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Notes To The Financial Statements

1. GENERAL INFORMATION

Swick Mining Services Ltd (the “Parent” or the “Company”) is a public company listed on the Australian Securities Exchange Limited (“ASX”) and is incorporated in Australia. Swick Mining Services Ltd and its subsidiaries (collectively referred to as the “Swick Mining Services Group” or the “Group”) operate throughout the geographical region of Australia.

 

Swick Mining Services Limited’s registered office and its principal place of business are as follows:

 

  64 Great Eastern Highway

  South Guildford

  WA 6055

  Australia

  Tel: +61 (8) 9277 8800

 

The financial report of the Company and its controlled entities for the year ended 30 June 2008 was authorised for issue in accordance with a resolution of the directors on 24 September 2008.

2. ADOPTION OF NEW AND REVISED ACCOUNTING STANDARDS

During the current financial year, the Group adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (“AASB”) that are relevant to its operations and effective for the current annual reporting period. These Standards and Interpretations include:

• AASB 7 ‘Financial Instruments: Disclosures’


• AASB 2005-10 ‘Amendments to Australian Accounting Standards (AASB 132, AASB 101, AASB 114, AASB 117, AASB 133, AASB 139, AASB 1, AASB 4, AASB 1023, AASB 1038)

The adoption of these new and revised Standards and Interpretations did not have an impact on the Groups’ financial results or balance sheet as they are only concerned with disclosure.

Recently issued accounting standards to be applied in future reporting periods

The accounting Standards and AASB interpretations that will be applicable to the Group in future reporting periods are detailed below.

Segment reporting

AASB 8 ‘Operating Segments’ is applicable to annual reporting periods beginning on or after 1 January 2009 and replaces AASB 114 ‘Segment Reporting’. A related omnibus standard AASB 2007-3 ‘Amendments to Australian Accounting Standards arising from AASB 8’ makes a number of amendments to other accounting standards as a result of AASB 8 and must be adopted at the same time. AASB 8 requires entities to determine operating segments based on their internal management reporting structure for the reporting of their financial performance. The adoption of AASB 8 and AASB 2007-3 are not expected to have an impact on the Group’s financial results or balance sheet as they are only concerned with disclosure.

Other standards

AASB 3 ‘Business Combinations (revised)’, AASB 127 ‘Consolidated and Separate Financial Statements (revised)’ are effective for annual reporting periods commencing on or after 1 July 2009. These standards amend the manner in which business combinations and changes in ownership interests in subsidiaries are accounted for. They also make consequential amendments to other standards, most notably AASB 128 ‘Investments in Associates’ and AASB 131 “Interests in Joint Ventures’. Management has not yet assessed the impact of these standards.

3. SIGNIFICANT ACCOUNTING POLICIES

Statement of Compliance

The financial report is a general purpose financial report which has been prepared in accordance with the requirements of the Corporations Act 2001 and applicable Australian Accounting Standards including Australian interpretations. The financial report includes the separate financial statements of the Parent and the consolidated financial statements of the Group.

Accounting Standards include Australian equivalents to International Financial Reporting Standards (“A-IFRS”). Compliance with A-IFRS ensures that the financial statements and notes of the Parent and the Group comply with IFRS.


Basis of Preparation
 
The financial report has been prepared on a historical cost basis, except where stated, and does not take into account changing money values or fair values of assets.

In applying A-IFRS, management is required to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of revision and future periods if the revision affects both current and future periods.

Judgements made by management in the application of A-IFRS that have significant effects on the financial statements and estimates with a significant risk of material adjustments in the next year are disclosed, where applicable, in relevant notes to the financial statements.

Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events are reported. These accounting policies are consistently applied by each entity in the group.

The significant accounting policies set out below have been applied in the preparation and presentation of the financial report for the year ended 30 June 2008 and the comparative information.

  • Basis of Consolidation

    The consolidated financial statements are prepared by combining the financial statements of all of the entities that comprise the consolidated entity Swick Mining Services Ltd (the” Parent”).

    The financial statements of subsidiaries are prepared for the same reporting period as the Parent company, using consistent accounting policies.

    Adjustments are made to bring into line any dissimilar accounting policies that may exist.

    All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full.  Unrealised losses are eliminated unless costs cannot be recovered.

    Subsidiaries are consolidated from the date on which control is transferred to the group and cease to be consolidated from the date on which control is transferred out of the Group.

    Where there is loss of control of a subsidiary, the consolidated financial statements include the results for the part of the reporting period during which the Company has control.

  • Presentation Currency

    For the purpose of this report, the functional and presentation currency adopted is Australian Dollars.

  • Cash and Cash Equivalents

    Cash and cash equivalents comprise cash on hand and deposits repayable on demand with a financial institution. Cash balances and overdrafts in the balance sheet are stated at gross amounts with current assets and current liabilities, unless there is legal right of offset at the bank.

    The cash and cash equivalents balance primarily consists of cash, on call in bank deposits, bank term deposit with three month maturity and money market investments readily convertible into cash within 2 working days, net of outstanding bank overdrafts.  Bank overdrafts are carried at the principal amount.

  • Trade and Other Receivables

    Trade receivables which generally have 30-60 days terms are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method, less any allowance for impairment.  The Group reviews the collectability of trade receivables on an ongoing basis and makes an objective judgement concerning amounts considered not collectible. The amount of the loss is recognised in the income statement within operating expenses and classified as doubtful debts. Any subsequent recovery of amounts previously written off, are recorded as other income in the income statement.

  • Inventories

    The Group maintains an inventory of drilling consumables for use in the rendering of drilling services. Inventory is measured at the lower of cost and net realisable value. An on-going review is conducted in order to ascertain whether items are obsolete or damaged, and if so determined, the carrying amount of the item is written down to its net realisable value.

  • Recoverable Amount of Non-current Assets

    Non-current assets valued on the cost basis are not carried at an amount above their recoverable amount, and where a carrying value exceeds the recoverable amount, the asset is written down to the lower amount.  The write-down is recognised as an expense in the net profit or loss in the reporting period in which it occurs.
    Where a group of assets working together supports the generation of cash inflows, recoverable amount is assessed in relation to that group of assets.

    In assessing recoverable amount of non-current assets the relevant cash flows have not been discounted to the present value, except where stated.

  • Impairment of Non Financial Assets Other Than Goodwill

    At each reporting date the Company conducts an internal review of asset values of its non financial assets to determine whether there is any evidence that the assets are impaired.  External factors, such as changes in expected future processes, technology and economic conditions, are also monitored to assess for indicators of impairment.  An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units).

    An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit or group of units on a pro rata basis.

  • Goodwill and Other Intangible Assets

    Goodwill

    Goodwill on acquisition is initially measured at cost being the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. As at the acquisition date, goodwill acquired is allocated to each of the cash-generating business units expected to benefit from the combination’s synergies.
      
    Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised, but reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised immediately in the income statement.  Impairment testing is performed annually.

  • Property, Plant and Equipment

    Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. Cost includes acquisition, being the fair value of the consideration provided, plus incidental costs directly attributable to the acquisition.

    Subsequent costs directly related to an item of property are recognised in the carrying amount of that item of property plant and equipment only when it is probable that the future economic benefits embodied within the item will flow to the consolidated entity and the cost of the item can be measured reliably. All other costs, including repairs and maintenance, are recognised in the income statement as an expense.

    Depreciation is recognised in the income statement on a straight-line or diminishing value basis over the estimated useful life of each part of an item of property plant and equipment. Those items of property, plant and equipment undertaking construction are not depreciated.


    The following useful lives are used in the calculation of depreciation for each class of property, plant and equipment:

     

     

     

  • Leased Assets

    Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreements as to reflect the risks and benefits incidental to ownership. Operating lease payments are leases under which the lessor effectively retains substantially all of the risks and benefits of ownership of the leased item are recognised as an expense on a straight-line basis.

    A finance lease effectively transfers to the lessee substantially all the risks and benefits incidental to ownership of the leased item, capitalised at the present value of the minimum lease payments and disclosed as property, plant and equipment under lease.  A lease liability of equal value is also recognised.

    Capitalised lease assets are depreciated over the shorter of the estimated useful life of the assets and the lease term.  Minimum lease payments are allocated between interest expense and reduction of the lease liability with the interest expense calculated using the interest rate implicit in the lease and recognised directly in net profit.
    The cost of improvements to or on leased property is capitalised, disclosed as leasehold improvements, and amortised over the unexpired period of the lease or the estimated useful lives of the improvements, whichever is the shorter.

  • Trade and Other Payables

    Trade payables and other payables are carried at amortised cost. They represent unsecured liabilities for goods and services procured by the Swick Group prior to the financial period that remain unpaid and occur when the Group becomes obligated to make future payments.  The amounts are unsecured and are usually paid within 30 days of recognition. 

  • Provisions

    Provisions are recognised when the economic entity has a legal, equitable or constructive obligation to make a future sacrifice of economic benefits to other entities as a result of past transactions or other past events, it is probable that a future sacrifice of economic benefits will be required and a reliable estimate can be made of the amount of the obligation.

  • Employee Benefits

    Liabilities for employee related benefits comprising wages, salaries, annual leave and long service leave are categorised as present obligations resulting from employees services provided up to and including the reporting date.  The liabilities are calculated at discounted amounts based on remuneration wage and salary rates the Group expects to pay as at reporting date including related on-costs, such as payroll tax and workers compensation insurance, when it is probable that settlement will be required and they are capable of being measured reliably.

    Liabilities recognised in respect of employee benefits expected to be settled within 12 months, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement.

    Liabilities recognized in respect of employee benefits which are not expected to be settled within 12 months are measured as the present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to report date.

    Employee superannuation entitlements are charged as an expense when they are incurred and recognised as other creditors until the contribution is paid.

    Employee benefit expenses and revenues are recognised against profits on a net basis in their respective categories.

  • Loans and Borrowings

    Loans and borrowings are initially recognised at fair value of the consideration received less directly attributable transaction costs incurred. Borrowings are subsequently measured at amortised cost utilising the effective interest rate method. Difference occurring between the proceeds (net of transaction costs) and the redemption amount is recognised in the income statement over the period of the borrowings using the effective interest method.
    Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.
    All other borrowing costs are recognised as an expense in the income statement in the period in which they are incurred.

  • Financial Instruments

    Debt and Equity Instruments

    Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

    Financial Assets

    Investments are recognised and derecognised on trade date where the purchase or sale of an investment is under contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, net of transaction costs except for those financial assets classified as fair value through profit or loss which are initially measured at fair value.

    Subsequent to initial recognition, investments in subsidiaries are measured at cost in the Group financial statements. Subsequent to initial recognition, investments in associates are accounted for under the equity method in the consolidated financial statements and the cost method in the Group financial statements.

    Loans and Receivables

    Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Non-current loans and receivables are measured at amortised cost using the effective interest rate method less impairment. Interest is recognised by applying the effective interest rate. Current trade receivables are recorded at the invoiced amount and do not bear interest.

    Financial Liabilities

    Financial liabilities are classified as either financial liabilities at fair value through profit or loss or other financial liabilities.

    Financial liabilities at fair value through profit or loss are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability.
    Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs, and subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts the estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.

  • Revenue Recognition

    Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns and allowances, trade discounts, volume rebates and sales taxes. Revenue is recognized when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, and there is no continuing management involvement with the goods. Transfers of risks and rewards vary depending on the individual terms of the contract of sale and with local statute, but are generally when title and insurance risk has passed to the customer and the goods have been delivered to a contractually agreed location.

    Interest revenue is recognised as it accrues using the effective interest rate method.

  • Current and Deferred Taxation

    Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

    Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

    Deferred tax is recognized using the balance sheet method, in respect of all temporary differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Temporary differences are differences between the Group’s taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the financial statements.

    Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they probably will not reverse in the foreseeable future.

    Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

    A deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying temporary differences can be deducted. 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.

  • Segment Reporting

    A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different to those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment and is subject to risks and returns that are different from those of segments operating in other economic environments.

  • Business Combinations

    Acquisitions of subsidiaries and businesses are accounted for using the purchase method, except where an acquisition meets the definition of a reverse acquisition. The cost of the business combination is measured as the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under AASB 3 ‘Business Combinations’ are recognised at their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with AASB 5 ‘Non-current Assets Held for Sale and Discontinued Operations’, which are recognised and measured at fair value less costs to sell.

    Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.

  • Goods and Services Tax

    Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO).  In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. 

    Receivables and payables in the statement of financial position are shown inclusive of GST.
    The net amount of GST recoverable from, or payable to, the 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.

  • Minority Interests

    Minority interest has been reclassified to issued capital and reserves based on interpretation of AASB 3 Business Combinations.  This has resulted as all new shares subsequently issued by Swick Mining Services Ltd after the reverse acquisition by SMS Operations Pty Ltd have been recognised as issued capital in the consolidated financial statements rather than minority interest.  The reverse acquisition accounting only applies to determine the allocation of the costs of the business combination as at the acquisition date and does not apply to any transactions after the combination.  The result of the reclassification does not affect the carrying amount of any assets, liabilities nor the reported net profit / (loss) after tax.  The comparative periods have also been reclassified.

  • Earnings per Share

    Basic earnings per share is calculated as net profit attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for any bonus element. 

    Diluted earnings per share are calculated as net profit attributable to members of the parent, adjusted for:

    • Costs of servicing equity (other than dividends) and preference share dividends;


    • The after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as an expense; and


    • Other non discretionary changes in revenue or expenses during the period that would result from the dilution of potential ordinary shares;

    divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. 

    The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share.

  • Share Based Payments

    The Group provides to employees (including directors) of the Group in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares (‘equity-settled transactions’). The cost of these equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted.

    In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of the Company (‘market conditions’). The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘vesting date’).

    The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the number of awards that, in the opinion of the directors of the Group, will ultimately vest. This opinion is formed based on the best available information at balance date. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition.

    Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified.  In addition, an expense is recognised for any increase in the value of the transaction as a result of the modification, as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph.

 

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4. BUSINESS and GEOGRAPHICAL SEGMENTS

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments.

A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and return that are different from those of segments operating in other economic environments.

The Swick Mining Services Group has two business segments - Drilling Operations and Engineering Operations. The Group provides services and products to mining companies, environmental and geotechnical engineering firms and other mining services companies solely in Australia.

The Drilling Operations consists of providing rigs, equipment, consumables and services for drilling and completing holes and the extraction and presentation of rock and soil samples on a contract basis. This business depends upon the supply and utilisation of drilling rigs, the skills and training of the drilling services personnel and the ability to negotiate the contracts under which these services are provided to customers.

The Engineering Operations designs and manufactures drilling products used in the drilling of holes and the maintenance of drilling rigs. The Drilling Operations segment is a major user of these products.


BUSINESS AND GEOGRAPHICAL SEGMENTS (Continued)

 

 

 

 5. REVENUE, OTHER INCOME AND EXPENSE

 

 

 

6.  INCOME TAX

 

INCOME TAX (Continued).

7. TRADE AND OTHER RECEIVABLES


The ageing of trade receivables at 30 June 2008 is detailed below;

 

The movement in allowance for impairment loss in respect of trade receivables
is detailed below


• Trade debtors are non-interest bearing and generally on 30 day terms.  A provision for impairment loss is recognised when there is objective evidence that an individual trade receivable is impaired. 


• Due to the short term nature of these receivables their carrying value is assumed to approximate their fair value.

• The Company recognised an impairment loss of $98,897 in respect of doubtful debts during the 2007 financial year. The loss was included as other expenses in the income statement. An amount of $3,355 has subsequently been received in the financial year ended 30 June 2008 and included in other income. The Company expects to receive further amounts in future periods.


• Amounts receivable from related entities are non-interest bearing and repayable on demand.


• Effective interest rates risk and credit risk – information concerning the effective interest rate and credit risk of both current and non-current receivables is set out in the non-current receivables note (9).

 8. INVENTORIES

9. FINANCIAL INSTRUMENTS

Financial Risk Management Objectives

The Group’s corporate finance function provides services to the business, co-ordinates access to domestic and financial markets, and monitors and manages the financial risks relating to the operations of the Group through internal risk reports which analyse exposures by degree and magnitude of risks. These risks include market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. The Group seeks to minimize the effects of these risks, where deemed appropriate.


Capital Risk Management

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximizing the return to stakeholders through the optimization of the debt and equity balances. The capital structure of the Group consists of debt, which includes the borrowings disclosed in Note 15 , cash and cash equivalents and equity attributable to equity holders of the Parent, comprising issued capital, reserves, other equity and retained earnings (accumulated losses) as disclosed in Notes 19.


Market Risk

The Group’s activities expose it primarily to the financial risks of changes in interest rates (Note 9). The Group enters into funding agreements with a variety of financial institutions to manage its exposure to interest rate risk. The Group is not exposed materially to financial risks of changes in foreign currency exchange rates.


Interest Rate Risk Management

The Parent and the Group are exposed to interest rate risk as entities within the Group borrow funds at fixed interest rates. The necessity to undertake hedging activities is evaluated regularly to align with interest rate views and defined risk appetite; currently the Management of the Company takes the view that hedging activity is unnecessary. The Parent and the Group’s exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note.


Credit Risk Management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties as a means of mitigating the risk of financial loss from defaults.

Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. On-going credit evaluation is performed on the financial condition of accounts receivable.

The Group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies.

The carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents the Group’s maximum exposure to credit risk.

Liquidity Risk Management

Ultimate responsibility for liquidity risk management rests with the Finance Department and Board of Directors, who have built an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements.

The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Included in Note 15 is a listing of additional un-drawn facilities that the Group has at its disposal to further reduce liquidity risk.


Liquidity and Interest Risk Tables

The following tables detail the Parent’s and the Group’s remaining contractual maturity for its non-derivative financial liabilities. The tables have been presented based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group may be required to pay. The table includes both interest and principal cash flows.

Interest Rate Risk

The following table sets out the carrying amount, by maturity, of the financial instruments that are exposed to interest rate risk; there is no interest rate risk exposure in the parent entity therefore no parent entity details are displayed in the following table.

Fixed interest maturing in:

Consolidated Entity

Interest on financial instruments classified as floating rate is repriced at intervals of less than one year. Interest on financial instruments classified as fixed rate is fixed until maturity of the instrument.

Refer note (15) regarding undrawn facilities. These facilities comprise asset financing with the National Australia Bank. 

Sensitivity Analysis

The sensitivity table below show the effect on profit and equity after tax if interest rates at the at date had been an increase or decrease of 1% (100 basis points) with all other variables held constant, taking into account all underlying exposures. The 100 basis point deviation has been selected as this is considered reasonable given the current level of both short and long term Australian interest rates. A100 basis point sensitivity would move interest rates payable from 8.35% to 9.35% in an interest rate appreciation environment. Given that the Group borrows in the form of hire purchase agreements, the market for such instruments remains competitive.

Borrowings consist of hire purchase agreements, a fixed interest facility and hence are considered to have no interest
sensitivity.

Fair value through Profit & Loss ("FVTPL"): Investment assets intended to be held short term. Sensitivity reflected in income statement.


Available for sale investments ("AFS"): Investment assets intended to be held long term. Sensitivity reflected in balance sheet equity.

 

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10. PROPERTY,  PLANT AND EQUIPMENT

No impairment events have occurred during the year that would cause the need for impairment to be assessed.

11. BUSINESS COMBINATIONS AND GOODWILL

Acquisition of Eaton Engineering Pty Ltd


On 2 July 2007, Swick Engineering Pty Ltd acquired 100% of the assets of Eaton Engineering Pty Ltd, a private company based in Australia, specialising in the manufacture of drilling consumables and specialist tooling.

The total cost of the combination was $457,700 and comprised a purchase of the assets for cash at the date of exchange. Swick Engineering Pty Ltd was incorporated on 20 June 2007 as a wholly owned subsidiary of Swick Mining Services Ltd for the purpose of the acquisition.

The fair value of the identifiable assets and liabilities of SMS Engineering Pty Ltd as at the date of acquisition are;
   

CONSOLIDATED

Goodwill has been tested for impairment at 30 June 2008 and determined not to be impaired. As at 30 June 2008 Swick Engineering Pty Ltd has contributed before tax profit of $165,343 to the Swick Group.


12. OTHER INTANGIBLE ASSETS

 

 

Goodwill arising through business combinations have been allocated to two individual cash generating units, each of which is a reportable segment for impairment testing as follows:

• Drilling cash generating unit; and


• Engineering cash generating unit.


Drilling cash generating unit

The carrying amount of goodwill in relation to the drilling cash generating unit at 30 June 2008 is $209,023 (2007: $209,023).  The recoverable amount of the drilling cash generating unit has been determined based on a value in use calculations using cash flow projections over a five year period. 

A pre-tax risk free discount rate of 13% was applied to the cash flow projections.  Due to the immaterial value of goodwill compared to segment operations a nominal growth rate of 2% was used which resulted in the impairment test being passed for the cash generating unit.

Assumptions from which the projections were based included current and expected market share, changes in gross margins and other operating expenses.

Engineering cash generating unit

The carrying amount of goodwill in relation to the engineering cash generating unit at 30 June 2008 is $357,700 (2007: nil).  The recoverable amount of the engineering cash generating unit has been determined based on a value in use calculations using cash flow projections over a five year period. 

A pre-tax risk free discount rate of 14% was applied to the cash flow projections.  Due to the immaterial value of goodwill compared to segment operations a nominal growth rate of 2% was used which resulted in the impairment test being passed for the cash generating unit.

Assumptions from which the projections were based included current and expected market share, changes in gross margins and other operating expenses as well as expected future expansion in plant and equipment.


Development Costs

Capitalised development costs relates to financial software developed by the Company in conjunction with a supplier. Development costs are carried at cost less accumulated impairment costs. The costs are amortised from the date of implementation on a straight line basis over 2.5 years (40% per annum). The amortisation has been recognised in the income statement in the line item “other expenses”.

No impairment trigger events occurred during the year to warrant impairment testing on capitalised development costs.

 

13. OTHER CURRENT ASSETS

 

14. TRADE AND OTHER PAYABLES

 

(a) Due to the short term nature of these payables, their carrying value is assumed to approximate their fair value.

(b) The Payables disclosed are unsecured.

 

15. INTEREST BEARING LIABILITIES

Terms and conditions relating to the above financial instruments:

  • Hire purchase liabilities generally have a lease term of 5 years with the financier having an interest in the asset until the final payment is made.  The average interest rate is 7.95%.  Financiers secure their interest by registering a charge over the leased assets.
  • Interest rate risk exposure: Details of the Group exposure to interest rate changes on interest bearing liabilities are set out in note 9.
  • Fair value disclosures: Details of the fair value of interest bearing liabilities for the Group are set out in note 9.
  •  Security: Details of the security relating to each of the secured liabilities and further information on the bank overdrafts and bank loans are set out in note 9.

 

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16. PROVISIONS


17. CONTRIBUTED EQUITY

 

 b) Movement in Ordinary Shares on Issue

Consolidated Entity

Parent Entity

c)      Fully Paid Ordinary Shares

Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the parent entity in proportion to the number of and amounts paid on the shares held.

On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote.

18. RESERVES

Share based payments recognised in Reserves of the Company consists of an Employee Share Option Plan (ESOP) and performance rights granted to certain Directors and employees of the Company. The following tables give the assumptions made in determining the fair value of the options and the rights issued.


RESERVES (Continued)

a. Employee Share Options

b. Performance Rights




19. RETAINED EARNINGS / (ACCUMULATED LOSSES)

 


20. EARNINGS PER SHARE

21. EXPENDITURE COMMITMENTS

b)    Capital Commitments
 
At 30 June 2008, the Swick Group had three (3) Reverse Circulation rigs and four (4) Multi-purpose rigs under construction with a third party at a total cost of approximately $13,800,000; the Company is being invoiced progressively for the rigs.  As at 30 June 2008, the Group had been invoiced and paid $3,500,000 towards the cost of construction of these rigs.

At 30 June 2008, the Group was committed to the construction of a further twenty-two (22) underground diamond rigs, aimed at expanding the rig fleet to a total of sixty-five (65) operating rigs by the end of the financial year 30 June 2009. Outstanding orders exist for the main components of the underground diamond rigs, supplied by third parties, at a total combined cost of $13,000,000.  As at 30 June 2008 the Group had been invoiced and paid $1,200,000 towards the cost of construction of these rigs. As the components are received progressively over the course of the coming twelve months, invoices will be levied on the Group and paid in accordance with agreed terms.

As with previous drill rig acquisitions the Group’s policy is to finance the majority of the capital cost of rigs purchased and/or manufactured. 

There are no contingent liabilities or contingent assets as at 30 June 2008.

22. RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS (Continued)     

The following transactions occurred with related parties: 

(i) Loans advanced to commonly controlled entities from the Parent are non interest bearing and not repayable within the next 12 months.

The consolidated financial statements include the financial statements of Swick Mining Services Limited and the subsidiaries listed in the following table.




23.  STATEMENT OF CASH FLOWS

     
a) Reconciliation of Cash  

For the purposes of the statements of cash flows, cash includes cash on hand, cash at bank and short term deposits at call.  Cash as at the end of the financial period as shown in the statements of cash flows is reconciled to the related items in the statement of financial position as follows:

b) Reconciliation of Profit from Operating Activities after Income Tax to Net Cash provided by Operating Activities


24. REMUNERATION OF AUDITORS

25. SUBSEQUENT EVENTS

Significant events subsequent to the balance date were as follows:

  • In July 2008, a total of 300,000 options were issued to an employee of the Group pursuant to the Company’s Employee Share Option Plan.  These options are exercisable on or before 31 March 2011 (and not before 30 September 2010) at an exercise price of $1.25.
  • In September 2008, a total of 200,000 options were issued to an employee of the Group pursuant to the Company’s Employee Share Option Plan.  These options are exercisable on or before 31 July 2011 (and not before 31 July 2010) at an exercise price of $1.50.
  • In August 2008, the Company approved the build of an additional four new multi-purpose rigs, taking the surface multi-purpose fleet to eight rigs.

There are no other matters or circumstances that have arisen since 30 June 2008 that significantly affect or may significantly affect:

a) the operations of the company;

b) the results of the operations; or

c) the state of affairs of the company.

in subsequent periods

26. CONTINGENT LIABILITIES & ASSETS

The Company has no contingent liabilities or contingent assets.

27. CHANGE IN ACCOUNTING ESTIMATE

During the financial year ending 30 June 2008, the Company revised the accounting estimate of certain assets to accurately reflect the useful life of those assets and the current and future earnings profile. The Company was previously utilising the diminishing value method of accounting for such assets and was subsequently changed to the straight-line methodology. This resulted in a reduction in depreciation expenditure of $463,376. Due to the planned expansion and growth in the assets of the Company, management take the view it is impractical to quantify the effect on future periods.

 

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