Sunset image of Operations site at night taken by Sedgman employee Tobias Hynes.

Transcription

1 ANNUAL REPORT

2 About Sedgman Sedgman Limited (ASX: SDM) is a leading provider of mineral processing and associated infrastructure solutions to the global resources industry. Specialising in the design, construction and operation of coal handling and preparation plants, Sedgman is recognised internationally for its mineral processing and materials handling technologies. Established in 1979, Sedgman listed on the ASX in June The Company has approximately 800 employees and services the global coal and metalliferous markets by offering innovative Engineering and Operations capabilities. Head Offi ce is in Brisbane with international offi ces in Beijing, Shanghai, Ulaanbaatar, Santiago, Vancouver and Johannesburg targeting the regions of Australia, Africa, Asia and the Americas. Annual General Meeting (AGM) The Sedgman Limited AGM is scheduled to be held at the Stamford Plaza, corner of Edward and Margaret streets, Brisbane, Queensland on Wednesday 13 November at am (AEST). Sunset image of Operations site at night taken by Sedgman employee Tobias Hynes. 1 Sedgman Limited Annual Report

3 Table of Contents FY in Review Chairman s Message CEO and Managing Director s Report Global Presence Sedgman Australia Sedgman Africa Sedgman Americas Sedgman Asia Our People Health, Safety and Environment Community Board of Directors Executive Group Corporate Governance Statement Financial Statements Additional Shareholder Information Corporate Directory Sedgman Limited Annual Report 2

4 FY in Review Financial Results Combined revenue 1 of $435.5 million down 33.1% from $650.8 million Reported Net Profi t After Tax of $9.4 million down 75.1% from $37.8 million Reported Earnings Per Share of 4.3 cps down 75.8% from 17.8 cps Fully franked interim and fi nal dividend declared of 5.0 cps down 54.5% from 11.0 cps Net cash of $75 million Projects Revenue for the Projects business decreased as softer market conditions impacted order book renewal Awarded $90 million EPC contract for La Mancha Resources Mungari Gold Project in Western Australia Key Coal Handling and Preparation Plant (CHPP) projects delivered included Daunia, Saraji, Lake Vermont in Australia and Ukhaa Khudag Stage 3 in Mongolia Operations Operations revenue improved with the addition of the Narrabri operations contract and increased processing volumes at Middlemount Processed 32.2 Mt/a of coal in FY (28.7 Mt/a FY) and 9.3 Mt/a of ore in FY (9.7 Mt/a FY) Expansion Acquired Yeats Consulting, a civil engineering consulting business, to expand infrastructure capability Opened new offi ce in Vancouver, Canada Awards Awarded Australian Engineering Excellence Award for the Ukhaa Khudag CHPP in Mongolia Awarded Queensland Engineering Excellence Awards for the Ukhaa Khudag CHPP and for SH2, Shift Handover Solution Challenges Staff headcount of 788 is lower than June by 23.5% due to the slowdown in the resources sector Total pipeline of $5.7 billion has reduced from $6.6 billion, which refl ects the deferral of major projects in Australia Conversion of major projects continues to be challenging, particularly in the Australian resources sector Opportunities Pipeline includes an increased number of opportunities in the metals sector (domestic and international) Committed to strategy of diversifi cation across regions and commodities 3 Sedgman Limited Annual Report

5 Financial Results Summary Income Statement ($ million) FY FY Variance % Combined Revenue (33.1%) EBITA (underlying) (57.1%) EBITA % Margin (underlying) 3 6.3% 9.8% (35.7%) NPAT (underlying) (57.4%) NPAT (reported) (75.1%) EPS (reported) (cps) (75.8%) DPS (cps) (54.5%) Notes 1. These are nonstatutory items which have not been audited or reviewed. A reconciliation to Revenue from services in the Statutory Financial Statements for and is provided on page 31 in the Directors Report. 2. These are nonstatutory items which have not been audited or reviewed. A reconciliation to Net Profi t After Tax in the Statutory Financial Statements for and is provided on page 30 in the Directors Report. 3. Defi ned as EBITA (underlying) as a percentage of Combined Revenue. 4. These are nonstatutory items which have not been audited or reviewed. A reconciliation to Net Profi t After Tax in the Statutory Financial Statements for and is provided in the table below. ($ million) ($ million) Net Profi t After Tax per Statutory Financial Statements Amortisation (Brands and Customer Contracts)* Asset writedowns* 4.5 Redundancy costs* 2.1 Additional tax due to legislation changes 3.2 Rounding (0.1) *Tax effected numbers Pipeline of Opportunity June 12 $6.6 billion December 12 $6.6 billion June 13 $5.7 billion 3 yr 1.8 billion 3 yr 2.0 billion 3 yr 2.1 billion 2 yr 2.7 billion 1 yr 2.1 billion 2 yr 2.7 billion 1 yr 1.9 billion 2 yr 2.0 billion 1 yr 1.5 billion Sedgman Limited Annual Report 4

6 Chairman s Message has been a particularly difficult period for the resources sector as the global slowdown in capital investment has hit hard. Outside the oil and gas sector, projects have been postponed or cancelled across the board and our work in hand has fallen as a result. Sedgman is not alone in this situation and all of our direct competitors in the sector have been similarly affected, many more severely than us. We are well positioned to participate in those projects which are proceeding. The recent award of the $186 million Boggabri Project is a clear example, and we are in advanced negotiations on other projects in both metals and coal. Despite the falloff in activity in the second half of the fi nancial year, we reported a $9.4 million profi t for the full year and paid a further two cents per share dividend to bring the full year payout to fi ve cents fully franked. Although I cannot foresee a strong rebound in revenue in the fi rst half of FY2014, I do believe we will see a much stronger second half, both in Australia and internationally. To strengthen our international opportunities, Sedgman recently established an offi ce in Canada to service a growing demand from our established client base in that region. That offi ce is busy on several front end studies for coal and metals projects, which we hope to convert to expanded involvement in the short term. Unfortunately, but necessarily, the prolonged downturn in engineering activity has required management to move to reduce our cost base, leading to redundancies and a reduction of staffi ng levels. These situations are always diffi cult as Sedgman prides itself on the quality and professionalism of its staff, and I am personally saddened by the events. However, the core of our expertise and capabilities has been retained and management is taking this opportunity to look at the overall effi ciency of our business. These measures will ensure that as business returns, Sedgman is positioned to take advantage of the upswing in the market across a broader commodity and geographic spread. The Board continues to test our strategies for growth and are exploring opportunities to broaden our service offering in the resources and resourcerelated industries. Overall, we remain committed to delivering geographic and commodity diversity while focusing on costeffective engineering and construction solutions for our clients. Although our recent attempts to consolidate our international footprint by merger and acquisition (M&A) have been frustrating, we continue to evaluate opportunities and remain committed to international growth through M&A. The depth of the downturn in the coal, iron ore and metals sectors over the last two years has been particularly severe and widespread. This is due in part to the globalisation of the major producers and the markets. This has led to a much wider contraction than we have experienced previously. Combined with this effect is the fl owon effects from the global fi nancial crisis and continued restricted capital fl ows, especially to the junior and midtier companies in the mineral sector a client base where Sedgman is making good profi table inroads. Sedgman s strong international brand and excellent project delivery record stand it in very good stead to service a global client base. On the back of our reputation we have formed strategic partnerships with global technology companies around the provision of heavy engineering solutions for major resource infrastructure. I am confi dent that as the markets return to normal our efforts over the past several years to broaden our reputation beyond our traditional markets in coal will pay real dividends, and I am extremely confi dent that the metals division will form a larger proportion of our business than it has previously. Notwithstanding the diffi cult trading conditions of the past year, Sedgman has a robust business supported by a strong balance sheet. We have adequate cash reserves and conservative debt to weather the storm and be proactive in strategic application of that capital for M&A and project initiation. Our recent strategic investment in Ascot Resources to explore project opportunities in Colombia is an example of this. Recently the Board accepted the resignation of Bruce Munro, and I would like to express my appreciation to Bruce for his very positive contribution. Bruce was a nominee director of our major shareholder, Leighton Holdings, and according to normal practice the Board has accepted the nomination of Tony Jacobs to replace Bruce. 5 Sedgman Limited Annual Report

7 Sedgman is committed to Board diversity and renewal, and we will be continually reviewing the skills and experience of the Board to ensure it clearly refl ects the needs of the business as well as the expectations of our shareholders and the broader investment community. In closing I would like to thank all of our staff, both present and past, for their efforts and commitment during this diffi cult period. I am very confi dent that the international investment cycle has begun to turn around, and over the next 12 months we will see growth return and renewed commitment to new and postponed projects in the broader resources sector. Your company remains focused on its core objective delivery of simple, certain quality to our clients internationally. I look forward to addressing our shareholders in person at our Annual General Meeting on Wednesday 13 November. Sedgman Vision To be a leading provider of mineral processing and associated infrastructure solutions to the global resources industry. Sedgman Mission To have exceptional client and employee engagement with superior returns for our shareholders. Sedgman Strategy Sedgman is committed to: Diversifi cation Across regions Across commodities Aligned to client need Building scale and a stronger service offering, targeting iron ore, metals and infrastructure Focusing on price competitiveness with a low cost centre in Shanghai Supporting Australian companies in Africa, the Americas and Asia Supporting foreign clients in Australia Russell Kempnich Chairman Identifying potential mergers and acquisitions that strengthen diversifi cation and services offered. Sedgman Limited Annual Report 6

8 CEO and Managing Director s Report It has been a challenging year for Sedgman with a tightening in the resources sector globally and particularly in our largest region of Australia. We have responded by reducing costs, improving effi ciency and strengthening our focus on diversification across commodities and regions. Sedgman has maintained a solid balance sheet with net cash of $75 million and is in a strong position to capitalise on opportunities as confidence returns to the market. Our combined revenue, 1 which includes revenue from the Thiess Sedgman Joint Venture (TSJV), was $435.5 million, down 33% from the previous corresponding period. Our underlying earnings before interest, tax and amortisation 1 was $27.5 million, down 57%, which gave an overall margin of approximately 6.3%. Underlying Net Profi t After Tax 1 (NPAT) of $18.6 million was above consensus, but was well below the record FY underlying NPAT of $43.7 million. Adjustments to the reported NPAT include redundancy costs, asset writedowns and amortisation of intangibles relating to prior acquisitions. To remain competitive we have downsized and streamlined our business. Overall headcount globally has reduced by approximately 23%, commensurate with the slowdown in the sector. Revenue was impacted by the slowdown in the Projects business as a number of significant projects undertaken in FY were not replaced in FY. Key projects were completed within budget, on schedule and with excellent safety results. These included the Daunia Coal Handling and Preparation Plant (CHPP) and the Saraji CHPP upgrade for BHP Billiton Mitsubishi Alliance. Delivered through the TSJV, the Lake Vermont CHPP Project was also completed for Lake Vermont Resources. In Mongolia we completed the fi nal stage (Stage 3) of the Ukhaa Khudag (UHG) CHPP for Mongolian Mining Corporation. Sedgman s work on the UHG Project was recognised with an Australian Engineering Excellence Award for setting engineering benchmarks in the design and construction of CHPPs. Sedgman s delivery of the UHG Project has positioned us favourably to secure further work in the region. We continue to expand into metals. The Boseto copper concentrator in Botswana, completed in FY, is operating above nameplate capacity. The award of the $90 million EPC contract for La Mancha Resources Mungari Gold Project further establishes our capability with the project proceeding on schedule. Sedgman is building a reputation as a credible EPC provider globally in metals projects. Detailed study work is being undertaken for BHP Billiton at Groote Eylandt on the manganese plant and we are well positioned to secure further work as the project progresses. Africa has faced diffi cult market conditions and a slowdown in project opportunities. With the completion of the Boseto Project, we have commenced feasibility study work on the adjoining Cupric Canyon copper deposit and other key study work, including providing iron ore benefi ciation work for Kumba in South Africa. In the Americas we continue to positively position ourselves to pursue sustaining capital works across major copper projects, particularly in Chile. We are now on the engineering services panels for Codelco and Antofagasta Minerals for sustaining capital works. We worked on the Cerro Bayo Project for Mandalay Resources, also in Chile, and have been completing study work in Mexico on the Cerro del Gallo Silver Project for Primero Mining. In both our Santiago and Shanghai offi ces, efforts are focused on increasing our engineering base to enhance our competitiveness. In Shanghai, the establishment of the global Procurement Centre is providing our clients globally with competitive price options for processing equipment, fabricated steel, wearresistance piping and major electrical components. Our Operations business delivered a strong performance, which refl ects the new contract at Narrabri and a good performance across operational sites. Operations are an important part of our business and provide longterm recurring income, diversifi cation and reduced business risk, which has been particularly valuable in the past fi nancial year. 7 Sedgman Limited Annual Report

9 In FY Sedgman processed 32.2 Mt/a of coal, an increase from the prior year, while ore production remained steady at 9.3 Mt/a. Sedgman s order book as at June totals $350 million, down from $477 million as at June. Two key projects experienced delays in FY, Whitehaven Coal s Maules Creek CHPP and Boggabri Coal s Boggabri CHPP. We recently announced that the TSJV was awarded the Boggabri CHPP design and construct contract and have commenced procurement and construction work. We expect Maules Creek to recommence in FY2014 and will tender for the construction and commissioning contract. Our pipeline contains solid opportunities with a diverse mix of projects across regions and commodities. The pipeline contains approximately $900 million in Australian projects and $600 million in offshore projects. Sedgman has expanded our offshore focus in response to pressure on the Australian market. Our presence in Africa, China, South America, Mongolia and now Canada enables us to pursue projects with an increased focus on metals diversifi cation. Sedgman s strategy of diversifi cation across regions and across commodities has not changed. We ve been building scale in offering and targeting iron ore, metals and infrastructure and are well positioned to secure work as opportunities emerge. Yeats Consulting, acquired in August, has been rebranded as Sedgman Yeats and we are leveraging from their experience to expand our infrastructure capability. We will continue to investigate acquisitions for diversification either geographically or across commodities. A small, strategic investment was made in an Australian publicly listed company, Ascot Resources, which has exploration properties in Colombia. Sedgman s involvement in Colombia dates back to the mid1990s when we built the first major coal plant. We will work with Ascot to pursue a number of project opportunities in the emerging Colombian coal market. Our safety focus remains crucial. Sedgman s Reportable Injury Frequency Rate was 4.15, a 47% improvement on the previous fi nancial year. Globally, we achieved one year Lost Time Injury free. Continuous improvement of our safety systems and risk management, as well as engineering safety into our design work, is central to Sedgman s approach to HSE. The current environment remains challenging but there are some signs of confi dence returning to the market. The recent federal election and the lower Australian dollar provide greater certainty and reassurance. I am confi dent that we will emerge from the current downturn a stronger, more diversifi ed Company, able to capitalise on project opportunities as they emerge to deliver value to our clients and an improved return to our shareholders. I acknowledge the contribution of our staff over the past year and their commitment to the ongoing success of Sedgman. Nick Jukes CEO and Managing Director Notes: 1 See page 4 for details. Sedgman Limited Annual Report 8

10 Global Presence Sedgman has four key regions: Australia, Asia, the Americas and Africa. Our Projects and Operations business units have the capability and expertise to deliver projects globally in metals, coal, iron ore and infrastructure. Americas OFFICES Santiago (Chile) Vancouver (Canada) 9 Sedgman Limited Annual Report

11 Asia OFFICES Shanghai Beijing (China) Ulaanbaatar (Mongolia) Africa OFFICE Johannesburg (South Africa) Australia OFFICES Brisbane (Head Office) Townsville Mackay Gladstone Gold Coast Newcastle Melbourne Perth Sedgman Limited Annual Report 10

12 Sedgman Australia Sedgman has successfully delivered projects in Australia for 33 years. Project and Operations work undertaken continues our legacy of providing on time, on budget delivery with excellent safety results. Our overall performance in FY was impacted by major project deferrals and the downturn in the resources industry generally. Our commitment to diversifi cation across commodities was strengthened with the award of the $90 million Engineer, Procure and Construct (EPC) contract for a 1.5 Mt/a conventional CIL gold processing plant at La Mancha Resources Mungari Gold Project near Kalgoorlie in Western Australia. Sedgman is nearing completion of the design phase of the project with critical and large equipment packages arriving on site. Construction has commenced and we are working closely with La Mancha to deliver the project ahead of schedule and within budget. Two key projects were completed within budget, on schedule and with excellent safety results for BHP Billiton Mitsubishi Alliance (BMA). Early completion was achieved on the 800 t/h Daunia Mine CHPP facility. The plant was a key contributor to BMA delivering fi rst production from the project ahead of schedule. The upgrade of the CHPP at BMA s Saraji mine was successfully delivered with practical completion in May, and the plant is now operational. Sedgman completed the engineering and design in FY for BMA s Caval Ridge CHPP and provided ongoing construction support in FY. Sedgman also secured the precommissioning contract in August. The engineering and detailed design for Whitehaven Coal s Maules Creek CHPP was completed successfully and procurement of equipment and materials is nearing completion. This project received environmental approval from the federal government; however, Whitehaven continues to address conditions. Sedgman will tender for construction and commissioning when approval details are fi nalised. Sedgman continued to deliver largescale coal processing projects through our strategic joint venture partnership with Thiess. The Thiess Sedgman Joint Venture (TSJV) achieved practical completion on the Lake Vermont CHPP, with the plant operating with excellent availability. Ongoing support has been provided to produce the best possible outcomes for our client, Lake Vermont Resources. The TSJV began work on the design and procurement of the Codrilla CHPP for the Coppabella and Moorvale Joint Venture. This project was suspended in August with a decision on recommencement expected in midfy2014. The TSJV provided detailed design for the Boggabri CHPP for Idemitsu Australia Resources in New South Wales. Delays in receiving environmental approval from the federal government affected project progress. In September, the TSJV was awarded the design and construct contract for the CHPP, which will produce 6.9 Mt/a of thermal coal. Boggabri is scheduled for completion in the second quarter of There has been a strong focus on undertaking study work in order to maximise Sedgman s opportunities for contracts as projects progress. We completed a number of studies for Centennial Coal s Springvale mine throughout the year, which culminated in the award of the Coal Processing Plant upgrade from 300 t/h to 450 t/h. We are completing a defi nition phase study for BHP s GEMCO Project in the Northern Territory. The study involves the utilisation of a refl ux classifi er circuit to benefi ciate manganese tailings sand. Sedgman is positioned to capitalise on future work opportunities as the project heads into the next stage of development. The study provides a signifi cant example of Sedgman s diversifi cation across commodities. Throughout the year we assisted Adani with study work for the Carmichael Coal Mine in the Galilee Basin and are strategically positioned to undertake further work when the full project commences. Sedgman completed an overland conveyor concept study and Value Engineering and Front End Engineering Design studies for the Atlas Iron Utah Point Development Works based in Port Hedland, Western Australia, and continue to build our positive working relationship. Rio Tinto Iron Ore awarded Sedgman a number of engineering services contracts for sustaining capital projects at the Paraburdoo site, and our strong commitment to safety was recognised with the award of a Category 3 HSE accreditation. Sedgman Operations is an integral part of our business in Australia. Revenue from Operations increased in FY. The new operating contract at the Narrabri CHPP in the New South Wales Gunnedah Basin commenced in July and contributed to our revenue increase. We improved operating performance at Red Mountain, Middlemount, Moorvale and Coppabella in Queensland s Bowen Basin and increased scope at Agnew Gold Mine in Western Australia. However, this revenue increase was offset by the loss of the operations contracts at Blair Athol and Cannington. Sedgman currently operates four coal sites and four metals sites in Australia and processed approximately 27.6 Mt/a of coal and 9.3 Mt/a of ore throughout the year. We are focused on delivering value to clients by ensuring competitive solutions with lower cost options by leveraging existing systems, processes and procurement capability. A key growth area for our Operations business is providing productivity improvements, cost reduction and optimisation services to clients with existing sites. Sedgman continues to pursue new operations contracts through ongoing discussions with potential mining clients in Australia and internationally. Sedgman acquired Yeats Consulting, a civil engineering consulting business specialising in project approvals, planning and civil design, in August. 11 Sedgman Limited Annual Report

13 This acquisition provided Sedgman with a broader capability to provide total infrastructure solutions. Yeats has been rebranded as Sedgman Yeats and we are leveraging skills and synergies with a strong focus on growing our infrastructure capability in FY2014. The outlook in Australia remains challenging with the resources sector affected by weak conditions, particularly in Sedgman s traditional coal market. The downturn in the market with declining longterm price forecasts and the high value of the Australian dollar has resulted in project deferrals and cancellations. In line with our strategy of diversification, we continue to consider merger and acquisition opportunities. We have arrangements with strategically aligned companies to secure potential partnership opportunities on global resources and infrastructure projects. We expect demand for our services in Australia to be lower in FY2014 due to tightening market conditions. We have responded by reducing overheads and improving productivity. Sedgman has consolidated our business structure to ensure its highly skilled Australian engineering team continue to play a principal role providing technical and discipline support to our activities in Australia and globally. Daunia 800 t/h CHPP Project, Bowen Basin, Queensland, Australia. Client: BHP Billiton Mitsubishi Alliance (BMA). Image courtsey of BMA. Sedgman Limited Annual Report 12

14 Sedgman Africa Sedgman Africa has gained recognition in the local mining sector and has received a signifi cant number of enquiries across a diverse range of commodities, including coal, gold, iron ore and copper. While this level of front end activity is encouraging, many projects have been affected by the slowdown in the resources sector and have encountered ongoing delays. Our focus in FY has been to establish an experienced local processing and engineering team with capability across each commodity. The training and development of highly skilled engineers will boost Sedgman s competitiveness in the African region. FY saw the successful completion of the Benga CHPP Project for Rio Tinto Coal and the ATCOM CHPP Project for Xstrata Coal South Africa. Sedgman provided ongoing operations support to both projects in FY. This has established a strong position for Sedgman in the coal market in Mozambique and South Africa with both plants performing above nameplate capacity. The lack of rail and port infrastructure in Mozambique and the downturn generally has affected coal project opportunities in Mozambique. International mining company Vale and the Mozambique Government are installing railway lines and port facilities with the Vale facility scheduled for completion in As infrastructure is developed projects will commence, and Sedgman is well positioned to capitalise on emerging opportunities. Sedgman continues to target coal and iron ore opportunities in South Africa. The coal industry in South Africa has shifted focus to smaller modular plants for juniors and smaller resources. A number of proposals have been submitted for plants based on the Relocatable Modular Plant. The Centurion offi ce is also focusing on existing coal plants in South Africa to offer operational improvement and brownfi eld project services. A number of key studies have been completed for Kumba, African Energy Resources, ENRC and Rio Tinto, and we are progressing studies for Cupric Canyon and ACap Resources. The successful delivery of study work for key clients has been central to our strategy in Africa as it is critical to participate on projects at an early stage in order to win work as projects progress. The focus for gold and copper has been to support Australian and Canadianbased companies with projects in Africa. Sedgman Africa is working with clients to deliver a number of studies for projects in Botswana, the Republic of Congo and Tanzania. Looking forward to FY2014, the order book remains a challenge due to diffi cult market conditions. We are confi dent that Sedgman Africa s value proposition of offering Global Technology and Local Delivery to the African minerals processing sector will provide a premium position as market conditions improve in the medium term. Boseto Copper Project, Botswana, Africa. Client: Discovery Metals Limited. 13 Sedgman Limited Annual Report

15 Sedgman Americas Sedgman Americas delivered study and project work in our traditional regions of Chile and Colombia and focused on opportunities in new target countries, Canada, Mexico and Peru. Demand for services remains strong in these regions despite the slowdown globally in the resources sector. Sedgman has developed a highly skilled engineering and delivery workforce in our Santiago offi ce to provide a lowcost and fl exible service offering to clients. Key clients utilising this engineering resource include: Antofagasta Minerals awarded Sedgman a 24month open engineering contract for its Esperanza Copper/Gold Mine in Chile Codelco awarded Sedgman an open engineering contract for works at the El Teniente Division, where we delivered detail design on a nitrogen pipeline project and have commenced the upgrade of the copper concentrate stockpile BHP Billiton awarded Sedgman basic and detail design for the extension of the electro winning building at the Cerro Colorado site for the new cathodestripping machine Admiralty Resources Sedgman assisted with an iron ore project in Chile and is supporting the process review and metallurgical test work program. The sustaining capital market remains strong as major clients continue to optimise and refurbish existing operating facilities. A key project for Sedgman in Chile was the Automation Upgrade Project for the Silver and Gold Process Plant at the Cerro Bayo Mine for Mandalay Resources. We completed feasibility, engineering design, procurement, construction and commissioning. The project increased recovery and stabilised silver grade at the processing facility located in a remote area of the Chilean Patagonia. On Barrick s Zaldivar Conveyor EP Project Sedgman provided engineering design, fabrication and procurement as well as construction and commissioning support. The Project included a 550 metre long overland conveyor for the transport of the copper oxide ore to the leach pads. Colombia is a market Sedgman is familiar with, having built the fi rst CHPP for El Cerrejón in the mid1990s. Currently there are robust project opportunities and we are strengthening relationships with key clients, including Australian publicly listed company, Ascot Resources, to investigate suitable prospects. Canada has emerged as an attractive market for Sedgman to pursue project opportunities. There are strong prospects in our traditional engineering and project work in coal as well as many prospective clients focused on investing in projects in Latin America. An offi ce was established in Vancouver to support Sedgman s market entry and to assist in building relationships with clients. Our local presence is paying dividends with study work provided for major clients, Teck Resources and Xstrata. We provided a feasibility study package for Teck Resources on its Coal Mountain Project in southeastern British Columbia and completed development activity for Xstrata on various projects, including a feasibility study for the Sukunka Project in northeastern British Columbia. We are ideally placed to secure further work with both companies. In Mexico Sedgman delivered front end engineering design (FEED) for the Cerro del Gallo Gold/Silver Project for Primero Mining, a Canadian client. The process included crushing, agglomeration, heap leaching, carbon column absorption, carbon elution and regeneration, electrowinning and associated infrastructure. Sedgman is focused on winning future work in Mexico in FY2014. Sedgman has a history of capitalising on opportunities in new and emerging markets. Our engineering expertise was sought to deliver a FEED role for Guyana Goldfield s Aurora Project, a greenfield gold project in Guyana, and we are well positioned to deliver further work. The breadth of our experience building, operating and optimising coal and mineral processing plants makes Sedgman a competitive choice for the diverse range of project opportunities across the Americas. Sedgman is confi dent that our focused strategies will secure signifi cant study and project work in FY2014 and our presence in the Americas will continue to expand. Zaldivar ar Conveyor or Project, Chile, South America. Client: Barrick. rick. Sedgman Limited Annual Report 14

16 Sedgman Asia Sedgman Asia focused on the expansion of our Engineering and Procurement centres in Shanghai to provide costcompetitive solutions to projects globally. In Mongolia Sedgman completed the third and fi nal stage of Mongolian Mining Corporation s landmark Ukhaa Khudag (UHG) CHPP Project in the South Gobi region. The UHG Project design included three processing modules, implemented in separate stages, and a single product handling system. Sedgman undertook its first international operational management contract at UHG, which ceased in December. The Project was delivered on time, under budget and with zero harm. An impressive safety record was achieved with over 2.1 million Lost Time Injury free manhours. This accomplishment has greatly strengthened our relationship with the client and has placed us in a strong position to pursue future work opportunities in the Mongolian market. Sedgman s awardwinning engineering has delivered a robust, costeffective solution suitable for the harsh climate and remote location. Mongolia continues to offer solid work prospects, particularly in the largescale CPP and materials handling sector. The region will continue to be an important market for Sedgman Asia. In Shanghai Sedgman continued to develop the technical capabilities of our Engineering Centre under the guidance of our lead engineering team in Australia. Trained to the highest Australian standards, the Centre is able to undertake detailed design work for global projects. The Engineering Centre in Shanghai allows Sedgman to offer lower cost design solutions to clients. The team undertook their fi rst major international project assisting with design work for Whitehaven Coal s Maules Creek CHPP in Australia. Sedgman s Asia Procurement Centre provides reliable and quality supply with prompt delivery and costsaving benefits for clients. Specialist buyers and engineers manage and supervise procurement, providing Sedgman and our clients with competitive price options for processing equipment, fabricated steel, wear resistance piping and major electrical components. We have established systems of assessment as well as quality and schedule control to benefit clients and support projects globally. In collaboration with the Australian team, procurement and fabrication management was provided for La Mancha Resources Mungari Gold Project in Australia. The establishment of the Engineering Centre and the Procurement Centre, both headquartered in Shanghai, has been a key part of our strategy for the Asia region and has strengthened Sedgman s ability to offer competitive solutions in a tightening market. We have also formed a number of strategic partnerships with reputable Chinese and Mongolian companies and have been actively pursuing several projects in a collaborative manner with potential partners. We remain confi dent that our focus and dedication will pay dividends in the near term. Despite the challenging environment, we remain focused on offering innovative engineering and strategic procurement in order to deliver costeffective solutions as well as on pursuing project opportunities in China and Mongolia. Images: Ukhaa Khudag CHPP Project, Mongolia. Client: Mongolian Mining Corporation. 15 Sedgman Limited Annual Report

17 Australian Engineering Excellence Award Ukhaa Khudag (UHG) CHPP Project Sedgman was awarded an Australian Engineering Excellence award for the UHG Project, Mongolia s fi rst modern CHPP. Sedgman worked closely with our client, Mongolian Mining Corporation, to overcome diverse challenges in a region where temperatures fall to minus 40 degrees Celsius in winter and rise to well over 40 degrees in summer, with frequent wind and dust storms. Introducing CHPP technology into such remote, extreme conditions presented technically challenging applications for Sedgman and required the development of new CHPP process and design solutions. Chair of the national awards judging panel, Mr Ian Pedersen, said the Project set new Australian engineering benchmarks in the design and construction of coal handling plants and demonstrates why Australia s engineering capability is now worldrenowned and is being sought internationally. The Australian Engineering Excellence Awards celebrate the accomplishments of some of the finest engineering companies and outstanding achievements in the world and Sedgman was honoured to be amongst the recipients. David Proud, Manager Business and Project Development, accepts Sedgman s award from David Hood, Engineers Australia National President. Sedgman Limited Annual Report 16

18 Our People Our people are the foundation on which all of our activities rest. Our achievements and success as a business relies on identifying, recruiting, training, developing and retaining a talented, diverse, mobile and engaged workforce. With operations and projects spanning the globe, Sedgman is committed to helping our team of people reach their full potential, achieve job satisfaction and maximise their contribution across a range of disciplines. During the year we consolidated our approach to talent management and have focused on strengthening our talent pipeline and reshaping our business to suit market conditions and forecast workload and to ensure our market competitiveness. Sedgman is committed to attracting, developing and retaining our people and growing future leaders through: Variety and opportunity our diversity enables us to offer our people the chance to work on projects across a multitude of specialisations and sectors around the world. Reward and recognition programs we reward employees based on performance outcomes through attractive remuneration and benefi ts, including initiatives such as our monthly GEM (Go the Extra Mile) Award, Spot Recognition Program and Study Assistance Program. Health and wellbeing initiatives we encourage healthy lifestyles and motivate our people to maintain a work life balance through health kiosks, a competitive health insurance offering and other health initiatives. A graduate development program a structured program to attract the best and brightest students. Operations Traineeship Program a 12month program delivered out of our Townsville offi ce. The Program provides an opportunity for local inexperienced workers, young and old, to qualify with a Certifi cate III in Resource Processing. In FY we received over 500 applications for seven traineeships. Each trainee successfully completed the Program in June. Other targeted training and development programs we offer other personal and professional career development to maximise employee engagement and promote upward career mobility in line with business objectives. The development of leaders is based on a recognition that our leaders are the most effective drivers of organisational commitment and are critical to Sedgman achieving further success and growth in the future. We are committed to open, honest and productive relationships based on our Company values, providing a healthy and safe workplace and assisting our people in their personal development. Sedgman values the abilities, diversity and creativity of our people, and we are committed to retaining and growing our talent to ensure the continued success of our business. 17 Sedgman Limited Annual Report

19 Our Values The Sedgman values are the foundation of Sedgman culture, our work practices and our interactions with clients and colleagues. TRUST We show respect and have faith in our people to achieve our goals INNOVATION We have the courage to adopt new ideas and take considered risks SERVICE EXCELLENCE We understand client value and meet the challenge CARING We seek to make a positive contribution INTEGRITY We do what we say we will do in an open, honest and transparent way TEAMWORK We encourage and support each other to extend our capability Sedgman Limited Annual Report 18

20 Health, Safety and Environment We believe in a proactive HSE culture with visible leadership and best practice management systems to provide a workplace that ensures the health and safety of its employees, subcontractors and visitors, whilst minimising harm to the environment. At Sedgman, health, safety and the environment are part of every decision, by every employee, every day. HSE Achievements in FY included: Alignment and integration of our HSE Management System with the Enterprise Risk Management Framework and international standards. Implementation of COMPASS our direction to a workplace free from injury and harm. COMPASS brings together the fundamental elements of BehaviouralBased safety, HSE Leadership and HSE Management systems into a single cohesive framework. Review of key HSE risks and critical controls and the identifi cation of critical activities. Development of Operational Model Procedures to drive consistent application of risk management methodologies and controls for highrisk activities. Performance Indicators Sedgman achieved a Recordable Injury Frequency Rate (RIFR) for FY of This is a 47% reduction from 7.8 in the previous year and surpasses our FY target by more than 27%. Sedgman also achieved HSE audit compliance targets across all projects. Through detailed analysis of enhanced lead performance indicator data from Job Safety Observations (JSOs) and Hazard Reports, Sedgman has been able to target its resources towards ensuring that critical controls are in place to prevent incidents from occurring. The outcome of which has led to greater HSE program effectiveness and effi ciencies. Projects and Operations demonstrating Safety Excellence in FY included: Sedgman achieved one year Lost Time Injury (LTI) free globally Projects achieved one year Recordable Injury (RI) free Projects achieved 642 days LTI free as at end FY Australia Operations reduced RIs by more than 50% on FY Operations achieved 470 days LTI free as at end FY Number of JSOs completed increased by 12% Daunia CHPP Project, Australia achieved over 560,000 hours LTI free Saraji Refl ux Classifi er Upgrade, Australia achieved RI free Ukhaa Khudag CHPP Project, Mongolia achieved over 2.1 million hours since 2010 without an LTI. HSE Strategy Achieved in FY Sedgman improved our HSE performance through the achievement of our strategy set in FY: Culture the recognition of HSE as a core Sedgman value and support of our HSE Management System to achieve performance outcomes. This was achieved through the implementation of fundamental HSE training modules to underpin cultural expectations and behaviours. Systems consolidation of HSE systems and processes to drive operational and project excellence in the management of HSE risks and impacts. This was achieved through the integration of our HSE Management System and the development of Operational Model Procedures. Performance monitor the accuracy of HSE data and the effectiveness of control strategies to respond to highpotential incidents, detect recurring trends and learn from experience. This was achieved through the implementation of improvements to Sedgman s HSE reporting and data management system (Cintellate ) to improve knowledge sharing and ondemand analysis reporting. Benchmarking of waste usage data was also completed to drive waste reduction initiatives. Risk systematically identify and manage HSE risks to people and the impacts on the environment. This was achieved through the integration of our HSE Management System with the Enterprise Risk Management Framework. FY2014 HSE Strategy In FY2014 Sedgman will continue our drive to improve HSE performance, further embedding the focus and behaviours that delivered signifi cant improvements in FY. We will further develop our safety leaders, clarify expectations and maintain accountabilities for the effective application of our HSE Management Systems across the global organisation. 19 Sedgman Limited Annual Report

21 Community Sedgman is committed to contributing positively to the communities in which we operate. As part of our corporate social responsibility, we identify programs which support the development of a vibrant, liveable and sustainable community for the future. Key initiatives Sedgman supported in FY included: CQ Rescue Sedgman is a major sponsor of the Central Queensland Rescue Helicopter Service, which is a community helicopter service that plays a vital role reducing loss of life and injury. The service has an operating base in Mackay on the Central Queensland Coast of Australia. The service region for RACQ CQ Rescue is from Bowen in the north to St Lawrence in the south. Women in Engineering, Queensland Sedgman is a major sponsor of Engineers Australia s Women in Engineering (WIE) Queensland division. Our support helps them to execute key initiatives to ensure engineering becomes an inclusive profession which values, supports and celebrates the contributions of women in engineering. Queensland Minerals and Energy Academy (QMEA) Sedgman supported QMEA s Indigenous schoolbased Apprenticeship and Trainee Program that enables high school students to complete a Certifi cate III in Business prior to graduation. Two students successfully completed the accreditation through Sedgman. Wests Bulldogs Rugby Club Sedgman is the major sponsor of the Wests Bulldog Rugby Club located near our Head Offi ce in Brisbane, Queensland. Our sponsorship enables the club to run a senior and junior competition and we supported major rebuilding after the devastation of their ovals by flooding in Eastern Goldfields Junior Cricket Sedgman is the major sponsor of Eastern Goldfi elds Junior Cricket in Kalgoorlie, Western Australia. Our support assisted with cricket programs throughout junior grades, coaching clinics and team travel to representative events. Other Initiatives Sedgman supported The University of Queensland s St John s College with the annual John Sedgman Bursary, the Mackay Road Accident Action Group, Julia Creek Dirt n Dust Festival, Mining Family Matters, Camp Quality and the Bana Ba Letsatsi Centre for vulnerable and orphaned children in Botswana. Sedgman encourages and assists employees to engage in community and charitable activities. In Australia employees were involved in charity events, including Bridge to Brisbane, Movember and the Corporate Rugby Tens. In South Africa our employees participated in Mandela Day and donated their time to the Amadea Safe House a safe haven for abandoned, abused and neglected children. Employees in Santiago participate in Club Solidario (Club Solidarity), through which money is raised and time is donated to contribute to those in need. In Asia employees are involved in cultural initiatives to encourage and foster closer consultation between local businesses and communities. Sedgman Limited Annual Report 20

22 Board of Directors Refer to page 37 for full Directors details Robert McDonald Deputy Chairman BCom, MBA (Hons) 21 Sedgman Limited Annual Report Donald Argent NonExecutive Director BCom, CPA, FAICD Russell Kempnich Chairman BE (Mech)

23 Nick Jukes Chief Executive Officer and Managing Director BE (Civil), FIEA Peter Richards NonExecutive Director BCom Roger Short NonExecutive Director LLB, BA Sedgman Limited Annual Report 22

24 Executive Group Ian Poole Chief Financial Officer BEcon, CA Alan Ainsworth Global Director Projects BE (Civil), MIEAust Ian joined Sedgman in 2010 and is responsible for the Company s fi nancial management with accountability across all regions. He is also responsible for Sedgman s Corporate Services division, which includes Information Systems and Technology and Shared Services. Ian is a chartered accountant with over 25 years experience in fi nancial, commercial and administrative management in the mining and resources industry in Australia and the United States. Prior to joining Sedgman, Ian worked in senior fi nance and commercial roles with Rio Tinto Coal Australia and was Vice President Finance and Administration for Pasminco Resources US Inc. Alan joined Sedgman in 2008 and is responsible for providing functional leadership across the Company s regions globally in the development and execution of projects for our clients in all commodity sectors. Alan was previously General Manager Engineering Services (Australia) where he led the Australian Projects team and supported the development of key projects internationally. Alan is a civil engineer with over 25 years experience in the design and delivery of mineral processing plants in Australia and internationally. Prior to joining Sedgman, Alan grounded his structural engineering skills in a consulting environment for 15 years. He also held senior engineering management positions in both design and construction, including Manager of Engineering for Thiess. Michael Carretta Global Director Operations BE (Min Proc) (Hons), MAusIMM, MAICD Peter Watson Global Development Director BE (Chem) (Hons), DIP Acc Fin Mgt, FIEA, CPEng Michael joined Sedgman in 1998 and is responsible for the Company s global contract operations, including coal and metals plant operations, international operations expansion, diversifi cation into new market sectors and corporate governance. Michael initially joined Sedgman as a senior process engineer and has gained extensive experience in plant operations, engineering and commissioning in his roles as Manager Operations Support and Manager Engineering. He held the role of General Manager Operations from 2006 to Michael has over 20 years experience in the mining industry and prior to Sedgman held various engineering and management roles with BHP Coal. Peter joined Sedgman in 2010 and is responsible for the development and expansion of Sedgman globally across our existing and emerging market sectors and capabilities. Peter was previously Executive General Manager Australia responsible for activities in engineering, project delivery and contract operations across the coal, metals, iron ore, and infrastructure market sectors. Peter is a chemical engineer with over 25 years experience in the mining and resources sector. Prior to joining Sedgman, Peter was General Manager of AMEC where he was responsible for the development and execution of business activities in the resources sector across Eastern Australia and the Asia Pacifi c region. Peter also worked in strategic management roles for Thiess where he was a member of the Senior Executive team. Adrian Relf General Counsel and Company Secretary BSocSc, LLB, GDip Mgt, GDip Legal Practice Simon Stockwell Executive General Manager Australia East BE (Mech) (Hons), GCAppLaw Adrian joined Sedgman in 2008 as General Counsel and Company Secretary and is responsible for the daytoday management of the Company s legal, commercial and risk department and company secretariat. He has been extensively involved in the establishment of our regional subsidiaries and the continuous improvement of group risk management and governance policies and procedures. Adrian has extensive legal and commercial experience in private practice and inhouse roles in the engineering, infrastructure, mining and mining services sectors. Adrian has been involved in the review and negotiation of major supply, maintenance and operations contracts for mining equipment and infrastructure in Australia, Africa and Asia, as well as advising on occupational health and safety, industrial relations, patent and intellectual property, and general commercial and corporate matters. Simon rejoined Sedgman in 2011 having worked for the Company previously from 1995 to Simon is responsible for the management of the Company s Australia East Region as well as business expansion. Simon was previously General Manager Projects and was responsible for the successful delivery of engineering, studies and projects across Australia. Simon is a Mechanical Engineer with over 20 years experience across the resources, power and infrastructure industries. Prior to rejoining Sedgman, he was Operations Manager for AMEC Minproc in Brisbane. He has also held senior roles at Thiess, UGL and Kellogg Brown & Root. 23 Sedgman Limited Annual Report

25 Ken Boulton Executive General Manager Australia Operations BE (Mech) (Hons) Simon MordecaiJones Executive General Manager Africa HNDME Ken joined Sedgman in 2006 and is responsible for Australian contract operations, including coal and metals plant operations. Ken was previously Manager Operations, with a particular focus on effective operations of CHPP facilities in the Bowen Basin area. He has widespread technical and operational expertise in maintenance, operations, coal processing and base metal refining. Ken is a mechanical engineer with over 20 years experience in the coal and metalliferous sectors. Prior to joining Sedgman Ken was Maintenance Manager for Goldcorp, where he was responsible for site maintenance for mineral processing and opencut and underground mining operations. He has also held senior roles at Mount Isa Mines. Simon joined Sedgman in 2011 and is responsible for the growth and management of the Company s Africa region, including the successful delivery of projects and operations in the region and business expansion. Simon is a mechanical engineer with over 35 years experience in the construction and manufacturing and mining and resources industries. Prior to joining Sedgman Simon held senior positions with Murray & Roberts, including as Managing Director at various Murray & Roberts subsidiaries. He has considerable contracting experience in Africa, having led major projects across the resources and energy industries. Javier Freire Executive General Manager Americas BE (Civil), MSE Thomas Dockray Executive General Manager Asia BE (Civil) (Hons), MMgt (IntBus), MProjMgt, CPEng, NPER Javier joined Sedgman in 2010 and is responsible for the management of the Company s Americas region, including the successful delivery of projects and operations in the region and business expansion. Javier is a civil engineer with over 15 years experience in the mining and metals industry in the Americas and internationally. Prior to joining Sedgman Javier was involved in the growth of Minmetal one of the largest Chilean engineering and EPC/EPCM companies in the mining industry. In 2005 Minmetal merged with an Australian company, Sinclair Knight Merz, and during his time at both companies Javier held senior project and client management roles, working on projects in Australia, Papua New Guinea and Chile. Thomas joined Sedgman in and is responsible for the management of the Company s Asia region, including the successful delivery of projects and operations in the region and business expansion. Thomas is a civil engineer with over 15 years experience in the mining, resources and construction industries in Australia and across Asia. Prior to joining Sedgman Thomas held senior positions with Leighton Contractors, including eight years working across India and South East Asia. As Chief Operating Offi cer of Infrastructure and Mining, he was based in Mumbai for six years where he led the Leighton business in the region. Tom has extensive experience working in challenging and emerging markets. Samantha Douglas Chief Human Resources Officer fic BBus (HRM & IntBus), MEmpLaw Thomas Meakin Global Consultant BE (Mech) RPEQ Samantha joined Sedgman in 2005 and is responsible for Human Resources globally. Samantha leads activities across areas including organisational development, recruitment and retention, employment compliance, performance management, employee relations and rewards and recognition. Samantha was previously Human Resources Manager Corporate Services, involving business unit support, companywide HR governance, and the design and implementation of HR initiatives. Samantha has over 14 years experience in strategic and operational human resources management in the mining and resources and energy industries. Prior to joining Sedgman she held senior human resources and industrial relations roles at companies including Anglo Coal, Ergon Energy and the Chamber of Commerce and Industry Queensland. Tom is a founding member of Sedgman, having joined John Sedgman in He has over 33 years experience with the Company and has had signifi cant technical involvement in the successful delivery of over 125 coal plants. Tom now has a largely technical role, assisting in the training and mentoring of new technical staff, reviewing and providing guidance on project feasibility work, expanding the global pursuit of major projects, and maintaining relationships with the Company s wide range of clients. Initially Tom established Sedgman s multidiscipline engineering team to support the Company s growing process capability. From 1986, as Chief Engineer, he led the team on a series of major feasibility studies and projects in both the coal and metalliferous sectors. Following the death of John Sedgman in 1991, Tom became a Director and major shareholder of the Company, and he was responsible for the management of the materials handling, structural engineering, civil engineering and project management functions. Tom resigned as a Director in 2006 to focus on a technical role. Sedgman Limited Annual Report 24

26 Corporate Governance Statement The Sedgman Board of Directors is responsible for and committed to maintaining the highest standards of Corporate Governance. The Board has ultimate responsibility for all corporate governance matters and is accountable for Sedgman s overall business performance. Sedgman s Corporate Governance Charter is available in the Corporate Governance section of the Sedgman website: The policies and practices developed and implemented by the Board are consistent with the ASX Corporate Governance Council s Corporate Governance Principles and Recommendations, with 2010 Amendments, 2nd edition, (the Guidelines), except to any extent noted below. Principle 1 Lay solid foundations for management and oversight 1.1 The Board has established clear delegation of authority between the Board and Management. 1.2 Senior executives are subject to a formal performance review process on an annual basis. 1.3 The performance of senior executives was assessed during the fi nancial year in accordance with the policy adopted by the Board. The Sedgman Board has established and disclosed the respective roles and responsibilities of Board and management. The Board s primary role is to oversee the management of the Company as well as to provide strategic guidance. The functions reserved to the Board in governing Sedgman are contained in the Board Charter, which is published as part of the Corporate Governance Charter and is available in the Corporate Governance section of the Sedgman website. The Board has established a Delegated Authorities Matrix which clearly sets out both the delegation of authority from the Board to the senior executives and a system of checks and balances. The key functions and responsibilities of the Board include: Overseeing the Company, including its control and accountability systems Charting strategy and setting fi nancial targets for the Company Providing input into and fi nal approval of management s development of corporate strategy and performance objectives Appointing, monitoring and removing (where appropriate) the CEO and Managing Director, and Senior Executives Reviewing, ratifying and monitoring systems of risk management and internal control, codes of conduct and legal compliance Approving and monitoring the progress of major capital expenditure, capital management, and acquisitions and divestitures Approving and monitoring fi nancial and other reporting. Directors receive formal letters of appointment setting out the key terms, conditions and expectations of their engagement. The responsibilities delegated by the Board to the senior executives include: Managing daytoday operations in accordance with the standards for social and ethical practices which have been set by the Board Managing the fi nancial affairs of the Company in accordance with the delegations of authority and budgets approved by the Board Developing and implementing corporate strategies and making recommendations on signifi cant corporate strategic initiatives. Senior executives receive formal letters of appointment as well as position descriptions detailing the key terms, conditions and expectations of their engagement. Each member of the Senior Executive Group is subject to an annual performance review which is conducted by the CEO and Managing Director. Each review took place in FY in accordance with the process approved by the Board. Principle 2 Structure the Board to add value 2.1 A majority of the Sedgman Board are independent directors. 2.2 The Chair is not an independent director; however, the Board considers him to be the most appropriate person for the position. 2.3 The roles of Chair and Chief Executive Offi cer are exercised by different individuals. 2.4 The Board has established a Nominations and Remuneration Committee, which consists of a majority of independent directors, is chaired by an independent director and has three members. 2.5 The process for evaluating the Board, its committees and individual directors is disclosed below. 2.6 All information set out in the Guidelines to reporting on Principle 2 is provided. The Sedgman Board has effective composition, size and commitment to adequately discharge its responsibilities and duties and act in accordance with the Guidelines, except where outlined below. The Board was comprised of seven directors during FY, all of whom have a broad range of experience, 25 Sedgman Limited Annual Report

27 Principle 2 Structure the Board to add value (continued) expertise, skills, qualifi cations and contacts relevant to the business of the Company and the mining and engineering sectors. Information in relation to each Director can be found from page 37 onward in the Directors Report in the fi nancial statements, and their dates of appointment appear on page 30 of the Directors Report in the fi nancial statements. One third of the Directors (excluding the CEO and Managing Director) are required to retire from offi ce each year. Retiring Directors may be reelected. For more information on the appointment and retirement of Directors, refer to item 1.7 of the Board Charter available in the Corporate Governance section of the Sedgman website. Only the CEO and Managing Director, Nicholas Jukes, is an Executive Director. The remaining Directors are NonExecutive Directors of whom Donald Argent, Robert McDonald, Roger Short and Peter Richards are independent. In prior reporting periods, Donald Argent was not considered independent in accordance with the defi nition of independence in the Board Charter and the Guidelines. However, in the previous fi nancial year, Donald Argent declared himself independent and the Board confi rmed his independence after consideration of the Board Charter and the Guidelines. The threshold for independence adopted by Sedgman appears at item 1.6 of the Board Charter and is in accordance with the Guidelines. The Chairman, Russell Kempnich, and Bruce Munro (retired effective Wednesday 31 July ), are Non Executive Directors but are not independent within the meaning of the Guidelines. However, these Directors have extensive experience and knowledge of the industries in which Sedgman operates and Sedgman does not believe that their decisionmaking is compromised. The Board believes that each Director acts in good faith and in the best interests of all shareholders at all times. Enforcement of conflictofinterest protocols whereby Directors who have a material personal interest in a matter are not permitted to be present during discussions or to vote on a matter further ensures this. Additionally, both NonIndependent Directors have extensive experience and knowledge of the industries in which Sedgman operates, which offers considerable value. Similarly, the Board considers Russell Kempnich to be the most appropriate person for the position of Chairman because of his experience and knowledge, as well as seniority. The CEO and Managing Director is Nicholas Jukes, such that the roles of Chief Executive Offi cer and Chairman are exercised by separate persons. All Directors may, at Sedgman s expense, obtain independent advice concerning any aspect of Sedgman s operations. Sedgman has procedures in place to enable Directors to obtain independent advice, including a requirement, in certain circumstances, for Directors to obtain Chairman approval. The Nominations and Remuneration Committee ensures that the Board is comprised of individuals who are best able to discharge their duties as Directors and add value to Sedgman, and that senior executives are remunerated in a manner that attracts, retains and rewards performance and increases shareholder returns. The Nominations and Remuneration Committee s charter is published as part of the Corporate Governance Charter and is available in the Corporate Governance section of the Sedgman website. The process for evaluating the performance of the Board, its committees and individual Directors is disclosed in the Board Charter. A performance evaluation for Key Management Personnel took place in FY and was in accordance with the process disclosed. The Committee met on three occasions during the previous fi nancial year. Details of committee meeting attendance are included in the Directors Report in the Financial Statements. Members of the Committee are: Roger Short, Chairman, Independent Director Russell Kempnich, NonExecutive Director Robert McDonald, Independent Director. Principle 3 Promote ethical and responsible decisionmaking 3.1 The Board has adopted a detailed Code of Ethics and Values to guide Directors and executives in the performance of their duties. 3.2 The Board has adopted a Diversity Policy which is available on the Sedgman website. 3.3 The Board has adopted measurable objectives for achieving gender diversity in accordance with the Diversity Policy. 3.4 The proportion of women employees in the whole organisation, women in senior executive positions and women on the Board is disclosed below. 3.5 All information in the Guidelines to reporting on Principle 3 is provided. The Code of Ethics and Values (as part of the Corporate Governance Charter) guides Directors and executives in the performance of their duties. All Directors, executives and employees are expected to act with integrity at all times and to enhance the Company s reputation and performance. Employees are required to acknowledge their personal commitment to the Sedgman Code of Conduct that outlines the values, policies and standards employees must uphold. The Board has also adopted a Code of Conduct for Transactions in Securities. The purpose of this code is to define the circumstances and periods in which Directors, executives, and specified employees are permitted to Sedgman Limited Annual Report 26

28 Corporate Governance Statement (continued) Principle 3 Promote ethical and responsible decisionmaking (continued) deal in securities so as to minimise the risk of securities being traded when those persons are in possession of pricesensitive information that is not in the public domain. These periods are the four weeks following the announcement of halfyear and fullyear results and the four weeks following the Annual General Meeting. Trading in these periods is subject to those persons not being in possession of pricesensitive information. These codes have been designed to ensure the highest ethical and professional standards as well as compliance with applicable statutory obligations. The Code of Ethics and Values and the Code of Conduct for Transactions in Securities are published as part of the Corporate Governance Charter and are available in the Corporate Governance section of the Sedgman website. The Board has adopted a Diversity Policy that is available in the Corporate Governance section of the Sedgman website. The Board and management recognise the importance of gender diversity and characteristics including education, experience, language, ethnicity, disability, sexual orientation and age. Sedgman s objective is to maintain or improve the participation of women within all levels of the organisation. In FY Sedgman progressed in its commitment to diversity through the appointment of a female member to a senior management position. The percentage of females in the entire organisation dropped slightly from 20.4% in FY to 18% in FY. This is due to the reduction in headcount as a result of the slowing of activity in the resources sector and is not a refl ection of any change to the Board s commitment to diversity. The proportion of female employees within the Company as at 30 June is detailed below: No. Employees % Employees Board 0 0% Senior Management 1 7% Organisation % Principle 4 Safeguard integrity in financial reporting 4.1 The Board has an Audit and Risk Management Committee. 4.2 The Committee consists of a majority of independent directors, is chaired by an independent director and has three members. 4.3 The Committee s Charter is contained in the Corporate Governance Charter and can be viewed on the Sedgman website. 4.4 All the information indicated in the Guidelines to reporting on Principle 4 is provided. Each reporting period the CEO and Managing Director, and the Chief Financial Offi cer, state in writing to the Board that Sedgman s fi nancial reports present a true and fair view of the Company s fi nancial position and are in accordance with relevant accounting standards. The Audit and Risk Management Committee makes recommendations to the Board on the adequacy of the external audit, risk management and compliance procedures. The Committee is responsible for approving the annual internal audit program and reviewing the outcomes from assignments. The Committee has its own charter that is published as part of the Corporate Governance Charter and is available in the Corporate Governance section of the Sedgman website. The Audit and Risk Management Committee met on four occasions during the previous fi nancial year. Details of Committee meeting attendance are included in the Directors Report in the Financial Statements. The Committee members are: Peter Richards, Chairman, Independent Director Roger Short, Independent Director Donald Argent, Independent Director. Principle 5 Make timely and balanced disclosure 5.1 The Board has adopted a Continuous Disclosure Policy that is available on the Sedgman website. The Company has established policies and procedures to enable accurate, timely, clear and adequate disclosure to the market in compliance with the ASX Listing Rules. The Company s Continuous Disclosure Policy is available in the Corporate Governance section of the Sedgman website. Continuous disclosure is a permanent item on the agenda for Board meetings. The Directors have entered into agreements with the Company to inform it of any trading undertaken by them in the Company s securities or any other relevant information. The Company Secretary has been appointed as the person responsible for communication with the ASX in relation to listingrule matters. Principle 6 Respect the rights of shareholders 6.1 The Board has adopted a Shareholder Communication Policy that is available on the Sedgman website. 6.2 All the information indicated in the Guidelines to reporting on Principle 6 is provided. The Board recognises the importance of factual, timely, clear and objective communication with shareholders and is committed to keeping shareholders informed of the Company s performance and major developments. The Shareholder Communications Policy is available in the Corporate Governance section of the Sedgman website. Annual reports, presentations and other correspondence are contained in the Investors & Media section of the Sedgman website. Shareholders 27 Sedgman Limited Annual Report

29 Principle 6 Respect the rights of shareholders (continued) and interested parties may register to receive all documents and announcements electronically. Shareholders are encouraged to attend and participate at general meetings. Sedgman s auditor attends the Annual General Meeting and is available to answer shareholders questions in relation to the audit. Principle 7 Recognise and manage risk 7.1 The Board has an Audit and Risk Management Committee which has implemented an enterprise riskmanagement framework. 7.2 The Board receives representations from management as to the effectiveness of Sedgman s management of its material business risks. 7.3 The Board has received assurance from the CEO and Managing Director, and Chief Financial Officer that the declaration provided in accordance with s 295A of the Corporations Act 2001 (Cth) is founded on a system of risk management and internal control and that the system is operating effectively. The Board, together with management, has sought to identify, monitor and mitigate risk. Management has designed, and the Company has implemented, an enterprise risk management framework based on ISO to ensure that it only takes on business which provides an acceptable risk reward profile and does not expose the Company to unacceptable commercial risk. A summary of Sedgman s risk management framework for the oversight and management of material business risks can be reviewed in the Corporate Governance Charter available in the Corporate Governance section of the Sedgman website. Internal controls are monitored by management on a regular basis and improved if necessary. Management has reported to the Board as to the effectiveness of Sedgman s management of its material business risks. The Board requires and has received assurance from the CEO and Managing Director, and Chief Financial Officer that the declaration provided in accordance with s 295A of the Corporations Act 2001 (Cth) is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. In addition to regular reviews by the Company, the Audit and Risk Management Committee review the effectiveness of the risk management system. Principle 8 Remunerate fairly and responsibly 8.1 The Board has a Nominations and Remuneration Committee. 8.2 The Nominations and Remuneration Committee consists of a majority of independent directors, is chaired by an independent chair and has three members. 8.3 The structure of NonExecutive Directors remuneration is distinguished from that of Executive Directors and senior executives. 8.4 The information indicated in the Guidelines to reporting on Principle 8 is provided. The Company s policy in relation to remuneration is to ensure that remuneration packages properly refl ect the person s duties and responsibilities, and that the remuneration is competitive to attract, retain and motivate people of the highest quality and rewards performance. The Board has established a Nominations and Remuneration Committee. In performing its remuneration function, this Committee advises on remuneration policy in respect of the NonExecutive and Executive Directors as well as senior executives to ensure conformance with market best practice and alignment with shareholder interests. The Nominations and Remuneration Committee s Charter is published as part of the Corporate Governance Charter and is available in the Corporate Governance section of the Sedgman website. The Board believes that an appropriate equity incentive scheme assists in attracting and retaining executives, motivates to improve performance and aligns their interests with those of the Group and its shareholders. Sedgman clearly distinguishes the structure of Non Executive Directors remuneration from that of Executive Directors and senior executives, with NonExecutive Directors receiving an agreed percentage of their remuneration as shares purchased on market following the release of halfyear and fullyear results and being ineligible to participate in either Sedgman s Short Term Incentive Plan or Long Term Incentive Share Plan. Remuneration of Directors and executives is fully disclosed in this Annual Report as at its date and any changes with respect to key executives are announced in accordance with continuous disclosure requirements. The Committee met on three occasions during the previous fi nancial year. Details of Committee meeting attendance are included in the Directors Report in the Financial Statements. The Committee members are: Roger Short, Chairman, Independent Director Russell Kempnich, NonExecutive Director Rob McDonald, Independent Director. Sedgman Limited Annual Report 28

30 Contents Directors Report 30 Lead auditor s independence declaration 53 Financial Report Consolidated statement of profi t or loss 54 Consolidated statement of comprehensive income 55 Consolidated balance sheet 56 Consolidated statement of changes in equity 57 Consolidated cash fl ow statement 58 Notes to the consolidated fi nancial statements 59 Directors declaration 110 Independent auditor s report to the members 111 This financial report covers the consolidated entity consisting of Sedgman Limited and its controlled entities (the Group ). The financial report is presented in Australian currency. Sedgman Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Level 2 2 Gardner Close Milton QLD 4064 AUSTRALIA 29 Sedgman Limited Annual Report

31 Directors Report The Directors present their report together with the financial statements of the Group consisting of Sedgman Limited ( Sedgman or the Company ) and its subsidiaries and interests in joint ventures and associates for the year ended 30 June and the auditor s report thereon. Directors The following persons were directors of Sedgman Limited during the financial year: Russell James Kempnich (Appointed 6 July 1999) Nicholas Neil Jukes (Appointed 17 January 2011) Donald James Argent (Appointed 12 April 2006) Robert John McDonald (Appointed 8 June 2006) Roger Ronald Short (Appointed 8 June 2006) Bruce Alwin Munro (Appointed 21 December 2009, resigned 31 July ) Peter Ian Richards (Appointed 14 December 2010) Refer below for information on directors. Principal activities The principal activities of the Group during the financial year consisted of project and operational services to the resources industry. Review of financial performance Business summary Sedgman s group vision is to be a leading provider of mineral processing and associated infrastructure solutions to the global resources industry. The Company works with major mining companies through to emerging mining companies to tailor fullyintegrated mineral processing solutions for greenfield and brownfield projects. Using proven and innovative technologies, it optimises the clients return on investment. Sedgman provides services including feasibility studies, detailed engineering, project management, asset operations and maintenance. The Company builds relationships with its clients based on trust and a commitment to delivering projects and operations in a safe, timely and costeffective manner without compromising quality. Net profi t Net profit after tax of $9.428 million was less than the FY net profit after tax of $ million. The result was adversely impacted by the Projects business as outlined later in this report and asset write downs of nonutilised assets in the Operations business. The following tables provide reconciliations from statutory profits after tax and revenue to the Group s EBITA underlying earnings and combined sales revenue which are used by the Company in its presentation to the investment community when reviewing the Group s performance. These underlying numbers provide the basis of financial analysis for the Group and the Projects and Operations segments within this section of the report. It is noted that these are nonstatutory items which have not been audited or reviewed. FY FY FY 2011 Net profit after tax 9,428 37,848 26,030 Income tax expense (3,950) (21,086) (8,484) Net profit before tax 13,378 58,934 34,514 Finance costs 2,795 2,188 2,026 Interest income (1,805) (930) (932) Amortisation (brand and customer contracts) 3,790 3,851 2,852 Oneoff asset write downs 6,358 4,082 Redundancy costs 2,994 EBITA (Underlying earnings) 27,510 64,043 42,542 Sedgman Limited Annual Report 30

32 Directors Report (continued) Review of financial performance (continued) The following is a reconciliation of the revenue from services in the statutory financial statements to combined sales revenue. FY FY FY 2011 Revenue from services per statutory financial statements 448, , ,704 Changes in construction in progress (35,835) (20,284) 34,545 Thiess Sedgman Joint Venture ( TSJV ) Revenue 26, ,878 25,052 Sedgman revenue from TSJV (7,275) (30,376) (12,242) Group share of associates revenue 1,138 Contract terminations 1,750 Combined sales revenue 435, , ,059 Performance Overview Overall performance for FY 2011 to FY is tabulated below: Combined Sales Revenue EBITA (Underlying) EBITA Margin $ millions Growth % $ millions Growth % % FY (33.1) 27.5 (57.0) 6.3 FY FY The combined sales revenue (adjusted to include Sedgman s share of revenue from the TSJV) decreased by $ million to $ million. The decrease is attributable to a slowdown in the Projects business. Key contributors to this were a cyclical downturn in the Australian and global resources industry, and delays experienced by our clients awaiting environmental approvals for projects. The Group s overheads were reduced during the period, however the smaller revenue base had a negative impact on underlying EBITA margins. The Group continues to explore opportunities to reduce costs without exposing the business to unmitigated risks that may impact its core capability to deliver studies, projects and effectively manage our clients operations. During FY, the Group reviewed its strategy for nonutilised assets in the Operations business. The carrying value of these assets was adjusted to recoverable amounts at 30 June, based on a valuation by an Accredited Senior Appraiser, resulting in an impairment charge of $6.358 million. Sedgman built the Boseto copper concentrator for Discovery Metals in Botswana, however the parties have various claims against each other which were referred to a nonbinding Dispute Adjudication Board (DAB). The DAB handed down its ruling in May, which resulted in a net amount owing to Sedgman of US$1.806 million. Accordingly Sedgman has provided $9.109 million against its initial claims and retentions. Sedgman and Discovery Metals have served Notices of Dissatisfaction in respect of the DAB decision. The parties are undertaking negotiations as required by the contract to try and resolve this dispute. If these negotiations do not reach a settlement either party may refer the dispute to arbitration. During the year Sedgman had redundancies of 120 employees from Projects, Operations and Corporate. The cost of these redundancies excluding the payment of leave provisions was $2.994 million. The number of fulltime equivalent employees reduced from 1,050 at the end of FY to 788 at the end of FY which reflects natural attrition, terminations at end of fixedterm contracts and release of contract staff, as well as the redundancies referred to above. 31 Sedgman Limited Annual Report

33 Directors Report (continued) Review of financial performance (continued) Projects Business summary Sedgman s Projects Business Unit specialises in the engineering, procurement, construction and delivery of mineral processing plants and infrastructure ranging from small process improvements to full turnkey solutions. Sedgman provides engineering services globally, supporting the full project lifecycle from concept development to commissioning. Based on client requirements and experience with proven plant configurations, Sedgman can provide complete modular facilities or auxiliary circuits linked to clientowned plants to increase output, decrease operating costs, upgrade quality and manage asset and labour needs. Safety is inherent in the Group s design process, from initial drawings through to completion. The Group s innovative use of technology increases value, reliability and safety for clients. The Projects Business Unit undertakes projects and studies in the major mining regions of Australia, Africa, China, Mongolia, South America and Canada. The Group s strategy is to diversify its markets from thermal and metallurgical coal into iron ore, base and precious metals. Project Performance Overview The following is a reconciliation of the Project external revenue from the operating segments note in the statutory financial statements to combined Projects sales revenue. FY FY FY 2011 Revenue from project services per statutory financial statements 259, , ,525 Changes in construction in progress (35,835) (20,284) 34,545 Thiess Sedgman Joint Venture ( TSJV ) revenue 26, ,878 25,052 Sedgman revenue from TSJV (7,275) (30,376) (12,242) Group share of associates revenue 1,138 Combined Projects sales revenue 244, , ,880 The following is a reconciliation of Projects reportable segment profit before income tax to Projects EBITA underlying earnings. FY FY FY 2011 Reportable segment profit before tax 4,902 43,871 31,093 Other income / (expenses) 2,568 2,150 (4,184) Finance costs 1,254 1, Redundancy costs 2,654 Projects EBITA (underlying earnings) 11,378 47,097 27,902 The Projects Business Unit s performance for FY 2011 to FY is tabulated below: Projects Combined Revenue EBITA (Underlying) EBITA Margin $ millions Growth % $ millions Growth % % FY (48.6) 11.4 (75.7) 4.7 FY FY Combined sales revenue for the Projects business decreased by $ million as a number of significant projects undertaken in FY were not replaced in FY. The biggest downturn was in the coal market. Coal projects were deferred as a result of declining longterm coal price forecasts and the high value of the Australian dollar. These broader macroeconomic influences were compounded by delays experienced by our clients awaiting environmental approvals to finalise arrangements for project execution. Sedgman Limited Annual Report 32

34 Directors Report (continued) Review of financial performance (continued) The Group s commodity diversification strategy continued to build momentum following the successful delivery of the Boseto Copper Plant in Botswana in and the commencement of the Mungari Gold Project in Western Australia in February. This project is scheduled for completion next financial year. Projects underlying EBITA margin was $ million, 4.7% of combined sales revenue which is less than the 9.9% margin achieved in FY. Project margins were less than the prior year due to lower utilisation of Projects staff as a result of project deferrals and the general slowdown in study and engineering activity. This issue was compounded by increased work on unpaid tenders which did not materialise into project commencements. Projects business strategies and prospects The resources sector globally is currently facing a challenging environment as commodity prices fall from historical highs. In response, the larger mining companies have changed focus from expansion of production to cutting costs, increasing margins, improving productivity for existing assets and disposing of noncore assets. The initiation of new capital projects is likely to be delayed in the short term except where the financial impact for take or pay agreements for services such as rail and port capacity are committed. In this environment, the smaller mining companies faced with funding shortfalls to develop their projects will continue to experience difficulty in raising equity and debt for capital expenditure. Project margins are expected to remain under pressure as competition for reduced opportunities intensifies. Sedgman is responding to these market conditions by seeking opportunities from offshore markets which are not affected by the high Australian dollar and higher operating cost environment. Operations Business summary The Operations Business Unit provides a complete operations management service that optimises plant operations and maintenance services for clients. This service includes experienced operators, asset managers, operations support staff and consulting engineering services. The Operations Business Unit focuses on productivity and efficiency gains for the client by optimising plant safety, throughput and production quality. Established systems enable Sedgman to assume contract operations of greenfield or brownfield plants with minimal rampup times. The Group is able to add incremental operations to its portfolio of operations, and accordingly is well positioned to support new entrants into the market. The Operations Business Unit has undertaken work in Australia and Mongolia. Markets include thermal and metallurgical coal and base metals. As well as servicing regular operations contracts, our oncall operations consultancy provides support in maintenance strategy, reliability engineering, processing, electrical engineering and controls systems. Operations Performance Overview The following is a reconciliation of the Operations external revenue from the operating segments note in the statutory financial statements to combined Operations sales revenue. FY FY FY 2011 Revenue from operations services per statutory financial statements 189, , ,179 Contract terminations 1,750 Combined Operations sales revenue 191, , ,179 The following is a reconciliation of the Operations reportable segment profit before income tax to Operations EBITA underlying earnings. 33 Sedgman Limited Annual Report

35 Directors Report (continued) Review of financial performance (continued) FY FY FY 2011 Reportable segment profit before tax 3,304 11,983 6,683 Other income / (expenses) 799 (10) Finance costs 1,541 1,112 1,033 Amortisation (Brands and Customer contracts) 3,790 3,851 2,852 Redundancy costs 340 Oneoff asset write downs 6,358 4,082 Operations EBITA (underlying earnings) 16,132 16,946 14,640 The Operations Business Unit s performance for FY 2011 to FY is tabulated below: Operations Combined Sales Revenue EBITA (Underlying) EBITA Margin $ millions Growth % $ millions Growth % % FY (4.7) 8.4 FY FY Combined Operations sales revenue increased by $ million compared to the prior year owing to a new operating contract at Narrabri CHPP in New South Wales Gunnedah Basin which commenced in July, improved operating performance at Red Mountain, Middlemount, Moorvale and Coppabella CHPPs in Queensland s Bowen Basin, and increased scope at Agnew Gold Mine in Western Australia. The combined sales revenue increase was offset by the loss of the operations contracts at Blair Athol CHPP in November, the Cannington Silver Lead Mine and Ukhaa Khudag (UHG) CHPP in December. In FY, combined Operations sales revenue included the upgrade of Red Mountain CHPP. There was no equivalent size project in FY undertaken by Operations. Operations underlying EBITA margin was $ million, 8.4% of revenue. Margins have been maintained within expectations as the Operations Business Unit focuses on cost control as well as the continuous improvement in operating performances at all sites. Operations business strategies and prospects Sedgman is in discussion with potential mining clients both within Australia and internationally with the aim of securing new operations. The Group s FY 2014 revenue from Operations is expected to reduce by approximately $60 million due to the closure of Blair Athol; loss of the Cannington contract; and the transfer of UHG, Moorvale and Coppabella operations to an owner operator model. Sedgman is focused on delivering value to clients by ensuring competitiveness in the market and offer a lowercost option than owners by leveraging its systems, processes and procurement capability. The primary risk faced by the Operations Business Unit in FY 2014 is reduced scope, lower margins and transfer of current operations to owners at the end of current contact terms. The growth opportunities for the business unit lie with potential clients which have operating sites in need of productivity improvements, cost reductions, and simplification by outsourcing their operations to specialists. In addition, as the majors divest noncore assets, opportunities exist for Sedgman to provide operating services to new owners wishing to leverage its existing experience, expertise and systems. Balance sheet Assets Total assets decreased by $ million to $ million. During the financial year a significant driver was a reduction in working capital due to a decline in the Projects business. This working capital reduction released cash to the business that has been utilised to pay dividends and reinvested in the business, primarily for sustaining capital purposes. Working capital management is a key focus of the Group; the Group has commercial and contract guidelines in place to safeguard the Group s commercial interests. The Group s contracting philosophy is to be cash positive; however from time to time, due to timing of projects, execution and achieving final contract closure can result in under and over claims with our clients. Sedgman Limited Annual Report 34

36 Directors Report (continued) Review of financial performance (continued) Property, plant and equipment decreased by $ million predominately due to depreciation charges of $ million and $6.358 million of impairment charges relating to plant and equipment offset by capital expenditure of $8.563 million. Capital expenditure has been constrained in the current economic climate to those items that reduce costs with rapid payback or are required to remain competitive in the current environment. Liabilities Total liabilities decreased by $ million to $ million during the period, as a result of the slowdown in the global Projects business. Contributing to this, trade and other payables decreased by $ million and current tax payable decreased by $ million. Equity Overall Equity decreased by $4.565 million due to dividends paid during the year of $ million and, partly offset by increases related to the dividend reinvestment plan and Net Profit after Tax for the year ended of $9.428 million. Dividends Sedgman s policy is to pay an interim and a final dividend each year in the range of 40% to 60% of the reported Net Profit after Tax. Dividends are fully franked to the extent possible. The Company has excess franking credits and will be able to pay dividends which are fully franked for the foreseeable future. The Board will take into consideration any oneoff factors and the cash requirements of the business when declaring a dividend. Financing facilities During the year Sedgman has renewed its club financing facilities with two Australian banks, Australia and New Zealand bank and the National Australia Bank which cater for the majority of Sedgman s financing requirements. At year end the Group had total financing facilities of $ million. The financing facilities in place for the Group provide flexibility, including bank guarantees to meet the Group s project bonding requirements as well as asset and working capital financing facilities. Net Cash The Group had net cash of $ million (represented by cash and cash equivalents less interest bearing liabilities) at the end of the financial year. The Board is maintaining a conservative cash position as the resources sector transitions through the capital cycle. The Board anticipates taking advantage of opportunities arising from the current economic environment and its net cash position to invest in new sectors and acquire complementary businesses. Material Business Risks Sedgman has an enterprise risk management framework that is structured to ensure risks and opportunities are captured, assessed and reviewed in a consistent manner. The top risks and associated mitigation strategies identified are as follows: In the global resources sector that the Sedgman Business Model supports, a decline in the number of new projects initiated and/or insourcing of operations by owners has the potential to impact revenue and profitability. Sedgman mitigates these risks by ensuring the Group has a diverse service offering across a range of geographies and commodities. Sedgman s licence to operate in the resources sector is conditional on having a robust safety management system and any significant failure may injure people. Sedgman mitigates this risk by ensuring senior management, employees and suppliers are aligned and proactively engaged with the Group s safety management system. Sedgman operates globally to support clients in foreign jurisdictions. Poor planning or execution of projects has the potential to damage the Company s reputation, profitability and ability to repatriate cash. Sedgman mitigates this risk by engaging with reputable external advisors, conducting a robust precontract assessment process, ongoing monitoring, and adherence to the Group s processes and procedures. Sedgman is a market leader in coal technology. A loss of this reputation would erode market share and increase competition in the sector. Sedgman mitigates this risk by leveraging its knowledge with its business model and a continued focus on innovation and research and development. Sedgman operates in a global environment. A key risk remains foreign competitors offering lower cost models for services sourced in lower cost countries. Sedgman mitigates this risk by providing technical leadership with value proposals based on offshore design offices and procurement services. 35 Sedgman Limited Annual Report

37 Directors Report (continued) Dividends Dividends paid or declared by the Company to members since the end of the previous financial year were: Declared and paid during the year ended 30 June Cents per share Total Amount Franked/ Unfranked Date of payment Final ordinary ,008 Franked 20 Sept Interim ordinary 3.0 6,529 Franked 28 March ,537 Franked dividends declared as paid during the year were franked at the rate of 30%. After the balance sheet date, a dividend of 2.0 cents per share was declared by the Directors, franked at the rate of 30%. The record date for entitlement to this dividend will be 3 September and the payment date will be 17 September. The financial effect of these dividends has not been brought to account in the consolidated financial statements for the year ended 30 June and will be recognised in subsequent financial reports. Earnings per share Cents Cents (a) Basic earnings per share Profit attributable to the owners of the Company (b) Diluted earnings per share Profit attributable to the owners of the Company Significant changes in the state of affairs Other than detailed elsewhere in this report, there have been no significant changes in the state of affairs since 30 June. Matters subsequent to the end of the financial year On 19 August Sedgman Limited signed an agreement to make a $1 million strategic investment in Ascot Resources Limited (refer to note 43 in the consolidated financial statements). Other than the dividend declared subsequent to year end (refer note 28 to the consolidated financial statements) and the strategic investment noted above, there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years. Likely developments and expected results of operations Information on likely developments and the expected results in future financial years have been reviewed within the Review of Financial Performance section of this report above. Shares under performance rights At the date of this report, unissued ordinary shares of the Company under rights are: Expiry date Exercise price Number of shares 21 August 2,949,019 August 2014* 2,892,817 * Actual vesting date will be the date the financial results are released to the market. All performance rights outstanding at the end of the financial year were issued under the Long Term Incentive Plan and expire on the earlier of their vesting date or termination of the employee s employment. In addition, the ability to convert the performance right is dependent upon the achievement of a performance condition. Further details are included in the Remuneration Report. Details of ordinary shares issued in relation to performance rights vesting during the financial year are included in the Remuneration Report. In addition to the above, the Company has 500,000 cashsettled sharebased rights as detailed in Note 41 to the consolidated financial statements. Sedgman Limited Annual Report 36

38 Directors Report (continued) Regulation Sedgman s operations are regulated by national and state government legislation that encompasses environmental matters, occupational health and safety, and industrial relations. Environmental authorities are involved at all stages of a project to ensure it complies with legislation and effectively manages pollution, waste, water use, contamination, dust, noise and other issues that have the potential to impact the environment. Safety is regulated by various acts, regulations and standards. Clients also have specific safety requirements which are a primary driver for the selection of service providers in the industry. Compliance with industrial relations regulations is achieved through planning and consultation. Individual project requirements are assessed and appropriate strategies developed to achieve industrial harmony and legislative compliance on a per project basis. Information on directors Russell James Kempnich Bachelor of Engineering (Mechanical). Chairman. DOB: 30 December Experience and expertise Russell was appointed Chairman in April He is a founding partner of Sedgman & Associates Pty Ltd, the original company established in 1980, from which the Sedgman business has grown. Russell has more than 30 years experience in the Australian and international coal industry. As well as recent senior management and executive responsibilities, Russell has broad experience in the areas of coal resource evaluation, process plant design, construction and commissioning. As Managing Director of Sedgman from 1991, Russell led the organisation s growth from a consulting and engineering firm, to a market leader in coal preparation, design and construction. He was responsible for the expansion of the Company s operations internationally. In 1998 Russell became the Executive Chairman, having responsibility at the time for the corporate direction of the overall Sedgman group and business development. Russell no longer has executive responsibilities with Sedgman. Other current public directorships NonExecutive Director of Stanwell Corporation Limited. Special responsibilities Member of the Remuneration & Nominations Committee. Interest in shares 16,460,822 ordinary shares in Sedgman Limited. Nicholas Neil Jukes Bachelor of Engineering (Civil), Fellow of the Institute of Engineers. Chief Executive Offi cer and Managing Director. DOB: 13 July Experience and expertise Nick was appointed to lead Sedgman in January 2011 for a minimum term of three and a half years. Nick is responsible for leading the Company globally and overseeing the successful delivery of Sedgman projects and operations. Nick is a civil engineer with over 30 years experience in the engineering, construction and mining sectors. Prior to joining Sedgman, he was Executive Director of JTAA Pty Ltd, a company he established in 2007 to provide consulting services to the engineering and mining sectors. Nick has also held senior executive roles at Thiess and BHP Billiton Ltd where he was actively involved in the planning, development, construction and operation of major projects throughout Australia, South East Asia and South America. He was a previous Director of a number of companies including Sedgman Pty Ltd and Australasian Resources Pty Ltd. Nick is a Fellow of the Institute of Engineers Australia. Interest in shares 860,000 ordinary shares in Sedgman Limited. 37 Sedgman Limited Annual Report

39 Directors Report (continued) Information on directors (continued) Donald James Argent Bachelor of Commerce, Certified Practicing Accountant, Fellow of Australian Institute of Company Directors. NonExecutive Director. DOB: 19 July Experience and expertise Don was appointed to the Board in April He was the Director of Finance and Administration for the Thiess Group (resigned 29 July 2011) which is one of Australia s largest integrated engineering and service providers in Australia and South East Asia. Don has over 30 years experience in the mining industry which began in the late 1970s at Thiess Holdings Ltd and then with Thiess Pty Ltd from 1985, where he had a pivotal role in the finance, administration, governance, growth and success of the Thiess Group of companies for 26 years until his retirement in Special responsibilities Member of the Audit and Risk Management Committee. Other current public directorships NonExecutive Director of Ausdrill Limited. Interest in shares 284,439 ordinary shares in Sedgman Limited. Robert John McDonald Bachelor of Commerce, Master of Business Administration (Hons). NonExecutive Director. DOB: 18 March Experience and expertise Rob was appointed to the Board in June He is the principal of The Minera Group, a specialist mining advisory and investment group headquartered in Australia and active in most mining regions of the world. Minera assists a select number of mining companies and mining investment and finance institutions in developing and executing business plans in the sector. He is also a principal of private equity groups engaged in various aspects of the international mining industry. Rob has more than 35 years experience in the mining sector, firstly in various roles within the Rio Tinto group and prior to launching Minera and his private equity initiatives in investment banking as a principal of Resource Finance Corporation and as a Managing Director of N M Rothschild & Sons. Other current public directorships NonExecutive Director of Intrepid Mines Limited. Special responsibilities Member of the Audit and Risk Management Committee (1 July 2011 to 6 June ). Member of the Remuneration & Nominations Committee. Interest in shares 576,951 ordinary shares in Sedgman Limited. Roger Ronald Short Bachelor of Laws, Bachelor of Arts. NonExecutive Director. DOB: 13 October Experience and expertise Roger was appointed to the Board in June He is a construction lawyer and most recently served as a consultant at McCullough Robertson Lawyers. Roger was previously a partner in a large national law firm. He has been a member of the legal profession for over 30 years and has had extensive involvement in large scale property development projects and commercial, public infrastructure, construction, mining and infrastructure work. He has been a director of listed companies for more than 30 years and also holds current directorships with private and government corporations. Other current public directorships NonExecutive Director of Payce Consolidated Limited. Special responsibilities Member of the Audit and Risk Management Committee. Chairman of the Remuneration & Nominations Committee. Interest in shares 219,529 ordinary shares in Sedgman Limited. Sedgman Limited Annual Report 38

40 Directors Report (continued) Information on directors (continued) Bruce Alwin Munro Bachelor of Engineering (Civil). NonExecutive Director. DOB: 31 December Experience and expertise Bruce was appointed to the Board in December Currently Managing Director of the Thiess group, he leads one of Australia s largest integrated engineering and service contractors, with substantial operations in Indonesia and India. Bruce was formerly Thiess Chief Executive Mining, with responsibility for the company s mining operations across Australia and offshore. Bruce has more than 35 years experience in the construction and mining industries. Commencing his career with Leighton Contractors, Bruce joined Thiess in From 1999 through to 2006 he was President Director of PT Thiess Contractors Indonesia. Bruce went on to become Executive General Manager Asia from 2006 to 2010, during which time he expanded Thiess interests in Asia and pursued opportunities in India. Bruce resigned as a Director on 31 July. Interest in shares 20,076 ordinary shares in Sedgman Limited at the date of his resignation. Peter Ian Richards Bachelor of Commerce. NonExecutive Director. DOB: 29 January Experience and expertise Peter was appointed to the Board in December He has over 30 years experience in the mining services and industrial sectors with global companies including BP plc, Wesfarmers, Dyno Nobel Limited and most recently, Norfolk Group Limited where he served as Managing Director. Peter resigned from his position with the Norfolk Group on 31 July. In his time at Dyno Nobel, where he was Managing Director and CEO, he held a number of senior executive positions in both North America and Asia Pacific. He serves as a Director with several ASXlisted companies. Other current public directorships NonExecutive Director of Emeco Holdings Limited, Bradken Limited and NSL Consolidated Limited. Special responsibilities Chairman of the Audit and Risk Management Committee. Interest in shares 48,501 ordinary shares in Sedgman Limited. Company Secretary The company secretary is Mr Adrian Relf. He was admitted as a solicitor in 2003 and holds the qualifications of Bachelor of Social Science, Bachelor of Laws, Graduate Diploma of Legal Practice and Graduate Diploma of Management. Meetings of directors The numbers of meetings of the Company s Board of Directors held during the year ended 30 June, and the numbers of meetings attended by each Director were: Full meetings of Directors Audit & Risk Management Meetings of committees * Remuneration & Nominations A B A B A B Russell James Kempnich Nicholas Neil Jukes 6 6 Donald James Argent Robert John McDonald Roger Ronald Short Bruce Alwin Munro 4 6 Peter Ian Richards A = Number of meetings attended B = Number of meetings held during the time the Director held office or was a member of the committee during the year * Other Directors may attend Committee meetings by invitation. 39 Sedgman Limited Annual Report

41 Directors Report (continued) Remuneration report audited The directors are pleased to present the remuneration report which sets out remuneration information for Sedgman Limited s nonexecutive directors, executive directors and other key management personnel ( KMP ). Sedgman s remuneration strategy is designed to drive superior shareholder returns by aligning the short and long term interests of our people and our shareholders and by attracting and retaining high quality people. Remuneration and Nominations Committee The Remuneration and Nominations Committee ( Committee ) was established as a subcommittee of the Board in The Committee comprises a majority of independent directors and is governed by its charter, which is contained in the Corporate Governance Charter available on the Sedgman website. The Charter sets out the membership, responsibilities, powers and activities of the Committee. The following Directors were members of the Committee during FY : Name Position Duration Roger Short Chairman Since 6 June 2006 Russell Kempnich Member Since 6 June 2006 Robert McDonald Member Since 6 June 2006 The Committee met three times during FY with details of attendances detailed in this Directors Report. The Committee may invite executives to attend meetings and assist in the performance of its functions (other than in respect of executive remuneration). 1. Remuneration Framework and Principles The objective of the Group s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with achievement of strategic objectives and the creation of value for shareholders, and conforms with market best practice for delivery of reward. The Board ensures that executive reward satisfies the following key criteria for good reward governance practices: competitiveness and reasonableness performance linkage / alignment of executive compensation transparency capital management. The framework shows the interests of shareholders and the executive group in consideration of: i) Alignment to shareholders interests: focuses on sustained growth in shareholder wealth, consisting of dividends and growth in share price, and delivering constant return on assets as well as focusing the executive on key nonfinancial drivers of value attracts and retains high calibre executives. ii) Alignment to executives interests: rewards capability and experience reflects competitive reward for contribution to growth in shareholder wealth provides a clear structure for earning rewards provides recognition for contribution. The framework provides a mix of fixed and variable pay through the following three components which are discussed in more detail later in this report: (i) fixed remuneration (ii) shortterm performance incentives through the Short Term Incentive Plan (iii) longterm incentives through participation in the Long Term Incentive Plan As executives gain seniority within the Group, the balance of this mix shifts to a higher proportion of at risk rewards. The split of potential fixed remuneration and at risk remuneration for the Managing Director and other executives is detailed below. This is based on maximum potential short term incentives and long term incentives for the year ended 30 June and demonstrates the high percentage of remuneration that is at risk resulting in executive remuneration being closely aligned to actual Group performance. Sedgman Limited Annual Report 40

42 Directors Report (continued) Remuneration report audited (continued) 1. Remuneration Framework and Principles (continued) Managing Director Cash 75% Equity 25% 13 FY Fixed pay 30% STI 45% LTI 25% Executive KMPs (average) Cash 90% Equity 10% 13 FY Fixed pay 56% STI 34% LTI 10% 2. Use of remuneration consultants No external remuneration consultants were engaged by the Board, Committee or executives to provide remuneration recommendations in relation to key management personnel during the year ended 30 June. 3. Key management personnel changes and disclosures During the year Sedgman undertook a review of its management structure to increase the focus on winning new work globally while continuing with a strong management team in its Projects and Operations business units across all regions. As a result from 1 November, Peter Watson, previously Executive General Manager Australia, took the leading role of the newly created Global Development team as Global Director Development. The Executive General Manager Australia role has been replaced by Executive General Manager Australia East, Executive General Manager Australia West and Executive General Manager Australia Operations. The roles of Executive General Manager Operations and Executive General Manager Projects have been renamed as Global Director Operations and Global Director Projects respectively to reflect the global nature of these roles across all regions. These new roles are deemed KMP from 1 November and all other roles previously deemed KMP retain this status. For the purposes of all disclosures in this remuneration report: (i) Thomas Dockray became KMP from 25 September ; (ii) Ken Boulton, Simon Stockwell and Sten Soderstrom became KMP from 1 November ; and (iii) All other directors and executives are KMP for the whole of the financial year from 1 July to 30 June. Name Position Nonexecutive and executive directors refer to pages 37 to 39 for their names Other key management personnel Ian Poole Chief Financial Officer Peter Watson Global Director Development Michael Carretta Global Director Operations Alan Ainsworth Global Director Projects Ken Boulton Executive General Manager Australia Operations Simon Stockwell Executive General Manager Australia East Sten Soderstrom Executive General Manager Australia West Simon MordecaiJones Executive General Manager Africa Javier Freire Executive General Manager Americas Thomas Dockray Executive General Manager Asia Post 30 June Bruce Munro resigned from his position as Nonexecutive director (effective 31 July ) and Sten Soderstrom was retrenched from his position as Executive General Manager Australia West (effective 12 July ). 41 Sedgman Limited Annual Report

43 Directors Report (continued) Remuneration report audited (continued) 4. Fixed Remuneration The fixed remuneration component of executive salaries includes base pay, benefits and superannuation. Executives are offered a competitive fixed remuneration to reflect their role and responsibilities benchmarked against external data so it is consistent with the market for a comparable role. Executive performance and base pay is reviewed annually to ensure the executive s pay is competitive with the market and an executive s pay is also reviewed on promotion. There are no guaranteed base pay increases included in any executives contract. Executives receive benefits including nonmonetary benefits such as directors and officer s liability insurance. Executives may also choose to receive benefits by way of salary sacrificed motor vehicles and superannuation. The Group also provides superannuation in accordance with its legal obligations in the relevant jurisdiction. 5. Short Term Incentive (STI) Plan The Group s STI plan is a structured and equitable way of rewarding executives for both Group and individual performance. The STI plan links specific predetermined key performance indicators ( KPIs ) with the opportunity to earn cash incentives based on a percentage of base pay. There is no ability for executives to defer unearned portions of STI to future financial years. If the Group achieves a predetermined net profit after tax ( NPAT ) target for the year, a selffunding bonus pool becomes available which is then further adjusted based on each executives performance against predetermined KPIs during the annual review process. For the financial year ended 30 June : the Managing Director s KPIs were set based on specific performance targets in relation to Group commercial and financial performance (on a net profit after tax basis), health safety and environment, people management and retention and corporate sustainability. Currently 40% of the Managing Director s KPIs are linked to financial performance, with the remainder being linked to nonfinancial targets and achievement of strategic objectives detailed in the Group s business plan. other executive KPIs were set based on specific performance targets in relation to net profit before tax and individual KPIs by the executive. Currently 50% of KPIs are linked to Group financial performance and financial performance of the executive s area of responsibility with the remaining 50% linked to nonfinancial targets including health, safety and environment, people management and retention and implementation of Group s business plans. Use of KPIs balanced between group and individual targets is intended to ensure variable reward is only available when value has been created for shareholders and when individual and group performance is consistent with the business plan. Each executive s bonus opportunity depends on the accountabilities of the role, impact on the organisation and business unit performance. The amount of bonuses paid to individual employees is based on achievement of preagreed KPIs and is at the discretion of the Managing Director having regard to the executive s overall performance. Where group financial performance exceeds targets, executives are able to earn above their target STI to a maximum of between 50 to 75 per cent of their base salary depending on role and responsibilities. The Managing Director s target STI is 75 per cent of his base salary with the opportunity to earn a maximum of 1.5 times base salary in years of exceptional group and individual performance. 6. Long Term Incentive (LTI) Plan The Group s LTI Plan is an equity incentive scheme which is intended to: reward high performance and to encourage a high performance culture across the Group align the interests of executives and senior management with those of the Group and shareholders provide the Group with the means to compete for talented staff by offering remuneration that includes an equitybased component, like many of its competitors assist with the attraction and retention of key personnel. Executives and senior managers eligible to participate in the LTI Plan are considered by the Board to be in roles that have the opportunity to significantly influence longterm shareholder value. The original LTI Plan applying to Tranches 1, 2 and 3 was approved by shareholders at the Group s Annual General Meeting in November Sedgman Limited Annual Report 42

44 Directors Report (continued) Remuneration report audited (continued) 6. Long Term Incentive (LTI) Plan (continued) Under the LTI Plan, the Company may issue eligible participants with performance rights which entitle the holder to subscribe for or be transferred one fully paid ordinary share of the Company for no consideration, or an equivalent cashsettled value, subject to the achievement of performance conditions specified by the Board. Equitysettled performance rights granted under the LTI Plan carry no dividend or voting rights. Those eligible to participate in tranches 1, 2 and 3 of the LTI Plan include executive directors, executives and selected employees of the Group. Performance rights Tranches 1, 2 and 3 The following vesting profile is in place for Tranches 1, 2 and 3 of the LTI Plan: Tranche Performance measurement period Vesting date TSR ranking achieved % Vested 1 1 July 2009 to 30 June 23 August 10 50% 2 1 July 2010 to 30 June 21 August n/a n/a 3 1 July 2011 to 30 June 2014 August 2014* n/a n/a * Actual vesting date will be the date the financial results are released to the market. The performance rights are issued to executive directors and employees for no consideration and are subject to the continuing employment and lapse upon resignation, redundancy or termination (unless certain circumstances such as death or disability where vesting is at the discretion of the Board) or failure to achieve the specified performance vesting condition. The performance rights will immediately vest and become exercisable if in the Board s opinion a vesting event occurs (as defined in the plan rules) such as a takeover bid or winding up of the Company. If the performance rights vest and are exercised the employee receives ordinary shares of the Company for no consideration. The performance vesting condition for performance rights issued is relative to the Total Shareholder Return (TSR). At the end of each tranche s performance measurement period, the Board will rank the Company s TSR against a peer group of other companies considered by the Board to be peers or competitors of the Company. The percentage of performance rights in each respective tranche that will vest and become exercisable will depend upon the Company s TSR performance relative to the companies in the peer group (as determined by the Board) as set out in the table below: Sedgman TSR ranking (at end of performance measurement period) * Percentage of performance rights in relevant tranche that vest % 6 90% 7 80% 8 70% 9 60% 10 50% % * The original peer group included 20 companies, including Sedgman Limited. The peer group now comprises 17 companies, as 3 companies were removed from the official list of ASX Limited. For performance rights granted under tranches 1, 2, 3 the peer group includes the following companies: NRW Holdings Limited; WDS Limited; RCR Tomlinson Ltd; Lycopodium Limited; Ausenco Limited; Monadelphous Group Limited; Mineral Resources Limited; Cardno Limited; Austin Engineering Ltd; Boart Longyear Limited; Worley Parsons Ltd; Downer EDI Limited; MacMahon Holdings Limited; Clough Limited; Leighton Holdings Limited; and AJ Lucas Group Limited. Performance rights Tranche 4, 5 and 6 The LTI Plan was revised and reapproved by shareholders at the Group s Annual General Meeting in November to apply to Tranches 4, 5 and 6. The revised LTI Plan follows similar principles to the previous plan and seeks to: reward high performance and to encourage a high performance culture across the Group align the interests of executives and key senior management with those of the Group and shareholders provide the Group with the means to compete for talented staff by offering remuneration that includes an equitybased component, like many of its competitors assist with the attraction and retention of key personnel. 43 Sedgman Limited Annual Report

45 Directors Report (continued) Remuneration report audited (continued) 6. Long Term Incentive (LTI) Plan (continued) The LTI Plan applying for Tranches 4, 5 and 6 is limited to 18 participants in executive and senior management roles who are considered by the Board to be in roles that have the opportunity to significantly influence longterm shareholder value. Based on the current economic environment and the emphasis on constraining costs, no Tranche 4 performance rights were issued under the LTI Plan during the financial year. The following vesting profile would apply to any performance rights that may be issued under Tranches 5 and 6: Tranche Performance measurement period Vesting date TSR ranking achieved % Vested 5 1 July to 30 June 2016 August 2016* n/a n/a 6 1 July 2014 to 30 June 2017 August 2017* n/a n/a * Actual vesting date will be the date the financial results are released to the market. The number of performance rights issued to an eligible participant will be calculated as follows: Number of performance rights = (% of base salary) x Issue Price The % of base salary is dependent upon the participants role and responsibilities and varies between 35% to 125%. The Issue Price is calculated as the volume weighted average price ( VWAP ) of Sedgman shares for the period 1 June until 31 July at the commencement of the performance period. The performance rights are issued to executive directors and employees for no consideration and are subject to the same performance vesting conditions as applied to Tranches 1, 2 and 3 (as noted under Performance rights Tranches 1, 2 and 3 above). For performance rights to be granted under Tranches 5 and 6 the peer group includes the following companies: NRW Holdings Limited; WDS Limited; RCR Tomlinson Ltd; Lycopodium Limited; Ausenco Limited; Monadelphous Group Limited; Mineral Resources Limited; Cardno Limited; Worley Parsons Limited; Downer EDI Limited; MacMahon Holdings Limited; Clough Limited; Leighton Holdings Limited; Forge Group Limited; Coffey International Limited; Decmil Group Limited; GR Engineering Services Limited; Calibre Group Holdings Limited and MACA Limited. The Board have also nominated an additional five suitable replacement companies ( the reserve group ). Where a company in the peer group is delisted, merges or ceases to be suitable for comparative purposes, it will, subject to the Board s discretion, be replaced by a company from the reserve group. The peer group and reserve group may be varied from time to time by the Board in its absolute discretion. The reserve group comprises: UGL Limited; Norfolk Group Limited; Southern Cross Electrical Engineering Limited; VDM Group Limited and Resource Development Group Limited. The percentage of performance rights in each respective tranche that will vest and become exercisable will depend upon the Company s TSR performance relative to the companies in the peer group (as determined by the Board) as set out in the table below: Sedgman TSR ranking (at end of performance measurement period) Percentage of performance rights in relevant tranche that vest % 6 90% 7 80% 8 70% 9 60% 10 50% % Sedgman Limited Annual Report 44

46 Directors Report (continued) Remuneration report audited (continued) 6. Long Term Incentive (LTI) Plan (continued) Consequences of performance on shareholders wealth In considering the Group s performance and benefits for shareholders wealth, the Board has regard to the indices outlined below, in respect of the current financial year and the previous four financial years. $ Net profit attributable to owners of 9,428,093 37,848,123 26,029,713 24,987,061 7,093,924 Sedgman Limited Basic EPS (cents) Dividends paid 20,537,060 17,962,316 13,449,474 12,314,262 13,566,877 Dividends paid per share (cents) Share price at year end $0.53 $1.39 $1.85 $1.34 $0.97 Change in share price ($0.86) ($0.46) $0.51 $0.37 ($1.70) $ 2011 $ 2010 $ 2009 $ 7. Employee Share Plan The Sedgman Share Plan was introduced in 2011 and provided eligible employees to receive $1,000 worth of Sedgman shares. While an initial issue of shares was undertaken during the financial year ended 30 June 2011 this scheme did not operate for the and financial years. 8. Service agreements Sedgman has entered into executive service agreements with key executives, which contain standard terms and conditions for agreements of this nature, including confidentiality, restraint on competition and retention of intellectual property provisions. Where necessary the agreements are expressed to cover periods specific to individual appointments, but may generally be terminated by notice by either party, or earlier in the event of certain breaches of the terms and conditions. In the event of termination for any reason, the Company will pay any accrued and untaken annual leave and, subject to the relevant legislation, any accrued and untaken long service leave owing to the executive. Specific terms and conditions of service agreements of key management personnel at the end of the financial year are summarised in the table below: Name Position Term of agreement Nicholas Jukes Chief Executive Officer 17 January June 2014 Notice period (by either party) 6 months Ian Poole Chief Financial Officer n/a 3 months Peter Watson Global Director Development n/a 3 months Michael Carretta Global Director Operations n/a 3 months Alan Ainsworth Global Director Projects n/a 3 months Ken Boulton (i) Executive General Manager n/a 1 month Australia Operations Simon Stockwell (i) Executive General Manager n/a 1 month Australia East Sten Soderstrom (i) Executive General Manager n/a 3 months Australia West Simon MordecaiJones Executive General Manager n/a 3 months Africa Javier Freire Executive General Manager n/a 3 months Americas Thomas Dockray (i) Executive General Manager Asia 25 September 25 September months (i) Refer Section 3 Key management personnel changes and disclosures for details on KMP service periods 45 Sedgman Limited Annual Report

47 Directors Report (continued) Remuneration report audited (continued) 8. Service agreements (continued) The Company entered into a service contract with Mr Nicholas Jukes which commenced on 17 January 2011 and will expire 30 June 2014 ( Initial Term ) with a further option period of 12 months ( Option Term ). The contract can be terminated by the Company immediately in certain circumstances including serious misconduct, gross neglect of duty, incompetence or engaging in conduct that causes or may cause imminent and serious risk to the health and safety of a person or the reputation, viability or profitability of the Company. Mr Jukes contract may also be terminated by either party upon giving 6 months notice, or by the Company on 3 months notice where due to illness or incapacity, Mr Jukes is unable to perform his duties, or is absent, for 3 calendar months. In the event of termination for any reason, the Company will pay any accrued and untaken annual leave and, subject to the relevant legislation, any accrued and untaken long service leave owing to Mr Jukes. 9. NonExecutive Directors fees Nonexecutive directors may be paid, as remuneration for their services, a sum determined from time to time by Sedgman s shareholders in a general meeting, with that sum to be divided amongst the nonexecutive directors in such a manner and proportion as they agree. Fees and payments to nonexecutive directors reflect the demands which are made on, and the responsibilities of, the nonexecutive directors. Nonexecutive directors fees and payments are reviewed annually by the Board. The Chairman s fees are determined independently to the fees of nonexecutive directors based on comparative roles in the external market. The nonexecutive directors remuneration is inclusive of committee fees. The maximum aggregate amount which has been approved by Sedgman s shareholders for payment to the nonexecutive directors is $650,000 per annum. Nonexecutive directors receive their remuneration as a combination of cash, superannuation and Sedgman Limited shares under the nonexecutive director s onmarket share purchase scheme. No element of the nonexecutive director s remuneration is at risk and as such they do not receive short term incentives and are not entitled to participate in the Company s long term equity based incentive schemes. Sedgman Limited Annual Report 46

48 Directors Report (continued) Remuneration report audited (continued) 10. Details of remuneration Amounts of remuneration Details of the remuneration of the Directors and the key management personnel of the Group are set out below: Shortterm Long term benefits Share based payments Value of performance rights as proportion of remun eration Postemployment Cash Proportion of Equity settled settled remuneration Non (ii) (iii) (iii) (iv) mone Long Superannuation Performance Performance performance STI bonus tary benefits service leave benefits Shares rights rights Total related $ $ $ $ $ $ $ $ $ % % Cash salary & fees Nonexecutive Directors Russell Kempnich 108,000 8,153 10,800 11, ,952 Donald Argent 42,000 8,153 7,560 42,000 99,713 Robert McDonald 56,003 8,153 7,560 27,997 99,713 Roger Short 67,200 8,153 7,428 16,800 99,581 Bruce Munro 75,600 8,153 6,924 8,400 99,077 Peter Richards 42,000 8,153 7,560 42,000 99,713 Executive Directors Nicholas Jukes (i) 634,000 8,153 20,000 (592,000) 1,484,326 1,554, % 95.49% Other key management personnel Ian Poole 365,030 8,153 16, , , % 36.41% Peter Watson 421,900 8,153 25, , , % 24.48% Michael Carretta 370,000 8,153 6,158 33,300 44, , % 9.66% Alan Ainsworth 370,000 8,153 33,300 44, , % 9.79% Ken Boulton 185,833 5,383 16,725 11, , % 5.37% Simon Stockwell 218,303 5,383 10,598 71, , % 23.31% Sten Soderstrom 241,000 5,383 13,333 49, , % 16.06% Simon Mordecai 234,786 13,483 (30,915) 217,354 (14.22%) (14.22%) Jones Javier Freire 281,492 10,517 4,741 (82,442) 214,308 (38.47%) (38.47%) Thomas Dockray 324,557 3, , , % 0.00% Totals 4,037,704 3, ,067 6, ,299 (442,804) 2,076,922 (113,357) 6,071,393 (i) (ii) (iii) (iv) At the 2011 Annual General Meeting held 28 November 2011, shareholder approval was received for Mr Jukes remuneration contract which included equity settled performance rights and the issue of 500,000 shares as a sign on entitlement. The shares in relation to the sign on entitlement were issued 28 February, outside the one month period contemplated by that shareholder approval. Following discussion with the ASX, a lock was applied to the shares until the Annual General Meeting, at which time shareholder approval was resought and granted and the shares were released to Mr Jukes. The value of the shares was adjusted to reflect the closing share price on 28 November, being the date of the Annual General Meeting. Superannuation benefits include all amounts paid on behalf of employees within the financial year. The fair value of performance rights (equity and cash settled) is calculated at the date of grant using the Monte Carlo pricing model and allocated to each reporting period evenly over the period from grant date to vesting date. The value disclosed is the portion of the grant date fair value of the performance rights recognised in this reporting period. In addition, for cashsettled performance rights the fair value is remeasured at each reporting date up to and including the vesting date, with changes in fair value included in the individual s remuneration. In valuing the performance rights, market conditions have been taken into account. Remuneration in the form of performance rights includes negative amounts for performance rights forfeited during the year. The bonus figure disclosed for key management personnel relates to bonuses accrued for financial year (FY). Details of the vesting profile are shown below: 47 Sedgman Limited Annual Report

49 Directors Report (continued) Remuneration report audited (continued) 10. Details of remuneration (continued) Shortterm incentive bonus 1 % vested in year % forfeited in year 2 Nicholas Jukes 0% 100% Ian Poole 0% 100% Peter Watson 0% 100% Michael Carretta 0% 100% Alan Ainsworth 0% 100% Ken Boulton 0% 100% Simon Stockwell 0% 100% Sten Soderstrom 0% 100% Simon Mordecai Jones 0% 100% Javier Freire 0% 100% Thomas Dockray 3 0% 100% 1 Net profit after tax is the main financial performance target when setting shortterm incentives. 2 The amounts forfeited are due to the performance of service criteria not being met in relation to the current financial year. 3 Thomas Dockray received a prorated bonus during the year in relation to China key performance measures achieved. This was outside of the Group s formal shortterm incentive scheme. Cash salary & fees $ Shortterm (v) STI bonus $ Value of performance rights as proportion of remuneration Nonmonetary benefits $ Long term benefits Long service leave $ (ii) Superannuation benefits $ Share based payments Equity settled Shares $ (iii) Performance rights $ Cash settled (iii) Performance rights $ Total $ Postemployment Proportion of remuneration performance related % Nonexecutive Directors Russell Kempnich 108,998 7,518 10,800 11, ,318 Donald Argent 57,999 7,518 7,560 26,001 99,078 Robert McDonald 65,000 7,518 7,560 19,000 99,078 Roger Short 70,599 7,518 7,692 13,401 99,210 Bruce Munro 74,798 7,518 8,196 9,202 99,714 Peter Richards 57,999 7,518 7,560 26,001 99,078 Executive Directors Nicholas Jukes (i) 600, ,400 7,518 72,180 1,000,000 1,761,895 3,833, % 45.95% Other key management personnel Ian Poole 343, ,000 7,518 33, , , % 39.13% Peter Watson 402, ,000 7,518 39, , , % 33.23% Simon Mordecai Jones 244,034 93,430 7,518 85, , % 19.78% Javier Freire 242,810 20,733 9,692 4, ,139 26, , % 45.59% Peter Long 427,139 45,644 40, ,460 Michael Carretta 362, ,000 7,518 12,241 36, , , % 12.69% Alan Ainsworth 362, ,000 7,518 36, , , % 12.94% Stephen Rayner (iv) 118,545 2,527 5,092 33, , % 20.97% Totals 3,540,070 1,111, ,079 12, ,670 1,108,599 2,904,061 26,500 9,168,783 % Sedgman Limited Annual Report 48

50 Directors Report (continued) Remuneration report audited (continued) 10. Details of remuneration (continued) (i) At the 2011 Annual General Meeting held 28 November 2011, shareholder approval was received for Mr Jukes remuneration contract which included equity settled performance rights and the issue of 500,000 shares as a sign on entitlement. The shares in relation to the sign on entitlement were issued 28 February, outside the one month period contemplated by that shareholder approval. Following discussion with the ASX, shareholder approval was to be resought at the Annual General Meeting. Until shareholder approval was obtained, at Mr Juke s consent, a lock was applied to the shares. If shareholder approval had not been obtained the shares would be sold. (ii) Superannuation benefits include all amounts paid on behalf of employees within the financial year as well as superannuation benefits accrued in relation to the bonus. (iii) The fair value of performance rights (equity and cash settled) is calculated at the date of grant using the Monte Carlo pricing model and allocated to each reporting period evenly over the period from grant date to vesting date. The value disclosed is the portion of the grant date fair value of the performance rights recognised in this reporting period. In addition, for cashsettled performance rights the fair value is remeasured at each reporting date up to and including the vesting date, with changes in fair value included in the individual s remuneration. In valuing the performance rights, market conditions have been taken into account. Remuneration in the form of performance rights includes negative amounts for performance rights forfeited during the year. (iv) Stephen Rayner was considered key management personnel from 1 July 2011 until 31 October 2011 when responsibility for Corporate Services was transferred to the Chief Financial Officer. (v) The bonus figure disclosed for key management personnel relates to bonuses accrued for financial year (FY). Details of equity settled performance rights granted as remuneration to each key management personnel of the Group are set out below: Number Grant date Fair value per right at grant date % Vested In Year % Forfeited In Year Vesting date Directors Nicholas Jukes 500, November 2011 $ % 50% 23 August 1,000, November 2011 $ August 1,000, November 2011 $1.36 August 2014 Key management personnel Ian Poole 125, November 2010 $ % 50% 23 August 250, November 2010 $ August 250, November 2010 $1.29 August 2014 Peter Watson 250, July 2010 $ August 250, July 2010 $0.95 August , October 2011 $ % 50% 23 August Michael Carretta 100, February 2010 $ % 50% 23 August 100, February 2010 $ August 100, February 2010 $0.83 August 2014 Alan Ainsworth 100, February 2010 $ % 50% 23 August 100, February 2010 $ August 100, February 2010 $0.83 August 2014 Ken Boulton 50, February 2010 $ % 50% 23 August 50, February 2010 $ August 50, February 2010 $0.83 August 2014 Simon Stockwell 100, October 2011 $ August 100, October 2011 $1.28 August 2014 Sten Soderstrom 50, March $ August 50, March $1.51 August 2014 Key management personnel received Ordinary shares of Sedgman Limited for Tranche 1 of the LTI Plan based on their relevant number of performance rights multiplied by the 50% that vested during the year. 49 Sedgman Limited Annual Report

51 Directors Report (continued) Remuneration report audited (continued) 10. Details of remuneration (continued) Details of cash settled performance rights granted as remuneration to each key management personnel of the Group are set out below: Number Modification date Fair value per right at modification date % Vested In Year % Forfeited In Year Vesting date Key management personnel Simon MordecaiJones 100,000 1 December 2011 $ August 100,000 1 December 2011 $0.539 August 2014 Javier Freire 100, February 2010 $ % 50% 23 August 100, February 2010 $ August 100, February 2010 $0.539 August , October 2011 $ % 50% 23 August 50, October 2011 $ August 50, October 2011 $0.539 August 2014 Thomas Dockray The conditions of the equitysettled performance rights previously granted to Simon MordecaiJones and Javier Freire were modified as at 30 June so that they can only be settled in cash. (The market price of the Company shares as at this date was $1.39). All other conditions remain as per the governing Long Term Incentive Plan. At the date of settlement they will receive an amount of cash equal to the value of the shares they would have been entitled to assuming all terms and conditions are met. The fair value of equity settled and cash settled performance rights granted was determined using a Monte Carlo simulation model. Analysis of movements in performance rights The movement during the reporting period, by value, of performance rights over ordinary shares in the Company held by each key management personnel of the Group is detailed below. Name Granted in year $ (A) Value of performance rights Vested in year $ (B) Forfeited in year $ (C) Directors Nicholas Jukes 350, ,000 Key management personnel Ian Poole 87,500 87,500 Peter Watson 70,000 70,000 Michael Carretta 70,000 70,000 Alan Ainsworth 70,000 70,000 Ken Boulton Simon Stockwell Sten Soderstrom Simon MordecaiJones Javier Freire 105, ,000 Thomas Dockray (A) (B) (C) The value of performance rights granted in the year is their fair value calculated at grant date using the Monte Carlo simulationpricing model for rights with a TSR performance condition. The total value of the performance rights granted is included in the table above. This amount is allocated to remuneration over the vesting period in accordance with Australian Accounting Standards. The value of performance rights converted to shares or cash during the year is calculated as the market price of shares of the Company as at close of trading on the date the performance rights vested. The value of the performance rights forfeited during the year represents the benefit forgone and is calculated at the date the performance right vested assuming the performance criteria had been achieved. Sedgman Limited Annual Report 50

52 Directors Report (continued) Indemnification and Insurance of officers and auditors Indemnifi cation The Company has agreed to indemnify the current Directors and all officers of its controlled entities against all liabilities to another person (other than the Company or a related body corporate) that may arise from their position as Directors or officers of the Company and its controlled entities, except where liability arises out of conduct involving a lack of good faith. The Company has not indemnified or made a relevant agreement for indemnifying against a liability any person who is or has been an auditor of the Company. Insurance premiums The Company has insured its indemnification of liabilities in respect of Directors and officers of the Company and its controlled entities. Nonaudit services The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor s expertise and experience with the Company and/or the Group are important. Details of the amounts paid or payable to the auditor (KPMG) for audit and nonaudit services provided during the year are set out below. The Board has considered the position and, in accordance with the advice received from the Audit and Risk Management Committee, is satisfied that the provision of the nonaudit services is compatible with the general standard of independence for auditors imposed by the Corporations Act The Directors are satisfied that the provision of nonaudit services by the auditor, as set out below, is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: all nonaudit services have been reviewed by the Audit and Risk Management Committee to ensure they do not impact the impartiality and objectivity of the auditor the nonaudit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor s own work, acting in a management or decisionmaking capacity for the Company, acting as advocate for the Company or jointly sharing economic risk and rewards. During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and nonrelated audit firms. $ $ Audit services Auditors of the Group KPMG Audit and review of financial reports: KPMG Australia 400, ,394 Overseas KPMG firms 223, , , ,294 Services other than statutory audit KPMG Other assurance services 34,055 24,719 Other assurance services due diligence 26, ,564 Other services Taxation services 473, ,112 Research and development allowance services 300,000 86,325 Risk and forensic services 9,900 Other advisory services 15,000 7, ,285 1,399, Sedgman Limited Annual Report

53 Directors Report (continued) Auditor A copy of the auditors independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 53 and forms part of the directors report for the financial year ended 30 June. KPMG continues in office in accordance with section 327 of the Corporations Act Rounding The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Class Order, amounts in the financial report and directors report have been rounded off to the nearest thousand dollars, unless otherwise stated. This report is made in accordance with a resolution of Directors. Russell James Kempnich Chairman Nicholas Neil Jukes Managing Director Brisbane 20 August Sedgman Limited Annual Report 52

54 Lead Auditor s Independence Declaration under Section 307C of the Corporations Act 2001 To: the Directors of Sedgman Limited I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 30 June, there have been: (i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and (ii) no contraventions of any applicable code of professional conduct in relation to the audit. KPMG Jason Adams Partner Brisbane 20 August KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG international ), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation 53 Sedgman Limited Annual Report

55 Consolidated statement of profit or loss For the year ended 30 June Notes Continuing operations Revenue from services 448, ,554 Other income 5 6,922 3, , ,634 Expenditure Changes in construction work in progress (35,835) (20,284) Raw materials and consumables used (205,201) (295,840) Depreciation and amortisation expense 6 (20,071) (20,275) Employee expenses (127,363) (142,476) Agency contract fees (7,947) (22,060) Impairment of property, plant and equipment 6 (6,358) Impairment of receivables 6 (7,601) (2,048) Other expenses (31,423) (39,839) Finance costs 6 (2,795) (2,188) (444,594) (545,010) Share of net profits/(losses) of investments accounted for using the 36 2,136 10,310 equity method Profit before income tax 13,378 58,934 Income tax expense 7 (3,950) (21,086) Profit for the year attributable to owners of Sedgman Limited 9,428 37,848 Cents Cents Earnings per share for profit attributable to the ordinary equity holders of the company: Basic earnings per share Diluted earnings per share The above consolidated statement of profi t or loss should be read in conjunction with the accompanying notes. Sedgman Limited Annual Report 54

56 Consolidated statement of comprehensive income For the year ended 30 June Notes Profit for the year 9,428 37,848 Other comprehensive income Items that will not be reclassified to profit or loss Changes in fair value of financial assets (net of tax) 27(a) (420) Items that may be subsequently reclassified to profit or loss Exchange differences on translation of foreign operations (net of tax) 27(a) 138 (2,673) Other comprehensive income for the year (net of tax) (282) (2,673) Total comprehensive income for the year attributable to owners of Sedgman Limited 9,146 35,175 The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. 55 Sedgman Limited Annual Report

57 Consolidated balance sheet As at 30 June Notes ASSETS Current assets Cash and cash equivalents 8 101,987 91,953 Trade and other receivables 9 91, ,396 Assets classified as held for sale 10 1,483 Current tax assets 11 4,158 Inventories 12 4,387 6,864 Total current assets 203, ,213 Noncurrent assets Trade and other receivables Investments accounted for using the equity method 14 1,330 10,482 Financial assets at fair value through other comprehensive income ,000 Property, plant and equipment 16 35,581 48,744 Deferred tax assets 17 6,477 9,151 Intangible assets 18 42,263 44,330 Total noncurrent assets 86, ,448 Total assets 289, ,661 LIABILITIES Current liabilities Trade and other payables 19 72, ,901 Interest bearing liabilities 20 5,750 1,653 Provisions 21 8,363 9,217 Current tax liabilities ,885 Total current liabilities 87, ,656 Noncurrent liabilities Interest bearing liabilities 23 21,239 25,076 Provisions 25 2,585 1,417 Other Total noncurrent liabilities 24,074 27,393 Total liabilities 111, ,049 Net assets 178, ,612 EQUITY Contributed equity , ,377 Reserves 27(a) 7,059 6,388 Retained profits 27(b) 58,738 69,847 Parent entity interest 178, ,612 Total equity attributable to owners of the Company 178, ,612 The above consolidated balance sheet should be read in conjunction with the accompanying notes. Sedgman Limited Annual Report 56

58 Consolidated statement of changes in equity For the year ended 30 June Contributed equity Foreign currency translation reserve Reserves Equity compensation reserve Financial assets revaluation reserve Retained earnings Total Equity Notes Balance at 1 July ,719 (1,985) 6,380 49, ,075 Total comprehensive income for the year * Profit 37,848 37,848 Total other comprehensive income 27 (2,673) (2,673) Total comprehensive income for the year (2,673) 37,848 35,175 Transactions with owners in their capacity as owners *: Contributions of equity 26 9,658 9,658 Employee performance rights 27 4,666 4,666 Dividends provided for or paid 28 (17,962) (17,962) 9,658 4,666 (17,962) (3,638) Balance at 30 June 106,377 (4,658) 11,046 69, ,612 Balance at 1 July 106,377 (4,658) 11,046 69, ,612 Total comprehensive income for the year * Profit 9,428 9,428 Total other comprehensive income (420) (282) Total comprehensive income for the year 138 (420) 9,428 9,146 Transactions with owners in their capacity as owners *: Contributions of equity 26 5,873 5,873 Employee performance rights Dividends provided for or paid 28 (20,537) (20,537) 5, (20,537) (13,711) Balance at 30 June 112,250 (4,520) 11,999 (420) 58, ,047 * Amounts recognised are disclosed net of income tax (where applicable) The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 57 Sedgman Limited Annual Report

59 Consolidated cash flow statement For the year ended 30 June Notes Cash flows from operating activities Cash receipts from customers 538, ,797 Cash payments to suppliers and employees (477,631) (550,112) 60,516 59,685 Interest received 1, Financing costs paid (2,204) (1,747) Income taxes refunded Income taxes paid (19,528) (10,510) Net cash inflow/(outflow) from operating activities 38 41,111 48,813 Cash flows from investing activities Distributions and loans from/(to) joint venture partnerships (5,227) 20,950 Acquisition of subsidiary, net of cash acquired 34 (2,626) Acquisition of share in associates 36 (b) (804) Proceeds from sale of share in associate 36 (b) 254 Loan to associate 33 (e) (561) Repayment of loan by associate 33 (e) 561 Payments for property, plant and equipment (5,258) (7,162) Proceeds from sale of property, plant and equipment 605 1,055 Acquisition of intangible asset 18 (615) (2,131) Net cash inflow/(outflow) from investing activities (13,671) 12,712 Cash flows from financing activities Payment of financing transaction costs (816) (580) Finance lease payments (1,776) (3,910) Proceeds from borrowings 21,000 21,133 Repayment of borrowings (22,183) (19,790) Dividends paid 28 (15,589) (9,746) Net cash inflow/(outflow) from financing activities (19,364) (12,893) Net increase/(decrease) in cash and cash equivalents 8,076 48,632 Effect of exchange rate fluctuations on cash held 1, Cash and cash equivalents at 1 July 91,953 43,184 Cash and cash equivalents at 30 June 8 101,987 91,953 The above consolidated cash fl ow statement should be read in conjunction with the accompanying notes. Sedgman Limited Annual Report 58

60 Notes to the consolidated financial statements For the year ended 30 June Contents of the notes to the consolidated financial statements Page 1 Reporting entity 60 2 Basis of preparation 60 3 Summary of significant accounting policies 61 4 Operating segments 73 5 Other income 74 6 Expenses 75 7 Income tax expense 75 8 Current assets Cash and cash equivalents 76 9 Current assets Trade and other receivables Current assets Classified as held for sale Current assets Current tax assets Current assets Inventories Noncurrent assets Trade and other receivables Noncurrent assets Investments accounted for using the equity method Noncurrent assets Financial assets at fair value through other comprehensive income Noncurrent assets Property, plant and equipment Noncurrent assets Deferred tax assets Noncurrent assets Intangible assets Current liabilities Trade and other payables Current liabilities Interest bearing liabilities Current liabilities Provisions Current liabilities Current tax liabilities Noncurrent liabilities Interest bearing liabilities Noncurrent liabilities Deferred tax liabilities Noncurrent liabilities Provisions Contributed equity Reserves and retained profits Dividends Key management personnel disclosures Remuneration of auditors Contingencies Commitments Related party transactions Subsidiaries Deed of cross guarantee Interests in joint ventures and associates Financial instruments Reconciliation of profit after income tax to net cash inflow from operating activities Earnings per share Progress claims in advance Sharebased payments Parent entity financial information Events occurring after the balance sheet date Sedgman Limited Annual Report

61 Notes to the consolidated financial statements (continued) For the year ended 30 June 1 Reporting entity Sedgman Limited (the Company ) is a company domiciled in Australia. The address of the Company s registered office is Level 2, 2 Gardner Close, Milton QLD 4064, Australia. The consolidated financial statements of the Company as at and for the year ended 30 June comprise the Company and its subsidiaries (together referred to as the Group and individually as Group entities ) and the Group s interests in joint ventures and associates. The Group is a forprofit entity and primarily is involved in providing project and operational services to the resources industry. 2 Basis of preparation (a) Statement of compliance The consolidated financial statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act The consolidated financial statements of the Group comply with International Financial Reporting Standards (IFRSs) adopted by the International Accounting Standards Board (IASB). The consolidated financial statements were authorised for issue by the directors on 20 August. (b) New and amended standards adopted by the Group Presentation of transactions recognised in other comprehensive income From 1 July the Group applied amendments to AASB 101 Presentation of Financial Statements outlined in AASB Amendments to Australian Accounting Standards Presentation of Items of Other Comprehensive Income. The change in accounting policy only relates to disclosures and has had no impact on consolidated earnings per share or net income. The changes have been applied retrospectively and require the Group to separately present those items of other comprehensive income that may be reclassified to profit or loss in the future from those that will never be reclassified to profit or loss. These changes are included in the statement of comprehensive income. No other new standards and amendments to standards that are mandatory for the first time for the financial year beginning 1 July had a material affect on any of the amounts recognised in the current period or any prior period. (c) Early adoption of standards The Group has early adopted AASB 9 Financial Instruments (2010) (AASB 9) with initial application from 1 July. This standard has been applied retrospectively. In accordance with AASB 9 the Group has designated its investments in equity securities not held for trading that were formerly designated as Available for Sale, as Financial Assets at Fair value through Other Comprehensive Income as disclosed in note 3(l). This results in all realised and unrealised gains and losses from these investments being directly recognised through other comprehensive income in the statement of comprehensive income. As a result of the application of AASB 9, $1 million of unlisted equity securities were transferred from Available for Sale assets to Financial Assets at Fair Value through Other Comprehensive Income. These assets were written down during the year ended 30 June to $400,000 with the fair value losses of $600,000 being recognised through other comprehensive income in the statement of comprehensive income. As the application of this standard did not impact the financial position or performance in the previous financial year no adjusted opening balance sheet or any other impacts are required to be disclosed. The Group has not elected to apply any other pronouncements before their operative date in the annual reporting period beginning 1 July. (d) Basis of measurement The consolidated financial statements have been prepared on the historical cost basis, except for liabilities for cashsettled sharebased payments (refer to note 3(s)(iii)) and financial assets at fair value through other comprehensive income (refer to note 3(l)). Sedgman Limited Annual Report 60

62 Notes to the consolidated financial statements (continued) For the year ended 30 June 2 Basis of preparation (continued) (e) Functional and presentation currency Items included in the financial statements of each of the Group s entities are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The consolidated financial statements are presented in Australian dollars, which is Sedgman Limited s functional and presentation currency. The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Class Order, amounts in the financial report and directors report have been rounded off to the nearest thousand dollars, unless otherwise stated. (f) Use of estimates and judgements The preparation of the consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group s accounting policies. The areas involving a higher degree of judgement or complexity are disclosed below. Actual results may differ from these estimates. Judgements made by management in the application of Australian Accounting Standards that have a significant effect on the consolidated financial statements and estimates with a significant risk of material adjustment in the next year are as follows: Assessment of projects on a percentage of completion basis, in particular with regard to accounting for claims and variations, the timing of profit recognition and the amount of profit recognised (refer note 40); Testing of assets for impairment (refer notes 18, 3(g) and 3(i)). Critical accounting judgements in applying the Group s accounting policies are as follows: Estimation of the economic life of property, plant and equipment (refer note 3(m)) and intangibles (refer note 3(n)), and the carrying amount of receivables (refer note 3(v)). Review of carrying values of certain items of plant and equipment During the year, the Group completed a review of plant and equipment in the Operations business unit. As a result of this review, an impairment charge of $6.358 million (refer note 6) was recognised to write the carrying value of the equipment down to its estimated recoverable amount. Recoverable amount was determined based on an estimate of the fair value less costs to sell, which is determined with reference to an external valuation. This valuation took into account recent sales on comparable plant and equipment on an appropriate basis. This impairment loss was recognised within expenses in profit or loss. Review of carrying values of receivables As part of the Group s review of the recoverability of its trade and other receivables, an impairment charge of $7.601 million was recognised during the year (refer notes 6 and 37(e)). 3 Summary of significant accounting policies The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented and have been applied consistently by Group entities, unless otherwise stated. (a) Principles of consolidation (i) Business combinations The acquisition method of accounting is used to account for all business combinations. For every business combination, the Group identifies the acquirer, which is the combining entity that obtains control of the other combining entities or businesses. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable. The acquisition date is the date on which control is transferred to the acquirer. Judgement is applied in determining the acquisition date and determining whether control is transferred from one party to another. 61 Sedgman Limited Annual Report

63 Notes to the consolidated financial statements (continued) For the year ended 30 June 3 Summary of significant accounting policies (continued) (a) Principles of consolidation (continued) Measuring goodwill The Group measures goodwill as the fair value of the consideration transferred including the recognised amount of any noncontrolling interest in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. Consideration transferred includes the fair values of the assets transferred, liabilities incurred by the Group to the previous owners of the acquiree, and equity interests issued by the Group. Consideration transferred also includes the fair value of any contingent consideration and sharebased payment awards of the acquiree that are replaced mandatorily in the business combination (see below). If a business combination results in the termination of preexisting relationships between the Group and the acquiree, then the lower of the termination amount, as contained in the agreement, and the value of the offmarket element is deducted from the consideration transferred and recognised in other expenses. Sharebased payment awards When sharebased payment awards exchanged (replacement awards) for awards held by the acquiree s employees (acquiree s awards) relate to past services, then a part of the marketbased measure of the awards replaced is included in the consideration transferred. If they require future services, then the difference between the amount included in consideration transferred and the marketbased measure of the replacement awards is treated as postcombination compensation cost. Contingent liabilities A contingent liability of the acquiree is assumed in a business combination only if such a liability represents a present obligation and arises from a past event, and its fair value can be measured reliably. Noncontrolling interest The Group measures any noncontrolling interest at its proportionate interest in the identifiable net assets of the acquiree. Transaction costs Transactions costs that the Group incurs in connection with a business combination, such as finder s fees, legal fees, due diligence fees, and other professional and consulting fees, are expensed as incurred. (ii) Subsidiaries The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Sedgman Limited ( Company or parent entity ) as at 30 June and the results of all subsidiaries for the year then ended. Sedgman Limited and its subsidiaries together are referred to in these consolidated financial statements as the Group. Subsidiaries are all those entities over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than onehalf of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. (iii) Associates Associates are all entities over which the Group has significant influence but not control or joint control, generally accompanying a shareholding between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting, after initially being recognised at cost. The Group s share of its associates postacquisition profits or losses is recognised in profit or loss, and its share of postacquisition other comprehensive income is recognised in other comprehensive income from the date significant influence commenced until the date significant influence ceased. The cumulative postacquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates are recognised as a reduction in the carrying amount of the investment. When the Group s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured longterm receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Sedgman Limited Annual Report 62

64 Notes to the consolidated financial statements (continued) For the year ended 30 June 3 Summary of significant accounting policies (continued) (a) Principles of consolidation (continued) (iv) Joint venture partnerships and jointly controlled entities Joint venture partnerships are those arrangements over whose activities the Group has joint control, established by contractual agreement and profits and losses are shared equally. Investments in joint venture partnerships and jointly controlled entities are accounted for using equity accounting principles. Investments in joint ventures are carried at the lower of the equity accounted amount and recoverable amount. The Group s share of the jointly controlled partnerships and entities net profit or loss is recognised in profit or loss from the date the joint control commenced until the date joint control ceases. Other movements in reserves are recognised directly in consolidated reserves. Details of the joint ventures are set out in note 36. (v) Transactions eliminated on consolidation Intragroup balances and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with equity accounted investees are eliminated to the extent of the Group s interest in the investee with adjustments made to Investments accounted for using the equity method and Share of net profits/(losses) of investments accounted for using the equity method. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Gains and losses are recognised as the contributed assets are consumed or sold by the investee or, if not consumed or sold by the investee, when the Group s interest in such is disposed of. (b) Segment reporting An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group s other components. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. All operating segments operating results are regularly reviewed by the Group s CEO (the chief operating decision maker) to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly other income and foreign exchange losses. Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill. (c) Foreign currency translation (i) Transactions and balances Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to Australian dollars at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the profit or loss. Nonmonetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Nonmonetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to Australian dollars at foreign exchange rates ruling at the dates the fair value was determined. (ii) Group companies The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: assets and liabilities for each balance sheet presented are translated at the closing exchange rate at the date of that balance sheet income and expenses for each statement of profit or loss are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions) all resulting exchange differences are recognised in other comprehensive income and presented in the foreign currency translation reserve (FCTR) in equity. 63 Sedgman Limited Annual Report

65 Notes to the consolidated financial statements (continued) For the year ended 30 June 3 Summary of significant accounting policies (continued) (c) Foreign currency translation (continued) When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from such a monetary item are considered to form part of a net investment in a foreign operation and are recognised in other comprehensive income, and are presented within equity in the FCTR. (d) Revenue and other income Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances and duties and taxes paid. Revenue is recognised for the major business activities as follows: (i) Rendering of services other than construction contracts Revenues are recognised at fair value of the consideration received net of the amount of goods and services tax (GST) payable to the taxation authority. Revenue from design and project management services is recognised in the period in which the service is provided, having regard to the stage of completion of the contract. The stage of completion is assessed by reference to an assessment of work performed. Where the outcome of a contract cannot be reliably estimated, contract costs are expensed as incurred. Where it is probable that the costs will be recovered, revenue is only recognisable to the extent of costs incurred. An expected loss is recognised immediately as an expense. The Group also generates revenue from the secondment of employees to the Thiess Sedgman Joint Venture at agreed chargeout rates. (ii) Construction contracting Contract revenue includes the initial amount agreed in the contract plus any variations in contract work, claims and incentive payments, to the extent that it is probable that they will result in revenue and can be measured reliably. Contract revenue and expenses are recognised in accordance with the percentage of completion method unless the outcome of the contract cannot be reliably estimated. Where it is probable that a loss will arise from a construction contract, the excess of total costs over revenue is recognised as an expense immediately. Where the outcome of a contract cannot be reliably estimated, contract costs are recognised as an expense as incurred, and where management is satisfied that the costs will be recovered, revenue is recognised to the extent of costs incurred. The stage of completion of a contract is measured by reference to an assessment of total costs incurred to date as a percentage of the estimated total costs of the contract. (iii) Interest income Interest income is recognised as it accrues, taking into account the effective yield on the financial asset. (iv) Dividend income Dividend income is recognised as it accrues. (v) Other income All items of other income are recognised as they accrue. Sedgman Limited Annual Report 64

66 Notes to the consolidated financial statements (continued) For the year ended 30 June 3 Summary of significant accounting policies (continued) (e) Income tax Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised directly in equity or other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; differences relating to investments in subsidiaries, associates and jointly controlled entities to the extent that they will probably not reverse in the foreseeable future; and taxable temporary differences arising on the initial recognition of goodwill. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. In determining the amount of current and deferred tax the Group takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. The Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgements about future events. New information may become available that causes the Group to change its judgement regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period that such a determination is made. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend. (i) Tax consolidation legislation The Company is the head entity in a taxconsolidated group comprising the Company and all of its Australian wholly owned subsidiaries. As a consequence, all members of the taxconsolidated group are taxed as a single entity. (f) Leases Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases (note 16). Finance leases are capitalised at the lease s inception at the lower of the fair value of the leased property and the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in interestbearing liabilities (refer notes 20 and 23). Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The interest element of the finance cost is charged to profit and loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the asset s useful life and the lease term. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases (refer note 32). Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straightline basis over the period of the lease. 65 Sedgman Limited Annual Report

67 Notes to the consolidated financial statements (continued) For the year ended 30 June 3 Summary of significant accounting policies (continued) (g) Impairment of assets The carrying amounts of the Group s noncurrent assets, trade and other receivables (refer note 3(i)), construction contract assets (refer note 3(x)), assets classified as held for sale (refer note 3(k)), and financial assets at fair value through comprehensive income (refer note 3(l)), are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset s recoverable amount is estimated (refer note 3(v)). For goodwill, the recoverable amount is estimated each year at the same time. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the cashgenerating unit CGU ). Subject to an operating segment ceiling test, for the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment is tested reflects the lowest level at which goodwill is monitored for internal reporting purposes. The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cashgenerating units that are expected to benefit from the synergies of the combination. An impairment loss is recognised whenever the carrying amount of an asset or its cashgenerating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cashgenerating units are allocated first to reduce the carrying amount of any goodwill allocated to the cashgenerating units (group of cashgenerating units), and then to reduce the carrying amount of the other assets in the cashgenerating unit (group of cashgenerating units) on a prorata basis. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (h) Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts are shown within interest bearing liabilities in current liabilities in the balance sheet. Bank overdrafts that are repayable on demand and form an integral part of the Group s cash management are included as a component of cash and cash equivalents for the purpose of the cash flow statement. (i) Trade and other receivables Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. The amounts are generally due for settlement within 30 days. Trade and other receivables are presented as current assets unless collection is not expected for more than 12 months after the reporting date. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A provision for impaired receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables (refer note 3(v)). The amount of the impairment loss is recognised in profit or loss in expenses. (j) Inventories Inventories of spare parts and consumables are stated at the lower of cost and net realisable value. The cost of inventories is based on the firstin firstout principle and includes expenditure incurred in acquiring the inventories, production or conversion and other costs incurred in bringing them to their existing location and condition. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Sedgman Limited Annual Report 66

68 Notes to the consolidated financial statements (continued) For the year ended 30 June 3 Summary of significant accounting policies (continued) (k) Assets held for sale Assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. They are measured at the lower of their carrying amount and fair value less costs to sell, except for assets such as deferred tax assets, assets arising from employee benefits, financial assets and investment property that are carried at fair value and contractual rights under insurance contracts, which are specifically exempt from this requirement. An impairment loss is recognised for any initial or subsequent writedown of the asset to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset, but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the asset is recognised at the date of derecognition. Assets are not depreciated or amortised while they are classified as held for sale. Assets classified as held for sale are presented separately from other assets in the balance sheet. (l) Financial assets at fair value through other comprehensive income Financial assets at fair value through other comprehensive income are held at fair value at each reporting date. Fair value as at 30 June has been determined based on an external valuation. The Group has made an irrevocable election on initial recognition to present gains and losses on these investments in equity instruments which are not held for trading in other comprehensive income. These equity investments represent investment holdings that the Group intends to hold for the longterm for strategic purposes. Dividends in respect of these investments that are a return on investment are recognised in profit or loss and there is no impairment or recycling on disposal of the instrument. (m) Property, plant and equipment (i) Recognition and measurement Items of property, plant and equipment (including land and buildings) are stated at cost less accumulated depreciation (see below) and impairment losses (refer note 3(g)). The cost of selfconstructed assets and acquired assets includes (i) the cost of materials and direct labour and any other costs directly attributable to bringing the assets to a working condition for their intended use, (ii) the initial estimate at the time of installation and during the period of use, when relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and (iii) changes in the measurement of existing liabilities recognised for these costs resulting from changes in the timing or outflow of resources required to settle the obligation or from changes in the discount rate. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. (ii) 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 future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred. (iii) Depreciation Depreciation is calculated using the straight line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives. The estimated useful lives in the current and comparative periods are as follows: Buildings 50 years Plant and equipment years Motor vehicles 3 7 years Structural improvements 7 40 years Leased plant and equipment 3 10 years Assets are depreciated from the date they are installed and ready for use, which is generally the date of acquisition. Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. 67 Sedgman Limited Annual Report

69 Notes to the consolidated financial statements (continued) For the year ended 30 June 3 Summary of significant accounting policies (continued) (m) Property, plant and equipment (continued) (iv) Sale of noncurrent assets The gain or loss on disposal is calculated as the difference between the carrying amount of the asset at the time of disposal and the net proceeds on disposal (including incidental costs). The gain or loss is recognised as income or an expense. (n) Intangible assets (i) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is not amortised. Instead, goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired (refer note 3(g)), and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. (ii) Brands Brands have a finite useful life and are carried at cost less accumulated amortisation and impairment losses. (iii) Customer contracts Customer contracts acquired as part of a business combination are recognised separately from goodwill. The customer contracts are carried at their fair value at the date of acquisition less accumulated amortisation and impairment losses. (iv) Software Costs incurred in developing products or systems and costs incurred in acquiring software and licenses that will contribute to future period financial benefits through revenue generation and/or cost reduction are capitalised to software and systems. Costs capitalised include external direct costs of materials and service and direct payroll and payroll related costs of employees time spent on the project. Software development costs include only those costs directly attributable to the development phase and are only recognised following completion of technical feasibility and where the Group has an intention and ability to use the asset. (v) Amortisation Amortisation is recognised in profit or loss on a straightline basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use. The estimated useful lives for the current and previous periods are as follows: Brands 7.25 years Customer contracts years Software 5 years The amortisation period remaining is one year for the brands and customer contracts, and three years for software. Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. (o) Trade and other payables Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. The amounts are unsecured and are usually paid within 30 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months from the reporting date. (p) Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Borrowings 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 period. Sedgman Limited Annual Report 68

70 Notes to the consolidated financial statements (continued) For the year ended 30 June 3 Summary of significant accounting policies (continued) (q) Finance costs Finance costs include interest on borrowings using the effective interest method, amortisation of discounts or premiums relating to borrowings, amortisation of ancillary costs incurred in connection with arrangement of borrowings and unwinding of the discount on liabilities. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method. (r) Provisions A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the future expected cash flows at a pretax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. The unwinding of the effect of discounting is recognised as a finance cost. (i) Dismantling In accordance with the Group s applicable legal requirements, a provision for dismantling in respect of the Blair Athol CHPP is recognised. The provision is the best estimate of the present value of the expenditure required to settle the dismantling obligation at the reporting date, based on current legal requirements and technology. Future dismantling costs are reviewed annually and any changes are reflected in the present value of the dismantling provision at the end of the reporting period. The amount of the provision for future dismantling costs is capitalised and is depreciated in accordance with the policy set out in note 3(m). (ii) Provision for make good A provision for make good has been recognised in relation to the Group s legal obligation at the end of the occupancy lease for the head office premises. (iii) Onerous contracts A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable costs 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. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract. No onerous contracts existed for the Group during the year ended 30 June. (s) Employee benefits (i) Wages and salaries, annual leave and sick leave Liabilities for employee benefits for wages, salaries, annual leave and sick leave that are expected to be settled within 12 months of reporting date represent present obligations resulting from employees services provided to reporting date and are calculated at undiscounted amounts based on remuneration wage and salary rates that the Group expects to pay as at reporting date including related oncosts, such as superannuation, workers compensation insurance and payroll tax. Nonaccumulating nonmonetary benefits such as housing and cars are expensed by the Group as the benefits are taken by the employee. (ii) Long service leave The Group s net obligation in respect of longterm service benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The obligation is calculated using expected future increases in wages and salary rates including related oncosts and expected settlement dates, and is discounted using the rates attached to the Commonwealth Government bonds at the balance sheet date which have maturity dates approximating to the terms of the Group s obligations. (iii) Sharebased payments Sharebased compensation benefits are provided to employees via a long term incentive plan. Nonexecutive directors also receive a proportion of their annual remuneration in shares purchased on market. 69 Sedgman Limited Annual Report

71 Notes to the consolidated financial statements (continued) For the year ended 30 June 3 Summary of significant accounting policies (continued) (s) Employee benefits (continued) Equity settled The fair value of performance rights granted is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the performance rights. The fair value of performance rights at grant date is independently determined using the Monte Carlo pricing model, which takes into account the terms and conditions upon which the performance rights were granted. The amount recognised as an expense is adjusted to reflect the actual number of performance rights that vest except where forfeiture is only due to market based performance criteria not achieving the threshold for vesting. Cashsettled The cost of cashsettled sharebased transactions is measured at fair value at the grant date using a Monte Carlo pricing model. This fair value is expensed over the period until the vesting date with recognition of a corresponding liability. The liability is remeasured to fair value at each reporting date up to and including the settlement date, with changes in fair value recognised in employee expense. Modifi cation to plan terms When the terms of equitysettled performance rights are modified, the minimum expense recognised is the expense as if the terms had not been modified, if the original terms of the plan are met. An additional expense is recognised for any modification that increases the total fair value of the sharebased payment transaction, or is otherwise beneficial to the employee as measured at the date of modification. (iv) Bonus plan The Group recognises a liability for bonuses based on a formula that takes into consideration the profit attributable to the Company s shareholders after certain adjustments. The Group recognises a liability where it is contractually obliged to pay an amount under the bonus plan or where there is a past practice that has created a constructive obligation. (v) Superannuation Contributions to defined contribution plans are recognised as an expense as they are made. (vi) Termination benefi ts Termination benefits are recognised as an expense when the Group is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date. Termination benefits for voluntary redundancies are recognised if the Group has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. (t) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or performance rights are shown in equity as a deduction, net of tax from the proceeds. Incremental costs directly attributable to the issue of new shares, options or rights for the acquisition of a business are not included in the cost of the acquisition as part of the purchase consideration. Where any Group company purchases the Company s equity instruments, for example as the result of a share buyback or a sharebased payment plan, the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the owners of Sedgman Limited as treasury shares until the shares are cancelled or reissued. Where such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the owners of Sedgman Limited. Sedgman Limited Annual Report 70

72 Notes to the consolidated financial statements (continued) For the year ended 30 June 3 Summary of significant accounting policies (continued) (u) Earnings per share (i) Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year. (ii) 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 financing costs associated with dilutive potential ordinary shares and the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. (v) Recoverable amount of assets The recoverable amount of the Group s receivables carried at amortised cost is calculated as the present value of estimated future cash flows, discounted at the original effective interest rate (i.e., the effective interest rate computed at initial recognition of these financial assets). Receivables with a short duration are not discounted. Impairment of receivables is not recognised until objective evidence is available that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. Receivables are individually assessed for impairment. The recoverable amount of other assets or cashgenerating units is the greater of their fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pretax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cashgenerating unit. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cashgenerating unit to which the asset belongs. An impairment loss in respect of an equity accounted investee is measured by comparing the recoverable amount of the investment with its carrying amount in accordance with the policy set out in note 3(g). An impairment loss is recognised in profit or loss. An impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. (w) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows. (x) Construction work in progress Valuation Construction contracts in progress represent the gross unbilled amount expected to be collected from customers for contract work performed to date. Construction work in progress is carried at cost plus profit recognised to date based on the value of work completed less progress billings and less provision for foreseeable losses, allocated between amounts due from customers and amounts due to customers. Cost includes both variable and fixed costs directly related to specific contracts, and those which can be attributed to contract activity in general and which can be allocated to specific contracts on a reasonable basis and other costs specifically chargeable under the contract. Construction work in progress is presented as part of trade and other receivables in the balance sheet for all contracts in which costs incurred plus recognised profits exceed progress billings. Where progress billings exceed cost plus profit recognised to date the net amount is presented in trade and other payables. 71 Sedgman Limited Annual Report

73 Notes to the consolidated financial statements (continued) For the year ended 30 June 3 Summary of significant accounting policies (continued) (y) Parent entity financial information The Group has applied amendments to the Corporations Act 2001 that remove the requirement for the Group to lodge parent entity financial statements. The financial information for the parent entity, Sedgman Limited, disclosed in note 42 has been prepared on the same basis as the consolidated financial statements, except as set out below. Investments in subsidiaries and associates Investments in subsidiaries and associates are accounted for at cost in the financial statements of Sedgman Limited. (z) Dividends Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the Company, on or before the end of the reporting period but not distributed at the end of the reporting period. (aa) New accounting standards and interpretations not yet adopted The following standards, amendments to standards and interpretations have been identified as those which may impact the entity in the period of initial application. They are available for early adoption at 30 June, but have not been applied in preparing this financial report. AASB 10 Consolidated Financial Statements (effective from 1 January ) replaces all guidance on control and consolidation in AASB 127 Consolidated and Separate Financial Statements. The core principal that a consolidated entity presents a parent and its subsidiaries as if they are a single economic entity remains unchanged. However, the standard introduces a single definition of control that applies to all entities. It focuses on the need to have both power and rights or exposure to variable returns. Power is the current ability to direct the activities that significantly influence returns. Returns must vary and can be positive, negative or both. Control exists when the investor can use its power to affect the amount of its returns. While the Group does not expect the new standard to have a significant impact on its composition, it has yet to perform a detailed analysis of the new guidance. AASB 11 Joint Arrangements (effective 1 January ) introduces a principles based approach to accounting for joint arrangements. The focus is no longer on the legal structure of joint arrangements, but rather on how rights and obligations are shared by the parties to the joint arrangement. Based on an assessment of rights and obligations, a joint arrangement will be classified as either a joint operation or a joint venture. Joint ventures are accounted for using the equity method, and the choice to proportionately consolidate will no longer be permitted. Parties to a joint operation will account for their share of revenues, expenses, assets and liabilities in much the same way as the previous standard. The Group has yet to perform a detailed analysis of the new guidance. AASB 12 Disclosure of Interests in Other Entities (effective from 1 January ) sets out the required disclosures for entities reporting under the two new standards AASB 10 and AASB 11. The Group has yet to perform a detailed analysis of the new guidance. AASB 13 Fair Value Measurement (effective from 1 January ) explains how to measure fair value. The Group has yet to determine which, if any, of its current measurement techniques will have to change as a result of the new guidance. It is therefore not possible to state the impact, if any, of the new rules on any of the amounts recognised in the consolidated financial statements. However, application of the new standard will impact the type of information disclosed in the notes to the consolidated financial statements. The Group does not intend to adopt the new standard before its operative date, which means that it would be first applied in the annual reporting period ending 30 June AASB 119 Employee Benefi ts (effective from 1 January ) changes the definition of shortterm and other longterm employee benefits to clarify the distinction between the two. The Group has yet to perform a detailed analysis of the new guidance. Sedgman Limited Annual Report 72

74 Notes to the consolidated financial statements (continued) For the year ended 30 June 4 Operating segments (a) Description of segments The Group has two reportable segments, as described below, which are the Group s strategic business units. For each of the strategic business units, the CEO reviews internal management reports on a monthly basis. The following summary describes the operations in each of the Group s reportable segments: Projects Design, construction and commissioning of coal handling and preparation plants, minerals processing plants and other related equipment. Operations Operation and ownership of coal handling and preparation plants, and ore crushing and screening plants. Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before income tax as included in the internal management reports that are reviewed by the Group s CEO. Segment profit before income tax is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. The amounts provided to the CEO with respect to total assets and total liabilities are measured in a manner consistent with that of the consolidated financial statements. These assets and liabilities are allocated based on the operations of the segment. Projects Operations Consolidated External revenue 259, , ,914 Interest and finance charges (1,254) (1,541) (2,795) Depreciation and amortisation expense (4,097) (15,974) (20,071) Impairment of property, plant and equipment (6,358) (6,358) Impairment of receivables (7,601) (7,601) Contract terminations 1,750 1,750 Share of net profits/(losses) of investments 2,136 2,136 accounted for using the equity method Reportable segment profit before income tax 4,902 3,304 8,206 Reportable segment assets 204,922 84, ,919 Reportable segment liabilities (91,897) (19,975) (111,872) Investments accounted for using the equity method 1,330 1,330 Capital expenditure 1,414 7,149 8,563 Projects Operations Consolidated External revenue 414, , ,554 Interest and finance charges (1,076) (1,112) (2,188) Depreciation and amortisation expense (4,290) (15,985) (20,275) Impairment of receivables (2,048) (2,048) Share of net profits/(losses) of investments accounted for 10,310 10,310 using the equity method Reportable segment profit before income tax 43,871 11,983 55,854 Reportable segment assets 282,573 97, ,661 Reportable segment liabilities (167,774) (29,275) (197,049) Investments accounted for using the equity method 10,482 10,482 Capital expenditure 3,362 3,800 7, Sedgman Limited Annual Report

75 Notes to the consolidated financial statements (continued) For the year ended 30 June 4 Operating segments (continued) (a) Description of segments (continued) Total profit or loss for reportable segments * 8,206 55,854 Other income (note 5) * 5,172 3,080 Total profi t before income tax 13,378 58,934 * Contract terminations included within note 5 below have been allocated to the Operations reporting segment. (b) Geographical segments In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of Group offices. Segment assets are based on the geographical location of the assets. Revenues Noncurrent assets Revenues Noncurrent assets Australia 417,225 76, , ,099 Botswana ,991 Canada 408 Chile 5, , China 186 1,997 3, Colombia 183 Mongolia 8, , Mozambique 13, , South Africa 3, , ,914 79, , ,556 (c) Major customers Revenues from four (: four) customers of the Group s Project segment represents $ million (: $ million) of the Group s total revenues. 5 Other income Interest income 1, Sundry income Contract terminations* 1,750 Net gain on disposal of property, plant and equipment 354 Foreign exchange gains 2,503 1,622 6,922 3,080 * Contract terminations represents amounts receivable by the Group upon the termination of the operations contract for the Blair Athol CHPP. Sedgman Limited Annual Report 74

76 Notes to the consolidated financial statements (continued) For the year ended 30 June 6 Expenses Depreciation and amortisation Property, plant and equipment 12,155 13,299 Leased plant and equipment 2,321 1,352 Customer contracts 3,061 3,122 Brands Software 1,805 1,773 Total depreciation and amortisation 20,071 20,275 Impairment of property, plant and equipment (note 2(f)) 6,358 Net loss on disposal of property, plant and equipment 299 Redundancy costs 2,994 Net impairment of receivables (notes 3(i); 37(e)) 7,601 2,048 Finance costs Interest and finance charges paid/payable 2,770 2,168 Interest associated with increase in provisions due to the passage of time Finance costs expensed 2,795 2,188 Interest income (note 5) (1,805) (930) Net finance costs 990 1,258 Contributions to defined contribution superannuation funds by the Group for the year ended 30 June amounted to $8.287 million (: $8.075 million). 7 Income tax expense (a) Income tax expense Current tax 4,940 26,589 Current tax prior year adjustment (i) (3,844) (457) Deferred tax (1,060) (4,691) Deferred tax prior year adjustment (i) 3,914 (355) 3,950 21,086 (b) Numerical reconciliation of income tax expense to prima facie tax payable Profit from continuing operations before income tax expense 13,378 58,934 Tax at the Australian tax rate of 30% (: 30%) 4,013 17,680 Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Other nonallowable deductions 1,494 1,731 Nondeductible consulting fees Tax exempt income (1) (63) Difference in overseas tax rates (582) (780) Changes to tax consolidation legislation (ii) 3,185 Under (over) provision in prior years (i) 70 (812) Foreign tax credits (1,190) Tax incentives (510) (450) Current year tax losses for which no deferred tax asset was recognised 697 Sundry (305) (239) Total income tax expense 3,950 21,086 (i) Included in the overprovision in the year is an amount of $671,965 which relates to foreign tax offsets claimed. 75 Sedgman Limited Annual Report

77 Notes to the consolidated financial statements (continued) For the year ended 30 June 7 Income tax expense (continued) (b) (ii) (c) Numerical reconciliation of income tax expense to prima facie tax payable (continued) On 29 June, the Tax Laws Amendment ( Measures no. 2) Act was enacted which retrospectively removed the ability to claim tax deductions in respect to customer relationship intangibles and customer contracts. As a consequence of this legislation, deductions claimed in prior years are no longer available resulting in a one off increase in income tax expense for of $3.185 million. Tax expense/(income) relating to items of other comprehensive income (Gains)/losses on revaluation of financial assets (180) 8 Current assets Cash and cash equivalents The weighted average effective interest rate applicable to cash as at 30 June is 2.36% (: 2.32%). The weighted average interest rate on cash held throughout the year ended 30 June was 2.09% (: 2.50%). Foreign currency controls exist in certain jurisdictions in which the Group operates, namely China and Mozambique. As a result, cash reserves can build up from time to time in those jurisdictions until the necessary approval processes are completed to enable repatriation of funds to Australia. At 30 June cash reserves in Mozambique were $ million (: $ million) and in China were $2.689 million (: $4.283 million). 9 Current Assets Trade and other receivables Trade receivables 79, ,457 Construction work in progress (note 40) 10,135 39,174 Other receivables and prepayments 14,835 15,524 Provision for impairment of receivables (note 37(e)) (12,341) (5,759) 91, ,396 Trade and other receivables are noninterest bearing and are expected to be received within 12 months. The Group s exposure to credit risks and impairment losses related to trade and other receivables (excluding construction work in progress) are disclosed in note 37. At 30 June other receivables and prepayments include retentions of $5.304 million (: $7.488 million) related to construction contracts in progress. An allowance for impairment of $5.220 million has been recognised against these retentions at 30 June (: Nil). 10 Current assets Classified as held for sale Cash at bank and in hand 43,110 54,666 Deposits at call 36,838 37,287 Short term deposits 22, ,987 91,953 Property, plant and equipment 1,153 Inventories 330 1,483 In the financial year ended 30 June Sedgman ceased operating at the Blair Athol site. The Group has plans in place to sell plant and equipment and inventory previously used at this site within the Operations segment. These sales are expected to occur before 30 June No impairment losses were recognised in reclassifying the assets as held for sale. Sedgman Limited Annual Report 76

78 Notes to the consolidated financial statements (continued) For the year ended 30 June 11 Current assets Current tax assets Income tax refunds 4, Current assets Inventories Spare parts and consumables 4,387 6, Noncurrent assets Trade and other receivables Other receivables Noncurrent assets Investments accounted for using the equity method Interests in joint venture partnerships (note 36(a)) ,482 Interests in associates (note 36(b)) 505 1,330 10, Noncurrent assets Financial assets at fair value through other comprehensive income Unlisted equity securities 400 1, Sedgman Limited Annual Report

79 Notes to the consolidated financial statements (continued) For the year ended 30 June 16 Noncurrent assets Property, plant and equipment Land & buildings Plant & equipment Motor vehicles Structural improvements Leased plant & equipment Total At 1 July 2011 Cost 3,978 86,179 3,030 4,077 24, ,362 Accumulated depreciation (134) (47,722) (1,868) (1,237) (13,291) (64,252) Net book amount 3,844 38,457 1,162 2,840 10,807 57,110 Year ended 30 June Opening net book amount 3,844 38,457 1,162 2,840 10,807 57,110 Transfers within property, 4, (49) (4,933) plant and equipment Foreign exchange impact (62) 15 (47) Additions 7, ,720 Disposals (1,388) (1,388) Depreciation charge (30) (12,275) (443) (551) (1,352) (14,651) Closing net book amount 3,814 37, ,272 4,522 48,744 At 30 June Cost 3,978 99,799 2,930 3,988 10, ,215 Accumulated depreciation (164) (62,656) (1,937) (1,716) (5,998) (72,471) Net book amount 3,814 37, ,272 4,522 48,744 Year ended 30 June Opening net book amount 3,814 37, ,272 4,522 48,744 Transfers within property, (1,153) ,102 plant and equipment Acquisitions though business combinations Reclassification to assets (1,153) (1,153) held for sale Foreign exchange impact 91 (10) 81 Additions 4, ,305 8,563 Disposals (191) (61) (252) Impairment loss * (6,358) (6,358) Depreciation charge (31) (10,711) (778) (635) (2,321) (14,476) Closing net book amount 3,783 22, ,316 6,608 35,581 At 30 June Cost 3,978 92,282 2,969 4,667 14, ,823 Accumulated depreciation (195) (70,128) (2,249) (2,351) (8,319) (83,242) Net book amount 3,783 22, ,316 6,608 35,581 * Refer note 2(f). Sedgman Limited Annual Report 78

80 Notes to the consolidated financial statements (continued) For the year ended 30 June 17 Noncurrent assets Deferred tax assets The balance comprises temporary differences attributable to: Unrealised foreign exchange loss Employee benefits 3,036 6,392 Doubtful debts 2,426 1,723 Equity raising costs Dismantling provision Joint venture distributions Tax losses 20 1,219 Property, plant and equipment Finance leases Construction overclaim Creditor retention 165 Financial assets at fair value through other comprehensive income 180 Sundry Total deferred tax assets 9,255 12,881 Setoff of deferred tax liabilities pursuant to setoff provisions (note 24) (2,778) (3,730) Net deferred tax assets 6,477 9,151 Deferred tax assets expected to be recovered within 12 months 5,304 8,745 Deferred tax assets expected to be recovered after more than 12 months 1, ,477 9,151 All movements in temporary differences other than financial assets at fair value through other comprehensive income are recognised in deferred tax expense. The amount in relation to financial assets at fair value through other comprehensive income is recognised directly in equity. 79 Sedgman Limited Annual Report

81 Notes to the consolidated financial statements (continued) For the year ended 30 June 18 Noncurrent assets Intangible assets Software Goodwill Brand Customer contracts Total At 1 July 2011 Cost 7,934 51,304 3,270 21,159 83,667 Accumulated amortisation and impairment charge (20,000) (1,265) (14,579) (35,844) Net book amount 7,934 31,304 2,005 6,580 47,823 Year ended 30 June Opening net book amount 7,934 31,304 2,005 6,580 47,823 Acquisitions 2,131 2,131 Amortisation for the year (1,773) (729) (3,122) (5,624) Closing net book amount 8,292 31,304 1,276 3,458 44,330 At 30 June Cost 10,065 51,304 3,270 21,159 85,798 Accumulated amortisation and impairment charge (1,773) (20,000) (1,994) (17,701) (41,468) Net book amount 8,292 31,304 1,276 3,458 44,330 Year ended 30 June Opening net book amount 8,292 31,304 1,276 3,458 44,330 Acquisitions 615 2, ,528 Amortisation for the year (1,805) (729) (3,061) (5,595) Closing net book amount 7,102 34, ,263 At 30 June Cost 10,680 54,014 3,270 21,362 89,326 Accumulated amortisation and impairment charge (3,578) (20,000) (2,723) (20,762) (47,063) Net book amount 7,102 34, ,263 For the purpose of impairment testing, goodwill is allocated to the Group s operating business units which represent the lowest level within the Group at which the goodwill is monitored for internal management purposes. The aggregate carrying amounts of goodwill allocated to each unit are as follows: Sedgman Operations 15,790 15,790 Sedgman Projects 18,224 15,514 34,014 31,304 The recoverable amount of a cashgenerating unit is determined based on valueinuse calculations. These calculations use cash flow projections based on financial forecasts determined by management covering a fiveyear period. Cash flows beyond the fiveyear period are extrapolated using an estimated growth rate of 2.5% (: 1.6%). In performing the valueinuse calculations, the Group has applied a posttax discount rate of 10.8% (equivalent to a pretax discount rate of 14.2%) (: posttax discount rate of 11.0% (equivalent to a pretax discount rate of 13.4%)). The values assigned to the key assumptions represent management s assessment of future trends in the mining and resources industry and were based on both external and internal sources. The valueinuse calculations for each unit is most sensitive to the following assumptions: Cashflow forecasts used in years 1 to 5; Change in discount rates; and Long term growth rate. A sensitivity analysis was conducted to determine the carrying value of the cash generating units under adverse conditions. There is no impairment from any reasonable change in the assumptions used in the valueinuse calculations. Sedgman Limited Annual Report 80

82 Notes to the consolidated financial statements (continued) For the year ended 30 June 19 Current liabilities Trade and other payables Trade payables 12,820 34,588 Payable to joint venture partnerships (note 36(a)) 6,741 23,807 Progress claims in advance (note 40) 35,310 28,152 Other creditors and accruals 18,070 56,354 72, ,901 Trade and other payables are noninterest bearing and are expected to be settled within 12 months. The Group s exposure to currency and liquidity risk related to trade and other payables is disclosed in note Current liabilities Interest bearing liabilities Lease liabilities (note 32) 1,550 1,653 Commercial loans (secured) 4,200 Total current interestbearing borrowings 5,750 1,653 The Group leases plant and equipment under finance leases expiring within five years. At the end of the lease term, the Group can make an offer to purchase the equipment at the residual prices set in the lease. During the year Sedgman extended its club banking agreement with the Australia and New Zealand bank and the National Australia Bank. The agreement is for a three year term with separate components of the facility being set as either revolving with a 12 month annual review, or terminating. The outstanding commercial loans are being amortised over the three year term. Loans are secured by a fixed and floating charge over the assets of Sedgman Limited and are subject to an effective interest rate at 30 June of 4.94% (30 June : 5.37%, previous facility). Total financing facilities at reporting date are $ million (: $ million). Total utilised facilities, comprising of performance guarantees and commercial loans, at reporting date are $ million (: $ million). 21 Current liabilities Provisions Employee benefits 7,198 9,217 Dismantling Blair Athol CHPP 1,165 8,363 9,217 During the year, the dismantling provision for the Blair Athol CHPP was transferred from noncurrent provisions as the operations contract was terminated. Movements in each class of provision during the financial year, other than employee benefits, are set out below: Carrying amount at start of year Amounts reclassified from/(to) noncurrent provisions (note 25) 1,165 Carrying amount at end of year 1, Sedgman Limited Annual Report

83 Notes to the consolidated financial statements (continued) For the year ended 30 June 22 Current liabilities Current tax liabilities Income tax payable , , Noncurrent liabilities Interest bearing liabilities Lease liabilities (note 32) 5,642 4,010 Commercial loans (secured) 15,597 21,066 Total noncurrent borrowings 21,239 25,076 Refer to Note 20 for terms of commercial loans. 24 Noncurrent liabilities Deferred tax liabilities The balance comprises temporary differences attributable to: Brands Customer relationships 119 1,038 Land and buildings Unrealised foreign exchange gains Work in progress adjustments Sundry Total deferred tax liabilities 2,778 3,730 Setoff of deferred tax liabilities pursuant to setoff provisions (note 17) (2,778) (3,730) Net deferred tax liabilities Deferred tax liabilities expected to be settled within 12 months Deferred tax liabilities expected to be settled after more than 12 months All movements in temporary differences are recognised in deferred tax expense. No amounts have been recognised in equity. 25 Noncurrent liabilities Provisions Movements in each class of provision during the financial year, other than employee benefits, are set out below: Dismantling 1,144 Make good Employee benefits 2,312 2,585 1,417 Make good Dismantling Total Carrying amount at start of year 273 1,144 1,417 Charged/(credited) to profit or loss interest associated with the passage of time Amounts reclassified from/(to) current provisions (1,165) (1,165) (note 21) Carrying amount at end of year Sedgman Limited Annual Report 82

84 Notes to the consolidated financial statements (continued) For the year ended 30 June 26 Contributed equity (a) Share capital Shares Shares Ordinary shares Fully paid 220,368, ,292, , , ,368, ,292, , ,377 (b) Movements in ordinary share capital: Date Details Number of shares 1 July 2011 Balance 209,752,689 96, Sept 2011 Dividend reinvestment plan issues 2,240,987 4, Nov 2011 Employee share plan issues 221, Feb Shares issued to CEO 500,000 1, Mar Dividend reinvestment plan issues 1,577,311 3, June Balance 214,292, , Aug Long Term Incentive Plan share issues 1,220,000 1, Sept Dividend reinvestment plan issues 2,110,867 2, Nov Value adjustment on shares issued to CEO (i) (592) 21 Mar Dividend reinvestment plan issues 2,744,513 2,689 6,075,380 5, June Balance 220,368, ,250 (i) At the 2011 Annual General Meeting held 28 November 2011, shareholder approval was received for Mr Jukes remuneration contract which included equity settled performance rights and the issue of 500,000 shares as a sign on entitlement. The shares in relation to the sign on entitlement were issued 28 February, outside the one month period contemplated by that shareholder approval. Following discussion with the ASX, a lock was applied to the shares until the Annual General Meeting, at which time shareholder approval was resought and granted and the shares were released to Mr Jukes. The value of the shares was adjusted to reflect the closing share price on 28 November, being the date of the Annual General Meeting. Terms and conditions Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders meetings. In the event of winding up the Company and its controlled entities, ordinary shareholders rank after all creditors and are fully entitled to any proceeds of liquidation. Effective 1 July 1998, the Company Law Review Act abolished the concept of par value shares and the concept of authorised capital. Accordingly, the Company does not have authorised capital or par value in respect of its issued shares. 27 Reserves and retained profits (a) Reserves Foreign currency translation reserve (4,520) (4,658) Equity compensation reserve 11,999 11,046 Financial assets revaluation reserve (420) 7,059 6,388 Movements: Foreign Currency Translation Reserve Balance 1 July (4,658) (1,985) Currency translation differences (included in other comprehensive income) 138 (2,673) Balance 30 June (4,520) (4,658) 83 Sedgman Limited Annual Report

85 Notes to the consolidated financial statements (continued) For the year ended 30 June 27 Reserves and retained profits (continued) (a) Reserves (continued) Equity Compensation Reserve Balance 1 July 11,046 6,380 Long term incentive plan share issues (1,517) Movement in performance rights 2,470 4,666 Balance 30 June 11,999 11,046 Financial Assets Revaluation Reserve Balance 1 July Movement in fair value, net of tax (included in other comprehensive income) (420) Balance 30 June (420) (b) Retained profits Movements in retained profits were as follows: Retained earnings at the beginning of the financial year 69,847 49,961 Profit for the year 9,428 37,848 Dividends (20,537) (17,962) Retained earnings at the end of the financial year 58,738 69,847 (c) Nature and purpose of reserves Foreign currency translation reserve Exchange differences arising on translation of the foreign controlled entity are taken to the foreign currency translation reserve, as described in note 3(c). The reserve is recognised in profit or loss when the foreign operation is disposed of. Equity compensation reserve The equity compensation reserve recognises the fair value of performance rights issued as compensation to employees but not exercised. Financial assets revaluation reserve This reserve recognises changes in the fair value of financial assets included in other comprehensive income. 28 Dividends (a) Ordinary shares Final fully franked dividend Dividend per share $0.065 (: $0.04) based on tax 30% 14,008 8,390 Interim fully franked dividend Dividend per share $0.03 (: $0.045) based on tax 30% 6,529 9,572 Total dividends provided for or paid 20,537 17,962 Dividends paid in cash or satisfied by the issue of shares under the dividend reinvestment plan during the years ended 30 June and 30 June were as follows: Paid in cash 15,589 9,746 Satisfi ed by issue of shares 4,948 8,216 20,537 17,962 After the balance sheet date the following dividend was proposed by the Directors. The dividend has not been provided for. The record date for entitlement to this dividend will be 3 September. The declaration and subsequent payment of dividends has no income tax consequences. Sedgman Limited Annual Report 84

86 Notes to the consolidated financial statements (continued) For the year ended 30 June 28 Dividends (continued) (a) Ordinary shares (continued) Cents per share Franked/ unfranked Date of payment Final ordinary 2.0 Franked 17 Sept 13 The financial effect of these dividends has not been brought to account in the consolidated financial statements for the year ended 30 June and will be recognised in subsequent financial reports. (b) Franked dividends The franked portions of the final dividends recommended after 30 June will be franked out of existing franking credits or out of franking credits arising from the payment of income tax in the year ending 30 June. Franking credits available for subsequent financial years based on tax rate of 30% (: 30%) 26,802 34,986 The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for: (a) (b) (c) franking credits that will arise from the payment of the amount of the current tax liabilities franking debits that will arise from the payment of dividends recognised as a liability at the reporting date franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date. The consolidated amounts include franking credits that would be available to the parent entity if distributable profits of subsidiaries were paid as dividends. The ability to utilise the franking credits is dependent upon the ability to declare dividends. In accordance with the tax consolidation legislation, Sedgman Limited as the head entity in the taxconsolidated group has also assumed the benefit of $ million (: $ million) franking credits. The impact on the dividend franking account of dividends proposed after the balance sheet date but not recognised as a liability is to reduce it by $1.889 million (: $5.970 million). 85 Sedgman Limited Annual Report

87 Notes to the consolidated financial statements (continued) For the year ended 30 June 29 Key management personnel disclosures During the year Sedgman undertook a review of its management structure to increase the focus on winning new work globally while continuing with a strong management team in its projects and operations business units across all regions. As a result from 1 November, Peter Watson, previously Executive General Manager Australia, took the lead role of the newly created Global Development team as Global Director Development. The Executive General Manager Australia role has been replaced by Executive General Manager Australia East, Executive General Manager Australia West and Executive General Manager Australia Operations. The roles of Executive General Manager Operations and Executive General Manager Projects have been renamed as Global Director Operations and Global Director Projects respectively to reflect the global nature of these roles across all regions. These new roles are deemed key management personnel (KMP) from 1 November. All other roles previously deemed KMP retain this status. Unless indicated, key management personnel listed below were key management personnel for the full year from 1 July to 30 June. Directors and key management personnel disclosed in this report (ii) Name Position Nonexecutive and executive directors Russell Kempnich Nicholas Jukes Donald Argent Robert McDonald Roger Short Bruce Munro Peter Richards Other key management personnel Ian Poole Peter Watson Michael Carretta Alan Ainsworth Ken Boulton Simon Stockwell Sten Soderstrom Simon MordecaiJones Javier Freire Thomas Dockray (i) Chairman Chief Executive Officer NonExecutive Director NonExecutive Director NonExecutive Director NonExecutive Director NonExecutive Director Chief Financial Officer Global Director Development Global Director Operations Global Director Projects Executive General Manager Australia Operations Executive General Manager Australia East Executive General Manager Australia West Executive General Manager Africa Executive General Manager Americas Executive General Manager Asia (i) (ii) (a) Thomas Dockray is considered KMP from 25 September when he commenced as Executive General Manager Asia. KMP for the year ended 30 June included those KMP for the year ended 30 June above (excluding Ken Boulton, Simon Stockwell and Sten Soderstrom who became KMP during the year), as well as Peter Long (previous Executive General Manager Asia, 1 July 2011 to 31 March ) and Stephen Rayner (previous Executive General Manager Corporate Services, 1 July 2011 to 31 October 2011). Key management personnel compensation $ $ Shortterm employee benefits 4,323,175 4,799,712 Longterm employee benefits 6,158 12,241 Postemployment benefits 221, ,670 Sharebased payments 1,520,761 4,039,160 6,071,393 9,168,783 Information regarding key management personnel compensation and some equity instruments disclosures as required by Corporations Regulation 2M.3.03 is provided in the remuneration report section of the directors report. Apart from the details disclosed in this note, no director has entered into a material contract with the Company since the end of the previous financial year and there were no material contracts involving directors interests existing at year end. (b) Equity instrument disclosures relating to key management personnel (i) Equity performance rights holdings The number of equity performance rights over the ordinary shares in the Company held during the financial year by each Director of Sedgman Limited and other key management personnel of the Group, including their personally related parties, are set out below: Sedgman Limited Annual Report 86

88 Notes to the consolidated financial statements (continued) For the year ended 30 June 29 Key management personnel disclosures (continued) (b) Equity instrument disclosures relating to key management personnel (continued) Name Balance at the start of the year * Granted as compensation Exercised Expired / Forfeited Modified to cash settled Balance at end of the year Vested & exercis ed during the year Vested and exercisable at year end Directors of Sedgman Limited Russell Kempnich Nicholas Jukes Donald Argent Robert McDonald Roger Short Bruce Munro Peter Richards 2,500,000 (250,000) (250,000) 2,000, ,000 Other key management personnel of the Group Ian Poole Peter Watson Michael Carretta Alan Ainsworth Ken Boulton Simon Stockwell Sten Soderstrom 625, , , , , , ,000 (62,500) (50,000) (50,000) (50,000) (62,500) (50,000) (50,000) (50,000) 500, , , , , , ,000 62,500 50,000 50,000 50,000 Name Balance at the start of the year * Granted as compensation Exercised Expired / Forfeited Modified to cash settled Balance at end of the year Vested & exercis ed during the year Vested and exercisable at year end Directors of Sedgman Limited Russell Kempnich Nicholas Jukes Donald Argent Robert McDonald Roger Short Bruce Munro Peter Richards 2,500,000 2,500,000 Other key management personnel of the Group Ian Poole Peter Watson Simon Mordecai Jones(i) Javier Freire(i) Peter Long Michael Carretta Alan Ainsworth Stephen Rayner 625, , , , , , , , ,000 50,000 (200,000) (450,000) 625, ,000 n/a 300, ,000 n/a (i) Note the conditions of the performance rights granted during the year ended and outstanding at 30 June to Simon MordecaiJones (200,000) and Javier Freire (450,000) were modified as at 30 June so that they can only be settled in cash. The number of performance rights originally granted and all other conditions remain as per the governing Long Term Incentive Plan. * Balance at the start of the year relates to 1 July or the date that an employee became a key management personnel. 87 Sedgman Limited Annual Report

89 Notes to the consolidated financial statements (continued) For the year ended 30 June 29 Key management personnel disclosures (continued) (b) (ii) Equity instrument disclosures relating to key management personnel (continued) Cash settled performance rights holdings The number of cash settled performance rights over the ordinary shares in the Company held during the financial year by each of the key management personnel of the Group are set out below. Name Balance at the start of the year * Granted as compensation Exercised Expired / Forfeited Modified to cash settled Balance at end of the year Vested & exercis ed during the year Vested and exercisable at year end Key management personnel of the Group Simon Mordecai Jones Javier Freire Thomas Dockray 200, ,000 (75,000) (75,000) 200, ,000 75,000 Name Balance at the start of the year * Granted as compensation Exercised Expired / Forfeited Modified to cash settled Balance at end of the year Vested & exercis ed during the year Vested and exercisable at year end Key management personnel of the Group Simon Mordecai Jones(i) Javier Freire(i) 200, , , ,000 (i) Note the conditions of the performance rights granted during the year ended and outstanding at 30 June to Simon MordecaiJones (200,000) and Javier Freire (450,000) were modified as at 30 June so that they can only be settled in cash. The number of performance rights originally granted and all other conditions remain as per the governing Long Term Incentive Plan. * Balance at the start of the year relates to 1 July or the date that an employee became a key management personnel. Sedgman Limited Annual Report 88

90 Notes to the consolidated financial statements (continued) For the year ended 30 June 29 Key management personnel disclosures (continued) (b) (iii) Equity instrument disclosures relating to key management personnel (continued) Share holdings The number of shares in the Company held during the financial year by each Director of Sedgman Limited and other key management personnel of the Group, including their personally related parties, is set out below: Name Directors of Sedgman Limited Ordinary shares Russell Kempnich Nicholas Jukes Donald Argent Robert McDonald Roger Short Bruce Munro Peter Richards Balance at the start of the year * Other key management personnel of the Group Ordinary shares Ian Poole Peter Watson Michael Carretta Alan Ainsworth Ken Boulton Simon Stockwell Sten Soderstrom Simon Mordecai Jones Javier Freire Thomas Dockray 16,451, , , , ,976 13,224 14, , , Granted as compensation 9,788 34,260 22,838 13,704 6,852 34,260 Received during the year on the exercise of performance rights 250,000 62,500 50,000 50,000 50,000 Purchases / (Disposals) 48,510 11,849 3,600 Balance at the end of the year 16,460, , , , ,529 20,076 48,501 63,001 50,501 87,333 50,501 97, Name Directors of Sedgman Limited Ordinary shares Russell Kempnich Nicholas Jukes Donald Argent Robert McDonald Roger Short Bruce Munro Peter Richards Balance at the start of the year * 17,446, , , , ,080 8,983 2,655 Other key management personnel of the Group Ordinary shares Ian Poole Peter Watson Simon Mordecai Jones Javier Freire Peter Long Michael Carretta Alan Ainsworth Stephen Rayner 585,177 Granted as compensation 5, ,000 11,586 8,525 6,077 4,241 11, Received during the year on the exercise of performance rights Purchases / (Disposals) (1,000,000) 9,305 19,048 4,819 (551,945) Balance at the end of the year 16,451, , , , ,976 13,224 14, n/a 33, n/a * Balance at the start of the year relates to 1 July or the date that an employee became a key management personnel. 89 Sedgman Limited Annual Report

91 Notes to the consolidated financial statements (continued) For the year ended 30 June 30 Remuneration of auditors During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and nonrelated audit firms: $ Audit and review services Auditors of the Company KPMG Australia Audit and review of financial reports 400, ,394 Other assurance services 34,055 24,719 Overseas KPMG firms Audit and review of financial reports 223, , , ,013 Other services Auditors of the Company KPMG In relation to other assurance due diligence, taxation, research and 815,230 1,374,501 development allowance and other advisory services Total remuneration for other services 815,230 1,374, Contingencies Boseto project As part of the recent Dispute Adjudication Board (DAB) decision in May, Sedgman has been awarded a net US$1.8 million for monies owed by Discovery Metals ( Discovery ). This amount has been treated as a receivable in Sedgman s consolidated financial statements. Sedgman has filed a notice of dissatisfaction in respect of the DAB decision on 28 May and stating its intention to seek payment of additional amounts under the contract. Discovery has also filed its own notice of dissatisfaction on the same date. As of the date of the signing of these consolidated financial statements the parties are undertaking negotiations as required by the contract to try and resolve this dispute. If these negotiations do not reach a settlement either party may refer the dispute to arbitration. Claims Claims have been brought against a controlled entity in relation to a contract terminated in a prior financial year. The controlled entity has been granted indemnity by the Group s insurer who has taken over defence of the claims. The Directors are of the opinion that no provision is required. While no liability is admitted, any amount that may become payable is covered by the Group s insurance policy. Guarantees and Performance Bonds Bank guarantees and performance bonds have been given in respect of work in progress contracts and leased premises of the Group amounting to $ million (: $ million). $ Sedgman Limited Annual Report 90

92 Notes to the consolidated financial statements (continued) For the year ended 30 June 32 Commitments (a) Capital commitments Capital commitments contracted for at the reporting date but not recognised as liabilities. Property, plant and equipment 2,591 (b) (i) Lease commitments Operating leases Commitments for minimum lease payments in relation to noncancellable operating leases are payable as follows: Within one year 5,623 6,599 Later than one year but not later than five years 12,053 17,430 17,676 24,029 The Group leases buildings under operating leases expiring within the next 3.5 years. The leases involve lease payments comprising a base amount plus an incremental contingent rental. Contingent rentals are based on Fixed Increase Percentages and the Consumer Price Index. The operating lease rental expense recognised in the year ended 30 June was $7.862 million (: $6.047 million). (ii) Finance leases Commitments in relation to finance leases are payable as follows: Within one year 2,031 2,064 Later than one year but not later than five years 6,143 4,437 Minimum lease payments 8,174 6,501 Less: Future finance charges (982) (838) Total lease liabilities 7,192 5,663 Representing lease liabilities: Current (note 20) 1,550 1,653 Noncurrent (note 23) 5,642 4,010 7,192 5,663 The Group leases plant and equipment under finance leases expiring within five years. At the end of the lease term, the Group has the option to purchase the equipment at the residual prices set in the lease. Refer Note 36 for commitments relating to joint ventures and associates. 33 Related party transactions (a) Parent entity The parent entity within the Group is Sedgman Limited. (b) Directors The names of persons who were Directors of the Company at any time during the financial year are as follows: R J Kempnich, N N Jukes, D J Argent, R J McDonald, R R Short, B A Munro, and P I Richards. All of these persons were also Directors at any time during the year ended 30 June. 91 Sedgman Limited Annual Report

93 Notes to the consolidated financial statements (continued) For the year ended 30 June 33 Related party transactions (continued) (c) Subsidiaries Interests in subsidiaries are set out in note 34. (d) Key management personnel Disclosures relating to key management personnel are set out in note 29. (e) Loans to/from related parties The related party payable to the Thiess Sedgman Joint Venture is noninterest bearing and at call as set out in note 19. During the year ended 30 June Sedgman Limited provided a long term noninterest bearing loan to Amode Pty Ltd ( Amode ) for $561,000 (: Nil), an entity over which both the Managing Director of Sedgman, and the Group, had significant influence. This loan was unsecured. Sedgman sold its interest in Amode in March at which time Amode repaid the loan to Sedgman. Refer note 36(b). (f) Services provided to/from related parties During the year ended 30 June Yeats Consulting Pty Ltd, a wholly owned subsidiary of Sedgman Limited, provided consulting services to Amode for $155,789 (: Nil) (Refer note 33(e) for significant influence details). As at 30 June there were no amounts owing by Amode to Yeats Consulting Pty Ltd. During the year ended 30 June OnTalent Pty Ltd, an associate of Sedgman Limited (refer note 36(b)), provided recruitment services and contractors to the Group for $2 million (: Nil). As at 30 June there were no amounts owing by the Group to OnTalent Pty Ltd. These transactions were at arm s length. (g) Thiess Sedgman Joint Venture (TSJV) During the year the Group provided engineering consulting services to the TSJV of $7.275 million (: $ million). These services were provided under the Group s normal terms and conditions. At year end the amount payable to the TSJV was $6.741 million (: $ million). Sedgman Limited Annual Report 92

94 Notes to the consolidated financial statements (continued) For the year ended 30 June 34 Subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 3(a): Name of entity Country of incorporation Class of shares Equity Holding % Parent entity Sedgman Limited Australia Controlled entities Sedgman Asia Ltd Hong Kong Ordinary Sedgman Botswana (Pty) Ltd Botswana Ordinary Sedgman Engineering Technology (Beijing) Co Ltd China Ordinary Sedgman Employment Services Pty Ltd Australia Ordinary Sedgman International Employment Services Pty Ltd Australia Ordinary Sedgman LLC Mongolia Ordinary Sedgman Malaysia Sdn Bd Malaysia Ordinary Sedgman Mozambique Limitada Mozambique Ordinary Sedgman S.A. Chile Ordinary Sedgman S.A.S. Colombia Ordinary Sedgman South Africa (Pty) Ltd South Africa Ordinary Sedgman Operations Employment Services Pty Ltd Australia Ordinary Sedgman Operations Pty Ltd Australia Ordinary Contrelec Engineering Pty Ltd Australia Ordinary Intermet Engineering Pty Ltd Australia Ordinary Tambala Pty Ltd Mauritius Ordinary Yeats Consulting Unit Trust (i) Australia Ordinary 100 Yeats Consulting Pty Ltd (i) Australia Ordinary 100 Sedgman South Africa Investments Limited (ii) British Virgin Ordinary 100 Islands Sedgman Canada Limited (iii) Canada Ordinary 100 % (i) Acquired on 23 August for a purchase price, net of cash acquired, of $2.626 million. Goodwill recognised on the acquisition is $2.710 million. Yeats is a Gold Coast based civil engineering consultancy providing infrastructure and environmental solutions to the resources industry. (ii) Incorporated on 26 November (iii) Incorporated 22 March 35 Deed of cross guarantee Pursuant to ASIC Class Order 98/1418 (as amended) dated 13 August 1998, the whollyowned subsidiaries listed below are relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports, and directors report. It is a condition of the Class Order that the Company and each of the subsidiaries enter into a Deed of Cross Guarantee. The effect of the Deed is that the Company guarantees to each creditor payment in full of any debt in the event of winding up of any of the subsidiaries under certain provisions of the Corporations Act If a winding up occurs under other provisions of the Act, the Company will only be liable in the event that after six months any creditor has not been paid in full. The subsidiaries have also given similar guarantees in the event that the Company is wound up. The subsidiaries subject to the Deed are: Contrelec Engineering Pty Ltd Intermet Engineering Pty Ltd Sedgman Operations Employment Services Pty Ltd Sedgman Operations Pty Ltd Sedgman International Employment Services Pty Ltd A consolidated statement of profit or loss, consolidated statement of comprehensive income and consolidated balance sheet, comprising the Company and controlled entities which are a party to the Deed, after eliminating all transactions between parties to the Deed of Cross Guarantee, for the year ended 30 June is set out as follows: 93 Sedgman Limited Annual Report

95 Notes to the consolidated financial statements (continued) For the year ended 30 June 35 Deed of cross guarantee (continued) (a) Consolidated statement of profit or loss, consolidated statement of comprehensive income and summary of movements in consolidated retained earnings Statement of profit or loss Continuing operations Revenue from services 418, ,325 Other income 5,303 2,083 Dividends received 2, , ,408 Changes in construction work in progress (28,919) (1,867) Raw materials and consumables used (212,145) (248,375) Depreciation and amortisation expense (18,654) (19,474) Employee expenses (108,470) (105,525) Agency contract fees (7,857) (20,227) Impairment of property, plant and equipment (6,358) Impairment of receivables (593) (2,048) Other expenses (24,523) (34,564) Finance costs (2,892) (2,301) (410,411) (434,381) Share of net profits/(losses) of investments accounted for using the equity 2,136 10,310 method Profit before income tax 18,036 46,337 Income tax expense (3,988) (18,301) Profit for the year 14,048 28,036 Statement of comprehensive income Profit for the year 14,048 28,036 Other comprehensive income Items that will not be reclassified to profit or loss Changes in fair value of financial assets (net of tax) (420) Items that may be subsequently reclassified to profit or loss Exchange differences on translation of foreign operations (net of tax) Other comprehensive income for the year, net of tax (420) Total comprehensive income for the year 13,628 28,036 Summary of movements in consolidated retained earnings Retained earnings at the beginning of the financial year 41,471 31,397 Profit for the year 14,048 28,036 Dividends provided for or paid (20,537) (17,962) Retained earnings at the end of the financial year 34,982 41,471 Sedgman Limited Annual Report 94

96 Notes to the consolidated financial statements (continued) For the year ended 30 June 35 Deed of cross guarantee (continued) (b) Consolidated balance sheet ASSETS Current assets Cash and cash equivalents 72,986 55,424 Trade and other receivables 86, ,252 Current tax assets 34 Assets classified as held for sale 1,483 Inventories 4,387 6,864 Total current assets 165, ,540 Noncurrent assets Trade and other receivables 4,440 8,031 Investments accounted for using the equity method 1,330 10,482 Investments in controlled entities 7,721 4,182 Financial assets at fair value through other comprehensive income 400 1,000 Property, plant and equipment 33,944 46,664 Deferred tax assets 4,242 7,341 Intangible assets 39,553 44,330 Total noncurrent assets 91, ,030 Total assets 257, ,570 LIABILITIES Current liabilities Trade and other payables 60, ,334 Current tax liabilities 15,546 Interest bearing liabilities 5,750 1,653 Provisions 5,800 7,479 Total current liabilities 72, ,012 Noncurrent liabilities Trade and other payables 2,057 4,561 Interest bearing liabilities 21,239 25,076 Provisions 2,585 1,417 Other Total noncurrent liabilities 26,131 31,954 Total liabilities 98, ,966 Net assets 158, ,604 EQUITY Contributed equity 112, ,377 Reserves 11,373 10,756 Retained profits 34,982 41,471 Parent entity interest 158, , Sedgman Limited Annual Report

97 Notes to the consolidated financial statements (continued) For the year ended 30 June 36 Interests in joint ventures and associates (a) Joint venture partnerships Ownership interest Name and principal activity Carrying value of investments Thiess Sedgman Joint Venture Design and construction of CHPPs 50% 50% (5,916) (13,325) (5,916) (13,325) Included in the balance sheet as: Investments accounted for using equity method (note 14) ,482 Trade and other payables (note 19) (6,741) (23,807) (5,916) (13,325) Share of joint venture assets and liabilities Thiess Sedgman Joint Venture current assets 1,473 1,185 Thiess Sedgman Joint Venture noncurrent assets Total assets 1,473 1,185 Thiess Sedgman Joint Venture current liabilities 7,389 14,510 Thiess Sedgman Joint Venture noncurrent liabilities Total liabilities 7,389 14,510 Net assets/(liabilities) (5,916) (13,325) Share of joint venture revenue, expenses and results Revenues 26, ,878 Expenses (24,613) (100,568) Net profit/(loss) before income tax 2,181 10,310 Share of joint venture commitments contracted but not yet provided or payable Within one year One year or later and no later than five years 1,089 1,038 Later than five years 324 1,435 1,634 (b) Associates On 1 July Sedgman acquired a 33 per cent interest in OnTalent Pty Ltd for $549,540. On 7 December, Sedgman acquired a 33 per cent interest in Amode Pty Ltd ( Amode ) for $4,000. Subsequent to this Sedgman increased its investment in Amode to 39 per cent for a cash contribution of $250,000. On 23 April Sedgman sold its investment in Amode for a value equal to its combined investment, being $254,000 and accordingly there was no gain or loss on disposal Movements in carrying amounts Carrying amount at the beginning of the financial year Acquisition of interests in associates 804 Share of profits/(losses) after income tax (45) Proceeds from sale of investments in associate (254) 505 Sedgman Limited Annual Report 96

98 Notes to the consolidated financial statements (continued) For the year ended 30 June 36 Interests in joint ventures and associates (continued) (b) Associates (continued) Summarised financial information of associates The Group s share of the results of its principal associates and its aggregated assets (including goodwill) and liabilities are as follows: Ownership Group s share of: Interest Assets Liabilities Revenues Profit/ (loss) % OnTalent Pty Ltd ,073 (45) Amode Pty Ltd ,138 (45) The above associates are all unlisted and incorporated in Australia. No investments in associates were held as at and during the year ended 30 June. 37 Financial instruments The Group has exposure to the following risks from their use of financial instruments: Market risk Credit risk Liquidity risk This note presents information about the Group s exposure to each of the above risks, the Group s objectives, policies and processes for measuring and managing risk, and the Group s management of capital. Further quantitative disclosures are included throughout these consolidated financial statements. (a) Risk management framework The Board has overall responsibility for the establishment and oversight of the Group s risk management framework. The Board has established a Risk Management system within Corporate, which is responsible for developing and monitoring the Group s risk management policies. This Group reports to the Audit and Risk Management Committee and the Board throughout the year on its activities. The Group s risk management policies and procedures are established to identify and analyse the risks faced by the Group, and monitor those risks. Risk management policies and procedures are reviewed regularly to reflect changes in market conditions and the Group s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. (b) Market risk (i) Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar (USD). The amounts below represent the AUD equivalent of USD cash held, or receivable or payable in USD, in entities within the Group whose functional currency is not USD. 97 Sedgman Limited Annual Report

99 Notes to the consolidated financial statements (continued) For the year ended 30 June 37 Financial instruments (continued) (b) Market risk (continued) Financial Assets Cash and cash equivalent assets 22,933 18,981 Trade and other receivables 3,038 6,212 25,971 25,193 Financial Liabilities Trade and other payables 16 1, ,274 Net Exposure 25,955 23,919 The following sensitivity analysis is based on the foreign currency risk exposures in existence at the balance sheet date. This analysis is performed on the same basis for. With all other variables held constant, the below table illustrates how post tax profit and equity for the Group would have been affected had the Australian dollar moved against the USD: Impact on posttax profit: +10% AUD / USD (1,652) (1,522) 10% AUD / USD 2,019 1,860 Impact on equity: +10% AUD / USD (1,652) (1,522) 10% AUD / USD 2,019 1,860 The Group regularly monitors the level of its foreign currency exposure and where appropriate, considers the use of foreign exchange contracts to manage significant exposures. There were no foreign exchange contracts entered at 30 June (: nil). (ii) Interest rate risk The Group s main interest rate risk arises from longterm borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. At 30 June and 30 June, the Group had the following mix of financial assets and liabilities exposed to Australian variable interest rate risk: Financial Assets Cash and cash equivalents assets 101,959 91, ,959 91,926 Financial Liabilities Commercial loans 19,950 21,133 19,950 21,133 Net Exposure 82,009 70,793 Sedgman Limited Annual Report 98

100 Notes to the consolidated financial statements (continued) For the year ended 30 June 37 Financial instruments (continued) (b) Market risk (continued) The other financial instruments of the Group not included in the above table are not subject to cash flow variable interest rate risk. The Group regularly analyses its interest rate exposure. Within this analysis, consideration is given to potential renewals of existing positions, alternative financing, alternative positions and the mix of fixed and variable interest rates. The Group does not use derivative financial instruments to manage its interest rate exposure. The following sensitivity analysis is based on the interest rate risk exposures in existence at the reporting date. This analysis is performed on the same basis for. Impact on posttax profit: +1% (100 basis points) % (100 basis points) (574) (496) Impact on equity: +1% (100 basis points) % (100 basis points) (574) (496) (c) Credit risk Credit risk arises from cash and cash equivalents, deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions, and represents the potential financial loss if counterparties fail to perform as contracted. The Group also has a policy in place to ensure that surplus cash is invested with financial institutions of appropriate credit worthiness. The credit risk of financial assets of the Group which have been recognised on the balance sheet is generally the carrying amount, net of any provision for impairment. The Group manages its credit risk by maintaining strong relationships with a broad range of clients. The Group s trade and other receivables relate mainly to participants in the mining industry. At the balance sheet date, there were six customers which represented 61% (: four customers which represented 53%) of the Group s trade receivables. There were no other significant concentrations of credit risk. During the year, there were no significant changes in the credit terms of any customers. In addition, receivables balances are monitored on an ongoing basis with the result that the Group s exposure to bad debts is not significant. For some trade receivables the Group may also obtain security in the form of guarantees, deeds of undertaking or letters of credit which can be called upon if the counterparty is in default under the terms of the agreement. The maximum exposure to credit risk is represented by the carrying amount of financial assets of the Group, excluding investments and financial assets at fair value through other comprehensive income, which have been recognised on the balance sheet. (d) Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, both under normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group s reputation. The Group maintains sufficient cash and the availability of funding through an adequate amount of committed credit facilities to meet liabilities as they fall due. 99 Sedgman Limited Annual Report

101 Notes to the consolidated financial statements (continued) For the year ended 30 June 37 Financial instruments (continued) (d) Liquidity risk (continued) The following are the contractual maturities of financial liabilities: Carrying Value Contractual Cash Flows Less than 1 year 1 to 2 years 2 to 5 years More than 5 years Year ended 30 June Financial liabilities Trade and other payables 72,941 72,941 72,941 Lease liabilities 7,192 8,174 2,031 3,729 2,414 Commercial loans 19,950 21,804 5,056 4,848 11, , ,919 80,028 8,577 14,314 Year ended 30 June Financial liabilities Trade and other payables 142, , ,901 Lease liabilities 5,663 6,501 2,064 1,369 3,068 Commercial loans 21,133 22,736 1,364 21, , , ,329 22,741 3,068 As disclosed in note 20, the Group has a secured bank facility which contains debt covenants. If a breach of covenants were to occur, this may require the Group to repay the loan earlier than indicated in the above table. Except for this financial liability, it is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts. (e) Impairment of receivables The aging of the Group s trade receivables at the reporting date was: Gross Impairment Gross Impairment Not past due 50,894 87,096 Past due 030 days 12,893 7,284 Past due 3160 days 3,439 7,557 More than 61 days 11,998 7,121 15,520 5,759 79,224 7, ,457 5,759 The movement in the allowance for impairment in respect of trade receivables during the year was as follows: Balance at 1 July 5,759 4,265 Impairment loss recognised / (reversed) 2,381 2,048 Amounts written off (1,019) (554) Balance at 30 June 7,121 5,759 There were impairment losses recognised in relation to other receivables for $5.220 million, resulting in total impairment charges of $7.601 million being recognised in the Group s profit or loss for the year ended 30 June (: $2.048 million). The total impairment allowances held against the Group s trade and other receivables at 30 June was $ million (: $5.759 million). Sedgman Limited Annual Report 100

102 Notes to the consolidated financial statements (continued) For the year ended 30 June 37 Financial instruments (continued) (f) Fair values The fair value of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are set out below. The fair value levels have been defined as follows: Level 1: quoted prices (unadjusted) in active markets for identical assets and 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 data. Carrying Amount Fair Value Financial assets Cash and cash equivalents 101,987 91, ,987 91,953 Trade and other receivables 91, ,137 91, ,137 Financial assets at fair value through other 400 1, ,000 comprehensive income * Total Assets 194, , , ,090 Financial liabilities Trade and other payables 72, ,901 72, ,901 Interest bearing liabilities 26,989 26,729 26,989 26,796 Total Liabilities 99, ,630 99, ,697 * Financial assets at fair value through other comprehensive income are deemed level 3 in the fair value hierarchy. (g) Capital management risk The Group s objectives when managing capital is to safeguard its ability to continue as a going concern, so that it may continue to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to sustain future development of the business and reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders or issue new shares. There were no changes in the Group s approach to capital management during the year. 101 Sedgman Limited Annual Report

103 Notes to the consolidated financial statements (continued) For the year ended 30 June 38 Reconciliation of profit after income tax to net cash inflow from operating activities Profit for the year 9,428 37,848 Depreciation and amortisation 20,071 20,275 Impairment of plant and equipment 6,358 Impairment of receivables 7,601 2,048 Employee performance rights 2,470 5,035 Net (gain) loss on sale of noncurrent assets (354) 299 Share of (profits)/losses of investments accounted for using the equity method (2,136) (10,310) Net unrealised foreign exchange differences (3,007) (447) Increase/(decrease) in trade and other creditors (62,818) 5,355 Increase/(decrease) in current tax liabilities (15,214) 15,450 Increase/(decrease) in provision for employee entitlements 109 (2,828) Decrease/(increase) in current tax assets (4,158) Decrease/(increase) in deferred tax assets 2,688 (5,041) Decrease/(increase) in trade and other receivables 40,728 (39,524) Decrease/(increase) in work in progress 36,197 20,969 Decrease/(increase) in inventories 2,477 (168) Sundry 671 (148) Net cash (outflow) inflow from operating activities 41,111 48, Earnings per share Cents Cents (a) Basic earnings per share Basic earnings per share (b) Diluted earnings per share Diluted earnings per share (c) Reconciliations of earnings used in calculating earnings per share Basic earnings per share Profit attributable to the ordinary equity holders of the Company used in calculating basic earnings per share 9,428 37,848 Diluted earnings per share Profit attributable to the ordinary equity holders of the Company used in calculating diluted earnings per share 9,428 37,848 Sedgman Limited Annual Report 102

104 Notes to the consolidated financial statements (continued) For the year ended 30 June 39 Earnings per share (continued) (d) Weighted average number of shares used as the denominator Number Number Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share Issued ordinary shares as at 1 July 214,292, ,752,689 Effect of dividend reinvestment plan 2,409,388 2,166,005 Effect of Long Term Incentive Plan share issues 608,329 Effect of employee share plan 141,898 Effect of shares issued to CEO 169,399 Weighted average number of ordinary shares as at 30 June 217,310, ,229,991 Effect of performance rights 1,128,008 Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share 217,310, ,357,999 Performance rights of 5,841,836 (: Nil) were not included in the weighted average number of ordinary shares for the diluted earnings per share calculation because they were antidilutive. 40 Progress claims in advance Construction work in progress comprises: Contract costs and net profits to date 681, ,683 Less: Progress billings (706,964) (863,661) Net construction work in progress (25,175) 11,022 Net construction work in progress comprises: Amounts due from customers trade and other receivables (note 9) 10,135 39,174 Amounts due to customers trade and other payables (note 19) (35,310) (28,152) (25,175) 11, Sharebased payments (a) Employee Share Scheme (equitysettled) This scheme did not operate for the and financial years. (b) Long Term Incentive (LTI) Plan (equitysettled) No performance rights were issued under the Long Term Incentive (LTI) plan during the financial year. In addition the LTI plan has currently been suspended. In relation to performance rights issued in previous years, for the remaining tranches the following vesting profile is in place: Tranche Performance measurement Vesting date Expected Life(i) Risk free rate period 2 1 July 2010 to 30 June 21 August 1.15 years 3.08% 4.35% 3 1 July 2011 to 30 June 2014 August 2014 (ii) 2.15 years 3.08% 4.35% (i) Expected life taken from 1 July. (ii) Actual vesting date will be the date the financial results are released to the market. 103 Sedgman Limited Annual Report

105 Notes to the consolidated financial statements (continued) For the year ended 30 June 41 Sharebased payments (continued) (b) Long Term Incentive (LTI) Plan (equitysettled) (continued) The performance rights are issued to employees for no consideration and are subject to the employee s continuing employment and lapse upon resignation, redundancy or termination (unless certain circumstances such as death or disability where vesting is at the discretion of the Board) or failure to achieve the specified performance vesting condition. The performance rights will immediately vest and become exercisable if in the Board s opinion a vesting event occurs (as defined in the plan rules) such as a takeover bid or winding up of the Company. If the performance rights vest and are exercised the employee receives ordinary shares of the Company for no consideration. The performance vesting condition for performance rights issued is relative Total Shareholder Return (TSR). At the end of each tranche s performance measurement period, the Board will rank the Company s TSR against a peer group that currently comprises 16 other companies (refer below) considered by the Board to be peers or competitors of the Company. The percentage of performance rights in each respective tranche that will vest and become exercisable will depend upon the Company s TSR performance relative to the companies in the peer group (as determined by the Board) as set out in the table below: Sedgman TSR ranking * (at end of performance measurement period) Percentage of performance rights in relevant tranche that vest % 6 90% 7 80% 8 70% 9 60% 10 50% % * The original peer group included 20 companies, including Sedgman Limited. The peer group now comprises 17 companies, as 3 companies were removed from the official list of ASX Limited. For performance rights granted under Tranches 1, 2 and 3, the peer group includes the following companies: NRW Holdings Limited; WDS Limited; RCR Tomlinson Ltd; Lycopodium Limited; Ausenco Limited; Monadelphous Group Limited; Mineral Resources Limited; Cardno Limited; Austin Engineering Ltd; Boart Longyear Limited; Worley Parsons Ltd; Downer EDI Limited; MacMahon Holdings Limited; Clough Limited; Leighton Holdings Limited; and AJ Lucas Group Limited. Sedgman Limited Annual Report 104

106 Notes to the consolidated financial statements (continued) For the year ended 30 June 41 Sharebased payments (continued) (b) Long Term Incentive (LTI) Plan (equitysettled) (continued) The fair value of services received in return for performance rights granted is based on the fair value of the rights granted measured using a Monte Carlo model. A summary of performance rights granted to Executives and other participants inputs used to determine the fair value of performance rights granted are as follows: Grant Date Fair value at grant date Share price at date of grant Expected volatility Dividend yield Balance at start of the year Number Granted during the year Number Forfeited during the year Number Vested during the year Number Balance at the end of year Number Tranche 1 22 Feb 10 $0.860 $ % 4.96% 939,466 (469,733) (469,733) 24 Nov 10 $1.463 $ % 3.29% 125,000 (62,500) (62,500) 01 Jan 11 $1.782 $ % 2.85% 25,000 (12,500) (12,500) 08 Jan 11 $1.617 $ % 3.13% 50,000 (25,000) (25,000) 27 Oct 11 $1.632 $ % 3.34% 59,295 (29,647) (29,648) 28 Oct 11 $1.668 $ % 3.30% 85,738 (42,869) (42,869) 31 Oct 11 $1.687 $ % 3.32% 471,516 (235,758) (235,758) 28 Nov 11 $1.767 $ % 3.25% 500,000 (250,000) (250,000) 2,256,015 (1,128,007) (1,128,008) Tranche 2 22 Feb 10 $0.860 $ % 4.96% 1,169,144 (303,627) 865, Jul 10 $1.018 $ % 4.19% 250, , Nov 10 $1.394 $ % 3.29% 250, , Jan 11 $1.665 $ % 2.85% 25,000 25, Oct 11 $1.356 $ % 3.34% 57,580 57, Oct 11 $1.429 $ % 3.30% 81,451 81, Oct 11 $1.437 $ % 3.32% 427,616 (48,870) 378, Nov 11 $1.525 $ % 3.25% 1,000,000 1,000,000 1 Dec 11 $1.490 $ % 3.25% 16 Mar 12 $1.569 $ % 2.81% 40,725 40,725 3,301,516 (352,497) 2,949,019 Tranche 3 22 Feb 10 $0.830 $ % 4.96% 1,129,436 (293,445) 835, Jul 10 $0.952 $ % 4.19% 250, , Nov 10 $1.285 $ % 3.29% 250, , Jan 11 $1.480 $ % 2.85% 25,000 25, Oct 11 $1.239 $ % 3.34% 55,951 55, Oct 11 $1.290 $ % 3.30% 77,378 77, Oct 11 $1.284 $ % 3.32% 406,235 (46,427) 359, Nov 11 $1.364 $ % 3.25% 1,000,000 1,000,000 1 Dec 11 $1.336 $ % 3.25% 16 Mar 12 $1.514 $ % 2.81% 38,689 38,689 3,232,689 (339,872) 2,892,817 Totals 8,790,220 (1,820,376) (1,128,008) 5,841, Sedgman Limited Annual Report

107 Notes to the consolidated financial statements (continued) For the year ended 30 June 41 Sharebased payments (continued) (b) Long Term Incentive (LTI) Plan (equitysettled) (continued) Grant Date Fair value at grant date Share price at date of grant Expected volatility Dividend yield Balance at start of the year Number Granted during the year Number Forfeited during the year Number Vested during the year Number Modification for cash settled (i) Balance at the end of year Number Tranche 1 22 Feb 10 $0.860 $ % 4.96% 1,210,941 (128,606) (142,869) 939, Nov 10 $1.463 $ % 3.29% 125, , Jan 11 $1.782 $ % 2.85% 25,000 25, Jan 11 $1.617 $ % 3.13% 50,000 50, Oct 11 $1.632 $ % 3.34% 109,295 (50,000) 59, Oct 11 $1.668 $ % 3.30% 85,738 85,738 31Oct 11 $1.687 $ % 3.32% 471, , Nov 11 $1.767 $ % 3.25% 500, ,000 1,410,941 1,166,549 (128,606) (192,869) 2,256,015 Tranche 2 22 Feb 10 $0.860 $ % 4.96% 1,432,045 (122,176) (140,725) 1,169, Jul 10 $1.018 $ % 4.19% 250, , Nov 10 $1.394 $ % 3.29% 250, , Jan 11 $1.665 $ % 2.85% 25,000 25, Oct 11 $1.356 $ % 3.34% 107,580 (50,000) 57, Oct 11 $1.429 $ % 3.30% 81,451 81, Oct 11 $1.437 $ % 3.32% 427, , Nov 11 $1.525 $ % 3.25% 1,000,000 1,000,000 1 Dec 11 $1.490 $ % 3.25% 100,000 (100,000) 16 Mar 12 $1.569 $ % 2.81% 40,725 40,725 1,957,045 1,757,372 (122,176) (290,725) 3,301,516 Tranche 3 22 Feb 10 $0.830 $ % 4.96% 1,384,192 (116,067) (138,689) 1,129, Jul 10 $0.952 $ % 4.19% 250, , Nov 10 $1.285 $ % 3.29% 250, , Jan 11 $1.480 $ % 2.85% 25,000 25, Oct 11 $1.239 $ % 3.34% 105,951 (50,000) 55, Oct 11 $1.290 $ % 3.30% 77,378 77, Oct 11 $1.284 $ % 3.32% 406, , Nov 11 $1.364 $ % 3.25% 1,000,000 1,000,000 1 Dec 11 $1.336 $ % 3.25% 100,000 (100,000) 16 Mar 12 $1.514 $ % 2.81% 38,689 38,689 1,909,192 1,728,253 (116,067) (288,689) 3,232,689 Totals 5,277,178 4,652,174 (366,849) (772,283) 8,790,220 (i) Note the conditions of the performance rights granted for four overseas staff were modified as at 30 June so that they can only be settled in cash. For further disclosure refer to note 41(c). The LTI Plan was revised and reapproved by shareholders at the Group s Annual General Meeting in November to apply to Tranches 4, 5 and 6. Based on the current economic environment and the emphasis on constraining costs, no Tranche 4 performance rights were issued under the LTI Plan during the financial year. The performance rights to be granted under Tranches 5 and 6 to executive directors and employees are for no consideration and are subject to the same performance vesting conditions as applied to Tranches 1, 2 and 3. (c) Long Term Incentive (LTI) Plan (cashsettled) The conditions of the performance rights granted for four overseas staff were modified as at 30 June so that they can only be settled in cash. All other conditions remain unchanged as per the governing LTI plan. At the date of settlement they will receive an amount of cash equal to the value of the shares they would have been entitled to assuming all term and conditions are met. No other cashsettled performance rights were issued in the year ended 30 June. Sedgman Limited Annual Report 106

108 Notes to the consolidated financial statements (continued) For the year ended 30 June 41 Sharebased payments (continued) (c) Long Term Incentive (LTI) Plan (cashsettled) (continued) A summary of the movement in cashsettled performance rights for executives and other participants at 30 June are as follows: Tranche Fair value at modification date Share price at date of modification / grant date Expected volatility Dividend yield Balance at start of the year Number Transfer at modification date Number Forfeited during the year Number Vested during the year Number Balance at the end of year Number Tranche 1 $1.390 $ % 4.68% 192,869 (96,434) (96,435) Tranche 2 $0.527 $ % 4.68% 290,725 (40,725) 250,000 Tranche 3 $0.539 $ % 4.68% 288,689 (38,689) 250,000 Totals 772,283 (175,848) (96,435) 500,000 Tranche Fair value at modification date Share price at date of modification Expected volatility Dividend yield Balance at start of the year Number Transfer at modification date Number Forfeited during the year Number Vested during the year Number Balance at the end of year Number Tranche 1 $1.390 $ % 4.68% 192, ,869 Tranche 2 $0.527 $ % 4.68% 290, ,725 Tranche 3 $0.539 $ % 4.68% 288, ,689 Totals 772, ,283 The fair value of these rights is measured using a Monte Carlo pricing model taking into account the terms and conditions upon which the rights were granted and the current likelihood of achieving the specified targets. The carrying amount of the liability relating to cashsettled performance rights as at 30 June is $1,883 (: $287,316). During the year ended 30 June an expense of $2.185 million (: $5.035 million) was recognised by the Group in respect of the LTI Plan, for both equitysettled and cashsettled performance rights. 107 Sedgman Limited Annual Report

109 Notes to the consolidated financial statements (continued) For the year ended 30 June 42 Parent entity financial information (a) Summary financial information The individual financial statements for the parent entity show the following aggregate amounts: Result of the parent entity Profit for the year 21,559 31,359 Other comprehensive income (420) Total comprehensive income for the year 21,139 31,359 Balance sheet of parent at year end Current assets 157, ,075 Total assets 302, ,503 Current liabilities 77, ,793 Total liabilities 114, ,664 Equity Contributed equity 112, ,377 Reserves 11,113 10,496 Retained profits 64,988 63,966 Total Equity 188, ,839 Bank guarantees and performance bonds have been given in respect of work in progress contracts and leased premises of the parent amounting to $ million (: $ million). The parent entity did not have any other contingent liabilities as at 30 June or 30 June. (b) Guarantees entered into by the parent entity The parent entity has entered into a Deed of Cross Guarantee with the effect that the Company guarantees debts in respect of its subsidiaries. No liability was recognised by the parent entity in relation to this guarantee. Further details of the Deed of Cross Guarantee and the subsidiaries subject to the deed, are disclosed in Note 35. (c) (i) Commitments Capital commitments Capital commitments contracted for at the reporting date but not recognised as liabilities. Property, plant and equipment 2,591 (ii) Operating leases Noncancellable Commitments for minimum lease payments in relation to noncancellable operating leases are payable as follows: Within one year 4,608 4,842 Later than one year but not later than five years 10,833 15,375 15,441 20,217 The parent entity leases buildings under operating leases expiring within the next 3.5 years. The leases involve lease payments comprising a base amount plus an incremental contingent rental. Contingent rentals are based on Fixed Increase Percentages and the Consumer Price Index. The operating lease rental expense recognised in the year ended 30 June was $4.884 million (: $4.823 million). Sedgman Limited Annual Report 108

110 Notes to the consolidated financial statements (continued) For the year ended 30 June 42 Parent entity financial information (continued) (c) (iii) Commitments (continued) Finance leases Commitments in relation to finance leases are payable as follows: Within one year 1,638 1,167 Later than one year but not later than five years 5,585 4,235 Minimum lease payments 7,223 5,402 Less: Future finance charges (872) (788) Total lease liabilities 6,351 4,614 Representing lease liabilities: Current 1, Noncurrent 5,144 3,815 6,351 4, Events occurring after the balance sheet date On 19 August Sedgman Limited signed an agreement to make a $1 million strategic investment in Ascot Resources Limited ( Ascot ), an ASX listed coal explorer and developer. On completion of the investment Sedgman will become Ascot s largest shareholder with a relevant interest of approximately 13.8% of Ascot s shares. Other than the dividend declared subsequent to year end (refer note 28) and the strategic investment noted above, there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years. 109 Sedgman Limited Annual Report

111 Director s Declaration 1. In the opinion of the directors of Sedgman Limited (the Company ): (a) The consolidated financial statements and notes that are set out on pages 54 to 109 and the Remuneration report in the Directors report, set out on pages 40 to 50, are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group s financial position as at 30 June and of its performance for the financial year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2. There are reasonable grounds to believe that the Company and the group entities identified in Note 35 will be able to meet any obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee between the Company and those group entities pursuant to ASIC Class Order 98/ The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Chief Executive Officer and Chief Financial Officer for the financial year ended 30 June. 4. The directors draw attention to Note 2(a) to the consolidated financial statements, which includes a statement of compliance with International Financial Reporting Standards. Signed in accordance with a resolution of the directors. Russell James Kempnich Chairman Nicholas Neil Jukes Managing Director Brisbane 20 August Sedgman Limited Annual Report 110

112 Independent auditor s report to the members of Sedgman Limited Report on the financial report We have audited the accompanying financial report of Sedgman Limited (the Company), which comprises the consolidated balance sheet as at 30 June, and the consolidated statement of profit or loss, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated cash flow statement for the year ended on that date, notes 1 to 43 comprising a summary of significant accounting policies and other explanatory information and the directors declaration of the Group comprising the Company and the entities it controlled at the year s end or from time to time during the financial year. Directors responsibility for the fi nancial report The directors of the Company are responsible for the preparation and fair presentation 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 presentation of the financial report that is free from material misstatement, whether due to fraud or error. In note 2(a), the directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements of the Group comply with International Financial Reporting Standards. Auditor s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We performed the procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001 and Australian Accounting Standards, a true and fair view which is consistent with our understanding of the Group s financial position and of its performance. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act Auditor s opinion In our opinion: (a) the 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 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations (b) the financial report also complies with International Financial Reporting Standards as disclosed in note 2(a). KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation 111 Sedgman Limited Annual Report

113 Independent auditor s report to the members of Sedgman Limited (continued) Report on the remuneration report We have audited the Remuneration Report included in pages 40 to 50 of the directors report for the year ended 30 June. 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 Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with auditing standards. Auditor s opinion In our opinion, the remuneration report of Sedgman Limited for the year ended 30 June, complies with Section 300A of the Corporations Act KPMG Jason Adams Partner Brisbane 20 August Sedgman Limited Annual Report 112

114 Additional Shareholder Information Additional information required by the Australian Securities Exchange Limited (ASX) Listing Rules, and not disclosed elsewhere in this report, is set out below. Shareholdings as at 19 September Substantial shareholders The number of ordinary shares held by substantial shareholders and their associates are set out below: Name No of ordinary shares held % of capital held LEIGHTON HOLDINGS INVESTMENTS PTY LIMITED 76,404, COMMONWEALTH BANK OF AUSTRALIA LTD 17,046, RUSSELL KEMPNICH & RELATED PARTIES 16,469, Voting rights The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. Range Total holders Units % of issued capital 1 1, , ,001 5,000 1,194 3,695, ,001 10, ,146, , ,000 1,215 32,213, ,001 and above ,857, Total 4, ,368, Unmarketable parcels Minimum parcel size Holders Units Minimum $ parcel at $ per unit Sedgman Limited Annual Report

115 20 largest shareholders as at 19 September Rank Name Units % of Units 1. LEIGHTON HOLDINGS INVESTMENTS PTY LIMITED 76,404, CITICORP NOMINEES PTY LIMITED 19,453, NATIONAL NOMINEES LIMITED 17,049, RUSSELL KEMPNICH & RELATED PARTIES 16,469, J P MORGAN NOMINEES AUSTRALIA LIMITED 10,691, MINERAL RESOURCE ENGINEERING SERVICES PTY LTD 3,915, UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD 3,425, BNP PARIBAS NOMS PTY LTD 2,823, HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 2,666, TJSMSF PTY LIMITED 2,495, BOND STREET CUSTODIANS LIMITED 2,327, RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED 2,323, MILTON CORPORATION LIMITED 2,021, MR IAN THOMAS ATF IAN THOMAS FAMILY TRUST 1,467, CUNACT PTY LTD 1,000, ZENRAY PTY LIMITED ATF THE ZENRAY FAMILY TRUST 882, CHRYSALIS INVESTMENTS PTY LTD ATF THE ELLIS SUPERFUND 859, RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED 752, BRISPOT NOMINEES PTY LTD 734, ROBERT MCDONALD & RELATED PARTIES 613, ,376, Sedgman Limited Annual Report 114

116 Corporate Directory Company Sedgman Limited ABN Sedgman Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares. Directors Russell Kempnich, Chairman Nick Jukes, CEO and Managing Director Donald Argent, NonExecutive Director Roger Short, NonExecutive Director Robert McDonald, NonExecutive Director Peter Richards, NonExecutive Director Company Secretary Adrian Relf Registered and Head Office Sedgman Limited Level 2, 2 Gardner Close Milton Queensland 4064 Australia Tel: mail@sedgman.com Website Share Registry Computershare Investor Services Pty Limited 117 Victoria Street West End Queensland 4101 Australia Independent Auditors KPMG Riparian Plaza Level 16, 71 Eagle Street Brisbane Queensland 4000 Australia Securities Exchange Listing Sedgman Limited is listed on the Australian Securities Exchange under the code 'SDM'. Boseto Copper Project, Botswana, Africa. Client: Discovery Metals Limited. 115 Sedgman Limited Annual Report

117 Sedgman Offices Australia Brisbane Head Office Level 2, 2 Gardner Close Milton QLD 4064 Tel: Perth Suite 3, 3 Craig Street Burswood WA 6100 Tel: Townsville Industrial Avenue Bohle Industrial Estate Townsville QLD 4810 Tel: Mackay 11, 121 Boundary Road Paget (Mackay) QLD 4740 Tel: Newcastle Level 1, 24 Beaumont Street Hamilton NSW 2303 Tel: Gladstone Suite 6, Tank Street Gladstone QLD 4680 PO Box 496 Gladstone DC QLD 4680 Tel: Gold Coast Level 1, 193 Ferry Road Southport QLD 4215 Tel: Melbourne Suite 2, Raglan Street South Melbourne VIC 3205 Tel: Africa South Africa 1st Floor Eco Court 340 Witch Hazel Avenue Centurion 0157 Tel: Americas Chile Apoquindo 4501, Piso 17 Las Condes Santiago Tel: Canada Level 26, 650 West Georgia Street Vancouver BC V6E 4N9 Tel: Asia Shanghai , Level 6, Tower 10 Knowledge & Innovation Centre No. 290 Songhu Road Yangpu District Shanghai P. R. China Tel: Beijing Suite 1003, Building 4 TEDA Times Center No. 15 Guanghua Road Chaoyang District Beijing P. R. China Tel: Mongolia 1st Floor, Section D, Sky Plaza Olympic Street 12 Sukhbaatar District Ulaanbaatar Tel: Sedgman Limited Annual Report 116