RNS Number : 8061G
Bateman Litwin N.V.
28 October 2008
Bateman Litwin Preliminary Results for the Year Ended 30 June 2008
Amsterdam, The Netherlands, 28 October 2008 - Bateman Litwin N.V. ("Bateman Litwin", "the Company", or "the Group") today announces its
preliminary results for the year ended 30 June 2008.
Financial Highlights
� 1Reported revenues up 84 per cent to US$816.1 million (2006/07: US$444.2 million)
� 2Normalised EBITDA up 73 per cent to US$33.8 million (2006/07: US$19.5 million)
� 2Normalised profit before tax up 20per cent to US$25.0 million (2006/07: US$20.9 million)
� Exceptional charges of US$88.2 million (2006/07: nil) of which:
- US$53.5 million relates to operating charges
- US$15.3 million relates to future contingency
- US$19.4 million relates to impairment charges
� 1Reported loss before tax US$63.2 million (2006/07: profit of US$20.9 million)
� 2Normalised EPS (diluted) down 23 per cent to 16.7 US cents (2006/07: 21.8 US cents)
� Total cash at 30 June 2008 of US$160.1 million (30 June 2007: US$147.5 million)
� Free cash, net of bonding collateral, at 30 June 2008 of US$69.8 million (30 June 2007: US$118.2 million)
� No final dividend proposed (2006/07: 3.7 US cents per share). Total dividend for the year of 3.5 US cents per share (2006/07: 6.0
US cents per share)
� Backlog at 30 June 2008 of US$1.3 billion up 44 per cent from 30 June 2007 (US$954 million)
1 Reported figures are calculated after exceptional items
2 Normalised figures are calculated before exceptional items
Background to Exceptional Charges and Capital Requirements
� On 1 June 2008 David Lamont was appointed Chief Executive Officer of the Group and on 26 August 2008 Davis Larssen joined the Group
as Chief Financial Officer
� Following a thorough review of all major projects, operating centres and the Group*s goodwill and other intangible assets, it became
evident that impairment charges and other exceptional costs were necessary in order to provide a solid platform for future profit growth
� The exceptional charges relate to legacy corporate acquisitions and business practice, in particular to goodwill impairment on the
Delta-T acquisition, to the Group*s business in the Former Soviet Union (*FSU*), to provisions for increased costs to complete five legacy
projects and to a doubtful debt
� Approximately 50 per cent of the exceptional costs represent future cash costs. Taking these into account, together with increased
bonding requirements, the Group*s free cash, net of bonding collateral, as of 30 September 2008, was US$33.9 million
� BSG Resources, the major shareholder, has reiterated its commitment to the Company and its confidence in the new management team,
pledging financial backing and support. It has provided a subordinated US$10 million loan (*the Loan*) and guaranteed credit lines of a
further US$10 million on commercial terms
� The Independent Directors of the Company consider that, having consulted with Credit Suisse, its nominated adviser, the terms of the
Loan are fair and reasonable so far as the shareholders of the Company are concerned. In advising the Independent Directors of the Company,
Credit Suisse has taken into account the Independent Directors* commercial assessment of the Loan.
Strategic Review
With the full support of both the Board and the major shareholder, the new management team has conducted a detailed business review.
This has lead to a clear understanding and recognition of the current state of the Company's backlog and of the Group's relative strengths
and areas for improvement. A strategic review followed which is setting the direction for the Company going forward. Fundamentally,
greater emphasis will be placed on operational competence and bottom line growth versus the revenue led growth of the past. In recognition
of the core values and strengths of the Company, engineering and technology will be at the core of our market offering, with less
recognition of engineering, procurement construction ("EPC") packages being a "product" in their own right.
Outlook
While the market segments which the Company serves are going through change, our US$1.3 billion backlog provides significant underlying
value to the Group. The backlog's diversification, as to geographic and market segment, coupled with a large number of projects underway
and with the Group's renewed execution rigor, provide the Board with good reason to look to the future with confidence.
Commenting on the results, David Lamont, Chief Executive Officer of Bateman Litwin said:
"I was attracted to Bateman Litwin because of its significant engineering capability, strong technology focus, global presence and
culture based on diversity, improvement and growth. These fundamentals prevail and most definitely remain at the heart of the Group. We have
had an intense period of review and while the adjustments deemed necessary are tough in the short-term, we have now established a solid
foundation for the future. We are delighted that BSG Resources has pledged its financial backing and continued support for the Group. "
A meeting for investors and analysts will be held today at 9.00 am at Oriel Securities, 125 Wood Street, London EC2V 7AN.
About Bateman Litwin N.V.
Bateman Litwin N.V. is a supplier of technology, engineering and project management services to global energy and resource industries.
Its services cover the full life-cycle of projects including design, supply, construction, installation and commissioning. Bateman Litwin
N.V. operates throughout the world and employs over 2,000 people with annual sales of approximately US$820 million. To find out more, visit
Bateman Litwin at: www.bateman-litwin.com
Enquiries:
Bateman Litwin Tel: + 44 (0)20 7799 8307
David Lamont, Chief Executive Officer
Davis Larssen, Chief Financial Officer
Ingrid Boon, Investor Relations Manager
Credit Suisse Securities (Europe) Limited Tel: +44 (0)20 7888 8888
Jon Grussing
Will MacLaren
Oriel Securities Limited Tel: +44 (0)20 7710 7600
Richard Crawley
Michael Shaw
Pelham Public Relations Tel: +44 (0)20 7743 6679
Archie Berens
Chairman's Statement
Introduction
The financial year ended 30 June 2008 witnessed a changing of the guard at Bateman Litwin as well as a thorough review and evolution of
its strategy. Shuki Raz stepped down as Chief Executive Officer and David Lamont was appointed as his successor. After the year end Davis
Larssen joined the Group as Chief Financial Officer.
The Group has come through a period of rapid expansion due to both acquisitive and organic growth. For the year ended 30 June 2008,
Group revenue increased by 84 per cent to US$816 million (2006/07: US$444 million) of which US$278 million related to the Delta-T
acquisition. The Group has grown rapidly over the past four years. For the year ended June 2005, Bateman Litwin employed 590 people and
reported revenue of US$116 million. Today the Group employs over 2,000 people and has increased reported revenue by more than seven times
that of 2005.
Financial Performance
It became apparent, however, during the course of the year, that the Group's expansion had not been underpinned by the appropriate
development of its cost controls and management structures. Furthermore, a review of the business led by the incoming CEO and CFO revealed
legacy project cost over runs and a need for goodwill impairment charges. This has resulted in a pre tax exceptional charge of US$88.2
million of which US$43.9 million represents future cash costs to the Group. A loss after tax of US$65.6 million was reported.
Regarding the exceptional charges, US$19.4 million represents a goodwill impairment charge, of which, US$14.4 million is due to the
Delta-T acquisition in North America and the remaining US$5 million to a goodwill write down in the FSU.
US$66.9 million represents a provision for increased costs and contingency to complete five legacy projects. These projects are an oil
and gas project in the FSU (US$36.6 million), a waste-to-energy project in Europe (US$14.6 million), a solvent extraction project in South
America (US$5.9 million), an ethanol project in North America (US$5 million) and an oil and gas project in Europe (US$4.8 million). Finally,
there is a charge of US$1.9 million for a doubtful debt.
The Board of Bateman Litwin is extremely disappointed over the magnitude of the charges, however, the they have been necessary in order
to provide a sound footing for future performance. Going forward the highest priority will be given to financial accountability and
transparency.
Strategic Review
Since his arrival, effective as of 1 June 2008, the new Chief Executive has been strengthening the operating team and determining the
Group strategy with the support of the senior management team. The conclusion of this review is that Bateman Litwin requires an essential
strategic adjustment from focusing on low margin turnover growth to establishing itself as a business whose technology and engineering
know-how are at its core. This will not only reduce operational risk but will also allow Bateman Litwin to expand its service offering and
to become a valued technical and operational authority to our customers. Whilst this will result in slower top line growth and a change in
the Group's backlog profile over time, it will improve profit margins and, most importantly, reduce execution risk, thus securing a more
robust predictable business performance. We are committed to improving financial responsibility and operational excellence.
The Group intends to properly align its portfolio of projects and cost base and is targeting an EBITDA margin of between 5 and 7 per
cent within the next three years.
Delta-T litigation
The litigation against Delta-T's former owners, the Swains, is ongoing. Both parties are still completing the discovery stage due to the
sheer volume of documents involved. A trial date is due at the beginning of 2009. Based on the Delta-T financial results for the 2007
calendar year and the price adjustment formula in the acquisition agreement, the Board of Bateman Litwin continues to anticipate the return
and cancellation of the 11.8 million Bateman Litwin shares which initially formed part of the purchase price.
Funding
It is anticipated that upon completion of the audited financial results the Company will be in technical breach of certain banking
covenants. Bateman Litwin is, however, engaged in a constructive dialogue with the banks and is confident of a mutually acceptable outcome.
The Group's major shareholder has pledged financial backing and support and has provided a subordinated US$10 million loan as well as
guaranteed credit lines of a further US$10 million. This will enable the Group to satisfy its ongoing funding requirements. The loan is for
two years at LIBOR plus 4 per cent. It is repayable at the end of the loan period unless Bateman Litwin chooses to repay it early.
People
This year has seen many challenges for the Group and I am encouraged by the positive response from our workforce. I would like to thank
everybody for their hard work and enthusiasm.
There have been a number of internal management changes and external appointments. After the year end, we were pleased to announce the
appointment of Davis Larssen, previously Regional Vice President Finance at Vetco Gray, as the Group Chief Financial Officer. Thomas (Mac)
McDaniel was appointed as the Managing Director of Delta-T and the Americas while Paul Grogan joined the Company as the Group Human
Resources Director. Both Thomas and Paul are long serving ex employees of Schlumberger and BHP Billiton respectively. Furthermore, Etienne
Cabanes, previously Senior Vice President of Middle East and South West Asia at Technip, joined the Group as the EMEA Bateman Litwin Chief
Operating Officer.
In addition to David Lamont joining the Board, David Granot joined as a non-executive director in June 2008. David Granot has over 35
years of international finance experience. He is employed by the BSG Group, and as such represents the Bateman Litwin controlling
shareholder. Prior to joining the BSG Group, Mr. Granot was, amongst others, Chief Executive Officer of The First International Bank of
Israel, Israel Discount Bank and Union Bank of Israel.
Davis Larssen is expected to join the Board at the Company's AGM, following his appointment as the Chief Financial Officer. Max Abitbol,
formally the CEO of Litwin retired as an executive director of the Company during the year. [He has remained, however, as a non-executive
director and has continued to work for the Group in a part-time consulting capacity.]
Main Listing
The Board is committed to seeking a move to the Main List of the London Stock Exchange in the first half of 2009.
Dividends
An interim dividend of 3.5 US cents, equating to 1.75 pence, has been declared and paid to shareholders (2006/07: 2.3 US cents). The
Board is not recommending a final dividend (2006/07: 3.7 US cents).
Outlook
I believe the new management team has re-defined Bateman Litwin's objectives and focus on its core strengths. Difficult decisions have
been taken to address the operational and financial performance of certain legacy contracts. Looking forward, the Group's performance will
be underpinned by the geographic and market diversification of the Company. This coupled with a large number of projects underway, and the
Company's renewed execution rigor, provide the Board with good reason to look to the future with confidence.
CEO's review
Introduction
Bateman Litwin is a company rich with engineering and technology know-how, capability and resource. With over one thousand engineers and
technologists located in most of the key energy and resource markets worldwide, we are well placed to address the diverse and growing
technical challenges of our customers. My priority for the foreseeable future, along with the whole management team, is to align and focus
the Group to improve operational execution and risk management, to restore technology and engineering know-how as our core capability and to
move away from a sales growth mentality.
Exceptional costs
Since becoming Bateman Litwin's CEO as of 1 June 2008, I have led a thorough review of all major projects and operating centres. It
became evident that a goodwill impairment charge was necessary as well as a review of costs to complete certain legacy projects within the
Group. It was essential to thoroughly address these legacy issues within the Group in order to provide a solid foundation for future growth.
This has resulted in a pre tax exceptional charge of US$88.2 million of which US$43.9 million represents future cash costs to the Group.
US$19.4 million of the exceptional cost represents a goodwill impairment charge, of which, US$14.4 million is due to the Delta-T
acquisition in North America and the remaining US$5 million to a goodwill write down in the FSU. US$66.9 million represents a provision for
increased costs and contingency to complete five legacy projects within the Group and US$1.9 million represents a doubtful debt, all of
which are described above in the Chairman's statement.
Strategic Re-direction
Bateman Litwin requires a change in strategic direction. Our business model will concentrate on our core capabilities of technology and
engineering know-how and will move away from being a high turnover, low margin EPC operator with an auxiliary technology unit. Our core
capabilities will be underpinned by disciplined best in class project management skills. This will allow Bateman Litwin to expand its
service offering encompassing the life of a client's asset rather than a narrow focus on the front-end, low margin, high risk, design and
build aspect of a process orientated plant. In essence, we are aiming to leverage our knowledge to become a highly regarded technical and
operational authority to our customers. This will reduce our risk profile and ensure we are involved in more value added activities based on
our core strengths.
Delta-T provides a good example of the change required. With a 21 per cent market share of the US bio-ethanol market, its licensed
plants provide significant opportunities to offer technical services as well as upgrades to existing plant owners.
Minimising Risk
We are implementing strict risk review procedures with a view to quantifying risk in an objective and thorough manner. More stringent
execution discipline is essential for our focus on operational excellence, which when coupled with a more discerning selection of business,
will improve the quality and most importantly the predictability of our earnings going forward. Earlier recognition of issues, for example,
allows for less costly solutions. Most important, however, is a management team capable of and dedicated to delivering the changes in a
consistent, rigorous and disciplined manner.
To this end, I have introduced a number of changes to the team. I expect to continue developing a team capable of delivering best in
class performance.
- Davis Larssen joined the Company as Chief Financial Officer. Davis was previously Regional Vice President of Vetco Gray. Davis is
playing a vital role in establishing robust Group accounting and reporting systems, including accurate cash and profit and loss forecasting
and proactive management.
- Thomas (Mac) McDaniel joined as the Managing Director of Delta-T and Bateman Litwin North and South America. Mac is a Schlumberger
veteran with over 25 years* industry experience. He has a proven track record in operations management and business development.
- Paul Grogan joined as the Group Human Resources Director having previously worked for BHP Billiton for 20 years. Paul*s wealth of
experience will help shape the Group structure in terms of optimising the value of our workforce.
- Etienne Cabanes joined from Technip as the Chief Operating Officer of Bateman Litwin EMEA. Given the strength of Bateman Litwin*s
EMEA backlog, Etienne will play a crucial role in ensuring disciplined project execution.
Furthermore, the Group will minimise its risk in EPC activities, specifically in the non-core elements of execution and support. This
will be achieved through strategic joint ventures with local operators and will result in less dependence on lump sum turnkey type
contracts.
Accordingly, the Group's structure is being refocused. The technology and engineering know-how divisions will focus on a global offering
while the regional units, underpinned by our low cost engineering centres, will ensure thorough operational discipline in projects.
Specifically, the Group is implementing the following changes:
1. Global Procurement
The Group has adopted a global procurement strategy. A global procurement manager has been appointed to co-ordinate the Company wide
purchasing of more than US$500 million of equipment. Previously these transactions occurred on a local basis ignoring the cost benefits that
scale can bring.
2. Engineering Utilisation
The Group is focusing on improving engineering untilisation through more efficient use of the Group's resources. Bateman Litwin has an
exceptionally strong engineering population of over one thousand engineers. This, together with our diverse geographic footprint of low cost
engineering centres particularly in Israel, Romania, Slovakia and the United Arab Emirates, provides the Group with a valuable competitive
advantage.
3. Consolidation of Sales and Marketing
Bateman Litwin's regional sales and marketing departments were previously operating as independent units foregoing any meaningful levels
of cross selling of the Group's services. Jean Yves Martin, the Managing Director of Bateman Litwin EMEA, has been appointed as Global Head
of Sales and Marketing. He is facilitating the transfer of our technology and know-how throughout all territories in which we operate.
4. Operations Risk Management
In terms of bidding for new contracts a revised internal bid procedure has been implemented in order to properly assess potential
project risk. A key factor in the decision-making process, given that the focus of our business is technology and know-how, is to ensure the
correct mix of projects.
5. Centralise the Treasury Function
This is being implemented to improve cash management, to consolidate and enhance our relationships with our Banks and to ensure crucial
forward planning.
6. Reduce selling, general and administrative expenses
The Group's cost base is being re-aligned to a more appropriate size to better represent the Company's aims.
In the 2008/09 financial year, Bateman Litwin will look to decrease overheads and increase efficiencies while working through the
problem legacy projects. These projects will still require significant resources while not contributing to EBITDA. Consequently, we are
aiming to achieve a 2008/09 EBITDA similar to that achieved on a normalised basis in the 2007/08 financial year. The Group is targeting an
EBITDA margin over the next three years of between 5 per cent and 7 per cent.
Operating Review and Backlog
Demand for the Group's services continued to be strong for the 2007/08 financial year. While a number of issues have been identified
through detailed operational reviews, the vast majority of projects, in fact over 60 projects of the 70 plus projects active at the year end
were, at, near or above financial and physical progress benchmarks. Indeed, with this majority of well-executed projects, particular
strength lies in the engineering and technology centered projects of more limited scale where risk to third parties is both mitigated and
controlled.
Bateman Litwin EMEA (Europe, Middle East and Africa)
The division contributed 42 per cent to revenue for the year ended 30 June 2008 (2006/07: 45 per cent). Backlog as of 30 June 2008
amounted to approximately US$1 billion, approximately 77 per cent of the Group's backlog.
Types of projects:
EMEA Oil and gas:
Bateman Litwin has strong operational know-how in onshore oil and gas infrastructure projects. The division's sales revenue primarily
reflects an excellent and long-standing relationship with Gaz de France and its subsidiary GRT Gaz. The Group is currently executing four
projects on its behalf, with a total project value of ca. US$440 million. Of these, three are in oil and gas, namely the US$213 million
Oscar 1 and US$60 million Oscar 2 projects, for the reconstruction of gas storage facilities, awarded in December 2006 and in June 2008
respectively and the US$116 million Beynes contract for the re-development of an underground gas storage facility, awarded in June 2008.
With regards to Oscar 1, estimated costs for construction work have increased. Equipment has been delivered to all five sites and
pre-commissioning activities have started at two of the sites. The project is expected to complete in the second half of the 2009 financial
year.
The division was also awarded a US$119 million contract in November 2007 to supply Horizon Tangiers Terminal SA with a storage and
distribution facility in Tangiers, Morocco. This is the seventh contract awarded to Bateman Litwin in Morocco in less than two years and
emphasis on our strong market presence. The contract is expected to complete in the second half of the 2009 calendar year.
At 30 June 2008, the oil and gas contribution to the EMEA backlog was approximately US$460 million.
EMEA Phosphate:
At the end of the June 2006/07 financial year, the Group was awarded a US$330 million contract for the development of a 1.5 million
tonne per annum fertilizer grade phosphoric acid plant by the Ma'aden Phosphate Company, a state-owned mining company in Saudi Arabia. The
project illustrates the Company's ability to successfully combine its phosphate know-how with its process orientated project management
capabilities. Engineering and procurement is over 20 per cent complete and initial on site construction has begun. The project is expected
to finish in the second half of 2011.
After the year end, the Group received a US$71 million EPC contract for the construction of a material handling system for the above
phosphoric acid plant at Ras Az Zawr.
At 30 June 2008, the phosphate contribution to the EMEA backlog was approximately US$236 million.
EMEA Waste to energy:
Bateman Litwin is also completing a waste-to-energy plant in Sarcelles, France worth approximately US$97 million. Originally signed in
December 2005, the project has experienced significant cost overruns in the intervening period that have been recognized in the 2007/08
accounting period. Now over 70 per cent complete and into a second phase, action is underway to recoup at least a portion of the cost
overrun. The plant is scheduled for completion in December 2010.
In June 2008, the Group was awarded an EPC contract, as part of a consortium, for a waste-to-energy plant in Meath, Ireland by Indaver
NV. The project is valued at EUR130 million, of which Bateman Litwin's share is approximately EUR100 million.
At 30 June 2008, the waste to energy contribution to the EMEA backlog was approximately US$162 million. Waste to energy know-how and
capability is in growing demand leading to ongoing client interest and review of the evolving technology by the Group.
EMEA Power:
In October 2007, Bateman Litwin was awarded, as part of a consortium, a contract to supply a 200 MW power station for a subsidiary of
Gaz de France. The project was valued at US$140 million, of which Bateman Litwin's share is US$60 million. The project is expected to
complete shortly. Electricity demand in France is expected to grow by a 1000 Mega Watt per year until 2010 and we believe Bateman Litwin is
building a sustainable position to benefit from this.
The Group is currently completing three power projects in Morocco with a total project value of approximately US$170 million. The most
recently awarded contract, in April 2008, is a US$85 million EPC contract for Maroc Phosphore, a subsidiary of the Moroccan OCP Group, for a
new thermal power plant on the Maroc Chimie chemical complex located in Safi, Morocco. The project is part of an ongoing programme of
modernisation, revamping and extension of OCP's chemical complexes. This is the second project to be undertaken for the OCP Group.
At 30 June 2008, the power contribution to the EMEA backlog was approximately US$144 million.
EMEA Solvent Extraction:
In December 2007, the Solvent Extraction Division was chosen to design and supply proprietary solvent extraction equipment for a uranium
production plant on behalf of Mintails Limited in South Africa. This contract adds to a distinguished list of successfully executed uranium
related SX plants using our proprietary technologies.
At 30 June 2008, the solvent extraction contribution to the EMEA backlog was approximately US$3.2 million.
Other project in the EMEA division had a backlog of US$3 million as of 30 June 2008.
Bateman Litwin Americas
The division contributed 39 per cent to revenue for the year ended 30 June 2008 (2006/07: 5 per cent). Backlog as of 30 June 2008 was
US$95 million, approximately 7 per cent of the Group's backlog.
Types of projects:
Americas Ethanol:
Bateman Litwin acquired Delta-T, a technology provider for the construction of bio-ethanol plants, in August 2007 for US$45 million cash
and 11.8 million Bateman Litwin shares. Subsequent performance of the inherited projects has materially underperformed that agreed in the
sales contract. A review of the business has resulted in a pre-tax US$14.4 million goodwill impairment charge as well as pre tax increased
cost of completion for a legacy project of US$5.0 million. At the end of September 2008 Delta-T had nine legacy projects remaining. Six of
which were over 90 per cent complete, two of which were over 80 per cent complete and the last which was 60 per cent complete. All these
projects should be finished by the first quarter of the 2009 calendar year, thereby dramatically reducing the operational and financial risk
profile.
Despite the challenges facing Delta-T, important milestones were achieved during the year. The company successfully completed sixteen
plant start-ups and upgraded plant capacities from 20 to 40, to 50 and to 100 million gallons per year, utilizing its trademark technology
in plant configurations. Overall, Delta-T surpassed one billion gallons of bio-ethanol production capacity, resulting in a 21 per cent US
market share. Furthermore, Delta-T's dehydration technology was licensed to produce nearly two billion gallons of anhydrous ethanol (ethanol
containing no water).
With regards to the outlook for bio-ethanol, the traditional market for the construction of bio-ethanol plants remains subdued. New
projects are, however, being developed which reflect the expansion of our service offering and the expected next stages in the market's
evolution.
At 30 June 2008, the ethanol contribution to the Americas backlog was approximately US$66 million.
Americas Solvent Extraction:
During the period the Group completed the Gaby copper project for Codelco, Chile's National Copper Corporation and the largest copper
producer worldwide. Despite some difficulties, the US$40 million project was the first EPT project completed in Chile for the Group and has
established Bateman Litwin as a major solvent extraction provider in the region.
In addition, a US$10 million contract to supply know-how and basic engineering for solvent extraction, electrowinning and ion exchange
processes for copper, cobalt and zinc production facilities for Baja Mining Corporation in Mexico was signed.
Lastly, following the successful completion of the Goro Nickel project in New Caledonia for Vale Inco, the Division received a further
contract to supply basic engineering and proprietary equipment for its Reverse Flow Mixer Settler ("RFMS") technology for a copper, cobalt
and nickel solvent extraction project in Canada. The contract is worth approximately US$11 million and will be Bateman Litwin's first
industrial scale plant in Canada.
These contracts were largely awarded on a negotiated basis following close co-operation with the client from early stage development,
through to feasibilities studies and finally to the industrial project phase.
At 30 June 2008, the solvent extraction contribution to the Americas backlog was approximately US$29 million.
Bateman Litwin Israel and the FSU
The division contributed 14 per cent to revenue for the year ended 30 June 2008 (2006/07: 47 per cent). Going forward it has a backlog
of US$149 million, approximately 11 per cent of the Group's backlog.
Types of projects:
FSU Oil and Gas:
In respect of a significant oil and gas project within this region, the Company entered into a Memorandum of Understanding at year end,
for change orders of up to US$122 million relating to project extensions and a US$14 million variation order for further work and equipment
supply. This project has experienced severe execution difficulties. Following a thorough review of the project the estimated cost to
completion has significantly increased, a new project director has been appointed, supervisory management changed and regular reviews by
senior management established. The project is approximately 75 per cent complete.
At 30 June 2008, the oil and gas contribution to the Israel and FSU backlog was approximately US$149 million.
Bateman Litwin Australia and Asia
The division contributed 4 per cent to revenue for the year ended 30 June 2008 (2006/07: 3 per cent). Going forward it has a backlog of
US$62 million, approximately 5 per cent of the Group's backlog.
Types of projects:
Australia and Asia Coal Tar Distillation:
Coal tar distillation is a patented separation and distillation process, used to convert crude coal tar, a by-product of coke
production, into downstream chemical applications. Bateman Litwin's PROABD� technology is the only technology available that can produce
coal tar distillation plants for a capacity of 150, 000 to 200,000 tonnes per year on a simple EPT basis. Other established coal tar
distillers, which have the proven technologies, are mostly unwilling to share their technology without a share of plant ownership.
Bateman Litwin is currently completing three such projects in China: for Angang Steel Limited, a large steel producer in the Liaoning
Province, China; for Laigang Steel Group Limited, a steel producer in the Shandong Province; and for Seastar Chemical, located in Henan
Province China. The total value of these projects is approximately US$43 million.
At 30 June 2008, the coal tar distillation contribution to the Australia and Asia backlog was approximately US$38 million.
Australia and Asia Solvent Extraction:
During the year the Solvent Extraction Business Unit entered the Japanese market by signing two major contracts in the nickel and cobalt
industry in total worth approximately US$10 million.
The first project is to develop a unique solvent extraction process for extracting cobalt, for which it is currently constructing a
demonstration plant. The second project is for Sumitomo Metal Mining to supply a solvent extraction plant based on Bateman Litwin's
propriety Reverse Flow Mixer Settler technology.
At 30 June 2008, the solvent extraction contribution to the Australia and Asia backlog was approximately US$2 million.
Australia and Asia Chemical Technologies:
In the 2007/08 financial year, the Chemical Technologies Division successfully expanded into other chemical processes besides that of
phosphate.
In September 2007, the Division was awarded a US$6.8 million full scope feasibility study for the production of Titanium Slag and
Titanium Sponge in India, including the mining and beneficiation of ilmenite from beach sand, for Global Energy Mining and the Minerals KFT
Company.
In June 2008, Arafura Resources chose Bateman Litwin as the lead manager for the definitive feasibility study for the Nolan's rare
earths project in Australia. The value of the contract is US$22 million and it is expected to complete in the third quarter of 2009. Arafura
Resources is intending to establish industrial scale plants for the production of 20,000 tonnes per annum (tpa) rare earth elements, 150,000
tpa phosphoric acid, 150 tpa uranium and 400,000 tpa calcium chloride. The contract encompasses the preparation of a detailed engineering
design and costing package as well as financial modeling for a definitive feasibility study.
At 30 June 2008, the chemical technologies contribution to the Australia and Asia backlog was approximately US$22 million.
Financial Review
Summary of Major Financial Developments
Income Statement
Revenue
1Reported Group revenue for the year was US$816.1 million, up 84 per cent (2006/07: US$444.2 million). Of this, the Delta-T acquisition
contributed US$278.3 million.
In terms of divisional performance, revenue in the Energy Division grew by 84 per cent to US$746.4 million (2006/07: US$444.2 million)
while Advanced Technologies' revenue increased by 76 per cent to US$69.7 million (2006/07
US$39.5 million). France and Saudi Arabia were the two largest contributing markets.
US$M 2007/8 2006/7 2005/6 2004/5
Revenue 816.1 444.2 270.3 116.2
Gross Profit
2Normalised gross profit increased 66.4 per cent to US$ 80.6 million (2006/07: US$ 48.4 million). Normalised gross margin, however,
decreased to 9.3 per cent (2006/07: 10.9 per cent). The decrease in normalised gross margin was driven by a challenging environment for
execution of projects with already low margins.
EBITDA
2Normalised EBITDA for the year was US$33.8 million, a 73 per cent increase compared to the year ended June 2007 (2006/07: US$19.5
million). The EBITDA margin was 3.9 per cent compared to 4.4 per cent in 2006/07. This was despite a decrease in SG&A costs as a per cent of
revenue from 6.5 per cent in 2006/07 to 5.6 per cent in 2007/08. Looking forward, the Group expects to further reduce SG&A costs as a per
cent of revenue.
Operating Profit
2Normalised operating profit for the year was US$18.7 million up 21.0 per cent (2006/07: US$15.5 million). Operating profit margin
declined to 2.2 per cent in 2007/08 (2006/07: 3.5 per cent). Along with the decrease in the gross profit fall the decline in operating
margin was largely due to a US$9.2 million increase in the amortisation charge relating to the amortization of Delta-T's intangible assets.
Exceptional Items
Exceptional charges for the year ended 30 June 2008 amounted to US$88.2 million comprising:
Pre-tax Goodwill Impairment Charge:
US$19.4 million represents a non-cash goodwill impairment charge, of which US$14.4 million related to the Delta-T acquisition and US$5
million is due to a goodwill write down in the Former Soviet Union.
Pre-tax provision for increased Costs to Complete Legacy Projects:
Oil and gas project in the FSU US$36.6 million
Waste-to-energy project in Europe US$14.6 million
Solvent extraction project in South America US$5.9 million
Ethanol project in North America US$5.0 million
Oil and gas project in Europe US$4.8 million
Total US$66.9 million
Doubtful Debts
A pre-tax exceptional provision of US$1.9 million was made against potential bad debts.
There were no exceptional items for the year ended June 2007.
Finance Income and Expenses
Finance income for the year was US$18.3 million (2006/07: US$ 7.3 million). This reflected a decrease in interest income due to lower
interest rates but higher (unhedged) foreign exchange gains. The amount also included a hedged foreign exchange gain of US$6.8 million that
was reported in the first half of the financial year. The Company has subsequently implemented an economic hedging policy, which management
believe will have a more prudent and less volatile impact on the financial results of the Group. The policy requires the mark to market of
any hedged exchange gain or loss to be reflected through the balance sheet with any future change in the economic value offset through
project results rather than as a financial income or expense.
Finance expense increased significantly for the year to US$11.9 million (2006/07: US$1.9 million) this is largely due to an increase in
interest on bank overdrafts and loans and unhedged foreign currency exchange losses.
Profit before Tax
2Normalised profit before tax was US$25.0 million compared to US$20.9 million in 2006/07. The loss before tax after exceptional items
was US$63.2 million compared to a profit of US$20.9 million in 2006/07.
Taxation
The 2normalised tax rate for the year was 23.8 per cent which compares to 0.4 per cent in 2006/07. The increase in the tax rate is due
to project losses incurred in the FSU which cannot be offset against taxable profits in other geographies and a US$3.6 million withholding
tax charge in Serpro, a Group's subsidiary in France.
In terms of exceptional charges, there was an exceptional tax charge of US$2.3 million for the settlement of Israeli tax exposures
relating to the years 2000 to 2004 (see note 30 for further details). Finally, there was a tax credit of US$5.7 million as a result of the
operating exceptional charges. This lead to a reported tax credit for the year of 3.8 per cent.
Earnings per Share (Basic)
2Normalised basic earnings per share for the year were 17.8 US cents, down 26.4 per cent. This was calculated on the weighted average
number of shares throughout the reported year. The weighted average number of shares in issue for the financial year was 103,175,840, while
the number of shares in issue at 30 June 2008 was 112,403,000.
Earnings per Share (Diluted)
2Normalised diluted earnings per share for the year was 16.7 US cents, down 23.4 per cent. This was calculated on the weighted average
number of shares and issued options throughout the reported year. The weighted average number of shares and options in issue for the
financial year was 110,136,174, while the diluted number of shares in issue was at 30 June was 112,403,000.
Dividend
An interim dividend of 3.5 US cents per share (2006/07: 2.3 US cents per share) was declared and paid to shareholders. No final dividend
has been recommended for the year (2006/07: 3.7 US cents per share).
Balance Sheet
Working Capital
There was a working capital outflow of US$136.3 million (2006/07: US$58.1 million inflow). The deterioration in working capital was due
to a significant increase in construction contract liabilities and trade payables and accruals. This reflected the growth in the business as
well as the volatility of cash flows in EPC projects.
Long term deposits
Long term deposits increased US$53.9 million due to higher cash deposits held as collateral for bonding requirements, to facilitate the
growth in the Group's backlog.
Cash Flow
Cash Flow used in Operations
Cash flow used in operations for the year was US$34.6 million (2006/07: inflow of US$41.4 million). The principal reason for the
decline was the loss of US$ 69.5 million reported from operating activities.
Cash Flow Used in Investing Activities
Cash flow used in investing activities was US$67.9 million (2006/07: US$26.3 million). The primary reason for the increased outflow was
due to the higher cash required for bonding collateral in long-term loans.
Cash flow From Financing Activities
Cash flow from financing activities was US$61.1 million (2006/07: US$1.2 million). The significant enlargement primarily reflects an
increase in long-term borrowings to US$47.4 million to support acquisitions, as well as an inflow from proceeds of a share issuance.
Net Cash and Equivalents
The total cash and cash equivalents at 30 June 2008 was US$160.1 million (23 June 2007: 147.5 million). The net cash and cash
equivalents after deducting short and long term financing loans of US$46.7 million (2006/07: US$2.5 million) was US$113 .4 million (US$143.7
million), of which US$90.3 million represented cash deposits against guarantees (2006/07: US$28.9 million).
Bonding
Total outstanding bonding at the end of the reported year was US$373.5 million, compared to US$140.3 million on 30 June 2007. This was
due to significant increase in the Group's backlog.
Bonds supplied by the Group include: down payment bonds, performance bonds, warranty bonds, and process bonds for the Advanced
Technologies Division where proprietary IP is supplied. In the course of contract execution, the Group is required, from time to time, to
provide guarantees to its suppliers.
The Group has expanded its network of international banks supplying bonding facilities to meet the expected demand from growing levels
of activity.
Post Balance Sheet Events
BSG Resources has provided a US$10 million subordinated loan and guaranteed credit lines of at least US$10 million to the Group on
commercial terms.
Backlog
Backlog for the end of the reported year was US$1.3 billion, up 44 per cent (representing more than two years of operations in terms of
2007 revenue).
US$M 2007/8 2006/7 2005/6 2004/5
Backlog 1,314 954 639 556
1 Reported figures are calculated after exceptional items
2 Normalised figures are calculated before exceptional items
Preliminary Unaudited Consolidated Balance Sheet
As of 30 June 2008
US$ '000 Note 2008 2007
ASSETS
Intangible assets 7 87,340 4,606
Goodwill 7 40,504 17,433
Property, plant and equipment 8 26,185 13,710
Long term deposits 71,644 17,722(*)
Other financial assets 10 18,188 436
Deferred taxation 11 11,979 4,677
Non-current assets 255,840 58,584
Construction contracts in progress 12 88,775 53,007
Trade and other receivables 13 220,211 113,483
Income tax receivable 194 405
Cash and cash equivalents 14 88,408 129,824(*)
Current assets 397,588 296,719
Total assets 653,428 355,303
EQUITY AND LIABILITIES
Issued capital 15.1 17,720 11,901
Capital reserves 15.2 100,346 78,180
Hedging and foreign currency translation reserve 15.3 11,042 1,638
Accumulated (losses) profits (52,456) 20,782
Equity attributable to equity holders of the 76,652 112,501
parent
Minority interest 1,771 -
Total equity 78,423 112,501
Borrowings 17 34,126 1,257
Non-current provisions 18 4,308 2,454
Deferred tax liability 11 2,686 496
Investments in associates 9 43 -
Non-current liabilities 41,163 4,207
Construction contract liabilities 12 218,696 107,894
Trade other payables and accruals 19 293,982 118,869 (*)
Current provisions 20 10,331 8,900 (*)
Income tax payable 7,730 2,814
Borrowings 17 3,103 118
Current liabilities 533,842 238,595
Total liabilities 575,005 242,802
Total equity and liabilities 653,428 355,303
(*) Reclassified see note 3(b).
Preliminary Unaudited Consolidated Income Statement
For the year ended 30 June
Pro-forma Pro-forma Pro-forma Pro-forma
Normalised Exceptional (note 6) Reported Normalised Exceptional (note 6) Reported
US$'000 Note 2008 2007
Revenue 863,725 (47,644) 816,081 444,208 - 444,208
Cost of sales 21 (783,160) (19,236) (802,396) (395,789) - (395,789)
Gross profit 80,565 (66,880) 13,685 48,419 - 48,419
% 9.3% n/a 1.7% 10.9% 0.0% 10.9%
Other income 21 3,198 - 3,198 36 - 36
Selling, general and administrative (48,156) (1,970) (50,126) (28,916) - (28,916)
expenses
Other expenses 21 (1,795) - (1,795) (15) - (15)
EBITDA 33,812 (68,850) (35,038) 19,524 - 19,524
% 3.9% n/a (4.3%) 4.4% 0.0% 4.4%
Amortisation of Intangible 21 (10,625) (19,387) (30,012) (1,454) - (1,454)
Assets
Depreciation (4,475) - (4,475) (2,612) - (2,612)
EBIT 18,712 (88,237) (69,525) 15,458 - 15,458
% 2.2% n/a (8.5%) 3.5% 0.0% 3.5%
Finance income 22 18,339 - 18,339 7,349 - 7,349
Finance expenses 22 (11,851) - (11,851) (1,926) - (1,926)
Share of profit (loss) of (160) - (160) - - -
associates
Result before tax 25,040 (88,237) (63,197) 20,881 - 20,881
% 2.9% n/a (7.7%) 4.7% 0.0% 4.7%
Income tax 23 (5,953) 3,520 (2,433) (78) - (78)
Effective Tax Rate 23.8% 4.0% (3.8%) 0.4% 0.0% 0.4%
Result after tax 19,087 (84,717) (65,630) 20,803 - 20,803
% 2.2% n/a (8.0%) 4.7% 0.0% 4.7%
Attributable to:
Equity holders of the parent 18,362 (84,717) (66,355) 20,803 - 20,803
Minority interest 725 - 725 - - -
Earnings per share (in US$ 27
cents)
Basic 17.8 (64.3) 24.2 24.2
Diluted 16.7 (60.2) 21.8 21.8
(*) Reclassified see note 3(b).
Preliminary Unaudited Consolidated Cash-Flow Statement
For the year ended 30 June
US$ '000 Note 2008 2007
Cash flows from operating activities
Profit / (Loss) from operating activities (69,525) 15,458
Non-cash adjustments 24.1 33,398 10,115
Changes in operating assets 24.2 (65,704) (38,615)
Changes in operating liabilities 24.3 76,063 58,754(*)
Interest paid (3,205) (1,063)(*)
Income tax paid 24.4 (5,672) (3,232)
Net cash (used in) / from operating activities (34,645) 41,417
Cash flows from investing activities
Property, plant and equipment purchased at cost (13,147) (7,483)
Property, plant and equipment proceeds on 280 1,048
disposal
Disposal of subsidiaries 24.6 847 -
Purchase of intangibles - (2,000)
Acquisition of subsidiaries, net cash acquired 25 (5,332) (6,970)
Interest received 5,528 6,826
Investment in long-term deposits (53,922) (17,722)(*)
Increase in investment in associate companies (207) -
Long-term loan (1,971) -
Net cash (used in) / from investing activities (67,924) (26,301)
Cash flows from financing activities
Dividends paid (6,871) (2,028)
Repayment of long-term borrowings (8,218) (1,159)
Increase in long-term borrowings 47,473 1,853
Proceeds on issue of shares 25,784 691
Increase / (decrease) in short-term borrowings 2,985 (512)
Net cash from financing activities 61,153 (1,155)
Increase / (Decrease) in cash and cash (41,416) 13,961
equivalents
Cash and cash equivalents at the beginning of 129,824 115,863
the year
Net cash and cash equivalents at end of the 24.5 88,408 129,824
year
Preliminary Unaudited Consolidated Statement of Changes in Equity
For the year ended 30 June
Attributable to equity holders of the parent
US$ '000 Issued Capital Capital Reserves Hedging and Retained earnings Total Minority Interest
Total
translation reserves (accumulated losses)
Equity
Balance at 1 July 2006 10,828 80,081 1,786 (415) 92,280 -
92,280
Adjustments of other reserve - (394) - 394 - -
-
Foreign currency exchange 682 - 488 - 1,170 -
1,170
translation
Gain / (loss) on cash flow - - (636) - (636) -
(636)
hedge
Net income recognized directly 11,510 79,687 1,638 (21) 92,814 -
92,814
in equity
Result for the period - - - 20,803 20,803 -
20,803
Total recognized income and 11,510 79,687 1,638 20,782 113,617 -
113,617
expense
Issue of share capital 391 300 - - 691 -
691
Dividend paid - (2,028) - - (2,028) -
(2,028)
Recognition of share-based - 221 - - 221 -
221
payments
Balance at 30 June 2007 11,901 78,180 1,638 20,782 112,501 -
112,501
Minority interest arising from - - - - - 1,137
1,137
acquisition of subsidiary
Adjustments of other reserve - (710) - 710 - -
-
Foreign currency exchange 2,518 - 2,425 - 4,943 -
4,943
translation
Gain / (loss) on cash flow - - 6,343 - 6,343 -
6,343
hedge
Decrease in holdings of - - - - - (91)
(91)
subsidiary
Net income recognized directly 14,419 77,470 10,406 21,492 123,787 1,046
124,833
in equity
Transfer to profit and loss on - - 636 - 636 -
636
cash flow hedge
Result for the period - - - (66,355) (66,355) 725
(65,630)
Total recognized income and 14,419 77,470 11,042 (44,863) 58,068 1,771
59,839
expense
Issue of share capital 3,301 22,483 - - 25,784 -
25,784
Dividend - - - (7,593) (7,593) -
(7,593)
Recognition of share-based - 393 - - 393 -
393
payments
Balance at 30 June 2008 17,720 100,346 11,042 (52,456) 76,652 1,771
78,423
1. Corporate information
These preliminary unaudited consolidated financial statements of Bateman Litwin are from 1 July 2007 to 30 June 2008 and were authorised
for issue in accordance with a resolution of the directors on 27 October 2008. The Company is domiciled in the Netherlands at Haaksbergweg
59, Amsterdam.
The principal activities of the Group are set out in Note 5 - Business and Geographical Information.
Separate from these consolidated financial statements, the Company prepares statutory financial statements for its entire book year in
accordance with accounting principles generally accepted in the Netherlands, in order to meet the legal requirements as stipulated in Book
2, Title 9 of the Netherlands Civil Code.
2. Adoption of new and revised standards
(a) Standards and Interpretations effective in the current period
The Group has adopted new and revised Standards and Interpretations issued by the International Accounting Standards Board (IASB) and
the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for
accounting periods beginning on or after 1 July 2007. The principal effects of the adoption of these new and amended standards and
interpretations are discussed below:
IFRS 7 'Financial Instruments': Disclosures which are effective for annual reporting periods beginning on or after 1 January 2007, and
the consequential amendments to IAS 1 Presentation of Financial Statements. The impact of the adoption of IFRS 7 and the changes to IAS 1
has been to expand the disclosure of the Group's financial instruments and qualitative and quantitative disclosures around the associated
risks arising from those financial instruments. The new disclosures are included throughout the financial statements.
IFRIC 10 'Interim Financial Reporting and Impairment', this interpretation lays out guidelines for the treatment of impairment losses
during an interim period, namely that the entity must not reverse an impairment loss recognised in a previous interim period in respect of
goodwill or an investment in either an equity instrument or a financial asset carried at cost. The adoption of this interpretation did not
affect the Group's operating results or financial position.
IFRIC 11, IFRS 2 'Group and Treasury Share Transactions', effective for annual periods beginning on or after 1 March 2007 provides
specific guidance on applying IFRS 2. It addresses share based payments involving an entity choosing or being required to buy its own equity
instruments (treasury shares) to settle a share based payment obligation and the situation when the parent grants rights to its equity
instruments to employees of its subsidiaries (both of which should be treated as equity-settled). In addition it addresses the situation
when a subsidiary grants rights to equity instruments of its parent to its employees (which should be treated as cash settled). The adoption
of this interpretation did not affect the Group's operating results or financial position.
(b) Standards and Interpretations in issue not yet adopted
Certain new standards, amendments to and interpretations of existing standards have been published and are mandatory for the Group's
accounting periods beginning on or after 1 July 2008 or later periods but which the Group has not early adopted. Those that are applicable
to the Group are as follows:
IFRS 8 'Operating Segments' introduces the management approach to segment reporting. IFRS 8, which becomes effective for annual periods
beginning on or after 1 January 2009, will require the disclosure of segment information based on the internal reports regularly reviewed by
the Group's chief operating decision maker in order to assess each segment's performance and allocate resources to them. Management is
analysing the approach to be used in the segment information under IFRS 8.
IFRIC 14 - IAS 19 'The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction' clarifies when refunds or
reductions in future contributions in relation to defined benefit assets should be regarded as available and provides guidance on the impact
of minimum funding requirements (MFR) on such assets. It also addresses when an MFR might give rise to a liability. IFRIC 14 will become
effective for annual periods beginning on or after 1 January 2008, with retrospective application required. This will have no significant
impact on the Group's financial statements.
Revisions to IAS 23 'Borrowing costs' removes the option of immediately recognising as an expense borrowing costs that relate to assets
that take a substantial period of time to get ready for use or sale. An entity is, therefore, required to capitalise borrowing costs as part
of the cost of such assets. The revised standard applies to borrowing costs relating to qualifying assets for which the commencement date
for capitalisation is on or after 1 January 2009. This will have no significant impact on the Group.
IAS 1 'Presentation of Financial Statements (Revised)' effective for annual periods beginning on or after 1 January 2009 has been
revised to enhance the usefulness of information presented in the financial statements. Management is analysing the approach to meeting this
requirement.
IFRS 2 'Amendments to IFRS 2 - Vesting Conditions and Cancellations' is required to be applied to periods beginning on or after 1
January 2009. This amendment clarifies the definition of non-vesting conditions and prescribes accounting treatment of an award that is
cancelled because a non-vesting condition is not satisfied. This will have no significant impact on the Group's financial statements
IFRS 3 'Business Combinations (Revised)' and the amended version of IAS 27 'Consolidated and Separate Financial Statements', effective
for annual periods beginning on or after 1 July 2009, have been enhanced to, amongst other reasons, specify the accounting treatments for
acquisition costs, contingent consideration, pre-existing relationships and reacquired rights. The revised standards include detailed
guidance in respect of step acquisitions and partial disposals of subsidiaries and associates as well as in respect of allocation of income
to non-controlling interests. An option has been added to IFRS 3 to permit an entity to recognise 100% of the goodwill of an acquired
entity, not just the acquiring entity's portion of the goodwill. The impact of this standard on the Group is not expected to be
significant.
IAS 32, 'amendment to IAS 32 - Puttable instruments and obligations arising on liquidation' effective for annual periods beginning on or
after 1 January 2009, as a result of the amendments, some financial instruments that currently meet the definition of a financial liability
will be classified as equity because they represent the residual interest in the net assets of the entity. This will have no significant
impact on the Group's financial statements
IAS 39, 'amendment to IAS 39 for eligible hedged items' means to clarify two hedge accounting issues: Inflation in a financial hedged
item, and a one-sided risk in a hedged item. The amendments to IAS 39 are effective for annual periods beginning on or after 1 July 2009.
This will have no significant impact on the Group's financial statements
IFRIC 13 Customer Loyalty Programmes addresses accounting by entities that grant loyalty award credits (such as 'points' or travel
miles) to customers who buy other goods or services. Specifically, it explains how such entities should account for their obligations to
provide free or discounted goods or services ('awards') to customers who redeem award credits. This will have no impact on the Group.
IFRIC 15 'Agreements for the Construction of Real Estate', standardises accounting practice across jurisdictions for the recognition of
revenue by real estate developers for sales of units, such as apartments or houses, before construction is complete. This will have no
impact on the Group.
IFRIC 16 'Hedges of a Net Investment in a Foreign Operation' clarifies three main issues:
* Whether risk arises from (a) the foreign currency exposure to the functional currencies of the foreign operation and the parent
entity, or from (b) the foreign currency exposure to the functional currency of the foreign operation and the presentation currency of the
parent entity's consolidated financial statements. IFRIC 16 concludes that the presentation currency does not create an exposure to which an
entity may apply hedge accounting. Consequently, a parent entity may designate as a hedged risk only the foreign exchange differences
arising from a difference between its own functional currency and that of its foreign operation.
* Which entity within a Group can hold a hedging instrument in a hedge of a net investment in a foreign operation and in particular
whether the parent entity holding the net investment in a foreign operation must also hold the hedging instrument. IFRIC 16 concludes that
the hedging instrument(s) may be held by any entity or entities within the Group.
* How an entity should determine the amounts to be reclassified from equity to profit or loss for both the hedging instrument and
the hedged item when the entity disposes of the investment. IFRIC 16 concludes that while IAS 39 must be applied to determine the amount
that needs to be reclassified to profit or loss from the foreign currency translation reserve in respect of the hedging instrument, IAS 21
must be applied in respect of the hedged item.
This will have no significant impact on the Group's financial statements.
3. Significant accounting policies
(a) Statement of compliance
The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards
(IFRS) as adopted by the EU, which comprise standards and interpretations approved by the International Accounting Standards Board (IASB)
and Standing Interpretations Committee interpretations by the IASB that remain in effect.
(b) Basis of preparation
(i) Going concern - The Company is in breach of certain loan covenants at its balance sheet date and therefore certain of the Company's
bankers could recall their loans. Management has prepared projected cash flow information for the period ending 12 months from the date of
approval of these accounts. On the basis of this cash flow information and discussions with the Company's bankers, management considers that
the Group will continue to operate within the facilities currently agreed and those which they expect to be agreed on renewal. Management
concludes that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the
foreseeable future. For this reason, management continues to adopt the going concern basis in preparing the accounts.
(ii) General - The consolidated financial statements are presented in US$, rounded to the nearest thousand, due to the majority of the
contracts in the Group being denominated in US$. They are prepared on the historical cost basis except for the revaluation of certain
non-current assets and financial instruments. The principal accounting policies are set out below.
(iii) Reclassification - Certain of the balances and which were disclosed in the financial statements for the year ended 30 June 2007
were reclassified. The reason for the reclassification was to align previous year with current year classification.
The reclassifications in the balance sheet were:
- Deposits, cash and short term investments: part of the balance was reclassified to long term deposits.
- Current provisions: a provision for employee*s benefits was reclassified from trade and other payables.
The reclassifications in the cash flow statement were:
- Long term deposits were classified as cash flows from investing activities and were reclassified from cash and cash equivalents.
- Interest paid and interest received were reclassified and presented in operating activities and investing activities instead of net
interest income.
(c) Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities (including special purpose
entities) controlled by the Group and its subsidiaries. Control is achieved where the Company has the power to govern the financial and
operating policies of an entity so as to obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective
date of acquisition or up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with
those used by other members of the Group.
All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.
Minority interests in the net assets (excluding goodwill) of consolidated subsidiaries are identified separately from the Group's equity
therein. Minority interests consist of the amount of those interests at the date of the original business combination (see 3.4 below) and
the minority's share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority's
interest in the subsidiary's
equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to
make an additional investment to cover the losses.
(d) Business combinations
Acquisitions of subsidiaries and businesses are accounted for using the purchase method. 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 IFRS 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 IFRS 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.
The interest of minority shareholders in the acquiree is initially measured at the minority's proportion of the net fair value of the
assets, liabilities and contingent liabilities recognised.
(e) Investments in associates
An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint
venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not
control or joint control over those policies.
The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of
accounting, except when the investment is classified as held for sale, in which case it is accounted for in accordance with IFRS 5
Non-current Assets Held for Sale and Discontinued Operations. Under the equity method, investments in associates are carried in the
consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group's share of the net assets of the associate, less
any impairment in the value of individual investments. Losses of an associate in excess of the Group's interest in that associate (which
includes any long-term interests that, in substance, form part of the Group's net investment in the associate) are recognised only to the
extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.
Any excess of the cost of acquisition over the Group's share of the net fair value of the identifiable assets, liabilities and
contingent liabilities of the associate recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the
carrying amount of the investment and is assessed for impairment as part of
that investment. Any excess of the Group's share of the net fair value of the identifiable assets, liabilities and contingent
liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss.
Where a group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group's interest
in the relevant associate.
(f) Interests in joint ventures
A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint
control when the strategic financial and operating policy decisions relating to the activities of the joint venture require the unanimous
consent of the parties sharing control.
Where a Group entity undertakes its activities under joint venture arrangements directly, the Group's share of jointly controlled assets
and any liabilities incurred jointly with other venturers are recognised in the financial statements of the relevant entity and classified
according to their nature. Liabilities and expenses incurred directly in respect of interests in jointly controlled assets are accounted for
on an accrual basis. Income from the sale or use of the Group's share of the output of jointly controlled assets, and its share of
joint venture expenses, are recognised when it is probable that the economic benefits associated with the transactions will flow to/from
the Group and their amount can be measured reliably.
Joint venture arrangements that involve the establishment of a separate entity in which each venturer has an interest are referred to as
jointly controlled entities. The Group reports its interests in jointly controlled entities using proportionate consolidation, except when
the investment is classified as held for sale, in which case it is accounted for in accordance with IFRS 5 Non-current Assets Held for Sale
and Discontinued Operations. The Group's share of the assets, liabilities, income and expenses of jointly controlled entities are combined
with the equivalent items in the consolidated financial statements on a line-by-line basis.
Any goodwill arising on the acquisition of the Group's interest in a jointly controlled entity is accounted for in accordance with the
Group's accounting policy for goodwill arising on the acquisition of a subsidiary (see below). Where the Group transacts with its jointly
controlled entities, unrealised profits and losses are eliminated to the extent of the Group's interest in the joint venture.
(g) Goodwill
Goodwill arising on the acquisition of a subsidiary or a jointly controlled entity represents the excess of the cost of acquisition over
the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary or jointly
controlled entity recognised at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured
at cost less any accumulated impairment losses.
For the purpose of impairment testing, goodwill is allocated to each of the Group's cash-generating units expected to benefit from the
synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more
frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the
carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and
then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised
for goodwill is not reversed in a subsequent period.
On disposal of a subsidiary or a jointly controlled entity, the attributable amount of goodwill is included in the determination of the
profit or loss on disposal.
The Group's policy for goodwill arising on the acquisition of an associate is described at 3(e) above.
(h) Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns,
rebates and other similar allowances.
Rendering of services - Revenue from a contract to provide services is recognised by reference to the stage of completion of the
contract. The stage of completion of the contract is determined as follows:
* Installation fees are recognised by reference to the stage of completion of the installation, determined as the proportion of the
total time expected to install that has elapsed at the balance sheet date;
* Servicing fees included in the price of products sold are recognised by reference to the proportion of the total cost of providing the
servicing for the product sold, taking into account historical trends in the number of services actually provided on past goods sold; and
* Revenue from time and material contracts is recognised at the contractual rates as labour hours are delivered and direct expenses are
incurred.
The Group's policy for recognition of revenue from construction contracts is described below.
(i) Construction contracts
Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of
completion of the contract activity at the balance sheet date, measured based on the proportion of contract costs incurred for work
performed to date relative to the estimated total
contract costs, except where this would not be representative of the stage of completion. Variations in contract work, claims and
incentive payments are included to the extent that they can be estimated reliably.
Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract
costs incurred that it is probable will be recoverable. Contract costs are recognised as expenses in the period in which they are incurred.
When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense
immediately.
Profit recognition - The profit realised on construction contracts is calculated by multiplying the percentage completed with the
overall profit according to the latest project profit forecast, multiplied by management's best estimate (normally 90 per cent) for profit
reduction (due to increase in costs). Profit is recognized only after 20 per cent completion. The last 10 per cent of profit is recognized
only when the contract is 100 per cent complete and the client had materially accepted the work.
(j) Foreign currencies
The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the
entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of
each Group entity are expressed in US Dollar ("US$"), which is the functional currency of the Company and the presentation currency for the
consolidated financial statements.
In preparing the financial statements of the individual entities, transactions in currencies other than the entity's functional currency
(foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. At each balance sheet date, monetary
items denominated in foreign currencies are retranslated at the rates prevailing at the balance sheet date. Non-monetary items carried at
fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was
determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences are recognised in profit or loss in the period in which they arise except for:
* Exchange differences on transactions entered into in order to hedge certain foreign currency risks (see 3(u) below for hedging
accounting policies); and
* Exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor
likely to occur, which form part of the net investment in a foreign operation, and which are recognised in the foreign currency translation
reserve and recognised in profit or loss on disposal of the net investment.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are
expressed in US$ using exchange rates prevailing at the balance sheet date. Income and expense items are translated at the average exchange
rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of
the transactions are used. Exchange differences arising, if any, are classified as equity and recognised in the Group's foreign currency
translation reserve.
Such exchange differences are recognised in profit or loss in the period in which the foreign operation is disposed of.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the
foreign operation and translated at the closing rate.
(k) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that
necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such
time as the assets are substantially ready for their intended use or sale.
To the extent that variable rate borrowings are used to finance a qualifying asset and are hedged in an effective cash flow hedge of
interest rate risk, the effective portion of the derivative is deferred in equity and released to profit or loss when the qualifying asset
impacts profit or loss. To the extent that fixed rate borrowings are used to finance a qualifying asset and are hedged in an effective fair
value hedge of interest rate risk, the capitalised borrowing costs reflect the hedged interest rate.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted
from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in profit or loss in the period in which they
are incurred.
(l) Employee benefits
It is the policy of the Group to provide retirement benefits for its employees. Obligations for contributions to retirement benefit
plans are recognised as an expense in the income statement.
Retirement benefit costs
Contributions to defined contribution retirement benefit plans are charged as an expense as they fall due. Payments made to
state-managed retirement benefit schemes are dealt with as payments to defined contribution plans where the Group's obligations under the
plans are equivalent to those arising in a defined contribution retirement benefit plan.
For defined benefit retirement benefit plans, the cost of providing benefits is determined using the Projected Unit Credit Method, with
actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses that exceed 10 per cent of the greater of the
present value of the Group's defined benefit obligation and the fair value of plan assets are amortised over the expected average remaining
working lives of the participating employees.
Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a
straight-line basis over the average period until the benefits become vested. The retirement benefit obligation recognised in the balance
sheet represents the present value of the defined benefit obligation as adjusted for unrecognised actuarial gains and losses and
unrecognised past service cost, and as reduced by the fair value of plan assets. Any asset resulting from this calculation is limited to
unrecognised actuarial losses and past service cost, plus the present value of available refunds and reductions in future contributions to
the plan.
(m) Share based payments
The Group issues equity-settled share-based payments to certain employees. Currently the Group has an option plan and a long term
incentive plan ("LTIP") based on the company's shares (see note 29). Equity-settled share-based payments are measured at fair value
(excluding the effect of non market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the
equity-settled share-based payments is expensed over the vesting period, based on the Group's estimate of the shares that will eventually
vest and adjusted for the effect of non market-based vesting conditions.
Fair value is measured using the Black-Scholes pricing model for options or the stochastic model for shares. The expected life used in
the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and
behavioural considerations.
(n) Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
(i) Current tax - the tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in
the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years and it
further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have
been enacted or substantively enacted by the balance sheet date.
(ii) Deferred tax - deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability
method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are generally
recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which
those deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises
from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that
affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates,
and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that
the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences
associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable
profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is
settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group
expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current
tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax
assets and liabilities on a net basis.
(iii) Current and deferred tax for the period - current and deferred tax are recognised as an expense or income in profit or loss,
except when they relate to items credited or debited directly to equity, in which case the tax is also recognised directly in equity, or
where they arise from the initial accounting for a business combination. In the case of a business combination, the tax effect is taken into
account in calculating goodwill or in determining the excess of the acquirer's interest in the net fair value of the acquiree's identifiable
assets, liabilities and contingent liabilities over the cost of the business combination.
(o) Property, plant and equipment
(i) Owned assets
Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Cost includes all costs
directly attributable to bringing the asset to working condition for its intended use.
Development costs on major information systems and technology projects are capitalised and amortised in accordance with the depreciation
policy (see below).
Property, plant and equipment are depreciated from the moment they have been available for use.
(ii) Leased assets
Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Plant
and equipment acquired by way of finance lease is stated at an amount equal to the lower of its fair value and the present value of the
minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses.
(iii) Depreciation
Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of items of property, plant and
equipment, and major components that are accounted for separately. Land is not depreciated. The estimated useful lives are detailed in note
8
(p) Intangible assets
(i) Intangible assets acquired separately - intangible assets acquired separately are reported at cost less accumulated amortisation
and accumulated impairment losses. Amortisation is charged on a straight-line basis over their estimated useful lives. The estimated useful
life and amortisation method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being
accounted for on a prospective basis.
(ii) Intangible assets acquired in a business combination - intangible assets acquired in a business combination are identified and
recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair values can be measured reliably.
The cost of such intangible assets is their fair value at the acquisition date. Subsequent to initial recognition, intangible assets
acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis
as intangible assets acquired separately.
(iii) Research and development - expenditure on research and development activities, undertaken with the prospect of gaining new
technical knowledge and understanding, is recognised in the income statement as an expense as incurred. Development expenditure is
capitalized only after technical and commercial feasibility of the resulting services have been established.
(q) Impairment of tangible and intangible assets excluding goodwill
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is
any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of
an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable
and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise
they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, and
whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. 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 for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of
the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss,
unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised
estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been
determined had no impairment loss
been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in
profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a
revaluation increase.
(r) Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable
that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the balance
sheet date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows
estimated to settle the present obligation, its carrying amount is the present value of those cash flows.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable
is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured
reliably.
(i) Warranties
A provision for warranties is recognised when the underlying products or services are sold. The provision is based on historical
warranty data and a weighting of all possible outcomes against their associated probabilities.
(ii) Onerous contracts
Present obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract is considered to
exist where the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic
benefits expected to be received under it.
(iii) Litigation costs
A provision for legal costs is recognised when there is a legal present obligation as a result of past event; it is probable that an
outflow of resources will be required to settle the obligation and a reliable estimate can be made as to the amount of the obligation.
(iv) Contingent consideration for business combinations
A provision for contingent consideration to sellers of acquired subsidiaries. The amount is contingent upon the subsidiaries'
performance.
(s) Financial assets
Investments are recognised and derecognised on trade date where the purchase or sale of an investment is under a contract whose terms
require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, plus
transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at
fair value.
Financial assets are classified into the following specified categories: financial assets 'at fair value through profit or loss'
(FVTPL), 'held-to-maturity' investments, 'available-for-sale' (AFS) financial assets and 'loans and receivables'. The classification depends
on the nature and purpose of the financial assets and is determined at the time of initial recognition.
(i) Effective interest method - The effective interest method is a method of calculating the amortised cost of a financial asset and of
allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash
receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and
other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period.
Income is recognised on an effective interest basis for debt instruments other than those financial assets designated as at FVTPL.
(ii) Financial assets at FVTPL - financial assets are classified as at FVTPL where the financial asset is either held for trading or it
is designated as at FVTPL.
A financial asset is classified as held for trading if:
* It has been acquired principally for the purpose of selling in the near future; or
* It is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of
short-term profit-taking; or
* It is a derivative that is not designated and effective as a hedging instrument.
A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial recognition if:
* Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
* The financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance
is evaluated on a fair value basis, in accordance with the Group's documented risk management or investment strategy, and information about
the grouping is provided internally on that basis; or
* It forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments: Recognition and Measurement
permits the entire combined contract (asset or liability) to be designated as at FVTPL.
Financial assets at FVTPL 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 dividend or interest earned on the financial asset. Fair value is determined in the manner
described in note 16.
(iii) AFS financial assets - listed shares held by the Group that are traded in an active market are classified as being AFS and are
stated at fair value. Fair value is determined in the manner described in note 16. Gains and losses arising from changes in fair value are
recognised directly in equity in the investments revaluation reserve with the exception of impairment losses, interest calculated using the
effective interest method and foreign exchange gains and losses on monetary assets, which are recognised directly in profit or loss. Where
the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognised in the investments
revaluation reserve is included in profit or loss for the period.
Dividends on AFS equity instruments are recognised in profit or loss when the Group's right to receive the dividends is established.
The fair value of AFS monetary assets denominated in a foreign currency is determined in that foreign currency and translated at the
spot rate at the balance sheet date. The change in fair value attributable to translation differences that result from a change in amortised
cost of the asset is recognised in profit or loss, and other changes are recognised in equity.
(iv) 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. Loans and receivables are measured at amortised cost using the effective
interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term
receivables when the recognition of interest would be immaterial.
(v) Impairment of financial assets - financial assets, other than those at FVTPL, are assessed for indicators of impairment at each
balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred
after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted.
For unlisted shares classified as AFS, a significant or prolonged decline in the fair value of the security below its cost is considered
to be objective evidence of impairment.
For all other financial assets, including redeemable notes classified as AFS and finance lease receivables, objective evidence of
impairment could include:
* Significant financial difficulty of the issuer or counterparty; or
* Default or delinquency in interest or principal payments; or
* It becoming probable that the borrower will enter bankruptcy or financial re-organisation.
For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are
subsequently assessed for impairment on a collective basis. Objective evidence of impairment
for a portfolio of receivables could include the Group's past experience of collecting payments, an increase in the number of delayed
payments in the portfolio past the average credit period of 180 days, as well as observable changes in national or local economic conditions
that correlate with default on receivables.
For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset's carrying amount and
the present value of estimated future cash flows, discounted at the financial asset's original effective interest rate.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of
trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered
uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against
the
allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.
With the exception of AFS equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease
can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed
through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what
the amortised cost would have been had the impairment not been recognised.
In respect of AFS equity securities, impairment losses previously recognised through profit or loss are not reversed through profit or
loss. Any increase in fair value subsequent to an impairment loss is recognised directly in equity.
(vi) Derecognition of financial assets - The Group derecognises a financial asset only when the contractual rights to the cash flows
from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another
entity.
If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred
asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group
retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the
financial asset and also recognises a collateralised borrowing for the proceeds received.
(t) Financial liabilities and equity instruments issued by the Group
(i) Classification as debt or equity - debt and equity instruments are classified as either financial liabilities or as equity in
accordance with the substance of the contractual arrangement.
(ii) Equity instruments - an equity instrument is any contract that evidences a residual interest in the assets of an entity after
deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.
(iii) Financial liabilities - financial liabilities are classified as either financial liabilities 'at FVTPL' or 'other financial
liabilities'.
(iv) Financial liabilities at FVTPL - financial liabilities are classified as at FVTPL where the financial liability is either held for
trading or it is designated as at FVTPL.
A financial liability is classified as held for trading if:
* It has been incurred principally for the purpose of repurchasing in the near future; or
* It is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of
short-term profit-taking; or
* It is a derivative that is not designated and effective as a hedging instrument.
A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if:
* Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
* The financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its
performance is evaluated on a fair value basis, in accordance with the Group's documented risk management or investment strategy, and
information about the grouping is provided internally on that basis; or
* It forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments: Recognition and Measurement
permits the entire combined contract (asset or liability) to be designated as at FVTPL.
Financial liabilities at FVTPL 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. Fair value is determined in the manner
described in note 16.
(v) Other financial liabilities - other financial liabilities, including borrowings, are initially measured at fair value, net of
transaction costs. Other financial liabilities are 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 estimated future cash payments through the expected
life of the financial liability, or, where appropriate, a shorter period.
(vi) Derecognition of financial liabilities - the Group derecognises financial liabilities when, and only when, the Group's obligations
are discharged, cancelled or they expire.
(u) Derivative financial instruments
The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate
risk, including foreign exchange forward contracts, options and cross currency swaps. Further details of derivative financial instruments
are disclosed in note 10.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to
their fair value at each balance sheet date. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is
designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of
the hedge relationship. The Group designates certain derivatives as either hedges of the fair value of recognised assets or liabilities or
firm commitments (fair value hedges), hedges of highly probable forecast transactions or hedges of foreign currency risk of firm
commitments(cash flow hedges), or hedges of net investments in foreign operations.
A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12
months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current
liabilities.
(i) Hedge accounting - the Group designates certain hedging instruments, which include derivatives, embedded derivatives and
non-derivatives in respect of foreign currency risk, as either fair value hedges, cash flow hedges, or hedges of net investments in foreign
operations. Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges.
At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item,
along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the
hedge and on an ongoing basis, the Group documents whether the hedging instrument that is used in a hedging relationship is highly effective
in offsetting changes in fair values or cash flows of the hedged item.
Note 10 sets out details of the fair values of the derivative instruments used for hedging purposes. Movements in the hedging reserve in
equity are also detailed in note 15.3.
(ii) Fair value hedges - changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in
profit or loss immediately, together with any changes in the fair value of the hedged item that are attributable to the hedged risk. The
change in the fair value of the hedging instrument and the change in the hedged item attributable to the hedged risk are recognised in the
line of the income statement relating to the hedged item.
Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated,
or exercised, or no longer qualifies for hedge accounting. The adjustment to the carrying amount of the hedged item arising from the hedged
risk is amortised to profit or loss from that date.
(iii) Cash flow hedges - the effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow
hedges are deferred in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, and is
included in the "other gains and losses" line of the income statement. Amounts deferred in equity are recycled in profit or loss in the
periods when the hedged item is recognised in profit or loss, in the same line of the income statement as the recognised hedged item.
However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability,
the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the
asset or liability.
Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated,
or exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss deferred in equity at that time remains in equity and
is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to
occur, the cumulative gain or loss that was deferred in equity is recognised immediately in profit or loss.
(iv) Hedges of net investments in foreign operations - hedges of net investments in foreign operations are accounted for similarly to
cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in equity in the
foreign currency translation reserve. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, and
is included in the 'other gains and losses' line of the income statement.
Gains and losses deferred in the foreign currency translation reserve are recognised in profit or loss on disposal of the foreign
operation.
4. Critical accounting judgments and key sources of estimation uncertainty
In the application of the Group's accounting policies, which are described in note 3, the directors are required to make judgments,
estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The
estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results
may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the
period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the
revision affects both current and future periods.
Key sources of estimation uncertainty
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date,
that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial
year.
Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has
been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the
cash-generating unit and a suitable discount rate in order to calculate present value. The carrying amount of goodwill at the balance sheet
date was
US$ 40.5 million. An amount of US$ 19.4 million was recognized as impairment loss during 2008. No impairment loss was recognized during
2007. See note 7 for more details.
Useful lives of property, plant and equipment
As described in note 3, the Group reviews the estimated useful lives of property, plant and equipment at the end of each annual
reporting period. During the financial year, the directors determined that there was no need to change the estimation of useful lives of
property, plant and equipment items.
Fair value of business combinations
in an acquisition of a new business, the directors need to assess the fair value of the tangible and intangible assets acquired.
Determining the fair value of the acquired business assets' require the use of judgement and applying acceptable valuation techniques which
are based on forecasts of cash inflows that the business can generate.
Fair value of derivatives and other financial instruments
As described in note 16, the directors use their judgement in selecting an appropriate valuation technique for financial instruments not
quoted in an active market. Valuation techniques commonly used by market practitioners are applied. For derivative financial instruments,
assumptions are made based on quoted market rates adjusted for specific features of the instrument. Other financial instruments are valued
using a discounted
cash flow analysis based on assumptions supported, where possible, by observable market prices or rates. Details of the assumptions used
and of the results of sensitivity analyses regarding these assumptions are provided in note 16.
Project cost to complete estimates and contingencies:
At each balance sheet date the group is required to estimate costs to complete on fixed-price contracts. Estimating costs to complete on
such contracts requires the group to make estimates of future costs to be incurred and estimate inherent risk level, based on work to be
performed beyond the balance sheet date.
Deferred tax assets
The group recognizes deferred tax assets on unused tax losses where it is probable that future taxable profits will be available for
utilisation. This requires management to make judgements and assumptions regarding the amount of deferred tax that can be recognized as well
as the likelihood of future taxable profits.
Income tax
The Company and its subsidiaries are subject to routine tax audits and also a process whereby tax computations are discussed and agreed
with the appropriate authorities. Whilst the ultimate outcome of such tax audits and discussions cannot be determined with certainty,
management estimates the level of provisions required for both current and deferred tax on the basis of professional advice and the nature
of current discussions with the tax authority concerned.
5. Activities and segment information
Primary segment
The core activities of the Group are international process-orientated engineering, contracting and management services. These activities
operate in two primary divisions namely the Energy and Advanced Technologies Divisions.
The Energy Division includes EPC and other services rendered to the oil, gas, power and environmental industries.
The Advanced Technologies Division includes technology and EPC services rendered to the phosphate industry and solvent extraction based
solutions to various industries such as copper, nickel, cobalt, uranium, and other minerals and metals.
The business segment table presents revenue and profit information and certain asset and liability information regarding business
segments for and years ended 30 June.
Business segments
Advanced Technologies Energy Total
US$ '000 For the year ended 30 June For the year ended 30 June For the year ended 30 June
2008 2007 2008 2007 2008 2007
Revenue
Sales to external 69,681 39,515 746,400 404,693 816,081 444,208
Customers
Inter-segment sales 110 709 320 6,553 430 7,262
Total revenue 69,791 40,224 746,720 411,246 816,511 451,470
Result
Segment result 1,914 6,285 (71,438)(*) 9,173 (69,524) 15,458
Net finance income / (1,286) 1,755 7,773 3,668 6,487 5,423
(expenses)
Share of profit / (loss) of - - (160) - (160) -
associates
Result before income tax 628 8,040 (63,825) 12,841 (63,197) 20,881
Income tax (expense) 141 (195) (2,574) 117 (2,433) (78)
Net profit 769 7,845 (66,399) 12,958 (65,630) 20,803
(*) Includes impairment losses of US$ 19.4 million.
5. Activities and segment information (continued)
Business segments (continued)
Advanced Technologies Energy Total
For the year ended 30 June For the year ended 30 June For the year ended 30 June
US$ '000 2008 2007 2008 2007 2008 2007
Segment assets 68,808 47,885 554,259 301,900 623,067 349,785
Income tax receivable 194 75 - 330 194 405
Other financial assets 2,021 436 16,167 - 18,188 436
Deferred taxation 38 - 11,941 4,677 11,979 4,677
Total assets 71,061 48,396 582,367 306,907 653,428 355,303
Segment liabilities 12,430 24,185 552,159 215,307 564,589 239,492
Income tax payable 518 195 7,212 2,619 7,730 2,814
Deferred taxation 205 - 2,481 496 2,686 496
Total liabilities 13,153 24,380 561,852 218,422 575,005 242,802
Other segment information
Capital expenditure
Tangible fixed assets 617 289 11,078 6,333 11,695 6,622
Acquisition through - - 2,591 518 2,591 518
business combinations
Depreciation 352 47 4,123 2,565 4,475 2,612
Amortisation - - 10,625 1,454 10,625 1,454
Goodwill Impairment (see note - - 19,387 - 19,387 -
7)
5. Activities and segment information (continued)
Geographic segments
The Group has an established global infrastructure targeted to serve markets all over the world. Intra-Group transactions are negotiated
between the Group companies on an arm's length basis.
For the year ended 30 June
US$ '000 2008 2007
Revenue
USA 270,488 4,157
France 162,401 101,180
Kazakhstan 102,427 200,407
Saudi Arabia 62,962 18,550
Morocco 42,855 45,815
Chile 29,485 16,703
Germany 24,619 2,688
Slovakia 15,121 2,120
Canada 14,344 -
Algeria 12,547 18,556
China 12,336 2,127
South Africa 12,246 7,338
United Arab Emirates 9,580 4,478
Israel 9,039 9,274
Australia 8,374 2,431
Japan 7,041 -
New Caledonia 4,607 8,325
Other 15,609 59
Sales to external customers 816,081 444,208
5. Activities and segment information (continued)
Rest of World Europe FSU Total
US$ '000 For the year ended 30 June For the year ended 30 June For the year ended 30 June For the year ended 30
June
2008 2007 2008 2007 2008 2007 2008
2007
Other segment information
Segment assets 261,079 56,669 318,530 197,523 73,776 101,111 653,385
355,303
Capital expenditure tangible 6,942 3,845 4,439 1,907 314 870 11,695
6,622
fixed assets
Acquisitions through business 274,558 - 187 518 2,735 - 274,480
518
combinations
6. Exceptional items
The Group presents certain items as 'exceptional'. These are items which, in management's judgment, need to be disclosed by virtue of
their size or incidence in order to obtain a proper understanding of the financial information.
For the year ended June 2008, the following exceptional items were reported.
Legacy projects
There was a pre tax exceptional charge of US$66.9 million relating to increased costs to complete for the following projects:
Oil and gas project in the FSU US$36.6 million
Waste-to-energy project in Europe US$14.6 million
Solvent extraction project in South America US$5.9 million
Ethanol project in North America US$5.0 million
Oil and gas project in Europe US$4.8 million
Doubtful debts
A post tax exceptional provision of US$2.0 million was incurred against potential bad debts.
Impairment charges
There was a pre tax US$19.4 million impairment charge for the year. US$5.0 million relates to goodwill impairment in the FSU and US$14.4
million relates to goodwill impairment arising from the Delta-T acquisition in North America.
Tax settlement
A US$2.3 million tax charge was taken for the settlement of Israeli tax exposures relating to the years 2000 to 2004 (see note 31 for
further details)
There were no exceptional items for the year ended June 2007.
7. Intangible Assets and Goodwill
US$ '000 Patents, brand Technology Software Contractual rights Total Intangible Goodwill
names, licenses Assets
and others
Balance at 30 June 2006 1,100 - 2,941 3,143 7,184 11,106
Acquisition through business - - 63 - 63 7,130
combinations
Additions 2,000 - 861 - 2,861 -
Translation differences - - 192 - 192 406
Balance at 30 June 2007 3,100 - 4,057 3,143 10,300 18,642
Acquisition through business 8,357 75,801 344 7,100 91,602 41,384
combinations
Additions - - 1,452 - 1,452 -
Translation differences - - 1,196 - 1,196 1,074
Balance at 30 June 2008 11,457 75,801 7,049 10,243 104,550 61,100
Amortisation and impairment
losses
Balance at 30 June 2006 1,100 - 2,072 935 4,107 1,209
Amortisation charge for the - - 666 788 1,454 -
year
Translation differences - - 133 - 133 -
Balance at 30 June 2007 1,100 - 2,871 1,723 5,694 1,209
Amortisation charge for the - 3,989 1,315 5,321 10,625 -
year
Impairment losses charged to - - - - - 19,387
profit or loss account
Translation differences - - 891 - 891 -
Balance at 30 June 2008 1,100 3,989 5,077 7,044 17,210 20,596
Carrying amount
At 30 June 2008 10,357 71,812 1,972 3,199 87,340 40,504
At 30 June 2007 2,000 - 1,186 1,420 4,606 17,433
Notes to the Consolidated Financial Statements
Contractual rights - Contractual rights are derived from the existing contracts of an acquired business. The Contractual rights are
amortized over the contractual lives of those contracts according to progress rate.
Technology - Technology is derived from the acquisition of Delta-T, a US based subsidiary. The technology is used for designing and
constructing of high-tech alcohol plants and refinery systems to produce Ethanol. The technology is amortized over the estimated useful life
which is 15 years.
Brand name - the company entered into an agreement with its parent company for the purchase of the right to use the Bateman brand name.
The brand name was classified by the Company, as an intangible asset according to the definition by IAS 38 "Intangible assets", and has an
indefinite useful life. According to IAS 38, an intangible asset with an indefinite useful life shall not be amortized. The right is
perpetual, irrevocable, non transferable, worldwide and exclusive in the field of Gas, Oil, Power and Phosphate (the Power sector excludes
Australia and countries which are in Africa but excluding North Africa).
Amortization - amortization is charged to the income statement on a straight-line basis over the estimated useful lives of intangible
fixed assets. Intangible fixed assets are amortized from the date they are available for use.
The estimated useful lives are as follows:
* Software 3 years
* Contractual rights over life of contracts (1-3.5 yrs.)
* Patents, trademarks and licenses over life of items
* Technology over estimated useful life (15 yrs.)
* Brand name not amortized
* Goodwill not amortized
Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to
benefit from the business combination.
The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired.
The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value in use calculations
are those regarding the discount rates (7-14 percent), growth rates and expected changes to selling prices and direct costs during the
period. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the
risks specific to the CGUs. The growth rates are based on existing contracts and expected projects. Changes in selling prices and direct
costs are based on past practices and expectations of the future changes in the market.
The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next three years
and extrapolates cash flows for the following three years based on management forecast.
An impairment loss of US$19.4 million was recorded during the year ended 30 June 2008 (2007: nil). The events that led to the
recognition of impairment loss were a slowdown in the building of Ethanol plants in North America and the decrease in the profitability due
to price escalation and cost overruns in a project in the FSU region. The recoverable amount of the CGU was determined by its value in use.
The pre-tax discount rate used was 13% - 17%.
Notes to the Consolidated Financial Statements
At 30 June 2008, after impairment losses, goodwill of US$40.5 million (2007 - US$17.4 million) was allocated to the oil & gas &
engineering CGUs within the energy segment.
On 22 August 2007 Bateman Litwin completed the acquisition of 100 per cent of Delta-T Corporation ("Delta-T"), a US-based bio-ethanol
technology provider. As part of that acquisition, goodwill and other intangible assets such as technology and brand name were recorded (see
note 25.1).
8. Property, plant and equipment
Equipment
US$ '000 Property and vehicles Other(*) Total
Cost
Balance at 30 June 2006 3,153 14,462 560 18,175
Additions 601 5,924 137 6,662
Disposals (414) (1,369) - (1,783)
Acquired on acquisition subsidiaries 274 237 - 511
Translation differences 205 639 23 867
Balance at 30 June 2007 3,819 19,893 720 24,432
Additions 501 6,551 4,643 11,695
Disposals - (663) - (663)
Acquired on acquisition subsidiaries - 2,483 - 2,483
Translation differences 993 3,515 775 5,283
Balance at 30 June 2008 5,327 31,779 6,138 43,230
Depreciation and impairment losses
Balance at 30 June 2006 868 7,384 - 8,252
Depreciation charge for the year 322 2,290 - 2,612
Disposals (33) (700) - (733)
Translation differences 50 541 - 591
Balance at 30 June 2007 1,207 9,515 - 10,722
Depreciation charge for the year 414 4,061 - 4,475
Disposals - (374) - (374)
Translation differences 302 1,920 - 2,222
Balance at 30 June 2008 1,923 15,122 - 17,045
Carrying amount
At 30 June 2008 3,390 16,657 6,138 26,185
At 30 June 2007 2,612 10,378 720 13,710
(*) During the year ended 30 June 2008 the company invested in the construction of new offices of one of its subsidiaries. This amount
represents payment on account of that investment.
As at 30 June 2008, vehicles in the amount of US$3,132,000 (30 June 2007: US$3,168,000) were restricted on title or pledged as security
for liabilities.
Notes to the Consolidated Financial Statements
Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of items of property, plant and
equipment, and major components that are accounted for separately. Land is not depreciated. The estimated useful lives are as follows:
* Buildings 40 years
* Leasehold improvements 10 years (or over lease period if shorter)
* Plant and equipment 5 - 12 years
* Office equipment 10 - 17 years
* Vehicles 6 - 7 years
* Computer hardware 3 years
9. Investment in associates
Name of associate Principal activity Place of incorporation and Ownership interest
operation
30 June
2008 2007
% %
Delta-T Europe Marketing Italy 49 (*) ---
Bateman Engineering North Not active Netherlands 40 40
Africa B.V.
Bateman Kuwait Not active Kuwait 49 49
(*) Share of profit and loss is 50 per cent
As of 30 June 2008 and 2007, investment in associates includes the Group investment in Bateman engineering North Africa B.V. and in an
associate company in Kuwait (through Bateman Pipeline Services Limited, Cyprus). Due to a provision recorded by the Group, the net
investment in those companies is nil.
Summarised financial information in respect of the Group's associates is set out below:
As at 30 June
2008 2007
US$ '000
Total assets 675 -
Total liabilities (757) -
Net Assets (82) -
Group's share of net assets of (43) -
associated
Period from Year ended
22 August 2007 30 June 2007
to 30 June 2008
Total revenue 432 -
Total profit / (loss) (576) -
Group's share of profits / (loss) of (288)(*) -
associates
(*)Of the loss of US$288,000 an amount of US$160,000 represents the loss of Delta-T Europe as an associate (from the date of sale of 2
per cent until the year end - see below).
Notes to the Consolidated Financial Statements
Delta-T Europe ("DTE") - as part of the acquisition of Delta-T on 22 August, 2007, the Group purchased a 51 per cent interest in DTE, a
company located in Italy which is involved in the marketing of ethanol plants in Europe. On 2 April, 2008 the Group sold 2 per cent of its
interest in DTE to the other shareholder, bringing its holdings in DTE down to 49 percent. As of that the date the Group accounts for the
investment in DTE as an investment in associate.
10. Other financial assets
Current Non-Current
As of 30 June As of 30 June
US$'000 2008 2007 2008 2007
Derivatives designated and effective as hedging
instruments carried at fair value
Foreign currency forward contracts - - 8,516 -
- - 8,516 -
Financial assets carried at fair value
through profit or loss
Held for trading derivatives that are not 944 12 7,498 -
designated in hedge accounting relationships
944 12 7,498 -
Available-for-sale investments carried at fair
value
Shares - - 202 436
- - 202 436
Loans carried at amortized cost
Loans to other entities - - 1,972 -
- - 1,972 -
944 12 18,188 436
See details on forward contracts in note 16.5
Notes to the Consolidated Financial Statements
Other financial liabilities
Current Non-Current
As of 30 June As of 30 June
US$'000 2008 2007 2008 2007
Derivatives that are designated and effective as
hedging instruments carried at fair value
Foreign currency forward contracts 172 - - -
172 - - -
Financial liabilities carried at fair value
through profit or loss
Held for trading derivatives that are not 1,804 937 - -
designated in hedge accounting relationships
1,804 937 - -
1,976 937 - -
11. Deferred taxation
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income taxes relate to the same fiscal authority.
The gross movement on the deferred income tax account is as follows:
For the year ended 30 June
US$ '000 2008 2007
Beginning of the year 4,181 60
Exchange differences 1,326 282
Acquisition of subsidiary (1,927) 208
Income statement credit/(charge) 7,884 3,631
Revaluation of financial instruments treated as (2,171) -
cash flow hedge
End of the year 9,293 4,181
The following is the analysis of the deferred tax balances for balance sheet purposes:
As at 30 June
US$ '000 2008 2007
Deferred tax liability (2,686) (496)
Deferred tax assets 11,979 4,677
9,293 4,181
Notes to the Consolidated Financial Statements
The movement in deferred tax assets and liabilities during the year is as follows:
US$ '000 Other temporary Intangible assets Unused tax losses Total
differences
At 1 July 2006 291 (231) - 60
Credited / (charged) to the 234 277 3,120 3,631
income statement
Acquisition of a subsidiary 28 - 180 208
Exchange differences 144 33 105 282
At 30 June 2007 697 79 3,405 4,181
Credited / (charged) to the 2,981 496 4,407 7,884
income statement
Revaluation of financial - - (2,171) (2,171)
instruments treated as cash
flow hedge
Acquisition of a subsidiary (1,927) - - (1,927)
Exchange differences 482 65 779 1,326
At 30 June 2008 2,233 640 6,420 9,293
At the balance sheet date, the Group had unused tax losses of US$78 million (30 June 2007: US$28 million) available to offset against
future profits. A deferred tax asset was recognised for an amount of US$20 million (30 June 2007: US$10 million) in respect of such losses.
The deferred tax asset on unused tax losses was recognised given that the legal entities owning those losses anticipate being more
profitable in the future.
12. Construction contracts in progress
100 per cent of sales revenue relates to revenue on contracts.
Contract in progress at the balance sheet date
As at 30 June
US$ '000 2008 2007
Contract in progress at the
balance sheet date
Construction costs incurred plus recognised profits 1,829,100 751,648
less recognised losses to date
Less progress billings (1,959,021) (806,535)
(129,921) (54,887)
From Customers under construction contracts 88,775 53,007
To customers under construction contacts (218,696) (107,894)
(129,921) (54,887)
At 30 June 2008, retentions held by customers for contract work amounted to US$18.2 million (2007: nil). Advances received from
customers for contract work amounted to US$39.1 million (2007: US$16.3 million).
13. Trade and other receivables
As at 30 June
US$ '000 2008 2007
Trade receivables 176,882 86,221
Allowance for doubtful debts (4,269) (2,143)
172,613 84,078
Other receivables 47,598 29,405
220,211 113,483
The average credit period on revenue from construction contracts is 60 days. No interest is charged on the trade receivables. The Group
has provided fully for all receivables over 360 days because historical experience is such that receivables that are due beyond 360 days are
generally not recoverable. Trade receivables between 60 and 360 days are provided for based on estimated irrecoverable amounts from the
revenue from construction contracts, determined by reference to past default experience.
Out of the trade receivables balance, an amount of US$34.3 million (2007 - nil) is due from a customer in France, US$11.8 million (2007
- nil) is due from a customer in Saudi Arabia, and US$20.1 million (2007 - nil) is due from a customer in USA. There are no other customers
who represent more than five per cent of the total balance of trade receivables. Certain trade and other receivables will be settled in
currencies other than the reporting currency of the Group, mainly in Euros.
Movement in the allowance for doubtful debts
As at 30 June
US$ '000 2008 2007
Balance at the beginning of the year 2,143 1,458
Amounts written off during the year (890) (1,013)
Amounts recovered during the year (169) (24)
Increase (decrease) in allowance recognized in profit or loss 3,185 1,722
Balance at the end of the year 4,269 2,143
In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable
from the date credit was initially granted up to the reporting date. Accordingly, the directors believe that there is no further credit
provision required in excess of the allowance for doubtful debts.
Aging of past due but not impaired
As at 30 June
US$ '000 2008 2007
60-180 days 22,411 16,570
180-360 days 27,594 5,529
Total 50,005 22,099
Aging of impaired trade receivables
As at 30 June
2008 2007
180-360 days 5,283 1,989
Over 360 days 164 154
Total 5,447 2,143
14. Cash and cash equivalents
(a) Cash and short term deposits
As at 30 June
US$ '000 2008 2007
Cash at bank and in hand 11,954 24,584
Short - term deposits 76,454 105,240
88,408 129,824
(b) Long term deposits
2008 2007
Deposits against guarantees 71,644 17,722
(c) Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of
between one day and three months depending on the immediate cash requirements of the Group and earn interest at the respective short-term
deposit rates. The fair value of cash and cash equivalents is US$88,408,000 (30 June 2007: US$129,824,000). At 30 June 2008 an amount of
US$91,071,000 (30 June 2007: US$29,341,000) was held on deposit as security for the issuing of bank guarantees by various financial
institutions.
15. Share capital and capital reserves
As at 30 June As at 30 June
2008 2007 2008 2007
15.1 Share capital US$ '000 US$ '000
Number of shares
Authorized:
150 million ordinary shares of par 23,647 20,257
value EUR0.1
Issued and fully paid:
At the beginning of the year 11,901 10,828 88,190,563 85,260,000
Issuance of shares through 1,123 391 8,149,437 2,930,563
exercise of share options
Translation of share capital at 2,518 682 - -
year end rate
Issuance of shares 2,178 - 16,063,000 -
At the end of the year 17,720 11,901 112,403,000 88,190,563
The Company has one class of ordinary shares which have equal rights and no restriction.
The Euro denominated share capital has been translated to US$ using the year end rate of US$1.58 to EUR1 (2007 - US$1.35 to EUR1).
Share placement - on 19 July 2007 the Company issued 4,263,000 new shares in a share placement. The net proceeds amounted to US$23.2
million.
Issue of shares - on 20 July 2007 the Company issued 8,149,437 new shares on account of the employees' option plan to be held by a
trustee. The net proceeds amounted to US$2.5 million.
On 22 August 2007, the company issued 11,800,000 new shares as part of Delta-T purchase agreement. The amount of US$1,590,522 was paid
from the company premium.
Depositary Interests
All the issued shares are held by Capital IRG Trustees (Nominees) Limited. Shares may be represented by and exchanged for depositary
interests which are eligible to be held and transferred in uncertificated form in a computer-based system.
15.2 Capital Reserves
Share Premium Other Reserve (**) Share Options Reserve Total
US$ '000
Balance at 30 June 2006 78,629 1,104 348 80,081
Recognition of share-based - - 221 221
payments
Shares issued at premium 300 - - 300
Dividend paid (2,028) - - (2,028)
Adjustments of other reserve - (394) - (394)
Balance at 30 June 2007 76,901 710 569 78,180
Recognition of share-based - - 393 393
payments
Shares issued at premium 22,483(*) - - 22,483
Adjustments of other reserve - (710) - (710)
Balance at 30 June 2008 99,384 - 962 100,346
(*) The share premium on the 2008 placement is net of US$763,000 share issuance expenses.
(**)Other reserve in the amount of US$1,572,000 was recorded as part of the 50 per cent purchase of a subsidiary in March 2005.
15.3 Hedging and foreign currency translation reserves
Hedging reserve Foreign currency translation Total
reserve
US$ '000
Balance at 30 June 2006 - 1,786 1,786
Unrecognized loss on cash flow (636) - (636)
hedge
Foreign currency exchange - 488 488
translation
Balance at 30 June 2007 (636) 2,274 1,638
Transfer to profit and loss on 636 - 636
cash flow hedge
Unrecognized gains on cash 6,343 - 6,343
flow hedge
Foreign currency exchange - 2,425 2,425
translation
Balance at 30 June 2008 6,343 4,699 11,042
16. Financial instruments
16.1 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 balance. The Group's overall strategy remains unchanged from 2007.
The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 17, cash and cash equivalents and
equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in notes 15
respectively.
Gearing ratio
The Group's management reviews the capital structure on a semi-annual basis. As part of this review, the committee considers the cost of
capital and the risks associated with each class of capital. The capital structure of the Group includes positive cash and cash equivalents
and the target is to receive maximum interest on cash balances held. The Group expects to increase the total debt in the future.
The gearing ratio at the year end was as follows:
As at 30 June
2008 2007
Debt (i) 46,721 2,386
Cash and cash equivalents (88,408) (129,824)
Net debt (41,687) (127,438)
Equity (ii) 76,652 112,501
Net debt to equity ratio (54%) (113%)
(i) Debt is defined as long- and short-term borrowings, as detailed in note 17.
(ii) Equity includes all capital and reserves of the Group.
16.2 Significant accounting policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and
the basis on which income and expenses are recognized, in respect of each class of financial asset, financial liability and equity
instrument are disclosed in note 3 to the financial statements.
16.3 Financial risk management objectives
The Group's Corporate Treasury function together with Project Managers and Chief Financial Officers of the business unit provide
services to the business, co-ordinates access to domestic and international financial markets, monitors and manages the financial risks
relating to the operations of the Group through internal risk reports which analyze 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 by using derivative financial instruments to hedge these risk exposures. The use
of financial derivatives is governed by the Group's policies approved by the executive committee, which provide written principles on
foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the
investment of excess liquidity. The Group does not enter into or trade financial instruments, including derivative financial instruments,
for speculative purposes.
16.4 Market risk
The Group's activities expose it primarily to the financial risks of changes in foreign currency exchange rates (see 16.5 below) and
interest rates (see 16.6 below). The Group enters into a variety of derivative financial instruments to manage its exposure to foreign
currency risk, including:
* forward foreign exchange contracts to hedge the exchange rate risk arising on execution of projects were payments and receipts are
denominated in different currencies (qualify as cash flow hedge).
* forward foreign exchange contracts and options to hedge the exchange rate risk arising on expenses in currencies that are not the
functional currency; and
* forward foreign exchange contracts to hedge the exchange rate risk arising on translation of the Group's investment in foreign
operation
There has been no change in the last year to the Group's exposure to market risks or the manner in which it manages and measures the
risk.
16.5 Foreign currency risk management
The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise.
Exchange rate exposures are managed within approved policy parameters utilizing forward foreign exchange contracts.
The carrying amounts of the Group's foreign currency denominated monetary assets and monetary liabilities at the reporting date are as
follows:
Assets Liabilities
2008 2007 2008 2007
Euro 49,335 97,286 62,208 57,501
New Israeli Shekel (NIS) 8,057 5,446 22,525 11,322
British Pound (GBP) 755 38 308 -
Kazakh Tengei (KZT) 7,629 3,663 11,936 15,359
United Arab Emirates Dinar (AED) 9,545 7,364 3,823 5,097
Chile Peso (CLP) 6,827 5,803 5,493 6,570
Romania New Lei (RON) 3,384 1,171 1,399 778
Other 269 1,132 2,918 1,938
Foreign currency sensitivity analysis
The Group is mainly exposed to the currency of the European Union (the Euro). The following table details the Group's sensitivity to a
10 per cent increase and 5% decrease in the US$ against the relevant foreign currencies. A positive number below indicates an increase in
profit and other equity where the US$ strengthens 10 per cent against the relevant currency.
Foreign currency 10% increase Foreign currency
10% decrease
US$ '000 2008 2007 2008 2007
Profit Before Tax (74) 2,334 37 (1,167)
Equity (51) 1,674 25 (837)
Forward foreign exchange contracts
It is the policy of the Group to enter into forward foreign exchange contracts to cover specific foreign currency payments and receipts.
The Group also enters into forward foreign exchange contracts to manage the risk associated with anticipated sales and purchase
transactions. In the current year, the Group has designated certain forward contracts as a hedge of its net investment in a foreign
operation, which has the Euro as its functional currency. Upon the maturity of a forward contract, the Group enters into a new contract
designated as a separate hedging relationship.
The following table details the forward foreign currency contracts outstanding as at reporting date:
Outstanding Contracts Average Exchange Rate Foreign Currency Contract Value Fair Value
2008 2007 2008 2007 2008 2007 2008 2007
FC '000 FC '000 US$ '000 US$ '000 US$ '000 US$ '000
Buy Euro
Less than 3 months 1.40 1.33 2,256 2,280 3,153 3,021 961 675
3 to 6 months 1.40 - 33,078 - 46,233 - 1,997 -
6 to 12 months 1.40 - 54,425 - 73,630 - 3,045
Over 12 months 1.41 - 70,202 - 98,821 - 10,011 -
Buy NIS
3 to 6 months 3.5 - 63,000 - 18,000 - 944 -
Sell Euro
3 to 6 months 1.39 1.35 10,000 8,000 13,887 10,800 1,804 937
18,762 1,612
The Group has entered into various contracts in which the receipts are in US$ and part of the expenses are in Euro or NIS. The Group has
entered into forward foreign exchange contracts to hedge the exchange rate risk arising from these anticipated future transactions.
As at 30 June 2008, the aggregate amount of unrealized gains under forward foreign exchange contracts deferred in the hedging reserve
relating to the exposure on part of these anticipated future transactions is
US$8,516,000 (2007: unrealized losses of US$636,000). It is anticipated that the sales will take place during the next three years at
which stage the amount deferred in equity will be released into profit or loss.
16.6 Interest rate risk management
The Group is exposed to interest rate risk as entities in the Group borrow funds at floating interest rates. Interest rate risk arises
from the possibility that changes in interest rates will affect the value of the group's interest bearing financial liabilities and assets.
Interest rate sensitivity analysis
The sensitivity analyses below have been determined based on the exposure to interest rates for non-derivative instruments at the
balance sheet date. For floating rate liabilities, the analysis is prepared assuming the amount of liability outstanding at the balance
sheet date was outstanding for the whole year.
If interest rates had been 50 basis points higher/lower and all other variables were held constant, the difference in Group's profit
before tax and equity would be:
50 basis points increase 50 basis points decrease
2008 2007 2008 2007
Result before tax 182 12 (182) (12)
Equity 167 9 (167) (9)
The Group's sensitivity to interest rates has increased during the current period due to the increase in funding by long term loans.
16.7 Credit risk management
Credit risk refers to the risk that 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 and keeping a positive cash flow over the life of a project,
as a means of mitigating the risk of financial loss from defaults. The Group uses other publicly available financial information and its own
trading records to rate its major customers. Trade receivables consist of a medium number of customers, spread across diverse geographical
areas.
The Group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar
characteristics except for the exposure described in note 13. The Group defines counterparties as having similar characteristics if they are
related entities.
The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the Group's
maximum exposure to credit risk.
The Group does not allocate credit limit to any customer.
16.8 Liquidity risk management
The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of overdrafts, revolving
credit facilities, project finance and term loans to reduce its exposure to liquidity risk.
The following tables detail the Group's remaining contractual maturity for its financial liabilities. The tables have been drawn up
based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The
table includes both interest and principal cash flows.
US$ '000 6 months or less 6-12 months 1-5 years Total
2008
Interest bearing loans and 6,673 7,819 32,229 46,721
borrowings
Trade and other payables 282,337 - - 282,337
Derivative instruments 1,976 - - 1,976
Interest payable 177 - - 177
291,163 7,819 32,229 331,211
US$ '000 6 months or less 6-12 months 1-5 years Total
2007
Interest bearing loans and 682 565 1,257 2,504
borrowings
Trade and other payables 117,753 - - 117,753
Derivative instruments - 937 - 937
Interest payable - - - -
118,435 1,502 1,257 121,194
The following table details the Group's expected maturity for its financial assets. The table below has been drawn up based on the
undiscounted contractual maturities of the financial assets including interest that will be earned on those assets except where the Group
anticipates that the cash flow will occur in a different period
US$ '000 6 months or less 6-12 months 1-5 years Total
2008
Cash and cash equivalents 88,408 - - 88,408
Long term deposits - - 71,644 71,644
Derivative instruments 944 - 18,188 19,132
89,352 - 89,832 179,184
US$ '000 6 months or less 6-12 months 1-5 years Total
2007
Cash and cash equivalents 129,824 - - 129,824
Long term deposits - - 17,722 17,722
Derivative instruments 12 - 436 448
129,836 - 18,158 147,994
16.9 Fair value of financial instruments
The fair values of financial assets and financial liabilities are determined as follows:
* The fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets is
determined with reference to quoted market prices;
* The fair value of other financial assets and financial liabilities (excluding derivative instruments) is determined in accordance with
generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions and dealer
quotes for similar instruments;
* The fair value of derivative instruments is calculated using quoted prices.
Quoted prices
Financial assets in this category include listed shares.
Derivatives
Foreign currency forward contracts are measured using quoted forward exchange rates from financial institutions matching maturities of
the contracts.
The Company considers that the carrying amounts of trade and other receivables, trade and other payables, other current assets and
liabilities approximate their fair values.
17. Borrowings
Current Non-Current
As at 30 June As at 30 June
2008 2007 2008 2007
Unsecure
Bank overdraft 3,103 118 - -
Secure
Bank loans 9,492 913 32,957 1,257
Supplier loan - 216 - -
Finance lease liabilities - - 1,169 -
9,492 1,129 34,126 1,257
12,595 1,247 34,126 1,257
As at 30 June
US$ '000 2008 2007
Loans from banks 42,449 2,170
Supplier loan and finance lease liabilities 1,169 216
43,618 2,386
Less: current portion included in trade and (9,492) (1,129)
other payables
34,126 1,257
Loans from banks
Details of major loans:
US$ '000 Original amount Balance at 30 June Interest rate Payment period Principal payments Interest payments
2008
Loan 1 40,200 34,191 Libor+1.5% Until 8/2012 Quarterly Quarterly
Loan 2 5,000 5,000 Libor+1.55% Until 5/2010 2010 Semi-annually
Loan 3 5,300 2,004 Prime(*) - 0.5% Until 7/2010 Monthly Monthly
Other 5,300 1,254 Libor+1.5% -- -- Quarterly
(*) the Prime rate (floating rate) of the central bank of Israel was 5.25 per cent at 30 June 2008 (2007: 5%)
Obligations under finance leases and hire purchase contracts
The obligations under finance leases and hire purchase contracts are secured by the underlying assets financed which include a building,
cars and office equipment. The lease term is up to 9 years. The repayments are made monthly and the effective interest rates applicable are
linked to the prime lending rate in the applicable countries where these leases are entered into.
The obligation of the supplier loan was secured by a mortgage over the equipment purchased from the supplier. The repayments made are
semi-annually and the effective interest rate applicable is LIBOR plus 1.1%. The maturity date of this loan was March 2008.
18. Non-Current Provisions
As at 30 June
US$ '000 2008 2007
Severance pay 3,373 2,454
Contingent consideration for business combinations 935(*) -
4,308 2,454
(*) The amount of US$935,000 is a provision for contingent consideration for business combinations (see note 20).
Severance Pay
For the year ended 30 June
US$ '000 2008 2007
Opening balance 2,454 1,710
Provisions made during the year 955 523
Acquisition through business combinations - 532
Utilised during the year (415) (450)
Translation differences 379 139
Closing balance 3,373 2,454
Severance pay
The liabilities of the Company for severance pay are covered by the liability reflected on the balance sheet and by premiums paid to
insurance companies for certain managers' insurance policies. Actuarial calculations relating to these insurance policies were prepared for
the years 2008 and 2007 and are recorded as deferred benefit plans from the perspective of IAS 19.
The principal actuarial assumptions (per annum) used are:
2008 2007
Discount rate 3%-8.3% 3%-6.4%
Expected rate on plan assets 3.5% 4%
Future salary increase 3-12% 2.5%-12%
The amounts recognised in the balance sheet as were determined as follows:
As at 30 June
US$ '000 2008 2007
Present value of funded obligations 10,305 6,790
Fair value of plan assets (8,477) (5,516)
Present value of unfunded obligations 1,545 1,180
Liability in the balance sheet 3,373 2,454
The amounts recognised in the income statement were as follows:
For the year ended 30 June
US$ '000 2008 2007
Current service costs 1,499 1,029
Interest costs 723 228
Expected return on plan assets (362) (107)
Net actuarial losses/gains in the year (161) -
Total (income)/loss included in 1,699 1,150
employee costs
19. Trade and other payables
As at 30 June
US$ '000 2008 2007
Trade payables 210,539 85,139
Other payables and accruals 73,951 33,551
Current portion of long term liabilities 9,492 1,129
293,982 119,819
Trade payables are non-interest bearing and are normally settled on terms of between 60 and 90 days. Certain trade and other payables
will be settled in currencies other than the reporting currency of the Group, mainly in Euros.
20. Provisions
As at 30 June
US$ '000 2008 2007
litigation costs 2,134 1,706
Onerous contracts 2,207 6,629
Employee benefits 2,681 565
Warranty 1,972 -
Contingent consideration for business combinations 1,337 -
10,331 8,900
US$ '000
Litigation costs Onerous contracts Employee benefits Warranty Contingent
consideration for
business
combinations
Balance at 1 July 2007 1,706 6,629 565 - -
Additional provisions 428 103 2,681 1,972 2,272
recognized
Reduction arising from - (4,525) (565) - -
payments
Balance at 30 June, 2008 2,134 2,207 2,681 1,972 2,272
(i) The provision for litigation costs represents management*s best estimates for the outflow of economic benefits that are
probable due to legal proceedings.
(ii) The provision for onerous contracts represents managements best estimates for future outflow of economic benefits that will
be required to complete contracts liabilities by the company
(iii) Employee benefits represent management's best estimate for future benefits, consisting of bonus payments.
(iv) Warranty represents management's best estimate for future outflow of economic benefits due to the company's commitment for
warranties on contracts.
(v) The provision for Contingent consideration for business combinations represents management's best estimate for future payments
to sellers of acquired business which is contingent upon those subsidiaries' performance.
21. Revenue and expenses
Revenue
An analysis of the Group's revenue for the year is as follows:
Year ended 30 June
US$ '000 2008 2007
Continuing operations
Construction contract revenue (*) 816,081 444,208
(*) includes also revenue from service contracts relating to construction contracts.
Other income and expenses
For the year ended 30 June
US$ '000 2008 2007
Other Operating Income
Gain on disposal of property, plant and 8 36
equipment
Gain on the sale of subsidiaries 1,914 -
Refunds from insurance company 1,235
Other 41 -
3,198 36
Other operating expenses
Loss on disposal of subsidiary 1,555 -
Research and development expenses 223 15
Loss on disposal of fixed assets 17 -
1,795 15
Depreciation, amortisation, staff costs and costs of sales included in consolidated income statement
Included in cost of sales and administrative expenses:
Depreciation of property, plant and equipment 4,475 2,612
Amortisation of intangibles 10,625 1,454
Impairment of goodwill (see note 7) 19,387 -
Auditors remuneration
Audit services 1,388 575
Non-audit services 238 154
Changes in fair value of financial assets at 7,583 -
FVTPL
Cost of inventories included in cost 571,007 296,559
of sales
Employment costs (permanent and contractor 129,803 93,952
staff) (*)
The number of employees at 30 June 2008 was 2,001 (30 June 2007: 1,525).
The average number of employees for the year ended 30 June 2008 was 1,763 (30 June 2007: 1,256).
(*) Employment costs include pension cost, for the year ended 30 June 2008 US$ 5,502,000 (June 2007 - US$3,390,000).
22. Net finance costs / (income)
(i) Finance costs Year ended 30 June
US$ '000 2008 2007
Interest on bank overdrafts and loans 3,800 1,637
Other interest expense 368 -
Total interest expense 4,168 1,637
Loss arising on derivatives held for trading that are not 1,515 289
designated in hedge accounting relationship
foreign currency exchange losses 6,169 -
7,684 289
Other finance costs - -
11,852 1,926
(ii) Finance Income Year ended 30 June
US$ '000 2008 2007
Interest income 3,633 6,400
Foreign currency exchange gains 7,123 949
Gains on held for trading derivatives held for trading 7,583 -
that are not designated in hedge accounting relationships
18,339 7,349
23. Income tax
Year ended 30 June
US$ '000 2008 2007
Current benefit / (expense) income tax
Current year (8,807) (3,351)
Adjustments in respect of current (1,510) (358)
income tax of previous periods
(10,317) (3,709)
Deferred income tax
Current year (7,884) 283
Adjustments in respect of deferred income tax of previous - 3,348
periods
(7,884) 3,631
Tax charge (2,433) (78)
The tax on the Group's profit before tax differs from the theoretical amount that would arise using the weighted average tax rate
applicable to profits of the consolidated companies as follows:
For the year ended 30 June
US$ '000 2008 2007
Result before tax (63,197) 20,881
Tax calculated at domestic rates (13,534) 3,439
applicable to profits in the
respective countries
Secondary tax on companies:
Adjustments to prior year income tax (74) (3,047)
charge
Expenses not deductible for tax 1,877 575
purposes
Adjustments to domestic tax for (29) (1,766)
inflation and other local tax rules
Withholding taxes in foreign countries 3,660 681
Utilisation of previously unrecognised - (1,293)
tax losses
Taxable losses for which no deferred tax asset 10,533 1,489
was recognised
Tax charge 2,433 78
The weighted average applicable tax rate was -3.8 per cent (30 June 2007: 0.4 percent). The tax expenses in the current year, in spite
of losses before tax, arose from subsidiaries which had taxable profits in different tax jurisdictions.
24. Notes to the consolidated cash flow statement
For the year ended 30 June
US$ '000 2008 2007
24.1 Non-cash adjustments
Depreciation of property, 4,475 2,612
plant and equipment
Amortisation of intangibles 10,625 1,454
Impairment of goodwill 19,387 -
Loss / (Surplus) on disposal of 9 (36)
property, plant and
equipment
Loss / (Surplus) on disposal of 1,135 -
Subsidiary
Share in loss / (profit) of associates 160 -
Foreign currency adjustments to non-current 1,574 (214)
assets and
Liabilities
Share-based payment 393 221
expenses
Mark to market derivative assets (7,266) (38)
Provisions and accruals raised 2,906 6,116
and utilised during the year
33,398 10,115
24.2 Changes in operating assets
Construction contracts in (10,884) (39,136)
progress
Trade and other receivables (54,820) 521
(65,704) (38,615)
24. Notes to the consolidated cash flow statement (continued)
For the year ended 30 June
US$ '000 2008 2007
24.3 Changes in operating liabilities
Construction contract liabilities (3,902) 15,428
Trade, other payables and accruals 79,965 43,326
76,063 58,754
24.4 Income tax paid
Payable at beginning of the year (2,409) (2,022)
Current taxation (10,317) (3,709)
Acquisition of subsidiary (482) -
Other - 90
Payable at the end of the year (*) 7,536 2,409
(5,672) (3,232)
24.5 Net cash and cash equivalents
For the purposes of the consolidated
cash flow statement, cash and cash
equivalents comprise the following
at 30 June:
Cash at bank and in hand 11,954 24,584
Short-term deposits 76,454 105,240
88,408 129,824
(*) Relates to the net of the income tax payable and receivables
25. Business combinations
25.1 Delta-T
On 22 August 2007 Bateman Litwin completed the acquisition of 100 per cent of Delta-T, a US-based bioethanol technology provider, with a
fast growing EPC division for a total consideration of US$ 45 million in cash and 11.8 million new ordinary shares in Bateman Litwin N.V. in
addition US$ 1.2 million of expenses were incurred during the acquisition process.
Delta-T is based in Williamsburg, Virginia. It is a design-build firm that provides proprietary technology, plants, systems, and
services to the fuel, beverage, industrial and pharmaceutical alcohol markets. Delta-T has provided alcohol production, dehydration and
purification/refining solutions to more than 120 clients worldwide on five continents.
The 11.8 million shares were conditional upon Delta-T's financial performance during 2007. Subsequently, Bateman Litwin now anticipates
the return of the 11.8 million shares, in line with the agreed formula in the sale and purchase agreement. (See claims - note 31). At the
date of acquisition the fair value of the shares was approximately US$71.6 million.
Delta-T contributed US$278.3 million to revenue and a loss of US$16.1 million to the Group's loss before tax for the period between the
date of acquisition, 22 August 2007, and the balance sheet date.
US$'000 Book value Fair value adjustment Fair value on acquisition
Net assets acquired:
Technology - 75,801 75,801
Brand name - 7,370 7,370
Contractual rights - 7,100 7,100
Other intangible assets 344 987 1,331
Property, plant and equipment 2,591 - 2,591
Construction contracts in 30,373 - 30,373
progress
Trade and other receivables 69,607 - 69,607
Bank and cash balances 41,979 - 41,979
Trade and other payables (110,191) - (110,191)
Construction contract (119,522) 4,818 (114,704)
liabilities
Long-term loans (399) - (399)
Deferred tax liability - (1,927) (1,927)
Minority interest (1,137) - (1,137)
(86,355) 94,149 7,794
Goodwill 38,406
Total consideration, satisfied 46,200
by cash
Net cash outflow arising on
acquisition:
Cash consideration paid 46,200
Cash and cash equivalents (41,979)
acquired
4,221
Goodwill of approximately US$38.4 million was recognized as the cost of the combination included a control premium. In addition, the
consideration paid for the combination effectively included amounts for the benefit of expected synergies, revenue growth, future market
development and the assembled workforce of Delta-T. These benefits are not recognised separately from goodwill as the future economic
benefits arising from them cannot be reliably measured.
Due to the fact that Delta-T did not have financial statements at 30 June 2007, it is impractical to estimate the effect on revenue and
profits if the acquisition had been completed on 1 July 2007.
25.2 Litwin Romania
In February 2006 the Company acquired Litwin-RO Srl for an amount of EUR1.1 million. Litwin-RO Srl is a high efficiency, low-cost centre
employing 93 energy specialists in Romania. The acquisition was effective as of 15 March 2006. During the year ended 30 June 2007 the
Company paid an additional consideration of
US$591,000 as per the acquisition agreement for success fee.
25.3 Pan Emirates Engineering Limited ("PEL")
On 20 September 2006 the Company acquired 85 per cent of Pan Emirates Engineering Limited ("PEL"), a company registered in Abu Dhabi,
United Arab Emirates. The consideration was US$ 3 million, with an option to acquire the remaining 15 per cent within a period of 3 years.
On 28 June, 2007, the company acquired the remaining 15 per cent of PEL for consideration of US$ 600,000. PEL provides engineering and
manpower services to the oil & gas and related process industries and is a multi-discipline, full service engineering company with more than
200 employees.
During the year ended 30 June 2008 the Company paid an additional consideration of
US$189,000 as per the acquisition agreement for performance contingent payments.
US$ '000 Fair Value
Net assets acquired:
Property, plant and equipment 49
Trade and other receivables 1,402
Bank and cash balances 1,409
Trade and other payables (711)
Non-current provision (462)
1,687
Goodwill 1,913
Total consideration, satisfied by cash 3,600
Net cash outflow arising on acquisition:
Cash consideration paid 3,600
Cash and cash equivalents acquired (1,409)
2,191
The fair value of the assets and liabilities of PEL equals the book value as most of its balance sheet was composed of short-term assets
and liabilities.
Goodwill arose in the business combination because the cost of the combination included a control premium paid to acquire PEL. In
addition, the consideration paid for the combination effectively included amounts in relation to the benefit of expected synergies, revenue
growth, future market development and the assembled workforce of PEL. These benefits are not recognised separately from goodwill as the
future economic benefits arising from them cannot be reliably measured.
25.4 IDO Hutny project
On 26 February 2007 the Company acquired 100 per cent of IDO Hutny Project ("Hutny"), a company registered in Slovakia. The Company paid
US$3.5 million, with an additional contingent investment payable over the next three years, subject to Hutny's performance. Hutny is a
multi-discipline, full-service engineering company with a strong client base and significant presence in Eastern Europe. The company was
founded in 1951 and has more than 130 employees. Hutny's projects are concerned with the oil and gas industry and a range of other
industrial sectors.
During the year ended 30 June 2008 the Company paid an additional consideration of
US$922,000 and recorded an additional payable of US$1,867,000 as per the acquisition agreement for performance contingent payments.
US$ '000 Fair Value
Net assets acquired:
Property, plant and equipment 415
Intangible assets 51
Trade and other receivables 2,150
Construction contracts in progress 140
Bank and cash balances 2,139
Deferred taxation 208
Trade and other payables (2,388)
Construction contracts liabilities (1,625)
Non-current provision (70)
1,020
Goodwill 2,518
Total consideration, satisfied by cash 3,538
Net cash outflow arising on acquisition:
Cash consideration paid 3,538
Cash and cash equivalents acquired (2,139)
1,399
The fair value of the assets and liabilities of Hutny equals the book value as most of its balance sheet was composed of short-term
assets and liabilities.
Goodwill arose in the business combination because the cost of the combination included a control premium paid to acquire Hutny. In
addition, the consideration paid for the combination effectively included amounts in relation to the benefit of expected synergies, revenue
growth, future market development and the assembled workforce of Hutny. These benefits are not recognised separately from goodwill as the
future economic benefits arising from them cannot be reliably measured.
25.5 Services aux Projets
On 31 March 2007 the Company acquired 100 per cent of Services aux Projets ("Serpro"), a company registered in France. The consideration
was US$2.8 million. Serpro provides engineering and project management services to the oil & gas and related process industries and is a
multi-discipline, full service engineering company with about 100 employees.
US$ '000 Fair Value
Net assets acquired:
Property, plant and equipment 54
Intangible assets 12
Trade and other receivables 5,929
Bank and cash balances 28
Trade and other payables (5,313)
710
Goodwill 2,107
Total consideration, satisfied by cash 2,817
Net cash outflow arising on acquisition:
Cash consideration paid 2,817
Cash and cash equivalents acquired (28)
2,789
The fair value of the assets and liabilities of Serpro equals the book value as most of its balance sheet was composed of short-term
assets and liabilities.
Goodwill arose in the business combination because the cost of the combination included a control premium paid to acquire Serpro. In
addition, the consideration paid for the combination effectively included amounts in relation to the benefit of expected synergies, revenue
growth, future market development and the assembled workforce of Serpro. These benefits are not recognised separately from goodwill as the
future economic benefits arising from them cannot be reliably measured.
26. Disposal of subsidiary
(a) In September 2007, the Company sold all of its investment in Overseas International Constructors GmbH ("OIC") and North Caspian
Constructors B.V. ("NCC"), two joint ventures involved in the construction of the Main Works Construction of the Kashagan oil field in
Kazakhstan.
The net assets of the subsidiaries at the date of disposal were as follows:
US$ '000
Property, plant and equipment 108
Construction contracts in progress 5,489
Trade receivable 7,633
Bank balances and cash 1,862
Trade payable (11,965)
3,127
Gain on disposal 420
Total consideration 3,547
Cash consideration received 2,956
Deferred sales proceeds (*) 591
3,547
Net cash inflow arising on disposal:
Consideration received in cash and cash equivalents 2,956
Less: cash and cash equivalent balances disposed of (1,862)
1,094
(*) The deferred sales proceeds is pending resolution of tax settlement with the Kazakh tax authorities.
(b) In December 2007, the Company sold all of its investment in Batelitwin Global Services Ltd ("Batelitwin"), an engineering company in
Lagos, Nigeria. Batelitwin provides engineering services and conducts lump sum turnkey projects in the oil, gas and power industries.
The net assets of the subsidiary at the date of disposal were as follows:
US$ '000
Bank balances and cash 247
Trade receivable 2,956
Trade payables (8,758)
(5,555)
Loan from the Group to Batelitwin 5,140
415
Less provision for obsolescence (of the loan) (1,970)
Loss on disposal (1,555)
Total consideration -
(1,555)
Net cash inflow arising on disposal:
Consideration paid in cash and cash equivalents -
Less: cash and cash equivalent balances disposed of (247)
(247)
27. Earnings / (loss) per share
The calculation of the basic and diluted earnings per share attributable to the ordinary equity holders of the parent is based on the
following data:
Earnings / (loss)
For the year ended 30 June
US$ '000 2008 2007
Earnings / (loss) for the purposes of basic (66,355) 20,803
earnings per share
(profit / (loss) for the year attributable to
equity holders of the parent)
Number of shares
For the year ended 30 June
2008 2007
Weighted average number of ordinary shares for 103,175,840 85,942,460
the purpose of basic earnings per share
Effect of dilutive potential ordinary shares: 6,960,334 9,378,447
Share options
Weighted average number of ordinary shares for 110,136,174 95,320,907
the purposes of diluted earnings per share
Earnings / (loss) per share (US cents):
For the year ended 30 June
2008 2007
Basic (64.3) 24.2
Diluted (60.2) 21.8
28. Related party disclosures
The parent company of Bateman Litwin N.V. is Bateman B.V. which had a 55 percent ownership at 30 June 2008. The ultimate parent company
is Balda Foundation; a private company organized under the law of Liechtenstein, whose registered office address is at 6 Heilig Kreuz 9490,
Vaduz, Liechtenstein.
The various transactions between subsidiaries of the Company have been eliminated on consolidation and are not disclosed in this note.
These transactions include the sale of services and the provision of loans between various company entities.
28.1 Shareholder related party transactions
The Company's principal shareholder signed an indemnification agreement with Litwin SA, regarding an open claim with a client (refer to
note 31).
Brand name - As discussed in note 7, the Company entered into an agreement with its parent company for the purchase of the right to use
the Bateman brand name.
28.2 Key management compensation
For the year ended 30 June
US$ '000 2008 2007
Salaries and other benefits 2,868 1,600
Directors termination agreement expenses 1,600 -
Pension payments 156 24
Share based payments 210 47
Total 4,834 1,671
Key management is the Executive Board of Directors.
28.3 Principle subsidiaries
The principle operating subsidiaries as at 30 June 2008 are listed below:
Country of Issued share Percentage
Name incorporation capital held
Directly held
Bateman Projects Execution Netherlands EUR 22 500 100.00%
B.V.
Bateman Oil & Gas Luxembourg Luxembourg EUR 12 500 100.00%
SARL
Litwin Europe & Middle East Netherlands EUR 18 000 100.00%
B.V.
Bateman Pipeline Services Cyprus US$ 1 000 100.00%
Limited
Bateman Engineering Limited Israel ILS 515 000 100.00%
Bateman Eurasia Oil & Gas Netherlands EUR 18 000 100.00%
Company B.V.
Bateman Energies B.V. Netherlands EUR 18 000 100.00%
Bateman Engineering USA US$ 3 155 000 100.00%
Incorporated
Bateman Biofuel Technology Netherlands EUR 18 000 100.00%
B.V.
Universal Environmental Safety Netherlands EUR 18 000 70.00%
and Services Technology B.V.
Bateman Spain SL Spain EUR 3 006 100.00%
Batman Litwin UK Ltd United Kingdom - 100.00%
Bateman Australia Pty Limited Australia - 100.00%
Indirectly held
Bateman Projects (1993) Israel ILS1 714 610 100.00%
Limited
Litwin France SA France EUR 3 000 000 100.00%
Litwin Italy SRL Italy EUR 10 000 100.00%
Litwin-RO SRL Romania RON 20 220 100.00%
Bateman Advanced Technologies Israel ILS 400,000 100.00%
Bateman Kazakhstan Oil & Gas Netherlands EUR 18 000 100.00%
Company B.V.
Bateman Eurasia GmbH Switzerland SFR 20,000 100.00%
Bateman Kazakhstan Limited Kazakhstan KZT 90,000 100.00%
Aventall International Inc. British Virgin US$ 5,000 100.00%
Islands
Bateman Technology Ltd British Virgin - 100.00%
Islands
UESS Technology Ltd British Virgin - 70.00%
Islands
Bateman Chile SA Chile US$ 6 000 100.00%
Bateman Energies Netherlands Netherlands EUR 18 000 100.00%
B.V.
Bateman Energies Luxemburg Luxemburg EUR 12 500 100.00%
SARL
Bateman Azerbaijan B.V. Netherlands EUR 18 000 100.00%
Pan Emirates Engineering United Arab Emirates AED 5 000 000 100.00%
Limited
Services aux Projects France EUR 160 000 100.00%
Litwin Morocco Morocco MAD 100 000 100.00%
Bateman Technology Luxemburg Luxemburg EUR 12 500 100.00%
SARL
IDO Hutny Project Slovakia SKK 5 499 196 100.00%
Litwin KSA Saudi Arabia SAR 500 000 90.00%
Delta-T Corporation USA US$ 1 000 100.00%
Pacesetter Management Group USA - 75.00%
Protech Global LLC USA US$ 110 543 75.00%
Delta-T Canada Corporation Canada - 100.00%
Delta-T Australia Corporation Australia - 100.00%
Delta-T Project Services Group USA US$ 1 000 51.00%
Joint Ventures
The Green Electricity Israel ILS 100 50.00%
L.B. Semi Conductors Israel ILS 1000 50.00%
Technologies
M.B.A. Waster Treatment Israel - 40.00%
Services
BCTOU Israel - 50.00%
Associates
Delta-T Europe Corporation Italy EUR 100 000 49.00%
29. Share-based payments
(a) Equity-settled share option scheme
The Company has a share option scheme for certain employees of the Group. Options are exercisable at a price equal to the calculated
fair market value the Company's shares on the date of grant. The vesting period is 4 years on a quarterly basis. If the options remain
unexercised after a period of 10 years from the date of grant, the options expire. Options are forfeited if the employee leaves the Group
before the options vest.
Details of the share options outstanding during the year are as follows:
For the year ended For the year ended
30 June 2008 30 June 2007
Number of share Weighted Number of share Weighted average exercise price
options average exercise options
price
US$ US$
Outstanding at the beginning 8,149,437 0.309 11,080,000 0.290
of the year
Granted during the year - - - -
Forfeited during the year - -
Exercised during the year (2,751,483) 0.237 (2,930,563) 0.237
Expired during the year - - - -
Outstanding at the end of the 5,397,954 0.344 8,149,437 0.309
year
Exercisable at the end of the 5,202,954 5,074,437
year
During the year ended 30 June, 2008 options were exercised at an exercise price range of US$0.225 to US$0.714.
The options outstanding at the end of the period have a weighted average remaining contractual life of 6.1 years (2007: 7.1 years). In
the current period, no options were granted (in 2007 no options were granted).
(b) Long Term Incentive Plan
On 28 March, 2008 the Company distributed 1,244,599 shares to certain senior employees of the Group, as a long term incentive plan
("LTIP"). The awards were structured as conditional free shares. Half of the awards are subject to the achievement of performance criteria
based on earnings per share ("EPS") and half of the awards are subject to a total shareholder return ("TSR") requirement. The company's TSR
performance is compared to the TSR performance of the companies constituting the FTSE Small Cap (excluding investment trusts) as at the
start of the performance period, which is three years from 1 January 2008 to 31 December 2010.
The fair market value of the shares on 28 March 2008 was calculated and will be expensed over the three year period. The fair value was
determined using the stochastic model which is calculated using the following variables:
* Exercise price (zero)
* Share price at grant (165.75 pence)
* Expected terms (3 years)
* Expected volatility (no impact)
* Expected dividend yield (zero)
* Risk free interest rate (no impact)
The weighted average fair value of each share at the date of grant was US$ 2.61.
(c) The company recognised during the year ended 30 June 2008 total expenses of US$393,000 (June 2007 US$ 221,000) related to
share-based payment transactions (both options and LTIP).
30. Commitments not appearing in the balance sheet
Guarantees
The Group has signed guarantees in favour of various financial institutions to support the banking facilities provided to various
companies within the Company. The total of these guarantees at year-end amounted to US$373,478,000 (30 June 2007: US$ 140,308,000).
Due to the nature of the Group's business, various financial institutions provide customers with certain types of guarantees and bonds.
These financial institutions have recourse to the Group.
The company has provided several guarantees to its subsidiary in order to secure the subsidiary bonding arrangement for projects in
process.
31. Contingencies
Claims
Mantova claim - Litwin France SA ("Litwin") and Bateman B.V. are involved in legal claims against Stolt, the former owner of Litwin,
concerning a claim with an Italian client. The parties agreed to arbitration which concluded in favour of Stolt due to technical reasons. An
indemnification agreement was signed by Litwin and Bateman B.V., indemnifying Litwin from this litigation.
Microswiss Claim - Bateman Engineering Ltd ("BELI") is involved in legal proceedings with a technology company regarding a fire event in
a clean room designed by BELI. As the litigation is at an initial stage, it is difficult to asset the outcome. The Company made a provision
in the amount of US$ 250,000 which is the excess amount of the insurance policy owned by BELI.
Pursuant to a framework agreement between the Company and Bateman Engineering N.V.("BENV"), initiated before listing the Company, the
Company agreed to indemnify BENV (and vice versa) with regard to a dispute pending between a third party ("Third") and a BENV subsidiary
("Sub"), for any events which occurred prior to the date of separation. In 2002, the Sub was awarded a EUR 1.4 million contract. In 2005,
the Sub submitted a claim against Third for an unpaid amount of EUR1.3 million. In February 2006, Third submitted a counter claim against
each of the Sub and other parties for alleged defective work for EUR 10.5 million in aggregate. Under the terms of the contract, Sub's
liability is limited to the contract price of EUR 1.4 million. After the balance sheet date, the parties reached an agreement according to
which BENV will compensate Third in the amount of EUR1.2 million plus expenses of which the company's share is 50 percent. The full amount
was provided for in previous periods.
On 21 December 2007, Bateman Litwin initiated a civil action (the "Complaint") in the U.S. District Court for the Eastern District of
Virginia against Mr. R. L. Bibb Swain and Mr. Robert L. Swain ("the Swains"), from whom it purchased Delta-T.
Bateman Litwin asserted in the Complaint that the financial condition of Delta-T upon acquisition was materially different from that
represented by the Swains. The Group maintains that the Swains failed to make material disclosures as required under the contract and
provided inaccurate and misleading disclosures, and that this amounted to "willful misconduct" under the sale agreement. Bateman Litwin is
seeking reparations up to US$ 180 million.
On 13 February 2008, the Swains responded and filed a counter claim for at least US$75 million principally concerning defamation of
their reputation.
The Company cannot, at this stage, estimate the outcome of the legal dispute.
There are no other material pending legal proceedings known, other than ordinary routine litigation incidental to the Company's
business. The Company is of the opinion that these will not have a material adverse effect on its financial position and operational
results.
Other contingent liabilities
BELI, a fully owned subsidiary, is in discussion with the Israeli Investment Centre to finalize its tax assessments. The open issue
concerns the tax rates due to an "approved enterprise status" granted by the state of Israel. The company paid US$ 3.6 million during the
year ended 30 June 2008 out of which US$ 1.8 million was previously provided for. According to management's estimate based on the advice of
the Company's tax advisors, if the Israeli Investment Centre will approve the company's request then the tax authorities will refund US$2
million to the Company (this contingent benefit was not recorded in the company's accounts).
The Company has indemnified Bateman Engineering N.V. ( a former sister company) in connection with any potential Dutch tax liability
resulting in the period from February 2002 (incorporation) up to 30th June 2005, during which the Dutch companies were part of a tax unity.
Bateman Engineering N.V. has provided the Company with an identical indemnification.
Bateman Eurasia Oil & Gas Company B.V. a fully owned subsidiary, committed to reimburse Kolga Trading B.V. (a former shareholder partner
of Bateman Eurasia) an amount of US$ 700,000 should the Company be awarded a designated project currently under negotiation.
Bateman Eurasia GMBH ("BEG"), a subsidiary in Switzerland, received a demand from the Swiss tax authorities to pay US$2 million on
dividends distributed to its parent company in the Netherlands; the demand was received after the balance sheet date. BEG will appeal
against this demand.
All the Group's Dutch fully owned (100 per cent) subsidiaries are reporting together under a fiscal tax unity to the Dutch tax
authorities. The Company is liable for the tax liability for all those Group subsidiaries.
32. Events after the balance sheet date
No significant events have occurred subsequent to the balance sheet date that requires any adjustments to the financial results of the
Group.
33. Exchange rates
The exchange rates used in converting the financial information from their source currencies to the presentation currency in terms of
note 3 (j) are as follows;
2008 2008 2007 2007
Year end Year Year end Year
Currency rate average rate rate average rate
EUR to US$ 1.58 1.48 1.35 1.31
GBP to US$ 1.99 2.01 2.00 1.94
NIS to US$ 0.30 0.26 0.24 0.24
This information is provided by RNS
The company news service from the London Stock Exchange
END
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