Annual Report 2012
Building and renovations … it’s our business Alesco at a glance
Alesco supplies innovative Contents branded products to trade Financial Overview 2-3 Chairman’s Report 4-5 customers in the Australian Managing Director’s Report 6-9 Divisional Reports 10 and New Zealand building - Garage Doors & Openers 11 - Cabinets, Windows & Appliances 12 products markets. - Construction Products & Equipment 13 Board of Directors 14-15 We operate through three divisions: Executive Team 16 Safety & Our People 17 Garage Doors & Openers Directors’ Report 18 Corporate Governance Statement 19 Cabinets, Windows & Appliances Remuneration Report 30 Financial Statements 65 Construction Products & Equipment
2012 Revenue1 Employees Listed on ASX $459.7m ~1380 ALS
Group Financial Summary
year ended 31 may 2012 2011 2010 2009 2008
Revenue ($ million) 459.7 478.8 483.6 512.7 561.9 2
ng 3
ui EBIT ($ million) 32.2 40.3 32.1 33.3 58.3 esses n n ti EBIT/Sales3 (%) 7.0 8.4 6.6 6.5 10.4 Busi n Co Return on net operating assets4 (%) 7.0 8.5 6.7 6.7 11.7
Profit after tax($ million) -13.9 13.6 -124.3 -12.8 58.0
Return on equity (%) -3.3 3.2 -22.7 -2.2 11.2
oup Earnings per share (cents) -14.7 14.4 -132.8 -13.9 67.2 G r Dividend per share (cents) 18.0 14.0 7.0 7.0 67.0
Market capitalisation ($ million) 185.6 290.1 250.6 302.1 710.1
1. Continuing business only 2. Parbury and Dekorform businesses were sold on 31 March 2012. 3. Earnings before interest, tax and significant items. Represents segment measure of performance. 4. Earnings before interest, tax and significant items divided by average net operating assets.
This report is dated 10 August 2012. Alesco Corporation Limited ABN 23 008 666 064 Garage Doors Cabinets, Windows Construction Products & Openers & Appliances & Equipment
This year we have further rationalised and repositioned Alesco’s portfolio, we have strengthened our balance sheet and have continued to implement Project Restore disciplines across all our divisions. We are well-progressed through our three year programme, focussed on improving our divisions’ operational fitness and financial performance and have identified further initiatives and growth paths for the 2013 financial year. Our business model is to develop a sustainable building products business with market leading brands, capable of performing strongly at any time of the cycle.
Alesco Annual Report 2012 1 Revenue1
s GaG ce raar an gae li g De p oD 35% p oo A r os r & &s
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1 1, 2 Revenue 40 EBIT (Before significant items) 8 40 8
30 6 30 6 ws G 24% do ces aGraa in s n rga W ce ia eg s, n l De 20 t lia 4 20 4 p oD 35% e p p oo n p A r i os b A & r & a s &
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Results at a glance
1, 2 EBIT (Before significant items)
ws 24% do • 35%in improvements in LTIFR to 4.2, including the discontinued businesses. W ce s, n t lia e p 3 inNetp loss after tax of $13.9 million, down from a profit of $13.6 million (pcp) •b A a
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Reported earnings loss e per share of 14.7 cents per share (cps), against earnings per share of 14.4 cps (pcp)
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E c o q t-- EBIT before significant items from continuing businesses of $32.2 million, on revenue of around i o u o D ip n m P e r g e $460o million a n du ar 19% t c G -- Solidts second-half performance with EBIT of $12.8 million for continuing businesses and revenue of approximately $211 million • Net profit after tax before significant items of $11.3 million7, ahead of guidance of $9.9 million to $10.7 million provided in January 20128 • Sale of loss-making Parbury and non-core Dekorform businesses for approximately $4.0 million6 • Significant items after tax totalling $25.1 million relating to asset sales and associated impairment ($20.7 million) and response costs arising from DuluxGroup Limited’s (DuluxGroup) takeover offer ($4.4 million) • Net debt of $65.9 million at year end, down from $78.1 million at 31 May 2011 with gearing at 14.0% down from 15.3% at 31 May 2011 -- Strong cash generation achieved through improved working capital management and proceeds from the sold businesses • Total dividends for the year of 18.0 cps comprising a fully franked final dividend of 5.0 cps and a fully franked special dividend of 10.0 cps payable on 7 September 2012, together with the FY12 interim dividend of 3.0 cps paid in March 2012
1. For continuing businesses. 2. Earnings before interest and tax. 3. Prior corresponding period. 4. E arnings before interest, tax and significant items. Represents segment measure of performance. 5. Includes 10 months of net trading losses for the combined Parbury and Dekorform businesses until the date of sale on 31 March 2012. 6. Parbury and Dekorform businesses were sold on 31 March 2012. 7. N on-IFRS information is reported to provide a greater understanding of the Group’s underlying businesses. Further details of non-IFRS information can be found in the reconciliation to statutory profit on page 3. 8. O n 25 January 2012, the Alesco Board confirmed that assuming there was no further market deterioration from current forecasts, net profit after tax before significant items for continuing businesses for the full-year ending 31 May 2012 was likely to be down by between 30% to 35% from the prior corresponding period ($15.3 million). This equated to a range of between $9.9 million and $10.7 million.
2 Alesco Annual Report 2012 Key Financial Indicators
Earnings per share (cents)1 Dividends per share (cents) Return on net Return on equity (%) operating assets (%)4
11.7
67.2 67.0 11.2
8.5 3.2 14.4 7.0 6.7 6.7 08 11 08 11 09 10 12 09 10 12 -13.9 -14.7 -2.2 -3.3
18.03 14.02 7.0 7.0 08 09 10 11 12 08 09 10 11 12 -132.8 -22.7
Total Shareholder Returns, Share Price and Dividends to 31 May 2012
Total returns – Total returns – 3 year % return 5 year % return Alesco Share Price (LHS) S&P/ASX Small Ords Accumulation Index (RHS)5
$16.00 9,000
8,000 19.45 $14.00
-19.46
16.86 7,000 $12.00 6,000 $10.00 -34.25 5,000 $8.00 4,000 $6.00 3,000 $4.00 2,000
Alesco -80.96 Alesco $2.00 1,000 S&P/ASX Small Ordinaries S&P/ASX Small Ordinaries Accumulation Index5 Accumulation Index5 $0.00 0 May 08 May 09 May 10 May 11 May 12 S&P/ASX 200 S&P/ASX 200 -29.00 Accumulation Index Accumulation Index
Non-IFRS Information
Alesco’s statutory results are reported under International Financial Reporting Standards. Earnings before significant A$m FY12 FY11 items is a non statutory measure reported to provide a greater understanding of the underlying business performance of the Net profit / loss after tax -13.9 13.6 group. Significant items are detailed in Note 4 to the Financial Significant items after tax -25.1 1.2 Statements and relate to amounts of expense that are associated with significant business restructuring, impairment Profit after tax before significant items 11.3 12.4 and DuluxGroup takeover response costs. A reconciliation of Tax expense -5.7 -8.4 earnings from continuing operations before significant items Profit before tax 17.0 20.8 to reported profit is detailed to the right. Financing costs -9.1 -13.4 The summary has not been subject to review or audit. It contains disclosures which are extracted or derived from the EBIT pre significant items 26.1 34.2 Financial Statements for the financial year ended 31 May 2012 EBIT on discontinued operations* -6.2 -6.1 which has been subject to external audit. EBIT on continuing operations 32.2 40.3 pre significant items
* To date of disposal Minor rounding differences may exist 1. Post significant items. 2. Total dividends for FY11 include a special dividend of 5.5 cps. 3. Total dividends for FY12 include a special dividend of 10.0 cps. 4. Earnings before interest and tax before significant items divided by average net operating assets. 5. This index represents the small cap members of the S&P/ASX 300 Accumulation Index but excludes those in S&P/ASX 100 Accumulation Index.
Alesco Annual Report 2012 3 Chairman’s Report
A turnaround programme is challenging at any time and its success becomes a greater imperative with the extremely tough market conditions we have been recently facing in the business. We have made solid progress at an operational level across the portfolio, despite these tough market conditions and you can read our report card for each division within the Managing Director’s report.
ver the past 12 months we have continued to rationalise Net debt reduced substantially over the period and reposition our portfolio of businesses. This process to $65.9 million at 31 May 2012, down from was substantially completed in March 2012 with the $78.1 million at 31 May 2011. Gearing4 as at Osale of the loss-making Parbury and non-core Dekorform businesses. This sale process followed the divestment of the 31 May 2012 stood at 14.0% (FY11:15.3%). loss-making Water Products & Services division in February 2011 Strong cash generation was achieved through and non-core Marathon Tyres business in April 2011. improved working capital management and Today, Alesco is a focussed building products company with a proceeds from the businesses sold. strong platform for future growth. Divisional performance Financial performance During the year, the Group continued its behavioural Overall FY12 revenue and earnings before interest and tax leadership programme to drive cultural change across the were impacted by ongoing subdued economic conditions and business and the benefits are being demonstrated in our the inclusion of 10 months performance of the loss-making overall improved safety performance. Parbury business. Despite this, Alesco finished the year ahead Divisional performance was mixed in the context of ongoing of market expectations and guidance with a strong second half challenging market conditions. performance compared to the prior corresponding period (pcp). Our Garage Doors & Openers division continues to perform 1 Alesco’s FY12 net profit after tax before significant items well with high operating margins, despite very poor cyclical 2 was $11.3 million , up from the guidance of $9.9 million to conditions in the detached housing markets. $10.7 million provided in January 20123. The Cabinets, Windows & Appliances5 division is fitter and The full year results included significant items after tax: leaner, delivering a broad product range with high customer • Loss on sale and additional accounting expenses associated service levels. Under new leadership, the benefits of this work with the sale of the Parbury and Dekorform businesses in are expected to be delivered during the 2013 financial year and March 2012 of $8.0 million; beyond. • A non cash impairment charge of $12.7 million against the The Construction Products & Equipment division is growing full carrying value of goodwill held in the Decorative revenue through its innovative trade store programme and will Surfaces & Appliances segment; and drive improved operating margins in the 2013 financial year • Response costs of $4.4 million as a result of the unsolicited and beyond. DuluxGroup takeover offer, which commenced on 1 May 2012. Dividends After significant items, Alesco reported a loss after tax for the Total ordinary dividends for the year were 8.0 cps, with total year of $13.9 million compared to a profit of $13.6 million the payout of $7.5 million. The current year annual payout ratio for prior year. ordinary shares was 67%. The Board resolved to pay a fully franked final dividend of 5.0 cents per shares on 7 September 2012 to shareholders on the register at 17 August 2012. In addition, the Board resolved to pay a fully franked special dividend of 10.0 cents per share on 7 September 2012 to shareholders on the register at 17 August 2012. The Board further intends to assess the capacity for additional initiatives totalling, (excluding the 10.0 cps special dividend), 25 to 30 cents per share over the next two to three years, subject to relevant factors at the time.
4 Alesco Annual Report 2012 Diversity It is your Board’s view that the DuluxGroup’s opportunistic In 2011 Alesco formalised its Diversity and Equal Opportunity offer undervalues Alesco. It does not adequately recognise the Policy. This policy outlines our commitment to building a value of Alesco’s strong portfolio of market-leading brands and diverse workforce, and places a particular focus on improving individually valuable businesses. Equally, the offer does not the level of gender diversity at senior levels of the organisation, recognise the benefits of a recovery in the detached housing including the Board. While we have more work to do, our and renovation markets nor the future benefits to be delivered culture is one that recognises diversity in many ways as well by Project Restore. as disciplined performance and merit-based appointments. The DuluxGroup Offer has also been timed opportunistically. We are confident that over time, we will build a diverse It has come at the low point of the detached housing cycle and workforce which will represent the skills, experience and before shareholders have seen the full benefits of the capabilities required of the businesses we operate. turnaround of the business and have received the benefits of Remuneration the proposed capital management initiatives which will return As part of its remuneration strategy, the Board continues to significant value over time. balance the interests of shareholders with the need to Looking ahead continue to motivate and reward good performance. You own part of a quality, focussed building The Remuneration Report includes an overview of the products company with a strong portfolio of Company’s remuneration policies and practices as they relate market-leading brands and individually valuable to key management personnel (KMPs) in FY12, a summary of actual payments received by KMPs and provides an outline on businesses which your Board believes is difficult to potential entitlements for KMPs for the financial period ending replicate. Our business model is to build a 31 May 2013 (FY13). sustainable building products business capable of Directors and Board succession performing at any time of the cycle. In December 2011 we welcomed our newest non-executive We are well progressed through our turnaround director, John Marlay, to the Board. Jim Hall retired from the programme and we believe that Alesco has the Board in March 2012, having served as a director since 2005. capability to generate EBIT6 growth through the In addition, we have announced the retirement of Rob Aitken at the upcoming annual general meeting. Rob has been a medium-term (ie over the next three to four years). director for the nine year permitted term. On behalf of the Alesco also stands to benefit from a recovery in the Board I would like to acknowledge the service of both Rob and Australian and New Zealand detached housing and Jim, particularly their stewardship of the Human Resources renovation markets and the completion of the Committee and Audit & Compliance Committee respectively. Project Restore initiatives. We wish them well for the future. Your Board and management are working hard to deliver value Given the current size and focus of the Company, there are no to shareholders. Your Board remains confident about the immediate plans to appoint any new directors. However, the future and believes that Alesco is well placed to deliver Board is cognisant of the need to continue to refresh the Board improved earnings performance over the medium term. and manage succession to ensure the appropriate transfer of corporate knowledge and experience. As a result, succession I take the opportunity to thank my fellow Directors for their plans will be reviewed during 2012. contribution over the past year. I also thank Peter Boyd, the executive and senior leadership team and all employees for DuluxGroup takeover their achievements over the past 12 months. On 12 June 2012 Alesco released its Target’s Statement in response to the DuluxGroup Limited’s (DuluxGroup) unsolicited and highly conditional takeover offer. The Alesco Board believes that the DuluxGroup Offer Price of $1.90 per Alesco Share plus the FY12 final dividend of 5.0 cps Mark Luby and the special dividend of 10.0 cps (both fully franked) is Chairman inadequate and does not reflect fair value for your Alesco Shares. Accordingly, your Board unanimously recommends that you REJECT DuluxGroup’s Offer. Alesco’s Target’s Statement sets out the key reasons for this recommendation and I encourage you to read this document.
1. Includes 10 months of net trading losses from the combined Parbury and Dekorform businesses up until the date of sale on 31 March 2012. 2. N on IFRS information is reported to provide a greater understanding of the group’s underlying business. Further details of Non IFRS information can be found in the reconciliation to statutory profit on page 3. 3. O n 25 January 2012, the Alesco Board confirmed that assuming there was no further market deterioration from current forecasts, net profit after tax before significant items for continuing businesses for the full-year ending 31 May 2012 was likely to be down by between 30%-35% from the prior corresponding period ($15.3 million). This equated to a range of between $9.9 million and $10.7 million. 4. Net debt divided by net debt plus equity. 5. C abinets, Windows & Appliances is a new segment replacing the former Decorative Surfaces & Appliances and Cabinet & Window Products segments following the sale of the Parbury and Dekorform businesses. 6. Earnings before interest, tax and significant items. Represents segment measure of performance.
Alesco Annual Report 2012 5 Managing Director’s Report
Alesco has a strong portfolio of market-leading brands and individually valuable businesses. We remain on track to develop an enduring and sustainable building products business, capable of performing strongly at any time of the cycle.
his year we continued to rationalise our portfolio and to Construction Products & Equipment’s (CPE) revenue was up drive Project Restore – our step change turnaround 7% on the prior year, despite a flat non-residential construction programme – across the business. Despite the tough market. This was primarily driven by strong results from the markTet conditions, we are now starting to see the benefits of Western Australian and New Zealand markets, as well as solid this programme, as well as our recent investment into the growth in the new trade store network, with the three stores parts of our business that offer potential for attractive returns in their third year of operation producing solid profit outcomes. and long-term growth. Cabinets, Windows and Appliances (CWA)2 EBIT1 result reflected Business overview tough market conditions with revenue down 9% on prior year. Project Restore initiatives and disciplines are having a positive The sale of our underperforming Parbury business and the impact on operational performance, with financial non-core Dekorform business in March 2012 for a combined performance expected to lift in FY13. sale price of approximately $4 million was an important step change for the business. These divestments followed the sales During the second half of FY12, we revisited a number of of the loss-making Water Products & Services division and initiatives and new objectives were established under Project non-core Marathon Tyres business in FY11. Restore – Phase II. These initiatives have commenced and include procurement and sales force excellence. We are also As a result, Alesco is now a focussed building continuing our organic expansion with new products, revenue products company, holding a portfolio of market growth in the domestic multi-residential market, in addition to leading brands, a competitive and innovative our ongoing investment in the Parchem trade store network product range and a strong, operationally focussed and Lincoln Sentry branch upgrades and new showrooms. leadership team. Market conditions We have further strengthened our balance sheet, with strong Market conditions remained extremely tough during the cash generation achieved through improved working capital FY12 period. management and the proceeds from the businesses sold. Over two thirds of our revenue is from the detached housing and We now have capacity to actively explore growth opportunities renovation markets in Australia and New Zealand. The detached in those divisions that have earned the right to grow, invest in housing market is at a very low point in the cycle, currently at our businesses as well as undertake other capital 10 year lows. In addition, activity in the renovation markets has management initiatives. slowed as consumer and business confidence remains at relatively low levels. While our divisional performance was mixed, we achieved solid results in the second-half, maintained gross margins and Non-residential construction markets remained steady in FY12. kept costs well under control. Alesco stands to benefit when the detached housing, renovation Garage Doors & Openers (GDO) delivered a solid EBIT1 result and non-residential construction cycle turns. In the meantime, despite the tough market, with revenue down only 5% in a our leaner fixed cost base and more efficient supply chain has detached housing market which was down approximately 11%. enabled us to perform, despite the current tough market Strong operational performance and Project Restore disciplines conditions. have enabled GDO to maintain an EBIT1 to sales margin of 12%, despite detached housing markets at 10 year lows.
6 Alesco Annual Report 2012 FY11 FY12 Today
Sold Water Products & Services Sold Parbury and Dekorform Sold Marathon Tyres Refinanced debt Alesco
Completed IT rollout Continued strong operational • Now a focussed Launched Axess Pro industrial openers performance
Doors building products
peners Rollout of combined manufacturing New product launches O
company line (Clontarf) (wind-rated doors and & Garage Implemented lean manufacturing insulated doors) • S trong industrial brand portfolio
Supply chain initiative driving Improved operational peformance improvement in service levels Tighter inventory • R ationalised &
indows S&OP driving improvement in Customer services levels Appliances
Cabinets, repositioned W
& inventory levels consistently above 90% • S trengthened
balanced sheet National purpose built manufacturing Continued trade store rollout and distribution facility at Wyong – with strong revenue growth • S trong operational roducts Parchem trade store rollout Benefits from Wyong facility Equipment P
Construction & beginning to flow through management
Financial Performance Within these four key elements there are 12 specific initiatives As outlined elsewhere in this report, Alesco reported mixed which underpin the programme. Progress by each division divisional results for the year. However, the results from the against these initiatives is shown on page 8. continuing businesses show there has been solid underlying Each business is well positioned to complete a number of key improvement, demonstrating that Project Restore is working and Project Restore initiatives during the 2013 financial year. delivering benefits. In particular, our second-half performance In addition to the continued Parchem trade store rollout 1 delivered a strong EBIT result of $12.8 million for the continuing programme, key focus areas for the business are: businesses, a decline of only 2% against prior corresponding • Sales & Operations Planning3 (S&OP) implementation; period (pcp), with revenues down 5%. This result has provided • Delivery in Full & On Time (DIFOT) performance4; and us with a solid platform as we move into FY13. • Labour and overhead efficiency improvements. Project Restore In FY13, our CWA division will continue to improve its supply Project Restore is delivering a fitter and better chain with DIFOT performance as well as implement further business. This is demonstrated by Alesco labour and overhead efficiency programmes. In addition, plans maintaining its gross margins, despite the tough are well advanced to drive revenue growth through: market conditions, as well as substantially • high performance sales programmes; improving its overall cost structure. As a result, the • showroom and branch upgrades; and • product range extensions. business is well positioned to leverage from any The GDO division will continue to maintain its high level of market recovery. operating performance, as well as explore organic growth The key elements of Project Restore were first developed and opportunities through new products and new markets using implemented across the GDO business from 2007. GDO is now its suite of market leading brands and innovation capabilities. 1 Alesco’s best performing business with EBIT to sales During the second-half of the 2012 financial year, a number of consistently above 12%, despite the declining detached these initiatives were re-visited and new objectives were housing and renovation markets. established these under Project Restore – Phase II. We are leveraging GDO’s operating methodologies and These initiatives are a key focus in the 2013 financial year and disciplines across the balance of the business portfolio. include: Significant progress has been made over the past two years • Procurement – with an additional specialist procurement with a range of further improvement initiatives now underway. resource allocated to assist in the delivery of this programme Project Restore involves key operational and capital across the businesses; and development actions, each of which is designed to improve • Sales force excellence – targeting all the Alesco businesses. Alesco’s performance and achieve improved financial outcomes. The aim of this initiative is to improve the selling capability Its four main objectives are: of the sales teams with expected benefits in sales growth • Leverage brands to continue to optimise revenue and gross and margin realisation. margin; • Improve supply chain (including manufacturing); • Reduce overhead spending; and • Reduce capital employed.
Alesco Annual Report 2012 7 Managing Director’s Report (continued)
Project Restore business turnaround programme making solid progress
1. Diagnose 2. Fix 3. Develop and Grow
“Diagnose” the issues in our Develop and implement programmes Ultimately earn the right to businesses and what we can do to to “Fix” our businesses so they can “Develop and Grow” through further address them deliver improved performance investment
Garage Doors & Openers
Construction Products & Equipment
Cabinets, Windows & Appliances
May 2012 assessment May 2013 target
Project Restore “Scorecard” Garage Doors Cabinets, Windows Construction Products & Openers & Appliances & Equipment
• Roll-out Pricing Margin Programmes (PMP) Optimise revenue • Improve Delivered in Full on Time (DIFOT) levels and gross margin base • Expand and revitalise product range • Optimise distribution network • Implement Sales and Operations Planning (S&OP) methodologies Improve supply • O ptimise procurement processes chain (including manufacturing) • R educe quality claims (improve process and contract controls) • Improve labour and overhead efficiency
Reduce overhead • O ptimise and flexible headcount spending • M anage discretionary spending tightly
• R educe inventory through implementation Reduce capital of S&OP methodologies employed • Improve returns on capital investment
“Zero Harm” is a core Alesco value Commenced In progress Substantially Progressed Results delivered
8 Alesco Annual Report 2012 Today FY13
Operational Improvements Restore Phase I continues • Supply chain improvements for CPE and CWA • Full Wyong benefit realisation • N ow a focussed Restore Phase II underway building products • Comprehensive procurement programme company • Sales force excellence • S trong industrial brand Organic Expansion portfolio • Continue Parchem trade store roll-out • R ationalised & • Introduce new GDO product lines • Introduce a third Lincoln Sentry product range repositioned • Upgrade Lincoln Sentry branches and open new Lincoln Sentry showrooms • S trengthened balanced • Grow domestic multi-residential market and increase presence in sheet international markets
• S trong operational Step Out Growth management • Attractive bolt-on acquisition opportunities
Safety It has been a challenging year for all our employees given the Alesco delivered improved safety outcomes across changes to our portfolio and within our businesses as well as the tough market conditions. Our talented employees have its businesses with LTIFR performance at 4.2 at embraced the challenge and worked together to deliver results year-end, a 35% improvement from FY11. – both operationally and financially. I acknowledge the safe We also maintained our focus on engaging our employees hard work and contribution from every employee. across the business to participate in safety improvement activities, supported by pro-active safety leadership at all levels. The Future We have made good progress this year. Our people The repositioning and our rationalisation of our portfolio of We continue to improve our capabilities to deliver businesses means Alesco is a substantially smaller company quality and innovative products and to be than it was three years ago. This has meant significant recognised for our service delivery performance. restructuring of the businesses and the corporate team. Alesco has a strong portfolio of market-leading During the year we welcomed Mark Freeman to the role of Group General Manager, Lincoln Sentry and brands and individually valuable businesses, with a Emmanuel Zammit to the role of Chief Financial Officer. strong balance sheet and we are well progressed This year we also farewelled two valued executives. Dean through our Project Restore programme. Over the Harriott left Alesco after a 20 year association, following the medium term Alesco is well placed to generate sale of the Parbury business in March. Neil Thompson, our improved earnings. former Finance Director, finished in December 2011, having Thank you for your continuing support. spent five years in the business. Both executives made a significant contribution to the business in their roles and I would like to thank them for their hard work during their tenure, particularly more recently as we have worked to reshape the portfolio and turn around the business. Peter Boyd Managing Director & CEO
1. Earnings before interest, tax and significant items. Represents segment measure of performance. 2. C abinets, Windows & Appliances is a new segment replacing the former Decorative Surfaces & Appliances and Cabinet & Window Products segments following the sale of the Parbury and Dekorform businesses. 3. T his is a method of co-ordinating the sales and operations teams to ensure that sales forecasts match operations planning so that the business has the right stock at the right place at the right time and inventory levels are managed appropriately. 4. This is a measure of the business’ ability to deliver in full and on time as measured against the business’ customer service promise and gives the business a competitive advantage if it achieves this measure on a consistent basis. For example, the Lincoln Sentry business promise is that if an order is placed before 2pm, the goods must be delivered in full within 24 hours.
Alesco Annual Report 2012 9 Divisional Reports
Alesco has a strong portfolio of market-leading brands and individually valuable businesses. Alesco is now well positioned to optimise its brand strength.
Garage Doors Cabinets, Windows Construction Products & Openers & Appliances & Equipment Garage Doors & Openers
Financial performance The Garage Door & Opener (GDO) division delivered a solid EBIT1 result in a tough Alesco’s Garage Doors & Openers division manufactures and markets a market, with revenue down only 5% in a detached housing market which declined by range of garage doors for domestic and approximately 11%. commercial use as well as residential, commercial and industrial automatic A strong operational performance and Project Restore disciplines have enabled GDO openers in Australia and New Zealand 1 to maintain an EBIT /Sales margin of 12%, with detached housing markets at under market leading brands, including 10 year lows. Construction Products & the iconic B&D Doors brand as well as RevenueGarador, ($m)Dominator and Automatic EBIT1 ($m) B&D Australia delivered a solid EBIT1 result driven by ongoingEquipment cost reductions and Technology. continued good manufacturing performance despite a fall in revenue. In addition, 2012It has the manufacturing119.3 capacity of 2012 6.7 warranty costs continue to improve, running at less thanConstruction 1% of sales. Products & approximately 400,000 doors and Revenue2011500,000 openers($m) per 112.0year and has a low EBIT20111 ($m) 8.3 The New Zealand business based in Christchurch experiencedEquipment challenging trading cost distribution network, well Construction Products & conditions, with the manufacturing site impactedRevenue by the ($m) Christchurch earthquakes and EBIT2012suppor1 ($m)ted by superior 119.3research and 2012 6.7 continuedEquipment aftershocks. A new Christchurch location has been secured demonstrating our development and innovation capability. 2011 112.0 2011 8.3 ongoing commitment to the New Zealand building2012 and construction119.3 markets. The Return2012 on net operating6.7 assets2 (%) Employees business is on target to relocate by late August 2012. Construction Products & 1 Revenue2011 ($m) 112.0 EBIT20112012 ($m) 6.5 8.3 2012 310 The ATAEquipment door openers business continues to perform strongly, finishing the year ahead of Demand drivers • New housing the prior corresponding period. ATA’s Chinese manufacturing2012 plant continues119.3 to perform Return20112012 on net operating6.7 8.7 assets2 (%) Employees2011 320 consistently and, with the capacity to produce 500,000 openers annually, is well • Renovation activity 2011 112.0 2011 8.3 positioned with capacity for future growth. Return on net operating assets2 (%)• Employees 2012Commercial building6.5 2012 310 The industrial opener product released last year has been well received by the market Active trading accounts 2012 6.5 20122011 8.7310 2011 320 with sales in line with expectations. In addition, recent sales initiatives through the retail and customers Cabinets, Windows & 1 2 >1800Revenue ($m) EBIT ($m) ‘i-opener’ brand are delivering improved revenueReturn2011 outcomes. onAppliances net These operating initiatives8.7 assets as well (%) as Employees2011 320 other growth opportunities will drive the business in FY13. • Garage door installers 2012 6.5 • 2012Builders 177.1 310 2012 8.4 Project Restore initiatives Cabinets, Windows & • Shed manufacturers 2011 Revenue2011 ($m) 195.1320 EBIT20111 ($m) 12.8 Key highlights: Appliances 8.7 • Renovators Cabinets, Windows & • C ontinued strong operational performance withRevenue high ($m)service delivery levels and low EBIT20121 ($m) 177.1 2012 8.4 warrantyAppliances costs. 2011 195.1 2, 3 2011 12.8 • New products, including wind-rated doors and2012 insulated doors177.1 and industrial openers. Return2012 on net operating8.4 assets (%) Employees Cabinets, Windows & Revenue ($m) 195.1 EBIT1 ($m) Appliances 2011 20112012 8.9 12.8 2012 410
2012 177.1 Return20112012 on net operating8.413.5 assets2, 3 (%) Employees2011 450 2011 195.1 2011 12.8 2, 3 Return on net operatingDalian assets (%) Employees2012 8.9 2012 410 Openers 2011 2012 Garage8.9 Doors & Openers 2012 410 13.5 2011 450 Hong Kong Revenue ($m) EBIT1, 2 ($m) Return2011 on net operating13.5 assets2, 3 (%) Employees2011 450 Brisbane 2012 162.8 2012 20.2 Roller and 2012 Garage8.9 Doors & Openers 2012 410 sectional doors Revenue2011 ($m) 171.5 EBIT20111, 2 ($m) 22.1 2011 13.5 2011 450 Garage Doors & Openers 1, 2 RevenueGold ($m)Coast EBIT2012 ($m) 162.8 2012 20.2 Specialty Auckland doors Roller doors 2011 171.5 2011 22.1 2012 162.8 Return2012 on net operating20.2 assets2 (%) Employees Garage Doors & Openers Revenue2011 ($m) EBIT20111, 2 ($m) 22.1 Perth 171.5 2012 8.1 2012 620 Roller doors Sydney Roller and 2012 162.8 2012 20.2 2 sectional doors Return2011 on net operating8.8 assets (%) Employees2011 650 Melbourne Roller doors 2011 171.5 2011 22.1 and industrial Return on net operatingChristchurch assets2 (%) Employees2012 8.1 2012 620 shutters Roller and sectional doors 2012 8.1 20122011 620 8.8 2011 650
Manufacturing and warehouse / sales office Warehouse / sales office Supply chain office Return2011 on net operating8.8 assets2 (%) Employees2011 650
2012 8.1 2012 620
1. Earnings before interest, tax and significant items.2011 Represents segment8.8 2011 650 measure of performance. 2. Earnings before interest, tax and significant items divided by average net operating assets. Alesco Annual Report 2012 11 Divisional Reports (continued)
Cabinets, Windows & Appliances
Financial performance Cabinets, Windows & Appliances comprises two businesses. The Cabinets, Windows & Appliances (CWA) division result reflected tough market conditions with revenue down 9% on prior year. EBIT1 fell by 35%. Lincoln Sentry is one of Australia’s leading suppliers and distributors • In the Cabinet Hardware business, revenue was down approximately 8% on the prior of hardware and components to the kitchen cabinet and furniture making year with market conditions particularly tough in Western Australia and South East industries, the window, door and glazing Queensland. Despite this, sales volumes for Blum cabinet hardware products increased. industries and the niche industrial tape and insulation markets. Lincoln Sentry • In the Windows, Doors and Glazing business, revenue was down approximately 13% on has a national footprint with 25 trade the prior year, with market conditions particularly tough in Victoria and South Australia. branches across Australia with an aim of delivering a ‘world class product – world • In the Robinhood appliance business, revenue was down 4% on prior year, with the class support’ offering to customers. business experiencing tough retail trading conditions. A solid penetration of new Robinhood is a leading brand of niche products into the key retail appliance market has contributed to an improved kitchen and laundry appliance products in performance. Overall, the business delivered a break-even result. Australasia. It has a broad product range, including rangehoods, ducting solutions, Despite the disappointing EBIT1 performance, the division generated a strong cash result laundry tubs, ironing centres, waste of $14.5 million ($23.1 million pcp), including a further reduction in inventory of disposers, sinks and taps. In addition to approximately $3.6 million in addition to the $12.0 million reduction in FY11. The the Robinhood brand, other brands in the portfolio including Supertub, Scrapeaters, reduction in inventory levels and maintenance of high customer service levels are Uniduct, Ironing Centre and Alto. It is well positive benefits of the Restore programme. regarded and recognised by key electrical and appliance retailers and other channel Overall, year on year product margins were maintained with improvements in share of partners after more than 30 years in the premium products in Cabinet Hardware, and active margin management programmes market. offsetting increased market competition. Construction Products & Revenue ($m) EBIT1 ($m) Equipment Significant progress was made towards the end of the FY12 financial year in re-aligning and lowering the Lincoln Sentry cost base, with further operational 2012 119.3 2012 6.7 Demand drivers savings expected in FY13. Construction Products & • New housing Revenue2011 ($m) 112.0 EBIT20111 ($m) 8.3 Equipment • Renovation activity Project Restore initiatives and disciplines are having a positive impact on Construction Products & • Commercial building operational performance with a substantial lift in operational capability and Revenue ($m) EBIT20121 ($m) 119.3 2012 6.7 Equipment customer service in the Lincoln Sentry business. Active trading accounts 2011 112.0 2011 8.3 2012 119.3 Returna2012nd customers on net operating6.7 assets2 (%)Project Employees Restore initiatives Construction Products & >9,0001 Key highlights: Revenue2011 ($m) 112.0 EBIT2011 ($m) 8.3 Equipment •2012 Cabinetmakers 6.5 2012 310 • The Lincoln Sentry business maintained a positive year on year trend in its operational • Builders 2012 119.3 20112012 6.7 8.7 2 per2011formance with customer320 service levels now consistently above 90%. •Return Window on & net door operating fabricators assets (%) Employees 2011 112.0 • 2011 Specifiers & architects8.3 • Tighter inventory management and reduced inventory levels. Return on net operating assets2 (%) Employees2012 6.5 2012 310 • Glaziers • Showroom and branch upgrade initiatives with the opening of the new Sydney 2012 6.5 20112012 8.7310 showr2011 oom is now expected320 to in September 2012, following the re-launch of the Cabinets, Windows & Lincoln Sentry brand and new product ranges at the national industry trade show 2 Revenue ($m) EBIT1 ($m) Return2011 onAppliances net operating8.7 assets (%) Employees2011 320 ‘AWISA’ in July 2012. 2012 6.5 2012 177.1 310 2012 8.4 Cabinets, Windows & 2011 8.7 Revenue2011 ($m) 195.1320 EBIT20111 ($m) 12.8 Darwin Appliances Cabinets, Windows & Revenue ($m) EBIT20121 ($m) 177.1 2012 8.4 Appliances 2011 195.1 2011 12.8 2012 177.1 Return2012 on net operating8.4 assets2, 3 (%) Employees Cabinets, Windows & Revenue ($m) EBIT1 ($m) Appliances 2011 195.1 20122011 8.9 12.8 2012 410 2012 2012 8.4 177.1 Return2011 on net operating13.5 assets2, 3 (%) Employees2011 450 Brisbane 2011 195.1 2011 12.8 2, 3 2012 8.9 2012 410 Return on net operating assets (%) Employees Perth Adelaide Sydney 2011 Canberra 2012 Garage8.9 Doors & Openers 2012 410 13.5 2011 450 Revenue ($m) EBIT1, 2 ($m) Melbourne Return2011 on net operating13.5 assets2, 3 (%) Employees2011 450 2012 162.8 2012 20.2 Hobart 2012 2012 Garage8.9 Doors & Openers 410 Revenue2011 ($m) 171.5 EBIT20111, 2 ($m) 22.1Trade branches Distribution centres Head Office 2011 13.5 2011 450 1. E arnings before interest, tax and significant items. Represents segment measure of performance. Garage Doors & Openers 1, 2 Revenue ($m) EBIT2012 ($m) 162.8 2. Earnings2012 before interest,20.2 tax and significant items divided by average net operating assets. 3. Excludes Robinhood. 12 2011 Alesco Annual171.5 Report 20122 2011 22.1 2012 162.8 Return2012 on net operating20.2 assets (%) Employees Garage Doors & Openers 1, 2 Revenue2011 ($m) 171.5 EBIT20122011 ($m) 22.18.1 2012 620 2012 162.8 2012 20.2 Return2011 on net operating8.8 assets2 (%) Employees2011 650 2011 171.5 2011 22.1 Return on net operating assets2 (%) Employees2012 8.1 2012 620
2012 8.1 20112012 620 8.8 2011 650
Return2011 on net operating8.8 assets2 (%) Employees2011 650
2012 8.1 2012 620
2011 8.8 2011 650 Construction Products & Equipment
Financial performance Construction Products & Equipment’s (CPE) revenue was up 7% on the prior year, despite Construction Products & Equipment is a vertically integrated business a flat non-residential construction market and declining residential markets. This was manufacturing and selling a broad range primarily driven by solid performances in Western Australia and New Zealand as well as of specialty construction products and strong growth in the new trade store network. decorative concrete solutions as well as concreting and light construction The New Zealand Concrete Plus business continued to achieve substantial revenue equipment. The business trades under growth, delivering EBIT1 of approximately $1.0 million. Parchem Construction Supplies in Australian and Concrete Plus in New EBIT1 was impacted by unseasonal wet weather, the continued investment in the Zealand. Together these businesses Parchem trade store network, redundancy costs and operational ‘teething’ issues service the concrete, construction and associated with the Wyong site. allied trade markets in Australia and New Zealand through its specialist The final transition to the 8,000m2 purpose-built national distribution facility, adjacent to Parchem trade store network as well as direct to market. Parchem’s Wyong factory was completed in March 2012 as other manufacturing and distribution sites were consolidated into the Wyong site. In addition, a new Over the past two years, Alesco has made a substantial investment in the manufacturing powder plant was installed providing further operational improvements, Parchem business with the construction lower production costs and production efficiencies. of a national distribution centre at its Wyong manufacturing site and the Benefits of approximately $0.9 million, including rent savings and other efficiencies were rollout of the Parchem national trade achieved in FY12. This was lower than the expected benefits of $1.2 million due to store network. This investment has transitional issues (including labour and freight) associated with the ramp up of the new established a clear growth pathway facility. This resulted in a delay in achieving the forecast efficiencies from this investment. for the business with 30 trade stores forecast to open by 2016. These problems have now been substantially addressed and the full savings are on track to be delivered during FY13. Approximately $0.9 million of capital expenditure (excluding working capital) was invested in Parchem’s trade store network during the year, with four new stores opened Demand drivers during the period. Three stores in their third year of operation are producing solid profit • New housing outcomes. Ongoing trade store investment continues to impact EBIT1 in the short term • Public infrastructure, including hospitals, as new stores typically have a 12-18 month period to achieve breakeven trading. airports and other public works • Commercial building and high rise Project Restore initiatives developments Key highlights: Active trading accounts and customers • Trade store rollout >7,000 14 trade stores are now operating and, overall, are performing well. The business is • Concreters on track to continue its trade store rollout in FY13, with at least four new stores • Civil contractors planned for completion. • Specialist construction contractors • National Distribution Centre Parchem’s $10 million national distribution facility at Wyong, NSW was completed Construction Products & in March 2012. Revenue ($m) EBIT1 ($m) Equipment 2012 119.3 2012 6.7 Townsville Construction Products & Revenue2011 ($m) 112.0 EBIT20111 ($m) 8.3 Equipment Auckland Construction Products & Mt Maunganui 1 RevenueGladstone ($m) EBIT2012 ($m) 119.3 2012 6.7 Equipment
2012Brisbane 119.3 20112012 6.7 112.0 2 2011 8.3 Gold Coast Return on net operating assets (%) Employees Construction Products & Revenue2011Coffs Harbour ($m) 112.0 EBIT20111 ($m) 8.3 Equipment Newcastle 2012 6.5 2012 310 Perth Adelaide Central Coast Christchurch Sydney Canberra2012 119.3 Return20112012 on net operating6.7 8.7 assets2 (%) Employees2011 320 Melbourne2011 112.0 2011 8.3 Return on net operating assets2 (%) Employees2012 6.5 2012 310
2012 6.5 20112012 8.7310 2011 320 Cabinets, Windows & (14) Trade stores (5) Decorative stores (2) Manufacturing / Distribution (5) State offices (Australia)2 Revenue ($m) EBIT1 ($m) Return2011 onAppliances net operating8.7 assets (%) Employees2011 320 (3) New Zealand offices (1) Head office 2012 6.5 2012 177.1 310 2012 8.4 Cabinets, Windows & 1. Earnings before interest, tax and significant items.2011 Represents segment8.7 Revenue2011 ($m) 195.1320 EBIT20111 ($m) 12.8 measure of performance. Appliances 2. EarningsCabinets, before Windows interest, & tax and significant items divided by average net Revenue ($m) EBIT20121 ($m) 177.1 2012 8.4 operatingAppliances assets. Alesco Annual Report 2012 13 2011 195.1 2011 12.8 2012 177.1 Return2012 on net operating8.4 assets2, 3 (%) Employees Cabinets, Windows & Revenue2011 ($m) 195.1 EBIT20111 ($m) 12.8 Appliances 2012 8.9 2012 410
2012 177.1 Return20112012 on net operating8.413.5 assets2, 3 (%) Employees2011 450 2011 195.1 2011 12.8 Return on net operating assets2, 3 (%) Employees2012 8.9 2012 410 2011 13.5 2011 450 2012 Garage8.9 Doors & Openers 2012 410 Revenue ($m) EBIT1, 2 ($m) Return2011 on net operating13.5 assets2, 3 (%) Employees2011 450 2012 162.8 2012 20.2 2012 Garage8.9 Doors & Openers 2012 410 Revenue2011 ($m) 171.5 EBIT20111, 2 ($m) 22.1 2011 13.5 2011 450 Garage Doors & Openers Revenue ($m) EBIT20121, 2 ($m) 162.8 2012 20.2 2011 171.5 2011 22.1 2012 162.8 Return2012 on net operating20.2 assets2 (%) Employees Garage Doors & Openers 20111, 2 22.1 Revenue2011 ($m) 171.5 EBIT2012 ($m) 8.1 2012 620
2012 162.8 Return20112012 on net operating20.28.8 assets2 (%) Employees2011 650 2011 171.5 2011 22.1 Return on net operating assets2 (%) Employees2012 8.1 2012 620
2012 8.1 20112012 620 8.8 2011 650
Return2011 on net operating8.8 assets2 (%) Employees2011 650
2012 8.1 2012 620
2011 8.8 2011 650 Board of Directors
1. Mark B Luby 2. Peter J Boyd
Dip Bus Studies, MAICD BE (Mech), MBA, MAICD Age 60 Age 49 • Chairman and • Managing Director and Non-Executive Director Chief Executive Officer • Chairman of the Nominations Committee • Member of the Audit & Compliance and Human Resources Committees
3. Robert (Rob) M Aitken 4. John Marlay
BE (Chem) (Hons), MBA, BSc, FAICD FAICD Age 63 Age 61 • Non-Executive Director • N on-Executive Director • Member of the Nominations, • Chairman of the Human Audit & Compliance and Resources Committee Human Resources Committees
Robert (Bob) V McKinnon Ernest (Ern) J Pope 5. 6. BCom ACA, MAICD BSc Age 59 Age 65 • N on-Executive Director • N on-Executive Director • Chairman of the Audit & • Member of the Human Compliance Committee Resources Committee • Member of the Nominations Committee
7. Jennifer A Tait
BSc (Chem), FAICD Age 55 • N on-Executive Director • Member of the Human Resources and Nominations Committees
14 Alesco Annual Report 2012 1. Mark B Luby roles as Executive General Manager 6. Ernest (Ern) J Pope Southcorp Water Heaters, Southcorp Appliances and President Formica Mark was appointed to the Board of Ern joined the Board of Alesco in Corporation. Alesco in December 2007 and assumed December 2004. He is also Chairman of the role of Chairman in September 2009. Foodbank NSW Limited. He was also a He is also currently Chairman of 4. John Marlay non-executive director of Amcor Limited Bis Industries, a privately held Australian untill 2011. Ern worked in the food resource logistics business owned by John joined the Alesco Board on industry for 38 years. He was formerly KKR. Prior to his role with Bis Industries, 1 December 2011. President and Chief Executive Officer of Nestle Purina for the Asia-Pacific, Mark was Chairman of Bis Cleanaway John is also a non executive director of Limited. Mark spent 29 years in various Africa and Middle East region. Previous Boral Limited, Incitec Pivot Limited and roles include over six years as Managing senior management positions with Cardno Limited. Brambles, including being a member Director of Nestle Australia Ltd plus of the Brambles Industries Executive He is also Independent Chairman of other senior international executive Leadership Team, Executive Director Tomago Aluminium Company Pty positions based in Switzerland, New of Brambles Australia, President of Ltd, a joint venture between Rio Tinto Zealand, the USA and the Philippines. Brambles CHEP Europe, Asia-Pacific Alcan, CSR/AMP and Hydro Aluminium companies and a member of the and Africa and Senior Vice President – 7. Jennifer A Tait Business Development. Mark has wide Climate Change Authority, a Federal international experience and a strong Government statutory board. Jenny was appointed a non-executive operational and financial background John was the Chief Executive Officer director of Alesco on 3 August 2010. and has served as a non-Executive and Managing Director of Alumina Jenny has a strong background in Director on a number of public and Limited from December 2002 until manufacturing, supply chain, logistics private company boards. his retirement from that position in 2008. He is also a former director of and change management with more Alcoa Australia Limited, Alcoa World than 30 years’ experience in consumer 2. Peter J Boyd Alumina LLC and the Business Council retail, pharmaceutical and natural of Australia. He has held executive health industries, both locally in Peter was appointed Managing Director positions with Esso Australia Limited, Australia and internationally. and Chief Executive Officer on James Hardie Industries Limited, Jenny was a former director of the not 3 May 2010. Pioneer International Group Holdings for profit organisation Blue Mountains Peter joined Alesco in March 2007 as and Hanson plc. He holds a Bachelor of World Heritage Institute and private Group General Manager of the Garage Science and is a Fellow of the Australian healthcare company Soho Flordis Doors & Openers division. Before Institute of Company Directors. International. Jenny was Blackmores’ joining Alesco, Peter spent ten years Chief Operating Officer from 2003 to 2008 having joined the company in with Boral Limited where he was the 5. Robert (Bob) V McKinnon Executive General Manager of Boral 1995. Prior to that, she spent 14 years at Timber, a division of Boral Limited. Sterling Winthrop. Prior to Boral, Peter was a consultant Bob joined the Board of Alesco in July She is a fellow of the Australian Institute with the Boston Consulting Group and 2008. Over his 40 year career, Bob has of Company Directors, and member worked in a variety of operational roles held a variety of senior executive and of Women on Boards. Jenny is also including plant management positions board roles in finance, technology NSW Councillor, Australian Institute of with CSR Building Products. He has an and general management across Company Directors. engineering degree from University of the financial services and property Technology, Sydney and completed an industries. He is also currently Enterprise MBA at Melbourne University in 1993. Executive, Group Services of Westpac. Prior to his current role, Bob was Westpac’s Group Executive, Technology. 3. Robert (Rob) M Aitken Before joining Westpac, Bob was Joint Managing Director and Chief Financial Rob joined the Board in March 2003. Officer of Brookfield Multiplex Group. He is also Chairman and non-executive Previously he was Group Executive, director of Nuplex Industries Limited Technology and Chief Information and a non-executive director of Rubicor Officer of Commonwealth Bank of Group Limited. He was also formerly a Australia, Chief Executive of State Street non-executive director of a number of Australia, Chief Financial Officer and private equity funded investments and Chief General Manager of MLC Group the YMCA Sydney. Rob has over 25 years and Chief Financial Officer of Lend Lease experience in senior international Corporation. management roles with manufacturing, industrial marketing and distribution businesses for Southcorp Limited, BTR Plc and CSR Limited. This included
Alesco Annual Report 2012 15 Executive Team
Peter Boyd Stephen Cox
BE (Mech), MBA, MAICD BBus • Managing Director and • Group General Manager, Chief Executive Officer Construction Products and Equipment Joined Alesco: March 2007 Appointed to current role: Joined Alesco: April 2002 3 May 2010 Appointed to current role: January 2004
Mark Freeman Noel Hopper
BBus BBus, CPA, MAICD • Group General Manager, • Group General Manager, Lincoln Sentry B&D Australia & New Zealand Joined Alesco: January 2012 Joined Alesco: August 2007 Appointed to current role: Appointed to current role: January 2012 9 November 2010
Albert Jokubaitis Richard Lewis
BE (Hons), MBA BEng (Hons) • Group General Manager, • Group General Manager, Automatic Technology Operations Australia Joined Alesco: May 2007 Joined Alesco: February 2008 Appointed to current role: Appointed to current role: June 2010 9 November 2010
Luci Rafferty Emmanuel Zammit
BA Llb (Hons), ACIS BEc, CPA, MAICD • Group General Manager, • Chief Financial Officer Legal and Corporate Affairs Joined Alesco: December 2011 Joined Alesco: August 2003 Appointed to current role: Appointed to current role: December 2011 April 2007
16 Alesco Annual Report 2012 Safety & Our People
Alesco is committed to adopting sustainable practices across its businesses and embedding these practices into its corporate culture. Our focus continues to be on the health and safety of our employees, improving our governance and risk management practices and incorporating into our business model the commitment to act responsibly and sustainably in everything we do. We made reasonable progress during the year but we have more work to do.
Safety performance • GDO has involved work teams in safety People & diversity lesco continued to make observations and training in safe work procedures as part of lean good progress towards • 1380 employees across Australian, manufacturing principles at its key New Zealand and Chinese zero harm with a further manufacturing sites. operations Adecline in injuries across all sites. • 25% of Alesco’s workforce is • Parchem has implemented formal risk This resulted in a 35% management and review processes in female improvement in the Group’s lost the design phase of the new trade • 15% of Alesco’s Australian based time injury frequency rate (LTIFR) store roll-out. New, safer layouts and employees in executive or higher safety standards from ‘day 1’ of professional roles within three which is now at 4.2. This reporting levels of the CEO are store opening have reduced risks in improved outcome was female these stores for both employees and • One of Alesco’s six non-executive supported by an increasing level customers. of ‘leading’ safety initiatives and directors is female • Lincoln Sentry has implemented risk continued integration of safety assessment processes in the redesign into the day-to-day business of distribution centre layouts. These Over the past 12 months there has been operations and processes. new layouts implement new a significant rationalisation of the Alesco technology that reduces manual portfolio of companies, as well as Our improved safety performance was handling risks and improves product internal restructuring within the achieved during a period of major flow to customers. businesses retained in the group. This change across the Group, with the sale has had the consequence of a slight We continued a major investment in our of the Parbury and Dekorform decline in the number of women in safety leadership with over 170 leaders businesses in March 2012 and further senior leadership roles. Despite this, participating in our “Leading with corporate and business restructures. there has been an increase in the Safety” programme to support skills A Group safety focus on ‘leading’ and number of women holding senior development and to further drive preventative actions resulted in a 35% operational roles. This development is cultural change across the business. increase in hazards identified. Of the due to improved recruitment strategies In 2012 an Alesco Safety Leadership 3,510 hazards identified, 93% were adopted during the year, as well as the Team was established involving the full controlled during the year. In addition, outcome of the internal restructures Executive Committee and senior OHS 1,063 risk assessments were conducted. promoting female leaders. Alesco has specialists in order to strengthen our undertaken a review of its remuneration New Workplace Health and Safety resolve to achieve zero harm and provide practices to identify wage discrepancies (WHS) legislation commenced in a support and resources for line managers between males and females and is number of States during the year. As a to meet their business safety needs. result, Alesco implemented an extensive on target to complete this review communications and consultation and rectify any anomalies by process at all levels of the business. November 2012. A compliance plan is being progressively implemented to upgrade all safety management systems documentation to comply with both the new WHS legislation and existing regulations in the ‘non-harmonised’ States. Line managers continued to integrate safety within the normal day-to-day business planning and operating processes.
Alesco Annual Report 2012 17 DIRECTORS’ REPORT FOR THE YEAR ENDED 31 MAY 2012
The directors present their report together with the membership and the attendance at board and financial report of Alesco Corporation Limited (the committee meetings are set out in the table below “Company” or “Alesco”) and of the Group, being the and in the table on page 20. Company and its subsidiaries for the year ended Company secretary 31 May 2012 and the auditor’s report thereon. The company secretary during the financial year was Directors Luci Rafferty, BA Llb (Hons) ACIS. Luci Rafferty was The directors of the Company during or since the end appointed general counsel and company secretary on of the financial year were: 23 August 2003. She holds an arts law degree, is a Mark Bernard Luby Robert Victor McKinnon graduate of Chartered Secretaries Australia and has over 20 years’ legal and company secretarial Peter John Boyd Ernest John Pope experience. Robert Murray Aitken Jennifer Anne Tait Directors’ meetings James William Hall1 John Marlay2 The number of directors’ meetings (including 3 Neil Alexander Thompson meetings of committees of directors) and number of 1. Retired on 31 March 2012. meetings attended by each of the directors of the 2. Appointed 1 December 2011. Company during the financial year are set out in the 3. Resigned on 31 December 2011. table below. Details of the current directors’ qualifications, age, experience and responsibilities are set out in the Annual Report and can be found on the Alesco website at www.alesco.com.au. Details of committee
SAFETY, HEALTH & AUDIT & COMPLIANCE HUMAN RESOURCES ENVIRONMENT NOMINATIONS BOARD COMMITTEE COMMITTEE COMMITTEE COMMITTEE NO. OF NO. OF NO. OF NO. OF NO. OF MEETINGS MEETINGS MEETINGS MEETINGS MEETINGS NO. OF ELIGIBLE TO NO. OF ELIGIBLE NO. OF ELIGIBLE NO. OF ELIGIBLE NO. OF ELIGIBLE MEETINGS ATTEND MEETINGS TO ATTEND MEETINGS TO ATTEND MEETINGS TO ATTEND MEETINGS TO ATTEND DIRECTOR ATTENDED (* HELD) ATTENDED (* HELD) ATTENDED (* HELD) ATTENDED (* HELD) ATTENDED (* HELD) Current MB Luby 20 20 6 6 5 5 – – 5 5 PJ Boyd 20 20 – – – – – – – – RM Aitken 20 20 – – 5 5 3 3 4 4 JW Hall1 12 13 4 5 – – – – 4 4 J Marlay2 11 11 3 3 2 2 – – 1 1 RV McKinnon 15 20 6 6 – – – – 3 5 EJ Pope 18 20 – – 5 5 3 3 4 4 JA Tait 19 20 – – 5 5 3 3 5 5 NA Thompson3 9 10 – – – – – – – –
1. Retired 31 March 2012. 2. Appointed non‑executive director on 1 December 2011. 3. Resigned on 31 December 2011.
18 Alesco Annual Report 2012 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
Corporate Governance Statement ASX Principle 1 – Lay solid foundations for The Board of directors of Alesco is responsible for management and oversight the corporate governance of the Company and its Role of the Board controlled entities (the Alesco Group) and to ensure The Board has an established Board charter, that the Alesco Group is directed and managed which formalises its role and its relationship with appropriately. In this regard, the Board is committed management. The primary role of the Board is the to ensuring accountability and that control systems protection and enhancement of long‑term are commensurate with the risks involved to enable shareholder value. Its responsibilities include the Alesco to create value and optimise its performance. setting of the overall strategic direction of the This statement summarises the corporate Alesco Group, establishing goals for management governance practices and policies in place at Alesco and monitoring the achievement of these goals. during the financial year ended 31 May 2012 in The functions and responsibilities of the Board and relation to the ASX Corporate Governance Principles. management are consistent with ASX Principle 1. For ease of reference, this statement has been The Board has delegated certain responsibilities to prepared and presented in a format consistent with senior executives, including the day‑to‑day operation the ASX publication. Alesco complied with these and administration of the Company. Principles in all substantial respects in the 2012 The Company has in place an induction program for financial year. its directors and senior executives to help them In summary, changes to, and developments in, understand the Company’s financial position, Alesco’s corporate governance practices and policies strategies, operations and policies and their during the reporting period are as follows: respective rights, duties and responsibilities. • The Company established a Diversity and Equal Performance of senior executives Opportunity Policy and measurable objectives to The Company has in place a formal process for improve female representation at the Board and evaluating the performance of senior executives. senior management level. The Managing Director reviews the performance • Effective from 1 June 2012, the directors of senior executives twice a year. Performance is determined to dissolve the Safety Health & measured against a performance framework agreed Environment Committee in preference for direct at the start of the financial year and includes oversight by the Board, given its importance to targeted key result areas which can be measured the business. objectively. The evaluation process assesses each key • Following the retirement of Jim Hall, the executive against corporate, divisional and individual Committees membership changed. In particular, goals as well as range of other objectives including Bob McKinnon was appointed Chairman of the desired leadership and behaviours and performance Audit & Compliance Committee. matters. Summaries of the key corporate governance practices The Managing Director reports to the Human and policies referred to in this report can be found Resources Committee on the performance of senior on Alesco’s website at www.alesco.com.au under executives. The Committee reviews performance and “Corporate Governance”. assesses the actual performance of the Group, the The Board recognises that in a changing world these relevant segment and individual’s performance practices and policies should be reviewed from time overall against the key result areas set at the to time to ensure they continue to reflect local and beginning of the financial year. The Board adopts the international developments and to assist Alesco in same process to measure the performance of the optimising its corporate performance and Managing Director. accountability. A performance evaluation for senior executives, including the Managing Director, has taken place during the year in accordance with this process.
Alesco Annual Report 2012 19 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
ASX Principle 2 – Structure the Board to add value Board structure The Board presently has seven directors comprising six non‑executive directors, including the Chairman and one executive director, the Managing Director. John Marlay was appointed a non executive director of the Company on 1 December 2011. Jim Hall, also a non‑executive director, retired from the Board on 31 March 2012 and Neil Thompson, an executive director, resigned in December 2011. Each director brings a diverse range of skills and background to the Board. The qualifications, skills, experience and expertise of the current directors are set out in more detail in the Annual Report and on the Alesco website. The period of office held by each director, their committee memberships and other relevant details are included in the following table.
NEXT DATE OF TERM IN RETIRING AT RETIREMENT NAME APPOINTMENT COMMITTEE MEMBERSHIP1 OFFICE 2012 AGM DATE INDEPENDENT MB Luby 18 December 2007 Audit & Compliance, Human 5 years No 2014 Yes (Chairman) Resources and Nominations RM Aitken 10 March 2003 Human Resources and Safety, 9 years Yes2 2012 Yes Health & Environment J Marlay 1 December 2011 Audit & Compliance, Human 1 year Yes3 2012 Yes Resources and Nominations RV McKinnon 1 July 2008 Audit & Compliance and 4 years No 2014 Yes Nominations EJ Pope 1 December 2004 Human Resources and Safety, 8 years No 2013 Yes Health & Environment JA Tait 3 August 2010 Human Resources, 2 years No 2013 Yes Nominations and Safety, Health & Environment PJ Boyd 3 May 2010 n/a 2 years n/a n/a4 No4 (Managing Director)
1. The Safety Health & Environment Committee was dissolved effective 1 June 2012. The membership of the Audit & Compliance and Nomination Committees changed following Jim Hall’s retirement. 2. Retiring by rotation in accordance with the constitution and the ASX Listing Rules but not seeking re‑election having served his permitted nine year term. 3. To be elected in accordance with the constitution having been appointed by the directors in December 2011. 4. By virtue of being an executive officer.
The composition of the Board is determined using • the roles of Chairman and Chief Executive Officer the following principles: should not be exercised by the same individual. • there should be at least five directors, with a broad In addition, a former Chief Executive Officer range of expertise; should not be appointed Chairman; and • the Chairman is to be an independent • the size and composition should be conducive to non‑executive director; allowing the Board to make appropriate decisions and ensuring that decision‑making is not • there must be a majority of non‑executive hindered. directors, with at least half the Board being independent non‑executive directors; To assist in its duties, the Board had four Committees in place during the reporting period: the Audit & • there must be enough directors to serve on Compliance Committee, Human Resources various committees without overburdening the Committee, Nominations Committee and Safety directors or making it difficult for them to fully Health & Environment Committee. The membership discharge their responsibilities; of these Committees is determined to ensure • at a minimum, directors (other than the Managing that the workload for each director is balanced so Director) must face re‑election every three years; that directors can fully discharge their
20 Alesco Annual Report 2012 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
responsibilities. The current membership of these the Group and will determine areas, if any, not Committees is noted in the table on page 20. adequately represented. The membership changed during the year following The Board has a selection process which it adopts the changes to the non‑executives directors during when searching for and selecting new directors to the year. As noted, effective from 1 June 2012, the the Board. As part of the process, a board skills matrix directors determined to dissolve the Safety Health & is developed to identify any ‘gaps’ in the skills and Environment Committee in preference for the Board’s experience of the directors on the Board. direct oversight and review of these matters given its The Nominations Committee is responsible for importance to the business. overseeing the selection process for new directors Director independence and recommending candidates to the Board. It is also The Board supports the principle that a majority of responsible for overseeing succession and induction the Alesco Board should be independent and that processes for non‑executive directors. The Committee each director should bring an independent judgment comprises the Chairman and three non‑executive to bear in decision making. directors, being the most recently appointed In judging whether a director is independent for the non‑executive directors. purposes of serving on the Board and any Board One non‑executive director appointment was made Committees, the Board has regard to the principle during the reporting period with the appointment outlined in ASX Principle 2. In summary, an of John Marlay on 1 December 2011. independent director is independent of management It is the Board’s normal practice to involve external and free of any business or other relationship that consultants to assist in the nomination process. could materially interfere with – or could reasonably The Board is responsible for the appointment of be perceived to materially interfere with – the a suitable candidate as recommended by the exercise of their unfettered and independent Committee. judgment. Alesco has adopted AASB Standard 1031 Given the present size of the Company, it is not Materiality to determine levels of materiality when intended that any new appointments will be made assessing independence. in the foreseeable future. When making any future All non‑executives directors of Alesco are considered appointments the Board will consider a mix and by the Board to be independent. balance of skills and diversity in its directors, To enable the Board to assess the independence of including, among other things, technical and each director, each director is required to provide all industry knowledge, finance and accounting, relevant information to Alesco on a regular basis. strategy and sustainability, marketing growth, There are no director related-party transactions in human capital and information technology. place in relation to Alesco and its directors at the All directors have confirmed that they are able to present time. meet the Company’s expectations and workload Conflicts of interest associated with being a non‑executive director for the next 12 months. Each director is required to act in the interests of Alesco as a whole and, at no time, allow any of the Meetings of directors director’s own interests to prevail over those of the The Board meets on a regular scheduled basis and members generally. If a matter is being considered on other occasions as required. Meetings may be in which a director has a material personal interest, held at divisional locations to allow visits to the that director must declare his or her interest and various operational sites and for other purposes. must not be present when the matter is being Meetings may be held in absence of senior considered or vote on the matter, unless all of the management as deemed necessary and appropriate other directors have passed a resolution to enable and, for these purposes, non‑executive directors will that director to do so or the matter comes within meet prior to the Board meeting without the exceptions permitted by law. presence of executive directors and other senior Nomination and appointment of new directors management. From time to time, the Board assesses the skill, To assist it in its decision making, the Board or knowledge, diversity and experience currently individual directors may seek independent represented on the Board and the requirements of professional advice at the expense of Alesco, subject to prior consultation with the Chairman.
Alesco Annual Report 2012 21 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
Retirement and election of directors From time to time and, as considered appropriate, The Constitution requires each director (other than the Chairman will seek external assistance and the Managing Director) to retire at the third annual advice to undertake these performance reviews. general meeting after their appointment or after These reviews consider not only the individual three years, whichever is longer. Retiring directors directors’ performance but also the performance are eligible for re‑election (subject to their term of of the Board and its Committees. service). In addition, any new director appointed by The Board last commissioned a board performance the Board is required to seek election at the next review facilitated by an external and independent general meeting of the Company following their consultant, Baker & Baptist Pty Ltd, in 2011. This appointment. review involved individual appraisals and peer In order to ensure a periodic refreshing of reviews and included individual interviews and the membership and to avoid the potential for loss of use of a questionnaire covering a broad range of objectivity over time, non‑executive directors are topics grouped under the different skills and expected to serve approximately three terms, which attributes deemed important for the effective would ordinarily amount to a period of nine years. performance of the role of non‑executive director. Thereafter, non‑executive directors would be The purpose of the questionnaire process for expected to retire at the next appropriate general directors is to obtain more comprehensive and meeting and to not seek re‑election unless requested structured feedback and to assist in evaluating the by the Board to do so. dynamic of the Board as a whole. Robert Aitken is due to retire at the 2012 annual The purpose of this externally facilitated review is general meeting and will not be seeking re‑election, to check on the effectiveness of the Board, Board having served his permitted nine year term. Committee functions and processes and consider, among other things, the performance of the Board John Marlay was appointed to the Board since the benchmarked against the ASX Corporate Governance last annual general meeting and will seek election by Guidelines as well as individual director performance. shareholders at the 2012 annual general meeting. A written report was presented to the Board at the The Board unanimously supports the election of conclusion of the review and issues for discussion Mr Marlay. and recommended actions were discussed Induction procedures, including site visits and individually with each director as well as at meetings with management, are in place to allow subsequent Board meetings. The results of the Board appointees to participate fully and actively in review have led to the development of an action Board decision-making at the earliest opportunity. plan to optimise the Board’s role, its relationship Mr Marlay completed a comprehensive induction with management, structures and processes program during the first three months of his underpinning quality decision making and the appointment, including site visits and meeting provision of effective oversight and governance. divisional management teams. This plan was monitored by the Chairman over the Site visits are arranged from time to time and as past 12 months and discussed regularly at each required to allow directors to visit operational sites Board meeting. It is intended that external Board and meet with divisional management teams. and director reviews take place every two years. All directors have access to the resources of the ASX Principle 3 – Promote ethical and company secretary. The Board is consulted regarding responsible decision‑making the appointment and removal of the company In line with ASX Principle 3, the Board has secretary. established, among others, a Code of Conduct, Board performance Diversity Policy, Share Trading Policy and Alesco has in place processes designed to fairly Whistleblowing Policy. These policies were reviewed review and actively encourage enhanced Board and and updated as appropriate during the reporting management effectiveness. The Chairman has the period and can be downloaded from the Company responsibility to review continually the performance website at www.alesco.com.au. of each director and the Board as a whole. During the year, the Chairman held discussions individually with directors to facilitate Board, individual and peer review.
22 Alesco Annual Report 2012 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
Code of Conduct Directors are required to comply with the The purpose of the Code of Conduct is to guide all requirements of the ASX Listing Rules and their letter employees and directors as to: of appointment and promptly advise Alesco of any dealing in Alesco shares to allow Alesco to make the • the practices necessary to maintain confidence in necessary disclosures to the ASX. Alesco’s honesty and integrity; and All of the current Directors (other than John Marlay) • the responsibility and accountability of individuals hold shares in Alesco, the details of which are set out for reporting and investigating reports of on page 28. Mr Marlay joined the Board in December unethical practices. 2011 and there have been no permitted trading The overriding principle is that all business affairs windows under the Alesco Share Trading Policy to of Alesco must be conducted legally, ethically and allow him to acquire Alesco shares since his with strict observance of the highest standards of appointment. propriety and business ethics. If there are any doubts Diversity as to how to respond to a particular circumstance, directors and employees are encouraged to consult The Company established a Diversity & Equal with the Chairman or company secretary and, Opportunity Policy in 2011. This policy outlines the if necessary, seek external professional advice. Company’s commitment to building a diverse workforce, and places a particular focus on improving The Company has a whistleblowing program in the level of gender diversity at senior levels of the place for all of its employees. This program enables organisation. employees to report in good faith a breach or suspected breach of the law or Company policy, In support of this business priority, Alesco’s Board including the Code of Conduct or a work‑related established measurable objectives in relation to event which involves questionable, dishonest or diversity which include: fraudulent activity. • achieving an increase in the representation of Share trading policy women in executive and senior manager roles and the Board; A share trading policy is in place and imposes trading restrictions on all directors, officers and employees of • ensuring recruitment and selection practices Alesco in possession of ‘inside information’. A copy of enable the availability of a diverse candidate pool this policy was last lodged with the ASX in December for appointments at senior levels; and 2010. • ensuring remuneration practices are free from In summary, gender bias. • Additional trading restrictions are imposed on In 2012 the following initiatives were undertaken: designated officers, including directors, senior • Alesco engaged senior leaders in discussions executives in each division and employees based about its gender diversity commitments, seeking in corporate head office for the period from to better understand and address the business 90 days prior to the release of Alesco’s full‑year and industry challenges the Company faces in and half‑year results until two days after the meeting these commitments. results have been released to the market. • Alesco implemented newly agreed recruitment • In order to trade, directors and other designated and selection guidelines designed to improve officers must seek the approval from the business outcomes, and to enhance the gender Chairman of the Board or the Managing Director diversity of candidates for roles across the Group, prior to any dealing and must confirm in writing particularly at senior levels. that they do not hold any inside information. Any • Alesco commenced the deployment a group‑wide approvals to trade are for a limited period and will remuneration framework to enable improved lapse immediately if the designated officer comes identification and management of any in possession of inside information. gender‑based remuneration equity issues which • Designated officers are prohibited from entering may exist, and allowing for future reporting of the into transactions which may operate to limit the relative participation of men and women at economic risks of invested entitlements under any different remuneration bands. of the Company’s long‑term incentive plans. • Alesco commenced working with female employees at mid‑manager level to understand
Alesco Annual Report 2012 23 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
and agree development actions with that will of the Committee papers and entitled to attend enable improved candidature for senior level Committee meetings. Alesco’s auditors (internal and appointments in the future. external), members of the senior executive team and At present, more than 25% of Alesco’s workforce is other third parties are invited to attend the female. At the conclusion of the reporting year, one Committee meetings at the discretion and invitation of Alesco’s six non‑executive directors is female and of the Committee. The Committee may meet with 15% of employees in executive or professional roles the auditors (both internal and external), without within three reporting levels of the CEO are women. management’s presence when required or thought Alesco has set the objective of improving this ratio to appropriate. The Committee also has the right of at least 20% by 2015. access to management to seek explanations and additional information as considered necessary to The Human Resources Committee is required to discharge its duties. review and monitor progress in delivering the desired improvements in this area on an annual basis. During the year the Committee met on six occasions. Four of the meetings were held to coincide with the ASX Principle 4 – Safeguard integrity in review of the half‑year and full‑year results. The other financial reporting meetings focused, among other things, on internal ASX Principle 4 requires Alesco to “have a structure audit, insurance, compliance and risk matters to independently verify and safeguard the integrity affecting the Group. of the Company’s financial reporting”. The Board Auditor and independence believes its practices are in accordance with this principle. The Company’s external auditor is KPMG. The Committee regularly assesses any non‑audit Each division within Alesco reports monthly to the services being performed by KPMG to ensure that Board on its financial performance and other key the services are not of a kind that might impair the business‑related matters. Consistent with ASX impartial judgment of the external auditor and that Principle 4, each half‑year following extensive circumstances do not arise of actual or perceived loss consultation with the divisional management teams, of objectivity or independence. The Board, on the the Managing Director and Chief Financial Officer recommendation of the Committee, is satisfied that provide written assurance to the Board as to the KPMG is independent. veracity of the financial conditions and operational results of the Alesco Group and their compliance Management is required to seek the prior consent of with relevant accounting standards and the law. the Committee if it wishes to use KPMG for material projects in non‑audit areas (other than taxation Audit & compliance committee compliance services). During the year KPMG was To assist in the execution of its responsibilities, used to provide advice on relevant aspects arising the Board has established an Audit & Compliance from the sale of the Parbury and Dekorform Committee. The structure of this Committee, its businesses and other assurance services. KPMG was membership and its responsibilities reflect the also appointed Investigating Accountant in response requirements of ASX Principle 4. As part of its to the DuluxGroup takeover bid launched on 1 May responsibilities, the Committee reviews the 2012. Alesco also used other service providers for integrity of the Company’s financial reporting, non‑audit services such as valuations and other recommends to the Board and shareholders the accounting advice. appointment of an external auditor, approves audit To ensure KPMG’s independence, it is a requirement fees and ensures the independence of the external of Alesco that an independence declaration is made auditor. The responsibilities of the Committee are by KPMG each half‑year and ensures that the signing set out in its Charter, which is available on the partner on the audit does not perform this role for Alesco website. more than five full‑year audits. Mr Phillip Napier was All members of the Committee are independent the lead audit partner for KPMG in relation to the non‑executive directors. Membership of this audit of the Company until his retirement following Committee is noted in the table on page 20. the conclusion of the Company’s 2011 annual Bob McKinnon assumed the role of Chairman of general meeting. Mr Napier was replaced by this Committee, following Jim Hall’s retirement on Mr Anthony Jones, who is the lead audit partner 31 March 2012. Directors of the Board who are not in relation to the Company’s 2012 audit. members of the Committee are provided with copies
24 Alesco Annual Report 2012 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
ASX Principle 5 – Make timely and balanced to the general business and economic climate which disclosure are beyond the control of Alesco. Consistent with ASX Principle 5, the Board aims to The Alesco Group is committed to minimising ensure that all investors have equal and timely uncertainty in achieving the Company’s objectives access to material information concerning the through an effective and efficient risk management Company, that there is compliance with continuous framework. Calculated risk‑taking is viewed as an disclosure requirements and that announcements essential part of the Company’s approach to creating made by the Company are factual and presented in a long‑term shareholder value. The Alesco Group’s clear and balanced way. approach is to embed risk management in its The Company has adopted a Market Disclosure Policy everyday practices and business processes so that reflecting the principles set out in ASX Principle 5. it is relevant, effective and efficient. In doing so, This policy can be found on the Alesco website under Alesco has in place limits and a range of policies and “Corporate Governance”. procedures to oversee and manage the risk in its activities. Some of the risk management controls in ASX Principle 6 – Respect the rights of place across the business include: shareholders • limits and delegated authorities for approval of Alesco has adopted a number of different practices capital expenditure and investments, entry into designed to promote effective communication with contracts and supply arrangements, purchasing, shareholders as recommended by ASX Principle 6. recruitment and expenses; These practices include placing on the Alesco website • policies and procedures for the management of relevant information, including ASX announcements, financial risk and treasury operations, including annual and half‑year reports, copies of notices of exposures to foreign currency and movements in meetings, analyst briefings and presentations given interest rates; by the Company. Any annual and half‑year reports prepared by the Company are distributed to those • annual budgeting and monthly reporting systems shareholders who have specifically requested to for all businesses, which include reporting on receive these documents. Alesco also uses audio compliance and risk activities being conducted at recordings to give stakeholders access to any the businesses; material presentations such as general meetings and • a formal and dynamic process to prepare strategic key analyst briefings and webcasts its general plans for each business; and meetings. These recordings are also made available • extensive questionnaires covering operational through our website for a period of time. For those and financial risks completed by management in shareholders who have so elected, emails are used to connection with the year end and the half‑year update shareholders on key announcements. financial reporting process. A representative from the external auditors of Alesco These controls are periodically reviewed by the Board. attends the annual general meeting and any other The Board is responsible for overseeing and reviewing meeting as required by the Board and is available to the safety, health and environment framework and answer shareholder questions about the conduct of policies of Alesco. In addition to its financial reporting the audit and preparation and content of the obligations, the Audit & Compliance Committee is auditor’s report. Consistent with our usual practice, tasked with the responsibility for overseeing and a representative from the external auditor attended reviewing the overarching risk management last year’s Annual General Meeting and has been framework and policies of Alesco in detail and asked to attend this year’s Annual General Meeting reports to the Board on a regular basis. in September 2012. As part of this framework: ASX Principle 7 – Recognise and manage risk • the Audit & Compliance Committee receives ASX Principle 7 recommends that a company periodic reports in relation to the Group’s financial establish policies for the oversight and management reporting, internal control structure and risk of material business risks. management systems from its internal auditors, There are a number of material business risk factors senior management and external consultants and that could potentially impact upon the future on the adequacy of the Group’s insurance operating and financial performance of Alesco. program; These risks are both specific to Alesco and also relate
Alesco Annual Report 2012 25 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
• the Human Resources Committee reviews and reporting processes and the quality of performance reports to the Board on succession planning and in carrying out assigned responsibilities. The scope the Group’s overall remuneration framework; and of work is based on an agreed plan which is prepared • the senior management team manages and by the internal audit function in consultation with reports to the Board on a monthly basis on the management and approved by the Audit & business, operational and financial risks and Compliance Committee. overall compliance performance. Financial reporting The following approach was taken to managing the Alesco requires the Managing Director and Chief Group’s material business risks during the reporting Financial Officer to confirm in writing that, to the period: best of their knowledge: • a top level risk management and compliance • the Company’s financial report presents a true framework for the Group was implemented and fair view of the Company’s financial condition within each division and divisional management and operating results and is in accordance with have identified material business risks, developed applicable accounting standards; divisional risk registers and reviewed the division’s • the Company’s financial records for the financial internal control and risk management systems to year have been properly maintained in accordance mitigate these risks; with section 286 of the Corporations Act 2001; • a monthly process for reporting to the Managing and Director and Chief Financial Officer material risks • the integrity of the financial records and systems identified in the business and how these risks are is founded on a sound system of risk management being mitigated or controlled was introduced; and and internal compliance and control which • the Managing Director reported on risk operates efficiently and effectively in all material management issues formally to the Board on a respects. bi‑annual basis. These reports coincided with the This assurance is provided following consultation annual budget and strategic planning sessions with the divisional management teams as where budgets and strategic plans were appropriate through detailed internal control developed against an agreed risk profile. questionnaires relating to financial and other As part of this process, clear delineation of reporting on a six‑monthly basis. The questionnaires responsibilities were agreed, with the Managing are reviewed by corporate, internal audit and Alesco’s Director responsible for the overall leadership in external auditors as part of its half‑year and full‑year management risks, including prioritising material reporting process. It is noted that the assurances business risks, monitoring these risks and ensuring provided by management can only be reasonable the risk management framework is implemented rather than absolute and take into account such across the divisions. Management is responsible factors as the need for judgment and the use of for designing, implementing and reporting on the testing on a sample basis and the inherent adequacy of the Company’s risk management and limitations in internal control. The questionnaires are internal control system to manage each division’s not designed to detect all weaknesses in control material business risks. Management reports to the procedures and often identify areas of improvement Audit & Compliance Committee on a regular basis which are then taken into consideration in the future on how those risks are being managed effectively. planning for the businesses. Internal audit ASX Principle 8 – Remunerate fairly and Alesco has an established internal audit function. responsibly The internal audit function is independent of the The Board oversees Alesco’s remuneration framework external audit function and has direct access to the and arrangements, including executive remuneration Chairman of the Audit & Compliance Committee. and the remuneration of non‑executive directors. This Committee oversees the scope of the internal The Human Resources Committee assists the Board audit function and has access to the internal in relation to remuneration and human resources auditors without the presence of management. matters affecting the Alesco Group. The structure of The scope of the internal audit function includes this Committee and its responsibilities reflect the examining and evaluating the Group’s internal requirements of ASX Principle 8. control systems, compliance systems, financial
26 Alesco Annual Report 2012 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
Directors of the Board who are not members of the During the period the Company sold the Parbury Committee receive copies of the Committee’s papers and Dekorform businesses which, together with and are entitled to attend Committee meetings. In Robinhood were part of the Decorative Surfaces & addition, the Managing Director, Company Secretary Appliances segment. Robinhood is now part of the and relevant senior Human Resources personnel as Cabinets, Windows & Appliances segment. The well as other senior executives, as appropriate, are Lincoln Sentry business is also part of this segment. invited to the meetings at the discretion of the Operating and financial review and likely Committee. The Committee also has the right of developments access to management to seek explanations and additional information as considered necessary to The consolidated income statement shows a discharge its duties. consolidated net loss attributable to members of $13,864,000 compared with a net profit of The Charter setting out the responsibilities of the $13,573,000 in 2011. Committee has been adopted and a summary of this Charter is posted on the Alesco website. The Chairman’s Report and the Chief Executive Officer’s Report review the operations of the Group This Committee is responsible for ensuring that the and give an indication of likely developments and the recruitment and remuneration policies and practices expected results of the operations. of Alesco are consistent with its strategic goals and human resources and diversity objectives and are Further information about likely developments in the designed to enhance corporate and individual operations of the Group and the expected results of performance as well as meet the appropriate those operations in future financial years have not recruitment and succession planning needs. been included in this report because disclosure of the information would be likely to result in unreasonable To do this the Committee, among other things, is prejudice to the Group. responsible for reviewing and monitoring executive performance, remuneration and incentive policies Events subsequent to balance date and the manner in which they should operate, the On 10 May 2012, the Company was served with a introduction and operation of share plans, executive Bidder’s Statement by DuluxGroup Limited. As a succession planning and development programs result, the directors exercised their discretion to to ensure that they are appropriate to the Group’s accelerate the vesting of performance rights effective needs and the remuneration framework for directors on or subject to DuluxGroup’s offer becoming (as approved by shareholders). unconditional and DuluxGroup acquiring control The Committee may consult with remuneration of Alesco. This discretion was permitted under the advisers to assist in its role. During the year King & performance rights plan. Wood Mallesons provided legal advice on relevant As at 23 July 2012, (being the Business Day matters pertaining to the impact of the DuluxGroup before the Financial Statements were approved), takeover bid would have on remuneration 1,337,592 performance rights were on issue. If the arrangements, including long‑term incentive plans. offer becomes unconditional or DuluxGroup gains King & Wood Mallesons were paid fees of $45,000 in control of Alesco, the vesting of the performance relation to this advice. rights will accelerate. The Company will incur an Details of the directors’ and key senior executives’ expense of $739,368 as a result of the performance remuneration and the approach taken this year by rights vesting. the Board in relation to remuneration matters are set out in the Remuneration Report. Principal activities The principal activities of the Group during the course of the financial year were the supply of innovative branded products to trade and industrial customers serving the building products markets in Australia and New Zealand.
Alesco Annual Report 2012 27 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
Dividends Dividends paid or determined by the Company to members since the end of the previous financial year are set out as follows.
CENTS TOTAL AMOUNT DATE OF FRANKED/ PER SHARE $000 PAYMENT UNFRANKED Determined and paid during the year Final 2011 ordinary 7.0 6,594 6 September 2011 Franked Special 2011 ordinary 5.5 5,180 6 September 2011 Franked Interim 2012 ordinary 3.0 2,826 9 March 2012 Franked Total amount 14,600 Determined after end of year Final 2012 ordinary 5.0 4,710 7 September 2012 Franked Special 2012 ordinary 10.0 9,419 7 September 2012 Franked Total amount 14,129
Franked dividends determined or paid during the Indemnification and insurance of officers and year were franked at the tax rate of 30%. auditors The financial effect of the dividend determined Indemnification subsequent to reporting date has not been brought The Company has agreed to indemnify the current to account in the financial statements for the year and former directors and company secretaries of the ended 31 May 2012 and will be recognised in Company and its controlled entities as well as the subsequent financial reports. members of the Executive Committee and other key Directors’ interests executives against all liabilities to another person The relevant interest of each director in the share (other than the Company or a related body corporate) capital of the Company as notified by the directors that may arise from their position as officers of the to the Australian Stock Exchange in accordance with Company and its controlled entities, except where section 205G(1) of the Corporations Act 2001 at the the liability arises out of conduct involving a lack of date of this report are as follows. good faith. The agreement stipulates that the Company will meet the full amount of any such ORDINARY liabilities, including costs and expenses. SHARES MB Luby 32,000 Insurance premiums PJ Boyd 36,586 Since the end of the previous financial year the Company has paid insurance premiums in respect RM Aitken 126,280 of directors’ and officers’ liability and legal expenses 1 J Marlay 0 insurance contracts, for current and former directors RV McKinnon 7,500 and officers of the Company and its controlled EJ Pope 70,163 entities. The directors have not included details of the nature of the liabilities covered or the amount JA Tait 20,000 of the premium paid in respect of the directors’ 1. J Marlay was appointed a director on 1 December 2011 and and officers’ liability and legal expenses insurance pursuant to Alesco’s Share Trading Policy has not yet had an contracts, as such disclosure is prohibited under the opportunity to purchase Alesco shares. terms of the contract. Share options There were no options issued during the year. There were no unissued ordinary shares of the Company under option at the date of this report or any time during the year.
28 Alesco Annual Report 2012 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
Non‑audit services During the year KPMG, the Company’s auditor, has performed certain other services in addition to its statutory duties. The Audit & Compliance Committee has reviewed and considered the non‑audit services provided during the year by the auditor, and in accordance with advice provided by the Audit & Compliance Committee the Board is satisfied that the provision of those non‑audit services complies with the Company’s corporate governance policies and is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001. Details of amounts paid to the auditor, KPMG, for services other than the statutory audit are as follows.
CONSOLIDATED 2012 2011 NON‑AUDIT SERVICES $ $ Taxation compliance1 38,000 113,557 Taxation compliance2 42,043 54,881 Investigating Accountant1 229,000 0 Other services1 3,525 20,871 312,568 189,309
1. KPMG. 2. Overseas KPMG firms. Rounding off The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998. In accordance with that Class Order, amounts in the financial report and Directors’ Report have been rounded off to the nearest one thousand dollars, unless otherwise stated.
Alesco Annual Report 2012 29 REMUNERATION REPORT
REMUNERATION REPORT SUMMARY (UNAUDITED) OVERVIEW Alesco is a building products company, primarily focussed on the Australian and New Zealand housing and construction markets. Alesco’s strategy is to develop a sustainable building products business with market leading brands capable of performing strongly at any time of the cycle. To support this strategy, the Alesco group’s remuneration framework is designed to deliver performance‑based remuneration outcomes with a significant level of ‘at‑risk’ remuneration elements, as well as ensuring absolute remuneration is likely to attract, retain and motivate appropriately qualified and experienced directors and senior executives. FY12 was a challenging year for a number of reasons. The Company continued its turnaround program, divesting its loss‑making Parbury business and Dekorform, a non‑core business in March 2012, as well as continuing to implement its Project Restore initiatives across the rationalised portfolio. At the same time, external market conditions remained extremely tough. Over two thirds of Alesco’s revenue is from the detached housing and renovations markets in Australia and New Zealand, with detached housing at 10 year lows. While revenue from the continuing businesses fell by approximately 4% compared to detached housing markets which were down approximately 11%, this decline in revenue had a material impact on the Company’s earnings. This is despite Alesco’s work on cost reductions. Following the rationalisation of its portfolio, Alesco is now a building products company. Like many of its peers in the building products sector, Alesco’s share price performance has been impacted by the current market conditions as well as the outlook for building products companies. Alesco delivered a reported loss for the year, after taking into account significant items. As a result, only limited incentive awards were achieved and paid to key management personnel. Following recent KMP appointments, Alesco has also reduced the employment costs for its key management personnel by approximately 20.2%1 compared to the prior period. On 1 May 2012, the Company received an unsolicited and highly conditional takeover offer from the DuluxGroup. As at the date of this report, this process continues. As a result, retention arrangements have been put in place for key management personnel as well as corporate office employees.
Key personnel changes in FY12 On 1 December 2011, Alesco appointed John Marlay to the Board as a Non‑Executive Director. On 31 March 2012, Jim Hall retired as a Non‑Executive Director, having served on the Board since 2005. During FY12 a number of senior executive changes were made. In summary: • Neil Thompson, Finance Director left the Company on 31 December 2011 and was replaced by Emmanuel Zammit in the role of Chief Financial Officer. • In August 2011, Dean Harriott was appointed to the role of Group General Manager of Parbury and was then subsequently promoted to the role of Group General Manager, Decorative Surfaces & Appliances on 30 January 2012. Due to the sale of the Parbury business in March 2012, Mr Harriott ceased employment with Alesco on 31 March 2012. • In January 2012, Mark Freeman was appointed to the role of Group General Manager Lincoln Sentry, with Richard Lewis who was Interim Group General Manager from 15 March 2011 resuming his former role as Group General Manager Operations on 1 March 2012. Jim Brennan, Business Development Manager for the former FDP division left the business on 23 December 2011.
1. Refer to table on page 32.
30 Alesco Annual Report 2012 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
Key remuneration decisions in FY12 Key elements of Alesco’s remuneration approach taken in FY12 include: • Maintaining non‑executive directors’ fees at the level set in February 2008. • Agreeing increases to Fixed Annual Remuneration (FAR) for two senior executives based on business unit performance, but otherwise maintaining salaries for key management personnel at levels set in the prior year. • Awarding market‑based increases to FAR for non‑executive salaried staff. • In relation to FY12 STIPs, setting return on net operating assets (RNOA) as a key performance measure in addition to a profit after tax measure for corporate executives (based in the head office). • Approving incentive payments under the FY12 Short Term Incentive Plan (STIP) in the GDO division only, where threshold profit performance was met. • Rebalancing maximum participation in long term incentives from 70% to 50% of FAR for KMPs, other than the CEO whose maximum participation is 100% and adjusting performance hurdles applicable to STI incentives from 95% to 90% of budget for threshold performance and 115% to 110% of budget. • Determining there would be no vesting of the 2009 LTIP (which was either under the legacy Alesco Performance Share Acquisition Plan (Share Loan Plan) or a substitute Cash Incentive Plan) as performance targets were not met during the measurement period from 1 June 2009 to 31 May 2012. • Choosing not to make a grant under Alesco’s Employee Share Plan (AESP).
Key remuneration decisions to be implemented in FY13 Following consultation with a number of shareholders and proxy advisors during 2011, the Board has reviewed the long term incentive arrangements for executives and proposes to make a number of adjustments to the Long Term Incentive Plan (LTIP) (Alesco’s Performance Rights Plan (Rights Plan)) in a number of respects for the FY13 financial period: 1. Three measures (earnings per share (EPS), total shareholder return (TSR) and return on net operating assets (RNOA)) are to be adopted rather than two (EPS and TSR). Weighting as follows: • EPS: 60% of maximum potential award (FY12: 50%) • TSR: 20% of maximum potential award (FY12: 50%) • RNOA: 20% of maximum potential award (FY12 – not applicable). 2. More challenging target and stretch measures for EPS and RNOA will be set at 7.5% and 15% compound annual growth from the actual FY12 results, up from 5% and 10% respectively for previous years. 3. Given the FY12 net profit after tax result delivered a loss, the base EPS and RNOA measures will be determined by the Board having regard to the future plans and objectives of the Company and will be disclosed in the FY13 Remuneration Report. The FY13 performance conditions will be measured following the approval of the FY15 audited financial results. 4. A new index is to be adopted for the purposes of measuring TSR being the S&P Small Ordinaries Accumulation Index minus financials and resources (FY12: S&P Small Ordinaries Index). 5. No re‑test period beyond the three year measurement period; (FY12: included a fourth year retest option).
Alesco Annual Report 2012 31 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
Remuneration outcomes in FY12 In keeping with current market practices, a substantial proportion of remuneration for KMPs in FY12 was ‘at risk’ and only paid if key performance measurements were met. The following table sets out the total potential remuneration made available to KMPs in FY12 (excluding FBT amounts). Total potential remuneration is achievable by the KMP only where stretch outcomes are achieved in all measures established in the FY12 Short and Long Term Incentive Plans.
FY12 ANNUAL Remuneration (% total POTENTIAL remuneration package) Fixed remuneration Variable (‘at risk’) remuneration Base salary inclusive of Short‑term Long‑term Total Variable superannuation incentive (STI) incentive (LTI) Remuneration Managing Director 33.3 33.3 33.4 66.7 Chief Financial Officer 45.5 36.4 18.1 54.5 Other executives (in aggregate) 45.3 32.0 22.7 54.7
This table does not take into account the impact of the DuluxGroup takeover offer as it is considered one‑off in nature. In summary: • two senior executives will receive a short term incentive payment made under the FY12 STI Plan due to divisional performance only; • one executive received an ex‑gratia payment in recognition of special performance during FY11; • retention arrangements for KMPs were put in place following the announcement of the DuluxGroup takeover offer in May to retain their services and given the work required to facilitate Alesco’s response to the DuluxGroup takeover offer. The quantum varies depending on the level of involvement in the takeover response. Four of these payments have been recognised in the FY12 Remuneration Report due to the nature of these payments as they relate to corporate executives more closely involved in the transaction. Payments to the four divisional executives of $50,000 will be recognised in the FY13 Remuneration Report. All retention payments will be paid on 31 October 2012 unless the Board determines to pay it earlier at its discretion; • five executives received termination payments in relation to ceasing employment with the Group; • no value was derived in relation to the 2009 LTIP granted to executive directors and senior management as the three year performance hurdles to 31 May 2012 were not met. As a result, these incentives were forfeited and awards not granted. Overall KMP employment costs have reduced compared to prior reporting period due to the restructure of corporate head office functions as well as new appointments which took place during the period.
FAR (including superannuation) Non‑Monetary Benefits Total (annualised) FY12 $3,472,015 $101,503 $3,573,518 FY11 $4,352,304 $123,998 $4,476,302
32 Alesco Annual Report 2012 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
The table below sets out the actual remuneration received by executives in FY12 in actual pay terms. The amounts required under the Corporations Act 2001 are set out on pages 48 – 49.
Fixed Payments remun- Short‑term Long‑term relating Executive eration Incentive (STI) incentive (LTI)1 Other to FY12 Base salary plus Maximum Maximum super- potential potential Other annuation entitlement Actual Paid entitlement Actual Paid Payments2 $ $ $ $ $ $ $ Current executives PJ Boyd 750,000 750,000 0 750,000 0 325,000 1,075,000 SS Cox3 411,324 336,000 0 210,000 0 – 411,324 M Freeman4,5 129,333 76,000 0 n/a 0 100,000 229,333 N Hopper 383,670 231,600 32,424 n/a 0 – 416,094 AZ Jokubaitis 322,125 194,700 40,297 n/a 0 – 362,422 RW Lewis 403,116 308,000 0 n/a 0 50,000 453,116 L Rafferty6 440,000 352,000 0 220,000 0 325,000 765,000 ER Zammit4 218,012 180,256 0 n/a 0 200,000 418,012 Total 4,130,301 Termination Payments7 Former executives J Brennan 247,431 n/a – 0 – 402,1398 649,570 (to 23 December 2011) DM Harriott 236,684 n/a – 0 – 290,0009 526,684 (to 31 March 2012) RK Moriarty 115,485 n/a – n/a – 175,00010 290,485 (to 30 September 2011) BJ O’Connor 113,477 n/a – 0 – 255,43210 368,909 (to 30 September 2011) NA Thompson 320,833 n/a – 0 – 550,00010 870,833 (to 31 December 2011) Total 2,706,481
1. No incentives vested in relation to the 2009 LTI. As the performance periods for 2010, 2011 and 2012 LTI plans have not yet ended, no amounts have been included above as the final outcome on these incentives will not be determined until 2013, 2014 and 2015 respectively. 2. Alesco granted retention bonuses to current corporate KMPs to facilitate Alesco’s response to the DuluxGroup Offer and to compensate those employees for the increase in their workload and scope of work as result of the Offer. The amounts vary depending on the KMP and the level of involvement of each executive and range from $50,000 to $325,000. The retention bonuses will be paid on 31 October 2012 or earlier at the discretion of the Board. 3. S Cox elected to reduce his base salary exclusive of superannuation by 3% during the period. 4. M Freeman and ER Zammit joined the business on 30 January 2012 and 12 December 2011 respectively and the amounts included reflect the relevant period to 31 May 2012. 5. M Freeman joined Alesco in January 2012 and will be paid a sign‑on bonus of $100,000 in August 2012 under contractual arrangements negotiated with the Company. 6. L Rafferty received an ex‑gratia bonus payment of $25,000 in recognition of performance during FY11. This amount was paid in FY12. 7. These amounts relate to gross termination payments made upon ceasing employment with the Group and exclude accrued eligible entitlements. Some portion of termination payments may be paid in superannuation. 8. This amount relates to contractual termination payments made upon ceasing employment with the Group, including six months notice as well as the second retention payment agreed in 2009 upon commencement in the newly created Business Development Manager role. 9. This amount relates to payments made upon ceasing employment with the Group, including six months notice following the sale of the Parbury business. 10. These amounts relates to contractual termination payments made upon ceasing employment with the Group following corporate restructure.
Alesco Annual Report 2012 33 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
Impact of the DuluxGroup takeover offer On 1 May 2012, the DuluxGroup made an unsolicited and highly conditional takeover offer for all of the issued shares in Alesco (Offer). There are a number of implications for KMP’s remuneration arrangements arising from this Offer which are summarised below. (a) KMP arrangements Alesco granted retention bonuses to KMP for their services throughout the period of the Offer, to retain their services as well as to facilitate Alesco’s response to the offer and to compensate those employees for the increase in their workload and scope of work as result of the offer. Retention bonuses will be paid on 31 October 2012 or earlier at the discretion of the Board. The amounts vary depending on the KMP and the level of involvement of each executive and range from $50,000 to divisional executives and an amount of $325,000 for the CEO. Employment contracts for two KMPs have been modified so that their contracts are commensurate with other Alesco senior executives’ employment terms. The modified terms provide that if there is a material diminution or material adverse change in the executive’s role at any time, either Alesco or the executive may terminate the contract within three months of the relevant event occurring and Alesco is required to pay the executive an amount equal to six months of their base remuneration. The total amount potentially payable by Alesco under these changes is $457,500. (b) Share Loan Plan Legacy long term incentive plans known as the Alesco Performance Share Acquisition Plan (Share Loan Plan) and associated rules were approved by Alesco Shareholders at the Alesco Annual General Meeting held on 27 September 2006. In general terms, the Share Loan Plan is an employee share plan pursuant to which certain Alesco Group executives applied for and were granted interest‑free loans by Alesco to fund the acquisition by those executives of Alesco Shares. Alesco granted loans and issued Alesco Shares to executives under the Share Loan Plan during the years 2006, 2007, 2008 and 2009 until the Share Loan Plan was replaced by the Rights Plan in 2010. A total of 1,580,521 Alesco Shares have been issued to executives under the Share Loan Plan. The face value of these loans for the financial year ended 31 May 2012 was approximately $11.3 million. The amount recognised in the financial statements for the financial year ended 31 May 2012 is approximately $6.8 million based on the present value of each loan tranche. Executives who are no longer employed by the Alesco Group (as with current executives) are required to repay the outstanding loan balances on or before the maturity date for each loan which is the 10th year after the grant date of the loan. Shares held by those former executives (as with current executives) are subject to a holding lock and cannot be sold by the executives until the loans have been repaid in full. The loans granted by Alesco to current and former executives under the Share Loan Plan are full recourse loans except in certain specified circumstances. Alesco is obliged under the Share Loan Plan rules to treat the loans as non‑recourse loans, if: • A person acquires more than 50% of the issued shares in Alesco; or • A person compulsorily acquires an executive’s Share Loan Plan Alesco Shares. If, for example, DuluxGroup acquires more than 50% of the issued Alesco Shares and the Offer becomes unconditional or DuluxGroup compulsorily acquires an executive’s Share Loan Plan Alesco Shares as a result of the Offer (as applicable), Alesco is obliged under the Share Loan Plan rules to waive the outstanding balance of the executive’s loans (assuming the value of the loans is greater than the value of the relevant Alesco Shares), after selling the executive’s Share Loan Plan Alesco Shares and deducting from the outstanding loan balance an amount equal to the proceeds of sale of those shares. At the time of applying for their loans and Alesco Shares under the Share Loan Plan, each executive granted Alesco a power of attorney to sell the executive’s Share Loan Plan Alesco Shares on their behalf for these (and other) purposes and to collect the proceeds of sale and apply them against the executive’s loans.
34 Alesco Annual Report 2012 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
(c) Rights Plan The Company established a performance rights plan (Rights Plan) in 2010. The Plan and Rights Plan rules were approved by Alesco shareholders at the Alesco Annual General Meeting held on 22 September 2010. In general terms, the Rights Plan is a performance rights plan that was introduced to replace the Share Loan Plan as a means of rewarding senior executives and managers of Alesco based on performance. Employees are issued performance rights by the Board from time to time. The performance rights are subject to certain vesting conditions, for example, the employee meeting certain performance hurdles prescribed by the Board. Performance rights vest on a 1:1 basis into Alesco Shares. As at 23 July 2012 (being the Business Day before the Financial Statements were approved), 1,337,592 performance rights were on issue. Under the Rights Plan rules, the Board has discretion to accelerate the vesting of performance rights on issue if Alesco undergoes a change of control or receives a bidder’s statement (and also in any other circumstances it considers fit). In June 2012, the Board exercised its discretion to accelerate the vesting of performance rights, effective on and subject to DuluxGroup’s Offer becoming unconditional and DuluxGroup acquiring control of Alesco. The Board has calculated that as at 23 July 2102, a maximum of 1,337,592 performance rights could vest if the performance rights are accelerated and, as a result, a maximum of 1,337,592 Alesco Shares could be issued to performance rights holders.
Alesco Annual Report 2012 35 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
REMUNERATION REPORT (AUDITED) This Remuneration Report forms part of the Directors’ Report and has been prepared in accordance with section 300A of the Corporations Act 2001 for the Company and the consolidated entity (the Alesco Group) for the year ended 31 May 2012. This report provides a summary of the remuneration policies and practices adopted by the Alesco Group during the FY12 period for directors and other key management personnel as defined by the Accounting Standard AASB124 Related Party Disclosures. Alesco’s FY12 Remuneration Report is divided into the following sections: Section 1 – Introduction Section 2 – Executive Remuneration Approach and Framework Section 3 – Company Performance Outcomes Section 4 – Executive Remuneration Section 5 – Non‑executive Directors’ Remuneration Appendix – Overview of Legacy Long Term Incentive Plans
36 Alesco Annual Report 2012 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
SECTION 1 – INTRODUCTION KEY MANAGEMENT PERSONNEL For the purposes of this report, except where otherwise specified, the remuneration arrangements disclosed in this report apply to the executive directors and senior executives (together, the Key Management Personnel or KMPs) and the non‑executive directors set out below which includes the five highest remunerated executives of the Company and the Group during the reporting period.
Name Position Appointment Date (if FY12) Non‑executive directors Mark Bernard Luby Non‑executive Director and Chairman Robert (Rob) Murray Aitken Non‑executive Director Robert (Bob) Victor McKinnon Non‑executive Director John Marlay Non‑executive Director 1 December 2011 Ernest (Ern) John James Pope Non‑executive Director Jennifer (Jenny) Anne Tait Non‑executive Director Former non‑executive directors Leaving date James (Jim) William Hall Non‑executive Director 31 March 2012 Executives Commencement date in current role (if FY12) Peter John Boyd Managing Director and Chief Executive Officer Stephen Scott Cox Group General Manager Construction Products & Equipment Mark Freeman Group General Manager Lincoln Sentry 30 January 2012 Noel Hopper Group General Manager B&D Albert Zigmas Jokubaitis Group General Manager Automatic Technologies Australia Richard William Lewis1 Group General Manager Operations Luci Rafferty Group General Manager Legal & Corporate Affairs Emmanuel Raymond Zammit Chief Financial Officer 12 December 2011 Former executives Leaving date James (Jim) Brennan Business Development Manager 23 December 2011 Functional & Decorative Products Dean Malcolm Harriott2 Group General Manager Decorative 31 March 2012 Surfaces & Appliances Rebelle Kim Moriarty Group General Manager 30 September 2011 Human Resources Brian Joseph O’Connor Chief Information Officer 30 September 2011 Neil Alexander Thompson Finance Director 31 December 2011
1. Mr Lewis was interim Group General Manager for the former Functional & Decorative Products division for the period from 15 March 2011 to 1 March 2012 before resuming his corporate role of Group General Manager, Operations. 2. Mr Harriott was a member of the Executive team from 30 January 2012 to 31 March 2012.
Alesco Annual Report 2012 37 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
REMUNERATION GOVERNANCE The Board oversees and is responsible for remuneration decisions at Alesco. To assist the Board, governance and oversight of remuneration are delegated to the Human Resources Committee, for which a charter is available on Alesco’s website. The Committee comprises only Non‑executive Directors, and members of the Committee during FY12 were Rob Aitken (Chair), Mark Luby, Ern Pope, Jenny Tait and John Marlay (from 1 December 2011). The Committee has responsibility for remuneration policies and practices applicable to Non‑executive Directors, the Managing Director and Chief Executive Officer, senior executives and other key managers. The Committee makes recommendations to the Board on the level and form of executive remuneration which they consider to reflect fair and responsible reward outcomes in light of Company performance, executive performance and the external remuneration market. To assist in this process, the Committee involves the Chief Executive Officer and certain other senior executives in relevant deliberations (not involving their own employment matters), and, from time to time, seeks independent external advice on the appropriateness of the remuneration framework and remuneration packages available within the Company. No external specialist remuneration advice was obtained during the reporting period. However, legal advice was sought in the context of the DuluxGroup takeover offer and the potential impact of the offer on existing remuneration arrangements.
38 Alesco Annual Report 2012 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
SECTION 2 – EXECUTIVE REMUNERATION APPROACH AND FRAMEWORK The Alesco group’s remuneration strategy is designed to attract, retain and motivate appropriately qualified and experienced senior executives with the capability to drive business performance improvement that will deliver long term shareholder value. Consistent with current market practice, Alesco’s remuneration strategy is realised through a framework which includes an appropriate mix of fixed and variable remuneration, including short‑term and long‑term performance‑based incentives which seek to maximise the financial performance of the Company over time. The diagram below provides a summary of the Company’s remuneration framework as it applies to Senior Executives:
Attract and retain talent capable of Motivate to drive performance Align executive’s interests with those of driving performance improvement improvement Alesco’s shareholders
2.1 Fixed remuneration 2.2 Variable (‘at risk’) remuneration
2.2 (a) Short Term Incentive 2.2 (b) Long Term Incentive See page 40 for more information See page 40 for more information See page 41 for more information
Fixed Annual Remuneration (FAR) Paid in cash following the release Paid in either shares or cash under consists of base salary, including of financial results. the rules of the relevant share superannuation. It is benchmarked Measured over Alesco’s financial plans. at median of the relevant market, year, and based on group financial Measured over a three year period, and used as the base for all variable measures, except for divisional with measures based on the remuneration arrangements. senior executives for whom 60% – relevant plan. Senior executives have the 80% of the incentive is focussed on The FY12 Rights Plan rewards flexibility to receive FAR in a variety delivering divisional financial executives for delivering improved of forms, including cash, outcomes. performance in Alesco’s Earnings superannuation, and fringe Per Share Growth, as well as Total benefits such as motor vehicles. Shareholder Return as compared Reviewed annually, with outcomes with the ASX Small Ordinaries based primarily on size of role, Index. The Rights Plan involves a market benchmarks, and individual fourth year re‑test (based on four performance. year performance), recognising the cyclical nature of the building and construction sector.
Remuneration mix when variable pay is at the maximum (excluding FBT)
MD – 33.3% 33.3% 33.4% CFO – 45.5% 36.4% 18.1% Other – 45.3% 32.0% 22.7%
Alesco Annual Report 2012 39 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
2.1 Fixed remuneration The fixed remuneration portion of the remuneration package for all KMPs consists of base salary plus superannuation (known as Fixed Annual Remuneration or FAR). FAR is determined by reference to the scope and nature of each individual’s role, performance, experience, work requirements and remuneration level for comparable roles in companies of similar complexity, as well as the prevailing market conditions. Fixed remuneration is reviewed annually, and when a promotion or significant change in the role occurs. Annual salary reviews for senior executives and managers are preceded by formal, individual performance reviews and evaluation against pre‑established annual job objectives, the outcomes of which will contribute to the salary review process in the next financial year. The salary review process does not result in guaranteed increases to fixed remuneration, and all increases are based on an evaluation of individual performance and contribution, and competitive and fair market positioning. In FY12, the annual salary review resulted in market‑based adjustments for two KMPs and moderate market‑based increases for salaried non‑executive staff. Salary increases for senior executives were also approved outside of the annual salary review process in instances of job promotion (both permanent and interim). Fixed remuneration is generally pitched at a market median based on the 50th percentile of a selected comparator group and is calculated on a total cost basis. The competitor comparator group is a mix of between 15‑20 companies listed on the Australian Securities Exchange with a range of market capitalisations and revenues and reflect a group of companies which Alesco may compete with or are in a similar industry to Alesco or to which Alesco may look to recruit and/or may be at risk of losing key executives. Fringe benefit tax relating to city‑based car parking is over and above FAR for four corporate KMPs. Alesco provides employees with access to defined superannuation contribution plans in Australia and New Zealand. 2.2 Variable remuneration Variable remuneration includes both short‑term and long‑term incentives and is designed to reward executives for improved business performance which benefits Alesco’s shareholders. 2.2 (a) Short‑term incentives Alesco’s Short Term Incentive Plan (STIP) rewards senior executives for delivering divisional and group financial performance in line with agreed annual business plans and targets. In FY12, these measures were:
For Senior Executives in Alesco’s For Senior Executives leading Corporate Division (including CEO) Alesco’s Operating Divisions
Group profit after tax (including Provides financial measures at a Divisional earnings before interest significant items); and relevant level which directly links and tax (EBIT); plus business performance Group profit after tax; and improvements to the achievement STI payment outcomes
Group Return on Net Assets Drives the effective management Divisional Return on Net Assets (RNOA) (replacing the Group of the business’ assets (cash and (RNOA); plus average trade working capital as a otherwise) relative to the size of Group RNOA; and percentage of sales revenue target the business and is considered an used in FY11); and appropriate measure to ensure the medium term health of the company
Improvement in safety outcomes Ensures decision making and Improvement in safety outcomes (representing a maximum of 10% activity is appropriately aligned (representing a maximum of 10% of STIP award) with overall Group safety strategy of STIP award)
Below senior executive levels, the STIP rewards key managers for delivering divisional, team and individual operational performance outcomes. Up to half of the performance measures at these levels may be non‑financial. However, all performance measures must be capable of objective and verifiable evaluation and contribute to achieving established business goals.
40 Alesco Annual Report 2012 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
In FY12, performance was rewarded where there were clear linkages with Alesco’s Project Restore operational improvement program which delivered financial outcomes. This applied where key initiatives including restructuring and portfolio rationalisation, supply chain and sales & operation planning improvement, and strategic growth initiatives were demonstrated. STIP targets for eligible employees are set based on job level and having regard to market conditions. Maximum incentive outcomes under the STIP are designed to potentially deliver total cash remuneration in the upper quartile for the respective comparator group, as a result of achieving stretch performance outcomes. The maximum STIP payment outcome achievable for the CEO is 100% of FAR, and for Senior Executives varies between 60% and 80%. Under the STIP, target performance is, ordinarily, performance which meets agreed budgets and attracts 50% of an individual’s maximum payment outcome. Payments under the STIP commence when 90% of target performance is achieved, and maximum payment outcomes result from performance at or above 110% of target performance. The STIP runs on an annual basis aligned with Alesco’s financial year. At the commencement of each financial year, the Human Resources Committee reviews the STIP levels relevant to KMPs and other key managers, and the proposed performance measures and associated weightings, and provides recommendations to the Board. At the conclusion of the year, the Human Resources Committee reviews the performance of the Group and divisions against the objective measures established at the beginning of the year, and recommend STIP payment outcomes for each eligible executive to the Board for approval. Payment of STI occurs upon the completion of this review and only following the release to the market of the audited year‑end financial results. The Board retains discretion over the payment of awards under the STIP, and may exercise this discretion to cease to pay, or pay reduced awards, at an individual, divisional or group level. The Board also retains discretion in awarding payments to executives who retire or are retrenched during the performance period. No payments are made to executives who have their employment terminated for inadequate performance, poor safety performance or misconduct before the end of the performance period. 2.2 (b) Long term incentives 2011 (FY12) plan Alesco’s Performance Rights Plan (Rights Plan) was first approved by shareholders in 2010. The plan is designed to drive the achievement of strategic long‑term business objectives that create value for shareholders, and to recognise and retain high performing executives. The level of awards is determined by reference to the individual’s Fixed Annual Remuneration and their job level. The maximum achievement level for the CEO is 100% of FAR, and up to 50% for KMPs with other managers participating at levels between 5% – 40%. In relation to the reporting period, grants were made in May 2012 in line with these achievement levels.
Alesco Annual Report 2012 41 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
In relation to the 2011 grant, the vesting of performance rights are subject to two performance hurdles, each of which accounts for 50% of the maximum total award and are assessed separately over a three‑year period commencing 1 June 2011 and ending 31 May 2014, with the opportunity to re‑test in the fourth year:
Net Earnings per Share Growth (EPSG) Total Shareholder Return (TSR)
The compound annual growth in earnings per share where Total shareholder return performance as measured against EPSG is the company’s reported profit after tax divided by the the ASX Small Ordinaries Index. volume weighted average shares on issue for a 12 month period ended 31 May.
The EPSG hurdle is a measure of profitability, a determinant The TSR hurdle allows the Company to benchmark itself of dividends and, overall, a measure of Alesco’s long‑term against external market performance, directly linking success as it contains clear links to shareholder value executive reward to delivering competitive returns for creation. shareholders. The ASX Small Ordinaries Index (XSO) represents the small cap members of the ASX 300, specifically excluding ASX 100 companies. The constituent group of the XSO was considered to appropriately reflect Alesco’s market and competitive positioning at the time (noting that this will change for the FY13 grant see page 31).
Vesting of performance rights commences when EPSG The minimum ranking required for vesting is the 51st performance exceeds 0%. Awards vest on a pro rata basis to percentile of the peer group, at which point 50% of the TSR 10% EPSG where the maximum award is achievable. The portion of the award vests. Maximum vesting occurs at the EPSG base was set at 19.2 cents per share. 75th percentile or above.
Given the cyclical nature of the detached housing, renovation and construction sectors, the hurdles will be retested one year after the end of the measurement period should the maximum total award not vest at the end of the measurement period. This re‑testing is based on performance over the four year period ending 31 May 2015. Unvested performance rights lapse when an employee’s employment with the Company has ceased before the end of the measurement period. Where an employee is ceasing employment as a “Good Leaver” (for instance, in the case of redundancy), the Board may use its discretion to determine that all or a portion of the unvested rights should vest. The Board may also exercise its discretion to accelerate the vesting of performance rights on issue if Alesco undertakes a change of control or receives a bidder’s statement (see page 35). There are no holding restrictions placed on shares issued to a participant resulting from the grant of any performance rights under the plan. However the Alesco Share Trading Policy applies restrictions to the owning and selling of Alesco shares including those accumulated as a result of the Rights Plan. This policy also prohibits directors and employees from using derivatives or other similar mechanisms to limit the economic risk of participating in entitlements held under any equity‑based remuneration schemes. The Company monitors this by requiring directors and executives to make annual declarations of their compliance with the Alesco Share Trading Policy.
42 Alesco Annual Report 2012 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
SCORECARD PERFORMANCE The following scorecards track the actual performance to the financial year ended 31 May 2012 against the performance measures set for the LTIP in operation for the financial years ended 31 May 2010, 2011 and 2012. 2011 LTI OFFER – PERFORMANCE RIGHTS PLAN
YEAR 4 year 1 year 2 year 3 RE-TEST fy11 PERFORMANCE PAYMENT (31 may (31 may (31 may (31 may 2011 LTI OFFER1 (FY12) actual BASE LEVEL POTENTIAL 2012) 2013) 2014) 2015) EPS2 (50%) Actual EPS (cents) 14.4 19.2 14.7 n/a n/a Performance Required for Threshold 0% 19.2 19.2 Payment Target (5%) 50% 22.2 23.3 Stretch (10%) 100% 25.6 28.1 TSR3 (50%) TSR Percentile (%) 29 n/a n/a n/a Performance Required for Threshold 0%
1. Measurement period is from 1 June 2011 to 31 May 2014 with a re‑testing in the fourth year ended 31 May 2015. 2. The EPS measure is the company’s reported profit after tax divided by the volume weighted average shares on issue for the 12 month period ended 31 May. 3. The relevant index is the S&P/ASX Small Ordinaries Index. 2010 LTI OFFER – PERFORMANCE RIGHTS PLAN
YEAR 4 year 1 year 2 year 3 RE-TEST fy10 PERFORMANCE PAYMENT (31 may (31 may (31 may (31 may 2010 LTI OFFER1 (FY11) actual BASE LEVEL POTENTIAL 2011) 2012) 2013) 2014) EPS2 (50%) Actual EPS (cents) (132.8) 19.2 14.4 14.7 n/a n/a Performance Required for Threshold 0% 19.2 19.2 Payment Target 50% 22.2 23.3 Stretch 100% 25.6 28.1 TSR3 (50%) TSR Percentile (%) 58 33 n/a n/a Performance Required for Threshold 0%
1. Measurement period is from 1 June 2010 to 31 May 2013 with re‑testing 31 May 2014. 2. The EPS measure is the company’s reported profit after tax divided by the volume weighted average shares on issue for the 12 month period ended 31 May. 3. The relevant index is the ASX/S&P 200 Index.
Alesco Annual Report 2012 43 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
2009 LTI OFFER – ALESCO PERFORMANCE SHARE ACQUISITION PLAN
year 1 year 2 year 3 fy09 PERFORMANCE PAYMENT (31 may (31 may (31 may NO 2009 LTI OFFER1 (FY10) actual BASE LEVEL POTENTIAL 2010) 2011) 2012) RE-TEST EPS (50%) Actual EPS (before amortisation 48.6 45.3 24.8 21.9 18.1 and significant items) (cents) Performance Required for Threshold 0% 45.3 Payment Target 50% 52.4 Stretch 100% 60.3 TSR2 (50%) TSR Percentile (%) 10 21 17 Performance Required for Threshold 0%
1. Measurement period is from 1 June 2009 to 31 May 2012. 2. The EPS measure is the company’s reported profit after tax divided by the volume weighted average shares on issue for the 12 month period ended 31 May. 3. The relevant index is the ASX/S&P 200 Index. Legacy plans Prior to the Rights Plan, long‑term incentives were provided to Alesco’s senior executives and other eligible managers through equity‑based plans under which participants receive shares in the Company. In prior years, two separate equity‑based plans were in place for key executives (the Alesco Performance Share Acquisition Plan (Share Loan Plan) and the Alesco Management Share Plan (AMSP)) and, in FY10 only, an interim Cash Incentive Plan (CIP) was established. The purpose and details of these plans are provided in the Appendix to this report. Each of these plans was suspended in FY10 and there are no outstanding performance hurdles under these plans. However, senior executives who participated in the Share Loan Plan between 2006 and 2009 have outstanding Company loan balances which presently exceed the underlying value of Alesco shares. In FY11, the Board determined that all outstanding Share Loan Plan loans held by participating senior executives (regardless of whether they continue to be employed or have ceased to be employed by Alesco) remain outstanding for the original loan period of 10 years, instead of requiring repayment on or before the thirtieth day following the end of employment with Alesco. All loans remain in place and are to be paid in full by the executive at maturity except in certain circumstances, including in the event of a change in control in Alesco. Shares issued under this plan continue to be subject to a holding lock. The Board may exercise its discretion to reduce the outstanding loan balance by the market value of the shares where the loan value is greater than the value of the shares. Employee Share Plans All permanent employees of the Company in Australia and New Zealand (other than Australian employees earning in excess of $180,000 per annum) with more than one year of service may be offered participation in Alesco’s Employee Share Plan (AESP). Under this plan, eligible employees may acquire up to $1,000 worth of Alesco shares. Employees other than New Zealand employees generally can receive up to $500 worth of Alesco ordinary shares for no consideration. Due to legislative requirements, New Zealand employees are required to pay a nominal amount for these shares. Shares issued under the AESP must be held for at least three years, or until the employee ceases employment. The AESP commenced in Australia in 2002 (and one year later in New Zealand) to enable all employees to share in the rewards provided to Alesco’s shareholders. The Board has not made an AESP offer since 2009, due to Alesco’s financial performance. Offers under the AESP will again be considered by the Board in FY13.
44 Alesco Annual Report 2012 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
SECTION 3 – COMPANY PERFORMANCE OUTCOMES A key underlying principle of Alesco’s approach to executive remuneration is that it should demonstrate strong links to Group performance and shareholder returns. The Board considers the current performance‑linked remuneration framework in place is aligned with shareholders interests and supports and drives the achievement of the Company’s strategic objectives as well as motivating senior management to strive for stretch performance. FY12 was a challenging year for a number of reasons. The Company continued its turnaround program, divesting its loss‑making Parbury business and Dekorform, a non‑core business in March 2012, as well as continuing its Project Restore initiatives. At the same time, external market conditions remained tough. Over two thirds of Alesco’s revenue is from the detached housing and renovations markets in Australia and New Zealand, with Australian detached housing at 10 year lows. While revenue from the continuing businesses fell by approximately 4% compared to detached housing markets which were down approximately 11%, this decline in revenue had a material impact on the Company’s earnings. This was despite Alesco’s work on cost reductions. Following the rationalisation of its portfolio, Alesco is now a building products company. Like many of its peers in the building products sector, Alesco’s share price performance has been impacted by the weak short‑term outlook for building products companies. On 1 May 2012, the Company also received an unsolicited and highly conditional takeover offer from the DuluxGroup. As at the date of this report, this process continues. Having regard to these factors: • Increases to FAR were agreed for senior executives assuming new roles (either interim or permanent), and modest market‑based adjustments made to the salaries of the Group General Managers in the Garage Doors & Openers division as a result of the division’s performance, otherwise salaries were maintained at levels set in the prior year. In some instances, salaries for certain key management personnel have been maintained at levels set in 2008. • CEO Fixed Annual Remuneration was maintained at the level set in May 2010; • Following a number of KMP appointments during FY12, Alesco reduced its overall employment costs for key management personnel by approximately 20.2%1 compared to the prior period. This includes the FAR for the CFO who joined in December 2011 was set at a lower level than the former Finance Director, given the change in the scope of the role; • Limited payments have been made to executives arising from performance in the STIP, since FY08, with the exception of executives in divisional businesses which have exceeded agreed divisional performance hurdles; • Awards under the long term incentive plans have been forfeited as a result of the Company not meeting performance hurdles. No LTIP awards have been granted since 2006; • Hurdles for existing unvested LTIP grants remain difficult to meet, particularly given Alesco’s participation in the building products sector. For instance, to meet the TSR hurdle under the Rights Plan, the Company’s relative TSR performance over the remainder of the performance period will need to, firstly, recover its relative performance against companies in the ASX200 and then outperform those Companies, reversing the decline in share price and dividend performance over recent years; • Remuneration outcomes for senior executives (excluding the impact of the DuluxGroup takeover offer) over the past three financial years have been between 30.8% – 54.3% of total potential remuneration (i.e. the remuneration available to the executive when maximum performance is achieved in variable remuneration outcomes);
1. Refer to table on page 32.
Alesco Annual Report 2012 45 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
Supporting these remuneration outcomes is the performance‑linked design of each element of Alesco’s remuneration framework: • Financial measures represent 90% of the STIP in FY12 for KMPs, with safety at 10% and a substantial focus (at least 50%) for other executives; • The LTIP is driven by measures that reward participants only when value has been created for Alesco’s shareholders: • TSR – Half the LTIP will vest only when the Company has delivered superior share price and dividend returns to shareholders over the performance period; and • EPSG – Half the LTIP will vest only where Company profitability is substantially improved.
The charts below demonstrate the performance of the Group over the past five financial years:
Earnings per share (cents)1 Dividends per share (cents)2 Return on net Return on equity (%)4 operating assets (%)3
11.7
67.2 67.0 11.2
8.5 3.2 14.4 7.0 6.7 6.7 08 11 08 11 09 10 12 09 10 12 -13.9 -14.7 -2.2 -3.3
18.0 14.0 7.0 7.0 08 09 10 11 12 08 09 10 11 12 -132.8 -22.7 1. After significant items. 2. Total dividends for the FY11 year include a special dividend of 5.5 cps. Total dividends for the FY12 period include a special dividend of 10 cps. 3. Earnings before interest and tax divided by average net operating assets for continuing businesses 4. In FY11 and FY12 Alesco rationalised its portfolio with the divestment of the loss‑making Water & Products & Services division and Parbury business as well as non‑core Marathon Tyres and Dekorform businesses.
Alesco Share Price (LHS) S&P/ASX Small Ordinaries Accumulation Index (RHS)
$16.00 9,000
$14.00 8,000 7,000 $12.00 6,000 $10.00 5,000 $8.00 4,000 $6.00 3,000 $4.00 2,000
$2.00 1,000
$0.00 0 May 08 May 09 May 10 May 11 May 12 This Index represents the small cap members of the S&P/ASX 300 Index but excludes those in S&P/ASX Index 100.
46 Alesco Annual Report 2012 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
SECTION 4 – EXECUTIVE REMUNERATION Executive Contracts It is the Alesco Group’s policy that service contracts for senior executives and managers are unlimited in term but capable of termination with notice. With the exception of the Managing Director and the senior executives identified in this report who have 12 months and 6 months notice periods respectively, all other senior managers are on at least one month’s notice. The Alesco group retains the right to terminate the contract immediately by making a payment in lieu of notice. The senior executives (other than the Managing Director) identified in this report all have a notice period of six months. Managing Director & Chief Executive Officer Peter Boyd was appointed Managing Director and Chief Executive Officer of Alesco on 3 May 2010. A summary of the key terms of his contract is available on the Alesco website. The contract has no fixed term and the key elements of his remuneration package are:
Fixed Annual Remuneration $750,000 Short Term Incentive An annual short‑term incentive with a maximum payment outcome of 100% of Fixed Annual Remuneration based on the achievement of performance measures determined by the Board. In FY12, 90% of measures were financial with 10% linked to improvements in Group safety performance. No award was granted despite the improved Group safety performance, due to the overall FY12 financial results. Long Term Incentive An annual grant of performance rights equivalent to a maximum of 100% of Fixed Annual Remuneration. The number of rights is determined by his FAR converted to a whole number by dividing that dollar amount by the thirty day volume weighted average price (VWAP) of Shares traded on the ASX immediately before the commencement of the relevant financial year. These rights are subject to the achievement of financial performance measures as determined by the Board. Notice period The Company may terminate Mr Boyd’s appointment for cause or by giving him 12 months’ notice in writing, or a payment in lieu. For example, if this were to occur in FY13, Mr Boyd would be entitled to a termination payment of $750,000. Car parking Mr Boyd has an allocated car park at Alesco’s Corporate Office in Sydney’s CBD. The value of this parking benefit is $4378 using the operating method of calculation under the Fringe Benefits Tax Assessment Act 1986. The cost of this benefit has been assumed by the Company over and above Mr Boyd’s Fixed Annual Remuneration.
Executive terminations Following the sale of the Water Products & Services division and Marathon Tyres business in the second‑half of FY11, the Company restructured its corporate head office. As part of this restructure, the positions of Group General Manager, Human Resources and Chief Information Officer held by Ms Rebelle Moriarty and Mr Brian O’Connor respectively were made redundant effective 30 September 2011. As a result, Ms Moriarty and Mr O’Connor received contractual payments including notice severance, together with accrued statutory entitlements such as annual and long service leave. The employment of Mr Neil Thompson, the former Finance Director and Chief Financial Officer also ended on 31 December 2011. Under his employment contract, Mr Thompson was entitled to six months’ notice, together with accrued statutory entitlements such as annual and long service leave. In addition, Mr Thompson was paid a severance amount equal to six months pay (FAR). The employment of Mr Jim Brennan, the Business Development Manager for former Functional & Decorative Products division was terminated on 23 December 2011. Mr Brennan was paid six months’ notice. The employment of Mr Dean Harriott, the former Group General Manager of the Decorative Surfaces & Appliances division ended on 31 March 2012 with the sale of the Parbury business. Under this employment contract, Mr Harriott was entitled to six months’ notice, together with accrued statutory annual and long service leave entitlements. In addition, Mr Harriott was paid a severance amount equal to six months pay (FAR).
Alesco Annual Report 2012 47 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012 10 – – – – – – – – – – % 7.8 0.2 0.2 3.9 5.5 5.1 n/c n/c n/c n/c 9.4 12.4 ERATION VALUE OF VALUE been OF REMUN - S H ARES A AS to KMPs PROPORTION PROPORTION 9 yet – – – – – – % E‑ these 7.8 0.2 0.2 8.5 n/c n/c n/c n/c n/c 6.4 9.4 12.4 12.4 14.4 AN C 6.5% 18.5% 24.4% RELATED ERATION ERATION PERFORM - OF REMUN - PROPORTION PROPORTION
$ TOTAL in to executives 927,795 466,193 493,728 396,573 633,623 503,797 355,581 464,603 461,054 821,712 582,481 546,585 394,186 232,005 354,373 382,370 784,517 316,979 595,204 424,083 394,575 444,925 1,245,746 7,296,830 4,295,858 The actual payments
8 $ ER H not which have to KMPs OT 7,144 6,253 5,581 5,959 2,070 6,044 4,640 2,196 6,133 6,594 5,107 2,242 6,534 3,543 3,992 ENEFITS 41,748 30,124 32,054 43,822 38,493 43,267 12,311 B 374,025 107,177 165,351 G ‑TERM LON value deliver 7 $ – – – – – – – – – – – EQUITY 382 ASED 717 39,541 43,136 45,190 22,698 14,841 PAYMENT ) (22,022 ) (21,021 ) (16,016 ) (10,405 (69,464 ) 320,562 154,057 S H ARE‑ B 6 $ – – – – – – – – – – – – – – – – – – – ENEFITS B 550,000 290,000 220,000 175,000 255,432 1,490,432 TERMINATION 5 $ – TOTAL H PAYMENT AS ENTITLEMENT B C SU 350,000 473,001 457,722 390,320 468,272 389,546 338,335 458,644 371,751 139,737 136,947 416,094 444,393 554,393 754,393 769,378 252,593 419,823 411,324 331,937 229,553 362,422 4,621,297 1,079,378 5,378,659 4 - $ POST - SUPER 7,240 9,154 5,210 5,343 ENEFITS 50,000 50,016 24,005 15,138 15,138 15,138 50,294 35,138 25,338 29,783 15,727 16,148 54,378 24,138 11,877 25,927 44,720 24,127 B 51,454 297,004 308,427 ANNUATION EMPLOYMENT 3 $ – – – – – – – NON‑ 2,567 4,393 4,393 4,393 1,811 4,452 4,378 4,378 4,606 ENEFITS 47,714 29,774 35,728 32,178 20,500 30,471 53,990 B 133,251 152,475 MONETARY 2
$ – – – – – – – – – – – – – – – – – – onus b 50,000 200,000 100,000 300,000 975,000 325,000 retention periods as well other benefits which did not and FY11 the FY12 being met. hurdles performance and company‑based market‑based on future 2 $ – – – – – – – – – – – – – – – – – H AS S H ORT‑TERM STI C STI 97,721 96,000 86,000 53,000 40,297 25,000 32,424 235,000 grants long‑term incentive for values accounting the heading equity and comprises AWARD 1 $ during to KMPs FEES 347,306 357,743 386,094 210,772 348,282 360,030 303,197 335,852 240,897 725,862 125,070 334,862 424,862 534,862 203,440 271,683 352,822 312,614 725,873 215,945 134,527 424,273 124,210 dependent are they SALARY AND SALARY 3,944,619 3,856,459 the sub‑total column. 2011 2012 2012 2012 2012 2011 2012 2012 2012 2012 2011 2011 2012 – 2012 2011 2012 2011 2011 2011 2011 2012 2011 2012 2012 2011
due the actual payments
16 15 16 16 11 period appear in the FY12 13 14 12 & Functional to included under These other benefits are
onnor C ox table sets out E C UTIVES J O’ X Business Development Manager, Products Decorative H arriott DM Surfaces GGM Decorative & Appliances RK Moriarty RW Lewis RW TOTAL GGM Human Resources Officer Chief Financial Executives Former J B rennan GGM Operations & GGM Legal Affairs Corporate ER Zammit Sentry GGM Lincoln N H opper GGM Automatic Australia Technologies C urrent Executives B oyd PJ GGM Construction & Equipment Products M Freeman Director Finance E Officer Chief Information Former Director Former Thompson NA B L Rafferty GGM B&D AZ Jokubaitis CEO & Managing Director SS C periods. as be realised) never may (and realised relating Details of remuneration paid KMPs to Details of remuneration This
48 Alesco Annual Report 2012 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
the Group on page 40. the 2009
offer takeover out response. takeover who were to KMPs the Fixed of an individual’s in Remuneration the FY13 in paid executives period. the FY11 the DuluxGroup This applies to Plan, Loan the Share
to included in are These amounts financial year.
ended on the Company and includes salary threshold with highest the five set measures the performance
the relevant the statutory
of involvement the level in January 2012. the Group participation in from attributable the value discretion. the Board’s a Group from moved in 2009 when J Brennan agreed
is joining response Alesco’s to facilitate plans during 2007‑2010. the LTI of GGM role his former 2012 and has resumed to 1 March in the full expense
benefit free against financial year This amount
and will be reported in discretion the Board’s
one of period and was the FY11 the interest capped at 9% superannuation the relevant table represent the work required under the Company the 2008 LTIP). the depending on varies The quantum
employment O’Connor’s and BJ RK Moriarty’s of the period. time. time. sold. business was the Parbury of the value time.
car parking spaces. city‑based those for entitlement of his contractual this remuneration. and FY12 the FY11 this a KMP in He was this of as part on 31 October 2012 or earlier at Lewis and RW to a KMP during disclosed in Amounts the cash component paid in respect to KMPs including amounts Tax ER Zammit arrangement due under a retention the financial payments issued by of new shares tranches the period. to during achieved based on performance to a sign‑on payment L Rafferty, relates (SGC) at contribution guarantee superannuation ended on 31 December 2011. the Company accrual, of long service leave the value of the value payment termination due entitlements ended on 23 December 2011. the Group with Boyd, to PJ include notice as well severance. payments termination with This payment
will also be made on 31 October 2012 or earlier at to divisional KMPs Benefits as well Fringe represents The
is entitled Mr Freeman a KMP from on 30 January 2012 and was the Group a KMP from on 9 December 2012 and was the group to 2009. 2011 15 March from Products & Decorative GGM Functional the position of Interim 2012 when 31 March 30 January 2012 until a KMP from was Payments of in recognition payments retention will receive executives corporate joined period. the FY12 In addition, of work during in workload and scope increase the substantial employment Thompson’s 30 September 2011. NA divisional role. a newly created into Manager role General (including payments Plan and retention Incentive Cash during Operations. employment J Brennan’s salary sacrificed as part which are as non‑monetary benefits including motor vehicles received Non‑monetary benefits includes all amounts means non‑calculable. n/c Annual Remuneration, benefits represent Superannuation held Lewis RW is a cash payment incentive The short‑term will be made The payments table above. In addition, given Report. prior employed Other long‑term benefits includes sacrificed amounts. payment Share‑based 16. 15. DM Harriott 13. ER Zammit 14. 3. 9. means non‑calculable.10. n/c 11. M joined Freeman 4. 12. 2. 8. 5. Sub‑total equals cash payment Explanation of the table Explanation 1. base salary during represents Salary and fees 7. 6. benefits mean any Termination
Alesco Annual Report 2012 49 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
Incentive payments included in compensation This table sets out the details of the short‑term incentive payments awarded as compensation to, or forfeited by, each key management personnel as a result of the application of the FY12 Short Term Incentive Plan (the sole source of short‑term incentive payments during the performance period).
MAXIMUM PAYMENT ACTUAL PAYMENT EXECUTIVES OUTCOME ($) OUTCOME ($) % PAID % NOT PAID PJ Boyd 750,000 0 0 100 SS Cox 336,000 0 0 100 M Freeman1 76,000 0 0 100 N Hopper 231,600 32,424 14.0 86.0 AZ Jokubaitis 194,700 40,297 20.7 79.3 RW Lewis 308,000 0 0 100 L Rafferty 352,000 0 0 100 ER Zammit1 180,256 0 0 100 FORMER EXECUTIVES J Brennan 352,000 0 0 100 DM Harriott 174,000 0 0 100 RK Moriarty 280,000 0 0 100 BJ O’Connor 272,000 0 0 100 NA Thompson 440,000 0 0 100 Total 72,721
1. Pro‑rated for the period of employment from the commencement date until 31 May 2012.
50 Alesco Annual Report 2012 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
Analysis of LTI incentives Granted Value yet to vest Financial % Vested % Forfeited Year Minimum Maximum Executives Number $ Date in year in year Vesting $ $ PJ Boyd – CIP 2009 350,000 Nov 2009 0 100 2012 – – – PRP 2010 – TSR1 131,579 144,737 May 2011 n/a n/a 2013 0 259,211 – PRP 2010 – EPSG1 131,579 236,447 May 2011 n/a n/a 2013 0 259,211 – PRP 2011 – TSR2 118,155 64,997 May 2012 n/a n/a 2014 0 232,765 – PRP 2011 – EPSG2 118,155 167,745 May 2012 n/a n/a 2014 0 232,765 Total 499,468 963,926 0 983,952 SS Cox – APSAP 2009 60,609 Nov 2009 0 100 2012 – – – PRP 2010 – TSR1 36,841 40,525 May 2011 n/a n/a 2013 0 72,577 – PRP 2010 – EPSG1 36,842 66,205 May 2011 n/a n/a 2013 0 72,579 – PRP 2011 – TSR2 33,084 18,200 May 2012 n/a n/a 2014 0 65,175 – PRP 2011 – EPSG2 33,083 46,968 May 2012 n/a n/a 2014 0 65,173 Total 200,459 171,898 0 275,504 M Freeman – PRP 2011 – TSR2 9,978 5,489 May 2012 n/a n/a 2014 0 19,657 – PRP 2011 – EPSG2 9,977 14,164 May 2012 n/a n/a 2014 0 19,655 Total 19,955 19,653 0 39,312 N Hopper – PRP 2010 – TSR1 18,948 20,843 May 2011 n/a n/a 2013 0 37,328 – PRP 2010 – EPSG1 18,947 34,048 May 2011 n/a n/a 2013 0 37,326 – PRP 2011 – TSR2 30,405 16,726 May 2012 n/a n/a 2014 0 59,898 – PRP 2011 – EPSG2 30,405 43,166 May 2012 n/a n/a 2014 0 59,898 Total 98,705 114,783 0 194,450 AZ Jokubatis – PRP 2010 – TSR1 12,198 13,418 May 2011 n/a n/a 2013 0 24,030 – PRP 2010 – EPSG1 12,197 21,918 May 2011 n/a n/a 2013 0 24,028 – PRP 2011 – TSR2 25,561 14,061 May 2012 n/a n/a 2014 0 50,355 – PRP 2011 – EPSG2 25,561 36,289 May 2012 n/a n/a 2014 0 50,355 Total 75,517 85,686 0 148,768 RW Lewis – PRP 2010 – TSR1 33,772 37,149 May 2011 n/a n/a 2013 0 66,531 – PRP 2010 – EPSG1 33,772 60,688 May 2011 n/a n/a 2013 0 66,531 – PRP 2011 – TSR2 30,327 16,683 May 2012 n/a n/a 2014 0 59,744 – PRP 2011 – EPSG2 30,326 43,054 May 2012 n/a n/a 2014 0 59,742 Total 128,197 157,574 0 252,548 L Rafferty – APSAP 2009 63,495 Nov 2009 0 100 2012 – – – PRP 2010 – TSR1 38,597 42,456 May 2011 n/a n/a 2013 0 76,035 – PRP 2010 – EPSG1 38,596 69,357 May 2011 n/a n/a 2013 0 76,034 – PRP 2011 – TSR2 34,659 19,066 May 2012 n/a n/a 2014 0 68,278 – PRP 2011 – EPSG2 34,659 49,205 May 2012 n/a n/a 2014 0 68,278 Total 210,006 180,084 0 288,625 ER Zammit – PRP 2011 – TSR2 18,708 10,291 May 2012 n/a n/a 2014 0 36,855 – PRP 2011 – EPSG2 18,708 26,560 May 2012 n/a n/a 2014 0 36,855 Total 37,416 36,851 0 73,710
Alesco Annual Report 2012 51 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
Granted Value yet to vest Financial % Vested % Forfeited Year Minimum Maximum Executives Number $ Date in year in year Vesting $ $ Former Executives J Brennan 2009 Cash Bonus 182,139 Nov 2009 100 0 2012 – – 2008 Cash LTI 110,000 Nov 2008 0 100 2011 – – – CIP 20093 125,861 Nov 2009 0 100 2012 – – – PRP 2010 – TSR1 15,439 16,983 May 2011 n/a 100 2013 0 – – PRP 2010 – EPSG1 15,438 27,742 May 2011 n/a 100 2013 0 – Total 30,877 462,725 0 0 D Harriott – PRP 2010 – TSR1 6,582 7,240 May 2011 n/a 100 2013 0 – – PRP 2010 – EPSG1 6,582 11,828 May 2011 n/a 100 2013 0 – Total 13,164 19,068 0 0 RK Moriarty – CIP 2009 30,000 Apr 2010 0 100 2012 – – Total 0 30,000 0 0 BJ O’Connor – APSAP 2009 46,178 Nov 2009 0 100 2012 – – Total 46,178 0 0 0 Former Directors NA Thompson – APSAP 2009 30,000 Nov 2009 0 100 2012 – – – CIP 2009 239,476 Nov 2009 0 100 2012 – – – PRP 2010 – TSR1 48,246 53,070 May 2011 0 100 2013 – – – PRP 2010 – EPSG1 48,245 86,696 May 2011 0 100 2013 – – Total 126,491 379,242 0 0 1. For the 2010 (FY11) Rights Plan, the number of rights represents the maximum number of shares to which executives would be entitled if the stretch performance and service conditions are satisfied. As outlined above, there are two performance criteria for Rights Plan: earnings per share growth (EPSG) and total shareholder return (TSR). The minimum potential value of the entitlements under the Rights Plan is nil. The estimated fair value of the share rights is $1.80 per share right under the EPSG performance criteria and $1.10 per share right under the TSR performance criteria based on the closing share price of Alesco’s ordinary shares traded on the ASX at 30 May 2011. 2. For the 2011 (FY12) Rights Plan, the number of rights represents the maximum number of shares to which executives would be entitled if the stretch performance and service conditions are satisfied. The performance criteria are the same as the 2010 (FY11) offer. The minimum potential value of the entitlements under the Rights Plan is nil. The estimated fair value of the share rights is $1.42 per share right under the EPSG performance criteria and $0.55 per share right under the TSR performance criteria, based on the closing share price of Alesco’s ordinary shares traded on the ASX at 30 April 2012. 3. This payment relates to the final payment due under a retention arrangement agreed in 2009 upon Mr Brennan moving from the divisional Group General Manager position into a newly created executive role under Sales and Business Development.
52 Alesco Annual Report 2012 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
$ E C FA 2012 31 MAY 797,645 487,210 302,911 972,999 984,833 VALUE OF VALUE AT LOANS 1,024,658 1 $ 2012 31 MAY 577,163 G ARRYIN 188,084 471,425 592,371 598,966 285,984 VALUE OF VALUE AT LOANS C $ – – – – – – YEAR G IVEN LOANS LOANS DURIN G VALUE OF VALUE FOR
ER 2012 TOTAL ELD AT 31 MAY S H ARES 63,939 26,426 H NUM B 118,393 148,478 125,931 155,485
the loan. 2 - $ of FREE 26,061 16,909 52,956 43,129 53,620 54,998 element OF loan INTEREST UNWIND OF element free
- $ MADE REPAY ) (7,574 MENTS (3,131 ) ) (17,589 (14,025 ) (18,419 ) (14,918 ) the interest $ – – – – – – LOANS MENTS ADJUST‑ and to be achieved
1 $ – – – – – – VALUE VALUE expected the loan balance. E YEARE DURIN G H PRESENT OF LOAN T RANTED G RANTED – – – – – – ER YEAR on the Company S H ARES DURIN G NUM B RANTED G RANTED
1 $ discount performance of any 2011 VALUE ELD AT 1 JUNE H 267,497 G ARRYIN 541,796 442,321 562,387 174,306 553,669 OF LOANS C KMPs. FY12 Plan loans for to Share by recognised income net therefore ER 2011 ELD AT 1 JUNE and are 63,939 26,426 H NUM B 118,393 148,478 125,931 155,485 value, TOTAL S H ARES TOTAL the notional interest present of the value is details related table details provides Thompson O’Connor BJ Former Executives Former J Brennan Former Directors Former NA Executives SS Cox L Rafferty Executive Directors Executive Boyd PJ 2. This amount 1. at shown are Amounts Senior Executive Performance Share Acquisition Plan – financial year 2012 Acquisition Plan – financial Share Performance Senior Executive This
Alesco Annual Report 2012 53 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
$ E C FA 2011 31 MAY 657,152 537,224 500,893 308,567 822,981 999,948 VALUE OF VALUE AT LOANS 1,057,932 1,016,607 1 $ 2011 31 MAY 267,497 G ARRYIN 541,796 174,306 442,321 562,387 318,872 389,979 553,669 VALUE OF VALUE AT LOANS C $ – – – – – – – – YEAR G IVEN LOANS LOANS DURIN G VALUE OF VALUE FOR
ER 2011 TOTAL ELD AT 31 MAY 69,801 86,628 S H ARES 63,939 26,426 H NUM B 148,478 118,393 125,931 155,485
the loan. 2 - $ of FREE 50,755 16,110 52,697 66,397 51,599 41,407 24,962 84,502 element OF loan INTEREST UNWIND OF element free
- $ (303 ) (733 ) MADE REPAY ) (1,702 ) (1,783 MENTS (1,357 ) (1,444 ) ) (57,168 (43,600 ) the interest $ – – – – – – – – LOANS MENTS ADJUST‑ and to be achieved
1 $ – – – – – – – – VALUE VALUE expected the loan balance. E YEARE DURIN G H PRESENT OF LOAN T RANTED G RANTED – – – – – – – – ER YEAR on the Company S H ARES DURIN G NUM B RANTED G RANTED
1 $ discount performance of any 2010 VALUE ELD AT 1 JUNE H 492,743 G ARRYIN 296,075 402,271 511,473 362,645 243,268 503,514 158,499 OF LOANS C KMPs. FY11 Plan loans for to Share by recognised income net therefore ER 2010 ELD AT 1 JUNE and are 69,801 86,628 63,939 26,426 H NUM B 148,478 118,393 125,931 155,485 value, TOTAL S H ARES TOTAL the notional interest present of the value 3 is the position in FY11. 3 3 3 3 details related table details provides Thompson NA O’Connor BJ SS Cox L Rafferty Executives Former A Fonseca WL Powell Executive Directors Executive Boyd PJ Executives J Brennan 2. This amount 3. This reflects 1. at shown are Amounts Senior Executive Performance Share Acquisition Plan – financial year 2011 Acquisition Plan – financial Share Performance Senior Executive This
54 Alesco Annual Report 2012 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
SECTION 5 – NON‑EXECUTIVE DIRECTORS’ REMUNERATION Fees payable to non‑executive directors are determined within the maximum aggregate amount approved by shareholders. The current maximum aggregate amount of $1,000,000 per annum (excluding any superannuation contributions required by law) was last approved by shareholders at the 2006 annual general meeting. The remuneration of the non‑executive directors is not linked to the performance of the Company in order to maintain independence and impartiality. Non‑executive directors do not participate in any incentive or equity‑based plans. The directors’ fees are reviewed annually through the Human Resources Committee. A formal review was last conducted in January 2008 through external and independent compensation advisers Godfrey Remuneration Group based on available data on fees payable to directors of companies of a similar size. The non‑executive directors’ fees were last increased on 1 February 2008. There was no increase in non‑executive directors’ fees during FY12. The Chairman does not participate in discussions relating to the determination of his own fees. Total fees paid to non‑executive directors in FY12 amounted to $886,021 (FY11: $821,538). Currently, the non‑executive directors’ fees on an annualised basis are as follows:
Role Directors’ fees1 Chairman’s fees $250,0002 Non‑executive directors base fees $100,000 Chairman of the Audit & Compliance Committee $27,250 Audit & Compliance Committee members $13,625 Chairman of the Human Resources Committee $10,900 Human Resources Committee members $7,630 Chairman of the Safety, Health and Environment Committee $10,900 Safety, Health and Environment Committee members $7,630 Chairman of the Nominations Committee nil Nominations Committee members nil
1. Inclusive of superannuation. 2. Inclusive of all Committee fees.
Alesco Annual Report 2012 55 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012 – – – – – – – – – – – – – – – % ERATION VALUE OF VALUE S H ARES AS OF REMUN - PROPORTION PROPORTION – – – – – – – – – – – – – – – % E‑ AN C RELATED ERATION ERATION PERFORM - OF REMUN - PROPORTION PROPORTION $ TOTAL 93,603 60,628 127,250 250,000 117,031 118,530 821,538 118,530 250,000 113,625 106,042 886,021 118,530 118,530 115,260 $ – – – – – – – – – – – – – – – ER H OT ENEFITS B ‑TERM G ‑TERM LON ENEFITS $ – – – – – – – – – – – – – – – ER B H OT TERMINATION $ – – – – – – – – – – – – – – – ASED ASED PAYMENT EQUITY S H ARE‑ B $ – – – – – – – – – – – – – – – ENEFITS B RETIREMENT - $ 7,729 9,787 9,382 9,787 8,756 5,006 9,663 SUPER 27,300 10,507 79,843 15,138 35,246 ENEFITS 31,345 25,200 POST‑EMPLOYMENT B 125,003 ANNUATION $ – – – – – – – – – – – – – – – NON - ENEFITS B MONETARY MONETARY $ – – – – – – – – – – – – – – – H AS ONUS B STI C STI S H ORT‑TERM $ SALARY 85,874 97,286 91,230 93,330 83,915 55,622 108,743 116,743 741,695 108,743 107,368 761,018 104,243 234,862 214,754 AND FEES 2010. arrangements. and LTI STI participate in any 2011 2011 2012 2011 2012 2011 2011 2012 2011 2011 2012 2012 2012 2012 2012 1 on 3 August commenced 3 2 4 TORS Tait Tait JA Pope EJ Hall JW Total J Marlay McKinnon RV Chairman RM Aitken DIRE C MB Luby 2. 2012. on 31 March Hall retired JW 3. on 1 December 2011. commenced J Marlay 4. JA 1. do not directors Non‑executive Details of non‑executive directors compensation directors Details of non‑executive
56 Alesco Annual Report 2012 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
Appendix– Overview of Legacy Long Term Incentive Plans The table below summarises the key terms of each offer made under the Share Loan Plan and CIP. There are no outstanding performance hurdles under either of these legacy plans and this information has been included for comparative purposes in relation to the FY11 period. Senior executives who participated in the Share Loan Plan between 2006 and 2009 have outstanding Company loan balances which presently exceed the underlying value of Alesco shares. In FY11, the Board determined that all outstanding Share Loan Plan loans held by participating senior executives (regardless of whether they continue to be employed or have ceased to be employed by Alesco) remain outstanding for the original loan period of 10 years, instead of requiring repayment on or before the thirtieth day following the end of employment with Alesco. All loans remain in place and are to be paid in full by the executive at maturity. Shares issued under this plan continue to be subject to a holding lock, and the Board may exercise its discretion to reduce the outstanding loan balance by the market value of the shares where the loan value is the greater when employment of the executive comes to an end.
Final release and loan Issue Performance repayment Plan price Vesting period Performance hurdle status date
Alesco’s compound annual EPS growth Performance 31 May Share 1 June 2006 – equals or exceeds 5% compounded hurdle not 2016 2006 $9.90 Loan Plan 31 May 2009 annually over the three year from met. 1 June 2006 to 31 May 2009.
Alesco’s compound annual EPS growth Performance 31 May Share $11.28 and 1 June 2007 – equals or exceeds 5% compounded hurdle not 2017 2007 Loan Plan $12.28 31 May 2010 annually over the three year from met. 1 June 2007 to 31 May 2010.
Alesco’s compound annual EPS growth Performance 31 May Share 1 June 2008 – 2008 $6.79 to be in the range of 0% – 10% from a hurdle not 2018 Loan Plan 31 May 2011 starting base of 73.47 cents per share. met.
Alesco’s compound annual EPS growth Performance 31 May Share $4.8508 to be in the range of 0% – 10% from a hurdle not 2019 Loan Plan 1 June 2009 – starting base of 45.30 cents per share. met. 2009 31 May 2012 EPS in line with APSAP 2009; and, Performance NA CIP NA assessed separately, TSR as measured hurdle not against the ASX 200 Index met.
Alesco Annual Report 2012 57 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
A summary of the general terms of the APSAP and CIP follows below.
Alesco Performance Share Acquisition Plan (APSAP) History The Company first implemented the APSAP for its most senior executives in 2006 and made three subsequent offers to participants on an annual basis until 2010 when the plan was suspended and replaced by the current Performance Rights Plan (Rights Plan). Operation of the FY10 APSAP Loans were provided to the key management personnel to fund the acquisition of ordinary fully paid shares in the Company at the issue price at the time of allocation. Ownership in the shares vested immediately with the senior executive and although the loans are interest‑free, they are full recourse loans. Participation Key management personnel employed by the Group at the time of the offer, as approved by the Board. Participation in the plan was voluntary. In FY10, participants could elect to participate in the CIP rather than the Share Loan Plan. Offer timing Grants were made following the release of the prior year financial results at the approval of the Board. Reasons why performance The performance condition was driven around earnings per share growth (before amortisation conditions were chosen of intangibles and significant items) (EPSG) over a three year measurement period. This measure was chosen principally because it is a measure of profitability, is a direct determinant of dividends and, overall, is a measure of Alesco’s long‑term success as it contains clear links to shareholder value creation. This measure provides an incentive for decisions to be made with regard to long term performance outcomes over three financial years and seeks to lock‑in high performing employees with deferred vesting of a three year period. Achievement levels Loans provided: • for executives were in amounts up to 80% of FAR; and • for the Chief Executive (i.e. the Chief Executive at the time of the grant) in amounts up to 125% of FAR. Restriction period The shares issued under the Share Loan Plan are subject to a holding lock which will apply until the later of the third anniversary of the grant date and the date the loan relating to the shares has been fully repaid. The Plan rules provide that the loan must be repaid by no later than the 10th anniversary of the issue date of the shares or within 30 days after cessation of employment, subject to the discretion of the Board. In FY11, a decision was made to allow all outstanding Share Loan Plan loans held by participating senior executives who cease to be employed by Alesco in the future to remain outstanding for the original loan period of 10 years, instead of requiring repayment on or before the thirtieth day following the end of employment with Alesco. Awards Awards are earned in the form of either cash bonuses (with the after tax amount used to pay down the outstanding loan) or loan waivers. The awards are subject to the performance hurdle which then determines the extent of the cash bonus or loan waiver granted. The amount of the award granted, if any, will be an amount equal to or less than 53.5% of the amount of the relevant loan depending on the level of performance against the performance hurdle. Performance conditions The performance hurdle required EPSG for the relevant measurement period was in the range of 0% – 10%. In determining this EPSG, the base number used was determined based on target and stretch amounts approved by the Board having regard to the future plans and objectives of the Company. The relevant performance conditions were measured at the conclusion of the relevant financial year based on the audited financial results. Measurement EPS Growth % of Amount of Loan reduction over the Maximum as % of Initial Loan to Measurement Period Award acquire Shares* <0% 0% 0% >0% and <5% Pro‑rata Pro‑rata 5% 66.7% 35.67% >5% and <10% Pro‑rata Pro‑rata 10% or> 100% 53.5% *assumes a highest marginal tax rate of 46.5% (inclusive of Medicare levy).
58 Alesco Annual Report 2012 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
Alesco Performance Share Acquisition Plan (APSAP) (continued) Treatment of dividends Any dividends paid by the Company on a post‑tax basis (using the highest marginal tax rate, including Medicare levy and the benefit of any imputation credits) will be applied to reduce the loan balance. Sales restrictions post vesting Shares may be sold provided the loan relating to the shares has been fully repaid (or the proceeds from the sale will be used to repay the loan) and in accordance with the Company’s Share Trading Policy. Treatment of awards on The Rules of the Plan provide that a participant who ceases to be employed (through cessation of employment resignation, retrenchment or other Company initiated termination other than for cause) prior to the performance condition being met will be required to repay the outstanding loan amount in full within 30 days of cessation of employment, or longer at the discretion of the Board. Ownership of the shares remains with the participant. All rights to an award are forfeited except to the extent otherwise determined by the Board. If the outstanding loan balance is greater than the market value of the shares at the date of cessation, the Board may exercise its discretion and reduce the outstanding loan balance to the market value of the shares. In the case of death or total permanent disability (TPD), the Board will determine the extent to which an award will be granted and the outstanding loan balance is repayable in full within 12 months of death or determination of TPD. If the outstanding loan balance is greater than the market value of the shares at the date of death or TPD, the Board will reduce the outstanding loan balance to the market value of the shares. Treatment of awards on If a change of control in the Company occurs whereby more than 50% of the issued capital is change of control acquired by a third party, the award will be determined to be the maximum amount possible and granted upon the change of control event. If the Board so determines the participant may sell the shares to the bidder in which case the outstanding loan balance is repayable in full within 30 days of the sale. If the outstanding loan balance is greater than the market value of the shares at the date of the sale, the Board will reduce the outstanding loan balance to the market value of the shares. Other restrictions The Company has in place a policy prohibiting directors and employees from using derivatives or other similar mechanisms to limit the economic risk of participating in entitlements held under any equity‑based remuneration schemes. Any trading of Alesco shares must be in accordance with the Alesco Share Trading policy.
Alesco Annual Report 2012 59 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
Cash Incentive Plan (CIP) History The CIP was introduced in FY10 as an interim measure and as an alternative to the Share Loan Plan as a result of the impact of the global financial crisis and share price prevailing at the time. Key management personnel as approved by the Board were offered the opportunity of receiving a cash bonus payment less applicable tax subject to certain performance hurdles being achieved over the measurement period. Only one offer was made under the CIP and there are no outstanding performance hurdles relating to this plan. Grant timing Grants were made in November 2009 following release of the FY09 audited financial results and completion of the performance and remuneration review process. Achievement levels Achievement levels were: • for executives up to 80% of FAR; and • for the Chief Executive up to 125% of FAR (in accordance with the contract for the former Chief Executive at the time of the grant). Measurement period Three years commencing from 1 June 2009 until 31 May 2012. Reasons why performance The performance conditions comprised a mix of company‑based and market‑based based conditions were chosen performance are focussed on Alesco’s earnings per share growth (before amortisation of intangibles and significant items) (EPSG) and total shareholder returns (TSR) over a three year period commencing from 1 June 2009 until 31 May 2012 (Measurement Period). The EPS Growth hurdle was chosen principally because it is a measure of profitability, a direct determinant of dividends and, overall, a measure of Alesco’s long‑term success as it contains clear links to shareholder value creation. TSR was used so that the Company could benchmark itself against external market performance reflecting current market practice. At the time of the grant, the Company was part of the ASX 200 Index and the TSR measure provided a direct link between the vesting of the CIP and shareholder returns.
60 Alesco Annual Report 2012 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
Cash Incentive Plan (CIP) (continued) Performance conditions The EPSG hurdle was the same hurdle as under the Share Loan Plan being Alesco’s compound annual growth rate in earnings per share (before amortisation of intangibles and significant items) for the Measurement Period. In determining this compound annual growth rate, the base number used was be determined based on target and stretch amounts approved by the Board having regard to the group budget. The base number used for the CIP offer was 45.30 cents per share. The percentage of Maximum EPS Award specified in the right hand column of the table below relates to the maximum award to which participants are entitled in respect of Alesco’s EPS Growth (i.e. 50% of the Maximum Total Award). EPS Growth over the % of maximum Measurement Period EPS award <0% No incentive payment >0% and <5% Pro‑rata 5% 66.7% >5% and <10% Pro‑rata 10% or> 100% The TSR hurdle was based on a comparison of Alesco’s TSR with the TSR of the constituents of the ASX 200 Index. In order for any award to vest, the Company’s TSR must be equal to or greater than the median TSR performance of the comparator group. The comparator group is the constituent companies of the ASX/S&P 200 Index as defined at the commencement of the performance period. The threshold hurdle will be the 51st percentile at which 50% of the total shareholder returns related incentive will vest. At the 75th percentile, 100% of the total shareholder returns related incentive will vest, with a linear progression between the two points. The percentage of Maximum TSR Award specified in the right hand column in the table below relates to the maximum award which KMPs can be entitled in respect of Alesco’s performance against the TSR hurdle (i.e. 50% of the Maximum Total Award). TSR over the % of maximum Measurement Period TSR award >0 and <50 percentile of the ASX 200 Index No incentive payment 51st percentile 50% >51st percentile and <75th percentile Pro‑rata 75th percentile or> 100% The TSR hurdle and EPS Growth hurdle are assessed separately and participants do not need to achieve both the TSR hurdle and the EPS Growth hurdle in order to be entitled to a payment under the CIP; that is if the TSR hurdle is achieved but the EPS Growth hurdle is not (or vice versa), participants are still entitled to be paid an amount up to a maximum of 50% of the Maximum Total Award, depending on the performance against the TSR hurdle or EPS Growth hurdle, as applicable. If the Company’s performance against both the EPS Growth hurdle and the TSR hurdle is less than the minimum threshold specified below, no incentive will vest. Treatment of awards on Participants were not entitled to any payment under the CIP if they were not employed by cessation of employment a member of the Alesco Group on 31 May 2012, except in the special circumstances as determined by the Board. Other restrictions Not applicable.
Alesco Annual Report 2012 61 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
The table below summarises the key terms of each offer made under the AMSP. There are no outstanding performance hurdles under this legacy plan and the information has been included for comparative purposes in relation to the FY11 period.
Alesco Management Share Plan (AMSP) History The Alesco Management Share Plan (AMSP) was in place from 2002 until 2009 when it was suspended and replaced by the Performance Rights Plan (Rights Plan). There are no Incentive Shares outstanding which are subject to any performance hurdles. Eligible employees could participate in two ways: • Remuneration Shares: senior managers could elect to purchase Alesco shares with pre‑tax remuneration (subject to local legislation) or bonuses; • Incentive Shares: offered at the discretion of the Board and subject to the satisfaction of specific performance conditions. Grant timing Offers were made following the release of the financial results for the prior year with grants generally being made in September of each year. Restriction period Shares issued under the AMSP were held by a trustee and have a three‑year holding lock. This trading lock is only released and the shares transferred to the participant once the relevant performance condition has been met and the participant calls for the shares. If the participant does not call for the vested shares they will be released 10 years after the allocation date. Reasons why performance The performance condition was driven around earnings per share growth (before conditions were chosen amortisation of intangibles and significant items). This measure was chosen principally because it is a measure of profitability, is a direct determinant of dividends and, overall, is a measure of Alesco’s long term success as it contains clear links to shareholder value creation. Performance conditions For senior executives, the performance hurdle required Alesco’s compound annual growth rate in earnings per share (before amortisation of intangibles and significant items) (EPSG) over a three year measurement period in the range of 0 – 10%. If the performance hurdles were not achieved the Incentive Shares were forfeited following the release of the audited financial results to the ASX. Treatment of dividends Participants were entitled to receive dividends paid by the Company during the vesting period. Sales restrictions post The participant may request that any shares which have vested be transferred to the vesting participant. The participant is permitted to sell these shares in accordance with the Company’s Share Trading Policy. Treatment of awards on Generally, a participant who ceases to be employed (through resignation, cessation of employment retrenchment or other Company initiated termination other than for cause) prior to the performance condition being met will forfeit rights to their incentive shares. Any vested shares credited to the participants account will be released to the participant. Other restrictions The Company has in place a policy prohibiting directors and employees from using derivatives or other similar mechanisms to limit the economic risk of participating in entitlements held under any equity‑based remuneration schemes. The Company monitors this by requiring directors and KMPs to make annual declarations of their compliance with the Alesco Share Trading Policy.
62 Alesco Annual Report 2012 DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
Lead auditor’s independence declaration under section 307C of the Corporations Act 2001 The lead auditor’s independence declaration under section 307C of the Corporations Act 2001 can be found on page 142 of the Annual Report and forms part of this Directors’ Report. Signed in accordance with a resolution of the Directors.
MB LUBY 24 July 2012
Alesco Annual Report 2012 63 64 Alesco Annual Report 2012 Financial Statements FOR THE YEAR ENDED 31 MAY 2012
Consolidated income statement 67
Consolidated statement 68 of comprehensive income
Consolidated statement 69 of financial position Consolidated statement 70-71 of changes in equity
Consolidated statement 72 of cash flows
Notes to the financial statements 73-138 Directors’ declaration 139
Independent audit report 140-141 Lead auditor’s independence 142 declaration under section 307C of the Corporations Act 2001
Statement of shareholders 143 Ten years at a glance 144
Alesco Annual Report 2012 65
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 MAY 2012
2012 2011* NOTE $000 $000 Continuing operations Sale of goods 445,671 465,555 Rendering of services 12,220 12,232 Other revenue 1,832 1,037 Total revenue 459,723 478,824 Cost of sales 275,590 287,412 Gross profit 184,133 191,412 Other income 5 51 182 Selling expenses (47,230) (44,890) Marketing expenses (12,346) (10,539) Customer service expenses (14,367) (14,068) Purchasing and inventory management (1,710) (1,381) Distribution expenses (36,265) (35,809) Administration and general expenses (50,415) (45,452) Results from operating activities 21,851 39,455 Financial income 7 246 159 Financial expenses 7 (9,321) (13,560) Net financing costs 7 (9,075) (13,401) Profit from continuing operations before income tax 12,776 26,054 Income tax expense 8 (5,923) (9,156) Profit from continuing operations 6,853 16,898 Discontinued operations Loss from discontinued operations, net of income tax 3 (20,717) (3,325) (Loss)/profit for the period after income tax (13,864) 13,573
Earnings per share Basic and diluted earnings per share 4 (14.72)¢ 14.41¢ Continuing operations Basic and diluted earnings per share 4 7.28¢ 17.94¢ The notes on pages 73 to 138 are an integral part of these consolidated financial statements. * The 2011 comparative numbers of the consolidated entity have been restated to show the discontinued operation separately from the continuing operations.
Alesco Annual Report 2012 67
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 MAY 2012
2012 2011 $000 $000 (Loss)/profit for the period (13,864) 13,573 Other comprehensive income Foreign currency translation differences on translating foreign subsidiaries 1,474 (1,789) Net change in fair value of cash flow hedges 84 (2,845)
Income tax (expense)/benefit on other comprehensive income (25) 854 Other comprehensive income/(loss) for the period, net of income tax 1,533 (3,780) Total comprehensive (loss)/income for the period (12,331) 9,793 The notes on pages 73 to 138 are an integral part of these consolidated financial statements.
68 Alesco Annual Report 2012
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 MAY 2012
2012 2011 NOTE $000 $000 Assets Current assets Cash and cash equivalents 32 3,082 6,886 Trade and other receivables 9 69,863 84,420 Inventories 10 73,148 81,567 Current tax assets 11 123 1,284 Other 12 2,354 6,236 Total current assets 148,570 180,393 Non-current assets Trade and other receivables 9 6,788 6,206 Property, plant and equipment 13 56,730 59,408 Intangible assets 14 335,307 353,105 Deferred tax assets 15 11,735 9,417 Other 16 371 62 Total non-current assets 410,931 428,198 Total assets 559,501 608,591 Liabilities Current liabilities Trade and other payables 17 58,627 63,491 Current tax liabilities 11 4,100 4,325 Provisions 19 14,890 16,367 Other 20 1,209 1,622 Total current liabilities 78,826 85,805 Non-current liabilities Loans and borrowings 18 69,000 85,000 Provisions 19 5,654 5,240 Total non-current liabilities 74,654 90,240 Total liabilities 153,480 176,045 Net assets 406,021 432,546 Equity Share capital 21 418,543 520,407 Reserves 22 5,519 3,580 Accumulated losses 23 (18,041) (91,441) Total equity 406,021 432,546 The notes on pages 73 to 138 are an integral part of these consolidated financial statements.
Alesco Annual Report 2012 69
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
TRANSLATION HEDGING SHARE EQUITY ACCUMULATED SHARE CAPITAL RESERVE RESERVE RESERVE LOSSES TOTAL EQUITY
NOTE $000 $000 $000 $000 $000 $000 Balance at 1 June 2011 520,407 1,429 (807) 2,958 (91,441) 432,546 Total comprehensive income for the period Loss for the period 4 – – – – (13,864) (13,864) Other comprehensive income Foreign exchange translation differences on translating foreign subsidiaries 22 – 460 – – – 460 Decrease through disposal of businesses 3 – 1,014 – – – 1,014 Net change in fair value of cash flow hedges, after tax – – 59 – – 59 Total other comprehensive income – 1,474 59 – – 1,533 Total comprehensive income for the period – 1,474 59 – (13,864) (12,331) Transactions with owners, recorded directly in equity contributions by and distributions to owners Equity settled share-based payments 22 – – – 406 – 406 Dividends to equity holders 23 – – – – (14,600) (14,600) S258F capital reduction 21 (101,864) – – – 101,864 – Total transactions with owners (101,864) – – 406 87,264 (14,194) Balance at 31 May 2012 418,543 2,903 (748) 3,364 (18,041) 406,021 The notes on pages 73 to 138 are an integral part of these consolidated financial statements.
70 Alesco Annual Report 2012
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTINUED)
TRANSLATION HEDGING SHARE EQUITY ACCUMULATED SHARE CAPITAL RESERVE RESERVE RESERVE LOSSES TOTAL EQUITY
NOTE $000 $000 $000 $000 $000 $000 Balance at 1 June 2010 520,407 3,218 1,184 6,332 (103,601) 427,540 Total comprehensive income for the period Profit for the period 4 – – – – 13,573 13,573 Other comprehensive income Foreign exchange translation differences on translating foreign subsidiaries 22 – (1,789) – – – (1,789) Net change in fair value of cash flow hedges, after tax – – (1,991) – – (1,991) Total other comprehensive income – (1,789) (1,991) – – (3,780) Total comprehensive income for the period – (1,789) (1,991) – 13,573 9,793 Transactions with owners, recorded directly in equity contributions by and distributions to owners Equity settled share-based payments 22 – – – (39) – (39) Senior executive share loan plan adjustment 22 – – – (3,335) – (3,335) Dividends to equity holders 23 – – – – (1,413) (1,413) Total transactions with owners – – (3,374) (1,413) (4,787) Balance at 31 May 2011 520,407 1,429 (807) 2,958 (91,441) 432,546 The notes on pages 73 to 138 are an integral part of these consolidated financial statements.
71 Alesco Annual Report 2012
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 MAY 2012
2012 2011 NOTE $000 $000
Cash flows from operating activities Cash receipts in the course of operations 560,042 753,136 Cash payments in the course of operations (517,094) (706,235) Income taxes (paid)/received (1,275) 3,494 Net cash provided by operating activities 32(b) 41,673 50,395 Cash flows from investing activities Proceeds from sale of property, plant and equipment 135 621 Payments for property, plant and equipment and capitalised development expenditure (8,165) (21,552) Receipt of deferred consideration on disposal of entity 5,000 – Payment of disputed consideration on acquisition of entity (6,993) – Payments for intangible assets - deferred consideration (208) (208) Disposal of discontinued operations, net of cash disposed of 3,851 37,107 Repayments of loans by executives 187 117 Interest received 245 156 Net cash (used in)/provided by investing activities (5,948) 16,241 Cash flows from financing activities Dividends paid (14,600) (1,413) Proceeds from borrowings, net of transaction costs 81,000 295,000 Repayment of borrowings (97,000) (335,000) Interest paid (8,943) (14,474) Net cash used in financing activities (39,543) (55,887) Net (decrease)/increase in cash held (3,818) 10,749 Cash and cash equivalents at the beginning of the financial year 6,886 (3,881) Effects of exchange rate fluctuations on the balances of cash held in foreign currencies 14 18 Cash and cash equivalents at the end of the financial year 32(a) 3,082 6,886 The notes on pages 73 to 138 are an integral part of these consolidated financial statements.
72 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MAY 2012
NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES NOTES TO THE FINANCIAL STATEMENTS
The significant policies which have been adopted in the preparation of this Note Page financial report are: 1 Statement of significant 73 accounting policies (a) Statement of compliance 2 Operating segments 84 Alesco Corporation Limited (the “Company”) is a company domiciled in Australia. The consolidated financial statements of the Company as at and for the year ended 3 Discontinued operations 89 31 May 2012 comprise the Company and its subsidiaries (together referred to as 4 Earnings per share 90 the “Group”). 5 Other income 92 The consolidated financial statements are a general purpose financial report which 6 Other expenses 92 has been prepared in accordance with Australian Accounting Standards (“AASBs”) 7 Net financing 93 (including Australian interpretations) adopted by the Australian Accounting (costs)/income Standards Board (“AASB”) and the Corporations Act 2001. The consolidated 8 Income tax expense 93 financial statements comply with the International Financial Reporting Standards 9 Trade and other receivables 95 (“IFRSs”) and the interpretations adopted by the International Accounting 10 Inventories 95 Standards Board (“IASB”). 11 Current tax assets and 95 The consolidated financial statements were authorised for issue by the Board of liabilities directors on 24 July 2012. 12 Other current assets 95 13 Property, plant and 96 (b) Basis of preparation equipment These consolidated financial statements are presented in Australian dollars, which 14 Intangible assets 99 is the Company’s functional currency and the functional currency of the majority 15 Deferred tax assets and 105 of the Group. The consolidated financial statements have been prepared on the liabilities historical cost basis except for derivative financial instruments that are stated at 16 Other non-current assets 105 fair value. 17 Trade and other payables 105 The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 18 Loans and borrowings 106 and, in accordance with the Class Order, all financial information presented in Australian dollars has been rounded to the nearest thousand unless otherwise 19 Provisions 108 stated. 20 Other current liabilities 110 The preparation of financial statements requires management to make 21 Share capital 110 judgements, estimates and assumptions that affect the application of policies and 22 Reserves 112 reported amounts of assets and liabilities, income and expenses. Actual results 23 Accumulated losses 113 may differ from these estimates. Estimates and underlying assumptions are 24 Dividends 114 reviewed on an ongoing basis. Revisions to accounting estimates are recognised in 25 Auditors’ remuneration 115 the period in which the estimate is revised and in any future period affected. 26 Employee benefits 115 The accounting policies set out below have been applied consistently to all periods 27 Commitments and 119 presented in the consolidated financial statements, and have been applied consistently contingent liabilities by Group entities. 28 Controlled entities 120 In particular, information about significant areas of estimation uncertainty and critical 29 Financial instruments 121 judgements in applying accounting policies that have the most significant effect on the 30 Non-key management 127 amount recognised in the financial statements are described in the following areas: personnel disclosures • potential tax and other liabilities associated with the tax deductibility of interest 31 Key management personnel 128 on Optional Convertible Notes (“OCNs”) issued by Alesco New Zealand (Note 8). disclosures 32 Notes to the statements of 134 • measurement of the recoverable amounts of cash generating units containing cash flows goodwill and other intangible assets (Note 14). 33 Deed of cross guarantee 135 The Group has applied amendments to the Corporations Act 2001 that remove the 34 Parent entity disclosures 137 requirement for the Group to lodge parent entity financial statements. Parent entity 35 Subsequent events 138 financial statements have been replaced by the specific entity disclosures in Note 34.
The consolidated income statement and notes to the consolidated income statement have been prepared on the basis as set out in Note 1(t) discontinued operations.
Alesco Annual Report 2012 73
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (c) Basis of consolidation Business combinations Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from it activities. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable. Acquisitions on or after 1 June 2010 For acquisitions on or after 1 June 2010, the Group measures goodwill at the acquisition date as: • The fair value of the consideration transferred; plus • The recognised amount of any non-controlling interests in the acquiree; plus if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less • The net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss. Costs related to the acquisition, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred. Any contingent consideration payable is recognised at fair value at acquisition date. If the contingent consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognised in profit or loss. When share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquiree’s employee (acquiree awards) and relate to past services, then all or a portion of the amount of the acquirer’s replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market value of the replacement awards compared with the market-based value of the acquiree’s awards and the extent to which the replacement awards relate to past and/or future service. Acquisitions between 1 June 2004 and 1 June 2010 For acquisitions between 1 June 2004 and 1 June 2010, goodwill represents the excess of the cost of acquisition over the Group’s interest in the recognised amount (generally fair value) of the identifiable assets, liabilities and contingent liabilities of the acquiree. When the excess was negative, a bargain purchase gain was recognised immediately in profit or loss. Transaction costs other than those associated with the issue of debt or equity securities, that the Group incurred in connection with business combinations were capitalised as part of the cost of acquisition. Acquisitions prior to 1 June 2004 (date of transition to IFRSs) As part of its transition to IFRSs, the Group elected to restate only those business combinations that occurred on or after 1 June 2004. In respect of acquisitions prior to 1 June 2004, goodwill represents that amount recognised under the Group’s previous accounting framework, Australian GAAP. Acquisitions of non-controlling interests are accounted for as transactions with owners in their capacity as owners and therefore no goodwill is recognised as a result of such transactions. The adjustments to non-controlling interests are based on a proportionate amount of the net assets of the subsidiary. Subsidiaries Subsidiaries are entities controlled by the Company. The financial statements of subsidiaries are included in the financial report from the date that control commences until the date that control ceases. Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.
74 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (d) Foreign currency Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the foreign exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured in terms of historical cost are translated using the exchange rate at the date of the transaction. Foreign currency differences arising on retranslation are recognised in profit or loss, except for differences arising on retranslation of available for sale equity instruments, a financial liability designated as a hedge of the net investment in a foreign operation that is effective (see below), or qualifying cash flow hedges, which are recognised in other comprehensive income. Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to Australian dollars at foreign exchange rates ruling at the reporting date. The income and expenses of foreign operations are translated to Australian dollars at rates approximating the foreign exchange rates ruling at the dates of the transactions. Foreign exchange differences arising on retranslation are recognised directly in a separate component of equity in the foreign currency translation reserve (“translation reserve” or “FCTR”). When a foreign operation is disposed of, in part or in full, the relevant amount in the translation reserve is transferred to profit or loss. Hedge of net investment in foreign operation Foreign currency differences arising on the retranslation of a financial liability designated as a hedge of a net investment in a foreign operation are recognised in other comprehensive income, to the extent that the hedge is effective and are presented within equity in the translation reserve. To the extent that the hedge is ineffective, such differences are recognised in profit or loss. When the hedged part of a net investment is disposed of, the relevant amount in the FCTR is transferred to profit or loss as an adjustment to the profit or loss on disposal. (e) Financial instruments Non-derivative financial instruments Non-derivative financial instruments comprise investments in equity instruments, trade and other receivables, cash and cash equivalents, loans and borrowings and trade and other payables. The Group initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the trade at which the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transactions costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses.
Alesco Annual Report 2012 75
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (e) Financial instruments (continued) Non-derivative financial instruments (continued) Loans and receivables (continued) Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management program are included as a component of cash and cash equivalents for the purposes of the statement of cash flows. Other Other non-derivative financial instruments are measured at amortised cost using the effective interest method less any impairment losses. Derivative financial instruments The Group holds derivative financial instruments to hedge its foreign currency and interest rate risk exposures. On initial designation of the derivative as the hedging instrument, the Group formally documents the relationship between the hedging instrument and hedged item, including the risk management objectives and strategy in undertaking the hedge transaction and hedged risk, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Group makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, whether the hedging instruments are expected to be “highly effective” in offsetting the changes in the fair value or cash flows of the respective hedged items attributable to the hedged risk, and whether the actual results of each hedge are within a range of 80 – 125 percent. For a cash flow hedge of a forecast transaction, the transaction should be highly probable to occur and should present an exposure to variations in cash flows that could ultimately affect reported profit or loss. Derivatives are recognised initially at fair value and attributable transaction costs are recognised in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value and changes therein are accounted for as described below. Cash flow hedges When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive income and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. When the hedged item is a non-financial asset, the amount recognised in equity is included in the carrying amount of the asset when the asset is recognised. In other cases the amount accumulated in equity is reclassified to profit or loss in the same period that the hedged item affects profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. If the forecast transaction is no longer expected to occur, then the balance in equity is reclassified to profit or loss. Share capital Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to an issue of ordinary shares are recognised as a deduction from equity, net of any related income tax benefit. Dividends Dividends are recognised as a liability in the period in which they are declared. (f) Property, plant and equipment Recognition and measurement Items of property, plant and equipment are measured at cost or deemed cost less accumulated depreciation and impairment losses. The cost of property, plant and equipment at 1 June 2004, the date of transition to AASBs, was determined by reference to its fair value at that date. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials, direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use and the cost of dismantling and removing the items and restoring the site on which they are located, and capitalised borrowing costs. Cost also may include transfers from equity of any gain or loss on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Purchased software that is integral to the functionality of the related equipment is capitalised as part of the equipment. 76 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (f) Property, plant and equipment (continued) Recognition and measurement (continued) Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. The gains and losses on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of the property, plant and equipment and is recognised within other income/other expenses in profit or loss. Subsequent costs The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. Depreciation Depreciation is based on the cost of an asset less its residual value. Significant components of individual assets are assessed and if a component has a useful life that is different to the remainder of that asset, that component is depreciated separately. Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated. The depreciation rates for the current and comparative periods are as follows: RATES % Property, plant and equipment Buildings 2.5 to 13 Plant and equipment 13 to 33 Motor vehicles 15 to 25 Leasehold improvements 15 to 20 Leased plant and equipment 13 to 33
Depreciation methods, useful lives and residual values are reassessed at each reporting date and adjusted if appropriate. (g) Intangible assets Goodwill Goodwill that arises on the acquisition of subsidiaries is included in intangible assets. For the measurement of goodwill at initial recognition, see Note 1(c). Subsequent measurement Goodwill is measured at cost less accumulated impairment losses. Brand names Brand names represent the value of brands owned by controlled entities determined at acquisition that maintain a strong presence in the marketplace. Patents and trademarks Patents and trademarks represent the value of patents, trademarks and registered designs owned by controlled entities determined at acquisition which provide the entity with a market advantage.
Alesco Annual Report 2012 77
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (g) Intangible assets (continued) Development costs Information technology development includes software costs, software development costs and associated implementation costs. Expenditure on research activities, undertaken with the prospect of gaining new technical knowledge and understanding, is recognised in the income statement as an expense as incurred. Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalised only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group has sufficient resources to complete development and to use or sell the asset. The expenditure capitalised includes the cost of materials, direct labour and overhead costs that are directly attributable to preparing the asset for its intended use, and capitalised borrowing costs. Other development expenditure is recognised in the income statement as an expense as incurred. Capitalised development expenditure is measured at cost less accumulated amortisation and accumulated impairment losses. Customer relationships Customer relationship intangible assets acquired by the Group, have finite useful lives and are measured at cost less accumulated amortisation and accumulated impairment losses. Other intangible assets Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses. Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is recognised in profit or loss as incurred. Amortisation Amortisation is based on the cost of the asset less its residual value. Amortisation is recognised in the income statement on a straight-line basis from the date intangible assets are available for use over the estimated useful lives of intangible assets, unless such lives are indefinite. The estimated useful lives for the current and comparative periods are as follows: USEFUL LIFE YEARS Intangibles Brands – B&D, Flextool, Concrete Technologies, Lincoln Sentry Indefinite Brands – others 5 to 20 years Patents and trademarks 5 to 15 years Development costs 3 to 7 years Customer relationships 10 years Amortisation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate. (h) Leased assets Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.
Other leases are operating leases and the leased assets are not recognised on the Group’s statement of financial position.
78 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (i) Inventories
Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on either the first-in first-out or weighted average cost principle, includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition and is recorded net of rebates and discounts received. In the case of manufactured inventories and work-in-progress, cost includes an appropriate share of production overheads based on normal operating capacity. Cost may also include transfers from equity of any gain or loss on qualifying cash flow hedges of foreign currency purchases of inventories. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. (j) Impairment Financial assets A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had had a negative effect on the estimated future cash flows of that asset that can be measured reliably. Objective evidence that financial assets (including equity securities) are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, economic conditions that correlate with defaults or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment. The Group considers evidence of impairment for receivables and held-to-maturity investment securities at both a specific assets and collective level. All individually significant receivables and held-to-maturity investment securities are assessed for specific impairment. All individually significant receivables and held-to-maturity investment securities found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Receivables and held-to-maturity investment securities that are not individually significant are collectively assessed for impairment by grouping together receivables and held-to-maturity investment securities with similar risk characteristics. In assessing collective impairment the Group uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against loans and receivables or held-to-maturity investment securities. Interest on the impaired asset continues to be recognised. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its current fair value. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in profit or loss. Any cumulative loss in respect of an available-for-sale financial asset recognised previously in equity is transferred to profit or loss. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets recognised at amortised cost and available-for-sale financial assets that are debt securities, the reversal is recognised in profit or loss. For available-for-sale financial assets that are equity securities, the reversal is recognised directly in equity. Non-financial 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 (refer to Note 14). If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill, assets that have an indefinite useful life and intangible assets that are not yet available-for-use, the recoverable amount is estimated each year at the same time. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit (CGU) exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that are largely independent from other assets and groups.
Alesco Annual Report 2012 79
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (j) Impairment (continued) Non-financial assets (continued) The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. 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 or CGU. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash flows of other assets or CGU. Subject to an operating segment ceiling test, for the purpose of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination. The Group’s corporate assets do not generate separate cash inflows and are utilised by more than one CGU. Corporate assets are allocated to CGUs on a reasonable and consistent basis and tested for impairment as part of the testing of the CGU to which the corporate asset is allocated. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs) and then to reduce the carrying amount of the other assets in the CGU (group of CGUs) on a pro-rata basis. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (k) Employee benefits Defined contribution plans A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an employee benefit expense in profit or loss in the periods during which services are rendered by employees. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available. Contributions to a defined contribution plan that are due more than 12 months after the end of the period in which the employees render the service are discounted to their present value. Short-term benefits Liabilities for employee benefits for wages, salaries and annual leave represent present obligations resulting from employees’ services provided to reporting date, calculated at undiscounted amounts based on remuneration wage and salary rates that the Group expects to pay as at reporting date including related on-costs, such as workers’ compensation insurance and payroll tax. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans 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. Long-term benefits The Group’s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods plus related on-costs. This benefit is then discounted to determine its present value and the fair value of any related assets is deducted. The discount rate is the yield at the reporting date on Commonwealth Government bonds that have maturity dates approximating the term of the Group’s obligations.
80 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(k) Employee benefits (continued) Termination benefits Termination benefits are recognised as an expense when the Group is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised as an expense if the Group has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. If benefits are payable more than 12 months after the reporting date, then they are discounted to their present value. Share-based payment transactions The grant date fair value of share-based payment awards granted to employees is recognised as an employee expense with a corresponding increase in equity over the period that the employees become unconditionally entitled to the awards. The amount recognised as an expense is adjusted to reflect the actual number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes. The value of shares that are yet to vest are recorded in a share equity reserve and transferred to share capital once vested (refer Note 26). (l) Provisions A provision is recognised if as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as a finance cost. Warranties Provisions for warranty claims are made for claims received and claims expected to be received in relation to sales made prior to reporting date, based on historical claim rates, adjusted for specific information arising from internal quality assurance processes. Restructuring A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. Future operating costs are not provided for. Surplus lease space Provision is made for non-cancellable operating lease rentals payable on surplus leased premises when it is determined that no substantive future benefit will be obtained from its occupancy and sub-lease rentals do not recover the full rental cost. The estimate is calculated based on discounted net future cash flows, using the interest rate implicit in the lease or an estimate thereof. Deferred earn-outs Provisions for deferred earn-outs are made based on management’s estimates of likely payments required to be made in addition to initial consideration as part of acquisitions based on underlying sale and purchase agreements. These are generally made based on management budgets for the related earn-out periods. Operating lease make-good Provision for make-good in respect of leased properties is recognised over the lease term based on the cost the Group would incur to restore premises to the required condition. Operating lease straight-lining Provision for straight-lining in respect of leased properties is calculated at reporting date based on the difference between the cost to the Group and the total rent payable under the operating lease if recognised on a straight-line basis over the lease term.
Alesco Annual Report 2012 81
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (m) Revenue Goods sold and services rendered Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognised when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. Revenue from services rendered is recognised in the income statement in the period in which the services are performed. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due, the costs incurred or to be incurred cannot be measured reliably, there is a risk of return of goods or there is continuing management involvement with the goods. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognised as a reduction of revenue as the sales are recognised. Contract revenue Revenue on longer-term contracts is recognised progressively over the period of individual contracts, wherever a reliable estimate can be made, using the percentage of completion method. Where a reliable estimate cannot be made, revenue is recognised only to the extent that costs will be recoverable. An expected loss on a contract is recognised immediately in the income statement. (n) Lease payments Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised in the income statement as an integral part of the total lease expense, over the term of the lease. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. (o) Finance income and finance costs Finance income comprises interest income on funds invested. Interest income is recognised as it accrues in profit or loss, using the effective interest method. Dividend income is recognised in “other revenue” in profit or loss on the date the Group’s right to receive payment is established, which in the case of quoted securities is the ex-dividend date. Finance costs comprise interest expense on borrowings. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method. Foreign currency gains or losses are reported on a net basis as either finance income or finance cost depending on whether foreign currency movements are in a net gain or net loss position. (p) Goods and services tax Revenue, expenses and assets are recognised net of the amount of goods and services tax (“GST”), except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the Australian Taxation Office (“ATO”) is included as a current asset or liability in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows. (q) Income tax Income tax expense comprises current and deferred tax. Current tax and deferred tax is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax payable also includes any tax liability arising from the declaration of dividends. 82 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (q) Income tax (continued) Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affect neither accounting nor taxable profit and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend is recognised. The Company and its wholly-owned Australian resident entities are part of a tax-consolidated group. As a consequence, all members of the tax consolidated group are taxed as a single entity. The Company is the head entity within the tax-consolidated group. (r) Earnings per share The Group presents basic and diluted earnings per share data for its ordinary shares. Basic earnings per share is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of shares outstanding during the period. Diluted earnings per share is calculated by adjusting the profit attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of dilutive potential ordinary shares. (s) Segment reporting Determination and presentation of operating segments An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. All operating segments’ results are regularly reviewed by the Group’s CEO to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets, head office expenses, and income tax assets and liabilities. Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill. (t) Discontinued operations A discontinued operation is a component of the Group’s business that represents a separate major line of business operations that has been disposed of or is a subsidiary acquired exclusively with a view to resale. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held-for- sale, if earlier. When an operation is classified as a discontinued operation, the comparative income statement is re- presented as if the operation had been discontinued from the start of the comparative period. (u) Removal of parent entity financial statements The Group has applied amendments to the Corporations Act 2001 that remove the requirement for the Group to lodge parent entity financial statements. Parent entity financial statements have been replaced by the specific parent entity disclosures in Note 34.
Alesco Annual Report 2012 83
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (v) New standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 July 2011, and therefore have not been applied in preparing these consolidated financial statements. None of these is expected to have a significant effect on the consolidated financial statements of the Group, except AASB 9 Financial Instruments, which becomes mandatory for the Group’s 2015 consolidated financial statements and could change the classification and measurement of financial assets. The Group does not plan to adopt this standard early and the extent of the impact has not been determined. NOTE 2: OPERATING SEGMENTS Information about reportable segments The Group has three reportable segments as described below, which are the Group’s strategic business units. The strategic business units offer different products and services, and are managed separately because they require different technology and marketing strategies. For each of the strategic business units, the CEO reviews internal management reports on a monthly basis. Inter-segment pricing is determined on an arm’s length basis. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated and eliminated items mainly comprise corporate entities and intercompany elimination adjustments. The following summary describes the operations in each of the Group’s reportable segments: Continuing operations Cabinets, Windows & Supply of cabinet and window products to the residential and commercial building Appliances1,2 markets and kitchen and laundry appliances to the appliance retailer market. Construction Products & Concrete products including construction chemicals, decorative concrete and Equipment (formerly associated equipment, specialised construction chemicals. Construction & Mining)3 Garage Doors & Openers Garage doors and openers to the domestic housing and light industrial markets.
Discontinued operations Decorative Surfaces2,3 Supply and distribution of decorative surfaces and moulding products to the cabinet making and other related industries. Refer Note 3. Mining3 Earthmoving and heavy duty industrial tyres. This business was deconsolidated 30 April 2011. Refer Note 3. Water, Products & Services3 Water management products and services to agricultural, industrial, commercial, domestic and mining industries. This business was deconsolidated on 31 January 2011. Refer Note 3. 1 During the second half of the financial year ended 31 May 2012, the Group sold its Parbury and Dekorform businesses. Refer to Note 3.
Following the sale of these businesses, the Group restructured how the segments were presented to the Chief Operating Decision Maker. A new Cabinets, Windows & Appliances segment was established from May 2012 onwards, comprising the Robinhood appliances and the Lincoln Sentry businesses. Comparative financial information has been restated to reflect this restructure.
2 Formerly part of the Functional & Decorative Products segment.
3 During the second half of the financial year ended 31 May 2011, the Group sold its entire Water, Products and Services segment and its Marathon Tyres business unit. Refer to Note 3. The Marathon Tyres business unit represented the entire Mining component of the former Construction & Mining segment. In May 2011, this segment was renamed Construction Products & Equipment.
Following the sale of the Mining business in April 2011, the Group restructured how the segments were presented to the Chief Operating Decision Maker such that the Construction Products & Equipment segment only includes Construction and not Mining.
84 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 2: OPERATING SEGMENTS (CONTINUED)
OPERATING SEGMENTS
CABINETS, CONSTRUCTION GARAGE DOORS & OPERATING DISCONTINUED UNALLOCATED & CONSOLIDATED LESS DISCONTINUED CONTINUING WINDOWS & PRODUCTS & OPENERS SEGMENT TOTAL OPERATIONS1 ELIMINATIONS OPERATIONS1 OPERATIONS APPLIANCES EQUIPMENT BUSINESS SEGMENTS 2012 2012 2012 2012 2012 2012 2012 2012 2012 $000 $000 $000 $000 $000 $000 $000 $000 $000
Revenue
Revenue: sale of goods 176,892 119,112 149,667 445,671 39,188 – 484,859 (39,188) 445,671 Revenue: rendering of services – – 12,220 12,220 – – 12,220 – 12,220
Other revenue 202 166 958 1,326 5 506 1,837 (5) 1,832
External segment revenue 177,094 119,278 162,845 459,217 39,193 506 498,916 (39,193) 459,723
Inter-segment revenue – – – – – – – – –
Total revenue 177,094 119,278 162,845 459,217 39,193 506 498,916 (39,193) 459,723
Result
EBITDA (pre-significant items) 10,705 9,390 26,464 46,559 (4,643) (2,368) 39,548 4,643 44,191
Depreciation (1,125) (1,937) (2,746) (5,808) (1,342) (566) (7,716) 1,342 (6,374)
EBITA (pre-significant items) 9,580 7,453 23,718 40,751 (5,985) (2,934) 31,832 5,985 37,817 Amortisation of identifiable intangibles (1,170) (720) (3,548) (5,438) (200) (143) (5,781) 200 (5,581)
EBIT (pre-significant items) 8,410 6,733 20,170 35,313 (6,185) (3,077) 26,051 6,185 32,236
1Refer discontinued operations – Note 3
85 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 2: OPERATING SEGMENTS (CONTINUED)
OPERATING SEGMENTS
CABINETS, CONSTRUCTION GARAGE DOORS OPERATING DISCONTINUED UNALLOCATED & CONSOLIDATED LESS DISCONTINUED CONTINUING WINDOWS & PRODUCTS & & OPENERS SEGMENT TOTAL OPERATIONS & ELIMINATIONS OPERATIONS1 OPERATIONS APPLIANCES EQUIPMENT SEGMENTS1 BUSINESS SEGMENTS 2011 2011 2011 2011 2011 2011 2011 2011 2011 $000 $000 $000 $000 $000 $000 $000 $000 $000
Revenue
Revenue: sale of goods 194,856 111,982 158,717 465,555 191,670 – 657,225 (191,670) 465,555 Revenue: rendering of services – – 12,232 12,232 9,144 – 21,376 (9,144) 12,232
Other revenue 233 54 597 884 227 153 1,264 (227) 1,037
External segment revenue 195,089 112,036 171,546 478,671 201,041 153 679,865 (201,041) 478,824
Inter-segment revenue 48 – (30) 18 – (18) – – –
Total revenue 195,137 112,036 171,516 478,689 201,041 135 679,865 (201,041) 478,824
Result EBITDA (pre-significant items) 15,137 10,756 29,395 55,288 (2,033) (2,104) 51,151 2,033 53,184
Depreciation (1,150) (1,687) (3,225) (6,062) (2,007) (617) (8,686) 2,007 (6,679)
EBITA (pre-significant items) 13,987 9,069 26,170 49,226 (4,040) (2,721) 42,465 4,040 46,505 Amortisation of identifiable intangibles (1,140) (720) (4,110) (5,970) (2,034) (226) (8,230) 2,034 (6,196)
EBIT (pre-significant items) 12,847 8,349 22,060 43,256 (6,074) (2,947) 34,235 6,074 40,309
Restated for discontinued operations for the year ended 31 May 2011.
1 Refer discontinued operations – Note 3
86 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 2: OPERATING SEGMENTS (CONTINUED)
OPERATING SEGMENTS
CABINETS, CONSTRUCTION GARAGE DOORS & OPERATING DISCONTINUED UNALLOCATED & CONSOLIDATED LESS DISCONTINUED CONTINUING WINDOWS & PRODUCTS & OPENERS SEGMENT TOTAL OPERATIONS & ELIMINATIONS OPERATIONS1 OPERATIONS APPLIANCES EQUIPMENT SEGMENTS1 BUSINESS SEGMENTS 2012 2012 2012 2012 2012 2012 2012 2012 2012 $000 $000 $000 $000 $000 $000 $000 $000 $000 Reportable segment assets 145,212 125,429 268,591 539,232 – 20,269 559,501 – 559,501 Reportable segment liabilities 4,355 46,455 18,517 69,327 – 84,153 153,480 – 153,480 Capital expenditure 1,066 3,530 1,858 6,454 1,100 537 8,091 (1,100) 6,991 Other material non-cash items: Impairment on intangible assets (4,074) – – (4,074) (8,626) – (12,700) 8,626 (4,074)
BUSINESS SEGMENTS 2011 2011 2011 2011 2011 2011 2011 2011 2011 $000 $000 $000 $000 $000 $000 $000 $000 $000 Reportable segment assets 134,924 124,729 270,402 530,055 37,448 41,088 608,591 (37,448) 571,143 Reportable segment liabilities 10,929 67,407 22,873 101,209 29,552 45,284 176,045 (29,552) 146,493 Capital expenditure 466 12,595 3,904 16,965 4,073 127 21,165 (4,073) 17,092 Other material non-cash items: Impairment on intangible assets – – – – (8,495) – (8,495) 8,495 – Restated for discontinued operations for the year ended 31 May 2011
1 Refer discontinued operations – Note 3
AUSTRALIA OTHER CONSOLIDATED
GEOGRAPHICAL INFORMATION 2012 2011 2012 2011 2012 2011 $000 $000 $000 $000 $000 $000 External revenue by location of customers 465,517 647,256 33,399 32,609 498,916 679,865 Non-current segment assets by location 387,455 398,462 11,741 20,319 399,196 418,781 Capital expenditure 7,607 20,675 484 490 8,091 21,165
87 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 2: OPERATING SEGMENTS (CONTINUED) Reconciliations of reportable segment revenues, profit or loss, assets and liabilities and other material items
CONSOLIDATED 2012 2011 NOTE $000 $000 Revenues Total revenue for reportable segments 498,410 576,580 Elimination of inter-segment and unallocated revenue 506 135 Elimination of discontinued operations (39,193) (97,891) Consolidated revenue from continuing operations 459,723 478,824 Profit or loss EBIT for reportable segments 35,313 43,256 Unallocated amounts: other corporate expenses (3,077) (2,947) Net financing costs (9,075) (13,401) Takeover response costs 4 (6,311) – Business restructuring 4 – (854) Impairment of intangibles 4 (4,074) – Consolidated profit before income tax from continuing operations 12,776 26,054 Assets Total assets for reportable segments 539,232 530,055 Other assets 20,269 78,536 Consolidated total assets 559,501 608,591 Liabilities Total liabilities for reportable segments 69,327 101,209 Other liabilities 84,153 74,836 Consolidated total liabilities 153,480 176,045
There have been no changes to the basis of segmentation or the measurement basis for the segment profit or loss during the current year. There is no single external customer greater than 10% or more of the total segment revenue.
REPORTABLE UNALLOCATED & CONSOLIDATED SEGMENT ELIMINATIONS TOTAL1 OTHER MATERIAL ITEMS $000 $000 $000 2012 Capital expenditure 6,454 537 6,991 Depreciation 5,808 566 6,374 Amortisation of identifiable intangibles 5,438 143 5,581
2011 Capital expenditure 16,965 127 17,092 Depreciation 6,062 617 6,679 Amortisation of identifiable intangibles 5,970 226 6,196 1 Shown on a continuing basis
88 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 3: DISCONTINUED OPERATIONS
During the financial year ended 31 May 2012, following a strategic review of the Decorative Surfaces & Appliances segment, the Group sold its Parbury and Dekorform businesses. The segment and business unit were not discontinued operations or classified as held for sale as at 31 May 2011 and the comparative income statement has been re-presented to show the discontinued operations separately from continuing operations. These businesses accounted for a significant proportion of the Decorative Surfaces & Appliances (DSA) segment.
CONSOLIDATED 2012 2011 NOTE $000 $000 Results of discontinued operations Revenue 39,193 201,041 Expenses (45,378) (207,115) Results from operating activities (6,185) (6,074) Income tax benefit 8 2,096 994 (4,089) (5,080) Impairment of intangible assets (8,626) (8,495) Results from operating activities, net of income tax (12,715) (13,575) (Loss)/gain on sale of discontinued operations (12,251) 12,080 Income tax benefit/(expense) on sale of discontinued operations 8 4,249 (1,830) (8,002) 10,250 Related loss for the period (20,717) (3,325)
Basic and diluted loss per share – discontinued operations 4 (21.99)¢ (3.53)¢
Cash flows from discontinued operations Net cash from operating activities 3,115 18,217 Net cash used in investing activities (1,100) (3,754) Net cash used in financing activities – (14,967) Net cash from discontinued operations 2,015 (504) Effect of disposal on the financial position of the Group Property, plant and equipment (2,371) (6,834) Intangibles (4) (1,191) Inventories (7,691) (27,017) Trade and other receivables (868) (25,696) Trade and other payables 510 26,008 Provisions (415) 5,743 Net assets and liabilities (10,839) (28,987) Consideration received, satisfied in cash 4,007 37,107 Cash disposed of – – Net cash inflow 4,007 37,107 Consideration received, satisfied in cash 4,007 37,107 Deferred consideration to be received 9 – 5,000 Total proceeds from sale 4,007 42,107
Alesco Annual Report 2012 89
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 4: EARNINGS PER SHARE (a) Basic and diluted earnings/(loss) per share The calculation of basic and diluted earnings per share at 31 May 2012 was based on the loss attributable to ordinary shareholders of $13,864,000 (2011: profit of $13,573,000) and a weighted average number of ordinary shares outstanding of 94,193,403 calculated as follows:
CONSOLIDATED
2012 2011 CONTINUING DISCONTINUED CONTINUING DISCONTINUED OPERATIONS OPERATIONS TOTAL OPERATIONS OPERATIONS TOTAL $000 $000 $000 $000 $000 $000 Profit/(loss) to ordinary shareholders
Profit/(loss) attributable to ordinary 6,853 (20,717) (13,864) 16,898 (3,325) 13,573 shareholders (basic and diluted)
CONSOLIDATED
2012 2011 NUMBER NUMBER Weighted average number of shares used as the denominator Number of shares for basic and diluted earnings per share 94,193,403 94,193,403 There are no potential dilutive ordinary shares.
(b) Basic and diluted earnings per share from continuing operations before significant items
CONSOLIDATED
2012 2011 CENTS CENTS
Basic and diluted earnings per share from continuing operations before significant items 16.29 18.57
The calculation of earnings from continuing operations before significant items is calculated as follows:
CONSOLIDATED
2012 2011 $000 $000 Net (loss)/profit (13,864) 13,573 Net loss/(gain) on sale of discontinued operations, after tax 8,002 (10,250)
Impairment of intangible assets - discontinued operations 8,626 8,495
Impairment of intangible assets - continuing operations 4,074 – Takeover response expenses, after tax 4,418 – Business restructuring, after tax – 598
11,256 12,416 Operating losses for FY11 discontinued operations, after tax – 2,839 Operating losses for FY12 discontinued operations, after tax 4,089 2,241 Profit from continuing operations before significant items 15,345 17,496
90 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 4: EARNINGS PER SHARE (CONTINUED) 2012 Significant items Discontinued operations - sale and closure The Group sold both the Parbury and Dekorform businesses during the year. A loss on sale after tax of $8,002,000 was recorded. Refer to Note 3 for further details on the discontinued operations.
Asset write-downs An impairment charge of $12,700,000 was recognised against the full carrying value held in the Decorative Surfaces & Appliance segment, which includes Parbury, Dekorform and Robinhood. Approximately $8,626,000 of the $12,700,000 charge has been allocated to the discontinued Parbury and Dekorform businesses with the balance of $4,074,000 allocated to the continuing Robinhood business which is now part of the newly formed Cabinets, Windows & Appliances segment.
Takeover response expenses A one-off item of $6,311,000 ($4,418,000 after tax) relating to response costs to the takeover offer by a subsidiary of DuluxGroup Limited (DuluxGroup) has been charged during the period.
Operating losses for discontinued operations - 2012 In the current year, the reconciliation of earnings for continuing businesses before significant items includes the operating losses relating to the Parbury and Dekorform discontinued operations recorded prior to the date of disposal.
2011 Significant items Discontinued operations - sale and closure The Group sold both the Water Products & Services segment and Marathon Tyres business during the prior year. A net gain on sale after tax of $10,250,000 was recorded. Please refer to Note 3 for further details on the discontinued operations.
Asset write-downs During the prior year the Group sold the Water Products & Services business. Prior to the sale, the expected sale price (net of associated costs) was below the carrying value of the division’s net assets, and an additional impairment charge of $8,495,000 was recognised in the half-year accounts in 2011. This impairment charge was recognised directly against the Water Products & Services identifiable intangible assets relating to customer relationships, thereby writing those assets down to nil, as the purchaser ascribed nil value to those items and this was reflected in the purchase price. Refer to Note 3 for further details on the discontinued operations.
Business restructuring In the prior year, the Group restructured its corporate office functions as a result of the resizing of the organisation post the sale of the Water Products & Services business and the Marathon Tyres business. Restructuring costs, which comprised mostly redundancies, totalled $854,000 ($598,000 after tax).
Operating losses for discontinued operations - 2011 In the prior year, the reconciliation of earnings for continuing businesses before significant items included the operating losses relating to the Water Products & Services segment and Marathon Tyres business recorded prior to the date of disposal.
Alesco Annual Report 2012 91
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 5: OTHER INCOME
CONSOLIDATED
20121 20111 $000 $000 Gain on disposal of property, plant and equipment 51 182 Total other income 51 182 1 Other income from continuing operations.
NOTE 6: OTHER EXPENSES
CONSOLIDATED
2012 2011 NOTE $000 $000
Depreciation and amortisation: Buildings 13 628 390 Leasehold improvements 13 1,132 1,099 Motor vehicles 13 166 690 Plant and equipment 13 5,788 6,504 Leased plant and equipment 13 2 3 7,716 8,686 Amortisation of identifiable intangibles: Brand names 14 879 880 Patents and trademarks 14 462 459 Customer relationships 14 1,071 1,998 Development costs 14 3,339 4,187 Other 14 30 706 5,781 8,230 Total depreciation and amortisation 13,497 16,916
Personnel expenses: Wages and salaries 87,428 114,262 Employee benefits 26,359 34,106 Equity-settled share-based payments 405 (39) 114,192 148,329
Impairment loss on trade receivables 2,789 2,097 Impairment of inventories 589 718 Impairment of assets resulting from natural disaster – 206 Operating lease rental expense 13,759 18,807 Research and development expenditure 195 153 Impairment of intangible assets - continuing operations 4 4,074 – Takeover response expenses 6,311 – Net (loss)/gain on disposal of property, plant and equipment (673) 127
92 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 7: NET FINANCING (COSTS)/INCOME Recognised in profit or loss
CONSOLIDATED
2012 2011 $000 $000 Interest income: Cash and cash equivalents 246 159 Interest expense: Bank loans and overdraft (9,321) (13,560) Net financing (costs)/income (9,075) (13,401)
NOTE 8: INCOME TAX EXPENSE
CONSOLIDATED
2012 2011 NOTE $000 $000 Recognised in the income statement Current tax expense: Current year 5,744 3,041 Adjustments for prior year (59) 283 5,685 3,324 Deferred tax expense: Origination and reversal of temporary differences (1,858) 4,838 Total income tax expense excluding gain on sale of discontinued operations 3,827 8,162 Income tax expense from continuing operations 5,923 9,156 Income tax benefit from discontinued operations (excluding loss on sale) 3 (2,096) (994) Total income tax expense 3,827 8,162 Income tax (benefit)/expense on (loss)/gain on sale of discontinued operations 3 (4,249) 1,830 Total income tax (benefit)/expense (422) 9,992
Income tax recognised in other comprehensive income
CONSOLIDATED
TAX (EXPENSE)/ TAX (EXPENSE)/ BENEFIT BENEFIT
2012 2011 INCOME TAX RECOGNISED IN OTHER COMPREHENSIVE INCOME $000 $000 Net change in fair value of cash flow hedges (25) 854 (25) 854
Alesco Annual Report 2012 93
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 8: INCOME TAX EXPENSE (CONTINUED)
CONSOLIDATED
2012 2011 NUMERICAL RECONCILIATION BETWEEN TAX EXPENSE AND PRE-TAX NET (LOSS)/PROFIT $000 $000 (Loss)/profit for the period (13,864) 13,573 Total income tax (benefit)/expense (422) 9,992 (Loss)/profit excluding income tax expense (14,286) 23,565 Prima facie income tax (benefit)/expense calculated at 30% (2011: 30%) on (loss)/profit before tax (4,286) 7,070 Increase/(decrease) in income tax expense due to: Non-deductible amortisation of intangibles 585 1,134 Non-deductible expenses 113 116 Non-deductible foreign exchange losses (79) 976 Non-deductible impairment expenses 3,632 2,549 Derecognition of deferred tax asset on sale of subsidiary – 1,830 February trading result on discontinued operation – (427) Overseas tax rate differential 151 (58) Non-assessable capital gains (477) (3,624) Sundry items (2) 143 Income tax (benefit)/expense on (loss)/profit (363) 9,709 Income tax (over)/under provided in prior year (59) 283 Income tax (benefit)/expense attributable to pre-tax (loss)/profit (422) 9,992
On 12 December 2011 the High Court of New Zealand handed down a judgment in favour of the Commissioner of Inland Revenue (IRD) in relation to the tax challenge proceedings issued in 2010 against the IRD by Alesco New Zealand Limited (Alesco NZ), a wholly owned subsidiary of the Company. This decision has been appealed by the Company in respect of both the principal issue of the availability of interest deductions and the imposition of shortfall penalties. The appeal is expected to be heard in October 2012.
The proceedings relate to the question of tax deductibility of interest on an Optional Convertible Note (OCN) financing arrangement put in place by Alesco NZ in 2003 and relate to the 2003-2008 period. This arrangement was unwound in July 2010. There is also an exposure for the 2009-2011 tax years which were not subject to the proceedings but are likely to be dealt with in the same manner as eventually determined for the 2003-2008 tax years.
The total exposure as at 31 May 2012 for the period from 2003 to 2011 is estimated at NZ$14.9 million. This amount includes core tax, interest, shortfall penalties and costs (excluding the impact of any cost orders which may be made against Alesco NZ in connection with the litigation). From a cash perspective, the final amount may be offset by available carry forward tax losses of approximately NZ$3.5 million (as at 31 May 2012).
As previously reported, the Company has provided NZ$8.6 million with respect to the OCN financing matter.
94 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 9: TRADE AND OTHER RECEIVABLES
CONSOLIDATED
2012 2011 $000 $000 Current Trade debtors 71,214 81,122 Trade debtor impairment losses (2,788) (2,097) 68,426 79,025 Other debtors 1,437 395 Deferred consideration – discontinued operation – 5,000 69,863 84,420 Non-current Other loans 5,424 3,664 Loans to executive directors and employees 1,364 2,542 6,788 6,206 The Group’s exposure to credit and currency risks and impairment losses related to trade and other receivables are disclosed at Note 29. NOTE 10: INVENTORIES
CONSOLIDATED
2012 2011 $000 $000 Finished goods at cost 63,333 72,554 Provision for obsolescence (4,076) (5,110) 59,257 67,444
Raw materials at cost 12,803 13,426 Provision for obsolescence (580) (791) 12,223 12,635
Work in progress at cost 1,668 1,488 73,148 81,567
NOTE 11: CURRENT TAX ASSETS AND LIABILITIES
The Group has a current tax asset of $123,000 (2011: $1,284,000) and current tax liability of $4,100,000 (2011: $4,325,000) at year end. These amounts represent the amount of income tax payable in respect of current and prior periods. In accordance with the tax consolidation legislation, the Company as the head entity in the Australian tax-consolidated group has assumed the current tax liability/asset initially recognised by the members in the tax-consolidated group.
NOTE 12: OTHER CURRENT ASSETS
CONSOLIDATED
2012 2011 $000 $000 Prepayments 2,333 6,236 Fair value derivatives 21 – 2,354 6,236 The impact of interest rate and currency risk on the fair value of derivatives is disclosed at Note 29.
Alesco Annual Report 2012 95
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 13: PROPERTY, PLANT AND EQUIPMENT
CONSOLIDATED
2012 2011 $000 $000 Land and buildings: At cost 29,851 29,591 Accumulated depreciation (4,790) (4,164) 25,061 25,427 Leasehold improvements: At cost 7,863 8,776 Accumulated amortisation (4,138) (4,680) 3,725 4,096 Motor vehicles: At cost 1,813 2,810 Accumulated depreciation (1,599) (2,414) 214 396 Plant and equipment: At cost 67,006 79,920 Accumulated depreciation (40,763) (54,747) 26,243 25,173 Leased plant and equipment: At cost 28 28 Accumulated amortisation (25) (23) 3 5 Capital works in progress at cost 1,484 4,311 Total property, plant and equipment net book value 56,730 59,408
Reconciliations – cost Reconciliations of the movement in cost for each class of property, plant and equipment are set out below:
CONSOLIDATED
2012 2011 $000 $000 Land and buildings Cost at beginning of year 29,591 20,302 Additions 87 9,288 Disposals (2) (2) Transfers from capital work in progress 175 3 Cost at end of year 29,851 29,591 Leasehold improvements Cost at beginning of year 8,776 8,528 Additions 1,268 2,421 Disposals (962) (777) Disposals of companies/businesses (1,258) (2,030) Transfers from capital work in progress and other asset categories 15 604 Translation differences 24 30 Cost at end of year 7,863 8,776
96 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 13: PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Reconciliations – cost (continued)
Reconciliations of the movement in cost for each class of property, plant and equipment are set out below:
CONSOLIDATED
2012 2011 $000 $000 Motor vehicles Cost at beginning of year 2,810 13,339 Additions 28 413 Disposals (390) (2,526) Disposals of companies/businesses (643) (8,400) Transfers from capital work in progress and other asset categories – 33 Translation differences 8 (49) Cost at end of year 1,813 2,810 Plant and equipment Cost at beginning of year 79,920 99,802 Additions 5,040 3,648 Disposals (15,365) (6,996) Disposals of companies/businesses (7,039) (16,915) Transfers from capital work in progress and other asset categories 4,168 726 Translation differences 282 (345) Cost at end of year 67,006 79,920 Leased plant and equipment Cost at beginning of year 28 28 Cost at end of year 28 28 Capital works in progress Cost at beginning of year 4,311 1,341 Additions 1,671 5,395 Disposals (150) (24) Disposals of companies/businesses – (282) Transfers to other asset categories (4,359) (2,085) Translation differences 11 (34) Cost at end of year 1,484 4,311
Property, plant and equipment under construction During the prior year, the Group constructed a national distribution centre on the Group owned Wyong site. The remaining cost of the construction incurred in FY12 was $90,000. Capitalised borrowing costs related to the construction of the Wyong manufacturing facility amounted to nil (2011:$411,000), with a capitalisation rate of nil (2011: 8.5%).
Alesco Annual Report 2012 97
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 13: PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Reconciliations – accumulated depreciation Reconciliations of the movement in accumulated depreciation for each class of property, plant and equipment are set out below:
CONSOLIDATED
2012 2011 NOTE $000 $000 Land and buildings Accumulated depreciation at beginning of year (4,164) (3,776) Disposals 2 2 Depreciation expense 6 (628) (390) Accumulated depreciation at end of year (4,790) (4,164)
Leasehold improvements Accumulated depreciation at beginning of year (4,680) (5,085) Disposals 832 626 Disposals of companies/businesses 873 906 Depreciation 6 (1,132) (1,099) Translation differences (31) (28) Accumulated depreciation at end of year (4,138) (4,680)
Motor vehicles Accumulated depreciation at beginning of year (2,414) (11,456) Disposals 359 2,265 Disposals of companies/businesses 634 7,432 Depreciation 6 (166) (690) Translation differences (12) 35 Accumulated depreciation at end of year (1,599) (2,414)
Plant and equipment Accumulated depreciation at beginning of year (54,747) (67,845) Disposals 14,868 6,938 Disposals of companies/businesses 5,062 12,456 Depreciation 6 (5,788) (6,504) Translation differences (158) 208 Accumulated depreciation at end of year (40,763) (54,747)
Leased plant and equipment Accumulated depreciation at beginning of year (23) (20) Amortisation 6 (2) (3) Accumulated depreciation at end of year (25) (23)
98 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 14: INTANGIBLE ASSETS
CONSOLIDATED
2012 2011 $000 $000 Goodwill: At cost 242,298 241,791 Accumulated impairment losses (12,570) – 229,728 241,791 Brand names: At cost 107,340 107,294 Accumulated amortisation (17,688) (16,796) 89,652 90,498 Patents and trademarks: At cost 6,654 6,713 Accumulated amortisation (3,484) (3,022) 3,170 3,691 Customer relationships: At cost 10,701 11,537 Accumulated amortisation and impairment losses (5,717) (5,482) 4,984 6,055 Development costs: At cost 27,312 31,081 Accumulated amortisation (19,539) (20,041) 7,773 11,040 Lease premium: At cost 4,659 4,618 Accumulated amortisation (4,659) (4,618) – – Other intangibles: At cost 190 190 Accumulated amortisation (190) (160) – 30 Total intangible assets, net book value 335,307 353,105
Reconciliations – cost Reconciliations of the movement in cost for each class of intangible asset are set out below: Goodwill Cost at beginning of year 241,791 419,416 Additions 208 208 Disposal of companies/businesses – (176,321) Translation differences 299 (1,512) Cost at end of year 242,298 241,791
Alesco Annual Report 2012 99
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 14: INTANGIBLE ASSETS (CONTINUED) Reconciliations – cost (continued)
CONSOLIDATED
2012 2011 $000 $000 Brand names Cost at beginning of year 107,294 117,669 Disposal of companies/businesses – (10,144) Translation differences 46 (231) Cost at end of year 107,340 107,294 Patents and trademarks Cost at beginning of year 6,713 6,719 Disposals (60) – Translation differences 1 (6) Cost at end of year 6,654 6,713 Customer relationships Cost at beginning of year 11,537 43,337 Disposals (836) – Disposal of companies/businesses – (31,800) Cost at end of year 10,701 11,537 Development costs Cost at beginning of year 31,081 34,917 Expenditure capitalised in current period 73 387 Disposals (3,183) (658) Disposal of companies/businesses (685) (4,175) Transfers from other asset categories – 719 Translation differences 26 (109) Cost at end of year 27,312 31,081 Lease premium Cost at beginning of year 4,618 4,827 Translation differences 41 (209) Cost at end of year 4,659 4,618 Other intangibles Cost at beginning of year 190 190 Expenditure capitalised in current period – – Cost at end of year 190 190
100 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 14: INTANGIBLE ASSETS (CONTINUED) Reconciliations – accumulated amortisation and impairment losses Reconciliations of the movement in accumulated amortisation and impairment losses for each class of intangible asset are set out below:
CONSOLIDATED
2012 2011 NOTE $000 $000 Goodwill Accumulated impairment at beginning of year – (176,321) Disposal of companies/businesses – 176,321 Impairment write down (12,700) – Translation differences 130 – Accumulated impairment losses at end of year (12,570) –
Brand names Accumulated amortisation at beginning of year (16,796) (26,120) Amortisation 6 (879) (880) Disposal of companies/businesses – 10,144 Translation differences (13) 60 Accumulated amortisation at end of year (17,688) (16,796) Patents and trademarks Accumulated amortisation at beginning of year (3,022) (2,562) Amortisation 6 (462) (459) Disposal of companies/businesses – 3 Translation differences – (4) Accumulated amortisation at end of year (3,484) (3,022) Customer relationships Accumulated amortisation at beginning of year (5,482) (26,117) Disposal of companies/businesses – 31,800 Amortisation 6 (1,071) (1,998) Impairment write down 4 – (8,495) Transfers from other asset categories 836 (672) Accumulated amortisation and impairment losses at end of year (5,717) (5,482) Development costs Accumulated amortisation at beginning of year (20,041) (19,589) Disposals 3,183 658 Disposal of companies/businesses 681 2,984 Amortisation 6 (3,339) (4,187) Translation differences (23) 93 Accumulated amortisation at end of year (19,539) (20,041)
Alesco Annual Report 2012 101
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 14: INTANGIBLE ASSETS (CONTINUED) Reconciliations – accumulated amortisation and impairment losses (continued)
CONSOLIDATED
2012 2011 NOTE $000 $000 Lease premium Accumulated amortisation at beginning of year (4,618) (4,827) Translation differences (41) 209 Accumulated amortisation at end of year (4,659) (4,618) Other intangibles Accumulated amortisation at beginning of year (160) (126) Amortisation 6 (30) (706) Transfers to other asset categories – 672 Accumulated amortisation at end of year (190) (160)
Amortisation Amortisation has been recognised in the “Administration and general expenses” line in the consolidated income statement. Impairment tests for cash-generating units containing intangibles with indefinite useful lives During the first half of FY12, a business restructure of the Functional & Decorative Products (FDP) segment occurred which resulted in the formation of two segments; Cabinet & Window Products (CWP) and Decorative Surfaces & Appliances (DSA). Subsequent to the sale of the Parbury and Dekorform businesses during the second half, a further business and management restructure was undertaken. The Cabinets, Windows & Appliances (CWA) segment was formed consisting of the Lincoln Sentry and Robinhood businesses. The carrying amounts of intangible assets with indefinite useful lives and all other intangibles with finite useful lives are allocated to cash-generating units (“CGUs”) as follows:
FINITE TOTAL INDEFINITE USEFUL LIFE USEFUL LIFE INTANGIBLES
GOODWILL BRANDS TOTAL TOTAL TOTAL CONSOLIDATED $000 $000 $000 $000 $000 2012 Cabinets, Windows & Appliances 59,349 16,175 75,524 4,276 79,800 Construction Products & Equipment 51,061 9,500 60,561 1,906 62,467 Garage Door & Openers 119,318 53,500 172,818 20,165 192,983 229,728 79,175 308,903 26,347 335,250 Multiple units without significant goodwill – – – 57 57 229,728 79,175 308,903 26,404 335,307
2011 Construction Products & Equipment 51,022 9,500 60,522 2,626 63,148 Functional & Decorative Products 71,423 16,175 87,598 5,675 93,273 Garage Door & Openers 119,346 53,500 172,846 23,536 196,382 241,791 79,175 320,966 31,837 352,803 Multiple units without significant goodwill – – – 302 302 241,791 79,175 320,966 32,139 353,105
102 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 14: INTANGIBLE ASSETS (CONTINUED) Impairment tests for cash-generating units containing intangibles with indefinite useful lives (continued) Certain brand names have been determined as maintaining an indefinite useful life as they operate in markets where they are positioned as premium brands, command high margins and hold a strong market presence. Brands include B&D, Concrete Technologies, Flextool and other brands within Cabinets, Windows & Appliances. Finite useful life intangible assets primarily include certain other patents, trademarks, customer relationships and development costs. Intangibles assessed on a value-in-use basis The cash-generating unit impairment tests for the Cabinets, Windows & Appliances, Construction Products & Equipment and Garage Doors & Openers CGUs are based on value-in-use calculations, whereby the net present value of the future cash flows of each CGU is compared against the carrying amount of net operating assets of that CGU. In the financial year ended 31 May 2011, the recoverable amounts of the Construction Products & Equipment, Functional & Decorative Products and Garage Doors & Openers CGUs were determined based upon a value-in-use basis. Key assumptions used for value-in-use calculations Cash flow projections are based on the latest financial forecasts for 2013 and the latest management estimates of financial forecasts for the 2014-2016 financial years. A terminal value is calculated for subsequent years referencing the terminal growth rates (see table below). This method is appropriate to value the CGUs since the primary assets held by the CGU are indefinite life intangible assets. Management has based the assumptions in the models on current market conditions, past performance and future expectations and forecast growth rates found in industry reports. Growth rates used were generally determined by factors such as industry sector, the market to which the CGU is dedicated, the size of the business, geographic location, past performance and other industry factors.
CONSOLIDATED
REVENUE REVENUE REVENUE GROWTH RATE GROWTH RATE GROWTH RATE YEAR 2 YEAR 3 YEAR 4 % % % 2012 Cabinets, Windows & Appliances 11.8 7.8 0.6 Construction Products & Equipment 13.4 4.5 5.1 Garage Doors & Openers 8.9 6.5 (0.4) The growth rates used to extrapolate cash flows beyond the 2016 financial year were 3.0% and do not exceed the long-term average growth rates for the markets to which the assets are dedicated. The increased revenue growth rates in the Cabinets, Windows & Appliances CGU reflect the sale of the Parbury and Dekorform businesses.
CONSOLIDATED REVENUE REVENUE REVENUE GROWTH RATE GROWTH RATE GROWTH RATE YEAR 2 YEAR 3 YEAR 4 % % % 2011 Construction Products & Equipment 10.7 14.0 5.0 Functional & Decorative Products 3.0 3.1 3.0 Garage Doors & Openers 5.8 5.5 4.8 In the prior year, the growth rates used to extrapolate cash flows beyond the 2015 financial year were 3.0% and did not exceed the long-term average growth rates for the markets to which the assets were dedicated. In the prior year, growth rates in the Functional & Decorative Products business included the Parbury and Dekorform discontinued businesses.
Alesco Annual Report 2012 103
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 14: INTANGIBLE ASSETS (CONTINUED)
Discount rate A pre-tax discount rate determined by reference to the Group’s weighted average cost of capital has been used in discounting the projected cash flows. Discount rates have been revised to reflect lower borrowing costs arising from recent debt refinancing and a lower risk-free rate. Pre-tax discount rates have been applied in a range from 13.8% to 14.1% (2011: 14.6% to 14.7%). Impact of possible changes in assumptions on value-in-use calculations With regard to the assessment of the value-in-use of the CGUs, a sensitivity analysis (refer table below) has been conducted on the effect of a change in the respective key assumptions on the carrying value of each CGU. For the Cabinets, Windows & Appliances, Construction Products & Equipment and Garage Doors & Openers CGUs, the excess of the recoverable amount over the carrying amount of net operating assets (“headroom”) was in aggregate, $88.6 million. CONSOLIDATED TERMINAL GROWTH HEADROOM DISCOUNT RATE CASH FLOWS1 RATE IMPACT OF IMPACT OF IMPACT OF +/- 0.5% +/- 0.5% +/- 10% DISCOUNT CHANGE ON TERMINAL CHANGE ON CHANGE ON 2012 RATE 2012 HEADROOM GROWTH RATE HEADROOM HEADROOM $M % $M % $M $M 2012 Cabinets, Windows & Appliances 40.3 14.1 11.8 3.0 8.7 16.9 Construction Products & Equipment 42.5 13.9 10.3 3.0 7.6 15.2 Garage Doors & Openers 5.8 13.8 17.7 3.0 13.0 27.3
CONSOLIDATED TERMINAL GROWTH HEADROOM DISCOUNT RATE CASH FLOWS1 RATE IMPACT OF IMPACT OF IMPACT OF +/- 0.5% +/- 0.5% +/- 10% DISCOUNT CHANGE ON TERMINAL CHANGE ON CHANGE ON 2011 RATE 2011 HEADROOM GROWTH RATE HEADROOM HEADROOM $M % $M % $M $M 2011 Construction Products & Equipment 29.7 14.6 7.8 3.0 6.5 13.7 Functional & Decorative Products 29.5 14.6 10.6 3.0 8.8 19.9 Garage Doors & Openers 44.8 14.7 16.9 3.0 14.0 30.8 All sensitivities shown in the above table are on a pre-tax basis. 1 Sensitivity has been applied to net present value of the cash flows over the forecast period including the terminal year.
Impairment of Decorative Surfaces & Appliances CGU at 31 May 2012 At 31 March 2012, the expected sale price (net of associated transaction costs) of the Parbury and Dekorform businesses was below the carrying value of the business net assets. An impairment charge of $12,700,000 was recognised against the full carrying value of the DSA CGU. This impairment charge was recognised directly against the goodwill thereby writing these assets down to nil. This impairment was allocated on a relative basis against the Parbury, Dekorform and Robinhood businesses.
Impairment of Water Products & Services division at 31 May 2011 At 30 November 2010, the expected sale price (net of associated transaction costs of the Water Products & Services Division) was below the carrying value of the division’s net assets and an additional impairment charge of $8,495,000 was recognised. This impairment charge was recognised directly against the Water Products & Services identifiable intangible assets relating to customer relationships, thereby writing these assets down to nil, as the purchaser ascribed nil value to these items and this was reflected in the purchase price. The Group has determined that there is no impairment of any of its other cash-generating units containing goodwill or intangible assets with indefinite useful lives.
104 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 15: DEFERRED TAX ASSETS AND LIABILITIES
CONSOLIDATED
2012 2011 RECOGNISED DEFERRED TAX ASSETS/(LIABILITIES) $000 $000 Property, plant and equipment (103) (962) Intangibles (1,071) (1,625) Provisions 4,224 3,354 Employee benefits 3,726 4,626 Receivables 834 629 Inventories 1,384 1,758 Accruals not yet deductible 3,019 1,163 Unrealised foreign exchange losses (246) (13) Derivatives (32) 487 Net deferred tax asset 11,735 9,417
Movement in temporary differences during the year
BALANCE RECOGNISED IN RECOGNISED IN RECOGNISED DISCONTINUED BALANCE 31 MAY 2011 PROFIT OR LOSS OTHER DIRECTLY IN OPERATIONS 31 MAY 2012 COMPREHEN EQUITY -SIVE INCOME Property, plant and equipment (962) 859 – – – (103) Intangibles (1,625) 554 – – – (1,071) Provisions 3,354 482 – – – 3,836 Employee benefits 4,626 (561) – – (339) 3,726 Receivables 629 205 – – – 834 Inventories 1,758 (374) – – – 1,384 Accruals not yet deductible 1,163 1,856 – – – 3,019 Unrealised foreign exchange (233) (246) gains (13) – – – Derivatives 487 (106) (25) – – 356 9,417 2,682 (25) – (339) 11,735
NOTE 16: OTHER NON-CURRENT ASSETS
CONSOLIDATED
2012 2011 $000 $000 Prepayments 371 62 371 62
NOTE 17: TRADE AND OTHER PAYABLES
CONSOLIDATED
2012 2011 $000 $000 Current Trade creditors 43,471 46,265 Other creditors and accruals 15,156 17,226 58,627 63,491 The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in Note 29.
Alesco Annual Report 2012 105
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 18: LOANS AND BORROWINGS
CONSOLIDATED
2012 2011 NOTE $000 $000 Current Bank overdraft 32(a) – – – – Non-current Bank loans – unsecured 69,000 85,000
69,000 85,000 Financing facilities Total facilities available: Bank overdrafts 4,777 4,769 Bank loans 130,000 160,000 Standby letters of credit and guarantees 10,688 11,166 145,465 175,935 Facilities utilised at reporting date: Bank overdrafts – – Bank loans 69,000 85,000 Standby letters of credit and guarantees 4,337 1,685 73,337 86,685 Facilities not utilised at reporting date: Bank overdrafts 4,777 4,769 Bank loans 61,000 75,000 Standby letters of credit and guarantees 6,351 9,481 72,128 89,250 Loan facilities Loan facilities are denominated in Australian dollars and mature as follows: Within one year – – Later than one year but not later than two years 90,000 120,000 Later than two years but not later than three years 40,000 40,000 130,000 160,000
Financing arrangements Bank overdrafts The bank overdrafts of the Company and its controlled entities are subject to annual review. Interest is charged at prevailing market rates. The weighted average interest rate for all overdrafts as at 31 May 2012 is 6.3% (2011: 7.0%). The Group’s banking arrangements allow a netting of overdrafts across the Group. Bank loans On 1 November 2011, the Group renegotiated its existing loan facilities reducing the total facility from $160 million to $130 million. The facility is comprised of three tranches with the following maturity profile:
TRANCHE FACILITY AMOUNT TERM Tranche B $50 million 1 December 2013 Tranche A $40 million 31 May 2014 Tranche C $40 million 1 December 2014
106 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 18: LOANS AND BORROWINGS (CONTINUED) Financing arrangements (continued) Bank loans (continued) Bank loans are denominated in Australian dollars. The weighted average interest rate for bank loans at 31 May 2012 is 7.4% (2011: 8.4%). The bank loans are variable interest debt. The facilities provided to the Group by its principal bankers are unsecured but subject to certain financial covenants. The Group complied with these covenants during the year ended 31 May 2012. Standby letters of credit and guarantees The standby letters of credit facility and guarantees facility are committed facilities and are subject to annual review. For the standby letters of credit facility, interest is payable at the bank bill rate plus the Company’s credit margin. Interest rate swaps The Group has Australian dollar interest rate swaps, floating to fixed, with the following amounts and expiry dates:
AMOUNT START DATE $000 MATURITY 2012 $40 million floating to fixed1 8 June 2011 40,000 24 July 2012 $8 million floating to fixed 7 November 2011 8,000 7 November 2013 $5 million floating to fixed1 25 July 2011 5,000 31 May 2014 $5 million floating to fixed1 25 July 2011 5,000 31 May 2014 $10 million floating to fixed2 25 July 2012 10,000 31 May 2014 $10 million floating to fixed2, 3 24 July 2012 10,000 1 December 2014 $15 million floating to fixed2, 3 26 May 2014 15,000 1 December 2014 $8 million floating to fixed2 24 July 2012 8,000 1 December 2015 $10 million floating to fixed2 1 December 2014 10,000 1 December 2015 2011 $40 million floating to fixed 1 June 2009 40,000 7 June 2011 $30 million floating to fixed 24 June 2010 30,000 24 July 2011 $40 million floating to fixed1 8 June 2011 40,000 24 July 2012 $5 million floating to fixed1 25 July 2011 5,000 31 May 2014 $5 million floating to fixed1 25 July 2011 5,000 31 May 2014
1 Transaction entered into at 31 May 2011 however start date was after this date. 2 Transaction entered into at 31 May 2012 however start date is after this date. 3 This interest rate swap steps up to $25 million on 26 May 2014.
Terms and conditions The terms and conditions of outstanding loans were as follows: CONSOLIDATED CONSOLIDATED CARRYING AMOUNT NET FAIR VALUE
2012 2011 2012 2011 $000 $000 $000 $000 Variable interest debt 1 69,000 85,000 69,000 85,000
1 The total variable interest debt comprises only Australian dollar debt with interest rates ranging from 6.5% to 7.4% (2011: 8.3% to 8.4%) with 2-4 year maturities (2011: 1-3 year maturities). The impact of interest rate risk on the fair value of derivatives is disclosed at Note 29.
Alesco Annual Report 2012 107
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 19: PROVISIONS
CONSOLIDATED
2012 2011 $000 $000 Current Employee benefits 9,817 12,947 Restructuring – 846 Warranties 1,617 1,521 Surplus leased premises 1,670 – Other 1,786 1,053 14,890 16,367 Non-current Employee benefits 2,029 2,364 Lease make-good 767 993 Lease straight-lining 1,660 1,883 Surplus leased premises 1,198 – 5,654 5,240 Reconciliations Reconciliations of the carrying amounts for each class of provision, except for employee benefits, are set out below: Restructuring (current) Carrying amount at beginning of year 846 83 Provisions made during the year 76 878 Provisions reversed during the year (33) – Provisions used during the year (889) (112) Translation differences – (3) Carrying amount at end of year – 846 Warranties (current) Carrying amount at beginning of year 1,521 1,749 Provisions made during the year 185 102 Provisions reversed during the year (61) (228) Provisions used during the year (22) (77) Decrease through disposal of entities and businesses (8) (5) Translation differences 2 (20) Carrying amount at end of year 1,617 1,521
108 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 19: PROVISIONS (CONTINUED) Reconciliations (continued)
CONSOLIDATED
2012 2011 $000 $000 Surplus leased premises (current) Carrying amount at beginning of year – 16 Provisions made during the year (1,670) (10) Translation differences – (6) Carrying amount at end of year (1,670) – Deferred earn-out (current) Carrying amount at beginning of year – 4,875 Provisions used during the year – (4,808) Decrease through disposal of entities and businesses – (67) Carrying amount at end of year – – Other provisions (current) Carrying amount at beginning of year 1,053 2,321 Provisions made during the year 2,251 662 Provisions reversed during the year (758) (545) Provisions used during the year (760) (1,140) Decrease through disposal of entities and businesses – (245) Carrying amount at end of year 1,786 1,053 Lease make-good (non-current) Carrying amount at beginning of year 993 1,629 Provisions made during the year 103 185 Provisions reversed during the year – (285) Provisions used during the year (319) (106) Decrease through disposal of entities and businesses – (430) Translation differences (10) – Carrying amount at end of year 767 993 Lease straight-lining (non-current) Carrying amount at beginning of year 1,883 1,577 Provisions made during the year 6 329 Provisions reversed during the year (3) (23) Provisions used during the year (226) – Carrying amount at end of year 1,660 1,883 Surplus leases premises (non-current) Carrying amount at beginning of year – – Provisions made during the year 1,445 – Provisions reversed during the year (247) – Carrying amount at end of year 1,198 – Other provisions (non-current) Carrying amount at beginning of year – 425 Provisions reversed during the year – (425) Carrying amount at end of year – –
Alesco Annual Report 2012 109
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 20: OTHER CURRENT LIABILITIES
CONSOLIDATED
2012 2011 $000 $000 Fair value derivatives 1,209 1,622 1,209 1,622 The Group’s exposure to currency and liquidity risk related to other current liabilities is disclosed in Note 29.
NOTE 21: SHARE CAPITAL
THE COMPANY THE COMPANY
2012 2011 2012 2011 SHARES SHARES $000 $000 Share capital Ordinary shares, fully paid 94,193,403 94,193,403 418,543 520,407 Ordinary shares – movements during the year Balance at beginning of year 94,193,403 94,193,403 520,407 520,407 S258F capital reduction1 101,864 – Balance at end of year 94,193,403 94,193,403 418,543 520,407 1 The Company reduced its accumulated losses and share capital by an equal amount via a Section 258F Corporations Act 2001 reduction. See Note 23 for further details. Terms and conditions The Company does not have authorised capital or par value in respect of its issued shares. All issued shares are fully paid. Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders’ meetings. In the event of winding up of the Company, ordinary shareholders rank after creditors and are fully entitled to any proceeds of liquidation. At reporting date, there were 339,537 (2011: 258,884) shares forfeited under the employee share plans held by a third party plan trustee. Capital management The consolidated entity’s and the parent entity’s overall strategic capital management objective is to: • provide optimal capital structure to reduce the cost of capital; • maintain a strong/conservative capital base so as to maintain creditor and market confidence and to sustain future development of the business; • maintain a conservative funding structure which provides sufficient flexibility to fund the operational demands of the business and to underwrite any strategic opportunities; and • manage capital to ensure sufficient buffer over and beyond any banking covenants.
110 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 21: SHARE CAPITAL (CONTINUED) Capital management (continued) The consolidated entity monitors the return on capital, which the consolidated entity defines as net operating income divided by total shareholders’ equity. The consolidated entity’s target is for all divisions to achieve a return on average net operating assets over the medium-term which is greater than the Group’s weighted average cost of capital (10.7% post tax). During the year, the return on average net operating assets (earnings before interest and tax divided by average net operating assets) was 5.2% (2011: 6.4%). Returns on capital fluctuate according to prevailing economic circumstances and, in particular, the level of merger and acquisition activity the consolidated entity undertakes and the mix of debt and equity used to fund the consolidated entity. The consolidated entity monitors capital with reference to having an optimal level of gearing. The level of gearing is measured by reference to the net debt gearing ratio which is calculated as net debt divided by total capital. Net debt is calculated at total interest-bearing financial assets and liabilities less cash and cash equivalents. Total capital is calculated as equity as shown in the statement of financial position plus net debt. The consolidated entity’s net debt gearing ratio at the end of the reporting period was as follows:
CONSOLIDATED 2012 2011 $000 $000 Net debt 65,918 78,114 Total equity 406,021 432,546 Total capital 471,939 510,660 Net debt gearing ratio at 31 May 14.0% 15.3% The consolidated entity also monitors the level of dividends to ordinary shareholders. In order to maintain or adjust the capital structure, the consolidated entity may adjust the amount of dividends paid to the shareholders, return capital to shareholders or issue new shares. The consolidated entity’s capital management objectives will be effected through: • an ongoing flow of fully franked dividends, which subject to the consolidated entity’s franking ability and ongoing profitability will be on an annually progressive basis; and • from time to time, on-market purchases mitigate the dilutionary impact of share issues which would be otherwise necessary to satisfy obligations under employee share-based remuneration plans as they crystallise. The consolidated entity expects to continue the payment of fully franked dividends on an ongoing basis subject to its overall earnings performance, prevailing economic circumstances, alternative demands on funds or other more effective capital management opportunities becoming available. The Board of directors and management review the capital management objectives on a periodic basis and implement initiatives which are deemed appropriate in the environment existing at that time. External consultants and advisers are used as required to determine the appropriate capital structure for the consolidated entity and advise on other capital management related items. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.
Alesco Annual Report 2012 111
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 22: RESERVES
CONSOLIDATED
2012 2011 $000 $000 Foreign currency translation reserve 2,903 1,429 Hedging reserve (748) (807) Share equity reserve 3,364 2,958 5,519 3,580 Movements during the year: Foreign currency translation reserve Balance at beginning of year 1,429 3,218 Increase through disposal of businesses 1,014 – Net translation adjustment 460 (1,789) Balance at end of year 2,903 1,429 Hedging reserve Balance at beginning of year (807) 1,184 Net gain/(loss) transferred to/from hedging reserve 59 (1,991) Balance at end of year (748) (807) Share equity reserve Balance at beginning of year 2,958 6,332 Employee share-based payments 406 (39) Release of reserve for settlement of deferred consideration – (3,335) Balance at end of year 3,364 2,958 Nature and purpose of reserves Foreign currency translation The foreign currency translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations where their functional currency is different to the presentation currency of the reporting entity as well as from the translation of liabilities that hedge the Company’s net investment in a foreign subsidiary. Refer to accounting policy Note 1(d). Hedging reserve The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred. Refer to Note 1(e). Share equity The share equity reserve relates to shares issued, and held on trust, associated with the Group’s equity compensation plans that have not vested at the reporting date as well as an amount in relation to potential deferred consideration associated with previous acquisitions. The fair value of the shares is expensed over the vesting period and credited to this reserve. The reserve will reverse against share capital when the underlying shares vest in the employee. In 2011, the release of the reserve for settlement of deferred consideration represented the settlement of a dispute with a vendor in connection with the final purchase price to be paid for the Total Eden McCracken’s business. On acquisition, a provision was set aside for the estimated cash consideration to be paid on settlement. At the same time a reserve was held for the estimated equity consideration to be issued on settlement. As a result of the matter being settled for cash only the amount held in the reserve was released to settle the matter.
112 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 23: ACCUMULATED LOSSES
CONSOLIDATED
2012 2011 NOTE $000 $000 Balance at beginning of year (91,441) (103,601) Net profit/(loss) (13,864) 13,573 Dividends 24 (14,600) (1,413) Reduction due to losses not represented by assets under S258F of the Corporations Act 20011 101,864 – Balance at end of year (18,041) (91,441) 1The balance of accumulated losses at 31 May 2012 included paid up ordinary share capital that had been lost or was not represented by available assets. In accordance with Section 258F of the Corporations Act 2001, the Company reduced its paid up ordinary share capital balance by $101,864,000 (see Note 21) with an equal reduction of the accumulated losses balance. The total of accumulated losses at 31 May 2012 resulted from losses from impairments of assets in the discontinued Water Products & Services segment disposed on 28 February 2011. In the financial years ended 31 May 2009, 2010 and 2011, the Group incurred losses from impairments related to the Water Products & Services segment greater than the amount of the capital reduction. The Company incurred a permanent loss of the capital invested in the Water Products & Services business when that segment was sold in 2011. The Directors do not expect any further gains or losses from these discontinued operations in subsequent financial years. There is no impact on shareholders from the capital reduction as no shares have been cancelled or rights varied. Similarly, creditors are not affected as there has been no change in available assets. There is also no impact on the availability of the Company’s tax losses from this capital reduction.
Alesco Annual Report 2012 113
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 24: DIVIDENDS Dividends recognised in the current year by the Company are:
CENTS PER TOTAL AMOUNT FRANKED/ NOTE SHARE $000 DATE OF PAYMENT UNFRANKED 2012 Interim 2012 ordinary1 3.0 2,826 9 March 2012 Franked Final 2011 ordinary 7.0 6,594 6 September 2011 Franked Special 2011 ordinary 5.5 5,180 6 September 2011 Franked Total amount 23 15.5 14,600 2011 Interim 2011 ordinary1 1.5 1,413 4 March 2011 Franked Final 2010 ordinary Nil Nil n/a n/a Total amount 23 1.5 1,413 1 Refer to Note 35 for further detail on franking.
Franked dividends determined or paid during the year were franked at the tax rate of 30%. Dividends 2012 On 24 July 2012, the following dividends were determined by the directors. These dividends have not been provided for. The determination and subsequent payment of dividends has no income tax consequences for the Company.
CENTS PER TOTAL AMOUNT FRANKED/ SHARE $000 DATE OF PAYMENT UNFRANKED Final 2012 ordinary1 5.0 4,710 7 September 2012 Franked Special 2012 ordinary1 10.0 9,419 7 September 2012 Franked Total amount 15.0 14,129 1 Refer to Note 35 for further detail on franking.
The financial effect of the dividends determined subsequent to reporting date has not been brought to account in the financial statements for the year ended 31 May 2012 and will be recognised in subsequent financial reports. Dividend reinvestment plan The directors have determined that the Dividend Reinvestment Plan (“Plan”) is suspended in respect of the 2012 final and special dividends. Dividend franking account
THE COMPANY
2012 2011 $000 $000 30% franking credits available to shareholders of Alesco Corporation Limited for subsequent financial years 37,443 41,544
The above available amounts are based on the balance of the dividend franking account at year-end adjusted for:
(a) franking credits that will reverse upon receipt of the current tax receivable; and (b) franking credits that the entity may be prevented from distributing in subsequent years. The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends. The impact on the dividend franking account of the dividends proposed subsequent to year-end but not recognised as a liability is to reduce it by $6,055,000 (2011: $5,046,000). In accordance with the tax consolidation legislation, the Company as the head entity in the tax-consolidated group has assumed all franking credits from all entities within the tax-consolidated group.
114 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 25: AUDITORS’ REMUNERATION
CONSOLIDATED
2012 2011 $ $ Audit services (Auditors of the Company) KPMG Australia: Audit and review of financial reports 575,000 754,624 Overseas KPMG firms: Audit and review of financial reports 80,500 111,867 655,500 866,491 Other services (Auditors of the Company) KPMG Australia: Taxation services 38,000 113,557 Other services Investigating accountant’s report 229,000 – Other 3,525 20,871 Overseas KPMG firms: Taxation services 42,043 54,881 312,568 189,309
NOTE 26: EMPLOYEE BENEFITS Superannuation funds The Company and its controlled entities contribute to defined contribution superannuation funds. The amount recognised as an expense within the Group during the year was $7,297,857 (2011: $9,421,880). Equity-based plans Alesco operates share plans for its employees and executives. No shares have been issued under these plans in the current financial year. There were 699,044 (2011: 798,487) performance rights granted under the Performance Rights Plan during the year. The fair value at grant date of performance rights issued during the period is independently determined using a Monte Carlo valuation model that takes into account factors such as the Company’s share price at the grant date, volatility of underlying shares, the risk free rate of return, expected dividend yield and the likelihood that vesting conditions will be met. The model also includes the value attributable to the re-test feature at the end of year four. Shares issued under the plans rank equally with other fully paid ordinary shares but are subject to certain trading restrictions for a period of time. Participation in the plans is voluntary. The Group has the following current share plan arrangements: Employee share plans These plans have been approved by shareholders, most recently at the 2004 Annual General Meeting. No offers have been made under these plans since 2007. Under the Alesco Employee Share Plan (“AESP”) all eligible employees may acquire up to $1,000 worth of ordinary shares in the Company, subject to rounding. Eligible employees within the Group (other than employees resident and working in New Zealand) can receive the first $500 worth of shares for no consideration. Eligible employees can also elect to take up an additional number of shares up to the value of $500. Where such an election is made, the eligible employees’ salary or wages are reduced by an equivalent amount over the 12 months following the allocation date. The AESP complies with current Australian tax legislation, enabling employees to have up to $1,000 of shares, in respect of an employee share scheme, excluded from their assessable income. The New Zealand Employee Share Plan (“AESPNZ”) was designed to mirror the AESP to the extent permitted under New Zealand law. Any differences are due to statutory requirements of relevant New Zealand legislation. Alesco New Zealand Trustee Limited, a subsidiary of Alesco Corporation Limited, is the trustee appointed to administer the AESPNZ plan and holds shares for New Zealand employee participants.
Alesco Annual Report 2012 115
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 26: EMPLOYEE BENEFITS (CONTINUED) Equity-based plans (continued) Employee share plans (continued) Eligible employees in New Zealand can acquire up to NZ$2,340 worth of ordinary shares in the Company over a three-year period, at a discount of up to 95% of the market value of shares. The discount is determined by the Board and was set at 95% for the issue made during the reporting period. This limit has been set in accordance with currently available tax concessions to employees under New Zealand law. Eligible employees include all full-time and part-time employees who are employed by an entity in the Group as at the allocation date. The shares cannot be sold, transferred, or otherwise disposed of, until the earlier of three years from the allocation date or when the employee is no longer employed by an entity within the Group. During the year, no offers were made to employees under the AESP (2011: nil shares). An expense of nil (2011: nil) was recognised in the consolidated income statement. Alesco performance rights plan In September 2010, the Company established the Alesco Performance Rights Plan (“Rights Plan”) for key management personnel and other senior executives. This plan was approved by shareholders at the 2010 Annual General Meeting. Under the Rights Plan, key executives are offered conditional entitlements to ordinary shares which vest, subject to the Company achieving certain performance hurdles. The hurdles are based on the compound annual growth in earnings per share (based on reported profit after tax) and total shareholder return (as measured against the ASX Small Ordinaries Index) over a three year performance period. Hurdles are re-tested one year after the end of the measurement period should the maximum total award not vest at the end of the measurement period. The executives must also remain in employment at the time of vesting. The Rights Plan cannot be transferred, have no voting or dividend rights, and they are not quoted on the Australian Stock Exchange. The level of award was determined by reference to the individual’s fixed annual remuneration at September 2010 and their job level. The maximum achievement level for the CEO is 100% of fixed annual remuneration, and up to 50% for other participants. Grants were made to individuals in April 2012. During the year, 699,044 (2011: 798,487) performance share rights were granted to employees under the Rights Plan. The Group has the following legacy share plan arrangements: Management share plans The Alesco management share plans are currently suspended and no offers were made during the year or the prior year. These plans enable eligible senior management the opportunity to receive part of their potential remuneration in shares in the Company (“remuneration shares”) and to apply for shares which are allocated to them at the discretion of the Board on the satisfaction of specific performance conditions (“incentive shares”). Remuneration shares cannot be sold, transferred, or otherwise disposed of, until they have been paid for in full or when the employee is no longer employed by an entity within the Group. Incentive shares cannot be sold, transferred, or otherwise disposed of, until the relevant performance conditions attaching to those shares have been satisfied. Currently, the performance condition attached to incentive shares issued to date is that the earnings per share growth (before amortisation of intangibles and significant items) for the Group is equal to or exceeds 5.0%, compounded annually over the three financial years subsequent to the grant date. The trustee also has the discretion to waive performance conditions. In order to purchase shares under the New Zealand Management Share Plan (“AMSPNZ”), the New Zealand company of which the manager is an employee is required to make an interest-free loan on behalf of the manager to the plan trustee. The plan trustee then applies these funds to acquire Alesco shares on behalf of the New Zealand participating managers. The shares issued by the management share plans are either issued or acquired on-market and are held by a trustee on trust for the participant for up to a maximum period of 10 years.
116 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 26: EMPLOYEE BENEFITS (CONTINUED) Equity-based plans (continued) Alesco Performance Share Acquisition Plan The Alesco Performance Share Acquisition Plan (“Share Loan Plan”) was approved by shareholders at the 2006 Annual General Meeting. This plan was suspended in 2009. The Share Loan Plan is for the Group’s most senior executives. Under the Plan, interest-free loans are provided to key senior executives to fund the acquisition of ordinary fully paid shares in the Company. Senior executives are entitled to receive interest-free loans with full recourse from the Company to fund the purchase of shares in the entity. These interest-free loans have a term of up to 10 years. Eligible senior executives receiving loans to purchase shares are the registered owners of the shares from the date they are purchased or issued and have the right to vote and receive cash from dividends to meet their individual tax liability on the dividends. The balance of the dividends is used to repay the loans. A holding lock is placed on these shares to prevent sale until the respective loan has been repaid in full to the Company. Awards may be earned based on the Company’s compound annual growth rate in earnings per share (before amortisation of intangibles and significant items) over a three-year period (EPS Growth). The maximum award allowed under the Plan is currently 53.5% of the loan extended to eligible senior executives. Awards can be earned by senior executives in the form of either cash bonuses (used to pay down the outstanding loan) or loan waivers. The size of the annual acquisition of shares and therefore loans is calculated by the base salary package of the eligible employee multiplied by the stretch long-term incentive target, divided by the prevailing share price of the Company at the date of issue. During the year, no offers were made to employees under the Plan (31 May 2011: $nil). Information regarding loans extended to eligible key management personnel during the year is provided in the Remuneration Report section of the Directors’ Report on pages 18 to 63 and Note 31. The present value of the loan has increased as the loan draws to maturity. The increase in the present value of the loan is recognised as interest income. Alesco cash incentive plan In November 2009 the Company established the Alesco Cash Incentive Plan (“CIP”) for its most senior executives as an alternative to the Alesco Performance Share Acquisition Plan (“Share Loan Plan”) allowing participating executives the choice between the Share Loan Plan and the CIP. Under the CIP participating executives have the opportunity to receive cash bonuses. The amount of the cash bonus was dependent upon the Company’s performance over a three-year period across two performance hurdles, each of which accounts for 50% of the maximum cash bonus amount. The hurdles were based on the compound annual growth in earnings per share (before amortisation of intangibles and significant items) and total shareholder return over a three year period commencing from 1 June 2009 until 31 May 2012. The executives were also required to remain employed by Alesco throughout the three year performance period except in the special circumstances as determined by the Board. In determining the compound annual growth in earnings per share (before amortisation of intangibles and significant items) the base number was 45.3 cents per share. The amount of the maximum cash bonus was based on a percentage of each participating executive’s fixed annual remuneration as at 1 June 2009. The plan was one-off in nature and is currently suspended. No vesting occurred in relation to this offer. For further details, refer to the Remuneration Report section of the Directors’ Report on pages 18 to 63 and Note 31.
Alesco Annual Report 2012 117
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 26: EMPLOYEE BENEFITS (CONTINUED) Equity-based plans - Summary of share plan movements Shares issued, distributed and forfeited during the year were made at varied dates throughout the year. A summary of share movements in the employee share plans are as follows: OPENING SHARE PLAN GRANT DATE BALANCE ISSUED DURING THE YEAR DISTRIBUTIONS DURING THE YEAR FORFEITED DURING THE YEAR CLOSING BALANCE FAIR VALUE FAIR VALUE FAIR VALUE FAIR VALUE PER SHARE PER SHARE PER SHARE AGGREGATE NUMBER NUMBER $ NUMBER $ NUMBER $ NUMBER $ 2012 Employee share plans AESP 1 Sep 08 136,828 – – (136,828) 2.33 – – – – AESPNZ 1 Sep 08 13,920 – – (13,920) 2.70 – – – –
150,748 – (150,748) – – – 2011 Employee share plans AESP 1 Nov 07 94,458 – – (94,458) 3.30 – – – – AESPNZ 1 Nov 07 10,199 – – (10,199) 2.70 – – – – AESP 1 Sep 08 140,881 – – (4,053) 2.33 – – 136,828 421,430 AESPNZ 1 Sep 08 14,713 – – (793) 2.70 – – 13,920 42,874
260,251 – (109,503) – 150,748 464,304 2012 Management share plans AMSP 1 Sep 08 116,153 – – – – (116,153) 3.30 – – AMSPNZ 1 Sep 08 500 – – – – (500) 3.17 – – 116,653 – – (116,653) – – 2011 Management share plans AMSP 1 Sep 08 148,353 – – – – (32,200) 3.30 116,153 357,751 AMSPNZ 1 Sep 08 800 – – – – (300) 3.17 500 1,540 149,153 – – (32,500) 116,653 359,291
118 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 27: COMMITMENTS AND CONTINGENT LIABILITIES The estimated maximum amount of commitments and contingent liabilities not provided for in the financial statements is set out below:
CONSOLIDATED
2012 2011 $000 $000 Capital expenditure commitments Plant and equipment contracted but not provided for and payable within one year 781 1,636 Non-cancellable operating lease expense commitments Future operating lease commitments not provided for in the financial statements and payable: Within one year 9,574 9,603 Later than one year but within five years 12,375 20,875 Later than five years 2,369 18 24,318 30,496
The Group leases property, plant and equipment under non-cancellable operating leases expiring in one to thirteen years. Leases generally provide the Group with a right of renewal at which time all terms are renegotiated. Lease payments comprise a base amount plus an incremental contingent rental. Contingent rentals are based on movements in the Consumer Price Index. The Group does not lease any property, plant and equipment under finance leases. Contingent liabilities In the ordinary course of business, Group entities are involved in commercial disputes and in legal proceedings. Where appropriate, the Company takes legal advice. The Group does not consider that the outcome of any such disputes or current proceedings is likely to have a material effect on its operations or financial position. On 12 December 2011 the High Court of New Zealand handed down a judgment in favour of the Commissioner of Inland Revenue (IRD) in relation to the tax challenge proceedings issued in 2010 against the IRD by Alesco New Zealand Limited (Alesco NZ), a wholly owned subsidiary of Alesco. This decision has been appealed by Alesco in respect of both the principal issue of the availability of interest deductions and the imposition of shortfall penalties. The appeal is expected to be heard in October 2012. The proceedings relate to the question of tax deductibility of interest on an Optional Convertible Note (OCN) financing arrangement put in place by Alesco NZ in 2003 and relate to the 2003-2008 period. This arrangement was unwound in July 2010. There is also an exposure for the 2009-2011 tax years which were not subject to the proceedings but are likely to be dealt with in the same manner as eventually determined for the 2003-2008 tax years. The total exposure as at 31 May 2012 for the period from 2003 to 2011 is estimated at NZ$14.9 million. This amount includes core tax, interest, shortfall penalties and costs (excluding cost orders which may be made against Alesco in connection with the litigation). From a cash perspective, the final amount may be offset by available carry forward tax losses of approximately NZ$3.5 million (as at 31 May 2012). As previously reported, the Company has provided NZ$8.6 million with respect to the OCN financing matter. During the period, a competitor of GDO commenced proceedings against Automatic Technology (Australia) Pty Limited (“ATA”) and B&D Australia Pty Limited (“B&D”) in the Federal Court of Australia, Victoria Registry alleging patent infringement within Australia by ATA and B&D in relation to ATA’s new Axess® Pro industrial sliding gate opener, which was released to the market in 2011, and ATA’s and B&D’s door position sensor in GDO-10 ToroTM. The plaintiff has not claimed a specific amount of damages at this stage and the proceedings are only in an early stage. ATA and B&D are vigorously defending the claim.
Alesco Annual Report 2012 119
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 28: CONTROLLED ENTITIES (a) Particulars in relation to controlled entities
ORDINARY SHARE CONSOLIDATED EQUITY INTEREST 2012 2011 NOTE % % Parent entity Alesco Corporation Limited Controlled entities Alesco Finance Pty Limited 100 100 ACN 009 130 858 Pty Limited (i) 100 100 Pargone Pty Limited 100 100 Robinhood Australia Pty Limited (ii) 100 100 ACN 000 639 252 Pty Limited (iii) 100 100 Parchem Construction Supplies Pty Limited 100 100 Lincoln Sentry Group Pty Limited 100 100 Joinery Products Hardware Supplies Pty Limited (ii) 100 100 Alesco Holdings Pty Limited 100 100 Alesco No. 2 Pty Limited (iv) 100 100 Alesco No. 1 Pty Limited (iv) 100 100 B&D Australia Pty Limited 100 100 Automatic Technology (Australia) Pty Limited 100 100 ATA Garage Door Openers Limited (v) – 100 Countermast Limited (vi) 100 100 Countermast Technology (Dalian) Company Limited (vii) 100 100 Concrete Technologies Pty Ltd 100 100 Alesco New Zealand Limited (ix) 100 100 Alesco NZ Trustee Limited (ix) 100 100 Robinhood Limited (viii), (ix) 100 100 Supertub Limited (ix) 100 100 Easyiron Limited (ix) 100 100 Concrete Plus Limited (ix) 100 100 Lincoln Sentry Group NZ Limited (ix), (x) – 100 B&D Doors (NZ) Limited (ix) 100 100 (i) Placed into voluntary liquidation during the period. (ii) Renamed on 4 April 2012. It was previously known as Parbury Pty Limited. (iii) Renamed on 3 April 2012. It was previously known as Dekorform Pty Limited. (iv) Entity sold for market value to Alesco Holdings Pty Limited on 3 June 2011. (v) Incorporated in United Kingdom and deregistered during the period. (vi) Incorporated in Hong Kong. (vii) Incorporated and carries on business in China. (viii) Renamed on 3 April 2012. It was previously known as Parbury Building Products (NZ) Limited on 1 December 2009. (ix) Incorporated and carried on business in New Zealand. (x) Lincoln Sentry Group NZ Limited was amalgamated with Alesco New Zealand Limited on 1 June 2011.
(b) Acquisition of controlled entities and businesses
The Group did not have any business acquisitions during the financial year ended 31 May 2012.
120 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 29: FINANCIAL INSTRUMENTS
The Group is exposed to a variety of financial risks in the normal course of its business activities. These risks include credit risk, liquidity risk, market risk and operational risk. The Group’s overall risk management strategy focuses on minimising potential adverse affects on the Group’s financial performance. This note presents information about the Group’s exposure to each of the above risks, their objectives, policies and processes for measuring and managing risk. Further quantitative disclosures are included throughout these consolidated financial statements. The Board of directors has overall responsibility for the establishment and oversight of the Group’s financial risk management framework. The Treasury Department is responsible for developing and monitoring the Group’s financial risk management policies and procedures. The Treasury Department reports regularly to the Board of directors. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risk and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which employees understand their roles and obligations. The Group Audit & Compliance Committee oversees how management monitors compliance with the Group’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Audit & Compliance Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit & Compliance Committee. Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising returns. (a) Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers and derivative financial instruments. To manage this risk, the Group has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a certain amount. Transactions involving derivative financial instruments are with counterparties with sound credit ratings. Given their high credit ratings, the Group does not expect any counterparty to fail to meet its obligations. At the balance sheet date there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivative financial instruments, in the statement of financial position. In respect to those financial assets and the credit risk embodied within them, the Group holds no significant collateral as security and there are no other significant credit enhancements in respect of these assets. The credit quality of all financial assets that are neither past due nor impaired is appropriate and is consistently monitored in order to identify any potential adverse changes in credit quality. There are no significant financial assets that have had renegotiated terms that would otherwise, without that renegotiation, have been past due or impaired. Trade and other receivables The Group’s exposure to credit risk is mainly influenced by the individual characteristics of each customer. The demographics of the Group’s customer base, including the default risk of the industry and country in which customers operate, has less of an influence on credit risk. There is no concentration for credit risk in relation to specific customers or geographically. The Group has established a credit policy under which each new customer is analysed individually for creditworthiness before the Group’s standard payment and delivery terms and conditions are offered. The Group’s review includes external ratings, where available, and in some cases bank references. Purchase limits are established for each customer which represents the maximum open amount without requiring the approval from corporate management; these limits are reviewed quarterly. Customers that fail to meet the Group’s benchmark creditworthiness may transact with the Group only on a prepayment basis. In monitoring customer credit risk, customers are grouped according to their credit characteristics, including whether they are an individual or legal entity, whether they are a wholesale or retail customer, geographic location, industry, ageing profile, maturity and existence of previous financial difficulties. Trade and other receivables relate mainly to the Group’s wholesale customers. Customers who are graded as “high risk” are placed on a restricted customer list, and future sales are made on a prepayment basis with the approval of senior management. Goods are sold subject to retention of title clauses, so that in the event of non-payment the Group may have a secured claim. The Group does not require collateral in respect of trade and other receivables.
Alesco Annual Report 2012 121
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 29: FINANCIAL INSTRUMENTS (CONTINUED) (a) Credit risk (continued) Trade and other receivables (continued) The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables and investments. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financials assets. Impairment losses on trade receivables are recorded in the “Administration and general expenses” line in the consolidated income statement. Guarantees The Group’s policy is to provide financial guarantees only to wholly-owned subsidiaries. Exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk as at the reporting date was:
CONSOLIDATED 2012 2011 $000 $000 Trade and other receivables 76,651 90,626 Cash and cash equivalents 3,082 6,886 Fair value derivatives 21 – 79,754 97,512 The maximum exposure to credit risk for trade receivables as at the reporting date by geographic region was:
CONSOLIDATED 2012 2011 $000 $000 Australia 65,079 76,055 New Zealand 4,749 4,450 Other 1,386 617 71,214 81,122
The maximum exposure to credit risk for trade receivables at the reporting date by type of customer was:
CONSOLIDATED 2012 2011 $000 $000 Cabinets, Windows & Appliances 29,128 30,543 Construction Products & Equipment 18,315 18,724 Decorative Surfaces 1 1,663 8,769 Garage Doors & Openers 22,108 23,086 71,214 81,122 The Group does not have any individually significant customers.
1Discontinued operation of Parbury and Dekorform, refer to Note 3.
122 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 29: FINANCIAL INSTRUMENTS (CONTINUED) (a) Credit risk (continued) The ageing of gross trade receivables at the reporting date was:
CONSOLIDATED 2012 2011 $000 $000 Not past due 39,165 38,013 Past due 0-30 days 21,484 29,109 Past due 31-60 days 5,415 8,770 Past due 61-90 days 3,190 3,790 Past due 91-365 days 1,960 1,440 More than one year – – 71,214 81,122
Impairment losses The ageing of trade receivables impairment at the reporting date was:
CONSOLIDATED 2012 2011 $000 $000 Not past due 1,450 1,013 Past due 0-30 days 185 103 Past due 31-60 days 133 53 Past due 61-90 days 650 678 Past due 91-365 days 370 250 More than one year – – 2,788 2,097
The movement in the allowance for impairment in respect of trade receivables during the year was:
CONSOLIDATED 2012 2011 $000 $000 Balance at 1 June 2,097 4,696 Disposal of businesses or companies (7) (1,863) Provided during year 2,789 1,290 Charged to provision for debts written off (1,831) (1,284) Reversed during year (262) (725) Foreign currency translation 2 (17) Balance as at 31 May 2,788 2,097
The allowance account in respect of trade receivables is used to record impairment losses unless the Group is satisfied that no recovery of the amount owing is possible; at this point the amount considered irrecoverable is written off against the financial asset directly. (b) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. For details on the Group’s financing facilities refer to Note 18.
Alesco Annual Report 2012 123
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 29: FINANCIAL INSTRUMENTS (CONTINUED) (b) Liquidity risk (continued) The following are the contractual maturities of financial liabilities, including the impact of netting arrangements.
CONSOLIDATED CARRYING CONTRACTUAL 6 MONTHS OR 6 - 12 1 -2 2 -3 AMOUNT CASH FLOW LESS MONTHS YEARS YEARS $000 $000 $000 $000 $000 $000 Non-derivative financial liabilities 2012 Unsecured bank loans1 69,000 78,556 2,621 2,278 73,394 263 Customer deposits 265 265 265 – – – Trade payables and accruals 58,362 58,362 58,248 114 – – 127,627 137,183 61,134 2,392 73,394 263 2011 Unsecured bank loans1 85,000 93,894 3,842 3,657 86,400 (5) Customer deposits 247 247 247 – – – Trade payables and accruals 63,244 63,244 62,343 901 – – 148,491 157,385 66,432 4,558 86,400 (5) 1 The Group assumes the interest market curve throughout the period and the contractual cash flow has included the net impact of interest rate swaps.
Cash flow hedges The following table indicates the periods in which the cash flows associated with derivatives that are cash flow hedges are expected to occur:
CONSOLIDATED CARRYING EXPECTED 6 MONTHS OR 6 - 12 1 -2 2 -3 AMOUNT CASH FLOW LESS MONTHS YEARS YEARS INFLOW/(OUTFLOW) $000 $000 $000 $000 $000 $000 2012 Interest rate swaps (1,722) (1,617) (353) (379) (622) (263) Foreign currency forwards – Outflow 426 (107) (105) (2) – – (1,296) (1,724) (458) (381) (622) (263) 2011 Interest rate swaps (146) (10) 97 (72) (40) 5 Foreign currency forwards – Inflow (1,476) (1,165) (1,076) (89) – – (1,622) (1,175) (979) (161) (40) 5
The Group is exposed to currency risk on purchases and sales that are denominated in a currency other than the respective currencies of the group entities, primarily the Australian dollar (“AUD”), but also the New Zealand dollar (“NZD”). The Group’s policy is to hedge an appropriate portion of its foreign currency exposures in respect of forecast purchases and sales over the following year. The Group used forward exchange contracts to hedge its currency risk, all of which have maturity dates of one year or less from reporting date.
124 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 29: FINANCIAL INSTRUMENTS (CONTINUED) (c) Currency risk The Group’s exposure to foreign currency risk was as follows based on notional amounts:
CONSOLIDATED AUD NZD USD EURO GBP OTHER $000 $000 $000 $000 $000 $000 2012 Trade receivables 23 (28) 6,732 14 – 199 Trade payables (23) 12 (9,071) (2,887) (5) (2,363) Gross balance sheet exposure – (16) (2,339) (2,873) (5) (2,164) Estimated forecast sales 109 140 21,571 – – 390 Estimated forecast purchases (4,412) (348) (57,190) (6,051) (72) (20,991) Gross exposure (4,303) (208) (35,619) (6,051) (72) (20,601) Forward exchange contracts – – 12,222 2,487 – – Net exposure (4,303) (224) (25,736) (6,437) (77) (22,765)
2011 Trade receivables – – 7,901 20 2 137 Trade payables (89) (27) (18,132) (1,742) – (1,735) Gross balance sheet exposure (89) (27) (10,231) (1,722) 2 (1,598) Estimated forecast sales 127 205 19,887 223 45 796 Estimated forecast purchases (2,778) (383) (51,240) (3,787) (142) (19,236) Gross exposure (2,651) (178) (31,353) (3,564) (97) (18,440) Forward exchange contracts – – 15,978 6,828 – – Net exposure (2,740) (205) (25,606) 1,542 (95) (20,038)
The following significant exchange rates were applied during the year:
CONSOLIDATED AVERAGE RATE REPORTING DATE RATE AUD: 2012 2011 2012 2011 NZD 1.2850 1.2991 1.2877 1.2993 USD 1.0371 0.9719 0.9727 1.0709 EURO 0.7662 0.7215 0.7849 0.7447 GBP 0.6525 0.6150 0.6283 0.6479
Sensitivity analysis for currency risk A 10% strengthening of the AUD against the following currencies at period end would have impacted profit and loss and equity by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2011. CONSOLIDATED
PROFIT OR LOSS EQUITY 2012 2011 2012 2011 $000 $000 $000 $000 USD 1,202 2,173 (1,146) (1,357) EURO (31) (188) (219) (583) GBP 7 (13) – – CAD – – – – JPY – – – – NZD 28 14 – – 1,206 1,986 (1,365) (1,940) A 10% weakening of the AUD against the above currencies at period end would have had an equal but opposite effect to that shown above, on the basis that all other variables remain constant.
Alesco Annual Report 2012 125
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 29: FINANCIAL INSTRUMENTS (CONTINUED) (d) Interest rate risk The Group has a policy of ensuring that between 25% and 75% of its exposure to changes in interest rates on borrowings is on a fixed rate basis. This is achieved by entering into interest rate swaps. At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was:
CONSOLIDATED 2012 2011 $000 $000 Fixed rate instruments Financial liabilities – – Variable rate instruments Financial assets 3,082 6,886 Financial liabilities 69,000 85,000 Fair value sensitivity analysis for fixed rate instruments The Group does not account for any fixed rate financial assets and liabilities at fair value through profit and loss and the Group does not designate derivatives (interest rate swaps) as a hedging instrument under a fair value hedge accounting model. Therefore, a change in interest rates at the reporting date would not affect profit and loss. The Group holds interest rate swap contracts as at 31 May 2012 under a cash flow hedge accounting model. The details of this interest rate swap were disclosed in Note 29(b) Liquidity Risk. The Company does not hold any fixed rate financial instruments. Cash flow sensitivity analysis for variable rate instruments A change of 100 basis points in interest rates at the reporting date would have increased/(decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables remain constant. The analysis is performed on the same basis for May 2011.
CONSOLIDATED PROFIT OR LOSS EQUITY 100 BP 100 BP 100 BP 100 BP INCREASE DECREASE INCREASE DECREASE INCREASE/(DECREASE) $000 $000 $000 $000
2012 Variable rate instruments (690) 690 – – Interest rate swap – – 1,106 (1,142) Cash flow sensitivity (net) (690) 690 1,106 (1,142)
2011 Variable rate instruments (850) 850 – – Interest rate swap – – 691 (706) Cash flow sensitivity (net) (850) 850 691 (706)
126 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 29: FINANCIAL INSTRUMENTS (CONTINUED) (e) Fair values The fair values of financial assets and liabilities together with the carrying amounts shown in the Group’s statement of financial position are as follows:
CARRYING AMOUNT NET FAIR VALUE 2012 2011 2012 2011 CONSOLIDATED $000 $000 $000 $000 Cash and cash equivalents 3,082 6,886 3,082 6,886 Receivables 69,863 84,420 69,863 84,420 Fair value derivative financial assets 21 – 21 – Fair value derivative financial liabilities (1,209) (1,622) (1,209) (1,622) Bank overdraft – – – – Bank loans (69,000) (85,000) (69,000) (85,000) Payables (58,627) (63,491) (58,627) (63,491) The following summarises the major methods and assumptions used in estimating the fair values of financial instruments: Derivatives Forward exchange contracts are marked to market using listed market prices. For interest rate swaps, BBSW, futures and swap market prices are used. Interest-bearing loans and borrowings Fair value is calculated based on discounted expected future principal and interest cash flows discounted at the market rate of interest at the reporting date. Trade and other receivables/payables For receivables/payables with a remaining life of less than one year, the notional amount is deemed to reflect the fair value. All other receivables/payables are discounted to determine the fair value. (f) Fair value hierarchy The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices) Level 3: inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL CONSOLIDATED NOTE $000 $000 $000 $000 2012 Derivative financial assets 12 – 21 – 21 Derivative financial liabilities 20 – (1,209) – (1,209)
2011 Derivative financial liabilities 20 – (1,622) – (1,622) There have been no transfers from Level 2 to Level 1 during the year ended 31 May 2012(2011: no transfers in either direction).
NOTE 30: NON-KEY MANAGEMENT PERSONNEL DISCLOSURES Identity of related parties The Group has a related party relationship with its subsidiaries. There are no related party relationships with its key management personnel. Details of interests in wholly-owned controlled entities are set out at Note 28.
Alesco Annual Report 2012 127
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 31: KEY MANAGEMENT PERSONNEL DISCLOSURES
The following were the key management personnel of the Group at any time during the reporting period and unless otherwise indicated were key management personnel for the entire period. Non-executive directors MB Luby (Chairman) RM Aitken JW Hall (retired 31 March 2012) J Marlay (appointed 1 December 2011) RV McKinnon EJ Pope JA Tait Executive directors PJ Boyd Managing Director and Chief Executive Officer NA Thompson1 Finance Director (resigned 31 December 2011) Executives SS Cox Group General Manager, Construction & Mining M Freeman Group General Manager, Lincoln Sentry (appointed 30 January 2012) DM Harriott2 Group General Manager, Decorative Surfaces & Appliances (resigned 31 March 2012) N Hopper Group General Manager, Garage Doors AZ Jokubaitis Group General Manager, Openers RW Lewis3 Group General Manager, Operations RK Moriarty Group General Manager, Human Resources (resigned 30 September 2011) BJ O’Connor Group Chief Information Officer (resigned 30 September 2011) L Rafferty Group General Manager, Legal & Corporate Affairs, Company Secretary ER Zammit Chief Financial Officer (appointed 12 December 2011) 1 NA Thompson was the Finance Director for the reporting period until his resignation on 31 December 2011. 2 Mr Harriott was a member of the Executive Committee from 30 January 2012 to 31 March 2012. 3 Mr Lewis was interim Group General Manager for the former Functional & Decorative Products division for the period from 15 March 2011 to 1 March 2012, before resuming his corporate role of Group General Manager, Operations. J Brennan formerly Business Development Manager, Functional & Decorative Products resigned from the Executive Committee on 3 February 2010. Mr Brennan resigned from Alesco on 23 December 2011. In the current year, Mr Brennan was considered key management personnel by virtue of being one of the 5 named group executives with the highest remuneration for the year. RF Guttentag and WL Powell were members of the Executive Committee in the comparative year. AJ Fonseca was considered key management personnel by virtue of being one of the 5 named group executives with the highest remuneration in the comparative year. Key management personnel remuneration The key management personnel remuneration included in “personnel expenses” are as follows:
CONSOLIDATED 2012 2011 $ $ Short-term employee benefits 5,842,672 6,184,334 Other long-term benefits 107,177 663,358 Post-employment benefits 422,008 430,615 Termination benefits 1,490,432 730,000 Equity compensation benefits 320,562 (69,464) 8,182,851 7,938,843
128 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 31: KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED) Individual directors’ and executives’ remuneration disclosures Information regarding individual directors’ and executives’ remuneration is provided in the Remuneration Report section of the Directors’ Report on pages 18 to 63. Transactions with key management personnel Apart from the details disclosed in this note and the Remuneration Report, no director has entered into a material contract with the Company or the Group since the end of the previous financial year and there were no material contracts involving directors’ interests existing at year-end. From time to time directors of the Company or its controlled entities may purchase goods from the Group. These purchases are on the same terms and conditions as those entered into by other Group employees. All transactions with directors and their related entities were based on normal commercial terms and conditions. During the year ended 31 May 2007, the Company implemented the Alesco Performance Share Acquisition Plan (“Share Loan Plan”) for its most senior executives. Under this plan, loans are provided to key senior executives to fund the acquisition of ordinary fully paid shares in the Company. Ownership in the shares vests immediately with the senior executive, the loan is interest-free and full recourse. Awards will be earned by senior executives in the form of either cash bonuses (used to pay down the outstanding loan) or loan waivers and will be calculated by reference to the Company’s compound annual growth rate in earnings per share (before amortisation of intangibles and significant items) over a three-year period (EPS Growth). The Group has issued four tranches of shares to senior executives since the inception of this plan. The first tranche issued in the year ended 31 May 2007 was issued from shares purchased on market. Subsequent issues made in the financial years ended 2008, 2010 and 2010 have arisen from the issue of new shares. Details of loans provided to key senior executives for each tranche are listed in the following tables. The carrying value of the loans is net of any associated expected performance discount benefit and interest free benefit. Repayments of the loan balance are made via any dividends paid by the Company on a post-tax basis (using the highest marginal tax rate, including Medicare levy and the benefit of imputation credits). Amounts included in compensation for the financial year represent the estimated award that will be earned by senior executives in the form of the interest free benefit associated with the loans over expected 10 year loan term, and either estimated cash bonuses (used to pay down the outstanding loan) or loan waivers which are calculated by reference to the Company’s compound annual growth rate in earnings per share (before amortisation of intangibles and significant items) over a three-year performance period (EPS Growth). The present value of the loan increases as the loan draws to maturity. The increase in the present value of the loan is recognised as interest income.
Alesco Annual Report 2012 129
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 31: KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED) Transactions with key management personnel (continued) Senior Executive Performance Share Acquisition Plan – financial year 2012 TOTAL TOTAL SHARES CARRYING VALUE PRESENT VALUE OF UNWIND OF SHARES HELD CARRYING VALUE FACE VALUE OF HELD AT OF LOANS HELD SHARES GRANTED LOAN GRANTED LOANS REPAYMENTS INTEREST FREE AT 31 MAY OF LOANS AT LOANS AT 31 MAY 1 JUNE 2011 AT 1 JUNE 20111 DURING YEAR DURING THE YEAR1 ADJUSTMENTS MADE ELEMENT OF LOAN2 2012 31 MAY 20121 2012 NUMBER $ NUMBER $ $ $ $ NUMBER $ $ Directors PJ Boyd 26,426 174,306 – – – (3,131) 16,909 26,426 188,084 302,911 Executives SS Cox 148,478 541,796 – – – (17,589) 52,956 148,478 577,163 984,833 L Rafferty 155,485 562,387 – – – (18,419) 54,998 155,485 598,966 1,024,658 Former director NA Thompson 125,931 553,669 – – – (14,918) 53,620 125,931 592,371 972,999 Former executives J Brennan 63,939 267,497 – – – (7,574) 26,061 63,939 285,984 487,210 BJ O’Connor 118,393 442,321 – – – (14,025) 43,129 118,393 471,425 797,645
Senior Executive Performance Share Acquisition Plan – financial year 2011 TOTAL TOTAL SHARES CARRYING VALUE OF PRESENT VALUE OF UNWIND OF SHARES HELD CARRYING VALUE FACE VALUE OF HELD AT LOANS HELD AT SHARES GRANTED LOAN GRANTED LOANS REPAYMENTS INTEREST FREE AT OF LOANS AT LOANS AT 31 MAY 1 JUNE 2010 1 JUNE 20101 DURING YEAR DURING THE YEAR1 ADJUSTMENTS MADE ELEMENT OF LOAN2 31 MAY 2011 31 MAY 20111 2011 NUMBER $ NUMBER $ $ $ $ NUMBER $ $ Directors PJ Boyd 26,426 158,499 – – – (303) 16,110 26,426 174,306 308,567 NA Thompson 125,931 503,514 – – – (1,444) 51,599 125,931 553,669 999,948 Executives J Brennan 63,939 243,268 – – – (733) 24,962 63,939 267,497 500,893 SS Cox 148,478 492,743 – – – (1,702) 50,755 148,478 541,796 1,016,607 BJ O’Connor 118,393 402,271 – – – (1,357) 41,407 118,393 442,321 822,981 L Rafferty 155,485 511,473 – – – (1,783) 52,697 155,485 562,387 1,057,932 Former executives AJ Fonseca 69,801 296,075 – – – (43,600) 66,397 69,801 318,872 537,224 WL Powell 86,628 362,645 – – – (57,168) 84,502 86,628 389,979 657,152
1Amounts shown are at present value, and are therefore net of any performance discount expected to be achieved and the interest-free element of the loan. 2This amount is the value of the notional interest income recognised by the Company on the loan balance.
130 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 31: KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED)
Movements in shares The movement during the reporting period in the number of ordinary shares in the Company held directly, indirectly or beneficially, by each key management person, including their related parties, is as follows:
GRANTED/ (FORFEITED) HELD ON HELD AT UNDER SHARE APPOINTMENT/ HELD AT 31 MAY 1 JUNE 2011 PLANS PURCHASED SOLD RETIREMENT 2012 NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER Directors MB Luby 32,000 – – – – 32,000 RM Aitken 126,280 – – – – 126,280 RV McKinnon 7,500 – – – – 7,500 EJ Pope 70,163 – – – – 70,163 JA Tait 20,000 – – – – 20,000 PJ Boyd 88,089 (51,503) – – – 36,586 J Marlay1 – – – – – – Executives SS Cox 171,313 – – – – 171,313 N Hopper 2,841 (2,300) – – – 541 M Freeman – – – – – – AZ Jokubaitis 1,000 (1,000) – – – – RW Lewis 2,685 (2,450) – – – 235 L Rafferty 174,541 – – – – 174,541 ER Zammit – – – – – – Former directors JW Hall 46,667 – – – 46,667 – NA Thompson 149,925 – – – 149,925 – Former executives J Brennan 63,939 – – – 63,939 – DM Harriott2 – (1,000) – – 585 – RK Moriarty – – – – – – BJ O’Connor 139,711 – – – 139,711 – Any shares issued to executive directors and other senior executives include shares granted under the Alesco Performance Share Acquisition Plan. Shares under this plan did not vest as at 31 May 2011 and were forfeited during the year. No shares were granted in financial year 2012. 1J Marlay was appointed a Director on 1 December 2011 and pursuant to Alesco’s Share Trading Policy has not yet had an opportunity to purchase Alesco Shares. 2 DM Harriott held 1,585 shares on appointment to the Executive Committee.
Alesco Annual Report 2012 131
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 31: KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED)
Movements in shares (continued) The movement during the previous reporting period in the number of ordinary shares in the Company held directly, indirectly or beneficially, by each key management person, including their related parties, is as follows:
GRANTED/ (FORFEITED) HELD ON HELD AT UNDER SHARE APPOINTMENT/ HELD AT 31 MAY 1 JUNE 2010 PLANS PURCHASED SOLD RETIREMENT 2011 NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER Directors MB Luby 32,000 – – – – 32,000 RM Aitken 126,280 – – – – 126,280 JW Hall 26,667 – 20,000 – – 46,667 RV McKinnon 7,500 – – – – 7,500 EJ Pope 45,163 – 25,000 – – 70,163 JA Tait – – 15,800 – 4,200 20,000 PJ Boyd 108,089 (20,000) – – – 88,089 NA Thompson 149,925 – – – – 149,925 Executives J Brennan 63,939 – – – – 63,939 SS Cox 171,313 – – – – 171,313 N Hopper – (3,000) – – 5,841 2,841 AZ Jokubaitis – – – – 1,000 1,000 RW Lewis – (4,000) – – 6,685 2,685 RK Moriarty – – – – – – BJ O’Connor 139,711 – – – – 139,711 L Rafferty 174,541 – – – – 174,541 Former executives AJ Fonseca 89,057 – – – 89,057 – RF Guttentag – – – – – – WL Powell 103,057 – – – 103,057 –
Performance share rights provided as remuneration and rights holdings The assessed fair value at grant date of performance share rights (“Rights Plan”) granted during the years ended 31 May 2012 and 31 May 2011 are set out in the table below. The fair value at grant date is independently determined using a Monte Carlo valuation model that takes into account factors such as the Company’s share price at the grant date, volatility of underlying shares, the risk free rate of return, expected dividend yield and the likelihood that vesting conditions will be met. The model also includes the value attributable to the re-test feature at the end of year four. In preparation of the valuation of the Rights Plans, a dividend yield of 5% (2011: 2.5%) was assumed to ensure fluctuations arising from different dividend distribution payments will not impact on the valuation of the underlying stock, which was used as a basis to estimate EPS. EPS is the key performance hurdle considered when assessing management’s performance.
132 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 31: KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED)
Performance share rights provided as remuneration and rights holdings (continued) The numbers of performance share rights in the Company held, during the financial year, directly, indirectly or beneficially, by each key management person, including their related parties, is as follows:
RIGHTS VALUE PER RIGHT HELD AT GRANTED/ HELD AT SERIES EXPIRY DATE AT GRANT DATE 31 MAY 2011 (FORFEITED) 31 MAY 2012 NUMBER NUMBER $ NUMBER NUMBER NUMBER Executive directors PJ Boyd 1A 31 May 2014 1.10 131,579 – 131,579 1B 31 May 2014 1.80 131,579 – 131,579 2A 31 May 2015 0.55 – 118,155 118,155 2B 31 May 2015 1.42 – 118,155 118,155 Former executive director NA Thompson 1A 31 May 2014 1.10 48,246 (48,246) – 1B 31 May 2014 1.80 48,245 (48,245) – Executives SS Cox 1A 31 May 2014 1.10 36,841 – 36,841 1B 31 May 2014 1.80 36,842 – 36,842 2A 31 May 2015 0.55 – 33,084 33,084 2B 31 May 2015 1.42 – 33,083 33,083 M Freeman 2A 31 May 2015 0.55 – 9,978 9,978 2B 31 May 2015 1.42 – 9,977 9,977 N Hopper 1A 31 May 2014 1.10 18,948 – 18,948 1B 31 May 2014 1.80 18,947 – 18,947 2A 31 May 2015 0.55 – 30,405 30,405 2B 31 May 2015 1.42 – 30,405 30,405 AZ Jokubaitis 1A 31 May 2014 1.10 12,198 – 12,198 1B 31 May 2014 1.80 12,197 – 12,197 2A 31 May 2015 0.55 – 25,561 25,561 2B 31 May 2015 1.42 – 25,561 25,561 RW Lewis 1A 31 May 2014 1.10 33,772 – 33,772 1B 31 May 2014 1.80 33,772 – 33,772 2A 31 May 2015 0.55 – 30,327 30,327 2B 31 May 2015 1.42 – 30,326 30,326 L Rafferty 1A 31 May 2014 1.10 38,597 – 38,597 1B 31 May 2014 1.80 38,596 – 38,596 2A 31 May 2015 0.55 – 34,659 34,659 2B 31 May 2015 1.42 – 34,659 34,659 ER Zammit 2A 31 May 2015 0.55 – 18,708 18,708 2B 31 May 2015 1.42 – 18,708 18,708 Former executives J Brennan 1A 31 May 2014 1.10 15,439 (15,439) – 1B 31 May 2014 1.80 15,438 (15,438) – DM Harriott 1A 31 May 2014 1.10 6,582 (6,582) – 1B 31 May 2014 1.80 6,582 (6,582) –
Alesco Annual Report 2012 133
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 32: NOTES TO THE STATEMENTS OF CASH FLOWS (a) Reconciliation of cash For the purposes of the statements of cash flows, cash includes cash on hand and at bank and short-term deposits at call, net of outstanding bank overdrafts. Cash at the end of the financial year as shown in the statements of cash flows is reconciled to the related items in the statement of financial position as follows:
CONSOLIDATED 2012 2011 $000 $000 Cash and cash equivalents 3,082 6,886 3,082 6,886
(b) Reconciliation of profit after income tax to net cash provided by operating activities
(Loss)/profit for the year (13,864) 13,573 Add/(less) items classified as investing/financing activities: Loss/(profit) on sale of property, plant and equipment 673 (127) Loss/(profit) on sale of businesses 8,002 (10,250) Net financing costs 9,075 13,404 Add/(less) non-cash items: Disposal of patents 60 – Impairment of assets – continuing businesses 4,074 – Impairment of assets – discontinued businesses 8,626 8,495 Depreciation and amortisation 13,497 16,916 Equity-settled share-based payment expenses 405 (39) Net cash provided by operating activities before changes in assets and liabilities 30,548 41,972 Changes in assets and liabilities during the year adjusted for effects of purchase and disposal of controlled entities during the financial year: Decrease/(increase) in receivables 8,727 5,858 Decrease/(increase) in inventories 793 11,682 Decrease/(increase) in other current assets 2,828 (2,582) Decrease/(increase) in deferred tax assets (1,526) 11,306 (Decrease)/increase in payables and provisions (3,687) (18,293) (Decrease)/increase in current tax liabilities 3,990 452 Net cash provided by operating activities 41,673 50,395 During the year, dividends totalling $nil (2011: $ nil) were reinvested in the Company pursuant to the Dividend Reinvestment Plan.
134 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 33: DEED OF CROSS GUARANTEE Pursuant to ASIC Class Order 98/1418 (as amended), a number of wholly-owned controlled entities as listed below are relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports and Directors’ Report. It is a condition of the class order that the Company and each of the controlled entities enter into a Deed of Cross Guarantee (“Deed”). The effect of the Deed is that the Company guarantees to each creditor payment in full of any debt in the event of winding up any of the controlled entities under certain provisions of the Corporations Act 2001. If a winding up occurs under other provisions of the Corporations Act 2001, the Company will only be liable in the event that after six months any creditor has not been paid in full. The controlled entities have also given similar guarantees in the event that the Company is wound up. The controlled entities subject to the Deed are: • Alesco Finance Pty Limited • Automatic Technology (Australia) • Robinhood Australia Pty Limited • Alesco No. 1 Pty Limited Pty Limited (previously known as Parbury Pty Limited • Alesco No. 2 Pty Limited • B&D Australia Pty Limited • Pargone Pty Limited • Alesco Holdings Pty Limited • Concrete Technologies Pty Limited • Parchem Construction Supplies Pty • Lincoln Sentry Group Pty Limited Limited The entities which were subject to the Deed in the comparative reporting period and discontinued in the prior reporting period are: • Capricorn Stockhorses Pty Limited1 • McCracken’s Water Services Pty • Total Eden Holdings Pty Limited1 1 • Flextool (Aust) Pty Limited2 Limited • Total Eden McCrackens Group Pty 1 • Marathon Tyres Pty Limited3 • Paludal Pty Limited Limited (previously known as Total • Plastic Plumbing Supplies Pty Eden Watering Systems Pty 1 Limited1 Limited ) 1 Discontinued operations which are no longer party to the Deed effective 28 February 2011. 2 Discontinued operation which is no longer party to the Deed. 3 Discontinued operation which is no longer party to the Deed effective 30 April 2011. A consolidated income statement and consolidated statement of financial position, comprising the Company and controlled entities which are a party to the Deed, after eliminating all transactions between parties to the Deed is as follows:
CONSOLIDATED
2012 2011 $000 $000 Statement of comprehensive income Continuing operations Revenue 413,438 436,244 Cost of sales (243,261) (256,272) Gross profit 170,177 179,972 Operating expenses (147,016) (130,741) Finance income 1,085 8,598 Finance costs (9,317) (13,546) Profit from continuing operations before related income tax 14,929 44,283 Income tax expense (5,288) (8,587) Profit from continuing operations 9,641 35,696 Discontinued operations Loss from discontinued operations, net of income tax (13,675) (3,837) (Loss)/profit for the period after income tax (4,034) 31,859
Other comprehensive income Net change in fair value of cash flow hedges 84 (2,845) Income tax (expense)/benefit on other comprehensive income (25) 854 Total comprehensive income for the period (3,975) 29,868
Alesco Annual Report 2012 135
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 33: DEED OF CROSS GUARANTEE (CONTINUED)
CONSOLIDATED
2012 2011 $000 $000 Retained earnings/(accumulated losses) Accumulated losses at beginning of year (80,418) (110,864) Capital reduction1 101,864 – Dividends recognised during the year (14,600) (1,413) Retained earnings/(accumulated losses) at end of year 2,812 (80,418) 1 Refer to Note 23 for details
Attributable to: Equity holders of the Company (4,034) 31,859 (Loss)/profit for the period (4,034) 31,859
Statement of financial position Cash and cash equivalents 2,689 4,959 Trade and other receivables 62,913 78,525 Inventories 64,768 72,594 Current tax assets 123 1,284 Other 2,112 5,829 Total current assets 132,605 163,191 Receivables 6,788 6,206 Other investments 35,777 35,786 Property, plant and equipment 51,628 53,661 Intangible assets 327,667 336,131 Deferred tax assets 11,090 8,643 Other 371 62 Total non-current assets 433,321 440,489 Total assets 565,926 603,680 Trade and other payables 51,806 54,392 Fair value derivatives 1,209 1,622 Provisions 14,041 15,602 Current tax liabilities 100 213 Total current liabilities 67,156 71,829 Loans and borrowings 69,000 85,000 Provisions 5,549 5,161 Total non-current liabilities 74,549 90,161 Total liabilities 141,705 161,990 Net assets 424,221 441,690 Share capital 418,543 520,407 Reserves 2,866 1,701 Retained earnings/(accumulated losses) 2,812 (80,418) Total equity 424,221 441,690
136 Alesco Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 34: PARENT ENTITY DISCLOSURES As at, and throughout, the financial year ending 31 May 2012 the parent entity was Alesco Corporation Limited.
COMPANY 2012 2011 $000 $000 Result of the parent entity Profit for the year 32,823 2,310 Other comprehensive income – – Total comprehensive income for the period 32,823 2,310 Financial position of the parent entity for the period Current assets 1,288 8,438 Non-current assets 511,137 733,218 Total assets 512,425 741,656 Current liabilities 8,664 4,974 Non-current liabilities 62,756 314,276 Total liabilities 71,420 319,250 Net assets 441,005 422,406 Total equity of the parent entity comprising of: Share capital 418,543 520,407 Share equity reserve 3,334 2,958 Retained earnings/(accumulated losses) 19,128 (100,959) Total equity 441,005 422,406 Parent entity contingencies The directors are of the opinion that provisions are not required in respect of any contingent matters, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement. Contingent liabilities not considered remote Tax liabilities of other entities within the tax consolidated group 3,576 10,430 There is no legal action currently being defended by the Company. Parent entity contingencies
Non-cancellable operating lease expense commitments Future operating lease commitments not provided for in the financial statements and payable: Within one year 550 550 Later than one year but within five years 550 1,100 Later than five years – – 1,100 1,650 Parent entity guarantees in respect of the debts of its subsidiaries The parent entity has entered into a Deed of Cross Guarantee with the effect that the Company guarantees debts in respect of its subsidiaries. Further details of the Deed of Cross Guarantee and the subsidiaries subject to the deed are disclosed in Note 33.
Alesco Annual Report 2012 137
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2012
NOTE 35: SUBSEQUENT EVENTS
Dividends paid or determined by the Company to members since the end of the previous financial year are set out in Note 24. The financial effect of the dividends determined subsequent to the reporting date has not been brought to account in the financial statements for the year ended 31 May 2012 and will be recognised in subsequent financial reports. Franked dividends determined or paid during the year were franked at the tax rate of 30%. The dividend reinvestment plan continues to be suspended. On 10 May 2012, the company was served with a Bidder’s Statement by DuluxGroup Limited. As a result, the directors exercised their discretion to accelerate the vesting of performance rights effective on or subject to DuluxGroup’s offer becoming unconditional and DuluxGroup acquiring control of Alesco. This discretion was permitted under the performance rights plan (“Rights Plan”). As at 23 July 2012 (being the Business Day before the Financial Statements were approved), 1,337,592 performance rights were on issue. At the time the discretion and acceleration take effect, a maximum of 1,337,592 performance rights could vest and therefore a maximum of 1,337,592 Alesco shares could be issued to performance rights holders. An amount of $739,368 representing the acceleration of the accounting expense would be incurred if the offer becomes unconditional or DuluxGroup gains control of Alesco.
138 Alesco Annual Report 2012
DIRECTORS’ DECLARATION
1. In the opinion of the directors of Alesco Corporation Limited (the “Company”): (a) the consolidated financial statements and notes set out on pages 67 to 138 and the Directors’ Report including the Remuneration Report set out on pages 18 to 63, are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 31 May 2012 and of its performance for the financial year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2. There are reasonable grounds to believe that the Company and the Group entities identified in Note 33 will be able to meet any obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee between the Company and those Group entities pursuant to ASIC Class Order 98/1418. 3. The directors have been given the declarations required by section 295A of the Corporations Act 2001 from the Chief Executive Officer and Chief Financial Officer for the financial year ended 31 May 2012. 4. The directors draw attention to Note 1 to the consolidated financial statements, which includes a statement of compliance with International Financial Reporting Standards.
Signed in accordance with a resolution of the directors:
MB LUBY Chairman 24 July 2012 Sydney
Alesco Annual Report 2012 139
INDEPENDENT AUDIT REPORT TO THE MEMBERS OF ALESCO CORPORATION LIMITED
Report on the financial report
We have audited the accompanying financial report of Alesco Corporation Limited (the Company), which comprises the consolidated statement of financial position as at 31 May 2012, and consolidated income statement and consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year ended on that date, notes 1 to 35 comprising a summary of significant accounting policies and other explanatory information and the directors’ declaration of the Group comprising the Company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ responsibility for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement whether due to fraud or error. In note 1, the directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements of the Group comply with International Financial Reporting Standards.
Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We performed the procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001 and Australian Accounting Standards, a true and fair view which is consistent with our understanding of the Group’s financial position and of its performance.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. (continued overleaf)
140 Alesco Annual Report 2012
INDEPENDENT AUDIT REPORT (CONTINUED) TO THE MEMBERS OF ALESCO CORPORATION LIMITED
Report on the financial report (continued) Auditor’s opinion
In our opinion: (a) the financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 31 May 2012 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. Report on the remuneration report
We have audited the Remuneration Report included on pages 36 to 62 of the directors’ report for the year ended 31 May 2012. The directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with Section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with auditing standards. Auditor’s opinion
In our opinion, the remuneration report of Alesco Corporation Limited for the year ended 31 May 2012, complies with Section 300A of the Corporations Act 2001.
KPMG
Anthony Jones Partner Sydney 24 July 2012
Alesco Annual Report 2012 141
LEAD AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001 TO THE DIRECTORS OF ALESCO CORPORATION LIMITED
I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 31 May 2012 there have been: (i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and (ii) no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
Anthony Jones Partner 24 July 2012 Sydney
142 Alesco Annual Report 2012
STATEMENT OF SHAREHOLDERS AS AT 19 JULY 2012
1. Number of ordinary shareholders Voting rights – on a show of hands, one vote for every registered holder and on a poll one vote for each share held by registered holders 12,071 2. Number of holders of options over unissued ordinary shares No voting rights – 3. Percentage of the total holdings by or on behalf of the 20 largest holders Ordinary shares 55.90% Options – 4(a). Distribution of shareholders and option holders ORDINARY OPTIONS 1 – 1,000 5,961 – 1,001 – 5,000 4,271 – 5,001 – 10,000 825 – 10,001 – 100,000 591 – 100,001 and over 38 – 4(b). Number of holders holding less than a marketable parcel 2,978 – 5. Notification of substantial shareholdings The number of shares held by substantial shareholders and their associates are: DuluxGroup 18,800,000 6. Restricted securities There are no restricted securities – NO. OF 7. Top 20 ordinary shareholders SHARES % DuluxGroup (Nominees) Pty Ltd 18,800,000 19.96 J P Morgan Nominees Australia Limited 8,419,594 8.94 National Nominees Limited 5,055,648 5.37 Citicorp Nominees Pty Limited 2,798,005 2.97 J P Morgan Nominees Australia Limited
Alesco Annual Report 2012 143
TEN YEARS AT A GLANCE
20121 2011 2010 2009 2008 2007 2006 2005 2004 2003 $M $M $M $M $M $M $M $M $M $M
Income statement Revenue 498.9 679.9 773.2 1,011.3 1,071.1 738.2 601.5 632.6 481.5 392.1 Earnings before interest, tax amortisation of intangibles and significant items 31.8 42.5 46.8 85.6 123.5 88.0 75.7 66.6 40.2 27.0 Amortisation of intangibles (5.8) (8.3) (10.8) (15.6) (6.8) (4.8) (4.4) (4.0) (6.8) (4.0) Earnings before interest, tax and significant items 26.0 34.2 36.0 70.0 116.7 83.2 71.3 62.6 33.4 23.0 Significant items (after tax) (25.1) 1.2 (136.7) (41.9) (7.5) (4.1) 0.7 12.2 0.1 – Net interest (9.1) (13.4) (15.4) (25.5) (26.0) (16.0) (11.1) (10.3) (3.7) (4.3) Profit/(loss) before income tax (8.2) 22.0 (116.1) 2.6 83.2 63.1 60.9 64.5 29.8 18.7 Income tax (5.7) (8.4) (8.2) (15.4) (25.2) (19.1) (18.1) (15.2) (9.9) (6.0) Profit/(loss) after income tax (13.9) 13.6 (124.3) (12.8) 58.0 44.0 42.8 49.3 19.9 12.7 Earnings per share – basic2 (14.7)¢ 14.4¢ (132.8)¢ (13.9)¢ 67.2¢ 61.8¢ 61.6¢ 72.2¢ 40.5¢ 32.4¢ Dividends per share3 18.0¢ 14.0¢ 7.0¢ 7.0¢ 67.0¢ 63.5¢ 56.0¢ 45.0¢ 33.0¢ 26.0¢ Statement of financial position Net operating assets Receivables 79.0 96.9 123.6 141.2 203.9 142.5 98.0 93.9 79.4 77.0 Inventories 72.5 81.6 120.6 122.0 155.0 129.0 89.9 89.6 78.4 93.8 Intangibles 335.3 353.1 371.4 506.1 649.8 434.0 340.1 296.0 99.8 105.4 Other investments – – – 0.1 0.6 0.6 0.6 0.3 0.8 1.2 Land and buildings 25.0 25.4 16.5 16.9 17.2 16.8 17.6 21.4 7.0 9.5 Plant and equipment 31.7 34.0 38.7 50.6 72.7 65.6 45.6 39.2 21.2 23.1 Employee benefits (11.8) (15.3) (21.4) (19.6) (30.2) (23.8) (20.1) (16.9) (12.8) (11.1) Payables (58.6) (63.5) (96.3) (92.6) (149.4) (114.7) (67.8) (73.3) (60.4) (63.6) Other operating assets/(liabilities) (8.9) (7.9) (13.8) (29.3) (19.2) (26.1) (32.1) (30.2) (5.8) (5.6) Net operating assets 464.2 504.3 539.3 695.4 900.4 623.9 471.8 420.0 207.6 229.7 Funded by Parent entity equity interests 406.0 432.5 427.5 551.4 593.6 344.4 332.7 319.1 208.2 151.3 Net debt 65.9 78.1 128.9 159.7 319.3 294.2 154.8 103.5 4.1 80.8 Other funds (7.7) (6.3) (17.1) (15.7) (12.5) (14.7) (15.7) (2.6) (4.7) (2.4) Funds employed 464.2 504.3 539.3 695.4 900.4 623.9 471.8 420.0 207.6 229.7
Statistics Operating profit margin4 5.2% 5.0% 4.7% 6.9% 10.9% 11.3% 11.9% 9.9% 6.9% 5.9% Return on average net operating assets (RNOA)4 5.2% 6.4% 5.3% 8.0% 13.9% 14.9% 15.8% 14.5% 15.0% 13.1% Return on average shareholders’ funds4 2.7% 2.9% 2.3% 4.9% 12.7% 14.4% 13.1% 12.3% 19.5% 12.2% Interest cover (times)4 4.4 3.8 3.7 2.5 5.3 6.4 7.9 7.9 13.4 8.3 Dividend cover (times) n/a 1.0 n/a n/a 1.0 1.0 1.1 1.6 1.2 1.2 Gearing % 14.0% 15.3% 23.2% 22.5% 35.0% 46.1% 31.8% 25.1% 1.9% 34.8% Share information Weighted average no. of shares 94.2m 94.2m 93.6m 91.7m 86.4m 70.8m 69.9m 68.4m 49.1m 39.1m Market capitalisation $185.6m $290.1m $250.6m $302.1m $710.1m $1,067.3m $686.5m $486.2m $372.5m $204.6m 1 Includes 10 month’s trading for the Parbury and Dekorform businesses. 2 From 2010 onwards, the earnings per share ratio is disclosed on a ‘reported basis’. Prior to 2010, this was disclosed on a ‘before significant items and amortisation of intangibles basis’. 3 Includes special dividend of 10.0 cps in 2012 and 5.5cps in 2011 financial year. 4 Before significant items. The 2005-2012 results are prepared under AIFRS and the 2002-2004 results are prepared under previous AGAAP.
144 Alesco Annual Report 2012
Corporate Directory
Financial calendar Financial Results Half Year Results 25 January 2012 Full Year Results 24 July 2012 Dividends ALESCO CORPORATION LIMITED Interim ABN Record Date 16 February 2012 23 008 666 064 Payment Date 9 March 2012
Registered Office Final & Special Level 24 Record Date 17 August 2012 207 Kent Street Payment Date 7 September 2012 Sydney NSW 2000 Annual General Meeting Telephone 61 2 9248 2000 AGM 2012 18 September 2012 11:30 am Facsimile 61 2 9248 2099 at AGL Theatre Email [email protected] Museum of Sydney Website Corner of Phillip and Bridge Streets www.alesco.com.au Sydney
Company Secretary Luci Rafferty, BA Llb (Hons) ACIS Key market announcements Alesco Postal Address FY12 Full Year Results GPO Box 4268 24 July 2012 Sydney NSW 2001 12 June 2012 Target’s Statement
Share Registry 6 June 2012 Preliminary FY12 Financial Results Link Market Services Limited Above Guidance Level 12 11 May 2012 DuluxGroup Bidder’s Statement 680 George Street Sydney NSW 2000 1 May 2012 DuluxGroup announces intention Share Registry Postal Address to make a takeover offer Locked Bag A14 12 March 2012 Sale of Parbury and Dekorform Sydney South NSW 1235 Businesses Within Australia 1800 882 102 Outside Australia 61 2 8280 7151 28 February 2012 Director Retires Facsimile 61 2 9287 0303 25 January 2012 FY12 Half Year Results Auditors KPMG 13 December 2011 Judgment in New Zealand Tax 10 Shelley Street Litigation Proceeding Sydney NSW 2000 24 November 2011 New Director
2 November 2011 Term Debt Facility Update
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