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Foreword
The International Accounting Standards Board (IASB) has slowed down the pace at which new accounting standards are being developed. Consequently, many new standards that were expected to be released this year will now likely be issued in 2012, coming into effect in 2015. However, this doesnt mean that there are no new financial reporting changes to consider in the current year. Several amendments to accounting standards are now effective. In addition, this year sees changes in corporate governance reporting relating to diversity and changes in remuneration reporting all of which are illustrated in this publication. During the current year, more countries particularly in the Asia region have declared their intention to adopt or converge in full with International Financial Reporting Standards (IFRS). Many other countries are adopting IFRS for the first time in 2011 and 2012. Meanwhile the US is expected to make a decision in the near term about their adoption of IFRS. Such widespread use of IFRS increases the need for consistency in interpretation and presentation. As investors are becoming more global, there is also an increased need for greater comparability. This edition of Endeavour is a new format of our illustrative financial statements prepared in accordance with Australian Accounting Standards. It is more closely aligned with Good Group our illustrative financial statements prepared in accordance with IFRS thereby allowing greater comparability with overseas companies. We have also included in this edition an illustrative example of the new disclosures introduced by AASB 12 Disclosures of Interests in Other Entities, which becomes applicable in 2013. These disclosures will be useful for those entities that early adopt the new consolidation and joint arrangements standards, in addition to those entities considering the new disclosures required in future periods. Over the next few years, as we are confronted by an abundance of financial reporting change, it is important to keep abreast of the changes, to develop an in-depth knowledge of the requirements of IFRS, and to understand the impact it has on your information systems and business processes. Your Ernst & Young contact can help you prepare for this process and manage the implementation. I wish you all the best with your next set of financial reports and trust this publication will help you in your ongoing journey in financial reporting.
Lynda Tomkins Partner and National Leader IFRS Desk Ernst & Young Australia 30 November 2011
Contents
Foreword ............................................................................................................................................................ i Introduction .......................................................................................................................................................1 Abbreviations and key ........................................................................................................................................6 Contents to financial report .................................................................................................................................7 Corporate information ........................................................................................................................................9 Directors' report ..............................................................................................................................................11 Corporate governance statement ......................................................................................................................37 Consolidated statement of comprehensive income ..............................................................................................47 Consolidated statement of financial position .......................................................................................................49 Consolidated statement of changes in equity ......................................................................................................51 Consolidated statement of cash flows.................................................................................................................54 Notes to the consolidated financial statements ...................................................................................................55 1. 2. 2.1 2.2 2.3 2.4 3. 4. 5. 6. 7. 8. 8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 9. 10. 11. 12. 13. 14. 15. Corporate information ............................................................................................................................55 Summary of significant accounting policies ...............................................................................................55 Basis of preparation ...............................................................................................................................56 Compliance with IFRS .............................................................................................................................56 New accounting standards and interpretations ..........................................................................................56 Changes in accounting policies and disclosures .........................................................................................83 Significant accounting judgements, estimates and assumptions ..................................................................84 Business combinations and acquisition of non-controlling interests .............................................................87 Interest in a joint venture ........................................................................................................................92 Investment in an associate ......................................................................................................................92 Segment information ..............................................................................................................................93 Other income/expenses and adjustments .................................................................................................96 Other operating income ..........................................................................................................................96 Other operating expenses .......................................................................................................................96 Finance costs .........................................................................................................................................97 Finance income ......................................................................................................................................97 Depreciation, amortisation, foreign exchange differences and costs of inventories included in the consolidated income statement ...............................................................................................................97 Employee benefits expense .....................................................................................................................98 Research and development costs .............................................................................................................98 Components of other comprehensive income ............................................................................................98 Income tax.............................................................................................................................................99 Discontinued operations .......................................................................................................................103 Earnings per share ...............................................................................................................................106 Property, plant and equipment ..............................................................................................................107 Investment properties ..........................................................................................................................109 Intangible assets ..................................................................................................................................110 Other financial assets and financial liabilities ..........................................................................................111
15.1. Other financial assets ...........................................................................................................................111 15.2. Other financial liabilities........................................................................................................................113 15.3. Hedging activities and derivatives ..........................................................................................................116 15.4. Fair values ...........................................................................................................................................118 16. 17. 18. 19. 20. 21. 22. 23. Impairment testing of goodwill and intangibles with indefinite lives ...........................................................121 Inventories ..........................................................................................................................................123 Trade and other receivables (current) ....................................................................................................124 Cash and short-term deposits ................................................................................................................125 Issued capital and reserves ...................................................................................................................126 Dividends paid and proposed .................................................................................................................128 Provisions ...........................................................................................................................................129 Government grants ..............................................................................................................................131
III
24. 25. 26. 27. 28. 29. 30. 31. 32. 33.
Deferred revenue .................................................................................................................................131 Pensions and other post-employment benefit plans .................................................................................132 Share-based payment plans...................................................................................................................138 Trade and other payables (current) ........................................................................................................140 Related party disclosures ......................................................................................................................141 Commitments and contingencies ...........................................................................................................146 Financial risk management objectives and policies ...................................................................................150 Events after the reporting period ...........................................................................................................156 Auditors' remuneration .........................................................................................................................157 Information relating to Endeavour (International) Limited (the parent entity) ..........................................158
Directors' declaration .....................................................................................................................................159 Independent auditor's report ...........................................................................................................................160 ASX additional information..............................................................................................................................163 Appendix A Closed group class order disclosures ............................................................................................165 Appendix B Agricultural assets example disclosures ........................................................................................167 Appendix C Half-year financial report ............................................................................................................169 Appendix D Illustrative disclosure requirements of AASB 12 ............................................................................193 Appendix E Australian reporting requirements ...............................................................................................205
IV
Introduction
This document contains the consolidated financial report of a fictitious, publicly listed entity, Endeavour (International) Limited, an industrial company with subsidiaries (the Group). Endeavour (International) Limited is incorporated and listed in Australia, with a reporting date of 31 December 2011. The enclosed financial report has been prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting Standards. The report is intended to illustrate the disclosure requirements of the Accounting Standards, including providing interpretive commentary where necessary. This financial report is illustrative only and does not attempt to show all possible accounting and disclosure requirements. It is essential to refer to the relevant authoritative source and, where necessary, seek appropriate professional advice. Although the illustrative financial report attempts to show the most common disclosure requirements for industrial companies, it should not be regarded as a comprehensive checklist. For a more comprehensive list of disclosure requirements, please refer to Ernst & Young's Financial reporting standards disclosure checklist. Enquiries regarding specialised industries and areas of accounting (e.g., insurance, US GAAP) should be directed to an Ernst & Young professional. Each section of the financial report of the Group is cross-referenced to commentary. Source references to the authoritative literature are also provided. The commentary follows the disclosure contained in each section of the financial report and is intended to highlight disclosure requirements of the note or to explain the approach taken in providing the illustrative disclosure in this report.
Introduction (continued)
New accounting standards and interpretations Reference Note 2.4 Changes in accounting policies and disclosures
Improvements to AASBs
In May 2010, the board issued its third omnibus of amendments to standards, primarily with a view to removing inconsistencies and clarify wording. There are separate transitional provisions for each standard.
Introduction (continued)
New accounting standards and interpretations Reference Note disclosures covering impairments in the 2011 edition of Endeavour (International) Limited are summarised below:
X X
Accounting policy disclosures Note 2.3 Disclosures for significant assumptions Note 3 Property, plant and equipment Note 12 Intangible assets Note 14 Other financial assets Note 15 Goodwill and intangible assets with indefinite lives Note 16 Trade receivables Note 18
X X X X
Introduction (continued)
Australian Accounting Standards applicable as at 31 December 2011
This financial report illustrates Australian Accounting Standards that were issued at 31 October 2011 and which apply to annual reporting periods beginning on or after 1 January 2011. It is important to note that the illustrative financial report in this document will require continual updating as new and amended Standards and Interpretations are issued by the AASB. Therefore, if you are using this publication to assist in the preparation of your financial report, it must be emphasised that this does not include changes arising from new and amending Standards and Interpretations effective for periods commencing after 31 October 2011. Therefore, users of this publication are cautioned to ensure that they consider any changes in the requirements of AASB Standards and Interpretations issued after 31 October 2011. In addition, the disclosure requirements of the following Australian Accounting Standards are not applicable to the Group and have therefore not been dealt with in the financial report: AASB AASB AASB AASB AASB AASB AASB AASB AASB AASB AASB AASB AASB AASB AASB AASB AASB AASB AASB AASB AASB AASB AASB AASB 1 4 6 10 11 12 111 129 134 141 1004 1023 1038 1039 1049 1050 1051 1052 2008-2 2008-8 2008-9 2008-11 2008-13 2009-1 25 12 13 15 17 18 107 110 129 131 132 1038 1042 1047 1055 First Time Adoption of Australian Equivalents to International Financial Reporting Standards Insurance Contracts Exploration for and Evaluation of Mineral Resources Consolidated Financial Statements *** Joint Arrangements *** Disclosure of Interests in Other Entities *** Construction Contracts Financial Reporting in Hyperinflationary Economies Interim Financial Reporting* Agriculture** Contributions General Insurance Contracts Life Insurance Contracts Concise Financial Reports Whole of Government and General Government Sector Financial Reporting Administered Items Land Under Roads Disaggregated Disclosures Amendments to Australian Accounting Standards Puttable Financial Instruments and Obligations arising on Liquidation Amendments to Australian Accounting Standards Eligible Hedged Items Amendments to AASB 1049 for Consistency with AASB 101 Amendments to Australian Accounting Standards Business Combinations among Not-for-Profit Entities Amendments to Australian Accounting Standards arising from AASB Interpretation 17 Distributions of Non-cash Assets to Owners Amendments to Australian Accounting Standards Borrowing costs of Not-for-Profit Public Sector Entities Financial Reporting by Superannuation Plans Service Concession Arrangements Customer Loyalty Programs Agreements for the Construction of Real Estate Distributions of Non-Cash Assets to Owners Transfers of Assets from Customers Introduction of the Euro Government Assistance No Specific Relation to Operating Activities Service Concession Arrangements: Disclosures Revenue Barter Transactions Involving Advertising Services Intangible Assets Web Site Costs Contributions by Owners Made to Wholly-Owned Public Sector Entities Subscriber Acquisition Costs in the Telecommunications Industry Professional Indemnity Claims Liabilities in Medical Defence Organisations Accounting for Road Earthworks
AAS Interpretation Interpretation Interpretation Interpretation Interpretation Interpretation Interpretation Interpretation Interpretation Interpretation Interpretation Interpretation Interpretation Interpretation
* An example half-year financial report in accordance with AASB 134 is included in Appendix C. ** Example disclosures for agricultural assets are included as a guide in Appendix B. *** Example disclosures for consolidated financial statements, joint arrangements and disclosure of interests in other entities are included as a guide in Appendix D.
Introduction (continued)
Allowed alternative treatments
In some cases, an Australian Accounting Standard permits more than one accounting treatment for the same transactions or event. Preparers of financial reports should chose the treatment that is most relevant to their business. AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors, requires an entity to select and apply its accounting policies consistently for similar transactions, and/or other events and conditions, unless an Australian Accounting Standard specifically requires or permits categorisation of items for which different policies may be appropriate. Where an Australian Accounting Standard requires or permits such categorisation, an appropriate accounting policy is selected and applied consistently to each category. Therefore, once a choice of one of the alternative treatments has been made, it becomes an accounting policy and must be applied consistently. Changes in accounting policy should only be made if required by a standard or interpretation, or if the change results in the financial statements providing more reliable and relevant information. In this publication, when a choice is permitted by an Australian Accounting Standard, the Group has adopted one of the treatments as appropriate to the circumstances of the Group. The commentary provides details of which policy has been selected, and the reasons for this, and summarises the difference in the disclosure requirements.
Caveat
The names of people and corporations included in this illustrative financial report are fictitious and have been created for the purpose of illustration only. Any resemblance to any person or business is purely coincidental. This financial report is illustrative only and does not attempt to show all possible accounting and disclosure requirements. In case of doubt as to the requirements, it is essential to refer to the relevant source and, where necessary, seek appropriate professional advice. Although the illustrative financial report attempts to show the most likely disclosure requirements for industrial companies, it should not be regarded as a comprehensive checklist of disclosure requirements.
15.1. Other financial assets ...........................................................................................................................111 15.2. Other financial liabilities........................................................................................................................113 15.3. Hedging activities and derivatives ..........................................................................................................116 15.4. Fair values ...........................................................................................................................................118 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. Impairment testing of goodwill and intangibles with indefinite lives ...........................................................121 Inventories ..........................................................................................................................................123 Trade and other receivables (current) ....................................................................................................124 Cash and short-term deposits ................................................................................................................125 Issued capital and reserves ...................................................................................................................126 Dividends paid and proposed .................................................................................................................128 Provisions ...........................................................................................................................................129 Government grants ..............................................................................................................................131 Deferred revenue .................................................................................................................................131 Pensions and other post-employment benefit plans .................................................................................132 Share-based payment plans...................................................................................................................138 Trade and other payables (current) ........................................................................................................140
Endeavour (International) Limited 7
Related party disclosures ......................................................................................................................141 Commitments and contingencies ...........................................................................................................146 Financial risk management objectives and policies ...................................................................................150 Events after the reporting period ...........................................................................................................156 Auditors' remuneration .........................................................................................................................157 Information relating to Endeavour (International) Limited (the parent entity) ..........................................158
Directors' declaration .....................................................................................................................................159 Independent auditor's report ...........................................................................................................................160 ASX additional information..............................................................................................................................163
Corporate information
ABN 00 000 000 000 Directors J. Barraclough, Chairman M.P. Boiteau, Chief Executive Officer C.P. Muller F. van den Berg A.N. Lockwood M. Evans M.A. Vlahov C. Smart P.R. Garca Company Secretary G.K. Dellas Registered office Homefire House Ashdown Square Australia Principal place of business Bush Avenue Mulberry Park Australia Phone: 61 3 9876 5432 Share register Everest Registry Services 23rd Floor 43 Terry Street Australia Phone: 61 2 9876 5431 Endeavour (International) Limited shares are listed on the Australian Stock Exchange (ASX) Solicitors Solicitors & Co 7 George Street Australia Bankers Bank Limited George Street Australia Auditors Ernst & Young Australia
ASX 4.10.10 CA 153(2)
AASB 101.138(a)
ASX 4.10.12
ASX 4.10.13
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Directors' report
Your directors submit their report for the year ended 31 December 2011.
CA 298(1)
Directors
The names and details of the Company's directors in office during the financial year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated. Names, qualifications, experience and special responsibilities J. Barraclough (Non-executive Chairman) J. Barraclough formed Endeavour (International) Limited in 1975 and was the Managing Director of the Company until his retirement in 2002. Presently, he is the Group Chairman and also serves on the audit, remuneration and nomination committees of the Group. During the past three years Mr Barraclough has also served as a director of the following other listed companies:
X X X
CA 300(1)(c)
CA 300(10)(a)
D.A. Bank Ltd* appointed 30 June 2004 Spartan Ltd appointed 30 October 2005; resigned 29 October 2010 Horizon Oil Ltd* appointed 15 July 2006
CA 300(11)(e)
M.P. Boiteau, B.Sc (Director and Chief Executive Officer) M.P. Boiteau joined the Company as part of the acquisition of the fire prevention business in 1983, becoming Production Manager in 1994 and a director in 1998. He now combines the role of Production Director with that of Managing Director while also serving on the Group's finance and treasury committees. C.P. Muller, B.Com., F.C.A. (Finance Director) C.P. Muller joined Endeavour (International) Limited as Finance Director in 2002. Prior to joining the Group, she was a senior partner in an accounting firm. Ms Muller also serves on the Group's finance and treasury committees. F. van den Berg, LL.B. F. van den Berg has combined his work as a practising solicitor with his role as a non-executive director of the Company since 2002. He resigned as a non-executive director of the board on 15 January 2012. F. van den Berg was a member of the remuneration and nomination committees and was chairman of the Group's audit committee. During the past three years he has also served as a director of the following listed companies:
X X
Castle Ltd * appointed 15 July 2005 Carrington Ltd appointed 30 June 2002; resigned 29 June 2010
CA300(11)(e)
A.N. Lockwood, M. Eng. A.N. Lockwood joined the board as a non-executive director in 2006. She is an engineer with significant expertise in the electronics and aviation industries and also serves on the nomination and remuneration committees of the Group. M. Evans M. Evans is an American citizen and served as the President of the Australasian operations of S.J. Limited, the ultimate holding company of Endeavour (International) Limited, from 1982 to 1986. He retired as a non-executive director of the board on 28 July 2011. During the past three years Mr Evans has held the following listed company directorships:
X
11
J. Barraclough M.P. Boiteau C.P. Muller A.N. Lockwood M.A. Vlahov C. Smart P.R. Garcia
Company Secretary
G.K. Dellas B.Comm. (Hons) F.C.A G.K. Dellas has been the Company Secretary of Endeavour (International) Limited for eight years. She has been a chartered accountant for over 15 years.
CA 300(10)(d)
Dividends
Cents Final dividends recommended: ordinary shares Dividends paid in the year: Interim for the year on ordinary shares on preference shares 5.01 $000 1,087
CA 300(1)(a) CA 300(1)(b)
4.66 0.46
877 13 890
Final for 2010 shown as recommended in the 2010 financial report on ordinary shares on preference shares
5.66 0.46
1,069 13 1,082
12
CA 299(1)(c)
Supply and servicing of electronic equipment for defence, aviation and electrical safety markets Production, installation and servicing of extinguishers, fire prevention equipment and fire retardant fabrics Production of rubber hosepipes for commercial applications Leasing of offices and manufacturing sites that are surplus to the Group's requirements
X X
Other than the discontinuance of the rubber equipment segment which came about through the sale of Hose Limited, there have been no other significant changes in the nature of these activities during the year.
13
14
CA 299(1)(a)
Gains on the disposal of property, plant and equipment in the current year of $532,000 before tax (2010: $2,007,000) Profit of $213,000 (2010: loss $193,000) arising from Hose Limited (the discontinued operation of the Group)
Net profit from continuing operations before tax excluding significant items is $11,373,000 (2010: $9,055,000) representing a 26% (2010: 49.3%) increase from last year (see the table presented below). Net underlying profit from continuing operations excluding significant items before tax represents net profit for the period, excluding the effect of discontinued operations, impairment of assets and intangibles and net gains on disposal of property, plant and equipment. A reconciliation of underlying profit from continuing operations to net profit for the period as reported in the statement of comprehensive income is as follows: 2011 $000 12,118 (532) 11,586 2010 $000 10,869 301 (2,007) 9,163 Change % 11% (100%) (73%) 26%
Net profit for the period before tax Impairment of assets and intangibles Net (gains) on disposal of property, plant and equipment (Profit)/loss from discontinued operations before tax - Hose Limited and Pipe Limited losses (including impairment loss and gain on disposal in the current year) Underlying profit from continuing operations before tax Summarised operating results are as follows:
(213) 11,373
193 9,356
210% 22%
2011 Revenues $000 Operating segments Fire prevention equipment Electronics Investment property Discontinued operations Inter segment eliminations Consolidated entity revenue and profit for the year 139,842 76,728 1,404 217,974 42,809 260,783 (7,465) 253,318 10,475 2,968 321 13,764 213 13,977 (1,859) 12,118 Results $000
15
Basic earnings per share (cents) Return on assets (%) Weighted average cost of capital (%) Return on equity (%) Debt/equity ratio (%)
The share price continues to benefit from our improved performance and we are confident that as a result of the many initiatives in place to increase sales and continue to improve profitability, the favourable movement in share price will continue. The Company's total shareholder return (TSR) continues to outperform the TSR of a selected group of peer companies. The Company's TSR and that of the comparator group is shown in the remuneration report. Review of financial condition Liquidity and capital resources The consolidated cash flow statement illustrates that there was an increase in cash and cash equivalents in the year ended 31 December 2011 of $5,131,000 (2010: $4,076,000). The increase in cash inflow in comparison with the prior year is caused by a number of factors. Operating activities generated $14,505,000 (2010: $13,696,000) of net cash flows. This increase in comparison to 31 December 2010 is largely due to better working capital management resulting from the strategies implemented by the board and one off engagement with the Company's consultants. This net increase in the cash flows from operating activities has been offset by a net increase in the amount of cash used for investing activities to $10,046,000 (2010: $7,793,000), which was mainly attributable to purchases of property, plant and equipment. There was also a $672,000 cash inflow (2010: $1,647,000 cash outflow) from financing activities largely due to repayment of borrowings during the year. Asset and capital structure Continuing operations $000 Debts: Trade and other payables Interest-bearing loans and borrowings Cash and short-term deposits Net debt Total equity Total capital employed Gearing 15,354 17,507 (15,818) 17,043 Discontinuing operations $000 7,242 5,809 (1,294) 11,757 2011 Total operations $000 22,596 23,316 (17,112) 28,800 64,487 93,287 31% 2010 Total operations $000 21,584 22,203 (14,916) 28,871 49,178 78,049 36%
The level of gearing in the Group is within the acceptable limits of 30% to 45% set by the directors. The Group's policy allows up to 45% of financing to be provided by net debt at any particular time. Management's policies for determining the mix of fixed and floating rates of interest are examined on a half-yearly basis with the assistance of external financial advisors.
16
51 2,650 74 2,775
The Group's debts have decreased over the last year. The Group anticipates that its debts will continue to decrease over the coming year once the Hose Limited transaction is completed. Of the Group's debts, 11% is repayable within one year of 31 December 2011, compared to 13.1% in the previous year. Capital expenditure There has been an increase in cash used to purchase property, plant and equipment in 2011 to $10,352,000 from $7,822,000 for the year ended 31 December 2010. Further capital commitments of $975,000 existed at the reporting date, principally relating to the completion of the operating facilities of Sprinklers Inc., $228,000 relating to the Group's associate Power Works Pty Ltd and $4,900,000 in relation to the Group's interest in the jointly controlled operation. Treasury policy The Group has established a treasury function responsible for managing the Group's currency risks and finance facilities. The treasury division operates within policies set by the board, and the board has also established a treasury committee that is directly responsible for ensuring management's actions are in line with Group policy. Hedging is undertaken whenever possible through the use of interest rate swap contracts and foreign exchange contracts.
17
CA 299(1)(a)
The completion of a stakeholder needs analysis (SNA), which is a powerful tool in ensuring that the board is cognisant of the diverse needs of various stakeholders and assists in identifying the risks the business may face if those needs are not met. The SNA is a dynamic document and the board holds an annual workshop, in addition to the ongoing discussion of this document in board meetings, to specifically review and update the SNA. Board approval of a strategic plan, which encompasses the Group's vision, mission and strategy statements, designed to meet stakeholders' needs and manage business risk. Implementation of board approved operating plans and budgets and board monitoring of progress against these budgets, including the establishment and monitoring of KPIs of both a financial and non-financial nature. The establishment of committees to report on specific business risks, including for example such matters as environmental issues and occupational health and safety. The establishment of a treasury committee, which assists in discharging the board's responsibility to manage the organisation's financial risks. The committee advises the board on such matters as the Group's liquidity, currency, interest rate and credit policies and exposures and monitors management's actions to ensure they are in line with Group policy.
CA 299(1)(b)
CA 299(1)(d)
18
CA 299(1)(f)
Share options
Unissued shares As at the date of this report, there were 723,875 unissued ordinary shares under options (725,000 at the reporting date). Refer to the remuneration report for further details of the options outstanding. Option holders do not have any right, by virtue of the option, to participate in any share issue of the company or any related body corporate. Shares issued as a result of the exercise of options During the financial year, employees and executives have exercised options to acquire 75,000 fully paid ordinary shares in Endeavour (International) Limited at a weighted average exercise price of $4.09 per share.
CA 300(1)(d) CA 300(1)(e),(3),(6)
CA 300(1)(f),(3),(7)
CA 300(1)(g) CA 300(8)(a),(9)
CA 300(8)(a),(9)
19
Directors' meetings
The number of meetings of directors (including meetings of committees of directors) held during the year and the number of meetings attended by each director were as follows: Directors' meetings Number of meetings held: Number of meetings attended: J. Barraclough M.P. Boiteau C.P. Muller F. van den Berg C. Smart A.N. Lockwood M. Evans M.A. Vlahov P.R. Garcia (alternate) 12 Meetings of committees Remuneration Nomination Finance 2 2 2
CA 300(10)(b)
Audit 4
Treasury 2
12 12 12 10 8 11 7 12 -
4 4 4 -
2 2 2 -
2 2 -
2 2 -
2 2 -
All directors were eligible to attend all meetings held, except for C. Smart, who was eligible to attend eight directors' meetings and M. Evans who was eligible to attend seven directors' meetings. Committee membership As at the date of this report, the company had an audit committee, a remuneration committee, a nomination committee, a finance committee and a treasury committee of the board of directors. Members acting on the committees of the board during the year were: Audit F. van den Berg (c) M.A. Vlahov J. Barraclough Remuneration J. Barraclough (c) F. van den Berg M.A. Vlahov Nomination J. Barraclough (c) F. van den Berg E.J. Brookes @ Finance M.P. Boiteau (c) C.P. Muller Treasury M.P. Boiteau (c) C.P. Muller
CA 300(10)(c)
Notes (c) Designates the chairman of the committee @ Mr E.J. Brookes is an independent consultant and non-director
Rounding The amounts contained in this report and in the financial report have been rounded to the nearest $1,000 (where rounding is applicable) and where noted ($000) under the option available to the company under ASIC CO 98/0100. The company is an entity to which the class order applies.
ASIC CO 98/0100
20
Non-audit services
The following non-audit services were provided by the entity's auditor, Ernst & Young. The directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised. Ernst & Young received or are due to receive the following amounts for the provision of non-audit services: Tax compliance services Assurance related and due diligence services Special audits as required by jurisdictional regulators $ 37,000 105,300 38,500 180,800
CA 300(11B)
21
22
4. 5. 6.
7.
1. Introduction The remuneration report details the remuneration arrangements for key management personnel (KMP) who are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any director (whether executive or otherwise) of the parent company, and includes the five executives in the Parent and the Group receiving the highest remuneration. For the purposes of this report, the term executive includes the Chief Executive Officer (CEO), executive directors and other senior executives of the Parent and the Group. (i) Non-executive directors (NEDs) J. Barraclough Chairman (non-executive) F. van den Berg Director (non-executive) resigned 15 January 2012 A.N. Lockwood Director (non-executive) M. Evans Director (non-executive) retired 28 July 2011 M.A. Vlahov Director (non-executive) C. Smart Director (non-executive) appointed 1 May 2011 P.R. Garcia Alternate director (ii) Executive directors M.P. Boiteau C.P. Muller (iiI) Other executives R.S. Jaffe G.K. Dellas L.A. Basier C. Dhalliwell L.P.L. Adamidis A.R. Davis S. Cunica
Reg 2M.3.03(1) Items1-3 AASB 1124.9
General Manager US Operations appointed 21 May 2011 Company Secretary and Chief of Treasury Operations Chief Financial Officer Chief Operations Officer resigned 30 November 2011 General Manager Mergers and Acquisitions appointed 1 January 2011 General Manager Electronics Sales General Manager Fire Prevention Equipment Sales Terminated 31 December 2011
Reg 2M.3.03(1) Items4-5
Other than the resignation of F. van den Berg, there were no other changes to KMP after the reporting date and before the date the financial report was authorised for issue.
23
CA 300A(1) CA 300A(1A)
Insights on remuneration trends, regulatory developments and shareholder views Market data in relation to CEO and executive remuneration Tax advice in relation to the share options plan
No remuneration recommendations were provided during the 2011 year. Remuneration report approval at FY10 AGM
The FY10 remuneration report received positive shareholder support at the FY10 AGM with a vote of 99% in favour.
3. Executive remuneration arrangements 3A: Remuneration principles and strategy Endeavour (International) Limiteds executive remuneration strategy is designed to attract, motivate and retain high performing individuals and align the interests of executives and shareholders.
CA 300A(1)(a)
24
Remuneration strategy linkages to business objective Align the interests of executives with shareholders
X
The remuneration framework incorporates at-risk components, including both short and longer term elements delivered in equity Performance is assessed against a suite of financial and non-financial measures relevant to the success of the company and generating returns for shareholders
The remuneration offering is competitive for companies of a similar size and complexity Deferred and longer-term remuneration encourages retention
Vehicle
X
Purpose
X
Link to performance
X
Represented by total employment cost (TEC). Comprises base salary, superannuation contributions and other benefits. Paid partly in cash and partly as deferred share options.
To provide competitive fixed remuneration set with reference to role, market and experience.
Company and individual performance are considered during the annual remuneration review.
Rewards executives for their contribution to achievement of Group and business unit outcomes, as well as individual key performance indicators (KPIs). The deferred component provides equity exposure, aligns executive reward with shareholder value creation and encourages longer-term decision-making.
Earnings per share (EPS) is the key financial metric. Linked to other internal financial measures, market share, customer service, risk management and leadership. The board may reduce or eliminate unvested deferred STI awards following consideration of any adverse outcomes that should impact assessment of performance. Considerations include any issues likely to affect the company's financial soundness, material restatements due to errors/omissions, major negligence, or acts that may have caused reputational damage.
25
CA 300A(1) CA 300A(1A)
CA 300A(1)(a)
Purpose
X
Link to performance
X
Rewards executives for their contribution to the creation of shareholder value over the longer term.
3B. Approach to setting remuneration In FY11, the executive remuneration framework consisted of fixed remuneration and short and longterm incentives as outlined below. The Group aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the Group and aligned with market practice. The Groups policy is to position total employment cost (TEC) around the median of our direct industry peers and other Australian listed companies of a similar size and complexity. Total reward opportunities are intended to provide the opportunity to earn 75th percentile rewards for outstanding performance against the stretch targets set. Remuneration levels are considered annually through a remuneration review that considers market data, insights into remuneration trends, the performance of the company and individual, and the broader economic environment. The following summarises the CEOs and executives target remuneration mix. Fixed remuneration CEO Target remuneration mix 50% Executives Target remuneration mix 60% 3C. Detail of incentive plans
Short-term incentive (STI)
CA 300A(1)(a),(b)
25%
25%
30%
10%
CA 300A(1)(ba)
The Group operates an annual STI program that is available to executives and awards a cash bonus subject to the attainment of clearly defined Group, business unit and individual measures. Executives are also required to defer a portion of the STI into equity. Actual STI payments awarded to each executive depend on the extent to which specific targets set at the beginning of the financial year are met. The targets consist of a number of key performance indicators (KPIs) covering financial and non-financial, corporate and individual measures of performance. A summary of the measures and weightings are set out below.
CA 300A(1)(ba)(i) Reg. 2M.3.03(1) Item 12(b)-(c)
26
0% 0% 30%
These performance measures were chosen as they represent the key drivers for the short-term success of the business and provide a framework for delivering long-term value. The CEO and executives have a target STI opportunity of 50% of fixed remuneration, with a maximum opportunity (if the stretch targets are met) of 100% of fixed remuneration. On an annual basis, after consideration of performance against KPIs, the board, in line with their responsibilities, determine the amount, if any, of the short-term incentive to be paid to each executive, seeking recommendations from the CEO as appropriate. All executives are required to defer one-third of the annual STI earned into Endeavour (International) Limited equity. Deferred STI is delivered in the form of options to shares which vest after a two-year period. The deferred STI is forfeited if the individual resigns or is terminated for cause during the vesting period. The board may reduce or eliminate unvested deferred STI awards following consideration of any adverse outcomes that have arisen prior to vesting that, in the board's view, should impact the assessment of performance. Consideration will include any issues that are likely to have affected the company's financial soundness or are due to misrepresentations, material restatements due to errors/omissions (e.g. not a change to accounting standards), major negligence, or acts that may have caused reputational damage.
Long-term incentives (LTI)
CA 300A(1)(ba)(ii)
CA 300A(1)(ba)(iii)
CA 300A(1)(ba)
LTI awards are made annually to executives in order to align remuneration with the creation of shareholder value over the long-term. As such, LTI awards are only made to executives and other key talent who have an impact on the Group's performance against the relevant long-term performance measure. Structure LTI awards to executives are made under the employee share option plan and are delivered in the form of options to shares. The options will vest over a period of three years subject to meeting performance measures, with no opportunity to retest. Performance measure to determine vesting The Company uses relative total shareholder return (TSR) as the performance measure for the share options plan. Relative TSR was selected as the LTI performance measure for the following reasons:
X X
CA 300A(1)(ba)
CA 300A(1)(ba) (ii)
TSR ensures an alignment between comparative shareholder return and reward for executives The relative measure minimises the effects of market cycles
CA 300A(1)(ba)(iv)
The peer group chosen for comparison is the ASX 100 constituents at the start of the performance period. This peer group was chosen as it reflects the Group's competitors for capital and talent.
27
TSR performance is monitored by an independent external adviser at 31 December each year. Table 3 in section 7 provides details of options awarded and vested during the year and Table 4 in section 7 provides details of the value of options awarded, exercised and lapsed during the year. Termination and change of control provisions Where a participant ceases employment prior to their award vesting, they may retain a number of unvested share options pro-rated to reflect participants period of service during the LTI grant performance period. These unvested share options only vest subject to meeting the relevant LTI performance measures. In the event of a change of control of the Group, the performance period end date will generally be brought forward to the date of the change of control and awards will vest subject to performance over this shortened period, subject to ultimate board discretion.
Hedging of equity awards
CA 300A(1)(da)
The Company prohibits executives from entering into arrangements to protect the value of unvested LTI awards. The prohibition includes entering into contracts to hedge their exposure to options awarded as part of their remuneration package. Adherence to this policy is monitored on an annual basis and involves each KMP signing an annual declaration of compliance with the hedging policy. 4. Executive remuneration outcomes for 2011 (including link to performance) Company performance and its link to short-term incentives The financial performance measures driving STI payment outcomes is earnings per share (EPS) of Endeavour Limited and profit before tax (PBT) of each business unit. The following chart shows Endeavour (International) Limiteds EPS over the five-year period from 1 January 2007 to 31 December 2011, while the table below summarises financial performance against the targets set by the board for the 2011 year. 5 year EPS performance
CA 300A(1)(b) CA 300A(1AA),(1AB)
50
EPS (cents/share)
2010
2011
28
The following table outlines the proportion of maximum STI that was earned and forfeited in relation to the 2011 financial year. Name M.P. Boiteau C.P. Muller R.S. Jaffe G.K. Dellas L.A. Basier C. Dhalliwell L.P.L. Adamidis A.R. Davis S. Cunica Proportion of maximum STI earned in FY11
60% 60% 70% 60% 60% 60% 60% 75% 25%
Company performance and its link to long-term incentives The performance measure which drives LTI vesting is the Companys TSR performance relative to the companies within the ASX 100 peer group. The graph below shows the performance of the Group as measured by the Group's total shareholder return (TSR) and the comparison of the Group's TSR to the median of the TSR for the ASX 100 for the past five years (including the current period) to 31 December 2011.
Median TSR for the ASX100 Endeavour International (Limited)
29
100% of award will vest if ranking remains unchanged to the testing date in FY12
The table below outlines the remuneration actually received by executives in FY11. The table includes fixed remuneration, the cash component of the STI earned for FY11 performance, vesting of the FY09 deferred STI and [50%] vesting of the 2008 LTI grant. The value attributed to the equity amounts (i.e., deferred STI and LTI) are based on the number of shares that vested multiplied by the share price at the date of vesting. Note that the value actually received by individuals differs from the remuneration outlined in Table 2 (which is based on accounting values).
Name Fixed remuneration 464,530 365,264 446,300 244,986 370,491 124,057 145,730 266,952 241,381 STI cash (FY11 performance) 139,359 109,579 156,205 73,496 111,147 37,217 43,219 100,107 30,173 Deferred STI vested (FY09 STI) 50,000 22,500 33,000 LTI award vested (2008 LTI grant) 11,650 3,495 53,590 Total remuneration received 665,539 500,838 602,505 318,482 568,228 161,274 188,949 367,059 271,554
M.P. Boiteau C.P. Muller R.S. Jaffe G.K. Dellas L.A. Basier C. Dhalliwell L.P.L. Adamidis A.R. Davis S. Cunica
30
Remuneration of key management personnel and the five highest paid executives of the Company and the Group
Post employment Long-term benefits Share-based payments Termination payments Total Performance related
CA 300(A)(1)(c) CA 300A(1)(e)(i) Reg 2M.3.03(1) Items 6-11 CA 300A(1), CA 300A(1A)
Table 2: Executive remuneration for the years ended 31 December 2011 and 31 December 2010
Short-term benefits
Salary & fees $ Other $ Shares* $ $ $ 824 800 29,664 28,800 2,000 1,800 22,000 11,000 37,080 36,000 1,000 800 22,000 19,000 14,626 14,200 6,000 -
Cash bonus $
Non monetary benefits $ SuperRetirement Cash annuation^ benefits Incentives $ $ $ Share options $ Long service leave $ 626,889 670,800 498,843 411,600
2011 2010
412,000 400,000
139,359 200,000
C.P. Muller
2011 2010
329,600 320,000
109,579 50,000
Other key management personnel R.S. Jaffe* 10,480 8,496 8,250 4,520 560 480 4,480 4,000 49,642 26,450 3,065 1,500 213,152 162,000 19,931 19,350 21,672 19,350 31,000 20,250 1,000 500 300 2,000 1,800 11,000 7,100 10,197 9,900 1,000 800 30,591 29,700 1,000 800 10,560 5,300 (18,300) 6,600 4,000 16,500 7,460 117,360 61,040 721 700 19,467 18,900 1,000 800 8,000 14,280 1,520 24,300 31,000 1,500 50,000 -
2011 2010
410,000 -
156,205 -
125,000 125,000 -
685,005 327,479 276,930 497,718 421,800 143,974 150,700 190,449 374,159 276,650 415,054 269,610 3,759,571 2,478,090
30.10 24.89 13.82 24.45 14.53 13.14 19.91 22.96 28.52 13.74 11.25 12.41
G.K. Dellas
2011 2010
216,300 210,000
73,495 24,000
L.A. Basier
2011 2010
339,900 330,000
111,147 56,000
C. Dhalliwel@
2011 2010
113,300 110,000
37,217 30,000
L.P.L. Adamidis**
2011 2010
125,000 -
43,719 -
A.R. Davis
2011 2010
240,800 215,000
100,107 34,000
S. Cunica#
2011 2010
221,450 215,000
30,173 26,000
2011 2010
2,408,350 1,800,000
801,002 420,000
** ^ @ #
Mr. Jaffe received a sign-on award of $50,000 in shares on commencement of employment. L.P.L Adamidis met the definition of a key management person on her appointment as General ManagerMergers and Acquisitions on 1 January 2011. In respect of defined benefit plans, the amount disclosed relates to the total costs under the plan in relation to that person as determined in accordance with AASB 119.13 C. Dhalliwel resigned on 30 November 2011 and forfeited his share options. Any share based payment expense previously recognised under AASB 2 in respect of the options has been reversed. While S. Cunica resigned on 31 December 2011, the board deemed Mr. Cunicas termination to be for a qualifying reason and as a consequence, permitted Mr. Cunica to retain a proportion of the awards made under the LTI plan. The Group has expensed the full entitlement under the 2010 and 2011 offers.
31
The CEO receives fixed remuneration of $425,000 per annum The CEOs target STI opportunity is 25% of annual TEC and his maximum STI opportunity is 50% of TEC The CEO is eligible to participate in Endeavour (International) Limiteds LTI plan on terms determined by the board, subject to receiving any required or appropriate shareholder approval
The CEOs termination provisions are as follows: Notice period 6 months None Payment in lieu of notice 6 months None Treatment of STI on termination Unvested awards forfeited. Unvested awards forfeited. Clawback of deferred STI payments at the boards discretion. Pro-rated for time and performance. Treatment of LTI on termination Unvested awards forfeited. Unvested awards forfeited.
12 months
12 months
Minimum shareholding requirement In order to align executive interests with shareholder interests, all executives including the CEO are required to acquire, at their own expense, as soon as reasonably practicable after commencement with the Company, shares to the value of $500,000 (at the time of their acquisition).
32
3 months
6 months
Payments applicable to outgoing executives In addition to the above terms and conditions, Mr. Jaffe received a sign-on award of $50,000 on commencement of employment. Mr. Jaffe received the full award in ordinary shares in the Company. The following arrangements applied to outgoing executives in office during the 2011 financial year:
X
Due to health reasons, Mr. Cunica resigned from his position on 31 December 2011. As a result, Mr Cunica received a termination payment of $125,000, in accordance with the terms of his employment contract. Adhering to the termination provisions previously stated, Mr. Cunica retained two-thirds of his STI payment for the financial year ending 31 December 2011. The remaining one-third (mandatory STI deferral amount) will be forfeited. Additionally, the board permitted Mr. Cunica to retain a pro-rated (based on time and performance) portion of the awards made under the LTI plan in 2009 and 2010. These awards will vest subject to meeting the relevant performance hurdles set for each award grant. The number of unvested options held by Mr Cunica is 27,000.
CA 300A(1)(a), (b)
6. Non-executive director remuneration arrangements Remuneration policy The board seeks to set aggregate remuneration at a level that provides the Company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost that is acceptable to shareholders. The amount of aggregate remuneration sought to be approved by shareholders and the fee structure is reviewed annually against fees paid to NEDs of comparable companies (typically S&P ASX 200 listed companies with market capitalisation 50% to 200% of the Company as well as similar sized industry comparators). The board considers advice from external consultants when undertaking the annual review process. The Companys constitution and the ASX listing rules specify that the NED fee pool shall be determined from time to time by a general meeting. The latest determination was at the 2010 AGM held on 30 April 2011 when shareholders approved an aggregate fee pool of $1,500,000 per year. The board will not seek any increase for the NED pool at the 2011 AGM.
33
$30,000 $20,000
NEDs do not receive retirement benefits, nor do they participate in any incentive programs. The remuneration of NEDs for the year ended 31 December 2011 and 31 December 2010 is detailed in table 3 section 8 below. Table 3: NED remuneration for the year ended 31 December 2011 and comparative 2010 remuneration Short-term benefits Post employment Total
CA 300(A)(1)(c) Reg 2M.3.03(1) Items 6-11
Financial year
Other $
Superannuation^ $
Non-executive directors J. Barraclough F. van den Berg A.N. Lockwood M. Evans M.A. Vlahov C. Smart P.R. Garcia FY 11 NED FY 10 NED
^
2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010
360,500 350,000 303,850 295,000 247,200 240,000 139,050 135,000 257,500 250,000 180,570 175,311 11,330 11,000 1,500,000 1,456,311
360,500 350,000 303,850 295,000 247,200 240,000 139,050 135,000 257,500 250,000 180,570 175,311 11,330 11,000 1,500,000 1,456,311
In respect of defined benefit plans, the amount disclosed relates to the total costs under the plan in relation to that person as determined in accordance with AASB 119.13
34
This section sets out the additional disclosures required under the Corporations Act 2001.
The table below discloses the share options granted to executives as remuneration during FY11. Share options do not carry any voting or dividend rights and will automatically be exercised once the vesting conditions have been met.
31 December 2011
Year
Terms and conditions for each grant during the year Fair value per Options awarded options at award during the year date No. Award date ($) Vesting date
C.P. Muller
50,000 50,000 -
$1.32 $1.32 -
5,000 1,500
9,000 -
L.A. Basier
A.R. Davis
C. Dhalliwell
2011 2011 2010 2011 2010 2009 2008 2011 2010 2011 2010 2011 2010 2009 2008
21-May-2011 1-Jan-2011 1-Jan-2010 1-Jan-2011 1-Jan-2010 1-Jan-2009 1-Jan-2008 1-Jan-2011 1-Jan-2010 1-Jan-2011 1-Jan-2010 1-Jan-2011 1-Jan-2010 1-Jan-2009 1-Jan-2008
Total
31-Dec-2013 31-Dec-2013 31-Dec-2012 31-Dec-2013 31-Dec-2012 31-Dec-2011 31-Dec-2010 31-Dec-2013 31-Dec-2012 31-Dec-2013 31-Dec-2012 31-Dec-2013 31-Dec-2012 31-Dec-2011 31-Dec-2010 -
23,000 -
4,000 8,000
35
18,300 9,300
For details on the valuation of the options, including models and assumptions used, please refer to Note 25. Represents forfeiture on resignation.
Reg. 2M.3.03(1) Item 14
There were no alterations to the terms and conditions of options awarded as remuneration since their award date. Table 6: Shares issued on exercise of rights (consolidated) 31 December 2011 Executive directors M.P. Boiteau C.P. Muller Other key management personnel G.K. Dellas Total Shares issued No. Paid per share $ Unpaid per share $
CA 298(2)
CA 298(2) CA 298(2)
36
;gjhgjYl] _gn]jfYf[]
Recommendation Principle 1 Lay solid foundations for management and oversight 1.1 Companies should establish the functions reserved to the board and those delegated to senior executives and disclose those functions. Companies should disclose the process for evaluating the performance of senior executives. Companies should provide the information indicated in the guide to reporting on Principle 1.
Yes
Page 39
1.2 1.3
Yes Yes
Page 41 Page 41
Principle 2 Structure the board to add value 2.1 2.2 2.3 2.4 2.5 A majority of the board should be independent directors. The chair should be an independent director. The roles of chair and chief executive officer (CEO) should not be exercised by the same individual. The board should establish a nomination committee. Companies should disclose the process for evaluating the performance of the board, its committees and individual directors. Companies should provide the information indicated in the guide to reporting on Principle 2. Yes Yes Yes Yes Yes Page 40 Page 40 Page 40 Page 41 Page 41
ASX CGC 2.1 ASX CGC 2.2 ASX CGC 2.3
2.6
Yes
Page 41
Principle 3 Promote ethical and responsible decision-making 3.1 Companies should establish a code of conduct and disclose the code or a summary of the code as to:
X
Yes
Website
The practices necessary to maintain confidence in the company's integrity The practices necessary to take into account their legal obligations and the reasonable expectations of their stakeholders The responsibility and accountability of individuals for reporting and investigating reports of unethical practices Yes Page 41
ASX CGC 3.2
3.2
Companies should establish a policy concerning diversity and disclose the policy or a summary of that policy. The policy should include requirements for the board to establish measurable objectives for achieving gender diversity for the board to assess annually both the objectives and progress in achieving them. Companies should disclose in each annual report the measurable objectives for achieving gender diversity set by the board in accordance with the diversity policy and progress towards achieving them. Companies should disclose in each annual report the proportion of women employees in the whole organisation, women in senior executives positions and women on the board.
3.3
Yes
3.4
Yes
37
3.5
Companies should provide the information indicated in the guide to reporting on Principle 3.
Yes
Page 40
Principle 4 Safeguard integrity in financial reporting 4.1 4.2 The board should establish an audit committee. The audit committee should be structured so that it:
X X X
Yes Yes
Page 41 Page 41
Consists only of non-executive directors Consists of a majority of independent directors Is chaired by an independent chair, who is not chair of the board Has at least three members Yes Yes Page 41 Website
ASX CGC 4.3 ASX CGC 4.4
4.3 4.4
The audit committee should have a formal charter. Companies should provide the information indicated in the guide to reporting on Principle 4.
Principle 5 Make timely and balanced disclosure 5.1 Companies should establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies. Companies should provide the information indicated in the guide to reporting on Principle 5. Yes Website
ASX CGC 5.1
5.2
Yes
Page 44
Principle 6 Respect the rights of shareholders 6.1 Companies should design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose their policy or a summary of that policy. Companies should provide the information indicated in the guide to reporting on Principle 6. Yes Page 44
ASX CGC 6.1
6.2
Yes
Page 44
Principle 7 Recognise and manage risk 7.1 Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies. The board should require management to design and implement the risk management and internal control system to manage the company's material business risks and report to it on whether those risks are being managed effectively. The board should disclose that management has reported to it as to the effectiveness of the company's management of its material business risks. The board should disclose whether it has received assurance from the CEO (or equivalent) and the Chief Financial Officer (CFO) (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act 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. Companies should provide the information indicated in the guide to reporting on Principle 7. Yes Page 42
ASX CGC 7.1
7.2
Yes
Page 42
7.3
Yes
Page 43
7.4
Yes
Page 42
38
The board should establish a remuneration committee. The remuneration committee should be structured so that it:
X X X
Yes Yes
Consists of a majority of independent directors Is chaired by an independent chair Has at least three members Yes
8.3
Companies should clearly distinguish the structure of nonexecutive directors remuneration from that of executive directors and senior executives. Companies should provide the information indicated in the guide to reporting on Principle 8.
8.4
Yes
Endeavour (International) Limited's corporate governance practices were in place throughout the year ended 31 December 2011. Various corporate governance practices are discussed within this statement. For further information on corporate governance policies adopted by Endeavour (International) Limited, refer to our website: www.endeavourltd.com.au/corporategovernance Board functions The board seeks to identify the expectations of the shareholders, as well as other regulatory and ethical expectations and obligations. In addition, the board is responsible for identifying areas of significant business risk and ensuring arrangements are in place to adequately manage those risks. To ensure that the board is well equipped to discharge its responsibilities it has established guidelines for the nomination and selection of directors and for the operation of the board. The responsibility for the operation and administration of the Group is delegated, by the board, to the CEO and the executive management team. The board ensures that this team is appropriately qualified and experienced to discharge their responsibilities and has in place procedures to assess the performance of the CEO and the executive management team. Whilst at all times the board retains full responsibility for guiding and monitoring the Group, in discharging its stewardship it makes use of sub-committees. Specialist sub-committees are able to focus on a particular responsibility and provide informed feedback to the board. To this end the board has established the following committees:
X X X X X
ASX LR 4.10.3
The roles and responsibilities of these committees are discussed throughout this corporate governance statement. The board is responsible for ensuring that management's objectives and activities are aligned with the expectations and risks identified by the board. The board has a number of mechanisms in place to ensure this is achieved including:
X X
Board approval of a strategic plan designed to meet stakeholders' needs and manage business risk Ongoing development of the strategic plan and approving initiatives and strategies designed to ensure the continued growth and success of the entity Implementation of budgets by management and monitoring progress against budget via the establishment and reporting of both financial and non-financial key performance indicators
39
Approval of the annual and half-yearly financial reports Approving and monitoring the progress of major capital expenditure, capital management, and acquisitions and divestitures Ensuring that any significant risks that arise are identified, assessed, appropriately managed and monitored Reporting to shareholders
ASX CGC 2.6
Structure of the board The skills, experience and expertise relevant to the position of director held by each director in office at the date of the annual report are included in the directors report. Directors of Endeavour (International) Limited are considered to be independent when they are independent of management and free from any business or other relationship that could materially interfere with or could reasonably be perceived to materially interfere with the exercise of their unfettered and independent judgement. In the context of director independence, materiality is considered from both the Group and individual director perspective. The determination of materiality requires consideration of both quantitative and qualitative elements. An item is presumed to be quantitatively immaterial if it is equal to or less than 5% of the appropriate base amount. It is presumed to be material (unless there is qualitative evidence to the contrary) if it is equal to or greater than 10% of the appropriate base amount. Qualitative factors considered include whether a relationship is strategically important, the competitive landscape, the nature of the relationship and the contractual or other arrangements governing it and other factors that point to the actual ability of the director in question to shape the direction of the Group's loyalty. In accordance with the definition of independence above, and the materiality thresholds set, the following directors of Endeavour (International) Limited are considered to be independent: Name J. Barraclough M. Evans F. van der Berg P.R. Garcia (Alt Director) C. Smart Position Chairman, non-executive director Non-executive director (retired 28 July 2011) Non-executive director (resigned 15 January 2012) Alternate director Non-executive director (appointed 1 May 2010)
ASX CGC 2.2 ASX CGC 2.6
The board recognises the Corporate Governance Councils recommendation that the Chair should be an independent director. The board further recognises that given Mr Barracloughs prior role as Managing Director of the Group together with his number of years service as a director, it can be argued that he does not meet the definition of independence. The board believes that Mr Barraclough is the most appropriate person to lead the board and that he is able to and does bring quality and independent judgement to all relevant issues falling within the scope of the role of Chairman and that the Group as a whole benefits from his long standing experience of its operations and business relationships and hence is considered independent. There are procedures in place, agreed by the board, to enable directors in furtherance of their duties to seek independent professional advice at the Company's expense. The term in office held by each director in office at the date of this report is as follows: Name J. Barraclough C.P. Muller A.N. Lockwood P.R. Garcia (Alt Director) M.P. Boiteau F. van den Berg C. Smart M.A. Vlahov Term in office 35 years 8 years 4 years 7 years 12 years 8 years 2 years 5 years
For additional details regarding board appointments, please refer to our website.
40
One day following the announcement of the half-yearly and full year results as the case may be One day following the holding of the annual general meeting One day after any other form of earnings forecast update is given to the market
As required by the ASX listing rules, the Company notifies the ASX of any transaction conducted by directors in the securities of the Company. Nomination committee The board has established a nomination committee, which meets at least annually, to ensure that the board continues to operate within the established guidelines, including when necessary, selecting candidates for the position of director. The nomination committee comprises non-executive directors. E.J. Brookes, an independent consultant who is not a director of the Company, regularly attends meetings. The nomination committee comprised the following members throughout the year: J. Barraclough (Committee Chairman) F. van den Berg E.J. Brooks (Independent Consultant) For details of directors' attendance at meetings of the nomination committee, refer to the directors' report. For additional details regarding the nomination committee including its charter please refer to our website. Audit committee The board has established an audit committee, which operates under a charter approved by the board. It is the board's responsibility to ensure that an effective internal control framework exists within the entity. This includes internal controls to deal with both the effectiveness and efficiency of significant business processes, the safeguarding of assets, the maintenance of proper accounting records, and the reliability of financial information as well as non-financial considerations such as the benchmarking of operational key performance indicators. The board has delegated responsibility for establishing and maintaining a framework of internal control and ethical standards to the audit committee. The committee also provides the board with additional assurance regarding the reliability of financial information for inclusion in the financial reports. All members of the audit committee are nonexecutive directors.
ASX CGC 4.1 ASX CGC 2.4, 2.6 ASX CGC 2.4, 2.6
41
Qualifications of audit committee members F. van den Berg is an experienced solicitor and was the Chairman of the audit committee until his retirement in January 2012. J. Barraclough has significant experience in the management of Endeavour (International) Limited, having served as the Managing Director of Endeavour (International) Limited for 27 years. He is also director of a number of companies, where as part of his role he serves as a member of the audit committee. M.A. Vlahov is the new Chairman of the audit committee and has been a chartered accountant for 18 years and is an experienced tax practitioner. For details on the number of meetings of the audit committee held during the year and the attendees at those meetings, refer to the directors report. For additional details regarding the audit committee, including a copy of its charter, please refer to our website. Risk The board has continued its proactive approach to risk management. The identification and effective management of risk, including calculated risk-taking is viewed as an essential part of the Company's approach to creating long-term shareholder value. In recognition of this, the board determines the company's risk profile and is responsible for overseeing and approving risk management strategy and policies, internal compliance and internal control. In doing so the board has taken the view that it is crucial for all board members to be a part of this process and as such, has not established a separate risk management committee. The board oversees an annual assessment of the effectiveness of risk management and internal compliance and control. The tasks of undertaking and assessing risk management and internal control effectiveness are delegated to management through the CEO, including responsibility for the day to day design and implementation of the company's risk management and internal control system. Management reports to the board on the companys key risks and the extent to which it believes these risks are being adequately managed. The reporting on risk by management is a standing agenda item at monthly board meetings. Management is required by the board to carry out risk specific management activities in five core areas; strategic risk, operational risk, reporting risk, compliance risk and environmental and sustainability risk. It is then required to assess risk management and associated internal compliance and control procedures and report back on the efficiency and effectiveness of these efforts by benchmarking performance in accordance with Australian/New Zealand Standard for Risk Management (AS/NZS 4360 risk management) and the Committee of Sponsoring Organisations of the Treadway Commission (COSO) risk framework. The board has a number of mechanisms in place to ensure that management's objectives and activities are aligned with the risks identified by the board. These include the following:
X
The completion of a stakeholder needs analysis (SNA), which is a powerful tool in ensuring that the board is cognisant of the diverse needs of various stakeholders and assists in identifying the risks the business may face if those needs are not met. The SNA is a dynamic document and the board holds an annual workshop, in addition to the ongoing discussion of this document in board meetings, specifically to review and update the SNA. Board approval of a strategic plan, which encompasses the company's vision, mission and strategy statements, designed to meet stakeholders' needs and manage business risk. Implementation of board approved operating plans and budgets and board monitoring of progress against these budgets, including the establishment and monitoring of KPIs of both a financial and non-financial nature.
42
Fluctuations in commodity prices, exchange rates and demand volumes Political instability/sovereignty risk in some operating sites The occurrence of force majeure events by significant suppliers Increasing costs of operations, including labour costs Changed operating, market or regulatory environments as a result of climate change
As part of its duties, the companys internal audit function conducts a series of risk-based and routine reviews based on a plan agreed with management and the audit committee with the objective of providing assurance on the adequacy of the company's risk framework and the completeness and accuracy of risk reporting by management. In order to ensure the independence of the internal audit function, the head of internal audit meets privately with the audit committee without management present on a regular basis and the audit committee is responsible for making the final decision on the head or internal audits tenure and remuneration. Underpinning these efforts is a comprehensive set of policies and procedures directed towards achieving the following objectives in relation to the requirements of Principle 7:
X X X
Effectiveness and efficiency in the use of the Company's resources Compliance with applicable laws and regulations Preparation of reliable published financial information
ASX CGC 7.3
CEO and CFO certification In accordance with section 295A of the Corporations Act, the CEO and CFO have provided a written statement to the board that:
X
Their view provided on the Company's financial report is founded on a sound system of risk management and internal compliance and control which implements the financial policies adopted by the board The Company's risk management and internal compliance and control system is operating effectively in all material respects
The board agrees with the views of the ASX on this matter and notes that due to its nature, internal control assurance from the CEO and CFO can only be reasonable rather than absolute. This is due to such factors as the need for judgement, the use of testing on a sample basis, the inherent limitations in internal control and because much of the evidence available is persuasive rather than conclusive and therefore is not and cannot be designed to detect all weaknesses in control procedures. In response to this, internal control questions are required to be completed by the key management personnel of all significant business units, including finance managers, in support of these written statements. Remuneration It is the Company's objective to provide maximum stakeholder benefit from the retention of a high quality board and executive team by remunerating directors and key executives fairly and appropriately with reference to relevant employment market conditions. To assist in achieving this objective, the remuneration committee links the nature and amount of executive directors' and officers' remuneration to the Company's financial and operational performance. The expected outcomes of the remuneration structure are:
X X X
Retention and motivation of key executives Attraction of high quality management to the Company Performance incentives that allow executives to share in the success of Endeavour (International) Limited
ASX CGC 8.3
For a full discussion of the Company's remuneration philosophy and framework and the remuneration received by directors and executives in the current period please refer to the remuneration report, which is contained within the directors report. There is no scheme to provide retirement benefits to non-executive directors.
43
For details on the number of meetings of the remuneration committee held during the year and the attendees at those meetings, refer to the directors report. For additional details regarding the remuneration committee, including a copy of its charter, please refer to our website. Finance committee The role of the finance committee is documented in a charter approved by the board. The finance committee is responsible for:
X
Establishing and monitoring the Company's capital management strategy, including dividend payment strategies, for the board's consideration Assessing the Company's funding requirements and making recommendations to the board concerning specific funding proposals Monitoring borrowings from financial institutions and compliance with borrowing covenants
For details on the number of meetings of the finance committee held during the year and the attendees at those meetings, refer to the directors' report. Treasury committee The purpose of the treasury committee is to monitor financial risks and exposure from movements in interest rates and exchange rates. This involves reviewing and assessing the types of hedging products available in minimising these risks and making recommendations to the board as to the course of action required. The current members of the treasury committee are:
X X
For details on the number of meetings of the treasury committee held during the year and the attendees at those meetings, refer to the directors' report. Shareholder communication policy Pursuant to Principle 6, Endeavours objective is to promote effective communication with its shareholders at all times. Endeavour (International) Limited is committed to:
X
Ensuring that shareholders and the financial markets are provided with full and timely information about Endeavour (International) Limiteds activities in a balanced and understandable way Complying with continuous disclosure obligations contained in the ASX listing rules and the Corporations Act in Australia Communicating effectively with its shareholders and making it easier for shareholders to communicate with Endeavour (International) Limited
44
Through the release of information to the market via the ASX Through the distribution of the annual report and notices of annual general meeting Through shareholder meetings and investor relations presentations Through letters and other forms of communications directly to shareholders By posting relevant information on Endeavour (International) Limiteds website: www.endeavourltd.com.au/corporate governance
The Companys website www.endeavourltd.com.au has a dedicated investor relations section for the purpose of publishing all important company information and relevant announcements made to the market. The external auditors are required to attend the annual general meeting and are available to answer any shareholder questions about the conduct of the audit and preparation of the audit report. Diversity at Endeavour The Group recognises the value contributed to the organisation by employing people with varying skills, cultural backgrounds, ethnicity and experience. Endeavour believes its diverse workforce is the key to its continued growth, improved productivity and performance. We actively value and embrace the diversity of our employees and are committed to creating an inclusive workplace where everyone is treated equally and fairly, and where discrimination, harassment and inequity are not tolerated. While Endeavour is committed to fostering diversity at all levels, gender diversity has been and continues to be a priority for the Group. To this end, the Group supports and complies with the recommendations contained in the ASX Corporate Governance Principles and Recommendations. The Group has established a diversity policy outlining the boards measurable objectives for achieving diversity. This is assessed annually to measure the progress towards achieving those objectives. The diversity policy is available in the corporate governance section on the Groups website. The table below outlines the diversity objectives established by the board, the steps taken during the year to achieve these objectives, and the outcomes. Objectives Increase the number of women in the workforce, including senior management positions and at board level. Steps taken/Outcome Key senior female appointments during the year included:
X
Appointment of General Manager: Mergers and Acquisitions on 1 January 2011 Endeavour appointed 111 females in managerial roles As at 31 December 2011, women represented 45% in the Groups workforce (2010: 40%), 52% in key executive positions (2010: 47%) and 44% at board level (2010:44%) Women represented 45% of graduate intakes hired during the year (2010: 43%)
X X
For the upcoming financial year, the Group targets to increase female representation in the Groups workforce to 50%, 55% in key executive positions and 50% at board level.
45
10 key senior executives attended leadership workshops, out of which 5 were women Employees in managerial positions attended networking and risk management workshops, which comprised of 45% women Mentoring by key senior executive management is offered to all women in managerial positions. During the year, 25% of women participated in this program During the year, Endeavour funded projects designed to enhance the skills of people with disabilities. Endeavour was actively involved in organising an awards ceremony recognising the contribution by people with disabilities in the community. The Group provided on-going training and guidance to people with disabilities and ensured that the workplace was friendly and free of discrimination. As at 31 December 2011, Endeavour provided employment opportunities to 117 people with disability (2010: 89). During the year, Endeavour employed 75 employees on flexible work arrangements (2010: 64). Our work from home option is also provided to employees, which is assessed on a case by case basis. 10% of employees (2010: 5%) were granted permission to work from home at least one day per week. During the year, a HR consultant was hired to identify bias in performance assessment for senior managerial positions, key executive roles and executive directors. Endeavour has adopted the recommendations of the HR consultant and aligned pay disparity. The pay review will continue in the FY12 for the remaining positions. Endeavour has set a zero tolerance policy against discrimination of employees at all levels. The company also provides avenues for employees to voice their concerns or report any discrimination. No cases of discrimination were reported during the year (2010: nil). Whilst Endeavour places special focus on gender diversity, career development opportunities are equal for all employees. During the year, representation at the career development workshop was based on performance of the employees.
Provide flexible workplace arrangement including part time arrangement and other incentives.
Review gender pay gaps on an annual basis and implement actions to address any variances.
Promote an inclusive culture that treats the workforce with fairness and respect.
Provide career development opportunities for every employee, irrespective of any cultural, gender and other differences.
The achievement of the measurable objectives in the current financial year was taken into consideration in assessing bonuses for employees. The Group will continue to review and update the measurable objectives to promote diversity for the upcoming year.
46
>afYf[aYd klYl]e]flk
2011 Note Continuing operations Sale of goods Rendering of services Revenue from redemption of EndeavourPoints Rental income Revenue Cost of sales Gross profit Other operating income Selling and distribution costs Administrative expenses Other operating expenses Operating profit Finance costs Finance income Share of profit of an associate Profit before tax from continuing operations Income tax expense Profit for the year from continuing operations Discontinued operations Profit/(loss) after tax for the year from discontinued operations Profit for the year Other comprehensive income Net gain on hedge of net investment Exchange differences on translation of foreign operations Net movement of cash flow hedges Net (loss)/gain on available-for-sale financial assets Actuarial gain/(loss) on defined benefit plans Revaluation of land and buildings Income tax relating to the components of other comprehensive income Other comprehensive income for the year, net of tax Total comprehensive income for the year, net of tax 8.8 8.8 25 12 9 278 (246) (732) (60) 311 846 (193) 204 8,436 9 8.1 $000 190,599 17,131 1,375 1,404 210,509 (163,691) 46,818 1,585 (14,000) (19,746) (1,153) 13,504 (2,868) 1,186 83 11,905 (3,893) 8,012
2010 Restated* $000 172,864 16,537 1,125 1,377 191,903 (155,268) 36,635 2,548 (13,002) (13,482) (706) 11,993 (1,223) 211 81 11,062 (3,432) 7,630
AASB 118.35(b)(i) AASB 118.35(b)(ii) AASB 118.35(b)(ii) AASB 118.35(c) AASB 101.82(a) AASB 101.103 AASB 101.85, 103
24 13
AASB 101.103 AASB 101.103 AASB 101.103 AASB 101.103 AASB 101.82(a) AASB 101.82(b), AASB 7.20 AASB 101.82(a) AASB 101.82(c), AASB 128.38 AASB 101.85
10
220 8,232
(188) 7,442
AASB 101.82(g)
* Certain numbers shown here do not correspond to the 2010 financial statements and reflect adjustments made as detailed in Note 2.4.
47
AAaaSB 108.28
Total comprehensive income attributable to: Owners of the parent Non-controlling interests
Earnings per share X Basic, profit for the year attributable to ordinary equity holders of the parent
X
AASB 133.66
$0.39 $0.38
$0.38 $0.37
Diluted, profit for the year attributable to ordinary equity holders of the parent
Basic, profit from continuing operations attributable to ordinary equity holders of the parent Diluted, profit from continuing operations attributable to ordinary equity holders of the parent
$0.38
$0.39
$0.37
$0.38
* Certain numbers shown here do not correspond to the 2010 financial statements and reflect adjustments made as detailed in Note 2.4.
Commentary
Paragraph 10 of AASB 101 suggests titles for the primary financial statements, such as statement of comprehensive income or statement of financial position. Entities are however permitted to use other titles, e.g., Income statement or balance sheet. AASB 101.82(a) requires disclosure of total revenue as a line item on the face of the income statement. The Group has elected to present the various types of revenues on the face of the income statement. Note that this information could also be given in the notes. AASB 101.99 requires expenses to be analysed by nature or by their function within the income statement, whichever provides information that is reliable and more relevant. The Group has presented the analysis of expenses by function. In disclosing operating profit, an entity needs to ensure that the amount disclosed is representative of activities that would normally be regarded as 'operating' and is relevant to the understanding of the financial statements. There is no specific requirement to identify on the face of the financial statements whether there have been adjustments made to the amounts disclosed in the prior period financial statements. AASB 108 requires details to be given only in the notes. The Group illustrates how an entity may supplement the requirements of AASB 108 so that it is clear to the reader that the amounts have been adjusted. AASB 133.68 requires presentation of basic and diluted earnings per share for discontinued operations either on the face of the income statement or in the notes to the financial statements. The Group has elected to show this information with other disclosures required for discontinued operations in Note 10 and show the earnings per share information for continuing operations on the face of the income statement.
48
2011 Notes Assets Current assets Inventories Trade and other receivables Prepayments Other current financial assets Cash and short-term deposits Assets classified as held for sale Non-current assets Property, plant and equipment Investment properties Intangible assets Investment in an associate Other non-current financial assets Deferred tax assets $000
17 18 15 19 10
24,875 27,672 244 551 17,112 70,454 13,554 84,008 34,411 8,893 6,019 764 6,425 383 56,895 140,903
25,489 24,290 165 153 14,916 65,013 65,013 25,811 7,983 2,461 681 3,491 365 40,792 105,805
27,151 25,537 226 137 11,066 64,117 64,117 20,385 7,091 2,114 600 3,269 321 33,780 97,897
AASB 101.54(g) AASB 101.54(h), AASB 7.8(c) AASB 101.55 AASB 101.54(d), AASB 7.8 AASB 101.54(i)
AASB 101.60, 66
12 13 14 6 15 9
AASB 101.54(a) AASB 101.54(b) AASB 101.54(c) AASB 101.54(e), AASB 128.38 AASB 101.54(d), AASB 7.8 AASB 101.54(o),56
Total assets Liabilities and equity Current liabilities Trade and other payables Interest-bearing loans and borrowings Other current financial liabilities Government grants Deferred revenue Income tax payable Provisions Liabilities directly associated with the assets classified as held for sale
27 15.2 15.2 23 24 22
19,556 2,460 3,040 149 220 3,963 850 30,238 13,125 43,363
AASB 101.54(k) AASB 101.54(m), AASB 7.8(f) AASB 101.54(m), AASB 7.8 AASB 101.55, AASB 120.24 AASB 101.55 AASB 101.54(n) AASB 101.54(l)
10
Non-current liabilities Interest-bearing loans and borrowings Other non-current financial liabilities Provisions Government grants Deferred revenue Employee benefit liability Other liabilities Deferred tax liabilities Total liabilities
AASB 101.60, 69
15.2 15.2 22 23 24 25 9
20,856 806 1,950 3,300 196 2,622 263 3,060 33,053 76,416
AASB 101.54(m) AASB 101.54(m), AASB 7.8 AASB 101.54(l), AASB 120.24 AASB 101.55 AASB 101.55,101. 78(d) AASB 101.55 AASB 101.54(o), 101.56
49
2011 Notes Equity Issued capital Share premium Treasury shares Other capital reserves Retained earnings Other components of equity Reserves of a disposal group classified as held for sale Equity attributable to owners of the parent Non-controlling interests Total equity Total equity and liabilities 20 20 20 20 $000 21,888 4,780 (508) 1,171 35,351 (651) 46 62,077 2,410 64,487 140,903
2010 Restated* $000 19,388 80 (654) 864 29,272 (512) 48,438 740 49,178 105,805
As at 1 January 2010 Restated* $000 19,388 (774) 566 23,950 (521) 42,709 208 42,917 97,897
AASB 108.28 AASB 101.51(d)(e) AASB 101.54(r) AASB 101.54(r), 101.78(e) AASB 101.54(r), 101.78(e) AASB 101.54(r), 101.78(e) AASB 101.54(r), 101.78(e) AASB 101.54(r), 101.78(e) AASB 101.54(r), 101.78(e) AASB 101.54(p)
10
* Certain amounts shown here do not correspond to the 2010 financial statements and reflect adjustments made as detailed in Note 2.4 and Note 4.
Commentary
AASB 101 requires an entity to present a statement of financial position at the beginning of the earliest comparative period when it applies an accounting policy retrospectively, makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements (AASB 101.10(f)). In these situations, AASB 101.39 states that an entity must present, as a minimum, three statements of financial position, two of each of the other statements and related notes. As the Group voluntarily changed its accounting policy with respect to the recognition of actuarial gains and losses (AASB 119.93A) and applied that change retrospectively in accordance with AASB 108, the Group has also included a statement of financial position as at 1 January 2010. AASB 101.39 also requires related notes, and we believe this should include, at a minimum, those notes that were affected by the restatement. Identifying related notes requires judgement to be applied by management. The Group provides a full set of notes for the opening statement of financial position, rather than just for the amended amounts related to employee benefits. There is no specific requirement to identify on the face of the financial statements whether there have been adjustments made to the amounts disclosed in the prior period financial statements. AASB 108 requires details to be given only in the notes. The Group illustrates throughout the notes to the consolidated financial statements how an entity may supplement the requirements of the standard so that it is clear to the reader that the amounts have been adjusted. In accordance with AASB 101.60, the Group has classified its statement of financial position into current and non-current assets, and current and non-current liabilities. Please note that our Global publication, Good Group (International) Limited, presents the sequence of non-current assets, current assets, non-current liabilities and current liabilities differently from Endeavour (International) Limited. The sequence of the disclosure notes may therefore not correspond with the order of the line items on the statement of financial position. AASB 101 allows entities to present assets and liabilities broadly in order of their liquidity when this presentation is reliable and more relevant.
50
Other Issued Share Treasury capital reserves capital premium shares (Note 20) (Note 20) (Note 20) (Note 20) $000 $000 $000 $000 (654) 864 307 146
Total equity $000 49,178 8,232 204 8,436 7,203 175 307 (32) (2,002) 1,547
AASB 101.51(d)(e)
As at 1 January 2011
19,388
80
AASB 101.106(d)(i)
Other comprehensive
AASB 101.106(d)(ii)
income
Total comprehensive
AASB 101.106(a)
income
Discontinued operation
AASB 5.38
(Note 11)
(Note 20)
2,500
4,703
Exercise of options
AASB 101.106(d)(iii) AASB 101.106(d)(iii) AASB 2.50
(Note 20)
29
Share-based payment
Transaction costs
AASB 132.39 AASB 101.107
(Note 4)
(32)
Acquisition of subsidiary
AASB 101.106(d)(iii)
(Note 4)
Acquisition of non (508) 1,171 (190) 35,351 (582) (86) (495) 512 46 (190) 62,077 (135) 2,410 (325) 64,487
AASB 101.106(d)(iii)
controlling interests
(Note 4)
At 31 December 2011
21,888
4,780
51
52
Commentary
For equity-settled share-based payment transactions, AASB 2.7 requires entities to recognise an increase in equity when goods or services are received. However, AASB 2 does not specify where in equity this should be recognised. The Group has chosen to recognise the credit in other capital reserves. The Group provided treasury shares to employees exercising share options and elected to recognise the excess of cash received over the acquisition cost of those treasury shares in share premium. In some jurisdictions, it is common to transfer other capital reserves to share premium or retained earnings when the share options are exercised or expire. The Group has elected to continue to present other capital reserves separately.
The acquisition of an additional ownership interest in a subsidiary without a change of control is accounted for as an equity transaction in accordance with AASB 127. Any excess or deficit of consideration paid over the carrying amount of non-controlling interest is recognised in equity of the parent in transactions where non-controlling interest is acquired or sold without loss of control. The Group has elected to recognise this effect in retained earnings. With respect to the subsidiary to which this non-controlling interest relates, there were no accumulated components recognised in other comprehensive income. If there had been such components, those would have been reallocated within equity of the parent (e.g., foreign currency translation reserve, available-for-sale reserve).
AASB 5.38 requires items recognised in other comprehensive income related to a discontinued operation to be separately disclosed. The Group presents this effect in the statement of changes in equity above. However, presentation of such items within discontinued operations does not change the nature of the reserve. Reclassification to profit or loss will occur if and when necessary.
The Group changed its accounting policy for the recognition of actuarial gains and losses arising on defined benefit pension plans. Those are recognised outside the income statement in other comprehensive income. As they will never be reclassified into profit or loss, they are immediately recorded in retained earnings. The standard thereby indicates no separate presentation of those components in the statement of changes in equity.
AASB 101.51(d)(e)
As at 1 January 2010
19,388
Changes in accounting policies (1,006) 23,950 7,203 (281) 6,922 (1,600) 29,272 (70) 2 24 2 24 2 (117) (117) (444) (94) (327) (774) 120 298 864 (654) 566 80 80 (1,006) 42,709 7,203 (372) 6,831 200 298 (1,600) 48,438 208 239 239 (49) 342 740 (1,006) 42,917 7,442 (372) 7,070 200 298 (1,649) 342 49,178
AASB 101.106(d)(i) AASB 101.106(d)(ii) AASB 101.106(a) AA B 101.106(d)(iii) AASB 101.106(d)(iii) AASB 2.50 AASB 101.107 AASB 101.106(b)
(Note 2.4)
19,388
Share-based payment
AASB 101.106(d)(iii)
At 31 December 2010
19,388
* Certain amounts shown here do not correspond to the 2010 financial statements and reflect adjustments made as detailed in Note 2.4.
53
Note Operating activities Receipts from customers (inclusive of GST) Payments to suppliers (inclusive of GST) Payments to employees Interest received Income tax paid Net cash flows from operating activities Investing activities Proceeds from sale of property, plant and equipment Purchase of property, plant and equipment Purchase of investment properties Purchase of financial instruments Proceeds from available-for-sale investments Purchase of intangible assets Acquisition of a subsidiary, net of cash acquired Receipt of government grants Net cash flows used in investing activities Financing activities Proceeds from exercise of share options Acquisition of non-controlling interest Transaction costs of issue of shares Payment of finance lease liabilities Proceeds from borrowings Repayment of borrowings Interest paid Dividends paid to owners of the parent Dividends paid to non-controlling interests Net cash flows from/(used in) financing activities Net increase in cash and cash equivalents Net foreign exchange difference Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December 19 19
12 13
14 4 23
AASB 107.21
20 4 20
21
175 (325) (32) (51) 5,299 (1,806) (586) (1,972) (30) 672 5,131 43 12,266 17,440
200 (76) 2,645 (1,784) (983) (1,600) (49) (1,647) 4,076 (126) 8,316 12,266
AASB 107.17(a)
AASB 107.17(e) AASB 107.17(c) AASB 107.17(d) AASB 107.31 AASB 107.31 AASB 107.31
AASB 107.28
AASB 107.45
Commentary
AASB 107.33 permits interest paid to be shown as operating or financing activities and interest received to be shown as operating or investing activities, as deemed relevant for the entity. The Group has decided to classify interest received as cash flows from operating activities. AASB 107.18 allows entities to report cash flows from operating activities using either the direct method or the indirect method. The Group presents its cash flows using the direct method. The Group has reconciled profit before tax to net cash flows from operating activities. However, a reconciliation from profit after tax is also acceptable under AASB 107.
54
AASB 101.138(b)
2.
Table of contents
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) (m) (n) (o) (p) (q) (r) (s) (t) (u) (v) (w) (x) (y) Basis of consolidation ................................................................................................... 58 Business combinations .................................................................................................. 59 Goodwill ...................................................................................................................... 60 Interest in a joint venture .............................................................................................. 61 Investment in an associate ............................................................................................ 61 Foreign currency translation ......................................................................................... 62 Revenue recognition ..................................................................................................... 63 Government grants ....................................................................................................... 64 Income tax and other taxes ........................................................................................... 64 Non-current assets held for sale and discontinued operations ........................................... 66 Property, plant and equipment ...................................................................................... 66 Leases ......................................................................................................................... 67 Borrowing costs ........................................................................................................... 68 Investment properties ................................................................................................... 68 Intangible assets .......................................................................................................... 68 Financial instruments initial recognition and subsequent measurement ........................... 70 Derivative financial instruments and hedge accounting .................................................... 75 Inventories .................................................................................................................. 77 Impairment of non-financial assets ................................................................................. 77 Cash and short-term deposits ........................................................................................ 78 Convertible preference shares ....................................................................................... 79 Treasury shares ........................................................................................................... 79 Provisions .................................................................................................................... 79 Pensions and other post employment benefits ................................................................ 81 Share-based payment transactions ................................................................................ 82
55
The financial report is a general purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report has also been prepared on a historical cost basis, except for investment properties, land and buildings, derivative financial instruments and available-for-sale investments, which have been measured at fair value. The carrying values of recognised assets and liabilities that are designated as hedged items in fair value hedges that would otherwise be carried at amortised cost, are adjusted to record changes in the fair values attributable to the risks that are being hedged in effective hedge relationships. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($000) unless otherwise stated.
AASB 101.51(d),(e), ASIC CO 98/0100
2.2
AASB 101.16
The financial report also complies with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.
2.3
(i)
The accounting policies adopted are consistent with those of the previous financial year except as follows: The Group has adopted the following new and amended Australian Accounting Standards and AASB Interpretations as of 1 January 2011:
X X X
AASB 124 Related Party Disclosures (amendment) effective 1 January 2011 AASB 132 Financial Instruments: Presentation (amendment) effective 1 February 2010 AASB Int 14 Prepayments of a Minimum Funding Requirement (amendment) effective 1 January 2011 Improvements to AASBs (May 2010)
AASB 108.28
The adoption of the standards or interpretations is described below: AASB 124 Related Party Transactions (Amendment) The AASB issued an amendment to AASB 124 that clarifies the definitions of a related party. The new definitions emphasise a symmetrical view of related party relationships and clarifies the circumstances in which persons and key management personnel affect related party relationships of an entity. In addition, the amendment introduces an exemption from the general related party disclosure requirements for transactions with government and entities that are controlled, jointly controlled or significantly influenced by the same government as the reporting entity. The adoption of the amendment did not have any impact on the financial position or performance of the Group. AASB 132 Financial Instruments: Presentation (Amendment) The AASB issued an amendment that alters the definition of a financial liability in AASB 132 to enable entities to classify rights issues and certain options or warrants as equity instruments. The amendment is applicable if the rights are given pro rata to all of the existing owners of the same class of an entitys non-derivative equity instruments, to acquire a fixed number of the entitys own equity instruments for a fixed amount in any currency. The amendment has had no effect on the financial position or performance of the Group because the Group does not have these type of instruments. AASB Int 14 Prepayments of a Minimum Funding Requirement (Amendment) The amendment removes an unintended consequence when an entity is subject to minimum funding requirements and makes an early payment of contributions to cover such requirements. The amendment permits a prepayment of future service cost by the entity to be recognised as a pension asset. The Group is not subject to minimum funding requirements in Australia, therefore the amendment of the interpretation has no effect on the financial position nor performance of the Group.
56
AASB 3 Business Combinations: The measurement options available for non-controlling interest (NCI) were amended. Only components of NCI that constitute a present ownership interest that entitles their holder to a proportionate share of the entitys net assets in the event of liquidation should be measured at either fair value or at the present ownership instruments proportionate share of the acquirees identifiable net assets. All other components are to be measured at their acquisition date fair value (see Note 4). The amendments to AASB 3 are effective for annual periods beginning on or after 1 July 2011. The Group, however, adopted these as of 1 January 2011 and changed its accounting policy accordingly as the amendment was issued to eliminate unintended consequences that may arise from the adoption of AASB 3. AASB 7 Financial Instruments Disclosures: The amendment was intended to simplify the disclosures provided by reducing the volume of disclosures around collateral held and improving disclosures by requiring qualitative information to put the quantitative information in context. The Group reflects the revised disclosure requirements in Note 15. AASB 101 Presentation of Financial Statements: The amendment clarifies that an entity may present an analysis of each component of other comprehensive income maybe either in the statement of changes in equity or in the notes to the financial statements. The Group provides this analysis in Note 8.8.
Other amendments resulting from Improvements to AASBs to the following standards did not have any impact on the accounting policies, financial position or performance of the Group:
X
AASB 3 Business Combinations (Contingent consideration arising from business combination prior to adoption of AASB 3 (as revised in 2008)) AASB 3 Business Combinations (Un-replaced and voluntarily replaced share-based payment awards) AASB 127 Consolidated and Separate Financial Statements AASB 134 Interim Financial Statements
X X X
The following interpretation and amendments to interpretations did not have any impact on the accounting policies, financial position or performance of the Group:
X X
AASB Int 13 Customer Loyalty Programmes (determining the fair value of award credits) AASB Int 19 Extinguishing Financial Liabilities with Equity Instruments
The Group has made a formal written election to early adopt the following new and amended Australian Accounting Standards as of 1 January 2011:
(ii) Accounting Standards and Interpretations issued but not yet effective. Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective and have not been adopted by the Group for the annual reporting period ending 31 December 2011, outlined in the table below:
Reference Title Summary Application Impact on Group financial Application date of report date for standard* Group*
AASB 108.28(d-e)
AASB 108.31
(Please refer to your local Ernst & Young contact or Ernst & Youngs In balance newsletter for the most up-to-date table relevant to your reporting period).
57
AASB 127.20
AASB 127.26
AASB 127.28
58
(a) Basis of consolidation (continued) A change in the ownership interest of a subsidiary that does not result in a loss of control, is accounted for as an equity transaction. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it:
X X X X X X X
Derecognises the assets (including goodwill) and liabilities of the subsidiary Derecognises the carrying amount of any non-controlling interest Derecognises the cumulative translation differences recorded in equity Recognises the fair value of the consideration received Recognises the fair value of any investment retained Recognises any surplus or deficit in profit or loss Reclassifies the parents share of components previously recognised in other comprehensive income to profit or loss or retained earnings, as appropriate
Prior to 1 January 2010 Certain of the above mentioned requirements were applied on a prospective basis. The following differences, however, are carried forward in certain instances from the previous basis of consolidation:
X
Acquisitions of non-controlling interests, prior to 1 January 2010, were accounted for using the parent entity extension method, whereby, the difference between the consideration and the book value of the share of the net assets acquired was recognised in goodwill. Losses incurred by the Group were attributed to the non-controlling interest until the balance was reduced to nil. Any further excess losses were attributed to the parent, unless the non-controlling interest had a binding obligation to cover these. Losses prior to 1 January 2010 were not reallocated between NCI and the parent shareholders. Upon loss of control, the Group accounted for the investment retained at its proportionate share of net asset value at the date control was lost. The carrying value of such investments at 1 January 2010 have not been restated.
AASB 101.112 AASB 101.117(a)(b) AASB 3.4 AASB 3.18 AASB 3.19
(b) Business combinations Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the Group elects whether it measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquirees identifiable net assets. Acquisition costs incurred are expensed and included in administrative expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.
59
(b) Business combinations (continued) If the business combination is achieved in stages, the acquisition date fair value of the acquirers previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability will be recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it will not be remeasured. Subsequent settlement is accounted for within equity. In instances where the contingent consideration does not fall within the scope of IAS 39, it is measured in accordance with the appropriate IFRS. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Groups cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. (c) Goodwill Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Groups cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.
AASB 3.32
AASB 136.86
60
AASB 131.48
AASB 131.45
Commentary
The Group accounts for its interest in the jointly controlled entity using proportionate consolidation. However, AASB 131.38 also permits jointly controlled entities to be recognised using the equity method. If an entity chooses to recognise jointly controlled entities using the equity method, it is required to present its aggregate share of profit or loss from the jointly controlled entity on the face of its income statement. Also, the investment is presented as a non-current asset on the face of the statement of financial position.
(e) Investment in an associate The Groups investment in its associate is accounted for using the equity method. An associate is an entity in which the Group has significant influence. Under the equity method, the investment in the associate is carried on the statement of financial position at cost plus post acquisition changes in the Groups share of net assets of the associate. Goodwill relating to the associate is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. The income statement reflects the Groups share of the results of operations of the associate. When there has been a change recognised directly in the equity of the associate, the Group recognises its share of any changes and discloses this, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate. The Groups share of profit of an associate is shown on the face of the income statement. This is the profit attributable to equity holders of the associate and, therefore, is profit after tax and non-controlling interests in the subsidiaries of the associate. The financial statements of the associate are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group.
AASB 128.37(e) AASB 128.26 AASB 128.6
61
(e) Investment in an associate (continued) After application of the equity method, the Group determines whether it is necessary to recognise an additional impairment loss on its investment in its associate. The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount in the share of profit of an associate in the income statement. Upon loss of significant influence over the associate, the Group measures and recognises any retaining investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss. (f) Foreign currency translation The Groups consolidated financial statements are presented in euros, which is also the parent companys functional currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. The Group has elected to recycle the gain or loss that arises from the direct method of consolidation, which is the method the Group uses to complete its consolidation. i) Transactions and balances Transactions in foreign currencies are initially recorded by the Group entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency spot rate of exchange at the reporting date. All differences arising on settlement or translation of monetary items are taken to the income statement with the exception of monetary items that are designated as part of the hedge of the Groups net investment of a foreign operation. These are recognised in other comprehensive income until the net investment is disposed, at which time, the cumulative amount is reclassified to the income statement. Tax charges and credits attributable to exchange differences on those monetary items are also recorded in other comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on retranslation of non-monetary items is treated in line with the recognition of gain or loss on change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognised in other comprehensive income or profit or loss is also recognised in other comprehensive income or profit or loss, respectively). Prior to 1 January 2005, the Group treated goodwill, and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition, as assets and liabilities of the parent. Therefore, those assets and liabilities are already expressed in the functional currency or are nonmonetary items and no further translation differences occur.
AASB 101.51(d) AASB 121.9
AASB 128.18
AASB 121.30
62
AASB 121.47
AASB 118.14(a)
Commentary
AASB 118 and AASB Int13 do not prescribe an allocation method for multiple component sales. The Groups revenue recognition policy for sales, which involve the issuance of EndeavourPoints, is based on the fair value of the points issued. The Group could have based its revenue recognition policy on the relative fair values of the goods sold and the points issued. AASB Int13 does not set out any disclosure requirements. The Group has not included extensive disclosure regarding the loyalty programme as the amounts are not significant. If the deferred revenue and revenue related to the EndeavourPoints programme were significant, additional disclosure items might include:
X X X X
The number of outstanding points The period over which the revenue is expected to be recognised The key assumptions used to determine the period over which revenue is recognised The effect of any changes in redemption rates
Rendering of services Revenue from the installation of fire extinguishers, fire prevention equipment and fire retardant fabrics is recognised by reference to the stage of completion. Stage of completion is measured by reference to labour hours incurred to date as a percentage of total estimated labour hours for each contract. When the contract outcome cannot be measured reliably, revenue is recognised only to the extent that the expenses incurred are eligible to be recovered.
AASB 118.20
63
AASB 118.30(c)
AASB 120.23
Commentary
AASB 120 permits two different ways of presenting a government grant relating to assets. It can be presented in the statement of financial position as deferred income, which is recognised as income on a systematic and rational basis over the useful life of the asset. Alternatively, it can reduce the carrying amount of the asset. The grant is then recognised as income over the useful life of a depreciable asset by way of a reduced depreciation charge. Whichever method is applied, no further disclosures are required.
(i) Income tax and other taxes Current tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities based on the current period's taxable income. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date. Current income tax relating to items recognised directly in equity is recognised in equity and not in the income statement. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. Deferred income tax is provided on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences except:
X
AASB 112.46
AASB 112.15
When the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.
64
Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except:
X
AASB 112.24
When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.
AASB 112.44
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, would be recognised subsequently if new information about facts and circumstances changed. The adjustment would either be treated as a reduction to goodwill (as long as it does not exceed goodwill) if it was incurred during the measurement period or in profit or loss. Tax consolidation legislation Endeavour (International) Limited and its wholly-owned Australian controlled entities implemented the tax consolidation legislation as of 1 July 2005. The head entity, Endeavour (International) Limited and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. The Group has applied the Group allocation approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax consolidated group. In addition to its own current and deferred tax amounts, Endeavour (International) Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the Group. Details of the tax funding agreement are disclosed in Note 9. Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities.
AASB 112.47
AASB 112.61A
AASB 112.71
AASB 112.68
65
When the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable Receivables and payables, which are stated with the amount of GST included
The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority is classified as part of operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (j) Non-current assets held for sale and discontinued operations Non-current assets and disposal groups classied as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classied as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classication. In the statement of comprehensive income, income and expenses from discontinued operations are reported separately from income and expenses from continuing operations, down to the level of profit after taxes, even when the Group retains a non-controlling interest in the subsidiary after the sale. The resulting profit or loss (after taxes) is reported separately in the statement of comprehensive income. Property, plant and equipment and intangible assets once classied as held for sale are not depreciated or amortised. (k) Property, plant and equipment Property, plant and equipment is stated at cost, net of accumulated depreciation and/or accumulated impairment losses, if any. Such cost includes the cost of replacing part of the property, plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. When significant parts of property, plant and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in the income statement as incurred. The present value of the expected cost for the decommissioning of an asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met. Refer to significant accounting judgements, estimates and assumptions (Note 3) and provisions (Note 22) for further information about the recorded decommissioning provision. Land and buildings are measured at fair value less accumulated depreciation on buildings and impairment losses recognised after the date of the revaluation. Valuations are performed frequently to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. Any revaluation surplus is recorded in other comprehensive income and hence, credited to the asset revaluation reserve in equity, except to the extent that it reverses a revaluation decrease of the same asset previously recognised in the income statement, in which case, the increase is recognised in the income statement. A revaluation deficit is recognised in the income statement, except to the extent that it offsets an existing surplus on the same asset recognised in the asset revaluation reserve.
AASB 5.33
AASB 5.25
66
Commentary
The Group has elected to transfer the revaluation surplus to retained earnings as the asset is being used. Alternatively, the amount could have been transferred upon disposal of the asset.
An annual transfer from the asset revaluation reserve to retained earnings is made for the difference between depreciation based on the revalued carrying amount of the assets and depreciation based on the assets original cost. Additionally, accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets as follows:
X X
AASB 116.41
15 to 20 years 5 to 15 years
AASB 116.67 AASB 116.68 AASB 116.71
An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement when the asset is derecognised. The assets residual values, useful lives and methods of depreciation are reviewed at each financial year end and adjusted prospectively, if appropriate. (l) Leases The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date, whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset, even if that right is not explicitly specified in an arrangement. For arrangements entered into prior to 1 January 2005, the date of inception is deemed to be 1 January 2005 in accordance with the transitional requirements of AASB Int 4. Group as a lessee Finance leases that transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance costs in the income statement. A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term. Operating lease payments are recognised as an operating expense in the income statement on a straightline basis over the lease term. Group as a lessor Leases in which the Group does not transfer substantially all the risks and benefits of ownership of an asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned.
AASB 116.51
AASB 117.27
AASB 117.33
67
Commentary
The Group has elected to state land and buildings at fair value in accordance with AASB 116 and investment properties at fair value in accordance with AASB 140. Both AASB 116 and AASB 140 permit property, plant and equipment and investment properties to be carried at historic cost less provisions for depreciation and impairment. In these circumstances, disclosures about the cost basis and depreciation rates would be required. In addition, AASB 140 would require note disclosure about the fair value of any investment property recorded at cost. Therefore, companies would still need to determine the fair value.
(o) Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination are their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is reflected in the income statement in the year in which the expenditure is incurred. The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the income statement in the expense category consistent with the function of the intangible assets.
AASB 138.24 AASB 138.83 AASB 138.74 AASB 138.57
AASB 138.118
68
(o) Intangible assets (continued) Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised. Research and development costs Research costs are expensed as incurred. Development expenditures on an individual project are recognised as an intangible asset when the Group can demonstrate:
X X X X X
AASB 138.113
The technical feasibility of completing the intangible asset so that it will be available for use or sale Its intention to complete and its ability to use or sell the asset How the asset will generate future economic benefits The availability of resources to complete the asset The ability to measure reliably the expenditure during development
AASB 138.74
Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised over the period of expected future benefit. Amortisation is recorded in cost of sales. During the period of development, the asset is tested for impairment annually. Patents and licences The patents have been granted for a period of 10 years by the relevant government agency with the option of renewal at the end of this period. Licences for the use of intellectual property are granted for periods ranging between 5 and 10 years depending on the specific licence. The licences provide the option for renewal based on whether the Group meets the conditions of the licence and may be renewed at little or no cost to the Group (further details are given in Note 14). As a result, those licences are assessed as having an indefinite useful life. A summary of the policies applied to the Groups intangible assets is as follows: Licences Useful lives Amortisation method used Indefinite No amortisation Patents Finite Amortised on a straight- line basis over the period of the patent Development costs Finite Amortised on a straight-line basis over the period of expected future sales from the related project Internally generated
AASB 136.10(a)
AASB 138.122(a)
Acquired
Acquired
69
AASB 139.43
70
71
AASB 7.21
The rights to receive cash flows from the asset have expired. The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a pass-through arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
AASB 139.17(a) AASB 139.18(b)
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the asset is recognised to the extent of the Groups continuing involvement in the asset. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. ii) Impairment of financial assets The Group assesses, at each reporting date, whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred loss event) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and when observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Financial assets carried at amortised cost For financial assets carried at amortised cost, the Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial assets original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current EIR.
AASB 139.58 AASB 139.59 AASB 7.B5(f) AASB 139.20(a) AASB 139.20(c) AASB 139.18(b)
AASB 139.30(a)
AASB 139.AG84 AASB 7.16 AASB 7.B5(d)(i) AASB 7.B5(d)(ii) AASB 139.65
72
AASB 139.70
73
AASB 132.42
There is a currently enforceable legal right to offset the recognised amounts There is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously
74
Using recent arms length market transactions Reference to the current fair value of another instrument that is substantially the same A discounted cash flow analysis or other valuation models
An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 15. (q) Derivative financial instruments and hedge accounting Initial recognition and subsequent measurement The Group uses derivative financial instruments, such as forward currency contracts, interest rate swaps and forward commodity contracts, to hedge its foreign currency risks, interest rate risks and commodity price risks, respectively. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. The fair value of commodity purchase contracts that meet the definition of a derivative under AASB 139 are recognised in the income statement in cost of sales. Commodity contracts that are entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with the groups expected purchase, sale or usage requirements are held at cost. Any gains or losses arising from changes in the fair value of derivatives are taken directly to the income statement, except for the effective portion of cash flow hedges, which is recognised in other comprehensive income. For the purpose of hedge accounting, hedges are classified as:
X
Fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability or an unrecognised firm commitment Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognised firm commitment Hedges of a net investment in a foreign operation
AASB 139.86(a)
AASB 136.86(b)
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the effectiveness of changes in the hedging instruments fair value in offsetting the exposure to changes in the hedged items fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.
75
AASB 139.92
AASB 139.101
AASB 139.102
76
AASB 101.60
When the Group will hold a derivative as an economic hedge (and does not apply hedge accounting) for a period beyond 12 months after the reporting date, the derivative is classified as non-current (or separated into current and non-current portions) consistent with the classification of the underlying item. Embedded derivates that are not closely related to the host contract are classified consistent with the cash flows of the host contract. Derivative instruments that are designated as, and are effective hedging instruments, are classified consistently with the classification of the underlying hedged item. The derivative instrument is separated into a current portion and a non-current portion only if a reliable allocation can be made.
(r) Inventories Inventories are valued at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and condition are accounted for as follows: Raw materials:
X
AASB 102.36(a) AASB 102.9 AASB 102.10 AASB 102.25 AASB 102.12 AASB 102.13
Cost of direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity but excluding borrowing costs
AASB 139.98(b)
Initial cost of inventories includes the transfer of gains and losses on qualifying cash flow hedges, recognised in other comprehensive income, in respect of the purchases of raw materials. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. (s) Impairment of non-financial assets The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the assets recoverable amount. An assets recoverable amount is the higher of an assets or cashgenerating units (CGU) fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators. The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Groups CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the fifth year. Impairment losses of continuing operations, including impairment on inventories, are recognised in the income statement in expense categories consistent with the function of the impaired asset, except for a property previously revalued and the revaluation was taken to other comprehensive income. In this case, the impairment is also recognised in other comprehensive income up to the amount of any previous revaluation.
AASB 102.6
AASB 136.59 AASB 136.30 AASB 136.55 AASB 136.25 AASB 136.33
AASB 136.60
77
AASB 136.10(a)
Commentary
AASB 136.96 permits the annual impairment test for a CGU to which goodwill has been allocated to be performed at any time during the year, provided it is at the same time each year. Different CGUs and intangible assets may be tested at different times.
(t) Cash and short-term deposits Cash and short-term deposits in the statement of financial position comprise cash at banks and on hand and short-term deposits with a maturity of three months or less. For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash and short-term deposits as defined above, net of outstanding bank overdrafts.
AASB 107.6 AASB 107.7 AASB 107.46
Commentary
The Group has included bank overdrafts within cash and cash equivalents as they are considered an integral part of the Groups cash management.
78
Transaction costs are apportioned between the liability and equity components of the convertible preference shares based on the allocation of proceeds to the liability and equity components when the instruments are initially recognised. (v) Treasury shares Own equity instruments that are reacquired (treasury shares) are recognised at cost and deducted from equity. No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of the Groups own equity instruments. Any difference between the carrying amount and the consideration, if reissued, is recognised in share premium. Voting rights related to treasury shares are nullified for the Group and no dividends are allocated to them. Share options exercised during the reporting period are satisfied with treasury shares. (w) Provisions General Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement. Warranty provisions Provisions for warranty-related costs are recognised when the product is sold or service provided. Initial recognition is based on historical experience. The initial estimate of warranty-related costs is revised annually. Restructuring provisions Restructuring provisions are recognised only when general recognition criteria for provisions are fulfilled. Additionally, the Group follows a detailed formal plan about the business or part of the business concerned, the location and number of employees affected, a detailed estimate of the associated costs and appropriate timeline. The employees affected have a valid expectation that the restructuring is being carried out or the implementation has been initiated already. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. Decommissioning liability The Group records a provision for decommissioning costs of a manufacturing facility for the production of fire retardant materials. Decommissioning costs are provided at the present value of expected costs to settle the obligation using estimated cash flows and are recognised as part of the cost of the particular asset. The cash flows are discounted at a current pre-tax rate that reflects the risks specific to the decommissioning liability. The unwinding of the discount is expensed as incurred and recognised in the income statement as a finance cost. The estimated future costs of decommissioning are reviewed annually and adjusted as appropriate. Changes in the estimated future costs or in the discount rate applied are added to or deducted from the cost of the asset.
AASB 137.14 AASB 137.53 AASB 137.54 AASB 137.47 AASB 137.59 AASB 137.60 AASB 137.72 AASB 132.33
AASB 119.133
AASB 137.45
AASB 116.16(c) AASB 137.45 AASB 137.47 AASB Int 1.8 AASB 137.59 AASB Int 1.5
79
Commentary
AASB Int 3 Emission Rights was withdrawn in June 2005 as the AASB is developing guidance on accounting for emission rights. In the absence of a specific standard, management must develop an accounting policy that is relevant and reliable. The Group has applied the net liability approach based on AASB 120.23. However, emission rights received could also be recognised as intangible assets at their fair value with all the disclosures required by AASB 138.
Waste electrical and electronic equipment (WEEE) The Group is a provider of electrical equipment that falls under the EU Directive on waste electrical and electronic equipment. The directive distinguishes between waste management of equipment sold to private households prior to a date as determined by each Member State (historical waste) and waste management of equipment sold to private households after that date (new waste). A provision for the expected costs of management of historical waste is recognised when the Group participates in the market during the measurement period as determined by each Member State, and the costs can be reliably measured. These costs are recognised as other operating costs in the income statement. With respect to new waste, a provision for the expected costs is recognised when products that fall within the directive are sold and the disposal costs can be reliably measured. Derecognition takes place when the obligation expires, is settled or is transferred. These costs are recognised as part of costs of sales. With respect to equipment sold to entities other than private households, a provision is recognised when the Group becomes responsible for the costs of this waste management, with the costs recognised as other operating costs or cost of sales as appropriate. Contingent liabilities recognised in a business combination A contingent liability recognised in a business combination is initially measured at its fair value. Subsequently, it is measured at the higher of:
X
AASB Int 6
The amount that would be recognised in accordance with the general requirements for provisions above (AASB 137) Or The amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with the requirements for revenue recognition (AASB 118)
80
AASB 119.58A
Commentary
The Group voluntarily changed its accounting policy for defined benefit plans, to recognise actuarial gains and losses in the period in which they occur in full in other comprehensive income in accordance with AASB 119.93A. Previously, the Group recognised the net cumulative unrecognised actuarial gains and losses, which exceeded 10% of the higher of the defined benefit obligation and the fair value of the plan assets at that date over the remaining working periods of the employees, in accordance with AASB 119.93. This is sometimes referred to as the corridor approach. Further details are disclosed in Note 2.4. The other disclosures about pension plans remained the same.
81
82
Changes in accounting policy AASB 119 Employee Benefits The Group has assessed its accounting policy with regard to the recognition of actuarial gains and losses arising from its two defined benefit plans. The Group previously recognised only the net cumulative unrecognised actuarial gains and losses of the previous period, which exceeded 10% of the higher of the defined benefit obligation and the fair value of the plan assets in accordance with AASB 119.93. As a consequence, the Groups statement of financial position did not reflect a significant part of the unrecognised net actuarial gains and losses. During 2011, the Group determined that it would change its accounting policy to recognise actuarial gains and losses in the period in which they occur in total in other comprehensive income (see Note 2.3(x)), as it believes this policy is more consistent with the practice of its immediate industry peers. Changes have been applied retrospectively in accordance with AASB 8 Accounting Policies, Changes in Accounting Estimates and Errors, resulting in the restatement of prior year financial information. As a result of the voluntary accounting policy change, the following adjustments were made to the financial statements: As of 1 January 2010: Increase in employee benefit liability: $1,438,000 Decrease in deferred tax liability: $432,000 Net decrease in opening retained earnings: $1,006,000 As of and for the year ended 31 December 2010: Increase in employee benefit liabilities: $454,000 Pension profits with the old policy reclassified to other comprehensive income: $53,000 Net effect on the employee benefit liability: $401,000 Net decrease in deferred tax liability: $120,000 Net expense recognised in other comprehensive income: $281,000 Net decrease in tax expense: $16,000 Net increase in profit after tax: $37,000 As of and for the year ended 31 December 2011: Decrease in employee benefit liability: $433,000 Pension expenses with the old policy reclassified to other comprehensive income: $122,000 Net decrease of the employee benefit liability: $311,000 Net increase in deferred tax liability: $94,000 Net income recognised in other comprehensive income: $217,000 Net decrease in tax expense: $37,000 Net increase in profit after tax: $85,000 The effect on earnings per share related to the restatement in 2010 and impact on 2011 was less than $0.01.
AASB 108.29 AASB 119.92
AASB 108.19(b)
AASB 108.29(c
AASB 108.29(c)(i)
AASB10 8.29(c)(ii)
83
AASB 101.122
Hose Limited is available for immediate sale and can be sold to a potential buyer in its current condition The Board had a plan to sell Hose Limited and had entered into preliminary negotiations with a potential buyer. Should negotiations with the party not lead to a sale, a number of other potential buyers have been identified The Board expects negotiations to be finalised and the sale to be completed by 29 February 2012
For more details on the discontinued operation refer to Note 10. Consolidation of a special purpose entity In February 2011, the Group and a third party partner formed an entity to acquire land and construct and operate a fire equipment safety facility. The Group holds a 20% equity interest in this entity. However, the Group has majority representation on the entitys board of directors and is required to approve all major operational decisions. The operations, once they commence, will be solely used by the Group. Based on these facts and circumstances, management concluded that the Group controls this entity and, therefore, consolidates the entity in its financial statements. Additionally, the Group is effectively guaranteeing the returns to the third party. The shares of the third party partner are recorded as a long-term loan and the return on investment is recorded as interest expense. Estimates and assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur.
AASB 101.125
84
85
86
Commentary
AASB 101.125 requires an entity to disclose significant judgements applied in preparing the financial statements and significant estimates that involve a high degree of estimation uncertainty. The disclosure requirements go beyond those requirements that already exist in some other AASB such as AASB 137. These disclosures represent a very important source of information in the financial statements because they highlight areas in the financial statements that are most prone to change in the foreseeable future. Therefore, any information given should be sufficiently detailed to help the reader of the financial statements understand the impact of possible significant changes.
4.
Acquisitions in 2011 Acquisition of Extinguishers Limited On 1 May 2011, the Group acquired 80% of the voting shares of Extinguishers Limited, an unlisted company based in Australia and specialising in the manufacture of fire retardant fabrics. The Group acquired Extinguishers Limited because it significantly enlarges the range of products in the fire prevention equipment segment that can be offered to its clients. The Group has elected to measure the non-controlling interest in the acquiree at fair value. Assets acquired and liabilities assumed The fair value of the identifiable assets and liabilities of Extinguishers Limited as at the date of acquisition were:
AASB 3.59 AASB 3.B64(a) AASB 3.B64(b) AASB 3.B64(d) AASB 3.B64(c)
87
AASB 7.40(c)
Commentary
The references quoted refer to AASB 3 (effective 1 July 2009), which the Group applies for its financial period beginning 1 January 2010.
The fair value of the trade receivables amounts to $1,736,000. The gross amount of trade receivables is $1,754,000. None of the trade receivables have been impaired and it is expected that the full contractual amounts can be collected. Prior to the acquisition, Extinguishers Limited decided to eliminate certain product lines (further details are given in Note 22). The restructuring provision recognised was a present obligation of Extinguishers Limited immediately prior to the business combination. The execution of the restructuring plan was not conditional upon it being acquired by the Group. The goodwill of $2,231,000 comprises the value of expected synergies arising from the acquisition and a customer list, which is not separately recognised. Goodwill is allocated entirely to the fire prevention segment. Due to the contractual terms imposed on acquisition, the customer list is not separable. Therefore, it does not meet the criteria for recognition as an intangible asset under AASB 138 Intangible assets. None of the goodwill recognised is expected to be deductible for income tax purposes. A contingent liability at a fair value of $380,000 was determined at the acquisition date resulting from a claim of a supplier whose shipment has been rejected and payment has been refused by the Group due to deviations from the defined technical specifications of the goods. The claim is subject to legal arbitration and is only expected to be finalised in late 2012. As at the reporting date, the contingent liability has been reassessed and is determined to be $400,000, which is based on the expected probable outcome (see Note 22). The charge has been recognised in the income statement.
AASB 3.B64(h)
AASB 3.B64(e)
AASB 3.B64(k)
88
The fair value of the non-controlling interest in Extinguishers Limited has been estimated by applying a discounted earnings approach. Extinguishers Limited is an unlisted company and, as such, no market information is available. The fair value estimate is based on:
X X
An assumed discount rate of 14% A terminal value, calculated based on long-term sustainable growth rates for the industry ranging from two to four per cent, which has been used to determine income for the future years A reinvestment ratio of 60% of earnings
AASB 3.B64 (q)(i) AASB 3.B64 (q)(ii)
From the date of acquisition, Extinguishers Limited has contributed $17,857,000 of revenue and $750,000 to the net profit before tax of the Group. If the combination had taken place at the beginning of the year, revenue from continuing operations would have been $222,582,000 and the profit from continuing operations for the Group would have been $12,285,000. Purchase consideration Shares issued, at fair value Contingent consideration liability Total consideration Analysis of cash flows on acquisition: Transaction costs of the acquisition (included in cash flows from operating activities) Net cash acquired with the subsidiary (included in cash flows from investing activities) Transaction costs attributable to issuance of shares (included in cash flows from financing activities, net of tax) Net cash flow on acquisition $000 7,203 714 7,917
(600) 230
AASB 7.40(c)
(32) (402)
AASB 3.B64 (f)(iv)
The Group issued 2,500,000 ordinary shares as consideration for the 80% interest in Extinguishers Limited. The fair value of the shares is the published price of the shares of the Group at the acquisition date, which was $2.88 each. The fair value of the consideration given is therefore $7,203,000. Transaction costs of $600,000 have been expensed and are included in administrative expenses. The attributable costs of the issuance of the shares of $32,000 have been charged directly to equity as a reduction in share premium. Contingent consideration As part of the purchase agreement with the previous owner of Extinguishers Limited, a contingent consideration has been agreed. There will be additional cash payments to the previous owner of Extinguishers Limited of: a) $675,000, if the entity generates $1,000,000 of profit before tax in a 12-month period after the acquisition date Or $1,125,000, if the entity generates $1,500,000 of profit before tax in a 12-month period after the acquisition date
b)
As at the acquisition date, the fair value of the contingent consideration was estimated to be $714,000. As at 31 December 2011, the key performance indicators of Extinguishers Limited show clearly that target (a) will be achieved and the achievement of target (b) is probable due to a significant expansion of the business and synergies implemented. Accordingly, the fair value of the contingent consideration has been adjusted to reflect this development and such charge has been recognised through profit or loss. The contingent consideration as at 31 December 2011 has been increased by $357,500 to $1,071,500 due to changes in the underlying assumptions that reflect the fair value of the discounted cash payment (see Note 3). This fair value adjustment is recognised in administrative expenses.
89
Commentary
The classification of a contingent consideration requires an analysis of the individual facts and circumstances. It may be classified either as equity or as a financial liability in accordance with AASB 132 and AASB 139, as a provision in accordance with AASB 137 or in accordance with other AASBs, each resulting in different initial recognition and subsequent measurement. The Group has assessed the nature of the contingent consideration and determined it as being a financial liability, as the Group incurred a contractual obligation to deliver cash to the seller (AASB 132.11). Consequently, the Group is required to remeasure that liability to fair value at the reporting date (AASB 3.58(b)(i)). As part of the business combination, contingent payments to employees or selling shareholders are common methods of retention of key people for the combined entity. The nature of such contingent payments, however, needs to be evaluated in each individual circumstance as not all such payments qualify as contingent consideration, but are accounted for as a separate transaction. For example, contingent payments that are unrelated to the future service of the employee are deemed contingent consideration, whereas contingent payments that are forfeited when the employment is terminated, are deemed remuneration. Paragraphs B54 B55 of AASB 3 provide further guidance.
Acquisition of additional interest in Lightbulbs Limited On 1 October 2011, the Group acquired an additional 7.4% interest in the voting shares of Lightbulbs Limited, increasing its ownership interest to 87.4%. A cash consideration of $325,000 was paid to the non-controlling interest shareholders. The carrying value of the net assets of Lightbulbs Limited (excluding goodwill on the original acquisition) at the acquisition date was $1,824,000, and the carrying value of the additional interest acquired was $135,000. The difference of $190,000 between the consideration and the carrying value of the interest acquired has been recognised in retained earnings within equity. Acquisitions in 2010 On 1 December 2010, the Group acquired 80% of the voting shares of Lightbulbs Limited, a company based in Australia, specialising in the production and distribution of lightbulbs. The Group acquired this business to enlarge the range of products in the electronics segment. The Group elected to measure the non-controlling interest in the acquiree at the proportionate share of its interest in the acquirees identifiable net assets The fair value of the identifiable assets and liabilities of Lightbulbs Limited as at the date of acquisition were:
AASB 3,59 AASB 3.B64(a) AASB 3.B64(b) AASB 3.B64(c) AASB 3.B64(d) AASB 3.B64(o)(i)
90
Land and buildings (Note 12) Cash and cash equivalents Trade receivables Inventories
AASB 7.40(c)
The net assets recognised in the 31 December 2010 financial statements were based on a provisional assessment of fair value as the Group had sought an independent valuation for the land and buildings owned by Lightbulbs Limited. The results of this valuation had not been received at the date the 2010 financial statements were approved for issue by management. The valuation of the land and buildings was completed in April 2011 and showed that the fair value at the date of acquisition was $1,280,000, an increase of $200,000 compared with the provisional value. The 2010 comparative information has been restated to reflect this adjustment. As a result, there was an increase in the deferred tax liability of $60,000 and an increase in the non-controlling interest of $28,000. There was also a corresponding reduction in goodwill of $112,000, to give total goodwill arising on the acquisition of $131,000. The increased depreciation charge on the buildings from the acquisition date to 31 December 2010 was not material. Lightbulbs Limited contributed $20,000 from the date of acquisition (1 December 2010) to 31 December 2010 to the profit for the year from continuing operations of the Group. If the combination had taken place at the beginning of that year, revenue from continuing operations would have been $198,078,000 and the profit for the year from continuing operations for the Group for 2010 would have been $7,850,000. The goodwill of $131,000 comprises the fair value of expected synergies arising from acquisition.
AASB 3.B64(q)
AASB 3.B64(e)
Commentary
In the 2010 business combination the Group elected to value the non-controlling interest by its proportionate share of the acquiree`s identifiable net assets. In the 2011 business combination the Group elected to value the non-controlling interest at fair value. This election can be made separately for each business combination, and is not a policy choice that determines an accounting treatment for all business combinations the Group will carry out (AASB 3.19).
91
The Group has a 50% interest in Showers Limited, a jointly controlled entity involved in the manufacture of fire prevention equipment in Australia. The Groups share of the assets and liabilities as at 31 December 2011 and 2010 and income and expenses of the jointly controlled entity for the years ended 31 December 2011 and 2010, which is proportionally consolidated in the consolidated financial statements, are as follows: As at 1 January 2010 $000
2011 $000 Share of the joint ventures statement of financial position: Current assets Non-current assets Current liabilities Non-current liabilities Equity Share of the joint ventures revenue and profit: Revenue Cost of sales Administrative expenses Finance costs Profit before tax Income tax expense Profit for the year from continuing operations
2010 $000
AASB 131.56
The joint venture has no contingent liabilities or capital commitments as at 31 December 2011 and 31 December 2010.
6.
Investment in an associate
AASB 128.37(a)
The Group has a 25% interest in Power Works Limited, which is involved in the manufacture of fire prevention equipment for power stations in Australia. Power Works Limited is a private entity that is not listed on any public exchange. The following table illustrates summarised financial information of the Groups investment in Power Works Limited: As at 1 January 2010 $000
AASB 128.37(e)
2011 $000 Share of the associates statement of financial position: Current assets Non-current assets Current liabilities Non-current liabilities Equity Share of the associates revenue and profit: Revenue Profit Carrying amount of the investment 8,323 83 764 1,631 3,416 (1,122) (3,161) 764
AASB 128.37(b)
92
For management purposes, the Group is organised into business units based on its products and services and has three reportable segments, as follows:
X
The fire prevention equipment segment, which produces and installs extinguishers, fire prevention equipment and fire retardant fabrics. The electronics segment, which is a supplier of electronic equipment for defence, aviation, electrical safety markets and consumer electronic equipment for home use. It offers products and services in the areas of electronics, safety, thermal and electrical architecture. The investment property segment, which leases offices and manufacturing sites owned by the Group which are surplus to the Groups requirements.
No operating segments have been aggregated to form the above reportable operating segments. Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the consolidated financial statements. However, Group financing (including finance costs and finance income) and income taxes are managed on a Group basis and are not allocated to operating segments. Transfer prices between operating segments are on an arms length basis in a manner similar to transactions with third parties.
Year ended 31 December 2011 Revenue External customers Inter-segment Total revenue Results Depreciation and amortisation Goodwill impairment (Note 16) Impairment on AFS financial assets (Note 8.3) Share of profit of an associate (Note 6) Segment profit Operating assets Operating liabilities Other disclosures Investment in an associate (Note 6) Capital expenditure Fire prevention equipment $000 139,842 139,842 Investment property $000 1,404 1,404 Total segments $000 210,509 7,465 217,974 Adjustments and eliminations $000 (7,465) (7,465)
AASB 8.28(b)
AASB 8.27(a)
210,509
AASB 8.23(g)
764 18,849
2,842
1,216
764 22,907
764 22,907
Inter-segment revenues are eliminated upon consolidation and reflected in the adjustments and eliminations column. All other adjustments and eliminations are part of detailed reconciliations presented further below.
93
(2,460)
(472)
324
(2,608)
(324)
(2,932)
AASB 8.23(e)
AASB 8.23(i) AASB 8.23(g) AASB 8.23 AASB 8.23 AASB 8.23
681 5,260
4,363
1,192
681 10,815
681 10,815
Commentary
The chief operating decision maker of the Group regularly reviews certain other effects recorded in the statement of comprehensive income, i.e., depreciation and amortisation, impairments and the share of profit in associates. This is because management assumes those amounts to reflect the effectiveness of certain internal control procedures as well as the accuracy and effectiveness of certain transactions.
Adjustments and eliminations Finance income and expenses, and fair value gains and losses on financial assets are not allocated to individual segments as the underlying instruments are managed on a group basis. Current taxes, deferred taxes and certain financial assets and liabilities are not allocated to those segments as they are also managed on a group basis. Capital expenditure consists of additions of property, plant and equipment, intangible assets and investment properties including assets from the acquisition of subsidiaries. Inter-segment revenues are eliminated on consolidation.
AASB 8.28
94
Reconciliation of profit Segment profit Finance income Fair value loss on financial assets at fair value through profit or loss Fair value gain on financial assets at fair value through profit or loss Finance costs Net realised gains from available-for-sale financial assets (elimination) Inter-segment sales (elimination) Gain from discontinued operations Group profit
Reconciliation of assets Segment operating assets Deferred tax assets Loans to an associate (Note 28) Loans to directors (Note 28) Loan notes Derivatives Assets classified as held for sale Group operating assets
Reconciliation of liabilities Segment operating liabilities Deferred tax liabilities Current tax payable Loans Convertible preference shares Derivatives Liabilities classified as held for sale Group operating liabilities Geographic information
Revenues from external customers
2011 $000 30,265 3,060 3,963 20,538 2,778 2,687 13,125 76,416
Australia United States Total revenue per consolidated income statement The revenue information above is based on the location of the customer.
Revenue from one customer amounted to $25,521,000 (2010: $21,263,000), arising from sales by the fire prevention equipment segment.
95
Non-current assets for this purpose consist of property, plant and equipment, investment properties and intangible assets.
Commentary
Interest revenue and interest expense have not been disclosed by segment as these items are managed on a group basis, and are not provided to the chief operating decision maker at the operating segment level. Disclosure of operating segment assets and liabilities is only required when such measures are provided to the chief operating decision maker. The Group provides information to the chief operating decision maker about operating assets and liabilities. The remaining operations (e.g., treasury), which are amongst others reflected in adjustments and eliminations, do not constitute an individual operating segment. The Groups internal reporting is set up to report in accordance with AASB. The segment disclosures could be significantly more extensive if internal reports had been prepared on a basis other than AASB. In this case, a reconciliation between the internally reported items and the externally communicated items needs to be prepared. AASB 8 does not provide specific disclosure requirements for an operating segment classified as a discontinued operation. An entity is therefore not required to provide such segment information as soon as the classification criteria held for sale is met. It is, however, allowed to continue to present segment information as long as the definition of operating segment is met. The Group has elected to continue to present segment information for the prior year. In the current year, the discontinued operation has been eliminated and is part of the reconciling items.
8. 8.1
Government grants (Note 23) Net gain on disposal of property, plant and equipment
Government grants have been received for the purchase of certain items of property, plant and equipment. There are no unfulfilled conditions or contingencies attached to these grants.
8.2
Bid defence costs Cost of WEEE (Note 22) Direct operating expenses (including repairs and maintenance) arising on rental-earning investment properties Change in fair value of investment properties (Note 13) Ineffectiveness on forward commodity contracts designated as cash flow hedges (Note 15.3) Total other operating expenses
AASB 7.24(b)
Bid defence costs were incurred to get advice in respect of a hostile takeover bid by a competitor. The competitor did not proceed with the bid. Ineffectiveness resulting from cash flow hedges with respect to commodity forward contracts were incurred in the Electronics segment. Ineffectiveness on forward commodity contracts due to the change in forward points was $23,000.
96
Interest on debts and borrowings Finance charges payable under finance leases and hire purchase contracts Total interest expense Impairment loss on quoted available-for-sale equity investments (Note 15.1) Net loss on financial instruments at fair value through profit or loss Unwinding of discount on provisions (Note 22) Total finance costs
8.4
Finance income
2011 $000 2010 $000 20 316 850 1,186 211 211
AASB 101.85 AASB 7.20(a)(i) AASB 7.20(b)
Interest income on a loan to an associate (Note 28) Interest income from available-for-sale investments Fair value gain on financial instruments at fair value through profit or loss Total finance income
Net loss on financial instruments through profit or loss in Note 8.3 and 8.4 above relates to foreign exchange forward contracts that did not qualify for hedge accounting and embedded derivatives, which have been bifurcated. No ineffectiveness has been recognised on foreign exchange and interest rate hedges.
Commentary
Finance income and finance cost are not defined terms in AASB. Some jurisdictions limit the inclusion of certain income and expense within those items (e.g., restricted to interest income and expense), while other jurisdictions allow additional items to be included.
8.5
Depreciation, amortisation, foreign exchange differences and costs of inventories included in the consolidated income statement
2011 $000 2010 $000 2,800 301 174 (40) 52 131,140 282 175
AASB 101.104
Included in cost of sales: Depreciation Impairment of property, plant and equipment (Note 12) Amortisation and impairment of intangible assets (Note 14) Net foreign exchange differences Warranty provision (Note 22) Costs of inventories recognised as an expense Included in administrative expenses: Depreciation Minimum lease payments recognised as an operating lease expense
AASB 136.126(a)
AASB 121.52(a)
AASB 102.36(d)
AASB 117.35(c)
97
Wages and salaries Social security costs Pension costs (Note 25) Post-employment benefits other than pensions (Note 25) Share-based payment transaction expense (Note 26) Total employee benefits expense
AASB 2.51(a)
8.7
Research and development costs recognised as an expense in the income statement during the financial year amount to $2,235,000 (2010: $1,034,000).
8.8
Cash flow hedges: Gains/(losses) arising during the year Currency forward contracts Commodity forward contracts Reclassification adjustments for gains included in the income statement
Available-for-sale financial assets: Gains/(losses) arising during the year Reclassification adjustments for losses included in the income statement
3 3
AASB 101.92 AASB 7.20(a)(ii)
Commentary
The purpose of Note 8.8 is to provide an analysis of items presented net in the statement of comprehensive income which have been subject to reclassification. This analysis does not prepared for the remaining items of other comprehensive income, as those are either never reclassified to profit or loss or reclassification adjustments did not occur.
98
The major components of income tax expense for the years ended 31 December 2011 and 2010 are:
AASB 112.80(c)
AASB 112.81(a)
A reconciliation between tax expense and the product of accounting profit multiplied by Australias domestic tax rate for the years ended 31 December 2011 and 2010 is as follows: 2011 $000 11,905 213 12,118 3,635 (18) (316) (231) 60 107 121 528 3,886 3,893 (7) 3,886 2010 $000 11,062 (193) 10,869 3,261 (44) (162) (89) 145 316 3,427 3,432 (5) 3,427
Accounting profit before tax from continuing operations Profit/(loss) before tax from a discontinued operation Accounting profit before income tax At Australias statutory income tax rate of 30% (2010: 30%) Adjustments in respect to current income tax of previous years Government grants exempt from tax Utilisation of previously unrecognised tax losses Non-deductible expenses for tax purposes Impairment of goodwill Change in contingent consideration on acquisition of Extinguishers Limited Other non-deductible expenses Effect of higher tax rates in the US At the effective income tax rate of 31% (2010: 32%) Income tax expense reported in the consolidated income statement Income tax attributable to a discontinued operation
99
Opening balance as of 1 January Tax income/(expense) during the period recognised in profit or loss Tax income/(expense) during the period recognised in other comprehensive income Discontinued operation Deferred taxes acquired in business combinations Closing balance as at 31 December
Commentary
Although not specifically required by AASB 101 or AASB 112, the reconciliation of the net deferred tax liability may be helpful for the reader.
100
The Group offsets tax assets and liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority. Tax losses The Group has tax losses which arose in Australia of $427,000 (2010: $1,198,000, 1 January 2010: $1,494,000) that are available indefinitely for offset against future taxable profits of the companies in which the losses arose. However, these losses relate to subsidiaries that have a history of losses, they do not expire and may not be used to offset taxable income elsewhere in the Group. Deferred tax assets have not been recognised in respect of these losses as they may not be used to offset taxable profits elsewhere in the Group and they have arisen in subsidiaries that have been loss-making for some time. The Group evaluated and concluded that it is not probable that deferred tax assets on existing tax losses as a result of the acquisition of Extinguishers Limited in 2011 will be recovered. The subsidiary has no taxable temporary differences nor any tax planning opportunities available that could partly support the recognition of these losses as deferred tax assets. If the Group were able to recognise all unrecognised deferred tax assets, profit would increase by $128,000. At 31 December 2011, there was no recognised deferred tax liability (2010: $Nil, 1 January 2010: $Nil) for taxes that would be payable on the unremitted earnings of certain of the Groups subsidiaries, associate or joint venture. The Group has determined that undistributed profits of its subsidiaries, joint venture or associate will not be distributed in the foreseeable future, as: i) The Group has an agreement with its associate that the profits of the associate will not be distributed until it obtains the consent of the Group. The parent company does not foresee giving such a consent at the reporting date. ii) The joint venture of the Group cannot distribute its profits until it obtains the consent from all venture partners. The parent company does not foresee giving such a consent at the reporting date. The temporary differences associated with investments in subsidiaries, associate and joint venture, for which a deferred tax liability has not been recognised, aggregate to $1,745,000 (2010: $1,458,000, 1 January 2010: $1,325,000). There are no income tax consequences attached to the payment of dividends in either 2011 or 2010 by the Group to its shareholders.
AASB 112.81(e)
AASB 112.87
AASB 112.67
AASB 112.81(f)
AASB 112.82A
Commentary
AASB 101.61 requires an entity to separately disclose the amount expected to be recovered or settled within 12 months and more than 12 months after the reporting date for each line item that combines such amounts. Deferred tax assets and liabilities may be considered one example, for items combining such amounts. However, AASB 101.56, in contrast, does not permit to present those items as current
Tax consolidation (i) Members of the tax consolidated group and the tax sharing arrangement Endeavour (International) Limited and its 100% owned Australian resident subsidiaries formed a tax consolidated group with effect from 1 July 2005. Endeavour (International) Limited is the head entity of the tax consolidated group. Members of the Group have entered into a tax sharing agreement that provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the financial statements in respect of this agreement on the basis that the possibility of default is remote.
AASB Int 1052.16 (a) AASB Int 1052.16 (c) AASB Int 53
101
102
On 1 March 2011, the Group publicly announced the decision of its Board of Directors to dispose of Hose Limited. The business of Hose Limited has been operating in an unpredictable product environment, making it difficult for management to derive real growth and profitability from the segment. The disposal of Hose Limited is due to be completed on 28 February 2012 and, as at 31 December 2011, final negotiations for the sale were in progress. As at 31 December 2011, Hose Limited was classified as a disposal group held for sale and as a discontinued operation. The results of Hose Limited for the year are presented below: 2011 $000 42,809 (41,961) 848 (525) (110) 213 5 2 220 2010 $000 45,206 (44,880) 326 (519) (193) 5 (188)
Revenue Expenses Gross profit Finance costs Impairment loss recognised on the remeasurement to fair value less costs to sell (Note 12) Profit/(loss) before tax from a discontinued operation Tax income: Related to current pre-tax profit/(loss) Related to measurement to fair value less costs to sell (deferred tax) Profit/(loss) for the year from a discontinued operation
The major classes of assets and liabilities of Hose Limited classified as held for sale as at 31 December are as follows: 2011 $000 Assets Intangibles (Note 14) Property, plant and equipment (Note 12) Debtors Equity shares unquoted Cash and short-term deposits (Note 19) Assets classified as held for sale Liabilities Creditors Deferred tax liability Interest-bearing liabilities (Note 15.2) Liabilities directly associated with assets classified as held for sale Net assets directly associated with disposal group Included in other comprehensive income: Available-for-sale reserve Deferred tax on available-for-sale reserve Reserve of disposal group classified as held for sale 66 (20) 46 135 4,637 6,980 508 1,294 13,554 2010 $000
AASB 5.38
AASB 5.38 AASB 7.20(a)(ii)
103
The net cash flows incurred by Hose Limited are as follows: 2011 $000 (1,999) (436) (2,435) 2010 $000 3,293 (436) 2,857
Operating Investing Financing Net cash (outflow)/inflow Earnings per share: Basic, profit/(loss) for the year, from discontinued operation Diluted, profit/(loss) for the year, from discontinued operation
AASB 133.68
$0.011 $0.010
($0.010) ($0.009)
Interest-bearing liabilities comprise a fixed rate bank loan of $5,809,000 having an effective interest rate of 7.5% that is repayable in full on 1 January 2016.
Commentary
AASB 5 specifies certain disclosures required in respect of discontinued operations and non-current assets held for sale. In April 2009, the AASB issued its second omnibus of Improvements to AASBs which clarified that disclosures required in other AASB do not apply to non-current assets held for sale and discontinued operations, except where other AASBs explicitly refer to non-current assets held for sale and discontinued operations. The Group has elected to present earnings per share from discontinued operations in the notes. Alternatively, it could have presented those amounts on the face on the statement of comprehensive income.
Impairment of property, plant and equipment Immediately before the classification of Hose Limited as a discontinued operation, the recoverable amount was estimated for certain items of property, plant and equipment and no impairment loss was identified. Following the classification, an impairment loss of $110,000 (net of tax $77,000) was recognised to reduce the carrying amount of the assets in the disposal group to the fair value less costs to sell. This was recognised in the income statement in the line item, Profit for the year from a discontinued operation. An independent valuation was obtained to determine the fair value of property, plant and equipment, which was based on recent transactions for similar assets within the same industry. The discontinued operation includes unquoted equity shares (level 3 in the fair value hierarchy) of Test Ltd. with a carrying amount of $508,000. For more detail on recognition and measurement (including valuation techniques used) of these instruments, see Note 2.3(p) and Note 15. This equity instrument is classified as available-for-sale and carried at fair value through other comprehensive income. The Group did not pledge the financial assets nor receive any collateral for it. As at the reporting date, the carrying amount equals the fair value of the instrument. Reconciliation of fair value measurements of Level 3 financial instruments The following reconciliation illustrates the movements in the unquoted equity instrument from the day of its reclassification to the end of the reporting period. The instrument is classified as level 3 within the fair value hierarchy (see Note 15).
AASB 136.130
AASB 7.25
AASB 7.27B(c)
104
1 March 2011 Sales Purchases Total gains and losses recognised in OCI 31 December 2011
The Group did not incur gains or losses recorded in the statement of comprehensive income with respect to level 3 financial instruments. Furthermore, the Group did not recognise any gain or loss in other comprehensive income, as the valuation of the equity instrument as of 31 December 2011 only insignificantly differed from last years valuation. The collaboration with Test Ltd is closely related with the discontinued operations of Hose Limited and was therefore reclassified as part of the discontinued operation. Refer to Note 30 with regard to the nature and extent of risks arising from financial instruments.
Commentary
AASB 5.5B clarifies that disclosure requirements in other AASBs do not apply to non-current assets held for sale (or disposal groups) unless those AASBs explicitly refer to these assets and disposal groups. However, AASB 5.5B(b) states, disclosure requirements continue to apply for assets and liabilities that are not within the scope of the measurement requirement of AASB 5, but within the disposal group. The illustration above reflects this circumstance, as the unquoted available-for-sale equity instrument is a financial instrument as defined in AASB 139 are, therefore, scoped out of the measurement requirements of AASB 5.
105
Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent (after adjusting for interest on the convertible preference shares) by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares. The following reflects the income and share data used in the basic and diluted earnings per share computations: 2011 $000 Net profit attributable to ordinary equity holders of the parent from continuing operations Profit/(loss) attributable to ordinary equity holders of the parent from a discontinued operation Net profit attributable to ordinary equity holders of the parent for basic earnings Interest on convertible preference shares Net profit attributable to ordinary equity holders of the parent adjusted for the effect of dilution 7,724 220 7,944 247 8,191 2011 Thousands Weighted average number of ordinary shares for basic earnings per share * Effect of dilution: Share options Convertible preference shares Weighted average number of ordinary shares adjusted for the effect of dilution* 20,797 2010 $000 7,391 (188) 7,203 238 7,441 2010 Thousands 19,064
AASB 133.70(a)
AASB 133.70(a)
AASB 133.70(b)
* The weighted average number of shares take into account the weighted average effect of changes in treasury share transactions during the year.
There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements. To calculate earnings per share amounts for the discontinued operation (see Note 10), the weighted average number of ordinary shares for both basic and diluted amounts is as per the table above. The following table provides the profit/(loss) amount used: 2011 $000 Net profit/(loss) attributable to ordinary equity holders of the parent from a discontinued operation for basic and diluted earnings per share calculations 2010 $000
220
(188)
106
Plant and equipment $000 24,602 6,235 (49) 26 30,814 4,543 4,145 (4,908) (3,980) 79 30,693
Total $000 36,489 7,822 1,280 (3,430) 36 42,197 10,655 7,042 (4,908) (8,124) 846 (102) 109 47,715
AASB 116.35
16,104 3,082 301 (3,118) 17 16,386 3,797 (3,450) (3,377) (102) 50 13,304
4,500
* This transfer relates to the accumulated depreciation as at the revaluation date that was eliminated against the gross carrying amount of the revalued asset. ** Depreciation for the year excludes an impairment loss of $110,000 (see Note 10).
AASB 136.126(a)
In 2010, the impairment loss of $301,000 represented the write-down of certain property, plant and equipment in the fire prevention segment to the recoverable amount. This was recognised in the income statement in the line item, Cost of sales. The recoverable amount was based on value in use and was determined at the level of the CGU. The CGU consisted of the Australia based assets of Sprinklers Limited, a subsidiary, and Showers Limited, a jointly controlled entity of the Group. In determining value in use for the CGU, the cash flows were discounted at a rate of 12.4% on a pre-tax basis.
107
Capitalised borrowing costs The Group started the construction of a new fire safety facility in February 2011. This project is expected to be completed in February 2012. The carrying amount of the fire safety facility at 31 December 2011 was $3 million (2010: $Nil, 1 January 2010: $Nil). The fire safety facility is financed by a third party in a common arrangement. The amount of borrowing costs capitalised during the year ended 31 December 2011 was $303,000 (2010: $Nil, 1 January 2010: $Nil). The rate used to determine the amount of borrowing costs eligible for capitalisation was 11%, which is the effective interest rate of the specific borrowing. Finance leases and assets under construction The carrying value of plant and equipment held under finance leases and hire purchase contracts at 31 December 2011 was $1,178,000 (2010: $1,486,000, 1 January 2010: $1,432,000). Additions during the year include $45,000 (2010: $54,000) of plant and equipment under finance leases and hire purchase contracts. Leased assets and assets under hire purchase contracts are pledged as security for the related finance lease and hire purchase liabilities. Land and buildings with a carrying amount of $7,400,000 (2010: $5,000,000, 1 January 2010: $4,500,000) are subject to a first charge to secure two of the Groups bank loans (Note 15). Included in plant and equipment at 31 December 2011 was, in addition to the new fire safety facility, an amount of $1,500,000 (2010: $Nil, 1 January 2010: $Nil) relating to expenditure for a plant in the course of construction. Both facilities under construction will be recognised in freehold land and buildings after completion. Revaluation of land and buildings From 1 January 2011, the Group has changed its accounting policy for the measurement of land and buildings to the revaluation model. The Group engaged Chartered Surveyors & Co., an accredited independent valuer, to determine the fair value of its land and buildings. Fair value is determined by reference to market-based evidence. This means that valuations performed by the valuer are based on active market prices, adjusted for any difference in the nature, location or condition of the specific property. The date of the revaluation was 31 January 2011. If land and buildings were measured using the cost model, the carrying amounts would be as follows: As at 1 2010 January 2010 $000 $000 11,383 11,887 (1,450) (4,160) 9,933 7,727
AASB 116.74(a)
AASB 116.74(a)
AASB 116.74(b)
AASB 116.77(e)
Commentary
The Group has changed its accounting policy for the measurement of land and buildings to the revaluation model. AASB 108.17 and AASB 108.18 exempt this change in accounting policy from the requirement to retrospectively apply the policy and to provide detailed disclosure as outlined in AASB 108.28 to AASB 108.31.
108
Opening balance at 1 January Additions (subsequent expenditure) Net loss from a fair value adjustment Closing balance at 31 December Reconciliation of net profit on investment properties Rental income derived from investment properties Direct operating expenses (including repair and maintenance) generating rental income Direct operating expenses (including repair and maintenance) that did not generate rental income (included in cost of sales) Net profit arising from investment properties carried at fair value
The Group has no restrictions on the realisability of its investment property and no contractual obligations to either purchase, construct or develop investment property or for repairs, maintenance and enhancements. Investment properties are stated at fair value, which has been determined based on valuations performed by Chartered Surveyors & Co., an accredited independent valuer, as at 31 December 2011 and 31 December 2010. Chartered Surveyors & Co. is an industry specialist in valuing these types of investment properties. The fair value of the properties have not been determined on transactions observable in the market because of the nature of the property and the lack of comparable data. Instead, a valuation model in accordance with that recommended by the International Valuation Standards Committee has been applied. The following main inputs have been used. 2011 6 7% 3.5% 9% 3% 2010 5 - 6% 3% 5% 4%
AASB 140.75(d)
Yields (%) Inflation rate (%) Long term vacancy rate (%) Long term growth in real rental rates (%)
Commentary
The Group has elected to value investment properties at fair value in accordance with AASB 140. AASB 140 permits property, plant and equipment and investment properties to be carried at historic cost less provision for depreciation and impairment. If the Group accounted for investment properties at cost, information about the cost basis and depreciation rates (similar to property, plant and equipment) would be required in addition to the disclosures about the fair value, including disclosures about the methods and significant assumptions used to determine fair value.
109
Goodwill $000
Total $000
200 200
There are two main fire prevention research and development projects: (i) improved fire detection and sprinkler systems and (ii) fire retardant fabrics for motor vehicles and aircraft. The Groups electronics business research and development concentrates on the development of internet enabled safety equipment. Research and development costs that are not eligible for capitalisation have been expensed and are recognised in administrative expenses (Note 8.7). Acquisition during the year Patents and licences include intangible assets acquired through business combinations. These patents have been granted for a minimum of 10 years by the relevant government agency, while licences have been acquired with the option to renew at the end of the period at little or no cost to the Group. Previous licences acquired have been renewed and have allowed the Group to determine that these assets have indefinite useful lives. As at 31 December 2011, these assets were tested for impairment (Note 16).
AASB 138.118(d)
110
2010 $000
252
153
137
153
137
1,685 8 1,693
1,659 8 1,667
Financial assets and liabilities at fair value through other comprehensive income reflect the change in fair value of foreign exchange forward contracts, designated as cash flow hedges to hedge the expected future sales in the United States and purchases in the United Kingdom, based on highly probable forecast transactions. Financial assets through profit or loss are those foreign exchange forward contracts that are not designated in hedge relationships as they are intended to reduce the level of foreign currency risk for expected sales and purchases. Loans and receivables are held to maturity and generate a fixed or variable interest income for the Group. The carrying value might be affected by changes in the credit risk of the counterparties and changes in variable interest rates for some instruments. Available-for-sale investment - unquoted equity shares A significant portion of the available for sale financial assets consist of an investment in shares of a nonlisted company, which are valued based on non-market observable information. Changes in underlying assumptions can lead to adjustments in the fair value of the investment (see sensitivity risk analysis in Note 30).
111
The Group holds non-controlling interests (between 2% and 9%) in entities where it has entered into research collaboration. The fair value of the unquoted ordinary shares has been estimated using a discounted cash flow model. The valuation requires management to make certain assumptions about the model inputs, including credit risk and volatility. The probabilities of the various estimates within the range can be reasonably assessed and are used in managements estimate of fair value for these unquoted equity investments. Management has determined that the potential effect of using reasonably possible alternatives as inputs to the valuation model would reduce the fair value by $24,000 (2010: $25,000) using less favourable assumptions and increase the fair value by $21,000 (2010: $22,000) using more favourable assumptions, i.e. change in credit risk of 10% in either direction. Available-for-sale investment - quoted debt securities and equity shares The Group has investments in listed equity and debt securities. The fair value of the quoted debt securities and equity shares is determined by reference to published price quotations in an active market. Impairment on available-for-sale financial investments For available-for-sale financial investments, the Group assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired. In the case of equity investments classified as available-for-sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. The determination of what is significant or prolonged requires judgement. In making this judgement, the Group evaluates, among other factors, historical share price movements and the duration or extent to which the fair value of an investment is less than its cost. Based on these criteria, the Company identified an impairment of $88,000 on available-for-sale investment - quoted debt securities and an impairment of $23,000 on available-for-sale investment quoted equity securities, both of which are recognised within finance costs in the income statement (Note 8.3).
AASB 7.27B(e)
AASB 7.27
AASB 139.58 AASB 139.61 AASB 139.67 AASB 139.68 AASB 139.69
112
254 254
271 271
49 49 303 303
32 32 303 303
AASB 7.32A
The Group has entered into a hedge relationship for commodity forward contracts as the Group is exposed to changes in the price of copper. The forward contract does not result in physical delivery of copper, but is designed as a cash flow hedge to offset the effect of price changes. The Group was able to hedge around 45% of its copper purchase in the next reporting period with this instrument. The remaining volume of copper purchase is exposed to price volatility. Contingent consideration As part of the purchase agreement with the previous owner of Extinguishers Limited, a contingent consideration has been agreed. This consideration is dependent on the profit before tax of Extinguishers Limited during a 12- month period. The fair value at the acquisition date was $714,000, which has been adjusted as of 31 December 2011 due to a significantly enhanced performance compared to budget to a fair value of $1,071,500. The consideration is due for final measurement and payment to the former shareholders on 30 April 2012. No further significant change to the consideration is expected.
Commentary
AASB 7.7 requires disclosure of information that enables users of the financial statements to evaluate the significance of financial instruments for its financial position and performance. However, the standard does not specify the details to be disclosed. As the Group has a significant amount of different financial assets, liabilities and derivatives on its statement of financial position, it has decided to provide detailed information to the users of the financial statements about the different types of financial instruments and their fair values.
113
Interest rate % Current interest-bearing loans and borrowings Obligations under finance leases and hire purchase contracts (Note 29) Bank overdrafts (Note 19) Other current loans $1,500,000 bank loan (2010: $1,400,000) $2,200,000 bank loan Total current interest-bearing loans and borrowings Non-current interest-bearing loans and borrowings Obligations under finance leases and hire purchase contracts (Note 29) 8% debentures 8.25% secured loan of US$3,600,000 Secured bank loan Other non-current loans $1,500,000 bank loan (2010: $1,400,000) $2,750,000 bank loan (2010: $2,500,000) $2,200,000 bank loan $5,809,000 bank loan Loan from a partner in a special purpose entity Share of a joint ventures loan
Maturity
2011 $000
2010 $000
AASB 7.7
2012 On demand
83 966
51 2,650
47 2,750
1,411 2,460
74 2,775
1,758 4,555
BBSW +0.5 BBSW +1.1 BBSW +0.5 7.5 11.00 BBSW +1.1
1 Nov 2012 2014-2016 31 Mar 2015 1 Jan 2016 2014 30 Jun 2015
Convertible preference shares Convertible preference shares Total non-current interestbearing loans and borrowings
* Includes the effects of related interest rate swap. BBSW Bank Bill Swap Rate
11.65
2014-2017
2,778
2,644
2,522
20,856
22,203
19,436
Commentary
AASB 7.7 requires disclosure of information that enables users of the financial statements to evaluate the significance of financial instruments for its financial position and performance. However, the standard does not require the details to be disclosed. As the Group has a significant amount of interest bearing loans and borrowings on its statement of financial position, it has decided to provide detailed information to the users of the financial statements about the effective interest rate as well as the maturity of the loans.
114
Bank overdrafts The bank overdrafts are secured by a portion of the Groups short-term deposits. $1,500,000 bank loan This loan is unsecured and is repayable in full on 1 November 2012. 8% debentures The 8% debentures are repayable in equal annual instalments of $350,000 commencing on 1 January 2013. 8.25% secured loan The loan is secured by a first charge over certain of the Groups land and buildings with a carrying value of $2,400,000 (2010: $Nil, 1 January 2010: $Nil). See fair value hedge (Note 15.3) below. Secured bank loan This loan has been drawn down under a six-year multi-option facility (MOF). The loan is repayable within 12 months after the reporting date, but has been classified as long term because the Group expects and has the discretion to exercise its rights under the MOF to refinance this funding. Such immediate replacement funding is available until 31 July 2017. The total amount repayable on maturity is $3,500,000. The facility is secured by a first charge over certain of the Groups land and buildings, with a carrying value of $5,000,000 (2010: $5,000,000, 1 January 2010: $4,500,000). $2,750,000 bank loan The Group increased its borrowings under this loan contract by $250,000 during the reporting period. This loan is repayable in two instalments of $1,250,000 due on 31 December 2014 and $1,500,000 due on 31 December 2016. $2,200,000 bank loan This loan is unsecured and is repayable in full on 31 March 2015. As of 31 December 2010, $74,000 was repayable on 31 March 2011. $5,809,000 bank loan This loan has been transferred to the discontinued operations net balance, see Note 10. Share of a joint ventures loan This relates to the Groups 50% share of the joint ventures $1,020,000 bank loan (2010: $1,000,000, 1 January 2010: $1,010,000) and is repayable in full on 30 June 2015. Loan from a partner in a special purpose entity In February 2011, the Group and a third party partner formed an entity to acquire, construct and operate a fire equipment safety facility. The partner contributed approximately $2.7 million in 2011 for the acquisition and construction of the fire safety test facility and is committed to provide approximately $1 million in each of the following two years to complete the project. The construction is expected to be completed in 2013 at a total cost of approximately $4.7 million. The partner is entitled to a 22% return on the outstanding capital upon the commencement of operations. At the end of the fourth annual period, the partner is entitled to a 100% capital return. The effective interest rate is 11% and the interest accumulated on the contributed amount totalled $303,000 at 31 December 2011. Convertible preference shares At 31 December 2011 and 2010, there were 2,500,000 convertible preference shares in issue. Each share has a par value of $1 and is convertible at the option of the shareholders into ordinary shares of the parent of the Group on 1 January 2014 on the basis of one ordinary share for every three preference shares held. Any preference shares not converted will be redeemed on 31 December 2017 at a price of $1.20 per share. The preference shares carry a dividend of 7% per annum, payable half-yearly in arrears on 30 June and 31 December. The dividend rights are non-cumulative. The preference shares rank ahead of the ordinary shares in the event of a liquidation. The equity portion of these shares in included in Note 20.
AASB 101.73
AASB 101.79(a)(v)
115
Assets $000
The terms of the foreign currency forward contracts have been negotiated for the expected highly probable forecast transactions to which hedge accounting has been applied. No significant element of hedge ineffectiveness requiring recognition in the income statement. Notional amounts are as provided in Note 30. The cash flow hedges of the expected future sales in January 2012 were assessed to be highly effective and a net unrealised gain of $252,000, with a deferred tax liability of $76,000 relating to the hedging instruments, is included in OCI. The cash flow hedges of the expected future purchases in February and March 2012 were assessed to be highly effective, and as at 31 December 2011, a net unrealised loss of $170,000, with a related deferred tax asset of $51,000 was included in OCI in respect of these contracts. At the end of December 2010, the cash flow hedges of the expected future sales in the first quarter of 2011 were assessed to be highly effective and an unrealised gain of $153,000 with a deferred tax liability of $46,000 was included in OCI in respect of these contracts. The cash flow hedges of the expected future purchases in the first quarter of 2011 were also assessed to be highly effective and an unrealised loss of $254,000, with a deferred tax asset of $76,000 was included in OCI in respect of these contracts. The amount removed from OCI during the year and included in the carrying amount of the hedging items as a basis adjustment was immaterial for both 2011 and 2010. The amounts retained in OCI at 31 December 2011 are expected to mature and affect the income statement by a gain of $82,000 in 2012. Reclassifications to profit and loss during the year for non-matured balances included in OCI are shown in Note 8.8. Commodity price risk The Group purchases copper on an ongoing basis as its operating activities in the electronic division require a continuous supply of copper for the production of its electronic devices. The increased volatility in copper price over the past 12 months has led to the decision to enter into commodity forward contracts.
AASB 7.23(c)
AASB 7.23(c)
AASB 7.23(c)
116
AASB 7.24(c)
) AASB 139.AG33(e)
117
2011 $000
2010 $000
(994) (985) (9,727) (11,416) (8,963) (6,318) (2,644) (2,522) (2,650) (20,600) (49) (2,750) (32)
(254) (25,281)
(271) (44,894)
(254) (25,461)
(271) (24,564)
* Includes an 8.25% secured loan carried at amortised cost adjusted to fair value movement due to the hedged interest rate risk.
The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values:
X
AASB 7.27
Cash and short-term deposits, trade receivables, trade payables and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments. Long-term fixed-rate and variable-rate receivables/borrowings are evaluated by the Group based on parameters such as interest rates, specific country risk factors, individual creditworthiness of the customer and the risk characteristics of the financed project. Based on this evaluation, allowances are taken to account for the expected losses of these receivables. As at 31 December 2011, the carrying amounts of such receivables, net of allowances, are not materially different from their calculated fair values.
118
As at 31 December 2011, the marked to market value of derivative asset positions is net of a credit valuation adjustment attributable to derivative counterparty default risk. The changes in counterparty credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationships and other financial instruments recognised at fair value. Fair value hierarchy The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities. Level 2: other techniques for which all inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly. Level 3: techniques that use inputs that have a significant effect on the recorded fair value that are not based on observable market data. As at 31 December 2011, the Group held the following financial instruments carried at fair value in the statement of financial position: Assets measured at fair value 31 December 2011 $000 Financial assets at fair value through profit or loss: Foreign exchange forward contracts hedged Foreign exchange forward contracts non-hedged Embedded derivatives Available-for-sale financial assets: Equity shares Debt securities 1,375 612 337 612 1,038 252 640 210 252 640 210 Level 1 $000 Level 2 $000 Level 3 $000
AASB 7.27A
119
Liabilities measured at fair value Level 1 $000 Level 2 $000 Level 3 $000
During the reporting period ending 31 December 2011, there were no transfers between Level 1 and Level 2 fair value measurements. As at 31 December 2010, the Group held the following financial instruments measured at fair value: Assets measured at fair value 31 December 2010 $000 Financial assets at fair value through profit or loss: Foreign exchange forward contracts hedged Available-for-sale financial assets: Equity shares Debt securities Liabilities measured at fair value 31 December 2010 $000 Financial liabilities at fair value through profit or loss: Foreign exchange forward contracts hedged 254 254 Level 1 $000 Level 2 $000 Level 3 $000 1,198 600 300 600 898 153 153
AASB 7.27A
Level 1 $000
Level 2 $000
Level 3 $000
During the reporting period ended 31 December 2010, there were no transfers between level 1 and level 2 fair value measurements. Reconciliation of fair value measurements of Level 3 financial instruments The Group carries unquoted equity shares as available-for-sale financial instruments classified as level 3 within the fair value hierarchy. The Group has equity interests in three unlisted entities with which it entered into a research and collaboration agreement. As part of the agreement, the Group invested in equity instruments of those entities. A reconciliation of the beginning and closing balances including movements is summarised below:
120
The Group did not incur gains or losses recorded in the statement of comprehensive income with respect to level 3 financial instruments. Fair value would not significantly varies if changing one or more of the inputs. The research agreement with Evo Ltd expired in 2011, the equity instruments were sold to a third party. The collaboration with Lab Ltd was significantly increased due to strong results arising from their research activities. The collaboration with Test Ltd is closely related with the discontinued operations of Hose Limited and was therefore reclassified as part of the discontinued operation (see Note 10). All transactions were performed at an arms length basis.
16.
Goodwill acquired through business combinations and licences with indefinite lives has been allocated to two CGUs, which are also operating and reportable segments, for impairment testing as follows:
X X
Carrying amount of goodwill and licences allocated to each of the CGUs: Electronics unit 1 Jan 2011 2010 2010 $000 $000 $000 50 250 119 Fire prevention equipment unit 1 Jan 2011 2010 2010 $000 $000 $000 2,231 Total 2011 $000 2,281 2010 $000 250 1 Jan 2010 $000 119
AASB 136.134(a)
360
1,050
240
240
1,410
240
240
AASB 136.134(b)
Electronics CGU The Group performed its annual impairment test as at 31 December 2011. The Group considers the relationship between its market capitalisation and its book value, among other factors, when reviewing for indicators of impairment. As at 31 December 2011, the market capitalisation of the Group was below the book value of its equity, indicating a potential impairment of goodwill and impairment of the assets of the operating segment. In addition, the overall decline in construction and development activities around the world as well as the ongoing economic uncertainty have led to a decreased demand in both the fire prevention equipment and electronics CGUs. The recoverable amount of the electronics CGU has been determined based on a value in use calculation using cash flow projections from financial budgets approved by senior management covering a five-year period. The projected cash flows have been updated to reflect the decreased demand for products and services. The pre-tax discount rate applied to cash flow projections is 15.5% (2010: 12.1%) and cash flows beyond the five-year period are extrapolated using a 3.0% growth rate (2010: 5.0%) that is the same as the long-term average growth rate for the electronics industry. As a result of this analysis, management has recognised an impairment charge of $200,000 against goodwill previously carried at $250,000, which is recorded within administrative expenses in the income statement.
AASB 136.130(a)
AASB 136.134(c) AASB 136.134 (d)(iii) AASB 136.134 (d)(iv) AASB 136.134 (d)(v) AASB 136.126(a)
121
Fire prevention equipment CGU The recoverable amount of the fire prevention equipment CGU is also determined based on a value in use calculation using cash flow projections from financial budgets approved by senior management covering a five-year period. The projected cash flows have been updated to reflect the decreased demand for products and services. The pre-tax discount rate applied to the cash flow projections is 14.4% (2010: 12.8%). The growth rate used to extrapolate the cash flows of the fire prevention equipment unit beyond the five-year period is 2.9% (2010: 3.8%). This growth rate exceeds the average growth rate for the industry in which the Fire Prevention Equipment unit operates by 0.75%. Management of the fire prevention equipment unit believes this growth rate is justified based on the acquisition of Extinguishers Limited. This acquisition has resulted in Group obtaining control of an industry patent, thereby preventing other entities from manufacturing a specialised product for a period of 10 years. The Group has an option to renew the patent after the 10 years have expired. As a result of the updated analysis, management did not identify an impairment for this CGU to which goodwill of $2,231,000 is allocated. Key assumptions used in value in use calculations The calculation of value in use for both electronics and fire prevention equipment units are most sensitive to the following assumptions:
X X X X X
Gross margin Discount rates Raw materials price inflation Market share during the budget period Growth rate used to extrapolate cash flows beyond the budget period
Gross margins Gross margins are based on average values achieved in the three years preceding the start of the budget period. These are increased over the budget period for anticipated efficiency improvements. An increase of 1.5% per annum was applied for the electronics unit and 2% per annum for the fire prevention equipment unit. Discount rates Discount rates represent the current market assessment of the risks specific to each CGU, taking into consideration the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates. The discount rate calculation is based on the specific circumstances of the Group and its operating segments and is derived from its weighted average cost of capital (WACC). The WACC takes into account both debt and equity. The cost of equity is derived from the expected return on investment by the Groups investors. The cost of debt is based on the interest bearing borrowings the Group is obliged to service. Segment-specific risk is incorporated by applying individual beta factors. The beta factors are evaluated annually based on publicly available marked data. In determining impairment, management has considered the potential impact of the release of the Clean Energy Bill 2011 (the Bill or the Scheme) which will have an impact on the Australian economy and also on the Group. The Bill, which is substantially enacted as at 31 December 2011, will commence on the 1st of July 2012. None of the entities in the Group are liable entities under the Scheme, as direct emissions (that are covered by the Scheme) at any of its facilities do not exceed 25,000 tonnes of CO2-e, based on its emissions as per the Groups financial year 2011 Green House accounts. Management does not expect that it will exceed this threshold in the foreseeable future. Management has estimated there will be an increase in the energy price, as well an increase in prices of other goods and services, as a result of the price on carbon. However, they are finalising their analysis and are unable to quantify this impact, yet. Management is also reviewing whether it is eligible for any government assistance and whether it will be able to pass on part of these price increases to its customers. As a result, there is significant uncertainty about the impact the Scheme will have, if any. Accordingly, management have not adjusted any cash flows, but rather only adjusted the discount rates to reflect uncertainty around the actual price increases, the amount of government assistance and the ability to pass on costs.
122
AASB 136.134(f)
Raw materials price inflation Management has considered the possibility of greater than budgeted increases in raw material price inflation. This may occur if anticipated regulatory changes result in an increasing demand that cannot be met by suppliers. Budgeted price inflation lies within a range of 1.9% to 2.6%, depending on the country from which materials are purchased. Should the Group be unable to pass on, or absorb through efficiency improvements, additional cost increases of an average of 4.5%, a further impairment may result. Growth rate assumptions Management recognises that the speed of technological change and the possibility of new entrants can have a significant impact on growth rate assumptions. The effect of new entrants is not expected to have an adverse impact on the forecasts included in the budget, but could yield a reasonably possible alternative to the estimated long-term growth rate of 5.2%. A reduction of 0.8% in the long-term growth rate would result in a further impairment.
17.
Inventories
2011 $000 6,046 13,899 4,930 24,875 As at 1 2010 January 2010 $000 $000 7,793 8,250 11,224 12,951 6,472 5,950 25,489 27,151
AASB 102.36(e) AASB 102.36(b)
AASB 101.78(c)
Raw materials (at cost) Work in progress (at cost) Finished goods (at cost or net realisable value) Total inventories at the lower of cost and net realisable value
During 2011, $286,000 (2010: $242,000) was recognised as an expense for inventories carried at net realisable value. This is recognised in cost of sales.
123
Trade receivables Receivables from an associate (Note 28) Receivables from other related parties (Note 28)
For terms and conditions relating to related party receivables, refer to Note 28. Trade receivables are non-interest bearing and are generally on 30-90 day terms. As at 31 December 2011, trade receivables of an initial value of $108,000 (2010: $97,000, 1 January 2010: $95,000) were impaired and fully provided for. See below for the movements in the provision for impairment of receivables. Individually Collectively impaired impaired $000 $000 29 66 4 8 (4) (7) 1 29 10 (3) (2) 34 68 16 (5) (6) 1 74
AASB 7.34(a)
AASB 7.37
AASB 7.16
At 1 January 2010 Charge for the year Utilised Unused amounts reversed Discount rate adjustment At 31 December 2010 Charge for the year Utilised Unused amounts reversed Discount rate adjustment At 31 December 2011
As at 31 December, the ageing analysis of trade receivables is as follows: Neither past due nor Total impaired $000 $000 26,501 17,596 23,158 16,455 Past due but not impaired < 30 days $000 4,791 3,440 3060 days $000 2,592 1,840 6190 days $000 1,070 945 91120 days $000 360 370 > 120 days $000 92 108
AASB 7.37
2011 2010
See Note 30 on credit risk of trade receivables to understand how the Group manages and measures credit quality of trade receivables that are neither past due nor impaired.
AASB 7.36(c)
124
Cash at banks earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. At 31 December 2011, the Group had available $5,740,000 (2010: $1,230,000, 1 January 2010: $1,200,000) of undrawn committed borrowing facilities. The Group has pledged a part of its short-term deposits to fulfil collateral requirements. Refer to Note 31 for further details. For the purpose of the statement of cash flows, cash and cash equivalents comprise the following at 31 December: 2011 $000 11,316 5,796 1,294 18,406 (966) 17,440 As at 1 2010 January 2010 $000 $000 11,125 6,016 3,791 4,250 14,916 (2,650) 12,266 11,066 (2,750) 8,316
AASB 107.Aus20.1 AASB 107.50(a)
AASB 107.48
AASB 107.45
Cash at banks and on hand Short-term deposits Cash at banks and short-term deposits attributable to a discontinued operation (Note 10) Bank overdrafts (Note 15) Reconciliation of net profit after tax to net cash flows from operations Profit before tax from continuing operations Profit/(loss) before tax from discontinued operations Profit before tax Non-cash adjustment to reconcile profit before tax to net cash flows: Depreciation and impairment of property, plant and equipment Amortisation and impairment of intangible assets Share-based payment transaction expense Decrease in investment properties Decrease in financial instruments Gain on disposal of property, plant and equipment Fair value adjustment of a contingent consideration Finance income Finance costs Other losses Share of profit of an associate Movements in provisions, pensions and government grants Working capital adjustments: Increase in trade and other receivables and prepayments Decrease in inventories Increase in trade and other payables Interest received Income tax paid Net cash flows from operating activities
3,907 325 412 306 1,633 (532) 358 (1,186) 2,868 373 (83) (729)
3,383 174 492 300 569 (2,007) (211) 1,223 (81) 107
125
Authorised shares
Ordinary shares issued and fully paid At 31 December 2010 Issued on 1 May 2011 in exchange for issued share capital of Extinguishers Limited (Note 4) At 31 December 2011
AASB 101.79(a)(iv)
During the year, the authorised share capital was increased by $2,500,000 by the issue of 2,500,000 ordinary shares of $1 each. Share premium At 1 January 2010 Increase on 1 November 2010 for cash on exercise of share options in excess of cost of treasury shares At 31 December 2010 Increase on 1 May 2011 because of issuance of share capital for the acquisition of Extinguishers Limited (Note 4) Increase on 1 November 2011 for cash on exercise of share options in excess of cost of treasury shares Decrease due to transaction costs for issued share capital At 31 December 2011 Treasury shares At 1 January 2010 Issued on 1 November 2010 for cash on exercise of share options (Note 26) At 31 December 2010 Issued on 1 November 2011 for cash on exercise of share options (Note 26) At 31 December 2011 Thousands 335 (65) 270 (75) 195 $000 80 80 4,703 29 (32) 4,780 $000 774 (120) 654 (146) 508
AASB 101.79(a)(vi) AASB 101.78(e)
Share options exercised in each respective year have been settled using the treasury shares of the Group. The reduction in the treasury share equity component is equal to the cost incurred to acquire the shares, on a weighted average basis. Any excess between the cash received from employees and reduction in treasury shares is recorded in share premium. Share option schemes The Group has two share option schemes under which options to subscribe for the Groups shares have been granted to certain executives and senior employees (Note 26). Other capital reserves Share-based payment transactions $000 338 298 636 307 943 Convertible preference shares $000 228 228 228
As at 1 January 2010 Share-based payment transactions (Note 26) At 31 December 2010 Share-based payment transactions (Note 26) At 31 December 2011
126
Nature and purpose of reserves Other capital reserves Share-based payment transactions The share-based payment transaction reserve is used to recognise the value of equity-settled sharebased payment transactions provided to employees, including key management personnel, as part of their remuneration. Refer to Note 28 for further details of these plans. Convertible preference shares The convertible preference share reserve covers the equity component of the issued convertible shares. The liability component is reflected in financial liabilities. All other reserves as stated in the consolidated statement of changes in equity Cash Flow hedge reserve The cash flow hedge reserve contains the effective portion of the cash flow hedge relationships incurred as at the reporting date. $512,000 is made up of the net 2011 movements in forward currency contracts and the effective portion of the forward commodity contract, net of tax. The 2010 movement of $24,000 corresponds also to the net movements in cash flow hedges net of tax. Available-for-sale reserve This reserve records fair value changes on available-for-sale financial assets. Foreign currency translation reserve The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries. It is also used to record the effect of hedging net investments in foreign operations. Asset revaluation reserve The asset revaluation reserve is used to record increases in the fair value of land and buildings and decreases to the extent that such decrease relates to an increase on the same asset previously recognised in equity. The reserve can only be used to pay dividends in limited circumstances.
127
13 13 26
13 13 26
Proposed for approval at the annual general meeting (not recognised as a liability as at 31 December): Dividends on ordinary shares: Final dividend for 2011: 5.01 cents per share (2010: 5.66 cents per share)
AASB 101.137(a)
1,087 Parent
1,082
Franking credit balance The amount of franking credits available for the subsequent financial year are: X Franking account balance as at the end of the financial year at 30% (2010: 30%)
X
2010 $000
2009 $000
3,267
AASB 101.Aus138.4(a)
Franking credits that will arise from the payment of income tax payable as at the end of the financial year Franking debits that will arise from the payment of dividends as at the end of the financial year* Franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date Franking credits that the entity may be prevented from distributing in the subsequent financial year
3,140
AASB 101.Aus138.4(b)
AASB 101.Aus138.4(c)
(190) 6,217
AASB 101.Aus138.5, AASB 112.81(i)
The amount of franking credits available for future reporting periods: Impact on the franking account of dividends proposed or declared before the financial report was authorised for issue but not recognised as a distribution to equity holders during the period*
* AASB 112 requires the relevant dividend to be recognised as a liability at reporting date. As Endeavour (International) Limited has not recognised the subsequent declaration of the year end dividend as a liability, the related franking debits have not been included.
(366) 7,621
(350) 5,867
Tax rates The tax rate at which paid dividends have been franked is 30% (2010: 30%). Dividends proposed will be franked at the rate of 30% (2010: 30%).
AASB 101.Aus138.4(a) AASB 101.Aus138.4(a)
128
At 1 January 2010 Arising during the year At 31 December 2010 At 1 January 2010 Current Non-current At 31 December 2010 Current Non-current
Commentary
The above table shows movements in provisions for the comparative period voluntarily, as AASB 137.84 does not require such disclosure.
Social security Onerous contributions Maintenance operating on share warranties Restructuring Decommissioning lease options $000 $000 $000 $000 $000 At 1 January 2011 Acquisition of a subsidiary (Note 4) Arising during the year Utilised Unused amounts reversed Discount rate adjustment and imputed interest At 31 December 2011 Current Non-current 118 112 (60) (6) 500 (39) (6) 1,200 400 (20) 4 26 (19)
1 12 3 9 12
Maintenance warranties A provision is recognised for expected warranty claims on products sold during the last two years, based on past experience of the level of repairs and returns. It is expected that most of these costs will be incurred in the next financial year and all will have been incurred within two years after the reporting date. Assumptions used to calculate the provision for warranties were based on current sales levels and current information available about returns based on the two-year warranty period for all products sold. Restructuring Extinguishers Ltd recorded a restructuring provision prior to the Groups acquisition. The provision relates principally to the elimination of certain of its product lines. The restructuring plan was drawn up and announced to the employees of Extinguishers Limited in 2010 when the provision was recognised in its financial statements. The restructuring is expected to be completed by 2013.
AASB 137.85
129
130
2009 $000
At 1 January Received during the year Released to the income statement At 31 December Current Non-current
Government grants have been received for the purchase of certain items of property, plant and equipment. There are no unfulfilled conditions or contingencies attached to these grants.
24.
Deferred revenue
2011 $000 365 1,426 (1,375) 416 220 196 416 2010 $000 364 1,126 (1,125) 365 200 165 365 2009 $000
At 1 January Deferred during the year Released to the income statement At 31 December Current Non-current
The deferred revenue refers to the accrual and release of EndeavourPoints transactions. As at 31 December 2011, the estimated liability for unredeemed points amounted to approximately $416,000 (2010: $365,000, 1 January 2010: $364,000).
131
The Group has two defined benefit pension plans, one final salary plan in Australia and one average salary plan in the US, covering substantially all of its employees, both of which require contributions to be made to separately administered funds. The Group has also agreed to provide certain additional post-employment healthcare benefits to senior employees in the United States. These benefits are unfunded. The following tables summarise the components of net benefit expense recognised in the income statement and the funded status and amounts recognised in the statement of financial position for the respective plans: Net benefit expense 2011 (recognised in cost of sales) Postemployment medical $000 (132) (21) (153)
Current service cost Interest cost on benefit obligation Expected return on plan assets Past service cost Net benefit expense Actual return on plan assets Net benefit expense 2010 (recognised in cost of sales)
AASB 119.120A(g)
AASB 119.120A(m)
Current service cost Interest cost on benefit obligation Expected return on plan assets Past service cost Net benefit expense Actual return on plan assets Benefit asset/(liability) As at 31 December 2011
Postemployment US plan medical $000 $000 (356) (105) (65) (8) 47 (374) (166) (113)
AASB 119.120A(g)
AASB 119.120A(m)
Defined benefit obligation Fair value of plan assets Unrecognised past service costs Benefit liability
Postemployment US plan medical $000 $000 (1,093) (339) 705 (388) (388) (339) (339)
AASB 119.120A(f)
132
Defined benefit obligation Fair value of plan assets Unrecognised past service costs Benefit liability Benefit asset/(liability) As at 1 January 2010
AASB 119.120A(f)
Defined benefit obligation Fair value of plan assets Unrecognised past service costs Benefit liability
Postemployment US plan medical $000 $000 (1,275) (88) 676 (599) (599) (88) (88)
AASB 119.120A(f)
Changes in the present value of the defined benefit obligation are as follows: Postemployment US plan medical $000 $000 1,275 88 65 8 356 105 (192) (379) (10) (4) 1,115 55 452 (299) (141) (89) 1,093 197 21 132 (11) 339
Defined benefit obligation at 1 January 2010 Interest cost Current service cost Benefits paid Actuarial losses/(gains) on obligation Exchange differences Defined benefit obligation at 31 December 2010 Interest cost Current service cost Benefits paid Actuarial losses/(gains) on obligation Exchange differences Defined benefit obligation at 31 December 2011
Australia plan $000 3,973 218 788 (974) 103 4,108 201 815 (569) 385 4,940
Total $000 5,336 291 1,249 (1,166) (276) (14) 5,420 277 1,399 (868) 244 (100) 6,372
AASB 119.120A(c)
133
Changes in the fair value of plan assets are as follows: Australia plan $000 2,134 126 746 (974) (269) 1,763 127 978 (569) 318 2,617 US plan $000 676 47 553 (192) (408) 4 680 56 25 (299) 237 6 705 Total $000 2,810 173 1,299 (1,166) (677) 4 2,443 183 1,003 (868) 555 6 3,322
Fair value of plan assets at 1 January 2010 Expected return Contributions by employer Benefits paid Actuarial losses Exchange differences Fair value of plan assets at 31 December 2010 Expected return Contributions by employer Benefits paid Actuarial gains Exchange differences Fair value of plan assets at 31 December 2011
The Group expects to contribute $1,500,000 to its defined benefit pension plans in 2011. The acquisitions of Extinguishers Limited in 2011 and Lightbulbs Limited in 2010 did not affect plan assets or the defined benefit obligation, as neither company had defined benefit plans. The major categories of plan assets as a percentage of the fair value of the total plan assets are as follows: Pension plans Australia plan US plan 2011 2010 2011 2010 % % % % 44 49 13 10 29 29 9 9 10 5 33 32 10 8 19 15 7 9 26 34
AASB 119.120A(q)
AASB 119.120A(j)
The plan assets include a property occupied by the Group with a fair value of $150,000 (2010: $140,000, 1 January 2010: $130,000). The overall expected rate of return on assets is determined based on the market expectations prevailing, applicable to the period over which the obligation is to be settled. These are reflected in the principal assumptions below. The principal assumptions used in determining pension and post-employment medical benefit obligations for the Groups plans are shown below:
AASB 119.120A(k)
AASB 119.120A(l)
AASB 119.120(n)
134
7.2 8.3
5.9 6.8
3.5 3.8
4.0 4.1
20.0 23.0
20.0 23.0
19.0 22.0
19.0 22.0
A one percentage point change in the assumed rate of increase in healthcare costs would have the following effects: Increase $000 2011 Effect on the aggregate current service cost and interest cost Effect on the defined benefit obligation 2010 Effect on the aggregate current service cost and interest cost Effect on the defined benefit obligation 6 12 4 7 Decrease $000 (2) (8) (2) (5)
AASB 119.120A(o)
135
A one percentage point change in the assumed discount rate would have the following effects: Increase $000 2011 Effect on the aggregate current service cost and interest cost Effect on the defined benefit obligation 2010 Effect on the aggregate current service cost and interest cost Effect on the defined benefit obligation (43) (34) (34) (28) Decrease $000 37 31 30 26
Commentary
Although not specifically required by AASB 119, the discount rate assumption or other assumptions give rise to estimation uncertainty which can result in having a significant risk for a material adjustment. AASB 101.122 requires adequate disclosure about the assumptions that helps users to understand the source of estimation uncertainty. Therefore, a sensitivity analysis involving the discount rate is regarded as important information and should be strongly considered.
Change in policy: The cumulative amount of actuarial gains or losses recognised since 1 January 1999 in OCI is $323,000 (2010: $134,000). The Group is unable to determine how much of the pension scheme deficit recognised on 1 January 1999 and taken directly to equity of $1,839,000 is attributable to actuarial gains and losses since inception of the pension schemes because that information was not required to be determined in those earlier periods. Consequently, it is impractical to determine the amount of actuarial gains and losses that would have been recognised in OCI before 1 January 1999.
Commentary
AASB 119 provides no transitional relief from the requirement to disclose cumulative actuarial gains or losses recognised in OCI. Full retrospective application would require disclosure of such gains or losses since the inception of the defined benefit plans. The Group measured defined benefit plans in accordance with AASB 119 from 1 January 1999 and has details of actuarial variances from that date. As a different measurement basis was previously used, the Group concluded that it was impractical for gains or losses to be determined for prior periods to that date.
136
Amounts for the current and previous four periods are as follows: Australia plan 2009 $000 (3,973) 2,134 (1,839) 320 (920) US plan 2009 $000 (1,275) 676 (599) 256 (175)
Defined benefit obligation Plan assets (Deficit)/surplus Experience adjustments on plan liabilities Experience adjustments on plan assets
Defined benefit obligation Plan assets (Deficit)/surplus Experience adjustments on plan liabilities Experience adjustments on plan assets
Post-employment medical benefits 2010 2009 2008 $000 $000 $000 (197) (88) (80) (37) (22) 15
137
Senior executive plan Under the senior executive plan (SEP), share options of the parent are granted to senior executives of the parent with more than 12 months of service. The exercise price of the share options is equal to the market price of the underlying shares on the date of grant. The share options vest if and when the Groups earnings per share amount increases by 10% three years from the date of grant and the senior executive is employed on such date. If this increase is not met, the share options do not vest. The fair value of the share options is estimated at the grant date using a binomial option pricing model, taking into account the terms and conditions upon which the share options were granted. The contractual term of each option granted is five years. There are no cash settlement alternatives. The Group does not have a past practice of cash settlement for these share options. General employee share-option plan At its discretion, the Group may grant share options of the parent to employees, other than senior executives, of the parent under the General Employee Share-option Plan (GESP), once they have been in service for two years. The vesting of the share options is dependent on the total shareholder return (TSR) of the Group as compared with a group of principal competitors. Employees must remain in service for a period of three years from the date of the grant. The fair value of share options granted is estimated at the date of the grant using a Monte-Carlo simulation model, taking into account the terms and conditions upon which the share options were granted. The model simulates the TSR and compares it against a group of principal competitors. It takes into account historic and expected dividends, and share price fluctuation covariance of the Group and its competitors to predict the distribution of relative share performance. The exercise price of the share options is equal to the market price of the underlying shares on the date of grant. The contractual term of the share options is five years and there are no cash settlement alternatives for the employees. The Group does not have a past practice of cash settlement for these awards. Share appreciation rights Employees in the business development group are granted share appreciation rights (SARs), which can only be settled in cash. These SARs vest when a specified target number of new sales contracts are closed and the employee is employed at the vesting date. The contractual term of the SARs is six years. The fair value of the SARs is measured at each reporting date using a binomial option pricing model taking into account the terms and conditions upon which the instruments were granted and the current likelihood of achieving the specified target. The carrying amount of the liability relating to the SARs at 31 December 2011 is $299,000 (2010: $194,000, 1 January 2010: $Nil). No SARs had vested at 31 December 2011 and 31 December 2010. The expense recognised for employee services received during the year is shown in the following table: 2011 $000 307 105 412 2010 $000 298 194 492
AASB 2.46
AASB 2.45(a)
AASB 2.47(a)(iii)
AASB 2.46
AASB 2.51(b)
Expense arising from equity-settled share-based payment transactions Expense arising from cash-settled share-based payment transactions Total expense arising from share-based payment transactions
AASB 2.51(a)
There have been no cancellations or modifications to any of the plans during 2011 or 2010. Movements in the year The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share options during the year (excluding SARs):
138
AASB 2.45(c)
The weighted average share price at the date of exercise of these options was $4.09. The weighted average share price at the date of exercise of these options was $3.13.
AASB 2.45(c)
The weighted average remaining contractual life for the share options outstanding as at 31 December 2011 is 2.94 years (2010: 2.60 years). The weighted average fair value of options granted during the year was $1.32 (2010: $1.18). The range of exercise prices for options outstanding at the end of the year was $2.33 to $3.85 (2010: $2.13 to $3.13). The following tables list the inputs to the models used for the three plans for the years ended 31 December 2011 and 31 December 2010: 2011 SEP 3.13 15.00 5.10 6.50 3.10 Binomial 2010 SEP 3.01 16.30 5.00 3.00 2.86 Binomial 2011 GESP 3.13 16.00 5.10 4.25 3.10 Monte Carlo 2010 GESP 3.01 17.50 5.00 4.25 2.86 Monte Carlo 2011 SAR 3.13 18.00 5.10 6.00 3.12 Binomial 2010 SAR 3.01 18.10 5.00 6.00 2.88 Binomial
AASB 2.47(a)(ii) AASB 2.47(a) AASB 2.45(d)
AASB 2.47(a)(i)
Dividend yield (%) Expected volatility (%) Riskfree interest rate (%) Expected life of share options/SARs (years) Weighted average share price ($) Model used
Dividend yield (%) Expected volatility (%) Riskfree interest rate (%) Expected life of options/SARs (years) Weighted average share price ($) Model used
The expected life of the share options and SARs is based on historical data and current expectations and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may also not necessarily be the actual outcome.
139
Trade payables Other payables Interest payable Joint venture (Note 28) Other related parties (Note 28)
As at 1 2010 January 2010 $000 $000 19,496 18,725 1,495 1,565 269 289 12 9 9 12 21,281 20,600
AASB 7.39
Trade payables are non-interest bearing and are normally settled on 60-day terms Other payables are non-interest bearing and have an average term of six months Interest payable is normally settled quarterly throughout the financial year For terms and conditions relating to joint ventures and other related parties, refer to Note 28
AASB 7.39(b)
For explanations on the Groups credit risk management processes, refer to Note 30.
140
The financial statements include the financial statements of the Group and the subsidiaries listed in the following table: % equity interest Name Extinguishers Limited Bright Sparks Limited Wireworks Inc. Sprinklers Inc. Lightbulbs Limited Hose Limited Fire Equipment Test Lab Limited Country of incorporation Australia Australia United States United States Australia Australia Australia 2011 80.0 95.0 98.0 100.0 87.4 100.0 20.0 2010 95.0 98.0 100.0 80.0 100.0
Commentary
AASB 124 does not explicitly require a separate list of subsidiaries, jointly controlled entities or associates. However, AASB 127.42(b) requires this information for the separate financial statements of an entity. In many cases, the separate financial statements of a parent entity are presented as part of the consolidated financial statements. The Group concluded that presenting these entities would be beneficial for the users of its consolidated financial statements.
The Group holds a 20% equity interest in the newly formed Fire Equipment Test Lab Limited. However, the Group has majority representation on the entitys board of directors and is required to approve all major operational decisions. The operations, once they commence, will be solely used by the Group. Based on these facts and circumstances, management determined that, in substance, the Group controls this entity and therefore has consolidated this entity in its financial statements. The following table provides the total amount of transactions that have been entered into with related parties for the relevant financial year. For information regarding outstanding balances at 31 December 2011 and 2010, refer to Notes 18 and 27: Purchases from related parties $000 Amounts owed by related parties* $000 620 550 445 551 582 602 Amounts owed to related parties* $000
AASB 124.18 AASB 124.19 AASB 124.22
Sales to related parties $000 Entity with significant influence over the Group: International Fires P.L.C. 2011 2010 As at 1 January 2010 2011 2010 As at 1 January 2010 7,115 5,975 2,900 2,100
590 430
30 12 9
225 135
510 490
20
10 9 12
* The amounts are classified as trade receivables and trade payables, respectively.
141
Loans from/to related parties Associate: Power Works Limited (Note 15.1)
AASB 124.18
The ultimate parent Endeavour (International) Limited is the ultimate parent based and listed in Australia. The ultimate parent of the Group is S.J. Limited and is based in United States. There were no transactions other than dividends paid, between the Group and S.J. Limited during the financial year (2010: $Nil). Associate Power Works Limited The Group has a 25% interest in Power Works Limited (2010: 25%, 1 January 2010: 25%). Joint venture in which the Group is a venturer Showers Limited The Group has a 50% interest in Showers Limited (2010: 50%, 1 January 2010: 50%). Terms and conditions of transactions with related parties The sales to and purchases from related parties are made at terms equivalent to those that prevail in arms length transactions. Outstanding balances at the year-end are unsecured and interest free and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables. For the year ended 31 December 2011, the Group has not recorded any impairment of receivables relating to amounts owed by related parties (2010: $Nil). This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.
Commentary
The disclosure that transactions with related parties are made at terms equivalent to an arms length transaction is only required if an entity can substantiate such terms, i.e., AASB 124.23 does not require such disclosure. The Group was able to substantiate the terms and therefore provides the disclosure.
Commitments with related parties On 1 July 2011, Bright Sparks Limited entered into a two-year agreement ending 30 June 2013 with Wireworks Inc. to purchase specific electrical and optical cables that Bright Sparks Limited uses in its production cycle. Bright Sparks Limited expects the potential purchase volume to be $750,000 in 2012 and $250,000 in the first six months of 2013. The purchase price is based on Wireworks Inc.s actual cost plus 5% margin and will be settled in cash within 30 days after receiving the inventory. Loan to an associate The loan granted to Power Works Limited is intended to finance an acquisition of new machines for the manufacturing of fire prevention equipment. The loan is unsecured and repayable in full on 1 June 2014. Interest is charged at 10%.
AASB 124.18(b)
AASB 124.19(d)
142
Transactions with key management personnel Directors loan The Group offers senior management a facility to borrow up to $20,000, repayable within five years from the date of disbursement. Such loans are unsecured and the interest rate is the average rate incurred on long-term loans (currently BBSW + 0.8). Any loans granted are included in financial instruments on the face of the statement of financial position. Other directors interests During both 2011 and 2010, purchases at market prices were made by group companies from Gnome Industries Limited, of which the spouse of one of the directors is a director and controlling shareholder. One director has a 25% (2010: 25%, 1 January 2010: 25%) equity interest in Home Fires Limited. The Group has a contract for the supply of fire extinguishers. During 2011 and 2010, the Group supplied extinguishers to Home Fires Limited at market prices.
Compensation of key management personnel of the Group 2011 $ Short-term employee benefits Post-employment benefits Other long-term benefits Termination benefits Share-based payment Total compensation 4,762,058 213,152 42,000 125,000 117,360 5,295,570 2010 $ 3,704,261 162,000 7,100 61,040 3,934,401
AASB 124.17
AASB 124.17(a) AASB 124.17(b) AASB 124.17(d) AASB 124.17(e) AASB 124.17(a)
The amounts disclosed in the table are the amounts recognised as an expense during the reporting period related to key management personnel. Generally, the non-executive directors do not receive pension entitlements from the Group. During 2011, an amount of $40,000 was paid to a director who retired from an executive directors position in 2010.
143
31 Dec 2011 Directors M.P. Boiteau C.P. Muller Executives R.S. Jaffe G.K. Dellas L.A. Basier A.R. Davis S. Cunica C. Dhalliwell Total
Options exercised
Total
Exercisable
Not exercisable
74,000 50,000
50,000 50,000
(5,000) (1,500)
(9,000) -
110,000 98,500
110,000 98,500
34,000 48,500
76,000 50,000
(23,000) (29,500)
Vested at 31 December 2010 Balance at beginning of period 1 Jan 09 Balance at end of period 31 Dec 10
31 Dec 2010 Directors M.P. Boiteau C.P. Muller Executives G.K. Dellas L.A. Basier A.R. Davis S. Cunica Total
#
Granted as remuneration
Options exercised
Total
Exercisable
Not exercisable
75,400 40,900
9,600 9,600
(3,000) (500)
(8,000) -
74,000 50,000
74,000 50,000
2,000 -
72,000 50,000
3,400 22,600
(12,000) (15,500)
(2,000) (10,000)
Includes forfeitures
144
Shareholdings of key management personnel Shares held in Endeavour (International) Limited (number)
Balance 1 Jan 11 Ord Pref Granted as remuneration Ord Pref On exercise of options Ord Pref Net change other Ord Pref Balance 31 Dec 11 Ord Pref
31 Dec 2011 Directors J. Barraclough M.P. Boiteau C.P. Muller F van den Berg A.N. Lockwood M. Evans M.A. Vlahov C. Smart P.R. Garcia Executives R.S. Jaffe G.K. Dellas L.A. Basier A.R. Davis S. Cunica Total
5,000 1,500 -
31,000
50,000 100,000
23,000 29,500
31,000
31 Dec 2010 Directors J. Barraclough M.P. Boiteau C.P. Muller F van den Berg A.N. Lockwood M. Evans M.A. Vlahov P.R. Garcia Executives G.K. Dellas S. Cunica Total
3,000 500 -
31,000
50,000
12,000 15,500
510,000 34,000
31,000
AASB 124.Aus29.5
- 1,897,940
All equity transactions with KMP other than those arising from the exercise of remuneration options have been entered into under terms and conditions no more favourable than those the Group would have adopted if dealing at arm's length.
145
Operating lease commitments Group as lessee The Group has entered into commercial leases on certain motor vehicles and items of machinery. These leases have an average life of between three and five years with no renewal option included in the contracts. There are no restrictions placed upon the Group by entering into these leases. Future minimum rentals payable under non-cancellable operating leases as at 31 December are as follows: 2011 $000 Within one year After one year but not more than five years More than five years 255 612 408 1,275 Operating lease commitments Group as lessor The Group has entered into commercial property leases on its investment property portfolio, consisting of the Groups surplus office and manufacturing buildings. These non-cancellable leases have remaining terms of between 5 and 20 years. All leases include a clause to enable upward revision of the rental charge on an annual basis according to prevailing market conditions. Future minimum rentals receivable under non-cancellable operating leases as at 31 December are as follows: 2011 $000 1.418 5.630 5.901 12.949 Finance lease and hire purchase commitments The Group has finance leases and hire purchase contracts for various items of plant and machinery. 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 and hire purchase contracts together with the present value of the net minimum lease payments are as follows: 2010 $000 1.390 5.520 5.864 12.774 2010 $000 250 600 400 1,250
AASB 117.35(a)
AASB 117.56(c)
AASB 117.56(a)
Within one year After one year but not more than five years More than five years
AASB 117.31(e)
146
Minimum payments $000 Within one year After one year but not more than five years More than five years Total minimum lease payments Less amounts representing finance charges Present value of minimum lease payments Property, plant and equipment commitments 85 944 1,029 (41) 988
AASB 117.31(b)
The Group had contractual obligations to purchase plant and equipment for $2,310,000 at balance date (2010: $4,500,000) principally relating to the completion of operating facilities of Sprinklers Inc. This commitment is expected to be settled within 12 months from balance date. The 2010 commitment was settled during 2011. Commitments relating to jointly controlled operations At 31 December 2011, the Group has commitments of $4,590,000 (2010: $4,500,000) principally relating to the completion of the Showers joint venture operating facilities, and commitments of $310,000 (2010: $516,000) for the acquisition of new machinery to be used in the jointly controlled operation. Commitments contracted for at reporting date but not recognised as liabilities in respect of the Showers joint venture are as follows: 2011 $000 Property, plant and equipment Within one year: Completion of operating facilities Acquisition of new machinery After one year but not more than five years: Completion of operating facilities Acquisition of new machinery After more than five years 2010 $000
AASB 101.Aus138.6(a)
2,000 206
AASB 101.Aus138.6(b)
AASB 101.Aus138.6(c)
147
Commitments relating to investment property The Company and Group had contractual obligations to purchase investment property for $1,650,000 at balance date (Company and Group 2010: $Nil). This commitment is expected to be settled within 12 months from balance date. At balance date the Company and Group had contractual obligations in respect of repairs and maintenance of investment property. These amounts are not recognised as a liability. These repairs and maintenance commitments are expected to be settled as follows: 2011 $000 Repairs and maintenance of investment property Within one year After one year but not more than five years After more than five years 150 525 142 817 2010 $000 130 455 226 811
AASB 101Aus138.6(a) AASB 101Aus138.6(b) AASB 101Aus138.6(c) AASB 140.75(h)
AASB 140.75(h)
Remuneration commitments 2011 $000 Commitments for the payment of salaries and other remuneration under long-term employment contracts in existence at the reporting date but not recognised as liabilities, payable: Within one year After one year but not more than five years After more than five years 425 425 850 425 850 1,275 2010 $000
AASB 101.Aus138.6
Amounts disclosed as remuneration commitments include commitments arising from the service contracts of directors and executives referred to in the remuneration report of the directors report that are not recognised as liabilities and are not included in the compensation of KMP. Legal claim contingency An overseas customer has commenced an action against the Group in respect of equipment claimed to be defective. The estimated payout is $850,000 should the action be successful. A trial date has not yet been set and therefore it is not practicable to state the timing of the payment, if any. The Group has been advised by its legal counsel that it is only possible, but not probable, that the action will succeed. Accordingly, no provision for any liability has been made in these financial statements. Guarantees The Group has provided the following guarantees at 31 December 2011:
X
AASB 137.86
Guarantee of 25% of the bank overdraft of the associate to a maximum amount of $500,000 (2010: $250,000), which is incurred jointly with other investors of the associate (carrying amounts of the related financial guarantee contracts were $67,000 and $34,000 at 31 December 2011 and 2010, respectively, see Note 15) Guarantee to an unrelated party for the performance in a contract by the joint venture entity. No liability is expected to arise Guarantee of its share of $20,000 (2010: $15,000) of the associates contingent liabilities which have been incurred jointly with other investors
AASB 131.54(b)
AASB 128.40(a)
148
Tax related contingencies Amended assessments from the Australian Taxation Office (ATO) As a result of the ATO's program of routine and regular tax audit, the Group anticipates that ATO audits may occur in the future. The Group is similarly subject to routine tax audits in certain overseas jurisdictions. The ultimate outcome of any future tax audits cannot be determined with an acceptable degree of reliability at this time. Nevertheless, the Group believes that it is making adequate provision for its taxation liabilities (including amounts shown as deferred and current tax liabilities) and is taking reasonable steps to address potentially contentious issues with the ATO. However, there may be an impact to the Group if any of the revenue authority investigations result in an adjustment that increases the Group's taxation liabilities. Ongoing transactions - transfer pricing The Group has offshore operations in the United States (Note 57). As disclosed in Note 28, there are intra Group transactions, which include the Company and its US based subsidiaries Wireworks Inc. and Sprinklers Inc. These transactions are on an arm's length basis and are conducted at normal market prices and on normal commercial terms. Whilst there are no investigations currently in progress, such transactions are not subject to any statutory limit in Australia. This is an area of focus for the United States Internal Revenue Service and the ATO. At present, it is expected that any impact would not be material to the Group. Contingent liabilities The Group recognised a contingent liability of $400,000 in the course of the acquisition of Extinguishers Limited. Refer to Note 4 for additional information.
149
The Groups principal financial liabilities, other than derivatives, comprise loans and borrowings, trade and other payables, and financial guarantee contracts. The main purpose of these financial liabilities is to finance the Groups operations and to provide guarantees to support its operations. The Group has loan and other receivables, trade and other receivables, and cash and short-term deposits that arrive directly from its operations. The Group also holds available-for-sale investments and enters into derivative transactions. The Group is exposed to market risk, credit risk and liquidity risk. The Groups senior management oversees the management of these risks. The Groups senior management is supported by a financial risk committee that advises on financial risks and the appropriate financial risk governance framework for the Group. The financial risk committee provides assurance to the Groups senior management that the Groups financial risk-taking activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with group policies and group risk appetite. All derivative activities for risk management purposes are carried out by specialist teams that have the appropriate skills, experience and supervision. It is the Groups policy that no trading in derivatives for speculative purposes shall be undertaken. The board of directors reviews and agrees policies for managing each of these risks which are summarised below. Market risk Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise four types of risk: interest rate risk, currency risk, commodity price risk and other price risk, such as equity price risk. Financial instruments affected by market risk include loans and borrowings, deposits, available-for-sale investments and derivative financial instruments. The sensitivity analyses in the following sections relate to the position as at 31 December in 2011 and 2010. The sensitivity analyses have been prepared on the basis that the amount of net debt, the ratio of fixed to floating interest rates of the debt and derivatives and the proportion of financial instruments in foreign currencies are all constant and on the basis of the hedge designations in place at 31 December 2011. The analyses exclude the impact of movements in market variables on the carrying value of pension and other post-retirement obligations, provisions and on the non-financial assets and liabilities of foreign operations. The following assumptions have been made in calculating the sensitivity analyses:
X
AASB 7.33
AASB 7.40
The statement of financial position sensitivity relates to derivatives and available-for-sale debt instruments The sensitivity of the relevant income statement item is the effect of the assumed changes in respective market risks. This is based on the financial assets and financial liabilities held at 31 December 2011 and 2010 including the effect of hedge accounting The sensitivity of equity is calculated by considering the effect of any associated cash flow hedges and hedges of a net investment in a foreign subsidiary at 31 December 2011 for the effects of the assumed changes of the underlying risk
150
(19) 12
The assumed movement in basis points for the interest rate sensitivity analysis is based on the currently observable market environment, showing a significantly higher volatility than in prior years. Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Groups exposure to the risk of changes in foreign exchange rates relates primarily to the Groups operating activities (when revenue or expense is denominated in different currency from the Groups functional currency) and the Groups net investments in foreign subsidiaries. The Group manages its foreign currency risk by hedging transactions that are expected to occur within a maximum 24-month period. Transactions that are certain are hedged without any limitation in time. When the nature of the hedge relationship is not an economic hedge, it is the Groups policy to negotiate the terms of the hedging derivatives to match the terms of the underlying hedge items to maximise hedge effectiveness. The Group hedges its exposure to fluctuations on the translation into euro of its foreign operations by holding net borrowings in foreign currencies and by using foreign currency swaps and forwards.
AASB 7.33 AASB 7.40(b)
151
AASB 7.40(a)
2010
AASB 7.40(a)
2010
The movement on the post-tax effect is a result of a change in the fair value of derivative financial instruments not designated in a hedging relationship and monetary assets and liabilities denominated in US dollars, where the functional currency of the entity is a currency other than US dollars. Although the derivatives have not been designated in a hedge relationship, they act as a commercial hedge and will offset the underlying transactions when they occur. The movement on equity arises from changes in US dollar borrowings (net of cash and cash equivalents) in the hedge of net investments in US operations and cash flow hedges. These movements will offset the translation of the US operations net assets into euro. Commodity price risk The Group is affected by the volatility of certain commodities. Its operating activities require the ongoing purchase and manufacture of electronic parts and therefore require a continuous supply of copper. Due to the significantly increased volatility of the price of the underlying, the Groups Board of Directors has developed and enacted a risk management strategy regarding commodity price risk and its mitigation. Based on a 12-month forecast about the required copper supply, the Group hedges the purchase price using forward commodity purchase contracts. The forecast is deemed to be highly probable. Forward contracts with a physical delivery that qualify for normal purchase, sale or usage and that are therefore not recognised as derivatives are disclosed in Note 15.3. Commodity price sensitivity The following table shows the effect of price changes in copper net of hedge accounting impact (see Note 15.3 for information about hedge accounting).
152
+15% -15%
Equity price risk The Groups listed and unlisted equity securities are susceptible to market price risk arising from uncertainties about future values of the investment securities. The Group manages the equity price risk through diversification and by placing limits on individual and total equity instruments. Reports on the equity portfolio are submitted to the Groups senior management on a regular basis. The Groups Board of Directors reviews and approves all equity investment decisions. At the reporting date, the exposure to unlisted equity securities at fair value was $1,038,000. A change of 10% in the overall earnings stream of the valuations performed could have an impact of approximately $120,000 increasing or decreasing the equity of the Group. If it decreases, depending on whether or not the decrease in the overall earnings is significant or prolonged, the impact could be a loss. At the reporting date, the exposure to listed equity securities at fair value was $337,000. A decrease of 10% on the NYSE market index could have an impact of approximately $55,000 on the income or equity attributable to the Group, depending on whether or not the decline is significant or prolonged. An increase of 10% in the value of the listed securities would only impact equity, but would not have an effect on profit or loss. Credit risk Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily for trade receivables) and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments. Trade receivables Customer credit risk is managed by each business unit subject to the Groups established policy, procedures and control relating to customer credit risk management. Credit quality of the customer is assessed based on an extensive credit rating scorecard and individual credit limits are defined in accordance with this assessment. Outstanding customer receivables are regularly monitored and any shipments to major customers are generally covered by letters of credit or other forms of credit insurance. At 31 December 2011, the Group had 55 customers (2010: 65 customers, 1 January 2010: 60 customers) that owed the Group more than $250,000 each and accounted for approximately 71% (2010: 76%, 1 January 2010: 72%) of all receivables owing. There were 5 customers (2010: 7 customers, 1 January 2010: 3 customers) with balances greater than $1 million accounting for just over 17% (2010: 19%, 1 January 2010: 13%) of the total amounts receivable. The requirement for an impairment is analysed at each reporting date on an individual basis for major clients. Additionally, a large number of minor receivables are grouped into homogenous groups and assessed for impairment collectively. The calculation is based on actually incurred historical data. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in Note 15. The Group does not hold collateral as security. The Group evaluates the concentration of risk with respect to trade receivables as low, as its customers are located in several jurisdictions and industries and operate in largely independent markets.
AASB 7.33(b)
AASB 7.33
153
Financial instruments and cash deposits Credit risk from balances with banks and financial institutions is managed by the Groups treasury department in accordance with the Groups policy. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to each counterparty. Counterparty credit limits are reviewed by the Groups Board of Directors on an annual basis, and may be updated throughout the year subject to approval of the Groups Finance Committee. The limits are set to minimise the concentration of risks and therefore mitigate financial loss through potential counterpartys failure. The Groups maximum exposure to credit risk for the components of the statement of financial position at 31 December 2011 and 2010 is the carrying amounts as illustrated in Note 16 except for financial guarantees and derivative financial instruments. The Groups maximum exposure for financial guarantees and financial derivative instruments are noted in either Note 30 or in the liquidity table below, respectively. Liquidity risk The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. The Groups objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans, debentures, preference shares, finance leases and hire purchase contracts. The Groups policy is that not more than 25% of borrowings should mature in the next 12-month period. 10.6% of the Groups debt will mature in less than one year at 31 December 2011 (2010: 11.1%) based on the carrying value of borrowings reflected in the financial statements. The Group assessed the concentration of risk with respect to refinancing its debt and concluded it to be low. Access to sources of funding is sufficiently available and debt maturing within 12 months can be rolled over with existing lenders. Excessive risk concentration Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographical region, or have economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the groups performance to developments affecting a particular industry. In order to avoid excessive concentrations of risk, the groups policies and procedures include specific guidelines to focus on maintaining a diversified portfolio. Identified concentrations of credit risks are controlled and managed accordingly. Selective hedging is used within the group to manage risk concentrations at both the relationship and industry levels. The table below summarises the maturity profile of the Groups financial liabilities based on contractual undiscounted payments. Less than On demand 3 months $000 $000 966 21 3,620 14,766 87 2,740 1,970 6,643 17,527 3 to 12 months $000 1,578 1,170 391 3,139 1 to 5 years > 5 years $000 $000 10,554 8,000 676 2,324 150 1,191 1,329 12,571 11,653
AASB 7.B8
Year ended 31 December 2011 Interest-bearing loans and borrowings Convertible preference shares Other liabilities Trade and other payables Financial guarantee contracts Financial derivatives
AASB 7.39(a)(b)
154
Year ended 31 December 2010 Interest-bearing loans and borrowings Trade and other payables Other liabilities Convertible preference shares Financial guarantee contracts Financial derivatives
The disclosed financial derivative instruments in the above table are the gross undiscounted cash flows. However, those amounts may be settled gross or net. The following table shows the corresponding reconciliation of those amounts to their carrying amounts. On demand $000 800 (1,970) (1,170) (1,170) On demand $000 500 (549) (49) (49) Less than 3 months $000 1,000 (2,740) (1,740) (1,731) Less than 3 months $000 1,000 (1,254) (254) (254) 3 to 12 months $000 250 (391) (141) (139) 3 to 12 months $000 1 to 5 years $000 700 (1,191) (491) (463) 1 to 5 years $000 over 5 years $000 950 (1,329) (379) (343) over 5 years $000
Year ended 31 December 2011 Inflows Outflows Net Discounted at the applicable interbank rates
AASB 7.39(a)(b)
Year ended 31 December 2010 Inflows Outflows Net Discounted at the applicable interbank rates Capital management
Capital includes convertible preference shares and equity attributable to the equity holders of the parent. The primary objective of the Groups capital management is to ensure that it maintains a strong credit rating and healthy capital ratios to support its business and maximise shareholder value. The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes for managing capital during the years ended 31 December 2011 and 31 December 2010. The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Groups policy is to keep the gearing ratio between 20% and 40%. The Group includes within net debt, interest bearing loans and borrowings, trade and other payables, less cash and cash equivalents, excluding discontinued operations.
155
Interest-bearing loans and borrowings (Note 15.2) Trade and other payables (Note 27) Less: cash and short-term deposits (Note 19) Net debt Convertible preference shares (Note 15.2) Equity Total capital Capital and net debt Gearing ratio
Commentary
AASB 101.134 and AASB 101.135 require entities to make qualitative and quantitative disclosures regarding their objectives, policies and processes for managing capital. The Group has disclosed a gearing ratio as this is the measure it uses to monitor capital. The Group considers both capital and net debt as relevant components of funding, hence, part of its capital management. However, other measures or a different type of gearing ratio may be more suitable for other entities.
Collateral The Group has pledged part of its short-term deposits in order to fulfil the collateral requirements for the hedging derivatives in place. At 31 December 2011 and 2010, the fair values of the short-term deposit pledged were $5 million and $2 million, respectively. The counterparties have an obligation to return the securities to the Group. There are no other significant terms and conditions associated with the use of collateral. The Group did not any hold collateral at 31 December 2011 and 2010.
AASB 7.48 AASB 7.14 AASB 7.38
31.
On 14 January 2012, a building with a net book value of $1,695,000 and inventory with a net book value of $750,000 was severely damaged by flooding resulting in estimated impairment losses of $2,445,000. It is expected that insurance proceeds will fall short of the costs of rebuilding and the loss of inventories by $750,000. The financial effects of these events have not been reflected in the 2011 financial statements. On 22 February 2012, the directors of Endeavour (International) Limited declared a final dividend on ordinary shares in respect of the 2010 financial year. The total amount of the dividend is $1,087,345 which represents a fully franked dividend of 5.01 cents per share. The dividend has not been provided for in the 31 December 2011 financial statements.
156
The auditor of Endeavour (International) Limited is Ernst & Young. Consolidated 2011 2010 $ $ Amounts received or due and receivable by Ernst & Young (Australia) for: X An audit or review of the financial report of the entity and any other entity in the consolidated group
X
1,206,000
1,185,500
Other services in relation to the entity and any other entity in the consolidated group Tax compliance Assurance related Special audits required by regulators 37,000 50,300 38,500 1,331,800 43,500 80,400 23,000 1,332,400
Amounts received or due and receivable by related practices of Ernst & Young (Australia) for: X Due diligence services provided by overseas Ernst & Young firm
55,000 1,386,800
35,000 1,367,400
Amounts received or due and receivable by non Ernst & Young audit firms for: Review of the financial report X
X X
Amounts received or due and receivable by related practices of non Ernst & Young audit firms for: Other non-audit services X
8,827
8,544
157
Issued capital Retained earnings Asset revaluation reserve Net unrealised gains reserve Employee equity benefits reserve Cash flow hedge reserve
Reg 2M.3.01(1)(e) Reg 2M.3.01(1)(e) Reg 2M.3.01(1)(e) Reg 2M.3.01(1)(e) Reg 2M.3.01(1)(e) Reg 2M.3.01(1)(e) Reg 2M.3.01(1)(e) Reg 2M.3.01(1)(f) Reg 2M.3.01(1)(g) Reg 2M.3.01(1)(h)
Profit or loss of the parent entity Total comprehensive income of the parent entity
The parent has issued the following guarantees in relation to the debts of its subsidiaries: X Pursuant to Class Order 98/1418, Endeavour (International) Limited, Light Bulbs Limited, Hose Limited has entered into a Deed of Cross Guarantee on 12 March 2001. The effect of the deed is that Endeavour (International) Limited has guaranteed to pay any deficiency in the event of winding up of any controlled entity or if they do not meet their obligations under the terms of overdrafts, loans, leases or other liabilities subject to the guarantee. The controlled entities have also given a similar guarantee in the event that Endeavour (International) Limited is wound up or if it does not meet its obligations under the terms of overdrafts, loans, leases or other liabilities subject to the guarantee. The parent has a contingent liability whereby an overseas customer has commenced an action against the Group in respect of equipment claimed to be defective. It has been estimated that the liability, should the action be successful, is $850,000. Refer to Note 29 for further details of the liability. The parent entity has contractual obligations to purchase plant and equipment for $975,000 at balance date (2011: $350,000) principally relating to the completion of operating facilities of Sprinklers Inc. Refer to Note 29 for further details of the commitment.
Reg 2M.3.01(1)(i)
Reg 2M.3.01(1)(j)
158
Directors' declaration
In accordance with a resolution of the Directors of Endeavour (International) Limited, I state that: 1. In the opinion of the Directors: (a) The financial statements and notes of Endeavour (International) Limited for the financial year ended 31 December 2011 are in accordance with the Corporations Act 2001, including: (i) Giving a true and fair view of its financial position as at 31 December 2011 and performance Complying with Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001
CA 295(4)
CA 295(5)(a)
CA 295(4)(d)(i)-(ii)
(ii)
(b) The financial statements and notes also comply with International Financial Reporting Standards as disclosed in Note 2(a) (c) There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable
CA 295(4)(ca)
CA 295(4)(c)
2.
This declaration has been made after receiving the declarations required to be made to the Directors in accordance with section 295A of the Corporations Act 2001 for the financial year ended 31 December 2011.
CA 295(4)(e)
CA 295(5)(c)
CA 295(5)(b)
159
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 our judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, we consider internal controls relevant to the entitys preparation and fair presentation of the financial report 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 entitys internal controls. 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 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 met the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditors Independence Declaration, a copy of which is included in the directors report. The Auditors Independence Declaration would have been expressed in the same terms if it had been given to the directors at the date this auditors report was signed. In addition to our audit of the financial report, we were engaged to undertake the services disclosed in the notes to the financial statements. The provision of these services has not impaired our independence.
160
Auditor's opinion
In our opinion: 1. The financial report of Endeavour (International) Limited is in accordance with the Corporations Act 2001, including: (i) Giving a true and fair view of the consolidated entitys financial position at 31 December 2011 and of its performance for the year ended on that date Complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001
(ii)
2.
The financial report also complies with International Financial Reporting Standards as issued by the International Accounting Standards Board
Auditors opinion
In our opinion the remuneration report of Endeavour (International) Limited for the year ended 31 December 2011, complies with section 300A of the Corporations Act 2001.
161
ASX 4.10.6
ASX 4.10.5 ASX 4.10.16 ASX 4.10.6 ASX 4.10.7, ASX 19.12
Fully paid Ordinary shareholders S.J. Limited International Fires Plc Macca Limited JOG Pty Ltd Number 10,740,177 2,332,965 1,044,551 1,044,551 15,162,244 Percentage 52.85 11.48 5.14 5.14 74.61
163
(d) Unquoted equity securities shareholdings greater than 20% Number Convertible non-cumulative redeemable preference shares International Fires Plc 101,000
ASX 4.10.16
164
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Name Extinguishers Limited Bright Sparks Pty Ltd Wireworks Inc. Sprinklers Inc. Light Bulbs Limited Hose Limited * Pipe Limited A L One Pty Ltd A L Two Pty Ltd
Entities subject to class order relief Pursuant to Class Order 98/1418, relief has been granted to Light Bulbs Limited and Hose Limited from the Corporations Act 2001 requirements for the preparation, audit and lodgement of their financial reports. As a condition of the Class Order, Endeavour (International) Limited, Light Bulbs Limited and Hose Limited (the Closed Group), entered into a Deed of Cross Guarantee on 12 March 2001. The effect of the deed is that Endeavour (International) Limited has guaranteed to pay any deficiency in the event of winding up of controlled entity or if they do not meet their obligations under the terms of overdrafts, loans, leases or other liabilities subject to the guarantee. The controlled entities have also given a similar guarantee in the event that Endeavour (International) Limited is wound up or if it does not meet its obligations under the terms of overdrafts, loans, leases or other liabilities subject to the guarantee. The consolidated income statement and balance sheet of the entities that are members of the Closed Group are as follows: Consolidated income statement# Closed group 2011 2010 $000 $000 Profit from continuing operations before income tax Income tax expense Profit after tax from continuing operations Loss after tax from discontinued operation (refer Note 10) Net profit for the period Retained earnings at the beginning of the period Dividends provided for or paid Aggregate amounts transferred to reserves depreciation transfer for buildings Retained earnings at the end of the period 11,090 (3,253) 7,837 (19) 7,818 25,417 (1,972) 31,263 8,316 (2,292) 6,024 (188) 5,836 21,181 (1,600) 25,417
ASIC CO 98/1418
ASIC CO 98/1418
ASIC CO 98/1418
# If the deed of cross guarantee and the subsequent closed group disclosures were contained in the accounts of Endeavour (International) Limited, then an assessment would need to be made as to the fair value of the deed of cross guarantee (as a financial liability to the Parent) and the details of the valuation and significant assumptions, estimates and judgements used within that valuation would need to be disclosed. Please refer to the disclosure surrounding financial guarantees in the financial statements of Endeavour (International) Limited (see Note 33) for an example of the recognition and disclosure requirements for financial guarantees.
165
Endeavour (International) Limited has not adopted the new terminology under AASB 101 for financial statements in the closed group class order disclosures as ASIC CO 98/1418 still refers to an income statement and balance sheet.
166
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xx
1,094
849
AASB 101.54(f)
Notes to the financial statements (extract) For the Year ended 31 December 2011 2
XX
The cost of grapes grown by the Group is the fair value less costs to sell at the time the grapes are harvested which becomes the initial cost. Thereafter this inventory is carried at the lower of cost and net realisable value.
XX
Grape vines are measured at their fair value less costs to sell. The fair value of vineyards, including land, grape vines, and other vineyard infrastructure, is determined by an independent valuer, using the present value of expected net cash flows from the vineyards, discounted using a post-tax market determined rate. The fair value of land and other vineyard infrastructure is deducted from the overall fair value of vineyards, to determine the fair value of grape vines. Changes in fair value less costs to sell of grape vines are recognised in the statement of comprehensive income in the year they arise. Grapes are initially measured at their fair value less costs to sell at the time of harvest. The fair value of grapes is determined by reference to market prices for grapes in the local area, at the time of harvest. The gain on initial recognition of grapes is recognised in the statement of comprehensive income in the year of harvest. At the time of harvest, grapes are recorded as inventory.
XX
AASB 141.47
AASB 141.47
AASB 141.13,28
Change in fair value less costs to sell of grape vines Gain arising on initial recognition of harvested grapes
83 240 323
167
AASB 141.46(b)(i)
AASB 141.46(b)(ii)
The fair value less costs to sell of grape vines is determined by independent valuation at balance date. Significant assumptions applied in this determination of fair value are: 2011 (i) (ii) (iii) (iv) (v) (vi) 2010
AASB 141.47
Average remaining life of grape vines. 20 years 21 years Average annual yield per hectare of mature vineyards. 6 tonnes 6 tonnes Post tax average real rate at which net cash flows are 12.6% 12.4% discounted. Annual rate of inflation. 3% 3% In 2011 and 2010 it was assumed that grape prices will remain at current levels, adjusted for inflation. In 2011 and 2010 it was assumed that vineyard maintenance costs will remain at current levels, adjusted for inflation.
AASB 141.49(a)
Grape vines with a carrying value of $500,000 (2010: $450,000) were pledged as security for noncurrent interest-bearing loans and borrowings, as disclosed in Note 15. At 31 December 2011, the Group had commitments to purchase vineyards for $250,000, including grape vines with a fair value of $178,000 (2010: $Nil). The Group is exposed to financial risks in respect of agricultural activity. The agricultural activity of the Group consists of the management of vineyards to produce grapes for use in the production of wine. The primary financial risk associated with this activity occurs due to the length of time between expending cash on the purchase or planting and maintenance of grape vines and on harvesting grapes and making the wine, and ultimately receiving cash from the sale of wine to third parties. The Group's strategy to manage this financial risk is to actively review and manage its working capital requirements. In addition, the Group maintains credit facilities at a level sufficient to fund the Group's working capital during the period between cash expenditure and cash inflow. At 31 December 2011, the Group had unused credit facilities in the form of undrawn unsecured bank overdrafts of $582,000 (2010: $973,000).
AASB 141.49(b)
AASB 141.49(c)
168
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Contents
Corporate information ................................................................................................................................................... 170 Directors' report ............................................................................................................................................................ 171 Consolidated statement of financial position .................................................................................................................... 173 Consolidated statement of comprehensive income ........................................................................................................... 175 Consolidated statement of changes in equity ................................................................................................................... 177 Consolidated statement of cash flows .............................................................................................................................. 178 Notes to the consolidated financial statements ................................................................................................................ 179 1 Basis of preparation and accounting policies ........................................................................................................ 179 2 Operating segments ........................................................................................................................................... 180 3 Revenue, income and expenses ........................................................................................................................... 184 4 Discontinued operations ..................................................................................................................................... 184 5 Cash and cash equivalents .................................................................................................................................. 185 6 Dividends paid ................................................................................................................................................... 185 7 Commitments and contingencies ......................................................................................................................... 186 8 Business combination ......................................................................................................................................... 187 9 Events after the balance sheet date ..................................................................................................................... 188 Directors' declaration ..................................................................................................................................................... 189 Independent auditor's review report ................................................................................................................................ 190
169
Corporate information
ABN 00 000 000 000 Directors J. Barraclough, Chairman M.P. Boiteau, Chief Executive Officer C.P. Muller A.N. Lockwood M.A. Vlahov C. Smart P.R. Garca Company Secretary G.K. Dellas Registered office Homefire House Ashdown Square Australia Principal place of business Bush Avenue Mulberry Park Australia Phone: 61 3 9876 5432 Share Register Everest Registry Services 23rd Floor 43 Terry Street Australia Phone: 61 3 9876 5431 Endeavour (International) Limited shares are listed on the Australian Stock Exchange (ASX). Solicitors Solicitors & Co 7 George Street Australia Bankers Bank Limited George Street Australia Auditors Ernst & Young Australia
ASX 4.10.12 ASX 4.10.10 CA 153
ASX 4.10.11
ASX 4.10.13
170
Directors' report
Your directors submit their report for the half-year ended 30 June 2012. Directors The names of the company's directors in office during the half-year and until the date of this report are set out below. Directors were in office for this entire period unless otherwise stated. J. Barraclough (Chairman) M.P. Boiteau, B.Sc (Director and Chief Executive Officer) C.P. Muller (Finance Director) F. van den Berg (resigned 15 January 2011) A.N. Lockwood M.A. Vlahov C. Smart P.R. Garcia (alternate director) Review and results of operations The Group experienced a slight decrease in both revenue and profits during the half-year. Sales revenue for the half-year was $107,127 (2011: $119,869) representing a decrease of 10.63%. This was largely a result of the strategic decision to remove discount lines from the electronics segment. Gross profit remained steady for the half-year at $25,219 (2011: $25,215). Consolidated net profit from continuing operations after income tax for the half-year was $5,178 (2011: $7,442), down 30.42% on the previous corresponding half-year. This was largely the result of the increased costs of concentrated marketing efforts in both television and newspaper mediums as well as the additional administrative costs of establishing and providing on-site child care and gymnasium facilities so as to ensure the well-being of our staff. We firmly believe that these additional costs will provide on-going benefits in the form of lower staff turnover and improved productivity. Rounding The amounts contained in this report and in the financial report have been rounded to the nearest $1,000 (unless otherwise stated) under the option available to the Company under ASIC Class Order 98/0100. The Company is an entity to which the Class Order applies.
ASIC 98/0100 CA 306(1)(a) CA 302(a)
CA 306(1)(b)
171
CA 306(3)(a)
CA 306(3)(c)
172
AASB 134.8(a)
AASB134.20(a)
Assets Current assets Inventories Trade and other receivables Prepayments Other current financial assets Cash and short-term deposits Assets classified as held for sale 5
Non-current assets Property, plant and equipment Investment properties Intangible assets Investment in an associate Other non-current financial assets Deferred tax assets Total assets Liabilities and equity Current liabilities Trade and other payables Interest-bearing loans and borrowings Other current financial liabilities Government grants Deferred revenue Income tax payable Provisions Liabilities directly associated with the assets classified as held for sale Non-current liabilities Interest-bearing loans and borrowings Provisions Government grants Other liabilities Deferred tax liabilities Total liabilities
52,679 1,550 755 599 100 245 299 56,227 56,227 15,578 396 1,500 2,568 2,485 22,527 78,754
19,556 2,460 3,040 149 220 3,963 850 30,238 13,125 43,363 20,856 1,950 3,300 3,887 3,060 33,053 76,416
173
AASB 134.8(b)(i)
AASB134.20(a)
Equity Issued capital Share premium Treasury shares Other capital reserves Retained earnings Other components of equity Reserves of a disposal group classified as held for sale Equity attributable to owners of the parent Non-controlling interests Total equity Total equity and liabilities
174
AASB 134.8(b)(i)
AASB 134.20(b)
5,178
(188) 7,254
175
AASB 134.8(b)(i)
AASB 134.20(b)
Total comprehensive income attributable to: Owners of the parent Non-controlling interests
Earnings per share Basic, profit for the year attributable to X ordinary equity holders of the parent
X
AASB 134.11
Diluted, profit for the year attributable to ordinary equity holders of the parent
Earnings per share for continuing operations Basic, profit from continuing operations attributable to ordinary equity holders of the parent Diluted, profit from continuing operations attributable to ordinary equity holders of the parent
26.16
35.29
24.50
31.87
176
126
61
(249)
43
(19)
(19)
5,316
126
61
(249)
43
5,297
(138)
5,159
21,888
4,780
(508)
32 1,203
(1,087) 39,580
(456)
(25)
(744)
555
46
32 (1,087) 66,319
2,272
32 (1,087) 68,591
(16)
(225)
37
(202)
(202)
7,493
(16)
(225)
37
7,291
(239)
7,052
19,388
80
(654)
32 898
(1,082) 35,683
(86)
(669)
37
32 (1,082) 54,679
501
32 (1,082) 55,180
177
AASB 134.8(d)
AASB 134.20(d)
200 4,135 (1,784) (295) 1,166 (24) 3,398 2,399 89 12,286 14,774
178
AASB 134.8(e)
AASB 134.19
Not Mandatory
AASB 134(16)(a)
AASB 134.16(a)
AASB 124 Related Party Transactions (amendment) The AASB issued an amendment to AASB 124 that clarifies the definitions of a related party. The new definitions emphasise a symmetrical view of related party relationships and clarifies the circumstances in which persons and key management personnel affect related party relationships of an entity. In addition, the amendment introduces an exemption from the general related party disclosure requirements for transactions with Government and entities that are controlled, jointly controlled or significantly influenced by the same Government as the reporting entity. The adoption of the amendment did not have any impact on the financial position or performance of the Group. AASB 132 Financial Instruments: Presentation (amendment) The AASB issued an amendment that alters the definition of a financial liability in AASB 132 to enable entities to classify rights issues and certain options or warrants as equity instruments. The amendment is applicable if the rights are given pro rata to all of the existing owners of the same class of an entitys non-derivative equity instruments, to acquire a fixed number of the entitys own equity instruments for a fixed amount in any currency. The amendment has had no effect on the financial position or performance of the Group because the Group does not have these type of instruments. AASB Int 14 Prepayments of a Minimum Funding Requirement (amendment) The amendment removes an unintended consequence when an entity is subject to minimum funding requirements and makes an early payment of contributions to cover such requirements. The amendment permits a prepayment of future service cost by the entity to be recognised as a pension asset. The Group is not subject to minimum funding requirements in Australia, therefore the amendment of the interpretation has no effect on the financial position nor performance of the Group.
The Group has not elected to early adopt any other new standards or amendments that are issued by not yet effective.
179
AASB 134.8(e)
AASB 8.9
AASB 8.11
AASB 8.22(b)
AASB 8.11
AASB 8.11
AASB 8.12
AASB 8.27
180
AASB 134.8(e)
AASB 134.16(g)
AASB 8.27(f)
Dividend revenue Fair value gains/losses on held-for-trading derivatives Fair value gains on hedged loan Net gains on disposal of available-for-sale investments Finance costs including adjustments on provisions due to discounting Impairment of assets impairment of assets are not included in the measurement of segment profit or loss where they are not expected to recur. In the current period, the Group incurred losses due to a fire at a manufacturing facility, which are not included in the measure of segment profit or loss as they are not expected to recur
The following table presents revenue and profit information for reportable segments for the half-years ended 30 June 2012 and 30 June 2011.
Electronics Sales
Electronics Services
$000 Half-year ended 30 June 2012 Revenue Sales to external customers Other revenues from external customers Other revenue Inter-segment sales Total segment revenue Proportionately consolidated revenue Inter-segment elimination Other revenue Total revenue per the statement of comprehensive income
$000
Continuing operations Fire Fire prevention prevention Investment property equipment equipment Services Sales $000 $000 $000
Total $000
20,156 20,156
702 93 795
181
AASB 134.8(e)
AASB 134.16(g)
$000 Result Segment result Reconciliation of segment net profit after tax to net profit/loss before tax Income tax expense at 30% (2011:30%) Corporate charges Dividend revenue Net gain on disposal of property, plant and equipment Fair value gain/(loss) on held for trading derivatives Fair value gains on hedged loan Net gains on disposal of availablefor-sale financial assets Finance costs including adjustments to provisions due to discounting Other Net profit before tax per the statement of comprehensive income 364
$000 525
Total assets have increased by 10.5% since the last annual report. Segment assets for the half-year ended 30 June 2012 are as follows: Segment assets Segment operating assets Intersegment eliminations Proportionately consolidated assets Unallocated assets Available-for-sale financial assets Derivative assets Investment in associate Deferred tax assets Intangibles Pension assets Total assets from continuing operations per the statement of financial position The total assets for the half year ended 30 June 2011 had not materially changed from the 31 December 2010 annual report and therefore comparatives for segment assets have not been provided.
AASB 134.16(g)(iv)
25,798
16,490
44,221
18,600
12,480
117,589
145,800
182
AASB 134.8(e)
AASB 134.16(g)
Total $000
$000 Half-year ended 30 June 2011 Revenue Sales to external customers Other revenues from external customers Other revenues Inter-segment sales Total segment revenue Proportionately consolidated revenue Inter-segment elimination Unallocated revenue Total revenue per the statement of comprehensive income Result Segment results Reconciliation of segment net profit after tax to net profit/loss before tax Income tax expense at 30% Corporate charges Dividend revenue Net gain on disposal of property plant and equipment Fair value gains on hedged loan Net gains on disposal of availablefor-sale financial assets Finance costs including adjustments to provisions due to discounting Other Net profit before tax per the statement of comprehensive income
$000
22,340 22,340
793
691
896
1,737
165
4,282
183
AASB 134.8(e)
(b) Other income Government grants released Net gains on disposal of available-for-sale financial assets Net gains on disposal of property, plant and equipment Net gain on held for trading derivatives Fair value gain on hedged loan Fair value gain on investment property
(c) Other expenses Net loss on held for trading derivatives Direct operating expenses from rental earnings Consulting Research on product development Write down in value of inventories
AASB 134.17(a)
(d) Disclosure of tax effects relating to each component of other comprehensive income 2 Available-for-sale financial assets Gain/(loss) on cash flow hedges Exchange differences on translating foreign operations Gains on property valuations
26 (15) 48 19 78
52 (25) 18 (36) 9
4. Discontinued operations No components of the entity have been disposed of, or classified as, held for sale in the current halfyear reporting period. The discontinued operations below relate to the previous half-year reporting period. On 1 May 2011, the board of directors entered into a sale agreement to dispose of Hose Limited, a company that manufactures rubber hosepipes. The disposal was completed on 28 February 2012, on which date control of the business passed to the acquirer. Hose Limited formed the rubber equipment segment that was part of the Australian operations. These businesses had been operating in an unpredictable product environment making it difficult for management to achieve any real growth and profitability from the segment. The results of the discontinued operations for the period of the half-year until disposal are presented below: Consolidated 2012 Hose Ltd $000 8,082 (8,132) (50) 6 (33) (77) 2 (75)
Revenue Expenses Gross profit/(loss) Gain on disposal Finance costs Loss from discontinued operations before tax Income tax Loss from discontinued operations after tax
184
AASB 134.8(e)
Bank overdrafts
6. Dividends paid Consolidated 2012 2011 $000 $000 (a) Dividends declared and paid during the half-year on ordinary shares: Final franked dividend for the financial year ended 31 December 2011: 5.01 cents, paid 15 February 2012 (2011: 5.66 cents) Dividends proposed and not yet recognised as a liability: Interim franked dividend for the half-year ended 30 June 2012: 5.65 cents, proposed to be paid 15 August 2012 (2011: 5.42 cents)
AASB 134.16(f)
1,087
1,082
Not Mandatory
(b)
890
851
185
AASB 134.8(e)
AASB 134.16(f)
2012 $000
2011 $000
Franking account balance as at the end of the financial year at 30% (2011: 30%) Franking credits that will arise from the payment of income tax payable as at the end of the financial year Franking debits that will arise from the payment of dividends as at the end of the financial year* Franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date Franking credits that the entity may be prevented from distributing in the subsequent financial year
3,267
AASB 101.Aus138.4(a)
3,140
AASB 101.Aus138.4(b)
AASB 101.Aus138.4(c)
(190) 6,217
Impact on the franking account of dividends proposed or declared before the financial report was authorised for issue but not recognised as a distribution to equity holders during the period*
(366) 7,621
(350) 5,867
reporting date. As Endeavour (International) Limited has not recognised the subsequent declaration of the year end dividend as a liability, the related franking debits have not been included.
(d) Tax rates The tax rate at which paid dividends have been franked is 30% (2011: 30%). Dividends proposed will be franked at the rate of 30% (2011: 30%). 7. Commitments and contingencies The only changes to the commitments and contingencies disclosed in the most recent annual financial report are specified below. Capital commitments At 30 June 2012 the Group had commitments of $4,590,000 (2011: $4,500,000) relating principally to the completion of Sprinklers Inc. operating facilities and commitments of $310,000 (2011: $516,000) relating to the Group's interest in the jointly controlled operation, Showers Pty Ltd. These commitments are for the acquisition of new machinery. Legal claim An overseas customer has commenced an action against the Group in respect of equipment claimed to be defective. The liability, should the action be successful, is estimated to be $850,000. A trial date has not yet been set and therefore it is not possible to estimate the timing of any payment. The Group has been advised by its Counsel that it is possible, but not probable, that the action will succeed and accordingly no liability has been recognised in these financial statements.
AASB 134.17(e) AASB 101.Aus138.4(a) AASB 101.Aus138.4(a) AASB 134.16(j)
186
AASB 134.8(e)
AASB 134.16(i)
AASB 3.B64(f)
AASB 3.63
AASB 107.40(c)
Trade payables Other payables Provision for maintenance warranties Provision for unfavourable contracts Provision for restructuring Deferred tax liability
Provisional fair value of identifiable net assets Non-controlling interest in identifiable acquired net assets Goodwill arising on acquisition
AASB 3.B64(o)(i)
Acquisition-date fair-value of consideration transferred: Shares issued, at fair value Cash paid Contingent consideration liability Consideration transferred Direct costs relating to the acquisition The cash outflow on acquisition is as follows: Net cash acquired with the subsidiary Cash paid Net consolidated cash outflow
AASB 3.B64(f)
AASB 3.B64(g)(i)
AASB 3.53
187
AASB 134.8(e)
AASB 3 B64(q)
AASB 3.22
AASB 3.B64(h)
AASB 134.16(h)
Not Mandatory
188
Directors' declaration
In accordance with a resolution of the Directors of Endeavour (International) Limited, I state that: In the opinion of the Directors: (a) The financial statements and notes of Endeavour (International) Limited for the financial year ended 30 June 2011 are in accordance with the Corporations Act 2001, including: (i) (ii) Giving a true and fair view of financial position as at 30 June 2012 and performance Complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001
CA 303(1)(c)
CA 303(5)(a)
CA 303(4)(d)(ii)
CA 303(4)(d)(i)
(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.
CA 303(4)(c)
CA 303(5)(c)
CA 303(5)(b)
189
Auditors 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 Interim and Other Financial Reports 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 entitys financial position as at 30 June 2012 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. As the auditor of Endeavour (International) 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.
190
Independence
In conducting our review, we have complied with the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written auditors independence declaration, a copy of which is included in the directors report.
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 Endeavour (International) Limited is not in accordance with the Corporations Act 2001, including:
(i) Giving a true and fair view of the consolidated entitys financial position as at 30 June 2012 and of its performance for the half-year ended on that date Complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001
(ii)
191
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Appendix D Illustrative disclosure requirements of AASB 12 for interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities
1 The illustrative example below is based on information related to the operations of Endeavour (International) Limited with additional entities added in the structure to illustrate the disclosure requirements of AASB 12. The disclosures illustrated in this appendix are a supplement to the disclosures on subsidiaries, joint arrangements, associates and unconsolidated structured entities in Endeavour.
1.2
Changes in accounting policy and disclosures New and amended standards adopted by the Group The Group has early adopted the following standards, together with the consequential amendments as at 31 December 2011. AASB 10 AASB 10 establishes a new control model that applies to all entities. It replaces parts of AASB 127 Consolidated and Separate Financial Statements dealing with the accounting for consolidated financial statements and UIG-112 Consolidation Special Purpose Entities. The new control model broadens the situations when an entity is considered to be controlled by another entity and includes new guidance for applying the model to specific situations, including when acting as a manager may give control, the impact of potential voting rights and when holding less than a majority voting rights may give control. Consequential amendments were also made to other standards via AASB 2011-7 and amendments to AASB 127. AASB 11 AASB 11 replaces AASB 131 Interests in Joint Ventures and UIG-113 Jointlycontrolled Entities Non-monetary Contributions by Ventures. AASB 11 uses the principle of control in AASB 10 to define joint control, and therefore the determination of whether joint control exists may change. In addition it removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, accounting for a joint arrangement is dependent on the nature of the rights and obligations arising from the arrangement. Joint operations that give the parties a right to the underlying assets and obligations themselves is accounted for by recognising the share of those assets and obligations. Joint ventures that give the parties a right to the net assets is accounted for using the equity method. Consequential amendments were also made to other standards via AASB 2011-7 and amendments to AASB 128. AASB 12 AASB 12 includes all disclosures relating to an entitys interests in subsidiaries, joint arrangements, associates and structures entities. New disclosures have been introduced about the judgements made by management to determine whether control exists, and to require summarised information about certain joint arrangements, associates and structured entities and subsidiaries with noncontrolling interests.
The group has applied the above standards retrospectively.1 The impact of the adoption of these standards are summarised below:
X
AASB 10 Fire equipment test lab continues to meet the definition of control and thus being regarded as a subsidiary. The adoption of AASB 10 did not result in a change in the financial position of the Group. However, additional qualitative and quantitative disclosure has been added with respect to subsidiaries with material non-controlling interest. Refer to Note 3.
193
Appendix D Illustrative disclosure requirements of AASB 12 for interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities (continued)
X
AASB 11 The adoption of AASB 11 has resulted in the Group having to revise its method of accounting for its joint arrangements. Investments in joint controlled entities had been proportionately consolidated. Under AASB 11, these joint arrangements are classified as joint ventures to be equity accounted. The Group has recognised an adjustment as at 1 January 2010 to reflect this change in accounting. The initial investment was measured as the aggregate of the carrying amounts of the assets and liabilities that the Group previously proportionately consolidated. The adoption of AASB 11 resulted in the following adjustment at 1 January 2010:
X X X X X
De-recognition of current assets of $2,454,000 De-recognition of non-current assets of $1,432,000 De-recognition of current liabilities of $112,000 De-recognition of non-current liabilities of $510,000 Recognition of equity accounted investment of $3,264,000
Overall, the net assets of the Group remains unchanged upon transition.
X
The adoption of AASB 12 has resulted in the Group disclosing the summarised financial information of investment in associates. Prior to adoption of AASB 12, Endeavour disclosed the Groups share of summarised financial information of investment in associate.
1.3
Summary of significant accounting policies (a) Consolidation [Extract] Subsidiaries are all those entities over which the Group has power over the investee such that the Group is able to direct the relevant activities, has exposure or rights to variable returns from its involvement with the investee and has the ability to use its power over the investee to affect the amount of the investors returns. (b) Joint arrangements [Extract] Joint arrangements are classified as either a joint operation or joint venture, based on the rights and obligations arising from the contractual obligations between the parties to the arrangement. To the extent the joint arrangement provides the Group with rights to the net assets of the arrangement, the investment is accounting for using the equity method. To the extent the joint arrangement provides the Group with rights to the individual assets and obligations arising from the joint arrangements the Group recognises their share of the assets, liabilities, revenues and expenses of the operation.
AASB 10.7
Accounting estimates and judgements In the process of applying the Groups accounting policies, management has made significant judgements in relation to the following subsidiaries controlled by the Group: Firex Limited The Group is the single largest shareholder with a 49% equity interest. The remaining shareholders are widely dispersed with no one owning more than 5% equity interest. Based on these facts and circumstances, management determined that in substance the Group controls Firex Limited.
AASB 12.7
194
Appendix D Illustrative disclosure requirements of AASB 12 for interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities (continued)
3 3.1 Interests in subsidiaries Interest in subsidiaries with material non- controlling interest (NCI) The group has the following subsidiaries with material non-controlling interest:2 FY 2011 Principal place of business Argentina Australia Profit/(loss) % held by non- allocated to controlling NCI interest $0003 51% 200 80% 100 Accumulated Dividends paid NCI to NCI $000 $000 1,200 100 1,500 80
AASB 12.10 AASB 12.12
AASB12.B10
Name of Entity Firex Limited Fire Equipment Test Lab Ltd FY 2010
Profit/(loss) % held by non- allocated to controlling NCI interest $000 51% 150
The country of incorporation is the same as the principal place of business, unless stated otherwise. 3.2 Significant restrictions The nature and extent of significant restrictions on the Groups ability to use or access assets and settle liabilities of subsidiaries with material non-controlling interests are: Cash and cash equivalents of $1,800,000 held in Argentina are subject to local exchange control regulations. These regulations places restriction on the amount of currency being exported, other than through dividends. 3.3 Summarised financial information about subsidiary with material NCI Summarised financial information including goodwill on acquisition and consolidation adjustments but before intercompany eliminations of subsidiaries with material non-controlling interests is as follows: Summarised statement of financial position Firex Limited As at 31 Dec As at 31 Dec 2011 2010 $000 $000 Current Assets Liabilities Net current assets Non current Assets Liabilities Net non current assets Net assets 12,899 (2,800) 10,099 3,500 (1,066) 2,434 12,533 10,075 (2,345) 7,730 4,687 (1,762) 2,925 10,655 Fire Equipment Test Lab As at 31 Dec As at 31 Dec 2011 2010 $000 $000 8,666 (1,564) 7,102 6,500* (1092) 5,408 12,510 9,893 (2,343) 7,550 4,000 (1,500) 2,500 10,050
AASB 12.B10 AASB 12.10 AASB 12.13
* Included in total assets is PPE of $4.5m majority of this relates to the construction of the facility which will generate future cash flows for the entity. The construction is expected to be completed in 2013 at a total cost of approximately $4.7m.
195
Appendix D Illustrative disclosure requirements of AASB 12 for interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities (continued)
Summarised statement of comprehensive income Firex Limited As at 31 Dec As at 31 Dec 2011 2010 $000 $000 Revenue 20,555 19,882 Profit before income tax 5,493 6,332 Income tax expense (1,400) (1,521) Profit after tax continuing operations 4,093 4,811 Profit after tax discontinued operations 232 454 Other comprehensive income 5,043 4,547 Total comprehensive income Other summarised information Firex Limited As at 31 Dec 2011 $000 4,952 1,500 Fire Equipment Test Lab As at 31 Dec 2011 $000 3,980 4,500
AASB 12.18
Fire Equipment Test Lab As at 31 Dec As at 31 Dec 2011 2010 $000 $000 10,663 14,980 4,523 4,675 (1,560) (1,304) 2,963 3,371 596 3,559 453 3,824
Net cash flows from operations Acquisition of significant Property, plant and equipment 3.4 3.4.1
Changes in group ownership interests in a subsidiary without loss of control Disposal of ownership interest in subsidiary, without loss of control On 13 June 2011, the Group disposed of a 15% equity interest of Extinguishers Limited. Following the disposal, the Group still controls Extinguishers Limited retaining an 80% of the ownership interests. The transaction has been accounted for as an equity transaction with non-controlling interests, resulting in: 2011 $000 550 500 50 (250) (100) 400 50
Proceeds from sale of 15% ownership interest Net assets attributable to NCI Increase in equity attributable to parent Represented by: Decrease in foreign currency translation reserve Decrease in asset revaluation reserve Other reserves Increase in equity attributable to parent entity 3.4.2
Acquisition of ownership interest in subsidiary On 1 October 2011, the Group acquired an additional 7.4% interest in the voting shares of Lightbulbs Limited, increasing its ownership interest to 87.4%. 2011 $000 Purchase consideration for the acquisition of 7.4% ownership interest 325 135 Carrying value of additional interest acquired Increase in equity attributable to parent 190 Represented by: Decrease in asset revaluation reserve 150 40 Other reserves 190 Increase in equity attributable to parent entity
AASB 12.18
196
Appendix D Illustrative disclosure requirements of AASB 12 for interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities (continued)
4 Interests in joint arrangements4 Investment in joint ventures Dec 2011 $000 2,423 3,705 219 6,347 Dec 2010 $000 1,835 3,670 210 5,715
AASB 12.20
Movement in investment in joint ventures during the year Balance at beginning of the year Share of total comprehensive income Dividends received Exchange and other adjustments Balance at end of the year Profit or loss after tax from continuing operations Showers Limited G Inc Other joint ventures
588 34 7 629
557 28 11 596
2 2 4
(1) 2 1
588 36 9 633
557 27 13 597
AASB 12.22(b)
All operations are continuing. The financial statements of all joint ventures have the same reporting date as the Group. Showers Limited The Group has a 50% interest in the ownership and voting rights of Showers Limited which is held by a subsidiary, K Limited. Showers Limiteds principal place of operations and country of incorporation is Australia. The Group is one of two partners in a strategic venture to build fire prevention equipment. The Group jointly controls the venture with the other partner under the contractual agreement and requires unanimous consent for all major decisions over the relevant activities.5 Showers Limited is restricted by regulatory requirements from paying dividends greater than 50% of the annual profit. Dividends of $30,000 (2010: $40,000) were received from Showers Limited G Inc The Group has a 35% interest in the ownership and voting rights of G Inc which is held directly by the parent. G Incs principal place of operations is the USA but it is incorporated in UK. The Group is one of four partners in a venture which undertakes the production of the fire prevention equipment in State of New Jersey which is strategic to the Groups business given the similarity in business lines. Dividends of $15,000 (2010: $15,000) were received from G Inc.
AASB 12.21
AASB 12.22(a)
AASB 12.22(a)
197
Appendix D Illustrative disclosure requirements of AASB 12 for interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities (continued)
Summarised financial information Summarised financial information in respect of Showers Limited and G Inc is as follows: Summarised statement of financial position
AASB 12.21(b)
Cash and cash equivalents Other current assets Total current assets Non-current assets excluding goodwill Total assets Current financial liabilities (excluding trade, other payables and provisions) Other current liabilities Total current liabilities Non-current financial liabilities (excluding trade, other payables and provisions) Other non-current liabilities Total non-current liabilities Total liabilities
Net assets excluding goodwill Summarised statement of comprehensive income Revenue Depreciation and amortisation Interest income Interest expense Profit before tax Income tax expense Profit after tax Other comprehensive income Total comprehensive income
3,846
3,310
2,670
3,212
198
Appendix D Illustrative disclosure requirements of AASB 12 for interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities (continued)
The summarised financial information presented is the amounts included in the financial statements of the joint ventures adjusted for fair value adjustments made at the time of acquisition and for difference in accounting policies. The fair value adjustments in both Showers Limited and G Inc principally relate to intangible assets which are being amortised over eight years. All operations are continuing. A reconciliation of the summarised financial information to the carrying amounts of Showers Limited and G Inc is as follows: Showers Limited 2011 $000 Group share of 50% of net assets excluding goodwill of $3,846,000 (2010: $2,670,000) Goodwill on acquisition less cumulative impairment 1,923 500 2,423 2010 $000 1,335 500 1,835
G Inc Group share of 35% of net assets excluding goodwill of $3,310,000 (2010: $3,212,000) Goodwill on acquisition less cumulative impairment Interest in a joint operation (a)
A subsidiary has entered into a joint arrangement for a 50% interest in a jointly controlled asset that produces electronic components used in the manufacturing process. The Group is entitled to up to 40% of its output and a further 10% of revenue which is sold to third parties. The Groups interests in the assets are included in the consolidated statement of financial position as plant and equipment.
(b) Commitments relating to the jointly controlled asset 2011 $000 810 (c) Contingent liabilities relating to the jointly controlled asset
AASB 131.54(c)
100
Investment in associates Material investments in associates are summarised below: 2011 $000 764 2,600 175 3,539 2010 $000 681 2,570 123 3,374
AASB 12.20
199
Appendix D Illustrative disclosure requirements of AASB 12 for interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities (continued)
Movement in investment in associates during the year Balance at beginning of the year Share of total comprehensive income Dividends received Exchange and other adjustments Balance at end of the year Analysis of total comprehensive income Profit after tax from continuing operations Power Works Limited E Inc Other associates Other comprehensive income Power Works Limited E Inc Other associates Total comprehensive income Power Works Limited E Inc Other associates 2011 $000 3,436 140 (41) 4 3,539 2010 $000 3,264 127 (32) 15 3,374
AASB 12.21(c) AASB 12.B16
83 45 8 136 3 1 4 83 48 9 140
The financial statements of all associates have the same reporting date as the group. Power Works Limited The Group has a 25% interest in the ownership and voting rights of Power Works Limited which is held by a subsidiary, H Limited. Power Works Limiteds principal place of operations and country of incorporation is Australia. The principal activity is the manufacture of fire prevention equipment for power stations. E Inc The Group has a 30% ownership interest in E Inc with an interest in 25% of the voting rights. E Inc is directly held by the parent. E Incs principal place of operations is the USA but is incorporated in UK. The principal activity of E Inc is to fire safety equipment which are leased on a long-term basis to tenants, which is strategic to the Groups business given the similarity in business lines. The fair value of the Groups investment in E Inc is $2,800,000 (2010: $2,558,000), which is the quoted market price. Dividends of $10,000 (2010: $10,000) were received from E Inc.
AASB 12.22(a)
200
Appendix D Illustrative disclosure requirements of AASB 12 for interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities (continued)
Summarised financial information of Power Works Limited and E Inc Summarised statement of financial position 2011 Power Works Limited $000 6,524 12,864 19,388 4,488 12,644 17.132 2,256 2010 Power Works Limited $000 6,324 12,028 18,352 3,904 12,524 16,428 1,924 2010
AASB 12.21(b)
Net assets excluding goodwill Summarised statement of comprehensive income Revenue Profit after tax from continuing operations Other comprehensive income Total comprehensive income
The summarised financial information presented is the amounts included in the IFRS financial statements of the associates adjusted for fair value adjustments made at the time of acquisition and for differences in accounting policies. The fair value adjustments in both Power Works Limited and E Inc principally relate to intangible assets which are being amortised over ten years and the revaluation of property, plant and equipment to fair value. All operations are continuing. A reconciliation of the summarised financial information to the carrying amounts of Power Works Limited and E Inc is as follows: 2011 $000 564 200 764 2010 $000 481 200 681
Power Works Limited Group share of 25% of net assets excluding goodwill of $2,256,000 (2010: $1,924,000) Goodwill on acquisition less cumulative impairment E Inc Group share of 30% of net assets excluding goodwill of $2,450,000 (2010: $2,351,000) Goodwill on acquisition less cumulative impairment
201
Appendix D Illustrative disclosure requirements of AASB 12 for interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities (continued)
5 5.1 Interests in unconsolidated structured entities Disclosure of the nature of interests in unconsolidated structured entities The Group has sponsored a number of unconsolidated structured entities to dispose of its interests in collateralised mortgage obligations, collateralised mortgage back securities and credit card receivables. In respect of these entities in which the group no longer has an interest at the reporting date details of income received and the carrying amounts of financial assets transferred to these entities are as follows:
AASB 12.27
Income from unconsolidated structured entities in which no interest is held at 31 December 2011 31 Dec 2011 31 Dec 2010 $000 $000 Fee income 1,000 2,000 Gains on re-measurement of assets transferred to structured 400 1,500 entities 2,400 2,500 Split by: Collateralised debt obligation Commercial mortgage backed securities Credit card receivables
AASB 12.28
Carrying amounts of assets transferred to unconsolidated structured entities in the reporting period as at date of transfer Transferred Transferred in 2011 in 2010 $000 $000 Collateralised debt obligation 15,000 Commercial mortgage backed securities 4,000 3,000 10,000 Credit card receivables 13,000 19,000 5.2 Disclosure of the nature of risks of unconsolidated structured entities The Group has a number of interests in unconsolidated structured entities. These are summarised as follows: Maximum Maximum Carrying loss Carrying loss Summarised financial amount exposure amount exposure information Note 2011 2011 2010 2010 $000 $ $000 $ Senior loan notes (a) 3,300 3,200 3,200 3,300 Junior loan notes (b) 6,000 6,000 6,100 6,100 Interest rate swap (c) (asset) ** 200 ** 500 Credit default swap (d) (liability) 2,000 157,000 1,800 141,000 1,000 1,500 1,500 1,000 Lease receivables (e)
** Maximum loss exposure not disclosed as it is deemed to be potentially unlimited and not quantifiable.
AASB 12.29
The senior loan notes are included in the statement of financial position in the line item assets available-for-sale (AFS). The maximum loss exposure represents the fair value at the reporting date.
202
Appendix D Illustrative disclosure requirements of AASB 12 for interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities (continued)
The junior loan notes are included in the statement of financial position in the line item loans and receivables. The maximum loss exposure represents the amortised cost at the reporting date. The lease receivables are included in the statement of financial position in the line item other receivables. The maximum loss exposure represents the carrying amount of the receivable. The interest rate swap is included in the statement of financial position in the line item derivative assets and is measured at fair value through profit or loss. The 10 year swap pays a floating rate of interest which is uncapped and therefore the maximum loss exposure is potentially unlimited and not quantifiable. If LIBOR was to increase by 1,000 basis points for the entire life of the swap, an event which the directors consider is extremely remote, it would cause a loss of $5,000. The credit default swap is included in the statement of financial position in the line item derivative liabilities and is measured at fair value through profit and loss. The maximum loss exposure assumes the 100% default of all principal and interest payments on the loan portfolio of the structured entity to which the credit default swap has been issued. The probability of this occurring is extremely remote. The lease receivables are included in the statement of financial position in the line item other receivables. The maximum loss exposure represents the carrying amount of the receivable. 5.3 Provision of financial support no contractual obligation During the reporting period the parent provided financial support in the form of assets with a fair value of $12,000,000 (2010: $nil) and credit rating of AAA to Exting Limited, in exchange for assets with an equivalent fair value. There was no contractual obligation to exchange these assets. The transaction was initiated because the assets held by Exting Limited has a credit rating of less than AA and a further ratings downgrade could potentially trigger calls on loan note issued by Exting Limited. The parent did not suffer a loss on the transaction. Provision of financial support contractual obligation The parent company has given a contractual commitment to SPE Limited, whereby if the assets held as collateral by SPE Limited for its issued loan notes fall below a credit rating of AAA then the parent will substitute assets of an equivalent fair value with an AAA rating. The maximum fair value of assets to be substituted is $10,000. The parent is not expecting to suffer a loss on any transaction arising from this commitment but will receive assets with a lower credit rating from those substituted.
AASB 12.30
5.4
AASB 12.31
Commentary
Retrospective application 1. AASB 108.22 requires an entity to present a third balance sheet for the earliest prior period presented. For the purposes of this example, the third balance sheet as at 1 January 2010 has not been presented. Subsidiaries with material NCI 2. The subsidiaries listed in the example has been considered as having material NCI, based on the accumulated NCI, from the subsidiaries disclosed under Note 28 in Endeavour. For the purposes of this illustration, Firex Limited has been added as a subsidiary to reflect the Group having control of an entity by virtue of being the single largest shareholder. Disclosure of interests of non controlling interests AASB 12.B10 3. The disclosure of summarised income statement, statement of financial position and net cash flows, the acquisition of significant property, plant and equipment has been considered to be useful as for the purposes of decision making. The construction of the facility, which is disclosed as acquisition of PPE will generate future cash flows for the entity.
203
Appendix D Illustrative disclosure requirements of AASB 12 for interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities (continued)
Commentary
Interest in joint arrangements 4. For illustrative purposes, G Inc and other joint ventures have been added in the structure to reflect the disclosure requirement. The other joint ventures comprises of several investment in entities which is not material to the Group. 5. The classification of a joint arrangement as either a joint venture or joint operation is dependent on the legal form of the arrangement, contractual terms and conditions and other facts and circumstances. Investment in Showers Limited, G Inc has been assessed as joint ventures based on the terms and conditions of the contractual arrangement mentioned.
204
9hh]f\ap =
99K: )* \ak[dgkmj]k
Other
9 9
9 9
9 9 9
Investment and Financial Services Association (IFSA) Standards may be applicable
9 9
If a reporting entity
9 9
If not a reporting entity
9
If a reporting entity
9
If not a reporting entity
9
IFSA Standards may be applicable
9
If a reporting entity
9
If not a reporting entity
Small proprietary company (unless CA 292(2)(b), 293(1), 294(1) apply) Small proprietary company to which CA 292(2)(b) applies (controlled by a foreign company for all or part of the year and not consolidated in financial statements lodged with ASIC) Small proprietary (5% shareholder request under CA 293(1))
9
If a reporting entity
9
If not a reporting entity
9
To the extent requested by shareholders
If shareholders If shareholders request a general request a special purpose report purpose report
9
If ASIC directs
If ASIC requests a If ASIC requests a general purpose special purpose report report
* #
For unlisted disclosing entities, be aware of continuous reporting requirements under the Corporations Act 2001. Please note that Part 2M.3 only applies to disclosing entities incorporated or formed in Australia (footnote to CA 292(1)). The Corporations Legislation Amendment (Simpler Regulatory System) Act 2007 has amended the criteria for a large proprietary company in the Corporations Act 2001. A proprietary company is large for a financial year if it satisfies at least two of the following: The consolidated revenue for the financial year of the company and the entities it controls is $25 million or more. The value of the consolidated gross assets at the end of the financial year of the company and the entities it controls is $12.5 million or more. The company and the entities it controls have 50 or more employees at the end of the financial year.
205
Lodge reports with ASX ASX 4.2A, 4.2B, 4.2C, 4.3A, 4.3B, 4.3C, 4.5
Lodge Annual report when it is lodged with ASIC. In any event within 3 months after the end of the financial year
Listed company
Lodge Appendix 4E immediately it becomes available and no later than when the annual report is lodged with ASIC. In any event within 2 months after the end of the financial year 31 Dec 11: 28 Feb 12 30 Jun 12: 31 Aug 12
Lodge Half-year report and Appendix 4D immediately they become available and no later than when the half-year report is lodged with ASIC. In any event within 2 months after the end of the halfyear 31 Dec 11: 28 Feb 12 30 Jun 12: 31 Aug 12 Listed registered scheme Within 3 months after the end of the financial year 31 Dec 12: 31 Mar 12 30 Jun 12: 30 Sep 12 Earlier of 21 days before the AGM, or 4 months after the end of the financial year If AGM is held 31 May 12 31 Dec 11: 30 Apr 12 If AGM is held 30 Nov 12 30 Jun 11: 31 Oct 11 Unlisted registered scheme Within 3 months after the end of the financial year 31 Dec 10: 31 Mar 11 30 Jun 11: 30 Sep 11 Same requirements as listed company Same requirements as listed company
At least 21 days before the AGM 31 Dec 11: 10 May 12 30 Jun 12: 9 Nov 12
Within 5 months after the end of the financial year 31 Dec 11: 31 May 12 30 Jun 12: 30 Nov 12
Annual report within 3 months after the end of the financial year 31 Dec 11: 31 Mar 12 30 Jun 12: 30 Sep 12 Half-year report within 75 days after the end of the half-year 31 Dec 11: 15 Mar 12 30 Jun 12: 13 Sep 12
Annual report within 3 months after the end of the financial year 31 Dec 11: 31 Mar 12 30 Jun 12: 30 Sep 12 Half-year report within 75 days after the end of the half-year 31 Dec 11: 15 Mar 12 30 Jun 12: 13 Sep 12
If a company has a constitution, it may specify a longer minimum period of notice. An unlisted company may also call an AGM upon shorter notice, provided all members entitled to attend agree in advance, and no resolution will be moved to remove a director under CA CA 203D, appoint a director as a replacement of another under that same section, or remove an auditor under CA CA 329. For a listed company 28 28 days notice is required for all members meetings unless a longer period is specified in the companys constitution. A public company that has only one member is not required to hold an AGM (CA CA 250N(4)).
206
Large proprietary company or small proprietary company foreign controlled under CA 292(2)(b) Small proprietary company - ASIC request under CA 294(1) Small proprietary company - 5% shareholders' request under CA 293(1)
Within 4 months after the end of the financial year 31 Dec 11: 30 Apr 12 30 Jun 12: 31 Oct 12
If shareholder direction is given after the end of the financial year the company must report to the members by the later of 2 months after the date of the direction and 4 months after the end of the financial year If 4 months after the end of the financial year 31 Dec 11: 30 Apr 12 30 Jun 12: 31 Oct 12
Unlisted public company (Small companies limited by guarantee have no obligation to prepare an annual report, unless 5% members request under CA 294A)
At least 21 days before the AGM 31 Dec 11: 10 May 12 30 Jun 12: 9 Nov 12
Within 5 months after the end of the financial year 31 Dec 11: 31 May 12 30 Jun 12: 30 Nov 12
Earlier of 21 days before the AGM, or 4 months after the end of the financial year If AGM is held 31 May 12 31 Dec 11: 30 Apr 12 If AGM is held 30 Nov 12 30 Jun 12: 31 Oct 12
Within 4 months after the end of the financial year 31 Dec 11: 30 Apr 12 30 Jun 12: 31 Oct 12
207
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M1123674