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LUDOWICI LIMITEDHead Offi ce67 Randle Road, Pinkenba,QLD, Australia 4008Phone: +61 7 3121 2900 Fax: +61 7 3121 2901Email: [email protected]: www.ludowici.com.au

LUDOWICI AUSTRALIA67 Randle Road, PinkenbaQLD, Australia 4008Phone: +61 7 3121 2900Fax: +61 7 3121 2901Email: [email protected]

LUDOWICI MESHCAPE 37 Main RoadEdenvale, Gauteng 1609South Africa.Phone: +27 0 11 609 1120Fax: +27 0 11 452 2545Email: [email protected]

LUDOWICI CHINA No. 231 West Jinhong RoadJihongtan Street,Chengyang DistrictQingdao, Shandong Province, P.R. ChinaPhone: +86 532 8065 3677Fax: +86 532 8065 3668Email: [email protected]

LUDOWICI CHILELa Estera 633Parque Industrial Valle GrandeLampa 9390392, Santiago, ChilePhone: +56 2 411 3600Fax: +56 2 411 3601Email: [email protected]

ICR LUDOWICI400 El Juncal AvenueBuenaventora Industrial LotQuilicura District 8710036Santiago, ChilePhone: +56 2 443 5505Fax: +56 2 443 5509

LUDOWICI INDIA Sales and EngineeringGanesh TowersNew 104 (Old 90) Dr.Radhakrishnan SalaiMylapore, Chennai 600004, IndiaPhone: +91 44 4232 7313Fax: +91 44 4232 7315Email: [email protected]

Manufacturing facilityPlot No. K-18/1, Sipcot Industrial Park, Phase IISriperumbudur Taluk, Kanchipuram District, 602 105, India

LUDOWICI LLC2871 Thunder Road,Chapmanville WV, USA 25508Phone: +1 304 855 7880 Fax: +1 304 855 8601Email: [email protected]

Ludowici Screens LLC785 Lithia RoadWytheville, VA 24382

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Annual ReportAnnual Report

20112011

735CPN0045_LDW_Ludowici_Annual_Report_2012_Cover_V3.indd 1735CPN0045_LDW_Ludowici_Annual_Report_2012_Cover_V3.indd 1 5/04/2012 8:24:49 AM5/04/2012 8:24:49 AM

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Ludowici’s strategy is to continue to develop our business in the global mineral processing and related markets. This growth will be delivered by a combination of internally driven organic growth and complementary acquisitions. We strive to develop differentiated products and services that deliver benefi ts to our customers and profi ts to Ludowici. Developing and commercialising innovative solutions is core to the growth of the company.

Ludowici will continue to grow both the capital equipment and consumables aspects of our business with a bias towards developing the consumables business more quickly. A differentiated service offering will support both consumable and capital equipment sales. The service will be delivered by regional service centres throughout our global operations.

Ongoing improvement in processes will drive increased effi ciencies and a truly global supply chain.

Our Vision

Our Purpose

Our Strategy

To build a leading global business servicing the mineral processing industry using innovation to develop technology that provides tangible benefi ts for our customers.

Since its establishment in 1858 the purpose of the Company has been to increase the value of its shareholders’ investment by the generation of profi ts. The Company, through its employees, achieves this purpose by meeting the needs of customers for the products and services it offers.

DirectoryDirectors:Phil J Arnall* ChairmanPatrick J Largier Managing Director & CEOGuy M Cowan*Julian K Ludowici*Colin W RavenhallHugh K R Rhodes-WhiteNick W Stump* Members of the Audit Committee

Secretary:Mark Day

Management:GroupManaging Director & CEOPatrick J LargierChief Financial Offi cer Stephen Gaffney

Regional ManagersExecutive GM Australia Mineral Processing and Supply ChainDarryl BarberExecutive General Manager AsiaJohn CondosCountry Manager IndiaKumar RajanGeneral Manager ChinaViktor Li General Manager ChileHoracio Marin Managing Director Ludowici MeshcapeDavid SibleyPresident Ludowici USAEd Vickers

Functional SupportGeneral Manager EngineeringRob AngusGeneral Manager OperationsWayne DixonGeneral Manager Vibrating EquipmentEddie McKerrManager Engineered ConsumablesShane McLoughlinHuman Resources ManagerAlan MuntzGeneral Manager, Global Business DevelopmentDavid RickettsGeneral Manager, Rojan Advanced CeramicsRod SteadGeneral Manager Industrial & InfrastructureNeil TindleGeneral Manager Process TechnologiesCraig Wilson

Registered Offi ce:67 Randle Road, Pinkenba, QLD 4008

Postal Address:PO Box 116, Pinkenba, 4008Telephone: +61 7 3121 2900Facsimile:+61 7 3121 2901

Email:[email protected]

Web:www.ludowici.com.au

Share Registry:Computershare Investor Services Pty Limited117 Victoria StreetWest End, QLD 4000 Postal Address:GPO Box 523Brisbane, QLD 4001

Telephone (within Australia):1300 855 080Telephone (outside Australia) +61 3 9415 4000Facsimile : +61 3 9473 2500Email:[email protected]:www.computershare.com

Auditors:PricewaterhouseCoopersChartered Accountants

Bankers:HSBC Bank Australia Limited

Solicitors:Herbertgeer

Designed and Produced by Computershare


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1LUDOWICI ANNUAL REPORT 2011

The Ludowici Vision IFC

Chairman’s Report 2

Managing Director’s Review of Operations 4

Financial Summary 7

Directors 9

Company Secretary 11

2011 Corporate Governance Statement 11

Executive Management Team 20

International Management Team 22

Directors’ Report 23

Auditor’s Independence Declaration 38

Consolidated Income statement 39

Consolidated Statement of comprehensive income 40

Consolidated Balance sheet 41

Consolidated Statement of changes in equity 42

Consolidated Statement of cash fl ow 43

Notes to the Financial Statements 44

Directors’ Declaration 99

Independent Audit Report 100

Shareholdings and Voting Rights 102

Directory IBC

NOTICE OF MEETING

The 120th annual general meeting of Shareholders of Ludowici

Limited will be held at the offi ces of Gilbert + Tobin, Level 37, 2 Park

Street, Sydney on Thursday 31 May 2012 at 11.00am.

A formal notice of meeting stating the business to be dealt with, and

a form for appointment of a proxy are enclosed with this report.

Contents

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2 LUDOWICI ANNUAL REPORT 2011

Chairman’s Report

Dear Shareholders,

2011 has been a busy and successful year.

On the operational front, the Company continued to roll out low cost global production facilities, accelerated the Refl ux Classifi er’s market positioning, moved to a direct sales model in China, and acquired Meshcape Industries in South Africa. On the fi nancial front, Ludowici achieved its highest ever EBITDA result.

Ludowici’s operational and fi nancial achievements over the past 12 months are clear indications of the Company’s success in building a strong position in the global minerals processing business. Importantly, Ludowici is focused on building a sustainable and growing revenue base driven by organic growth and acquisitions.

In December your Board received an approach to acquire our Company and the outcome of this approach has transpired to an agreement to sell the business on the terms detailed below.

2011 fi nancial performance

The success of Ludowici’s strategy can be seen in the fi nancial results of the Company.

Revenue in 2011 was $220.3 million, in line with 2010 even after the termination of an exclusive Chinese distribution agreement in late 2010 that accounted for approximately $22 million revenue that fi nancial year. Following termination of this agreement, Ludowici has moved to a direct sales model in China, providing a substantial opportunity to build a stronger and more sustainable business in a key growth market for the Company.

Whilst revenues were in line with the prior year, earnings grew due to improved margins and focused cost control. Ludowici generated a record EBITDA of $26.4 million, up 4.4% from 2010. Over a four year period, Ludowici has grown underlying EBITDA^ by 29% per annum. Net profi t after tax was down slightly to $10.7 million mainly due to a more normal effective tax rate in 2011.

Delivering on our 2011 business development prioritiesIn the 2010 Annual Report I outlined four key business development priorities for 2011, and I am pleased to say that we have been able to deliver against each one:

● Continue to improve operational and supply chain effi ciency to reduce lead times, support margins, and reduce inventory levels:

Ludowici continued to invest in improved manufacturing facilities, originally with the new factory at Pinkenba, Queensland, and more recently with the new production facilities in Chennai, India, and the production facility currently being commissioned in Qingdao, China. This programme of improvement combined with strategic acquisitions has resulted in improved underlying^ business profi tability of nearly 279% since 2008.

● Driving innovation to deliver new products that contribute to improving our customer’s effi ciency and profi tability:

During 2011 Ludowici actively progressed global trials of its revolutionary patented Refl ux Classifi er separation technology. The response was very strong, with two signifi cant sales orders announced late last year. The product now has a growing footprint throughout Australia, Asia, Africa, and North America, and importantly is making signifi cant in-roads into ‘non-coal’ markets.

● Organic growth through Ludowici’s global footprint:

Australia remains our key market, with our market leading position on the Eastern seaboard continuing to provide Ludowici with a competitive advantage and solid revenue base. Our focus on the coal industry continues to provide signifi cant growth opportunities.

Ludowici’s existing product range also continues to diversify globally and increase its market positioning across a broader range of ‘non-coal’ mineral applications, as evident in our North America business sourcing 39% of its revenue in 2011 from the hard rock mining industry.

In relation to emerging markets, Ludowici received its fi rst orders in Brazil in 2011, strengthening the Company’s South American presence. We are also exploring opportunities in India, with the Chennai factory being commissioned in April 2011.

Note ^: Excludes impairment items, insurance claim proceeds, capitalized R&D, business acquisition cost and profi ts on the sale of discontinued operations and surplus property. 2011 underlying EBITDA adjustments represent business acquisition costs ($0.4m) and business restructuring ($0.2m).


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● Continue to look for and develop suitable opportunities to acquire complementary businesses:

During 2011 Ludowici acquired the small Amseal business, as well as the more signifi cant Meshcape Industries. Based in South Africa, Meshcape is a signifi cant mining services consumables business, and provides Ludowici with exposure to the African region, one of the world’s fastest growing resource regions.

Strong balance sheetIn June/July 2011 Ludowici successfully raised net proceeds of approximately $10.1 million via a rights issue to institutional and retail shareholders. The raising was used to facilitate the Company’s global expansion aspirations with funds contributing towards the capital expenditure on the Qingdao facility, as well as positioning the Company to debt fi nance the acquisition of Meshcape Industries.

Net cash fl ow from operating activities in 2011 was $4.5 million following a second half infl ow recovery of $8.7 million. This cash fl ow was affected by very strong sales in the fi nal quarter of 2011 that resulted in high year end trade receivables.

Whilst net debt increased marginally driven by investments in acquired businesses, and funding of the new manufacturing facilities, Ludowici continued to maintain a comfortable gearing position of 33.9% debt to capital.

Increased dividendGiven the fi nancial performance of Ludowici and the growth opportunities available to the Company, your Directors declared a fully franked 2011 fi nal dividend of 11 cents per share. This dividend will be paid on 9 May 2012, and brings the total dividend for 2011 to 21 cents per share fully franked, which represents an increase of 5% on 2010.

OutlookLudowici is attractively exposed to the improving mineral processing capital cycle, with underlying 2012 EBITDA expected to be stronger than 2011. Our four key business development priorities from last year have not changed. With a strong order book in our traditional markets, growing emerging market opportunities, continued diversifi cation into non-coal revenue streams, and benefi ts to fl ow from the new manufacturing facilities, Ludowici is well placed to deliver underlying growing earnings over 2012.

Offers for LudowiciAs you will be aware, FLSmidth a Danish based global engineering fi rm, and Weir Group Plc, a UK based engineering services provider, made competing proposals to acquire all of the outstanding shares in Ludowici. The Board of Ludowici resolved that in the absence of any superior offer, and subject to an independent expert recommending that the offer is in the best interests of Ludowici shareholders, it will recommend that shareholders accept FLSmidth’s latest offer of $11.00 cash per share. The sale will be conducted via a Scheme of Arrangement with an expected completion date of early July 2012 subject to various regulatory approvals.

PeopleThe strong performance in 2011 is a refl ection of the hard work and dedication of Ludowici’s global team. Our people, located in six countries comprising 25 locations around the world continue to drive growth, sustainability, and innovation.

On behalf of the board I would like to thank Patrick Largier, the senior executive team, and all of the staff for their focus and commitment in making Ludowici what it is today, a strong and growing global mineral processing business.

Phil ArnallChairman


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Managing Director’sReview of Operations

The year started off with the Queensland fl oods creating signifi cant challenges for some of our Australian based customers with a fl ow on negative impact on Ludowici’s business. In general, the business performance strengthened as the year progressed with the fi rst half revenue 8% less than 2010 and second half revenues 7% higher than the previous year.

In addition to the Queensland fl oods, the other short term negative impacts on 201 1 revenue included the termination of a distribution agreement for the Chinese market, the generally softer market for capital equipment (which improved as the year progressed) and the effect of the high Australian dollar (resulting in lower overseas sales when expressed in A$). Ludowici views the Chinese market as a major growth opportunity and the previous exclusive distribution agreement created signifi cant obstacles to the company’s long term China growth prospects. Notwithstanding the short term revenue impact (approximately A$22m in 2011) it was decided that this agreement did not suit the longer term growth aspirations of Ludowici.

Offsetting the above negative impacts on the company’s revenue there was signifi cant growth elsewhere. The acquisitions of the Rojan, Amseal and Meshcape businesses added approximately $16 to $17m revenue with underlying organic revenue growth continuing in 2011.

During 2011, we delivered a stronger gross margin with percentage to sales improving by over 1% from 32.9% last year to 34.1% in 2011. This improved gross margin refl ects the company’s ongoing efforts to reduce supply chain costs and to increase operational effi ciency. This result is particularly pleasing given the strong price and cost pressures that we experienced in 2011 from the high Australian dollar and competitors attempting to “buy” their way into the Australian market with lower prices.

One of Ludowici’s overarching strategic objectives has been to increase the resilience of the company’s earnings. Two key aspects of delivering this strategy have been to increase geographic diversity and to increase the portion of consumables and spare parts in our revenue mix. The benefi ts of executing this multiyear strategy are clearly apparent in Ludowici’s 2011 results. Even though customers delayed the approval of many capital projects in 2011 and the proportion of our revenue from capital equipment sales dropped sharply in 2011 (compared to 2010), Ludowici still managed to deliver a record EBITDA profi t result.

A number of the delayed capital projects are now being approved as is evidenced by the two large projects in the Americas recently announced by Ludowici. This bodes well for much stronger capital sales in 2012.

Ludowici’s North American business was the standout performer in 2011. In US dollar terms the business achieved record revenue and nearly doubled profi ts. This result was achieved by continuing to deliver growth in the coal business while also building a strong “hard rock” copper business in Arizona. Ludowici USA together with support from the global product management team has built the hard rock business from nothing to 39% of the company’s North American revenue over the past 4 years. The rapid growth of Ludowici’s business in the Arizona copper market demonstrated the signifi cant operational and customer benefi ts our equipment delivers in one of the most onerous screening duties. In February 2012 we announced that the North American business won its largest single order for USD 4.7m for vibrating screens for a copper processing plant in Arizona.

In 2011 the Latin American business suffered from the delay of a number of signifi cant capital projects resulting in the vast majority of revenue coming from consumables and spare parts sales. It is pleasing to note that these delayed projects are starting to be approved and Ludowici recently announced its largest single order for USD 15m for screens for a Peruvian copper processing plant.

The acquisition of the Meshcape business in Africa has signifi cantly increased the scale of our African operations and has provided Ludowici with a market leading mineral processing consumables business. While we only owned the Meshcape business for approximately four months last year, it made a signifi cant contribution to increased African revenue and the African profi t turnaround.

In India we commissioned the new factory in Chennai in the early part of 2011. This factory is designed to service the large Indian mineral processing market as well as providing a source of consumable products for other Ludowici businesses around the world. The commissioning of the new Chennai factory resulted in signifi cant losses for our Indian business during the fi rst half of 2011 however as the factory was loaded up during the year, the Indian business moved into profi tability for the second half of the year. Together with building the productive capacity of the Indian factory, we were also establishing a strong commercial team which is now in place and we expect this business to grow from strength to strength.

In 2011 Ludowici consolidated the strong growth of the previous couple of years with steady revenue and a record EBITDA profi t.


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In China we also saw a lot of change in 2011. As mentioned earlier, we terminated a longstanding distribution agreement in late 2010 and our Beijing sales team has made a good start in building our direct channel to market with a strengthening backorder of capital equipment orders for the Chinese market. In addition, sales of product into the Mongolian market continued at a signifi cant level in 2011. During 2011, we decided that we needed to expand Ludowici’s manufacturing capacity in China. Over the last quarter of 2011, we commenced the relocation of Ludowici’s manufacturing facility in Yantai to a new facility in Qingdao (about three hours drive south of Yantai). This new factory is more than fi ve times larger than our previous Yantai facility and will allow us to service the Chinese market from an effi cient, leading edge manufacturing factory as well as support Ludowici’s global supply chain. It is expected that the new Qingdao factory will be brought to full capacity over 2012.

In Australia, Ludowici enjoyed the full year contribution of the newly acquired Rojan business which performed ahead of expectations. The business development work to globalise the Rojan product range was started in 2011 and we expect the benefi ts to start fl owing from this initiative in 2012. After a number of years of underperformance, Ludowici’s West Australian business delivered good growth in 2011 and we expect this to continue. This trend has been supported by a recent win of signifi cant new screen media business for a West Australian iron ore processor. In general Ludowici’s Australian consumables business performed well, offset by a slower than expected release of capital projects in Australia and the loss of $22m of capital equipment exports to China (previously exported via the recently terminated Chinese distribution agreement).

Working capital remained a priority during the year resulting in the decrease of inventory levels (excluding the impact of the inventory acquired with the Amseal and Meshcape businesses). Trade debtors were high at the end of the year as a result of very strong fourth quarter sales however these levels have been subsequently reduced as cash collection in the fi rst quarter of 2012 has been stronger than previous years.

As indicated in my Review of Operations last year, Ludowici’s 2010 safety performance was negatively infl uenced by the acquisition in late 2009 of a Latin American business with a very poor safety culture and record. I am pleased to report that in 2011 we made good progress on improving the safety performance for this business as well as more generally in Ludowici. In 2011 the company’s Lost Time Frequency Rate improved by 47% over 2010 and the Recordable Case Rate (broadly a measure of medically treated injuries) improved by 18%.

During 2011 we have continued to drive product developments and innovation in the company with a number of new products due for release in 2012 and ongoing success in commercialisation of Ludowici’s unique refl ux classifi er technology. In late 2011 we announced the award of the two largest refl ux classifi er orders to date and are looking forward to even larger orders in 2012.

Overall I believe that Ludowici’s performance in 2011 demonstrated both the greater resilience of the company and consolidated the benefi ts of the implementation of a consistent company wide strategy. The three year records indicate that the company has delivered rapid and sustained growth over this period as demonstrated by the following statistics (base year 2008):

● Revenue growth of 46% or 14% cumulative average growth rate (CAGR) per annum

● Underlying Net profi t increase of 279% or a 3 year CAGR of 56% per annum

● Underlying earnings per share (EPS) growth of 152% representing a 36% CAGR per annum.

Since Ludowici started to invest in the mineral processing business in the mid 1990s the company has built a strong and growing business in an attractive market segment. The approach earlier this year by FLSmidth to acquire Ludowici recognised the value that has been built over the past 15 years. The subsequent competition for Ludowici by two leading global players was further evidence of the attractiveness of your company.


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Managing Director’s Review of Operations(continued)

OutlookIn 2011 Ludowici delivered a record EBITDA profi t in an environment of slow releases of capital projects. As has been evidenced by the recent announcements of two large capital equipment orders, it appears that Ludowici’s sales of capital equipment to the global mineral processing market are likely to be stronger in 2012 than 2011. The recent takeover offer that has progressed to a transaction has superceded any projections on profi t growth predictions. That said the early months of 2012 have demonstrated that the year will be one of continued growth in our business

PeopleOver the past decade, Ludowici has grown into a truly international company and developed into a global market leader in the mineral processing markets in which we operate. This global presence has facilitated the strong growth mentioned above. This is an achievement of which the company can be justifi ably proud and has been recognised by the numerous awards that Ludowici has recently won, including the 2011 Premier of Queensland’s Export Award in the “Large Advanced Manufacturer” category. These successes are only made possible by the efforts of Ludowici people spread across the world working together as a team to ensure that we deliver the

best possible product and service to our customers. The global Ludowici team gets stronger year by year and many people within the company have gone to extraordinary lengths to make Ludowici successful. This ranges from the global product specialists who spend many weeks each year travelling to support the business, to the frontline sales and production staff who ensure that orders get manufactured and delivered to customers. These frontline teams are in turn supported by back offi ce teams around the world who ensure that our systems facilitate the effi cient operation of our company. Without the contribution of the worldwide Ludowici team, our undoubted success would not have been possible and I would like to thank all Ludowici staff for making this possible and look forward to even greater success in the future. In addition I would like to thank the Ludowici Board and in particular the Chairman, Phil Arnall, for the support which has facilitated this rapid growth of your company.

Patrick Largier Managing Director


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Financial Summary

Graph2011

$000’s2010

$000’s2009

$000’s2008

$000’s2007

$000’s

Revenue from continuing operations 1 220,313 221,726 163,245 150,438 148,751

Underlying EBITDA^ 27,009 25,551 16,027 10,233 9,734

- as a % of revenue 12.3% 11.5% 9.8% 6.8% 6.5%

Net Profi t (after tax) attributtable to members of Ludowici Limited

2 10,693 11,611 1,871 4,571 1,881

- as a % of shareholders equity 10.3% 13.3% 2.5% 7.2% 3.2%

Depreciation and amortisation (6,813) (5,844) (4,337) (3,714) (3,443)

Finance costs (4,577) (4,201) (3,097) (3,433) (2,034)

Income tax (expense) / benefi t (4,330) (3,653) (1,349) (811) 1,932

Equity 103,448 87,551 74,427 63,344 59,279

Total dividends per share - cents 3 21.0 20.0 12.0 8.0 32.0

Earnings per share - cents 38.4 44.8 9.7 24.7 10.5

Underlying after tax earnings^ per share - cents

4 40.3 45.7 37.5 16.0 18.7

Net tangible asset backing per ordinary share*

$2.21 $2.06 $1.97 $2.44 $2.37

Employees at year end 1,012 817 698 586 551

^ Excludes impairment items, insurance claim proceeds, capitalized R&D, business acquisition and restructuring costs and profi ts on the sale of discontinued operations and surplus property. * Calculation as per ASX Appendix 4E.

5 Year Financial Summary


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Financial Summary(continued)

0 50 100 150 200 250

2011

2010

2009

2008

2007

Revenue $ millions

0 2 4 6 8 10 12

2011

2010

2009

2008

2007

Net profit attributable to members $ millions

0 10 20 30 40

2011

2010

2009

2008

2007

Dividends per share - cents

0 10 20 30 40 50

2011

2010

2009

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Underlying earnings per share


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Directors

Patrick J LargierBSc Chem Eng with Honours (University of Cape Town); Advanced Management Program (Harvard University). Managing Director – appointed 21 June 2007.Prior to joining Ludowici, Mr Largier spent nearly fi fteen years with Orica/ICI Australia. During that period he led a number of Orica’s business units and divisions. His last role in Orica was Group General Manager Strategy and Acquisitions. His earlier career included 10 years with the Shell group of companies in a variety of business and marketing roles in South Africa and London. After graduating as a chemical engineer, Mr Largier worked for Impala Platinum and a local chemical engineering contracting company in Johannesburg.

Phil J ArnallBCom. Chairman – Independent non-executive.Mr Arnall was appointed in January 2003 following a 30 year career in the mining and steel industries including senior executive responsibility in Smorgon Steel Group, Tubemakers and ANI Limited. He maintains interests in businesses servicing the mining and rail markets in Australia.

Julian K LudowiciBCom. Non-independent non-executive.Mr. Ludowici was appointed in September 1988. He established BeMax Resources Limited and subsequently started Customers Ltd, where he was Chairman until he retired in 2006. Mr. Ludowici was a founding Director and Chairman of Rey Resources Ltd, a coal development company. He retired from this position in November 2010. He has wide experience in capital markets and is the Chairman of Ludowici Investments, the largest shareholder in Ludowici Limited.

Colin W RavenhallDip App Chem. Independent non-executive.Mr Ravenhall was appointed in February 2001. Former Managing Director of Taubmans Industries Limited and former President and CEO of Courtaulds Coatings Inc. USA. He has 35 years experience in industrial and consumer marketing and manufacture, both locally and overseas.


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Directors(continued)

Nick W StumpMAppSc (Adel), FAusIMM. HonDEngin Qld Independent non-executive.Mr Stump was appointed in April 2005. He was former CEO of Comalco Ltd and MIM Holdings Ltd. He began his career as a metallurgist at Broken Hill with CRA Ltd before moving into operations management roles including overseas postings. More recently he has focused on the international mining services sector.

Guy CowanBSc (Hons), FCCA. Independent non-executiveMr Cowan was appointed in November 2009. He previously spent 24 years working for energy group Shell in international fi nance and strategy roles, most recently as Chief Financial Offi cer of Shell Petroleum Inc and Shell Oil Company in the United States, of which he was also a director. In 2009 Mr Cowan retired from New Zealand-based dairy group Fonterra, at which he had been Chief Financial Offi cer since 2005. In February 2011 Mr Cowan became a Non Executive Director of Coffey International Limited, a specialist professional services consultancy with expertise in geosciences, international development and project management.

Hugh K R Rhodes-WhiteNon-independent non-executiveMr Rhodes-White was appointed in September 1999. He is the Managing Director and owner of a Sydney construction company and a director of Ludowici Investments.

Additional information on the Directors is available in the Directors’ Report.


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2011 Corporate Governance Statement

IntroductionThis statement sets out the Company’s commitment to business practices and corporate governance. It also describes the Company’s approach to corporate governance and summarises the main policies and procedures that the Company has in place.

The Board is committed to consistently delivering strong fi nancial performance and maximising long-term shareholder value. The Board believes the implementation of appropriate and relevant corporate governance practices contributes to enhancing the performance of the Company and the creation of shareholder value whilst also promoting market confi dence and the confi dence of the Shareholders, investment community and other relevant stakeholders. This statement outlines the main corporate governance practices in place throughout the Company.

The Board monitors the Company’s governance framework, related practices and overall culture. The Board implements governance policies it considers are appropriate to the operations of the Company, while also considering the expectations of Shareholders, market guidance and the interests of other relevant stakeholders.

In June 2010, the ASX Corporate Governance Council released the revised “Corporate Governance Principles and Recommendations with 2010 Amendments” (“ASX Recommendations”) which may be considered by ASX-listed companies regarding their corporate governance framework and policies. The ASX Listing Rules require listed entities to include a statement in their annual report disclosing the extent to which they have followed the ASX Recommendations during the fi nancial year, and also identifying recommendations that have not been followed and explaining the reasons for adopting a different approach.

The Board believes that the Company’s governance practices are consistent with the ASX Recommendations, subject to any qualifi cations outlined in this statement.

Principle 1: Lay solid foundations for management and oversightASX recommends recognising and publishing the respective roles and responsibilities of Board and management. The Company addresses this recommendation as follows:

The Board’s primary role is the protection and enhancement of long-term Shareholder value. The key responsibilities of the Board are to:

Establish, monitor and drive the corporate strategies of the Company;

Ensure proper corporate governance and monitor the performance of management of the Company;

Ensure that appropriate risk management systems, internal control and reporting systems and compliance frameworks are in place and are operating effectively;

Assess the necessary and desirable competencies of Board members, review Board succession plans, evaluate its own performance and consider the appointment and removal of Directors;

Approve executive remuneration and incentive policies, the Company’s recruitment, retention and termination policies and procedures for senior management and the remuneration framework for non-executive Directors;

Monitor fi nancial results;

Company Secretary

Mark DayBA (Hons) University of Queensland, Post Graduate Certifi cate in Economics Nanjing University & LLB Melbourne University

Mark Day was appointed Company Secretary on 16 December 2011. Mark joined Ludowici in March 2011 as General Counsel with substantial intellectual property and commercial law experience in Australia and Asia Pacifi c. After commencing his legal career with Phillips Fox in Melbourne, Mark spent 10 years in private practice before taking up a position as General Counsel in Asia Pacifi c for a major international trade association.


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2011 Corporate Governance Statement(continued)

Approve decisions concerning the capital, including capital restructures, and dividend policy of the Company; and

Comply with the reporting and other requirements of the law.

A statement of these matters reserved for the Board is located on the company web site.

The Board meets at least 10 times each year. Additional meetings are convened as necessary.

Subject to certain conditions, the Board delegates responsibility for day-to-day management of the Company to the Managing Director/Chief Executive Offi cer (CEO), who provides a monthly report to the Board. The responsibilities of the CEO are outlined in his employment agreement. The CEO operates within authorities delegated by the Board and must consult the Board on matters that are sensitive, extraordinary, of a strategic nature or on other matters outside this delegation

The Board undertakes a process for evaluating the performance of the senior executives. This consists of annual reviews of the key performance indicators for the company. The review is undertaken by the CEO and reported to the Board.

A performance evaluation for the CEO has taken place in the reporting period.

Principle 2: Structure the Board to add valueASX recommends having a Board of an effective composition, size and commitment to adequately discharge its responsibilities and duties. The Company addresses this recommendation as follows:

2.1 Board composition and independenceThe Company’s Constitution states that the number of Directors (not counting alternate Directors of the Company) not being less than three, is determined by the Directors from time to time. The Board currently comprises seven Directors, six being non-executive Directors (including the Chairman) plus the Managing Director. The Directors come from a variety of business and professional backgrounds and bring to the Board a range of skills and experience relevant to the Company. Details of Directors’ experience, expertise and terms in offi ce, are set out in the Directors’ Report under the heading “Information on Directors”.

Of the six non-executive Directors, four are independent and two are non-independent. Messrs JK Ludowici and HK Rhodes-White are considered non-independent primarily because they are associates of major shareholders of the Company. In assessing

independence, the Board considers Directors to be independent when they are independent of management and free from any business that could materially interfere with, or could reasonably be perceived to materially interfere with the exercise of their unfettered and independent judgement.

The Board is of the opinion that its size and composition is effective for the adequate discharge of its responsibilities and duties.

The Board believes that the fi rst priority in the selection of Directors is their ability to add value to the Board and enhance the Company’s performance whilst safeguarding shareholders’ interests. Accordingly, relevant expertise and competence is considered as important as technical independence.

All Directors have unrestricted access to company records, information and personnel and the Board has a policy of allowing the Board or individual Directors to seek independent professional advice at the Company’s expense, subject to the approval of cost by the Chairman. Such approval shall not be unreasonably withheld.

Board operations

The Board meets regularly, with ten scheduled Board meetings each year and approves annual and half yearly reports at the relevant Board meetings. Supplementary Board meetings are arranged as required. The Directors’ attendance at those meetings is set out in the Directors’ Report of the 2011 Annual Report under the heading “Directors’ Meetings”. The Directors receive a comprehensive Board pack before each meeting. Senior executives meet regularly and present to Board and committee meetings on particular issues.

2.2 The role of ChairmanThe Board believes that the role of Chairman should be fi lled by a person with relevant skills and experience and who adds value to the Board and to the Company. The responsibilities of the Chairman include:

Ensuring that the Board provides leadership and vision to the Company;

Assessing and implementing a balanced Board membership;

Ensuring that the Board is participating in setting the aims, strategies and policies of the Company;

Ensuring that the Company is appropriately assessing and monitoring risk in accordance with best practice;

Ensuring that there is adequate monitoring of the goals of the Company;


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Ensuring that the Board reviews the human resources policies of the Company;

Making certain that the Board has the necessary information to ensure effective decision making;

Directing Board discussions so that there is an effective use of time and that critical issues are discussed;

Developing an ongoing and healthy relationship with the Managing Director;

Guiding the ongoing development of the Board as a whole and Directors individually; and

Be available to offer guidance to other Directors where required.

The Chairman, Mr PJ Arnall is considered an independent Director in accordance with ASX Recommendation 2.2.

2.3 The role of Chairman and Managing Director

The role of Chairman and Managing Director are exercised by different individuals, in accordance with ASX Recommendation 2.3.

2.4 Nomination and Remuneration CommitteeThe Board has established a Nomination and Remuneration Committee. Details of Committee membership and attendance at those meetings are set out in the Directors’ Report under the headings “Information on Directors” and “Directors’ Meetings”.

The Nomination and Remuneration Committee considers the Board succession planning, the selection of new Directors, and the suitability of the Director’s skills and qualifi cations. The Company’s Constitution requires Directors, with the exception of the Managing Director, to stand for re-election every three years. Retiring Directors are eligible for re-election. When a vacancy is fi lled by the Board during the year, the new Director must stand for election at the next general meeting.

All Directors with the exception of the Managing Director are members of this Committee, and as such the Committee does have a majority of independent directors. The Managing Director attends Committee meetings by invitation and is not present during discussion on the Managing Director’s remuneration. The responsibilities of the Committee in respect of selecting Board members are:

Review from time to time the required range of skills and experience of the Board;

Identify suitable candidates for prospective new appointments; and

Review the time requirements of the Directors to ensure non-executive Directors have suffi cient time to dedicate to the role.

Each Director’s performance is reviewed against appropriate measures considering the individual skills that Director brings to the Company. The process for this evaluation is:-

Responding to a written questionnaire prepared by the Chairman by each director to the Chairman on the functioning of the Board. The Chairman also completes the questionnaire. The questionnaire is wide ranging and covers how well the Board fulfi ls its role, the people, procedures and practices; and

The responses to this questionnaire are collated by the Chairman and the outcomes are discussed by the Board. If appropriate improvement actions are undertaken.

Principle 3: Promote ethical and responsible decision-makingIn Principle 3, ASX recommends actively promoting ethical and responsible decision-making. Ludowici address this recommendation as follows.

3.1 Company commitment to ethical business practices

While the Board has adopted the ASX principles of corporate governance and implemented most of the ASX recommendations, it believes that these types of rules and regulations are of limited value unless supported by a foundation of honesty and integrity which has been a foundation of the Company’s business practice.

The Company has previously adopted a Code of Conduct to include “whistle blowing”. The code of conduct is a guide to all Company employees, including Directors, and senior executives, in respect of ethical behaviour. It has been designed to maintain confi dence in the Company’s integrity and the responsibility and accountability of all individuals within the Company for reporting unlawful and unethical practices. A copy of the Code of Conduct is available to Shareholders on request and is accessible on the Company’s website.

3.2 Employee diversityThe Company is currently fi nalising the adoption of a Diversity Policy in line with ASX Recommendations. Existing structures refl ect the geographical and cultural diversity of the Company’s global operations and the Board values the benefi ts of promoting an environment conducive to supporting contributions of well qualifi ed employees, executives and board members to maximise the achievement of corporate goals regardless of gender, age or race.


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Principle 4: Safeguard integrity in fi nancial reportingIn Principle 4, ASX recommends having a structure to independently verify and safeguard the integrity of the Company’s fi nancial reporting. The Company addresses this recommendation as follows:

4.1 Audit and Risk CommitteeThe Audit and Risk Committee is responsible for reviewing the fi nancial accounts and other fi nancial information distributed externally, monitoring the adequacy of risk management and internal control systems and monitoring procedures in place to ensure compliance with statutory responsibilities. In addition it monitors compliance with applicable policies and laws and provides a forum of communication between the Board and external auditors and Senior Management. The Audit and Risk Committee reviews the independence and performance of external auditors and considers any other matter the Board may refer to the Committee for consideration

4.2 Structure of Audit and Risk CommitteeThe Committee consists of three non-executive Directors, the majority of whom are independent. The Chairman of the Committee is an independent Director who is not the Chairman of the Board. The Company Secretary and external auditors are invited to attend the committee meetings. Other staff including the Managing Director may be invited to Committee meetings as deemed necessary by the Committee. The members of the Audit and Risk Committee each hold the necessary technical expertise to satisfy the obligations of the Committee.

4.3 Audit and Risk Committee CharterThe Committee has a Board approved Charter setting out its role, responsibilities, structure and membership requirements.

In performing its responsibilities, the Committee shall, amongst other things:

Where a vacancy arises, recommend to the Board the appointment of the external auditors;

Review the terms of engagement of the external auditor and prepare a recommendation to the Board including recommendation on the level of the external auditor’s annual fee;

Review the adequacy of the Financial Reports presented to the Board;

Review Board Policies in regards to fi nancial matters;

Monitor and evaluate to ensure the overall effectiveness of both the internal controls and

external audit, and the independence of the external auditors;

Ensure that no management restrictions are being placed upon the external audit;

Review all fi nancial reports to be made to members and the public and assess their adequacy for shareholder needs;

Monitor the standard of corporate conduct in areas such as related-party dealings and any likely confl icts of interest;

Require reports from management, and the external auditors on any signifi cant proposed regulatory, accounting or reporting issue, to assess the potential impact upon the company;

Review and recommend to the Board accounting policy changes;

Identify and direct any special projects or investigations deemed necessary; and

Review for completeness and accuracy the reporting of the entities main corporate governance practices as required by ASX.

Details of the amounts paid for both audit and non-audit services are set out in the Notes to Financial Statements of the 2011 Annual Report (Note 27 – “Auditors’ Remuneration”).

4.4 Audit and Risk Committee InformationDetails of the names and qualifi cations of Audit and Risk Committee Members, their attendance at Meetings and the number of meetings of the Audit and Risk Committee held during 2011 are set out in the Directors’ Report contained in the 2011 Annual Report.

Principle 5: Make timely and balanced disclosureIn Principle 5, ASX recommends promoting timely and balanced disclosure of all material matters concerning the Company. The Company addresses this recommendation as follows:

The Board recognises that the Company as a publicly listed entity has an obligation to make timely and balanced disclosure in accordance with the requirements of the ASX Listing Rules and the Corporations Act 2001. The Board also is of the view that an appropriately informed shareholder base, and market in general, is essential to an effi cient market for the Company’s securities.

The Board is committed to ensuring that Shareholders and the market have timely and balanced disclosure of matters concerning the Company and has adopted a Continuous Disclosure Policy.



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A copy of this policy is available on request and is also accessible on the Company’s website.

All information disclosed to ASX is promptly placed on the Company’s website following receipt of confi rmation from ASX and, if deemed desirable, released to the wider media.

Principle 6: Respect the rights of shareholdersIn Principle 6, ASX recommends respecting the rights of Shareholders and facilitating the effective exercise of those rights. The Company addresses this recommendation as follows:

6.1 Communications with shareholdersThe Board recognises that the Shareholders are the benefi cial owners of the Company and respects their rights and is continually seeking ways to assist shareholders in the exercise of those rights.

The Board also recognises that as owners of the Company, the Shareholders may best contribute to the Company’s growth, value and prosperity if they are appropriately informed. To this end, the Board seeks to empower Shareholders by:

Communicating effectively with Shareholders;

Enabling Shareholders access to balanced and understandable information about the Company, its operations and proposals; and

Assisting Shareholders’ participation in general meetings.

The Company provides a website (www.ludowici.com.au) in order to provide opportunities for Shareholders to access Company announcements, media releases and fi nancial reports through electronic means.

Principle 7: Recognise and manage riskIn Principle 7, ASX recommends establishing a sound framework of risk oversight, risk management and internal control. The Company addresses this recommendation as follows:

7.1 Business risksThe identifi cation and effective management of risk, including calculated risk taking, is viewed as an essential part of the Company’s approach to creating long-term shareholder value. The Board determines the Company’s risk profi le and is responsible for overseeing and approving risk management strategy and policies, internal compliance and internal control. The Board has determined that the Audit and Risk Committee will be responsible for the continual

development and monitoring of a Risk Management Framework in accordance with ASX guidelines and will report to the Board on this matter.

7.2 Internal control systemThe Company continues to develop internal control procedures to provide assurance on the adequacy of these to manage risk. The CEO is charged with implementing an appropriate internal control framework within the Company and includes in his regular internal reports to the Board details of any issues or concerns. This is supplemented by senior fi nance personnel visits to key locations to ensure compliance with policy.

The Board reviews all major strategies for their impact on the risks facing the Company and takes appropriate action.

7.3 CEO and CFO certifi cation.Consistent with Principle 7.3 and section 295A of the Corporations Act 2001, the CEO and CFO have provided a written statement to the Board that, in their opinion:

Their view provided on the Company’s fi nancial report is founded on a sound system of risk management and internal compliance and control which implements the fi nancial policies by the Board; and

The Company’s risk management and internal compliance and control system is operating effi ciently in all material risks.

The Board notes that due to its nature, internal control, the assurance from the CEO and CFO can only be reasonable rather than absolute. This is due to such factors as the need for judgement, the use of testing on a sample basis, the inherent limitations in internal control and because much of the evidence available is persuasive rather than conclusive and therefore is not, and cannot be, designed to detect all weaknesses in control procedures.

Principle 8: Remunerate fairly and responsiblyIn Principle 8, ASX recommends ensuring that the level and composition of remuneration is suffi cient and reasonable and that its relationship to corporate and individual performance is defi ned. The Company addresses these recommendations as follows:

8.1 Remuneration CommitteeThe Nomination and Remuneration Committee has a Charter that includes objectives to ensure the level and composition of remuneration of both the non-executive Directors as well as the executives


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are suffi cient and reasonable to compensate the individuals and to motivate desired outcomes for the Company.

The responsibilities of this Committee include reviewing, separately, the remuneration of Directors and key executives. The Committee’s responsibilities are to:-

Review non-executive Directors’ fees and recommend adjustments of the aggregate amount for consideration by the Shareholders;

Review senior executive remuneration policy and ensure the mix of base salary, performance pay and other benefi ts is adequate to attract, retain and motivate talented people;

Determine the remuneration of the Managing Director (the Managing Director does not participate in this function); and

Approve the Managing Director’s recommendations on senior executive remuneration.

In undertaking its duties the Committee gives due consideration to the Remuneration Policy.

Remuneration Policy

The Board believes that it is in the interest of all stakeholders in the Company for there to be in place a remuneration policy that:

Attracts and retains talented and motivated Directors, executives and employees so as to encourage enhanced performance of the Company;

Recognises and rewards superior performance by any individual who has made a signifi cant contribution to the Company;

Payment of equity-based executive remuneration should only be made in accordance with such schemes that have been approved by shareholders;

Enables the Company’s stakeholders and the investment community to understand:

(i) The costs and benefi ts of that policy; and

(ii) The link between remuneration paid to Directors and key executives and the Company’s performance.

Distinguishes the structure of non-executive Directors’ remuneration from that of executives using the following guidelines.

For non-executive Directors’ remuneration:

Non-executive Directors should not be provided with retirement benefi ts other than statutory superannuation; and

Non-executive Directors ought to receive equity-based remuneration only under strict controls and subject to shareholder approval.

To this end, the Board has established a process of transparency in remuneration matters that relates remuneration to performance and clearly communicates the policy underlying executive remuneration to stakeholders.

Remuneration Structure

The Board has determined that executive remuneration may comprise any of the following:

Cash salary;

Shares in the Company and/or options to acquire shares in the Company;

Other incentive schemes;

Allowances;

Holiday and sick leave;

Long service leave (Australian employees);

Superannuation;

Any other component that the Company can lawfully provide to an offi cer to salary sacrifi ce;

Any other component that the Board considers relevant and desirable; and

Fringe benefi ts tax (howsoever called) associated with components of remuneration requested by the Offi cer to be salary sacrifi ced.

The remuneration, and its elements, paid to Directors and Key Management Personnel is set out in the Directors’ Report of the 2011 Annual Report under the heading “Remuneration report (audited)”.

Indemnity and insurance of Directors

In accordance with the Company’s Constitution and to the extent permitted by law, the Company indemnifi es every person who is, or has been, a Director or secretary and may agree to indemnify a person who is or has been an offi cer of a group company against a liability incurred by that person in his or her capacity as such a Director, secretary or offi cer, to another person (other than the company or a related body corporate of the company) provided that the liability does not arise out of conduct involving a lack of good faith. In addition, the Company has Directors and offi cers insurance against claims and expenses that the Company may be liable to pay under these indemnities.



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8.2 Structure of Nomination and Remuneration CommitteeAll Directors with the exception of the Managing Director are members of this Committee, and as such the Committee does have a majority of independent directors. The Committee consists of six non-executive Directors, the majority of whom are independent. The Committee is chaired by the Board Chairman who is considered an independent Director in accordance with ASX Recommendation 2.2. Other staff including the Managing Director may be invited to Committee meetings as deemed necessary by the Committee.

8.3 Distinguishing between executive andnon-executive Directors’ remunerationThe Company’s policy set out above clearly distinguishes between the executive and non-executive Directors’ remuneration and structure for remuneration.


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The product quality and excellent customer service has always been there …………...............

Historical Advertisement


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…………we just grew a little bit.

PRODUCT SOLUTIONS FOR THE

MINING INDUSTRYWe are a diversified global manufacturing and engineering company servicing customers in the mining, industrial and construction industries.

Wherever you are in the world Ludowici can supply the most comprehensive material handling,

mineral processing products and equipment, innovative design services, consumable products,

installation and maintenance services.

A U S T R A L I A | C H I N A | I N D I A | N O R T H | S O U T H | S O U T H A M E R I C A A M E R I C A A F R I C A

WE HAVE THE WORLD COVERED

www.ludowici.com.au +61 7 3121 [email protected]

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Rob Angus – General Manager, EngineeringRob joined Ludowici in 2005 following 20 years in consulting engineering where he specialized in machine dynamics and vibrations. Rob has extensive experience working on mining machinery, process equipment and rail vehicles. Prior to joining Ludowici Rob worked for 13 years at WBM Consulting Engineers, where as an Associate, he was a member of the management team responsible for the Machinery Group. Rob has several qualifi cations including a Bachelor of Engineering (Mechanical) and a Masters in Business Administration.

Darryl Barber – Executive General Manager Australia Mineral Processing & Global Supply ChainDarryl joined Ludowici in August 2011. Prior to joining Ludowici Darryl worked in management consulting, specializing in business performance improvements to many leading Australian companies, including Ludowici. Darryl has also owned his own manufacturing and distribution business as well as holding the position of General Manager in the Rail and then all Line Haul Division of the Toll Group.

John Condos – Executive General Manager, AsiaJohn joined Ludowici in 2012 with 20 years experience in business management and leading large operational teams in various industries in Australia and India. John’s most recent role was as Managing Director of Johnson Screens Asia Pacifi c. John also previously held several senior management positions with Volvo Truck & Bus Corporation.

Wayne Dixon – General Manager, OperationsWayne joined Ludowici in 2007 bringing with him extensive experience in manufacturing, most recently as General Manager Production for Riviera Marine where he was instrumental in reinvigorating production performance. Prior to Riviera, Wayne worked for Volvo Trucks, ran his own business and headed up manufacturing at a variety of plants in the Chargeurs SA Group.

Stephen Gaffney – Chief Financial Offi cerStephen joined Ludowici in January 2011 as the Chief Financial Offi cer. Stephen has extensive professional and commercial accounting experience. Stephen’s most recent role was with Sikorsky Aircraft Australia Limited (a subsidiary of the Fortune 50, United Technologies Corporation) where he held the senior fi nancial role for a period of 7 years. Previous to this he worked in similar roles with Herron Pharmaceuticals and KPMG.

Eddie McKerr – General Manager, Vibrating EquipmentEddie is a 25 year veteran in the mineral processing industry with much of his time focused on vibrating screens. He joined Malco Engineering in 1991 which was subsequently acquired by Ludowici in the mid 1990s.

In 2003, Eddie was seconded to Santiago Chile to set up Ludowici’s business in Latin America where he led the successful establishment and development of Ludowici’s Latin American operations before returning to Australia in 2007. During this period he learnt to speak and write fl uent Spanish.

Executive Management Team

Back row left to right: Alan Muntz; Neil Tindle; David Ricketts; John Condos; Wayne Dixon; Craig Wilson; Shane McLoughlin. Front row: Rob Angus; Darryl Barber; Eddie McKerr; Patrick Largier; Stephen Gaffney


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Since returning to Australia, Eddie was promoted to his current role as General Manager of Vibrating Equipment responsible for Ludowici’s global vibrating screens and feeders business and has led the growth of this business over the past three years.

Shane McLoughlin – Manager, Engineered ConsumablesShane has been with Ludowici for over 16 years, holding the role of Manager Engineered Consumables since April 2010 leading the division through a period of organic growth and acquisition. Since joining Ludowici Shane has held a number of sales leadership and technical roles. Shane commenced in the Newcastle branch, relocating to Brisbane in 2007. Prior to joining Ludowici in 1996 Shane held various positions at Tubemakers in Newcastle.

Alan Muntz – Manager, Human ResourcesAlan joined Ludowici in 2008 with over 20 years senior Human Resource Management experience developed with well recognized food and beverage companies (Fosters and George Weston Foods), large health care organizations and consulting. Alan has expertise in Human Resource strategy development, generalist HR as well as experience in organizational development and employee relations. Alan has also been directly involved in the integration of a number of the Ludowici acquisitions over the past few years.

David Ricketts – General Manager, Global Business DevelopmentDave joined Ludowici in 1985 and during his 26 years with the company has held a variety of roles establishing and running various Ludowici operations in Australia and offshore.

After Ludowici acquired the Innovative business in West Virginia in 2006, Dave was seconded to the USA initially as sales manager for Ludowici’s USA business before being promoted to President of Ludowici North America.

Dave moved into his current role in 2009 and is based in Brisbane and supports Ludowici’s global business development and growth.

Rod Stead – General Manager, Wear & Thermal Products (not pictured)After graduating in Materials Science and Chemistry, Rod spent 6 years with the CSIR (South Africa) working on technology development of advanced ceramic materials. He then joined Anglo American to undertake technology transfer programs before immigrating to Australia in 1989. Rod started Rojan Advanced Ceramics Pty Ltd in 1991 supplying high quality, advanced ceramics to the mining and industrial markets in Australia.

Rod was a Finalist, WA region, in the E&Y Entrepreneur of the Year competition in 2004, in 1997 was awarded the Australian-Japanese Ceramic Societies Award for Researchers under the age of 40 years and was President of the Australian Ceramic Society from 1994 to 1996.

Rod joined Ludowici as part of the acquisition of Rojan in December 2010. His current role is General Manager of Wear and Thermal Products and his key focus is to take the Rojan and Ludowici product range to all existing Ludowici markets and to establish new product lines to ensure ongoing growth.

Neil Tindle – General Manager, Industrial & InfrastructureNeil joined the company in 2001 after emigrating from the UK and has held a variety of senior roles in Ludowici Seals business including General Manager, National Sales Manager & Operations Manager.

Prior to working with Ludowici he spent 7 years with DLI Seals in the UK developing in depth knowledge of the sealing Industry. Neil has a Diploma in Mechanical Engineering and is a qualifi ed Polymer Technologist.

Craig Wilson – General Manager, Process Technologies GroupCraig joined Ludowici in 2000 as Product Manager for Wedge Wire Products and Magnetic Separators based in Brisbane. Craig has worked in a variety of roles in the company over the past 12 years. From 2002 to 2007 he was seconded to Perth to grow Ludowici’s WA operation. On his return to Brisbane, Craig led business development focusing on major Australian customers followed by his appointment as General Manager of Australia and South East Asia Sales. In early 2010 Craig took over responsibility for Ludowici’s Process Technologies Group with global responsibility for our Process Equipment.

Craig’s career spans more than 26 years in the mining industry including a role as Managing Director for 13 years of a smaller business in South Africa supplying similar product/services to Ludowici and in 1996 successfully introduced the VM and FC range of centrifuges into the South African market.

Craig holds a Higher National Diploma in Mechanical Engineering from Witwatersrand Technical College in South Africa.


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International Management Team

Ed Vickers – President of Ludowici, USAEd joined the company in May 2006 through Ludowici’s acquisition of the Innovative Screen Technology business. Ed assumed the position of President of Ludowici USA in January 2009. Ed has a vast amount of experience in mineral processing having managed coal preparation plants for many years in addition to managing capital equipment manufacturing, sales and service. Ed’s career spans over 35 years in the mining industry.

David Sibley – General Manager, Ludowici Meshcape, AfricaDavid joined the company in August 2011 through Ludowici’s acquisition of Meshcape. David is a mechanical engineer and has spent his professional career involved in heavy industrial, aggregate and mining processes in Africa.

David has been involved for 28 years in the design, manufacture and sales of products for the spectrum of mineral processing in Africa.

Kumar Rajan – Country Manager, Ludowici IndiaRajan is a graduate mechanical engineer with over 28 years hands on experience in the mining, materials handling and minerals processing industry in India.

Rajan joined Ludowici In April 2011. Prior to joining the Company he was employed with FLSmidth as the Vice President Sales & Marketing, Minerals Division in Chennai. His earlier employers were Marshall & Sons, O&K Orenstein & Koppel (Thyssen Krupp) and Tenova Takraf where he held various positions including engineering, production, erection commissioning, project management and sales.

Horacio Marín – General Manager, Ludowici ChileHoracio has 17 years experience in the mining industry, having spent most of his professional career involved in different aspects of mineral processing and mining equipment serving the mining industry in Chile and other Latin American countries.

He has a degree in industrial engineering from the University of Atacama and in 2007 became the General Manager of Ludowici Chile.

Viktor Li – General Manager, ChinaViktor Li joined Ludowici in February 2008 as General Manager China, located in Beijing. Viktor’s career spans more than 21 years in the coal and refractory industries including roles as an engineer in the Coal Preparation Research Institute of China, a Minmetals assignment to Düsseldorf in Germany as well as 10 years as a department manager in China Minmetals Group Corporation offi ces in Beijing.

Viktor Li has two degrees in Minerals Processing and International Business.


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Directors’ Report

Your Directors present their report on the consolidated entity (referred to hereafter as “the Company”) consisting of Ludowici Limited and the entities it controlled at the end of, or during, the year ended 31 December 2011.

Directors

The following persons were Directors of the Company during the financial year end up to the date of this report and were in office for the entire period unless otherwise stated:

Phil J Arnall (Chairman) Patrick J Largier (Managing Director) Julian K LudowiciColin W Ravenhall Hugh K Rhodes-White Nick W StumpGuy M Cowan

Principal Activities

During the year the principal continuing activities of the consolidated entity consisted of design, manufacture, service and distribution of equipment and consumables for the global minerals processing industry.

Review of operations

In 2011 Ludowici continued to strengthen and grow its global mineral processing business. Building on the very strong 2010 business performance, Ludowici generated its highest ever EBITDA, up 4.3% to $26.4 million, whilst continuing to invest in new businesses and improved production facilities.

Ludowici has remained focussed on developing a robust and expanding business servicing the global mineral processing industry. Ludowici has been driving a company-wide improvement program over the past four years and has actively pursued value creating acquisitions particularly in the mineral processing consumables area. In addition, the Company has invested in improved manufacturing facilities, originally with the new factory at Pinkenba and more recently with new production facilities in Chennai in India and the production facility currently being commissioned at Qingdao in China. This program of expansion and improvement has resulted in improved underlying business profitability of nearly 160% since 2008.

Financial PerformanceFull Year

Ended31 Dec 11

$’000

Full YearEnded

31 Dec 10$’000

Revenue from continuing operations 220,313 221,726

Profi t from continuing operations before fi nance costs, tax,depreciation & amortisation 26,413 25,309

Profi t from continuing operations before fi nance costs and tax 19,600 19,465

Profi t attributable to members of Ludowici Limited 10,693 11,611

Earnings per share for profi t from continuing operations 38.4 44.8

Final Dividend per share (Franked 100%) – cents 11.0 cps 10.0 cps

Total Dividends per share (declared) – cents 21.0 cps 20.0 cps

Net tangible assets per share 2.21 2.06

Gearing: Net Debt / (Net Debt + Equity) 33.90% 34.10%

735CPN0045_LDW_Ludowici_Annual_Report_2012_Mono_Pages_V8.indd 23735CPN0045_LDW_Ludowici_Annual_Report_2012_Mono_Pages_V8.indd 23 5/04/2012 8:32:46 AM5/04/2012 8:32:46 AM

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Directors’ Report(continued)

Revenue in 2011 was essentially the same as in 2010. While the headline figure was largely unchanged, there were a number of developments that will support future revenue growth. In late 2010, an exclusive Chinese distribution agreement was terminated, resulting in approximately $22 million reduced revenue in 2011. However this change has allowed Ludowici to directly control the building of a much stronger future business in China, a key growth market for the Company. This revenue reduction in 2011 was offset by strong organic growth of approximately 18%, as well as sales from the acquired Rojan business and four months of Meshcape.

2011 EBITDA was up 4.3% to $26.4 million, reflecting a combination of improved gross margin together with tight control of selling and administration costs.

EBIT was roughly equivalent to 2010 as the additional acquired businesses increased depreciation and amortisation.

The Company's effective tax rate returned to a more normal 29% in 2011 (2010: 24%) which was the main reason for a 7% reduction in reported net profit after tax.

During 2011, Ludowici enjoyed the first full year of contribution from the Rojan business which performed ahead of expectations. We also acquired the small Amseal business early in the year and the more significant Meshcape business in August 2011. Meshcape is a significant mineral processing consumables business in South Africa. This business has performed well over the past four months and has given Ludowici critical mass in the African market.

Special mention should be made of Ludowici’s North American business which increased earnings before interest and tax by 76%.

Cash Position, Earnings per Share and Balance Sheet

Net cash inflow from operating activities for 2011 was $4.5 million representing a second half cash inflow recovery of $8.7 million. This cash flow was affected by very strong sales in the final quarter for 2011 which resulted in high year end trade receivables for recently shipped product.

In August 2011, Ludowici undertook a 1 for 10 rights issue at $4.00 per share to raise net funds of approximately $10.1 million. This rights issue increased the number of Ludowici shares to approximately 29.4 million. The funds from this rights issue were used in part to support acquisitions and to fund the capital expenditure for the new Qingdao factory in China.

As the returns from these investments will largely be seen in future years, the net effect of this rights issue is to temporarily dampen earnings per share (EPS). EPS in 2011 was 38.4 cents per share which was a 14% decline compared to 2010 but a 55% increase over three years (2008: 24.7 cents per share).

During 2011 net debt increased by $7.7 million to $53.0 million. This debt increase was driven by acquisitions (Meshcape, Amseal and a January 2011 Rojan payment) and investments in the new Chennai and Qingdao factories. These activities were funded by debt partially offset by the rights issue in August 2011.

Gearing (Debt/[Debt + Equity]) at the end of 2011 was 33.9% which is a 1% reduction from December 2010.

Dividends

The following dividends to shareholders have been paid since the end of the last financial year :

2011$’000

2010$’000

(a) Referred to in the report of the previous year: Final ordinary dividend paid 9 May 201110.0 cents per fully paid share (2010 - 6.0 cents) 2,665 1,549

(b) Ordinary dividend paid – interim dividend paid 23 September 201110.0 cents per fully paid share (2010 - 10.0 cents) 2,935 2,652

5,600 4,201


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Matters subsequent to the end of the fi nancial year

Dividend

Your directors have declared a final cash dividend for 2011 of 11.0 cents per share. This dividend is fully franked and will be paid on 9 May 2012. This brings the ordinary dividend for the year to 21.0 cents per share which is an increase of 5% on the previous year.

The dividend reinvestment plan has been suspended and will not apply for the final 2011 dividend.

Offers to acquire Ludowici Limited

On 23 January 2012, Ludowici Limited announced that FLSmidth & Co. A/S (“FLS”) had made a non-binding, indicative and conditional proposal to acquire 100% of Ludowici Limited shares by way of a Scheme of Arrangement at a cash price of $7.20 per share. On 10 February 2012, Ludowici Limited announced that it had received a competing non-binding, indicative and conditional proposal from Weir Group PLC (“Weir”) to acquire 100% of Ludowici Limited shares by way of a scheme of arrangement at a cash price of $7.92 per share. On 13 February 2012 Weir lodged an application with the Takeovers Panel in relation to statements made by FLS in relation to its proposal. On 16 February 2012, Ludowici Limited announced that it had received an amended offer from FLS for $10.00 per share and that it had entered into a Scheme Implementation Agreement with FLS which is subject to and will not become binding until the proceedings in the Takeovers Panel are determined (the “Transaction”).

The Board unanimously resolved that subject to the Scheme Implementation Agreement becoming binding the proposed Transaction was in the best interests of shareholders and to recommend that shareholders approve the proposed Transaction, subject to there being no superior offer and an independent expert concluding that the Transaction is in the best interest of shareholders. Refer to the ASX or Ludowici websites for full announcement details and terms & conditions. If the transaction proceeds, the Board expects completion to occur in June 2012.

On 23 February 2012, Ludowici Limited announced that it had received a revised Competing Proposal from Weir at a price of $10.00 cash per Ludowici share, the same price as the FLSmidth proposal announced on 16 February 2012.

Under the proposal, Weir (or a nominee) will acquire all of Ludowici’s shares for $10.00 cash per share (less any dividends declared or paid by Ludowici before the transaction is completed) by way of Scheme of Arrangement (“Weir Proposal”). The Weir Proposal is conditional on the Takeovers Panel making a decision to the effect that FLSmidth cannot offer, or propose to pay, Ludowici shareholders more than $7.20 per share whether for a specified period or otherwise.

The Board of Ludowici acknowledged receipt of the Weir Proposal and noted that it was on similar terms and conditions and at the same price as the recommended offer by FLSmidth but expires at 5.00pm Friday 24 February 2012.

Environmental Reporting

All the Company’s business units are subject to Federal and State Government Environmental regulation and licence. The Company has complied with its obligations in all respects.


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Information on Directors

Phil J Arnall BCom. - Chairman – Independent non-executive.

Experience and expertise

Mr Arnall was appointed in January 2003 following a 30 year career in the mining and steel industries including senior executive responsibility in Smorgon Steel Group, Tubemakers and ANI Limited. He maintains interests in businesses servicing the mining and rail markets in Australia.

Other current directorships

Bradken Limited – DirectorA J Lucas Group Limited - Director

Former directorships in last 3 years

Capral Limited - retired 17 March 2010

Special responsibilities

Chairman of the Board Member of the Audit Committee Member of the Remuneration Committee

Patrick J Largier BSc Chem Eng with Honours (University of Cape Town); Advanced Management Program (Harvard University). - Managing Director – appointed 21 June 2007.


Prior to joining Ludowici, Mr Largier spent nearly fifteen years with Orica/ICI Australia. During that period he led a number of Orica’s business units and divisions. His last role in Orica was Group General Manager Strategy and Acquisitions. His earlier career included 10 years with the Shell group of companies in a variety of business and marketing roles in South Africa and London. After graduating as a chemical engineer, Mr Largier worked for Impala Platinum and a local chemical engineering contracting company in Johannesburg.


None


None

Julian K Ludowici BCom. - Non-independent non-executive.


Mr. Ludowici was appointed in September 1988. He established BeMax Resources Limited and subsequently started Customers Ltd, where he was Chairman until he retired in June 2006. Mr. Ludowici was a founding Director and Chairman of Rey Resources Ltd, a coal development company. He has wide experience in capital markets and is the Chairman of Ludowici Investments, the largest shareholder in Ludowici Limited.


None


Rey Resources Limited – Chairman (retired 29 November 2010)


Member of the Audit Committee Member of the Remuneration Committee



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Colin W Ravenhall Dip App Chem. - Independent non-executive.


Mr Ravenhall was appointed in February 2001. Former Managing Director of Taubmans Industries Limited and former President and CEO of Courtaulds Coatings Inc. USA. He has 35 years experience in industrial and consumer marketing and manufacture, both locally and overseas.


None


None


Member of the Remuneration Committee

Hugh K R Rhodes-White - Non-independent non-executive.


Mr Rhodes-White was appointed in September 1999. He is the Managing Director and owner of a Sydney construction company.


None

Former directorships in last three years

None



Nick W Stump MAppSc (Adel), FAusIMM. HonDEngin Qld - Independent non-executive


Mr Stump was appointed in April 2005. He was former CEO of Comalco Ltd and MIM Holdings Ltd.


None


None



Guy M Cowan BSc (Hons), FCCA. - Independent non-executive


Mr Cowan was appointed in November 2009. He previously spent 24 years working for energy group Shell in international finance and strategy roles, most recently as Chief Financial Officer of Shell Petroleum Inc and Shell Oil Company in the United States, of which he was also a Director. Mr Cowan retired from New Zealand-based dairy group Fonterra in March 2009, at which he had been Chief Financial Officer since 2005.


UGL Limited, Queensland Sugar Limited, Gold Oil Plc (UK), Coffey International Limited.


Raisama Limited


Chairman of the Audit Committee from 20 November 2009Member of the Remuneration Committee


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Company Secretary

Mark Day BA (Hons) University of Queensland, Post Graduate Certifi cate in Economics Nanjing University & LLB Melbourne University

Mark Day was appointed Company Secretary on 16 December 2011. Mark joined Ludowici in March 2011 as General Counsel with substantial intellectual property and commercial law experience in Australia and Asia Pacific. After commencing his legal career with Phillips Fox in Melbourne, Mark spent 10 years in private practice before taking up a position as General Counsel in Asia Pacific for a major international trade association.

Stephen J Gaffney BBus BLaw (QUT) CA

Mr Gaffney was appointed Company Secretary on 15 February 2011 and held this position until resigning on16 December 2011. Stephen remains in his position as Chief Financial Officer of Ludowici Limited.

Meetings of Directors

The following table sets out the number of the Directors’ meetings (including Committee meetings) held during the year ended 31 December 2011 and the number of meetings attended by each Director.

Directors’ Meetings Meetings of Committees

Audit Nomination & Remuneration

A B A B A B

P J Arnall 12 12 2 2 2 2

P J Largier 12 12 * * * *

J K Ludowici 12 12 2 2 2 2

C W Ravenhall 12 11 * * 2 2

H K R Rhodes-White 12 12 * * 2 2

N W Stump 12 11 * * 2 2

G M Cowan 12 12 2 2 2 2

A = Number of meetings held during the time the director held office or was a member of the committee during the year

B = Number of meetings attended

* = Not a member of the relevant Committee

Remuneration report (audited)

Objective:

The objective of the Company’s remuneration policy is to attract, develop, motivate and retain people with the capability to contribute to the achievement of its business objectives. This applies throughout the Company, at all levels.

This statement outlines the remuneration policy as it applies to senior executives, non executives, directors and key management personnel.



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Principles used to determine the nature and amount of remuneration:

The remuneration policy is based on the principles that executive remuneration should be:

• Appropriate to the responsibilities of the position;

• Industry competitive;

• Related to performance (fi nancial and other);

• Aligned to Shareholder interests.

Non-Executive Director Remuneration Policy:

The Board seeks to set aggregate remuneration at a level which provides the Company with the ability to attract and retain Directors of the highest calibre, whilst incurring a cost which is acceptable to the shareholders. The aggregate remuneration of non-executive Directors shall be determined from time to time by general meeting. This amount is then divided between the Directors as agreed. The latest determination was made in April 2010 when an aggregate remuneration of $490,000 was approved.

Executive Remuneration Structure:

Total remuneration for senior executives has two elements:

1. Total fixed remuneration (TFR).2. Bonuses comprising a cash short-term incentive (STI) and a longer term incentive performance plan (IPP).

TFR:

Comprises base salary and superannuation. Other permissible benefits may be provided on a salary sacrifice basis including novated lease of a vehicle.

Base salaries are reviewed annually by reference to salary surveys and other market data, the value assigned to each position and individual performance. Acceptable performance generally attracts a base salary around the 50th percentile of the market range for an equivalent position.

Bonuses

Results based bonuses are paid on formally assessed performance. Performance is rated on task achievement levels in key result areas which include fi nancial, operational, safety and strategic objectives contained in the three year plan. A total bonus amount is calculated by applying the achieved rating (out of 100) to a percentage of base salary determined by the Board from time to time. These percentages are currently capped at:

Managing Director Up to 60%*

Key management personnel 30% to 50%

Other senior managers 30% to 50%

The total bonus amount is then paid as two sums:

(i) STI, a taxable cash bonus of 40% to 60% of the total bonus;

(ii) IPP, a taxable share based bonus of 40% to 60% of the total bonus. Whilst the beneficial ownership of the shares vests in the employee and they have the right to receive dividends, the legal ownership of the shares is deferred and only vests in the employee if they remain in the employment of the company three years after being awarded.

* Refer executive service agreements for Patrick J Largier later in this report.


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Policy Review:

The Nomination and Remuneration Committee reviews remuneration policy and structure at least annually.

Amounts of Remuneration:

2011

Short term Long TermPost

Employment Share-based payment Total

Salary & Fees

$

Cash Bonus

$

MV Benefi ts

$

Long service

leave$

Super$

Termination benefi ts

$IPP Bonus

$Options

$ $

Directors

P J Arnall Non Executive 102,182 - - - 9,196 - - - 111,378

P J Largier √ Executive 587,846 124,000 - 15,886 15,488 - - 456,494 1,199,714

J K Ludowici Non Executive 38,677 - 21,641 - 3,481 - - - 63,799

C W Ravenhall Non Executive 58,531 - - - 5,268 - - - 63,799

H K Rhodes-White Non Executive 58,531 - - - 5,268 - - - 63,799

N W Stump Non Executive 58,531 - - - 5,268 - - - 63,799

G Cowan Non Executive 72,419 - - - 6,518 - - - 78,937

Total Director’s compensation 976,717 124,000 21,641 15,886 50,487 - - 456,494 1,645,225

Note: Non Executive Directors receive no benefi ts other than Directors’ fees and deferred retirement benefi ts (superannuation) disclosed above.

250,000 rights were granted to Mr Largier on 20 April 2011 as approved at the Annual General Meeting held on 20 April 2011.

2011



Salary & Fees

$

Cash Bonus

$

MV Benefi ts

$

Long service

leave$

Super$

Terminationbenefi ts

$

IPP Bonus

$Options

$ $

Other Company executives

E McKerr √ 230,604 32,065 - 9,569 15,488 - - - 287,726

C Wilson √ 194,699 38,276 - 7,389 15,488 - - - 255,852

D Ricketts √ 215,513 33,208 - 3,856 15,488 - - - 268,065

S Gaffney √ 225,054 34,944 3,725 14,221 - - - 277,944

D Barber* √*(from 29 August 2011)

98,021 14,656 - 1,609 5,258 - - - 119,544

√ denotes one of the 5 highest paid executives of the Group and Company, as required to be disclosed under the Corporations Act 2001.



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2010



Salary & Fees

$

Cash Bonus

$

MV Benefi ts

$

Long service

leave$

Super$

Termination benefi ts

$IPP Bonus

$Options

$ $

Directors

P J Arnall Non Executive 95,862 - - - 8,628 - - - 104,490

P J Largier √ Executive 499,003 228,800 - 5,958 14,830 - - 128,442 877,033

J K Ludowici Non Executive 26,985 - 21,805 - 3,084 - - - 51,874

C W Ravenhall Non Executive 54,866 - - - 4,938 - - - 59,804

H K Rhodes-White Non Executive 54,866 - - - 4,938 - - - 59,804

N W Stump Non Executive 54,866 - - - 4,938 - - - 59,804

G Cowan Non Executive 68,123 - - - 6,131 - - - 74,254

Sub- total Directors 854,571 228,800 21,805 5,958 47,487 - - 128,442 1,287,063

Note: Non executive Directors receive no benefi ts other than Directors’ fees and deferred retirement benefi ts (superannuation) disclosed above. 150,000 options were granted to Mr Largier as approved at the Annual General Meeting held on 28 April 2008.

2010



Salary & Fees

$

Cash Bonus

$

MV Benefi ts

$

Long service

leave$

Super$

Terminationbenefi ts

$IPP Bonus

$Options

$ $

Other key management personnel

J D MacDonald √ (from 1 January - 31 May 2010)

87,725 - - - 12,051 123,654 - - 223,430

Sub – total other key management personnel 87,725 - - - 12,051 123,654 - - 223,430

Total key management personnel compensation 942,296 228,800 21,805 5,958 59,538 123,654 - 128,442 1,510,493


E McKerr √ 194,493 30,061 22,916 27,037 16,060 - 9,867 - 300,435

C Wilson √ 192,194 36,641 - 6,355 14,830 - 7,717 - 257,737

D Ricketts √ 205,170 33,855 - 1,706 14,830 - - - 255,561

G Battershill* √*(from 14 May 2010)

186,103 19,456 - 1,244 10,010 - - - 216,813



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The relative proportions of remuneration that are linked to performance and those that are fixed are as follows:

Name

Fixed Remuneration At Risk STI At Risk - LTI

2011 2010 2011 2010 2011 2010

Executive Directors

P J Largier √ 49% 59% 10% 26% 41% 15%


E McKerr √ 80% 86% 11% 11% 9% 4%

C Wilson √ 76% 83% 15% 14% 9% 3%

D Ricketts √ 80% 87% 12% 13% 7% 0%

S Gaffney √ 81% n/a 13% n/a 6% n/a

D Barber √ (from 29 August 2011) 82% n/a 12% n/a 6% n/a


Executive Service Agreements

Details of contract agreements for the above personnel, if applicable, are detailed below:-

Patrick J Largier, Managing Director (appointed 21 June 2007)

Term of agreement – To continue until terminated in accordance with the agreement

TFR, inclusive of superannuation is $620,000 per annum. The base salary is to be reviewed annually by the remuneration committee.

STI, a taxable bonus of 60% of total TFR upon achievement of targets.

LTI in form of a share option plan approved at the 2008 Annual General Meeting and rights approved at the 2011 Annual General Meeting.

The number of options over unissued shares in the company which shall be granted initially is 675,000. This grant shall occur in the following tranches:

• 375,000 options immediately as approved by shareholders at the 2008 AGM

• 150,000 options on 1 January 2009

• 150,000 options on 1 January 2010

Each option granted shall on exercise convert to one fully paid ordinary share in the company.

The vesting of options is based on growth in earnings per share for prescribed measurement periods.

For the 375,000 options the number vested on the day of the announcement to the Australian Securities Exchange, will depend on the achievement level of the three financial years ended 31 December 2010.

• Less than 5% per annum – number vested nil

• Threshold: 5% - 100,000 vested

• Target 10% - 200,000 vested

• Stretch 15% or more – 375,000


• Less than 5% per annum – number vested: nil






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• Less than 5% per annum – number vested: nil




Options which have vested must be exercised within twelve months from the date of the announcement to the Australian Securities Exchange of the Company’s yearly financial results.

The exercise price of an option will be as follows:

• 375,000 options –fi xed price $6.70

• Up to 150,000 (1 January 2009) - $2.40 being the weighted average of the prices at which shares traded on the ASX for the months of November and December 2008.

• Up to 150,000 (1 January 2010) - $2.63 being the weighted average of the prices at which shares traded on the ASX from November and December 2009.

As part of his remuneration package, the Board granted a free issue of securities under a long term investment plan to Patrick Largier, the Managing Director of the Company. The securities will be in the form of rights, which upon vesting, will entitle Mr Largier to a maximum number of 250,000 fully paid ordinary shares in the Company or, at the Board’s election, a cash equivalent;

The vesting criteria will be tested for vesting as follows:

(i) 150,000 rights by 28 February 2014 based on the 2013 financial year; and

(ii) 100,000 rights by 28 February 2015 based on the 2014 financial year;

No other securities have been granted to any person under this scheme. The interests in other options and other securities of the Directors and executives are set out in the Company’s annual report.

The key terms of the rights granted to Mr Largier are:

The rights will vest in Mr Largier without any payment, subject to the satisfaction of the vesting conditions as follows:

(i) 150,000 in February 2014 subject to the vesting conditions detailed below in respect of the 2013 financial performance of the Company; and

(ii) 100,000 in February 2015 subject to the vesting conditions detailed below in respect of the 2014 financial performance of the Company.

The Vesting Conditions will be determined by dividing the rights which may be subject to vesting that year into two tranches, 50% of which will be subject to a Earnings Per Share (EPS) vesting condition, and 50% of which will be subject to a Total Shareholder Return (TSR) vesting condition as follows:

EPS vesting condition

Performance Level Ludowici’s EPS Growth Vesting %

<Threshold <5% p.a 0%

Threshold 5% p.a 25%

>5% p.a. & <10% p.a. Pro rata

Target 10% p.a. 50%

>10% p.a. & <15% p.a. Pro rata

Stretch >15% p.a. 100%


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Relative TSR vesting condition

Performance Level Ludowici’s EPS Growth Vesting %

<Threshold <P50 0%

Threshold P50 25%

>P50 & <P62.5 Pro rata

Target P62.5 50%

>P62.5 & <P75 Pro rata

Stretch P75 100%

In the event of a takeover of the Company (acquisition of more than 50% of issued shares or control of more than 50% of the votes that may be cast at an AGM), the rights will vest automatically in the amount which is the greater:

(i) in the proportion of any increase in share price of the Shares compared to the price at ASX closing of trade on the date of the Shareholder’s approval of the grant, or

(ii) but in any event not less than 50% of the rights that have not yet vested at the date of the announcement of the takeover offer or bid.

The value of all granted rights and options as at 31 December 2011 was $1,683,649.

Other Executives

Remuneration and other terms of employment for the other key management personnel are formalised in employment agreements. Each of these agreements provide for the provision of performance related cash bonuses and other benefits such as motor vehicle benefits and participation, when eligible, in the Ludowici employee long term incentive plan. Other major provisions are noted in the table below:

All contracts with executives may be terminated early by either party with a range of three to six months notice.

Name Term of Agreement Base Salary Including Superannuation * Termination Benefi t **

E McKerr None specifi ed 249,729 6 months base salary

C Wilson None specifi ed 232,825 3 months base salary

D Ricketts None specifi ed 233,200 3 months base salary

S Gaffney None specifi ed 260,000 4 months base salary

D Barber None specifi ed 300,000 3 months base salary

* Annual base salaries quoted are for the year ended 31 December 2011; they are reviewed annually by the remuneration and nomination committee.

** Termination benefi ts are payable on early termination by the Company, other than for gross misconduct.

Share-based compensation

Remuneration options : granted during the year

(i) Directors250,000 rights were granted to Mr Largier on 20 April 2011 as approved at the Annual General Meeting held on 20 April 2011 (2010: 150,000 options granted).

The value of rights granted during the year as at 31 December 2011 was $1,247,876.

(ii) Other key management personnelNo rights were granted to other key management personnel or executives during the year (2010: nil).



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Remuneration options: There were no options exercised by Directors and key management personnel in the 12 months ended 31 December 2011 (2010: nil).

(iii) Details of remuneration

For each cash bonus and grant of options or IPP shares , the percentage of the available bonus or grant that was paid, or that vested, in the financial year, and the percentage that was forfeited because the person did not meet the service and performance criteria is set out below:

Cash Bonus Share Based compensation benefi ts IPP and options

Paid % Forfeited % Year Granted Vested % Forfeited %

Financial Year in which IPP/Options may

vest

Maximum total value of grant

yet to vest $

P Largier 33% 67% 2011 31/12/2014 935,112

2010 31/12/2013 59,280

2009 31/12/2012 -

2008 100 31/12/2011 -

IPP SHARES

E McKerr 32% 68% 2011 31/12/2014 20,038

2010 31/12/2013 27,199

2009 31/12/2012 -

2008 100 - -

C Wilson 41% 59% 2011 31/12/2014 30,532

2010 31/12/2013 19,001

2009 31/12/2012 -

2008 100 - -

D Ricketts 36% 64% 2011 31/12/2014 22,568

2010 - -

S Gaffney 34% 66% 2011 - -

D Barber 12% 88% 2011 - -

(iv) IPP Shares issued, vested and forfeited

Year issued Issued Forfeited Vested Balance Issue Price

2006 34,635 (6,392) (28,243) - $6.91

2007 41,604 (14,679) (26,283) - $7.80

2008 23,341 (6,473) (13,517) 642 $3.93

2010 54,597 (3,027) (5,805) 45,765 $2.61

2011 34,294 (2,320) - 31,974 $5.05

Unallocated shares 7,142

Total 188,471 (32,891) (73,848) 85,523


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Directors’ Interests

The interests of each Director in shares in Ludowici Limited or in a related body corporate as contained in the register of Directors’ shareholdings of Ludowici Limited are set out in note 32(b) (iii) of the financial statements.

People

Group employees at the end of 2011 totaled 1,012 compared to 817 in 2010.

Employment Policy and Employee Development

The Company is an equal opportunity employer. Policies on employment, training and development, advancement and promotion are merit-based and do not discriminate in favour of or against any person on any ground

The Company encourages our people to undertake further education and training. By doing so, they have the opportunity to develop their abilities and so reach their full potential. Training programmes all have as a key objective the development of a genuine quality and service culture, seen as an essential element in the achievement of the Company’s business objectives.

Non-Audit Services

Fees in respect of taxation and other services totalling $352,132 (2010:$324,041) were paid to the external auditors (refer note 27). The Directors are satisfied the provision of these services by the auditor is compatible with the general standard of independence for auditors imposed by The Corporations Act 2001. This statement has been made in accordance with advice from the Audit Committee.

Auditor’s Independence Declaration

A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 13.

Rounding of Amounts

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 Directors’ report. Amounts in the Directors’ report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, to the nearest dollar.

Auditor

PricewaterhouseCoopers continues in office in accordance with section 327 of the Corporations Act 2001.

Other Information

(a) Future operations

Ludowici is well exposed to the improving mineral processing capital cycle and currently expects that 2012 EBITDA will be stronger than 2011.

(b) State of affairs of consolidated entity during financial year

The Directors are not aware of any significant change in the state of affairs of the consolidated entity that occurred during the financial year under review not elsewhere disclosed in this report and in the consolidated financial statements.


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(c) Share options

No share options were issued during the year under the Executive Share and Option Plan, however 250,000 rights were granted to Mr Largier as approved at the Annual General Meeting held on 20 April 2011. Details of existing options are disclosed in note 33.

(d) Insurance of officers

The consolidated entity has not, during or since the end of the financial year, indemnified against a liability any person who is or has been an officer or auditor of Ludowici Limited or of any of its related bodies corporate.

Ludowici Limited has paid premiums of $40,000 (2010:$40,000) in respect to a contract insuring the Directors and officers of Ludowici Limited and its controlled entities against liabilities incurred while acting as Directors and officers. The terms and conditions of the insurance policies prohibit the Company from disclosing details of the premiums and the nature of the liabilities covered by the policies.

(e) Tax

Effective 1 July 2003 for the purposes of income taxation, Ludowici Limited and its 100% Australian owned subsidiaries have formed a tax consolidated group. Members of the group have entered into a tax sharing arrangement in order to allocate income tax expense to the wholly-owned subsidiaries. In addition the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations.

This report is made in accordance with a resolution of Directors.

P J Arnall P J LargierDirector Director

Brisbane 24 February 2012


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Auditor’s Independence Declaration

PricewaterhouseCoopers, ABRiverside Centre,123 Eagle StreeDX 77 Brisbane, AustraliaT +61 7 3257 5000, F +61 7 3257

Liability limited by a scheme approved u

Auditor’s Independen

As lead auditor for the audit othat, to the best of my knowle

a) no contraventions of the a

relation to the audit; and

b) no contraventions of any a

This declaration is in respect o

Simon NeillPartnerPricewaterhouseCoopers

BN 52 780 433 757et, Brisbane QLD 4000

2999, www.pwc.com.au

under Professional Standards Legislation

nce Declaration

of Ludowici Limited for the year ended 31 Decembdge and belief, there have been:

auditor independence requirements of the Corpor

applicable code of professional conduct in relatio

of Ludowici Limited and the entities it controlled

ber 2011, I declare

rations Act 2001 in

n to the audit.

during the year.

Brisbane24 February 2012


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Consolidated income statement for the Year Ended 31 December 2011

Notes

Consolidated

2011$’000

2010$’000

Revenue from continuing operations 5 220,313 221,726

Cost of sales (145,170) (148,675)

Gross Profi t 75,143 73,051

Other income 6 512 965

Selling and distribution expenses (26,164) (24,457)

Administration expenses (15,591) (14,858)

Engineering and product specialist expenses (10,663) (10,636)

Business acquisition expenses 31 (408) (242)

Research and development expenses (3,229) (4,358)

Results from operating activities 19,600 19,465

Finance costs 7 (4,577) (4,201)

Profi t (loss) before income tax 15,023 15,264

Income tax (expense) benefi t 8 (4,330) (3,653)

Net profi t (loss) from continuing operations 10,693 11,611

Profi t attributable to owners of Ludowici Limited 10,693 11,611

Earnings per share for profi t from continuing operations attributable to the ordinary equity holders of the company: Cents Cents

Basic earnings per share 37 38.4 44.8

Diluted profi t for the year 37 38.1 44.7

Earnings per share for profi t attributable to the ordinary equity holders of the company:

Basic earnings per share 37 38.4 44.8

Diluted profi t for the year 37 38.1 44.7

The above income statement should be read in conjunction with the accompanying notes.


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Consolidated statement of comprehensive incomefor the Year Ended 31 December 2011

Notes

Consolidated

2011$’000

2010$’000

OTHER COMPREHENSIVE INCOME

Profi t for the year 10,693 11,611

Net movement in hedge reserve - 169

Exchange differences on translation of foreign operations 25 (454) (1,694)

Other comprehensive income net of tax (454) (1,525)

Total comprehensive income for the year attributable to the owners of Ludowici Limited 10,239 10,086

The above statement of comprehensive income should be read in conjunction with the accompanying notes.


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Notes

Consolidated

2011$’000

2010$’000

ASSETS

Current assets

Cash and cash equivalents 10 15,981 20,230

Trade and other receivables 11 53,485 34,580

Inventories 12 50,785 55,548

Current tax assets 170 1,002

Assets classifi ed as held for sale 9 1,804 1,794

Total current assets 122,225 113,154

Non-current assets

Receivables 13 56 18

Property, plant and equipment 16 59,482 58,471

Deferred income tax assets 17 6,026 5,270

Intangible assets 18 38,493 32,959

Total non-current assets 104,057 96,718

Total assets 226,282 209,872

LIABILITIES

Current liabilities

Trade and other payables 19 35,557 38,045

Deferred consideration 3,991 1,700

Borrowings 20 9,069 29,310

Current tax payable 1,144 4,855

Provisions 21 7,904 8,317

Total current liabilities 57,665 82,227

Non-current liabilities

Deferred consideration 590 437

Borrowings 22 59,908 36,250

Deferred income tax liabilities 17 3,837 2,849

Provisions 23 834 558

Total non-current liabilities 65,169 40,094

Total liabilities 122,834 122,321

Net assets 103,448 87,551

EQUITY

Contributed equity 24 58,840 47,963

Reserves 25 (4,572) (4,499)

Retained earnings 49,180 44,087

Total equity 103,448 87,551

The above balance sheet should be read in conjunction with the accompanying notes.

Consolidated balance sheet As at 31 December 2011


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Consolidated statement of changes in equityfor the Year Ended 31 December 2011

Consolidated

Contributed Equity$’000

Reserves$’000

Retained Earnings

$’000Total

$’000

Balance as at 1 January 2010 40,751 (3,128) 36,804 74,427

Profi t for the year - - 11,611 11,611

Other comprehensive income (1,525) - (1,525)

Total comprehensive income for the year - (1,525) 11,611 10,086

Transactions with owners in their capacity as owners:

Retained earnings held in reserve - China - 127 (127) -

Employee share options and shares – value of employee services - 184 - 184

Transfer to share capital upon vesting of shares to employees - (IPP) 157 (157) - -

Contribution of equity net of transaction costs 7,055 - - 7,055

Dividends provided or paid - - (4,201) (4,201)

Balance as at 31 December 2010 47,963 (4,499) 44,087 87,551

Balance as at 1 January 2011 47,963 (4,499) 44,087 87,551

Profi t for the year - - 10,693 10,693

Other comprehensive income (454) - (454)

Total comprehensive income for the year - (454) 10,693 10,239

Transactions with owners in their capacity as owners:

Employee share options and shares – value of employee services - 428 - 428

Transfer to share capital upon vesting of shares to employees - (IPP) 47 (47) - -

Contribution of equity net of transaction costs 10,830 - - 10,830

Dividends provided or paid - - (5,600) (5,600)

Balance as at 31 December 2011 58,840 (4,572) 49,180 103,448

The above statement of changes in equity should be read in conjunction with the accompanying notes.


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For the year ended 31 December 2011

Notes

Consolidated

2011$’000

2010$’000

Cash fl ows from operating activities

Receipts from customers (inclusive of GST) 223,510 241,351

Payments to suppliers and employees (inclusive of GST) (208,610) (226,589)

Interest paid (4,309) (4,159)

Interest received 59 93

Income tax paid (6,149) (1,772)

Net cash infl ow from operating activities 34 4,501 8,924

Cash fl ows from investing activities

Proceeds from sale of property, plant and equipment, excluding sale of businesses. - 9

Purchase of business net of cash acquired 31 (11,481) (15,824)

Purchase of property, plant and equipment (5,019) (4,591)

Loans to controlled entities & employees (52) (14)

Net cash outfl ow from investing activities (16,552) (20,420)

Cash fl ows from fi nancing activities

Proceeds from issues of shares 10,270 6,232

Proceeds from borrowings (net) 2,981 16,373

Equity dividends paid (5,150) (3,479)

Net cash infl ow from fi nancing activities 8,101 19,126

Net (decrease) / increase in cash and cash equivalents (3,950) 7,630

Cash and cash equivalents at beginning of year 20,230 12,596

Effects of exchange rate changes on cash and cash equivalents (850) 4

Cash and cash equivalents at end of year 10 15,430 20,230

Refer to note 20 for fi nancing arrangements and note 35 for non-cash fi nancing and investing activities.

The above statement of cash fl ow should be read in conjunction with the accompanying notes.

Consolidated statement of cash fl owfor the Year Ended 31 December 2011


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Contents of the notes to the fi nancial statements Page

1 Summary of signifi cant accounting policies 45

2 Financial risk management 56

3 Critical accounting estimates and judgements 60

4 Segment information 61

5 Revenue 63

6 Other income 63

7 Expenses 63

8 Income tax expense 64

9 Assets classifi ed as held for sale 65

10 Current assets – Cash and cash equivalents 65

11 Current assets – Trade and other receivables 65

12 Current assets – Inventories 67

13 Non-current assets – Receivables 67

14 Subsidiaries 68

15 Investments in Joint Ventures 69

16 Non-current assets – Property, plant and equipment 70

17 Non-current assets – Deferred income tax assets and liabilities 72

18 Non-current assets – Intangible assets 74

19 Current liabilities – Trade and other payables 75

20 Current liabilities – Borrowings 76

21 Current liabilities – Provisions 77

22 Non-current liabilities – Borrowings 77

23 Non-current liabilities – Provisions 77

24 Contributed equity 77

25 Reserves 80

26 Dividends 81

27 Auditors’ remuneration 82

28 Contingencies 83

29 Commitments 83

30 Related party transactions 84

31 Business combinations 84

32 Key management personnel disclosures 88

33 Share based payments 90

34 Reconciliation of profi t after income tax to net cash fl ows from operating activities 94

35 Non-cash investing & fi nancing activities 94

36 Events occurring after the balance sheet date 94

37 Earnings per share 96

38 Parent entity fi nancial information 97

39 Additional information 98

Notes to the Financial Statementsfor the Year Ended 31 December 2011


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1. Summary of signifi cant accounting policies

The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial statements are for the consolidated entity consisting of Ludowici Limited and its subsidiaries.

(a) Basis of preparation

These general purpose financial statements have been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Interpretations and the Corporations Act 2001.

Compliance with IFRS

The consolidated financial statements of the Ludowici Limited group and the separate financial statements of Ludowici Limited also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

Adoption of standards

The Group has elected to apply the amendments to AASB 8 Operating Segments as disclosed in note 1(c).

Historical cost convention

These financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets at fair value through profit or loss.

Critical accounting estimates

The preparation of financial statements in conformity with Australian Accounting Standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 3.

(b) Principles of consolidation

(i) Subsidiaries

The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Ludowici Limited (‘’company’’ or ‘’parent entity’’) as at31 December 2011 and the results of all subsidiaries

for the year then ended. Ludowici Limited and its subsidiaries together are referred to in this financial report as the Group or the consolidated entity.

Subsidiaries are all those entities over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated income statement, statement of comprehensive income, statement of changes in equity and balance sheet respectively.

Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. The financial statements of subsidiaries are prepared for the same reporting period as the parent entity.

Investments in subsidiaries are accounted for at cost less any impairment in the individual financial statements of Ludowici Limited. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group (refer to note 1 (i)).

(ii) Joint Ventures

The accounting treatment for the recognition of the results from joint venture operations is based on the proportionate consolidation method. Details relating to the joint ventures are set out in note 15.

The application of proportionate consolidation means that the balance sheet on the venturer includes its share of the assets that it controls jointly and its share of the liabilities for which it is jointly responsible. The income statement of the venturer includes its share of the income and expenses of the jointly controlled entities.


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Notes to the Financial Statementsfor the Year Ended 31 December 2011 (continued)

(c) Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources, assessing the performance of the operating segments and making strategic decisions, has been identified as the Managing Director and the Board.

(d) Foreign currency translation

(i) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Australian dollars, which is Ludowici Limited’s functional and presentation currency.

(ii) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when they are deferred in equity as attributable to part of the net investment in a foreign operation.

Translation differences on financial assets and liabilities carried at fair value are reported as part of the fair value gain or loss.

(iii) Group companies

The results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

• assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet,

• income and expenses for each income statement are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

• all resulting exchange differences are recognised as a separate component of equity.

On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, a proportionate share of such exchange differences are recognised in the income statement, as part of the gain or loss on sale where applicable.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entities and translated at the closing rate.

(e) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances, rebates and amounts collected on behalf of third parties.

The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group’s activities as described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

Revenue is recognised for the major business activities as follows:

(i) Sale of goods

Revenue from the sale of goods is recognised when the consolidated entity has passed significant risks and rewards of ownership of the goods or other assets to the buyer. Risks and rewards are considered passed to the buyer at the time of delivering goods to the customer.

(ii) Contract revenue

Revenue from certain projects is recognised by reference to the stage of completion of the contract. Stage of completion is measured by reference to costs incurred to date as a percentage of total estimated costs for each contract.

(iii) Royalties

Royalty revenue is recognised on an accruals basis in accordance with the substance of the relevant agreement.


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(iv) Interest income

Interest income is recognised on a time proportion basis using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised using the original effective interest rate.

(v) Dividends

Dividends are recognised as revenue when the right to receive payment is established.

(f) Government grants

Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions.

Government grants relating to costs are deferred and recognised in the income statement over the period necessary to match them with the costs that they are intended to compensate.

Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to the income statement on a straight-line basis over the expected lives of the related assets.

(g) Income tax

The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the reporting date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Current and deferred tax balances are recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

(h) Leases

Leases of property, plant and equipment where the Group, as lessee, has substantially all the risks and rewards of ownership, are classified as finance leases. Finance leases are capitalised at the lease’s inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other short-term and long-term payables. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the asset’s useful life and the lease term.

Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as operating lease(note 29 (b)). Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.


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(i) Business combinations

The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the group. The consideration transferred also includes the fair value of any asset or liability resulting from a contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. Acquisition-related costs are expensed as incurred.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the group’s share of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in profit or loss as a bargain purchase.

Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss.

(j) Impairment of assets

Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable

amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

(k) Cash and cash equivalents

For cash flow statement presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheets.

(l) Trade receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Trade receivables are generally due for settlement within 30 to 60 days.

Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off by reducing the carrying amount directly. An allowance account (provision for impairment of trade receivables) is used when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 60 days overdue) are considered indicators that the trade receivable is impaired. The amount of the impairment allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial.

The amount of the impairment loss is recognised in the income statement within other expenses. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against selling expenses in the income statement.


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(m) Inventories

Raw materials, work in progress and finished goods

Raw materials, work in progress and finished goods are stated at the lower of cost and net realisable value. Cost comprises direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity. Costs are assigned to individual items of inventory on first in first out basis. Costs of purchased inventory are determined after deducting rebates and discounts. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

(n) Current assets (or disposal groups) held for sale and discontinued operations

Non-current assets (or disposal groups) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. They are measured at the lower of their carrying amount and fair value less costs to sell, except for assets such as deferred tax assets, assets arising from employee benefits, financial assets that are carried at fair value and contractual rights under insurance contracts, which are specifically exempt from this requirement.

An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal group) is recognised at the date of derecognition.

Non-current assets (including those that are part of a disposal group) are not depreciated or amortised while they are classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale continue to be recognised.

Non-current assets classified as held for sale and the assets of a disposal group classified as held for sale are presented separately from the other assets in the balance sheet. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the balance sheet.

A discontinued operation is a component of the entity that has been disposed of or is classified as held for

sale and that represents a separate major line of business or geographical area of operations, is part of a single co-ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately on the face of the income statement.

(o) Investments and other financial assets

Classifi cation

The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its investments at initial recognition.

(i) Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are classified as held for trading unless they are designated as hedges. Assets in this category are classified as current assets.

(ii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the reporting date which are classified as non-current assets. Loans and receivables are included in trade and other receivables (notes 11 & 13) in the balance sheet.

Recognition and derecognition

Regular purchases and sales of financial assets are recognised on trade-date - the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed in the income statement. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.


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Subsequent measurement

Loans and receivables are carried at amortised cost using the effective interest method.

Details on how the fair value of financial instruments is determined are disclosed in note 2.

Impairment

The Group assesses at each balance date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the assets (a loss event) and that loss event (or events) has an impact on the estimated future cashflows of the financial asset or group of financial assets that can be reliably estimated.

If there is evidence of impairment for any of the Group’s financial assets carried at amortised cost, the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, excluding future credit losses that have not been incurred. The cash flows are discounted at the financial asset’s original effective interest rate. The loss is recognised in the income statement.

(p) Property, plant and equipment

Property, plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment in value. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the reporting period in which they are incurred

Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives, as follows:

• Buildings – over 40 years

• Plant and equipment – over 2.5 to 10 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 1(j)).

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statement.

(q) Intangible assets

(i) Goodwill

Goodwill is measured as described in note 1(i). Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is included in investments in associates. Goodwill is not amortised but it is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose, identified according to operating segments (note 4).

(ii) Trademarks, Patents and licences

Trademarks, Patents and licences have a finite useful life and are carried at cost less accumulated amortisation and impairment losses. Amortisation is calculated using the straight-line method to allocate the cost of patents and licences over their estimated useful lives.

(iii) Research and development

Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will, after considering its commercial and technical feasibility, be completed and generate future economic benefits and its costs can be measured reliably. The expenditure capitalised comprises all directly attributable costs, including costs of materials, services, direct labour and an appropriate proportion of overheads. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a


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subsequent period. Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use on a straight-line basis over its useful life, which varies from 10 to 15 years.

(iv) Customer relationships

Customer relationships acquired as part of business combinations are recognised separately from goodwill. The customer relationships are carried at fair value at the date of acquisition less accumulated amortisation and impairment losses. Amortisation is calculated based on the timing of projected cashflows of the relationships over their estimated useful lives.

(r) Trade and other payables

These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid within 30-60 days of recognition.

(s) Borrowings

Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the income statement over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities, which are not an incremental cost relating to the actual draw-down of the facility, are recognised as prepayments and amortised on a straight-line basis over the term of the facility.

Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in other income or other expenses.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.

(t) Borrowing costs

Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed.

(u) Provisions

Provisions for warranties and restructuring are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the reporting date. 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. The increase in the provision due to the passage of time is recognised as interest expense.

(v) Employee benefits

(i) Short-term obligations

Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liability for annual leave and accumulating sick leave is recognised in the provision for employee benefits. All other short-term employee benefit obligations are presented as payables.

(ii) Other long-term employee benefit obligations

The liability for long service leave and annual leave which is not expected to be settled within 12 months after the end of the period in which the employees render the related service is recognised in the provision for employee benefits and 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 reporting period using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted


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using market yields at the end of the reporting period on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.

(iii) Defined contribution plans

A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contributions plans are recognised as a personnel expense on profit or loss when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction on future payments is available.

(iv) Bonus plans

The Group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation.

(v) Termination benefits

Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after reporting date are discounted to present value.

(vi) Share-based payments

Share-based compensation benefits are provided to employees via the Ludowici Limited Executive Share and Option Plan and an Employee Share Plan. Information relating to these schemes is set out in note 33.

The fair value of options or rights granted under the Ludowici Limited Executive Share and Option Plan is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options or rights.

The fair value at grant date is independently determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option.

The fair value of the options granted is adjusted to reflect market vesting conditions, but excludes the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each reporting date, the entity revises its estimate of the number of options that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate. The impact of the revision to original estimates, if any, is recognised in the income statement with a corresponding adjustment to equity.

Under the employee share scheme, shares issued by the Ludowici Limited Executive Share and Option Plan and an Employee Share Plan Employee Share Trust to employees for no cash consideration vest immediately on grant date. On this date, the market value of the shares issued is recognised as an employee benefits expense with a corresponding increase in equity.

(w) Contributed equity

Ordinary shares are classified as equity (note 24).

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options for the acquisition of a business are not included in the cost of the acquisition as part of the purchase consideration.

Treasury shares are ordinary shares under the control of the Group. These shares are deducted from consolidated capital at their issue price (refer to note 24).

(x) Dividends

Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the financial year but not distributed at balance date.


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(y) Earnings per share

(i) Basic earnings per share

Basic earnings per share is calculated by dividing:

• the profi t attributable to equity holders of the company, excluding any costs of servicing equity other than ordinary shares

• by the weighted average number of ordinary shares outstanding during the fi nancial year, adjusted for bonus elements in ordinary shares issued during the year and excluding treasury shares (note 37(d)).

(ii) Diluted earnings per share

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account:

• the after income tax effect of interest and other fi nancing costs associated with dilutive potential ordinary shares, and

• the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares (note 37(d)).

(z) Goods and Services Tax (GST)

Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet.

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.

Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows.

(aa) Rounding of amounts

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 report. Amounts in the financial report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, the nearest dollar.

(ab) New accounting standards and interpretations

Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2011 reporting periods. The Group’s assessment of the impact of these new standards and interpretations is set out below.

(i) AASB 9 Financial Instruments, AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 and AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) (effective from 1 January 2013).

AASB 9 Financial Instruments addresses the classification, measurement and derecognition of financial assets and financial liabilities. The standard is not applicable until 1 January 2013 but is available for early adoption. There will be no impact on the group’s accounting for financial liabilities, as the new requirements only affect the accounting for financial liabilities that are designated at fair value through profit or loss and the group does not have any such liabilities. The derecognition rules have been transferred from AASB 139 Financial Instruments: Recognition and Measurement and have not been changed. The group has not yet decided when to adopt AASB 9.

(ii) AASB 10 Consolidated Financial Statements, AASB 11 Joint Arrangements, AASB 12 Disclosure of Interests in Other Entities, revised AASB 127 Separate Financial Statements and AASB 128 Investments in Associates and Joint Ventures and AASB 2011-7 Amendments to Australian Accounting Standards arising from the Consolidation and Joint Arrangements Standards (effective 1 January 2013). In August 2011, the AASB issued a suite of five new and amended standards which address the accounting for joint arrangements, consolidated financial statements and associated disclosures.

AASB 10 replaces all of the guidance on control and consolidation in AASB 127 Consolidated and Separate Financial Statements, and Interpretation 12 Consolidation –Special Purpose Entities. The core principle that a consolidated entity presents a parent and its subsidiaries as if they are a single economic entity remains unchanged, as do the mechanics of consolidation. However the standard introduces a single definition of control that applies to all entities. It focuses on the need to have both power and rights or exposure to variable returns before control is present. Power is the current ability to direct the activities that significantly influence returns. Returns must vary and can be positive, negative or both. There is also new guidance on participating and protective rights


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and on agent/principal relationships. While the group does not expect the new standard to have a significant impact on its composition, it has yet to perform a detailed analysis of the new guidance in the context of its various investees that may or may not be controlled under the new rules.

AASB 11 introduces a principles based approach to accounting for joint arrangements. The focus is no longer on the legal structure of joint arrangements, but rather on how rights and obligations are shared by the parties to the joint arrangement. Based on the assessment of rights and obligations, a joint arrangement will be classified as either a joint operation or joint venture. Joint ventures are accounted for using the equity method, and the choice to proportionately consolidate will no longer be permitted. Parties to a joint operation will account their share of revenues, expenses, assets and liabilities in much the same way as under the previous standard. AASB 11 also provides guidance for parties that participate in joint arrangements but do not share joint control. As the group is party to a joint venture, this standard will have impact on its financial statements. The group is still assessing the impact of these amendments.

AASB 12 sets out the required disclosures for entities reporting under the two new standards, AASB 10 and AASB 11, and replaces the disclosure requirements currently found in AASB 128. Application of this standard by the group will not affect any of the amounts recognised in the financial statements, but will impact the type of information disclosed in relation to the group’s investments.

Amendments to AASB 128 provide clarification that an entity continues to apply the equity method and does not remeasure its retained interest as part of ownership changes where a joint venture becomes an associate, and vice versa. The amendments also introduce a “partial disposal” concept. The group is still assessing the impact of these amendments.

The group does not expect to adopt the new standards before their operative date. They would therefore be first applied in the financial statements for the annual reporting period ending 31 December 2013.

(iii) AASB 13 Fair Value Measurement and AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB 13 (effective 1 January 2013)

AASB 13 was released in September 2011. It explains how to measure fair value and aims to enhance fair value disclosures. The group has yet to determine which, if any, of its current measurement

techniques will have to change as a result of the new guidance. It is therefore not possible to state the impact, if any, of the new rules on any of the amounts recognised in the financial statements. However, application of the new standard will impact the type of information disclosed in the notes to the financial statements. The group does not intend to adopt the new standard before its operative date, which means that it would be first applied in the annual reporting period ending 31 December 2013.

(iv) AASB 2011-9 Amendments to Australian Accounting Standards – Presentation of Items of Other Comprehensive Income (effective 1 July 2012) .

In September 2011, the AASB made an amendment to AASB 101 Presentation of Financial Statements which requires entities to separate items presented in other comprehensive income into two groups, based on whether they may be recycled to profit or loss in the future. This will not affect the measurement of any of the items recognised in the balance sheet or the profit or loss in the current period. The group intends to adopt the new standard from 1 January 2013.

(v) AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements (effective 1 July 2013). In July 2011 the AASB decided to remove the individual key management personnel (KMP) disclosure requirements from AASB 124 Related Party Disclosures, to achieve consistency with the international equivalent standard and remove a duplication of the requirements with the Corporations Act 2001. While this will reduce the disclosures that are currently required in the notes to the financial statements, it will not affect any of the amounts recognised in the financial statements. The amendments apply from 1 July 2013 and cannot be adopted early. The Corporations Act requirements in relation to remuneration reports will remain unchanged for now, but these requirements are currently subject to review and may also be revised in the near future.

(vi) AASB 2011-5 Amendments to Australian Accounting Standards – Extending Relief from Consolidation, the Equity Method and Proportionate Consolidation and AASB 2011-6 Amendments to Australian Accounting Standards – Extending Relief from Consolidation, the Equity Method and Proportionate Consolidation – Reduced Disclosure Requirements.


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AASB 2011-5 and AASB 2011-6 provide relief from consolidation, the equity method and proportionate consolidation to not-for-profit entities and entities reporting under the reduced disclosure regime under certain circumstances. They will not affect the financial statements of the group. The amendments apply from 1 July 2011 and 1 July 2013 respectively.

(vii) Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32) and Disclosures-Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7) (effective 1 January 2014 and 1 January 2013 respectively)

In December 2011, the IASB made amendments to the application guidance in IAS 32 Financial Instruments: Presentation, to clarify some of the requirements for offsetting financial assets and financial liabilities in the balance sheet. These amendments are effective from 1 January 2014. They are unlikely to affect the accounting for any of the group’s current offsetting arrangements. However, the IASB has also introduced more extensive disclosure requirements into IFRS 7 which will apply from 1 January 2013. The AASB is expected to make equivalent changes to IAS 32 and AASB 7 shortly. When they become applicable, the group will have to provide a number of additional disclosures in relation to its offsetting arrangements. The group intends to apply the new rules for the first time in the financial year commencing 1 January 2013.

Other new standards and interpretations issued were not relevant and applicable to the Group.

(ac) Parent entity financial information

The financial information for the parent entity, Ludowici Limited, disclosed in note 38 has been prepared on the same basis as the consolidated financial statements, except as set out below.

(i) Investments in subsidiaries, associates and joint venture entities

Investments in subsidiaries, associates and joint venture entities are accounted for at cost in the financial statements of Ludowici Limited. Dividends received from associates are recognised in the parent entity’s profit or loss, rather than being deducted from the carrying amount of these investments.

(ii) Tax consolidation legislation

Ludowici Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation.

The head entity, Ludowici Limited, and the controlled entities in the tax consolidated group account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a stand alone taxpayer in its own right.

In addition to its own current and deferred tax amounts, Ludowici Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group.

The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate Ludowici Limited for any current tax payable assumed and are compensated by Ludowici Limited for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to Ludowici Limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly-owned entities’ financial statements.

The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each financial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments.

Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as current amounts receivable from or payable to other entities in the group.

Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities.

(iii) Financial guarantees

Where the parent entity has provided financial guarantees in relation to loans and payables of subsidiaries for no compensation, the fair values of these guarantees are accounted for as contributions and recognised as part of the cost of the investment.


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2. Financial risk management

The Group’s activities expose it to a variety of financial risks: market risk (including currency risk and interest rate risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. Derivatives are exclusively used for hedging purposes, i.e. not as trading or other speculative instruments. The Group uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate and foreign exchange risks and ageing analysis for credit risk.

Financial risk management is carried out by a central treasury department (Group Treasury) under policies approved by the Board of Directors. The Board provides written principles for overall risk management, as well as policies covering liquidity, funding, interest rates, foreign currency use of derivative and non-derivative financial instruments and the treasury related aspects of counter party, commodity and operational risks.

The Group and the parent entity hold the following financial instruments:

Consolidated

2011$’000

2010$’000

Financial assets

Cash and cash equivalents 15,981 20,230

Trade and other receivables 53,541 34,598

69,522 54,828

Financial liabilities

Trade and other payables 35,557 38,045

Borrowings 68,977 65,560

104,534 103,605

(a) Market risk

(i) Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, including the US Dollar, New Zealand Dollar, Chilean Peso, Peruvian Nuevo Sol, South African Rand, Chinese Renminbi and Indian Rupee as set out in the table below.

Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities denominated in a currency that is not the entity’s functional currency and net investments in foreign operations. The risk is measured using sensitivity analysis and cash flow forecasting.

Management has a policy of continuously reviewing foreign exchange risk exposure arising from future commercial transactions and recognised assets and liabilities, and uses forward contracts as considered appropriate.

The Group’s exposure to foreign currency risk at the reporting date is detailed in the tables below. An additional exposure is the Group’s net investment in foreign operations which amounted to $18,715,000 (2010: $6,361,000).

The group did not enter into foreign exchange contracts during the financial year.


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Group sensitivity

The Group’s exposure to foreign currency risk at the reporting date, expressed in Australian dollar, was as follows:

USD ’000

NZD’000

CLP’000

PEN’000

ZAR’000

CNY’000

INR’000

2011

Cash and cash equivalents 1,875 203 5,089 28 728 2,382 524

Trade and other receivables 5,762 - 5,239 924 6,010 5,725 1,821

Trade and other payables (3,422) (22) (4,015) (729) (6,105) (6,297) (4,339)

Borrowings (16,217) (288) (98) - (8,858) - -

2010

Cash and cash equivalents 2,531 468 4,837 321 1,839 901 412

Trade and other receivables 5,451 - 4,801 339 1,171 1,558 -

Trade and other payables (3,707) (10) (2,556) (900) (467) (1,128) 978

Borrowings (16,542) (286) (705) - - - -

Group

Forward exchange contracts.

The group did not enter into foreign exchange contracts during the financial year (2010: nil).

Based on the financial instruments held at 31 December 2011, had the Australian dollar weakened/strengthened by 10% against the above currencies, with all other variables held constant, the Group’s post-tax profit for the year would have been $323,000 lower/$264,000 higher (2010: $34,000 lower/$28,000 higher), mainly as a result of foreign exchange gains/losses on translation of foreign currency denominated financial instruments as detailed in the above table.

(ii) Cash flow and fair value interest rate risk

The Group’s main interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. During 2011 and 2010, the Group’s borrowings at variable rate were denominated in Australian Dollars, US Dollars, Chilean Pesos and South African Rand.

As at the reporting date, the Group had the following variable rate borrowings outstanding:

Group

2011 2010

Weighted average

interest rate Balance

Weighted average

interest rate Balance

% $’000 % $’000

Bank overdrafts and bank loans 6.30% 68,977 6.62% 65,560

An analysis by maturities is provided in (c) below.

The Group analyses its interest rate exposure on a dynamic basis. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions, alternative financing and hedging. Based on these scenarios, the Group calculates the impact on profit and loss of a defined interest rate shift. For each simulation, the same interest rate shift is used for all currencies. The scenarios are run only for liabilities that represent the major interest-bearing positions.


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Group sensitivity

At 31 December 2011, if interest rates had changed by -/+ 100 basis points from the weighted average rates with all other variables held constant, post-tax profit for the year would have been $469,000 lower/higher (2010: change of 100 bps: $411,000 lower/higher), mainly as a result of higher/lower interest expense on borrowings.

(b) Credit risk

Credit risk is managed on a group basis. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions. For banks and financial institutions, only independently rated parties with a minimum rating of ‘A’ are accepted. For customers, risk control assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by management. The compliance with credit limits by customers is regularly monitored by line management. Customers that fail to meet the Group’s benchmark creditworthiness may transact with the Group only on a prepayment basis.

The maximum exposure to credit risk at the reporting date is the carrying amount of the financial assets as summarised above. Goods are generally sold subject to retention of title clauses, so that in the event of non-payment the Group may have a secured claim. The Group does not require collateral in respect of trade and other receivables.

Credit risk further arises in relation to financial guarantees given to certain parties (see note 38(b) for details). Such guarantees are provided in relation to performance guarantees associated with project sales of capital equipment and as considered necessary for other operational matters.

The Group has established an allowance for impairment that represents their estimate of incurred losses in respect of trade and other receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets.

(c) Liquidity risk

Liquidity risk is the risk that the group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Due to the dynamic nature of the underlying businesses, Group Treasury aims at maintaining flexibility in funding by keeping committed credit lines available with a number of counterparties. Surplus funds are generally only invested in instruments that are tradable in highly liquid markets.

Financing arrangements

The Group had access to the following undrawn borrowing facilities at the reporting date:

Consolidated

2011$’000

2010$’000

Floating rate

Expiring within one year 10,225 8,527

Expiring beyond one year 17,275 4,573

27,500 13,100

Refer to note 20 & 22 for further information on key facility terms and conditions.


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The bank overdraft facilities may be drawn at any time and may be terminated by the bank only in specific circumstances where bank covenants are breached. The secured borrowing facility may be drawn at any time and is subject to annual review in April. It is the Group’s understanding that these facilities will roll in the ordinary course of business and is not aware of any barriers to this occurring. Subject to the compliance with the facility covenants and conditions, the bank loan facilities may be drawn at any time in either Australian or United States Dollars and have an average maturity of 2 years (2010: 2 years).

Maturities of fi nancial liabilities

The tables below analyse the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

Less than 6 months

$’000

6 – 12 months

$’000

Between 1 and 2 years

$’000

Between 2 and 5 years

$’000

Over 5 years$’000

Total contractual cash fl ows

$’000

Carrying amount

(assets)/liabilities

$’000

Group at 31 December 2011

Non-derivatives

Non-interest bearing 35,557 - - - - 35,557 35,557

Variable rate 8,188 4,779 53,052 10,452 - 76,471 68,977

Fixed rate - - - - - - -

Total non-derivatives 43,745 4,779 53,052 10,452 - 112,028 104,534

Derivatives

Non-interest bearing - - - - - - -

Total derivatives - - - - - - -

Total 43,745 4,779 53,052 10,452 112,028 104,534

Group at 31 December 2010

Non-derivatives

Non-interest bearing 38,045 - - - - 38,045 38,045

Variable rate 24,306 7,541 2,715 38,788 - 73,350 65,560

Fixed rate - - - - - - -

Total non-derivatives 62,351 7,541 2,715 38,788 - 111,395 103,605

Derivatives

Non-interest bearing - - - - - - -

Total derivatives - - - - - - -

Total 62,351 7,541 2,715 38,788 - 111,395 103,605

(d) Fair value estimation

The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes.

Derivative contracts classified as held for trading are fair valued by comparing the contracted rate to the current market rate for a contract with the same remaining period to maturity.

The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. The fair value of forward exchange contracts is determined using forward exchange market rates at the reporting date. Under AASB 7 Financial Instruments this forward exchange contract is classed as a Level 2 fair value measurement hierarchy as the market data is not observable. The group did not enter into foreign exchange contracts during the financial year.


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The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values due to their short-term nature. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances.

3. Critical accounting estimates and judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances.

(a) Critical accounting estimates and assumptions

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(i) Estimated impairment of goodwill and other non-current assets

The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 1(o). The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions. Refer to note 18 for details of these assumptions and the potential impact of changes to the assumptions. Other non-current assets are reviewed annually for impairment using the same methodology as for goodwill. Impairment costs are recognised in the income statement and against the impaired asset.

(ii) Estimated impairment of inventory

Inventory is reviewed continuously for impairment. Management review slow moving and other inventory considered obsolete on at least a quarterly basis and where impairment is identified the policy of lower of cost or net realisable value is applied. Impairment costs are recognised in the income statement and against the impaired inventory.

(iii) Income taxes

The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Significant judgement is required in determining the worldwide provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group recognises liabilities based on the current application of the tax law. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax provisions in the period in which such determination is made.

Deferred tax assets are recognised for deductible temporary differences as management considers that it is probable that future taxable profits will be available to utilise those temporary differences.

(iv) Warranty provision

In determining the level of provision required for warranties the Group has made judgments in respect of the expected performance of the product, sales volumes and current information about returns based on the warranty period.

(v) Estimation of useful lives of assets

The estimation of useful lives of assets has been based on historical experience as well as manufacturers’ warranties (for plant and equipment and vehicles), and lease terms (for leased assets).


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(b) Critical judgements in applying the entity’s accounting policies

(i) Operating lease commitments – Group as lessor

The Group has entered into a commercial lease of certain plant and equipment, for a 1.5 year period with rentals payable monthly, with a residual value of $218,000. The Group has a commercial lease in respect of its property in New Zealand, for a term of 7 months with rentals paid monthly. The Group has determined that it retains all the significant risks and rewards of ownership of these assets and has thus classified the leases as operating leases. The Group will not be liable for any Leasee’s loss of profits, loss of business, economic loss or loss of opportunity or goodwill. The future minimum lease payments receivable under a non cancellable operating lease for each of the following periods are:

Consolidated

2011$’000

2010$’000

Within one year 772 618

Later than one year but not later than fi ve years 315 1,082

Later than fi ve years - -

1,087 1,700

The group has recognised operating lease revenue amounting to $660,381 (2010:$608,000) in the financial year.

(ii) Share-based payment transactions

The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using a Black-Scholes Model, using the assumptions detailed in note 33.

(iii) Revenue recognition

The Group makes estimates in the revenue recognised from certain projects, by reference to the stage of completion of the contract. Stage of completion is measured by reference to cost incurred to date as a percentage of total estimated costs for each contract.

4. Segment information

(a) Description of segments

The Managing Director has determined the operating segments based on the internal reports reviewed by the Managing Director and the Board that are used to make strategic decisions.

The Managing Director considers the business from a geographic perspective and has identified the following reportable segment:

Geographical segments

In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of the business. The Group’s business segments operate in Australia, North America, Latin America, Asia and other (Africa, India and New Zealand).

(b) Other segment information

Segment revenue

Sales between segments are eliminated on consolidation. The revenue from external parties reported to the Board is measured in a manner consistent with that in the income statement.

Revenues from external customers are derived from the design, manufacture & maintenance of mineral processing equipment and consumables within the mineral processing industry.


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Segment revenues are allocated based on the country in which the sale originates.

No revenue greater than 10% (2010: $25,065,000) was derived from a single external customer. In the previous year $24,976,000 was attributable to the Australian segment and $89,000 was attributable to the Asia segment.

(c) Segment information provided to the Managing Director

The segment information provided to the Managing Director for the reportable segments for the year ended 31 December 2011 is as follows:

Australia North America Latin America Asia OtherConsolidated

continuing operations

2011$’000

2010$’000

2011$’000

2010$’000

2011$’000

2010$’000

2011$’000

2010$’000

2011$’000

2010$’000

2011$’000

2010$’000

Segment revenue 159,172 173,326 29,227 29,490 25,142 23,863 11,781 8,669 18,642 5,680 243,964 241,028

Intersegment eliminations (9,094) (14,376) (1,927) - (3,758) - (5,671) (4,847) (4,063) (477) (24,513) (19,700)

Revenue from external customers 150,078 158,950 27,300 29,490 21,384 23,863 6,110 3,822 14,579 5,203 219,451 221,328

Interest revenue 54 64 - 26 - - 5 3 - - 59 93

Other revenue 850 959 - (659) 90 13 129 18 246 938 1,315 1,270

Consolidated revenue 150,982 159,973 27,300 28,857 21,474 23,876 6,244 3,843 14,825 6,141 220,825 222,691

EBITDA 18,368 20,816 2,724 1,792 2,986 2,883 902 1,332 1,433 (1,514) 26,413 25,309

Depreciation & amortisation (5,112) (4,334) (537) (552) (810) (740) (33) (68) (321) (150) (6,813) (5,844)

Segment result (EBIT) 13,256 16,482 2,187 1,240 2,176 2,143 869 1,264 1,112 (1,664) 19,600 19,465

Interest expense - unallocated - - - - - - - - - - (4,577) (4,201)

Consolidated profi t / (loss) before tax - - - - - - - - - - 15,023 15,264

Income tax expense - unallocated - - - - - - - - - - (4,330) (3,653)

Consolidated profi t / (loss) after tax - - - - - - - - - - 10,693 11,611


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5. Revenue

Consolidated

2011$’000

2010$’000

From continuing operations

Sales revenue

Sale of goods 219,451 221,328

Other revenue

Royalties 573 50

Property rentals received 230 255

Interest received 59 93

220,313 221,726

6. Other incomeOther 512 965

512 965

7. ExpensesProfi t before income tax includes the following specifi c expenses

Net foreign exchange loss 175 -

Net loss on disposal of property, plant and equipment 217 19

Amortisation of non-current assets - Intangibles 1,422 1,091

Depreciation on property, plant and equipment 5,391 4,753

Minimum lease payments – operating lease 4,225 4,514

Employee equity benefi t expense 494 184

Defi ned contribution superannuation expense 2,742 3,207

Government grants

During the year grants totaling $28,000 were recognised from the Department of Education, Employment and workplace relations in respect of support for adult Australian apprentices. In the prior year Government grants of $23,000 were recognised from the Department of Employment, Economic Development and Innovation in respect of relocation of businesses. These grants were set- off against administration expenses.

Consolidated

2011$’000

2010$’000

Finance costs

Interest and fi nance charges for borrowings 4,577 4,201

Impairment losses – fi nancial assets

Trade receivables 162 151

Impairment of other assets

Inventories (Impairment reversal) / expense (368) 256


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8. Income tax expense

Consolidated

2011$’000

2010$’000

(a) Income tax expense

Current tax 3,915 5,455

Deferred tax 4 (983)

Adjustments for current tax of prior periods 411 (819)

4,330 3,653

Income tax is attributable to:

Profi t from continuing operations 4,330 3,653

Aggregate income tax expense 4,330 3,653

Deferred income tax expense included in income tax expense comprises:

Decrease (increase) in deferred tax assets (note 17) (152) 287

(Decrease) increase in deferred tax liabilities (note 17) 156 (1,270)

4 (983)

(b) Numerical reconciliation of income tax expense to prima facie tax payable

Profi t from continuing operations before income tax expense 15,023 15,264

15,023 15,264

Tax at the Australian tax rate of 30% (2010:30%) 4,506 4,579

Adjustments for current tax of prior periods 513 (1,204)

Adjustments for deferred tax of prior periods 276 -

Previously unrecognised losses now recognised (694) -

Non-deductible expenses 165 838

Other assessable amounts 95 -

Refundable tax credits (37) -

Non-assessable income and capital gains (34) -

Expenditure on research and development (338) (571)

Tax losses recouped - (474)

Tax losses not recognised 23 810

Difference in overseas tax rates (145) (325)

Aggregate Income tax expense (benefi t) 4,330 3,653

(c) Amounts recognised directly in equity

Net deferred tax - debited (credited) directly to equity (175) -


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9. Assets classifi ed as held for sale

Group

(i) Current assets classified as held for sale

The carrying amount of land and buildings is as follows:

Consolidated

2011$’000

2010$’000

Freehold land and buildings - Ludowici Packaging Limited 1,804 1,794

Please refer to note 36 for further information on the assets status.

10. Current assets – Cash and cash equivalentsConsolidated

2011$’000

2010$’000

Cash at bank and in hand 15,981 20,230

(a) Reconciliation to cash at the end of the year

The above figures are reconciled to cash at the end of the financial year as shown in the statement of cash flows as follows:

Consolidated

2011$’000

2010$’000

Balances as above 15,981 20,230

Bank overdrafts (551) -

Balances per statement of cash fl ows 15,430 20,230

(b) Interest rate risk exposure

The Group’s exposure to interest rate risk is set out in note 2.

11. Current assets – Trade and other receivables

Consolidated

2011$’000

2010$’000

Trade receivables 48,384 32,233

Provision for impairment of receivables (543) (290)

47,841 31,943

Loans to employees* 5 46

Prepayments and other debtors 5,639 2,591

53,485 34,580

* Loans to employees are in relation to the employee share plan, are interest free and repayable by monthly/weekly instalments over a period of three years. Refer to note 13 for the non-current portion of loans to employees.


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(a) Impaired trade receivables

As at 31 December 2011 certain current trade receivables were impaired and provided for. The individually impaired receivables mainly relate to customers who are in difficult economic situations.

The ageing of these receivables is as follows:

Consolidated

2011$’000

2010$’000

1 month or less - -

2 to 3 months 35 19

3 months or more 508 271

543 290

Movements in the provision for impairment of receivables are as follows:

Consolidated

2011$’000

2010$’000

At 1 January 290 169

Provision for impairment recognised during the year 162 202

Receivables written off during the year as uncollectible (19) (110)

Unused amount reversed (19) (51)

Exchange differences 129 80

At 31 December 543 290

The creation and release of the provision for impaired receivables has been included in ‘other expenses’ in the income statement. Amounts charged to the allowance account are generally written off when there is noexpectation of recovering additional cash.

(b) Past due but not impaired

As of 31 December 2011, certain trade receivables were past due but not impaired. These relate to a number of customers for whom there is no recent history of default.

The ageing of past due trade receivables is as follows:

Consolidated

2011$’000

2010$’000

Period in excess of trading terms:

1 month or less 5,082 5,101

2 to 3 months 2,423 7,259

3 months or more 4,752 2,682

12,257 15,042

(c) Other Receivables

The other classes within trade and other receivables do not contain impaired assets and are not past due. Based on the credit history of these other classes, it is expected that these amounts will be received when due.


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(d) Foreign exchange and interest rate risk

Information about the Group’s and Ludowici Limited’s exposure to foreign currency risk and interest rate risk in relation to trade and other receivables is provided in note 2.

(e) Fair value and credit risk

Due to the short-term nature of these receivables, their carrying amount is assumed to approximate their fair value.

The maximum exposure to credit risk at the reporting date is the carrying amount of each class of receivables mentioned above. The Group does not hold any collateral as security. Refer to note 2 for more information on the risk management policy of the Group and the credit quality of the entity’s trade receivables.

12. Current assets – Inventories

Consolidated

2011$’000

2010$’000

Raw materials and stores 19,314 15,171

Work in progress 5,166 18,123

Finished goods 26,305 22,254

Total inventories at lower of cost and net realisable value 50,785 55,548

Write-downs of inventories to net realisable value recognised as a reversal to provision during the year ended 31 December 2011 amounted to ($368,000) (2010: $256,000). The reversal of the expense has been included in ‘cost of goods sold’ in the income statement.

13. Non-current assets – Receivables

Consolidated

2011$’000

2010$’000

Loans to employees* 56 18

56 18

* Refer to note 11 for the current portion of these loans.

(a) Impaired receivables and receivables past due

None of the non-current receivables are impaired or past due but not impaired.

(b) Fair Values

The carrying values of non-current assets do not differ from their fair values at balance date.

(c) Risk exposure

Information about the Group’s exposure to credit risk, foreign exchange and interest rate risk is provided in note 2.


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14. Subsidiaries

The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 1(b):

Ownership % Place of Incorporation

Note 2011 2010

J.C. Ludowici & Son Pty Limited * 100 100 Australia

Ludowici Australia Pty Ltd * 100 100 Australia

Ludowici Packaging Australia Pty Limited * 100 100 Australia

Ludowici China Pty Limited * (a) 100 100 Australia

Ludowici Technologies Pty Ltd * 100 100 Australia

Hicom Technologies Pty Ltd * 100 100 Australia

Rojan Advanced Ceramics Pty Ltd (a) 100 100 Australia

Ludowici Holdings Inc * (a) 100 100 USA

Ludowici Mineral Processing Equipment Inc. (c) 100 100 USA

Ludowici LLC * (c) 100 100 USA

Ludowici Screens LLC (c) 100 100 USA

Ludowici India Private Limited * 100 100 India

Ludowici Mining Process India PVT Limited 100 100 India

Ludowici Packaging Limited * (d) 100 100 NZ

Ludowici Plastics Limited * 100 100 NZ

Ludowici Chile Holdings S.A. * (a) 100 100 Chile

Ludowici Mineral Processing Equipment S.A. * (e) 100 100 Chile

ICR Johnson Screens S.A. (e) 100 100 Chile

ICR Johnson Screens Peru S.A.C. (e) 100 100 Peru

Ludowici Peru S.A.C. (e) 100 100 Peru

Yantai Ludowici Mineral Processing Equipment Limited * (f) 100 100 China

Ludowici (Beijing) Co., Ltd (b) 100 100 China

Qingdao Ludowici Mining Equipment Ltd (f) 100 - China

Ludowici Hong Kong Investments Limited(formerly Ludowici South East Asia Limited) 100 100 Hong Kong

Ludowici Hong Kong Limited * (b) 100 100 Hong Kong

Ludowici Africa Holdings (Pty) Ltd (a) 100 100 South Africa

Ludowici Meshcape (Pty) Ltd (formerly Ludowici Africa (Pty) Ltd) (g) 100 100 South Africa

Ludowici Mauritius Holdings Limited (a) 100 - Mauritius

All entities are direct subsidiaries of Ludowici Limited except as noted below:

(a) Controlled entity of Ludowici Australia Pty Ltd

(b) Controlled entity of Ludowici China Pty Limited

(c) Controlled entity of Ludowici Holding Inc

(d) Controlled entity of Ludowici Plastics Limited

(e) Controlled entity of Ludowici Chile Holdings SA

(f) Controlled entity of Ludowici Hong Kong Investments Limited

(g) Controlled entity of Ludowici Africa Holdings (Pty) Ltd

* Companies that are included in a Deed of Cross Guarantee and indemnity (Note 38).


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15. Investments in Joint Ventures

A subsidiary has a joint venture called Euroslot Kdss (South Africa) (Proprietary) Limited which was acquired as part of the Meshcape acquisition. The joint venture manufactures wedge wire. The subsidiary has a 50% participating interest in the joint venture.

Information relating to the joint venture, presented in accordance with the accounting policy described in note 1(b)(ii) is set out below:

SHARE OF ENTITIES’ ASSETS AND LIABILITIES

Consolidated

2011$’000

2010$’000

Current assets 409 -

Non-current assets 319 -

Total assets 728 -

Current liabilities (208) -

Non-current liabilities (112) -

(320) -

Net assets 408 -

SHARE OF ENTITIES’ REVENUE AND EXPENSES

Sales 186 -

Cost of Sales (92) -

Expenses (74) -

Profi t before income tax 20 -

The group had no other commitments in the joint ventures. Contingent liabilities in joint ventures are disclosed in note 28.


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16. Non-current assets - Property, plant and equipment

CONSOLIDATED

Freehold Land and Buildings

$’000

Plant and Equipment

$’000Total

$’000

Cost

Balance at 1 January 2010 39,944 52,589 92,533

Prior year adjustments (2,096) 5,399 3,303

Additions 94 4,497 4,591

Acquisition through business combination - 772 772

Disposals - (286) (286)

Effect of movement in exchange rates (59) (655) (714)

Balance at 31 December 2010 37,883 62,316 100,199


Additions - 5,019 5,019

Acquisition through business combination - 2,399 2,399

Disposals - (668) (668)

Effect of movement in exchange rates (1) (1,177) (1,178)


Depreciation and impairment losses

Balance at 1 January 2010 (857) (32,622) (33,479)

Prior year adjustments 52 (3,978) (3,926)

Disposals - 146 146

Depreciation for the year (859) (3,894) (4,753)

Effect of movement in exchange rates 8 276 284

Balance at 31 December 2010 (1,656) (40,072) (41,728)

Balance at 1 January 2011 (1,656) (40,072) (41,728)

Disposals - 445 445

Depreciation for the year (934) (4,457) (5,391)

Effect of movement in exchange rates (1) 386 385


Carrying amounts

At 1 January 2010 39,087 19,967 59,054

At 31 December 2010 36,227 22,244 58,471

At 1 January 2011 36,227 22,244 58,471

At 31 December 2011 35,291 24,191 59,482


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(a) Property, plant and equipment under construction

The carrying amounts of the assets disclosed above include the following expenditure recognised in relation to property, plant and equipment which is in the course of construction:

Consolidated

2011$’000

2010$’000

Plant and equipment 1,251 2,860

1,251 2,860

(b) Non-current assets pledged as security

Refer to note 20 for information on non-current assets pledged as security by Ludowici Limited and its controlled entities.


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17. Non-current assets – Deferred income tax assets and liabilitiesDeferred tax assets are recognised where management have assessed, based on projected earnings, that it is probable that the asset will be realised from generation of future taxable profits.

Consolidated

2011$’000

2010$’000

(a) Deferred income taxes

Deferred income tax assets 6,026 5,270

Deferred income tax liabilities (3,837) (2,849)

Net deferred tax assets 2,189 2,421

(b) Movement in net deferred income tax assets/(liabilities) for the fi nancial year

Balance at the beginning of the fi nancial year 2,421 1,932

Charged to the income statement as deferred income tax benefi t/(expense)

Current period (200) 983

Adjustments of prior periods (473) -

Recognition of prior year losses previously unrecognised 669 -

(4) 983

Net deferred tax balances arising from business

Balances arising from Meshcape acquisition 77 -

Balances arising from Amseal acquisition 10 -

Balances arising on Rojan acquisition (490) 157

Balances arising on JS Mining acquisition - (651)

(403) (494)

Charge to equity 175 -

Balance at the end of the fi nancial year 2,189 2,421

(c) Deferred income tax assets and liabilities at the end of the fi nancial year (prior to offsetting balances within the same tax jurisdiction) are attributable to :

Deferred tax assets

Trade receivables 133 85

Inventories 1,360 1,570

Other current assets 387 -

Accrued charges 705 940

Employee benefi ts provision – current 1,831 1,682

Employee benefi ts provision – long term 251 186

Warranty provision 255 523

Share issue expenses 158 -

Deferred Tax on Other Expenditure 337 258

Tax losses available for offset against future taxable income 609 26

Total deferred tax assets 6,026 5,270

Deferred tax liabilities

Other current assets 193 102

Property, plant and equipment 1,389 885

Intangibles 2,255 1,862

Total deferred tax liabilities 3,837 2,849

Net deferred tax assets 2,189 2,421


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(d) Tax losses not brought to account

Tax losses not brought to account, as the realisation of the benefits represented by these balances is not considered to be probable.

Consolidated

2011$’000

2010$’000

Income tax 127 2,650

Total tax losses not brought to account 127 2,650

(e) Unrecognised temporary differences

As at 31 December 2011, there are no unrecognised temporary differences associated with the Group’s investments in subsidiaries, associates or joint venture, as the Group has no liability for additional taxation, should unremitted earnings be remitted (2010: $nil).


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18. Non-current assets – Intangible assets

CONSOLIDATED

Other Intangibles *

$’000Goodwill

$’000Total

$’000

Cost


Additions - Rojan acquisition - 5,086 5,086

Additions - JS mining acquisition adjustment 4,345 (1,899) 2,446

Effect of movement in exchange rates - (806) (806)



Additions - Meschape acquisition 1,105 6,293 7,398

Additions - Other 18 - 18

Reclass - Other intangibles Rojan 1,633 (1,633) -

Disposals - - -

Effect of movement in exchange rates 224 (656) (432)


Accumulated amortisation and impairment losses


Amortisation for the year** (1,091) - (1,091)

Effect of movement in exchange rates 20 43 63



Amortisation for the year** (1,422) - (1,422)

Effect of movement in exchange rates (28) - (28)


Carrying amounts

At 1 January 2010 3,176 24,085 27,261

At 31 December 2010 6,450 26,509 32,959

At 1 January 2011 6,450 26,509 32,959

At 31 December 2011 7,980 30,513 38,493

Development costs are capitalised at cost. This intangible asset has been assessed as having a finite life and is amortised using the straight- line method over a period of 10 to 15 years. Patents and licences are depreciated in a straight-line over patent or licence life.

* Other intangibles includes development costs, patents, licences and customer relationships.** Amortisation of $1,422,000 (2010: $1,091,000) is included in depreciation and amortisation expense in the income statement.

Internally generated intangible assets include development costs, patents and licenses.


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Impairment tests for goodwill

Goodwill is allocated to the group’s cash-generating units (CGU) identified according to business operations and are assessed by impairment testing and the recoverable amount is based on the value in use method.

The following describes each key assumption on which management has based its cash flow projections when determining the value in use of the cash generating units.

The recoverable amount of a CGU is determined based on value-in-use calculations.

These calculations use cash flow projections based on financial budgets approved by senior management covering a one year period. The pre-tax discount rate applied to cash flow projections is 11.09% (2010: 12.8%) and cash flows beyond the one year period are extrapolated using a 3.0% growth rate (2010: 3.0%). The pre-tax discount rate of 12.8% (2010: 12.8%) is considered to be the maximum rate applicable to each CGU while the growth rate of 3% (2010: 3%) is considered to be the minimum likely for each CGU beyond the first year.

Impairment charge

No impairment charges arose during the year (2010: nil) following the reassessment of the expected cash flows to be generated by the cash generating units within the Group.

Impact of possible changes in key assumptions

An increase of 1 percentage point in the discount rate used would not result in an impairment loss.

CONSOLIDATED

Carrying amount of goodwill by CGU

As at 31 December 2011:

CGU: Australia North America Latin America Africa Asia Total

$’000 $’000 $’000 $’000 $’000 $’000

Mineral Processing Equipment and Consumables 17,805 4,751 2,320 5,637 - 30,513

As at 31 December 2010

CGU: Australia North America Latin America Africa Asia Total

$’000 $’000 $’000 $’000 $’000 $’000

Mineral Processing Equipment and Consumables 18,874 4,791 2,844 - - 26,509

19. Current liabilities – Trade and other payables

Consolidated

2011$’000

2010$’000

Trade payables and accruals 35,557 38,045

Trade payables are non-interest bearing and normally settled on 30 to 60 day terms.

(a) Risk exposure

Information about the Group’s exposure to foreign exchange risk is provided in note 2.


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20. Current liabilities – Borrowings

Consolidated

2011$’000

2010$’000

Secured

Bank loans 8,188 29,310

Other Loans 881 -

9,069 29,310

(a) Bank loans are subject to a weighted average interest rate of 6.3% (2010: 6.62%).

(b ) Other loans are subject to a weighted average interest rate of 9.3% (2010: n/a).

As at 31 December 2011, the total banking loan facility was $103.1 million (2010: $82.1 million).

As at 31 December 2011, $27.5 million (2010: $13.1 million) of the total banking facility was unused.

Other loans are secured by related assets for which the loan is taken out.

The fair value of current borrowings equals their carrying amount, as the impact of discounting is not significant.

During 2011 financial year the Group has met its loan facility covenants.

Details of the Group’s exposure to risks arising from current and non-current borrowings are set out in note 2.

The carrying amounts of assets pledged as security for current and non-current borrowings are:

Consolidated

2011$’000

2010$’000

Current

Floating charge

Cash and cash equivalents 15,257 18,400

Receivables 47,475 33,409

Inventory 47,311 44,896

Total current assets pledged as security 110,043 96,705

Non-current

First mortgage

Freehold land and buildings 35,284 36,227

Floating charge

Plant and equipment 21,949 21,932

Total non-current assets pledged as security 57,233 58,159

Total assets pledged as security 167,276 154,864


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21. Current liabilities – Provisions

Consolidated

2011$’000

2010$’000

Employee entitlements 7,089 6,495

Warranty provision (a) 800 1,770

Other 15 52

7,904 8,317

Movements in provision for warranty:

Carrying amount at the beginning of the fi nancial year 1,770 1,566

Additional provision (455) 2,223

Amounts utilised during the year (498) (2,072)

Net foreign exchange difference on translation to foreign entity (17) 53

Carrying amount at the end of the fi nancial year 800 1,770

(a) Warranty provision

A provision is recognised for expected warranty claims on products sold based on past experience of the level of repairs and returns. Assumptions used to calculate the provision for warranties were based on current sales levels and current information available about returns based on the one year warranty period for products sold.

22. Non-current liabilities - Borrowings

Consolidated

2011$’000

2010$’000

Secured

Bank loans 59,847 36,250

Other Loans 61 -

Total non-current borrowings 59,908 36,250

Refer to note 20 for further details of secured borrowings.

23. Non-current liabilities – Provisions

Consolidated

2011$’000

2010$’000

Employee entitlements 834 558

24. Contributed equity

Consolidated

2011$’000

2010$’000

Issued and fully paid ordinary shares, refer to note (a) 58,840 47,963


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(a) Movements in ordinary share capital

2011Date Details Note Number of shares Issue Price ($) $’000

1/01/2011 Opening balance 26,629,562 47,963

21/01/2011 Incentive Performance plan (b) 12,723 4.90 63

29/04/2011 Incentive Performance plan (b) 29,831 - -

31/05/2011 Employee Share plan (b) 12,400 3.91 48

30/06/2011 Share issue - Institutional component of equity raising 766,577 4.00 3,066

29/07/2011 Share issue - Retail component of equity raising 1,902,261 4.00 7,609

23/09/2011 Dividend Reinvestment plan (c) 119,849 3.75 450

31/12/2011 Balance 29,473,203 59,199

Transaction costs arising on share issue - (406)

Treasury Shares (85,523) -

Value of vesting shares transferred from the Employee Equity Benefi ts Reserve. - 47

29,387,680 58,840

2010Date Details Note Number of shares Issue Price ($) $’000

1/01/2010 Opening balance 23,932,845 40,751

3/03/2010 Shares issued - Placement for acquisition 1,350,000 2.65 3,578

5/03/2010 Employee Share plan (b) 522,188 2.65 1,384

30/04/2010 Incentive Performance plan (b) 25,134 - -

7/05/2010 Shares issued - Placement for underwriter 438,518 2.75 1,206


26/05/2010 Conversion of Preference shares 100,000 2.75 275

31/05/2010 Employee Share plan (b) 24,600 2.21 54


31/12/2010 Balance 26,629,562 47,970

Transaction costs arising on share issue - (164)

Treasury Shares held by controlled entity (68,997) -

Value of vesting shares transferred from the Employee Equity Benefi ts Reserve. - 157

26,560,565 47,963

(a) Ordinary shares

Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the company in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote.

(b) Employee share scheme

Information relating to the employee share scheme, including details of shares issued under the scheme, is set out in note 33.


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(c) Dividend reinvestment plan

The company has established a dividend reinvestment plan under which holders of ordinary shares may elect to have all or part of their dividend entitlements satisfied by the issue of new ordinary shares rather than by being paid in cash. Shares are issued under the plan at no discount to the market price (2010: 2%).

(d) Treasury shares

The movement in Treasury Shares is disclosed as follows:

Consolidated

2011Number of

shares

2010Number of

shares

Balance at 1 January 68,997 63,990

Shares issued to controlled entity under the Incentive Performance Plan 34,294 25,134

Vesting shares issue to employees (17,768) (20,127)

Balance at 31 December 85,523 68,997

Treasury Shares are shares in Ludowici Limited that are held by Ludosuper Pty Limited for the purpose of issuing shares under the Ludowici Incentive Performance Plan.

(e) Capital risk management

The Group’s and the parent entity’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

Consistent with others in the industry, the Group and the parent entity monitor capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including ‘borrowings’ and ‘trade and other payables’ as shown in the balance sheet) less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the balance sheet (including any minority interest) plus net debt.

The Group’s guideline is to maintain a Group gearing ratio under 40%. The gearing ratios at 31 December 2011 and 31 December 2010 were as follows:

Consolidated

2011$’000

2010$’000

Total borrowings 68,977 65,560

Less: cash and cash equivalents (15,981) (20,230)

Net debt 52,996 45,330

Total equity 103,448 87,551

Total capital 156,444 132,881

Gearing ratio 34% 34%


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25. Reserves

Consolidated

2011$’000

2010$’000

Reserves

Foreign currency translation (5,795) (5,341)

Employee equity benefi ts 973 592

Other 250 250

(4,572) (4,499)

Movements:

Foreign currency translation

Balance 1 January (5,341) (3,647)

Translation of foreign operations (454) (1,694)

Balance 31 December (5,795) (5,341)

Employee equity benefi ts

Balance 1 January 592 565

Executive share and option plan expense 456 128

Employee share plan expense (28) 56

Transfer to share capital upon vesting of shares to employees - (IPP) (47) (157)

Balance 31 December 973 592

Hedging reserve

Balance 1 January - (169)

Forward exchange contract settled - 241

Deferred tax arising on hedge - (72)

Balance 31 December - -

Other

Balance 1 January 250 123

Transfer from retained profi ts - 127

Balance 31 December 250 250

(a) Exchange differences arising on translation of foreign controlled entities are taken to the foreign currency translation reserve, as described in note 1(d). The reserve is recognised in profit and loss when the net investment is disposed of.

(b) Employee equity benefits reserve. The employee share plan reserve is used to record the value of existing benefits provided to employees and directors as part of their remuneration. Refer to note 33 for further details of these plans.

(c) The hedging reserve relates to cash flow hedges designated to equity.

(d) Other reserve is used to record amounts transferred from retained earnings due to statutory requirement for a subsidiary within the group.


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26. Dividends

Dividends recognised in the current year by the Group are:

2011 2010

Cents per share Total $’000 Cents per share Total $’000

(a) Fully Paid Ordinary Shares

Prior year fi nal dividend – unfranked (2010: unfranked) 10 2,665 6 1,549

Interim dividend – fully franked (2010: unfranked) 10 2,935 10 2,652

5,600 4,201

(b) Cumulative Preference Shares

5% fi rst preference annual interest – franked to 100% n/a - 5% 3

6% second preference annual interest – franked to 100% n/a - 6% 3

- 6

(c) Cumulative preference shares

Cumulative preference shares were converted to ordinary shares in 2010. Prior dividends paid on these shares have been charged to the income statement as finance charges due to the nature of the shares classified as liabilities.

(d) Dividends not recognised at year end

In addition to the above dividends, since year end the directors have recommended the payment of a final dividend of 11 cents per fully paid ordinary share (2010: 10 cents), fully franked based on tax paid at 30%. The aggregate amount of the proposed dividend expected to be paid on 9 May 2012 out of retained earnings at 31 December 2011, but not recognised as a liability at year end, is $3.242,052 (2010: $2,664,028).

(e) Franking credits

The franked portions of the final dividends recommended after 31 December 2011 will be franked out of existing franking credits or arising from the payment of income tax in the year ending 31 December 2012.

2011$’000

2010$’000

Ludowici Limited

Franking credits available for subsequent fi nancial years based on a tax rate of 30% (2010: 30%) 6,873 2,980

The above amounts represent the balance of the franking account as at the end of the reporting periods, adjusted for:

(a) franking credits that will arise from the payment of the amount of the provision for income tax, and

(b) franking debits that will arise from the payment of dividends recognised as a liability at the reporting date.

The impact of the franking account of the dividend recommended by the directors since the end of the reporting period, but not recognised as a liability at the reporting date, will be a reduction in the franking account of $1,389,450 (2010: $1,142,143).


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27. Auditors’ remuneration

During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non-related audit firms:

Consolidated

2011$

2010$

Amounts received or due and receivable by PricewaterhouseCoopers for :

Audit and review of fi nancial reports 437,987 435,879

Taxation services/advice

• Compliance matters 312,867 87,515

• Non-recurring consultancy services 4,567 40,295

317,434 127,810

Other services/advice

• R&D claims 34,698 81,672

• Acquisition of JS Mining - 46,590

• Sale of New Zealand Packaging - 10,750

• Other - 57,220

34,698 196,232

790,119 759,921

Amounts received or due and receivable by auditors other thanPricewaterhouseCoopers for :

Audit and review of fi nancial reports 123,009 99,588

Taxation services – overseas subsidiaries 622 18,304

Acquisition of Meshcape Business 15,000 -

Other - 298

138,631 118,190

928,750 878,111

It is the Group’s policy to employ PricewaterhouseCoopers on assignments additional to their statutory audit duties where PricewaterhouseCoopers’ expertise and experience with the Group are important. These assignments are principally tax advice and due diligence reporting on acquisitions, or where PricewaterhouseCoopers is awarded assignments on a competitive basis. It is the Group’s policy to seek competitive tenders for all major consulting projects.


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28. Contingencies

Contingent liabilities

(a) Guarantees

The Group is, in the normal course of business, required to provide guarantees and letters of credit on behalf of controlled entities in respect of their contractual performance related obligations. These guarantees and indemnities only give rise to a liability where the entity concerned fails to perform its contractual obligations.

Consolidated

2011$’000

2010$’000

Bank guarantees outstanding at balance date 7,604 7,323

(b) Litigation

In December 2011, a statement of claim was lodged against one of the Group’s wholly owned subsidiaries. The claim relates to loss of profits and cost of construction for plant that the plaintiff claims was unsuitable for their use. Ludowici will be defending the claim.

29. Commitments

Consolidated

2011$’000

2010$’000

(a) Capital commitments

Capital expenditure contracted for at the reporting date but not recognisedas liabilities is as follows:

Within one year 1,707 929

(b) Lease expenditure commitments – Group as lessee

Commitments for minimum lease payments in relation to non-cancellableoperating leases are payable as follows:

Within one year 4,315 4,467

Later than one year but not later than fi ve years 6,820 7,564

Later than fi ve years 1,051 1,262

12,186 13,293

Operating leases relate to three or four year term motor vehicle leases and warehouse facilities with leased terms of between three to eight years, with an option to extend for further periods. All operating lease contracts contain market review clauses in the event that the consolidated entity exercises its option to renew. The consolidated entity does not have an option to purchase the leased asset at the expiry of the lease period.


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30. Related party transactions

(a) Subsidiaries

Interests in subsidiaries are set out in note 14.

(b) Key management personnel

Disclosures relating to key management personnel are set out in note 32.

(c) Loans to related parties

Consolidated

2011$

2010$

Loans to subsidiaries

- Beginning of the year 68,800,536 57,753,110

- Loans advanced 20,668,290 11,047,426

- End of year 89,468,826 68,800,536

Transactions within the wholly owned group include the sale and purchase of goods, the provision of administrative services, rent of premises and the provision of loans. All transactions within the consolidated entity have been eliminated on consolidation.

Sales to and purchases from related parties are made on an arm’s length transaction at both normal market prices and normal commercial terms.

Information on controlled entities is disclosed at note 14.

Transactions with related parties:

Sales to and purchases from related parties are made in arm’s length transactions both at normal market prices and on normal commercial terms. Outstanding balances at year end are unsecured, interest free and settlement occurs in cash.

There were no transactions with director related entities in 2011 (2010: nil).

31. Business combinations

(a) Meshcape Industries Pty Ltd - acquisition

On 19 August, 2011 the Company purchased the business assets of Meshcape Industries Pty Ltd (Meshcape) for cash. The acquisition includes Meshcape’s manufacturing assets based in Johannesburg, its established branch and distribution network throughout the major centres of South Africa and a 50% interest in a joint venture with French company Euroslot France SAS (wedge wire manufacturer). The Meshcape business manufactures, imports and distributes predominantly screens consumables and supports its customers with a high level of technical advice and customer service. The Meshcape acquisition is in line with Ludowici’s strategy to develop world leading positions by bringing a strong business presence in Africa’s consumable market.


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Recognised fair value 2011

$’000

Purchase consideration

Cash paid 8,880

Deferred consideration 2,590

Total purchase consideration 11,470

Fair value of net identifi able assets acquired (5,177)

Goodwill 6,293

Fair value of the assets and liabilities acquired

Cash 65

Accounts receivable 2,691

Inventory 3,504

Deferred tax asset 385

Property, plant & equipment 2,268

Identifi able intangible assets 1,105

Total identifi ed assets being acquired 10,018

Trade and other payables (3,567)

Employee benefi ts provision (680)

Other liabilities (284)

Deferred tax liability (310)

Total liabilities being assumed: (4,841)

Net identifi ed assets being acquired 5,177

(i) Acquisition-related costs

Acquisition-related costs of $386,000 are included in other expenes in profit or loss.

(ii) Deferred consideration

The deferred consideration arrangement requires the group to pay the former owners of Meshcape $2,589,994.

(iii) Acquired receivables

The fair value of trade and other receivables is $2,690,742. The gross contractual amount for trade and other receivables due is $2,788,451 of which $97,709 is expected to be uncollectable.

(iv) Revenue and profit contribution

The acquired business contributed revenues of $7,824,000 and net profit of $601,000 to the group for the period from 19 August 2011 to 31 December 2011. If the acquisition had occurred on 1 January 2011, based on Vendor’s management accounts, consolidated revenue and consolidated profit for the year ended 31 December 2011 would have been $19,1 1 1 ,000 and $1,843,000 respectively.


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(b) Amseal Australia Pty Ltd - acquisition

On 1 April, 2011 the Company purchased the business assets of Amseal Australia Pty Ltd (Amseal) for cash. Amseal is a wholesaler and manufacturer of Seals and Sealing Products. Amseal will complement Ludowici’s existing Seals business well, delivering a product range to different market segments. Amseal also manufactures liquid silicone components, which is new to the Company and has potential to grow under the Company’s guidance.

Recognised fair value 2011

$’000


Cash paid 1,290


Fair value of net identifi able assets acquired 1,290

Goodwill -

Fair value of the assets and liabilities acquired

Accounts receivable 190

Inventory 987


Property, plant & equipment 131


Employee benefi ts provision (26)

Total liabilities being assumed: (26)


(i) Acquisition-related costs

Acquisition-related costs of $22,057 are included in other expenses in profit or loss.

(ii) Acquired receivables

The fair value of trade and other receivables is $190,253. The gross contractual amount for trade receivables due is $194,600 of which $4,347 is expected to be uncollectable.

(iii) Revenue and profit contribution

The acquired business contributed revenues of $604,713 and net profit of $241,885 to the group for the period from 1 April 2011 to 31 December 2011. If the acquisition had occurred on 1 January 2011, based on Vendor’s management accounts, the consolidated revenue and consolidated profit for the year ended 31 December 2011 would have been $748,309 and $299,323 respectively.

(c) Business combination in 2010

On 7 December 2010 the Group acquired 100% of the shares in Rojan Advanced Ceramics Pty Ltd for cash.

Rojan, established in 1991, is a fully integrated manufacturer and supplier of innovative solutions for wear, thermal and corrosion problems to the minerals processing and industrial markets. The industries Rojan supplies include hard rock mineral processing, heavy clay bricks and pavers, chemical and fertilizer plants as well as the power generation industry.

The company is based in Western Australia and has a strong presence in the local market and exports its products globally.


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This acquisition continues the implementation of Ludowici’s strategy to develop world leading positions in niche global markets servicing the mineral processing industry.

The Rojan business sells predominantly consumable items to the mineral processing and industrial markets and this acquisition will further increase the proportion of Ludowici revenue derived from sales of consumable items.Details of the fair value of the assets and liabilities acquired and goodwill are as follows:

Consolidated

2010

$’000


Cash paid/payable 4,892

Net Asset Adjustment 1,376

Contingent Consideration 2,137


Fair value of net identifi able assets acquired (4,461)

Goodwill 3,944


The purchase consideration for the acquisition of Rojan consists of cash upon completion, with two additional earnout payments if the subsequent EBITDA of Rojan reach a specified target in 2011 and 2012.

The fair-value adjustment reflects the differences between the carrying amounts of the assets and liabilities in the acquiree’s statement of financial position prior to their acquisition and the fair values in the acquirer’s statement of financial position at the acquisition date.

Completion AmountDec - 10

$’000

Net Asset Adjustment

Jan - 11$’000

First Earn out Payment

Dec - 11$’000

Second Earn out Payment

Dec - 12$’000

Total$’000

Outfl ow of cash to acquire subsidiary, net of cash acquired

Cash consideration 4,892 1,376 1,700 437 8,405

Less: Balances acquired:

Cash (2,169) - - - (2,169)

Total consideration net of cash acquired 2,723 1,376 1,700 437 6,236

In the event that specified EBITDA is achieved by Rojan, for the year ended 31/12/2011 additional consideration of up to $1,818,853 will be payable in cash. The potential undiscounted amount payable under the agreement for 2011 is between $0 for EBITDA below $1,477,713 and $1,818,853 for EBITDA above $1,677,713 .The potential undiscounted amount payable under the agreement for 2012 is between $0 for EBITDA below $1,677,713 and $500,000 for EBITDA above $1,802,713. The fair value of the contingent consideration of $2,136,582 was estimated by applying the income approach. The fair value estimates are based on the discount rate of 7% and assumed 100% probability that EBITDA targets will be achieved.


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The assets and liabilities recognised as a result of the acquisition are as follows:

Fair Value$’000

Assets and liabilities acquired

Cash 2,169

Accounts receivable 1,006

Inventory 601


Property, plant & equipment 772

Identifi able intangible assets 1,633


Accounts payable (730)

Current tax provision (128)

Deferred tax liability (490)

Employee entitlements (532)

Total liabilities being assumed: (1,880)


(i) Acquired receivables

The fair value of acquired trade receivables is $1,006,000. The gross contractual amount for trade receivable due is $1,032,000, of which $26,000 is expected to be uncollectable.

32. Key management personnel disclosures

(a) Key management personnel compensation

Consolidated

2011$

2010$

Short-term employee benefi ts 1,122,358 1,192,901

Long term benefi ts 15,886 5,958

Post-employment benefi ts 50,487 59,538

Share-based payments 456,494 128,442

Termination benefi ts - 123,654

1,645,225 1,510,493

Detailed remuneration disclosures are provided in the Remuneration Report section of the Directors’ Report.


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(b) Equity instrument disclosures relating to key management personnel

(i) Rights and Options provided as remuneration and shares issued on exercise of such options.

Details of rights and options provided as remuneration and shares issued on the exercise of such options, together with terms and conditions of the options, can be found in the Remuneration Report section of the Directors’ Report.

(ii) Rights and Option holdings

The numbers of rights and options over ordinary shares in the company held during the financial year by each director of Ludowici Limited and other key management personnel of the Group, including their personally related parties, are set out below.

Balance at start of the

yearGranted as

compensationExercised

(or lapsed)

Balance at end of the

yearVested and exercisable Unvested

2011

Directors of Ludowici Limited

P J Largier 675,000 250,000 - 925,000 375,000 550,000

All vested options are immediately exercisable.

2010


P J Largier 525,000 150,000 - 675,000 - 675,000

(iii) Share holdings

The numbers of shares in the company held during the financial year by each director of Ludowici Limited and other key management personnel of the Group, including their personally related parties, are set out below. There were no shares granted during the reporting period as compensation.

2011Balance at the

start of year

Received during the year

on exercise of options

Purchases during the year

Balance at the end of the year


Ordinary shares

P J Arnall 43,381 - 53,693 97,074

G M Cowan 5,000 - - 5,000

P J Largier 44,808 - 8,753 53,561

J K Ludowici 247,030 - 189,746 436,776

C W Ravenhall 58,810 - 6,087 64,897

H K R Rhodes-White 89,468 - 8,947 98,415

N W Stump 15,561 - 12,015 27,576


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2010Balance at the

start of year

Received during the year

on exercise of options

Purchases during the year

Balance at the end of the year


Ordinary shares

P J Arnall 31,626 - 11,755 43,381

G M Cowan - - 5,000 5,000

P J Largier 27,887 - 16,921 44,808

J K Ludowici 203,952 - 43,078 247,030

C W Ravenhall 52,806 - 6,004 58,810

H K R Rhodes-White 83,808 - 5,660 89,468

N W Stump 9,132 - 6,429 15,561

Preference shares

J K Ludowici 20,250 - (20,250) -

Other key management personnel of the group

J D MacDonald - - - -

* Messrs Ludowici and Rhodes-White are directors of Ludowici Investments Pty Ltd, which holds 5,244,956 (2010: 5,244,956) shares in the company. Mr Ludowici is also a director of Sevlan Pty Ltd which holds 121,541 (2010: 118,384) shares in the company.

Dividends were received by the above directors in the same manner as other shareholders.

(c) Loans to key management personnel

Details of loans made to directors of Ludowici Limited and other key management personnel of the Group, including their personally related parties, are disclosed under current and non-current receivables.

Loans to employees are in relation to the employee share plan, are interest free and repayable by monthly/weekly instalments over a period of 3 years. None of these loans relate to directors or any key management personnel.

There were no loans to individuals that exceeded $100,000 at any time during the years ended 31 December 2011 and 31 December 2010.

(d) Other transactions with key management personnel

Other transactions with key management personnel are disclosed under the related party transactions note.

33. Share based payments

(a) Employee Share Plan & Executive Share and Option Plan incorporating Incentive Performance Plan

Employee Share Plan (ESP)

In accordance with the provisions of the plan, as approved by the directors, employees with more than two years of service with the Group are entitled to purchase from 400 to a maximum of 1,000 ordinary shares at an issue price calculated at 80% of the weighted average price of shares traded over a five day period determined by directors.

The total number of ordinary shares purchased by an employee under the plan shall not exceed 1,000 shares.

Employees (at their option) were granted interest free loans to a limit of $5,000 for a maximum of three years repayable from salary and wage deductions. Loans are at full recourse. The value of the loans to employees outstanding at 31 December 2011 is as detailed in notes 11 and 13.


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Consolidated

2011$

2010$

Number of shares issued under the plans to participating employees. 294,331 264,500

Weighted average issue price $3.49 $3.31

Refer to note 33(c) for details related to expenses arising from share-base payment transactions recognised in the financial year.

(b) Executive Share and Option Plan (ESOP) incorporating Incentive Performance Plan (IPP)

Executive Share and Option Plan (ESOP)

In accordance with the provisions of the plan, as approved by the directors, executives determined by the directors may be invited to participate in the ESOP. Executives invited to participate are entitled:

(i) By sacrificing the right to receive salary, salary increases or bonuses as cash to receive shares in Ludowici Limited in lieu of that sacrificed amount. The price of the shares is calculated at 95% of the weighted average price of shares traded over a five day period determined by the directors;

(ii) To purchase, using their own funds, up to an additional 25% in number of shares purchased in (i) above at the same price; and

(iii) To be granted share options equivalent to the number of shares they are entitled to receive in (i) above regardless of whether they elect to receive shares or not. The options are only exercisable after three and before five years from the date of grant and only if earnings of the company meet or exceed prescribed earnings targets set by the directors. The exercise price of the shares is 100% of the weighted average price of shares traded over the 5 day period determined by the directors in (i) above i.e. the 5% discount does not apply. Currently the target earnings figures have been set by applying a 15% (2010: 15%) compound growth factor to the earnings per share for the year ended 31 December 2011. The financial impact has been reflected in the financial report.

Incentive Performance Plan (IPP)

Executives determined by the directors may be invited to participate in the IPP. Executives invited to participate are eligible to be awarded shares in the company in the following manner :

(i) The Key Performance Criteria for each executive for the ensuing financial year (the Relevant Financial Year) are to be agreed in writing with the Managing Director and ratified by the Board prior to the commencement of the Relevant Financial Year.

(ii) The maximum IPP Bonus an employee can earn is determined by multiplying Gross Base Salary (total fixed remuneration) by an IPP Bonus %, determined by the board prior to the commencement of the Relevant Salary Year.

(iii) Achievement or partial achievement of the Key Performance Criteria results in the payment of a bonus to the executive in the year following the Relevant Financial Year, after completion of audited accounts where this is necessary.

(iv) The actual IP Bonus awarded to the employee is determined by multiplying the maximum IP Bonus by a Performance Rating which is a % achievement against Key Performance Criteria.

(v) IPP Bonus earned is derived by multiplying Gross Base Salary x IP Bonus % x Performance Rating %.

(vi) The IPP Bonus is awarded to the executive as immediate cash (taxable) and fully paid shares (taxable, but deferred) in proportions also determined by the board prior to the commencement of the Relevant Salary Year. Shares may be purchased on market or issued as new shares.


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(vii) The fully paid shares whilst beneficially owned by the employee are held by a Plan Administrator on the employee’s behalf. The Plan Administrator receives dividends on the shares on the employee’s behalf and passes these through to the employee on an ongoing basis.

(viii) The legal ownership of the shares vests in the employee on the 3rd anniversary of 1 January of the year following the Relevant Salary Year.

(ix) The legal ownership of the shares in three years is a “cliff event” i.e. the shares do not legally vest at all until the 3rd anniversary and vest only if the employee is still employed by the Group.

(x) The shares are forfeited if the employee leaves the company of his own accord or is terminated for any reason. If the employee is terminated as a result of redundancy then at the board’s discretion the shares can be legally transferred to the employee.

Set out below are summaries of options and rights granted under the above plans:

Grant date Vesting date Expiry dateExercise

price $Balance at

start of year

Granted during the

year

Exercised during the

year

Cancelled during the

yearBalance at

end of year

Consolidated - 2011

28/04/2008 26/02/2011 25/02/2012 6.70 375,000 - - - 375,000

1/01/2009 24/02/2012 23/02/2013 2.40 150,000 - - - 150,000

29/01/2010 28/02/2013 27/02/2014 2.63 150,000 - - - 150,000

20/04/2011 31/12/2012 30/04/2016 0.00 - 150,000 - - 150,000

20/04/2011 31/12/2012 30/04/2017 0.00 - 100,000 - - 100,000

675,000 250,000 - - 925,000

Weighted average exercise price $ $4.84 $- $- $- $3.53

Consolidated - 2010

28/04/2008 26/02/2011 25/02/2012 6.70 375,000 - - - 375,000

1/01/2009 24/02/2012 23/02/2013 2.40 150,000 - - - 150,000

29/01/2010 28/02/2013 27/02/2014 2.63 - 150,000 - - 150,000

525,000 150,000 - - 675,000

Weighted average exercise price $ $5.47 $2.63 $- $- $4.84

There were 375,000 vested and exercisable shares at year end.

There were no options exercised during the year ended 31 December 2011 (2010: nil).

The weighted average remaining contractual life of share options outstanding at the end of the financial year was 1.9 years (2010 – 1.67 years).

Fair value of rights and options granted

The fair value of the rights and options are estimated at the date of grant using the Black-Scholes Model. There were 250,000 rights granted during the year ended 31 December 2011 (2010: 150,000).

The amount of rights and options that will vest depends on the satisfaction of vesting conditions, including Earnings Per Share and Total Shareholders Return thresholds. Vesting conditions also apply in the event of a takeover.

The assessed fair value at grant date of rights granted during the year ended 31 December 2011 was $4.99 per rights. The fair value at grant date is independently determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option.


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The model inputs for rights and options granted during the year ended 31 December 2011 included:

(a) options are granted for no consideration. Vested options are exercisable for a period of 12 months from the announcement to the Australian Securities Exchange of the Company’s yearly financial results

(b) exercise price: $nil (2010: $2.63)

(c) grant date: 20 April 2011 (2010: 29 January 2010)

(d) expiry dates: tranche 150,000 31 December 2016 and tranche 100,000 31 December 2017

(e) share price at grant date: $4.96 (2010: $2.7)

(f) expected price volatility of the company’s shares: 33% (2010: 40.5%)

(g) expected dividend yield: 5% (2010- 3%)

(h) risk-free interest rate: 6% (2010: 6%).

The expected price volatility is based on the historic volatility (based on the remaining life of the options), adjusted for any expected changes to future volatility due to publicly available information.

(c) Expenses arising from share-based payment transactions

Total expenses arising from share-based payment transactions recognised during the period as part of employee benefit expense were as follows:

Consolidated

2011$’000

2010$’000

Executive share and option plan expense 456 128

Employee share plan expense (28) 56

428 184


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34. Reconciliation of profi t after income tax to net cash fl ows from operating activities

Consolidated

2011$’000

2010$’000


Depreciation and amortisation 6,813 5,844

Loss on disposal of non-current assets 169 19

Non-cash employee benefi t expense 494 184

Net exchange differences 1,614 (1,095)

Changes in assets and liabilities adjusted for effect of sale and acquisition of businesses movements:

(Increase) in trade and other receivables (16,022) (4,032)

Decrease (increase) in inventories 9,255 (9,140)

Decrease (increase) deferred tax asset & tax receivable 469 (710)

(Increase) in non-current assets – other - (366)

Increase (decrease) in trade and other payables (4,823) 2,734

Increase (decrease) in provisions (1,128) 1,284

Increase (decrease) in income tax payable (3,711) 3,212

(Decrease) increase in deferred tax liabilities 678 (621)

Net cash infl ow from operating activities 4,501 8,924

35. Non-cash investing & fi nancing activities

Shares issued through the dividend reinvestment plan totalling $449,518 (2010: $722,000) have been excluded from the statement of cash flows.

36. Events occurring after the balance sheet date

Dividend

On the date of approval of this report, the directors have declared a final dividend of 11 cents per fully paid ordinary share, fully franked and payable on 9 May 2012 (May 2011: 10 cents per share, fully franked). No provision has been made for the final dividend in this financial report. The dividend is payable on ordinary shares held at the dividend record date.

Other

On 18 January 2012 a fire occurred in the building owned by the Group, located in Hastings, New Zealand. The building was completely demolished in the fire but was comprehensively insured. At the date of signing of this report discussions are still being held with the insurer to determine the value of the claim.

On 23 January 2012, Ludowici Limited announced that FLSmidth & Co. A/S (“FLS”) had made a non-binding, indicative and conditional proposal to acquire 100% of Ludowici Limited shares by way of a Scheme of Arrangement at a cash price of $7.20 per share. On 10 February 2012, Ludowici Limited announced that it had received a competing non-binding, indicative and conditional proposal from Weir Group PLC (“Weir”) to acquire 100% of Ludowici Limited shares by way of a scheme of arrangement at a cash price of $7.92 per share. On 13 February 2012 Weir lodged an application with the Takeovers Panel in relation to statements made by FLS in relation to its proposal. On 16 February 2012, Ludowici Limited announced that it had received an amended offer from FLS for $10.00 per share and that it had entered into a Scheme Implementation Agreement with FLS which is subject to and will not become binding until the proceedings in the Takeovers Panel are determined (the “Transaction”).


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The Board unanimously resolved that subject to the Scheme Implementation Agreement becoming binding the proposed Transaction was in the best interests of shareholders and to recommend that shareholders approve the proposed Transaction, subject to there being no superior offer and an independent expert concluding that the Transaction is in the best interest of shareholders. Refer to the ASX or Ludowici websites for full announcement details and terms & conditions. If the transaction proceeds, the Board expects completion to occur in June 2012.

On 23 February 2012, Ludowici Limited announced that it had received a revised Competing Proposal from Weir at a price of $10.00 cash per Ludowici share, the same price as the FLSmidth proposal announced on 16 February 2012.

Under the proposal, Weir (or a nominee) will acquire all of Ludowici’s shares for $10.00 cash per share (less any dividends declared or paid by Ludowici before the transaction is completed) by way of Scheme of Arrangement (“Weir Proposal”). The Weir Proposal is conditional on the Takeovers Panel making a decision to the effect that FLSmidth cannot offer, or propose to pay, Ludowici shareholders more than $7.20 per share whether for a specified period or otherwise.

The Board of Ludowici acknowledged receipt of the Weir Proposal and noted that it was on similar terms and conditions and at the same price as the recommended offer by FLSmidth but expires at 5.00pm Friday 24 February 2012.

Other than the matter mentioned above and other matters mentioned in this report, no matter or circumstance has arisen since 31 December 2011 that has significantly affected or may significantly affect:

(a) Ludowici’s operations in future years;

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

(c) Ludowici’s state of affairs in future financial years.


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37. Earnings per share

Consolidated

2011Cents

2010Cents

(a) Basic Earnings per Share

Profi t from continuing operations attributable to the ordinary equity holders of the company 38.4 44.8

Profi t attributable to the ordinary equity holders of the company 38.4 44.8

(b) Diluted earnings per share

Profi t from continuing operations attributable to the ordinary equity holders of the company 38.1 44.7

Profi t attributable to the ordinary equity holders of the company 38.1 44.7

(c) Reconciliations of earnings used in calculating earnings per share $‘000 $‘000

Basic earnings per share

Profi t from continuing operations 10,693 11,611

Profi t from continuing operations attributable to the ordinary equity holders of the company used in calculating basic earnings per share 10,693 11,611

Diluted earnings per share

Profi t attributable to the ordinary equity holders of the company used in calculating diluted earnings per share 10,693 11,611

(d) Weighted average number of shares used as the denominator Number Number

Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share 27,842,237 25,917,808

Adjustments for calculation of diluted earnings per share:

Shares deemed to be issued for no consideration in respect of options 224,085 55,234

Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share 28,066,322 25,973,042

(e) Information concerning the classification of securities

(i) Partly paid ordinary shares

There are no partly paid ordinary shares. If there were any partly paid ordinary shares they would carry the right to participate in dividends in proportion to the amount paid relative to the total issue price and to that extent they have been recognised as ordinary share equivalents in the determination of basic earnings per share. Amounts uncalled on partly paid shares and calls in arrears would be treated as the equivalent of options to acquire ordinary shares and would be included as potential ordinary shares in the determination of diluted earnings per share.

(ii) Options and rights

Options and rights granted to employees under the Ludowici Limited Employee Share Option Plan are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share to the extent to which they are dilutive. The options have not been included in the determination of basic earnings per share. Details relating to the options are set out in note 33.


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38. Parent entity fi nancial information

(a) Summary financial information

The individual financial statements for the parent entity show the following aggregate amounts:

2011$’000

2010$’000

Balance sheet

Current assets 1,501 11,674

Non current assets 133,916 108,834

Total assets 135,417 120,508

Current liabilities 8,624 24,671

Non-current liabilities 54,832 37,041

Total liabilities 63,456 61,712

Net Assets 71,961 58,796

Shareholders’ equity

Issued capital 58,840 47,963

Reserves

- Employee equity benefi ts 973 592

Retained earnings 12,148 10,241

Total shareholders’ equity 71,961 58,796


Total comprehensive income 1,906 1,026

During the financial year the carrying value of all subsidiaries were not impaired. In the previous year the investment asset of a subsidiary was written down by $1,441,000 and a loan receivable was written down by $3,368,000.

(b) Guarantees entered into by the parent entity

Consolidated

2011$’000

2010$’000

Carrying amount in favour of customers and suppliers 6,660 6,882

The parent entity has provided financial guarantees in respect of bank overdrafts and loans of subsidiaries amounting to $6,659,783 (2010: $6,881,993), secured by registered mortgages over the freehold properties of the subsidiaries.

The parent entity has also given unsecured guarantees in respect of:

(i) A bank facility of the subsidiary amounting to US $1,000,000 from Banco Santander (2010: US$ 1,000,000).

(ii) Under the terms of a Deed of Cross Guarantee the Company and its wholly owned subsidiaries, have guaranteed the bank facilities in each others’ companies. The amounts shown are the bank guarantees. No deficiency in consolidated net assets exists at reporting date.

No liability has been recognised in relation to the financial guarantees.


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(c) Contingent liabilities of the parent entity

As at 31 December 2011, the parent entity had contingent liabilities totalling $6,659,783 (31 December 2010: $6,881,993). The directors are of the opinion that provisions are not required in respect of the above matters, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement.

(d) Tax consolidation

(i) Members of the tax consolidated group and the tax sharing arrangement

Members of the group are party to a tax sharing arrangement in order to allocate income tax expense to the wholly-owned subsidiaries on a pro-rata basis. In addition, the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations.

No amounts have been recognised in the financial statements in respect of this agreement on the basis that the probability of default is remote.

(ii) Tax effect accounting by members of the tax consolidated group

Measurement method adopted under Interpretation 1052 Tax Consolidation Accounting

The head entity and controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. The Group has applied the group allocation approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax consolidated group. The current and deferred tax amounts are measured in a systematic manner consistent with the broad principles of AASB112 Income Taxes. The nature of the tax funding agreement is discussed below.

In addition to its own current and deferred tax amounts, the head entity also recognises current tax liabilities (or assets) and deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group.

Nature of tax funding agreement

The amounts receivable or payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each financial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments.

39. Additional information

Ludowici Limited is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange.

The financial report of Ludowici Limited for the year ended 31 December 2011 was authorised for issue in accordance with a resolution of the directors on 24 February 2012.

The nature of the operations and principal activities of the Group are described in note 4.

Registered Offi ce Principal Place of Business

67 Randle Road 67 Randle RoadPinkenba QLD 4008 Pinkenba QLD 4008Telephone : (07) 3121 2900 Telephone : (07) 3121 2900www.ludowici.com.au


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In the directors’ opinion:

(a) the financial statements and notes of the company set out on pages 43 to 95 are in accordance with the Corporations Act 2001, including:

(i) complying with Accounting Standards and Corporations Regulations 2001 and other mandatory professional reporting requirements; and

(ii) giving a true and fair view of the consolidated entity’s financial position as at 31 December 2011 and of their performance for the financial year ended on that date; and

(b) 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

(c) at the date of this declaration, there are reasonable grounds to believe that the members of the extended closed group identified in note 14 will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in note 38(b).

Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board.

The directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001.

This declaration is made in accordance with a resolution of the directors.

P J Arnall P J LargierDirector Director

Brisbane 24 February 2012

Directors’ declaration


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Independent auditor’s report

PricewaterhouseCoopers, ABN 52 780 433 757Riverside Centre, 123 Eagle Street, Brisbane QLD 4000DX 77 Brisbane, AustraliaT: +61 7 3257 5000, F: +61 7 3257 2999, www.pwc.com.au

Liability limited by a scheme approved under Professional Standards Legislation. 76

Independent auditor’s report to the members ofLudowici Limited

Report on the financial reportWe have audited the accompanying financial report of Ludowici Limited (the company), whichcomprises the consolidated balance sheet as at 31 December 2011, and the consolidated incomestatement, the consolidated statement of comprehensive income, consolidated statement of changes inequity and consolidated statement of cash flows for the year ended on that date, a summary ofsignificant accounting policies, other explanatory notes and the directors’ declaration for the LudowiciLimited Group (the consolidated entity). The consolidated entity comprises the company and theentities it controlled at the year's end or from time to time during the financial year.

Directors’ responsibility for the financial reportThe directors of the company are responsible for the preparation of the financial report that gives atrue and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001and for such internal control as the directors determine is necessary to enable the preparation of thefinancial report that is free from material misstatement, whether due to fraud or error. In Note 1(a),the directors also state, in accordance with Accounting Standard AASB 101 Presentation of FinancialStatements, that the financial statements comply with International Financial Reporting Standards.

Auditor’s responsibilityOur responsibility is to express an opinion on the financial report based on our audit. We conductedour audit in accordance with Australian Auditing Standards. These Auditing Standards require that wecomply with relevant ethical requirements relating to audit engagements and plan and perform theaudit to obtain reasonable assurance whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosuresin the financial report. The procedures selected depend on the auditor’s judgement, including theassessment of the risks of material misstatement of the financial report, whether due to fraud or error.In making those risk assessments, the auditor considers internal control relevant to the entity’spreparation and fair presentation of the financial report in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectivenessof the entity’s internal control. An audit also includes evaluating the appropriateness of accountingpolicies used and the reasonableness of accounting estimates made by the directors, as well asevaluating the overall presentation of the financial report.

Our procedures include reading the other information in the Annual Report to determine whether itcontains any material inconsistencies with the financial report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour audit opinion.


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IndependenceIn conducting our audit, wAct 2001.

Auditor’s opinionIn our opinion:

(a) the financial reporincluding:

(i) giving a trDecember

(ii) complyingAccountin

(b) the financial reporas disclosed in Not

Report on the RemWe have audited the remuended 31 December 2011. Tpresentation of the remune2001. Our responsibility isconducted in accordance w

Auditor’s opinionIn our opinion, the remunecomplies with section 300A

PricewaterhouseCoopers

Simon NeillPartner

we have complied with the independence requirem

rt of Ludowici Limited is in accordance with the C

rue and fair view of the consolidated entity’s finanr 2011 and of its performance for the year ended o

g with Australian Accounting Standards (includinng Interpretations) and the Corporations Regulat

rt and notes also comply with International Finante 1 (a).

muneration Reportneration report included in pages 5 to 10 of the diThe directors of the company are responsible for teration report in accordance with section 300A of

s to express an opinion on the remuneration reporwith Australian Auditing Standards.

eration report of Ludowici Limited for the year enA of the Corporations Act 2001.

ments of the Corporations

Corporations Act 2001,

ncial position as at 31on that date; and

ng the Australiantions 2001; and

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irectors’ report for the yearthe preparation andf the Corporations Actrt, based on our audit

nded 31 December 2011,

Brisbane24 February 2012


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Shareholdings and voting rightsStatement of directors’ interests in share capital of the parent entity as at 23 March 2012

[A.S.X. listing requirement 4.10]

OrdinaryShares

P J Arnall 97,074

G M Cowan 5,000

P J Largier 203,561

J K Ludowici* 436,776

C W Ravenhall 64,897

H K R Rhodes-White* 98,415

N W Stump 27,576

*Messrs Ludowici and Rhodes-White are directors of Ludowici Investments Pty Ltd, which holds 5,244,956 shares in the company.

Mr Ludowici is also a director of Sevlan Pty Ltd which holds 121,541 shares in the company.

1. Statement of Shareholdings

Ordinary Shares

Size of HoldingNo. of

Holders No. of Shares %

1 – 1,000 518 292,730 0.99

1,001 – 5,000 499 1,286,119 4.34

5,001 – 10,000 149 1,107,543 3.74

10,001 – 100,000 199 5,236,702 17.68

100,001 and over 30 21,700,109 73.25

TOTAL : 1,395 29,623,203 100.00

Twenty largest share holders 20 20,381,010 68.80

2. Ordinary shares – On a show of hands, each holder present in person or by proxy or attorney shall have one vote or on a poll, one vote for each share held.

3. Share options exercisable at year end :

Issued To No. Of

Options Grant Date Vesting Date Expiry Date

Executive Share and Option Plan 150,000 29/01/2010 28/02/2013 27/02/2014

4. Substantial Shareholder

Substantial holders in the company are set out below:

Ordinary shares Number held %

Ludowici Investments Pty Ltd and associates 6,872,814 23.23

Perpetual Limited and associates 4,668,255 15.78

Morgan Stanley Australia Securities (Nominee) Pty Limited 2,043,803 6.91

Westpac Banking Corporation and associates 1,880,936 6.36


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Shareholdings and voting rights

Twenty largest shareholders

Ordinary sharesNumber Of

Shares %

Ludowici Investments Pty Ltd 5,242,444 17.69

JP Morgan Nominees Australia Limited <Cash Income A/C> 2,901,247 9.79

Morgan Stanley Australia Securities (Nominee) Pty Limited <No 1 Account> 2,043,803 6.90

HSBC Custody Nominees (Australia) Limited 1,414,717 4.77

Evelin Investments Pty Limited 1,335,000 4.51

Brispot Nominees Pty Ltd <House Head Nominee No 1 A/C> 1,017,353 3.43

Citicorp Nominees Pty Limited 964,023 3.25

CS Fourth Nominees Pty Ltd 901,768 3.04

Egon Investments Pty Limited 777,697 2.63

National Nominees Limited 680,615 2.30

Belsov Pty Ltd <Turner Family S/F A/C> 455,000 1.54

Henleaze Investments Pty Ltd 440,800 1.49

JBBM Pty Ltd <Julian Ludowici S/F A/C> 431,335 1.46

Mrs Margot Kinnear Ludowici <No 2 Robertson A/C> 363,753 1.23

HSBC Custody Nominees (Australia) Limited-GSCO ECA 315,792 1.07

Savage Nominees Limited 301,634 1.02

Mr Robert Henry Charles Rhodes-White 240,152 0.81

Wiltac Pty Ltd <The Turner Family SF A/C> 197,038 0.67

Unaval Nominees Pty Ltd <Unaval Retirement Fund A/C> 179,090 0.60

Bainpro Nominees Pty Limited 177,749 0.60

Totals: Top 20 Holders Of All Ordinary Shares 20,381,010 68.80

Total Remaining Holders Balance 9,242,193 31.20


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Ludowici’s strategy is to continue to develop our business in the global mineral processing and related markets. This growth will be delivered by a combination of internally driven organic growth and complementary acquisitions. We strive to develop differentiated products and services that deliver benefi ts to our customers and profi ts to Ludowici. Developing and commercialising innovative solutions is core to the growth of the company.

Ludowici will continue to grow both the capital equipment and consumables aspects of our business with a bias towards developing the consumables business more quickly. A differentiated service offering will support both consumable and capital equipment sales. The service will be delivered by regional service centres throughout our global operations.

Ongoing improvement in processes will drive increased effi ciencies and a truly global supply chain.

Our Vision

Our Purpose

Our Strategy

To build a leading global business servicing the mineral processing industry using innovation to develop technology that provides tangible benefi ts for our customers.

Since its establishment in 1858 the purpose of the Company has been to increase the value of its shareholders’ investment by the generation of profi ts. The Company, through its employees, achieves this purpose by meeting the needs of customers for the products and services it offers.

DirectoryDirectors:Phil J Arnall* ChairmanPatrick J Largier Managing Director & CEOGuy M Cowan*Julian K Ludowici*Colin W RavenhallHugh K R Rhodes-WhiteNick W Stump* Members of the Audit Committee

Secretary:Mark Day

Management:GroupManaging Director & CEOPatrick J LargierChief Financial Offi cer Stephen Gaffney

Regional ManagersExecutive GM Australia Mineral Processing and Supply ChainDarryl BarberExecutive General Manager AsiaJohn CondosCountry Manager IndiaKumar RajanGeneral Manager ChinaViktor Li General Manager ChileHoracio Marin Managing Director Ludowici MeshcapeDavid SibleyPresident Ludowici USAEd Vickers

Functional SupportGeneral Manager EngineeringRob AngusGeneral Manager OperationsWayne DixonGeneral Manager Vibrating EquipmentEddie McKerrManager Engineered ConsumablesShane McLoughlinHuman Resources ManagerAlan MuntzGeneral Manager, Global Business DevelopmentDavid RickettsGeneral Manager, Rojan Advanced CeramicsRod SteadGeneral Manager Industrial & InfrastructureNeil TindleGeneral Manager Process TechnologiesCraig Wilson

Registered Offi ce:67 Randle Road, Pinkenba, QLD 4008

Postal Address:PO Box 116, Pinkenba, 4008Telephone: +61 7 3121 2900Facsimile:+61 7 3121 2901

Email:[email protected]

Web:www.ludowici.com.au

Share Registry:Computershare Investor Services Pty Limited117 Victoria StreetWest End, QLD 4000 Postal Address:GPO Box 523Brisbane, QLD 4001

Telephone (within Australia):1300 855 080Telephone (outside Australia) +61 3 9415 4000Facsimile : +61 3 9473 2500Email:[email protected]:www.computershare.com

Auditors:PricewaterhouseCoopersChartered Accountants

Bankers:HSBC Bank Australia Limited

Solicitors:Herbertgeer

Designed and Produced by Computershare


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TM

DRIVEN BY INNOVATION

LUDOWICI LIMITEDHead Offi ce67 Randle Road, Pinkenba,QLD, Australia 4008Phone: +61 7 3121 2900 Fax: +61 7 3121 2901Email: [email protected]: www.ludowici.com.au

LUDOWICI AUSTRALIA67 Randle Road, PinkenbaQLD, Australia 4008Phone: +61 7 3121 2900Fax: +61 7 3121 2901Email: [email protected]

LUDOWICI MESHCAPE 37 Main RoadEdenvale, Gauteng 1609South Africa.Phone: +27 0 11 609 1120Fax: +27 0 11 452 2545Email: [email protected]

LUDOWICI CHINA No. 231 West Jinhong RoadJihongtan Street,Chengyang DistrictQingdao, Shandong Province, P.R. ChinaPhone: +86 532 8065 3677Fax: +86 532 8065 3668Email: [email protected]

LUDOWICI CHILELa Estera 633Parque Industrial Valle GrandeLampa 9390392, Santiago, ChilePhone: +56 2 411 3600Fax: +56 2 411 3601Email: [email protected]

ICR LUDOWICI400 El Juncal AvenueBuenaventora Industrial LotQuilicura District 8710036Santiago, ChilePhone: +56 2 443 5505Fax: +56 2 443 5509

LUDOWICI INDIA Sales and EngineeringGanesh TowersNew 104 (Old 90) Dr.Radhakrishnan SalaiMylapore, Chennai 600004, IndiaPhone: +91 44 4232 7313Fax: +91 44 4232 7315Email: [email protected]

Manufacturing facilityPlot No. K-18/1, Sipcot Industrial Park, Phase IISriperumbudur Taluk, Kanchipuram District, 602 105, India

LUDOWICI LLC2871 Thunder Road,Chapmanville WV, USA 25508Phone: +1 304 855 7880 Fax: +1 304 855 8601Email: [email protected]

Ludowici Screens LLC785 Lithia RoadWytheville, VA 24382

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Annual ReportAnnual Report

20112011


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