For personal use only use personal For
2013 Annual Report Cover image Lower Hatea River Crossing Project, New Zealand Project delivered by Transfield Services McConnell Dowell Joint Venture Architect — Knight Architects Bridge constructed by McConnell Dowell Constructors Limited Photograph by Patrick Reynolds
All financials are in Australian dollars unless otherwise stated. The financial figures provided in the front section of the report (pages 6 to 47) have been rounded. In some cases, totals and percentages have been calculated from financial figures that have not been rounded; hence, some financials and percentages may not add up exactly. Notice of Annual General Meeting Shareholders are advised that the 2013 Annual General Meeting of Transfield Services will be held on Friday, 25 October 2013 at 10.00am (AEDT), at the AGL Theatre, Museum of Sydney, 37 Philip Street
For personal use only use personal For (Corner Bridge Street), Sydney, New South Wales. Transfield Services Limited ABN 69 000 484 417
2 TRANSFIELD SERVICES 2013 “In just nine months, we have made major changes to the way Transfield Services is both structured and operated. Those changes have touched almost every aspect of our organisation.”
Graeme Hunt Managing Director and Chief Executive Officer CONTENTS
Business snapshot 4 Performance overview 6 Chairman’s report 8 MD and CEO’s report 12 Board of Directors 14 Senior executive team 16 Review of operations 19 Infrastructure, 20 Australia and New Zealand Resources and Energy, 22 Australia and New Zealand Americas 24 Middle East and Asia 25 Sustainable business 27 Corporate governance report 39 Financial report 47
(Remuneration report pages 61 to 94) For personal use only use personal For Corporate directory 180
2013 TRANSFIELD SERVICES 3 BUSINESS SNAPSHOT
Infrastructure
Transmission Water Public Rail Telecommunications Roads Maritime and Transport Distribution
Property and Asset Services
Commercial Defence Health Education Housing
Resources and Energy For personal use only use personal For
Hydrocarbons Renewable Mining Chemical Manufacturing Power Energy Processing Generation
4 TRANSFIELD SERVICES 2013 ransfield Services is a global provider of Toperations, maintenance and construction services to the infrastructure, and resources and energy industries.
CONSULTING Asset planning, feasibility and development
UPGRADES ENGINEERING Brownfield Design and upgrades and project modifications management ASSET MANAGEMENT
MAINTENANCE Maintenance strategy, CONSTRUCTION management Greenfield and
For personal use only use personal For and execution brownfield construction OPERATIONS Operational strategy, management and execution
2013 TRANSFIELD SERVICES 5 PERFORMANCE OVERVIEW
PROGRESS AGAINST STRATEGIC PLAN Global portfolio review completed, divestments underway, impairments booked New commercial governance process in place Procurement and asset management functions centralised Easternwell integrated with Resources and Energy business CAPEX reduced by 25 per cent A$29 million per annum in cost savings Reduction of 359 roles, offices closed
RECORD SAFETY PERFORMANCE
Lost Time Injury Frequency rate of injuries per million hours worked Total hours in millions 90 Frequency Rate (LTIFR) 45 down 31 per cent 40 TRIFR 80 LTIFR 35 70 Total exposure hours Total Recordable Injury 30 60
Frequency Rate (TRIFR) 25 50
down 25 per cent 20 40
15 30 Both statistics are the lowest ever recorded by 10 20 the Company 5 10 0 0 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Year
CONTRACT WINS July 2012 October 2012 November 2012 December 2012 February 2013 March 2013 May 2013 June 2013
US$100m 34-year $80m coal $200m CSG operations $45m oil and gas contract with the seam gas and maintenance services maintenance services California Department of (CSG) to contract with QGC contract with Woodside Transportation liquefied Asset integrity and $20m CSG wellhead NZ$67m in contracts natural maintenance LNG contract gas (LNG) installation contract with Northland District with INPEX (Transfield with QGC Council in New Zealand construction Worley JV) contract with $20m cleaning services $65m one-year design $50m three-year facilities QGC (joint contract* and construct contract venture (JV) management contract with with Rio Tinto with Clough) Boral $30m five-year maintenance and capital $35m one-year design US$32m one-year refinery and construct contract maintenance contract in works contract with with Fortescue Metals the US* Gippsland Water Group For personal use only use personal For $12m three-year mine $25m two-year design maintenance services and construct contract contract in Chile (InserTS)* with Mackay Regional Council Three-year facilities management contract with Tornado Tower in Qatar *Client name and/or contract value not disclosed. (Transfield Mannai Facilities All values referenced in the above diagram are Management Services JV) Australian dollars unless otherwise stated.
6 TRANSFIELD SERVICES 2013 PERFORMANCE OVERVIEW
FINANCIAL PERFORMANCE Revenue up 9.8 per cent to A$3,451.5 million Operating cash flow up 72 per cent to A$210.5 million Cash conversion rate up to 121 per cent from 76 per cent in prior year Reported net profit after tax (NPAT) post impairments A$(250.0) million NPAT pre-amortisation and impairments A$62.5 million, in line with revised guidance No final dividend due to focus on strengthening balance sheet Net debt to EBITDA* decreased from 2.8 times at 31 December 2012 to 2.3 times at 30 June 2013
A$ million EBITDA* SEGMENT PERFORMANCE 270
7.7 (29.8) 250 28.9
230 (8.3) 218.8 (5.2) 0.3 (5.1) 210 207.3
Strong performance from core Australia and 190 New Zealand (ANZ) operations and Easternwell Energy
Group ANZ Easternwell Easternwell Americas MEA Corporate RACL Group FY13 170 FY12 Energy Minerals * Earnings before interest tax, depreciation and amortisation
July 2012 October 2012 November 2012 December 2012 February 2013 March 2013 May 2013 June 2013
$175m facilities $90m one-year $240m six-year Land $300m two- management maintenance services Materiel Maintenance year design and operational contract with Australia’s Services contract with and construct services Land and Housing Australia’s Department of contract with contract with Corporation Defence NBN Co the Australian $30m two-year heavy Department of $39m three-year service $66m two-year upgrade contract workover services contract construction Immigration and with Santos (Easternwell) Citizenship in on Goulburn-Murray contract with Nauru Water’s irrigation project Seven-year operations and NBN Co (TransCom Connect JV) maintenance power contract with BHP Billiton (Transfield $30m one-year Garrison Worley Power Services JV)* Support Services contract with Australia’s Three-year maintenance
Department of Defence contract with SP AusNet* For personal use only use personal For $190m 10-year NZ$76m 18-month project maintenance services management, engineering, contract with Mornington procurement and construction contract with Peninsula Shire Todd Energy in New Zealand $170m design and (Transfield Worley JV) construct contract with NBN Co
2013 TRANSFIELD SERVICES 7 CHAIRMAN’S REPORT
We have exceeded our targets in some areas, with strong cash conversion at 121 per cent, up 45 percentage point year on year, and gearing has been reduced.
In this year’s annual report, Given market conditions, a The Company’s Resources market volatility and softness strengthened balance sheet and Energy business has in many local sectors and is a top priority for your seen growth in its key global markets, which your Board. Therefore, we have market of oil and gas, with Company services, continue elected not to pay a final significant work flowing to be significant themes and dividend for 2013. from Easternwell’s CSG may be for some time. clients in Australia, and the An unfranked interim promise of further shale gas Despite these conditions, dividend of three cents per work and a bright future Transfield Services has met its share was paid on 1 May 2013. for investment in new CSG revised guidance, delivering energy production rigs. One NPAT pre-amortisation and The Company’s client alone has 6,000 wells imparments of A$62.5 million Resources and still to be drilled to meet its for the 2013 financial year. We Energy business has export commitments. have exceeded our targets in seen growth in its key some areas, with strong cash There has been good conversion at 121 per cent, up market of oil and gas. growth in the Company’s 45 percentage points year on Infrastructure business We have reduced capital year, and gearing has been across several sectors. expenditure and put in place reduced, with net debt A$75 Telecommunications has a salary freeze. million lower than it was at 31 contributed with contracts December 2012. We have successfully won on Australia’s National refinanced a A$259 million Broadband Network, and Net debt to EBITDA was tranche of debt with New Zealand’s Ultra-Fast 2.3 times at 30 June 2013, A$143 million extended for Broadband rollout. We significantly lower than at two years and voluntarily announced a Roads Plus the same time last year. cancelled US$100 million strategic joint venture
For personal use only use personal For This result was achieved as it was excess to our with British engineering after absorbing restructuring requirements. multinational Balfour Beatty costs of A$23.1 million, which to bid on upcoming road will underpin the future maintenance opportunities profitability, competitiveness on Australia’s eastern and growth of the Company. seaboard.
8 TRANSFIELD SERVICES 2013 CHAIRMAN’S REPORT
Our Property and Asset As announced during the These write-downs are Services business rapidly year, the Middle East and non-cash, do not affect mobilised a highly complex Asia businesses are being our banking agreements logistics operation at short sold with interested parties and have no impact on notice to establish and run actively engaged. While operations. the Regional Processing good businesses, they are The appointment of our new Centre on the Pacific Island not aligned with our future Managing Director and Chief of Nauru for the Australian strategy and as such are Executive Officer, Graeme Department of Immigration being divested. Hunt, has put the right man and Citizenship. This work in charge at the right time. complements our long- Graeme Hunt has term facilities management brought us a clear Graeme has brought us contracts with defence, focus on business a clear focus on business government schools and fundamentals: fundamentals: rigorous housing across Australia. attention on getting rigorous attention costs out and increasing In a slowly recovering US our efficiency. He has economy, the Company saw on getting costs out implemented a complete a decline in US business and increasing our overhaul and enhancement earnings after absorption of efficiency. of our risk management restructuring costs. and tender assessment During the year, the Board Under new Americas’ processes. He has refined approved A$296 million of President Philip Wratt, a the Company’s high level impairment charges post tax substantial reorganisation strategy to concentrate on and non-controlling interests has been completed, those client market areas relating to our Easternwell significant costs removed where there is sustainable, minerals exploration and and a remediation plan for non-discretionary spending,
For personal use only use personal For marine geotechnical the Company’s downstream growth and higher margins. businesses, the US refinery maintenance downstream maintenance business is well underway. business and our Chilean Our Flint Transfield Services business. (FT Services) joint venture in Canada continues to perform well.
2013 TRANSFIELD SERVICES 9 CHAIRMAN’S REPORT
The largest capital We have also seen We will relentlessly expenditure project in the many staff changes and pursue further cost Company’s history, Project farewelled long serving Quantum, is two-thirds members, such as Steve reductions and complete, materially on MacDonald and Bruce efficiency gains, cash time and on budget. It is James. I thank them for consolidation and rolling out a state-of-the- their long and faithful art enterprise resource service. reduce gearing. planning system across Our focus for financial A characteristic of our global operations, year 2014 is clear. We Transfield Services that I and is already providing will relentlessly pursue am very proud of, is our demonstrable efficiencies further cost reductions unwavering support of the and greater insight into and efficiency gains, cash communities where we our performance. consolidation and reduce operate and, in particular, During this year of gearing. our work with Indigenous significant change, the Australians. We will target sectors management team has and contracts which meet They now represent 4.5 been both slimmed our risk profile, where we per cent of our Australian down and refreshed, can add value, and be workforce and, with the with a reduction in the rewarded for doing so. launch of the Company’s number of positions second Reconciliation reporting directly to the We will quit areas with Action Plan during the Managing Director. Joe no or limited growth or year, there is a firm Sofra has been promoted potential future value and commitment to increase to the position of Chief concentrate our resources this number. Executive Resources and in those sectors with the
For personal use only use personal For Energy Australia and greatest potential. New Zealand, Ian Maxted to the new role of Chief Development Officer and we have recruited a new Chief Financial Officer, Vincent Nicoletti.
10 TRANSFIELD SERVICES 2013 CHAIRMAN’S REPORT
The process of Board It is sad to say goodbye renewal continues with my to my many friends departure at our Annual and colleagues in the General Meeting on 25 Company. I thank them October 2013. We have for their support and announced that Diane Smith- encouragement over many Gander will replace me. years. Diane has been on the I thank you, our Board since October 2010. shareholders, for your She has demonstrated patience and support. great energy and I leave confident that capability in that time. the Company is in good Diane will bring a fresh hands and in good shape approach and also has a despite market pressures. good knowledge of the This is a special company business and the direction with a rich history and it is heading. A process is tradition. Under Graeme’s in place to recruit further leadership, I am confident directors with an emphasis it will continue to grow on domain knowledge. and prosper. I welcome Diane Smith- Gander to the role and wish her and the Board all the best for the future. It is time for me to farewell
Transfield Services, Tony Shepherd AO For personal use only use personal For after having been with Chairman of the Board the Transfield Group of companies in one form or another since 1979, overseeing the Transfield Services business listing in 2001, and becoming Chairman in 2005.
2013 TRANSFIELD SERVICES 11 MANAGING DIRECTOR AND CEO’S REPORT
We need to be so essential to our clients’ ongoing operations that if we stop, they stop.
As a company, we can look We have now tailored our After a top down and back on the 2013 financial strategic direction to ensure bottom up review across all year pleased with the we focus our service offering the sectors and geographies knowledge that we have on our clients’ integrated we work in, in early calendar achieved a lot, in tough and sustainable, non- year 2013, we concluded that markets and against the discretionary spend in high the right course of action major economic change value sectors and industries. was to book impairments of the ‘end of the boom’ As I frequently explain to in the US, Australia and in Australian minerals people, ideally we need to Middle East businesses, exit investment. be so essential to our clients’ our Middle East and Asia ongoing operations that if operations, seek a buyer But there is much more we we stop, they stop. for Easternwell’s minerals can still do to further improve exploration business and Transfield Services’ financial We have now tailored look to sell the loan notes in performance and optimise our RATCH investment, using our operations and structure. our strategic direction to ensure we focus the proceeds of all to pay In November 2012, I began down debt. my role as Managing Director our service offering on This portfolio review and the and Chief Executive Officer our clients’ integrated refinement of our strategy by holding over 60 meetings and sustainable, non- are just two of the significant with clients to seek their initiatives over the last views on our Company. Their discretionary spend in year that are shaping the insights were valuable. We high value sectors and Company for the future. are respected as a reliable industries. and trusted operations, In just nine months, we have maintenance and services made major changes to the We also needed to take a provider. way Transfield Services is
For personal use only use personal For hard look at our portfolio, structured and operated. From my time on the and ask ourselves if it Those changes have touched Board as a non-executive matched this refined almost every aspect of director, I had a high level strategic direction, and if our organisation; finance, of familiarity with the the business’ book values business development and Company’s operations. But matched market reality. marketing, payroll, human as I looked more at the resources, procurement, detail, it was clear to me that governance of bids and while broadly our strategy tendering. was the right one, it needed refinement. 12 TRANSFIELD SERVICES 2013 MANAGING DIRECTOR AND CEO’S REPORT
We have significantly cut The proof is in our results. To We are gaining costs, reduced capital achieve 25 per cent year on momentum, we are expenditure, refinanced debt year growth in the core ANZ starting to the see the and restructured right across region EBITDA to A$143 results that prove it, and the global business, and all million, is commendable in we have more initiatives the way up to the level of the planned. such challenging times. senior management team. I would like to thank Tony, Easternwell Energy’s 19 per You can read about the detail the Board and our more of many of these changes cent year on year increase than 24,000 staff for their later in this report in the in EBITDA to A$48.7 million support and confidence Review of Operations from proves that we are right to in me to lead Transfield my fellow senior executives. focus on the promising coal Services. I look forward seam and shale gas markets. to that momentum While many of these continuing in the 2014 initiatives make us more Our decision to change financial year. efficient and effective, reporting structures in order they also have a carefully to underline responsibility considered broader aim. All for safety and risk as a line of them will ultimately drive accountability during the the most important metric of year resulted in our lowest all: increased value for you, our shareholder. Lost Time Injury and Total Recordable Injury Frequency To achieve 25 per Rates ever. Graeme Hunt cent year on year Tragically, this achievement growth in the core was overshadowed by the Managing Director and Chief Executive Officer For personal use only use personal For ANZ region EBITDA death of one of our Chilean to A$143 million, is colleagues in a fatal fall, but commendable in this has only strengthened our resolve to continue to such challenging drive injury rates down. times.
2013 TRANSFIELD SERVICES 13 BOARD OF DIRECTORS
ANTHONY GRAEME HUNT DIANE SHEPHERD AO* Managing Director and SMITH-GANDER** Chairman Chief Executive Officer Independent Director
Bachelor of Commerce Bachelor of Metallurgical Bachelor of Economics Engineering Master of Business Tony was appointed a Master of Business Administration Director and Deputy Administration Chairman of Transfield Diane was appointed a Services on 6 March 2001 Graduate of London Business School’s Director on 22 October and Chairman in 2005. Senior Executive 2010. She is Chair of He is also the Chair of the Program the Health, Safety, Nominations Committee. Environment and Quality Tony has been Graeme was appointed Committee and a member responsible for a Director on 7 May 2012 of the Human Resources development of many and announced as the Committee. Managing Director and landmark projects, Diane has extensive Chief Executive Officer including the Sydney Australian and of Transfield Services on Harbour Tunnel and international experience 1 November 2012. He is Melbourne CityLink, in banking and finance, a member of the Health, other build-own-operate- technology, and strategic Safety, Environment and transfer projects and and management Quality Committee. the redevelopment of consulting, including Walsh Bay in Sydney. Graeme has more than as a former partner at In 2012, Tony was 37 years’ experience in McKinsey & Company in appointed an Officer of the metals, mining and Washington DC and New the Order of Australia bulk transport industries, Jersey in the United States, for service to business, including a 34-year career and Group Executive IT particularly infrastructure at BHP Billiton during and Operations, Westpac development, and which he held various Banking Corporation. support of the arts and President level positions. sport. Company, industry and Company, industry and community boards Company, industry and community boards community boards Director of Director of AGL Energy Wesfarmers Limited President of Business Limited Council of Australia Deputy Chairman of Former President NBN Co Limited Patron of Infrastructure of Australian Partnerships Australia Director of CBH Uranium Association, Limited and CBH Grain Director of Virgin Australian Mining and Limited Australia International Metals Association, Airlines and International Commissioner of Tourism Western Manganese Institute Chairman of AFL club Australia GWS Giants Former Deputy Chair Member of Advisory Deputy Chairman of of Minerals Council of Australia, former Board of UWA Sydney Cricket and Business School Sports Ground Trust Director of International For personal use only use personal For Aluminium Institute and Member of Committee Director of Migration World Energy Council for Perth Council Australia Australia Former Chairman of Member of External Former Chair Basketball Australia Advisory Panel, ASIC of Australian Limited Chairman of Australian Government’s Subscription Television Renewable Energy Association (effective Committee 15 November 2013) * Tony Shepherd is retiring as Chairman and the Board effective 25 October 2013. ** Nominated as Chairman designate, subject to re-election as a Director on 25 October 2013.
14 TRANSFIELD SERVICES 2013 BOARD OF DIRECTORS
STEVEN CRANE DOUGLAS SNEDDEN ROY MCKELVIE*** Independent Director Independent Director Non-Executive Director
Bachelor of Commerce Bachelor of Economics Bachelor of Science and Accounting (Production Engineering) Steven was appointed a Master of Business Doug was appointed a Director on 12 February Administration 2008. He is the Chair Director on 21 December of the Risk, Audit and 2009 and is Chair of Roy was appointed a Compliance Committee the Human Resources Director on 31 August and a member of the Committee and a 2012 and is a member Human Resources member of the Risk, of the Risk, Audit and Committee. Audit and Compliance Compliance Committee Committee. Steven has more than and the Health, Safety, 30 years’ experience in Doug has more than Environment and Quality the financial industry, 30 years’ experience Committee. including as former in finance, consulting, Roy has more than Chairman and Director of strategic management 20 years’ investment Investa Property Group and outsourcing, management and private and Chief Executive largely gained through equity experience in Officer at ABN AMRO a distinguished executive and non- Australia (now operating international career at executive director/ as CIMB Australia Group). Accenture, most recently chairman roles in the as Managing Director of retail, business services, Company, industry and its Australian business. community boards financial services and Company, industry and resources industries. Chairman of NIB community boards Holdings Limited Roy was formerly Director of Hillgrove Chief Executive Officer Chairman of Global Resources Limited Transfield Holdings. Valve Technology Prior to this role, he was Director of UXC Limited Managing Director and Limited Director of APA Group Chief Executive Officer of Director of Sirca Pty Director of Bank of Gresham Private Equity Ltd Queensland Limited Limited where he was also Chairman of Odyssey a Director of Gresham Director of Taronga House NSW Partners Limited and a Conservation Society member of the company’s Australia Director of Black Dog Executive Committee. Institute Member of CIMB Prior to joining Gresham, Director of St. James Securities International Roy served as Managing Ethics Centre (Australia) Pty Ltd Director of the investment Advisory Council Director of National arm of Deutsche Bank Former Director of Library of Australia AG as Asian Head of Foodland Associated Foundation Deutsche Bank Capital Limited Partners in Hong Kong. Former member of Prior to this, he spent over 10 years with 3i as RBS Group a Director of 3i Group For personal use only use personal For (Australia) Advisory plc in Europe where he Council led over 60 transactions in various industries and jurisdictions.
*** Effective 13 May 2013, Roy McKelvie ceased as Chief Executive Officer, Transfield Holdings. He remains Transfield Holdings’ nominee director on the Transfield Services Board. Luca and Guido Belgiorno-Nettis retired from the Transfield Services Board, effective 30 August 2012.
2013 TRANSFIELD SERVICES 15 SENIOR EXECUTIVE TEAM
VINCENT NICOLETTI* KATE MUNNINGS STEPHEN PHILLIPS IAN MAXTED Chief Financial Officer Chief Risk and Legal Officer Chief Information Officer Chief Development Officer and Company Secretary Bachelor of Business, Bachelor of Commerce, Bachelor of Engineering Curtin University, Perth Bachelor of Laws, The University of the (Honours), University of University of New South Witwatersrand Technology, Sydney Master of Science in Wales (Johannesburg, South Mineral Economics, Africa) Ian was appointed to Western Australia Bachelor of Health School of Mines Science, University of his current role on 29 Stephen has more than Technology, Sydney March 2013, having had Fellow of CPA Australia 20 years’ experience more than 25 years’ Kate has more than and was appointed to experience across Vince commenced as 20 years’ experience his role on 9 March 2011. the infrastructure and Chief Financial Officer at working with contractors His experience spans property development Transfield Services on and commenced with business and technology industries. He is also 19 August 2013, following the Company in January leadership and delivery Chairman of Transfield his appointment on 2006. Kate is the experience in the wealth Services’ project 12 June. He joins the executive responsible management, banking management subsidiary, Company from BHP for the global functions and life insurance APP Corporation. Billiton, where he of legal, procurement, industries with large most recently held Ian is responsible for commercial governance, companies. the position of Vice business development enterprise risk President Strategy and During the year, Stephen and marketing, and management, internal Business Development, focused on the rollout driving profitable audit, corporate affairs Energy Coal CSG. of the Company’s new revenue growth globally. and the company technology platform Since his appointment, Vince has more than secretariat. across the entire he has instigated a more 20 years’ experience During the past Company. He also proactive approach for in senior finance and year, Kate has been oversaw the creation of business development business development accountable for the the Company’s newly throughout the roles, having worked introduction of the new formed Group Business Company. extensively in Australia Services business unit, commercial governance He is also focused and internationally. which establishes process, which enhances on identifying and a shared services Experience the review of tenders marketing value capability, including and has centralised the propositions aligned Vice President targeted outsourcing of procurement and asset to client needs rather Strategy, Business back-office activities. management teams. than selling tasks on a Development, Energy These initiatives are commoditised basis. This Coal CSG, BHP Billiton Experience driving strategic benefits is reflected in changes Chief Financial Officer, across the Company. General Manager, IT, to the new commercial Global Marketing National Australia governance process and Experience and Commercial Bank personnel. It is also more Operations, BHP Member, South General Manager, aligned with the current Billiton Eastern Sydney Local Technology, MLC market demands that Chief Financial Officer, Health District Board General Manager, require active, informed Aluminium CSG, BHP Company Secretary Regulatory, Westpac and value-add providers. Billiton and General Counsel, Banking Corporation Experience Director of Finance Transfield Services For personal use only use personal For Executive General and Administration, Partner, Baker & Manager, Property First Dynasty Mines McKenzie and Asset Services, Manager, Business Partner, Corrs Transfield Services Systems, WMC Chambers Westgarth Resources Chief Executive Solicitor, Clayton Utz Officer, APP Corporation
* Vincent Nicoletti replaced former Chief Financial Officer, Tiernan O’Rourke, who resigned from the Company in September 2013. Elizabeth Hunter, formerly Chief Executive Human Resources, resigned from the Company in September 2013. At the time of printing the ongoing accountability for the human resources function was under consideration.
16 TRANSFIELD SERVICES 2013 SENIOR EXECUTIVE TEAM
NICHOLAS YATES JOE SOFRA PHILIP WRATT Chief Executive Chief Executive Resources President Americas Infrastructure Australia and and Energy Australia and New Zealand New Zealand Philip has more than 34 years’ experience and Bachelor of Engineering Bachelor of Engineering was appointed to his (Mechanical), University (Honours), RMIT current role on 2 August of Sydney University 2012. Philip works closely PhD in Engineering, with the teams in the Nicholas has over 26 University of Melbourne United States, Canada years’ experience and and Chile, managing was appointed to his Joe has more than 20 the strategic direction, current role on 7 April years’ experience and relationships and 2011. His experience was appointed to his providing leadership for spans the construction, current role on 7 August the business. infrastructure and 2012. He is responsible property industries in for leading the To read more about senior operational and acceleration of growth Philip’s activities with the strategic leadership in this business and Americas business during roles. ongoing service delivery the past financial year, see page 24 of this report. With the departure of improvement, and continues the strategic former Chief Executive, Experience Operations Support, shift towards providing Eion Turnbull, Nicholas high value services. Chief Executive, Middle East and Asia, assumed responsibility With the departure of Transfield Services for the Company’s former Chief Executive, Health, Safety and Operations Support, Vice President and Environment function. Eion Turnbull, Joe Regional General Manager, Asia Pacific To read more about assumed responsibility and Australia GE Oil Nicholas’ activities with for the Company’s and Gas the Australia and New Quality function. President, Asia Pacific Zealand Infrastructure To read more about and Middle East, Vetco business during the past Joe’s activities with Gray financial year, see page the Australia and New 20 of this report. Zealand Resources and Executive Manager, Asia Pacific, Varco/ Experience Energy business during the past financial year, see Elmar Services Chief Executive, page 22 of this report. Marketing and Business Experience Development, Regional Business Transfield Services Development Director, Chief Executive Wood Group PSN Officer, APP General Manager, Corporation Development, Uhde Project roles Shedden with Lend Lease For personal use only use personal For General Manager, Corporation Asset Services, Tenix Executive Manager, Non Ferrous Group, Ausmelt
Steve MacDonald, formerly Chief Executive, Marketing and Investments, resigned from the Company in August 2013 Eion Turnbull, formerly Chief Executive, Operations Support, departed the Company in January 2013
2013 TRANSFIELD SERVICES 17 For personal use only use personal For
18 TRANSFIELD SERVICES 2013
REVIEW OF OPERATIONS For personal use only use personal For
2013 TRANSFIELD SERVICES 19 INFRASTRUCTURE AUSTRALIA AND NEW ZEALAND Nicholas Yates — Chief Executive he Australia and New We have put in place We turned around the TZealand infrastructure a new organisational performance of the business had a successful structure which is aligned Engineering and Construction year. to our strategy, and we are (E&C) business during the undertaking a recruitment year and continue to focus In a tough economic climate, campaign to strengthen our on projects where our the business significantly management ranks. ability to deliver is proven. increased earnings and Projects will also complement delivered turnover of A$2.1 We are continuing to the Company’s existing billion, up 10.5 per cent on enhance our ability to deliver operations and maintenance the previous year. an integrated end-to-end client base, with an increased asset management service focus on technical capability. We achieved growth with an increased focus on in key sectors, with the technical capability. We are continuing to performance of our enhance our ability to telecommunications, This will differentiate us from deliver an integrated electrical services, roads, our competitors and help us asset services businesses, win work in industries which end-to-end asset and our subsidiary, APP, all are under cost pressure, management service exceeding expectations. such as transmission with an increased and distribution, or with In addition, our cash those that have become focus on technical conversion and return commoditised, such as the capability. on capital employed water industry. exceeded targets. The E&C business is also We anticipate increased recruiting key business This is a strong indication opportunities in the second development and that our strategy to avoid half of FY14 and into FY15 operational personnel, while the ‘race to the bottom’ in as many of our sectors and ensuring all projects are commoditised markets and clients seek the efficiencies within set risk profiles. focus on higher value work is available from outsourcing. the right one. Our overall safety This includes first-generation performance across the In a tough economic Government outsourcing, business is heading in the climate, the business especially on the East right direction. significantly Coast of Australia, where we already have a strong We reduced our LTIFR by increased earnings. presence. Our new joint 21 per cent and our TRIFR venture with Balfour Beatty, by 18 per cent. While this The performance was also branded Roads Plus, will help is encouraging, there is the result of a range of us win this work. always more to be done to initiatives we implemented eliminate all injuries. The during the year, including wellbeing of our people
For personal use only use personal For an extensive program of remains an important cost cutting and efficiency priority. measures to build a strong and stable business.
Nicholas Yates
20 TRANSFIELD SERVICES 2013 REVIEW OF OPERATIONS
PERFORMANCE OVERVIEW Infrastructure Services New planning, scheduling Property and Asset and field mobility technology Services The Australian electrical was implemented at several services business increased contracts, resulting in The Property and Asset revenue by 14 per cent, increased productivity and Services business delivered supported by new contracts reduced costs. Options for revenue and margin growth in Victoria. Margins also operations and maintenance year on year. Cash generation improved due to restructuring outsourcing in the irrigation remained strong, with low and rationalisation of the and CSG sectors are also working capital requirements. business. being explored. Work with the Australian The New Zealand electrical The rail business delivered a Department of Immigration services business is the largest weaker result year on year and Citizenship in Nauru provider of high voltage following the successful highlighted the team’s ability services to the transmission, completion of a major project to deliver large, logistically generation, distribution in March. complex operations under and industrial sectors. It time pressure. benefited from increased In public transport, our capital expenditure in the joint venture with Transdev, In New Zealand, transmission sector over the Harbour City Ferries, telecommunications last four years and increased successfully completed maintenance work continues EBITDA margin this year on the transition from public to underpin the business, with flat revenue. to private operation of the facilities management Sydney’s iconic ferry services. business remaining highly The roads business exceeded Operational performance competitive. expectations for the full year exceeded contractual APP had another with an improved second half. obligations and historical excellent year, once again The business renewed and benchmarks with an on-time outperforming expectations. extended seven significant running rate of 99.3 per cent contracts in Australia and and a service reliability rate of Engineering and New Zealand. 99.9 per cent. Construction Pre-qualification with As a result, the team was With a new management Auckland Transport opened awarded the National team and structure in place, another substantial market Infrastructure Award for the E&C group significantly opportunity with significant Operator and Service improved financial and civil projects secured, Excellence Provider 2013 by operational performance providing upscale options. Infrastructure Partnerships during the year, winning Australia. The water business continued significant contracts with NBN delivering a wide range of There was also continued Co and QGC. services for many clients in improvement with the It also successfully completed Australia and New Zealand. Adelaide buses contract For personal use only use personal For the Australian Rail Track However, in Australia the following a revision to Corporation rail upgrade utilities market has become the contract service area, project and bulk diesel tank highly commoditised resulting implementation of a new farms for Fortescue Metals in margin pressure on the timetable and the opening of Group at Port Hedland, water business. an additional satellite depot to Western Australia. improve operational efficiency.
2013 TRANSFIELD SERVICES 21 RESOURCES AND ENERGY AUSTRALIA AND NEW ZEALAND Joe Sofra — Chief Executive t is well documented that the We are also more clinically The decision has been made Iresources and energy market targeting sectors and clients to divest Easternwell’s minerals in Australia has changed in the where we can achieve exploration business given its last couple of years. sustainable long-term cyclicality. growth. This involves early Investment in hydrocarbon However, mining asset and engagement with clients and industries, such as CSG and production services remain a ensuring we understand their LNG, is ramping up. At the focus. And with operators re- core business objectives. same time, mining investment basing their costs and looking has softened. We have already seen the to sweat their assets harder, direct benefits with the there is opportunity for us to Our performance during the strong presence established apply our expertise to optimise last financial year, in many in Queensland’s CSG market. productivity and support ways, reflects this shifting This was identified as a key incremental production gains. market dynamic. objective at the beginning The power sector services Our hydrocarbons operations, of the year and, with the business was consolidated including conventional oil and increasing volume of work we into a single, specialist, 50/50 gas, CSG and LNG, performed are now doing with QGC, we joint venture, Transfield strongly. They were major are on track to meet those Worley Power Services earnings contributors and expectations. (TWPS). It has unrivalled will underpin growth in the expertise in Australia and current financial year and Our hydrocarbons is now targeting growth in beyond. operations, including South East Asia and New Zealand. This highly encouraging conventional oil and performance was offset gas, CSG and LNG, We will apply our by our mining business, performed strongly. capabilities to the in particular, Easternwell’s minerals exploration They will underpin shale gas market in operations. growth in the the years to come. Taking these market current financial year The wellbeing of our conditions into account and and beyond. people remains an absolute with a clear focus on future priority and, pleasingly, we growth and making our In addition to building our CSG significantly improved our business more efficient, we business, we will also apply our safety performance. have made some important capabilities to the shale gas However, unless there are no changes during the year. market in the years to come. injuries to anyone at any time, We have put in place a new we can always do better. This To support this strategy, we organisational structure outcome will remain our focus. have integrated Transfield which has established Services’ core Resources In summary, it has been clearer operating lines for and Energy business with a productive year during service delivery and business Easternwell. This has reduced which we have made some development. This has instilled overheads and given us a significant and necessary
For personal use only use personal For a much sharper focus on highly competitive cost base. changes. operational efficiency. But more importantly, it allows We are better positioned to us to offer a more integrated grow our business. service, particularly to the CSG and LNG industries. This differentiates us from our competitors.
Joe Sofra
22 TRANSFIELD SERVICES 2013 REVIEW OF OPERATIONS
PERFORMANCE OVERVIEW R&E In the petrochemical, Easternwell chemical and manufacturing EBITDA grew strongly sectors, high operating costs Easternwell’s energy with increased revenues and the strong Australian business, which provides well and margins, driven by dollar continued to constrain servicing, drilling and camp new contracts, improved the market. This resulted management services to the performance and reduced in lower than expected CSG, conventional and non- overheads. revenues with the deferral of conventional gas sectors, produced a 19 per cent CSG activities expanded scheduled maintenance and increase in EBITDA during with the award of the sustaining capital works. the year. consolidated service provider Operating conditions in upstream maintenance and the Pilbara iron ore sector Five new rigs under long the well site installation continued to deteriorate in term contracts were contracts, both with QGC. the second half, resulting delivered to Santos, QGC These contracts ramped in further work delays and Chevron during the up in the second half of and reduced volumes. A year. Another contract was FY13 and are expected restructure of the operating secured with QGC in July to be significant earnings business, new management 2013 for the delivery of a contributors in FY14. and attention to costs new heavy drill rig due to come into operation at the This business was awarded saw steady improvement end of this financial year. a contract with Woodside with sustainably profitable in Western Australia for operations in the fourth Significant tendering activity offshore maintenance quarter. is expected in FY14 as services. Performed 100 per TWPS performed to clients look to meet gas cent by Transfield Services, management’s expectations demands for planned LNG the contract is in addition in FY13, with the expansion trains in Queensland’s CSG to the onshore and offshore of operations and asset to LNG industry. Further project services provided services to several opportunities in the shale to Woodside through the generators, in addition to the and conventional gas fields Company’s joint venture award of a new contract with are also expected to emerge. company, Transfield Worley BHP Billiton in the Pilbara. The performance of the Services. The operating and cost energy business contrasted Multiple significant tenders in environment for Australian with the minerals division, the conventional oil and gas, and New Zealand generators which experienced a and the LNG industries are in FY14 is expected to significant reduction in currently under evaluation. remain under pressure. earnings. This was largely Consequently, TWPS’ driven by a decline in rig focus will continue to be to activity, especially for deliver operations and asset minerals exploration and, to For personal use only use personal For services in Australia, New a lesser extent, in production Zealand and South East Asia. drilling.
2013 TRANSFIELD SERVICES 23 AMERICAS Philip Wratt — President
he Americas team Our wholly-owned subsidiary, We remain a leader in the Timplemented a range Steier Oil Field Service, North American outsourced of initiatives during the delivered a particularly roads maintenance industry year to address the general pleasing result. Located in through which we have a underperformance of the the Williston Basin in North number of stable long-term group. Dakota, now the US’s second contracts. Sixteen states highest oil producing state in the US now have public We have delivered a behind Texas, the business private partnership enabling step change in overhead is well positioned to benefit legislation. With public reductions through the from increasing levels of infrastructure investment consolidation of premises and investment in the shale gas currently at historical lows, this head count rationalisation. industry. legislation should enhance our The A$7.8 million one-off Following a period growth pipeline. costs associated with this restructure impacted reported of inconsistent As our Managing Director full year performance, but will performance, the and Chief Executive Officer, deliver future financial and Americas business Graeme Hunt mentions strategic benefit. earlier in this report, tragically, now has a leaner, more we suffered a fatality in our We have relocated the efficient operating Chilean business during the region’s head office from structure. year. This has heightened our Philadelphia to Houston and a commitment to safety. refreshed management team Earnings from our FT Services is now situated at the heart of joint venture declined Following a period of the US’s resurgent oil and gas marginally due to lower levels inconsistent performance, market. of scheduled maintenance the Americas business now and a slightly reduced scope has a leaner, more efficient The same team is undertaking of work at Suncor Firebag operating structure. And a remediation program for sustaining projects. While with opportunities starting in our underperforming margin pressure is expected to emerge in the industries downstream refining business. to remain in the near term, the in which we work, we are The program is addressing a business has attractive growth confident of improved number of underperforming characteristics. The Canadian performance. contracts and has established Energy Research Institute a new process through estimates that C$253 billion which we are scrutinising will be invested in new oil the risk profiles of future sands capacity over the next opportunities. This will ensure quarter century. adequate returns and allow us to fully capitalise as market We made a decision in the conditions improve. second half of the year to exit Philip Wratt several construction contracts held by Inser-Transfield
For personal use only use personal For Services (InserTS) in Chile, in addition to booking a A$31.0 million impairment. This has reduced the risk profile of the business, which is now more focused on providing maintenance and engineering services to the region’s copper mining industry.
24 TRANSFIELD SERVICES 2013 REVIEW OF OPERATIONS
PERFORMANCE OVERVIEW The Americas business This was offset by a weaker The operational performance produced EBITDA of A$16.6 result from the downstream of the Americas infrastructure million for the 2013 financial refining services business, business was generally steady year, down 33 per cent on which was impacted by a as it continued to win new the prior year. The result was price conscious market and work. However, a particularly impacted by A$7.8 million of several underperforming harsh Canadian winter one-off restructuring costs contracts. contributed to a challenging and a soft macro environment period for roads maintenance The performance of FT for several of the industries in operations in that region. Services, of which Transfield which the business operates. Services is a 50 per cent joint InserTS, 83 per cent owned by Pre-restructuring costs, EBITDA venture partner with URS, was Transfield Services, delivered was A$24.4 million, or down solid. It delivered three major EBITDA of $3.0 million, three per cent year on year. turnaround and shutdown underpinned, in large part, projects, but was impacted by by the strong performance The upstream Resources and a lower overall volume of work of the maintenance services Energy business, including than in the previous year. contracts. Steier Oil Field Service, performed strongly. MIDDLE EAST AND ASIA Following an in-depth As the sale process Regional overheads declined portfolio review, the progresses, all businesses significantly as cost structures Company announced in continue to operate as were revised to prepare the February this year that it usual. business for divestment. will exit the majority of its Middle East and Asia (MEA) In India, Hofincons delivered a businesses. While the flat year on year performance businesses do have value, as it refined its growth focus to they are considered non- operations and maintenance core to the Company and Kevin McKenna, Executive services in the power sector its refined strategy. and facilities management in General Manager, MEA the retail sector. The divestment process PERFORMANCE is proceeding well and OVERVIEW Hofincons T&C is providing interested parties have Earnings in Middle East and maintenance and materials been engaged. Asia declined year on year, engineering services as part primarily due to a weaker of Transfield Worley’s contract The Hofincons Technology than expected performance with INPEX and the Ichthys and Consulting (T&C) from the Intergulf energy project in the Browse Basin, off business in India is a natural contracting business which the coast of Western Australia.
For personal use only use personal For fit with the Resources and serves clients in the United Energy ANZ business and Arab Emirates, and lower The Transfield Services already provides services revenues from the Transfield WorleyParsons JV contract to some of the Company’s Mannai Facilities Management in the Philippines at Shell’s clients in Australia. As a Services joint venture in Qatar. Malampaya site will be result, it will be retained This was partially offset by managed by the Resources and will form part of the revenue from a new three-year and Energy ANZ group. The Company going forward. facilities management contract contract increased earnings for the Doha Tower. year on year and won additional work.
2013 TRANSFIELD SERVICES 25 For personal use only use personal For
26 TRANSFIELD SERVICES 2013
SUSTAINABLE BUSINESS For personal use only use personal For
2013 TRANSFIELD SERVICES 27 SUSTAINABLE BUSINESS
Transfield Services has a SAFETY proud history of ethical and sustainable work practice. The safety of employees and the people they work This is clearly evident in the with is Transfield Services’ Company’s commitment to number one priority. looking after the safety and wellbeing of its employees The Company continues and clients through to implement industry landmark initiatives such leading safety practices and processes. This sustained as the 10 Million Challenge, focus helped the Company and its unwavering efforts reduce its TRIFR to 5.99 per to help improve the lives million hours worked for the of Indigenous Australians 12 months ended 30 June through the launch of its 2013. This was a 25 per second Reconciliation cent decrease on the same Action Plan (RAP) in period last year and the August 2012. lowest rate since the figure The Company also works has been measured at the hard to provide mutually Company. beneficial opportunities There was also a significant for both the learning and There was also improvement in the development of its own Company’s LTIFR, which employees, and for the a significant reduced by 31 per cent communities where it improvement in the during the year to 0.95 per operates. Company’s LTIFR, million hours worked at the Considerable effort is also end of June 2013. Again, made to collaborate with which reduced by this is the lowest rate that clients to look after the 31 per cent during the Transfield Services has many and varied natural year to 0.95 per million ever experienced across its global operations. environments where the hours worked at the Company works around Despite record Company- the world. end of June 2013. wide performance, sadly There was demonstrated the organisation suffered a progress in each of these fatality in our operations in areas during the 2013 Chile. This tragic accident
For personal use only use personal For has strengthened the financial year. Company’s resolve to continue to drive injury rates down.
28 TRANSFIELD SERVICES 2013 SUSTAINABLE BUSINESS
10 MILLION CHALLENGE The Company continued its 10 Million Challenge which commenced at the beginning of 2012. The goal is to achieve 10 million hours, or approximately two months, SAFETY PERFORMANCE HIGHLIGHTS without a Lost Time Injury (LTI) to any employees, The Resources and Energy The ANZ water business or people for whom the ANZ business recorded operated for 12 months Company is responsible another year of significant without an LTI, with the around the world. The improvement in its overall Gippsland Water contract challenge is the first of safety record with a 37 per in Victoria achieving 13 its kind in the Company’s cent reduction in LTIFR and years LTI free a 48 per cent reduction in history and was designed to The Brisbane Airport TRIFR engage the hearts and minds Rail Link contract also of all employees. The Americas achieved 13 years LTI free The target remains ambitious infrastructure business during the year and while the Company is completed 12 months The transmission and yet to achieve the 10 million and one million hours distribution arm of the milestone, during August without an LTI Australian electrical 2013, the organisation The FT Services business services business has, succeeded in working 5.634 in Canada completed 12 for the second time in million hours without an LTI, months and more than three years, achieved a 12 setting a new benchmark. four million hours without month period without an The goal of the Challenge is an LTI LTI, and to eliminate serious injuries by raising awareness. Each The target remains 60 per cent of the time an LTI is sustained, ambitious and while Company’s Property and Asset Services contracts information about that injury the Company is yet is communicated through in Australia have been LTI a real time counter which is to achieve the 10 free for 12 months or more. permanently located on the million milestone, Company’s global intranet during August 2013,
homepage. The injuries, and For personal use only use personal For the Challenge itself, are also the organisation regularly discussed in Toolbox succeeded in talks at all of the Company’s working 5.634 work sites. million hours Converting that awareness into without an LTI, a tangible change in behaviour and desire to operate safely setting a new is an ongoing challenge the benchmark. Company is taking on.
2013 TRANSFIELD SERVICES 29 SUSTAINABLE BUSINESS
DIVERSITY The Company also offers The results of the flexible working arrangements Company’s latest Diversity As a multinational to support the attraction Survey, completed in April organisation, Transfield and retention of diverse 2013, reflect the Company’s Services is inherently diverse, candidates. Year on year, commitment to this cause. not only in the scope and the Company has increased Indigenous employees range of its operational the number of people now represent 4.5 per activities and environments, taking advantage of such cent of Transfield Services’ but also with its people. The arrangements. Company regards this as Australian workforce. This was an increase from 3.1 a great strength, believing INDIGENOUS that diverse workplaces per cent in 2010 and higher PARTICIPATION promote collaboration, and than the Company’s publicly over the long-term, are more Governed by three stated goal of four per cent sustainable. principles of reconciliation: by April 2013. relationships, respect and The Company has a range of Eddie Fry, Chair of Transfield opportunities, Transfield programs in place, both to Services’ Indigenous Services’ Indigenous capture the benefits of this Advisory Board (IAB), participation approach aims diversity, and increase it. believes the milestone is to deliver real and lasting a demonstration of the Our Equality and Diversity in change to Indigenous Company’s character the Workplace Policy explains people and communities. and commitment to its our approach to diversity in Indigenous participation more detail. The policy can be The Company has a approach: a commitment viewed at range of programs that has remained steadfast www.transfieldservices.com. despite a challenging Initiatives such as the in place, both to business environment. Company’s Indigenous capture the benefits Transfield Services’ next Participation Plan and of this diversity, and self-imposed challenge is associated RAP are delivering increase it. to employ 1,000 additional outstanding outcomes Indigenous Australians in increasing the number by the end of 2016. The of Indigenous Australian The Company’s latest RAP, collective leadership and employees working for the launched on 31 August dedication of the Company’s Company. 2012, sets out a pathway for contract managers, ‘closing the gap’ between Other programs actively Indigenous development Indigenous Australians and encourage the Company’s managers, senior executives,
For personal use only use personal For non-Indigenous Australians line managers and recruiters and both the Company on life-expectancy, to share the responsibility to Board and IAB, will ensure educational achievement identify and shortlist diverse a strong focus on achieving and employment candidates. The increasing this milestone. opportunities. awareness of diversity is reflected by managers who question the absence of diverse candidates being considered for roles, talent pools, promotion and/or project teams. 30 TRANSFIELD SERVICES 2013 SUSTAINABLE BUSINESS
83 per cent of the Company’s employees live locally to their respective contracts.
Key Indigenous Indigenous Advisory The auditing panel consisted appointment Board of senior members of our risk and compliance team Llewellyn Williams was Debbie Barwick – CEO and Business Community appointed Transfield Hunter Indigenous Business Investment Group, local Services’ Indigenous Chamber of Commerce, management and invited Development Manager and Christine Dragisic representatives from the in January 2013. An – Indigenous Business Department of Education, Aboriginal and Torres Australia (IBA), both joined Employment and Workplace Strait Islander woman, the Company’s IAB during Relations. Llewellyn’s traditional the year. The audit allowed the risk Aboriginal country is Wakka The Board guides Transfield and compliance team to Wakka and Wulli Wulli. Services’ Indigenous categorise key findings and Her connection to the participation activities, identify the work being Torres Strait Islands is Ugar with Transfield Services’ implemented to prepare (Stephens Island). Managing Director and Chief recommendations for future Executive Officer, Graeme improvement observations. Hunt, attending meetings New Indigenous supplier and playing an active role in guiding the Company’s Transfield Services signed Indigenous participation its first national contract approach. with Australian Outback Global to supply uniforms Auditing performance and safety attire to all of The Company’s its employees on national commitment to Indigenous defence contracts. participation at a site level is Australian Outback demonstrated by the work Global is an Indigenous carried out at its Garrison organisation that supplies Southern Victoria contract. products such as uniforms The Company’s risk and and safety wear. Llewellyn’s role is to actively compliance team conducted promote a greater an audit to ensure the understanding and contract’s Indigenous knowledge around Participation Plan complies Indigenous issues across the with the Australian Company. She also assists
For personal use only use personal For Government’s Indigenous site operations to build Opportunity Policy. stronger relationships with local Indigenous communities.
2013 TRANSFIELD SERVICES 31 SUSTAINABLE BUSINESS
GENDER The Company’s contract COMMUNITY in Nauru has a number of The Company places a women working as part of ENGAGEMENT strong emphasis on hiring the fly-in, fly-out rosters. Transfield Services’ and retaining professional Their presence improves community engagement women and ensuring contract performance approach aims to develop they are given every by normalising the and implement projects opportunity to progress remote and challenging and initiatives that benefit through the organisation. work environment. the many and varied Their progression, in The contract’s client communities where it the traditional male relationship is led by operates. It relies on building dominated sectors in a senior woman who constructive relationships which the Company has gained extensive with community operates, is having a operational experience stakeholders and uses positive operational and over many years with an assessment process cultural impact. Transfield Services. to determine the most The Board has set a effective way to engage goal for the Company with specific communities to increase the number Number of females on depending on their unique of female employees, Board: 1 out of 6 circumstances. with particular regard (16.7 per cent) to professional roles in LOCAL ECONOMY the three layers of the Number of direct INVESTMENT Company below the role reports to the One of the primary objectives of the Managing Director Managing Director of the Company’s community and Chief Executive and Chief Executive engagement approach is to Officer. maximise employment and Officer: 2 out of 10 Progress towards this procurement opportunities goal has been made at a (20 per cent) for people and businesses located in the communities time of substantial change Number of in the Company, as it where its contracts are based. continues to reposition females across the organisation: The Company’s latest Local for operational efficiency. Economy Investment report Notwithstanding, our 3,562 out of 24,463 tracks the Company’s focus on meeting and (14.6 per cent) performance in this area. The ultimately exceeding this latest report, released in April goal remains a priority. All of the above statistics effective 30
June 2013 2013, indicates that For personal use only use personal For Notable female senior 83 per cent of the Company’s appointments have been employees live locally to their made in the Americas respective contracts, 71 per (human resources and cent of all procurement is finance), in Australia from local communities, and (procurement, human 74 per cent of subcontractors resources and operations), are sourced from local and in the MEA, where communities. there are now two women in senior roles.
32 TRANSFIELD SERVICES 2013 SUSTAINABLE BUSINESS
Indigenous employees now represent 4.5 per cent of Transfield Services’ Australian workforce – an increase from 3.1 per cent in 2010.
PHILANTHROPY Many River SOCIAL ENTERPRISE Opportunities provides Transfield Services’ Transfield Services was loans to micro and small philanthropic activity recognised for its work with businesses that do not reflects the Company’s numerous social enterprises ordinarily have access heritage, core values and across Australia at the 2013 to commercial banking spirit of generosity and Social Enterprise Awards. arrangements, with a goodwill. It is predominantly Some of the enterprises the key focus on Indigenous implemented through the Company works with include: individuals in regional and Transfield Foundation, a joint the Activ Foundation in rural communities, and venture between Transfield Western Australia, Growing Care in New South Wales and Services and Transfield aims Clontarf Foundation the Bedford Group in South Holdings. to improve the education, Australia. The Foundation made discipline, self-esteem, Many of the Company’s donations to the following life skills and employment prospects of young contracts also support organisations throughout social enterprises through the year: Indigenous men through football. mentoring programs, which Career Trackers is a make a real difference to national not-for-profit people who are marginalised in the community and find organisation that Eight per cent of it challenging to enter the creates private sector Transfield Services’ labour market. career opportunities for Queensland Indigenous university employees are NAURU students and supports Indigenous. students in times of short- Transfield Services term financial hardship commenced operations at the Nauru Regional Australian Indigenous The Foundation also Processing Centre in August Mentoring Experience provided five new research 2012. The Company consulted provides an out-of-school grants to support early with local community leaders, mentoring program for stage career researchers the not-for-profit sector, Indigenous secondary from leading Australian representatives from the students who work with universities. It also education sector, government trained mentors selected continues to support the sector (Australian and Nauru), Australian Federal from the mainstream arts community, including Police, Rotary and Transfield university student the Biennale of Sydney, population Services staff (expat and Australian Chamber Nauru nationals) to develop a For personal use only use personal For Orchestra and Accessible community and stakeholder Arts New South Wales. management strategy and plan for the contract. The plan’s initiatives are tracked, reviewed and reported on a periodical basis to ensure compliance.
2013 TRANSFIELD SERVICES 33 SUSTAINABLE BUSINESS
ENVIRONMENT TOP HONOURS GREEN ASSET MANAGEMENT The Company continued Transfield Services was its strong record of awarded the top award at environmental management, the 2012 Australian Business with no major environmental Awards in the category of incidents occurring at any of Environmental Sustainability, the sites where it operated recognising the range of The Company’s Mornington during the year. initiatives that Transfield Peninsula Shire contract in Services’ property and asset Victoria received the Silver The Company also worked services team has developed Award from Australia’s with its clients to improve and implemented. Asset Management Council environmental outcomes. for applying traditional This included supporting Initiatives included lighting plant and equipment asset the biodiversity of natural upgrades, introducing management principles to environments, increasing the more efficient and better manage the health of rates of recycling and energy environmentally-friendly growing assets – including efficiency and strengthening cleaning technology, trees, sports fields, parks operational resilience to implementing water and and reserves. natural disasters. waste management plans, developing green building programs and introducing ethical and sustainable
procurement practices. For personal use only use personal For
34 TRANSFIELD SERVICES 2013 SUSTAINABLE BUSINESS
Transfield Services was awarded the top award at the 2012 Australian Business Awards in the category of Environmental Sustainability.
ENERGY EFFICIENT WASTE MINIMISATION TROPICAL STORM DEBBY LIGHTING The team working on In late June 2012, Tropical The Company’s defence Transfield Services’ roads Storm Debby brought services team established maintenance contract torrential rains to several green procurement with Auckland Transport parts of Florida in the practices across South in New Zealand US. The storm caused its Comprehensive developed an innovative significant flooding to Maintenance Services and economically efficient the Suncoast Parkway and Garrison Support way to reduce waste. toll road, maintained by Services contracts. Transfield Services. The team is now using a The team replaced product called SteelServ, The Transfield Services emergency exit lighting a non-metallic waste by- team responded signs with LED fittings, product of the iron and immediately to address thereby reducing energy steel making process. the crisis, providing consumption and delivering The product contains around-the-clock better lighting performance. high levels of silica, monitoring of water levels Green purchasing initiatives alumina and titanium, and equipment deliveries are also expected to deliver making it extremely hard and setup. The quick significant long-term cost wearing and well suited response ensured minimal savings to the client. to road renewal and delays and damage to the rehabilitation activities. roadway as a continuous wall of water descended on the area from the neighbouring town of Brooksville. Repatriation works were The Company continued its then undertaken to repair 12 sinkholes, several of strong record of environmental which required over 500 cubic metres of fill, management, with no major and 20 slope washouts. The team also worked environmental incidents with local authorities to care for displaced occurring at any of its sites. wildlife, including water moccasins, rattlesnakes
For personal use only use personal For and bobcats.
2013 TRANSFIELD SERVICES 35 SUSTAINABLE BUSINESS
LEADERSHIP AND Company’s Registered DEVELOPING LEADERS Training Organisation and LEARNING regional centres of excellence There is a common understanding across As a service provider, to ensure it can deliver Transfield Services that Transfield Services realises operational excellence. During investing in the development that a core part of its the year, the Company also of current and future leaders commitment to clients is to began implementing a world is critical to sustained deliver solutions through class learning management improvement in business a capable and qualified system to capture the performance. workforce. Fundamental to competencies, training and that promise is a commitment qualifications of its workforce. To ensure a healthy internal to the ongoing learning The Academy’s manager, leadership pipeline is always and development of the John D’Rose, says: “For in place, the Company has Company’s most valuable Transfield Services to processes to identify its asset: its people. Transfield maintain its leadership in high performers. These Services is an enterprise- asset management, our people, together with current based Registered Training people must be continually leaders, are offered formal Organisation, enabling the upgrading their skills, sharing and informal development Company to combine its their knowledge with opportunities. The expertise in operations, credibility and fuelling future Company’s Board also takes maintenance and asset growth of the Company with a strong interest in reviewing management services with their innovations”. leadership programs and its ability to deliver industry- tracking the progress of specific training requirements. In New Zealand, the current and future leaders. Company’s training programs Training is delivered through are so highly regarded they the Academy, a customised are regularly offered as part training centre that works of the Company’s service hand-in-hand with the offering to clients.
Beyond program Beyond is the Company’s flagship leadership development program. Commencing in 2011, it supports the Company’s vision to deliver high value services to its clients to help them increase their productivity. It tackles real business challenges, creating organisational patterns of behaviour in support of the Company’s business goals. Key Beyond initiatives during the year included: For personal use only use personal For Articulating the expectations of our people in our Organisational Architecture (Vision, Performance Management Pillars and Values) and integrating these new expectations into our people and talent systems and processes Working with individual leaders in the Beyond program to understand the strategy and allow leaders to articulate their role in the achievement of this strategy. More than 170 senior and middle executives have completed the Beyond program to date, and Working with the ‘must win’ teams to drive higher performance and manage the changes required to deliver business imperatives as part of the Beyond for Teams. program.
36 TRANSFIELD SERVICES 2013 SUSTAINABLE BUSINESS
Key compliance policies that support the Code of Business Conduct: Conflicts of Interest Policy is aimed at protecting the integrity of the Company’s decision-making processes by avoiding ethical, legal, financial or other conflicts of interest. Related Party Transactions Policy provides guidance on recognising and reporting related party transactions and, where necessary, submitting CODE OF BUSINESS Our corporate values, these for shareholder CONDUCT AND integrity, collaboration, approval. COMPLIANCE ingenuity and challenge, Share Trading Policy PROGRAM together with the Code, restricts Directors and are the vital components designated employees In late 2012, Transfield of the Transfield Services from buying or selling Services revised its Code of compliance program. shares in designated Business Conduct to reflect blackout periods. the current state of the The compliance program is aimed at building a culture organisation (including the Anti-Bribery and of integrity in our operations new corporate values) and Corruption Policy outlines across the world. It includes changes to laws that apply to the Company’s position our compliance policies, us internationally. of zero tolerance for such as the Anti-Bribery any form of bribery or As part of the review, the and Corruption Policy corruption. It also outlines Code and our compliance and the Business Partners the Company’s position on program structure were Policy, various face-to-face benchmarked against the and online training initiatives, gifts and hospitality. UK Bribery Act compliance regular communications, risk Business Partners Policy guidance, due to the management and internal supports the Company’s growing influence of that Act audit functions, which commitment to work internationally. While the Act together reinforce integrity with business partners only applies to UK companies and compliance practices who demonstrate a high and foreign companies with across the Company. standard of business UK operations, its provisions conduct. are likely to be reflected The Transfield Services in future anti-bribery legal Board and senior executives Political Involvement and reforms worldwide. are highly committed to Support Policy outlines maintaining a culture of the Company’s position Some clients have also integrity at all levels of the on participating in required the Company to Company. dialogue with political and have UK Bribery Act standard government stakeholders compliance regimes in place The Board and senior and on the making of – making alignment with the executives have mandated donations to political principles of this Act crucial. that every Company decision and transaction must be parties or candidates. The revised Code is available steered by our values and the Internal Investigations in English and in Spanish, Code of Business Conduct. Policy outlines the supporting our operations in It is essential and underpins Company’s processes for For personal use only use personal For Chile and Spanish speakers raising and investigating across our organisation. our reputation and competitive advantage. concerns about inappropriate conduct, and is closely aligned to the Whistleblower Policy, which outlines processes in place to ensure employees can raise genuine concerns without fear.
2013 TRANSFIELD SERVICES 37 For personal use only use personal For
38 TRANSFIELD SERVICES 2013 CORPORATE GOVERNANCE
REPORT For personal use only use personal For
2013 TRANSFIELD SERVICES 39 CORPORATE GOVERNANCE REPORT
INTRODUCTION Transfield Services believes Board composition and that it has complied with independence Corporate governance is these Principles and the system of principles Recommendations during The directors are profiled and processes governing this reporting period. on pages 14 and 15 of this the exercise and control Annual Report. The directors’ of authority within a BOARD AND BOARD skills, knowledge, perspective company. Transfield Services’ COMMITTEES and experience (in financial, governance system aims to: industry, public and private Transfield Services’ Board sectors) are appropriate ensure appropriate of Directors (Board) is accountability to ensure the effective responsible for overseeing performance of Transfield minimise business risks the Company’s performance Services and to address promote ethical conduct, and strategic direction, with current and emerging and the aim of protecting and industry issues. enhancing shareholder value. enhance investor As at 30 June 2013, the confidence. The Board Charter outlines the Board comprised six Board’s role, responsibilities, directors – five non-executive Transfield Services and internal procedures. The directors and the Managing continuously monitors overarching responsibilities of Director and Chief Executive governance developments in the Board include: Officer. The non-executive Australia and internationally to directors are all independent, ensure appropriate practices overseeing the Company’s financial integrity except Mr Roy McKelvie who, are in place to meet industry when appointed as a director, and market expectations. reviewing and approving business strategy was the Chief Executive At the time of publishing Officer of Transfield Holdings this Annual Report, we monitoring the Group, which owns major identification and are reviewing the recently management of business shareholder Transfield (TSL) released proposed changes risks Pty Limited. to the ASX Corporate Mr McKelvie has now ceased Governance Principles and ensuring effective legal compliance at Transfield Holdings. Recommendations. ensuring effective However, he remains Transfield Services recognises governance Transfield Holdings’ nominee that sound governance must director and therefore is not making key human be embedded across all classified independent. resources and of its processes, structures remuneration strategy The Company considers the
For personal use only use personal For and activities. As a result, decisions, and Chairman to be independent in the Company continues overseeing the Company’s accordance with the definition to integrate governance occupational health and of independence contained in commentary across the safety practices. the Board Charter. various sections of this Annual Report. The Company The Board meets as also continues to report frequently as required, but against the ASX Corporate not less than six times a year. Governance Principles and Recommendations.
40 TRANSFIELD SERVICES 2013 CORPORATE GOVERNANCE REPORT
The Board Charter, The Chairman, Mr Anthony Directors’ terms of in accordance with Shepherd, has continued appointment and induction the ASX Corporate his oversight of the Board Governance Principles renewal process to ensure Directors are appointed to and Recommendations, that the composition of the Board on the following requires all directors to the Board reflects industry terms: exercise independent and and market expectations of the terms of appointment informed judgment. responsible governance. are agreed as part of such A key factor in the This financial year, Luca appointment, although assessment of independence Belgiorno-Nettis, Guido every three years, a third is whether the director Belgiorno-Nettis and Jagjeet of directors must retire brings an enquiring, open (Jeet) Bindra retired from the and, if applicable, offer and independent mind to Board and Roy McKelvie was themselves for re-election Board meetings, listens to appointed to the Board. directors will not usually the debate on each issue, In August 2012, the Board serve more than 10 considers the arguments announced the resignation years except in special for and against each of Peter Goode as Managing circumstances, as the decision and ultimately Director and Chief Executive Board may determine reaches a decision that he Officer effective 30 or she believes is in the best directors are expected to September 2012, and the interests of the Company. be available to fulfil their appointment of previously obligations as directors as To this end, the Charter non-executive director and when required, and facilitates directors having Graeme Hunt as Managing access, where necessary, Director and Chief Executive directors will comply to independent, external Officer – initially as an with the powers and and professional advice at interim appointment and duties of directors set the Company’s expense. subsequently confirmed as out in the Company’s Directors also have access a permanent appointment Constitution, Board and to the Chief Risk and Legal effective 1 January 2013. Committee Charters and Officer and Company the Corporations Act. In September 2013, the Secretary, and senior Company announced the New directors and senior executives for information appointment of Diane Smith- executives participate and support to assist in Gander as Chair of the Board in induction initiatives making informed decisions. effective 25 October 2013, which introduce the As a guide, the Company with Anthony Shepherd Company’s strategy and
considers that, where retiring as a director and structure, as well as its For personal use only use personal For a director’s interest or Chairman at the 2013 Annual systems, processes and key relationship exceeds a General Meeting. contacts. New directors materiality threshold of and senior executives are 10 per cent of revenue, it also encouraged to attend may be deemed material, site visits to experience the and therefore the director Company’s operations first- may be conflicted. The hand. Company reviews directors’ independence on an ongoing basis.
2013 TRANSFIELD SERVICES 41 CORPORATE GOVERNANCE REPORT
Board performance review BOARD COMMITTEES MANAGEMENT
Board, Committee and The Board may refer its Delegation of authority director performance is functions to four Committees scheduled to be reviewed formed to provide support The Board delegates internally on an annual basis, and advice on specific operational authority to with an external review matters. The Committees the Managing Director and undertaken every three regularly report to the Board Chief Executive Officer years. Given the status of and make recommendations subject to specified limits the Board renewal process, to it. Each Committee has set out in a delegated the next Board performance a charter governing its authority framework. review will be undertaken function, composition and The delegated authority under the supervision of procedures. framework is embedded the new Board Chair Diane within the Board-approved Smith-Gander. risk appetite statement,
BOARD OF DIRECTORS Risk, Audit and Health, Safety, Human Resources Nominations Compliance Environment and Committee Committee Committee Quality Committee Function Function Function Function Monitors the Oversees Assists the Board in Ensures the Board financial reporting improvement in the considering remuneration is structured process, and Company’s health, policies, practices and appropriately internal/external safety, environment decisions and ensuring and sets and audit functions. and quality key talent and critical reviews selection, Oversees performance, the workforces are managed appointment management of implementation of a to further corporate and performance risks and monitors robust management objectives. criteria of directors, compliance framework and the and senior with laws and development of an management. governance injury and incident Oversees the principles. free culture. recruitment and appointment of directors.
Composition Composition Composition Composition For personal use only use personal For Three non- Two non-executive Three independent Directors who are executive directors directors (one of directors, chaired by members of the (two of whom which is independent) independent director Human Resources are independent), and the Managing Douglas Snedden. The Committee, in chaired by Steven Director and Managing Director and addition to the Crane – who is Chief Executive Chief Executive Officer is Chairman of the an independent Officer, chaired by an attendee by invitation Board who chairs director. independent director and not a member of the the Committee. Diane Smith-Gander. Committee.
42 TRANSFIELD SERVICES 2013 CORPORATE GOVERNANCE REPORT
which sets the foundation performance are aligned The Company’s for an appropriate risk with the future direction Continuous Disclosure and culture within the Company. of the Company. This Communications Policy sets The Board reviews both process involves objective out obligations and guidelines the delegated authority setting, a mid-year review, for disclosure of material framework and the risk a year-end review, as well information, pursuant to the appetite statement on an as a continuous review Corporations Act and ASX annual basis. of performance and Listing Rules, and outlines development. the responsibilities of the The Managing Director Board, senior executives and Chief Executive Officer Senior executives also and employees relevant to then sub-delegates participate in a Short Term disclosure. specific authority to Incentive (STI) Plan. In FY13, senior executives subject there were a number of The Policy outlines the to delegated authority changes implemented to the role of the Continuous procedures. STI Plan, outlined in detail in Disclosure Committee which the remuneration report on is responsible for ensuring This year, a review of the pages 77 to 80 of the Annual that appropriate systems Company’s commercial Report. These changes have and controls are in place to governance processes been designed to reinforce communicate, collect, verify has resulted in significant the pay for performance and review potentially material changes being made to culture. information. The Committee how authority is exercised The PDR and STI Plan reviews and, where necessary, in respect of bidding for evaluations are due to be verifies information, and projects and the checks complete by 30 September determines what must be and balances in that 2013. disclosed and when, and process. This includes whether a draft announcement the establishment of MARKET DISCLOSURE should be forwarded to the a new assurance unit, Board for review and approval. providing a detailed and Continuous disclosure independent view on risks The Committee consists of and assumptions on major As a listed entity, Transfield the Managing Director and bid processes to enhance Services has a responsibility Chief Executive Officer, the quality of our risk to disclose timely and Chief Financial Officer, Chief management and bidding accurate material information Risk and Legal Officer and practices. about the Company to the Company Secretary, Group market, so existing and Corporate Counsel, General Performance evaluation potential shareholders can Manager, Investor Relations
For personal use only use personal For of senior executives make informed investment and Group General Manager, decisions. This year, the The Managing Director Media and Communications – Company welcomed the and Chief Executive Officer working together to consider release of ASX’s revised evaluates senior executives relevant factors affecting guidance on continuous through the Performance the Company, such as the disclosure clarifying Development Review performance of the stock regulatory expectations in (PDR) process, which market and the Company’s respect of disclosure and is aimed at ensuring peers, media and analyst supporting the integrity of that accountabilities, coverage, and regulatory and the stock market. responsibilities and legal developments.
2013 TRANSFIELD SERVICES 43 CORPORATE GOVERNANCE REPORT
Shareholder Annual General Meetings, RISK MANAGEMENT communications allowing Transfield Services to outline recent Management of risk is one of The Continuous Disclosure developments and strategy, the core responsibilities of the and Communications Policy and for shareholders to Board. The Board, through the outlines the major channels comment on Transfield Risk, Audit and Compliance through which Transfield Services’ management and Committee (RACC), requires Services communicates with performance. Shareholders that management design and shareholders. also have the opportunity implement risk management to ask the external auditor and internal control systems All material information questions relevant to its to manage Transfield Services’ is lodged via ASX audit function, and material business risks, and announcements, pursuant to that management regularly the Company’s continuous Transfield Services reports to the Board on disclosure obligation. website, whether the risks are being Transfield Services also (transfieldservices.com), managed effectively. keeps the market and which has a dedicated shareholders fully and News Centre and Transfield Services maintains promptly informed of an Investor Centre, a Risk Policy that aims to other developments in the containing copies of make managing risk an business through: ASX announcements, integral part of good business media releases, annual practice. The Company Half-year and full-year reports, financial utilises an enterprise-wide financial results materials, statements, corporate risk management framework, including financial governance statements, reflecting the global accounts, Management investor presentations positioning of the Company. Discussion and Analysis and web casts. This framework encompasses documents, presentation risk, compliance and internal slides and web casts audit elements. Analyst or investor Transfield Services’ approach briefings and conferences, to risk management featuring presentation is in accordance with slides and web casts internationally recognised Presentations at industry ISO 31000:2009 Risk forums, outlining Transfield Management, which Services’ achievements and outlines recommended risk contributing to discussions management procedures
For personal use only use personal For on relevant industry trends and processes to implement and developments within an organisation.
44 TRANSFIELD SERVICES 2013 CORPORATE GOVERNANCE REPORT
This year, a reorganisation REPORTING ON RISK FAIR AND RESPONSIBLE of the corporate risk MANAGEMENT REMUNERATION role resulted in elevating The Chief Risk and Legal Transfield Services aims business unit accountability Officer and Company to remunerate fairly and for the identification and Secretary, as the head of the responsibly by ensuring mitigation of business risks. risk management function, reward for performance is Prompted by the changing reports quarterly to the competitive in the markets commercial risk profile in RACC and the Board on the where the Company the markets which Transfield effectiveness of the Company’s operates, and aligning Services operates in, the management of its material executive reward with changes now see operational business risks. Material findings shareholders’ interests. business leaders across and recommendations the Company identify and The Company’s principles are communicated to manage their business risks in relation to director the RACC, which then as part of their management and senior executive ensures that management responsibilities. remuneration, and the levels effectively responds to the of remuneration, are set out Corporate functions, like recommendations. The in the remuneration report finance, marketing and Chairman of the RACC on page 61 of this Annual investments and information reports key risks and their Report. technology, are still largely management to the Board. assisted by the corporate The Company’s policy in The Group General Manager, risk team, although these relation to the prohibition of Compliance and Governance, functions have now become hedging remuneration that who reports to the Chief more proactive in risk has been disclosed as “at risk” Risk and Legal Officer and management processes. is contained in the Company’s Company Secretary, heads Share Trading Policy. The corporate risk team the internal audit function, retains a facilitating and separately reports significant educating role, supporting findings to the RACC on and guiding the business and a quarterly basis, and has increasing the capability of independent access, if required, all levels of the organisation to the Managing Director and to respond to the changing Chief Executive Officer and the business environment. Board, via the RACC. The internal audit function The Managing Director and plays a key role in risk Chief Executive Officer and
management by providing the Chief Financial Officer For personal use only use personal For an objective appraisal of provide signed letters to the the effectiveness of, and Board, in respect of each compliance with, business half-year and full-year result processes and controls that the accounts constitute across Transfield Services. a true and fair view and are based on an appropriate and effective system of risk management and internal compliance and control.
2013 TRANSFIELD SERVICES 45 CORPORATE GOVERNANCE REPORT
Corporate Governance at transfieldservices.com The Corporate Governance section of the Company’s website is a convenient way for shareholders to access information about governance practices of Transfield Services. The section is contained in the Investor Centre, clearly visible in the main selection menu. It contains: Company Constitution Board and Committee charters Managing Director and Chief Executive Officer Delegated Authority Statement Summary Code of Business Conduct key compliance policies, and current and past remuneration reports.
Visit www.transfieldservices.com/corpgov
ASX Corporate Governance Council’s Recommendation Reconciliation
RECOMMENDATIONS PAGE REFERENCES 1.1 42-43 1.2 43 1.3 43 2.1 40 2.2 40 2.3 14 2.4 42 2.5 42 2.6 14-15, 40-42, 58, website 3.1 37, website 3.2 30-32 3.3 32 3.4 32 3.5 32, 37, website 4.1 42 4.2 42 4.3 42 4.4 14-15, 42, 58, website 5.1 43, website 5.2 43, website 6.1 44, website 6.2 44, website 7.1 44-45, website 7.2 44-45
For personal use only use personal For 7.3 45 7.4 44-45, website 8.1 42, 66 8.2 42 8.3 67-76 8.4 14-15, 42, 58, 68, website
46 TRANSFIELD SERVICES 2013 FINANCIAL REPORT
Contents Page Directors’ Report (including remuneration report) 48 Auditor’s independence declaration 96 Consolidated statement of profit and loss and other comprehensive income 98
Consolidated statement of financial position 99 Consolidated statement of cash flows 100 Consolidated statement of changes in equity 101 Notes to and forming part of the financial statements 102 Directors’ declaration 176 Independent auditor’s report to the members of Transfield Services Limited 177 Shareholder information 179
This financial report comprises the consolidated financial statements and associated notes for the Group consisting of Transfield Services Limited (‘Company’ or ‘parent entity’) and its controlled entities. The separate financial results of the Company as an individual entity are included in Note 39 to the financial statements. The financial report is presented in Australian currency. Transfield Services Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Transfield Services Limited Level 10, 111 Pacific Highway North Sydney NSW 2060. The financial report was authorised for issue by the directors on 28 August 2013. A description of the nature of the consolidated entity’s operations and its principal activities is included in the review of operations and activities and in the directors’ report. Press releases, financial reports and other information is available on our website at www.transfieldservices.com. For enquiries in relation to our reporting, please contact Kevin O’Connor (General Manager, Investor Relations) on 02 9464 1019
or e-mail [email protected]. For personal use only use personal For
2013 TRANSFIELD SERVICES 47 DIRECTORS’ REPORT including remuneration report
DIRECTORS Anthony Shepherd AO Chairman Graeme Hunt Managing Director and Chief Executive Officer (appointed 1 January 2013) Steven Crane Douglas Snedden Diane Smith-Gander Roy McKelvie (appointed 31 August 2012)
CHIEF RISK AND LEGAL Kate Munnings OFFICER / JOINT COMPANY SECRETARY
JOINT COMPANY Angelique Nesbitt SECRETARY (appointed 27 March 2013)
NOTICE OF ANNUAL The Annual General Meeting of Transfield Services Limited GENERAL MEETING will be held at: Museum of Sydney 37 Philip Street (Corner Bridge Street) Sydney NSW 2000 date: Friday, 25 October 2013
PRINCIPAL REGISTERED Level 10, 111 Pacific Highway OFFICE IN AUSTRALIA North Sydney NSW 2060
SHARE REGISTER Computershare Investor Services Pty Limited Level 3, 60 Carrington St Sydney NSW 2000
AUDITORS KPMG 10 Shelley Street Sydney NSW 2000
SECURITIES EXCHANGE Transfield Services Limited shares are listed on the Australian Securities LISTING Exchange under the code ‘TSE’.
WEBSITE ADDRESS www.transfieldservices.com For personal use only use personal For
48 TRANSFIELD SERVICES 2013 DIRECTORS’ REPORT including remuneration report
Your Directors present their report on the consolidated entity consisting of Transfield Services Limited (‘the Company’ or ‘parent entity’) and the entities it controlled at the end of, or during, the year ended 30 June 2013 (‘the Group’ or ‘the consolidated entity’).
DIRECTORS The following persons were Directors of Transfield Services Limited during the whole of the financial year and up to the date of this report: Anthony Shepherd AO (Chairman) Graeme Hunt Steven Crane Douglas Snedden Diane Smith-Gander
Dr Peter Goode resigned on 30 September 2012 and Graeme Hunt was appointed as the interim Managing Director and Chief Executive Officer on 1 October 2012, and permanently appointed effective 1 January 2013.
Jagjeet (Jeet) Bindra retired from the board on 2 November 2012.
On 16 August 2012, the Company announced the retirement of Luca Belgiorno-Nettis AM and Guido Belgiorno-Nettis AM effective 30 August 2012, and the appointment of Roy McKelvie, effective 31 August 2012.
PRINCIPAL ACTIVITIES During the year the principal continuing activities of the consolidated entity consisted of the provision of operations and maintenance, asset management, project and capital management outsourcing and infrastructure development services.
Transfield Services Limited operates in Australia and New Zealand, the Americas (comprising the USA, Canada and Chile), and the Middle East and Asia (comprising the United Arab Emirates, Qatar, New Caledonia, Malaysia, the Philippines and India) and its business units include resources and energy, infrastructure services and property and facilities management sectors.
The Group also holds a 20 per cent ownership interest in RATCH Australia Corporation Limited (RAC) which invests in infrastructure assets.
DIVIDENDS Dividends paid to members during the financial year were as follows:
2013 2012 $’000 $’000
Final ordinary dividend for the previous financial year paid on 46,255 49,207 24 October 2012 (2012: 26 October 2011) Interim ordinary dividend paid on 1 May 2013 (2012: 24 April 2012) 15,302 26,846 61,557 76,053
Cents Cents Final ordinary dividend per share (for the previous financial period) 9.00 9.00 Interim ordinary dividend per share 3.00 5.00
Based on the Group’s capital management policies, the Directors have determined to not
For personal use only use personal For pay a final dividend for the period.
2013 TRANSFIELD SERVICES 49 DIRECTORS’ REPORT including remuneration report
REVIEW OF OPERATIONS Throughout this document non-IFRS financial indicators are included to assist with understanding the Group’s performance. The primary non-IFRS information is proportionally consolidated financial information and net profit after tax, pre-amortisation (‘NPAT pre- amortisation’). Management believes proportionally consolidated information is a more accurate reflection of operational results due to the magnitude of joint venture (JV) arrangements in place.
Proportionally consolidated results reflect the Group’s entitlement to the joint venture revenues and earnings. Management deems NPAT pre-amortisation an appropriate measure of underlying cash NPAT after adjusting for amortisation of acquired intangibles. A reconciliation of non-IFRS to IFRS information is included where these metrics are used.
A summary of consolidated revenues and results by segment is set out below: Unallocated and $’000 ANZ Easternwell Americas MEA eliminations RAC Group Proportionately 3,229,571 257,660 752,412 70,287 - 4,933 4,314,863 consolidated revenue Less: Share of joint venture (562,480) (25,423) (256,268) (19,146) - - (863,317) revenue Statutory revenue 2,667,091 232,237 496,144 51,141 - 4,933 3,451,546
Proportionately consolidated EBITDA 149,455 53,216 23,475 (174) (7,746) 4,933 223,159 (prior to impairment) Less: share of joint (45,042) (4,724) (18,221) (2,397) - - (70,384) ventures EBITDA EBITDA from operations 104,413 48,492 5,254 (2,571) (7,746) 4,933 152,775 excluding joint ventures Add: share of net profits of 39,002 2,462 11,403 1,698 - - 54,565 joint ventures Reported EBITDA 143,415 50,954 16,657 (873) (7,746) 4,933 207,340 (prior to impairment) Impairment of assets - (187,800) (120,652) (9,334) - - (317,786) Reported EBITDA 143,415 (136,846) (103,995) (10,207) (7,746) 4,933 (110,446) (post impairment) Depreciation (34,945) (23,226) (11,852) (512) (19,986) - (90,521) Amortisation of acquired (4,190) (8,817) (3,599) (303) - - (16,909) intangibles EBIT 104,280 (168,889) (119,446) (11,022) (27,732) 4,933 (217,876) Net operating finance (51,390) costs Tax on operating items 14,825 Non-controlling interest 4,447 Net profit after tax (attributable to owners of (249,994) the Company)
2013 2012 Earnings / (loss) per share cents cents Total basic and diluted earnings per share prior to impairment 8.9 15.6 charges attributable to owners of the Company Total basic and diluted (loss)/earnings per share attributable to (48.7) 15.6
owners of the Company For personal use only use personal For
50 TRANSFIELD SERVICES 2013 DIRECTORS’ REPORT including remuneration report
REVIEW OF OPERATIONS (CONTINUED)
MANAGEMENT REVIEW OF GROUP PERFORMANCE NPAT of $62.5 million, pre-amortisation and impairment charges
Restructuring and redundancy costs of $23.1 million pre-tax ($16.2 million post tax) have been absorbed in the result
Statutory NPAT loss of $250.0 million, down 395 per cent year on year includes impairment charges of $295.5 million post tax and non-controlling interests
Cash conversion of EBITDA pre-impairment of 121 per cent
Margins, excluding restructuring and impairments were 6.7 per cent, down 30bps year on year, with the benefit of efficiency gains offset by an overall tough macro environment
Peak capital expenditure for the new Enterprise Resource Planing (ERP) system has passed and it is now in the implementation and benefits phase: Completed in the Americas; progressing to plan in ANZ
Net debt of $566 million, down $75 million from 31 December 2012
Refinancing of debt maturity due December 2013 has been completed
Gearing reduction and sell down of non-core assets and businesses is progressing to plan, and
No final dividend.
Restructuring costs of $23.1 million pre-tax absorbed in this result include $20.2 million of redundancies. The cost savings from these initiatives help underpin the Group’s FY 2014 guidance. Further initiatives are planned for FY 2014.
IMPAIRMENT CHARGES The Group recorded impairment charges of $296 million post tax and non-controlling interest for the year. In 1HFY 2013 the impairment of intangible and some tangible assets totalling $265 million post tax was announced, relating to: the Group’s Easternwell Minerals Exploration and Marine Geotechnical businesses, $175 million; the US Downstream Maintenance business, $81 million and Middle East and Asia (MEA), $9 million. In 2H FY 2013 an impairment of $31 million post tax and non-controlling interest was recorded in relation the Group’s Chilean business.
As reported in the 1HFY 2013 result, the Chilean acquisition was under normal acquisition accounting review during FY 2013.
The Group identified during the period that the net assets of the business were not accurately reflected at acquisition date.
In particular, the acquisition date accounts did not reflect liabilities that existed in relation to the Chilean Construction business. The Group is in the process of commencing legal proceedings for the recovery of monies under the purchase agreement. The Group has not recognised any asset for these recoveries, as these recoveries are contingent on future events.
These write downs are non-cash, do not affect the Group’s gearing covenant under its banking
agreements and have no impact on operations. For personal use only use personal For
2013 TRANSFIELD SERVICES 51 DIRECTORS’ REPORT including remuneration report
REVIEW OF OPERATIONS (CONTINUED)
FX EXPOSURE The Group manages its exposure to fluctuations in foreign currency rates through natural hedges. The Australian dollar averaged 1.03 for the period versus the budget assumption of 1.05. This had no material impact on EBITDA or NPAT because of the natural hedges.
ORDER BOOK AND PIPELINE The Group’s contracted revenue at 30 June 2013 was $9.5 billion, down 14 per cent year on year. In addition the Group has $0.4 billion of tenders currently under preferred status. The decline reflects tightening of the Group’s strategic focus in terms of end markets and contract type and risk profile, combined with an overall softer tender environment during FY 2013.
SAFETY FOCUS ENHANCED The Company enhanced safety culture and focus, with emphasis on line accountability. Safety performance improved significantly with Lost Time Injury Frequency Rate (LTIFR) and Total Recordable Injury Frequency Rate (TRIFR) down 31 per cent and 25 per cent year on year to 0.95 and 5.99 respectively.
NO CHANGE IN BALANCE DATE Given the Group’s focus on operational improvement and implementation of the refined strategy, the Board has decided not to change the Group’s balance date from 30 June to 31 March in the current year.
MACRO-ECONOMIC BACKGROUND FY 2013 The macro environment in general softened throughout FY 2013 with clients showing increasing cost and capital discipline. A sharp downturn in mining sector activity coincided with an already weak domestic and export economy. Positives were ongoing growth from the Coal Seam Gas (CSG), LNG and conventional gas sectors and, later in the year, resilience in O&M demand for core infrastructure.
Australia
The Infrastructure sector experienced slowing conditions in 1Q – 3Q with a number of large projects and 1st generation government outsourcing projects remaining on hold. In 4Q, despite further weakening in the macro environment, the infrastructure sector showed resilience reflecting the essential nature of the services these businesses provide.
Conventional oil and gas and especially CSG enjoyed increasing activity through FY 2013 and into FY 2014. This continued to underpin performance and growth in both asset services and Easternwell’s energy business areas.
In the coal and iron ore sectors, rapid adjustment to decreasing commodity prices and future uncertainty of demand volumes impacted both asset services and Easternwell’s minerals operations, where activity particularly in exploration dropped to decade lows and is expected to remain at these levels for the near term.
Industrial, mining and manufacturing operators continued to be pressured with high input costs and the Australian dollar impacting work volumes in asset services.
Americas
For personal use only use personal For Upstream oil and gas services demand was strong driven by rising shale oil production, with clients focussed on securing services rather than just price. Downstream activity began to accelerate late in FY 2013 but the market remained price sensitive.
Middle East and Asia
The overall business environment stabilised with some emerging signs of confidence. However, it is early in the business cycle and clients and competitors remain price focused.
52 TRANSFIELD SERVICES 2013 DIRECTORS’ REPORT including remuneration report
REVIEW OF OPERATIONS (CONTINUED)
CAPITAL MANAGEMENT AND CASH FLOW Capital expenditure
Capital expenditure for the year was $159.4 million.
Of this $40.2 million related to the direct costs of the Enterprise Resource Planning (ERP) system which is materially on time and budget. In addition there were $10.9 million of associated capitalised costs relating to the project, including interest costs of $4.3 million and employee time of $6.6 million dedicated to the project, both accounted for in accordance with the Group’s capitalisation policy.
The remainder of the Group’s capital expenditure for FY 2013 represents $66.7 million for maintenance and $41.5 million of growth capital of which $31.2 million primarily related to Easternwell Energy.
Funding vehicle for Easternwell Energy
To support the significant growth opportunity for Easternwell’s energy business, the Group is establishing a JV to acquire new energy rigs. Debt funding for this vehicle will be non-recourse to the Group.
Return on Capital Employed (ROCE) for capital committed to the vehicle is well in excess of the Group’s cost of capital and will be significantly higher than if the rigs were acquired directly by the Group.
Refer to segment note in the financial statements, Note 4, for a breakdown of capital expenditure by segment.
Cash conversion
EBITDA cash conversion FY 2013 was 121 per cent. This is attributable to out-performance on debtor collections, tight creditor management to match supplier payment terms with customer payment terms and positive joint venture cash realisation. The Group’s cash conversion benefitted from some short-term movements in working capital which will partly reverse in FY 2014.
Long-term the Group continues to target cash conversion of 90 per cent plus and expects to reduce working capital requirements through increased discipline and roll out of the Group wide ERP system. However, due to the partial reversal of some working capital in FY 2014, the Group’s cash conversion is expected to be lower than 90 per cent during FY 2014.
Gearing and liquidity
Net Debt of $566 million at 30 June 2013 was down $75 million from 31 December 2012 with the reduction driven by the strong cash conversion of EBITDA and a disciplined approach to capital expenditure.
Net debt to EBITDA is significantly lower than six months ago falling from 2.8 times at 31 December 2012 to 2.3 times at 30 June 2013.
Further gearing reductions are expected during FY 2014 as capital expenditure will be lower in FY 2014, including expenditure on the ERP which peaked in FY 2013, and free cash flow is used to repay debt.
Reported gearing (Net Debt to Net Debt plus Equity), which is not one of the Group’s
For personal use only use personal For banking covenants was 43 per cent at 30 June 2013, down from 46 per cent at 31 December 2012.
The increase from 32 per cent at 30 June 2012 reflects the impact of $295.5 million of impairment charges, post tax and non-controlling interests, taken in FY 2013.
2013 TRANSFIELD SERVICES 53 DIRECTORS’ REPORT including remuneration report
REVIEW OF OPERATIONS (CONTINUED)
Debt facilities
The Group maintains adequate levels of committed debt facilities. At 30 June 2013, there was $320 million of committed, available bank debt facilities.
Since year end the Group has successfully completed the refinancing of a tranche of $259 million of debt scheduled for maturity in December 2013. Of this amount, $143 million was extended for two years, with US$100 million voluntarily cancelled as excess to requirements.
The next significant debt maturity is in December 2014 in relation to a further tranche of the Group’s syndicated bank facilities for $250 million.
Gearing reduction plan
Significant gearing reductions are expected during FY 2014 from a range of initiatives, with specific action plans currently being executed in respect of:
Disposal of non-core assets
Sale of Group’s loan notes in respect of its investment in RAC
No final FY 2013 dividend
Joint venture to fund Easternwell energy rig fleet expansion: Non-recourse, off balance sheet, and
Capital expenditure budget of $83.0 million in FY 2014, less than FY 2014 depreciation and down from FY 2013 capital expenditure of $159.4 million.
Dividend
No final dividend has been declared for FY 2013. An unfranked interim dividend of 3.0 cents per share was paid on 1 May 2013.
Buyback and EPS impact
The share buy-back was completed in October 2012. Over the 12 months of the program 37.3 million shares were purchased at a total cost of $79.3 million. The EPS accretion pre-amortisation
resulting from the buy-back was 1 per cent for FY 2012 and 1.1 per cent in FY 2013. For personal use only use personal For
54 TRANSFIELD SERVICES 2013 DIRECTORS’ REPORT including remuneration report
REVIEW OF OPERATIONS (CONTINUED)
STRATEGY UPDATE AND OUTLOOK Strategy
The Group’s strategic focus as announced in February 2013 at the 1H result remains on delivering high value services, aligned with clients’ production related activities, in sectors with sustainable, long-term growth, being: Infrastructure, energy and mining.
To do this efficiently while creating value for clients and shareholders, the Group is:
Improving execution capability and a culture of accountability
Strengthening risk management processes with new contract bidding process implemented
Changing and upskilling people
Streamlining the cost base, with 359 permanent positions removed during FY 2013 and a further 180 scheduled for removal in FY 2014, primarily in 1H FY 2014
Strengthening its systems and improving visibility with the ERP system now progressively deploying across the business and already delivering results, and
Maintaining a tight control on capital usage and ROCE metrics.
Portfolio review implementation
The results of the Group’s portfolio review were announced in February 2013 with the businesses below considered non-core and to be managed for value. Progress on realising value is proceeding in line with planned timelines and valuations and is detailed below.
Easternwell minerals exploration and marine geotechnical operations
Following a sounding of the market for the Geotechnical and Minerals businesses, the Group has resolved not to exit the businesses at this stage. The Geotechnical business has been mothballed and Minerals business is being operated with reduced costs. This is consistent with the Group’s announcement in February 2013 that divestments would proceed within 12-24 months in a manner to maximise shareholder value.
Middle East and domestic India region
The MEA is comprised of several joint ventures as well as the 100% owned Indian business which are likely to be sold individually. The divestment process is proceeding well. Data rooms have been opened and interested parties are actively engaged.
RAC investment
The Group’s 20 per cent stake in RAC has a book value of $93 million. Sell down of the Group’s loan notes in RAC is expected to be completed in 1H FY 2014.
FY 2014 OUTLOOK AND GUIDANCE Australia
Activity levels leading into FY 2014 have remained subdued and consistent with 2H FY 2013. Overall, FY 2014 activity levels are expected to be similar to FY 2013 but with the
return of more positive momentum in the second half. Looking at the key end markets, For personal use only use personal For the Group expects:
Growth from CSG and upstream oil and gas in both the asset services and Easternwell business portfolios to outpace other sectors Infrastructure operations and maintenance weakness at the margin to remain in 1H, with increased opportunities in 2H and into FY 2015 as clients seek the efficiencies available from outsourcing, and Mining and process industries to remain under pressure in general, especially in exploration, but with improving production related demand through the year.
2013 TRANSFIELD SERVICES 55 DIRECTORS’ REPORT including remuneration report
REVIEW OF OPERATIONS (CONTINUED)
FY 2014 OUTLOOK AND GUIDANCE (CONTINUED) At the Group level, recent client activity indicates stabilising demand, albeit at lower levels than prior years. There are positive signs with some work previously put on hold now coming to the market. However, competition levels and clients’ cost sensitivity remain high.
Americas
Market dynamics remain strong in upstream R&E sector with significant investment continuing in North Dakota (Bakken basin), California and the Gulf Coast. Downstream clients remain price focussed but there are early signs of a shift back towards value.
Significant Public Private Partnership opportunities are present in the Infrastructure business. Although timing remains uncertain, these projects represent higher margin growth opportunities for the roads maintenance business over the medium-term.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS The Group removed 359 positions during FY 2013. Repetitive back office functions in accounts payable, receivable and payroll were outsourced and Easternwell was substantially integrated into the Australian and New Zealand Resources and Energy business. These accelerated cost reduction initiatives delivered a net $29.0 million in savings during FY 2013, and on an annualised basis means the Group’s FY 2014 cost base will be $81m lower than it was at the start of FY 2013. The Company has scheduled 180 more permanent positions to be removed, primarily during 1H FY 2014.
The Company’s Risk Management and bidding processes were comprehensively overhauled and refined, and its procurement and asset management functions were centralised.
The majority of expenditure was finished on a state of the art ERP system upgrade. The development phase is largely complete and the project is now moving into the implementation and benefits stage. The system is operational in the US and in parts of the Australian business and the roll out continues according to plan and budget. It is already delivering quantifiable business benefits in terms of efficiency, visibility and timeliness of management information.
The Group recorded impairment charges of $296 million post tax and minority interest for the year. In 1H FY 2013 the impairment of intangible and some tangible assets totalling $265 million post tax was announced, relating to: the Group’s Easternwell Minerals Exploration and Marine Geotechnical businesses, $175 million; the US Downstream Maintenance business, $81 million and MEA $9 million. In 2H FY 2013 an impairment of $31 million post tax and non- controlling interest was recorded in relation the Group’s Chilean business.
Given the Group’s focus on operational improvement and implementation of the refined strategy, the Board has decided not to change the Group’s balance date from 30 June to 31 March in the current year.
MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR In August 2013, the Group completed the extension of $143 million of debt facilities that were due to expire in December 2013 of which $83 million was drawn down at 30 June 2013. The new maturity date for these facilities will be August 2015. Whilst the total amount of expiring facilities was $259 million the Group voluntarily cancelled US$100 million being excess commitments no longer required. The breakdown of the
facility extension was: For personal use only use personal For A$80 million extended for 2 years (previous amount A$84 million)
NZ$63 million extended for 2 years (previous amount was NZ$63 million)
CLP 5.5263 billion extended for 2 years (previous amount CLP 5.5263 billion), and
US$100 million cancelled.
56 TRANSFIELD SERVICES 2013 DIRECTORS’ REPORT including remuneration report
REVIEW OF OPERATIONS (CONTINUED)
MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR (CONTINUED) At 30 June 2013, the above facilities were classified as current loans and borrowings, because they were expiring within 12 months from that date.
No other significant matters have arisen between statement of financial position date and the date of this report that have significantly affected, or may significantly affect:
the consolidated entity’s operations in future financial years; or the results of those operations in future financial years; or the consolidated entity’s state of affairs in future financial years.
LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS Overall, FY 2014 activity levels are expected to be similar to FY 2013 but with the return of more positive momentum in the second half. Growth from coal seam gas and upstream oil and gas in both the asset services and Easternwell business portfolios is expected to outpace other sectors. The Company expects increased opportunities in 2H and into FY 2015 as clients seek the efficiencies available from outsourcing.
The Group’s contracted revenue at 30 June 2013 was $9.5 billion, down 14 per cent year on year. In addition the Group has $0.4 billion of tenders currently under preferred status. The decline reflects tightening of the Group’s strategic focus in terms of end markets and contract type and risk profile, combined with an overall softer tender environment during FY 2013.
Notwithstanding the macro business environment which will limit revenue growth in FY 2014, the Group expects to report NPAT pre-amortisation of $65 million to $70 million, due to the benefit of cost reductions implemented during FY 2013 and the Group’s strengthened focus on execution discipline.
Restructuring costs of $6.3 million have been absorbed in this guidance which also assumes no further deterioration or significant improvement in the macro environment. As further cost and operational improvements are implemented, and the business environment improves, the Group expects further earnings growth in FY 2015.
Given the focus on strengthening the balance sheet, the Board has elected not to pay a full year dividend. An unfranked interim dividend of 3.0 cents per share was paid on 1 May 2013.
Since year end the Group has successfully completed the refinancing of a tranche of $259 million of debt scheduled for maturity in December 2013. Of this amount, $143 million was extended for two years, with US$100 million voluntarily cancelled as excess to requirements. The next significant debt maturity is in December 2014 in relation to a further tranche of the Group’s syndicated bank facilities for $250 million.
SIGNIFICANT ENVIRONMENTAL REGULATIONS In Australia, the Group is subject to the reporting requirements of the National Greenhouse and Energy Reporting Act 2007, which requires the Group to report its annual greenhouse gas emissions, energy production and energy consumption. The Company is registered with the Clean Energy Regulator and has submitted reports for all relevant periods since 30 June 2009. The Group has implemented systems and processes for the collection and calculation of the data to enable it to continue to prepare and submit reports annually.
The National Greenhouse & Energy Reporting Act 2007 requires the Group to report carbon emissions to the Federal Government in respect of assets over which it has operational control. Importantly, under the Clean Energy Act 2011 the financial liability for carbon permits is able to be passed onto the asset owner pursuant to a liability transfer certificate application. The Group has For personal use only use personal For no carbon liability for any client assets over which it has operational control under the Act.
In 2011 the Group registered for participation in the Energy Efficiency Opportunities Program under the requirements of the Energy Efficiency Opportunities Act 2006 based on energy use in the 2009-10 years. The Group’s planned approach to ensuring compliance with the Act was endorsed by the Department of Resources, Energy and Tourism in May 2012. The Group is implementing systems and processes to ensure compliance with the next steps in the Energy Efficiency Opportunities Act 2006 reporting cycle.
The Group is in compliance with all other relevant significant environmental legislation.
2013 TRANSFIELD SERVICES 57 DIRECTORS’ REPORT including remuneration report
MEETINGS OF DIRECTORS
Extraordinary Board Sub- Board Board committee meetings Meetings Meetings RACC HSEQC HRC NOMC* No of meetings held 8 7 - 4 4 5 - No of meetings attended by Anthony Shepherd AO 8 6 - 2 - - - Jagjeet Bindra 1 2 - - - 1 - - Steven Crane 8 5 - 4 - 5 - Douglas Snedden 8 5 - 4 - 5 - Dr Peter Goode 2 2 0 - 1 - - - Graeme Hunt 3 7 7 - 3 4 - - Guido Belgiorno-Nettis AM 4 1 0 - - 1 - - Luca Belgiorno-Nettis AM 5 1 0 - 1 - - - Roy McKelvie 6 7 6 - 3 2 - - Diane Smith-Gander 8 5 - - 4 5 -
Risk, Audit Health, Safety, Human and Nomination RACC: HSEQC: Environment and HRC: Resources NOMC: Compliance Committee Quality Committee Committee Committee
* The activities of the Nominations Committee have been undertaken by the full Board
1 Jagjeet Bindra’s retirement from the Board (Deputy Chair) and HSEQC (Chair) effective 2/11/2012 2 Dr Peter Goode’s retirement effective 31/08/2012 3 Graeme Hunt’s appointment as interim Managing Director and Chief Executive Officer effective 1/10/2012, permanent appointment effective 01/01/2013. 4 Guido Belgorino-Nettis’ retirement from the Board & HSEQC effective 30/08/2012 5 Luca Belgiorno-Nettis’ retirement from the Board & RACC effective 30/08/2012
6 Roy McKelvie’s appointment to the Board, HSEQC & RACC effective 31/08/2012 For personal use only use personal For
58 TRANSFIELD SERVICES 2013 DIRECTORS’ REPORT including remuneration report
INFORMATION ON DIRECTORS Details of the Directors’ responsibilities and shareholding as at 30 June 2013 are set out below:
Particulars of Directors’ Interests in shares and Performance Awards of Transfield Services Limited Ordinary Indirect Interest Shares in Transfield (includes Services shares that Limited through are held by a Performance Transfield (TSL) Director Special Responsibilities related party) Awards Pty Ltd Anthony Shepherd AO Chairman of the Board of Directors and Chair of the 216,383 - - Nomination Committee. Steven Crane Chair of the Risk, Audit and Compliance Committee, member of the the Human 141,778 Resources Committee - - and the Nomination Committee. Graeme Hunt Member of the Health, Safety, Environment and - 1,076,600 - Quality Committee. Diane Smith-Gander Chair of the Health, Safety, Environment and Quality Committee, member of 65,198 the Human Resources Committee and the Nomination Committee. - - Douglas Snedden Chair of the Human Resources Committee and member of the Risk, - Audit and Compliance 84,525 - Committee and the Nomination Committee. Roy McKelvie Member of the Health, Safety, Environment and Quality Committee and - - - Risk, Audit and Compliance
Committee. For personal use only use personal For
2013 TRANSFIELD SERVICES 59 DIRECTORS’ REPORT including remuneration report
DIRECTORSHIPS OF OTHER LISTED COMPANIES HELD IN THE LAST THREE YEARS
ANTHONY SHEPHERD ConnectEast Group (ASX) – 28 September 2004 – 2 November 2011
Transfield Services Infrastructure Fund (ASX) – 12 June 2007 – 15 February 2010
STEVEN CRANE APA Group (ASX) – appointed 1 January 2011
Bank of Queensland Limited (ASX) – appointed 11 December 2008
APA Ethane Limited (ASX) as responsible entity for Ethane Pipeline Income Fund (EPX) – 10 July 2008 – 24 June 2011
NIB Holdings Limited (ASX) – appointed 14 September 2010
GRAEME HUNT AGL Energy Limited (ASX) – appointed 1 September 2012
DIANE SMITH-GANDER Wesfarmers Limited (ASX) – appointed 1 January 2011
DOUGLAS SNEDDEN Hillgrove Resources Limited (ASX) – appointed 1 January 2012
UXC Limited (ASX) – appointed 24 October 2012
CHIEF RISK AND LEGAL OFFICER / COMPANY SECRETARY
Kate Munnings (LLB and Bachelor of Health Science) was appointed Chief Counsel and Company Secretary to Transfield Services Limited in January 2006. Kate leads the group responsible for Transfield Services’ legal, company secretarial, risk management, global insurance and internal audit functions. Kate has 20 years of experience working with and advising companies in the engineering, construction and services sectors in relation to their corporate, contractual and other commercial requirements.
Angelique Nesbitt (LLM and Bachelor of Asia-Pacific Studies) is the Group Corporate Counsel and was appointed as Joint Company Secretary on 27 March 2013. Angelique joined Transfield Services in January 2005 and has more than 20 years experience working with and advising companies in relation to mergers and acquisitions, banking and finance, and corporate law. She currently heads the Corporate Legal team and supports Kate Munnings in advising the Board on governance matters.
The Remuneration Report is presented as part of the Directors’ Report on pages 61 to 94. For personal use only use personal For
60 TRANSFIELD SERVICES 2013 DIRECTORS’ REPORT remuneration report-unaudited
EXECUTIVE SUMMARY This Executive Summary provides an overview of key remuneration developments during 2013 financial year (‘FY 2013’), outlines the Company’s remuneration principles, summarises the key remuneration initiatives undertaken by the Company during the year and discloses the actual remuneration derived by Senior Executives in the FY 2013.
It should be read together with the full Remuneration Report on pages 61 to 94, which provides disclosure of the detailed remuneration structure of the Company and data in accordance with statutory obligations.
In the detailed section of the report we provide information on the Board, Managing Director and Chief Executive Officer and Senior Executives for each of the components of remuneration including fixed and variable. We describe outcomes for the year and explain how the remuneration components operate and provide information earnings.
OVERVIEW The past year has presented the Company with a number of challenges, particularly with respect to the markets and industry sectors we operate in. A number of business improvement programs have been implemented and these will continue to reshape our businesses. The changes we have made in prior years with respect to remuneration practices and incentive structures have proven prudent, robust and provide remuneration outcomes in alignment with our shareholders.
REMUNERATION PRINCIPLES AND OBJECTIVES Whilst the changes to our business take place, we continue to focus our remuneration activity on the core objective which is to attract, retain and motivate executives to achieve business objectives for the short and long-term success of the Company. This objective is achieved by aligning remuneration with annual operating performance and longer term shareholder returns. Consequently, we have structured our executive remuneration so that there is a significant proportion of remuneration which is only earned if Board established targets for annual operating performance and longer term shareholder returns are achieved.
The Board believes that fixed remuneration and total remuneration are fair and reasonable and sufficiently competitive to attract and retain Senior Executives.
DIRECTOR AND MANAGEMENT CHANGES FY 2013 A number of changes occurred to the membership of the Board with the retirement of long standing members Jagjeet (Jeet) Bindra, Guido Belgiorno-Nettis AM and Luca Belgiorno- Nettis AM. We welcomed two new members to the Board, Graeme Hunt and Roy McKelvie. Graeme Hunt stepped down as a non-executive director to take up an interim and then permanent appointment as Managing Director and Chief Executive Officer. The overall number of Board members is now six. There were no changes to Non-Executive Directors fees during FY 2013.
There were also a number of changes to Key Management Personnel (KMP) during FY 2013 including separations and role accountability changes during the year. These are detailed in Table 1 on page 65. We have taken the opportunity where practicable to reset fixed remuneration for newly appointed executives at a level more commensurate with our market position. With respect to variable pay, the plans have operated as intended. Where performance hurdles were not met, no incentive payments were made. Equity awards were tested and where performance hurdles were not met, awards lapsed. Information on
executive earnings in the tables contained in this report reflects this outcome. For personal use only use personal For
2013 TRANSFIELD SERVICES 61 DIRECTORS’ REPORT remuneration report-unaudited
REMUNERATION INITIATIVES DURING 2013 Changes to the Executive Team provided an opportunity to realign fixed pay and reposition this more in line with the Company’s current market position and operating environment, whilst still maintaining a market relative mix between fixed and variable pay. The Board tests executive pay by benchmarking to the external market every two years. This was last done in FY 2012 and is scheduled again for FY 2014. Market benchmark data is refreshed outside this cycle as required when the Board considers new executive appointments.
This is evidenced by the fixed remuneration level of Graeme Hunt in his permanent appointment from 1 January 2013 as Managing Director and Chief Executive Officer. Mr Hunt’s annual fixed remuneration is $1.5m which compares with Dr Goode’s fixed remuneration of $1.828m at the time of his resignation. Newly appointed executives are also being hired at lower fixed remuneration levels. This realignment strategy will continue to be applied over the short to medium-term.
The key changes introduced during FY 2013 were amendments to the operation of the Short Term Incentive plan (STI) and an additional performance measure added to the Long Term Incentive plan (LTI). Specifically, the result of these changes are summarised as:
Introduction of performance gateways in the STI plan based on Board approved financial measures. These gateways need to be satisfied in order to trigger plan operation and ensure the plan is funded.
Given the focus on maintaining and improving safe operations within our business, rather than being an individual STI objective, safe work practices as measured by the Total Recordable Injury Frequency Rate (TRIFR) are now applied as a moderator to potential STI earnings. A target reduction in TRFIR is required to maximise STI, and STI may be forfeited if the outcome deteriorates relative to prior years. This focuses all STI plan participants on maintaining and improving safe work practices.
Awards under the LTI plan for FY 2013 now incorporate the new internal performance measure of return on capital employed (ROCE), replacing return on funds employed (ROFE), and a change in the relative total shareholder return (TSR) comparator group where we now use a group comprising companies that are competitors for clients, talent and/or investor capital. The relative TSR percentile performance required to trigger vesting needs to be greater than the 50th percentile. The earnings per share measure is retained.
REMUNERATION OUTCOMES – NON EXECUTIVE DIRECTORS (NEDs)
Remuneration, in the form of fees and other benefits paid to NEDs during the period are set out in Section B and details are included in Table 3. The fees paid during FY 2013 reflect the changes to Board composition and where appropriate, have been pro-rated to reflect the number of meetings attended and the time period. There were no changes made to the level of NED and Committee fees during FY 2013.
REMUNERATION OUTCOMES – SENIOR EXECUTIVES The table on page 63 sets out the amounts Senior Executives derived from the various components of their remuneration that was actually paid in cash in FY 2013. For remuneration values that are in accordance with statutory and accounting standards, please refer to Table 11 on page 90. The table below includes those executives that departed and those appointed during the year. Footnotes explain individual circumstances and include the following amounts paid to Dr Peter Goode and Mr Graeme Hunt:
The total fixed remuneration for Dr Goode includes fixed remuneration paid during his 6 month notice period from 31 August to 28 February representing an amount of $978,459. For personal use only use personal For There was no additional cash termination payment for Dr Goode.
Larry Ames received a termination payment equivalent to 12 months fixed remuneration in accordance with the terms of his Service Agreement. The amount below reflects only the pro-rated fixed remuneration payment up to the date of termination.
The fixed remuneration paid to Mr Hunt includes the amount of $752,755 which was paid to him for the period between 1 October and 31 December 2012 during interim appointment as Managing Director and Chief Executive Officer.
62 TRANSFIELD SERVICES 2013 DIRECTORS’ REPORT remuneration report-unaudited
REMUNERATION OUTCOMES – SENIOR EXECUTIVES (CONTINUED)
Fixed remuneration Non- (including Termination MTI4 LTI 5 monetary superannuation) Benefits7 STI3 (Unaudited) (Unaudited) benefits Total $ Dr Peter Goode (until 30 September 1,265,603 - 173,703 - 5,881 1,445,187 2012)1 Graeme Hunt (from 1 October 1,433,789 420,750 - - 2,674 1,857,213 2012)2 Larry Ames 139,138 612,823 - - - 10,225 762,186 (until 1 August 2012)6 Elizabeth Hunter 530,957 - - - 6,485 537,442 Steve MacDonald 601,808 - - - 17,486 619,294 Gareth Mann 64,549 - - - 2,444 66,993 (until 7 August 2012) Kate Munnings 578,225 - - 43,678 8,024 629,927 Tiernan O'Rourke 828,811 - - - 12,001 840,812 Philip Wratt 614,232 - - - 50,445 664,677 (from 2 August 2012) Nicholas Yates 617,577 - - - 5,108 622,685 Joe Sofra 404,383 - - - 11,495 415,878 (from 7 August 2012) Total current Senior 7,079,072 612,823 420,750 173,703 43,678 132,268 8,462,294 Executives 1. The fixed remuneration includes $978,549 salary earned from 1 October 2012 to 1 February 2013 during the interim MD transition phase. 2. The fixed remuneration includes $752,755 earned as interim MD from 1 October 2012 to 31 December 2012. 3. This figure represents 50% of the success fee awarded as part of the interim CEO arrangements. 4. This figure represents the value of MTI awards which vested during the year, calculated using the closing price of the Company’s shares on the vesting date. The value derived by the executive (if the vested MTI awards were exercised and sold) may be a different to this value. For further details of the Company’s MTI plan, please see pages 82 to 83 of the Remuneration Report. 5. This Value relates to LTI awards exercised during the year. 6. USD amounts translated into AUD at the average annual AUD:USD exchange rate of 1.0269. The fixed remuneration includes $44,225 of accrued annual leave that was paid upon termination. 7. The termination benefit number includes bi-weekly instalments from the 31 August until 28 February totalling $286,892. The termination benefit excludes $216,403 deferred compensation paid out on termination of employment.
There were no payments made to Senior Executives under the STI plan for FY 2013 as the Group did not meet the threshold performance levels required to trigger payment under the plan. The following chart illustrates the relationship between earnings results applied to trigger STI payments and the STI earned by KMP.
CHART 1: KEY MANAGEMENT PERSONNEL SHORT TERM INCENTIVE OUTCOMES
250 70
60
200 i d a
i l 50 P t m e $
150 g s
40 r g a i n T f n
r 30 o
100 a E I % For personal use only use personal For 20 T
50 S 10
0 2009 2010 2011 2012 2013 Year
Cash STI % of Target EBITA EBIT Operating NPAT
2013 TRANSFIELD SERVICES 63 DIRECTORS’ REPORT remuneration report-unaudited
REMUNERATION OUTCOMES – SENIOR EXECUTIVES (CONTINUED)
This excludes the Success Fee arrangement for Graeme Hunt approved by the Board as part of the transition arrangements associated with the change in Managing Director & Chief Executive Officer. The performance hurdles required to trigger payment of the success fee were based on achieving financial targets, restructuring of the business and remediation initiatives. The success fee was delivered as 50% cash and 50% deferred into performance awards under the terms of the Medium Term Incentive (MTI) plan. The share price used to determine the number of performance rights granted was $1.7842 which is the same price used for LTI and MTI grants made in December 2012 to other executives; this was significantly higher than the prevailing share price at the time the rights were granted. Details of this arrangement are set out later in the report in Section C2 on pages 73 to 76.
Performance rights granted to senior executives under the MTI plan for tranche 2 FY 2010 did not meet performance hurdles when tested and have lapsed. MTI awards for tranche 1 FY 2011 did not meet performance hurdles when tested and are being treated in accordance with the Plan rules.
Performance rights granted in September 2009 under the LTI plan were eligible for performance testing in FY 2013. The tranches for earnings per share growth and relative total shareholder return of greater than 50th percentile against the comparator group were forfeited due to the Company not meeting the required minimum performance hurdles. The tranche related to achievement of ROFE met the performance hurdle and relevant Executives with these awards realised 100% vesting of this tranche.
TERMINOLOGY
In this report, the term ‘Senior Executives’ refers to all executives who meet the definition of key management personnel of the Group (being those persons with authority and responsibility for planning, directing and controlling the activities of the Group) including the Managing Director and Chief Executive Officer. Detailed explanation of the terms are contained in the tables throughout the report where they are applied.
The term ‘Non-Executive Directors’ or ‘NEDs’ is used to refer to the non-executive Directors of the Company.
‘STI’ refers to short-term incentives.
‘MTI’ refers to medium-term incentives.
‘LTI’ refers to long-term incentives.
‘ROFE’ refers to Return on Funds Employed
‘ROCE’ refers to Return on Capital Employed
‘TSR’ refers to Total Shareholder Return
‘EPS’ refers to Earnings per Share For personal use only use personal For
64 TRANSFIELD SERVICES 2013 DIRECTORS’ REPORT remuneration report-audited
The Directors of the Company present the Remuneration Report prepared in accordance with section 300A of the Corporations Act 2001 for the Company and the consolidated entity for the year ended 30 June 2013. The information provided in this Remuneration Report has been audited as required by section 308(3C) of the Corporations Act 2001. This Remuneration Report forms part of the Directors’ Report.
In this detailed section of the report we provide updates on the changes to the composition of the Directors and Senior Executives and set out the remuneration governance framework adopted and applied by the Directors. Specific sections set out policy and remuneration for NEDs, detail how our remuneration policies and practice are performance linked and provide information on each of the components of senior executive remuneration including fixed and variable, explaining how these components operate and providing information on outcomes and earnings. CHANGES TO COMPOSITION OF DIRECTORS AND SENIOR EXECUTIVES The Remuneration Report sets out the remuneration information pertaining to the Company’s Directors and Senior Executives who are the key management personnel (KMP) of the consolidated entity for the purposes of the Corporations Act 2001 and AASB124: Related Party Disclosures. Changes to the Board and Executive Team during FY 2013 are listed below.
Table 1 – Directors and Senior Executives
Non-Executive Directors Description of Changes Board role HR Committee role Anthony Shepherd AO Chair Not applicable Steven Crane Director Member Diane Smith-Gander Director Member Douglas Snedden Director Chair Attendee of HRC upon NED from 7 May 2012 to Graeme Hunt Director commencement as Managing 30 Sep 2012 Director and Chief Executive Officer Appointment effective Roy McKelvie Director Not applicable 31 Aug 2012 Retirement effective Jagjeet Bindra Deputy Chair Not applicable 2 Nov 2012 Retirement effective Guido Belgiorno-Nettis AM Director Member 30 Aug 2012 Retirement effective Luca Belgiorno-Nettis AM Director Not applicable 30 Aug 2012 Senior Executives Resignation effective Dr Peter Goode^ Managing Director and Chief Executive Officer 31 Aug 2012 Interim appointment effective Graeme Hunt 1 Oct 2012 Permanent Managing Director and Chief Executive Officer appointment effective 1 Jan 2013 Role change effective Chief Financial Officer Tiernan O’Rourke 26 Feb 2013 CFO & Chief Executive – Middle East & Asia Termination effective Larry Ames Chief Executive – Americas 30 Aug 2012 Appointment effective 2 Aug 2012 President Americas & Middle East and Asia Philip Wratt Role change effective President Americas 26 Feb 2013 Nicholas Yates Chief Executive – Infrastructure ANZ Role change effective Gareth Mann Chief Executive – Resources & Energy ANZ 7 Aug 2012 Appointment effective Joe Sofra Chief Executive – Resources & Energy ANZ 7 Aug 2012
For personal use only use personal For Role ceased 26 Feb 2013 Chief Executive – Marketing & Investments Steve MacDonald Project Director – Portfolio Review Commenced 26 Feb 2013 Chief Risk and Legal Officer and Company Kate Munnings Secretary Elizabeth Hunter Chief Executive – Human Resources
^ Dr Peter Goode remained available to support the transition of the new Managing Director and Chief Executive Officer during his 6 month notice period. Details on the Non-Executive Directors’ remuneration are set out on page 69. Details on the remuneration structure and outcomes for Senior Executives are set out on pages 69 to 94.
2013 TRANSFIELD SERVICES 65 DIRECTORS’ REPORT remuneration report-audited
A. REMUNERATION GOVERNANCE FRAMEWORK
BOARD RESPONSIBILITY The Board’s key responsibility is overseeing financial integrity, business strategy, the management of business risks, legal compliance and governance and human resources and remuneration strategy. In relation to remuneration, the Board through delegation to the Human Resources Committee (HRC) sets and approves remuneration structures, and ensures that they are equitable and aligned to the interests of the Company and its shareholders. The Board approves all Non-Executive Directors and Managing Director and Chief Executive Officer remuneration.
HR COMMITTEE The purpose of the Board’s HR Committee is to:
ensure that the Company’s HR policies comply with relevant laws, reflect current governance and mitigate operational, financial and reputation risks
assist the Board to consider remuneration issues more efficiently and fully, and to provide recommendations on remuneration policies, practices and decisions to the Board for approval including remuneration for NEDs and Senior Executives, and
assist the Board to ensure key talent and critical workforces are managed to support and achieve corporate objectives and to provide recommendations to the Board for approval.
The Board authorises the HR Committee to perform activities within the scope of its responsibilities including engaging independent advisors as it deems necessary, requiring the attendance of company officers at meetings and having unrestricted access to management, employees and information it considers relevant. The HR Committee may make any recommendations to the Board within its remit but it does not have delegated power to make binding decisions on behalf of the Board.
The HR Committee Charter was reviewed and updated during the year.
The members of the Committee during the year are noted in Table 1 on page 65. The HR Committee met five times during the financial year. Further details regarding attendances and changes to the HR Committee members are set out on page 58.
The Managing Director and Chief Executive Officer, the Chief Executive – Human Resources and other members of senior management attend meetings of the HR Committee, as appropriate, to provide information necessary for the HR Committee to undertake its responsibilities. Individual executives do not attend or participate in discussions where recommendations regarding their own circumstances are determined.
REMUNERATION CONSULTANTS External remuneration consultants may be engaged by the Board and the HR Committee to provide advice or information. Any advice or information provided by external consultants are used as a guide. They do not substitute for the Board and HR Committee decision making process.
The Board’s governance in relation to engagement of remuneration consultants include:
the HR Committee approves the scope and the engagement of the remuneration consultant
the remuneration consultant’s advice is provided directly to the Chair or a member of
For personal use only use personal For the HR Committee, and
the Chair of the HR Committee may authorise management to liaise with the remuneration consultant to facilitate the engagement including briefing and providing information.
In reviewing remuneration and the remuneration structure during the year, the Board engaged Aon Hewitt to provide information on market data and practices. The engagement of the consultant during the year was in accordance with the Company’s governance process set out above.
66 TRANSFIELD SERVICES 2013 DIRECTORS’ REPORT remuneration report-audited
B. NON-EXECUTIVE DIRECTORS’ REMUNERATION POLICY AND COMPONENTS
This section sets out remuneration policies and the fee structure applicable to Board members and provides information on fees earned during FY 2013.
The following information contained in the Table 2 below sets out how the NEDs remuneration is structured and specific reference is included on policy affecting NEDs and Board and Committee fees. There were no changes to the fee structure for Directors and Committee Members during FY 2013 and all other information on NEDs remuneration is as previously reported.
Table 3 contains the actual fees paid to Directors for FY 2013 including any fees on a pro- rated basis for out-going and newly appointed Directors.
Table 2 – Key principles underpinning the remuneration policy for Non-Executive Directors and remuneration components
Principle Outcomes Aggregate Board and The aggregate fee pool for Non-Executive Directors (NEDs) is $2,000,000 Committee fees are approved by shareholders at the Annual General Meeting held on 21 October 2010. approved by shareholders Fee pools are inclusive of superannuation contributions. The total Board and Committee fees paid to NEDs during the year are set out in the statutory tables and were comfortably within the current aggregate fee pool of $2,000,000. Fees paid are inclusive of Superannuation contributions. Remuneration is To preserve independence and impartiality, no element of NED remuneration structured to preserve is “at risk”. NEDs are remunerated by way of fixed fees in the form of cash and independence whilst superannuation contributions in accordance with Recommendation 8.3 of the ASX creating alignment Corporate Governance Principles and Recommendations. The NEDs do not participate in any equity arrangements (e.g. share acquisition via fee sacrifice) following changes to employee share scheme taxation legislation in May 2009 which impacted the efficiency of this share acquisition mechanism. In April 2010, the Board adopted a policy under which all NEDs are expected to acquire and hold shares in the Company with a value (based on cost) equal to one year’s Directors base fees in order to align their interests with shareholders generally. Directors have a period of up to five years from the later of the adoption of the policy and their appointment date to achieve the minimum shareholding target. The NEDs’ current shareholdings are set out on page 59. Under the Company’s shareholding policy, NEDs are prohibited from using the Company’s securities as collateral in any financial transaction, including margin loan arrangements. This is consistent with the policy for Senior Executives (see
page 87) and other select employees. For personal use only use personal For
2013 TRANSFIELD SERVICES 67 DIRECTORS’ REPORT remuneration report-audited
Principle Outcomes Fees are set by reference Board and Committee fees, reviewed annually by the Board for 1 January adjustment if to key considerations and required, are set by reference to a number of relevant considerations including: reviewed periodically the responsibilities and risks attached to the role of NEDs
the time commitment expected of NEDs
the fees paid by peer companies to NEDs, and
reference to external market data sourced from independent experts, as appropriate.
The Chair’s fees are determined independently of other NEDs based on comparative roles in the external market. The Chair is not present at any discussions relating to determination of his own remuneration.
There were no changes to Board and Committee fees for FY 2013. Board fees are not paid to the Managing Director and Chief Executive Officer as an Executive Director as the responsibilities of Board membership are considered in determining the remuneration provided as part of their normal employment conditions.
During FY 2013, Graeme Hunt was appointed as a NED and was paid pro-rated fees for the period until 30 September when he took up the position as interim Managing Director and Chief Executive Officer. Details of fees paid for this period are set out in Table 3.
Current fees are as follows:
Board fees per annum Committee fees per annum $372,320 for Chair1 Risk, Audit & Compliance Committee: $20,000 for the Chair of the Committee $182,000 for Deputy Chair^ $13,000 for the members of the $140,400 for Board member Committee
Human Resources Committee and Health, Safety, Environment and Quality Committee: $15,600 for the Chairs of the Committees
$10,400 for the members of the Committees
1. The Chair of the Board does not receive additional fees for service on Board Committee ^ The role of Deputy Chair is currently unfilled.
Other fees/benefits NEDs are entitled to be reimbursed for all business related expenses, including travel, as may be incurred in the discharge of their duties. No retirement benefits The Board resolved in 2004 to remove retirement allowances for NEDs appointed after 30 June 2004. In February 2006, the Board further resolved to cease accruing retirement benefits for any Directors with retirement allowances with effect from 1 July 2006. Directors’ entitlements up to 30 June 2006 under the previous arrangements are preserved and the value maintained through indexation of amounts previously accrued. The accrued entitlement is paid on retirement of the Director.
For personal use only use personal For
68 TRANSFIELD SERVICES 2013 DIRECTORS’ REPORT remuneration report-audited
Table 3 – Non-Executive Director Remuneration for FY 2013 and FY 2012
Short term benefits Post employment benefits Cash salary Non-monetary Retirement Name and fees $ benefits $ 1 Superannuation $ benefits 2$ Total $
Anthony Shepherd AO 2013 357,126 3,575 15,199 5,907 381,807 2012 357,128 5,861 15,199 3,726 381,914 Jagjeet Bindra 2013 85,436 - - - 85,436 (until 2 November 2012)3 2012 203,507 - - - 203,507 Guido Belgiorno- Nettis AM 2013 62,605 - - - 62,605 (until 30 August 2012) 2012 161,203 - - - 161,203 Luca Belgiorno- Nettis AM 2013 20,674 - - - 20,674 (until 30 August 2012) 2012 153,403 - - - 153,403 Steven Crane 2013 156,699 - 14,103 170,802 2012 156,700 - 14,103 - 170,803 Graeme Hunt - - (until 30 September 2012) 2013 37,570 3,381 40,951 2012 23,179 - 2,086 - 25,265 Diane Smith-Gander 2013 147,892 - 13,310 - 161,202 2012 147,893 - 13,310 - 161,203 Douglas Snedden 2013 155,048 - 13,954 - 169,002 2012 155,049 - 13,954 - 169,003 Roy McKelvie - - - (from 31 August 2012) 2013 150,313 150,313 Total Non-Executive 2013 1,173,363 3,575 59,947 5,907 1,242,792 Directors 2012 1,358,062 5,861 58,652 3,726 1,426,301 Total for each 2013 1,176,938 65,854 1,242,792 category 2012 1,363,923 62,378 1,426,301
1. Provision of car-parking. 2. Retirement benefits ceased to be accrued in 2006; the disclosed amount relates to the indexation of amounts previously accrued. 3. USD amounts translated into AUD at the average annual AUD:USD exchange rate of 1.0269.
For personal use only use personal For
2013 TRANSFIELD SERVICES 69 DIRECTORS’ REPORT remuneration report-audited
C. SENIOR EXECUTIVE REMUNERATION POLICY AND STRUCTURE
This section sets out in detail a description of the policy and structure of remuneration as it applies to senior executives.
The general objectives of the remuneration policy and structure are outlined below and this is followed by a brief discussion and an illustration of alignment between performance and reward that demonstrates how our reward structures align to shareholders’ expectations.
Each component of the remuneration mix is then discussed focusing on a summary of outcomes, highlighting where applicable changes for FY 2013 were approved or implemented affecting remuneration components and for variable components, a detailed description of the plan and how it operates is provided. Finally the statutory tables are provided containing detail of all remuneration elements for senior executives.
For ease of reference, the content of the Senior Executive Remuneration discussion and relevant page numbers is set out below:
Discussion Page reference 1. Relationship between policy and performance Page 71 2. Managing Director and Chief Executive Officer’s remuneration Page 75 3. Fixed remuneration Page 76 4. Short-term incentive (“at risk” component) Page 77 5. Medium-term incentive (“at risk” component) Page 81 6. Long-term incentive (variable “at risk” component) Page 83 7. Shareholding policies Page 87 8. Service agreements Page 87 9. Statutory tables Page 90
OBJECTIVES OF THE REMUNERATION STRATEGY AND POLICIES
The Company’s remuneration strategy and policies support the objectives of attracting, motivating and retaining our people through:
competitive remuneration including both fixed and variable elements that are designed to attract, motivate and retain a high quality workforce;
fixed remuneration that is competitive with the external job market in which we compete for talent and reflective of the internal value of each role;
‘at risk’ variable remuneration using a combination of cash and/or shares that is commensurate with and reflects the contribution level of individuals where reward delivered is a function of individual, business and overall group performance
maintaining a remuneration mix that is weighted and reflects the decision-making horizon and control of the individual roles; and
policies and structure that ensure that variable remuneration is delivered over time, may be withheld or moderated at the discretion of the Board and that unvested
equity awards are subject to claw back or forfeiture under certain circumstances. For personal use only use personal For
70 TRANSFIELD SERVICES 2013 DIRECTORS’ REPORT remuneration report-audited
C1. RELATIONSHIP BETWEEN REMUNERATION AND CORPORATE PERFORMANCE The following description and charts illustrate how the variable reward plans, including those that are cash and equity based, operate in alignment with performance of the company and in aligning with shareholder expectations. Remuneration is linked to performance by:
Adjustments to fixed remuneration being considerate of individual performance through the annual performance review process;
Requiring an appropriate proportion of remuneration to be variable and delivered through short, medium and long-term incentive plans;
A gateway financial performance measure to be achieved by the Company before any STI determination for Senior Executives is made;
Setting clear expectations on target and stretch performance required for STI payments with objectives that are set to ensure measurable results; and
Assessment of medium and long-term performance through multiple measures that have an internal (ROCE) and external (TSR and EPS) focus which provide a picture of Company performance, and are aligned to the objective of increasing shareholder value.
The remuneration for Senior Executives varies with performance of the Company as measured by both short-term and long-term measures and relative incentives earned. The following charts reinforce the relationship between performance and reward.
STI PERFORMANCE AND REWARD RELATIONSHIP
Chart 1 illustrates the alignment of the level of STI payments to the earnings of the Company. The chart illustrates that over the past years and the current period, the key measures of company performance, EBITA in FY 2012 and NPAT and EBIT for FY 2013, did not meet the required minimum threshold to trigger STI payments for the KMPs.
CHART 1: KEY MANAGEMENT PERSONNEL SHORT TERM INCENTIVE OUTCOMES
250 70
60
200 i d a
i l 50 P t m e $
150 g s
40 r g a i n T f n
r 30 o
100 a E 20 I % T
50 S 10
0 2009 2010 2011 2012 2013 Year
Cash STI % of Target EBITA EBIT Operating NPAT For personal use only use personal For
2013 TRANSFIELD SERVICES 71 DIRECTORS’ REPORT remuneration report-audited
LTI PERFORMANCE AND REWARD RELATIONSHIP
Chart 2 compares LTI vesting outcomes and the LTI metric of earnings per share for the current and previous four years. Chart 2 also shows return on capital employed (ROCE) performance over the same period. Company performance across these measures was not sufficient to meet the minimum thresholds to trigger vesting of LTI awards. As a result, the awards for the relevant years lapsed. ROCE will replace return on funds employed (ROFE) as the LTI return measure from FY 2013 onwards.
CHART 2: LONG TERM INCENTIVE VESTING OUTCOMES RELATIVE TO EARNINGS PER SHARE AND RETURN ON CAPITAL EMPLOYED
100.0 20.0 S P 80.0 %
E
16.0 d d e n 60.0 y a 12.3
12.4 l o
d 11.5 12.0 p e m t 40.0 s E e 8.8 l a V
7.8 i t
s 20.0 8.0 p d 17.1 r 15.6 a C a
w 0.0 n A 2009 2010 2011 2012 2013 4.0 o
I n T (20.0) (4.0) r
(15.3) u L t f
o 0.0 (48.9) (40.0) R e %
(60.0) -4.0
EPS % of LTI Awards Vested ROCE %
Chart 3 below shows the Company’s relative total shareholder return performance compared to the LTI comparator group comprising select companies in the ASX 200 index as determined by the Board (excluding Energy and Materials sectors) over the period to 30 June 2013. Refer to Section C6 on page 83 for discussion of the FY 2012 LTI vesting outcomes.
CHART 3: RELATIVE TOTAL SHAREHOLDER RETURN PERFORMANCE
30.0% 20.0% 10.0%
n -% (1.6%) r u
t (10.0%) e
R (20.0%)
l
a (30.0%) t
o (40.0%) T
(50.0%) (55.2%) (60.0%) (70.0%)
Year
Transfield Services LTI comparator group For personal use only use personal For
72 TRANSFIELD SERVICES 2013 DIRECTORS’ REPORT remuneration report-audited
Table 4 below summarises details of the Company’s earnings (net profit after tax and earnings per share) and the consequences of that performance on shareholder value for the financial year and previous four financial years in the form of dividends, changes in share price, and return on capital employed (in accordance with the requirements of the Corporations Act 2001).
Table 4 – Five-year Company performance
2009 2010 2011 2012 2013
Net profit / (loss) after tax ($’000) (54,490)1 73,556 2 (19,275)3 85,024 (254,441)6 Net profit (excluding significant items)5 ($’000) 93,433 95,951 100,123 85,024 43,703 Earnings per share (cents) (15.34)1 17.102,4 (4.0)3 15.6 (48.7) Operating earnings per share (cents) 32.5 23.2 20.3 15.6 8.9 Dividends per share paid (cents) 22.75 12.25 14 14 3 Change in share price -$5.13 $0.82 $0.24 -$1.53 -$1.05 Return on capital employed 12.30% 11.50% 12.40% 8.80% 7.17%
1. Includes an impairment loss $148,443,000 post tax. 2. Includes $22,900,000 equity accounted share of losses associated with RAC capital structure review. 3. Includes $119,857,000 (net of tax) of significant items. 4. Restated due to capital raising in FY 2011. For LTI purposes, the EPS benchmarks and hurdles were not restated for the capital raising. 5. Net profit (excluding significant items) is a non-IFRS financial indicator and has not been subject to review or audit by the Group’s external auditors. 6. Includes an impairment loss of $298,144,000 net of tax.
CLAW BACK POLICY During 2012 the Board approved introduction of a claw back policy that would apply in certain circumstances. The Board has the discretion to reduce or cancel unpaid, unvested and/or deferred incentive payments, including but not limited to STIs, MTIs and LTIs, where information or events come to light since the initial award was made which undermines materially the Group’s performance, financial soundness and reputation.
In exercising its discretion, the Board will have regard to matters of procedural fairness. The Board reserves the right to pursue available legal recourse as appropriate.
C2. MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER’S REMUNERATION
SUMMARY During the period there was a change in the Managing Director and Chief Executive Officer position incumbent. Dr Peter Goode resigned effective 31 August 2012 and worked out his notice period, being available to assist the incoming Managing Director and Chief Executive Officer through transition as required.
Mr Graeme Hunt commenced as a Non-Executive Director of Transfield Services in 2012. His appointment to the Board was put to shareholders at the 2012 Annual General Meeting and accepted. Mr Hunt ceased to be a Non-Executive Director effective from 30 September 2012 as he accepted an interim appointment to the Managing Director and Chief Executive Officer role following the resignation of Dr Peter Goode. Interim remuneration arrangements were put in place for Mr Hunt during this period.
Following an external executive search, Mr Hunt was offered and accepted the position of Managing Director and Chief Executive Officer on a permanent basis effective 1 January 2013. Mr For personal use only use personal For Hunt’s remuneration package on an annual basis from the date of permanent appointment is less than that of the out-going Managing Director and Chief Executive Officer for fixed and variable remuneration, reflecting a re-setting of remuneration that is aligned to the Company’s current circumstances.
These developments were communicated to the market within the required timeframes. Following is a summary of the announcements, particularly as they pertain to terms and remuneration arrangements. Detail of remuneration earned during the period is included in statutory tables within this report.
2013 TRANSFIELD SERVICES 73 DIRECTORS’ REPORT remuneration report-audited
OUTGOING MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER Dr Peter Goode resigned as Managing Director and Chief Executive Officer effective 31 August 2012. At the time of his resignation, Dr Goode’s annual fixed remuneration was $1.828m. Dr Goode fulfilled the requirements of his notice period. Under the terms of his Executive Services Agreement:
Dr Goode was required to, and gave, the Company six months’ notice to terminate employment and remained available to assist the Company with the transition and hand over to the interim Managing Director and Chief Executive Officer
No payments (such as short-term incentive) other than statutory entitlements were payable upon termination of employment, and
Dr Goode forfeited all unvested incentives.
Details of payments made to Dr Goode during his period of employment in 2012/13 are shown in Table 11 on Page 90.
INTERIM MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER ARRANGEMENTS Effective from 1 October 2012, Mr Graeme Hunt was appointed interim Managing Director and Chief Executive Officer while an executive search was undertaken. The key terms of the agreement as disclosed to the market on 11 October 2012 were:
The interim employment period was initially established for a four month period up to 1 February 2013 with the potential for extension by mutual agreement
During this period total fixed remuneration was set at $45,000 per week inclusive of Superannuation
Mr Hunt was eligible to receive a Success fee of up to 120% of fixed remuneration for the achievement of predetermined Board approved key performance indicators
In the event the Board determined that a success fee was payable, and Mr Hunt was permanently appointed to the role, it would be subject to the terms of the MTI plan of the Company; ie 50% to be paid in cash and 50% deferred into MTI with a two-year vesting period subject to performance testing, and
The interim agreement could be terminated by notice or immediately for cause.
Details of payments made to Mr Hunt under the terms of the interim agreement for the period 1 October to 31 January and subsequent earnings for the period are included in his total remuneration earned shown in Table 11 on Page 90. MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER PERMANENT APPOINTMENT The terms of Mr Hunt’s Executive Service Agreement were disclosed to the market on 1 November 2012, with key elements summarised as follows:
The remuneration payable to Mr Hunt as Managing Director and Chief Executive Officer, consisting of fixed remuneration of $1.5m plus incentive arrangements subject to achievement of performance metrics established by the Board are set out in Table 5 on page 75
Shareholder approval will be sought for Mr Hunt’s participation in the Transfield Services Long Term Incentive plans at the 2013 Annual General Meeting (AGM)
The service agreement may be terminated in the circumstances described below
Resignation by Mr Hunt on three months’ notice
Termination by Transfield Services on nine months’ notice within the first year
For personal use only use personal For of employment, with Board discretion to extend this notice period to 12 months. Thereafter, the notice period will be reduced to six months
Termination immediately in certain circumstances including serious misconduct
In the event of resignation by Mr Hunt, or summary termination by Transfield Services, all unvested incentive will be forfeited.
In the event of termination by Transfield Services on notice, deferred incentive will be released, and Mr Hunt will be entitled to receive a pro-rata share of incentive calculated at the discretion of the Board
74 TRANSFIELD SERVICES 2013 DIRECTORS’ REPORT remuneration report-audited
Mr Hunt will be restrained for nine months following the cessation of his employment with Transfield Services from taking a position in a competitive business in the areas in which Transfield Services operates, and
In addition, for a period of nine months following the cessation of his employment, Mr Hunt will be restrained from inducing any Transfield Services executives or employees to leave the Company and will not be able to employ a former executive or employee of Transfield Services.
MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER REMUNERATION STRUCTURE The Managing Director and Chief Executive Officer’s remuneration structure is specified in his service agreement and is summarised in Table 5 below. The structure is biased towards variable “at risk” remuneration consistent with market practice and a significant portion being subject to annual and long-term performance objectives. The bias of variable pay is towards awards of equity vesting over 2-3 year periods and vesting is subject to performance measures that reflect Company performance and are aligned to shareholders expectations.
Table 5 – Managing Director and Chief Executive Officer Remuneration Components
Remuneration components Remuneration Delivery Mechanism As % of Total Remuneration Fixed remuneration Total Fixed Remuneration (TFR) of $1.5 million comprises base 28.5 salary and superannuation.
Variable ‘at risk’ performance- Total incentive opportunity for FY 2013, pro-rated from 71.5 based remuneration 1 January 2013, is structured as follows: Proportion of How is it delivered? Total Incentive STI - Up to a Outcome subject to meeting Board maximum of 150% approved targets with 50% paid as cash of TFR and 50% deferred (see below). This includes STI opportunity for Part A and up to the maximum for Part B. Deferred STI The remaining 50% of STI will be deferred and delivered as equity through participation in the MTI plan consistent with Senior Executives (refer Section C5). Vesting is progressive over two years and is subject to meeting Board approved performance hurdles at one- year and two-year. LTI- Up to 100% of Equity is delivered through participation TFR in the LTI plan (consistent with other Senior Executives) with outcome assessed based on long-term measures and hurdles, vesting at three years from the date of award. Annual equity grants to the Managing Director and Chief Executive Officer will be subject to shareholder approval at the
annual general meeting. For personal use only use personal For
2013 TRANSFIELD SERVICES 75 DIRECTORS’ REPORT remuneration report-audited
SUCCESS FEE AND SHORT TERM INCENTIVE – 2013 Mr Hunt was eligible to receive a Success Fee as an incentive award as part of the interim arrangements approved by the Board for the period between 1 October 2012 and 31 January 2013.
Achievement of the Success Fee was subject to a comprehensive suite of objectives and targets aligned to financial performance of the business and additional measures focused on business restructuring and remediation of underperforming businesses.
Upon reviewing the performance against the objectives at the conclusion of the period up to 1 January 2013 the Board approved a payment of 91% of the target Success Fee opportunity.
In accordance with the terms of the Interim agreement, 50% of the Success Fee was paid as cash and the remaining 50% was deferred into the MTI plan (refer Section C5) as performance rights with a two year vesting period for the purpose of shareholder alignment.
To be consistent with other executives, the weighted average share price used to calculate the number of performance rights granted to Mr Hunt was $1.7842, which was the same value used for performance awards granted to other executives in September 2012.
The MTI Awards granted, subject to shareholder approval at the 2013 AGM, with an effective date of April 2013 will first be eligible for assessment in April 2014 (first half) and April 2015 (balance).
Ultimately vesting of the award will be subject to meeting satisfactory performance hurdles consistent with the MTI plan rules and is subject to Board approval subject to the company claw back policy.
Mr Hunt did not receive any Short term Incentive during 2013 under the Plan rules applicable to his permanent appointment.
Full details of the Managing Director and Chief Executive Officer’s remuneration for FY 2013 can be found on page 90.
C3. OTHER SENIOR EXECUTIVE FIXED REMUNERATION
The terms of employment of all Senior Executives contain a fixed remuneration component. Depending on the country in which the executive is employed, the fixed remuneration component is structured as a total employment cost package (which includes company superannuation contributions and benefits, including fringe benefits tax) or as a salary plus benefits package.
Fixed remuneration for Senior Executives is set to reflect the roles and responsibilities undertaken by the individual and having regard to the market for comparable roles. The Company also uses a job evaluation methodology to manage internal pay relativities and accesses advice from remuneration consultants as required.
The Board commissions benchmarking exercises where Senior Executive remuneration is compared with comparable roles in similar or like organisations, having regard to organisational size and sectors. This is done to ensure that fixed remuneration remains consistent with overall remuneration objectives and remains market relevant.
The Board undertakes this process on a two-year rolling cycle and on an ad-hoc basis as required.
Management updates this data from recognised survey providers and it is used as a reference when considering adjustments to Senior Executive remuneration.
The Board will take the relativity and positioning of current Senior Executive remuneration For personal use only use personal For (amongst other factors) into account in relation to any annual fixed remuneration review for Senior Executives. Fixed remuneration is reviewed annually and adjusted on 1 September.
In consideration of the current business environment, there were no adjustments to KMP fixed remuneration during the period other than for those that were appointed to a new role or where accountabilities were significantly expanded by more than 30% relative to their previous role.
Senior Executive remuneration for the current and previous periods is provided in the Table 11 on page 90.
76 TRANSFIELD SERVICES 2013 DIRECTORS’ REPORT remuneration report-audited
C4. OTHER SENIOR EXECUTIVE STI
FY 2013 STI OUTCOMES As a result of the Company not meeting the key performance hurdles as measured by EBIT and Group NPAT required to trigger operation of the STI plan, there were no STI payments made to senior executives during the period.
FY 2013 STI CHANGES For FY 2013, changes to the STI plan were approved by the Board and implemented. They are summarised below and set out in more detail in Table 6 on page 78:
The STI opportunity was split into two components to provide clarity on the reward structure – Part A of the STI reflects reward for target Group and/or operational business performance and Part B reflects reward available for outperformance of the Group’s financial targets
Senior Executives gateway to access any STI is Group related to increase the line of sight and accountability for their performance
Safety performance is now applied as a moderator on the STI opportunity in line with our commitment to our vision of “no injuries to anyone, any time”, and
Key earnings performance measures during 2013 are net operating profit after tax (NPAT) for Group function roles and earnings before interest and taxation (EBIT) for operational roles.
The changes have been designed to reinforce the pay for performance culture and alignment with shareholder expectations.
SETTING KEY PERFORMANCE INDICATORS (KPIs) FOR SENIOR EXECUTIVES FY 2014 In addition to the established financial performance gateways, the Senior Executives have a set of KPIs that will be included in the performance and development review process and will be measured to determine STI pay out. The performance measures selected reflect the focus for the business and include measures against achievement of business remediation programs, cost management and margin and business improvement,
business development and innovation. For personal use only use personal For
2013 TRANSFIELD SERVICES 77 DIRECTORS’ REPORT remuneration report-audited
DETAILED DESCRIPTION OF THE STI PLAN
The following table contains a detailed summary description of the STI plan and how it operates.
Table 6 – Summary of STI Plan for FY 2013
What is the STI The STI Plan is a variable “at risk” remuneration component and earned only Plan and what is its if performance objectives are achieved. The purpose of the STI is to support purpose? and reward behaviours and outcomes in the organisation to deliver on the annual objectives set under the Company’s Performance Pillars. Who participates in Executives and selected individuals who can materially impact the financial the STI Plan? and operational performance of the Company, a region or a business unit. What percentage of Senior Executives have target STI rewards set between 40% – 75% of their fixed remuneration total fixed remuneration. The percentage opportunity reflects the relative does the STI Plan size of the position and is tested for internal relatively and external market represent? reference. STI opportunity percentages are regularly compared to external benchmark data to ensure the opportunity remains competitive and consistent with our remuneration philosophy. An example for illustrative purposes is provided.
The target STI is split between 2 components: Part A and Part B. For Senior Executives, 40% of their STI is tied to Part A and 60% is tied to Part B. For example, if a Senior Executive has a target STI opportunity of $100,000, 40% of that target (ie $40,000) is the Part A STI and assessed based on Part A criteria and the balance of 60% or $60,000 is the Part B STI and assessed based on Part B criteria. Target and stretch If financial performance exceeds targets, the STI Plan will deliver higher performance rewards to executives, thus it is self-funding, consistent with market practice conditions and reflects alignment to shareholder expectations.
Part A reflects the component of the STI available for target business performance and Part B reflects the component of STI available for outperformance of the
Group’s financial targets and operates similar to a profit share. Part B will only trigger if the Company exceeds the financial targets agreed in the budget as approved by the Board.
Under Part A, Senior Executives can earn between 0% and 120% of the Part A STI component if target business performance is achieved with final assessment based on the Senior Executive’s performance against individual objectives.
Under Part B, stretch performance as measured by outperformance of the Group NPAT may result in a multiplier effect on Part B STI from 0% to 200% (Part B multiplier). The maximum STI opportunity is capped and is available for outperformance at or above 115% of the Group NPAT target. Performance against individual objectives will also impact on the final outcome. Are there gateways to The payment of any Part A STI for Senior Executives is subject to the Group the payment of STI? meeting an earnings gateway. In addition, Senior Executives overseeing regional operations must meet the earnings gateway for their respective regions to trigger Part A STI.
Group earnings are assessed using NPAT. Regional operations earnings are assessed using EBIT. The gateway level of earnings is set by reference to the Group or region achieving the targets set under the Board-approved budgets.
For FY 2013, Part B STI is triggered for payment if the Group outperforms the
Board-approved targets. For personal use only use personal For
78 TRANSFIELD SERVICES 2013 DIRECTORS’ REPORT remuneration report-audited
Assessment of The Board (through the HR Committee) has oversight of the assessment of performance for STI STI outcomes and approves all outcomes in relation to Senior Executives outcomes following audit clearance of the annual financial statements each year.
If the financial gateways are met, the Senior Executives are assessed for their Part A and/or Part B STI based on their performance in achieving their individual performance objectives (refer below) as follows:
a. Part A STI outcome = Part A STI ($) x STI assessment (%)
Part A STI ($) is the dollar value of the component of the STI related to Part A assessment. The Managing Director and Chief Executive Officer recommends (for the HR Committee’s review and the Board’s approval) the STI assessment percentage within the assessment range (0% to 120%) for the Senior Executive’s overall performance against individual objectives.
b. Part B = Part B STI ($) x Part B multiplier (%) x STI assessment range (%)
Part B STI ($) is the dollar value of the component of the STI related to Part B assessment.
The Part B multiplier can range from 0 to 200% based on the level of outperformance of the Group NPAT target (as outlined above). Individual performance is based on the STI assessment range (0% to 120%) recommended in Part A above.
Impact of safety performance
Target safety performance is set annually for the Company and the underlying businesses. For STI purposes, safety performance is measured by the total recordable injury frequency rate (TRIFR), which includes loss-time and medically treated injuries. TRIFR is used as it is a reliable indicator of the effectiveness of controls in place to prevent people being seriously injured. If a participant’s business or area does not achieve the target reduction in TRIFR, the individual’s Part A and Part B STI outcomes will be reduced proportionately down to nil where the outcome is less than 50% of the target TRIFR. If the target safety performance is achieved, there will be no
modification to the STI outcomes. For personal use only use personal For
2013 TRANSFIELD SERVICES 79 DIRECTORS’ REPORT remuneration report-audited
What are the Individual performance objectives are set within the framework of the performance Company’s Performance Pillars of Perform, Grow, Develop and Innovate. This objectives and how framework ensures that all objectives are in alignment with the corporate are they set? strategy and reflect the performance required within the scope of each Senior Executive’s responsibilities and accountabilities. The objectives and targets for Senior Executives are set by the Board following the completion of the annual budgeting and planning process.
Financial objectives for FY 2013 included:
Earnings targets:
Group NPAT is used as a measure for Group function roles as it captures the whole performance of the Group including management of interest and tax.
For underlying businesses, EBIT is used to assess the underlying operation performance in terms of what the businesses can control.
For Senior Executives with operational and financial accountability:
Return on capital employed targets to measure the efficiency with which a business uses it capital base and over the long-term is linked to growing shareholder value when the return on capital equals or exceeds the cost of funding that capital.
Cash conversion is used as a measure to ensure a strong focus on the generation of cash for the Group.
Margin/profitability targets ensure the focus on improving margins to support long-term sustainable performance.
Non-financial objectives for FY 2013 included:
Objectives in relation to people management and development including measurable targets on diversity, talent management and succession planning.
Individual objectives related to the execution of the corporate strategy.
In what form is the STI STI is generally paid in cash following the release of audited financial results delivered? and the STI review. STI earned above a threshold limit is subject to the Company’s STI Deferral policy. Is there any deferral The Company adopts the policy of STI deferral to be prudent and ensure that of STI to account outcomes of business activities are adequately assessed in the short-term for sustainable and mitigate the risk that substantial annual incentives are not paid based on performance? unsustainable short-term decision-making that may adversely affect future years performance. The deferral of STI applies where STI outcomes exceed a set threshold (currently set at $100,000) and up to 20 per cent of the total outcome is delivered in the form of medium-term incentives (see section C5 below). Is the STI subject to Cash payments of STI are not subject to claw back but are subject to claw back? the Boards discretion to withhold all or part of the payment in certain circumstances in accordance with the plan rules and remuneration policy.
Any portion of STI above the threshold is deferred as described above. The MTI plan is used as the vehicle to deliver deferred STI awards, as performance rights, subject to a progressive two year vesting and satisfactory outcomes against performance measures.
As a result, deferred STI delivered via the MTI plan is subject to the claw back policy. What if a Senior Where a Senior Executive ceases employment with the Company (other than
For personal use only use personal For Executive ceases due to redundancy) before STI measures are assessable, then the Senior employment? Executive is generally not entitled to receive any STI outcome.
Where a Senior Executive ceases employment due to redundancy, the STI entitlement is tested in the ordinary course at the end of the performance year. In such circumstances, the Board may determine that the Senior Executive is entitled to a pro-rata proportion of their STI entitlement.
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C5. MEDIUM-TERM INCENTIVE (MTI)
The MTI plan was introduced in 2010 and was designed for a dual purpose. It is the vehicle used to provide performance rights to participating senior executives where their STI payment exceeds the threshold and they have a proportion of their STI deferred.
It was also designed to be used to provide exceptional grants of performance rights to high potential and/or high performing executives, subject to Board approval that may not be eligible to participate in the LTI plan. A detailed description of the MTI plan design and operation is provided in Table 7.
FY 2013 MTI OUTCOMES MTI awards granted to KMP in October 2010 (Tranche 2) that were due to vest did not meet the performance hurdles when tested and have subsequently lapsed.
The MTI awards granted in September 2011 (Tranche 1) that were due to vest on 30 September did not meet the performance hurdles when tested and have subsequently been carried forward to be tested again at the next anniversary date in accordance with MTI plan rules.
Table 16 sets out the value of MTI Awards that vested to Senior Executives.
FY 2013 MTI CHANGES
For FY 2013, there were no changes made to the MTI plan. For personal use only use personal For
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DETAILED DESCRIPTION OF THE MTI PLAN The following table contains a detailed summary description of the MTI plan and how it operates.
Table 7 – Summary of MTI Plan
What is the purpose of the The MTI is a variable “at risk” remuneration component with a one- to two-year MTI Plan? horizon Who participates in the STI participants who achieve a minimum STI outcome of A$100,000 (MTI MTI Plan? threshold). The MTI plan is also used to allocate equity to employees who otherwise do not participate in the Company’s equity incentive plans and is used to reward and recognise high performance and potential in the organisation. How is reward delivered Senior Executives and other eligible employees are granted performance rights under the MTI Plan? under the TranShare Executive Performance Award Plan (TEPAP). The number of performance rights granted from the MTI allocation is calculated based on the market value of the Company’s shares around the time the MTI grants are approved by the HR Committee. For Senior Executives with an STI deferral, the number of performance rights granted is a function of the STI value, divided by the weighted average share price and rounded up to a whole number. For exceptional MTI grants, the number of performance rights granted is the Board approved dollar value divided by the weighted average share price and rounded up to a whole number. Each performance right is an entitlement to receive a fully-paid ordinary share in the Company on terms and conditions determined by the Board, including vesting conditions linked to continued service and performance. If these are satisfied, the performance rights vest on a progressive basis and shares will be delivered to the Senior Executive. Shares for the vested performance rights are generally sourced from on-market purchases acquired through a trust.
Subject to achieving the vesting conditions:
50 per cent of MTI rights granted (Tranche 1) will vest one year from grant; and
The other 50 per cent of MTI rights granted (Tranche 2) will vest two years from the grant.
What rights are attached The performance rights do not carry voting or dividend rights, however shares to the Performance Rights? delivered upon vesting of performance rights will carry the same rights as other ordinary shares. Senior Executives are prohibited from hedging their unvested MTI awards in accordance with the Company’s remuneration policy (further discussed at page 70).
What are the performance Participants in the MTI Plan will not derive any value from their MTI awards unless hurdles? Company earnings, EBITDA, (measured relative to the STI performance year) is maintained or improved in the next one to two years and the participants remain employed with the Group at the time of vesting. The Board reviews the performance outcomes at the vesting anniversary date and approves award vesting. It has the discretion to allow partial vesting if 90% or better of the performance hurdle is satisfied.
Are MTI awards subject to As the MTI is awarded as a performance right and subject to the vesting period, claw back? where a tranche remains ‘on foot’ and subsequently circumstances arise that would warrant claw back, the Board has the discretion to withhold the award and affect its lapse.
What if a Senior Executive Where a Senior Executive ceases employment (other than due to redundancy or ceases employment? retirement), the unvested rights will immediately lapse on exit. Where redundancy or retirement applies, a pro-rata (based on service period) of the For personal use only use personal For unvested rights may be retained and vest in the ordinary course.
What happens in the event In the event of a change of control, unvested MTI awards will vest in accordance of a change of control? with the change of control clause in the MTI plan rules.
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C6. LONG-TERM INCENTIVE (LTI) The LTI plan is an equity based remuneration component that is designed to both incentivise executives over the long-term and to act as a retention mechanism. It is a key component in ensuring there is an appropriately weighted mix of fixed versus variable remuneration. There is a three year vesting period and performance tests required to trigger the award have an internal and external measurement focus that provide alignment with shareholders.
FY 2013 LTI OUTCOMES Grants of performance rights were made to qualifying senior executives and KMPs in December 2012 in accordance with their eligibility, the plan rules and as approved by the Board. Details of the performance rights granted including values and first exercisable date are set out in Table 16.
During the year, the following LTI awards were eligible for vesting and the assessment against performance hurdles are shown in the table below:
Table 8 – FY 2013 LTI outcomes
Vesting trig- Level of gered (% of Performance rights Minimum hurdle required performance total perfor- granted in Performance period for vesting achieved mance rights) 26 September 2009 to EPS compound growth of Minimum hurdle not September 2009 Nil 8 October 2012 at least 10% pa achieved 26 September 2009 to Relative TSR ranking of at Minimum hurdle not Nil 8 October 2012 least 50th percentile achieved Return on Funds 26 September 2009 to Maximum hurdle Employed 100% vested 8 October 2012 achieved
Details of the awards vesting to individual KMP are set out in the statutory tables.
FY 2013 LTI CHANGES The Board reviewed the LTI performance measures and affected a number of changes to the performance measures that applied to awards granted for FY 2013, ie in the current period in December 2012. These are outlined below:
The long-term return measure changed from return on funds employed (ROFE) to return on capital employed (ROCE) for current awards granted in December 2012. Adoption of this measure was deemed more appropriate to assess the efficiency with which the Company utilises its capital base which is inclusive of both debt and equity. The ROFE measure applied to LTI awards granted in 2009 to 2011 is still in run off.
The comparator group for the external market measure of relative total shareholder return (TSR) changed from the broad constituency of the companies in the S&P/ ASX 200 Index (excluding Materials and Energy) to a group comprising primarily companies in the S&P/ASX 200 Industrial sectors of Capital Goods, Commercial & Professional Services, Materials, Energy Equipment & Services and Transportation Road & Rail. Companies in these sectors have been selected as they are exposed to the general market conditions that apply to Transfield and are our competitors for clients, talent and/or investor capital.
The vesting for the relative TSR changed such that TSR ranking of greater than 50th
percentile is required to trigger any vesting of LTI awards. Prior to this change, if the For personal use only use personal For Company’s TSR ranking was equal to the 50th percentile, vesting could be triggered for the relative TSR tranche of the LTI.
The weighting across the LTI measures for grants from December 2012 onwards will be 30% on both EPS and relative TSR and 40% on ROCE.
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DETAILED DESCRIPTION OF THE LTI PLAN The following table contains a detailed summary description of the LTI plan and how it operates.
Table 9 - Summary of LTI Plan for December 2012 Awards (incorporating changes noted above)
What is the purpose of The LTI Plan is a variable “at risk” remuneration component based on the longer term the LTI Plan? performance of the Group. The purpose of the LTI Plan is to align Senior Executive reward with shareholder value, by tying this component of Senior Executive remuneration to the achievement of performance conditions which underpin sustainable long-term growth.
Who participates in the Participation is limited to roles that have accountability for strategy formation and LTI Plan? alignment. Broadly, these are the first two levels in the organisation below the Managing Director and Chief Executive Officer.
What is the value of The size of grants under the LTI plan is set as a percentage of total fixed remuneration; it the LTI opportunity? ranges from 30 to 60 per cent of total fixed remuneration for Senior Executives. Participants in the LTI plan will not derive any shares from their LTI grants unless hurdles set for the performance measures are achieved and they complete a minimum service period.
How is reward Senior Executives and other eligible executives are granted performance rights annually delivered under the LTI under the TranShare Executive Performance Award Plan (TEPAP). The number of Plan? performance rights granted from the LTI allocation is calculated based on the market value of the Company’s shares around the time the LTI grants are approved by the HR Committee The performance rights are offered at no cost to the Senior Executive. Each performance right is an entitlement to receive a fully-paid ordinary share in the Company on terms and conditions determined by the Board, including vesting conditions linked to service and performance over a three year period. If these conditions are satisfied, the performance rights vest and shares will be delivered to the Senior Executive upon exercise. Shares for the vested performance rights are generally sourced from on-market purchases acquired through a trust.
What rights are The performance rights do not carry voting or dividend rights, however shares attached to the delivered upon vesting of performance rights will carry the same rights as other Performance Rights? ordinary shares. Senior Executives are prohibited from hedging their unvested performance rights (further discussed at page 87).
What are the The performance measures and hurdles applicable to each grant of LTI awards are performance measures set by the Board having regard to the long-term business plan. These hurdles are and hurdles and why subject to a minimum three year performance period, which reflects the business were they chosen? cycle for the Company based on the average contract duration.
A minimum three year LTI performance period also provides a balance between setting a sufficient performance period to assess and measure performance against hurdles set in the LTI and recognising that the longer the period, the harder it is to set appropriate hurdles.
The Board determined that multiple measures were the best approach to provide a more complete assessment of performance and minimised the risk of management focussing on a single outcome.
Performance rights are granted with three sets of independent performance hurdles, being:
An earnings measure of EPS growth to assess whether there is sustainable growth and therefore, increase in shareholder value
A return measure as shareholder value is achieved when businesses are operated For personal use only use personal For efficiently and effectively. This measure is based on ROCE in terms of how efficiently the Company utilises its capital base, and
An external measure based on relative TSR to assess whether the Company achieves above average total shareholder return relative to the performance of an appropriate peer group of companies.
Between 2006 and 2009, performance rights were granted with two sets of independent hurdles, being EPS and relative TSR performance hurdles. This is the final year that these conditions apply as the grant in 2009 has reached the vesting anniversary date.
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1. Earnings per share The EPS measure applies to 30% of the total number of LTI awards granted (EPS tranche) (EPS) in December 2012.
The EPS hurdle relates to the Company achieving a minimum average compound basic EPS growth per annum over a three-year financial period. For awards made prior to 2011, re-test of the EPS performance over a four year financial period was available if awards did not vest in the initial three-year period.
The following vesting schedule applies to the EPS tranche granted in December 2012:
If Transfield Services’ Basic Proportion of EPS tranche Expressed as a proportion EPS compound annual that would vest* of Total Awards that vests* growth rate is: Below 5% per annum 0% 0%
5% per annum 40% 12% 7.5% for each additional 2.25% for each additional Between 5% and 7% per 0.5% of growth above 5% 0.5% of growth above 5% annum per annum per annum 7% per annum 70% 21% 5% for each additional 0.5% 1.5% for each additional 0.5% Between 7% and 10% per of growth above 7% per of growth above 7% per annum annum annum 10% per annum or higher 100% 30% *Vesting of LTI Awards shall be rounded down to the nearest whole number of Shares.
2. Return on capital The return measure applies to 40% of the total number of LTI awards granted employed (ROCE) (ROCE tranche) in December 2012.
ROCE is defined as earnings before interest and taxation divided by capital employed using a weighted average cost of capital basis. The ROCE hurdle relates to the Company achieving a minimum return over a three-year financial period.
The following vesting schedule applies to the ROCE tranche granted in December 2012:
Expressed as a If Transfield Services’ ROCE for Proportion of ROCE proportion of Total the three financial-year period is: tranche that would vest* Awards that vests* Below or equal to WACC~ plus 1% 0% 0% Between WACC~ plus 1% up to 2.5% for each additional 1% for each additional 0.1% WACC plus 3% 0.1% above WACC plus 1% above WACC plus 1% Equal to WACC~ plus 3% (Target 50% 20% ROCE) Between WACC~ plus 3% up to 1.67% for each additional 0.67% for each additional WACC plus 6% 0.1% above WACC plus 3% 0.1% above WACC plus 3% Equal to WACC~ plus 6% (Premium New Investment ROCE) 100% 40% or higher ~WACC is the Company’s weighted average cost of capital and is based on the average of the 7 half-year WACC calculation for FY 2013, FY 2014 and FY 2015.
*Vesting of LTI Awards shall be rounded down to the nearest whole number of Shares. For personal use only use personal For
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3. Relative total The external relative measure applies to 30% of the total number of LTI awards shareholder return granted (TSR tranche) in December 2012. (TSR) TSR represents the change in the capital value of the Company’s share price over a period, plus reinvested dividends, expressed as a percentage of the base value. The compound growth in the Company’s TSR over the performance measurement period is compared with the TSR performance of the comarator group drawn from all other companies in the S&P/ASX 200 Industrials Index which is the S&P/ASX 200 Index after excluding the Energy and Materials sectors.
As discussed above, for the annual grants in December 2012, the comparator group has changed and now comprises primarily companies in the S&P/ASX 200 Industrials Index sectors of Capital Goods, Commercial and Professional Services, Materials, Energy Equipment and Services, and Transportation Road and Rail.
The following vesting schedule applies to the TSR tranche granted in December 2012:
If Transfield Services’ TSR for Proportion of Relative TSR Expressed as a proportion the TSR Performance Period LTI Awards that vests* of Total Awards that vests* is ranked: Below 51st percentile 0% 0%
51st percentile 30% 9% 2.92% for each additional 0.88% for each additional Between 51st percentile and percentile above 51st percentile above 51st 75th percentile percentile percentile 75th percentile or higher 100% 30%
*Vesting of LTI Awards shall be rounded down to the nearest whole number of Shares. * Proportional vesting of awards will apply for performance between 50st and 75th percentile. The performance period for the December 2012 LTI grant commences from the date the LTI was approved up to the third anniversary of the grant date. TSR performance is measured three years after the grant date. Are LTI awards subject As the LTI is awarded as a performance right and subject to the vesting period, where a to claw back? tranche remains ‘on foot’ and subsequently circumstances arise that would warrant claw back, the Board has the discretion to withhold the award and affect its lapse. What if a Senior Where a Senior Executive ceases employment (other than due to redundancy or Executive ceases retirement), those awards will lapse on exit. employment? Where redundancy or retirement applies, a pro-rata (based on service period) of the unvested awards may be retained and vest in the ordinary course. What happens in the Prior to a takeover or change of control of the Company, the Board may exercise event of a change of its discretion (having regard to relevant executive and Company performance) and
control? determine that part or all unvested awards vest. For personal use only use personal For
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C7. SHAREHOLDING POLICIES
MINIMUM SHAREHOLDING GUIDELINE Under the Company’s minimum shareholding guideline introduced on 19 August 2010, Senior Executives are encouraged to acquire and maintain a shareholding in the Company equal in value (based on share acquisition cost) to 50 per cent (for the Managing Director and Chief Executive Officer) and 30 per cent (for other Senior Executives) of their individual total fixed remuneration. The timeframe to achieve this is over a five-year period from the later of the date of adoption of this policy and the appointment of the Senior Executive. The shareholding includes all the Company shares the Senior Executive and/or close members of the family of the Senior Executive holds; or has control over or has a benefit in (eg superannuation, beneficiary of a trust). This is a guideline with which Senior Executives are encouraged to comply.
HEDGING AND MARGIN LENDING POLICIES The Company also has a policy on the use of financial products by employees, including Senior Executives, to limit the risk attaching to equity instruments (commonly referred to as “hedging”) where those instruments are granted to them as part of their remuneration. Under this policy, Company securities must not be hedged prior to vesting (ie prior to the relevant performance and/or service conditions being met). In addition, the Company has a policy that prohibits Non-Executive Directors and Senior Executives from using the Company’s securities as collateral in any financial transaction, including margin loan arrangements. The Company treats compliance with these policies as a serious issue, and takes appropriate measures to ensure the policy is adhered to. Any employees found to have breached this policy will be subject to appropriate sanctions.
C8. SERVICE AGREEMENTS The remuneration and other terms of employment for the Managing Director and Chief Executive Officer and Senior Executives are formalised in Service Agreements. Each of these agreements include the provision of STIs, other benefits including executive health management, householder insurance, salary continuance insurance and participation, when eligible, in the Company’s LTI Plan (as discussed previously). The material terms of the Service Agreements with Senior Executives are set out below. The Company will be aligning these terms progressively as the opportunity arises.
The following two tables set out the key terms of the service agreements. Separate tables
are provided for current and out-going KMP. For personal use only use personal For
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Table 10a – Summary of Service Agreements for Current KMP
Termination benefit Notice period (amount of annual required for the salary) on early Continuous employee to termination by the A restrictive agreement terminate the Company, other than covenant Name Position commencing contract for gross misconduct applies of: Graeme Hunt Managing Director 9 Months in first year and Chief Executive 1 January 2013 3 months then 6 months in 9 months Officer subsequent years Tiernan Chief Financial Officer O’Rourke Chief Executive 11 January 2010 6 months 1 year 6 months Middle East & Asia (from 26 Feb 2013) Philip Wratt President Americas & Middle East and Asia (from 2 Aug 2012) 11 January 2010 6 months 1 year 6 months President Americas (from 26 Feb 2013) Nicholas Yates Chief Executive – 14 September 3 months 6 months 6 months Infrastructure ANZ 2009 Joe Sofra Chief Executive – Resources & Energy 7 August 2012 3 months 6 months 6 months ANZ Steve Chief Executive MacDonald – Marketing & Investments 17 March 1987 6 months 1 year 1 year Project Director – Portfolio Review (from 26 Feb 2013) Kate Munnings Chief Risk and Legal Officer / Company 1 January 2006 3 months 1 year 6 months Secretary Elizabeth Chief Executive – 20 August 2007 3 months 1 year 6 months
Hunter Human Resources For personal use only use personal For
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The following table setting out service agreement terms for out-going Executives is provided for reference.
Table 10b – Summary of Service Agreements for Out-Going KMP - Part Year
Termination benefit (amount of Notice period annual salary) on required for the early termination Continuous employee to by the Company, A restrictive agreement terminate the other than for covenant Name Position commencing contract gross misconduct applies of: Managing Dr Peter Goode Director and Chief 30 March 2009 6 months 1 year 1 year Executive Officer Chief Executive – Larry Ames Americas 4 January 2010 3 Months 1 year 2 years
Chief Executive – Resources & Gareth Mann Energy ANZ 16 August 2010 3 months 6 months 6 months (since 1 November 2011)
C9. STATUTORY TABLES Table 11 on page 90 sets out details of remuneration provided to Senior Executives (calculated in accordance with applicable Accounting Standards). The table includes remuneration associated with LTI performance rights granted as part of the Senior Executives’ LTI payments. The value reflected is an accounting value and reflects the expense to the Company of the executives’ incentive arrangements. This value is not
necessarily the same as the value to be derived by the executive. For personal use only use personal For
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Table 11 – Details of Remuneration
Long Post term employment benefits Share based Short term benefits benefits 5 payments Termination Cash Non- salary Cash- monetary Long Performance Termination and fees based benefitsSuperannuation service rights Benefits Name $ STI $ 3 $ $ leave $ $ $ 6 TOTAL $ Dr Peter Goode (until 2013 - 5,881 10,980 - 35,214 - 1,306,698 30 September 1,254,623 2012)1 2012 1,831,555 - 10,442 15,775 22,363 699,182 - 2,579,317 Graeme Hunt ( from 1 2013 1,373,869 420,750 2,674 59,920 3,431 329,084 - 2,189,728 October 2012)2 2012 ------Larry Ames (until 1 August 2013 4 94,913 - 10,225 - - 123,605 612,823 841,566 2012) 2012 598,558 - 33,807 20,034 - 132,195 - 784,594 Elizabeth Hunter 2013 514,487 6,485 16,470 8,797 135,637 - 681,876 2012 512,111 - 8,420 15,775 9,407 124,170 - 669,883 Steve MacDonald 2013 576,808 17,486 25,000 9,202 148,818 - 777,314 2012 610,738 - 31,550 15,775 12,807 95,829 - 766,699 Gareth Mann (until 7 August 2013 62,834 2,444 1,715 468 145,197 - 212,658 2012) 2012 402,825 - 18,918 10,517 2,225 60,552 - 495,037 Kate Munnings 2013 562,306 8,024 15,919 14,704 157,377 - 758,330 2012 547,671 - 11,521 40,517 29,726 167,970 - 797,405 Tiernan O'Rourke 2013 803,811 12,001 25,000 8,192 264,709 - 1,113,713 2012 799,017 - 13,279 25,000 6,935 182,372 - 1,026,603 Philip Wratt (from 2 August 2013 607,971 50,445 6,261 8,680 113,813 - 787,170 2012) 2012 606,163 - 145,210 10,517 6,035 71,619 - 839,544 Nicholas Yates 2013 582,521 5,108 35,056 14,676 165,530 - 802,891 2012 573,304 - 7,284 53,003 57,955 111,382 - 802,928 Joe Sofra (from 7 August 2013 389,421 11,495 14,962 1,359 33,464 450,701 2012) 2012 ------Total for each component 2013 6,823,564 420,750 132,268 211,283 69,509 1,652,448 612,823 9,922,645 2012 6,481,942 - 280,431 206,913 147,453 1,645,271 - 8,762,010 Total for each category 2013 7,376,582 211,283 69,509 1,652,448 612,823 9,922,645
2012 6,762,373 206,913 147,453 1,645,271 - 8,762,010
1. The short-term benefits include $978,549 salary earned from 1 October 2012 to 1 February 2013 during the interim MD transition phase. 2. The short-term benefits include $752,755 earned as interim MD from 1 October 2012 to 31 December 2013. The share based payments accrued relate to grants issued for performance carried out in the current year and are subject to shareholder approval
For personal use only use personal For at the AGM on the 23rd October. 3. This figure represents 50% of the success fee awarded as part of the interim CEO arrangements. 4. USD amounts translated into AUD at the average annual AUD:USD exchange rate of 1.0269. This figure excludes $44,225 of accrued annual leave that was paid upon termination. The full expense relating to unvested performance rights has been accounted for in the current year. The grants are subject to ongoing company performance conditions and may not be realised. 5. Represents the long service leave accrued during the year. 6. The termination benefit number includes bi-weekly instalments from the 31st August until the 28th February totalling $286,892. The termination benefit excludes $216,403 deferred compensation paid out on termination of employment.
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Table 12 –Details of remuneration: fixed and at-risk remuneration as a percentage of actual remuneration
Fixed Termination Cash-based Performance Name Remuneration Benefits 2$ STI1 Rights Total Total % % % % % 100% Dr Peter Goode 97% 0% 0% 3% 3% 100% Graeme Hunt 66% 0% 19% 15% 34% 100% Larry Ames 12% 73% 0% 15% 15% 100% Elizabeth Hunter 80% 0% 0% 20% 20% 100% Steve MacDonald 81% 0% 0% 19% 19% 100% Gareth Mann 32% 0% 0% 68% 68% 100% Kate Munnings 79% 0% 0% 21% 21% 100% Tiernan O'Rourke 76% 0% 0% 24% 24% 100% Philip Wratt 84% 0% 0% 16% 16% 100% Nicholas Yates 79% 0% 0% 21% 21% 100% Joe Sofra 93% 0% 0% 7% 7% 100%
1. Senior Executives forfeited 100% of the maximum STI potential for FY 2013, the value above represents 50% of the success fee awarded as part of the interim CEO arrangements. 2. The termination benefit excludes $216,403 deferred compensation paid out on termination of employment.
Table 13 – Remuneration subject to vesting
Remuneration subject to vesting - MTI & LTI1 Name FY 2012/13 FY 2013/14 FY 2014/15 FY 2015/16 Dr Peter Goode 35,214 - - - Graeme Hunt 329,084 659,234 479,938 103,581 Larry Ames 123,605 - Elizabeth Hunter 135,637 109,768 67,217 14,674 Steve MacDonald 148,818 124,708 75,767 16,633 Gareth Mann 145,197 125,691 77,818 17,126 Kate Munnings 157,377 121,720 74,048 16,165 Tiernan O'Rourke 264,709 218,850 131,112 28,621 Philip Wratt 113,813 94,641 59,835 13,467 Nicholas Yates 165,530 173,290 116,383 25,492 Joe Sofra 33,464 61,688 61,688 15,549
1. Remuneration amounts disclosed in the above table refer to the maximum value of MTI and LTI performance rights, excluding forfeits during the year. These amounts have been determined at grant date using an appropriate pricing model and amortised
in accordance with AASB 2 “Share Based Payment”. The minimum value that may vest is $nil. For personal use only use personal For
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Table 14 – Analysis of movements in performance rights
Name Granted in year $1 Value of rights exercised in year $2 Lapsed /forfeited in year $3 Dr Peter Goode - 173,703 2,005,509 Graeme Hunt 1,571,837 - - Larry Ames - - 219,047 Elizabeth Hunter 162,691 - 34,189 Steve MacDonald 184,410 - - Gareth Mann 189,874 - - Kate Munnings 179,219 43,678 51,009 Tiernan O'Rourke 317,322 - 8,641 Philip Wratt 149,304 - - Nicholas Yates 282,625 - 26,740 Joe Sofra 172,389 - -
1. Refer to Table 15 for details on performance rights granted as remuneration during the year. 2. Value based on closing share price on exercise date. 3. Value based on closing share price on lapse/forfeit date.
Table 15 – Details of performance rights granted as compensation during the year
Number Fair value per right First Date Name Series Grant Date Granted at grant date 1 exercisable Expiry Date Graeme Hunt 2 2012 MTI 25-Oct-13 117,950 $1.84 01-Mar-14 01-Mar-14 2012 MTI 25-Oct-13 117,950 $1.75 01-Mar-15 01-Mar-15 2012 LTI 25-Oct-13 252,210 $1.54 30-Sep-15 30-Sep-15 2012 LTI 25-Oct-13 252,210 $0.96 30-Sep-15 30-Sep-15 2012 LTI 25-Oct-13 336,280 $1.54 30-Sep-15 30-Sep-15 Elizabeth Hunter 2012 LTI 14-Dec-12 35,730 $1.54 30-Sep-15 30-Sep-15 2012 LTI 14-Dec-12 35,730 $0.96 30-Sep-15 30-Sep-15 2012 LTI 14-Dec-12 47,640 $1.54 30-Sep-15 30-Sep-15 Steve MacDonald 2012 LTI 14-Dec-12 40,500 $1.54 30-Sep-15 30-Sep-15 2012 LTI 14-Dec-12 40,500 $0.96 30-Sep-15 30-Sep-15 2012 LTI 14-Dec-12 54,000 $1.54 30-Sep-15 30-Sep-15 Gareth Mann 2012 LTI 14-Dec-12 41,700 $1.54 30-Sep-15 30-Sep-15 2012 LTI 14-Dec-12 41,700 $0.96 30-Sep-15 30-Sep-15 2012 LTI 14-Dec-12 55,600 $1.54 30-Sep-15 30-Sep-15 Kate Munnings 2012 LTI 14-Dec-12 39,360 $1.54 30-Sep-15 30-Sep-15 2012 LTI 14-Dec-12 39,360 $0.96 30-Sep-15 30-Sep-15 2012 LTI 14-Dec-12 52,480 $1.54 30-Sep-15 30-Sep-15 Tiernan O'Rourke 2012 LTI 14-Dec-12 69,690 $1.54 30-Sep-15 30-Sep-15 2012 LTI 14-Dec-12 69,690 $0.96 30-Sep-15 30-Sep-15 2012 LTI 14-Dec-12 92,920 $1.54 30-Sep-15 30-Sep-15 Philip Wratt 2012 LTI 14-Dec-12 32,790 $1.54 30-Sep-15 30-Sep-15 2012 LTI 14-Dec-12 32,790 $0.96 30-Sep-15 30-Sep-15 2012 LTI 14-Dec-12 43,720 $1.54 30-Sep-15 30-Sep-15 Nicholas Yates 2012 LTI 14-Dec-12 62,070 $1.54 30-Sep-15 30-Sep-15 2012 LTI 14-Dec-12 62,070 $0.96 30-Sep-15 30-Sep-15 2012 LTI 14-Dec-12 82,760 $1.54 30-Sep-15 30-Sep-15
For personal use only use personal For Joe Sofra 2012 LTI 14-Dec-12 37,860 $1.54 30-Sep-15 30-Sep-15 2012 LTI 14-Dec-12 37,860 $0.96 30-Sep-15 30-Sep-15 2012 LTI 14-Dec-12 50,480 $1.54 30-Sep-15 30-Sep-15
1. Basis of the assessed fair value at grant date is set out on page 168 in the Notes to the Financial Statements. 2. Relates to grants issued for performance carried out in the current year which are subject to shareholder approval at the AGM on 25th October.
92 TRANSFIELD SERVICES 2013 DIRECTORS’ REPORT remuneration report-audited
Table 16 – Analysis of performance rights granted as compensation
% forfeited in First Date Name Grant Date Number granted1 % vested in current year current year2 exercisable Dr Peter Goode 06-Oct-10 243,732 12% 88% 06-Oct-12 06-Oct-10 120,724 48% 52% 06-Oct-13 30-Sep-11 168,300 0% 100% 30-Sep-13 30-Sep-11 578,500 0% 100% 30-Sep-14 Graeme Hunt 6 25-Oct-13 117,950 0% 0% 01-Mar-14 25-Oct-13 117,950 0% 0% 01-Mar-15 25-Oct-13 840,700 0% 0% 30-Sep-15 Larry Ames 06-Oct-10 99,763 0% 33%3 06-Oct-13 30-Sep-11 11,900 0% 50%4 30-Sep-12 30-Sep-11 118,800 0% 67%5 30-Sep-14 Elizabeth Hunter 26-Sep-09 34,900 30% 0% 26-Sep-12 06-Oct-10 61,934 0% 0% 06-Oct-13 30-Sep-11 84,400 0% 0% 30-Sep-14 14-Dec-12 119,100 0% 0% 30-Sep-15 Steve MacDonald 06-Oct-10 71,299 0% 0% 06-Oct-13 30-Sep-11 7,900 0% 0% 30-Sep-12 30-Sep-11 91,700 0% 0% 30-Sep-14 14-Dec-12 135,000 0% 0% 30-Sep-15 Gareth Mann 06-Oct-10 65,257 0% 0% 06-Oct-13 30-Sep-11 8,600 0% 0% 30-Sep-12 30-Sep-11 92,600 0% 0% 30-Sep-14 14-Dec-12 139,000 0% 0% 30-Sep-15 Kate Munnings 26-Sep-09 54,600 30% 0% 26-Sep-12 06-Oct-10 64,283 0% 0% 06-Oct-13 06-Oct-10 3,943 0% 100% 06-Oct-12 30-Sep-11 8,200 0% 0% 30-Sep-12 30-Sep-11 93,000 0% 0% 30-Sep-14 14-Dec-12 131,200 0% 0% 30-Sep-15 Tiernan O'Rourke 06-Oct-10 115,609 0% 0% 06-Oct-13 06-Oct-10 5,237 0% 100% 06-Oct-12 30-Sep-11 27,800 0% 0% 30-Sep-12 30-Sep-11 164,700 0% 0% 30-Sep-14 14-Dec-12 232,300 0% 0% 30-Sep-15 Philip Wratt 06-Oct-10 49,849 0% 0% 06-Oct-13 30-Sep-11 14,200 0% 0% 30-Sep-12 30-Sep-11 60,100 0% 0% 30-Sep-14 14-Dec-12 109,300 0% 0% 30-Sep-15 Nicholas Yates 26-Sep-09 27,300 30% 0% 26-Sep-12 06-Oct-10 36,707 0% 0% 06-Oct-13 30-Sep-11 8,500 0% 0% 30-Sep-12 30-Sep-11 143,000 0% 0% 30-Sep-14 14-Dec-12 206,900 0% 0% 30-Sep-15 Joe Sofra 14-Dec-12 126,200 0% 0% 30-Sep-15
1. Represents the number of performance rights granted and outstanding at the start of the year. For personal use only use personal For 2. The % forfeited in the year represents the reduction from the maximum number of performance rights available to vest due to performance criteria not being achieved. 3. The redundancy conditions state the participant forfeits one- third of any LTI awards granted between the one and two years prior to their exit date. 4. The redundancy conditions state the participant forfeits half of any MTI awards granted in the twelve month period prior to their exit date. 5. The redundancy conditions state the participant forfeits two- third of any LTI awards granted in the twelve months prior to their exit date. 6. Relates to grants issued for performance carried out in the current year which are subject to shareholder approval at the AGM on 25th October. The remaining September 09 LTI grants first exercisable on September 2012 are subject to retest during FY 2014. The September 11 MTI grants first exercisable on September 2012 are subject to retest on 30 September 2013.
2013 TRANSFIELD SERVICES 93 DIRECTORS’ REPORT remuneration report-audited
No terms of equity-settled share-based payment transactions (including performance rights granted as compensation to key management personnel) have been altered or modified by the Company during the reporting period or the prior period.
The Remuneration Report ends here. The Directors’ Report continues on the next page. For personal use only use personal For
94 TRANSFIELD SERVICES 2013 DIRECTORS’ REPORT including remuneration report
INSURANCE OF OFFICERS During the financial year, the Company paid a premium for Directors’ and Officers’ Liability insurance. The policy covers the Directors and Secretary of the Company and its controlled entities, and the general managers of each of the divisions of the consolidated entity. The Directors have not included details of the nature of the liabilities covered and the amount of the premium paid in respect of the Directors’ and Officers’ Liability insurance policy as such disclosure is prohibited under the terms of the contract.
PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied to a court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings.
No proceedings have been brought or intervened in on behalf of the Company with leave of a court under section 237 of the Corporations Act 2001.
NON-AUDIT SERVICES During the year KPMG, the Company’s auditor, has performed certain other services in addition to their statutory duties. Details of the amounts paid or payable to the auditor for audit and non-audit services (comprising other assurance services) provided during the year are set out in Note 33.
The Board of Directors has considered the non-audit services provided during the year by the auditor and, in accordance with the advice received from the Risk, Audit and Compliance Committee is satisfied that the provision of those non-audit services, as set out in Note 33, during the year by the auditor is compatible with, and did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons:
all non-audit services were subject to the corporate governance procedures adopted by the Company and have been reviewed by the Risk, Audit and Compliance Committee to ensure they do not impact the integrity and objectivity of the auditor, and
the non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the Company, acting as an advocate for the Company or jointly sharing risks and rewards.
ROUNDING OF AMOUNTS The Company is of a kind referred to in Class Order 98/100, issued by the Australian Securities and Investments Commission, relating to the ‘rounding off’ of amounts in the Directors’ Report. Amounts in the Directors’ Report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, to the nearest dollar.
This report is made in accordance with a resolution of the Directors.
Anthony Shepherd Graeme Hunt
For personal use only use personal For Chairman Managing Director and Chief Executive Officer
at Sydney 28 August 2013
2013 TRANSFIELD SERVICES 95
AUDITOR’S INDEPENDENCE DECLARATION For personal use only use personal For
96 TRANSFIELD SERVICES 2013 FINANCIAL REPORT (CONTINUED)
Contents Page
Consolidated statement of profit and loss and other comprehensive income 98
Consolidated statement of financial position 99
Consolidated statement of cash flows 100
Consolidated statement of changes in equity 101
Notes to and forming part of the financial statements 102
Directors’ declaration 176
Independent auditor’s report to the members of Transfield Services Limited 177
Shareholder information 179 For personal use only use personal For
2013 TRANSFIELD SERVICES 97 CONSOLIDATED STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME
For the year ended 30 June 2013
2013 2012 Note $’000 $’000 Continuing operations Revenue from ordinary activities 5 3,451,546 3,143,390 Share of net profits of associates and joint ventures 29,30 54,565 55,223 Subcontractors, raw materials and consumables (1,427,343) (1,282,361) Employee benefits expense (1,667,317) (1,503,447) Impairment of assets 6 (317,786) - Depreciation and amortisation 7 (107,430) (91,750) Other expenses (204,111) (194,006) Net finance costs 7 (51,390) (37,794) Finance costs (53,233) (42,101) Finance income 1,843 4,307
(Loss) / profit before income tax (269,266) 89,255 Income tax benefit / (expense) 8 14,825 (4,231) (Loss) / profit for the year (254,441) 85,024
Other comprehensive income Cumulative reserve amounts reclassified to the income statement in the year Cash flow hedge reserve on reclassification of investment in RAC - 11,359 (254,441) 96,383 Items that may be reclassified subsequently to profit or loss Exchange differences on translation of foreign operations 12,470 (15,837) Changes in fair value of cash flow hedge 4,096 (4,169) Share of changes in fair value of cash flow hedge - (8,265) Income tax expense on items that may be reclassified to profit or loss (1,229) 1,611 Total items that may be reclassified subsequently to profit or loss 15,337 (26,660) Total comprehensive (loss) / income for the year (239,104) 69,723
(Loss) / profit attributable to: Owners of the Company (249,994) 84,765 Non-controlling interest (4,447) 259 (Loss) / profit for the year (254,441) 85,024
Total comprehensive (loss) / income attributable to: Owners of the Company (234,657) 69,464 Non-controlling interest (4,447) 259 Total comprehensive (loss) / income for the year (239,104) 69,723
Earnings per share attributable to ordinary equity holders of the parent Basic and diluted earnings / (loss) per share – cents 32 (48.7) 15.6
The above Consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. For personal use only use personal For
98 TRANSFIELD SERVICES 2013 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2013
2013 2012 Note $’000 $’000 Assets Cash and cash equivalents 9 178,479 78,936 Trade and other receivables 10 484,999 536,823 Inventories 11 238,615 159,829 Income tax receivable - 16,454 Prepayments and other current assets 12 25,996 23,874 Derivatives 20 3,359 - Total current assets 931,448 815,916
Non-current assets Prepayments and other non-current assets 12 38,759 40,781 Investments accounted for using the equity method 30 161,153 135,833 Other financial assets 13 93,552 95,500 Property, plant and equipment 14 503,338 467,500 Deferred tax assets 15 53,152 16,105 Intangible assets 16 562,592 814,587 Total non-current assets 1,412,546 1,570,306 Total assets 2,343,994 2,386,222
Liabilities Trade and other payables 17 666,888 577,963 Loans and borrowings 18 182,113 19,183 Current tax liabilities 6,075 - Employee benefits 19 104,679 98,572 Derivatives 20 798 1,834 Other provisions 21 35,815 26,817 Total current liabilities 996,368 724,369
Non-current liabilities Loans and borrowings 18 562,452 556,775 Deferred tax liabilities 22 6,710 4,972 Employee benefits 19 19,761 19,305 Derivatives 20 3,665 3,354 Other provisions 21 16,720 15,804 Total non-current liabilities 609,308 600,210 Total liabilities 1,605,676 1,324,579 Net assets 738,318 1,061,643
Equity Contributed equity 23 1,131,335 1,150,431 Reserves (69,840) (85,369)
Accumulated losses (316,449) (4,898) For personal use only use personal For Total equity attributable to equity holders of the Company 745,046 1,060,164 Non-controlling interest 24 (6,728) 1,479 Total equity 738,318 1,061,643
The above Consolidated statement of financial position should be read in conjunction with the accompanying notes.
2013 TRANSFIELD SERVICES 99 CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 June 2013
2013 2012 Note $’000 $’000 Cash flows from operating activities Receipts from customers (inclusive of goods and services tax) 3,497,868 3,352,926 Payments to suppliers, subcontractors and employees (inclusive of goods and services tax) (3,306,869) (3,244,175) 190,999 108,751 Dividends, distributions and net cash contributions from associates and joint ventures 58,924 57,179 Interest received 2,157 4,307 Interest paid (50,202) (36,798) Income taxes refund / (paid) 8,572 (10,737) Net cash inflow from operating activities 31 210,450 122,702
Cash flows from investing activities Payments for property, plant and equipment and other intangibles (159,141) (225,783) Proceeds from sale of property, plant and equipment 17,168 9,950 Receipts from loan notes 2,000 85,061 Investment and loans in JVs and associates (26,740) (27,741) Proceeds from the sale of businesses, net of transaction costs 26,462 3,066 Payments for acquisition of subsidiaries, net of cash acquired (22,697) (48,752) Net cash outflow from investing activities (162,948) (204,199)
Cash flows from financing activities Proceeds from borrowings (net of financing costs) 483,204 630,562 Repayment of borrowings (353,000) (593,750) Share buy back (19,793) (59,478) Dividends paid (inclusive of payments to non-controlling interest holders) (61,730) (76,974) Net cash inflow / (outflow) from financing activities 48,681 (99,640)
Net increase / (decrease) in cash held 96,183 (181,137) Cash at the beginning of the financial year 78,936 265,717 Net foreign exchange differences in opening cash 3,360 (5,644) Cash and cash equivalents at the end of the reporting period 9 178,479 78,936
The above Consolidated statement of cash flows should be read in conjunction with the accompanying notes. For personal use only use personal For
100 TRANSFIELD SERVICES 2013 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2013
Total Foreign Hedging Hedging Share attributable currency reserve reserve based to ordinary Non- Contributed translation (interest (foreign payments Other Accumulated equity controlling Total $’000 equity reserve rates) exchange) reserve reserves losses holders interest equity Balance at 1 July 1,150,431 (99,406) (4,279) (223) 18,278 261 (4,898) 1,060,164 1,479 1,061,643 2012 Loss for the year ------(249,994) (249,994) (4,447) (254,441) Exchange differences on translation of - 12,470 - - - - - 12,470 - 12,470 foreign operations Changes in fair value of cash flows hedges, - - 243 2,624 - - - 2,867 - 2,867 net of tax Total comprehensive (loss)/ income for - 12,470 243 2,624 - - (249,994) (234,657) (4,447) (239,104) the period Share buy backs (19,793) ------(19,793) - (19,793) Dividends paid (Note ------(61,557) (61,557) - (61,557) 25) Other transactions with non-controlling ------(3,760) (3,760) interest Employee share 697 - - - 192 - - 889 - 889 scheme transactions Total contributions by and distributions (19,096) - - - 192 - (61,557) (80,461) (3,760) (84,221) to owners Balance at 30 June 1,131,335 (86,936) (4,036) 2,401 18,470 261 (316,449) 745,046 (6,728) 738,318 2013
Balance at 1 July 2011 1,210,848 (83,569) (4,980) (58) 14,751 261 (13,610) 1,123,643 1,170 1,124,813 Profit for the year ------84,765 84,765 259 85,024 Exchange differences on translation of - (15,837) - - - - - (15,837) - (15,837) foreign operations Changes in fair value of cash flows hedges, - - 701 (165) - - - 536 - 536 net of tax Total comprehensive income for the - (15,837) 701 (165) - - 84,765 69,464 259 69,723 period Share buy backs (59,478) ------(59,478) - (59,478) Dividends paid (Note ------(76,053) (76,053) (723) (76,776) 25) Other transactions with non-controlling ------773 773 interest Employee share (939) - - - 3,527 - - 2,588 - 2,588 scheme transactions Total contributions
by and distributions (60,417) - - - 3,527 - (76,053) (132,943) 50 (132,893) For personal use only use personal For to owners Balance at 30 June 1,150,431 (99,406) (4,279) (223) 18,278 261 (4,898) 1,060,164 1,479 1,061,643 2012
The above Consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
2013 TRANSFIELD SERVICES 101 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
Page NOTES number Note 1. Summary of significant accounting policies 103 Note 2. Financial, capital and other risk management 121 Note 3. Critical accounting estimates and judgements 127 Note 4. Operating segments 128 Note 5. Revenue 132 Note 6. Impairment 133 Note 7. Expenses 133 Note 8. Income taxes 134 Note 9. Cash and cash equivalents 135 Note 10. Trade and other receivables 135 Note 11. Inventories 136 Note 12. Prepayments and other assets 136 Note 13. Other financial assets 136 Note 14. Property, plant and equipment 136 Note 15. Deferred tax assets 137 Note 16. Intangible assets 139 Note 17. Trade and other payables 142 Note 18. Loans and borrowings 142 Note 19. Employee benefits 143 Note 20. Derivatives 143 Note 21. Other provisions 144 Note 22. Deferred tax liabilities 146 Note 23. Contributed equity 147 Note 24. Non-controlling interest 148 Note 25. Dividends 149 Note 26. Related party transactions 149 Note 27. Key management personnel 152 Note 28. Business combinations 156 Note 29. Investment in associate 158 Note 30. Interests in joint ventures and partnerships 159 Note 31. Reconciliation of operating profit after income tax to net cash inflow from operating activities 161 Note 32. Earnings / (loss) per share 162 Note 33. Remuneration of auditors 163 Note 34. Events occurring after statement of financial position date 163 Note 35. Contingent assets and liabilities 163 Note 36. Commitments for expenditure 165 Note 37. Share based payments 166 Note 38. Deed of cross guarantee 169
Note 39. Parent entity financial information 171 For personal use only use personal For
102 TRANSFIELD SERVICES 2013 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of this general purpose financial report are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated. The financial report includes financial statements for the consolidated entity consisting of Transfield Services Limited (‘the Company’ or ‘the parent entity’) and its controlled entities (‘the Group’ or ‘the consolidated entity’), which is a for- profit entity involved in the provision of operations and maintenance and asset management services.
Presentation of financial statements
The Group presents all owner related changes in equity in the consolidated statement of changes in equity and all non-owner related changes in equity in the consolidated statement of profit or loss and other comprehensive income. Where applicable, comparative information has been reclassified to align with current year presentation. a. Basis of preparation of the financial report
This general purpose financial report has been prepared on a going concern basis in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board including interpretations and the Corporations Act 2001.
At 30 June 2013, the Group had net current liabilities of $64,920,000, which included loans and borrowings of $163,000,000 under a facility due to expire in December 2013 which were classified within current liabilities (see below).
In August 2013, the Group completed the extension of $143,000,000 of debt facilities that were due to expire in December 2013 of which $83,000,000 was drawn down at 30 June 2013. The new maturity for these facilities will be August 2015. Whilst the total amount of expiring facilities was $259,000,000, the Group voluntarily cancelled US$100,000,000, being excess commitments no longer required. Refer to Note 34 for further details on this debt renewal.
Compliance with International Financial Reporting Standards (IFRS)
The financial report complies with IFRS as issued by the International Accounting Standards Board (IASB).
Critical accounting estimates
The preparation of financial statements in conformity with Australian Accounting Standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3.
Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis except for the following material items in the statement of financial position:
derivative financial instruments are measured at fair value, and
available-for-sale financial assets are measured at fair value. b. Basis of consolidation
Subsidiaries
The consolidated financial statements incorporate the assets and liabilities of the Group as at 30 June 2013 and the results of all subsidiaries for the year then ended.
Subsidiaries are those entities over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding which provides the Group with more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when
assessingonly use personal For whether the Group controls another entity.
Subsidiaries are consolidated from the date that the Group acquires control. They are de-consolidated from the date that control ceases.
2013 TRANSFIELD SERVICES 103 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) b. Basis of consolidation (continued) Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of profit or loss and other comprehensive income, statement of changes in equity and the statement of financial position respectively. The Group applies a policy of treating transactions with non-controlling interests as transactions with parties external to the Group. Disposals to non-controlling interests result in gains and losses for the Group that are recorded in the statement of profit or loss and other comprehensive income. Investments in subsidiaries are accounted for at cost in the separate financial statements of the Company, including the summarised statement of financial position. Refer to Note 1 (af) for the Group’s assessment of the impact of AASB 10 Consolidated Financial Statements effective from 1 July 2013.
Business combinations
Business combinations are accounted for using the acquisition method. For every business combination the Group identifies the acquirer, which is the combining entity that obtains control of the combining entities or businesses. Control is the power to govern the financial and operating policies of an entity so as to obtain benefit from its activities. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable. The acquisition date is the date on which control is transferred to the acquirer. Judgement is applied in determining the acquisition date and determining whether control is transferred from one party to another.
Goodwill arising in a business combination is measured at the fair value of the consideration transferred including the recognised amount of any non-controlling interest in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, as measured at the acquisition date.
Consideration transferred includes the fair values of the assets transferred, liabilities incurred by the Group to the previous owners of the acquiree, and equity interests issued by the Group. Consideration transferred also includes the fair value of any contingent consideration and share-based payment awards of the acquiree that are replaced mandatorily in the business combination. The fair value of contingent consideration arising in a business combination is calculated using the income approach based on the expected payment amounts and their associated probabilities. When appropriate, it is discounted to present value. If a business combination results in the termination of previously existing relationships between the Group and the acquiree, then the lower of the termination amount as contained in the agreement, and the value of the off-market element, is deducted from the consideration transferred and recognised in other expenses.
When share-based payment awards are required to be exchanged for awards held by the acquiree’s employees and relate to past services, then a part of the market-based measure of the awards replaced is included in measuring the consideration transferred. If they require future services, then the difference between the amount included in consideration transferred and the market-based measure of the replacement awards is treated as a post-combination compensation cost.
A contingent liability of the acquiree is only assumed in a business combination if such a liability represents a present obligation and arises from a past event and its fair value can be measured reliably.
The Group measures any non-monetary interest at its proportionate interest in the identifiable net assets of the acquiree.
Transaction costs other than those associated with the issue of debt or equity securities, that the Group incurs in connection with the business combination are expensed as incurred.
Associates
Associates are all entities over which the Group has significant influence but not control or joint control, generally accompanying a shareholding of between 20 per cent and 50 per cent of the voting rights. Investments in associates areonly use personal For accounted for in the parent entity’s summarised statement of financial position using the cost method and in the consolidated financial statements using the equity method of accounting, after initially being recognised at cost (including transaction costs).
104 TRANSFIELD SERVICES 2013 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) b. Basis of consolidation (continued) The Group’s shares of post-acquisition profits or losses from its associates are recognised in the statement of profit or loss and other comprehensive income, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends and distributions receivable from associates are recognised in the parent entity’s statement of profit or loss and other comprehensive income, while in the consolidated financial statements they reduce the carrying amount of the investment.
When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.
Joint venture entity and partnerships
The interest in a joint venture entity or partnership is accounted for in the consolidated financial statements using the equity method, and is initially measured at cost. The subsequent share of the profits or losses of the joint venture entity or partnership is recognised in the statement of profit or loss and other comprehensive income, and the share of movements in reserves is recognised in reserves in the statement of financial position.
Profits or losses on transactions establishing the joint venture entity or partnership and transactions with the joint venture entity or partnership are eliminated to the extent of the Group’s ownership interest. Profits or losses on the sale of a controlling interest to joint venture entities are accounted for under the requirements of AASB127 Consolidated and Separate Financial Statements with any resulting gain or loss recognised in full in profit or loss when the risks and rewards of ownership have been transferred.
Joint operations
Where the Group has rights to the assets, and obligations for the liabilities relating to an arrangement, it accounts for each of its assets, liabilities and transactions, including its share of this held or incurred jointly, in relation to the joint operation. Refer to Note 1 (af) for the Group’s preliminary assessment of the impact of AASB11 Joint Arrangements effective from 1 July 2013. c. Segment reporting
The Group determines and presents operating segments based on the information that internally is provided to the Managing Director and Chief Executive Officer, who is the Group’s chief operating decision maker.
An operating segment is a component of the Group that engages in business activities from which it may earn revenue and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. All operating segments are regularly reviewed by the Group’s Managing Director and Chief Executive Officer to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available.
Segment results that are reported to the Managing Director and Chief Executive Officer include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.
Refer to Note 4 for further details of reported information relating to operating segments. d. Foreign currency transactions
Functional and presentation currency
Itemsonly use personal For included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Australian dollars, which is Transfield Services Limited’s functional and presentation currency. No Group entities have hyperinflationary functional currencies.
2013 TRANSFIELD SERVICES 105 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) d. Foreign currency transactions (continued)
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the approximate dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of profit or loss and other comprehensive income, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges.
Translation differences on non-monetary financial assets and liabilities are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through comprehensive income are recognised in comprehensive income as part of the fair value gain or loss.
Foreign operations
The results and financial position of all the Group entities that have different functional currencies from the presentation currency are translated as follows:
assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position
income and expenses for each statement of profit or loss and other comprehensive income are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the approximate dates of the transactions), and
all resulting exchange differences are recognised as other comprehensive income that may/may not be recycled to the income statement.
On consolidation, exchange differences arising from the translation of any foreign entities, including financial liabilities designated as a hedge of a net investment in a foreign operation, are taken to the foreign currency translation reserve within equity to the extent that the hedge is effective (regardless of whether the net investment is held directly or through an intermediate parent). When a foreign operation is sold a proportionate share of such exchange differences is recognised in the statement of profit or loss and other comprehensive income as part of the gain or loss on sale. When the group disposes of only a part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate at the date of that statement of financial position. e. Revenue
The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group’s activities as described below. The amount of revenue is not considered to be reliably measurable until all material contingencies relating to the sale or service have been resolved. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. Amounts disclosed as revenue are net of returns, trade allowances and duties and taxes paid.
Operations and facilities management maintenance services revenue
Service revenue is recognised when the service is completed in accordance with the terms of the contract, unless the contract is long-term or where service activity within a contract period is expected to vary significantly year on year, in which case revenue is recognised in accordance with the percentage of completion method or when a significant actonly use personal For is executed.
Asset and project management revenue
Asset and project management revenue is recognised when the services are rendered and in accordance with individual contracts as appropriate.
106 TRANSFIELD SERVICES 2013 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) e. Revenue (continued)
Construction revenue
Construction revenue relates to contracts for the construction of assets on behalf of third parties. Construction revenue is recognised based on the percentage of completion method when recovery of the consideration is probable, there is no continuing ownership interest with the assets and the amount of revenue can be measured reliably.
Drilling and related services revenue
Drilling and related services revenue is recognised when the service is completed in accordance with the terms of the drilling contract, unless the contract is long-term or where service activity within a contract period is expected to vary significantly year on year in which case revenue is recognised in accordance with the percentage of completion method or when a significant milestone is reached.
Infrastructure development revenue
Infrastructure development revenue relates to a range of activities from sale of infrastructure development equity opportunities to sale of completed infrastructure assets and also includes revenues from the contracted development of infrastructure assets on behalf of third parties. Infrastructure development revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, there is no continuing equity involvement with the assets and the amount of revenue can be measured reliably.
Key performance indicator (KPI) revenue
The Group derives KPI revenue from certain contracts when contract performance hurdles are met. These hurdles are typically safety and performance related. KPI revenue is only recognised when it is probable that the economic benefits associated with the transaction will flow to the entity. The Group’s policy is to recognise KPI income on a pro- rata basis to the extent that the Group is capable of achieving the desired outcomes under the terms of the contract and the value of the KPI revenue can be reliably estimated. When an uncertainty arises about the collectability of an amount already recognised as revenue, the uncollectible amount, or the amount in respect of which recovery has ceased to be probable, is recognised as an adjustment to the amount of revenue originally recognised. f. Income tax
The income tax expense or benefit for the period is the tax payable or refundable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the reporting date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis,
or to realise the asset and settle the liability simultaneously. For personal use only use personal For Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.
Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity.
2013 TRANSFIELD SERVICES 107 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) f. Income tax (continued)
Tax consolidation legislation
The head entity, Transfield Services Limited, and its wholly owned Australian controlled entities have implemented the tax consolidation legislation as of 1 July 2003.
On adoption of the tax consolidation legislation, the entities in the tax consolidated group entered into a tax sharing agreement, which, in the opinion of the Directors, limits the joint and several liability of the wholly owned entities in the case of a default by the head entity, Transfield Services Limited.The entities have also entered into a tax funding agreement under which the wholly owned entities fully compensate the head entity for any current tax payable assumed and are compensated by the Company for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to the Company under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly owned entities’ financial statements.
The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of the financial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments.
A similar regime operates in the United States. The Group’s United States domiciled wholly owned subsidiaries have adopted the equivalent arrangement in that jurisdiction. Transfield Services Limited and the controlled entities in the Australian tax consolidated group continue to account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a stand-alone taxpayer in its own right.
In addition to its own current and deferred tax amounts, Transfield Services 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. g. Leases
Leases where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased asset and the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in loans and borrowings.
Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The interest element of the finance cost is charged to the statement of profit or loss and other comprehensive income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The asset acquired under finance leases are depreciated over the shorter of the asset’s useful life or the lease term where there is no certainty that ownership of the asset will transfer.
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the statement of profit or loss and other comprehensive income on a straight-line basis over the period of the lease. Lease income from operating leases is recognised in income on a straight-line basis over the lease term. h. Impairment of assets
The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value lessonly use personal For costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units).
108 TRANSFIELD SERVICES 2013 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) h. Impairment of assets (continued) For the purposes of goodwill impairment testing, cash generating units to which goodwill has been allocated are aggregated so that the level at which impairment is tested reflects the lowest level at which goodwill is monitored for internal reporting purposes.
At each reporting date, the Group reviews non-financial assets other than goodwill that have been previously impaired for indications that the conditions that resulted in the impairment have reversed.
Impairment policies in respect of non-derivative financial assets are set out in Note 1(m) and Note 1(o). i. Trade receivables
All trade receivables are recognised initially at fair value and subsequently measured at amortised cost, using the effective interest rate method, less provision for impairment. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial.
Recoverability of trade receivables is reviewed on an on-going basis. Debts which are known to be uncollectible are written off. A provision for impairment is raised when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is recognised in the statement of profit or loss and other comprehensive income within other expenses.
When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the provision. Subsequent recoveries of amounts previously written off are credited against other expenses in the statement of profit or loss and other comprehensive income. j. Inventories
Consumables and stores
Consumables and stores are stated at the lower of cost (assigned on the first-in-first-out basis) and net realisable value and charged to specific contracts when used. Net realisable value is the estimated selling price in the ordinary course of business less the estimated sale costs.
Work in progress
Work in progress in respect of standard contracts represents unbilled contract expenditure on service contracts at the period end and is stated at the lower of cost and net realisable value.
Work in progress for contracts that are recognised on a percentage of completion basis are stated at the aggregate of contract costs incurred to date plus recognised profit less recognised losses and less progress billings.
Where progress billings exceed the aggregate costs incurred plus profits less losses, the resulting work in progress is included in current liabilities.
Contract costs include all costs directly related to specific contracts, costs that are specifically chargeable to the client under the terms of the contract and an allocation of overhead expenses incurred in connection with the Group’s general maintenance activities. k. Cash and cash equivalents
In the consolidated statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with banks, other short-term, highly liquid investments with original maturities of three months or less and bank overdrafts. Bank overdrafts are shown within short-term borrowings in current liabilities in the consolidated statement
of financial position. For personal use only use personal For
2013 TRANSFIELD SERVICES 109 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) l. Discontinued operations and non-current assets held for sale
A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single co-ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately on the face of the statement of profit or loss and other comprehensive income.
Non-current assets that are expected to be recovered primarily through sale rather than continuing use, are classified as held for sale. Immediately before classification as held for sale the assets are re-measured in accordance with the Group’s accounting policies. Thereafter the assets are measured at the lower of their carrying value and fair value less cost to sell. m. Non-derivative financial assets
Recognition
Regular purchases and sales of non-derivative financial assets are recognised on tradedate being the date on which the Group commits to purchase or sell the asset. Non-derivative financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.
Classification
The Group classifies its non-derivative financial assets as either loans or receivables or available-for-sale financial assets, depending on the purpose for which the investments were acquired. Management determines the classification of its non-derivative financial assets at initial recognition.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of selling the receivable. They are included in current assets, except for those with maturities greater than 12 months after the statement of financial position date, which are classified as non-current assets. Loans and receivables are included in receivables in the statement of financial position.
Loans and receivables are carried at amortised cost using the effective interest rate method.
Available-for-sale financial assets
Available-for-sale financial assets, principally comprising equity securities, are non-derivatives that are either designated in this category or not classified in any other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of balance date and the sale is highly probable.
Available-for-sale financial assets are measured at fair value plus transaction costs with revaluation gains and losses recognised in reserves within equity. When an investment is derecognised, the cumulative gain or loss in equity is reclassified to profit or loss.
Where there is no traded market value, the fair value of available-for-sale financial assets is based on the present value of expected net cash inflows.
Impairment
The Group assesses at each statement of financial position date, whether there is objective evidence that a financial asset or group of financial assets is impaired and, if evidence of impairment exists, recognises an impairment loss in
the statement of profit or loss and other comprehensive income. For personal use only use personal For Impairment losses on available-for-sale financial assets are recognised by reclassifying the losses accumulated in the fair value reserve in equity to profit or loss. The cumulative loss that is reclassified from equity to profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss recognised previously in profit or loss.
110 TRANSFIELD SERVICES 2013 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) n. Derivatives
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.
The Group designates certain derivatives as either:
hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedges), or
hedges of probable forecast transactions (cash flow hedges).
The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an on-going basis, of whether the derivatives that are used in hedging transactions have been and will continue to be effective in offsetting changes in fair values or cash flows of hedged items.
The full fair value of a hedging derivative is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Gains and losses arising on derivative financial instruments that are not designated as hedges are recognised in the statement of profit or loss and other comprehensive income.
Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in equity in the hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the statement of profit or loss and other comprehensive income within other income or other expense.
Amounts accumulated in equity are recycled in the statement of profit or loss and other comprehensive income in the periods when the hedged item will affect profit or loss (for instance when the forecast sale that is hedged takes place). The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognised in the statement of profit or loss and other comprehensive income within finance costs. The gain or loss relating to the effective portion of forward foreign exchange contracts hedging transactions is recognised in the statement of profit or loss and other comprehensive income within revenue. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory) or a non-financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the measurement in the initial cost or carrying amount of the asset or liability.
When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the statement of profit or loss and other comprehensive income. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the statement of profit or loss and other comprehensive income. o. Fair value estimation
The fair value of financial assets and financial liabilities must be estimated for recognition and measurement and for disclosure purposes.
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. The fair value of forward exchange contracts is determined using forward exchange market rates at the statement of financial position date.
The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values due to their short-term nature. The fair value of financial liabilities for disclosure purposes is estimated by discounting the futureonly use personal For contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.
Fair values of financial assets and liabilities carried at fair value are analysed by valuation, defined as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2: inputs other than quoted process included within Level 1 that are observable for the asset or liability either directly (as prices) or indirectly (derived from prices), and
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
2013 TRANSFIELD SERVICES 111 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) p. Property, plant and equipment
Land and leasehold improvements are shown at cost, less depreciation for leasehold improvements. Land is not depreciated. All other plant and equipment is stated at cost less accumulated depreciation. Cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains/ losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment as well as finance costs capitalised on qualifying assets.
The fair value of property, plant and equipment recognised as a result of a business combination is the estimated amount for which a property could be exchanged on the date of acquisition between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All repair and maintenance expenses are charged to the statement of profit or loss and other comprehensive income during the period in which they are incurred.
Where the passage of time is the most appropriate reflection of the pattern of consumption of the future economic benefits of these assets, depreciation on other assets is calculated using the straight-line method to allocate their cost, net of their residual values, over their estimated useful lives. The Group’s estimated useful lives are as follows:
buildings 25 - 40 years leasehold improvements remaining lease term plant and equipment 2 - 20 years
Where the expected pattern of consumption of future economic benefits is most accurately reflected by the completion of increased units of production and the total units of production over the asset’s life can be determined reliably, the cost is allocated based on the proportional completion of the total units of production over the asset’s life.
The asset’s residual values and useful lives are reviewed, and adjusted if appropriate, at each statement of financial position date.
An assets’ carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount – (refer Note 1(h)).
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the consolidated statement of profit or loss and other comprehensive income.
Capital work in progress
Expenditure on development activities for the design of new or substantially improved products or services before the start of commercial production or use is capitalised if the product or service is technically and commercially feasible and adequate resources are available to complete development. The expenditure capitalised comprises all directly attributable costs, including costs of materials, services, direct labour, finance costs incurred and an appropriate proportion of overheads. Such assets are included in capital work in progress until completed at which time they are transferred into plant and equipment and depreciated in accordance with the policies set out above.
Capital work in progress includes only those costs directly attributable to the development phase and are only recognised following completion of technical feasibility and where the Group has an intention and ability to use the asset. Other development expenditure is recognised in the statement of profit or loss and other comprehensive income as an expense as incurred.
Computer software
Costs incurred in developing products or systems and costs incurred in acquiring software and licenses that will contribute to future period financial benefits through revenue generation and/or cost reduction are capitalised to softwareonly use personal For and systems within plant and equipment Costs capitalised include external direct costs of materials and service, direct payroll and payroll related costs of employees’ time spent on the project. Amortisation is calculated on a straight line basis over periods generally ranging from 3 years for application software to 10 years for licences and other items.
Leasehold improvements
The cost of improvements to or on leasehold properties is amortised over the unexpired period of the lease, or the estimated useful life of the improvements to the consolidated entity.
112 TRANSFIELD SERVICES 2013 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) q. Intangible assets
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill acquired in business combinations is not amortised. Instead, goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. An impairment loss is recognised for the amount by which the asset’s carrying value exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units (CGU’s) for the purpose of impairment testing. Each of those CGU’s represents the lowest level within the Group at which goodwill is monitored for internal management purposes.
The fair value of intangible assets (excluding goodwill) acquired in a business combination is based on the aggregated discounted cash flows expected to be derived from the use and the sale of the assets.
Intangible assets acquired as part of business combinations have a finite useful life and are carried at cost less accumulated amortisation and impairment losses. Amortisation is calculated using the straight-line method over their estimated useful as follows:
Trademarks and brands 5 - 22 years Contract intangibles 3 - 15 years Customer relationships 6 - 22 years Customer/supplier databases 15 - 22 years Other 5 years
r. Pre-contract costs
Pre-contract costs are costs incurred in relation to securing a contract. These costs include costs incurred prior to and during the contract bidding process as well as costs incurred upon set-up and mobilisation of a contract upon award. Pre-contract costs are capitalised in other assets in the statement of financial position when there is a probable expectation that the cost will be recovered. These costs are recognised over the life of the contract in the statement of profit or loss and other comprehensive income in depreciation expense. Where a contract award is subsequently unsuccessful, the previously capitalised costs are immediately expensed in the statement of profit or loss and other comprehensive income in other expenses. s. Trade and other payables
Trade and other payables represent liabilities for unpaid goods and services provided to the Group prior to the end of the financial period. The amounts are unsecured and are usually paid within 30-60 days of recognition. t. Short-term and long-term loans and borrowings
Loans and borrowings are initially recognised at fair value, net of transaction costs incurred. Loans and borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the statement of profit or loss and other comprehensive income over the period of the borrowings using the effective interest rate method. Fees paid on the establishment of loan facilities, which are not an incremental cost relating to the actual draw-down of the facility, are recognised as capitalised costs and amortised on a straight line basis over the term of the facility.
Loans and borrowings are derecognised from the statement of financial position when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability thatonly use personal For has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in other income or other expenses.
Loans and borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the statement of financial position date.
2013 TRANSFIELD SERVICES 113 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) u. Employee benefits
Annual leave, sick leave and Directors’ retirement benefits
Liabilities for annual leave, accumulating sick leave expected to be settled within 12 months and, in accordance with the Group’s remuneration policy, Directors’ retirement benefits (including non-monetary benefits) are recognised in provision for employee benefits in respect of employees’ or Directors’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and measured at the rates paid or payable.
Long service leave
The liability for long service leave is recognised in the provision for employee benefits and measured at the present value of the expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date of national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.
Short-term incentive plans
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.
Superannuation
Contributions to defined contribution superannuation funds are charged as an expense as the contributions are paid or become payable.
Employee benefit on-costs
Employee benefit on-costs, including payroll tax, are recognised and included in provision for employee benefits and are measured at amounts expected to be paid when the liabilities are settled, discounted to net present value.
Termination benefits
Liabilities for termination benefits, not in connection with the acquisition of any entity or operation, are recognised when a detailed plan for the termination has been developed and a valid expectation has been raised with those employees affected that terminations will be carried out. The liabilities for termination benefits are recognised in other payables unless the amount or timing of the payments is uncertain, in which case they are recognised as provisions.
Equity-based compensation benefits
Equity-based compensation benefits are provided to employees through the TranShare Executive Performance Awards Plan, the Transfield Services Executive Options Scheme and the Deferred Retention Incentive Scheme.
Performance Awards
The fair value of Performance Awards granted under the Transfield Services Executive Options Scheme or the TranShare Executive Performance Awards Plan are recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the Performance Awards.
Shares under the Deferred Retention Incentive Scheme
For personal use only use personal For Shares acquired under the Deferred Retention Incentive Scheme are held by the TranShare PlanTrust and included in treasury shares as a reduction in equity until they are allocated to individual employees. The expense is recognised and the liability is accrued over the vesting period.
114 TRANSFIELD SERVICES 2013 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) u. Employee benefits (continued)
Equity-based compensation benefits (continued)
The fair value at grant date of Performance Awards is independently determined using a binomial and Monte Carlo model that takes into account the exercise price, the term of Performance Award, the vesting and performance criteria, the impact of dilution, the non-tradable nature of the Performance Award, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the Performance Award.
The fair value of the Performance Awards granted excludes the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of Performance Awards that are expected to become exercisable. At each statement of financial position date, the entity revises its estimate of the number of Performance Awards that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate.
Upon the exercise of Performance Awards, the balance of the share-based payments reserve relating to those Performance Awards is transferred to share capital.
The difference between the market value of shares issued to employees and the employee’s consideration under the employee share scheme is recognised as an employee benefit expense with a corresponding increase in equity when the employee becomes entitled to the shares. v. Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated. Provisions are not recognised for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required on settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.
Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the statement of financial position date. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense. w. Onerous contracts
A provision for onerous contracts is recognised when the expected benefits to be derived from a contract are less than the unavoidable costs of meeting the obligations under that contract, and only after any impairment losses to assets dedicated to that contract have been recognised.
The provision recognised is based on the excess of the estimated cash flows to meet the unavoidable costs under the contract over the estimated cash flows to be received in relation to the contract, having regard to the risks of the activities relating to the contract. The net estimated cash flows are discounted at the statement of financial position date using market yields of national government guaranteed bonds with terms to maturity and currency that match, as closely as possible, the expected future payment, where the effect of discounting is material.
Refer to Note 21 for further details in relation to the Group’s provision policies. For personal use only use personal For
2013 TRANSFIELD SERVICES 115 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) x. Finance costs
Finance costs are recognised as an expense in the period in which they are incurred (except where they are incurred in the cost of qualifying assets – refer Note 1(t)) and include:
interest on bank overdraft and short-term and long-term borrowings
amortisation of discounts or premium relating to borrowings
amortisation of ancillary costs incurred in connection with the arrangement of borrowings, and
finance lease charges.
Finance costs incurred for the construction of qualifying assets are capitalised during the period of time that is required to complete and prepare the asset for its intended use. The capitalisation rate used to determine the amount of finance costs to be capitalised is the weighted average interest rate applicable to the Group’s outstanding borrowings during the year. y. Government grants
Government grants are recognised initially as deferred income when there is reasonable assurance that they will be received and that the Group will comply with the conditions attached. Grants that compensate the Group for expenses are recognised in the statement of profit or loss and other comprehensive income as other income in the same period as the expense that they compensate is recognised. Grants that compensate the Group for the cost of an asset are recognised in the statement of profit or loss and other comprehensive income on a systematic basis over the useful life of the asset. z. Contributed equity
Ordinary shares
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares, Options or Performance Awards are shown in equity as a deduction, net of tax, from the proceeds.
Treasury shares
Any amounts of unvested shares held by the TranShare Plan Trust are controlled by the Group until they vest and are recorded as a reduction in equity.
When share capital recognised as equity is repurchased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognised as a deduction from equity. Repurchased shares are classified as treasury shares and are presented in other reserves. When treasury shares are sold or reissued subsequently, the amount received is recognised as an increase in equity, and the resulting surplus or deficit on the transaction is presented in retained earnings. aa. Dividends
Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the
discretion of the entity, on or before the end of the year but not distributed at statement of financial position date. For personal use only use personal For
116 TRANSFIELD SERVICES 2013 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ab. Earnings / (loss) per share
Basic earnings / (loss) per share is calculated by dividing the profit or loss attributable to equity holders of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the year, adjusted for bonus elements in ordinary shares issued during the year.
Diluted earnings / (loss) per share adjusts the figures used in the determination of basic earnings / (loss) per share to take into account the post income tax effect of interest and financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. ac. Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense.
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority on the date of the statement of financial position is included with other receivables or payables in the statement of financial position.
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities, which are recoverable from, or payable to the taxation authority, are presented as operating cash flow. ad. Rounding of amounts
The Company is of a kind referred to in Class Order 98/100 issued by the Australian Securities and Investments Commission dated 10 July 1998 relating to the ‘rounding off’ of amounts in the financial report. Amounts in the financial report have been rounded in accordance with that Class Order to the nearest thousand dollars or, in certain cases, the nearest dollar as stated. ae. Reserves
Share-based payments reserve
The share-based payments reserve is used to recognise the fair value of Options and Performance Awards granted but not exercised. The share-based payments reserve is tax-effected as a result of the intention to acquire shares to fulfil vested Awards on market (refer to Note 37).
Foreign currency translation reserve
Exchange differences arising on translation of the foreign controlled entities are taken to the foreign currency translation reserve, as described in Note 1(d). The reserve is recognised in profit and loss when the net investment is disposed.
Hedging reserve – cash flow hedges
The hedging reserve is used to record gains or losses on a hedging instrument that is designated and qualifies for recognition as a cash flow hedge, as described in Note 1(n). Amounts are recognised in profit and loss when the associated hedged transaction affects profit and loss.
Share capital contribution reserve
The share capital contribution reserve is used to recognise the post-acquisition capital contributions by the vendors to
equity of subsidiaries. For personal use only use personal For Statutory reserve
The statutory reserve is a requirement of Abu Dhabi law to maintain a percentage of profits in reserves.
Other reserve
Other reserve is comprised of revaluation reserve, share capital contribution and statutory reserve. Revaluation reserves relates to the revaluation of other financial assets classified as available for sale financial assets.
2013 TRANSFIELD SERVICES 117 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) af. New accounting standards and interpretations
Certain new accounting standards and interpretations have been published that are effective for annual periods beginning after 1 July 2012. The Group’s assessment of the impact of these new standards and interpretations is set out below.
AASB 9 Financial Instruments, AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 and AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 (Effective from 1 January 2015)
The amendments add requirements for the classification and measurement of financial liabilities that are generally consistent with the requirements of AASB 139 as well as requirements in relation to the derecognition of financial assets and liabilities consistent with AASB 139. The changes to AASB 9 also simplify the measurement model and establish two primary measurement categories for financial assets, amortised cost and fair value. These changes are not expected to have a material impact on the Group.
AASB 124 Related Party Disclosures, AASB 2011-4 Amendments to Australian Accounting Standards to remove individual Key Management Personnel disclosure requirements. (Effective from 1 July 2013).
The amendment removes the requirement to include individual key management personnel disclosures in the notes to the financial statements. The Group will still be required to provide these disclosures in the Remuneration Report.
AASB 10 Consolidated Financial Statements (Effective 1 January 2013)
AASB 10 provides new criteria for determining when an investee entity needs to be consolidated. Control is determined based on whether the investor is exposed to variable returns from the investee and has the ability to affect those returns through exercising its power. The Group has numerous joint venture arrangements from which it derives variable returns. The Group does not expect material changes as a result of the application of AASB 10.
AASB 11 Joint Arrangements (Effective 1 January 2013)
Under AASB 11, a joint arrangement is classified as either a joint operation or a joint venture depending on the Company’s rights to the assets and obligations for the liabilities of the arrangements. When making this assessment, the Group is required to consider the structure of arrangements, the legal form of any separate vehicles, the contractual terms of the arrangements and other facts and circumstances. Currently the structure of the arrangement is the sole focus of classification and the Group policy is to apply equity accounting to its joint ventures.
The Group has made a preliminary assessment of AASB 11 Joint Arrangements. The likely impact of re-evaluation of the Group’s interest in its joint arrangements, which are currently equity accounted under AASB 128 is that they will be classified as joint operations on the basis that the Group has the rights to the respective entities’ assets and obligations for the liabilities.
The following table summarises the expected impact to the Group’s statement of financial position at 1 July 2012 and 30 June 2013, and its statement of profit and loss and other comprehensive income and cash flows for the year ended 30 June 2013 upon adoption of AASB 11 on 1 July 2013. The adoption of AASB 11 is not expected to impact the Group’s earnings per share.
The Group has assessed those entities which will be classed as joint operations and accounted for as a share of individual assets and liabilities given they have no legal form. The expected impact of the changes in treatment of these entities is shown in the tables below. The assessment of any impact of specific terms included in joint venture agreements in respect
of entities that have legal form is ongoing. For personal use only use personal For
118 TRANSFIELD SERVICES 2013 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) af. New accounting standards and interpretations (continued)
STATEMENT OF FINANCIAL POSITION 30 JUNE 2013 Preliminary As previously Preliminary assessment of reported restated adjustments $’000 $’000 $’000 Current assets 931,448 103,524 1,034,972 Non-current assets 1,412,546 (12,337) 1,400,209 Total assets 2,343,994 91,187 2,435,181 Current liabilities 996,368 84,800 1,081,168 Non-current liabilities 609,308 6,387 615,695 Total liabilities 1,605,676 91,187 1,696,863 Total equity 738,318 - 738,318
1 July 2012 Preliminary As previously Preliminary assessment of reported restated adjustments $’000 $’000 $’000 Current assets 815,916 62,340 878,256 Non-current assets 1,570,306 (12,941) 1,557,365 Total assets 2,386,222 49,399 2,435,621 Current liabilities 724,369 43,029 767,398 Non-current liabilities 600,210 6,370 606,580 Total liabilities 1,324,579 49,399 1,373,978 Total equity 1,061,643 - 1,061,643
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2013 Preliminary As previously Preliminary assessment of reported restated adjustments $’000 $’000 $’000 Revenue 3,451,546 310,673 3,762,219 Share of profit of equity accounted investees 54,565 (25,704) 28,861 Other expenses (3,616,557) (284,716) (3,901,273) Depreciation and amortisation (107,430) (31) (107,461) Finance costs (51,390) (222) (51,612) Tax expense 14,825 - 14,825 Overall impact on profit and total comprehensive income attributable (254,441) - (254,441) to non – controlling interests
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2013 Preliminary As previously Preliminary assessment of reported restated Adjustments
$’000 $’000 $’000 For personal use only use personal For Net cash from operating activities 210,450 42,971 253,421 Overall impact on cash and cash equivalents 96,183 18,243 114,426
2013 TRANSFIELD SERVICES 119 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) af. New accounting standards and interpretations (continued)
AASB 128 Investment in Associates and Joint Ventures (2011) (Effective 1 January 2013)
Limited amendments have been made to AASB 128 including the application of IFRS 5 Non-current assets held for sale and discontinued operations to interests in associates and joint ventures and how to account for changes in interests in joint ventures and associates. Whilst the Group has material investments in associates and joint ventures, no material changes to the Group’s financial statements are expected as a result of these changes.
AASB 12 Disclosure of Interest in Other Entities (Effective 1 January 2013)
AASB 12 contains disclosure requirements for entities that hold interest in subsidiaries, joint arrangements, associate and/or unconsolidated structured entities. The Group has not yet assessed the impact of this standard.
AASB 13 Fair value measurement (Effective 1 January 2013)
AASB 13 explains how to measure fair value when required to by other accounting standards. It does not introduce new fair value measurements or eliminate the practicability exceptions to fair value that currently exist in certain standards. No material changes to the Group’s financial statements are expected as a result of this standard.
AASB 119 Employee Benefits (Effective 1 January 2013)
AASB 119 changes the definition of short-term and long-term employee benefits to clarify the distinction between the two. No material changes to the Group’s financial statements are expected as a result of this standard.
AASB 2012-2 Amendments to Australian Accounting Standards – Disclosures – Offsetting Financial Assets and Financial Liabilities (Effective 1 January 2013)
AASB 7 is amended to increase the disclosures about offsetting financial assets and financial liabilities. No material changes to the Group’s financial statements are expected as a result of this standard.
AASB 2012-5 Amendments to Australian Accounting Standards arising from Annual Improvements 2009 -2011 Cycle (effective 1 January 2013)
AASB 1 is amended to repeat application of IFRS 1 is permitted and clarification of borrowing cost exemption; AASB 101 is amended for clarification of the comparative information requirements when an entity provided a third balance sheet; AASB 116 is amended for clarification of servicing of equipment is covered by this standard if such equipment is used for more than one period: AASB 132 is amended for clarification of the tax effect of distributions to holders of an equity instrument is recognised in accordance with the requirements of AASB 112 Income Taxes; AASB is amended for interim financial reporting and consistency of disclosures of total segment assets and liabilities. No material changes to the Group’s financial statements are expected as a result of these standards.
AASB 2013-3 Amendments to Australian Accounting Standards – Offsetting Financial Assets and Financial Liabilities (effective 1 January 2014)
AASB 132 is amended to clarify when an entity has a legally enforceable right to set-off financial assets and financial liabilities permitting entities to present balances net on the balance sheet. No material changes to the Group’s
financial statements are expected as a result of this standard. For personal use only use personal For
120 TRANSFIELD SERVICES 2013 NOTE 2. FINANCIAL, CAPITAL AND OTHER RISK MANAGEMENT The Board of Directors is responsible for the establishment and supervision of the Group’s financial and capital risk management structure. This includes approving the level of risk which the Group is prepared to accept in conducting its business and approving all material policies for the management of business risks and overseeing the management of these risks. The ultimate objective of financial and capital risk management within the Group is to contribute to the creation of shareholder value. In order to achieve this objective, the Group applies the following principles in managing its capital resources, position and risks. a. Financial risk management
The Group’s activities expose it to a variety of financial risks, including foreign currency risk, credit risk, liquidity risk, interest rate risk and country risk. The Group’s overall risk management program focuses on the volatility of financial markets and seeks to minimise potential adverse effects of market volatility on the financial performance of the Group. From time to time the Group uses derivative financial instruments such as foreign exchange contracts and interest rate swaps to hedge certain risk exposures.
Financial risk is managed by a central treasury department (Group Treasury) under policies approved by the Board of Directors. Group Treasury identifies, evaluates and hedges financial risks in close co-operation with the Group’s operating units. Group Treasury provides written principles for overall risk management, endorsed by the Board, covering areas such as mitigating foreign currency, interest rate and credit risks, use of derivative financial instruments and investing excess liquidity.
It is the Group’s policy that no speculative trading in financial instruments shall be undertaken. b. Capital risk management
The Group’s objective when managing capital is to safeguard its ability to continue as a going concern so that it can continue to provide returns to shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce its cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, issue new shares or sell assets to reduce debt. Capital is managed in order to maintain a strong financial position and ensure that the Group’s funding needs can be optimised at all times in a cost-efficient means to support the goal of maximising shareholder wealth.
To date, the Group has chosen not to acquire a credit rating from an internationally accredited agency as there is no immediate benefit from doing so. In order to ensure good credit quality and an appropriate capital structure, the Group monitors and estimates its financial position with measurements such as debt and equity ratios and gearing.
Note Consolidated 2013 2012 $’000 $’000 Total borrowings 18 744,565 575,958 Less: cash and cash equivalents 9 (178,479) (78,936) Net debt 566,086 497,022 Less: unamortised debt costs (6,384) (9,786) 559,702 487,236 Total equity 738,318 1,061,643
Total capital 1,298,020 1,548,879 For personal use only use personal For
2013 TRANSFIELD SERVICES 121 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 2. FINANCIAL, CAPITAL AND OTHER RISK MANAGEMENT (CONTINUED) c. Credit risk
Credit risk arises from cash and deposits, derivative financial instruments and committed debt funding and bonding facilities with banks and financial institutions, as well as credit exposures to clients, including outstanding receivables and committed transactions.
Counterparties to cash and deposits, derivative financial instruments and committed debt funding and bonding facilities are limited to high credit quality financial institutions, predominantly banks with a minimum independent rating of ‘A’. The Group limits the amount of credit exposure to any one financial institution through its use of a consortium of banks.
The Group’s maximum exposure to credit risk in respect of financial assets at 30 June was: 2013 2012 $’000 $’000 Cash and cash equivalents 178,479 78,936 Trade and other receivables including loans to associates and JV’s (before provision for impairment of 494,461 544,505 receivables) Income tax receivable - 16,454 672,940 639,895
The Group aims to develop long-term relationships with its clients and has no significant concentrations of credit risk. Most significant clients are government bodies, multinational corporations and large domestic businesses with established credit histories and thus are perceived as low credit risk. The Group conducts checks for credit worthiness on new clients using independent agencies and industry references.
The majority of the Group’s receivables are in the form of contracted agreements with clients. In general, the terms and conditions of these contracts require settlement of invoices between 14 and 60 days from invoice date. On occasion, the terms and conditions may differ as a result of the varied nature and timing of certain operations and maintenance services. Impairment losses are mainly attributed to dispute resolutions as opposed to default of payments.
The Group’s maximum exposure to credit risk for trade and other receivables by geographic region at 30 June was: 2013 2012 $’000 $’000 Australia and New Zealand 391,934 428,983 Americas 86,136 97,354 Middle East and Asia 16,391 18,168 494,461 544,505
The Group’s maximum exposure to credit risk for trade and other receivables by type of counterparty at 30 June was: 2013 2012 $’000 $’000 Trade receivables 460,420 507,854 Other receivables 34,041 36,651
494,461 544,505 For personal use only use personal For
122 TRANSFIELD SERVICES 2013 NOTE 2. FINANCIAL, CAPITAL AND OTHER RISK MANAGEMENT (CONTINUED) The ageing of the Group’s trade and other receivables including loans to associates and JV’s was:
2013 2012
Total Total (before (before Impaired / Past due but Impaired / Past due but provision for provision for Not due provided not impaired Not due provided not impaired impairment) impairment) $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
Not due 390,481 - - 390,481 449,786 - - 449,786
1-30 days overdue - - 31,028 31,028 - 779 32,755 33,534
31-60 days overdue - 17 17,067 17,084 - - 18,990 18,990
61-90 days overdue - - 9,921 9,921 - 1,443 12,659 14,102
91-120 days overdue - 46 9,583 9,629 - 1,314 5,694 7,008
> 121 days overdue - 9,399 26,919 36,318 - 4,146 16,939 21,085
Total trade and other 390,481 9,462 94,518 494,461 449,786 7,682 87,037 544,505 receivables
Trade receivables have been aged according to their original due date in the above ageing analysis, including where certain long outstanding trade receivables have been renegotiated as a result of the extended nature of certain Group service provisions. No collateral has been obtained for any amounts that have been identified as overdue or impaired.
During the year, the Group transferred $32,506,947 (2012: nil) of trade receivables to Bank of America, National Association, Australia Branch as well as substantially all the credit risk associated with the transferred assets.
Due to substantially transferring the risks and rewards associated with these assets, the Group has derecognised these assets within trade receivables.
At 30 June 2013, the Group has minimal exposure to credit risk associated with the recognised trade receivables. However, the Group is responsible for performing the underlying contract that gives rise to the trade receivables. In addition, the Group undertakes to perform its normal on-going role of managing the client relationship including adhering to payment terms. d. Liquidity risk
Liquidity risk is the risk of not being able to meet current or future financial obligations as and when they become due and payable. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of committed debt facilities. Group Treasury aims to maintain funding flexibility by keeping committed debt facilities and credit lines available for the business. At the statement of
financial position date the Group had sufficient headroom from its debt facilities to meet its financial obligations. For personal use only use personal For
2013 TRANSFIELD SERVICES 123 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 2. FINANCIAL, CAPITAL AND OTHER RISK MANAGEMENT (CONTINUED) Liquidity risk, maturities, weighted average interest rate, contractual cash flows and fair values
Interest 1 year to 5 More than 5 Total Contractual Fair value rate 1 year or less years years cash flow1 (Level 2)2 % $’000 $’000 $’000 $’000 $’000 Consolidated 2013 Trade and other payables 666,888 - - 666,888 666,888 Derivatives – interest rate swap 5,740 11,777 - 17,517 4,463 Derivatives – forward exchange contracts (3,359) - - (3,359) (3,359) 669,269 11,777 - 681,046 667,992
Loans and borrowings Cash advances3 171,259 354,821 - 526,080 526,080 Mandatory Convertible Note - - - - - United States Private Placement 5.99 11,135 119,460 112,875 243,470 186,036 Finance lease liabilities 6.42 9,702 19,885 9,061 38,648 32,449 Total loans and borrowings 192,096 494,166 121,936 808,198 744,565
Total financial liabilities 861,365 505,943 121,936 1,489,244 1,412,557
Consolidated 2012 Trade and other payables 577,963 - - 577,963 577,963 Derivatives – interest rate swap 9,416 18,900 - 28,316 4,833 Derivatives – forward exchange contracts 355 - - 355 355 587,734 18,900 - 606,634 583,151
Loans and borrowings Cash advances 1,904 357,802 - 359,706 359,706 Mandatory Convertible Note 8.38 4,244 - - 4,244 4,244 United States Private Placement 5.99 9,942 48,881 178,319 237,142 166,051 Finance lease liabilities 6.78 17,179 23,140 15,432 55,751 45,957 Total loans and borrowings 33,269 429,823 193,751 656,843 575,958
Total financial liabilities 621,003 448,723 193,751 1,263,477 1,159,109
1. Total contractual cash flows are undiscounted and include contractual interest payments. Carrying values in the statement of financial position exclude interest obligations. 2. Refer to Note 1(o) for further details on the classification of fair values. 3. Where interest rates are variable and /or there are no fixed repayments, contractual cash flows and fair values are the same as the carrying value. e. Market risk
Foreign currency risk
The Group is exposed to currency risk on sales, purchases and cash or cash equivalents that are denominated in a currency other than the respective functional currency. Group Treasury use forward foreign exchange rate contracts, to manage foreign currency risk. In addition, where economically viable, the Group attempts to match revenues and
expenditures, as well as assets and liabilities in each foreign currency to reduce foreign currency risk. For personal use only use personal For
124 TRANSFIELD SERVICES 2013 NOTE 2. FINANCIAL, CAPITAL AND OTHER RISK MANAGEMENT (CONTINUED)
Translation risk
A translation risk exists on translating the financial results and position of the foreign subsidiaries into Australian dollars for the purposes of presenting consolidated Group financial information. Volatility in foreign exchange rates can therefore impact the Group’s net profit, net assets and the foreign currency translation reserve.
The Group’s investments in its United States, Chile and New Zealand domiciled subsidiaries are hedged by United States dollar, Chilean peso and New Zealand dollar bank loans, which mitigate the translation risk arising from the subsidiaries net assets. The Group’s investments in other subsidiaries are not hedged.
The Group’s exposure to foreign currency risk exposure as at 30 June was: 2013 2012 $’000 $’000 Cash at bank or on deposit United States dollars 22,116 1,779 Qatari riyals 135 - United Arab Emirates dirham 2,689 1,375 Canadian dollars (4,107) 339 New Zealand dollars 6,061 121 Chilean pesos 1,508 - Indian rupee 6,846 - 35,248 3,614 Trade and other receivables United States dollars - 101
Trade and other payables United States dollars 27 429 Canadian dollars - 115 27 544
Interest rate risk
The Group’s interest-rate risk primarily arises from its floating interest rate debt obligations.
The Group manages its long-term cash flow interest-rate risk by using floating-to-fixed interest rate swaps. For interest rate swaps, the Group agrees with banks or financial institutions to convert borrowings from floating rates to fixed rates at specified intervals (quarterly or semi-annually) calculated by reference to agreed notional principal amounts. The Group evaluates a variety of factors before entering into interest rate swaps that include (but are not limited to) market conditions and forecast borrowing requirements.
To the extent possible, the Group attempts to hedge its interest rate risks with effective cash flow hedges. The effect of this is that the change in fair value relating to effective interest rate swaps is recognised in equity through the hedge reserve, whilst the change in fair value relating to ineffective interest rate swaps is recognised in the statement of profit or loss and other comprehensive income.
As at 30 June 2013 the Group had a combination of Chilean Pesos and Australian Dollar interest rate swaps in place (refer Note 20).
The sensitivity analysis has been prepared on the assumption that the Group’s significant risk exposures are limited to
the impact of interest rate movements. For personal use only use personal For
2013 TRANSFIELD SERVICES 125 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 2. FINANCIAL, CAPITAL AND OTHER RISK MANAGEMENT (CONTINUED) Interest rate sensitivity
The table below shows the Group’s sensitivity to interest rates on its floating rate Australian dollar, United States dollar and New Zealand dollar borrowings, being the currencies from which the Group has historically issued debt and held investments. The Group has considered volatility in interest rates during the 2013 financial year and the historic low interest rates prevailing in the United States at 30 June 2013 and considers a one per cent upward and downward movement to be a reasonable benchmark for interest rate sensitivity over the next 12 months.
2013 Consolidated 2012 Consolidated Net profit Equity Net profit Equity Basis points (after tax) (after tax) $’000 $’000 $’000 $’000 Bank borrowings +100 (892) (892) (907) (907) Bank borrowings -100 892 892 907 907
A change in interest rates will impact the carrying value of the Group’s interest rate swaps. The table below shows the impact to the Group’s net profit and equity given assumed changes in interest rates. 2013 Consolidated 2012 Consolidated Net profit Equity Net profit Equity Basis points (after tax) (after tax) $’000 $’000 $’000 $’000 Interest rate hedges +100 - 2,781 - 5,454 Interest rate hedges -100 - (4,033) - (4,825)
An applicable tax rate of 30 per cent (2012: 30 per cent) has been adopted which approximates the weighted average effective marginal tax. f. Other market risk
Available-for-sale financial assets
The Group classifies its investment in RATCH Australia Corporation Limited (RAC) as an available-for-sale financial asset, which is recorded at fair value with revaluation increments/decrements recorded in reserves in equity. Fair value of the RAC investment is sensitive to movements in discount rate and to changes in the long-term estimates of power pricing. The table below sets out the impact on the Group’s equity as a result of changes in these assumptions that are deemed reasonably possible at 30 June 2013.
2013 Consolidated 2012 Consolidated Net profit Equity Net profit Equity Basis points (after tax) (after tax) $’000 $’000 $’000 $’000 Discount rate +100 - (5,320) - - Discount rate -100 - 6,178 - - Power pricing -10% - 6,730 - -
Power pricing +10% - (6,730) - - For personal use only use personal For
126 TRANSFIELD SERVICES 2013 NOTE 3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the consolidated entity and that are believed to be reasonable under the circumstances. a. Critical accounting estimates and assumptions
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Estimated impairment of goodwill, other intangible assets and equity accounted investments
The recoverable amounts of cash-generating units and equity accounted investments have been determined based on the higher of fair value less costs to sell and value-in-use. These calculations require the use of assumptions relating to future cashflows, discount rates and growth rates. Refer to Note 16 for details of these assumptions in relation to goodwill.
Income taxes
The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Significant judgement is required in determining the consolidated entity’s provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain and on which professional judgement, based on relevant tax law, is exercised. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax provisions in the period in which such determination is made.
Fair value of financial instruments - RATCH Australia Corporation Limited (RAC) valuation
The group holds its investment in RAC at fair value. The fair value has been determined by the board with input from a valuation expert using the discounted cash flow method, which estimates the value of the investment by discounting expected future cash flows to their present value. This value is then assessed against comparable multiples for reasonableness.
Workers’ compensation provisions
The Group is self-insured for workers’ compensation in certain states in Australia and manages the risks associated with this through the use of actuarial techniques and engaging external experts, however these estimates by their nature are complex and are revised annually. These estimates require the use of assumptions relating to future cash flows, discount rates and other economic factors. b. Critical judgements in applying the entity’s accounting polices
Revenue recognition
The Group engages in performance-related contracts with its clients. Under the terms of these contracts the Group is entitled to receive Key Performance Indicator (KPI) income. The Group applies judgement around expectations of meeting the hurdles of each KPI.
Pre-contract costs
The Group capitalises pre-contract costs when it is probable that the cost will be recovered. The reasonableness of success is made with reference to factors which include judgement, such as preferred bidder status, number of
remaining bidders and quality of existing customer relationships. For personal use only use personal For
2013 TRANSFIELD SERVICES 127 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 4. OPERATING SEGMENTS a. Accounting policies and identification of segments
The Group is managed primarily on a geographic regional basis. The six primary segments are:
Australia and New Zealand (ANZ)
Easternwell
Americas
Middle East and Asia (MEA)
Unallocated corporate costs and inter-segment eliminations, and
An investment in RAC.
Each geographical region derives revenue from its principal activities in the following segments:
Resources & Energy
Infrastructure Services, and
Property & Facilities Management.
Information regarding the results of each reportable segment is included below. The primary measure of performance (Segment result) is segment Earnings Before Interest, Tax, Depreciation and Amortisation (‘Reported EBITDA’) as included in the internal management reports that are reviewed by the Group’s Managing Director and Chief Executive Officer on a monthly basis. Proportionately consolidated revenue, proportionately consolidated EBITDA and Earnings Before Interest and Tax (EBIT) are other additional segment measures which are also included in the internal
management reports and regularly reviewed by the Group’s Managing Director and Chief Executive Officer. For personal use only use personal For
128 TRANSFIELD SERVICES 2013 NOTE 4. OPERATING SEGMENTS (CONTINUED) b. Operating segment results 2013
Unallocated and $’000 ANZ* Easternwell ** Americas ** MEA ** eliminations RAC Group Proportionately consolidated 3,229,571 257,660 752,412 70,287 - 4,933 4,314,863 revenue Less: Share of joint venture (562,480) (25,423) (256,268) (19,146) - - (863,317) revenue
Statutory revenue 2,667,091 232,237 496,144 51,141 - 4,933 3,451,546
Proportionately consolidated 149,455 53,216 23,475 (174) (7,746) 4,933 223,159 EBITDA (prior to impairment) Less: share of joint ventures (45,042) (4,724) (18,221) (2,397) - - (70,384) EBITDA EBITDA from operations 104,413 48,492 5,254 (2,571) (7,746) 4,933 152,775 excluding joint ventures Add: share of net profits of joint 39,002 2,462 11,403 1,698 - - 54,565 ventures Reported EBITDA (prior to 143,415 50,954 16,657 (873) (7,746) 4,933 207,340 impairment) Impairment of assets - (187,800) (120,652) (9,334) - - (317,786) Reported EBITDA (post 143,415 (136,846) (103,995) (10,207) (7,746) 4,933 (110,446) impairment) Depreciation (34,945) (23,226) (11,852) (512) (19,986) - (90,521) Amortisation of acquired intangibles (4,190) (8,817) (3,599) (303) - - (16,909) EBIT 104,280 (168,889) (119,446) (11,022) (27,732) 4,933 (217,876) Net operating finance costs (51,390) Tax on operating items 14,825 Non-controlling interest 4,447 Net profit after tax (attributable (249,994) to owners of the Company) Balance sheet Investments accounted for using 85,869 51,608 20,232 3,444 - - 161,153 the equity method Property, plant and equipment 86,264 202,661 46,065 429 167,919 - 503,338 Intangible assets 214,284 254,506 91,574 2,228 - - 562,592 Other assets 507,673 55,132 172,500 18,463 37,742 93,770 885,280 Segment assets 894,090 563,907 330,371 24,564 205,661 93,770 2,112,363 Cash and cash equivalents 178,479 Tax assets 53,152 Consolidated assets 2,343,994 Segment liabilities 560,795 34,939 142,733 13,141 96,718 - 848,326 Tax liabilities 12,785 Loans and borrowings 744,565 Consolidated liabilities 1,605,676
Other segment information For personal use only use personal For Capital expenditure*** 20,164 45,404 5,514 265 87,794 - 159,141 Operating earnings per share 8.9 cents pre impairment
The Group incurred $23,100,000 of expenditure associated with redundancy and restructure costs, of which $6,178,000 was incurred in the ANZ Segment, $244,000 was incurred in Easternwell, $7,768,000 was incurred in the Americas, $1,800,000 was incurred in Middle East and Asia and $7,122,000 were incurred in unallocated.
* ANZ Segment results include $27,206,000 earned on the sale of an operations and maintenance business to a joint venture entity. During the period, the ANZ Segment has recognised new provisions of $24,980,000. These provisions movements are detailed in Note 21. **Refer to Note 6 for further details on impairment. ***Includes assets acquired through finance leases. 2013 TRANSFIELD SERVICES 129 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 4. OPERATING SEGMENTS (CONTINUED) c. Operating segment results 2012
Unallocated and Easternwell eliminations $’000 ANZ * ** Americas MEA *** RAC Group Proportionately Consolidated Revenue 2,744,824 267,015 748,546 100,861 (2,366) - 3,858,880 Less: Share of joint venture revenue (330,905) (23,683) (313,792) (47,110) - - (715,490) Statutory Revenue 2,413,919 243,332 434,754 53,751 (2,366) - 3,143,390
Proportionately Consolidated EBITDA 117,019 77,070 33,010 6,897 (8,096) 9,984 235,884 Less: share of joint ventures EBITDA (22,915) (7,680) (22,159) (8,570) - - (61,324) EBITDA from operations excluding joint 94,104 69,390 10,851 (1,673) (8,096) 9,984 174,560 ventures Add: share of net profits of joint ventures 20,439 3,702 14,121 5,977 - - 44,239 Reported EBITDA 114,543 73,092 24,972 4,304 (8,096) 9,984 218,799 Depreciation (29,641) (16,645) (8,925) (559) (14,706) - (70,476) Amortisation of acquired intangibles (4,813) (12,086) (3,930) (445) - - (21,274) EBIT 80,089 44,361 12,117 3,300 (22,802) 9,984 127,049 Net operating finance costs (37,794) Tax on operating items (4,231) Non-controlling interest (259) Net profit after tax (attributable to 84,765 owners of the Company) Balance Sheet Investments accounted for using the 57,925 48,741 20,968 8,199 - - 135,833 equity method Property, plant and equipment 104,257 202,146 55,176 2,130 103,791 - 467,500 Intangible assets 209,625 421,833 176,033 7,096 - - 814,587 Other assets 508,174 56,968 134,405 19,237 42,823 95,200 856,807 Segment assets 879,981 729,688 386,582 36,662 146,614 95,200 2,274,727 Cash and cash equivalents 78,936 Tax assets 32,559 Consolidated assets 2,386,222 Segment liabilities 564,455 27,858 76,607 10,573 64,156 - 743,649 Tax liabilities 4,972 Loans and borrowings 575,958 Consolidated liabilities 1,324,579 Other segment information Capital expenditure**** 49,701 69,063 39,556 367 64,516 - 223,203 Operating earnings per share 15.6cps
* ANZ segment results include $19,556,000 earned on the sale of an operations and maintenance business to a joint venture entity. During the year, the segment has incurred $23,290,000 of significant non-core expenditure including redundancies, restructure and contract costs.
** Easternwell segment revenue includes $12,242,000 representing inter-segment revenues associated with the integration of the Easternwell business within the broader Group. Easternwell EBITDA has also benefitted from the utilisation of acquisition provisions which absorbed transition, performance remediation and
other integration costs that arose during its first full financial year of operation. These provision movements are detailed in Note 21. For personal use only use personal For *** The fair valuation gain on the RAC investment is reflected in the Unallocated and Eliminations segment above.
**** Includes assets acquired through finance leases.
130 TRANSFIELD SERVICES 2013 NOTE 4. OPERATING SEGMENTS (CONTINUED) d. Reconciliation of joint venture to share of net profits
2013 2012 $’000 $’000 Share of joint venture EBITDA 70,384 61,324 Depreciation (3,645) (5,296) Amortisation (1,136) - Net operating finance costs (2,392) (3,008) Tax on operating items (8,646) (8,781) Share of net profits of joint ventures using the equity method 54,565 44,239
e. Reconciliation to primary financial statements
2013 2012 $’000 $’000 Share of net profits of associates and joint ventures accounted for using the equity method Segment share of joint venture results 54,565 44,239 Segment share of RAC results (before overhead allocated from Transfield Services) - 9,984 Add: corporate overheads - 1,000 Share of net profits of associates and joint ventures accounted for using the equity method 54,565 55,223
f. Proportionately consolidated revenue by industry group
2013 ANZ Easternwell Americas MEA Group $’000 Resources & energy 831,828 257,660 581,254 58,813 1,729,555 Infrastructure services 1,484,454 - 171,158 - 1,655,612 Property & facilities management 913,289 - - 11,474 924,763 Total proportionately consolidated revenue 3,229,571 257,660 752,412 70,287 4,309,930
2012 ANZ Easternwell Americas MEA Group $’000 Resources & energy 609,128 267,015 582,270 88,613 1,547,026 Infrastructure services 1,328,154 - 166,276 - 1,494,430 Property & facilities management 807,542 - - 12,248 819,790 Total proportionately consolidated revenue 2,744,824 267,015 748,546 100,861 3,861,246
g. Information about major clients
The Group aims to develop long-term relationships with its clients and has no significant concentrations of credit risk within the wholly owned group. The Group’s clients are generally large companies or government authorities
with established credit histories. The Group conducts checks for credit worthiness on new clients using independent For personal use only use personal For agencies and industry references. The Group also operates through a significant number of joint ventures globally, most of which have either a single or a dominant customer. The credit management policies of Transfield Services and those of the respective joint venture partner are applied to those clients.
2013 TRANSFIELD SERVICES 131 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 5. REVENUE 2013 2012 $’000 $’000 Operating revenue Revenue in ordinary course of business 3,409,179 3,106,856
Other income Gain on sale of operations and maintenance business 27,206 19,556 Fair valuation gain on RAC investment - 9,876 Profit on sale of property, plant and equipment 5,173 1,838 Change in estimate for deferred consideration 4,660 - Realised and unrealised foreign exchange gain 1,648 660 Other 3,680 4,604 42,367 36,534
3,451,546 3,143,390
NOTE 6. IMPAIRMENT During the period, in conjunction with an internal strategic portfolio review, the Group identified indicators of impairment in the Easternwell, Americas and MEA segments. As such, the Group assessed the recoverable value of the cash generating units (CGUs) within these businesses.
In undertaking this exercise for the Easternwell operating segment, a reassessment of the analysis of CGUs and reallocation of the intangibles associated with the business’s underlying separate activities was required. The value drivers of each of these separate activities have become largely independent of each other and the manner in which the underlying activities are being assessed has changed. As a result, the CGU previously associated with the Easternwell segment has been allocated separately to the revised Energy, Minerals Production, Minerals Exploration and Marine Geotechnical CGUs. The total Easternwell goodwill has been allocated to these CGUs on a relative value basis consistent with factors and assumptions used in the 30 June 2012 impairment review.
The carrying amounts of the Minerals Production, Minerals Exploration, Marine Geotechnical, United States – Downstream Maintenance and MEA CGU’ s have been reduced to their recoverable amounts through recognition of impairment losses in the statement of profit and loss and other comprehensive income. The recoverable amounts for the Minerals Production, Minerals Exploration, Marine Geotechnical and United States – Downstream Maintenance CGUs have been determined upon calculation of the related value in use. The recoverable amount of the MEA CGU has been determined using a fair value less costs to sell methodology.
The trigger for the impairment in the Easternwell CGU’s was softening demand for exploration, production and near-shore surveying services. In the United States – Downstream maintenance CGU, an increasingly competitive oil refinery maintenance market in the west coast of the United States and declining margins from subdued work volumes were identified as indicators of impairment. The trigger for the impairment of the MEA CGU was the strategic operational review of the Group’s businesses.
The Group also finalised the identification of the net assets acquired of Transfield Services SA (Inser-TS) during the period. As part of this acquisition accounting process, the Group identified that the provisional net assets of the business were not accurately reflected at acquisition date. In particular, the acquisition date accounts did not reflect liabilities that existed in relation to the Chilean construction and maintenance business. The recognition of additional goodwill as a result of these findings has caused the Group to assess the Chilean CGU for impairment. The Group has assessed the recoverable value of the business using a value-in-use methodology, and has determined that an impairment of the CGU is required, which has been reflected in the statement of profit and loss and other comprehensive income. A legal claim for the value loss is being prepared in accordance with the terms of the sale and purchase agreement, representations and warranties but the impairment is gross of any amount recoverable under this process which is disclosed as a contingent asset in Note 35. Refer to Note 28 for further information in relation to
adjustments to the provisional net identifiable assets acquired. For personal use only use personal For
Refer to Note 16 for key assumptions used in determining recoverable value of the Group’s CGUs.
132 TRANSFIELD SERVICES 2013 NOTE 6. IMPAIRMENT (CONTINUED)
2013 A summary of impairment losses by CGU is as follows: $’000 Easternwell Minerals Exploration 115,500 Easternwell Minerals Production 45,200 Easternwell Marine Geotechnical 18,600 Easternwell Other 8,500 United States – Downstream Maintenance 87,200 Chile 33,452 Middle East & Asia 9,334 Total impairment 317,786 Tax impact of impairment (19,642) 298,144
Attributable to the owners of the company 295,542 Attributable to the non-controlling interest 2,602 298,144
2013 A summary of impairment losses by category of assets is as follows: $’000 Intangible assets 278,965 Property, plant and equipment 33,014 Other assets 5,807 317,786 Tax impact of impairment (19,642) 298,144
NOTE 7. EXPENSES
2013 2012 $’000 $’000 Loss / Profit before income tax includes the following specific expenses: Depreciation: - Property, plant and equipment 79,356 66,686 - Pre-contract costs 11,165 3,790 90,521 70,476 Amortisation: - Intangible assets 16,909 21,274 Total depreciation and amortisation 107,430 91,750
Finance costs: - Interest paid / payable 49,244 34,943 - Amortisation of establishment fees 3,989 7,158 53,233 42,101 Other charges against assets: - Impairment of trade receivables 991 3,040
Restructureonly use personal For and redundancy costs 23,100 8,723 Significant contract related costs 4,520 19,840 Superannuation contributions 66,036 66,149 Rental expense relating to operating leases: - Minimum lease payments 65,535 65,236
2013 TRANSFIELD SERVICES 133 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 8. INCOME TAXES
2013 2012 $’000 $’000 Income tax expense / (benefit) Current tax 9,674 (1,333) Deferred tax (28,551) 7,082 Adjustments for current tax of prior periods 4,052 (1,518) Total income tax (benefit) / expense (14,825) 4,231
Movements in deferred tax Deferred income tax expense / (benefit) included in income tax expense comprises: (Increase) / decrease in deferred tax assets (Note 15) (15,572) (44,939) Increase / (decrease) in deferred tax liabilities (Note 22) (12,979) 52,021 (28,551) 7,082
Numerical reconciliation of income tax expense to prima facie tax Profit from continuing operations before income tax expense (269,266) 89,255 Profit / (loss) before income tax expense (269,266) 89,255
Income tax calculated at 30% (2012: 30%) (80,780) 26,777 Tax effects of amounts which are not taxable / deductible in calculating taxable income: Non-taxable income (1,398) (5,945) Non-deductible capital loss 847 Non-deductible impairment booked 77,228 Dividends received 1,419 1,235 Tax losses (brought to account) / written off (10,076) (4,178) Share of net profits of associates and joint venture entities and partnerships (6,629) (5,171) Research and development expenditure (1,400) (1,200) Other 7,558 469 (14,078) 12,834 Income tax expense adjusted for other non-taxable items: Differences in overseas tax rates and (benefits) / deductions on overseas income and expenses (5,229) (7,990) Withholding and other taxes 430 905 Adjustments for current tax of prior periods 4,052 (1,518)
Income tax (benefit) / expense (14,825) 4,231 For personal use only use personal For
134 TRANSFIELD SERVICES 2013 NOTE 9. CASH AND CASH EQUIVALENTS
2013 2012 $’000 $’000
Cash at bank and on hand 165,334 66,526 Cash on deposit – at call 3,294 689 168,628 67,215 Restricted cash 9,851 11,721 178,479 78,936
The fair value of cash and cash equivalents is considered to be the same as the carrying value.
Floating interest rates on deposits were from 0.00 per cent to 5.0 per cent (2012: 0.00 per cent to 3.45 per cent) per annum.
Floating interest rates on cash at bank were from 0.00 per cent to 3.68 per cent (2012: 0.00 per cent to 3.07 per cent) per annum.
Restricted cash is cash held in escrow relating to the sale of USM.
NOTE 10. TRADE AND OTHER RECEIVABLES
2013 2012 $’000 $’000
Trade and other receivables 491,732 526,864 Less: Provision for impairment of receivables (9,462) (7,682) 482,270 519,182 Loans to associates and joint ventures 2,729 17,641 484,999 536,823 Information on financial risk management policies is included in Note 2.
Due to the short-term nature of current trade and other receivables, the fair value approximates the carrying value.
Impaired trade and other receivables
The Group has recognised a loss of $991,000 (2012: $3,040,000) in respect of impaired trade receivables during the year ended 30 June 2013. The loss has been included in other expenses in the statement of profit or loss and other comprehensive income.
Credit and recovery risk associated with trade receivables has been provided for in the statement of financial position. Each debt is analysed on a case by case basis in assessing recoverability of the receivable.
Movements in the provision for impaired receivables are as follows: 2013 2012 $’000 $’000
At 1 July 7,682 4,334 Increase in provision* 6,725 4,742 Acquired through business combination - 14 Provision utilised/reversed (5,015) (1,473) Foreign currency exchange differences 70 65
At only use personal For 30 June 9,462 7,682
* These items are included in other expenses in the statement of profit or loss and other comprehensive income.
2013 TRANSFIELD SERVICES 135 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 11. INVENTORIES
2013 2012 $’000 $’000 Raw materials 26,217 21,744 Work in progress 212,398 138,085 238,615 159,829
Inventories recognised as an expense during the year ended 30 June 2013 amounted to $217,606,907 (2012: $227,298,000).
NOTE 12. PREPAYMENTS AND OTHER ASSETS
2013 2012 Current Non-current Current Non-current $’000 $’000 $’000 $’000 Insurance and other prepayments 11,557 3,468 7,774 3,977 Establishment fees 3,000 3,384 4,170 5,616 Tender and security deposits 1,953 1,781 112 3,408 Pre-contract costs 9,486 30,126 11,818 27,780 25,996 38,759 23,874 40,781
NOTE 13. OTHER FINANCIAL ASSETS
2013 2012
$’000 $’000 RATCH Australia Corporation Limited (RAC) 93,166 95,200 Other investments 386 300 93,552 95,500
The investment in RAC comprises unquoted equity shares and loan receivables, and as such is classified as level 3 financial assets within the fair value hierarchy (see Note 1(o)). The table above presents the fair value of the investment in RAC as determined by management.
Refer to Note 2(f) for further sensitivity analysis on the investment in RAC, and to Note 3(a) for further information about the methods used and assumptions applied in determining the fair value.
NOTE 14. PROPERTY, PLANT AND EQUIPMENT
Land and leasehold Plant and Leased plant & Capital work in improvements equipment equipment progress Total $’000 $’000 $’000 $’000 $’000 Year ended 30 June 2013 At 1 July 2012 25,597 277,349 40,108 124,446 467,500 Exchange differences 272 1,348 257 5 1,882 Additions 2,120 24,000 1,137 132,186 159,443 Transfers / reclassifications in / (out) (556) 116,539 (4,114) (111,869) - Additions through business combinations - 4,392 - - 4,392 Impairment - (33,014) - - (33,014)
Disposalsonly use personal For and write-offs (424) (12,134) (2,357) (2,594) (17,509) Depreciation (5,306) (67,956) (6,094) - (79,356) At 30 June 2013 21,703 310,524 28,937 142,174 503,338
At 30 June 2013 Cost 41,936 626,912 47,076 142,174 858,098 Accumulated depreciation (20,233) (316,388) (18,139) - (354,760) 21,703 310,524 28,937 142,174 503,338
136 TRANSFIELD SERVICES 2013 NOTE 14. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) The Group capitalised $9,256,000 in finance costs attributable to qualifying assets during the year (2012: $8,157,000). At 30 June 2013, there are no secured items of property, plant and equipment other than items under finance lease.
Land and leasehold Plant and Leased plant & Capital work in improvements equipment equipment progress Total $’000 $’000 $’000 $’000 $’000 Year ended 30 June 2012 At 1 July 2011 17,084 241,961 9,579 40,800 309,424 Exchange differences 137 529 (39) 301 928 Additions 5,310 93,825 29,088 94,980 223,203 Transfers / reclassifications in / (out) 7,645 (8,826) 12,773 (11,592) - Additions through business combinations 1,160 7,536 47 - 8,743 Disposals and write-offs (1,172) (5,807) (1,090) (43) (8,112) Depreciation (4,567) (51,869) (10,250) - (66,686) At 30 June 2012 25,597 277,349 40,108 124,446 467,500
At 30 June 2012 Cost 42,806 525,082 59,013 124,446 751,347 Accumulated depreciation (17,209) (247,733) (18,905) - (283,847) 25,597 277,349 40,108 124,446 467,500
NOTE 15. DEFERRED TAX ASSETS
2013 2012 $’000 $’000 Gross deferred tax assets 154,699 128,259 Set off deferred tax liabilities within common jurisdictions (101,547) (112,154) Net deferred tax assets 53,152 16,105 Gross deferred tax assets comprises temporary differences attributable to: Doubtful debts 5,834 2,006 Employee benefits 37,937 34,686 Rental obligations 2,120 2,151 Creditors/deferred income 55,340 31,648 Share-based payments 5,512 5,483 Partnership Income 1,693 1,767 Tax losses 40,518 42,013 Other 5,745 6,894 Amounts recognised directly in equity Derivatives - 1,611 154,699 128,259
Gross deferred tax assets to be recovered after more than 12 months 49,844 46,062 Gross deferred tax assets to be recovered within 12 months 104,855 82,197
154,699 128,259 For personal use only use personal For
2013 TRANSFIELD SERVICES 137 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 15. DEFERRED TAX ASSETS (CONTINUED)
Creditors/ Capital Share Doubtful Employee Rental Tax Partnership deferred raising Derivatives based Other Total debts benefits obligations losses income income costs payments Movements in gross deferred $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 tax assets At 1 July 2012 2,006 34,686 2,151 31,648 - 1,611 5,483 42,013 6,894 1,767 128,259 (Charged) / credited to the statement of profit and 3,719 2,924 (65) 17,235 - (1,637) (149) (5,047) (1,334) (74) 15,572 loss and other comprehensive income Acquisition of - - - 5,780 ------5,780 subsidiary
Effect of changes in foreign 109 327 34 677 - - 178 3,552 211 - 5,088 exchange rates
At 30 June 2013 5,834 37,937 2,120 55,340 - (26) 5,512 40,518 5,771 1,693 154,699
At 1 July 2011 1,258 28,411 1,273 19,037 6,091 (278) 3,557 13,350 7,733 1,651 82,083 Reclassification of deferred tax asset ------16,685 - - 16,685 (Note 22) (Charged) / credited to the statement of profit or 743 6,278 874 12,646 (6,091) 1,892 1,889 10,938 (1,031) 116 28,254 loss and other comprehensive income Effect of changes in foreign 5 (3) 4 (35) - (3) 37 1,040 192 - 1,237 exchange rates
At 30 June 2012 2,006 34,686 2,151 31,648 - 1,611 5,483 42,013 6,894 1,767 128,259 For personal use only use personal For
138 TRANSFIELD SERVICES 2013 NOTE 16. INTANGIBLE ASSETS
Customer/ Contract Trademarks Customer supplier Goodwill intangibles and brands relationships databases Other Total $’000 $’000 $’000 $’000 $’000 $’000 $’000 2013 Cost 713,976 49,727 27,570 142,288 1,571 3,662 938,794 Accumulated amortisation - (38,090) (8,133) (49,355) (592) (1,067) (97,237) Impairment losses (232,568) (912) (10,571) (32,564) (87) (2,263) (278,965) At 30 June 2013 481,408 10,725 8,866 60,369 892 332 562,592
Year ended 30 June 2013 At 1 July 2012 650,107 36,803 21,422 102,625 1,050 2,580 814,587 Exchange differences 18,093 2,149 (44) (361) (1) 2 19,838 Additions4 23,436 42 - 110 - 453 24,041 Transfers (net accumulated 22,340 (22,340) (553) 553 - - - amortisation)4 Impairment (232,568) (912) (10,571) (32,564) (87) (2,263) (278,965) Amortisation charge - (5,017) (1,388) (9,994) (70) (440) (16,909) At 30 June 2013 481,408 10,725 8,866 60,369 892 332 562,592
Customer/ Contract Trademarks Customer supplier Goodwill intangibles and brands relationships databases Other Total $’000 $’000 $’000 $’000 $’000 $’000 $’000 2012 Cost 650,107 69,876 28,167 141,986 1,572 3,171 894,879 Accumulated amortisation - (33,073) (6,745) (39,361) (522) (591) (80,292) At 30 June 2012 650,107 36,803 21,422 102,625 1,050 2,580 814,587
Year ended 30 June 2012 At 1 July 2011 566,264 29,883 21,556 125,578 1,141 35 744,457 Exchange differences 3,457 494 100 797 (17) 3 4,834 Additions5 80,386 14,659 1,542 (12,597) - 2,580 86,570 Amortisation charge - (8,233) (1,776) (11,153) (74) (38) (21,274) At 30 June 2012 650,107 36,803 21,422 102,625 1,050 2,580 814,587
Amortisation expenses of $16,909,000 (2012: $21,274,000) are included in depreciation and amortisation in the statement of profit or loss and other comprehensive income.
4. Includes finalisation of provisional acquisition accounting, refer to Note 28.
5. Includes finalisation of provisional acquisition accounting, refer to Note 28. For personal use only use personal For
2013 TRANSFIELD SERVICES 139 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 16. INTANGIBLE ASSETS (CONTINUED) a. Impairment testing for cash generating units containing goodwill
For the purpose of impairment testing, goodwill is allocated to the Group’s operating business units and geographic locations that represent the lowest level within the Group at which goodwill is monitored for internal management purposes.
The aggregate carrying amounts of goodwill allocated to the Group’s business units are as follows: 2013 2012 $’000 $’000
Easternwell Energy 156,171 Easternwell Minerals Production 49,547 Easternwell 205,718 346,918
Australia other6 90,125 90,125 Australia 295,843 437,043
United States-Downstream Maintenance - 53,204 Americas other7 31,688 30,477 Chile 45,633 24,873 Americas 77,321 108,554
New Zealand 107,189 99,156 Middle East & Asia8 1,055 5,354
Total carrying value 481,408 650,107
6. Australian CGUs consisting of resources and energy, infrastructure, project management, consultancy and facilities management (services) have been aggregated as goodwill is individually insignificant in proportion to the Group’s total goodwill. 7. Consists of United States resources and energy upstream and Americas transportation infrastructure services CGUs whose goodwill is individually insignificant in proportion to the Group’s total goodwill. 8. Consists of Middle East & Asia’s resources and energy and transportation infrastructure services CGU’s whose goodwill is individually insignificant in proportion to the Group’s total goodwill.
Refer to Note 6 for additional information on impairment of intangible assets recognised during the period.
The recoverable amounts used in impairment testing of all the cash generating units (CGUs) are based on value in use using a discounted cash flow model approach, except for MEA, which has been determined using a fair value less costs to sell methodology.
Key assumptions used for value in use calculations
Value in use was determined by discounting the future cash flows generated from the continuing use of the CGU. Cash flows were projected based on actual operating results, the Board approved budget and five year business plans. Cash flows for a further five-year period were extrapolated using a declining growth rate such that the long-term terminal growth rate did not exceed three per cent, which does not exceed the long-term average growth rate for the industry and economy. A ten year forecast period reflects the period of time over which businesses are expected to develop to a steady state of maturity. Assumptions used to determine future cash flows, such as gross margin are based on management’s best estimate of the CGU’s performance, taking into account past performance. The discount
rates used reflect specific risks relating to the relevant CGUs and countries in which they operate. For personal use only use personal For
140 TRANSFIELD SERVICES 2013 NOTE 16. INTANGIBLE ASSETS (CONTINUED) a. Impairment testing for cash generating units containing goodwill (continued)
The following key assumptions were used to determine the recoverable amounts: Discount rate Discount rate10 Cash generating unit Growth rate9 Pre-tax Post-tax 2013 2012 2013 2012 2013 2012 % % % % % % Easternwell Energy11 3.1 4.2 13.8 15.1 11.5 11.5 Easternwell Minerals 3.1 4.2 14.9 15.1 11.5 11.5 Production11 Easternwell Minerals 3.1 4.2 15.1 15.1 11.5 11.5 Exploration11 Easternwell Marine 3.1 4.2 15.1 15.1 11.5 11.5 Geotechnical11 Australia other 5.0 4.2 13.7-14.0 14.2-14.6 10.7 11.0 Americas other 3.0-6.2 4.3-4.6 14.8-14.9 15.4 11.5 11.5 United States-Downstream 4.3 4.3 15.4 15.4 11.5 11.5 Maintenance Chile 6.0 N/A 18.0 N/A 15.0 N/A New Zealand 3.0 3.0 15.0 14.5 11.1 11.2 Middle East & Asia 4.2 4.2 14.8 14.2-22.1 11.2 11.2
9. The average growth rate represents the average rate used to extrapolate cash flows beyond the one-year budget period and the five-year business plan that were approved by the Board. 10. In calculating the value in use for each CGU, the Group has applied post-tax discount rates to discount post-tax cash flows. 11. The recoverable value of these units was tested at a total Easternwell level in prior year.
Sensitivity analysis
Where impairment testing has identified a low level of headroom before an impairment charge would be recorded, further sensitivity analysis has been performed and the results are noted below:
There is head room of $4.4m for the Easternwell Minerals Production CGU. An increase in the pre-tax discount rate of 0.5% would result in nil headroom
There is head room of $29.9m for the Easternwell Energy CGU. An increase in the pre-tax discount rate of 0.9% would result in nil head room, and
Any reasonably probable adverse movement in the assumptions used in projections for the Chilean CGU will result
in further impairment. For personal use only use personal For
2013 TRANSFIELD SERVICES 141 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 17. TRADE AND OTHER PAYABLES
2013 2012 $’000 $’000 Trade payables 473,770 417,880 Other payables 193,118 160,083 666,888 577,963 Risk management
Information on financial risk management policies is included in Note 2.
Fair value
Due to the short-term nature of current trade and other payables, the fair value approximates the carrying value.
NOTE 18. LOANS AND BORROWINGS
2013 2012 Current Non-current Current Non-current $’000 $’000 $’000 $’000 Unsecured Cash advances 171,259 354,821 1,904 357,802 United States Private Placement - 186,036 - 166,051 Mandatory Convertible Note - - 4,244 - Secured Lease liabilities 10,854 21,595 13,035 32,922 182,113 562,452 19,183 556,775
a. Risk management
Information on financial risk management policies and fair values is included in Note 2.
Unrestricted access was available at statement of financial position date to the following facilities:
2013 2012 $’000 $’000 Bank and loan facilities Used 712,116 530,001 Unused 320,150 479,552 Total facilities 1,032,266 1,009,553 b. Cash advances
Syndicated debt facility
As at 30 June 2013, the Group has an unsecured multi-currency debt facility totalling $768,171,000 with a syndication
of 14 banks. The facility is comprised of a number of tranches: For personal use only use personal For A$84,000,000, US$100,000,000, NZ$63,000,000 and CLP5,526,300,000 maturing in December 2013;
A$250,000,000 maturing in December 2014; and
A$150,000,000 and US$100,000,000 maturing in March 2016.
Bank overdraft and money market lines
As at 30 June 2013, these facilities total A$22,291,000 across the Group and are used for the day-to-day working capital requirements of the business.
142 TRANSFIELD SERVICES 2013 NOTE 18. LOANS AND BORROWINGS (CONTINUED) Bilateral facilities
As at 30 June 2013 the Group has Bilateral Facilities totalling $78,000,000. The facilities are comprised of.
A$21,000,000 maturing in March 2016
NZ$15,000,000 maturing in November 2013
CLP2,000,000,000 maturing in December 2013 to April 2014
C$15,000,000 maturing in March 2014, and
CLP10,585,000,000 maturing in June 2015. c. United States Private Placement (USPP)
As at 30 June 2013, the Group had US$170,000,000 of long-term senior unsecured notes (Senior Notes) to institutional investors in the US private placement (USPP) debt market. The issue was completed on 29 December 2009 at a weighted average coupon rate of 5.99 per cent. US$20,000,000 at an all-in rate of 5.00 per cent was issued for 5 years, US$50,000,000 at an all-in rate of 5.77 per cent was issued for 7 years and US$100,000,000 at an all-in interest rate of 6.29 per cent was issued for 10 years. d. Lease liabilities
Lease liabilities are effectively secured as the rights to the leased assets recognised in the financial statements revert to the lessor in the event of default.
NOTE 19. EMPLOYEE BENEFITS
2013 2012 Current Non-current Current Non-current $’000 $’000 $’000 $’000 Annual leave 57,427 7,137 62,902 6,125 Long service leave 24,435 12,624 24,047 12,948 Other employee benefits 22,817 - 11,623 232 104,679 19,761 98,572 19,305
Information on financial risk management policies is included in Note 2.
NOTE 20. DERIVATIVES
2013 2012 Current Non-current Current Non-current $’000 $’000 $’000 $’000 Assets Forward exchange contracts 3,359 - - -
3,359 - - - For personal use only use personal For Liabilities Interest rate swap contracts 798 3,665 1,479 3,354 Forward exchange contracts - - 355 - 798 3,665 1,834 3,354
2013 TRANSFIELD SERVICES 143 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 20. DERIVATIVES (CONTINUED)
INSTRUMENTS USED BY THE GROUP AND FAIR VALUES The Group is party to derivative financial instruments in the normal course of business in order to hedge exposure to interest and foreign exchange rates in accordance with the Group’s financial risk management policies (refer to Note 2).
Cash flow hedges
It is policy to protect the Group’s loans from exposure to increasing interest rates. Accordingly, the Group has entered into an interest rate swap contract under which it receives interest at variable rates to pay interest at fixed rates. The contract is settled on a net basis and the net amount receivable or payable at the reporting date is separately disclosed on the face of the statement of financial position.
The contract requires settlement of net interest receivable or payable every three months. The settlement dates coincide with the dates on which interest is payable on the underlying debt.
As at 30 June 2013, there were AUD interest rate swap in place over A$170,000,000 (2012:A$170,000,000) at an average net settled rate 3.43% maturing in December 2013, December 2015 and December 2016.The variable rate is US$ LIBOR and AUD$ BBSY based on 90 day rollovers. The Group has a non-deliverable cross currency swap in place for CLP 9,215,226,900 at a rate of 6.97% to hedge its net asset in Chile.
The following table details the notional principal amounts and remaining terms of interest rate swap contracts outstanding as at reporting date for both the USD and AUD interest rate swaps:
Average contracted fixed interest rate Notional principal amount 2013 2012 2013 2012 % % $’000 $’000 USD outstanding floating for fixed contracts Less than 1 year - 0.695 - 48,838 1 to 5 years - - - - AUD outstanding floating for fixed contracts Less than 1 year 4.11 5.33 50,000 150,000 1 to 5 years 3.26 4.18 120,000 170,000 AUD/CLP outstanding floating for fixed contracts Less than 1 year - - - - 1 to 5 years 7.89 7.89 18,000 18,000
The gain or loss from re-measuring the hedging instruments at fair value is deferred in equity in the hedging reserve, to the extent that the hedge is effective, and re-classified into profit and loss when the hedging interest expense or income is recognised. Any ineffective portion is recognised in the statement of profit or loss and other comprehensive income immediately. In the year ended 30 June 2013 there was no impact to comprehensive income (2012: $Nil).
NOTE 21. OTHER PROVISIONS
2013 2012 Current Non-current Current Non-current $’000 $’000 $’000 $’000 Lease ‘make-good’ provision 1,748 6,478 2,191 5,579 Provision for onerous contracts 18,964 204 99 60 Warranty provision/self insurance 852 10,038 2,681 4,980
Otheronly use personal For 14,251 - 21,846 5,185 35,815 16,720 26,817 15,804
144 TRANSFIELD SERVICES 2013 NOTE 21. OTHER PROVISIONS (CONTINUED) Movements in each class of provision during the financial year, other than employee benefits, are set out below:
Lease Onerous Warranty / self ‘make-good’ contracts insurance Other Total $’000 $’000 $’000 $’000 $’000 At 1 July 2012 7,770 159 7,661 27,031 42,621 Effects of changes in exchange rates 178 7 1,095 333 1,613 Transfers between categories - 225 1,407 (1,632) - Provision created and finance costs 1,511 11,206 1,538 12,826 27,081 Additions through business - 15,681 - - 15,681 combinations Provision utilised/reversed (1,233) (8,110) (811) (24,307) (34,461) At 30 June 2013 8,226 19,168 10,890 14,251 52,535
At 1 July 2011 4,419 399 2,100 9,776 16,694 Effects of changes in exchange rates 71 (47) - 16 40 Provision created and finance costs 4,444 111 7,661 30,857 43,073 Provision utilised/reversed (1,164) (304) (2,100) (13,618) (17,186) At 30 June 2012 7,770 159 7,661 27,031 42,621
a. Provision policies
Make-good
Provisions are raised for estimated ‘make-good’ expenses for the Group’s operating leases, namely lease premises. Reasonable estimates based on historical data have been used to calculate terminal value, which has been subjected to discounted cash flows. Management reassesses this provision semi-annually. Payments are expected to be made at the end of the remaining lease term typically between 1 and 10 years.
Warranty / self insurance
Provision is made for estimated warranty claims against the Group for claims incurred but not received principally for insurance and workers’ compensation. Management estimates the provision based on historical claims and recent trends.
Onerous contracts
Provision is made for onerous contracts where the expected benefits to be derived from the contract are less than the unavoidable costs of meeting the obligations under that contract.
Other
Other provisions include provisions created upon acquisition of businesses acquired by the Group and include any contingent consideration payable. These amounts are initially recognised at fair value at acquisition date and may be
reversed if it is determined, they are no longer required. For personal use only use personal For
2013 TRANSFIELD SERVICES 145 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 22. DEFERRED TAX LIABILITIES
2013 2012 $’000 $’000 Gross deferred tax liabilities 108,257 117,126 Set off deferred tax assets within common jurisdictions (101,547) (112,154) Net deferred tax liabilities 6,710 4,972
Gross deferred tax liabilities comprise temporary differences attributable to: Inventories and work in progress 49,485 37,053 Plant and equipment 13,796 11,316 Receivables and other assets 16,682 20,133 Intangible assets 26,172 45,302 Derivatives - 66 Other 2,122 3,256 Gross deferred tax liabilities 108,257 117,126
Gross deferred tax liabilities to be settled after more than 12 months 39,968 55,260 Gross deferred tax liabilities to be settled within 12 months 68,289 61,866 108,257 117,126
Inventories Receivables Derivatives and work in Plant and and other Intangible and progress equipment assets assets other Total $’000 $’000 $’000 $’000 $’000 $’000 At 1 July 2012 37,053 11,316 20,133 45,302 3,322 117,126 Charged / (credited) to the statement of profit or loss and other comprehensive income 10,573 9,769 (3,302) (9,966) (1,224) 5,850 Credited to the statement of comprehensive income relating to impairment - (7,536) (149) (11,144) - (18,829) Effect of changes in foreign exchange rates 1,859 247 - 1,980 24 4,110 At 30 June 2013 49,485 13,796 16,682 26,172 2,122 108,257
At 1 July 2011 23,902 8,111 4,681 30,215 - 66,909 Reclassification of deferred tax asset (Note 15) - - - 16,685 - 16,685 Charged / (credited) to the statement of profit or loss and other comprehensive income 13,506 3,249 15,466 (207) 3,322 35,336
Effect of changes in foreign exchange rates (355) (44) (14) (1,391) - (1,804) At 30 June 2012 37,053 11,316 20,133 45,302 3,322 117,126
A deferred tax liability has not been recognised in respect of temporary differences arising as a result of the translation of the financial statements of the consolidated entity’s subsidiaries. The deferred tax liability will only arise
in the event of a disposal of a subsidiary. For personal use only use personal For
146 TRANSFIELD SERVICES 2013 NOTE 23. CONTRIBUTED EQUITY
2013 2012 $’000 $’000 Ordinary shares – fully paid 1,131,755 1,151,535 Shares held by equity compensation plans (Treasury shares) (420) (1,104) 1,131,335 1,150,431 a. Ordinary share capital
Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of shares held
On a show of hands every holder of ordinary shares present at a meeting in person or by proxy is entitled to one vote, and upon a poll each share is entitled to one vote.
Movements in share capital
Number of shares Number of shares acquired on Date Details issued market Price $ $’000 At 1 July 2011 549,715,957 2,022,928 1,211,013 October 2011 On market buy-back (987,748) 2.14 (2,116) November 2011 On market buy-back (1,286,570) 2.25 (2,897) December 2011 On market buy-back (1,600,256) 2.23 (3,563) January 2012 On market buy-back (1,254,348) 2.17 (2,720) February 2012 On market buy-back (1,331,012) 2.29 (3,051) March 2012 On market buy-back (8,080,947) 2.44 (19,700) April 2012 On market buy-back (4,366,515) 2.30 (10,029) May 2012 On market buy-back (4,894,676) 2.13 (10,402) June 2012 On market buy-back (2,648,947) 1.89 (5,000) At 30 June 2012 523,264,938 2,022,928 1,151,535 July 2012 On market buy-back (5,063,261) 1.77 (8,962) August 2012 On market buy-back (3,003,856) 1.96 (5,889) September 2012 On market buy-back (2,740,105) 1.79 (4,905) Various Transaction costs (24) At 30 June 2013 512,457,716 1,131,755
The number of shares purchased each month through the on market buy-back comprises the total amount purchased, settled and cancelled in the month.
Share buy-back
On 5 October 2011, the Company announced its intention to return funds to shareholders through an on-market buy- back of up to 10 per cent of its lowest number of shares on issue over the last 12 months, in accordance with the ASX Listing Rules. On 5 October 2012, the Company ceased its on-market share buy-back program. The buy-back has resulted in the purchase of 37,258,241 shares at a cost of $79,238,918. Acquisition of shares on market bought back in this financial year was $19,756,000.
It is the Company’s intention to settle the vesting of employee Options and Performance Awards by way of on- market acquisition of the requisite number of shares. Consequently, at the date of granting of Performance Awards, a
corresponding deferred tax asset is recognised which represents the temporary difference which will crystallise when For personal use only use personal For the underlying shares are acquired on market. Following the introduction of the TranShare Plan Trust, the Company has the ability to purchase shares in advance of vesting.
2013 TRANSFIELD SERVICES 147 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 23. CONTRIBUTED EQUITY (CONTINUED) b. Treasury shares
Treasury shares are shares in Transfield Services Limited held by TranShare Plan Trust for the purpose of awarding shares under the TranShare deferred retention incentive scheme, Transhare Executive Performance Award Plan (TEPAP) and to facilitate the employee share plan (TranShare Plan) (refer Note 37).
Movements in Treasury Shares
Number of Date Details shares acquired $’000 At 1 July 2011 47,135 165 August 2011 Shares transferred to employees (3,700) (12) September 2011 Acquisition of shares on market 90,000 170 October - November 2011 Shares transferred to employees (91,181) (243) February - June 2012 Shares transferred to employees (29,527) (56) June 2012 Acquisition of shares on market 581,000 1,080 At 30 June 2012 593,727 1,104 July 2012 Shares transferred to employees (5,686) (11) October 2012 Acquisition of shares on market 214,000 364 October 2012 Shares transferred to employees (449,833) (832) November 2012 Shares transferred to employees (94,780) (171) January 2013 Shares transferred to employees (8,410) (15) February 2013 Shares transferred to employees (974) (2) March 2013 Shares transferred to employees (9,630) (17) At 30 June 2013 238,414 420
NOTE 24. NON-CONTROLLING INTEREST
2013 2012 $’000 $’000
At 1 July 1,479 1,170 Impact of the finalisation of the purchase price allocation (3,760) - Other transactions with non-controlling interests - (723) Acquisition of subsidiary - 773
Profit attributable for non controlling interest holders (1,845) 259 Impairment value attributable to non-controlling interest (2,602) - (4,447) 259
At 30 June (6,728) 1,479 For personal use only use personal For
148 TRANSFIELD SERVICES 2013 NOTE 25. DIVIDENDS
2013 2012 $’000 $’000 Ordinary shares 2012 final dividend of 9.0 cents per fully paid share (2011: 9.0 cents) 46,255 49,207 2013 interim dividend of 3.0 cents per fully paid share unfranked (2012: 5.0 cents) 15,302 26,846 Total dividends provided for or paid 61,557 76,053
Based on the Group’s capital management policies, the Directors have determined that it is not appropriate to pay a final dividend for the period. 2013 2012 $’000 $’000
Franking credits 1,089 3,931
The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for:
franking credits / debits that will arise from the payment/refund of current tax liabilities
franking debits that will arise from payment of dividends recognised as a liability at the reporting date
franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date, and
franking credits that may be prevented from being distributed in subsequent financial years.
The consolidated amounts include franking credits that would be available to the parent entity if distributable profits of controlled entities were paid as dividends.
The historic full franking of dividends has caused the franking credit balance to deplete over time such that the Group expects to pay dividends in future periods at less than a fully franked level.
NOTE 26. RELATED PARTY TRANSACTIONS The parent entity within the Group is Transfield Services Limited. Interests in the following classes of related parties are set out in the following notes: Note Interests in joint ventures and partnerships 30 Other financial assets at cost (equity investments) 13 Controlled entities 39
The parent entity provides performance guarantees from time to time on behalf of wholly owned subsidiaries, associates, related parties and joint venture entities and partnerships. These guarantees will only crystallise if the respective guaranteed parties fail to meet their performance obligations.
There are also cross guarantees given by Transfield Services Limited, Transfield Services (Holdings) Pty Limited, Transfield Services (Australia) Pty Limited, APP Corporation Pty Limited, Broadspectrum Australia Pty Limited, Broadspectrum (WA) Australia Pty Limited, Broadspectrum (Qld) Australia Pty Limited, Transfield Services Engineering Group Pty Limited, ICD Asia Pacific Pty Limited, Transfield Services (Oil & Gas) Pty Limited, Easternwell Group Pty Limited, Piver Pty Limited, Easternwell WA Pty Limited, Gorey & Cole Holdings Pty Limited, Gorey & Cole Drillers Pty Limited, Australian Drilling Solutions Pty Limited, Sides Drilling Pty Limited, Sides Drilling Contractors Pty Limited (trading in its own right), Sides Drilling Contractors Pty Limited ATF the Sides Drilling Contractors Trust, Easternwell Group Investments Pty Limited, Easternwell Group Operations Pty Limited, OGC Services Pty Limited and Easternwell Drilling Holdings Pty Limited, as described in Note 38. No deficiencies of assets exist in any of these companies.only use personal For No liability has been recognised by the parent entity or the Group in relation to these guarantees.
2013 TRANSFIELD SERVICES 149 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 26. RELATED PARTY TRANSACTIONS (CONTINUED) a. Directors and Director-related entities
The following persons were Directors of the Company during the financial year and were also Directors and shareholders of Transfield Holdings Pty Limited and Transfield (TSL) Pty Limited companies, which are related parties and beneficial owners of the shares in Transfield Services Limited:
Guido Belgiorno-Nettis AM (retired 30 August 2012), and
Luca Belgiorno-Nettis AM (retired 30 August 2012).
Luca Belgiorno-Nettis and Guido Belgiorno-Nettis each own a 42.65% beneficial interest in Transfield Pty Limited and Transfield Pty Limited has a 100% beneficial interest in Transfield (TSL) Pty Limited. They are also joint Executive Directors of Transfield Holdings Pty Limited. This means they each indirectly control 56,049,887 (2012: 57,849,887) shares in Transfield Services Limited.
The following agreements were in existence during the year:
Trademark licence between Transfield Pty Limited (a related company of Transfield Holdings Pty Limited
Transfield Services Limited) dated 29 September 2008 and various consequential sub-licence arrangements, and
Art Rental Agreement dated 18 June 2009 between Transfield Corporate Pty Limited and Transfield Services (Australia) Pty Limited.
Aggregate numbers of company shares, share options and performance awards of Transfield Services Limited acquired or disposed of by the Directors or their Director-related entities: 2013 2012 Number Number ACQUISITIONS Ordinary shares 90,096 55,000
Aggregate numbers of shares and performance awards of Transfield Services Limited held directly, indirectly or beneficially by Directors of the Company or the consolidated entity or their Director-related entities at statement of financial position date:
Ordinary shares 119,620,590 119,442,457
Performance Awards over ordinary shares 1,076,600 336,600 For personal use only use personal For
150 TRANSFIELD SERVICES 2013 NOTE 26. RELATED PARTY TRANSACTIONS (CONTINUED) b. Transactions with related entities
Other transactions
Aggregate amounts of transactions with RAC recognised as income or (expenses): 2013 2012 $’000 $’000
Management services fee 1,045 2,245 Operations and maintenance services fee 2,086 26,879 Cash distribution received 6,381 6,207
The unpaid amounts at 30 June owing (to) / by related entities are: 2013 2012 $’000 $’000 RAC - 9,590 Transfield Corporate Pty Limited 202 114 202 9,704
Directors and director related entities that are shareholders have received dividends and had the right to participate in the rights offer on the same terms and conditions that apply to other shareholders. 2013 2012 $’000 $’000 Dividend 7,418 8,617
Disclosures relating to remuneration and retirement benefits are set out in the Remuneration Report on pages 61 to 94. c. Other related parties
As set out in Note 4, the ANZ segment results include $27,206,000 earned on the sale of operations and maintenance business to a joint venture entity (2012: $19,556,000). This sale enables the expansion of an existing joint venture arrangement to capitalise on existing market opportunities within Australia and overseas.
Transactions with joint venture entities, partnerships and associates were made on normal commercial terms and conditions and at market rates, except that there are no fixed terms for the repayment of loans between the parties.
Aggregate amounts receivable from, and payable to, each class of other related parties at statement of financial position date are as follows:
2013 2012 $’000 $’000 Joint venture entities and partnerships Loans and borrowings Opening balance 17,641 2,343 Loans provided 5,650 17,896 Repayments of borrowings (210) (2,598)
23,081 17,641 For personal use only use personal For
2013 TRANSFIELD SERVICES 151 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 26. RELATED PARTY TRANSACTIONS (CONTINUED) c. Other related parties (continued) No provision for impaired receivables has been raised in relation to any outstanding balances, and no expense has been recognised in respect of bad or doubtful debts due from related parties. A Transitional Services Agreement (TSA) exists between RAC and Transfield Services (Australia) Pty Limited, a subsidiary of Transfield Services Limited. The wholly owned power stations and wind farms within RAC are operated and maintained by Transfield Services (Australia) Pty Limited. The wholly owned wind farms within RAC are operated and maintained by the joint venture Transfield Worley Power Services Pty Limited, a joint venture entity. These agreements are on normal commercial terms.
Key management personnel
Disclosures relating to remuneration and retirement benefits are set out in the Remuneration Report on pages 61 to 94. Disclosures relating to key management personnel are set out in Note 27.
There were no loans to executives during the year ended 30 June 2013.
NOTE 27. KEY MANAGEMENT PERSONNEL a. Remuneration expense
2013 2012 $’000 $’000 Short-term employee benefits (cash salary & fees, cash bonuses and non-monetary benefits) 7,377 7,182 Long-term employee benefits 70 150 Post-employment benefits 211 207 Share-based payments 1,652 1,821 Termination benefits 613 - 9,923 9,360
Detailed remuneration disclosures in respect of key management personnel can be found in the Remuneration Report on pages 61 to 94. b. Equity instruments and performance awards
Performance Awards provided as remuneration and shares issued on exercise of such Performance Awards
Details of Performance Awards provided as remuneration and shares issued on the exercise of such Performance Awards, together with terms and conditions of the Performance Awards, can be found in the Remuneration Report on pages 61 to 94.
The table below sets out the number of performance awards held by each Director and key management personnel of
the Group during the financial year, including personally related parties. For personal use only use personal For
152 TRANSFIELD SERVICES 2013 NOTE 27. KEY MANAGEMENT PERSONNEL (CONTINUED) b. Equity instruments and performance awards (continued)
2013 Balance at the Exercised Balance at Granted as Vested and Name start of the during the Forfeited12 the end of Unvested compensation exercisable year year the year Directors Dr Peter Goode (until 31 August 701,056 - (88,037) (613,019) - - - 2012) Graeme Hunt (executive director 1,076,600 - - 1,076,600 - 1,076,600 from 1 October 2012) Key management personnel Larry Ames (until 1 August 2012) 230,493 - - (118,404) N/A - N/A Elizabeth Hunter 190,173 119,100 - (17,900) 291,373 10,470 280,903 Gareth Mann (until 7 August 2012) 101,227 139,000 - - N/A - N/A Steve MacDonald 170,892 135,000 - - 305,892 - 305,892 Kate Munnings 228,126 131,200 (23,932) (27,243) 308,151 16,380 291,771 Tiernan O’Rourke 313,323 232,300 - (5,237) 540,386 - 540,386 Philip Wratt 124,132 109,300 - - 233,432 - 233,432 Nicholas Yates 222,554 206,900 - (14,000) 415,454 8,190 407,264 Joe Sofra (from 7 August 2012) - 126,200 - - 126,200 - 126,200 2,281,976 2,275,600 (111,969) (795,803) 3,297,488 35,040 3,262,448
2012 Balance at the Exercised Balance at Granted as Vested and Name start of the during the Forfeited the end of the Unvested compensation exercisable year year year Directors Dr Peter Goode 364,456 336,600 - - 701,056 - 701,056 Key management personnel Larry Ames 99,763 130,730 - - 230,493 - 230,493 Elizabeth Hunter 105,784 84,389 - - 190,173 - 190,173 Gareth Mann - 101,227 - - 101,227 - 101,227 Steve MacDonald 71,299 99,593 - - 170,892 - 170,892 Kate Munnings 145,619 101,202 (11,495) (7,200) 228,126 - 228,126 Tiernan O’Rourke 126,083 192,477 (5,237) - 313,323 - 313,323 Philip Wratt 49,849 74,283 - - 124,132 - 124,132 Nicholas Yates 75,307 151,547 - (4,300) 222,554 - 222,554 1,038,160 1,272,048 (16,732) (11,500) 2,281,976 - 2,281,976
12. Performance awards reflected as forfeited in these tables are those that have failed to meet vesting conditions, and are not subject to any further retesting, or those awards that are unlikely to meet vesting conditions under the terms of the grant. Legal forfeiture of the performance award is in accordance with the Plan
Rules and grant terms. For personal use only use personal For
2013 TRANSFIELD SERVICES 153 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 27. KEY MANAGEMENT PERSONNEL (CONTINUED)
Shareholdings The number of shares in the Company held during the financial year by each Director of Transfield Services Limited and other key management personnel of the Group, including their personally related parties, are set out below. Other changes Balance at the Received during the 2013 Balance at the start of during the year end of the year year on the exercise the year – acquisitions/ of Options / Awards (disposals) Directors Anthony Shepherd 154,483 - 61,900 216,383 Dr Peter Goode (until 31 August 2012) 611,111 88,037 - 699,148 Graeme Hunt - - - - Jagjeet Bindra 56,541 - - 56,541 Guido Belgiorno-Nettis AM (until 30 August 2012) 58,348,879 - - 58,348,879 Luca Belgiorno-Nettis AM (until 30 August 2012) 60,020,472 - - 60,020,472 Steven Crane 141,778 - 141,778 Douglas Snedden 84,525 - - 84,525 Diane Smith-Gander 24,668 - 28,196 52,864 Roy McKelvie (from 31 August 2012) - - - - Other key management personnel Larry Ames - - - - Elizabeth Hunter - - - - Gareth Mann - - - - Steve MacDonald 26,627 - - 26,627 Kate Munnings 11,495 23,932 - 35,427 Tiernan O’Rourke 5,237 - - 5,237 Nicholas Yates 79,807 - - 79,807
119,565,623 111,969 90,096 119,767,688 For personal use only use personal For
154 TRANSFIELD SERVICES 2013 NOTE 27. KEY MANAGEMENT PERSONNEL (CONTINUED) c. Shareholdings (continued)
2012 Received during the Other changes during Balance at the start of Balance at the year on the exercise of the year – acquisitions/ the year end of the year Options / Awards (disposals) Directors Anthony Shepherd 129,483 - 25,000 154,483 Dr Peter Goode 611,111 - - 611,111 Jagjeet Bindra 56,541 - - 56,541 Guido Belgiorno-Nettis AM 58,348,879 - - 58,348,879 Luca Belgiorno-Nettis AM 60,020,472 - - 60,020,472 Steven Crane 141,778 - - 141,778 Douglas Snedden 64,525 - 20,000 84,525 Diane Smith-Gander 14,668 - 10,000 24,668 Graeme Hunt - - - - Other key management personnel Larry Ames - - - - Elizabeth Hunter - - - - Bruce James 51,947 - - 51,947 Gareth Mann - - - - Steve MacDonald 26,627 - - 26,627 Kate Munnings - 11,495 - 11,495 Tiernan O’Rourke - 5,237 - 5,237 Philip Wratt - - - - Nicholas Yates 79,807 - - 79,807 119,545,838 16,732 55,000 119,617,570 c. Other transactions with Directors and key management personnel
Dividends received by Directors and key management personnel during the year ended 30 June 2013 amounted to
$7,418,183 (2012: $8,617,010). For personal use only use personal For
2013 TRANSFIELD SERVICES 155 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 28. BUSINESS COMBINATIONS a. Current period acquisitions
The Group had no acquisitions during the period. b. Final adjustments to provisional accounting from prior period acquisitions
The provisional fair values of the net assets acquired during the year ended 30 June 2012 have been adjusted in the current period as set out below, to reflect new information obtained about facts or circumstances that existed at acquisition date. Inser Transfield Steier Oil Field Total $’000 Services SA $’000 Service $’000 Goodwill provisionally recognised at acquisition 24,873 10,744 35,617
Adjustments to fair values: Trade and other receivables 4,535 - 4,535 Inventory and work in progress 2,655 - 2,655 Other intangibles 20,776 1,564 22,340 Property, plant and equipment 2,672 (993) 1,679 Tax assets (5,780) - (5,780) Provision for loss making contract 15,681 - 15,681 Other liabilities 10,792 (2,366) 8,426 Non-controlling interest (3,760) - (3,760) Final goodwill balance at acquisition 72,444 8,949 81,393
The Group identified during the period that the net assets of the Transfield Services SA (Inser-TS) business were not accurately reflected at acquisition date. In particular, the acquisition date accounts did not reflect liabilities that existed in relation to the Chilean construction and maintenance business. The Group is in the process of commencing legal proceedings for the recovery of monies under the sale and purchase agreement. The Group has not recognised any asset for these recoveries, as these recoveries are contingent on future events. There have been no changes to the provisional fair values determined for Chesterton International during the period. c. Details of prior period acquisitions
Transfield Services SA (Inser-TS)
On 27 March 2012, the Group acquired a controlling interest in Inser-TS through the acquisition of an additional 40 per cent of the share capital. The Group now holds 83 per cent of the share capital of Inser-TS. Inser-TS had previously been recorded as a joint venture prior to the acquisition of a controlling interest. The additional interest was acquired to expand the Group’s presence in mining and power generation services in South America. Goodwill is attributable to market growth opportunities as well as revenue synergies from service growth in the South American market. i. Purchase consideration
$’000 Cash paid on settlement 19,935 Contingent consideration - Deferred consideration - Fair value of equity accounted interest held prior to business combination 25,624
For personal use only use personal For Total purchase consideration 45,559 Fair value of net identifiable assets acquired (29,872) Non-controlling interest 2,987 Goodwill 72,444
156 TRANSFIELD SERVICES 2013 NOTE 28. BUSINESS COMBINATIONS (CONTINUED) ii. Assets and liabilities acquired
The following fair values have been determined during the finalisation of the acquisition accounting. These amounts have been adjusted since acquisition to reflect new information obtained within one year from the acquisition date about facts and circumstances that existed at the acquisition date.
Fair value Cash and cash equivalents 583 Trade and other receivables 7,867 Tax assets 5,780 Property, plant and equipment 5,072 Contract intangibles 5,068 Trade and other payables (15,223) Provision for loss making contracts (15,681) Employee benefits provisions (9,650) Other liabilities (13,688) Net identifiable assets (29,872)
Steier Oil Field Service
On 1 June 2012, the Group acquired the business assets of Steier Oil Field Service (Steier) for total consideration of $22,942,000, comprising cash consideration of $20,042,000 and deferred consideration of $2,900,000. The business was acquired to expand the Group’s presence in mining services in North America. The carrying value and provisional fair value of the net assets acquired included property, plant and equipment and other assets of $3,338,000. The net assets acquired also included identifiable intangible assets with a provisional fair value of $8,860,000 and goodwill of $10,744,000. Goodwill is attributable to market growth opportunities in North America and the technical skill and capability of the workforce and key management personnel. The revenue and profit contributions from this acquisition is immaterial to the Group’s results.
Chesterton International
On 5 June 2012, the Group acquired 100% of the share capital of Chesterton International (NSW) Pty Limited (Chesterton) for total consideration of $8,305,000, comprising cash consideration of $3,000,000 and contingent consideration of $5,305,000. Contingent consideration is dependent on the future results of the entity. The business was acquired to expand the Group’s service offering in facilities management to include property management. The carrying value of net assets acquired included contract intangibles of $5,500,000, which the Group has provisionally assessed to have a nil fair value pending measurement finalisation. The carrying value and provisional fair value of the remaining identifiable net assets also included other assets of $1,468,000, cash overdraft of $747,000 and other liabilities of $998,000. Goodwill is attributable to the technical skill and capability of the workforce and key
management personnel. The revenue and profit contributions from this acquisition is immaterial to the Group’s results. For personal use only use personal For
2013 TRANSFIELD SERVICES 157 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 29. INVESTMENT IN ASSOCIATE During the prior period, the Group reclassified its investment in RATCH Australia Corporation Limited to available for sale financial assets. The Group does not hold any other investments in associates. a. Movements in carrying amounts of investment in associate
2013 2012 $’000 $’000 Carrying amount at the beginning of the financial year - 65,483 Share of operating profits / (losses) after income tax - 10,984 Additional capital contribution - 3,871 Share of hedging reserve - (8,265) Distribution received - (6,207) - 65,866 Carrying value of investment reclassified as available-for-sale financial asset - (65,866) Carrying amount at the end of the financial year - -
b. Share of (losses) / profits of associate
2013 2012 $’000 $’000 Operating profits / (losses) before income tax - 5,487 Income tax benefit / (expense) - 5,497 Operating profits / (losses) after income tax - 10,984 Less: distributions received - (6,207) - 4,777 Accumulated losses attributable to associates at the beginning of the financial year - (80,008)
Accumulated losses attributable to associates at the end of the financial year - (75,231) For personal use only use personal For
158 TRANSFIELD SERVICES 2013 NOTE 30. INTERESTS IN JOINT VENTURES AND PARTNERSHIPS
Country of Principal activity Name of joint venture or partnership Ownership Carrying amount incorporation 2013 2012 2013 2012 % % $’000 $’000 Incorporated joint ventures Translink Investments Pty Limited Australia Electronic tolling equipment 50 50 790 1,232 Transfield Worley Power Services Pty Australia Operations and maintenance 50 50 31,793 16,155 Limited Flint Transfield Services Limited Canada Operations and maintenance 50 50 13,301 13,038 Transfield Dexter Gateway Services Canada Operations and maintenance 50 50 6,932 7,919 Limited Transfield Worley Limited New Zealand Operations and maintenance 50 50 9,546 10,878 Transfield Services – Worley Parsons JV Malaysia Operations and maintenance 50 50 1,224 791 (M) Sdn Bhd Transfield Mannai Facilities Management Qatar Operations and Maintenance 49 49 2,111 3,052 Services WLL Transfield WorleyParsons Nouvelle New Caledonia Operations and maintenance 50 50 5,682 4,385 Caledonie Easternwell Drilling Services Holdings Australia Operations and maintenance 50 50 51,608 48,741 Pty Limited 122,987 106,191 Unincorporated joint ventures Transfield Worley Services Australia Operations and maintenance 50 50 145 145 Transfield Worley Services JV Australia Operations and maintenance 50 50 17,239 20,517 (Woodside) Transfield Worley Solutions JV Australia Operations and maintenance 50 50 317 639 Sentinar - Transfield Silcar JV Australia Operations and maintenance 50 50 64 110 Transfield Services WorleyParsons Malaysia Operations and maintenance 50 50 38 38 Malaysia Transfield Worley TRAGS JV Qatar Operations and maintenance 27.5 27.5 21 21 Trility - TS JV (formerly United Utilities) Australia Operations and maintenance 50 50 1,453 1,742 Monadelphous Engineering (MTS Joint Australia Operations and maintenance 50 50 - 887 Venture) Allwater Australia Operations and maintenance 50 50 4,826 5,442 Perth PTIA JV Australia Operations and maintenance 50 - 602 - Transfield Services Clough JV (TSC JV) Australia Operations and maintenance 50 - 4,578 - TS SKM JV (Sarina) Australia Operations and maintenance 65 - 703 - 29,986 29,541 Partnerships Yarra Trams Partnership Australia Public transport 50 50 101 101 Harbour City Ferries Partnership Australia Public transport 50 50 8,079 - 8,180 101
161,153 135,833 For personal use only use personal For
2013 TRANSFIELD SERVICES 159 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 30. INTERESTS IN JOINT VENTURES AND PARTNERSHIPS (CONTINUED)
2013 2012 Retained profits attributable to the joint venture entities and partnerships $’000 $’000 Balance at 1 July 58,891 51,504 Current year profit before tax 63,211 53,020 Income tax expense (8,646) (8,781) Distributions / dividends received (58,847) (36,852) Balance at 30 June 54,609 58,891
Movements in carrying value of investment in joint venture entities and partnerships Balance at 1 July 135,833 122,328 Effect of changes in foreign exchange rates 3,113 81 Other (251) 321 Investment and loans in joint ventures 26,740 23,976 Disposals and reclassifications on acquisition of controlling interest in joint venture - (18,260) Distributions / dividends received (58,847) (36,852) Share of operating profits after tax 54,565 44,239 Balance at 30 June 161,153 135,833
Share of joint venture entities and partnerships’ revenues Incorporated joint Unincorporated joint expenses and results ventures ventures Partnerships Total 2013 2012 2013 2012 2013 2012 2013 2012 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
Revenues 495,449 517,970 310,673 210,404 57,195 3,250 863,317 731,624 Operating expenses (455,269) (472,665) (284,716) (194,533) (52,948) (3,102) (792,933) (670,300) Earnings before interest, taxation, depreciation and 40,180 45,305 25,957 15,871 4,247 148 70,384 61,324 amortisation Depreciation (3,614) (5,296) (31) - - - (3,645) (5,296) Earnings before interest, taxation 36,566 40,009 25,926 15,871 4,247 148 66,739 56,028 and amortisation Amortisation (1,136) - - - - - (1,136) - Earnings before interest and 35,430 40,009 25,926 15,871 4,247 148 65,603 56,028 taxation Net finance income / (expense) (2,402) (3,174) (222) 166 232 - (2,392) (3,008) Net profit before income tax 33,028 36,835 25,704 16,037 4,479 148 63,211 53,020 Income tax expense (8,646) (8,777) - (4) - - (8,646) (8,781)
Net profit after tax 24,382 28,058 25,704 16,033 4,479 148 54,565 44,239 For personal use only use personal For
160 TRANSFIELD SERVICES 2013 NOTE 30. INTERESTS IN JOINT VENTURES AND PARTNERSHIPS (CONTINUED)
2013 2012 $’000 $’000 Share of joint ventures partnerships’ assets and liabilities Cash 39,500 34,773 Other current assets 204,012 195,595 Non-current assets 124,610 114,248 Total assets 368,122 344,616
Current borrowings 46,590 45,106 Other current liabilities 125,418 120,804 Non-current borrowings 17,669 19,681 Other non-current liabilities 22,603 5,557 Total liabilities 212,280 191,148
Net assets 155,842 153,468
2013 2012 Share of joint ventures and partnerships’ commitments $’000 $’000 Lease commitments 10,251 11,057 Other commitments - 7,358 Total expenditure commitments 10,251 18,415
NOTE 31. RECONCILIATION OF OPERATING PROFIT AFTER INCOME TAX TO NET CASH INFLOW FROM OPERATING ACTIVITIES
2013 2012 $’000 $’000 Total operating profit / (loss) after income tax (254,441) 85,024 Add: Deficit / (excess) of net cash finance costs over accounting cost 4,689 5,303 Add: Share based payments 89 3,977 Add: Depreciation 90,521 70,476 Add: Amortisation 16,909 21,274 Add: Impairment 317,786 - Less: Net gain from acquisition of Inser-Transfield Services SA - (7,684) Less: Net gain on recognition of RAC as a financial asset - (9,876) Unrealised foreign exchange loss (1,648) (526) Disposal of operations and maintenance business recognised in investing activities (26,740) (18,250) Difference between share of associate and joint ventures’ results and distributions/dividends received 4,282 1,956 Other non-cash items (2,424) (10,908) Change in operating assets and liabilities, net of effects from purchase of controlled entity Decrease / (increase) in trade and other receivables 51,824 (14,291) (Increase) in inventories (78,786) (78,123) (Increase) / decrease in deferred tax assets (31,267) 7,255 (Increase) in other operating assets (100) (26,909)
Decrease / (increase) in income tax receivable 16,454 (13,921) For personal use only use personal For Increase in income tax payables 6,076 - Increase in trade and other payables 88,925 57,237 Increase in provision for deferred tax liabilities 1,738 982 Increase in employee and other provisions 6,563 49,706 Net cash inflow from operating activities 210,450 122,702
2013 TRANSFIELD SERVICES 161 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 32. EARNINGS / (LOSS) PER SHARE a. Basic and diluted (loss) / earnings per share
2013 2012 cents cents Total basic and diluted earnings per share prior to impairment charges attributable to owners of the Company 8.9 15.6 Total basic and diluted (loss) / earnings per share attributable to owners of the Company (48.7) 15.6
b. (Loss) / earnings used in calculating earnings per share
2013 2012 $’000 $’000 Profit prior to impairment charges attributable to the ordinary equity holders of the Company used in 45,548 84,765 calculating basic and diluted (loss) / earnings per share prior to impairment charges Impact of impairment after tax attributable to the ordinary equity holders of the Company (refer to note 6) (295,542) - (Loss) / profit attributable to the ordinary equity holders of the Company used in calculating basic and (249,994) 84,765 diluted (loss) / earnings per share
c. Weighted average number of shares
Number Number
Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating basic and diluted earnings per share* 513,180,600 541,739,732
*Only Options and Performance Awards which have vested but remain unexercised are used in the calculation of diluted earnings per share. The Group’s current policy is to acquire vested Options and Performance Awards on-market rather than by issuing new shares and the inclusion of options and performance rights would be antidilutive.
Note that earnings per share prior to impairment charges (section (a) above) and profit prior to impairment charges (section (b) above) are not statutory measures as defined by International Financial Reporting Standards (IFRS). They have been included to assist with understanding of the Group’s performance. The reconciling item between these non-IFRS measures and the IFRS statutory measures of earnings per share and profit is the impairment charge recognised in
the statement of comprehensive income and detailed in Note 6 and the associated tax impact. For personal use only use personal For
162 TRANSFIELD SERVICES 2013 NOTE 33. REMUNERATION OF AUDITORS During the year the following amounts were paid to the auditor of the parent entity, its related practices and non- related audit firms. 2013 2012 $ $ Fees paid to KPMG Audit services and review of financial reports 2,109,400 2,228,700
Other assurance and due diligence services 556,500 123,800
Taxation services Research and development advice - 375,000 Advice on national payroll tax project work - 16,100 Total remuneration for taxation services - 391,100 Total fees paid to KPMG 2,665,900 2,743,600
Fees paid to other audit firms Audit services 4,307 12,000 Taxation services 1,958,218 2,143,000 Total fees paid to other firms 1,962,525 2,155,000
NOTE 34. EVENTS OCCURRING AFTER STATEMENT OF FINANCIAL POSITION DATE In August 2013, the Group completed the extension of $143,000,000 of debt facilities that were due to expire in December 2013 of which $83,000,000 was drawn down at 30 June 2013. The new maturity date for these facilities will be August 2015. Whilst the total amount of expiring facilities was $259,000,000 the Group voluntarily cancelled US$100,000,000, being excess commitments no longer required. The breakdown of the facility extension was:
A$80,000,000 extended for 2 years (previous amount A$84,000,000)
NZ$63,000,000 extended for 2 years (previous amount was NZ$63,000,000)
CLP 5,526,300,000 extended for 2 years (previous amount CLP 5,526,300,000), and
US$100,000,000 cancelled.
At 30 June 2013, the amounts drawn down under the above facilities were classified as current loans and borrowings because they were expiring within 12 months from that date. Other than above there have been no other significant events after the reporting date.
NOTE 35. CONTINGENT ASSETS AND LIABILITIES a. Contingent liabilities
Details and estimates of maximum amounts of contingent liabilities are as follows: 2013 2012 $’000 $’000 Bank guarantees in respect of contracts of wholly owned companies 154,715 182,332 Insurance bonds in respect of contracts of wholly owned companies 203,461 172,369 358,176 354,701 Theonly use personal For Group’s share of bank guarantees in respect of contracts of joint ventures 100,058 16,193 458,234 370,894
The Group has entered into an unsecured Multi Option Bilateral Facility agreement under which bank guarantees and letters of credit are provided.
2013 TRANSFIELD SERVICES 163 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 35. CONTINGENT ASSETS AND LIABILITIES (CONTINUED) (a) Contingent liabilities (continued)
2013 2012 Bank guarantees and insurance bonds (excluding joint ventures and non-wholly owned companies) $’000 $’000 Used 358,176 354,701 Unused 361,058 217,508 Total facility 719,234 572,209
The Directors are not aware of any material claims on the consolidated entity except as follows:
Legal dispute
A controlled entity in the Group is party to a dispute in relation to pre-acquisition road maintenance. Should the outcome of this action be unfavourable the cost for remediation may be borne by the subsidiary. The information usually required by AASB 137 Provisions, Contingent Liabilities and Contingent Assets is not disclosed on the grounds that it can be expected to prejudice the outcome of the legal dispute process. The Group is defending its position and the Directors continue to review the situation. The Directors are of the opinion that the dispute can be successfully resolved by the Group. No material loss is anticipated in respect of this matter.
NZ Inland Revenue Department (IRD) audit of the Group’s MCN Arrangement
The Group operates in a number of tax and legal jurisdictions. From time to time legal entities such as Transfield Services are subject to compliance and other specific audit reviews by Federal and/or State tax authorities in the jurisdictions in which they operate.
The Inland Revenue Department (IRD) in New Zealand is conducting a review of a range of financial instruments used by companies in New Zealand during recent years covering many different industries and companies and centering on the deductibility of interest expense in New Zealand. As part of this review the IRD is currently investigating the tax treatment of the Mandatory Convertible Note (MCN) entered into by the Group.
The Group received a Notice of Proposed Adjustment (NOPA) in October 2011 and a Statement of Position (SOP) from the IRD in relation to deductions claimed by the Group for the FY2007 to FY2010 tax years. In September 2012, TSNZ received a Notice of Assessment (NOA) including penalties in relation to the FY2006 tax year for $1,861,140 (NZ$2,354,714). In November 2012, the Group lodged a Statement of Claim to dispute this assessment. Including the NOA noted above, the total tax amount being disputed (excluding any penalties or interest) is approximately $7,491,465 (NZ$8,839,929).
The Group is not able to determine the timing of resolution of these matters, including the recent NOA and believes it has no liability in respect of any of these matters. The Group is currently challenging the claims. b. Contingent assets
The Group identified during the period that the net assets of the Inser-TS business were not accurately reflected at acquisition date. In particular, the acquisition date accounts did not reflect liabilities that existed in relation to the Chilean construction and maintenance business. The Group is in the process of commencing legal proceedings for the recovery of monies under the sale and purchase agreement. The Group has not recognised any asset for these recoveries, as these recoveries are contingent on future events. Additional information required by AASB 137 Provisions, Contingent Liabilities and Contingent Assets is not disclosed on the grounds that may prejudice the
outcome of the legal dispute process. For personal use only use personal For
164 TRANSFIELD SERVICES 2013 NOTE 36. COMMITMENTS FOR EXPENDITURE a. Operating leases
Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: 2013 2012 $’000 $’000 Within one year 42,459 47,271 Later than one year but not later than five years 77,573 92,428 Later than five years 7,237 11,434 Commitments not recognised in the financial statements 127,269 151,133 b. Finance leases
Commitments in relation to finance leases are payable as follows: 2013 2012 $’000 $’000 Within one year 9,702 17,179 Later than one year but not later than five years 19,885 23,140 Later than five years 9,061 15,432 Minimum lease charges 38,648 55,751 Future finance charges (6,199) (9,794) Total lease liabilities recognised as a liability 32,449 45,957
The average interest rate implicit in the leases is 6.42 per cent (2012: 6.78 per cent). c. Capital commitments
Commitments in relation to non-contracted capital expenditure is as follows: 2013 2012 $’000 $’000 Within one year 17,059 45,803 Later than one year but not later than five years 25,764 4,446 Later than five years - -
42,823 50,249 For personal use only use personal For
2013 TRANSFIELD SERVICES 165 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 37. SHARE-BASED PAYMENTS a. TranShare Executive Performance Awards Plan
A detailed analysis of the conditions of the TranShare Executive Performance Awards Plan is set out in the Remuneration Report on pages 61 to 94.
The table below sets out the number of performance rights granted under the Plan: Balance at Granted Exercised Forfeited Balance at Exercisable Expiry Exercise the start of during the during the during the the end of at the end of Grant Date Date Price the year year year year the year the year Long Term Incentive 30 August 2005 30 August 2012 $Nil 10,071 - (5,686) (4,385) - - 28 February 28 February 2007 2013 $Nil 1,122 - (974) (148) - - 31 August 2008 31 August 2014 $Nil 334,651 - - (318,853) 15,798 15,798 26 September 26 September 2009 2015 $Nil 1,600,931 - (312,270) (201,393) 1,087,268 - 6 October 2010 6 October 2014 $Nil 2,373,223 - - (339,784) 2,033,439 - 30 September 30 September 2011 2014 $Nil 3,929,200 - - (1,044,600) 2,884,600 - 30 September 14 December 2012 2015 $Nil - 5,563,700 - (208,367) 5,355,333 - 8,249,198 5,563,700 (318,930) (2,117,530) 11,376,438 15,798 Managing Director and Chief Executive Officer Medium Term Incentive
6 October 2010 6 October 2014 $Nil 364,456 - (88,037) (276,419) - - 30 September 30 September 2011 2014 $Nil 336,600 - - (336,600) - -
1 March 2013 1 March 2015 $Nil - 235,900 - - 235,900 - General Medium Term Incentive 6 October 2010 6 October 2014 $Nil 85,834 - (48,160) (37,674) - - 30 September 393,350 - (107,040) (29,250) 257,060 30 September 2011 2014 $Nil - 30 September 14 December 2012 2015 $Nil 307,800 - - 307,800 - 1,180,240 543,700 (243,237) (679,943) 800,760 - Total Performance Rights 9,429,438 6,107,400 (562,167) (2,797,473) 12,177,198 15,798
The weighted average remaining contractual life of the performance rights outstanding at the end of the period was between two to three years.
Fair value of performance rights granted
Fair values at grant date are independently determined. The assessed fair values at grant date of performance rights granted during the year ended 30 June 2013 are set out in the following tables. For performance rights with internal non-market related measures, values are determined using a binomial option pricing model and for performance rights with TSR hurdles, the Monte-Carlo simulation method is used. These valuation techniques take into account the exercise price, the term of the performance right, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the performance right, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the performance right. The expected volatility of the Company has been determined having regard to the historic volatility of the market price of
the Company’s share and the mean reversion tendency of volatilities. For personal use only use personal For
166 TRANSFIELD SERVICES 2013 NOTE 37. SHARE-BASED PAYMENTS (CONTINUED) a. TranShare Executive Performance Awards Plan (continued)
1 March 2013 Award type Managing Director and Chief Executive Officer MTI Tranche 1 Tranche 2 Exercise price $Nil $Nil Consideration $Nil $Nil Vesting conditions EBIT hurdle EBIT hurdle Expiry date 1-Mar-14 1-Mar-15 Share price at grant date $1.94 $1.94 Expected dividend yield 5.1% 5.1% Fair value at grant date $1.84 $1.75
The model inputs for performance rights granted during the year ended 30 June 2013 included:
14 December 2012 Award type LTI performance rights MTI Awards Tranche 1 Tranche 2 Tranche 3 Tranche 1 Tranche 2 Exercise price $Nil $Nil $Nil $Nil $Nil Consideration $Nil $Nil $Nil $Nil $Nil Vesting conditions EPS growth Relative TSR ROCE growth EBITDA hurdle EBITDA hurdle Expiry date 30-Sep-15 30-Sep-15 30-Sep-15 30-Sep-13 30-Sep-14 Share price at grant date $1.87 $1.87 $1.87 $1.87 $1.87 Expected company share price volatility 35% 35% 35% 35% 35% Expected dividend yield 7.00% 7.00% 7.00% 7.00% 7.00% Risk free interest rate 2.79% 2.79% 2.79% 2.79% 2.79% Fair value at grant date $1.54 $0.96 $1.54 $1.77 $1.65
b. Deferred Retention Incentive Plans
Short-term deferred incentive (ST-DI)
The Company delivers the ST-DI component of its remuneration structure for North American participants by providing a specific value of their STI outcome in the form of deferred cash. Participation in the ST-DI is available in North America to the senior managers and selected high-performing managers who participate in the STI Plan but are not eligible to participate in the Company’s LTI Plan based on the eligibility criteria used for that component of remuneration. Individuals are nominated by Operational Chief Executive Officers for consideration by the Managing Director and Chief Executive Officer.
The deferred payment under the ST-DI is subject to achieving the earnings targets and is subject to forfeiture in the event that employment within the Group is terminated within three years from the date the ST-DI payment
determination date, or as per the contracted term. For personal use only use personal For
2013 TRANSFIELD SERVICES 167 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 37. SHARE-BASED PAYMENTS (CONTINUED) General Medium-term Incentive (General MTI)
The Group’s general MTI plan replaced a similar plan called the short-term deferred retention incentive (ST-DRI) was in place until 30 June 2010. Eligible employees retained their entitlements under the ST-DRI scheme however new awards are granted under the General MTI scheme which is issued under the TranShare Executive Performance Awards Plan. The Company delivers the General MTI component of its remuneration structure to employees who previously would have been eligible for the ST-DRI. Under the General MTI, eligible employees receive an award of performance rights based on a percentage of their total fixed remuneration. These performance rights are subject to vesting conditions based on the Company maintaining its earnings performance for 12 and 24 months from the base year. The number of performance rights to be offered to the participant under the general MTI is calculated by dividing the general MTI amount by the ten-day average closing price of the Company’s shares on the date the general MTI amount is approved. Shares are subject to forfeiture in the event that employment with the Group is terminated within two years from the date of grant. c. Employee share plan (TranShare Plan)
A scheme, for which shares are acquired on-market on behalf of employees, was approved by shareholders at the 2004 annual general meeting. All Australian and New Zealand permanent full time and part time employees (excluding executive Directors) are eligible to participate in the scheme. Employees may elect not to participate in the scheme. The acquisition of shares under the TranShare Plan was suspended on 19 May 2009 following changes to the equity plan taxation legislation. The final restructure end dates for shares acquired under the plan were 24 June 2012 for the Australian participants and 23 June 2012 for New Zealand participants. d. Expenses arising from share-based payment transactions
Total expenses before tax arising from share-based payment transactions recognised during the year as a part of employee benefit expense were as follows:
2013 2012 $’000 $’000 Performance rights expensed under TranShare Executive Performance Awards Plan (LTI & MTI) 1,075 3,836 Short-term DRIs expensed 48 141 1,123 3,977
e. Shares under award / option
Unissued ordinary shares of Transfield Services Limited under Award at 30 June 2013 are as follows:
Number under Date Awards granted Expiry date Issue price of shares Awards 1 March 2013 1 March 2014 $Nil 235,900 14 December 2012 30 September 2015 $Nil 5,663,133 30 September 2011 30 September 2014 $Nil 3,141,660 6 October 2010 6 October 2014 $Nil 2,033,439 26 September 2009 26 September 2015 $Nil 1,087,268 31 August 2008 31 August 2010 $Nil 15,798 12,177,198
No Award holder has any right under the Awards Plan rules to participate in any other share issue of the Company or
any other entity. For personal use only use personal For
168 TRANSFIELD SERVICES 2013 NOTE 38. DEED OF CROSS GUARANTEE
Transfield Services Limited and its wholly owned subsidiaries Transfield Services (Holdings) Pty Limited, Transfield Services (Australia) Pty Limited, APP Corporation Pty Limited, Broadspectrum Australia Pty Limited, Broadspectrum Australia (WA) Pty Limited, Broadspectrum Australia (Qld) Pty Limited, Transfield Services Engineering Group Pty Limited, ICD Asia Pacific Pty Limited, Transfield Services (Oil & Gas) Pty Limited, Easternwell Group Pty Limited, Piver Pty Limited, Easternwell WA Pty Limited, Gorey & Cole Holdings Pty Limited, Gorey & Cole Drillers Pty Limited, Australian Drilling Solutions Pty Limited, Sides Drilling Pty Limited, Sides Drilling Contractors Pty Limited (trading in its own right), Sides Drilling Contractors Pty Limited ATF the Sides Drilling Contractors Trust, Easternwell Group Investments Pty Limited, Easternwell Group Operations Pty Limited, OGC Services Pty Limited and Easternwell Drilling Holdings Pty Limited are parties to a deed of cross guarantee under which each company guarantees the debts of the others. By entering into the deed, the wholly owned entities have been relieved from the requirement to prepare and lodge a financial report and a director’s report under Class Order 98/1418 (as amended) issued by the Australian Securities and Investment Commission.
The above companies represent a ‘Closed Group’ for the purposes of the Class Order. As there are no other parties to the Deed of Cross Guarantee that are controlled by Transfield Services Limited, they also represent the ‘Extended Closed Group’. a. Consolidated statement of profit or loss and other comprehensive income
Set out below is a consolidated Statement of profit or loss and other comprehensive income and summary of movements in consolidated retained profits for the Closed Group. 2013 2012 $’000 $’000 Revenue from continuing operations 2,403,487 2,250,784 Share of net profits of associates and joint venture entities accounted for using the equity method 32,124 27,297 Subcontractors, raw materials and consumables (1,040,442) (888,629) Employee benefits expense (1,175,231) (1,062,359) Depreciation, amortisation and impairment (227,691) (55,332) Other expenses (83,141) (156,904) Net finance costs (35,476) (18,587) Profit / (loss) before income tax (126,370) 96,270 Income tax benefit / (expense) 565 (17,993) Profit / (loss) from continuing operations after income tax expense (125,805) 78,277 Net profit / (loss) (125,805) 78,277
Retained profits Retained profits at the beginning of the financial year 11,779 9,555 Net profit / (loss) for the year (125,805) 78,277 Less: Dividends paid (47,875) (76,053)
Retained profits at the end of the financial year (161,901) 11,779 For personal use only use personal For
2013 TRANSFIELD SERVICES 169 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 38. DEED OF CROSS GUARANTEE (CONTINUED) b. Statement of financial position
Set out below is a consolidated statement of financial position for the Closed Group. 2013 2012 $’000 $’000 Current assets Cash and cash equivalents 131,942 35,932 Trade and other receivables 728,982 753,447 Income tax receivable 6,287 12,422 Inventories 97,163 85,796 Prepayments and other current assets 10,742 10,580 Derivatives 3,359 - Total current assets 978,475 898,177
Non-current assets Prepayments and other non-current assets 37,080 41,476 Investments accounted for using the equity method 121,821 115,139 Other financial assets 133,348 133,348 Property, plant and equipment 303,964 260,662 Deferred tax assets 18,267 73,815 Intangible assets 333,379 519,899 Total non-current assets 947,859 1,144,339
Total assets 1,926,334 2,042,516
Current liabilities Trade and other payables 481,307 424,044 Loans and borrowings 53,544 547 Provision for employee benefits 83,521 77,146 Derivatives 798 6,030 Other provisions 25,635 21,029 Total current liabilities 644,805 528,796
Non-current liabilities Loans and borrowings 322,046 243,450 Deferred tax liabilities - 71,992 Provision for employee benefits 18,619 18,029 Derivatives 1,929 - Other provisions 5,030 7,680 Total non-current liabilities 347,624 341,151 Total liabilities 992,429 869,947 Net assets 933,905 1,172,569
Equity
Contributed equity 1,077,497 1,151,535 For personal use only use personal For Reserves 18,309 9,255 Retained profits (161,901) 11,779 Parent entity interest 933,905 1,172,569 Non-controlling interest - - Total equity 933,905 1,172,569
170 TRANSFIELD SERVICES 2013 NOTE 39. PARENT ENTITY FINANCIAL INFORMATION a. Summarised statement of financial position
2013 2012 $’000 $’000
Current assets 1,316,337 1,252,744 Non-current assets 206,170 203,328 Total assets 1,522,507 1,456,072
Current liabilities 2,973 13,063 Non-current liabilities 366,202 225,192 Total liabilities 369,175 238,255
Net assets 1,153,332 1,217,817
Equity Contributed equity 1,131,742 1,151,535 Reserves 19,658 10,792 Retained profits 1,932 55,490 Total equity attributable to equity holders of the Company 1,153,332 1,217,817 b. Summarised statement of profit or loss and other comprehensive income
2013 2012 $’000 $’000 Revenue from ordinary activities 42,275 84,130 Share of net profits of associates and joint ventures accounted for using the equity method 533 5,796 Net finance costs (34,475) (12,285) Interest paid / payable (31,908) (8,180) Amortisation of establishment fees (2,882) (4,918) Finance income 315 813 Other expenses - (482) Profit / (loss) before income tax 8,333 77,159 Income tax (expense) / benefit (335) (2,423) Profit from continuing operations after income tax 7,998 74,736
Other comprehensive income 3,909 (3,372) Total comprehensive income for the period 11,907 71,364
Profit and total comprehensive income attributable to:
Owners of the Company 11,907 71,364 For personal use only use personal For
2013 TRANSFIELD SERVICES 171 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 39. PARENT ENTITY FINANCIAL INFORMATION (CONTINUED) c. Guarantees and contingent liabilities
The parent entity provides performance guarantees from time to time on behalf of wholly owned subsidiaries, associates, related parties and joint venture entities and partnerships. These guarantees will only crystallise if the respective guaranteed parties fail to meet their performance obligations.
There are also cross guarantees given by entities within the Extended Closed Group. No deficiencies of assets exist in any of these companies. No liability has been recognised by the parent entity or the Group in relation to these guarantees, as the fair value of the guarantee is immaterial.
Details and estimates of maximum amounts of contingent liabilities are as follows: Parent entity 2013 2012 $’000 $’000
Bank guarantees in respect of contracts of wholly owned companies 154,715 182,332 Insurance bonds in respect of contracts of wholly owned companies 203,461 172,369 358,176 354,701 Transfield Services’ share of bank guarantees in respect of contracts of joint ventures 100,058 16,193 458,234 370,894
The parent entity has entered into an unsecured Multi Option Bilateral Facility agreement under which bank guarantees and letters of credit are provided.
Bank guarantees and insurance bonds (excluding joint ventures and non-wholly owned companies) Used 358,176 354,701 Unused 361,058 217,508 Total facility 719,234 572,209
The parent entity is, in the normal course of business, called upon to give guarantees and indemnities in respect of the performance by controlled entities, associates, related parties and joint venture entities and partnerships of their contractual and financial obligations. These guarantees and indemnities only give rise to a liability where the relevant guaranteed entity fails to perform its contractual obligations and the guarantee is called upon. The parent entity has a formal deed of guarantee to these entities. The Directors are not aware of any material claims on the parent entity. d. Capital commitments
The parent entity has no capital commitments at 30 June 2013 (2012: $Nil). For personal use only use personal For
172 TRANSFIELD SERVICES 2013 NOTE 39. PARENT ENTITY FINANCIAL INFORMATION (CONTINUED) e. Investments in controlled entities
The investments in controlled entities for the Group at any time during the period are set out below. Movements in the cost of the Parent entity’s investment include the impact of share-based payments expenses borne by subsidiaries which are eliminated on consolidation. Cost of Parent Country of Class of shares as Ultimate equity entity’s incorporation applicable holding investment 2013 2012 2013 2012 % % $’000 $’000 Transfield Services (Holdings) Pty Limited Australia Ordinary 100 100 81,013 81,013 Transfield Services (Australia) Pty Limited Australia Ordinary 100 100 15,757 14,760 Transfield Services (International) Pty Limited Australia Ordinary 100 100 - - Transfield Services (New Zealand) Limited New Zealand Ordinary 100 100 867 863 Transfield Metrolink Pty Limited Australia Ordinary 100 100 - - Transfield Services Engineering Group Pty Limited Australia Ordinary 100 100 - - Collinsville Operations Pty Limited Australia Ordinary 100 100 - - TranShare Plan Company Pty Limited Australia Ordinary 100 100 - - Transfield Services Share Plan Trust Australia Ordinary 100 100 - - Transfield Services (Asia) Sdn Bhd Malaysia Ordinary 100 100 - - Transfield Services (Malaysia) Sdn Bhd (In Members Malaysia Ordinary 100 100 - - Voluntary Liquidation) Transfield Services (Brisbane Ferries) Pty Limited Australia Ordinary 100 100 - - Transfield Services (NWDF) Pty Limited Australia Ordinary 100 100 - - Transfield Services (Finance) Pty Limited Australia Ordinary 100 100 - - Transfield Services (Sydney Ferries) Pty Limited Australia Ordinary 100 100 - - Broadspectrum Resources Pty Limited (In Liquidation) Australia Ordinary - 100 - - Broadspectrum Australia Pty Limited Australia Ordinary 100 100 - - Broadspectrum Australia (WA) Pty Limited Australia Ordinary 100 100 - - Broadspectrum Australia (QLD) Pty Limited Australia Ordinary 100 100 - - Global Broadspectrum Sdn Bhd (In Members Voluntary Malaysia Ordinary 100 100 - - Liquidation) Transfield Services Mauritius Limited Mauritius Ordinary 100 100 - - Broadspectrum Pte Limited Singapore Ordinary 100 100 - - APP Corporation Pty Limited Australia Ordinary 100 100 231 94 APP Corporation (NZ) Limited New Zealand Ordinary 100 100 - - Chesterton International (NSW) Pty Limited Australia Ordinary 100 100 - - Transfield Services Americas Inc, formerly known as (APP USA Ordinary 100 100 2,488 2,495 Corporation (North America) Inc.) Transfield Services Infrastructure Inc. (trading as Transfield USA Services North America Transportation Infrastructure) Ordinary 100 100 393 420 (formerly known as VMS. Inc) Transfield Asset Management Services, Inc (In liquidation) USA Ordinary - 100 - - Transfield Services Canada (Holdings) Limited Canada Ordinary 100 100 - - Transfield Services (Canada) Limited Canada Ordinary 100 100 1,077 1,068 Transfield Services Holdings (Delaware) Pty Limited LLC Australia / USA Ordinary 100 100 - - Aquas Holdings Pty Limited Australia Ordinary 100 100 - -
Australianonly use personal For Quality Assurance Superintendence Pty Limited Australia Ordinary 100 100 - - Transfield Emdad Services LLC UAE Ordinary 49* 49* - - Intergulf General Contracting LLC UAE Ordinary 49* 49* - - Transfield Services (Chile) Pty Limited Australia Ordinary 100 100 - - Transfield Services (Delaware) General Partnership USA N/A 100 100 952 952
2013 TRANSFIELD SERVICES 173 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2013
NOTE 39. PARENT ENTITY FINANCIAL INFORMATION (CONTINUED) e. Investments in controlled entities (continued)
Class of Ultimate Cost of Country of shares as equity Parent entity’s incorporation applicable holding investment 2013 2012 2013 2012
% % $’000 $’000 TIMEC Company Inc. USA Ordinary 100 100 1,521 1,613 TIMEC Operating Company, Inc USA Ordinary 100 100 - - TIMEC Specialty Services, Inc USA Ordinary 100 100 - - Transfield Services Upstream Holdings, LLC USA Ordinary 100 100 - - Transfield Services Oilfields, LLC USA Ordinary 100 100 - - HRI, Inc USA Ordinary 100 100 - - Transfield Services (India) Pty Limited Australia Ordinary 100 100 - - Hofincons Infotech Industrial Services Pvt Limited India Ordinary 100 100 - - TSNZ Pulp and Paper Maintenance Services Limited New Zealand Ordinary 100 100 - - Inversiones Transfield Services (Chile) Holdings Limitada Chile Ordinary 100 100 - - Inversiones Transfield Services (Chile) Limitada Chile Ordinary 100 100 - - Inser-Transfield Services SA (Chile) Chile Ordinary 83 90 - - Ingeneria Ambiental y Servicios S.A. (Chile) Chile Ordinary 100 100 - - Transfield Services Mannai Oil and Gas Services WLL Qatar Ordinary 49* 49* - - Transfield Services Qatar LLC Qatar Ordinary 49* 49* 123 105 ICD (Asia Pacific) Pty Limited Australia Ordinary 100 100 - - Transfield Services (Ontario) Limited Canada Ordinary 100 100 - - Transfield Services (Alberta) Limited Canada Ordinary 100 100 - - Transfield Services (Oil & Gas) Pty Limited Australia Ordinary 100 100 - - Easternwell Group Pty Limited Australia Ordinary 100 100 122 36 Piver Pty Limited Australia Ordinary 100 100 - - Porcelain Holdings Pty Limited Australia Ordinary 100 100 - - Colby Corporation Pty Limited Australia Ordinary 100 100 - - Colby Unit Trust Australia Ordinary 100 100 - - Easternwell WA Pty Limited Australia Ordinary 100 100 - - Gorey & Cole Holdings Pty Limited Australia Ordinary 100 100 - - Gorey & Cole Drillers Pty Limited Australia Ordinary 100 100 - - Australian Drilling Solutions Pty Limited Australia Ordinary 100 100 - - Sides Drilling Pty Limited Australia Ordinary 100 100 - - SDC Plant & Equipment Pty Limited Australia Ordinary 100 100 - - SDC Plant & Equipment Trust Australia Ordinary 100 100 - - Sides Drilling Contractors Pty Limited Australia Ordinary 100 100 - - Sides Drilling Contractors Trust Australia Ordinary 100 100 - - Peak Drilling Pty Limited Australia Ordinary 100 100 - - Easternwell Group Investments Pty Limited Australia Ordinary 100 100 - - Easternwell Engineering Pty Limited Australia Ordinary 100 100 - -
Easternwell Group Assets Pty Limited Australia Ordinary 100 100 - - For personal use only use personal For
174 TRANSFIELD SERVICES 2013 NOTE 39. PARENT ENTITY FINANCIAL INFORMATION (CONTINUED) e. Investments in controlled entities (continued)
Country of Class of shares as Ultimate equity Cost of Parent entity’s incorporation applicable holding investment 2013 2012 2013 2012 % % $’000 $’000 EWS Aircraft Pty Limited Australia Ordinary 100 100 - - EWG Aircraft Pty Limited Australia Ordinary 100 100 - - Easternwell Group Operations Pty Limited Australia Ordinary 100 100 - - Easternwell Training Pty Limited Australia Ordinary 100 100 - - Easternwell Service No2 Pty Limited Australia Ordinary 100 100 - - O.G.C Services Pty Limited Australia Ordinary 100 100 - - Easternwell Drilling Holdings Pty Limited Australia Ordinary 100 100 - - Easternwell Drilling Assets Pty Limited Australia Ordinary 100 100 - - Easternwell Drilling Pty Limited Australia Ordinary 100 100 - - Easternwell Drilling Labour Hire Pty Limited Australia Ordinary 100 100 - - Eastern Catering Services Holdings Pty Limited Australia Ordinary 100 100 - - Eastern Catering Services Pty Limited Australia Ordinary 100 100 - - ETSH Pty Limited Australia Ordinary 100 100 - - Eastern Pressure Control Pty Limited Australia Ordinary 51 51 - - Silver City Drilling (QLD) Pty Limited Australia Ordinary 100 100 - - Easternwell TS Pty Limited Australia Ordinary 100 100 - - 104,544 103,419
* Legal ownership is 49 per cent however commercial ownership is 80 per cent. These entities are consolidated for Group reporting purposes. For personal use only use personal For
2013 TRANSFIELD SERVICES 175 DIRECTORS’ DECLARATION For the year ended 30 June 2013
In the Directors’ opinion the financial statements and notes set out on pages 98 to 175 are in accordance with the Corporations Act 2001, including:
complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements, and
giving a true and fair view of the consolidated entity’s financial position as at 30 June 2013 and of their performance, as represented by the results of their operations, changes in equity and their cash flows, for the financial year ended on that date.
There are reasonable grounds to believe that:
the Group will be able to pay its debts as and when they become due and payable at the date of this declaration, and
the members of the Extended Closed Group identified in Note 39 will be able to meet any obligations or liabilities which they are, or may become, subject by virtue of the deed of cross guarantee described in Note 39.
The Directors draw attention to Note 1(a) to the financial statements which include a statement of compliance with International Financial Reporting Standards.
The Directors have been given the declaration by the Managing Director and Chief Financial Officer required by section 295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the Directors.
Anthony Shepherd Chairman
Graeme Hunt Managing Director and Chief Executive Officer at Sydney
28 August 2013 For personal use only use personal For
176 TRANSFIELD SERVICES 2013
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS For personal use only use personal For
2013 TRANSFIELD SERVICES 177
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS For personal use only use personal For
178 TRANSFIELD SERVICES 2013 SHAREHOLDER INFORMATION
The shareholder information set out below was applicable as at 30 August 2013 a. Distribution of equity securities
Range Total holders Units % of issued capital 1 – 1,000 6,105 2,709,389 0.53 1,001 – 5,000 6,088 16,294,908 3.18 5,001 – 10,000 2,493 18,426,128 3.60 10,001 – 100,000 2,440 57,042,184 11.13 100,001 and over 112 417,985,107 81.56 Total 17,238 512,457,716 100
There were 3,172 shareholders holding less than a marketable parcel of 437 ordinary shares as at 30 August 2013 b. Equity security holders Top 20 holders on quoted equity securities
Rank Range Units at 30 August 2013 % of units 1. J P Morgan Nominees Australia Limited 88,588,626 17.29 2. HSBC Custody Nominees (Australia) Limited 83,443,675 16.28 3. National Nominees Limited 79,278,893 15.47 4. Transfield (TSL) Pty Limited 56,049,887 10.94 5. Citicorp Nominees Pty Limited 31,226,718 6.09 6. JP Morgan Nominees Australia Limited 15,773,643 3.08 7. Argo Investments Limited 5,397,040 1.05 8. HSBC Custody Nominees (Australia) Limited 5,340,139 1.04 9. Frami Pty Limited 4,460,513 0.87 10. RBC Investor Services Australia Nominees Pty Limited 4,280,851 0.84 11. BNP Paribas Noms Pty Ltd 3,515,063 0.69 12. QIC Limited 2,814,193 0.55 13. Citicorp Nominees Pty Limited 1,915,594 0.37 14. Comsec Nominees Pty Limited 1,873,891 0.37 15. Campus Living Funds Management Limited 1,800,000 0.35 16. Bond Street Custodians Limited 1,697,733 0.33 17. Milton Corporation Limited 1,519,032 0.30 18. AMP Life Limited 1,484,640 0.29 19. ETRADE Australia Nominees Pty Limited 1,470,030 0.29 20. Bond Street Custodians Ltd 1,173,568 0.23 Totals: top 20 holders of fully paid ordinary (total) 393,103,729 76.71 Total remaining holding balance 119,353,987 23.29 c. Substantial shareholders in Transfield Services Limited Substantial shareholder information as shown in substantial shareholder notices received by the Company as at 30 August 2013
Date of last notice Number of shares Interest (%) 1 Allan Gray Australia 30 July 2013 77,343,060 15.09 2 Transfield (TSL) Pty Limited 23 December 2010 57,849,887 11.19 3 JCP Investment Partners Limited 27 September 2013 42,752,735 8.26 4 Mondrian Investment Partners Limited 12 July 2011 40,092,997 7.29
Notes:only use personal For The number of shares and interest figures above reflect the shareholding as at the date of last notice and may not be an accurate reflection of current number of shares and interest held, although in each case, the relevant interest held is 5 per cent or more of the total number of votes attached to Transfield Services Limited voting shares, unless advised otherwise by each entity. d. Voting rights Holders of Transfield Services Limited fully paid ordinary shares have, at general meetings, one vote on a show of hands and, upon a poll, one vote for each fully paid ordinary share held.
2013 TRANSFIELD SERVICES 179 CORPORATE DIRECTORY
DIRECTORS AUDITOR Natixis Anthony Shepherd AO - KPMG Level 30, Aurora Place Chairman* 10 Shelley Street 88 Phillip Street Diane Smith-Gander** Sydney NSW 2000 Sydney NSW 2000 Douglas Snedden BANKERS Australia Graeme Hunt Australia and New Zealand The Royal Bank of Scotland Roy McKelvie Banking Group Limited plc, Australia Branch Steven Crane * Retiring from Board effective Level 20, 242 Pitt Street Level 27, Aurora Place 88 Phillip Street 25 October 2013 Sydney NSW 2000 Sydney NSW 2000 ** Nominated Chairman designate Australia Australia Bank of America Sumitomo Mitsui Banking CHIEF RISK AND LEGAL Level 38, Governor Phillip OFFICER AND COMPANY Corporation, Sydney Branch SECRETARY Tower, 1 Farrer Place Sydney NSW 2000 Level 3, The Chifley Tower Kate Munnings 2 Chifley Square Australia JOINT COMPANY Sydney NSW 2000 The Bank of Tokyo- SECRETARY Australia Mitsubishi UFJ, Ltd. Angelique Nesbitt Westpac Banking Level 25, 1 Macquarie Place SENIOR MANAGEMENT Corporation Sydney NSW 2000 Graeme Hunt Level 3, Westpac Place, 275 Australia Managing Director and Chief Kent Street Executive Officer BOS International Sydney NSW 2000
Vincent Nicoletti Level 27, 45 Clarence Street Australia Chief Financial Officer Sydney NSW 2000 Wells Fargo Bank N.A Nicholas Yates Australia Level 39, Aurora Place Chief Executive, Infrastructure, Crédit Industriel et 88 Phillip Street Australia and New Zealand Commercial, Singapore Sydney NSW 2000 Joe Sofra Branch Australia Chief Executive, Resources and Energy, Australia and 63 Market Street #15-01 New Zealand Singapore 048942 SECURITIES EXCHANGE Philip Wratt The Hong Kong and LISTING President, Americas Shanghai Banking Transfield Services Limited Ian Maxted Corporation Limited. shares are listed on the Chief Development Officer Australian Securities HSBC Centre, Level 32, 580 Exchange, stock code: TSE. Stephen Phillips George Street Chief Information Officer Sydney NSW 2000 PRINCIPAL REGISTERED Australia WEBSITE ADDRESS OFFICE IN AUSTRALIA J.P. Morgan www.transfieldservices.com Level 10, 111 Pacific Highway North Sydney NSW 2060 Level 18, 85 Castlereagh Street Sydney NSW 2000 ANNUAL REPORT PRODUCTION SHARE REGISTER Australia The Annual Report was Computershare Investor Mizuho Corporate Bank, Ltd. Services Pty Limited produced in-house by Level 33, 60 Margaret Street Transfield Services. Level 4, 60 Carrington Street Sydney NSW 2000 Sydney NSW 2000
For personal use only use personal For Australia National Australia Bank Limited
Level 4, 255 George Street Sydney NSW 2000 Australia
180 TRANSFIELD SERVICES 2013 CORPORATE DIRECTORY
OFFICE LOCATIONS Australia Canada India
(Head Office) FT Services Gee Gee Universal Level 10, 111 Pacific Highway Suite 3000, 715 5th Avenue 6th Floor, Door No.2 North Sydney NSW 2060 SW McNichols Road Locked Bag 917 Calgary Alberta Chetpet, Chennai 600 031 North Sydney NSW 2059 Canada T2P 2X6 India Telephone: +61 2 9464 1000 Telephone: +1 403 265 9033 Telephone: +91 44 2836 2837 Facsimile: +61 2 9464 1111 Facsimile: +1 403 265 9063 Facsimile: +91 44 2836 4691
Level 3, 509 St Kilda Road Transfield Services Roads New Zealand Melbourne VIC 3004 Suite 101, 2275 Upper Middle Telephone: +61 3 8823 7500 Road East Level 3, 277 Broadway Oakville Ontario PO Box 99964 16 Altona Street Canada L6H 0C3 Newmarket, Auckland, 1149 West Perth WA 6005 Telephone: +1 905 491 6933 Telephone: +64 9 523 9900 Telephone: +61 8 9422 3100 Facsimile: +1 905 491 6801 Facsimile: +64 9 523 9999 Facsimile: +61 8 9422 3111 Chile Qatar 151 South Terrace Adelaide SA 5000 InserTS No. 5, Al-Wakaalat Street GPO Box 2765, Adelaide SA Avenida José Miguel Carrera Industrial Area, Salwa 5001 # 1579 Doha, Qatar Telephone: +61 8 8409 4100 Antofagasta PO Box 24258, Doha, Qatar Facsimile: +61 8 8409 4101 Chile Telephone: +974 44076223 Telephone: +56 55 533600 Facsimile: +974 55865218 Level 4 Facsimile: +56 55 533619 52 Merivale Street United Arab Emirates South Brisbane QLD 4101 InserTS Telephone: +61 7 3248 8700 Las Bellotas 199 Of. 114. Marina Office Park Compound Facsimile: +61 7 3248 8790 Providencia – Santiago Villa No. A31, Waves Breaker Chile Behind Marina Mall Abu Dhabi, United Arab Easternwell Telephone: +56 22 337485 10 Russell Street Facsimile: +56 22 336588 Emirates Toowoomba QLD 4350 PO Box 514, United Arab Telephone: +61 7 4659 1555 Emirates Facsimile: +61 7 4659 1599 Telephone: +971 2 499 7666 Facsimile: +971 2 658 1617 ICD 2 Solent Circuit United States of America Norwest Business Park Suite 1250, 1330 Post Oak NSW 2153 Boulevard PO Box 7304, Baulkham Houston, Texas 77056 Hills NSW 2153 United States of America Telephone: +61 2 8882 2700 Telephone: +1 713 964 2800 Facsimile: +61 2 8882 2299 Facsimile: +1 713 964 2801 APP Level 7, 116 Miller Street North Sydney NSW 2060 Telephone: +61 2 9957 6211 Facsimile: +61 2 9954 1951
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2013 TRANSFIELD SERVICES 181 For personal use only use personal For THE TRANSFIELD SERVICES GROUP
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