AGILITY MEETING CHANGE ANNUAL REPORT 2016 Seven Group Holdings
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AGILITY MEETING CHANGE ANNUAL REPORT 2016 Seven Group Holdings SEVEN GROUP HOLDINGS LIMITED ANNUAL REPORT 2016 This year we have benefitted from ABN 46 142 003 469 the ongoing demand for parts and services created by the high level of mining production. This demonstrates the strength of the CAT dealer model ANNUAL REPORT 2016 1 The momentum of change continues across our businesses to ensure we remain a valued partner to our customers through productivity improvements, investment in technology and increased agility and responsiveness Group structure 02 Risk factors associated with SGH 32 Chairman’s letter 04 Corporate social responsibility 36 MD & CEO’s letter 06 Board of Directors 40 Five-year results 08 Corporate governance statement 42 Operating and financial review 09 Directors’ Report 52 Industrial services 16 Remuneration Report 55 Media investments 24 Financial report 74 Energy 28 Corporate directory 141 Other investments 30 Company information 141 Roy Hill trucks go pink for Breast Cancer Awareness 2 Seven Group Holdings GROUP INDUSTRIAL SERVICES STRUCTURE PAGE 16 Our success is built on a refined We continue to maintain operating model which has seen an enhanced focus on remaining market competitive in terms of an efficient capital price whilst delivering innovative structure, giving us the customer solutions. flexibility to fund our existing businesses and invest in new opportunities that may arise out of these 100% (AUSTRALIA) difficult economic times. 100% (CHINA) 46.5% 100% ANNUAL REPORT 2016 3 MEDIA INVESTMENTS ENERGY OTHER INVESTMENTS PAGE 24 PAGE 28 PAGE 30 Seven West Media continues The Group has exercised Earnings from Other investments its focus on content creation patience and discipline in terms grew by 9 per cent over the year and audience delivery across of further energy investments, mainly due to profit from the multiple platforms. Seven is in its with the key thematic of a shortfall development and sale of 25 lots 10th consecutive year of ratings in East Coast gas expected to at Seven Hills, in addition to which leadership and engages with more provide opportunities to extract the Group recorded a $37 million Australians on a daily basis than value from the company’s pre-tax profit from the realisation any other medium. There is still petroleum reserves. of other property assets. no better place to build a brand than on TV. 41.0% AUSTRALIAN ASSETS LISTED PORTFOLIO › Longtom field (100% ownership), Carrying value at June 2016 – $621.6m Gippsland Basin VIC › Crux field (15% ownership), Browse Basin WA › Echuca Shoals exploration permit (100% ownership), Browse Basin WA OVERSEAS ASSETS PROPERTY PORTFOLIO › 11.2% ownership in Bivins Ranch, › Direct property investments Texas USA – Carrying value at June 2016 – $29.8m – Kings Square development, Perth WA BEACH ENERGY 22.9% – Seven Hills (formerly Dianella studios, Perth WA) › Indirect property investments ! – Carrying value at June 2016 – $29.5m – Invested in unlisted property trusts (Revy Investments – 25% and Flagship – 47%) 20% 4 Seven Group Holdings CHAIRMAN’S LETTER Over the past three years Seven Group Holdings has operated in challenging environments, however, the leading market positions of its businesses coupled with the capable management teams supported by an engaged workforce have ensured that Seven Group Holdings has preserved its underlying profitability. ANNUAL REPORT 2016 5 Over the past three years 2016 financial year earnings TELYS4 shares allowing the value to Return on Seven Group Holdings has operated guidance and maintained a be captured should its price again buy-back in challenging environments, stable fully-franked dividend. We fall below intrinsic value. % however, the leading market expect current competitive trading Equally important is our 24 positions of its businesses coupled conditions to persist. However, commitment to further improve with the capable management the refined cost structure and safety performance across all our teams supported by an engaged recurrent revenue will support businesses. This is important for workforce have ensured that current profitability until the Refinanced our people and our customers and Seven Group Holdings has resource industry transitions into will ultimately be a differentiator. $ bn preserved its underlying profitability. the next capital replacement 1.2 The Board firmly believes that cycle. Given the current average Our strong balance sheet, strategic the planning and safe execution age of the installed fleet operating investments and access to capital of all jobs is the key to efficiency. in our territories, reinvestment is markets provide us with the tools More importantly, this protects anticipated over the next few years. to overcome the new challenges our workforce, giving them a as well as the ability to take full Pleasingly, customers are now confidence that enhances their advantage of opportunities to working collaboratively with individual skill sets. further build your Company and WesTrac to optimise their cost The Board continues to review create shareholder value. The structure, focusing on productivity its composition and we intend seamless transition of CEOs has and working capital improvements to continue the process of the also demonstrated the agility of rather than merely looking to Board renewal, recognising the the business to assimilate and achieve cost reductions. This is an benefits of directors with a broad effectively manage change. important and ongoing initiative range of skills, experience and and whilst the Board acknowledges I have operated businesses through perspectives. This year we the results to date, there is much various economic cycles, the welcome the appointment of more we plan to do in order to inflation-led credit squeeze of the Ms Annabelle Chaplain as a fully capitalise on the current 1950s and 1960s, the oil crisis of Non-Executive Director. production cycle. the 1970s, the global recession Ms Chaplain brings extensive following the stock market crash Seven West Media continues experience in investment banking, of 1987, the Asian financial crisis to lead and dominate through financial services, mining, and the recession we had to have a challenging environment. We engineering and major infrastructure in the 1990s, the GFC in 2008. have been very pleased with the services. We are delighted that she And yet, in my experience, the strong ratings performance, a has agreed to join the Board of last 12 months reflect a relative growth in total audience through Seven Group Holdings. low in business confidence over the year and our cost activities Finally, I would like to thank our these past six decades. Despite which have attempted to address management teams across our this economic malaise, both the challenging revenue result. operating businesses and the domestically and internationally, They are focused on what they SGH team. Together with the Seven Group Holdings has adjusted can do to change the revenue approximately 4,300 employees, its operating model to compete dynamic and continue to advance they continue to adapt to the vigorously and successfully their content opportunities such as ever changing environment in the markets within which it My Kitchen Rules launching in the and ensure our businesses participates. We have leveraged our USA later this year and now aired remain strong and competitive. talented management teams and in more than 20 countries. Without their tireless effort and passionate workforce to navigate We continue to maintain an commitment this financial result these challenges. efficient capital structure, giving us could not be achieved. This success is built on a refined the flexibility to fund our existing The Board and I appreciate operating model which has seen businesses and invest in new their efforts, commitment and an enhanced focus on remaining opportunities that may arise out contribution to deliver such a market competitive in terms of of these difficult economic times. strong FY16 Group result whilst value proposition whilst delivering This capital structure has been repositioning the Group for the next innovative customer solutions. further buttressed by the extension phase of growth. Australia is producing and of the $1.2 billion of Group debt exporting record volumes of iron facilities during the year, providing Your Board is focused on driving ore in Western Australia and coal the Group an average debt duration greater returns for all shareholders, in New South Wales. SGH is well of 5.3 years. and, on behalf of the Board, positioned to service and support I thank you, our shareholders, For the benefit of all shareholders, our customers in this strong for your continuing support and the Board has aimed to maintain production cycle. commitment to your Company. your dividend through the cycle One of the great examples of this whilst opportunistically making has been the success of the CAT efficient use of available capital via autonomous haulage solution the share buy-back to enhance (AHS) which is allowing our shareholder returns. Over the year, customers to achieve world leading the effect of the buy-back has been productivity performance. to generate a 24% post tax return KERRY STOKES AC for shareholders. To this end, the It is particularly satisfying that we EXECUTIVE CHAIRMAN Board has elected to extend the have been able to outperform ordinary share buy-back to the 6 Seven Group Holdings for Roy Hill to support their ramp up in production. The Roy Hill Project was the only major greenfield