atlasgroup.com.au

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annual report 2008For

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ContentsHighlights 1Chairman and Managing Director’s Review 2Review of Operations 4Directors’ Report 10Operating and Financial Review 12Remuneration Report 16Corporate Governance Statement 2008 22Auditor’s Independence Declaration 26Financial Report 27

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Bisalloy Excels & Distribution Turnaround■ Bisalloy Steels continues excellent performance exceeding profit expectations following record production

■ Distribution Business delivers improved margins in the second half of FY08

■ Distribution Business achieves operating and administrative expense reductions as planned and announced at the end of the first half. Full year Distribution Business EBIT loss contained to $17.4m before impairment charges relating to its sale

■ Atlas Group returns to positive EBIT delivering a full year result of $6.2m (before impairment charges), exceeding 24 June 2008 profit forecast of $5m

■ Improved safety performance by Distribution Business and Bisalloy Steels with no LTI’s in last quarter of FY08

■ On 24 June 2008 the Group announced it had received an offer to acquire its Distribution Business with formal documentation being signed on 9 September and completion expected at the end of October subject to shareholder approval at the Annual General Meeting

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This financial year has been a great challenge for Atlas Group Holdings Limited. The rapid decline in stainless steel prices in July and August 2007 led to an unprecedented drop in margins for the Distribution Business both in Australia and New Zealand. This single event severely impacted upon profitability, particularly for the first half. During this time, management concentrated on maintaining sales levels in the Distribution Business. Management also worked on restructuring the Distribution Business which resulted in high redundancy costs but operational and administration costs were reduced to acceptable levels. The slowdown, particularly in the New Zealand economy, led to further restructuring which was largely completed in the second half of the financial year.

Shareholders are aware of the offer made by Balron for the Distribution Business. Your Board recommends acceptance of their offer in the absence of a superior offer for the business or material change in current circumstances. Shareholders will be asked to approve the sale at the Annual General Meeting.

Bisalloy Steels, the most profitable part of our business, has had a tremendous year exceeding its budgeted profit target by 48.9% as manufacturing efficiency and output improved. In December, during the programmed maintenance period, Bisalloy successfully commissioned a laser guided vehicle (LGV) which overcame a bottle neck in the production line. The efficiency of material flow improved dramatically through the plant after the LGV commenced and helped Bisalloy achieve record production tonnage for the year, well ahead of plan.

Bisalloy Steels results 2006-2008

FY06A $m

FY07A $m

FY08A $m

TOTAL REVENUE 89.9 101.5 138.8

EBIT 20.6 17.2 28.7

EBIT % 22.9% 16.9% 20.6%

The above financial results are for Bisalloy Steels only and exclude corporate costs and are before taking to account minority interest share of profit.

The demand for Bisalloy Steels’ product has continued into the New Year with its distribution operations performing well in Thailand and Indonesia. The profit performance for Bisalloy Steels is expected to be ahead of budget for the first quarter.

Chairman and Managing Director’s ReviewF

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Bisalloy Steels has also entered into the next phase of negotiations with a Chinese steel maker to build a joint venture plant in China to take advantage of the enormous developing market for quenched and tempered plate in that country and South East Asia. The plant will also provide much needed product at a very competitive price to Australian operations.

Bisalloy Steels has a very bright future and we will endeavor to continue to increase its production output to meet current demand in the coming financial year.

Safety remains a key focus across all businesses with a number of initiatives such as the Stop Think Assess Respond (STAR) program. These programs and the continuous attention of the board and management has led to a significant drop in the frequency of safety incidents such that there was no ‘lost time through injury’ reported in the last quarter of FY08.

Overall it has been another difficult year and our thanks go to our fellow directors, senior management and staff. We also thank our shareholders who have endured with us, and we predict a return to dividends in this financial year based on current performance.

The Company will hold its 2008 Annual General Meeting at the Banking Chamber Theatrette, Ground Floor, 127 Collins Street, Melbourne, Victoria at 10.00am on 30 October 2008. We look forward to welcoming you at the meeting.

Phil Cave Kym Godson Chairman CEO

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Review of Operations4

OverviewMarket conditions in the 2008 financial year (FY08) were the most challenging in recent memory with significant volatility in steel markets. Nickel prices, the key driver of stainless steel prices, peaked at US$54,025 per tonne in May 2007 and then fell to just above US$17,000 per tonne by June 2008. The fall in nickel prices has had a major negative impact on the profitability of the Distribution Business throughout FY08.

Carbon steel prices have also seen great volatility with significant increases in plate prices since March 2008, impacting the cost of Bisalloy Steels greenfeed.

Despite the increased volatility, the Atlas Group has been able to increase revenue by 5.6% over last year and as expected, returned to profit after interest and tax in the last few months of the FY08. The second half of the financial year delivered a normalised Earnings Before Interest and Tax (EBIT) of $10.4m for the Atlas Group compared to $7.7m for the previous corresponding period.

Bisalloy Steels had a record year for tonnes produced and profitability. Performance is expected to continue through FY09 and further improve in the following year when the business plans production increases off the back of additional targeted capital expenditure and shift changes.

The restructure of the Distribution Business has delivered the expected returns. Costs have been reduced to the levels sought and are controlled.

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Bisalloy Steels Bisalloy Steels comprises Bisalloy Steels Pty Ltd in Australia and the joint venture distribution businesses in Thailand and Indonesia.

Bisalloy Steels is Australia’s only processor of Quench and Tempered (Q&T) high-tensile, abrasion resistant and armour grade alloyed steel plates. At its Unanderra facility south of Sydney, Bisalloy Steels manufactures Q&T products under the Bisplate® brand which is sold through a network of distributors across Australia, through joint venture businesses in Indonesia and Thailand and through agents in at least a dozen countries worldwide.

The process used to manufacture Q&T alloyed steel plate is not easily replicated. Product quality and cost competitive output is highly dependent on the intellectual property associated with:

■ input alloyed steel plate (greenfeed) formulations;

■ processes and timings required to achieve the metallurgical changes desired;

■ reliability and suitability of the continuous processing equipment; and

■ quality and experience of the workforce.

Products

Bisalloy Steels has 29 years of experience in Q&T plate processing and manufactures a cost competitive, world class product. The major product categories are:

1. Wear plate - used in applications where abrasion resistance is required, such as the linings of dump trucks and drag line buckets in mining.

2. High tensile plate - used in any application where strength to weight ratios are important, such as the booms and gantries of cranes, transport applications and pressure vessels.

3. Armour plate - used in the construction of military vehicles and defence applications.

Customer Base

The future growth and profitability of Bisalloy Steels is underpinned by a world-wide shortage of Q&T plate production capacity and the customer base of the business in the mining, construction and defence industries in Australia and overseas. All three segments continue to show strong demand.

Bisalloy Steels distributes its product through distributors and directly to equipment manufacturers in Australia and overseas.

Major customers include:

■ BlueScope Distribution;

■ OneSteel; and

■ Atlas’ Distribution Business.

The two joint venture operations – PT Bima Bisalloy, which is 60% owned by Bisalloy Steels and Bisalloy Thailand, which is 85% owned by the Atlas Group – distribute product in Indonesia and Thailand respectively.

In addition there are a number of agents for Bisplate located throughout Asia.

Products by Tonnes Sold

Armour Pate

Structural Pate Wear Pate

Market Sectors by Tonnes

AgricultureGeneral Engineering

Military

Transport

Mining

Robert Terpening, General Manager Bisalloy

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Safety

Safety is a key focus for the business with an aim of zero harm through safety systems that involve and challenge all employees. Every person at Bisalloy Steels is empowered to Stop and Think about what their role involves, Assess any risks that may emerge and then pro-actively Respond to those risks with appropriate actions. The STAR program has delivered significantly improved Occupational Health & Safety, quality and environmental outcomes in the past year.

Results

Overall FY08 was a very successful year for Bisalloy Steels Bisalloy Steels in Australia experienced strong demand across all markets – delivering record production, record sales revenue and record profit. The domestic Q&T market continues to be underpinned by mining activity particularly in Western Australia, Queensland and South Australia, not only from new capital investment but also from maintenance of existing plant and equipment. Consistent demand in the Australian market is forecast to continue for several years.

Export opportunities reflect a general shortage of Q&T capacity worldwide and as such export sales have made a significant contribution to profitability. Development and approval of armour plate grades has continued with Bisalloy Steels now recognised as a regional supplier of this expanding application.

Recent investments in enhanced production equipment have significantly increased production efficiency. During the year, Bisalloy Steels commissioned a Laser Guided Vehicle to eliminate a production bottleneck, capturing the full benefit of the new shot blaster installed in FY07.

The Bisalloy Steels joint venture businesses in Indonesia and Thailand have had particularly strong sales results and associated profit contributions this year. Both businesses finished the financial year well ahead of operating plan in terms of tonnes, sales revenue and margins. Diversification of their product offerings, which took place over recent years, is now combining with Q&T sales to deliver strong business growth. Additional local funding sources have been obtained during the year to support the strategic growth. Both businesses are now pursuing opportunities to add value in the supply chain to support margin growth in coming years.

Growth in Export Demand

Review of OperationsSa

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01981 1985 1989 1993 1997 2001 2005

Domestic Export Total

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Outlook

Bisalloy Steels is on target to achieve its FY09 budgeted EBIT.

Strong on-going demand for Q&T plate in the mining, construction and defence industries combined with targeted capital expenditure to further increase capacity at the Unanderra facility, will be the basis for the continued growth of the business in coming years.

Bisalloy Steels has three strategic projects underway as set out below which will further increase capacity at Unanderra and take advantage of the continuing world-wide demand for Q&T plate.

1. Continuous Production

To further enhance the production output of the Unanderra facility over the coming years it is proposed to maximise utilisation of the existing production equipment by moving to 24/7 operations. In FY09 management plans to make the following changes to facilitate this increase in production:

■ replace existing cranes;

■ replace the old shot blaster at the end of the production line - as mentioned above a new shot blaster at the other end of the production line was commissioned in FY08;

■ install a new Production Logic Control System;

■ train additional shift operators; and

■ change the plant maintenance regime.

These changes are being made so that Bisalloy Steels can move to continuous production by the end of this financial year, subject to demand requirements. This move will conservatively add around 7,000 tonnes p.a. to the plant’s capacity.

2. Chinese Joint Venture Opportunity

Earlier this year, Atlas Group announced that Bisalloy Steels had entered into a “Letter of Intent” with a major Chinese steel mill. The aim is to establish a joint venture to develop a 140,000 tonne p.a. heat treatment centre in China to produce Q&T alloyed steel plate. Such a facility would have three key strategic outcomes. It would:

■ allow Bisalloy Steels to participate in the significant growth of the Chinese Q&T market;

■ allow production output from such a facility to be directed into existing, and future, distribution businesses in South East Asia; and

■ provide a source of light gauge Q&T plate for the Australian market thus allowing the Unanderra facility to specialise in armour grade and heavy gauge Q&T plate production.

A feasibility study is currently being completed and negotiations are well advanced.

3. Greenfeed Supply

Bisalloy Steels has also been able to develop close technical relationships with several Chinese mills over recent years. Trials with Chinese greenfeed during the first half of FY08 led to commercial orders being placed late in the year. Chinese greenfeed is now being regularly delivered to Port Kembla and used in production. These sourcing options provide:

■ supply certainty, should locally sourced supply become limited or fail to meet the growth of Bisalloy Steels’ production in future years; and

■ a means to maintain world competitive input costs.

Subsequent to balance date, Bisalloy Steels hedged the exchange rate for budgeted net foreign exchange exposures for FY09 at a very competitive rate.

Growth in Indonesia and Thailand

EBIT

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Sales A

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6,000

5,000

4,000

3,000

2,000

1,000

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20,000

18,000

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

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Sales-Thailand (RHS) Sales-PT Bima (Indonesia) (RHS)

EBIT-Thailand (LHS) EBIT-PT Bima (Indonesia) (LHS)

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Distribution BusinessThe Distribution Business comprises fourteen regional distribution centres and satellite warehouses throughout Australia and New Zealand. It supplies specialty metals solutions and engineering steels just-in-time to fabricators, original equipment manufacturers, defence contractors and the food, mining, oil & gas and chemical industries.

FY08 saw significant effort focused on delivering an operational turnaround in the business. Operating and administrative costs were contained to targeted levels as margins and sales tonnages improved on the back of better inventory mix and selling activities. Encouragingly, there were further successes in the projects area with successful tenders into the rail, oil & gas and water infrastructure sectors.

Project Services

In a year of consolidation, Project Services continued to resolve outstanding issues related to projects commenced under previous management. At the end of the period there were two projects still open with one due to be closed out in September 2008. Costs were also brought under control.

A key focus for the year has been the roll out of the decentralised project model. Regional offices are now resourced to service projects locally and the signs are positive with some early wins under this new model.

Risk management is key in this field and work has commenced to ensure the management framework supports the safe, successful and profitable implementation of projects across the business.

Fluids

In a year which saw carbon steel raw materials reach an all time high, Atlas continued to grow its market share with the establishment of a strategic initiative focused solely on fluid products. This was achieved through greater customer contact and improved stock mix and range, while product profitability rose in line with world pricing. Our strategy of targeting customers in this specific market segment has ensured strong results. Recruitment and retention of suitably qualified staff has also improved our ability to service this market.

Our national growth strategy continues to deliver results and further focus on the resource sector is expected to deliver improved results for FY09, if favourable market conditions prevail.

New Zealand Tube Mills

The New Zealand Tube Mills (NZTM), based in Wellington, is the supplier of tubular sections in stainless steel and carbon steel materials.

FY08 was transitional in many ways for NZTM. A substantial headcount reduction in conjunction with a shift restructure has given a lower cost base with increased alignment to a more dynamic sales model. Continual operational improvements in inventory, manufacture and staffing has left NZTM in a more competitive position moving into FY09. Direct sales to customers for carbon steel were slow in expanding in FY08 but are still relatively buoyant. The main route to market was maintained and expanded through the Distribution Business network and the direct merchant base in New Zealand.

Atlas Metals Processors

Atlas Metals Processors (AMP) is located at Warragamba NSW and provides world class processing of stainless steel and aluminium sheet & coil as well as coated carbon steel to support the Distribution Business across Australia and New Zealand.

FY08 continued to see further improvement in most aspects of the business. Safety performance improved 23% over the previous year and at the same time efficiencies and productivity improvements resulted in an EBIT of $311k (2007: $261k) which was up 19% on the previous year. This result was realised despite a 13% reduction in order volume associated with Alcoa ARP’s decision to quit the Australian aluminium sheet & coil business.

Review of Operations

Andrew Luxton, COO Distribution

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Summary

Management is confident of continued improvement of the operations as initiatives around the management of costs, margins and inventory mix gain greater traction. Further initiatives are planned to drive business performance including:

■ changes to the supply chain to increase stockturns by 20% and lower divisional operating inventories to under $100m;

■ ramping up of specialised resources committed to driving project sales to further capture value from the resources boom;

■ a strategic review of costs associated with centrally provided “Group Services” to “right-size” the resource to suit the business;

■ a strategic review of the warehouse footprint required to meet future service requirements; and

■ rationalisation of suppliers to provide greater leverage with overseas mills and stockists.

Offer from Balron and Valuation of Disposal Group Held for SaleAs announced on 24 June 2008, the Company has received an offer from a consortium of investors, including Balron Nominees Pty Limited (“Balron”), to acquire the Distribution Business for approximately $90m, subject to adjustment for changes to Operating Capital Employed at completion. The Distribution Business comprises the Company’s Australian and New Zealand distribution businesses, Atlas Metal Processors, Durinox stainless steel reinforcing bar, Schumag wire drawing, New Zealand Tube Mills and centralised support functions.

The sale price represents a discount of approximately $50m from Operating Capital Employed.1 The Company is required under Australian Accounting Standards to reclassify the Net Assets of the Distribution Business as a “Disposal Group Held for Sale” and value the net assets at their fair value less costs to sell as determined by the sale proposal, rather than their value in use. The restatement of net assets to fair value results in an impairment charge, including write-off of goodwill, of $54.9m being taken against profit for the year.

1Operating Capital Employed or “OCE” is defined as the sum of property plant and equipment at written down value, net accounts receivable and other assets, and net inventory less trade creditors, accruals and provisions.

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Mr Phillip Cave AM B.BUS, FCPA CHAIRMAN

Skills & Experience: Mr Cave is an experienced director, Chairman and Chief Executive Officer with a career in major corporate turnaround projects, structured finance and corporate advisory service. Mr Cave is currently Chairman of Golden Circle Ltd and the Northcott Society. Over a 35 year career, Mr Cave has held Executive Director positions with PayConnect Solution, Parbury Limited, Wormald International, Reil Corporation and Macquarie Bank. Mr Cave’s experience combines a mixture of operational management expertise across a wide variety of industries with an in-depth knowledge of finance and banking.

Term of office: A founding director of the Company and Chairman, appointed in November 2001. Last re-elected in November 2007.

Board Committees:■ Chairman of the Nominations & Remuneration Committee

■ Audit & Risk Committee

Public company directorships: ■ Golden Circle Limited, since Nov 2007

Other directorships: ■ Chairman of the Northcott Society

■ Chairman Anchorage Capital Partners

Mr Kym Godson DIP TECH (BUS ADMIN), FAICD, FAIM MANAGING DIRECTOR AND CEO

Skills & Experience: Mr Godson was reappointed as the CEO and Managing Director on 1 February 2007 after initially retiring from this position in July 2005. He is an experienced public company director and has extensive experience in the management of industrial businesses, particularly within the steel industry. He was the Managing Director of Atlas Steels Limited for five years until its takeover by Email Limited. During that period Atlas experienced strong growth and development. Prior to this he held general management roles within several different operations of the ACI/Acmil/PGH group.

Term of office: A founding director of the Company, appointed in November 2001. Last re-elected at the 2006 AGM, as the managing director from 1 February 2007 he is not subject to re-election by rotation.

Board Committees: Nil

Public company directorships: ■ Tutt Bryant Group Limited, since Oct 2005

Directors’ Report

The names and details of directors of Atlas Group Holdings Limited (“the Company”) in office during the financial year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise noted below.

Your directors submit their report for the year ended 30 June 2008.

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11Mr Richard Grellman AM FCA NON-EXECUTIVE DIRECTOR

Skills & Experience: Mr Grellman brings significant accounting and finance skills to the Company, having had 32 years experience in the accounting profession. He was a partner at KPMG from 1982 to 2000.

Term of office: Appointed in February 2003. Last re-elected in November 2006 AGM, he is retiring by rotation pursuant to the requirements of the Company’s Constitution in order to seek re-election at the 2008 AGM.

Board Committees: ■ Chairman of the Audit & Risk Committee

■ Nominations & Remuneration Committee

Public company directorships: ■ AMP Limited, since 2000

■ Chairman, Trafalgar Corporate Group Limited, since 2002

■ Director, Centennial Coal Limited, since Feb 2008

Other directorships: ■ Chairman, Board and Council of the NSW Motor Accidents

Authority

■ President and Chairman, Board of Mission Australia

■ Chairman of NSW Lifetime Care and Support Authority

Mr Graeme Pettigrew FPNA, FAIM, FAICD NON-EXECUTIVE DIRECTOR

Skills & Experience: Mr Pettigrew is an experienced company director. A former Chief Executive Officer of CSR Building Products Pty Ltd, he has extensive experience in manufacturing, supply and distribution in the building products industry both in Australia and Asia.

Previously he was the Managing Director of Chubb Australia Limited and Wormald Security Australia Pty Limited and involved in the manufacturing, contracting and service industries.

Term of office: Appointed on 24 April 2006. Last re-elected in November 2007, he is retiring by rotation pursuant to the requirements of the Company’s Constitution in order to seek re-election at the 2008 AGM.

Board Committees: ■ Audit & Risk Committee

■ Nominations & Remuneration Committee

Public company directorships: ■ Adelaide Brighton Ltd, since Aug 2005

Other directorships: ■ Lafarge Plasterboard Pty Ltd

■ Ampcontrol Pty limited

Mr David Cleland LLB, BSc, GDLP GENERAL COUNSEL & COMPANY SECRETARY

Skills & Experience: Mr Cleland is an experienced lawyer having held in-house, private practice and government roles. Before joining the Company he was the head of legal for the Coles Myer Liquor Group and a Senior Associate with international law firm Baker & McKenzie where he worked in the firm’s Sydney and Chicago offices. He is a member of the Law Institute of Victoria, the Australian Corporate Lawyers Association and is currently studying the Graduate Diploma in Corporate Governance with Chartered Secretaries Australia.

Term of office: Appointed in April 2005.

Directors’ meetings

The number of directors meetings and number of meetings attended by each of the directors of the Company during the financial year are:

Committee Meetings

Directors’ Meetings

Audit & Risk

Nominations & Remunerations

Number of Meetings Held

15 4 1

Number of Meetings Attended

P J Cave 15 4 1

K Godson 15 - -

R Grellman 15 4 1

G Pettigrew 14 4 1

From left to right, Mr Grellman, Mr Pettigrew, Mr Cleland

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12 Operating and Financial Review

OperationsA review of the operations of the Company and the consolidated entity during the financial year is set out in the Chairman and Managing Director’s Review and the Review of Operations located at the front of this report. This also includes the likely developments and expected results of those operations. Further information has not been included as the directors believe to do so would result in the unreasonable prejudice to the Company.

Principal ActivitiesThe principal activities of the consolidated entity during the financial year were the primary processing and distribution of specialty metal products.

Atlas defines specialty metals as typically high value metals with specific non-corrosive, structural, wear resistant, or specialist industrial applications.

Disposal Group Held for SaleOn 24 June 2008 the Company announced that it had received an offer to acquire the Company’s Distribution Businesses in Australia and New Zealand and formal documentation was signed on 9 September 2008. The offer is currently subject to a number of conditions including final financing approval for both parties and shareholder approval. The shareholder meeting has been set for 30 October 2008 and provided approval is granted, the sale is expected to complete on 31 October 2008.

This year’s Annual Report has been prepared on the basis that the sale of the Distribution Business will be completed on 31 October 2008. As a result, the Group has applied applicable Australian Accounting Standards to classify the Distribution Business as held for sale and has valued the carrying amount of the assets within the disposal group at their fair value less costs to sell. As a result, the Group has recognised impairment charges totalling $54,948k.

Operating Result for the YearThe Group’s net loss for the year after income tax was $63,255k (2007: $1,062k).

However, as noted above, the loss for the year includes the impairment loss of $54,948k required to remeasure the Distribution Businesses’ assets as a disposal group held for sale at fair value less cost to sell.

The Group’s net loss for the year is reconciled to the profit from continuing operations as follows:

2008

$000s

2007

$000s

Net profit/(loss) for the period (63,255) (1,062)

Add back

Net profit/(loss) from discontinued operations

(57) (108)

Net profit/(loss) from disposal group held for sale

(78,521) (9,107)

(78,578) (9,215)

Net profit/(loss) from continuing operation 15,323 8,153

Operating results are summarised as follows:

2008

Revenue

$000s

Results

$000s

Bisalloy Steels (Continuing group) 128,114 29,029

Distribution Business (Disposal group) 329,071 (72,397)

Discontinued operations - (57)

457,185 (43,425)

Unallocated expenses (5,298)

Profit/(loss) before income tax and financing costs

(48,723)

Financing costs (14,567)

Income tax benefit 35

(63,255)

Revenue by geographic segments follows:

2008

$000s

2007

$000s

Australia 386,661 364,166

New Zealand 46,660 51,663

433,321 415,829

Disposal group (329,071) (323,774)

Discontinued operations - (9,847)

Revenue from continuing operations 104,250 82,208

Asia 23,864 17,266

128,114 99,474

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Shareholder ReturnsDividends

No dividend has been declared in respect of the financial year ended 30 June 2008. The final dividend from the previous financial year was paid in November 2007.

Total Equity

The losses incurred by the Distribution Business and the impairment charges taken as a result of the businesses being remeasured to fair value less costs to sell have had a significant impact on Total Equity. Total Equity as at 30 June 2008 was negative $12,069k (2007: positive $53,645k).

The directors expect that with the sale of the Distribution Business, dividend payments will be able to resume by the end of FY09.

Earnings per Share

Liquidity and Capital Resources

As previously advised, the Company’s need to restructure the Distribution Business and manage unprecedented volatility in stainless and carbon steel prices at the same time materially impacted profitability and cash flow, particularly in the first half of FY08. However, borrowings fell by $12,533k from $144,835k at 30 June 2007 to $132,302k at 30 June 2008 due to tighter control of working capital and the company returning to profitability in the second half. Inventories fell by $22,244k over the same period.

During the year, Atlas Group received significant support from its financier, GE Commercial, and suppliers to meet the challenge. At the Company’s initiation, the GE Commercial facility was renegotiated such that:

■ the facility was increased by $25m to $150m and extended to 2010; and

■ certain financial covenants were re-based to meet the needs of the business as the turnaround project progressed.

Cash flow is managed daily. Actual receipts and payments are compared to forecast and adjustments made with reference to major suppliers and the financier. Each month the cash flow is reforecast for the following six weeks and payment schedules agreed with major vendors.

The proposed sale of the Distribution Business will result in the Company’s total borrowings being reduced by approximately $90m. Subject to working capital fluctuations, it is anticipated that the Company will be left with a residual debt of approximately $45m following the transaction which will require a facility based on cash flow rather than collateralised borrowings. The transaction means the existing loan with GE is either repaid or restructured and therefore must be restated as a current liability.

2008 2007 2006 2005 2004

Basic earnings per share (cents)

-61.3c -1.4c -4.4c 13.9c 12.2c

Basic earnings per share adjusted * (cents)

14.7c 8.0c 5.7c 13.0c 12.2c

Net (loss)/profit attributable to members ($’m)

-63.9 -1.5 -4.4 12.7 10

Net (loss)/profit attributable to members adjusted * ($’m)

15.3 1.8 5.8 11.8 10

Return on equity (reported PAT/equity) (%)**

- -2.0% -6.9% 19.0% 21.1%

Return on equity (adjusted * PAT/equity) (%)**

- 3.3% 10.0% 17.8% 21.1%

Gearing (debt / debt + equity) (%)

109% 80% 59% 61% 68%

Dividends paid (cents)

0.0c 3.0c 7.8c 9.0c 7.8c

Dividend franking

- - 100% 100% 100%

* - from continuing operations before non-recurring items

** - return on equity is nil as a result of the negative equity position as at 30 June 2008.

John Reid, CFO

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Risk ManagementThe Board is responsible for ensuring that risks, and also opportunities, are identified on a timely basis and that the Group’s objectives and activities are aligned with the risks and opportunities identified by the Board.

The Board has established an Audit and Risk Committee comprising non-executive directors, whose meetings are also attended by the executive directors. In addition, sub-committees are convened as appropriate in response to issues and risks identified by the Board, and the sub-committee further examines the issue and reports back to the Board.

The Board has a number of mechanisms in place to ensure that management’s objectives and activities are aligned with the risks identified by the Board. These include the following:

■ Board approval of a strategic plan, which encompasses the Group’s vision, mission and strategy statements, designed to meet stakeholders’ needs and manage business risk.

■ Implementation of Board approved operating plans and budgets and Board monitoring of progress against these budgets, including the establishment and monitoring of KPIs of both a financial and non-financial nature.

■ The establishment of committees to report on specific business risks, including for example, such matters as environmental issues and concerns and occupational health and safety.

■ The Board reviews financial risks such as the Group’s liquidity, currency, interest rate and credit policies and exposures and monitors management’s actions to ensure they are in line with Group policy and any deviation from policy are reported and resolved.

Statement of compliance

This report is based on the guidelines in The Group of 100 Incorporated publications Guide to the Review of Operations and Financial Condition.

State of affairs

Total equity decreased to negative $12,069k from positive $53,645k, a decrease of $65,714k. The movement was principally a result of the loss incurred in the year, inclusive of the $54,948k impairment charge taken as a result of the proposed sale of the Distribution Business, and dividend payments in the year. Share capital of $726k was raised in the year through share issues arising from the dividend reinvestment plan.

Significant events after the balance date

On 9 September 2008, the Company announced that formal documentation had been completed in respect of the sale of the Distribution Business to Balron.

Likely developments

The Directors are confident that the sale of the Distribution Business will complete on 31 October 2008 following a meeting of shareholders on 30 October 2008. The Atlas Group has met its budget for the first two months of FY09.

The outlook for Bisalloy Steels is extremely positive with increased capacity, ongoing domestic demand and increased export orders for product. At the date of this report, Bisalloy Steels remains on track to achieve a full year EBIT for FY09 of $30.2m excluding corporate costs and minority interests.

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Indemnification and insurance of directors and officers

The Company must, subject to certain exceptions, set out in the constitution, indemnify each of its officers on a full indemnity basis and to the full extent permitted by law against all losses, liabilities, costs, charges and expenses incurred by the officer, as an officer of the Company (including all liabilities incurred where the officer acts as an officer of any other body corporate at the request of the Company) including any liability for the negligence and for reasonable legal costs.

During the year or since the end of the year, the Company has paid premiums in respect of a directors and officers liability insurance policy. Details of the nature of the liabilities covered or the amount of the premium paid in respect of the policy have not been disclosed, as such disclosure is prohibited under the terms of the contact.

Environmental regulation

The consolidated entity’s operations are not subject to any significant environmental regulations under either Commonwealth or State legislation, other than those set out below. The Board believes that the consolidated entity has adequate systems in place for the management of its environmental requirements and is not aware of any breach of those environmental requirements as they apply to the consolidated entity.

Entities within the Atlas Group comply with the requirements to dispose of trade waste when needed through the use of licensed contractors such as Veolia. Bisalloy Steels Pty Limited holds and complies with the requirements of a Dangerous Goods Licence.

Tax consolidation

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

Rounding

The amounts contained in this report and in the financial report have been rounded to the nearest $1,000 (where rounding is applicable) under the option available to the company under ASIC Class Order 98/0100. The Company is an entity to which the Class Order applies.

Auditor independence

The directors received the declaration on page 26 from the auditor of Atlas Group Holdings Limited.

Non-audit services

The following non audit services were provided by the Company’s auditor, Ernst & Young. The directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised.

Ernst & Young received or are due the following amounts for the provision of non-audit services in relation to the year ending 30 June 2008:

Tax compliance services $239,000

Other non-audit services $23,000

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This report outlines the remuneration arrangements in place for directors and executives of the Company.

Remuneration policy

The remuneration policy is set in recognition that the performance of the Company depends upon the quality of its directors and executives. In order to perform, the Company must be successful in attracting, motivating and retaining directors and executives of the highest quality.

To assist in achieving this objective, the remuneration policy embodies the following principles:

1. Provide competitive remuneration to attract high calibre directors and executives.

2. Align executive rewards with creation of shareholder value.

3. Ensure a significant component of executive remuneration is ‘at risk’ dependant upon meeting pre-determined performance hurdles.

4. Establish appropriately demanding performance hurdles in relation to variable executive remuneration.

5. Provide the opportunity for non-executive directors to sacrifice a portion of their fees to acquire shares in the Company at market price.

Nominations and Remuneration Committee

The Nominations and Remuneration Committee is responsible for determining and reviewing compensation arrangements for the directors, the Managing Director and other senior executives, and the review and recommendation of general remuneration principles.

Remuneration structure

The structure of non-executive director and executive remuneration is separate and distinct, in accordance with good corporate governance principles.

Non-executive director remuneration

Objective

The Board sets aggregate remuneration at a level which is intended to provide the Company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders.

Structure

The Company’s constitution provides that the non-executive directors are each entitled to such remuneration as the directors decide for their services as a director, but the aggregate remuneration of all non-executive directors shall not exceed in any financial year the amount determined by the company in a general meeting. The amount is currently fixed at $500,000.

The remuneration of non-executive directors must not include a commission on, or a percentage of, profits or operating revenue but directors are entitled to be reimbursed for travelling and other expenses incurred in attending to the Company’s affairs.

Each director receives a fee for being a director of the Company and an additional fee for each Board Committee on which a director sits. The payment of additional fees for serving on a committee recognises the additional time commitment required by directors who serve on one or more sub committees.

Non-executive directors are encouraged by the Board to hold shares in the Company and are able to participate in the Non-executive Director Share Plan. Under the NED Share Plan a non-executive director can choose to sacrifice up to 100% of their annual director’s fee and instead be allocated shares up to the equivalent value. The value of the allocated shares is determined by reference to the market value on the day they are acquired on market.

The remuneration of non-executive directors for the period ending 30 June 2008 is detailed in the table on page 18 of this report.

Senior manager and executive director remuneration

Objective

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

■ reward executives for Company, business unit and individual performance measured against targets set by reference to appropriate benchmarks;

■ link reward with the achievement of the Company’s strategic goals;

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

■ ensure total remuneration is competitive.

Structure

Senior manager and executive director remuneration consists of the following key components:

1. Fixed Remuneration

2. Variable Remuneration made up of:

— Short Term Incentive (STI); and

— Long Term Incentive (LTI)

The proportion of total remuneration that is fixed or variable (either short term or long term incentives) is determined for each individual senior manager and executive director by the Nominators and Remuneration Committee.

The remuneration of executive directors and the five most highly remunerated senior managers for the period ending 30 June 2008 is detailed in the table on page 18 of this report.

Fixed remuneration

Objective

The level of fixed remuneration is set so as to provide a base level of remuneration which is both commensurate with the individual’s duties and responsibilities within the Company and competitive in the market.

Fixed remuneration is reviewed annually by the Nominations and Remuneration Committee utilising a process of reviewing group-wide, business unit and individual performance, relevant comparative remuneration in the market and internal and external advice on policies and practice.

Structure

Executive directors and senior managers are provided with the opportunity to receive their fixed remuneration in a variety of forms, including cash, additional superannuation contributions and fringe benefits such as motor vehicles. The aim is to provide payments in a form that is both optimal for the recipient and cost efficient for the Company.

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The fixed remuneration component of executive directors and the five most highly remunerated senior managers for the period ending 30 June 2008 is detailed in the table on page 18 of this report.

Variable remuneration – short term incentives (STI)

Objective

The STI program has been designed to align the remuneration received by executive directors and senior managers with the achievement of the Company’s operational and financial targets. The total potential STI available for payment is determined so as to provide sufficient incentive to executives to achieve the targets and so that the cost to the company is reasonable in the circumstances.

Structure

The actual STI payments granted to each executive depends upon the extent to which specific operational and financial targets set at the beginning of the financial year are met. The targets consist of a number of both financial and non-financial Key Performance Indicators (KPIs).

After the end of each financial year, consideration is given to performance against each of these KPIs to determine the extent of any payment to an individual executive. The aggregate of STI payments and STI payments to individual executives is subject to the approval of the Remuneration Committee.

Payments made are normally paid as cash but the recipient is also able to elect to receive payment in alternative forms.

Variable remuneration – long term incentives (LTI)

Objective

The LTI program has been designed to align the remuneration received by executive directors and senior managers with the creation of shareholder wealth.

Consequently LTI grants are only made to executives who are in a position to influence shareholder wealth and thus have the opportunity to influence the company’s performance against the relevant long term performance hurdles.

Structure

LTI grants to executives are made in the form of performance rights.

The company uses a relative Total Shareholder Return (TSR) as the performance hurdle for the performance rights plan. The company is of the view that the use of a relative TSR based hurdle is best practice in that it aligns shareholder return with reward for executives who are able to influence shareholder return.

In order to assess whether performance hurdles for each grant have been met, the TSR growth of the company from the commencement of each grant is compared to the TSR growth of companies in the ASX Small Industrials Index. The company’s relative performance is determined as follows:

■ Each company in the ASX Small Industrials Index (including the Company) is ranked in order of TSR growth from the commencement of each grant. The Company’s percentile ranking is determined by the number of companies ranked below the company relative to the total number of companies within the Index.

■ Grants under the LTI commence when the company is ranked within the 50th percentile and increase as the companies percentile ranking increases.

The table of page 20 provides details of performance rights granted, the value of performance rights, vesting periods and lapsed performance rights under the plan.

Company performance

The Company’s relative performance (as measured by TSR) was below the average of its peer group in the year and no performance rights on issue vested in the year. For further detail of historical performance, refer to the shareholder returns section earlier in this Directors’ report.

Employment Contracts

The following directors and executives have contracts with the company, the key details of which are set out below.

Individual Contract Duration Notice to Terminate Termination payments provide for in contract

Company Employee

Mr Godson Open ended 1 month or payment in lieu 1 month or payment in lieu None

Mr Luxton Open ended 12 months or payment in lieu 6 months or payment in lieu None

Mr Reid Open ended 12 months or payment in lieu 6 months or payment in lieu None

Mr Terpening Open ended 12 months or payment in lieu 6 months or payment in lieu None

Mr Cleland Open ended 6 months or payment in lieu 3 months or payment in lieu Payment of six months of fixed remuneration.

The other directors and key executives do not have written contracts.

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Remuneration of key management personnel and the five highest paid executives of the Company and Group

Year ended 30 June 2008

Short-term Post employmentTermination payments

Share-based

payments Total

Salary and fees

$

Cash bonus

$Other

$Superannuation

$

Retirement benefits

$ $Options

$ $

Non-Executive Directors

P J Cave 120,000 - - - - - - 120,000

R Grellman 80,000 - - 7,200 - - - 87,200

G Pettigrew 80,000 - - 7,200 - - - 87,200

Sub-total Non-Executive Directors

280,000 - - 14,400 - - - 294,400

Executive Directors

K Godson (i) 458,716 - - 41,284 - - - 500,000

Other key management personnel

R Terpening 236,562 137,028 150,000* 54,506 - - 4,306 582,402

J Reid 277,122 25,000 150,000* 27,000 - - 19,126 498,248

A Luxton 252,810 25,000 150,000* 24,956 - - 19,126 471,892

D Cleland (ii) 194,870 15,000 - 13,321 - - 4,306 227,497

P Spiers 91,743 - - 8,257 - 125,000 - 225,000

J McGrath 165,020 25,000 - 17,214 - - 3,443 210,677

P Norman 172,500 - - 27,600 - - 3,443 203,543

Sub-total executive KMP

1,849,343 227,028 450,000 214,138 - 125,000 53,750 2,919,259

Totals 2,129,343 227,028 450,000 228,538 - 125,000 53,750 3,213,659

Notes

(i) In addition to the remuneration disclosed above, the Board has offered Mr Godson a retention payment of $500,000 in recognition of the relatively short notice period of his contract. This amount is payable following the sale of all or part of the Distribution Business.

(ii) D Cleland does not meet the definition of a key management person under AASB 124.

* Includes retention amounts paid as compensation for extension of contractual notice periods.

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Year ended 30 June 2007

Short-term Post employmentTermination payments

Share-based

payments Total

Salary and fees

$

Cash bonus

$Other

$Superannuation

$

Retirement benefits

$ $Options

$ $

Non-Executive Directors

P J Cave 120,000 - - - - - - 120,000

R Grellman 80,000 - * 25,000 9,450 - - - 114,450

G Pettigrew 80,000 - * 25,000 9,450 - - - 114,450

Sub-total Non-Executive Directors

280,000 - 50,000 18,900 - - - 348,900

Executive Directors

K Godson 221,547 - - 18,547 - - - 240,094

M Foreman 277,863 - - 24,018 - 622,386 - 924,267

M Mitchell 184,528 - - 16,000 - - - 200,528

Other key management personnel

R Terpening 223,593 - - 46,769 - - 7,973 278,335

J Langley 140,194 - - 10,115 - 105,000 - 255,309

B Dabb 88,931 - - - - 129,080 - 218,011

T Scully 119,884 - - 86,340 - - - 206,224

P Spiers 183,486 - - 16,514 - - 6,028 206,028

J Reid 97,411 - - 9,068 - - - 106,479

A Luxton 95,565 - - 8,601 - - - 104,166

Sub-total executive KMP

1,633,002 - - 235,972 - 856,466 14,001 2,739,441

Totals 1,913,002 - 50,000 254,872 - 856,466 14,001 3,088,341

Notes

* Committee fees in respect of the Response Committee established by the Board to co-ordinate the Company’s response to approaches by third parties in relation to a possible transaction concerning the ownership of the Company

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(i) Directors

P J Cave Non-executive Chairman

M Foreman Managing Director (resigned 1 February 2007)

K Godson Managing Director (appointed 1 February 2007, previously Non-executive Director)

M Mitchell Finance Director (resigned 12 February 2007)

R Grellman Non-executive Director

G Pettigrew Non-executive Director

(ii) Executives

J Reid Chief Financial Officer (appointed 12 February 2007)

A Luxton Chief Operating Officer – Distribution (appointed 1 September 2007)

R Terpening General Manager – Bisalloy Group

J McGrath Group Manager – Human Resources (appointed 28 June 2007)

P Norman Group Manager – Marketing

D Cleland Company Secretary and General Counsel

P Spiers Group Manager – Strategy & Planning (resigned 31 December 2007)

T Scully General Manager – Organisational Development & Human Resources (resigned 28 June 2007)

J Langley General Manager – Group Supply (resigned 28 February 2007)

B Dabb General Manager - New Zealand (resigned 31 January 2007)

Grant date *

Granted number

Value per right at grant date ($) ^

Exercised number

Value per right at exercise date

Value at date right lapsed

% of remuneration

A Luxton 2-Jul-07 250,000 $0.15 - N/A N/A 4.05%

J Reid 2-Jul-07 250,000 $0.15 - N/A N/A 3.84%

D Cleland 2-Jul-07 45,000 $0.15 - N/A N/A 1.89%

R Terpening 2-Jul-07 45,000 $0.15 - N/A N/A 0.74%

P Norman 2-Jul-07 45,000 $0.15 - N/A N/A 1.69%

J McGrath 2-Jul-07 45,000 $0.15 - N/A N/A 1.63%

P Norman 2-Jul-07 45,000 $0.15 - N/A N/A 1.69%

P Spiers 2-Jul-07 45,000 $0.15 - N/A $4,050 N/A

Notes

* The performance rights granted vest proportionately over a three year period based on the achievement of the performance criteria. The last exercise date for the performance rights is 1 July 2017.

^ The value of the performance rights issued has been determined valuing the rights as Bermudan style options using a Cox-Rubinstein binomial model. A Monte Carlo simulation was also utilised in the valuation to accommodate a market performance hurdle based on share price at vesting date

Details of key management personnel and the five highest paid executives of the Company and Group

Performance rights granted as part of remuneration for the year ended 30 June 2008

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Performance rights which lapsed in the year ended 30 June 2008

Issued 31 Dec 2005

Issued 10 Oct 2006

Issued 2 Jul 2007

D Cleland 150,000 - -

P Spiers 100,000 45,000 45,000

Performance rights

As at the date of this report, there were 1,302,500 unissued ordinary shares under performance rights (1,302,500 at the reporting date). Refer to note 19 of the financial statements for further details of the performance rights outstanding. Performance rights holders do not have any right, by virtue of the performance rights, to participate in any share issue of the company or any related body corporate or in the interest issue of any other registered scheme.

Performance rights holdings of key management personnel and the five highest paid executives of the Company and Group

Balance at 1 July 2007

Granted as remuneration

Rights exercised

Net change other

Balance at 30 June 2008

Vested and exercisable

Unvested

Executives

A Luxton - 250,000 - - 250,000 - 250,000

J Reid - 250,000 - - 250,000 - 250,000

J McGrath - 45,000 - - 45,000 - 45,000

R Terpening 45,000 45,000 - - 90,000 - 90,000

P Norman - 45,000 - - 45,000 - 45,000

D Cleland 195,000 45,000 - (150,000) 90,000 - 90,000

P Spiers 145,000 45,000 - (190,000) - - -

385,000 725,000 - (340,000) 770,000 - 770,000

Audit

The information contained in the Remuneration Report has been audited.

Signed in accordance with a resolution of the directors.

Kym GodsonManaging Director

26 September 2003

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The ASX Corporate Governance Council has recently revised the Corporate Governance Principles and Recommendations (the “ASX Principles”). Set out below is the Company’s disclosure against the revised ASX Principles. The Board and the Company are committed to maintaining and developing best practice corporate governance appropriate to the Company’s size and type of business and have therefore decided to disclose against the revised ASX Principles for this reporting period ahead of when required.

During the reporting period, the Company complied with the revised ASX Principles as set out below. Where possible, copies of the relevant codes and policies have been placed on the Company’s website rather than summarised in this statement.

1. Lay solid foundations for management and oversight

1.1 Companies should establish the functions reserved to the board and those delegated to senior executives and disclose those functions

The Board reviewed and updated the Delegation of Authority during the reporting period, clarifying the roles of the Board and management and the specific delegations given to senior management. In particular, the Board is responsible for the strategic direction of the Company and its overall governance. This includes setting of goals, monitoring performance, ensuring the Company’s internal control and reporting procedures are adequate, effective and ethical, and that the Company’s strategic direction provides value for shareholders. The Board also sets a number of policies which are applied in managing the day to day operations of the business and monitors the effectiveness of these policies and the decision of management through formal monthly reporting.

The Board has a formal Corporate Governance Code which sets out the respective roles and responsibilities of the Board and management. In addition, the Board committees have specific Charters which provide further details on the matters reserved for the Board or its committees.

1.2 Companies should disclose the process for evaluating the performance of senior executives

A formal structured review is undertaken each year for each employee. Senior executives are reviewed by the CEO and input provided by the Chair. This process generally takes place in June each year as was the case in 2008.

1.3 Additional information The Corporate Governance Code and other relevant charters are available on the Company’s website (www.atlasgroup.com.au) under ‘About Atlas’ and ‘Governance’.

2. Structure the Board to add value

2.1 A majority of the board should be independent directors.

The Board currently has four directors three of whom are considered independent. The Board has adopted the ASX Principles as the basis for determining whether a director can be considered independent and has set relevant thresholds for materiality.

The following directors are considered independent:

■ Mr Cave

■ Mr Grellman

■ Mr Pettigrew

2.2 The chair should be an independent director. The Chair, Mr Cave is considered to be an independent director by the Board. None of the relationships suggested in the ASX Principles which would affect independent status exist between the Company and Mr Cave.

2.3 The roles of chair and chief executive officer should not be exercised by the same individual.

The Company fully complies with this recommendation.

2.4 The board should establish a nomination committee.

The Company has had a combined Remuneration & Nominations Committee since it listed in 2003.

2.5 Disclose the process for evaluating the performance of the board, its committees and individual directors.

The Chair monitors the performance of the Board and conducts informal meetings with the other directors during the year. The Board did not undertake a formal review during this period because of its involvement in the corporate activity considered by the Company during the year which resulted in the proposed sale of the Distribution Business. The Board will assess its composition and future requirements once this process is finalised.

2.6 Additional information Details of the composition, skills, experience, term in office, attendance at meetings of the members of the Board at the date of this statement are set out in the Directors’ Report on pages 10-11.

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3. Promote ethical and responsible decision-making

3.1 Companies should establish a code of conduct and disclose the code or a summary of the code as to:

■ the practices necessary to maintain confidence in the company’s integrity

■ the practices necessary to take into account their legal obligations and the reasonable expectations of their stakeholders

■ the responsibility and accountability of individuals for reporting and investigating reports of unethical practices.

The Company has an established Code of Conduct which applies to all employees, officers and directors of the Company. An annual adherence declaration is required of each employee as part of their performance appraisal discussed at Principle 1.2.

The Code of Conduct has four key principles as follows:

1. We respect each other and treat all people fairly

2. We respect the law and act accordingly

3. We act honestly and fairly in all our business activities and relationships

4. We use Atlas’ property responsibly and in the best interests of Atlas:

The Company also has a number of other policies and standards which underpin the Code of Conduct including policies on Whistleblowing, Fair Treatment, Trade Practices, Safety, Fitness for Work, Workplace Harassment and Discrimination. Together these form a framework for ethical and responsible decision making and proscribe how the individuals of the Company behave internally and externally.

In addition, the Board has an established Corporate Governance Code as discussed under Recommendation 1.

For the entire reporting period the Company maintained a whistleblower hotline outsourced through Stopline to ensure anonymity of whistleblowers and encourage reporting of unacceptable behaviour.

3.2 Establish a policy concerning trading in company securities by directors, senior executives and employees, and disclose the policy or a summary of that policy

The Company has formal Share Trading Guidelines which outline the prohibition against insider trading and specify the “windows” during which directors, executives and employees can generally deal in the Company’s securities. The Company Secretary administers this policy and provides informal guidance to employees about its application.

3.3 Additional information Copies of the Corporate Governance Code, the Code of Conduct and the Share Trading Guidelines are available on the Company’s website under ‘About Atlas’ and ‘Governance’ at: www.atlasgroup.com.au.

4. Safeguard integrity in financial reporting

4.1 The board should establish an audit committee

The Company has had an Audit & Risk Committee since listing in 2003.

4.2 The audit committee should be structured so that it:

■ consists only of non-executive directors

■ consists of a majority of independent directors

■ is chaired by an independent chair, who is not chair of the board

■ has at least three members

At the date of this report and throughout the reporting period the Company’s Audit and Risk Committee was:

■ comprised entirely of the independent non-executive directors being Mr Grellman, Mr Cave and Mr Pettigrew

■ chaired by Mr Grellman

■ governed by a Charter approved by the Board

■ sufficiently autonomous to be able to discharge its duties and responsibilities including the authority to select, retain and terminate external advisers as the Committee considers necessary without seeking approval of the Board or management.

4.3 The audit committee should have a formal charter

The Audit & Risk Committee is governed by a formal Charter and is responsible for ensuring that an effective internal control framework exists within the Company. This includes internal controls for effective reporting of financial information, the appropriate application and amendment of accounting policies and the identification and management of risk.

4.4 Additional information Full details in relation to names, skills, term of office and attendance at meetings for each member of the Committee are set out in the Directors’ Report on pages 10-11.

The Audit & Risk Committee Charter is available on the Company’s website at www.atlasgroup.com.au.

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5. Make timely and balanced disclosure

5.1 Establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies.

The Company has a formal Continuous Disclosure Policy. The policy aims to ensure that once management becomes aware of any information concerning the Company that a reasonable person would expect to have a material effect on the price or value of the Company’s shares (subject to the relevant exceptions), that such information is released to the market.

The Board is committed to ensuring all investors have equal and timely access to material information concerning the Company and that the Company’s announcement are factual and presented in a clear and balanced way.

The Company Secretary is the person responsible for continuous disclosure and communicating with the ASX. This role includes responsibility for ensuring compliance with the continuous disclosure requirements under the ASX Listing Rules and overseeing and co-ordinating information disclosed to the ASX, market participants and the public.

5.2 Additional information The Company’s Continuous Disclosure Policy is available on the Company’s website at www.atlasgroup.com.au.

6. Respect the rights of shareholders

6.1 Design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose their policy or a summary of that policy.

In order to facilitate shareholders accessing information about the Company, all Company announcements, briefings, presentations and reports are posted on the Company’s website after release. The website includes additional news items about the activities of the Company which are not market sensitive as well as a subscription service which allows shareholders and others to receive additional communications directly from the Company.

Shareholders are entitled to receive a copy of the Annual Report and can elect the method by which it is delivered. The Company encourages shareholders to elect to receive the Annual Report and other correspondence from the Company electronically and, following recent changes in the legislation, now requires shareholders to ‘opt in’ if they wish to receive a hard copy of the report.

Shareholders are encouraged to attend the Annual General Meeting as full use is made of the occasion to inform shareholders of current developments through presentations and the opportunity to ask questions of management and the Company’s external auditors.

7. Recognise and manage risk

7.1 Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies.

The Board, has delegated responsibility to the Audit & Risk Committee to ensure there are adequate polices, procedures and control systems in relation to risk management and compliance.

During the reporting period:

■ KPMG continued to act as the Company’s Internal Auditor and undertook a number of focused reviews in specific areas of risk identified by the Audit and Risk Committee.

■ the Company continued to focus on occupational health and safety and has rolled out a number of safety initiatives which have led to a marked decrease in safety incidents within the business.

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7.2 The Board should require management to design and implement the risk management and internal control system to manage the company’s material business risks and report to it on whether those risks are being managed effectively. The board should disclose that management has reported to it as to the effectiveness of the company’s management of its material business risks.

The Board has required management to review existing practices and design and implement a system of risk management and internal control

As such, the Company has developed and implemented a risk management process called the Atlas Management System. The purpose of the Atlas Management System is to ensure that there are up-to-date risk management policies and procedures which reflect the Board’s appetite for risk and which are consistently applied across the Group.

Conformance with policies and procedures is the responsibility of management and compliance is reviewed by the Internal Auditor as part of their mandate.

The Company holds at least four Audit & Risk Committee meetings per annum at which the Board receives the reports of the Internal Auditor. At the meetings the Committee also receives explanations from management on any breakdowns in internal controls identified and the actions proposed to resolve them. Items remain open and are reviewed at following committee meetings until resolved to the Internal Auditors’ satisfaction.

7.3 The board should disclose whether it has received assurance from the chief executive officer (or equivalent) and the chief financial officer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks.

The CEO and CFO give a statement to the Board as part of the Section 295A declaration which includes these areas.

7.4 Additional information The Atlas Management System, discussed at Principle 7.3, includes a wide range of proprietary policies and procedures which have been developed specifically for the Company and its business. The Company believes it would be unreasonably prejudicial to its interests and inappropriate to disclose this information publically.

8. Remunerate fairly and responsibly

8.1 The board should establish a remuneration committee.

The Company has had a Nominations and Remuneration Committee since listing in 2003 which meets regularly each year.

8.2 Clearly distinguish the structure of non-executive directors’ remuneration from that of executives.

Full details of the Company’s remuneration policy are set out in the Remuneration Report from page 16.

8.3 Additional information Full details in relation to names, skills, term of office and attendance at meetings for each member of the Committee are set out in the Directors’ Report on pages 10-11.

The Nominations and Remuneration Committee Charter is available on the Company’s website at www.atlasgroup.com.au.

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Auditor’s Independence Declaration

Liability limited by a scheme approved under Professional Standards Legislation

Auditor’s Independence Declaration to the Directors of Atlas Group Holdings Limited In relation to our audit of the financial report of Atlas Group Holdings Limited for the financial year ended 30 June 2008, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct.

Ernst & Young

David McGregor Partner Melbourne 26 September 2008

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Financial Report

Financial Report

Income Statement 28Balance Sheet 29Cash Flow Statement 30Consolidated Statement of Changes in Equity 31Company Statement of Changes in Equity 32Notes to the Financial Statements 33Directors’ Declaration 84Independent Audit Report 85ASX Additional Information 87

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28 Income Statement Year ended 30 June 2008

Consolidated Company

Notes

Year ended 30 June 2008

$’000

Year ended 30 June 2007

$’000

Year ended 30 June 2008

$’000

Year ended 30 June 2007

$’000

Continuing operations

Revenue

Sales of goods 127,631 99,332 - -

Rendering of services 422 132 -

Dividend revenue – subsidiaries - - - 6,000

Finance revenue 5(b) 61 10 2,161 1,929

128,114 99,474 2,161 7,929

Cost of sales (91,949) (75,926) - -

Gross profit 36,165 23,548 2,161 7,929

Other income 5(a) 157 179 25 -

Distribution expenses (809) (981) - -

Marketing expenses (1,658) (1,474) - -

Occupancy expenses 5(d) (2,801) (2,300) - -

Administrative expenses (7,323) (6,944) (232) (362)

Other expenses 5(a) - - (35,276) (5,645)

Profit/(loss) from continuing operations before tax and finance costs 23,731 12,028 (33,322) 1,922

Finance costs 5(b) (92) (48) - -

Profit/(loss) before income tax from continuing operations 23,639 11,980 (33,322) 1,922

Income tax expense 6 (8,316) (3,827) (660) (145)

Profit/(loss) after tax from continuing operations 15,323 8,153 (33,982) 1,777

Discontinued operations

Loss after tax from discontinued operations 9,10 (78,578) (9,215) - -

Net (loss)/profit for the period (63,255) (1,062) (33,982) 1,777

Attributable to:

Minority interest 25(e) 653 397 - -

Members of the Company (63,908) (1,459) (33,982) 1,777

Earnings per share (cents per share)

- basic loss for the year attributable to ordinary equity holders of the parent

7 (61.3) (1.4) - -

- basic profit from continuing operations attributable to ordinary equity holders of the parent

7 14.7 8.0 - -

- diluted loss for the year attributable to ordinary equity holders of the parent

7 (61.3) (1.4) - -

- diluted profit from continuing operations attributable to ordinary equity holders of the parent

7 14.5 7.8 - -

- Dividends per share (fully franked at 30% tax rate) 8 - - - -

- Dividends per share (unfranked) 8 - 3.0 - -

The above Income Statement should be read in conjunction with the accompanying notes.

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Consolidated Company

Notes30 June 2008

$’00030 June 2007

$’00030 June 2008

$’00030 June 2007

$’000ASSETSCurrent assetsCash and cash equivalents 11(a) 2,381 2,986 2 43Trade and other receivables 12 31,577 85,933 2 -Inventories 13 11,709 154,066 - -Other current assets 14 1,231 1,973 - -Derivative financial instruments 24 944 - - -Income tax receivable 1,275 1,460 1,159 1,837

49,117 246,418 1,163 1,880Assets of disposal group classified as held for sale 9,10 146,109 320 - -Total current assets 195,226 246,738 1,163 1,880

Non-current assetsTrade and other receivables 12 24 - - 34,632Investments - subsidiaries 15 - - 4,312 4,341Deferred income tax asset 6 802 1,868 714 42Property, plant and equipment 16 10,771 31,506 - -

Intangible assets 17 - 6,318 - -Total non-current assets 11,597 39,692 5,026 39,015

Total assets 206,823 286,430 6,189 40,895

LIABILITIESCurrent liabilitiesTrade and other payables 21 21,531 75,999 17 17Interest bearing loans and borrowings 22 130,707 17,790 - -Income tax payable 697 649 - -Provisions 23 1,703 5,849 - -Derivative financial instruments 24 295 2,305 - -

154,933 102,592 17 17Liabilities directly associated with assets of disposal group classified as held for sale 9,10 62,379 - - -Total current liabilities 217,312 102,592 17 17

Non-current liabilitiesTrade and other payables 21 1,260 - - -Interest bearing loans and borrowings 22 - 127,045 - -Provisions 23 320 3,148 - -Total non-current liabilities 1,580 130,193 - -

Total liabilities 218,892 232,785 17 17

NET ASSETS (12,069) 53,645 6,172 40,878

EQUITYEquity attributable to equity holders of the parentContributed equity 25(a) 40,933 40,205 40,933 40,205Retained earnings 25(f) (52,812) 12,629 (35,270) 245Other reserves 25(g) (3,122) (1,517) 509 428Parent interests (15,001) 51,317 6,172 40,878Minority interests 25(e) 2,932 2,328 - -TOTAL EQUITY (12,069) 53,645 6,172 40,878

The above Balance Sheet should be read in conjunction with the accompanying notes.

Balance Sheet At 30 June 2008

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Consolidated Company

Notes

Year ended 30 June 2008

$’000

Year ended 30 June 2007

$’000

Year ended 30 June 2008

$’000

Year ended 30 June 2007

$’000

Cash flows from operating activities

Receipts from customers 457,668 458,819 - -

Receipts from subsidiaries - - 2,161 7,929

Payments to suppliers and employees (430,844) (496,703) (1,383) (2,167)

Borrowing costs (14,567) (9,409) - -

Income tax paid (961) (1,506) (118) (2,231)

Net cash inflow/(outflow) from operating activities 11(b) 11,296 (48,799) 660 3,531

Cash flows from investing activities

Proceeds from disposal of property, plant and equipment 4,310 1,816 - -

Payments for property, plant and equipment (3,198) (5,233) - -

Payments for intangible assets (95) (1,754) - -

Net cash inflow/(outflow) from investing activities 1,017 (5,171) - -

Cash flows from financing activities

Payment of finance lease liabilities (1,651) (1,588) - -

Proceeds from borrowings - 60,964 - -

Loans to subsidiaries - - 106 (70)

Repayment of borrowings (10,433) - - -

Equity dividends paid (807) (3,461) (807) (3,461)

Net cash (outflow)/inflow from financing activities (12,891) 55,915 (701) (3,531)

Net (decrease)/increase in cash held (578) 1,945 (41) -

Cash at the beginning of the financial year 2,986 1,041 43 43

Cash at the end of the financial year 11(a) 2,408 2,986 2 43

The above Cash Flow Statement should be read in conjunction with the accompanying notes.

Cash Flow Statement Year ended 30 June 2008

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Attributable to equity holders of the Group

Issued capital $’000

Employee equity

benefits reserve $’000

Cash flow

hedge reserve $’000

Foreign currency

translation reserve $’000

Retained earnings

$’000 Total $’000

Minority interest

$’000

Total equity

$’000

At 1 July 2006 38,168 359 - (2,039) 19,586 56,074 2,003 58,077

Loss on translation of overseas controlled entities - - - (245) - (245) (72) (317)

Net gains on cash flow hedges - - 339 - - 339 - 339

Net income recognised in equity - - 339 (245) - 94 (72) 22

(Loss)/profit for the period - - - - (1,459) (1,459) 397 (1,062)

Total recognised income and expenses for the year - - 339 (245) (1,459) (1,365) 325 (1,040)

Share-based payment grants - 69 - - - 69 - 69

Dividend reinvestment plan 2,037 - - - (2,037) - - -

Payment of dividend - - - - (3,461) (3,461) - (3,461)

At 30 June 2007 40,205 428 339 (2,284) 12,629 51,317 2,328 53,645

Loss on translation of overseas controlled entities - - - (1,296) - (1,296) (49) (1,345)

Net losses on cash flow hedges current year - - (51) - - (51) - (51)

Net income recognised in equity - - (51) (1,296) - (1,347) (49) (1,396)

Reversal of net gains on cash flow hedges - - (339) - - (339) - (339)

(Loss)/profit for the period - - - - (63,908) (63,908) 653 (63,255)

Total recognised income and expenses for the year - - (339) - (63,908) (64,247) 653 (63,594)

Share-based payment grants - 81 - - - 81 - 81

Dividend reinvestment plan 726 - - - (726) - - -

Issue of share capital 2 - - - - 2 - 2

Payment of dividend - - - - (807) (807) - (807)

At 30 June 2008 40,933 509 (51) (3,580) (52,812) (15,001) 2,932 (12,069)

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

Consolidated Statement of Changes in Equity Year ended 30 June 2008

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Issued capital $’000

Employee equity

benefits reserve $’000

Retained earnings

$’000Total $’000

At 1 July 2006 38,168 359 3,966 42,493

Profit for the period - - 1,777 1,777

Total recognised income and expense for the year - - 1,777 1,777

Share-based payment grants - 69 - 69

Dividend reinvestment plan 2,037 - (2,037) -

Payment of dividend - - (3,461) (3,461)

At 30 June 2007 40,205 428 245 40,878

Loss for the period - - (33,982) (33,982)

Total recognised income and expense for the year - - (33,982) (33,982 )

Share-based payment grants - 81 - 81

Dividend reinvestment plan 726 - (726) -

Issue of share capital 2 - - 2

Payment of dividend - - (807) (807)

At 30 June 2008 40,933 509 (35,270) 6,172

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

Company Statement of Changes in EquityYear ended 30 June 2008

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1. Corporate informationThe financial report of Atlas Group Holdings Limited (the Company) for the year ended 30 June 2008 was authorised for issue in accordance with a resolution of the directors on 26 September 2008.

Atlas Group Holdings 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 Table of Contentsa. Basis of preparationb. Going concern basisc. Statement of complianced. Basis of consolidatione. Significant accounting judgements, estimates and assumptionsf. Segment reportingg. Taxationh. Cash and cash equivalentsi. Trade and other receivablesj. Inventoriesk. Property, plant and equipmentl. Intangiblesm. Non-current assets (or disposal groups) held for sale and discontinued operationsn. Trade and other payableso. Contributed equityp. Employee benefitsq. Share-based payment transactionsr. Provisionss. Interest bearing loans and borrowingst. Goods and services taxu. Revenue recognitionv. Borrowing costsw. Leasesx. Foreign currency translationy. Earnings per share (EPS)z. Derecognition of financial assets and liabilitiesaa. Derivative financial instruments and hedgingab. Changes in accounting standards

a. Basis of preparation The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations

Act 2001 and Australian Accounting Standards. The financial information contained in the financial report has been prepared in accordance with the historical cost convention, except for assets and liabilities classified as held for sale, which are measured at fair value less costs to sell and derivatives, which are measured at fair value.

The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated under the option available to the Company under ASIC Class Order 98/100. The Company is an entity to which the class order applies.

Disposal group classified as held for sale

On 24 June 2008 the Group announced it h