EVOLUTION ROAD MAINTENANCE GROUP LIMITED and its Controlled Entities ABN

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1 EVOLUTION ROAD MAINTENANCE GROUP LIMITED and its Controlled Entities ABN INTERIM FINANCIAL REPORT FOR THE HALF-YEAR ENDED 31 DECEMBER 2015 This half-year financial report is to be read in conjunction with the financial report for the year ended 30 June 2015.

2 INTERIM FINANCIAL REPORT FOR THE HALF-YEAR ENDED 31 DECEMBER 2015 TABLE OF CONTENTS Page Directors Report 3-4 Auditor s Independence Declaration 5 Directors Declaration 6 Consolidated Financial Statements for the Half-Year Ended 31 December 2014 Consolidated Statement of Comprehensive Income 7 Consolidated Statement of Financial Position 8 Consolidated Statement of Changes in Equity 9 Consolidated Statement of Cash Flows 10 Consolidated Notes to the Financial Statements Independent Auditor s Review Report

3 AND ITS CONTROLLED ENTITES INTERIM FINANCIAL REPORT FOR THE HALF-YEAR ENDED 31 DECEMBER 2015 DIRECTORS REPORT Your directors present their report together with the financial report of the Group, being Evolution Road Maintenance Group Limited ( The Company ) and its controlled entities ( the Consolidated Group or the Group ), for the half-year ended 31 December Directors The names of the directors in office at any time during or since the end of the period are: Hon. John Moore Mr Kevin Chin Mr Malcolm Keefe Mr Steven Thomas The directors have been in office since the start of the financial period to the date of this report unless otherwise stated. Review of Operations The profit of the Consolidated Group for the financial period after providing for income tax amounted to $51,804, down from $2,388,228 for the same period last year. The net assets of the Consolidated Group as at 31 December 2015 are $24,348,126. Revenue increased from $47,588,150 for the period to 31 December 2014 up to $49,788,417 for the period to 31 December 2015 reflecting in part expanded operations with new depots at Darwin, Northern Territory and Perth, Port Hedland and Northam, Western Australia. Dividends Paid or Recommended No dividend was paid during the current financial period and no dividend was declared during the 6 months ended 31 December 2015 for payment in future periods. Subsequent Events On 26 February 2016, Paul Jobbins resigned as CFO and Company Secretary of the group. Bora Han was appointed as CFO of the group on 26 February Tom Bloomfield was appointed as Company Secretary of the group on 26 February During April 2016, the Group refinanced its borrowings with NAB. As part of the refinancing of the Group s facilities, the Group has raised additional convertible notes of $6,000,000 during April 2016, of which $1,500,000 was received from a related entity. Except for the above events, there are no other matters or circumstances have arisen since the end of the financial period which significantly affected or could significantly affect the operations of the consolidated group, the results of those operations, or the state of affairs of the consolidated group in future financial periods

4 AND ITS CONTROLLED ENTITES INTERIM FINANCIAL REPORT FOR THE HALF-YEAR ENDED 31 DECEMBER 2015 DIRECTORS REPORT (continued) Auditor s Independence Declaration A copy of the auditor s independence declaration as required by section 307C of the Corporations Act 2001 in relation to the review for the period is provided with this report. Signed in accordance with a resolution of the directors: Steven Thomas Director Brisbane, 28 April

5 AUDITOR S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001 TO THE DIRECTORS OF EVOLUTION ROAD MAINTENANCE GROUP LIMITED I declare that, to the best of my knowledge and belief, during the half-year ended 31 December 2015 there have been no contraventions of: a. the auditor independence requirements as set out in the Corporations Act 2001 in relation to the review; and b. any applicable code of professional conduct in relation to the review. PKF HACKETTS AUDIT Shaun Lindemann Partner Brisbane, 28 April

6 INTERIM FINANCIAL REPORT FOR THE HALF-YEAR ENDED 31 DECEMBER 2015 DIRECTORS DECLARATION In accordance with a resolution of the directors of Evolution Road Maintenance Group Limited, the directors of the company declare that: 1. The financial statements and notes, as set out on pages 7 to 14 are in accordance with the Corporations Act 2001, including: (a) complying with Accounting Standard AASB 134 Interim Financial Reporting ; and (b) giving a true and fair view of the consolidated entity s financial position as at 31 December 2015 and of its performance for the half-year ended on that date. 2. With due regard to the commentary in Note 1, in the directors opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. Steven Thomas Director Brisbane, 28 April

7 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE HALF-YEAR ENDED 31 DECEMBER December 31 December Note $ $ Revenue from continuing operations Revenue 49,788,417 47,588,150 Other income 2 2,215,265 1,198,770 Employee benefit expense (35,682,356) (32,319,806) Direct operational expenses (5,084,260) (4,428,566) Depreciation and amortisation expenses 2 (3,729,934) (3,144,743) Finance cost (1,684,941) (1,123,775) Other expenses 2 (5,826,868) (4,367,581) Total expenses (52,008,359) (45,384,471) Profit/(loss) before income tax (4,677) 3,402,449 Income tax benefit/(expense) 56,481 (1,014,221) Profit/(loss) for the period 51,804 2,388,228 Other comprehensive income Other comprehensive income - - Total comprehensive income/(loss) 51,804 2,388,228 Profit/(loss) attributable to members of the parent entity 51,804 2,388,228 Total comprehensive income/(loss) attributable to members of the parent entity 51,804 2,388,228 The accompanying notes form part of these condensed financial statements

8 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2015 Note 31 December 30 June $ $ CURRENT ASSETS Cash and cash equivalents 685,601 1,351,338 Trade and other receivables 5 10,758,549 14,448,607 Inventories 740, ,502 Other assets 6 3,062,524 1,987,891 TOTAL CURRENT ASSETS 15,247,007 18,624,338 NON-CURRENT ASSETS Trade and other receivables 1,625,535 1,823,334 Property, plant & equipment 23,251,745 22,300,527 Intangible assets 51,124,313 51,311,968 Other non-current assets 293, ,824 TOTAL NON-CURRENT ASSETS 76,294,965 75,757,653 TOTAL ASSETS 91,541,972 94,381,991 CURRENT LIABILITIES Trade and other payables 7 9,399,914 12,557,902 Current tax liabilities 58,452 76,838 Employee entitlements 1,411,515 1,474,761 Borrowings 8 16,911,669 10,713,072 Deferred consideration - 1,992,208 TOTAL CURRENT LIABILITIES 27,781,550 26,814,781 NON-CURRENT LIABILITIES Employee entitlements 187, ,438 Borrowings 8 38,774,869 43,151,799 Deferred tax liabilities 449, ,245 TOTAL NON-CURRENT LIABILITIES 39,412,295 43,806,482 TOTAL LIABILITIES 67,193,845 70,621,263 NET ASSETS 24,348,126 23,760,728 EQUITY Share capital 32,337,962 32,535,462 Reserves (527,675) (1,260,770) Accumulated losses (7,462,161) (7,513,964) TOTAL EQUITY 24,348,126 23,760,728 The accompanying notes form part of these condensed financial statements

9 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE HALF-YEAR ENDED 31 DECEMBER 2015 Note Ordinary shares Foreign Currency Translation Reserve Accumulate d Losses Total $ $ $ $ Balance at 1 July ,610,462 - (13,077,631) 19,532,831 Comprehensive Income Profit attributable to members of the parent entity - - 2,388,228 2,388,228 Other comprehensive income Total comprehensive income - - 2,388,228 2,388,228 Transactions with owners, in their capacity as owners, and other transfers Dividends paid Total transactions with owners and other transfers Balance at 31 December ,610,462 - (10,689,403) 21,921,059 Balance at 1 July ,535,462 (1,260,770) (7,513,965) 23,760,728 Comprehensive Income (Loss)/Profit attributable to members of the parent entity ,804 51,804 Other comprehensive income - 733, ,095 Total comprehensive (loss)/income - 733,095 51, ,899 Transactions with owners, in their capacity as owners, and other transfers Reduction in capital (197,500) - - (197,500) Total transactions with owners and other transfers (197,500) - - (197,500) Balance at 31 December ,337,962 (527,675) (7,462,161) 24,348,126 The accompanying notes form part of these condensed financial statements

10 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE HALF-YEAR ENDED 31 DECEMBER 2015 CASH FLOW FROM OPERATING ACTIVITIES Half-year Half-year $ $ Receipts from customers 58,958,217 56,972,563 Payments to suppliers and employees (50,572,122) (47,545,894) Interest received 11,410 3,632 Interest paid (1,684,941) (1,124,575) Income tax paid (19,655) (2,074,013) Net cash provided by operating activities 6,692,909 6,231,713 CASH FLOW FROM INVESTING ACTIVITIES Proceeds from sale of property, plant and equipment 404, ,548 Payments for property, plant and equipment (1,844,619) (1,194,758) Payments for intangible assets (465,934) - Net cash used in investing activities (1,905,870) (1,070,210) CASH FLOW FROM FINANCING ACTIVITIES Proceeds from borrowings - - Repayment of borrowings (5,113,240) (7,329,626) Net cash used in financing activities (5,113,240) (7,329,626) Net increase (decrease) in cash and cash equivalents (326,201) (2,168,123) Cash and cash equivalents at beginning of the half year 1,351,338 2,726,402 Impact of foreign currency movement (339,536) - Cash and cash equivalents at end of the half-year 685, ,279 Non-cash flow activities: - Addition of property, plant and equipment through hire purchase 1,423,253 1,845,659 - Insurance premiums financed through loans 3,661,287 1,586,396 The accompanying notes form part of these condensed financial statements

11 NOTES TO THE INTERIM FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2015 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Preparation These general purpose interim financial statements for the half-year reporting period ended 31 December 2015 has been prepared in accordance with requirements of the Corporations Act 2001 and Australian Accounting Standard AASB 134: Interim Financial Reporting. The Group is a for-profit entity for financial reporting purposes under Australian Accounting Standards. This interim financial report is intended to provide users with an update on the latest annual financial statements of Evolution Road Maintenance Group Limited (the Company) and its controlled entities (the Group). As such, it does not contain information that represents relatively insignificant changes occurring during the half-year within the Group. It is therefore recommended that this financial report be read in conjunction with the annual financial statements of the Group for the year ended 30 June Accounting Policies The same accounting policies and methods of computation have been followed in this interim financial report as were applied in the most recent annual financial statements. Critical Accounting Estimates and Judgements The critical estimates and judgements are consistent with those applied and disclosed in the June 2015 annual report. New and Revised Accounting Requirements Applicable to the Current Half-year Reporting Period The Group has considered the implications of new or amended Accounting Standards, but determined that their application to the financial statements is either not relevant or not material. Net Current Asset Deficiency The Group was in a net current liability position of $12,534,543 (30 June 2015: $8,190,433) as at 31 December Given the consolidated entity s net current liability position, the ability of the consolidated entity to continue as a going concern, including Evolution Road Maintenance Limited's ability to pay its debts as and when they fall due needs to be considered

12 NOTES TO THE INTERIM FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2015 (continued) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Net Current Asset Deficiency (continued) The net current liability position was mainly due to the carried forward impact of the capital restructuring in the 2013 year whereby the company conducted a share buy-back and capital reduction of approximately $20 million which were funded by the borrowings from National Australia Bank. The continuation of the consolidated entity as a going concern is dependent upon its ability to achieve the following: The continued support of major creditors and loans from financial institutions (including matters noted in Note 8); and The continued generation of future profits by the underlying businesses. It is on the basis of the consolidated entity's ability to maintain the above arrangements, and the generation of future profits, that the Directors have prepared the financial report on a going concern basis. In the event that the above arrangements and facilities are not continued, there is uncertainty as to whether the consolidated entity will continue as a going concern and, therefore, whether it will realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial statements. The interim financial report does not include any adjustments relating to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that might be necessary should the consolidated entity not continue as a going concern. NOTE 2: PROFIT FROM OPERATIONS Profit from continuing operations before income tax expense includes the following items of revenue and expense. 31 December December 2014 $ $ a. Other Income - Interest income 11,410 2,831 - Gain on disposal of plant and equipment 91,743 38,968 - Gain on vendor forfeit of earn-out payment (*) 2,091,309 1,000,000 - Other Income 20, ,971 2,215,265 1,198,

13 NOTES TO THE INTERIM FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2015 (continued) NOTE 2: PROFIT FROM OPERATIONS (continued) (*) As part of the total consideration upon acquisition of Evolution Traffic Management Limited (formerly Action Traffic Control Ltd) and Evolution Civil Limited (formerly Temporary Traffic Control Ltd) by the group on 4 March 2015, NZD$2.25 million was taken up as a payable in relation to future earn-out payments. Payment of this NZD$2.25 million was subject to the companies reaching an agreed upon Gross Profit target over the next 12 months. As at 31 December 2015, the companies had failed to meet this first Gross Profit target and as such, the earn-out payment was not considered payable to the vendor and was recognised as a gain in the statement of comprehensive income. 31 December 2015 $ 31 December 2014 $ b. Expenses - Depreciation of plant and equipment 2,497,841 2,177,869 - Amortisation of intangible assets 1,232, ,874 3,729,934 3,144,743 - Occupancy expenses 1,567, ,241 NOTE 3: EVENTS OCCURRING AFTER BALANCE SHEET DATE On 26 February 2016, Paul Jobbins resigned as CFO and Company Secretary of the group. Bora Han was appointed as CFO of the group on 26 February Tom Bloomfield was appointed as Company Secretary of the group on 26 February During April 2016, the Group refinanced its borrowings with NAB. As part of the refinancing of the Group s facilities, the Group has raised additional convertible notes of $6,000,000 during April 2016, of which $1,500,000 was received from a related entity. Except for the above events, there are no other matters or circumstances have arisen since the end of the financial period which significantly affected or could significantly affect the operations of the consolidated group, the results of those operations, or the state of affairs of the consolidated group in future financial periods. NOTE 4: CONTINGENT LIABILITIES There has been no change in contingent liabilities since the last annual reporting period. NOTE 5: TRADE AND OTHER RECEIVABLES The significant decrease in trade and other receivables balances as at 31 December 2015 compared to 30 June 2015 was due to seasonality of operations. The provision of traffic controllers in December is generally the lowest compared to any other period due to the Christmas holiday period

14 NOTES TO THE INTERIM FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2015 (continued) NOTE 6: OTHER CURRENT ASSETS 31 December 2015 $ 30 June 2015 $ Prepaid expenses 1,950,651 1,449,850 Borrowing costs 163, ,589 Other 948, ,452 NOTE 7: TRADE AND OTHER PAYABLES 3,062,524 1,987,891 The significant decrease in trade and other payables balances as at 31 December 2015 compared to 30 June 2015 was due to seasonality of operations. The provision of controllers in December is generally the lowest compared to any other periods due to the Christmas holiday period which decreases the amount of accrued expenses related to the provision of services at period end. NOTE 8: BORROWINGS In December 2015, and subsequently in April 2016 the Group refinanced its borrowings with NAB. These facilities are secured by an interlocking guarantee and indemnity given by all entities in the Group supported by: A first registered general security agreement over all present and after-acquired property over each of the entities in the consolidated group; A share mortgage over the shares in Queensland Infrastructure Capital Pty Ltd held by Evolution Road Maintenance Group Limited; An invoice finance facility agreement given by Evolution Traffic Control Pty Ltd (secures the debtor finance facility); and A master asset finance agreement given by Evolution Asset Management Pty Ltd. As part of the refinancing of the Group s facilities, the Group has raised additional convertible notes during April 2016 and expects to undertake a further equity or unsecured debt raising on or before 30 June

15 INDEPENDENT AUDITOR S REVIEW REPORT TO THE MEMBERS OF EVOLUTION ROAD MAINTENANCE GROUP LIMITED AND CONTROLLED ENTITIES We have reviewed the accompanying half-year financial report of Evolution Road Maintenance Group Limited ( the Company ) and controlled entities (the consolidated entity), which comprises the consolidated statement of financial position as at 31 December 2015, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the half-year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors declaration. Directors Responsibility for the Half-Year Financial Report The directors of the Evolution Road Maintenance Group Limited are responsible for the preparation of the half-year financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such control as the directors determine is necessary to enable the preparation of the half-year financial report that is free from material misstatement, whether due to fraud or error. 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 a 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 half-year 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 2015 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 As the auditor of Evolution Road Maintenance Group Limited and its controlled entities, 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

16 INDEPENDENT AUDITOR S REVIEW REPORT TO THE MEMBERS OF EVOLUTION ROAD MAINTENANCE GROUP LIMITED AND CONTROLLED ENTITIES (CONTINUED) Independence In conducting our review, we have complied with the independence requirements of the Corporations Act Conclusion Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of Evolution Road Maintenance Group Limited and controlled entities is not in accordance with the Corporations Act 2001 including: (a) giving a true and fair view of the consolidated entity s financial position as at 31 December 2015 and of its performance for the half-year ended on that date; and (b) complying with Accounting Standard AASB 134 Interim Financial Reporting and Corporations Regulations Emphasis of matter Without qualification to the conclusion expressed above, attention is drawn to the following matter. As a result of the matters described in Note 1 to the interim financial statements, there is uncertainty as to whether the group will be able to continue as a going concern. PKF HACKETTS AUDIT Shaun Lindemann Partner Brisbane, 28 April

ASX Appendix 4D. Half year report. Period ending on 31 December 2015 (prior corresponding period is 31 December 2014) DIVERSA LIMITED

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