PPK GROUP LIMITED — Annual Report 2010

Aug 26, 2010

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PPK GROUP LIMITED

ABN 65 003 964 181

PRELIMINARY FINAL REPORT

APPENDIX 4E

FINANCIAL YEAR ENDED 30 JUNE 2010

Previous Corresponding Year 30 June 2009

This information is provided to the Australian Securities Exchange (ASX) under ASX Listing Rule 4.3A.

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HIGHLIGHTS OF RESULTS FOR ANNOUNCEMENT TO THE MARKET

(figures are in A$000s)

SALES REVENUE RENTAL INCOME FROM INVESTMENT PROPERTIES REALISED GAINS FROM INVESTING REALISED GAIN ON SALE OF INVESTMENT PROPERTY PROFIT BEFORE INCOME TAX PROFIT AFTER TAX ATTRIBUTABLE TO MEMBERS EARNINGS PER SHARE	June 2010 $000s	June 2009 $000s	Change $000s	Change %
SALES REVENUE	4,746	4,867	(121)	-2.5%
RENTAL INCOME FROM INVESTMENT PROPERTIES	3,109	4,776	(1,667)	-35%
REALISED GAINS FROM INVESTING	1,022	132	890	674%
REALISED GAIN ON SALE OF INVESTMENT PROPERTY	2,184	13	2,171	16700%
PROFIT BEFORE INCOME TAX	1,246	461	785	170%
PROFIT AFTER TAX ATTRIBUTABLE TO MEMBERS	762	540	222	41%
EARNINGS PER SHARE	1.3	0.9	0.4	44%

Interim Dividend Final Dividend

RECORD DATE FOR DETERMINING ENTITLEMENT TO FINAL DIVIDEND TOTALLING 1.00 CENT PER SHARE

Current Previous Year Year 1.50 cents 1.50 cents 1.00 cent 1.00 cent 2.50 cents 2.50 cents 12 November 2010

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COMMENTARY ON RESULTS

PPK Group Limited ( PPK ) reports a profit after tax of $762,000 for the year ended 30 June, 2010 ($540,000 - 2009). This equates to earnings per share of 1.3 cents(0.9 cents - 2009).

After recording a profit after tax of $3.6 million for the first half, PPK incurred a loss of $2.8 million in the second half.

The full year’s results include:

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• Realized gains of $1 million on shares held in listed companies - all realized in the first half of the year.

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• A profit of $2.184 million on the sale of an investment property at Virginia QLD in November, 2009.

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• A non cash write down under AIFRS accounting standards of $320,000 in the value of listed shares and derivatives held by PPK as at 30 June, 2010 made up of a non cash write up of $554,000 for the first half and a non cash write down of $874,000 for the second half.

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• A non cash write down of $1.15 million in the value of the investment property at Arndell Park, NSW following an independent valuation undertaken in June 2010. All other properties owned by PPK have been independently assessed at a value higher than the historical cost recorded in PPK‘s balance sheet.

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• A $684,000 non cash share of losses by Cool or Cosy Ltd ( COS ) and Frigrite Ltd ( FRR ) consisting of a $1.13 million non cash share of COS and FRR profit and fair value adjustments for the first half and a $1.81 million non cash share of COS and FRR losses and impairment of investment in the second half.

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• A profit of $2.4 million after tax before non cash adjustments for investments and property (4.14 cents per share).

Property

In November 2009, PPK sold its industrial property at Virginia, QLD for $5.2 million . This property had been vacant since February, 2009.

In August 2010, PPK exchanged an unconditional contract for the sale of its Kirrawee industrial property for $8.25 million. The selling price represents a profit before tax of approximately $1.45 million. The contract is due for settlement at the end of October, 2010.

The industrial property at Arndell Park remains vacant with the tenant vacating on 31 August, 2009. Litigation continues between PPK and the former tenant. No rental income has been received in relation to this property since August 2009. All legal and holding costs in respect of this property have been expensed as they have been incurred.

The industrial properties owned by PPK at Seven Hills in Sydney and Dandenong South in Melbourne have been fully tenanted during the reporting period and will remain so for the full duration of the 2011 reporting period.

Investments

During the reporting period, PPK increased its shareholding in COS and FRR to above 20%. Consequently each of these companies is now considered to be an associate of PPK, in the case of COS as from 29 October, 2009 and FRR as from 26 August, 2009.

The carrying value of PPK’s investment in both FRR and COS was restated at the time each of FRR and COS became an associate giving rise to a one off non cash investment gain. PPK is now equity

h f f b h d d k h f h

accounting the after tax earnings of both COS and FRR and takes up in its earnings a share of the after tax profits (or losses) of both COS and FRR for the relevant periods.

PPK is also obliged , under accounting standards , at the end of each reporting period to test for impairment the carrying value of the investment in each of COS and FRR. However an impairment under the relevant standard cannot be reversed in subsequent reporting periods if the market value of the associate increases.

In the case of COS this has led to an impairment for the year of $589,000, offset by a fair value adjustment upwards of $580,000 in the first half. This represents a net decrease in the carrying value of COS of $9,000 for the year.

In the case of FRR no impairment was required . However the carrying value of PPK’s investment in FRR is now $515,000 less than the market value of PPK’s share holding in FRR as at 30 June, 2010.

Otherwise, as part of its investment strategy, PPK generated profits from the sale of shares held for resale.

Mining Equipment Manufacture

The earnings of Rambor Pty Ltd ( Rambor ) continued to be affected by the lack of export orders from its principal market in Russia. However Rambor has now received orders for delivery of equipment to Russia in September, with indications of further orders to come.

The prototype of equipment developed under the joint development contract between Rambor and Hilti Corporation has undergone testing and met its key KPI targets. The equipment is now being developed for commercialization. Sales are expected to commence in the third quarter of the current reporting period.

Outlook

In January, 2010 PPK invested in and participated as the lead manager of a syndicate for the purchase of 4.013 hectares of prime residential land at Willoughby, NSW. This land will be developed over the next three years with the construction and sale of 76 prestige residential dwellings. PPK having contributed as both an investor and secured lender will be entitled to an 18.2% share of the profits from the project.

The Board is confident that:

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the sale of the Kirrawee property will proceed to completion in October 2010; and

the situation with the vacant property at Arndell Park, NSW will be resolved in the current financial year.

As the Kirrawee property is unencumbered, PPK will retain the full sale proceeds and will hold same for future investment.

The resumption of orders from Russia and the prospect of orders for the new equipment developed under the development contract with Hilti is expected to improve Rambor’s contribution to earnings during the current financial year.

Investment earnings are dependent on the performance of the associates in which PPK has invested, improvements in economic outlook and the stability of the Australian share market.

Dividends

Based on the Board’s assessment of the company’s core earnings, realized profits and confidence in an improved earnings outlook, the Board has resolved to pay a final dividend of one cent per share fully franked.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CURRENT YEAR $000s REVENUES Mining equipment manufacture 4,746 Investment properties 3,109 Investment activities 59 Interest receivable 1,158 TOTAL REVENUE 9,072 OTHER INCOME 3,894 EXPENDITURE Mining equipment manufacture (4,538) Investment properties (3,515) Investment activities (700) Administrative expenses (1,165) Finance costs (1,118) TOTAL EXPENDITURE (11,036) Share of (loss) from associated companies (684) PROFIT BEFORE INCOME TAX EXPENSE 1246 Income tax(expense)/ credit (484) PROFIT AFTER INCOME TAX FROM 762 OTHER COMPREHENSIVE INCOME Changes in value on available-for-sale financial assets 194 Provision for income tax thereon (58) Unrealised impairment losses on available-for-sale financial assets transferred to the income statement from the asset revaluation reserve - Provision for income tax thereon - Realised gain on sale of available-for-sale financial assets (146) transferred to the income statement from the asset revaluation reserve 44 Provision for income tax thereon OTHER COMPREHENSIVE INCOME NET OF INCOME TAX 34 TOTAL COMPREHENSIVE INCOME FOR THE YEAR 796 Earnings per share Continuing operations 1.3 cents Diluted Earnings per share 1.3 cents

PRIOR YEAR $000s 4,867 4,776 47 428 10,118 220 (3,872) (783) (2,755) (1,308) (1,159) (9,877) - 461 79 540 (264) 79 468 (140) - - 143 683 0.9 cents 0.9 cents

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Current Assets Cash Trade and other Receivables Inventories Other Assets classified as held for sale Total Current Assets Non Current Assets Trade and other Receivables Financial assets Investments in associated companies Investment Property Other Property Plant & Equipment Intangibles Deferred Tax Assets Derivatives Total non current assets TOTAL ASSETS Current Liabilities Payables Borrowings Current Tax Liabilities Provisions Other Total Current Liabilities Non Current liabilities Borrowings Deferred Tax Liabilities Provisions Total Non Current liabilities TOTAL LIABILITIES NET ASSETS Equity Contributed equity Reserves Retained profits TOTAL EQUITY	30-Jun-10 $000s 23 6,320 1,509 410 8,262 7,103 15,365 8,450 1,105 3,692 24,248 1,624 779 2,036 128 42,062 57,427 413 2,944 458 215 - 4,030 18,500 55 48 18,603 22,633 34,794 31,249 24 3,521 34,794	30-Jun-09 $000s
		884 2,261 1,423 355
		4,923 703
		5,626
		2,331 2,411 35,137 2,027 857 2,200 288
		45,251
		50,877
		692 871 730 688 -
		2,981 12,100 318 29
		12,447
		15,428
		35,449
		31,249 (9) 4,209
		35,449

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED ENTITY At 1 July 2008 Fair value adjustment on available-for-sale financial assets expensed on impairment less deferred tax impact Fair value adjustment on available-for-sale financial assets less deferred tax impact Total income and expense recognised directly in equity Profit for the year Total income and expense for the year Dividends paid Shares repurchased At 30 June 2009 Fair value adjustment on available-for-sale financial assets expensed on impairment less deferred tax impact Fair value adjustment on available-for-sale financial assets less deferred tax impact Total income and expense recognised directly in equity Profit for the year Total income and expense for the year Dividends paid Shares repurchased At 30 June 2010	Issued Retained Other Total Capital Earnings Reserves Equity $000s $000s $000s $000s 32,033 6,428 (152) 38,309 - - 468 468 - - (140) (140) - - (264) (264) - - 79 79
	- - 143 143 - 540 - 540
	- 540 143 683 - (2,759) - (2,759) (784) - - (784)
	31,249 4,209 (9) 35,449 - - (147) (147) - - 44 44 - - 194 194 - - (58) (58)
	- - 33 33 - 762 - 762
	- 762 33 795 - (1,450) - (1,450) - - - -
	31,249 3,521 24 34,794

CONSOLIDATED STATEMENT OF CASH FLOWS

Cash flows related to operating activities Receipts from customers Payments to suppliers and employees Other Revenue Interest received Dividends received Income taxes paid Net Operating Cash Flows Cash flows related to investing activities Payment for purchases of property, plant and equipment Proceeds from sale of investment property Payment for investments in associated companies Payment for convertible notes Proceeds from sale of available-for-sale financial assets Payments for available for sale-financial-assets Payments for investments in derivatives Payment for intangibles Net Investing cash flows Cash flows related to financing activities Loans Advanced Payment for buyback of shares (Repayment)/Proceeds from Bank loans Repayment of borrowings Loans repaid Dividends paid Interest and costs of borrowings Net financing cash flows Net increase (decrease) in cash held Cash at beginning of period Cash at end of period Reconciliation of cash Reconciliation of cash at the end of the period (as shown in the consolidated statement of cash flows) to the related items in the accounts is as follows. Continuing operations Cash on hand and at bank Bank Overdraft Total cash at end of period	Year Ended 30-Jun-10 $000s 7,992 (7,282) 241 451 191 (869) 724 (293) 5,166 (2,829) (2,000) 2,452 (1,161) (272) (2) 1,061 (8,700) - 6,400 (23) 149 (1,450) (1,118) (4,742) (2,957) 36 (2,921) 23 (2,944) (2,921)	Year Ended 30-Jun-09 $000s 9,920 (6,597) 5 397 47 (806)
		2,966 (396) 4,920 - (303) 401 (896) - (78)
		3,648 (149) (784) (7,393) (392) 7,219 (2,759) (1,159)
		(5,417) 1,197 (1,161)
		36 884 (848)
		36

Non Cash Financing and Investing Activities during the year	$000s
Fair value adjustments in Derivatives - (decrease)/increase in value	380	(1,059)

NOTES TO THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

2010 $000s REVENUE, OTHER INCOME & EXPENSES FROM OPERATIONS REVENUE Sale of goods 4,746 Rental income from investment properties 3,109 Dividends received - other parties 59 Interest receivable 1,158 9,072 OTHER INCOME Net gain on disposal of investment properties 2,184 Net gain on sale of available-for-sale financial assets 1,022 Fair value adjustment on derivatives 380 Foreign currency translation gains - Sundry income 308 3,894 INTEREST INCOME Other persons 1,158 Directors - 1,158 SHARE OF PROFIT (LOSS) FROM ASSOCIATES ACCOUNTED FOR USING THE EQUITY METHOD Fairvalue adjustment to carrying value of available-for-sale financial assets at the time the entities became associates 580 Impairment to carrying value of associate at year end (589) Share of after tax profit (loss) from associates accounted for under the equity method (675) (684) EXPENSES Profit before income tax has been determined after: Amortisation of intangibles 80 Cost of sales - mining equipment manufacture 3,279 Depreciation - investment properties 432 - plant and equipment 486 918 Fair value adjustment on derivatives - Foreign currency translation losses 23 Impairment - investment properties 1,159 Impairment of available-for-sale financial assets - Listed investments 700 Interest paid - other 1,118 Doubtful debts - trade receivables 12 - other receivables 1,249 Defined contribution superannuation expense 207 Employee benefit expenses 1,705 Rental expense on operating leases 114 INDIVIDUALLY SIGNIFICANT ITEMS - Gains or ( losses ) Net Gain on Sale of rental property 2,184 Fair value adjustment on derivatives (267) Realised gain on sale of Industrea Ltd shares 588 Fair value adjustment on exercise of IDL options 647 Realised gain on sale of Alchemy Resources Ltd shares 415 Impairment of investment property (1,159) Provision for doubtful debts - other receivables (1,249) Impairment of available-for-sale financial assets (700) 459	2009 $000s 4,867 4,776 47 428
	10,118
	13 132 - 70 5
	220
	417 11
	428
	- - -
	-
	113 2,583 478 410
	888
	1,059 - - 1,696 1,159 12 - 276 1,660 106
	13 (1,059) 130 - - - - (1,696)
	(2,612)

NOTES TO THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

COMPARISON OF HALF-YEAR PROFITS

Consolidated profit (loss) after tax attributable to members reported for the 1st half-yearly report Consolidated profit (loss) after tax attributable to members for the 2nd half-yearly report Profit after income attributable to members reported for the year	3,609 (2,847) 762	(524) 1,064
		540

DETAILS OF INVESTMENTS IN ASSOCIATES

Fair value of investments in associates Ownership Interest Frigrite Limited 33.96% 3,207 Cool or Cosy Limited 23.42% 999 PPK Willoughby Funding Unit Trust 22.86% - 4,206 Aggregate share of associates' profit or (loss) Profit (loss) before income tax (696) Income tax expense or (credit) (21) Net profit (loss) after income tax (675)	- - -
	-
	- -
	-

Earnings per security (EPS)

Details of basic and diluted EPS reported separately in accordance with paragraph 9 and 18 of AASB 1027 : Earnings per share are as follows:

2010 2009 Earnings used in the calculation of basic EPS 762,000 540,000 Earnings used in the calculation of diluted EPS 762,000 540,000 Weighted average number of ordinary shares outstanding During the year used in the calculation of: Basic EPS 58,006,650 58,271,808 Diluted EPS 58,006,650 58,271,808 Basic EPS - Cents 1.3 0.9 Diluted EPS - Cents 1.3 0.9	2010 2009 Earnings used in the calculation of basic EPS 762,000 540,000 Earnings used in the calculation of diluted EPS 762,000 540,000 Weighted average number of ordinary shares outstanding During the year used in the calculation of: Basic EPS 58,006,650 58,271,808 Diluted EPS 58,006,650 58,271,808 Basic EPS - Cents 1.3 0.9 Diluted EPS - Cents 1.3 0.9	2010 2009 Earnings used in the calculation of basic EPS 762,000 540,000 Earnings used in the calculation of diluted EPS 762,000 540,000 Weighted average number of ordinary shares outstanding During the year used in the calculation of: Basic EPS 58,006,650 58,271,808 Diluted EPS 58,006,650 58,271,808 Basic EPS - Cents 1.3 0.9 Diluted EPS - Cents 1.3 0.9
NTA Backing	Current period	Previous corresponding period
Net tangible asset backing per share	58.6 cents	59.6 cents

NOTES TO THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

DIVIDENDS

Final dividend resolved to be paid Date dividend is payable Record date Ex dividend date Interim Dividend Final Dividend	1.00 cent per share fully franked 19 November 2010 12 November 2010 8 November 2010 Current Previous Year Year 1.50 cents 1.50 cents 1.00 cents 1.00 cents 2.50 cents 2.50 cents	1.00 cent per share fully franked 19 November 2010 12 November 2010 8 November 2010 Current Previous Year Year 1.50 cents 1.50 cents 1.00 cents 1.00 cents 2.50 cents 2.50 cents
		2.50 cents

The amount of retained profits and reserves that could be distributed as fully franked dividends from franking credits that exist or will arise after payment of income tax in the next year in respect to the 2010 year is $3,521,000. We anticipate that dividends will be fully franked for the foreseeable future.

Amount of final dividend payable - fully franked Both current and prior year dividends were fully franked. CONSOLIDATED RETAINED PROFITS Retained profits at the beginning of the financial year Net profit attributable to members Dividends paid Retained profits at the end of the financial year ORDINARY SHARES ON ISSUE Number of securities on issue at beginning of year Shares repurchased through approved buyback scheme Number of securities on issue at end of year	Current Year $000s 580 Current Year $000s 4,209 762 (1,450) 3,521 NUMBER 58,006,650 - 58,006,650	Prior Year $000s 580 Prior Year $000s 6,428 540 (2,759)
		4,209
		NUMBER 59,252,613 (1,245,963)
		58,006,650

OPTIONS

There were no options outstanding as at balance date.

POST BALANCE DATE EVENTS

Contracts for the sale of the Kirrawee, NSW property were exchanged on 16 August 2010. The completion of this sale is expected in the December 2010 half year and will result in a profit on sale of $1.45m.

The Group is in litigation with the tenant of the Arndell Park, Sydney property over the validity of the lease on this property. The matter is scheduled to be heard by the Courts prior to the end of December 2010.

No other matters or circumstances have arisen since the end of the financial year which significantly affected the operations of the economic entity, the results of those operations or the state of affairs of the economic entity in subsequent periods.

AUDIT STATUS

The accounts are currently in the process of being audited.