Lycopodium : Annual Financial Report 2016

ABN 83 098 556 159‌‌‌

Page

Directors' report 1

Corporate governance statement 23

Financial report

Consolidated statement of profit or loss and other comprehensive income 30

Consolidated balance sheet 31

Consolidated statement of changes in equity 32

Consolidated statement of cash flows 33

Notes to the consolidated financial statements 34

Directors' declaration 95

Independent auditor's audit report to the members 96

Shareholder information 99

Corporate directory 101

This financial report is the consolidated financial report of the group consisting of Lycopodium Limited and its subsidiaries. The financial report is presented in the Australian currency.

Lycopodium Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is:

Lycopodium Limited

Level 5, 1 Adelaide Terrace East Perth WA 6004

A description of the nature of the group's operations and its principal activities is included in the directors' report on page 1, which is not part of this financial report.

The financial report was authorised for issue by the Directors on 15 September 2016. The Directors have the power to amend and reissue the financial report.

Through the use of the internet, we have ensured that our corporate reporting is timely and complete. All press releases, financial reports and other information are available at our Shareholders' Centre on our website: www.lycopodium.com.au

Your Directors present their report on the group consisting of Lycopodium Limited and the entities it controlled at the end of, or during, the year ended 30 June 2016.

Directors

The following persons were Directors of Lycopodium Limited during the whole of the financial year and up to the date of this report:

Michael John Caratti Peter De Leo

Rodney Lloyd Leonard Robert Joseph Osmetti Lawrence William Marshall Bruno Ruggiero

Steven John Micheil Chadwick

Steven John Micheil Chadwick was appointed as a Non-executive Director on 13 January 2016.

Principal activities

The principal activities of the group during the financial year consisted of engineering consulting in the mining, metallurgical, rail and manufacturing industries. There were no significant changes in the nature of the group's principal activities during the financial year.

Dividends

Dividends paid to members during the financial year were as follows:

2016

$

2015

$

In addition to the above dividends, since the end of the financial year the Directors have recommended the payment of a final fully franked dividend of $1,589,295 (4.0 cents per fully paid share) to be paid on 14 October 2016 out of retained earnings at 30 June 2016 (2015: $0). This brings the total dividend declared for the year ended 30 June 2016 to 5.5 cents (2015: 1.5 cents).‌

Review of operations

Market conditions across the 2015/2016 financial year stabilised but continued to be challenging with uncertainty and poor forward visibility on future workload prevailing. This was particularly the case in the six months to December 2016. This period required us to continue the cost reduction and capacity downsizing efforts to match the market needs. This was a difficult exercise, testing the management and staff across the business and requiring them to maintain a strong focus on continuing to deliver high quality services to our clients, whilst at the same time rationalising many aspects of the business so as to reduce costs. Our teams rose to the challenge meeting the demands of the market and the needs of the Company in this regard. Moving into the second half of the financial year a slight but identifiable improvement was seen in the mineral resources market and signs of improvement were also seen across some of the other market sectors we service. Through tight and focused management across all subsidiaries Lycopodium returned to profit and has been able to establish a trend of steady improvement in financial performance.

Based on our high level of repeat business there is no doubt that Clients appreciate our efforts to deliver a quality outcome. What we clearly appreciate, is that due to the funding challenges in this market, cost is a major driver for clients when selecting their engineer. Key to meeting the market's cost expectations has been our ability to use a combination of our various operational centres.

(continued)

Review of operations (continued)

In both the Resources and Process Industries sectors we have seen the market's preference for EPC delivery continue to grow. Whilst the majority of our work continues to be delivered on an EP or EPCM basis we have been able to respond to the market and have bid and won work which will be delivered on an EPC basis. This has in some areas required us to adopt revised approaches to certain aspects of project delivery but still firmly encapsulates our traditional strengths developed in the delivery of hundreds of projects over the past twenty four years.

Across the Infrastructure, Transport and Asset Management sectors we continue to operate primarily as a consultant with the business model based on the delivery of professional services on either a fixed price or reimbursable basis. Similarities in the delivery of services across these sectors, as well as the overlap sometimes seen by these three subsidiary businesses informed our decision to consolidate the subsidiaries, Infrastructure, Rail and Asset Management into one under the Infrastructure banner. This has provided a strengthened management team working across a broader footprint to service new geographic markets in terms of the specific sector involvement.

Our strategy and collaborative approach has seen us emerge from a period of significant uncertainty across most of our markets with first class teams, a sound financial position and a plan to tackle and achieve good outcomes in our selected markets. We continue to maintain and grow a world class capability in the provision of professional services for all phases of the project development cycle, delivering large projects for leading

multi-national companies through to enabling emerging and junior companies to achieve first production.

Full Year Results

As per prior guidance, the Directors are pleased to report a return to profitability for the financial year ended 30 June 2016, with Lycopodium achieving revenues of $124.5 million and a net profit after tax of $3.3 million.

Basic earnings per share were 8.0 cents. The Directors have resolved to pay a final dividend of 4.0 cents fully franked, which aligns with our dividend policy. The total dividend for the year is 5.5 cents fully franked.

Corporate overview

We have, during the year, worked on the consolidation of the wholly owned subsidiaries Lycopodium Infrastructure Pty Ltd, Lycopodium Rail Pty Ltd and Lycopodium Asset Management Pty Ltd under the Infrastructure business banner. The changes formally came into effect on 1 July 2016. The change was made to leverage off our expertise within several of our subsidiaries, broaden our reach and access new markets to offset the impacts of the tighter economic conditions. The consolidated entity is headed up by Stuart Sutherland, formerly Managing Director of Lycopodium Rail Pty Ltd.

There were no other material changes to the operating subsidiaries.

Operational highlights

Lycopodium continued to operate positively across all its market sectors during the period. Resources

Lycopodium Minerals (including the Perth, Brisbane, Toronto and Manila based organisations) continued building its track record as the preeminent international engineer in terms of gold projects working on study or development phase activities for projects in Colombia, Mali, Senegal, Ghana, Burkina Faso, Ethiopia, Namibia, Philippines, Côte D'Ivoire and French Guiana. Lycopodium Minerals also continued its long relationship with First Quantum Minerals Limited (FQML) with work continuing on the world class Cobré Panama Project in Panama.

ADP built on its relationship with key clients including De Beers (and its subsidiaries) whilst advancing several key studies and projects. Orway Mineral Consultants (OMC) built on the Group's strong reputation for innovation with their work on the Carapateena / Prominent Hill Projects for OZ Minerals.