HEADS AND ‘ENABLERS’ - SPOT GLOSS
ANNUAL
REPORT
2017
SEVEN GROUP
HOLDINGS LIMITED
ABN 46 142 003 469
A
Annual Report 2017ENABLERS 16
INDUSTRIAL
SERVICES
ANTONIO TALITE
PLANT MAINTENANCE
AND COMPLIANCE
OFFICER, COATES HIRE
Antonio is one of the key
people who transformed
the way Coates Hire
conducts maintenance
on its hire equipment.
See page 22 for more
JOHN HUKKA
TECHNICAL TRAINER –
CONDUCTING CUSTOMER
TRAINING ON A 16M GRADER
6
MD & CEO’S
LETTER
24
MEDIA
INVESTMENTS
THERESE HEGARTY
DIRECTOR OF CONTENT
DISTRIBUTION & RIGHTS,
SEVEN NETWORK
Therese is closely involved in all
Seven’s content initiatives and
drives the expansion of Seven’s
content business internationally.
See page 24 for more
Seven Group HoldingsENABLERS 28
ENERGY
JOEL THOMPSON
BRANCH MANAGER –
CONSTRUCTION/
HIGHWAY TRUCKS,
WESTRAC
30
OTHER
INVESTMENTS
SALLY MCPHERSON
CHIEF OPERATING OFFICER,
iSEEKPLANT
Meet Sally, who with brother
Drew and childhood friend
Matt has enabled thousands
of project managers around
Australia to find and hire
almost any machine
they need, in a few
easy fingertip steps.
See page 31 for more
Group structure
Chairman’s letter
MD & CEO’s letter
Five year results
Operating and financial review
Industrial services
Media investments
Energy
Other investments
Risk factors associated with SGH
Corporate social responsibility
Board of Directors
Corporate governance statement
Directors’ report
Remuneration report
Auditor’s independence declaration
Financial report
Corporate directory
Company information
2
4
6
8
9
16
24
28
30
32
35
40
42
52
55
75
76
145
145
1
Annual Report 2017ENABLERSCONTENTS GROUP
STRUCTURE
Our market leading Industrial Services businesses
are uniquely positioned to benefit from the mining
production cycle and increased infrastructure
investment on the East coast. The focus
remains on enabling customer performance
with a differentiated service, superior logistics
and technology advances.
100% AUSTRALIA
46.5%
100%
Discontinued operation
100% CHINA
INDUSTRIAL
SERVICES
2
Seven Group Holdings Seven West Media is focused on
engaging its audiences and delivering
value through powerful storytelling. As
the most valuable marketing platform
in Australian broadcast history, the
company is providing unprecedented
opportunities to launch new brands,
products and programs.
The Group is well positioned
to benefit from the current
shortage in East coast gas
through its energy assets
and targeted investments.
100%
50%
22.7%
AUSTRALIAN ASSETS
› Longtom field (100% ownership),
Gippsland Basin VIC
› Crux field (15% ownership),
Browse Basin WA
› Echuca Shoals exploration permit
(100% ownership), Browse Basin WA
INTERNATIONAL ASSETS
› 11.2% ownership in Bivins Ranch,
Texas USA
The Group will continue
to explore opportunities
to enhance the value of
its listed investments
as a store of value
and liquidity.
LISTED PORTFOLIO
Carrying value at June 2017
– $486.3m
PROPERTY PORTFOLIO
Direct property investments
Carrying value at June 2017
– $29.4m
› Kings Square development,
Perth WA
› Seven Hills (formerly
Dianella studios, Perth WA)
Indirect property investments
Carrying value at June 2017
– $26.2m
› Invested in unlisted
property trust
(Flagship – 47%)
MEDIA
INVESTMENTS ENERGY
OTHER
INVESTMENTS
3
Annual Report 2017 Kerry Stokes AC
Executive Chairman
CHAIRMAN’S
LETTER
We have great assets, a strong
management team and an
engaged workforce, which
will enable us to capture
the opportunity of improving
markets in which we operate.
Kerry Stokes AC
Executive Chairman
4
Seven Group Holdings 24%
Total
shareholders
return over
3 years
ATTRACTIVE
EBIT
Multiple
on sale of
WesTrac
China
I would also like to recognise the performance of the
team in China, headed up by Lawrence Luo, who has
been pivotal in organically building this business. As a
result of this transaction, SGH will be able to re-deploy
capital into other investments.
Our media interests are in a period of rapid change,
especially in how we engage with our audiences of all
ages. Our capacity to connect with them across all
media and all screens, particularly mobile devices, will
determine our future. While Seven Network delivered a
record revenue share above 40 per cent in the free to air
market, it acknowledges that the pie is diminishing and
there is a need to adapt with new strategies.
Unlike our overseas competition, free to air broadcasters
need to comply with a range of local rules regarding
local program production and content, however we
recognise the Federal Government’s minor levelling of
the playing field by eliminating television licence fees.
As we look to the future I’d like to pay tribute to
Professor Murray Wells, who elected to retire as
a Director in November 2016, after 20 years of
distinguished service. I thank Murray for his valuable
work, particularly for his contribution as Chairman of the
Audit & Risk Committee, where he played a critical role
in establishing the governance framework supporting
the Group.
We have great assets, a strong management team
and an engaged workforce, which will enable us to
capture the opportunity of improving markets in which
we operate. We have a successful partnership with
Caterpillar, we are creating new operating businesses
that complement our presence in the mining and
infrastructure sectors, and we have a major investment
and market-leading presence in media.
We believe that the combination of our assets, people
and opportunities will allow SGH to continue to deliver
shareholder value. On behalf of the Board I thank you,
our staff and shareholders, for your continuing support
and commitment to your Company.
A range of initiatives undertaken by your Board and
Management over the past three years has ensured
Seven Group Holdings (SGH) has been well positioned
to prosper through challenging market conditions.
A key component of these initiatives has been the
significant restructuring of our businesses, with the
support of an engaged workforce and committed
management. Our goal was to right-size the labour
force and refine the cost base to ensure we stayed
competitive, while supporting our customers to improve
their efficiencies and increase production volumes.
This has allowed them to adjust their respective
business models to meet the challenges. Today we are
seeing the signs that market conditions, particularly for
our Industrial Services businesses in Australia, have
started to improve.
The Group’s Industrial Services operations, which
include WesTrac, Coates Hire and AllightSykes, have
effectively leveraged the resource production cycle and
new infrastructure investment cycle, particularly in the
eastern states of Australia, to create long-term value
for the Group.
SGH has continued to focus on creating shareholder
value through disciplined capital management. Our
fundamental belief that we traded at a discount to
theoretical value, supported the Group’s willingness to
consider further on-market share buy-backs of both the
ordinary and TELYS4 shares.
The underlying strength of our businesses is now being
appreciated by capital markets, with SGH positioned in
the top quartile of total shareholder returns over the last
three years against the ASX 100.
Our businesses continue to invest in world class
facilities, which will enable us to continue to service our
customers effectively. One such investment is the new
service centre and parts warehouse in Western Sydney,
which will enable WesTrac NSW to work more closely
with customers in the fast growing South West region.
It is also with some mixed emotion that today we
announce the proposed sale of WesTrac China to
Lei Shing Hong, subject to regulatory approval.
WesTrac China commenced operations in 2000 in the
territories of Hebei, Liaoning, Heilongjiang, Jilin, Shanxi,
and Inner Mongolia.
In partnership with Caterpillar, WesTrac China has forged
close customer relationships and established a leading
market presence in these territories.
5
Annual Report 2017 Ryan Stokes
Managing Director &
Chief Executive Officer
MD & CEO’S
LETTER
The Annual Report this
year highlights some
of the exceptional
employees across our
many businesses who, with
their industry knowledge,
skills and tenacity are
enabling the successful
transformation of our
market leading businesses.
Ryan Stokes
MD & CEO
6
The focus this year has progressed from cutting
costs and restructuring to utilising data and
technology to better deliver compelling customer
propositions with differentiated service.
Our market leading Industrial Services businesses
were uniquely positioned to benefit from the mining
production cycle and increased infrastructure
investment on the East coast. However it was the
staff who captured these opportunities to deliver a
full year result substantially ahead of an original flat
market earnings guidance. We are deeply grateful
for their efforts and will continue to focus on their
development and engagement whilst increasing our
attention on diversity.
Our drive to improve operational performance has
not just focused on systems and technology –
safety is paramount and we have made significant
improvements with LTIFR and TRIFR down across
WesTrac, Coates Hire and AllightSykes. Our focus
remains on embedding a positive safety culture
supported by the provision of safety leadership
training at all levels. We continue to enhance our
safety management systems to further improve
and standardise hazard incident capture and
risk assessment processes which is extended
to contractors.
This year we have benefited from ongoing demand
for parts and services created by the high level of
mining production. This demonstrates the strength
of the CAT dealer model working through the
cycle to be able to deliver value to our customers.
The CAT value proposition continues to provide a
compelling offering for WesTrac’s customers. CAT’s
developments in Autonomous Haulage Systems
(AHS) are enabling our customers in achieving new
levels of productivity, efficiency and safety.
Seven Group Holdings 14%
Growth in
product
support
10%
Underlying
EBIT growth
The Group’s strategy has been consistent around a few
core themes:
• Compete aggressively for market share in each of the
industries in which we operate;
• Collaborate with our customers to provide innovative
solutions to their problems;
• A disciplined approach to enhancing the value in our
energy assets; and
• Focus on costs and capital management and driving
efficiencies across all of our businesses.
Our team has executed this strategic agenda
and delivered a total shareholder return for FY17
of 93.8 per cent and 23.8 per cent over three years.
This placed SGH in the top three performing companies
in the ASX100 for 2017.
In terms of financial performance, the Group’s revenue
grew 2 per cent on the prior year, despite a 21 per cent
fall in Product Sales mainly due to the delivery of Roy Hill
mining fleet in the prior year. While new equipment
mining sales remain challenging, construction sales
increased 16 per cent. Supporting our maintenance
deferral thesis, Product Support revenue grew
14 per cent off record parts volumes, as customers
sought to ameliorate their maintenance backlog on
an ageing fleet.
Positively, the Group’s share of results from
Coates Hire improved $19.5 million against the
prior year with a reinvigorated management team
capturing the infrastructure and construction activity
in New South Wales and Victoria. Furthermore, the fleet
relocation, price realisation and branch rationalisation
initiatives have borne fruit, evidenced by a 36 per cent
increase in Coates Hire’s EBIT margin.
On both a continuing and total operations basis, Group
underlying EBIT improved 10 per cent on FY16 and
was at the upper end of the Group’s revised earnings
guidance for FY17.
The ability to generate strong operating cash flows
through the cycle remains a hallmark of the Group.
Operating cash flow per share of $1.05 represents
a robust total dividend coverage ratio of 2.1 times.
A continued focus on working capital optimisation by
the Group’s industrial services businesses resulted in
the Group generating an operating cash flow to EBITDA
conversion rate of 104 per cent, broadly comparable
to the record 117 per cent achieved in the prior year.
The reduction in statutory NPAT primarily reflects the
Group’s equity accounted share of non-cash intangible
asset impairment provisions recognised by Seven West
Media Limited (SWM) during the year of $374.0 million.
During the year SGH was approached to sell
WesTrac China. This initiated a review of our current
territories and led SGH to the conclusion that it would
be logical to consider the merits of a potential merger
of dealers in China to gain further scale, extend
product offering and customer facing capability.
The sophistication of both our customers and Caterpillar
is necessitating investments in systems, data analytics
and technology solutions that will require scale for the
investment to be value accretive.
These conclusions were supported by the fact that
major customers, such as the state-owned enterprises
(SOE) and global miners, are requiring Caterpillar
dealers to hold more inventories, extend payment terms
and take on greater product risk to support their growth
and efficiency drives.
In reviewing WesTrac China’s performance, it is with
significant pride we acknowledge that we have built a
market leading dealership in North East China, which
despite challenging economic conditions, is profitable
and achieving market leading PINS. This dealership has
grown significantly in capability reflected in AFC rebuild
volume being achieved through Tianjin Rebuild Center,
the first installation and successfully commissioned low
content methane engines and the commissioning of a
new CRM platform allowing the mobile management of
front line activities. This transformation has been led by a
capable local management team with global experience
across multiple OEMs. The next phase of growth we
believe will be supported by further scale.
In considering its position, SGH concluded that
Lei Shing Hong was in the best position to nurture the
WesTac China business and using its adjacent territories
to provide a comprehensive customer proposition
enhancing Caterpillar’s leading market position
and building on the successes of both dealerships.
The proposed sale should not be seen as a lessening
of SGH’s support for the Caterpillar dealer model but a
reflection that SGH has to recycle capital into activities
where the Group can generate a cost of capital return.
Beach Energy delivered strong operating performance
off the back of a record full year production of
10.6 MMboe, up 9 per cent on the previous year.
But even more pleasing, it is targeting similar levels of
production for the next three years made possible by
their exploration drilling success resulting in both 1 and
2P reserves almost doubling. These reserves make
Beach Energy Australia’s largest onshore oil producer
with a major gas business.
In addition, the Group undertook an offshore
inspection and testing campaign at Longtom in the
Gippsland Basin where the Longtom 3 and Longtom 4
wells have been shut-in due to an electrical fault.
Rectification works were undertaken and both wells
are available for production subject to the Group
negotiating commercial agreements for pipeline access
and gas processing. Together with the Longtom 5
development, which is ready to drill, the Group can
deliver in excess of 80 PJ of uncontracted gas into the
tight East coast market.
The Board maintained your dividend through this
challenging cycle whilst making efficient use of available
capital via the share buy-back to enhance shareholder
returns. As our share price more closely reflects intrinsic
value, the Board has elected to increase the interim
dividend by 5 per cent to 21 cps demonstrating their
confidence in the financial and operating outlook
for the Group.
We remain committed and focussed on the delivery
of our strategy – margin expansion, cost control and
cash generation. Our market leading Industrial Services
businesses provide quality, recurrent cashflows
underpinning cash generation through the cycle.
We believe that the combination of our assets, people
and opportunities will allow SGH to continue to deliver
shareholder value. On behalf of the Management team
I thank you, our shareholders, for your continuing
support and commitment to your Company.
7
Annual Report 2017 FIVE
YEAR
RESULTS
Trading revenue
2,884.7
2,837.7
2,779.6
3,088.2
4,751.6
(a)
2017
$m
2016
$m
2015
$m
2014
$m
2013
$m
Underlying results (b)
EBITDA
EBIT
Profit before tax
Profit after tax
Underlying EPS
Statutory results
Profit before tax
Profit after tax
Reported EPS ($)
Operating cash flow per share ($) (c)
Free cash flow per share ($) (d)
Full year fully franked dividend declared
per share ($)
366.9
333.3
249.8
215.4
0.67
79.3
46.2
0.07
1.05
0.96
0.41
340.8
376.6
422.5
686.0
302.8
314.5
374.4
622.8
213.6
230.9
302.2
514.0
184.2
204.3
253.2
398.9
0.56
0.59
0.74
1.20
217.0
(650.1)
310.7
622.9
197.8
(359.1)
262.5
488.6
0.60
(1.29)
0.77
1.10
0.96
0.80
1.49
2.73
0.93
0.60
0.52
2.69
0.40
0.40
0.40
0.40
(a) 2017 figures include continued and discontinued operations. Refer to page 10 for further detail.
(b) Underlying results comprise Statutory results adjusted for significant items and are separately disclosed and reconciled to Statutory performance
in Note 3 of the Annual Report to assist users in understanding the financial performance of the Group. Accordingly they are a non-IFRS measure.
Non-IFRS measures have not been audited or reviewed.
(c) Cash flow per share is calculated by dividing the operating cash flow of the Group by the weighted average number of ordinary shares outstanding
during the year.
(d) Free cash flow is operating cash flow less investing cash flow of the Group divided by the weighted average number of ordinary shares outstanding
during the year.
8
Seven Group Holdings OPERATING
AND FINANCIAL
REVIEW
GROUP BUSINESS MODEL
Industrial Services
Discontinued
operations
WESTRAC AUSTRALIA
CONTROLLED BUSINESS
SGH OWNERSHIP: 100%
COATES HIRE
JOINT VENTURE
SGH OWNERSHIP: 47%
ALLIGHTSYKES
CONTROLLED BUSINESS
SGH OWNERSHIP: 100%
WESTRAC CHINA
CONTROLLED BUSINESS
SGH OWNERSHIP: 100%
INDUSTRY
mining and construction
equipment
STRATEGIC POSITION
#1 equipment solution
company in WA and
NSW/ACT
INDUSTRY
industrial and general
equipment hire
STRATEGIC POSITION
#1 Australian equipment
hire company
INDUSTRY
industrial lighting, pumps,
generators and engines
INDUSTRY
mining and construction
equipment
STRATEGIC POSITION
supplies one of the world’s
broadest ranges of lighting
towers, pumps, generators,
engines and compressors
STRATEGIC POSITION
one of the leading
equipment solutions
companies in China
TRADING REVENUE FY17
$2,203.7M
TRADING REVENUE FY17
$918.2 M
TRADING REVENUE FY17
$68.7M
TRADING REVENUE FY17
$602.4 M
SEGMENT ASSETS
$1,585.2M
SEGMENT ASSETS
$300.2 M
SEGMENT ASSETS
$37.1M
NET ASSETS HELD FOR SALE
$543.4M
Media Investments
Energy
SEVEN WEST MEDIA
ASSOCIATE
SGH OWNERSHIP: 41%
INDUSTRY
diversified media
STRATEGIC POSITION
Australia’s largest diversified media company
TRADING REVENUE FY17
$1,676.0 M
CARRYING VALUE
$442.4 M
ENERGY
CONTROLLED BUSINESS (SGH ENERGY) AND INVESTMENT
IN BEACH ENERGY LIMITED
SGH OWNERSHIP: 100% (SGH ENERGY) AND
23% (BEACH ENERGY)
NON-OPERATED 11% INTEREST IN A TEXAS OIL FIELD
STRATEGIC POSITION
uniquely positioned to take advantage of the Australian
East coast gas shortage
BEACH ENERGY TRADING REVENUE FY17
$647.0 M
SEGMENT ASSETS
$771.4M
INVESTMENTS
PROPERTY
Other Investments
the listed investment portfolio is a store of value
and source of liquidity
UNREALISED GAINS RECOGNISED
IN RESERVES AT JUNE 2017
$103.0M
direct investments include Kings Square and Seven Hills
developments in Perth, WA
Indirect investments comprise a holding in Flagship
REALISED GAINS DURING THE YEAR
$18.8 M
9
Annual Report 2017 OPERATING
AND FINANCIAL
REVIEW
FINANCIAL PERFORMANCE
Year ended 30 June 2017
Cont.
$m
Discont.(c)
$m
Total
$m
Cont.
$m
Discont.(c)
$m.
Total
$m
Cont.
$m
Discont.(c)
$m
Total
$m
Underlying trading
performance (a)
Less:
Significant items (b)
Statutory results
(as reported)
2,282.3
602.4
2,884.7
4.2
55.9
121.0
303.3
–
(4.4)
–
–
–
–
2,282.3
602.4
2,884.7
(4.4)
56.1
4.2
60.3
303.3
(182.3)
–
(182.3)
Revenue
Other income
Share of results from equity
accounted investees
Impairment reversal of equity
accounted investees
Fair value movement of
derivatives
Expenses excluding
depreciation and amortisation
Profit before depreciation,
amortisation, net finance costs
and tax
Depreciation and amortisation
Profit before net finance costs
and tax
Net finance expense
Profit before tax
Income tax expense
Profit for the year
51.7
121.0
–
–
–
–
–
–
–
(128.4)
–
(128.4)
128.4
–
128.4
(1.9)
(2.1)
(4.0)
1.9
2.1
4.0
(2,127.3)
(567.4)
(2,694.7)
8.8
–
8.8
(2,136.1)
(567.4)
(2,703.5)
327.7
39.2
366.9
177.4
(2.1)
175.3
150.3
41.3
191.6
(30.5)
(3.1)
(33.6)
–
–
–
(30.5)
(3.1)
(33.6)
297.2
36.1
333.3
177.4
(2.1)
175.3
119.8
38.2
158.0
(81.3)
(2.2)
(83.5)
(4.8)
–
(4.8)
(76.5)
(2.2)
(78.7)
215.9
(28.8)
33.9
249.8
172.6
(5.6)
(34.4)
(1.9)
(2.1)
0.6
170.5
43.3
(1.3)
(26.9)
187.1
28.3
215.4
170.7
(1.5)
169.2
16.4
36.0
(6.2)
29.8
79.3
(33.1)
46.2
Underlying trading
performance (a)
Less:
Significant items (b)
Statutory results
(as reported)
Year ended 30 June 2016
Cont.
$m
Discont.(c)
$m
Total
$m
Cont.
$m
Discont.(c)
$m.
Total
$m
Cont.
$m
Discont.(c)
$m
Total
$m
Revenue
Other income
Share of results from equity
accounted investees
(Impairment) of equity
accounted investees
Fair value movement of
derivatives
Expenses excluding
depreciation and amortisation
Profit before depreciation,
amortisation, net finance costs
and tax
Depreciation and amortisation
Profit before net finance costs
and tax
Net finance expense
Profit before tax
Income tax expense
Profit for the year
2,237.2
600.5
2,837.7
69.5
90.0
–
–
6.7
–
–
–
76.2
90.0
–
–
–
(17.2)
(1.0)
0.4
–
–
–
–
–
2,237.2
600.5
2,837.7
(17.2)
(1.0)
86.7
91.0
0.4
(0.4)
6.7
–
–
93.4
91.0
(0.4)
(4.2)
(1.0)
(5.2)
4.2
1.0
5.2
(2,092.1)
(571.0)
(2,663.1)
17.1
2.5
19.6
(2,109.2)
(573.5)
(2,682.7)
304.6
36.2
340.8
(4.9)
1.5
(3.4)
309.5
34.7
344.2
(33.1)
(4.9)
(38.0)
–
271.5
31.3
302.8
(4.9)
(85.7)
(3.5)
(89.2)
185.8
27.8
213.6
(16.4)
(13.0)
(29.4)
–
(4.9)
(9.7)
–
1.5
–
1.5
(0.5)
–
(33.1)
(4.9)
(38.0)
(3.4)
276.4
29.8
306.2
–
(85.7)
(3.5)
(89.2)
(3.4)
190.7
(10.2)
(6.7)
26.3
(12.5)
217.0
(19.2)
169.4
14.8
184.2
(14.6)
1.0
(13.6)
184.0
13.8
197.8
(a) Underlying trading performance is comprised of reported results less significant items and is separately disclosed and reconciled to statutory performance to assist
users in understanding the financial performance of the Group.
(b) Further detail regarding the nature of significant items is contained in Note 3 of the Annual Report.
(c) The WesTrac China operating segment has been classified as a discontinued operation. Refer note 32.
10
Seven Group Holdings DISCONTINUED OPERATIONS
The WesTrac China operating segment has been
classified as a discontinued operation following the
Group’s decision to sell the business to Lei Shing Hong
Machinery during the year. Further information regarding
the transaction is provided in Note 32 – Discontinued
Operations of the Annual Report.
On 1 July 2017, the Group formalised the agreement
to sell WesTrac China for approximately $540 million
subject to purchase price adjustments and China
regulatory approval. The transaction represents the
realisation of an attractive EBIT multiple. In considering
its position, the Board concluded that the interests of
shareholders would be best served by opportunistically
selling the business, monetising its underlying value
and recycling the capital into activities where the Group
can generate a cost of capital return. The transaction,
which recognises the intangible value associated
with Caterpillar dealerships, is value accretive for
shareholders and mitigates substantial credit risk
associated with operating in China.
The Group’s balance sheet strength and financial
flexibility is significantly enhanced enabling the growth
of shareholder value through earnings accretive
acquisitions and capital management initiatives. The
transaction is expected to complete in September 2017,
subject to the receipt of China regulatory approval.
From continuing operations
Group underlying earnings
before interest and taxation
(EBIT) for the year was
$297.2 million, a 10 per cent
improvement on FY16.
CONTINUING OPERATIONS
The Group achieved a statutory net profit after tax
(NPAT) for the year of $46.2 million, a $151.6 million
decrease on the $197.8 million net profit after tax in the
prior year. The reduction in statutory NPAT primarily
reflects the Group’s equity accounted share of non-cash
intangible asset impairment provisions recognised
by Seven West Media Limited (SWM) during the year
of $374.1 million.
The share of SWM impairment overshadowed
strengthening underlying earnings from Coates Hire
where earnings contributions increased $19.5 million
on FY16 due to pricing discipline and infrastructure
projects on Australia’s East coast and a $27.2 million
increase in the earnings from Beach Energy Limited
(Beach Energy) with the Group equity accounting
following board representation from July 2016.
On a continuing operations basis, Group underlying
earnings before interest and taxation (EBIT) for the year
was $297.2 million, a 10 per cent improvement on FY16
and at the upper end of the Group’s revised earnings
guidance for FY17 underlying EBIT to be between
5 to 10 per cent up on FY16.
REVENUE AND OTHER INCOME
Revenue of $2,282.3 million was up 2 per cent on
the prior year. Product sales fell $154.5 million or
21 per cent, with the drop-off primarily attributable
to the delivery of Roy Hill mining fleet in the prior
year by WesTrac Australia. While new equipment
sales to the mining sector in Western Australia and
New South Wales remain challenging, construction
sector sales in both states were positive, increasing
$27.4 million or 16 per cent on FY16. Product support
revenue grew $213.4 million or 14 per cent on the prior
year. Parts sales in WesTrac Australia were particularly
strong, accounting for $208.9 million of the increase
behind record parts volumes shipped as customers
undertook maintenance work deferred during the cost
cutting regimes of the previous years. Service revenue
improved slightly on the prior year, up $18.8 million
or 4 per cent despite the continued trend of service
work insourcing as well as competitive labour markets
for service personnel.
Revenue from the sale of oil, gas and condensate
decreased by 19 per cent on the prior year. This was
mainly attributable to the natural decline in field
production at Bivins Ranch in Texas where new drilling
activity is in line with minimum lease commitments.
Improved oil pricing was partly offset by unfavourable
movements in the average AUD-USD foreign
exchange rate.
The Group undertook an offshore inspection campaign
at Longtom in the Gippsland Basin where the Longtom 3
and Longtom 4 wells have been shut-in due to an
electrical fault. Rectification works were undertaken
and both wells are available for production subject
to the Group negotiating commercial agreements for
pipeline access and gas processing. Together with the
Longtom 5 development, which is ready to drill, the
Group can deliver 80 PJ of uncontracted gas into the
East coast market which is facing significant price rises
given the well-publicised shortage of supply.
Other income of $56.1 million was down 35 per cent on
FY16. This is predominantly due to realised gains and
lease incentive bonuses of $17.0 million in the prior year
relating to the Kings Square property development in
Western Australia. Also impacting the decrease in other
income for the year was a reduction in dividend income
from the listed investment portfolio and unrealised
foreign exchange gains in FY16. The reduction in
dividend income reflects the rebalancing of the Group’s
listed investment portfolio with the Group increasing its
interest in ASX-listed aged care provider Estia Health
by 7.2 per cent to 9.5 per cent. The listed investment
portfolio provided a cash yield of 6.3 per cent
(2016: 6.6 per cent) or 9.4 per cent (2016: 9.4 per cent)
on a post-tax basis inclusive of franking credits.
Share of results of equity accounted investees fell
$273.3 million on the prior year. The decrease is
predominantly due to the Group’s share of intangible
asset impairment, restructuring costs and onerous
contract provisions totalling $374.1 million recognised
in the current year by SWM.
Positively, the Group’s share of results from Coates Hire
improved $19.5 million against the prior year. Revenue
is up 15 per cent in New South Wales and Victoria with
the business performing well through the infrastructure
and construction activity in both states. Furthermore, the
fleet relocation, price realisation and branch rationalisation
initiatives undertaken in previous years has begun to
bear fruit, evidenced by an increase in Coates Hire’ EBIT
margin to 16 per cent (2016: 11 per cent).
11
Annual Report 2017 OPERATING
AND FINANCIAL
REVIEW
EXPENSES
Expenses excluding depreciation and amortisation
of $2,136.1 million were broadly consistent with the
prior year.
Materials cost of inventory sold and used in product
sales and product support increased 4 per cent to
$1,494.9 million, slightly higher than the 3 per cent
increase in revenue from product sales and support
during the year. The increase reflects additional net
realisable value inventory provisions recognised
for obsolete stock and margin compression at
WesTrac Australia with the strong parts demand of
the current year placing pressure on the Caterpillar
supply chain resulting in increased freight costs.
Employee benefits expense for the Group decreased
$19.3 million or 4 per cent to $432.1 million. The
reduction primarily reflects lower headcount at both
WesTrac Australia and AllightSykes where the average
number of full time employees has fallen 3 per cent
and 12 per cent respectively on the prior year. Also
impacting the decrease in employee benefits expense
was a $2.5 million reduction in restructuring and
redundancy costs. Personnel count across the Group is
beginning to stabilise following the extensive redundancy
programs undertaken by the Group’s Industrial Services
businesses in previous years in response to the
Australian mining sector downturn.
Operating lease rental expense decreased 5 per cent
as WesTrac Australia restructured property lease
agreements at its Tomago and Parramatta sites
in New South Wales and South Guildford site in
Western Australia. Rent savings of $4.0 million have
been achieved in the current year with savings reaching
$4.9 million on an annualised basis. Further information
on the lease restructures is provided in Note 33 –
Related Party Disclosures of the Annual Report.
Depreciation and amortisation expense decreased
8 per cent or $2.6 million predominantly due to
lower resource depletion recognised for the Group’s
Bivins Ranch asset in-line with the natural decline in field
production and new drilling activity limited to minimum
lease commitments. Also impacting the reduction in
depreciation expense for the year was net disposals
of rental fleet with a carrying value of $9.2 million by
WesTrac Australia.
NET FINANCE EXPENSE
Finance income increased $4.1 million or 89 per cent
primarily due to $4.8 million interest received on a
one-off legal settlement. This interest income was
received in cash and also separately disclosed as a
significant item and accordingly is excluded from the
Group’s underlying results.
Finance costs decreased by $5.1 million or 6 per cent
primarily due to the repayment of a US$75.0 million
USPP tranche (A$108.8 million) at 7.48 per cent in
August 2016 by WesTrac Australia.
INCOME TAX
Income tax expense for the year of $26.9 million was
$20.2 million higher than the $6.7 million income tax
expense in FY16. The current year’s income tax expense
has been unfavourably impacted by the derecognition
of the deferred tax asset referable to listed investments.
Excluding the income tax impact associated with current
year significant items of $1.3 million detailed in the
significant items section below, the Group’s effective tax
rate of 13.8 per cent is consistent with the 13.8 per cent
of the prior year, reflecting the positive contribution of
franked dividends and non-assessable share of net
profit after tax associated with equity investments.
SIGNIFICANT ITEMS
Significant items referable to continuing and
discontinued operations contributed a net loss after tax
of $169.2 million to the Group’s statutory result for the
year and are largely non-cash in nature. The significant
items are excluded from the Group’s underlying result
for the year and are summarised below:
Significant items ($m)
Net gain on sale of other investments and mark-to-market of derivatives
Impairment reversal/(impairment) - SWM equity
Restructuring, redundancy and other costs
Share of equity accounted investees’ significant items
Other items
Significant items – EBIT
Net finance income
Share of SWM impairment and significant items - no tax expense
Tax benefit relating to resolution of historical tax matters
Tax benefit relating to significant items
Significant items – NPAT
2017
1.9
128.4
(4.8)
(303.3)
2.5
(175.3)
4.8
(53.6)
–
54.9
(169.2)
2016
4.0
(0.4)
(10.5)
1.0
9.3
3.4
–
–
10.0
0.2
13.6
12
Seven Group Holdings Following is a reconciliation of the Group’s statutory to underlying result by segment:
2017 Earnings summary
($m)
Total
Group
WesTrac
Australia
Allight
Sykes
Coates
Hire
Media
Investments
Energy
Other
Investments
Corp.
WesTrac
China
Statutory EBIT
Add: unfavourable significant items
119.8
159.1
(3.7)
18.6
(175.9)
83.5
56.3
(18.1)
38.2
CONTINUING
OPERATIONS
DIS-
CONTINUED
Restructuring, redundancy
and other costs
Loss on sale of derivative
financial instruments
Share of equity accounted
investees’ significant items
4.8
4.0
0.6
4.0
380.1
–
–
–
–
–
–
6.1
374.0
Mark-to-market on derivatives
1.2
1.2
Less: favourable significant items
Gain on sale of assets
Gain on sale of investments
Impairment reversal –
SWM equity
Share of equity accounted
investees’ significant items
Mark-to-market on derivatives
Other items
(0.5)
(1.4)
(128.4)
(76.8)
(3.1)
(2.5)
–
–
–
–
–
–
Total significant items – EBIT
177.4
5.2
Segment EBIT
297.2
164.3
0.6
(3.1)
6.1
24.7
CASH FLOW
The ability to generate strong operating cash flows
through the cycle remains a hallmark of the Group.
Operating cash flow per share of $1.05 was slightly lower
than the previous year, however represents a robust total
dividend coverage ratio of 2.1 times (2016: 2.5 times).
A continued focus on working capital optimisation by
the Group’s Industrial Services businesses resulted in
the Group generating an operating cash flow to EBITDA
conversion rate of 104 per cent, broadly comparable to
the record 117 per cent achieved in the prior year.
Net investing cash outflows of $25.5 million
represented a $73.4 million improvement on the prior
year. Net capital expenditure (including payments
for purchase of intangible assets) fell $17.0 million,
predominantly due to reduced S3 Program
expenditure and rental fleet disposals during the
year by WesTrac Australia. Production, development
and exploration expenditure decreased $6.5 million
following completion of the Crux plug and abandonment
campaign and acquisition of Longtom long-lead items
in the prior year, as well as new drilling activity at
Bivins Ranch limited to minimum lease commitments.
Net proceeds from sale of other financial assets during
the year of $2.0 million represented a $47.6 million
turnaround on the net payments for other investments
of FY16. The Group rebalanced its holdings within the
listed investment portfolio, with share sale proceeds
used to fund further investments in unlisted China media
assets as well as acquire an additional 7.2 per cent
interest in ASX-listed aged care provider Estia Health.
–
–
–
–
–
–
–
–
–
–
–
–
(128.4)
–
–
–
–
–
–
–
0.2
–
–
–
–
–
–
–
4.0
–
–
(0.5)
(1.4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(58.0)
(18.8)
–
–
245.6
69.7
–
–
(57.8)
25.7
(2.7)
(0.2)
(19.6)
(0.4)
(2.3)
(2.7)
36.7
(20.8)
(2.1)
–
(2.1)
36.1
Free cash flow, being net operating cash flow less net
capital expenditure continues to improve, up $4.9 million
or 2 per cent on FY16. Current year free cash flow
per share of $0.96 represents the fourth consecutive
year of increased free cash flow as illustrated in the
graph below.
1.0
0.8
0.6
0.4
0.2
0.0
3
9
.
0
6
9
.
0
0
6
.
0
2
5
.
0
2014
2015
2016
2017
Free cash flow
per share ($)
The ordinary share buy-back program is due to conclude
in March 2018, with no shares bought back during
the year given the share price appreciation. Similarly, the
TELYS4 program concluded on 16 August 2017, with no
shares bought back during the year.
13
Annual Report 2017 OPERATING
AND FINANCIAL
REVIEW
FINANCIAL POSITION
Trade and other receivables decreased $217.9 million,
with $174.3 million of the decrease due to the
reclassification of amounts attributable to the
WesTrac China group as assets held for sale. Also
impacting the reduction in trade and other receivables
was settlement proceeds from 25 lots sold last June
at the Seven Hills residential development in Perth
Western Australia as well as the receipt of amounts
due from a one-off legal settlement concluded in the
prior year.
Inventories decreased $176.6 million, with $147.1 million
due to the reclassification of amounts attributable
to the WesTrac China group as assets held for sale.
The balance is due to successful efforts by the Group’s
industrial services businesses to reduce used equipment
inventories as well as additional inventory obsolescence
provisions recognised by WesTrac Australia.
Continued refinements to its inventory management
program saw WesTrac’s inventory turn improve to
3.7 times (2016: 3.3 times) in Western Australia while
New South Wales achieved inventory turn of 3.5 times
(2016: 3.7 times).
Assets held for sale represent the assets associated with
the WesTrac China disposal Group. Further information
is provided in Note 31 – Assets Held For Sale in the
Annual Report.
Investments accounted for using the equity method
increased $138.5 million to $1,136.5 million at
30 June 2017. The Group’s interest in Beach Energy
was reclassified from financial asset fair valued through
other comprehensive income to equity accounted
associate following Mr Ryan Stokes appointment to the
board of Beach Energy, accounted for a majority of the
increase since 30 June 2016. Partially negating this
was the recognition of the Group’s 41 per cent share
of Seven West Media’s $745.0 million net loss after tax,
which included non-cash intangible asset impairment,
restructuring costs and onerous contract provisions
of $988.8 million.
Other financial assets decreased $375.8 million to
$598.8 million, with $266.2 million attributable to the
previously mentioned classification of Beach Energy
to equity accounted associate. Unfavourable
mark-to-market (MTM) movements of $75.8 million
and losses of $30.6 million realised on the Group’s
listed investment portfolio also contributed to the
year-on-year decrease in other financial assets.
Proceeds on disposals of $63.9 million were used
to increase the Group’s stake in Estia Health to
9.5 per cent (2016: 2.3 per cent) and as well as
fund capital call commitments in the unlisted
Chinese media investments.
Property, plant and equipment decreased $12.1 million,
with $15.3 million due to the reclassification of amounts
attributable to the WesTrac China disposal group to
assets held for sale. Excluding this, the net increase
of $3.2 million is due to net additions to rental fleet by
WesTrac Australia.
Exploration and
evaluation assets
increased $4.2 million
to $222.2 million.
Producing and development assets decreased $0.6 million
to $213.9 million, predominantly due to the natural decline
in field production at Bivins Ranch in Texas.
Exploration and evaluation assets increased $4.2 million
to $222.2 million. The Group continues to participate in
work plans for the Crux LNG development project in the
Browse Basin. The near term work plan, led by operator
Shell Australia, involves further technical studies,
commercial activities and final concept selection.
Many proposed LNG projects in the region have been
deferred, and with existing regional supply set to decline
in the early 2020’s, Crux is favourably positioned as
a backfill option that can enhance returns for existing
project owners.
Intangible assets decreased $323.2 million with
$323.7 million due to the reclassification of the
Caterpillar distribution network attributable to the
WesTrac China disposal group to assets held for
sale. The net increase of $0.5 million relates to
WesTrac Australia’s continued investment in SAP
via its S3 Program.
Trade and other payables decreased $58.4 million,
with $94.0 million due to the reclassification of amounts
attributable to the WesTrac China disposal group to
liabilities held for sale. The net increase of $35.6 million
is due to cut-off timing of year end creditor payments by
WesTrac Australia.
Liabilities held for sale represent the liabilities associated
with the WesTrac China disposal Group. Further
information is provided in Note 31 – Assets Held For
Sale in the Annual Report.
Current and non-current deferred income
decreased $141.1 million, with $35.7 million due
to the reclassification of amounts attributable to the
WesTrac China disposal group to liabilities held for
sale. Also contributing to the decrease was the
release of machine deposits for Roy Hill fleet delivered
during the year as well as the cessation of a number
of maintenance and repair contracts (MARCs) in
WesTrac Australia, with customers now entering into
maintenance partnership agreements (MPAs) or
component service agreements (CSAs), demonstrating
WesTrac’s ability to meet the changing needs
of customers.
Total current and non-current provisions increased
$4.8 million. Excluding the $7.8 million decrease due to
the reclassification of amounts to liabilities held for sale
relating to the WesTrac China disposal group, the net
increase of $12.6 million is attributable to the recognition
of make good provisions on WesTrac Australia’s
commercial and residential properties during the year.
Total current and non-current interest bearing loans and
borrowings decreased $253.7 million, with $37.1 million
due to the reclassification of amounts attributable to
the WesTrac China disposal group to liabilities held
for sale. Also contributing to the reduction in interest
bearing loans and borrowings was the repayment of a
14
Seven Group Holdings US$75.0 million (hedged amount $108.8 million) tranche
of US Private Placement (USPP) notes, $40.0 million
short-term facility from Caterpillar and $53.0 million
net repayment of the corporate syndicated facility.
A revaluation of the Australian Dollar against the
United States Dollar, with the AUD-USD exchange
rate closing at 0.7692 (30 June 2016: 0.7426) at
30 June 2017 also reduced the AUD carrying value
of WesTrac’s USPP notes. However given the notes are
fully economically hedged, the decrease in carrying
value was offset by an increase in the carrying value of
the Group’s cross currency swaps and foreign forward
exchange contracts.
Shareholder equity fell $273.2 million predominantly due
to unfavourable MTM movements on the Group’s listed
investment portfolio and foreign currency translation of
the WesTrac China’s US Dollar net assets as a result
of the year-on-year revaluation of the Australian Dollar
against the United States Dollar. Also impacting the
decrease in shareholder equity for the year was the
$91.7 million net reduction in retained earnings with
ordinary and TELYS4 dividends paid exceeding the
Group’s statutory net profit after tax in FY17.
NET DEBT AND CAPITAL MANAGEMENT
Net debt decreased by $59.4 million to $1,308.1 million
at 30 June 2017 as the Group utilised operating cash
flow to fund net capital expenditure of $24.2 million,
$46.2 million in the listed portfolio mainly Estia Health
and $21.3 million in other unlisted investments as well
as funding ordinary and TELYS4 dividends totaling
$137 million.
Despite the reduction in net debt, the Group’s gearing
ratio only increased slightly to 35.0 per cent at
30 June 2017 (FY16: 34.0 per cent), primarily due to
the equity impact of the share of SWM’s Significant
items and unfavourable MTM movements in the Group’s
listed portfolio.
At 30 June 2017, the Group had cash and available
undrawn debt facilities totaling $982.5 million,
down $87.6 million on the prior year excluding
WesTrac China. Furthermore, approximately 60 per cent
(FY16: 59 per cent) of the Group’s drawn debt facilities
is fixed with average remaining tenor of 3.7 years.
During the year, the following facilities matured and
were repaid: $108 million of the USPP, $40 million
facility to Cat Finance and $30 million facility to ANZ
in China making use of Group cash reserves to repay
external debt.
The Company did not buy back any ordinary or TELYS4
shares during the year given the strong appreciation in
the price of both shares. The ordinary share buyback
program will terminate in March 2018.
SGH continues to pay fully-franked dividends on both
its ordinary and TELYS4 shares, with the final ordinary
dividend increased to $0.21 per share payable in
October 2017, taking the Company’s full year dividend
payout ratio to 60 per cent of underlying EPS
(FY16: 71 per cent).
Whilst SGH does not disclose a formal dividend policy,
decisions regarding future dividend payout ratios and
franking levels will be made with regards to the Group’s
medium term underlying profitability, Australian tax
payable position, total number of ordinary shares on
issue and alternative investment opportunities available.
Within these constraints, SGH aims to maintain
dividends per share through the cycle with a view to
increase the dividend over the longer term.
OUTLOOK AND FUTURE PROSPECTS
WesTrac has benefitted from a strong parts performance
over the past year which is expected to continue while
service revenues will be impacted by ongoing cost
reduction programs including insourcing of maintenance
work being undertaken by some customers. While
product sales in the mining market are anticipated
to remain subdued, there has been an increase in
forward orders coupled with limited slot availability that
provide confidence in fleet renewal within the next 18 to
24 months.
Coates Hire is expected to continue to benefit
from branch rationalisation and fleet redeployment
undertaken in the prior year, together with price
realisation strategies as the New South Wales and
Victoria infrastructure projects are delivered. In Energy,
earnings from Beach Energy are expected to increase
with continued growth in production as demand
strengthens, driven by the current East coast gas
shortage. In the Gippsland basin, Longtom 3 and 4 are
ready for production subject to availability of third party
gas processing.
Seven West Media should
benefit from the broadcast
of the Commonwealth
Games to underpin its robust
television market share
growth in a challenging
advertising market.
Seven West Media should benefit from the broadcast
of the Commonwealth Games to underpin its robust
television market share growth in a challenging
advertising market. Publishing trends are set to continue
with targeted costs reductions to offset the uplift in AFL
costs. Assuming a similar television market outcome,
Seven West Media FY18 EBIT is estimated to be
5 per cent down on FY17.
The pending sale of WesTrac’s operations in China
will enhance the Group’s balance sheet strength and
provide the Group with further flexibility to consider
value accretive acquisitions in FY18. The transaction is
subject to China regulatory approval and is expected to
complete in September 2017.
Taking into account the above factors, the Group
anticipates FY18 underlying EBIT to be up 5 to
10 per cent on the current year on a continuing
operations basis excluding WesTrac China.
15
Annual Report 2017 INDUSTRIAL
SERVICES
16
Seven Group Holdings ALYSHA ROSS
APPRENTICE
WESTRAC WA
Alysha is one of a growing number
of female apprentices in WesTrac
workshops; she demonstrates the
kind of drive and determination
that makes the company’s
teams work so effectively. Alysha
has taken a change in career
direction to pursue her interest in
mechanics, put herself through
a pre-apprenticeship and is now
enjoying the diversity and challenge
in her everyday work. WesTrac is
delighted to see women like Alysha
becoming part of its traditionally male
dominated workshops.
17
Annual Report 2017 INDUSTRIAL
SERVICES
KERRY TONTA
PARTS OPERATIONS MANAGER
WESTRAC WA
The recent growth in parts sales for CAT products certainly
turned up the heat for WesTrac’s Parts Operations Manager
Kerry Tonta, but she couldn’t be more delighted to be in such
an exciting part of the business. Kerry and her team responded
to the pressure by creating a solutions-based service that has
transformed the way WesTrac supplies customers. The team
is working closely with customers to forecast their operational
needs, streamline procurement processes and improve
efficiencies in inventory management. The cost savings for
customers have been significant. Now with tried and tested
supply models for specific project and industry needs, WesTrac
offers leading solutions for all its customers.
WesTrac is one of
the world’s leading
Caterpillar (CAT)
dealers specialising
in the supply and
maintenance of CAT
industrial equipment.
WesTrac
WesTrac is one of the world’s leading Caterpillar (CAT)
dealers specialising in the supply and maintenance
of CAT industrial equipment. It services the
mining, construction, and transport industries of
Western Australia (WA), New South Wales (NSW) and
the Australian Capital Territory (ACT).
WesTrac’s customers help to provide the raw materials
and build the infrastructure that powers the global
economy. WesTrac partners with CAT, the world’s
leading original equipment manufacturing company,
to provide market-leading equipment solutions and the
vital after-sales service and support to ensure that
the essential wheels of the industry continue to turn.
The CAT value proposition continues to provide a
compelling offering and a huge advantage for WesTrac
customers who enjoy the benefits of advanced
technology and significantly greater efficiencies than
alternative products, building on 80 years of R&D and
industry experience.
CAT’s developments in Autonomous Haulage Systems
(AHS), for example, are taking mining operations to
new levels of productivity. AHS enable driverless trucks
to operate 18 to 22 hours per day at optimal efficiency
with minimal human intervention, increasing asset life
and lowering the total cost of ownership. Wireless
networks, global positioning technologies and on-board
intelligence systems provide ultimate control and
reliability in operations. These sophisticated products
are resulting in unprecedented safety and efficiency,
while eliminating human factors risk and minimising
wear and tear on equipment.
CAT products are also proving their value in quality
and sheer robustness, as WesTrac customers push
the limits of their equipment in order to optimise
maintenance costs. Lower commodity prices drove
many customers to delay the recommended scheduled
maintenance work. In many cases, customers are
extending the design life of their equipment by
up to 25 per cent! WesTrac is working closely with
customers to help them cost effectively manage these
maintenance requirements.
During FY17, WesTrac continued its enterprise-wide
transformation program to ensure its operating model,
people, processes and systems are all geared to
deliver on its commitment to be the first choice in
equipment solutions.
In these challenging trading conditions, WesTrac has
continued to focus on cost management, operational
efficiency and customer service excellence to provide
better outcomes for its customers.
Ongoing technological innovation and apprentice
training also deliver value-added solutions and benefits
to customers, the industry and the wider community.
WesTrac equips some of Australia’s biggest mining,
construction and materials handling projects with
the heavy equipment, onsite and aftersales support,
equipment management expertise and confidence that
customers need to bring their projects in on time and
on budget. As one of the largest CAT dealers in the
world, and the authorised dealer for new and used CAT
machinery across Western Australia, New South Wales
and the Australian Capital Territory, WesTrac Australia
sets the benchmark for the whole of life management
solutions to make the equipment ownership and
operation as easy, profitable and safe as possible.
Customer satisfaction and confidence are prime
objectives of WesTrac and the key drivers for support
initiatives such as innovative machine monitoring
software, finance and insurance options, highly skilled
technical back up and training for customer personnel.
WesTrac also boasts its own accredited training facility,
the WesTrac Institute, which provides comprehensive,
nationally recognised training in CAT machine use,
tooling and equipment, systems and processes. This
ensures operators and technicians within its own and
customer companies can achieve optimal results from
their equipment, and that the sector can access the
next generation of key personnel through its varied
apprenticeship programs.
18
Seven Group Holdings FY17 highlights
As capital expansion in the mining and resources
sector continued to be limited during FY17, trading
revenue increased by 2.8 per cent to $2,203.7 million
from $2,143.7 million in the prior year. However, the
components of revenue fundamentally changed, with
new and used equipment sales down 22 per cent to
$537.3 million, while product support revenue climbed
15 per cent to $1,666.4 million.
The lower mining equipment sales in FY17 was the
consequence of the comparatively strong result in FY16
associated with the significant delivery of equipment for
the Roy Hill mining project. In addition, traditional mining
customers in Western Australia have been holding onto
equipment rather than upgrading in the current climate,
and this has also impacted the company’s FY17 product
sales figures. Partly offsetting these impacts was the
boost to construction equipment sales, particularly in
NSW where increasing infrastructure activity is driving
new opportunities for WesTrac.
A focus on productivity improvements and cost cutting
not only saw customers extending equipment life but
also delaying maintenance work or taking it in-house.
Whilst this reduced some of the service revenue for
WesTrac the continued underlying strong export
volumes of key commodities also presented a range
of opportunities. WesTrac Australia Management was
quick to capitalise on these conditions by reinvigorating
the CAT supply chain with a greater focus on parts
supply for maintenance, component exchange and
servicing of ageing equipment.
WesTrac invested more heavily in critical parts inventory
and components to ensure customer demand for parts
and technical support could be met when and where
required, and down time minimised for customers.
It anticipated inevitable maintenance requirements for
operational equipment, and to undertake the backlog
of maintenance to effectively reinstate the equipment
that is currently lying idle.
WesTrac also redesigned production operations
to increase the efficiency of major component
maintenance. This has not only allowed WesTrac
to improve productivity, but has resulted in a more
competitive range of offering for its customers.
WesTrac
Australia ($m)
2017
2016
%
Change
Product sales
537.3
691.7
Product support
1,666.4
1,452.0
Other revenue and
other income
Total revenue and
other income
10.8
19.9
2,214.5
2,163.6
Segment EBIT
164.3
165.3
Segment EBIT
margin (%)
7.4
7.6
(22)
15
(46)
2
(1)
(3)
This reflects WesTrac’s expertise in analysing historical
data and working closely with customers to skillfully
anticipate their equipment needs, and establish
preventative maintenance and overhaul schedules.
WesTrac’s proactive responses to these trends and
growth in parts sales were the key to achieving an
overall 15 per cent increase in product support revenue.
Consequently, divisional EBIT was $164.3 million for
FY17, down just 1 per cent from the previous year,
while the EBIT margin was slightly down at 7.4 per cent.
Eventually ageing equipment will need to be replaced
as Australian iron ore and coal export volumes grow
and the sector recovers. There were early signs of this
recovery in the second part of FY17. Higher commodity
prices will also provide increased support for greater
customer investment in new equipment, along with
regular maintenance servicing.
In NSW, the government has ramped up infrastructure
spending that appears to be the beginning of a
sustained upturn in expenditure which includes
major urban road projects such as WestConnex,
the Badgery’s Creek airport, duplication of the
Pacific Highway and several major public transport
projects. These initiatives are focused on managing
congestion in the growing Sydney basin. We are already
seeing signs of increased demand on the CAT factory
resulting in lead times being extended, reflecting
reinvigorated global demand for replacement equipment.
In addition, confidence has returned to the thermal
coal sector in NSW. The price for high quality thermal
coal has effectively doubled in 12 months, which is
good news for the WesTrac customer base and should
support reinvestment in this sector.
WesTrac NSW is in the process of moving its Parramatta
operational facility to a new purpose built facility
at Casula to be located closer to infrastructure
construction activities in the western Sydney growth
corridor. This will place the new facility within a half-hour
drive to 50 per cent of its customer base and aims to
improve service responsiveness.
EXCEPTIONAL CUSTOMER SERVICE AT WESTRAC’S PARTS DESK SUPPORTED
THE 15 PER CENT INCREASE IN PRODUCT SUPPORT SALES IN FY17
19
Annual Report 2017 INDUSTRIAL
SERVICES
2017
2011
20
8000
7000
6000
5000
4000
3000
2000
1000
0
5
1
8
,
4
5
4
1
,
5
6
5
9
,
1
8
2
8
,
1
0
3
8
,
4
7
5
6
,
1
3
6
6
,
4
0
9
6
,
4
9
7
5
,
1
2
6
5
,
1
2013
2014
2015
2016
2017
Equipment population mining
NSW Mining
WA Mining
5
7
6
,
3
1
8
7
1
,
4
1
1
5
8
,
4
1
8
1
7
,
4
1
8
4
4
,
4
1
3
1
3
,
4
1
4
1
8
,
3
1
3
7
8
,
8
1
7
0
2
,
4
1
1
9
7
,
6
1
35000
30000
25000
20000
15000
10000
5000
0
2013
2014
2015
2016
2017
Equipment population construction
NSW Construction
WA Construction
The NSW operation has also invested in its project
management capabilities in readiness for major capital
infrastructure projects. This has included vertically
integrating its service activities to provide direct in-house
access to previously outsourced segments of the
value chain.
Similarly, in Western Australia, upgrades have been
made to the Guildford distribution centre and an
extensive expansion to the component rebuild centre
to ensure local capacity for its customer base with
enhanced service efficiency.
WesTrac continues to provide its personnel and
customers with training support to help them keep
up-to-date with new technologies and to ensure
current equipment use is being maximised. Technology
continues to play an important role in improving safety
and creating efficiencies in the industries that WesTrac
supplies and services. It has reinvigorated its apprentice
programs through the WesTrac Institute, developing an
important skill base for future generations.
Value of parts
inventory
# of lines per
day packed and
shipped
(average)
218.2
39.0
12,550
3,867
Delivered
on-time%
x90
89
Becoming increasingly
customer-centric is
critical to our business.
As their requirements
change, we need to be
right there with them.
This agility has made
all the difference to this
year’s result.
Jarvas Croome, Chief Executive,
WesTrac Australia
FY18 outlook
Close partnerships with customers and a solid
understanding of the CAT supply chain will continue
to be priorities for WesTrac in FY18. In addition, the
company will look to the analysis and application of
production and supply data to optimise customer
maintenance schedules, and continually improve
production efficiencies.
WesTrac remains well positioned to take advantage of
any increased demand for equipment, whilst continuing
to support the extensive maintenance activities across
the variety of industries that it supports. The ongoing
aging profile of key equipment reinforces the long term
opportunities that exist across our customer base. CAT
product quality and innovations such as autonomous
haulage technology will ensure the company is well
positioned for this next stage of growth.
WesTrac China
(Discontinued operation)
WesTrac China is the authorised Caterpillar dealer
providing heavy equipment sales and support to
customers in the North Eastern China provinces
of Hebei, Liaoning, Heilongjiang, Jilin, Shanxi,
Inner Mongolia and the municipalities of Beijing and
Tianjin. The company is headquartered in Beijing and
operates 44 branches and service centres to provide
marketing, sales and support to its customers.
The Chinese market has traditionally been dominated
by the sale of new equipment, with parts and service
tending to be less original equipment manufacturer
sensitive. However, the market has been volatile in
recent years with the key hydraulic excavator market
falling 45 per cent, 35 per cent and 45 per cent
respectively over three consecutive years. Recent
economic indicators show reinvigorated industrial
activity in China and positive momentum. For example,
during the past year, coal production increased
9.4 per cent while building construction starts were up
6.9 per cent. Steel production also increased solidly and
reached within 5 per cent of the all-time high set in early
2016. In the first half of 2017, coal production increased
5.2 per cent while building construction starts were up
10.8 per cent. Steel production also increased solidly
and reached within 5 per cent of the all-time high set
in early 2016.
Seven Group Holdings The overall 8 per cent increase in product sales was
due to an increase in higher margin excavator sales.
The 18 per cent decline in product support revenue
reflects a deferral of parts purchases by a major
mining customer.
Sale rationale
During the year, SGH was approached to sell
WesTrac China. This initiated a review of the merits of
a potential sale of WesTrac China. SGH concluded that
Lei Shing Hong was in the best position to nurture the
WesTrac China business and using its adjacent territories
to provide a comprehensive customer proposition
enhancing Caterpillar’s leading market position and
building on the successes of both dealerships.
In considering SGH’s position, the Board concluded
that the interests of shareholders would be best served
by opportunistically selling the business, monetising its
underlying value and recycling the capital into activities
where the Group can generate a cost of capital return.
The transaction, which recognises the intangible value
associated with Caterpillar dealerships, is value accretive
for shareholders and mitigates substantial credit risk
associated with operating in China.
China dealership territories
Heilongjiang
Jilin
Inner
Mongolia
Beijing
Liaoning
Hebei
Tianjin
Shanxi
WesTrac
China ($m)
2017
2016
%
Change
Product sales
Product support
Other revenue and
other income
Total revenue and
other income
Segment EBIT
Segment EBIT
margin (%)
456.4
146.0
4.2
421.2
177.5
8.5
606.6
607.2
36.1
6.0
31.3
5.2
8
(18)
(51)
–
15
15
21
ANNY WANG
CHIEF OPERATING
OFFICER,
WESTRAC CHINA
If anyone knows
how to win a
big contract
like the one
WesTrac China
won last year
(170 excavators!)
it’s Anny Wang,
Chief Operating
Officer based in
Beijing. Anny has
been with the
company from
the beginning in
2001 and was
one of the key
negotiators to
navigate the tough
competition.
From her first
position as Office
Representative,
Anny has
advanced to now
take up a big
stage in managing
500 employees
in her business
unit. Anny loves
working with
her team and
her honest, open
and encouraging
approach make
her one of
WesTrac’s truly
enabling leaders.
The sale of WesTrac China
at an attractive EBIT
multiple is value accretive
to our shareholders and
demonstrates our ability
to recycle capital in a
disciplined and opportunistic
manner.
Ryan Stokes, MD & CEO, SGH
Caterpillar ranks as a number one original equipment
manufacturer in greater China, reflected by its PINS
(percentage of industry new sales) performance, which
has increased and is a positive sign for key dealers like
WesTrac. WesTrac China services a diverse customer
base, which ranges from state-owned enterprises
operating large mining projects, to owner operator
construction enterprises, bulk shipping terminals and
commercial property developers. Its authorised CAT
sales region supports 62 per cent of total Chinese coal
output and 55 per cent of total iron ore output.
FY17 highlights
The hydraulic excavator market rebounded strongly
in FY17, with year to June sales up 160 per cent.
This reflected in strong new sales for WesTrac China,
particularly, with major customers from Inner Mongolia
reinvesting in new fleet. WesTrac China recorded a solid
operating result in FY17, with underlying EBIT increasing
15 per cent to $36.1 million.
While trading revenue was largely unchanged for the
year EBIT margin increased 0.8 percentage points to
6.0 per cent. This was due to a positive change in product
sales mix and a strong focus on cost and operating
efficiencies over the past two years.
An order for 170 large excavators from a major Inner
Mongolia customer, along with other sizeable orders for
large wheel loaders, were instrumental to improving the
product sales mix and increasing market share in FY17.
These orders reflect improved economic activity and
stronger market conditions for mining and infrastructure
projects in the WesTrac sales territories.
Annual Report 2017 INDUSTRIAL
SERVICES
The Coates Hire team is passionately
committed to safety and dedicated
to delivering world class equipment
solutions to our customers.
We continually strive for high standards
of excellence and look for ways to work
smarter to provide the right equipment
solutions and deliver better outcomes
for our customers.
Jeff Fraser, Coates Hire CEO
Coates Hire FY17 revenue end market split
Oil & gas
Mining & resources (production)
Mining & resources (development)
Industrial maintenance
Events
Commercial manufacturing
Engineering & construction
Residential
Non-residential
Government
7%
10%
6%
6%
3%
12%
34%
4%
13%
5%
Coates Hire
Coates Hire is Australia’s largest equipment solutions
company offering more than 20 categories of
general hire and specialist equipment to customers
across a range of industries including engineering,
mining and resources, manufacturing, construction,
infrastructure and major events. Coates Hire has
operations throughout Australia and in Indonesia.
Seven Group Holdings owns a 46.5 per cent interest
in Coates Hire Limited.1
FY17 highlights
With a renewed leadership team at the helm during 2017,
Australia’s largest equipment hire company finished the
financial year strongly and well-positioned for growth into
the new year. A continued focus on customer service,
disciplined cost and capital management and process
improvements have underpinned the turnaround in the
current year.
Revenue grew 5 per cent to $918.2 million, while
underlying EBIT grew 46 per cent to $142.0 million. The
underlying EBIT margin increased 440 basis points to
15.5 per cent. A strong balance sheet is fundamental to
its success with debt management an ongoing focus
for Coates Hire. Net debt reduced by $133.5 million
during FY17.
Responding to the change in the market demand and the
focus on meeting its customer needs were instrumental
in lifting the performance. This included the redeployment
of equipment from weak West Australian and Queensland
markets, to take advantage of the buoyant infrastructure
and construction climate in New South Wales
and Victoria.
Providing a world class customer experience is at the
heart of the Coates Hire business. The sheer breadth,
depth and scale of the company’s market-leading fleet,
together with its highly skilled product and service
teams, can design innovative end to end solutions for
1 Coates Hire is an
equity accounted
investment and
not consolidated
by SGH. The
46.5 per cent
economic interest
in Coates Hire
is based on
diluted interest
after considering
vesting conditions
for options
issued under the
Management
Equity Plan
22
its customers. The ability to provide customers with
deep expertise, highly personalised service and efficient
maintenance support are central to providing true value.
Streamlined digital solutions, and an increased focus
on run-up and service checks (RUSC) and turn-around
time (TAT), have been targeted service improvement
areas during FY17.
An enabling mindset
The Coates Hire in-house training facility supports
ongoing development in skills, safety and quality, and
its partnership with DuPont Safety experts has helped
move the company closer still to its Zero Harm target –
an improvement of 48 per cent in the company’s annual
Lost Time Frequency Rate (LTIFR) since 2016 with
three business units reporting current rolling 12 month
a LTIFR of zero. Improved workplace practices and
daily communications are driving a culture of engaged
and active employees, contractors and customers.
Coates Hire prides itself on maintaining high standards
and helping customers manage their risks.
Cost savings continued during FY17, building on initiatives
commenced in FY16. These included matching the
Coates Hire’s business footprint to market demand
and location, streamlining business processes, and
improving procurement and cost discipline throughout
the organisation. Rationalising the branch network
and restructuring of line and management positions
has resulted in a reduction of 5 per cent in headcount
during FY17.
Coates Hire
($m)
Revenue and other
income
2017
2016
918.2
873.0
Gross profit
544.9
514.6
Underlying EBITDA
307.6
266.7
Underlying EBIT
142.0
97.3
%
Change
5
6
15
46
Statutory NPAT
31.7
(17.8)
>100
Segment result
($m)
Share of Coates Hire
underlying NPAT
Management fee
Segment result
2017
23.2
1.5
24.7
2016
3.7
1.5
5.2
%
Change
100
–
>100
FY18 outlook
The Coates Hire business is well positioned for growth
in coming years, which will be driven predominately
by the East coast infrastructure and construction
projects. Market conditions in Western Australia
remain challenging.
The leadership team will maintain its focus on business
agility to respond to market demand and customer needs,
disciplined cost and cash management and process
improvements to deliver sustainable growth.
Seven Group Holdings ANTONIO TALITE
PLANT MAINTENANCE
AND COMPLIANCE
OFFICER,
COATES HIRE
Antonio is one of
the key people who
transformed the way
Coates Hire conducts
maintenance on its
hire equipment. It
took Antonio months
of diligent data entry,
analysis, system
development and
testing, before the
new ‘Run Up Safety
Check’ (RUSC) was
launched to improve
efficiencies in routine
safety checks.
A once cumbersome,
paper-based process
has now become a
data driven, highly
targeted and efficient
exercise that takes
a third of the time
and gives the field
mechanics mobile
access to all the
information they need.
If anyone knew how
to put this kind of
data together it was
Antonio, he has been
working with Coates
for almost 17 years!
AllightSykes
AllightSykes is a market leader in the manufacture and
distribution of lighting, dewatering and power solutions
primarily for the mining, construction and industrial
sectors. The company delivers innovative engineered
solutions for clients in Australia and internationally,
including New Zealand, South Africa, the Middle East,
Indonesia and the Americas. It also provides equipment
sales and support for brands such as FG Wilson and
Caterpillar/Perkins.
AllightSykes prides itself on providing robust, reliable
machinery for demanding conditions, with value options
that make ownership and operation simple and cost
effective for customers. It is committed to finding
environmentally sustainable solutions to lighting, power
generation and water problems; and is a market leader
in LED lighting solutions.
FY17 highlights
AllightSykes scored some significant goals this year
including winning a globally competitive infrastructure
contract for the 2022 Soccer World Cup in Qatar; and
being recognised for distributor excellence by Perkins,
one of its highly-valued partnerships. It is a tangible
acknowledgement of the transformation to date.
AllightSykes reported FY17 trading revenue of
$68.7 million, as the mining and rental industries
stabilised and traditional customer markets began
displaying early signs of growth, with the second half
stronger than the first half. An increased focus on
customer needs has also contributed to revenue growth
during the year.
A new CEO and leadership team have prioritised
increasing the company’s responsiveness to customer
needs, in both the management of customer enquiries
as well as the development of best fit equipment
solutions. This has included establishment of a
centralised Customer Support Centre, extended
attributes on its Customer Relationship Management
(CRM) system, and a heightened focus on data
collection and analysis.
AllightSykes is embracing the information revolution
to monitor performance and demand trends, track
Getting close to our
customers, really
understanding their
needs and providing
them with a complete and
carefully tailored solution
– whether for their farm
or multi-national mining
operation – is the heart
and soul of what we do.
Paul Thompson, AllightSykes CEO
product groups and customer buyer patterns, and
inform strategic decision making. A reorganisation of
geographical business units according to product lines
is another initiative that is increasing strategic focus
on product development and service options. The
overall result is a more sophisticated understanding
of customer needs and greater capacity to design
solutions to customer problems, rather than simply
provide products and a service offering.
AllightSykes prides itself
on providing robust,
reliable machinery for
demanding conditions,
with value options that
make ownership and
operation simple and cost
effective for customers.
FY17 also produced signs of the mining industry
returning to growth after challenging conditions
and lower activity in recent years. Increased global
demand for resources has not only led to an improved
outlook for mining projects in Australia but also in
Latin America and Sub-Saharan Africa; in countries
like Ghana, Mozambique, Zambia and Colombia.
FY18 outlook
Building on foundations developed in FY17,
AllightSykes’ leadership will continue to position the
company so it is ready to capitalise on an expected
high demand from infrastructure projects. Across the
globe there is public demand and political commitment
to renew, replace and redesign the ageing roads, ports,
rail and water systems, buildings and bridges, as well as
embrace advances in technology, especially in energy
and telecommunications.
The future looks exciting for AllightSykes and
it will continue to position itself as a long-term
solutions-driven partner that works closely with its
customers, dealers and suppliers to add value and
drive the business growth allowing it to return to profit
in FY18.
AllightSykes ($m)
2017
2016
%
Change
Product sales
Product support
Other revenue and
other income
Total revenue and
other income
Segment EBIT
Segment EBIT
margin (%)
40.9
27.8
0.3
41.3
28.4
(1)
(2)
0.1
>100
69.0
69.8
(1)
(3.1)
(4.5)
(3.4)
(4.9)
9
8
23
Annual Report 2017 MEDIA
INVESTMENTS
THERESE HEGARTY
DIRECTOR OF CONTENT
DISTRIBUTION & RIGHTS,
SEVEN NETWORK
Therese Hegarty is Seven’s Director
of Content Distribution & Rights.
Therese is closely involved in all
Seven’s content initiatives and
drives the expansion of Seven’s
content business internationally.
The last year has seen a
New Zealand production office
added to production ventures
in the UK and USA. She loves
connecting the creative process
to the business and deal making
that supports and enables ideas to
come to life, find an audience and
drive revenue for Seven.
24
Seven Group Holdings MEDIA
INVESTMENTS
25
Annual Report 2017 MEDIA
INVESTMENTS
WILL HEDBERG
DIGITAL TEAM,
SEVEN NETWORK
Will is one of the enablers in Seven’s digital media
team, responsible for bringing digital ideas to life.
The phenomenal growth in the digital media world
makes this an exciting challenge, but Will has to keep
his feet on the ground to ensure a solid commercial
financial strategy is in place and the company’s
performance is carefully tracked. This is quite a task,
as the digital market requires a very different thinking to
that in traditional strategies. Thankfully Will’s six years’
experience in digital media pretty much makes him an
old timer in this field and he is now supported by a team
of digital experts across the business to help make
SWM the market leader across every platform.
Seven West Media
Limited (SWM) is
Australia’s leading
multiplatform media
company with a
market-leading
presence in television,
content production,
digital, magazine and
newspaper publishing
with a monthly reach
of 16.5 million
Australians.
Seven West Media
Seven West Media Limited (SWM) is Australia’s leading
multiplatform media company with a market-leading
presence in television, content production,
digital, magazine and newspaper publishing.
Seven Group Holdings owns a 41 per cent interest
in SWM, home to many of Australia’s best performing
media businesses, including the Seven Television
Network, Pacific Magazines, West Australian
Newspapers, Yahoo7 and Presto.
1
1
o r e
d own m
al conte
n t
E n g age scale
a u d iences
Gro
le
w
a
a
n
d
d
i
n
k
n
t
o
o
t
w
a
l
a
v
u
n
n
a
tio
e
p
t
a
e
e
c
r
x
C
e
o
f
o
u
r
M
a
x
i
m
c
i
s
o
e
n
t
t
e
h
Transform
how we
work
e
v
n
t
a
n
alue
d IP
D
a
n
eliv
d m
er increased p r o
ore diversi fi e d e
G r o
e
u
l
a
e
c
n
die
w the v
o f o ur au
bility
g s
fi t a
n i n
r
a
2
2
i
d
e
o
d
i
e
n
c
e
s
;
DELIVERING
ENGAGEMENT
AND VALUE
THROUGH
POWERFUL
STORYTELLING
3
3
26
Without doubt SWM is a market leader in Australian
media. Today it produces more content than at any
time in its history, with an expanding presence across
the globe. But the media landscape has changed so
significantly, and the variety of channels are now so
extensive, that the SWM must continue to evolve if it is to
secure its leadership position into the future. SWM has
begun a transformational journey to strategically
reposition for the next era in its history and redefine
its place in a digital world. SWM’s primary focus into
the future will be in delivering engagement and value
through powerful storytelling. Its strategy for delivering
this will be built upon three pillars:
1. Creating and owning exceptional content.
SWM is already the largest production company in
Australia and enjoys unrivalled program sales to the
US and UK. Unlike its traditional rivals, SWM owns
and controls most of its own content. It develops,
executes and markets more than 850 hours
of content across multiple genres each year.
Further investment in content will drive growth in
television earnings.
2. Growing and knowing audiences; lead in
total video. The old adage about knowing your
audience is never truer than in today’s digital world.
Audience composition and the way it views media
has changed, so content – especially video content
– is king in the new world. The revenue pie for total
video is growing and SWM is investing in growth
initiatives to increase its share of that revenue.
3. Delivering increased profitability and more
diversified earnings. Free to air TV remains the
media platform with the greatest audience reach;
and SWM is focused on using the power of television
advertising to build value beyond the traditional
ways of doing things. The company has already
started implementing strategies that use the powerful
multiplier impact of television advertising to boost the
value of investments.
Within this framework, SWM will seek to engage
scale audiences, grow the value of its audiences and
maximise the value and IP of content. The new strategy
is set to transform the way the company currently works.
FY17 highlights
Television
The Seven Network has continued its exceptional ratings
performance through FY17 showing consistency in its
delivery of leadership with a 40.2 per cent revenue share
of the metro free-to-air television market for the year.
Seven Group Holdings
Media investments ($m)
2017
2016
Other income
Share of results from equity
accounted investees
Total revenue and other income
Segment EBIT
1.4
3.3
68.3
85.0
69.7
69.7
88.3
88.3
%
Change
(58)
(20)
(21)
(21)
Seven has dominated the industry for the 11th
consecutive year.
• Undefeated in all survey weeks since November 2016
• Ranked #1 in revenue and ratings share
• Ranked #1 for the year in every demographic
• Hosted the #1 TV event of the year –
the Australian Open Men’s Tennis Final with
2.689 million viewers and the #1 winter sports
event (AFL)
• #1 breakfast program, morning show, mini-series,
drama and news bulletin
• #1 multi-channel group with a 9.2 combined share
score (compared with 8.3 for nearest competitor)
With many of Australia’s most loved and watched
shows, Seven continues to entertain literally millions
of Australian (and international) viewers every day.
The operating model continues to evolve with
multi-platform delivery of major content including the
Rio Olympics, AFL, 7Tennis and other key programming
during the year. SWM also continues to expand its
leadership in the creation and delivery of content
anywhere, anytime to the biggest audiences. Seven
ranked Number 1 in rating and revenue share in a metro
advertising market that reduced by 3.6 per cent in FY17.
It is the 22nd consecutive half-year period of ratings and
revenue leadership.
People want easy access
to great stories. Seven is
in a strong position to lead
the market in providing
exceptional content
when, where and how our
customers want it.
Tim Worner, Seven West Media CEO
Western Australian media
SWM dominates the West Australian media with the
state’s leading metropolitan and weekend papers, as
well as 20 regional newspaper publications and Perth’s
classified publication and website. The addition in 2016
of The Sunday Times and Perth Now to the Group’s
assets, allows a combined reach of 92 per cent of
West Australians.
The West Australian has undergone a digital
transformation with a new website and native application
which is already increasing viewer options and growing
its audience and revenues. An internal restructure
has integrated newsroom and editorial functions to
improve efficiencies.
Pacific Magazines
Another segment dominated by SWM is in the
magazine category where it publishes more than a
quarter of all magazines sold in Australia, reaching
51 per cent of Australia’s women and 35 per cent of
all Australians.
Pacific Magazines undertook two rounds of
restructuring and cost reduction during FY17 which
have seen the company’s magazine portfolio realigned
according to genre to improve efficiencies. An increased
focus on building Pacific’s digital presence is reaping
reward with its social audience now surpassing that of
its major rival.
Financial results
SWM delivered underlying EBIT of $261.4 million
in FY17, down 18 per cent on FY16. This drop was
primarily due to a softening in the metro television
advertising revenue market, and additional costs
associated with large contract events. Underlying NPAT
was $166.8 million, down 20 per cent for the year.
This lower result led to a 35 per cent lower contribution
to SGH’s Group NPAT of $68.3 million.
SWM recorded significant items of $911.8 million in
the period, including the impairment of intangibles,
equity accounted investees, other assets including fixed
assets, restructuring costs, onerous contracts and net
loss on disposal of investments.
The reduction in the carrying value of the television
assets represented the largest proportion of these
write downs. This has been driven by softer free to air
market conditions and a revision in growth assumptions
for the market outlook impacting the carrying value
of the television license and certain sports rights.
Prior period significant items of $32.9 million related
to restructuring costs.
SWM continues to maintain a robust balance sheet with
net debt of $725.7 million and a net debt to underlying
EBITDA ratio of 2.4 times as at 30 June 2017.
Cost reduction will continue to be an ongoing focus
of all elements of the business as SWM prioritises
investment in growth initiatives and diversifies its
revenue streams. Increasing the company’s digital
capabilities and platform are at the top of the agenda.
The successful launch of Platform7 is also performing
well as it enables SWM to produce and deliver digital
content onto the full range of online and social media
platforms. SWM has taken back control of its digital
assets and is investing into new businesses that are
creating value for equity holders, while at the same time
generating new paying clients for SWM.
FY18 outlook
Media reform is an increasingly important and urgent
initiative for the sector to ensure the industry can evolve
and companies can remain competitive in the changing
landscape. This includes significant license fee relief
and comprehensive reform of regulations. Significant
changes to the media industry regulatory framework
were captured in the 2017 Federal Budget, however,
it is still unclear what measures will be implemented.
SWM expects the broadcast metro market to
outperform FY17 and is targeting increased advertising
revenue share. Publishing trends are expected to
continue, partially offset by increased growth in digital
media. Cost savings are anticipated to more than
offset the uplift in AFL costs in FY18. The company has
provided guidance for FY18 underlying EBIT to be down
5 per cent on FY17.
27
Annual Report 2017 ENERGY
The value of the Energy segment
is held in the net asset value of the
SGH Energy production, development
and exploration interests and its
interest in Beach Energy.
The value of the Energy segment is predominantly held
in the net asset value of the SGH Energy production,
development and exploration interests.
This portfolio comprises:
• 100 per cent interest in the Longtom gas and
condensate field in Bass Strait, Victoria, with developed
and undeveloped conventional resources, existing
infrastructure, and the Gemfish exploration prospect;
• 15 per cent interest in the Crux gas and condensate
field and associated exploration prospects on the
AC/RL9 permit, operated by Shell Australia in the
Browse Basin off the coast of North-West Australia;
• 100 per cent interest in the WA-377-P (Echuca
Shoals) exploration permit, also located in the
Browse Basin, and
• 11.2 per cent interest in the Bivins Ranch oil
producing asset operated by Apache Corporation in
the Texas Panhandle region of the USA.
The Energy segment also includes the Group’s
22.7 per cent equity-accounted investment in the
ASX-listed company Beach Energy Limited – Australia’s
largest onshore oil producer with an active exploration
and development drilling program in the Cooper Basin.
The oil and gas sector has seen challenging times
in recent years however the volatility has eased, and
with lean organisations and reduced unit operating
costs, the assets and the business are positioned for
resilience and growth.
28
Energy ($m)
2017
2016 %Change
Sale of gas and condensate
Other income
Share of results from equity
accounted investees
Total revenue and other income
Segment EBIT
4.6
–
28.3
32.9
25.7
5.7
3.2
–
8.9
(2.3)
(19)
(100)
–
>100
>100
FY17 highlights
Segment EBIT increased substantially to $25.7 million
in FY17 from a loss of $2.3 million in the prior year,
primarily due to the inclusion of a $28.3 million share of
associate net profit after tax relating to the Beach Energy
investment, and SGH Energy overhead cost reductions.
The solid earnings from Beach Energy were derived
from a strong production result and operating cost
efficiencies delivered by the new management team.
Earnings from the Bivins Ranch producing asset were
in line with expectations and reflected minimal drilling
activity in the relatively low oil price environment.
Bivins Ranch generated $0.5 million of EBIT with total
production of 99,404 Boe at an average realised oil price
of US$44/bbl.
Seven Group Holdings Operations
A successful offshore maintenance and testing
campaign at the Longtom field in Bass Strait has created
the opportunity for the re-start of production from the
established Longtom gas wells and infrastructure for
supply into the tight East coast gas market. Commercial
discussions to bring this gas to market, and provide a
framework for further gas development from identified
opportunities and the Gemfish exploration prospect, is a
key area of focus.
The Crux project is one of the few regional offshore
LNG development projects that is currently being
advanced. The refined development concepts are
promising significant reductions to the project cost
outlook; and with a development timing that is beyond
the current LNG supply abundance, we are pleased with
how this project is maturing.
Lower oil prices have slowed drilling operations in the
Bivins Ranch onshore field in northern Texas, USA,
where the focus is currently on operating within cash
flow. Improved drilling and completion efficiencies have
reduced the lease-holding costs and will enhance the
return on investment on newly drilled wells. Future
drilling of this relatively undeveloped acreage will provide
the potential to realise greater value.
Beach Energy continues to perform well as Australia’s
leading mid-cap oil and gas explorer and producer,
as well as being the lowest cost operator in the
Cooper Basin. Positive FY17 results were driven by
Beach Energy’s record production volume and reduction
in field operating costs, and a highly successful
exploration and development drilling program.
The company is well-positioned to take advantage
of market improvements.
Longtom offshore
oil campaign
Rectifying electrical fault
PHOTO CREDIT: MATTHEW BEWLEY – TELMARK IMAGES
Our interests are well
positioned to supply into
the strong market for gas on
the Australian east coast,
in addition to a maturing
position in the regional LNG
market in an outlook period
of tightening regional supply.
Margaret Hall, CEO, SGH Energy
FY18 outlook
The patience and discipline exercised over the
challenging conditions of the recent years will enable
the longer-term strategies to bear fruit as the investment
conditions stabilise. The significant tightening of the
Australian East coast gas and energy market continues
to provide a positive outlook for the Longtom gas
asset and Beach Energy activities, with opportunity to
meet local demand at prices that provide an attractive
investment return.
29
Annual Report 2017 OTHER
INVESTMENTS
Other investments
comprise the Group’s
listed investment
portfolio as well as
direct and indirect
property holdings
through unlisted trusts.
The listed investment portfolio excludes the Group’s
strategic holdings in Beach Energy, SWM and
Prime Media Limited.
FY17 highlights
Investments and property delivered an underlying
segment EBIT of $36.7 million in FY17, down 9 per cent
or $3.7 million on the prior year.
The Group’s investment portfolio yielded 11.5 per cent loss
on a total return pre-tax basis (capturing the portfolio’s
mark-to-market movement, any gain or loss on disposal
and dividend income combined). It under-performed the
ASX/200 Index, which returned 15.7 per cent growth
for the period.
Other Investments ($m)
Revenue
Other income
Share of results from equity
accounted investees
Total revenue and other income
Segment EBIT
30
2017
5.3
35.7
0.5
41.5
36.7
2016
11.8
36.5
%
Change
–
(2)
1.5
(67)
49.8
40.4
(17)
(9)
The portfolio was impacted by realised losses and
negative mark-to-market movements in its Media and
Telco holdings. The portfolio provided an attractive
dividend yield of 9.4 per cent on a gross annualised
basis and at year-end the listed portfolio included
unrealised gains of $103 million on the original cost of
the underlying shares.
Property
The Group’s direct property holdings include the
Kings Square site and former Seven Network’s Dianella
studio, both located in Perth, as well as exposure to
holdings through unlisted property trusts. The property
portfolio was impacted by the economic slowdown in
the Perth property market. Revenue from residential lot
sales at Seven Hills in Perth reduced from $11.8 million
to $3.2 million with 12 lot settlements compared to 25 in
the previous year.
To date, the Group has successfully developed
Kings Square sites 1-4, while concepts for sites 5-7
have been proposed. However, the downturn in the
Perth commercial property market has rendered all
5-7 sites not economically optimal at this time and
further development on these has been halted for the
near future.
Construction at the Seven Hills site in Perth continues
with display homes now nearing completion. It is
expected that the realised value of these residential land
packages will be accelerated during FY18.
The Group’s indirect holdings in unlisted property
trusts include a 47.3 per cent stake in Flagship, where
developments in Adelaide and Melbourne continue to
realise value. Following the sale of buildings held by
Revy in Pyrmont, the Revy trust is being wound up with
a distribution of $18.8 million recognized as profit within
significant items.
In line with its vision to increase its digital footprint and
continue to drive innovation, SGH has allocated limited
capital to investing in new technology companies
that have the potential to disrupt the market in some
of its traditional industries. SGH is excited to add
Impulse Screen Media (ISM) and iSeekplant to its
existing investment portfolio.
Seven Group Holdings Kodo Apartment
Development – Flagship
PAUL GARRITY (RIGHT)
CO-FOUNDER AND MANAGING DIRECTOR
JAMES D’ARCY
CO-FOUNDER AND CHIEF TECHNOLOGY
OFFICER, IMPULSE SCREEN MEDIA
Impulse Screen Media (ISM) is a technology
company that automates multi-screen campaigns to
deliver coincidence marketing opportunities in real-time.
ISM monitors TV events and triggers real-time digital buys
to generate increased ROI for brands, via multi-screen
optimisation. Whilst coming off a small revenue base, ISM
has the potential to scale quickly – via relationships with
regional broadcasters and regional/international DSPs
(e.g. Facebook) and has potential for data monetisation
from its large attribution data set where it may unlock new
insights and growth opportunities.
iSeekplant is an online equipment intermediary company
– effectively a digital disruptor in heavy equipment hire in
the civil and mining sectors allowing customers to directly
access equipment providers and tender requirements,
acting as an effective exchange.
FY18 outlook
The Group will continue to monitor the market for
opportunities to enhance the value of its investment portfolio
as a store of value and liquidity and opportunistically realise
value where market opportunities allow.
SALLY McPHERSON & MATT PETERS
CHIEF EXECUTIVE OFFICER &
CHIEF OPERATING OFFICER, iSEEKPLANT
Meet Sally, who with brother Drew
and childhood friend Matt has enabled
thousands of project managers around
Australia to find and hire almost any
machine they need, in a few easy
fingertip steps. iSeekplant is an online
plant hire booking application and
website that provides access to almost
70,000 machines across 99 machine
categories from 5,000 suppliers. Sally says
an endorsement and investment from SGH
into the young company’s finances and
strategic planning, was transformational
in its development. SGH could see the
idea’s potential and the partnership has
been a winner for all, especially SGH’s
extensive customer base of machinery
and equipment users.
31
Annual Report 2017 Minority investment risk
SGH holds minority interests in a number of listed
companies including Seven West Media Limited,
Beach Energy Limited, Estia Health Limited and
Prime Media Group Limited. Where SGH holds an
investment and is limited in its ability to exert control
over the investee entity, it may become subject to the
operational control of other parties and the financial
performance this may entail. Additionally, SGH will be
exposed to the risks inherent in minority shareholdings
and may not be able to achieve an easy or profitable exit
from its investments. This could lead to a reduction in
the financial performance of SGH. Listed equity markets
fluctuate with time, which leads to the risk that the
value of SGH’s significant listed investment portfolio will
also fluctuate.
Free float
SGH is controlled by a majority shareholder and, as a
result, has a limited free float which means that SGH’s
share price can be more volatile given comparatively
lower average daily trading volumes.
Investment portfolio
SGH has investments in a number of ASX listed, and
unlisted, companies that it does not control. There
are price, liquidity and other risks associated with any
investment in such companies, including the risk that
distributions paid to security holders will be reduced,
adversely impacting the yield of the broader portfolio.
The price of shares in SGH’s portfolio may rise or
fall due to numerous factors, which may affect the
market performance of SGH. These include changes in
Australian and international stock markets and investor
sentiment; domestic and world economic conditions
and outlook; inflation rates, interest rates, employment,
taxation and changes to government policy, legislation
or regulation.
Media Investments
Viewer fragmentation in television, reduction in
magazine and newspaper readership results in
declines in advertising markets across all three
platforms. This could negatively impact the future level
of profitability of the media sector and their free cash
flow generation. Further national metro newspaper
readership is down 3.2 per cent. The removal of
licence fees will only partially reduce the impact of the
consequential revenue impacts. Media reform may
provide an opportunity to mitigate these factors.
RISK FACTORS
ASSOCIATED
WITH SGH
The business activities
of the Group are
subject to various
risks and there are
many factors which
may impact on the
future performance
and position of SGH.
These risks are both specific to SGH as well as general
commercial and economic risks. Such risks may, either
individually or in combination, affect the future operating
and financial performance of SGH and the value
of SGH shares.
RISK MANAGEMENT
The Company recognises that the management of
business and economic risk is an integral part of its
operations and has established policies and procedures
for the oversight and management of material
business risks, including the establishment of the
Audit & Risk Committee.
To support the Company’s economic sustainability,
the Company maintains a Strategic Risk Assessment
register that identifies, assesses, ranks and updates the
main strategic risks, including material business risks,
facing the Company in respect of which management
formulate and record the internal risk controls
implemented for those risks.
Each of the material business risks highlighted below
is monitored and managed by appropriate senior
management within the Group who are delegated
responsibility to manage or escalate issues to the
relevant SGH executive. Where appropriate, external
advisors are appointed to assist in managing the risk.
SGH has various risk management policies and
procedures in place to enable the identification,
assessment and mitigation of risks that arise through
its activities. These include tender, project, interest rate,
foreign exchange and credit risks. For further information
in relation to SGH’s risk management framework, refer to
pages 49 to 50 of the Corporate Governance Statement
in the Annual Report.
The material business risks are summarised below but
should not be regarded as an exhaustive list of all risks
that affect the business, furthermore, the items have not
been prioritised.
MATERIAL BUSINESS RISK
Investment risks
Investment opportunities
The financial performance of SGH and the returns
available to SGH shareholders will be affected by
the recognition and availability of suitable investment
opportunities in the future. Investment opportunities are
subject to market conditions and other factors largely
outside of the control of SGH. SGH’s ability to divest its
investments will also be subject to these factors.
32
Seven Group Holdings Coates Hire joint venture risk
SGH is exposed to risks associated with its
investment in Coates Hire. Carlyle and SGH
each hold a ~47 per cent economic interest in
Coates Hire. Under the co-investment arrangements
with Carlyle, SGH (via its wholly owned subsidiary
National Hire Group Limited) or Carlyle may seek to
sell their investment in Coates Hire in the future.
There is a risk that SGH’s interest in Coates Hire will
increase or decrease and that this increase or decrease
will not be within SGH’s absolute control. There is a
risk that the transaction by which SGH’s investment
decreases or increases does not realise or attribute the
same value as SGH attributes to that investment. This
risk maybe further exacerbated due to the leverage
related to this structure.
The Company maintains a
Strategic Risk Assessment
register that identifies,
assesses, ranks and updates
the main strategic risks.
Energy risks
A sustained or long-term weakness in oil prices will
negatively impact the carrying value of the Group’s
Oil and Gas operations. The further complexity is that
the development timetable of our interests in energy
assets is effectively at the control of our partners
due to access to processing, approval of drilling
program and finalisation of key development concepts.
Whilst the economic motivations of SGH Energy and its
partners are currently aligned, should this change the
development timetable for each asset could be deferred,
impacting the recoverable value of the Group’s Oil and
Gas operations.
Financial risks
Interest rate, liquidity and bank default risk
SGH has substantial cash reserves on deposit with a
number of major financial institutions. These reserves
are invested in both cash call and term deposit
accounts. Cash call accounts are immediately available
to SGH but offer lower yields. Conversely, term deposits
lock up SGH’s cash reserves for a specified period of
time but earn higher yields. The use of term deposits
exposes SGH to liquidity risk as SGH may be unable
to access its cash reserves to fund an immediately
available investment opportunity if the reserves are
invested for a specified period of time. SGH manages
the proportion of its cash reserves held in each type of
account, seeking to maximise the return on its cash and
cash equivalents. The rate of return available to SGH is
largely outside of its control and is a function of both the
Reserve Bank of Australia’s overnight cash rate and the
spreads offered by deposit taking institutions. SGH is
exposed to risk that the interest rates offered for both
cash call and term deposit accounts could materially
fluctuate, which may affect the financial and operating
performance. Additionally, SGH is exposed to the risk
of default by one or all of the deposit-taking institutions
with which SGH banks.
Foreign exchange
WesTrac Group is exposed to foreign exchange risk
with the purchase of equipment and inventory which
is denominated in USD and also from the derivation of
revenues from WesTrac China which is denominated in
Renminbi and USD. As part of its pricing of equipment
globally, Caterpillar generally resets pricing annually
for heavy equipment which is denominated in USD.
Movements in the pricing of equipment impacts
WesTrac Group’s cost of machines and may also affect
the overall profit earned on the sale of equipment to
customers which is denominated in either AUD, USD or
both. Fluctuations in the AUD/USD, AUD/Renminbi and
AUD/HKD exchange rates could have an adverse impact
on WesTrac Group’s business, financial condition and
results of operations which are reported in Australian
dollars. The Group’s investments in US oil and gas
assets have not been hedged given the indeterminable
duration of the investment horizon.
WesTrac Group has a large diversified customer base
and is not dependent on any single customer
WesTrac Group’s customers may default due to
bankruptcy or other reasons. A customer’s termination
of, or default under, a contract with WesTrac Group,
could result in a loss of expected revenues from
the sale or rental of equipment and the provision of
parts and maintenance, and additional expenses for
WesTrac Group. Accordingly, the termination of, or
default under, a contract by any of WesTrac Group’s
customers could have an adverse effect on
WesTrac Group’s business, financial condition and
results of operations.
Tax risk
The Company and its wholly owned subsidiaries may
be subject to reviews by taxation authorities from
time to time in the ordinary course of business. These
reviews may result in the taxation authorities taking
a different view on the tax treatment of particular
transactions from that of the Company and its wholly
owned subsidiaries, which could lead to additional tax
liabilities. SGH proactively manages this risk through
the use of taxation advisers and working closely with
taxation authorities.
Operational risks
Dependence on Caterpillar
WesTrac Group is dependent on Caterpillar to
maintain its authorisation as the authorised dealer of
Caterpillar equipment and parts in its Western Australia,
New South Wales/ACT and North Eastern China Service
Territories. WesTrac Group’s predecessor companies
have been associated with Caterpillar since 1925
and WesTrac’s association with Caterpillar has been
since 1990. WesTrac Group has maintained a strong
relationship with Caterpillar and although WesTrac Group
expects this relationship to continue, as is customary
in dealer agreements with Caterpillar, the dealer
agreements with Caterpillar can be terminated by
either party upon 90-day notice at any time. The dealer
agreements also contain provisions for automatic or
accelerated termination in certain circumstances,
such as material breach, insolvency events, and
changes in control without Caterpillar consent, and
are not exclusive.
The Caterpillar dealer agreements are not, however,
subject to periodic renewal requirements and are
perpetual in nature (subject to the termination right
noted above). In the event Caterpillar terminates
or appoints another dealer or deals directly in the
territories in which WesTrac Group operates, it would
have a material adverse effect on WesTrac Group’s
business, financial condition and results of operations
as well as trigger accelerated prepayments across the
SGH Group’s key funding arrangements.
WesTrac Group is dependent on Caterpillar for timely
supply of equipment and parts from their global
manufacturing factories and distribution warehouses.
During periods of intense demand or in the event of
disruption to Caterpillar’s business there may be delays
in the supply of equipment and parts to WesTrac Group.
33
Ryan Stokes
participating in a
safety share with
WesTrac employees
at Parramatta.
Annual Report 2017 This has not in the past proven to be an impediment to
WesTrac Group. In the event that Caterpillar is unable
to supply its products in the quantities and timeframes
required by WesTrac Group’s customers, it may
have a material adverse effect on WesTrac Group’s
business, financial condition and results of operations.
WesTrac Group is also dependent on Caterpillar to
maintain product development and innovation to ensure
that it has a quality product offering for its customers.
Workplace Safety and Security
The Group’s activities can result in harm to people and
the environment. SGH has sought to mitigate this risk
by assessing, understanding and mitigating the “critical
risks” facing each operating business and implementing
Life Saving Rules which provide direction and guidance
on these critical risks. The Group is committed to
providing a safe workplace and maintains comprehensive
workplace safety policies and systems which are
overseen by health and safety specialists within each
Company’s human resources team and dedicated
Risk, Safety and Security team. Procedures relating to
security at the Company’s business sites are prioritised
and are subject to review and continuous improvement.
34
Seven Group HoldingsLife Saving RulesPOISONConfined SpaCe: I will never enter a confined space unless trained and authorised to do so. eLeCtRiCity: I will always ensure electrical hazards are understood and controlled before starting work.fitneSS foR WoRk: I will never come to work or drive a vehicle under the influence of drugs or alcohol.pLant and MobiLe equipMent: I will never operate plant or mobile equipment unless trained, competent and authorised to do so.Safety pRoteCtion deviCeS: I will never remove, bypass or modify a safety protection device (e.g. guard, interlock or barricade) without authorisation.iSoLationS: I will always isolate, lockout and discharge all energy sources before working on any plant or equipment.vehiCLeS: I will always ensure my vehicle is safe to drive, seatbelts are worn and I drive responsibly.WoRking at heightS: I will never work at height without appropriate fall protection or fall prevention in place.Lifting opeRationS: I will always check the load is secure and never walk or work under a suspended load.hazaRdouS SubStanCeS: I will always ensure that I obtain, read and follow the instructions on the Safety Data Sheet (SDS) for any hazardous substance I will be working with. CORPORATE
SOCIAL
RESPONSIBILITY
SGH is focused on the
long-term sustainability
of its businesses.
SGH is focused on the long-term sustainability of its
businesses and its relationships with key stakeholders
and is mindful of making a positive contribution
to the community. This section outlines SGH’s
practices in relation to the environment, human capital
management and social responsibility, principally in
relation to the Group’s predominant operating business,
WesTrac Australia, as well as environmental practices
relating to SGH Energy. Refer to pages 44 to 45 of this
Annual Report for reporting on The Diversity Policy and
the measurable objectives and related initiatives.
Under SGH’s risk framework, the Group has identified
investment, financial and operational risks which
it manages and mitigates. More detail concerning
these risks, as well as the Company’s sustainable
business practices, is set out in the Operating and
Financial Review of this Annual Report on pages 32
to 34. For more information on the Company’s risk
management framework refer to pages 49 to 50 of the
Corporate Governance Statement of this Annual Report.
WESTRAC GROUP
WesTrac Group’s mission to provide ground-breaking
equipment solutions that help build the world is
supported by its commitment to a work culture that
empowers and rewards its employees for maintaining
the highest standards of workplace health, safety,
environmental management and quality control.
Sustainability begins within WesTrac Group’s own
operations. At its facilities, WesTrac Group has
established high performance standards for the
environment, health and safety and has adopted
Caterpillar’s Production System (CPS) methodology.
CPS is the order-to-delivery process that Caterpillar
implemented on an enterprise-wide basis to achieve
people, quality, velocity and cost goals.
ENVIRONMENT
Caring for the environment is central to how
WesTrac Group conducts business and forms a key part
of the company’s vision to be the customers’ first choice
in equipment solutions. Through innovation, reduction
of waste, and continuous improvement WesTrac aims
to make a positive contribution to the built and natural
environments and is consistently demonstrating
sustainable practices in environmental management,
aimed at minimisation of environmental risk and impact
to clients and community stakeholders. WesTrac Group
achieves its environmental objectives by:
• Being constantly aware of environmental risks and
ensuring the right designs, plans, actions and people
are in place to control them;
• Using energy, water and other finite resources
efficiently, thereby reducing greenhouse gas
emissions and waste;
•
Integrating environmental requirements when
designing or modifying our facilities, products and
services, in order to reduce life cycle costs and
environmental impacts;
• Complying with relevant laws and regulations and
applying responsible standards where laws do not
currently exist;
•
Implementing clear and meaningful environmental
targets across the business to ensure clear visibility
and control over potential environmental impacts;
• Adopting best practice and focusing on continuous
improvement of environmental performance
throughout the business with the goal of achieving
zero environmental incidents;
• Focusing on continuous improvement of
environmental performance throughout the business.
WesTrac’s main business premises at South Guildford
in Western Australia and Tomago in New South Wales
are purpose-built for product distribution and
each incorporated significant sustainable design
features, including energy efficient lighting, rain water
capture for onsite reuse, and native and drought
resistant landscaping.
Quality Management
WesTrac maintains accreditation to ISO 9001 Quality
Management Systems. This entails annual audits of
the company’s commitment to quality systems and
adherence to systems and processes that ensure the
expectations of customers and other stakeholders are
met. This accreditation is a core element of WesTrac’s
commitment to flexible solutions and quality operations.
Contamination Control
Environmental risks relating to the use or storage of
hazardous materials within WesTrac Group are identified
and managed through regular inspections of business
premises, reviews of compliance and emergency
procedures, and advice from external consultants
and government agencies on environmental matters.
Internal firefighting capabilities and equipment are
regularly tested and emergency arrangements with key
external response agencies have been established.
WesTrac operates numerous parts and component
cleaning machines, including the largest machine of its
type installed in WA. This technology leads to improved
contamination control outcomes, and best-practice
recycling and waste management features ensure that
WesTrac is able to clean more components using less
water and other solutions.
Positive pressure ventilation in major engine workshops
in Tomago and South Guildford reduces the risk of
contamination and helps customers to extend the
operating life of major components. WesTrac Australia
has also put in place new bunding around oil storage in
major storage facilities.
R7 Robowash
machine has
a 6 tonne
weight capacity,
accommodating a
20 cylinder block
engine cleaner
The increased level of bunding caters for a spill and
improved loss of containment with firefighting. Storage
has been moved to ensure it is segregated from other
areas of the facility and reduces potential exposure to
people and proximity to major warehouse facilities.
35
Annual Report 2017 WesTrac Tomago Ecology
Since the start of WesTrac’s operations in Tomago in
2012 the WesTrac basin and the adjoining swale areas
have rapidly developed wetland ecology. Formerly these
areas were pasture grass of limited environmental value.
In the past couple of Annual Environmental Management
Reports (AEMRs), it has been reported that the area is now
inhabited by birds such as black swans, cygnets, ducks
and frogs. Their inhabitancy of the WesTrac basin and
swales is continuing. It is outlined in the Hunter Wetlands
National Park Draft Plan of Management published by the
NSW National Parks and Wildlife Services that the Tomago
wetlands currently provides the most diverse reptile habitat
in the Hunter Wetlands area. The Hunter Bird Observers
Club (HBOC) recently detailed the sighting of at least
3,200 Sharp-tailed Sandpipers (Calidris acuminata) during
a survey in January 2017. This accounts for approximately
two percent of the Sharp-tailed Sandpiper’s global
population and demonstrates the ability for large numbers
of migrating birds to co-exist with the project.
Reusability
WesTrac recently engaged with Caterpillar globally to
analyse the businesses material scrapping and reuse
policies both in NSW and WA to determine whether parts
which we have previously been replaced could have
been reused within tolerance. This processes has led
to a revision of existing procedures and will optimise the
reuse of components across WesTrac’s rebuild operations,
benefiting the customer from a cost saving perspective, and
ultimately leading to less scrappage of component parts.
Emissions
WesTrac is currently undertaking a number of initiatives
designed to help reduce emissions including the
introduction of Tier 4 Final/Stage IV standards for engines
which require an additional 80 per cent reduction in NOx
emissions from the previous Tier 4 Interim standards. The
Australian business is also in the process of converting
all existing branch lighting from metal halides to LEDs
and evaluating the potential to convert all major facilities
to solar power by 2019. WesTrac Australia’s greenhouse
gas reporting is completed in October of each year. Since
initial reporting in FY13, WesTrac Australia has:
• Reduced its total greenhouse emissions from 34,230
to approximately 31,621 (scope 1 + 2, t CO2-e),
representing an approximate reduction of 7.6 per cent;
and
• Only increased its total energy consumption from 257,144
to approximately 263,906 (total GJ), representing an
approximate increase of only 2.6 per cent.
In China, WesTrac has installed the first low content
methane engine system revolutionising power
generation for coal beds.
HUMAN CAPITAL MANAGEMENT
Safety
WesTrac Group promotes the early identification,
assessment and control of all risks and hazards in order
to prevent injury and it is committed to providing a safe
working environment above all else. WesTrac Group’s
goal is to be recognised as an industry leader in health
and safety management by:
• Making health and safety central to all business
activities and encouraging employees to stop or
delay work if they believe adequate risk management
controls are not in place;
• Being constantly aware of WesTrac Australia’s major
accident and health risks and ensuring the right
designs, plans, actions and people are in place to
control them;
• Ensuring the ongoing physical integrity of
WesTrac Australia’s facilities as well as the currency
and relevance of our operating procedures;
• Complying with all relevant laws, regulations and
standards such as our Life Saving Rules;
• Setting internal objectives and targets, which drive
us to continually improve our health and safety
performance, with the aim of eliminating work-related
injury and illness; and
• Engaging contractors and suppliers who share
WesTrac Australia’s values and working with them
to consistently meet WesTrac Australia’s health and
safety expectations.
Injury Reporting for WesTrac Australia
January
2016
January
2017
YTD as at
June 2017
WesTrac Australia TRIFR
10.52
9.73
WesTrac Australia LTIFR
1.20
1.22
9.00
1.20
Both Total Recordable Injury Frequency Rate (TRIFR)
and Lost Time Injury Frequency Rate (LTIFR) above are
calculated as events per 1,000,000 hours worked.
TOBY RICHTER
APPRENTICE,
WESTRAC WA
Toby has barely finished
his heavy diesel
mechanics apprenticeship
with WesTrac but is
already making a mark
in the company’s engine
centre. He excelled in his
studies, and went on to
win Caterpillar Asia-Pacific
Dealer (APD) Top
Apprentice Competition
after demonstrating
his capabilities across
a variety of skill tests.
Toby loves working on
CAT engines and the
satisfaction of finishing
a job, and WesTrac is
very pleased to have him
on board. It is people
like Toby who keep
CAT equipment running
smoothly and safely for
WesTrac customers all
over Australia.
36
Seven Group Holdings WesTrac endeavours
to make a positive
contribution to the
communities in which
it operates.
Training
As a significant employer of apprentices in Australia,
WesTrac developed the WesTrac Institute as part of its
initiative to establish a National Skills Training Centre
of Excellence. Through the Institute, WesTrac keeps
its service capabilities up to date with training in the
latest equipment advances as well as general training
needs. With modern, state of the art campuses
located in South Guildford, WA and Tomago, NSW,
the WesTrac Institute is a comprehensive training
centre for those looking to enter the heavy equipment
industry. It is the preferred provider for all WesTrac
training needs, including pre-trade and post-trade
training (Automotive Heavy vehicle mechanics),
machine operations, Occupational Health and Safety
(OHS) and management training.
The WesTrac Institute currently delivers training and
assessment in the following areas:
• Pre-employment/ pre-apprentice
• Apprentice
• Post trade (technical)
• Machine operation
• Technology
• High Risk Work Licences
• OHS
The Institute is also registered to deliver and asses
units of competence and qualifications from the
following training packages:
• Automotive
• Metals and engineering
• Resources and Infrastructure Industries
• Construction
• Business
The WesTrac Institute is also available to customers
wishing to advance the knowledge and skills of
their employees in all aspects of machine operating
techniques, preventative maintenance and diagnostic
inspection procedures.
Apprentice of the year
Each year WesTrac, in conjunction with Caterpillar,
runs an apprentice of the year program to help
promote the skills and experience of its apprentices.
Participants engage in a four day assessment
program hosted by Caterpillar in Melbourne which
is designed to be both a reward and a challenge
for the apprentices in attendance. During the week,
each participant is asked to complete a number of
activities that include presentations, skills and theory
assessments, and visits to businesses that are leaders
in their respective industry or market. This year’s
winner was Toby Richter from WesTrac WA.
This year WesTrac’s apprentice program is expanding
and the business is launching a new focus on women
and indigenous participants in line with new diversity
targets set across the Group. WesTrac WA also
facilitated work experience with the autonomous team
in Perth and local high school students culminating in
one of the participants placing in top 10 globally in a
robotics competition and winning best innovation and
autonomous robot.
Employee Retention and Engagement
WesTrac Group recognises that its people are its
most valuable resource. In order to attract, retain and
engage the most talented people, WesTrac Group
offers a competitive salary and benefits scheme
commensurate with industry standards.
WesTrac Group also provides its employees with
comprehensive learning and development programs
designed to encourage their professional and personal
development. The business also engages in a
robust annual performance management cycle and
succession planning program.
In order to track employee engagement and develop
strategies to improve employee retention, the business
participates in an annual Employee Opinion Survey
which provides key insights into leadership, teamwork,
engagement, satisfaction, reward and recognition
and safety leadership. As part of a comprehensive
Wellbeing program, employees are also provided with
free, around the clock access to a dedicated employee
assistance program (Access EAP), which provides
pro-active and preventative counselling and support
services focused on equipping employees with greater
knowledge and practical skills to enhance workplace
and personal wellbeing.
The Board is currently redesigning the businesses
remuneration structure to increase longer-term equity
participation, aligning shareholder interest and acting
to ensure greater continuity. In the longer term the
Board will be seeking shareholder approval to expand
this new remuneration structure to secure the next
generation of key leaders. For further information
concerning the Company’s remuneration practices
please refer to the Remuneration Report on pages 55
to 73 of this Annual Report.
The Company has adopted a formal Issue Escalation
Guideline to encourage the reporting and investigation
of unethical and unlawful practices and matters of
concern which cannot otherwise be adequately
dealt with under Company policies. The Guideline,
including details for a dedicated and confidential
external reporting ‘hotline’, is available on the
Company’s website.
INVESTMENT IN DISRUPTION
AND INNOVATION
Since 2015, SGH has undertaken a strategy of
investing in innovation through incubation. The
strategy has a targeted and focused approach to
identifying, investing in and nurturing high-potential
technology-oriented businesses pursuing disruptive
innovation strategies. The strategy complements
the Company’s core operating businesses, and
the Group’s longer term financial sustainability, by
providing technology-driven market insights into
the industries in which SGH operates as well as
participating in the next wave of industry development
and exposure to growth opportunities that arise as
an early investor. This strategy also supports local
businesses, by providing funding to allow the growth
of small businesses within Australia.
Execution of the strategy includes taking a direct
engagement approach with the management team
to assist in their strategy execution and growth.
Examples of our activities in innovation incubation
include the Group’s investments in iSeekplant and
Impulse Screen Media.
iSeekplant is an online/two-sided marketplace where
subscription paying customers can advertise their
equipment for hire. The platform connects plant
and asset owners with companies and individuals
looking for plant hire. iSeekplant recently launched
37
RORY WADE
WESTRAC WORK
EXPERIENCE STUDENT
His autonomous robot
won Best Design,
Best Innovation and
placed sixth in World
RoboCup in Nagoya.
Annual Report 2017 40 WESTRAC
EMPLOYEES
completed The Bloody
Long walk, raising funds
for charity
a world-first, real-time tracking system for users that
identifies where they can find unutilised machines in
their local area. The platform now has well over 100,000
users on the site every month including major mining
and construction companies.
• The Red Cross
• RU Okay Organisation
• Cerebral Palsy Australia
• The McGrath Foundation
Impulse Screen Media has built a unique technology
platform that captures and extracts real-time
data from television broadcasts, allowing brands
and agencies to optimise digital media buying in
real-time. Impulse Screen Media is integrated with
all major Demand Side Platforms (DSPs) enabling
television-synced ads across display, video, social
and mobile. Impulse also offers a Television Analytics
solution which leverages its proprietary Automatic
Content Recognition platform. For the first time
broadcasters and their clients have an accurate means
of measuring just how much television branding can be
attributed to searches and transactions across digital
and social media platforms and plan their advertising
accordingly. Impulse’s cross-media marketing solutions
are based on proprietary technology and enable a
brand mention/action/event or sentiment on one
medium – such as television – to trigger advertising on
a digital medium – across search, social and display
– automatically and instantly at a time when viewers
are supplementing their viewing with social media
engagement on a second device.
SOCIAL
WesTrac Group endeavours to make a positive
contribution to the communities in which it operates.
As well as contributing to a variety of community
based charities and organisations throughout the
year, WesTrac Group also maintains a donations and
sponsorship portfolio, designed to benefit our employees,
customers and the community organisations in which
they participate. Each year the business participates in
a number of charity fundraisers by sponsoring teams or
providing financial donations to events such as:
• The MACA Ride to Conquer Cancer
• Channel Seven Perth Telethon
• Oxfam Australia Trailwalker
• Sydney’s City to Surf
WesTrac Group has also established a number of
strategic partnerships with charities and organisations
involved in the communities and industries in which it
operates, including:
• The Trans-Help Foundation
• Convoy for Kids
• Diggers and Dealers
• White Ribbon Appeal
• The NSW Rescue Helicopter Service
38
• The Princess Margaret Hospital Foundation
• Bloody Long Walk
WesTrac Group successfully renegotiated workplace
Enterprise Agreements in NSW and WA, providing
continuity and certainty for employees and the Group,
as well as forming a cornerstone of WesTrac’s economic
sustainability.
SGH ENERGY – ENVIRONMENT
Seven Group Holdings has oversight of SGH Energy’s
commitment to and achievement of high standards
of health, safety, environment, quality and community
(HSEQC) performance, and fostering a culture of
continuous improvement in these areas. SGH Energy
operates within the expectation adopted across the oil
and gas industry that all hazards must be reduced to
as low as reasonably practicable (ALARP). This is an
integral part of SGH Energy’s HSEQC policy, standards
and processes, which includes:
• Documenting, setting and applying standards that
relate to HSEQC in the workplace and also with
regards to their effect on employees, customers,
contractors and the public;
• Maintaining and continuously improving the HSEQC
Management System across the organisation;
• Providing adequate training to SGH Energy personnel
and consultants in order to fulfil their responsibilities;
and
• Fostering a culture that empowers and rewards
everyone to act in accordance with this Policy.
SGH Energy’s Longtom Environment Plan and Longtom
Safety Case, concerning the operation of SGH Energy’s
Longtom production facilities, document the hazards
and the specific controls that have been implemented
by SGH Energy as well as targeted and measurable
performance standards for the key controls to ensure
that they continue to be effective. Stakeholder
consultation is also a key part of the SGH Energy’s
environmental management process for the Longtom
operation. The Longtom Environment Plan and
Longtom Safety Case have both been independently
accepted by Federal Petroleum Industry Regulator, the
National Offshore Petroleum Safety and Environmental
Management Authority, with regular inspections, both
internal and by the regulator. The offshore operations
conducted over the Longtom facilities in January 2017
were completed with no injuries or incidents, with this
excellent result being a testament to the robust systems
and the commitment of staff and contractors to high
standards of performance.
Seven Group Holdings CASH MANAGEMENT
18 Cash and cash equivalents
19 Notes to the cash flow statement
20 Interest bearing loans and borrowings
FINANCIAL ASSETS
21 Financial risk management
22 Other financial assets
23 Derivative financial instruments
CAPITAL STRUCTURE
24 Capital and reserves
25 Dividends
UNRECOGNISED ITEMS
26 Contingent liabilities
27 Commitments
28 Events subsequent to balance date
GROUP STRUCTURE
29 Parent entity disclosures
30 Controlled entities
OTHER
31 Assets held for sale
32 Discontinued operations
33 Related party disclosures
34 Auditor’s remuneration
DIRECTORS’ DECLARATION
INDEPENDENT AUDITOR’S REPORT
INVESTOR INFORMATION
SHAREHOLDER INFORMATION
CORPORATE DIRECTORY
COMPANY INFORMATION
BOARD OF DIRECTORS
CORPORATE GOVERNANCE STATEMENT
DIRECTORS’ REPORT
REMUNERATION REPORT
AUDITOR’S INDEPENDENCE DECLARATION
CONSOLIDATED STATEMENT OF PROFIT
OR LOSS AND OTHER COMPREHENSIVE
INCOME
CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
CONSOLIDATED CASH FLOW STATEMENT
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
BASIS OF PREPARATION
1 Basis of preparation
RESULTS FOR THE YEAR
2 Operating segments
3 Significant items
4 Revenue and expenditure
5 Net finance expense
6 Income tax
7 Earnings per share
OPERATING ASSETS AND LIABILITIES
8 Trade and other receivables
9 Trade and other payables
10 Inventories
11 Investments accounted for using the
equity method
12 Property, plant and equipment
13 Producing and development assets
14 Exploration and evaluation assets
15 Intangible assets
16 Provisions
17 Employee benefits
40
42
52
55
75
76
77
78
79
80
80
82
85
86
87
88
91
92
93
94
94
99
100
101
102
105
107
108
108
109
110
119
120
123
125
125
126
127
127
128
132
133
134
135
136
137
142
143
145
145
Annual Report 2017
39
BOARD OF
DIRECTORS
KERRY MATTHEW STOKES AC
Executive Chairman of Seven Group Holdings Limited since
22 April 2010.
Executive Chairman of Seven Network Limited since July 1999.
Prior to that Non-Executive Chairman since June 1995.
Appointed a Companion in the General Division of the Order of
Australia in the Queen’s Birthday honours announced on
9 June 2008.
Chairman of Seven Media Group Pty Limited since
December 2006.
Chairman of Australian Capital Equity Pty Limited Group which
has significant interests in activities which include media and
entertainment, resources, energy, property, pastoral and
industrial activities.
Ms Chaplain is the independent chairman of Queensland
Airports Ltd and Chairman of Canstar Pty Ltd. She is a director of
Downer EDI Ltd and a former director of EFIC, Australia’s export
credit agency. Since April, 2017, Ms Chaplain has served as a
member of the Australian Ballet board of directors.
A Fellow of the Australian Institute of Company Directors,
Ms Chaplain holds an MBA from the University of Melbourne, a
B.A. majoring in Economics and Mandarin from Griffith University
and a diploma from the Securities Institute of Australia.
In 2015, Ms Chaplain was awarded Griffith University Business
School’s Outstanding Alumnus of the year and in 2016,
Griffith University conferred on her an honorary doctorate in
recognition of her distinguished service to banking, finance and
the community. She is a member of the Griffith University Business
School’s Strategic Advisory Board.
Chairman of Seven West Media Limited (formerly West Australian
Newspapers Holdings Limited) since 11 December 2008.
Appointed a Director on 25 September 2008.
Ms Chaplain is the former Chair of School Council for
St Margaret’s Anglican Girls School in Brisbane and is a member
of Chief Executive Women.
Mr Stokes is Chairman and Fellow (since November 2015) for the
Australian War Memorial (previously a Council Member).
RYAN KERRY STOKES
Mr Ryan Stokes is Managing Director & Chief Executive Officer
of Seven Group Holdings Limited (“SGH”).
He was previously Chief Operating Officer of SGH from
28 August 2012 until 30 June 2015 and an Executive Director
of the Company since 16 February 2010.
Mr Stokes is a Director of Seven West Media Limited,
WesTrac Pty Ltd and Coates Hire. Mr Stokes was appointed to
the Board of Beach Energy Limited in July 2016.
Mr Stokes is Chief Executive Officer of Australian Capital Equity
Pty Limited. Australian Capital Equity Pty Limited is a private
company with its primary investment being an interest in SGH.
Mr Stokes is Chairman of the National Library of Australia since
2012. He is also a member of the Prime Ministerial Advisory
Council on Veterans’ Mental Health established in 2014. In 2015,
he became a Committee member of innovationXchange (within
the Department of Foreign Affairs and Trade), which provides
strategic guidance on innovation in aid programs. He is also
a member of the International Olympic Committee Olympic
Education Commission.
Mr Stokes holds a BComm from Curtin University.
SALLY ANNABELLE CHAPLAIN
Director of Seven Group Holdings Limited since
24 November 2015.
Chair of the Audit & Risk Committee, member of the Remuneration
& Nomination Committee and member of the Independent &
Related Party Committee.
Ms Chaplain brings to Seven Group Holdings extensive
experience in financial services and mining, engineering and
infrastructure services.
TERRY JAMES DAVIS
Director of Seven Group Holdings Limited since 1 June 2010.
Group Managing Director, Coca-Cola Amatil Limited from
12 November 2001 to 3 March 2014.
Chairman of the Independent & Related Party Committee,
member of the Remuneration & Nomination Committee. Chairman
of the Remuneration & Nomination Committee from 3 August 2017.
Director of St. George Bank Limited from December 2004 to
December 2008.
Over fifteen years experience in the global wine industry including
Managing Director of Beringer Blass (the wine division of
Foster’s Group Limited) and Managing Director of Cellarmaster
Wines Group between 1987 and 1997.
Council Member of the University of New South Wales Council
from June 2006 to June 2014.
CHRISTOPHER JOHN MACKAY
Director of Seven Group Holdings Limited since 1 June 2010.
Managing Director of MFF Capital Investments Limited since
1 October 2013.
Former Chairman of Magellan Financial Group Limited.
Member of the Audit & Risk Committee and of the Independent
& Related Party Committee.
Considerable experience in business management, capital
allocation, risk management and investment. A former investment
banker and corporate and banking lawyer, with broad experience
in the financial and corporate sectors over many years.
Formerly Chairman of the investment bank UBS Australasia,
having previously been its Chief Executive Officer.
A director of Consolidated Media Holdings Limited from
8 March 2006 until 19 November 2012, when the company was
taken over by News Corporation.
40
Seven Group Holdings DAVID IAN MCEVOY
Director of Seven Group Holdings Limited since 27 May 2015.
Member of the Audit & Risk Committee and member of the
Independent & Related Party Committee.
Mr McEvoy has been engaged in the oil and gas industry for
over 40 years, in a variety of technical, senior executive and
non-executive director roles. He was employed for almost
34 years with ExxonMobil. He concluded his executive career at
ExxonMobil in 2002 as Vice President Business Development,
ExxonMobil Exploration Company. Mr McEvoy earlier served as
a Regional Vice President of Exxon Exploration Company from
1992 to 1997, where he was responsible for exploration activities
in the Far East, USA, Canada and South America. He joined Esso
Australia Limited in 1969.
Mr McEvoy graduated from the University of New South
Wales with a degree in Science and a graduate diploma in
Applied Geophysics.
Mr McEvoy is a Non-Executive Director of AWE Limited
(since 2006).
Mr McEvoy is a former Non-Executive Director of Woodside
Petroleum Limited (September 2005 to May 2017) and a former
Non-Executive Director of Acer Energy (formerly Innamincka
Petroleum Limited) and Po Valley Energy Ltd.
BRUCE IAN MCWILLIAM
Director of Seven Group Holdings Limited since 28 April 2010.
Director of Seven Network Limited since September 2003.
Commercial Director of Seven Network Limited since May 2003.
Commercial Director of Seven West Media Limited.
Director of Seven Media Group Pty Limited since December 2006.
Former partner of law firms Gilbert & Tobin, Turnbull McWilliam
and Allen Allen & Hemsley specialising in media and commercial
law. Former Director BSkyB, Executive Director News International
Television and General Counsel, News International plc.
Director of Australian News Channel Pty Limited from 1 June 2005
to 1 December 2016.
Alternate Director of Seven West Media Limited from
4 November 2008 to 5 March 2015.
Honorary Fellow of the University of Sydney.
THE HON. WARWICK LESLIE SMITH AM
Director of Seven Group Holdings Limited since
12 September 2014.
Member of the Audit & Risk Committee and member of the
Remuneration & Nomination Committee.
Chairman, New South Wales and Australian Capital Territory and
Senior Managing Director, Australia for Australia and New Zealand
Banking Group Limited. Board Director of ANZ Bank China.
Chairman of the Advisory Board of the Australian Capital Equity
Group of companies.
Director of Estia Health Limited since May 2017.
Director of Coates Hire since May 2016.
Chairman of the Australia China Council and Global Trustee of
the Asia Society.
Former Executive Director with the Macquarie Bank Group of
companies and a former Chairman of E*Trade Limited.
Former Chairman of the Australian Sports Commission.
Former Telecommunications Ombudsman.
Former Minister for Sport, Territories and Local Government,
Minister Assisting the Prime Minister on the Olympic Games in
Sydney and Minister for Family Services.
Mr. Smith was awarded the Member of the Order of Australia
(AM) in 2008, for service to the Parliament of Australia, to the
telecommunications industry, to the promotion of international
trade and tourism and to philanthropy through a range of
charitable and community organisations.
RICHARD ANDERS UECHTRITZ
Director of Seven Group Holdings Limited since 1 June 2010.
Member of the Remuneration & Nomination Committee and
member of the Independent & Related Party Committee. Chairman
of the Remuneration & Nomination Committee until 3 August 2017.
Director of JB Hi-Fi Limited since 28 April 2011.
Chief Executive Officer and Director of JB Hi-Fi Limited from
June 2000 to May 2010.
Over thirty years experience in retailing.
Co-founder of Rabbit Photo and Smith’s Kodak Express.
Director of Kodak (Australasia) Proprietary Limited from
30 July 1998 to 20 July 2000.
WARREN WALTER COATSWORTH –
COMPANY SECRETARY
Company Secretary of Seven Group Holdings Limited since
28 April 2010.
Company Secretary of Seven West Media Limited since
April 2013.
Company Secretary of Seven Network Limited since July 2005.
Mr Coatsworth is a solicitor holding a current practising certificate
with degrees in Arts and Law (Hons) from the University of Sydney.
He holds a Masters of Law in Media and Technology Law from
the University of New South Wales as well as a Graduate Diploma
in Applied Corporate Governance. He is a qualified Chartered
Company Secretary and a Fellow and member of the Governance
Institute of Australia.
Mr Coatsworth has also held the position of Legal Counsel at the
Seven Network for the past seventeen years, advising broadly
across the company, and was formerly a solicitor at Clayton Utz.
41
Annual Report 2017 CORPORATE
GOVERNANCE
STATEMENT
For the year ended 30 June 2017
This statement outlines the Company’s main corporate
governance practices and its compliance with the 3rd edition of
the ASX Corporate Governance Council Corporate Governance
Principles and Recommendations (ASX Recommendations).
The Company’s Board and Committee Charters and a number
of the corporate governance policies referred to in this statement
are available in the “Corporate Governance” section of the
Company’s website at www.sevengroup.com.au/about-us/
corporategovernance.
Those policies which are not separately available on the
Company’s website are summarised in this statement. A copy
of this statement is available on the Company’s website.
PRINCIPLE 1 – LAY SOLID FOUNDATIONS FOR
MANAGEMENT AND OVERSIGHT
Role and responsibilities of the Board
The Board is empowered to manage the business of the Company
subject to the Corporations Act 2001 (Corporations Act) and the
Company’s Constitution. The Board is responsible for the overall
corporate governance of the Group and has adopted a Board
Charter, which is available on the Company’s website. The
Board Charter sets out the role and responsibilities of the Board
as well as those functions delegated to management.
The Board Charter provides that the Board’s role includes:
representing and serving the interests of shareholders
•
by overseeing, reviewing and appraising the Company’s
strategies, policies and performance in accordance with any
duties and obligations imposed on the Board by law and the
Company’s Constitution;
• contributing to, and approving management’s development of,
corporate strategy and performance objectives and monitoring
management’s performance and implementation of strategy
and policies;
reviewing and monitoring systems of risk management and
internal control and ethical and legal compliance;
•
• monitoring and reviewing management processes aimed
at ensuring the integrity of financial and other reporting;
• developing 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; and
• on an annual basis, reviewing the effectiveness of the
Company’s Diversity Policy.
• The Board Charter provides that matters which are specifically
reserved for the Board or its Committees include:
• appointment and removal of the Chief Executive Officer;
• approval of dividends;
• approval of annual budget;
• monitoring capital management and approval of major
•
capital expenditure, acquisitions and divestitures in excess
of authority levels delegated to management;
the establishment of Board Committees, their membership
and delegated authorities; and
• calling of meetings of shareholders.
Board Committees
The Board is assisted in carrying out its responsibilities by
the Audit & Risk Committee, the Remuneration & Nomination
Committee and the Independent & Related Party Committee.
These standing Committees were established by the Board to
allow detailed consideration of complex issues.
Each Committee has its own written Charter which is reviewed
on an annual basis. The Charter of each Committee is available
on the Company’s website. Further details regarding the Audit
& Risk Committee are set out under “Principle 4 – Safeguard
Integrity in Corporate Reporting” and further details regarding the
Remuneration & Nomination Committee and the Independent &
Related Party Committee are set out under “Principle 2 – Structure
the Board to Add Value” in this Corporate Governance Statement.
The Directors’ Report on page 53 sets out the number of Board
and Committee meetings held during the 2017 financial year under
the heading “Meetings of Directors”, as well as the attendance of
Directors at those meetings.
Delegation to management
Subject to oversight by the Board and the exercise by the Board
of functions which it is required to carry out under the Company’s
Constitution and Board Charter, and the Corporations Act, it is
the role of management to carry out functions that are expressly
delegated to management by the Board, as well as those
functions not specifically reserved to the Board, as it considers
appropriate, including those functions and affairs which pertain to
the day-to-day management of the operations and administration
of the Company.
Management is responsible for implementing the policies and
strategic objectives approved by the Board. Management must
supply the Board with information in a form, time-frame and quality
that will enable the Board to discharge its duties effectively.
The Company has adopted a Delegated Authority Policy, which
delegates to management the authority to carry out expenditure
in relation to specified areas of the Company’s operations, subject
to the Company’s policies and procedures in respect of the
authorisation and signing of Company contracts, which includes
a system of legal review.
The functions exercised by the Board and those delegated to
management, as explained in this statement and set out in the
Board Charter, are subject to ongoing review to ensure that
the division of functions remains appropriate.
Senior management team
Company executives are each employed under written employment
agreements, which set out the terms of their employment, including
role and duties, the person to whom they report, remuneration,
obligations of confidentiality, and the circumstances in which the
executive’s employment may be terminated.
42
Seven Group Holdings The management of the Company during the financial year
comprised the Managing Director & Chief Executive Officer,
Chief Operating Officer, Chief Financial Officer as well as several
Group Executives who together provide expertise in finance,
mining, systems and processes, security and compliance. In
addition, several Seven West Media Limited executives provided
management services to the Company, and as part of these
arrangements, a portion of their salary cost was charged to the
Company for the services provided to it.
Mr Ryan Stokes is Managing Director & Chief Executive Officer of
the Company who is charged with the responsibility for overseeing
and supervising the Company’s investments in accordance with the
Board’s strategies as well as managing the Company’s executive
team. Mr Ryan Stokes also reports to the Board on the performance,
management and operations of the Group as well as matters relating
to process, governance and optimisation of the businesses of the
Group. The Chief Financial Officer of the Company is Mr Richard
Richards. Mr Richards works closely with the Managing Director &
Chief Executive Officer and the Chief Operating Officer and reports
to the Board on the financial performance and position of the Group
and its businesses as well as matters relating to Group’s financial
governance, controls and processes.
Mr Murray Vitlich commenced as Chief Operating Officer of the
Company on 1 June 2017, and is tasked with responsibility for
continuous improvement of the Company’s operating activities,
driving business transformation and productivity initiatives and
engagement with key external stakeholders and business partners.
Appointment of Directors
The Board has established a Remuneration & Nomination
Committee to assist it in the appointment of new Directors. Further
information regarding the Committee is set out under “Principle 2
– Structure the Board to Add Value” in this statement. The policy
and procedure for the selection and appointment of new Directors
is set out in an attachment to the Board Charter. The factors that
will be considered when reviewing a potential candidate for the
Board appointment include:
•
the skills, experience, expertise and personal qualities that
will best complement the Board effectiveness, including a
deep understanding in the areas of corporate management,
operational, safety and financial matters and the media, industrial
services and energy industries in which the Group operates;
the existing composition of the Board, having regard to
the factors outlined in the Company’s Diversity Policy and the
objective of achieving a Board comprising Directors from a
diverse range of backgrounds;
the capability of the candidate to devote the necessary time
and commitment to the role (this involves a consideration of
matters such as other board or executive appointments); and
•
•
• potential conflicts of interest, and independence.
The Board believes the management of the Company benefits
from and it is in the interests of shareholders for Directors on
the Board to have a mix of tenures, such that some Directors
have served on the Board for a longer period and have a deeper
understanding of the Company and its operations, and new
Directors bring fresh ideas and perspectives. As part of the
selection and appointment process:
•
the Board and Remuneration & Nomination Committee, if
so requested, identify potential Director candidates, with the
assistance of external search organisations as appropriate;
• background information in relation to each potential candidate
is provided to all Directors;
• appropriate background checks are undertaken before
appointing a Director, or putting forward to shareholders
a Director candidate for election;
• an invitation to be appointed as Director is made by
the Chairman after having consulted all Directors, with
recommendations from the Remuneration & Nomination
Committee (if any) having been circulated to all Directors.
Appointed Directors receive a formal letter of appointment which
set out terms of their appointment, including remuneration
entitlements and the Company’s Corporate Governance Policies,
including the Company’s Share Trading Policy, which Directors
are to abide by. Under the letter of appointment, Directors are also
provided with a schedule of Board meetings, a Deed of Indemnity
& Access and a summary of Director insurance arrangements.
The date at which each Director was appointed to the Board is
announced to ASX and is provided in this Annual Report on
pages 40 to 41.
Election and re-election of Directors
Directors appointed to fill casual vacancies hold office until the
next Annual General Meeting and are then eligible for election by
shareholders. In addition, each Director must stand for re-election
at the third Annual General Meeting of the Company since they
were last elected.
The Notice of Meeting for the Annual General Meeting discloses
material information about Directors seeking election or re-election,
including appropriate biographical details, qualifications and other
key current directorships.
Company Secretary
The Company Secretary’s role is to support the Board’s
effectiveness by:
• monitoring whether Company policies and procedures
are followed;
• preparing Board and Committee minutes;
• advising the Board and Committees on governance matters; and
• co-ordinating the timely distribution of Board and Committee
agendas and briefing materials.
The Company Secretary’s appointment and removal is a matter
for the Board. The Company Secretary is accountable to the
Board through the Executive Chairman on corporate governance
matters. Each of the Directors has unrestricted access to the
Company Secretary.
43
Annual Report 2017 Board, Committee and Director performance evaluation
The Executive Chairman closely monitors the performance and
actions of the Board and its Committees. During the financial
year Directors completed a Board Evaluation questionnaire
concerning Board, Committee and Director, including Chairman,
performance from which aggregated data and responses are
provided to the Chairman and then presented to the Board for
discussion and feedback. The Board Evaluation questionnaire
provides an opportunity for the Board to benchmark results year-
on-year and to identify Board performance priorities, governance
framework gaps and improve the effectiveness of meetings and
Company processes.
The aggregated questionnaire results also provide the basis of
individual discussions between Directors and the Chairman. The
Chairman and each Board member consider the performance of that
Board member in relation to the expectations for that Board member
and consider any opportunities for enhancing future performance.
Matters which may be taken into account include the expertise and
responsibilities of the Board member and their contribution to the
Board and any relevant Committees and their functions.
Additionally, during the financial year, a report on the program
of work undertaken by the Board and each of its Committees,
assessed against their respective Charter responsibilities
and duties, is provided to the Board for discussion and for
the purposes of reviewing performance of the Board and the
Committees, as well as their Charters, to ensure that the Board
and its Committees operate effectively and efficiently.
During the reporting period, performance evaluations of the
Board, its Committees and individual Directors were carried out
in accordance with this process.
Assessment of management performance
The performance of the Managing Director & Chief Executive
Officer is formally reviewed by the Board against the achievement
of strategic and budgetary objectives in respect of the Group’s
operations and investments whilst also having regard for his
personal performance in the leadership of the Group. The Board’s
review is carried out annually in regard to certain goals against
which he is assessed, and throughout the year in regard to others,
and forms the basis of the determination of the Managing Director
& Chief Executive Officer’s performance-based remuneration.
The Remuneration Report sets out further details of the
performance criteria against which the Managing Director & Chief
Executive Officer’s performance-based remuneration is assessed
on pages 55 to 73.
The performance of senior executives of the Company are
reviewed on an annual basis in a formal and documented interview
process with either the Managing Director & Chief Executive
Officer or the particular executive’s immediate supervisor, who
evaluates performance against agreed performance goals and
assessment criteria in relation to the senior executive’s duties and
material areas of responsibility, including management of relevant
business units within budget, motivation and development of
staff and achievement of, and contribution to, the Company’s
objectives. A performance evaluation of the Managing Director
& Chief Executive Officer and other senior executives took place
during the year in accordance with this process. For further
information about the performance-related remuneration of senior
executives and employees, please see the discussion set out
under “Principle 8 – Remunerate Fairly and Responsibly”.
4444
Diversity Policy
The Company’s Diversity Policy is posted on the Company’s
website. As an entity holding investments in companies operating
across a range of industries, the Company recognises the benefits
diversity brings, and supports the initiatives taken in this area
across those businesses.
The Diversity Policy specifically references the commitment to:
• flexible work practices – developing on a case by case basis,
flexible work practices that assist employees to balance work
with family, caring or other responsibilities;
• career development and performance – ensuring that decisions
regarding employment and remuneration are based on skills,
experience, ability, performance and potential and are made in
a transparent and fair manner; and
• equal employment opportunity – ensuring that training
and workplace awareness is at a level to secure equal and
opportunity in talent and succession planning processes.
The Company evaluates and reports on progress against these
objectives and other diversity initiatives to the Remuneration &
Nomination Committee at least annually.
Company progress on diversity objectives in 2017
Flexible work practices
During the year, flexible work initiatives have been increased in
their reach and variety in the Company. A range of part-time,
compressed weeks and working from home practices have been
utilised, with a particular emphasis on working rosters that support
family-friendly practice. Feedback and take-up has been positive,
with a recognition that this is enabling employees to better manage
their work and home lives.
The Company has also introduced Domestic Violence leave
and improved paid maternity provisions in a number of its
operating businesses.
Career development and performance
Initiatives have continued being delivered across the Company to
further improve the transparency and fairness in performance and
development processes.
Manager training and support for performance and development
programs has been delivered with further enhancements to processes
following prior year feedback from managers and employees.
A national WesTrac Talent Review was initiated this year, providing
a platform for consideration of candidates for progression and
succession. This process established a set of base-line talent
and diversity metrics which will be used to evaluate progress
in future years.
Executive KPIs have been further developed across the Company
to ensure continued progress in this area.
Equal employment opportunity
Training on Diversity and Equality, including anti-bullying,
harassment and discrimination has been extended in the
year. Managers are being provided with additional support in
addressing these issues with their teams.
Executive search processes which have been undertaken during
the year have paid specific attention to securing a ‘diverse slate’
of talent for consideration. Whilst it is recognised that this can be
challenging in the industrial sector, this is a positive and important
step from the Company.
Seven Group HoldingsSeven Group HoldingsCORPORATEGOVERNANCESTATEMENT In WesTrac, work continued to ensure diversity in our apprentice
population. Goals have been established for the employment
of both female and indigenous apprentices, and partnerships
established with organisations who assist both in achieving these
goals and in enhancing the cultural awareness of the managers
involved in the development of these employees.
Gender Diversity
The proportion of women employed within the Group is as follows:
Level
Board
Senior executives*
Whole of organisation
Number
of Women
Proportion
of Women
1 of 9
10 of 71
540 of 3,842
11%
14%
14%
* Senior executives include Executive Directors of Seven Group Holdings
Limited and its subsidiaries, as well as other members of the Executive
leadership team and, where appropriate, direct reports to the Executive
leadership team. Executive Directors have been included in both the Board
and the senior executive categories. The Board and senior executives are
included in the Whole of Organisation category. For the purpose of this
section of the report employee numbers and statistics have been calculated
based on employees who were paid in the final pay periods of June 2017.
The Board is mindful of and recognises the benefits of a Board
comprising directors with a broad range of skills, experience and
perspectives. The Board will continue to review its composition
to ensure that it remains appropriate for the Company, including
with regard to gender diversity, as it manages succession on
the Board. Additionally, the Company has posted its Workplace
Gender Equality Act Public Report for 2016–2017 on its website,
which contains the Company’s Gender Equality Indicators, in the
‘Corporate Governance’ section of its website.
PRINCIPLE 2 – STRUCTURE THE BOARD TO
ADD VALUE
Board composition
The Company’s Constitution provides for a minimum of three
Directors and a maximum of 12 Directors on the Board. As at
the date of this statement, the Board comprises nine Directors,
including five Non-Executive Directors.
The Non-Independent Directors in office are:
• Mr Kerry Stokes AC
• Mr Ryan Stokes
• Mr Bruce McWilliam
• Mr Warwick Smith AM
Executive Chairman
Managing Director & Chief
Executive Officer
Commercial Director
Director
The Independent Directors in office are:
• Ms Annabelle Chaplain
• Mr Terry Davis
• Mr David McEvoy
• Mr Christopher Mackay
• Mr Richard Uechtritz
Director
Director
Director
Director
Director
Professor Murray Wells resigned and retired from the Board
effective at the close of the Company’s Annual General Meeting
held on 17 November 2016. The qualifications, experience,
expertise and period in office of each Director of the Company
at the date of this report are disclosed in the Board of Directors
section of this Annual Report on pages 40 to 41.
Board independence
The Board acknowledges the ASX Recommendation that a
majority of the Board should be Independent Directors. The Board
currently comprises a majority of Independent Directors, with four
Non-Independent Directors and five Independent Directors. From
1 July 2015 until Professor Wells’ retirement from the Board on
17 November 2016, the Board comprised four Non-Independent
Directors and six Independent Directors. In determining whether a
Director is independent, the Board conducts regular assessments
and has regard to whether a Director is considered to be one who:
is a substantial shareholder of the Company or an officer of, or
•
otherwise associated directly with, a substantial shareholder of
the Company;
is, or has previously been, employed in an executive capacity
by the Company or another Group member, and there has not
been a period of at least three years between ceasing such
employment and serving on the Board;
•
• has within the last three years been a principal of a
material professional advisor of, or a material consultant
to, the Company or another Group member, or an employee
materially associated with the service provider;
is a material supplier or customer of the Company or other
group member, or an officer of or otherwise associated directly
or indirectly with a material supplier or customer; or
•
• has a material contractual relationship with the Company or
another group member other than as a Director.
The Board determines the materiality of a relationship on the
basis of fees paid or monies received or paid to either a Director
or an entity which falls within the independence criteria above.
If an amount received or paid may impact the Earnings Before
Interest, Tax, Depreciation and Amortisation (EBITDA) of the Group
in the previous financial year by more than five per cent, then a
relationship will be considered material.
Mr Kerry Stokes AC, Mr Ryan Stokes and Mr Bruce McWilliam
are not considered to be independent due to their executive
positions with the Company. In addition, Mr Warwick Smith AM
is not considered to be independent as he is the chairman of the
advisory board of Australian Capital Equity Group of companies
which is controlled by Mr Kerry Stokes AC. In the Board’s view, the
Independent Directors referred to above are free from any interest
and any business or other relationship which could, or could
reasonably be perceived to, materially interfere with the Directors’
ability to act with a view to the best interests of the Company. In
terms of longevity of time in office, the Board does not consider
that independence can be assessed with reference to an arbitrary
and set period of time, and the independence of Directors who
have held office for some time is considered on a case-by-case
basis. The Company has diverse operations that have grown
considerably over the course of time and, in the Board’s view, the
Company derives the benefits from having long-serving Directors
with detailed knowledge of the history and experience of the
Group’s operations.
45
Annual Report 2017
The Board has achieved a membership which has regard to the
strategic aims and priorities of the Company, including the following
skills and experience which are well-represented on the Board:
Skills and experience
Executive leadership
Significant business experience at a senior
executive level
Financial analysis, risk management
and reporting
Senior executive or equivalent experience in
financial accounting and reporting, corporate
finance and internal financial controls
Industrial services
Senior executive or Board level experience in the
industrial services industry, including in-depth
knowledge of the legislative and regulatory
framework governing this industry
Media industry
Senior executive or Board level experience in the
media industry, including in-depth knowledge of
the legislative and regulatory framework governing
this industry
Energy, oil and gas
Senior executive or Board level experience in the
energy, oil and gas industry, including in-depth
knowledge of the legislative and regulatory
framework governing this industry
Technology
Senior executive or Board level experience in
the strategic use and governance of information
management, information technology as well
as the oversight of implementation of major
technology projects
Strategy and corporate activity
Experience in identifying, developing and
implementing a successful strategy and
developing an asset or investment over the
long-term
Corporate governance and regulatory
Commitment to the highest standards of corporate
governance, including experience with an
organisation that is subject to rigorous governance
and regulatory standards
Remuneration and people
Board remuneration committee membership or
management experience in relation to managing
people and remuneration, including incentive
arrangements and the legislative framework
governing employees and remuneration
Percentage %
100%
89%
67%
33%
44%
55%
100%
100%
89%
The percentages of Directors assessed to possess each category
of skill and/or experiences was determined as at the date this
Corporate Governance Statement was approved.
Independent & Related Party Committee
The Independent Directors (identified above) are members of the
Independent & Related Party Committee, which has Mr Terry Davis
as its Chairman. The Committee provides a forum for the review of
material transactions between the Company and its related parties,
including transactions with Australian Capital Equity Pty Limited and
interests associated with Mr Kerry Stokes AC. Review of related
party transactions by the Committee occurs without management
or Non Independent Directors present. The Committee meets at
least twice during the year, and the Committee otherwise holds
discussions and receives management reports concerning related
party transactions as necessary. As such, the Committee provides
an opportunity for the Independent Directors to meet regularly
without management or Non-Independent Directors present.
Chairman
The roles of the Chairman and Managing Director & Chief Executive
Officer are separate. Mr Kerry Stokes AC is Executive Chairman of
the Company. The Board acknowledges the ASX Recommendation
that the Chairman should be an Independent Director, however
the Board has formed the view that Mr Stokes AC is the most
appropriate person to lead the Board as its Chairman, given his
history of leadership across the businesses and investments
comprising the Group, including in the areas of heavy equipment
management and services, property and television management
and related media investments. In addition, Mr Stokes AC’s
grasp of new technologies driving television production and
transmission and his incentive to maximise the interests of the
Group are considered beneficial for the Company. Mr Stokes AC
has been involved in investing in and managing diverse businesses
for more than four decades and currently has broad business
interests and investments in a range of major business sectors
in Australia and overseas, including construction, mining, oil and
gas exploration. His experience and insights are considered to be
invaluable to the Group.
Board skills, experience and expertise
Each Director brings a range of personal and professional
experiences and expertise to the Board. The Board seeks
to achieve an appropriate mix of skills, tenures and diversity,
including a deep understanding of the industries in which it holds
investments and operates, as well as corporate management
and operational, financial and safety matters. Directors devote
significant time and resources to the discharge of their duties.
The Board has identified the following areas as strategic priorities
for the Company to drive shareholder value:
1. Investing and operating in a diversified portfolio of market
leading assets and businesses in the Company’s core business
areas of industrial services, media, and energy investments with
a focus on maximising profit and return on capital.
2. Driving efficiencies and adding value to the Company’s
operations and investments in assets and businesses through
ensuring the best teams are in place with strong governance
and oversight of systems and processes.
3. Identifying and investing in growth opportunities which leverage
off our Company’s expertise in areas that could be outside our
core current operating areas with a focus on taking advantage
of opportunistic situations.
4. Prudent capital and balance sheet management to sustain future
development of the Company and enhance shareholder returns.
4646
Seven Group HoldingsSeven Group HoldingsCORPORATEGOVERNANCESTATEMENT Remuneration & Nomination Committee
The Board has established a Remuneration & Nomination
Committee comprised of the following members, all of whom
are Independent Directors except for Mr Warwick Smith AM:
• Mr Terry Davis (Chairman)
• Mr Richard Uechtritz (Former Chairman)
• Ms Annabelle Chaplain
• Mr Warwick Smith AM
Mr Richard Uechtritz was Chairman of the Remuneration &
Nomination Committee throughout the financial year and until
3 August 2017 at which date Mr Terry Davis was appointed
Chairman of the Committee.
The Remuneration & Nomination Charter is available on the
Company’s website. The Charter provides that the Committee
must consist of a minimum of three members and must have
a majority of Independent Directors, all of whom must be
Non-Executive Directors.
Attendance at Committee meetings by management is at the
invitation of the Committee. Directors who are non-Committee
members may attend any meeting of the Committee.
The Committee may request that Directors who are
non-Committee members are not present for all or any part of
a meeting. It is the practice of the Committee for the Managing
Director & Chief Executive Officer and Group Executive, Human
Resources to attend Committee meetings to present to, or
to assist, the Committee. The Chairman of the Committee
reports to the Board on the Committee’s considerations and
recommendations.
Further details concerning the Remuneration & Nomination
Committee’s role in relation to Board appointments are set out
in this Corporate Governance Statement under the heading
“Principle 1 – Lay Solid Foundations for Management and
Oversight” and under “Principle 8 – Remunerate Fairly and
Responsibly” in relation to its role regarding the Company’s
remuneration arrangements.
Director induction and ongoing training
As part of the induction process, Board appointees attend a
briefing with the Executive Chairman, meet with the Company
Secretary about the Company’s corporate governance (including
its policies and procedures), visit key business sites and meet with
senior executives.
In addition to the induction process for new Director appointments,
from time to time, Directors attend external education seminars
and peer group meetings regarding regulatory and compliance
developments. The Company arranges presentations to the Board
by Executives to update the Directors on the Group’s business
activities, as well as industry and regulatory developments.
Effective functioning of the Board
The Board, under the terms of appointment of Directors and
by virtue of their position, is entitled to access, and is provided
with, information concerning the Group needed to discharge
its duties efficiently. Directors are entitled, and encouraged, to
request additional information if they believe that is necessary
to support informed decision-making. Directors are able to obtain
independent professional advice to assist them in carrying out
their duties, at the Company’s expense.
PRINCIPLE 3 – ACT ETHICALLY AND RESPONSIBLY
Code of Conduct and other Company policies
The Board has adopted a Code of Conduct for Directors,
available on the Company’s website, which establishes guidelines
for their conduct in matters such as ethical standards and the
disclosure and management of conflicts of interests. Formal
Employee Conduct Guidelines have been adopted by the
Company for employees, including senior executives, and are
available on the Company’s website. These Guidelines help to
guide employees on how to act and clarify how the Company
expects employees to perform.
The Company and its controlled subsidiaries, as applicable,
uphold and maintain the following ethical standards:
• General statutory requirements and regulations of the
Corporations Act, ASX Listing Rules and Income Tax
Assessment Act;
• Equal employment opportunity and affirmative action;
• Encouraging high standards of safe work practices
and implementing Occupational Health & Safety
compliance procedures;
• Policy of community service through charitable
organisations; and
• Policy of responding to national disasters and tragedies.
The Company assesses the Group as part of its compliance with
the National Greenhouse and Energy Reporting Act and will be
reporting relevant emissions and energy usage and production for
the Group for the financial year.
The Company has adopted a formal Issue Escalation Guideline
to encourage the reporting and investigation of unethical and
unlawful practices and matters of concern which cannot otherwise
be adequately dealt with under Company policies. The Guideline,
including reporting contacts, is available on the Company’s website.
The Company requires compliance with Company policies by
employees under the terms of their employment and carries out
training of employees in relation to its policies and procedures.
The Company has adopted Share Trading Policies for Group
Directors and Executives and Staff, which are available on the
Company’s website.
47
Annual Report 2017 The Audit & Risk Committee’s key responsibilities in respect of its
risk function are set out below under “Principle 7 – Recognise and
Manage Risk”.
Attendance at Committee meetings by management is at the
invitation of the Committee. Directors who are non-Committee
members may attend any meeting of the Committee. The
Committee may request that Directors who are non-Committee
members are not present for all or any part of a meeting. It is
the practice of the Committee for the Managing Director & Chief
Executive Officer, Chief Financial Officer, Chief Operating Officer
and Head of Internal Audit & Process Improvement to attend
Committee meetings to present to, or to assist, the Committee.
The Chairman of the Committee reports to the Board on the
Committee’s considerations and recommendations.
External Audit function
Each reporting period the External Auditor provides an
independence declaration in relation to the audit of the Company.
Additionally, the Audit & Risk Committee provides advice to the
Board in respect of whether the provision of non-audit services
by the External Auditor are compatible with the general standard
of independence of auditors imposed by the Corporations
Act. The current practice is for the rotation of the appropriate
External Audit partner(s) to occur every five years (subject to the
requirements of applicable professional standards and regulatory
requirements). If a new auditor is to be appointed, the selection
process involves a formal tender evaluated by the Audit & Risk
Committee. The Chair of the Committee leads the process, in
consultation with the Chief Financial Officer. The Board ensures
that the Company’s External Auditor attends all Annual General
Meetings and is available to answer shareholders’ questions
about the conduct of the audit and the preparation and content
of the Audit Report.
Following a comprehensive competitive tender process, Deloitte
Touche Tohmatsu (“Deloitte”) was selected as the auditor of the
Company for the financial year ended 30 June 2017. The tender
comprised a two stage process. The first stage involved an initial
expression of interest in which firms were required to submit
qualitative information of their proposed audit approach, focussing
on knowledge of the Group, audit quality and innovation. In the
second stage shortlisted firms submitted proposed audit fees
and formally presented to a sub-committee of the Company’s
Audit & Risk Committee comprised of Professor Murray Wells,
Ms Annabelle Chaplain and Mr Warwick Smith AM. The sub-
committee unanimously recommended to the Board, and the
Board resolved, that Deloitte be appointed as the Company’s
auditor, subject to shareholder approval which was obtained at the
Company’s Annual General Meeting held on 17 November 2016.
The Board wishes to recognise and thank KPMG for its diligence
and dedication as the Company’s auditor since its formation
through until the appointment of Deloitte.
PRINCIPLE 4 – SAFEGUARD INTEGRITY
IN CORPORATE REPORTING
Audit & Risk Committee
As at the date of this statement, the Committee comprised the
following members, all of whom are Independent Directors except
for Mr Warwick Smith AM:
• Ms Annabelle Chaplain (Chairman)
• Mr David McEvoy
• Mr Chris Mackay
• The Hon Warwick Smith AM
Until Professor Murray Wells’ retirement from the Board on
17 November 2016 Professor Wells was the Chairman and a
member of the Audit & Risk Committee. Ms Annabelle Chaplain
was appointed Chairman of the Audit & Risk Committee effective
from Professor Wells’ retirement. Since that time the Committee
has comprised three independent and one non-independent
Non-executive Director: Ms Annabelle Chaplain (Chairman),
Mr Chris Mackay, Mr David McEvoy and Mr Warwick Smith
AM. In appointing Ms Chaplain as Chairman of the Audit & Risk
Committee, the Board noted Ms Chaplain’s financial expertise
and her professional experience on Audit & Risk Committees of
substantial Australian listed companies and her experience in
investment banking, financial services, mining, engineering and
major infrastructure services.
Mr Mackay, a former investment banker and corporate and
banking lawyer, has financial expertise and considerable
experience in business management, capital allocation, risk
management and investment. Mr McEvoy brings significant Board
experience and expertise in accounting matters and operations,
including relating to the oil and gas industries as well as extensive
risk management experience. Over the course of a highly
distinguished career, Mr Smith has held a variety of senior roles in
finance, banking and government and is considered to possess
financial expertise.
The Audit & Risk Committee has adopted a formal Charter which
is available on the Company’s website. The Committee’s key
responsibilities in respect of its audit function are to assist the
Board in fulfilling its responsibilities in relation to:
•
the accounting and financial reporting practices of the
Company and its subsidiaries;
the consideration of matters relating to the financial controls
and systems of the Company and its subsidiaries;
the identification and management of financial risk; and
the examination of any other matters referred to it by the Board.
•
•
•
The Audit & Risk Committee is also responsible for:
• making recommendations to the Board on the appointment
(including procedures for selection), and where necessary, the
replacement of the External Auditor;
• evaluating the overall effectiveness of external audit function
•
through the assessment of external audit reports and meetings
with the External Auditor;
reviewing the External Auditor’s fees in relation to the quality
and scope of the audit with a view to ensuring that an effective,
comprehensive and complete audit can be conducted for the
fee; and
• assessing whether non-audit services provided by the
External Auditor are consistent with maintaining the External
Auditor’s independence.
4848
Seven Group HoldingsSeven Group HoldingsCORPORATEGOVERNANCESTATEMENT Declarations by the Managing Director & Chief Executive
Officer and Chief Financial Officer
Before the Board approves the financial statements for each
of the half-year and full year, it receives from the Managing
Director & Chief Executive Officer and the Chief Financial Officer
a written declaration that, in their opinion, the financial records
of the Company have been properly maintained and the financial
statements are prepared in accordance with the relevant
accounting standards and present a true and fair view of the
financial position and performance of the consolidated group.
These declarations also confirm that these opinions have been
formed on the basis of a sound system of risk management and
internal compliance and control which is operating effectively.
The required declarations from the Chief Executive Officer and
Chief Financial Officer have been given for the half-year ended
31 December 2016 and financial year ended 30 June 2017.
The Company’s website
The Company’s website www.sevengroup.com.au provides
various information about the Company, including:
• Overviews of the Company’s operating businesses, divisions
and structure;
• Biographical information for each Director;
• Copies of Board and Committee Charters;
• Corporate Governance Policies;
• Annual Reports and Financial Statements;
• Announcements to ASX;
• Security price information;
• Contact details for the Company’s Share Registry;
• Details concerning the date of the Annual General Meeting,
including the Notice of Meeting, when available; and
• Access to live webcasts of the Annual General Meeting.
PRINCIPLE 5 – MAKE TIMELY AND BALANCED
DISCLOSURE
The Company complies with the disclosure obligations of the
ASX Listing Rules. The Company has adopted and implemented
a Continuous Disclosure Policy which sets out the procedure
for the identification of material price sensitive information and
reporting of such information to the Company Secretary for review.
A summary of the Continuous Disclosure Policy is available on the
Company’s website. The Company Secretary has been nominated
as the person with primary responsibility for communication and
liaison with the ASX in relation to ASX Listing Rules and disclosure
requirements, including periodic and continuous disclosure issues.
The Company Secretary also has responsibility for ensuring
internal compliance with those ASX Listing Rules and the
oversight of information released to the ASX and shareholders.
PRINCIPLE 6 – RESPECT THE RIGHTS OF
SHAREHOLDERS
Communications with shareholders
As disclosed in the Shareholder Communications Policy, which
is available on the Company’s website, the Board aims to ensure
that shareholders are informed of all major developments affecting
the Company’s state of affairs and that there is effective two-
way communication with shareholders. The Company adopts a
communications strategy that promotes effective communication
with shareholders, principally through ASX announcements, the
Company website, the provision of the Annual Report, including
the financial statements, and the Annual General Meeting (and
any extraordinary meeting held by the Company) and notices
of general meetings. Information concerning resolutions for
consideration at the Company’s general meetings is provided in
the notice of meeting. Shareholders are encouraged to participate
in general meetings and are invited to put questions to the
Chairman of the Board in that forum.
Shareholders are given the option to receive communications
from, and to send communications to, the Company and the
Company’s Share Registry electronically, to the extent possible.
The Board continues to review its channels of communications
with shareholders for cost effectiveness and efficiencies, including
using electronic delivery systems for shareholder communications
where appropriate. The Company continues to implement
campaigns to encourage shareholders to elect to receive all
shareholder communications electronically to help reduce the
impact on the environment and cost associated with printing and
sending materials by post.
PRINCIPLE 7 – RECOGNISE AND MANAGE RISK
Risk oversight and management
The Board recognises that the management of business and
economic risk is an integral part of its operations and has established
policies and procedures for the oversight and management of
material business risks, including the establishment of the Audit &
Risk Committee. Details regarding the Committee are set out under
“Principle 4 – Safeguard Integrity in Corporate Reporting”.
The Board also believes a sound risk management framework
should be aimed at identifying and delivering improved business
processes and procedures across the Group which are consistent
with the Group’s commercial objectives. Under the Audit & Risk
Committee’s Charter, the Committee’s key responsibilities in
respect of its risk function are to:
• Oversee, evaluate and make recommendations to the Board
in relation to, the adequacy and effectiveness of the risk
management framework and the risk management systems and
processes in place, and be assured and in a position to report
to the Board that all material risks have been identified and
appropriate policies and processes are in place to manage them.
• Review and approve management’s annual report on the
effectiveness of the risk management systems.
• Review, at least annually, the Company’s risk management
framework to satisfy itself that it continues to be sound and
effectively identifies all areas of potential risk, and report to the
Board regarding its review and any recommended changes to
the Company’s risk management framework.
• Review, and make recommendations to the Board in relation
to, the Company’s insurance program and other risk transfer
arrangements having regard to the Company’s business and
the insurable risks associated with it, and be assured that
appropriate coverage is in place.
• Monitor compliance with applicable laws and regulations,
review the procedures the Company has in place to ensure
compliance and be assured that material compliance risks
have been identified.
• Establish procedures for the receipt, retention and treatment
of complaints received by the Company regarding fraud or
non-compliance with applicable laws and regulations and
the confidential, anonymous submission by employees of the
Company of any concerns regarding business practices.
• Review, and make recommendations to the Board in relation
to, any incidents involving fraud or other break down of the
Company’s internal controls.
49
Annual Report 2017 Material risks
Under the risk framework described above, the Company has
identified investment, financial and operational risks which it
manages and mitigates. Each of the foregoing material business
risks is monitored and managed by appropriate Senior Management
within the Company who are delegated responsibility to manage
or escalate issues to the Company’s senior executive team. Where
appropriate, external advisers are engaged to assist in managing
the risk. More detail concerning these risks is set out in the
Operating and Financial Review of this Annual Report on pages 32
to 34. The Company does not believe it has any material exposure
to environmental or social sustainability risks. Commentary on the
Company’s environmental compliance and human capital related
initiatives as well as its community engagement is provided on
pages 35 to 38 of this Annual Report.
Workplace Safety
The Company is committed to providing a safe workplace and
maintains comprehensive workplace safety policies and systems
which are managed by health and safety specialists within the
Company. Safety related arrangements, particularly within
WesTrac’s operations, are developed following a risk assessment
process that considers potential events in accordance with current
Emergency Risk Management guidelines. Workplace health
and safety policies are promulgated to staff through induction and
training and the availability of information on the Company’s intranet
as well as through Occupational Health & Safety representatives
who ensure that any workplace safety issues are dealt with
promptly and in a consultative manner. Security arrangements at the
Company’s business sites are developed through formal security
risk assessment and vulnerability determination processes using
an ‘all hazards’ approach. Potential security related incidents are
rated against consequence and likelihood and security plans
are documented following a criticality assessment, incorporating
internal prevention and preparedness measures, as well as internal
and external emergency response arrangements.
Management provides leadership by promoting a culture of safety
and risk identification and monitors and responds to incident
reporting and provides regular workplace safety updates and
briefings to the Board.
Additionally, to support well-being within the workplace, the
Company provides a free and confidential external counselling
service for employees and their immediate families.
Refer to pages 35 to 38 of this Annual Report for more information
on the Group’s workplace safety practices within WesTrac, the
Group’s predominant operating business.
Environment and Sustainability
Environmental risks are considered as part of the Company’s
risk assessment processes. Refer to pages 35 and 38 of this
Annual Report for more information on the Group’s environmental
practices within WesTrac and SGH Energy.
The Board requires management to design and implement a risk
management and internal control system to manage the Group’s
material business risks and report to it on the management of
those risks.
•
•
During the reporting period, management reported to the Board as
to the effectiveness of the Company’s management of its material
business risks, including the following:
•
the Audit & Risk Committee reviewed the Group’s risk reporting
and risk management framework consistent with Australian
Standard ISO 31000:2009;
the Committee received risk briefings at its meetings from
external auditors, management, Head of Internal Audit &
Process Improvement concerning review of the Group’s
key business operations. The Group’s business divisions
provide regular reporting on workplace safety practices and
management within the Group; and
the Committee conducted the annual review of the
Company’s risk management framework and satisfied itself
that the framework continues to be sound and effectively
identifies potential risks; the Company conducted risk reviews
and assessments in a series of workshops conducted by the
Head of Internal Audit & Process Improvement jointly with
senior management, which identified, assessed and ranked
the main strategic risks, including material business risks,
facing the Group in respect of which management continues
to formulate and record the internal risk controls implemented
for those risks.
Internal Control Framework
The Head of Internal Audit & Process Improvement reports to the
Chairman of the Audit & Risk Committee. The Internal Audit function
is charged with conducting detailed reviews of relevant controls
in the areas of accounting, information and business operations
and fulfilling a program of work to test controls implemented
by management in these areas. The Audit & Risk Committee
reviews and approves the Internal Audit plan, its resourcing as
well as monitors its independence and performance. Internal
Audit reviews carried out in accordance with the Internal Audit
plan are reported to the Committee which reviews and ensures
ownership by management in regard to Internal Audit’s findings
and recommendations and management’s responsiveness to any
required action items.
Risk Management Policy
The Company has adopted a Risk Management Policy to:
• ensure there is a consistency in the methods used in assessing,
monitoring and communicating risks throughout the Company
and that risk management efforts are aligned with the
Company’s strategic and business objectives; and
• promote a balanced approach to risk and return and to ensure
that the Board knows in advance the risks of the business.
A summary of the Company’s Risk Management Policy is available
on the Company’s website.
5050
Seven Group HoldingsSeven Group HoldingsCORPORATEGOVERNANCESTATEMENT PRINCIPLE 8 – REMUNERATE FAIRLY AND RESPONSIBLY
The Directors consider that the attraction, retention and motivation
of its Directors and senior executives is of critical importance in
securing the future growth of the Company, its profits, share price
and shareholder returns.
Remuneration & Nomination Committee
To assist in the adoption of appropriate remuneration practices,
the Board has established a Remuneration & Nomination
Committee. Details regarding the Committee are set out under
“Principle 2 – Structure the Board to Add Value”. The primary
responsibilities of the Committee which relate to remuneration are:
to review and advise the Board on Directors’ fees and the
•
remuneration packages, including equity incentive grants,
of the Managing Director & Chief Executive Officer, Chief
Executives and senior executives of the Group subsidiaries;
to provide advice and support and serve as a sounding-board
for the Managing Director & Chief Executive Officer and the
Board in human resource and remuneration-related matters; and
to advise on succession planning and employee
development policies.
•
•
It is the practice for the Managing Director & Chief Executive
Officer to attend meetings of the Remuneration & Nomination
Committee to report on, or seek approval of, senior Group
Management’s remuneration, but he is not present during
meetings of the Committee (or the Board) when his own
performance or remuneration are being discussed or reviewed.
Remuneration of Non-Executive Directors
The remuneration of the Non-Executive Directors is restricted, in
aggregate, by the Constitution of the Company and the requirements
of the Corporations Act. Currently, Non-Executive Directors’
remuneration in aggregate must not exceed $2 million per annum.
Non-Executive Directors receive base fees and fees for chairing or
serving on Board Committees. In contrast to Executive Directors
and senior executives, Non-Executive Directors do not receive
performance related payments, although they may receive additional
payments at the discretion of the Board where appropriate in relation
to special services that they perform for the Company. Throughout
the financial year no such additional fees were paid to Non-Executive
Directors. Fees for Non-Executive Directors are set out in the
Remuneration Report on page 61 and pages 72 to 73.
No retirement benefits apply in respect of Company directorships
other than superannuation contributions. One Non-Executive
Director Retirement Deed remained current in respect of Seven
Network Limited during the 2017 financial year. The benefits
payable upon retirement under that Deed was frozen on
1 August 2003 and from that date, retirement benefits have not
been offered to any newly appointed Non-Executive Directors.
Retirement benefits payable under the only Non-Executive Director
Retirement Deed were realised during the 2017 financial year.
During the year, fees received by Non-Executive Directors were
reviewed by the Remuneration & Nomination Committee against
market benchmarks and, on the Committee’s recommendation, the
Board determined that in view of the considerable time commitment
and wide range of responsibilities that the Audit & Risk Committee
Chair consistently fulfils, the Audit & Risk Committee Chair fee be
increased from $60,000 to $80,000 commencing 1 July 2017.
(Ms Chaplain did not participate in the Board’s review of the
Audit & Risk Committee Chair fee). The Board also determined to
increase base Non-Executive Director fees by $10,000 commencing
1 July 2017. There have been no previous changes to the fees paid
to Non-Executive Directors since their approval in 2010.
Remuneration of Executive Directors and senior executives
The objective of the remuneration process for Executive Directors
and senior executives is to ensure that remuneration packages
properly reflect the duties and responsibilities of employees and
that remuneration is at an appropriate but competitive market rate
which enables the Company to attract, retain and motivate people
of the highest quality and best skills from the industries in which
the Company operates. This policy provides for the Managing
Director & Chief Executive Officer to consider the remuneration
packages paid within the industry and the impact these people
are expected to have on the operational and financial performance
of the Company. Remuneration packages may be structured
to include bonuses, options or share-based payments and
the Company has established Share and Option Plans for that
purpose. The payment of bonuses is based on the achievement
of specific goals which relate to the performance of the Company
or as otherwise specified in the relevant employment contracts.
Options, performance share rights and share appreciation rights
are issued as a part of remuneration packages where they are
considered appropriate, with exercise prices and hurdle rates
which reflect the long-term objectives of the Company.
Remuneration matters concerning WesTrac Senior Executives who
are Key Management Personnel of the Company are brought to
the Remuneration & Nomination Committee for its consideration.
Otherwise, WesTrac’s remuneration arrangements and approvals
are generally overseen by a WesTrac Executive Committee
within a budget approved by the Board and reported to the
Remuneration & Nomination Committee. Remuneration policy
matters as well as regular reports concerning industrial relations
and Enterprise Agreements relating to WesTrac are brought to the
Remuneration & Nomination Committee or Board for review and/
or approval as appropriate.
The Remuneration & Nomination Committee met after the end
of the financial year to review and recommend to the Board any
performance-based remuneration for the Managing Director &
Chief Executive Officer during the financial year, Mr Ryan Stokes,
as well as for senior Company executives. This process and the
outcomes are summarised in the Remuneration Report.
Hedging Policy
The Company’s Group Directors Share Trading Policy, and the
Executive and Staff Share Trading Policy, prohibit employees
(including Key Management Personnel (KMP)) from dealing in
the Company’s shares, if the dealing is prohibited under the
Corporations Act. Therefore, in accordance with this policy,
all KMP are prohibited from entering into arrangements which
operate to limit the executives’ economic risk in relation to
an element of their remuneration that has not yet vested or is
subject to a holding lock. The ability to deal with unvested rights
is restricted in the Employee Share Option Plan and LTI Plan rules,
which apply to any options over shares in the Company which may
be granted from time to time.
Further details relating to remuneration and the Company’s
remuneration policy, framework and structure are contained within
the Remuneration Report on pages 55 to 73.
This statement has been approved by the Board and is current as
at 22 August 2017.
51
Annual Report 2017 DIRECTORS’
REPORT
The Directors present their report together with the consolidated
financial statements of the Group consisting of Seven Group
Holdings Limited and the entities it controlled at the end of,
or during, the year ended 30 June 2017 and the auditor’s
report thereon.
BOARD
The following persons were Board members of Seven Group
Holdings Limited during the whole of the financial year and up
to the date of this report, unless otherwise stated:
Kerry Matthew Stokes AC (Executive Chairman)
Ryan Kerry Stokes (Managing Director & Chief Executive Officer)
Sally Annabelle Chaplain
Terry James Davis
Christopher John Mackay
David Ian McEvoy
Bruce Ian McWilliam
The Hon Warwick Leslie Smith AM
Richard Anders Uechtritz
Professor Murray Charles Wells (retired 17 November 2016)
Particulars of their qualifications, experience, special
responsibilities and any directorships of other listed companies
held within the last three years are set out in this Annual Report
under the headings “Board of Directors” and “Corporate
Governance Statement” and form part of this report.
Warren Walter Coatsworth is the Company Secretary. Particulars
of Mr Coatsworth’s qualifications and experience are set out in this
Annual Report under the heading “Company Secretary”.
PRINCIPAL ACTIVITIES
The principal activities of the Group during the financial year
were those of a diversified operating and investment group; with
interests in heavy equipment sales and service, equipment hire,
media, broadcasting and energy assets. There were no significant
changes in the nature of the Group’s principal activities during the
financial year.
BUSINESS STRATEGIES, PROSPECTS
AND LIKELY DEVELOPMENTS
Information on the Group’s operations and the results of those
operations, financial position, business strategies and prospects
for future financial years has been included in the “Operating and
Financial Review”.
The Operating and Financial Review also refers to likely
developments in the Group’s operations and the expected results
of those operations in future financial years. Information in the
Operating and Financial Review is provided to enable shareholders
to make an informed assessment about the operations, financial
position, business strategies and prospects for future financial
years of the Group.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
Significant changes in the state of affairs of the Group during
the financial year were as follows:
• On 3 August 2016, the Company announced details of an
on-market buy-back of up to 0.5 million of the Company’s
TELYS4 shares, representing approximately 10.0% of the
Company’s TELYS4 shares. The TELYS4 buy-back concluded
on 16 August 2017, and no TELYS4 shares were bought back
during the buy-back period.
• On 21 February 2017, the Company announced details of an
on-market buy-back of up to 16.5 million of the Company’s
shares, representing approximately 5.9% of the Company’s
ordinary shares. The buy-back commenced on 12 March 2017;
at the date of this report, no ordinary shares have been
bought back.
• On 11 March 2017, the on-market buy-back, (announced by the
Company on 23 February 2016 of up to 16.6 million (5.9%) of
the Company’s shares) concluded. 0.3 million ordinary shares
were bought back at a cost of $1.7 million.
In the opinion of the Directors there were no other significant
changes in the state of affairs of the Group that occurred during
the financial year.
MATTERS SUBSEQUENT TO THE END OF THE
FINANCIAL YEAR
On 1 July 2017, wholly-owned subsidiaries entered into sale
agreements to dispose of entities comprising the Group’s WesTrac
China operating segment. The sale is subject to a number of
conditions precedent including regulatory approval from the
Ministry of Commerce of the People’s Republic of China. On
satisfying the conditions precedent including obtaining regulatory
approval, the sale will be completed resulting in the Group’s
WesTrac China operations being sold.
Subsequent to year end, there has been movement in the share
prices of listed investments and as a result the value of the Group’s
investments have varied from what is presented in the financial
report. Refer to Note 28: Events subsequent to balance date for
further detail.
Except for the above, there are no other matters or circumstances
which have arisen since 30 June 2017 that have significantly
affected or may significantly affect:
(a) the Group’s operations in future financial years; or
(b) the results of those operations in future financial years; or
(c) the Group’s state of affairs in future financial years.
52
Seven Group Holdings MEETINGS OF DIRECTORS
The number of meetings of the Company’s Board of Directors and of each Board Committee held during the year ended 30 June 2017,
and the number of those meetings attended by each Director, were:
Director
Board~
Audit & Risk
Remuneration
& Nomination
Independent &
Related Party
KM Stokes AC
RK Stokes
SA Chaplain
TJ Davis
CJ Mackay
DI McEvoy
BI McWilliam
WL Smith AM
RA Uechtritz
MC Wells^
(a)
9
10 (1)
10 (1)
9
9
9
10 (1)
10 (1)
9
4
(b)
9
10 (1)
10 (1)
8
9
9
10 (1)
10 (1)
9
4
(a)
(b)
(a)
(b)
(a)
(b)
–
7
7
–
7
7
3
7
–
3
–
7
7
–
7
7
3
7
–
3
1
4
4
4
–
–
–
4
4
–
1
4
3
4
–
–
–
4
4
–
–
–
5
5
5
5
3
–
5
3
–
–
5
5
5
5
3
–
5
3
(a) The number of meetings held while the Director concerned held office during the year.
(b) The number of meetings attended. Please note Directors may attend meetings of Committees of which they are not a formal member, and in these instances,
their attendance is also included in the above. A Director may also have been absent from a meeting, or part thereof, if there was a conflict of interest.
^ Retired as a Director on 17 November 2016.
~ Bracketed numbers in the columns refer to the number of meetings of a Sub-Committee of the Board held and attended.
DIVIDENDS – ORDINARY SHARES
Since the start of the financial year, a final fully franked dividend
for the 2016 financial period of 20.0 cents per share, amounting
to $56.2 million, was paid on 7 October 2016.
Since the start of the financial year, an interim fully franked
dividend for the 2017 financial year of 20.0 cents per share,
amounting to $56.2 million, was paid on 13 April 2017.
A final fully franked dividend for the 2017 financial year
of 21.0 cents per share of $59.1 million will be paid on
6 October 2017, based on the number of issued shares at
the date of this report.
ENVIRONMENTAL DISCLOSURE
In respect of the environmental regulations under any laws of the
States, Territories and Commonwealth of Australia, the significant
regulations that apply to the media operations of the entities the
Company holds investments in are those guidelines and standards
issued by the Australian Communications and Media Authority.
It is the Directors’ understanding that the Company is fully
compliant with the provisions of these guidelines and standards.
Various State Environmental Protection Authorities have issued
licenses to the Company under the laws of the respective States.
All requirements and conditions of these licenses have been
complied with to the satisfaction of the issuing authority.
DIVIDENDS – TELYS4
Since the start of the financial year, a fully franked dividend of
$2.4093 per TELYS4 based on 4,963,640 TELYS4 on issue,
amounting to $12.0 million was paid on 30 November 2016.
The Company assesses the Group as part of its compliance with
the National Greenhouse and Energy Reporting Act and will be
reporting relevant emissions and energy usage and production for
the Group for the financial year to the Clean Energy Regulator.
A further fully franked dividend of $2.3595 per TELYS4 based on
4,963,640 TELYS4 on issue, amounting to $11.7 million was paid
on 31 May 2017.
The Group is also subject to significant environmental regulations
in respect of resources exploration, development and production
activities. The Group is committed to undertaking all of its
exploration, development and production activities in an
environmentally responsible manner. The Board believes that the
Company has adequate systems in place for the management of
its environmental requirements and is not aware of any significant
breach of those environmental requirements as they apply to the
resources operations of the Group.
There are no other particular and significant environmental
regulations applying to the Group.
53
Annual Report 2017 DIRECTORS’ INTERESTS IN SECURITIES
The relevant interest of each Director in ordinary shares, TELYS4, or options or performance rights issued by the companies within the
Group at the date of this report is as follows:
DIRECTORS’ HOLDINGS OF SEVEN GROUP HOLDINGS LIMITED SECURITIES
KM Stokes AC
RK Stokes
SA Chaplain
TJ Davis
CJ Mackay
DI McEvoy
BI McWilliam
WL Smith AM
RA Uechtritz
Ordinary
Shares
207,304,349
319,410
17,000
80,000
10,000
30,000
171,970
40,800
776,992
Options
over
Ordinary
Shares
TELYS4
Performance
Rights
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
2,500
Nil
15,510
Nil
Nil
Nil
Nil
Nil
Nil
57,251
Nil
Nil
Nil
Nil
Nil
Nil
Nil
OPTIONS OR PERFORMANCE RIGHTS GRANTED OVER ORDINARY SHARES IN SEVEN GROUP HOLDINGS LIMITED
At the date of this report, there are 57,251 performance rights to an equivalent number of fully paid ordinary shares in the Company issued to
Mr Ryan Stokes under the Company’s FY14 Long-term Incentive Plan (LTI Plan). In addition to the performance rights issued to Mr Ryan Stokes,
there are 828,880 performance rights issued to other senior executives. 120,195 of these rights were granted under the FY14 LTI Plan on
1 December 2014 and will expire on 1 September 2017. 267,639 of these rights were granted under the FY16 LTI Plan on 3 August 2016 and will
expire on 1 September 2019. 441,046 of these rights were granted under the FY17 LTI Plan on 1 July 2016 and will expire on 1 September 2020.
These rights do not carry an entitlement to participate in any share issue. Rights were granted for nil consideration.
On 1 July 2017, 33,881 deferred share rights were granted to Mr Ryan Stokes and a further 68,119 to other senior executives. They will
vest on 1 July 2018, subject to the executive remaining employed by the Group.
There are no options on issue.
Other than 181,873 deferred share rights which vested on 1 July 2017 under the FY16 STI plan, no other options or rights have vested
or been exercised during or since the end of the financial year, nor have they expired.
54
Seven Group HoldingsDIRECTORS’ REPORT REMUNERATION
REPORT
Year ended 30 June 2017
MESSAGE FROM THE REMUNERATION & NOMINATION COMMITTEE
Dear Shareholders
On behalf of the Board, I am pleased to present the Remuneration Report for Seven Group Holdings for the 2017 financial year
(FY17), which sets out remuneration information for Key Management Personnel and Non-Executive Directors.
CHANGES TO REMUNERATION & NOMINATION COMMITTEE
The Remuneration & Nomination Committee is comprised of the following members, all of whom are Independent Directors except
for Mr Warwick Smith AM:
• Mr Terry Davis (Chairman)
• Mr Richard Uechtritz
• Ms Annabelle Chaplain
• Mr Warwick Smith AM
Mr Richard Uechtritz was Chairman of the Remuneration & Nomination Committee throughout FY17 and until 3 August 2017 at
which date Mr Terry Davis was appointed Chairman of the Committee.
CHANGES TO KEY MANAGEMENT PERSONNEL
Mr Murray Vitlich commenced with the Company as Chief Operating Officer on 1 June 2017.
Professor Murray Wells, Non-Executive Director, retired from the Company on 17 November 2016.
Mrs Melanie Allibon, Group Executive Human Resources, resigned from the Company on 16 December 2016.
Details of Key Management Personnel of the Group are set out in section 1 of the Remuneration Report.
CHANGES TO REMUNERATION FRAMEWORK
At the Company’s AGM on 17 November 2016 shareholders approved an amendment to the Company’s Long-Term Incentive (LTI) plan.
FY17 Long-Term Incentive (LTI) Plan amendment
Under the previous design, grants were only made under the LTI Plan if the NPAT target for the relevant year was met (Gateway
Hurdle). Once granted, awards only vested if the performance hurdles over the three-year performance period were met (being four
years in total including the NPAT performance period).
In FY12, FY13 and FY15, the NPAT target was not achieved and therefore, no grants were made under the LTI Plan in respect of those
years. Grants were made under the LTI plan in respect of FY14 and FY16 based on achievement of the NPAT target in those years.
The LTI Plan Gateway Hurdle was approved by shareholders to be removed for grants made under the LTI Plan, applying from
FY17, to allow for annual awards to be made to senior executives. These awards will be subject to the achievement of performance
conditions over a four-year period so that the executives only realise value from the award where those performance conditions
have been achieved.
The amendment was requested on the basis that the Board felt that the previous LTI Plan Gateway Hurdle undermined the ability
of the LTI Plan to motivate and incentivise senior executives. It is in line with market practice for awards to be granted annually, and
this will ensure alignment of executive remuneration outcomes to shareholder interests.
The Remuneration & Nomination Committee has retained its discretion to amend awards in instances where LTI Plan vesting
outcomes are considered to be inconsistent with the shareholder experience for the respective performance period.
Remuneration changes for FY18
In FY17, the Remuneration & Nomination Committee undertook a review of the Group’s variable remuneration structures for
executives. The purpose of the review was to determine whether the existing incentive arrangements were appropriately aligned with
the Group’s business objectives and fit-for-purpose to support the creation of long-term value for shareholders of the Company.
This comprehensive review has resulted in a proposal to simplify the existing Short-Term Incentive (STI) and LTI plans through the
introduction of a new, single incentive plan (the Executive Incentive (EI) plan). The key objectives of the new EI Plan are to:
• Reduce complexity by introducing one variable incentive structure for all senior executives.
• Strategically align the remuneration arrangements for the Group and operating companies.
• Drive an ‘ownership’ culture amongst key executives at both a Group and operating company level.
• Reward the creation of shareholder value over the long term.
• Attract and retain key executives.
55
Annual Report 2017 Key features of the new Executive Incentive Plan
The variable remuneration structures for executives currently consist of STI and LTI plans. To encourage simplicity, the new
EI plan seeks to combine the current STI and LTI plans and provide a greater focus on executives holding equity in the Group over
the long-term.
The table below outlines the key changes:
Incentive feature
Current STI and LTI plans
New Executive Incentive plan (EI)
Cash vs equity mix
• STI – cash – 25 per cent
• Deferred STI – equity, subject to continued
• EI (STI) – cash – 25 per cent
• EI (MT) – equity, subject to continued service
service – 25 per cent
– 35 per cent
• LTI – equity, subject to continued service
• EI (LT) – equity, subject to continued service and
and two performance hurdles – 50 per cent
single performance hurdle – 40 per cent
Equity vehicle
• Deferred STI – share rights
• LTI – performance rights
Performance / vesting
period
• STI – 1 year performance period
• Deferred STI – 1 year vesting period
• LTI – 4 year performance period
Performance measures
• STI – balanced scorecard
• LTI – Earnings Per Share (EPS) and relative
• Deferred equity (service component)
– restricted shares
• Deferred equity (performance component)
– performance rights
• EI (ST) and (MT) – 1 year performance period to
determine incentive outcome
• Restricted shares – additional 2 year
vesting period
• Performance rights – additional 3 year
performance period
• EI – (ST) and (MT) 1 year performance –
balanced scorecard
Total Shareholder Return (TSR)
• EI – (LT) Performance rights – relative TSR
Post-vesting restrictions
on shares
• Deferred STI – no post–vesting restriction
• LTI – no post-vesting restriction
• Restricted shares – 1 year post-
vesting restriction
• Performance rights – 1 year post-
vesting restriction
Further details regarding the new plan, and the proposed award quantum for the Managing Director & Chief Executive Officer in
respect of FY18, will be provided in the Notice of Meeting to be sent to shareholders for the November 2017 Annual General Meeting.
Yours faithfully,
Richard Uechtritz
Terry Davis
Former Chairman of the
Remuneration & Nomination Committee
Chairman of the
Remuneration & Nomination Committee
56
Seven Group HoldingsREMUNERATION REPORT
REMUNERATION REPORT – AUDITED
This Remuneration Report for the year ended 30 June 2017 (FY17) outlines the remuneration arrangements of the Company and the
Group in accordance with the Corporations Act 2001 (the Corporations Act) and its regulations. This information has been audited as
required by section 308(3C) of the Corporations Act.
The Remuneration Report is presented under the following main headings:
1.
2.
3.
4.
5.
6.
7.
8.
9.
Introduction
Remuneration governance
Executive remuneration principles and strategy
Link between remuneration and Group performance
Executive Chairman and Non-Executive Director remuneration framework
KMP Executive remuneration framework
KMP equity holdings
KMP related party transactions
Summary of executive contracts
10. Remuneration in detail
57
Annual Report 2017 1. INTRODUCTION
The Remuneration Report outlines key aspects of remuneration policy, framework and remuneration awarded to Key Management
Personnel (KMP) during FY17. KMP include Executive Directors, Non-Executive Directors and certain senior executives of the Group who
have authority and responsibility for planning, directing and controlling the activities of the Group (Group Executives). Executive Directors
and Group Executives are hereafter collectively referred to in this report as KMP Executives.
The Group’s KMP for FY17 are listed in the table below.
Executive Directors
Kerry Matthew Stokes AC
Executive Chairman
Ryan Kerry Stokes
Bruce Ian McWilliam(a)
Non-Executive Directors
Sally Annabelle Chaplain
Terry James Davis
Christopher John Mackay
David Ian McEvoy
Warwick Leslie Smith AM
Richard Anders Uechtritz
Managing Director & Chief Executive Officer
Commercial Director
Director
Director
Director
Director
Director
Director
Professor Murray Charles Wells
Director (retired 17 November 2016)
Group Executives
Melanie Jayne Allibon(a)
Jarvas Ernest Croome
Lawrence Luo (b)
Group Executive, Human Resources (resigned 16 December 2016)
Chief Executive Officer, WesTrac Australia
Chief Executive Officer, WesTrac China
Richard Joseph Richards
Group Chief Financial Officer
Murray John Vitlich
Group Chief Operating Officer (commenced 1 June 2017)
(a) Mrs Melanie Allibon was employed and Mr Bruce McWilliam is employed by Seven West Media Limited with their services provided to Seven Group Holdings
Limited under a company to company agreement. Remuneration disclosed in this report relates to amounts paid by Seven Group Holdings Limited to Seven West
Media Limited in respect of their services. Remuneration for Mr Bruce McWilliam also includes payments to a company associated with Mr Bruce McWilliam that
was party to a consulting agreement with the Group.
(b) On 1 July 2017, the Company entered into a potential sale transaction of WesTrac China. Should the sale transaction proceed, Mr Lawrence Luo will cease as a
KMP Executive from the effective date of the sale.
2. REMUNERATION GOVERNANCE
Role of the Remuneration & Nomination Committee
The role and responsibilities of the Remuneration & Nomination Committee (the Committee) are explained in detail in the Corporate
Governance Statement. The key responsibilities of the Committee are summarised below and include the following:
• Make recommendations to the Board in relation to the remuneration of the MD & CEO and Non-Executive Directors, as necessary,
or requested by the Board;
• Review and make recommendations to the Board on all proposed offers to participate in, and all grants made pursuant to, the
Company’s equity plans and the overall functioning of the equity plans; and
• Review and advise on senior management succession planning and employee development policies, as requested by the Board
or the MD & CEO.
During the financial year the Committee comprised the following members:
Mr Richard Uechtritz (Chairman of the Committee)
Ms Annabelle Chaplain
Mr Terry Davis
Mr Warwick Smith AM
Engagement of remuneration advisers
During FY17 Ernst and Young (EY) was engaged by the Company to provide information on market remuneration practices. In the course
of providing this information, the Board is satisfied that EY did not make any remuneration recommendations relating to KMP as defined
by the Corporations Act.
58
Seven Group HoldingsREMUNERATION REPORT 3. EXECUTIVE REMUNERATION PRINCIPLES AND STRATEGY
Remuneration principles
The Group’s executive reward structure has been designed to attract and retain high performing individuals, align executive reward
to the Group’s business objectives and to create long-term shareholder value.
The Board’s objective is to ensure remuneration packages appropriately reflect employees’ duties, responsibilities and levels of
performance, as well as ensuring that remuneration attracts and motivates people of the highest calibre.
The key principles of the Group’s executive reward structure are to:
• Ensure the Group’s remuneration structures are equitable and rewards are aligned to the creation of shareholder value,
implementation of business strategy and delivering results;
• Ensure that remuneration packages properly reflect the duties and responsibilities of the employees and that the remuneration is at
an appropriate, competitive market rate which enables the Group to attract, retain and motivate people of the highest calibre;
• Provide a balance between fixed remuneration and at-risk elements and short- and long-term outcomes that encourages appropriate
•
behaviour to provide reward for short-term delivery and long-term sustainability; and
Implement targeted goals that encourage high performance and establish a clear link between executive remuneration and
performance, both at Company and individual business unit levels.
Remuneration strategy
The following diagram illustrates how the Group’s remuneration principles are linked to, and support, the business’ objectives and how
they are aligned to the long-term interests of shareholders and the creation of sustainable shareholder returns. Further details on the
executive remuneration framework are in section 6 of the Remuneration Report.
Deliver strong revenue and earnings growth in core operating businesses. Efficiently allocate capital to work with investee companies
in which the Group has a significant stake to increase the value of its investments.
Business objective
Remuneration strategy and objectives
Attract, retain and motivate people of the highest calibre,
creating stable leadership and continuity for the Group’s
transformation initiatives
Attract, motivate and retain high calibre employees with
demonstrated industry experience and the ability and commitment
to deliver required financial and non-financial outcomes. Provide
market competitive remuneration, through a mix of fixed and
variable short-term, medium-term and long-term incentives.
Align remuneration structures with the creation of shareholder
value, implementation of business strategy and delivering results
Short-term and long-term incentive outcomes are dependent on the
achievement of financial and non-financial business objectives, and
shareholder return measures including relative Total Shareholder
Return (TSR) and diluted Earnings Per Share (EPS).
Fixed remuneration (FR)
Short-term incentives
Medium-term incentives
Long-term incentives
The LTI plan provides for grants
of performance rights to eligible
senior executives. The plan
provides that any grants made
are subject to performance
hurdles of diluted EPS growth
and relative TSR over a
four-year period.
FR consists of base
salary as well as employer
superannuation contributions.
FR is set by having regard to
listed companies of a similar
size and complexity.
Non-monetary benefits are
provided in addition to FR. Non-
monetary benefits, as disclosed
in the remuneration tables,
include benefits paid for by the
Company such as car parking
and tickets to events.
The cash components of the
STI plan delivers an annual
incentive where executives have
achieved stretch performance
measures. The incentive is
delivered via cash.
Performance is typically
measured using a mix of
corporate goals such as Group
underlying EBIT, operating cash
flow and other goals including:
• Divisional EBIT performance;
• Leadership and staff
development;
• Strategic direction; and
•
Investment performance.
The deferred component
of the STI plan delivers an
annual incentive where
executives have achieved
stretch performance measures.
The incentive is delivered via
deferred share rights.
The share rights vest 12 months
after grant, provided the KMP
Executive remains employed
within the Group at the time of
vesting.
Performance is typically
measured using a mix of
corporate goals such as Group
underlying EBIT, operating cash
flow and other goals including:
• Divisional EBIT performance;
• Leadership and staff
development;
• Strategic direction; and
•
Investment performance.
59
Annual Report 2017 Minimum shareholding guidelines for KMP Executives
With effect from 1 July 2012, the Board implemented minimum shareholding obligations for KMP Executives to hold Seven Group
Holdings Limited shares and further align their interests with those of shareholders subject to Board discretion for exceptional
circumstances. The obligations impose a minimum level of shareholding based on the KMP Executive’s length of service with the Group,
as set out in the table below.
Years of service of KMP Executive
Minimum value of shares to be held by KMP Executive
5
10
15
20
20% of annual fixed remuneration
40% of annual fixed remuneration
60% of annual fixed remuneration
80% of annual fixed remuneration
All KMP Executives are presently complying with the minimum shareholding guidelines. Shareholdings for each KMP are detailed in
section 7 of the Remuneration Report.
4. LINK BETWEEN REMUNERATION AND GROUP PERFORMANCE
The remuneration framework of the Group is designed to offer appropriate rewards for those giving superior performance. It is designed
to closely align the interests of executives to those of shareholders and other stakeholders.
The remuneration structure is focused on achievement of the Group’s financial and operating objectives. The incentive to achieve these
objectives is an important contributing factor in the Group’s financial performance and, ultimately, the value of the Company’s shares and
distributions to shareholders.
Group performance is linked to the LTI plan through the diluted EPS and relative TSR targets.
Awards under the STI plan are determined based on performance against financial and non-financial measures. Group performance is
linked to the STI plan through the Group underlying EBIT financial gateway and, where the financial gateway is exceeded, through other
financial measures set relevant to the responsibility of each KMP Executive.
The table below shows the Group performance in key areas for the last five financial years.
Statutory NPAT ($m)
NPAT (excluding significant items) ($m)(a)
Significant items ($m)
Profit before significant items, net finance costs and tax
(Group underlying EBIT) ($m)
Dividends declared per ordinary share (cents)
Share price at financial year end
Statutory basic EPS(b)
EPS (excluding significant items)(b)
Diluted EPS (excluding significant items)(b)
Total Shareholder Return
Relative Total Shareholder Return
2017
$46.2
$215.4
$(169.2)
$333.3
41.0
$10.94
$0.07
$0.67
$0.67
93.8%
78.2%
2016
$197.8
$184.2
$13.6
$302.8
40.0
$6.01
$0.60
$0.56
$0.56
2015
$(359.1)
$204.3
$(563.4)
$314.5
40.0
$6.54
$(1.29)
$0.59
$0.59
2014
$262.5
$253.2
$9.3
$374.4
40.0
$7.41
$0.77
$0.74
$0.74
2013
$488.6
$398.9
$89.8
$622.8
40.0
$6.90
$1.49
$1.20
$1.20
2.4%
(4.2)%
12.9%
(6.5)%
(10.1)%
(20.0)%
(4.8)%
(30.0)%
(a) NPAT (excluding significant items) is a non-IFRS measure. This measure is applied consistently year on year and used internally by management to assess the
performance of the business and is provided to enable an assessment of remuneration compared to Group performance. Refer to the Operating and Financial
Review for reconciliation to statutory net profit after tax.
(b) 2017 figure is for continuing and discontinued operations.
60
Seven Group HoldingsREMUNERATION REPORT
5. EXECUTIVE CHAIRMAN AND NON-EXECUTIVE DIRECTOR REMUNERATION FRAMEWORK
Non-Executive Directors’ remuneration is reviewed by the Board, taking into account the recommendations of the Remuneration &
Nomination Committee and, as appropriate, external benchmarking of remuneration for Non-Executive Directors of comparable companies.
The objective of the Committee in making its recommendations is to attract, retain and properly motivate Non-Executive Directors who
will, through their contribution to the Board and the Group, work towards creating sustainable value for shareholders and stakeholders.
Approved fee pool
In accordance with the Company’s Constitution and the requirements of the Corporations Act and ASX Listing Rules, the aggregate fees
payable to the Non-Executive Directors are set at a maximum level approved by shareholders. The current aggregate pool available for
the payment of fees to the Executive Chairman and Non-Executive Directors is $2 million per annum.
The Company intends to request shareholder approval at the AGM to increase the maximum fee pool to $2.2 million per annum from
FY18. This will allow flexibility for market increases in the future and support the capacity for the Company to appoint other suitably
qualified Non-Executive Directors as required. The proposed increase would provide the appropriate remuneration capacity to satisfy the
appointment of additional Directors to the Board to ensure that the Board remains comprised of high calibre Directors with a mix of skills,
strategic competencies, qualifications and experience to oversee the Company’s diverse range of operations and investments.
Executive Chairman and Non-Executive Director fees
The Executive Chairman receives a fixed director’s fee which is paid in the form of cash and statutory superannuation
contributions. The Executive Chairman does not receive any additional fees for being the Chair or a member of a Board Committee.
Non-Executive Directors receive a fixed fee which includes a base fee and additional fees for being the Chair or member of a Board
Committee (Committee fees). Board and Committee fees are paid in the form of cash and statutory superannuation contributions.
The Executive Chairman and the Non-Executive Directors do not receive any variable remuneration or other performance related incentives
such as options or rights to shares, and no retirement benefits are provided to the Executive Chairman or to Non-Executive Directors.
The table below sets out the base and Committee fees inclusive of superannuation which applied during FY17. There was no increase
in fees during FY17, which have remained unchanged since August 2010.
Executive Chairman fees
Fee
Non-Executive Director fees
Base fee
Committee Chair fees
– Audit & Risk
– Remuneration & Nomination
– Independent & Related Party
Committee member fees
– Audit & Risk
– Remuneration & Nomination
Independent & Related Party
–
$350,000
$150,000
$60,000
$40,000
$40,000
$20,000
$20,000
$20,000
During FY17, Non-Executive Directors fees were reviewed by the Remuneration & Nomination Committee. On the Committee’s
recommendation, the Board determined that the base fee for Non-Executive Directors will increase to $160,000 per annum from 1 July 2017.
The Board also determined that in view of the considerable time commitment and wide range of responsibilities that the Audit & Risk
Committee Chair consistently fulfils, the Audit & Risk Committee Chair fee be increased from $60,000 to $80,000 from 1 July 2017.
6. KMP EXECUTIVE REMUNERATION FRAMEWORK
The Group’s remuneration structures are designed to attract suitably qualified candidates, reward the achievement of strategic objectives
and achieve the broader outcome of creation of value for shareholders.
Total remuneration comprises of fixed and variable remuneration (which is dependent on the achievement of financial and non-financial
performance measures).
The Group aims to reward KMP Executives with a level and mix (comprising fixed remuneration, short-, medium- and long-term incentives)
of remuneration appropriate to their position, responsibilities and performance within the Group and aligned with market practice.
The Group’s policy is to position total reward for KMP Executives principally within a competitive range of its peers which includes
Australian listed companies with characteristics most like Seven Group Holdings Limited when compared against a set of financial and
qualitative metrics.
Total reward opportunities are intended to provide the opportunity to earn median to top quartile rewards for outstanding performance
against stretch targets set.
61
Annual Report 2017 Fixed remuneration
Fixed remuneration consists of base salary, as well as employer contributions to superannuation funds.
Remuneration levels are reviewed by the Remuneration & Nomination Committee through a process that considers individual, segment
and overall performance of the Group. In addition, external consultants may be requested to provide analysis and advice to ensure the
KMP Executives’ remuneration is competitive in the market place.
Variable remuneration
Performance linked remuneration is designed to reward KMP Executives for meeting or exceeding annual financial and individual
objectives that are linked to the Group’s strategy and business plans.
Further details on the STI and LTI plans are set out below.
Remuneration mix
The following table outlines the FY17 target remuneration mix for the KMP Executives (excluding the Executive Chairman who does
not receive any variable remuneration). For the majority of senior executives, half of the total remuneration package is comprised of
performance-based ‘at risk’ incentive programs.
KMP Executive
Position
FR
Cash STI Deferred STI
RK Stokes
MJ Allibon (a)
JE Croome
L Luo
BI McWilliam
RJ Richards
MJ Vitlich (b)
Managing Director & Chief Executive Officer
Group Executive, Human Resources
Chief Executive Officer, WesTrac Australia
Chief Executive Officer, WesTrac China
Commercial Director
Group Chief Financial Officer
Group Chief Operating Officer
50%
100%
50%
67%
50%
50%
100%
12.5%
–
12.5%
16.5%
12.5%
12.5%
–
12.5%
–
12.5%
16.5%
12.5%
12.5%
–
LTI
25%
–
25%
–
25%
25%
–
(a) Mrs Melanie Allibon resigned on 16 December 2016 and as a result did not participate in variable remuneration programs in FY17.
(b) Mr Murray Vitlich’s participation in the STI and LTI plans commences from 1 July 2017.
A. SHORT-TERM INCENTIVE PLAN
Certain KMP Executives participated in the Company’s STI plan in FY17 which provided executives with the opportunity to receive
an annual incentive subject to the achievement of annual corporate and other performance objectives.
Financial gateway
A financial gateway is in place for the STI Plan to align the interests of shareholders and executives by limiting STI awards to KMP
Executives where minimum financial performance of the Group is not achieved.
The financial gateway applied is Group underlying EBIT compared to target in accordance with the following table. Group underlying
EBIT means the Group’s audited statutory profit before significant items, net finance costs and income tax.
% of Group Underlying EBIT Achieved
Potential % of On-Target STI Award
<90
90–94
95–99
100
–
25
50
100
Performance measurement
The Committee assesses the performance of the MD & CEO and makes a recommendation on the level of STI award to the Board for its
consideration, and if thought fit, approval. The performance of other KMP Executives against targets is assessed by the MD & CEO and
the level of STI award is recommended to the Committee for consideration and, if thought fit, approval.
STI awards are not provided in circumstances where individual performance is unsatisfactory.
The Board retains discretion to determine whether STI awards are appropriate based on the overall performance of the KMP Executive
and the Group.
STI opportunity
The target opportunity under the STI plan for each KMP Executive participating in the STI plan is 50 per cent of fixed remuneration.
STI goals
The goals for each of the STI participants are measured using a balanced scorecard approach based on measurable and quantifiable
targets. Financial and non-financial measures are differentially weighted to reflect the different focus for KMP Executives in driving the
overall business strategy.
62
Seven Group HoldingsREMUNERATION REPORT STI delivery
Half of STI awards are made as lump sum cash payments and half of the award is deferred for 12 months. For Australian resident KMP
Executives employed directly by the Group, the deferred component of the STI award will be made in deferred share rights. The share
rights vest 12 months after the grant of share rights provided the KMP Executive remains employed by the Group at the time of vesting.
Further details on the deferred share rights under the STI plan are set out below.
Short-Term Incentive plan – Deferred STI Share Rights
Who will participate?
What will be granted?
Australian resident KMP Executives employed directly by the Group will have half of their STI award
deferred into share rights in the Company.
Subject to the achievement of KPIs for the relevant financial year, 50 per cent of certain STI awards will
be made as share rights which will be granted for nil consideration. Each right entitles the participant
to one ordinary share in the Company, which vest in 12 months.
How many shares rights will be
granted?
The number of share rights granted to each participating KMP Executive is equivalent to 50 per cent
of their STI award divided by the closing 30 June share price prior to the commencement of the
performance period, adjusted for the value of expected dividends foregone.
What will be the vesting
performance measures?
The share rights granted under the STI plan do not have any further performance hurdles and vest
subject to continuous employment.
Do the performance rights carry
dividend or voting rights?
What happens in the event of a
change in control?
What happens if the participant
ceases employment?
The share rights do not carry dividend or voting rights.
In the event of a change of control of the Company, any unvested share rights will vest.
If the participant ceases employment with the Company due to termination for cause or gross
misconduct, or other reasons determined by the Board (which would normally include resignation)
all unvested share rights will lapse.
If the participant ceases employment other than for the reasons outlined above the share rights will
not lapse, unless the Board determines otherwise.
Mr Bruce McWilliam is not directly employed by the Group and as such has different terms of participation for the deferred component
of the STI plan. His deferred STI award component is paid in cash. The after tax amount is required to be used to purchase shares in
the Company that are subject to a 12 month trading restriction. If employment ceases prior to the trading restriction being removed, the
shares are required to be sold with proceeds returned to the Company.
Mr Lawrence Luo is not an Australian resident and has different terms of participation for the deferred component of the STI plan. Mr Luo’s
deferred STI award component will be made in cash 12 months after the STI award is made, provided Mr Luo remains employed by the
Group at this time.
In addition to the STI plan, a one-off special incentive relating to the potential sale of WesTrac China may be payable to Mr Lawrence Luo in
FY18 subject to the achievement of objectives. The special incentive reflects Mr Lawrence Luo’s importance to completion of a sale transaction.
FY17 STI outcomes
Executive variable remuneration outcomes in FY17 were dependent on executive performance outcomes against financial and non-financial
key performance indicators.
Under the design of the STI plan, STI awards may be available where the Group’s underlying EBIT gateway target is exceeded as set out
in section 6.A of the Remuneration Report.
Executive variable remuneration outcomes in FY17 were firstly dependent on the Group’s achievement of its financial gateway (underlying EBIT).
The Group’s underlying EBIT target for FY17 was $283.0 million. The Group underlying EBIT was a 10 per cent improvement on FY16 and
at the upper end of the Group’s earnings guidance for FY17. 117.8 per cent of the target for FY17 was achieved ($333.3 million) and as a
result, 100 per cent of the on-target amount may be paid as STI awards to executives.
Following achievement of the financial gateway target, remuneration outcomes were dependent on individual executive performance
outcomes against financial and non-financial key performance indicators (KPIs).
The MD & CEO’s performance was assessed by the Chairman and the Committee based on his individual performance against KPIs.
Information on KPIs for the MD & CEO is set out below.
The performance against KPIs of KMP Executives other than the MD & CEO was assessed by the MD & CEO and the Committee on an
individual basis consistent with key operational and strategic objectives of the Company, as determined by the Board.
In FY17 the KPIs for KMP Executives were focussed on the achievement of key goals associated with EBIT, cash flow, revenue, sales
and investment performance. As a result of achievement of the underlying EBIT target and achievement against individual KPIs, STI
plan awards at between 55 and 90 per cent of the “at target” level will be made to executives, reflecting the Board’s commitment to
maintaining the link between executive remuneration and Group performance.
63
Annual Report 2017 The table below provides the detail of the level of performance achieved against KPIs and resulting STI (expressed as a percentage of
fixed remuneration) awarded for FY17.
Position
KPI
Cash
incentive
awarded for
2017 (as a
percentage
of FR)
Deferred
equity
incentive
awarded for
2017 (as a
percentage
of FR)
Deferred
cash
incentive
awarded for
2017 (as a
percentage
of FR)
Percentage
of STI
awarded
Percentage
of STI not
awarded
KMP
Executive
RK Stokes
Managing
Director &
Chief Executive
Officer
JE Croome
Chief Executive
Officer, WesTrac
Australia
L Luo
Chief Executive
Officer, WesTrac
China
BI McWilliam Commercial
Director
RJ Richards Group Chief
Financial Officer
– Group Underlying EBIT and cash
43.75
43.75
–
87.5
12.5
flow targets
– Subsidiary Company Performance
– Investment Portfolio Performance
against ASX 200 benchmark
– Group Strategic Direction,
Stakeholders and Growth
– Operating Risk, Safety Improvement
& Security Management
– Group Underlying EBIT
– WesTrac WA Underlying EBIT and
cash flow targets
– WesTrac Australia Budget,
Revenue and Sales Targets
– WesTrac Working Capital Targets
– WesTrac Costs and Organisational
Development Targets
– People
– Safety Improvement
– Group Underlying EBIT
– WesTrac China Underlying EBIT and
cash flow targets
– WesTract China Budget, Revenue,
Sales and Working Capital Targets
– Organisational Development
– Risk/Safety Improvement
& Leadership
– Group Underlying EBIT and cash
flow targets
– Seven West Media Group
Underlying EBIT
– Investment Portfolio Performance
against ASX 200 benchmark
– Legal Strategy
– Transactions & Investments
– Group Underlying EBIT
– Group Operating Cash Budget
– Investment Portfolio Performance
against ASX 200 benchmark
– Subsidiary companies’ EBIT
contribution, working capital and
margins
– Banking and Investor Relations
42.5
42.5
–
85
15
40
–
40
80
20
27.5
27.5
45
45
–
–
55
45
90
10
Each individual KPI is allocated a specific weighting such that the sum of the collective measures’ weightings equals the relevant
percentage of the participant’s STI opportunity. For the MD & CEO, 80 per cent of his STI KPIs relate to quantitative measures. For the
other KMP Executives, between 60 and 80 per cent of their STI KPIs relate to quantitative measures. Mr Murray Vitlich’s participation in
the STI and LTI plans commences from 1 July 2017.
64
Seven Group HoldingsREMUNERATION REPORT B. LONG-TERM INCENTIVE PLAN
Selected KMP Executives participate in the LTI plan. The purpose of the LTI plan is to encourage sustained performance, drive long-term
shareholder value creation and ensure alignment of executive remuneration outcomes to shareholder interests.
LTI opportunity
The target opportunity under the LTI plan for each KMP Executive participating in the LTI plan is 50 per cent of fixed remuneration. Eligible
KMP executives who are employed as at 31 December each year receive a grant of performance rights. Therefore, for FY17, eligible KMP
executives employed on 31 December 2016 will receive a grant of performance rights under the FY17 LTI plan.
Once granted, awards only vest if the performance hurdles over a four-year performance period are met. For the FY17 award, the four-
year performance period commenced on 1 July 2016 and will conclude on 30 June 2020. LTI awards are structured as rights to acquire
ordinary shares in the Company at no cost to the participant and will only deliver benefits to participants if certain earnings targets and
shareholder returns are achieved and the KMP Executive remains employed by the Company over the four-year performance period.
For Mr Bruce McWilliam who is not employed directly by the Company, should the LTI award rights vest, they will be cash settled. For
Mr Ryan Stokes who has an interest in shares in the Company which represents more than 10% of the Company’s issued share capital,
should the LTI award rights vest, they will be cash settled.
Prior LTI grants
Under the terms and conditions that applied to the LTI plan in FY16, grants under the LTI plan were only made where the statutory NPAT
target was met. The FY16 statutory NPAT target of $176.5 million set by the Board was achieved ($197.8 million) and as a result the Board
determined to grant LTI awards in FY17 in respect of FY16 performance to eligible KMP Executives.
Rights were granted under the LTI plan during FY15 in respect of FY14 performance and may vest in August 2017 subject to the vesting
conditions of the LTI plan.
The Board exercised its discretion to adjust the FY14 LTI diluted EPS target to exclude the Seven West Media and WesTrac China
impairments. The Company anticipates this will result in 100 per cent vesting of the FY14 LTI EPS performance rights in FY18. Subject to
confirmation by an independent adviser, the Company anticipates the relative TSR outcome will be above the 75 percentile, resulting in
100 per cent vesting of the FY14 LTI TSR performance rights in FY18.
In considering whether to exercise discretion, the Board took into account the difference between the TSR and diluted EPS performance
of the Group over the three year performance period. The unadjusted diluted EPS performance reflects the fact that IFRS requires
goodwill to be impaired when expected future cash flows do not support the carrying values but does not permit the impairments to be
reversed in a future period should expected future cash flows recover. By contrast, the market value of the Group increased by $1.2 billion
over the three-year performance period.
Therefore the Company’s current share price reflects the fact that the market has increased the future maintainable earnings for the
Group, however, WesTrac China and Seven West Media are required to be held at historical costs after impairments. Should the
Company have contemporary cost accounted all its business over the corresponding three year period, the statutory stretch diluted EPS
hurdle would have been achieved.
On this basis, the Board exercised its discretion to adjust the diluted EPS target for the Seven West Media and WesTrac China
impairments which results in 100 per cent vesting of the FY14 LTI diluted EPS performance rights.
Further details on the LTI plan are set out below.
Long-Term Incentive plan
What will be granted? Performance rights will be granted for nil consideration. Each right entitles the participant to one ordinary share in
the Company, subject to the achievement of the performance hurdles for vesting, as outlined below. For Mr Bruce
McWilliam and Mr Ryan Stokes, each right entitles the participant to a cash amount equivalent to one ordinary
share in the Company, subject to the achievement of the performance hurdles for vesting, as outlined below.
How many
performance rights
will be granted?
The value of LTI granted annually is 50 per cent of the relevant KMP Executive’s fixed remuneration. The number
of performance rights granted to each KMP Executive is equivalent to the face value of the LTI grant divided by an
amount calculated based on closing price as at the commencement of the performance period in accordance with
the terms and conditions of the plan.
What will be the
vesting performance
measures?
The vesting of performance rights granted under the LTI plan will be dependent on two independent performance
measures, diluted Earnings Per Share (EPS) and relative Total Shareholder Return (TSR).
65
Annual Report 2017 Long-Term Incentive plan
Why was the EPS
performance hurdle
chosen, and how
is performance
measured?
Half (50 per cent) of the award will be subject to an EPS hurdle. EPS provides a direct link between executive reward
with the creation of wealth driven through the increase in earnings per share received by shareholders.
EPS performance will be measured with reference to the diluted EPS from the audited annual accounts after allowing
for any adjustments to this figure for abnormal or unusual profit items as the Board considers appropriate.
Threshold and stretch annual percentage EPS growth targets will be set each year for each proposed LTI grant,
with the proportion of vesting ranging from 0 per cent (where the threshold EPS growth target is not achieved) to
100 per cent (where the stretch EPS growth target is achieved).
The percentage of EPS performance rights that vest (if any) at the end of the performance period is based on the
following schedule:
Company’s EPS over the performance period
Proportion of EPS performance rights that vest (%)
Equal to or above the stretch EPS
100%
Between the threshold EPS and the stretch EPS
Between 51% and 100%, increasing on a straight-line basis
At the threshold EPS
Less than the threshold EPS
50%
Nil
The Board has discretion to make adjustments to the EPS for significant items as it considers appropriate.
Threshold EPS hurdle is the aggregate of budget EPS targets for each financial year of the performance period and
the stretch EPS hurdle is the aggregate of budget EPS plus 10 per cent for each financial year of the performance
period.
For FY16, threshold EPS was $0.53 and stretch EPS was $0.58. Actual EPS for FY16 was $0.60.
Why was the TSR
performance hurdle
chosen, and how
is performance
measured?
For FY17, threshold EPS was $0.50 and stretch EPS was $0.54. Actual EPS for FY17 was $0.11.
The other half of the LTI award will be subject to a relative TSR hurdle. Relative TSR provides an indicator of
shareholder value creation by comparing the Company’s return to shareholders relative to other companies
of similar size. TSR provides an external, market-based hurdle and creates alignment of executive remuneration
outcomes to shareholder returns. Participants will not derive any benefit from this portion of the grant unless
the Company’s performance is at least at the median of the comparator group.
The comparator group chosen for assessing the Company’s relative TSR consists of constituents of the S&P /
ASX 100 index excluding companies classified as Financials under the Global Industry Classification System. This
comparator group was selected as it represents a broad base of companies against which investors in SGH may
benchmark their investment.
The comparator group is defined at the start of the performance period. The composition of the comparator group
may change as a result of corporate events, such as mergers, acquisitions, de-listings etc. The Board has agreed
guidelines for adjusting the comparator group following such events, and has the discretion to determine any
adjustment to the comparator group.
TSR performance is monitored and assessed by an independent adviser. The percentage of TSR performance
rights that vest (if any) at the end of the performance period will be based on the following schedule:
Company’s TSR ranking relative to
comparator group companies
Proportion of TSR performance
rights that vest (%)
Equal to or above the 75th percentile
100%
Between the 50th and 75th percentiles
Straight-line vesting
At the 50th percentile
Less than the 50th percentile
50%
Nil
When will
performance be
tested?
Awards will be subject to a four-year performance period. The performance period was increased from three
to four years from the FY17 award, coinciding with the plan amendment to remove the NPAT hurdle on grant.
The four-year performance period commences at the beginning of the financial year to which the award relates.
In the case of the FY17 award, the performance period commenced on 1 July 2016. Immediately following the
completion of the performance period, the performance hurdles are tested to determine whether, and to what
extent, awards vest. Upon vesting of the rights, the Board has discretion to either issue new shares or acquire
shares on market.
Any performance rights that do not vest following testing of performance hurdles will lapse. There is no retest.
66
Seven Group HoldingsREMUNERATION REPORT Long-Term Incentive plan
Do the performance
rights carry dividend
or voting rights?
Performance rights do not carry dividend or voting rights.
What happens in the
event of a change in
control?
In the event of a change of control of the Company the Board will have discretion to determine whether, and the
extent to which, unvested performance rights vest. The Board will consider when making its decision the extent
to which performance hurdles have been achieved to the date of the event.
What happens if the
participant ceases
employment?
If the participant ceases employment with the Company due to termination for cause or gross misconduct, or other
reasons determined by the Board (which would normally include resignation) all unvested performance rights will lapse.
If the participant ceases employment other than for the reasons outlined above the performance rights will not
lapse, unless the Board determines otherwise.
C. MANAGING DIRECTOR & CHIEF EXECUTIVE OFFICER REMUNERATION
Mr Ryan Stokes was appointed Managing Director & Chief Executive Officer on 1 July 2015. Mr Ryan Stokes is employed under an
open-ended employment contract under which the MD & CEO may give six months’ notice to terminate employment. The Company is
also required to provide six months’ notice to terminate.
The remuneration mix for the MD & CEO comprises both a fixed component and a variable (or “at risk”) component (which comprises
separate short-term incentive and long-term incentive elements). These components are explained in detail below.
Fixed remuneration
The MD & CEO’s fixed remuneration is $1,600,000 per annum inclusive of superannuation and has remained unchanged since his appointment.
Fixed remuneration for the MD & CEO has been set in line with the Group’s policy of positioning total reward for KMP Executives
principally within a competitive range of its peers which includes Australian listed companies with characteristics most like Seven Group
Holdings Limited when compared against a set of financial and qualitative metrics.
Variable remuneration
The MD & CEO is eligible to participate in performance-linked remuneration consistent with other KMP Executives under the
Company’s STI plan described at section 6.A of the Remuneration Report and the Company’s LTI plan described at section 6.B
of the Remuneration Report.
The MD & CEO’s at-target opportunity under the STI plan is 50 per cent of fixed remuneration. The MD & CEO’s at-target opportunity
under the LTI plan is 50 per cent of fixed remuneration.
7. KMP EQUITY HOLDINGS
A. EQUITY GRANTED AS REMUNERATION
Deferred share rights granted as remuneration
The Group offered certain KMP Executives the opportunity to participate in the Group’s deferred STI plan in respect of FY16 performance
and awarded KMP Executives deferred share rights as a medium-term incentive. The share rights may vest 12 months after grant provided
the KMP Executive remains employed within the Group at the time of vesting.
Details of the vesting profile of the deferred share rights held by KMP Executives during FY17 under the deferred STI plan are detailed below.
KMP
Grant date Vesting date
RK Stokes
JE Croome
RJ Richards
1 Jul 16
1 Jul 16
1 Jul 16
1 Jul 17
1 Jul 17
1 Jul 17
Fair value
per share at
grant date
Held at
1 July 2016
Granted
Forfeited
Vested
Held at
30 June 2017
$5.46
$5.46
$5.46
–
–
–
58,630
35,269
38,934
–
–
–
–
–
–
58,630
35,269
38,934
On 1 July 2017, the deferred shares under the 2016 STI award vested. A grant under the 2017 STI award was made on 1 July 2017 at a
fair value of $10.33 per share, resulting in 78,291 shares being granted to KMP Executives.
67
Annual Report 2017 Performance rights granted as remuneration
Long-term incentive plan
The Group offered certain KMP Executives the opportunity to participate in the Group’s LTI plan in respect of FY12, FY13, FY14, FY15 and
FY16 performance. Until FY16, awards under the LTI plan were only made where the NPAT target for the relevant year had been achieved
(Gateway Hurdle) and, once granted, awards only vested if the performance hurdles over a further three-year performance period (in
addition to the initial one year NPAT performance period) were met. LTI awards are structured as rights to acquire ordinary shares in the
Company at no cost to the executive other than for Mr Bruce McWilliam and Mr Ryan Stokes.
Tax deferral on equity incentive plans is not permitted where an executive is not directly employed or where the executive has an
interest in shares in the Company which represents more than 10 per cent of the Company’s issued share capital. Where this occurs,
an approach to achieve an equivalent outcome as for other executives participating in the plan is to cash settle the rights using the
same terms and conditions as for the performance rights that are equity settled under the LTI plan. For Mr Bruce McWilliam who is not
employed directly by the Company and for Mr Ryan Stokes who has an interest in shares in the Company which represents more than 10
per cent of the Company’s issued share capital, should the LTI award rights vest, they will be cash settled.
Accounting standards require the fair value of cash settled equity plans to be recalculated each year, unlike equity settled plans where the
fair value is calculated at the start of the performance period. The values calculated under accounting standards and reported in section
10.B may not represent the future value that the KMP Executive will receive, as the vesting of the performance rights and cash settled
equity is subject to the Company achieving pre-defined performance measures.
The Company did not achieve its NPAT target in FY12, FY13 or FY15 and accordingly grants were not made in respect of performance
in those years.
The FY14 and FY16 NPAT targets were achieved and as a result LTI awards were granted in FY15 in respect of FY14 performance and
in FY17 in respect of FY16 performance to eligible executives and may vest subject to achievement of the further three-year performance
hurdles under the LTI plan.
From FY17, the LTI Plan Gateway Hurdle was approved by shareholders to be removed for grants made under the LTI Plan, applying
from FY17, to allow for annual awards to be made to senior executives. These awards will be subject to the achievement of performance
conditions over a four-year period so that the executives only realise value from the award where those performance conditions have
been met. The first grants under the revised LTI plan will be made in FY18 in respect of FY17 with the four-year performance period
commencing on 1 July 2016.
Details of the vesting profiles of the performance rights held by KMP Executives during FY17 under the LTI plan are detailed below.
KMP
Grant date
Expiry date
RK Stokes
JE Croome
RJ Richards
JE Croome
RJ Richards
JE Croome
RJ Richards
1 Dec 14
1 Dec 14
1 Dec 14
3 Aug 16
3 Aug 16
1 Jul 16
1 Jul 16
1 Sep 17
1 Sep 17
1 Sep 17
1 Sep 19
1 Sep 19
1 Sep 20
1 Sep 20
Fair value
per right
at grant
date TSR
component
Fair value
per right
at grant
date EPS
component
$3.89
$3.89
$3.89
$4.52
$4.52
$3.50
$3.50
$6.33
$6.33
$6.33
$6.14
$6.14
$4.98
$4.98
Number
of share
rights
57,251
23,536
45,801
83,716
76,105
120,087
109,170
Number
of rights
vested
during
the year
% forfeited
in the year
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Financial
year in
which grant
may vest
30 Jun 18
30 Jun 18
30 Jun 18
30 Jun 20
30 Jun 20
30 Jun 21
30 Jun 21
Movements in the holdings of cash settled performance rights held by KMP Executives during FY17 under the LTI plan are detailed below.
Fair value
per right
at grant
date TSR
component
Fair value
per right
at grant
date EPS
component
$4.52
$4.52
$3.50
$3.50
$6.14
$6.14
$4.98
$4.98
Vesting
date
1 Sep 19
1 Sep 19
1 Sep 20
1 Sep 20
KMP
Grant date
RK Stokes
BI McWilliam
RK Stokes
BI McWilliam
3 Aug 16
3 Aug 16
1 Jul 16
1 Jul 16
Held at
1 July
2016
–
–
–
–
Number
of rights
granted
121,769
20,929
174,672
30,021
Forfeited
Vested
–
–
–
–
–
–
–
–
Held at
30 June
2017
121,769
20,929
174,672
30,021
No amount is paid or payable by KMP Executives in relation to these LTI grants.
Further details about the LTI plan are set out in Section 6.B of the Remuneration Report.
68
Seven Group HoldingsREMUNERATION REPORT B. EQUITY GRANTED AS REMUNERATION AFFECTING FUTURE PERIODS
The fair value of equity granted as remuneration is amortised over the service period and therefore remuneration in respect of equity
grants may be reported in future years. The following table summarises the maximum value of these grants that will be reported in
the remuneration tables in future years, assuming all vesting conditions are met. The minimum value of the grant is nil should vesting
conditions not be satisfied.
KMP
JE Croome
RJ Richards
2018
$
169,341
153,946
2019
$
297,845
270,765
2020
$
239,422
217,658
C. SHAREHOLDINGS AND TRANSACTIONS
Movements in the holdings of ordinary shares and TELYS4 by KMP held directly, indirectly, beneficially and including their personally-
related entities are set out in the tables below.
Ordinary Shares
KMP
KM Stokes AC
SA Chaplain
TJ Davis
CJ Mackay
DI McEvoy
WL Smith AM
RA Uechtritz
MC Wells(b)
RK Stokes
MJ Allibon(b)
JE Croome
L Luo
BI McWilliam
RJ Richards
MJ Vitlich(c)
Number
held at
1 July 2016
207,304,349
17,000
80,000
10,000
30,000
40,800
1,002,476
4,000
260,780
8,000
20,000
–
159,011
65,774
–
Purchases
and other
changes
during
the year
Shares
granted as
remuneration
during
the year(a)
Rights
converted
to shares
during
the year
–
–
–
–
–
–
(225,484)
–
–
–
(1,000)
–
12,959
(65,774)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Number
held at
30 June 2017
207,304,349
17,000
80,000
10,000
30,000
40,800
776,992
4,000
260,780
8,000
19,000
–
171,970
–
–
(a) Includes share rights and performance rights granted as remuneration during the year and held in trust until vested.
(b) Closing details are as at date of cessation as KMP.
(c) Opening details are as at date of commencement as KMP.
TELYS4
KMP
TJ Davis
MC Wells (a)
RK Stokes
MJ Allibon (a)
JE Croome
RJ Richards
(a) Closing details are as at date of cessation as KMP.
Number
held at
1 July
2016
10,000
710
2,500
200
1,650
14,560
Purchases
and other
changes
during
the year
5,510
–
–
–
–
845
Number
held at
30 June
2017
15,510
710
2,500
200
1,650
15,405
69
Annual Report 2017 D. HEDGING POLICY
The Company’s Group Directors Share Trading Policy, and the Executive and Staff Share Trading Policy, prohibits employees (including
KMP) from dealing in Seven Group Holdings Limited shares, if the dealing is prohibited under the Corporations Act 2001. Therefore, in
accordance with this policy, all KMP are prohibited from entering into arrangements in connection with Seven Group Holdings Limited
shares which operate to limit the executives’ economic risk under any equity-based incentive schemes.
The ability to deal with unvested rights is restricted in the relevant equity plan rules which apply to the options over shares in the Company
which have been granted. The Company will continue to monitor the appropriateness of this approach.
8. KEY MANAGEMENT PERSONNEL RELATED PARTY TRANSACTIONS
Key Management Personnel related party transactions
A number of Key Management Personnel, or their personally-related entities, hold positions in other entities that can result in them having
control or significant influence over those entities. A number of these entities transacted with the Company or its subsidiaries during the year.
The Group transacted with entities of which the Directors of the Company, Mr Kerry Stokes AC and Mr Ryan Stokes are or were Directors
of Officers (excluding equity accounted investees, which are disclosed in Note 32 of the Financial Statements) or otherwise had an interest.
The aggregate value of the related party transactions with Director and director related entities was as follows:
Revenue
– Lease incentive
Total revenue
Expenses
– Lease of premises and related outgoings
– Travel expenses
– Electricity under supply agreement
– Consulting agreement
– Other net expense reimbursements
Total expenses
Assets and liabilities
– Trade and other receivables – current
– Trade and other payables – current
2017
$
4,888,940
4,888,940
20,704,556
105,060
–
250,000
412,512
21,472,128
2016
$
–
–
41,337,604
48,778
1,723,689
250,000
587,290
43,947,361
–
–
–
–
The WesTrac Group had previously entered into a number of leases for premises owned by a director related entity. During the year,
a number of these properties were sold to an arm’s length third party. Accordingly, the rent expense for the use of these properties is
disclosed in the table within expenses but has declined from the prior year as the properties are now leased from an arm’s length third
party. For further detail of the transaction, refer to Note 33: Related Party Disclosures in the Annual Report.
Loans and other transactions with Key Management Personnel
During the year, a company associated with a Director, Mr Bruce McWilliam, was party to a consulting agreement with the Group. Total
fees paid during the year in relation to this consulting agreement totalled $250,000 (2016: $250,000). This amount is included in the
remuneration disclosures and in the table above.
During the year ended 30 June 2017, Mr Kerry Stokes AC and Mr Ryan Stokes were directors on the board of Seven West Media Limited,
representing Seven Group Holdings Limited. They are paid a director fee by Seven West Media Limited for their services provided
which is disclosed in Seven West Media Limited’s Remuneration Report. Professor Murray Wells and Mr Warwick Smith AM receive
director fees for their services provided to Flagship Property Holdings Pty Limited. Mr Ryan Stokes and Mr Richard Richards receive
director fees for their services provided to Beach Energy Limited. As the amounts are not paid or payable by Seven Group Holdings
Limited they have not been included in the remuneration disclosures or the below table.
Other director fees
KM Stokes AC
MC Wells
WL Smith AM
RK Stokes
RJ Richards
70
2017
$
377,129
25,208
70,000
247,341
46,479
2016
$
347,510
55,000
65,000
149,529
–
Seven Group HoldingsREMUNERATION REPORT 9. SUMMARY OF EXECUTIVE CONTRACTS
The key terms of the executive contracts including the term of the contract, the period of notice required to terminate the contract (by
either the Company or executive) and any contractual termination payments are set out below.
KMP Executive
Contract term
Notice period
required by the
Company
Notice period
required by the
Executive
RK Stokes
JE Croome
L Luo
RJ Richards
MJ Vitlich
On-going
On-going
Three years
On-going
On-going
6 months
6 months
6 months
6 months
6 months
6 months
6 months
6 months
6 months
6 months
Contractual termination payments
No contractual termination payments
No contractual termination payments
No contractual termination payments
No contractual termination payments
No contractual termination payments
Mr Bruce McWilliam is not directly employed by the Company however his services are provided under an agreement with Seven West Media
Limited. Consequently Mr Bruce McWilliam does not have any applicable contract term, notice period or contractual termination payments.
There are no formal employment contracts for Non-Executive Directors that provide notice provisions or contractual termination payments.
Each Non-Executive Director has a formal appointment letter agreed with the Company which confirms their appointment in accordance
with the Constitution of the Company and provides information in relation to the structure and practices of the Board and the Company.
10. REMUNERATION IN DETAIL
A. TOTAL REMUNERATION EARNED BY KMP EXECUTIVES IN FY17 (NON-STATUTORY DISCLOSURES)
The remuneration detailed in this table is aligned to the current performance periods and therefore is particularly useful in assessing
current year pay and its alignment with current year performance.
The values in this table will not reconcile with those provided in the statutory disclosures in table 10B. For example, table 10B discloses
the value of LTI grants which may or may not vest in future years, whereas this table discloses the value of LTI grants from previous years
which vested in FY17.
Cash salary
& fees
$
STI cash
bonus
$
Year
Non-
monetary
benefits
$
Super-
annuation
benefits
$
Termination
benefits
$
Deferred
STI vested
in the year
$
LTI vested
in the year
$
Total
$
KMP Executives (a)
RK Stokes
(Managing Director
& Chief Executive Officer)
MJ Allibon
(Group Executive,
Human Resources)
JE Croome
(Chief Executive,
WesTrac Australia)
L Luo
(Chief Executive Officer,
WesTrac China)
BI McWilliam
(Commercial Director)
RJ Richards
(Group Chief Financial
Officer)
MJ Vitlich
(Group Chief Operating
Officer)
2017 1,580,384
320,000
2016 1,580,692
–
11,914
14,734
19,616
19,308
2017
2016
60,156
22,969
131,250
–
2017 1,080,692
192,500
2016 1,072,379
–
2017
2016
2017
2016
2017
2016
2017
2016
727,612
124,348
734,981
–
525,000
525,000
41,250
–
973,071
212,500
971,565
63,846
–
–
–
–
–
–
2,081
29,614
96,366
97,435
–
–
–
–
19,616
19,308
79,796
86,680
–
–
5,245
4,210
25,968
28,435
351
–
4,904
–
–
–
22,969
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 1,931,914
–
–
–
1,614,734
106,094
131,250
– 1,294,889
–
1,121,301
– 1,028,122
–
–
–
919,096
566,250
525,000
– 1,216,784
– 1,004,210
–
–
69,101
–
– 6,213,154
– 5,315,591
Total KMP Executives
2017 5,010,762
913,567
115,957
149,899
22,969
Total KMP Executives
2016 5,015,867
–
145,993
153,731
–
(a) Non-Executive Director remuneration is consistent with the amounts disclosed in the statutory table in section 10.B with the exception of Professor Murray Wells
who received an additional $372,711 in cash as a retirement benefit. This amount had been previously disclosed as Non-Executive Director Retirement Benefits.
71
Annual Report 2017 B. TOTAL REMUNERATION FOR KMP IN FY17 (STATUTORY DISCLOSURES)
The following table sets out the audited remuneration details for the Group’s KMP for the year ended 30 June 2017, calculated in
accordance with statutory accounting requirements.
KMP
KM Stokes AC
(Executive Chairman)
SA Chaplain (c)
(Non-Executive Director)
TJ Davis
(Non-Executive Director)
CJ Mackay
(Non-Executive Director)
DI McEvoy
(Non-Executive Director)
WL Smith
(Non-Executive Director)
RA Uechtritz
(Non-Executive Director)
MC Wells
(Non-Executive Director) (retired 17 November 2016)
RK Stokes (d)
(Managing Director & Chief Executive Officer)
MJ Allibon (e)(f)
(Group Executive, Human Resources) (resigned 16 December 2016)
JE Croome
(Chief Executive Officer, WesTrac Australia)
L Luo (g)
(Chief Executive Officer, WesTrac China)
BI McWilliam (h)
(Commercial Director)
RJ Richards
(Group Chief Financial Officer)
JR Scott
(Group Chief Operating Officer) (ceased 30 June 2016)
MJ Vitlich
(Group Chief Operating Officer) (commenced 1 June 2017)
Total KMP
Total KMP
Year
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
Short-term
benefits
Salary
& fees
$
330,384
330,692
215,762
101,471
191,781
191,781
173,516
173,516
173,516
159,165
173,516
173,516
191,781
191,781
80,488
210,692
1,580,384
1,580,692
60,156
131,250
1,080,692
1,072,379
727,612
734,981
525,000
525,000
973,071
971,565
–
630,693
63,846
–
Post-
employment
benefits
Non-
monetary
benefits
$
Superann-
uation
benefits
$
40,492
39,624
–
–
–
–
–
–
–
–
–
–
–
–
4,118
–
11,914
14,734
–
–
2,081
29,614
96,366
97,435
–
–
5,245
4,210
–
7,477
351
–
19,616
19,308
19,267
9,640
18,219
18,219
16,484
16,484
16,484
15,121
16,484
16,484
18,219
18,219
9,808
19,308
19,616
19,308
–
–
19,616
19,308
79,796
86,680
–
–
25,968
28,435
–
19,308
4,904
–
STI cash
bonus
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
350,000
320,000
–
22,969
233,750
192,500
156,981
124,348
37,813
41,250
225,000
212,500
–
227,500
–
–
6,541,506
1,003,544
160,567
284,480
92,492
140,665
22,969
966,005
794,921
304,351
450,578
10,762,078
7,179,174
1,141,067
193,094
305,822
118,548
62,174
308,682
394,610
136,871
–
9,840,042
Other
long-term
benefits
Long
service
leave and
annual
leave
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
45,521
20,375
11,933
2,868
45,206
29,750
41,348
–
8,751
5,288
–
Termination
Share-based
benefits
payments
Deferred
Incentive
Termination
benefits
Perform-
ance
Rights (a)
Deferred
shares /
share
rights
Cash
settled
equity
(employee
expense)(a)
Cash
settled
equity
(re-fair
value)(b)
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
22,969
140,665
62,174
384,493
3,262,724
250,363
111,480
(8,203)
8,203
62,192
17,188
66,085
335,000
160,000
(11,485)
11,485
213,125
96,250
39,531
20,625
218,750
106,250
285,433
46,360
293,279
99,513
387,294
109,237
53,572
Remun-
eration
perfor-
mance
related
%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
42
23
(18)
20
40
26
12
10
20
10
45
29
–
30
–
–
Total
$
390,492
389,624
235,028
111,111
210,000
210,000
190,000
190,000
190,000
174,286
190,000
190,000
210,000
210,000
94,414
230,000
2,272,949
63,437
173,907
1,854,476
1,512,432
1,201,420
1,150,824
730,620
604,063
1,865,078
1,473,545
947,301
74,389
–
–
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(a) These values have been calculated under accounting standards. The values may not represent the future value that the KMP Executive will receive, as the
vesting of the performance rights and cash settled equity is subject to the Company achieving pre-defined performance measures.
(b) Mr Ryan Stokes and Mr Bruce McWilliam receive cash settled equity which is required to be re-fair valued each reporting period in accordance with accounting
standard requirements. The value reflects the increase in the fair value of equity granted. Equity awarded to other Key Executives is equity settled and therefore
not required to be re fair valued under accounting standards.
(c) Ms Sally Annabelle Chaplain was appointed as KMP on 24 November 2015 as such the 2016 comparison is not for a full year.
72
Seven Group HoldingsREMUNERATION REPORT
B. TOTAL REMUNERATION FOR KMP IN FY17 (STATUTORY DISCLOSURES)
The following table sets out the audited remuneration details for the Group’s KMP for the year ended 30 June 2017, calculated in
accordance with statutory accounting requirements.
KMP
KM Stokes AC
(Executive Chairman)
SA Chaplain (c)
(Non-Executive Director)
TJ Davis
(Non-Executive Director)
CJ Mackay
(Non-Executive Director)
DI McEvoy
(Non-Executive Director)
WL Smith
(Non-Executive Director)
RA Uechtritz
(Non-Executive Director)
(Non-Executive Director) (retired 17 November 2016)
(Managing Director & Chief Executive Officer)
(Group Executive, Human Resources) (resigned 16 December 2016)
(Chief Executive Officer, WesTrac Australia)
(Chief Executive Officer, WesTrac China)
BI McWilliam (h)
(Commercial Director)
RJ Richards
(Group Chief Financial Officer)
(Group Chief Operating Officer) (ceased 30 June 2016)
(Group Chief Operating Officer) (commenced 1 June 2017)
MC Wells
RK Stokes (d)
MJ Allibon (e)(f)
JE Croome
L Luo (g)
JR Scott
MJ Vitlich
Total KMP
Total KMP
Post-
employment
benefits
STI cash
bonus
monetary
benefits
Non-
Superann-
uation
benefits
$
40,492
39,624
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
350,000
320,000
22,969
233,750
192,500
156,981
124,348
37,813
41,250
225,000
212,500
227,500
–
–
–
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,118
11,914
14,734
2,081
29,614
96,366
97,435
–
–
5,245
4,210
–
7,477
351
–
19,616
19,308
19,267
9,640
18,219
18,219
16,484
16,484
16,484
15,121
16,484
16,484
18,219
18,219
9,808
19,308
19,616
19,308
19,616
19,308
79,796
86,680
25,968
28,435
19,308
4,904
–
–
–
–
–
–
Short-term
benefits
Salary
& fees
$
330,384
330,692
215,762
101,471
191,781
191,781
173,516
173,516
173,516
159,165
173,516
173,516
191,781
191,781
80,488
210,692
1,580,384
1,580,692
60,156
131,250
1,080,692
1,072,379
727,612
734,981
525,000
525,000
973,071
971,565
630,693
63,846
–
–
Year
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
6,541,506
1,003,544
160,567
284,480
(a) These values have been calculated under accounting standards. The values may not represent the future value that the KMP Executive will receive, as the
vesting of the performance rights and cash settled equity is subject to the Company achieving pre-defined performance measures.
(b) Mr Ryan Stokes and Mr Bruce McWilliam receive cash settled equity which is required to be re-fair valued each reporting period in accordance with accounting
standard requirements. The value reflects the increase in the fair value of equity granted. Equity awarded to other Key Executives is equity settled and therefore
not required to be re fair valued under accounting standards.
(c) Ms Sally Annabelle Chaplain was appointed as KMP on 24 November 2015 as such the 2016 comparison is not for a full year.
Other
long-term
benefits
Long
service
leave and
annual
leave
$
Termination
benefits
Share-based
payments
Deferred
Incentive
$
Termination
benefits
$
Perform-
ance
Rights (a)
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
45,521
20,375
–
–
11,933
2,868
–
45,206
–
–
29,750
41,348
–
8,751
5,288
–
92,492
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
140,665
62,174
–
–
–
–
–
–
–
–
140,665
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
22,969
–
–
–
–
–
–
–
–
–
–
–
–
–
22,969
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
285,433
46,360
–
–
293,279
99,513
–
–
–
–
387,294
109,237
–
53,572
–
–
966,005
Deferred
shares /
share
rights
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
335,000
160,000
(11,485)
11,485
213,125
96,250
–
–
39,531
20,625
218,750
106,250
–
–
–
–
794,921
Cash
settled
equity
(employee
expense)(a)
$
Cash
settled
equity
(re-fair
value)(b)
$
Remun-
eration
perfor-
mance
related
%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
42
23
(18)
20
40
26
12
10
20
10
45
29
–
30
–
–
Total
$
390,492
389,624
235,028
111,111
210,000
210,000
190,000
190,000
190,000
174,286
190,000
190,000
210,000
210,000
94,414
230,000
3,262,724
2,272,949
63,437
173,907
1,854,476
1,512,432
1,201,420
1,150,824
730,620
604,063
1,865,078
1,473,545
–
947,301
74,389
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
384,493
–
–
–
–
–
–
–
66,085
–
–
–
–
–
–
–
450,578
10,762,078
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
250,363
111,480
(8,203)
8,203
–
–
–
–
62,192
17,188
–
–
–
–
–
–
304,351
7,179,174
1,141,067
193,094
305,822
118,548
62,174
–
308,682
394,610
136,871
–
9,840,042
(d) A reclassification from performance rights to cash settled equity has been made to 2016 amounts for Mr Ryan Stokes.
(e) Salary & fees for Mrs Melanie Allibon relates to amounts recharged by Seven West Media Limited to Seven Group Holdings Limited.
(f) Termination benefits for Mrs Melanie Allibon relate to the Company waiving the requirement for Mrs Allibon to repay to the Company the deferred component
of her FY16 STI on cessation of her employment during the deferral period. Mrs Melanie Allibon’s FY16 LTI was forfeited and accordingly has been reversed.
(g) Remuneration amounts converted from US dollars based on an exchange rate of 0.7545 Australian dollars for each $1 US dollar for amounts paid and the
year-end rate of 0.7692 for amounts accrued.
(h) Salary & fees for Mr Bruce McWilliam includes $275,000 recharged by Seven West Media Limited to Seven Group Holdings Limited and payments to a company
associated with Mr Bruce McWilliam that was party to a consulting agreement with the Group of $250,000.
End of audited Remuneration Report.
73
Annual Report 2017
ROUNDING OFF
The Company is of a kind referred to in ASIC Instrument
2016/191 and in accordance with that Instrument, amounts in the
consolidated financial statements and Directors’ Report have been
rounded off to the nearest whole number of millions of dollars
and one place of decimals representing hundreds of thousands
of dollars.
Signed for and on behalf of the Board of Directors and in
accordance with a resolution of the Directors.
KM Stokes AC
Executive Chairman
SA Chaplain
Chair of the Audit & Risk Committee
Sydney
22 August 2017
INDEMNITY
The Constitution of the Company provides an indemnity to any
current or former Director and secretary of the Company against
any liabilities incurred by that person, or arising out of, the
discharge of duties as an officer of the Company or the conduct
of the business of the Company, including associated legal costs
defending any proceedings relating to that person’s position with
the Company in specified circumstances.
As permitted by the Constitution of the Company, the Company
has entered into deeds of access, insurance and indemnity with
each Director as at the end of the financial year.
No amounts were paid and no actions taken pursuant to these
indemnities during the year.
INSURANCE PREMIUMS
The Company has paid insurance premiums in respect of a
directors’ and officers’ liability insurance contract insuring against
certain liabilities (subject to exclusions) of all current and former
officers of the Company and its subsidiaries, including all Directors
named in this report, the Company Secretary and all persons
concerned in, or taking part in the management of, the Company
and its controlled entities, and former Directors and officers who
have retired or relinquished their positions.
The insurance policies prohibit disclosure of the premiums paid in
respect of those policies and the nature of the liabilities insured by
the policies.
NON-AUDIT SERVICES
During the year Deloitte Touche Tohmatsu, the Company’s
auditor, has performed certain other services in addition to their
statutory duties.
The Board has considered the non-audit services provided
during the year by the auditor and, in accordance with the advice
received from the Audit & Risk Committee, is satisfied that the
provision of those non-audit services during the year by the
auditor is compatible with, and did not compromise, the auditor
independence requirements of the Corporations Act 2001 for the
following reasons:
• all non-audit services were subject to the corporate governance
procedures adopted by the Company and have been reviewed
by the Board in terms of the Company’s formal Auditor
Independence Policy to ensure that they do not impact the
integrity and objectivity of the auditor; and
the non-audit services provided do not undermine the general
principles relating to auditor independence as set out in APES
110 Code of Ethics for Professional Accountants, as they
did not involve reviewing or auditing the auditor’s own work,
acting in a management or decision making capacity for the
Company, acting as an advocate for the Company or jointly
sharing risks and rewards.
•
A copy of the auditor’s independence declaration as required under
section 307C of the Corporations Act 2001 is set out on page 75.
Details of amounts paid or payable to the auditor, Deloitte Touche
Tohmatsu, for audit and non-audit services provided during the
year are set out in Note 34 to the financial statements.
74
Seven Group HoldingsDIRECTORS’ REPORT AUDITOR’S
INDEPENDENCE
DECLARATION
The Board of Directors
Seven Group Holdings Limited
38-42 Pirrama Road
Pyrmont NSW 2009
22 August 2017
Dear Board Members
Deloitte Touche Tohmatsu
A.B.N. 74 490 121 060
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
DX 10307SSE
Tel: +61 (0) 2 9322 7000
Fax: +61 (0) 2 9322 7001
www.deloitte.com.au
Seven Group Holdings Limited
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following
declaration of independence to the Directors of Seven Group Holdings Limited.
As lead audit partner for the audit of the financial statements of Seven Group Holdings Limited
for the year ended 30 June 2017, I declare that to the best of my knowledge and belief, there
have been no contraventions of:
(i) the auditor independence requirements of the Corporations Act 2001 in relation to
the audit; and
(ii) any applicable code of professional conduct in relation to the audit.
Yours sincerely
DELOITTE TOUCHE TOHMATSU
JL Gorton
Partner
Chartered Accountant
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu
75
Annual Report 2017
PRIMARY STATEMENTS
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
For the year ended 30 June 2017
Continuing operations
Revenue
Other income
Dividend income
Gain on sale of investments and equity accounted investees
Other
Total other income
Share of results from equity accounted investees
Impairment reversal/(impairment) of equity accounted investee
Fair value movement of derivatives
Expenses excluding depreciation and amortisation
Profit before depreciation, amortisation, net finance expense and income tax
Depreciation and amortisation
Profit before net finance expense and income tax
Finance income
Finance expense
Net finance expense
Profit before income tax
Income tax expense
Profit for the year from continuing operations
Profit for the year from discontinued operations
Profit for the year
Profit for the year attributable to:
Equity holders of the Company
Non-controlling interest
Profit for the year
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss
Net change in fair value of financial assets at fair value through other comprehensive income
Impact of transition – AASB 9: Financial Instruments
Income tax relating to items that will not be reclassified subsequently to profit or loss
Total items that will not be reclassified subsequently to profit or loss
Items that may be reclassified subsequently to profit or loss
Cash flow hedges: effective portion of changes in fair value
Foreign currency differences for foreign operations
Impact of transition – AASB 9: Financial Instruments
Income tax relating to items that may be reclassified subsequently to profit or loss
Total items that may be reclassified subsequently to profit or loss
Total comprehensive income for the year
Total comprehensive income for the year attributable to:
Equity holders of the Company
Non-controlling interest
Total comprehensive income for the year
Statutory earnings per share (EPS)
From continuing and discontinued operations
Basic earnings per share
Diluted earnings per share
From continuing operations
Basic earnings per share
Diluted earnings per share
Note
2017
$m
2016
$m
4
2,282.3
2,237.2
33.0
1.9
21.2
56.1
(182.3)
128.4
1.9
(2,136.1)
150.3
(30.5)
119.8
8.7
(85.2)
(76.5)
43.3
(26.9)
16.4
29.8
46.2
44.5
1.7
46.2
(110.7)
–
33.6
(77.1)
(86.3)
(48.6)
–
28.8
(106.1)
(137.0)
(138.5)
1.5
(137.0)
2017
$
0.07
0.07
(0.03)
(0.03)
36.8
7.9
42.0
86.7
91.0
(0.4)
4.2
(2,109.2)
309.5
(33.1)
276.4
4.6
(90.3)
(85.7)
190.7
(6.7)
184.0
13.8
197.8
196.8
1.0
197.8
(225.5)
(4.8)
67.7
(162.6)
28.6
15.6
0.4
(9.6)
35.0
70.2
69.2
1.0
70.2
2016
$
0.60
0.60
0.55
0.55
11
11
4
5
5
6
32
24
24
24
24
24
Note
7
7
7
7
The consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the notes to the financial statements.
76
Seven Group Holdings CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2017
Note
2017
$m
2016 (a)
$m
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other current assets
Derivative financial instruments
Assets held for sale
Total current assets
Non-current assets
Investments accounted for using the equity method
Trade and other receivables
Other financial assets
Property, plant and equipment
Producing and development assets
Exploration and evaluation assets
Intangible assets
Deferred tax assets
Derivative financial instruments
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Interest bearing loans and borrowings
Deferred income
Current tax liability
Provisions
Employee benefits
Derivative financial instruments
Liabilities held for sale
Total current liabilities
Non-current liabilities
Other payables
Interest bearing loans and borrowings
Deferred tax liabilities
Deferred income
Provisions
Employee benefits
Derivative financial instruments
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings
Total equity attributable to equity holders of the Company
Non-controlling interest
Total equity
18
8
10
23
31
11
22
12
13
14
15
6
23
9
20
16
17
23
31
9
20
6
16
17
23
24
24
172.5
336.5
654.7
14.0
0.3
731.4
1,909.4
1,136.5
4.9
598.8
159.9
213.9
222.2
456.7
0.2
133.5
2,926.6
4,836.0
288.6
40.7
88.5
0.6
40.0
37.8
2.4
188.0
686.6
0.9
1,439.9
122.6
11.8
64.1
12.8
72.1
1,724.2
2,410.8
2,425.2
2,472.9
(647.7)
588.0
2,413.2
12.0
2,425.2
(a) certain balances have been restated due to management reassessment. Refer to Note 1 for further information.
The consolidated statement of financial position is to be read in conjunction with the notes to the financial statements.
366.8
554.4
831.3
28.9
1.7
–
1,783.1
998.0
–
974.6
172.0
214.5
218.0
779.9
6.4
184.4
3,547.8
5,330.9
347.0
220.1
228.7
9.9
48.5
36.8
16.4
–
907.4
0.4
1,514.2
125.9
12.7
50.8
12.5
8.8
1,725.3
2,632.7
2,698.2
2,472.7
(466.0)
679.7
2,686.4
11.8
2,698.2
77
Annual Report 2017 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2017
Contributed
equity
$m
Note
Reserves
$m
Retained
earnings
$m
Non-
controlling
interest
$m
Total
$m
Total equity
$m
Year ended 30 June 2017
Balance as at 1 July 2016
Profit for the year
Net change in fair value of financial
assets measured at fair value through
other comprehensive income
Cash flow hedges: effective portion of
changes in fair value
Foreign currency differences for foreign
operations
Income tax on items of other
comprehensive income
Total comprehensive income for the year
Transactions with owners recognised
directly in equity
Ordinary dividends paid
TELYS4 dividends paid
Own shares acquired
Shares vested to employees
Share based payments
Total contributions by and
distributions to owners
Total movement in equity for the year
Balance as at 30 June 2017
Year ended 30 June 2016
Balance as at 1 July 2015
Profit for the year
Impact of transition – AASB 9: Financial
Instruments
Net change in fair value of financial
assets measured at fair value through
other comprehensive income
Cash flow hedges: effective portion of
changes in fair value
Foreign currency differences for foreign
operations
Income tax on items of other
comprehensive income
Total comprehensive income for the year
Transactions with owners recognised
directly in equity
Ordinary dividends paid
TELYS4 dividends paid
Shares bought back on-market
Shares vested to employees
Share based payments
Total contributions by and
distributions to owners
Total movement in equity for the year
Balance as at 30 June 2016
24
24
24
24
25
25
24
24
24
24
24
24
25
25
24
24
2,472.7
–
–
(466.0)
–
(110.7)
679.7
44.5
–
2,686.4
44.5
(110.7)
11.8
1.7
–
2,698.2
46.2
(110.7)
–
–
–
–
–
–
(0.1)
0.3
–
0.2
0.2
2,472.9
2,544.6
–
–
(86.3)
(48.4)
62.4
–
–
–
(86.3)
–
(86.3)
(48.4)
(0.2)
(48.6)
62.4
–
62.4
(183.0)
44.5
(138.5)
1.5
(137.0)
–
–
–
(0.3)
1.6
1.3
(112.5)
(23.7)
–
–
–
(136.2)
(112.5)
(23.7)
(0.1)
–
1.6
(134.7)
(1.3)
–
–
–
–
(1.3)
(113.8)
(23.7)
(0.1)
–
1.6
(136.0)
(181.7)
(647.7)
(91.7)
(273.2)
588.0
2,413.2
0.2
12.0
(273.0)
2,425.2
(344.2)
–
0.4
627.2
196.8
(4.8)
2,827.6
196.8
(4.4)
12.8
1.0
–
2,840.4
197.8
(4.4)
–
(225.5)
–
(225.5)
–
(225.5)
28.6
15.6
58.1
–
–
–
28.6
15.6
58.1
–
–
–
28.6
15.6
58.1
(122.8)
192.0
69.2
1.0
70.2
–
–
–
–
1.0
1.0
(114.9)
(24.6)
–
–
–
(139.5)
(114.9)
(24.6)
(72.1)
0.2
1.0
(210.4)
(71.9)
2,472.7
(121.8)
(466.0)
52.5
(141.2)
679.7
2,686.4
(2.0)
–
–
–
–
(2.0)
(1.0)
11.8
(116.9)
(24.6)
(72.1)
0.2
1.0
(212.4)
(142.2)
2,698.2
–
–
–
–
–
–
(72.1)
0.2
–
(71.9)
The consolidated statement of changes in equity is to be read in conjunction with the notes to the financial statements.
78
Seven Group HoldingsPRIMARYSTATEMENTS CONSOLIDATED CASH FLOW STATEMENT
For the year ended 30 June 2017
Cash flows related to operating activities
Receipts from customers
Payments to suppliers and employees
Dividends received from equity accounted investees
Other dividends received
Interest and other items of a similar nature received
Interest and other costs of finance paid
Income taxes (paid)/refunded
Income tax funding paid to equity accounted investee
Net operating cash flows
Cash flows related to investing activities
Payments for purchases of property, plant and equipment
Proceeds from sale of property, plant and equipment
Payments for purchase of intangible assets
Payment for production, development and exploration expenditure
Acquisition of equity accounted investees
Payments for other investments
Proceeds from sale of other financial assets
Net investing cash flows
Cash flows related to financing activities
Payments under share buy-back
Ordinary dividends paid
TELYS4 dividends paid
Dividend paid to non-controlling interests
Proceeds from borrowings
Repayment of borrowings
Net financing cash flows
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents included in assets held for sale
Cash and cash equivalents at end of the year
Note
2017
$m
2016
$m
3,054.6
(2,772.9)
66.3
32.8
8.7
(80.5)
(13.2)
–
295.8
(17.9)
7.7
(3.3)
(11.5)
(2.5)
(79.3)
81.3
(25.5)
–
(112.5)
(23.7)
(1.3)
366.1
(608.5)
(379.9)
(109.6)
366.8
(7.9)
(76.8)
172.5
3,028.4
(2,740.6)
73.8
37.5
4.9
(86.7)
4.3
(7.2)
314.4
(8.6)
0.7
(22.6)
(18.0)
(4.8)
(141.0)
95.4
(98.9)
(72.1)
(114.9)
(24.6)
(2.0)
385.9
(318.0)
(145.7)
69.8
290.7
6.3
–
366.8
19
24
25
25
31
18
The consolidated cash flow statement is to be read in conjunction with the notes to the financial statements.
79
Annual Report 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2017
1. BASIS OF PREPARATION
Seven Group Holdings Limited (the Company) is a for profit
company limited by shares and the shares are publicly traded
on the Australian Securities Exchange (ASX). The Company is
domiciled in Australia. These consolidated financial statements
cover the year ended 30 June 2017 and comprise the Company
and its subsidiaries (together referred to as the Group), and the
Group’s interest in equity accounted investees.
The financial report was authorised for issue in accordance with
a resolution of the Directors on 22 August 2017.
The financial report is a general purpose financial report which
has been prepared in accordance with the Australian Accounting
Standards (AASBs) adopted by the Australian Accounting Standards
Board (AASB) and the Corporations Act 2001. The consolidated
financial report of the Group complies with International Financial
Reporting Standards (IFRSs) adopted by the International
Accounting Standards Board (IASB).
The financial report is prepared on the historical cost basis except
for the following items:
• financial instruments that are measured at amortised cost or fair
value through other comprehensive income;
• derivative financial instruments are measured at fair value
•
through profit or loss; and
liabilities for cash-settled share based payments are measured
at fair value through profit or loss.
The Company is of a kind referred to in ASIC Instrument 2016/191
and in accordance with that Instrument, amounts in the Directors’
Report and consolidated financial statements have been rounded
off to the nearest whole number of millions of dollars and one
place of decimals representing hundreds of thousands of dollars.
Certain comparative amounts in this financial report have been
reclassified to conform to the current year’s presentation or to
correct a misstatement. In particular:
• Management have reassessed the methodology associated
with prior period calculations of provision for doubtful debts,
net realisable value of inventory, accruals and provision for
warranty. This has resulted in an increase in the opening
carrying values of inventory ($6.5 million) and trade and other
receivables ($11.7 million), decrease in trade and other payables
($26.0 million), current provisions ($1.3 million) and deferred
tax assets ($3.1 million). The net impact of these adjustments
($42.4 million) has been recognised as an adjustment to
opening retained earnings at 1 July 2015.
(a) Accounting policies
Note 1 sets out the Group’s accounting policies that relate to the
financial statements as a whole. Where an accounting policy is
specific to one note, the policy is described in the note to which
it relates. This note also outlines new accounting policies and
the expected impact on the financial position and performance
of the Group.
80
With the exception of the points outlined below, the accounting
policies set out in this financial report have been consistently
applied by group entities and equity accounted investees.
The Group has considered, and adjusted where necessary, the
impact of Group equity accounted investees whose accounting
policy does not align with the Group’s policy.
• AASB 9: Financial Instruments (AASB 9) has not been early
adopted by all equity accounted investees. The Group elected
to early adopt AASB 9: Financial Instruments (2014) in full in the
year ended 30 June 2016.
• Recognition of deferred tax liabilities on indefinite life intangible
assets.
(b) Principles of consolidation
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group
controls an entity when it is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to
affect those returns through its power to direct the activities of the
entity. The financial statements of subsidiaries are included in the
consolidated financial statements from the date on which control
commences until the date on which control ceases.
Where there is loss of control of a subsidiary, the Group
derecognises the assets and liabilities of the subsidiary and any
related non-controlling interest and other components of equity.
Any resulting gain or loss is recognised in profit or loss. Any
interest retained in the former subsidiary is measured at fair value
when control is lost.
All inter-company balances and transactions, including unrealised
gains arising from intra-group transactions, are eliminated in full.
Unrealised losses are eliminated unless costs cannot be recovered.
Non-controlling interests in the equity and the results of
subsidiaries are shown separately in the consolidated statement
of profit or loss and other comprehensive income, consolidated
statement of financial position and consolidated statement of
changes in equity.
(c) Foreign currency translation
Functional and presentation currency
Items included in the financial statements of each of the Group’s
entities are measured using the currency of the primary economic
environment in which the entity operates (the functional currency).
The financial report is presented in Australian Dollars, which is the
Company’s functional and presentation currency.
Transactions
Foreign currency transactions are translated into the respective
functional currencies of Group entities using the exchange rates
prevailing at the dates of the transactions. Foreign exchange gains
and losses resulting from the settlement of such transactions and
from the translation at balance date exchange rates of monetary
assets and liabilities denominated in foreign currencies are
recognised in profit or loss, except when they are deferred in
equity such as for qualifying cash flow hedges and qualifying net
investment hedges.
Translation differences on financial assets and liabilities carried
at fair value are reported as part of the fair value gain or loss.
Translation differences on non-monetary financial assets are
included in the fair value through other comprehensive income
reserve in equity.
Seven Group Holdings Foreign group entities
The results and financial position of all the Group entities (none
of which have the currency of a hyperinflationary economy) that
have a functional currency different from Australian Dollars are
translated into Australian Dollars as follows:
• assets and liabilities are translated at the closing rate at the
•
balance date;
income and expenses of foreign entities are translated at
average exchange rates (unless this is not a reasonable
approximation of the cumulative effect of the rates prevailing
on the transaction dates, in which case income and expenses
are translated at the date of the transaction); and
• all resulting exchange differences are recognised in other
comprehensive income and presented in the foreign currency
translation reserve.
Borrowings and other financial instruments designated as hedges
of any net investment in a foreign entity are recognised in other
comprehensive income and presented in the foreign currency
translation reserve. When a foreign entity is sold or any borrowings
forming part of the net investment are repaid, a proportionate
share of such exchange differences are transferred to profit or loss
as part of the gain or loss on sale where applicable.
Goodwill and fair value adjustments arising on the acquisition of
a foreign entity are treated as assets and liabilities of the foreign
entity and translated at the closing rate.
(d) Goods and services tax (GST)
Revenues, expenses and assets are recognised net of the amount
of associated GST, unless the GST incurred is not recoverable
from the taxation authority. In this case it is recognised as part of
the cost of acquisition of the asset or as part of the expense.
Receivables and payables are stated inclusive of the amount of GST
receivable or payable. The net amount of GST recoverable from, or
payable to, the taxation authority is included within other receivables
or payables in the consolidated statement of financial position.
Cash flows are presented on a gross basis. The GST components
of cash flows arising from investing or financing activities which
are recoverable from, or payable to the taxation authority, are
presented as operating cash flow.
(e) Change in accounting policies
The IFRS Interpretations Committee (IC) clarified its position with
respect to the recognition of deferred tax liabilities for indefinite
life intangible assets. As a result of the clarification, the Group has
amended its accounting policy and accordingly recognised an
increase in goodwill ($85.0 million), retained earnings adjustment
($11.4 million) and deferred tax liability ($96.4 million). The
adjustment has been made to the opening balances of the earliest
comparative period, being 1 July 2015. Refer to Note 6: Income
Tax for further detail.
(f) New accounting standards
A number of new standards, amendments to standards and
interpretations are effective for future reporting periods. These have
not been applied in preparing this financial report. Those which
may be relevant to the Group are set out below. The Group does
not plan to adopt these standards early.
AASB 15: Revenue from Contracts with Customers (AASB 15)
AASB 15 outlines a single comprehensive model to use in accounting
for revenue arising from contracts with customers. Under AASB 15,
revenue is recognised at an amount that reflects the consideration
to which an entity expects to be entitled in exchange for transferring
goods or services to a customer. The principles in AASB 15 provide
a more structured approach to measuring and recognising revenue.
It is mandatory for the Group’s 30 June 2019 financial statements.
Work performed to date by the Group has focused on reviewing a
number of product sales and product support revenue contracts
within WesTrac Australia, given the operating segment accounts for
97 per cent of the consolidated revenue from continuing operations
for the year ended 30 June 2017. Based on contracts reviewed, the
impacts to the Group’s financial statements primarily relate to:
(i) training: currently, any customer training included in the sale of
a machine is recognised upfront as part of the initial sale. Under
AASB 15, the sale price element referable to training will be
deferred until the earlier of it being undertaken by the customer
or contractual expiration;
(ii) penalty costs: any penalty costs incurred by WesTrac Australia
due to the non-fulfilment of contractual targets, e.g. liquidated
damages due to customer equipment availability targets not
met will no longer be recognised as period costs. Rather,
they will be recognised as a reduction in revenue, effectively
representing a reclassification between line items in the profit
or loss; and
(iii) component life provisioning: currently this provision is
recognised as part of materials cost of inventory sold and
used in product sales and product support. Going forward,
the amount will be recognised as a reduction in revenue.
Based on the work performed thus far, the changes identified
above are not expected to have a material impact to the Group’s
consolidated financial statements. AASB 15 provides several
transition options for adoption. While the Group is still assessing its
transition options, it currently expects to adopt the modified transition
approach. Under this approach, the standard is applied only to those
contracts that exist at transition date, with the cumulative effect
of transition recognised in retained earnings. Furthermore, while
this approach does not require the restatement of comparatives,
additional quantitative information regarding each financial line item
impacted by the transition is required to be disclosed.
AASB 16: Leases (AASB 16)
AASB 16 removes the lease classification test for lessees and
requires all leases (including operating leases) to be brought
onto the balance sheet for lessees. The definition of a lease is
also amended and is now the new on/off balance sheet test for
lessees. It is mandatory for the Group’s 30 June 2020 financial
statements. The Group is yet to fully determine the effect of the
standard on the Group.
81
Annual Report 2017 (g) Critical accounting estimates and judgements
The preparation of financial statements requires that management
make estimates, judgements and assumptions that affect the
application of accounting policies and the reported amounts of
assets, liabilities, income and expenses. Actual results may differ
from these estimates. Estimates and underlying assumptions
are reviewed on an ongoing basis and are based on historical
experience and other factors, including expectations of future
events that may have a financial impact on the Group and that are
believed to be reasonable under the circumstances. Revisions to
accounting estimates are recognised in the period in which the
estimates are incorporated and in any future periods affected.
Significant areas of estimation, uncertainty and critical judgements
in applying accounting policies that have the most significant effect
on the amounts recognised in the financial statements are outlined
in the relevant note, except as detailed below.
Environmental risk and regulation
The Group and the industries in which it operates are subject to
a broad range of environmental laws, regulations and standards
(including certain licensing requirements). This could expose the
Group to legal liabilities or place limitations on the development
of its operations. In addition there is a risk that property utilised
by the Group from time to time may be contaminated by materials
harmful to human health (such as hazardous chemicals). In these
situations the Group may be required to undertake remedial
works on contaminated sites and may be exposed to third
party compensation claims and other environmental liabilities.
Management judgement is therefore required to estimate the
impact of such factors on future earnings supporting existing
goodwill and intangible assets.
2. OPERATING SEGMENTS
Recognition and measurement
Identification of reportable segments
The Group has identified its operating segments based on the internal reports that are reviewed and used by the executive management
team (the chief operating decision maker) in assessing performance and in determining the allocation of resources.
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur
expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. All operating
segments’ operating results are regularly reviewed by the Group’s executive management team and Board to make decisions about
resources to be allocated to the segment and to assess its performance.
Segment results that are reported to the executive management team and Board include items directly attributable to a segment as well
as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets, head office expenses and
income tax assets and liabilities.
Segment capital expenditure is the total cost incurred during the year to acquire property, plant and equipment, oil and natural gas assets
and intangible assets other than goodwill.
The Group’s WesTrac China segment is classified as held for sale at 30 June 2017. Accordingly the segment information reported does
not include any amounts for the discontinued operations. Refer to Note 32: Discontinued operations for further detail.
WesTrac Australia
WesTrac Australia is the authorised Caterpillar dealer (including Bucyrus/Expanded Mining Products) in
Western Australia, New South Wales and the Australian Capital Territory, providing heavy equipment sales
and support to customers.
AllightSykes
AllightSykes represents the Group’s operations in the manufacture, assembly, sales and support of lighting
towers, FG Wilson power generation and dewatering equipment as well as distribution of Perkins engines.
Coates Hire
Coates Hire represents the Group’s equity accounted investment in Coates Group Holdings Pty Limited.
Media investments
Energy
Coates Hire is Australia’s largest equipment hire company and provides a full range of general and
specialist equipment to a wide variety of markets including engineering, building construction and
maintenance, mining and resources, manufacturing, government and events.
Media investments relate to investments in listed and unlisted media organisations, including but not limited
to, Seven West Media Limited.
Energy relates to the Group’s 11.2 per cent working interest in the Bivins Ranch basin in Texas USA, the
Group’s wholly-owned interest in SGH Energy Pty Limited and the Group’s equity accounted investment
in Beach Energy Limited (Beach Energy).
Other investments
Other investments incorporates listed investments and property.
The Group is domiciled in Australia and operated predominantly in three countries: Australia, China and the United States of America.
82
Seven Group HoldingsNOTES TO THECONSOLIDATEDFINANCIALSTATEMENTS 2
.
7
3
2
,
2
3
.
2
8
2
,
2
–
5
.
6
2
3
4
.
8
4
3
–
)
0
.
3
3
(
)
4
.
0
3
(
5
.
3
9
2
0
.
8
1
3
–
–
0
.
0
9
0
.
1
2
1
–
)
4
.
0
(
4
.
8
2
1
)
4
.
8
4
(
)
9
.
1
3
(
0
.
8
9
9
5
.
6
3
1
,
1
–
–
–
9
.
1
6
7
,
3
2
.
7
5
6
,
2
3
.
1
7
6
9
.
9
5
7
,
4
7
.
3
9
7
,
3
3
.
1
7
6
)
6
.
3
6
6
(
)
6
.
7
8
4
(
)
5
.
7
3
1
(
–
–
–
–
–
–
–
–
–
–
–
l
a
t
o
T
)
(
c
a
n
h
C
i
l
a
t
o
T
s
t
n
e
m
t
s
e
v
n
i
y
g
r
e
n
E
)
(
b
s
t
n
e
m
t
s
e
v
n
i
e
r
i
H
s
e
t
a
o
C
)
a
(
s
e
k
y
S
t
h
g
i
l
l
A
)
a
(
a
i
l
a
r
t
s
u
A
d
e
u
n
i
t
n
o
c
s
D
i
s
n
o
i
t
a
r
e
p
o
i
g
n
u
n
i
t
n
o
C
s
n
o
i
t
a
r
e
p
o
c
a
r
T
s
e
W
r
e
h
t
O
i
a
d
e
M
c
a
r
T
s
e
W
m
$
6
1
0
2
m
$
7
1
0
2
m
$
6
1
0
2
m
$
7
1
0
2
m
$
6
1
0
2
m
$
7
1
0
2
m
$
6
1
0
2
m
$
7
1
0
2
m
$
6
1
0
2
m
$
7
1
0
2
m
$
6
1
0
2
m
$
7
1
0
2
m
$
6
1
0
2
m
$
7
1
0
2
m
$
6
1
0
2
m
$
7
1
0
2
m
$
6
1
0
2
m
$
7
1
0
2
2
.
7
3
2
,
2
3
.
2
8
2
,
2
8
.
1
1
3
.
5
7
.
5
6
.
4
–
–
–
–
7
.
9
6
.
7
8
6
.
0
0
5
1
2
,
.
7
3
0
2
2
,
5
.
6
2
3
4
.
8
4
3
6
.
0
4
9
.
6
3
7
.
0
8
7.
2
3
.
8
8
7
.
9
6
2
.
5
7
.
4
2
)
0
.
1
(
)
4
1
.
(
)
0
.
3
3
(
)
4
.
0
3
(
)
2
.
0
(
)
2
.
0
(
)
0
.
3
(
)
1
.
2
(
–
–
–
–
)
4
.
2
(
5
.
3
9
2
0
.
8
1
3
4
.
0
4
7
.
6
3
)
3
.
2
(
7
.
5
2
3
.
8
8
7
.
9
6
2
.
5
7
.
4
2
)
.
4
3
(
)
7
1
.
(
0
.
0
9
0
.
1
2
1
5
.
1
6
.
0
)
4
.
0
(
4
.
8
2
1
–
)
4
.
8
4
(
)
9
.
1
3
(
)
1
.
0
(
–
–
–
–
0
.
8
9
9
5
.
6
3
1
,
1
2
.
0
3
4
.
8
2
–
1
.
5
3
3
8
.
5
5
6
2
.
3
4
4
0
.
3
8
2
2
.
0
0
3
–
–
6
.
0
9
0
,
3
2
.
7
5
6
,
2
0
.
9
6
6
8
.
5
1
5
6
.
8
8
0
,
4
7
.
3
9
7
,
3
2
.
9
9
6
2
.
4
4
5
7
.
0
9
6
7
.
0
9
6
3
.
6
3
4
4
.
1
7
7
3
.
5
9
1
.
1
5
7
4
.
2
1
1
–
–
6
.
5
5
5
0
.
3
8
2
2
.
0
0
3
1
.
8
4
1
.
8
4
1
7.
3
.
1
7
3
–
)
4
.
0
(
4
.
8
2
1
–
–
–
–
–
)
0
.
8
1
(
)
5
.
1
1
(
–
–
)
4
2
.
(
)
.
6
0
(
)
.
8
9
1
(
3
.
8
2
0
.
5
8
3
.
8
6
7
.
3
2
.
3
2
–
.
e
r
i
H
s
e
t
a
o
C
n
i
t
s
e
r
e
t
n
i
s
’
p
u
o
r
G
e
h
t
o
t
e
u
d
e
r
i
H
s
e
t
a
o
C
o
t
s
e
a
s
l
f
o
n
o
i
t
a
n
m
i
i
l
e
e
h
t
o
t
n
o
i
t
a
e
r
l
n
i
d
e
c
u
d
e
r
n
e
e
b
e
v
a
h
e
v
o
b
a
s
t
l
u
s
e
r
t
n
e
m
g
e
s
s
e
k
y
S
t
h
g
i
l
l
A
d
n
a
a
i
l
a
r
t
s
u
A
c
a
r
T
s
e
W
.
e
m
o
c
n
i
i
e
v
s
n
e
h
e
r
p
m
o
c
r
e
h
t
o
h
g
u
o
r
h
t
d
e
u
a
v
l
r
i
a
f
s
t
e
s
s
a
l
i
a
c
n
a
n
fi
d
n
a
d
o
h
t
e
m
y
t
i
u
q
e
e
h
t
g
n
s
u
i
r
o
f
d
e
t
n
u
o
c
c
a
s
t
n
e
m
t
s
e
v
n
i
e
s
i
r
p
m
o
c
s
t
n
e
m
t
s
e
v
n
i
i
a
d
e
M
.
l
i
a
t
e
d
r
e
h
t
r
u
f
r
o
f
s
n
o
i
t
a
r
e
p
o
d
e
u
n
i
t
n
o
c
s
D
i
:
2
3
e
t
o
N
o
t
r
e
f
e
R
.
7
1
0
2
e
n
u
J
0
3
t
a
n
o
i
t
a
r
e
p
o
d
e
u
n
i
t
n
o
c
s
d
a
i
s
a
d
e
fi
s
s
a
c
l
i
n
e
e
b
s
a
h
t
n
e
m
g
e
s
i
a
n
h
C
c
a
r
T
s
e
W
e
h
T
.
s
m
e
t
i
t
n
a
c
fi
n
g
s
i
i
o
t
l
e
b
a
t
u
b
i
r
t
t
a
s
e
e
t
s
e
v
n
i
d
e
t
n
u
o
c
c
a
y
t
i
u
q
e
m
o
r
f
s
t
l
u
s
e
r
f
o
e
r
a
h
s
e
h
t
s
e
d
u
c
x
e
l
s
e
e
t
s
e
v
n
i
d
e
t
n
u
o
c
c
a
y
t
i
u
q
e
f
o
s
t
l
u
s
e
r
f
o
e
r
a
h
s
d
n
a
I
T
B
E
,
A
D
T
B
E
I
t
n
e
m
g
e
S
.
s
m
e
t
i
i
t
n
a
c
fi
n
g
s
d
n
a
i
x
a
t
e
m
o
c
n
i
,
e
s
n
e
p
x
e
e
c
n
a
n
fi
t
e
n
,
n
o
i
t
a
s
i
t
r
o
m
a
d
n
a
i
n
o
i
t
a
c
e
r
p
e
d
e
r
o
f
e
b
t
fi
o
r
p
s
e
s
i
r
p
m
o
c
A
D
T
B
E
I
t
n
e
m
g
e
S
.
s
m
e
t
i
i
t
n
a
c
fi
n
g
s
d
n
a
i
x
a
t
e
m
o
c
n
i
,
e
s
n
e
p
x
e
e
c
n
a
n
fi
t
e
n
e
r
o
f
e
b
t
fi
o
r
p
s
e
s
i
r
p
m
o
c
I
T
B
E
t
n
e
m
g
e
S
)
a
(
)
b
(
)
c
(
)
d
(
)
e
(
)
f
(
)
1
.
6
2
5
(
)
6
.
7
8
4
(
)
8
.
9
1
(
)
0
.
8
1
(
)
4
.
9
5
(
)
0
.
9
5
(
)
1
.
0
(
–
–
–
)
4
.
1
1
(
)
.
5
3
1
(
)
.
4
5
3
4
(
)
.
1
7
9
3
(
s
e
i
t
i
l
i
b
a
i
l
t
n
e
m
g
e
S
.
s
m
e
t
i
t
n
a
c
fi
n
g
s
i
i
n
o
s
l
i
a
t
e
d
r
e
h
t
r
u
f
r
o
f
s
m
e
t
I
t
n
a
c
fi
n
g
S
i
i
:
3
e
t
o
N
o
t
r
e
f
e
R
83
)
.
1
3
(
.
3
5
6
1
.
3
4
6
1
–
–
)
2
0
.
(
.
6
0
–
–
.
7
2
9
1
.
7
0
9
1
)
4
7.
2
(
)
.
4
6
2
(
)
9
7.
2
(
.
0
9
2
5
7.
8
5
1
,
.
5
6
1
6
1
,
.
2
5
8
5
1
,
.
6
5
5
5
1
,
e
u
n
e
v
e
r
t
n
e
m
g
e
S
l
a
n
r
e
t
x
e
o
t
l
s
e
a
S
s
r
e
m
o
t
s
u
c
,
x
a
t
,
t
s
e
r
e
t
n
i
e
r
o
e
b
f
i
s
g
n
n
r
a
e
t
n
e
m
g
e
S
d
n
a
i
n
o
i
t
a
c
e
r
p
e
d
t
l
u
s
e
r
t
n
e
m
g
e
S
)
d
(
)
A
D
T
B
E
I
(
n
o
i
t
a
s
i
t
r
o
m
a
i
s
g
n
n
r
a
e
t
n
e
m
g
e
S
d
n
a
t
s
e
r
e
t
n
i
e
r
o
f
e
b
)
e
(
)
I
T
B
E
(
x
a
t
d
n
a
i
n
o
i
t
a
c
e
r
p
e
D
n
o
i
t
a
s
i
t
r
o
m
a
n
i
d
e
d
u
c
n
l
i
s
e
e
t
s
e
v
n
i
f
o
s
t
l
u
s
e
r
f
o
e
r
a
h
S
d
e
t
n
u
o
c
c
a
y
t
i
u
q
e
t
n
e
m
g
e
s
r
e
h
t
O
n
o
i
t
a
m
r
o
f
n
i
i
g
n
d
u
c
x
e
l
(
I
T
B
E
t
n
e
m
g
e
s
)
f
(
)
s
m
e
t
i
t
n
a
c
fi
n
g
s
i
i
s
t
e
s
s
a
f
o
)
t
n
e
m
r
i
a
p
m
i
(
/
l
a
s
r
e
v
e
r
t
n
e
m
r
i
a
p
m
I
e
r
u
t
i
d
n
e
p
x
e
l
a
t
i
p
a
C
s
t
e
s
s
a
t
n
e
m
g
e
s
r
e
h
t
O
y
t
i
u
q
e
e
h
t
g
n
s
u
i
r
o
f
d
o
h
t
e
m
s
t
e
s
s
a
t
n
e
m
g
e
S
.
6
9
2
d
e
t
n
u
o
c
c
a
s
t
n
e
m
t
s
e
v
n
I
Annual Report 2017
2. OPERATING SEGMENTS (CONTINUED)
Reconciliation of segment EBIT to net profit before tax
per consolidated income statement
Segment net operating profit before net finance expense and tax (EBIT)
Corporate operating costs
Gain on sale of investments and equity accounted investees
Share of significant items relating to results from equity accounted investees
Fair value movement of derivatives
Impairment reversal/(impairment) of equity accounted investees
Restructuring and redundancy costs
Loss on sale of investments and derivative financial instruments
Other significant items
Net finance expense
Profit before income tax per consolidated income statement
Reconciliation of segment operating assets to total assets
per consolidated statement of financial position
Segment operating assets
Corporate cash holdings
Deferred tax assets
Derivative financial instruments
Assets held at corporate level
Assets held for sale – discontinued operations (WesTrac China)
Total assets per consolidated statement of financial position
Reconciliation of segment operating liabilities to total liabilities
per consolidated statement of financial position
Segment operating liabilities
Derivative financial instruments
Interest bearing loans and borrowings – current
Interest bearing loans and borrowings – non-current
Current tax liability
Deferred tax liabilities
Liabilities held at corporate level
Liabilities held for sale – discontinued operations (WesTrac China)
Total liabilities per consolidated statement of financial position
Segment revenue by geographic segment
Australia
United States of America
Total segment revenue by geographic segment
2017
$m
2016
$m
318.0
(20.8)
1.9
(303.3)
1.9
128.4
(4.8)
(4.0)
2.5
(76.5)
43.3
3,793.7
172.5
0.2
133.8
4.4
731.4
4,836.0
(487.6)
(74.5)
(40.7)
(1,439.9)
(0.6)
(122.6)
(56.9)
(188.0)
(2,410.8)
293.5
(22.0)
7.9
1.0
4.2
(0.4)
(7.3)
(9.1)
8.6
(85.7)
190.7
4,759.9
366.8
6.4
186.1
11.7
–
5,330.9
(663.6)
(25.2)
(220.1)
(1,514.2)
(9.9)
(125.9)
(73.8)
–
(2,632.7)
2,277.7
4.6
2,282.3
2,231.5
5.7
2,237.2
Segment revenues are allocated based on the country in which the customer is located. The Energy segment includes revenue derived
from the United States of America of $4.6 million (2016: $5.7 million) with no revenue derived in Australia in the current year or prior year.
Non-current assets by geographic segment
Australia
China
United States of America
Total non-current assets by geographic segment
955.8
–
101.8
1,057.6
940.1
339.0
105.3
1,384.4
Non-current assets other than financial instruments and deferred tax assets (there are no employment benefit assets and rights arising
under insurance contracts) is outlined above. Segment assets are allocated to countries based on where the assets are located.
84
Seven Group HoldingsNOTES TO THECONSOLIDATEDFINANCIALSTATEMENTS 3. SIGNIFICANT ITEMS
Profit before tax includes the following income and expenses for which disclosure is relevant in explaining the underlying financial
performance of the Group.
Continuing operations
Net gain on sale of investments and equity accounted investees
Impairment reversal/(impairment) of equity accounted investee
Share of results from equity accounted investees attributable to significant items
Loss on sale of derivative financial instruments
Fair value movement of derivative financial instruments
Restructuring and redundancy costs
Significant items in finance income
Acquisition transaction costs incurred
Significant items in other income
Total significant items before income tax
Remeasurement of tax exposures
Income tax benefit/(expense) on significant items
Total significant items – continuing operations
Discontinued operations
Fair value movement of derivative financial instruments
Restructuring and redundancy costs
Total significant items before income tax
Income tax (expense)/benefit on significant items
Total significant items – discontinued operations
2017
$m
1.9
128.4
(303.3)
(4.0)
1.9
(4.8)
4.8
–
2.5
(172.6)
–
1.9
(170.7)
2.1
–
2.1
(0.6)
1.5
2016
$m
7.9
(0.4)
1.0
(9.1)
4.2
(7.3)
–
(0.7)
9.3
4.9
10.0
(0.3)
14.6
1.0
(2.5)
(1.5)
0.5
(1.0)
Net gain on sale of investments and equity accounted investees relates to the net profit realised on the disposal of an investment, and in
the prior year, the sale of stage four the Kings Square property development in Perth, Western Australia.
Impairment reversal/(impairment) of equity accounted investee relates to the impairment reversal of the Group’s investment in the ordinary
equity of Seven West Media Limited. Refer also to Note 11: Investments Accounted for Using the Equity Method.
Share of results from equity accounted investees attributable to significant items relates to the Group’s share of significant items included
in the results of equity accounted investees, such as the gain on sale of properties and assets, restructuring and redundancy costs and
onerous contracts.
Loss on sale of derivative financial instruments relates to the loss on unwind of equity derivative positions.
Fair value movement of derivative financial instruments relates to the Group’s mark-to-market of cash-settled equity derivatives which are
not part of a designated hedge.
Restructuring and redundancy costs relate to the restructuring programs undertaken by Group subsidiaries.
Significant items in finance income comprises interest received on a one-off legal settlement.
Acquisition transaction costs incurred relates to acquisition costs incurred for one-off transactions in the prior year.
Significant items in other income relates to a one-off legal settlement received, and in the prior year, leasing bonuses received on
property developments.
Remeasurement of tax exposures relates to the release of a provision for tax uncertainty due to the resolution of audits and reviews by
internal revenue authorities in the prior year.
85
Annual Report 2017 4. REVENUE AND EXPENDITURE
Accounting policy
Revenues are recognised at the fair value of the consideration received or receivable, net of goods and services tax (GST). Amounts
disclosed as revenue are net of returns, trade allowances and amounts collected on behalf of third parties. Sales revenue comprises
revenue earned from the provision of goods and services to entities outside of the Group.
The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that the future economic benefits will
flow to the entity and specific criteria have been met for each of the Group’s activities as described below. The amount of revenue is not
considered to be reliably measurable until all contingencies relating to the sale have been resolved. The Group bases its estimates on
historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.
Revenue from product sales Revenue from product sales is recognised upon the delivery of goods to customers:
Revenue from product
support
Maintenance and repair
contracts (MARC)
• when risks and rewards have been transferred which is considered to occur upon the delivery of goods
to the customers; and
there is no significant unfulfilled obligation that could affect the customer’s acceptance of the products.
•
Revenue from product support is recognised in the accounting period in which the services are rendered.
For fixed price contracts, revenue is recognised under the percentage of completion method, based on the
actual services provided as a proportion of the total services to be provided.
Contract revenues and expenses are recognised in accordance with the percentage of (MARC) completion
method unless the outcome of the contract cannot be reliably estimated. Where it is probable that a loss
will arise from a MARC, the excess of total expected contract costs over total directly attributable expected
contract revenue is recognised as an expense immediately. Where the outcome of a contract cannot be
reliably estimated, contract costs are recognised as an expense as incurred, and where it is probable that
the costs will be recovered, revenue is recognised to the extent of the costs incurred. MARC is included in
product support revenue.
Revenue from sale of oil,
gas and condensate
Oil and gas sales are recognised on production following delivery into the pipeline. Revenue derived from
the sale of condensate is brought to account after each shipment is loaded.
Other revenue
Other income
Other revenue is recognised when all performance obligations are met, including when a contractual entitlement
exists, it can be reliably measured and it is probable that the economic benefits will flow to the Group.
Other income comprises sundry income and is earned when goods and services are rendered. Dividend
income is recognised net of any franking credits. Dividend income is recognised when the Group’s right to
receive payment is established, which in the case of quoted securities is the ex-dividend date.
Critical accounting estimates and judgements
Revenue recognition –
MARC
Contract revenues and expenses are recognised by reference to the percentage of completion method
for each identifiable component. In determining revenue and expense for MARC, management makes
assumptions and estimates regarding the work performed to date as a percentage of the total work
to be performed and estimated revenues and expenses over the life of the contract. Where contract
variations are recognised in revenue, assumptions are made regarding the probability that customers
will approve those contract variations and the amount of revenue arising from contract variations
86
Seven Group HoldingsNOTES TO THECONSOLIDATEDFINANCIALSTATEMENTS Continuing operations
Revenue
Revenue from product sales
Revenue from product support
Revenue from sale of oil, gas and condensate
Other revenue
Total revenue
Expenditure excluding depreciation and amortisation
Materials cost of inventory sold and used in product sales and product support
Employee benefits
Operating lease rental
Loss on sale of investments and derivative financial instruments
Other expenses
Total expenses excluding depreciation and amortisation
2017
$m
2016
$m
578.1
1,694.2
4.6
5.4
2,282.3
(1,494.9)
(432.1)
(58.2)
(4.0)
(146.9)
(2,136.1)
732.6
1,480.8
5.7
18.1
2,237.2
(1,441.0)
(451.4)
(61.2)
(9.1)
(146.5)
(2,109.2)
5. NET FINANCE EXPENSE
Accounting policy
Net finance expense comprises interest payable on borrowings calculated using the effective interest method, unwinding of discount on
provisions and deferred consideration and interest receivable on funds invested.
Interest income and interest expense include components of finance lease payments which are recognised in profit or loss as they accrue
using the effective interest method. Interest expense also includes the net fair value adjustment for cash-settled share-based payments.
Continuing operations
Finance income
Interest income on bank deposits
Other
Total finance income
Finance expense
Interest expense
Borrowing costs
Unwind of discount on provisions
Total finance expense
Net finance expense
2017
$m
2016
$m
3.8
4.9
8.7
(77.3)
(5.4)
(2.5)
(85.2)
(76.5)
4.6
–
4.6
(82.4)
(5.5)
(2.4)
(90.3)
(85.7)
Other finance income includes $4.8 million in relation to interest received on a legal settlement. This amount is disclosed as a significant
item. Interest expense includes $5.2 million in relation to the fair value movement for cash settled share appreciation rights.
87
Annual Report 2017 6. INCOME TAX
Accounting policy
Income tax expense comprises current and deferred tax expense. Income tax expense is recognised in profit or loss except to the extent
that it relates to a business combination, or items recognised directly in equity or in other comprehensive income. Current tax expense for
the period is the expected tax payable on the current period’s taxable income based on the enacted or substantively enacted income tax
rate for each jurisdiction adjusted by changes to tax payable in respect of previous years.
Deferred income tax is recognised on temporary differences arising between the expected tax bases of assets and liabilities and their
carrying amounts in the financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an
asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable
profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the reporting
date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax assets and liabilities and when they
relate to income taxes levied by the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally
enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
Tax exposures
In determining the amount of current and deferred tax the Group takes into account the impact of uncertain tax positions and whether
additional taxes and interest may be due. This assessment relies on estimates and assumptions and may involve a series of judgements
about future events. New information may become available that causes the Group to change its judgement regarding the adequacy of
existing tax liabilities that will impact tax expense in the period if such a determination is made.
The Company, its wholly-owned Australian resident entities and Coates Hire are part of a tax-consolidated group. As a consequence,
all members of the tax-consolidated group are taxed as a single entity. The head entity within the tax-consolidated group is Seven Group
Holdings Limited.
Change in accounting policy
Following clarification by the IFRS Interpretations Committee with respect to the recognition of deferred tax liabilities for indefinite life
intangible assets the Group will now recognise deferred tax on indefinite life intangible assets to reflect the expected manner of recovery
of the carrying amount of the asset through use rather than sale, where there is no intention to sell.
As a result of the change in accounting policy, deferred tax has been recognised for WesTrac Australia’s Caterpillar distribution network
and Sitech WA and NSW Loadrite and Lincoln distribution network. An additional deferred tax liability of $96.4 million has been
recognised as an adjustment to the opening balance of the comparative period. The corresponding adjustment is an $85.0 million
increase in goodwill and $11.4 million reduction in opening retained earnings at 1 July 2015 due to a portion of the WTA Caterpillar
distribution network relating to pre-IFRS transition.
Critical accounting estimate and judgement
The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Judgement is required in
determining the provision for income taxes and the tax cost base of assets and liabilities.
Management judgement is also applied in assessing the recoverability of revenue and capital losses recognised as deferred tax
assets by the Group. Deferred tax assets have been recognised for deductible temporary differences and unused tax losses only if
it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets are
reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases
of investments in controlled entities and 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.
There are many transactions and calculations undertaken for which the ultimate tax determination is uncertain. Assumptions are
made about the application of income tax legislation. These assumptions are subject to risk and uncertainty and there is a possibility
that changes in circumstances will alter expectations which may impact the amount of deferred tax assets, liabilities and provision
for income taxes recorded in the statement of financial position. In these circumstances the carrying amount of deferred tax assets,
liabilities and provision for income taxes may change impacting the profit or loss of the Group.
88
Seven Group HoldingsNOTES TO THECONSOLIDATEDFINANCIALSTATEMENTS Note
2017
$m
2016
$m
Continuing operations
Income tax expense
Current tax expense
Deferred tax expense
Deferred tax expense – impact of de-recognition of deferred taxes
Adjustment for prior years – non-temporary differences
Total income tax expense
Reconciliation between tax expense and pre-tax statutory profit:
Income tax using the domestic corporation tax rate 30%
Recognition of deferred tax asset on capital and revenue losses, not previously recognised
Franked dividends
Share of equity accounted investee’s net profit
Remeasurement of tax exposures
Provisional settlement of Hong Kong Inland Revenue Department tax matter
Non-assessable income
Non-deductible expenses
De-recognition of deferred tax assets
Over provided in prior years
Difference in overseas tax rates
Income tax expense
Deferred income tax recognised in other comprehensive income
Relating to financial assets at fair value through other comprehensive income
Relating to cash flow hedge reserve
Total deferred income tax recognised directly in equity
24
24
Discontinued operations
Income tax expense
Current tax expense
Deferred tax expense
Adjustment for prior years – non-temporary differences
Total income tax expense
Reconciliation between tax expense and pre-tax statutory profit:
Income tax using the domestic corporation tax rate 30%
Recognition of deferred tax asset on capital and revenue losses, not previously recognised
Non-deductible expenses
Over provided in prior years
Difference in overseas tax rates
Income tax expense
28.2
(7.0)
(53.6)
5.5
(26.9)
(13.0)
–
22.8
12.0
–
–
0.5
(1.1)
(53.6)
5.5
–
(26.9)
33.6
28.8
62.4
(8.5)
2.2
0.1
(6.2)
(10.8)
5.4
(1.8)
0.1
0.9
(6.2)
(15.6)
(4.6)
–
13.5
(6.7)
(57.0)
3.4
27.6
(1.8)
10.0
(6.1)
4.1
(0.9)
–
13.1
0.9
(6.7)
67.7
(9.6)
58.1
(4.0)
(2.8)
(5.7)
(12.5)
(8.1)
(1.7)
(0.6)
(5.7)
3.6
(12.5)
89
Annual Report 2017 6. INCOME TAX (CONTINUED)
Continuing operations
Deferred tax assets and liabilities
Year ended 30 June 2017
Investments
Derivative financial instruments
Inventories and receivables
Property, plant and equipment
Intangible assets
Trade and other payables
Provisions
Tax losses
Transaction costs deducted over five years
Other
Deferred tax – discontinued operations
Net deferred tax liability
Deferred tax asset
Deferred tax liability
Net deferred tax liability
Year ended 30 June 2016
Investments
Derivative financial instruments
Inventories and receivables
Property, plant and equipment
Intangible assets
Trade and other payables
Provisions
Tax losses
Transaction costs deducted over five years
Other
Net deferred tax liability
Deferred tax asset
Deferred tax liability
Net deferred tax liability
Opening
balance
$m
Recognised
in profit
$m
Recognised
in OCI
$m
Other
$m
Closing
balance
$m
(104.9)
1.2
2.4
(28.3)
(96.4)
46.7
20.4
39.0
0.4
(6.0)
6.0
(119.5)
(149.8)
(5.3)
15.6
(17.0)
(96.4)
40.4
17.6
18.2
1.1
(10.2)
(185.8)
44.7
(20.8)
(2.8)
(12.2)
–
(8.2)
4.3
(19.8)
(0.2)
8.0
–
(7.0)
(8.7)
16.1
(13.2)
(11.3)
–
12.3
2.8
(8.9)
(0.7)
4.2
(7.4)
33.6
28.8
–
–
–
–
–
–
–
–
–
62.4
53.6
(9.6)
–
–
–
–
–
14.1
–
–
58.1
(53.6)
–
–
–
–
0.6
–
–
–
0.7
(6.0)
(58.3)
–
–
–
–
–
–
–
15.6
–
–
15.6
(80.2)
9.2
(0.4)
(40.5)
(96.4)
39.1
24.7
19.2
0.2
2.7
–
(122.4)
0.2
(122.6)
(122.4)
(104.9)
1.2
2.4
(28.3)
(96.4)
52.7
20.4
39.0
0.4
(6.0)
(119.5)
6.4
(125.9)
(119.5)
As at 30 June 2017, the Group had not recognised:
• deferred tax assets of $265.4 million (2016: $115.3 million) for deductible temporary differences relating to unrealised tax benefits as
it is not probable that future gains will be realised against which it could utilise the benefits;
• deferred tax asset of $357.8 million (2016: $311.0 million) for deductible temporary differences relating to Petroleum Resource Rent
Tax credits;
• deferred tax assets of $26.7 million (2016: $22.9 million) for foreign tax losses; and
• deferred tax liabilities of $6.7 million (2016: $6.0 million) in respect of assessable temporary differences in relation to investments
where management controls the timing of the reversal of the temporary difference and the temporary difference is not expected to
reverse in the foreseeable future.
90
Seven Group HoldingsNOTES TO THECONSOLIDATEDFINANCIALSTATEMENTS 7. EARNINGS PER SHARE
Accounting policy
Basic earnings per share (EPS) is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the
weighted average number of ordinary shares outstanding during the year. Diluted EPS is determined by adjusting the profit or loss
attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive
potential ordinary shares.
Underlying earnings per share from continuing operations is statutory earnings per share adjusted for significant items. The weighted
average number of shares used to calculate underlying earnings per share is the same as the weighted average number of shares used
to calculate statutory earnings per share.
Profit or loss attributable to ordinary shareholders is stated after allocation of the portion of profit or loss attributable to holders of TELYS4.
Statutory earnings per share
Basic
From continuing operations
From discontinued operations
Total basic earnings per share
Diluted
From continuing operations
From discontinued operations
Total diluted earnings per share
Earnings reconciliation by category of share
Ordinary shares
TELYS4
Net profit attributable to equity holders of the Company
Weighted average number of shares
Ordinary shares for basic earnings per share
Issued shares as at 1 July
Shares bought back and cancelled (a)
Issued shares as at 30 June
Weighted average number of shares (basic and diluted) as at 30 June (b)
TELYS4
Issued shares at as 1 July
Issued shares as at 30 June
Weighted average number of shares (basic and diluted) as at 30 June
(a) refer to Note 24: Capital and Reserves for details of shares bought back and cancelled.
(b) weighted average number of shares adjusted for effect of treasury shares and dilutive shares held.
There were 1.0m options that were exercisable, dilutive or anti-dilutive in the current year (2016: nil).
2017
$
2016
$
(0.03)
0.10
0.07
(0.03)
0.10
0.07
2017
$m
20.9
23.6
44.5
0.55
0.05
0.60
0.55
0.05
0.60
2016
$m
172.2
24.6
196.8
2017
Million
2016
Million
281.2
–
281.2
282.2
5.0
5.0
5.0
296.2
(15.0)
281.2
285.7
5.0
5.0
5.0
91
Annual Report 2017 7. EARNINGS PER SHARE (CONTINUED)
Underlying earnings per share (non-IFRS measure)
Basic
From continuing operations
From discontinued operations
Total basic underlying earnings per share
Diluted
From continuing operations
From discontinued operations
Total diluted underlying earnings per share
2017
$
2016
$
0.57
0.10
0.67
0.57
0.10
0.67
0.51
0.05
0.56
0.51
0.05
0.56
Underlying earnings per share from continuing and discontinued operations is a non-IFRS measure and is reconciled to statutory profit or
loss as follows:
Underlying earnings reconciliation by category of share
Net profit attributable to equity holders of the Company
Add/(less): significant items (refer Note 3)
Underlying net profit attributable to equity holders of the Company
Allocated underlying earnings to category of share
Ordinary shares
TELYS4
Net underlying earnings attributable to equity holders of the Company
2017
$m
44.5
169.2
213.7
190.1
23.6
213.7
2016
$m
196.8
(13.6)
183.2
158.6
24.6
183.2
8. TRADE AND OTHER RECEIVABLES
Accounting policy
Trade receivables are generally due for settlement no more than 30 days from the date of recognition with the exception of some
receivables from State Owned Enterprises in China and WesTrac Australia customers with alternative settlement terms.
The Group has an established credit policy under which new customers are analysed individually for creditworthiness before the Group’s
standard payment, delivery terms and conditions are offered. The Group’s review includes external ratings, when available. Purchase
limits are established for each customer and these limits are reviewed annually or upon request. Customers that fail to meet the Group’s
benchmark creditworthiness may transact with the Group upon lodging of a bank guarantee as a security document or on a strictly
pre-paid (cleared funds) only basis.
Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off. Under the
expected credit loss model, an impairment provision for receivables is established based on the expected credit losses over the lifetime
of expected credit losses for the financial asset. The calculation of expected credit loss considers the impact of past events and exercises
judgement over the impact of current and future economic conditions. The amount of the provision is recognised in profit or loss as the
difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective
interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial.
Trade receivables
Provision for impairment losses
Collateral provided
Other receivables
Total trade and other receivables
(a) certain balances have been restated due to management reassessment. Refer to Note 1 for further information.
2017
$m
300.4
(3.8)
–
39.9
336.5
2016(a)
$m
492.1
(17.7)
3.1
76.9
554.4
92
Seven Group HoldingsNOTES TO THECONSOLIDATEDFINANCIALSTATEMENTS Collateral provided related to cash collateral in respect of equity derivative positions.
The creation and release of the provision for impaired receivables has been included in other expenses in profit or loss. Due to the short
term nature of these receivables their carrying value is assumed to approximate their fair value.
The Group’s and the Company’s exposure to credit risk is predominately in Australia and China. The Group’s exposure to credit risk and
impairment losses related to trade receivables is outlined below.
Past due but not impaired
The following trade receivables were past due but not impaired. These relate to a number of independent customers for whom there is no
recent history of default. The ageing analysis of these trade receivables is as follows:
Past due 1–30 days
Past due 31–60 days
Past due 61–90 days
> 91 days
Total trade receivables past due but not impaired
The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
Balance at beginning of the year
Impairment loss recognised in profit or loss
Receivables expensed as uncollectable during the year
Impact of transition – AASB 9: Financial Instruments(a)
Transfer to assets held for sale
Exchange differences
Balance at end of the year
2017
$m
62.0
9.3
3.4
10.6
85.3
2017
$m
17.7
6.7
(1.4)
–
(18.0)
(1.2)
3.8
2016
$m
68.6
14.0
14.0
15.8
112.4
2016
$m
2.7
11.1
(2.0)
6.2
–
(0.3)
17.7
(a) reflects an opening balance adjustment resulting from the adoption of AASB 9: Financial Instruments (2014).
9. TRADE AND OTHER PAYABLES
Accounting policy
Trade payables are carried at amortised cost and represent liabilities for goods and services provided to the Group prior to the end of the
year which are unpaid. The amounts are unsecured and are usually paid within normal trading terms.
Current
Trade payables
Other payables
Accruals
Cash settled share appreciation rights
Payable to equity accounted investee
Total trade and other payables – current
Non-current
Cash settled share based payments
Total other payables – non-current
2017
$m
112.8
24.5
132.9
3.7
14.7
288.6
0.9
0.9
2016(a)
$m
122.3
58.5
127.6
–
38.6
347.0
0.4
0.4
(a) certain balances have been restated due to management reassessment. Refer to Note 1 for further information.
The Group’s trade and other payables (excluding accruals) are due to mature within one year. Due to the short term nature of these
payables their carrying value is assumed to approximate their fair value.
The Company has entered into a Deed of Cross Guarantee with certain subsidiaries as described in Note 30: Controlled Entities. Under the
terms of the Deed, the Company has guaranteed the repayment of all current and future creditors in the event that any of the entities party to
the Deed are wound up. Details of the consolidated financial position of the Company and parties to the Deed are set out in Note 30.
93
Annual Report 2017 10. INVENTORIES
Accounting policy
Inventories are measured at the lower of cost and net realisable value.
Cost is based on the actual costs, with the exception of exchange component inventory and parts inventory for which cost is based
on weighted average cost, and includes expenditure incurred in acquiring the inventories and bringing them to their existing condition
and location. Net realisable value is determined on the basis of the Group’s normal selling pattern. Expenses for marketing, selling and
distribution to customers are estimated and are deducted to establish net realisable value.
Critical accounting estimate and judgement
Management is required to make judgements regarding writedowns to determine the net realisable value of inventory. These
writedowns consider factors such as the age and condition of goods as well as recent market data to assess the estimated future
demand for the goods.
Raw materials – at cost
Work-in-progress – at cost
Finished goods
– at cost
– at net realisable value
Total finished goods
Total inventories
2017
$m
20.0
56.0
563.9
14.8
578.7
654.7
2016 (a)
$m
25.3
63.3
664.6
78.1
742.7
831.3
(a) certain balances have been restated due to management reassessment. Refer to Note 1 for further information.
Work-in-progress includes $11.4 million (2016: $12.0 million) in relation to the development of residential properties at Seven Hills,
Western Australia.
11. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD
Accounting policy
Investments accounted for using the equity method comprise investments in associates and joint ventures (equity accounted investees).
Investments in equity accounted investees are initially recognised at cost and subsequently accounted for using the equity method.
Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating
policies. Significant influence generally exists when the Group holds between 20 and 50 per cent of the voting rights of another entity,
unless it can be clearly demonstrated that this is not the case.
Joint ventures are those entities over whose activities the Group has joint control and rights to the net assets of the arrangement, rather
than rights to the assets and obligations for its liabilities.
The Group’s investments includes goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated
financial statements include the Group’s share of post acquisition income and expenses and equity movements of equity accounted
investees, after adjustments to align the accounting policies with those of the Group. Adjustments to the entity’s share of the equity
accounted investees’ profit or loss after acquisition are made in order to account for any reversals of pre-acquisition impairment
provisions recognised by the investee. When the Group’s share of losses equals or exceeds its interest in an equity accounted investee,
the carrying amount of that interest, including any long-term investments, is reduced to nil, and the recognition of further losses is
discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee.
Dividends received or receivable from equity accounted investees are recognised as a reduction in the carrying amount of the investment.
Unrealised gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the
Group’s interest in that investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there
is no evidence of impairment.
94
Seven Group HoldingsNOTES TO THECONSOLIDATEDFINANCIALSTATEMENTS Critical accounting estimate and judgements
Control, joint control or significant influence
Significant judgement and assumptions are made in determining whether an entity has control, joint control or significant influence
over another entity and the type of the joint arrangement. In considering the classification, management considers whether control,
significant influence or joint control exists, the nature and structure of the relationship and other facts and circumstances.
Beach Energy Limited (Beach Energy)
The Group holds a 22.7 per cent interest in Beach Energy and has classified its investment as an associate from 20 July 2016
following the appointment of Mr R Stokes, SGH Managing Director & Chief Executive Officer, to the board of Beach Energy.
The Group now has the ability to significantly influence, but not control or jointly control, the financial and operating decisions of
Beach Energy through its investment and board representation. In the prior year, management assessed that the Group did not
significantly influence Beach Energy and accordingly the Group’s investment was recorded as a financial asset at fair value through
other comprehensive income.
Seven West Media Limited (Seven West Media)
The Group has classified its investment in Seven West Media as an associate as the Group, through its 41.0 per cent
(2016: 41.0 per cent) ownership interest and equivalent voting rights has the ability to significantly influence, but not control or jointly
control the financial and operating policy decisions of Seven West Media. Given the 41.0 per cent ownership interest, management
continue to assess that the Group has significant influence, but not control, over Seven West Media. Significant uncertainty exists
in determining whether the Group’s Key Management Personnel exerts de facto control over the significant operational decisions of
Seven West Media. Given the historical level of non-SGH related vote participation at AGMs and its majority independent board (the
Group only has 3 out of 10 directors), the Group does not control Seven West Media and is therefore not required to consolidate
Seven West Media at 30 June 2017.
Coates Group Holdings Pty Limited (Coates Hire)
National Hire Group Limited (National Hire) a wholly-owned Group subsidiary, and The Carlyle Group (Carlyle) own Coates Group Holdings
Pty Limited. Under the investment deed, equal control rights are conferred to National Hire and Carlyle. As the Group has joint
control and Coates Hire is a separate entity in which the Group has an interest in the residual net assets, the Group’s investment
in Coates Hire is classified as a joint venture. Although the Group’s voting rights in Coates Hire is 50 per cent, the Group has
determined its economic interest to be 46.5 per cent (2016: 46.5 per cent) after considering vesting conditions for options issued
under Coates Hire’s Management Equity Plan.
Impairment of investments accounted for using the equity method
In accordance with AASB 136: Impairment of Assets, the recoverable amount of assets is the greater of its value-in-use and its fair
value less cost of disposal. In the absence of quoted market prices, an asset’s value-in-use is calculated by estimating the present
value of future cash flows using an asset specific discount rate. These calculations also require the use of assumptions regarding
profit margins, growth rates and discount rates.
In determining the amount of impairment for equity accounted investees that are listed, management has made judgements in
identifying financial assets that are impaired due to industry factors or whose decline in fair value below original cost is considered
significant or prolonged. A significant decline is assessed based on the percentage decline from acquisition cost of the share, while
a prolonged decline is based on the length of the time over which the share price has been depressed below cost. Management
considers a decline of 30 per cent to be significant and a period of 12 months to be prolonged.
95
Annual Report 2017 11. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (CONTINUED)
Investee
Principal activities
Country of
incorporation
Balance
date
2017
%
2016
%
OWNERSHIP
INTEREST
Associates
Beach Energy Limited(a)
Energy Power Systems Australia Pty Ltd
Impulse Screen Media Pty Ltd (b)
iSeekplant Pty Ltd (c)
Mo’s Mobiles Pty Limited
Premier Capital Developments Pty Limited
Revy Investments Pty Limited (d)
Revy Investment Trust(d)
Seven West Media Limited
Joint ventures
Coates Group Holdings Pty Limited (e)
Flagship Property Holdings Pty Limited
Kings Square Pty Ltd
Kings Square No. 4 Unit Trust
Oil and gas exploration,
development, production
Distribution and rental of CAT
engine products
Technology
Online services
Mobile phone retailer
Property management
Property management
Property management
Media
Rental services
Property management
Property development
Property development
Australia
30 Jun
22.7%
–
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
30 Jun
30 Jun
30 Jun
30 Jun
30 Jun
30 Jun
30 Jun
24 Jun
30 Jun
31 Dec
30 Jun
30 Jun
40.0%
28.0%
22.8%
25.0%
25.0%
25.0%
25.0%
41.0%
46.5%
47.3%
50.0%
50.0%
40.0%
–
10.0%
25.0%
25.0%
25.0%
25.0%
41.0%
46.5%
47.3%
50.0%
50.0%
(a) effective 1 April 2017, the Group’s interest in Beach Energy Limited reduced from 22.9 per cent to 22.7 per cent as a result of an increase in Beach Energy’s
issued shares from their Dividend Reinvestment Plan (DRP). In the prior year, the Group held a 22.9 per cent interest in Beach Energy but did not have the ability
to significantly influence Beach Energy.
(b) on 18 November 2016, the Group acquired a 28.0 per cent interest in Impulse Screen Media Pty Limited with a further 6.8 per cent held via related parties.
(c) the Group’s investment in iSeekplant Pty Limited (iSeekplant) increased to 22.8 per cent following further investment during the year.
(d) this entity is being deregistered.
(e) the Group has determined its economic interest in Coates Group Holdings Pty Limited to be 46.5 per cent after the vesting of options issued under Coates Hire’s
Management Equity Plan.
The country of incorporation of the above associates and joint ventures is also their principal place of business.
Investments in associates
Beach Energy Limited
Seven West Media Limited
Individually immaterial associates
Investments in joint ventures
Coates Group Holdings Pty Limited
Individually immaterial joint ventures
Total investments accounted for using the equity method
2017
$m
335.1
442.4
32.6
300.2
26.2
1,136.5
2016
$m
–
655.8
33.5
283.0
25.7
998.0
96
Seven Group HoldingsNOTES TO THECONSOLIDATEDFINANCIALSTATEMENTS
Beach Energy is a listed oil and gas exploration, development and production company based in Australia with investments in the
resource industry. The Group’s investment in Beach Energy is held for strategic purposes and is disclosed within the Energy segment.
Seven West Media is the leading listed national multi-platform media business based in Australia. The Group’s investment in Seven West
Media is held for strategic purposes and disclosed within the Media investments segment.
Coates Hire is Australia’s largest and leading rental company. The Group’s investment in Coates Hire is held for strategic purposes and
disclosed within the Coates Hire segment.
Share of investees’ net (loss)/profit
Investments in associates
Beach Energy Limited
Seven West Media Limited
Individually immaterial associates (a)
Investments in joint ventures
Coates Group Holdings Pty Limited
Individually immaterial joint ventures
Share of net (loss)/profit of equity accounted investees
2017
$m
2016
$m
86.3
(305.6)
19.4
17.1
0.5
(182.3)
–
75.5
13.9
(6.0)
7.6
91.0
(a) a distribution of $18.8 million (2016: $13.8 million) was received from Revy Investment Trust following the successful settlement of buildings at Jones Bay Wharf,
Pyrmont, New South Wales.
Market values of listed investments accounted for using the equity method
Beach Energy Limited
Book value
Market value
Seven West Media Limited
Book value
Market value
2017
$m
2016
$m
335.1
244.9
442.4
442.4
–
–
655.8
655.8
An impairment reversal of $128.4 million (2016: impairment of $0.4 million) relating to the Group’s investment in Seven West Media was
recognised in profit or loss during the year.
97
Annual Report 2017
11. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (CONTINUED)
The summarised financial information for the Group’s material associate and material joint venture is detailed below. The information
disclosed reflects the amounts presented in the financial statements of the relevant associate and joint venture and not the Group’s share
of those amounts.
ASSOCIATE
BEACH ENERGY
ASSOCIATE
SEVEN WEST MEDIA
JOINT VENTURE
COATES HIRE
2017
$m
2016
$m
2017
$m
2016
$m
2017
$m
2016
$m
Summarised financial information of
investees (100%)
Summarised Statement of Financial Position
Current assets
Cash and cash equivalents
Other current assets
Total current assets
Non-current assets
Goodwill
Intangible assets
Other non-current assets
Total non-current assets
Current liabilities
Financial liabilities(a)
Other current liabilities
Total current liabilities
Non-current liabilities
Financial liabilities(a)
Other non-current liabilities
Total non-current liabilities
Net assets
Group’s share(%)
Group’s share of net assets
Share of impairment/(reversal) not recognised
as previously impaired
Adjustment to align accounting policies
Fair value adjustment on acquisition
Share of rights issue not taken up
Elimination of unrealised profits to equity
accounted investee
Change in ownership interest
Impairment
Carrying amount
Summarised Statement of
Comprehensive Income
Revenue
Depreciation and amortisation
Impairment reversal/(expense)
Net interest expense
Income tax benefit/(expense)
Profit/(loss) for the year
Other comprehensive income
Total comprehensive income for the year
Dividends received by the Group
348.0
172.0
520.0
–
–
1,371.2
1,371.2
1.0
123.3
124.3
148.5
216.4
364.9
1,402.0
22.7%
318.3
(23.8)
40.6
–
–
–
–
–
335.1
649.3
(153.8)
108.6
(14.0)
79.8
387.5
11.2
398.7
6.4
(a) financial liabilities excluding trade and other payables and provisions.
98
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
69.5
470.7
540.2
0.9
1,019.0
247.7
1,267.6
36.4
364.4
400.8
799.6
188.5
988.1
418.9
41.0%
171.7
571.0
(18.3)
–
(125.2)
–
177.1
(333.9)
442.4
1,676.0
(45.3)
(974.8)
(38.6)
21.0
(745.0)
2.7
(742.3)
37.1
94.8
536.6
631.4
29.7
1,523.3
481.3
2,034.3
29.0
431.0
460.0
819.2
134.0
953.2
1,252.5
41.0%
513.5
571.0
(18.3)
–
(125.2)
–
177.1
(462.3)
655.8
1,720.5
(45.3)
–
(37.8)
(63.1)
184.3
(1.9)
182.4
49.5
48.0
171.9
219.9
920.9
100.4
699.2
1,720.5
177.5
148.0
325.5
909.8
31.5
941.3
673.6
46.5%
313.2
156.5
–
(35.6)
–
(5.5)
(14.4)
(114.0)
300.2
918.2
(165.7)
–
(73.8)
(14.1)
31.7
–
31.7
–
15.1
175.8
190.9
920.9
101.3
809.9
1,832.1
144.8
151.1
295.9
1,043.0
45.8
1,088.8
638.3
46.5%
296.8
156.5
–
(35.6)
–
(6.3)
(14.4)
(114.0)
283.0
873.0
(169.5)
–
(83.1)
6.0
(17.8)
(3.4)
(21.2)
–
Seven Group HoldingsNOTES TO THECONSOLIDATEDFINANCIALSTATEMENTS
12. PROPERTY, PLANT AND EQUIPMENT
Accounting policy
Property, plant and equipment is measured at historical cost less accumulated depreciation and impairment losses.
Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent expenditure is capitalised in
the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits
associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance is
charged to the profit or loss during the reporting period in which they are incurred.
Freehold land is not depreciated. The cost of improvements to or on leasehold properties is amortised over the shorter of the unexpired
period of the lease or the estimated useful life of the improvement to the Group.
Depreciation on the following assets is calculated using the straight line method to allocate their cost or revalued amounts, net of their
residual values, over their estimated useful lives, as follows:
Buildings
Leasehold improvements
Plant and equipment
40 years
1 – 25 years
2 – 12 years
Rental fleet assets are depreciated on a reducing balance method at a rate of 30%.
Residual values and useful lives of assets are reviewed, and adjusted if appropriate, at each reporting date. An asset’s carrying amount is
written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in profit or loss.
Movement in property, plant and equipment
Year ended 30 June 2017
Carrying amount at beginning of the year
Additions
Disposals
Depreciation
Exchange differences
Transfer to assets held for sale
Other(a)
Carrying amount at end of the year
At cost
Accumulated depreciation
Total property, plant and equipment
Year ended 30 June 2016
Carrying amount at beginning of the year
Additions
Disposals
Depreciation
Exchange differences
Other(a)
Carrying amount at end of the year
At cost
Accumulated depreciation
Total property, plant and equipment
(a) other includes net transfer from inventory, impairments and reclassifications.
Freehold
land and
buildings
$m
Leasehold
improve-
ments
$m
Plant and
equipment
$m
Note
31
25.5
–
–
(0.9)
(0.4)
(6.3)
–
17.9
22.2
(4.3)
17.9
41.8
–
(4.8)
(1.0)
(0.2)
(10.3)
25.5
36.0
(10.5)
25.5
45.9
1.3
(0.6)
(3.9)
(0.1)
(0.5)
0.1
42.2
65.6
(23.4)
42.2
48.5
2.1
–
(3.9)
0.1
(0.9)
45.9
72.0
(26.1)
45.9
100.6
24.7
(24.3)
(13.5)
(0.4)
(10.8)
23.5
99.8
240.9
(141.1)
99.8
126.0
6.1
(0.3)
(26.3)
(0.3)
(4.6)
100.6
263.9
(163.3)
100.6
Total
$m
172.0
26.0
(24.9)
(18.3)
(0.9)
(17.6)
23.6
159.9
328.7
(168.8)
159.9
216.3
8.2
(5.1)
(31.2)
(0.4)
(15.8)
172.0
371.9
(199.9)
172.0
99
Annual Report 2017 13. PRODUCING AND DEVELOPMENT ASSETS
Accounting policy
Producing and development assets are carried at historical cost less accumulated depreciation.
Development costs
Expenditure on the construction, installation or completion of infrastructure facilities such as platforms, pipelines and the drilling of
development wells, including unsuccessful development or delineation wells, is capitalised within development assets.
Depreciation/amortisation
Producing oil and gas properties are depreciated/amortised on a unit of production basis over the total proved developed and
undeveloped reserves of the field concerned, except in the case of assets whose useful life is shorter than the lifetime of the field,
in which case the straight-line method is applied.
Critical accounting estimates and judgements
Assessment of recoverable amount and key assumptions used
Producing and development asset valuations are based on the expected production profile of reserves and resources and various
estimates and assumptions. For the purposes of assessing impairment, the recoverable amount of the cash generating unit (CGU)
are based on the fair value less costs of disposal using a discounted cash flow method (DCF). Cash flow projections utilised for fair
value less costs of disposal reflect the expected production profile of reserves and resources and cover a period to June 2033 for
Longtom and to June 2064 for Bivins Ranch. The post tax discount rates that have been applied range between 8.1 to 10.0 per cent
(2016: between 8.1 to 10.0 per cent).
Estimates – reserve quantities
The estimated quantities of reserves and resources are integral to the calculation of amortisation expense and the assessment of the
recoverable amount of assets. Estimated reserve and resource quantities are based upon interpretations of geological and geophysical
models and assessments of technical feasibility and commercial viability of future production. These estimates require assumptions to
be made regarding future development and production costs, commodity prices and exchange rates. The estimates of reserves and
resources may change from period to period, and as additional geological data is generated or obtained from the operator during the
course of the operations. Reserves and resource estimates are prepared in accordance with guidelines prepared by the Society of
Petroleum Engineers.
Estimates – commodity prices
The Group’s best estimate of future commodity prices is made with reference to internally derived forecast data, current spot prices,
external market analysts forecast and forward curves. Future commodity price assumptions impact the recoverability of carrying
values and are reviewed at least annually.
Movement in producing and development assets
Carrying amount at beginning of the year
Additions
Depreciation
Exchange differences
Carrying amount at end of the year
At cost
Accumulated depreciation
Total producing and development assets
2017
$m
214.5
5.1
(2.1)
(3.6)
213.9
229.6
(15.7)
213.9
2016
$m
208.5
5.9
(3.0)
3.1
214.5
228.3
(13.8)
214.5
Joint operation
The Group, through its wholly-owned subsidiary Seven Network (United States) Inc., is party to the Bivins Ranch basin joint operation in
Texas, United States of America.
Principal activities
Oil and gas production
Operator of joint operation
Apache Corporation
100
UNINCORPORATED
INTEREST
2017
%
11.2%
2016
%
11.2%
Seven Group HoldingsNOTES TO THECONSOLIDATEDFINANCIALSTATEMENTS Producing and development assets comprise of the Group’s operating interests in oil and gas assets located in the United States of
America and Australia.
No impairment expense has been recognised in the current or prior year. A sensitivity analysis was performed on the recoverable amount
of the Group’s Bivins Ranch producing asset based on changes to key assumptions. Any material adverse change in a key assumption
may result in an impairment. Sensitivity analysis has been performed by applying the following possible changes in key assumptions:
Sensitivity analysis
Bivins Ranch (US$m)
25.3
(22.7)
25.1
(25.3)
(8.1)
9.6
Oil / Gas / NGL Prices
Reserves and Resources
Discount Rate
+10%
-10%
+10%
-10%
+1%
-1%
14. EXPLORATION AND EVALUATION ASSETS
Accounting policy
Exploration and evaluation expenditure is accounted for using the successful efforts method of accounting.
Exploration and evaluation assets
Exploration and evaluation activity involves the search for hydrocarbon resources, the determination of technical feasibility and the
assessment of commercial viability of an identified resource. Once the legal right to explore has been acquired, costs directly associated
with an exploration well are capitalised as exploration and evaluation assets until the drilling of the well is complete and the results have been
evaluated. These costs include directly attributable employee benefits, materials and fuel used, rig costs and payments made to contractors.
If no potentially commercial hydrocarbons are discovered, the exploration asset is written off through profit or loss as a dry hole. If
extractable hydrocarbons are found and, subject to further appraisal activity (e.g., the drilling of additional wells), are likely to be capable
of being commercially developed, the costs continue to be carried as an exploration and evaluation asset while sufficient/continued
progress is made in assessing the commerciality of the hydrocarbons. Costs directly associated with appraisal activity undertaken to
determine the size, characteristics and commercial potential of a reservoir following the initial discovery of hydrocarbons, including the
costs of appraisal wells where hydrocarbons were not found, are initially capitalised as an exploration and evaluation asset.
All such capitalised costs are subject to technical, commercial and management review, as well as review for indicators of impairment at
least annually. This is to confirm the continued intent to develop or otherwise extract value from the discovery. When this is no longer the
case, the costs are written off through profit or loss. When proved reserves of oil and natural gas are identified, the relevant capitalised
expenditure is first assessed for impairment and (if required) any impairment loss is recognised, then the remaining balance is transferred
to producing and development assets. Other than licence costs, no amortisation is charged during the exploration and evaluation phase.
The ultimate recoupment of the carrying value of the Group’s exploration and evaluation assets is dependent on successful commercial
exploitation, or the sale of the respective area of interest.
Critical accounting estimates and judgements
Recoverability of exploration and evaluation assets
Assessment of recoverability of capitalised exploration and evaluation expenditure requires certain estimates and assumptions
to be made as to future events and circumstances, particularly in relation to whether economic quantities of reserves have been
discovered. Such estimates and assumptions may change as new information becomes available. If concluded that the carrying
value of an exploration and evaluation asset is unlikely to be recovered by future exploitation or sale, the relevant amount will be
written off to profit or loss.
101
Annual Report 2017 14. EXPLORATION AND EVALUATION ASSETS (CONTINUED)
Movement in exploration and evaluation assets
Carrying amount at beginning of the year
Additions
Exploration costs expensed
Restoration provision
Carrying amount at end of the year
At cost
Total exploration and evaluation assets
2017
$m
218.0
6.4
–
(2.2)
222.2
222.2
222.2
2016
$m
238.5
6.9
(0.3)
(27.1)
218.0
218.0
218.0
Exploration and evaluation assets are located in the Browse basin which is north-west of Australia and relate to the Crux AC/RL9 joint
operation and the Echuca Shoals WA-377P exploration permit.
Joint operation
The Group, through its wholly-owned subsidiary SGH Energy WA Pty Ltd, is party to the Crux AC/RL9 oil and gas joint operation.
The Group has disclosed its interests in the following permits:
Petroleum exploration
permit/licence
Principal activities
Operator of joint operation
AC/RL9
Oil and gas exploration
Shell Australia Pty Ltd
UNINCORPORATED
INTEREST
2017
%
15.0%
2016
%
15.0%
The Group continues to work with Shell Australia Pty Ltd as Operator and fellow Crux AC/RL9 joint venture partners in conducting the
necessary technical feasibility studies, as well as evaluating commercialisation and development options for the Crux AC/RL9 asset.
There are no facts or circumstances indicating an impairment of the asset under AASB 6: Exploration and Evaluation of Mineral
Resources at 30 June 2017.
Contingent liabilities in respect of joint venture operations are detailed in Note 26: Contingent Liabilities. Exploration expenditure
commitments and capital commitments in respect of joint venture operations are detailed in Note 27: Commitments.
15. INTANGIBLE ASSETS
Accounting policy
Distribution networks
The distribution networks of the Group are considered by the Directors to be identifiable intangible assets.
The Directors are of the opinion that the distribution networks have an indefinite useful life, and as such the distribution networks are not
subject to amortisation but rather are tested annually for impairment or more frequently if events or changes in circumstances indicate
impairment. The basis for the classification of indefinite life is that the dealership agreements do not require specific renewal over set
intervals thus the distribution rights continue uninterrupted unless a cause to terminate is triggered.
102
Seven Group HoldingsNOTES TO THECONSOLIDATEDFINANCIALSTATEMENTS Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the
acquired subsidiary/equity accounted investee at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible
assets. Goodwill on acquisitions of equity accounted investees is included in investments accounted for using the equity method.
Goodwill is not amortised, but instead tested for impairment annually or more frequently if events or changes in circumstances indicate
that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include
the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to CGUs (or groups of CGUs) for the purpose of impairment testing. Each of those CGUs (or groups of CGUs)
represents the Group’s investment in each country of operation by each operating segment.
Impairment of intangible assets
Goodwill and intangible assets that have an indefinite life are not subject to amortisation and are tested annually for impairment or more
frequently if events or changes in circumstances indicate that they might be impaired. An impairment loss is recognised for the amount by
which the asset’s carrying amount exceeds its recoverable amount.
The recoverable amount of an asset or CGU is the greater of its value-in-use and its fair value less cost of disposal. In assessing value-
in-use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. For impairment testing, assets are grouped together into the
smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets
or CGUs. Subject to an operating segment ceiling test, CGUs to which goodwill has been allocated are aggregated so that the level at
which impairment is tested reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in
a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination.
Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each
reporting date. Impairment losses are recognised in profit or loss unless the asset has previously been revalued, in which case the
impairment is recognised as a reversal to the extent of that previous revaluation with any excess recognised in profit or loss.
Change in accounting policy
Following clarification by the IFRS Interpretations Committee with respect to the recognition of deferred tax liabilities for indefinite life
intangible assets the Group will now recognise deferred tax on indefinite life intangible assets to reflect the expected manner of recovery
of the carrying amount of the asset through use rather than sale.
As a result of the change in accounting policy, deferred tax has been recognised for WesTrac Australia’s Caterpillar distribution network
and Sitech WA and NSW Loadrite and Lincoln distribution network. The adjustment to the distribution network of $85.0 million was
recognised as an opening balance adjustment.
Critical accounting estimates and judgements
Dependency on key suppliers
WesTrac Group is dependent on Caterpillar to maintain its authorisation as an authorised dealer of Caterpillar equipment and parts
in its Western Australia, New South Wales/ACT and North Eastern China Service Territories. The WesTrac Group has maintained
a strong relationship with Caterpillar and although WesTrac Group expects this relationship to continue, as is customary in dealer
agreements with Caterpillar, the dealer agreement can be terminated by either party upon 90 days notice at any time.
The Group is also dependent on Caterpillar for timely supply of equipment and parts from their global manufacturing factories and
distribution warehouses. During periods of intense demand or in the event of disruption to Caterpillar’s business there may be delays
in the supply of equipment and parts to WesTrac Group. This has not in the past proven to be an impediment to the WesTrac Group.
Management judgement is required to estimate the impact of the loss of key suppliers on future earnings, supporting existing
goodwill and intangible assets.
Impairment of intangible assets
In accordance with AASB 136: Impairment of Assets, the recoverable amount of assets is the greater of its value-in-use and its
fair value less cost of disposal. In the absence of quoted market prices, an asset’s value-in-use or fair value less cost of disposal is
calculated by estimating the present value of future cash flows using an asset specific discount rate. These calculations also require
the use of assumptions regarding profit margins, growth rates and discount rates.
103
Annual Report 2017 15. INTANGIBLE ASSETS (CONTINUED)
Movement in intangible assets
Year ended 30 June 2017
Carrying amount at beginning of the year
Additions
Disposals
Amortisation
Transfers
Exchange differences
Transfer to assets held for sale
Carrying amount at end of the year
At cost
Accumulated amortisation
Total intangible assets
Year ended 30 June 2016
Carrying amount at beginning of the year
Additions
Amortisation
Exchange differences
Carrying amount at end of the year
At cost
Accumulated impairment
Accumulated amortisation
Total intangible assets
Distribution
network
$m
Note
Goodwill
$m
Other(a)
$m
Total
$m
31
648.3
–
–
–
(6.1)
(11.1)
(310.1)
321.0
321.0
–
321.0
637.6
–
–
10.7
648.3
879.8
(231.5)
–
648.3
94.2
–
–
–
–
–
–
94.2
94.2
–
94.2
94.2
–
–
–
94.2
154.1
(59.9)
–
94.2
37.4
3.5
(0.2)
(3.3)
6.1
–
(2.0)
41.5
51.0
(9.5)
41.5
18.7
22.5
(3.8)
–
37.4
91.4
(9.2)
(44.8)
37.4
779.9
3.5
(0.2)
(3.3)
–
(11.1)
(312.1)
456.7
466.2
(9.5)
456.7
750.5
22.5
(3.8)
10.7
779.9
1,125.3
(300.6)
(44.8)
779.9
(a) other includes intellectual property, customer contracts, software and brand names.
Impairment of intangible assets
(a) Impairment tests for goodwill and distribution network
Goodwill and distribution network costs are allocated to the Group’s CGUs identified according to the appropriate operating segment.
A segment level summary of the goodwill and distribution network allocation is presented below.
Year ended 30 June 2017
WesTrac Australia
Total distribution network and goodwill
Year ended 30 June 2016
WesTrac Australia
WesTrac China
Total distribution network and goodwill
Distribution
network
$m
Goodwill
$m
321.0
321.0
321.0
327.3
648.3
94.2
94.2
94.2
–
94.2
Total
$m
415.2
415.2
415.2
327.3
742.5
WesTrac Australia distribution network and goodwill
The recoverable amount of goodwill and the WesTrac Australia distribution network is determined based on value-in-use calculations.
These recoverable amount calculations use discounted cash flow projections based on financial budgets and forecasts approved by
management. Cash flow projections utilised for value-in-use financial budgets cover a five year period.
Based on sensitivity analysis performed no reasonable change in these assumptions would give rise to an impairment.
104
Seven Group HoldingsNOTES TO THECONSOLIDATEDFINANCIALSTATEMENTS (b) Key assumptions used for value-in-use and fair value less cost of disposal calculations
2017
Growth
rate (a)
%
2017
Discount
rate
(pre-tax)(b)
%
2016
Growth
rate (a)
%
2016
Discount
rate
(pre-tax)(b)
%
Value-in-use
Caterpillar distribution network – Australia
2.50
13.56
3.00
11.68
Fair value less cost of disposal
Caterpillar distribution network – China
–
–
4.00
11.59
(a) the weighted average growth rate used to extrapolate cash flows beyond the budget or forecast period.
(b) the discount rates used reflect specific risks relating to the relevant segments and the countries in which they operate.
16. PROVISIONS
Accounting policy
Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event and it is probable that
an outflow of resources will be required to settle the obligation and the amount can be reliably estimated.
Provisions are not recognised for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering
the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in
the same class of obligations may be small.
Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the
time value of money and the risks specific to the liability.
Service warranties
A service warranties provision is made for the estimated liability on products under warranty at balance
date. This provision is estimated having regard to service warranty experience.
Other warranty costs are accrued as and when the liability arises.
Restoration
Restructuring
Onerous contracts
A provision for restoration is recognised when there is a legal or constructive obligation to do so.
A corresponding restoration asset amount is created equivalent to the amount of the provision.
The amount recognised is the estimated cost of restoration, discounted to its net present value.
This is reassessed each year in accordance with local conditions and requirements.
A provision for restructuring is recognised when steps have been taken to implement a detailed plan,
including discussions with affected personnel, with employee related costs recognised over the period
of any required future service.
An onerous contract is a contract in which the unavoidable cost of meeting the obligations under the
contract exceeds the economic benefit expected to be received. A provision is raised in respect of
operating leases or other onerous contracts.
Critical accounting estimates and judgements
Restoration
Management is required to make judgements regarding removal method, future legislation, reclamation activities required, engineering
methodology for estimating costs, future removal technologies and discount rates to determine the present value of the cash flows.
Changes in the estimates of restoration cost estimates are dealt with prospectively by recording an adjustment to the provision and
a corresponding adjustment to the restoration asset.
105
Annual Report 2017 16. PROVISIONS (CONTINUED)
Movement in provisions
Year ended 30 June 2017
Balance at beginning of the year
Amounts provided for
Amounts used
Write-back of provision
Exchange differences
Unwind of discount
Transfer to liabilities held for sale
Balance at end of the year
Current
Non-current
Total provisions
Year ended 30 June 2016
Balance at beginning of the year
Amounts provided for
Amounts used
Writeback of provision
Exchange differences
Transfer
Unwind of discount
Balance at end of the year
Current
Non-current
Total provisions
Nature and purpose of provisions
Service
warranties
$m
Note
Restoration
$m
Other
$m
Total
$m
31
24.5
9.5
(8.7)
–
(1.0)
–
(5.5)
18.8
18.8
–
18.8
31.1
9.7
(13.7)
–
(0.4)
(2.2)
–
24.5
24.5
–
24.5
50.1
–
–
(2.2)
–
2.5
–
50.4
0.1
50.3
50.4
74.9
–
–
(27.1)
(0.1)
–
2.4
50.1
2.1
48.0
50.1
24.7
20.4
(4.3)
(2.9)
(0.1)
–
(2.9)
34.9
21.1
13.8
34.9
25.2
11.4
(14.1)
–
–
2.2
–
24.7
21.9
2.8
24.7
99.3
29.9
(13.0)
(5.1)
(1.1)
2.5
(8.4)
104.1
40.0
64.1
104.1
131.2
21.1
(27.8)
(27.1)
(0.5)
–
2.4
99.3
48.5
50.8
99.3
Service warranties
Restoration
Other
Service warranties provision relate to the estimated warranty claims in respect of products sold which are
still under warranty at balance date. These claims are expected to be settled in the next financial year but
this may be extended into the following year if claims are made late in the warranty period and are subject
to confirmation by suppliers that component parts are defective.
A provision for site restoration relates to the Group’s estimated present value of costs relating to future site
restoration, removal and rehabilitation activities, primarily in the Energy segment.
Other provisions include amounts that have been provided for in relation to restructuring and
redundancies, workers’ compensation claims, maintenance and repair contracts, legal claims, onerous
contracts and make-good obligations.
106
Seven Group HoldingsNOTES TO THECONSOLIDATEDFINANCIALSTATEMENTS 17. EMPLOYEE BENEFITS
Accounting policy
Employee benefits
Employee benefits include provisions for annual leave, long service leave and amounts provided for Director retirement benefits. The
current provision for long service leave includes all unconditional entitlements where employees have completed the required service
period and those where employees are entitled to pro-rata payments in certain circumstances. The majority of the amount is presented
as current, since the Group does not have an unconditional right to defer settlement. However, based on past experience, the Group
does not expect all employees to take the full amount of accrued long service leave or require payment within the next 12 months.
Wages, salaries and annual leave
Liabilities for wages and salaries, including non-monetary benefits and annual leave due to be settled within 12 months of the reporting
date are recognised in provisions in respect of employees services up to the reporting date and are measured at the amounts expected
to be paid when the liabilities are settled.
Long service leave
The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected
future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected
future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted
using market yields at the reporting date on high quality corporate bonds with terms of maturity and currency that match, as closely as
possible, the estimated future cash outflows.
Superannuation
The Group contributes to a superannuation fund which provides accumulated contribution plans. Contributions are charged against the
profit or loss in the period to which they relate.
Share based payments
The fair value of options granted under the Company’s cash-settled option plan is recognised as an employee benefit expense with
a corresponding increase in liability. The expense and the liability incurred are measured at the fair value of the liability.
The fair value at grant date is independently determined using Black-Scholes and Binomial option pricing models that take into account
the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the
option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free
interest rate for the term of the option.
The fair value of the options granted excludes the impact of any non-market vesting conditions. Non-market vesting conditions are
included in assumptions about the number of options that are expected to become exercisable. At each reporting date, the entity
remeasures the fair value of the options, with any changes in value recognised in the profit or loss as a finance cost.
The fair value of equity-based entitlements settled in equity instruments is recognised as an employee benefit expense with a
corresponding increase in equity. The fair value is estimated at grant date and recognised over the period during which the employees
become unconditionally entitled to the equity instrument.
The amount recognised as an expense is adjusted to reflect the actual number of entitlements that vest, except where forfeiture is only
due to share prices not achieving the threshold for vesting.
Current
Annual leave
Long service leave
Total employee benefits – current
Non-current
Long service leave
Other
Total employee benefits – non-current
2017
$m
24.5
13.3
37.8
12.8
–
12.8
2016
$m
25.5
11.3
36.8
11.7
0.8
12.5
Superannuation contributions
The Group makes contributions on behalf of employees to a defined contribution superannuation fund. The amount recognised as an
expense was $28.9 million (2016: $30.9 million) for the year ended 30 June 2017.
107
Annual Report 2017 18. CASH AND CASH EQUIVALENTS
Accounting policy
Bank balances includes cash on hand and deposits held at call with financial institutions. Call deposits include other short-term, highly
liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are
subject to an insignificant risk of changes in value.
Bank balances
Call deposits
Cash and cash equivalents
Cash and cash equivalents included in assets held for sale
Total cash and cash equivalents
19. NOTES TO THE CASH FLOW STATEMENT
Note
31
Reconciliation of profit for the year to net cash flows related to operating activities
Profit for the year
Income tax expense
Income taxes (paid)/refunded
Income tax funding paid to equity accounted investee
Depreciation and amortisation:
Property, plant and equipment
Producing and development assets
Intangible assets
Loss/(gain) on sale of property, plant and equipment
Gain on sale of investments and equity accounted investees
Loss on sale of investments and derivative financial instruments
(Impairment reversal)/impairment of equity accounted investees
Fair value movement of derivatives
Share of results from equity accounted investees
Dividends received from equity accounted investees
Other
Movement in:
Trade and other receivables
Inventories
Other assets
Trade and other payables/deferred income
Provisions
Net operating cash flows
Non cash investing and financing activities
Acquisition of equity accounted investees – dividend reinvestment plan
Total non cash investing and financing activities
2017
$m
148.7
100.6
249.3
(76.8)
172.5
2017
$m
46.2
33.1
(13.2)
–
28.2
2.1
3.3
1.7
(1.9)
4.0
(128.4)
(4.0)
182.3
66.3
1.9
65.8
14.8
6.7
(27.6)
14.5
295.8
2.5
2.5
2016
$m
232.2
134.6
366.8
–
366.8
2016
$m
197.8
19.2
4.3
(7.2)
31.2
3.0
3.8
(0.5)
(7.9)
9.1
0.4
(5.2)
(91.0)
73.8
(2.3)
(78.2)
115.7
12.8
36.5
(0.9)
314.4
–
–
This Note reflects adjustments for continuing and discontinued operations including movements in balance sheet accounts prior to being
reclassified as held for sale.
108
Seven Group HoldingsNOTES TO THECONSOLIDATEDFINANCIALSTATEMENTS
20. INTEREST BEARING LOANS AND BORROWINGS
Accounting policy
Borrowings are initially recognised at fair value, net of transaction costs incurred and 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 over the period
of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities which are not incremental costs
relating to the actual draw down of the facility, are recognised on a net basis against borrowings and amortised on a straight line basis
over the term of the facility.
Borrowings are derecognised from the statement of financial position when the obligation specified in the contract is discharged,
cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to
another party and the consideration paid, including any non-cash assets transferred or any liabilities assumed, is recognised in other
income or expenses.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement for at least 12 months after
the reporting date.
Current
Interest bearing liabilities
Non-interest bearing liabilities
Fixed term US dollar notes
Finance lease liabilities
Total interest bearing loans and borrowings – current
Non-current
Interest bearing liabilities
Fixed term US dollar notes
Less: capitalised borrowing costs net of accumulated amortisation
Finance lease liabilities
Total interest bearing loans and borrowings – non-current
2017
$m
0.6
40.0
–
0.1
40.7
816.0
627.3
(3.6)
0.2
1,439.9
2016
$m
37.7
80.0
101.0
1.4
220.1
869.6
648.1
(4.1)
0.6
1,514.2
The current interest bearing liabilities of $0.6 million (2016: $37.7 million) relate to the Group’s working capital facilities. These liabilities are
drawn from rolling short dated facilities within Australia of $295.6 million (2016: $288.7 million) and are generally reviewed annually. These
liabilities are unsecured.
At 30 June 2017, the Group had available undrawn borrowing facilities of $810.0 million (2016: $954.9 million) and also had access to
unutilised short dated lines of credit totalling $4.2 million (2016: $184.6 million).
Included in non-current interest bearing liabilities are amounts drawn from the Group’s corporate syndicated loan facility and the facility
with Caterpillar Financial Australia Limited. The corporate syndicated loan facility is non-amortising, unsecured and supported by
guarantees by the Company and certain subsidiaries within the Group. The corporate syndicated facility has a limit of $900.0 million
until February 2019 and then $850.0 million until 16 February 2020. The Company’s $431.0 million facility with Caterpillar Financial
Australia Limited matures on 15 July 2021 and is non-amortising and unsecured.
The Group’s interest bearing liabilities (including derivatives) had a weighted average interest rate of 5.59% (2016: 6.05%) for the year
ended 30 June 2017, including margins and unused line fees.
Lease liabilities are effectively secured as the rights to the assets revert to the financier in the event of default.
Details of the fair values of each of the borrowings as well as the Group’s exposure to interest rate, foreign currency and liquidity risk
related to interest bearing loans and borrowings is disclosed in Note 21: Financial Risk Management.
109
Annual Report 2017 20. INTEREST BEARING LOANS AND BORROWINGS (CONTINUED)
Fixed term US dollar notes (continued)
The US Private Placement notes are unsecured and are hedged by a combination of forward foreign exchange and cross currency
swaps. The Group has issued notes denominated in US currency of USD $445.0 million (2016: USD $520.0 million). Series E (2011) was
issued and is repayable in AUD. Interest is payable half yearly in arrears.
The amount and maturity of the notes, including the effective hedge position, is summarised below.
Notes
Series B
Series C
Series D
Series E
Series A
Series B
Series C
Series D
Series E
2017
Amount
USD
$m
2017
Spot amount
AUD
$m
2016
Amount
USD
$m
2016
Spot amount
AUD
$m
Hedged
amount
AUD
$m
Interest
rate
(incl. margin)
%
Agreement
2006
2006
2006
2006
2011
2011
2011
2011
2011
–
55.0
30.0
85.0
45.0
55.0
75.0
100.0
–
445.0
–
71.5
39.0
110.5
58.5
71.5
97.5
130.0
48.8
627.3
75.0
55.0
30.0
85.0
45.0
55.0
75.0
100.0
–
520.0
101.0
74.1
40.4
114.4
60.6
74.1
101.0
134.7
48.8
749.1
–
80.3
43.9
125.2
43.8
53.6
73.1
97.4
48.8
566.1
7.48%
7.50%
7.53%
7.56%
3.73%
4.00%
3.78%
3.98%
7.96%
Maturity
date
23 Aug 16
23 Aug 18
23 Aug 20
23 Aug 21
7 Jun 23
7 Jul 23
7 Jun 26
7 Jul 26
7 Jul 41
21. FINANCIAL RISK MANAGEMENT
Overview
Risk management policies are established to identify and demonstrate that the Group understands and manages risk and seeks to
ensure that there is consistency to the methods used in assessing, monitoring and communicating risks and that risk management efforts
are aligned with the Group’s strategic and business objectives.
The Group has exposure to the following risks through the normal course of its operations and from its use of financial instruments:
(a) Market risk
(b) Liquidity risk
(c) Credit risk
The following presents information, both qualitative and quantitative, about the Group’s exposure to each of the above risks, its
objectives, policies and processes for measuring and managing risk, and the management of capital.
The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework.
The Board has established a sound system of risk oversight and management and internal control which includes the establishment of
the Audit & Risk Committee (Committee). The Committee has been constituted with the function of assisting the Board to ensure that its
corporate governance and oversight responsibilities are fulfilled in relation to risk management and compliance with applicable laws and
regulations.
The Committee is responsible for reviewing, evaluating and making recommendations to the Board in relation to:
• assessing the risk management, compliance and control environment as it relates to the external and internal audit plans;
• overseeing financial reporting; and
• evaluating internal and external audit.
110
Seven Group HoldingsNOTES TO THECONSOLIDATEDFINANCIALSTATEMENTS At the reporting date the Group held the following financial instruments:
Financial assets/(liabilities)
Cash and cash equivalents
Financial assets/(liabilities) carried at amortised cost
Trade and other receivables
Trade and other payables (excluding accruals)
Fixed term US dollar notes
Interest bearing loans and borrowings
Financial assets carried at fair value through other comprehensive income
Listed equity securities (excluding derivatives)
Unlisted equity securities
Derivative financial instruments designated and effective and carried
at fair value through profit or loss and other comprehensive income
Derivative financial assets
Derivative financial liabilities
Total financial assets and financial liabilities
Note
2017
$m
2016
$m
18
8
9
20
20
22
22
23
23
172.5
366.8
341.4
(156.6)
(627.3)
(856.6)
502.2
96.6
133.8
(74.5)
(468.5)
554.4
(219.8)
(749.1)
(987.3)
892.4
82.2
186.1
(25.2)
100.5
(a) Market risk
The Group is exposed to market risk through foreign exchange, interest rate, equity price and commodity price risk.
(i) Foreign exchange risk
Foreign exchange risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency
that is not the entity’s functional currency.
The Group is exposed to fluctuations in foreign currency, predominantly in United States Dollar (USD).
The Group will seek to minimise exposure to foreign exchange risk by initially seeking contracts effectively denominated in AUD where
possible. Where this is not possible the Group will manage foreign exchange risk as follows:
•
in certain circumstances the Group invoices customers in USD. Where the Group invoices in USD it may seek to match the USD
receipt with USD denominated vendor payments. As a result, an economic hedge is created by minimising exposure to changes in
the AUD/USD exchange rate. Payments and receipts are made from and to the Group’s USD denominated bank account.
• external forward contracts and options are used to manage foreign exchange risk. Contracts are entered into on a transaction by
transaction basis to hedge specific purchases, sales and borrowings.
The Group’s foreign exchange risk from recognised assets and liabilities arises primarily from WesTrac’s long-term USD denominated
borrowings (refer to Note 20: Interest Bearing Loans and Borrowings). The Group effectively hedges its long-term foreign denominated
borrowings using a combination of designated forward exchange contracts and cross currency swaps. At times, the Company may
choose to hold cash positions in USD to hedge against anticipated weakening in the AUD.
The financial statements for foreign group companies that have a functional currency different from Australian Dollars are translated
into Australian Dollars on consolidation in accordance with Note 1(C): Foreign Currency Translation. Exchange differences arising
from the translation are taken to reserves and as such the individual account balances of these Group companies are excluded from the
following table.
111
Annual Report 2017
21. FINANCIAL RISK MANAGEMENT (CONTINUED)
(a) Market risk (continued)
(i) Foreign exchange risk (continued)
Excluding assets and liabilities for foreign Group entities translated in accordance with Note 1, the Group’s exposure to foreign currency
risk was as follows, based on notional amounts:
Foreign currency risk
Cash and cash equivalents
Trade and other receivables
Trade and other payables
Borrowings
Unlisted equity securities
Derivative financial instruments
Closing exchange rates(a)
2017
USD
$m
112.4
8.8
(3.7)
(445.0)
74.3
82.8
0.7692
2016
USD
$m
145.4
18.3
(28.1)
(520.0)
61.0
135.3
0.7426
(a) closing rate per the Reserve Bank of Australia at 4pm (AEST).
Sensitivity analysis
A foreign currency sensitivity of +/- 5 per cent has been selected and is considered reasonable given the historical AUD/USD exchange
rates prevailing in the year ended 30 June 2017. During the year, the average AUD/USD exchange rate was 0.7545 (2016: 0.7283) and
traded within a range of 0.7202 to 0.7724 (2016: 0.6867 to 0.7812). As at 30 June 2017 the closing AUD/USD exchange rate, as reported
by the Reserve Bank of Australia, was 0.7692 (2016: 0.7426).
At 30 June 2017, had the AUD/USD exchange rate moved by 5.0 per cent, with all other variables held constant, post tax profit/(loss) and
equity would have been affected as illustrated in the table below:
Judgement of reasonably possible movements
AUD to USD +5%
AUD to USD -5%
2017
Profit/(loss)
$m
2017
Equity
$m
2016
Profit/(loss)
$m
2016
Equity
$m
(9.1)
11.1
(5.9)
7.7
(4.6)
5.6
(3.1)
4.0
A sensitivity of 5.0 per cent is considered reasonable given the current level of prices and the volatility observed both on a historical basis
and market expectations for future movements.
Adverse versus favourable movements are determined relative to the net underlying exposure. An adverse movement in exchange rates
implies an increase in the Group’s foreign currency exposure leading to deterioration in the Group’s financial position. A favourable movement
in exchange rates implies a decrease in the Group’s foreign currency exposure and an improvement in the Group’s financial position.
The Group’s exposure to other foreign exchange movements is not material.
(ii) Interest rate risk
The Group’s exposure to interest rate risk arises from AUD cash deposits and short to medium term borrowings which are at variable interest
rates in AUD. Generally, long-term fixed rate borrowings are obtained in the USA and Australia, while shorter term variable borrowings are
denominated in local Australian and Chinese currencies and expose the Group to interest rate risk. The Group manages this risk by using
derivative financial instruments including interest rate swaps to fix interest rate exposure.
As at 30 June 2017, 60 per cent (2016: 59 per cent) of the Group’s total borrowings were subject to fixed interest rates or were effectively
hedged with derivative financial instruments.
112
Seven Group HoldingsNOTES TO THECONSOLIDATEDFINANCIALSTATEMENTS At 30 June 2017, the Group had the following mix of financial assets and liabilities exposed to Australian and United States variable
interest rate risk.
Financial assets
Cash and cash equivalents
Financial liabilities
Interest bearing liabilities
2017
$m
172.5
172.5
2016
$m
232.1
232.1
(653.1)
(653.1)
(711.8)
(711.8)
The following table shows the annualised impact on profit or loss and equity of interest bearing assets and liabilities if floating interest
rates at balance date had been 1.0 per cent (100 basis points) higher or lower for the year, with all other variables held constant.
2017
Profit/(loss)
$m
2017
Equity
$m
2016
Profit/(loss)
$m
2016
Equity
$m
If interest rates were 1% (100 basis points) higher with all other variables
held constant – increase/(decrease)
If interest rates were 1% (100 basis points) lower with all other variables
held constant – increase/(decrease)
(1.5)
1.5
4.0
(4.0)
(3.4)
3.4
–
–
(iii) Equity price risk
Equity price risk refers to the risk that the value of a financial instrument or its associated cash flows will fluctuate due to changes in the
underlying share prices.
The Group has exposure to equity price risk arising from its portfolio of listed equity securities. The Group utilises derivatives to hedge
this exposure as well as to gain economic exposure to equity securities.
The Group may also be exposed to equity price risk through its holdings of listed investments accounted for using the equity method and
as part of the Group’s impairment assessment process.
The following table shows the impact on the profit or loss and equity of the Group if equity prices at balance date had been 15.0 per cent
higher or lower, with all other variables held constant. A sensitivity of 15.0 per cent is considered reasonable given the current level of
prices and the volatility observed both on a historical basis and market expectations for future movement.
If share prices were 15% higher with all other variables
held constant – increase/(decrease)
If share prices were 15% lower with all other variables
held constant – increase/(decrease)
2017
Profit/(loss)
$m
2017
Equity
$m
2016
Profit/(loss)
$m
2016
Equity
$m
(2.0)
(0.1)
52.7
0.4
93.7
(52.7)
(0.5)
(93.7)
(iv) Commodity price risk
The Group has an operating interest in oil and gas assets located in Australia and the United States of America. These investments
expose the Group to commodity price risk from fluctuations in the prices of oil, natural gas and other condensates and natural gas liquids
(NGLs). The Group does not currently hedge its exposure to commodity price risk.
113
Annual Report 2017 21. FINANCIAL RISK MANAGEMENT (CONTINUED)
(b) Liquidity risk
Liquidity risk refers to the risk that the Group is unable to meet its financial commitments as and when they fall due.
The Group employs a prudent liquidity risk management approach. This involves maintaining a large amount of liquid reserves (cash
deposits, listed shares and available credit lines) that can be drawn or sold at short notice to meet the Group’s financial commitments.
Management monitors the Group’s ongoing cash flow requirements on a daily basis.
Due to the dynamic nature of the underlying businesses, the Group aims to maintain flexibility in funding by keeping credit lines available.
The Group’s foreign exchange risk arises primarily from:
• borrowings denominated in a foreign currency; and
• firm commitments of highly probable forecast transactions for receipts and payments settled in foreign currency.
Financing arrangements
The Group had access to the following undrawn borrowing facilities at the reporting date:
Floating rate
Expiring within one year
Expiring beyond one year
Additional liquidity
Cash and cash equivalents
Financial assets carried at fair value through other comprehensive income – listed equity securities
Unutilised short dated lines of credit
2017
$m
295.0
515.0
810.0
172.5
502.2
4.2
678.9
2016
$m
492.9
462.0
954.9
366.8
892.4
184.6
1,443.8
Subject to continued compliance with facility terms, the facilities may be drawn at any time. The average maturity for drawn facilities
is 5.0 years (2016: 5.3 years) and 1.5 years (2016: 2.0 years) for undrawn facilities.
Maturities of financial liabilities
The table below analyses the Group’s financial liabilities (including derivative financial instruments) into relevant maturity groupings based
on the remaining period at the reporting date to the contractual maturity date. Gross cash flows include principal, coupon and premium
(on put options) payments at contracted rates. The amounts disclosed are the contracted undiscounted cash flows.
Within
1 year
$m
156.6
–
27.2
40.1
42.9
266.8
Between
1 and 2
years
$m
Between
2 and 5
years
$m
Over 5
years
$m
Total
contractual
cash flows
$m
Carrying
amount
$m
–
0.2
27.2
80.4
42.9
150.7
–
–
156.6
156.6
385.0
40.9
600.0
67.7
1,093.6
267.9
32.0
48.8
19.2
367.9
653.1
127.3
769.3
172.7
1,879.0
656.7
(1.3)
761.9
2.9
1,576.8
219.8
–
–
–
219.8
219.8
7.1
26.6
220.7
51.7
525.9
0.4
26.6
0.1
47.0
74.1
434.0
52.5
124.3
127.5
738.3
167.9
39.9
609.4
145.6
529.8
–
705.6
89.7
1,003.1
1,050.7
315.9
2,341.4
1,038.5
0.6
1,788.7
Year ended 30 June 2017
Trade and other payables (excluding accruals)
Borrowings – variable rate
– principal (including derivative)
– coupon interest and derivative
Borrowings – fixed rate
– principal (including derivative)
– coupon interest and derivative
Year ended 30 June 2016
Trade and other payables (excluding accruals)
Borrowings – variable rate
– principal (including derivative)
– coupon interest and derivative
Borrowings – fixed rate
– principal (including derivative)
– coupon interest and derivative
114
Seven Group HoldingsNOTES TO THECONSOLIDATEDFINANCIALSTATEMENTS (c) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the Group’s receivables, cash and cash equivalents and investment securities.
The Group’s maximum exposure to credit risk at the reporting date was:
Cash and cash equivalents
Trade and other receivables
Listed equity securities (excluding derivatives)
Unlisted equity securities
Derivative financial instruments
Note
18
8
22
22
23
2017
$m
172.5
341.4
502.2
96.6
133.8
1,246.5
2016
$m
366.8
554.4
892.4
82.2
186.1
2,081.9
In certain circumstances the Group enters into guarantees as part of ordinary trading operations. These guarantees are included within
financial guarantees in Note 26: Contingent Liabilities.
(d) Fair value measurements
Financial instruments measured at fair value
The fair value of:
• financial instruments traded in active markets are based on quoted market prices at the reporting date. The quoted market prices used
for financial assets held by the Group are the closing bid prices for the assets. The Group has elected that the fair value adjustments
on the Group’s existing listed and unlisted equity securities will be recorded in other comprehensive income and not subsequently
reclassified to profit or loss.
forward foreign exchange contracts are determined using quoted forward exchange rates at the reporting date.
interest rate swaps and cross currency interest rate swaps are calculated using the present value of the estimated future cash flows of
these instruments.
•
•
• equity derivatives are calculated based on the closing bid price of the underlying equities.
Financial instruments not measured at fair value
The interest rates used to discount estimated cash flows relating to the fixed term US dollar notes were 2.5 to 5.2 per cent
(2016: 1.8 to 5.1 per cent) and are based on the government yield curve at the reporting date plus an adequate credit spread.
The interest rate used to discount estimated cash flows relating to other borrowings was 5.9 per cent (2016: 5.5 per cent).
The Group uses various methods in estimating the fair value of a financial instrument. The methods comprise:
Level 1 – fair value is estimated using quoted prices in active markets.
Level 2 – fair value is estimated using inputs other than quoted prices included in Level 1 that are observable for the asset or liability either
directly (as prices) or indirectly (derived from prices).
Level 3 – fair value is estimated using inputs for the asset or liability that are not based on observable market data.
115
Annual Report 2017 21. FINANCIAL RISK MANAGEMENT (CONTINUED)
(d) Fair value measurements (continued)
Level in
fair value
hierarchy
Note
2017
Carrying
amount
$m
Financial assets measured at fair value
Listed equity securities (excluding derivatives)
Unlisted equity securities
Forward foreign exchange contracts
– used for hedging
Cross currency swaps – used for hedging
Interest rate collars – used for hedging
Equity derivatives
Financial assets not measured at fair value
Cash and cash equivalents
Trade and other receivables
Financial liabilities measured at fair value
Forward foreign exchange contracts
– used for hedging
Cross currency swaps – used for hedging
Interest rate swaps – used for hedging
Equity derivatives
Financial liabilities not measured at fair value
Trade and other payables (excluding accruals)
Fixed term US dollar notes
Other borrowings
22
22
23
23
23
23
18
8
23
23
23
23
9
20
20
1
3
2
2
2
2
–
–
2
2
2
2
–
2
2
502.2
96.6
0.3
132.2
1.3
–
732.6
172.5
341.4
513.9
25.0
48.6
–
0.9
74.5
2017
Fair
value
$m
502.2
96.6
0.3
132.2
1.3
–
732.6
172.5
341.4
513.9
25.0
48.6
–
0.9
74.5
2016
Carrying
amount
$m
892.4
82.2
0.7
184.4
–
1.0
1,160.7
366.8
554.4
921.2
17.7
2.1
1.5
3.9
25.2
219.8
749.1
985.2
1,954.1
2016
Fair
value
$m
892.4
82.2
0.7
184.4
–
1.0
1,160.7
366.8
554.4
921.2
17.7
2.1
1.5
3.9
25.2
219.8
831.9
985.2
2,036.9
156.6
627.3
853.3
1,637.2
156.6
740.5
853.3
1,750.4
There were no transfers between the fair value hierarchy levels during the year ended 30 June 2017.
Valuation techniques – Level 3
Unlisted equity securities
Unlisted equity securities comprise of the Group’s investment in an unlisted investment fund (investment fund), which is accounted for
as a financial asset measured at fair value through other comprehensive income. Whilst this investment fund invests in both foreign listed
and unlisted equity securities, the investment is not quoted in an active market and accordingly the fair value of this investment is included
within Level 3 of the hierarchy.
Audited information is obtained from the investment fund regarding the fair value of the investment. The Group recognises any movement
in the fair value of the investment in equity through the fair value reserve. The methodology followed by the investment fund in fair valuing
its underlying investments is outlined below.
Under the market based method, the investment fund’s manager determines comparable public companies (peers) based on industry
size, leverage and strategy and calculates an appropriate trading multiple for each comparable company identified. The trading multiple
is then discounted for considerations such as illiquidity and size differences between the comparable companies based on company
specific facts and circumstances. The discounted multiple is applied to the corresponding earnings measure of the investee company to
measure the fair value.
116
Seven Group HoldingsNOTES TO THECONSOLIDATEDFINANCIALSTATEMENTS In the prior year, the investment fund used a market based valuation technique and the discounted cash flow (DCF) method, to calculate
the fair value of its underlying positions. Under the DCF method, the investment’s fair value is estimated using explicit assumptions
regarding the benefits and liabilities of ownership over the investment’s life including estimated income and terminal value.
This involves the projection of a series of cash flows and to this an appropriate, market derived discount rate is applied to establish the
present value of the income stream.
Valuation process for Level 3 valuations
The valuation of unlisted equity is performed on a quarterly basis by the investment fund’s manager and reviewed by their investment
committee. The valuations are also subject to quality assurance procedures performed within the investment fund.
The investment fund manager verifies the major inputs applied in the latest valuation by agreeing the information in the valuation
computation to relevant documents and market information. In addition, the accuracy of the computation is tested. The latest
valuation is also compared with the valuations in the four preceding quarters as well as with the valuations of the two preceding annual
periods. If fair value changes (positive or negative) are more than certain thresholds set, the changes are further considered by the
fund’s investment committee.
The fund’s investment committee considers the appropriateness of the valuation methods and inputs, and may request that alternate
valuation methods are applied to support the valuations arising from the method chosen. Any changes in valuation methods are
discussed and agreed with the investment partners.
The investment fund presents the valuation results on a quarterly basis to the Group. The report includes a discussion of the major
assumptions used in the valuations, with an emphasis on the more significant investments and investments with fair value changes
outside of the relevant thresholds set out above. The Group’s investment committee regularly reviews this information and assesses
the performance of the Group’s investment.
Quantitative information on significant unobservable inputs – Level 3
Description
Valuation technique
Unobservable input
Unlisted equity investments
P/E multiple
EV/sales multiple
Average P/E multiple of peers
Discount for lack of liquidity
Average price/sales multiple of peers
Discount for lack of liquidity
2017
Range
31.9x
20%
1.5x-5.1x
20-25%
Reconciliation – Level 3
The following table shows a reconciliation of all movements in the fair value of financial instruments categorised within Level 3.
Balance at the beginning of the year
Contributions, net of capital returns
Fair value (losses)/gains
Balance at the end of the year
2017
$m
82.2
17.2
(2.8)
96.6
2016
Range
22.9x
25%
7.28x
25%
2016
$m
43.3
11.3
27.6
82.2
(e) Master Netting or Similar Arrangements
The Group enters into derivative transactions under International Swaps and Derivatives Association (ISDA) master netting agreements. In
general, under such agreements the amounts owed by each counterparty on a single day in respect of all transactions outstanding in the
same currency are aggregated into a single net amount that is payable by one party to the other. In certain circumstances, e.g. when a
credit event such as a default occurs, all outstanding transactions under the agreement are terminated, the termination value is assessed
and only a single net amount is payable in settlement of all transactions.
The ISDA agreements do not meet the criteria for offsetting in the statement of financial position. This is because the Group does
not have any currently legally enforceable right to offset recognised amounts, because the right to offset is enforceable only on the
occurrence of future events such as a default on the bank loans or other credit events.
117
Annual Report 2017 21. FINANCIAL RISK MANAGEMENT (CONTINUED)
(e) Master Netting or Similar Arrangements (continued)
The following table sets out the carrying amounts of recognised financial instruments that are subject to the above agreements.
Year ended 30 June 2017
Financial assets
Forward foreign exchange contracts – used for hedging
Cross currency swaps – used for hedging
Interest rate derivatives – used for hedging
Financial liabilities
Forward foreign exchange contracts – used for hedging
Cross currency swaps – used for hedging
Equity derivatives
Year ended 30 June 2016
Financial assets
Forward foreign exchange contracts – used for hedging
Cross currency swaps – used for hedging
Equity derivatives
Financial liabilities
Forward foreign exchange contracts – used for hedging
Cross currency swaps – used for hedging
Interest rate swaps – used for hedging
Equity derivatives
Financial
instruments
in the
statement
of financial
position
$m
Related
financial
instruments
that are not
offset
$m
Net
amount
$m
0.3
132.2
1.3
133.8
25.0
48.6
0.9
74.5
0.7
184.4
1.0
186.1
17.7
2.1
1.5
3.9
25.2
0.2
72.6
1.3
74.1
25.0
48.6
0.4
74.0
–
14.4
0.9
15.3
–
–
–
6.8
6.8
0.1
59.6
–
59.7
–
–
0.5
0.5
0.7
170.0
0.1
170.8
17.7
2.1
1.5
(2.9)
18.4
(f) Capital management
The Group manages its capital to safeguard the Group’s ability to continue as a going concern and to maintain an optimal capital
structure while maximising shareholder value. As such, the Board regularly reviews the Group’s capital structure in order to take
advantage of favourable costs of capital and returns on assets.
The Company maintains a diversified capital base with a mixture of equity and debt funding. Equity funding comprises both ordinary
shares and preference shares (TELYS4).
The Group’s dividend policy is to distribute cash from operating activities after financing costs, subject to the retention of adequate cash
reserves to capitalise on investment opportunities. Dividends are franked to the greatest extent possible.
Refer to Note 25: Dividends for details of dividends paid and proposed but not provided for during the current year.
118
Seven Group HoldingsNOTES TO THECONSOLIDATEDFINANCIALSTATEMENTS 22. OTHER FINANCIAL ASSETS
Accounting policy
The Group classifies its investments in the following categories: financial assets at fair value through profit or loss, financial assets at fair
value through other comprehensive income (FVTOCI) and amortised cost financial assets. The classification depends on the Group’s
business model for managing the financial asset as well as its contractual cash flow characteristics.
Management determines the classification of its investments at initial recognition. In the case of financial assets classified as FVTOCI,
this designation is irrevocable.
Financial assets at fair value through other comprehensive income
The Group’s existing listed and unlisted equity securities have been designated as financial assets at fair value through other
comprehensive income.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are either financial assets held for trading which are acquired principally for the purpose
of selling with the intention of making a profit or financial assets that are managed and have their performance regularly evaluated by
management and the directors on a fair value basis. Derivatives are also categorised as held for trading unless they are designated as hedges.
Recognition and de-recognition
Regular purchases and sales of investments are recognised on trade date – the date on which the Group commits to purchase or sell the
asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit
or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed
in profit or loss. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have
been transferred and the Group has transferred substantially all the risks and rewards of ownership.
Subsequent measurement
Financial assets at fair value through profit or loss and financial assets at FVTOCI are subsequently carried at fair value. Gains or losses
arising from changes in the fair value of the financial assets at fair value through profit or loss category, are presented in the profit or loss
within other income or other expenses in the period in which they arise. Dividend income from financial assets is recognised in the profit
or loss as other income.
Gains or losses arising from changes in the value of financial assets at FVTOCI category are taken to the fair value through OCI reserve.
In accordance with AASB 9, any gain or losses realised on the sale of these assets remain in the fair value reserve rather than being
transferred to the profit or loss.
Non-current
Listed equity securities
Unlisted equity securities
Total other financial assets – non-current
2017
$m
502.2
96.6
598.8
2016
$m
892.4
82.2
974.6
Listed equity securities are designated as financial assets at FVTOCI in accordance with the Group’s accounting policies. The carrying
amounts are determined based on their quoted market price at 30 June 2017. Unlisted equity securities comprise of the Group’s
investments in an unlisted private equity media investment fund (refer also to Note 21).
Dividends totalling $32.8 million (2016: $36.8 million) were received from the Group’s financial assets at FVTOCI. Net losses of
$30.6 million (2016: $2.4 million) relating to disposals of listed equity securities were realised during the year. These losses remain in
the fair value through OCI reserve.
119
Annual Report 2017 23. DERIVATIVE FINANCIAL INSTRUMENTS
Accounting policy
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their
fair value at each reporting date. The accounting for subsequent changes in fair value depends on whether the derivative is designated
as a hedging instrument, and if so, the nature of the item being hedged.
The Group designates certain derivatives as either:
• hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedges); or
• hedges of the cash flows of recognised assets and liabilities and highly probable forecast transactions (cash flow hedges).
The Group documents at the inception of the hedging transaction the relationship between hedging instruments and hedged items,
as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its
assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have
been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items.
The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is
more than 12 months; it is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months.
Trading derivatives are classified as a current asset or liability.
Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss, together with
any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The gain or loss relating to the
effective portion of interest rate swaps hedging fixed rate borrowings is recognised in profit or loss within finance expenses, together with
changes in the fair value of the hedged fixed rate borrowings attributable to interest rate risk. The gain or loss relating to the ineffective
portion is recognised in the profit or loss within other income or other expenses.
If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the
effective interest method is used is amortised to profit or loss over the period to maturity using a recalculated effective interest rate.
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other
comprehensive income in the cash flow hedge reserve. The gain or loss relating to the ineffective portion is recognised immediately in
profit or loss within other income or other expenses.
Amounts accumulated in other comprehensive income are recycled in the profit or loss in the periods when the hedged item affects
profit or loss (for instance when the forecast sale that is hedged takes place). The gain or loss relating to the effective portion of interest
rate swaps hedging variable rate borrowings is recognised in profit or loss within finance expenses. The gain or loss relating to the
effective portion of forward foreign exchange contracts hedging export sales is recognised in profit or loss within sales. However, when
the forecast transaction that is hedged results in the recognition of a non financial asset (for example, inventory or property, plant and
equipment), the gains and losses previously deferred in other comprehensive income are transferred from other comprehensive income
and included in the initial measurement of the cost of the asset. The deferred amounts are ultimately recognised in profit or loss as a cost
of goods sold in the case of inventory, or as depreciation in the case of property, plant and equipment.
When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any
cumulative gain or loss existing in other comprehensive income at that time remains in other comprehensive income and is recognised
when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the
cumulative gain or loss that was reported in other comprehensive income is immediately transferred to profit or loss.
Derivatives that do not qualify for hedge accounting
Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not
qualify for hedge accounting are recognised immediately in profit or loss.
120
Seven Group HoldingsNOTES TO THECONSOLIDATEDFINANCIALSTATEMENTS Current assets
Forward foreign exchange contracts – cash flow hedges
Other derivatives
Non-current assets
Cross currency swaps – cash flow hedges
Other derivatives – cash flow hedges
Current liabilities
Forward foreign exchange contracts – cash flow hedges
Other derivatives
Non-current liabilities
Forward foreign exchange contracts and cross currency swaps – cash flow hedges
Cross currency interest rate swaps – fair value adjustment
Net derivative financial instruments
2017
$m
0.3
–
0.3
132.2
1.3
133.5
(1.5)
(0.9)
(2.4)
(23.5)
(48.6)
(72.1)
59.3
2016
$m
0.7
1.0
1.7
184.4
–
184.4
(12.5)
(3.9)
(16.4)
(8.8)
–
(8.8)
160.9
The Group is a party to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuations in
interest rates, foreign exchange rates in accordance with the Group’s financial risk management policies. Refer to Note 21: Financial Risk
Management. The Group also enters into equity derivatives from time to time to hedge the value of listed investments or to gain exposure
to certain market sectors.
Interest rate swaps
The Group’s policy is to hedge a portion of its interest bearing liabilities from exposure to changes in interest rates.
The gain or loss from remeasuring the hedging instruments to fair value is deferred in equity in the hedge reserve and reclassified into
profit and loss when the hedged interest expense is recognised. To the extent that the hedge is ineffective or undesignated, the fair value
movement is recognised as fair value through profit or loss.
Forward foreign exchange contracts
The Group has entered into forward foreign currency exchange contracts to hedge the USD denominated debt in conjunction with cross
currency swaps. The Group has obligations to repay the principal amount of USD denominated debt and interest thereon. The Group’s
USD denominated debt and coupon obligations are hedged with foreign exchange derivatives.
The Group from time to time also enters into forward foreign exchange contracts to hedge certain known trading commitments
predominantly denominated in US Dollars. The terms of these commitments are generally shorter than one year.
Cross currency swaps
The Group has obligations to repay the principal and interest relating to USD denominated debt. The Group enters into cross currency
swap contracts to hedge these obligations.
Other derivatives
Other derivatives comprise equity derivatives. The Group enters into equity derivatives from time to time to hedge the value of listed
investments or to gain exposure to certain market sectors.
At 30 June 2017, the Group held various types of derivative financial instruments that were designated as cash flow hedges of future
forecast transactions. These were hedging of:
•
future foreign currency operational payments by exchange derivative contracts (forwards)
future foreign currency principal and coupon payments by exchange derivative contracts (forwards, swaps)
future interest payments by interest rate derivative contracts (swaps).
•
•
121
Annual Report 2017 23. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
The effective portion of the cumulative net change in the value of derivative financial instruments designated as a cash flow hedge are
included in the hedge reserve. The periods in which the related cash flows are expected to occur are summarised below.
Contracts to hedge
Year ended 30 June 2017
Future operational (sales and purchases)
Future principal and interest on borrowings
Total net (loss)/gain included in the hedge reserve
Year ended 30 June 2016
Future operational (sales and purchases)
Future principal and interest on borrowings
Total net (loss)/gain included in the hedge reserve
Hedge accounting
Within
1 year
$m
Between
1 to 5
years
$m
(0.2)
(1.0)
(1.2)
0.3
(9.5)
(9.2)
–
(23.5)
(23.5)
–
(4.5)
(4.5)
Over 5
years
$m
–
84.5
84.5
–
180.0
180.0
Total
$m
(0.2)
60.0
59.8
0.3
166.0
166.3
Notional
amount
of hedging
instrument
and hedged
item
$m
Carrying amount
Hedge
rates
Assets
$m
Liabilities
$m
Change in
value
of hedging
instrument
$m
Change in
value
of hedged
item
$m
Hedge
ineffective-
ness
recognised
in profit
or loss
$m
Amount
reclassified
from hedge
reserve
to profit
or loss
$m
AUD 43.0
AUD/USD
0.7415–0.7701
AUD 301.1
AUD/USD
0.6793–0.7215
0.3
(0.5)
(0.2)
(0.2)
–
–
–
(24.5)
(24.4)
(25.4)
–
(0.5)
(cross currency swaps)
AUD 349.8
AUD/USD
1.03
132.3
AUD 100
Collar
(1.5%–2.25%)
AUD 50
Collar
(1.57%–2.5%)
0.9
0.4
–
–
–
132.3
139.9
–
–
–
–
–
–
–
8.9
–
–
AUD/USD
1.03
–
( 48.6)
( 48.6)
(48.6)
(1.2)
–
Year ended 30 June 2017
Cash flow hedges
Future operational
(sales and purchases)
– up to 12 months
Future principal and
interest on USPP
– up to 10 years (foreign
exchange contracts)
Future principal and
interest on USPP
– up to 10 years
Future interest on
floating rate debt
– up to 1 month
Future interest on
floating rate debt
– up to 1 month
Fair value hedge
Future principal and
interest on USPP
– up to 10 years
(cross currency swaps)
AUD 267.9
122
Seven Group HoldingsNOTES TO THECONSOLIDATEDFINANCIALSTATEMENTS 24. CAPITAL AND RESERVES
CAPITAL
Accounting policy
Contributed equity
Ordinary shares, redeemable preference shares, non-share equity and other equity securities are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in other comprehensive income and presented
as contributed equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or
options, for the acquisition of a business, are not included in the cost of the acquisition as part of the purchase consideration.
When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs is
recognised as a deduction from equity.
Transferable Extendable Listed Yield Shares (TELYS4)
TELYS4 have been classified as equity and the dividend payable on the TELYS4 is treated as a distribution of shareholders equity.
Treasury shares
Treasury shares consist of shares held in trust for the Group’s executives in relation to employee equity benefits.
Contributed equity
281,240,870 ordinary shares, fully paid (2016: 281,240,870)
4,963,640 TELYS4 preference shares, fully paid (2016: 4,963,640)
44,720 treasury shares, fully paid (2016: 77,544)
Balance at end of the year
Movements in ordinary shares
Balance at beginning of year
On-market share buy-back and cancellation of shares
Balance at end of the year
Movements in preference shares – TELYS4
Balance at beginning of year
Balance at end of the year
Movements in treasury shares
Balance at beginning of year
Shares vested and transferred to employee
On-market share acquisition
Balance at end of the year
2017
$m
2016
$m
2,046.0
427.2
(0.3)
2,472.9
2,046.0
–
2,046.0
2,046.0
427.2
(0.5)
2,472.7
2,118.1
(72.1)
2,046.0
427.2
427.2
427.2
427.2
(0.5)
0.3
(0.1)
(0.3)
(0.7)
0.2
–
(0.5)
The Company does not have authorised share capital or par value in respect of its issued shares. All issued shares are fully paid. Holders
of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders’
meetings. In the event of winding up of the Company, ordinary shareholders rank after creditors and preference shareholders and are fully
entitled to any proceeds on liquidation.
No shares have been bought back under the current on-market buy back of either ordinary or TELYS4 shares.
TELYS4 holders are entitled to a preferential non-cumulative floating rate dividend, which is based on a Bank Bill Swap Rate for 180 days
plus Margin. The Margin is set at 4.75% subject to the Company’s right of Conversion and Exchange. There are no voting rights attached
except in limited circumstances, in which case holders will have one vote per TELYS4 held.
During the year ended 30 June 2017, there were nil options exercised, cancelled or forfeited (2016: nil options exercised, cancelled or forfeited).
123
Annual Report 2017 24. CAPITAL AND RESERVES (CONTINUED)
RESERVES
Nature and purpose of reserves
Acquisitions reserve
The acquisitions reserve is used to record the difference between the fair value of consideration paid for
the non-controlling interest of subsidiaries, and the book value of those subsidiaries’ share of net assets at
date of acquisition.
Employee equity benefits
reserve
The employee equity benefits reserve is used to record the value of equity benefits provided to employees
and Directors as part of their remuneration.
Common control reserve
Hedge reserve
Fair value through OCI
reserve
The acquisition of WesTrac Group by the Company during the period ended 30 June 2010 was accounted
for as a common control transaction. As a consequence, the difference between the fair value of the
consideration paid and the existing book values of assets and liabilities of the WesTrac Group was debited
to a common control reserve.
The hedge reserve records the effective portion of the cumulative net change in fair value of hedging
instruments related to cash flow hedged transactions that have not yet occurred.
The Group has elected to recognise changes in the fair value of certain investments in equity securities in
other comprehensive income under AASB 9. The net change in the fair value of financial assets measured
at fair value through other comprehensive income (FVTOCI) will be shown in this reserve and not be
subsequently reclassified to profit or loss.
Foreign currency translation
reserve
The foreign currency translation reserve records the foreign currency differences arising from the
translation of the financial statements of foreign operations.
Employee
equity
benefits
reserve
$m
Common
control
reserve
$m
Fair value
through
OCI
reserve
$m
Foreign
currency
translation
reserve
$m
Hedge
reserve
$m
Acquisitions
reserve
$m
Total
$m
(63.5)
–
–
–
–
–
–
–
–
(63.5)
(63.5)
–
–
–
–
–
–
–
–
(63.5)
5.3
–
–
–
–
(0.4)
–
2.0
(0.3)
6.6
4.3
–
–
–
–
–
(0.4)
–
1.4
5.3
(642.6)
–
29.0
–
58.6
(110.7)
147.2
–
(466.0)
(110.7)
–
–
–
–
–
–
–
(642.6)
(642.6)
–
–
–
–
–
–
–
–
(642.6)
–
33.6
–
33.6
(89.5)
28.8
3.2
–
–
–
(28.5)
9.6
0.4
–
–
31.9
(9.6)
(3.3)
–
–
29.0
–
–
–
–
–
–
(18.5)
216.4
–
(225.5)
67.7
–
–
–
–
–
58.6
–
–
(9.1)
(39.3)
–
–
98.8
(89.5)
28.8
(6.3)
(39.3)
2.0
(0.3)
(647.7)
131.6
–
(344.2)
0.4
–
–
–
–
(225.5)
67.7
31.9
(9.6)
1.2
(2.5)
14.4
–
147.2
14.4
1.4
(466.0)
Year ended 30 June 2017
As at 1 July 2016
Fair value movement on financial assets
measured at FVTOCI
Tax effect of net gain on financial assets
measured at FVTOCI
Net gain on cash flow hedges
Tax effect of net gain on cash flow hedges
Movement in reserves of equity
accounted investees
Currency translation differences
Share based payments
Share based payment options settled
As at 30 June 2017
Year ended 30 June 2016
As at 1 July 2015
Impact of transition –
AASB 9: Financial Instruments
Fair value movement on financial assets
measured at FVTOCI
Tax effect of net gain on financial assets
measured at FVTOCI
Net gain on cash flow hedges
Tax effect of net gain on
cash flow hedges
Movement in reserves of equity
accounted investees
Currency translation differences
Share based payments
As at 30 June 2016
124
Seven Group HoldingsNOTES TO THECONSOLIDATEDFINANCIALSTATEMENTS 56.2
56.3
112.5
12.0
11.7
23.7
59.1
128.7
58.5
56.4
114.9
12.1
12.5
24.6
56.2
142.2
25. DIVIDENDS
Dividends paid
Year ended 30 June 2017
Ordinary shares
Final dividend in respect of 2016 year
Interim dividend
Date of
payment
Franked/
unfranked
Amount
per share
Total
$m
7 Oct 16
13 Apr 17
Franked
Franked
$0.20
$0.20
Transferable Extendable Listed Yield Shares (TELYS4)
Dividend
Dividend
30 Nov 16
31 May 17
Franked
Franked
$2.41
$2.36
Subsequent event
Current period final dividend on ordinary shares proposed but not provided for
Ordinary shares
Final dividend in respect of 2017 year
Balance of franking account at 30%
Year ended 30 June 2016
Ordinary shares
Final dividend in respect of 2015 year
Interim dividend
6 Oct 17
Franked
$0.21
9 Oct 15
12 Apr 16
Franked
Franked
$0.20
$0.20
Transferable Extendable Listed Yield Shares (TELYS4)
Dividend
Dividend
30 Nov 15
31 May 16
Franked
Franked
$2.45
$2.50
Ordinary shares
Final dividend in respect of 2016 year
Balance of franking account at 30%
7 Oct 16
Franked
$0.20
The balance of the dividend franking account as at the reporting date has been adjusted for:
(a) franking credits/debits that will arise from the payment/refund of current tax liabilities;
(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 by the tax consolidated group at the reporting
date; and
(d) franking credits that the entity may be prevented from distributing in subsequent years.
The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends. The impact on
the dividend franking account of dividends proposed after the balance sheet date but not recognised as a liability is to reduce it by
$25.3 million (2016: $24.1 million).
26. CONTINGENT LIABILITIES
Contingent liabilities – continuing operations
Performance guarantees
Financial guarantees
Contingent liabilities – discontinued operations
Performance guarantees
Financial guarantees
Total contingent liabilities
2017
$m
101.3
4.0
24.6
25.9
155.8
2016
$m
142.5
31.0
–
–
173.5
125
Annual Report 2017 26. CONTINGENT LIABILITIES (CONTINUED)
Performance guarantees
Performance guarantees relate to guarantees provided to customers in support of equipment and contract performance.
Financial guarantees
The Group has issued a number of financial guarantees to third parties for various operational and financing purposes. To the extent
that the Directors expect these third party guarantees to be called upon, a provision has been recorded in the consolidated statement
of financial position as at 30 June 2017.
The Group has entered into a number of financial guarantees in relation to subsidiary debt facilities and other financing arrangements.
The drawn amount of these facilities are recorded as interest bearing liabilities in the consolidated statement of financial position and
disclosed in Note 20: Interest Bearing Loans and Borrowings.
The nature of the Group’s and equity accounted investees’ activities are such that, from time to time, claims are received or made by
the Group. The Directors are of the opinion that no claims are expected to have a material adverse effect on the financial statements of the
Group and as such do not require disclosure as a contingent liability.
27. COMMITMENTS
Capital expenditure commitments
Payable:
Not later than one year
Finance lease commitments
Payable:
Not later than one year
Later than one year but not later than five years
Minimum lease payments(a)
Operating lease commitments (b)
Payable:
Not later than one year
Later than one year but not later than five years
Later than five years
Exploration expenditure commitments (c)
Payable:
Not later than one year
Later than one year but not later than five years
The above commitments include exploration expenditure commitments relating
to joint venture operations in relation to AC/RL9:
Not later than one year
Later than one year but not later than five years
Other commitments (d)
Payable:
Not later than one year
2017
$m
2016
$m
27.3
25.9
0.3
–
0.3
54.7
145.6
118.8
319.1
23.7
–
23.7
3.7
–
3.7
1.4
0.5
1.9
50.5
153.8
48.7
253.0
27.2
10.5
37.7
7.2
10.5
17.7
41.3
72.8
(a) minimum future lease payments include the aggregate of all lease payments and any guaranteed residual value.
(b) the Group leases various offices and sites under non-cancellable operating leases. The leases have varying terms, escalation clauses and renewal rights.
On renewal, the terms of the leases are renegotiated.
(c) exploration expenditure commitments relate to work commitments pursuant to the award of petroleum exploration permits WA377P and AC/RL9. Estimates for
future exploration expenditure commitments are based on estimated well and seismic costs which will change as actual drilling location and seismic surveys
are organised and are determined in current dollars on an undiscounted basis. The exploration and evaluation obligations may vary significantly as a result of
renegotiations with relevant parties.
(d) other commitments relates to the Group’s commitment to invest in an unlisted investment fund.
126
Seven Group HoldingsNOTES TO THECONSOLIDATEDFINANCIALSTATEMENTS 28. EVENTS SUBSEQUENT TO BALANCE DATE
Other than as outlined below, there has not arisen in the interval between 30 June 2017 and the date of this Report any other event that
would have had a material effect on the Financial Statements as at 30 June 2017.
Sale of WesTrac China
On 1 July 2017, wholly-owned subsidiaries entered into sale agreements to dispose of entities comprising the Group’s WesTrac China
operating segment. The sale is subject to a number of conditions precedent including regulatory approval from the Ministry of Commerce
of the People’s Republic of China. On satisfying the conditions precedent including obtaining regulatory approval, the sale will be
completed resulting in the Group’s WesTrac China operations being sold.
Movement in share prices of listed investments
Subsequent to year end, there has been movement in the share prices of listed investments and as a result, the value of the Group’s
investments have varied from what is presented in this financial report. The market value of listed investments at 21 August 2017
compared to their market value at 30 June 2017 is provided in the table below.
Listed equity securities
Listed investments accounted for using the equity method
Total listed investments
MARKET VALUE
21 August 2017
$m
30 June 2017
$m
463.6
752.7
1,216.3
502.2
687.3
1,189.5
29. PARENT ENTITY DISCLOSURES
As at and throughout the year ended 30 June 2017 the parent company of the Group was Seven Group Holdings Limited.
The individual financial statements for the parent entity show the following aggregate amounts.
Financial position of parent entity at end of the year
Current assets
Total assets
Current liabilities
Total liabilities
Total equity of the parent entity comprising of:
Contributed equity
Reserves
Retained earnings
Total shareholders equity
Result of the parent entity
Profit for the year
Total comprehensive income for the year
Other information
Contingent liabilities of the parent entity(a)
COMPANY
2017
$m
2016
$m
1.0
3,129.7
103.6
533.7
2,472.9
7.7
115.4
2,596.0
0.6
3,127.2
102.2
533.4
2,472.7
5.9
115.2
2,593.8
136.4
136.4
143.5
143.5
123.4
126.1
(a) relates to financial guarantees provided to third parties by the parent entity for subsidiary debt facilities and other financing arrangements. These facilities are held
by entities that are outside of the Deed of Cross Guarantee disclosed in Note 30: Controlled Entities.
Parent entity guarantees in respect of debts of its subsidiaries
The parent entity has entered into a Deed of Cross Guarantee with the effect that the Company guarantees debts in respect of
certain of its subsidiaries. Further details of the Deed of Cross Guarantee and the subsidiaries subject to the deed are disclosed
in Note 30: Controlled Entities.
In addition to the contingent liabilities shown above, the parent entity guarantees a number of debt facilities held by various controlled
entities who are part of the Deed of Cross Guarantee.
127
Annual Report 2017 Notes
Country of
incorporation
2017
%
2016
%
OWNERSHIP
INTEREST
(a)
(a)
(b)
(a)
(c)
(c)
(c)
(c)
(a)
(a)
(f)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(c)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(d)
Australia
Australia
New Zealand
UAE
Australia
South Africa
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
China
Australia
Australia
Australia
Australia
Australia
Australia
Australia
USA
Australia
Indonesia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
USA
Australia
Australia
100
100
100
100
100
–
–
–
–
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
–
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
30. CONTROLLED ENTITIES
Parent entity
Seven Group Holdings Limited
Subsidiaries
Allight Holdings Pty Limited
AllightSykes New Zealand Limited
AllightPrimax FZCO
AllightSykes Pty Limited
AllightSykes SA (Proprietary) Limited
ATPH Pty Limited
ATP1 Pty Limited
ATP2 Pty Limited
ATP3 Pty Limited
C7 Pty Limited
Direct Target Access Pty Limited
FGW Pacific Pty Limited
Industrial Investment Holdings Pty Limited
Kimlin Holdings Pty Limited
Liaoning WesTrac Machinery Equipment Limited
Manooka Holdings Pty Limited
Miltonstar Pty Limited
Mining Equipment Spares Pty Limited
National Hire Facilitation Pty Limited
National Hire Group Limited
Network Investment Holdings Pty Limited
Point Pty Limited
Primax USA Inc
Priority People Solutions Pty Ltd
PT AllightSykes
Pump Rentals Pty Limited
Realtime Reporters Pty Limited
Seven Broadcast Properties Trust
Seven Custodians Pty Limited
Seven Entertainment Pty Limited
Seven Finance Pty Limited
Seven Media Group Pty Limited
Seven (National) Pty Limited
Seven Network International Limited
Seven Network Investments Pty Limited
Seven Network Limited
Seven Network Nominees Pty Limited
Seven Network (United States) Inc
Seven Resources Pty Limited
Seven (WAN) Pty Limited
128
Seven Group HoldingsNOTES TO THECONSOLIDATEDFINANCIALSTATEMENTS SGH Communications Pty Limited
SGH Energy Aust. Pty Limited
SGH Energy Corporate Pty Ltd
SGH Energy (No 1) Pty Limited
SGH Energy (No 2) Pty Limited
SGH Energy NTP66 Pty Ltd
SGH Energy NV Pty Ltd
SGH Energy Pty Ltd
SGH Energy Services Pty Ltd
SGH Energy VICP54 Pty Ltd
SGH Energy VICP56 Pty Ltd
SGH Energy WA Pty Ltd
SGH Energy WA377P Pty Ltd
SGH Productions Pty Limited
Sitech (Beijing) Engineering Technology Development
Company Limited
Sitech Solutions Pty Limited
Sitech (WA) Pty Limited
SMG Executives Pty Limited
SMG FINCO Pty Limited
SNZ Pty Limited
Specialised Investments Pty Limited
Sykes Fleet Services Pty Limited
Sykes Group Pty Limited
Tallglen Pty Limited
Tianjin WesTrac Machinery Equipment Limited
Weishan (Beijing) Machinery Equipment Limited
WesTrac (Beijing) Machinery Equipment Limited
WesTrac China Limited
WesTrac (China) Machinery Equipment Limited
WesTrac Fleet Pty Limited
WesTrac Holdings Pty Limited
WesTrac Hong Kong Limited
WesTrac Inventory Pty Limited
WesTrac Machinery Distribution Pty Limited
WesTrac Pty Limited
Notes
(e)
(a)
(f)
(a)
(a)
(a)
(a)
(f)
(f)
(f)
(f)
(f)
(g)
(a)
(f)
(g)
Country of
incorporation
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
China
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
China
China
China
Hong Kong
China
Australia
Australia
Hong Kong
Australia
Australia
Australia
OWNERSHIP
INTEREST
2017
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
51
51
51
100
100
100
100
100
100
100
100
100
100
100
100
–
100
100
–
100
100
(a) pursuant to ASIC Corporations (Wholly-Owned Companies) Instrument 2016/785 these controlled entities are relieved from the Corporations Act 2001
requirements for the preparation, audit and lodgement of financial reports.
(b) this company changed its name to AllightSykes New Zealand Limited on 22 October 2015 (formerly Sykes New Zealand Limited).
(c) this company was deregistered on 31 May 2017.
(d) this controlled entity entered into the Deed of Cross Guarantee with the Company via Assumption Deed on 2 November 2015.
(e) SGH Energy Aust. NL changed its name to SGH Energy Aust. Pty Limited on 30 July 2015.
(f) this company is part of the WesTrac China disposal group. Refer to Note: 32 Discontinued Operations for further detail.
(g) this company was deregistered on 20 November 2016.
2016
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
51
51
51
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
129
Annual Report 2017 30. CONTROLLED ENTITIES (CONTINUED)
Deed of Cross Guarantee
Pursuant to ASIC Corporations (Wholly-Owned Companies) Instrument 2016/785 (“Instrument”) the wholly-owned controlled entities
listed above (marked (a)) are relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial
reports and Directors’ reports.
It is a condition of the Instrument that the Company and each of the wholly-owned controlled entities (marked (a)) enter into a
Deed of Cross Guarantee. The effect of the Deed is that the Company guarantees to each creditor payment in full of any debt in the
even t of winding up of any of the parties to the Deed under certain provisions of the Corporations Act 2001. If a winding up occurs under
other provisions of the Corporations Act 2001, the Company will only be liable in the event that after six months any creditor has not been
paid in full. The subsidiaries have also given similar guarantees in the event that the Company is wound up.
A combined statement of comprehensive income and combined statement of financial position, comprising the Company and controlled
entities which are a party to the Deed, after eliminating all transactions between parties to the Deed of Cross Guarantee, are set out below.
Statement of comprehensive income
Revenue
Revenue
Other income
Other income
Gain on sale of investments and equity accounted investees
Dividend income
Total other income
Share of results from equity accounted investees
Impairment of equity accounted investees
Fair value movement of derivatives
Expenses excluding depreciation and amortisation
Expenses
Depreciation and amortisation
Profit before net finance expense and tax
Net finance expenses
Profit before tax
Income tax benefit
Profit for the year
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss:
Net change in financial assets measured at fair value through other comprehensive income
Income tax on items of other comprehensive income
Total items that will not be reclassified subsequently to profit or loss
Items that may be reclassified subsequently to profit or loss:
Foreign currency differences for foreign operations
Total items that may be reclassified subsequently to profit or loss
Total comprehensive income for the year
Movement in retained earnings
Retained profits at beginning of the year
Profit for the year
Dividends paid during the year
Retained earnings at end of the year
130
COMBINED
2017
$m
2016
$m
63.3
69.3
7.7
1.9
152.8
162.4
(182.9)
128.4
3.1
(91.8)
(1.0)
81.5
(38.3)
43.2
9.5
52.7
(106.4)
30.8
(75.6)
(8.0)
(8.0)
(30.9)
520.7
52.7
(136.2)
437.2
11.5
0.2
134.2
145.9
79.0
5.5
4.2
(104.2)
(1.6)
198.1
(39.3)
158.8
24.6
183.4
(255.0)
76.5
(178.5)
4.3
4.3
9.2
476.7
183.4
(139.4)
520.7
Seven Group HoldingsNOTES TO THECONSOLIDATEDFINANCIALSTATEMENTS Statement of financial position
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Loans to related parties
Other current assets
Derivative financial instruments
Total current assets
Non-current assets
Investments in controlled entities
Investments accounted for using the equity method
Other financial assets
Property, plant and equipment
Intangible assets
Derivative financial instruments
Total non-current assets
Total assets
Current liabilities
Interest bearing loans and liabilities
Trade and other payables
Loans from related parties
Deferred income
Provisions
Derivative financial instruments
Total current liabilities
Non-current liabilities
Interest bearing loans and liabilities
Deferred tax liabilities
Trade and other payables
Provisions
Deferred income
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
COMBINED
2017
$m
2016
$m
116.0
16.3
25.0
31.0
–
–
188.3
865.5
1,106.9
502.2
1.7
0.8
0.4
2,477.5
128.4
44.1
28.2
–
0.1
1.3
202.1
865.5
969.1
892.4
2.3
0.9
–
2,730.2
2,665.8
2,932.3
40.1
57.0
14.7
0.8
4.0
0.8
117.4
813.6
21.2
0.9
2.9
7.3
845.9
963.3
1,702.5
2,472.9
(1,207.6)
437.2
1,702.5
80.1
46.9
28.2
0.9
3.9
4.6
164.6
866.5
23.9
0.4
4.2
7.3
902.3
1,066.9
1,865.4
2,472.7
(1,128.0)
520.7
1,865.4
131
Annual Report 2017 31. ASSETS HELD FOR SALE
Accounting policy
Assets are classified as held for sale when management are committed to a plan to sell the asset within the next 12 months, an active
program to locate a buyer is initiated and the plan is unlikely to be significantly changed or withdrawn.
Assets held for sale are measured at the lower of carrying amount and fair value less costs of disposal.
The Group’s investment in WesTrac China is classified as an asset held for sale at 30 June 2017 as the Group has definitively decided on
a plan to dispose of the operations. The operations are disclosed as the WesTrac China segment.
The disposal is consistent with the Group’s long-term strategy to focus its activities on where we can generate a cost of capital. The
Group is in negotiation with a potential buyer and expects the sale to complete by 30 September 2017. The Group has not recognised any
impairment loss in respect of the WesTrac China operations when reclassifying as an asset held for sale as the expected fair value less
costs of disposal is higher than the carrying amount.
Outlined below is a summary of the assets and liabilities for WesTrac China at 30 June 2017:
2017
$m
76.8
147.2
161.8
8.2
394.0
17.6
312.1
7.7
337.4
731.4
129.8
41.5
8.1
8.4
187.8
0.2
0.2
188.0
543.4
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other current assets
Total current assets
Non-current assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Deferred income
Current tax liability
Provisions
Total current liabilities
Non-current liabilities
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
132
Seven Group HoldingsNOTES TO THECONSOLIDATEDFINANCIALSTATEMENTS 32. DISCONTINUED OPERATIONS
The Group’s investment in WesTrac China is classified as an asset held for sale at 30 June 2017 as the Group has definitively committed
on a plan to dispose of the operations. Furthermore, as the WesTrac China segment represents the Group’s sole direct geographical
exposure to China, the results of WesTrac China have been presented as discontinued operations.
WesTrac China is the authorised Caterpillar dealer (including Bucyrus/Expanded Mining Products) in the North Eastern China provinces
of Hebei, Liaoning, Heilongjiang, Jilin, Shanxi, Inner Mongolia and the municipalities of Beijing and Tianjin, providing heavy equipment
sales and support to customers.
The combined results of the discontinued operations included in the Group’s profit for the year are set out below. The comparative
consolidated statement of profit or loss and other comprehensive income and consolidated cash flow statement have been re-presented
to separately disclose the operations classified as discontinued in the current year.
Statement of profit or loss – discontinued operations
Revenue
Other income
Fair value movement of derivatives
Expenses excluding depreciation and amortisation
Profit before depreciation, amortisation, net finance expense and income tax
Depreciation and amortisation
Profit before net finance expense and income tax
Finance expense
Profit before income tax
Income tax expense
Profit for the year from discontinued operations
Profit for the year from discontinued operations attributable to:
Equity holders of the Company
Non-controlling interest
Profit for the year from discontinued operations
Cash flows from discontinued operations
Net cash inflows from operating activities
Net cash inflows/(outflows) from investing activities
Net cash outflows from financing activities
Net cash inflows
2017
$m
2016
$m
602.4
4.2
2.1
(567.4)
41.3
(3.1)
38.2
(2.2)
36.0
(6.2)
29.8
30.0
(0.2)
29.8
71.2
3.4
(41.6)
33.0
600.5
6.7
1.0
(573.5)
34.7
(4.9)
29.8
(3.5)
26.3
(12.5)
13.8
14.3
(0.5)
13.8
48.7
(0.5)
(26.1)
22.1
133
Annual Report 2017 33. RELATED PARTY DISCLOSURES
Key management personnel compensation
Detailed remuneration disclosures, including movements in equity holdings for KMP, are disclosed in the Remuneration Report section of
the Director’s Report.
The aggregate compensation made to the Key Management Personnel of the Group is set out below:
Short-term employee benefits
Post-employment benefits
Termination benefits
Other long-term employee benefits
Share-based payments
Total key management personnel compensation
2017
$000
7,706
284
23
233
2,516
10,762
2016
$000
8,513
306
–
181
840
9,840
No Director has entered into a material contract with the Group in the current or prior year other than those disclosed in the
Remuneration Report or this note.
Subsidiaries
Interests in subsidiaries are set out in Note 30: Controlled Entities.
Other related party transactions
The aggregate value of transactions between the Group and its equity accounted investees is outlined below.
Sales revenue
Associates
Joint ventures
Other income
Joint ventures
Rental expense
Joint ventures
Other expenses
Associates
Joint ventures
Expense reimbursement
Associates
Outstanding balances arising from transactions with equity accounted investees:
Trade and other receivables
Associates
Joint ventures
Tax payable to equity accounted investee who is a member of the tax-consolidated group
Associates
2017
$m
2.8
19.8
2016
$m
1.9
29.8
1.6
2.0
(1.0)
(1.3)
(2.9)
–
(3.7)
(0.8)
(0.7)
(0.2)
1.0
5.2
0.6
11.6
(14.7)
(38.6)
134
Seven Group HoldingsNOTES TO THECONSOLIDATEDFINANCIALSTATEMENTS Director related party transactions
There have been a number of substantial related party transactions with director related entities during the year.
Lease of premise
The WesTrac Group leases a number of properties from related parties, the material terms of which were set out on page 406 of Part B
of the merger scheme documentation. During the year, a number of these properties were sold by the related party to an arm’s length
purchaser. New lease terms with an extended duration and in conjunction with lower base rents have been entered into by the Group
with the new owner.
The Group consented to waive its first and last right over a number of these related party properties. In return the Group received
consideration with an estimated market value of $4.8 million which was provided via future rent reductions and waiving of make-good
obligations on the rental properties.
The key lease amendments with the arm’s length parties are as outlined below:
• Tomago – reduction in passing rent of approximately $3.0 million, lease duration extended by ten years to 2034 and 50 basis point
reduction in the minimum annual rent review;
• South Guildford – reduction in passing rent of $1.9 million, lease duration extended by seven years to 2028 and a new cap and collar
on market rent review at the end of year 12, along with one additional five year extension option;
• Welshpool and Kewdale – no change in arrangements with the new property owner; and
• Parramatta – early termination of lease in February 2018 with rent reduction over the remaining lease term and no make-good
obligation on exiting the property.
Other transactions
During the year, a related party transacted with the Group to acquire used heavy equipment on an arm’s length basis.
34. AUDITOR’S REMUNERATION
Amounts received or due and receivable by auditors of the Company are set out below.
Audit and audit related services
Auditors of the Company
Australia
Audit and review of financial reports
Overseas auditor firms
Audit and review of financial report
Total audit and audit related services
Other services
Auditors of the Company
Australia
Other advisory services
Other tax and advisory services
Overseas auditor firms
Other tax and advisory services
Total other services
Total auditor’s remuneration
2017
$000
2016
$000
600
225
825
218
4
–
222
1,047
765
205
970
76
105
19
200
1,170
The Company appointed Deloitte Touche Tohmatsu as the external auditor for the year ended 30 June 2017. In the prior year, the external
auditor was KPMG. The external auditor is only appointed to assignments additional to their statutory audit duties where they are able to
maintain their audit independence. All amounts payable to the auditors of the Company were paid by Group subsidiaries.
135
Annual Report 2017
DIRECTORS’
DECLARATION
Year ended 30 June 2017
1. In the opinion of the Directors of Seven Group Holdings Limited (the Company):
(a)
the consolidated financial statements and notes that are set out on pages 76 to 135 are in accordance with the Corporations Act
2001, including:
(i) giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its performance for the financial year
ended on that date; and
(b)
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and
payable.
2. There are reasonable grounds to believe that the Company and the group entities identified in Note 30 will be able to meet any
obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee between the Company
and those group entities pursuant to the ASIC Corporations (Wholly-owned Companies) Instrument 2016/785.
3. The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Managing Director &
Chief Executive Officer and the Chief Financial Officer for the financial year ended 30 June 2017.
4. The Directors draw attention to Note 1 to the consolidated financial statements, which includes a statement of compliance with
International Financial Reporting Standards.
Signed in accordance with a resolution of the Directors:
KM Stokes AC
Executive Chairman
Sydney
22 August 2017
SA Chaplain
Chair of the Audit & Risk Committee
136
Seven Group Holdings INDEPENDENT
AUDITOR’S REPORT
Deloitte Touche Tohmatsu
A.B.N. 74 490 121 060
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
DX 10307SSE
Tel: +61 (0) 2 9322 7000
Fax: +61 (0) 2 9322 7001
www.deloitte.com.au
Independent Auditor’s Report to the members of
Seven Group Holdings Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of Seven Group Holdings Limited (the “Company”) and its
subsidiaries (the “Group”) which comprises the consolidated statement of financial position as at
30 June 2017, the consolidated statement of profit or loss and other comprehensive income, the
consolidated statement of changes in equity and the consolidated cash flow statement for the year
then ended, and notes to the financial statements, including a summary of significant accounting
policies, and the directors’ declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the
Corporations Act 2001, including:
(i)
giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its
financial performance for the year then ended; and
(ii)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities
under those standards are further described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report. We are independent of the Group in accordance with the
auditor independence requirements of the Corporations Act 2001 and the ethical requirements of
the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have
also fulfilled our other ethical responsibilities in accordance with the Code.
We confirm that the independence declaration required by the Corporations Act 2001, which has
been given to the directors of the Company, would be in the same terms if given to the directors
as at the time of this auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance
in our audit of the financial report for the current period. These matters were addressed in the
context of our audit of the financial report as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu
137
Annual Report 2017
Key Audit Matter
How the scope of our audit responded to the
Key Audit Matter
Recoverability of producing and
development assets
Our procedures, performed in conjunction with
valuation experts, included:
As disclosed in Note 13, the Group has
producing and development assets of
$213.9 million.
The assessment of the recoverable amount
requires significant judgement in respect of
assumptions such as estimated quantities of
proven plus probable reserves and future
commodity prices.
We focussed on this area as a key audit
matter due to the judgement involved in
forecasting future cash flows and the
selection of key assumptions.
Accounting for the investment in Seven
West Media Limited (“SWM”)
As disclosed in Note 11 the Group holds an
investment in SWM at a carrying value of
$442.4 million.
Accounting for the investment in SWM
requires significant judgement in respect of
assessing whether the Group has significant
influence or control over SWM. This impacts
the classification of the investment in SWM
as an equity accounted investment, rather
than a subsidiary which is consolidated and
so has a pervasive impact on the financial
statements.
• Understanding the process that management
undertakes to evaluate the recoverability of
producing and development assets
• Assessing the competence, scope of work and
objectivity of management’s expert used to
assist with the assessment of proven plus
probable reserves;
•
Evaluating the management prepared models
to assess the recoverable amount of the
producing and developing assets, including:
Agreeing proven plus probable reserves
-
to management’s expert’s reports; and
Critically assessing the key assumptions.
Particular focus was given to future
commodity prices.
-
We corroborated market related
assumptions by reference to external data;
• Assessing the historical accuracy of
forecasting of the Group in relation to the
producing and development assets;
•
•
Testing, on a sample basis, the mathematical
accuracy of the cash flow models;
Performing sensitivity analysis on key
assumptions, including future commodity
prices and proven plus probable reserves;
and
• Assessing the appropriateness of the relevant
disclosures in the financial statements.
Our procedures included:
•
•
Evaluating management’s determination that
the Group’s key management personnel do
not exert control over the significant
operational decisions of SWM. This included
assessing the composition and independence
of the SWM Board of Directors;
Evaluating historical voting patterns at Annual
General Meetings to challenge management’s
conclusion that they do not have control;
• Assessing the accuracy of the Group’s
ownership interest in SWM by recalculating
SGH’s ownership interest in SWM’s issued
share capital; and
• Assessing the appropriateness of the relevant
disclosures in the financial statements.
138
Seven Group HoldingsINDEPENDENTAUDITOR’SREPORT
Key Audit Matter
How the scope of our audit responded to the
Key Audit Matter
Carrying value of inventory
Our procedures included:
As disclosed in Note 10, at 30 June 2017
the Group holds inventories with a carrying
value of $654.7 million.
The determination of the carrying value of
inventories requires significant judgement,
specifically in relation to spare parts and
new machines, as inventory provisions are
determined based on the age and condition
of the goods, and management’s
assessment of future demand and market
conditions.
We focussed on this area as a key audit
matter due to the significant judgement
involved in assessing future demand and
market conditions.
• Understanding the process that management
undertake to determine the provision;
•
Testing on a sample basis management’s
inventory provision calculations, including:
-
-
Agreeing key assumptions related to
estimated sales prices to underlying
documentation such as latest sales
invoices; and
Critically assessing the assumptions,
including future saleability of aged
inventory, and corroborating
management’s market related
assumptions by reference to external
data where possible;
• Assessing the historical accuracy in relation to
inventory provisions by comparing historical
provisions against actual inventory write-
downs;
• Critically assessing the level of inventory
provisioning in light of the Group’s inventory
ageing profile; and
• Assessing the appropriateness of the relevant
disclosures in the financial statements.
Other Information
The directors are responsible for the other information. The other information comprises the
information included in the Group’s annual report for the year ended 30 June 2017, but does not
include the financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not express
any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent with
the financial report or our knowledge obtained in the audit, or otherwise appears to be materially
misstated. If, based on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report that fact. We have nothing to
report in this regard.
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives
a true and fair view in accordance with Australian Accounting Standards and the Corporations Act
2001 and for such internal control as the directors determine is necessary to enable the
preparation of the financial report that gives a true and fair view and is free from material
misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the
Group to continue as a going concern, disclosing, as applicable, matters related to going concern
and using the going concern basis of accounting unless the directors either intend to liquidate the
Group or to cease operations, or has no realistic alternative but to do so.
139
Annual Report 2017
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report
that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with the Australian Auditing Standards will
always detect a material misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgement and maintain professional scepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the financial report, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not
detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Group’s internal control.
•
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
• Conclude on the appropriateness of the directors’ use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to
events or conditions that may cast significant doubt on the Group’s ability to continue as a
going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in the financial report or, if such
disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditor’s report. However, future events or conditions
may cause the Group to cease to continue as a going concern.
•
Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and events
in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities
or business activities within the Group to express an opinion on the financial report. We are
responsible for the direction, supervision and performance of the Group’s audit. We remain
solely responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing
of the audit and significant audit findings, including any significant deficiencies in internal control
that we identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable,
related safeguards.
From the matters communicated with the directors, we determine those matters that were of most
significance in the audit of the financial report of the current period and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes
public disclosure about the matter or when, in extremely rare circumstances, we determine that a
matter should not be communicated in our report because the adverse consequences of doing so
would reasonably be expected to outweigh the public interest benefits of such communication.
140
Seven Group HoldingsINDEPENDENTAUDITOR’SREPORT
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report of Seven Group Holdings Limited included in Directors’
Report for the year ended 30 June 2017.
In our opinion, the Remuneration Report of the Company, for the year ended 30 June 2017,
complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the Remuneration Report, based on our audit conducted
in accordance with Australian Auditing Standards.
DELOITTE TOUCHE TOHMATSU
JL Gorton
Partner
Chartered Accountants
Sydney, 22 August 2017
141
Annual Report 2017
INVESTOR
INFORMATION
SHAREHOLDER INQUIRIES
Investors seeking information regarding their shareholding or
dividends or wishing to advise of a change of address should
contact the Share Registry at:
Boardroom Pty Limited
Level 12
Grosvenor Place
225 George Street
Sydney NSW 2000
GPO Box 3993
Sydney NSW 2001
Telephone: (02) 9290 9600
Facsimile: (02) 9279 0664 or
Visit the online service at boardroomlimited.com.au
Boardroom Pty Limited has an online service for investors
called InvestorServe. This enables investors to make online
changes, view balances and transaction history, as well as obtain
information about recent dividend payments and download various
forms to assist in the management of their holding. To use this
service visit the Boardroom Pty Limited website.
Other general inquiries may be directed to Mr W. Coatsworth,
Company Secretary on (02) 8777 7777 or visit the website at
www.sevengroup.com.au.
TAX FILE NUMBER INFORMATION
The company is obliged to record Tax File Numbers or exemption
details provided by shareholders. While it is not compulsory for
shareholders to provide a Tax File Number or exemption details,
Seven Group Holdings Limited is obliged to deduct tax from
unfranked dividends paid to investors resident in Australia who
have not supplied such information. Forms are available upon
request from the Share Registry or shareholders can submit their
Tax File Number via the Boardroom website.
THE CHESS SYSTEM
Seven Group Holdings Limited operates under CHESS – Clearing
House Electronic Subregister System – an Australian Securities
Exchange system which permits the electronic transfer and
registration of shares. Under CHESS, the company issues a
Statement of Holdings to investors, instead of share certificates,
and the statement will quote the Holder Identification Number
(HIN). The HIN number should be quoted on any correspondence
investors have with the Share Registry.
The company will maintain investors’ holdings in an Issuer
Sponsored facility, which enables investors to maintain their
holding without the need to be tied to any particular stockbroker.
142
Seven Group Holdings SHAREHOLDER
INFORMATION
SUBSTANTIAL SHAREHOLDERS – ORDINARY SHARES
The number of ordinary shares held by the Substantial Shareholders based on the most recent notifications contained in the Company’s
Register of Substantial Shareholders as at 17 July 2017 are as follows:-
Shareholder
KM Stokes;
North Aston Pty Limited,
Wroxby Pty Limited,
Tiberius (Seven Investments)Pty Limited and Ashblue Holdings Pty Limited;
Tiberius Pty Limited,
Redlake Pty Limited and
Tiberius group entities;
Australian Capital Equity Pty Limited,
Clabon Pty Limited and
Australian Capital Equity Pty Limited group entities
* Based on issued capital at date of notification
DISTRIBUTION OF ORDINARY SHAREHOLDERS AND TELYS4 SHAREHOLDERS
Category (No.s)
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 – and over
Total No. of Holders
No. of Holdings less than a Marketable Parcel
TWENTY LARGEST ORDINARY SHAREHOLDERS
Name of Shareholder
Ashblue Holdings Pty Limited
North Aston Pty Limited
North Aston Pty Limited
Wroxby Pty Limited
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees Pty Limited
Tiberius (Seven Investments) Pty Limited
JP Morgan Nominees Australia Limited
National Nominees Limited
BNP Paribas Nominees Pty Limited
RBC Investor Services Australia Nominees Pty Limited
BNP Paribas Nominees Pty Limited
AMP Life Limited
HSBC Custody Nominees (Australia) Limited
JAN 123 Pty Limited
Warbont Nominees Pty Limited
HSBC Custody Nominees (Australia) Limited
Uechtritz Foundation Pty Limited
Mr BM Lambert
Ecapital Nominees Pty Limited
Total Twenty Largest Ordinary Shareholders
No. of
Shares
207,304,349
% Held*
73.05
Ordinary
Shareholders
TELYS4
4,373
2,900
415
224
31
7,943
287
7,564
730
52
24
3
8,373
12
No. of
Shares
% Held
62,462,442
60,537,558
53,572,442
23,731,907
21,994,403
16,753,862
7,000,000
5,834,010
2,599,214
1,509,023
1,367,969
1,131,051
689,221
586,651
447,467
310,175
302,239
271,730
239,547
234,240
261,575,151
22.21
21.52
19.05
8.44
7.82
5.96
2.49
2.07
0.93
0.54
0.49
0.40
0.24
0.20
0.16
0.11
0.10
0.09
0.09
0.09
93.00
143
Annual Report 2017 TWENTY LARGEST TELYS4 SHAREHOLDERS
Name of Shareholder
Sandhurst Trustees Limited
HSBC Custody Nominees (Australia) Limited
Navigator Australia Limited
Nulis Nominees (Australia) Limited
National Nominees Limited
BNP Paribas Nominees Pty Limited
Netwealth Investments Limited
Jilliby Pty Limited
Australia Executor Trustees Limited
ZW 2 Pty Limited
Turtle SMSF Pty Limited
Mr DPJ and Mrs ES Mulroney
JGW Investments Pty Limited
Lenhut Pty Limited
JP Morgan Nominees Australia Limited
Netwealth Investments Limited
Mr LCJ and Mrs CK Lees
Mrs ES Mulroney
Mrs SR Richards
South Hong Nominees Pty Limited
Total Twenty Largest TELYS4 Shareholders
VOTING RIGHTS
No. of
TELYS4
% Held
257,673
167,007
100,919
58,034
49,284
44,411
43,520
35,778
31,728
28,000
21,000
19,950
18,329
15,619
14,471
13,906
13,092
13,000
12,605
12,000
970,326
5.19
3.36
2.03
1.17
0.99
0.89
0.88
0.73
0.64
0.56
0.43
0.40
0.37
0.31
0.29
0.28
0.27
0.26
0.25
0.24
19.54
Ordinary Shares
On a show of hands, every member present in person or by proxy or attorney, or being a corporation, present by its representative, shall
have one vote. On a poll, every member present in person or by proxy or attorney, or being a corporation, present by its representative,
shall have one vote for every share held.
TELYS4
There are limited voting rights attached to TELYS4 as detailed in their terms of issue. In broad terms, a holder has the right to vote if
a dividend is in arrears, on a proposal to reduce share capital, affecting rights on the TELYS4, on a winding up of the company, on a
disposal of the whole undertaking of the company, on a resolution to approve a buy – back agreement and during the winding up of the
company. Upon conversion of the TELYS4, the resulting issued shares will confer full voting rights.
Stock Exchange Listing
The Company is listed with the Australian Securities Exchange Limited and the home exchange is Sydney.
On-Market Buy-Back
There is a current on-market buy-back for Seven Group Holdings Limited ordinary shares.
An on-market buy-back for TELYS 4 concluded on 16 August 2017.
144
Seven Group HoldingsSHAREHOLDERINFORMATION CORPORATE
DIRECTORY
SEVEN GROUP HOLDINGS LIMITED
HEAD OFFICE
Level 2, 38–42 Pirrama Road
Pyrmont NSW 2009
Ph: (02) 8777 7777
Fax: (02) 8777 7778
WESTRAC WA
128–136 Great Eastern Highway
South Guildford WA 6055
Ph: (08) 9377 9444
WESTRAC NSW
1 WesTrac Drive
Tomago NSW 2322
Ph: (02) 4964 5000
WESTRAC ACT
78 Sheppard Street
Hume ACT 2620
Ph: (02) 6290 4500
WESTRAC CHINA
Sky Centre Tower A
No 22 Wanyuan Street
Beijing China 100176
Ph: (86) (10) 5902 1666
ALLIGHTSYKES WA
12 Hoskins Road
Landsdale WA 6065
Ph: (08) 9302 7000
ALLIGHTSYKES NSW
42 Munibung Road
Cardiff NSW 2285
Ph: (02) 4954 1400
SGH ENERGY
Level 5
160 Harbour Esplanade
Docklands VIC 3008
Ph: (03) 8628 7277
COMPANY
INFORMATION
LIST OF DIRECTORS
Kerry Stokes AC (Executive Chairman)
Ryan Stokes (Managing Director
& Chief Executive Officer)
Annabelle Chaplain
Terry Davis
Christopher Mackay
David McEvoy
Bruce McWilliam (Commercial Director)
Warwick Smith AM
Richard Uechtritz
COMPANY SECRETARY
Warren Coatsworth
REGISTERED OFFICE
Company Secretariat
Level 2
38–42 Pirrama Road
Pyrmont NSW 2009
SHARE REGISTRY
Boardroom Pty Limited
Level 12
Grosvenor Place
225 George Street
Sydney NSW 2000
AUDITOR
Deloitte Touche Tohmatsu
Grosvenor Place
225 George Street
Sydney NSW 2000
LEGAL ADVISORS
Herbert Smith Freehills
ANZ Tower
161 Castlereagh Street
Sydney NSW 2000
Clayton Utz
Level 15
1 Bligh Street
Sydney NSW 2000
Annual Report 2017
145
145
Annual Report 2017