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1 Chandler Macleod Group Limited and its controlled entities ABN Half-Year Report for the six months ended 31 December 2011

2 CHANDLER MACLEOD GROUP LIMITED HALF YEAR REPORT Contents Corporate Information 1 Directors Report 2 Auditor's Independence Declaration 5 Statement of Comprehensive Income 6 Balance Sheet 7 Cash Flow Statement 8 Statement of Changes in Equity 9 Notes to the Half-Year Financial Statements 10 Directors Declaration 20 Independent Auditor s Report 21

3 CHANDLER MACLEOD GROUP LIMITED HALF YEAR REPORT Corporate Information ABN DIRECTORS R.A.F. England (Chairman, Non Executive Director) J.C. Plummer (Deputy Chairman, Non Executive Director) I.R. Basser (Managing Director and Chief Executive Officer) M.H. Carnegie (Non Executive Director) D. Birkbeck (Alternate Director to M. H. Carnegie) E. A. Crouch (Non-Executive Director) J. J. Cowin (Non-Executive Director) COMPANY SECRETARIES O.J. Wilson G. J. Coolahan REGISTERED OFFICE Level 8, 32 Walker Street North Sydney NSW 2060 (02) PRINCIPAL PLACE OF BUSINESS Level 8, 32 Walker Street North Sydney NSW 2060 (02) SHARE REGISTER Computershare Investor Services Pty Limited Yarra Falls 452 Johnston Street Abbotsford VIC 3067 BANKERS National Bank of Australia AUDITORS Ernst & Young INTERNET ADDRESS 1

4 CHANDLER MACLEOD GROUP LIMITED HALF YEAR REPORT Directors Report Your directors submit their report for the half-year ended 31 December DIRECTORS The names of the company s directors in office during the half-year and until the date of this report are as below. Directors were in office for this entire period unless otherwise stated. R.A.F. England (Chairman, Non Executive Director) J.C. Plummer (Deputy Chairman, Non Executive Director) I.R. Basser (Managing Director and Chief Executive Officer) M.H. Carnegie (Non Executive Director) D. Birkbeck (Alternate Director to M. H. Carnegie) E. A. Crouch (Non-Executive Director) J. J. Cowin (Non-Executive Director) REVIEW AND RESULTS OF OPERATIONS 31 December December 2010 Financial summary ($000) ($000) Revenue 771, ,038 EBITDA before transaction costs 19,911 13,269 Transaction costs (360) (1,170) EBITDA 19,551 12,099 Net profit after tax before transaction costs 8,472 6,089 Transaction costs after tax (297) (819) Net profit for the period 8,175 5,270 The Group delivered a profit after tax before transaction costs for the six months ended 31 December 2011 of $8.5 million compared to $6.1 million in the same period last year, an increase of 39%. The reported result of $8.2 million includes the impact of $0.3 million (after tax) of transaction costs. The significant increase in the result is primarily due to the inclusion of the Ross Human Directions ( RHD ) business. This business was acquired in the previous financial year with an effective date of 31 December 2010 for the inclusion of results. Since this date the recruitment businesses have been integrated under a new operating structure and the overhead base of the former business has been rationalised and merged with the respective areas within Chandler Macleod. As a result it is not possible to separately report the profit for the former RHD business and, except for sales, prior period comparatives for the Group are not meaningful. Revenue for the half was $772 million, an increase of 55% over the first half last year driven by the inclusion of the RHD business. Excluding the revenue associated with the former RHD businesses, underlying revenue grew 14% despite challenging trading conditions for most of the half as market confidence deteriorated and customers reduced their demand for permanent recruitment. The strong revenue growth was driven by continued increases in contractor hours, both blue and white collar as new business wins came on stream, and strong growth in the Consulting and Aurion payroll businesses. Including the RHD expenses for the same period last year, underlying cost growth was restricted to 4.5% compared to the underlying revenue growth of 11%. 2

5 CHANDLER MACLEOD GROUP LIMITED HALF YEAR REPORT Directors Report (continued) REVIEW AND RESULTS OF OPERATIONS (CONTINUED) Net interest expense for the half was $4.0 million compared to $1.7 million in the corresponding period in This is primarily due to the debt associated with the acquisition of the RHD business together with increased working capital required to support the increase in sales. The operating cash flow before interest was $11.8 million. This outcome was below prior periods as many customers delayed payments until the first week in January. $35 million in cash was collected in the first five days of January. ACQUISITION OF AUSTRALIAN HOSPITALITY SERVICES ( AHS ) On 20 February 2012, Chandler Macleod entered into a binding agreement to acquire 100% of the shares in Australian Hospitality Services Group Pty Ltd ( AHS ) for $31.5 million. The acquisition, to be funded by term debt, is scheduled to complete on 27 February 2012 subject to certain conditions precedent which are expected to be satisfied before this date. AHS is Australia s largest dedicated outsourced service provider to the accommodation sector with a highly recognised brand. It provides services to every one of the top 10 hotel chains in Australia. AHS commenced operations in 1993 and, today, employs over 3,400 people trained specifically in hospitality guest services at over 140 hotels Australia-wide. AHS is responsible for the provision of accommodation services for over eight million rooms in three to five star hotels per year. The Board has declared a fully franked divided of 1.20 cents per share (2011: 0.80 cents). Further commentary on the result is included in the ASX announcement released today. ROUNDING The amounts contained in the half-year report is presented in Australian dollars and have been rounded to the nearest $1,000 (where rounding is applicable) under the option available to the company under ASIC Class Order 98/0100. The company is an entity to which the Class Order applies. 3

6 CHANDLER MACLEOD GROUP LIMITED HALF YEAR REPORT Directors Report (continued) AUDITOR S INDEPENDENCE DECLARATION We have obtained an independence declaration from our auditors Ernst & Young which is set out on the following page and forms part of this Directors Report. Signed in accordance with a resolution of the directors. Ian Basser Managing Director 20 February

7 CHANDLER MACLEOD GROUP LIMITED HALF YEAR REPORT Auditor's Independence Declaration AUDITOR'S INDEPENDENCE DECLARATION TO THE DIRECTORS OF CHANDLER MACLEOD GROUP LIMITED In relation to our review of the financial report of Chandler Macleod Group Limited for the half-year ended 31 December 2011, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct. Ernst & Young Douglas Bain Partner 20 February

8 Statement of Comprehensive Income FOR THE HALF YEAR ENDED 31 DECEMBER 2011 Note $000 $000 Rendering of services 771, ,038 Other income Total revenue 771, ,741 Contractor and other direct costs (666,919) (429,491) Employee benefits expense (64,674) (42,573) Other costs (20,265) (13,408) Acquisition transaction costs (360) (1,170) Earnings before interest, tax, depreciation & amortisation (EBITDA) 19,551 12,099 Depreciation (1,862) (1,372) Amortisation 4(a) (2,964) (1,485) Earnings before interest & tax (EBIT) 14,725 9,242 Finance costs (net) 4(b) (4,033) (1,654) Profit before income tax 10,692 7,588 Income tax expense (2,517) (2,318) Net profit for the period 8,175 5,270 Other comprehensive income Foreign currency translation (240) (187) Loss on cash flow hedge (152) - Total comprehensive income for the period 7,783 5,083 Profit for the period is attributable to: Non-controlling interest 41 - Owners of the parent 8,134 5,270 8,175 5,270 Total comprehensive income for the period attributable to: Non-controlling interest 41 - Owners of the parent 7,742 5,083 7,783 5,083 Cents Cents Earnings per share for profit attributable to the ordinary equity holders of the parent: Basic EPS for the half year Diluted EPS for the half year The accompanying notes form an integral part of this Statement of Comprehensive Income. 6

9 Balance Sheet AS AT 31 DECEMBER 2011 Note 31 December June 2011 $000 $000 CURRENT ASSETS Cash and cash equivalents 8 4,876 4,426 Trade and other receivables 130, ,324 Prepayments and other current assets 1,736 4,340 TOTAL CURRENT ASSETS 137, ,090 NON-CURRENT ASSETS Other financial assets Property, plant and equipment 9 13,435 7,275 Intangible assets and goodwill , ,217 Deferred tax assets 16,175 15,114 TOTAL NON-CURRENT ASSETS 181, ,950 TOTAL ASSETS 318, ,040 CURRENT LIABILITIES Trade and other payables 67,546 70,236 Interest-bearing loans and borrowings 11 69,316 59,620 Income tax payable 2,233 4,505 Provisions 14,426 15,741 TOTAL CURRENT LIABILITIES 153, ,102 NON-CURRENT LIABILITIES Payables 1, Interest-bearing loans and borrowings 1,974 2,494 Deferred tax liabilities 4,739 3,225 Provisions 2,830 2,842 TOTAL NON-CURRENT LIABILITIES 10,545 8,861 TOTAL LIABILITIES 164, ,963 NET ASSETS 154, ,077 EQUITY Contributed equity , ,884 Retained earnings 5,874 3,314 Reserves 1, Parent interests 154, ,077 Non-controlling interests (41) - TOTAL EQUITY 154, ,077 The accompanying notes form an integral part of this Balance Sheet. 7

10 Cash Flow Statement FOR THE HALF YEAR ENDED 31 DECEMBER 2011 Note 31 December 31 December $000 $000 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers (inclusive of GST) 845, ,700 Payments to suppliers and employees (inclusive of GST) (829,516) (521,084) Interest received 21 9 Borrowing costs (2,171) (1,375) Income tax paid (4,019) (1,256) Net cash flows from operating activities 9,634 12,994 CASH FLOWS FROM INVESTING ACTIVITIES Business combinations, net of cash acquired (807) 1,344 Refund of security deposit for workers compensation policy - 70 Purchase of property, plant & equipment (7,682) (1,764) Proceeds from disposal of property, plant & equipment 2 2 Software and project development costs 10 (1,429) (1,794) Net cash flows used in investing activities (9,916) (2,142) CASH FLOWS FROM FINANCING ACTIVITIES Repayment of finance lease capital (721) (582) Purchase of shares 12 - (791) Interest paid (1,512) - Net proceeds from borrowings 9, Payment of dividends 7 (5,615) (4,243) Net cash flows from/(used in) financing activities 1,560 (4,726) Net increase in cash 1,278 6,126 Cash and cash equivalents at beginning of financial period 3,598 (1,578) CASH AND CASH EQUIVALENTS AT END OF PERIOD 8 4,876 4,548 The accompanying notes form an integral part of this Cash Flow Statement. 8

11 Statement of Changes in Equity Note Contributed equity Retained Earnings Hedge Reserve Translation Reserves Employee share Reserves Owners of the parent Total $000 $000 $000 $000 $000 $000 $000 $000 At 1 July ,884 3,314 - (527) 1, , ,077 Non controlling interest on acquisition (82) (82) Profit for the period - 8, , ,175 Other comprehensive expense - - (152) (240) - (392) - (392) Total comprehensive income/(expense) for the period - 8,134 (152) (240) - 7, ,783 Transactions with owners in their capacity as owners: Shares vested under employee share plans (43) Share-based payment expense Dividends paid - (5,615) (5,615) - (5,615) At 31 December ,927 5,833 (152) (767) 2, ,118 (41) 154,077 Contributed equity Shares to be issued Retained Earnings Translation Reserves Employee share Reserves Owners of the parent Noncontrolling interest Noncontrolling interest Total $000 $000 $000 $000 $000 At 1 July , (124) , ,719 Profit for the period - - 5, ,270-5,270 Other comprehensive expense (187) - (187) - (187) Total comprehensive income/(expense) for the period - - 5,270 (187) - 5,083-5,083 Transactions with owners in their capacity as owners: Issue of shares Purchase of shares (791) (791) - (791) Shares to be issued to RHD shareholders Share-based payment expense Dividends paid - - (4,243) - - (4,243) - (4,243) At 31 December , ,027 (311) 1, , ,203 The accompanying notes form an integral part of this Statement of Changes in Equity. 9

12 Notes to the Half-Year Financial Statements FOR THE HALF-YEAR ENDED 31 DECEMBER CORPORATE INFORMATION The half-year financial report of Chandler Macleod Group Limited ( the Company ) and its controlled entities for the halfyear ended 31 December 2011 was authorised for issue in accordance with a resolution of the directors on 20 February Chandler Macleod Group Limited is a company incorporated in Australia and limited by shares, which are publicly traded on the Australian Securities Exchange. There have been no significant changes in the nature of the operations and principal activities of Chandler Macleod Group Limited and its controlled entities ( the Group ) since the financial year ended 30 June SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The half-year financial report does not include all notes of the type normally included within the annual financial report and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities of the Group as the full financial report. The half-year financial report should be read in conjunction with the annual Financial Report of Chandler Macleod Group Limited as at 30 June It is also recommended that the half-year financial report be considered together with any public announcements made by the Group during the half-year ended 31 December 2011 in accordance with the continuous disclosure requirements arising under the ASX listing rules. (a) Basis of Preparation The half-year financial report is a general purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, AASB 134 Interim Financial Reporting and other mandatory professional reporting requirements. The half-year financial report has been prepared in accordance with the historical cost convention. For the purpose of preparing the half-year financial report, the half-year has been treated as a discrete reporting period. New Accounting Standards and Interpretations Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2011 reporting period. The Group assessed the impact of these new standards and interpretations. Based on this assessment, it is not expected that these new accounting standards will have a material impact on the amounts reported in the Group s financial statements. Certain disclosures and presentation may change due to the new or amended standards. 10

13 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) Significant accounting policies The half-year financial statements have been prepared using the same accounting policies as used in the annual financial statements the year ended 30 June 2011 except for the new standards adopted for the half year ended 31 December The Group uses interest rate swaps to manage its exposure to interest rates. Interest rate swaps are intially recognised at fair value at the date the contract is entered into and are subsequently remeasured to the fair value at the end of each reporting period. At 31 December 2011, the interest rate swap is designated as an effective hedging instrument and the resulting gain or loss is recognised in the hedging reserves. (c) Basis of consolidation The financial statements comprise the consolidated financial statements of Chandler Macleod Group Limited and its controlled entities as at 31 December The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. In preparing the consolidated financial statements, all intercompany balances and transactions, income and expenses and profits and losses resulting from intra-group transactions, have been eliminated in full. Subsidiaries are fully consolidated from the date on which control is obtained by the Group and cease to be consolidated from the date on which control is transferred out of the Group. The acquisition of subsidiaries is accounted for using the purchase method of accounting. The purchase method of accounting involves allocating the cost of the business combination to the fair value of the assets acquired and the liabilities and contingent liabilities assumed at date of acquisition. Non-controlling interests are allocated their share of net profit after tax in the statement of comprehensive income and are presented within equity in the consolidated balance sheet, separately from the equity of the owners of the parent. (d) Comparatives Prior period adjustments During the 2011 financial year, Chandler Macleod Group acquired 100% of the shares in Ross Human Directions Limited ( RHD ) through an off-market takeover bid. In accordance with accounting standards, CMG provisionally recognised the fair value of assets and liabilities acquired from RHD in the Balance Sheet as at 31 December The fair value of the business was finalised in the current financial year and as a result, the previously reported balances have been adjusted in the comparative period. Please refer to note 13b for details. 11

14 Notes to the Half-Year Financial Statements (continued) 3. OPERATING SEGMENTS The Group has identified its operating segments based on the internal reports that are reviewed and used by the Board of Directors, the chief financial officer and the chief operating officer (the chief operating decision makers- CODM) in assessing performance and in determining the allocation of resources. The operating segments are identified by management based on the nature of the services provided. Discrete financial information about each of these operating businesses is reported to the CODM on at least a monthly basis. During the period, the CODM reassessed the nature of services each segment provides and concluded the following operating segments best represent the Group s operating structure. As a result, Aviation and Health (previously reported under the Workforce segment) are now reported under the Managed Services segment together with the RHD Managed Services division (previously reported under Non Recruitment), OCG, previously reported separately, is now included in the Recruitment segment. The following table presents the revenue and profit information regarding operating segments for the half-year periods ended 31 December 2011 and 31 December Workforce Recruitment Non- Managed Unallocated Total Recruitment Services $000 $000 $000 $000 $000 $ December 2011 Services to external customers 275, ,593 20, , ,432 Inter-segment revenues Total segment revenue 275, ,981 20, , ,377 Segment result 10,754 13,537 3,754 7,444-35,489 Corporate overheads (15,938) (15,938) EBITDA 19, December 2010 Services to external customers 251, ,102 10,459 63, ,038 Inter-segment revenues ,067 Total segment revenue 251, ,365 11,199 63, ,105 Segment result 8,725 8, ,719-20,067 Corporate overheads (7,968) (7,968) EBITDA 12,099 Segment revenue reconciliation to the income statement 31 December December 2010 $000 $000 Total segment revenue 772, ,105 Inter-segment sales elimination (945) (1,067) Other income Total revenue from continuing operations per the Income Statement 771, ,741 Segment earnings before interest, tax, depreciation & amortisation (EBITDA) reconciliation to the income statement 31 December December 2010 $000 $000 EBITDA 19,551 12,099 Depreciation and amortisation expense (4,826) (2,857) Finance costs (4,033) (1,654) Income tax expense (2,517) (2,318) Net profit per the Income Statement 8,175 5,270 12

15 Notes to the Half-Year Financial Statements (continued) 4. REVENUES AND EXPENSES REVENUE AND EXPENSES $000 $000 (a) Amortisation included in the Income Statement Amortisation of software 1,957 1,485 Amortisation of acquired intangible assets 1,007 - Total amortisation (Note 10) 2,964 1,485 (b) Finance costs (net) Finance costs: - Interest on bank loans and overdrafts 3,683 1,375 - Interest expense related to present valuing make good and workers compensation Total finance costs 4,054 1,663 Finance revenue: - Bank interest receivable (21) (9) Total finance costs, net 4,033 1,654 (c) Other expense items: Minimum lease payments - operating leases 5,820 4,084 Bad and doubtful debts trade debtors Share based payment

16 Notes to the Half-Year Financial Statements (continued) 6. EARNINGS PER SHARE Basic earnings per share amounts are calculated by dividing net profit for the half-year attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the half-year. Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the Company for the half-year by the weighted average number of ordinary shares outstanding during the half-year plus the weighted average number of ordinary shares that would be issued on the exercise of directors' options into ordinary shares under the share options plan. The following reflects the income and share data used in the calculations of basic and diluted earnings per share $000 $000 Net profit after tax 8,175 5,270 Less: profit attributable to non-controlling interest (41) - Net profit attributable to ordinary equity holders of the parent 8,134 5,270 Number of shares Number of shares Weighted average number of shares used in calculating basic earnings per share 437,412, ,007,969 Effect of dilutive securities: Senior Executive Share Plan 22,551,143 18,420,223 Adjusted weighted average number of ordinary shares used in calculating diluted earnings per share 459,963, ,428, DIVIDENDS PAID AND PROPOSED For the six month ended 31 December $000 $000 (a) Recognised amounts Dividends declared and paid during the half-year on ordinary shares: Final franked dividend for the financial year 30 June 2011: 1.20 cents per share (2010: 1.00 cent ) Settled through cash 5,615 4,243 (b) Unrecognised amounts^ 5,615 4,243 Dividends proposed and not yet recognised as a liability (note 15) Interim franked dividend for the half-year 31 December 2011: 1.20 cents per share (2010: 0.80 cents) 5,615 3,736 5,615 3,736 ^Interim dividend is calculated based on the number of issued shares as at 31 December CASH AND CASH EQUIVALENTS For the purpose of the half-year Cash Flow Statement, cash and cash equivalents are comprised the following: 31 December June December 2010 $000 $000 $000 Cash at bank and in hand 4,876 4,426 4,730 Bank overdraft - (828) (182) 4,876 3,598 4,548 14

17 Notes to the Half-Year Financial Statements (continued) 9. PROPERTY, PLANT AND EQUIPMENT Additions and disposals During the half-year ended 31 December 2011, the Group acquired assets with a cost of $8,009,000 in the normal course of business (2010: $1,878,000). A significant portion of the capital expenditure was incurred as a result of the property consolidation upon expiration of a number of old leases of the Group and IT infrastructure upgrade. Assets with the net book value of $21,000 were disposed of by the Group during the half-year ended 31 December 2011 (2010: $19,000), resulting in a loss on disposal of $18,000 (2010: loss of $17,000). 10. INTANGIBLE ASSETS AND GOODWILL Goodwill Project Development Costs Software# Leased Software Brand Names Client Relationship Total $000 $000 $000 $000 $000 $000 $000 At 30 June 2011^ Cost (or deemed cost) 123, ,087 2,969 7,300 2, ,545 Accumulated amortisation and impairment (2,307) - (10,984) (858) - (179) (14,328) Net carrying amount 121, ,103 2,111 7,300 2, ,217 At 1 July 2011 Net of accumulated amortisation and impairment 121, ,103 2,111 7,300 2, ,217 Arising on acquisition (i) 1, ,194 Additions (ii) - 1, ,429 Transfers - (59) Arising on changes in estimates of prior year acquisition Amortisation - - (2,355) (431) - (178) (2,964) At 31 December 2011, net of accumulated amortisation and impairment 122,822 1,215 16,174 1,680 7,300 2, ,334 At 31 December 2011 Cost (or deemed cost) 125,129 1,215 29,513 2,969 7,300 2, ,626 Accumulated amortisation and impairment (2,307) - (13,339) (1,289) - (357) (17,292) Net carrying amount 122,822 1,215 16,174 1,680 7,300 2, ,334 ^ 30 Jun 11 balances have been restated (Note 13b). # Software includes $11,600,000 of Aurion Software arising from the RHD acquisition and $829,000 of amortisation for the half year ended 31 December (i) (ii) Intangibles arising from the acquisition of Advance Career Indonesia (ACI) (Note 13a). Current year additions for Project Development Costs are mainly related to the new front office operating system which the Group is in the process of implementing. 15

18 Notes to the Half-Year Financial Statements (continued) 11. INTEREST BEARING LOANS AND BORROWINGS On 30 November 2011, the Group amalgamated the RHD and Chandler Macleod banking facilities and repaid the $25m bank bill facility with National Australia Bank Limited (NAB). The combined banking facilities with NAB comprises a receivables finance facility up to $90 million, a receivables purchase facility up to $55 million, an overdraft facility of $3 million, a contingent liability facility of $36.65 million and a credit card facility of $0.4 million. As at the period end the Group utilised $36,707,260 (30 June 2011: $30,171,000) under the non-recourse receivables facility. All the facilities expired on 31 January 2012 and are subject to annual review. On 31 January 2011, the Group extended its banking facility with NAB until 31 May 2012 and increased the receivables finance facility limit from $90 million to $100 million and reduced the receivables purchase facility limit from $55 million to $45 million. On 16 September 2011, ACI, a subsidiary of the Group operating in Indonesia, entered into a facility agreement with PT ANZ Panin Bank, which comprises a Revolving Loan Facility up to AUD$1.1 million and an Overdraft Facility up to AUD$1.2 million. The ultimate parent Chandler Macleod Group Limited provided a guarantee to secure the facilities. There were no new long term loans and borrowings obtained by the Group during the interim period ended 31 December The net increase in short and long term interest bearing loans and borrowings reflects the increased utilisation of bank facilities for working capital purpose and capital expenditures. During the half year period, there were no defaults or breaches by the Company on any of the loans and banking covenants. 12. CONTRIBUTED EQUITY Ordinary shares 31 December June 2011 $000 $000 Issued and fully paid ordinary shares 146, ,884 Ordinary shares have the right to receive dividends as declared and, in the event of winding up the company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. During the period, the Company reduced its accumulated losses and contributed equity by an equal amount of $45,138,000 in accordance with section 258F of the Corporations Act. The retained earnings and contributed equity of the consolidated Group are not impacted by this reduction. (a) Movements in shares on issue Ordinary shares (excluding reserved shares) Number $000 As at 1 July ,344, ,884 Purchase of shares (i) (478,618) (171) Deferred earn-out settlement (i) 478, Shares vested under senior executive share plan 134, Balance at end of period 437,478, ,927 (i) During the period, 478,618 shares were purchased on market in a number of transactions by the Company, at a total cost of $170,919 and were transferred to the vendors of Willis Management Pty Limited (a fully owned subsidiary acquired by CMG in 2008) as part of the final deferred earn-out consideration payment for the acquisition. (b) Reserved shares Number of shares $000 At 1 July ,584,618 13,744 Shares vested under senior executive share plan (134,000) (43) At 31 December ,450,618 13,701 The Group re-acquired its own equity instruments for later use under employee share-based payment arrangements (reserved shares) and those reserved shares are excluded from equity (12a). 16

19 Notes to the Half-Year Financial Statements (continued) 13. BUSINESS COMBINATION (a) Advanced Career Indonesia (ACI) On 20 July 2011, Ross Human Directions Limited Hong Kong, a subsidiary of Chandler Macleod Limited led a consortium to acquire an 86% interest in ACI. ACI is a white collar contracting business with almost 4,000 people working primarily in the banking and telecommunications sectors. The acquisition price comprised an initial cash payment of $0.85 million and a deferred cash payment of $0.2 million payable on 28 February 2012 subject to independent confirmation of the gross margin for the 2011 calendar year. The acquisition was effective from 1 May 2011 and the Group s Comprehensive Income Statement for the period ended 31 December 2011 included ACI net profit of $141,380. (b) RHD Acquisition- Revision of provisional acquisition accounting On 15 November 2010, Chandler Macleod made an off-market takeover bid to purchase 100% of the shares in Ross Human Directions Limited ( RHD ). On 22 December 2010, CMG declared the off-market takeover bid unconditional after receiving the minimum acceptance. On this day effective control of RHD was passed to CMG and the financial results of RHD were included in CMG s results from 1 January The transaction was completed on 15 April 2011and RHD became a fully owned subsidiary of CMG. In accordance with AASB3, CMG provisionally recognised the fair values of assets and liabilities acquired from RHD in the Balance Sheet as at 30 June 2011 and the difference of $29.9 million between the acquisition price of $60.7 million and the tangible assets acquired was provisionally accounted as goodwill. Subsequent to 30 June 2011, an independent valuation was carried out and the following intangibles were identified and separately recognised in accordance with the relevant accounting standards: $000 Aurion Software 11,600 Brand names 2,500 Customer Contracts/Relationships 2,700 Increase in fair value of deferred tax assets 2,280 Goodwill 10,809 29,889 Prior period adjustments As a result of the above fair value adjustments, the following adjustments have been made to 2011 June comparative balance sheet as required by AASB3. 30 June 2011 As previously stated Amendments to fair value Amortisation 30 June 2011 Restated $000 $000 $000 $000 Non-Current Assets Goodwill 140,238 (19,068) - 121,170 Other intangibles 14,254 16,800 (1,007) 30,047 Intangible assets and goodwill 154,492 (2,268) (1,007) 151,217 Deferred tax assets 12,614 2, ,114 Current Liabilities Income tax payable 4,534 - (29) 4,505 Equity Contributed equity 146, ,884 Retained earnings 4,072 - (758) 3,314 17

20 Notes to the Half-Year Financial Statements (continued) 14. COMMITMENTS AND CONTINGENCIES (a) Operating lease commitments - as lessee The Group has entered into commercial leases for access to certain premises. These leases have a life ranging between 2 and 6 years with renewal options included in most contracts. Rental payments are fixed with inflation or fixed percentage escalation clauses on which contingent rentals are determined Future minimum rentals payable under non-cancellable operating leases as at 31 December 2011 are as follows: 31 December June 2011 $000 $000 Within one year 7,480 8,323 After one year and not later than five years 19,052 12,436 More than five years 5,500 3,714 Aggregate lease expenditure contracted for at reporting date 32,032 24,473 (b) Finance lease and hire purchase commitments- as lessee The Group has finance leases for various items of property, plant and equipment. These leases have terms of renewal but no purchase options and escalation clauses. Renewals are at the option of the specific entity that holds the lease. Future minimum lease payments under finance leases together with the present value of the net minimum lease payments are as follows: 31 December June 2011 Present value of Minimum lease lease payments payments Minimum lease payments Present value of lease payments $000 $000 $000 $000 Within one year ,138 1,114 After one year and not later than five years ,013 1,004 Total minimum lease payments 1,417 1,398 2,151 2,118 Less amounts representing finance charges (19) - (33) - Present value of minimum lease payments 1,398 1,398 2,118 2,118 18

21 Notes to the Half-Year Financial Statements (continued) 14. COMMITMENTS AND CONTINGENCIES (CONTINUED) (d) Guarantees Bank guarantees are as follows: 31 December June 2011 $000 $000 Bank guarantees in respect of leases of premises 6,898 5,951 Workers compensation guarantees 28,983 28,983 35,881 34,934 (e) Litigation The Group has been involved from time to time in various claims and lawsuits incidental to the ordinary course of business. Based on legal advice obtained, other than the amounts already provided for in the accounts, the directors do not expect any material liability to eventuate. 15. SUBSEQUENT EVENTS On 20 February 2012, Chandler Macleod entered into a binding agreement to acquire 100% of the shares in Australian Hospitality Services Group Pty Ltd ( AHS ) for $31.5 million. The acquisition, to be funded by term debt, is scheduled to complete on 27 February 2012 subject to certain conditions precedent which are expected to be satisfied before this date. AHS is Australia s largest dedicated outsourced service provider to the accommodation sector with a highly recognised brand. It provides services to every one of the top 10 hotel chains in Australia. AHS commenced operations in 1993 and, today, employs over 3,400 people trained specifically in hospitality guest services at over 140 hotels Australia-wide. AHS is responsible for the provision of accommodation services for over eight million rooms in three to five star hotels per year. On 20 February 2012, the directors of Chandler Macleod Group Limited declared an interim dividend on ordinary shares in respect of the December 2011 half-year. The total amount of the dividend calculated based on the number of issued shares as at 31 December 2011 is $5.6 million which represents a fully franked dividend of 1.20 cent per share. The dividend has not been provided for in the 31 December 2011 half-year financial statements. Apart from the matters referred to above, there has not arisen in the interval between the half year ended 31 December 2011 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 consolidated entity, the results of those operations, or the state of affairs of the consolidated entity, in subsequent financial years. 19

22 Directors Declaration In accordance with a resolution of the directors of Chandler Macleod Group Limited, I state that: In the opinion of the directors: a) the financial statements and notes of the consolidated entity: (i) (ii) give a true and fair view of the financial position as at 31 December 2011 and the performance for the half-year ended on that date of the consolidated entity; and comply with Accounting Standard AASB 134 Interim Financial Reporting 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. On behalf of the Board Ian Basser Managing Director Sydney 20 February

23 Independent Auditor s Report To the members of Chandler Macleod Group Limited REPORT ON THE HALF-YEAR FINANCIAL REPORT We have reviewed the accompanying half-year financial report of Chandler Macleod Group Limited, which comprises the balance sheet as at 31 December 2011, and the income statement, statement of changes in equity and cash flow statement for the half-year ended on that date, other selected explanatory notes and the directors declaration of the consolidated entity comprising the company and the entities it controlled at 31 December 2011 or from time to time during the six months ended 31 December Directors Responsibility for the Half-Year Financial Report The directors of the company are responsible for the preparation and fair presentation of the half-year financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the half-year financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor s Responsibility Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of an Interim Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the consolidated entity s financial position as at 31 December 2011 and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001 and other mandatory financial reporting requirements in Australia. As the auditor of Chandler Macleod Group Limited and the entities it controlled during the half-year. ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report. A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Independence In conducting our review, we have complied with the independence requirements of the Corporations Act We have given to the directors of the company a written Auditor s Independence Declaration, a copy of which is included in the Directors Report. 21

24 Conclusion Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the interim financial report of Chandler Macleod Group Limited is not in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity s financial position as at 31 December 2011 and of its performance for the half-year ended on that date; and (ii) complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations Ernst & Young Douglas Bain Partner Sydney 20 February