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. PPK 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 years. Land is not depreciated. ANNUAL REPORT 2O1448 NOTE 1 STaTEMENT OF SIGNIFICaNT aCCOUNTING POlICIES (continued) The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, at each balance sheet date. 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 the profit or loss statement in the year that the item is derecognised. Property, plant and equipment 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 consolidated entity 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 consolidated entity 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 2% Leasehold Improvements over the term of the lease Plant & Equipment Leased Plant & Equipment 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 profit or loss. (h) Investments and Other Financial Assets All investments and other financial assets are initially recorded 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 transferred to 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 investments 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. PPK GROUP LIMITED 49 NOTE 1 STaTEMENT OF SIGNIFICaNT aCCOUNTING POlICIES (continued) Purchases and sales of available-for-sale financial assets 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. Reversal 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 the impairment loss was recognised in profit or loss. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term. Leases where the lessor retains substantially all the risks and rewards of ownership of the net asset are classified as operating leases. Payments made under operating leases (net of incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease. When assets are leased out under finance leases, the present value of the lease payments is recognised as a lease receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Lease income is recognised over the lease term using the net investment method which reflects a constant periodic rate of return. Lease income from operating leases is recognised in profit or loss on a straight-line basis over the lease term. Initial direct costs incurred in negotiating operating leases are added to the carrying value of the leased asset and recognised as an expense over the lease term on the same basis as the lease income. (j) Foreign Currency 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, fair price 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. 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 balance date are converted at the rates of exchange rates ruling at year end. The gains and losses from conversion of short term balances, whether realised or unrealised, are recognised in profit or loss. (iv) Financial liabilities (k) Trade and Other payables These amounts represent unpaid liabilities for goods received and services provided to the group and parent entity 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) Borrowings 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 the profit or loss statement 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. Non-derivative financial liabilities (excluding financial guarantees) are measured at amortised cost using the effective interest rate method. (v) Derivatives Share options embedded in a convertible note are 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. The group does not use derivative financial instruments such as forward exchange contracts and interest rate swaps to mitigate risks associated with interest rate and foreign exchange fluctuations. (vi) Financial assets at fair value through profit or loss Financial assets are classified at “fair value through profit or loss” when they are held for trading for the purpose of short-term profit taking, or if it is a derivative that is not designated as a hedge. Such assets are subsequently measured at fair value with changes in carrying amount being included in profit or loss. (i) Leases Leases of property, plant & equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases and capitalised at inception of the lease at the fair value of the leased property, or if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. ANNUAL REPORT 2O14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 20 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 each reporting date 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 the income 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) Borrowing costs All borrowing costs are expensed when incurred. (r) Share-Based Payments The Group recognises an expense for all share-based remuneration and amortises those expenses over the relevant vesting periods where required. (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. 50 NOTE 1 STaTEMENT OF SIGNIFICaNT aCCOUNTING POlICIES (continued) 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. (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 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, at the same time every year. Research and Development Research is recognised as an expense as incurred. Costs incurred on development (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will, after considering its commercial and technical feasibility, be completed and generate future economic benefits and generate future economic benefits and its costs can be measure reliably. The expenditure capitalised comprises all directly attributable cost, including costs of materials, services, direct labour and an appropriate proportion of overheads. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised development costs are recorded as intangible assets at cost less any accumulated amortisation and impairment losses and amortised over the period of expected future sales from the related projects which vary from 5 - 7 years. The carrying value of development costs is reviewed annually when the asset is not yet ready for use, or when events or circumstances indicate that the carrying value may be impaired. PPK GROUP LIMITEDNOTE 1 STaTEMENT OF SIGNIFICaNT aCCOUNTING POlICIES (continued) (t) Dividends Provision is made for dividends declared, and no longer at the discretion of the Group, on or before the end of the financial year but not distributed at the end of the reporting period. Dividends can no longer be paid unless: (a) Assets exceed liabilities immediately before the dividend is declared and the excess is sufficient for the payment of dividends; and (b) The payment of the dividend is fair and reasonable to the company’s shareholders as a whole; and 51 All transaction costs incurred in relation to business combinations other than those associated with the issue of a financial instrument are recognised as expenses in profit or loss when incurred. The acquisition of a business may result in the recognition of goodwill or a gain from a bargain purchase. (x) New and revised Standards that are effective for these financial statements Several new and revised standards are effective the annual reporting periods beginning on or after 1 July 2013. Information of these is presented below: - AASB 10 - Consolidated Financial Statements The definition of control has been revised and new guidance presented. Management have reviewed their control assessments which are unchanged. (c) The payment of the dividend does not materially prejudice the company’s ability to pay its creditors. - AASB 11 - Joint Arrangemenets (u) Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to owners 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 balance sheet. Cash flows are included in the cash flow statement 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) Business Combinations Business combinations occur where an acquirer obtains control over one or more businesses. A business combination is accounted for by applying the acquisition method. The business combination will be accounted for from the date that control is attained, whereby the fair value of the identifiable assets acquired and liabilities (including contingent liabilities) assumed is recognised. AASB11 also raises the categories of joint arrangement. The option to proportionately consolidate investments in Joint Arrangements has been removed. The Group does not account for its investments in this manner and therefore the change makes no difference to the financial reporting for the group. - AASB 12 - Disclosure of Interests in Other Entities This standard makes consistent the disclosure of various types of investments including structured entities and un-consolidated entities. These disclosures have been incorporated into Note 13. - AASB 13 - Fair Value Measurement Clarifies the definition of fair value and provides guidance on fair value measurement. The Group already adopts best practice when valuing the assets which are held at fair value. The fair value disclosures have been incorporated into Note 25. - AASB 19 - Employee Benefits (as amended) Changes were made to the accounting for defined benefit plans and the definition of short term employee benefits was amended to include benefits expected to be settled wholly within one year. The Group considers that annual leave benefits remain current liabilties of the Group. The Group does not provide defined benefit plans to past or present employees. Other changes in the standard to not have material effects of the Group. (y) New Accounting Standards and interpretations not yet adopted No new accounting standards and interpretations, that are available for early adoption at 30 June 2014, but not yet adopted, will result in any material change to the financial statements. The Group has determined that there will be no material change on the Group’s financial reports following adoption of these standards in future years, as either their application is only required to be applied prospectively, they are disclosure standards only and there will be no material impact on amounts recognised in the financial statements or they are disclosure standards only that will require various additional disclosures. ANNUAL REPORT 2O14 52 NOTE 1 STaTEMENT OF SIGNIFICaNT aCCOUNTING POlICIES (continued) Standards issued but not yet adopted are as follows - AASB 9 - Financial Instruments (applies from 1 January 2018) Simplifies measurement and classification of financial liabilities. - IFRS 15 - Revenue from Contracts with Customers (applies from 1 January 2017) Sets out revised principles for the presentation of revenue and the nature and timing of such. - AASB 1031 - Materiality (applies from 1 January 2014) This standard has been amended as an interim measure while other standards are updated to refer to the Reporting Framework and not AASB 1031. 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. Key estimates - Impairment The Group assesses impairment at each reporting date by evaluating conditions specific to the group that may lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined. Value-in- use calculations performed in assessing recoverable amounts incorporate a number of key estimates. Available-for-sale financial assets The Group reviews each of its listed investments at each reporting date to consider whether there is any indication that individual investments are impaired. Based on all the information available to the Directors it was determined that the Group’s investment in the following listed companies were impaired: Alchemy Limited Kimberley Diamonds Limited SubZero Group Limited As a result an impairment loss of $828,000 (2013 $22,000) was taken up in profit or loss on these investment. The Directors determined that no other listed available-for-sale financial assets were impaired at balance date. Investment in Associates The Group’s investments in associated entities are reviewed at each reporting date to consider whether there is any indication that individual investments are impaired. Based on all the information available to the Directors it was determined that there were no impairments of the Group’s investments in associated entities. Investment Properties All investment properties are carried at cost less impairment (if any). The last independent valuation of investment properties was carried out in May 2010. Subsequent to that date, at each reporting day, the Directors have used property market reports and, when received, unsolicited offers on the investment properties when forming their view on determining the fair value of the investment properties disclosed in the financial statements. During the current financial year the tenant at the Arndell Park property took up their option to purchase the property. The net sale proceeds were below the carrying value and as such the property was impaired by a further $240,000. Based on all the information available to the Directors it was determined that no further impairment adjustment was required for any investment property in the current year. Deferred Tax Asset An assessment was made on the recoverability of the deferred tax asset recognised in the accounts. The deferred tax asset has only been recognised to the extent that there is reasonable certainty of realising future taxable amounts sufficient to use losses incurred. Capital losses with a tax asset value of $1,315,000 (2013 $1,315,000) have not been recognised and carried forward as a deferred tax asset. Goodwill, Brand Names, Plant and Equipment No impairment has been recognised in respect of goodwill, brand names, plant and equipment 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. 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. The Group has classified land and buildings at Arndell Park as held for sale as an option to purchase has been execised. The Group has also classified its two retirements villages in Adelaide and Bundaberg as held for sale since the properties are subject to a put and call option and it is expected that the options will be exercised and settled prior to December 2014. PPK GROUP LIMITEDNOTES TO aND FORMING PaRT OF THE FINaNCIal STaTEMENTS FOR THE YEAR ENDED 30 JUNE 2014 Consolidated Entity 53 NOTE 2 REVENUE, OTHER INCOME & EXPENSES FROM OPERaTIONS Notes (a) REVENUE Sale of goods Rental income from investment properties Investment activities Interest receivable (b) INVESTMENT aCTIVITIES Dividends received - other parties Gain on sale of available-for-sale financial assets (b) (d) (c) OTHER INCOME Gain on bargain purchase of business combination OTHER ITEMS Net gain on disposal of plant and equipment Sundry income Value of available-for-sale financial asset received on redemption of convertible notes Fair value adjustment on available-for-sale no longer classified as an associate Gain on sale of available-for-sale financial assets (d) INTEREST INCOME Other persons Associated entities (e) SHaRE OF PROFIT (lOSS) FROM aSSOCIaTES aCCOUNTED FOR USING THE EQUITY METHOD Share of profit (loss) from associates accounted for under the equity method (f) EXPENSES Profit (loss) before income tax includes the following specific expenses: Amortisation of intangibles Cost of sales - mining equipment manufacture Depreciation - investment properties - plant and equipment Foreign currency translation losses Impairment - investment properties Impairment of available-for-sale financial assets - Listed investments Interest paid - other Doubtful debts - trade receivables Defined contribution superannuation expense Employee benefit expenses Rental expense on operating leases 2014 $000s 12,568 4,414 1,268 2,300 20,550 62 1,206 1,268 2,828 8 44 - - - 52 2,880 1,311 989 2,300 - - 199 8,102 325 652 977 - 240 828 1,569 12 446 3,953 794 2013 $000s 5,002 3,060 38 2,173 10,273 38 - 38 - - 34 47 322 264 667 667 1,230 943 2,173 493 493 12 2,815 308 392 700 1 - 22 1,298 4 223 2,377 174 ANNUAL REPORT 2O1454 Consolidated Entity Notes NOTE 3 INCOME TaX EXPENSE (a) The prima facie tax payable / (benefit) on the profit / (loss) before income tax is reconciled to the income tax expense as follows: Profit (loss) before tax Prima facie tax payable / (benefit) at 30% (2013: 30%) Fully franked dividend received Share based payment Research & Development concession Building allowance Gain on bargain purchase not taxable Costs associated with purchase of business combination (Over) provision relating to prior year - research & development concession Adjustment related to non-controlling interest in profit Capital losses realised not previously recognised Income tax expense The applicable weighted average effective tax rates are as follows: (b) The components of tax expense comprise: Current tax Deferred tax (Over) provision in respect of prior years (c) Deferred tax recognised in other comprehensive income through Available-for-sale Financial Asset Reserve relating to valuing investments at fair value 2014 $000s 3,060 918 (18) 399 (15) (54) (848) 189 (55) (84) (323) 109 4% 453 (289) (55) 109 (15) 2013 $000s 3,455 1,037 (12) - (15) (54) - - (177) (72) - 707 20% 398 486 (177) 707 54 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. NOTE 4 aUDITORS’ REMUNERaTION Remuneration of the auditor of the group and parent entity for : - auditing or reviewing the financial report Grant Thornton - non audit services ( accounting / technical advice ) Grant Thornton $ $ 131,000 - 131,000 81,856 - 81,856 PPK GROUP LIMITED Consolidated Entity 55 2014 $000s 2013 $000s Notes NOTE 5 KEY MaNaGEMENT PERSONNEl REMUNERaTION (a) Key management personnel remunueration Short-term benefits Post-employee benefits Share-based payments 891,203 6,553 1,329,900 2,227,656 524,525 - - 524,525 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 There were no options and rights held directly, indirectly or beneficially by key management personnel and their related parties in the current financial year, except as discussed in the remuneration report in relation to the share loan plans. (c) Loans There were no loans or advances to parent entity directors, executives and key management personnel in the current financial or previous financial years, except as discussed in the remuneration report in relation to the share loan plans. (d) Other transactions with directors Refer to note 30 for further details of transactions with directors and director related entities. NOTE 6 DIVIDENDS (a) Dividends paid Final ordinary dividend of 2 cents per share was paid for 2013 year (prior year no final dividend was paid - 100% franked at 30% tax rate) Interim ordinary dividend of 1.50c per share for 2014 year - 100% franked at 30% tax rate (prior year 1.00c per share - 100% franked) (b) Dividends declared after balance date At a meeting of Directors held on 26 August 2014 it was resolved that a 2.00 cent fully franked Final ordinary Dividend will be paid in relation to the 2014 financial year. 1,011 1,089 2,100 - 765 765 1,453 1,015 (c) Dividends for Share and loan Plan PPK Group Ltd has a share and loan plan in place with certain key executives. During the year they were issued with 15.5 million shares in the Group at an issue price of 70c per share. The Group provided the executitves with a non-recourse loan to pay for the shares, which is of 3 years duration. Each share held in the share and loan plan is entitled to dividends declared on ordinary shares. These dividends are are not paid in cash to the executives. Instead they are credited against their repective share loans and reduce the amounts of interest and/or principle outstanding to the Group. The plan is treated as an option for accounting purposes and a one-off share based payment has been recogniseed during the current financial year for these plans. There are no further share based payments expected to arise from this plan. The repayment of loans by way of dividend or cash repayment is treated as an increase to issued capital for accounting purposes. The detailed terms and conditions of the share and loan plan were outlined in the Explanotory Memorandum to the Notice of General Meeting held 28th April 2014. (d) Franked dividends Franking credits available for subsequent financial years based on a tax rate of 30% (2013 - 30%) 2,888 3,695 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. ANNUAL REPORT 2O14 56 Notes 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 Weighted average number of ordinary shares outstanding during the year used in calculation of diluted EPS Consolidated Entity 2014 Cents 4.8 4.6 2013 Cents 4.7 4.7 $000s $000s 2,519 2,519 No. 2,383 2,383 No. 52,319,258 51,084,022 54,994,600 51,084,022 (c) The difference between the weighted average ordinary shares used in the basic EPS and diluted EPS calculation arises from the issue of 15,500,000 shares pursuant to the share and loan plan (see note 6). This occurred in April 2014, part way during the financial year. NOTE 8 PaRENT ENTITY INFORMaTION The following detailed information relates to the parent entity, PPK Group Limited at 30 June 2014. The information presented here has been prepared using consistent accounting policies as presented in Note 1. Current assets Non-current assets Total Assets Current liabilities Non-current liabilities Total liabilities Net Assets Contributed equity Share based payment reserve Option reserve Retained earnings Total Equity Profit (loss) for the year Other comprehensive income for the year Total comprehensive income (loss) for the year CURRENT aSSETS NOTE 9 CaSH aND CaSH EQUIValENTS Cash at bank and on hand Cash at bank and on hand 61,597 33,545 95,142 44,130 21,066 65,196 29,946 33,730 1,330 8 (5,122) 29,946 (2,435) - (2,435) 45,658 33,835 79,493 33,622 19,878 53,500 25,993 28,672 - 8 (2,687) 25,993 259 - 259 4,904 4,904 1,345 1,345 Cash at bank consists of temporary surplus funds which are non-interest bearing. Short-term bank deposits are funds held at call which are 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 31 4,904 4,904 1,345 1,345 PPK GROUP LIMITED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, associate entities - secured - other loans, other persons - secured - other loans, associate entities - unsecured - other loans, other persons - unsecured Non-Current Loans and receivables - other loans, associate entities - secured - other loans, associate entities - unsecured - other loans, other persons - secured - other loans, other persons - unsecured Other Non current Assets of continuing operations Notes (a) (b) (c) (d) (c) Consolidated Entity 57 2014 $000s 6,892 (36) 6,856 1,463 - 1,463 7,316 3,487 27 86 10,916 19,235 - - - - - 2013 $000s 1,105 (24) 1,081 966 - 966 230 6,573 - - 6,803 8,850 6,608 369 3,187 308 10,472 (a) Trade Receivables Current trade receivables are non-interest bearing and are generally 30-60 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, associated entities Other loans are funds advanced to unit trusts that are associates of the Group. The amounts are secured by a registered first mortgage over property owned by each of the trusts. The interest rate received by the Group on current and non-current loans range from 0% to 15% with the rate being fixed for the term of the loan at the time it is made. The loan to PPK Willoughby Funding Unit Trust is for a maximum period of 4 years with principal and interest due for repayment in second half of the 2015 financial year, the balance outstanding on this loan is $6,569,000 (2013 $6,834,000). The loan to Nerang Street Southport Unit Trust is due for repayment in June 2015, the balance outstanding on this loan is $746,000 (2013 $369,000). (d) Other loans, other persons Other loans,other persons are funds advanced to non-related third parties. The amounts are secured by a registered first mortgage over property owned the borrower. The interest rate received by the Group on loans range from 15% to 18% with the rate being fixed for the term of the loan at the time it is made. The current loans have interest rates of 15% per annum calculated daily with interest either due monthly in arrears or compounded monthly. The prior year non-current loans have interest rates ranging from 15% to 18% per annum calculated daily with interest either paid in advance, monthly in arrears or compounded monthly. ANNUAL REPORT 2O1458 Consolidated Entity Notes NOTE 10 TRaDE aND OTHER RECEIVaBlES (continued) Movement in balance of secured loans - current Opening Balance Reclassified from non-current Funds advanced Trust distribution capitalised Less principal and interest repaid Interest revenue added to carrying value Movement in balance of secured loans - non-current Opening Balance Funds advanced Trust distribution capitalised Less reclassified as current Less principal and interest repaid Interest revenue added to carrying value 2014 $000s 6,803 10,472 742 216 (9,596) 8,637 2,279 10,916 10,472 - - (10,472) - - - - 2013 $000s 274 - 6,623 - (176) 6,721 82 6,803 6,276 3,300 9 - (228) 9,357 1,115 10,472 Provision for Impairment of Receivables Current trade, term and other receivables and loans are assessed for recoverability based on the underlying terms of the contract. A provision for impairment is recognised when there is an objective evidence that an individual trade or term receivable is impaired. The reversal of prior year impairments have been included in other income, the impairments were included in Investment Activity. Movements in the provision for impairment are as follows: Opening balance Charge for the year Reversal of charge Amounts written off Closing balance Consolidated Group 2014 Current Trade receivables Other receivables Convertible notes Consolidated Group 2013 Current Trade receivables Other receivables Convertible notes 24 - - 24 20 173 833 1,026 12 - - 12 4 - - 4 - - - - - - - - - - - - - (173) (833) (1,006) 36 - - 36 24 - - 24 The parent entity has no provisions for impairment of receivables, in the current year or the prior year. 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. Trade receivables aging analysis The ageing analysis of trade receivables for amounts not impaired for the Group and parent is as follows Not past due Past due 1 - 30 days Past due 31 - 60 days Past due over 60 days 616 2,776 2,665 799 6,856 683 217 101 80 1,081 With respect to trade receivables that are neither impaired or past due, there are no indications as at reporting date that the debtors will not meet their obligations as they fall due. PPK GROUP LIMITEDNOTE 10 TRaDE aND OTHER RECEIVaBlES (continued) Other receivables aging analysis The ageing analysis of other receivables for amounts not impaired for the Group and parent is as follows Not past due Past due 1 - 30 days Past due 31 - 60 days Past due over 60 days Consolidated Entity 59 2014 $000s 2013 $000s Notes 1,442 - - 21 1,463 855 76 15 20 966 With respect to other receivables that are neither impaired or past due, there are no indications as at reporting date that the debtors will not meet their obligations as they fall due. NOTE 11 INVENTORIES On hand Finished goods at cost Work in Progress Raw materials Refer to note 21 for details of inventory pledged as security NOTE 12 OTHER CURRENT aSSETS Prepayments The carrying amount of prepayments approximates fair value. NON-CURRENT aSSETS NOTE 13 FINaNCIal aSSETS 13(a) Investments in associated entities - equity accounted Summary of movement in carrying value Opening Balance Share of profit / (loss) from associates accounted for under the equity method Trust distributions or dividends received from associates Information relating to associates is set out below: Unlisted entities Details of units held in associated trusts Nerang Street Southport Project Trust PPK Willoughby Funding Unit Trust 7,393 2,951 268 10,612 1,069 1,069 493 - - 493 554 199 264 1,017 312 312 9 493 (9) 493 Ownership Interest 2014 % 2013 % 18.75% 22.86% 25.00% 22.86% Units Held $1 Each Units Held $1 Each 275 40 315 275 40 315 Details of associates Nerang Street Southport Project Trust - Name of Joint Arrangement: Nerang Street Southport Project Trust. - Nature of Activities: Owning and leasing of commercial land as passive investor in the trust alongside other investors. - Principle place of business: Level 31 , 264 George St Sydney NSW 2000 PPK Willoughby Funding Unit Trust - Name of Joint Arrangement: PPK Willoughby Funding Unit Trust. - Nature of Activities: Participation in residential land development as passive investor in the trust alongside other investors. - Principle place of business: Level 31 , 264 George St Sydney NSW 2000 Distributions receivable from associated trusts Nerang Street Southport Project Trust PPK Willoughby Funding Unit Trust $000s $000s - - - - 493 493 ANNUAL REPORT 2O14 60 Consolidated Entity Notes NOTE 13 NON-CURRENT ASSETS (continued) PPK Willoughby Funding Unit Trust Group Current Assets Non-current Assets Current Liabilties Non-current Liabilities Equity Revenues Profit or (loss) before income tax Income tax expense or (credit) Profit or (loss) after income tax Specific Disclosures: - cash and cash equivalents included in current assets - current financial liabilities (excluding trade and other payables and provisions) included in current liabilities - non-current financial liabilities (excluding trade and other payables and provisions) included in non-current liabilities - depreciation and amortisation - interest income - interest expense 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 2014 $000s 83,266 - 80,807 - 2,459 1,809 583 175 408 488 67,124 - - 27 - - - - 2013 $000s 4,444 49,445 4,811 46,875 2,203 19,548 2,725 808 1,917 171 - 46,874 - 18 - - - - The PPK Willoughby Funding Unit Trust hold 80% of the issued units in the PPK Willoughby Purchaser Unit Trust. The disclosure of financial information is for the consolidated group PPK Willoughby Funding Unit Trust and its subsidiary PPK Willoughby Purchaser Unit Trust. The Group has not included it’s share of profit from associates in the current financial year, which was estimated at $0.106million, due to the Associates’ financial reports not being finalised in time. Nerang Street Southport Project Trust Current Assets Non-current Assets Current Liabilities Non-current Liabilities Equity Revenues Profit or (loss) before income tax Income tax expense or (credit) Profit or (loss) after income tax Specific Disclosures: - cash and cash equivalents included in current assets - current financial liabilities (excluding trade and other payables and provisions) included in current liabilities - non-current financial liabilities (excluding trade and other payables and provisions) included in non-current liabilities - depreciation and amortisation - interest income - interest expense 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 491 6,813 34 7,299 (29) 105 (31) - (31) 426 - 7,316 - 8 1 - - - 143 4,582 21 4,702 2 267 1 - 1 32 - 4,949 - 1 - - - - The Group holds 18.75% (2013 25%) of the issued units in this trust and 100% of the share capital in the trustee company, PPK Southport Pty Ltd. The trust is considered to be an associate of the Group. PPK GROUP LIMITEDNOTE 13 NON-CURRENT aSSETS (continued) 13(b) Financial assets - at fair value through profit or loss Current (ii) Listed Investments - at fair value - Shares in listed corporations Opening Balance Additions at cost Disposals Consolidated Entity 61 2014 $000s 2013 $000s Notes - - - - 327 - (327) - A financial asset is classified at fair value through profit or loss if it classified as held for trading. It is principally acquired for the purpose of selling or repurchasing in the near term or it is part of a portfolio of financial assets that are managed together and for which there is evidence of a recent pattern of short-term profit-taking. Upon initial recognition it is designated at fair value through profit or loss and all subsequent movements in fair value are recognised in profit or loss. 13(c) Financial assets - available-for-sale financial assets Non-Current (i) Listed Investments - at fair value - Shares in listed corporations Opening Balance Additions at cost Fair value of shares received on redemption of convertible notes held Fair value adjustment on reclassification of investment in associate now classified as available-for-sale financial asset Fair Value adjustments Impairment Disposals 2,259 1,581 - - 205 (828) (1,780) 1,437 756 2,912 47 322 (181) (23) (1,574) 2,259 Listed investments are recorded at fair value based on the ASX closing price at the 30 June of the relevant financial period. Gains or losses arising from changes in the fair value of available-for-sale financial assets are initially recognised directly in equity 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 the 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 difference between the impaired value and the fair value will be recognised in equity through the reserve. Impairment losses recognised in the profit or loss on equity instruments classified as available-for-sale are not reversed through profit or loss. (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 Current Non-Current 249 (249) - - 1,437 1,437 249 (249) - - 2,259 2,259 ANNUAL REPORT 2O1462 NOTE 13 NON-CURRENT aSSETS (continued) NOTE 13(d) Controlled Entitles Subsidiaries of PPK Group limited: Country of Incorporation Notes Percentage owned Rutuba Pty Limited Seven Hills Property Holdings Pty Ltd PPK Properties Pty Ltd PPK Property Trust Dandenong South Property Pty Ltd PPK Willoughby Holdings Pty Ltd PPK Willoughby Pty Ltd PPK Aust. Pty Ltd PPK Investment Holdings Pty Ltd PPK Easy Living Pty Ltd Easy Living Unit Trust Easy Living Bundaberg Trust PPK Finance Pty Ltd SLOT Loan Trust TMD Loan Trust PPK Southport Pty Ltd York Group Limited Rambor Pty Ltd King Cobra Mining Equipment Pty Ltd PPK Mining Equipment Group Pty Ltd (formerly Anderson Group of Companies Pty Ltd) PPK Mining Equipment Pty Limited PPK Mining Repairs Alternators Pty Ltd PPK Mining Equipment Hire Pty Ltd (formerly Anderson Mining Hire Pty Ltd) Coaltec Pty Ltd PPK IP Pty Ltd (formerly DMS Tech 1 Pty Ltd) PPK China Pty Ltd (formerly Trigger Sprays Pty Ltd) Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia a b c d e 2013 % 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 50% 50% 100% 51.4% 100.0% 100% 100% 100% 100% 2014 % 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 50% 50% 100% 51.4% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% (a) PPK Willoughby Holdings Pty Ltd acts as the trustee company of the PPK Willoughby Funding Unit Trust. The Group holds 22.86% of issued units of this trust which is considered an an associate of the Group. (b) PPK Willoughby Pty Ltd acts as the trustee company of the PPK Willoughby Purchaser Unit Trust. PPK Willoughby Funding Unit Trust holds 80% of issued units of this trust. (c) PPK Easy Living Pty Ltd acts as the trustee company of the Easy Living Unit Trust and the Easy Living Bundaberg Trust. The Group holds a 50% of the issued units in each of these trusts. (d) PPK Finance Pty Ltd acts as the trustee company of the Slot Loan Trust. The Group holds a 51.4% of the issued units of this trust. PPK Finance Pty Ltd acts as the trustee company of the TMD Loan Trust. The Group holds 100% of the issued units of this trust. (a) PPK Southport Pty Ltd acts as the trustee company of the Nerang Street Southport Project Trust. The Group holds 18.75% (2013 - 25%) of issued units of this trust which is considered associate of the Group. 13(e) Subsidiary with material non-controlling interests The Group includes three subsidiaries with Non-Controlling Interests (‘NCI’). Proportion of Ownership Interest Held Profit Allocated to NCI (‘000s) Accumulated NCI (‘000s) Distributions and Dividends Paid to NCI Name 30-June-14 30-June-13 30-June-14 30-June-13 30-June-14 30-June-13 30-June-14 30-June-13 Easy Living (Bundaberg) Trust Easy Living Trust Slot Loan Trust 50% 50% 51.43% 50% 50% 51.43% 62 88 282 55 68 242 94 56 - 57 69 - 50 75 283 408 - - 241 241 PPK GROUP LIMITED Notes Consolidated Entity 2014 $000s 63 2013 $000s NOTE 14 INVESTMENT PROPERTIES (a) assets classified as held for sale Freehold land & buildings - at cost Land Buildings Less: Accumulated depreciation Less: Provision for impairment Total assets held for sale Reconciliations Current Balance at the beginning of the year Add transferred to Current from non-current Land & buildings Total investment properties of continuing operations (b) Non-Current Freehold land & buildings - at cost Land Buildings Less: Accumulated depreciation Less: Provision for impairment Total Investment Properties Reconciliations Non-Current Balance at the beginning of the year Acquisition of land and building at cost Expenditure subsequent to acquisition Disposals Depreciation expense Impairment expense Less transferred (to) Classified as current assets held for sale Land & buildings Total investment properties of continuing operations The following amounts have been recognised in the statement of comprehensive income 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 acquisition and Disposals There were no disposals of investment properties in the financial year. 10,038 11,304 (1,256) 10,048 20,086 (1,569) 18,517 - 18,517 18,517 5,225 8,941 (2,687) 6,254 11,479 - 11,479 30,430 - 131 - (325) (240) 29,996 (18,517) 11,479 4,414 1,781 36 - - - - - - - - - - 15,263 20,113 (3,618) 16,495 31,758 (1,328) 30,430 27,276 3,160 302 - (308) - 30,430 - 30,430 3,060 772 40 Valuation of Investment Properties The directors consider the fair value of the retirement villages be be equal to their book value being $6.26 million. The directors consider the fair value of the industrial properties to be approximately $30 million. No capital gains tax would be payable if the Land & Buildings were sold at balance date at the independent valuation due to capital losses. Impairment During the current financial year the tenant at the Arndell Park property took up their option to purchase the property. The net sale proceeds were below the carrying value and as such the property was impaired by a further $240,000. Based on all the information available to the Directors it was determined that no further impairment adjustment was required for any investment property in the current year. ANNUAL REPORT 2O1464 Notes Consolidated Entity 2014 $000s 2013 $000s NOTE 14 INVESTMENT PROPERTIES (continued) Non-current assets pledged as security Refer to note 21(b) for information on non-current assets pledged as security by the parent entity or its subsidiaries. leases as lessor The investments properties are leased to tenants under long term operating leases with rentals payable monthly. - not later than 1 year - later than 1 year but not later than 5 years - later than 5 years Refer to Subsequent Event Note 30 for further details as to the current position in relation to investment properties. 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 Total property, plant and equipment of continuing operations Reconciliations Reconciliations of the carrying amounts of each class of plant & equipment are set out below. 1,721 1,545 - 3,267 431 (340) 91 9,209 (2,582) 6,627 - 6,718 Consolidated - 2014 Carrying amount at start of year Acquired with business combination Additions Manufactured plant & equipment for hire Disposals Transfers Depreciation & Amortisation expense Carrying amount at end of year Consolidated - 2013 Carrying amount at start of year Additions Manufactured plant & equipment for hire Disposals Transfers Depreciation & Amortisation expense Carrying amount at end of year Leasehold Improvements $’000 Plant & Equipment $’000 Capital Works In Progress $’000 130 - - - - - (39) 91 183 - . - (53) 130 863 6,120 114 151 (8) - (613) 6,627 1,066 137 57 (6) - (391) 863 - - - - - - - - 24 278 - - (302) - - 2,665 7,313 - 9,978 431 (301) 130 3,198 (2,335) 863 - 993 Total $’000 993 6,120 114 151 (8) - (652) 6,718 1,273 415 57 (6) (302) (444) 993 PPK GROUP LIMITED 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 Warranty Deccommisioning and make good Plant and equipment depreciation Impairment of investments Realised capital losses accounted for Inventory Other Movements Opening balance Aquired with business combination Credit/(charged) to profit or loss Prior year adjustment Consolidated Entity 65 2014 $000s 2013 $000s Notes 11 316 449 257 60 65 330 614 5 25 2,132 1,375 487 270 - 2,132 7 183 396 - - 65 - 694 5 25 1,375 1,589 - (214) - 1,375 Assessment was made on the recoverability of the deferred tax asset recognised in the accounts. The deferred tax asset has only been recognised to the extent that there is reasonable certainty of realising capital profits. (b) liabilities CURRENT Income Tax provision NON-CURRENT Deferred tax liability comprises temporary differences attributable to: Amounts recognised in profit and loss Rent receivable Plant and equipment depreciation Tax deferred trust distribution from associate Recoginised on bargain purchase of assets Tax cost base adjustment on stock Tax cost base adjustment fixed assets Tax cost base adjustment on intangibles Amounts recognised in equity Fair value adjustment of available-for-sale financial assets Deferred tax liability Movements Opening balance (Credit)/charged to profit or loss Acquired on business combination (Credit)/charged to equity Prior year adjustment 264 58 112 (12) 148 659 417 136 1,460 22 1,482 235 (23) 1,212 58 - 1,482 138 (12) 148 - - - 274 (39) 235 29 270 - (64) - 235 ANNUAL REPORT 2O1466 Consolidated Entity Notes NOTE 17 INTaNGIBlE aSSETS Licences, software and patents - at cost Less: Accumulated amortisation Goodwill - Mining equipment manufacturing Development Costs - at cost - Mining equipment manufacturing Less: Accumulated amortisation Brand names - at cost Intangible Assets of continuing operations Reconciliations licences, software and patents - at cost Balance at the beginning of year Aquired with business combination Additions - external purchases Amortisation charge (Amortisation charges are included in Cost of Goods Sold and Administration expenses in the profit or loss) Goodwill Balance at the beginning of year Additions / Disposals / Impairment Development Costs Balance at the beginning of year Additions at cost Amortisation charge Brand Names Balance at the beginning of year Additions / Disposals / Impairment 2014 $000s 2,882 (538) 2,344 155 1,756 (145) 1,611 497 4,607 224 2,000 174 (54) 2,344 155 - 155 1,109 647 (145) 1,611 497 - 497 2013 $000s 787 (563) 224 155 1,109 - 1,109 497 1,985 123 - 113 (12) 224 155 - 155 638 471 - 1,109 497 - 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 20 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. Costs incurred on development (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will, after considering its commercial and technical feasibility, be completed and generate future economic benefits and its costs can be measured reliably. The expenditure capitalised comprises all directly attributable cost, including costs of materials, services, direct labour and an appropriate proportion of overheads. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use on a straight-line basis over its estimated useful life of 7 years. 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 consolidated entity. This, combined with continued support for the brands by product development, advertising and marketing expenditure, has allowed the consolidated entity 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. PPK GROUP LIMITED NOTE 17 INTaNGIBlE aSSETS (continued) Impairment disclosures Intangible assets deemed to have indefinite lives are allocated to the Group’s cash generating units identified according to business segment. A segment level summary of the intangible assets deemed to have indefinite lives is as follows: Brand Names $’000 Year ended 30 June 2014 Mining Equipment Manufacturing Year ended 30 June 2013 Mining Equipment Manufacturing 497 497 Goodwill $’000 155 155 Total $’000 652 652 67 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 exceed the 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 1.00% 2014 Discount Rate 9.50% Growth Rate 5.00% 2013 Discount Rate 12.50% 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 2014. If a discount rate of 60% was used instead of 9%, and if sales growth was limited to the inflation rate of 0% instead of 1.0%, the estimated recoverable amount of the intangible assets would equal the carrying value. Consolidated Entity CURRENT lIaBIlITIES NOTE 18 TRaDE aND OTHER PaYaBlES Trade payables Sundry payables and accruals Payables of continuing operations NOTE 19 INTEREST BEaRING lIaBIlITIES Bank loans - secured Other loans - unsecured Interest bearing liabilities of continuing operations Total secured liabilities - see note 21 Notes 2014 $000s 2,744 4,657 7,401 14,230 5,000 19,230 2013 $000s 381 112 493 5,420 1,300 6,720 ANNUAL REPORT 2O1468 Consolidated Entity NOTE 20 PROVISIONS Current Annual leave Redundancy Warranty Decommissioning and make good Long service leave Non Current Long service leave Total Provisions Notes 20 (a) 20 (b) 2014 $000s 755 - 858 220 - 1,833 279 2,112 2013 $000s 199 179 - - 142 520 89 609 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. Warranty provisions comprise estimated costs to perform repairs to mining equipment while under warranty. Make good proviision comprise estimated costs to return leased premises to their original condition on expiry of the lease. (a) Reconciliation of Provision for Warranty Opening Balance Acquired as part of business combination Increases (decreases) to provision Closing Balance (a) Reconciliation of Provision for Decommissioning and make good Opening Balance Acquired as part of business combination Increases (decreases) to provision Closing Balance NON-CURRENT lIaBIlITIES NOTE 21 INTEREST BEaRING lIaBIlITIES Bank Loans - Secured Other Loans - Secured Interest bearing liabilities (a) Secured liabilities Total secured liabilities ( current and non-current ) are: Bank overdrafts Bank loans - PPK Group Limited Bank loans - The Easy Living Unit Trust Bank loans - The Easy Living (Bundaberg) Unit Trust Bank loans - PPK Mining Equipment Pty Ltd (b) Unsecured liabilities Other loans - other persons - 858 - 858 - 220 - 220 13,281 - 13,281 - 19,800 1,850 1,850 4,011 27,511 5,000 32,511 - - - - - - - - 18,080 - 18,080 - 19,800 1,850 1,850 - 23,500 1,300 24,800 PPK GROUP LIMITEDConsolidated Entity 2014 $000s 2013 $000s 69 11,479 30,430 Bank overdrafts and bank loans are secured as noted in note 19 above. NOTE 21 INTEREST BEaRING lIaBIlITIES (continued) (c) Assets pledged as security The carrying amounts of non-current assets pledged as security are: First mortgage Freehold investment properties Registered Mortgage Debentures over company assets and cross guarantees & indemnities Freehold investment properties Term receivables Financial Assets Investments in associated entities Plant & equipment Intangible Assets Notes 14(a) 14(a) Total non-current assets pledged as security The following current assets are also pledged as security under the registered mortgage and cross guarantees & indemnities Freehold investment properties Cash assets Term receivables Receivables - current Inventories Other current assets Total current assets pledged as security Total assets pledged as security - - 1,437 493 6,718 4,607 24,734 18,517 4,904 10,916 8,319 10,612 1,069 54,337 79,071 The total financial assets included in the above pledged as security for liabilities is $25,576,000 ( 2013 $23,154,000 ) (d) Unused credit facilities (i) The consolidated entity had access to the following lines of credit at balance date: Total facilities available Bank Overdraft Bank Loans Master asset finance facility Not utilised at balance date Bank Overdraft Bank Loans Master asset finance facility Utilised at balance date Bank Overdraft Bank Loans Master asset finance facility 1,000 27,591 - 28,591 1,000 80 - 1,080 - 27,511 - 27,511 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 - 10,472 2,259 493 993 1,985 46,632 - 1,345 6,803 2,047 1,017 312 11,524 58,156 1,000 24,190 - 25,190 1,000 690 - 1,690 - 23,500 - 23,500 ANNUAL REPORT 2O14 70 Provided by the National Australia Bank Ltd (NAB). $19,800,000 (2013 $19,800,000) variable interest rate facilities provided by the NAB. Further details on the banking facilities with the NAB are included in note 21c. Banking facilities with the NAB are subject to annual review and six monthly satisfaction of banking covenants. There is no reason to believe that facilities will not be routinely renewed. At year end the interest rates on the facilities range from 5.44%-5.66% (2013 5.66% to 7.94%) inclusive of bank margins. Provided by the Commonwealth Bank of Australia Ltd (CBA). $3,700,000 of variable interest rate facilities and $4,000,000 of market rate facilities are provided by the CBA. Further details on the banking facilities with the CBA are included in note 25c. Variable interest banking facilities with the CBA are for two years and subject to a six monthly satisfaction of banking covenants. There is no reason to believe that facilities will not be renewed at the end of the term. At year end the interest rate on the facility was 5.66% inclusive of bank margins. Market rate interest banking facilities with the CBA are for 3 years and subject to six monthly satisfaction of banking covenants. There is no reason to believe that facilities will not be renewed at the end of the term. At year end the interest rate on the facility was 6.55% inclusive of bank margins. Consolidated Entity NON-CURRENT lIaBIlITIES NOTE 22 TRaDE aND OTHER PaYaBlES Other Loans - secured Other Loans - unsecured Payables of continuing operations Notes 2014 $000s - - - 2013 $000s 1,229 1,652 2,881 The Group has loans owing to the non-controlling interest investors in the Easy Living Unit Trust, Easy Living Bundaberg Trust and SLOT Loan Trust. The loans in the Easy Living Unit Trust and Easy Living Bundberg Trust are secured by a registered second mortgage over the properties owned by each of the trusts and a registered second ranking fixed and floating charge over the assets of each trust. They are repayable in 2017. The loans in the SLOT loan Trust are unsecured and are repayable by February 2015. The current terms of the loans are that they are interest free, and are in proportion to the number of units each investor holds in each of the trusts. The non-controlling investors in each of the unit trusts are entitled to trust distributions each year, of the trusts net profit in proportion to the number of units they hold. The group considers that under the existing terms of the loans and their anticipated repayment date that their carrying value approximates the present value of the loans. SHaREHOlDERS’ EQUITY NOTE 23 CONTRIBUTED EQUITY PaID-UP CaPITal 72,647,903 (2013 50,764,776) ordinary shares fully paid 33,731 28,673 Movements in ordinary share capital Balance at the beginning of the financial year Shares repurchased under approved buy back scheme New share issue Treasury shares - share and loan plan 28,673 (56) 4,882 232 33,731 29,016 (343) - - 28,673 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. Movements in number of ordinary shares Balance at the beginning of the financial year Shares repurchased under approved buy back scheme New share issue New share issue - share plan and loan No. No. 50,764,776 (125,938) 6,509,065 15,500,000 51,625,430 (860,654) - - 72,647,903 50,764,776 PPK GROUP LIMITED Consolidated Entity 71 2014 $000s 2013 $000s Notes NOTE 23 CONTRIBUTED EQUITY (continued) Capital Risk Management The Group considers its capital to comprise its ordinary share capital, reserves and 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% (2013 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 32,511 (4,904) 27,607 35,891 63,498 43% 24,800 (1,345) 23,455 30,414 53,869 44% There have been no significant change 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. NOTE 24 RESERVES Available-for-sale financial assets Share options Movement in reserves Share options Opening balance Employee share based payment - options Closing balance Available-for-sale financial assets Opening balance Revaluation Deferred tax impact Expensed on impairment Deferred tax impact Realised gains to (profit) / loss Deferred tax impact Closing balance 54 1,338 1,392 8 1,330 1,338 (93) 53 (15) 263 (78) (109) 33 54 (93) 8 (85) 8 - 8 59 (180) 54 - - (36) 10 (93) 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 an available-for-sale financial asset is either sold or considered impaired the amount held in this reserve is recognised in the profit or loss. ANNUAL REPORT 2O14 72 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 InterestRate Notes Floating Interest Rate $000s Within 1 Year $000s 1 to 5 Years $000s Non-Interest Bearing $000s Fixed Interest Rate Maturing Consolidated 2014 Financial Assets Receivables Loans receivable 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 Total financial assets Financial Liabilities Bank Loans Other Loans Trade & Other Payables - non-current Trade & Other Payables - current Total financial liabilities at amortised cost Consolidated 2013 Financial Assets Receivables Loans receivable Loans receivable Loans and receivables Cash Available-for-sale financial assets Investments in associated companies Financial assets at fair value through profit or loss - held for trading Total financial assets Financial Liabilities Bank Loans Other Loans Trade & Other Payables - non current Trade & Other Payables - current 0.0% 14.8% 2.4% 0.0% 0.0% 0.0% 5.7% 10.0% 0.0% 0.0% 0.0% 14.8% 14.8% 3.3% 0.0% 0.0% 0.0% 5.8% 10.0% 0.0% 0.0% 10 10 9 13c 13a 13b 21 21 22 18 10 10 10 9 13c 13a 13b 21 21 22 18 Total $000s 8,319 10,916 19,235 4,904 1,437 493 8,319 - 8,319 2,513 1,437 493 - - 12,762 26,069 - - - 7,401 7,401 2,047 - 2,047 937 2,259 493 27,511 5,000 - 7,401 39,912 2,047 6,977 6,803 15,827 1,345 2,259 493 - - - - 2,391 - - - 10,916 10,916 - - - - - 2,391 10,916 27,511 - - - - 5,000 - - 27,511 5,000 - - - - - - - - - - - - - - - - 408 - - - - 6,803 6,803 - - - - 6,977 6,977 - - - - - - 408 6,803 6,977 5,736 19,924 23,500 - - - 1,300 - - - - - - 2,881 493 3,374 23,500 1,300 2,881 493 28,174 Total financial liabilities at amortised cost 23,500 1,300 PPK GROUP LIMITED 73 NOTE 25 FINaNCIal RISK MaNaGEMENT (continued) Fair Value The carrying values of financial assets and liabilities listed above approximate their fair value. 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 and parent’s investments and obligations expose it to market, liquidity and credit risks. The nature of the risks and the policies the Group and parent has for controlling them and any concentrations of exposure are discussed as follows: Hierarchy The following tables classify financial instruments recognised in the statement of financial position of the group according to the hierarchy stipulated in AASB13 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 financial instruments, 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). assets Group 2014 Fair value through profit or loss Listed equity securities Available-for-sale financial assets Listed equity securities Group 2013 Fair value through profit or loss Listed equity securities Available-for-sale financial assets Listed equity securities Unlisted equity securities Financial risk Management Level 1 Level 2 Level 3 Total - 1,437 1,437 - 2,259 - 2,259 - - - - - - - - - - - - - - - 1,437 1,437 - 2,259 - 2,259 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 and parent entity’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. ANNUAL REPORT 2O14 74 Notes Consolidated Entity 2014 $000s 2013 $000s NOTE 25 FINaNCIal RISK MaNaGEMENT (continued) 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 Loans Net Exposure 2,391 - 2,391 27,511 27,511 (25,120) 408 - 408 23,500 23,500 (23,092) 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% (176) 176 (162) 162 (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. As the market value of listed companies fluctuate the fair value of the available-for-sale financial assets and financial assets at fair value through profit or loss of the group change continuously. Changes in fair value of available-for-sale financial assets are recognised through the available for sale reserve unless 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. Changes in the fair value of financial assets at fair value through profit or loss are taken directly to profit or loss for the year. The group’s portfolio of investments in listed companies is concentrated in a 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. 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 its financial assets at fair value through profit or loss is as follows: Financial Assets Available-for-sale financial assets Investments in listed companies Financial assets at fair value through profit or loss Investments in listed companies 1,437 - 1,437 2,259 - 2,259 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%. 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% 26 (26) 76 (76) 1 (1) 157 (157) PPK GROUP LIMITED75 NOTE 25 FINaNCIal RISK MaNaGEMENT (continued) (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 21% (2013: 22%) 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. (b) Credit Risk The Group’s maximum exposure to credit risk is generally the carrying amount net of any provisions for doubtful debts. The Group’s 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 Dandenong property 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. Refer to note 10 for detail the Group’s trade and other receivables. The group’s exposure to credit risk at balance date by country of loans and receivables is as follows: Consolidated Entity Notes Loans and receivables by country Australia United States of America United Kingdom Germany Liechtenstein New Zealand The groups exposure to credit risk at balance date by industry of loans and receivables is as follows: Loans and receivables by industry Property development Plastic Packaging Mining Equipment Retirement Villages Manufacturing Property and investing 2014 $000s 19,026 131 54 24 - - 19,235 7,342 289 7,348 3,109 - 1,147 19,235 2013 $000s 19,083 228 9 - 2 - 19,322 7,205 79 8,041 3,179 70 757 19,331 ANNUAL REPORT 2O1476 NOTE 25 FINaNCIal RISK MaNaGEMENT (continued) (c) liquidity risk Liquidity risk is the risk that the Group and parent 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 and parent’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 21. 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 balance sheet. Bank loans provided by the NAB are subject to an annual review with the next review date being 30 November 2014. Bank overdraft facility is provided by the NAB with the current facility expiring on 31 January 2016. The Bank loans provided by the NAB have facilities that expire on 30 September 2014 and 31 January 2016. A facility of $1,380,000 expires on 30 September 2014, $1,380,000 of this facility is currently used. A facility of $18,500,000 expires on 31 January 2016, $18,420,000 of this facility is currently used. The CBA variable interest facilities expire on 23 March 2015 and are each for an amount of $1,850,000 that is fully utilised. The CBA market rate loan facility expires in April 2017 and is an amount of $4,000,000 that is fully utilised and amortised quarterly. These new renewal dates have been used for disclosure of maturity dates of bank overdraft and loans, even though they are subject to an annual review as there is no reason to believe that the facilities will be altered by the bank at the time of annual review. Consolidated 2014 Financial Liabilities (current & non-current) Trade & Other Payables Bank Loans & overdrafts Other Loans - other persons Total Financial Liabilities Consolidated 2013 Financial Liabilities (current & non-current) Trade & Other Payables Bank Loans & overdrafts Other Loans - other persons Other Loans - trade and other payables Total Financial Liabilities Carrying amount < 6 months 6 - 12 months 1 - 3 years > 3 years Contractual Cash flows 7,401 27,511 5,000 7,401 2,164 5,125 39,912 14,690 493 23,500 1,300 2,881 28,174 493 2,377 1,009 - 3,879 - 3,565 - 3,565 - 2,440 315 2,755 - 23,611 - 23,611 - 20,554 - 1,652 20,554 - - - - - - - 1,229 1,229 7,401 29,340 5,125 41,866 493 25,371 1,324 2,881 30,069 PPK GROUP LIMITED NOTE 26 lEaSE COMMITMENTS (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 77 Consolidated Entity 2014 $000s 2013 $000s Notes 3,865 9,370 - 13,235 121 96 - 217 The Group leases premises in Nowra under non cancellable operating leases. The terminating date of the lease is 31st May 2015. The Group has an option to renew the lease for the Nowra premises, for a period of up to 2 years. The Group leases premises in Tomago under non cancellable operating leases. The terminating date of the lease is 30th June 2017. The Group has 2 options to renew the lease for the Tomago premises, for a period of up to 5 years each. The Group leases premises in Port Kembla under non cancellable operating leases. The terminating date of the lease is 30th April 2018. The Group has an option to renew the lease for the Port Kembla premises, for a period of up to 5 years. The Group leases a office in Brisbane under non cancellable operating leases. The terminating date of the lease is 30 June 2015. The Group leases 7 of its Coaltrams under non-cancellable operating leases. The terminating dates of the leases run to approximately September 2019. The Group operates a car fleet under an operating lease agreement. NOTE 27 CONTINGENT lIaBIlITIES Group Cross guarantees of the Groups banking and finance facilities totalling $20,880,000 (2013 $22,190,000) of which $19,800,000 (2013 $20,500,000) was drawn at balance date. NOTE 28 SEGMENT INFORMaTION The Group applies AASB 8 Operating Segments 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. Information regarding segment assets is not provided to the Directors, segment assets therefore have not been 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 segments are as follows: - The Investment Property Segment owns three industrial properties and two retirement villages. - The Investment Segment owns primarily listed and some unlisted investments, it has also made loans from which it earns interest. Investments in associated entities are included in this segment. - The Mining Equipment Segment manufactures portable underground mining equipment, Coaltram vehicles and performs service work. ANNUAL REPORT 2O1478 NOTE 28 SEGMENT INFORMaTION (continued) (a) Year ended 30 June 2014 Business Segments Investment Properties $000s Investing $000s Mining Equipment $000s Total of Continuing Operations $000s - 12,568 Segment Revenue from external customers Sales revenue Rental income Interest received Gain on sale of available-for-sale financial assets Dividends received Segment other income Net gain on disposal of plant & equipment Other segment income Total Revenue and other income Segment expenses include Depreciation and amortisation Impairments - available-for-sale financial assets - 4,414 - - - 4,414 - - - 4,414 617 240 2,300 1,206 62 3,568 - 30 30 3,598 - 828 Segment result 2,597 2,770 Reconciliation of segment net profit to group net profit before tax Amounts not included in segment profit but reviewed by the Board Net gain on bargain purchase Share based payment expense Business combination transaction expense Unallocated corporate expenses Unallocated interest expense Consolidated operating (loss) before income tax Non-controlling interests share of after tax profit Income tax (expense) Consolidated profit after income tax attributable to owners of PPK Group limited (b) Year ended 30 June 2013 Segment Revenue from external customers Sales revenue Rental income Interest received Dividends received Segment other income Net gain on disposal of plant and equipment Other segment income Total Revenue and other income Segment expenses include Depreciation and amortisation Segment result - 3,060 - - 3,060 - - - - 3,060 - - 2,173 38 2,211 - 661 661 661 328 - 2,248 2,819 Reconciliation of segment net profit to group net profit before tax Amounts not included in segment profit but reviewed by the Board Share of profit from associates accounted for using the equity method Unallocated corporate expenses Unallocated interest expense Consolidated operating (loss) before income tax Non-controlling interests share of profit Income tax (expense) Consolidated (loss) after income tax attributable to owners of PPK Group limited - - - 12,568 8 14 22 12,590 360 - 395 5,002 - - - 5,002 6 - 6 5,008 370 707 12,568 4,414 2,300 1,206 62 20,550 8 44 52 20,602 977 1,068 5,762 2,828 (1,330) (731) (1,900) (1,569) 3,060 (432) (109) 2,519 5,002 3,060 2,173 38 10,273 6 661 667 10,940 698 5,774 493 (1,514) (1,298) 3,455 (365) (707) 2,383 PPK GROUP LIMITED NOTE 28 SEGMENT INFORMaTION (continued) (c) Geographic location of Customers Although the group operates in Australia the mining equipment manufacturing segment has sales revenue from customers located overseas. Additional disclosure of sales revenue by geographical location of external customers that represent 10% or more of total entity sales revenue is as follows: 79 Australia Germany United States of America United Kingdom New Zealand Liechtenstein Other countries 2014 $000s 12,008 235 195 130 - - - 12,568 2013 $000s 3,922 - 682 278 2 119 - 5,003 The geographical location of receivables, relating to these sales, is disclosed in Note 25 of these accounts. All Non current receivables are from customers based in Australia. NOTE 29 BUSINESS COMBINaTIONS Summary of Acquisition During the period PPK Group incorporated two new companies being PPK Mining Equipment Pty Ltd and PPK Mining Repairs Alternators Pty Ltd. On 17 March 2014 these companies purchased specific business assets and assumed specific business liabilities of Anderson Industries Australia Pty Ltd and DMS Mining Services Pty Ltd. PPK Group also gained 100% control of Anderson Mining Hire Pty Ltd, DMS Tech 1 Pty Ltd, Coaltec Pty Ltd and Anderson Group of Companies Pty Ltd on 17 March 2014. At the time of purchase, Anderson Mining Hire Pty Ltd was in the business of hiring out Coaltram mining vehicles. DMS Tech 1 Pty Ltd and Coaltec Pty Ltd held or had the rights to intangible assets. Anderson Group of Companies acted as a holding company. This business combination was accounted for using the following fair values of assets and liabilities: Assets Acquired Inventory Trade Receivables Other Receivables Prepayments Fixed Assets Deffered tax asset Intangible Assets Liabilities Assumed Trade Creditors Other Payables & accuals Payroll liabilities & accruals Provisions Deferrred tax liability Borrowings Fair value of net assets acquired Less: Cash consideration paid Gain on bargain purchase $000s 9,682 2,471 724 217 6,120 487 2,000 21,701 1,870 979 176 1,625 1,212 11 5,873 15,828 13,000 2,828 The business combination resulted in a gain on bargain purchase since the fair value of the net assets acquired was higher than the consideration paid. The gain on bargain purchase was recognised seperately in profit or loss. ANNUAL REPORT 2O1480 NOTE 29 BUSINESS COMBINaTIONS (continued) Revenue and Profit Contribution The acquiree businesses contributed $8.282m of revenue and $0.039m of net profit after tax to the group from the date of acquisition 17 March 2014 to 30 June 2014. It is impracticable to disclose the profit that the businesses would have contributed if the acquisition had occurred on 1 July 2013 since the businesses were run as part of a larger group and under different management without access to their records. Acquisition Costs Costs arising directly from the acquisition have been expensed directly in profit or loss and have been separately identified. The total amount of acquistion costs is $0.731m. Intangibles An intangible asset has been recognised to the value of $2m. It represents the fair value of patents and associated intellectual property purchased from the vendors which are used in the manufacture of the Coaltram engine management system. Contingent Liabilities There are no contingent liabilities arising fom the business combination as as 30 June 2014. Contingent Consideration There is no contingent consideration arising fom the business combination as as 30 June 2014. NOTE 30 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: The Group has made loans to the ASX-listed entity SubZero Group Limited. Mr Glenn Molloy was a Director of SubZero Group Limited from April 2013 to November 2013. The loan was repaid on 2 August 2014. Loans advanced Interest paid and credited to loan Loans repaid Balance outstanding Notes Consolidated Entity 2014 $000s 308 31 (261) 78 2013 $000s 300 0 8 308 Directors and key management personnel and their related entities had made loans to the Easy Living Unit Trust. The loans were secured by a second mortgage over property held by the trust. Loans are repayable on 16 February 2017 and are interest free under current terms. The Easy Living Unit Trust is a subsidiary of the Group by virtue of its 50% ownership interest. Balance at start of year Loans advanced to the Group Loans repaid by the Group Total advanced to the Group Interest paid and credited to loan Reclassification of Key Management Personel Trust distribution credited to loan Balance outstanding 350 - (50) 300 - (25) - 275 365 - (15) 350 - - - 350 Loans to the Easy Living Bundaberg Trust, secured by a second mortgage over property held by the trust Loans are repayable on 8 October 2017 and are interest free under current terms The Easy Living Bundaberg Trust is a subsidiary of the Group by virtue of its 50% ownership interest. Balance at start of year Loans advanced to the Group Loans repaid by the Group Total advanced to the Group Reclassification of Key Management Personel Trust distribution credited to loan Balance outstanding 407 - (50) 357 (23) - 334 - 425 (18) 407 - - 407 PPK GROUP LIMITEDNOTE 30 RElaTED PaRTIES (continued) Loans to the SLOT Loan Trust, are secured Loans are repayable on 7 February 2015 and are interest free under current terms The SLOT Loan Trust is a subsidiary of the Group by virtue of its 51% voting interest. Consolidated Entity 81 Balance at start of year Loans advanced to the Group Loans repaid by the Group Total advanced to the Group Reclassification of Key Management Personel Trust distribution credited to loan Balance outstanding PPK Group Limited - ordinary shares The Easy Living Unit Trust - units The Easy Living Bundaberg Trust - units The SLOT Loan Trust - units Transactions with Associates Interest receiveable from associates PPK Willoughby Funding Unit Trust Nerang Street Southport Project Trust Loans and receivables from associates Current PPK Willoughby Funding Unit Trust Nerang Street Southport Project Trust Non Current PPK Willoughby Funding Unit Trust Nerang Street Southport Project Trust Notes 2014 $000s 1166 - (148) 1,018 (292) 149 875 2013 $000s 0 1,200 (204) 996 - 170 1,166 35,581,667 260 380 900 19,691,342 260 380 900 1,881 101 1,982 - 28 28 6,570 746 7,316 891 44 935 - 230 230 6,606 369 6,975 ANNUAL REPORT 2O1482 NOTE 31 CaSH FlOW INFORMaTION (a) Reconciliation of profit/(loss) after income tax to the cash provided by operating activities Profit/(Loss) after income tax Cash flows in operating activities but not attributable to operating result: Non controlling interest equity distribution Non-cash flows in operating profit: Amortisation Depreciation Impairment of land & buildings Interest received on other loans Impairment of available-for-sale-assets Transfers to provisions Other Income Share of (profit) / loss from associates Loss/(Profits) on sale of available-for-sale assets (Profits) on sale of shares at fair value through profit and loss Share based payment expense Gain on bargain purchase Fair value adjustments on available-for-sale assets (Profits) on sale of plant & equipment (Profits) on sale of property 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 financial assets at fair value through profit and loss decrease/(increase) in trade and other debtors decrease/(increase) in intangible asset investment decrease/(increase) in prepayments (increase)/decrease in inventories (decrease)/increase in trade creditors and accruals Net cash/(used in) provided by operating activities (b) Reconciliation of Cash For the purposes of the cash flow statement, 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 consolidated entity had the following non cash adjustments, expense/(income); Gain on bargain purchase Impairment of available-for-sale financial assets These related to shares and options held in listed company investments. Notes Consolidated Entity 2014 $000s 2013 $000s 2,519 2,748 (432) (365) 199 977 240 (884) 828 (110) (44) - (1,206) - 1,330 (2,828) - (8) - 206 (270) 35 822 (2,855) (647) (540) 87 1,124 (1,457) 1 4,903 - 4,904 (2,828) 828 (2,000) 12 700 - (1,197) 22 213 - (493) (264) - - - (369) 6 - (364) 218 206 327 (367) 471 11 145 (202) 1,458 1 1,344 - 1,345 - 22 22 PPK GROUP LIMITEDNOTE 32 EVENTS SUBSEQUENT TO THE END OF THE REPORTING PERIOD 83 Subsequent to year end the Group purchased the MONEx Electronic Engine Management System technology for $2.8 million. The purchase was completed on 28th August 2014. The purchase price will be paid in stages up to the final instalment in August 2015. The assets purchased include inventory, intellectual property rights, tools and equipment. The purchase settled close to the date of preparation of this report and as such the Group’s determination of accounting fair values for the assets is in progress. The Group is entitled to apportion the purchase price across the purchased assets using whichever methods it sees as appropriate. Detailed apportonment calculatons are in progress. No other matter or circumstance has arisen since the end of the financial year which is not otherwise dealt with in the Directors Report or the Consolidated Financial Statements, that has significantly affected or may significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in subsequent years ANNUAL REPORT 2O14 DIRECTORS’ DECLARATION FOR THE YEAR ENDED 30 JUNE 2014 84 1. In the opinion of the Directors of PPK Group Limited: (a) The consolidated financial statements and notes of PPK Group Limited are in accordance with the Corporations Act 2001, including Giving a true and fair view of its financial position as at 30 June 2014 and of its performance for the financial year ended on that date; and (ii) (b) Complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and There are reasonable grounds to believe that PPK Group Limited will be able to pay its debts as and when they become due and payable. 2. The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the chief executive officer and chief financial officer for the financial year ended 30 June 2014. 3. Note 2 confirms that the consolidated financial statements also comply with International Financial Reporting Standards. Signed in accordance with a resolution of the Directors: Robin Levison Executive Chairman Glenn Molloy Director Dated this 30th day of September 2014 PPK GROUP LIMITED INDEPENDENT aUDITOR’S REPORT             85                                                        ANNUAL REPORT 2O1486                                      PPK GROUP LIMITED   87                         ANNUAL REPORT 2O14SHaREHOlDER INFORMaTION AS AT 15 SEPTEMBER 2014 88 (a) Number of PPK shareholders: 955 (b) Total shares issued: 72,647,903 (c) Percentage of total holdings by or on behalf of the 20 largest shareholders: 72.4% (d) Distribution schedule of holdings 1-1,000 1,001-5,000 5,001-10,000 10,001-100,000 100,001 and over less than marketable parcel Ordinary Shares 109 277 212 287 70 56 (e) Voting rights: Every member present personally or by proxy or attorney etc, shall, on a show of hands, have one vote and on a poll shall have one vote for every share held. TOP 20 HOlDERS OF ORDINaRY FUllY PaID SHaRES Holder Name Wavet Fund No 2 Pty Ltd Ignition Capital Pty Ltd Equipment Company of Australia Pty Limited McNamara Investment Group Pty Ltd Zhang Family Investment Group Pty Ltd Contemplator Pty Ltd Mr Dennis J & Mrs Graciela McGillicuddy Mr Barry Silverstein John E Gill Operations Pty Limited Ignition Capital No 2 Pty Ltd Mr Guy Lance Jones Dealcity Pty Limited Ruminator Pty Ltd Ryan Consultancy Group Pty Ltd John E Gill Trading Pty Ltd Mr Robert Joseph Faulks & Mrs Patricia Baynton Faulks Mr Ian Macdonald Mr Leslie John Field & Mrs Eve Field Onmell Pty Ltd Charles Peter Taylor TOTAL 12,739,000 11,016,667 9,460,000 4,000,000 4,000,000 2,552,484 1,200,000 1,199,981 1,077,993 750,000 750,000 500,000 500,000 500,000 490,992 459,535 425,000 355,936 328,000 320,000 % 17.535 15.164 13.022 5.506 5.506 3.513 1.652 1.652 1.484 1.032 1.032 0.688 0.688 0.688 0.676 0.633 0.585 0.490 0.451 0.440 52,625,588 72.438 Substantial Shareholders Shares to Which Entitled % of Issued Capital Wavet Holdings Pty Ltd Ignition Capital Pty Ltd and Associates Equipment Company of Australia Pty Ltd 12,739,000 11,766,667 9,460,000 17.54 15.35 13.02 PPK GROUP LIMITED CONTENTS 1 2 4 6 Company Profile and Growth Strategy 2015 Goals 2014 Highlights Executive Chairman’s Report 14 Board of Directors 16 Executive Management 18 Corporate Governance Statement 27 Financial Report IBC Corporate Directory COrpOraTE DirECTOry ppK Group Limited aBN 65 003 964 181 A public company incorporated in New South Wales and listed on the Australian Securities Exchange (ASX Code: PPK) Directors Robin Levison (Executive Chairman) Jury I. Wowk (Non-Executive Deputy Chairman) Glenn R. Molloy (Executive Director) Raymond M. Beath (Non-Executive Director) Graeme D. Webb (Non-Executive Director) Company Secretary Andrew J. Cooke Head and Registered Office PPK Group Limited Level 27, 10 Eagle Street Brisbane QLD 4000 Telephone Email Web Site: +61 7 3054 4500 info@ppkgroup.com.au www.ppkgroup.com.au Auditors Grant Thornton Audit Pty Limited Level 17, 383 Kent Street Sydney NSW 2000 Australia Telephone: Fax: + 61 2 8297 2400 +61 2 9299 4445 Share Registry Boardroom Pty Limited Level 7, 207 Kent Street Sydney NSW 2000 Australia Tel Fax 1300 737 760 1300 653 459 International Tel Fax +61 2 9290 9600 +61 2 9279 0664 www.boardroomlimited.com.au 4 1 O 2 T R O P E R L A U N N A I I I I D D E E T T M M L L P P U U O O R R G G K K P P P P 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 4 ANNUAL REPORT 2014 

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