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PENRICE SODA
HOLDINGS LIMITED
2011 ANNUAL REPORT
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Company Profle
Penrice Soda Holdings Limited is an
Australian public company. It holds leading
positions in the supply o soda ash, sodium
bicarbonate and limestone in its domestic
market and exports to 28 other nations.
Headquartered in Adelaide, South
Australia, Penrice employs 259 people.
It has been listed on the Australian
Securities Exchange since 2005, while the
Companys origins date back to 1935.
Today, Penrice is the only manuacturerin Australia o soda ash and sodium
bicarbonate and is a signicant supplier
o limestone and civil construction
materials. Key end-users o Penrice
products include world majors in
glass manuacturing and mining, ood
and medical care organisations both
in Australia and overseas, and large
inrastructure projects.
Penrices strategy is to build on its
reputation as a reliable and quality
supplier, using its technology to build
share in higher value markets and topenetrate new high growth markets
while improving operating eciencies.
ABOUT PENRICE
Operations
The operations o the Penrice Group are
centred on two South Australian based
divisions its Chemicals business at
Osborne in suburban Adelaide, and the
Quarry & Mineral acility at Angaston in
the Barossa Valley. The Company is
committed to working saely and applying
industry best practice to the health, saety
and well-being o employees, contractors,
suppliers, customers and communities
in which it operates.
Chemicals
Penrices Chemicals business manuactures
soda ash and sodium bicarbonate using the
Solvay process. It operates the largest soda
ash plant in South East Asia and one o the
ve largest sodium bicarbonate plants in the
world. The major inputs salt and limestone
are both naturally occurring and locally
supplied. Soda ash is sold in the Australian
market as a vital ingredient in products
ranging rom glass containers (especially
wine and beer bottles), fat glass or building
and construction, and powder detergents.
It is also used in the mining and watertreatment industries. Sodium bicarbonate
is a specialty chemical used in a variety o
products and applications as diverse as ood,
pharmaceuticals, medical, personal care and
stock eed. Over the past 10 years, Penrice
has expanded the capacity o its sodium
bicarbonate plant rom 24,000 tonnes
per annum to 100,000 tonnes per annum.
Quarry & Mineral
Penrice owns and operates the largest
crystalline limestone mine in South
Australia. The mine supplies limestone into
the chemical process at Penrices Osborne
Chemicals business. It is also a signicant
supplier o unctional inputs to glass and
cement manuacture, mineral processing
and stock eed, and a supplier o aggregates
and other materials to a variety o end-uses,
such as civil and construction, roading,
landll, and landscaping.
Commitment
Penrice is a united, achievement-ocused
Company committed to producing quality
products, providing excellent customer
service and secure supply. The Penrice
culture encourages and challenges its people
to build on this to maintain a competitiveedge and through this achieve growth
and uture prosperity.
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YEAR IN REVIEW
PROFIT SUMMARY (A$M) 2011 2010 % change**
Sales revenue 152.9 160.4 (5)
Normalised EBITDA* 15.7 23.3 (33)
Depreciation/amortisation (9.6) (8.8) (9)
Normalised EBIT* 6.1 14.5 (58)
Net interest expense (8.7) (8.2) (6)Tax* (1.2) (1.0) (20)
Normalised NPAT* (1.4) 5.3
After tax unrealised gain/(loss) on hedges Nil 1.0
After tax significant once off items 24.7 Nil
Statutory NPAT (26.2) 6.3
Underlying earnings per share* (cents) (1.5) 6.6
Statutory earnings per share (cents) (28.7) 7.8
Interim dividend per share (cents) Nil Nil
Final dividend per share (cents) Nil Nil
Gearing [net debt/ (net debt + equity)] % 53% 42%
Interest cover [EBITDA*/net interest] (times) 1.8 2.8
*Excludes unrealised hedge gain/ (loss), significant once off items.
**Percentage changes based on numbers to $000.
CONTENTS
Chairmans Report 2
Managing Director & Chief Executive Officers Report 4
Sustainability Report 8
Executive Team 11
Directors 12
Directors Report 13
Corporate Governance Statement 29
Financial Statements 34
Income Statement 35
Statement of Comprehensive Income 36
Statement of Financial Position 37Statement of Changes in Equity 38
Cash Flow Statement 39
Notes to the Financial Statements 40
Directors Declaration 100
Independent Auditors Report 101
ASX Additional Information 102
Financial History 103
Corporate Information 104
Normalised loss of $1.4 million due
to impact on Chemical business of
strong Australian dollar and forced
plant shutdown caused by third party
steam supply failure.
Reported loss of $26.2 million
includes $21.7 million impairment
charge largely on Chemical business
reflecting outlook for continuing tough
operating environment.
Quarry and Mineral business cash flow
improved $2.1 million from previous
year with gross margin increasing
$1.1 million and total costs decreasing
$0.9 million.
Strategic review underway, profitability
improvement initiatives implemented.
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CHAIRMANS REPORT
It gives me no pleasure to report that
201011 has been another difficult
year for Penrice, with an operating loss
incurred, impairment charges booked
on assets and no dividend declared.
18 months to June 2011 monthly sales
of beer in Australia have declined
an unprecedented situation. In part,
the relatively cool, wet summer was
not conducive to beer consumption.
In the 201011 year, 88 million fewer
wine bottles were filled than the
previous year. Since then, one of
Australias largest wine producers has
announced that one of its consignments
will, for the first time, be exported in
bulk for bottling in the United Kingdom,displacing a further 80 million bottles.
The other major glass consumer
the housing and construction
industry remains more subdued than
expected, reflecting uncertain global
and domestic economic conditions,
while imports of flat glass have been
increasing, squeezing margins.
We estimate that the exchange rate-
induced earnings reduction in FY2011
versus an average over three yearsis in the range of $13 to $15 million,
which relates to reduced AUD receipts
from our export business, domestic
market pricing pressures and domestic
demand. Had our earnings not been so
affected, debt levels would be falling,
there would have been no impairment
charge on assets, and dividends would
be flowing to shareholders.
FUTURE FOCUS
The Board considers that debt levelsare too high. Our banks fully understand
the challenges facing the Company
and remain supportive. In the context
of reviewing our banking agreement,
which was completed soon after
30 June and announced to the market,
we committed to reduce debt levels
and undertake a broad strategic review
of the Companys operations. The
strategic review is designed to improve
performance and thereby returns to
shareholders. The deleveraging planwill consider all options, including asset
sales and raising equity.
It is also of little comfort that the
Company is not alone among Australian
manufacturers large and small in
facing trading pressures. At least there
has been extensive debate recently
of how the increased value of the
Australian dollar and the so-called
two speed economy are eroding
export returns, increasing
import competition, challenging
competitiveness and dampening
demand. As a result, more peoplenow have a better understanding
of pressures that Penrice has been
experiencing for some time.
Penrice obviously cannot influence
these macro factors directly. We are
adjusting our business where possible
so that we can remain sustainable in the
face of continued external pressures.
This takes time and there are no silver
bullets and no magic wands.
The Managing Director & Chief ExecutiveOfficers report provides a comprehensive
assessment of the Companys operations
for the year to 30 June 2011. I will focus
on the steps the Company is taking to
enhance its position and summarise
the issues we are confronting.
While the current management team
inherited an under-invested and
inefficient manufacturing plant and a
mine requiring substantial short term
investment to keep operating, different
factors contributed to the final FY2011result; four dominated:
the exchange rate
the Osborne soda ash plant forced
outage
the cost of coke, and
the inability of major customers,
the glass manufacturers, to
purchase their forecast demand.
Sales of the Companys soda ash
are heavily concentrated to the glass
manufacturers. These companies arethemselves facing similar headwinds
to Penrice. For example, in each of the
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Already, a number of initiatives have
been taken or will shortly commence:
Penrice has recently won a substantial
contract to supply soda ash to a new
glass line in South Australia.
We have secured new customers for
sodium bicarbonate in the premium
food and pharmaceutical segment
in Japan, following damage caused
to local suppliers by the earthquake
and tsunami earlier this year.
We have successfully completed are-line of one of the six kilns at the
soda ash plant, following which plant
performance has improved.
We have begun supplying significant
quantities of aggregate material to
a major road project in metropolitan
Adelaide.
We have secured EPA approval
to enable calsilt to be stored and
used in a blend to produce a quality
landfill at our Gillman site, not
only assisting with a significantby-product problem at Osborne
but potentially opening up new
commercial outlets for blended fill.
A number of alternative materials
have been identified that substitute
effectively for coke currently used in
chemical processing with substantial
cost reductions available; some
significant substitution has been
achieved already and plans are
in development to bring further
materials into use. We have negotiated improved terms
for the supply of electricity to the
Osborne plant.
Major efficiencies and quality
improvements have been identified
as being available through the
installation of a new and much more
efficient bag packing line in the
bicarbonate plant and consideration
is being given to making the
appropriate investment.
We have negotiated improved pricesfor bicarbonate and soda ash where
market conditions allow, especially
in exports, to assist in clawing back
the impact of the falling US dollar.
We have reviewed workforce levels
across the Company, trimming staff
numbers by approximately 10 percent.
We have commenced a major new
program of drilling at the Angaston
mine, designed to prove and enhance
the value of the limestone resource
to JORC compliance.
Collectively, these initiatives through
higher sales, increased margins andimproved operating efficiencies
illustrate the Companys determination
to offset the competitiveness
challenges it faces. They represent a
range of efficiency enhancements and
productivity improvements that policy
analysts have been advocating for
manufacturing businesses.
Penrices growing involvement with the
coal seam gas industry is potentially
a game changer for the Company.
During the past year we announced
the formation of a consortium with
GE Power and Water to provide the
technology that can remove salts
occurring in the water streams
associated with coal seam gas
extraction. Recent extensive community
concern has been expressed, including
in evidence before a Senate Committee,
about the damage that might be done
to the environment by the discharge of
this brine water into the environment.
The Penrice /GE Power and Water
Consortium may well provide the
technology solution and is focussed
on demonstrating its feasibility. In
commercialising this solution, Penrice
intends to operate the plant and market
the salts which comprise common
salt, soda ash and sodium bicarbonate
in varying proportions according to the
particular aquifers involved.
The fact that these products could then
be sold into eastern Australian markets at present prohibitive or very costly
to service from Adelaide due to high
coastal shipping freight rates
is a further advantage. We hope
to have more to say on this business
initiative shortly.
APPRECIATION TO BOARD AND STAFF
At the end of August 2011, Barbara
Gibson retired from the Board after
over five years of service. I express
my appreciation to Barbaras chemicals
expertise and general contribution
to Board deliberations. In view of thecurrent focus on costs across the
Company, we have decided to operate
with a smaller Board.
Finally, I acknowledge the diligence
and commitment displayed by my
Board colleagues and by Penrices
senior management team, under
Managing Director & Chief Executive
Officer Guy Roberts, and the entire
workforce in what has unquestionably
been a year of relentless pressure.
David Trebeck
Chairman
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MANAGING DIRECTOR & CHIEFEXECUTIVE OFFICERS REPORT
The past year has been a challenging
one for Penrice. In addition to facing
continuing difficult trading conditions,
the forced shutdown of the Chemicals
plant in October and unseasonal wet
weather resulted in a revised outlook
forecast in February and the issuance
of a profit guidance downgrade in May.
We reported a disappointing after-tax
loss of $26.2 million for the year ended
30 June 2011. Excluding non-recurring
items, the normalised loss was
$1.4 million, in line with our revised
profit guidance. The strengthening
Australian dollar, which averaged
US$1.00 in FY2011 versus US $0.88
in the previous year, had a significant
impact upon earnings, including upon
US dollar Chemical business export
earnings which were erodedby approximately $4 million.
The largest non-recurring items were
impairment charges of $16 million pre-
tax relating to the Chemicals business
and $10 million pre-tax in relation to
landfill inventory, reflecting current
tough operating conditions and lower
demand forecast.
Despite the difficult trading
environment, we delivered an improved
cash outcome in the Quarry & Mineral
business through lower inventory buildand a dedicated ongoing project to
improve working capital management
also assisted cash flow. The Group
booked operating cash flow of
$5 million for FY2011, a decrease of
$2 million despite a fall of $7.6 million
in normalised EBITDA (excluding
significant once off items).
Capital investment increased to
$13.2 million, from $12.9 million in
FY2010, with major projects being
investment of $2.3 million in the new
Gillman site, $0.7 million in a kiln
reline, the $0.5 million acquisition
of buffer land around the Angaston
mine, and investment of $0.8 million
in the decarbonator reboiler project.
Borrowings increased by $8.3 million
as a consequence of current cash
flow constraints.
Over the year we continued to
investigate and introduce cost saving
initiatives and implement plant
efficiency improvements. This process
is on-going, with the announced
strategic review targeting further
improvements to operating
performance in addition to initiatives
to reduce debt and improve cash flow.
CHEMICALSChemicals business revenue was
$127.6 million, 6% lower than the
previous year. Normalised EBITDA
was $14.0 million, down 8%.
The forced shutdown of the Chemicals
plant for several days over October
following the failure of a third-party
steam supplier, resulted in lost
production and ongoing operational
issues particularly in the kilns section.
These interruptions to plant operations
resulted in an 8% decline in sodaash production on the prior year and
contributed to approximately $5 million
of pre-tax losses to the reported
earnings for this business. This has
been partially off-set by an initial
insurance recovery of $0.5 million.
In response to the ongoing operating
issues caused by this outage, planned
maintenance work was brought forward
on two of the six kilns, the first of
which was completed in July. This work
is already contributing to a pleasingincrease in output and improved
reliability, with a second kiln reline
planned for the second half of FY2012.
CASH FLOW
15,000
10,000
5,000
0
-5,000
-10,000
-15,000
-20,000
-25,000
OPERATING CASH FLOW INVESTING CASH FLOW NET FREE CASH
FY 2007 FY 2008 FY 2009 FY 2010 FY 2011
$000
The expected improvement in operating cash flow in FY2011 was impacted by
the strong AUD and the forced plant shutdown cause by third party steam failure.
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Ash sales fell 6% reflecting softer demand due to stronger AUD
The strong Australian dollar hurt
Chemicals business earnings. Thehigher dollar reduced receipts from
sodium bicarbonate export sales,
in spite of volume and US dollar price
growth, and increased competition from
imports in the domestic market, putting
pressure on margins. The strength
of the Australian dollar also eroded
the competitive position of some of
our domestic customers, particularly
in the glass making sector. This was
particularly the case in the second half,
when some of our major customers
cut back production reflecting a loss
of market share.
Through the first half, domestic
demand for both soda ash and sodium
bicarbonate was also affected by the
unusually wet weather and floods
in eastern Australia in the summer
months, which impacted activity in
key sectors such as manufacturing,
construction and farming.
After reassessing the expected cash
flows from the Chemicals business,an impairment charge of $16 million
pre-tax relating to this business was
taken. This reflects the tough operating
conditions and our updated projections
of the exchange rate and demandgrowth forecasts.
In response to the steep rise in coke
prices in FY2011, we introduced an
alternative less costly material as a
kiln fuel; however, savings from this
measure were offset by further rises in
coke prices. Overall, the increase in coke
costs in 2011 reduced earnings by $2
million compared to the previous year.
Alternative fuel materials will continue
to be used at increased rates in FY2012,
while the range of materials availablefor use as substitutes will be expanded.
SODA ASH
Domestic demand for soda ash
weakened in the second half, which
was contrary to customer expectations.
Local glass makers faced softer
demand in both the flat glass and
packaging glass segments, while the
strong Australian dollar increased
competition from imports. On a positive
note, we recently won a contract tosupply significant quantities of soda
ash to a newly commissioned glass
furnace in South Australia.
Our proprietary technology to produce
soda ash and sodium chloride fromwater associated with coal seam
gas extraction was further proved up
during the year. A consortium has been
formed with GE Power and Water for
construction of a pilot plant expected
to be operational in the FY2012. If this
proves as successful as is expected,
there are excellent prospects for
commercialisation of the process.
Price increases were announced in the
domestic market and will be introduced
over FY2012. In spite of the soft demandconditions, there is confidence that
these prices will be maintained given
rising prices internationally and reduced
exports from China.
SODIUM BICARBONATE
Export demand for sodium bicarbonate
remained strong and sales volumes
grew by 4% on the previous year
and prices in US dollars increased.
However, once US dollar export receipts
were translated into Australian dollars,revenue was down. We estimate
that a one cent rise in the Australian
dollar reduces export revenue by
SALES(TONNES) R
EVENUE
($
000)
SODA ASH SALES
350,000
310,000
270,000
230,000
190,000
150,000
105,000
90,000
75,000
60,000
45,000
30,000
DOMESTIC ASH EXPORT ASH REVENUE
FY 2007 FY 2008 FY 2009 FY 2010 FY 2011
SODA ASH REVENUE
FY2011 FY2010
54% CONTAINER GLASS 53%
16% FLAT GLASS 15%
9% DETERGENTS 11%
7% MINING 9%
12% INDUSTRIAL 11%
2% WATER 1%
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approximately $300,000 per annum,
other things being equal. In FY2011,
the rise in the Australian dollar is
estimated to have reduced export
receipts by $4 million versus the
prior year.
During the year sales of premium
grade sodium bicarbonate commenced
to new food and pharmaceutical
customers in Japan, following that
countrys devastating earthquake in
March, which impacted local supply.The sodium bicarbonate price increases
announced since the end of June have
been accepted in most export markets
and are expected to make a positive
contribution to earnings in FY2012.
In the domestic market, sodium
bicarbonate demand was impacted
by the extreme weather events on
the Australian east coast. However,
domestic market share was maintained
partly due to a successful anti-dumping
suit against Chinese imports. Thesodium bicarbonate plant ran well and
is producing at capacity.
QUARRY AND MINERAL
Our focus in the Quarry & Minerals
business over FY2011 was on achieving
increased sales of higher value
industrial minerals and aggregates
to new customers. Sales revenue to
external customers increased 1%
on FY2010 despite 211,000 fewer
tonnes being sold, with gross margins
improving by $1.1 million. This was
achieved in the absence of any large
civil projects, such as supply to theNorthern Expressway project which
bolstered last years sales.
Normalised EBITDA was $5.3 million,
down 54% as a result of a higher
proportion of mining costs being
expensed compared to the previous
year. Total mine costs this year were
$20.4 million, with $19.3 million
expensed and $1.1 million capitalised.
This compares to last year, where total
costs were $21.3 million, with $12.3
million expensed and $9.0 millioncapitalised. The reduction in capitalised
costs was a result of a lower level of
inventory build, which was down
$5.3 million. The $0.9 million reduction
in total mine costs reflect a planned
50% reduction in extraction rates,
a smaller mine operating fleet and
reduced labour costs. Pleasingly, the
business has continued its recent trend
of improving net free cash flow, with
FY2011 being an outflow of $0.8 million
which was $2.1 million better than the
previous year.
The Angaston mine has now moved into
a new phase of minimal overburden
extraction. Inventory build was just
200,000 tonnes of aggregates, worth
$1.2 million, down from $6.4 million in
the prior year. Demand for aggregates
is increasing to more than 1 million
tonnes per annum and aggregates
inventory is expected to be sold out
during the next five years at current
sales rates.
There was zero inventory build of landfill
during FY2011 and landfill extraction
will be minimal over the next five years.
Given lower than expected levels of
landfill sales in recent periods, anddependency of demand on the timing
of large-scale projects, an impairment
charge of $10 million pre-tax was
taken on the landfill inventory held on
balance sheet. Aggregate inventory
carrying value of $19.8 million remained
SODIUM BICARBONATE REVENUE
FY2011 FY2010
40% FOOD 35%
16% INDUSTRIAL 13%
0% MINING & MINERAL PROCESSING 4%
23% PERSONAL CARE / PHARMACEUTICAL 23%
20% STOCKFEEDS 24%
1% WATER 1%
SALES(TONNES) R
EVENUE
($
000)
SODIUM BICARBONATE SALES
100,000
80,000
60,000
40,000
20,000
0
40,000
35,000
30,000
25,000
20,000
15,000
DOMESTIC BICARB EXPORT BICARB REVENUE
FY 2007 FY 2008 FY 2009 FY 2010 FY 2011
Sales levels at plant capacity with increased export sales
reflecting growth opportunity. Revenue down due to stronger AUD.
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unchanged and at the end of FY2011
total landfill and aggregate inventorystood at $29.5 million.
During FY2011 infrastructure works on
the Gillman site, costing $2.3 million,
was progressed. With all necessary
approvals now in place, this site will be
filled in a manner to render it suitable
for later development with by-product
from the Osborne plant and landfill from
the Angaston mine, demonstrating the
capability of our landfill for numerous
other development opportunities inthe vicinity.
OUR PEOPLE AND COMMUNITIES
We continue to aim for zero injuries
throughout our operations and
continue to implement additional safety
measures as we work towards this goal.
We have completed a difficult year,
and I would like to thank all of the
Penrice team for their continuing
support and efforts. This is particularlyso in the current environment where
the expectation of a continuing high
Australian dollar has necessitated
a focus upon operational changes to
lower costs and improve performance.
LOOKING AHEAD
We remain focused on improving
operating margin and cash flow
performance in the current year.
To achieve this, we will continue
implementation of our cost cutting,
price rise and efficiency initiatives
arising from the strategic review.
As announced, a labour cost reduction
programme has been implementedwhich resulted in a 10% cut in staffing
numbers, generating savings of
around $2 million in FY2012. We have
announced price increases, principally
in the export business, which will
materially improve margins. We have
started a major drilling programme at
the Angaston mine to achieve JORC
compliance, so as to better understand
and value the mine. A new mine plan is
expected to be completed by April 2012.
These initiatives, and further plannedoutcomes of the strategic review,
will make a positive contribution to
earnings in the current year, and help
to offset the impact of the expected
continuing strong Australian dollar,and soft demand.
We have an updated banking agreement
in place which includes an additional
$10 million short term working
capital facility, the majority of which
is repayable at the end of September
2012. This facility covers immediate and
forecast liquidity and capital investment
requirements.
We will also accelerate the considerable
potential of our coal seam gaswater treatment opportunities;
the construction of a pilot plant and
completion of technology proving
trials in the 2012 financial year
will deliver fee-based income and
prospects for commercialisation
are high.
Guy Roberts
Managing Director &
Chief Executive Officer
The results for FY2011 were in line with the Companys current
5 year mine plan to reduce overburden removal and aggregate
and landfill inventory build to improve cash flows.
S
ALES(THOUSANDSOFTONNES)
REVENUE
($
000)
QUARRY AND MINERAL SALES
2,500
2,250
2,000
1,750
1,500
1,250
1,000
750
500
250
0
50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
CEMENT/LIME CHEMICAL CIVIL
CHEMICAL OSBORNE LIMESTONE REVENUE
FY 2007 FY 2008 FY 2009 FY 2010 FY 2011
Sales volumes decreased due to the absence of a major road
project in FY2011. Despite this, revenue increased as a result
of new higher margin chemical business and sales mix.
MILLIONSOFTONNES
EXTRACTION TONNES OVERVIEW 10 YEAR PERIOD
7
6
5
4
3
2
1
0
INDUSTRIAL MINERALS LAND FILL
AGGREGATE TOTAL EXTRACTION
FY2005
FY2006
FY2007
FY2008
FY2009
FY2010
FY2011
FY2012*
FY2013*
FY2014*
*FY2012 onwards is forecast 5 year average
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SUSTAINABILITY REPORT
Sustainability for Penrice means
addressing the environmental,
community, social and governance
issues that are material to our
business. Central to this policy is the
Companys strong commitment to the
safety of the people we work with, and
the communities and environments
within which we operate. We strive to
continually improve our performance
in these areas, and reduce the impact
that our activities have on our people,the environment and our communities.
To this end we have a suite of short
and long term programs designed
to reach our new performance
goals and reduce our footprint.
developing and implementing a best
practice safety management system
embedding the right behaviour in
all our people, and
finding solutions for the physical
safety hazards that we face as
in any mining and manufacturing
environment.
Penrices progress in the past six years
in reducing workplace injuries and
illnesses from a recordable injury rate
of 14 to 2.69 represents a significantimprovement. Our performance for
FY2011 of 2.69 was up on FY2010 despite
continued improvements in our safety
management system. An increase of
contractor injuries contributed heavily
to the overall increased of the injury
rate. In response to this a campaign
was launched to insure the behaviours
contractors exhibit on a daily basis
is consistent with the Penrice safety
vision. The Company continues to
be well placed to achieve the bestpractice levels to which it aspires.
A Penrice focus this year has been to
further embed the Safety Foundations
core principles, involving all of the
Companys employees and principal
contactors. Safety incident reporting
continues to be a pillar on our
performance as does an increased
concentration on management
accountability and proactive hazard
and risk assessment. During the
year, the Group invested significantly
in safety improvements across our
operations covering procedures, people
and equipment. This effort will help to
ensure an even more solid foundation
for the desired safe workplace at
Penrice. The Company is moving into
its third year of a three year intensive
program that will implement best
practice safety procedures, safety
leadership and safe behaviour at all
levels in the organisation.
MAJOR HAZARD FACILITY
An intrinsic part of Penrices
manufacturing process for soda ash and
sodium bicarbonate, is the storage and
use of large quantities of chemicals.
As a consequence of anticipated
regulatory change in South Australia,
our Osborne operation is likely to
be categorised as a Major Hazard
Facility, which is in line with
requirements in other Australian states.
The Company has undergone a formal
review by SafeWork SA in 2009 and has
since developed a comprehensive Safety
Management System. This effort willbe tested further in late 2011 when an
independent audit review is undertaken
by a specialist Major Hazardous
Facilities consultant. The findings from
this review will ensure the Company is
well placed to meet the high regulatory
standards required of a Major Hazard
Facility, when the legislation is enacted
in 2012.
COMMUNITY WORKING WITH
OUR KEY STAKEHOLDERSPenrice has been a company of
significance and achievement in South
Australia for over 70 years, and we
understand that the way we conduct
our business affects the various
communities in which we operate.
That includes a responsibility to
understand and resolve social and
environmental issues. Penrice has in
place staffing, processes and systems
to better understand community
perspectives, and has updated our
community complaints and issues
reporting and recording systems
to improve our responsiveness.
As part of our commitment to working
better within the communities in which
we operate, we actively participate in
independently chaired consultative
forums for both Penrice sites the
Penrice Community Consultation
Group (PCCG) with the community
around our Angaston mine in country
South Australia and a communityforum for our chemical operations
located at Osborne, South Australia.
These committees are made up
of representatives from Local
ALL WORKER RECORDABLE CASE RATE
16
14
1210
8
6
4
2
0FY
2005FY
2006FY
2007FY
2008FY
2009FY
2010FY
2011
ALL WORKER RCR
INJURYPER200,000HRS
WORKED
SAFETY NO INJURIES
TO ANYONE EVER
As a mining and manufacturing
Company, it goes without saying that
safety is critical to the way we work
at Penrice. Our belief is that all
injuries and environmental incidents
are preventable, and in line with that
belief, we have reconfirmed our safety
vision no injuries to anyone ever
and have adopted our environmental
vision of zero harm and waste.
Our safety focus, which is led at Board
and Executive Management level,
is underpinned by three elements:
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Government, community members, the
Environmental Protection Agency (EPA),
Department of Primary Industries and
Resources of South Australia (PIRSA)
and Penrice. Both forums meet on a
quarterly basis, to discuss and share
information around the Companys
operations and performance to agreed
environmental outcomes and criteria.Penrice believes this is a strong
indication of our commitment to listen
to and understand our community
stakeholders and to work to improve and
ultimately resolve community issues.
ENVIRONMENT
ZERO HARM AND WASTE
An economically and environmentally
sustainable future is high on the list
of Penrice priorities. We have an
operational improvement program
that addresses the environmental
impact from our businesses. Our
Environmental Management System
focuses on meeting requirements
of the international standard ISO 14001,
and we are licensed by the EPA in
South Australia.
WATER USE
We continue to focus on reducing the
water used by our operations, andin particular lowering the amount of
towns water used per tonne of product
produced. With the installation and
commissioning of the Reverse Osmosis
desalination plant in 2006, our use of
towns water was reduced by 0.9 Gl per
annum a 56% reduction.
The majority of fresh water used at
Penrices operations is utilised for the
generation of steam. The water from
the desalination plant is of a greater
purity than that of towns water and has
resulted in 1,800 tonnes per annum lesssulphuric acid and caustic soda being
used to further process water for use
in our businesses.
Buoyed by the good progress which
Penrice has made in water savings,
a project was initiated in Q3 of FY2010
to further reduce the amount of towns
water and retain only a small portion
for potable applications.
This project was focused on reusing
existing process water waste streamsand was commissioned in June 2010.
This project has ensured the recovery
waste streams and allowed them to
be directed to feed the lime slaking
plant. The water which was being
used for lime slaking is directed to a
new Reverse Osmosis (RO) plant. The
permeate from the RO plant is used
as process softened water (replacing
towns water), and the rejected water
from the RO plant is now used in the
slaking plant to supplement the wastewater streams.
As a result of making these changes,
a further saving of 0.4 Gl per annum of
towns water has been made in FY2011.
This makes the future usage of towns
water only 0.3 Gl pa, down from 1.6Glpa
in 2005.
ENERGY & GREENHOUSE
GAS EMISSIONS
The operations of the Penrice Group
use a range of energy sources includinggas, electricity, steam and coke in
producing soda ash and sodium
bicarbonate. Energy use is closely
monitored to ensure the conservation
programme remains on target. The
Company continues to make a steady
improvement in the consumption of
energy with the GigaJoule of energy
use per metric tonne of product being
8.26 GJ/MT in FY2011. Although higher
than the previous year, this was caused
by the fixed cost component of steamconsumption being spread across fewer
production tonnes resulting from the
forced plant shutdown and subsequent
plant reliability issues. When
normalising for these issues the energy
consumption would have been 7.97 GJ/
MT, much in line with recent years but
an improvement on historical usage.
Penrice is a participant in the Australian
Governments Energy Efficiency
Opportunities (EEO) program, and
after identifying a number of areas
for significant energy savings, we have
established plans that are expected
to result in further improvement.
TOWNS WATER CONSUMPTION (M3/MT PRODUCT)
5.00
4.00
3.00
2.00
1.00
0.00 FY2005
FY2006
FY2007
FY2008
FY2009
FY2010
FY2011
ENERGY CONSUMPTION (GJ/MT PRODUCT)
8.80
8.60
8.40
8.20
8.00
7.80
7.60
7.40
FY2005
FY2006
FY2007
FY2008
FY2009
FY2010
FY2011
FY2011*
* Normalised for forced plant shutdown and subsequent plant reliability issues.
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GREENHOUSE GAS
Penrice is a significant greenhouse
gas emitter and is subject to the
National Greenhouse and Energy
Reporting Scheme (NGERS) and is
likely to be impacted by any Australian
Governments Carbon Scheme. We have
continued to report formal greenhouse
gas inventory under NGERS as required
by legislation.
CARBON SCHEME
In early 2011 the Company was
accepted as an Energy Intensive Trade
Exposed Entity. If the proposed Carbon
Scheme is enacted Penrice will be
eligible for the highest level of free
permit allocation of 94.5%. The current
view of the likely financial impact
of the scheme on Penrice is that it
will introduce significant cost to the
manufacturer of soda ash and sodium
bicarbonate. Penrice fully supports a
carbon reduction mechanism to reducegreen house gas emission. In order to
meet the expectation of all stakeholders
Penrice believes this will only be
achieved through a global pricing
mechanism.
WASTE WATER EFFLUENT
All storm water and cooling water
drains located within our Osborne site
are discharged to the local marine
environment, the Port River, after the
removal of solids in our onsite solids
recovery plant.
AMMONIA
Penrice continues its commitment
to reducing its load of nitrogen on
the Port River. Penrice finished 2010
calendar year meeting the required
reduction of ammonia discharged to
the Port River as outlined in the 2005
2010 Environmental Improvement
Program (EIP). As a sign of ourcontinued commitment to reducing our
environmental impact the Company
has agreed to a new EIP for a further
5 years that encompasses dust
management and ammonia and solids
discharge to the Port River.
In early 2011 the revised five year
environmental improvement plan (EIP)
was approved by the EPA. The revised
EIP commits to a 15 tonne per year
reduction of ammonia to the Port River
for the next 5 years. The EIP will be valid
until December 2015.
Penrice has also continued to support
the targets set within the Adelaide
Coastal Waters Study and has agreed
with the EPA to meet a 2025 target
of 300 tonnes of Ammonia discharged
to the Port River.
AIR QUALITY
In accordance with our EPA operating
licence, we monitor the release ofcontaminants to the atmosphere. This
program includes the monitoring of
chimney stacks on site that discharge
particulates (dust) to the atmosphere,
and also the continuous monitoring
of particulates on the plant with two
dust monitoring stations. The FY2010
emissions were compliant with
legislation.
At our Angaston operation we have
undertaken extensive air quality
investigation and monitoring as part
of our commitment to the PCCG.
The EPA undertook dust emission
monitoring over a 12 month period
which confirmed that our operations
are compliant with all standards and
regulations. Our commitment to lower
the emissions further has included
automating dust suppressant systems
on fixed plant and installing dust
monitoring equipment that complements
our daily operational activities.
LICENCE COMPLIANCE
The Company is pleased to report
continued compliance with all relevant
environmental legislation, including
our EPA operating licences and our
EPA Environment Improvement
Programs (EIP).
QUALITY
Penrice manufactures product to
high quality standards and maintainsmanufacturing systems accredited
to the Quality Management System
international standards ISO 9001 and
Food Safety Management System ISO
22000 which enables the supply into
both food and pharmaceutical markets.
Penrice produces pharmaceutical
grade sodium bicarbonate which
meets British Pharmacopoeia 2010
and European Pharmacopoeia (6th
Edition) specifications.
TONNES OF AMMONIA TO PORT RIVER
1200
1000
800
600
400
200
0
CY2005
CY2006
CY2007
CY2008
CY2009
CY2010
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EXECUTIVE TEAM
Chief Financial Officer & Company
Secretary
FCPA, BA (Acc) (Uni SA)
Frank joined Penrice in May 2008. Prior
to joining Penrice, Frank was with ASX
listed Adelaide Bank for 18 years, the
last four years as its CFO. Prior to this,
Frank spent six years with the South
Australian Gas Company in various
accounting roles.
FRANK LUPOI
General Manager Chemicals
Business
Dip Ag Science (CSU), Grad Dip Ed (CSU),
Grad Bus Studies (UNE)
Brett joined Penrice in April, 2010 and
possesses over 20 years experience
in sales and marketing management,
procurement and distribution in chemicalcommodities. Bretts previous roles
were held with Elders and Incitec Pivot.
BRETT SMITH
DECLAN MACKLE
General Manager Chemical
Operations
BEng (Hons) Chemical Engineering
(Queens Uni, Belfast)
Declan commenced with Penrice in
May 2008 in the role of General Manager
Chemical Operations. He brings an
extensive and successful international
career in senior management positions
gained from roles held with Adelaide
Brighton Cement, Shark Bay Salt and
Botswana Ash Pty Ltd.
DARRIN WRIGHT
General Manager Quarry and Mineral
Grad Dip Human Factors in Safety Mgt
(Uni SA) (current)
Darrin joined Penrice in December
2007. He has 20 years of experience
in operational risk management.
Having contributed significant
improvement to the safety and
environment management systems
at Penrice, he was promoted to the
role of GM Quarry and Mineral in
May 2010. Darrin has held senior roles
with GM Holden, National Foods and
Local Government.
General Manager Supply Chain
MBA (Merit) (Uni of Newcastle), BSc
Agriculture (Hons) (Melb Uni), MAICD,
GAICD
Andrew joined Penrice in November
2007. He is an experienced supply
chain professional in domestic and
international markets within the
chemical, agricultural and mining
sectors. Andrews previous senior
management roles were held with
Elders, Tennant Limited, Incitec Limitedand Western Mining Fertilisers.
ANDREW CANNON
General Manager Major Projects
BSc Eng (Mech) (Hons), Mgmt Dip (Uni SA)
Roy joined Penrice in 1994. With over
25 years of experience in chemical
and industrial manufacturing includes
management responsibility for major
projects, production management and
maintenance. Roys previous experience
was gained from senior roles with Sappi
Kraft Tugela (Pulp & Paper) and IscorNewcastle (Iron & Steel).
ROY DOVETON
General Manager Human Resources
BBus, Grad Dip HRM/IR (RMIT), Grad Cert
Change Mgmt (AGSM)
Marnie joined Penrice in May 2007.
She is a Human Resources specialist
with more than 15 years experience
in senior generalist roles. She has
worked nationally and internationally
with GM Holden, Sensis, DeloitteConsulting and Monsanto.
MARNIE BROKENSHIRE
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DIRECTORS
GUYROBERTS
DAVIDGROVES
ANDREWFLETCHER
BARBARAGIBSON
DAVIDTREBECK
JOHNHIRST
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DIRECTORS REPORT
The Board of Directors of Penrice Soda Holdings Limited has pleasure in submitting this report for the year ended 30 June
2011 as follows.
Directors
The names and details of the Companys Directors in office during the financial year, including other directorships held for
the past three years, and until the date of this report are as follows. Directors were in office for this entire period unless
otherwise stated.
It should be noted that the Company had a Remuneration and Nomination Committee in place throughout the 2011 financial
year and up until 23 August 2011. From 23 August 2011, the Company has had a Nomination Committee and a Remuneration
Committee. Further details are available in the Corporate Governance Statement.
GUY R. ROBERTS
Managing Director & Chief Executive OfficerCommenced as Director 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 15 years prior to being appointed Managing
Director & Chief Executive Officer of Penrice in 2007.
He has wide experience in chemical, plastics and consumermarkets in Australia, New Zealand, Asia and the United
States all of which are relevant to Penrices operations.
Guy 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.
His final Orica position prior to joining Penrice involved
particular responsibility for setting Oricas strategic growth
agenda in water treatment and was General Manager of
Orica Watercare, the leading supplier of industrial and watertreatment 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 Groups
portfolio in Australia, New Zealand, Asia, United States and
the United Kingdom.
Guy also currently serves on the following boards:
Adelaide Festival Centre Foundation
Business SA
Committee for Economic Development of Australia SA
(CEDA)
National Lime Association of Australia
DAVID B. TREBECK
ChairmanCommenced as Director September 2007 (Appointed Chairman29 October 2009)
Bachelor of Science in Agriculture (Hons) (University
of Sydney)
Master of Economics (University of New England)
Fellow, Australian Institute of Company Directors
Churchill Fellowship
Centenary of Federation Medal 2001
ExperienceDavid is a Director of ASX listed Graincorp Limited and
PrimeAg Australia Ltd, a former Commissioner of the
National Water Commission and a Director of several
other companies. During 2008 he served on a Government
Panel reviewing Australias biosecurity and quarantine
arrangements. David is a former Managing Director of
ACIL Consulting Pty Ltd and a former Director of Incitec
Pivot Limited, Incitec Limited and Pipers Brook Vineyard
Limited. During the past three years David also served
on the following boards:
Graincorp Limited *
PrimeAg Australia Ltd * Maersk Australia Pty Ltd *
Institute of Public Affairs
National Water Commission
Brumbies Rugby Audit & Risk Committee
* Indicates a current Directorship
Special Responsibilities
Member of Audit and Risk Management Committee
Chair of Nomination Committee
Member of Remuneration Committee
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ANDREW V. FLETCHER
Deputy Chairman
Commenced as Director April 2005
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 DefenceSA. His previous executive appointments include Senior
Vice President Global Infrastructure and Asia Pacific for
Kellogg Brown & Root from 2001 until 2005, 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:
Defence SA Advisory Board *
SA Environment Protection Authority Board *
Member of SA Economic Development Board
* Indicates a current Directorship
Special Responsibilities
Chairman of Audit and Risk Management Committee
Member of Nomination Committee
BARBARA J. GIBSON
Commenced as Director November 2005
Retired as Director 31 August 2011
Bachelor of Science (Biochemistry) (Monash University)
Fellow of the Australian Academy of Technological
Sciences and Engineering
Centenary of Federation Medal 2003
Experience
Barbara was formerly the Group General Manager of
Chemicals for Orica Limited, a $1.3 billion business and thelargest 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:
Nuplex Industries Limited *
Warakirri Asset Management Pty Ltd (Chairman) *
Graincorp Limited *
Biota Holdings Limited
St Barbara Limited
* Indicates a current DirectorshipSpecial Responsibilities
Member of Nomination Committee
Member of Remuneration Committee
(Barbara was Chair of the Remuneration and Nomination
Committee up until 21 February 2011 and then was a
member of the Remuneration and Nomination Committee
post this date.)
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JOHN W.A. HIRST
Commenced as Director September 2007
Experience
John has over 40 years experience in the international
chemical industry, and from 2001 to mid 2010 was Managing
Director of ASX and NZX listed, Nuplex Industries Limited, a
leading manufacturer and distributor of functional chemical
based materials with global operations. During the past three
years John has also served on the following board:
Nuplex Industries Limited
Special Responsibilities
Member of Nomination Committee
Chair of Remuneration Committee
Member of Audit and Risk Management Committee
(John was appointed Chair of the Remuneration and
Nomination Committee on 21 February 2011. Prior to that
date, he was a member of the Remuneration and Nomination
Committee.)
DAVID F. GROVES
Commenced as Director December 2010
Bachelor of Commerce (University of Wollongong)
Master of Commerce (University of New South Wales)
Chartered Accountant
Fellow, Australian Institute of Company Directors
Experience
David is Deputy Chairman of Equity Trustees Limited and
a non-executive director of Tassal Group Ltd, Pipers Brook
Vineyard Pty Ltd and Kambala, a leading Australian girlsschool in Sydney. He is a member of MIR Management
Limited Advisory Council and also an executive director of a
number of private investment companies. David is a former
director of Graincorp Limited and Mason Stewart Publishing
and a former executive with Macquarie Bank Limited and
its antecedent, Hill Samuel Australia. During the past three
years David served on the following boards:
Equity Trustees Limited *
Tassal Group Limited *
Pipers Brook Vineyard Pty Ltd *
Graincorp Limited
* Indicates a current Directorship
Special Responsibilities
Member of Audit and Risk Management Committee
Member of Nomination Committee
Member of Remuneration Committee
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DIRECTORS INTERESTS
No 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 Securities Exchange in accordance with S205G(I) of the Corporations Act 2001, at the date of this report is as
follows:
Director Name of holder and nature of interest Number of ordinary shares
D.B. Trebeck DB & DJ Trebeck as Trustee for Fairo Superannuation Fund 715,989
A.V. Fletcher Andrew Fletcher & Associates Pty Ltd Superannuation Fund 168,349
B.J. Gibson Sunday Agencies Pty Ltd Superannuation Fund 62,931J.W.A. Hirst Hirst Supernnuation Fund Pty Ltd ATF The Hirst Superannuation Fund 87,608
D.F. Groves Superdeck Pty Ltd as Trustee for D, K, C & E Superfund 500,598
DB Management Pty Ltd as Trustee for The D&B Family Trust 488,530
J.W. Skipsey (Power of Attorney) 117,000
Kathryn Groves 83,900
Edwina Groves 5,000
G.R. Roberts G.R. Roberts 105,063
DIRECTORS MEETINGS
The number of Directors meetings and meetings of Committees of Directors held during the year and the number ofmeetings attended by each Director is as follows:
Board MeetingsAudit & Risk Management
Committee MeetingsNomination & Remuneration
Committee Meetings
EligibleScheduledMeetings
MeetingsAttended
EligibleScheduledMeetings
MeetingsAttended
EligibleScheduledMeetings
MeetingsAttended
A.V. Fletcher 14 14 4 4 4*
B.J.Gibson 14 14 4* 4 4
J.W.A Hirst 14 14 4 4 4 4
D.F. Groves 8 8 2 2 2 2
G.R. Roberts 14 14 4* 4 4
* Although not a member of the committee, the Director attended.
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Principal activities
The 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.
30 June2011
30 June2010
Result $000 $000Operating profit/(loss)after income tax (26,206) 6,277Dividends Nil Nil
2011: No interim dividend was paid and no final dividend
has been declared.
2010: No interim or final dividend was paid.
EMPLOYEES
The consolidated entity employed 259 employees at 30 June
2011 (2010 257 employees).
REVIEW OF OPERATIONS
A review of operations of the consolidated entity duringthe financial year and the results of those operations are
included earlier in the Managing Director & Chief Executive
Officers Report.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
There has been no significant change in the State of Affairs
of the Company.
SIGNIFICANT EVENTS AFTER THE BALANCE DATE
Banking Agreement
As at 30 June 2011, Penrice was in negotiation with its banks
and had reached agreement in principle to amend its finance
facilities as announced to the ASX on Friday 12 August 2011.
This agreement cancelled a $1.8 million amortisation
payment due on 30 June 2011 and amended the termination
date of its $7.0 million facility to 30 November 2012 or a later
date to be agreed in writing. Previously the termination date
for this facility was 31 August 2011.
Whilst this amendment does cancel the $1.8 million
amortisation payment and defers payment of the $7.0 million
facility beyond the 12 month period from balance date, it
is considered a non-adjusting subsequent event under
accounting standards and does not change the classificationof the liability at 30 June 2011. As a result, $8.8 million
remains a current liability in the financial statements.
No repayments are due within the next 12 months.
The amended agreement provides an additional $10.0 million
funding facility to be available until 31 March 2012, which
then reduces to $8.0 million until 30 September 2012,
being the termination date for this new facility.
The remaining facilities have no changes to their maturity
date, being the maturity date of the Banking Agreement
of 31 March 2013.
LIKELY DEVELOPMENTS AND FUTURE RESULTS
A detailed review of the likely developments and future
results is included in the Managing Director & ChiefExecutive Officers Report.
ENVIRONMENTAL REGULATION AND PERFORMANCE
The Company holds licences issued by the Environment
Protection Authority (EPA), which enables discharge to the
environment from the consolidated entitys 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 consolidatedentitys licence conditions during the financial year.
A detailed review of environmental regulation and
performance is included in the Sustainability Report.
DIVERSITY
Penrice considers that business performance, productivity
and job satisfaction are enhanced by a diverse workforce,
senior management team, and Board, and as a consequence
is committed to promoting a culture where diversity is
encouraged. The measurable objectives set by the Board for
the reporting period have been achieved. These were to:
Develop and implement a policy on diversity that reflects
the companys objective to create a diverse workforce with
specific focus on gender, age, and equal opportunity
Update recruitment policies and procedures to reflect the
companys policy to encourage women into Board, senior
leadership positions and non traditional roles within
engineering and operations
Implement regular training to all employees to increase
the awareness of the importance of diversity and equal
opportunity
Provide for specific programs for the professional
development and training of women within our workforce Introduce a market competitive paid parental leave policy in
line with Commonwealth legislation to encourage women
into our workplace and to return after parental leave.
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In the reporting period, we have had two employees benefit
from the improved provisions for paid parental leave. We have
been able to increase the number of women shortlisted in the
recruitment process for vacant positions and have conducted
diversity training for all employees. Further, employees have
been sponsored to attend women-specific AICD courses and
other like professional development training to support the
progression of high performing women within our workforce.
INDEMNIFICATION OF OFFICERS
The Company has paid a premium for Directors and
Executive Officers liability insurance in respect of Directorsand Executive Officers 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.
SHARE OPTIONS AND RIGHTS
As at the date of this Report there were 878,068 performance
rights allocated in respect of the LTI plan for FY2010 which
are subject to a 3 year performance period and will be eligible
for vesting under the plan at the conclusion of FY2012 and
1,913,073 performance rights allocated in respect of the LTI
plan for FY2011 which are subject to a 3 year performance
period and will be eligible for vesting under the plan at the
conclusion of FY2013.
Refer to the remuneration report for further details.
REMUNERATION REPORT (AUDITED)
The Directors of Penrice Soda Holdings Limited present the
Remuneration Report (which forms part of the Directors
Report) prepared in accordance with section 300A of the
Corporations Act 2001 and its Regulations for the Company
and its controlled entities for the year ended 30 June 2011. This
report outlines the remuneration arrangements in place for the
specified Directors and Executives of Penrice Soda Holdings
Limited, collectively the Key Management Personnel (KMP).
SUMMARY
Executive salaries were frozen as a result of 2011
performance year
No short term amounts under incentive schemes become
payable for the 2011 financial year as a consequence of
Company under performance
There are no benefits available for the 2011 financial year
rising from any long term incentive scheme
Executives as a consequence earned between 53% and
77% of their approved Total Annual Remuneration
Directors Fees remained unchanged
REMUNERATION COMMITTEEThe Remuneration Committee of the Board of Directors of
the Company is responsible for determining, reviewing, and
recommending compensation arrangements for the Non-
Executive Directors, the Managing Director and Executives.
The Remuneration Committee obtains independent advice
on the appropriateness of remuneration packages, taking
particular note of trends in comparative companies.
Remuneration packages can include a mix of fixed
remuneration and performance-based remuneration.
The expected outcomes of the remuneration structure are:
attraction of quality management to the Company; retention and motivation of key executives; and
performance incentives which allow executives to share
the rewards of the success of the Company.
The Remuneration Committee further considers:
capacity to pay;
relevant employment market conditions; and
external market data and comparable relativities.
Details of the composition and responsibilities of the
Remuneration Committee can be found on page 31.
REMUNERATION STRUCTUREIn accordance with best practice corporate governance,
the structure of Non-Executive Director and Executive
remuneration are separate and distinct; they comprised
the following elements:
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Compensation type DIRECTORS EXECUTIVE
Non-executive Executive
Fixed remuneration Fees
Salary
Compulsory Superannuation
Other Benefits
At risk Short term incentive (STI)
remuneration Long term incentive (LTI)
Post employment Termination payments
DETAILS OF KEY MANAGEMENT PERSONNEL (KMP)
As deemed underAASB 124 Related Party Disclosures, Key Management Personnel (KMP) include Non-Executive Directors and
members of the Executive Team, consisting of an Executive Director and the most highly remunerated Executives listed below,
who have authority and responsibility for planning, directing and controlling the major activities of Penrice. In this report,
Executive refers to Executive Key Management Personnel. NonExecutive Directors have no involvement in the day
to day management of the business.
Name RoleYears service
in current RoleStart date
in current role
Executive
Guy Roberts Managing Director & Chief Executive Officer 4.5 19/12/2006Frank Lupoi Chief Financial Officer & Company Secretary 3.2 01/05/2008
Declan Mackle General Manager, Chemical Operations 3.2 07/04/2008
Darrin Wright General Manager, Quarry & Mineral 1.2 01/05/2010
Brett Smith General Manager, Chemicals Business 1.2 12/04/2010
Andrew Cannon General Manager, Supply Chain 3.7 15/10/2007
Roy Doveton General Manager, Major Projects 3.2 07/04/2008
Marnie Brokenshire General Manager, Human Resources 4.2 07/05/2007
Non-Executive
David Trebeck Chairman 1.7 29/10/2009
Andrew Fletcher Deputy Chairman 6.2 01/04/2005Barbara Gibson Non-Executive Director 5.6 23/11/2005
John Hirst Non-Executive Director 3.7 01/09/2007
David Groves Non-Executive Director 0.5 20/12/2010
David Groves was appointed a Non-Executive Director effective 20 December 2010. David Trebeck was appointed
a Non-Executive Director effective 20 September 2007.
Michael Carter, previously General Manager, Quarry & Mineral retired July 1, 2010. There were no other changes
of Key Management Personnel between reporting date and the date the financial report was authorised for issue.
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NON-EXECUTIVE DIRECTOR REMUNERATION STRATEGY
The Board sets Non-Executive director fees within the
aggregate remuneration of $500,000 which was set at the
time of the Companys listing. These fees include both
committee and superannuation benefits paid in accordance
with the Superannuation Guarantee Levy (SGL). Fees are set
at a level to attract and retain Directors of the highest calibre
with relevant and complementary experience, and reflect
their risk, time commitments and responsibilities. Non-
Executive Directors are not entitled to any form of incentive
or any payments related to the companys performance that
may otherwise impinge on independence and impartiality.The Board may pay additional remuneration to Non-Executive
directors for significant extra work however no such
payments were made in 2011. In addition, Non-Executive
directors are entitled to be reimbursed for reasonable
travel and other expenses while engaged in the business
of the Company.
The amount of aggregate remuneration required 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 and seeks shareholder approvalwhen required.
NON-EXECUTIVE DIRECTOR REMUNERATION
The fee received by each Non-Executive director in 2011 was
$63,900 in relation to their service as a Director of the Board
and as a member of any Board Committee for the year. The
Chairman received a fee of $126,690 reflecting the additional
time commitments in fulfilling this role. Chairs of the Audit
and Risk Committee, and the Remuneration Committee
received an additional fee of $5,100. The Chairman does
not receive any additional fees for being the Chair of the
Nomination Committee.
Total remuneration for Non-Executive directors for the year
ending 30 June 2011 was $362,511. Details are provided on
page 25 of this report.
Non-Executive Director fees were not increased in 2011.
EXECUTIVE REMUNERATION STRATEGY
Penrices Executive Remuneration Strategy encompasses
the Managing Director, General Managers and Secretaries
of the Parent and the Group.
The Executive Remuneration Strategy is to strike a balance
between rewarding performance and sustaining and growing
the business profitably. Its intent is to:
Attract, motivate and retain the right people;
Pay competitive, median market aligned total
compensation;
Pay for performance with a transparent process linkingoutcomes and reward, with clear and meaningful targets;
and
Create an environment where Executives act, feel, and are
encouraged to be owners of the business.
The Company recognises that to date it has underperformed
investors expectations. Consequently, the current focus of
the Company is to achieve and then sustain above average
returns to shareholders. Having an effective Executive is a key
element in this and hence attracting and retaining the right
people is critical to success.
The Directors believe that retention of the current Executive
at this time is critical to achieving that aim and thatcompetitive remuneration must therefore be maintained.
EXECUTIVE REMUNERATION
The Company remunerates the Executive commensurate
with their position and responsibilities, so as to:
link reward with the strategic goals and profit
performance of the Company;
align the interests of Executives with those of
shareholders;
ensure total remuneration is competitive by market
standards; and minimise risk.
Remuneration is structured to contain both fixed and at-risk
components to drive culture and behaviour towards higher
performance. The mix between fixed and at-risk elements
varies across the Executive and the table below shows the
percentage of Total Annual Remuneration that is at risk
against both Short Term and Long Term objectives:
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% OF TOTAL ANNUAL REMUNERATION AT RISK
Short term incentive Long term incentive Total at Risk
Name Role 2010 2011 2010 2011 2010 2011
Guy Roberts MD & CEO 21% 21% 26% 26% 47% 47%
Frank Lupoi CFO & Company Secretary 13% 18% 25% 24% 38% 42%
Declan Mackle General Manager 14% 20% 14% 13% 28% 33%
Darrin Wright General Manager 14% 20% 14% 13% 28% 33%
Brett Smith^ General Manager n/a 15% n/a 11% n/a 26%
Andrew Cannon General Manager 12% 12% 12% 12% 24% 24%
Roy Doveton General Manager 12% 12% 12% 12% 24% 24%
Marnie Brokenshire General Manager 12% 12% 12% 12% 24% 24%
^ Appointed 12 April 2010
The above table reflects target performance. It is usual practice to provide Executives with stretch targets for key STI
measures. In the event that these targets are met, a loading of 20% on STI earned becomes payable. This is consistent with
the Boards strategy of linking rewards with shareholder interests.
Incentive payments are based on the FAR as at September 1.
Executive performance against plan, corporate behaviour, and overall contribution to Company performance is reviewed
annually. The payment of any STI or LTI incentive earned is entirely dependent upon each Executive achieving a minimum
satisfactory standard.
EXECUTIVE FIXED ANNUAL REMUNERATION (FAR)
Fixed annual remuneration (FAR) is the aggregate of salary, compulsory superannuation payments and other benefits paid to
each member of the Executive. It may be taken in agreed form. It is reviewed annually based on Company, business unit and
individual performance, capacity to pay, relevant comparative market data and, where appropriate, external advice on policies
and practices. The Remuneration Committee has access to professional advice independent of management. The Company
seeks to pay in the median range.
FAR was reviewed effective September 1, 2010 and the average increase across the Executives was 3% (excluding promotion
increase relating to General Manager, Quarry and Mineral). Not all Executives received an increase.
FAR was reviewed effective September 1, 2011 and there were no increases to any Executive FAR other than for Brett Smith.
The following table provides FAR for Executives with effect from 1 September:
Name Role
FAR AS AT 1 SEPTEMBER
2009 2010 2011
Executive
Guy Roberts Managing Director & Chief Executive Officer $500,000 $520,000 $520,000
Frank Lupoi Chief Financial Officer & Company Secretary $300,000 $320,000 $320,000
Declan Mackle General Manager, Chemical Operations $225,500 $235,000 $235,000
Darrin Wright General Manager, Quarry & Mineral* $195,000 $226,000 $226,000
Brett Smith General Manager, Chemicals Business n/a $193,000 $210,000
Andrew Cannon General Manager, Supply Chain $213,000 $218,000 $218,000
Roy Doveton General Manager, Capital Projects $194,500 $194,500 $194,500
Marnie Brokenshire General Manager, Human Resources $214,000 $214,000 $214,000
* Appointed 1 May 2010, previously General Manager Safety, Health, Environment and Quality
^ Appointed 12 April 2010
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The actual FAR payments provided in the tables in pages 25
and 26 vary from the above due to the disconnect between
the July to June financial year being reported and the salary
review period being September to August.
EXECUTIVE VARIABLE ANNUAL REMUNERATION
SHORT TERM INCENTIVE (STI)
The STI program is a cash based incentive linked to the
achievement of the Companys predominantly financial targets
which are set annually. It places a substantial percentage of
each Executives earnings at risk, yet is both achievable under
reasonable circumstances, and cost effective.
The Managing Director & Chief Executive Officer reviews
the performance of individual Executives and the Chairman
reviews the performance of the Managing Director & Chief
Executive Officer against a standard covering financial and
non financial measures. Non financial measures include
safety, health and environmental performance, behaviours
and skills development, and projects with longer term
strategic benefits. In the event that a minimum personal
performance rating is not met, no STI is payable under any
circumstance. Executives with superior and outstanding
individual performance may receive additional STI payments
up to a maximum of 120% but only in the event that the
Company achieves a predetermined, Board approved,
stretch target.
The aggregate of annual STI payments available for the
Executive is subject to the approval of the Remuneration
Committee.
In the Companys current circumstances, operating profit
and positive cash flow are the principal STI targets. For the
2011 financial year the target was to achieve net profit after
tax (NPAT) and net free cash flow at a budget level which was
above the previous financial years actual NPAT and net free
cash flow result.
Results of Net Profit After Tax and Net Free Cash Flow are shown in the following table.
$000 2007 2008 2009 2010 2011
Net Free cash out flow (1,402) (19,731) (22,178) (5,845) (8,218)
NPAT 6,724 7,254 7,149 6,277 (26,206)
Earnings per Share (cents) 14.9 16.1 12.9 7.8 (28.7)
Having not met the specific performance objectives for the financial year 2011, no STI payments were payable.
There were no STI payments earned in the prior year.
STI EARNEDIN FINANCIAL YEAR
Name Role 2010 2011
Guy Roberts Managing Director & Chief Executive Officer $0 $0
Frank Lupoi Chief Financial Officer & Company Secretary $0 $0
Declan Mackle General Manager, Chemical Operations $0 $0
Darrin Wright General Manager, Quarry & Mineral $0 $0
Brett Smith General Manager, Chemicals Business n/a $0
Andrew Cannon General Manager, Supply Chain $0 $0
Roy Doveton General Manager, Capital Projects $0 $0
Marnie Brokenshire General Manager, Human Resources $0 $0
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EXECUTIVE VARIABLE ANNUAL REMUNERATION
LONG TERM INCENTIVE (LTI)
The LTI Scheme is equity or cash based and provides eligible
Executives with an additional reward for achieving Penrices
long term strategic and financial objectives, hence aligning
compensation with shareholders risks and rewards. It is
measured over a three year period.
The current plan focusses on two areas of performance:
Earnings per share growth as an absolute measure it
has direct relevance to shareholders and potential
to pay dividends; Total shareholder return as a relative measure it reflects
superior performance compared witha general investment
market.
As a consequence of performance targets not being met,
there were no benefits for participating Executives arising
from the LTI Plan for FY2009 (Performance period FY2009
FY2011).
Details of the structure of the LTI Scheme are as follows:
The performance year commences on 1 July and
continues until the next 30 June. The Company grants
Performance Rights to each eligible participant at thecommencement of each performance year. Each grant
will specify the value of the grant, vesting period, and
vesting conditions.
The vesting period or performance measurement period
for the annual grants under the Scheme is three (3) years.
The participant will receive 100% of the annual grant
of Performance Rights at the commencement of each
performance year.
The quantum of each annual grant is calculated firstly
as a percentage of each Executives FAR determined by
size and function of the role (Hay Evaluation), and then
as follows:
Number of Performance rights = Fixed Annual
Remuneration for the Participant x LTI% / Adjusted
Value of a Performance Right.
The value of a performance right (prior to any
adjustment/discount) is the VWAP (volume weighted
average price) of share trading for 15 days
immediately prior to the commencement of the
measurement period.
A discount (adjusted value of a performance right)
may be applied on account of the grant being subject
to vesting conditions effectively reducing the value of
the Performance Rights. This discount is considered in
light of the initial vesting conditions and its applicationis subject to change at the discretion of the Board in
respect of each grant.
Each grant will be subjected to vesting conditions or
performance measures.
The Scheme currently incorporates two performance
measures (that is EPS and TSR) which align executive
reward with shareholder interests. These function as
vesting conditions with various hurdles required to be met
before any vesting of Performance Rights will occur.
Each measure is weighted equally as a vesting condition
and considered separately in the calculation of vesting.
Definitions
EPS Earnings: is statutory net profit after tax.
Shares: is the daily average number of shares onissue in the performance measurement period. Board
discretion shall apply to the calculation of EPS growth
so that eligible participants are neither advantaged
nor disadvantaged by capital raisings or reductions,
or any other factors not reflective of underlying
business performance.
TSR Dividend paid in the performance measurement
period plus the movement in the share price from
the VWAP for the twenty trading days immediately
prior to the commencement of the performance
measurement period (1 July Year One) up to the VWAP
for the twenty trading days immediately prior to theend of the performance measurement period (30 June
Year Three).
TSR performance is ranked relative to companies in a
comparator group consisting of the smallest 50 companies
other than Penrice in the ASX Small Industrials Index.
The hurdle is tested initially at the end of the Performance
Period being the end of the three year period and if required
is then subject to retesting at the end of the fourth year
following the grant.
The Company may in its discretion decide to pay earned
Performance Rights in cash and/or
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