Snam S.p.A.
Annual Report 2019

Plain-text annual report

FOR THE YEAR ENDING 30 JUNE 2019 ABN: 81 104 662 259 Contents Chairman’s Report Managing Director’s Report Our Projects Directors’ Report Auditor’s Independence Declaration Directors’ Declaration Independent Auditor’s Report Financial Statements Notes to the Financial Statements Shareholder Information Corporate Directory 4 6 10 26 37 38 39 45 49 88 89 2 SRG GLOBAL 2019 ANNUAL REPORTMaking the complex simple SRG Global is an engineering-led specialist construction, maintenance and mining services group built to solve complex problems across the entire asset lifecycle. 1 SRG GLOBAL 2019 ANNUAL REPORTSRG Global Model WHO WE ARE We’re an engineering-led specialist construction, maintenance and mining services group OPERATING MODEL End-to-end solutions across the entire asset lifecycle. OUR VISION The most sought-after specialist construction, maintenance and mining services business. 2 SRG GLOBAL 2019 ANNUAL REPORTOperating Segments Construction Constructing complex infrastructure Targeted Revenue Asset Services Sustaining complex infrastructure Recurring Revenue Mining Services Comprehensive ground solutions Recurring Revenue 3 SRG GLOBAL 2019 ANNUAL REPORT Chairman’s Report Chairman’s Report Live for the challenge We live to solve problems and have the courage to challenge the status quo and what’s considered possible. Smarter together Individually, we’re all pretty smart but when we pool our resources and work together as one, we’re capable of taking on the world. Never give up We’re doers. We are resilient and relentlessly pursue excellence in everything we do. 100% accountability, zero excuses. Have each other’s backs We’re stronger as one team. We look out for each other and keep each other out of harm’s way. 4 SRG GLOBAL 2019 ANNUAL REPORTChairman’s Report We are smarter together It is my pleasure to present the 2019 SRG Global Limited Annual Report, which marks the first full year since we brought together SRG Limited (‘SRG’) and Global Construction Services Limited (‘GCS’). This has been a transformational year and we have made significant progress to establish ourselves as the most sought-after engineering- led construction, maintenance and mining services business. It was clear from the first day of coming together that our success would not be determined by our capability alone but more importantly by what we stood for as one company. To this end I am delighted at the way our people came together, created and embraced what is core to us and our new way forward, which in the first instance has underpinned an efficient and well managed integration process. In order to forge a sense of togetherness it was necessary to establish “What We Stand For”. Out of this process we identified a series of commitments that everyone in the business can relate to and embody – live for the challenge, smarter together, never give up and have each other’s backs. It has been pleasing for the Board to see that these commitments have been embraced at all levels of the Group and applied not just operationally but also throughout the integration process. LIVE FOR THE CHALLENGE The process of bringing together two ASX listed groups is not without its challenges. The SRG Global team has embraced these challenges and has largely completed what is, from both a corporate and operational perspective, a complex process. With integration activities now substantially complete, SRG Global is well positioned to capitalise on the combined and integrated offering to the market, and further build on the numerous examples of early success in this area since the merger. SMARTER TOGETHER With our combined capability and expertise, the team has seamlessly integrated two businesses whilst ensuring impeccable delivery of service to our customers was maintained. Our conviction that the market wanted service providers to have an integrated offering has been validated by the projects we have been able to, and continue to, deliver. NEVER GIVE UP The past 12 months has presented SRG Global with a variety of business challenges however the continued focus has been on building a strong foundation from which SRG Global can deliver solid returns to shareholders. Importantly, the team’s resilience during difficult times has ensured it has delivered on initial expectations through maintaining a disciplined and targeted approach to the right project opportunities. Most notably it has been able to secure a number of substantial term revenue contracts and also establish new business units to target potentially lucrative emerging markets. HAVE EACH OTHER’S BACKS A safe business is a good business and we continue to strive towards our goal of Zero Harm. It is pleasing to note that even through a period of significant change SRG Global’s safety performance has improved. BOARD AND GOVERNANCE The new SRG Global Board has been in place for ten months and a key priority during this period has been to ensure SRG Global’s Corporate Governance processes are of the highest standards. To this end we introduced a new board charter and complete refresh of all governance, committee and policy frameworks. This has been no small task and I thank each Board member for the experience, expertise and contribution they bring. OUR FUTURE Following a year of transformation and integration we are now advancing towards the Growth Phase of our strategic plan. As we look ahead over 2020 we are encouraged by the level of activity and potential investment in sectors where we can apply our expertise to solve complex problems across the entire asset lifecycle. The strength of the business and our robust opportunity pipeline is in no small part due to the quality, professionalism and commitment of the SRG Global team. On behalf of the Board I would like to thank each and every member of the SRG Global family for their hard work over the past year. The dedication and resolve of our team is to be commended. They have met each challenge with a professional and relentless approach that will ultimately deliver significant long-term value for our shareholders. I would also like to thank shareholders for their support and I am pleased that we have laid a solid foundation for what is an exciting future for SRG Global. Peter Wade Non-Executive Chairman 5 SRG GLOBAL 2019 ANNUAL REPORTManaging Director’s Report Managing Director’s Report 6 SRG GLOBAL 2019 ANNUAL REPORTManaging Director’s Report We live for the challenge The 2019 Financial Year (‘FY19’) has been a year of change and challenge which has ultimately strategically positioned SRG Global as a business with a balanced portfolio of recurring and project- based revenue streams occurring across the entire asset life cycle of engineer, construct and sustain. ZERO HARM AND OUR PEOPLE Ensuring that our workforce of 1,900 highly-skilled, motivated team members return home to their families safely at the end of every day is a primary focus. In a year of change, we intensified the focus on proactively driving a strong safety culture across all parts of our business and I am proud of the way that our people have each other’s backs. We have taken some good steps towards improving our LTIFR during a period of significant internal change. I often refer to safety as the glass ball amongst the many rubber balls that you juggle in business and we will continue to relentlessly pursue Zero Harm each and every day in the SRG Global working community. A YEAR OF CHANGE FY19 saw the coming together of SRG Limited (‘SRG’) and Global Construction Services Limited (‘GCS’) to create an engineering-led specialist construction, maintenance and mining services group. The strategic rationale of the merger was to leverage the greater combined offering of both businesses and to target our common and complementary customers in the sectors and geographies that we operate in. The integration has been well executed with: • positive customer feedback • clear evidence of work won through cross-selling of complete offering • systems integration well progressed • “One Business One Team” structure and culture embedded This has positioned the business well in weathering what has been a very challenging year on several fronts including a highly competitive environment combined with economic and political uncertainty. This resulted in a number of delays in the award of major targeted construction projects and the subsequent substantial carrying costs that were required to maintain our engineering and delivery capability. Faced with challenging market conditions in some sectors, the decision was made to ensure internal engineering and delivery capability was maintained despite delays in the award and commencement of large-scale construction projects. These capability carrying costs have impacted earnings for the current financial year however they ensure SRG Global is well placed to secure these projects upon their commencement. Whilst it can be difficult to balance short-term market expectations, it was imperative that we maintained a long-term focus to ensure the sustainable success of SRG Global well into 2020 and beyond. Whilst the market will continue to be demanding, we are building clear momentum with a number of significant contract wins and record work in hand. This positions us well in the medium and longer term, underpinned by having the capability to successfully deliver for our shareholders on an ongoing basis. “Record work in hand of $708m with ~70% of recurring revenue” 7 SRG GLOBAL 2019 ANNUAL REPORTManaging Director’s Report Recent major contract awards Construction Asset Services Mining Services Karratha Asset Services o Woodside o ~$30m o Access Solutions Construction o Main Roads WA o $20.8m o Transport Infrastructure PERTH Kalgoorlie Worsley Mining Services o KCGM o ~$18m o 5 years o Geotechnical Ground Support Asset Services o South32 o ~$60m o 6 Years o Access Solutions MIDDLE EAST Asset Services o Ports North o $4.2m o Jetty Remediation DUBAI Construction o Besix o ~$8m o Transport Infrastructure UNITED STATES Mt. Carlton Mining Services o Evolution o $115m o 5 years o Production Drill & Blast Asset Services o Onesteel o ~$45m o 6 Years o Refractory Services Whyalla SYDNEY Cowal Mt. Rawdon BRISBANE Construction o Multiplex o ~$30m o Commercial Facades Hutchinson o $20m o Commercial Facades Construction o RMS o $7.9m o Transport Infrastructure MELBOURNE Asset Services o VicRoads o $9m o Transport Infrastructure Maintenance Minnesota Construction o Early Contractor Involvement (ECI) o Dam Strengthening AUCKLAND Asset Services o Transpower o ~NZ$35m o 3 Years o Energy Infrastructure Maintenance Source: Selected recent major contract awards since 1 July 2018 (not a complete list of projects) Construction o Hutchinson o $21.4m o Commercial Infrastructure o Watpac o $24.6m o Education Infrastructure o Technology Infrastructure o Lendlease o $25.8m o Health Infrastructure o Commercial Facades TRANSFORMING TO A MORE BALANCED BUSINESS MIX One of the primary goals of SRG Global is to continue to strategically build the level of recurring revenue to balance the current weighting towards project-based revenue. We are far more progressed in delivering against this key objective than I expected to be in the first ten months since merging. We now have record work in hand of $708 million and a step-change in the diversity of SRG Global’s revenue base such that our current work in hand is comprised of ~70% of recurring and term revenues. This change mitigates revenue and earnings volatility and validates a key element of the merger rationale. OPERATIONAL REVIEW Construction The Construction Segment has two key focus areas of civil and building. In the civil sector our focus is on the specialist markets of dams, bridges, LNG tanks and windfarms. In the building sector our focus is on securing vertically integrated structure and facade projects of scale with repeat, tier-one clients. For FY19 the Construction Segment delivered revenue of $268.0m (2018: 8 $120.0m) and EBITDA of $8.9m (2018: $5.2m). One of the key issues we experienced during the year was the on- going delays in the award and commencement of large-scale construction projects. This negatively impacted the financial performance as the business continued to carry the engineering and delivery capability costs without the corresponding revenue. There were significant transport infrastructure projects secured both domestically and internationally including the balanced-cantilever Infinity Bridge in Dubai, the substantial Ocean Reef Road Interchange project in Western Australia and several projects with various Transport Authorities on the East Coast of Australia. Of significance was the first Early Contractor Involvement (‘ECI’) for a dam anchoring and strengthening project in the United States. This ECI work signals that SRG Global’s SRG GLOBAL 2019 ANNUAL REPORTManaging Director’s Report WELL POSITIONED FOR LONG TERM SUSTAINABLE GROWTH With a core focus on securing recurring and term revenues, leveraging site presence to deliver an expanded offering to our client base and a disciplined approach to work winning, 2019 has laid a solid foundation from which the business can transition from the Optimisation Phase to the Growth Phase of our strategic plan (see below). Our vision is to be the most sought- after specialist construction, maintenance and mining services group. I am proud of how our people have embraced our Way Forward and am more confident than ever that we have great people, great customers and the right business model to continue to build the company that I know we can be. I would like to thank our people and shareholders for their ongoing support and am excited for the future we have in front of us at SRG Global and what we stand for - live for the challenge, smarter together, never give up and have each other’s backs. David Macgeorge Managing Director significant expertise and capability in complex civil infrastructure works continues to be transferable globally and in particular to our key target market of North America where 50% of global large concrete dams are located. In the building sector, we secured several significant integrated structure and facade packages during the year in markets including health, education and commercial infrastructure. We continue to follow key repeat clients and are agnostic as to market sectors, which protects our business against the different industry cycles. A new business unit was also established to target the emerging flammable cladding market. Whilst this market is in its infancy, SRG Global’s expertise in the complete supply chain for engineered facades places the business in a strong position to secure works in this market. Asset Services During the financial year the Asset Services Segment has maintained a disciplined focus on securing recurring and term revenue contracts with tier- one clients. This has been possible via the enhanced and combined offering of SRG Global such that the business is able to leverage existing site presence with a ‘one stop shop’ model. For FY19 the Asset Services Segment delivered revenue of $135.8m (2018: $41.9m) and EBITDA of $15.5m (2018: $4.7m). This focus has translated to substantial term contracts being secured, including our first term contract in refractory services in Australia with OneSteel. In addition the North West Shelf Project access contract with Woodside was extended for a further four years. It was a major achievement when South32 selected SRG Global to deliver access services at its Worlsey Alumina operations for a total of six years (assuming extension options are exercised). Furthermore, growth in the recurring and term revenue work in hand increased when Transpower New Zealand extended SRG Global’s energy infrastructure maintenance contract for a further three years. Mining Services The Mining Services segment delivered a solid financial performance via strong asset utilisation across it’s production drill fleet. Our primary focus is on partnering with targeted clients in specific commodities and driving operational efficiencies and innovation in asset utilisation. The Mining Services Segment delivered revenue of $82.6m (2018: $76.8m) and EBITDA of $11.2m (2018: $13.7m) in FY19. During the financial year two long- term strategic partnerships with tier-one customers were renewed. SRG Global’s operations with Evolution Mining were extended for five years via an Umbrella Agreement valued at $115.0m. In addition, SRG Global’s over 20 year relationship with the ‘super- pit’ in Kalgoorlie was extended when Kalgoorlie Consolidated Gold Mines (KCGM) extended a specialist geotech contract for a further five years. Strategic Horizons 9 SRG GLOBAL 2019 ANNUAL REPORTOur Projects CONSTRUCTION 10 SRG GLOBAL 2019 ANNUAL REPORTOur ProjectsTaking the complexity out of construction SRG Global’s Civil, Building and Products businesses were awarded, or worked on, some significant projects in the Construction sector during the 2019 financial year. Infinity Bridge, Dubai In May of this year, SRG Global secured an ~$8m specialist engineering and construction contract with Belhasa Six Construct LLC (‘Besix’) to deliver the main crossing bridge over Dubai Creek as part of the Al Shindagha Corridor improvement project. About the Project The new 12-lane, 295 metre bridge will rise 15.5 metres above Dubai Creek to allow clearance for various types of marine vessels. Motorists will be provided six lanes in each direction in addition to a pedestrian crossing for foot traffic. The bridge’s iconic design features a 42 metre high arch shaped in the form of the mathematical symbol for infinity. Approximately 2,400 tonnes of steel will be used in the construction of the bridge. The Road and Transport Authority appointed Besix as the Infrastructure Contractor in 2018 and the project is expected to be complete in 2022. Project Scope SRG Global’s scope of works will include post-tensioning as well as the design, manufacture, supply, delivery and erection of specialist formwork travellers for the construction of the main bridge deck using a balanced cantilever method. Wanneroo Road and Ocean Reef Road Interchange In January this year, SRG Global secured a $41.6m infrastructure project in joint venture with WBHO Infrastructure to deliver the Wanneroo Road and Ocean Reef Road Interchange project in Perth. SRG Global’s share of the joint venture is $20.8 million. About the Project The project is funded by the Commonwealth and State Government as part of a $2.3 billion investment in road and rail infrastructure. Project Scope The project scope includes specialist engineering and construction of substantial bridge structures over the intersection, construction of on and off ramps, service relocation, drainage enhancements and upgrades to all related path and pedestrian crossings. Source: /comingsoon.ae 11 SRG GLOBAL 2019 ANNUAL REPORTOur ProjectsOur Projects CONSTRUCTION Margaret River Perimeter Road Stage 2 During FY19, SRG Global completed the construction of the Margaret River Perimeter Road Stage 2 project. SRG Global were contracted by Main Roads Western Australia (‘MRWA’) for this project in joint venture with WBHO Infrastructure. About the Project Margaret River is one of the prime tourist destinations in Western Australia. Whilst this small town is full with visitors for most of the year, it is also positioned on one of the busiest roads in Western Australia’s south-west, the Bussell Highway, resulting in heavy traffic along its main street. To reduce traffic within the Margaret River town site, MRWA designed and commissioned the construction of a perimeter road around the town in two stages. Stage 2 of this project was awarded to the MRPR Joint Venture between WBHO and SRG Global for $22.8m. Project Scope SRG Global’s scope included the construction of two new bridges – a 100m long road bridge and a smaller pedestrian bridge on the Darch Trail, both over Warperup Creek (Margaret River). Construction of both bridges required complex solutions and planning to achieve the project scope with minimal impact on the local environment and town community. 12 12 SRG GLOBAL 2019 ANNUAL REPORT SRG GLOBAL 2019 ANNUAL REPORTOur Projects CONSTRUCTION Stockyard Hill Wind Farm Al Zour LNG Import Terminal SRG Global has played a pivotal role in the construction of the alternative anchored wind turbine foundations, adopted for one of the largest wind farms in the southern hemisphere. About the Project The Stockyard Hill Wind Farm project consists of 149 wind turbine generators, each over 100m in height, which will provide substantial environmental, community and economic benefits, and will have the potential to power approximately 390,000 homes annually. Project Scope SRG Global’s scope on this project includes the installation of 600 ground anchors to 50 of the 149 footings. The works form a critical part of the concrete foundations, ultimately securing the wind turbines to the ground. SRG Global were successful in securing this complex wind farm project with WBHO / SNC-Lavalin JV through the alternative anchored construction method proposed, which was considered both economical and practical. SRG Global is now into peak production installing post- tensioned anchors for one of the world’s largest LNG tank projects currently underway in Kuwait. About the Project The Al-Zour Import Terminal project for Hyundai Engineering and Construction Co., Ltd is now well underway and includes the construction of a large scale liquefied natural gas plant, including eight LNG storage tanks, located 90 kilometres south of Kuwait City. Project Scope SRG Global is responsible for post-tensioning the eight LNG storage tanks which are a core part of the project. Each tank has a capacity of 225,500m3 with a height of 47.65m, diameter of 97m and 750mm wall thickness. SRG Global are utilising BBR VT CONA CMI internal post- tensioning featuring 27 strands of 15.2mm diameter prestressing steel per tendon. The installation includes 96m long vertical loop tendons and 150m long horizontal loop tendons. We have some of the best technical minds in the business constructing complex infrastructure. 13 SRG GLOBAL 2019 ANNUAL REPORTOur Projects CONSTRUCTION Pimlico to Teven, Stage 3 SRG Global, in joint venture with Georgiou Group, recently completed construction of two bridges over Emigrant and Duck Creek on the Pacific Highway in Ballina New South Wales. About the Project SRG Global was selected to deliver part of Australia’s largest regional infrastructure project, the Pimlico to Teven Stage 3 project, as part of the Pacific Highway upgrade with Georgiou Group for Roads and Maritime Services. Project Scope The project is part of the $4.3 billion Woolgoolga to Ballina Pacific Highway upgrade between Pimlico and Teven. It involved construction of the final southbound carriageway, demolition and reconstruction of two decommissioned bridges, earthworks and realignment of a new permanent junction with Pacific Highway just south of Ballina. Deakin University Law Building SRG Global’s Structures and Post-Tensioning divisions are working together to deliver the new Deakin University Law building in Melbourne for Watpac. About the Project The new law school for Deakin University’s Burwood Campus will comprise a nine-level building that will provide 20,000m2 of teaching and learning spaces, student support and wellbeing spaces, staff workspaces and basement car parking. Project Scope SRG Global are undertaking the installation of formwork systems, post-tensioning, reinforcement, construction of insitu vertical walls as well as full concrete supply and install. 14 SRG GLOBAL 2019 ANNUAL REPORTOur Projects CONSTRUCTION Goulburn Valley Health Redevelopment SRG Global secured an ~$11.5m concrete structure contract with Lendlease for the Goulburn Valley Health redevelopment in Shepparton, Victoria in October last year. Lincoln Square SRG Global secured an $11.9m contract for the University of Melbourne’s Lincoln Square project. Utilising both our Structures and Post-Tensioning divisions, this contract highlights the benefits of being able to provide the integrated construction packages our tier-one clients are increasingly looking for. About the Project About the Project The Goulburn Valley Health Redevelopment project includes a new four-storey building with 64 inpatient beds, 10 intensive care unit beds, seven operating theatres and a new kitchen and morgue. A brand new emergency department will double the current capacity, featuring 36 treatment spaces and a nine-bed short stay unit. Project Scope SRG Global were contracted to undertake the complete concrete structure works including installation of precast panels, post-tensioning, reinforcement and all other related concrete structure installations. The University of Melbourne’s Lincoln Square project consists of a 14-level tower which will provide accommodation for some of the 50,000 students that attend the University’s Parkville campus in the heart of Melbourne’s CBD. Project Scope SRG Global are undertaking the supply, erection and reinforcement of the entire structure under one contract to the principal contractor, J Hutchinson Pty Ltd. Project works include installation of precast panels, post- tensioning, structural reinforcement, and the construction of complex in-situ columns and walls, along with all other related concrete structure works. Our unique industry offering is to bring together all of our core capabilities and offer a fully integrated structure package on significant projects. 15 SRG GLOBAL 2019 ANNUAL REPORTOur Projects CONSTRUCTION 300 George Street Brisbane SRG Global were awarded a ~$30m curtain wall facade contract for the development of an 82-level residential tower at the 300 George Street development in Brisbane’s CBD in October last year. About the Project The 300 George Street project is a mixed-use development being constructed by tier-one construction company, Multiplex Constructions Pty Ltd. The residential tower is the third tower being constructed on the site with the commercial use tower currently under construction and the hotel tower already complete. The residential tower will be the equal tallest building in the Brisbane CBD. Project Scope SRG Global are undertaking the design, fabrication and construction of the curtain wall facade over an approximate two year period. 16 16 SRG GLOBAL 2019 ANNUAL REPORT SRG GLOBAL 2019 ANNUAL REPORTOur Projects CONSTRUCTION Wesley Place Redevelopment Karrinyup Shopping Centre SRG Global undertook facade design, supply and installation works on the Wesley Place tower at 130 Lonsdale Street in Melbourne’s North East CBD during the 2019 financial year. As well as the facade works, SRG Global also supplied products for the construction of this tower. About the Project The Wesley Place tower offers approximately 55,000 square metres of office space and 4,500m2 of retail. The 34 level commercial tower will sit on the eastern portion of the Wesley Church site with frontages to Lonsdale Street, Little Lonsdale Street and Jones Lane in Melbourne’s CBD. Project Scope SRG Global’s Facades team were responsible for the pre- award budgets and design advice to Lendlease and post- award design and construct contract comprising design, shop drawings, visual mock-up, offshore procurement and fabrication, performance testing, freight and logistics, site installation, certification and 10 year warranty. SRG Global’s Products team also worked on this project, supplying facade cast-in channel products and engineered T-bolts which are used to anchor the facade to the building structure. Over 6,000 cast-in anchor channel products and over 12,000 engineered T-bolts were supplied to this project. Karrinyup Shopping Centre in Perth is currently undergoing an $800m redevelopment which will see the centre expand from 59,715 square metres to 109,000 square metres. SRG Global’s Products team has been engaged to supply our own patented SureLok shear connector and other engineered products as integral components for the construction program of the project. About the Project The Karrinyup Shopping Centre, located in Perth’s northern suburbs will double in size with 290 retailers, a dining precinct and the first Hoyts cinema north of the river. The first stage of the $800m redevelopment is the east multi-deck carpark, which will open in late 2019, followed by the north mall fashion loop, café court and fresh food precinct. Project Scope SRG Global’s Products team have progressively supplied over 4,500 SureLok units to date. Design on upper levels is still underway and the team expect the supply of these units to continue throughout the duration of construction. 17 SRG GLOBAL 2019 ANNUAL REPORTOur Projects 18 MINING SERVICES SRG GLOBAL 2019 ANNUAL REPORTOur ProjectsOur Projects Bringing our full resources to daily mining challenges SRG Global secured a number of key term contracts in our Mining Services business during FY19 including a $115m Umbrella Agreement with Evolution Mining. Evolution Mining Umbrella Agreement SRG Global announced in April they had secured a $115m Umbrella Agreement with Evolution Mining to extend the terms of its drill and blast operations at the Cowal, Mt Rawdon and Mt Carlton mine sites. About the Contract The contract is for an initial three-year term with an option to extend for a further two years. Works under this agreement are expected to generate revenues of approximately $115m over five-years on the basis the two-year option to extend is exercised (approximate value over the three-year term is $78m). The new agreement will utilise assets from SRG Global’s existing fleet and will require minimal growth capital over the contract term. Project Scope Evolution Mining is Australia’s second largest ASX-listed gold producer. The company operates five wholly-owned gold mines located in Queensland, New South Wales and Western Australia. SRG Global will continue to provide drill and blast services at Mt Rawdon and Mt Carlton mines in Queensland and Cowal mine in New South Wales. 19 SRG GLOBAL 2019 ANNUAL REPORTOur ProjectsOur Projects MINING SERVICES Kalgoorlie Superpit Drilling works for FMG SRG Global secured a new ~$18m ground support term contract with Kalgoorlie Consolidated Gold Mines (‘KCGM’) at the Super Pit in Kalgoorlie. During the 2019 financial year, SRG Global has been supporting Fortescue Metals Group (‘FMG’) on two of their mine sites in the Pilbara region of Western Australia. About the Contract About the Contract The Super Pit is Australia’s largest open pit gold mine, producing around 850,000 ounces of the precious metal annually. SRG Global’s Geotech business has a long and proud history spanning over 20 years at the Super Pit, having performed a range of services at the mine since 1997. Project Scope Ground support works under this contract includes both in-phase ground support, rock fall mitigation and rock face remediation. Over the two decades working at the mine, SRG Global has developed specialised plant to meet the demands of the unique Super Pit environment. SRG Global are undertaking drilling works at Cloudbreak and Christmas Creek mines for FMG on a monthly support contract basis providing drill rigs and drillers. Project Scope Works at Cloudbreak mine commenced in 2018 and consist of drilling production blast holes and provision of operators. Following the successful works at Cloudbreak, SRG Global were awarded an additional support contract at the Christmas Creek mine site where works consisted of drilling blast holes and provision of operators. Source: /australiasgoldenoutback.com SRG Global is the sought after drill and blast contractor when you need to solve problems across the entire lifecycle of your mine, from resource delineation to plant shutdown maintenance. 20 SRG GLOBAL 2019 ANNUAL REPORTOur Projects 21 SRG GLOBAL 2019 ANNUAL REPORTASSET SERVICES 22 SRG GLOBAL 2019 ANNUAL REPORTOur ProjectsMaking maintaining, restoring & accessing critical assets easier SRG Global made significant progress in our long-term strategy of securing a greater proportion of recurring contracts in the asset services sector during FY19. South32 Worsley Alumina SRG Global secured a long-term contract with South32 Worsley Alumina valued at ~$60m in May this year. Project Scope SRG Global are providing a complete suite of engineered access solutions for the Worsley Alumina operation in Western Australia including scaffold services and highly skilled rope access technicians. About the Contract The contract is for an initial three-year term with extension options for a further three years. If Worsley Alumina exercises the extension options the total contract duration will be six years. Works under this contract commenced in June 2019 and are expected to generate revenues of ~$60m over the six-year term or ~$32m over the initial three-year term. The contract requires minimal capital outlay and has increased SRG Global’s workforce by approximately 100 full-time positions. North West Shelf Project In October last year, SRG Global secured a new four- year contract for the provision of scaffold and access equipment to the North West Shelf project, including Karratha Gas Plant and offshore, operated by Woodside Energy Ltd. Project Scope SRG Global’s scope includes the supply, maintenance, storage, transport and handling of scaffold and access equipment for all onshore and offshore assets. SRG Global will also provide specialist labour resources for Woodside as required. About the Contract The new contract consolidates the existing long-term relationship with Woodside and follows on from the conclusion of an existing five-year contract. Source: /south32.net 23 SRG GLOBAL 2019 ANNUAL REPORTOur ProjectsOur Projects ASSET SERVICES Refractory Term Contract Secured In May this year, SRG Global secured a ~$45m six-year term contract with OneSteel in Whyalla. Project Scope SRG Global are undertaking refractory services throughout the Whyalla Steelworks site incorporating the pellet plant, ironmaking, steelmaking and steel products assets. SRG Global specialise in refractory works in New Zealand, however this is the first project of its kind awarded to SRG Global in Australia. Our team in New Zealand were pivotal in helping us secure this project which was our first major step in taking our refractory capabilities from New Zealand across to Australia. About the Contract The contract is for an initial four-year term with options for a further two years. Works under this contract are expected to generate revenues of ~$45m over the six- year term or ~$30m over the initial four-year term. The contract is clear evidence of the benefits that are being delivered through the creation of SRG Global. The award of this refractory services contract at Whyalla Steelworks complements existing works being undertaken by SRG Global’s Mining Services division, which has been operating in the Whyalla region since 2012. Transpower NZ SRG Global secured a three-year contract renewal with Transpower New Zealand Limited (‘Transpower’) in June this year. Project Scope SRG Global are providing specialist industrial services including removal of existing coatings through specialist blasting, application of industrial protective coatings and minor steel replacement. Transpower owns and operates the National Grid, the high voltage transmission network across New Zealand, comprising over 12,000km of transmission lines and more than 170 substations. SRG Global has a long history working with Transpower, providing Asset Services to its National Grid for more than 20 years. About the contract Estimated revenues under the framework contract are ~NZ$35m (estimate based on historic values). This contract requires minimal capital outlay and provides further long-term recurring revenue. 24 SRG GLOBAL 2019 ANNUAL REPORTOur Projects ASSET SERVICES Spencer Street and St Georges Road Bridges Melbourne VicRoads (now part of Department of Transport) awarded SRG Global’s Asset Services division a ~$9m bridge strengthening contract in Melbourne in May this year. About the Project The Public Transport Victoria funded the project for bridge strengthening and rehabilitation to the Spencer Street bridge over the Yarra river in the Melbourne CBD and the St Georges Road bridge over Merri Creek in Northcote to accommodate larger load capacity requirements for E-class trams. Project Scope SRG Global’s scope on this bridge strengthening and rehabilitation project includes river traffic management, installation of suspended and floating access, strengthening of bridge beams with additional structural steel, bridge abutment strengthening with piling and soil nailing, lead paint removal and the application of protection coatings. Matagarup Bridge SRG Global’s Asset Services business showcased how we are stronger together undertaking bridge maintenance works on Perth’s iconic Matagarup pedestrian bridge utilising their rope access technicians together with their remediation experience. About the Project The new iconic pedestrian bridge located next to Optus Stadium in Perth required defect repairs from the original construction. SRG Global proposed a solution for the painting works to be undertaken via rope access technicians to maximise productivity rather than undertaking works via a boom and scissor lifts. This was the first project undertaken following the Merger of Equals between GCS and SRG where the teams from SRG’s Asset Services business and GCS’ Rope Access business worked together to make the complex simple for our customer and provide a cost effective and safe solution to complete the works. Project Scope SRG Global’s scope on this bridge maintenance project included the repair of over 3,000 items which included preparing the steel for painting by sanding or abrasive blasting then applying a primer and top coat. SRG Global has experienced industry professionals who are multi-disciplined and can offer innovative maintenance solutions. 25 SRG GLOBAL 2019 ANNUAL REPORTDirectors’ Report Directors’ Report The Directors present their report on the consolidated entity consisting of SRG Global Limited (the ‘Company’ or ‘SRG Global’) and the entities it controlled (the ‘Group’) at the end of, or during the year ended 30 June 2019. COMPARATIVE INFORMATION Information contained in this Directors’ Report that relates to comparative periods reflects information relating to Global Construction Services Ltd, as the acquiring entity. DIRECTORS The names and details of the Company’s Directors in office during the financial year and until the date of this report are set out below. Directors were in office for the entire period unless otherwise stated. Name Peter Wade Peter McMorrow David Macgeorge Enzo Gullotti Peter Brecht Michael Atkins John Derwin George Chiari Non-Executive Chairman Non-Executive Deputy Chairman Managing Director Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Executive Director Appointed 11 September 2018 Appointed 11 September 2018 Appointed 11 September 2018 Appointed 11 September 2018 Resigned 11 September 2018 EXPERIENCE, QUALIFICATIONS AND RESPONSIBILITIES Peter Wade Non-Executive Chairman Peter Wade joined the Board of SRG Global as Chairman in September 2018. Prior to this, Peter served as Chairman of Global Construction Services Limited (‘GCS’) from November 2011. Peter is also a member of the SRG Global Audit Committee. Peter holds a Bachelor of Engineering (Hons) and has over forty five years’ experience in engineering, construction, project management, mining, and infrastructure services. He started his career with the NSW Public Service managing the construction, building, and operation of significant infrastructure projects such as the Port Kembla coal loader and grain terminals in Newcastle and Wollongong. Peter was also a Deputy Director for the Darling Harbour Redevelopment construction project. Subsequently, as an executive of the Transfield Group, Peter was responsible for a number of significant construction, building, and operation projects including, the Melbourne City Link, the Airport Link, the Northside Storage Tunnel, and the Collinsville and Smithfield Power Plants. Mr Wade has been the Managing Director of Crushing Services Pty Ltd and PIHA Pty Ltd since 1999 and Minerals International Pty Ltd since 2002 (now both wholly owned subsidiaries of Mineral Resources Limited). In 2006, with the formation and listing of Mineral Resources Limited, Mr Wade was appointed as Managing Director and has overseen a sustained period of successful development and growth. In 2008 Mr Wade was appointed as the Executive Chairman, and then in November 2012 the Non-Executive Chairman, of Mineral Resources Limited. Peter McMorrow Non-Executive Deputy Chairman Peter McMorrow joined the Board of SRG Global as Deputy Chairman in September 2018. Prior to this, Peter was a Director of SRG Limited (‘SRG’) from 2010 and moved into the role of Chairman in July 2014. He is also a member of the SRG Global Audit Committee and Remuneration & Nomination Committee. Peter has over forty years’ project and executive experience and is a respected leader in the infrastructure and resources industries. Encompassing a wide variety of large and complex infrastructure projects both overseas and within Australia, his industry knowledge extends to all facets of engineering, project identification, winning and delivery as well as management of dynamic, profitable and long lasting business operations. Prior to joining SRG, Peter was Managing Director of Leighton Contractors from 2004 to 2010. Under his guidance, Leighton Contractors expanded considerably with turnover increasing to over $5 billion and the workforce increasing fourfold to approximately 10,000 employees. Peter is an advocate for health and safety and brings a strong zero harm vision to both SRG Global and the industry in which it operates. David Macgeorge Managing Director David Macgeorge was appointed Managing Director of SRG Global in September 2018. Prior to this, David held the role of Managing Director for SRG Limited since May 2014. David has extensive senior executive experience in contracting, logistics, infrastructure and mining service industries and has a strong record of leading business transformations, driving value creation and growth through a unique understanding of strategy, customer focus and shareholder returns. Prior to joining SRG, David held senior executive roles with BIS Industries, Cleanaway and CHEP (a subsidiary of Brambles). He also provided consultancy to Leighton Contractors. David holds a Bachelor of Business and has completed the Senior Executive Management program at INSEAD Business School in France. 26 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTDirectors’ Report Directors’ Report (CONTINUED) Enzo Gullotti Executive Director John Derwin Non-Executive Director Enzo Gullotti was appointed Executive Director of SRG Global in September 2018. Prior to this, Enzo held the role of Managing Director for Global Construction Services Limited (‘GCS’), which he established in 2003. Enzo is an industry and community leader, with more than thirty years’ experience in the scaffolding, construction, and maintenance sectors. Mr Gullotti was a founding member of the PCH Group, where he was an Executive Director for approximately eight years and the Managing Director of the scaffolding subsidiary. Mr Gullotti was instrumental in growing PCH, including the establishment of operations in Karratha, Sydney, Darwin, Bunbury, Singapore, Thailand, Dubai and the Caspian Sea. During his time as Managing Director of GCS, Mr Gullotti delivered significant growth, including leading the successful integration of several key acquisitions and expanding GCS’s footprint across Australia. Peter Brecht Non-Executive Director Peter Brecht joined the Board of SRG Global in September 2018. Prior to this, he had been a Non-Executive Director for SRG Limited since September 2014. Peter is a member of the SRG Global Remuneration & Nomination Committee. Peter has more than thirty five years’ experience in the construction industry, previously serving as the Managing Director - Construction Australia for Lendlease, CEO of Bilfinger Berger Australia and Managing Director of Abigroup. Peter is a Board member of Fulton Hogan Limited. He has been a Member of the Australian Institute of Company Directors since 2000. Michael Atkins Non-Executive Director Michael joined the SRG Global Board as a Non-Executive Director in September 2018 and is Chairman of the SRG Global Audit Committee. Prior to this, Michael was Non- Executive Director on the Board of SRG Limited from 2014 to 2018. Michael was a founding partner of a national Australian Chartered Accounting practice from 1979 to 1987 and was a Fellow of the Institute of Chartered Accountants in Australia. Since 1987 he has been both an executive and non-executive director of numerous publicly listed companies with operations in Australia, USA, South East Asia and Africa. Since February 2009 Michael has been a Director – Corporate Finance at Paterson Securities Limited and is currently Non-Executive Chairman of Australian listed companies Legend Mining Limited, Azumah Resources Limited and Castle Minerals Ltd. Michael is a Fellow of the Australian Institute of Company Directors. John Derwin was appointed Non-Executive Director of the SRG Global Board in September 2018. He had previously been a Non-Executive Director on the Board of Global Construction Services Limited (‘GCS’) since July 2017. John is also Chairman of the Remuneration & Nomination Committee for SRG Global. John holds a Bachelor of Civil Engineering (Hons) and has over forty years’ experience in engineering, construction and project management; predominantly in the infrastructure, mining, petrochemical and oil & gas sectors. Mr Derwin started his career with the NSW Public Works Department and subsequently held senior roles with ABB Engineering, Transfield Technologies and John Holland. Since 2006, Mr Derwin has been providing independent consultancy services, including bid management and project management services on key infrastructure projects throughout Australia. Mr Derwin brings a wealth of knowledge and practical experience to support SRG Global’s broader construction capabilities. COMPANY SECRETARIES Name Roger Lee Paul Hegarty Nigel Land Appointed 11 September 2018 Resigned 11 September 2018 Roger Lee Chief Financial Officer & Company Secretary Roger was appointed CFO & Company Secretary for SRG Global in September 2018. Prior to this Roger held the role of CFO & Company Secretary for SRG Limited since July 2014 and brings over twenty five years’ experience in senior and executive management in Australia. Roger is a qualified CPA and is a graduate of the University of Western Australia in Commerce, majoring in Finance and Accounting. Paul Hegarty Group Financial Controller & Company Secretary Paul was appointed Group Financial Controller & Company Secretary for SRG Global in September 2018. Prior to this, Paul was Company Secretary of Global Construction Services Limited (GCS). Paul is a Chartered Accountant and Chartered Company Secretary. Prior to GCS, Paul was the Financial Controller for Mineral Resources Limited. 27 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTDirectors’ Report Directors’ Report (CONTINUED) DIRECTORS’ SHAREHOLDINGS The following table sets out each Directors’ relevant interest in shares, debentures and rights or options in shares or debentures of the Company as at the date of this report. Name P Wade P McMorrow D Macgeorge E Gullotti P Brecht M Atkins J Derwin Fully Paid Ordinary Shares Number Performance Rights Number 221,361 11,765,727 9,171,389 5,976,349 1,900,541 800,000 100,000 Nil Nil Nil Nil Nil Nil Nil MEETINGS OF DIRECTORS The number of meetings of SRG Global’s Board of Directors and each Board Committee held during the year ended 30 June 2019 and the number of meetings attended by each Director was: Board of Directors meetings Meetings of committees Audit Committee Remuneration and Nomination Name P Wade P McMorrow(1) D Macgeorge (1) E Gullotti P Brecht (1) M Atkins (1) J Derwin G Chiari (2) Eligible 10 7 7 10 7 7 10 4 Attended 10 7 7 9 7 7 10 3 Eligible 3 2 - - - 2 1 - Attended 2 2 - - - 2 1 - Eligible - 6 - - 6 - 6 - Attended - 6 - - 6 - 6 - PRINCIPAL ACTIVITIES During the financial period, the principal continuing activities of the Group consisted of delivering a suite of engineering- led specialist construction, maintenance and mining services across the entire asset lifecycle. SIGNIFICANT CHANGES IN STATES OF AFFAIRS Other than the merger of SRG and GCS during the financial year, there have been no other significant changes in the state of affairs of the Group. (1) Appointed director on 11 September 2018 (2) Resigned as executive director on 11 September 2018 MERGER OF SRG LIMITED AND GLOBAL CONSTRUCTION SERVICES LIMITED In September 2018, the Merger of Equals between SRG Limited and Global Construction Services Limited to create a leading global specialist engineering, construction and maintenance group was completed. The Merger of Equals was effective through a scheme of arrangement where Global Construction Services Limited issued 2.479 shares for each SRG Limited share. Under accounting standard AASB3 Business Combinations, SRG is considered the parent for accounting purposes. The consolidated financial statements therefore reflect a continuation of the financial statements of SRG. The impact of this is: • the comparative results for the year ended 30 June 2018 reflect SRG only for that period. • the financial results of SRG Global as reported for the year ended 30 June 2019 are comprised of a 12 month contribution from SRG (1 July 2018 to 30 June 2019) and a 10 month contribution from GCS (1 September 2018 to 30 June 2019). • the financial results of GCS for the non-reporting period of 1 July 2018 to 31 August 2018 are excluded from the financial results of SRG Global presented herein. 28 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORT Directors’ Report (CONTINUED) Directors’ Report OVERVIEW AND FINANCIAL RESULTS PROCEEDINGS ON BEHALF OF THE COMPANY Information on the operations and financial position of the Group and its business strategies is set out in the Managing Directors Report on page 7 to 9. No proceedings have been brought on behalf of the Company, nor have any applications been made in respect of the Company under Section 237 of the Corporations Act 2001. MATTERS SUBSEQUENT TO THE END OF FINANCIAL YEAR No matter or circumstance has arisen since 30 June 2019, other than the dividend referred to below, that has significantly affected, or may significantly affect the consolidated entity’s operations, the results of those operations, or the consolidated entity’s state of affairs in future financial years. CORPORATE GOVERNANCE The Board is committed to achieving the highest standards of corporate governance. The Board reviews and improves it policies and procedures to ensure they are effective for the Group and fulfill the expectations of stakeholders. The Board’s Corporate Governance Statement can be located on the Company’s website via the following URL: http://www. srgglobal.com.au/who-we-are/corporate-governance/. LIKELY DEVELOPMENTS AND EXPECTED RESULTS IN OPERATIONS Information on likely developments in the operations of the Group and the expected results of operations have not been included in this report as the directors believe it would likely result in unreasonable prejudice to the Group. ENVIRONMENTAL REGULATIONS The operations of the Group are subject to environmental regulation under Commonwealth, State, and Territory legislation. The directors are not aware of any breaches of environmental regulations during the year or as at the date of this report. The Company has met all its reporting requirements under the relevant legislation during the year and continually aims to improve its environmental performance. The Company does not currently meet the thresholds of the National Greenhouse and Energy Reporting Act 2007 and is therefore not currently subject to its reporting requirements. DIVIDENDS The Board has declared the following dividends in relation to the 2019 financial year: • A final, fully franked $2.202m dividend (0.5 cent per share) was declared on 27 August 2019. The Record Date for this dividend is 11 September 2019 with payment to be made on 23 October 2019. • An interim, fully franked $4.407m (1.0 cent per share) dividend was declared on 26 February 2019. This dividend was paid on 23 April 2019. The total fully franked dividends declared by the Company in relation to the 2019 financial year is $6.609m (1.5 cents per share). 29 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTDirectors’ Report Directors’ Report (CONTINUED) REMUNERATION REPORT (AUDITED) 1. OVERVIEW The directors of SRG Global Limited present the Remuneration Report (the ‘Report’) for the Company and its controlled entities for the year ended 30 June 2019. This Report forms part of the Directors’ Report and has been audited in accordance with section 300A of the Corporations Act 2001. The Report details the remuneration arrangements for the Company’s key management personnel (‘KMP’): • Non-executive directors • Executive directors and senior executives (collectively the ‘Executives’). KMP are those persons who, directly or indirectly, have authority and responsibility for planning, directing and controlling the major activities of the Group and the Company. The table below outlines the KMP of the Company and their movements during the year ended 30 June 2019. Name Non-executive directors P Wade P McMorrow P Brecht M Atkins J Derwin Executive directors D Macgeorge E Gullotti G Chiari Executives R Lee N Combe J Thomas D Williamson G Edmonds N Land M Clarke Position Chairman Director Director Director Director Managing Director Executive Director Director Term as KMP Full financial year Commenced 11 September 2018 Commenced 11 September 2018 Commenced 11 September 2018 Full financial year Commenced 11 September 2018 Full financial year Resigned 11 September 2018 Commenced 11 September 2018 Chief Financial Officer / Company Secretary Executive General Manager - Construction Commenced 11 September 2018 Executive General Manager - Building, Mining and Products Commenced 11 September 2018 Executive General Manager - Asset Services Executive General Manager - New Zealand Chief Financial Officer / Company Secretary Executive General Manager - International Commenced 20 March 2019 Commenced 20 March 2019 Resigned 11 September 2018 Commenced 11 September 2018 and resigned 20 March 2019 2. EXECUTIVE REMUNERATION FRAMEWORK 2.2 Executive remuneration framework 2.1 Executive remuneration policy The Company’s remuneration policy ensures that executives are rewarded fairly and responsibly in accordance with the market, having regard to the following: • Remuneration levels are set at a level that ensures the Company can attract and retain qualified, experienced, and high-quality executives • Fixed remuneration is structured at a level that reflects the executives’ duties and responsibilities • Remuneration packages are structured to encourage improved performance and to align the employee’s interests with the short-term and long-term objectives of the Company • The Company benchmarks remuneration packages at least annually to ensure competitive positioning within the market • Short-term incentives are designed to incentivise individual contributions to achieving results. The Company rewards executives with a level and mix of remuneration appropriate to their positions, responsibilities and performance, in a manner that aligns with the Company’s strategy. Executives receive fixed remuneration and variable remuneration (as applicable), consisting of short and long term incentive opportunities. Executive remuneration levels are reviewed annually by the Nomination and Remuneration Committee with reference to the remuneration framework, guiding principles and market movements. 2.3 Elements of Remuneration 2.3.1. Fixed remuneration Executive fixed remuneration is competitively structured and comprises the fixed component of the remuneration package. The fixed component may include cash, superannuation, and non-financial benefits to comprise the employee’s total employee cost. Non-financial benefits generally consist of items to enable the effective discharge of the executive’s duties and may include the provision of motor vehicles, mobile phones and notebooks. 30 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTDirectors’ Report (CONTINUED) Directors’ Report Fixed remuneration is designed to reward the Executive for: • The scope of the executive’s role; • The executive’s skills, experience and qualifications; and • Individual performance. 2.3.2. Short-term incentives (STI’s) The Company did not have a formal short-term incentive scheme for the 2019 financial year. Subsequent to the end of the financial year, the Company has implemented a short- term incentive plan. Executives had the opportunity to earn a discretionary annual incentive award, delivered in the form of cash. The objective of a variable STI remuneration is to link the achievement of the Company’s operational targets with the remuneration received by the executives charged with meeting those targets. The Company’s STI objectives are to: • Motivate senior executives to achieve the short-term annual objectives linked to Company success and shareholder value creation be automatically issued or transferred to the participant unless the Company is in a “Blackout Period” (as defined in the Company’s Securities Trading Policy) or the Company determines in good faith that the issue or transfer of shares may breach the insider trading provisions of the Corporations Act or the Securities Trading Policy, in which case, the Company will issue or transfer the shares as soon as reasonably practical thereafter. The LTI scheme is designed to create a strong link between the Company’s performance and the KMPs’ performance. 3. HOW REMUNERATION IS GOVERNED 3.1 Nomination and Remuneration Committee The objective of the Nomination and Remuneration Committee is to make recommendations on policies, strategies, and structures on compensation arrangements for directors and Executives. The committee is charged with the development and review of the Company’s remuneration framework which: • Create a strong link between performance and reward • Recommends remuneration levels for directors and • Share Company success with the executives that contribute to it • Create a component of the employment cost that is responsive to short and medium term changes in the circumstances of the Company Short-term incentives currently take the form of a cash bonus. The key STI measures for the Company in FY19 consist of a number of targets tied to the performance on SRG Global’s major contracts - namely safety performance, financial performance, scheduling performance, and customer satisfaction. The STI is currently a discretionary ‘bonus’ arrangement and its quantum is determined by the Nomination and Remuneration Committee. The Nomination and Remuneration Committee is responsible for determining the achievement of targets and assessing as to whether a bonus amount is paid. The committee also has the discretion to adjust short-term incentives downwards or make no payments in response to unexpected or unintended circumstances and where market issues dictate such a decision. Any STI payments to KMP during the 2019 financial year were based on achieving strategic and / or business objectives. 2.3.3. Long-term incentives (LTI’s) The LTI offered to the Executives forms a key part of their remuneration and assists to align their interest with the long-term interest of shareholders. The purpose of the LTI is to reward the Executives for attaining results over a long measurable period and for staying with the organisation. The LTI is a share based plan consisting of Performance Rights and / or Options (collectively “Rights and Options”) which have pre-determined vesting conditions. The LTI was approved by Shareholders at the Annual General Meeting on 27 November 2018. Under the LTI, Rights and Options may be offered to eligible persons as determined by the Board and are an entitlement to receive ordinary shares in the Company. Subject to satisfaction by eligible persons of specific criteria set by the Board, the Rights and Options are granted at no cost. Upon vesting of the Rights and Options, shares will Executives • Proposes non-executive director fees • Establishes incentive plans which apply to executives • Devises key performance indicators to align remuneration and incentives to performance and achievement • Formulates identification of talent, development, retention, and succession planning strategies for key executives Fixed remuneration is reviewed annually by the Nomination and Remuneration Committee and benchmarked against a number of indicators and market data. Refer to the Corporate Governance Statement on the Company’s website for further information on the role of the Nomination and Remuneration Committee. 3.2 Remuneration consultants During the year ended 30 June 2019, the Company did not engage the services of a remuneration consultant in respect of its remuneration matters. The Company reserves the right to engage with a remuneration consultant to provide market analysis and benchmarking guidelines. 3.3 Voting and comments made at the Company’s last Annual General Meeting The Company received 82.31% of ‘yes’ votes on its Remuneration Report for the financial year ended 30 June 2018. The Company received no specific feedback on its Remuneration Report at the Annual General Meeting. 3.4 Securities trading policy The Company’s Securities Trading Policy applies to all non-executive directors and executives. The Securities Trading Policy prohibits KMP from dealing in the Company’s securities while in possession of non-publicly available information relevant to the Company. The Company’s Securities Trading Policy is available on the Corporate Governance section of the Company’s website. 31 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTDirectors’ Report Directors’ Report (CONTINUED) 3.5 Executive employment / service agreements Each KMP has entered into an employment contract with the Company. All KMP are entitled to receive payment in lieu of notice of any accrued statutory entitlement (i.e. annual and long service leave) on cessation of their employment. In addition, all KMP are entitled to participate in the STIP and LTIP that has been disclosed in Note 2.3 of the remuneration report. The following table outlines the contractual terms of the employment contracts: Component Managing Director Executive Director Fixed Remuneration $850,000 $595,000 Contract Term Ongoing Notice Period Annual Leave 6 months 20 days per annum 2 year fixed term from 28 August 2018 6 months 20 days per annum Senior Executives Range between $360,000 and $540,000 Ongoing 3-6 months 20 days per annum 4. OVERVIEW OF NON-EXECUTIVE DIRECTOR REMUNERATION The Board seeks to set aggregate fees paid to a level which reflects the responsibilities and demands made on non-executive directors and provides the ability to attract and retain directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders. The Nomination and Remuneration Committee reviews non-executive directors’ remuneration annually against comparable companies. The Nomination and Remuneration Committee may also consider advice from external advisors if deemed necessary. Non-executive director fees are determined within an aggregate non-executive director fee pool limit of $900,000 per annum. The amount of aggregate remuneration sought to be approved by shareholders and the manner in which it is apportioned amongst non-executive directors is evaluated by the Nomination and Remuneration Committee annually. The remuneration of non-executive directors for the year ended 30 June 2019 is detailed in section 7.2 of this report. 5. SHARE-BASED COMPENSATION Performance Rights Performance Rights may be granted under the Company Performance Rights Plan. The plan is designed to align the interests of employees to shareholders in the Company and for staff retention purposes. At the Annual General Meeting held on 27 November 2018, it was resolved by ordinary resolution that 2,100,000 Performance Rights would be issued to Mr D Macgeorge and 900,000 Performance Rights would be issued to Mr E Gullotti. At the date of this report, these Performance Rights have not been issued as no formal agreement was executed by the Company with either Mr D Macgeorge or Mr E Gullotti. As a result, the Remuneration Report for the year ended 30 June 2019 does not include any benefit attributable to these performance rights. There are no unissued ordinary shares of the Company under option at the date of this report. 32 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTDirectors’ Report Directors’ Report (CONTINUED) 6. OVERVIEW OF COMPANY PERFORMANCE The table below sets out information about the Group’s earnings and movements in shareholder wealth for the past five years up to and including the current financial year. The following information relates to Global Construction Services Limited (GCS) for the comparative periods. Profit / (loss) for the year attributable to owners ($’000) Share price at end of the year (cents) Basic EPS (cents) Total dividends (cents per share) 7. DETAILS OF REMUNERATION 2015 8,741 0.49 4.7 0.00 2016 (76,882) 0.38 (38.4) 1.00 2017 10,874 0.60 5.4 4.00 2018 13,623 0.71 6.4 4.50 2019 9,839 0.50 2.3 0.50 7.1 Executive KMP remuneration for the years ended 30 June 2019 and 30 June 2018 The following information includes the historical information of Global Construction Services Limited for the period and does not include the information for SRG Limited prior to the merger in September 2018. Short-term benefits Post-employment Long-term Share based payments Performance rights Total remuneration Performance related Financial Year Cash salary and fees $ Short-term incentives(1) $ - - - 335,000 125,000 150,000 654,434 - 642,039 698,432 80,662 430,790 Executive Directors D Macgeorge(4) E Gullotti(5) G Chiari(6) Senior Executives R Lee(4) 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 N Combe(4) J Thomas(4) D Williamson(7) G Edmonds(7) N Land(8) M Clarke(9) C Genovesi(10) Total Executive KMP - - - - - - - - - - - - - - - - 399,639 - 416,131 - 322,391 - 109,975 - 118,086 - 64,167 127,726 286,147 - - 290,000 2,439,235 125,000 1,546,949 485,000 Non- monetary benefits(2) $ Super- annuation Scheme benefits(3) $ $ benefits Long service leave $ - - 129,518 61,264 - - - - - - - - - - - - - - - - - 5,624 129,518 66,888 - - 61,128 - - - 27,083 1,060,000 (43,763) - 25,000 - 6,250 - 27,083 2,321 - - 37,794 - 20,833 - 29,533 - 9,943 - 4,435 - 4,167 8,333 3,743 - - 16,667 143,781 77,083 - - - - - - - - - - 72,000 - - - - - - - - - - - - - - - - - - - - - 1,132,000 (43,763) - 2,321 $ $ % - - 721,727 1,081,927 - - - - - - - - - - - - - - - - - - 721,727 1,081,927 715,562 - 2,536,604 2,203,943 211,912 607,874 437,433 - 436,965 - 351,924 - 119,918 - 122,520 - 140,333 136,060 289,890 - - 312,291 4,647,498 3,260,168 - - 28 64 59 25 - - - - - - - - - - - - - - - - 18 48 (1) Short-term incentives relate to discretionary cash bonuses. (2) Non-monetary benefits relate to the provision of motor vehicles and motor vehicle related expenses. (3) Scheme benefits relate to payments made to the Group Managing Director of GCS (E Gullotti) in relation to his transition from Group Managing Director to Executive Director. (4) Appointed on 11 September 2018. (5) Includes annual leave cashed out during the year of $55,657 (FY18: $27,829) (6) Resigned on 11 September 2018. Short-term incentive paid related to performance for FY18. (7) Commenced on 20 March 2019. (8) Appointed as Chief Financial Officer as of 2 March 2018 and resigned 11 September 2018. (9) Appointed on 11 September 2018 and resigned on 20 March 2019. (10) Retired as Chief Financial Officer on 1 March 2018. 33 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTDirectors’ Report Directors’ Report (CONTINUED) 7.2 Non-executive remuneration for the years ended 30 June 2019 and 30 June 2018 Financial Year Short-term benefits Cash salary and fees Post-employment Superannuation Total Remuneration P Wade P McMorrow(1) P Brecht(1) M Atkins(1) J Derwin Total Non-Executive KMP (1) Appointed on 11 September 2018. 7.3 Shareholdings of KMP 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 $ 158,133 109,500 121,421 - 86,509 - 92,500 - 104,269 60,000 562,832 169,500 $ - - - - 8,218 - 8,788 - 9,906 5,700 26,912 5,700 $ 158,133 109,500 121,421 - 94,727 - 101,288 - 114,175 65,700 589,744 175,200 The number of shares in the Company held directly or indirectly during the financial year by each director and KMP of the Group, including their related parties, are set out below. There were no shares granted during the reporting period as compensation. Balance as at 30 June 2018 Received on exercise of rights Purchased Net change other Balance as at 30 June 2019 Non-Executive Directors P Wade P McMorrow(1) P Brecht (1) M Atkins (1) J Derwin Executive Directors D Macgeorge (1) E Gullotti G Chiari (2)(3) Senior Executives R Lee (1) N Combe (1) J Thomas (1) D Williamson(4) G Edmonds(4) N Land(3) M Clarke(5) C Genovesi(6) 221,361 - - - - - - - - - - 4,626,349 3,237,124 - 1,350,000 - - - - - - 14,000 - - - - - - - - - - - 250,000 120,000 56,300 100,000 100,000 - - - - - - - - - - - 11,515,727 1,780,541 743,700 - 9,071,389 - (3,237,124) 4,703,451 1,735,300 1,316,851 10,000 - (14,000) - - 221,361 11,765,727 1,900,541 800,000 100,000 9,171,389 5,976,349 - 4,703,451 1,735,300 1,316,851 10,000 - - - - (1) Appointed on 11 September 2018. (2) CASC Services Pty Ltd held 6,297,612 (2018: 6,297,612) shares which are held in the Chiari Used Unit Trust in which G Chiari has an interest. (3) Resigned on 11 September 2018. (4) Commenced on 20 March 2019. (5) Appointed on 11 September 2018 and resigned on 20 March 2019. During M Clarke’s tenure, he held 1,887,609 shares. (6) Retired as Chief Financial Officer on 1 March 2018. 34 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTDirectors’ Report Directors’ Report (CONTINUED) 7.4 Other transactions and balances with KMP and their related parties The following transactions occurred and were outstanding at reporting date in relation to transactions with related parties: Transactions 2019 $ 2018 $ Receivables 2019 $ 2018 $ Payables 2019 $ 2018 $ 4,463,358 1,481,594 519,643 84,788 • Services provided to Mineral Resources Limited, a company related to P Wade • Consultancy services provided by Wandarra (WA) Pty Ltd, a company related to P McMorrow • Recruitment services provided by The GO2 People, a company related to P McMorrow • Services provided to Fulton Hogan Limited, a company related to P Brecht(1) (21,000) (142,937) 746,491 - - - - - 32,895 • Services provided by AV Truck Services Pty Ltd, a company related to G Chiari(2) (1,095) (5,077) • Properties from which the Group’s operations are performed are rented from Mar Pty Ltd, a company related to G Chiari(2) • Properties from which the Group’s operations are performed are rented from Miromiro Pty Ltd, a company related to G Chiari(2) • Services provided to Rangitoto Trust, a trust related to G Edmonds (273,711) (968,871) (84,803) (268,681) 3,269 - - - - - - - - - - - - - - - - - - - - - - - - - - - - (1) The Group also has a 50% share in a joint operation with two other partners, including Fulton Hogan Limited. This has been disclosed within Note 24(b). (2) Transactions with G Chiari relate to the period 1 July 2018 to 11 September 2018. End of Audited Remuneration Report 35 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTDirectors’ Report Directors’ Report (CONTINUED) INDEMNITY AND INSURANCE OF DIRECTORS AND OFFICERS The Company has indemnified the directors and executives of the Company for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the Company paid a premium in respect of a contract to insure the directors and executives of the Company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of liability and the amount of the premium. INDEMNITY AND INSURANCE OF AUDITORS The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the Company or any related entity against a liability incurred by the auditor. During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company or any related entity. NON AUDIT SERVICES Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in Note 7 to the financial statements. The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor’s behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are of the opinion that the services as disclosed in Note 7 to the financial statements do not compromise the external auditor’s independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and • none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards. During the year ended 30 June 2019 fees amounting to $46,685 were paid to BDO for non-audit services including tax compliance and services in connection with the Merger of Equals. ROUNDING OF AMOUNTS The Company is of a kind referred to in ASIC Corporations (Rounding in Financials / Directors’ Reports) Instrument 2016/191, dated 24 March 2016, and in accordance with that Corporations Instrument, amounts in this report have been rounded off to the nearest thousand dollars, unless otherwise stated. AUDITOR’S INDEPENDENCE DECLARATION A copy of the auditor’s independence declaration as required under Section 307C of the Corporations Act 2001 is set out on page 37. This directors’report is made in accordance with a resolution of directors, pursuant to Section 298(2)(a) of the Corporations Act 2001. Peter Wade Non-Executive Chairman 27 August 2019 36 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTAuditor’s Independence Declaration Auditor’s Independence Declaration Tel: +61 8 6382 4600 Fax: +61 8 6382 4601 www.bdo.com.au 38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia DECLARATION OF INDEPENDENCE BY GLYN O'BRIEN TO THE DIRECTORS OF SRG GLOBAL LIMITED As lead auditor of SRG Global Limited for the year ended 30 June 2019, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. No contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of SRG Global Limited and the entities it controlled during the period. Glyn O’Brien Director BDO Audit (WA) Pty Ltd Perth, 27 August 2019 BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. 37 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTDirectors’ Declaration Directors’ Declaration SRG GLOBAL LIMITED ABN 81 104 662 259 AND CONTROLLED ENTITIES DIRECTORS’ DECLARATION The Directors of the Company declare that: 1. The financial statements, comprising the consolidated statement of profit or loss and other comprehensive income, consolidated statement of financial position, consolidated statement of cash flows, consolidated statement of changes in equity and accompanying notes, are in accordance with the Corporations Act 2001 and: (a) (b) comply with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and give a true and fair view of the Group’s financial position as at 30 June 2019 and of the performance for the year ended on that date of the Group. 2. In the directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 3. At the date of this declaration there are reasonable grounds to believe that the members of the extended closed group identified in note 24 will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the Deed of Cross Guarantee described in note 24. 4. Note 1 to the financial statements confirms that the financial statements also comply with International Financial Reporting Standards (‘IFRS’) as issued by the International Accounting Standards Board. 5. The directors have been given the declarations required by Section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the Board of Directors and is signed for and on behalf of the directors by: Peter Wade Non-Executive Chairman 27 August 2019 38 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORT Independent Auditor’s Report Independent Auditor’s Report Tel: +61 8 6382 4600 Fax: +61 8 6382 4601 www.bdo.com.au 38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia INDEPENDENT AUDITOR'S REPORT To the members of SRG Global Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of SRG Global Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2019, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial report, 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 2019 and of its financial performance for the year ended on that date; 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 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 of the current year. 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. BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. 39 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTIndependent Auditor’s Report Independent Auditor’s Report (CONTINUED) Merger of GCS Limited and SRG Limited Key audit matter How the matter was addressed in our audit As disclosed in Note 1(a) of the financial report, GCS Our procedures included, but were not limited to the Limited announced on 12 June 2018 that they would be following: merging with SRG via a recommended scheme of arrangement in which GCS will acquire 100% of the shares in SRG. The acquisition was completed on 1 September 2018. This is a key audit matter due to the size of the transaction, the complexities inherent in accounting for business combinations and the significant judgements made by management, including the identification and measurement of the fair value of assets and liabilities acquired. • • • • • • Reviewing the merger agreements to understand the terms and conditions of the transaction and evaluating management’s application of the relevant Australian Accounting Standards; Obtaining an understanding of the transaction, including an assessment of whether the transaction constituted a reverse takeover; Comparing the assets and liabilities recognised as part of the business combination and the historical financial information of the acquired business; Assessing management’s fair value estimation of the assets and liabilities identified, including an assessment of independent expert valuation reports; Assessing the competency and objectivity of the experts engaged by management; and Assessing the appropriateness of the related disclosures in Note 25 of the financial report. 40 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTIndependent Auditor’s Report (CONTINUED) Independent Auditor’s Report Impairment testing of intangible assets and property, plant and equipment Key audit matter How the matter was addressed in our audit At 30 June 2019, the Group has recognised intangible Our procedures included, but were not limited to the assets and property, plant and equipment as disclosed following: in Notes 13 and 12 of the financial report. Note 1(m) and 1(k) of the financial report discloses the accounting policies for impairment testing of intangible assets and property, plant and equipment. As detailed in Note 1, management’s assessment of the recoverability of intangible assets and property, plant and equipment requires significant judgement, in particular estimation of future cash flows, future growth rates of the business (cash generating (“CGUs”), discount rates applied to future cash flows and sensitivities of inputs and assumptions used in the cash flow models. • • • • Assessing the appropriateness of the Group’s identification of CGUs and management’s allocation of assets to the carrying value of CGUs based on our understanding of the Group’s business and internal reporting; Evaluating the methodology applied by the Group in allocating corporate assets and costs across the CGUs; Evaluating management’s ability to accurately forecast cash flows by assessing the accuracy of the historic forecasts against actual results; Challenging the key inputs used in the value in use model including the following: • • • • Comparing the discount rate utilised by management to those calculated by our internal valuation experts; Comparing growth rates with economic and industry forecasts; Comparing the Group’s forecast cash flows to the board approved budgets; Performing sensitivity analyses on the key assumptions used, including future growth rates and discount rates; and, • Assessing the adequacy of the related disclosures in Notes 12 and 13. 41 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTIndependent Auditor’s Report Independent Auditor’s Report (CONTINUED) Revenue recognition and the adoption of AASB 15 Key audit matter How the matter was addressed in our audit The Group has several material revenue streams in the Our procedures included, but were not limited to the form of construction revenue, services revenue, following: products revenue and rental revenue - all of which have different revenue recognition timings and are subject to different legal and contractual frameworks given the geographical dispersion. In the current year, as disclosed in Note 1(u) the group has also adopted AASB 15, where the core principle is that an entity should recognise revenue to depict the transfer of promised goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled for those goods or services. As disclosed in Note 1, the principles under AASB 15 involve significant judgment and estimates and thus, there is a risk that revenue has not been recognised in accordance with the standard. • • • • • • • Assessing the appropriateness of management’s revenue recognition policy, ensuring that the policy is in accordance with the five step model adopted by the relevant Australian Accounting Standard, AASB 15; Understanding and documenting the processes and controls used by the Group in recognising construction contract costs and for estimating the costs to complete construction projects; Evaluating management’s ability to accurately forecast construction costs and estimate costs to complete projects by assessing the accuracy of historic forecast against actual results; Enquiring with management on the progress of the Group’s major projects to gain an understanding of the projects’ stage of completion, any material contract variations and the remaining forecast financial performance of the project against management’s initial assessment; Performing analytical procedures on contracting revenue recorded during the year by setting expectations based upon each project’s stage of completion and the respective contract price; Agreeing a sample of costs incurred to supporting documentation, including testing the appropriate allocation to the correct project. We also evaluated payments made subsequent to reporting date to assess whether costs were accrued in the correct period; and Assessing the adequacy of the related disclosures in Note 2. 42 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTIndependent Auditor’s Report (CONTINUED) Independent Auditor’s Report Other information The directors are responsible for the other information. The other information comprises the information in the Group’s annual report for the year ended 30 June 2019, but does not include the financial report and the 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. 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. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website (http://www.auasb.gov.au/Home.aspx) at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf This description forms part of our auditor’s report. 43 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTIndependent Auditor’s Report Independent Auditor’s Report (CONTINUED) Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 30 to 35 of the directors’ report for the year ended 30 June 2019. In our opinion, the Remuneration Report of SRG Global Limited, for the year ended 30 June 2019, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. BDO Audit (WA) Pty Ltd Glyn O'Brien Director Perth, 27 August 2019 44 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTConsolidated Statement of Profit or Loss and other Comprehensive Income Financial Statements Revenue Other income Construction, servicing and contract costs Employee benefits expense Other expenses Equity accounted investment results Depreciation expense Amortisation expense Finance costs Profit before tax Income tax benefit / (expense) Profit after tax for the year Other comprehensive income Exchange differences arising on translation of foreign operations Total comprehensive income for the year, net of tax Earnings per share attributable to members of the parent entity Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Note 2019 $’000 2018 $’000 2 3 4 4 5 9 9 486,391 6,720 239,220 876 (245,578) (191,388) (32,459) 522 (9,498) (6,621) (1,345) 6,744 2,675 9,419 (92,953) (119,886) (19,018) 1,011 (6,928) (92) (628) 1,602 (409) 1,193 420 9,839 (446) 747 2019 2018 2.3 2.3 0.7 0.7 Under accounting standard AASB 3 Business Combinations, SRG has been determined as the parent for accounting purposes. The consolidated financial statements therefore reflect a continuation of the financial statements of SRG. The impact of this is the comparative results for the year end 30 June 2018 reflect SRG only for that period, the financial results of SRG Global as reported for the year end 30 June 2019 are comprised of a twelve-month contribution from SRG (1 July 2018 to 30 June 2019) and a ten-month contribution from GCS (1 September 2018 to 30 June 2019). The financial results of GCS for the non-reporting period of 1 July 2018 to 31 August 2018 are excluded from the financial results of SRG Global presented herein. The above statement should be read in conjunction with the notes to the financial statements. 45 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORT Financial Statements Consolidated Statement of Financial Position AS AT YEAR ENDED 30 JUNE 2019 Current Assets Cash and cash equivalents Trade and other receivables Contract assets Inventories Prepayments Derivative financial instrument asset Equity accounted investments Current tax 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 Contract liabilities Current borrowings Current tax liabilities Current provisions Derivative financial instrument liability Total current liabilities Non-current liabilities Non-current borrowings Non-current provisions Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Total Equity Note 2019 $’000 2018 $’000 22 10 10 11 24(c) 12 13 16 14 10 15 17 15 17 18 19 58,280 70,583 47,462 13,041 3,987 - 1,099 - 194,452 71,453 137,556 27,177 236,186 29,713 47,780 25,234 11,752 839 529 811 222 116,880 38,323 40,751 4,824 83,898 430,638 200,778 84,113 15,592 21,222 1,746 20,828 54 143,555 24,880 9,475 34,355 40,330 4,435 19,903 - 11,861 - 76,529 9,748 813 10,561 177,910 87,090 252,728 113,688 215,896 8,204 28,628 252,728 66,269 7,004 40,415 113,688 Under accounting standard AASB 3 Business Combinations, SRG has been determined as the parent for accounting purposes. The consolidated financial statements therefore reflect a continuation of the financial statements of SRG. The impact of this is the comparative results for the year end 30 June 2018 reflect SRG only for that period, the financial results of SRG Global as reported for the year end 30 June 2019 are comprised of a twelve-month contribution from SRG (1 July 2018 to 30 June 2019) and a ten-month contribution from GCS (1 September 2018 to 30 June 2019). The financial results of GCS for the non-reporting period of 1 July 2018 to 31 August 2018 are excluded from the financial results of SRG Global presented herein. The above statement should be read in conjunction with the notes to the financial statements. 46 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORT Consolidated Statement of Financial Changes in Equity Financial Statements Share capital $’000 Reverse acquisition reserve $’000 Total issued capital $’000 Retained earnings $’000 Share based payments reserve $’000 Asset revaluation reserve $’000 Foreign currency translation reserve $’000 Total equity $’000 Balance at 1 July 2017 147,728 (106,417) 41,311 42,923 2,119 682 (687) 86,348 Profit for the year Other comprehensive income Total comprehensive income - - - - - - - - - 1,193 - 1,193 - - - Transactions with owners in their capacities as owners Issue of ordinary shares, net of transaction costs Share based payments Dividends paid Balance at 30 June 2018 155,811 (89,542) 66,269 8,083 16,875 24,958 243 (750) - - - - - - - 6,086 (3,944) 40,415 - 7,455 - - - - - - - (446) (446) 1,193 (446) 747 - - - 24,451 6,086 (3,944) 682 (1,133) 113,688 Balance at 1 July 2018 155,811 (89,542) 66,269 40,415 7,455 682 (1,133) 113,688 Opening balance adjustment on application of AASB 15* Opening balance adjustment of AASB 9* - - - - - - (10,817) (2,283) - - - - - - (10,817) (2,283) Adjusted balance at 1 July 2018 155,811 (89,542) 66,269 27,315 7,455 682 (1,133) 100,588 Profit for the year Other comprehensive income Total comprehensive income Transactions with owners in their capacities as owners Issue of ordinary shares, net of transaction costs Share based payments Dividends paid Fair value of consideration on acquisition of GCS Ltd - - - - - - - - - - - - 9,419 - 9,419 847 847 - - - - - - (8,106) 148,565 215 148,780 - - - - - 780 - - - - - - - - - - 420 420 9,419 420 9,839 - - - - 847 780 (8,106) 148,780 Balance at 30 June 2019 304,376 (88,480) 215,896 28,628 8,235 682 (713) 252,728 * Refer to adjustments in Note 1(u). Under accounting standard AASB 3 Business Combinations, SRG has been determined as the parent for accounting purposes. The consolidated financial statements therefore reflect a continuation of the financial statements of SRG. The impact of this is the comparative results for the year end 30 June 2018 reflect SRG only for that period, the financial results of SRG Global as reported for the year end 30 June 2019 are comprised of a twelve-month contribution from SRG (1 July 2018 to 30 June 2019) and a ten-month contribution from GCS (1 September 2018 to 30 June 2019). The financial results of GCS for the non-reporting period of 1 July 2018 to 31 August 2018 are excluded from the financial results of SRG Global presented herein. The above statement should be read in conjunction with the notes to the financial statements. 47 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORT Financial Statements Consolidated Statement of Cash Flows Receipts from customers Interest received Payments to suppliers and employees Interest paid Income tax paid Cash inflow from operating activities Payments for business combinations Proceeds from business combination Payments for property, plant and equipment Proceeds from sale of property, plant and equipment Payments of contingent consideration Dividends from joint ventures Cash inflow / (outflow) from investing activities Proceeds from issuance of shares Proceeds from borrowings Repayment of borrowings Payment of dividends Cash inflow from financing activities Net cash increase in cash and cash equivalents Effect of exchange rates on cash and cash equivalent holdings Cash and cash equivalents at beginning of financial year Note 2019 $’000 2018 $’000 522,558 249,793 450 114 (516,511) (241,837) 22(a) 25 (1,795) (1,042) 3,660 (1,975) 39,215 (19,396) 3,744 (2,530) 235 19,293 847 21,591 (9,027) (8,105) 5,306 (628) (2,820) 4,622 (32,825) - (2,616) 136 - 200 (35,105) 24,452 18,950 (3,778) (3,944) 35,680 28,259 5,197 308 29,713 67 24,449 Cash and cash equivalents at end of financial year 22 58,280 29,713 Under accounting standard AASB 3 Business Combinations, SRG has been determined as the parent for accounting purposes. The consolidated financial statements therefore reflect a continuation of the financial statements of SRG. The impact of this is the comparative results for the year end 30 June 2018 reflect SRG only for that period, the financial results of SRG Global as reported for the year end 30 June 2019 are comprised of a twelve-month contribution from SRG (1 July 2018 to 30 June 2019) and a ten-month contribution from GCS (1 September 2018 to 30 June 2019). The financial results of GCS for the non-reporting period of 1 July 2018 to 31 August 2018 are excluded from the financial results of SRG Global presented herein. The above statement should be read in conjunction with the notes to the financial statements. 48 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORT Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2019 NOTE 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES General information SRG Global Limited (‘the Company’) is a for-profit public company listed on the Australian Securities Exchange (‘ASX’) and is incorporated in Australia. The Company is primarily involved in engineering, mining, maintenance and construction contracting. The consolidated financial statements of the Company comprise the Company and its controlled entities (‘Consolidated Group’ or ‘Group’) and the Group’s interest in associates and joint arrangements. The separate financial statements of the parent entity, SRG Global Limited, have not been presented within this financial report as permitted by the Corporations Act 2001. The consolidated financial statements were authorised for issue by the Board of Directors on the date of signing the accompanying Directors’ Declaration. Basis of preparation These financial statements are general purpose financial statements and have been prepared in accordance with applicable Australian Accounting Standards, Australian Accounting Interpretations, and other authoritative pronouncements of the Australian Accounting Standards Board (‘AASB’), and the Corporations Act. The consolidated financial statements also comply with the International Financial Reporting Standards (‘IFRS’) as issued by the International Accounting Standards Board (‘IASB’). The Group has adopted two new accounting standards in the current financial year, being AASB 15 Revenue from Contracts with Customers and AASB 9 Financial Instruments. Details of the application of these new accounting standards are set out in Note 1(u). Any new, revised or amended Accounting Standards and Interpretations that have been issued but not yet mandatory have not been early adopted. Details of these new, revised or amended Accounting Standards and Interpretations that have been issued but not yet mandatory are set out in Note 1(v). Historical Cost Convention The financial statements have been prepared on an accruals basis with the exception of cash flow information, and are based on historical costs, modified where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. Presentation The consolidated financial statements are presented in Australian dollars, which is the Company’s functional and presentation currency. All values presented in the financial statements have been rounded to the nearest thousand dollars (‘$000) unless otherwise stated, in accordance with ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191. Foreign currency The functional currency of each of the Group’s entities is measured using the currency of the primary economic environment in which that entity operates. As at the reporting date, the assets and liabilities of overseas subsidiaries are translated into Australian dollars using the exchange rates at reporting date and the income statements are translated at the average exchange rates for the year. Retained profits are translated at the exchange rates prevailing at the date of the transaction. Transactions in foreign currencies are initially recorded in the functional currency at the exchange rates ruling at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when the fair values were determined. Exchange differences arising on the translation of foreign operations are transferred directly to the Group’s foreign currency translation reserve in the statement of financial position. These differences are recognised in the statement of profit or loss and other comprehensive income, in the period in which the operation is disposed. Key accounting estimates and judgements In applying Australian Accounting Standards, management is required to make judgements, estimates and form assumptions that affect the application of accounting policies and reported amounts presented herein. On an ongoing basis, management evaluate estimates and judgements incorporated into the financial statements based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the consolidated group. The following key estimates and judgements were relevant to the Group for the financial year: - Determination of variable consideration on revenue (Note 1(b)) - Estimation of allowance for expected credit losses on financial assets and liabilities (Note 1(u)) - Assessment and impairment of intangible assets (Note 13) - Recovery of deferred tax assets and provision for income tax (Note 16) - Employee long-term entitlements (Note 17) - Determination of the fair value and deferred consideration arising from business combinations (Note 25) 49 SRG GLOBAL 2019 ANNUAL REPORTNotes to the Financial Statements Notes to the Financial Statements NOTE 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Accounting policies This note provides all significant accounting policies adopted in the preparation of these consolidated financial statements. These policies have been consistently applied to all the years presented, unless otherwise stated. (a) Principles of consolidation Subsidiaries Subsidiaries are all entities (including structured entities) controlled by the Company. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. The consolidated financial statements are prepared by consolidating the financial statements of all entities within the Group as defined in AASB 10 Consolidated Financial Statements. The consolidated financial statements include the information and results of each subsidiary from the date on which the Company obtains control and until such time as the Company ceases to control such entity. The acquisition method of accounting is used to account for business combinations by the Group. In preparing the consolidated financial statements, all inter-company balances and transactions, income and expenses and profits and losses resulting from intra-Group transactions have been eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Reverse Acquisition Accounting The merger of Global Construction Services Limited (‘GCS’) and SRG Limited (‘SRG’) in September 2018 has been accounted for as a reverse acquisition business combination. In applying the requirements of AASB 3 Business Combinations to the Group: - - GCS is the legal parent entity to the Group; and SRG, which is neither the legal parent nor the legal acquirer, is deemed to be the accounting parent of the Group. The consolidated financial information incorporates the assets and liabilities of all entities deemed to be acquired by SRG including GCS and the results of these entities for the period from which those entities are accounted for as being acquired by SRG. The assets and liabilities of GCS acquired by SRG were recorded at fair value while the assets and liabilities of SRG were maintained at their book value. The excess of the consideration transferred over the fair value of SRG’s share of the net identifiable assets acquired is recorded as goodwill. Acquisition related costs are expensed as incurred. The impact of all transactions between entities in the Group are eliminated in full. A reverse acquisition reserve is created as part of the formation of the Group and is discussed in Note 25. Associates Associates are entities over which the Group has significant influence but not control or joint control. Significant influence is presumed to exist when the Group owns between 20% and 50% of the voting power of another entity. Investments in associates are accounted for using the equity method, after initially being recognised at cost. Joint arrangements Under AASB 11 Joint Arrangements, investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations each investor has, rather than the legal structure of the joint arrangement. The Group has assessed the nature of its joint arrangements and determined to have both joint operations and joint ventures. - - Joint operations - The Group recognises its direct right, and its share of, jointly held assets, liabilities, revenues and expenses of joint operations. These have been incorporated in the financial statements under the appropriate headings. Details of joint operations are set out in Note 24(b). Joint ventures - Interests in joint ventures are accounted for using the equity method, after initially being recognised at cost. Details of joint ventures are set out in Note 24(c). Equity method of accounting Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to recognise the Group’s share of the post-acquisition profits or losses of the investee in profit or loss, and the Group’s share of movements in other comprehensive income of the investee in other comprehensive income. Investments in associates are carried in the statement of financial position at cost plus post-acquisition changes in the Group’s share of net assets of the associates. Dividends received or receivable from associates reduce the carrying amount of the investment. 50 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTNotes to the Financial Statements Notes to the Financial Statements NOTE 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) When the Group’s share of losses in an equity-accounted investment equals or exceeds its interest in the associate, including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealised gains arising from transactions with associates and jointly controlled entities are eliminated to the extent of the Group’s interest in the entity with adjustments made to the ‘Equity accounted investments’ and ‘Equity accounted investment results’ accounts. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Accounting policies of the equity-accounted investees have been changed where necessary to ensure consistency with the policies adopted by the Group. The carrying amount of equity-accounted investments is tested for impairment in accordance with the policy described in note 1(q). Changes in ownership interests When the group ceases to have control, joint control or significant influence, any retained interest in the entity is remeasured to its fair value with the change in carrying amount recognised in profit or loss. This fair value becomes the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss. If the ownership interest in a joint venture or an associate is reduced but joint control or significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate. (b) Revenue The Group operates three main revenue streams throughout various geographical locations – Construction, Services and Products. Construction Revenue The Group derives revenue from construction of buildings and civil projects globally. The construction of each project is generally taken as one performance obligation. Where contracts are entered with several performance obligations, the total transaction price is allocated to each performance obligation based on stand-alone selling prices. As per normal practice, the transaction price of a project is fixed at the start containing bonus and penalty elements based on performance construction criteria known as variable consideration. The performance obligation is fulfilled over time and as such revenue is recognised over time. As work is performed on the assets being constructed, they are controlled by the customer and have no alternative use for the Group. Revenue earned is recognised on the measured input of each process based on resources consumed per appraisals that are agreed with the customer on a regular basis. Services Revenue Maintenance and other services are performed by the Group for a variety of industries. Contracts entered into can cover services which may involve various different processes or servicing of related assets. Where these processes and activities are highly interrelated, and the Group provides a significant service of integration for these activities, they are taken as one performance obligation. The transaction price is allocated across each performance obligation based on contracted prices. Variable consideration may be included in the transaction price. The performance obligation is fulfilled over time as the Group enhances the assets which the customer controls, for which the Group has no alternative use and has a right to payment for performance to date. Revenue is recognised in the accounting period in which services are rendered. Customers are in general invoiced for an amount that is calculated based on agreed contract terms in accordance with stand-alone selling prices for each performance obligation. Products revenue The Group manufactures and supplies advanced construction and ground support products across various industries and geographical locations. Revenue is recognised when control of the good has transferred, being when the products are received by the customer. Variable Consideration Contracts may include performance bonuses or penalties assessed against the timeliness or cost effectiveness of work completed or other performance related KPIs. Revenue recognition of variable consideration is only satisfied when there are no uncertainties to its entitlement, this is known as the “constraint” requirements. 51 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTNotes to the Financial Statements Notes to the Financial Statements NOTE 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The Group assess the constraint requirements on a periodic basis when estimating the variable consideration to be included in the transaction price. The estimate is based on all available information including historic performance. Where modifications to contracts are made, the transaction price is updated to reflect these. Where the modification price is not confirmed, an estimate is made of the amount of revenue to recognise whilst also considering the constraint requirement. (c) Finance costs Finance costs are recognised as expenses in the period in which they are incurred, except where they are directly attributable to the acquisition, construction or production of an asset. The capitalisation rate used to determine the amount of finance costs to be capitalized is the weighted average interest rate on the Group’s borrowings outstanding during the period. (d) Income tax The Group is subject to income taxes in Australia and other jurisdictions around the world in which the entities within the Group operates. Income tax expense (income) The income tax expense (income) on the profit or loss for the year comprises current and deferred tax expense (income). Current income tax expense (income) is the tax payable (receivable) on the taxable income for the period, using tax rates enacted at the reporting date, and any adjustments to tax payable in respect of previous years. Deferred income tax expense (income) reflects movements in deferred tax assets and liabilities attributable to temporary differences between the tax base of assets and liabilities and their carrying amounts in the financial statements, as well as unused tax losses. Current and deferred tax expense (income) are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax expense (income) are also recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax expense (income) arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination. Deferred tax assets (liabilities) Deferred tax assets and liabilities are ascertained based on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets also result where the amounts have been fully expensed but future tax deductions are available. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Where temporary differences exist in relation to investments, subsidiaries, branches, associates and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future. Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and 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 Consolidation In September 2018, the SRG tax consolidated group joined the GCS tax consolidated group, with GCS being the head entity. The SRG tax consolidated group members obtained a deed of release from SRG and settled the tax liabilities on exit. The tax attributes of the SRG consolidated group, including transferrable tax losses and franking credits were transferred to GCS. SRG’s assets were taken to have been acquired by GCS and the tax cost base of these assets was reset under the Allocable Cost Amount (‘ACA’) tax consolidation rules. The tax benefit arising from the SRG and GCS tax consolidation was $5.5 million and is disclosed in Note 5. The head entity and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. In addition to its own current and deferred tax amounts, the head entity also recognised current tax liabilities (assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. Members of the Group have entered into a tax funding agreement. Under the funding agreement, the allocation of tax within the Group is based on a group allocation. The tax funding agreement requires payments to/from the head entity to be recognised via an inter-company receivable (payable) which is at call. 52 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTNotes to the Financial Statements Notes to the Financial Statements NOTE 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (e) Goods and services tax (GST) Revenue, expenses and assets are recognised net of the amount of GST, except: - where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of the asset, or as an expense; or for receivables and payables which are recognised inclusive of GST. - The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the cash flow statement on a gross basis. The GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority is classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST receivable from, or payable to, the taxation authority. (f) Earnings per share Basic earnings per share Basic earnings per share is determined by dividing the profit attributable to equity holders of the Group, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the reporting period, adjusted for bonus elements in ordinary shares issued during the period. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financial costs associated with dilutive potential ordinary shares and the weighted average number of shares outstanding plus the weighted average number of ordinary shares that would be issued on the conversion of all potential ordinary shares into ordinary shares. (g) Fair value of assets and liabilities When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly (i.e. unforced) transaction between market participants at the measurement date. It assumes that the transaction will take place either in the principle market or in the absence of a principle market, in the most advantageous market. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows: - - - Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) Level 3: inputs for the asset or liability that are not based on observable market date (unobservable inputs). (h) Cash and cash equivalents Cash and cash equivalents are measured and carried at amortised cost. Cash and cash equivalents include cash on hand, deposits held at call with financial institutions, other short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts with original maturities of three months or less. (i) Trade and other receivables Trade and other receivables are initially recognised at transaction price and subsequently measured and carried at amortised cost. Collectability of trade receivables is made on an ongoing basis and when there is objective evidence that the Group will not be able to collect the receivable, allowances for credit losses is recognised. These losses are recognised in profit or loss. (j) Inventories Inventories are measured at the lower of cost and net realisable value. Cost Cost includes direct materials, direct labour, other direct variable costs and allocation production overheads necessary to bring inventories to their present location and condition, based on normal operating capacity of the production facilities. The cost of manufacturing inventories and work-in-progress are assigned to inventories using the weighted average cost method. Costs arising from exceptional wastage are expensed as incurred. 53 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTNotes to the Financial Statements Notes to the Financial Statements NOTE 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Net realisable value Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Allowances are recorded for inventory considered to be excess or obsolete. (k) Property, plant and equipment Land is measured at cost. Buildings and all other property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. Costs include expenditures that are directly attributable to the acquisition of the asset. Subsequent costs Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that the future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance costs are charged to profit or loss during the reporting period in which they are incurred. Depreciation Land is not depreciated. Depreciation of major mining equipment is calculated on machine hours worked over their estimated useful life. Leasehold improvements and leased assets are depreciated over the shorter of the lease terms or their useful lives. Items in the course of construction or not yet in service are not depreciated. Depreciation on the other assets are recognised in profit or loss on a straight-line basis over the estimated useful life of the asset. The following useful lives are used in the calculation of depreciation: - - - - Buildings and leasehold improvements 3 – 50 years Office and computer equipment 3 – 10 years Motor vehicles Plant and rental equipment 3 – 8 years 3-40 years The depreciation methods, assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. 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. Derecognition An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Gains and losses on disposals are calculated as the difference between the net disposal proceeds and the asset’s carrying amount and are included in the statement of profit or loss and other comprehensive income in the year that the item is derecognised. Any revaluation reserve relating to sold assets is transferred to retained earnings. (l) Leased assets Leases under which the Group assumes substantially all the risks and benefits of ownership are classified as finance leases. Other leases are classified as operating leases. Finance leases Finance leases are capitalised at inception of the lease by recording an asset and a liability at the lower of the amounts equal to the fair value of the leased asset or the present value of the minimum lease payments, including any guaranteed residual values. Finance lease payments are apportioned between finance charges and reductions of the lease obligations so as to achieve a constant rate of interest on the remaining balance of the liability. Operating leases Payments made under operating leases (net of incentives received from the lessor) are charged to the statement of profit or loss and other comprehensive income on a straight-line basis over the period of the lease. 54 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORT Notes to the Financial Statements Notes to the Financial Statements NOTE 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (m) Intangibles Goodwill Goodwill is initially recorded at the amount by which the purchase price for a business combination exceeds the fair value attributed to the interest in the net fair value of identifiable assets, liabilities and contingent liabilities at the date of acquisition. Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill is not amortised but is assessed annually for impairment or more frequently if the facts or circumstances indicate a potential impairment and is carried at cost less accumulated impairment losses. Goodwill is allocated to cash-generating units for the purpose of impairment assessment. Information about impairment assessment of intangibles is set out in Note 13. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Customer Relationships Customer relationships are acquired as part of business combinations. They are recognised at their fair value at the date of acquisition and are subsequently amortised on a straight-line based on the timing of projected cash flows of the contracts over their estimated useful lives. (n) Trade and other payables Trade creditors and other payables are non-interest bearing and are initially recognised at fair value and subsequently carried at amortised cost. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that remained unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. Settlement of these liabilities are in line with normal commercial terms. (o) Interest bearing liabilities All loans and borrowings are initially recognised at fair value less directly attributable transaction costs. Subsequently, interest bearing liabilities are then stated at amortised cost with any difference between cost and redemption value being recognised in the statement of profit and loss over the period of the borrowings on an effective interest basis. All interest bearing liabilities are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. (p) Provisions Provisions are recognised when the Group has a present legal or constructive obligation that can be estimated reliably as a result of past event, for which it is probable that an outflow of economic benefits will be required to settle the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. If the time value of money is material, provisions are discounted using a current pre-tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognised as a finance cost. Employee Benefits The provision for employee entitlements to wages, salaries and annual and long service leave represents the amount which the Group has a present obligation to pay resulting from employees’ services provided up to the reporting date. - - Short-term Employee Benefits - Employee benefits expected to be settled within 12 months are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Long-term Employee Benefits - Employee benefits which are not expected to settle within 12 months are measured at the present value of the estimated future cash flows to be made of those benefits. Information about long-term employee benefits measurement is set out in Note 17(b). Onerous Contracts A provision for onerous contracts is recognised when the expected benefits to be derived from a contract are less than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. (q) Financial instruments Financial instruments are recognised when the Group becomes a party to the contractual provisions to the instrument. Financial instruments for the Group include cash and cash equivalents, trade and other receivables, trade and other payables, interest-bearing financial liabilities, contingent considerations and equity investments not held for trading. The initial recognition and classification of subsequent measurement are set out within the relevant accounting policy. Impairment At the end of each reporting period, the Group assesses whether there is objective evidence that a financial instrument has been impaired. Impairment losses are recognised in the statement of profit or loss. Impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. 55 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTNotes to the Financial Statements Notes to the Financial Statements NOTE 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Derecognition Financial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised where the related obligations are either discharged, cancelled or expired. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss. (r) Share capital Ordinary share capital Issued and paid up capital is recognised at the fair value of the consideration received by the Group. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Dividends A provision for dividends is not recognised as a liability unless the dividends are declared on or before the reporting date. (s) Employee share trust The Group has formed a trust to administer its employee share schemes. The trust is consolidated as the substance of the relationship is that the trust is controlled by the Group. Shares held by the share trust are disclosed as treasury shares and deducted from contributed equity. (t) Equity-settled compensation Share-based compensation benefits are provided to employees in the form of options and performance rights in exchange for the rendering of services under an employee share plan. The cost of equity-settled transactions is recognised as an expense with a corresponding increase in equity over the vesting period. (u) New accounting standards and interpretations adopted The Group has adopted all of the new and amended Accounting Standards and Interpretations issued by the AASB that are relevant to the Group and effective for the current annual reporting period as follows: Standard / interpretation AASB 15 ‘Revenue from Contracts with Customers’ AASB 9 ‘Financial Instruments’ AASB 15 Revenue from Contracts with Customers Effective for annual reporting periods beginning on or after 1 January 2018 1 January 2018 Initially applied in the financial year ending 30 June 2019 30 June 2019 In the current year, the Group has applied AASB 15 Revenue from Contracts with Customers (as amended in April 2016) which came into effect for annual period that begins on or after 1 January 2018. The Group has applied AASB 15 via the modified retrospective transition approach, which requires a restatement of the opening balance of retained earnings to adjust for any retrospective impact of the new revenue standard instead of restating the comparative information. AASB 15 establishes a comprehensive framework for determining the timing and quantum of revenue recognised. It replaces existing guidance, including AASB 118 Revenue and AASB 111 Construction Contracts. The core principle is that an entity recognises revenue to depict the transfer of promised goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled for those goods or services. The Group has operations across different industry sectors and geographical locations which are subject to different legal and contractual frameworks. Significant judgements and estimates are used in determining the impact of AASB 15 such as but not limited to: - - - - Probability of customer approval of variations Acceptance of performance Estimation of project completion date Where applicable the individual status of legal proceedings, including arbitration and litigation for each contract Construction of each project represents one performance obligation. Revenue is recognised over time as the works are performed on assets controlled by the customer. AASB 15 requires variable consideration within the transaction price such as incentives, penalties and modifications not be recognised as revenue until there is a high probability of entitlement. Revenue was previously recognised when probable that work performed will result in revenue whereas under the new standard, revenue is recognised when it is highly probable that a significant reversal of revenue will not occur. 56 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTNotes to the Financial Statements Notes to the Financial Statements NOTE 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) During the current financial year, there was no material revenue recognised that was previously recognised as contract assets or liabilities as at 30 June 2018. Details of the Group’s main revenue streams and revenue recognition are set out in Note 1(b). Statement of Financial Position Implications AASB 15 is based on the premise that a contract asset or contract liability is generated when either party to a contract performs, depending on the relationship between the Group’s performance and the customer’s payment at the reporting date. Where appropriate the Group has recognised such contract assets and contract liabilities as when required. Contract assets are recognised when the Group has transferred goods or services to the customer but where the Group is yet to establish an unconditional right to consideration. Likewise, contract liabilities are recognised when a customer pays consideration, or when the Group recognises a receivable to reflect its unconditional right to consideration (whichever is earlier) before the Group has transferred the goods or services to the customer. Incremental costs are those costs incurred to obtain or fulfil a contract. Under AASB 15, these costs are recognised as an asset and are required to be amortised on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates. Judgements are involved in determining the amount of contract costs to be capitalised and they are subject to impairment assessment annually. Costs to obtain a contract that would have been incurred regardless of whether the contract was obtained or which are not otherwise recoverable from a customer are expensed as incurred to profit or loss. Incremental costs of obtaining a contract where the contract term is less than one year is immediately expensed to profit or loss. Impact on application of AASB 15 Statement of Financial Position Current trade and other receivables Deferred tax assets* Total asset impact Retained earnings Total equity impact As reported 30 June 2018 $’000 AASB 15 Transition Adjustments $’000 Opening Balance 1 July 2018 $’000 73,014 4,824 77,838 40,415 40,415 (12,456) 1,639 (10,817) (10,817) (10,817) 60,558 6,463 67,021 29,598 29,598 * Adoption of AASB 15 requires retrospective adjustments resulting in tax effect accounting and deferred tax impacts. There has been no revenue recognised in the current financial year that arise from performance obligations satisfied in the previous periods. AASB 9 Financial Instruments In the current year, the Group has applied AASB 9 Financial Instruments (as amended) and the related consequential amendments to other Accounting Standards that are effective for an annual period that begins on or after 1 January 2018. AASB 9 replaces AASB 139 Financial Instruments: Recognition and Measurement. AASB 9 introduces new requirements which the Group has adopted for: - - - The classification and measurement of financial assets and financial liabilities Impairment of financial assets General hedge accounting The Group’s accounting policies for financial instruments are disclosed throughout Note 1 and as follows: Classification and Measurement of Financial Assets and Financial Liabilities In accordance with the requirements of AASB 9, the Group classifies its financial assets under the following classification: - - Measured at fair value (either through comprehensive income, or through profit or loss) or Amortised cost Classification is dependent on the Group’s business model for managing its financial assets and their contractual cash flow characteristics of those financial assets. 57 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTNotes to the Financial Statements Notes to the Financial Statements NOTE 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (i) Cash and Cash Equivalents and Trade and other Receivables Measurement of cash and cash equivalents and trade and other receivables are at amortised cost consistent with previous periods. This is in-line with the Group’s business model to hold these assets under contractual terms to collect contractual cashflows at a specified date. (ii) Equity Investments not held for trading The Group has measured all equity investments at fair value through profit or loss. Where an election to recognise fair value through other comprehensive income is chosen, there is no option to subsequently reclassify to fair value through profit and loss following the derecognition of the investment. Impairment losses and impairment reversals on equity investments measured at fair value through other comprehensive income are not reported separately from other changes in fair value. Changes in the fair value of financial assets at fair value through profit or loss are recognised in other expenses in the statement of profit or loss as applicable. (iii) Trade and other payables Trade payables are the amounts outstanding for goods and services received. Settlement of these liabilities are in line with normal commercial terms Measurement of trade and other payables are at amortised cost. (iv) Interest bearing liabilities In accordance with AASB 9 all loans and borrowings are initially recognised at fair value less transaction costs. Subsequently, interest bearing liabilities are then stated at amortised cost with any difference between cost and redemption value being recognised in the statement of profit or loss over the period of the borrowings on an effective interest basis. Impairment of financial assets In relation to impairment of financial assets, AASB 9 requires an expected credit loss model as opposed to an incurred credit loss model under the former standard AASB 139. For trade receivables and contract assets the Group has elected to apply the simplified approach permitted by AASB 9. This requires that the Group provides for a loss allowance equivalent to the lifetime expected credit losses from initial recognition of those receivables. The Group applies the appropriate impairment methodologies available under AASB 9 to determine the expected credit losses associated with other financial assets. Impact on application of AASB 9 Statement of Financial Position Trade and other receivables and contract assets Deferred tax assets Total asset impact Retained earnings Total equity impact As reported 30 June 2018 $’000 AASB 9 Transition Adjustments $’000 Opening Balance 1 July 2018 $’000 73,014 4,824 77,838 40,415 40,415 (2,283) - (2,283) (2,283) (2,283) 70,731 4,824 75,555 38,132 38,132 (v) New accounting standards and interpretations issued but not yet effective Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the Group for the annual reporting period ended 30 June 2019. The Group’s assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the Group, are set out below. AASB 16 Leases: effective for annual reporting periods beginning on or after 1 January 2019 AASB 16 replaces AASB 117 Leases and the related interpretations. It introduces a new lease accounting model for lessees that requires lessees to recognise all leases on the statement of financial position (except for short-term leases and low value assets) and recognise the amortisation of lease assets and interest on lease liabilities in profit or loss. Lessees will also be required to remeasure the lease liability upon the occurrence of certain events (such as change in the lease term or lease payments). The accounting for lessors will not significantly change. 58 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTNotes to the Financial Statements Notes to the Financial Statements NOTE 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The Group is in the process of assessing the impact of the application of AASB 16. The following new or amended Accounting Standards and Interpretations are not expected to have a significant impact on the Group’s consolidated financial statements: - - - AASB 2017-7 Amendments to Australian Accounting Standards – Long term interests in joint ventures and associates; and AASB Interpretation 23 Uncertainty Over Income Tax Treatments, AASB 2017-4 Amendments to Australian Accounting Standards – Uncertainty over Income Tax Treatments; and Annual Improvements to IFRS Standards 2015-2017 Cycle - Amendments to IFRS 3 Business Combinations, IFRS 11 Joint Arrangements, IAS 12 Income Taxes and IAS 23 Borrowing Costs. 59 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTNotes to the Financial Statements Notes to the Financial Statements NOTE 2. REVENUE The effect of initially applying AASB 15 on the Group’s revenue from contracts with customers is described in Note 1(u). Due to the transition method chosen in applying AASB 15, comparative information has not been restated to reflect the new requirements. Revenue from contracts with customers is disaggregated by major service lines and is in line with the Group’s reportable segments (see Note 28). 2019 $’000 2018 $’000 268,003 218,388 486,391 120,090 119,130 239,220 2019 $’000 2018 $’000 444 - - 180 300 380 5,416 6,720 55 292 529 - - - - 876 2019 $’000 2018 $’000 215 659 1,388 7,236 9,498 6,621 120 472 829 5,507 6,928 92 Construction revenue Services revenue NOTE 3. OTHER INCOME Gain on disposal of property, plant and equipment Gain on contingent consideration Gain on derivatives Property rental income Research and development income Freight income Other NOTE 4. DEPRECIATION AND AMORTISATION Depreciation Buildings and leasehold improvements Office and computer equipment Motor vehicles Plant and rental equipment Amortisation Customer relationships Depreciation and amortisation rates are set out in Note 1(k) and 1(m). 60 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORT Notes to the Financial Statements Notes to the Financial Statements NOTE 5. INCOME TAX EXPENSE This note provides all analysis of the Group’s income tax expense: (a) Income tax expense Current tax expense Deferred tax expense (see Note 16) (Over) / under provision in respect to prior year Income tax expense (b) Reconciliation of income tax expense to prima facie tax payable Profit for the year Tax at the Australian rate of 30% (2018 - 30%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: - - - - - - - Non-tax deductible items Non-deductible losses on overseas entities Difference in overseas tax rate Tax benefit arising from tax consolidation of SRG Group Sundry items Share-based payments Research and development Amount (over) / under provided in prior year Income tax expense attributable to entity (c) Amounts recognised directly in equity 2019 $’000 2018 $’000 2,140 (4,710) (105) (2,675) 6,744 2,023 (48) 976 (50) (5,471) - - - (105) (2,675) 2,056 (1,036) (611) 409 1,602 481 91 1,149 (504) - (88) (20) (89) (611) 409 Aggregate current and deferred tax arising in the financial year and not recognised in the net profit or loss but directly credited (debited) to equity is as follows: Share based payments 2019 $’000 - 2018 $’000 929 61 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTNotes to the Financial Statements Notes to the Financial Statements NOTE 6. KEY MANAGEMENT PERSONNEL COMPENSATION The remuneration disclosures of directors and other members of KMP during the year are provided in Section 7 of the Remuneration Report designated as audited and forming part of the Directors’ Report. The below remuneration disclosures for 2019 are for SRG Global’s KMP as presented in the Remuneration Report while the 2018 disclosures are for SRG’s KMP only. Short-term employee benefits Long service leave Post-employment benefits Share-based payments 2019 $ 2018 $ 2,693,753 3,474,434 (43,763) 1,275,781 10,499 126,919 721,727 4,500,963 4,647,498 8,112,815 NOTE 7. AUDITORS’ REMUNERATION During the year, the following fees were paid or payable for services provided by the auditors of the parent entity, its related practices and non-related audit firms: Remuneration of the auditor of the parent entity(1) Audit or review of the financial statements Non-assurance related services - tax compliance - services in connection with reverse acquisition Remuneration of parent entity auditor’s network firms(1) Audit or review of the financial statements Remuneration of other auditors of subsidiaries Audit or review of the financial statements Non-assurance related services - tax compliance - services in connection with reverse acquisition - other advisory services (1) The auditor of the parent entity is BDO Audit (WA) Pty Ltd (2018: William Buck). 2019 $ 2018 $ 329,204 185,725 3,341 43,344 375,889 80,446 80,446 - - 185,725 - - 36,881 36,294 3,883 1,663 6,084 48,511 - - - 36,294 62 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTNotes to the Financial Statements Notes to the Financial Statements NOTE 8. CAPITAL MANAGEMENT (a) Risk Management Management controls the capital of the Group in order to maintain a sustainable debt to equity ratio, generate long- term shareholder value and ensure that the Group can fund its operations and continue as a going concern. The Group’s debt and capital include ordinary share capital and financial liabilities, supported by financial assets. The Group is not subject to any externally imposed capital requirements, except for Corporations Act 2001 Chapter 6 in relation to take over provisions and ASX listing rules Chapter 7 on 15% placement cap on new equity raising. Management effectively manages the Group’s capital by assessing the Group’s financial risks and adjusting its capital structure in response to changes in these risks and in the market. These responses include the management of debt levels, distributions to shareholders and share issues. Net debt Net debt is calculated as the total borrowings less cash and cash equivalents. (b) Dividends Distributions paid The amounts paid, provided or recommended by way of dividend by the parent entity are: - - Final fully franked ordinary dividend for the year ended 30/06/2018 of 4.5 cents (2017: 4.0 cents) per share paid on 27/08/2018 franked at the tax rate of 30% Interim fully franked ordinary dividend for the year ended 30/06/2019 of 1.0 cent (2018: 2.0 cents) per share paid on 23/04/2019 franked at the tax rate of 30% Dividends declared after 30 June 2019 (i) The Directors have resolved to declare a final fully franked ordinary dividend of 0.5 cent (2018: 4.5 cents) per share payable on 23/10/2019, franked at the tax rate of 30% (2018: 30%) Franking account balance (ii) Balance of franking account at year end adjusted for franking credits arriving from payment of provision for income tax, dividends recognised as receivables and franking debits arising from payment of dividends and franking credits that may be prevented from distribution in subsequent financial years. Subsequent to year end, the franking account would be reduced by the proposed dividend as follows: 2019 $’000 (12,178) 2018 $’000 (62) 2019 $’000 2018 $’000 3,698 4,407 2,615 1,329 8,105 3,944 2,202 3,670 2,202 3,670 19,787 7,738 (944) (1,573) 18,843 6,165 63 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORT Notes to the Financial Statements Notes to the Financial Statements NOTE 9. EARNINGS PER SHARE Profit attributable to members of the parent entity ($’000) 2019 9,419 2018 1,193 Weighted average number of shares used in the calculation of basic EPS (shares) 402,445,380 169,023,570 Weighted average number of shares used in the calculation of diluted EPS (shares) 402,445,380 181,846,064 Earnings per share Basic (cents per share) Diluted (cents per share) 2.3 2.3 0.7 0.7 AASB 3 Business Combinations provides specific guidance on the calculation of the weighted average number of shares as follows: The number of ordinary shares issued by: - SRG outstanding shares from 1 July 2018 to 31 August 2018 The number of SRG shares on issue of 81,573,611 multiplied by the exchange ratio established in the Scheme of Arrangement of 2.479 multiplied by ratio of days (62/365); plus - SRG Global from 1 September 2018 to 30 June 2019 The number of the Group shares on issue (440,415,099) multiplied by the ratio of days outstanding (303/365) NOTE 10. TRADE AND OTHER RECEIVABLES The effect of initial applying AASB 9 and AASB 15 is described in Note 1(u). Trade receivables(a) Other receivables(b) Allowance for expected credit losses (contracts with customers) (see Note 30(e)) Net balance sheet position for ongoing construction contracts: Contract assets(c) Contract liabilities(c) (a) Trade receivables 2019 $’000 73,196 911 (3,524) 70,583 47,462 (15,592) 31,870 2018 $’000 47,603 924 (747) 47,780 25,234 (4,435) 20,799 Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. Collection of the amounts is expected within one year or less and therefore have been classified as current assets. (b) Other receivables These amounts generally arise from transactions outside the usual operating activities of the Group. Collateral is not normally obtained. (c) Contract assets and contract liabilities Contract assets are balances due from customers as work is performed and therefore a contract asset is recognised over the period in which the performance obligation is fulfilled. This represents the Group’s right to consideration for the goods and services transferred to date. Amounts are generally reclassified to trade receivables when these have been certified or invoiced to a customer. Contract liabilities arise when payment is received prior to work being performed. (d) Risk exposure Information about the Group’s exposure to credit risk, foreign currency risk and interest rate risk can be found in Note 30. 64 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTNotes to the Financial Statements NOTE 11. INVENTORIES Raw materials and stores at cost Finished goods Work in progress and materials on site Notes to the Financial Statements 2019 $’000 5,963 3,378 3,700 13,041 2018 $’000 5,783 2,429 3,540 11,752 Provision for obsolete stock was included in this amount of $209,265 (2018: Nil). NOTE 12. PROPERTY, PLANT AND EQUIPMENT Year Ended 30 June 2019 Opening net book amount Additions Disposals Depreciation charge Foreign exchange differences Additional amounts recognised from business combinations occurring in the current period (see Note 25) Closing net book amount As at 30 June 2019 Cost Accumulated depreciation Accumulated impairment Net book amount Year Ended 30 June 2018 Opening net book amount Additions Disposals Depreciation charge Foreign exchange differences Additional amounts recognised from business combinations occurring in the current period Closing net book amount As at 30 June 2018 Cost Accumulated depreciation Accumulated impairment Net book amount Land $’000 501 - (784) - - 3,071 2,788 2,788 - - 2,788 Land $’000 501 - - - - - 501 501 - - 501 Building & Leasehold Improvements Office & Computer Equipment Motor Vehicles Plant & Rental Equipment Capital Work in Progress Total $’000 $’000 $’000 $’000 $’000 $’000 273 617 (90) (215) 5 1,275 1,069 406 (34) 5,446 2,001 (46) (659) (1,388) 21 90 31,034 16,360 (2,734) (7,236) 280 - 38,323 1,427 20,811 - - - (3,688) (9,498) 396 326 1,536 17,889 1,012 25,109 1,865 1,129 7,639 55,593 2,439 71,453 3,403 (1,538) - 1,865 9,365 19,315 117,957 2,439 155,267 (8,236) (11,676) (62,364) - - - - - (83,814) - 1,129 7,639 55,593 2,439 71,453 Building & Leasehold Improvements Office & Computer Equipment Motor Vehicles Plant & Rental Equipment Capital Work in Progress Total $’000 $’000 $’000 $’000 $’000 $’000 214 113 - (120) (2) 68 273 867 (594) - 273 814 297 (47) (472) (15) 2,204 1,776 (1) (829) (98) 25,231 6,098 (62) (5,507) (177) 492 2,394 5,451 1,069 5,446 31,034 7,680 15,964 88,140 (6,611) (10,518) (57,106) - - - 1,069 5,446 31,034 - - - - - - - - - - - 28,964 8,284 (110) (6,928) (292) 8,405 38,323 113,152 (74,829) - 38,323 65 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTNotes to the Financial Statements Notes to the Financial Statements NOTE 13. INTANGIBLES As at 1 July 2017 Cost Accumulated amortisation and impairment Net book amount Year ended 30 June 2018 Opening net book amount Amortisation change Foreign exchange differences Additional amounts recognised from business combinations occurring in the current period Closing net book amount As at 30 June 2018 Cost Accumulated amortisation and impairment Net book amount Year ended 30 June 2019 Opening net book amount Additions Amortisation charge Foreign exchange differences Additional amounts recognised from business combinations occurring in the current period (see Note 25) Goodwill $’000 Customer Relationships $’000 22,974 (8) 22,966 22,966 - (591) 15,670 38,045 38,053 (8) 38,045 38,045 2,441 - 453 74,051 - - - - (92) (110) 2,908 2,706 2,798 (92) 2,706 2,706 - (6,621) 206 26,275 Total $’000 22,974 (8) 22,966 22,966 (92) (701) 18,578 40,751 40,851 (100) 40,751 40,751 2,441 (6,621) 659 100,326 Closing net book amount 114,990 22,566 137,556 As at 30 June 2019 Cost Accumulated amortisation and impairment Net book amount 114,998 (8) 114,990 29,279 (6,713) 22,566 144,277 (6,721) 137,556 66 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTNotes to the Financial Statements Notes to the Financial Statements NOTE 13. INTANGIBLES (CONTINUED) Impairment disclosures of non-financial assets At the end of each reporting period, the group reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the statement of profit or loss. Where it is not possible to estimate the recoverable amount of an individual asset, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Goodwill is allocated to cash-generating units which are based on the Group’s reporting segments: Allocation of Intangible Assets to Cash-Generating Unit (CGU) groups 30 June 2019 30 June 2018 Construction $’000 Asset Services $’000 Mining Services $’000 86,437 18,261 49,941 21,312 1,178 1,178 Total $’000 137,556 40,751 The recoverable amount of a CGU is determined based on value-in-use calculations which require the use of assumptions. These calculations use discounted cash flow projections based on financial budgets approved by management covering a three year period. The discount rate used is the Group’s weighted average cost of capital. The same growth rate is applied across all CGU’s and reflect the long-term average growth rate and management’s outlook on growth. Significant estimate: Key assumptions used for value-in-use calculations Construction Asset Services Mining Services Long-term growth rate Pre-tax discount rate 2019 % 2.50% 2.50% 2.50% 2018 % 2.50% 2.50% 2.50% 2019 % 12.00% 12.00% 12.00% 2018 % 11.75% 11.75% 9.53% Sensitivity Management believe that any reasonably possible change in the key assumptions on which the recoverable amount based in all the CGU’s would not cause the carrying amount to exceed its recoverable amount. Impairment expense The Group performs its impairment test on an annual basis. The Group considers the relationship between its market capitalisation and its book value, among other factors when reviewing indicators of impairment. As a result of the impairment testing process, no impairment charge has been brought to account for the year ended 30 June 2019 (2018: Nil). 67 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORT Notes to the Financial Statements Notes to the Financial Statements NOTE 14. TRADE AND OTHER PAYABLES Current Trade payables Other payables and accrued expenses Information about the Group’s exposure to currency and liquidity risks is included in Note 30. NOTE 15. BORROWINGS Current Secured borrowings - Term facility Secured borrowings - Hire purchase finance Non-current Secured borrowings - Term facility Secured borrowings - Hire purchase finance The carrying amount of non-current assets pledged as first security are: Plant, motor vehicles and equipment over which hire purchase contracts apply 2019 $’000 2018 $’000 45,334 38,779 84,113 18,620 21,710 40,330 2019 $’000 13,489 7,733 21,222 11,250 13,630 24,880 2018 $’000 15,000 4,903 19,903 - 9,748 9,748 22,730 22,730 16,891 16,891 (a) Hire purchase finance Hire purchase liabilities are effectively secured as the rights to the leased assets recognised in the financial statements revert to the lessor in the event of default. (b) Fair value The fair value of borrowings is not materially different from the carrying value since interest payable on these borrowings are either close to current market rates or the borrowings are of a short term nature. 68 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTNotes to the Financial Statements NOTE 16. DEFERRED TAX BALANCES (a) Deferred tax assets The balance comprises temporary differences attributed to: Property, plant and equipment Provisions Share based payments Payables Tax losses Other Total deferred tax assets (b) Deferred tax liabilities The balance comprises temporary differences attributed to: Debtors retention Intangible assets Accrued revenue Prepayments Other Property, plant and equipment Total deferred tax liabilities Net deferred tax assets / liabilities (c) Reconciliations Notes to the Financial Statements 2019 $’000 2018 $’000 8,006 5,796 - 804 19,461 1,842 35,909 1,108 6,786 799 39 - - 8,732 27,177 - 3,655 2,746 - 1,045 708 8,154 434 786 799 - 159 1,152 3,330 4,824 Opening Balance $’000 Recognised in Profit or Loss $’000 Recognised Directly in Equity $’000 Acquisitions / Disposals $’000 (Over) / Under Previous Years $’000 Closing Balance $’000 2019 Deferred tax assets / (liabilities) in relation to: Property, plant and equipment Provisions Share based payments Intangibles Debt retention Prepayments Payables Tax losses Accrued Revenue Other 2018 Deferred tax assets / (liabilities) in relation to: Property, plant and equipment Provisions Share based payments Intangibles Debtors retention Tax losses Accrued revenue Other (1,152) 3,655 2,746 (786) (434) - - 1,045 (799) 549 4,824 277 2,339 976 - (520) - - 184 3,256 188 (4,611) (2,746) 980 (93) 493 (26) 9,429 - 1,096 4,710 (1,114) 612 841 - 86 1,045 (799) 365 1,036 - - - - - - - - - - - - - 929 - - - - - 929 8,970 6,752 - (6,980) (581) (532) 830 8,987 - 197 17,643 - 704 - (786) - - - - (82) - - - - - - - - - - - (315) - - - - - - - (315) 8,006 5,796 - (6,786) (1,108) (39) 804 19,461 (799) 1,842 27,177 (1,152) 3,655 2,746 (786) (434) 1,045 (799) 549 4,824 69 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTNotes to the Financial Statements Notes to the Financial Statements NOTE 17. PROVISIONS Current Employee benefit provisions(a) Lease provisions(c) Other Non-current Employee benefit provisions(b) Lease provisions(c) Other (a) Employee benefit provisions 2019 $’000 2018 $’000 13,599 2,074 5,155 20,828 2,371 5,191 1,913 9,475 10,954 - 907 11,861 813 - - 813 The employee benefit provisions cover the group’s liability for long service leave and annual leave. The current portion of this liability includes all of the accrued annual leave, the unconditional entitlements to long service where employees have completed the required period of service and also those where employees are entitled to pro-rata payments in certain circumstances. The entire amount of the current provision of $13,599,000 (2018: $10,954,000) is presented as current, since the group does not have an unconditional right to defer settlement for any of these obligations. However, based on past experience, the group does not expect all employees to take the full amount of accrued leave or require payment within the next 12 months. (b) Significant estimate: Provision for non-current employee benefits In determining the employee entitlements relating to long service leave, consideration is given to employee wage increases and the probability that the employee may satisfy any vesting requirements. Those cash flows are discounted using market yields on corporate bonds with terms to maturity that match the expected timing of cash flows attributable to employee benefits. (c) Lease provisions $6,760,000 of the liability is assumed as part of the business combination in Note 25 for the fair valuation of GCS’ lease agreements due to the leases’ terms being unfavourable relative to market terms. The market value of rentals for these properties are lower than the rental terms agreed by GCS to lease the properties and therefore a liability is recognised. $504,000 of onerous lease provisions assumed as part of the business combination in Note 25 for discount provided for a sub-lease, as the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. NOTE 18. ISSUED CAPITAL Share capital Ordinary shares fully paid 2019 2018 Shares 440,415,099 $’000 215,896 Shares 222,181,412 $’000 66,269 70 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTNotes to the Financial Statements Notes to the Financial Statements NOTE 18. ISSUED CAPITAL (CONTINUED) Number of shares Total $‘000 Balance as at 1 July 2018 Share based payments Shares issued as partial consideration for acquisition of the 49% remaining interest in Gallery Facades Share issue cost Tax effect on share issue costs Reverse acquisition reserve (see Note 19(d)) Balance as at 30 June 2018 210,525,072 500,000 11,156,340 - - - 222,181,412 Share based payments Shares issued in accordance with Scheme of Arrangement on acquisition of SRG Global Limited Reverse acquisition reserve (see Note 19(d)) Balance as at 30 June 2019 1,350,000 216,883,687 - 440,415,099 147,727 - 8,085 (3) 2 (89,542) 66,269 - 148,565 1,062 215,896 In accordance with AASB 3 Business Combinations, SRG has been determined as the parent for accounting purposes. The consolidated financial statements therefore reflect a continuation of the financial statements of SRG. However, the equity structure must reflect the equity structure of GCS (the legal parent), including the equity interest issued by GCS to effect the business combination. As such the value of the shares issued in accordance with the Scheme of Arrangement on acquisition reflects the shares issued by GCS to acquire SRG at a legal consideration price of $0.69 per share. (a) Ordinary shares Fully paid ordinary shares carry one vote per share and entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of shares held. Ordinary shares have no par value and the Company does not have a limit on the amount of authorised capital. (b) Options No new options were issued in the current financial year. Following the approval of the Scheme of Arrangement during the financial year, all previously issued SRG Options were vested and converted into SRG shares prior to the Merger of Equals being completed in September 2018. (c) Performance rights No new options were issued in the current financial year. Following the approval of the Scheme of Arrangement during the financial year, all previously issued SRG Performance Rights were vested and converted into SRG shares prior to the Merger of Equals being completed in September 2018. In addition, 1,350,000 performance rights were converted into GCS shares as part of the Scheme Benefits paid to KMP during the non-reporting period of 1 July 2018 to 31 August 2018. NOTE 19. RESERVES Nature and purpose of reserves (a) Share-based payment reserve The share-based payment reserve is used to recognise the value of the vesting of equity-settled share-based payments provided to employees, including key management personnel, as part of their remuneration. Following the approval of the Scheme of Arrangement during the financial year, all previously issued SRG Options and Performance Rights vested and were exercised before the scheme record date. No other new options or performance rights have been issued. (b) Asset revaluation surplus The asset revaluation surplus includes the net revaluation increments and decrements arising from the revaluation of non-current assets in accordance with Australian Accounting Standards. (c) Foreign currency translation reserve The foreign currency translation reserve records exchange differences arising on the translation of foreign operations with functional currencies other than those of the presentation currency of these financial statements. Refer to accounting policy Note 1. (d) Reverse acquisition reserve As a result of reverse acquisition accounting, a new equity account is created as a component of equity. This account called ‘Reverse acquisition reserve’ is similar in nature to share capital. The Reverse acquisition reserve is not available for distribution. This equity account represents a net adjustment for the replacement of the legal parent’s (GCS) equity with that of the deemed acquirer (SRG). 71 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORT Notes to the Financial Statements Notes to the Financial Statements NOTE 20. COMMITMENTS (a) Capital commitments Committed at the reporting date but not recognised as liabilities, payable: Plant and equipment 801 - 2019 $’000 2018 $’000 (b) Lease commitments - operating Committed at the reporting date but not recognised as liabilities, payable: Within one year One year but not later than five years Greater than five years Total lease commitments Consists of: Cancellable operating lease Non-cancellable operating lease Total lease commitments (c) Lease commitments - finance Committed at the reporting date but not recognised as liabilities, payable: Within one year One year but not later than five years Greater than five years Total commitment Less: Future finance charges Net commitment recognised as liabilities Representing Current Non-current Total lease liability 8,714 24,659 434 33,807 - 33,807 33,807 8,482 14,349 - 22,831 (1,468) 21,363 7,733 13,630 21,363 2,402 3,948 18 6,368 - 6,368 6,368 5,443 10,287 - 15,730 (1,079) 14,651 4,903 9,748 14,651 Operating Leases The group leases various offices, warehouses and yards under non-cancellable operating leases expiring within one to ten years. The leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated. The group also leases various plant and vehicles under cancellable operating leases. Varying periods of notice are required to terminate these leases. NOTE 21. CONTINGENT ASSETS AND LIABILITIES Certain claims arising out of construction and services contracts have been made by controlled entities in the ordinary course of business. These claims are confidential in nature and may involve adjudication, arbitration or litigation. In accordance with Australian Accounting Standards, due to the uncertainty in relation to the quantum and timing of the resolution of these claims, no amounts have been recognised in the financial statements in relation to these matters. The Group’s bank guarantees and bond facilities’ limits and drawdowns are disclosed in Note 29. 72 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTNotes to the Financial Statements NOTE 22. CASH AND CASH EQUIVALENTS Cash at bank and in hand (a) Reconciliation of profit for the year to net cash flows from operating activities Profit for the year Depreciation and amortisation Share-based payments Earnings from equity accounted investment Gain on disposal of property, plant and equipment Movement in doubtful debts provision Fair value adjustments to derivatives Unrealised foreign exchange Gain on contingent consideration Changes in assets - - - - - - (Increase) / decrease in trade and other receivables (Increase) / decrease in contract assets (Increase) in inventories (Increase) / decrease in other assets Decrease in current tax assets (Increase) in deferred tax assets Changes in liabilities - - - - - Increase in trade and other payables Increase in contract liabilities Increase in provisions (Decrease) / increase in tax liability (Increase) / decrease in deferred tax liability Notes to the Financial Statements 2019 $’000 58,280 58,280 2018 $’000 29,713 29,713 2019 $’000 2018 $’000 9,419 16,119 780 (522) (444) - - 308 - (25,086) (33,044) (1,287) (3,150) 1,968 (29,685) 42,028 11,157 15,099 - - 1,193 7,020 5,163 (1,011) (55) 228 (529) 565 (292) (9,325) - (1,399) 870 - (797) 3,133 - 1,472 (1,686) 72 Cash inflow from operating activities 3,660 4,622 (b) Non-cash financing and investing activities Property, plant and equipment acquired under finance leases, lease purchase or vendor finance 6,204 5,650 73 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTNotes to the Financial Statements Notes to the Financial Statements NOTE 23. PARENT ENTITY FINANCIAL INFORMATION The table represents the legal parent entity, which is GCS and not the accounting parent, which is SRG. The information presented in respect of the parent entity is prepared using consistent accounting policies per Note 1. Financial Position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Total equity Financial Performance Loss for the year Other comprehensive income Total comprehensive loss for the year 2019 $’000 2018 $’000 15,208 117,821 28,758 79,325 133,029 108,083 17,820 17,204 35,024 5,257 2,265 7,522 98,005 100,561 155,811 17,293 (75,099) 98,005 155,811 758 (56,008) 100,561 13,566 - 13,566 15,689 - 15,689 With the exception of matters noted in Notes 20 and 21, there were no contingent liabilities, guarantees or capital commitments of the parent entity not otherwise disclosed in these financial statements. 74 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTNotes to the Financial Statements NOTE 24. PARTICULARS RELATING TO CONTROLLED ENTITIES (a) Group accounts include a consolidation of the following: Entity SRG Global Limited(1) Controlled companies CASC Contracting Pty Ltd Gallery Facades (SA) Pty Ltd GCS Hire Pty Ltd GCS Personnel Services Pty Ltd GCS Secured Pty Ltd GCS Summit Pty Ltd Paragon Glass (VIC) Pty Ltd Paragon Glass Pty Ltd SRG Global Assets Pty Ltd(1) SRG Global CASC Pty Ltd(1) SRG Global Contracting Pty Ltd(1) SRG Global Facades (NSW) Pty Ltd(1) SRG Global Facades (QLD) Pty Ltd(1) SRG Global Facades (VIC) Pty Ltd(1) SRG Global Facades (WA) Pty Ltd(1) SRG Global Facades (Western) Pty Ltd(1) SRG Global Facades Pty Ltd(1) SRG Global Industrial Services Pty Ltd(1) SRG Global Integrated Services Pty Ltd(1) SRG Global Investments Pty Ltd(1) SRG Global Structures (VIC) Pty Ltd(1) SRG Global Structures (WA) Pty Ltd(1) Acquired as part of reverse acquisition on 28/08/2018 Crow Refractory Limited Meridian Concrete Australia Pty Ltd Red Ore Drill and Blast Pty Ltd Rock Engineering (Aust) Pty Ltd Rock International Mining & Civil Pty Ltd SRG Contractors Abu Dhabi LLC(2) SRG Contractors DB LLC(2) SRG Contractors Doha LLC(2) SRG Contractors Muscat LLC(2) SRG Contractors NZ Limited SRG Contractors US, Inc. SRG Employee Share Trust SRG Global (Australia) Limited(1) SRG Global Building (Northern) Pty Ltd(1) SRG Global Building (Southern) Pty Ltd(1) SRG Global Building (Western) Pty Ltd(1) SRG Global Civil Pty Ltd(1) SRG Global Corporate (Australia) Pty Ltd(1) SRG Global International Holdings Pty Ltd(1) SRG Global IP Pty Ltd(1) SRG Global Mining (Australia) Pty Ltd(1) SRG Global Products Pty Ltd(1) SRG Global Services (Australia) Pty Ltd(1) SRG Global Services (Western) Pty Ltd(1) SRG Hong Kong Limited SRG International Holdings Pte. Ltd. SRG South Africa (Pty) Ltd Structural Rock Group Canada Structural Systems (Bridge Maintenance) Pty Ltd Structural Systems (Construction) Pty Ltd T.B.S. Coatings Limited TBS Farnsworth Limited TBS Group Limited TBS Remcon Limited Total Bridge Services Limited Total Fire Protection Pty Ltd Country of Incorporation Australia Principal Activity Corporate Services Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Construction Construction Asset Services Construction Construction Construction Construction Construction Construction Construction Asset Services Construction Construction Construction New Zealand Australia Australia Australia Australia United Arab Emirates United Arab Emirates Qatar Oman New Zealand United States Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Hong Kong Singapore South Africa Canada Australia Australia New Zealand New Zealand New Zealand New Zealand New Zealand Australia Asset Services Dormant Dormant Dormant Dormant Construction Construction Construction Construction Construction Construction Trust Corporate Services Construction Construction Construction Construction Corporate Services Dormant Corporate Services Mining Services Construction Asset Services Asset Services Construction Construction Construction Construction Dormant Construction Asset Services Asset Services Asset Services Asset Services Asset Services Dormant Notes to the Financial Statements Ownership Interest Held by the Group 2019 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% 50% 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% 50% 100% 2018 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% 50% 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% 50% 100% (1) Controlled entities subject to ASIC Corporation (Wholly-owned Companies) Instrument 2016/785 (2) In accordance with current foreign ownership restrictions in the United Arab Emirates (UAE), these entities have a 51% participation by UAE Nationals. This participation incurs a fixed fee and has no right to the profits or liability for the debts of the entity. 75 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTNotes to the Financial Statements Notes to the Financial Statements NOTE 24. PARTICULARS RELATING TO CONTROLLED ENTITIES (CONTINUED) Pursuant to ASIC Corporation (Wholly-owned Companies) Instrument 2016/785, relief has been granted to these controlled entities of SRG Global Limited from the Corporations Act 2001 requirements for preparation, audit and publication of accounts. As a condition of the ASIC Corporation (Wholly-owned Companies) Instrument 2016/785, SRG Global Limited and the controlled entities should become parties to a Deed of Cross Guarantee, also known as “The Closed Group”. The effect of the deed is that SRG Global Limited has guaranteed to pay any deficiency in the event of winding up of these controlled entities. The controlled entities have also given a similar guarantee in the event that SRG Global Limited is wound up. The deed was made on 21 June 2019. A revocation deed was also made on 21 June 2019 for parties that were in the previous Deed of Cross Guarantee prior to the GCS and SRG merger. The following are the consolidated totals for the Closed Group relieved under the deed: 2019 $’000 2018 $’000 Financial information in relation to: Statement of profit or loss and other comprehensive income: Profit before income tax Income tax benefit / (expense) Profit for the year Other comprehensive income Total comprehensive income for the year Statement of financial position: Current assets Cash and cash equivalents Trade and other receivables Inventories Contract assets Prepayments Equity accounted investments Total current assets Non-current assets Property, plant and equipment Intangible assets Related party loan receivables Investments Deferred tax assets Total non-current assets Total assets Current liabilities Trade and other payables Current borrowings Current provisions Contract liabilities Derivative financial instrument liability Current tax liabilities Total current liabilities Non-current liabilities Non-current borrowings Non-current provisions Related party loan payables Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Total equity 76 4,228 (2,020) 2,208 - 2,208 50,532 55,941 11,942 36,801 3,023 957 159,196 62,414 110,266 92,453 26,912 27,572 319,617 478,813 74,778 21,222 18,274 12,534 54 598 127,460 24,880 9,475 25,692 60,047 187,507 291,306 209,395 8,914 72,997 291,306 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTNotes to the Financial Statements Notes to the Financial Statements NOTE 24. PARTICULARS RELATING TO CONTROLLED ENTITIES (CONTINUED) (b) Joint operations The Company’s subsidiary, TBS Farnsworth, has a 50% share of Total Bridge Services, a joint operation with Opus International Consultants Ltd and Fulton Hogan Ltd. The principal activity of which is maintaining the Auckland Harbour Bridge. (c) Joint ventures Set out below are the joint ventures of the Group as at 30 June 2019 which, in the opinion of the Directors, are material to the Group. Margaret River Perimeter Road Project (a) Bolivia Hill Project (a) Traylor SRG, LLC (b) (a) Unincorporated Joint Ventures in Australia (b) Incorporated Joint Venture in United States. Place of business Australia Australia United States % of ownership interest Measurement method Carrying amount $’000 50% 50% 50% Equity Method Equity Method Equity Method - 957 142 77 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTNotes to the Financial Statements Notes to the Financial Statements NOTE 25. BUSINESS COMBINATION (a) Merger of GCS and SRG On 28 August 2018, GCS completed the legal acquisition of SRG and its controlled subsidiaries by acquiring 100% of the share capital of SRG through a scrip for scrip arrangement, 2.479 GCS shares for each SRG share. The proportional shareholdings between GCS and SRG on completion of the transaction was GCS 50.8% and SRG 49.2% of the combined entity. Control was deemed to have been obtained on 1 September 2018: - - - - The Scheme of Arrangement (Scheme) was approved by all relevant parties; All conditions precedent detailed in the Scheme were satisfied or waived; Even though the merged group Board was not appointed until 11 September 2018, SRG had the right to appoint four of the seven board members as of 28 August 2018; and Administration time required to implement the Scheme was finalised 1 September 2018. Accordingly, under the terms of the merger: - - - - GCS became the legal parent of SRG; The assets and liabilities of the legal subsidiary, SRG, are recognised and measured at their pre-combination carrying amounts; The retained earnings and other equity balances recognised in the consolidated financial statements are the retained earnings and other equity balances of the legal subsidiary (SRG) immediately before the business combination; The amount recognised as issued equity is determined by adding the issued equity of the legal subsidiary immediately before the business combination at the fair value of the legal parent. However, the equity structure reflects the equity structure of the legal parent including the equity instruments issued by the legal parent to effect the combination; and - SRG became the legal subsidiary of GCS. (b) Accounting and disclosure implications of the merger Under accounting standard AASB 3 Business Combinations, the merger of GCS and SRG has been accounted for as a reverse acquisition. Where two or more entities combine through an exchange of equity interest for the purposes of business combination, AASB 3 requires one of the entities to be deemed as the acquirer. SRG is deemed as the acquirer for accounting purposes given relative voting rights, equity exchange terms, composition of Board and Management. The implications of the reverse acquisition of GCS by SRG are: - - - - SRG for accounting purposes is deemed to be the parent company; The 30 June 2019 full year information reflects the newly combined group of SRG and GCS; Comparative financial information reflects the financial performance and financial position of SRG only; and In accordance with accounting guidance, the consideration that SRG is deemed to have paid for GCS is the market value of GCS equity at the date of merger, which was $148,780,000. This consideration has been allocated to the fair values of GCS intangible and tangible assets, liabilities and contingent liabilities. A new equity account is created as a component of equity. This account is called “Reverse acquisition reserve” and is similar to the nature of the share capital and is not available for distribution. The equity account represents a net adjustment of the legal parent’s equity (GCS) with that of the deemed acquirer (SRG). Comparative information presented in those financial statements also is retroactively adjusted to reflect the legal capital of the legal parent. 78 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTNotes to the Financial Statements Notes to the Financial Statements NOTE 25. BUSINESS COMBINATION (CONTINUED) (c) Summary of acquisition The assets and liabilities provisionally recognised as a result of the acquisition are as follows: Assets Cash and cash equivalents Inventories Trade and other receivables Contract assets Other current assets Current tax assets Property, plant & equipment Intangible assets Deferred tax assets Total assets Liabilities Trade and other payables Borrowings Provisions Contract liabilities Total liabilities Net assets acquired Goodwill arising on acquisition(1) Total purchase consideration(2) Fair Value $’000 39,215 735 37,222 1,753 3,344 442 25,109 26,275 16,226 150,321 30,734 3,634 36,677 4,547 75,592 74,729 74,051 148,780 From the date of acquisition, GCS has contributed $190,888,149 of revenue and $1,031,144 of net profit before tax of the Group. (1) Goodwill arising on acquisition The goodwill is not deductible for tax purposes and is attributable to the established workforce and future profitability of GCS. Subsequent to the business combination accounting, goodwill becomes subject to impairment testing at least annually, or if and when there are indicators that goodwill may be impaired. Goodwill has been subject to impairment test for the period ended 30 June 2019. The accounting standards allows for a restatement window of up to 12 months following the acquisition date. This allows time to gain access to and consolidate information for both entities to make certain valuations as at the acquisition date. (2) Purchase consideration No contingent consideration arrangements or indemnification assets have been recognised as a result of the transaction. 79 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTNotes to the Financial Statements Notes to the Financial Statements NOTE 26. RELATED PARTY INFORMATION (a) Subsidiaries Interest in subsidiaries are set out in Note 24. (b) Key Management Personnel compensation Key Management Personnel compensation is disclosed in Note 6. In addition during the financial year, the following type of transactions have also been entered into with key management personnel of the Group. (c) Transactions with related parties Sales of goods and services to entities controlled by key management personnel Purchase of goods and services from entities controlled by key management personnel 2019 $ 5,213,118 523,546 2018 $ - 126,000 (d) Outstanding balances arising from sales / purchases of goods and services with related parties as at reporting date Current receivables (sales of goods and services) Current payables (purchases of goods and services) 2019 $ 552,538 - 2018 $ - - No provisions have been raised in relation to any outstanding balances, and no expense has been recognised in respect of bad or doubtful debts due from related parties. NOTE 27. EVENTS SUBSEQUENT TO REPORTING DATE No other matters or circumstances have arisen since the end of this financial year other than the final fully franked dividend declared on 27 August 2019, which have significantly affected or may significantly affect the operations, the results of those operations, or the state of affairs of the consolidated group in future financial years. NOTE 28. SEGMENT RESULTS Description of segments Management has determined that strategic decision making is facilitated and enhanced by evaluation of operations on the customer segments of Construction, Asset Services and Mining Services. For each of the strategic operating segments, the Managing Director reviews internal management reports on a regular basis. The Group is managed primarily on the basis of product category and service offerings as the diversification of the Group’s operations have inherently different risk profiles and performance assessment criteria. Operating segments are therefore determined on the same basis. The following summary describes the operation in each of the Group’s reportable segments: Construction segment Our operations in the Construction segment consist of supplying integrated products and services to customers involved in the construction of complex infrastructure. These typically include bridges, dams, office towers, high rise apartments, shopping centres, hotels, car parks, recreational buildings, and hospitals. Contracts are typically medium to long term. Asset Services segment Our operations in the Asset Services segment consist of supplying integrated services to customers across the entire asset life cycle. Services provided span multiple sectors including oil and gas, energy, major infrastructure, offshore, mining, power generation, water treatment plants, commissioning, decommissioning, shutdowns, and civil works. Contracts vary in length from short to long term. Mining segment The mining segment services mining clients and provides comprehensive ground solutions including production drilling, ground and slope stabilisation, design engineering and monitoring services. Contracts vary in length from short to long term. 80 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTNotes to the Financial Statements Notes to the Financial Statements NOTE 28. SEGMENT RESULTS (CONTINUED) The Managing Director assesses the performance of the operating segments based on a measure of adjusted EBITDA. This measurement excludes certain non-recurring expenditures which are of an isolated nature such as equity settled share based payments and corporate activities pertaining to the overall Group including the treasury function which manages the cash and funding arrangements of the Group. During the financial year, no customer has contributed more than 10% of the total revenue for the Group. Segment information provided to the Managing Director for the year ended 30 June 2019 is as follows: Segment revenues and results 30 June 2019 Construction revenue Services revenue Revenue from external customers EBITDA Depreciation Amortisation Finance costs Equity accounted investment results Profit before income tax Income tax benefit / (expense) Profit after income tax 30 June 2018 Construction revenue Services revenue Revenue from external customers EBITDA Depreciation Amortisation Finance costs Equity accounted investment results Profit before income tax Income tax benefit / (expense) Profit after income tax Construction $’000 Asset Services $’000 Mining Services $’000 Corporate $’000 268,003 - 268,003 8,905 (1,846) (3,573) (51) 522 - 135,820 135,820 15,514 (2,208) (3,048) 109 - - 82,568 82,568 11,179 (4,341) - (554) - - - - (11,912) (1,103) - (849) - 3,957 10,367 6,284 (13,864) 120,090 - 120,090 5,225 (2,034) - - 1,011 4,202 - 41,899 41,899 4,735 (552) (92) - - - 76,801 76,801 13,676 (4,151) - - - - 430 430 (15,397) (191) - (628) - 4,091 9,525 (16,216) Total $’000 268,003 218,388 486,391 23,686 (9,498) (6,621) (1,345) 522 6,744 2,675 9,419 120,090 119,130 239,220 8,239 (6,928) (92) (628) 1,011 1,602 (409) 1,193 81 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTNotes to the Financial Statements Notes to the Financial Statements NOTE 28. SEGMENT RESULTS (CONTINUED) Segment assets and liabilities Construction $’000 Asset Services Mining Services $’000 $’000 Corporate $’000 30 June 2019 Segment assets Segment liabilities 30 June 2018 Segment assets Segment liabilities 214,032 89,173 73,490 37,660 119,917 38,436 54,394 15,583 44,711 24,738 42,245 24,804 Total $’000 430,638 177,910 51,978 25,563 30,649 9,043 200,778 87,090 Revenue from external customers Australia International Group 2019 $’000 401,233 2018 $’000 184,880 2019 $’000 85,158 2018 $’000 54,340 2019 $’000 486,391 2018 $’000 239,220 NOTE 29. FINANCING ARRANGEMENTS The consolidated Group has access to the following lines of credit: Total facilities available Bank overdraft (1) Hire purchase facility (1) Other facilities (1) Bank guarantee facility (1) Surety bond facility(2) Facilities used at the end of the reporting period: Bank overdrafts (1) Hire purchase facility (1) Other facilities (1) Bank guarantee facility (1) Surety bond facility (2) Facilities not used at the end of the reporting period: Bank overdrafts (1) Hire purchase facility (1) Other facilities (1) Bank guarantee facilities (1) Surety bond facility(2) 2019 $’000 2018 $’000 1,500 69,852 29,900 20,550 176,415 298,217 - 22,226 28,743 16,630 55,696 123,295 1,500 47,626 1,157 3,920 120,719 174,922 1,500 20,860 5,900 9,240 119,710 157,210 - 15,809 4,066 7,770 16,745 44,390 1,500 5,051 1,834 1,470 102,965 112,820 (1) Multi-option facility The multi-option facility is a comprehensive borrowing facility which includes bank overdraft, hire purchase, letter of credit, corporate credit card and bank guarantees. (2) Surety bonds The Group has an insurance bond facility with various parties. This facility has been utilised to provide security in connection with certain projects. The carrying amount of assets pledged as first security against these facilities are disclosed in Note 15. 82 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTNotes to the Financial Statements Notes to the Financial Statements NOTE 30. FINANCIAL INSTRUMENTS Significant accounting and risk management policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset and financial liability are disclosed in Note 1 to the financial statements. Treasury risk management The Group’s activities expose it to a variety of financial risk, market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk. Management, consisting of senior executives of the Group meet on a regular basis to analyse risk exposure, and to evaluate treasury management strategies in the context of the most recent economic conditions and forecasts. Risk management is carried out by the Board of Directors, who evaluate and agree upon risk management policies and objectives. The Group uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate and aging analysis for credit risk. (a) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The Group’s financial arrangements are disclosed in Note 29. Maturity of the Group’s financial liabilities are as follows: 2019 Borrowings Hire purchase liabilities Trade and other payables 2018 Borrowings Hire purchase liabilities Trade and other payables (b) Price risk 1 year or less 1 - 2 years 2 - 5 years $’000 $’000 $’000 More than 5 years $’000 Total cash flow $’000 Carrying amount $’000 14,014 8,063 84,113 3,117 7,329 - 106,190 10,446 15,629 5,114 40,330 61,073 - 4,687 - 4,687 8,571 6,883 - 15,454 - 5,481 - 5,481 - - - - - - - - 25,702 22,275 84,113 132,090 15,629 15,282 40,330 71,241 24,739 21,363 84,113 130,215 15,000 14,611 40,330 69,941 The Group is exposed to commodity price risk through its consumption of steel its operations use for post-tensioning, and to a lesser degree in the mining services business. The Group monitors forward steel prices and endeavors to lock in agreed prices on a project by project basis prior to formalising bid prices wherever possible. As at 30 June 2019, the Group held no financial instruments that could vary according to changes in the price of steel (2018: Nil). 83 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORT Notes to the Financial Statements Notes to the Financial Statements NOTE 30. FINANCIAL INSTRUMENTS (CONTINUED) (c) Foreign exchange risk Foreign currency risk is the risk that the value of a financial commitment, a recognised asset or liability will fluctuate due to changes in foreign currency rates. The Group is exposed to foreign exchange risk in abroad projects executed by local subsidiaries. The Group does not hedge this risk however continues to monitor exchange rates so that currency exposure is maintained at an acceptable level. There is a natural hedge in place to the extent project costs are materially of the same foreign currency. The major exchange rates relevant to the Group are as follows: Average year ended 30/06/2019 As at 30/06/2019 Average year ended 30/06/2018 As at 30/06/2018 AUD$ / USD$ AUD$ / ZAR$ AUD$ / AED$ AUD$ / HKD$ AUD$ / NZD$ 0.72 10.14 2.63 5.61 1.07 0.70 9.85 2.58 5.48 1.05 0.77 9.96 2.85 6.06 1.08 The Group’s exposure to foreign exchange risk at reporting date was as follows, based on carrying amounts in AUD$’000: 2019 Cash and cash equivalents Trade and other receivables Trade and other payables 2018 Cash and cash equivalents Trade and other receivables Trade and other payables AUD$ $’000 50,529 54,576 (74,783) 30,322 AUD$ $’000 21,964 27,354 (26,940) 22,378 USD$ $’000 7 1,666 (1,752) (79) USD$ $’000 18 693 (2,478) (1,767) ZAR$ $’000 3 1,365 - 1,368 ZAR$ $’000 1,213 3,833 - 5,046 AED$ $’000 2,344 5,488 (2,531) 5,301 AED$ $’000 307 6,056 (2,839) 3,524 HKD$ $’000 - 12 (317) (305) HKD$ $’000 349 10 - 359 NZD$ $’000 5,397 7,476 (4,730) 8,143 NZD$ $’000 5,862 9,834 (8,073) (40,330) 7,623 37,163 Based on the carrying amounts exposed to foreign currencies, had the Australian dollar weakened by 5% / strengthened by 5% (2018: weakened by 5% / strengthened by 5%) against these foreign currencies with all other variables held constant, the Group’s profit or loss would have been $759,350 lower / $687,031 higher (2018: $1,241,579 lower / $1,123,333 higher). The percentage change is the expected overall volatility of the significant currencies, which is based on management’s assessment of reasonable possible fluctuations taking into consideration movements over the last financial year and the spot rate at each reporting date. 84 0.74 10.14 2.71 5.80 1.09 Total $’000 58,280 70,583 (84,113) 44,750 Total $’000 29,713 47,780 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTNotes to the Financial Statements Notes to the Financial Statements NOTE 30. FINANCIAL INSTRUMENTS (CONTINUED) (d) Interest rate risk The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long term debt obligations that have floating interest rates. The Group has a mixture of variable and fixed interest rate financial instruments to manage its interest cost. The Group’s exposure to interest rate risk, effective weighted average interest rate, contractual settlement terms of a fixed period of maturity as well as management’s expectation of settlement period for financial instruments are set out below. 2019 Financial assets Cash and cash equivalents Trade and other receivables Financial liabilities Trade and other payables Borrowings Derivative 2018 Financial assets Cash and cash equivalents Trade and other receivables Derivative Financial liabilities Trade and other payables Borrowings Weighted Average Interest Rate Floating Interest Rate Fixed Interest Rate Maturing Within 1 year or less Over 1 year to 5 years More than 5 years Non-interest bearing % $’000 $’000 $’000 $’000 $’000 Total $’000 1.15 - 58,280 - 58,280 - - - - - - - - - - 3.89 (24,250) (8,193) (13,659) - - - - (24,250) (8,193) (13,659) - - - - - - - - 70,583 70,583 58,280 70,583 128,863 (84,113) (84,113) - (46,102) (54) (54) (84,167) (130,269) Weighted Average Interest Rate Floating Interest Rate Fixed Interest Rate Maturing Within 1 year or less Over 1 year to 5 years More than 5 years Non-interest bearing % $’000 $’000 $’000 $’000 $’000 Total $’000 1.16 26,214 - - - - - 26,214 - - - - - - - - - - - 4.19 (15,000) (15,000) (4,903) (4,903) (9,748) (9,748) - - - - - - - 3,499 29,713 47,780 47,780 529 529 51,808 78,022 (40,330) (40,330) - (29,651) (40,330) (69,981) As at 30 June 2019, a sensitivity analysis has not been disclosed in relation to the floating interest deposits for the Group as the net results of a reasonable possible change in interest rates have been determined to be immaterial to the statement of profit or loss and other comprehensive income. 85 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTNotes to the Financial Statements Notes to the Financial Statements NOTE 30. FINANCIAL INSTRUMENTS (CONTINUED) (e) 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. The Group is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments. The maximum credit risk exposed by the Group is in relation to cash, trade receivables and contract assets amounting to $176,325,000 as at the end of the reporting period (2018: $102,727,000). As a result of the diverse range of services and geographical spread covered by the Group, the Group does not have a concentration of credit risk to any one customer. Whilst the Group does have a broad risk to lead contractors in the construction industry generally, this is managed on a ‘customer by customer’ basis, taking into account ratings from credit agencies, trade references and payment history where there is a pre-existing relationship with that entity. The compliance with credit limits by customers is regularly monitored by management. The credit risk on liquid funds and derivative financial instruments is limited because majority of the counterparties are banks with high credit ratings (A+ or higher) assigned by international credit-rating agencies. The Group has established a loss allowance of trade receivables at an amount equal to lifetime expected credit losses (ECL). The ECLs on trade receivables are estimated using a provision matrix based on historical credit loss experience and any available forward-looking estimates available as at reporting date. Set out below is the information about the credit risk exposure at 30 June 2019 on the Group’s trade receivables for which lifetime expected credit losses are recognised: 30 June 2019 Expected credit loss rate Current 0.02% <31 Days 0.23% 31-60 Days 61-90 Days 1.00% 2.43% Days Past Due Based on the above credit loss rates and applying the rates against the total gross carrying amount of the trade receivables, the total estimated gross carrying amount at default does not have a material impact to the profit or loss of the Group. Other balances within trade and other receivables at 30 June 2019 did not contain impaired assets and were not past due. It is expected that these other balances would be received when due. The aging of trade receivables past due but not considered impaired and a reconciliation in ECL allowance is as follows: Ageing of past due but no ECL allowance provided for 60-90 days 90+ days An ECL allowance has not been provided for as the Group expects these trade receivables to be collectible. Movement in ECL allowance provided for receivables At 1 July 2018 - calculated under AASB 139 Amounts restated through opening retained earnings Opening loss allowance as at 1 July 2018 - calculated under AASB 9 Increase in loss allowance recognised in profit or loss during the period Receivables written off during the period as uncollectable Unused amount reversed Acquisition of subsidiary Closing balance as at 30 June 2019 2019 $’000 2018 $’000 4,429 3,184 7,613 (747) (2,283) (3,030) (114) 329 228 (937) (3,524) 1,183 2,761 3,944 (287) - (287) (368) 24 116 (232) (747) The ECLs on other short-term receivables are recognised in two stages. For those with credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12 months (a 12-month ECL). For those with credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of exposure, irrespective of the timing of the default (a lifetime ECL). To assess whether there is a significant increase in credit risk, the Group compares the risk of a default occurring on the asset as at the reporting date with the risk of default as at the date of initial recognition. In making this assessment, the Group considers the best available current information, including historical knowledge and forward-looking information. 86 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORT Notes to the Financial Statements Notes to the Financial Statements NOTE 30. FINANCIAL INSTRUMENTS (CONTINUED) Write-off policy The Group writes off a financial asset when there is information indicating that the counterparty is in severe financial difficulty and there is no realistic prospect of recovery. Financial assets written off may still be subject to enforcement activities under the Group’s recovery procedures, taking into account legal advice where appropriate. Any recoveries made are recognised in profit or loss. (f) Fair value Net fair values of financial assets and liabilities are determined by the consolidated group on the following basis: Monetary financial assets and financial liabilities not readily traded in an organised financial market are determined by valuing them at the present value of contractual future cash flows or amounts due from customers (reduced for expected credit losses) or due to suppliers. Cash flows are discounted using standard valuation techniques at the applicable market yield having regard to the timing of cash flows. With the exception of the fair value differences arising on the Group’s fixed interest rate, as discussed in the analysis of interest rate risk above, the carrying amounts of all financial instruments disclosed above are at their approximate net fair values. AASB 13 Fair Value Measurements: Disclosures requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: (i) (ii) quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2) (iii) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3) The following table presents the Group’s financial assets and liabilities measured and recognised at fair value. 2019 Financial assets Derivative Financial liabilities Derivative Provisions 2018 Financial assets Derivative Financial liabilities Other payables Level 1 $’000 Level 2 $’000 - - - - - (54) - (54) Level 3 $’000 - - (5,620) (5,620) Total $’000 - (54) (5,620) (5,674) Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 - - - 529 - 529 - - - 529 - 529 There were no transfers between levels during the period. The Group’s policy is to recognise transfers into and out of fair value hierarchy levels as at the end of the reporting period. 87 FOR THE YEAR ENDED 30 JUNE 2019SRG GLOBAL 2019 ANNUAL REPORTShareholder Information Shareholder Information Additional ASX Information This additional ASX information is required to be included in this Annual Report by ASX under Listing Rule 4.10. This information is not provided elsewhere in this report and is applicable as at 20 August 2019. Ordinary share capital SRG Global Limited’s issued share capital is comprised of 440,415,099 fully paid ordinary shares, held by 4,081 individual shareholders. At any meeting of shareholders fully paid ordinary shares carry one vote per share and the rights to dividends. Distribution of shareholders and their holdings Number of holders Ordinary shares Size of holding 1 to 1,000 340 121,186 1,000, to 5,000 956 5,001 to 10,000 633 10,001 to 100,000 1,809 100,001 to (MAX) 343 Total 4,081 2,727,484 5,004,788 62,158,137 370,403,504 440,415,099 There were 340 holders with less than a marketable parcel of fully paid ordinary shares. Substantial holders The number of shares held by substantial holders, as disclosed in substantial shareholding notices provided to the Company are set out below: Shareholder Perennial Value Management Limited Mitsubishi UFG Financial Group, Inc(1) Number of ordinary shares 65,426,019 38,352,278 103,778,297 (1) On 6 August 2019 Carol Australia Holdings Pty Ltd provided a Notice of Initial Substantial Shareholder (Form 603) to the Company. The ordinary shares held by Carol Australia Holdings Pty Ltd are included within the holding of Mitsubishi UFG Financial Group, Inc as set out above. Twenty largest shareholders CITICORP NOMINEES PTY LIMITED NATIONAL NOMINEES LIMITED J P MORGAN NOMINEES (AUSTRALIA) LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED ZERO NOMINEES PTY LTD SANDHURST TRUSTEES LTD BNP PARIBAS NOMS PTY LTD PRIMETOWN PTY LTD MR DAVID MACGEORGE BNP PARIBAS NOMINEES PTY LTD CASC SERVICES PTY LTD BNP PARIBAS NOMS (NZ) LTD CUTTERS 1 PTY LTD DEAKIN PLACE PTY LTD GULRIDJE PTY LTD EQUITAS NOMINEES PTY LIMITED MR ROGER LEE EQUITAS NOMINEES PTY LIMITED LUFORM PTY LTD AUST EXECUTOR TRUSTEES LTD Unlisted Equity Securites There are no unlisted equity securities on issue. Percentage of issued capital Number of ordinary shares 11.7% 7.0% 5.9% 4.2% 3.5% 2.7% 2.4% 2.3% 1.9% 1.5% 1.4% 1.2% 1.1% 1.1% 1.1% 0.9% 0.9% 0.9% 0.9% 0.9% 51,652,549 30,826,170 26,128,091 18,504,249 15,289,816 11,951,826 10,564,518 10,042,086 8,164,075 6,585,489 6,297,612 5,130,626 5,020,353 5,020,353 4,898,633 4,017,518 3,959,751 3,543,874 3,486,444 3,469,195 Voting rights Shareholders are encouraged to attend the Annual General Meeting. However, when this is not possible, they are encouraged to use the form of Proxy by which they can express their views on matters being brought forward at the meeting. Every shareholder, proxy or shareholder’s representative has one vote on a show of hands. In the case of a poll, each share held by every shareholder, proxy or representative is entitled to one vote for each fully paid share. Dividend reinvestment plan The company does not have a dividend reinvestment plan. 88 SRG GLOBAL 2019 ANNUAL REPORTCorporate Directory Corporate Directory Directors Peter Wade Peter McMorrow David Macgeorge Enzo Gullotti Peter Brecht Michael Atkins John Derwin Non-Executive Chairman Non-Executive Deputy Chairman Managing Director Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Company secretary The company secretaries are Roger Lee and Paul Hegarty. Registered office The registered office of the Company is: Level 1, 338 Barker Road, Subiaco, Western Australia 6008 Telephone: Facsimile: Website: +61 8 9267 5400 +61 8 9267 5499 www.srgglobal.com.au Stock exchange listing SRG Global shares are listed on the Australian Securities Exchange. Home exchange is Perth. Share register If you have any questions in relation to your shareholding, please contact our share registry: Computershare Investor Services Pty Ltd Level 2, 45 St Georges Terrace, Perth, Western Australia 6000 Telephone: Facsimile: Please include your Shareholder Reference Number (SRN) or Holder Identification Number (HIN) in all correspondence to the share registry. +61 3 9415 4631 +61 3 9473 2500 Incorporation SRG Global is incorporated in the state of Western Australia Auditors BDO Audit (WA) Pty Ltd Bankers National Australia Bank Commonwealth Bank of Australia 89 SRG GLOBAL 2019 ANNUAL REPORT srgglobal.com.au CORPORATE HEAD OFFICE Level 1, 338 Barker Rd Subiaco WA 6008 +61 8 9267 5400 info@srgglobal.com.au 

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