16468 penrice 2011 annual report

8/3/2019 16468 Penrice 2011 Annual Report

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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

PENRICE SODA HOLDINGS LIMITED 2011 Annual Report2


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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

PENRICE SODA HOLDINGS LIMITED 2011 Annual Report 3


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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:



11/107

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.



12/107

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



13/107

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



14/107

DIRECTORS

GUYROBERTS

DAVIDGROVES

ANDREWFLETCHER

BARBARAGIBSON

DAVIDTREBECK

JOHNHIRST



15/107

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



16/107

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



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



(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.)


Directors report (continued)


17/107

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



Chair of Remuneration 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









18/107

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


MeetingsAttended


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.




19/107

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.




20/107

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:




21/107

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.


Directors report (continued) REMUNERATION REPORT (AUDITED) (CONTINUED)


22/107

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




25/107

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

16468 penrice 2011 annual report

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