WASHINGTON H. SOUL PATTINSON AND COMPANY LIMITED A.B.N. 49 000 002 728
DIRECTORS’ ANNUAL REPORT and FINANCIAL STATEMENTS
2005 WASHINGTON H. SOUL PATTINSON AND COMPANY LIMITED AND CONTROLLED ENTITIES A.B.N. 49 000 002 728
FINANCIAL SUMMARY
2001 2002 2003 2004 2005 $000 $000 $000 $000 $000
Before non regular items
Total sales revenue 906,448 334,307 340,624 392,854 597,104 Operating profit after taxation and excluding outside equity...... 45,756 65,987 78,706 81,508 105,109 Total assets employed...... 1,381,008 1,092,348 1,115,282 1,414,693 2,220,042 Shareholders’ funds...... 643,017 668,436 729,926 867,509 1,260,448 Operating profit after taxation and excluding outside equity as a percentage of shareholders’ funds... 7.1% 9.9% 10.8% 9.4% 8.3% Earnings per share on adjusted issued capital (cents)..... 19.17 27.65 32.98 34.16 44.04 Ordinary Dividends per share (cents)...... 11.5 14.0 17.0 20.0 25.0 Special Dividends per share (cents)...... 4.0 5.0 5.0 10.0 15.0
After non regular items
Operating profit after taxation and excluding outside equity ...... 56,751 72,741 88,307 155,925 421,455 Earnings per share on adjusted issued capital (cents) .. . . 23.78 30.48 37.00 65.34 176.61 WASHINGTON H. SOUL PATTINSON AND COMPANY LIMITED A.B.N. 49 000 002 728
DIRECTORS:
ROBERT D. MILLNER Chairman of Directors Director since 1984
MICHAEL J. MILLNER Non-Executive Director - Deputy Chairman Director since 1997
PETER R. ROBINSON B.Com. Executive Director Joined the Company 1978 Director since 1984
DAVID J. FAIRFULL B.Com, A.C.I.S., C.P.A., A.S.I.A. Executive Director Director since 1997
SECRETARY:
ROBERT A. O’BRIEN
AUDITORS:
MOORE STEPHENS SYDNEY Chartered Accountants
REGISTERED OFFICE:
FIRST FLOOR 160 PITT STREET MALL, SYDNEY, N.S.W. 2000 Telephone: (02) 9232 7166 Facsimile: (02) 9235 1747 Internet Website Address: www.whsp.com.au
SHARE REGISTER:
Computershare Investor Services Pty. Limited Level 3, 60 Carrington Street, Sydney. N.S.W. 2000 Telephone: 1300 855 080 (within Australia) Telephone: +61 3 9415 4000 (outside Australia) Facsimile: +61 2 8234 5050 Email: web.queries@computershare.com WASHINGTON H. SOUL PATTINSON AND COMPANY LIMITED A.B.N. 49 000 002 728
DIRECTORS’ REPORT
The Directors of Washington H. Soul Pattinson and Company Limited present their report and the financial statements of the parent entity and its controlled entities for the financial year ended 31st July, 2005.
DIRECTORS The Directors of the Company in office at any time during or since the end of the financial year are: Robert Dobson Millner Chairman (Non-Executive Director since 1984, appointed Chairman 1998) Mr. Millner is a grazier-director and Chairman of the Group’s listed entities New Hope Corporation Limited, SP Telemedia Limited and Souls Private Equity Limited. Mr. Millner is also Chairman of Brickworks Limited, Milton Corporation Limited and Choiseul Investments Limited and is also a non-executive director of Australian Pharmaceutical Industries Limited. Listed company directorships held during the past three years: - New Hope Corporation Limited – Appointed 1995 (current) - SP Telemedia Limited – Appointed 2000 (current) - Souls Private Equity Limited – Appointed 2004 (current) - KH Foods Limited - Appointed 1994 Retired 2004 - Clover Corporation Limited – Appointed 1999 Resigned 2002 - Brickworks Limited – Appointed 1997 (current) - Brickworks Investment Company Limited – Appointed 2003 (current) - Australian Pharmaceutical Industries Limited – Appointed 2000 (current) - Milton Corporation Limited – appointed 1998 (current) - Choiseul Investments Limited – appointed 1995 (current) Michael John Millner Deputy Chairman (Non-Executive Director since 1997, appointed Deputy Chairman 1998 and is a member of the Audit Committee) Mr Millner is a grazier-director and a Councillor of the Royal Agricultural Society of New South Wales. Mr. Millner is also a non-executive director of Ruralco Limited and the Group’s listed entities KH Foods Limited and SP Telemedia Limited. Listed company directorships held during the past three years: - SP Telemedia Limited – Appointed 1997 (current) - KH Foods Limited – Appointed 1997 (current) - Brickworks Limited – Appointed 1998 (current) - Choiseul Investments Limited – Appointed 2001 (current) - Ruralco Limited – Appointed 2003 (current) - Australian Food & Fibre Limited – Appointed 2000 Resigned 2004 Peter Raymond Robinson B. Com. Executive Director Joined the Company 1978, appointed Director 1984. Mr Robinson is chairman of Australian Pharmaceutical Industries Limited, KH Foods Limited and Clover Corporation Limited as well as a non-executive director of the Group’s listed entities New Hope Corporation Limited and SP Telemedia Limited. Listed company directorships held during the past three years: - New Hope Corporation Limited – Appointed 1997 (current) - SP Telemedia Limited – Appointed 2000 (current) - KH Foods Limited – Appointed 1987 (current) - Clover Corporation Limited – Appointed 1997 (current) - Australian Pharmaceutical Industries Limited – Appointed 2000 (current)
2 DIRECTORS’ REPORT (Cont.) Graeme Lance Robertson B.A., M.A.I.E., F.A.I.C.D. Executive Director and member of the Audit Committee. Appointed Director 1997 Resigned 2005. Following the sale of New Hope Corporation Limited’s international coal assets, which was completed on 21 June, 2005, Mr. Robertson resigned as Managing Director of New Hope Corporation Limited and also the Parent Company.Listed company directorships held during the past three years: - New Hope Corporation Limited – Appointed 1987 Resigned 2005 David John Fairfull B.Com., A.C.I.S., C.P.A., A.S.I.A. Executive Director and Chairman of the Audit Committee. Appointed Director 1997. Mr. Fairfull is Joint Managing Director of Pitt Capital Partners Limited, a controlled entity, and a non-executive director of the Group’s listed entities New Hope Corporation Limited, SP Telemedia Limited and Souls Private Equity Limited. Mr. Fairfull is also a director of Australian Pharmaceutical Industries Limited, the Stockland Trust Group and Chairman of B Digital Limited. Listed company directorships held during the past three years: - New Hope Corporation Limited – Appointed 1997 (current) - SP Telemedia Limited – Appointed 2000 (current) - Souls Private Equity Limited – Appointed 2004 (current) - KH Foods Limited – Appointed 1997 Retired 2004 - Clover Corporation Limited – Appointed 2002 Resigned 2004 - Australian Pharmaceutical Industries Limited – Appointed 2000 (current) - Stockland Limited – Appointed 1990 (current) - B Digital Limited – Appointed 2005 (current) - Gazal Corporation Limited – Appointed 1987 Resigned 2004
COMPANY SECRETARY Robert Alfred O’Brien Mr. O’Brien has more than thirty years’ accounting and company secretarial experience and was appointed Secretary of Washington H. Soul Pattinson and Company Limited in June, 1994. Prior to joining Washington H. Soul Pattinson & Company Limited, Mr. O’Brien was assistant company secretary and company secretary of the Inchcape Group of Companies in Australia during a period of twenty two years. DIRECTORS’ MEETINGS The number of Directors’ meetings (including meetings of committees of directors) and the number of meetings attended by each of the directors of the company during the financial year are:
Board of Audit Remuneration Nomination Directors Committee Committee Committee Total number of meetings held: 15 5 1 1 Director: Mr. R.D. Millner + 14 - 1 1 Mr. P.R. Robinson 14 - - - Mr. M.J. Millner *+ 15 5 1 1 Mr. G.L. Robertson * 13 5 - - Mr. D.J. Fairfull * 15 5 - -
* Denotes member of the Audit Committee of Directors. + Denotes member of the Remuneration and Nomination Committees of Directors.
CONSOLIDATED FINANCIAL PERFORMANCE The Profit of the Group, after tax before non regular items, attributable to shareholders for the year ended 31 July, 2005 was $105.1 million, an increase of 29% over the previous year. The Group’s coal operations were the main contributor to the increase in profit, assisted by solid gains from investments and merchant banking. The Profit of the Group, after tax and non-regular items, was $421.5 million, an increase of 170.3% over the previous year. The profit on non regular items of $316.3 million mainly consisted of the share of profit on the sale of NHC’s international coal assets and gains arising from the issue of new shares by controlled entities and associates.
3 DIRECTORS’ REPORT (Cont.) Comparisons with last year are as follows:- 2005 2004 % $000 $000 Change Sales ...... 597,104 392,854 + 52.0% Profit after tax before non regular item ...... 105,109 81,508 + 29.0% Profit after tax and non regular items ...... 421,455 155,925 + 170.3% Share of Net profits of Associates ...... 43,743 78,489 - 44.3% Earnings per share ...... 176.6c 65.3c + 170.3% Final Dividend ...... 15.0c 12.0c + 25.0% Interim Dividend ...... 10.0c 8.0c + 25.0% Total Dividends (excluding Special Dividends) . 25.0c 20.0c + 25.0%
DIVIDENDS 1. Final Dividend Directors recommend the payment of a fully franked final dividend of 15 cents per share in respect of the year ended 31st July, 2005 (2004 – 12 cents). 2. Special Dividends (i) As previously announced, the second special fully franked dividend of 10 cents per share arising from the sale of NBN Television to SP Telemedia Limited will be paid in conjunction with the final dividend. (ii) Arising from the proposed distribution by New Hope Corporation Limited (NHC) of approximately 50% of the profit on the sale of its international coal assets, Directors have declared an additional fully franked special dividend of 5 cents per share, to be paid with the 2005 final dividend. It is envisaged that, subject to unforeseen circumstances and the receipt by NHC of a favourable Class Ruling from the ATO, a further fully franked special dividend of 15 cents per share will again be paid at the same time as the 2006 final dividend. Summary The final dividend of 15 cents per share, to be approved by Shareholders at the Annual General Meeting, and the two special dividends totalling 15 cents per share, will be payable on 28 November, 2005. The record date for the final and two special dividends will be 27 October, 2005. Dividends paid or declared by the Company to members since the end of the previous financial year were:- Cents Total Franked/ Date of Per amount Unfranked Payment Share $’000 Declared and paid during the year Final ordinary dividend 2004 12.0 28,637 Fully Franked 29 Nov 2004 1st Special Dividend arising from the sale of NBN Television to SP Telemedia Limited 10.0 23,864 Fully Franked 29 Nov 2004 Interim ordinary dividend 2005 10.0 23,864 Fully Franked 12 May 2005 Declared and not paid during the year 2nd Special Dividend arising from the sale of NBN Television to SP Telemedia Limited 10.0 23,864 Fully Franked 28 Nov 2005 Dealt with in the financial report as dividends 42.0 100,229 Declared after the end of year Proposed final ordinary dividend 2005 15.0 35,796 Fully Franked 28 Nov 2005 Special Dividend result of profit distribution by NHC from the sale of its international coal assets 5.0 11,932 Fully Franked 28 Nov 2005 20.0 47,728
4 DIRECTORS’ REPORT (Cont.) REVIEW OF OPERATIONS INVESTMENTS – Share Portfolio The Company’s portfolio of investments, which includes the Group’s listed controlled entities and associated companies, returned 14.4% for the year after including unrealised capital gains. The market value of the listed investment portfolio, including listed controlled entities and associates, was $2.2 billion as at 31 July, 2005 compared with $1.9 billion last year, an increase of 15.8%. During the year $65 million was invested in the equity market which included $55 million for the exercise of options and adding to existing holdings in listed controlled entities and associates. The main purchases were Huntley Investment Co. Limited, Trust Company of Australia Ltd and Choiseul Investments Limited. Proceeds from disposals totalled $15 million of which $12 million was from the WMC Resources Limited take-over. Dividend income from investments, excluding controlled entities and associates, was $16.4 million for the year, an increase of 37% on the previous year. Special and increased dividends from Perpetual Trustees Australia Limited, Milton Corporation Limited and Choiseul Investments Limited contributed to the increase.
INVESTMENTS – Associated Entities Australian Pharmaceutical Industries Limited (API) (Group shareholding 21.5%) API’s net profit after tax for the year ended 30 April, 2005 was $29.7 million, an increase of 61.2% over the previous year. Although the result was significantly better than last year, API’s performance was adversely affected by continued manufacturing difficulties in the Australian pharmaceutical plant which produced a significant loss for the year. All manufacturing facilities are now consolidated and located in New Zealand. The manufacturing loss was partially offset by the profit on the sale of the Kingsgrove property which was sold following the closure of the pharmaceutical manufacturing plant. The integration of New Price Retail (NPR), which was acquired in October, 2004, has now been completed. The Retail Division, which included the results of NPR for only seven months, performed strongly recording $255 million revenue and $19.2 million EBIT. In 2004/2005 API achieved strong sales growth and good progress in implementing outcomes from the strategic review announced in December, 2004. API recently secured a greater market share of the Australian pharmacy market and set in place the framework for the growth of franchise retail pharmacies. API maintained its full year dividend of 13 cents per share. Brickworks Limited (Brickworks) (Group shareholding 49.5%) Note: Brickworks change of annual reporting date to 31 July to comply with AIFRS. National building products company Brickworks Limited’s net profit after tax, before non-regular items, for the 13 months ended 31 July, 2005 was $93.9 million, an increase of 27%. On a normalised 12 month basis, the net profit after tax was up 7% to $79.8 million. The main factors contributing to the result were a significant increase in profit from property development and investments offsetting reductions from building products. Basic earnings per share increased to 63.1 cents per share for the 13 month period. Brickworks directors are recommending a significant increase in the final dividend to 21 cents per share fully franked, taking the full year dividend to 31 cents per share fully franked. This is an increase of 29.2% from the 24 cents per share paid in the previous year. Brickworks total free cash flow was very strong at $187.4 million, up from $93.1 million last year, and included $82.1 million from property development compared with $20.7 million last year. Strong cash generation has allowed debt to be reduced by $71.3 million to $204 million resulting in gearing of 19%. For the year ended 30 June, 2005, building products sales were down 1.4% to $481.8 million compared with $487.7 million in the previous year. In the 13 months to July, 2005 sales were $521.1 million. Building products EBITA in the 12 months ended 30 June, 2005 was $82.2 million, down 13.2% on the 12 months to 30 June, 2004. The EBITA for the 13 months ended 31 July, 2005 was $86.1 million. Nationally, dwelling approvals peaked in September, 2003 and have appeared to form a base some 25% lower over the last six to nine months, in seasonally adjusted figures. Brickworks capital works program continued strongly during the period. The focus of the program, within building products, was cost reduction and improvement in safety and environmental performance. Property development included both property acquisition and development costs. Capital expenditure totalled $54.6 million in the 13 months to July, 2005, including $6.7 million for property development. This compares with $40.4 million last year and depreciation of $29.0 million for the 13 months to 31 July, 2005. The 2005 year has seen substantial advances in the Brickworks property realisation program with EBIT of $26.2 million in the 13 months to 31 July, 2005, up from $9.6 million last year. Brickworks associated entity Brickworks Investment Company Limited (BKI) has reported a net profit after tax of $10.5 million in its first full year of operation to 30 June, 2005, compared to $3.6 million in the seven
5 DIRECTORS’ REPORT (Cont.) months to 30 June, 2004. Brickworks equity accounted share of BKI’s profit was $2.4 million. Clover Corporation Limited (Clover) (Group shareholding 28.6%) Clover Corporation Limited’s profit for the year was $764,000 which is a decrease of 38% compared with the last financial year. The profit was impacted by lower sales and delays in the commissioning of the Nu-Soya plant at Moree. Whilst this year’s result is disappointing, Clover’s directors believe that the Omega³ markets internationally are growing and Clover is well placed to participate in this growth. The enquiry level and interest in Omega³ in the USA, Asia and Europe is presently at the highest it has been in Clover’s history. Clover continues to be active in Asia where product trials are currently underway in Vietnam, Indonesia, Malaysia, Thailand, Japan and China, whilst in the USA shelf life trials of various food products continue with a number of multinationals. The markets for infant formula applications in Indonesia, New Zealand and South Korea have provided strong growth and will be a continued focus in the year ahead. Clover’s joint venture with Austgrains to manufacture and market a unique soy flour has now been commercialised with the plant at Moree being commissioned during June and July, 2005. CONTROLLED ENTITIES Coal (New Hope Corporation Limited Group) (NHC) New Hope Corporation Limited is listed on the Australian Stock Exchange (ASX Code NHC) with the Group’s shareholding being 64.2%. For the year ended 31 July, 2005, NHC’s profit after tax and outside equity interests was $463.3 million. The result included a significant non-regular profit after tax of $366.6 million from the sale of NHC’s overseas operations in June, 2005. Excluding the non-regular item referred to above, NHC’s profit after tax and outside equity interests was $96.7 million, an increase of 136% over the previous year. The improved profit result was principally driven by higher World coal prices. The continued appreciation of the Australian Dollar against the U.S. Dollar was again an offsetting factor. Earnings per share, before the non-regular item from the sale of the overseas assets, were 13.1 cents compared to 5.8 cents in the previous year. The NHC Board is recommending a final dividend of 3 cents per share which, together with the interim dividend of 2.75 cents per share paid in May, 2005, will give a full year distribution of 5.75 cents per share, an increase of 140% compared with the 2004 distribution. In addition to the increased final dividend NHC has agreed to return approximately 50% of the net profit from the sale of its overseas operations by way of a fully franked special dividend of 13 cents per share, to be paid at the same time as the final dividend, and a 10 cents per share return of capital. The return of capital is subject to a favourable class ruling from the Australian Taxation Office and approval by NHC’s shareholders at the Annual General Meeting in November, 2005. NHC recently completed a strategic review of the business following the sale of its overseas operations resulting in a decision to return a percentage of profits from the sale to shareholders (referred to above) and to focus on exploration activities to upgrade its resource base, with new mine development potential over the medium term. Continued evaluation of opportunities in the energy business, port infrastructure and development of land holdings will also form part of NHC’s medium to long term strategy. NHC plans to maintain current production levels next year and in 2007 the Stage Two Expansion at Acland will result in the mine increasing production to approximately 3.75 million tonnes. Australian Operations NHC Australia’s after tax profit for the period was $54.6 million compared with $21.9 million in the previous year, an increase of 149%. Apart from the higher World coal prices mentioned above, the Australian operations also benefited from higher production at the Acland operations, although increased fuel and blasting costs adversely impacted the result. Earnings per share from the Australian operations in 2005 were 7.4 cents compared with 3.1 cents per share in 2004. Following the sale of the overseas mining assets, New Acland mine became NHC’s main coal producer, producing 2.6 million tonnes during the year, 24% above the 2004 production and well above the mine’s design capacity of 2.0 million tonnes per year. The balance of NHC’s Australian coal production of 1.1 million tonnes came from the Jeebropilly and New Oakleigh mines. Bulk handling operations of NHC’s associates, Queensland Bulk Handling Pty. Ltd. and Queensland Commodity Exports Pty. Ltd. maintained satisfactory results, similar to 2004. Overseas Operations To the date of sale, the international coal operations contributed a profit after tax and outside equity interest
6 DIRECTORS’ REPORT (Cont.) of $42.0 million, an increase of 12% over the previous full year. NHC completed the sale of its international coal assets on 21 June, 2005 with proceeds totalling US$406 million. The realised capital profit on the sale, after tax, was $366.6 million, referred to earlier as a non-regular item. Telemedia - SP Telemedia Limited (SPT) SPT is listed on the Australian Stock Exchange (ASX Code SOT) with the Group’s shareholding being 51%. SPT reported a profit after tax for the year ended 31 July, 2005 of $16.5 million, an increase of 71% on the previous year. A number of strategic acquisitions have occurred during the year under review namely, in Media, Telecommunications Infrastructure and Retail Communications. These investments are designed to increase the potential for SPT’s future growth. The NBN Television Group, acquired from the parent company on 1 August, 2004, contributed a net profit after tax of $8 million to SPT’s result, based on revenue growth of 6.5%. NBN’s strength in News has underpinned its ratings where it continues to dominate in the region. The business and assets of Comindico Limited were acquired by the SPT Group on 1 December, 2004 and subsequently 50% was sold to B Digital Limited on 31 May, 2005 under the terms of the Strategic Alliance with B Digital Limited. B Digital Limited is one of Australia’s largest consumer retail service providers with over 550,000 mobile, fixed line and internet customers. The Strategic Alliance with B Digital involved the sale by SPT of 50% of SPTCom Pty. Limited, which had acquired the Comindico Limited business, and 100% of Kooee Communications Pty Limited. The sale proceeds comprised 240 million shares in B Digital Limited and cash of $13.75 million. Subsequently, SPT acquired a further 115 million B Digital shares and now holds 42.9% of the share capital of B Digital Limited. B Digital Limited recently announced a profit after tax, before goodwill amortisation, of $24.6 million for the year ended 30 June, 2005. SPT has announced a fully franked final dividend for the year ended 31 July, 2005 of 1.2 cents per share which, together with the interim dividend of 1 cent per share paid in May, 2005, gives a total fully franked dividend distribution for the year of 2.2 cents per share. Merchant Banking – Pitt Capital Partners Limited (PCP) (Group shareholding 53%) In its third year of operations PCP has achieved a net profit after tax of $8.6 million, an increase of 406% over the previous year. Revenue grew to $19.1 million for the year. The outstanding performance was mainly due to success in both the capital raising and mergers and acquisitions field. During the 2005 year PCP undertook 6 major placements and underwritings and raised approximately $400 million. In mergers and acquisitions PCP acted on 6 mandated corporate finance projects with a transaction value in excess of $1.2 billion. Rundle Capital, PCP’s 53% owned subsidiary based in South Australia, had a successful year with revenues growing to approximately $1.4 million and, in what is seen as a strategic long term move, PCP has also invested in the establishment of an Asian subsidiary, Pitt Capital Partners Asia Limited based in Hong Kong. Funds Management – Souls Funds Management Limited (SFM) (Group shareholding 64.0%) SFM recorded a profit after tax of $773,820 compared with $292,193 for the previous year. Funds under management increased during the year by 132% to $543 million and continued growth is expected in the year ahead. Investments in business systems and additional staff is planned for the 2006 year to ensure SFM is well placed to service existing and new clients and to take advantage of significant opportunities over the medium to long term. KH Foods Limited. KH Foods Limited (KHF) is listed on the Australian Stock Exchange (ASX Code KHF) and the Group has a 52.2% shareholding. KHF has reported a disappointing loss after tax and non regular items of $17.3 million. The non-regular items included re-structuring costs of $14.9 million and profit on the sale of assets of $20.3 million. The majority of KHF’s assets are now within the baking industry. The operating results from the cake and savoury divisions are behind original forecasts due to the delays in installation of the new bakery plant and equipment. This delay contributed significantly to an inability to benefit from the revised cost base and sales activity. Operating losses have been higher for longer than anticipated. KHF’s operational focus over the past 12 months has been on capacity building and consolidation of its baking plant and equipment. The upgrade of KHF’s baking plant and equipment has now been completed and the business is now experiencing the benefits of a lower cost base combined with increased sales.
7 DIRECTORS’ REPORT (Cont.) PRINCIPAL ACTIVITIES The principal activities of the corporations in the consolidated entity in the course of the financial year were ownership of shares and properties, coal mining, bulk handling, commercial television licensee and operator, program and commercial television production, telecommunications carrier, merchant banking, funds management, retailing of pharmaceutical products, manufacture, processing and marketing of biscuits and cakes, seasonings, essences, food colours, perfumes and aromatic chemicals, and reconstitution and extrusion of polyethylene film. There were no significant changes in the nature of the consolidated entity’s principal activities during the year.
STATE OF AFFAIRS In the opinion of the Directors there were no significant changes in the state of affairs of the consolidated entity that occurred during the financial year under review not otherwise disclosed in this report or the consolidated entity’s Financial Statements.
REVIEW OF FINANCIAL POSITION The consolidated entity is in a strong financial position with net assets of $1.8 billion which includes a diverse group of investments totalling $641 million. The directors believe the Group is in a strong and stable position to grow its current operations.
EVENTS SUBSEQUENT TO BALANCE DATE The directors are not aware of any other event or circumstance since the end of the financial year not otherwise dealt with in this report or the consolidated financial report that has or may significantly affect the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in subsequent years.
LIKELY DEVELOPMENTS, BUSINESS STRATEGY AND PROSPECTS Further information about likely developments, business strategy and prospects and the expected results in subsequent financial years has not been included in this report because the directors believe, on reasonable grounds, that to include such information would be likely to result in unreasonable prejudice to the consolidated entity.
DIRECTORS’ INTERESTS The relevant interest of each Director in the share capital of the Company, as notified to the Australian Stock Exchange in accordance with section 205G of the Corporations Act 2001, at the date of this report is as follows:- Ordinary Shares Mr. R.D. Millner 16,219,025 Mr. M.J. Millner 15,854,005 Mr. P.R. Robinson 74,210 Mr. D.J. Fairfull 60,000
REMUNERATION REPORT Scope of Report The scope of this Remuneration Report covers the parent entity and the unlisted controlled entities Pitt Capital Partners Limited and Souls Funds Management Limited. The other controlled entities of the Group are publicly listed and, accordingly, have their own Remuneration Committee. It is the policy of the directors to allow those controlled entities to produce their own Remuneration Report in accordance with Section 300A of the Corporations Act 2001 to be voted on by their shareholders. Remuneration Committee The remuneration Committee consists of the non-executive Directors whose responsibility is to make recommendations to the full Board on remuneration matters and other terms of employment for executive directors, senior executives and non-executive directors The remuneration Committee ensures that remuneration levels for directors, senior managers and group executives are competitively set to attract and retain qualified and experienced directors and executives. The Committee is authorised by the Board to obtain independent professional advice on the appropriateness of remuneration packages if deemed necessary.
8 DIRECTORS’ REPORT (Cont.) Non-executive Directors Board policy is to remunerate non-executive directors at comparable market rates and remuneration levels are reviewed annually by the remuneration committee and are not subject to performance based incentives. The aggregate amount of fees which may be paid to non-executive directors is subject to the approval of shareholders in general meeting and is currently set at $750,000 per annum. Approval for this aggregate amount was given at the 2002 Annual General Meeting. During the year ended 31 July, 2005 fees paid to the non-executive directors of the parent entity amounted to $385,072 which included the statutory superannuation guarantee contribution of 9%. With effect from 31 July, 2004 the retiring allowance for non-executive directors was frozen at 3 times the average annual fees for the three years prior to that date. Non-executive directors appointed after 1 August, 2004 will not qualify for a retiring allowance.
Executive Directors and Senior Executives Remuneration levels are reviewed annually by the remuneration Committee to reflect individual performance, the overall performance of the parent and consolidated entity and prevailing employment market conditions. Remuneration of the executive director and senior executives consists of a fixed remuneration package comprising a base salary, superannuation and fringe benefits, where taken. In addition to the foregoing, the remuneration of certain executives of Pitt Capital Partners Limited and Souls Funds Management Limited may include other components which are subject to annual assessment by the Boards of those companies. No employment contracts for either executive directors or senior executives were in place at any time during the financial year.
Company Performance, Shareholder Wealth and Remuneration In its review of remuneration policies, the Remuneration Committee has regard to the following measures of the consolidated entity’s performance for the current and previous four financial years.
2001 2002 2003 2004 2005
Revenue ($000) $906,448 $334,307 $340,624 $392,854 $597,104
Net Profit ($000) (before non-regular items) $45,756 $65,987 $78,706 $81,508 $105,109
Share Price at Year-end $5.07 $4.98 $5.90 $7.35 $9.60
Ordinary Dividends Paid 11.5c 14.0c 17.0c 20.0c 25.0c
Special Dividends Paid 4.0c 5.0c 5.0c 10.0c 15.0c
Specified Directors Mr. R.D. Millner – Non-executive Chairman Mr. M.J. Millner – Non-executive Deputy Chairman Mr. P.R. Robinson – Executive Director Mr. G.L. Robertson – Executive Director Mr. D.J. Fairfull – Executive Director
Specified Executives of the Consolidated Entity Mr. R.C. Neale – General Manager, New Hope Corporation Limited Mr. D. Ledbury – Managing Director, SP Telemedia Limited Mr. J. Eather – General Manager, NBN Limited Mr. M. Simmons – General Manager, SP Telemedia Limited Mr. D.J. Taig – Managing Director, KH Foods Limited
9 DIRECTORS’ REPORT (Cont.) Details of the nature and amount of each major element of the remuneration of each specified director of the Company and each of the five executive officers of the Company and the consolidated entity receiving the highest remuneration and the specified executives of the consolidated entity are as follows:-
Post Employment Primary Benefits Benefits Equity Other Total
Non Salary & Monetary Super- Value of Termination Fees Bonus Benefits annuation Options Benefits Name $000 $000 $000 $000 $000 $000 $000 Specified Directors Mr. R.D. Millner 2005 271 - 31 25 - - 327 Chairman – Non executive 2004 234 - 31 20 - 75 360 Mr. M.J. Millner 2005 165 - - 15 - - 180 Deputy Chairman - Non-executive 2004 148 - - 13 - - 161 Mr. P.R. Robinson 2005 451 - 39 76 - - 566 Executive Director 2004 416 - 41 68 - - 525 Mr. G.L. Robertson 2005 115 - 19 11 230 407 782 Executive Director 2004 105 - 17 8 230 - 360 Mr. D.J. Fairfull 2005 511 - - 46 - - 557 Executive Director 2004 781 - - 103 - 54 938 Total 2005 1,513 - 89 173 230 407 2,412 Total 2004 1,684 - 89 212 230 129 2,344 Executives of the Parent Entity Mr. N.L. Smallbone 2005 181 - 17 31 - - 229 Financial Controller 2004 171 - 2 30 - - 203 Mr. R.A. O’Brien 2005 137 - 21 14 - - 172 Company Secretary 2004 128 - 7 14 - - 149 Mr. J.G. Riley 2005 106 - 11 10 - - 127 Accountant/Internal Auditor 2004 103 - 9 10 - - 122 Total 2005 425 - 49 55 - - 529 Total 2004 402 - 18 54 - - 474 Executives of the Consolidated Entity receiving the highest remuneration A.C. Buckler 2005 50 - 60 4 167 254 535 Chief Operating Officer - New Hope Corporation Limited 2004 50 - 15 4 167 - 236 D. Ledbury 2005 397 50 24 62 - - 533 Managing Director - SP Telemedia Limited 2004 372 30 24 56 - - 482 M. Simmons 2005 329 80 22 73 - - 504 General Manager - SP Telemedia Limited 2004 200 55 17 38 - - 310 J. Eather...... 2005 321 80 20 56 - - 477 General Manager - NBN Limited 2004 217 41 19 36 - - 313 M.T. Smiths 2005 25 - 30 2 167 252 476 Executive Officer - New Hope Corp. Ltd 2004 25 - 19 2 167 - 213 Total 2005 1,122 210 156 197 334 506 2,525 Total 2004 864 126 94 136 334 - 1,554 Specified Executives of the Consolidated Entity Mr. R.C. Neale 2005 245 20 32 100 32 - 429 General Manager – New Hope Corp. Ltd. 2004 212 - 64 91 32 - 399 Mr. D. Ledbury 2005 397 50 24 62 533 Managing Director – SP Telemedia Limited 2004 372 30 24 56 - - 482 Mr. J. Eather 2005 321 80 20 56 - - 477 General Manager – NBN Limited 2004 217 41 19 36 - - 313 Mr. M. Simmons 2005 329 80 22 73 - - 504 General Manager – SP Telemedia Limited 2004 200 55 17 38 - - 310 Mr. D.J. Taig 2005 236 - 81 40 - - 357 Managing Director – KH Foods Limited 2004 127 - 54 24 - - 205 Total 2005 1,528 230 179 331 32 - 2,300 Total 2004 1,128 126 178 245 32 - 1,709 NOTE: None of the options disclosed above have lapsed.
10 DIRECTORS’ REPORT (Cont.) INDEMNIFICATION OF DIRECTORS AND OFFICERS Indemnification The Company’s Constitution provides for an indemnity of Directors, Secretaries and Executive Officers (as defined in the Corporations Act 2001), where liability is incurred in the performance of their duties in those roles, other than conduct involving a willful breach of duty in relation to the company. The Constitution further provides for an indemnity in respect of any costs and expenses incurred in defending proceedings in which judgement is given in their favour, they are acquitted, or the Court grants them relief under the Corporations Act 2001. Insurance In accordance with the provisions of the Corporations Act, Washington H. Soul Pattinson and Company Limited has a Directors’ and Officers’ Liability policy covering directors and officers of the Parent Company and its controlled entities. The insurance policy prohibits disclosure of the nature of the liability insured against and the amount of the premium. ENVIRONMENTAL COMPLIANCE New Hope Corporation Limited’s (NHC) operations are subject to regulation under the Environmental Protection Act 1994 administered by the Environmental Protection Agency. NHC’s activities are authorised by a series of environmental authorities and must comply with the conditions of these authorities to maintain compliance.
There were no fines or prosecutions incurred by NHC under environmental laws and regulations during the year. A small number of non-compliances were identified this year during routine inspections by the Environmental Protection Agency. NHC has worked diligently with the Environmental Protection Agency to quickly rectify these matters. NHC is committed to continually improving its environmental management processes to eliminate the possibility of non-compliance and to minimise the risk of adverse environmental impact. As part of this commitment, NHC regularly conducts non-compulsory self-monitoring of it operations in an effort to proactively manage its environmental responsibilities. This monitoring extends across a broad spectrum of environmental impacts, including but not limited to dust emissions, noise emissions, water quality and soil quality. Where the results of this self monitoring suggest that NHC may be in breach of its authority, these results are shared with the Environmental Protection Agency, with a view to resolving the underlying issue and preventing any possible adverse environmental impact as a result of its operations. NON AUDIT SERVICES Moore Stephens Sydney, the Company’s auditor, has not performed any other services in addition to their statutory duties. The Auditor’s Independence Declaration as required under section 370c of the Corporations Act 2001 is set out on page 12. PROCEEDINGS ON BEHALF OF THE COMPANY No proceedings on behalf of the Company have occurred during the year or to the date of this report. OPTIONS The Company has not issued any options over its unissued shares during the year or in prior years. ROUNDING OFF The amounts contained in the accompanying financial statements have been rounded off to the nearest one thousand dollars under the option available to the Company under Class Order 98/0100.
Dated at Sydney this 12th day of October, 2005.
R.D. MILLNER
P.R. ROBINSON
11 12 WASHINGTON H. SOUL PATTINSON AND COMPANY LIMITED
CORPORATE GOVERNANCE STATEMENT
The Washington H. Soul Pattinson and Company Limited Board is committed to ensuring its policies and practices reflect good corporate governance and recognises that for the success of the Company an appropriate culture is nurtured and developed throughout all levels of the Company. This statement outlines the Company’s Corporate Governance practices in place throughout the year and has been summarised into sections in line with the 10 essential corporate governance principles specified in the ASX Corporate Governance Council’s “Principles of Good Corporate Governance and Best Practice Recommendations”.
ASX Principle 1 – Lay solid foundations for management and oversight The Board is ultimately responsible for the operations, management and performance of the Company. In discharging this responsibility the Board delegates to senior management whose role it is to manage the Company in accordance with the directions and policies set by the Board. The Board monitors the activities of senior management in the performance of their delegated duties. It is the responsibility of the Board to determine policies, practices, management and the operations of the Company and to ensure that the Company is compliant with statutory, legal and other regulatory obligations. Responsibilities of the Board include the following: • Determining corporate strategies, policies and guidelines for the successful performance of the Company in the present and in the future; • Monitoring the performance and conduct of the Company; • Accountability to shareholders; • Ensuring that risk management procedures and compliance and control systems are in place and operating effectively; • Monitoring the performance and conduct of senior management, and ensuring adequate succession plans are in place; and • Ensuring the Company continually builds an honest and ethical culture.
ASX Principle 2 – Structure the Board to add value • In accordance with the Company’s constitution, the Board should comprise no less than 3 or more than 6 Directors. • The names of the Directors of the Company at the date of this statement are set out in the Directors’ Report. • At the date of this report the Board consists of 2 non-executive and 2 executive directors. Directors’ details are contained in the Directors’ Report. • The Chairman of the Board should be a non-executive director. • Under ASX Best Practice Recommendations the non executive directors are not independent for the following reason:- Mr. Robert Millner and Mr. Michael Millner are both directors of Brickworks Limited a major shareholder in Washington H. Soul Pattinson and Company Limited. • Whilst the non-executive directors cannot be considered “independent” in accordance with the ASX Best Practice recommendations, all Directors are expected to bring their independent views and judgement to the Board and, in accordance with the Corporations Act 2001, must inform the Board if they have any interest that could conflict with those of the Company. Where the Board considers that a significant conflict exists it may exercise its discretion to determine whether the Director concerned may be present at the meeting while the item is considered. • In the discharge of their duties and responsibilities, the Directors individually (as well as the Board) have the right to seek independent professional advice at the Company’s expense. However, for advice to individual Directors prior approval of the Chairman is required, which would not be unreasonably withheld. The Chairman is entitled to receive a copy of any such advice obtained. • The nomination committee consists of the non-executive directors who periodically review the membership of the Board having regard to the Company’s particular needs, both present and future. Where a director is due for re-election at the next Annual General Meeting that director will not serve on the Nomination Committee during the year preceding re-election. • Directors are initially appointed by the full Board, subject to election by shareholders at the next Annual General Meeting. Under the Constitution, one third of the Board retire from office each year and submit themselves for re-election by shareholders at the Annual General Meeting.
13 ASX Principle 3 – Promote ethical and responsible decision making The Company has an established code of conduct dealing with matters of integrity and ethical standards. All directors, executives and employees are expected to abide by the code of conduct which covers a number of areas including the following:- • Professional conduct. • Ethical standards. • Standards of workplace behaviour and equal opportunity. • Relationships with customers, suppliers and competitors. • Confidentiality and continuous disclosure. • Anti-discrimination and harassment. • Trading in Company securities. • The environment. A summary of the main principles of the Washington H. Soul Pattinson and Company Limited’s share trading policy are as follows:- • The policy relates to trading in shares of the parent entity and controlled entities and associated entities of the Company that are publicly listed. • Trading is prohibited when directors and employees are in possession of price sensitive information which is not available to the public. • The Company has established the following share trading windows each for a period of 6 weeks commencing from: 1. The release of the Company’s annual result to the Australian Stock Exchange. 2. The release of the Company’s half yearly result to the Australian Stock Exchange. 3. The date of the Annual General Meeting. 4. The release of a prospectus. • At times other than those referred to above, directors etc., may trade with the prior approval of the Chairman, or in his absence, two directors.
ASX Principle 4 – Safeguard integrity in financial reporting Washington H. Soul Pattinson and Company Limited has an established audit committee, which has its own charter outlining the committee’s function, composition, authority, responsibilities and reporting. The current members of the audit committee are the executive director Mr. D.J. Fairfull (Chairman) and the non-executive director Mr. M.J. Millner. The non-executive chairman is not a member of the audit committee. The non-executive chairman, executive director, financial controller, company secretary and the internal auditor may attend audit committee meetings by invitation. The company does not comply with Best Practice Recommendation 4.3 in so far as the audit committee does not have a majority of independent directors and one member is an executive director of the Group. The external auditors (Moore Stephens Sydney) are requested by the audit committee to attend the appropriate meetings to report on the results of their half-year review and full year audit. The external and internal auditors both have direct access to the audit committee if required. The function of the audit committee is to assist the Board in fulfilling its statutory and fiduciary responsibilities relating to: • The external reporting of financial information, including the selection and application of accounting policies; • The independence and effectiveness of the external auditors; • The effectiveness of internal control processes and management information systems; • Compliance with the Corporations Act, ASX Listing Rules and any other applicable requirements; and • The application and adequacy of risk management systems within the Company. The Executive Director and Financial Controller are required to state in writing to the Board, by submission to the audit committee, that the Company’s financial statements present a true and fair view, in all material respects, of the Company’s financial position and operational results and that they are in accordance with relevant accounting standards.
ASX Principle 5 – Make timely and balanced disclosure The Company has a Continuous Disclosure Policy to ensure compliance with the ASX Listing Rules and the Corporations Act continuous disclosure requirements. The policy requires timely disclosure through the ASX companies’ announcement platform of information concerning the Company that a reasonable person would expect to have a material effect on the price or value of the Company’s securities. The Board is responsible for determining disclosure obligations and the Company Secretary is the nominated continuous disclosure officer for the Company.
14 ASX Principle 6 – Respect the rights of shareholders The Board is committed to ensuring that shareholders, the stock market and other interested partners are fully informed of all material matters affecting the Company. The dissemination of information is mainly achieved as follows:- • An Annual Report is distributed to shareholders in October each year • The Chairman’s Address to the Annual General Meeting is distributed to shareholders in November each year • A Half-yearly Review of Operations is distributed to shareholders in May each year. • Where possible, significant information is posted on the Company’s internet website as soon as it is disclosed to the market. • The external auditor is requested to attend the annual general meeting to answer shareholders questions about the conduct of his audit and the content of the auditor’s report.
ASX Principle 7 – Recognise and manage risk
The Company is committed to identifying and managing areas of significant business risk to protect shareholders, employees, earnings and the environment. Arrangements in place include:- • Regular detailed financial, budgetary and management reporting. • Procedures to manage financial and operational risks. • Established organisational structures, procedures and policies dealing with the areas of health and safety, environmental issues, industrial relations and legal and regulatory matters. • Comprehensive insurance and risk management programs. • Procedures requiring Board approval for all borrowings, guarantees and capital expenditure beyond minor levels. • Where applicable, the utilisation of specialised staff and external advisors. The Executive Director and Financial Controller are required to state in writing to the Board, by submission to the audit committee, that the risk management and internal control compliance systems implemented by the Board are operating efficiently and effectively.
ASX Principle 8 – Encourage enhanced performance The performance of the Executive Director and senior executive staff is reviewed annually by the non-executive directors. Senior executive performance is continually monitored by the Executive Director and the Executive Director’s performance is subject to continuous monitoring by the full Board. The efficiency, effectiveness and operations of the Board are continuously subject to informal monitoring by the Chairman and the Board as a whole.
ASX Principle 9 – Remunerate fairly and responsibly The remuneration Committee consists of the non-executive Directors whose main responsibility is to make recommendations to the full Board on remuneration matters and other terms of employment for executive directors, senior executives and non-executive directors. Non executive directors’ fees are reviewed annually by the full Board after taking into consideration the Company’s performance, market rates, level of responsibility and the recommendations of the Remuneration Committee. The aggregate amount of fees which may be paid to non-executive directors is subject to the approval of shareholders at the Annual General Meeting and is currently set at $750,000 per annum. Approval for this amount was given at the 2002 Annual General Meeting. With effect from 31 July, 2004 the retiring allowance for non-executive directors was frozen at 3 times the average annual fees for the last 3 years. Non-executive directors appointed after 1 August, 2004 will not qualify for a retiring allowance. Under the Company’s Constitution it is mandatory for a director to hold a minimum of 20,000 shares. The Company does not have any equity based remuneration arrangements in place. Further information of Directors’ and executives’ remuneration is set out in the Remuneration Report.
ASX Principle 10 – Recognise the legitimate interest of stakeholders In this Corporate Governance Statement reference has already been made to the Code of Conduct under which the Company operates. The Code is designed to comply with the legal and other obligations of legitimate stakeholders and other interested parties and to foster a culture of compliance.
15 WASHINGTON H. SOUL PATTINSON AND COMPANY LIMITED AND ITS CONTROLLED ENTITIES
STATEMENTS OF FINANCIAL PERFORMANCE FOR THE YEAR ENDED 31st JULY, 2005
Consolidated Company 2005 2004 2005 2004 Note $000 $000 $000 $000 Operating Profit after Income Tax before Non Regular Items ...... 105,109 81,508 69,362 65,802 Non Regular Items after Income Tax 2d 316,346 74,417 155,558 23,630
Revenues ...... 2a 1,278,799 528,992 279,349 145,328 Less Expenses excluding Borrowing Costs . . . . . 2b 636,658 367,688 46,983 48,628 Less Borrowing Costs ...... 2b 6,803 8,069 572 431 Share of Net Profits of Associates ...... 10 43,743 78,489 – – Share of Partnership Profits ...... 2,882 2,499 – –
Operating Profit before Income Tax ...... 681,963 234,223 231,794 96,269 Less Income Tax Expense ...... 3 86,808 41,647 6,873 6,837 Net Profit After Income Tax ...... 595,155 192,576 224,921 89,432 Less Net Profit attributable to Outside Equity Interests ...... 173,700 36,651 – –
Net Profit attributable to Soul Pattinson Shareholders ...... 421,455 155,925 224,921 89,432
Increase in Asset Revaluation Reserve ...... 23 2,711 50,174 – – Net exchange difference on translation of controlled entities ...... 23 (6,718) (1,322) – – Total attributable to Soul Pattinson Shareholders recognised directly in equity ...... (4,007) 48,852 – – Total Net Profit and Items Recognised Directly in Equity ...... 417,448 204,777 224,921 89,432
EARNINGS PER SHARE: 2005 2004 Basic and Diluted earnings per share (cents per share) 176.6 65.3 Weighted average number of shares on issue 238,640,580 238,640,580
The Directors have enlarged the Statement of Financial Performance to highlight the Operating Profit after Income Tax and before Non Regular Items. The Company is a long-term investor and does not seek to increase its operating profit by the sale of investments when the share market rises but to make its profit from the receipt of dividend income.
The accompanying notes form part of these financial statements
16 WASHINGTON H. SOUL PATTINSON AND COMPANY LIMITED AND ITS CONTROLLED ENTITIES
STATEMENTS OF FINANCIAL POSITION AS AT 31st JULY, 2005
Consolidated Company 2005 2004 2005 2004 Note $000 $000 $000 $000 CURRENT ASSETS Cash ...... 1q 119,039 128,419 3,478 2,067 Receivables ...... 5 806,294 139,842 91,236 78,973 Inventories ...... 12 33,926 20,276 3,548 2,683 Property ...... 13 1,909 – – – Other ...... 16 7,247 6,937 87 410 TOTAL CURRENT ASSETS ...... 968,415 295,474 98,349 84,133
NON-CURRENT ASSETS Receivables ...... 5 26,215 19,603 177 715 Investments - Associates ...... 6,10 429,092 425,295 208,941 202,610 - Other ...... 7,8,9 211,644 169,012 375,953 257,600 Property, plant and equipment ...... 13 293,565 358,707 5,277 7,739 Intangibles ...... 14 240,136 131,949 – – Tax ...... 15 25,483 13,262 2,740 4,640 Other ...... 16 25,184 1,391 – – TOTAL NON-CURRENT ASSETS ...... 1,251,319 1,119,219 593,088 473,304 TOTAL ASSETS ...... 2,219,734 1,414,693 691,437 557,437
CURRENT LIABILITIES Accounts Payable ...... 17 124,656 59,934 2,223 23,182 Interest Bearing ...... 18 18,118 59,427 13,395 8,553 Provisions ...... 19 47,110 37,585 24,334 24,310 Tax ...... 20 68,256 14,036 3,095 1,621 Other ...... 21 1,946 824 – – TOTAL CURRENT LIABILITIES ...... 260,086 171,806 43,047 57,666
NON-CURRENT LIABILITIES Accounts Payable ...... 17 10,458 14,396 – – Interest Bearing ...... 18 60,011 58,746 – – Provisions ...... 19 10,871 33,695 704 24,600 Tax ...... 20 22,208 14,537 6,146 6,051 Other ...... 21 9,477 9,020 – – TOTAL NON-CURRENT LIABILITIES ...... 113,025 130,394 6,850 30,651 TOTAL LIABILITIES ...... 373,111 302,200 49,897 88,317 NET ASSETS 1,846,623 1,112,493 641,540 469,120
EQUITY Contributed Equity ...... 22 32,900 32,900 32,900 32,900 Reserves ...... 23 489,404 479,687 402,494 402,494 Retained Profits ...... 24 738,145 354,922 206,146 33,726 Equity attributable to Soul Pattinson Shareholders ...... 1,260,449 867,509 641,540 469,120 Outside equity interest in controlled entities ...... 26 586,174 244,984 – – TOTAL EQUITY ...... 1,846,623 1,112,493 641,540 469,120
Commitments and Contingent Liabilities 28
The accompanying notes form part of these financial statements.
17 WASHINGTON H. SOUL PATTINSON AND COMPANY LIMITED AND ITS CONTROLLED ENTITIES STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 31st JULY, 2005
Consolidated Company 2005 2004 2005 2004 $000 $000 $000 $000 Cash Flows From Operating Activities
Receipts from customers ...... 639,124 464,010 17,890 23,675 Payments to suppliers and employees ...... (526,338) (305,341) (18,460) (20,220) 112,786 158,669 (570) 3,455 Dividends Received ...... 89,486 43,634 82,080 48,724 Interest Received ...... 14,689 5,203 6,568 3,568 Borrowing costs paid ...... (5,280) (8,519) (550) (426) Income Tax paid ...... (28,239) (27,752) (1,733) (525) Net Cash Inflow from Operating Activities (Note 30) ...... 183,442 171,235 85,795 54,796
Cash Flows From Investing Activities
Payments for property, plant and equipment ...... (78,106) (45,552) (343) (2,610) Proceeds from sale of property, plant and equipment ...... 6,933 7,277 4,711 5,433 Payments for investments ...... (112,595) (39,417) (37,285) (38,597) Proceeds from sale of investments ...... 521,693 39,405 21,893 34,353 Loans advanced ...... (6,065) (110) – (110) Repayment of loans advanced ...... 44,513 3,076 17,600 1,118 Sale of businesses ...... 14,315 11,756 – 5,761 Sale of controlled entities ...... – 876 79,548 – Acquisition of controlled entities net of cash acquired ...... (45,573) (10,081) (53,985) (921) Net Cash Inflow (Outflow) from Investment Activities . . . . . 345,115 (32,770) 32,139 4,427
Cash Flows From Financing Activities
Proceeds from Issue of Shares ...... 185,700 94,365 – – Proceeds from borrowings ...... 39,842 20,326 4,842 400 Repayment of borrowings ...... (78,824) (89,157) – – Dividends paid ...... (93,422) (41,725) (76,365) (42,955) Net Cash Inflow (Outflow) from Financing Activities ...... 53,296 (16,191) (71,523) (42,555)
Net Increase (Decrease) in Cash Held ...... 581,853 122,274 46,411 16,668 Cash at the beginning of the financial year ...... 204,006 80,933 44,067 27,399 Cash from Associate now treated as Controlled Entity ...... – 1,810 – – Effect of exchange rate changes on cash ...... (1,435) (1,011) – – Cash at the end of the financial year (Note 30) ...... 784,424 204,006 90,478 44,067
The accompanying notes form part of these financial statements.
18 WASHINGTON H. SOUL PATTINSON AND COMPANY LIMITED AND ITS CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS 31st JULY, 2005
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES The financial statements are a general purpose financial report and have been prepared in accordance with the Corporations Act 2001 and applicable accounting standards and other mandatory professional reporting requirements (Urgent Issues Group Consensus Views). They have been prepared in accordance with the historical cost convention except for certain assets which are at valuation. The assumption is made that the economic entity will continue as a going concern. The consolidated accounts include those of the parent entity and all of its controlled entities as listed in Note 8. Where controlled entities are acquired during a financial year their results are included only from the date of acquisition and where controlled entities are disposed of during a financial year their results are included to the date of disposal. All intercompany transactions and unrealised profits have been eliminated. The parent entity holds 49.47% of the issued capital of Brickworks Limited which in turn holds 42.85% of the issued capital of the parent entity. The directors believe its interest in Brickworks Limited should be reported as an associated entity together with other entities in which it has a significant influence. Set out below is a summary of the significant accounting policies adopted by the economic entity, and in particular the accounting policy adopted where there exists a choice between two or more acceptable methods. (a) Non Current Assets - Where the carrying amount of a non-current asset is materially greater than its recoverable amount the asset is revalued to its recoverable amount. The decrement is recognised as an expense in the statement of financial performance. The expected net cash flows included in determining recoverable amounts of non-current assets have not been discounted to their present values. (b) Depreciation - Depreciation is calculated so as to write off the value of each non-current asset excluding freehold land over its estimated useful life. Components of major assets that have materially different useful lives, are separately depreciated. (c) Inventories - Raw materials are valued at the lower of cost and net realisable value. Work in progress, finished goods and trading shares are valued at the lower of cost or net realisable value. Cost consists of direct material, labour and includes an appropriate allocation of production overheads. Costs are assigned based on normal operating capacity. (d) Taxation - The economic entity adopts the principles of tax effect accounting. Income tax on net cumulative timing differences is set aside to deferred income tax and future tax benefit accounts at declared rates prevailing when those timing differences are expected to reverse. The group provisions of the Income Tax Assessment Act have been utilised so that tax losses in some entities are to be recouped against tax payable in the current year by other entities. Tax Consolidation - Some of the entities within the consolidated entity are part of a tax consolidation group. The head entity recognises all of the current and deferred tax assets and liabilities of the respective tax consolidated group. The company has notified the Australian Taxation Office of its decision to consolidate. The tax consolidated group has entered into a tax funding agreement that requires wholly-owned controlled entities to make contributions to the head entity for: * deferred tax balances recognised by the head entity on implementation date, including the impact of any relevant reset tax cost base; and * current tax assets and liabilities and deferred tax balances arising from external transactions occurring after the implementation of tax consolidation. Under the tax funding agreement, the contributions are calculated on a stand-alone basis so that the contributions are equivalent to the tax balances generated by external transactions entered into by wholly-owned subsidiaries. The contributions are payable as set out in the agreement and reflect the timing of the head entity’s obligations to make payments for tax liabilities to the relevant tax authorities. The assets and liabilities arising under the tax funding agreement are recognised as intercompany assets and liabilities with a consequential adjustment to income tax expense/revenue. (e) Investments Partnership - The interest in a partnership is stated at the equity interest percentage of the consolidated entity in the net assets of that partnership. The same percentage is applied to the partnership profit to determine the consolidated entity’s share of that profit. Associated Entities - An associate is an entity, other than a partnership, over which the consolidated entity exercises significant influence and includes joint venture entities. Investments in associates are accounted for using equity accounting principles. The consolidated entity’s share of the associates net profit or loss after tax is recognised in the consolidated financial performance statement. The carrying amount is reduced to the recoverable amount if lower. Joint Venture Operation - The proportionate interests in the assets, liabilities and expenses of a joint venture operation have been incorporated in the financial statements under the appropriate headings. Details are set out in Note 11. Other Companies - Investments in listed and unlisted corporations are carried at cost with provision made where appropriate when it is considered amounts will not be recovered. Dividends are brought to account when declared. (f) Restoration, Rehabilitation and Environmental Expenditure - Restoration, Rehabilitation and Environmental expenditure to be incurred during the production phase of operations is expensed as part of the cost of production of the mine property concerned. An entity may also have obligations for restoration and rehabilitation of mining areas and decommissioning of plant following the completion of production. Such obligations are being accrued in proportion to production and the accrual will be adequate to meet those obligations once production from the mineral resource is completed. These obligations include profiling,
19 stabilisation and revegetation of the completed area. Costs are estimated on the basis of current undiscounted costs, current statutory requirements and current technology. Changes in estimates of costs relating to producing areas are dealt with prospectively over the remaining mine life. Where there is virtual certainty that the liability will be extinguished by the sale or development of the property, the liability is reduced by the amount of the positive cash flows expected to be generated. (g) Mine Properties, Mine Development Costs, Mining Reserves and Mining Leases - Mining Reserves, Leases and Mine Development costs are amortised over the estimated productive life of each applicable mine on the unit of production basis or years of operation basis as appropriate. Amortisation commences when a mine commences commercial production. Development expenditure incurred by the economic entity is accumulated separately for each area of interest in which economically recoverable mineral resources have been identified to the satisfaction of the directors. Direct development expenditure, pre operating mine start-up costs, and an appropriate portion of related overhead expenditure are capitalised as Mine Development costs up until the relevant mine is in commercial production. Revenue earned while the mine is being developed is offset. Interest and foreign exchange differences are classified as part of Mine Development costs where they relate to funds borrowed specifically for developing those projects. Interest earned on the temporary investment of such funds prior to commencement of commercial production is deducted from the amounts so capitalised. Capitalised interest is amortised over the same period as the asset to which it relates is depreciated. (h) Exploration and Evaluation Expenditure - Exploration, Evaluation and relevant acquisition costs are accumulated separately for each area of interest. They comprise acquisition costs, direct exploration and evaluation costs and an appropriate portion of related overhead expenditure. Costs are carried forward only if they relate to an area of interest for which rights of tenure are current and in respect of which such costs are expected to be recouped through successful development and exploitation or from sale of the area. Exploration and Evaluation expenditure which does not satisfy these criteria is written off. (i) Maintenance and Repairs - Maintenance, repair costs and minor renewals are charged as expenses as incurred except where they relate to the replacement of a component of an asset, in which case they are capitalised. (j) Acquisitions - On acquisition of controlled entities or assets of another entity the excess of the purchase consideration plus incidental expenses over the fair value of the identifiable net assets acquired, goodwill, is amortised on a straight line basis over a period of up to twenty years, during which the benefits are expected to arise. Discount on acquisition is written off against non-monetary assets at date of acquisition. Purchase consideration is measured at fair value. (k) Goodwill - Goodwill acquired is amortised over a period of between 10 and 20 years unless it is immediately expensed. (l) Foreign Currency - Foreign currencies are converted into Australian currency at the rate of exchange at the date of the transaction. At balance date amounts payable or receivable by the economic entity in foreign currencies have been translated to Australian currency at rates of exchange ruling at year end. Gains and losses are charged against operating profit. Specific Commitment - Hedging is undertaken in order to avoid or minimise possible adverse effects of movements in exchange rates. Gains or losses arising upon entry into a hedging transaction, together with subsequent gains or losses resulting from those transactions are deferred and included in the measurement of the purchase or sale. When anticipated sale transactions have been hedged, actual sales which occur during the hedged period are accounted for as having been hedged until the amounts of those transactions are fully allocated against the hedged amounts. The net amount receivable or payable under the hedging transaction is also recorded in the statements of financial position. Any gains or losses arising on the hedging transaction after the recognition of the hedged purchase or sale are included in the statements of financial performance. General Commitment - Exchange gains and losses on other hedge transactions are brought to account in the statement of financial performance in the financial year in which the exchange rates change. Gains or losses arising on entry into hedges of general commitments are brought to account at the time of entry into the hedges and are amortised over the period of the hedge. Foreign Controlled Entities - Assets and liabilities of overseas controlled entities which are self sustaining have been translated at the rate of exchange ruling at balance date. Equity items are translated at historical rates. Revenue and Expenses are translated at the weighted average of rates during the year. Exchange differences arising on translation are taken directly to foreign currency exchange reserve. Upon sale of a foreign controlled entity the foreign currency translation reserve relating to it is transferred to retained profits. (m) Employee Benefits - Provision is made for employees’ entitlements to annual, sick, and long service leave, potential retirement benefits and redundancy entitlements at current rates of pay and include applicable oncosts. The contributions made to superannuation funds by entities within the economic entity are charges against profits (n) Leased Non-Current Assets - Distinction is made between finance leases which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to the ownership of the leased property, and operating leases under which the lessor effectively retains all such risks and benefits. Where non-current assets are acquired by means of finance leases, the present value of minimum lease payments is established as a non-current asset at the beginning of the lease term and amortised on a straight line basis over its expected useful life. A corresponding liability is also established and each lease payment is allocated between such liability and interest expense. Operating lease payments are charged to the statement of financial performance in the period in which they are incurred. (o) Benching and Forward Overburden Removal - The costs of overburden removed in advance and establishment of work benches have been deferred and will be absorbed in subsequent years on the basis of saleable tonnes produced. (p) Television Licence - The television licence is brought to account at fair value as determined by directors’ valuation. The television licence is subject to renewal by the Australian Broadcasting Authority, but the directors have no reason to believe it will not be renewed and have not identified any factor that would affect its useful life. The carrying amount of the television licence is not amortised as the directors believe it will exist in perpetuity and its value will not diminish over time. As assessment of the recoverable amount of the licence is made each reporting period to ensure this is not less than its carrying
20 amount. The recoverable amount is determined based on the net amount expected to be recovered through the net cash inflows arising from the continued use of the licence and subsequent disposal, where applicable, discounted to their present values using a risk adjusted discount rate. (q) Cash Flows - In the preparation of cash flows, cash is defined to include cash on hand and at bank and short term deposits, net of bank overdrafts. These items are all readily convertible to cash and are used in the day to day cash management. (r) Port Development Costs - Development expenditure incurred in respect of a Port Loading Facility is accumulated. Direct development expenditure, pre-operating start-up costs and an appropriate portion of related overhead expenditure are capitalised until the facility is in commercial operation. Amortisation and depreciation commences when the facility is in commercial operation. (s) Development Costs - Costs incurred in the development of the enlarged service area on aggregation of television services and other significant items of expenditure related to establishment of this market, having a benefit or relationship to more than one accounting period, have been deferred and amortised over the period of that expected benefit, but not exceeding twenty years. (t) Debtors - Debtors are recognised at the amount receivable as they are generally due for settlement 30 days from the end of month in which the invoice is raised. Collectibility of trade debtors is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off. A provision for doubtful debts is maintained to cover the estimate of the amount of those debts which may be uncollectable. (u) Trade and other Creditors - These amounts represent liabilities for goods and services provided to the economic entity to the end of the financial year and which are unpaid. (v) Revenue - Comprises revenue earned (net of returns and allowances) from the provision of products to entities outside the consolidated entity. It is recognised when the control passes to the customer. A controlled entity has a service provider agreement under which the service provider undertakes billing and collection for its customers on its behalf. In addition the service provider has assumed credit risk for bad debts. As the controlled entity acts as principal in its relationship with its customers, revenues and cash flows associated with billings and collections are brought to account in the Statements of Financial Performance and Cash Flows on a gross basis. Unearned revenue represents funds received for customers acquired and retained where the revenue arising cannot be reliably estimated. Revenue is recognised as it is earned over the period to which it relates or is refunded to the network provider where the customer is not retained. (w) Goods and Services Tax - The net amount of GST recoverable from or payable to the ATO is shown as a current asset or liability. Receivables and payables are stated inclusive of GST. The amounts in the financial performance statement are net of GST unless non recoverable. In the statement of cash flow, the GST component has been classified as operating cash flow. (x) Dividends - Provision is made for the amount of any dividend declared, determined or publicly recommended by Directors on or before the end of the financial year but not distributed. With the change in accounting standard no provision is made for dividends recommended after year end. (y) Comparative Amounts - Last year’s figures have been reclassified where necessary to facilitate proper comparison. (z) Contributed Equity - Issued and paid up capital is recognised at the fair value of the consideration received by the company. Transaction costs arising on the issue of shares are recognised directly in equity. (aa) Restructuring Costs - Liabilities for the cost of restructuring entities or operations acquired are recognised as at the date of acquisition, if the main features of the restructuring were planned and there was a demonstrable commitment to the restructuring and this is supported by a detailed plan developed within three months of the commitment of the acquisition or prior to completion of the `final report. Reversal of part or all of a provision for restructuring because the costs are no longer expected to be incurred are adjusted against the goodwill on acquisition. (ab) Capitalised Subscriber Costs - These costs include handset and other costs directly attributable to the acquisition and retention of subscriber contracts. Where revenue earned can be reliably estimated to secure the subscriber contracts, the capitalised subscriber costs are net of this revenue. Costs capitalised are expensed directly to the profit and loss in the period in which they are incurred, except that they are recognised as an asset when: (i) Future economic benefits are controlled. (ii) It is probable those future economic benefits will eventuate, and (iii) The costs can be measured reliably. Capitalised subscriber costs recognised as an asset are amortised using the straight line method from the date of initial recognition over the period during which the future economic benefits are expected to be obtained, being the contract period (normally 24 months). (ac) International Financial Reporting Standards (IFRS) - The Australian Accounting Standards Board (AASB) has adopted International Financial Reporting Standards (IFRS) for application to reporting periods beginning on or after 1 January, 2005. The AASB has issued Australian equivalents to IFRS, and the Urgent Issues Group will issue abstracts corresponding to IASB interpretations originated by the International Financial Reporting Interpretations Committee or the former Standing Interpretations Committee. The adoption of Australian equivalents to IFRS will be first reflected in the consolidated entity’s financial statements for the half-year ending 31 January, 2006 and the year ending 31 July, 2006. Entities complying with Australian equivalents to IFRS for the first time will be required to restate their comparative financial statements to amounts reflecting the application of IFRS to that comparative period. Most adjustments required on transition to AIFRS will be made, retrospectively, against opening balavces as at 1 August, 2004. The consolidated entity is analysing all the Australian equivalents to IFRS and has identified a number of accounting policy changes that will be required. In some cases choices of accounting policies are available including elective exemptions. The consolidated entity has investments in many listed and unlisted controlled and associated entities. Some of these entities are still analysing choices of accounting policies to determine the appropriate accounting policy. Accordingly, at this time an
21 estimate of the impact of using AIFRS on the financial statements for the year ended 31 July, 2005 cannot be determined. Any adjustments disclosed in this note are based on management’s best knowledge of expected standards and interpretations and current facts and circumstances which may change and are subject to audit. The actual effects may differ because of potential amendments to AIFRS and interpretations being issued by the IASB and the AASB. (i) Investments in Associates - Share of profits from and carrying value of investments in associates will be affected by changes required to be made by those associates. Gains arising from the issue of shares by associates and controlled entities to outside parties will also be impacted. Brickworks Limited has indicated (excluding its investment in this Company) that its operating profit for 2005 will increase by approximately $15 million and total equity by a similar amount. (ii) Business Combinations - On acquisition, assets/liabilities acquired are to be valued at fair value and revalued accordingly. All identifiable intangibles are to be recognised. Internally generated intangibles are to be de-recognised. Any discount on acquisition, after reviewing fair values, will be recognised directly in profit. Currently discounts are offset against non financial assets. (iii) Impairment of Assets - Assets are required to be reviewed annually for an indication of impairment. Where the carrying value of the asset exceeds the recoverable amount, the asset is required to be written down to the recoverable amount. The recoverable amount is determined from the cash generating unit to which it belongs. Where cash flows are used to determine recoverable amounts they are to be discounted. Currently cash flows are not discounted. Analysis of the impairment and identification of cash generating units are still in process. (iv) Amortisation of Goodwill - Goodwill will no longer be amortised but subject to an annual impairment test. Goodwill on acquisition will be re-calculated to de-recognise internally generated intangibles and other intangible assets that do not meet the identifiability criteria. KH Foods Limited in the current year wrote down its goodwill by $8 million. A larger write down may result from the more rigorous impairment test of AIFRS. Total amortisation of goodwill for the Group for 2005 was $5.3 million. (v) Revaluation of Intangibles - Revaluation of intangibles must be based on fair value in an active market. The revaluation of television licence will have to be reversed. This will reduce assets and reserves by $46,953,000. (vi) Income Tax - Deferred tax balances are determined using the balance sheet method which calculates temporary differences based on the carrying amounts of an entity’s assets and liabilities and their associated tax bases. Current and deferred taxes attributable to amounts recognised directly in equity are also recognised directly in equity. Currently deferred tax balances are determined by using the income statement method. This approach will see timing differences recognised for the first time on items such as the carrying value of investments in associates and asset revaluations. The timing differences in respect of the investments in associates is in excess of $70 million. Dividends from associates are generally fully franked. Franking credits available are in excess of the timing differences. As the company is a long term investor, it is considered unlikely there will be any material impact on profits for 2005 or on the financial position at 31 July, 2005. (vii) Financial Instruments - Non current investments are to be recorded at fair value rather than at cost which is currently used.The bid price will be used as the fair value and no adjustment will be made for any costs to be incurred on sale. This will mean a substantial increase in the value of investments as shown in the financial statements, with a corresponding increase in equity. The effect as at 31 July, 2005 will be an increase in assets of $704 million (parent entity $1,681 million),increase in deferred tax liability of $217 million (parent entity $444 million) and an increase in equity of $487 million (parent entity $1,237 million). Revaluations credited to equity will be transferred to profit on the sale of the investment. Loans, receivables and financial liabilities classification will remain unchanged. Measurement of these instruments will be initially at fair value with subsequent measurement at amortised cost using the effective interest rate method. (viii) Share Based Payments - An expense is to be recognised for those options that were issued to employees after 7 November, 2002 and not vested by 1 January, 2005. Currently no expense is recognised. This would reduce profit for 2005 by approximately $620,000. (ix) Foreign Exchange Contracts - The consolidated entity will apply the exemption available under AIFRS and apply the change from 1 August, 2005. Foreign exchange contracts held for hedging purposes will be accounted for as cash flow hedges. Changes in the fair value of those contracts will be recognised directly in equity until the hedged transaction occurs, in which case the amounts recognised in equity will be included in the initial cost of the underlying transaction. This will result in a change in accounting policy by including in assets and liabilities as deferred losses or gains. There will be no affect on profits for 2005. (x) Asset dismantlement, removal and restoration costs - The initial estimate of dismantlement, removal and restoration obligations associated with the retirement or disposal of an asset must be capitalised into the cost of the asset and depreciated over the assets useful life, rather than expensed as currently. (xi) Foreign Currency Reserve - The consolidated entity will apply the exemption allowed under AIFRS so that no impact will occur until the 2006 year. (xii) Revenue Disclosure - The revenue recognised in relation to the sale of non current assets will be the net gain rather than currently the gross proceeds. There will be no impact on profits. (xiii) Research and Development Expenditure - Costs associated with research are to be expensed in the period they occur and not capitalised where it is expected, beyond reasonable doubt, that sufficient future benefits will be derived to recover those capitalised costs. At this time there is not expected to be any impact on profit. (xiv) Non Current Assets held for Sale - Assets held for sale are to be written down to their fair value and classified as current assets. An amount of $233,000 would have been re-classified as current as at 31 July, 2005. (xv) Disclosure of Discontinued Operations - Profits or losses relating to discontinued operations will need to be disclosed on the face of the statement of financial performance, rather than in the notes, as is currently the case. This would affect individual items in the statement of financial performance. The net profit for 2005 would be $8.9 million lower, however,
22 it would be offset by the same amount that was debited directly to Retained Profits under AGAAP. There is no effect on Retained Profits at 2005 year end or on the Financial Position (xvi) Revaluations - Revaluation increments and decrements relating to revalued property, plant and equipment and intangible assets will be recognised on an individual asset basis, not by class of asset basis. No material impact is expected. (xvii) Changes in Accounting Policies - Changes in accounting policies will be recognised by restating comparatives rather than making current year adjustments by note disclosure. 2. In arriving at profit for the year the following items of revenue and expense from ordinary activities have been taken into account. Consolidated Company 2005 2004 2005 2004 $000 $000 $000 $000 (a) Revenue from ordinary activities Sales of goods ...... 318,900 250,268 14,480 16,890 Revenue from services ...... 278,204 142,586 – – Other Revenue – Dividend Income – Associates ...... – – 23,847 21,361 Related Entities ...... – – 27,950 31,443 Other Parties ...... 16,426 11,976 15,416 11,286 Interest Received – Related Entities ...... – – 9 1,089 Other Parties ...... 18,017 5,501 6,419 2,413 Rental Income ...... 1,284 1,485 633 893 Breach of Contract Settlement ...... – 38,785 – – Sundry Income ...... 6,491 9,119 1,169 1,392 From outside operating activities – Sale of Investments ...... 547,027 49,175 181,822 46,285 Sale of Businesses ...... 14,315 11,756 – 5,761 Sale of Land and Buildings ...... 4,696 5,433 7,589 5,433 Sale of Plant and Equipments ...... 1,714 2,908 15 1,082 Gain on Issue of Shares ...... 71,725 – – – Total Revenue ...... 1,278,799 528,992 279,349 145,328 Profit on Sale of Plant and Equipment ...... 1,337 691 14 325 (b) Expenses Cost of Sales ...... 447,100 261,295 41,245 41,401 Selling and Distribution ...... 101,163 79,087 2,310 3,251 Administration ...... 87,823 25,477 2,856 2,915 Property Rental ...... 572 1,829 572 1,061 Borrowing Costs – Directors and Director Related Entities . . . . 549 412 549 412 Other Persons ...... 6,254 7,657 23 19 Total Expenses Including Borrowing Costs . . 643,461 375,757 47,555 49,059
Depreciation – Property ...... 183 372 95 53 – Plant and fixtures ...... 30,892 24,921 317 300 Amortisation – Goodwill ...... 5,339 520 – 50 Mining Reserves and Mine Development . . 5,756 5,108 – – Development Costs ...... 15 95 7 11 Port Development Costs ...... 1,039 1,438 – – Provisions for– Employee Entitlements ...... 5,371 3,372 145 129 Doubtful Debts – Trade Debtors ...... 3,450 81 – – Restructure Costs ...... 4,753 – – – Unearned Revenue ...... – (100) – – Net Foreign Exchange Losses (Gains) . . . . . 616 270 – – Loss on Sale of Plant & Equipment ...... 132 1,154 25 983 Bad Debts Written Off (Net) – Trade Debtors 315 201 – – Rental Expense on Operating Leases ...... 3,526 3,409 39 241 Write Down – Inventory ...... 326 3 – – – Goodwill ...... 8,000 – – –
23 2. (cont.) Consolidated Company 2005 2004 2005 2004 $000 $000 $000 $000 (c) Remuneration of Auditors – Auditing Services – Auditors of Parent Entity ...... 96 70 91 60 Other Auditors ...... 986 439 – – Other Services – Auditors of Parent Entity ...... – 2 – 2 Other Auditors ...... 1,327 938 – 37 (The Auditors received no other benefits)
(d) In arriving at the profit for the year the following non regular items have been taken into account. Profit on Disposal of Land and Buildings .. 4,399 4,410 5,214 4,410 Income Tax applicable ...... 409 333 421 333 3,990 4,077 4,793 4,077
Profit on Disposal of Investments ...... 296,826 24,800 152,958 21,849 Income Tax applicable ...... 33,285 6,364 2,193 6,399 263,541 18,436 150,765 15,450
Profit on Disposal of Business ...... 5,999 5,003 – 2,876 Income Tax applicable ...... 738 439 – 439 5,261 4,564 – 2,437 Settlement for Breach of Coal Handling Contract ...... – 12,417 – – Income Tax applicable ...... – 3,725 – – – 8,692 – –
Restructure Costs ...... (2,493) – – – Income Tax applicable ...... (148) – – – (2,345) _ – – Writedown of Goodwill ...... (4,187) – – – Share of Associates non regular items . . . . . (21,639) 36,982 – – Gain on shares issued by Controlled Entities, Associates ...... 71,725 – – – Income Tax effect of tax consolidation .. . . . – 1,666 – 1,666 Total ...... 316,346 74,417 155,558 23,630
3. INCOME TAX EXPENSE: The aggregate amount of income tax attributable to the financial year differs by more than 15% from the amount of prima facie tax payable on the operating profit. The difference is reconciled as follows:– Operating profit before Income Tax ...... 681,963 234,223 231,794 96,269
Prima facie tax payable at 30% ...... 204,589 70,267 69,538 28,881 Non Taxable Dividends ...... (2,471) (3,041) (17,636) (18,738) Capital Gains not assessable ...... (92,464) (3,580) (44,837) (1,570) Profit of Associates ...... (13,120) (23,547) – – Unutilised Tax Losses ...... 9,299 2,463 – – Gain of issue of shares not taxable ...... (21,518) – – – Sundry Items ...... 4,788 1,382 (204) 82 Effect of entry into Tax Consolidation ...... – (3,997) – (1,666) Prior Year Adjustments ...... (2,295) 1,700 12 (152) Income Tax attributable to operating profit .. . . 86,808 41,647 6,873 6,837
24 4. SEGMENT OPERATIONS (CONSOLIDATED): Revenue Profit After Tax Total Assets Total Liabilities 2005 2004 2005 2004 2005 2004 2005 2004 $000 $000 $000 $000 $000 $000 $000 $000 Primary Reporting Industry Segments Coal Mining 738,443 241,088 443,908 63,795 810,844 373,922 114,538 144,612 Investment 76,029 63,661 40,587 31,582 265,639 245,264 13,395 12,533 Media 81,870 77,118 8,042 7,543 179,546 179,789 63,915 48,393 Telecommunications 149,378 16,968 8,041 5,698 238,113 109,451 128,368 8,477 Bakery 101,064 62,819 (43,574) (8,244) 72,367 55,558 44,539 47,524 Flavours and Fragrances 19,051 12,295 12,366 753 – 15,832 – 3,480 Property 6,820 6,324 4,793 4,207 5,278 8,149 – – Unallocated 112,406 56,922 77,276 8,753 221,023 18,574 56,450 56,698 Associates (Note a) – – 43,743 78,489 429,092 425,295 – – Intersegment (Note b) (6,262) (8,203) – – (2,168) (17,141) (48,094) (19,517) Group Totals 1,278,799 528,992 595,155 192,576 2,219,734 1,414,693 373,111 302,200
Acquisition Non Depreciation/ Other Non Cash Current Assets (Note e) Amortisation Expenditure Coal Mining 19,342 24,439 22,449 22,791 4,645 189 Media 4,718 7,337 3,780 3,599 – 509 Telecommunications 36,392 953 5,430 2,308 2,442 (9) Bakery 31,462 7,054 6,464 2,148 14,815 – Flavours and Fragrances 25 918 60 561 – 167 Property 455 4,295 412 353 – – Unallocated 3,483 529 4,629 1,099 1,360 154 Group Totals 95,877 45,525 43,224 32,859 23,262 1,010
Secondary Reporting Geographical Segments Revenue Acquisition Non Total Assets Current Assets (Note e) Australia 740,376 436,580 63,911 44,488 2,215,810 1,198,208 South East Asia 538,423 92,412 479 1,037 3,924 216,485 Group Totals 1,278,799 528,992 64,390 45,525 2,219,734 1,414,693
Products and Services Coal Mining Coal operations in Australia and South East Asia. Investment Investment in shares and short-term deposits. Media Television advertising and commercial and program production. Telecommunications Licensed carrier and retailer of telecommunication services and products. Bakery Manufacture and sale of bakery products. Flavours and Fragrances Flavours, fragrances, aromatic chemicals and essential oil manufacture. Property Sale and rental of properties.
25 4. SEGMENT OPERATIONS (Cont).: Consolidated 2005 2004 $000 $000 (a) Associates (Refer note 10) Revenue from associates is not included in total Revenue. Total Assets includes the company’s share of associates increase in post acquisition profits and reserves. (b) Split of Intersegment revenue is as follows: Investment – 2,093 Property 1,491 379 Telecommunications 2,416 2,480 Media 1,905 1,928 Unallocated 450 1,323 6,262 8,203 All Intersegment revenue is based on commercial rates (c) Split of net profit available to outside equity interest is as follows: Coal Mining 176,068 36,498 Telecommunications 3,739 2,284 Bakery (23,050) (4,178) Flavours and Fragrances 5,894 249 Media 3,886 – Investment 4,531 221 Unallocated 2,632 1,577 173,700 36,651 (d) Split of non regular items is as follows: Associates (21,639) 36,982 Investment 20,390 18,471 Property 3,990 4,077 Coal Mining 243,151 10,323 Flavours and Fragrances 5,259 – Bakery (6,533) – Unallocated 71,728 4,564 316,346 74,417 (e) Acquisition of non-current assets excludes investments.
5. RECEIVABLES: Consolidated Company 2005 2004 2005 2004 $000 $000 $000 $000 Current: Trade Debtors ...... 101,339 52,391 180 62 Less Provision for Doubtful Debts ...... 7,928 2,265 25 25 93,411 50,126 155 37 Short Term Deposits ...... 691,647 75,587 87,000 42,000 Loans Receivable Secured by Mortgages over Real Estate and other Contracts ...... 96 140 96 140 Loans Receivable Unsecured ...... 150 – – – Amounts Owing by Controlled Entities ...... – – 210 33,191 Hedge Receivable ...... 9,812 5,942 – – Other Amounts Receivable ...... 11,178 8,047 3,775 3,605 806,294 139,842 91,236 78,973
Non-Current: Loans Receivable Secured by Mortgages over Real Estate and other Contracts ...... 177 715 177 715 Loans Receivable – Unsecured ...... 110 538 – – Defered Hedge Receivable ...... 10,458 14,396 – – Other Amounts Receivable ...... 15,470 3,954 – – 26,215 19,603 177 715
Trade Deposits of $Nil (2004 $3,000,000) in the New Hope group have been pledged as security for a loan to a third party.
Short Term Deposits of $1,650,000 (2004 $1,650,000) in the SP Telemedia Group have been pledged as security over bank loans.
26 6. INVESTMENTS - ASSOCIATES: Consolidated Company
2005 2004 2005 2004 $000 $000 $000 $000 Non - Current: Equity Accounted - Listed ...... 398,900 356,707 – – Unlisted ...... 30,192 68,588 – – At Cost - Listed ...... – – 205,442 196,160 Unlisted ...... – – 3,499 6,450 429,092 425,295 208,941 202,610
Market Value of Listed Investments ...... 878,341 827,146 878,341 826,066
7. INVESTMENTS - OTHER: Non - Current: Shares in Other Companies at Cost Listed ...... 209,543 161,056 170,680 153,090 Unlisted ...... 2,101 7,956 275 286 211,644 169,012 170,955 153,376
Shares in Controlled Entities at Cost Listed ...... – – 197,915 84,015 Unlisted ...... – – 7,083 20,209 – – 204,998 104,224 211,644 169,012 375,953 257,600
Market Value of Listed Investments Other Corporations ...... 434,733 326,866 392,599 311,595 Controlled Entities ...... – – 983,493 772,020 Estimated capital gains tax liability of the company’s total listed investments ...... 444,729 385,620 444,093 383,587
8. PARTICULARS RELATING TO CONTROLLED ENTITIES Country of Consolidated Entity’s Incorporation Interest - Ordinary Shares Name of Entity 2005 2004 % % (a) Parent Entity Washington H. Soul Pattinson and Company Limited* Australia
(b) Controlled Entities SP Laboratories Pty. Limited* ...... Australia 100 100 SP Newcastle Pty. Limited* ...... Australia 100 100 SP Runaway Bay Pty. Limited* ...... Australia 100 100 Souls Funds Management Limited + ...... Australia 64.0 50.8 Souls Private Equity Limited ...... Australia 11.8 – PCP Holdings 1 Pty. Limited ...... Australia 11.8 – Geoffrey Hill & Associates Pty. Limited ...... Australia 11.8 – Cromford Pty. Limited ...... Australia 11.8 100 Soda Incorporation Pty. Limited ...... Australia 7.5 – Pitt Capital Partners Limited ...... Australia 53.0 50.0 Corporate & Administrative Services Pty. Ltd...... Australia 40.0 37.5 Pitt Capital Nominees Pty. Ltd...... Australia 53.0 50.0 Rundle Capital Partners Limited ...... Australia 31.8 30.0 Pitt Capital Asia Ltd...... Hong Kong 26.5 –
27 8. PARTICULARS RELATING TO CONTROLLED ENTITIES (Cont.) Country of Consolidated Entity’s Incorporation Interest - Ordinary Shares Name of Entity 2005 2004 % % SP Telemedia Limited ...... Australia 51.0 44.5 Kooee Communications Pty. Limited ...... Australia 21.9 44.5 Soul Pattinson Telecommunications Pty. Limited ...... Australia 51.0 44.5 NBN Enterprises Pty. Limited ...... Australia 51.0 100 NBN Limited ...... Australia 51.0 100 NBN Investments Pty. Limited ...... Australia 51.0 100 NBN Productions Pty. Limited ...... Australia 51.0 100 NBN Holdings Pty. Limited ...... Australia 51.0 100 SPT Com Pty. Limited ...... Australia 25.5 – Kooee Mobile Pty. Limited ...... Australia 51.0 – B Digital Limited ...... Australia 21.9 – B Digital Investments Pty. Limited ...... Australia 21.9 – Digiplus Investments Pty. Limited ...... Australia 21.9 – Digiplus Holdings Pty. Limited ...... Australia 21.9 – Digiplus Pty. Limited ...... Australia 21.9 – Digiplus Limited ...... Australia 21.9 – Digiplus Contracts Pty. Limited ...... Australia 21.9 – Codex Limited ...... Australia 21.9 – Blue Call Pty. Limited ...... Australia 21.9 – New Hope Corporation Limited* ...... Australia 64.2 63.4 Jeebropilly Collieries Pty. Limited* ...... Australia 64.2 63.4 Fowlers Engineering Pty. Limited* ...... Australia 64.2 63.4 Tivoli Coal (Hawaii) Pty. Limited* ...... Australia 64.2 63.4 New Hope Collieries Pty. Limited* ...... Australia 64.2 63.4 Tivoli Collieries Pty. Limited* ...... Australia 64.2 63.4 Andrew Wright Holdings Pty. Limited* ...... Australia 64.2 63.4 Tetard Holdings Pty. Limited* ...... Australia 64.2 63.4 Consolidated Bulk Handling Pty. Limited* ...... Australia – 63.4 P.T. Indonesia Bulk Terminal ...... Indonesia – 31.7 Indonesia Coal Pty. Limited* ...... Australia – 63.4 New Hope Finance Pty. Limited* ...... Australia 64.2 63.4 Thor Earthmovers Pty. Limited* ...... Australia 64.2 63.4 New Hope Energy Pty. Ltd*...... Australia 64.2 63.4 New Oakleigh Coal Pty. Ltd*...... Australia 64.2 63.4 New Hope Exploration Pty. Ltd*...... Australia 64.2 63.4 Seven Mile Coal Pty. Ltd*...... Australia 64.2 63.4 New Acland Coal Pty. Ltd*...... Australia 64.2 63.4 KH Foods Limited ...... Australia 52.2 84.2 (formerly Keith Harris & Co. Limited) Jusfrute Limited* ...... Australia 52.2 58.7 United Beverages Pty. Limited* ...... Australia 52.2 58.7 Redland Industries Pty. Limited* ...... Australia 52.2 58.7 Keith Harris Extracts Pty. Limited* ...... Australia 52.2 58.7 Quotidian No. 115 Pty. Limited* ...... Australia 52.2 58.7 Keith Harris & Co. (Far East) Pte. Ltd...... Singapore – 35.2 Balfours Australia Pty. Ltd*...... Australia 52.2 37.0 Balfours Operations Vic Pty. Limited*...... Australia 52.2 – Balfours Operations NSW Pty. Limited*...... Australia 52.2 – Balfours Operations Pty. Limited*...... Australia 52.2 – Balfours Property Holdings Pty. Limited*...... Australia 52.2 – Balfours NSW Pty. Limited*...... Australia 52.2 – Balfours Wauchope Limited*...... Australia 52.2 – Balfours Pty. Limited*...... Australia 52.2 – Balfours Retail Vic Pty. Limited*...... Australia 52.2 –
* Companies marked with an asterisk are part of a tax consolidation group. + Souls Private Equity Limited has been consolidated on the basis of control of the board of directors and managemant control.
28 9. a) ACQUISITION OF CONTROLLED ENTITIES: During the current year the Company paid $5,000,000 as an initial investment in Souls Private Equity Limited. It has since increased its investment by the sale of investments satisfied by the issue of share capital. The Company has also a c q u i r e d additional shares/exercised options in New Hope Corporation Limited, KH Foods Limited, SP Telemedia Limited and Souls Funds Management Limited. SP Telemedia Limited acquired 43% of B Digital Limited on 21 April, 2005, a transaction which involved the sale of Kooee Communications Pty. Ltd. Souls Private Equity Limited acquired during the year 100% of PCP Holdings 1 Pty. Limited and Geoffrey Hill & Associates Pty. Limited and 63.83% of Soda Incorporation Pty Limited for a total of $7,022,000. On 31 December, 2004 KH Foods Limited acquired the remaining 37% of Balfours Australia Pty. Limited for $4,893,000 through a share swap.
Consolidated Company 2005 2004 2005 2004 Aggregate details of Acquisitions: $000 $000 $000 $000 Total Purchase Price ...... 97,839 7,441 53,985 921 Purchase Price paid in cash ...... 88,180 7,441 53,985 921 Proceeds from Issue of Shares by Controlled Entities . 26,867 – – – Cash held by Acquiree at acquisition ...... 15,740 (2,640) – –
b) DISPOSAL OF CONTROLLED ENTITIES The Company sold its shares in NBN Enterprises Pty. Limited to SP Telemedia Limited and its shares in Cromford Pty. Limited to Souls Private Equity Limited. New Hope Corporation Limited sold its shares in P.T. Indonesia Bulk Terminal and Indonesia Coal Pty. Ltd. during the financial year. Consolidated 2005 2004 10. INVESTMENT IN ASSOCIATES: $000 $000 Share of Associates Retained Profits at beginning of year 166,455 92,381 Share of Associates Retained Profits at the end of year . . 257,008 166,455 Share of Associates Reserves: Asset Revaluation ...... 15,657 12,426 Capital Profit ...... 6,359 6,191 Foreign Currency ...... 1,047 (11,122) 23,063 7,495 Schedule of Movements in Carrying Amount Balance at beginning of the financial year ...... 425,295 349,237 Adjustment from restatement of an Associate as a 1,164 Controlled Entity ...... (1,154) Investments - Acquired ...... 22,472 6,335 Investments - Sold ...... (41,298) – Share of Associates profit before tax ...... 43,960 78,888 Amortisation of Goodwill on Acquisition ...... (217) (399) Dividends from Associates ...... (72,477) (27,814) Share of dividends received by Associate ...... 16,309 23,507 Gain from issue of shares by Associates ...... 34,532 – Share of movements in reserves ...... (1,648) (1,305) Devaluation of Investment ...... 1,000 (2,000) Balance at end of financial year ...... 429,092 425,295 Contingent Liabilities: Share of Associates contingent liabilities- Guarantees ...... 35,148 42,445 Bank Performance Bonds ...... – 6,392 35,148 48,837 Share of Associates capital expenditure commitments 27,698 13,973 Share of Associates operating lease commitments . . . . 4,959 18,320 Share of Associates finance lease commitments ...... 162 111 Joint Venture Entities SPT Telecommunications Pty. Ltd., Kooee Pty. Ltd. and B Shop Telecommunications Pty. Ltd are joint venture entities. Share of Results: Revenue ...... 28,853 26,131 Less Expenses ...... 26,227 19,782 Less Income Tax Expense ...... 820 1,905 Profit / (Loss) ...... 1,806 4,444
29 10. INVESTMENT IN ASSOCIATES (cont.) Consolidated 2005 2004 $000 $000 Share of Assets and Liabilities: Current Assets ...... 6,257 5,428 Non-Current Assets ...... 16,476 10,541 Total Assets ...... 22,733 15,969 Less Current Liabilities ...... 7,871 6,352 Less Non-Current Liabilities ...... 5,889 3,392 Goodwill on Acquisition ...... 3,025 – Carrying Amount ...... 11,998 6,225
Details of Investments in Associates Balance Date Ownership Interest Share of Associates Carrying Amount Balance Date Balance Date Net Profit Company Associate 2005 2004 2005 2004 2005 2004 2005 2004 % % % % $000 $000 $000 $000 Name and Principal Activity Australian Pharmaceutical Industries Limited - Pharmaceutical wholesaler 30th April 21.5 23.2 21.0 23.2 6,441 4,242 125,951 103,843 Brickworks Limited - Manufacture of clay products 31st July 49.5 49.8 49.5 49.8 (2,175) 60,748 264,092 246,994 Clover Corporation Limited - Manufacture and distribution of nutritional supplements 30th June 28.6 28.6 28.6 28.5 2 116 8,857 8,605 InterRisk Australia Pty Ltd - Insurance Broker 30th June – 20.0 – 20.0 – – – 540 Kooee Pty Limited - Reseller of Telecommunication Products 31st July 25.5 22.3 25.5 22.3 264 212 419 222 Pacific Strategic Investments Limited - Investor 30th June – 27.6 – 27.6 – 790 – 5,102 Pitt Capital Partners Asia Limited Investment Advisor 30th June 26.5 25.0 26.5 25.0 – (27) – 110 P.T. Adaro Indonesia- Coal mining 31st July – 25.9 – 25.9 17,024 3,599 – 43,842 Queensland Bulk Handling Pty Ltd - Coal mining 30th June 32.1 31.7 32.1 31.7 627 61 2,946 2,125 Queensland Commodity Exports Pty Ltd - Wood chip handling 30th June 21.4 21.1 21.4 21.1 (15) 52 794 560 Soda Incorporation Pty Limited * Distributor of Skin & Hair Care Products 30th June – 43.4 – 43.4 (13) (335) – 75 SPT Telecommunications Pty Ltd - Telecommunications Carrier 30th June 25.5 22.3 25.5 22.3 1,662 2,219 7,482 3,434 Specialist Oncology Property Pty Ltd - Provision of Medical Services 30th June 3.4 – 3.4 – 70 – 785 – Austgrams Pty Ltd - Distributor of Agricultural Products 30th June 5.7 – 5.7 – 74 – 2,974 – Vindoor Investments (Mauritius) Ltd - Investor 31st July – 25.9 – 25.9 19,992 7,029 – 6,769 Windsor Farm Foods Limited - Food Processing & Distribution 30th June 23.8 23.8 23.8 23.8 (64) (217) 3,553 3,074 B Shop Telecommunications Pty Ltd - Reseller of Telecommunications Products 30th June 25.5 – 25.5 – (120) – 4,097 – Asian Property Investments Ltd - Property Investor 31st May 4.4 – 4.4 – (26) – 1,975 – Hydramatic Engineering Pty Ltd - Manufacture of Mining Equipment 30th June 4.7 – 4.7 – – – 4,000 – Keith Harris & Co (Far East) Pte Limited - Importer & Exporter of Food Products 31st July 25.7 – 25.7 – – – 1,167 – 43,743 78,489 429,092 425,295
* Represents contribution before the entity became a controlled entity.
30 11. JOINT VENTURE OPERATION: A controlled entity has entered into a joint venture operation called Reorganic Energy Swanbank that operates a landfill gas project. The controlled entity has a 33.33% participating interest in the joint venture and is entitled to 33.33% of its output. The consolidated entity’s interest in the assets employed in the joint venture is included in the Statement of Financial Position under the following classifications:- Consolidated 2005 2004 $000 $000 Current Assets: Cash ...... 50 161 Other ...... 318 170 Total Current Assets ...... 368 331 Non-Current Assets: Plant and Fixtures at cost ...... 581 520 Less Accumulated Depreciation ...... 171 105 Total Non-Current Assets ...... 410 415 Total Assets ...... 778 746
12. INVENTORIES: Consolidated Company 2005 2004 2005 2004 $000 $000 $000 $000 Current: Trading shares at lower of cost and market value 8,886 2,880 2,615 1,770 Raw Materials ...... 5,079 8,871 – – Work in Progress ...... 109 63 – – Finished Goods ...... 20,022 8,632 1,103 1,083 34,096 20,446 3,718 2,853 Less Provision for Fluctuation in value of Finished Goods ...... 170 170 170 170 33,926 20,276 3,548 2,683 13. PROPERTY, PLANT AND EQUIPMENT: Current Land - At Cost ...... 238 – – – Buildings - At Cost ...... 2,722 – – – Less Provision for Depreciation ...... 1,051 – – – 1,671 – – – 1,909 – – – Non-Current Land - At Cost ...... 48,325 40,007 413 1,687 Buildings - At Cost ...... 19,473 20,720 3,208 4,597 At Independent valuation 2003 ...... 8,642 – – – Less Provision for Depreciation ...... 3,839 4,426 123 219 24,276 16,294 3,085 4,378 Total Land and Buildings ...... 72,601 56,301 3,498 6,065 Plant, Fixtures & Motor Vehicles: At Cost ...... 344,526 412,757 3,038 2,791 Less Provision for Depreciation ...... 149,130 163,730 1,259 1,117 Total Plant, Fixtures & Motor Vehicles ...... 195,396 249,027 1,779 1,674 Leasehold Equipment - At Cost 1,369 – – – Less Amortisation ...... 78 – – – Total Leasehold Equipment ...... 1,291 – – – Mining Reserves & Leases - At Cost ...... 9,813 9,813 – – Less Amortisation ...... 3,118 1,817 – – Total Mining Reserves & Leases ...... 6,695 7,996 – – Mine Development - At Cost ...... 27,292 41,444 – – Less Amortisation ...... 9,710 19,566 – – Total Mine Development ...... 17,582 21,878 – – Port Development - At Cost ...... – 7,604 – – Port Infrastructure - At Cost ...... – 31,494 – – – 39,098 – – Less Amortisation ...... – 15,593 – – Total Port Development ...... – 23,505 – – Total Property, Plant & Equipment ...... 293,565 358,707 5,277 7,739 Valuation of Land and Buildings: The Market Value of land and buildings excluding land and buildings held for mining (book value) based on independent valuations and movements since at cost was:– Consolidated – $73,159,500 Company – $36,300,000
31 13. PROPERTY, PLANT AND EQUIPMENT (Cont.): Consolidated Company 2005 2004 2005 2004 $000 $000 $000 $000 Reconciliations Land: Carrying amount at beginning of year ...... 40,007 35,766 1,687 2,295 Additions ...... 2,172 5,152 – – Acquisition through entities acquired ...... 6,924 – – – Disposals ...... (778) (911) (1,274) (608) Carrying amount at end of year ...... 48,325 40,007 413 1,687 Buildings: Carrying amount at beginning of year ...... 16,294 14,312 4,378 2,186 Additions ...... (55) 4,289 (98) 3,268 Transfers ...... 11,371 – – – Disposals ...... (2,564) (1,760) (1,100) (1,023) Depreciation ...... (770) (438) (95) (53) Foreign Exchange Differences ...... – (109) – – Carrying amount at end of year ...... 24,276 16,294 3,085 4,378 Plant, Fixtures & Motor Vehicles: Carrying amount at beginning of year ...... 249,027 223,284 1,674 2,694 Additions ...... 77,733 36,175 455 1,027 Transfers ...... (11,371) (1,053) – – Disposals ...... (1,250) (4,967) (26) (1,737) Depreciation ...... (29,252) (24,089) (324) (310) Foreign Exchange Differences ...... (7,784) (7,147) – – Writedown ...... (950) (40) – – Acquisition through entities acquired ...... 6,284 26,864 – – Disposals through entities sold ...... (87,041) – – – Carrying amount at end of year ...... 195,396 249,027 1,779 1,674 Leasehold Equipment: Additions ...... 1,419 – – – Amortisation ...... (128) – – – Carrying amount at end of year ...... 1,291 – – – Mining Reserves & Leases: Carrying amount at beginning of year ...... 7,996 9,064 – – Amortisation ...... (1,301) (1,068) – – Carrying amount at end of year ...... 6,695 7,996 – – Mine Development: Carrying amount at beginning of year ...... 21,878 24,624 – – Additions ...... 158 1,296 – – Amortisation ...... (4,454) (4,042) – – Carrying amount at end of year ...... 17,582 21,878 – – Port Development and Infrastructure: Carrying amount at beginning of year ...... 23,505 27,639 – – Additions ...... – 85 – – Disposals ...... (69) (8) – – Disposals through entities sold ...... (19,589) – – – Amortisation ...... (1,842) (2,391) – – Foreign Exchange Differences ...... (2,005) (1,820) – – Carrying amount at end of year ...... – 23,505 – –
14. INTANGIBLES: Television Licence at Directors’ Valuation . . . . 124,939 124,939 – – Goodwill ...... 117,804 7,531 – – Less Amortisation ...... 2,607 521 – – 115,197 7,010 – – 240,136 131,949 – –
32 15. TAX ASSETS: Consolidated Company 2005 2004 2005 2004 $000 $000 $000 $000 Non Current: Future Income Tax Benefit ...... 25,483 13,262 2,740 4,640 16. OTHER ASSETS: . Current: Prepayments ...... 7,247 6,937 87 410 Non-Current: Development Costs ...... 559 2,358 – – Less Amortisation ...... – 967 – – 559 1,391 – – Capitalised Subscriber Costs ...... 48,099 – – – Less Amortisation ...... 23,474 – – – 24,625 – – – 25,184 1,391 – – 17. ACCOUNTS PAYABLE: Current: Trade Creditors and Accrued Expenses ...... 114,844 40,473 2,142 2,050 Amounts owing to controlled entities ...... – – 81 21,132 Deferred Exchange Gains ...... 9,812 5,942 – – Other Amounts Payable ...... – 13,519 – – 124,656 59,934 2,223 23,182 Non-Current: Deferred Exchange Gains ...... 10,458 14,396 – –
18. INTEREST BEARING LIABILITIES: Current: Bank Loans – Secured ...... 2,979 41,369 – – Other Loans – Secured ...... 8 9,372 – – – Unsecured – directors ...... 13,019 8,201 13,019 8,201 – other ...... 1,569 352 376 352 Lease Liabilities ...... 543 133 – – 18,118 59,427 13,395 8,553 Non-Current: Bank Loans – Secured ...... 34,500 11,400 – – Other Loans – Secured ...... 11,628 36,021 – – – Unsecured ...... 13,614 11,317 – – Lease Liabilities ...... 269 8 – – 60,011 58,746 – –
Loans are secured by a fixed and floating charge over the assets, uncalled capital and undertakings of various entities in the economic entity. The Company accepts deposits from Directors and Director related entities under normal commercial arrangements and consistent with deposits received from other parties. 19. PROVISIONS: Current: Proposed Dividends (Note 1x) ...... 23,864 23,864 23,864 23,864 Employee Entitlements ...... 16,309 12,169 470 446 Restructure ...... 3,000 1,552 – – Other ...... 1,171 – – – Unearned Revenue ...... 2,766 – – – 47,110 37,585 24,334 24,310 Non-Current: Proposed Dividends (Note 1x) ...... – 23,864 – 23,864 Employee Entitlements ...... 9,647 8,546 704 736 Television License Fee ...... 1,224 1,285 – – 10,871 33,695 704 24,600 Aggregate Employee Entitlement Liability . . . . . 25,956 20,715 1,174 1,182 Number of Employees at year end ...... 2,130 1,303 86 83
33 20. TAX LIABILITIES:: Consolidated Company 2005 2004 2005 2004 $000 $000 $000 $000 Current Income Tax ...... 68,256 14,036 3,095 1,621 Non-Current: Deferred Income Tax ...... 22,208 14,537 6,146 6,051
21. OTHER LIABILITIES: Current Restoration Costs accrued (Note 1f) ...... 1,946 824 – – Non-Current: Deferred Revenue ...... 353 – – – Restoration Costs accrued (Note 1f) ...... 9,124 9,020 – – 9,477 9,020 – –
22. CONTRIBUTED EQUITY: Share Capital: 238,640,580 – (2004 – 238,640,580) Ordinary Shares Issued and Fully Paid ...... 32,900 32,900 32,900 32,900
The number of shares held by associates - 102,257,830 (2004 - 102,257,830)
23. RESERVES: General ...... 405,775 404,020 402,206 400,452 Capital ...... 14,930 15,698 – – Asset Revaluation ...... 61,743 63,493 288 2,042 Foreign Currency ...... 6,956 (3,524) – – 489,404 479,687 402,494 402,494 Material Movements to: General Reserve: From Asset Revaluation Reserve ...... 1,755 26 1,754 26 Capital Reserve: Adjusting discount on acquisition of controlled entities ...... (927) – – – Share of Associates increment ...... 159 – – – Foreign Currency Reserve: Net exchange difference on translation of controlled entities ...... (7,550) (1,275) – – Transfer from Retained Profits ...... 8,940 – – – Net exchange difference on translation in associates ...... 834 (46) – – Equity adjustment ...... 8,256 – – – Asset Revaluation Reserve: Revaluation increments - Television Licence ...... (2,547) 49,500 – – - in associates ...... 2,552 674 – – Nature and Purpose of Reserves General Reserve Amounts allocated from Retained Profits as reserved for the future general needs of the operations of the entity. Capital Reserve This reserve represents amounts allocated from Retained Profits that were profits of a capital nature. Where appropriate it is intended to transfer the balance to General Reserve. Asset Revaluation Reserve This Reserve includes net revaluation increments and decrements arising from the revaluation of non-current assets. Upon the disposal of revalued assets, any related revaluation increment standing to the credit of the asset revaluation reserve is transferred to capital/general reserve. The reserve relates to asset previously revalued now deemed to be at cost in adopting accounting standard AASB1041. Foreign Currency Reserve The foreign currency reserve records the foreign currency differences arising from the translation of self-sustaining foreign operations.
34 24. RETAINED PROFITS: Consolidated Company 2005 2004 2005 2004 $000 $000 $000 $000 Retained Profits at Beginning of the Financial Year 354,922 266,160 33,726 34,978 Current Year Profit ...... 421,455 155,925 224,921 89,432 Equity Adjustment ...... 6,900 – – – Dividends paid or provided for (Note 25a) ...... (36,192) (67,163) (52,501) (90,684) Transfer to Reserve ...... (8,940) – – – Retained Profits at the end of the Financial Year . . . 738,145 354,922 206,146 33,726
25. DIVIDENDS a) Paid or Provided for: Final dividend 2004 12 cents (2003 - 10 cents) fully franked at tax rate of 30% ...... 28,637 23,864 28,637 23,864 Interim dividend 10 cents (2004 - 8 cents) fully franked at tax rate of 30% ...... 23,864 19,092 23,864 19,092 Proposed special dividends (2004 - 20 cents) fully franked at tax rate of 30% ...... – 47,728 – 47,728 Share of Dividends Received by Associate ...... (16,309) (23,521) – – 36,192 67,163 52,501 90,684 b) Recommended (Note 1x) Recommended final dividend 15 cents (2004 - 12 cents) fully franked at tax rate of 30% ...... 35,796 28,637 35,796 28,637 Additional special dividend 5 cents fully franked at tax rate of 30% 11,932 – 11,932 – 47,728 28,637 47,728 28,637 Balance of franking accounts at year end adjusted for franking credits arising from payment of income tax and dividend provisions ...... 154,481 121,046 125,317 104,930
26. OUTSIDE EQUITY INTERESTS: Consolidated 2005 2004 $000 $000 Contributed Equity ...... 358,641 125,422 Reserves ...... 209,710 9,566 Retained Profits ...... 17,823 109,996 586,174 244,984 27. FINANCIAL INSTRUMENTS: (a) Credit Risk Exposure The credit risk on financial assets of the economic entity which has been recognised in the Statement of Financial Position, other than investments in shares, is generally the carrying amount net of any provision for doubtful debts. For financial instruments not included in the Statement of Financial Position, including derivatives which are deliverable, credit risk also arises from the potential failure of counterparties to meet their obligations under the respective contracts at maturity. A material exposure arises from forward exchange contracts and the economic entity is exposed to loss in the event that the counterparties fail to deliver the contracted amount. At balance date an amount of $136,136,000 (Australian dollar equivalents) (2004 - $133,422,000) is receivable. The economic entity transacts across a range of industries and operates predominately in Australian and South East Asia. It is not materially exposed to an individual customer apart from that disclosed in Note 32. (b) Foreign Exchange Risk Certain controlled entities are parties to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuations in the foreign exchange rates. The Australian originated export sales revenue of the New Hope Corporation Limited economic entity is denominated in United States Dollars. In order to protect against adverse rate movements, a proportion of the anticipated revenue of future financial periods has been sold under forward exchange contracts. The contracts are timed to mature to match expected US$ revenue streams. At balance date details of outstanding contracts in Australia were: Sell US Dollars Buy Australian Dollars Average Exchange Rate 2005 2004 2005 2004 $000 $000 Maturity 0 to 6 Months 23,681 30,149 0.63343 0.67995 6 to 12 Months 30,897 37,345 0.61494 0.60250 1 to 2 Years 39,937 32,047 0.62599 0.53048 2 to 5 Years 41,621 33,881 0.69677 0.56078
35 27. FINANCIAL INSTRUMENTS (Cont.) As these contracts are hedging anticipated future sales, any unrealised gains and losses on these contracts, together with the costs of contracts, are deferred and will be recognised in the measure of underlying transactions. Included in the amounts deferred are any gains and losses on hedging contracts terminated prior to maturity where the related hedge transaction is still expected to occur. The net unrecognised gain relating to these contracts at 31st July, 2005 is $20,270,000 (2004 $20,338,000). (c) Interest Rate Exposure Exposure arises predominately from assets and liabilities bearing variable interest rates as the economic entity intends to hold fixed interest rate assets and liabilities to maturity. Financial assets consist of cash, receivables and investments as shown in the Statement of Financial Position. Investments are principally of a non interest bearing nature, short-term deposits have maturities between 11am and 180 days. Interest rates on cash at bank and short term deposits range from 3.8% and 7.0%. Debtors are generally non interest bearing. Loans receivable have a maximum period of 10 years and are based on bank bill or bank loan base rates. Financial liabilities consist of creditors, bank overdraft and loans as shown in the Statement of Financial Performance. Creditors are non interest bearing. Loans 2005 2004 2005 2004 $000 $000 Weighted average % Weighted average % Interest Rate Interest Rate Floating Interest rate ...... 13,394 33,224 5.0 5.7 Fixed Interest Maturities Less than 1 year ...... 4,224 39,005 6.9 2.2 1 to 5 years ...... 60,011 58,746 7.4 6.8 Non Interest Bearing ...... 500 737 – – 78,129 131,712 2005 2004 $000 $000 Reconciliation to Statement of Financial Position Other Loans -Current Note 18 18,118 59,447 -Non Current Note 18 60,011 58,746 Other Amounts Payable -Current Note 17 – 13,519 78,129 131,712
(d) Net Fair Value of financial assets and liabilities The net fair value of cash and cash equivalents and non interest bearing monetary financial assets and financial liabilities for the economic entity approximate their carrying value. The net fair value of other monetary financial assets and financial liabilities is based on a review of the current carrying value of assets and liabilities and the assessment of the value reported by the economic entity. Listed investments are valued at cost and the market value is disclosed in Notes 6 and 7.
28. COMMITMENTS AND CONTINGENT LIABILITIES A. Superannuation Commitments The Economic Entity participates in a number of superannuation funds, most of which were established and are sponsored by the Economic Entity. The funds provide benefits either on a defined benefit or cash accumulation basis for employees or their dependents on retirement, resignation, disablement or death. The funds provide benefits in the form of lump sum payments. The Economic Entity and employee members make contributions as specified in the rules of the respective funds. Although the Economic Entity is committed to make contributions to the various funds some obligations are not legally enforceable except in respect of the provision of defined benefits. Estimate of Maximum Amount Consolidated Company 2005 2004 2005 2004 B. Capital Expenditure Commitments $000 $000 $000 $000 Estimated capital expenditure contracted for at balance date but not provided for, payable – Not later than one year ...... 2,190 2,642 – – – One year or later and no later than five years . . . . . – – – –
2,190 2,642 – –
36 28. COMMITMENTS AND CONTINGENT LIABILITIES (Cont.): Estimate of Maximum Amount Consolidated Company 2005 2004 2005 2004 C. Lease Commitments $000 $000 $000 $000 (i) Operating Leases: Amount due within one year ...... 5,217 3,004 – – Amount due later than one year, not later than five years ...... 13,863 6,737 – – Amount due later than five years ...... 5,000 1,627 – – 24,080 11,368 – – The consolidated entity leases property under operating leases expiring from one to ten years. Leases generally provide the consolidated entity with a right of renewal at which time all terms are negotiated. Lease payments comprise a base amount plus an incremental contingent rental. Contingent rentals are based on either movements in the Consumer Price Index or operating criteria. (ii) Finance Leases: Including as lease liabilities are the present values of future rentals for leased assets capitalised Current ...... 1,236 133 – – Non Current ...... 3,258 8 – – Total 4,494 141 – – Finance Lease Commitments: Amount due within one year ...... 1,414 133 – – Amount due later than one year, not later than five years ...... 3,981 8 – – Amount due later than five years ...... – – – – 5,395 141 – – Less Future finance charges ...... 901 – – – 4,494 141 – – The consolidated entity leases production plant and equipment under finance leases expiring from one to three years. At the end of the lease term the consolidated entity has the option to purchase the equipment at a price deemed to be a bargain purchase option. Some leases involve lease payments comprising a base amount plus an incremental contingent rental. Contingent rentals are based on the Consumer Price Index
D. Contingent Liabilities: (a) Secured by a charge on the Economic Entity’s Assets. (i) The Parent Entity has provided a guarantee and indemnity to National Australia Trustees Limited, secured by an Equitable Mortgage over certain Investments, for the provision of finance amounting to US$100 million by National Australia Bank Limited and Banque Nationale de Paris to P.T. Indonesia Bulk Terminal for the construction of the coal loading facility at Pulau Laut. Outstanding principal and – – – 25,221 interest accrued as at 31st July, 2005...... (ii) Undertakings and guarantees issued by a Controlled Entity’s bankers to Department of Minerals & Energy, Statutory Power Authorities and various other entities ...... 9,768 8,085 – – (iii) A controlled entity has given security in respect of a loan to a third party ...... – 10,115 – – (b) Not secured by a charge on the Economic Entity’s Assets. (i) Bank Guarantees issued in the normal course of business 4,836 2 – – (ii) Multiple drawdown revolving loan facility to a controlled entity...... 1,000 1,000 1,000 1,000 (iii) In addition to the above, legal actions against members of the Economic Entity are outstanding which are not provided for in the Financial Statements. They are being defended, liability denied and no loss is expected ...... – – – – 15,604 19,202 1,000 26,221 NO LOSSES ARE ANTICIPATED IN RESPECT OF ANY OF THE ABOVE CONTINGENT LIABILITIES
37 `29. DIRECTORS AND EXECUTIVE DISCLOSURES Specified Directors The names of persons who were Directors of Washington H. Soul Pattinson and Company Limited during the financial year are: Mr. R.D. Millner - Non-executive Chairman Mr. M.J. Millner - Non-executive Deputy Chairman Mr. P.R. Robinson - Executive Director Mr. G.L. Robertson - Executive Director Mr. D. J. Fairfull - Executive Director Specified Executives Mr. R.C. Neale - General Manager, New Hope Corporation Limited Mr. D. Ledbury - Managing Director, SP Telemedia Limited Mr. J. Eather - General Manager, NBN Limited Mr. M. Simmons - General Manager, SP Telemedia Limited Mr. D.J. Taig - Managing Director, KH Foods Limited Director and Executive Remuneration Disclosures In accordance with the Corporations Amendment Regulations 2005 (No. 4) the Company has transferred the remuneration disclosures required by AASB1046 from the notes to the financial statements to the Directors’ Report under the heading “Remuneration Report”. Equity instrument disclosures relating to specified directors and specified executives Ordinary Share holdings Received on Rights Balance at Acquired Sold Balance at Name exercise of entitlement start of year during year during year end of year options taken-up Shares in Washington H. Soul Pattinson and Company Limited Specified Directors R.D. Millner 16,002,355 171,670 16,174,025 M.J. Millner 15,637,335 171,670 15,809,005 P.R. Robinson 74,210 74,210 G.L. Robertson 160,000 160,000 D.J. Fairfull 60,000 60,000 Specified Executives R.C. Neale 4,000 4,000 D. Ledbury 30,000 10,000 20,000 J. Eather 13,200 13,200 M. Simmons – 4,400 4,400 Shares in New Hope Corporation Limited Specified Directors R.D. Millner 1,941,357 192,930 2,134,287 M.J. Millner 50,000 1,800 51,800 P.R. Robinson 30,000 24,357 3,000 57,357 G.L. Robertson 9,033,000 382,485 901,750 10,317,235 D.J. Fairfull 10,000 10,000 Specified Executives R.C. Neale 5,000 5,000 J. Eather 5,000 5,000 M. Simmons – 10,000 10,000 Shares in SP Telemedia Limited Specified Directors R.D. Millner 1,051,557 1,051,557 M.J. Millner 1,022,557 1,022,557 P.R. Robinson 115,556 115,556 G.L. Robertson 970,667 970,667 D.J. Fairfull 144,445 144,445 Specified Executives D. Ledbury 202,223 22,000 224,223 J. Eather 108,500 108,500 M. Simmons 90,716 45,323 45,393 Shares in B Digital Limited Specified Executives D. Ledbury 50,000 50,000 J. Eather 37,500 37,500 M. Simmons 33,000 33,000 Shares in Pitt Capital Partners Limited Specified Directors D.J. Fairfull 500,000 500,000 Shares in Souls Private Equity Limited Specified Directors R.D. Millner 81,842 81,842 M.J. Millner 79,310 79,310 D.J. Fairfull 8,300,001 8,300,001 Specified Executives D.J. Taig 66,576 66,576
38 29. DIRECTORS AND EXECUTIVE DISCLOSURES (Cont.) Options holdings Granted/ Balance at Acquired Exercised Sold Balance at Name start of year during year during year during year end of year Options in New Hope Corporation Limited Specified Directors R.D. Millner 194,136 192,930 1,206 M.J. Millner 1,800 1,800 – P.R. Robinson 3,000 3,000 – G.L. Robertson 9,662,750 901,750 8,761,000 D.J. Fairfull 1,000 1,000 Specified Executives R.C. Neale 1,200,500 1,200,500 J. Eather 500 500 M. Simmons 1,000 1,000 Options in SP Telemedia Limited Specified Directors - P.R. Robinson 8,000 8,000 D.J. Fairfull 10,000 10,000 Specified Executives D. Ledbury 4,000 4,000 Options in Souls Private Equity Limited Specified Directors - R.D. Millner – 6,730 6,730 M.J. Millner – 9,914 9,914 D.J. Fairfull – 1,018,750 1,018,750 Specified Executives D.J. Taig – 8,322 8,322
Other Transactions The Directors and their related entities received dividends during the year in respect of their shareholdings in the Group consistent with other shareholders. Unsecured deposits are accepted from Directors and their related entities and interest is paid at normal commercial rates. The aggregate amounts of interest paid for the year and the balance of deposits on hand and the end of the year are disclosed in Notes 2 and 18 respectively. Deposits were received from: R.D. Millner, M.J. Millner, P.R. Robinson and/or their related entities. Loans made to Mr. D. Ledbury and Mr. J. Eather, specified executives, at balance date amounted to $219,000. and are interest free. No repayments were made during the financial year and the loan balances are offset against the specified executives’ accrued retirement benefits. Mr. G.L. Robertson was a Director during the year. His father is Governing Director of Farjoy Pty. Ltd. New Hope Corporation Limited and some its controlled entities have transactions with Farjoy Pty. Ltd. which include payment of dividends and repayment of loans. Mr. G.L. Robertson has an interest in an entity which has had transactions with a controlled entity. These transactions are for the reimbursement of costs. All transactions are based on normal commercial terms and conditions. Mr. D.J. Fairfull owns 12.5% of Pitt Capital Partners Limited (PCP) and is a joint Managing Director. During the current financial year PCP provided the following services to other companies in the Economic Entity:- 1. Washington H. Soul Pattinson & Co. Limited $175,000 (2004 $319,438) for investment portfolio services. 2. KH Foods Limited $210,000 (2004 $800,000) for services in respect of acquisition of a controlled entity. 3. SP Telemedia Limited $3,480,000 (2004 $200,000) for services in respect of acquisition of controlled entities and rights issue. 4. Souls Private Equity Limited $2,599,877 (2004 Nil) for services in respect of the IPO. 5. New Hope Corporation Limited $5,250,140 (2004 Nil) for services in respect of the sale of its international coal assets. 6. Souls Funds Management Limited $27,500 for management fees (2004 Nil). Mr. R.D. Millner is the Chairman and Mr. P.R. Robinson is a Director of Pitt Capital Partners Limited which is a 53% owned controlled entity of Washington H. Soul Pattinson & Co. Limited Washington H. Soul Pattinson & Co. Limited charged PCP $198,367 for the provision of office furniture and fittings and $99,600 for rental of office space in its own premises and received Management Fees 2004 $825,000. PCP paid Washington H. Soul Pattinson & Co. Limited $10,000 (2004 $16,000) for sub underwriting fees. Richvale Pty. Ltd., an entity related to Mr. D.J. Fairfull, received $NIL (2004 $348,500) from PCP for management fees Souls Funds Management Limited received $266,388 (2004 Nil) from PCP for management fees.
39 30. NOTES TO THE STATEMENTS OF CASH FLOWS: Consolidated Company 2005 2004 2005 2004 Inflows Inflows Inflows Inflows (Outflows) (Outflows) (Outflows) (Outflows) $000 $000 $000 $000 Reconciliation of Net Cash Inflow from Operating Activities to Operating Profit After Income Tax Operating profit after income tax ...... 595,155 192,576 224,921 89,432 Gains on non-current assets ...... (530,561) (35,933) (158,172) (29,134) (Profit)/Loss on Sale of Plant and Equipment . . (295) 455 11 658 Income tax in accounts ...... 86,808 41,647 6,873 6,837 Income tax paid ...... (28,239) (27,752) (1,733) (525) Depreciation and amortisation ...... 43,214 33,018 419 410 Net foreign exchange (loss) ...... (2,551) (122) – – Partnership income ...... (2,882) (2,499) – – Amounts set aside to provisions ...... 12,783 2,522 145 206 Amounts paid direct from provision ...... (165) (777) (153) (696) Share of profit of associates not received as dividends ...... 6,351 (47,042) – – Changes in operating assets and liabilities . . . . . (Increase)/Decrease in debtors ...... 6,210 4,839 14,002 (7,327) (Increase)/Decrease in inventories ...... (11,386) 7,991 (866) 3,097 (Increase)/Decrease in prepayments ...... 1,870 1,043 323 (252) Increase/(Decrease) in creditors ...... 7,130 1,269 25 (7,910) Net Cash Provided by Operating Activities . . . . . 183,442 171,235 85,795 54,796
Reconciliation of Cash Cash at the end of the financial year as shown in the Statement of Cash Flows is reconciled to the Statement of Financial Position as follows: Cash ...... 119,039 128,419 3,478 2,067 Short term deposits (Note 5) ...... 665,385 75,587 87,000 42,000 Balance as per Statement of Cash Flows ...... 784,424 204,006 90,478 44,067
Financing Facilities The economic entity has access to facilities as follows: Bank overdraft ...... 1,000 1,000 1,000 1,000 Loan facilities ...... 55,100 56,995 – – Bank loan facilities ...... 29,750 87,514 – – Guarantees ...... – 2,000 – –
Unused at balance date: Bank overdraft ...... 1,000 1,000 1,000 1,000 Loan facilities ...... 14,867 13,249 – – Bank loan facilities ...... 22,736 30,144 – – Guarantees ...... – 135 – – Facilities may be drawn at any time in either Australian or United States Currency and may be payable on demand. They are subject to review on a regular basis. Interest rates on facilities are both fixed and variable. Non Cash Financing and Investing Activities Share swap to purchase minority interests ...... 4,559 – – –
40 31. RELATED PARTIES The ultimate holding company is Washington H. Soul Pattinson and Company Limited (a) Controlled Entities Information related to controlled entities is set our in Note 8. Transactions between the parent entity and its wholly owned or partly owned controlled entities and between related entities are at normal commercial rates except that there may be no fixed terms for repayment of loans. Transactions consist of the transfer of funds for day to day financing, the sale of goods and services, loans advanced and repaid, interest and dividend payments, rent, advisory and management fees. The Company has a loan agreement with Pitt Capital Partners Limited to provide a loan facility of up to $1 million. No amount has so far been advanced. Souls Private Equity Limited has a loan agreement with Soda Incorporation Pty. Limited to provide a loan facility of up to $750,000 of which $700,000 has been advanced at balance date. (b) Associates Australian Pharmaceutical Industries Limited is the major supplier of products to the Company’s pharmacy The Company received dividends from Brickworks Limited, Australian Pharmaceutical Industries Limited and Clover Corporation Limited. KH Foods Limited loaned $142,000 to its associate Keith Harris & Co. (Far East) Pte. Limited which was a controlled entity until 12 December, 2004. Souls Funds Management Limited received advisory fees totalling $1,130,369 from associates. The aggregate amount of transactions between New Hope Corporation Limited Group and its associates were as follows::
Consolidated 2005 2004 $000 $000 Handling and Commission Expense 6,501 6,351 Handling and Commission Revenue 31,427 40,869 Interest Received 15 28 Management and service fees received 1,436 1,102 Partnership income received 2,882 2,499 Loan advanced 2,882 2,499 Repayment of loans advanced 2,950 2,550 All transactions are based on normal commercial terms and at market rates. All loans are expected to be repaid within 12 months of advance.
32. ECONOMIC DEPENDENCY: NBN Limited acquires the majority of the television programs it broadcasts from the NINE Network pursuant to a program supply agreement. The agreement expires in June, 2007. The B Digital Limited Group has a service provider agreement with Optus Mobile Pty. Limited for the supply of mobile services for Digiplus customers which expires on 30 January, 2007 and for the supply of mobile services for B mobile customers that expires in February, 2009. The agreement is fundamental to the continued operations of the B Digital Group.
33. DISCONTINUING OPERATION Coal Mining Segment On 7 February, 2005 New Hope Corporation Limited announced it had entered into a Conditional Sale and Purchase Agreement for the disposal of its 40.83% interest in the PT Adaro coal mine in Indonesia, its 50% interest in PT Indonesia Bulk Terminal and its 40.83% interest in Vindoor Investments (Mauritius) Limited. Settlement of the transaction occurred on 22 June, 2005. Flavours and Fragrances Segment On 21 January, 2005 KH Foods Limited announced the execution of sale agreements that effect the sale of its Flavours and Fragrances business. The sale included assets comprising Plant and Equipment and Inventory and the Leave Provision liability. KH Foods Limited retained ownership of and collected all trade debtors and settled all trade creditors as at 31 January, 2005. The business was sold on 31 January, 2005.
41 33. DISCONTINUING OPERATION (Cont.)
Financial information relating to the discontinuing operation for the period to date of disposal is set out below:- Coal Mining Flavours & Juice Fragrances 2005 2005 2004 $000 $000 $000 Details of Sale Consideration Received ...... 521,751 14,315 5,995 Less Liabilities extinguished ...... 26,887 – - Less Carrying Amount of Net Assets disposed ...... 82,348 2,853 3,280 Less Cost of Sale ...... 6,431 – – Less Tax on Sale ...... 39,455 – - Gain on Sale 366,630 11,462 2,715
Statement of Financial Performance Revenue ...... 538,137 19,051 15,665 Share of Profits of Assocoates ...... 36,441 – – Less Expenses ...... 111,543 6,685 12,339 Profit 463,035 12,366 3,326 Cash Flow Information Cash inflow from operating activities ...... 13,631 970 2,023 Cash inflow from investing activities ...... 488,569 14,315 5,995 Cash (outflow) from financing activities ...... (23,200) – – Net Increase in Cash Generated 479,000 15,285 8,018
42 WASHINGTON H. SOUL PATTINSON AND COMPANY LIMITED A.B.N. 49 000 002 728
DIRECTORS’ DECLARATION
In the opinion of the Directors of Washington H. Soul Pattinson and Company Limited:
(a) the financial statements and notes, set out on pages 16 to 42 are in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the financial position of the Company and consolidated entity as at 31st July, 2005 and of their performance as represented by the results of their operations and their cash flows, for the year ended on that date, and
(ii) complying with Accounting Standards in Australia and the Corporations Regulations 2001, and
(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.
(c) The directors have been given the declarations required by section 295A of the Corporations Act 2001 from the Executive Director and Financial Controller for the year ended 31 July, 2005
Signed in accordance with a resolution of the Board of Directors, for and on behalf of the Board by:
R.D. Millner Director
P.R. Robinson Director
Dated at Sydney this 12th day of October, 2005.
43 44 45 WASHINGTON H. SOUL PATTINSON AND COMPANY LIMITED
SHARE REGISTER INFORMATION As at 1st October, 2005 there were 7,409 holders of ordinary shares in the Company. Votes of Members - Article 24.4 of the Company’s Constitution provides - Subject to any rights or restrictions attached to any share or class of shares in respect of voting, and subject to these Articles, on a show of hands every member has the right to vote and every member present in person or by proxy or attorney, and each authorised representative of a corporation, at a general meeting shall have one vote and in the case of a poll every member present in person or by proxy or attorney and every authorised representative of a corporation shall have (a) one vote for each fully paid share held by that member, and (b) for each contributing share held by that member a fraction of a vote equivalent to the proportion which the amount paid up bears to the total issue price for the share.
DISTRIBUTION OF SHAREHOLDERS AS AT 1st OCTOBER, 2005.
Size of Number of Number of Shareholding Shareholders Shares 1 - 1,000 2,082 1,368,153 1,001 - 5,000 3,410 9,272,370 5,001 - 10,000 927 7,307,652 10,001 - 100,000 898 23,583,763 100,001 - and over 92 197,108,642 TOTAL 7,409 238,640,580
Holding less than a marketable parcel 23 319
Substantial shareholders as at 1st October, 2005 as disclosed by notices received by the Company were: No. of Shares % Brickworks Limited 102,257,830 42.85 Perpetual Trustees Australia Limited 30,152,750 12.64
LIST OF TOP 20 SHAREHOLDERS AS AT 1st OCTOBER, 2004. No. of Shares % Brickworks Limited 102,257,830 42.85 RBC Global Services Australia Nominees Pty. Ltd. (Pipooled A/c) 18,816,515 7.88 Dixson Trust Pty Limited 8,438,190 3.54 J S Millner Holdings Pty Limited 6,974,460 2.92 Milton Corporation Limited 4,713,150 1.97 Choiseul Investments Limited 4,251,690 1.78 RBC Global Services Australia Nominees Pty. Ltd. (PIIC A/c) 3,688,006 1.55 T G Millner Holdings Pty Limited 3,092,920 1.30 Perpetual Trustee Company Limited 2,855,398 1.20 Hexham Holdings Pty Limited 2,710,090 1.14 Cogent Nominees Pty Limited 2,614,390 1.10 J P Morgan Nominees Australia Limited 2,535,305 1.06 Mr James Sinclair Millner 2,347,697 0.98 Westpac Custodial Nominees Limited 1,887,083 0.79 National Nominees Limited 1,788,866 0.75 Citicorp Nominees Pty Limited 1,334,385 0.56 Dixson Trust Pty Limited (No 1 A/c) 1,332,200 0.56 AMP Life Limited 1,304,140 0.55 Argo Investments Limited 1,147,507 0.48 Farjoy Pty Limited 1,121,854 0.47
AUSTRALIAN STOCK EXCHANGE LISTING Washington H. Soul Pattinson and Company Limited shares are listed on the Australian Stock Exchange and trade under the ASX code SOL
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