for personal use only - asx2008/09 and increased production from the plant targeted to be sold out...
TRANSCRIPT
Penrice Soda Holdings Limited
A N N U A L R E P O RT 2 0 0 7
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Corporate InformationCompany OverviewPenrice Soda Holdings Limited ABN 83 109 193 419
Directors
J.H. Heard AM (Chairman) G.R. Roberts (Managing Director & Chief Executive Officer) A.V. Fletcher B.J. Gibson M.R. Boyce
Company Secretary
S.R. Bushaway
Registered Office
Solvay Road Osborne, South Australia 5017 Telephone: (08) 8402 7000 Facsimile: (08) 8402 7250
Bankers
National Australia Bank Westpac Banking Corporation
Share Register
Link Market Services Limited Level 4, 333 Collins Street MELBOURNE Victoria 3000
Auditors
Ernst & Young
Internet Address
www.penrice.com.au
Front CoverLeft photo – Penrice’s new Reverse Osmosis membrane desalination plant saves town water, creates production efficiencies and generates operational saving – what’s good for business is good for the environment too.
Right photo – Penrice’s chemical manufacturing plant at Osborne South Australia.
This Annual Report is printed on Cyclusprint matt 100% recycled paper, made from sustainable forests and is EMAS accredited (annually assessed).
Established in the late 1930’s, Penrice Soda Holdings Limited is the only manufacturer in Australia of soda ash and sodium bicarbonate, vital ingredients in a wide range of products.
Penrice is the market-leading supplier of soda ash and sodium bicarbonate and has maintained its strong domestic market share for each product over a long period.
Soda ash is predominantly sold into the Australian market for use in the manufacture of glass containers (typically wine bottles), flat glass, washing powders and mining applications. Sodium bicarbonate is sold domestically as well as exported with major end uses including animal feed, food, kidney dialysis, personal care and pharmaceutical products.
Penrice also operates the largest marble and limestone mine in South Australia at Angaston in the Barossa Valley. The mine provides a secure low cost input into the production by Penrice of soda ash and sodium bicarbonate. External sales from the mine are used for a variety of applications including cement, civil construction, lime, glass, mineral processing, agriculture, stockfeed and landscaping.
The soda ash and sodium bicarbonate plant is strategically located at Osborne, close to Adelaide, because of the availability of suitable salt producing land and limestone and the proximity to major markets in South Australia, Victoria and New South Wales.
Mt Barker
Adelaide
Salisbury
Elizabeth
Gawler
Angaston
Mine
Amcor Glass Plant
O I Glass Plant
Salt Fields
Osborne Plant
Gulf of St Vincent
Salt Fields
Dedicated Rail Line
Pipeline
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Chairman's Report 5
Managing Director and Chief Executive Officer’s Report 6
Chief Financial Officer's Report 8
Review of Operations 12
Sustainability Report 18
Directors’ Report 23
Corporate Governance Statement 33
Income Statement 37
Balance Sheet 38
Statement of Recognised Income and Expense 39
Cash Flow Statement 40
Notes to the Accounts 41
Directors’ Declaration 75
Independent Audit Report 76
ASX Additional Information 77
ContentsF
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Chairman’s Report
Net operating profit after tax of Penrice Soda Holdings Limited decreased from $9.1 million to $6.7 million in the year ended 30 June 2007.
The result for the year was disappointing with the reduction in profit due to one off costs associated with the change of Chief Executive Officer during the year and a poor production performance at the Osborne chemical plant in South Australia.
As the Osborne production problems were the key operational issue for the 2006/07 financial year, there will be significant focus by the Penrice Board and Management on improving the reliability and output from the plant. Increased capital will be reinvested into the business during the next few years to assist in this regard.
The Company is expecting long term growth flowing from a further expansion of the sodium bicarbonate production plant and initiatives being undertaken to improve plant reliability for soda ash output. The Company is confident of achieving its goals in the absence of any unforeseen negative circumstances.
Sodium bicarbonate revenue increased by 15% on the previous year and further growth of 5% is expected in 2007/08 which is our current plant capacity. A further expansion to provide another 33% capacity will be worked on during this year with additional sales to commence in 2008/09 and increased production from the plant targeted to be sold out by 2009/10.
The soda ash business market remains strong with growth expected in the container glass and mining sectors offsetting probable reductions in the detergent sector. New mining projects are expected to commence use of soda ash late in the 2007/08 financial year.
The strengthening Australian dollar in the past year increased competition from overseas soda ash producers, particularly into the price sensitive detergents sector. Despite the small loss of market share during the year as a result of this competition, Penrice still maintains a strong market leadership position.
Sales of products from our Angaston mine in SA achieved solid growth of 4% in a regional market and industry dependent on major infrastructure projects for expansion.
With major new projects expected in the next few years, there are significant opportunities available to further grow this part of the Penrice business.
The Board is pleased to confirm a fully franked full-year dividend of 10 cents per share. An interim dividend of 5 cents was paid in April 2007 and a final dividend of 5 cents per share will be paid in October 2007. The annual dividend is down on the previous year consistent with the reduction in the Company’s earnings but also acknowledging the need to reinvest in the business for future growth.
On behalf of my co-Directors, I welcome Guy Roberts to the position of Managing Director and Chief Executive Officer. Guy joined the Company in December 2006 after a long and distinguished career with the Orica group. His leadership and management skills, as well as knowledge of the chemicals industry and markets, are an invaluable asset for our Company as it evolves and grows over the next few years.
Guy has already identified a number of business improvement initiatives that will benefit Penrice in future years, including a further expansion of the sodium bicarbonate plant, production increases and efficiency improvements at the Osborne plant.
I would like to acknowledge the contribution of Stephen Bushaway in his capacity as Acting Chief Executive Officer from July to December 2006. His performance and commitment during that time was outstanding. Stephen continues to make a valuable contribution to Penrice as Chief Financial Officer and Company Secretary.
Sincere thanks also to Mike Boyce, who following a long term involvement with Penrice, will retire and not seek re-election at the upcoming Annual General Meeting. Mike has considerable business interests in the United States and those, coupled with recent health problems, have reduced his ability to attend Board meetings. Importantly, Mike’s expertise will still be available to the Company when required.
John Heard AM Chairman
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Managing Director and Chief Executive Officer’s Report
Lower earnings and reduced shareholder returns are most unsatisfactory features of my first annual report as Managing Director and Chief Executive Officer of Penrice Soda Holdings Limited.
New plans are already being implemented to achieve my primary objective, which is to restore the Company’s profit and shareholder returns to more acceptable levels.
At our Osborne soda ash plant – the main culprit behind Penrice’s poor 2006-07 performance – we have installed a ‘Way Forward’ strategy to substantially reinvest in the plant and improve productivity and reliability.
This initiative, which will also serve to increase output, therefore sales and profits, is largely aimed at eliminating the mechanical failures that were responsible for unscheduled interruptions to our Osborne operations during the year under review.
In our Chemicals business, Penrice maintained its profitable market leadership in soda ash despite import competition benefiting from a strong Australian dollar.
The global and regional outlook for soda ash is favourable for Penrice with strong demand and limited global production capacity, creating scarce supply and considerable upward pressure on prices.
The expansion of the Osborne sodium bicarbonate plant was completed as planned and extra product sold as planned to higher value export markets, where the demand outlook is also positive for our differentiated premium product range. Further expansion of the sodium bicarbonate plant is planned in line with our increasing foray into food, pharmaceutical and medical markets.
Our Quarry and Mineral business achieved improved results with increased sales of aggregates into civil and mineral markets. The operating fleet at the Angaston mine has been totally replaced with state of the art equipment, which has reduced operating costs and increased our capacity to sell aggregates.
Penrice takes its corporate social responsibility seriously and we believe that responsible corporate practices will enhance financial performance over the long term. The Company’s own environmental standards exceed local regulations and
local community expectations and we face up to and deal with our legacy issues from historical practices. We actively seek to engage with the communities located around our operations to build better relationships with them.
Penrice is a company to be proud of and one whose activities should stand up to fair and reasonable scrutiny. Our safety performance is of particular interest and concern to me. It is of paramount importance that we aim to prevent any injuries in the workplace. I am driving the strategies to improve our performance and also keeping closely involved at site level to review performance and practices. We must work harder to achieve our safety vision of ‘No Injuries to Anyone Ever’. It is pleasing to note considerable improvement in the injury rate at Osborne in the past year and in the past six months in particular and our team is to be commended on this achievement.
For over 70 years, Penrice has maintained a long and proud history of reliably supplying high quality products and services to critical Australian industries and to export markets. Our Chemicals business enjoys privileged assets and strong market positions. Demand for our products far outstrips current capacity to supply. We also enjoy a substantial quarrying presence in South Australia.
We intend to build upon Penrice’s solid foundations and invest for the future. We will expand our Chemicals and Quarry and Mineral businesses to deliver improved returns for shareholders for the long term – for another 70 years.
There are three elements to our business strategies:
1. Growth
Long term planning for the profitable growth of both our Chemicals and Quarry and Mineral businesses, both of which enjoy long term favourable market outlooks.
2. Productivity
Investing in our plant for long term productivity improvement and efficient capital management. Cost leadership underpins our ability to compete profitably.
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3. People
Investing in our people to create a winning, high performance-based culture. Our people make the difference and enable us to achieve great results.
An immediate example of our commitment to growth is the Board’s recent approval of a further expansion of the Osborne sodium bicarbonate plant, by some 33% or 25,000 tonnes per annum. Construction of the $12 million expansion will be completed late in 2008 with sales from the expanded plant forecast to commence at that time, dedicated to premium export markets, delivering targeted earnings per share growth of 15% in 2010.
My thanks to the Penrice team for its positive 2006-07 contribution during a difficult period of at times dynamic change within the Company.
I look forward to their continued commitment as we move forward to generate results and returns that better reflect the efforts of all concerned.
Guy Roberts Managing Director and Chief Executive Officer
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Chief Financial Officer’s Report
The following is a financial summary for the 12 months ended 30 June 2007, with comparative figures for the year ended 30 June 2006.
Chang
e %
2006
$0
002007
$0
00Product Sales Revenue 134,231 133,676 0.4%
Earnings before interest, taxation, depreciation and amortisation 19,080 19,248 (1%)
Depreciation and amortisation (5,416) (4,904) 10%
Earnings before interest and taxation (EBIT) 13,664 14,344 (5%)
Net interest and borrowing costs (4,280) (3,337) 28%
Net Profit before tax 9,384 11,007 (15%)
Tax (expense) (2,660) (1,955) 36%
Net Profit after tax 6,724 9,052 (26%)
Changeover costs of CEO (after tax) 504 - -
Net Profit after tax before individual material items 7,228 9,052 (20%)
EBITDAEBITDA declined by 1% from the previous year. An improved performance at the Angaston mine, cost efficiencies in distribution and administration expenses were offset by the reduced output and increased costs at the Osborne plant
US$/AU$ foreign exchange hedge contracts were entered into to cover sodium bicarbonate sales during this year at a rate of $0.7375.
20
18
16
14
12
10
8
6
EBITDA 2001/02 - 2006/07 ($m)
2001/02 2002/03 2003/04 2004/05 2005/06 2006/07
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Product Sales Revenue
Key HighlightsProduct sales revenue at record levels
Contracts re-signed with key glass customers reflecting price increases necessary to offset rising costs
Sodium bicarbonate sales increased by 15% with first full year of plant expansion
Quarry and mineral sales increased by 4%
•
•
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140
135
130
125
120
115
110
Total Product Sales ($m)
2003/04 2004/05 2005/06 2006/07
96
94
92
90
88
86
84
82
80
78
Soda Ash Sales ($m)
2003/04 2004/05 2005/06 2006/07
30
27
24
21
18
15
Sodium Bicarbonate Sales ($m)
2003/04 2004/05 2005/06 2006/07
Mine Sales ($m)
15
13
11
9
7
5
2003/04 2004/05 2005/06 2006/07
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Dividends and Earnings Per ShareA final dividend of $0.05 per share was declared, giving a total fully franked dividend for 2007 of $0.10 per share.
The company has reduced the full year dividend from the level paid in 2005/06 to re-invest in the business and in turn generate improved financial results in future years.
The dividend represents a dividend payout ratio of 67%.
Stephen Bushaway Company Secretary Chief Financial Officer
Borrowings and Cash FlowOperating cash flow reduced by 15%.
Through tight credit management, trade accounts receivable reduced by 12%, a real reduction when set against the 0.4% increase in sales.
Inventory levels rose particularly in aggregates material from the mine.
Cash payments for interest increased by 77% due to the payment of interest accrued in the previous year.
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Net debt increased by 18% as a result of:
The sodium bicarbonate plant expansion completed towards the end of the previous year;
Additional investment in Osborne plant reliability; and
An increase in inventory, particularly civil grade material from the mine.
As a result of the higher debt, gearing (net debt to equity) rose to 50%.
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12
10
8
6
4
2
0
Cash from Operations ($m)
2004/05 2005/06 2006/07
Interest Cover
80
70
60
50
40
Dividend Payout Ratio (%)
2005/06 2006/07
Earnings and Dividend Per Share (cents)
20
15
10
5
0
2005/06 2006/07
Earnings Per ShareDividend Per Share
6
5
4
3
2
1
0
2004/05 2005/06 2006/07
Gearing (%)
60
50
40
30
20
10
0
2004/05 2005/06 2006/07
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Review of Operations
SalesPenrice is the sole Australian manufacturer of soda ash and sodium bicarbonate, the leading supplier of soda ash and sodium bicarbonate to the Australian market and a leading niche supplier of sodium bicarbonate internationally.
Product sales revenue for the year ended 30 June 2007 was flat on the previous year due mainly to:
Soda ash sales revenue down 4% following the withdrawal from a loss making contract, reduced export sales and a small loss in domestic volume to imports;
A 15% increase in sodium bicarbonate revenue following the recent plant expansion; and
A 4% increase in quarry and mineral sales.
Soda AshThe growth in the domestic market for soda ash of recent years continued in 2006/07 with a 9% increase as a result of growth in the container glass market and more sales opportunities emerging in Australia’s booming mining sector.
For Penrice, the domestic volume of soda ash sales increased by 1% from the previous year:
Container glass sales were up by 10%;
Sales to mining segment increased;
Flat glass sales were flat; and
Detergent sales decreased by 23% as a local manufacturer lost share to imports and Penrice lost one customer late in 2006, also to imports.
The high Australian dollar compared to the US dollar has led to increased competition from overseas imports, resulting in the company’s market share declining in the price sensitive detergents market.
Since the customer loss late in 2006, Penrice has maintained its volume and strong market share.
FY2007 Australian Market Share by Volume
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•
•
•
•
•
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FY2006 Australian Market Share by Volume
Despite the competitive market environment for soda ash, Penrice successfully renegotiated contracts with key glass industry customers reflecting price increases necessary to offset rising costs. The margins in the glass sector are lower than other sectors given the significantly larger volume taken.
It was also pleasing to note that despite the rising AUD/USD and increased imports, soda ash average selling prices were maintained throughout the year.
Sales opportunities to the mining sector, which currently is only a small user of soda ash, are expanding and Penrice signed new contracts during the year with a number of mining companies, including a new nickel cobalt producer.
Sodium BicarbonateRevenue from sales of sodium bicarbonate during 2006/07 showed a pleasing 15% improvement over the previous year, with additional capacity from the Osborne plant expansion successfully sold out in the first year of increased output.
The growing use of sodium bicarbonate globally will also provide further expansion opportunities especially in food, pharmaceutical, medical and personal care markets.
Penrice has been successful with anti-dumping rulings made against imported Chinese sodium bicarbonate. This imported material, which is of lower quality, had been able to be sold into the lower margin use of animal feed. As a result Penrice has seen growth in its domestic market share, increasing to 85%. The company’s sodium bicarbonate sales to the domestic market jumped 28%, predominantly into the animal feed sector which is the dominant user at 62% of total domestic sales.
This anti-dumping ruling has been challenged by Chinese exporters with limited success, with a 3% duty from some minor suppliers being withdrawn. Penrice is pursuing a Ministerial review of this outcome with a target of reinstating anti-dumping duties on relevant Chinese exporters.
With the growth in sales into the domestic animal feed market due to drought consuming the majority of the additional Osborne sodium bicarbonate production, export sales volume growth was limited to 4%.
Penrice 77%
Other Imports 15%
Glass Manufacturer for own use 8%
Penrice 82%
Other Imports 11%
Glass Manufacturer for own use 7%
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Sales into Japan rose a further 3% during 2006/07 with 41% of Penrice’s total export sales now going into that country. Other key export markets were Thailand with 14% of total sodium bicarbonate export sales, Indonesia 10%, and Taiwan 9%. These are shown in the graph below.
The margins on export sales were protected from the strengthening Australian dollar by the hedges entered into by the Company in June 2006. Prices in the export market were able to be increased by 5%.
Quarry and Mineral SalesSales revenue from the Angaston quarry was 4% higher than the previous year, and was the second highest annual revenue on record.
This market consists of a mix of contracted customers in the cement, glass and mining industries and project sales in the civil construction market. The largest single use for the product is in the cement / lime industry with sales into that sector increasing by 16% during the year. Penrice supplies approximately 16% of the cement / lime industry in South Australia.
Sales of high grade limestone to the glass, mineral processing and stock feed industries decreased by 2%. The limestone in this sector is used for flux in steel and base metal smelting, stock feed and for container glass.
In the civil construction industry, sales rose by 5% from the previous year. This is a regional market, limited to civil activity within a 100km radius of the Angaston mine. The Barossa Valley region civil activity was lower with minimal winery building activity offset by additional subdivision activity in northern metropolitan Adelaide.
Penrice has been able to assist in the building of a permanent concrete batching plant at its Osborne site by Rinker Australia to service civil development activity in the Port Adelaide region based on ports, defence and domestic housing activity.
Mine Sales by Product Segment (2006/07)
Cement Lime 34%
Chemical 12%
Civil 54%
Tonnes
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
Growth in Sodium Bicarbonate Sales
Domestic Bicarb
Export Bicarb
2003/04 2004/05 2005/06 2006/07 2007/08
Forecast
Revenue
$ Million
16
14
12
10
8
6
Growth in Mine Revenue
2001/02 2002/03 2003/04 2004/05 2005/06 2006/07
Sodium Bicarbonate Export Sales by Country (2006/07)
Japan 41%
Other 14%
Thailand 14%
Indonesia 10%
Taiwan 9%
South Africa 7%
Malaysia 5%
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Production and Other Costs
Osborne OperationsThe poor performance of the Osborne plant was unacceptable during the 2006/07 financial year. While excellent production rates were achieved early in the year, several major equipment failures from mid November caused less than satisfactory production performance. These problems have now been rectified with the plant operating at normal production levels.
The causes of the problems were electrical and mechanical failures which can be attributed to the aged condition of the plant, insufficient capital replacement and inadequate maintenance systems.
These causes have been systematically reviewed by our new CEO and a plan developed to address these shortcomings. Implementation of the new strategy - known as the ‘Way Forward’ plan - has already commenced and is detailed in the Outlook section.
The major planned shutdown for the year was successfully held in August 2006 with the maintenance program running according to schedule and budget. The plant rate prior and subsequent to this shutdown was excellent with a monthly production record achieved in October 2006.
A severe electrical storm across Adelaide during November caused a fire in an electrical switchboard at the plant, resulting in two unplanned shutdowns. Four subsequent mechanical failures in the months after this setback further reduced annual output.
The cost of soda ash production is controlled by the efficiency of the plant, the unit cost of the raw materials used and expenses associated with overall plant maintenance. As the most cost efficient way to operate the plant is in a stable, full production mode, plant interruptions have a detrimental impact on production cost.
Disappointingly, the several unscheduled disruptions to normal operating levels during the year led to poor plant efficiencies at Osborne and increased use of raw materials compared with previous years.
The cost of the majority of raw materials was controlled with the exception being coke which was up by 13%. The cost of coke remains a critical issue going forward and alternate sources continue to be trialled to obtain the most cost effective long term source.
Maintenance costs were higher than the previous year with the additional reactive breakdown work required due to the plant problems and increased proactive maintenance.
The overall impact of this was that production costs were 4% up on the previous year impacting the 2006/07 NPBT by $2.7million.
Despite the operational problems during the year, there were still a number of successes, including:
Sodium bicarbonate plant production increasing to 73,000 tonnes following commissioning of the expanded plant in June 2006.
A 66% reduction in towns water use during the year through the installation of a Reverse Osmosis membrane desalination plant, a notable achievement given the severe drought conditions in Southern and Eastern Australia. This achievement also reduced operating costs.
Installation and commissioning in June 2007 of a tertiary lime extraction plant to recover more lime from one of our waste products, reducing the usage of limestone, lowering future operating costs.
Angaston OperationsThe operations of the Angaston mine are conducted in accordance with a 30 year mine plan, initially developed in 2003 and then subject to annual review and updating.
Penrice is currently in a phase of the mine plan that requires additional material to be removed to widen the mine face. This material is classified as either aggregates or overburden.
This stage of high movement has now been in operation for the past 3 years and will continue for the next 4 years.
Over the past 18 months, the company has seen rising demand for aggregates and this is expected to continue. As such, this product, which had previously been regarded as excess to market requirements and recorded as an intangible asset, is now recorded in the balance sheet at 30 June 2007 as inventory. Aggregates removed during the past year have been classified as inventory.
A number of major projects in South Australia will commence over the next few years to generate additional industrial land, roadworks and new housing subdivisions that will require large amounts of aggregates. This will be a major focus of the company and these developments will present significant opportunities for the Company.
The extraction of material currently deemed to be unsaleable - referred to as overburden - is being capitalised as intangible mine development costs and will be amortised over a 10 year term, consistent with prior years. There is a potential that this product could be used in future sales applications.
To move the additional amounts of material required, Penrice has entered into a long term lease arrangement with Komatsu to upgrade the entire mobile fleet of 24 at the Angaston mine at a capital value of $27 million. This includes larger vehicles to improve operating efficiencies and reduce operating costs. The Komatsu hire arrangement provides Penrice with the flexibility to reduce the size of the fleet in future years when the volume reduces.
Other CostsPenrice achieved a 2% reduction in warehouse and distribution expenses during the year.
Additional warehouse costs, predominantly packing, were incurred consistent with the additional sales volume of packaged sodium bicarbonate.
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Savings of 6% were achieved in the distribution of soda ash and sodium bicarbonate with improvements in the supply chain, and with the exiting of surplus external stores.
The company will continue to work with its customers to continue to reliably supply in full and on time a high quality product, but to also look for continued efficiencies in the supply chain.
Before the additional costs associated with the change of CEO, administration expenses decreased by 6% from the prior year.
Included in this cost reduction was a 40% reduction in the insurance premium amounting to $0.6 million. With the recently concluded premium negotiation for 2007/08, these savings will remain and in fact, will bring the company a further saving of $0.2 million.
Borrowing costs from operations totalled $3.5m, up 22% on the previous year. This increase was due to higher interest rates and increased borrowings, which were a result of:
The sodium bicarbonate plant expansion completed towards the end of the previous year;
Additional investment in Osborne plant reliability; and
An increase in inventory, particularly civil grade material from the mine.
Income TaxThe average income tax rate for the year was 28%, taking into account a number of Research and Development initiatives that continue to be progressed.
This compares to an average income tax rate of 18% in the previous year as a result of a one-off tax benefit relating to IPO costs.
OutlookThe long term outlook for the company is positive with opportunities to expand both the Chemicals and Quarry and Mineral businesses.
Increased demand will be met through improved productivity and output of the soda ash plant and expansion of the sodium bicarbonate plant. Both of these initiatives will be progressed during 2007/08 with favourable earnings growth being reflected from 2008/09 and beyond.
Our quarry and mineral business will focus on major civil works projects and landfill opportunities already planned for northern and metropolitan Adelaide. These are all long term projects which the Company expects to commence late in the 2007/08 financial year.
As a result of these initiatives the Company is targeting solid earnings growth from 2008/09, after a year of consolidation and investment for the future in 2007/08.
The Company is confident of achieving its goals in the absence of unforeseen negative circumstances, such as unplanned production setbacks and short term exchange rate fluctuations, both of which may impact on earnings targets.
As well as a number of options available for organic growth, the Board and management continue to look for synergistic, bolt-on acquisition opportunities in both the chemicals and mineral sectors to grow the Penrice business.
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Sales
Soda AshWhile Penrice continues to focus on supplying the domestic soda ash market and exports minimal volumes of the product, global industry influences and trends have an impact on the company and its operations.
The global soda ash industry is in an evolutionary phase, with a number of significant developments. In general, the expansion of worldwide soda ash production is not keeping pace with global demand, creating historically high levels of plant utilisation and prices therefore continue to rise.
The rapidly developing economies of China, India and Russia continue to expand and use more soda ash, with the main area of growth being in flat glass production. Mature markets such as the USA are showing only modest growth and the main increase for US manufacturers is in exports into the developing markets, with the Chinese use of soda ash growing by in excess of 10% per annum. Overall global demand is expected to grow by more than 4% annually in future years.
Major exporters are currently operating at close to capacity and growth in supply will only keep pace with demand at best.
Some plants in China are being forced to relocate by local governments due to environmental issues and the Chinese authorities are paying more attention to their cumulative energy consumption and to environmental issues. These policies will restrict the ability of China to increase soda ash exports.
Capacity expansions are being planned in Africa and the Middle East to supply expanded demand in India and Eastern Europe, and therefore these are not seen as a threat to Penrice.
Prices globally are forecast to continue to rise on the strength of the demand/supply balance and also in part to recover higher energy, transportation and raw material costs.
Of particular significance to pricing in Asia is that the Chinese government export subsidy on soda ash and sodium bicarbonate has been decreased from 13% to 0%. This reduction is part of a suite of reductions applying to a range of industrial chemicals which the Chinese government has required to be exported less and more directed at supporting its large domestic growth. This has had an immediate upward pressure on export soda ash prices.
The positive impact on global prices will increase the price of competitor soda ash coming into Australia. Penrice believes that domestic prices will increase in the next year by between US$20 – $55pmt and in future years the Company will seek price increases as contracts expire.
In the domestic market, recent statistics published by the Australian Wine and Brandy Corporation highlight growth in export wines that will lead to increased soda ash sales. In particular, the growth in bulk wine shipments has abated and sales of bottled wine have rebounded, with bottled red wine sales jumping by 12% to June 2007 and bottled white wine sales up by 8%.
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In the current financial year, flat glass sales are expected to be stable prior to the major plant upgrade announced by Pilkington Australia for its Dandenong operation in Victoria. Sales are expected to grow on the completion of this expansion early in 2008/09.
Sales of soda ash to the detergents sector are forecast to decrease in line with an increase in imported product unfavourably impacting local production.
The major growth area for soda ash over the next few years is seen to be in the flourishing mining sector. Penrice has recently signed a contract to supply Compass Mining Pty Ltd in the Northern Territory with soda ash and is currently in negotiations with several new mining ventures for ongoing supply commencing towards the end of 2007/08.
Sodium BicarbonateThe overall outlook for sodium bicarbonate is favourable with another expansion of the Osborne plant scheduled to meet continued growing demand in 2007/08.
The Company is forecasting a 5% increase in sodium bicarbonate sales volume in 2007/08 - mainly to export markets - to achieve annual sales consistent with last year's plant expansion.
Global demand for sodium bicarbonate is continuing to grow in applications such as kidney dialysis, pharmaceuticals, personal care, food and flue gas desulphurisation. These are the market segments successfully targeted by Penrice’s high quality grades of sodium bicarbonate. The next expansion of the Osborne plant will cater for this growing demand.
The next expansion of the plant is to increase capacity by an additional 33% - from 75,000 tonnes per annum to 100,000 tonnes per annum.
Penrice is in the early stages of this expansion which will take some 12 months to construct with capital costs of approximately $12 million. The additional sodium bicarbonate output will commence in 2008/09 and will be fully sold by 2009/10.
The margin on sales in 2007/08 will be reduced by the strong Australian dollar. To offset this impact, Penrice is looking to increase selling prices.
Quarry and Mineral SalesThe focus on quarry and mineral sales for 2007/08 will be to grow sales of aggregates into major projects. Whilst these projects are anticipated to be at low margin, they are expected to be high volume.
Activity in the cement / lime market is expected to remain at current levels and chemical grade limestone sales will expand consistent with wine bottle growth and continuing higher demand in the stock feed market.
ProductionImproving the safety and productivity of the Osborne Chemical Operations is the top priority of the company.
To achieve a major, sustained improvement in plant safety and productivity, Penrice has commenced a ‘Way Forward Plan’ to be implemented over the next 3 years:
Better plant and equipment integrity - by boosting annual sustenance capital spend on the plant by $5m for the next 3 years.
Improved plant reliability - by an alliance with a leading global professional maintenance firm, to build a new preventative maintenance team, systems and procedures.
Increased process efficiency and an improved performance culture - by the appointment and development of key personnel.
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3 Year Outlook of Penrice Soda Ash Sales
Container Glass 55%
Flat Glass 14%
Detergents 7%
Mining 16%
Other 8%
Current End Use of Penrice Soda Ash Sales
Container Glass 63%
Flat Glass 15%
Detergents 10%
Mining 2%
Other 10%
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The result of this considerable investment will be to improve the reliability and efficiency of the plant thereby increasing output and reducing operating costs.
This plan is expected to be earnings positive in 2007/08 and to expand its contribution in future years.
The additional production will enable the company to meet a part of the forecast demand growth for both soda ash and sodium bicarbonate.
FundingOver the coming years Penrice has capital needs, initially to expand the sodium bicarbonate plant and improve the productivity of the soda ash plant.
Various options are under consideration by the Board to finance the required capital expenditure, including increasing equity in the company, firstly by a Share Purchase Plan late in 2007, then to be followed by a Dividend Reinvestment Plan in 2008. In addition to lifting equity in the Company, there will likely be higher debt.
The long term target is to maintain a debt to equity ratio of one-to-one and to maintain adequate interest cover ratios.
DividendThe Company has reduced the full year dividend from the level paid in 2005/06 to conserve funds for reinvestment in the business and in turn generate improved financial results in future years.
The dividend of 10 cents per share still represents a high payout ratio of 67%, compared with 74% in the prior year.
Penrice intends to maintain a future dividend payout ratio of between 60 and 65% of annual earnings. This will enable the company to maintain its twin objectives of a continuing high dividend yield and investing for future growth.
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At Penrice Soda Holdings Ltd (the Company), our belief is that all injuries, illnesses and environmental incidents are preventable.
Excellent Occupational Health, Safety, Welfare and Environment practices are integral components of the Company’s culture, practice and values.
All injuries are preventable in pursuit of our Safety Vision “No Injuries to Anyone Ever”.
The Company maintains a dynamic approach through continuous improvement of a safe and healthy working environment facilitating the optimal health and well being of our people, contractors and others who may be affected by our operations through commitment and consultation.
Environmentally, the Company will achieve a standard of environmental care that meets community expectations and legislative requirements for all activities in which we are engaged, from mining through to chemical production, to the delivery of our products. In support of this the Company will:
Maintain an Environmental Management System (EMS) in accordance with the International Standard ISO 14001:2004.
Communicate openly and honestly with the Government, our people and the community.
Continuously contribute to the development of policy, legislation and standards for environmental improvement where relevant to the Company.
Worker Safety and HealthThe Company is determined to foster a working environment which seeks to eliminate all workplace injuries and incidents. We recognise that ensuring safety and health at work is our most important task.
It is particularly pleasing to note that the Company safety record improved with the number of recorded injuries in 2006/07 being 27% lower compared with the previous year.
Led by our Safety Steering Committee, staff at all levels were engaged to consider safety and health in the workplace. New initiatives during the year to heighten our safety awareness and improve performance included:
Increased awareness, commitment and ownership by the Company’s executive team by holding several training sessions.
A series of Cardinal Rules were introduced to ensure that the most important safety rules in the workplace take priority and are elevated to the highest possible level.
A company-wide Drug and Alcohol policy was established, which adopted a zero tolerance level for drugs and alcohol to ensure that all employees and contractors are not impaired in the workplace.
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Personal Protective Equipment compliance was increased at all sites, including a well documented and signed workplace.
There was a heightened emphasis placed on communicating at all levels of the organisation through toolbox meetings, safety walk and talks, clearance to work permit coaching and behavioral training.
The safety representative and corporate safety committees increased the frequency of meetings from quarterly to monthly.
Reporting injury, illness and incidents to ensure all are managed quickly and effectively thus reducing the likelihood of re-occurrence and severity of any injuries.
The Safety Challenge that Lies AheadThe Company has set aspirational 2010 Targets:
No worker fatalities;
Reduce the All Worker Recordable Case Rate to below 4.5, representing a 30% reduction on 2006/07; and
Sustain 100% Compliance with Health Assessment and Occupational Hygiene Programs.
We have based our approach on a 3 point plan, addressing plant maintenance, plant procedures and training, people and culture. The Company realises that in order to achieve significant improvement in safety, all three areas of the safety management system need to be improved.
There has been considerable effort placed in all areas, but the area of safety culture is one area where improvement has been achieved in a shorter period of time. The increased focus on this area is one of the prime reasons why a decrease in recordable injuries has been achieved.
The two areas that pose the greatest challenge for the Company to achieve industry best safety standards, are increasing the integrity of the plant and updating the safe operating procedures. The Company is addressing this deficiency by creating new internal positions and by the injection of an increased amount of capital funding.
The target the Company has set is a realistic reflection on the improvement that can be made in the next three years. The 2010 milestones have been developed on the 2007 Safety performance data baseline with the intention of achieving a 10% improvement each year. Even though the all worker recordable case rate has decreased by 27% in 2007 from the previous year, this is largely due to the Company’s cultural change. The road to improvement from this point is seen as a far more challenging task.
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Sustainability ReportF
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Environment and Sustainable DevelopmentThe Company is committed to continuous environmental sustainability. Our environmental performance is driven by Environmental Improvement Programs that are regularly reviewed and updated.
Sustainable development for the Company means not only being quality conscious and a competitive supplier of products and services; it also means being a good neighbour in the communities in which we operate. The Company shall achieve a standard of environmental care that meets community standards and legislative requirements for all activities in which we are engaged. We are committed to sustainability, always researching the best available technology to exceed environmental expectations.
Community Expectations, Relations and ComplaintsThe 2006/2007 year was very positive with the Company continuing to achieve significant improvements in its environmental performance. An appropriate measure of our environmental performance is the frequency of recorded environmental community complaints.
The number of environmental complaints received for the 2006/07 year was minimal, maintaining the very low rate recorded last year. Our site ‘Environment Improvement Program’ (EIP), which focuses on plant improvements related to noise, dust and odour minimisation is the primary reason for the low number of community complaints. Plant improvements related to the Company’s EIP that have contributed to this achievement in 2006/07 include:
Significantly reducing noise from identified plant processing equipment.
Successful expansion of the Solids Recovery Plant at Osborne for improved by-product control.
Permanent onsite water trucks at both sites that are used to wet down any dusty open areas and haul roads.
Regular bi-weekly industrial sweeping of the Osborne and Angaston plants.
Installation of dust suppression systems to both point sources such as chimney stacks and also general open plant areas that are vulnerable to fugitive dust generation, to prevent dust from entering the atmosphere.
Ongoing construction of environmental mounding within and around the plant boundary for noise and dust control.
Ongoing re-vegetation programs within and around the plants, to minimise the affect of dust and noise on the immediate residents.
Installation of technical equipment to improve plant efficiency and cleanliness.
The Company’s environmental team prides itself on maintaining a good relationship with the local neighbourhood and residents. This is primarily achieved by ensuring good communication with the local community, via the publication of community newsletters bi-annually, and regular visits to any concerned neighbours or neighbours that have any
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questions. Specific letter drops are also now performed prior to any shutdown maintenance work that may result in increased traffic via contractors, excessive noise during maintenance exercises and plant slow downs and start ups.
Environmental Licence, Compliance and AchievementsThe Company is pleased to report 100% compliance with all environmental legislation, including our Environment Protection Authority (EPA) operating licence and our EPA Environment Improvement Programs (EIP).
Waste Water Effluent and Solids Recovery Plant
All drains located within the Osborne site form the Company’s waste effluent stream which is discharged to the local marine environment, the Port Adelaide River. In accordance with our EPA operating licence the effluent discharged to the Port River is monitored on a continual basis and against the Environment Protection (Water Quality) Policy 2003. The primary environmental concerns with the effluent are its constituents of total suspended solids (TSS) and nitrogen in the form of ammonia.
In 2001, a solids recovery plant was constructed to prevent the discharge of over 120,000 tonnes of solid material per year being discharged into the Port River. The performance in 2006/07 was again excellent with the amount of total solids discharged to the Port River below 1% of the total solids produced from the Osborne plant. The issuing of the new 10 year EPA licence in 2005/06 saw the suspended solids discharge target limit reviewed down from 500ppm (parts per million) to 250ppm. The 250ppm limit is based on a 30-day rolling average and was never exceeded at any time during the course of the year and resulted in 100% compliance with our EPA operating licence.
The good performance of the solids recovery plant resulted in a 12% reduction in operating costs during 2006/07.
Waste Utilisation and Minimisation
The solid material (Calsilt) that is recovered by the solids recovery plant has been successfully used around the plant in environmental mounds. Calsilt has been identified as a suitable growing medium for specific native vegetation. Significant amounts of the material have been used in the construction of environmental mounds.
Other solid waste including cardboard, wood, paper and beverage containers are recycled through our extensive on site recycling program in the efforts of minimising waste to landfill.
Ammonia Discharge
Included in the EPA operating licence is the Company’s commitment to reduce ammonia (nutrients as Nitrogen) discharged via our waste water stream to the Port River Estuary. We have committed to a 10 year ammonia reduction Environment Improvement Program that will see us reduce our ammonia discharge to the Port River by a further 30% over the next 5 years. The 2006 calendar year ammonia reduction target was achieved.
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2005 was the first year of the new Ammonia EIP which required the Company to reduce its ammonia discharge to the Port River by 10%. Further reductions are required beyond this. Since 2002 there has been approximately a 30% reduction in ammonia losses to the Port River.
Our commitment to the 10 year ammonia reduction program will include continuous reduction targets. The EPA’s reduction targets were determined by a combination of community expectations and also extensive scientific research.
Air Quality
In accordance with the Company’s EPA Operating Licence, we monitor the release of contaminants to the atmosphere. This program includes stack testing or the monitoring of chimney stacks on site that discharge particulates (dust) to the atmosphere, and also the continuous monitoring of particulates on the boundary of the plant with two dust monitoring stations.
The 2006/07 stack particulate emissions were 100% compliant with legislation.
The Company has a dust track monitoring unit and a total suspended solids high volume air sampler located on the south western boundary of the plant. This is primarily to monitor the amount of dust the plant and its operations are generating beyond the plant boundary that may have an effect on the local residents. Although there are no legislative limits in place regarding this, there are a number of guidelines that are recommended. These are recommended by World Health Organisation and National Environment Pollution Measure.
Resource and Operational SustainabilityEnergy Consumption
Energy Consumption is expressed in GigaJoules (GJ) per metric tonne (MT) of finished product.
The energy consumption for 2006/07 was lower than the previous year at 8.15GJ per MT of finished product. The long term target is to achieve 8GJ per MT of finished product. The Company has recently registered with the government to develop an Energy Efficency Opportunites (EEO) Program that will aid in improving the effeciency of our energy use.
8.80
8.60
8.40
8.20
8.00
7.80
7.60
Energy Consumption (GJ/MT product)
2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2009/10
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Greenhouse Gas Emissions
Greenhouse Gas Emissions are expressed in metric tonnes (MT) of CO2 produced per MT of finished product. In 2006/07 there was a substantial reduction in greenhouse gas emissions. A number of alterations to the production process were made whereby we recover additional CO2 and use this within the sodium bicarbonate production process. CO2 is a valuable resource to the production process of sodium carbonate and sodium bicarbonate.
Water Consumption
Town's water consumption, expressed as cubic meters (m³) of town's water per MT of finished product, improved dramatically following the installation of the Reverse Osmosis (RO) plant. There was 1.5m³ of town's water used per MT of finished product produced during 2006/07. The long term goal is to reduce this to 0.5m³ per MT of finished product.
The RO plant’s function is to pump ground water from an aquifer 200m below the earth’s surface, before filtering any solids, salts and contaminants. This water is then used in the Sodium Carbonate and Sodium Bicarbonate manufacturing process in place of town's water. We are pleased to highlight that the town's water use has been reduced by 66% and we have returned the equivalent of 10,000 households water usage back for use by Adelaide residents. We are aiming to further reduce our mains water use and our demand on the River Murray by further expanding the RO plant in the future. Substantial operating savings have been made, highlighting our view that what is good for the environment is good for business.
At the Angaston mine, rainwater and water from the groundwater aquifer accumulates and is stored at the bottom or the ‘pit’ of the mine. This water source provides water for the entire mine operation, both process and non-process water requirements. No mains or town's water is used on the site.
0.32
0.30
0.28
0.26
0.24
0.22
0.20
Greenhouse Gas Emissions (MT CO2/MT product)
2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2009/10
5.00
4.00
3.00
2.00
1.00
0.00
Town’s water Consumption (m³/MT product)
2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2009/10
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Barbara Gibson Non-Executive Director
Michael Boyce Non-Executive Director
Stephen Bushaway Company Secretary
Chief Financial Officer
John Heard AM Chairman and
Non-Executive Director
Guy Roberts Managing Director
and Chief Executive Officer
Andrew Fletcher Non-Executive Director
and Deputy Chairman
The DirectorsF
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Directors’ ReportThe Board of Directors of Penrice Soda Holdings Limited has pleasure in submitting this report for the year ended 30 June 2007 as follows.
DirectorsThe names and details of the directors of the company in office during the period and at the date of this report are as follows.
John H Heard AMFellow of the Institute of Chartered Accountants in Australia
Experience
John is a Chartered Accountant in private practice and has experience as a Director or consultant for a number of companies. John has been a Director of other Penrice group companies since May 2002.
During the past three years John has also served as a director of the following other public companies and boards:
Adtrans Group Limited (Deputy Chairman)*S. Kidman & Co Limited*CEDA (Committee for Economic Development of Australia)Master Butchers Co-operative Ltd (Chairman)** Indicates a current Directorship
John is also Chairman of Bank SA Advisory Board and the Adelaide Festival Centre Foundation.
Special Responsibilities
Chairman and Non-Executive Director of Penrice Soda Holdings Limited. Chairman of Nomination and Remuneration Committee. Member of Audit and Risk Management Committee.
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Guy R Roberts
Appointed 19 December 2006
Bachelor of Law (University of Adelaide) Graduate Diploma in Legal Practice (University of Adelaide)
Experience
Guy is an experienced international chemical company executive who was with the Orica Australia group (formerly ICI Australia) for the past 15 years. He has wide experience in chemical, plastics and consumer markets in Australia, New Zealand, Asia and United States all of which are relevant to Penrice's operations.
Guy has held a number of senior executive positions with Orica, including Managing Director and General Manager roles in chemical manufacturing and distribution, plastics manufacturing and distribution, paint manufacturing and retailing in Australia and New Zealand.
Most recently, he had particular responsibility for setting Orica’s strategic growth agenda in water treatment and was General Manager of Orica Watercare, the leading supplier of industrial and water treatment chemicals and equipment in Australia and New Zealand, and with operations in the United States and the United Kingdom.
Guy is also a former barrister and solicitor with Minter Ellison Lawyers and Senior Legal Counsel with Orica, responsible for major projects, mergers and acquisitions across the Group’s portfolio in Australia, New Zealand, Asia, United Stated and the United Kingdom.
Special Responsibilities
Managing Director and Chief Executive Officer of Penrice Soda Holdings Limited.
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Andrew V Fletcher Bachelor of Engineering (Civil) (University of Adelaide) Fellow, Institution of Engineers Australia Fellow, America Society of Civil Engineers Foundation Fellow, Australian Institute of Company Directors
Experience
Andrew is currently the Chief Executive Officer of Port Adelaide Maritime Corporation. His previous executive appointments include Senior Vice President Global Infrastructure and Asia Pacific for Kellogg Brown & Root from 2001 until 2004, and Senior Vice President Asia Pacific for Brown & Root Services from 1998 until 2000. During the past three years Andrew has also served on the following boards:
Member of SA Economic Development Board*SA Defence Industry Advisory Board*SA Environment Protection Authority Board*
* Indicates a current Directorship
Special Responsibilities
Non-Executive Director and Deputy Chairman of Penrice Soda Holdings Limited. Chairman of Audit and Risk Management Committee. Member of Nomination and Remuneration Committee.
Barbara J Gibson Bachelor of Science (Biochemistry) (Monash University) Fellow of the Australian Academy of Technological Sciences and Engineering Australian Centenary Medal 2003
Experience
Barbara was formerly the Group General Manager of Chemicals for Orica Limited, a $1.3 billion business and the largest Chemicals business in Australia, and a member of the Orica Group Executive. She has extensive experience in running science based businesses and technology development. During the past three years Barbara has also served as a Non-Executive Director on the following boards:
St Barbara Limited*Biota Holdings Limited*Warakirri Asset Management Pty Ltd (Chairman)*Incitec Pivot Limited
* Indicates a current Directorship
Special Responsibilities
Non-Executive Director of Penrice Soda Holdings Limited. Member of Audit and Risk Management Committee. Member of Nomination and Remuneration Committee.
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Michael R Boyce Bachelor of Science (Chemistry) (West Virginia State) Graduate of Harvard University’s Advanced Management Program
Experience
Michael is currently the Chairman and CEO of PQ Corporation, a US$600 million industrial chemicals business. Between April 1998 and February 2005, he was Chairman and CEO of Peak Investments, a company that acquired chemicals and minerals businesses, and provided commercial aviation overhaul and repair services. Michael has previously held the positions of President and CEO of Harris Chemical Group Inc, CEO of Penrice Soda Products and Managing Director of D. George Harris & Associates.
Special Responsibilities
Non–Executive Director of Penrice Soda Holdings Limited.
David A Reid
Resigned 26 July 2006
Diploma in Applied Chemistry (Monash University) Bachelor of Applied Science (Swinburne University)
Experience
David held the position of Chief Executive Officer from 1997 to July 2006.
Stephen R BushawayCompany Secretary Bachelor of Economics (University of SA) Associate of the Institute of Chartered Accountants in Australia
Experience
Stephen joined Penrice in 1998 from Lion Nathan where he was employed as Commercial Manager and prior to that as Finance Manager of SA Brewing. Previously, Stephen has held roles in a privately owned company as Finance Director, and senior roles, predominantly in taxation, in various chartered accounting firms.
Special Responsibilities
Company Secretary. Acting Chief Executive Officer from 26 July 2006 to 18 December 2006. Chief Financial Officer.
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Directors’ InterestNo Director has any interest in a contract or proposed contract with the company or any of its subsidiaries other than as disclosed in the Directors benefits section of this report.
The relevant direct or indirect interest of each director in the shares issued by the company as notified by the directors to the Australian Stock Exchange in accordance with S205G(I) of the Corporations Act 2001, at the date of this report is as follows:
Directors’ MeetingsThe number of Directors’ meetings and meetings of Committees of Directors held during the year and the number of meetings attended by each Director is as follows:
*Although not a member of the Audit and Risk Management Committee or Nomination and Remuneration Committee, Guy Roberts was invited to attend.
Principal ActivitiesThe principal activities of the Company consist of the manufacture, distribution and sales of soda ash and sodium bicarbonate and the mining, distribution and sale of quarry and mineral products.
Corporate StructurePenrice Soda Holdings Limited is a company limited by shares that is incorporated and domiciled in Australia. Penrice Soda Holdings Limited has prepared a consolidated financial report incorporating the entities that it controlled during the financial year, which are outlined in the following illustration of the group’s financial structure.
Director Nameofholder Number&class &natureofinterest ofSecurities
Michael Boyce Big Red LLC. 461,732 ordinary shares Michael Boyce is a 48% shareholder in Big Red LLC.
Andrew Fletcher RBC Global Services 25,900 ordinary shares Australia Nominees Pty Limited as trustee for the Andrew Fletcher Superannuation Fund.
John Heard AM Zetland Pty Limited as 115,428 ordinary shares trustee for JH Heard Super Fund.
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Eligib
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John Heard AM 12 12 3 3 2 2
Guy Roberts 5 5 - 2* - 2*
Andrew Fletcher 12 12 3 3 2 1
Michael Boyce 12 4 - - - -
Barbara Gibson 12 12 3 3 2 2
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ResultsOperating profit after income tax for the financial period.
30 June 2007
$000
6,724
30 June 2006
$000
9,052
DividendsA final dividend of 5.0c per share has been declared and will be paid on 24 October 2007. Details of the Dividends paid are as follows:
Ordinary Dividend $0.05 per share paid 5 April 2007 $2,250,000 $ -
Ordinary Dividend $0.077 per share paid 23 October 2006 $ - $3,465,000
Ordinary Dividend $0.07 per share paid 5 April 2006 $ - $3,150,000
The Dividends were fully franked
Penrice Soda Holdings Limited
Penrice Pty Ltd 100%
PSP SPV Pty Ltd 100%
Penrice Finance Pty Ltd 100%
Penrice Holdings Pty Ltd 100%
Penrice Soda Products Pty Ltd 100%
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EmployeesThe consolidated entity employed 224 employees at 30 June 2007 (2006 - 225 employees).
Review of OperationsA review of operations of the consolidated entity during the financial year and the results of those operations are included earlier in the Review of Operations report.
Significant Changes in the State of AffairsThere has been no significant change in the State of Affairs of the Company.
Significant Events After the Balance DateThere has been no significant event after the balance date.
Likely Developments and Future ResultsA detailed review of the likely developments and future results is included in the Review of Operations report.
Environmental Regulation and PerformanceThe Company holds licences issued by the Environment Protection Authority (EPA), which enables discharge to the environment from the consolidated entity’s operations. All environmental performance obligations are monitored and are subjected, from time to time, to Government Agency audits and site inspections. The consolidated entity has a policy of at least complying, but in most cases, exceeding its environmental performance obligations.
There have been no known breaches of the consolidated entity’s license conditions during the financial year.
Indemnification of OfficersThe Company has paid a premium for Directors’ and Executive Officer’s liability insurance in respect of Directors’ and Executive Officer's of the Company as permitted by the Corporations Act 2001. The terms of the policy prohibit disclosure of details of the insurance cover and premium.
The Company has agreed to indemnify the current Directors of the Company against all liabilities to another person (other than the Company or a related body corporate) that may arise from their position as Directors of the Company and its controlled entities, except where the liability arises out of conduct involving lack of good faith. The Access, Indemnity and Insurance Deed stipulates that the Company will meet the full amount of any such liabilities including costs and expenses.
Remuneration ReportThis report outlines the remuneration arrangements in place for the specified Directors and executives of Penrice Soda Holdings Limited.
Remuneration PhilosophyThe performance of the Company depends upon the quality of its Directors and executives. To prosper, the Company must attract, motivate and retain highly skilled Directors and executives.
To this end, the Company embodies the following principles in its remuneration framework:
Provide competitive rewards to attract high calibre executives.
A portion of executive remuneration ‘at risk’, dependent upon meeting pre-determined performance benchmarks.
Nomination and Remuneration CommitteeThe Nomination and Remuneration Committee of the Board of Directors of the Company is responsible for determining and reviewing compensation arrangements for the Directors, the Managing Director and Chief Executive Officer (Managing Director) and the senior management team.
The Nomination and Remuneration Committee assesses the appropriateness of the nature and amount of remuneration of Directors and senior managers 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 Board and executive team.
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Remuneration StructureIn accordance with best practice corporate governance, the structures of non-executive Director and senior manager remuneration are separate and distinct.
Non-Executive Director Remuneration
Objective
The Board seeks to set aggregate remuneration at a level which provides the Company with the ability to attract and retain Directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders.
Structure
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 included in the constitution of $500,000 per annum.
The amount of aggregate remuneration sought to be approved by shareholders and the manner in which it is apportioned amongst Directors is reviewed annually. The Board considers advice from external consultants as well as the fees paid to non-executive Directors of comparable companies when undertaking the annual review process.
Each Director receives a fee for being a Director of the Company. No additional fee is paid for any Board committee on which a Director sits.
The remuneration of non-executive Directors for the period ending 30 June 2007 is detailed in Table 1 of this report.
Current remuneration excluding superannuation is:
John Heard AM – Chairman $100,000 per annum
Andrew Fletcher – Director $53,000 per annum
Mike Boyce – Director $53,000 per annum
Barbara Gibson – Director $53,000 per annum
Senior Manager and Executive Director Remuneration
Objective
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:
reward executives for Company, business unit and individual performance against targets set by reference to appropriate benchmarks;
align the interests of executives with those of shareholders;
link reward with the strategic goals and performance of the Company; and
ensure total remuneration is competitive by market standards.
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Structure
It is the Nomination and Remuneration Committee’s policy that employment contracts are only entered into with the Managing Director and with no other executives.
Remuneration consists of the following key elements:
Fixed Remuneration
Variable Remuneration
Fixed Remuneration
Objective
The level of fixed remuneration is set so as to provide a base level of remuneration which is both appropriate to the position and is competitive in the market.
Fixed remuneration is reviewed annually by the Nomination and Remuneration Committee and the process consists of a review of Company-wide, business unit and individual performance, relevant comparative remuneration in the market and internal and, where appropriate, external advice on policies and practices. The committee has access to external advice independent of management.
Structure
Senior managers are given the opportunity to receive their fixed (primary) remuneration in a variety of forms including cash and fringe benefits such as motor vehicles. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the Company.
The fixed remuneration components of the five senior managers who have sufficient delegated responsibilities are detailed in Table 3.
Variable Remuneration - Short Term Incentive (STI)
Objective
The objective of the STI program is to link the achievement of the Company’s operational targets with the remuneration received by the executives charged with meeting those targets. The total potential STI available is set at a level so as to provide sufficient incentive to the senior manager to achieve the operational targets and such that the cost to the Company is reasonable in the circumstances.
Structure
Actual STI payments granted to each senior manager depend on the extent to which specific operating targets set at the beginning of the financial year are met. If financial targets are achieved then senior managers are required to also meet individual operations targets. The operational targets consist of a number of agreed critical objectives covering both financial and non-financial measures of performance.
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The aggregate of annual STI payments available for executives across the Company is subject to the approval of the Nomination and Remuneration Committee. Payments made are usually delivered as a cash bonus.
With the performance of the Company for the year ended 30 June 2007 below the forecast, no STI payments are due to management for the past year.
Variable Remuneration - Long Term Incentive (LTI)An interim long term incentive plan currently exists for the Managing Director, the details of which are provided below. It is the intention of the Directors to replace this scheme with a LTI scheme that will cover both the Managing Director and key executives of the Company. Details of the LTI scheme are to be included in the Annual General Meeting notice.
The current interim LTI plan provides for 167,000 share options to be granted to the Managing Director on 19 December 2006, subject to shareholder approval at the Company’s 2007 Annual General Meeting.
The value of the options granted was $57,615. No options have been exercised during the year or have lapsed during the year.
In order for the options to vest, the Managing Director must remain in the employment of Penrice for a minimum of three years, giving a vesting date of 19 December 2009. The options will only vest if the average Penrice share price increases by a minimum of 10% compound per year until the vesting date. The percent of options able to vest increases dependant on the compound growth of the share price.
Any options that do not vest on the vesting date will lapse, and will not later be capable of vesting or being exercised. Options may be exercised any time up to 4 calendar years after their vesting date.
Employment ContractsThe Managing Director, Mr Guy Roberts, is employed under a rolling common law employment contract. The current employment contract commenced on 19 December 2006. Under the terms of this contract:
Mr Roberts’ contract provides for a Target Annual Remuneration (TAR) of $720,000 of which $400,000 per annum is fixed annual remuneration (FAR) and $320,000 per annum is variable at risk, payable in line with planned short term and long term incentive schemes.
Mr Roberts may resign from his position and thus terminate this contract by giving 12 months written notice.
The Company may terminate this employment agreement by providing 12 months written notice or providing payment in lieu of the notice period (based on the FAR of Mr Roberts’ remuneration). If termination by the Company occurs within the period of 12 months of the commencement date, the Company will pay to the Managing Director the difference between the FAR paid to him up to that time and 24 months of the Managing Director’s, then current FAR.
If in the Company’s reasonable opinion, the Managing Director fails to exercise reasonable skill and care in the performance of the Managing Director’s duties, having first been provided with not less than 28 days notice of the details of the alleged failure to exercise reasonable skill and care, and having failed to rectify that failure within that time, the employment agreement may immediately terminate without notice.
The Company may terminate this employment agreement at any time without notice or compensation in lieu, in the case of serious or wilful misconduct.
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TABLE 1 30 JUNE 2007
G Roberts $185,994 - - $17,693 - 10,155 - $213,842 5 J Heard AM $92,500 - - $11,470 - - - $103,970 - A Fletcher $50,750 - - $6,293 - - - $57,043 - M Boyce $50,750 - - - - - - $50,750 - B Gibson $50,750 - - $6,293 - - - $57,043 - D Reid $198,333 - $142,529 $408,110 - - - $748,972 -
Total Remuneration
Specified Directors $629,077 $ - $142,529 $449,859 $ - $ 10,155 $ - $1,231,620
Directors Sala
ry &
Fee
s
Cas
h Bo
nus
Non
Mon
etar
y Be
nefit
s
Supe
rann
uatio
nR
etire
men
t Ben
efits
Opt
ion
Entit
lem
ents
Shar
es
Shor
t Ter
m
Post
Em
ploy
men
t Ben
efits
Shar
e Ba
sed
Paym
ents
Remuneration of Specified Directors
Tota
l
Perf
orm
ance
Rel
ated
Pay
%
D Reid
The separation payment to D Reid comprised a superannuation contribution of $400,000 together with a non-monetary benefit of $119,156 relating to his motor vehicle.
Salary for the year included the payment of annual and long service leave entitlements in addition to the salary for July.
TABLE 2 30 JUNE 2006
J Heard AM $90,000 - - $11,160 - - - $101,160 - A Fletcher $50,000 - - $6,200 - - - $56,200 - M Boyce $50,000 - - - - - - $50,000 - B Gibson $30,303 - - $3,758 - - - $34,061 - D Reid $343,339 - $35,959 $48,711 - - - $428,009 -
Total Remuneration
Specified Directors $563,642 $ - $35,959 $69,829 $ - $ - $ - $669,430
Directors
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ated
Pay
%
TABLE 3 30 JUNE 2007
S Bushaway $164,872 $82,564 $20,898 $24,289 - - - $292,623 - CFO & Company Secretary
G Calaby $101,142 - $14,740 $100,991 - - - $216,873 - Gen Mgr Mine & Major Projects
R Doveton $115,367 - $20,820 $39,736 - - - $175,923 - Manager Osborne Operations
M Carter $67,429 - $15,233 $104,515 - - - $187,177 - General Manager – Quarry & Minerals
A Kuhndt $104,993 - $10,763 $17,583 - - - $133,339 - Group Business Manager
Total Remuneration
Specified Executives $553,803 $82,564 $82,454 $287,114 $ - $ - $ - $1,005,935
Sala
ry &
Fee
s
Cas
h Bo
nus
Non
Mon
etar
y Be
nefit
s
Supe
rann
uatio
nR
etire
men
t Ben
efits
Opt
ion
Entit
lem
ents
Shar
es
Shor
t Ter
m
Post
Em
ploy
men
t Ben
efits
Shar
e Ba
sed
Paym
ents
Remuneration of Specified Executives
Tota
l
Perf
orm
ance
Rel
ated
Pay
%
Executives
TABLE 4 30 JUNE 2006
S Bushaway $165,421 - $16,167 $23,695 - - - $205,283 - CFO & Company Secretary
G Calaby $182,485 - $21,656 $21,898 - - - $226,039 - Gen Mgr Mine & Major Projects
R Doveton $136,152 - $14,391 $16,302 - - - $166,845 - Manager Osborne Operations
Total Remuneration
Specified Executives $484,058 $ - $52,214 $61,895 $ - $ - $ - $598,167
Executives
S Bushaway
The cash bonus for S Bushaway was paid for the period he was Acting CEO.
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Rounding of AmountsThe entity is a company of the kind specified in the Australian Securities and Investments Commission class order 98/0100. In accordance with the class order, amounts in the financial statements and Directors’ report have been rounded to the nearest thousand dollars unless specifically stated otherwise.
Auditor IndependenceThe Directors received the following declaration from the auditor of Penrice Soda Holdings Limited.
Auditor’s Independence Declaration to the Directors of Penrice Soda Holdings LimitedIn relation to our audit of the financial report of Penrice Soda Holdings Limited for the financial year ended 30 June 2007, 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
Colin Dunsford Partner Ernst & Young 19 September 2007
Non – Audit ServicesThe following non-audit services were provided by the entity’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 to receive the following amount for the provision of non-audit services:
Tax compliance services $48,675 Research and development $10,026 Consulting $21,284 Total $79,985
This report has been made in accordance with a resolution of the Directors.
Signed at Adelaide this 19th day of September 2007
John Heard AM Chairman
Guy Roberts Managing Director and Chief Executive Officer
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The Board of Directors of Penrice Soda Holding Limited (the Company) is responsible for the corporate governance of the consolidated entity. The Board has considered the ASX Corporate Governance Council’s Principles of Good Corporate Governance and Best Practice Recommendations and is pleased to report that its practices are largely consistent with those of the Council’s guidelines.
Structure of the BoardThe names of the Directors and their qualifications and experience are stated in the Directors' Report.
An independent Director is a Director who is not a member of management (a non-executive Director) and who:
holds less than five percent of the voting shares of the Company and is not an officer of, or otherwise associated, directly or indirectly, with a shareholder of more than five percent of the voting shares of the Company;
has not within the last three years been employed in an executive capacity by the Company or another group member, or been a director after ceasing to hold any such employment;
within the last three years has not been a principal or employee of a material professional adviser or a material consultant to the Company or another group member;
is not a material supplier or customer of the Company or another group member, or an officer of or otherwise associated, directly or indirectly, with a material supplier or customer;
has no material contractual relationship with the Company or another group member other than as a Director of the Company; and
is free from any interest and any business or other relationship that could, or could reasonably be perceived to, materially interfere with the Director’s ability to act in the best interests of the Company.
All the non-executive Directors at the time of this report are considered independent.
The Chairman of the Board and the Chairman of the Audit and Risk Management Committee are each considered to be independent Directors.
Penrice Soda Holdings Limited Board Charter is available in the Corporate Governance section at www.penrice.com.au.
Board Size and CompositionAt the date of this Corporate Governance Statement, the Board comprises four independent non-executive Directors and one executive Managing Director. The constitution requires a minimum of three and a maximum of eight Directors. The Board currently has five Directors and may review this from time to time.
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The Nomination and Remuneration Committee determines the necessary and desirable competencies of the Board members and will make recommendations to the Board on the composition of the Board and its Committees, including the appointment and removal of members.
One third of Directors are due to retire each year on a rotational basis and are able to offer themselves for re-election.
Board Role and ResponsibilityThe Board’s role and responsibilities are formalised in the Board Charter. The Charter also defines the matters that are reserved for the Board and its Committees and the Board members’ access rights to information and independent advice, among other matters.
The Penrice Soda Holdings Limited Board, as the representative of the Company’s shareholders, is responsible for the overall governance of the Company and its responsibilities include:
appoint and remove the Chief Executive Officer and senior executives, and determine that person’s conditions of service, remuneration (including termination benefits) and the conditions of service and remuneration policy of senior executives;
monitor and assess the performance of the Chief Executive Officer and the Company’s executive team;
approve the remuneration (including financial incentives) of the Chief Executive Officer and senior executives;
recommending the appointment and reviewing the performance of Directors;
overseeing the succession plans for the Board, Chief Executive Officer and senior executive team;
establishing any incentive plans for Directors, management and employees;
establishing and appointing the members of sub-committees of the Board, including the Nomination and Remuneration Committee and the Audit and Risk Management Committee;
provide input into, and approve, the business plan budget and compliance policies of the Company as prepared by management;
approving the Company’s annual accounts, reports and other public documents;
monitor the strategic and financial objectives and performance against the business plan and budget;
review the Company’s risks of operating its business and oversee implementation of appropriate measures;
monitor business risks and oversee the risk management strategy;
oversee the audit, compliance and financial and operations risk management functions of the Company;
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Corporate Governance StatementF
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delegating an appropriate level of authority to management;
oversee the Company’s employee-relations and legal, ethical, social and environmental behaviour;
approve all material acquisitions, divestments, contracts and capital expenditure;
ensure appropriate and responsible funding is available to the Company;
oversee the Company’s financial reporting and communication to shareholders and the investment community and shareholder relations generally (including effectively communicating the Company’s financial position, trading performance and prospects to stakeholders); and
ensuring that the Penrice Group has appropriate corporate governance structures in place including standards of ethical behaviour and promoting a culture of corporate and social responsibility.
Audit and Risk Management CommitteeThe Audit and Risk Management Committee has a documented charter, approved by the Board. All members must be non-executive directors. The Chairman may not be the Chairman of the Board.
The Current Members of the Audit and Risk Management Committee are:
Andrew Fletcher (Chairman) - Non-Executive Director
John Heard AM - Non-Executive Director
Barbara Gibson - Non-Executive Director
For details of Directors' attendance at meetings of the Audit and Risk Management Committee refer to the Directors' Report. Refer also to the Directors' Report for details of the qualifications of the members of this committee.
The committee advises on the establishment and maintenance of a framework of internal controls and ethical standards for the management of the consolidated entity.
This includes internal controls to deal with the effectiveness of significant business processes, the safeguarding of assets, the maintenance of proper accounting records and the reliability of financial information as well as non-financial considerations.
The committee also provides the Board with additional assurances regarding the reliability of financial information for inclusion in the financial reports.
Penrice Soda Holdings Limited Audit and Risk Management Committee Charter is available in the Corporate Governance section at www.penrice.com.au.
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Auditor IndependenceThe independence of the external auditor is of particular importance to shareholders and the Board. The Board requires:
Rotation of the senior audit partner every five years;
Annual confirmation by the auditor that it has satisfied all professional regulations relating to auditor independence; and
Specific exclusion of the audit firm from work which may give rise to a conflict.
In accordance with the Corporations Act 2001 and, based on the advice of the Audit and Risk Management Committee, the Directors have satisfied themselves that the provision of non-audit services during the year by the auditors is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001.
Nomination and Remuneration CommitteeThe Board has established a Nomination and Remuneration Committee, which meets at least annually to ensure that the Board continues to operate within the established guidelines including, where necessary, selecting candidates for the position of Director.
The Nomination and Remuneration Committee comprises the following members:
John Heard AM (Chairman) - Non-Executive Director
Andrew Fletcher - Non-Executive Director
Barbara Gibson - Non-Executive Director
For details of Directors' attendance at meetings of the Nomination and Remuneration Committee refer to the Directors' Report.
The Nomination and Remuneration Committee reviews and makes recommendations to the Board on remuneration packages and policies applicable to the Managing Director, senior executives and Directors themselves. It is also responsible for share schemes, incentive performance packages, superannuation entitlements, retirement and termination entitlements and fringe benefits policies.
Remuneration levels are competitively set to attract and retain appropriately qualified and experienced senior executives. The Nomination and Remuneration Committee obtains independent advice on the appropriateness of remuneration packages, given trends in comparative companies both locally and internationally. Remuneration packages can include a mix of fixed remuneration and performance-based remuneration.
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The expected outcomes of the remuneration structure are:
retention and motivation of key executives;
attraction of quality management to the Company; and
performance incentives which allow executives to share the rewards of the success of the Company.
For a full discussion of the Company’s remuneration philosophy and framework and the remuneration received by Directors and executives in the current period, please refer to the Remuneration Report, which is contained within the Directors' Report.
Penrice Soda Holdings Limited Nomination and Remuneration Committee Charter is available in the Corporate Governance section at www.penrice.com.au.
Board Performance EvaluationIn the last financial year, the Chairman facilitated a discussion and evaluation of the Board’s performance, in particular focusing on the Board’s role, processes and performance, the Board’s skills, and consideration of other relevant issues.
The performance of each Director was reviewed by the Chairman and the Board. The criteria against which performance was assessed included: uses superior judgement, acts in the best interests of the stakeholders, provides strategic insight, is results focused, accepts accountability, is a continuous learner and works constructively in a team.
Continuous DisclosurePenrice Soda Holdings Limited has written policies and procedures designed to ensure compliance with ASX Listing Rule disclosure requirements and to enforce accountability at senior management level for that compliance. The Board has endorsed these policies.
The Company is committed to dealing fairly, transparently and openly with both current and prospective shareholders using available channels and technologies to reach widely and communicate promptly. The Company commits to facilitating participation in shareholder meetings and dealing promptly with shareholder enquiries. This commitment is formalised in the Shareholder Communications Policy which is available in the Corporate Governance section at www.penrice.com.au.
Communication with ShareholdersPenrice Soda Holdings Limited has a communications policy to promote communication with shareholders. The Company’s website is now operational where shareholders can obtain market announcements, press releases, notice of meetings and financial statements.
The external auditor’s, Ernst & Young, attend the annual general meeting and are available to answer shareholder questions about the conduct of the audit and the preparation and content of the auditors report.
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Penrice Soda Holdings Limited Shareholder Communications Policy is available in the Corporate Governance section at www.penrice.com.au.
Code of ConductPenrice Soda Holdings Limited has adopted a code of conduct to guide compliance with legal and other obligations to legitimate stakeholders.
A copy of the code of conduct is provided to all employees and Directors on joining Penrice.
Penrice Soda Holdings Limited Code of Conduct and Code of Conduct-Directors are available in the corporate governance section at www.penrice.com.au.
Director and Employee Share Trading PolicyAll information obtained or obtainable as a Director or employee of the Company is the property of the Company and may not be used for any purpose other than in the conduct of the affairs of the Company.
All information of the Company is strictly confidential and must not be disclosed to any entity, except as required in the ordinary course of the operations of the Company, or used by Directors or employees for personal benefit or gain.
As a matter of law, Directors' and Company employees may not buy or sell shares in the Company if they possess information that, if disclosed publicly, might have a material effect on the price or value of the Company’s shares.
The key elements of the Share Trading Policy are:
identification of those restricted from trading – all employees may acquire shares in the Company, but are prohibited from dealing in Company shares or exercising options:
- except between twenty four hours and 2 months after either the release of the Company’s half-year and annual results to the Australian Stock Exchange (“ASX”) or the Annual General Meeting; and
- whilst in possession of information that he or she knows, or ought reasonably to know, is inside information in relation to those securities
raising the awareness of legal prohibitions including transactions with colleagues and external advisers;
requiring details to be provided of intended trading in the Company’s shares;
requiring details to be provided of the subsequent confirmation of the trade; and
identification of processes for unusual circumstances where discretions may be exercised in cases such as financial hardship.
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CEO and CFO AssuranceThe Board receives regular reports about the financial condition and operational results of the Company and its controlled entities. The Board has received and considered the annual certification from the CEO and the CFO in accordance with ASX Corporate Governance Council’s Best Practice Recommendations 4.1 and 7.2 and the Corporations Act 2001 stating that:
the Company’s financial statements present a true and fair view of our financial position and performance and are in accordance with Australian Accounting Standards; and
the risk management and internal compliance and control systems relating to financial and compliance reporting risks are sound, appropriate, and operating effectively in all material respects.
During 2006 the Company introduced an enterprise wide risk management process. During July 2007 an annual review of the existing enterprise wide risk profile for strategic, financial, operational and compliance risks was completed and the enterprise wide risk profile updated accordingly. Action plans and controls have been identified to manage and mitigate the risks to an acceptable level.
At the August 2007 Board meeting the introduction of an internal audit function was approved to provide independent assurance over the control environment. This internal audit function will work to complement other assurance functions, both internal and external, already in place and operating.
Risk ManagementThe Board has overall responsibility for ensuring that there is a sound system of risk management and internal compliance and control across the business. It also has responsibility for establishing risk management policies and the risk appetite of the Company, and ensuring that these are implemented.
Specific monitoring and evaluation of the effectiveness of risk management and the internal control environment are delegated to the Audit and Risk Management Committee. The Committee approves the Company’s accounting policies, reporting practices and production of financial statements, and monitors the application of appropriate management controls. It considers external audit reports and other independent reports, and reviews the adequacy of the Company’s procedures and internal controls in order to monitor financial risks and major operational risks.
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Risk and compliance processes and reporting procedures provide assurance to the Board and the Audit and Risk Management Committee that the preparation of the financial statements and the control systems underlying them are adequate.
The enterprise risk management framework has enabled the business to identify and assess strategic, operational, compliance and reporting risks and controls, respond promptly and appropriately and continue to monitor risks and issues as they evolve.
Throughout the year the Board has been appraised on the status of risk management.
The Company’s risk management structures and procedures are continuing and have been enhanced or updated.
Penrice Soda Holdings Limited Risk Management Policy is available on the Penrice website at www.penrice.com.au.
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Income Statement for the 12 months ended 30 June 2007
Continuing OperationsSales of goodsCommercial dispute settlementFinance revenueOther revenue
Total revenueCost of sales
Gross Profit
Warehouse and distribution expensesAdministration expensesBorrowing costsExchange gains / lossesOther expenses
Profit from continuing operations before income tax expense
Income tax expense
Net Profit after income tax for the period attributable to the members of the parent
Basic and diluted earnings per share
Note Consolidated Parent 2007 2006 2007 2006 $000 $000 $000 $000 3 134,231 133,676 - - 3 - 73 - - 3 236 409 - - 3 173 190 6,000 3,150 3 134,640 134,348 6,000 3,150 (82,000) (80,332) - - 52,640 54,016 6,000 3,150 (27,363) (28,002) - - (9,394) (9,228) (10) - 3 (4,516) (3,746) - (2) 3 (183) (259) - - (1,800) (1,774) - -
9,384 11,007 5,990 3,148
4 (2,660) (1,955) (93) 1,361 6,724 9,052 5,897 4,509 Cents Cents 7 14.94 20.12
The above Income Statement should be read in conjunction with the accompanying notes
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Balance Sheet as at 30 June 2007
The above Balance Sheet should be read in conjunction with the accompanying notes
Current Assets Cash and cash equivalents Trade and other receivables Inventories Derivatives Other
Total Current Assets
Non–Current Assets Property, plant and equipment Intangibles Deferred tax assets Other
Total Non-Current assets
Total Assets
Current Liabilities Trade and other payables Interest bearing liabilities Derivatives Income tax payable Provisions
Total Current Liabilities
Non-Current Liabilities Interest bearing liabilities Deferred tax liabilities Provisions
Total Non-Current Liabilities
Total Liabilities
Net Assets
EquityEquity attributable to equity holders of the parent Contributed equity Reserves Retained earnings / (accumulated losses)
Total Equity
Note Consolidated Parent 2007 2006 2007 2006 $000 $000 $000 $000 9 2,198 5,947 - - 10 16,861 19,281 41,250 40,593 11 20,669 14,557 - - 12 2 273 - - 13 686 206 - - 40,416 40,264 41,250 40,593 14 62,705 60,390 - - 15 21,797 20,934 - - 4 3,544 4,356 860 1,290 16 1,276 832 - - 89,322 86,512 860 1,290 129,738 126,776 42,110 41,883 17 18,722 20,178 - - 18 486 782 - - 19 - 184 - - 4 1,242 1,207 1,242 1,207 20 5,340 5,614 - - 25,790 27,965 1,242 1,207 21 47,892 44,228 - - 4 8,009 7,767 - - 22 2,341 2,214 - - 58,242 54,209 - - 84,032 82,174 1,242 1,207 45,706 44,602 40,868 40,676 23 43,999 43,999 43,999 43,999 24 10 - 10 - 24 1,697 603 (3,141) (3,323) 45,706 44,602 40,868 40,676
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Statement of Recognised Income and Expense for the 12 months ended 30 June 2007
The above Statement of Recognised Income and Expense should be read in conjunction with the accompanying notes
Actuarial gains recognised directly through retained earnings
Deferred tax expense recognised directly through retained earnings
Net income recognised directly through retained earnings
Profit for the period
Total recognised income and expense for the period
Note Consolidated Parent 2007 2006 2007 2006 $000 $000 $000 $000
121 385 - -
4 (36) (115) - -
24 85 270 - - 6,724 9,052 5,897 4,509
6,809 9,322 5,897 4,509
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Cash Flow Statement for the 12 months ended 30 June 2007
The above Cash Flow Statement should be read in conjunction with the accompanying notes
Cash flows from operating activities
Receipts from customers Payments to suppliers and employees Interest received Interest and other costs of finance paid Income taxes paid Dividend received
Net cash provided by operating activities
Cash flows from investing activities
Payments for property, plant and equipment Proceeds from sale of plant and equipment Payments for mine development costs Payments for exploration and evaluation
Net cash (used in) investing activities
Cash flows from financing activities
Repayments of loans Proceeds from loans Costs of issue of shares Repayments of finance leases Payments for dividend Related entity loan advance
Net cash (used in) financing activities
Net (decrease) in cash held
Cash at beginning of the financial period
Cash at the end of the financial period
Note Consolidated Parent 2007 2006 2007 2006 $000 $000 $000 $000 Inflow/ Inflow/ Inflow/ Inflow/ (Outflow) (Outflow) (Outflow) (Outflow)
149,827 147,678 - - (135,957) (134,652) - - 236 409 - - (3,920) (2,207) - (2) (1,607) (1,154) - - - - 6,000 3,150 9 8,579 10,074 6,000 3,148 (9,669) (9,067) - - 1,912 119 - - (2,121) (2,406) - - (103) - - - (9,981) (11,354) - - (10,215) (8,150) - - 15,215 7,150 - - - (64) - (64) (1,632) (473) - - (5,715) (3,150) (5,715) (3,150) - - (285) 66 (2,347) (4,687) (6,000) (3,148) (3,749) (5,967) - - 5,947 11,914 - - 2,198 5,947 - -
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Notes to the Financial Statements for the 12 months ended 30 June 2007
Note 1: Corporate information This report of Penrice Soda Holdings Limited (‘the Company’) for the twelve months ended 30 June 2007 was authorised for
issue in accordance with a resolution of the directors on 19 September 2007.
Penrice Soda Holdings Limited is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Stock Exchange.
AASB Nature of change Application Application
Amendment Affected Standard(s) to accounting date of date for
policy standard Company
2005-10 AASB 132: Financial Instruments: No change to 1 January 2007 1 July 2007 Presentation, AASB 101: Presentation of accounting policy, Financial Statements, AASB 114: Segment therefore no impact Reporting, AASB 117: Leases, AASB 133: Earnings per Share, AASB 139: Financial Instruments: Recognition and Measurement, AASB 1: First-time adoption of AIFRS, AASB 4: Insurance Contracts, AASB 1023: General Insurance Contracts and AASB 1038: Life Insurance Contracts
2007-4 All options that currently exist under IFRSs These Amendments 1 July 2007 1 July 2007 should be included in the Australian equivalents are expected to to IFRSs and additional Australian disclosures reduce the extent of should be eliminated, other than those now some disclosures in considered particularly relevant in the the Company’s Australian reporting environment. financial report.
AASB AASB 134 Interim Financial Reporting, AASB No change to 1 November 2006 1 July 2007Interpretation 136 Impairment of Assets, AAASB 139 Financial accounting policy, 10 Instruments: Recognition and Measurement therefore no impact
AASB AASB 2 Share Based Payments No change to 1 March 2007 1 July 2007Interpretation accounting policy, 11, 2007-1 therefore no impact
AASB Service Concession Arrangements Not Applicable 1 January 2008 1 July 2008Interpretation 12, 2007-2
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 report has also been prepared on a historical cost basis, except for derivative financial instruments that have been 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.
b) Statement of compliance
The financial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standards (‘AIFRS’). Compliance with AIFRS ensures that the financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards (‘IFRS’).
Australian Accounting Standards that have recently been amended but are not yet effective have not been adopted for the reporting period ending 30 June 2007. The tables below outline each of these amended standards and the expected change in accounting policy when applied, if any.
Note 2: Statement of significant accounting policies
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New or revised Application Application
Standard Impact on Company financial report date of date of
standard standard
AASB 7 Financial AASB 7 is a disclosure standard so will have no direct impact 1 January 2007 1 July 2007Instruments: on the amounts included in the Company’s financial statements. Disclosures The amendments will result in changes to the financial instrument disclosures included in the Company’s financial report.
AASB 8 AASB 8 is a disclosure standard so will have no direct impact on the 1 January 2009 1 July 2009Operating amounts included in the Company’s financial statements. The standard Segments, is expected to have an impact on the Company’s segment disclosures2007-3 as the information to be disclosed is more detailed than that currently reported under AASB 114 Segment Reporting.
AASB 123 The amendments to AASB 123 require that all borrowing costs 1 January 2009 1 July 2009Borrowing Costs, associated with a qualifying asset be capitalised. The amendments 2007-6 will not have an immediate impact on the Company’s financial report.
IFRIC Aims to clarify how to determine in normal circumstances the limit on 1 January 2008 1 July 2008Interpretation 14 the asset that an employer’s balance sheet may contain in respect of its defined benefit pension plan. The Company does have a defined benefit pension plan and as such this interpretation may have an impact on the Company’s financial report. The Company has not yet determined the extent of the impact, if any.
b) Statement of compliance (continued)
c) Principles of consolidation
The consolidated financial statements are those of the consolidated entity, comprising Penrice Soda Holdings Limited and its subsidiaries (the Group).
Information from the financial statements of subsidiaries is included from the date the parent company obtains control until such time as control ceases. Where there is loss of control of a subsidiary, the consolidated financial statements include the results for the part of the reporting period during which the parent company has control.
Subsidiary acquisitions are accounted for using the purchase method of accounting.
The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist.
All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full.
The following AASB amendments or IFRIC Interpretations are not applicable to the Company and therefore will have no impact on the Company’s financial statements:
AASB 2007-5 - Amendments to Australian Accounting Standard AASB 102 Inventories;
AASB 2007-7 - Amendments to Australian Accounting Standards in relation to wording errors, discrepancies and inconsistencies;
IFRIC Interpretation 13 - Customer Loyalty Programs.
•
•
•
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d) Significant accounting judgements, estimates and assumptions
The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period are:
Impairment of Goodwill
The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated.
Defined benefit plans
Various actuarial assumptions are required when determining the Group’s pension and post-employment medical benefit obligations. These are disclosed in Note 27.
Remediation Provision
The Group has reached an in principle agreement with both the S.A Government and the operator of the Port River, Flinders Ports Pty Limited, in relation to the dredging of the Port River. The 3 parties had been in dispute for a considerable period in relation to the respective obligations to dredge the Port River and these centered on the requirement to dredge the calsilt material deposited into the Port River by Penrice prior to the commissioning of the waste material recycling plant in April 2001. The agreement requires Penrice to dredge this material over a 10 year period. Penrice has maintained a provision to dredge this material and this provision will be adequate to cover the costs over the next 10 years.
Remediation provisions also exist in relation to the cessation of operations at the Angaston mine and of the Glebe Island bulk ash discharge and storage facility.
Overburden
The extraction of limestone at the Group’s Angaston mine requires the removal of non-limestone product, referred to as overburden, the majority of which has been previously classified as unusable with a proportion being capitalised as intangible mine development costs.
Over the past 18 months, an assessment was made to determine whether the overburden being removed has a value to the Group. This assessment was made following an increase in sales of the harder overburden material.
It was determined that a portion of the overburden removed has the attributes required to allow it to be sold as an aggregate product. This aggregate product, which had previously been regarded as an intangible asset, is recorded in the balance sheet at 30 June 2007 as inventory.
This has resulted in a re-classification of $1,294k from overburden, previously capitalised as an intangible asset, to inventory. This change in accounting estimate has resulted in a financial benefit of $2,091k for the year-ended 30 June 2007.
e) Income tax expense
Income tax expense on the profit or loss for the period comprises current and deferred tax. Income tax expense is recognised in the Income Statement except to the extent that it relates to items recognised directly through equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the balance date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
Deferred income tax liabilities are recognised for all taxable temporary differences except:
• when the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or
• when the taxable temporary difference is associated with investments in subsidiaries, associates or interest in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred income tax assets are recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the temporary differences can be utilised, except:
• when the deferred income tax asset arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable loss; or
• when the deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised.
Income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend.
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f) Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the amount of GST except:
• where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
• receivables and payables are stated with the amount of GST included.
The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Balance Sheet.
Cash flows are included in the Cash Flow Statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.
g) Foreign currency transactions
The functional currency is determined by each individual entity within the group, whereas the presentational currency of the Group is determined by the parent entity. The presentational currency of the Group is Australian Dollars.
Foreign currency items are translated to Australian currency on the following bases:
• transactions are converted at exchange rates approximating those in effect at the date of each transaction;
• amounts payable and receivable are translated at the rates available on the close of business on balance date.
Exchange differences relating to monetary items are included in the Income Statement, as exchange gains or losses, in the period when the exchange rates change.
h) Impairment of assets
The carrying amounts of the Group assets, other than inventories and deferred tax assets, are reviewed at each balance date to determine whether there is any indication of impairment. Where an indicator of impairment exists a formal estimate of the recoverable amount is made.
An impairment loss is recognised in the Income Statement whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.
Impairment losses recognised in respect of cash-generating units are allocated to reduce the carrying amount of the assets in the unit on a pro-rata basis.
Intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired.
Calculation of recoverable amount
The recoverable amount of an asset is the greater of its fair value less cost to sell and its value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where an asset does not generate cash flows that are largely independent from the other assets or groups of assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
Reversal of impairment
An impairment loss is reversed if there has been an increase in the estimated recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Impairment losses recognised for goodwill are not subsequently reversed.
i) Cash and cash equivalents
Cash on hand and in banks and short-term deposits are stated at nominal value.
For the purposes of the Cash Flow Statement, cash includes cash on hand and in banks, and money market investments readily convertible to cash within 3 months or less, net of outstanding bank overdrafts.
j) Trade and other receivables
Trade receivables, which generally have 30-90 day terms, are recognised and carried at original invoice amount less an allowance for any uncollectible amounts.
An allowance for doubtful debts is made when there is objective evidence that the Group will not be able to collect the debts. Bad debts are written off when identified.
k) Derivatives
The Group uses derivative financial instruments such as forward exchange contracts and interest rate swaps to hedge its risks associated with interest rate and foreign currency fluctuations. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently revalued to fair value. Derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative.
Any gains or losses arising from changes in the fair value of derivatives are taken directly to net profit or loss for the year.
The fair value of forward exchange contracts and interest rate swaps are determined by reference to market values for similar instruments.
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l) Inventories
All inventories are stated at the lower of cost and net realisable value. Cost includes direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
Consumable stores are included in inventories and expensed on a usage basis and are stated net of slow moving or obsolete items.
m) Property, Plant and Equipment
All plant and equipment is carried at cost less accumulated depreciation and any impairment of value. The carrying amounts of these non-current assets are reviewed annually to ensure they do not exceed their recoverable amount.
Property, plant and equipment are depreciated over their useful economic lives.
The costs of acquisition or improvements to leasehold properties are amortised over the unexpired period of the lease or the estimated useful life of the improvements, whichever is the shorter. Major spares purchased specifically for particular plant are included in the cost of plant, except for those listed in inventories, and are depreciated accordingly.
n) Leased assets
Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and benefits incidental to ownership.
Finance Leases
Leases which effectively transfer substantially all of the risks and benefits incidental to ownership of the leased item to the Group are capitalised at their fair value or, if lower the present value of minimum lease payments. Leased assets are amortised over the life of the relevant lease or, where ownership is expected on the expiration of the lease, over the expected useful life of the asset. Lease payments are allocated between interest expense and reduction in the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability.
Life Method
Buildings 40 years Straight line Plant and equipment 5-20 years Straight line Computer equipment 3 years Straight line Furniture and fixtures 10 years Straight line Vehicles 3-7 years Straight line
Operating Leases
The minimum lease payments of operating leases, where the lessor effectively retains substantially all of the risks and benefits of ownership of the leased item, are recognised as an expense on a straight-line basis.
o) Non-current assets constructed by the group
The cost of non-current assets constructed by the Group includes the cost of all materials used in construction, direct labour on the project and an appropriate proportion of variable and fixed overhead costs.
p) Mine reserves
The Group has a marble mine at Angaston consisting of freehold and leasehold land. The marble reserves are not brought to account in the company’s financial statements.
q) Exploration and evaluation costs
Costs arising from exploration and evaluation activities are carried forward provided such costs are expected to be recouped through successful development, or by sale, or where exploration and evaluation activities have not, at the reporting date, reached a stage to allow a reasonable assessment regarding the existence of economically recoverable reserves. Costs are amortised over five years given further exploration and evaluation costs are expected to be incurred at that stage.
These costs are reviewed for impairment when facts and circumstances suggest the carrying amount is in excess of the recoverable amount.
r) Mine development costs
Costs relating to the removal of waste products from the mine site are termed overburden costs. Overburden costs are capitalised and carried forward in the balance sheet and amortised over the life of the mine, once the following criteria are met. Based on the mine plan, if the current strip ratio (current levels of waste mined compared to ore) is greater than the life of the mine strip ratio (total waste to be mined versus total ore from the mine), then the overburden costs will be capitalised. If the current strip ratio is less than the life of the mine strip ratio then the capitalised overburden cost will be amortised over the life of the mine. The period over which the strip ratio is calculated is 11 years.
s) Investments in controlled entities
All investments are initially recognised at cost, being the fair value of the consideration given and including acquisition charges associated with the investment. Subsequent to the initial investment, investments in controlled entities are carried at cost less accumulated impairment losses.F
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t) Intangibles
Goodwill represents the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Goodwill is not amortised, but is tested for impairment annually, or whenever changes in circumstances indicate that it may be impaired, and is carried at cost less accumulated impairment losses.
Goodwill is allocated to the cash-generating units for the purpose of impairment testing.
Impairment is determined by assessing the recoverable amount of the cash generating unit (group of cash generating units) to which the goodwill relates. When the recoverable amount of the cash generating unit (group of cash generating units) is less than the carrying amount, an impairment loss is recognised. When goodwill forms part of a cash generating unit (group of cash generating units) and an operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this manner is measured based on the relative values of the operation disposed of and the portion of the cash generating unit retained.
u) Research and development costs
Research and development costs are expensed as incurred, except to the extent that they are capitalised as plant and equipment.
v) Trade and other payables
Trade payables and other payables are carried at amortised costs and 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.
Trade payables generally have 30-90 day terms and are recognised and carried at original invoice amount.
w) Provisions
Provisions are recognised when the economic entity has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
Provisions are discounted to their present value based on the anticipated timing of when the cash outflows are expected to occur. When discounting is used, the increase in the provision due to the passage of time is recognised as a borrowing cost.
A provision for dividends is not recognised as a liability unless the dividends are declared on or before the reporting date.
When the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement.
x) Interest-bearing liabilities
All loans are measured at the fair value of the consideration received net of issue costs associated with the borrowing. They are then measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement.
y) Employee benefits
Wages, salaries and annual leave
Liabilities for employee benefits for wages, salaries and annual leave represent the undiscounted value of the future cash outflow to be made resulting from employees’ services provided to balance date.
Long service leave
Liabilities for employee long service benefits represent the present value of the future cash outflow to be made resulting from employees’ services provided to balance date. The obligation is calculated using expected future increases in wage and salary rates, experience of employees departing, and periods of service and expected future payments are discounted using market yield rates attached to Commonwealth Government bonds that have maturity dates approximating the terms of the obligations.
Defined benefit plan
The Group has in place a defined benefit plan for employees employed prior to 1997. No new employees can join the plan. Under AASB 119 “Employee Benefits”, the Group is required to account not only for its legal obligation under the terms of this defined benefit plan, but also for any constructive obligation that arises from its informal practices. The amount recognised as a defined benefit asset or liability is the net total of the following amounts:
(a) the present value of the defined benefit obligation at the reporting date;
(b) plus any actuarial gains (less any actuarial losses);
(c) minus the fair value at the reporting date of plan assets out of which the obligations are to be settled directly.
All actuarial gains and losses as at 1 July 2004, the date of transition to AIFRS, were recognised. Actuarial gains or losses that arise subsequent to 1 July 2004 have been recognised directly in retained earnings, net of tax.
Share based payment transactions
Subject to shareholder approval, the Group provides benefits to the Chief Executive officer in the form of share-based payments, whereby the CEO renders services in exchange for shares or rights over shares (equity-settled transactions).
The cost of equity-settled transactions is measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by an external valuer using a binomial model, further details of which are provided in Note 31.
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y) Employee benefits (continued)
In valuing equity-settled transactions, no account is taken of any vesting conditions, other than conditions linked to the price of the shares of Penrice Soda Holdings Limited, if applicable.
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/ or service conditions are fulfilled (the vesting period), ending on the date on which the relevant employees become fully entitled to the award (the vesting date).
At each subsequent reporting date until vesting, the cumulative charge to the income statement is the product of (i) the grant date fair value of the award; (ii) the current best estimate of the number of awards that will vest; and (iii) the expired portion of the vesting period. The charge to the income statement for the period is the cumulative amount as calculated above less the amounts already charged in previous periods. There is a corresponding credit to equity in a separate reserve.
z) Recognition of revenues
Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:
Sale of goods
Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and the revenue can be reliably measured. Risks and rewards of ownership are considered passed to the buyer once delivery has occurred.
Interest income
Revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of financial assets and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset.
Dividend income
Revenue is recognised when the Group’s right to receive the payment is established.
aa) General maintenance
The costs of maintenance of manufacturing plant and equipment are charged to the Income Statement in the period in which they are incurred.
ab) Borrowing costs
Borrowing costs are recognised as an expense when incurred.
ac) Contributed equity
Contributed equity is recognised at the fair value of the consideration received by the company. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received.
ad) Earnings per share
Basic earnings per share is calculated as net profit attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus element.
Diluted earnings per share is calculated as net profit attributable to members of the parent, adjusted for:
• costs of servicing equity (other than dividends);
• the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and
• other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares;
divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element.
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Note 3: Income Statement itemsProfit from continuing operations is stated after crediting / charging the following amounts:
Product salesOther revenues:Commercial dispute settlementInterest from unrelated entitiesOther revenue itemsDividends received
Other revenues
Total revenues
Depreciation of:BuildingsManufacturing plant and equipmentPlant and equipment under lease
Total depreciation
Amortisation:Amortisation of exploration and evaluation costs
Total amortisation
Borrowing costs:Interest paid or payable to unrelated financial institutionsAmortisation of loan facility feesFinance charges related to leasesProvision discount adjustmentsOther
Total borrowing costs
Employee benefits expense:Wages and salariesShare based payment expenseWorkers compensation costsDefined benefit plan expenseDefined contribution plan expenseLong service leave provision
Total employee benefits expense
Other expense items:Net (credit) for provision of doubtful debtsGovernment royalties on minerals productionOperating lease rentalsNet foreign exchange losses from non-speculative tradingNet loss on sale of plant and equipmentResearch and development costs charged directly to cost of sales in the income statement
Consolidated Parent 2007 2006 2007 2006 $000 $000 $000 $000
134,231 133,676 - - - 73 - - 236 409 - - 173 190 - - - - 6,000 3,150 409 672 6,000 3,150 134,640 134,348 6,000 3,150 315 310 - - 4,922 4,438 - - 179 156 - - 5,416 4,904 - -
88 31 - - 88 31 - - 3,197 2,706 - 2 46 53 - - 271 114 - - 24 27 - - 978 846 - - 4,516 3,746 - 2 19,317 17,638 - - 10 - - - 820 718 - - 242 413 - - 2,192 1,858 - - (73) (200) - - 22,508 20,427 - - - (129) - - 53 60 - - 3,018 1,049 - - 183 259 - - 26 48 - -
515 - - -
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Note 4: Income tax
(a) The major components of income tax expense are:
Current income tax:Current income tax expense / (credit)Current income tax under / (over) provided in prior year
Deferred income tax:Deferred income tax expenseDeferred income tax under / (over) provided in prior year
Income tax expense / (credit) reported in the income statement
(b) Deferred income tax charged directly to equity
Actuarial gains on defined benefit superannuation fund
(c) Tax expense reconciliation:
Profit from ordinary activities
Prima facie tax expense thereon at 30%
Under / (over) provided in prior yearsResearch and development expenditureExpenditure not allowable for income tax purposesNon-assessable inter-group dividend income
Income tax expense / (credit)
(d) Income tax payable
Income tax payable
Consolidated Parent 2007 2006 2007 2006 $000 $000 $000 $000
1,638 1,604 - (93) 4 (197) 93 (197) 1,642 1,407 93 (290) 1,015 1,619 - - 3 (1,071) - (1,071) 1,018 548 - (1,071) 2,660 1,955 93 (1,361) 36 115 - - 9,384 11,007 5,990 3,148 2,815 3,302 1,797 944 56 (1,268) 93 (1,268) (222) (93) - (93) 11 14 3 - - - (1,800) (944) 2,660 1,955 93 (1,361) 1,242 1,207 1,241 1,207F
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Note 4: Income tax (continued)
(e) Deferred tax balance – 2007
Taxable and deductible temporary differences arise from the following:
Deferred tax assets:Sale and restructure costsProvisionsInventoryOther
Deferred tax liabilities:IntangiblesInventoryDepreciationPensionOther
Net deferred tax charge to income and equity per Note 4 (a)
(f) Deferred tax balance – 2006
Taxable and deductible temporary differences arise from the following:
Deferred tax assets:Sale and restructure costsProvisionsInventoryOther
Deferred tax liabilities:IntangiblesInventoryDepreciationPensionOther
Net deferred tax charge to income and equity per Note 4 (a)
1,386 (464) - 922 2,316 (20) - 2,296 452 (228) - 224 202 (100) - 102 4,356 (812) - 3,544 (863) (248) - (1,111) (788) (82) - (870) (5,725) 111 - (5,614) (250) (97) (36) (383) (141) 110 - (31) (7,767) (206) (36) (8,009) (1,018) (36) 728 658 - 1,386 2,830 (514) - 2,316 - 452 - 452 160 42 - 202 3,718 638 - 4,356 (24) (839) - (863) (191) (597) - (788) (6,132) 407 - (5,725) (26) (109) (115) (250) (93) (48) - (141) (6,466) (1,186) (115) (7,767) (548) (115)
Opening Charge to Charge to Closing balance income equity balance
$000 $000 $000 $000
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Note 4: Income tax (continued)
(g) Tax consolidation
Effective 31 May 2004 for the purposes of income taxation, the Penrice Group formed a tax consolidated group. Members of the group entered into a tax sharing agreement in order to allocate income tax expense to the wholly owned subsidiaries. In addition, the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. At the balancing date the possibility of default is remote. The head entity of the tax consolidated group is Penrice Soda Holdings Limited.
(h) Tax effect accounting by members of the tax consolidated group
Members of the tax consolidated group have entered into a tax funding agreement. The tax funding agreement provides for the allocation of current taxes to members of the tax consolidated group on a standalone taxpayer basis, while deferred taxes are allocated to members of the tax consolidated group in accordance with the principles of AASB 112 Income Taxes.
The allocation of taxes under the tax funding agreement is recognised as an increase / decrease in the subsidiaries’ inter-company accounts with the tax consolidated group head company, Penrice Soda Holdings Limited.
Unrecognised amounts
A final dividend for 2007 of 5.0 cents has been declared, franked to 100%. The dividend will be payable on 24 October 2007.
$000 Dividend per shareYear ended 30 June 2007
2006 Final Fully Franked Dividendpaid 23 October, 2006 3,465 7.7c
2007 Interim Fully Franked Dividend paid 30 April, 2007 2,250 5.0c
Total 5,715 Year ended 30 June 2006
2006 Interim Fully Franked Dividend paid 5 April, 2006 3,150 7.0c
Total 3,150
Franking credit balance
The amount of franking credits available for the subsequent year are:
• Franking account balance as at the end of the year at 30% (2006: 30%)
• Franking credits that will arise from the payment of income tax payable as at the end of the year
• Franking debits that will arise from the payment of dividends as at the end of the year
• Franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date
The amount of franking credits available for future reporting periods:
• Impact on the franking account of dividends proposed or declared before the financial report was authorised for issue but not recognised as a distribution to equity holders during the period
Parent 2007 2006 $000 $000 872 1,713
1,242 1,207
- -
- - 2,114 2,920
(964) (1,485) 1,150 1,435
Note 5: Dividends PaidThe following dividends of the consolidated entity have been paid or declared since the end of the preceding financial year. All dividends paid during the year were franked at a tax rate of 30%.
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(a) Business Segment
Year ended 30 June 2007
RevenueSales to external customersIntersegment revenuesTotal segment revenue
Non-segment revenuesCommercial dispute settlementInterest from unrelated entitiesUnallocated revenueTotal consolidated revenue
ResultSegment resultBorrowing costsUnallocated expensesProfit before taxIncome tax expenseNet profit for the year
Assets and liabilitiesSegment assetsCash assetsDeferred tax assetsUnallocated assetsTotal assets
Segment liabilitiesBorrowingsDeferred tax liabilitiesTax liabilitiesUnallocated liabilitiesTotal liabilities
Other segment informationAcquisition of property, plant and equipmentDepreciationAmortisation
Chemicals Minerals Eliminations Total $000 $000 $000 $000 119,871 14,360 - 134,231 - 5,859 (5,859) - 119,871 20,219 (5,859) 134,231
- 236 173 134,640 13,749 8,178 - 21,927 (4,516) (8,027) 9,384 (2,660) 6,724 95,046 27,651 - 122,697 2,198 3,544 1,299 129,738 23,199 4,455 - 27,654 46,500 8,009 1,242 627 84,032 9,305 364 - 9,669 4,364 1,052 - 5,416 - 88 - 88
Note 6: Segment informationThe economic entity operates predominantly in two industries, one being the manufacture and distribution of soda ash and sodium bicarbonate, and the other being the mining and distribution of limestone / marble products. All operations are conducted within Australia.
The entity generally accounts for intersegment sales and transfers as if the sales or transfers were to third parties at current market prices.
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(a) Business Segment
Year ended 30 June 2006
RevenueSales to external customersIntersegment revenuesTotal segment revenue
Non-segment revenuesCommercial dispute settlementInterest from unrelated entitiesUnallocated revenueTotal consolidated revenue
ResultSegment resultBorrowing costsUnallocated expensesProfit before taxIncome tax expenseNet profit for the year
Assets and liabilitiesSegment assetsCash assetsDeferred tax assetsUnallocated assetsTotal assets
Segment liabilitiesBorrowingsDeferred tax liabilitiesTax liabilitiesUnallocated liabilitiesTotal liabilities
Other segment informationAcquisition of property, plant and equipmentDepreciationAmortisation
Chemicals Minerals Eliminations Total $000 $000 $000 $000
119,905 13,771 - 133,676 - 5,854 (5,854) - 119,905 19,625 (5,854) 133,676 73 409 190 134,348 16,789 6,476 - 23,265 (3,746) (8,512) 11,007 (1,955) 9,052 91,484 24,053 - 115,537 5,947 4,356 936 126,776 26,153 5,028 - 31,181 41,500 7,767 1,207 519 82,174 11,541 974 - 12,515 3,965 939 - 4,904 - 31 - 31
Note 6: Segment information (continued)
(a) Business Segment (continued)
Year ended 30 June 2006 Chemicals Minerals Eliminations Total $000 $000 $000 $000
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Note 6: Segment information (continued)
(b) Geographical Segment
The Group’s geographical segments are determined based on the destination of product sold.
Year ended 30 June 2007
RevenueSales to external customers
Revenue from continuing operations
Year ended 30 June 2006
RevenueSales to external customers
Revenue from continuing operations
Australia Asia Other Total $000 $000 $000 $000 116,922 14,418 2,891 134,231 116,922 14,418 2,891 134,231 112,728 20,948 - 133,676 112,728 20,948 - 133,676
Note 7: Earnings per share
The current interim LTI plan provides for 167,000 share options to be granted to the Managing Director on 19 December 2006, subject to shareholder approval at the company’s 2007 Annual General Meeting. It is the intention of the Directors to replace this scheme with a LTI scheme that will cover both the Managing Director and key executives of the Company. As such, the options are not anticipated to vest and have been excluded from the diluted earnings per share calculation above.
2007 2006
Basic and diluted earnings per share based on operating profit after income tax 14.94 cents 20.12 cents
Weighted average number of ordinary shares on issue used in the calculation of basic and diluted earnings per share 45,000,000 45,000,000
Earnings used in calculating basic and diluted earnings per share ($000) 6,724 9,052
Note 8: Net Tangible Assets per security
2007 2006
Net tangible asset backing per ordinary security 53 cents 53 centsFor
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Note 9: Notes to the cash flow statement
(a) Cash and cash equivalents
Cash at bank and in hand
(b) Reconciliation of net profit after income tax to cash flows from operations
Net profit after income taxDepreciation Net loss on sale of non-current assetsShare options expensed
Change in operating assets and liabilities:
(Increase)/decrease in receivables(Increase)/decrease in inventories(Increase)/decrease in deferred tax assets(Increase)/decrease in other assets(Decrease)/increase in trade creditors and accruals(Decrease)/increase in income tax payable(Decrease)/increase in deferred tax liabilities(Decrease)/increase in other provisions
Net cash inflow from operating activities
Consolidated Parent 2007 2006 2007 2006 $000 $000 $000 $000
2,198 5,947 - -
6,724 9,052 5,897 4,509 5,416 4,904 - - 26 48 - - 10 - 10 - 2,691 (1,763) (372) (931) (4,818) 99 - - 812 (638) 430 (683) (735) (295) - - (1,641) (552) - - 35 253 35 253 206 1,186 - - (147) (2,220) - - 8,579 10,074 6,000 3,148
(c) Non Cash Financing Activities
During the financial year the consolidated entity did not acquire any plant and equipment under finance lease (2006: $3,448k).
(d) At reporting date, the following finance facilities had been negotiated and were available:
Total facilities: - bank loan
Facilities used at reporting date: - bank loan
Facilities unused at reporting date: - bank loan
50,000 50,000 - - 46,500 41,500 - - 3,500 8,500 - -
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Note 10: Trade and other receivables (current)
Trade debtorsNon trade amounts owing by:Unrelated partiesLoan to controlled entities
Total current trade and other receivables
No bad debt comment provision exists at the reporting date (2006 $NIL).
Note 11: Inventories (current)
Finished goods, at costRaw materials and production spares at cost
Total current inventories
Consolidated Parent 2007 2006 2007 2006 $000 $000 $000 $000
16,652 18,750 - - 209 531 - - - - 41,250 40,593 16,861 19,281 41,250 40,593
6,752 8,570 - - 13,917 5,987 - - 20,669 14,557 - -
Inventory write-backs recognised in net profit totalled $401k (2006: $343k) for the Group. This credit is recognised in the cost of sales item. This write-back was due to a reassessment of the net realisable value of production spares.
Inventory recognised as an expense for the year totalled $54,902k (2006: $53,385k). This expense has been included in cost of sales.
Note 12: Derivatives (current)
Interest rate swapForeign exchange contract
Total current derivatives
Note 13: Other (current)
Prepayments
Total current other assets
2 199 - - - 74 - - 2 273 - -
686 206 - - 686 206 - -F
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Note 14: Property, plant & equipment (non-current)
Plant and equipment with a carrying amount of $2,916k (2006: $3,600k) are pledged as securities for the finance lease liability as disclosed in Notes 18 and 21.
First mortgages of land and buildings have been granted as security on bank loans (refer Note 21).
Included in plant and equipment at 30 June 2007 is an amount of $5,505k (2006: $2,633k) related to expenditure for plant in the course of construction.
Plant and equipment with a gross carrying amount of $38,990k has been fully depreciated at 30 June 2007, but remain in use at the reporting date.
Year ended 30 June 2007
Gross Carrying amount Balance at 1 July 2006 3,764 12,110 63 118,940 134,877Additions 134 19 - 9,516 9,669Disposals - (51) - (9,967) (10,018) Balance at 30 June 2007 3,898 12,078 63 118,489 134,528
Accumulated Depreciation Balance at 1 July 2006 - (904) (27) (73,556) (74,487)Disposals - 51 - 8,029 8,080Depreciation Expense (5) (313) (1) (5,097) (5,416) Balance at 30 June 2007 (5) (1,166) (28) (70,624) (71,823)
Net Book Value As at 1 July 2006 3,764 11,206 36 45,384 60,390As at 30 June 2007 3,893 10,912 35 47,865 62,705
Land and Buildings Leasehold Plant & Total Improvements at cost Improvements Equipment at cost at cost at cost
Consolidated
$000 $000 $000 $000 $000
Year ended 30 June 2006
Gross Carrying amountBalance at 1 July 2005 3,764 11,749 63 107,641 123,217Additions - 361 - 12,154 12,515Disposals - - - (855) (855) Balance at 30 June 2006 3,764 12,110 63 118,940 134,877
Accumulated DepreciationBalance at 1 July 2005 - (595) (24) (69,651) (70,270)Disposals - - - 687 687Depreciation Expense - (309) (3) (4,592) (4,904) Balance at 30 June 2006 - (904) (27) (73,556) (74,487)
Net Book ValueAs at 1 July 2005 3,764 11,154 39 37,990 52,947As at 30 June 2006 3,764 11,206 36 45,384 60,390
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Note 15: Intangibles (non-current)
Goodwill Exploration Mine Total and development evaluation costs costs $000 $000 $000 $000
Consolidated
Yearended30June2007 GrossCarryingamount
Balance at 1 July 2006 18,008 143 2,876 21,027Transfers to inventory - - (1,294) (1,294)Additions - 124 2,121 2,245 Balanceat30June2007 18,008 267 3,703 21,978
AccumulatedAmortisation Balance at 1 July 2006 - (93) - (93)Amortisation - (88) - (88) Balanceat30June2007 - (181) - (181)
NetBookValue Balance at 1 July 2006 18,008 50 2,876 20,934Balance at 30 June 2007 18,008 86 3,703 21,797
Yearended30June2006 GrossCarryingamount
Balance at 1 July 2005 18,008 143 470 18,621Transfers to inventory - - - -Additions - - 2,406 2,406 Balanceat30June2006 18,008 143 2,876 21,027
AccumulatedAmortisation Balance at 1 July 2005 - (62) - (62)Amortisation - (31) - (31) Balanceat30June2006 - (93) - (93)
NetBookValue Balance at 1 July 2005 18,008 81 470 18,559Balance at 30 June 2006 18,008 50 2,876 20,934
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Note 15: Intangibles (non-current) (continued)
Impairment testing of goodwill
Goodwill acquired through business combinations has been allocated to two individual cash generating units, which are reportable segments, for impairment testing as follows:
• Osborne production facility; and
• Angaston mine.
The recoverable amount of both units has been determined based on a value in use calculation using cash flow projections based on the financial budget for the year ended 30 June 2008 and forecasts for the subsequent three-year period. Beyond the 4 year forecast, no growth has been assumed. The pre-tax discount rate applied to cash flow projections is 15.3% (2006: 14.2%).
Mine development costs
Costs relating to the removal of waste products from the mine site are termed overburden costs. Overburden costs are capitalised and carried forward in the balance sheet and amortised over the life of the mine, once the following criteria are met. Based on the mine plan, if the current strip ratio (current levels of waste mined compared to ore) is greater than the life of the mine strip ratio (total waste to be mined versus total ore from the mine), then the overburden costs will be capitalised. If the current strip ratio is less than the life of the mine strip ratio then the capitalised overburden cost will be expensed over the life of the mine. The period over which the strip ratio is calculated is 11 years.
Carrying amount of goodwill allocated to each business unit Osborne production facility 11,717 11,717 - -Angaston mine 6,291 6,291 - - Total goodwill 18,008 18,008 - -
Consolidated Parent 2007 2006 2007 2006 $000 $000 $000 $000
Note 17: Trade and other payables (current)
Trade creditors – unsecuredNon trade creditors
Total current trade and other payables
Trade creditors are non-interest bearing and are normally settled on 30-day terms.
12,833 14,122 - - 5,889 6,056 - - 18,722 20,178 - -
Note 16: Other assets (non-current)
Defined benefit pension Details of the defined benefit pension are included in Note 27.
Consolidated Parent 2007 2006 2007 2006 $000 $000 $000 $000
1,276 832 - -
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Note 18: Interest bearing liabilities (current)
Secured:Finance lease liabilities (a) 486 782 - -
(a) The lease liability is secured by a charge over the leased assets. These finance leases are leases secured over motor vehicles and mine equipment used by the entity. They have an average lease term of 3.5 years at an average rate of 7.3% with a fixed residual at the end of the lease based on Australian Taxation Office minimum residuals. The entity is obligated to pay out this residual value at the end of the lease term. There are no restrictions imposed by these lease agreements.
Note 19: Derivatives (current)
Foreign exchange contract - 184 - -
Note 20: Provisions (current)
Employee benefitsRemediationOnerous contractsOther
Total current provisions
4,744 4,932 - - 155 346 - - 387 324 - - 54 12 - - 5,340 5,614 - -
Consolidated Parent 2007 2006 2007 2006 $000 $000 $000 $000
1,392 2,728 - - 46,500 41,500 - - 47,892 44,228 - -
Note 21: Interest bearing (non-current)
Finance lease liabilities (a)Bank loan (b)
Total non-current interest bearing liabilities
(a) The lease liability is secured by a charge over the leased assets. These finance leases are leases secured over motor vehicles and mine equipment used by the entity. They have an average lease term of 3.5 years at an average rate of 7.3% with a fixed residual at the end of the lease based on Australian Taxation Office minimum residuals. The entity is obligated to pay out this residual value at the end of the lease term. There are no restrictions imposed by these lease agreements.
(b) The bank loan is a three-year revolving interest only working capital facility maturing on 1 July 2008. The loan is secured by fixed and floating charge over the assets of the Group.
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- 181 - - 526 433 - - 1,815 1,600 - - 2,341 2,214 - -
Note 22: Provisions (non-current)
Onerous contractsEmployee entitlementsRemediation
Total non-current provisions
2007 $000RemediationCarrying amount at the beginning of the period 1,946Discount rate adjustment 24Carrying amount at the end of the period 1,970 Onerouscontract Carrying amount at the beginning of the period 505Amounts utilised during the period (324)Amounts charged during the period 206Carrying amount at the end of the period 387
Movementsinprovisions(CurrentandNon-Current)
RemediationProvision:The remediation provision relates to the activities of the Osborne manufacturing plant operations, the Glebe Island storage facility and the Angaston mine operation.
OnerousContractProvision:The entity has an onerous contract to take or pay for steam from Osborne Cogeneration Pty Ltd. This figure represents the current portion of this onerous contract.
Consolidated Parent 2007 2006 2007 2006 $000 $000 $000 $000
43,999 43,999 43,999 43,999 43,999 43,999 43,999 43,999
Note 23: Contributed equity
(a)ContributedequityOrdinary shares fully paid
Effective 1 July 1998, updated Corporations legislation abolished the concepts of authorised capital and par value shares. Accordingly the Company does not have authorised capital nor par value in respect of issued capital. Fully paid ordinary shares carry one vote per share and carry the right to dividends.
45,000,000 43,999 45,000,000 44,063 - - - (64) 45,000,000 43,999 45,000,000 43,999
(b)Movementinsharesonissue
Beginning of the financial period
Issued during period - less costs of offer
End of the financial period
Numberof Number of shares $000 shares $000
2007 2006
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603 (5,569) (3,323) (4,682) 6,724 9,052 5,897 4,509 (5,715) (3,150) (5,715) (3,150) 85 270 - - 1,697 603 (3,141) (3,323)
Note 24: Retained Earnings and Reserves
(a)Movementsinretainedearningswereasfollows:
Retained earnings at the beginning of the periodNet profitLess dividend paidActuarial gains recognised directly through retained earnings
Retained earnings at the end of the period
Consolidated Parent 2007 2006 2007 2006 $000 $000 $000 $000
- - 10 - 10 -
Balance at start of periodShare based payment
Balance at end of period
(b) Movements in employee benefits reserve was as 2007 2006 $000 $000
The employee equity benefits reserve is used to record the value of share based payments provided to employees, including key management personnel, as part of their remuneration. Refer to note 31 for further details of the share options that have been granted.
Note 25: Economic dependency
Subsidiary companies have long term customer supply agreements with O-I Pty Limited, Pilkington (Australia) Limited and Amcor Packaging (Australia) Pty Limited for the supply of soda ash and colour blending product for use in wine bottle production as well as limesand from the Mine.
The major raw materials for the production of soda ash are steam, salt, limestone, coke and water. Penrice sources its steam from Osborne Cogeneration Pty Limited. Penrice purchases the steam pursuant to a fixed price take-or-pay contract that expires in 2018. Penrice acquires salt from Cheetham (Dry Creek) Pty Limited under a fixed price take-or-pay contract that runs to 2019 with Penrice having options to extend to 2033.
114,678 131,350 - - 79,985 104,960 - - 194,663 236,310 - -
Note 26: Remuneration of auditors
Amounts received or due and receivable by Ernst & Young (Australia) for:
– Auditing the financial statements – Other services
Total remuneration of auditors
Consolidated Parent 2007 2006 2007 2006 $ $ $ $
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Note 27: Employee entitlements
The number of full-time equivalents employed as at 30 June are:
Consolidated Parent 2007 2006 2007 2006
Employees who commenced employment prior to 1 December 1997 are eligible to receive benefits from the Penrice Retirement Trust (“the Fund”). A benefit is payable on retirement, death, disablement or leaving service, in accordance with the Fund’s Trust Deed and Rules. The Fund is a resident regulated superannuation fund that complies with superannuation laws.
The fund provides lump sum benefits, calculated either on a defined benefit basis or on an accumulation basis. Defined benefits reflect a member’s period of Fund membership and final average salary. Members of the Fund contribute, in general, at a rate that is from 1% to 7% of salary.
Penrice contributes to the Fund in accordance with the recommendation of the actuary. These contributions are not legally required. By contributing, Penrice avoids incurring a charge in respect of members in accordance with Superannuation Guarantee legislation.
Mercer Human Resource Consulting Pty Ltd last carried out an actuarial investigation of the Fund as at 30 June 2006. The June 2007 actuarial estimates below were provided by Mercer Human Resource Consulting Pty Ltd and were based on the June 2006 investigation rolled forward to June 2007 using the same assumptions.
The following tables summarise the components of net benefit expense recognised in the income statement and the fund status recognised in the balance sheet.
706 923 - - 978 846 - - (1,442) (1,356) - - 242 413 - - 24,244 22,235 - - (22,968) (21,403) - - 1,276 832 - -
(a) Net benefit expense
Service costInterest costExpected return on assets
Superannuation expense
(b) Benefit asset included in the balance sheet
Fair value of plan assetsPresent value of defined benefit obligation
Total net benefit recognised on the balance sheet (Note 16)
21,403 20,617 - - 706 923 - - 978 846 - - 671 524 - - 2,147 1,447 - - (2,732) (2,813) - - (240) (141) - - 35 - - - 22,968 21,403 - -
(c) Changes in the present value of the defined benefit obligation
Opening defined benefit obligationCurrent service costInterest costContributions by plan participantsActuarial (gains) / lossesBenefits paidTaxes, premiums and expenses paidTransfers in
Closing defined benefit obligation
Consolidated Parent 2007 2006 2007 2006 $000 $000 $000 $000
PenriceRetirementTrust
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22,235 20,704 - - 1,442 1,356 - - 2,268 1,832 - - 565 773 - - 671 524 - - (2,732) (2,813) - - (240) (141) - - 35 - - - 24,244 22,235 - -
121 385 - - 711 590 - -
Note 27: Employee entitlements (continued)
Consolidated Parent 2007 2006 2007 2006 $000 $000 $000 $000
(d)Changesinthefairvalueoftheplanassets
Opening fair value of plan assetsExpected return on plan assetsActuarial gains / (losses)Employer contributionsContributions by plan participantsBenefits paidTaxes, premiums and expenses paidTransfers in
Closing fair value of plan assets
(e)AmountsrecognisedinStatementofRecognisedIncomeandExpense
Actuarial gains recognised in the year in the statement of recognised income and expense
Cumulative actuarial gains recognised in the statement of recognised income and expense
% % % % 35 34 - - 29 28 - - 14 15 - - 8 8 - - 14 5 - - % % % % 5.30 4.80 - - 6.80 6.70 - - 4.00 5.00 - -
(f)Thepercentageinvestedineachclassofasset
Australian equityInternational equityFixed incomePropertyCash
(g)Principalactuarialassumptions
Discount rateExpected rate of return on plan assetsExpected salary increase rate
Actuarial valuations are conducted at no more than three yearly intervals, with the last such valuation being undertaken in June 2006.
Employer contributions to the Group’s defined benefit plan are based on recommendations by the plans’ actuary. The method used at the last actuarial review to determine the employer contribution recommendations was the “projected-accrual-benefit” funding method.
With the current surplus of assets of the fund the actuary recommended that the Company rduce contributions to the fund in respect of the defined benefit members. As a result of this advice contributions have ceased for a period of time, to be reviewed six-monthly, with affect from 1 April 2007. There is no impct on the profit during the current year as a result of the change.
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588 1,327 - - 608 1,014 - - 1,555 3,124 - - 2,163 4,138 - - (285) (628) - - 1,878 3,510 - - 486 782 - - 1,392 2,728 - - 1,878 3,510 - - 4,532 71 - - 13,300 88 - - 6,148 - - - 23,980 159 - -
Note 28: Commitments for expenditure
Consolidated Parent 2007 2006 2007 2006 $000 $000 $000 $000
(a) Capital expenditure contracted for is payable as follows:
Not later than one year
(b) Finance lease expenditure contracted for is payable as follows:
Not later than one yearLater than one year but not later than five years
Less: Future finance charges
Net finance lease liability
Reconciled to:
Current liability (Note 18)Non-current liability (Note 21)
(c) Operating lease expenditure contracted for is payable as follows:
Not later than one yearLater than one year but not later than five yearsLater than five years
During the year the Company entered into a series of power by the hour (PBH) rental agreements for large capacity trucks and loaders to be used at the Angaston mine. Each agreement runs until either a maximum time period, or a specified number of operating hours has been reached. The agreements contain minimum annual hourly rental charges.
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Note 29: Financial Instruments
a) Interest rate risk
The Group’s exposure to interest rate risks and the effective interest rates of financial assets and financial liabilities, both recognised and unrecognised at reporting date, are as follows:
Fixedinterestratematuringin:
i)Financialassets
Cash
Trade and other receivables
Total financial assets
(ii)Financialliabilities
Trade creditors
Other creditors
Finance lease liability
Bank loans
Interest rate swaps
Total financial liabilities
N/A - not applicable for non-interest bearing financial instruments
2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006
$000 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 % %
2,184 5,929 - - - - - - 14 18 2,198 5,947 5.6% 5.6%
- - - - - - - - 16,861 19,281 16,861 19,281 N/A N/A
2,184 5,929 - - - - - - 16,875 19,299 19,059 25,228
- - - - - - - - - 12,833 14,122 12,833 14,122 N/A N/A
- - - - - - - - - 5,889 6,056 5,889 6,056 N/A N/A
- - - 486 782 1,392 2,728 - - - - 1,878 3,510 7.3% 7.1%
46,500 41,500 - - - - - - - - 46,500 41,500 7.3% 7.8%
(42,500) (41,500) 42,500 41,500 - - - - 2 199 2 199 5.7% 5.7%
4,000 - 42,986 42,282 1,392 2,728 - - 18,724 20,377 67,102 65,387
Floa
ting
inte
rest
rate
1 ye
ar o
r les
s
Ove
r 1 to
5 y
ears
Mor
e th
an 5
yea
rs
Non-
inte
rest
bea
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Tota
lper
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Weig
hted
aver
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ctive
inte
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a) Interest rate risk (continued)
The Group’s exposure to risk for changes in interest rates relates primarily to the Group’s long-term debt obligations.
To manage this risk effectively, the Group enters into interest rate swaps, whereby the Group pays or receives the difference between fixed and variable interest amounts. These interest rate swaps cover specific periods.
At 30 June 2007, after taking into account the effect of interest rate swaps, external borrowings of $4,000k are at a variable interest rate (30 June 2006 $NIL).
b) Net fair values
All financial assets and liabilities have been recognised in the balance date at their net fair values.
The following methods and assumptions are used to determine the net fair values of financial assets and liabilities:
Recognised financial instruments
Cash and cash equivalents: The carrying amount approximates fair value because of their short-term to maturity.
Trade receivables and trade creditors: The carrying amount approximates fair value.
Short-term borrowings: The carrying amount approximates fair value due to their short-term to maturity.
Long-term bank borrowings: The carrying amount approximates fair value due to the borrowings not having a set repayment schedule, and therefore not being subject to discounting of future cash flows. The interest rate is reset on a regular basis and consequently the loan amount outstanding is financed at market rates current at that time.
Interest rate swap agreement: The fair value of interest rate swap agreements is determined as the difference in present value of the future interest cash flows. At 30 June 2007, the carrying amount was adjusted to reflect the fair value of the swap arrangement.
c) Credit risk
The Group’s maximum exposure to credit risk at reporting date is the carrying amount of those assets as indicated in the balance sheet.
The Group minimises concentrations of credit risk in relation to trade receivables by undertaking transactions with a large number of customers.
Credit risk in trade receivables is managed in the following ways:
• Payment terms are generally 30 days from end of month of supply;
• A risk assessment process is used for new customers;
• Letter of credit facilities are in place for overseas customers where the Group believes a credit risk exists. These are confirmed by National Australia Bank.
d) Foreign currency risk
The Group has significant export sales which are transacted in US$, therefore income can be affected significantly by movements in the US$/A$ exchange rate.
The Group had a series of forward exchange contracts in place for the year ended 30 June 2007. These contracts were for the Group to sell US$1,000,000 monthly. At 30 June 2007, no foreign currency contracts were in place, however subsequent to 30 June 2007 a series of foreign exchange options have been entered into that provides for monthly sales of US$1,000,000 to June 2010.
e) Liquidity risk
The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans, finance leases and operating leases.
Note 29: Financial Instruments (continued)
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(a) Investment held by direct parent
Ultimate parent
Penrice Soda Holdings Ltd is the ultimate Australian parent company.
Wholly-owned group transactions
Loans
Loans made by Penrice Soda Holdings Ltd to its’ subsidiaries have no set repayment date, and as such have been classified as current receivables. Interest is not charged on the amount outstanding.
Dividends
Penrice Soda Holdings Ltd received a dividend during the period of $6,000,000 from Penrice Pty Limited, a wholly-owned subsidiary.
Other related party transactions
Dividends
Penrice Soda Holdings Ltd paid a dividend during the period of $5,715,000 to its shareholders.
NameofControlledEntity
Penrice Pty Ltd Australia Ordinary $1 100 $1 100
PSP SPV Pty Ltd Australia Ordinary $58,470,413 100 $58,470,413 100
Penrice Finance Pty Ltd Australia Ordinary $23,187,037 100 $23,187,037 100
Penrice Holdings Pty Ltd Australia Ordinary $32,882,321 100 $32,882,321 100
Penrice Soda Products Pty Ltd Australia Ordinary $2 100 $2 100
Coun
tryo
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Note 30: Related party disclosures
The following were controlled entities at 30 June 2007. The financial years of all controlled entities are the same as that of the parent entity.
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Note 31: Key Management Personnel
a) Details of Specified Directors and Specified Executives
Specified Directors John Heard AM Chairman (non-executive) David Reid Director and Chief Executive Officer (resigned 26 July 2006) Guy Roberts Director and Chief Executive Officer (appointed 19 December 2006) Andrew Fletcher Director (non-executive) Michael Boyce Director (non-executive) Barbara Gibson Director (non-executive)
Specified Executives Stephen Bushaway Chief Financial Officer and Company Secretary Gil Calaby General Manager Mine and Major Projects Roy Doveton Manager Osborne Operations Mike Carter General Manager - Quarry & Minerals Andrew Kuhndt Group Business Manager
b) Compensation of Key Management Personnel
(i)RemunerationPhilosophy
The performance of the Group depends upon the quality of its directors and executives. To prosper, the Group must attract, motivate and retain highly skilled directors and executives.
To this end, the Group embodies the following principles in its remuneration framework:
• Provide competitive rewards to attract high calibre executives.
• A portion of executive remuneration ‘at risk’, dependent upon meeting pre-determined performance benchmarks.
(ii)NominationandRemunerationCommittee
The Nomination and Remuneration Committee of the Board of Directors of the company is responsible for determining and reviewing compensation arrangements for the directors, the Managing Director (MD) and the senior management team.
The Nomination and Remuneration Committee assesses the appropriateness of the nature and amount of remuneration of directors and senior managers 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 board and executive team.
(iii)RemunerationStructure
In accordance with best practice corporate governance, the structures of non-executive director and senior manager remuneration are separate and distinct.
(iv)Non-ExecutiveDirectorRemuneration
Objective
The Board seeks to set aggregate remuneration at a level which provides the Group with the ability to attract and retain directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders.
Structure
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 included in the constitution of $500,000 per annum.
The amount of aggregate remuneration sought to be approved by shareholders and the manner in which it is apportioned amongst directors is reviewed annually. The Board considers advice from external consultants as well as the fees paid to non-executive directors of comparable companies when undertaking the annual review process.
Each director receives a fee for being a director of the Company. No additional fee is paid for any Board committee on which a director sits.
(v)SeniorManagerandExecutiveDirectorRemuneration
Objective
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:
• reward executives for company, business unit and individual performance against targets set by reference to appropriate benchmarks;
• align the interests of executives with those of shareholders;
• link reward with the strategic goals and performance of the company; and
• ensure total remuneration is competitive by market standards.
Structure
It is the Nomination and Remuneration Committee’s policy that employment contracts are only entered into with the Managing Director and with no other executives.
Remuneration consists of the following key elements:
• Fixed Remuneration • Variable RemunerationF
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(vi)FixedRemuneration
Objective
The level of fixed remuneration is set so as to provide a base level of remuneration which is both appropriate to the position and is competitive in the market.
Fixed remuneration is reviewed annually by the Nomination and Remuneration Committee and the process consists of a review of companywide, business unit and individual performance, relevant comparative remuneration in the market and internal and, where appropriate, external advice on policies and practices. The Committee has access to external advice independent of management.
Structure
Senior managers are given the opportunity to receive their fixed (primary) remuneration in a variety of forms including cash and fringe benefits such as motor vehicles. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the company.
(vii)VariableRemuneration–ShortTermIncentive(STI)
Objective
The objective of the STI program is to link the achievement of the Group’s operational targets with the remuneration received by the executives charged with meeting those targets. The total potential STI available is set at a level so as to provide sufficient incentive to the senior manager to achieve the operational targets and such that the cost to the company is reasonable in the circumstances.
Structure
Actual STI payments granted to each senior manager depend on the extent to which specific operating targets set at the beginning of the financial year are met. For the past financial year these targets were to achieve the net profit after tax (NPAT) at a budget level above the previous financial year NPAT. If financial targets are achieved then senior managers are required to also meet individual operations targets. The operational targets consist of a number of agreed critical objectives covering both financial and non-financial measures of performance.
The aggregate of annual STI payments available for executives across the company is subject to the approval of the Nomination and Remuneration Committee. Payments made are usually delivered as a cash bonus.
With the performance of the Group for the year ended 30 June 2007 below the forecast, no STI payments are due to management for the past year.
(viii)VariableRemuneration–LongTermIncentive(LTI)
An interim long term incentive plan currently exists for the Managing Director, the details of which are provided below. It is the intention of the directors to replace this scheme with a LTI scheme that will cover both the Managing Director and key executives of the Group. Details of the LTI scheme are to be included in the Annual General Meeting notice.
Compensation options – granted and vested during the year
No. Grant Fair Value Exercise Expiry First Last No. % Date per option at price per Date Exercise Exercise grant date ($) option ($) Date Date Directors G.R. Roberts 167,000 19/12/06 0.345 1.98 19/12/13 19/12/09 19/12/13 - - 167,000 -
Granted Terms&Conditions Vested
Note 31: Key Management Personnel (continued)
b) Compensation of Key Management Personnel (continued)
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Note 31: Key Management Personnel (continued)
b) Compensation of Key Management Personnel (continued)
The current interim LTI plan provides for 167,000 share options to be granted to the Managing Director on 19 December 2006, subject to shareholder approval at the Company’s 2007 Annual General Meeting.
In order for the options to vest, the Managing Director must remain in the employment of Penrice for a minimum of three years, giving a vesting date of 19 December 2009. The options will only vest if the average Penrice share price increases by a minimum of 10% compound per year until the vesting date. The percent of options able to vest increases dependant on the compound growth of the share price.
Any options that do not vest on the vesting date will lapse, and will not later be capable of vesting or being exercised. Options may be exercised any time up to 4 calendar years after their vesting date.
The exercise price for the options is $1.98, being the 20 day volume weighted average price for Penrice shares to 19 December 2006.
The amounts recognised in the income statement during the year in relation to share options granted were:
2007 2006 $000 $000
Employee expenses 10 -
The fair value of the options granted during the year was calculated by an independent external valuer, and is measured using the HoadleyES05 Model. The following table lists the inputs to the model used.
2007
Exercise price $1.98Market price as at 19 December 2006 $1.95Maximum life 7 yearsVolatility 36%Risk free rate of return 5.77%Dividend yield 6.4%Vesting period 3 years
(viv)EmploymentContracts
The CEO, Mr Guy Roberts, is employed under a rolling common law employment contract. The current employment contract commenced on 19 December 2006. Under the terms of this contract:
• Mr Roberts receives fixed annual remuneration (FAR) of $400,000 per annum.
• Mr Roberts may resign from his position and thus terminate this contract by giving 12 months written notice.
• The company may terminate this employment agreement by providing 12 months written notice or providing payment in lieu of the notice period (based on the FAR of Mr Roberts’ remuneration). If termination by the company occurs within the period of 12 months of the commencement date, the company will pay to the CEO the difference between the FAR paid to him up to that time and 24 months of the CEO’s, then current FAR.
• If in the company’s reasonable opinion, the CEO fails to exercise reasonable skill and care in the performance of the CEO’s duties, having first been provided with not less that 28 days notice of the details of the alleged failure to exercise reasonable skill and care, and having failed to rectify that failure within that time, the employment agreement may immediately terminate without notice.
• The company may terminate this employment agreement at any time without notice or compensation in lieu, in the case of serious or wilful misconduct.
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Note 31: Key Management Personnel (continued)
(b) Compensation of Key Management Personnel (continued)
DirectorsG Roberts
J Heard
A Fletcher
M Boyce
B Gibson
D Reid
ExecutivesS Bushaway
G Calaby
R Doveton
M Carter
A Kuhndt
$185,994 - - $17,693 - $10,155 - $213,842 5
$92,500 - - $11,470 - - - $103,970 -
$50,750 - - $6,293 - - - $57,043 -
$50,750 - - - - - - $50,750 -
$50,750 - - $6,293 - - - $57,043 -
$198,333 - $142,529 $408,110 - - - $748,972 -
$164,872 $82,564 $20,898 $24,289 - - - $292,623 -
$101,142 - $14,740 $100,991 - - - $216,873 -
$115,367 - $20,820 $39,736 - - - $175,923 -
$67,429 - $15,233 $104,515 - - - $187,177 -
$104,993 - $10,763 $17,583 - - - $133,339 -
$1,182,880 $82,564 $224,983 $736,973 $- $10,155 $- $2,237,555
DReidThe separation payment to D Reid comprised a superannuation contribution of $400,000 together with a non-monetary benefit of $119,156 relating to his motor vehicle.
Salary for the year included the payment of annual and long service leave entitlements in addition to the salary for July.
SBushaway The cash bonus for S Bushaway was paid for the period he was Acting CEO.
30JUNE2007 Salar
y&F
ees
Cash
Bon
uses
Non
Monet
ary B
enefi
tsSu
pera
nnua
tion
Retir
emen
t Ben
efits
Optio
nEn
titlem
ents
Shar
es
Tota
l
Perfo
rman
ce
relat
edp
ay%
DirectorsJ Heard
A Fletcher
M Boyce
B Gibson
D Reid
ExecutivesS Bushaway
G Calaby
R Doveton
$90,000 - - $11,160 - - - $101,160 -
$50,000 - - $6,200 - - - $56,200 -
$50,000 - - - - - - $50,000 -
$30,303 - - $3,758 - - - $34,061 -
$343,339 - $35,959 $48,711 - - - $428,009 -
$165,421 - $16,167 $23,695 - - - $205,283 -
$182,485 - $21,656 $21,898 - - - $226,039 -
$136,152 - $14,391 $16,302 - - - $166,845 -
$1,047,700 $- $88,173 $131,724 $- $- $- $1,267,597
30JUNE2006
Shor
tTer
m
Post
Em
ploy
men
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Shar
eBas
edP
aym
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Note 31: Key Management Personnel (continued)
c) Compensation of Key Management Personnel (continued)
TABLE3–Compensationbycategory
2007 2006 $000 $000
Short term 1,490,427 1,135,873
Post employment 736,973 131,724
Share-based payment 10,155 -
2,237,555 1,267,597
Consolidated
d) Shareholdings of Directors and Key Management Personnel
The following Key Management Personnel held shares in the company during the year.
SharesheldinPenriceSodaHoldingsLtd
At the time of his departure from the company on 26 July 2006, David Reid still held the same number of shares as at 1 July 2006.
Directors John Heard Zetland Pty Limited as trustee for JH Heard Super Fund 115,428 - 115,428
Andrew Fletcher RBC Global Services Australia Nominees Pty Ltd as trustee for the Andrew Fletcher Super Fund 25,900 - 25,900
Michael Boyce Big Red LLC. Michael Boyce is a 48% shareholder in Big Red LLC 461,732 - 461,732
David Reid David Reid 577,140 - 577,140 Reid Family Trust 13,900 - 13,900 Reid Personal S/F A/C 11,000 - 11,000
Executives Stephen Bushaway 230,856 (230,856) -Gil Calaby 233,656 - 233,656Roy Doveton 236,656 - 236,656Mike Carter 175,622 (44,622) 131,000Andrew Kundht 173,122 (73,122) 100,000
Balanceat30 June07orat Balanceat Acquired/(sold) cessationof Nameandholderofshares 1July06 duringtheyear employment
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Note 31: Key Management Personnel (continued)
d) Shareholdings of Directors and Key Management Personnel (continued)
SharesheldinPenriceSodaHoldingsLtd
(e) Other transactions and balances with Key Management Personnel
Michael Boyce is a senior executive of PQ Australia Pty Ltd. During the year there were no sales made to PQ Australia Pty Ltd (30 June 2006 $12,848). No amounts were outstanding at 30 June 2007.
Note 32: Subsequent Events
There are no matters or circumstances that have arisen since 30 June 2007 that has significantly affected, or may significantly affect the operations of the Group in future financial years, or the results of those operations in future financial years, or the state of affairs of the Group in future financial years.
Directors John Heard Zetland Pty Limited as trustee for JH Heard Super Fund 115,428 - 115,428
Andrew Fletcher RBC Global Services Australia Nominees Pty Ltd as trustee for the Andrew Fletcher Super Fund 25,900 - 25,900
Michael Boyce Big Red LLC. Michael Boyce is a 48% shareholder in Big Red LLC 461,732 - 461,732
David Reid David Reid 577,140 - 577,140 Reid Family Trust 13,900 - 13,900 Reid Personal S/F A/C 11,000 - 11,000
Executives Stephen Bushaway 230,856 - 230,856Gil Calaby 233,656 - 233,656Roy Doveton 236,656 - 236,656
Balanceat Acquiredduring Balanceat30 Nameandholderofshares 1July05 theyear June06
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For the year ended 30 June 2007
In accordance with a resolution of the Directors of Penrice Soda Holdings Limited, we state that:
1. In the opinion of the Directors:
a) the financial statements and notes of the consolidated entity, set out on pages 46 to 97 are in accordance with the Corporations Act 2001, including:
i. giving a true and fair view of the Company’s and consolidated entity’s financial position as at 30 June 2007 and of their performance, as represented by the results of their operations and their cash flows, for the year ended on that date; and
ii. complying with Accounting Standards and Corporations Regulations 2001; and
b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.
2. 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 for the financial period ending 30 June 2007.
Dated at Adelaide this 19th day of September 2007.
Signed in accordance with a resolution of the Directors:
JohnHeardAM GuyRobertsChairman Managing Director and Chief Executive Officer
Directors’ Declaration
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We have audited the accompanying financial report of Penrice Soda Holdings Limited (the company), which comprises the balance sheet as at 30 June 2007, and the income statement, statement of recognised income and expense and cash flow statement for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year.
Directors’ Responsibility for the Financial Report
The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with the Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 2, the directors also state that the financial report, comprising the consolidated financial statements and notes, comply with International Financial Reporting Standards.
Auditor’s Responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on our judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, we consider internal controls relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Independence
In conducting our audit we have met the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the directors’ report. In addition to our audit of the financial report, we were engaged to undertake the services disclosed in the notes to the financial statements. The provision of these services has not impaired our independence.
Auditor’s Opinion
In our opinion:
1. the financial report of Penrice Soda Holdings Limited is in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the financial position of Penrice Soda Holdings Limited and the consolidated entity at 30 June 2007 and of their performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations).
2. the financial report also complies with International Financial Reporting Standards as disclosed in Note 2.
Ernst&Young
ColinDunsfordPartnerAdelaide19September2007
Independent Auditor’s Report to Members of Penrice Soda Holdings Limited
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ASX Additional Information
Additional information required by the Australian Stock Exchange Limited Listing Rules not disclosed elsewhere in this report is set out below. The information is current at 12 September 2007.
Distribution of Equity Security Holders
Ordinarysharecapital
• 45,000,000 fully paid ordinary shares are held by 4,009 shareholders
• All issued ordinary shares carry one vote per share and carry the rights to dividends
The number of shareholders, by size of holding, in each class are:
The number of shareholders holding less than a marketable parcel of ordinary shares is 45.
Substantial shareholders
The number of shares held by substantial shareholders and their associates are set out below:
On market buy back
There is no current on market buy back.
Category OrdinaryShares
NumberofEquity SecurityHolders
1 – 1,000 453
1,001 – 5,000 1,848
5,001 – 10,000 899
10,001 – 100,000 778
100,001 and over 31
Total 4,009
Shareholder Numberof OrdinaryShares
National Custodial Services 3,809,859
INVESCO Australia 2,263,660
Ordinaryshareholders Numberof Percentage ordinary ofcapital sharesheld held
National Nominees Ltd 5,410,625 12.02%
JP Morgan Nominees Australia Limited 977,060 2.17%
Big Red LLC 461,732 1.03%
M F Custodians Ltd 268,624 0.60%
Australian Investors Pty Ltd 260,000 0.58%
Australian Investors Pty Ltd 250,000 0.56%
W Freestone Pty Ltd 250,000 0.56%
Patricia Wright 250,000 0.56%
Gilbert & Susan Calaby 233,656 0.52%
Mellett Super Pty Ltd 215,000 0.48%
Spintra Pty Ltd 200,888 0.45%
Brazil Farming Pty Ltd 200,000 0.44%
Govett Investments Pty Ltd 200,000 0.44%
Howba Pty Ltd 200,000 0.44%
Harry Karst 200,000 0.44%
ANZ Nominees Limited 199,753 0.44%
Lakemba Pty Ltd 182,174 0.40%
Sarah Harker 170,856 0.38%
Frances Mary Karst 170,000 0.38%
Adrian Keith Loader 160,000 0.36%
Total 10,460,368 23.25%
Twenty Largest Holders of Quoted Securities
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Offices and Officers
Company Secretary
Mr Stephen Bushaway B.Ec, ACA
Principal Registered Office
Solvay Road
OSBORNE South Australia 5017
Telephone: (08) 8402 7262
Facsimile: (08) 8402 7250
Internet Address: www.penrice.com.au
Share Registry
Link Market Services Limited
Level 4, 333 Collins Street
MELBOURNE Victoria 3000
Stock Exchange
The company is listed on the Australian Stock Exchange. The home exchange is Adelaide.
Other Information
Penrice Soda Holdings Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares.
For
per
sona
l use
onl
y
For
per
sona
l use
onl
y