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Annual Report 2010ACN 122 958 178

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corporate directory

EMERSON STEWART GROUP LIMITED Annual Report 2010

Directors

Steven Cole

non-executive independent chairman

Dario Amara

group ceo/managing director

James Cullen

non-executive director

David Richardson


Vince Salsano

company secretary

Registered Office

Old Swan Brewery

Level 1 171-173 Mounts Bay Road

PERTH WA 6000

Telephone: (08) 9424 9555

Facsimile: (08) 9485 1339

Website

www.emersonstewart.com

[email protected]

Auditors

KPMG

235 St Georges Tce

PERTH WA 6000

Telephone: (08) 9263 7171

Facsimile: (08) 9263 7129

Share Registry

Security Transfer Registrars Pty Ltd

770 Canning Highway

APPLECROSS WA 6153

Telephone: (08) 9315 2333

Facsimile: (08) 9315 2233

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EMERSON STEWART GROUP LIMITED Annual Report 2010 1

contents

Company Overview 2

Operational Overview 5

Directors’ Report 8

Auditor’s Independence Declaration 28

Directors’ Declaration 29

Consolidated Statement of Comprehensive Income 30

Consolidated Statement of Financial Position 31

Consolidated Statement of Changes in Equity 32

Consolidated Cash Flow Statement 33

Notes to the Financial Statements 34

Independent Auditors Report 69

Additional Information 71

Corporate Information 72

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2 EMERSON STEWART GROUP LIMITED Annual Report 2010

Emerson Stewart Group Limited through its wholly owned subsidiaries provides: environmental,

surveying, mapping, town planning, engineering, project delivery and specialist consulting

services to a substantial client base across the property, resources, infrastructure and energy

sectors. The Group has 6 offices located at strategic locations within Western Australia and engages

approximately 170 people in the provision of its services.

highlights

Strategy

created utilities + environment business line in September 2009•

reinvigorated the mining + industry capability adapting to the changed market conditions•

continued to build the urban development capability, a business with a dependable and •

recurring revenue stream

acquisition of Whelans (WA) Pty Ltd in February 2010, strong performance record and long •

history, with repeat clients and strong brand

continuing to invest in the development of robust systems to enable growth•

invested in laser scanning technology with purchase of Leica Scan Station C10•

People

strengthening the leadership team by strategic appointment of GM’s to head utilities + •

environment, mining + industry and property + urban development business lines

created employee share plan to assist in aligning group goals with remuneration•

key executives on multiyear executive service agreements•

approximately 170 people across 6 strategically located offices, with retention of all Whelans •

people

company overview

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company overview

Dear Shareholder,

We present the Annual report for the Emerson Stewart Group Limited for 2010, a year which has

been both challenging and transformational for the business.

Notwithstanding all the positive developments during

the year which include:

a recovering order book•

strengthening executive team and business; and•

corporate development initiatives (culminating in the successful Whelans (WA) Pty Ltd •

acquisition and integration),

the Group was affected by delayed GFC impacts and a continuing uncertain global outlook

including client project deferrals and an extremely competitive/price sensitive marketplace,

resulting in revenue constraints and downward pressure on margins.

The resulting net loss of $1.7m, included pre-tax non recurrent expenses associated with M&A

activities ($0.58m) and the previously reported Windiumurra Vanadium Limited remaining bad

debt write off ($0.24m). It also included pre-tax expense amortisation on Whelans “customer

relationship” acquisition of $0.04m ($0.59m over 5 years) as well as linking future management

remuneration to business performance, through share based remuneration expenses ($0.37m).

Despite this outcome for the last financial year, we take heart for the future with early but strong

signs of turnaround now becoming evident which we believe underpins shareholder value for the

future.

With the executive and staff currently owning in excess of 52% of the company, a strong alignment

exists with bottom line performance.

Significantly the Whelans business, which joined the Group in March, has exceeded performance

expectations, and July and August 2010 have shown a strong improvement in activity levels and

profitability across the Group. The integration of Whelans has been successfully completed with

benefits beginning to be realised through cross selling and cost savings associated with sharing of

business support across a wider revenue base.

Our Karratha operations, strategically positioned to capitalise upon the growing resources and oil/

gas industries of the north west of WA as well as related infrastructure projects, continue to provide

extensive survey services to projects such as Pluto and Cape Preston, with outcomes also expected

soon on some major work packages associated with the Gorgon development.

“the business now has the

organisational architecture and attitude that

will give it the best chance to succeed”

Dario Amara Group CEO

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In the last year the Group has;

grown from 40 to 170 employees•

diversified its service offering from 3 to 6 business lines•

expanded the revenue base by a notional 140% on an annualised basis•

expanded geographic coverage to include Western Australian regional offices in growth centres•

increased its client base from around 40 to 240•

diversified revenue streams across more market segments•

The annual strategic planning and budgeting process projects a FY2011 revenue in the range of

$28m to $30m and EBIT in the range of $2m to 2.3m, with continuing strengthening performance

throughout FY2011. EBIT for FY2011 Q4 is projected to be approximately 11%.

The Group will continue to drive organic growth as well as seek expansion into broader national

Australian markets, especially Victoria and Queensland, either through leveraging from existing

clients’ east coast project opportunities, or through “infill” acquisitions or merger opportunities.

Through its subsidiaries, the Group offering now includes environmental, surveying, spatial

consulting, town planning, engineering, project delivery and specialist consulting services to a

substantial client base across all sectors. The Group now has 6 offices located at strategic locations

within Western Australia.

On behalf of the Board of directors and executive management, we would like to thank the team for

their efforts during a testing year and also to take the opportunity to thank all our shareholders for

their continued patience, faith and support in the ultimate success of their investment – we assure

you of our committed endeavours, and look forward to delivering you strong results and creating

real sustainable value for your investment over the coming period.

Yours sincerely,

Steven Cole Dario Amara

chairman group ceo

company overview

FY 2009 FY 2010 Forecast FY 2011

Mining59%

Mining29%

Mining37%

Oil & Gas0%

Oil & Gas4%

Power3%

Power6%

Property& Urban

Development41%

Property& Urban

Development67%

Property& Urban

Development46%

Water 1% Water 7%

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operational overview

health, safety + environment

Health, safety and environment responsibilities are part of our culture and therefore integral to the

way we do business. We aspire to zero harm to people and the environment.

tw3 – the way we work

The Groups’ tw3 comprises the procedures, policies and guidelines that embody everything

we do. tw3 reaches beyond a management system to incorporate health and safety, our project

management methods, business management, team recruitment and retainment, our ethics and

values that are part of the way we conduct and manage our business.

emerson stewart consulting

This year Emerson Stewart Consulting has built upon the restructuring

initiated last year which was aimed at diversifying the service offering around

three business lines, namely mining and industry, utilities and environment

and property and urban development.

The diversification has de-risked the business by reducing our reliance on the mining sector which

was the foundation service offering and most significant market serviced by Emerson Stewart

Consulting and the sector which was most affected by the global financial crisis. Needless to say

our commitment to mining clients is as strong as ever but now Emerson Stewart Consulting has the

ability to offer even more services courtesy of our capability in the other business lines, for example

in environmental approvals, water and power supply, camps, roads or rail design and project

delivery.

In the year ahead, we will focus on strengthening the mining and industry group to pre GFC levels,

consolidate growth in property and urban development and aggressively grow the utilities and

environment capability.

property + urban development

The property and urban development business has grown during the last financial year. This

increase in staff has been gradual and is partly reactive due to increased workload and partly

proactive to prepare ourselves for future growth. Our team has been managing the transition from

project planning and advice to our clients to project delivery of thriving new communities. We have

created a base to build our relationship with our key clients through this work and are now well

poised to deliver cutting edge engineering services to the market.

“As Emerson Stewart and Whelans already jointly share

some existing clients, we are now in a fortunate position

to offer an even greater service to those businesses –

all under the one roof.“

Marino Evangelisti – MD, Emerson Stewart Consulting

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The appointment of key people will enable the group to consolidate its position in the Western

Australian market. Initially, this will strengthen our senior staff capability in Perth and allow

opportunities to capitalise on Whelans strong presence in regional centres to grow our business into

these markets. As we consolidate in the dynamic Western Australian market we will capitalise on

interstate opportunities afforded by these senior staff through our existing key clients.

mining + industry

The group has been positioned to deliver an integrated project management and best practice

project controls service. This has seen an addition of a number of key personnel to the team.

This new approach has enabled the group to achieve the strategic goal of penetrating the oil and

gas sector. Emerson Stewart Consulting has set up an alliance framework with Accenture, a global

management technology services company to perform a corporate level project controls review of

the large LNG Ichthys Project for Inpex. This is seen as a significant first step in what is expected to

be a long term relationship with both Accenture and Inpex.

Moving forward in 2011 the mining and industry business is expected to build on the solid

foundations laid down during 2010. The group will benefit from its trusted adviser role with

current opportunities being negotiated both inside and outside Australia. The work with Inpex and

Accenture has already opened the door for further work in the oil and gas sector and the group is

well positioned to expand on this early success. To maintain this growth an international recruitment

drive is underway seeking to secure the best people from around the world to deliver our services to

the highest possible standard.

utilities + environment

Emerson Stewart Consulting launched the utilities and environment business in September 2009.

This group includes capabilities in power, water, environmental management, and master planning

and approvals.

In the first year, the utilities and environment business has consolidated a

client base of 10 clients across power, water and environmental services

sectors, of which 8 were new clients, not previously on the Emerson

Stewart Consulting books.

The water group is well recognised for its specialist expertise in water

quality, water treatment and wastewater treatment, with major projects

developing in desalination, sewer mining and MBR (Membrane

Bioreactor) reuse plants. We are currently developing a 10 Ml/day

desalination plant in Collie.

The group is also conducting significant works for the property and

urban development business across several projects in Western

Australia, including monitoring and sampling programs, environmental

management plans, water modelling, planning and approvals

capabilities. This is the fastest growing group, with opportunities

emanating from urban development and the resources sectors.

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whelans

During the year, Whelans managed to exceed its budgeted financial

expectations despite the difficult market conditions. The Perth property

market continued to experience the impact of the GFC and difficulty sourcing development finance.

The resources sector provided work opportunities particularly through our Karratha presence.

As far as the year ahead, we can see some positive benefits:

the synergies between Whelans and Emerson Stewart Consulting and the business opportunities •

that we can now collectively pursue.

major infrastructure projects in the Pilbara are set to ramp up their survey requirements and all •

the signs point to a steady improvement in property development in Perth.

refocusing of our mapping business line and support services into a new business line “spatial •

consulting services” which will have far reaching benefits for the Group and compliment the

quality of the delivery of our product.

surveying

The Surveying business line which operates predominantly out of the Perth head office covers most

of Western Australia with regional offices in Karratha, Kalgoorlie, Broome and Kununurra and long

standing affiliations with companies in Geraldton, Bunbury, Busselton and Esperance.

The key success driver has been the performance of our Perth operations and our ability to support

our regional office network and in particular the Karratha operations so that we can take full

advantage of work opportunities on major infrastructure projects on the Burrup and at Cape Preston.

spatial consulting

2010 saw the mapping group re-shaped and refocused as a result of technological advances within

our industry. The discipline of aerial photogrammetric mapping has been on the cusp of automation

for some time with general acceptance from the customer base the final hurdle to traverse. Fully

automatic mapping and imagery solutions now dominate the market place and offer fast turn

around.

As a result of this automated sensor driven market, Whelans has diversified the mapping group and

combined the skills of like professionals within our business to reposition our focus to the provision

of spatial consultancy services to all industry sectors.

town planning

In general town planning work has been steady with consistent flows from our commercial clients

and regions, particularly the Pilbara and Kimberley.

It is evident that we are heading into an under supply of land in the urban development market in

Perth, we expect that state to remain in a state of flux until the easing by the banks for development

finance, which may take another 12 to 18 months depending upon world money markets,

particularly Western Europe. This state of under supply is exacerbated by increasing government

charges, rising interest rates and infrastructure costs, and a slow planning approvals process.

“we will continue to focus on delivering long-term shareholder

value through the identification of new opportunities”

Brian Hill MD, Whelans

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directors’ report

The directors of Emerson Stewart Group Limited ABN 80 122 958 178 (the “Group” or “Emerson

Stewart”) submit the following report in respect of the Group’s consolidated entities (“Whelans” or

“Emerson Stewart Consulting”) for the financial year ended 30 June 2010.

The following persons were directors of the Group during the financial year until the date of this

report, unless otherwise stated:

Steven Cole LLB (Hons) FAICD

non-executive independent chairman

Steven Cole has over 36 years’ professional, corporate and business experience through senior legal

consultancy, as well as a range of executive management and non-executive appointments.

Steven’s extensive boardroom and board sub-committee experience includes ASX-listed, statutory,

proprietary and not-for-profit organisations covering the industrial, financial, educational,

professional services, health and resources sectors.

His current corporate appointments include:

Deputy Chairman of Reed Resources Limited•

Chairman of two private investment trust companies with over $20 million under management•

President of the Australian Institute of Company Directors (Western Australian division) and •

national based Director

Chairman of Brightwater Care Group Inc, a major charitable non-governmental organisation•

Chairman of Queen Elizabeth II Medical Centre Trust•

Dario Amara BEng (Distn) FIEAust CPEng Registered Builder

group ceo

Dario Amara is an engineer with extensive business experience gained over 31 years in the

Australian and international markets and across the resources and infrastructure sectors.

Prior to founding Emerson Stewart in 2005 and for over 16 years, he occupied senior executive roles

with major construction and engineering groups. Dario successfully led GRD Minproc as managing

director/chief executive and John Holland Asia as chief executive officer. Dario has a record of

achievement in establishing, growing and rejuvenating businesses and strategic leadership.

He is currently a non-executive director of Austal (ASX listed) and chairman of Heritage Perth. Dario

has also served as chairman of the West Australian Opera Company and the Art Gallery of Western

Australia and as a director of the Perth International Arts Festival

David Richardson MIE Aust

non executive director

David Richardson is a mechanical engineer with over 34 years experience in the mining and

resource sectors.

David started as a graduate engineer at Alcoa Pinjarra refinery and worked for Alcoa at Pinjarra and

on the design and construction of a new refinery at Wagerup.

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directors’ report

He was a co founder of the successful Toussaint and Richardson a company specialising in design

and execution of process plant projects in the mining and resource industry.

David has extensive involvement in project and design management at both a senior executive and

director level and has participated in joint venture committees and alliance boards as both director

and sponsor.

David served as an executive director of Worley Parsons after the sale of Toussaint and Richardson to

Worley in 2000 and established the Mining and Metals division of Worley prior to the public listing

in 2003.

Since 2003 he has pursued various projects and investments in the Agriculture and forestry

industries, and is currently Chairman of Solco Limited, an ASX listed renewable energy company.

James Cullen BCom CA FFin FAICD


James Cullen is a qualified Chartered Accountant with extensive commercial experience covering

several industries and countries.

James is currently Chief Executive Officer of Resource Equipment Ltd, an ASX-listed specialist

service provider to the mining and oil & gas industries. From 1994 to 2007, James was Managing

Director of PCH Group Ltd, an ASX-listed Australian company providing a range of industrial

services to numerous industry sectors, including Australia, Asia, the Arabian Gulf and Caspian Sea

regions, largely servicing construction and maintenance activity in the natural resources sector.

James was previously involved in the motion picture industry in Los Angeles, California in

management, financial and company director capacities. Prior to that, he worked for Price

Waterhouse (now PricewaterhouseCoopers) in Australia, New Zealand and the United States of

America, servicing a multitude of clients in numerous industries.

Vincent Salsano BCom CPA

chief financial officer/company secretary

Vincent Salsano is a qualified Certified Practicing Accountant with over 29 years experience both in

Public Practice and Commerce.

Vincent was in Public Practice for 7 years specialising in Taxation but also provided accounting,

financial and company secretarial services for a portfolio of clients.

Vincent also has 22 years executive experience as Financial Controller and Manager Finance and

Administration for companies within the information technology, contract engineering and global

mining industries.

Vincent has been with Whelans for over 11 years as Financial Controller and General Manager

before taking on the role as Group CFO and Co Company Secretary for Emerson Stewart Group

Limited.

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directors’ report

Principal activities

Emerson Stewart Group Limited through its wholly owned subsidiaries Emerson Stewart Pty Ltd and

Whelans (WA) Pty Ltd provides environmental, surveying, mapping, town planning, engineering,

project delivery and specialist consulting services to a substantial client base across the resources,

infrastructure and energy sectors. The Group has 6 offices located at strategic locations within

Western Australia and approximately 170 staff.

Review of operations

FY10 proved to be a challenging year for the Group. Despite a recovering order book, strengthening

executive team, and active business development initiatives, the Group was impacted by project

deferrals and an extremely competitive market resulting in downward pressure on margins as a

consequence of the GFC and uncertain global economic outlook.

However work being done to drive shareholder value for the future is now starting to have effect.

The integration of Whelans which joined the Group in March has been successfully completed

with benefits now and in the future to be realised through cross selling and savings associated with

sharing of business support across a wider revenue base. This is expected to continue for FY11 as

business synergies between the two main operating units continue to be realised.

Since the merger the Group has:

Grown from 40 to 170 employees•

Diversified service offerings from 3 to 6 business lines•

Expanded its revenue base by a notional 140% on an annualised basis,•

so as to become a more robust platform for the future.

The Group will continue to drive organic growth following the Whelans integration, as well as seek

expansion into broader national Australian markets either through leveraging from existing client

east coast project opportunities, or through “infill” acquisitions or merger opportunities.

Significant changes in state of affairs

On 28 February 2010, the Group acquired 100% of Whelans (WA) Pty Ltd a surveying, mapping and

town planning business with operations throughout Western Australia.

There were no other significant changes in the state of affairs of the Group other than that referred

to in the financial statements or notes thereto.

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directors’ report

corporate governance statement

Introduction

The Group is committed to implementing sound standards of corporate governance. In

determining what those standards should involve, the Group has had regard to the ASX Corporate

Governance Council’s Corporate Governance Principles and Recommendations 2nd Edition 2007

(“Recommendations”).

A copy of the Group’s Corporate Governance Charter (“Charter”) has been placed on the Group’s

website in the corporate governance section, www.emersonstewart.com.

principle 1 – lay solid foundations for management and oversight

Recommendation 1.1 – Establish and disclose the functions reserved to the board and those

delegated to senior executives.

The functions and responsibilities of the Board compared with those delegated to management are

reflective of the Recommendations.

Recommendation 1.2 – Disclose the process for evaluating the performance of senior executives.

The Nominations and Remuneration Committee is charged in the terms of the Charter with periodic

review of the job description and performance of the CEO according to agreed performance

parameters.

The Nominations and Remuneration Committee conducts an annual review of the performance of

the CEO and the senior executives reporting directly to him.

Outcomes arising from these evaluations included identifying skill improvement needs,

redescription of positions of employment, remuneration reviews and in some cases remedial action.

The Charter contains a section formally setting out the Group’s Board and Management

Performance Enhancement Policy.

Recommendation 1.3 – Provide the information in the guide to reporting on recommendations.

The Group is not aware of any departure from Recommendations 1.1 or 1.2. Performance evaluations

for senior executives have taken place in the reporting period in accordance with the process

disclosed.

principle 2 – structure the board to add value

Recommendation 2.1 – A majority of the Board should be independent directors.

The Board respects independence of thought and decision making as critical to effective

governance, and is satisfied that its Board composition meets these requirements.

The Group has accepted the definition of “independence” in the Recommendations in the above

analysis. The majority of the Board are independent directors.

From 1 July 2009 to 30 June 2010 the Board comprised:

3 non-executive independent directors (Steven Cole, David Richardson and Jamie Cullen);•

1 executive director (Dario Amara).•

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Recommendation 2.2 – The chairperson should be an independent director.

The Chairperson was an independent director.

Recommendation 2.3 –The roles of chairperson and chief executive officer should not be exercised

by the same individual.

The roles of the Chairperson and the Chief Executive Officer were not exercised by the same

individual.

Recommendation 2.4 – The Board should establish a nomination committee.

The Board did establish a combined Nomination and Remuneration Committee.

Recommendation 2.5 – Disclose the process for evaluating the performance of the Board, its

committees and individual directors.

The Nominations and Remuneration Committee is charged in the terms of the Charter with Board

and Board Committee membership, succession planning and performance evaluation, as well as

Board member induction, education and development.

The Group has adopted policies and procedures in the Charter concerning the evaluation and

development of its directors, executives and Board committee. Procedures include an induction

protocol and a performance management system for the Board and its directors. Each Board

committee also formally reports to the Board annually on its operations in the context of its remit.

The Group’s Board and Management Performance Enhancement Policy is also incorporated in the

Charter.

Recommendation 2.6 – Provide the information indicated in guide to reporting on principle 2.

Contained in the Directors’ Report section of this Annual Report are details of:

the skills, experience and expertise relevant to the position of director held by each Director •

in office at the date of this Annual Report;

the term of office held by each Director in office at the date of this Annual Report.•

The terms of office, and their status as executive/non executive/independent, for each director for

the year ending 30 June 2010 were as follows (with all directors noted as continuing as at 30 June

2010 still being in office at the date of this annual report):

Steven Cole non-executive/independent – 1 July 2009 to 30 June 2010 (cont)

David Richardson non executive/independent – 1 July 2009 to 30 June 2010 (cont)

Jamie Cullen non-executive/independent –

1 July 2009 to 30 June 2010 (cont)

Dario Amara executive – 1 July 2009 to 30 June 2010 (cont)

The Group’s Corporate Governance Charter empowers a director to take independent professional

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directors’ report

Members of the Board’s Nominations and Remuneration Committee, and their attendance at

meetings of that committee, were as follows (a total of 2 meetings were held):

Director Number of Mtgs Number of Mtgs

Eligible to Attend Attended

Steven Cole (Chairman) 2 2

David Richardson 2 1

Jamie Cullen 2 2

In accordance with the process for Board, Board Committee and director evaluation as described in

the Charter such an evaluation was undertaken during the fourth quarter of FY10.

The Group is not aware of any departure from the Recommendations under Principle 2.

principle 3 – promote ethical and responsible decision making

Recommendation 3.1: Establish a code of conduct and disclose the code or a summary as to:

3.1.1 the practices necessary to maintain confidence in the Group’s integrity;

3.1.2 the practices necessary to take into account legal obligations and reasonable expectations of

stakeholders;

3.1.3 the responsibility and accountability of individuals for reporting and investigating reports of

unethical practices.

The Group has established a formal code of conduct in the Charter to guide the Directors, the

CEO, the CFO (or equivalent) and other key executives with respect to the practices necessary

to maintain confidence in the Group’s integrity, the practices necessary to take into account

legal obligations and reasonable expectations of stakeholders, and the responsibility and

accountability of individuals for reporting and investigating reports of unethical practices.

Recommendation 3.2: Establish and disclose the policy concerning trading in Group securities by

directors, officers and employees.

The Group’s policy concerning trading in Group securities by Directors, officers and employees is set

out in the Charter which has been placed on the Group’s website.

Recommendation 3.3: Provide the information indicated in guide to reporting on principle 3.

The Group is not aware of any departures from Recommendations 3.1, 3.2 or 3.3.

Copies of the Group’s current Board Members Code of Conduct and Group Code of Conduct/Values

and the Group’s Share Trading Policy are publicly available on the Group’s website.

principle 4 – safeguard intergrity in financial reporting

Recommendation 4.1: The Board should establish an audit committee.

The Board has established a combined Audit and Risk Management Committee.

Recommendation 4.2: Structure the audit committee so that it consists of:

only non executive directors•

a majority of independent directors•

an independent Chairperson, who is not chairperson of the Board;•

at least three members.•

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The Group’s Audit and Risk Management Committee has 3 members all being non executive

directors (Jamie Cullen, Steven Cole and David Richardson), all of whom, including the Chairman

(Jamie Cullen who is not the Chairperson of the Board), also being independent.

Recommendation 4.3: The audit committee should have a formal charter.

The Group’s Audit and Risk Management Committee has a formal charter as set out in the Charter.


Members of the Audit and Risk Management Committee, and their attendance at meetings of that

Committee were as follows (a total of 2 meetings were held):

Director Number of Mtgs Number of Mtgs

Eligible to Attend Attended

Jamie Cullen 2 2

Steven Cole 2 2

David Richardson 2 1

The qualifications of the Directors on the Audit and Risk Management Committee appear in the

Directors’ Report section of this Annual Report.

The Group is not aware of any departures from the Recommendations under Principle 4.

The Group’s Audit and Risk Management Committee charter and information on procedures for the

selection and appointment of the external auditor, and for the rotation of external audit engagement

partners, are all set out in the Charter which is publicly available on the Group’s website.

principle 5 – make timely and balanced disclosure

Recommendation 5.1: Establish written policies designed to ensure compliance with ASX listing

rule disclosure requirements and to ensure accountability at a senior executive level for that

compliance and disclose those policies or a summary of them.

The Group has established written policies and procedures designed to ensure compliance with ASX

listing rule disclosure requirements and to ensure accountability at senior executive level for the

compliance.


The Group is not aware of any departure from Recommendations 5.1 or 5.2.

The Group’s current written policies and procedures on ASX Listing Rule disclosure requirements

are all set out under the heading “Release of Price Sensitive Information Policy” in the Charter

which is publicly available on the Group’s website.

principle 6 – respect the rights of shareholders

Recommendation 6.1: Design and disclose a communications policy for promoting effective

communication with shareholders and encouraging their participation at general meetings.

The Charter contains a section formally setting out the Group’s communications strategy with its

stakeholders including the effective use of electronic communications.

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directors’ report


Details of how the Group will communicate with its shareholders publicly is set out under the

heading “Communications with Stakeholders” which is publicly available on the Group’s website.

The Group is not aware of any departure from Recommendations 6.1 or 6.2.

principle 7 – recognise and manage risk

Recommendation 7.1: Companies should establish policies for the oversight and management of

material business risks and disclose a summary of those policies.

The Charter includes a formal policy on risk oversight and management. The Board also has

established the Audit and Risk Management Committee of the Board.

The Group has developed, implemented and reviewed a robust system for identifying, assessing,

monitoring and managing material risk throughout the organisation, including internal compliance

and control systems, and procedures based on AS/NZ ISO 31000.

Details of the Group’s policy on these matters is set out under the heading “Risk Management

Policy” in the Charter which is publicly available on the Group’s website.

Since its acquisition of Whelans (WA) Pty Ltd, the Group has been in the process of reviewing its risk

recognition, analysis and management based on AS/NZ ISO 31000, with a view to completion of that

exercise by 31 December 2010.

Recommendation 7.2: The Board to require management to design and implement the risk

management and internal control system to manage the Group’s material business risks,

and report to it on whether those risks are being managed effectively. Board to disclose that

management has reported to it as to the effectiveness of the Group’s management of its material

business risks.

An Audit and Risk Management Committee has been established as set out in the Charter with

preliminary responsibility for establishment and maintaining effective risk management and internal

control systems.

The Board, including through the Audit and Risk Management Committee has required

management to progress matters and report to it in the terms of this Recommendation.

Further, the Board discloses that management has reported to it as to the effectiveness of the Group’s

management of its material business risks.

Recommendation 7.3: Board to disclose whether it has received assurance from the CEO (or

equivalent) and the CFO (or equivalent) that the declaration provided in accordance with S.295A

of the Corporations Act is founded on a sound system of risk management and internal control and

that the system is operating effectively in all material respects in relation to financial reporting

risks.

The Group’s CEO and CFO (or equivalent) provided the Board assurance in compliance with this

Recommendation that the declaration provided in accordance with S.295A of the Corporations Act

was founded on a sound system of risk management and internal control, and that the system was

operating effectively in all material respects in relation to financial reporting risks.


The Group is not aware of any departure from Recommendations 7.1, 7.2 or 7.3.

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A summary of the Group’s policies on risk oversight and management of material business risks

is publicly available under the heading “Risk Management Policy” in the Charter on the Group’s

website.

principle 8 – remunerate fairly and responsibly

Recommendation 8.1: The Board should establish a remuneration committee.

The Board has established a combined Nomination and Remuneration Committee. Refer reporting

on Recommendation 2.6 above.

The remit and responsibilities of the Nominations and Remuneration Committee in respect of

remuneration are set out in the Charter.

Recommendation 8.2: Clearly distinguish the structure of non-executive directors’ remuneration

from that of executive directors and senior executives.

The structure of non-executive remuneration is clearly distinguishable from that of executive

directors and senior executives.

The Board’s policy for determining the nature and amount of remuneration for Board members and

senior executives of the economic entity was as follows:

Executives were to receive a base salary (based on factors such as skills, experience, value •

to the Group and length of service), superannuation and, as appropriate, performance

incentives, including by way of longer term share options and shorter term cash bonus

entitlements. The Nomination and Remuneration Committee (on reference from, and in

consultation with, the CEO) reviews executive packages from time to time by reference to

the economic entity’s performance, executive performance and comparable information from

industry standards.

The maximum remuneration of non executive directors is the subject of Shareholder •

resolution in accordance with the Group’s Constitution, the Corporations Act and the ASX

Listing rules, as applicable. The apportionment of non-executive director remuneration

within that maximum is made by the Board having regard to the inputs and value to the

Group of the respective contributions by each non executive director. The Board may also

award additional remuneration to non executive directors called upon to perform extra

services or make special exertions on behalf of the Group.

Greater details of the remuneration arrangements for Directors, Officers and senior •

executives are contained in the Remuneration Report comprised in the Directors’ Report

forming part of this Annual Report.

Recommendation 8.3: Provide the information indicated in guide to reporting on principle 8

Remuneration Committee (names of members and attendance at meetings)

Refer to the response to Recommendation 2.6 above concerning the Group’s Nomination and

Remuneration Committee.

Non Executive Director Retirement Benefits

Non-executive directors are entitled to statutory superannuation. There are no other schemes for

retirement benefits for non executive directors.

Departure from Recommendations

The Group is not aware of any departures from the recommendations in principle 8.

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Executive Summary of Compliance with Recommendations

Recommendation # Compliant Non-Compliant If not, why not?

1 3 - N/A

2 3 - N/A

3 3 - N/A

4 3 - N/A

5 3 - N/A

6 3 - N/A

7 3 - N/A

8 3 - N/A

New corporate governance recommendations on diversity

On 30 June 2010, the ASX Corporate Governance Council introduced a number of changes to

its recommendations including three new recommendations and other amendments relating to

diversity:

Establishing a Diversity Policy and disclosing that Policy;•

Disclosure of gender diversity objectives and progress; and•

Certain disclosures as to the proportion of women in the Group.•

The changes will apply to a listed entity’s first financial year commencing on after 1 January 2011.

The Group is committed to complying with the new recommendations and amendments and is at an

advanced stage of development of an appropriate compliant policy and objectives.

Directors’ meetings

The number of directors’ meetings and number of meetings attended by each of the directors of the

Group during the financial year are:

Director Board Meetings Audit & Risk Committee Remuneration &

Nomination Committee

A B A B A B

Dario Amara 8 8 2* 2 2* 2

Steven Cole 7 8 2 2 2 2

James Cullen 7 8 2 2 2 2

David Richardson 7 8 1 2 1 2

A – Number of Meetings attended B – Number of meetings held during the time the director held office during the year

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REMUNERATION REPORT – AUDITED

Director and Executive Disclosures

a) Details of specified directors and specified executives

Position Appointed on Resigned on

Directors

Dario Amara Executive Director/ 28 January 2008

Chief Executive Officer -

Steven Cole Non-Executive Director/Chairperson 31 March 2008 -

James Cullen Non-Executive Director 31 March 2008 -

David Richardson Non-Executive Director 31 March 2008 -

Executives/ Officers

John Morhall Business Line Director 1 July 2007 31 August 2009

Marino Evangelisti* Managing Director Emerson Stewart 2 January 2008

Consulting -

Vince Salsano Group Chief Financial Officer 28 February 2010 -

Rod Smith Chief Financial Officer 26 May 2008 28 February 2010

Brian Hill Managing Director Whelans 28 February 2010 -

Claire Ingham Manager Commercial & Risk Group 16 November 2009 -

*Marino Evangelisti is engaged as a contractor and his remuneration reflects contract rates.

b) Remuneration policy

Emerson Stewart has demanding expectations of its people, especially its executive leadership team.

Emerson Stewart aligns the performance outcomes of its executives with its own corporate outcomes

and as such remuneration will be based on merit, performance and responsibilities assigned and

undertaken.

The Group has established a nominations and remuneration committee, which is responsible for:

Assessing appropriate remuneration policies, levels and packages for Board Members, the •

CEO, and (in consultation with the CEO) other senior executive officers;

Monitoring the implementation by the Group of such remuneration policies; and•

Recommending the Group’s remuneration policy so as to:•

− motivate directors and management to pursue the long-term growth and success of the

Group within an appropriate control framework; and

− demonstrate a clear relationship between key executive performance and remuneration.

The Group has entered into executive services agreement (Executive Agreements) with the

executive Directors and senior managers of the Group.

The Group has entered into service contracts with Dario Amara, Marino Evangelisti, Brian Hill and

Vince Salsano that are capable of termination on six month’s notice. The Group retains the right to

terminate a contract immediately by making payment equal to six month’s pay in lieu of notice. The

key management personnel are also entitled to receive on termination of employment their statutory

entitlements of accrued annual and long service leave, together with any superannuation benefits.

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Executive service agreements for Dario Amara and Marino Evangelisti expire on 30 June 2011. The

executive service agreement for Brian Hill and Vince Salsano expire 24 February 2013.

Performance linked compensation

The Short Term Incentive Benefit (“STIB”) will be calculated as a percentage of a bonus pool,

capped at 40% of EBIT performance above targets set by the Board from time to time, and was

dependent on the Executive achieving various key performance indicators for their relevant

business line. The chief executive’s STIB will be calculated on a combination of each business line’s

performance and the Group’s performance as a whole. The STIB for each Executive is capped at

100% of their salary.

There were no short-term incentives payments made to executives for the year ended 30 June 2010.

Emerson Stewart bases its Long Term Incentive benefits on a combination of continued valued

service of the particular executive and overall corporate performance of the Group as a whole so as

to align each of the executive’s incentives with the total performance of the Group.

The long term incentive bonus will be payable in the form of Executive Options. A portion of the

options are subject to attainment of designated special key performance indicators at the scheduled

time of their vesting. These KPI’s involve comparing the Group’s Total Shareholder Return to the

ASX Small Industrial’s Index at 30 June 2011 and the three years leading up to that time, thereby

aligning the Group performance with that of the executive.

As part of key management Executive Services Agreements, Vincent Salsano and Brian Hill have

been granted shares, which vest at varying periods. Marino Evangelisti was also granted shares

vesting at varying periods for recognised efforts to date and under the provision of continuing

satisfactory service. Refer to Section (g) of this Remuneration Report.

Consequences of performance on shareholders wealth

In considering the Group’s performance and benefits for shareholders wealth, the remuneration

committee have regard to the following indices in respect of the current financial year.

2010 2009

Net (loss)/profit attributable to equity holders of the parent ($000’s) (1,706) 878

Dividends paid (cents per share) 0.4 -

Change in share price 0.01 (0.14)

Return on capital employed (15.4%) 7.3%

As the Group listed on 25 June 2008, only two years performance has been disclosed. These indicies

will continue to be monitored for future years and the growth of key management personnel’s

compensation will also be monitored compared to these indicies.

Non Executive Directors

Total compensation for all non-executive directors, last voted upon by shareholders at the General

Meeting held 31 March, 2008, is not to exceed $250,000 per annum and is set based on reference

to fees paid to other non-executive directors of comparable companies. Directors’ base fees are

presently up to $190,000 per annum.

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c) Remuneration of directors and specified executives

Directors Short Share Value of Term Other Post Based Proport- option Employee Benefits Employment Payments ion of as Benefits Non- Benefits A. rem. proport- Cash monetary Super- Options perform ion of salary benefits annuation & shares Total related rem %

Dario Amara FY10 363,796 - 32,742 44,950 441,488 5.1% 10.2%

FY09 297,018 - 26,731 44,950 368,699 5.8% 12.2%

Steven Cole FY10 64,220 - 5,780 - 70,000 - -

FY09 55,045 - 4,954 - 59,999 - -

James Cullen FY10 45,871 - 4,128 - 49,999 - -

FY09 36,697 - 3,303 - 40,000 - -

David FY10 45,871 - 4,128 - 49,999 - -Richardson FY09 36,697 - 3,303 - 40,000 - -

Total FY10 519,758 - 46,778 44,950 611,486 3.7% 7.4%

FY09 425,457 - 38,291 44,950 508,698 4.4% 8.8%

Specified Executives

Short Share Value of Term Other Post Based Proport- option Employee Benefits Employment Payments ion of as Benefits Non- Benefits A. rem. proport- Cash monetary Super- Options perform ion of salary benefits annuation & shares Total related rem %

John Morhall FY10 69,891 - 6,290 - 76,181 - -(resigned FY09 256,705 - 23,103 14,983 294,791 2.4% 5.1%31/8/09)

Marino FY10 327,932 - - 294,777 622,709 5.1% 47.3%Evangelisti FY09 324,100 - - 63,983 388,083 8.2% 16.5%

Rod Smith FY10 171,879 - 15,469 2,750 190,098 - 1.4%(resigned as FY09 169,725 - 15,275 2,750 187,750 - 1.5%CFO 28/02/10)

Brian Hill FY10 44,659 7,166 2,249 5,691 59,765 - 9.5%(commenced FY09 - - - - - - -28/02/10)

Vince Salsano FY10 49,294 2,460 4,436 4,765 60,955 - 7.8%(commenced FY09 - - - - - - -28/02/10)

Claire Ingham FY10 65,943 - 5,935 1,375 73,253 1.9%(commenced FY09 - - - - - - -16/11/09)

Total FY10 729,598 9,626 34,379 309,358 1,082,961 3.0% 28.6% FY09 750,530 - 38,378 81,716 870,624 4.5% 9.4%

Notes in relation to the table of directors and executive officers remuneration

A. The fair value of options is calculated at the date of grant using a binominal options-pricing and allocated to each reporting period evenly over the period from grant date to vesting date. The value disclosed is the portion of the fair value of the options recognised in this reporting period.

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d) Options issued, held and transacted by directors and specified executives

Options, other than those to the CEO, refer to options over ordinary shares of Emerson Stewart

Group Limited granted under the ESOP plan.

Options over ordinary shares in the Group that were granted as compensation to each key

management person during the reporting period and details on that vested during the reporting

period are as follows:

There were no options granted during the financial year.

1,000,000 options lapsed during the year due to the resignation of John Morhall on 31 August 2009.

No options have been granted since the end of financial year.

e) Analysis of movements in options

The movement during the reporting period, by value, of options over ordinary shares in the Group

held by each key management personnel is detailed below.

Value of Options

Granted in year Exercised in year Lapsed in year

$ $ $

John Morhall * - - 44,950

* The value of the options that lapsed during the year represents the benefit forgone and is calculated at the date the option lapsed using a binomial option-pricing model assuming the performance criteria had been achieved.

f) Analysis of options and rights over equity instruments granted as compensation

Details of vesting profiles of the options granted as remuneration to each key management person

are detailed below:

Financial

years in

% vested % forfeited which grant

Number Date in year in year (A) vests

Dario Amara 3,000,000 1/07/2008 - - 1 July 2010

John Morhall 1,000,000 1/07/2008 - 100% N/A

Marino Evangelisti 1,000,000 1/07/2008 - - 1 July 2010

Marino Evangelisti 3,000,000 1/07/2008 - - 1 July 2010

Brian Hill - - - - -

Vincent Salsano - - - - -

Claire Ingham 75,000 11/7/2008 - - 1 July 2007

Claire Ingham 75,000 11/7/2008 100% - 1 July 2009

(A) The % forfeited in the year is due to the resignation of John Morhall 31 August 2009.

No other options vested or lapsed during the financial year ended 30 June, 2010.

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g) Analysis of shares granted as compensation

Details of vesting profiles of the shares granted as remuneration to each key management person

are detailed below:

Financial

years in

% vested % forfeited which grant

Number Date in year in year (A) vests

Marino Evangelisti 1,173,684 11/9/2009 100% - 1/7/2009

500,000 11/9/2009 - - 1/7/2011

500,000 11/9/2009 - - 1/7/2012

Brian Hill 100,000 15/2/2010 - - 1/1/2011

130,000 15/2/2010 - - 1/1/2012

170,000 15/2/2010 - - 1/1/2013

Vincent Salsano 60,000 15/2/2010 - - 1/1/2011

80,000 15/2/2010 - - 1/1/2012

110,000 15/2/2010 - - 1/1/2013

h) Unissued shares under options

At the date of this report unissued ordinary shares of the Group under option are:

Expiry Date Exercise Price Number of shares

31 December 2011 $0.24 4,000,000

30 June 2013 $0.20 3,000,000

* $0.24 350,000

7,350,000

* Options only expire three months after employment service with Emerson Stewart is completed. Where employee stays with the Group, the options have infinite life.

i) Other information in respect to options

No terms of equity settled share based payments (including options granted as compensation to key

management personnel) have been altered or modified by the issuing entity during the reporting

period. No shares were issued during the year on the exercise of options granted as compensation.

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Dividends

Dividends paid or declared by the Group to members since the end of the previous financial year

were:

Declared and paid Cents Total amount Date of

during the year 2010 per share $’000 Franked payment

Final 2009 Ordinary 0.4 394 Franked 5 October 2009

Total amount 394

Franked dividends declared as paid during the year were franked at the rate of 30 per cent.

Events subsequent to reporting date

No matter of circumstance has arisen since 30 June 2010 and the date of this report that has

significantly affected, or may significantly affect:

a) the group’s operations in future financial years; or

b) the results of those operations in future financial years; or

c) the group’s state of affairs in future financial years.

Likely developments

The Group anticipates that the economic environment will begin to improve and that the level of

spending in the resources, energy and infrastructure sectors will increase in the coming year.

The integration of Whelans which joined the Group on 28 February 2010 has been successfully

completed with benefits now and in the future to be realised through cross selling and savings

associated with sharing of business support across a wider revenue base. This is expected to

continue as business synergies between the two main operating units continue to be realised.

The Group will continue to drive organic growth following the Whelans integration, as well as seek

expansion into broader national Australian markets, either through leveraging from existing client

east coast project opportunities, or through “infill” acquisitions or merger opportunities.

Further information about the likely developments in the operations of the Group and the expected

results of those operations in future financial years has not been included in this report because

disclosure of the information would be likely to result in unreasonable prejudice to the Group.

Directors’ interests

At the date of this report, the Directors have relevant interests in Securities of the Group as follows:

Number of Shares Number of Options

Steven Cole 5,915,996 * -

James Cullen 150,000 -

David Richardson 500,000 -

Dario Amara 36,450,000 3,000,000

No options over ordinary shares to date have been exercised.Unissued options held by directors amount to 3,000,000, exercisable at 24 cents with an expiry date of 31/12/2011. *includes 4,915,996 shares held by ESore Pty Ltd as trustee of the Emerson Stewart Employee Share Plan.

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Indemnification and insurance of officers

During the financial year the Group paid insurance premiums to insure the directors, secretaries and

executive officers of the Group and its subsidiary companies.

The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings

that may be brought against the directors and officers in their capacity as directors and officers of

Emerson Stewart Group Limited and its subsidiary companies, and any other payments arising

from liabilities incurred by the officers in connection with such proceedings, other than where such

liabilities arise out of conduct involving wilful breach of duty by the officers or the improper use by

the officers of their position or of information to gain advantage for themselves or someone else to

cause detriment to the Group.

The directors have not included details of the nature of the liabilities covered or the amount of

the premium paid in respect of the directors’ and officers’ liability and legal expenses’ insurance

contracts, as such disclosure is prohibited under the terms of the contract.

Non-audit services

During the year KPMG, the Group’s auditor, has performed certain other services in addition to their

statutory duties.

The board has considered the non – audit services provided during the year by the auditor and in

accordance with advice provided by the Audit and Risk Committee, are satisfied that the provision of

those non-audit services during the year by the auditor is compatible with, and did not compromise,

the auditor independence requirements of the Corporations Act 2001 for the following reasons:

All non-audit services were subject to the corporate governance procedures adopted by the Group

and have been reviewed by the audit committee to ensure they do not impact the integrity and

objectivity of the auditor; and the non-audit services provided do not undermine the general

principals relating to the auditor independence as set out in APES110 Code of Ethics for the

Professional Accountants, as they did not involve reviewing or auditing the auditors own work,

acting in a management or decision making capacity for the Group, acting as an advocate for the

Group or jointly sharing risks and rewards.

Details for the amounts paid to the auditor of the Group, KPMG, and its related practices for audit

and non-audit services to the Group provided during the year are set out below.

Proceedings on behalf of the Group

There are no proceedings on behalf of the Group under Section 237 of the Corporations Act 2001 in

the financial year or at the date of the report.

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Consolidated

2010 2009

$ $

Audit services:

Auditors of the Group

Audit and review of the financial reports (KPMG Australia) 81,580 27,000

Other auditors

Audit and review of the financial reports (PKF) - 10,000

Services other than audit services:

Other assurance services

Due diligence services (KPMG Australia) 7,500 -

89,080 37,000

Risk management

The Board has overall responsibility for the establishment and oversight of the risk management

framework. The Board has established the Audit and Risk Committee, which is responsible for

approving and monitoring risk management policies. The Committee reports regularly to the Board

on its activities.

The chief executive officer and the chief financial officer have provided assurance, in writing to the

board, that the financial reporting risk management and associated compliance and controls have

been assessed and found to be operating effectively. The operational and other risk management

compliance and controls have also been assessed and found to be operating effectively.

The Group has developed, implemented and reviewed a robust system for identifying, assessing,

monitoring and managing material risk throughout the organisation, including internal compliance

and control systems, and procedures based on AS/NZ4360. The Group has scheduled a review of its

risk management processes during FY 2011 following the completion of the Whelans integration.

The Committee also oversees how management monitors compliance with the Group’s risk

management policies and procedures and reviews the adequacy of the risk management framework

in relation to the risks faced by the Group.

A summary of the Group’s policies on risk oversight and management of material business risks

is publicly available under the heading “Risk Management Policy” in the Charter on the Group’s

website (www.emersonstewart.com).

Communication with shareholders

The board provides shareholders with information using a comprehensive Continuous Disclosure

Policy which includes identifying matters that may have a material effect on the price of the Group’s

securities, notifying them to the ASX, posting them on the Group’s website, and issuing media

releases. More details of the policy are available on the Group’s website.

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In summary, the Continuous Disclosure Policy operates as follows:

Information is communicated to shareholders through ASX announcements, the annual report, •

annual general meeting and half year and full year results announcements.

Shareholders are able to access information, including media releases, key policies and the •

terms of reference of the Board Committees through Emerson Stewart’s website. All relevant

ASX announcements will be posted on Emerson Stewart’s website as soon as they have been

released to ASX.

Emerson Stewart encourages participation of shareholders at its annual general meeting. The •

external auditor will attend the annual general meeting and be available to answer shareholder

questions about the conduct of the audit and the preparation and content of the auditor’s report.

Ethical standards

All directors, managers and employees are expected to act with the utmost integrity and objectivity,

striving at all times to enhance the reputation and performance of the Group. Every employee has a

nominated supervisor to whom they may refer any issues arising from their employment.

Conflict of Interest

Directors must keep the board advised, on an ongoing basis, of any interest that could potentially

conflict with those of the Group. The board has developed procedures to assist directors to disclose

potential conflicts of interest.

Where the board believes that a significant conflict exists for a director on a board matter, the

director concerned does not receive the relevant board papers and is not present at the meeting

whilst the item is considered. Details of director related entity transactions with the Group are set

out in Note 20 to the consolidated financial statements.

Code of Conduct

Emerson Stewart has developed a Code of conduct which states Emerson Stewart and its employees’

commitment to the conduct of its business with employees, customers, funders, retailers and other

external parties.

The Code is directed at maintaining high ethical standards and integrity. Employees are expected to

adhere to Emerson Stewart’s policies, perform their duties diligently, properly use Group resources,

protect confidential information and avoid conflicts of interest.

The Code sets out the reporting lines where there is a potential breach of the Code, Emerson

Stewart’s commitment to the Code and the consequences of breaching the Code. The Code is

acknowledged by all employees.

Trading in general Group securities by directors and employees

Emerson Stewart’s Guidelines for Dealing in Securities explain and reinforce the Corporations Act

2001 requirements relating to insider trading.

The Guidelines apply to all directors and employees of the Emerson Stewart group, and their

associates (“Relevant Persons”).

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The Guidelines expressly prohibit Relevant Persons buying or selling Emerson Stewart securities

where the Relevant person or Emerson Stewart is in possession of price sensitive or ‘inside’

information and in any event without the prior approval of the Chairman or CEO.

Environmental regulation and performance

In the majority of Emerson Stewart’s business situations, Emerson Stewart is not the owner or

operator of plant and equipment requiring environmental licences. Emerson Stewart typically

assists its clients with the management of their environmental responsibilities, rather than holding

those responsibilities directly.

The Group is not aware of any breaches by Emerson Stewart of any environmental regulations

under the laws of the Commonwealth of Australia, or of a State or Territory.

Rounding off

The Group is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance

with that class order, amounts in the consolidated financial report and directors’ report have been

rounded off to the nearest thousand dollars, unless otherwise stated.

Lead auditor’s independence declaration

The lead auditor’s independence declaration is set out on page 28.

This report is made with a resolution of the directors:

Steven Cole

Chairman

Perth, 30 September 2010

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auditor’s independence declaration

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directors’ declaration

In the opinion of the directors of Emerson Stewart Group Limited (the Group):

1. (a) the financial statements and notes that are contained in pages 30 to 68, and the remuneration report in the directors’ report, set out on pages 18 to 22 are in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of the Group’s financial position as at 30 June 2010 and of its performance for the financial year ended on that date; and

(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and

(b) there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable.

2. There are reasonable grounds to believe that the Parent and its group entities identified in Note 24 will be able to meet any obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee between the Group and those entities pursuant to ASIC Class order 98/1418.

3. The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the chief executive officer and chief financial officer for the financial year ended 30 June 2010.

4. The directors draw attention to Note 2(a) to the financial statements, which includes a statement of compliance with International Financial Reporting Standards.

Signed in accordance with a resolution of the directors.

Steven Cole

ChairmanPerth, 30 September 2010

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consolidated statement of comprehensive incomefor the year ended 30 june 2010

Note 2010 2009

$000’s $000’s

Consulting revenue 6 12,806 12,900

Cost of sales (8,737) (7,607)

Gross profit 4,069 5,293

Marketing expenses (123) (122)

Occupancy expenses (887) (142)

Administration expenses (5,387) (4,322)

Results from operating activities (2,328) 707

Financial income 223 582

Finance costs (92) (5)

Net finance income/(costs) 131 577

Profit/(loss) before income tax (2,197) 1,284

Income tax benefit/ (expense) 8 491 (406)

Net Profit/(loss) after tax (1,706) 878

Other comprehensive income for the period, net of income tax - -

Total comprehensive income/(loss) for the period (1,706) 878

Earnings per share

Basic earnings per share (cents per share) 23 (1.598) 0.710

Diluted earnings per share (cents per share) 23 (1.598) 0.710

Potential ordinary shares are not considered dilutive, therefore diluted earnings per share are the

same as basic earnings per share.

The accompanying notes form part of these consolidated financial statements.

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consolidated statement of financial positionas at 30 june 2010

Note 2010 2009

$000’s $000’s

Current assets

Cash and cash equivalents 9 1,775 9,284

Trade and other receivables 10 6,178 1,692

Work in progress 1,378 1,604

Other current assets 658 215

Current tax receivables 126 -

Total current assets 10,115 12,795

Non current assets

Plant and equipment 11 4,132 152

Other non current assets 178 -

Deferred tax assets 14 866 -

Intangible assets 12 3,599 414

Total non current assets 8,775 566

Total assets 18,890 13,361

Current liabilities

Trade and other payables 13 2,037 1,009

Current tax liabilities - 47

Loans and borrowings 15 2,093 -

Employee benefits 16 1,575 111

Total current liabilities 5,705 1,167

Non current liabilities

Loans and borrowings 15 1,891 -

Deferred tax liability 14 - 129

Employee benefits 16 220 20

Total non current liabilities 2,111 149

Total liabilities 7,816 1,316

Net assets 11,074 12,045

Equity

Share capital 17 12,142 10,857

Reserves 17 (146) 148

Retained earnings/ (Accumulated losses) (922) 1,040

Total equity 11,074 12,045

The accompanying notes form an integral part of these consolidated financial statements.

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consolidated statement of changes in equity

Attributable to equity holders of the Group

Share Based Share Retained Payment Reserve for Total Capital Earnings Reserves Own Shares Equity

$000’s $000’s $000’s $000’s $000’s

Balance at 1 July 2009 10,857 1,040 148 - 12,045

Total comprehensive income for the period

Profit/(loss) - (1,706) - - (1,706)

Total comprehensive income - (1,706) - - (1,706)for the period

Transactions with owners, recorded directly in equity

Contributions by and distributions to owners

Cost of share buy back (38) - - - (38)

Dividend declared - (369) - - (369)

Share based payment transactions - - 405 - 405

Share buy back (1,757) - - - (1,757)

Shares issued under Employee Share Plan - 113 (113) - -

Treasury shares - - - (585) (585)

Shares issued on acquisition 3,081 - - - 3,081of Whelans

Total contributions by and 1,286 (256) 292 (585) 737distributions to owners

Total transactions with owners 1,286 (256) 292 (585) 737

Balance at 30 June 2010 12,142 (922) 440 (585) 11,075

Balance at 1 July 2008 10,865 162 - - 11,027

Total comprehensive income for the period

Profit/(loss) - 878 - - 878

Total comprehensive income - 878 - - 878for the period

Transactions with owners, recorded directly in equity

Contributions by and distributions to owners

Costs of capital raising (8) - - - (8)Share based payment transactions - - 148 - 148

Total contributions by and (8) - 148 - 140distributions to owners

Balance at 30 June 2009 10,857 1,040 148 - 12,045


for the year ended 30 june 2010

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consolidated cash flow statement

Note 2010 2009

$000’s $000’s

Cash flow from operating activities

Receipts from customers 14,837 12,212

Payments to suppliers and employees (16,619) (13,127)

Income Tax Paid (205) (366)

Interest received 421 380

Net cash used in operating activities 19 (1,566) (901)

Cash flows from investing activities

Purchase of Intangibles 12 (204) (406)

Purchase of property, plant and equipment 11 (959) (125)

Payment for acquisition 27 (4,704) -

Net cash used in investing activities (5,867) (531)

Cash flow from financing activities

Cost of share buy-back (52) -

Share buy-back (2,343) -

Cost of capital raising - (8)

Repayment of borrowings (336) -

Proceeds from borrowings 2,203 -

Dividends paid (364) -

Interest Paid (48) (5)

Net cash used in financing activities (940) (13)

Net increase/(decrease) in cash held (8,373) (1,445)

Cash at beginning of year 9,284 10,729

Cash balance acquired from acquisition 27 864 -

Cash at end of year 9 1,775 9,284


for the year ended 30 june 2010

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Note 1: Reporting entity

Emerson Stewart Group Limited (the “Group”) is a company domiciled in Australia. The address

of the Group’s registered office is 110/171-173 Mounts Bay Road, Perth, Western Australia. The

consolidated financial statements as at and for the year ended 30 June 2010 comprises the Group

and its subsidiaries (together referred to as the “Group” and individually as “Group entities”).

The Group primarily is involved in advisory, project implementation and development services.

Note 2: Basis of preparation

(a) Statement of compliance

The consolidated financial statements are general purpose financial statements which have

been prepared in accordance with Australian Accounting Standards (AASBs) (including

Australian Interpretations) adopted by the Australian Accounting Standards Board (AASB) and

the Corporations Act 2001. The consolidated financial statements comply with International

Financial Reporting Standards (IFRSs) and interpretations adopted by the International

Accounting Standards Board (IASB).

The consolidated financial statements were approved by the Board of Directors on 28 September

2010.

(b) Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis.

(c) Functional and presentation currency

These consolidated financial statements are presented in Australian dollars, which is the

Company’s functional currency.

The Group is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in

accordance with that Class Order, all financial information presented in Australian dollars has

been rounded to the nearest thousand unless otherwise stated.

(d) Use of estimates and judgements

The preparation of consolidated financial statements requires management to make judgements,

estimates and assumptions that affect the application of accounting policies and the reported

amounts of assets, liabilities, income and expenses. Actual results may differ from these

estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to

accounting estimates are recognised in the period in which the estimate is revised and in any

future periods affected.

In particular, information about significant areas of estimation uncertainty and critical

judgements in applying accounting policies that have the most significant effect on the amount

recognised in the consolidated financial statements are described in the following notes:

Notes 9 – trade and other receivables•

Note 14 – Utilisation of tax losses•

Note 19 – measurement of share-based payments•

notes to the financial statements for the year ended 30 june 2010

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(e) Changes in accounting policies

As of 1 July 2009, the Group has changed its accounting policies in the following areas:

Accounting for business combinations;•

Accounting for borrowing costs;•

Determination and presentation of operating segments; and•

Presentation of consolidated financial statements.•

Note 3: Significant accounting policies

The accounting policies set out below have been applied consistently to all periods presented in

these consolidated financial statements, and have been applied consistently by Group entities,

except as explained in note 2(e) which addresses changes in accounting policies.

Certain comparative amounts have been reclassified to conform to the current year’s presentation.

(a) Basis of consolidation

(i) Business combinations

The Group has adopted revised AASB 3 Business Combinations (2008) and amended

AASB 127 Consolidated and Separate Financial Statements (2008) for business

combinations occurring in the financial year starting 1 July 2009. All business

combinations occurring on or after 1 July 2009 are accounted for by applying the

acquisition method.

The Group has applied the acquisition method for the business combination disclosed in

Note 27.

For every business combination, the Group identifies the acquirer, which is the combining

entity that obtains control of the other combining entities or businesses.

Control is the power to govern the financial and operating policies of an entity so as to

obtain benefits from its activities. In assessing control, the Group takes into consideration

potential voting rights that currently are exercisable. The acquisition date is the date

on which control is transferred to the acquirer. Judgement is applied in determining the

acquisition date and determining whether control is transferred from one party to another.

Goodwill

The Group measures goodwill as the fair value of the consideration transferred including

the recognised amount of any non-controlling interest in the acquiree, less the net

recognised amount (generally fair value) of the identifiable assets acquired and liabilities

assumed, all measured as of the acquisition date.

Consideration transferred includes the fair values of the assets transferred, liabilities

incurred by the Group to the previous owners of the acquiree, and equity interests

issued by the Group. Consideration transferred also includes the fair value of any

contingent consideration and share-based payments awards of the acquiree that are

replaced mandatorily in the business combination. If a business combination results in

the termination of pre-existing relationships between the Group and the acquiree, then

the lower of the termination amount, as contained in the agreement, and the value of the

off-market element is deducted form the consideration transferred and recognised in other

expenses.


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(ii) Subsidiaries

Subsidiaries are entities controlled by the Group. Control exists when the Group has

the power to govern the financial and operating policies of an entity so as to obtain

benefits from its activities. In assessing control, potential voting rights that currently are

exercisable are taken into account.

The financial statements of subsidiaries are included in the consolidated financial

statements from the date that control commences until the date that control ceases. The

accounting policies of subsidiaries have been changed when necessary to align them with

the policies adopted by the Group.

(iii) Transactions eliminated on consolidation

Intra-group balances, and any unrealised income and expenses arising from intra-group

transactions, are eliminated in preparing the consolidated financial statements.

(b) Financial instruments

(i) Non-derivative financial assets

The Group initially recognises loans and receivables and deposits on the date that they

are originated. All other financial assets (including assets designated at fair value through

profit or loss) are recognised initially on the trade date at which the Group becomes a

party to the contractual provisions of the instrument.

The Group derecognises a financial asset when the contractual rights to the cash flows

from the asset expire, or it transfers the rights to receive the contractual cash flows on

the financial asset in a transaction in which substantially all the risks and rewards of

ownership of the financial asset are transferred. Any interest in transferred financial assets

that is created or retained by the Group is recognised as a separate asset or liability.

Financial assets and liabilities are offset and the net amount presented in the statement of

financial position when, and only when, the Group has a legal right to offset the amounts

and intends either to settle on a net basis or to realise the asset and settle the liability

simultaneously.

The Group has the following non-derivative financial assets:

Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are

not quoted in an active market. Such assets are recognised initially at fair value plus

any directly attributable transaction costs. Subsequent to initial recognition loans and

receivables are measured at amortised cost using the effective interest method, less any

impairment losses.

Loans and receivables comprise trade and other receivables.

Cash and cash equivalents comprise cash balances and call deposits with original

maturities of three months or less. Bank overdrafts that are repayable on demand and form

an integral part of the

Group’s cash management are included as a component of cash and cash equivalents for

the purpose of the statement of cash flows.

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(ii) Non-derivative financial liabilities

The Group initially recognises debt securities issued and subordinated liabilities on the

date that they are originated. All other financial liabilities (including liabilities designated

at fair value through profit or loss) are recognised initially on the trade date at which

the Group becomes a party to the contractual provisions of the instrument. The Group

derecognises a financial liability when its contractual obligations are discharged or

cancelled or expire. Financial assets and liabilities are offset and the net amount presented

in the statement of financial position when, and only when, the Group has a legal right

to offset the amounts and intends either to settle on a net basis or to realise the asset and

settle the liability simultaneously.

The Group has the following non-derivative financial liabilities: loans and borrowings,

bank overdrafts and trade and other payables.

Such financial liabilities are recognised initially at fair value plus any directly attributable

transaction costs. Subsequent to initial recognition these financial liabilities are measured

at amortised cost using the effective interest rate method.

(iii) Share capital

Ordinary shares

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue

of ordinary shares and share options are recognised as a deduction from equity, net of

any tax effects. Dividends on ordinary shares are recognised as a liability in the period in

which they are declared.

Repurchase of share capital (treasury shares)

When share capital recognised as equity is repurchased, the amount of the consideration

paid, which includes directly attributable costs, net of any tax effects, is recognised as

a deduction from equity. Repurchased shares are classified as treasury shares and are

presented as a deduction from total equity. When treasury shares are sold or reissued

subsequently, the amount received is recognised as an increase in equity, and the resulting

surplus or deficit on the transaction is transferred to / from retained earnings.

(c) Property, plant and equipment

(i) Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated

depreciation and accumulated impairment losses.

Cost includes expenditure that is directly attributable to the acquisition of the asset.

Purchased software that is integral to the functionality of the related equipment is

capitalised as part of that equipment.

When parts of an item of property, plant and equipment have different useful lives, they

are accounted for as separate items (major components) of property, plant and equipment.

Gains and losses on disposal of an item of property, plant and equipment are determined

by comparing the proceeds from disposal with the carrying amount of property, plant and

equipment and are recognised net within “other income” in profit or loss. When re-valued

assets are sold, the amounts included in the revaluation reserve are transferred to retained

earnings.

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(ii) Subsequent costs

The cost of replacing part of an item of property, plant and equipment is recognised in the

carrying amount of the item if it is probable that the future economic benefits embodied

within the part will flow to the Group and its cost can be measured reliably. The carrying

amount of the replaced part is derecognised. The costs of the day-to-day servicing of

property, plant and equipment are recognised in profit or loss as incurred.

(iii) Depreciation

Depreciation is recognised in profit or loss on a straight-line basis over the estimated

useful lives of each part of an item of property, plant and equipment.

The depreciation rates for the current and comparative periods are as follows:

plant and equipment 7.5% - 50%•

motor vehicles 25%•

Depreciation methods, useful lives and residual values are reviewed at each reporting date.

(d) Intangible assets

(i) Goodwill

Goodwill (negative goodwill) arises on the acquisition of subsidiaries, associates and

jointly controlled entities.

For acquisitions made by the Group, goodwill represents the excess of the cost of the

acquisition over the Group’s interest in the net fair value of the identifiable assets,

liabilities and contingent liabilities of the acquiree. When the excess is negative (negative

goodwill), it is recognised immediately in profit or loss.

Subsequent measurement

Goodwill is measured at cost less accumulated impairment losses. In respect of equity

accounted investees, the carrying amount of goodwill is included in the carrying amount

of the investment.

(ii) Other intangible assets

Other intangible assets including customer relationships that are acquired by the Group,

which have finite useful lives, are measured at cost less accumulated amortisation and

accumulated impairment losses.

(iii) Subsequent expenditure

Subsequent expenditure is capitalised only when it increases the future economic benefits

embodied in the specific asset to which it relates. All other expenditure, including

expenditure on internally generated goodwill and brands, is recognised in profit or loss as

incurred.

(iv) Amortisation

Amortisation is recognised in profit or loss on a straight-line basis over the estimated

useful lives of intangible assets, other than goodwill, from the date that they are available

for use. The estimated useful lives for the current and comparative periods are as follows:

• capitaliseddevelopmentcosts 3years

• customerrelationships 5years


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(e) Impairment

(i) Financial assets (including receivables)

A financial asset is assessed at each reporting date to determine whether there is any

objective evidence that it is impaired. A financial asset is considered to be impaired if

objective evidence indicates that one or more events have had a negative effect on the

estimated future cash flows of that asset.

Objective evidence that financial assets (including equity securities) are impaired can

include default or delinquency by a debtor, restructuring of an amount due to the Group

on terms that the Group would not consider otherwise, indications that a debtor or issuer

will enter bankruptcy, the disappearance of an active market for a security. In addition,

for an investment in an equity security, a significant or prolonged decline in its fair value

below its cost is objective evidence of impairment.

The Group considers evidence of impairment for receivables and held-to-maturity

investment securities are assessed for specific impairment. All individually significant

receivables and held-to-maturity investment securities found not to be specifically

impaired are then collectively assessed for any impairment that has been incurred but

not yet identified. Receivables and held-to-maturity investments securities that are not

individually significant are collectively assessed for impairment by grouping together

receivable and held-to-maturity investment securities with similar risk characteristics.

In assessing collective impairment the Group uses historical trends of the probability of

default, timing of recoveries and the amount of loss incurred, adjusted for management’s

judgment as to whether current economic and credit conditions are such that the actual

losses are likely to be greater or less than suggested by historical trends.

An impairment loss in respect of a financial asset measured at amortised cost is calculated

as the difference between its carrying amount, and the present value of the estimated

future cash flows discounted at the original effective interest rate. An impairment loss in

respect of an available-for-sale financial asset is calculated by reference to its fair value.

Individually significant financial assets are tested for impairment on an individual basis.

The remaining financial assets are assessed collectively in groups that share similar credit

risk characteristics.

All impairment losses are recognised in profit or loss. Any cumulative loss in respect of an

available-for-sale financial asset recognised previously in equity is transferred to profit or

loss.

An impairment loss is reversed if the reversal can be related objectively to an event

occurring after the impairment loss was recognised. For financial assets measured at

amortised cost and available-for-sale financial assets that are debt securities, the reversal

is recognised in profit or loss. For available-for-sale financial assets that are equity

securities, the reversal is recognised directly in equity.


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(ii) Non-financial assets

The carrying amounts of the Group’s non-financial assets, other than deferred tax assets,

are reviewed at each reporting date to determine whether there is any indication of

impairment. If any such indication exists then the asset’s recoverable amount is estimated.

For goodwill and intangible assets that have indefinite lives or that are not yet available

for use, the recoverable amount is estimated each year at the same time.

The recoverable amount of an asset or cash-generating unit is the greater of its value

in use and its fair value less costs to sell. 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 the purpose of impairment testing, assets are grouped together into the smallest group

of assets that generates cash inflows from continuing use that are largely independent

of the cash inflows of other assets or groups of assets (the “cash-generating unit”). The

goodwill acquired in a business combination, for the purpose of impairment testing, is

allocated to cash-generating units that are expected to benefit from the synergies of the

combination.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating

unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss.

Impairment losses recognised in respect of cash-generating units are allocated first to

reduce the carrying amount of any goodwill allocated to the units and then to reduce the

carrying amount of the other assets in the unit (group of units) on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. In respect of other assets,

impairment losses recognised in prior periods are assessed at each reporting date for any

indications that the loss has decreased or no longer exists. An impairment loss is reversed

if there has been a change in the estimates used to determine the recoverable amount.

An impairment loss is reversed only to the extent that the asset’s carrying amount does

not exceed the carrying amount that would have been determined, net of depreciation or

amortisation, if no impairment loss had been recognised.

(f) Employee benefits

(i) Other long-term employee benefits

The Group’s net obligation in respect of long-term employee benefits is the amount of

future benefit that employees have earned in return for their service in the current and

prior periods plus related on-costs; that benefit is discounted to determine its present

value, and the fair value of any related assets is deducted. The discount rate is the yield at

the reporting date on government bonds that have maturity dates approximating the terms

of the Group’s obligations.

(ii) Short-term benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are

expensed as the related service is provided.

A liability is recognised for the amount expected to be paid under short-term cash bonus

or profit-sharing plans if the Group has a present legal or constructive obligation to pay

this amount as a result of past service provided by the employee and the obligation can be

estimated reliably.


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(iii) Share-based payment transactions

The grant date fair value of options granted to employees is recognised as an employee

expense, with a corresponding increase in equity, over the period that the employees

become unconditionally entitled to the options. The amount recognised as an expense is

adjusted to reflect the actual number of share options for which the related service and

non-market vesting conditions are met.

(g) Provisions

A provision is recognised if, as a result of a past event, the Group has a present legal or

constructive obligation that can be estimated reliably, and it is probable that an outflow of

economic benefits will be required to settle the obligation. Provisions are determined by

discounting the expected future cash flows at a pre-tax rate that reflects current market

assessments of the time value of money and the risks specific to the liability.

(h) Revenue

Revenue from the rendering of a service is recognised upon the delivery of the service to the

customers.

Revenue from services rendered is recognised in profit or loss in proportion to the stage of

completion of the transaction at the reporting date. The stage of completion is assessed by

reference to surveys of work performed.

(i) Leased assets

Leases in terms of which the Group assumes substantially all the risks and rewards of ownership

are classified as finance leases. Upon initial recognition the leased asset is measured at

an amount equal to the lower of its fair value and the present value of the minimum lease

payments. Subsequent to initial recognition, the asset is accounted for in accordance with the

accounting policy applicable to that asset.

Other leases are operating leases and the leased assets are not recognised in the Group’s

statement of financial position. Investment property held under an operating lease is recognised

on the Group’s statement of financial position at its fair value.

(j) Work in progress

Work in progress represents the gross unbilled amount expected to be expected from customers

for contract work performed to date. It is measured at cost plus profit recognised to date less

progress billings and recognised losses. Cost includes all expenditure related directly to specific

projects and an allocation of fixed and variable overheads incurred in the Group’s contract

activities based on normal operating capacity.

(k) Lease payments

Payments made under operating leases are recognised in profit or loss on a straight line basis

over the term of the lease. Lease incentives received are recognised as an integral part of the

total lease expense, over the term of the lease.

Minimum lease payments made under finance leases are apportioned between the finance

expense and the reduction of the outstanding liability. The finance expense is allocated to

each period during the lease term so as to produce a constant periodic rate of interest on the

remaining balance of the liability.


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(l) Finance income and expense

Finance income comprises interest income on funds invested (including available-for-sale

financial assets). Interest income is recognised as it accrues in profit or loss, using the effective

interest method.

Finance expenses comprise interest expense on borrowings. Borrowing costs that are not directly

attributable to the acquisition, construction or production of a qualifying asset are recognised in

profit and loss using the effective interest method.

(m) Income tax

Income tax expense comprises current and deferred tax. Income tax expense is recognised in

profit or loss except to the extent that it relates to items recognised directly in equity, in which

case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates

enacted or substantively enacted at the reporting date, and any adjustment to tax payable in

respect of previous years.

Deferred tax is recognised using the balance sheet method, providing for temporary differences

between the carrying amounts of assets and liabilities for financial reporting purposes and the

amounts used for taxation purposes. Deferred tax is not recognised for the following temporary

differences: the initial recognition of assets or liabilities in a transaction that is not a business

combination and that affects neither accounting nor taxable profit or loss, and differences

relating to investments in subsidiaries and jointly controlled entities to the extent that it is

probable that they will not reverse in the foreseeable future. In addition, deferred tax is not

recognised for taxable temporary differences arising on the initial recognition of goodwill.

Deferred tax is measured at the tax rates that are expected to be applied to the temporary

differences when they reverse, based on the laws that have been enacted or substantively

enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally

enforceable right to offset current tax liabilities and assets, and they relate to income taxes

levied by the same tax authority on the same taxable entity, or on different tax entities, but they

intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities

will be realised simultaneously.

A deferred tax asset is recognised to the extent that it is probable that future taxable profits will

be available against which the temporary difference can be utilised. Deferred tax assets are

reviewed at each reporting date and are reduced to the extent that it is no longer probable that

the related tax benefit will be realised.

Additional income taxes that arise from the distribution of dividends are recognised at the same

time as the liability to pay the related dividend is recognised.

(i) Tax consolidation

The Group and its wholly-owned entities are part of a tax-consolidated group. As a

consequence, all members of the tax-consolidated group are taxed as a single entity from

that date. The head entity within the tax-consolidated group is Emerson Stewart Group

Limited.

The Group recognises deferred tax assets arising from unused tax losses of the tax-

consolidated group to the extent that it is probable that future taxable profits of the tax-

consolidated group will be available against which the asset can be utilised.


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Any subsequent period adjustments to deferred tax assets arising from unused tax losses

as a result of revised assessments of the probability of recoverability is recognised by the

head entity only.

(ii) Nature of tax funding arrangements and tax sharing arrangements

The head entity, in conjunction with other members of the tax-consolidated group, has

entered into a tax funding arrangement which sets out the funding obligations of members

of the tax-consolidated group in respect of tax amounts.

The head entity in conjunction with other members of the tax-consolidated group has

also entered into a tax sharing agreement. The tax sharing agreement provides for the

determination of the allocation of income tax liabilities between the entities should the

head entity default on its tax payment obligations. No amounts have been recognised in

the financial statements in respect of this agreement as payment of any amounts under the

tax sharing agreement is considered remote.

(n) Goods and services tax

Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST),

except where the amount of GST incurred is not recoverable from the taxation authority. In

these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as

part of the expense.

Receivables and payables are stated with the amount of GST included. The net amount of

GST recoverable from, or payable to, the ATO is included as a current asset or liability in the

balance sheet. Cash flows are included in the statement of cash flows on a gross basis. The GST

components of cash flows arising from investing and financing activities which are recoverable

from, or payable to, the ATO are classified as operating cash flows.

(o) Earnings per share

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares.

Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of

the Group by the weighted average number of ordinary shares outstanding during the period.

Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders

and the weighted average number of ordinary shares outstanding for the effects of all dilutive

potential ordinary shares, which comprise convertible notes and share options granted to

employees.

(p) Segment reporting

Determination and presentation of operating segments

As of 1 July 2009 the Group determines and presents operating segments based on the

information that internally is provided to the CEO, who is the Group’s chief operating decision

maker. This change in accounting policy is due to the adoption of IFRS 8 Operating Segments.

Previously operating segments were determined and presented in accordance with AASB 114

Segment Reporting. The new accounting policy in respect of segment operating disclosures is

presented as follows.

Comparative segment information has been re-presented in conformity with the transitional

requirements of such standard. Since the change in accounting policy only impacts presentation

and disclosure aspects, there is no impact on earnings per share.


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An operating segment is a component of the Group that engages in business activities from

which it may earn revenues and incur expenses, including revenues and expenses that relate

to transactions with any of the Group’s other components. All operating segments’ operating

results are regularly reviewed by the Group’s CEO to make decisions about resources to be

allocated to the segment and assess its performance, and for which discrete financial information

is available.

Segment results that are reported to the CEO include items directly attributable to a segment

as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly

corporate assets (primarily the Group’s headquarters), head office expenses, and income tax

assets and liabilities.

Segment capital expenditure is the total cost incurred during the period to acquire property,

plant and equipment and intangible assets other than goodwill.

(q) New standards and interpretations not yet adopted

The following standards, amendments to standards and interpretations have been identified as

those which may impact the entity in the period of initial application. They are available for

early adoption at 30 June 2010, but have not been applied in preparing this financial report.

AASB 9 Financial Instruments includes requirements for the classification and measurement •

of financial assets resulting from the first part of Phase 1 of the project to replace AASB 139

Financial Instruments: Recognition and Measurement. AASB 9 will become mandatory for the

Group’s 30 June 2014 financial statements. Retrospective application is generally required,

although there are exceptions, particularly if the entity adopts the standard for the year ended

30 June 2012 or earlier. The Group has not yet determined the potential effect of the standard.

AASB 124 Related Party Disclosures (revised December 2009) simplifies and clarifies the •

intended meaning of the definition of a related party and provides a partial exemption from

the disclosure requirements for government-related entities. The amendments, which will

become mandatory for Group’s 30 June 2012 financial statements, are not expected to have

any impact on the financial statements.

AASB 2009-5 Further amendments to Australian Accounting Standards arising from •

the Annual Improvements Process affect various AASBs resulting in minor changes for

presentation, disclosure, recognition and measurement purposes. The amendments, which

become mandatory for the Group’s 30 June 2011 financial statements, are not expected to

have a significant impact on the financial statements.

AASB 2009-8 Amendments to Australian Accounting Standards - Group Cash-settled •

Share-based Payment Transactions resolves diversity in practice regarding the attribution

of cash-settled share-based payments between different entities within a group. As a result

of the amendments AI 8 Scope of AASB 2 and AI 11 AASB 2 - Group and Treasury Share

Transactions will be withdrawn from the application date. The amendments, which become

mandatory for the Group’s 30 June 2011 financial statements, are not expected to have a

significant impact on the financial statements.

AASB 2009-10 Amendments to Australian Accounting Standards - Classification of Rights •

Issue [AASB 132] (October 2010) clarify that rights, options or warrants to acquire a fixed

number of an entity’s own equity instruments for a fixed amount in any currency are equity

instruments if the entity offers the rights, options or warrants pro-rata to all existing owners

of the same class of its own non-derivative equity instruments. The amendments, which will

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become mandatory for the Group’s 30 June 2011 financial statements, are not expected to

have any impact on the financial statements.

AASB 2009-14 Amendments to Australian Interpretation - Prepayments of a Minimum •

Funding Requirement - AASB 14 make amendments to Interpretation 14 AASB 119 - The

Limit on a Defined Benefit Asset, Minimum Funding Requirements removing an unintended

consequence arising from the treatment of the prepayments of future contributions in some

circumstances when there is a minimum funding requirement. The amendments will become

mandatory for the Group’s 30 June 2012 financial statements, with retrospective application

required. The amendments are not expected to have any impact on the financial statements.

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments addresses the accounting •

by an entity when the terms of a financial liability are renegotiated and result in the entity

issuing equity instruments to a creditor of the entity to extinguish all or part of the financial

liability. IFRIC 19 will become mandatory for the Group’s 30 June 2011 financial statements,

with retrospective application required. The Group has not yet determined the potential effect

of the interpretation.

(r) Presentation of financial statements

The Group applies revised AASB 101 Presentation of Financial Statements (2007), which

became effective as of 1 January 2009. As a result, the Group presents in the consolidated

statement of changes in equity all owner changes in equity, where as all non-owner changes in

equity are presented in the consolidated statement of comprehensive income.

Comparative information has been re-presented so it also is in conformity with the revised

standard. Since the change in accounting policy only impacts presentation aspects, there is no

impact on earnings per share.

(s) Determination of fair values

A number of the Group’s accounting policies and disclosures require the determination of

fair value, for both financial and non-financial assets and liabilities. Fair values have been

determined for measurement and / or disclosure purposes based on the following methods.

Where applicable, further information about the assumptions made in determining fair values is

disclosed in the notes specific to that asset or liability.

(i) Property, plant and equipment

The fair value of property, plant and equipment recognised as a result of a business

combination is based on market values. The market value of property is the estimated

amount for which a property could be exchanged on the date of valuation between a

willing buyer and a willing seller in an arm’s length transaction after proper marketing

wherein the parties had each acted knowledgeably, prudently and without compulsion.

The market value of items of plant, equipment, fixtures and fittings is based on the quoted

market prices for similar items.

(ii) Intangible assets

The fair value of patents and trademarks acquired in a business combination is based

on the discounted estimated royalty payments that have been avoided as a result of the

patent or trademark being owned. The fair value of customer relationships acquired in

a business combination is determined using the multi-period excess earnings method,

whereby the subject asset is valued after deducting a fair return on all other assets that are

part of creating the related cash flows.

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Intangible assets received as consideration for providing construction services in a service

concession arrangement are measured at fair value upon initial recognition, estimated by

reference to the fair value of the construction services provided. When the Group receives

an intangible asset and a financial asset as consideration for providing construction

services in a service concession arrangement, the Group estimates the fair value of

intangible assets as the difference between the fair value of the construction services

provided and the fair value of the financial asset received (see (vii)).

The fair value of other intangible assets is based on the discounted cash flows expected to

be derived from the use and eventual sale of the assets.

(iii) Trade and other receivables

The fair value of trade and other receivables, excluding construction work in progress, but

including service concession receivables, is estimated as the present value of future cash

flows, discounted at the market rate of interest at the reporting date.

(iv) Share-based payment transactions

The fair value of employee stock options is measured using a binomial lattice model. The

fair value of share appreciation rights is measured using the Black-Scholes and Monte

Carlo formula. Measurement inputs include share price on measurement date, exercise

price of the instrument, expected volatility (based on weighted average historic volatility

adjusted for changes expected due to publicly available information), weighted average

expected life of the instruments (based on historical experience and general option holder

behaviour), expected dividends, and the risk-free interest rate (based on government

bonds). Service and non-market performance conditions attached to the transactions are

not taken into account in determining fair value.

Note 4: Financial risks

Overview

The Group’s principal financial instruments comprise receivables, payables and cash and short term

deposits. The Group has exposure to the following risks from its use of financial instruments:

credit risk;•

liquidity risk; and•

interest rate risk.•

Note 26 presents information about the Group’s exposure to each of the above risks, its objectives,

policies and processes for measuring and managing risk, and the management of capital.

Quantitative disclosures are included throughout this financial report.

The Board has overall responsibility for the establishment and oversight of the risk management

framework. The Board has established the Audit and Risk Committee, which is responsible for

approving and monitoring risk management policies. The Committee reports regularly to the Board

on its activities.


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Risk management policies are established to identify and analyse the risks faced by the Group, to set

appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management

policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s

activities. The Group, through its training and management standards and procedures, aims to

develop a disciplined and constructive control environment in which all employees understand their

roles and obligations.

The Committee also oversees how management monitors compliance with the Group’s risk

management policies and procedures and reviews the adequacy of the risk management framework

in relation to the risks faced by the Group.

The risk exposures and the risk management strategies are disclosed in Note 26.

Capital management

The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market

confidence and to sustain future development of the business. The Board monitors the return on

capital, which the Group defines as net profit after tax divided by total equity. The Board will also

monitor the level of dividends to ordinary shareholders.

There were no changes in the Group’s approach to capital management during the year. Neither the

Group nor any of its subsidiaries is subject to externally imposed capital requirements.

Note 5: Operating segments

The Group has three reportable segments being managed separately by the service provided.

Internal management reports on the performance of these reportable segments are reviewed

monthly by the Chief Executive Officer. The following summary describes the operations in each of

the Group’s reportable segments:

Emerson Stewart Consulting Operations (“ES Operations”) – provides project management, •

engineering and environment science services across the infrastructure, resources and energy

sectors.

Whelans Consulting Operations (“Whelans Consulting”) – provides surveying, mapping and •

town planning services throughout Western Australia.

Corporate Development – Merger & Acquisitions (“Corp. Dev. M&A”) – provides an incubation •

area for acquisition targets.

Information regarding the results of each reportable segment is detailed below. Comparative

segment information has been presented in conformity with the requirement of IFRS 8 Operating

Segments.


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Note 5: Operating segments (continued)

Whelans

ES Operations Operations Corp. Dev. M&A Total

Operating segments 2010 2009 2010 2009 2010 2009 2010 2009

information reportable

segments for the year

External revenues 6,606 12,900 6,200 - - - 12,806 12,900

Inter-segment revenue 47 - - - - - 47 -

Interest income 211 582 12 - - - 223 582

Interest expense (22) (5) (70) - - - (92) (5)

Depreciation & (241) (146) (324) - - - (565) (146)

amortisation

Reportable segment result (1,971) 1,284 356 - (582) - (2,197) 1,284

before income tax

Segment assets 6,777 13,361 12,113 - - - 18,890 13,36

Segment liabilities (2,384) (1,316) (5,432) - - - (7,816) (1,316)

Capital expenditure (370) (531) (793) - - - (1,163) (531)

Note 6: Revenue

2010 2009

$000’s $000’s

Operating Activities:

Services Revenue 12,806 12,900

Total Revenue 12,806 12,900

Note 7: Profit before income tax includes the following expenses

2010 2009

$000’s $000’s

Other expenses

Depreciation and amortisation expenses

Plant & equipment 355 47

Customer relationships amortisation 39 -

Intangible assets 171 99

565 146

Personnel expenses

Wages and salaries 7,531 3,991

Superannuation 773 385

Increase in liability for long-service leave 127 11

Equity settled share based payment transactions 405 148

8,836 4,535

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Note 8: Income tax expense/(benefit)

2010 2009

$000’s $000’s

The components of tax expense comprise:

Current tax 235 103

Deferred tax (731) 303

Income tax expense previously unrecognised amount 5 -

Income tax expense/ (benefit) reported in the income statements (491) 406

The prima facie tax on the result from ordinary activities before income tax is reconciled to the

income tax as follows:

Prima facie tax payable/(benefit) on profit/(loss) from ordinary activities before income tax at 30%

(2009: 30%)

Income tax at 30% (659) 386

Add (less) Tax effect of:

Other non-allowable/ assessable items 170 50

Under (over) provision of tax 16 (30)

Deferred tax not previously brought to account (3) -

Other allowable/ non-assessable items (15) -

Income tax expense/ (benefit) attributable to entity (491) 406

The Group has no unrecognised tax assets or liabilities at 30 June 2010 (2009: Nil).

Note 9: Cash and cash equivalents

2010 2009

$000’s $000’s

Current

Cash at bank and in hand 1,775 9,284

1,775 9,284

The Group’s exposure to interest rate risk and a sensitivity analysis for the financial assets and

liabilities disclosed in Note 26.

Note 10: Trade and other receivables

2010 2009

$000’s $000’s

Trade receivables 6,228 2,307

Impairment of receivables (50) (817)

Interest receivable - 202

6,178 1,692

The Windimurra Vanadium Receivable of $1,058,062 was written off during the period. An amount

of $817,040 had been provided for in the previous financial year therefore the net impact on the

current year results was a loss of $241,022.

The Group’s exposure to credit and currency risk is disclosed in Note 26.

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Note 11: Plant and equipment

2010 2009

$000’s $000’s

Leased plant and equipment 381 -

Less: accumulated amortisation (25) -

356 -

Plant and equipment, at cost 2,957 235

Less: accumulated depreciation (326) (83)

2,631 152

Leased motor vehicles 469 -

Less: accumulated amortisation (38) -

431 -

Motor vehicles, at cost 762 -

Less: accumulated depreciation (48) -

714 -

Total written down value 4,132 152

Reconciliations of the carrying amounts of each class of property, plant and equipment at the

beginning and end of the current financial year are set out below.

Leased Plant & Leased Motor

Plant & Equip at Motor Vehicles

Equip cost Vehicles at cost Total

$000’s $000’s $000’s $000’s $000’s

Carrying amount at 01/07/09 - 152 - - 152

Additions through business 490 1,845 536 540 3,411

acquisition

Additions at cost - 785 - 174 959

Disposals at carrying value - (17) (18) - (35)

Transfers between classes (106) 106 (47) 47 -

at carrying value

Depreciation / amortisation (28) (240) (40) (47) (355)

Carrying amount at 30/06/10 356 2,631 431 714 4,132

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Note 12: Intangible assets

2010 2009

$000’s $000’s

Goodwill on business acquisition 2,600 -

Customer relationships 591 -

Less: amortisation of customer relationships (39) -

552 -

Software 724 520

Less: accumulated amortisation (277) (106)

447 414

Net carrying value at 30 June 2010 3,599 414

Reconciliation of movement in carrying amounts from beginning of year to end of year:

Customer

Goodwill Relations Software Total

$000’s $000’s $000’s $000’s

Carrying value at the beginning of the year - - 414 414

Additions at cost - - 204 204

Acquisition through business combination 2,600 591 - 3,191

Amortisation - (39) (171) (210)

Net carrying value at 30 June 2010 2,600 552 447 3,599

For the purposes of impairment testing, goodwill is allocated to the Whelans operating entity within

the Group.

The recoverable amount of the Whelans cash generating unit was based on its value in use and was

determined by management. The carrying amount of the unit was determined to be lower than its

recoverable amount therefore no impairment was evident.

Value in use was determined by discounting future cash flows generated from the continuing use of

the unit. The calculation of the value in use was based on the following key assumptions:

Cash flows were projected based on past experience, actual operating results and a 5 year •

management forecast extrapolation of the Board approved FY 2011 Budget.

Cashflows for the terminal value were extrapolated using a zero % growth rate.•

For year 1, based on experience, the same growth rate from FY 2009 was used. Subsequent •

years 2 - 5 considered CPI at 3.1% , as well as conservative internal revenue and wage growth

targets, based on previous trading experiences. No significant change in economic conditions

has been assumed.

A pre-tax discount rate of 18.9% was applied in determining the recoverable amount of •

Whelans. The discount rate was estimated using an industry average capital asset pricing model

to determine the weighted average cost of capital.

The values assigned to the key assumptions represent management’s assessment of future trends

in the land development industry and are based on both external sources and internal sources

(historical data). A sensitivity analysis on revenues and expenditure were also conducted to gain an

understanding of potential impairment indicators for future monitoring.

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Note 13: Trade and other payables

2010 2009

$000’s $000’s

Current

Unsecured liabilities

Trade payables 509 460

Sundry payables and accrued expenses 1,528 549

2,037 1,009

The Group’s exposure to liquidity risk related to trade and other payables is disclosed in Note 26.

Note 14: Deferred tax

Opening Charged Set off to tax Closing

Balance to Income Total asset/ liability Balance

Deferred tax liability

2009

Work in Progress - 481 481 - 481

Plant & Equipment - 12 12 - 12

Other 55 8 63 (427) (364)

Balance at 30 June 2009

2010 55 501 556 (427) 129

Work in Progress 481 (68) 413 - 413

Plant & Equipment 12 17 29 - 29

Other (364) 428 64 (506) (442)

Balance at 30 June 2010 129 377 506 (506) -

Deferred tax assets

2009

Provisions 37 206 243 (243) -

Employee Benefits - 40 40 (40) -

Other 192 (48) 144 (144) -

Balance at 30 June 2009

2010 229 198 427 (427) -

Provisions - 571 571 - 571

Employee Benefits - 45 45 - 45

Carried forward unused tax losses* - 554 554 - 554

Other - 202 202 (506) (304)

Balance at 30 June 2010 - 1,372 1,372 (506) 866

* Carried forward tax losses of $554,000 have been recognized as a deferred tax asset as management believe it

is probable that future taxable profits will be available to utilize the benefits there from.

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Note 15: Loans and borrowings

This note provides information about the contractual terms of the Group’s interest bearing loans and

borrowings which are measured at amortised cost.

2010 2009

$000’s $000’s

Current liabilities

Bank overdraft 1,167 -

Finance lease liabilities 318 -

Hire purchase liabilities 323 -

Insurance premium funding loans 285 -

2,093 -


Bank loan 650 -

Finance lease liabilities 370 -

Hire purchase liabilities 793 -


1,891 -

3,984 -

Terms and debt repayment schedule

Terms and conditions of outstanding loans were as follows:

2010 2009

$000’s $000’s

Nominal interest Year of Face Carrying Face Carrying

rate % maturity value amount value amount

Bank overdraft 10.24 – 12.55 2011 1,167 1,167 - -

Bank loan 8.99 2014 650 650 - -

Finance lease liabilities 7.08 – 9.59 2011 – 2013 752 688 - -

Hire Purchase liabilities 7.65 – 8.95 2012 – 2014 1,271 1,116 - -

Insurance premium 4.93 – 8.04 2011 - 2012 392 363 - -

funding loans

4,232 3,984 - -

Total loan and borrowings facility limits 2010 2009

$000’s $000’s

Bank overdraft 1,450 -

Bank loan 650 -

Finance lease and hire purchase liabilities 2,500 -


Bank guarantee 554 -

5,546 -

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Note 15: Loans and borrowings (continued)

The Group’s loan facilities are secured by a fixed and floating charge over all the assets and

undertakings of the Group. All loans and borrowings are in Australian dollars.

Subject to the continuance of satisfactory credit ratings, the bank overdraft and loan facility may

be drawn at any time and may be terminated by the bank without notice. The interest rate on the

facility is variable and is subject to adjustment after a period of 14 days notice.

Specific covenants includes:

Whelans (WA) Pty Ltd management report to be submitted 30 day post end of the reporting •

month;

Month end Stock + Debtor Level to be greater than $2.875m; and•

Quarterly Debt Service ratio to be greater than 1.5 times.•

The bank loan of $650,000 is repayable by the 12 February 2014. The interest rate is variable and is

subject to adjustment on periodic rollover.

A bank guarantee of $67,500 was provided to the Landlord of 133 Scarborough Beach Road,

Mt Hawthorn as per the renewal terms of the Lease in July 2009. The bank guarantee may be

withdrawn by the bank without notice.

A bank guarantee of $489,488 was provided to the landlord of the Old Swan Brewery, 171 Mounts

Bay Rd,

Perth as per the terms of the lease in December 2009. The bank guarantee may be withdrawn by

the bank without notice.

Lease liabilities are effectively secured as the rights to leased assets revert to the lessor in the event

of default. The carrying value of leased assets is set out in Note 11.

The insurance premium funding loans are repayable in monthly installments.

Finance Lease and Hire Purchase liabilities

Finance lease and hire purchase liabilities of the Group are payable as follows:

Present

Future Present value Future value of

minimum of minimum Future minimum

lease + HP lease + HP lease + HP lease + HP

payments Interest payments payments Interest payments

2010 2010 2010 2009 2009 2009

$000’s $000’s $000’s $000’s $000’s $000’s

Less than 1 year 771 130 641 - - -

Between 1 & 5 years 1,253 90 1,163 - - -

2,024 220 1,804 - - -

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Note 16: Employee benefits

2010 2009

$000’s $000’s

Current

Annual Leave 763 111

Long service leave 812 -

1,575 111

Non current

Long Service Leave 220 20

220 20

Provision is made for the Group’s liability for employee benefits arising from services rendered by

employees to balance date. Employee benefits that are expected to be settled within one year have

been measured at the amounts expected to be paid when the liability is settled, plus related on-

costs. Employee benefits payable later than one year have been measured at the present value of the

estimated future cash outflows to be made for those benefits, using the yield at the reporting date on

government bonds that have maturity dates approximating the terms of the Group’s obligations.

Provisions assumed through the Whelans business acquisition during the year were:

$000’s

Current

Annual leave 673

Long service leave 813

Term 1,486

Long service leave 244

1,730

Note 17: Capital and reserves

Issued capital of Emerson Stewart Group Limited

2010 2009 2010 2009

No. Of Shares No. Of Shares $000’s $000’s

Balance at the beginning of the period 123,634,375 123,634,375 10,857 10,865

22 July 2009 – share buy-back (31,250,000) - (1,757) -

22 July 2009 – issue to employee share plan 6,250,000 - - -

26 February 2010 – issue on business 30,809,842 - 3,081 -

combination

Costs of share buy-back - - (38) -

Costs of capital raising - - - (8)

Balance at reporting date 129,444,217 123,634,375 12,142 10,857

The Group does not have authorised capital or par value in respect of its issued shares.

The holders of ordinary shares are entitled to receive dividends as declared from time to time and

are entitled to one vote per share at meetings of the Group. All shares rank equally with regard to

the Group’s residual assets.

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Note 17: Capital and reserves (continued)

The Group has also issued share options as disclosed in Note 20.

2010 2009

Reserves $000’s $000’s

Reserves (146) 148

Total Reserves (146) 148

The reserves relate to share based payments and reserves for own shares. Refer to

Consolidated Statement of Changes in Equity.

Note 18: Dividends

Dividends Paid and Proposed 2010 2009

$000’s $000’s

Dividends on ordinary shares:

Final franked dividend for 2010: 0.0 cents (2009: 0.4 cents) - 394

Franked dividends declared or paid during the year were franked at the tax rate of 30 per

cent. 0.4 cents was declared in FY 2009 and paid in FY 2010. Refer to Consolidated Cashflow

Statement.

Franking Credit Balance

The amount of franking credits available for the subsequent financial year are:

Franking account balance as at the end of the financial year 3,229 595

at 30% (2009: 30%)

Franking credits/(debits) that will arise from the payment/(refund) (126) 47

of income tax payable (refundable) as at the end of the financial year

Franking credits available for subsequent financial years based on 3,103 642

a tax rate of 30% (2009: 30%)

The above available amounts are based on the balance of the dividend franking account at

year-end adjusted for:

franking credits that will arise from the payment of the current tax liabilities;•

franking debits that will arise from the payment of dividends recognised as a liability at the •

year end;

franking credits that will arise from the receipt of dividends recognised as receivables by •

the tax consolidated group at the year end; and

franking credits that the entity may be prevented from distributing in subsequent years.•

The ability to utilise the franking credits is dependent upon there being sufficient available

profits to declare dividends. In accordance with the tax consolidation legislation, the Group

as the head entity in the tax-consolidated group has also assumed the benefit of $3,103 million

(2009: $642 thousand) franking credits.

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Note 19: Cash flow information

2010 2009

$000’s $000’s

Reconciliation of cash flow from operations with profit after income tax

Profit/ (Loss) after income tax (1,706) 878

Non-cash flows in profit

Depreciation and amortisation 565 146

Share based expenses 405 148

Impairment of receivable 245 817

Deferred tax effect on consolidation 219 -

(272) 1,989

Changes in assets and liabilities, net of the effects of purchase and disposal of subsidiaries

(Increase)/ decrease in trade and term debtors 231 (434)

(Increase)/decrease in other assets (824) (206)

(Increase)/decrease in work in progress 553 (1,480)

Increase/(decrease) in trade creditors (522) (797)

Increase/(decrease) in provisions 196 27

Increase /(decrease) in tax movement (928) 1

Net cash provided by (used in) operating activities (1,566) (901)

Note 20: Share-based payments

On 31 March 2008 the Group established a share option programme that entitles key management

personnel and senior employees to purchase shares in the Group. During July 2008 an initial grant

was offered to these employee groups.

The terms and conditions of the grants are as follows. All options are to be settled by physical

delivery of shares.

Grant date / employees entitled Number of Vesting Contractual life

instruments conditions of options

Option grant to key management on 3,500,000 3 years service 3.5 years

1 July 2008

Option grant to key management on 2,000,000 Measurement of 3.5 years

1 July 2008 performance of

Group 3 year Total

Shareholding

Return (TSR)

compared to a TSR

Ranking Group

Option grant to key management on 1,500,000 Securing of $5m 5 years

1 July 2008 EBIT for

Infrastructure

business for the

period 1 July 2011 to

30 June 2016

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Note 20: Share-based payments (continued)

Grant date / employees entitled Number of Vesting Contractual life

instruments conditions of options

Option grant to key management on 75,000 Vested on granting Expire 3 months after

11 July 2008 leaving employment

of the Group

Option grant to key management on 75,000 2 years service Expire 3 months after


of the Group

Option grant to key employees on 100,000 2 years service Expire 3 months after


of the Group

Option grant to senior employees on 100,000 2 years service Expire 3 months after


of the Group

Total share options 7,350,000

The number and weighted average exercise prices of share options are as follows:

Number of

Weighted avg. Number of Weighted avg. options on

exercise price options exercise price issue

2010 2010 2009 2009

Outstanding at start of period 8,500,00 -

Forfeited during the period $0.24 (1,150,00) $0.24 (1,000,000)

Exercised during the period - - - -

Granted during the period $0.24 - $0.24 9,500,000

Outstanding at end of period $0.24 7,350,000 $0.24 8,500,000

Exercisable at end of period $0.24 400,000 $0.24 75,000

The options outstanding at 30 June 2010 have an exercise price in the range of $0.20 to $0.24 and a

weighted average contractual life of 3.3 years.

There were no options issued during the current year.

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Note 20: Share-based payments (continued)

The fair value of services received in return for share options granted is based on the fair value of

share options granted, measured using a binomial lattice model and hybrid Monte-Carlo simulation

model, incorporating the probability of the relative total shareholder return vesting condition being

met, with the following inputs:

Tranche 1 Key management

personnel

Fair value of share options and assumptions 2009

Fair value at grant date 0.05

Share price 0.20

Exercise price 0.24

Expected volatility (weighted average volatility) 44%

Option life (expected weighted average life) 3.3 years

Expected dividends 5%

Risk-free interest rate (based on government bonds) 6.26%

There were no options granted in the previous period.

The fair value of services received in return for share options granted is based on the fair value of

share options granted, measured using a binomial lattice model, incorporating the probability of the

relative total shareholder return vesting condition being met, with the following inputs:

Tranche 2 Key management Senior employees

personnel

Fair value of share options and assumptions 2010 2009

Fair value at grant date 0.05 0.05

Share price 0.20 0.20

Exercise price 0.24 0.24

Expected volatility (weighted average volatility) 51% 51%

Option life (expected weighted average life) 5.25 years 5.25 years

Expected dividends 8% 8%

Risk-free interest rate (based on government bonds) 6.26% 6.26%

There were no options granted in the previous period.

(In AUD) 2010 2009

Employee expenses

Share options granted in 2009 102,838 148,201

Shares granted 302,090 -

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Note 21: Related parties

Key management personnel compensation

The key management personnel compensation included in ‘employee benefits’ (see Note 7) is as

follows:

(In AUD) 2010 2009

Short-term employee benefits 1,258,982 1,234,209

Post-employment benefits 81,158 82,148

Share-based payments 354,308 132,853

1,694,448 1,449,210

Options and rights over equity instruments

The movement during the reporting period in the number of options over ordinary shares in

Emerson Stewart Group Limited held, directly, indirectly or beneficially, by each key management

person, including their related parties, is as follows:

Vested and

Held at Vested exercisable

1 July Granted Other Held at 30 during at 30 June

2009 compensation Exercised changes• June2010 theyear 2010

Directors

Dario 3,000,000 - - 3,000,000 - -

Amara

Executives

Marino 4,000,000 - - - 4,000,000 - -

Evangelisti

Brian Hill - - - - - - -

Vincent - - - - - - -

Salsano

Claire 150,000 - - - 150,000 75,000 150,000

Ingham

* Other changes represent options that expired or were forfeited during the year.

There were no options granted for the year ended 30 June 2010.

No options held by key management personnel are vested but not exercisable at 30 June 2010.

Shares issued, held and transacted by directors and specified executives

Balance at Shares acquired Balance at

30/06/2009 (sold) 30/06/2010

Directors

Dario Amara 34,675,000 1,525,000 36,200,000

Angelo Dabala (resigned 25/09/08) 31,250,000 (31,250,000) -

Steven Cole 500,000 5,375,316 *5,875,316

James Cullen 150,000 - 150,000

David Richardson 500,000 - 500,000

Total 67,075,000 (24,349,684) 42,725,316

*Includes 5,064,316 shares held by Esore Pty Ltd as trustee of the Emerson Stewart share plan

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Note 21: Related parties (continued)

Balance at Shares acquired Balance at

30/06/2009 (sold) 30/06/2010

Executives/ Officers

Marino Evangelisti - 1,173,684 1,173,684

Brian Hill - 2,699,473 2,699,473

Vincent Salsano - 863,832 863,832

Claire Ingham 75,000 - 75,000

Total 75,000 4,736,989 4,811,989

Individual directors and executives compensation disclosures

Information regarding individual directors and executive’s compensation and some equity

instruments disclosures as required by Corporations Regulations 2M.3.03 is provided in the

remuneration report section of the directors’ report on pages 12 to 16.

Apart from the details disclosed in this note, no director has entered into a material contract with the

Group since the end of the previous financial year and there were no material contracts involving

directors’ interests existing at year-end.

No options were granted during the year (previous year: nil).

Note 22: Auditor’s remuneration

Details of the amounts paid to the auditor of the Group, PKF and KPMG for audit services provided

during the year are set out below.

2010 2009

$000’s $000’s

Audit and review of financial reports - PKF - 10,000

Audit and review of financial reports - KPMG 81,580 27,000

Services other than statutory audit 7,500 -

Note 23: Earnings per share

2010 2009

$000’s $000’s

Earnings used to calculate basic EPS (1,706) 878

Weighted average number of ordinary shares outstanding 106,744,377 123,634,375

during the period used in calculating basic EPS

Basic Earnings per share (cents per share) (1.598) 0.710

Potential ordinary shares are not considered dilutive, therefore

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Note 24: Controlled entities

The following entities are consolidated:

Ownership interest

Name of Entity Country of 2010 2009

Incorporation % %

Parent Entity

Emerson Stewart Group Limited Australia

Controlled Entity

Emerson Stewart Pty Ltd Australia 100 100

(formerly Emerson Stewart Limited)

Xemi Pty Ltd Australia 100 100

Whelans (WA) Pty Ltd Australia 100 -

Whelans International Pty Ltd Australia 100 -

Note 25: Commitments

(a) Commitments in relation to future minimum lease payments under non-cancellable operating

leases:

2010 2009

$000’s $000’s

Not later than one year 1,568 488

Later than one year but not later than five years 2,047 1,969

Later than five years - -

Total Commitments not recognised in financial statements 3,615 2,457

The non-cancellable operating leases are for the lease of office and staff accommodation. The leases

are generally for a term of between 1 to 5 years.

The Group holds three 3 year options to renew the lease at the Old Swan Brewery and a 5 year

option for its two offices in Mount Hawthorn.

(b) Commitments in relation to future minimum payments under novated motor vehicle leases:

2010 2009

$000’s $000’s

Not later than one year 151 -

Later than one year but not later than five years 205 -

Later than five years - -

Total commitments not recognised in financial statements 356 -

The novated motor vehicle leases are in relation to staff salary packaging. The leases are generally

for a term of 4 years.


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Note 26: Financial instruments

As at the reporting date, the Group’s financial instruments comprise of (i) cash and cash equivalents;

(ii) trade and other receivables; and (iii) trade and other payables.

Fair value of financial instruments

The fair values and carrying amounts of various financial instruments recognised at reporting date

are noted below:

2010 2009

Carrying Carrying

Note Amount Fair values Amount Fair values

$000’s $000’s $000’s $000’s

Cash and cash equivalents 9 1,775 1,775 9,284 9,284

Trade and other receivables 10 6,178 6,178 1,692 1,692

Trade and other payables 13 (2,037) (2,037) (1,009) (1,009)

Bank Overdraft 15 (1,167) (1,167) - -

Bank Loan 15 (650) (650) - -

Finance Lease Liabilities 15 (688) (688) - -

Hire Purchase Liabilities 15 (1,116) (1,116) - -

Insurance Premium 15 (363) (363) - -

Funding Loans 1,932 1,932 9,967 9,967

The carrying amounts of the financial instruments are reasonable approximation of their fair values,

on account of their short maturity cycle.

Risk management strategies

The Group is primarily exposed to (i) credit risks; (ii) liquidity risks; and (iii) interest rate risks. The

nature and extent of risk exposure, and the Group’s risk management strategies are noted below.

Credit risks

The Group’s credit risks arise from failure of the customers to pay for the services rendered per the

terms of the service contract.

Credit risk is kept continually under review and managed to reduce the incidence of material losses

being incurred by the non-receipt of monies due.

Credit risk is managed through:

monitoring and follow-up of accounts receivable on a regular basis; and•

follow up on overdue customer balances.•

Bad debts are written off in the year in which they are identified. Specific provisions are made

against identified doubtful debts. An assessment of expected losses is made based on past

experience and customer payment history patterns.

There has been no change in the above policy since prior year.

The Group typically trades with counterparts that are considered blue-chip as a means of mitigating

credit risk.

directors’ report

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Note 26: Financial instruments (continued)

The Group’s maximum exposure to credit risk is:

2010 2009

$000’s $000’s

Trade receivable 6,178 1,490

Interest receivable - 202

6,178 1,692

The Group does not hold collateral against the credit risks, however, management considers the

credit risks to be low on account of the risk management policy noted above.

The trading terms generally offer 30 days credit from the date of invoice. As of the reporting date,

none of the receivables have been subject to renegotiated terms.

The ageing analysis of past due trade receivables at reporting date are:

2010 2009

$000’s $000’s

0 - 30 days not past due 4,138 785

Past due 1 - 30 days 468 168

Past due 31 – 60 days 615 257

Past due 61 – 90 days 619 375

More than 90 days 388 924

Provision for doubtful debts (50) (817)

Total 6,178 1,692

The Group does not hold collaterals in relation to past due trade receivables.

The Group is also subject to credit risks arising from the failure of financial institutions that hold

entity’s cash and cash equivalents. However, the management considers this risk to be negligible.

The Group’s maximum exposure to credit risk for trade receivables at the reporting date by

geographic region was $6.228 million (2009: $2.193 million) for Australia and $0.0 million (2009:

$0.316 million) for Indonesia. The allowance for impairment for 2010 amounted to $0.050 million,

$0.817 million for 2009.

Liquidity risks

Liquidity risk is the risk that the Group will encounter difficulties to meet its contractual obligations

arising from the financial liabilities.

Liquidity risk is constantly monitored and managed through forecasting short term operating cash

requirements and the committed cash outflows on financial liabilities.

There has been no change in the above policy since prior year.

Maturity analysis of contractual undiscounted cash-flows on financial liabilities at reporting date.


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Note 26: Financial instruments (continued)

The following are the contractual maturities of financial liabilities including interest:

6

Non-derivative Carrying Contractual months 6-12

financial liabilities Amount Cash Funds or less months 1-2 yrs 2-5 yrs > 5 yrs

$000’s $000’s $000’s $000’s $000’s $000’s $000’s

Bank overdraft 1,167 1,167 - (1,167) - - -

Bank loan 650 650 - - - (650) -

Finance lease liabilities 688 752 (231) (128) (296) (97) -

Hire purchase liabilities 1,116 1,271 (205) (207) (413) (446) -

Insurance premium 363 392 (203) (103) (86) - -

funding loans

Trade and other payables 2,037 2,037 2,037 - - - -

6,021 6,269 (2,676) (1,605) (795) (1,193) -

For the 2009 comparative, the only financial liability was trade payables of $1,009,000 which was

due in 6 months or less.

It is not expected that the cashflows included in the maturity analysis could occur significantly

earlier, or at significantly different amounts.

Interest rate risk

Interest rate risk is the risk that the fair values and cash-flows of the Group’s financial instruments

will be affected by changes in the market interest rates.

The Group’s cash and cash equivalents are exposed to interest rate risks. 35% of cash and cash

equivalents are held on a fixed rate basis.

The Group’s loans and borrowings are exposes to interest rate risks. An average nominal interest

rate of 8.7%, being the average of all current facilities in Note 15, has been used to calculate

sensitivity.

Sensitivity of the Group’s financial instruments to changes in market interest rates:

The sensitivity of the Group’s financial instruments to a 1% movement in market interest would have

the following impact on the profits and equity:

2010 2009

+1% -1% +1% -1%

$000’s $000’s $000’s $000’s

Consolidated Group

Cash and cash equivalents 18 (18) 93 (93)

Loans and borrowings 40 (40) - -

58 (58) - -

Currency risk

The Group receivables are all denominated in Australian dollars and accordingly no currency risk

exists.


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Note 27: Business combination

On 28 February 2010, the Group obtained control of Whelans (WA) Pty Ltd, a surveying, mapping

and town planning business with operations throughout Western Australia by acquiring 100 percent

of the share and voting interests in the Group. The effective date of the acquisition was 28 February

2010.

Taking control of Whelans (WA) Pty Ltd will enable the Group to enhance its service offering,

providing additional support to existing customers. The acquisition is expected to provide the Group

with an increased market share in the mining, land development and government markets through

access to the acquiree’s customer base and attract new customers to the business. The Group also

expects to reduce cost through economies of scale.

For the period 28 February to 30 June 2010, the acquired business contributed revenue of $6.2m

and NPAT of $478k (includes $122k tax refund). Had the acquisition occurred on 1 July 2009,

management estimates that full year revenue and NPAT contributed to the Group would have been

$17m and $967k respectively. In determining these amounts, management has assumed that the fair

value adjustments, determined provisionally, that arose on the date of acquisition would have been

the same if the acquisition had occurred on 1 July 2009.

The following summarises the major classes of consideration transferred, and the recognised

amounts of assets acquired and liabilities assumed at the acquisition date.

Consideration transferred $000’s

Cash 4,704

Contingent consideration 599

Equity instruments (30,809,842 ordinary shares) 3,081

Total purchase consideration 8,384

Fair Value of net identifiable assets acquired (5,784)

Goodwill 2,600

The fair value of the ordinary shares issued is based on the listed share price of the Group at 28

February 2010 at 0.10 cents per share.

The Group was required to pay a contingent consideration of $599,000 on 1 July 2010 representing

the last tranche of the purchase price. This balance is recorded under Trade and Other Payables at

acquisition date.


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Note 27: Business combination (continued)

Identifiable assets acquired and liabilities assumed

$000’s

Current assets

Cash and cash equivalents 864

Trade and other receivables 4,802

Work in progress 327

Other current assets 99

Total current assets 6,092

Non current assets

Plant and equipment 3,411

Deferred tax assets 477

Intangible assets 591

Total non current assets 4,479

Total assets 10,571

Current liabilities

Trade and other payables 1,308

Current tax liabilities 20

Loans and borrowings 262

Employee benefits 1,257

Total current liabilities 2,847


Loans and borrowings 1,729

Employee benefits 211

Total non current liabilities 1,940

Total liabilities 4,787

Net assets 5,784

The fair value of all assets and liabilities acquired equates to the carrying value of assets and

liabilities with the exception of customer relationships and goodwill. The acquisition accounting is

provisional.

Goodwill was recognised as a result of the acquisition as follows:

Goodwill $000’s

Total Consideration 8,384

Less value of identifiable assets (5,784)

Goodwill 2,600


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Note 27: Business combination (continued)

The goodwill is mainly attributable to the skills and technical talent of Whelans (WA) Pty Ltd

workforce, and the synergies expected to be achieved from integrating the Group into the Group’s

existing service offering. None of the goodwill recognised is expected to be deductible for income

tax purposes.

Note 28: Parent entity disclosures

As at, and throughout, the financial year ending 30 June 2010 the parent company of the Group was

Emerson Stewart Group Limited.

Results for the Period 2010 2009

$000’s $000’s

Profit (Loss) for the period (856) 230

Other comprehensive income - -

Total comprehensive income for the year (856) 230

Financial position of parent entity at year end

Current Assets 3,672 10,405

Total Assets 21,555 20,633

Current liabilities 1,755 170

Total liabilities 1,766 170

Total equity of the parent entity comprising of:

Share capital 21,803 20,517

Reserves (586) 148

Retained earnings (1,428) (202)

Total Equity (19,789) 20,463

Parent entity guarantees in respect if Debts if its Subsidiaries

The parent entity has entered into a Deed of Cross Guarantee with the effect that the Group

guarantees debts in respect of its subsidiaries. Further details of the Deed of Cross Guarantee and

the subsidiaries subject to the deed, are disclosed in Note 15.

Note 29: Subsequent Events

The Group was required to pay a contingent consideration of $599,000 on 1 July 2010 representing

the last tranche of the sale purchase price for Whelans. This balance is recorded under Trade and

Other Payables as at 30 June 2010.

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independent auditors report

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independent auditors report

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additional information

Additional Information per ASX Listing Rules [Unaudited]

Shareholder Information as at 22 September 2010

Shareholder Shares % of Issued Capital

1 Amara Dario Angelo (including Cedarlake P/L) 36,450,000 28.162 Cole, Steven (Including Esore P/L) 5,915,996 4.573 Hill Brian Francis 2,699,473 2.094 McKinonn Edward A+GJ 2,699,473 2.095 Butterly Vernon S + JM 2,699,473 2.096 Mattock Glyn 2,699,473 2.097 Ireland Gregory J + KJ 2,591,494 2.008 Argonaut 2,500,000 1.939 McKinnon Kenneth 2,429,526 1.8810 Tomlinson Graeme J 2,159,578 1.6711 Gibb David James 2,154,072 1.6612 Gardiner Ian Keith +TR 1,622,383 1.2513 Areley Kings PL 1,500,000 1.1614 Beelong PL 1,500,000 1.1615 Culloden 1,000,000 0.7716 Stevenson Edward Joseph 1,000,000 0.7717 K & T Swick PL 930,000 0.7218 Salsano, Vincent 863,832 0.6719 Blood Nigel 863,831 0.6720 Beardman Robert Geoffrey 845,097 0.65

Substantial holders of 5% or more of fully paid ordinary shares

Shareholder No of Shares Person’s votes Voting Power

Amara Family Trust (including Cedarlake) 36,450,000 36,450,000 28.16%

Entrust Private Wealth Management Pty Ltd 22,005,000 22,005,000 17.00%

Spread of Holdings Holders Shares % of Issued

Capital

Nil Holding

1 – 1,000 4 64 .00

1,001 – 5,000 7 28,908 0.02

5,001 – 10,000 26 242,174 0.19

10,001 – 100.000 464 24,340,865 18.80

100,001 - 147 104,832,206 80.99

Total on Register 648 129,444,217 100.00

Shares held in Voluntary Escrow.

Currently 30,809,842 shares are held in voluntary escrow until 26 February 2011.

Securities Exchange

The Group is listed on the Australian Securities Exchange. The Home exchange is Perth.

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corporate information

The registered office of the Group is:

Emerson Stewart Group Limited

Old Swan Brewery

171 – 173 Mounts Bay Road

Perth WA 6000

Ph: 08 9424 9555

The principal place of business is:

Emerson Stewart Group Limited

Old Swan Brewery

171-173 Mounts Bay Road

Perth WA 6000

Ph: 08 9424 9555

Company Secretary

Vince Salsano, CPA

Share Registry

Security Transfer Registrars Pty Ltd

770 Canning Highway

Applecross WA 6153

Telephone: (08) 9315 2333

Facsimile: (08) 9315 2233

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HEAD OFFICEOld Swan Brewery Level 1, 171-173 Mounts Bay Road

Perth, Western Australia 6000

CONTACTPhone: 08 9424 9555 Fax: 08 9485 1339 Email: [email protected]

www.emersonstewart.com

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