berklee limited and controlled entities...berklee limited abn: 80 004 661 205 directors’ report 30...

Berklee Limited and Controlled Entities ABN: 80 004 661 205

Financial Statements For the Year Ended 30 June 2010

Berklee Limited ABN: 80 004 661 205

For the Year Ended 30 June 2010

CONTENTS

Page

Financial Statements Directors' Report 4 Auditors Independence Declaration under Section 307C of the Corporations Act 2001 13 Corporate Governance Statement 14 Consolidated Statement of Comprehensive Income 24 Consolidated Statement of Financial Position 25 Consolidated Statement of Changes in Equity 26 Consolidated Statement of Cash Flows 27 Notes to the Financial Statements 28Directors' Declaration 52 Independent Audit Report 53 Stock Exchange Information 55Notice of Annual General Meeting 56



1

Corporate Directory

DIRECTORS

Andrew Osborne Hay B.A. OBE (Chairman)

Edward John van Berkel B. Bus. CA (Managing Director)

Egon Wolfgang Vetter

Grantly Martin Anderson

Alan Ian Beckett

COMPANY SECRETARY

Edward John van Berkel B. Bus. CA (Managing Director)

REGISTERED OFFICE

265-285 Learmonth Road

Wendouree (Ballarat)

Victoria, Australia

Telephone: (03) 5338 1110

Facsimile: (03) 5338 1111

Email: [email protected]

SHARE REGISTER

Computershare Investor Services Pty Limited

452 Johnston Street

Abbotsford, Victoria

Telephone: (03) 9415 5000

AUDITOR

RSM Bird Cameron Partners

Level 8, 525 Collins Street

Melbourne, Victoria

SOLICITOR

Madgwicks

Level 33, 140 William Street

Melbourne, Victoria

BANKERS

St. George Bank Limited

STOCK EXCHANGE LISTING

Berklee shares are listed on the Australian Stock Exchange

DOMICILE

Publicly listed company incorporated in Australia



2

Company Profile

The company, previously trading as Berklee Products Pty Ltd, was formed in 1966 to assume the manufacturing activities of Berklee, which up until then had operated as an unincorporated business.

Berklee Limited has since 1966 manufactured automotive mufflers and exhaust systems, primarily under the “Berklee” brand name.

In the 1970’s, the company expanded into nation-wide distribution of its manufactured products and other ancillary parts by establishing 5 distribution companies. These distribution companies, which in 1987 became wholly-owned subsidiaries of Berklee Limited, together with the Tasmanian distribution company established in 1992, form the Undacar Parts Division.

Berklee Limited became a publicly listed company in March 1989 and its shares are traded under the Australian Stock Exchange (code BER).

The company is a leading manufacturer and distributor of automotive mufflers and exhaust systems in Australia with approximately 69 employees, assets of $14.0 million and sales of $10.0 million for 2009/2010. Berklee is a well established business and the company’s aim is to increase earnings per share and maximise shareholders’ wealth.


Financial Report or the Year Ended 30 June 2010

3

Statistical Summary

2009/10

$000 2008/09

$000 2007/08

$000 2006/07

$000 2005/06

$000 2004/05

$000

BALANCE SHEETS

Share Capital 8,700 8,700 8,700 8,700 8,700 8,700

Share Capital and Reserves 12,371 13,030 11,197 11,443 11,619 11,506

Non-Current Liabilities 44 52 1,138 1,358 1,545 2,081

Current Liabilities 1,548 1,778 2,229 2,383 2,544 2,817

Total Liabilities 1.592 1,830 3,367 3,741 4,089 4,898

Non-Current Assets 4,901 6,223 7,663 7,586 7,968 8,362

Current Assets 9,062 8,637 6,901 7,598 7,740 8,042

Total Assets 13,963 14,860 14,564 15,184 15,708 16,404

INCOME STATEMENTS

Revenue 9,969 11,055 13,178 14,297 13,327 13,570

Operating Profit (Loss) Before Income Tax 675 1,461 45 354 304 773

Income Tax Expense (Benefit) 134 (372) 10 109 94 233

Operating Profit (Loss) After Income Tax 541 1,833 35 245 210 540

CASH FLOW STATEMENTS

Cash Flows from Operating Activities (12) 84 514 1,503 1,177 538

FINANCIAL STATISTICS

Earnings per Ordinary Share (Basic) 4.7c 13.0c 0.2c 1.7c 1.5c 3.8c

Dividends per Ordinary Share (2009/10: Special)

12.0c 0.0c 2.0c 3.0c 3.0c 0.0c

Return on Total Shareholders’ Equity 4.4% 14.1% 0.3% 2.1% 1.8% 4.6%

Dividend Times Covered 0.39 0.00 0.12 0.58 0.50 0.00

Dividend Payout Ratio 255% 0% 801% 172% 200% 0%

Net Tangible Assets per Ordinary Share 118.5c 89.0c 76.7c 78.6c 80.0c 82.2c

Current Ratio 5.9 4.9 3.1 3.2 3.0 2.9

Total Shareholders’ Equity to Total Assets 89% 88% 77% 75% 74% 70%

Total Shareholders’ Equity to Total Liabilities 777% 712% 334% 302% 284% 238%

Number of Employees (as at 30 June) 69 78 89 101 100 100


Directors’ Report

30 June 2010

4

Your directors present their report on the consolidated entity (referred to hereafter as the Group) consisting of Group and the entities it controlled at the end of, or during, the year ended 30 June 2010.

Directors

The following persons were directors of Berklee Limited during the whole of the financial year and up to the date of this report: Names

Andrew Osborne Hay

Edward John van Berkel

Colin Stubbs (retired 30 June 2010)

Egon Wolfgang Vetter

Grantly Martin Anderson (appointed 1 August 2010)

Alan Ian Beckett (appointed 1 August 2010) Since balance date there have been a number of changes to the composition of the Board. Mr Colin Stubbs retired on 30 June after almost 15 years as a Director. His contribution to the company was substantial and the Board is indebted to him for his wise counsel over many years. On 1 August Mr Grant Anderson and Mr Alan Beckett were appointed as Directors, each bringing to the Board extensive commercial experience. The Chairman, Mr Andrew Hay, has indicated that he will retire from the Board and will therefore not stand for re-election at the 2010 Annual General Meeting. Qualifications, experience and special responsibilities of the Directors are as follows:

Andrew Hay BA OBE (Non-Executive Chairman, Age 65)

Mr Hay was appointed Chairman of Berklee Limited in September 1987. He was formerly Chairman of Adroyal Limited, Lease Plan Australia Limited and Moorland Limited. He commenced his business career with ICI Australia Limited in 1978. Between 1972 and 1979 Mr Hay held a series of senior positions with the Australian Government, including senior adviser to the Treasurer. He is a graduate of the Australian National University and has also studied at New York University. Mr Hay is Chairman of the Remuneration Committee and a member of the Audit Committee and Corporate Governance Committee.

Edward van Berkel BBus CA (Managing Director and Company Secretary, Age 51)

Mr van Berkel commenced his career in 1981 with an international chartered accounting firm. He joined the Company as a senior executive in 1984 and in November of that year became a Director. Mr van Berkel was appointed Company Secretary on 30 September 1987 and served in that position until 1 January 2003, then again from 8 October 2008 to current date. Mr van Berkel holds a Bachelor of Business Degree from the University of Ballarat and is an associate of the Institute of Chartered Accountants of Australia. On 1 July 2001, Mr van Berkel was appointed Managing Director. He is also a Director of Ausned Pty Ltd.

Grant Anderson FAICD (Non-Executive Director, Age 56)

Mr Anderson was appointed to the Board of Berklee Limited as a non-executive director on 1 August 2010. He is a Fellow of the Australian Institute of Company Directors with over 25 years experience as a director of both public and private companies. Mr Anderson has held executive positions at the most senior level in both public and private international companies including President of PBR International and Regional Managing Director of Britax International Pty Ltd. Currently he is the Chief Executive Officer of ANCA Pty Ltd an international machine tool company headquartered in Melbourne, Australia. Mr Anderson was a Director of the Federation of the Automotive Products Manufacturers for 14 years and was President for 4 years.


Directors’ Report (Continued)

30 June 2010

5

Alan Beckett BEcon FCA GAICD (Non-Executive Director, Age 63) Mr Beckett was appointed to the Board of Berklee Limited as a non-executive director on 1 August 2010 and from that date became a member of the Audit Committee. He commenced his career with Ernst & Young in 1970 and focused on audit and corporate services in the larger listed public companies sector. He held many senior management positions including Deputy Chairman of Ernst & Young Oceania from 2001 until his retirement from the firm in 2008. He was Managing Partner of the Melbourne office from 1998 to 2001, Managing Partner of the Australian Audit & Corporate Services practice from 1986 to 1989 and again in 1995 to 1998. Mr Beckett currently serves as a Non-Executive Director and Chairman of the Risk, Compliance & Audit Committee, Defence Health Ltd, Non-Executive Director of Westbourne Capital Pty Ltd and Westbourne Credit Management Ltd, Member of the Department of Defence Audit & Risk Committee, Member of the Board Audit Committee of Note Printing Australia Ltd and a member of the Very Special Kids Foundation.

Egon Vetter (Non-Executive Director, Age 60)

Mr Vetter was appointed to the Board of Berklee Limited as a non-executive director on 1 September 2003. Mr Vetter holds a masters degree in electronic engineering, is a former managing director of VDO Australia and Hella Australia and a past president of the Federation of Automotive Products Manufacturers (FAPM) Southern Region. Mr Vetter was formerly the chief executive officer of Ceramet Technologies Australia Pty Ltd, an engineering company that produces components in metal injection moulding technology. He is currently Executive Chairman of MHE Technologies (Aus) Limited.

Principal Activities

The principal activities of the Group during the year included the manufacture and distribution of automotive mufflers and exhaust products.

Significant Changes in State of Affairs

No significant changes in the Group's state of affairs occurred during the financial year.

Business Review

Review of Operations

Berklee's profit from ordinary activities before income tax expense for the financial year ended 30 June 2010 was $674,620, a decrease of $787,088 by comparison with the previous year. After booking an income tax expense of $133,955, net profit was $540,665 compared with $1,833,702 for last year. From an operational perspective the reportable segment loss before income tax for the current year was $554,000 compared to the prior year's $627,000. This 12 percent improvement was achieved by a reduction in expenses which was greater than the decline in revenues. The decrease in revenues from $11.06 to $9.97 million was $1,090,000 while the reduction in expenses from $11.68 to $10.52 million was $1,160,000. The manufacturing division was able to increase sales to external customers by 21 percent from $1.83 to $2.22 million but the continuing weakness in the replacement exhaust market caused a $1.61 million decrease in distribution division sales from $9.17 to $7.56 million. The property divestment program was completed in July 2010 with the sale of the Glenorchy property. The objective of re-weighting the balance sheet with more cash has been achieved while still retaining the company's core property asset, the head office and manufacturing plant at Wendouree. Capital expenditure during 2010 amounted to $233,000 and the major items were jigs for new parts developed during the year and warehouse racking for the relocation of the New South Wales distribution branch from Padstow to Ingleburn.



30 June 2010

6

Berklee’s workforce at 30 June 2010 was 69, a decrease of 12% compared to the 78 at the end of the previous year. The company’s share price was 42 cents as at 30 June 2010 (30 June 2009: 30 cents).

Future Direction: Business Development

It is unlikely that the market for the company's after market product range will alter materially over the coming twelve months and conditions are expected to remain subdued at best, largely reflecting the macro-economic outlook. There is, moreover, the likelihood that the competitive pressures will not abate. These pressures continue to arise from the presence of three domestic manufacturers of exhaust products and systems, in other words from excess capacity, and from import price pressure due to appreciation of the Australian dollar. These factors have been made more pronounced by certain long-term trends, principal among which is the use of stainless rather than mild steel in mufflers which extends operational life and lowers demand for replacement. In short, the company is operating in an environment of excess capacity and diminishing demand. In recent years efforts have been made to enhance competitiveness through selective importing and through factory productivity gains flowing from capital investment, systems improvement and cost cutting. Strenuous efforts have also been made to gain a larger share of the original equipment market through technical co-operation with Eberspaecher of Germany and the achievement of high quality certification standards. Penetration of this sector of the market has not yet been material notwithstanding a range of contracts secured from Australian vehicle manufacturers. Against this general background the company has embarked on a strategy of expanding its non-exhaust product range at distribution level. As a first step in this process, agreement has been reached for the distribution of a range of German brand shock-absorbers. Feasibility studies and commercial negotiations on additional non-exhaust product lines are well-advanced. Berklee is also actively seeking manufacturing opportunities unrelated to exhaust systems. This diversification strategy has as its purpose the better utilisation of capacity in both distribution and manufacturing as well as the achievement of better rates of growth in operating income. The Board is continuing to review strategic options including “bolt on” acquisitions as a means of expediting diversification and consideration of existing cash balances and other financing to fund the strategic options.

Dividends Paid or Recommended

During the financial year the Directors declared a special dividend of 12 cents per share fully franked amounting to a total dividend of $1.20 million. Further, the Directors have declared a final dividend of 2c per share fully franked which will be paid on 29 October 2010.

Group franking credits available for future distribution total $1.71 million.

Post Balance Date Events

The divestment program was completed on 16 July 2010 with the settlement of the sale of the Glenorchy property. The $353,000 book value of this property is disclosed in the financial report as ‘assets classified as held for sale’ and the net selling price (contract price less transaction costs) was $880,000.

Except for the above, no other matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in future financial years.

Environmental Regulation

The Group’s operations are subject to various environmental regulations under both Commonwealth and State legislation, which set the minimum requirements the Group must meet.

The Group has a process to monitor compliance with environmental regulations. The directors are not aware of any significant breaches during the period covered by this report.

Victorian Government legislation now requires all non-residential users of more than 10 million litres of water per year to submit a water management action plan (waterMAP). Berklee Limited’s manufacturing plant uses less than 10 million litres of water per year.



30 June 2010

7

Rounding of amounts

The Group is an entity to which ASIC Class order 98/100 applies and, accordingly, amounts in the financial statements and directors' report have been rounded to the nearest thousand dollars.

Director Information

Meetings of Directors

Attendances by each director at meetings of directors (including committees of directors) during the year were as follows:

Directors' Meetings

Audit Committee Meetings

Remuneration Committee Meetings

Corporate Governance Committee Meetings

Eligible to

attend Number attended

Eligible to attend

Number attended

Eligible to attend

Number attended

Eligible to attend

Number attended

A.O. Hay 8 8 2 2 1 1 - -

E.J. van Berkel 8 8 - - 1 1 - -

C. Stubbs (retired 30 June 2010) 8 6 2 2 - - - -

E.W. Vetter 8 8 - - - - - -

Committee membership

Members acting on the Committees during the year were:

Audit Committee: C. Stubbs (Chairman) and A. O. Hay

Remuneration Committee: A. O. Hay (Chairman) and E. J. van Berkel

Corporate Governance Committee: C. Stubbs (Chairman) and E. J. van Berkel

Retirement, election and continuation in office of Directors

Mr Hay retires at the conclusion of the next Annual General Meeting and does not offer himself for re-election.

Mr Anderson was appointed by the directors on 1 August 2010 as an additional director and under the Constitution of the Company holds office only until the conclusion of the next Annual General Meeting and, being eligible, offers himself for re-election.

Mr Beckett was appointed by the directors on 1 August 2010 as an additional director and under the Constitution of the Company holds office only until the conclusion of the next Annual General Meeting and, being eligible, offers himself for re-election.

Mr Vetter retires by rotation in accordance with the Constitution of the Company and, being eligible, offers himself for re-election.



30 June 2010

8

Interests in the shares and options of the company and related bodies corporate

As at the date of this report, the interests of the directors in the shares of Berklee Limited were:

Number of ordinary shares

A.O. Hay nil

E.J. van Berkel 326,371

E.W. Vetter nil

G.M. Anderson nil

A.I. Beckett nil

Insurance of directors and officers

During the financial year, Berklee Limited paid a premium of $8,963 plus GST to insure the directors and officers of the Company.

The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of entities in the consolidated entity, and any other payments arising from liabilities incurred by the officers in connection with such proceedings, other than where such liabilities arise out of conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the Company. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities.

Auditor independence and non-audit services

The directors received a declaration of independence from the auditor of Berklee Limited, a copy of which is presented on page 13.

Services provided by the auditor

RSM Bird Cameron was appointed Company auditor on 4 November 2005 and will continue in office in accordance with section 327 of the Corporations Act 2001.

The Company may decide to engage the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Group are important.

The Board of Directors has considered the position and, in accordance with the advice received from the Audit Committee is satisfied that the provision of the non-audit services listed below is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001.

During the year the following fees were paid or payable for services provided by RSM Bird Cameron Australian firm, the auditor of the parent entity, its related practices and non-related audit firms:

2010

$

2009

$

Audit services:

Audit and review of financial reports and other audit work under the Corporations Act 2001

56,100 55,696

Non-audit services:

Other services - 1,200

56,100 56,896


Directors’ Report (Continued) – Remuneration Report (Audited)

30 June 2010

9

Remuneration Report (Audited)

This report is set out to provide information on:

A Remuneration policy - used by the Company to determine the nature and amount of remuneration;

B Remuneration details - the nature and amount of remuneration for each director of Berklee Limited, and for the executives receiving the highest remuneration; and

C Service agreements.

The information provided in the report has been audited as required by Section 308(3C) of the Corporations Act 2001.

A Remuneration policy

The objective of the Company’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with achievement of strategic objectives and the creation of value for shareholders, and conforms to market best practice for delivery of reward.

The Board ensures that executive reward satisfies the following key criteria for good reward governance practices:

competitiveness and reasonableness;

acceptability to shareholders;

performance linkage / alignment of executive compensation;

transparency; and

capital management.

The Company has structured an executive remuneration framework that is market competitive and complimentary to the reward strategy of the organisation.

Aligning to shareholders’ interests, the framework:

has economic profit as a core component of plan design;

focuses on sustained growth in shareholder wealth, consisting of dividends and growth in share price, and delivering constant return on assets as well as focusing the executive on key non-financial drivers of value; and

attracts and retains high calibre executives.

Aligning to program participants’ interests, the framework:

rewards capability and experience;

reflects competitive reward for contribution to growth in shareholder wealth;

provides a clear structure for earning rewards; and

provides recognition for contribution.

The overall level of executive reward takes into account the performance of the consolidated entity over a number of years, with greater emphasis given to the current and prior year. In accordance with best practice corporate governance, the structure of non-executive director and executive remuneration is separate and distinct.



30 June 2010

10

A Remuneration policy (Continued)

Non-executive directors

The Remuneration Committee sets remuneration for non-executive directors annually in such a manner to attract and retain directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders. The constitution and the ASX Listing Rules specify that the aggregate remuneration of non-executive directors shall be determined from time to time by a general meeting. An amount not exceeding the amount determined is then divided between the directors as agreed. The latest determination was adopted by a special resolution passed at the Annual General Meeting held on 24 November 2006 when shareholders approved an aggregate remuneration of up to a maximum of $500,000 per year. The aggregate remuneration is reviewed annually. The remuneration for non-executive directors is comprised of cash and superannuation contributions.

Retirement allowances for non-executive directors

There is no scheme to provide retirement benefits, other than statutory superannuation, to non-executive directors.

Executive director remuneration

The Company aims to reward the Managing Director with a level and mix of remuneration commensurate with his position and responsibilities within the Company and so as to:

align the interests of the Managing Director with those of the shareholders; and

ensure total remuneration is competitive by market standards.

The Remuneration Committee assesses the appropriateness of the nature and amount of remuneration of the Managing Director on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality Managing Director.

No employment contract has been entered into with the Managing Director.

Fixed remuneration

The level of fixed remuneration for the Managing Director is set so as to provide a base level of remuneration which is both appropriate to the position and is competitive in the market. The Managing Director receives his fixed remuneration by way of cash and company superannuation payments.

Performance based remuneration

For the 2009/2010 year the Company executives’ remuneration packages did not contain any element that was dependent on a performance condition.

Specified executives’ remuneration

The Company aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the Company and so as to:

align the interests of executives with those of the shareholders; and

ensure total remuneration is competitive by market standards.

The Managing Director assesses the nature and amount of emoluments of the executives on a periodic basis to ensure they are appropriate and realistic having regard to the persons’ responsibilities and relevant market conditions.



30 June 2010

11

Fixed remuneration

Executives receive their fixed remuneration by way of cash, provision of a motor vehicle and company superannuation payments.

Retirement benefits

No executives have entered into employment agreements that provide additional termination benefits.

B Directors and Key Management Personnel Remuneration

Amounts of remuneration

Details of the remuneration of the Directors and Key Management Personnel (KMP) (as defined in AASB 124 Related Party Disclosures) of Berklee Limited and the Berklee Limited Group are set out in the following tables.

The KMP of Berklee Limited and the Berklee Limited Group are the directors (as per page 4) and those executives who report directly to the Managing Director. This includes the 5 group executives who received the highest remuneration for the year ended 30 June 2010, together with others who currently resigned and were classified as KMP in the prior year. No cash bonuses were paid to executives during the year.

The executives are:

J. Anderson – Manufacturing Accountant

H. L. Costello – Information Technology Manager

J. L. Kristan – National Sales and Marketing Manager (appointed 1 February 2010)

R. B. Larkin – Quality Systems and Supply Manager

T. K. Roberts – Engineering Manager (resigned 22 January 2010)

J. A. van Berkel – Marketing Operations Manager (resigned 17 February 2010)

2010

Short-term benefits Post employment

benefits Total

Cash, salary & commissions

$

Leave entitlement

paid

$

Other

$

Non-cash Benefits

$

Superannuation

$

$

A. O. Hay 3,326 - - - 54,799 58,125

C. Stubbs 34,778 - - - 3,130 37,908

E. W. Vetter 34,778 - - - 3,130 37,908

E. J. van Berkel 170,000 62,115 - 4,921 21,000 258,036

J. Anderson 88,500 - - 17,456 7,965 113,921

H. L. Costello 55,500 - - 7,786 48,595 111,881

J.L. Kristan 36,250 - 10,000 - 10,075 56,325

R. B. Larkin 77,000 - - - 6,930 83,930

T. K. Roberts 49,233 11,688 - 6,646 4,431 71,998

J. A. van Berkel 64,838 28,889 - 13,884 5,835 113,446

614,203 102,692 10,000 50,693 165,890 943,478



30 June 2010

12

B Remuneration details (Continued) 2009

Short-term benefits Post employment

benefits Total

Cash, salary & commissions

$

Leave entitlement

paid

$

Other

$

Non-cash Benefits

$

Superannuation

$

$

A. O. Hay - - - - 56,433 56,433

C. Stubbs 33,765 - - - 3,039 36,804

E. W. Vetter - - - - 36,804 36,804

E. J. van Berkel 170,000 - - 21,641 21,000 212,641

J. Anderson 85,900 - - 14,018 7,731 107,649

H. L. Costello 55,500 - - 14,158 48,595 118,253

R. B. Larkin 70,000 - - - 6,300 76,300

W. A. Lawes 66,569 26,820 - 7,538 2,120 103,047

D. A. Martin 16,035 - 7,909 4,452 3,062 31,458

T. K. Roberts 83,500 - - 9,237 7,515 100,252

J. A. van Berkel 97,500 - - 17,596 8,775 123,871

678,769 26,820 7,909 88,640 201,374 1,003,512

C Service agreements

There are no service agreements in place between the Company and Non-executive Directors, Executive Directors and Key Management Personnel.

All remuneration paid or payable is disclosed in the tables above.

Superannuation contributions are made in accordance with Superannuation Guarantee Charge requirements or as salary sacrifice arrangements authorised by the Company.

Long service leave and annual leave are accrued for Executive Directors and Key Management Personnel in accordance with statutory obligations.

This report is signed in accordance with a resolution of the Board of Directors.

We wish to thank our shareholders, customers and employees for their continued support during the year.

Director: Andrew O. Hay, Chairman

Director: Edward J. van Berkel, Managing Director

28 September 2010


Corporate Governance Statement

14

Berklee Limited (the Company) and the Board of Directors are committed to achieving and demonstrating the highest standards of corporate governance. This statement covers the Group, which comprises the Company and its controlled entities, in relation to the Australian Stock Exchange Corporate Governance Council (CGC) – Corporate Governance Principles and Recommendations – 2nd Edition 2007. The Board continually reviews the Group’s policies and practices to ensure they meet the interests of shareholders. In doing so, the Board will consider the 2010 amendments to the Corporate Governance Principles and Recommendations – relating principally to diversity and remuneration committee structure – during the financial year ending 30 June 2011. Appropriate policy adjustments will be advised in updated disclosures in the 2011 financial report.

The relationship between the Board and senior management is critical to the Group’s long-term success. The Directors are responsible to the shareholders for the performance of the Company in both the short and the longer term and seek to balance sometimes competing objectives in the best interests of the Group as a whole. Their focus is to enhance the interests of shareholders and other key stakeholders and to ensure the Group is properly managed.

The responsibility for the operation and administration of the Company is delegated by the Board to the Managing Director and the executive management team. The Board ensures that this team is appropriately qualified and experienced to discharge their responsibilities and has in place procedures to assess the performance of the Managing Director and the executive management team on an ongoing basis.

A description of the Company's main corporate governance practices is set out below. Unless otherwise stated, all the good practice recommendations of the ASX Corporate Governance Council have been applied for the entire financial year ended 30 June 2010.

The Board of Directors

The Board operates in accordance with the broad principles set out in its charter which is available from the ‘Board’ information section of the Company website at www.berklee.com.au. The charter details the Board’s composition and responsibilities.

Board composition

Selection and appointment of directors

Due to the size of the Company, all Directors are involved in the selection of candidates for the position of director. The composition of the Board is constantly monitored to ensure the appropriate mix of expertise, experience and competence.

When a vacancy exists, or where it is considered that the Board would benefit from the services of a new director with particular skills, the Board selects a potential director with the appropriate expertise and experience.

Potential directors are approached by the Board and their interests in joining the board, together with the responsibilities such an appointment entail, are discussed. Terms and conditions of the appointment, including the level of remuneration, are also communicated to the nominees.

If accepted the Board will appoint the new director(s) during the year, and that person(s) will then stand for election by shareholders at the next Annual General Meeting. Shareholders are provided with relevant information on the candidates for election.

When appointed to the Board, all new directors receive an induction appropriate to their experience to familiarise them with matters relating to the Company’s business, its strategy and current issues.


Corporate Governance Statement (Continued)

15

Responsibilities

The responsibilities of the Board include:

guiding and monitoring the Company on behalf of the shareholders by whom they are elected and to whom they are accountable;

seeking to identify the expectations of the shareholders, as well as other regulatory and ethical expectations and obligations;

identifying areas of significant business risk and ensuring arrangements are in place to adequately manage those risks;

ensuring that management’s objectives and activities are aligned with the expectations and risk identified by the Board;

ensuring the strategic plan is designed to meet stakeholders’ needs and manage business risk;

ensuring the ongoing development of the strategic plan and approving initiatives and strategies are designed to ensure the continued growth and success of the Group;

implementation of budgets by management and monitoring progress against budget via the establishment and reporting of both financial and non-financial key performance indicators;

ensuring that the executive management team is appropriately qualified and experienced to discharge their responsibilities and has in place procedures to assess the performance of the Managing Director and the executive management team; and

discharging its stewardship by making use of sub-committees, including an audit committee, remuneration committee and a corporate governance committee.

Other functions reserved to the Board include:

approval of the annual and half-yearly financial reports;

approving and monitoring the progress of major capital expenditure, capital management, and acquisitions and divestures;

ensuring that any significant risks that arise are identified, assessed, appropriately managed and monitored; and

reporting to shareholders.

Board members

Details of the members of the Board, their experience, expertise, qualifications and term of office are set out in the Directors’ Report under the heading ‘Directors'.

The Board seeks to ensure that:

at any point in time, its membership represents an appropriate balance between directors with experience and knowledge of the Group and directors with an external or fresh perspective; and

the size of the Board is conducive to effective discussion and efficient decision-making.



16

Term of office

The Company’s Constitution governs the appointment, continuation and removal of directors from office as follows:

subject to the provisions of Listing Rule 3L (1), at each Annual General Meeting one-third of the directors or, if their number is not a multiple of 3, then the number nearest to but not exceeding one-third of the directors must retire from office;

the directors to retire by rotation at an Annual General Meeting are those directors who have been longest in office since their last election;

directors elected on the same day may agree among themselves or determine by lot which of them must retire;

a director must retire from office at the conclusion of the third Annual General Meeting after the director was last elected, even if his or her retirement results in more than one-third of all directors retiring from office;

a retiring director will be eligible for re-election; and

a Managing Director will not, while continuing to hold that office, be subject to retirement as provided in these Articles in respect of other directors, but will be subject to the same provisions as to resignation and removal as the other directors.

The term in office held by each Director in office at the date of this report is as follows:

Director Term in office

A. O. Hay 23 years

E. W. Vetter 7 years

E. J. van Berkel 25 years

G. M. Anderson Appointed 1 August 2010

A. I. Beckett Appointed 1 August 2010

Directors’ independence

The Board has adopted specific principles in relation to directors’ independence. These state that to be deemed independent, a director must be a non-executive and:

independent of management;

free from any business or other relationship that could, or could reasonably be perceived to, materially interfere with the exercise of independent judgement;

not hold / have recently held an executive management position at Berklee;

not be a substantial shareholder of Berklee, directly or indirectly;

not be / have been in the last two years, a senior executive of, or the direct provider of consulting / audit services to, a supplier to, or a customer of, Berklee, in a substantial manner; and

not have an interest or a business or other relationship which could, or could reasonably be perceived to, materially interfere with the director’s ability to act in the best interests of Berklee.

Materiality is assessed on a case-by-case basis by reference to each director’s individual circumstances.

It is the Board’s view that its Chairman and non-executive directors are independent.



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Chairman and Managing Director

The Chairman is responsible for leading the Board, ensuring directors are properly briefed in all matters relevant to their role and responsibilities, facilitating Board discussions and managing the Board’s relationship with the Company’s senior executives.

The Managing Director is responsible for implementing Group strategies and policies.

Commitment

Non-executive directors are expected to spend at least 12 days a year preparing for and attending Board and committee meetings and associated activities.

The number of meetings of the Company’s Board of Directors and of each Board Committee held during the year ended 30 June 2010, and the number of meetings attended by each director is disclosed on page 7 of the Directors’ Report.

Performance of non-executive directors is reviewable by the Chairman on an ongoing basis. Any director whose performance is considered unsatisfactory may be asked to resign.

Conflict of interests

There were no conflicts of interest between the Group and its directors during the current period.

Independent professional advice

Directors and Board Committees have the right, in connection with their duties and responsibilities, to seek independent professional advice at the Company's expense. Prior written approval of the Chairman is required, but this will not be unreasonably withheld.

Performance assessment

In order to ensure that the Board continues to discharge its responsibilities in an appropriate manner, the performance of all directors is reviewed annually by the Chairman. The last performance evaluation took place in June 2009. In view of the changes to the composition of the Board, it was decided to defer the performance assessment into the 2010/2011 year. The performance of the executives is reviewed annually by the Managing Director and the last performance evaluation occurred in May 2010.

Corporate reporting

The Managing Director has made the following certifications to the Board:

that the Company’s financial reports are complete and present a true and fair view, in all material respects, of the financial condition and operational results of the Company and Group and are in accordance with relevant accounting standards; and

that the above statement is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board and that the Company’s risk management and internal compliance and control is operating efficiently and effectively in all material respects.



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Board committees

The Board has established a number of committees to assist in the execution of its duties and to allow detailed consideration of complex issues. Current committees of the Board are the Corporate Governance, Remuneration and Audit Committees. Each committee is comprised of either:

at least two non-executive directors, or

at least one non-executive director and one key management person with experience and expertise in the subject area of the committee.

The committee structure and membership is reviewed on an annual basis.

Each committee has its own written charter setting out its role and responsibilities, composition, structure, membership requirements and the manner in which the committee is to operate. All of these charters are reviewed on an annual basis and are available on the Company website. All matters determined by committees are submitted to the full Board as recommendations for Board decisions.

Minutes of committee meetings are tabled at the subsequent board meeting. Additional requirements for specific reporting by the committees to the Board are addressed in the charter of the individual committees.

Nomination committee

Berklee Limited does not currently have a separate nomination committee, which is a departure from ASX Corporate Governance Council good practice recommendation 2.4.

The Board does not recommend the establishment of a separate nomination committee as due to the size of the Company all directors are involved in the selection of candidates for the position of director and the establishment of a separate nomination committee would not add any additional value to the Company.

Remuneration committee

The Remuneration Committee consists of the following non-executive directors and key personnel:

A. O. Hay – Non-executive director (Chairman)

E. J. van Berkel – Managing Director and Company Secretary

Details of these members’ attendance at Remuneration Committee meetings are set out in the Directors’ Report on page 7.

The Remuneration Committee operates in accordance with its charter which is available on the Company website. The Remuneration Committee is responsible for determining and reviewing compensation arrangements for the directors and the Managing Director. The Remuneration Committee assesses the nature and amount of emoluments of the directors and the Managing Director on a periodic basis to ensure they are appropriate and realistic having regard to the person’s responsibilities and relevant employment market conditions.

Further information on directors’ and executives’ remuneration is set out in the Directors’ Report under the heading 'Remuneration report'.

The Remuneration Committee’s terms of reference include responsibility for reviewing any transactions between the Group and the directors, or any interest associated with the directors, to ensure the structure and the terms are in compliance with the Corporations Act 2001 and are appropriately disclosed.



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Audit committee

The Audit Committee consists of the following non-executive directors:

C. Stubbs – Non-executive director (Chairman) (to 30 June 2010)

A.O. Hay – Non-executive director

A.I. Beckett – Non-executive director (from 1 August 2010)

Details of these directors’ qualifications and attendance at Audit Committee meetings are set out in the Directors’ Report on page 7.

The Audit Committee has appropriate financial expertise and all members are financially literate and have an appropriate understanding of the industries in which the Group operates.

The Audit Committee operates in accordance with a charter which is available on the Company website.

The main responsibilities of the Audit Committee are to:

provide assistance to the Board in fulfilling its corporate governance and oversight responsibilities in relation to the Company’s financial reporting, internal control structure, risk management systems, and the external audit function. In doing so, it is the responsibility of the committee to maintain free and open communication between the committee, external auditors and management of the Company;

investigate any matter brought to its attention with full access to all books, records, facilities, and personnel of the Company and the authority to engage independent counsel and other advisers as it determines necessary to carry out its duties;

understand the Company’s structure, controls, and types of transactions in order to adequately assess the significant risks faced by the Company in the current environment;

oversee the Company’s financial reporting process on behalf of the Board and report the results of its activities to the Board;

ensure the appropriateness of the accounting policies and principles that are used by the Company;

ensure its policies and procedures remain flexible, in order to best react to changing conditions and circumstances. The committee will take appropriate actions to set the overall corporate ‘tone’ for quality financial reporting, sound business risk practices, and ethical behaviour;

discuss with management and the external auditors, the adequacy and effectiveness of the accounting and financial controls, including the Company’s policies and procedures to assess, monitor, and manage business risk, and legal and ethical compliance programs;

meet separately periodically with management, and the external auditors to discuss issues and concerns warranting committee attention, including but not limited to their assessments of the effectiveness of internal controls and the process for improvement. The committee shall provide sufficient opportunity for the external auditors to meet privately with the members of the committee. The committee shall review with the external auditor any audit problems or difficulties and management’s response.

In fulfilling its responsibilities, the Audit Committee shall:

receive regular reports from the external auditor on the critical policies and practices of the Company, and all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management;

be directly responsible for making recommendations to the Board on the appointment, reappointment or



20

replacement (subject to shareholder ratification), remuneration, monitoring of the effectiveness, and independence of the external auditors, including resolution of disagreements between management and the auditor regarding financial reporting. The committee shall pre-approve all audit and non-audit services provided by the external auditors and shall not engage the external auditors to perform any non-audit / assurance services that may impair or appear to impair the external auditor’s judgement or independence in respect of the Company;

obtain and review a report by the external auditors describing:

the audit firm’s internal quality control procedures;

any material issues raised by the most recent internal quality control review, or peer review, of the audit firm;

all relationships between the external auditor and the Company (to assess the auditor’s independence);

review and assess the independence of the external auditor, including but not limited to any relationships with the Company or any other entity that may impair the external auditor’s judgement or independence in respect of the Company. Furthermore, the committee shall draft an annual statement for inclusion in the Company’s annual report of whether the committee is satisfied the provision of non-audit services is compatible with external auditor independence;

discuss with the external auditors the overall scope of the external audit, including identified risk areas and any additional agreed-upon procedures. In addition, the committee shall also review the external auditor’s compensation to ensure that an effective, comprehensive and complete audit can be conducted for the agreed compensation level;

review and discuss ASX press releases, as well as financial information prior to their release;

review the half-year financial report and Appendix 4D prior to the filing of these with the ASX. The committee shall also discuss the results of the half-year review and any other matters required to be communicated to the committee by the external auditors under generally accepted auditing standards;

review all representation letters signed by management to ensure that the information provided is complete and appropriate. The committee shall also discuss the results of the annual audit and any other matters required to be communicated to the committee by the external auditors under generally accepted auditing standards;

establish procedures for the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters, and the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters. The committee shall receive corporate legal reports of evidence of a material violation of the Corporations Act, the ASX Listing Rules or breaches of fiduciary duty; and

evaluate its performance at least annually to determine whether it is functioning effectively by reference to current best practice.

The Audit Committee has authority, within the scope of its responsibilities, to seek any information it requires from any employee or external party.



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Corporate Governance committee

The Corporate Governance Committee consists of the following non-executive directors and key personnel:

C. Stubbs – Non-executive director (Chairman) (to 30 June 2010)

A.O. Hay – Non-executive director (from 1 July 2010)

E. J. van Berkel – Managing Director and Company Secretary

Details of these members’ attendance at Corporate Governance Committee meetings are set out in the Directors’ Report on page 7.

The Board has established a Corporate Governance Committee to assist it in identifying governance and ethical issues and monitoring compliance with the standards established by the Board.

External auditors

The Company and Audit Committee policy is to appoint external auditors who clearly demonstrate quality and independence. The performance of the external auditor is reviewed annually and applications for tender of external audit services are requested as deemed appropriate, taking into consideration assessment of performance, existing value and tender costs. RSM Bird Cameron was appointed as the external auditor on 4 November 2005. It is RSM Bird Cameron’s policy to rotate audit engagement partners on listed companies at least every five years. As this is the fifth year of the audit engagement, the current engagement partner will be rotating at the conclusion of the audit and associated attendance at the annual general meeting relating to the year ended 30 June 2010.

An analysis of fees paid to the external auditors, including a break-down of fees for non-audit services, is provided in the Directors’ Report and in note 19 to the financial statements. It is the policy of the external auditors to provide an annual declaration of their independence to the Audit Committee.

The external auditor is requested to attend the Annual General Meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the audit report.

Risk assessment and management

The Board, through the Audit Committee, is responsible for ensuring there are adequate policies in relation to risk management, compliance and internal control systems. These policies are available on the Company website. In summary, the Company policies are designed to ensure that strategic, operational, legal, reputation and financial risks are identified, assessed, effectively and efficiently managed and monitored to enable achievement of the Group’s business objectives.

Considerable importance is placed on maintaining a strong control environment. There is an organisation structure with clearly drawn lines of accountability and delegation of authority. Adherence to the Code of Conduct (see page 23) is required at all times and the Board actively promotes a culture of quality and integrity.

The Board assesses the Company’s ‘risk profile’ and is responsible for overseeing and approving risk management strategy and policies, internal compliance and internal control. The Company’s process of risk management and internal compliance and control includes:

establishing the Company’s goals and objectives, and implementing and monitoring strategies and policies to achieve these goals and objectives;

continuously identifying and measuring risks that might impact upon the achievement of the Company’s goals and objectives, and monitoring the environment for emerging factors and trends that affect these risks;

formulating risk management strategies to manage identified risks, and designing and implementing appropriate risk management policies and internal controls; and



22

monitoring the performance of, and continuously improving the effectiveness of, risk management systems and internal compliance and controls, including an annual assessment of the effectiveness of risk management and internal compliance and control.

At each Board meeting, there is a standing agenda and matters included are:

Document register;

Accounting;

Finance;

Share registry;

Matters arising at divisional level;

Risk management;

Directors’ declarations; and

Any other matters which may be raised.

The standing agenda is reviewed from time to time to ensure it remains appropriate for the Company’s risk profile.

Mr E. J. van Berkel in his dual role of CEO and CFO is responsible for raising awareness of all operational risks to the Board members. This role includes providing intelligent recommendations to the Board members to make an informed decision in relation to these risks.

In addition, it is a requirement that each major proposal is submitted and discussed at Board level initially.

The Board will then determine what additional information is required in order to arrive at a final decision and, where required, management’s proposed mitigation strategies.

The environment, health and safety management system (EHSMS)

The Company recognises the importance of environmental and occupational health and safety (OH&S) issues and is committed to the highest levels of performance. To help meet this objective the EHSMS was established to facilitate the systematic identification of environmental and OH&S issues and to ensure they are managed in a structured manner. This system has been operating for a number of years and allows the Company to:

monitor its compliance with all relevant legislation;

continually assess and improve the impact of its operations on the environment;

encourage employees to actively participate in the management of environmental and OH&S issues;

work with trade associations representing the Group’s businesses to raise standards;

use energy and other resources efficiently; and

encourage the adoption of similar standards by the Group’s principal suppliers, contractors and distributors.

Information on compliance with significant environmental regulations is set out in the Directors’ Report on page 6.



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Code of Conduct

The Group has a formal code of conduct to guide directors, managers and employees.

In pursuing high standards of corporate governance, all directors, managers and employees are expected to act with the utmost integrity and objectivity, striving at all times to enhance the reputation and performance of the Group.

The Board has a policy that directors and employees of Berklee Limited and its subsidiaries may not buy or sell Berklee Limited shares except within a period of two weeks following the annual and half-yearly results announcements to Australian Stock Exchange Limited.

The policy supplements the Corporations Act provisions that preclude directors and employees from trading in securities when they are in possession of ‘insider information’.

Continuous disclosure and shareholder communication

The Company Secretary has been nominated as the person responsible for communications with the Australian Stock Exchange (ASX). This role includes responsibility for ensuring compliance with the continuous disclosure requirements in the ASX Listing Rules and overseeing and co-ordinating information disclosure to the ASX, analysts, brokers, shareholders, the media and the public.

The Board of Directors aims to ensure that the shareholders are informed of all major developments affecting the Company’s state of affairs. Information is communicated to shareholders through:

the full annual report (hard copy);

the full annual report (accessible on the Company’s website);

the interim report (accessible on the Company’s website);

disclosures made electronically to the ASX; and

the Annual General Meeting and other meetings so called to obtain approval for Board action as appropriate.

It is both Company policy and the policy of the auditor for the lead engagement partner to be present at the Annual General Meeting and to answer questions about the conduct of the audit and the preparation and content of the auditor’s report.


Consolidated Statement of Comprehensive Income


The accompanying notes form part of these financial statements. 24

Note2010

$000

2009

$000

Revenue from continuing operations 5 9,969 11,055

Other income 6 1,235 2,381

Changes in inventories of finished goods and work in progress 101 (232)

Raw materials and consumables used 7 (3,435) (3,896)

Employee benefits expense (4,020) (4,460)

Depreciation, amortisation and impairments 7 (661) (654)

Freight and cartage (572) (699)

Lease rentals on operating lease (808) (625)

Sales and marketing expense (125) (155)

Insurance (136) (140)

Costs incurred on unsuccessful sale of business - (202)

Other expenses (866) (821)

Finance costs 7 (7) (91)

Income before income tax 675 1,461 Income tax (expense) / benefit 8 (134) 372

Profit/(loss) attributable to members 541 1,833

Total comprehensive income for the year 541 1,833

Profit/(loss) for the period attributable to:

Owners of Berklee Limited 541 1,833

Total comprehensive income for the period attributable to:

Owners of Berklee Limited 541 1,833

Earnings Per Share:

Continuing operations:

Basic earnings per share (cents per share) 26 4.70 13.00

Diluted earnings per share (cents per share) 26 4.70 13.00


Consolidated Statement of Financial Position

As at 30 June 2010


Note2010

$000

2009

$000

ASSETS

Current assets

Cash and cash equivalents 25(b) 2,706 2,372

Trade and other receivables 9 1,573 1,635

Inventories 10 4,295 4,370

Current tax receivable 135 260

Non-current assets classified as held for sale 353 -

Total current assets 9,062 8,637

Non-current assets

Trade and other receivables 9 189 189

Property, plant and equipment 11 4,196 5,508

Deferred tax assets 8 516 526

Total non-current assets 4,901 6,223

TOTAL ASSETS 13,963 14,860

LIABILITIES

Current liabilities

Trade and other payables 12 937 993

Provisions 13 611 785

Total current liabilities 1,548 1,778

Non-current liabilities

Long-term provisions 13 44 52

Total non-current liabilities 44 52

TOTAL LIABILITIES 1,592 1,830

NET ASSETS 12,371 13,030

EQUITY

Issued capital 14 8,700 8,700

Asset revaluation reserve 15 698 698

Retained earnings 15 2,973 3,632

TOTAL EQUITY 12,371 13,030


Consolidated Statement of Changes in Equity



Note

Share capital

$000

Retained Earnings

$000

Asset Revaluation

Reserve

$000

Total

$000

2010 Balance at 1 July 2009 8,700 3,632 698 13,030

Profit attributable to members - 541 - 541

Sub-total 8,700 4,173 698 13,571Dividends paid or provided for 16 - (1,200) - (1,200)

Balance at 30 June 2010 8,700 2,973 698 12,371

2009 Balance at 1 July 2008 8,700 1,799 698 11,197

Profit attributable to members - 1,833 - 1,833

Balance at 30 June 2009 8,700 3,632 698 13,030


Consolidated Statement of Cash Flows



Note2010

$000

2009

$000

Cash from operating activities:

Receipts from customers (inclusive of GST) 11,106 12,587

Payments to suppliers and employees (inclusive of GST) (11,202) (12,436)

Interest received 91 10

Interest paid (7) (91)

Income taxes paid - 14

Net cash provided by (used in) operating activities 25(a) (12) 84

Cash flows from investing activities:

Proceeds from sale of property, plant and equipment 1,817 3,760

Disposal costs of property, plant and equipment sold (38) (104)

Purchase of property, plant and equipment (233) (189)

Net cash provided by (used in) investing activities 1,546 3,467

Cash flows from financing activities:

Repayment of borrowings - (1,321)

Dividends paid by parent entity (1,200) -

Net cash provided by (used in) financing activities (1,200) (1,321)

Net increase (decreases) in cash held 334 2,230 Cash at beginning of financial year 2,372 142

Cash at end of financial year 25(b) 2,706 2,372


Notes to the Financial Statements for the Year Ended 30 June 2010

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1 Corporate information

The financial report of Berklee Limited (the Company) for the year ended 30 June 2010 was authorised for issue in accordance with a resolution of the directors on 28 September 2010.

The financial report includes the consolidated financial statements of the Company and its controlled entities (the Group).

Berklee Limited is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Stock Exchange.

The nature of the operations and principal activities of the Group are described in the directors' report.

2 Summary of Significant Accounting Policies

(a) Basis of preparation

The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001.

Australian Accounting Standards set out accounting policies that the AASB has concluded would result in a financial report containing relevant and reliable information about transactions, events and conditions to which they apply. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards. Material accounting policies adopted in the preparation of this financial report are presented below. They have been consistently applied unless otherwise stated.

The financial report has been prepared on an accruals basis and is based on historical costs modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities.

When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year.

(b) Principles of consolidation

The consolidated financial statements incorporate the assets and liabilities of the Parent and all controlled entities as at 30 June 2010, and the results of all controlled entities for the year then ended. The Parent and its controlled entities together are referred to in this financial report as the Group or the consolidated entity.

Controlled entities 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.

Controlled entities are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

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.



2 Summary of Significant Accounting Policies (Continued)

29

(b) Principles of consolidation (Continued)

Investments in subsidiaries are accounted for at cost in the individual financial statements of the Parent, less any impairment charges.

(c) Foreign currency transactions and balances

(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 Berklee 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 dates 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 deferred in equity as qualifying cash flow hedges and qualifying net investment hedges.

Translation differences on non-monetary items, such as equities held at fair value through profit or loss, are reported as part of the fair value gain or loss. Translation differences on non-monetary items, such as equities classified as available-for-sale financial assets, are included in the fair value reserve in equity.

(d) Revenue

Revenue is recognised to the extent that it is probable the economic benefits will flow to the entity and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

(i) Sale of goods

Control of the goods has passed to the buyer upon delivery of the goods to the customer.

(ii) Interest income

Control of a right to receive consideration for the provision of, or investment in, assets has been attained.

(iii) Dividends

Control of a right to receive consideration for the investment in assets attained, usually evidenced by approval of the dividend at a meeting of shareholders.

All revenue is stated net of the amount of goods and services tax (GST).

(e) Income tax

The income tax expense or revenue for the period is the tax payable / refundable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses.




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(e) Income Tax (Continued)

Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability.

An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss.

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 attributable to amounts recognised directly in equity are also recognised directly in equity.

Tax Consolidation Legislation

Berklee Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation as of 1 January 2004.

The head entity, Berklee Limited, and the controlled entities in the tax consolidated group continue to 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 standalone taxpayer in its own right.

In addition to its own current and deferred tax amounts, Berklee 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.

Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as 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.

(f) Financial instruments

Recognition and initial measurement

Financial instruments, incorporating financial assets and financial liabilities, are recognised when the entity becomes a party to the contractual provisions of the instruments. Trade date accounting is adopted for financial assets that are delivered within timeframes established by marketplace convention.




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(f) Financial instruments (Continued)

Financial instruments are initially measured at fair value plus transactions costs where the instrument is not classified as at fair value through profit or loss. Transaction costs related to instruments classified as at fair value through profit or loss are expensed to profit or loss immediately. Those financial instruments entered into by the Group are classified and measured as set out below.

Derecognition

Financial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised where the related obligations are either discharged, cancelled or expire. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed is recognised in profit or loss.

Classification and subsequent measurement

(i) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost using the effective interest rate method.

Trade receivables, being generally on 30 day terms, are recognised and carried at original invoice amount less provision for any uncollectible debts. An estimate for impaired debtors is made when collection of the full amount is no longer probable. Bad debts are written off as incurred.

(ii) Financial liabilities

Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost using the effect interest rate method.

Due to their short term nature trade and other payables are not discounted. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 30 days of recognition.

(iii) Impairment

At each reporting date, the Group assesses whether there is objective evidence that a financial instrument has been impaired. Impairment losses are recognised in the income statement as incurred.

Fair value estimation

The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. Unless otherwise disclosed in the notes to the financial statements, the carrying amount of the Group’s financial instruments approximates their fair value.




32

(g) Inventories

Inventories are valued at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and condition are accounted for as follows:

– Raw materials - purchase cost on a first-in-first-out basis

– Finished goods and work in progress – cost of direct material and labour and a proportion of manufacturing overheads based on normal operating capacity.

(h) Property, plant and equipment

Each class of property, plant and equipment is carried at cost less, where applicable, any accumulated depreciation and impairment losses.

The carrying amount of property, plant and equipment is reviewed by directors to ensure it is not in excess of the recoverable amount from these assets. (Refer Impairment of assets policy)

Depreciation

The depreciable amount of all fixed assets including buildings and capitalised leased assets, but excluding freehold land, is depreciated on a straight line or diminishing value basis over the asset's useful life to the Group commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements, using the straight line method.

The estimated useful lives/depreciation rates used for each class of depreciable assets are:

Class of Fixed Asset Depreciation Rate /

Useful Life

Buildings 40 years

Plant and Equipment 2.5 to 15 years

Motor Vehicles 3 to 8 years

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

(i) Impairment of assets

Assets that are subject to amortisation are reviewed 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 flows (cash generating units).

(j) Provisions

Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured.




33

(k) Employee benefits

Provision is made for the Group's liability for employee benefits arising from services rendered by employees to the end of the reporting period. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled. Employee benefits payable later than one year have been measured at present value of the estimated future cash outflows to be made for those benefits. Those cash flows are discounted using market yields on national government bonds with terms to maturity that match the expected timing of cash flows.

(l) Leases and assets acquired under hire purchase arrangements

Finance leases and hire purchase contracts, which transfer to the Group substantially all the risks and benefits incidental to ownership of the asset, are capitalised at the inception of the contract at the fair value of the leased/hire purchased asset or, if lower, at the present value of the minimum contracted payments. Payments are apportioned between the finance charges and reduction of the liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised as an expense in profit or loss.

Capitalised assets are depreciated over the shorter of the estimated useful life of the asset and the contract term if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term.

(m) Contributed equity

Ordinary shares are classified as equity and recognised at the fair value of the consideration received by the company.

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, or for the acquisition of a business, are included in the cost of the acquisition as part of the purchase consideration.

If the entity reacquires its own equity instruments, eg as the result of a share buy-back, then those instruments are deducted from equity and the associated shares are cancelled. No gain or loss is recognised in the income statement and the consideration paid, including any direct attributable incremental cost (net of income taxes) is recognised directly in equity.

(n) Earnings per share

(i) Basic earnings per share

Basic earnings per share is calculated by dividing the profit 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 financial year, adjusted for bonus elements in ordinary shares issued during the year.

(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 financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.




34

(o) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to prepare for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in income in the period in which they are incurred.

(p) Goods and Services Tax (GST)

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST.

Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows.

(q) Cash and cash equivalents

Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within short-term borrowings in current liabilities on the statement of financial position.

(r) Operating segments

An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), whose operating results are regularly reviewed by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. This includes start up operations which are yet to earn revenues. Management will also consider other factors in determining operating segments such as the existence of a line manager and the level of segment information presented to the board of directors.

Operating segments have been identified based on the information provided to the chief operating decision makers – being the executive management team.

The Group aggregates two or more operating segments when they have similar economic characteristics, and the segments are similar in each of the following respects:

– Nature of the products and services;

– Nature of the production processes;

– Type or class of customer for the products and services;

– Methods used to distribute the products or provide the services; and if applicable

– Nature of the regulatory environment.

Operating segments that meet the quantitative criteria as prescribed by AASB 8 are reported separately. However, an operating segment that does not meet the quantitative criteria is still reported separately where information about the segment would be useful to users of the financial statements.

Information about other business activities and operating segments that are below the quantitative criteria are combined and disclosed in a separate category for “all other segments”.




35

(s) Rounding of amounts

The Group has applied the relief available to it under ASIC Class Order 98/100 and accordingly, amounts in the financial report and directors' report have been rounded off to the nearest thousand dollars.

(t) Critical accounting estimates and judgements

The directors evaluate estimates and judgements incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and based on current trends and economic data, obtained both externally and within the Group.

3 New/Amended Accounting Standards and Interpretations

(i) Changes in accounting policy and disclosures

The accounting policies adopted are consistent with those of the previous financial year except as follows.

The Group has adopted the following new and amended Australian Accounting Standards and AASB Interpretations as of 1 July 2009:

– AASB 7 Financial Instruments: Disclosures

– AASB 8 Operating Segments

– AASB 101 Presentation of Financial Statements (revised)

– AASB 2008-5 Amendments to Australian Accounting Standards arising from the Annual Improvement Project

AASB 7 Financial Instruments: Disclosures

The amended Standard requires additional disclosure about the fair value measurement of financial instruments and liquidity risk. Disclosures are contained in Note 4.

AASB 8 Operating Segments and consequential amending standards

The group has identified its operating segments based on the internal reports that are reviewed and used by the Managing Director and the Board of Directors (the group’s chief operating decision makers) in assessing performance and in determining the allocation of resources.

Disclosures required by AASB 8 are shown in Note 22, including re-presented comparative information.

AASB 101 Presentation of Financial Statements and consequential amending standards

As a result of the revised standard, changes reflected in the financial report include:

– Replacement of the consolidated income statement with the consolidated statement of comprehensive income. Items of income and expense not recognised as profit or loss are now disclosed as components of ‘other comprehensive income’. These items are no longer reflected as equity movements in the statement of changes in equity.

– Adoption of the single statement approach to the presentation of the consolidated statement of comprehensive income.

– Other financial statements are renamed in accordance with the Standard.



3 New/Amended Accounting Standards and Interpretations (Continued)

36

(ii) Australian Accounting Standards and Interpretations issued but not yet effective

The following Standards and Interpretations issued or amended are applicable to the Group but not yet effective and have not been adopted in preparation of the financial statements at reporting date. The Group’s and the parent entity’s assessment of the impact of these new standards and interpretations is set out below.

AASB 2009-5 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project

The amendments to various Standards result in accounting changes for presentation, recognition or measurement purposes, while some amendments relate to terminology and editorial changes. The Standard will be applied by the Group with effect from 1 July 2010, however the impacts are expected to have no or minimal effect on the Group’s accounting and disclosures.

AASB 9 Financial Instruments and AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9

AASB 9 includes requirements for the classification and measurement of financial assets resulting from the first part of Phase 1 of the IASB’s project to replace IAS 39 Financial Instruments: Recognition and Measurement (AASB 139).

Under AASB 9:

– Financial assets are classified based on (1) the objective of the entity’s business model for managing the financial assets; (2) the characteristics of the contractual cash flows. This replaces the numerous categories of financial assets in AASB 139, each of which had its own classification criteria.

– An election is allowed on initial recognition to present gains and losses on equity investments not held for trading in other comprehensive income, with no impairment testing and no recycling through profit or loss on derecognition.

– Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases.

Various other Standards are consequentially revised through AASB 2009-11. The Standards will be applied by the Group with effect from 1 July 2013, at which point the impacts will be more readily determinable.

AASB 124 Related Party Disclosures (Revised)

The revised AASB 124 simplifies the definition of a related party, clarifying its intended meaning and eliminating inconsistencies from the definition. The impacts of the Standard, to be applied with effect from 1 July 2011, are not expected to be significant.

AASB 2009-12 Amendments to Australian Accounting Standards

This amendment makes numerous editorial changes to a range of Australian Accounting Standards and Interpretations. The impacts of the Standard, to be applied with effect from 1 July 2011, are not expected to be significant.



3 New/Amended Accounting Standards and Interpretations (Continued)

37

AASB 2010-3 Amendments to Australian Accounting Standards arising from the Annual Improvements Project

The amendments to various Standards result in accounting changes for presentation, recognition or measurement purposes, while some amendments relate to terminology and editorial changes. The impacts of the Standard, to be applied with effect from 1 July 2010, are expected to have no or minimal effect on the Group’s accounting and disclosures.

AASB 2010-4 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project

The amendments to various Standards provide clarification and guidance relating primarily to disclosures. The impacts of the Standard, to be applied with effect from 1 July 2011, are not expected to be significant.

Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments

The interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability are ‘consideration paid’ in accordance with IAS 39. As a result, the financial liability is derecognised and the equity instruments issued are treated as consideration paid to extinguish that financial liability.

Equity instruments issued in a debt for equity swap should be measured at the fair value of the equity instruments issued, if this can be determined reliably.

The impacts of the Standard, to be applied with effect from 1 July 2010, are expected to have no or minimal effect on the Group’s accounting.

4 Financial risk management

The Group's principal financial instruments comprise cash and equivalents, receivables, and payables.

The Group's activities expose it to a range of financial risks: credit risk, market risk (foreign currency risk) and liquidity risk. The Group uses different methods to measure and manage different types of risks to which it is exposed. These include monitoring levels of exposure to interest rate and foreign exchange risk and assessments of market forecasts for interest rate and foreign exchange rates. Ageing analyses and monitoring of specific credit allowances are undertaken to manage credit risk, liquidity risk is monitored through the development of future rolling cash flow forecasts. The Group may seek to minimise potential adverse effects on the financial performance by using derivative financial instruments such as forward exchange contracts to hedge certain risk exposures.

Risk management is carried out by the board of directors under policies approved by them, against the objective of supporting the delivery of the Group's financial targets whilst protecting future financial security. The board reviews and agrees policies for managing each of the risks identified below, including the setting of limits for trading in derivatives, hedging cover of foreign currency, credit allowances, and future cash flow forecast projections.



4 Financial risk management (Continued)

38

Risk exposures and responses

(a) Credit risk

Credit risk arises from cash and cash equivalents and outstanding trade and other receivables. The cash balances are held in financial institutions with high ratings and the trade and other receivables relates to goods sold and delivered to customers. The Group has assessed that there is minimal risk that the cash and trade and other receivables balances are impaired.

It is the Group's policy that all customers who wish to trade on credit terms are subject to credit verification procedures. The Group closely monitors trade receivables on an ongoing basis and has set policies and procedures in relation to collections, credit limits and review of trade debtors. Credit limits are allocated to each debtor. Theoretically, these limits should not be exceeded. However, the system does not prevent this and on occasion credit limits are exceeded. Notwithstanding, receivables balances are monitored on an ongoing basis with the result that the Group's experience of bad debts has not been significant. Any uncollectible amounts are provided for on a debtor specific basis.

The Group has not recorded a provision for doubtful debts as at 30 June 2010 ($7,000 as at 30 June 2009).

(b) Market risk

Foreign currency risk

During the year the Group has had exposure to foreign exchange risk arising from the importation of product using a currency other than the functional currency. Exposure as of the current year-end is in respect of the United States Dollar and Chinese Yuan (30 June 2009: New Zealand Dollar). The amount payable at the year-end was USD33,000 (AUD39,000) and CNY280,000 (AUD49,000) (30 June 2009: NZD23,000 AUD18,000). Due to the minimal foreign currency transactions outstanding and the short term nature of the transactions the Group has not sought to manage associated foreign currency risk by entering into forward exchange contracts. Approximately 9% (2009: 9%) of the Group’s purchases are denominated in currencies other than the functional currency.

Had the Australian dollar strengthened/weakened by 10% against the foreign currencies, the Group’s post tax profit would have been approximately $7,000 higher/lower (30 June 2009: approximately $2,000 higher/lower).

(c) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash to ensure the ability to meet financial obligations as they fall due. The Group manages liquidity risk by maintaining a cash reserve and continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.

Maturities of financial instruments

The table below analyses the maturity of financial liabilities based on management's expectations. The risk implied from the values shown in the table reflects a balanced view of cash inflows and outflows. Leasing obligations, trade payables and other financial liabilities mainly originate from the financing of assets used in ongoing operations such as property, plant, equipment and investments in working capital such as inventories and trade receivables. These assets are considered in the Group's overall liquidity risk.



4 Financial risk management (Continued)

39

6 months or less

6 months – 2 years

>2 years Total

Consolidated 2010 $000 $000 $000 $000

Receivables 1,709 - 189 1,898

Payables 937 - - 937

Net Maturity 772 - 189 961

Consolidated 2009

Receivables 1,895 - 189 2,084

Payables 994 - - 994

Net Maturity 901 - 189 1,090

Fair value estimation

The methods for estimating fair value are outlined in the relevant notes to the financial statements.

2010

$000

2009

$000

5 Revenue

Sales revenue

- Sale of goods 9,774 10,999

- Interest income 91 10

- Other income 104 46

Total Revenue 9,969 11,055

6 Other income

Other income

- Net gains on disposal of property, plant and equipment 1,235 2,381

Total other income 1,235 2,381



40

2010

$000

2009

$000

7 Expenses

Cost of sales

Movement in raw materials 25 (28)

Raw materials and consumables used 3,410 3,924

Total raw materials and consumables used 3,435 3,896

Depreciation of non-current assets

Plant and machinery 607 573

Buildings 54 81

Total depreciation of non-current assets 661 654

Finance Costs

Bank - 74

Borrowing costs 7 17

Total finance costs 7 91

Bad and doubtful debts: Trade debtors - 47

Provision for employee benefits

Long service leave (11) 58

Annual leave 180 161

Total provisions for employee benefits 169 219

8 Income tax

(a) The components of tax expense/(benefit) comprise:

Current tax 124 (259)

Deferred tax 10 (113)

Income tax expense/(benefit) 134 (372)

(b) The prima facie tax on profit from ordinary activities before income tax is reconciled to the income tax as follows:

Profit/(loss) from continuing operations before income tax 675 1,461

Prima facie tax payable on profit from ordinary activities before income tax at 30% (2009: 30%) 203 439

Non assessable profit on disposal of properties (234) (803)

Sundry Items 1 (8)

Under provision in income tax in prior period 164 -

134 (372)



8 Income tax (Continued)

41

2010

$000

2009

$000

(c) Deferred tax assets movements:

The overall movement in the deferred tax account is as follows:

Opening balance 526 413

Credited to the income statement (10) 113

Closing balance 516 526

(d) Deferred tax assets components:

The balance comprises temporary differences attributable to:

Amounts recognised in profit or loss:

Provision for doubtful debts - 2

Provision for leave entitlements 197 251

Provision for diminution of inventory 3 21

Accruals 17 18

Operating lease settlement (17) (17)

Excess property WDV (tax) over WDV (book) 300 226

Tax amortisation of deferred costs 37 49

Prepayments (21) (24)

516 526

The deferred tax asset is expected to be recovered over the following timeframe:

Within 12 months 358 312

After 12 months 158 214

516 526

9 Trade and other receivables

CURRENT

Trade receivables 1,373 1,450

Provision for impairment of receivables - (7)

1,373 1,443

Prepayments 71 87

Other receivables 129 105

1,573 1,635

NON-CURRENT

Security deposit 189 189



9 Trade and other receivables (Continued)

42

(a) Allowance for impairment loss

Trade receivables are non-interest bearing and are generally on 30 day terms. A provision for impairment loss is recognised when there is objective evidence that an individual trade receivable is impaired.

At 30 June the ageing analysis of trade receivables is as follows:

Current 827 826

30 days 440 550

60 days 71 60

90+ days 35 14

1,373 1,450

No provision for doubtful debts has been made as at 30 June 2010.

Other balances within trade and other receivables do not contain impaired assets and are not past due. It is expected that these other balances will be received when due.

(b) Fair value and credit risk

Due to the short term nature of these receivables, their carrying value is assumed to approximate their fair value. The maximum exposure to credit risk is the fair value of receivables. Collateral is not held as security.

10 Inventories

At Cost

Raw materials and stores 628 603

Work in progress 103 95

Finished goods 3,531 3,693

Stock - consumables 43 50

Provision for diminution (10) (71)

4,295 4,370

11 Property, plant and equipment

LAND AND BUILDINGS

Freehold land at cost 365 737

Total freehold land 365 737

Buildings at cost 1,797 2,435

Less accumulated depreciation (491) (603)

Total buildings 1,306 1,832

Total land and buildings 1,671 2,569

Land and buildings comprises the Wendouree property (manufacturing plant and head office), in respect of which the independent market appraisal obtained in June 2008 indicated a value of $4,000,000.

2010

$000

2009

$000



11 Property, plant and equipment (Continued)

43

2010

$000

2009

$000

PLANT AND EQUIPMENT

Plant and equipment at cost 9,247 9,379

Less accumulated depreciation (6,722) (6,440)

Total plant and equipment 2,525 2,939

Total property, plant and equipment 4,196 5,508

(a) Movements in Carrying Amounts

Movement in the carrying amount for each class of property, plant and equipment between the beginning and the end of the current financial year:

Land

$000

Buildings

$000

Plant and Equipment

$000

Hire Purchase

$000

Total

$000

2010

Carrying amount at the beginning of the year

737 1,832 2,939 - 5,508

Additions - - 233 - 233

Disposals (220) (283) (40) - (543)

Reclassifications (to assets held for sale)

(152) (189) - - (341)

Depreciation expense - (54) (607) - (661)

Carrying amount at the end of year

365 1,306 2,525 - 4,196

2009

Carrying amount at the beginning of the year

1,228 2,694 2,062 1,266 7,250

Additions - - 189 - 189

Disposals (491) (781) (5) - (1,277)

Reclassifications - - 1,099 (1,099) -

Depreciation expense - (81) (406) (167) (654)

Carrying amount at the end of year

737 1,832 2,939 - 5,508



44

2010

$000

2009

$000

12 Trade and other payables

Trade and other payables 937 993

937 993

(a) Fair value

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

13 Provisions

CURRENT

Employee entitlements:

Annual leave 247 359

Long service leave 364 426

611 785

NON-CURRENT

Employee entitlements:

Long service leave 44 52

44 52

14 Contributed equity

(a) Share capital

10,000,443 (2009: 14,052,910) Ordinary shares, fully paid 8,700 8,700

(i) Ordinary shares have the right to receive dividends as declared and, in the event of winding up the company, to participate in the proceeds from the sale of all surplus assets in proportion to the number and amounts paid on shares held. Ordinary shares have no par value.

(ii) Ordinary shares entitle their holder to one vote, either in person or by proxy, at a general meeting of the company.

(b) Movement in ordinary share capital

On 6 November 2009 shareholders resolved to adopt a capital consolidation reducing the number of issued fully paid ordinary shares from 14,052,910 to 10,000,443.

(c) Capital Management

When managing capital, management's objective is to ensure the entity continues as a going concern as well as to maintain optimal returns to shareholders and benefits for other stakeholders. Management also aims to maintain a capital structure that ensures the lowest cost of capital available to the entity.

During 2010 special dividends of $1,200,000 were declared (2009: $Nil). Management gives particular regard to conservation of liquidity in its recommendations as to the declaration of dividends.



45

2010

$000

2009

$000

15 Reserves and retained earnings

Asset revaluation reserve

Asset revaluation reserve 698 698

Retained profits

Opening balance 3,632 1,799

Net income for the period 541 1,833

Dividends paid for ordinary shares during the financial year (1,200) -

Total 2,973 3,632

Nature and purpose of reserves

(a) Asset revaluation reserve

The asset revaluation reserve is used to record increments and decrements on the revaluation of non-current assets. The balance standing to the credit of the reserve may be used to satisfy the distribution of the bonus shares to shareholders and is only available for the payment of cash dividends in limited circumstances permitted by law.

16 Dividends

(a) Ordinary shares

Dividends paid for ordinary shares during the financial year 1,200 -

(b) Franking credits

Franking credits available for subsequent financial years based on a tax rate of 30% (2009: 30%) 1,714 2,229

The above amounts represent the balance of the franking account as at the end of the financial year adjusted for:

(i) franking credits that will arise from the payment of the amount of the provision for income tax;

(ii) franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and

(iii) franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date.

The consolidated amounts include franking credits that would be available to the parent entity if distributable profits of subsidiaries were paid as dividends.



46

17 Key management personnel

(a) Key management personnel (KMP)

Names and positions held of KMP in office at any time during the financial year are:

Key management person Position

A. O. Hay Non-executive Chairman

E. J. van Berkel Managing Director and Company Secretary

C. Stubbs Non-executive Director

E. W. Vetter Non-executive Director

Other KMP

J. Anderson Manufacturing Accountant

H.L. Costello Information Technology Manager

J.L. Kristan (appointed 1 February 2010) National Sales and Marketing Manager

R.B. Larkin Quality Systems and Supply Manager

T.K. Roberts (resigned 22 January 2010) Engineering Manager

J.A. van Berkel (resigned 17 February 2010) Marketing Operations Manager

KMP had authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, during the financial year.

(b) KMP compensation summary

Short-term benefits

$000

Post employment

benefit

$000

Total

$000

2010

Total compensation 777 166 943

2009

Total compensation 802 201 1,003

The company has taken advantage of the relief provided by Corporation Regulation 2M.6.04 and has transferred the detailed remuneration disclosures to the directors’ report. The relevant information can be found on pages 9 - 12 of the remuneration report.

(c) Equity instrument disclosures relating to KMP

Shareholdings

The number of shares in the company held during the financial year by each director of Berklee Limited and other KMP of the Group, including their personal related parties, are set out below. There were no shares granted during the reporting period as compensation.



47

17 Key management personnel (Continued)

Number of Shares held by KMP who remained in KMP roles as of the respective balance dates:

2010 Balance

1/07/2009 Capital

Consolidation Net change

other* Balance

30/06/2010

Directors of Berklee Limited

A.O. Hay - - - -

E.J. van Berkel 458,635 (132,264) - 326,371

C. Stubbs (retired 30 June 2010) 300,000 (86,516) 36,516 250,000

E.W. Vetter - - - -

Other KMP of the Group:

J. Anderson - - - -

H.L. Costello 49,100 (14,159) - 34,941

J.L. Kristan - - - -

R.B. Larkin - - - -

807,735 (232,939) 36,516 611,312

2009 Balance

1/07/2008 Capital

Consolidation Net change Balance

30/06/2009

Directors of Berklee Limited

A.O. Hay - - - -

E.J. van Berkel 458,635 - - 458,635

C. Stubbs (retired 30 June 2010) 300,000 - - 300,000

E.W. Vetter - - - -

Other KMP of the Group:

J. Anderson - - - -

H.L. Costello 49,100 - - 49,100

T.K. Roberts - - - -

J.A. van Berkel 400,000 - - 400,000

1,207,735 - - 1,207,735

* Net change other refers to shares purchased or sold during the financial year.

(d) Loans and other transactions with KMP

There were no loans paid or other transactions between Berklee Limited and its KMP during the current and prior period.



48

18 Related party transactions

(a) Parent entity

The ultimate parent entity within the Group is Berklee Limited.

(b) Subsidiaries

Interests in subsidiaries are set out in note 23.

(c) Key management personnel

Disclosures relating to key management personnel are set out in note 17.

(d) Terms and conditions

All transactions were made on normal commercial terms and at market rates, except that there are no fixed terms for the repayment of loans between parties.

Outstanding balances are unsecured and are repayable in cash.

19 Auditors' remuneration

During the year, the following fees were paid or payable for services provided by the auditor:

2010

$

2009

$

RSM Bird Cameron Partners

- Audit and review of the financial report 56,100 55,696

- Other services - 1,200

Total remuneration of auditors 56,100 56,896

20 Contingencies

The parent entity and Group had no contingent liabilities as at 30 June 2010.

21 Capital and leasing commitments

2010

$000

2009

$000

Operating Lease Commitments

Payable - minimum lease payments

- not later than 12 months 748 836

- between 12 months and 5 years 820 1,119

- greater than 5 years - -

1,568 1,955

Assets which are the subject of non-cancellable operating leases include motor vehicles, computer hardware and rental property. Motor vehicles have an average lease term of 1.5 years and an average implicit interest rate of 8%. Computer hardware has an average lease term of 1.5 years and an implicit interest rate of 6.7%. Rental property has an average lease term of 2 years with no implicit interest rate. The Group leases five properties under non-cancellable operating leases expiring within two to three years. The leases have varying terms and renewal rights. On renewal, the terms of the leases are renegotiated.



49

22 Financial reporting by operating segments

The company operates primarily in the automotive exhaust system component industry. All of the company's operations, assets and employees are located in Australia.

Manufacturing Distribution Total

$’000 $’000 $’000

2010

Revenue from external customers 2,216 7,558 9,774

Inter-segment revenue 4,079 - 4,079

Reportable segment profit / (loss) before income tax (179) (375) (554)

Reportable segment assets at 30 June 2010 9,041 4,922 13,963

2009

Revenue from external customers 1,829 9,170 10,999

Inter-segment revenue 4,804 - 4,804

Reportable segment profit / (loss) before income tax (95) (532) (627)

Reportable segment assets at 30 June 2009 9,704 5,156 14,860

Reconciliation of reportable segment profit or loss 2010 2009

$’000 $’000

Total profit / (loss) for reportable segments (554) (627)

Other profit and loss - -

Finance costs (7) (91)

Gain on sale of property, plant and equipment 1,236 2,381

Legal and accounting fees relating to unsuccessful sale of business - (202)

Elimination of inter-segment (profits) / losses - -

Profit / (loss) before tax from continuing operations 675 1,461

Reconciliation of reportable segment assets

Reportable segment assets 13,963 14,860

Unallocated assets - -

Total assets 13,963 14,860



50

23 Parent and controlled entity disclosures

The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policies described in note 2:

Name

Country of incorporation

Percentage Owned

2010

Percentage Owned

2009

Berklee Retail Pty Ltd Australia 100% 100%

Undacar Parts (VIC) Pty Ltd Australia 100% 100%

Undacar Parts (NSW) Pty Ltd Australia 100% 100%

Undacar Parts (QLD) Pty Ltd Australia 100% 100%

Undacar Parts (SA) Pty Ltd Australia 100% 100%

Undacar Parts (WA) Pty Ltd Australia 100% 100%

Undacar Parts (TAS) Pty Ltd Australia 100% 100%

Undacar Parts Pty Ltd Australia 100% 100%

There are significant restrictions on the ability of the Undacar Parts subsidiaries to transfer funds to the parent entity (Berklee Limited) in the form of repayment of loans amounting to $3,994,000.

Parent entity disclosures

The following supplementary information is provided in respect of the parent entity Berklee Limited, in accordance with revisions to corporate reporting enabled by the Corporations Amendment (Corporate Reporting Reform) Act 2010.

2010

$000

2009

$000

Current assets 4,708 4,154

Non-current assets 8,694 9,994

Total assets 13,402 14,148

Current liabilities 1,014 1,107

Non-current liabilities 18 22

Total liabilities 1,032 1,129

Net assets 12,370 13,019

Shareholders’ equity:

Issued and paid up capital 8,700 8,700

Asset revaluation reserve 698 698

Retained earnings - closing 2,972 3,621

Total equity 12,370 13,019

Profit for the year 549 1,824

Total comprehensive income for the year 549 1,824

The subsidiaries do not carry any external debt, and there are no guarantees entered into by the parent entity associated with the subsidiaries. The parent entity has no contingent liabilities, as disclosed in Note 20. Of the commitments disclosed in Note 21 $64,000 (2009: $96,000) represent obligations of the parent entity.



51

24 Events after the end of the reporting period

The divestment program was completed on 16 July 2010 with the settlement of the sale of the Glenorchy property. The $353,000 book value of this property is disclosed in the financial report as ‘assets classified as held for sale’ and the net selling price (contract price less transaction costs) was $880,000.

Except for the above, no other matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in future financial years.

25 Cash flow information

2010

$000

2009

$000

(a) Reconciliation of cash flow from operations with profit after income tax

Profit after income tax 541 1,833

Non-cash flows in profit

Depreciation 661 654

Other income (1,235) (2,381)

Changes in assets and liabilities

(Increase)/decrease in trade receivables 50 291

(Increase)/decrease in inventories 75 260

Increase/(decrease) in trade payables and accruals (58) (97)

Increase/(decrease) in income taxes payable 125 (246)

Increase/(decrease) in deferred tax assets 10 (113)

Increase/(decrease) in provisions (181) (117)

(12) 84

(b) Reconciliation of cash

Cash comprises:

Cash and cash equivalents 2,706 2,372

26 Earnings per share

Continuing operations

Basic earnings per share (cents per share) 4.7 13.0

Diluted earnings per share (cents per share) 4.7 13.0

Basic earnings per share

Net profit attributable to ordinary shareholders 541 1,833

Weighted average number of ordinary shares 11,532,609 14,052,910

Diluted earnings per share

There are no instruments on issue that are dilutive in nature.


Directors’ Declaration

30 June 2010

52

In accordance with a resolution of the Board of Directors of Berklee Limited I state that, in the opinion of the Directors:

1. The financial statements, notes and the additional disclosures included in the Directors’ Report designated as audited, of the Company and of the consolidated entity are in accordance with the Corporations Act 2001 including:

(a) giving a true and fair view of the Company’s and of the consolidated entity’s financial position as at 30 June 2010 and of their performance for the year ended on that date; and

(b) complying with Accounting Standards and the Corporations Regulations 2001;

2. The financial statements and notes also comply with International Financial Reporting Standards as disclosed in Note 2(a);

3. This declaration has been made after receiving the declarations required to be made to the Directors in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2010;

4. There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

On behalf of the Board

Director: Andrew O. Hay, Chairman

28 September 2010


Stock Exchange Information

30 June 2010

55

2010 2009Statement of security holders as at 31 August (a) Number of holders of fully paid ordinary shares 353 306

% of total holding by or on behalf of twenty largest shareholders

70.61% 76.93%

Distribution schedule of holdings: No of

Holders No of

Holders 1 - 1,000 67 55 1,001 - 5,000 141 107 5,001 - 10,000 56 69 10,001 - 100,000 68 52 100,001 and over 21 23 Holdings less than a marketable parcel 63 62 Voting rights: Ordinary shareholders upon a poll being taken are entitled to one vote for every fully paid share held.

(b) Substantial Shareholders Name No. of ordinary shares % ordinary shares Ausned Pty Ltd 2,134,837 21.35 W.M. van Berkel 602,362 6.02 Riniki Pty Ltd (Super Fund Account) 505,370 5.05 (c) Twenty Largest Shareholders Name No. of ordinary shares % ordinary shares Ausned Pty Ltd 2,134,837 21.35 W.M. van Berkel 602,362 6.02 Riniki Pty Ltd (Super Fund Account) 505,370 5.05 Angueline Investments Pty Limited 426,968 4.27 Dorran Pty Ltd 350,000 3.50 E.J. van Berkel 326,371 3.26 Ago Pty Ltd (Super Fund Account) 293,106 2.93 Riniki Pty Ltd (RJ & NC van Berkel Account) 286,282 2.86 P.J. Hayman 271,158 2.71 C. Stubbs & C. Stubbs (CE-ES Super Fund Account) 250,000 2.50 Maldew Holdings Pty Ltd (Super Fund Account) 248,693 2.49 Maelstrom Pty Ltd (Falkiner Super Fund Account) 248,353 2.48 R.G. Yannis 189,705 1.90 C.A. van Berkel 162,782 1.63 Marko Nominees Pty Ltd (No 1 Account) 147,343 1.47 R. van Berkel 143,177 1.43 M. Yannis 139,472 1.40 BP Sido Pty Ltd (Super Fund Account) 123,432 1.23 Top Pocket Pty Ltd (Super Account) 106,742 1.07 A.A. Weigall & P.R. Hunter (Cook Palmer Account) 105,557 1.06 7,061,710 70.61


Notice of Annual General Meeting

56

Notice is hereby given that the Annual General Meeting of the members of Berklee Limited will be held on Friday, 12 November 2010 at noon at Mercure Ballarat Hotel, 613 Main Road, Ballarat.

Business

1. To receive, consider and adopt the Directors’ Report and Financial Report for the year ended 30 June 2010 and the Auditor’s Report on the financial report and consolidated financial report.

2. Re-appointment of Director: Mr. E. W. Vetter

Mr. Egon Vetter retires by rotation in accordance with the Constitution of the company and, being eligible, offers himself for re-election.

3. Re-appointment of Director: Mr. G. M. Anderson

Mr. Grantly Anderson was appointed by the directors on 1 August 2010 as an additional director and under the Constitution of the Company holds office only until the conclusion of this Annual General Meeting and, being eligible, offers himself for re-election.

4. Re-appointment of Director: Mr. A. I. Beckett

Mr. Alan Beckett was appointed by the directors on 1 August 2010 as an additional director and under the Constitution of the Company holds office only until the conclusion of this Annual General Meeting and, being eligible, offers himself for re-election

5. To receive, consider and adopt the Remuneration Report for the year ended 30 June 2010 (Non-binding resolution).

By Order of the Board

E. J. van Berkel

Company Secretary

28 September 2010

Proxies

A member entitled to attend and vote at the meeting is entitled to appoint a proxy. A member entitled to cast two or more votes may appoint two proxies and may specify the proportion or number of votes each proxy is appointed to exercise. A proxy need not be a member of the company. Proxies must be lodged at the registered office of the company not less than 48 hours before the time of the meeting. A form of proxy is provided with this notice.


Proxy Form

57

I/We……………………………………………………………………..of……………………………………

……………………………………………………… being a member of Berklee Limited hereby appoint

Name of Proxy…………………………………………………………………………………………………

Address of Proxy………………………………………………………………………………………………

or failing him/her or if I/we have not inserted the name of proxy, the Chairman of the meeting, as my Proxy to vote for me and on my behalf at the Annual General Meeting of the company to be held on the 12th day of November 2010 and at any adjournment thereof.

If two proxies are being appointed, specify the proportion ( %) or the number ( ) of votes that this proxy is appointed to exercise.

If you wish to instruct your proxy how to vote, insert a tick in the appropriate box (if no instruction is given the proxy may vote as he/she thinks fit).

For Against Abstain

1. Receive the financial report and reports

2. Election of Director: Mr. E. W. Vetter

3. Election of Director: Mr. G. M. Anderson

4. Election of Director: Mr. A. I. Beckett

5. Adopt the remuneration report

If the member is a company If the member is an individual or joint shareholder

……………………………………………… ……………………………………………..

Director Signature

……………………………………………... ……………………………………………..

Secretary Signature

……………………………………………… ……………………………………………..

Date Date


Proxy Form

58

Appointment of Proxies

A member entitled to attend and vote at the meeting is entitled to appoint a proxy. A member entitled to cast two or more votes may appoint two proxies and may specify the proportion or number of votes each proxy is appointed to exercise. A proxy need not be a member of the company.

If a member appoints one proxy only, that proxy shall be entitled to vote on a show of hands. If a member appoints two proxies, neither proxy shall be entitled to vote on a show of hands. Where a member appoints two proxies and the appointment does not specify the proportion or number of the member’s votes each proxy may exercise, each proxy may exercise half of the votes.

The proxy and any power of attorney or other authority under which it is signed must be lodged at the registered office of the company not less than 48 hours before the time of the meeting. Lodgement may be made:

By hand to: 265-285 Learmonth Road, Wendouree, Victoria 3355

By post to: PO Box 83, Wendouree, Victoria 3355

By facsimile to: (03) 5338 1111

berklee limited and controlled entities...berklee limited abn: 80 004 661 205 directors’ report 30...

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