AUSTIN ENGINEERING LIMITED — Annual Report 2011

Aug 25, 2011

AUSTIN ENGINEERING LTD (ABN 60 078 480 136) AND CONTROLLED ENTITIES

PRELIMINARY FINAL REPORT FOR THE YEAR ENDED 30 JUNE 2011

RESULTS FOR ANNOUNCEMENT TO THE MARKET

Results Revenue Adjusted net profit after tax for the year Net profit for the year attributable to members*	Year to 30 June 2011 $m 205.9 up 43% from 22.02 up 14% from 21.47 up 11% from	Year to 30 June 2010 $m 144.0 19.26 19.26

• Adjusted in the year to 30 June 2011 to remove the effect of non-cash amortisation of intangibles as detailed in note 5 to the preliminary financial statements Brief Explanation of Movements in Revenue and Net Profit The movements in revenue and net profit after tax for the year ended 30 June 2011 over the previous year are due to a combination of factors including: - Improved business conditions across most of the group’s operations - Additional contributions from new business acquisitions: Pilbara Hire Group (completed in early July 2010) Phillips Engineering (now Austin Engineering Hunter Valley, completed in early November 2010) COR Cooling Group (completed in mid-December 2010) - Reduced levels of contribution from the group’s operations in South America due to delays in completion of the new “La Negra’ workshop facilities in Chile until mid-July 2011 and some operating losses for the Hunter Valley business unit in the post-acquisition period - Costs associated with the setup of operations in Indonesia and Colombia as well as the development of new mining products

Dividends and Dividend Reinvestment Plans

Dividends and Dividend Reinvestment Plans	Dividends and Dividend Reinvestment Plans	Dividends and Dividend Reinvestment Plans	Dividends and Dividend Reinvestment Plans	Dividends and Dividend Reinvestment Plans
	Final dividend paid on 8 October 2010 for the financial year ended 30 June 2010 Interim dividend paid on 25 March 2011 for the financial year ended 30 June 2011 (up from 2.0c in the previous year) Final dividend declared for the financial year ended 30 June 2011 Total dividend for the financial year ended 30 June 2011 (up from 9.5c in the previous year) Record date for determining entitlement to the final dividend Date for payment of final dividend There were no dividend reinvestmentplans in operation duringtheperiod.		Amount Franked Amount per Security per Security 7.5 7.5 3.0 3.0 8.5 8.5 11.5 11.5 9 September 2011 7 October 2011
	Net Tangible Assets per Security
	Net tangible asset backing per ordinarysecurity (cents)	Year to 30 June 2011 45.7		Year to 30 June 2010 65.2
	Control Gained Over Entities Having a Material Effect The following acquisitions were made during the period: 2 July 2010 - acquisition of Pilbara Hire Group Pty Ltd for a cash consideration of $12.1m. 1 November 2010 - acquisition of the business and assets of Phillips Engineering Aus Pty Ltd for 17 December 2010 - acquisition of COR CoolingPtyLtd for a cash consideration of$20.5m.	a cash consideration of $4.6m.

Net Tangible Assets per Security
	Year to	Year to
	30 June 2011	30 June 2010
Net tangible asset backing per ordinarysecurity (cents)	45.7	65.2
Control Gained Over Entities Having a Material Effect
The following acquisitions were made during the period:
2 July 2010 - acquisition of Pilbara Hire Group Pty Ltd for a cash consideration of $12.1m.
1 November 2010 - acquisition of the business and assets of Phillips Engineering Aus Pty Ltd for a cash consideration of $4.6m.
17 December 2010 - acquisition of COR CoolingPtyLtd for a cash consideration of$20.5m.

Associates or Joint Ventures

The company has a 50% interest in the Majan Aluminium Services Company, which is undertaking a number of projects related to the aluminium smelter industry in the Middle East.

Audit

The financial data in this report is in the process of being audited, pending completion of the company’s statutory financial report and the issue of the accompanying independent auditor’s report. The audit process has not identified any material adjustments or misstatements that require the financial data included in this preliminary final report to be corrected.

AUSTIN ENGINEERING LTD (ABN 60 078 480 136) AND CONTROLLED ENTITIES

PRELIMINARY FINAL REPORT FOR THE YEAR ENDED 30 JUNE 2011

COMMENTARY

Financial Highlights

	FY2011	FY2010	Change
	$m	$m	%
Revenue	205.90	144.01	+43%
Earnings beforeinterest and tax*	32.09	26.52	+21%
Profit before tax*	30.83	26.47	+16%
Netprofit after tax*	22.02	19.26	+14%
Basic earnings pershare (cents)*	31.15	28.25	+10%
Net assets	103.88	86.66	+20%
Finaldividend pershare (cents)	8.5	7.5	+13%
Totalannualdividend pershare (cents)	11.5	9.5	+21%

*Adjusted in FY2011 to remove the effect of non-cash amortisation of intangibles as detailed in note 5 to the preliminary financial statements

Review of Operations

Business conditions across the mining services sector strengthened during FY 2011 as global economic conditions stabilised and demand for commodities and mining equipment increased. This resulted in an increase in overall revenue levels for most of the group’s existing operations due to higher levels of capacity utilisation and productive activity. The level of activity for the group’s operations in Oman in the Middle East was below the previous period due to the completion of two key projects in the prior year. Whilst the Chilean operation (Austin Ingenieros Chile Ltda) contributed a full year’s worth of activity to the group (compared to ten months in the previous year following the commencement of operations in August 2009) overall activity and revenue levels were lower than the previous year due to delays in the completion of the new ‘La Negra’ workshop. The delay in the commissioning of the new workshop, which was achieved in mid-July 2011, had a significant impact on throughput for the Chilean operation, particularly over the final four months of the financial year.

Group revenue for the year also reflects the addition of new revenue sources following the acquisition of the Pilbara Hire Group (“Pilbara Hire”) in early July 2010, the business and assets of Phillips Engineering in early November 2010 (now “Austin Engineering Hunter Valley” or “Hunter Valley”) and COR Cooling (“COR”) in mid-December 2010. These operations have added new and important service capabilities and opportunities to the Austin group and its customers in domestic and overseas markets. During the second half of the year the group pursued its expansion plans into the important and developing Indonesian mining equipment market. Limited manufacturing operations commenced in Batam Island following the award of a significant contract by a major Indonesian-based mining contractor for the supply of dump truck bodies.

The group also continued to focus on the development of new products and during the year completed its first two underground ‘JEC’ brand dump truck bodies as well as four new concept JEC lightweight bodies, all of which are undergoing customer trials. Initial performance results and customer feedback on these bodies is very encouraging and it is expected that further market opportunities will arise with these new products in the future.

Result for the Financial Year

Adjusted earnings before interest and tax for the financial year were $32.1m, up from $26.5m in the previous financial year, representing a 21% increase. Underlying productive performance across most of the existing business units was satisfactory during the year as capacity utilisation and productive activity increased. The relative profit contribution from Oman was less than the previous year due to lower comparable activity levels as a result of the completion of two key projects in the prior year. The delay in the completion of the new workshop in Chile presented significant capacity utilisation and throughput challenges over the course of the second half of the year, despite the award of new orders, and resulted in the operation running at a small operating loss over the last four months of the year. Financial performance for Pilbara Hire and COR was very satisfactory in the period due to strong levels of activity whilst the new Hunter Valley operation incurred a pre-tax operating loss of $1.1m in the first eight months. This was primarily due to contracts taken over on acquisition of the business being less profitable than anticipated (and which have since been exited) and production management and efficiency issues in the second half of the year. The result also includes start-up costs associated with the establishment of operations in Indonesia and Colombia as well as the cost of development of the new JEC underground and lightweight bodies completed in the year. The ongoing strength of the Australian Dollar, particularly against the USD Dollar and Chilean Peso, also adversely impacted translated earnings of operations in the Americas.

The new business acquisitions that were completed during the year were funded by additional bank debt which resulted in an increase in finance costs over the previous year. Whilst finance costs increased, the group continued to benefit from ongoing low interest costs associated with the USD-denominated bank loan which was drawn down some years ago to accommodate the acquisition of Westech. Adjusted profit before tax increased by 16% over the year from $26.5m to $30.8m with the increase being intrinsically linked to the higher level of underlying operating profit balanced by additional finance costs. Adjusted net profit after tax increased over the year by 14% from $19.3m to $22.0m with the average rate of tax on profit for the year rising due to the comparatively smaller relative contributions from Chile and Oman which have lower income tax rates.

The 10% increase in adjusted earnings per share from 28.25c in the previous year to 31.15c was principally due to the higher level of adjusted net profit after tax for the year balanced by the issue of around 2.6m new shares during the year.

Financial Position

Net assets increased by 20% over the year to $103.9m. The increase reflects the net profit generated during the year as well as $4.6m of new equity and the payment of $7.5m of dividends. Net tangible asset backing per share was 45.7c compared to 65.2c in the previous year, with the reduction being attributable to additional goodwill and other intangible assets arising upon the acquisition of Pilbara Hire, Phillips Engineering and COR Cooling.

Cash Flow and Liquidity

Operational cash flow of $43.7m was significantly up on the previous year’s level of $13.3m. Cash flows from underlying operations remained strong during the year as a result of increased levels of activity and cash receipts from customers following regular payment schedules. Cash flows were also boosted just before the end of the financial year by around $18m of advance progress payments from customers for products to be manufactured in the new financial year and beyond.

(Cont’d)

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AUSTIN ENGINEERING LTD (ABN 60 078 480 136) AND CONTROLLED ENTITIES

PRELIMINARY FINAL REPORT FOR THE YEAR ENDED 30 JUNE 2011

RESULTS FOR ANNOUNCEMENT TO THE MARKET

Cash Flow and Liquidity

(Cont’d)

Non-operational cash flows largely consisted of costs incurred on business expansion initiatives and the corresponding funding of these programs. During the period a total of $37.2m was expended on the Pilbara Hire, Phillips Engineering and COR Cooling acquisitions, of which $32.3m was funded by new bank loans. Capital expenditure of $24.0m was also significantly higher than the previous year’s level of $5.9m, with the most significant elements of expenditure being for the construction of the new ‘La Negra’ workshop in Chile, the property and new workshop on Batam Island in Indonesia, the property and initial construction payments for the new workshop in Colombia and the purchase of the property in Hunter Valley as part of the acquisition of the Phillips Engineering business. A total of $4.6m of new share capital was introduced during the period from the exercise of share options whilst $7.5m was paid in dividends.

Available cash at the end of the financial year was $37.4m, up from $21.1m at the end of the previous financial year.

Debt

At the end of the financial year, net debt (defined as gross debt of $51.1m less available cash of $37.4m) was $13.7m, compared to $2.1m at the end of the previous financial year. Most of this net increase has arisen from the drawdown of new bank loans to facilitate the group’s expansion programs through the acquisition of businesses during the year, balanced by improved operational cash flow and the advance payments received from customers just before the end of the financial year. Debt levels were also assisted by the relative strength of the AUD/USD exchange rate, which lowered the value of the USD $19m bank loan relating to the purchase of Westech Inc. in 2007. The net gearing ratio at the end of the financial year was 12%, up from 2% at the end of the previous financial year but comfortably within bank covenant requirements. The company was in compliance with bank covenants throughout the year and continues to be so.

Dividends

The company paid a fully-franked final dividend of 7.5c per share on 8 October 2010 in relation to the previous financial year ended 30 June 2010. An interim fully-franked dividend of 3.0c per share was also paid on 25 March 2011 in relation to the financial year ended 30 June 2011. A final dividend of 8.5c per share has been declared for the financial year ended 30 June 2011 with the record date for determining entitlement being 9 September 2011 and payment being made on 7 October 2011. The dividend payout ratio for the year is approximately 38%, which is consistent with the company's dividend payout ratio policy of 25% to 40%.

Outlook

Over the course of the coming year the benefits of the new workshop in Chile will be realised and it is expected that this will provide significant increases in productivity and throughput capability as anticipated at the outset of the facilities redevelopment program. Market conditions in South America remain very strong and further orders for dump truck bodies and other products are anticipated. The construction of the new greenfield site workshops in Barranquilla, Colombia is underway and this will enable Austin to gain an early and strategic market position for the supply of mining products to this developing market. There is still significant potential for the fully-developed South American operations to provide significant and growing earnings contributions for the group.

Further growth opportunities in South America will be progressed including the setup of manufacturing and maintenance operations in Calama in Northern Chile and the acquisition of a suitable business in this region is currently being pursued to enable operations to commence in the near future. The recent award of the multi-year equipment supply contract by Xstrata in Peru is also an important step in developing a lasting presence for Austin in South America and this will involve the establishment of manufacturing operations in the country in the second half of the year to service this particular contract.

The completion of the new workshop on Batam Island in Indonesia over the course of the first half of the new financial year will be an important milestone in establishing a long-term market presence to service Indonesian-based miners and mining contractors. In addition, significant growth opportunities have been identified for COR Cooling’s products and services and further investment will be undertaken in the development of this business in the 2011/2012 financial year and beyond.

Market conditions for the group’s other geographical and customer bases are showing further signs of steady improvement and a number of operations are entering the new financial year with excellent workload levels particularly from September 2011 to the end of the financial year. Whilst North American economic conditions are expected to remain uncertain for the foreseeable future, it is encouraging that Westech operations in Wyoming currently have a committed base workload level for the next six months, which is mostly due to market repositioning and product development over the past few years. The benefits of Westech custom-built dump truck bodies are expected to deliver considerable benefits in the years to come, as evidenced by the recent ‘Guinness Book of Records’ award for the largest payload-carrying capacity dump truck body for a major mining customer in North America.

At this stage in the development of the financial year, it is expected that overall business conditions will produce another year of record growth for the company with increases in revenue, EBIT and dividends.

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AUSTIN ENGINEERING LTD (ABN 60 078 480 136) AND CONTROLLED ENTITIES

PRELIMINARY CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 JUNE 2011

Revenue Raw materials and consumables expenses Change in inventories and work in progress Employment expenses Subcontractor expenses Occupancy and utility expenses Depreciation expense Amortisation - customer relationships and other intangibles Other expenses from ordinary activities Finance costs Profit before income tax Income tax expense Net profit for the year Other comprehensive income: Changes in fair value of available-for-sale financial assets Foreign currency translation differences Other comprehensive income for the year, net of tax Total comprehensive income for the year Profit for the year is attributable to: Owners of Austin Engineering Limited Total comprehensive income for the year is attributable to: Owners of Austin Engineering Limited Earnings per share attributable to owners of Austin Engineering Limited: Basic earnings per share (cents per share) Diluted earnings per share (cents per share)	Note	Consolidated Entity	Consolidated Entity
		2011 $000 205,897 (71,791) 7,866 (83,182) (566) (5,148) (3,611) (554) (16,878) (1,756) 30,277 (8,809) 21,468 541 (2,272) (1,731) 19,737 21,468 19,737 30.37cps 29.29cps	2010
	2,3 4 4		$000 144,008 (48,866) (1,624) (47,008) (1,021) (3,812) (2,531) - (12,144) (532)
			26,470 (7,206)
			**19,264 **
			665 (113)
			552
			19,816
			19,264
			19,816
			28.25cps 26.97cps

The above Preliminary Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.

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AUSTIN ENGINEERING LTD (ABN 60 078 480 136) AND CONTROLLED ENTITIES

PRELIMINARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AT 30 JUNE 2011

Current Assets Cash and cash equivalents Trade and other receivables Inventories and work-in-progress Other Total Current Assets Non-Current Assets Property, plant and equipment Other financial assets Intangible assets Deferred tax assets Total Non-Current Assets Total Assets Current Liabilities Trade and other payables Financial liabilities Current tax liabilities Provisions Total Current Liabilities Non-Current Liabilities Financial liabilities Deferred tax liabilities Total Non-Current Liabilities Total Liabilities Net Assets Equity Contributed equity Retained earnings Reserves Total Equity	Note	Consolidated Entity	Consolidated Entity
		30 June 2011 $000 37,416 29,985 20,940 2,780 91,121 53,670 1,554 71,030 2,528 128,782 219,903 55,445 1,352 2,525 4,481 63,803 49,817 2,408 52,225 116,028 103,875 48,251 57,254 (1,630) 103,875	30 June 2010
	6		$000 21,125 25,466 11,336 2,204
			60,131
			30,268 5,542 41,498 2,268
			79,576
			139,707
			22,857 664 2,174 3,673
			29,368
			22,620 1,060
			23,680
			53,048
			86,659
			43,684 43,286 (311)
			86,659

The above Preliminary Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.

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AUSTIN ENGINEERING LTD (ABN 60 078 480 136) AND CONTROLLED ENTITIES

PRELIMINARY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2011

Consolidated Entity Opening balance at 1 July 2009 Total comprehensive income for the year: Profit for the year Other comprehensive income: Adjustment to value of available for sale financial assets Deferred tax adjustment Currency translation differences Total comprehensive income for the year Transactions with owners in their capacity as owners: Issue of share capital Share issue costs Deferred tax relating to equity items Dividends paid Share-based expense payment At 30 June 2010 Total comprehensive income for the year: Profit for the year Other comprehensive income: Adjustment to value of available for sale financial assets Deferred tax adjustment Currency translation differences Total comprehensive income for the year Transactions with owners in their capacity as owners: Issue of share capital Share issue costs Deferred tax relating to equity items Dividends paid Share-based expense payment At 30 June 2011	Contributed Equity Retained Profits Options Reserve Foreign Currency Translation Reserve Available for Sale Investments Reserve Total
	$000 $000 $000 $000 $000 $000 23,094 29,910 726 (577) (1,206) 51,947 - 19,264 - - - 19,264 - - - - 950 950 - - - - (285) (285) - - - (113) - (113)
	- 19,264 - (113) 665 19,816
	21,238 - - - - 21,238 (926) - - - - (926) 278 - - - - 278 - (5,888) - - - (5,888) - - 194 - - 194
	20,590 (5,888) 194 - - 14,896
	43,684 43,286 920 (690) (541) 86,659
	- 21,468 - - - 21,468 - - - - 772 772 - - - - (231) (231) - - - (2,272) - (2,272)
	- 21,468 - (2,272) 541 19,737
	4,635 - - - - 4,635 (68) - - - - (68) - - - - - - - (7,500) - - - (7,500) - - 412 - - 412
	4,567 (7,500) 412 - - (2,521)
	48,251 57,254 1,332 (2,962) - 103,875

The above Preliminary Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.

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AUSTIN ENGINEERING LTD (ABN 60 078 480 136) AND CONTROLLED ENTITIES

PRELIMINARY CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2011

Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Dividends received Finance costs Income tax paid Net cash provided by operating activities Cash flows from investing activities Purchase of business and company Purchase of property, plant and equipment Receipt of cash from joint venture Investments in other financial assets Sale of other financial assets Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Proceeds from borrowings Repayment of borrowings Dividend paid Net cash provided/(used) by financing activities Net increase/(decrease) in cash held Cash at the beginning of the period Currency exchange movements Cash at the end of the period	Consolidated Entity	Consolidated Entity
	2011 $000 234,579 (181,617) 492 133 (1,756) (8,107) 43,724 (37,243) (24,004) 1,055 - 6,638 (53,554) 4,567 36,674 (5,440) (7,500) 28,301 18,471 21,125 (2,180) 37,416	2010
		$000 139,351 (121,305) 338 109 (531) (4,684)
		13,278
		(24,529) (5,947) 1,355 (109) -
		(29,230)
		20,312 123 (2,561) (5,888)
		11,986
		(3,966)
		25,070 21
		21,125

The above Preliminary Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.

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AUSTIN ENGINEERING LTD (ABN 60 078 480 136) AND CONTROLLED ENTITIES

NOTES TO THE PRELIMINARY FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011

Note 1: Basis of preparation of preliminary financial statements

The preliminary report has been prepared on an accruals basis and is based on historical costs modified, where appropriate, by the revaluation of selected non-current assets, financial assets and financial liabilities for which the fair value basis of accounting has been applied.

The accounting policies applied in this preliminary report are the same as those applied by the company in the financial report as at and for the year ended 30 June 2010. The principal accounting policies have been consistently applied to the periods presented, unless otherwise stated.

Note 2: Revenue

Note 2: Revenue
Revenue from operations Interest received Dividends received Other revenue	2011 2010
	$000 $000 202,993 143,318 492 489 133 109 2,279 92
	205,897 144,008

Note 3: Segment information

Management has determined that the strategic operating segments comprise of Australia (for mining equipment, other products and repair and maintenance services), Americas (for mining equipment and other products, comprising of North America and South America), Asia (currently Indonesia for mining equipment and other products) and the Middle East (for aluminium smelter equipment and products). These reporting segments also provide a more balanced view of cross-operational performance across business units, recognising and compensating for interregional differences in relation to technical methodologies, production facilities and processes, the cost of key inputs such as labour and steel, the existence of competition and differing customer requirements that may affect product pricing.

Executive management monitors segment performance based on EBIT. Segment information for the years ended 30 June 2011 and 30 June 2010 is as follows:

Total segment revenue Inter-segment revenue Revenue from external customers EBIT Segment assets at 30 June 2011 Segment assets at 30 June 2010	Australia	Americas	Middle East	Asia **Total **
	2011 2010	2011 2010	2011 2010	2011 2010 2011 2010
	$000 $000 164,756 107,404 (9,512) (8,703)	$000 $000 48,424 38,641 - -	$000 $000 2,114 6,666 - -	$000 $000 $000 $000 115 - 215,409 152,711 - - (9,512) (8,703)
	155,244 98,701	48,424 38,641	2,114 6,666	115 - 205,897 144,008
	25,668 17,495	5,363 6,594	853 2,423	(343) - 31,541 26,512
	135,214 70,504	77,549 67,344	1,554 1,859	5,586 219,903 - 139,707

Corporate expenses are included in the Australian reporting segment for decision-making purposes as this represents the area within which they are mostly incurred. Asset amounts are measured in the same way that they are measured in the financial statements. Segment assets are allocated based on the operations of the segment and the physical location of the assets.

The reconciliation of EBIT to profit before income tax is as follows:

EBIT Interest revenue Finance costs Profit before income tax	2011 2010
	$000 $000 31,541 26,512 492 489 (1,756) (531)
	30,277 26,470

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AUSTIN ENGINEERING LTD (ABN 60 078 480 136) AND CONTROLLED ENTITIES

NOTES TO THE PRELIMINARY FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011

Note 4: Earnings per share

Earnings used in basic and diluted earnings per share calculation Weighted average number of ordinary shares used in calculating basic earnings per share Effect of dilutive securities - options Weighted average number of ordinary shares used in calculating diluted earnings per share	2011 2010 $000 $000 21,468 19,264 No. No. 70,693 68,186 2,613 3,232 73,306 71,418

Note 5: Adjusted net profit after tax

Note 5: Adjusted net profit after tax
Adjusted net profit after tax Amortisation - customer relationship intangibles Amortisation - other intangibles Reported net profit after tax	2011 2010
	$000 $000 22,022 19,264 (462) - (92) -
	21,468 19,264

Note 6: Contributed equity - ordinary shares

Balance at beginning of the year Issue of shares on exercise of options Issue of performance-related shares Issue of shares on completion of placement Issue of shares on completion of share purchase plan Cost of share issues Deferred tax on equity items Balance at end of the year	2011 No.000 $000 69,315 43,684 2,500 4,635 50 - - - - - - (68) - - 71,865 48,251	2010 No.000 $000 54,178 23,094 750 450 50 - 10,928 15,846 3,409 4,942 - (926) - 278 69,315 43,684

Ordinary shares issued in the year to 30 June 2011 comprised of the following: 7 July 2010: 100,000 shares at $1.50 each ($150,000) in relation to the exercise of employee options

24 August 2010: 42,105 shares at $1.90 each ($80,000) in relation to the exercise of employee options 26 August 2010: 257,895 shares at $1.90 ($490,000) in relation to the exercise of employee options 26 August 2010: 250,000 shares at $2.00 ($500,000) in relation to the exercise of directors options 30 August 2010: 350,000 shares at $1.90 ($665,000) in relation to the exercise of employee options

8 September 2010: 1,000,000 shares at $2.00 ($2,000,000) in relation to the exercise of directors options

8 November 2010: 50,000 shares at nil cost on the grant of performance-related shares to the managing director 22 December 2010: 250,000 shares at $1.50 ($375,000) in relation to the exercise of employee options 2 March 2011: 100,000 shares at $1.50 ($150,000) in relation to the exercise of employee options 17 June 2011: 150,000 shares at $1.50 ($225,000) in relation to the exercise of employee options

Note 7: Business combinations

On 2 July 2010, the company acquired 100% of Pilbara Hire Group Pty Ltd and PHG Services Pty Ltd (together the “Pilbara Hire Group”), with operations based in the Pilbara region of Western Australia, for a cash consideration of $12.1m. The Pilbara Hire Group is an on-site fixed and mobile mining equipment repair and maintenance business. The purchase agreement provided for an earn-out payment to be payable to the previous owners based upon the achievement of a pre-determined minimum EBIT target of $3.25m for the financial year ended 30 June 2011, with the excess over $3.25m being paid to the previous owners. The fair value of this earn-out at the date of acquisition has been determined as $813,000 and this has been provided for at 30 June 2011. The acquisition of the Pilbara Hire Group was a strategic development of the group’s operations into repair and maintenance activities. The acquisition was funded by way of a bank loan.

On 1 November 2010 the company acquired the business and assets of Phillips Engineering Aus Pty Ltd, with operations based in the Hunter Valley region of New South Wales, for a cash consideration of $4.6m. Phillips Engineering Aus Pty Ltd is a workshop and site-based mining equipment repair and maintenance business. The acquisition was a strategic development of the group’s operations into an important and growing coal mining region. The acquisition was funded by way of a bank loan.

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AUSTIN ENGINEERING LTD (ABN 60 078 480 136) AND CONTROLLED ENTITIES

NOTES TO THE PRELIMINARY FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011

Note 7: Business combinations (cont’d)

On 17 December 2010 the company acquired 100% of COR Cooling Pty Ltd, with operations based in Queensland and Western Australia, for a cash consideration of $20.5m. COR Cooling Pty Ltd specialises in the sale and repair of radiators and other products for the mining and other industries. The acquisition was a strategic diversification of the group’s operations into a new area of the mining services market offering expanded services to existing customers domestically and overseas. The acquisition was funded by way of a bank loan as well as existing available cash resources.

Acquisition-related costs of $108,000, comprising of legal and other fees, have been recognised in the period and are included within other expenses from ordinary activities in the consolidated statement of comprehensive income.

The acquisitions contributed the following in respect of revenues and net profit after tax to the group:

Revenue for the year to 30 June 2011 NPAT for the year to 30 June 2011 Revenue had the acquisition occurred in 1 July 2010 Normalised NPAT for the year to 30 June 2011 Details of net assets and intangibles acquired are as follows: Purchase consideration Fair value of net tangible assets acquired Intangible assets The fair value of assets and liabilities arising from the acquisitions is as follows: Cash Property, plant and equipment Inventories and work-in-progress Receivables Other assets Payables Employee leave entitlements Financial liabilities Net identifiable tangible assets acquired	Pilbara Hire Phillips COR Group Engineering Cooling
	$000 $000 $000 24,934 5,807 12,238 3,195 (785) 1,658 24,934 9,039 21,436 3,160 (520) 2,986 Pilbara Hire Phillips COR Group Engineering Cooling
	$000 $000 $000 12,961 4,607 20,487 (125) 1,303 6,205
	13,086 3,304 14,282
	Pilbara Hire Phillips COR Group Engineering Cooling
	$000 $000 $000 30 - 828 2,469 1,250 1,442 - 328 2,023 - - 3,491 150 - 407 (1,080) - (1,718) - (275) (268) (1,694) - -
	(125) 1,303 6,205

The intangible assets acquired arising from the acquisitions are as follows:

The intangible assets acquired arising from the acquisitions are as follows:
Customer relationships and service agreements Licence agreement and relationship Brands Designs Non-compete agreement Goodwill Total identifiable intangible assets acquired	Pilbara Hire Phillips COR Group Engineering Cooling
	$000 $000 $000 7,845 2,083 - - - 299 50 - 2,699 - - 149 70 35 140 5,121 1,186 10,995
	13,086 3,304 14,282

The assets arising from the acquisition are recognised at fair value, taking into account the age and condition of the assets acquired and the expected remaining useful life in the production environment in which they are operated.

Note 8: Contingent liabilities and contingent assets

There are no contingent liabilities or assets that have a material impact on the financial statements at 30 June 2011.

Note 9: Dividends

The company paid a fully-franked final dividend of 7.5c per share on 8 October 2010 in relation to the financial year ended 30 June 2010 (final dividend paid in the previous financial year 2010: 6.5c per share). The company also paid a fully-franked interim dividend of 3.0c per share on 25 March 2011 in relation to the financial year ended 30 June 2011 (interim dividend paid in the previous financial year 2010: 2.0c per share).

Note 10: Events subsequent to reporting date

The Directors have declared a final fully-franked dividend of 8.5 cents per share for the financial year ended 30 June 2011 (2010: 7.5 cents per share) payable on 7 October 2011. The aggregate amount of the dividend to be paid out of retained profits based on the number of ordinary shares issued at 30 June 2011, but not recognised as a liability at the end of the year, is $6,108,000.

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AUSTIN ENGINEERING LTD (ABN 60 078 480 136) AND CONTROLLED ENTITIES

NOTES TO THE PRELIMINARY FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011

Note 10: Events subsequent to reporting date (cont’d)

On 29 July 2011 COR Cooling Pty Ltd, a 100% subsidiary company of Austin Engineering Ltd, acquired the business and assets of Diecon Engineering, a specialised manufacturer and repairer of industrial and marine transmission and cooling products based in Brisbane. The purchase price, which was paid in cash, was $0.8m. The fair value of tangible and intangible assets acquired is in the process of being determined and finalised.

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