sparq solutions pty ltd annual financial statements 2015...sparq solutions pty ltd table of contents...

SPARQ Solutions Pty Ltd

ABN 93 110 073 400

Annual financial statements For the year ended 30 June 2015

SPARQ Solutions Pty Ltd Table of Contents For the year ended 30 June 2015

1

Introduction and table of contents The financial statements have been presented in a style which attempts to make them less complex and more relevant to shareholders. We have grouped the note disclosures into five sections: ‘Basis of preparation’, ‘Profit and loss information’, ‘Financial assets and financial liabilities’, ‘Operating assets and liabilities’, and ‘Other information’. Each section sets out the accounting policies applied in producing the relevant notes, along with details of any key judgements and estimates used. The purpose of this format is to provide readers with a clearer understanding of what drives financial performance of the Company. Annual financial statements

Directors' report 3

Statement of profit or loss and other comprehensive income 5 Statement of financial position 6 Statement of changes in equity 7

Statement of cash flows 8

Notes to the financial statements

Section 1: Basis of preparation 1. Basis of preparation 9

Section 2: Profit and loss information 2. Revenue 11

3. Expenses 11

Section 3: Financial assets and financial liabilities

4. Cash and cash equivalents 12 5. Trade and other receivables 12

6. Trade and other payables 12 7. Interest bearing liabilities 13

8. Financial risk management 13

Section 4: Operating assets and liabilities

9. Plant and equipment 16 10. Intangible assets 18

11. Employee retirement benefits 19 12. Employee benefits 20

SPARQ Solutions Pty Ltd Table of Contents For the year ended 30 June 2015

2

Section 5: Other information 13. Share capital 22

14. Leases and other commitments 22 15. Contingencies 23

16. Notes to the statement of cash flows 23 17. Key management personnel disclosures 23

18. Related party transactions 27 19. Auditor’s remuneration 27

20. Subsequent events 27

Directors' declaration 28

Independent auditor’s report 29 Auditor's independence declaration 31

SPARQ Solutions Pty Ltd Directors' report For the year ended 30 June 2015

3

The directors present their report together with the financial statements of SPARQ Solutions Pty Ltd (the Company) for the year ended 30 June 2015 and the auditor's report thereon.

Directors

The names and details of the directors of the Company in office during the financial year and up to the date of this report, unless otherwise stated, are as follows:

Ian McLeod, Chairman

Terence Effeney

Peter Weaver

Chris Arnold

John Gardner

The following ceased to be directors during the financial year:

Gordon Taylor

Justin Fitzgerald

Principal activity

The principal activity of the Company during the financial year was to act as the Information Communications and Technology (ICT) Service Provider to its clients Ergon Energy Corporation Limited (Ergon Energy) and Energex Limited (Energex).

Dividends paid or declared

No dividends were paid or declared during the financial year (2014: nil). No recommendation for payment of dividends has been made.

Operating and financial review

During the year, the Company continued to engage in its principal activity and consolidate the joint ICT business through its delivery of both the day to day operations and ICT project work to its clients.

The Company operates on a cost pass through model to its clients, who are also its shareholders. Under this model, all operating costs incurred by the Company are passed through to its clients in full. The Statement of profit or loss shows a loss after income tax equivalent expense of the Company for the year of $11 thousand (2014: loss of $1 thousand). The total value of project work performed in the financial year increased to $139,058 thousand (2014: $65,895 thousand) due to significant ICT upgrades undertaken by the Company’s clients.

The financial statements are a general purpose financial report that have been prepared in accordance with Australian Accounting Standards and Interpretations, requirements of the Corporations Act 2001, provisions of the Government Owned Corporations Act 1993 (the “Act”) and other relevant legislation issued pursuant to that Act.

Significant changes in the state of affairs There have been no significant changes in the state of affairs.

Significant events after the end of the reporting period In the interval between the end of the reporting period and the date of this report, there has not arisen any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the Company, the results of those operations, or the state of affairs of the Company in future financial years.

Likely developments and future results The Queensland Government has announced its intention to merge the businesses of Ergon Energy, Energex and Powerlink. The implications of this on the Company are not clear at this time.

Environmental regulation and performance

There have been no matters, either during or since the end of the year, which in the opinion of the directors would give rise to any conflict with the provisions of existing environmental regulation. The Company has an Environmental Management System certified as meeting the requirements of ISO 14001.

The Company is conscious of its environmental responsibility and has implemented strategies to minimise the carbon impact of its operations.

SPARQ Solutions Pty Ltd Directors' report For the year ended 30 June 2015

4

Indemnification and insurance of directors and officers

During the year, a policy was held to insure all directors and officers of the Company against liabilities incurred in their capacity as director or officer. This policy is held by Ergon Energy and has been extended to include the Company. The provisions of this policy prohibit the disclosure of the nature of the liabilities and the amount of the premium paid. The Corporations Act 2001 does not require disclosure of this information in these circumstances.

The Company indemnifies the directors and officers of the Company. The indemnity relates to any liability (claims, actions, suits, proceedings, demands, losses, damages, costs, fees and expenses) in connection with or as a consequence of acting in any capacity for the Company, including acting as an authorised representative.

The Company also indemnifies the directors and officers of the Company for all legal costs (on a full indemnity basis) and other expenses incurred in connection with investigating or defending any legal proceedings.

Liabilities excluded from the indemnity include any liability recovered pursuant to any insurance policy for the Company or its parent companies; a liability owed to the Company; a liability for a pecuniary penalty or compensation order under the Corporations Act 2001; a liability that is owed to someone other than the Company and did not arise out of conduct in good faith; and legal costs in respect of which a company must not indemnify a person.

The Company has not otherwise, during or since the end of the financial year indemnified or agreed to indemnify an officer or auditor of the Company or any related body corporate against a liability incurred as such by an officer or auditor.

Directors' shareholding

No directors held any beneficial interest in the shares of the Company. All issued shares are held by Energex and Ergon Energy.

Auditor's independence declaration

The auditor's independence declaration is set out on page 31 and forms part of the directors’ report for the year ended 30 June 2015.

Rounding

In accordance with Australian Securities and Investment Commission Class Order 98/100, unless otherwise indicated, amounts contained in this report and the financial statements have been rounded to the nearest thousand dollars.

Signed in accordance with a resolution of the directors of SPARQ Solutions Pty Ltd made pursuant to s.298(2) of the Corporations Act 2001.

Ian McLeod

Chairman

Dated at Rockhampton, this 17th day of August 2015.

SPARQ Solutions Pty Ltd Statement of profit or loss and other comprehensive income For the year ended 30 June 2015

The statement of profit or loss and other comprehensive income is to be read in conjunction with the notes to the financial statements 5

Note

2015

$'000

2014

$'000

Revenue 2 218,044 195,580

Employee expenses (45,007) (42,118)

Materials and services 3 (65,459) (38,449)

Depreciation and amortisation (73,098) (81,307)

Finance costs (17,231) (19,680)

Other operating expenses (17,249) (14,026)

Loss before income tax equivalent expense - -

Income tax equivalent expense (11) (1)

Loss after income tax equivalent expense (11) (1)

Other comprehensive income

Items that will not be reclassified to profit or loss

Actuarial gain/(loss) on defined benefit plans recognised directly in equity 5,964 4,133

Deferred tax on actuarial gain/(loss) (1,789) (1,240)

Total items that will not be reclassified to the profit or loss 4,175 2,893

Total comprehensive income for the financial year 4,164 2,892

Loss attributable to:

Shareholders of the Company (11) (1)

Total comprehensive income attributable to:

Shareholders of the Company 4,164 2,892

SPARQ Solutions Pty Ltd Statement of financial position As at 30 June 2015

The statement of financial position is to be read in conjunction with the notes to the financial statements 6

Note

2015

$'000

2014

$'000

CURRENT ASSETS

Cash and cash equivalents 4 14,602 18,950

Trade and other receivables 5 30,510 25,862

Inventories 178 466

Total current assets 45,290 45,278

NON-CURRENT ASSETS

Plant and equipment 9 24,833 30,190

Intangible assets 10 218,851 185,895

Net deferred tax equivalent asset - 823

Employee retirement benefits 11 9,279 4,461

Total non-current assets 252,963 221,369

TOTAL ASSETS 298,253 266,647

CURRENT LIABILITIES

Trade and other payables 6 47,182 27,139

Interest bearing liabilities 7 57,051 78,283

Employee benefits 12 14,336 13,201

Provisions 5,523 3,829

Total current liabilities 124,092 122,452

NON-CURRENT LIABILITIES

Trade and other payables - 266

Interest bearing liabilities 7 165,741 140,317

Employee benefits 12 1,122 1,513

Provisions 620 562

Net deferred tax equivalent liability 977 -

Total non-current liabilities 168,460 142,658

TOTAL LIABILITIES 292,552 265,110

NET ASSETS / (LIABILITIES) 5,701 1,537

EQUITY

Share capital 13 1 1

Retained earnings/(accumulated losses) 5,700 1,536

TOTAL EQUITY 5,701 1,537

SPARQ Solutions Pty Ltd Statement of changes in equity For the year ended 30 June 2015

The statement of changes in equity is to be read in conjunction with the notes to the financial statements 7

Share

capital

$'000

Retained

earnings

$'000

Total

equity

$'000

Changes in equity for 2014

Balance at 1 July 2013 1 (1,356) (1,355)

Total comprehensive income for the financial year - 2,892 2,892

Balance at 30 June 2014 1 1,536 1,537

Changes in equity for 2015

Total comprehensive income for the financial year - 4,164 4,164

Balance at 30 June 2015 1 5,700 5,701

SPARQ Solutions Pty Ltd Statement of cash flows For the year ended 30 June 2015

The statement of cash flows is to be read in conjunction with the notes to the financial statements 8

Note

2015

$'000

2014

$'000

Cash flows from operating activities

Receipts from customers 226,825 211,135

Payments to suppliers and employees (125,104) (99,041)

Interest received 539 414

Interest paid (17,231) (19,680)

Net cash from/(used in) operating activities 16 85,029 92,828

Cash flows from investing activities

Payments for plant and equipment and intangibles (93,570) (53,984)

Net cash from/(used in) investing activities (93,570) (53,984)

Cash flows from financing activities

Proceeds from borrowings 127,030 89,477

Repayments of borrowings (122,837) (121,276)

Net cash from/(used in) financing activities 4,193 (31,799)

Net increase/(decrease) in cash and cash equivalents (4,348) 7,045

Cash and cash equivalents at the beginning of the financial year 18,950 11,905

Cash and cash equivalents at the end of the financial year 4 14,602 18,950

SPARQ Solutions Pty Ltd Notes to the financial statements For the year ended 30 June 2015

9

Note 1: Basis of preparation This section sets out the Company’s accounting policies that relate to the financial statements as a whole. Where an accounting policy is specific to one note, the policy is described in the note to which it relates. This section also shows new Australian Accounting Standards endorsed, amendments and interpretations, and whether they are effective in 2015 or later years. We explain how these changes are expected to impact the financial position and performance of the Company.

NOTE 1: Basis of preparation

SPARQ Solutions Pty Ltd (the Company) is a proprietary company limited by shares and is incorporated and domiciled in Australia. The Company is jointly owned by Ergon Energy and Energex. The principal activity of the Company during the financial year was to act as the Information Communications and Technology (ICT) Service Provider to Ergon Energy and Energex.

The Company’s registered office and its principal place of business are as follows:

Registered office Principal place of business

420 Flinders Street Level 6, 26 Reddacliff St

Townsville, Queensland 4810 Newstead, Queensland 4006

The financial statements were authorised for issue by the directors on 17th August 2015.

(a) Basis of accounting

Statement of compliance

The financial statements are general purpose financial statements that have been prepared in accordance with Australian Accounting Standards (AASBs) and Interpretations, requirements of the Corporations Act 2001, provisions of the Government Owned Corporations Act 1993, provisions of the Corporations Regulations 2001, and other relevant legislation issued pursuant to these Acts.

Basis of preparation

The financial statements are presented in Australian dollars. The Company is of a kind referred to in Class Order 98/100 issued by the Australian Securities and Investments Commission, relating to the ''rounding off'' of amounts in the financial statements. Amounts in the financial statements have been rounded off in accordance with that Class Order to the nearest thousand dollars unless otherwise indicated.

Historical cost convention

The financial statements have been prepared on a historical cost basis except for those financial assets and financial liabilities for which the fair value basis of accounting has been applied.

Comparative information

Comparative amounts have, where necessary, been reclassified so as to be consistent with current year disclosures.

Application of new Accounting Standards and Interpretations

The Australian Accounting Standards Board (AASB) has published certain new AASBs and Interpretations. The Company has adopted all of the new and revised AASBs and Interpretations that are relevant to the operations and effective for the current financial year.

Early adoption of standards

The Economic Entity has early adopted AASB 2015-2 Amendments to Australian Accounting Standards- Disclosure Initiative in advance of their effective date. The changes resulting from AASB2015-2 are not material and relate to the streamlining of disclosures included in the notes to the financial statements


10

NOTE 1: Basis of preparation (continued) New standards and interpretations not yet adopted

The AASB has also published certain new accounting standards and interpretations. These are not mandatory for 30 June 2015 reporting periods and they have not been early adopted. The Company’s assessment of the initial impact of the following Standards and Interpretations on its financial report is outlined below.

(i) AASB 15 Revenue from Contracts with Customers and AASB 2014-5 Amendments to Australian Accounting Standards

arising from AASB 15. AASB 15 is effective for financial years commencing on or after 1 January 2017.

The AASB has issued a new standard for the recognition of revenue which will replace AASB 118 Revenue and AASB 111 Construction Contracts.

AASB 15 requires revenue to be recognised when or as, the entity satisfies a performance obligation and requires the entity to identify the distinct performance obligations at the inception of the contract (“unbundling”). A preliminary assessment indicates that this change in the accounting standard is unlikely to affect the revenue recognition policy for the Company as revenue is currently being recognised at a disaggregated level.

The International Accounting Standards Board has approved a one-year deferral of the effective date for IFRS 15 and is expected to issue a formal amendment in September 2015. The standard is now effective for reporting periods beginning on or after 1 January 2018. The AASB are expected to adopt this amendment and defer the effective date of AASB15. A further exposure draft is expected as the International Accounting Standards Board plans to propose targeted amendments to clarify aspects of the requirements.

(ii) AASB 9 Financial Instruments (December 2014) and AASB2014-7 Amendments to Australian Accounting Standards arising from AASB9 (December 2014).

In December 2014, the AASB made further changes to the classification and measurement rules and also introduced a new impairment model. These amendments complete the new financial instruments standard.

The new impairment model is an expected credit loss (ECL) model which may result in the earlier recognition of credit losses. The Economic Entity has not yet assessed how its own impairment provisions would be affected by the new rules.

AASB 9 (December 2014) is effective for financial years commencing on or after 1 January 2018. There are no other standards or interpretations that are not yet effective and that would be expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.


11

Section 2: Profit and loss information This section focuses on the results and performance of the Company. The section provides further information about individual line items in the profit or loss statement, including: a breakdown of revenue by type individually significant expense items relevant accounting policies NOTE 2: Revenue

2015 $'000

2014 $'000

Revenue

Sales revenue

Provision of services 214,840 192,744

Other revenue

Rent received 2,665 2,381

Interest received 539 414

Other operating revenue - 41

Total revenue 218,044 195,580

Accounting policies

Revenue recognition

The Company provides ICT services; which provide three main revenue streams - projects to build ICT assets, asset service fees for use of SPARQ owned ICT assets, and provision of maintenance and support services. Revenue from project work is recognised by reference to the stage of completion of the transaction. Revenue from the provision of maintenance and support services is based on the level of usage of the Company’s services. Asset service fees are recognised to match the amortised useful life of the asset used by clients

Interest income is recognised in the statement of profit or loss as it accrues, using the effective interest rate method. All revenue is stated net of the amount of goods and services tax.

NOTE 3: Expenses

Profit/(loss) before income tax equivalent expense/(benefit) includes the following specific expenses:

Materials and services:

Contractor expenses 32,762 8,405

Licence and maintenance costs 26,233 27,389

Other materials and services 6,464 2,655

Total materials and services 65,459 38,449


12

Section 3: Financial assets and financial liabilities This section provides further information about the Company’s financial assets and financial liabilities, including: trade receivables trade payables loans financial risk management relevant accounting policies

2015

$'000

2014

$'000NOTE 4: Cash and cash equivalents

Cash at bank and on hand 1 4

Short-term deposits 14,601 18,946

Total cash and cash equivalents 14,602 18,950

NOTE 5: Trade and other receivables

Trade receivables 18,599 16,757

Prepayments 11,876 9,067

Other receivables 35 38

Total current trade and other receivables 30,510 25,862

The trade receivables balance relates to amounts owed by the shareholders, Ergon Energy and Energex for ICT Services provided by the Company. Outstanding invoices are settled on a monthly basis and management expects the year end outstanding balance to be fully recovered.

Accounting policies

Trade and other receivables

Trade and other receivables are recognised when the Company has a legal right to receive cash, cash equivalent or economic benefit. Trade receivables are recognised initially at fair value and subsequently at amortised cost less provision for impaired receivables.

NOTE 6: Trade and other payables

Current

Unsecured liabilities

Trade payables 28,810 20,088

GST payable 259 168

Lease incentive 252 276

Other payables and accruals 17,861 6,607

Total current trade and other payables 47,182 27,139

Accounting policies

Trade and other payables

Trade and other payables are recognised when the Company has a legal or constructive obligation to pay cash. Trade and other payables are initially recognised at fair value and subsequently at amortised cost.


13

NOTE 7: Interest bearing liabilities

2015 $'000

2014 $'000

Current


Construction loan facilities 711 471

Multi-Purpose loan facilities - 14,646

Asset loan facilities 56,340 63,166

Total current interest bearing liabilities 57,051 78,283

Non-current


Construction loan facilities 70,450 29,986

Asset loan facilities 95,291 110,331

Total non-current interest bearing liabilities 165,741 140,317

The Construction loan facilities fund all construction and associated costs during the construction phase of a project. A portion of each Construction loan facility is disclosed as a current liability based on the planned capitalisation date that will be applied when construction is complete. The remainder are disclosed as non-current liabilities.

The disclosures of the Asset loan facilities are split between current and non-current liabilities based on the fixed asset register depreciation and amortisation schedules.

Accounting policies

Borrowings

Borrowings are initially recognised at fair value net of transaction costs incurred. Interest-bearing borrowings are subsequently measured on an amortised cost basis with any difference between cost and redemption value being recognised in the statement of profit or loss over the period of the borrowings on an effective interest basis. Funds are borrowed in accordance with the Multi-Option Funding Agreements operating between the Company and the shareholders. NOTE 8: Financial risk management

(a) Capital risk management

Funds borrowed from the joint shareholders, Ergon Energy and Energex, are done so in accordance with the terms of the Multi-Option Funding Agreement operating between the Company and the two shareholders. The interest rate charged on this facility is a prescribed rate that gives the lender an allowable rate of return on its assets. The interest rate is reviewed annually.

The Company operates on a cost pass through model to its clients, who are its shareholders. Under this model, all operating costs incurred by the Company are passed through to its clients in full. There is no margin in this model and as such the Company does not make a profit. The nature of the operating, financial and service provision model is set out in the Shareholders’ Deed between the Company and the shareholders. This Deed provides exclusivity to the Company for the provision of ICT services to the shareholders and can only be terminated by mutual agreement between the shareholders or as a consequence of a material default by a shareholder or an insolvency event occurring in a shareholder.

As such, the ability of the Company to continue as a going concern is dependent upon the shareholders and their obligations under the Shareholders’ Deed, supported by the Equity Subscription Agreement and Subordination Deed. The shareholders are required to subscribe for shares and pay in full for these shares within five business days of notice from the Company of a trigger event. A trigger event includes a majority of the directors forming the view that the Company is, or may become unable to pay all of the Company’s debts as and when they become due and payable. The Equity Subscription Agreement ensures the Company will be funded and able to pay its debts as and when they fall due.


14

NOTE 8: Financial risk management (Continued)

(b) Interest rate risk management

The Company’s exposure to market interest rates relate primarily to the Company’s debt obligations. The level of debt is disclosed in Note 7. The only source of borrowing is from its two shareholders. Under the agreements with the two shareholders the interest rate on borrowings up to 30 June 2015 has been a mixture of fixed and variable. From 1 July 2015, the interest rate on all borrowings is variable. However the minimal level of risk to the Company remains unchanged, as under the pass through model all interest costs are charged to the shareholders.

(c) Interest rate sensitivity analysis

At 30 June 2015, if interest rates had been 100 basis points higher or lower and all other variables were held constant, the Company’s net profit and equity would not increase or decrease, as the Company has agreements in place to recover all costs (including financing costs) from its parent companies (2014: nil).

The following table indicates the effective interest rates on the Company's financial assets and liabilities at the end of the financial year.

Floating interest rate

$’000

Fixed interest rate

$’000

Non-interest bearing

$’000

Weighted average interest

rate

%

2015

Financial assets

Cash and cash equivalents 14,601 - 1 3.2

Trade and other receivables - - 30,510 -

Financial liabilities

Trade and other payables - - 47,182 -

Interest bearing liabilities 71,161 151,631 - 8.3

2014

Financial assets

Cash and cash equivalents 18,949 - 1 3.4

Trade and other receivables - - 16,757 -

Financial liabilities

Trade and other payables - - 27,405 -

Interest bearing liabilities 30,457 188,143 - 8.6


15

NOTE 8: Financial risk management (Continued)

(d) Liquidity risk management

The financial statements have been prepared on the going concern basis, which assumes continuity of normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business.

Given the principal operating activity and strategic purpose of the Company is to provide Ergon Energy and Energex (the shareholders) with ICT services at nil margin, the Company does not operate to make a profit from its activities, as a cost pass through model operates.

At 30 June 2015, the Company has:

A working capital deficit of $78,802 thousand (2014: $77,174 thousand); and

Net assets of $5,701 thousand (2014: $1,537 thousand).

The working capital deficit is primarily on account of the current portion of interest bearing liabilities, $57,051 thousand (2014: $78,283 thousand) where offsetting assets are disclosed as non-current. The nature of the operating, financial and service provision model is set out in the Shareholders’ Deed between the Company and its two shareholders, as outlined in Note 8(a). The Shareholders’ Deed, supported by the Equity Subscription Agreement and Subordination Deed ensures that the Company will be funded and able to pay its debts as and when they fall due. Pursuant to these agreements, it is expected that the current interest bearing liabilities will be recovered from clients as asset service fees and service level agreement revenue in the next financial year in the ordinary course of business.

Based on these agreements the Company has minimal exposure to liquidity risk and, the directors consider there are reasonable grounds to believe the Company will continue as a going concern. The financial statements do not include adjustments relating to the recoverability and classification of recorded asset amounts nor the amounts and classification of liabilities that might be necessary should the Company not continue as a going concern.

(e) Fair value of financial instruments

The Company’s principal financial instruments comprise receivables, payables, loans from entities with joint control, and short term deposits. The carrying value of the financial instruments approximates the fair value.


16

Section 4: Operating assets and liabilities This section shows the financial information relating to the Company’s operating assets and liabilities including: plant and equipment intangible assets employee benefits a summary of accounting policies and critical accounting estimates

NOTE 9: Plant and equipment

2015

$'000

2014

$'000

Plant and equipment - at cost 49,526 62,863

Less accumulated depreciation (28,182) (34,252)

21,344 28,611

Work in Progress

At cost 3,489 1,579

Total plant and equipment 24,833 30,190

Reconciliations

Reconciliations of the carrying amounts for each class of plant and equipment are set out below:

Plant and equipment

Cost at the beginning of the financial year 62,863 57,917

Accumulated depreciation and impairment at the beginning of the financial year (34,252) (29,196)

Carrying amount at the beginning of the financial year 28,611 28,721

Additions 7,445 17,936

Depreciation expense (14,712) (18,046)

Carrying amount at the end of the financial year 21,344 28,611 Work in progress


Transfer to plant and equipment (7,445) (17,936)

Additions 9,355 14,917

Carrying amount at the end of the financial year 3,489 1,579

Total plant and equipment 24,833 30,190

Assets with historical cost of $44,663 thousand, but with fully written down values have been derecognised during the current financial year. (2014: $28,719 thousand)


17

NOTE 9: Plant and equipment (Continued)

Accounting policies

Plant and equipment

(i) Recognition and measurement

Assets acquired are measured at the cost of acquisition, being the purchase consideration determined as at the date of acquisition plus costs incidental to the acquisition. Each class of plant and equipment is carried at historical cost less, where applicable, any accumulated depreciation and impairment losses.

(ii) Depreciation

Plant and equipment are depreciated on a straight line basis over their useful lives, net of their residual values. The estimated useful lives used in the calculation of depreciation for plant and equipment are:

Depreciation period

Computer hardware 3 to 5 years

Other plant and equipment 3 to 7 years

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of the financial year.

(iii) Disposal of items of plant and equipment

The gains and losses on disposal of items of plant and equipment are determined by comparing the proceeds of disposals with the carrying amounts of the items. The net gains and losses on disposals are included in the statement of profit or loss.

(iv) Maintenance and repairs

Routine operating maintenance and repair are expensed as incurred.

Refer to Note 10 for details of accounting policies applied to work in progress and finance costs. Critical judgements in applying the company’s accounting policies are outlined in Note 10.


18

NOTE 10: Intangible assets

2015

$'000

2014

$'000

Computer software – at cost 369,431 371,341

Less accumulated amortisation (226,800) (210,222)

142,631 161,119

Work in Progress

At cost 76,220 24,776

Total intangible assets 218,851 185,895

Reconciliations

Computer software

Cost at the beginning of the financial year 371,341 353,761

Accumulated amortisation and impairment at the beginning of the financial year (210,222) (172,669)


Additions 39,898 43,289

Amortisation expense (58,386) (63,262)


Work in progress


Transfer to intangible assets (39,898) (43,289)

Additions 91,342 41,034


Total Intangible Assets 218,851 185,895

Assets with historical cost of $127,855 thousand (2014: $86,047 thousand), but with fully written down values have been derecognised. Accounting policies

Intangible assets

Computer software

Computer software is carried at cost less accumulated amortisation and accumulated impairment losses.

Internally generated intangible assets

Expenditure on research activities is recognised as an expense in the period in which it is incurred. Where no internally-generated intangible asset can be recognised, development expenditure is also recognised as an expense.

Internally generated intangible assets are carried at historical cost less accumulated amortisation and accumulated impairment losses. All costs directly attributable to the creation of the asset from the point when it first meets the recognition criteria are capitalised into the value of the asset.

Amortisation

The cost of an intangible asset is amortised on a straight-line basis over the estimated useful life of the asset unless such assets have indefinite useful lives. Software is amortised over a period between 1 to 9 years.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of the financial year.

Finance costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use.

All other borrowing costs are recognised in the statement of profit or loss in the period in which they are incurred.


19

NOTE 10: Intangible assets (continued)

Accounting policies

Work in progress

Work in progress relates to the plant and equipment and intangible assets under construction. Work in progress is carried at cost less any impairment losses. Costs are accumulated in the capital work in progress account until such a time that the asset is ready for use. At this time the costs are transferred from work in progress to the relevant asset class being plant and equipment or intangible assets.

Capital work in progress is not depreciated.

Critical judgements in applying the Company’s accounting policy

Useful lives

Management has applied judgement in determining the useful lives and estimated residual value of plant and equipment and intangible assets. The assumptions for the useful lives of plant and equipment are discussed in Note 9.

NOTE 11: Employee retirement benefits

(a) Defined benefit obligation 2015

$’000

2014

$’000 Defined benefit obligation surplus 9,279 4,461

Total non-current employee benefit asset 9,279 4,461

The Company contributes to an industry multiple employer superannuation fund, the Energy Super Fund. Members, after serving a qualifying period, are entitled to benefits from this fund on retirement, resignation, retrenchment, disability or death.

The defined benefit account of this fund provides defined lump sum benefits based upon years of service and final average salary. Employee contributions to the fund are based on various percentages of their gross salaries.

The Trust Deed of the Fund states that, if the Fund winds up, after the payment of all costs and the payment of all member benefits in respect of the period up to the date of termination, any remaining defined benefit assets may be distributed by the Trustee of the Fund, acting on the advice of an actuary to the participating employers, unless directed otherwise by the employer in accordance with the Trust Deed.

The Company may at any time, by notice to the Trustee, terminate its contributions. The employer has a liability to pay the monthly contributions due prior to the effective date of the notice, but there is no requirement for an employer to pay any further contributions, irrespective of the financial condition of the Fund. However, the Company assumes most of the risks of the Fund and therefore the Fund is Defined Benefit. The Company may benefit from any surplus in the Fund in the form of a contribution reduction. Any reduction in contributions would normally be implemented only after advice from the Fund’s actuary.

The Company expects to contribute $233 thousand to its defined benefit plans in 2016 (actual contributions for 2015: $197 thousand). The amounts included in the statement of financial position arising from the Company's obligations in respect of its defined benefits plan are as follows:

2015

$’000

2014

$’000

2013

$’000

2012

$’000

2011

$’000

Present value of funded defined benefit obligations (33,273) (33,744) (32,495) (35,947) (27,655)

Fair value of plan assets 42,552 38,205 33,620 30,571 30,917

Net asset/(liability) arising from defined benefit obligations 9,279 4,461 1,125 (5,376) 3,262

Experience adjustments on plan liabilities (22) 852 83 (771) 1,006

Experience adjustments on plan assets 2,976 3,842 3,654 (1,578) 760


20

NOTE 11: Employee retirement benefits (continued)

Employer contributions

Employer contributions to the defined benefit section of the plan are based on recommendations by the plan's actuary. Actuarial assessments are made at no more than three yearly intervals. The actuarial assessment as at 30 June 2013 has been completed and from 1 July 2014 the actuary has recommended that the Company pay 3% of defined benefit members’ salaries. The next actuarial assessment will be completed as at 30 June 2016 and the actuary’s next recommended contribution rate will apply from 1 July 2017. (b) Defined contribution plans The Company contributes to defined contribution schemes in various superannuation funds. The amount recognised as expense was $3,418 thousand for the year ended 30 June 2015 (2014: $3,136 thousand).

Accounting policies

Employee benefits

Superannuation schemes

The Company contributes to both defined contribution and defined benefit superannuation plans.

A defined contribution plan is a superannuation plan under which the Company pays fixed contributions. The Company’s liability is limited to contributions to the fund. The contributions are recognised as an employee benefit expense when the related service is rendered. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available.

A defined benefit plan is a superannuation plan that defines the amount of the benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and final salary.

The asset or liability recognised in the statement of financial position in respect of defined benefit superannuation plans is the difference between the present value of the defined benefit obligation at the end of the financial year and the fair value of the plan assets, including experience adjustments and past service costs. The defined benefit obligation is calculated annually by an independent actuary using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates on High Quality Corporate bonds that are denominated in the currency in which the benefits will be paid, being Australian dollars, and that have terms to maturity that approximate the terms of the related superannuation liability.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised in equity.

NOTE 12: Employee benefits

2015

$'000

2014

$'000

Current liability

Employee benefits 14,336 13,201

Non-current liability

Employee benefits 1,122 1,513

The current provision for employee benefits includes $7,881 thousand of annual leave and vested long service leave entitlements accrued which, based on past experience and current expectations, is not expected to be taken within 12 months (2014: $7,542 thousand). The provision has been classified as a current liability as the Company does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting period.


21

NOTE 12: Employee benefits (continued)

Accounting policies

Employee benefits

(i) Wages and salaries, annual leave, long service leave and sick leave

Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled within 12 months of the end of the financial year are recognised in respect of employees’ services up to the end of the financial year. They are measured at the amounts expected to be paid when the liabilities are settled.

Liabilities expected to be settled more than 12 months after the end of the financial year are measured at the present value of expected future payments to be made in respect of services provided by employees up to the end of the financial year. For long service leave, consideration is also given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments relating to such liabilities are discounted using market yields at the end of the financial year High Quality corporate bonds with terms to maturity that match, as closely as possible, to the estimated future cash outflows.

The current provision for employee benefits includes annual leave and vested long service leave entitlements accrued which, based on past experience and current expectations, is not expected to be taken within 12 months. The provision is classified as a current liability as the Company does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. Sick leave is non-accumulating. An expense is recognised when the leave is paid.

(ii) On-costs and superannuation contributions on leave balances

On-costs, including payroll tax and workers’ compensation insurance, are recognised and included in liabilities and costs when the employee benefits to which they relate are recognised as liabilities.

On-costs are measured at their nominal amounts unless the effect of the time value of money is material. If the effect of the time value of money is material, the on-costs are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the end of the financial year. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability.

On-costs are not employee benefits and therefore, are excluded from employee benefits expense. Provisions for on-costs are disclosed in the financial statements as provisions.

Superannuation contributions relating to the leave balances are measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the financial year. Superannuation contributions are disclosed as employee benefit expense and as employee benefit liabilities.

Critical judgements in applying the Company’s accounting policy

Employee benefits – long service leave

Management has applied judgement in determining the following key assumptions used in calculating long service leave at balance date:

Future increases in wages and salaries;

Employee departures; and

Periods of service.


22

Section 5 Other information This section outlines the Company’s share capital along with other information that is not directly related to specific line items in the financial statements. This includes information about commitments, contingent assets and liabilities, key management personnel disclosures, related party transactions and other statutory information.

NOTE 13: Share capital

2015 $'000

2014 $'000

110,000 ordinary shares fully paid (2014: 110,000) 1 1

Ordinary shares issued during the year: Nil (2014: Nil).

Fully paid ordinary shares carry one vote per share and carry the rights to dividends. The shares have no par value.

NOTE 14: Leases and other commitments

Capital expenditure commitments Estimated capital expenditure contracted for at the end of the financial year 12,472 6,840

Operating lease arrangements

The Company leases office space under non-cancellable operating leases expiring within 3 years. The leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are re-negotiated, where required.

The Company sub-leased one of the leased properties to Energex (a related party, refer to note 18). The lease and sub-lease will expire in 2016. Sub-lease payments of $2,018 thousand were received in 2015.

Non-cancellable operating lease commitments Commitments in relation to leases contracted for at the end of the financial year but

not recognised as liabilities payable:

- Not later than one year 4,132 4,452

- Later than one year but not later than five years - 4,067

4,132 8,519

Accounting policies

Leases

(i) Operating leases

Leases in which substantially all of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments under operating leases are charged to the statement of profit or loss on a straight-line basis over the period of the lease unless an alternative basis is more representative of the time pattern of benefits to be obtained from the leased property.

(ii) Lease incentives

Where the Company is a lessee under an operating lease, the aggregate benefit of any incentive provided by the lessor for a new or renewed lease is recognised as a liability. An adjustment to rent expense over the lease term of the lease is recognised on a straight-line basis unless another systematic basis is more representative of the time pattern of benefit from the use of the leased asset.


23

NOTE 15: Contingencies

There are no contingent assets or contingent liabilities.

Accounting policies

Contingent assets and liabilities

Contingent assets and contingent liabilities are not recognised in the financial statements. They are, however, disclosed in the notes to the financial statements where appropriate.

NOTE 16: Notes to the statement of cash flows

2015

$'000

2014

$'000

Reconciliation of profit/(loss) after income tax equivalent expenses to the net cash flows provided by operating activities

Profit/(loss) after income tax equivalent expense (11) (1)

Non-cash flows in profit/(loss) after income tax equivalent:

Depreciation and amortisation 73,098 81,307

Changes in employee benefits and other provisions 2,107 4,133

Net gain/loss on disposal of property, plant & equipment - 3

Other non-cash flow items 867 474

Changes in assets and liabilities:

Trade and other receivables (4,648) 4,446

Inventory 288 1,129

Trade and other payables 12,939 1,553

Employee benefits 410 (15)

Provisions (21) (201)

Net cash flow provided by/(used in) operating activities 85,029 92,828

Accounting policies

Cash and cash equivalents

Cash and cash equivalents include cash on hand and deposits held at call with banks and Queensland Treasury Corporation that are highly liquid, subject to an insignificant risk of change in value and have maturity of three months or less at date of acquisition.

NOTE 17: Key management personnel disclosures

(a) Details of directors

The directors of the Company during the financial year ended 30 June 2015 were:

Ian McLeod Chairman - Non-Executive Director

Terence Effeney Non-Executive Director

Peter Weaver Non-Executive Director

Chris Arnold Non-Executive Director (appointed 1 August 2014)

John Gardner Non-Executive Director (appointed 10 October 2014)

Justin Fitzgerald Non-Executive Director (resigned 20 October 2014)

Gordon Taylor Non-Executive Director (resigned 5 June 2015)


24

NOTE 17: Key management personnel disclosures (continued)

(b) Compensation - Directors

John Gardner is non-executive director of Sparq Solutions and his directors’ emoluments are set by State Government regulation, with other fees and allowances determined on the basis of meetings attended and expenditure incurred in performing his role as a Director of the Company.

The non-executive directors of the Company do not participate in any variable reward or 'at-risk' plan.

Amounts disclosed for remuneration of key management personnel exclude insurance premiums paid by the Company in respect of directors’ liability and officers’ liability insurance contracts.

In accordance with Ministerial Guidelines, details of compensation provided to directors in office during the financial period ended 30 June 2015 by the Company, are as follows:

Directors Fees Other Fees Total

2015 $ $ $

John Gardner 3,270 151 3,421

The remaining directors were all executives of either Energex or Ergon Energy, the joint owners of the entity. These directors’ appointments are as a result of their executive position in the controlling entities and no compensation has been made for their directorships of the Company.

Information regarding the compensation received by the directors as a result of their director and executive positions in Energex or Ergon Energy is included in the financial statements of those entities.

(c) Compensation - Executives

Ergon Energy is the corporate service provider for Executive remuneration. The Establishment & People Committee recommends executive remuneration to the Company’s Board as part of an annual review. Input is sought from industry and market surveys (as deemed suitable by the shareholding Ministers) when determining the level of remuneration for these positions. Final approval is then required from the Board, ensuring that remuneration arrangements for the executives are appropriate. When considering executive remuneration, board member Mr Terence Effeney does not participate in matters relating to the remuneration of the Chief Executive Officer.

A Total Fixed Remuneration (TFR) concept for the structure of executive remuneration is utilised. While the total cost of an executive's remuneration package is capped, the executive then has the flexibility to decide the composition of the total fixed remuneration, which could include cash salary, motor vehicle, car park and additional superannuation, plus any fringe benefits tax incurred.

No other non-cash benefits are provided to executives as the TFR concept captures various benefits structured within a total cost rather than a base salary plus benefits approach.

Executive staff members are eligible for an 'at risk' or variable component that is directly linked to both the overall performance of the Company and their individual efforts against a range of key performance indicators as detailed in the annual business plan and the executive’s performance agreement. The Board sets the initial ‘target’ goals from the annual Business Plan. Any 'at risk' payment is contingent upon the Board's assessment of the Company's overall performance and shareholder expectations.

Performance payments may not exceed a maximum of 15% of the individual’s TFR figure.

Performance payments to all employees, including Executive staff, are disclosed in Note 17(e).

Executives are employed on a similar, tenured contract, except for the Chief Executive Officer who is employed on a fixed term contract. An option to extend for a further 2 years out to August 2016 has been enacted.

Early termination entitlements for executives are subject to the normal terms and conditions of their contracts with the Company. The Chief Executive Officer is entitled to a termination payment comprising of a service payment equal to the greater of 13 weeks’ Salary or 2 weeks’ Salary per year of continuous service with the Company or Ergon Energy up to a maximum of 52 weeks Salary; and a separation payment equal to the greater of 13 weeks Salary or a sum equal to 20% of the Salary that the Executive would have earned had the employment continued from the day after the notice period ceased until the Termination Date.

Other executives are entitled to a termination payment comprising a payment equivalent to 13 weeks of TFR, pro rata long service leave and accrued annual leave. Where termination is due to redundancy, other executives are entitled to a service payment equal to three weeks TFR for every completed year of employment to a maximum of 75 weeks. This entitlement lapses if an offer of alternative employment is received from a Queensland Government entity covered by the Electricity Act 1994. Other executives may, upon receiving notice of redundancy, apply for early termination of their employment, which if approved provides entitlement to an early separation incentive payment of 13 weeks TFR if employment is terminated within 14 days of receiving that approval.


25


EXECUTIVE REMUNERATION Short term

benefits1 Performance

payments Post-

employment benefits2

Other long- term

benefits3

Total

2015 $ $ $ $ $

Peter Effeney – CEO 338,694 47,923 85,360 25,387 497,364

Jonathan Thompson – CFO 231,627 30,592 57,082 8,572 327,873

Paul Cockburn – Service Delivery Mgr 237,335 30,410 19,188 3,017 289,950

Col Hanley – Applications Capability Mgr 215,928 26,312 51,361 7,134 300,735

Peter Poncini – GM Office of CIO 243,432 30,569 54,824 18,876 347,701

Bruce Maskey – Project Delivery Mgr 234,741 30,718 19,188 8,756 293,403

Total 1,501,757 196,524 287,003 71,742 2,057,026

2014

Peter Effeney – CEO 364,777 47,503 81,286 17,921 511,487

Jonathan Thompson – CFO 248,560 10,771 55,389 4,456 319,176

Paul Cockburn - Service Delivery Mgr 231,948 29,442 18,144 9,850 289,384

Col Hanley - Applications Capability Mgr 222,339 27,042 49,546 13,307 312,234

Peter Poncini – GM Office of CIO 237,330 27,714 52,886 6,384 324,314

Bryce Maskey - Project Delivery Mgr 224,817 28,438 18,206 7,741 279,202

Total 1,529,771 170,910 275,457 59,659 2,035,797

(1) Short term benefits include all payments made to the Officer during the year excluding at-risk performance bonuses. Due to the adoption of AASB 119, the definition of Short-term benefits has changed. Annual leave paid is included in short term benefits and annual leave accrued is now included in long-term benefits.

(2) Post-employment benefits represent superannuation contributions made by the employer to the superannuation fund at the rates prescribed by the Super Guarantee Levy (i.e. 9.5% of maximum super contribution base). Some Officers are members of the defined benefit superannuation fund to which the Company made contributions at a rate of 3% during the 2015 financial year (2014: 10%). Refer to Note 11 for further information on the defined benefit obligations of the Company.

(3) Other long term benefits represent annual leave and long service leave benefits accrued during the year.

Total Fixed Remuneration package 4,5 2015 2014

Chief Executive Officer 417,371 401,705

Chief Financial Officer 279,106 273,633

Service Delivery Manager 256,798 250,290

Applications Capability Manager 251,131 244,767

Group Manager - Office of CIO 268,063 261,270

Project Delivery Manager 254,212 247,529

Total 1,726,681 1,679,194

(4) The TFR package differs from the Executive Remuneration disclosures above, as the Executive Remuneration disclosures reflect the costs to the Company. Adjustments include leave and superannuation accruals and pro-rata payments for part-year entitlements.

(5) The TFR package disclosed applies as at 30 June.


26


(d) Key management personnel compensation by category

2015

$

2014

$

Short-term benefits 1,505,178 1,529,771

Post-employment benefits 287,003 275,457

Other long-term benefits 71,742 59,659

Performance payments 196,524 170,910

2,061,083 2,035,797

(e) Performance payments to employees

The Company’s Employee Performance Management Framework includes access to a performance pay scheme which provides for the establishment of action plans and performance indicators against which individual performance is assessed for the purposes of determining performance payments. Employees develop performance agreements with their managers for the financial year, with performance reviews (assessments) for performance payments being conducted mid-year and upon completion of the full year assessment period. All employees with three or more month’s service in a performance pay period are eligible to participate in the scheme. Participation in the Performance Management process is compulsory for all employees; however, participation in the performance payment scheme is voluntary. To be eligible for payment, the employee and manager have a discussion to develop agreed targets which must be documented within the performance agreement. This agreement must be signed by both parties. The employee must also be employed:

(1) For three or more months service in a performance pay period; and (2) By the Company at the end of the performance pay period to be eligible.

The size of the pool at the end of each period to enable payment of performance pays is at the discretion of the Board. The Board will consider the performance of the organisation and Shareholder expectation. There will be a maximum pool of 6% of eligible staff salaries for employees covered under the Union Collective Agreement. Subject to Board approval, performance payments are paid annually – generally in September each year. Executive compensation details are disclosed in Note 17(c). In addition, the performance payments for executives are included in the table below.

Financial year Aggregate At-Risk performance

remuneration $’000

Total fixed salaries and wages payments

$’000

Employees receiving performance payments

Number

2015 2,207 34,068 318 2014 2,002 34,232 326

(f) Transactions with related parties of key management personnel

Key management personnel of the Company and of its related parties, conduct transactions with related parties on terms and conditions no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-related entities on an arm's length basis.

All transactions with key management personnel or related parties that occurred during the financial year are trivial or domestic in nature, apart from those disclosed in Note 18.

(g) Loans to key management personnel

The Company has not made any loans to key management personnel in either the current or the prior year.


27

NOTE 18: Related party transactions

The Company is jointly controlled by Ergon Energy and Energex.

Ergon Energy (an entity with joint control) provided business management, financial and corporate services and administration services to the Company. All services were provided on normal commercial terms and conditions.

Details of material related party transactions and balances, as reported in the statement of profit or loss and statement of financial position, are disclosed below:

2015

$

2014

$

Sale of information technology and telecommunications solutions and services to the entities with joint control:

Ergon Energy 110,921,584 83,884,733

Energex 106,583,391 111,240,799

217,504,975 195,125,532

Interest received 538,552 454,307

Total revenue and other income (per Note 2) 218,043,527 195,579,839

Payments made by Ergon Energy on behalf of the Company for employee expenses and other services, and project costs transferred from Ergon Energy. 219,145,262 159,929,120

Payment for project and other costs transferred from Energex 13,908,817 9,224,073

The Company has the following receivables from and payables to the entities having joint control:

Trade receivables 18,651,224 16,756,388

Trade payables 16,531,980 13,969,845

The Company has received unsecured loans from the entities having joint control. The loans are interest bearing with rates between 4.04% and 9.72% (2014: 4.56% and 9.72%). The amounts outstanding at balance date were $222,791,841 (2014: $218,599,141).

Included above is rent received from Energex of $2,665,027 for the sub-lease of the Company’s leased premises at Montpelier Road. The Company has also paid $4,282,127 rent to Energex for the lease of office space.

Transactions with other related parties During the year, the Company paid contributions of $3,614,493 (2014: $3,754,307) to defined benefit and accumulation superannuation plans on behalf of employees.

NOTE 19: Auditors remuneration

Audit of the financial statements 189,400 195,000

Total auditor’s remuneration 189,400 195,000

NOTE 20: Subsequent events

There are no other events of a material nature have occurred subsequent to 30 June 2015.

SPARQ Solutions Pty Ltd

Directors' declaration

28

The directors declare that:

(a) In the directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and

(b) In the directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with Australian Accounting Standards and Interpretations and giving a true and fair view of the financial position and performance of the Company.

Made in accordance with a resolution, made in Rockhampton, by the directors.

Ian McLeod

Chairman

17 August 2015

Independent auditor’s report

29

To be provided by Queensland Audit Office

Independent auditor’s report

30

(2nd page) To be provided by Queensland Audit Office

Auditor's Independence Declaration to the Directors of SPARQ Solutions Pty Ltd

31

To be provided by Queensland Audit Office

sparq solutions pty ltd annual financial statements 2015...sparq solutions pty ltd table of contents...

Documents