Annual Report 2015 SGH is positioned to serve and support our customers in this strong production cycle. ANNUAL REPORT 2015 ABN 46 142 003 469 Seven Group Holdings Limited ABN 46 142 003 469 Repositioning our operations to remain competitive, customer focused and capable of delivering long-term value for shareholders. CHAIRMAN’S Annual Report 1 LETTER 2015 04 INDUSTRIAL FINANCIALS CORPORATE SERVICES GOVERNANCE 14 STATEMENT 36 MEDIA INVESTMENTS 76 DIRECTORS’ 22 REPORT 48 OTHER INVESTMENTS REMUNERATION 26 REPORT 51 14 ENERGY MARKET OVERVIEW 28 Our customers’ drive for increased efficiency has resulted in SGH sharpening its focus on controllable costs and ensuring we maintain a valuable FIVE YEAR customer proposition. RESULTS 07 GROUP STRUCTURE OPERATING & FINANCIAL REVIEW 02 08 RISK FACTORS ASSOCIATED WITH SGH 30 2 Seven Group GROUP Holdings STRUCTURE Industrial Services Media Investments Challenging commodity prices and an emphasis on cost Seven West Media delivered its eighth consecutive year management by customers has lowered demand for of television ratings dominance with an advertising the Group’s equipment. However, continued cost base revenue share of 40.0 per cent for the twelve months refinements coupled with investments in productivity ended0 3 June 2015. PAGE 22 improvements position the Group’s industrial services businesses for growth in product support. PAGE 14 100% (Australia) 40.9% 100% (China) 46.4% ! 100% 20% Annual Report 3 2015 Other Investments Energy The Group’s listed investment portfolio provided a pre-tax SGH is moving purposefully ahead with plans to build total return of 13.0 per cent for the year, outperforming a meaningful presence in oil and gas exploration and the comparative ASX200 return by 5.7 per cent. It remains development, focusing on high quality energy opportunities a strong store of value capable of being leveraged that will add long term shareholder value. PAGE 28 by the Group. PAGE 26 Listed Portfolio Australian Assets • Carrying value at 30 June 2015 : $1,097.6m • Longtom field (100% ownership), Gippsland Basin VIC • Crux field (15% ownership), Browse Basin WA • Echuca Shoals exploration permit (100% ownership), Browse Basin WA Property Portfolio Overseas Assets • Direct property investments • Bivins Ranch (11% ownership), Texas USA » Carrying value at 30 June 2015: $34.2m » Kings Square development, Perth WA » Dianella studios, Perth WA • Indirect property investments » Carrying value at 30 June 2015: $32.0m » Invested in unlisted property trusts (Revy Investments – 25% and Flagship – 47%) 4 Seven Group CHAIRMAN’S Holdings LETTER Annual Report 5 2015 Seven Group Holdings has operated in a tough and challenging environment in the past financial year, but we worked diligently to reposition our operations so they remain competitive, customer focused and capable of delivering long-term value for shareholders. Our work is ongoing. Kerry Stokes AC Executive Chairman The Group’s industrial services operations, The conglomerate structure of SGH also The establishment of our energy division which include WesTrac Australia, WesTrac allows us to allocate capital effectively to is a good example of utilising our capital China, Coates Hire and AllightSykes, have different parts of the Group and, where structure to fund the establishment of a adjusted their respective business models appropriate, to ensure our operations can new operation that will be an important to meet the changing dynamics of the derive synergies by cooperating and saving generator of future earnings and market, as customers strive to improve costs. The strength of SGH’s businesses shareholder value. efficiencies and increase production can be gauged by the successful All of our businesses have streamlined volumes. We shouldn’t lose sight of completion of a group-wide $2.5 billion their cost base and workforce; we’re the fact that Australia is producing and refinancing program in the financial year in achieving enhanced technical productivity exporting record volumes of iron ore in a difficult market, which provided certainty by utilising the most advanced systems; Western Australia and coal in New South for all our businesses, and we’re about and we’re working creatively with our Wales. SGH is well positioned to service to embark on a further buy-back of our partners and suppliers to capture savings. and support our customers in this strong stock, demonstrating the value we see In repositioning our businesses we are production cycle and create long-term value in the business. ensuring that our operations will remain for the Group. We have made significant We moved with our customers through highly relevant and deliver long-term value changes to our businesses but further a commodity price boom, led by the for shareholders. refinement is required. prices of coal and iron ore spiking to The markets in Australia and China have unprecedented highs, resulting in a huge been extremely challenging as we have re-investment boom in Australia, to the come off the biggest mining expansion current record levels of production and we boom in history to be replaced by the continue to work closely to support their biggest production ramp-up we’ve ever drive for more efficient operations. known. While it was disappointing that our This drive for increased efficiency has statutory net loss after tax of $359.1 million resulted in SGH sharpening its focus on for the year was due to a number of our controllable costs and ensuring the one-off write downs to the carrying value value proposition for our customers. We’ve of our assets, our underlying EBIT of been decisive in taking action to meet $314.5 million was within the guidance these challenges. We continue to maintain that we provided in February and we an efficient capital structure, giving us the maintained a fully-franked dividend. Our flexibility to fund our existing businesses businesses are robust and well positioned and invest in new opportunities that arise to take advantage of future opportunities, to provide additional income streams. particularly, our WesTrac operation. 6 CHAIRMAN’S Seven Group LETTER Holdings Seven West Media is in an Our WesTrac business enjoys a large Given Don’s departure, it was the role of installed base of mining and construction the Board to appoint a new Managing industry that is undergoing equipment and our parts and service Director & Chief Executive Officer who significant change due to offering continues to effectively support could best navigate these tough times our customers’ aim to keep their machines and continue to set the business for the digital revolution, but working around the clock to maximise future growth. We chose Ryan Stokes we believe free-to-air TV is production targets and as a result reduce because of his leadership qualities and our customers costs. We’re also working deep experience and understanding of the still the best way to reach closely with Caterpillar to look at ways Group and its operations over a 15-year a mass audience and there to improve the costs of delivering parts period. His proven record of constructively and product solutions to companies, deploying capital through his effective is a continual focus on how and we’re already seeing the profound management of our investment portfolio we innovate. benefits of WesTrac’s implementation of to deliver shareholder returns and financial its S3 program that will be completed in flexibility, and his ability to motivate and FY16 and which standardises processes work decisively with management as and delivers increased quality and Chief Operating Officer, provides the outcomes. Investing in SAP HANA will Board with a leader capable of making allow WesTrac to achieve additional the best decisions in the interests of savings and productivity gains as well all shareholders. as drive deeper integration through the We’ve also continued the ongoing process use of data and analytics with our major of Board renewal. During the last financial mining customers. year, we were fortunate to secure the Seven West Media is in an industry that services of The Hon Warwick Smith AM is undergoing significant change due and David McEvoy, both joined the Board to the digital revolution, but we believe as Non-Executive Directors. free-to-air TV is still the best way to reach Our assets are market leaders, our a mass audience and there is a continual management teams are strong, and focus on how we innovate. Seven our capital position remains robust and Network is Australia’s most watched alive to potential opportunities to deliver broadcast television platform producing shareholder value. We have become market leading content and with a roster market leaders in the fields in which we of world-class sporting events. We will work – construction and mining machinery continue to fuel new growth by monetising sales and service, media and equipment our content in new ways and building new rental – because we invest in our digital businesses. Our belief in Seven businesses with leading infrastructure and West Media is evidenced in our support delivery processes and we provide our of the early conversion of our convertible customers with the best products coupled preference shares, which increased our with the best service. We remain focused shareholding in the company. on prudent capital management. I’d like to pay tribute to Don Voelte AO I would like to thank our management who transitioned from Seven West teams across our operating businesses Media to assume the role of Managing and the SGH team. Together with the Director & Chief Executive Officer of SGH approximately 4,500 employees who in 2013. Don, who is also relinquishing continue to adapt to the ever changing all his directorships within the Group, environment and ensure our businesses provided seven years of service, starting remain strong and competitive. The Board with joining the board of West Australian and I appreciate your efforts, commitment Newspapers in 2008.