ANNUAL REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2011 REGIONAL EXPRESS HOLDINGS LIMITED foreword THE BEST IS YET TO BE Just like a broken record, I need to remark once again (as I have done for the last four years) that the year under review continued to be extremely regional express value statement challenging with fuel prices spiralling out of control. To make matters worse, this year we were also hit with several climatic catastrophes from cyclones and floods to volcanic ash which saw an unprecedented What does it profit a company if it gains the whole world and loses its soul voluntary shutdown of large areas of airspace over several days in Rex’s network in South Australia, Victoria, Tasmania and New South Wales. COMPANY CUSTOMER Rex is not spared from the aftermath of these external forces and we Staff members are part of the Rex family. This comes with both privileges We are committed to providing our customers with safe and reliable air see its Group Profit Before Tax (PBT) declining some 8% to $24.1M and and responsibilities. transportation with heartfelt hospitality. a steeper decline in Profit After Tax of 28.5% due to the discontinuation of tax incentives set in place the prior FY. This weak performance We expect every staff member to take ownership of issues As a regional carrier, we constantly strive to keep fares low through our underscores the extreme fragility of the aviation environment in Australia encountered: commitment to simplicity, efficiency and good value. where we see Virgin Australia forecasting a loss for the second time • Ownership means that if something is wrong then it is everyone’s We are committed to treating our customers as individuals and will and Qantas continuing to struggle with net returns on revenue of only job to fix it. respond to all their comments and complaints. 1.7%. • Matters that cannot be handled by the staff member ought to be pursued further with senior management. Yet in spite of these sobering results, I am actually more optimistic and • Staff have the right to make mistakes if they act in the best confident of the outlook and potential of the Rex Group than I have ever interest of the customer and the company. CONTRACTORS been for the past nine years. The deep restructuring of Rex’s subsidiary We believe that our suppliers are partners in our business. Pel-Air, which started two years ago, is now almost complete. In these We strive to be a learning organization where we actively seek to identify two years we saw Pel-Air’s PBT dry up from $5M to almost nothing in issues no matter how small in order to continually transform ourselves In all our dealings with suppliers we will seek to be fair and honest and this reporting period. But this has been well worth the effort as Pel-Air to a better organization: will strive to work only with like-minded suppliers. has emerged a stronger, more viable and more sustainable company • This entails a culture where issues are highlighted as learning with strong businesses in Fly-in / Fly-out mining charters, Air Ambulance, experiences even though they may place our colleagues in a Freight and Defence that will, I believe, propel it to record profitability bad light. within the next two years. • An excellent airline is one that is outstanding in a thousand COMMUNITY Rex’s other subsidiary, the Australian Airline Pilot Academy (AAPA) is also small ways. Rex is mindful of the tremendous social and economic impact its now poised to take off after receiving accreditation from the General Civil services have on the regional communities and works in partnership Aviation Authority of the United Arab Emirates (UAE) to conduct the flight We believe that we can only count on ourselves for our continued with these communities to balance their needs against Rex commercial training for the Multi-Crew Pilot License (MPL). AAPA welcomed the first success: imperatives. • All staff members must embrace the ‘can do’ and ‘will do’ spirit batch of cadets from the UAE in early August 2011 and expects to train that has been the defining characteristic of our initial success. We are also committed to giving back to the regional communities by over 60 of their cadets in this FY. With the current world-wide demand • Hard work is the cornerstone of our work ethic. supporting worthwhile charitable causes which are focused on helping for new pilots estimated at 20,000 a year, AAPA is well positioned to • All staff share in the profits and so all staff are expected to the less fortunate. contribute strong earning streams in the coming years. contribute his/her fair share. We are committed to preserving the environment to the measure of our And as if to give us external validation, I have just received word that capabilities. Rex has been ranked as the Top Performing Regional Airline in the world We value open communication and will strive to create an environment an unprecedented third consecutive year by the authoritative Aviation that removes barriers to communication: Week and Science Technology. While the economic turmoil in the USA • Staff members have a right to be heard regardless of their and Europe is as threatening as ever, at Rex we approach the new FY position. with a certain amount of confidence, serenity and even excitement. • Staff members are encouraged to contact directly the members CAPITAL of the Management Committee and Board if they see the Rex believes that its shareholders’ interest is best served by pursuing a need. path of steady but sustainable growth of its earnings. We believe that maximizing shareholders’ returns in the long term is We respect the dignity of each staff member and will treat each other not incompatible with our duties and responsibilities towards our other with respect and fairness: stakeholders outlined above. • The customer does not always come first and we will stand by our staff member if the customer is unreasonable. Lim Kim Hai • While we can be single-minded in tackling issues and problems, Executive Chairman we will focus on the issue and not the person. 24 August 2011 • We accept that staff members may have different talents and capabilities and will strive to fit the job to the person rather than the other way around. • Important decisions concerning staff matters are always referred to the Management Committee to ensure transparency, fairness and consistency. We are committed to standing behind our staff members and their families and will do all we can to help them in their times of special need: • We believe in the value of the family and will strive to create a working environment that is supportive of the family. • All staff members have the right to appeal to the Management Committee if special assistance or consideration is needed. corporate information This annual report covers the consolidated entity comprising Regional Express Holdings Limited and its subsidiaries. The Group’s functional and presentation currency is AUD ($). Directors Lim Kim Hai The Hon. John Sharp James Davis Chris Hine Lee Thian Soo Ronald Bartsch Russell Hodge David Miller Company Secretaries Irwin Tan Benjamin Ng Registered Office 81 – 83 Baxter Road Mascot, NSW 2020 (Ph): 02 9023 3555 (Fax): 02 9023 3599 Share Registry Link Market Services Limited Level 12, 680 George Street Sydney, NSW 2000 Solicitors Baker & McKenzie Level 27, AMP Centre 50 Bridge Street Sydney, NSW 2000 Bankers Westpac Banking Corporation Auditors Deloitte Touche Tohmatsu contents PART I Directors’ Report 4 - 22 Auditor’s Independence Declaration 23 PART II Financial Statements 24 - 64 Consolidated Income Statement 26 Consolidated Statement of Comprehensive Income 27 Consolidated Statement of Financial Position 28 Consolidated Statement of Cash Flows 29 Consolidated Statement of Changes in Equity 30 Notes to the Financial Statements 31 - 63 Directors’ Declaration 64 PART III Regulatory Reports 66 - 74 Independent Auditor’s Report 68 - 69 Corporate Governance Statement 70 - 73 ASX Additional Information 74 directors’ report 01 BOARD OF DIRECTORS In compliance with the provisions of the Corporations Act 2001, the directors of Regional Express Holdings Limited (‘Rex’) submit herewith the annual report for Rex and its consolidated entities (the ‘Group’) for the financial year ended 30 June 2011. The names and particulars of the directors of Rex during or since the end of the financial year are: 5 6 3 1 2 4 7 8 1. LIM KIM HAI 2. THE HON. JOHN SHARP 3. JAMES DAVIS 4. CHRIS HINE 5. LEE THIAN SOO 6. RONALD Bartsch 7. RUSSELL HODGE 8. DAVID MILLER Executive Chairman Deputy Chairman and Managing Director Chief Operating Officer Non-Executive Director Independent Director Independent Director Executive Director, Rex Appointed 27 June 2003 and Independent Director Appointed 26 August 2004 as Appointed 1 March 2011 Appointed 27 June 2003 and Appointed 23 November 2010 Appointed 9 September 2005 and Chief Executive Officer, re-appointed Appointed 14 April 2005 and Executive Director re-appointed 16 November 2006 re-appointed Air Link Pty Ltd 16 November 2006 and re-appointed 19 November 2008 Appointed Managing Director and 25 November 2009 19 November 2008 Appointed 28 February 2007 25 November 2009 on 27 May 2008 and Retired 14 June 2011 and re-appointed on retired 1 July 2011 15 November 2007 Retired 1 March 2011 Mr. Lim started his career as a The Honourable John Sharp, originally Mr. Davis is a qualified Aeronautical Mr. Hine has over 20 years of Mr. Lee has extensive international Mr. Bartsch has over 30 years Mr. Hodge practiced as a solicitor Mr. Miller commenced flying Defence Engineer specialising in from a farming and business background, Engineer and worked for four aviation experience including business experience and currently experience in the aviation industry in from 1973 to 1997 and specialised commercially in 1985 and bought underwater warfare.